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Friday, May 17, 2013

legality of an order passed by the Joint Registrar of the Cooperative Societies, Sagar Division, Sagar, M.P., superseding the Board of Directors of District Cooperative Central Bank Ltd., Panna without previous consultation with the Reserve Bank of India, as provided under the second proviso to Section 53(1) of the Madhya Pradesh Cooperative Societies Act, 1960= In such circumstances of the case, we are inclined to dismiss both the appeals with costs directing re-instatement of the first respondent Board of Directors back in office forthwith and be allowed to continue for the period they were put out of office by the impugned order which has been quashed. We also direct the State of Madhya Pradesh to pay an amount of Rs.1,00,000/- to the Madhya Pradesh Legal Services Authority within a period of one month by way of costs and also impose a cost of Rs.10,000/- as against the Joint Registrar, Co-operative Societies, Sagar, the officer who passed the order, which will be deducted from his salary and be deposited in the Panna DCB within a period of two months from today. Ordered accordingly. Further, we are inclined to give the following general directions in view of the mushrooming of cases in various Courts challenging orders of supersession of elected Committees: (1) Supersession of an elected managing Committee/Board is an exception and be resorted to only in exceptional circumstances and normally elected body be allowed to complete the term for which it is elected. (2) Elected Committee in office be not penalised for the shortcomings or illegalities committed by the previous Committee, unless there is any deliberate inaction in rectifying the illegalities committed by the previous committees. (3) Elected Committee in Office be given sufficient time, say at least six months, to rectify the defects, if any, pointed out in the audit report with regard to incidents which originated when the previous committee was in office. (4) Registrar/Joint Registrar are legally obliged to comply with all the statutory formalities, including consultation with thePage 34 34 financing banks/Controlling Banks etc. Only after getting their view, an opinion be formed as to whether an elected Committee be ousted or not. (5) Registrar/ Joint Registrar should always bear in mind the consequences of an order of supersession which has the effect of not only ousting the Board out of office, but also disqualify them for standing for election in the succeeding elections. Registrar/Joint Registrar therefore is duty bound to exercise his powers bona fide and not on the dictation or direction of those who are in power. (6) Registrar/Joint Registrar shall not act under political pressure or influence and, if they do, be subjected to disciplinary proceedings and be also held personally liable for the cost of the legal proceedings. (7) Public money not to be spent by the State Government or the Registrar for unnecessary litigation involving disputes between various factions in a co-operative society. Tax payers money is not expected to be spent for settling those disputes. If found necessary, the same be spent from the funds available with the concerned Bank


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REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 4691 OF 2013
[Arising out of SLP (C) No. 6860 of 2012]
State of M.P. and Others .. Appellants
Versus
Sanjay Nagayach and Others .. Respondents
WITH
CIVIL APPEAL NO. 4692 OF 2013,
(Arising out of SLP (Civil) No. 13125 of 2012]
J U D G M E N T
K. S. RADHAKRISHNAN, J.
Leave granted.
1. We are, in this case, concerned with the legality of an
order passed by the Joint Registrar of the Cooperative Societies,
Sagar Division, Sagar, M.P., superseding the Board of Directors
of District Cooperative Central Bank Ltd., Panna without
previous consultation with the Reserve Bank of India, as
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provided under the second proviso to Section 53(1) of the
Madhya Pradesh Cooperative Societies Act, 1960 [for short ‘the
Act’].
2. The Board of Directors of the Bank challenged the above
mentioned order on various grounds, including the ground of
violation of the second proviso to Section 53(1) of the Act that
is non-consultation with the Reserve Bank of India [RBI] before
taking a decision to supersede the Board of Directors.
The
order was challenged by the Board of Directors by filing a writ
petition before the High Court of Madhya Pradesh, Jabalpur
Bench. Learned single Judge of the High Court disposed of the
writ petition directing the parties to avail of the alternative
remedy provided under Section 78 of the Act.
But on appeal,
the Division Bench of the High Court set aside the order of
supersession dated 30.9.2011 on the ground of non-compliance
of the second proviso to section 53(1) of the Act. 
Aggrieved by
the same, the State of M.P., through its Principal Secretary,
Department of Co-operation, the Commissioner Cum
Registrar, Co-operative Societies, Bhopal and the Joint
Registrar, Co-operative Societies, Sagar, have come up with
Civil Appeal No. ......... of 2013 [arising out of SLP No. 6860
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of 2012] and a private party filed Civil Appeal No. ........... of
2013 [arising out of SLP No. 13125 of 2012] challenging the
judgment of the High Court dated 13.2.2012, followed by lot of
intervening applications.
3. As the question of laws involved in both the above
mentioned appeals are common, we are disposing of both the
appeals by a common judgment.
