Kerala High Court
Kallettumkara Service Co-Operative ... vs Registrar Of Co-Operative Societies on 16 June, 2005
Equivalent citations: [2006]131COMPCAS172(KER), 2005(3)KLT483
Author: K.S. Radhakrishnan
Bench: Rajeev Gupta, K.S. Radhakrishnan
JUDGMENT K.S. Radhakrishnan, J.
1. Power of the Registrar to issue Circular No. 35/01 dated 27.9.2001 directing the Co-operative Societies in the State to permit the borrowers to settle their outstanding loan at the document rate or at the then existing rate whichever is less excluding penal interest and compound interest is under challenge in this appeal.
2. Petitioner appellant is a service co-operative bank registered under the provisions of the Kerala Co-operative Societies Act. Bank is engaged in the business of collecting deposits from its customers and lending money to its customers. Bank used to receive deposits from its customers agreeing to repay the same with interest at the rate of 15.5% per annum. Members of the bank used to avail of loan with interest at the rate of 18% per annum. If Ext.P1 circular is given effect to the bank has to settle the loan transaction at the rate of 13.5% which was the lending rate at the time of the circular, at the same time, bank has to pay 15% interest per annum to depositors. Bank will have to suffer a loss of Rs. 7,90,000/- if the circular is given effect to since the bank has to settle 333 outstanding loan an 13.5% simple interest. Bank in short, submits that while it accepted the loan from its members agreeing to repay with interest at the rate of 15.5%, if circular is given effect to, it will have to close the loan transactions at the rate of 13.5% rendering the bank to considerable financial loss. If PI circular is given effect to with regard to all the loanees the bank would be on the verge of liquidation. Under such circumstance the Bank has challenged the power of the Registrar to issue the circular directing the bank to go in for a one time settlement to settle the outstanding loans at the document rate or at the then existing rate whichever is less excluding penal interest and compound interest.
3. Detailed counter affidavit has been filed by the first respondent in the appeal. It is stated that the Registrar has got the power to issue Ext.P1 circular under Section 66 of the Kerala Co-operative Societies Act. It is stated that the Co-operative Societies Act gives power to the Registrar to issue circulars and directions for achieving various objectives under the Co-operative Societies Act. Further it is also pointed out that Ext.P1 circular has been issued on the basis of the instructions from the Reserve Bank of India as well as NABARD. It is stated that NABARD vide its circular dated 26.4.2001 has issued directions to the Registrar of Co-operative Societies to issue suitable administrative orders to Primary Agricultural Co-operative Societies for the implementation of the scheme evolved by the NABARD for giving relief to the Agriculturists in the country. Further, it is also stated that the majority of the Cooperative institutions in the State have welcomed Ext.P1 circular and the subsequent circulars/instructions permitting the Co-operative Institutions to settle the overdue loan accounts under one time settlement scheme and the scheme is being implemented by majority of the societies in the State very vigorously and consequently a considerable amount of overdue loans could be recovered.
4. We are in this case primarily concerned with the power of the Registrar to issue Ext.P1 circular. Counter affidavit specifically says that P1 circular has been issued under Section 66 of Co-operative Societies Act. Learned Single Judge however, placed reliance on Section 66A of the Co-operative Societies Act and took the view that the Registrar has got power to issue circulars containing general directions in furtherance of the purposes of the Act. Learned single Judge therefore upheld Ext.P1 circular tracing power under Section 66 A of the Act. Section 66A though inserted by Act 1 of 2000 the same has not been given effect to. Therefore learned Judge was not justified in placing reliance on Section 66A to uphold Ext.P1 circular.
5. Learned Government Pleader then tried to trace power under Section 66 of the Cooperative Societies Act. Counter affidavit filed by the Registrar also states that the circular has been issued in exercise of the powers conferred under Section 66 of the Cooperative Societies Act. We may examine whether Section 66 would come to the rescue of the Registrar. Section 66 falls under Part B of Chapter VIII of the Co-operative Societies Act. Chapter VIII deals with Audit, Inquiry, Inspection and Surcharge. Part B of Chapter VIII deals with Inquiry, Suspension, Investigation and Surcharge. Section 66 deals with supervision and inspection. Section 66 stipulates that Registrar shall supervise or caused to be supervised by a person authorised by him by general or specific order in writing in this behalf, the working of every society as frequently as he may consider necessary. The supervision under this sub-section may include an inspection of the books of the society. Section 66 in our view would not authorise Registrar to issue any direction or guideline to Co-operative Societies to regulate their financial transactions entered into by the society. Co-operative Society registered under the Co-operative Societies Act was set up to provide for the orderly development of the Co-operative Sector in the State. They are self governing and democratic institutions to achieve the objects of equity, social justice and economic development, as envisaged in the directive principles of State Policy. They have got their own bye-laws. Generally they would frame their own rules and regulations governing members and the society. Banking society accepts deposits from its members agreeing to repay the same with fixed rate of interest, so also for advancing loans to members on the basis of agreement fixing rate of interest. Generally such transactions are contracts entered into between the society and its members. Unless there is clear statutory provision the Registrar of Co-operative Societies cannot interfere with those transactions entered into between the society and its members.
6. The Bank in the instant case has received large amounts by way of deposits from its members agreeing to repay the same at the rate of 15.5% per annum. If the bank is directed to clear off the loan's advanced by it with lessor rate of interest than the deposit rate it will cause considerable financial loss to the bank. The circular insisting the bank to settle their outstanding loans at the document rate or at the then existing rate excluding penal interest and compound interest would cause considerable loss to the bank. We need not further probe into the desirability or the motive behind issuance of P1 circular since it has no statutory backing.
7. Under such circumstance we are inclined to allow this appeal and set aside Ext.P1 circular so far as the petitioner society is concerned. However, it is open to the Co-operative Societies to go for a one time settlement if it is mutually beneficial for the parties.
We allow this appeal and hold that Ext.P1 circular would not apply to the petitioner bank.