Karnataka High Court
R.V. Patil vs State Of Karnataka on 1 March, 1988
Equivalent citations: ILR1988KAR829, 1988(1)KARLJ370
ORDER Shivashankar Bhat, J.
1. Constitutional validity of Section 30A(1A) of the Karnataka Co-operative Societies Act, 1959 ('the Act' for short) and the order appointing a Special Officer to the Malaprabha Co-operative Spinning Mills Ltd., Saundatti (referred as 'the Society' hereinafter) are challenged in these two Writ Petitions, referred to the Division Bench by the learned Single Judge. Writ Petitions are filed by 9 of the Directors of the Society in all.
2. The Society is stated to be a 'Major Class' Agricultural Produce Co-operative Society, with a vast area of operation. One of its objects is to purchase cotton from grower members and others. Its authorised share capital is Rs. 4 crores and fifty lakhs. The Board of Directors consist of 17 Directors elected by 'A' Class members. Directors nominated by the State Government, of whom one is its Managing Director and one Director is the nominee of a Financing Agency.
3. The Society/Mill is being assisted under NCDC-III Project under the World Bank Agreement for setting up a Spinning Mill of 25000 spindles capacity with the ginning and processing unit attached thereto. The Karnataka State Co-operative Spinning Mills Federation Ltd., Bangalore, is the Project Consultant to held in the establishment of the plant. The Government of Karnataka constituted a Project Implementation Committee (PIC) for implementation of cotton component in accordance with the conditions of assistance stipulated under NCDC-III Project. The Government constituted a Committee to review the progress of the working regarding implementation of cotton component units under NCDC-III Project with the persons specified in the said order. The project is a time bound project and as per implementation schedule, the Mill was expected to be commissioned by 22-7-1987. The project cost of the Mill as approved by the NCDC was Rs. 1361/- lakhs as per the Financial assistance.
4. However, by an order dated 14-10-1986, the State Government, in exercise of the powers vested in it under Section 30A of the Act, appointed the Deputy Commissioner, Belgaum, as the Special Officer for a period of one year or until further orders whichever is earlier. It is admitted that this appointment has been extended from time to time and the Special Officer has been continued and is functioning.
5. Petitioners contend that, an exercise of power under Section 30A of the Act results in civil consequences and the elected body of the Committee of Management gets dissolved, without any enquiry or hearing the elected members and therefore, the said provision vests an arbitrary power in the State Government; this is so because of the statutory exclusion of the application of the principles of natural justice by Section 30A(1A). The procedure prescribed by the statute in making an order resulting in civil consequences should be fair and reasonable governed by norms of justice and fairplay, which is totally lacking in this provision. Hence the Sub-section (1A) of Section 30A is an arbitrary piece of legislation. It was also contended that the exercise of such a power under Section 30A should be strictly construed and if, while making the order, the State Government in any way derogates from the purpose sought to be achieved by the said provision or its mind is vitiated by irrelevant factor, the order will be invalid. In the present case, the impugnea order suffers from these vitiating circumstances.