Facts and Arguments
4. The Board of Directors of the Bank was elected to Office
on 16.10.2007 and while in office they were served with a
show-cause-notice dated 2.3.2009 issued by the Joint Registrar,
Co-operative Societies under Section 53(2) of the Act
containing 19 charges.
 Detailed replies were sent by the Board
of Directors on 6.5.2009 and 16.5.2011 stating that most of the
charges levelled against them were related to the period of the
previous Committee and the rest were based exclusively on an
Audit Report dated 25.9.2008. It was pointed out that the
Board of Directors on receipt of the Audit report took necessary
action and a communication dated 5.12.2008 was sent to the
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Branch Managers of Primary Societies to take immediate followup action on the basis of the Audit report. After filing the
detailed reply, nothing was heard from the Joint Registrar but
due to political pressure and extraneous reasons after two and
half years of the show cause notice, an order of supersession
was served on the Board, followed by the appointment of an
Administrator in gross violation of the second proviso to Section
53(1) of the Act.
5. Dr. Abhishek M. Singhvi, learned senior advocate
appearing for the State, submitted that the High Court was not
justified in interfering with the order of supersession passed by
the Joint Registrar, while an alternative remedy was available
under Section 78 of the Act by way of an appeal before the Cooperative Tribunal.
 Learned senior counsel placed reliance on
the judgments of this Court in Harbanslal Sahnia and
Another v. Indian Oil Corpn. Ltd. and Others (2003) 2 SCC
107, United Bank of India v. Satyawati Tondon and
Others (2010) 8 SCC 110 and Om Prakash Saini v. DCM
Ltd. and Others (2010) 11 SCC 622. Learned senior
counsel also submitted that the Division Bench of the High
Court has not correctly appreciated the scope of the second
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proviso to Section 53(1) of the Act. Learned senior counsel
also pointed out that the Joint Registrar has forwarded the
show-cause notice dated 23.2.2009 along with other materials
to RBI seeking its views on the proposed action of supersession
and the RBI through its communications dated 17.4.2009,
3.6.2009 and 8.12.2009 had only directed the Joint Registrar to
indicate RBI of the action taken against the Board of Directors.
Consequently, the Joint Registrar was only required to inform
the RBI of the action taken against the Board of Directors.
Learned senior counsel also submitted that the charges levelled
against the Board of Directors were of serious nature and the
order of supersession was passed bona fide and in public
interest and the Division Bench of the High Court was not
justified in interfering with the order of supersession.
6. Shri V. K. Bali, learned senior counsel appearing for the
appellants in Civil Appeal No. ........... of 2013 [arising out of
SLP No. 13125 of 2012], also submitted that the charges
levelled against the Board of Directors were of serious nature
and there was sufficient materials to establish those charges
and the Joint Registrar has rightly passed the order of
supersession and appointed the Collector, Panna as an
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Administrator of the Bank. Learned senior counsel also pointed
out that the Joint Registrar had forwarded the show-causenotice
as well as the connected materials to RBI and RBI had
failed to respond to the show-cause-notice within 30 days of
the receipt of the same and, therefore, it would be presumed
that RBI had agreed to the proposed action and the Joint
Registrar had rightly passed the order of supersession. Shri
Mahavir Singh, learned senior counsel appearing for the
Interveners also submitted that the High Court has committed
an error interfering with the order of supersession and, in any
view, if any of the parties were aggrieved, they ought to have
availed of the alternate remedy available under the Act.
7. Shri Vivek Tankha, learned senior counsel appearing for
the 1st respondent, submitted that the High Court has correctly
understood the scope of the second proviso to Section 53(1) of
the Act and rightly came to the conclusion that before passing
the order of supersession, there should be a meaningful
consultation with the RBI, therefore, the consultee could apply
its mind and form an independent opinion as to whether the
Board be superseded or not. Learned senior counsel submitted
that merely forwarding the show cause notice along with other
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relevant materials is not sufficient compliance of the second
proviso to Section 53(1) of the Act, so held by the Madhya
Pradesh High Court in several judgments. Learned senior
counsel submitted that the order of supersession was passed
by the Joint Registrar after a period of two and half years of the
issuance of the show-cause-notice and most of charges levelled
against the Board of Directors were related to the period when
the previous Committee was in office and even the charges
based on the Audit Report dated 25.9.2008 were also rectified
by the Board of Directors by addressing the primary societies.
Learned senior counsel also submitted that the order was
passed at the instance of respondents 2 and 3 herein on
extraneous considerations and was actuated by mala fide and
ulterior motive. Learned counsel submitted that the Joint
Registrar had acted under the political pressure and was not
exercising his powers in accordance with the provisions of the
Act and the order of supersession was passed to disqualify the
members of the Board of Directors from contesting the ensuing
election. Learned senior counsel prayed that the Board of
Directors be put back in office and be allowed to continue for
the period they were put out of office illegally.
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8. We heard learned counsel on either side at great length.
