Delhi High Court
Capital Co-Operative Industrial ... vs Registrar, Co-Operative Societies on 27 November, 1995
Equivalent citations: 1995IVAD(DELHI)907, 1995(35)DRJ552
Author: R.C. Lahoti
Bench: R.C. Lahoti, Lokeshwar Prasad
JUDGMENT R.C. Lahoti, J.
(1) An order dated 6th December, 1994 (Annexure- K) under Section 59 of the Delhi Co-operative Societies Act, 1972 made by the Joint Registrar Co-operative Societies New Delhi, appointing an inquiry officer to fix liability, and a notice to show cause why the petitioner society be not superseded under section 32 of the Act ( Annexure-N) are under challenge.
(2) The petitioner No.1 is a co-operative industrial society. The petitioner No.2 is the Secretary thereof. It is not disputed that the society is indebted to two institutions, namely, the Delhi State Cooperative Bank and the Khadi Village Industries Commission.
(3) It appears that an inquiry was conducted into the working of the society and the inquiry officer pointed out the following four defects in the working of the society :
(I)SOCIETYhas sold out a piece of land measuring 2767 sq yards without the approval of the Registrar of Cooperative Societies; (ii)Society is getting Rs. 6,000.00 per mensem by letting out the land and machinery of the society, which is in violation of the provisions of the Act and Rules of the Delhi Cooperative Societies; (iii)Stock worth Rs. 2.95 lacs is missing and also the stock register has been tampered with. (iv)A manufacturing unit under the name and style of M/S Devyani Ceramics is working unlawfully in the premises of the society.
(4) The Joint Registrar Cooperative Societies has by order dated 6.12.1994 (Annexure-K) directed an inquiry officer under Section 59 of the Act to be appointed for the purpose of fixing liability.
(5) On 23.1.1995, the Joint Registrar has directed a notice to show cause ( Annexure-N) to issue u/s 32 of the Act calling upon the managing committee of the society to explain why it be not superseded on account of the four irregularities (same as are referred to in para 3 above) having been committed by the society as per the inquiry conducted under Section 55 of the Act.
(6) The petitioner has filed a reply to the above said show cause notice u/s 32 of the Act and also filed objections to the maintainability and the legality of the proceedings under section 59 of the Act. A decision on the show cause notice was yet to be taken when the present petition was filed.
(7) The learned counsel for the petitioner has raised two objections, amongst others, to the legality of the proceedings under section 32 of the Act while laying challenge to the sustainability of the very show cause notice itself. It is submitted that sub section (5) of Section 32 mandatorily provides for the Registrar to consult financing institutions to which a cooperative society is indebted before taking any action under sub-section (1) of Section 32 which having not been done the show cause notice is without jurisdiction. Next, it is submitted that none of the grounds contemplated by Section 32(1) exists and hence the Joint Registrar had no jurisdiction to issue the notice.
(8) Sub section (1) and (5) of Section 32 provide as under : "32.Supersession of Committee : (1) If, in the opinion of the Registrar, the committee of any co-operative society persistently makes default or is negligent in the performance of the duties imposed on it by this Act or the rules on the bye-laws, or commits any act which is prejudicial to the interest of the society, or its members, the Registrar may, after giving the committee an opportunity to state its objections, if any, by order in writing, remove the committee; and (a) order fresh election of the committee, or (b) appoint one or more administrators who need not be members of the society." xxxxxxxxxxxxxx "(5) Before taking any action under sub- section (1) in respect of a cooperative society, the Registrar shall consult the financing institution to which it is indebted."
(underlining by us) (9) On a plain reading it is clear that if a co- operative society is indebted to any financing institution, consultation with it is mandatory before taking any action for supersession of the managing committee of any cooperative society. Learned counsel for the respondent has submitted that though the two financing institutions to which the society is indebted were not consulted before issuing the notice nevertheless they were so consulted subsequent to the issuance of the notice and hence the proceedings initiated by the Joint Registrar are valid. It is also submitted that the consultation contemplated by sub-section (5) of Section 32 is required to be made before passing an order of supersession and need not necessarily precede the issuance of the show cause notice. It is also submitted that assuming that such consultation was required to be had before issuing the show cause notice, the same having been made subsequent to the issuance of the notice cures the defect, if any, in the proceedings.