6. Respondents 1 to 3 have filed a common statement of objections. It is pointed out that the last election to Committee of Management was held on 28-8-1983 and term of office of the members of the committee of management is 3 years by virtue of Section 28A(3) and it expired on 30-6-1986, but they continued thereafter till the date of the impugned order by virtue of Rule 13(3) which permits the continuation till the new committee is elected. It is further averred that the project involved was a time bound project under a World Bank Agreement. The project cost of the society as approved by NCDC was Rs. 1361/- lakhs as per the financial assistant, as detailed below :-
"(a) Share capital from Grower members (5%) (Rs. in lakhs) 68.05
(b) Share capital from State Government including NCDC loan to the State Government to be passed on to the Society as share capital (45%) 612.45
(c) Loan from Karnataka State Co-operative Apex Bank with State Government guarantee (50%) 680.50 Total:
1361.00"
7. The statement of objections further states, that the State Government had already sanctioned and released entire share capital contribution of 45%' of the project cost and that there has been considerable delay on the part of the committee of management of the society in implementing the project within the scheduled time. The committee of management of the society was not abiding by the decisions taken by PIC and the technical advice given by the project consultants and the committee of management have been consulting a particular machinery supplier who was an interested party. The reluctance of the committee of management to implement the decision of PIC for placing orders was discussed in a meeting of the Secretary to Government and the management of the society ; still it did not agree to abide by the decisions of PIC and the Government. The Government decided to call another meeting of PIC to consider the objections of the management with clear understanding that the decisions of the PIC in this meeting would be final and binding and the subsequent meeting of the PIC also endorsed the earlier decisions of PIC. The committee of management has not fully implemented even the reconfirmed decisions of the PIC set up by Government in so far as acceptance of tenders for supply of plant and machinery are concerned and some members of committee of management have visited some of the manufacturers and held consultations with them after the tenders were opened and before the orders were placed in violation of tender conditions, which tender conditions were approved by all concerned including the Government. The last date for bid validity for Ring frames was 16-9-1986 and the management has given its letter of acceptance to MMC' Ltd., Calcutta on 17-9-1986. Despite clear decisions of PIC, and the advice given by technical consultants and NCDC and after giving delayed letter of acceptance, the management of the society is not agreeable to place orders for supply of ring frames with MMC Ltd., Calcutta. The refusal of the management to abide by the decision of PIC is resulting in delay of implemention of the project as approved by the NCDC. The Registrar of Co-operative Societies has informed the Government that the management is acting in partisan manner and has not considered applications for membership of the society pending in some cases for more than a year. The management of the society has failed to enroll members and collection of share capital has been too low being less than Rs.18 lakhs as against Rs.68 lakhs required for successful implementation of the project, despite repeated directions by Registrar and Government. The Government in the above circumstances is satisfied that the committee of management is not functioning in accordance with the provisions of the Act, the rules and are not abiding by the decisions and directions of PIC appointed by the Government and their contribution would delay the project and adversely affect the interests of the members, the financing institutions and the Government who have largely contributed to the share capital and has. also guaranteed the loan. The Government felt that immediate steps are necessary and any delay may result in calling of fresh tenders apart from delaying the completition of the project. Wherefore, the Government, in exercise of the powers conferred under Section 30A of the Act, by order No. CMW 86 CEP 86 dated 14-10-1986 appointed Deputy Commissioner, Belgaum, as the Special Officer for the Malaprabha Co-operative Spinning Mills Ltd., Saundatti, for a period of one year.
8. The impugned order Annexure 'A' also recites these facts in a nutshell and the satisfaction arrived at by the State Government is stated in paras 19 and 20 thereof, to the effect that immediate steps were necessary and any delay may result in calling for fresh tenders apart from delaying the completion of the project and therefore, power was exercised under Section 30A of the Act.
9. Section 30A in its entirety reads as follows :-
"30A. Appointment of Special Officer, - (1) Where the State Government, on a report made to it by the Registrar or otherwise, is satisfied that any co-operative society is not functioning in accordance with the provisions of this Act or the rules made thereunder or its bye-laws or any order, direction or circular issued by the State Government or the Registrar, it may, notwithstanding anything in this Act, by order, appoint a Special Officer for such Cooperative Society for such period not exceeding two years:
Provided that the State Government may, if it considers it necessary extend the said period of two years by such further period not exceeding one year.
(1A) Before making an order under Sub-section (1) it shall not be necessary for the State Government to give any Co-operative Society or persons likely to be affected by such order an opportunity of making representation or being heard.
(2) On the issue of the order under Sub-section (1) - -
(a) the members of the committee of the Co-operative Society shall vacate and shall be deemed to have vacated their office; and
(b) the Special Officer shall be deemed to have assumed charge of the affairs of the Co-operative Society.
(3) The Special Officer shall, subject to the control of the State Government and the Registrar, exercise and perform all the powers and functions of the committee of the Co-operative Society or any officer of the Co-operative Society and take all such actions as may be required in the interest of the Co-operative Society.