When the matter came up for hearing before us on 17.10.2012,
we passed the following order, the operative portion of which
reads as under:
“We are informed that the period of the Managing
Committee is already over and District Collector is
acting as the Administrator of the Cooperative Bank
vide this Court’s order dated 23.02.2012. However,
the legality of the order has to be tested. Before that
we feel it appropriate to place the entire material
before the Reserve Bank of India (for short, ‘RBI’)
(Respondent NO. 7) for its opinion as per Section 53 of
the Act. The RBI will take a final decision on that within
a period of two months and forward the opinion to the
Secretary General of this Court, who will place it before
the Court.”
RBI submitted its detailed report on 18.12.2012, in pursuance to
the order passed by this Court. RBI, referring to the second
proviso to Section 53(1) of the Act, took the view that the socalled consultation made by the Joint Registrar cannot be
treated as previous consultation, as per law. RBI, after
examining all the documents made available by the Joint
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Registrar including the show-cause-notice, reply filed by the
Board of Directors opined as follows:
(i) The JRCS has alleged that Panna DCCB has not
deducted tax on the interest paid to the depositors.
In terms of the CBDT circular No. 9/2002 dated 11-9-
2002 tax is deductible at source from any payment of
income by way of interest other than income by way
of interest on securities. Clause (v) of sub-section (3)
of section 194A exempts such income credited or
paid by a co-operative society to a member thereof
from requirement of TDS. Clause (viia) of sub-section
(3) of section 194A exempts from the requirement of
TDS such income credited or paid in respect of
deposits (other than time deposits made on or after
1-7-1995) with a co-operative society engaged in
carrying on the business of banking. It is not clear
from observation of JRCS, Panna that the interest
accrued and paid was time deposit or saving bank
deposit account made after 01.07.1995.
(ii) The amount collected as VAT was not remitted to the
Government.
VAT is not applicable to the banking transactions.
Hence collection itself is not correct.
(iii) In terms of Audit para 21 of Audit Report for the FY
ended 2000-01, Panna DCCB in the year June 1997,
without the approval of PACS’ Committee had stored
pesticides. These medicines expired on December 98
and August 99. Despite expiry, stock of medicines
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worth Rs.16.28 lakh was left over which could not be
sold in the market. The amount should have been
recovered from the employees of the bank.
As per the reply furnished by the bank, the present
Board of Directors had initiated the process of
recovery of dues of which the major portion of
outstanding dues has already been recovered. The
bank is effecting recovery from its 39 employees
through monthly deductions of Rs.500 to Rs1000.
(iv) In terms of Audit para 32 of Audit Report for the FY
ended 2000-01, an outstanding amount of Rs23200/-
to be recovered from cashier Shri D.L. Tiwari is still
pending for recovery.
It is seen from the records that the bank has initiated
disciplinary proceedings against the erring employees
besides filing a recovery suit with Civil Court, Powai.
(v) In terms of Audit para 16 of Audit Report for the FY
ended 2000-01, Shri Jawaharlal Srivastav, Manager of
Laxmipur PACs had committed fraud of Rs.20.93 lacs
thereby misappropriated the bank’s funds. He has
been removed from services and an amount of
Rs.36,637/- has been recovered from his claims.
Bank vide its letter dated 15.02.2002 has written to
Kotwali Police Panna to register the case. No action
has been initiated by the present Board in the matter.
The Bank has already registered a case against Shri
Jawaharlal Srivastav. However, it appears from the
records and reply furnished by the bank that no
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effective steps were taken after 15.02.2002 to lodge
FIR in the matter. Even the present Board of
Directors apparently has not taken any effective
steps after it took over during the end of 2007.
(vi) In terms of Audit para 23 of Audit Report for the FY
ended 2000-01, reconciliation of entries in the books
of accounts of DCCB Panna was pending and it has
not been resolved.
Non-reconciliation of books by DCCB Panna is an
operational risk which has also been pointed out by
NABARD in its inspection reports for the FY 2008-
2009 and 2010-2011. Therefore, the compliance
submitted by the bank does not appear to be
satisfactory.
(vii) In terms of Audit para 13 of Audit Report for the FY
ended 2003-04, fraud in respect of 37 Managers to
the tune of Rs.43.34 lakh was mentioned and the
cases are still pending. 27 Employees have been
terminated from the services. Case against only one
employee has been registered with police and the
bank has not registered the cases against 27
employees.
From the records made available to us, we do not
observe any monitoring by JRCS, on the issue during
the intervening period. It is evident that this matter
was being discussed in the Board meetings of the
present Board, some amount was already recovered,
disciplinary action against the erring employees have
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been taken and the legal proceeding initiated against
them is also pending.
(viii) As mentioned in Audit Report for the FY ended 2006-
07, rectification of audit objections is not satisfactory.
No action was taken on most of the audit objections
and compliance submitted by the management is
mere eyewash.
Compliance to Audit Report is an ongoing process
which needs to be monitored on a continuous basis.
The table showing the allegations of the JRCS Panna,
comments of Panna DCCB and the observation of RBI
is enclosed herewith and marked as Exhibit – IX.
RBI, therefore, took the view that the deficiencies pointed out in
the show-cause-notice were general in nature and did not
warrant the supersession of the Board of Directors. RBI,
however, opined that it would be desirable that new election of
the Board of Directors be conducted in accordance with the
provisions of the Act and the Management of the Bank be
handed over to the newly elected body by the present
administrator.
Legal Framework
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9. The validity of the order of supersession has to be tested
under the legal framework in which the Cooperative Bank and
its controlling authorities have to function under the Act read
with the provisions of the Reserve Bank of India Act, 1934 (for
short ‘RBI Act’), the Banking Regulation Act, 1949 (for short
‘Regulation Act’), the Banking Law (Application to Cooperative
Societies) Act, 1965 (23 of 1976), the Deposit Insurance and
Credit Guarantee Corporation Act, 1961 (for short ‘DICGC Act’),
the National Bank for Agricultural and Rural Development Act,
1981 (for short ‘NABARD Act’) etc. Since the order impugned
results in the supersession of a body elected to achieve social
and economic democracy with emphasis on weaker sections of
the society, as the preamble of the Act depicts, a close look at
the powers of the functionaries instrumental in over-turning an
elected body is of paramount importance.
10. Co-operative philosophy on society must rest on free
universal association, democratically governed and conditioned
by equity and personal liberty. First legislation in India relating
to cooperative societies was the Co-operative Societies Act,
1904, established for the purpose of credit only, but to extend
the privilege of credit societies to other societies also a
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legislation with wider scope and object, that is Cooperative
Societies Act 1912, was passed which was applicable to the
whole of British India, which was a Central Act. Later, after
independence different States enacted separate Acts of which
we are in this case concerned with the 1960 Act in force in the
State of Madhya Pradesh.
11. We find, until the year 1965, the Cooperative Banks were
not being regulated by the RBI but it was felt necessary to bring
the cooperative societies carrying on the business of banking
within the purview of the Regulation Act. Since, large number
of cooperative societies were carrying on the banking business,
and also to ensure the growth of cooperative banking on sound
banking principles, the Parliament enacted the Act 23 of 1965,
called the Banking Law (Application to Cooperative Societies)
Act, 1965 and Part IV was introduced into the
Regulation Act w.e.f. 1.3.1966. Section 55 of Part V provides for
the application of the Regulation Act to Cooperative Banks.
Any existing co-operative bank at the time of the
commencement of the Act 23 of 1965 was required to apply
grant of license within a period of three months from the date of
the commencement of the Act and obtain a license from RBI
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under Section 22 of RBI Act. Every co-operative bank is also
obliged to comply with the provisions of the Regulation Act and
directions/guidelines issued by RBI from time to time.
12. We may, in this connection, refer to certain provisions of
the DICGC Act which also confers certain powers to the RBI to
supersede the committee of the management of the cooperative Bank in public interest. The Act has been enacted to
provide for the establishment of a Corporation for the purpose
of insurance deposits and guaranteed credit facilities for allied
purposes. Section 3 of the Act has empowered the Central
Government to establish the Deposit Insurance Corporation, a
wholly owned subsidiary of RBI. Section 2(gg)(iii) of DICGC Act
states that “eligible co-operative bank” means a co-operative
bank, the law for the time being governing, which provides that:
“2(gg)(iii) If so required by the Reserve Bank of India
in the public interest or for preventing the affairs of the
bank being conducted in a manner detrimental to the
interest of the depositors or for securing the proper
management of the bank, an order shall be made for
the supersession of the committee of management or
other managing body (by whatever name called) of the
bank and the appointment of an administrator therefor
for such period or periods not exceeding five years in
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the aggregate as may from time to time be specified by
the Reserve Bank.”
RBI never thought it necessary to invoke the above mentioned
provision as against the first respondent. NABARD Act has been
enacted to provide and regulate credit facilities and for other
related and individual matters. Section 3 of the Act has
empowered the Central Government to establish such a
National Bank, i.e. NABARD. Section 35 of the Regulation Act
empowers the RBI to conduct inspection of the affairs of a
banking company. RBI has also got the power under Subsection (b) of Section 35 of the Regulation Act to authorise
NABARD to conduct inspection of the District Cooperative Bank.
13. Section 2(d) of the NABARD Act defines the term “Central
Co-operative Bank”. NABARD in exercise of the powers
conferred on it, is also authorised to conduct inspection on the
affairs of District Co-operative Banks.