(4) The Special Officer shall, before the expiry of his term, arrange for the constitution of a new committee for the Co-operative Society in accordance with its bye laws."
10. Sub-section (1A) was introduced into Section 30A by Karnataka Act 5 of 1984 with effect from 9-1-1984, though Section 30A in its earlier form existed since 19-7-1976. The provisions of Section 30A prior to the impugned amendment, came up for consideration before a Division Bench of this Court in JAGADISH PATIL v. STATE OF KARNATAKA & OTHERS, 1981(1) KLJ 443. It was held therein that appointment of a Special Officer results in civil consequences against each member of the committee of management and therefore, before making the order appointing the Special Officer the State Government should follow the principles of natural justice. The basis of this ruling can be gathered from paras 10 and 11, relevant part of which reads thus:;-
"Section 30A of the Act, empowers the Government to appoint a Special Officer to a 'society' and displace the existing committee of management. An order made under Section 30A of the Act displacing the committee of management results in civil consequences against each member of the committee. The concept of civil consequences has been exhaustively explained by the Supreme Court in Mohinder Singh Gill v. Chief Election Commissioner .
Section 30A of the Act does not expressly provide or exclude issue of a show cause notice, an opportunity to file representations and an opportunity of oral hearing before the Government decides to appoint a Special Officer thereto."
11. The legislature, obviously took note of this statement of the law, while enacting the Sub-section (1A), which now, declares that it was not necessary for the State Government to give any opportunity of making any representation or of being heard, either to the society or to any person. Hence the question arises whether, such an exclusion of the principle of natural justice was validly enacted and whether this provision renders the relevant law arbitrary.
12. Legislative competence to enact the provision is not in dispute. The argument revolved around the principle of fairness, justness and reasonableness of the procedure. These are the tests to be applied not hypothetically. Fairness, justness and reasonableness of a procedural law depends upon the subject matter of the legislation effect of the exercise of the statutory power and the object sought to be achieved by the provisions in question.
13. A law vesting a power, exercise of which may result in the deprivation of life, liberty, property or livelihood (such as employment) may have to face a more rigorous test than a provision of law, vesting a power in the State Government, exercise of which will result in the deprivation of an elective office to participate in the management of a body like a Co-operative Society.
14. Co-operative Societies, though based on noble ideals of self help, mutual co-operations and self-reliance, in practice, have become governmental agencies, having regard to the nature of their formation, dependence on governmental agencies for funds and the deep control wielded by the statutory authorities. The role played by these Co-operative Societies amongst the agriculturists cannot be undermined. They cannot be treated on par with private agencies formed to earn profits. In the context of a welfare state, Co-operative Societies share to a large extent the responsibilities of the State. The scope of the provisions in the Act empowering the State Government and the Government Officers, to interfere and control the activities of a Co-operative Society has to be understood in this background. Similarly, the nature of the office held by an elected member of the committee of management of a Co-operative Society cannot be equated to any other elective office such as membership of a legislature, or local Governments.
15. Section 30A vests a power in the State Government to appoint a Special Officer in the place of the committee of management. Condition precedent for the exercise of the power is the satisfaction arrived at by the Government that the Co-operative Society is not functioning in accordance with the provisions of the Act or the Rules made thereunder, etc. In other words, the power is exercised so that, the Co-operative Society may be made to function in accordance with the provisions of the Act, Rules or any other valid, binding mandates. It is not necessary for us to discuss the scope of this provision in detail and express our opinion further in view of the decision of a Division Bench of this Court in H.L. MACHADO etc. etc. v. GOVERNMENT OF KARNATAKA etc., W.P. No. 16989 of 1984 & 9256 of 1985 DD 4/5-2-1986 cited before us by Sri Datar. At para-14, after quoting a passage from Maxwell on Interpretation of Statutes, the Division Bench observed, --
"....If we apply that correct Rule of construction, it is obvious that Government can and must exercise the power under Section 30A of the Act only when immediate and urgent action is called for and not in all and every cases where the affairs of the society can be effectively regulated in any event under Section 30 of the Act. We are of the view that this construction becomes all the more necessary when the right of hearing earlier recognised by this Court in Jagadish Patil v. State of Karnataka & others (1981(1) Kar. L.J. 443) is expressly excluded by Section 30A(1A) of the Act. Bearing these principles, we now proceed to examine the impugned orders."