14. We will now examine the scope of Section 53 of the Act,
especially the second proviso to Section 53(1) of the Act, in the
light of the above discussion. Section 53 relevant to our
purpose is given below:
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“53. Supersession of Board of Directors- (1) If in
the opinion of the Registrar the Board of Directors of
any society-(a) is negligent in the performance of the
duties imposed on it by or under this Act or byelaws of
the society or by any lawful order passed by the
Registrar or is unwilling to perform such duties; or
(b) commits acts which are prejudicial to the
interests of the society or its members; or
(c) violates the provisions of this Act or the
rules made thereunder or byelaws of the society or any
order passed by the Registrar. The Registrar may, by
order in writing remove the Board of Directors and
appoint a person or persons to manage the affairs of
the society for a specified period not exceeding two
years in the first instance:
Provided that if in opinion of the Registrar, the
Board of Directors of any Primary Agriculture Credit Cooperative Society-
(i) incurs losses for three consecutive years; or
(ii) commits serious financial irregularities or
fraud is identified; or
(iii) there is perpetual lack of quorum in the
meetings of the Board of Directors.
The Registrar may, by order in writing remove the
Board of Directors an appoint a person or persons to
manage the affairs of the society for two months which
may be extended by him for such period not exceeding
six months for reasons to be recorded in writing:
Provided further that in case of Co-operative
Bank, the order of supersession shall not be passed
without previous consultation with the Reserve Bank;
Provided further that if no communication
containing the views of the Reserve Bank of India on
action proposed is received within thirty days of the
receipt by that bank of the request soliciting
consultation, it shall be presumed that the ReservePage 18
18
Bank of India agree with the proposed action and the
Registrar shall be free to pass such order as he may
deem fit.
Provided also that if a non-official is appointed in
the Board of Directors of a primary society, he shall be
from amongst the members of that society, entitled for
such representation and in case of central or Apex
society, if a person is appointed in the Board of
Directors of such society, he shall be a member of one
of its affiliated societies entitled for such
representation.
(2) No order under sub-section (1) shall be
passed unless a list of allegations, documents and
witnesses in support of charges levelled against it has
been provided and the Board of Directors has been
given a reasonable opportunity of showing cause
against the proposed order and representation, if any,
made by it, is considered.
xxx xxx xxx
xxx xxx xxx
(7) Before taking action under sub-section (1) in
respect of a financing bank or in respect of a society
indebted to a financing bank, the Registrar shall
consult, in the former case, the Madhya Pradesh State
Co-operative Bank Limited and, in the latter case, the
financing bank, counterved regarding such action. If
the Madhya Pradesh State Co-operative Bank Limited or
the financing bank, as the case may be, fails to
communicate its views within thirty days of the receipt
by such bank of the request soliciting consultation, it
shall be presumed that the Madhya Pradesh State Cooperative Bank Limited or the financing bank, as the
case may be, agreed with the proposed action.”
Section 53 (1) confers powers on the Registrar to pass an order
to remove the Board of Directors and to appoint a person to
manage the affairs of the society, subject to certain conditions,
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of which, we are primarily concerned with the applicability of
the second proviso to Section 53(1), which specifically states
that in the case of a Co-operative Bank, the order of
supersession shall not be passed without previous consultation
with the RBI. The third proviso to Section 53 states that if no
communication containing the views of the RBI on the action
proposed is received within thirty days of the receipt by that
bank of the request soliciting consultation, it shall be presumed
that the RBI agreed with the proposed action and the Registrar
shall be free to pass such order, as he may deem fit. Subsection (2) to Section 53 of the Act specifically states that no
order under Sub-section (1) (order of supersession) shall be
passed unless a list of allegations, documents and witnesses in
support of charges levelled against it has been provided and
the Board of Directors has been given a reasonable opportunity
of showing cause against the proposed order and
representation, if any, made by it, is considered. The second
proviso to Section 53 (1) refers to the expression “order of
supersession”, means that the final order of supersession to be
passed by the Joint Registrar after complying with sub-section
(2) to Section 53. Second and third provisos, read together,
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would indicate that no order of supersession shall be passed
without previous consultation with the RBI. Before passing an
order of supersession, the show-cause-notice along with other
relevant materials, including the reply received from the bank,
has to be made available to the RBI for an effective
consultation.
15. We have already quoted the second proviso to Section
53(1), the meaning of which is clear and unambiguous which, in
our view, calls for no interpretation or explanation. In this
respect, reference to the often quoted principle laid down by
Tindal, C.J. in Sussex Peerage case (1844) 11 CIT F.85 is useful,
which reads as follows: “If the words of the Statute are in
themselves precise and unambiguous, then no more can be
necessary than to expound those words in the natural and
ordinary sense.” Reference may also be made to the
judgments of this Court in Lalu Prasad Yadav and Another
v. State of Bihar and Another (2009) 3 SCC 553 and Ansal
Properties and Industries Limited v. State of Haryana
and Another (2010) 5 SCC 1.Page 21
21
16. The mere serving a copy of the show-cause-notice on RBI
with supporting documents is not what is contemplated under
the second proviso to Section 53(1). For a meaningful and
effective consultation, the copy of the reply filed by the Bank to
the various charges and allegations levelled against them
should also be made available to the RBI as well as the action
proposed by the Joint Registrar, after examining the reply
submitted by the Bank. On the other hand, RBI should be told
of the action the Joint Registrar is intending to take. Only then,
there will be an effective consultation and the views expressed
by the RBI will be a relevant material for deciding whether the
elected Board be superseded or not. In other words, the
previous consultation is a condition precedent before forming
an opinion by the Joint Registrar to supersede the Board of
Directors or not.
17. This Court in Indian Administrative Services (SCS)
Association, U.P. v. Union of India 1993 Supp (1) SCC 730,
has laid down six propositions while examining the meaning of
the expression ‘consultation’. We may add one more
proposition that when the outcome of the proposed action is to
oust a democratically elected body and the expression used is
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“shall not be passed without previous consultation”, it is to be
construed as mandatory. Reference may also be made to the
judgments of this Court in Reserve Bank of India v. Peerless
Company (1987) 2 SCR 1, State of Jammu and Kashmir v.
A.R. Zakki and Others 1992 Supp (1) SCC 548, Gauhati
High Court and Another v. Kuladhar Phkan and Another
(2002) 4 SCC 524, Andhra Bank v. Andhra Bank Officers
and Another (2008) 7 SCC 203.
Discussion
18. District Cooperative Bank, Panna (for short ‘Panna DCB”),
a Bank registered under the Act, was issued a license to
conduct the banking services in India by RBI on 3.6.2010 under
Section 22 of the Regulation Act. Panna DCB is a Central Cooperative Bank as defined under Sub-section 2(d) of NABARD
Act. NABARD had conducted an inspection of the Panna DCB
under Section 35 of the Regulation Act, with reference to the
financial position as on 31.3.2007, when the previous Board was
in office and thirty six fraud cases at Primary Agricultural Credit
Societies (PACS) involving Rs.37.05 lacs had been reported.
Certain deficiencies in the bank’s functioning, like non-
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adherence to the provisions of the Income Tax Act, lack of
internal checks and control systems and unsatisfactory
compliance to their previous inspection report, had also found a
place in their inspection report, the copy of which was
forwarded to the RBI vide their communication dated 1.2.2008.
19. The Joint Registrar, Co-operative Societies, as already
stated, issued a notice to Panna DCB to show cause as to why
the Board of Directors be not superseded and an Administrator
be appointed. The show-cause-notice was sent to the RBI,
which RBI received on 4.3.2009. RBI vide its letter dated
17.4.2009 requested the Joint Registrar to inform the action
being taken on the reply submitted by the Board of Directors of
Panna DCB. RBI vide its letter dated 30.3.2009 forwarded the
copy of the show-cause-notice to the Chief General Manager,
NABARD for their comments. Since, NABARD had conducted
inspection of Panna DCB under Section 35 of the Regulation Act,
NABARD vide its letter dated 29.6.2009 informed the same to
the RBI and also opined as follows:
“..... We are of the view that the deficiencies mostly
relating to systems and procedures are of general
nature, which do not provide strong ground for
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supersession of the Board as far as the inspection by
NABARD is concerned.”
20. RBI, again, vide its letter dated 3.6.2009 wrote to the Joint
Registrar to inform RBI the outcome of the reply submitted by
the Bank to the show-cause-notice. RBI, then sent a reminder
on 22.7.2009 to the Joint Registrar, since no reply was received.
RBI, it is seen has received a reply from the Joint Registrar on
10.8.2009. RBI, then sent a communication to the Joint
Registrar vide its letter dated 8.5.2009 to know the action taken
on the reply submitted by the Board of Directors. The Joint
Registrar then sent a detailed reply dated 19.8.2009 to the RBI
stating that in the case of a Co-operative Bank, order of
supersession would not be issued without previous consultation
with RBI, however, if no communication containing the views of
RBI on the action was received within 30 days, it should be
presumed that the RBI had agreed to the proposed action and
the Registrar would be free to pass orders as might be deemed
fit. It was further stated that in the case of District Co-operative
Bank, the powers under Section 53(2) of the Act are vested with
the Regional Joint Registrar and notice issued by the Joint
Registrar was not sent for the opinion of the State Government.
Page 25
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Further, it was also pointed out that the Bank had submitted its
reply on 8.5.2009 and internal decision would be taken as per
the legal provisions and RBI would be informed accordingly.