Thereafter the learned Judges examined the particular order impugned therein to find out whether the above condition was satisfied, and held that in the impugned orders therein did not satisfy the above requirement. It was found there, that "Even placing the most charitable construction suggested by the learned Government Advocate on the reports, notes and minutes, we are constrained to observe that Government had not formed an opinion that immediate, urgent and precipitate action was called for to achieve the purpose and objects of Section 30A of the Act. We also do not find from any of the Records placed before us that the affairs of the societies had reached a breakdown in their management and that immediate and urgent intervention of the Government was necessary to out them on rails."
The test formulated in the said H.L. Machado's case was accepted as the correct one by Sri Datar.
16. If the power to be exercised under Section 30A is an emergency power and the purpose is to put the society 'on rails', the contention of Sri Datar that, the procedure prescribed for the exercise of the power excluding the application of principles of natural justice loses all its force and content.
17. In this connection, it was brought to our notice a similar provision excluding the application of principles of natural justice injected as Sub-section (1A) to Section 14A.
18. Section 14A of the Act empowered the Registrar on being satisfied that it was essential in public interest or in the interest of co-operative movement or for the purpose of securing the proper management of any Cooperative Society that any two or more Co-operative Societies should be amalgamated to form a single Cooperative Society or any Co-operative Society should be divided or any Co-operative Society should be reorganised, then, the Registrar shall order the amalgamation, division or reorganisation of such Co-operative Societies.
19. Several Co-operative Societies were amalgamated etc. under this provision without affording any opportunity to the concerned societies or to any person. Therefore, this Court struck down those amalgamation orders as made without following the principles of natural justice. To get over the situation, Sub-section (1A) was introduced giving it retrospective effect from 20-1-1976, thus, taking away the basis of the orders made by this Court nullifying the several amalgamation orders. Challenge to this Sub-section (1A) was repelled by a Division Bench of this Court in DESAHALLY SERVICE COOPERATIVE SOCIETY LTD & OTHERS v. THE STATE OF KARNATAKA & OTHERS, . We are told that the Supreme Court rejected the prayer seeking special leave to appeal. After referring to a passage from UNION OF INDIA v. J.N. SINHA, , this Court observed at page-127, --
"From the aforesaid enunciation by the Supreme Court, it is clear that the principles of natural justice do not have the status of a fundamental right and it is competent for the legislature to abridge or totally dispense with their application to any particular proceeding or class of proceedings. As stated in Halsbury's Laws of England (Fourth Edition) Volume 1, at page 90, para 74, the rule of natural justice will not apply where Parliament has evinced an intention to exclude its operation either by conferring on the competent authority unfettered discretionary power or by expressly providing for notice and opportunity to be heard for one purpose, but omitting to make any provision for another purpose."
Thereafter the contention that such conferment power under Section 14A was uncontrolled and arbitrary, was also repelled at para-21 thus :
"On an examination of the scheme of the Act and the provisions thereof, this Court held in Puttappa's case that the conferment of power under Section 14A of the Act, was not uncontrolled or unguided and that the Section contained sufficient guidelines for exercise of such power. If there are such guidelines, we do not see how that power can be said to be uncontrolled or unguided merely because the obligation to hear the concerned societies is dispensed with. Thus, we are unable to accept the contention of learned Counsel for the petitioners that the insertion of Sub-section (1A) in Section 14A has rendered the Section invalid on the ground of conferment of uncontrolled or unguided power on the Registrar and Deputy Registrars."