Yet, another letter dated 24.12.2009 was also received by the
RBI, wherein it was stated that the hearing was going on and
the RBI would be informed of the final decision. Later, without
informing the RBI of the proposed action and also without
forwarding the reply submitted by Panna DCB to the showcause-notice to RBI, the order of supersession dated 30.9.2011
was passed by the Joint Registrar.
21. We find seven charges levelled against the Board of
Directors were relating to the period of the previous Committee,
for which the first respondent Board of Directors could not be
held responsible. Further, even though the Board had taken
charge in October 2007, the audit report was submitted before
the Board only after nine months and that the Board of
Directors took follow up action on the basis of the audit report
dated 25.9.2008. The Joint Registrar, it seems, was found to be
satisfied with the detailed replies dated 6.5.2009 and
16.5.2011submitted by the Board of Directors of the Bank,
possibly, due to that reason, even though the show-cause-
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notice was issued on 22.3.2009, it took about two and half
years to pass the order of supersession.
22. We are of the view that the order of supersession dated
30.9.2011 is not only in clear violation of the second proviso to
Section 53(1) of the Act, but also the allegations raised in the
show-cause-notice are deficiencies mostly relating to systems
and procedures and are of general nature and not grave
enough to overthrow a democratically elected Board of
Directors. Both NABARD and RBI have expressed the view that
the charges levelled against the Board of Directors do not
provide strong ground to supersede the Board.
23. Learned senior counsel Shri Vivek Tankha submitted that
since the Board of Directors was superseded illegally, they, be
put back in office and allow to continue, for the period they
were put out of office. We find force in that contention,
especially in view of the views expressed by NABARD as well as
RBI and the fact that the Joint Registrar himself had passed the
order of supersession only after two and half years of the date
of issuance of the show-cause-notice.
24. The legislative intention is clear from the following
statutory provisions. The statute has fixed the term of an
Page 27
27
elected Board of Directors as five years from the date on which
first meeting of Board of Directors is held. Once a Board of
Directors is illegally superseded, suspended or removed, the
legislature in its wisdom ordained that the Board should
complete their full term of five years, because electorate has
elected the Board for five years.
The proviso to Section 49(7A)
(i) reads as follows:
“7A(i) The term of the Board of Directors shall
be five years from the date on which first meeting of
the Board of Directors is held:
Provided that where a Board of Directors
superseded, suspended or removed under the Act is
reinstated as a result of any order of any Court or
authority, the period during which the Board of
Directors remained under supersession, suspension out
of office, as the case may be, shall be excluded in
computing the period of the term aforesaid.”
25. The Board of Directors, in the instant case, took charge on
16.10.2007, therefore, they could continue in office till
15.10.2012. The Board of Directors was, however, superseded
illegally on 30.9.2011 and, by virtue of the judgment of the
Division Bench of the High Court dated 13.2.2012, the Board
should have been put back in office on 13.2.2012, but an
Administrator was appointed. Going by the proviso referred to
above, the period during which the Board of Directors remained
Page 28
28
under supersession be excluded in computing the period of five
years. In the facts and circumstances of this case, we are of
the considered opinion that the duly elected Board of Directors
should get the benefit of that proviso, which is statutory in
nature.
26. In such circumstances, we direct the Joint Registrar, Cooperative Societies, Sagar to put the Board of Directors back in
office so as to complete the period during which they were out
of office.
27. The High Court, in our view, has therefore rightly exercised
its jurisdiction under Article 226 of the Constitution and the
alternative remedy of appeal is not bar in exercising that
jurisdiction, since the order passed by the Joint Registrar was
arbitrary and in clear violation of the second proviso to Section
53(1) of the Act.
28. We are of the view that this situation has been created by
the Joint Registrar and there is sufficient evidence to conclude
that he was acting under extraneous influence and under
dictation. A legally elected Board of Directors cannot be put
out of the office in this manner by an illegal order. If the
Page 29
29
charges levelled against the Board of Directors, in the instant
case, were serious, then the Joint Registrar would not have
taken two and half years to pass the order of supersession.
State of Madhya Pradesh did not show the grace to accept the
judgment of the Division Bench of the High Court and has
brought this litigation to this Court spending huge public
money, a practice we strongly deprecate.
Registrar/Joint Registrar and External Influence:
29. Statutory functionaries like Registrar/Joint Registrar of Cooperative Societies functioning under the respective Cooperative Act must be above suspicion and function
independently without external pressure. When an authority
invested with the power purports to act on its own but in
substance the power is exercised by external guidance or
pressure, it would amount to non-exercise of power, statutorily
vested. Large number of cases are coming up before this Court
and the High Courts in the country challenging the orders of
supersession and many of them are being passed by the
statutory functionaries due to external influence ignoring the
fact that they are ousting a democratically elected Board, the
consequence of which is also grave because the members of
Page 30
30
the Board of Directors would also stand disqualified in standing
for the succeeding election as well.
30. The Registrar/Joint Registrar, while exercising powers of
supersession has to form an opinion and that opinion must be
based on some objective criteria, which has nexus with the final
decision. A statutory authority shall not act with pre-conceived
notion and shall not speak his masters’ voice, because the
formation of opinion must be his own, not somebody else in
power, to achieve some ulterior motive. There may be
situations where the Registrar/Joint Registrar are expected to
act in the best interest of the society and its members, but in
such situations, they have to act bona fide and within the four
corners of the Statute. In our view, the impugned order will not
fall in that category.
Judicial Precedents
31. Registrar/Joint Registrar is bound to follow the Judicial
Precedents. Ratio decidendi has the force of law and is binding
on all statutory authorities when they deal with similar issues.
The Madhya Pradesh High Court in several judgments has
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31
explained the scope of the second proviso to Section 53(1) of
the Act. Reference may be made to the judgments in
Radheshyam Sharma v. Govt. of M.P. through C.K.
Jaiswal and Ors. 1972 MPLJ 796, Board of Directors of Shri
Ganesh Sahakari Vipnan (Marketing) Sanstha Maryadit
and Another v. Deputy Registrar, Co-operative
Societies, Khargone and Others1982 MPLJ 46 and Sitaram
v. Registrar of Co-operative Societies and another 1986
MPLJ 567.
32. We fail to see why the Joint Registrar has overlooked those
binding judicial precedents and the ratio decidendi. Judicial
rulings and the principles are meant to be followed by the
statutory authorities while deciding similar issues based on the
legal principles settled by judicial rulings. Joint Registrar, while
passing the impugned order, has overlooked those binding
judicial precedents.
33 We fail to notice why the State Government, Department
of Co-operative Societies has taken so much interest in this
litigation. Joint Registrar in his letter dated 19.8.2009 to RBI
stated that in the case of District Co-operative Bank, the powers
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32
under Section 53(2) of the Act are vested with Regional Joint
Registrar and the notice issued by the Joint Registrar is not
meant for the opinion of the State Government. Assuming, the
State Government has powers under Section 49-C of the Act, no
report has been forwarded by the Registrar to the State
Government and no direction have been issued by the State
Government with regard to the supersession of the Board.
Sorry so note that the State Government has spent huge public
money by litigating this matter even up to this Court, that too,
without following the binding precedents of the Madhya Pradesh
High Court on the scope of the second proviso to Section 53(1)
of the Act.
34. In such circumstances of the case, we are inclined to
dismiss both the appeals with costs directing re-instatement of
the first respondent Board of Directors back in office forthwith
and be allowed to continue for the period they were put out of
office by the impugned order which has been quashed. We also
direct the State of Madhya Pradesh to pay an amount of
Rs.1,00,000/- to the Madhya Pradesh Legal Services Authority
within a period of one month by way of costs and also impose a
cost of Rs.10,000/- as against the Joint Registrar, Co-operative
Page 33
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Societies, Sagar, the officer who passed the order, which will be
deducted from his salary and be deposited in the Panna DCB
within a period of two months from today. Ordered accordingly.
35. Further, we are inclined to give the following general
directions in view of the mushrooming of cases in various
Courts challenging orders of supersession of elected
Committees:
(1) Supersession of an elected managing Committee/Board is
an exception and be resorted to only in exceptional
circumstances and normally elected body be allowed to
complete the term for which it is elected.
(2) Elected Committee in office be not penalised for the shortcomings or illegalities committed by the previous Committee,
unless there is any deliberate inaction in rectifying the
illegalities committed by the previous committees.
(3) Elected Committee in Office be given sufficient time, say
at least six months, to rectify the defects, if any, pointed out
in the audit report with regard to incidents which originated
when the previous committee was in office.
(4) Registrar/Joint Registrar are legally obliged to comply with
all the statutory formalities, including consultation with thePage 34
34
financing banks/Controlling Banks etc. Only after getting
their view, an opinion be formed as to whether an elected
Committee be ousted or not.
(5) Registrar/ Joint Registrar should always bear in mind the
consequences of an order of supersession which has the
effect of not only ousting the Board out of office, but also
disqualify them for standing for election in the succeeding
elections. Registrar/Joint Registrar therefore is duty bound to
exercise his powers bona fide and not on the dictation or
direction of those who are in power.
(6) Registrar/Joint Registrar shall not act under political
pressure or influence and, if they do, be subjected to
disciplinary proceedings and be also held personally liable for
the cost of the legal proceedings.
(7) Public money not to be spent by the State Government or
the Registrar for unnecessary litigation involving disputes
between various factions in a co-operative society. Tax
payers money is not expected to be spent for settling those
disputes. If found necessary, the same be spent from the
funds available with the concerned Bank.Page 35
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…………………………..J.
(K.S. Radhakrishnan)
…………………………..J.
(Dipak Misra)
New Delhi,
May 16, 2013

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