20. Sri Datar referred to us certain observations made in J.S. PRAKASH v. SECRETARY, REGIONAL TRANSPORT AUTHORITY, 1972(2) Mys. L.J. 470. However, the said decision is distinguishable, as is clear from its following passage at page 473 :-
"The essence of the rules of natural justice is that it ensures fair play before the rights of the party are adversely affected by an order to be made by a statutory authority. The legislature is presumed not to intend that any tribunal created under an Act should act unfairly. We must remember that procedure is not a matter of secondary importance. It is only by procedural fairness that drastic governmental powers are rendered tolerable."
21. In the absence of a clear exclusion of the principles of natural justice, it was held there, that, its principles should be applied to the procedure involving the suspension of the permit under Section 60 of the Motor Vehicles Act. Validity of a provision excluding the application of the Rules of natural justice was not involved in the said case.
22. GOVERNMENT OF MYSORE & OTHERS v. J.V. BHAT etc., was another citation relied upon by the learned Counsel for the petitioners to emphasis the importance of the doctrine of natural justice. Again, there, the Supreme Court read into the statute in question, the rule of natural justice in the absence of an intention to exclude the said rule by the statute. Learned Advocate General, relied upon the observations in the said decision, at page 599, which reads, -
"....It is only where there is nothing in the statute to actually prohibit the giving of an opportunity to be heard, but, on the other hand, the nature of the statutory duty imposed itself necessarily implied an obligation to hear before deciding that the 'audi alteram partem' rule could be imported. The nature of the hearing would, of course vary according to the nature of the function and what its just and fair exercise required in the context of rights affected."
23. Sri Datar also referred to MOHINDER SINGH GILL & ANOTHER v. THE CHIEF ELECTION COMMISSIONER, , particularly to para-65 to emphasis his contention that exercise of any power resulting in adversely affecting the civil rights (a term which includes, according to the learned Counsel, a right to hold an elective office) should be embedded in a fair and reasonable procedure. As already observed by us, the force of this contention is lost by his reliance on the earlier decision in H.L. Machado's case, W.P. No. 16989 of 1984 & 9256 of 1985 DD 4/5-2-1986 as to the scope of Section 30A. Further, the Supreme Court was not concerned with the validity of any specific provision excluding the application of rules of natural justice.
24. Another decision relied on by Sri Datar is OLGA TELLIS & OTHERS v. BOMBAY MUNICIPAL CORPORATION & OTHERS, in support of his proposition that a law gets vitiated and is liable to be set aside, if the procedure prescribed for exercise of a power resulting in civil consequences is arbitrary, unfair or unreasonable. The observations of the Supreme Court in the said case, was in the context of Article 21 of the Constitution and the effect of the statutory power on the livelihood of several slum dwellers of Bombay.
25. An elective office is the creation of a statute. None has a fundamental right to be a member of the committee of management of a Co-operative Society. Principles enunciated to the validity of a procedural law affecting a person's fundamental rights cannot be extended to cover the cases of such a statutory right.
26. Learned Advocate General also referred to an unreported decision of Doddakale Gowda, J. in BASANAGOUDA v. STATE OF KARNATAKA & OTHERS, W.P.No. 5627 of 1984 DD 29-5-1984 wherein, the learned Judge repelled a similar contention challenging the validity of Section 30A(1A) of the Act. We respectfully agree with the said decision.
27. It is also not possible to accept the next contention of the petitioners. The impugned order cites the instances leading to the satisfaction of the Government as to why action under Section 30A had to be taken. It is not possible to hold that they are irrelevant factors. The urgency for the action is also pointed out at para-19 of the order. The interest of the State Government and other financial agency like the Karnataka Co-operative Apex Bank with State Government's guarantee, is also stated in the impugned order. The project cost is estimated at Rs. 1361 lakhs. Out of this, the contribution of the individuals (that is the growers) is only Rs.68.05 lakhs by way of share capital. The entire balance came from State Government and the Apex Bank, referred above. Thus the financial stake to the State Government and the Apex Bank is quite high and in the circumstances of this case, the action appointing the Special Officer cannot be termed arbitrary in any manner.
28. In the result, for the reasons stated above, these petitions fail and are dismissed. Rule is discharged. Each party shall bear his or its own costs.