(10) The submission of the learned counsel for the petitioner is that sub-section (5) of S.32 is mandatory in nature. The consultation must take place before taking "any action" under sub-section (1) is taken. Sub-section (1) contemplates not only supersession but also issuance of a notice affording an opportunity to the managing committee to state its objection against its proposed removal. In other words, affording an opportunity of hearing against the contemplated removal of the managing committee as spelled out by the words- `after giving the committee an opportunity to state its objections'- is also an action contemplated by sub- section (1). The consultation must, therefore, take place before it. In the case at hand, once the Joint Registrar had formed an opinion based on an inquiry report that action contemplated by S. 32(1) was required to be initiated, the Joint Registrar should have consulted the financing institutions of the petitioner society before issuing the show cause notice. The absence of such consultation vitiates the notice. Reliance is placed on a Division Bench decision of Orissa High Court held in Sarat Chandra Pande V. State Of Orissa And Ors, 4 Co-op Cases 450 wherein it is held:- THE Registrar had no consultation with the financing bank, we must hold that a mandatory requirement of the law has not been complied with by the Registrar which would give him jurisdiction to issue the notice under Section 32(1) of the Act. The notice accordingly is liable to be quashed. "
(11) Consultation with the financing institutions to which the co-operative society is indebted is not a matter of mere formality. It has a purpose behind. The co=operative society may not have full funds of its own. Its economic viability and the very functioning may be dependent on aid and assistance made available by financing institutions. Supersession of a committee of any co-operative society has its own adverse implications. It is subjective to the fact that all was not well with the Society. Supersession may make the financing institution panicky and may persuade it to withdraw the aid or assistance already made available and may also persuade it to withhold the aid or assistance which was likely to be released shortly in future. These things may shatter the working of the society and may even cause its civil death. That is why the financing institution has to be consulted before taking an action for supersession.
(12) In Nainsingh v. Koonwarjee, , interpreting the pari materia provisions of the Madras Co-operative Societies Act, 1961, their Lordship have observed (vide para 8 ): "The requisite opinion has indisputably to be formed honestly and after applying his mind by the Registrar to the relevant materials before him the only condition precedent for taking action u/s 72(1) is that the Registrar must consult the financing bank to which the society is indebted ( vide sub- section (6). There is no other requirement or condition precedent laid down by the Legislature which the Registrar must fulfilll before he acts in the matter of supersession of the Committee."
(13) In Jose Kuttiyani v. Registrar Co-operative Societies, , the Division Bench interpreting the pari materia provisions of Kerala Co- operative Societies Act, 1969 has held the consultation to be mandatory. As to what is consultation, the Division Bench has having read the above said law laid down by the Supreme Court said : - " The word `consult' implies a conference of two or more persons or an impact of two or more minds in respect of a topic in order to enable them to evolve a correct or at least a satisfactory solution- see R. Pushpam v. State of Madras ( Air 1953 Mad. 292). This meaning was approved by the Supreme Court in Union of India v. Sankalchand and then their Lordships added- "IN order that the two minds may be able to confer and produce a mutual impact, it is essential that each must have for its consideration full and identical facts which can at once constitute both the source and foundation of the final decision."
(14) In a case that arose under a similar provision in the Tamil Nadu Co-operative Societies Act a single Judge of the Madras High Court has in K. Thangavelu v. (AIR 1976 Madras 289) considered the nature and occasion of consultation with the financing Bank. The aspect is stated thus at p.281 para 4. "AT the stage of the issue of above show cause notice no one knows as to what is going to happen ultimately. It is only the first respondent makes up his mind after due enquiry in relation to the irregularities referred to in the show cause notice, that the financing bank has to be consulted with regard to the action proposed to be taken. If the consultation is before the issue of show cause notice and if the first respondent ultimately finds that the irregularities referred to in the show cause notice have not been established the consultation earlier obtained will become a mere formality and it would be a sheer waste of time."
We think the principle is correctly stated in this case and we agree with it." (15) In P.K. Ramasamy vs. Jt Registrar, Co-op. Societies, , a learned single Judge of Madras High Court has interpreted provisions of Tamil Nadu Co-operative Societies Act, 1961. Expressing dissent from the Orissa view the learned Judge has held : "Though the consultation under S. 72(6) must precede the actual order of supersession, it is not necessary that there ought to have been a consultation before the issuance of the show cause notice. Section 72(6) speaks about "before taking any action under sub- section (1)". The only concrete action under sub section (1) is that of supersession. Action need not necessarily be equated to the very initiation of the proceedings under S. 72(1)(a) by the issuance of the show cause notice. The affording of an opportunity to make representation precedes the action of supersession. But, that by itself is not the action of supersession. I have no reason and I have not been persuaded to take a view different from that of the two learned Judges of this Court."
(16) The learned Judge has chosen to follow, and rightly in our opinion, the view taken on earlier two occasions by the High Court of Madras. A distinction between `initiation of an action' and `taking of an action' has been drawn followed by a conclusion that consultation was required before `taking an action' and not necessarily before `initiating an action'.
(17) In Pmv Co-op Credit Society vs Jt Registrar Co-op Society, , K. Thangavelu v. Jt Registrar Co-op Society, Air 1976 Madras 280( both single bench decisions) consultation with financing institutions by Registrar has been held to be mandatory, but the consultation is not necessary before issue of show cause notice; it must be had before final order of supersession is passed.
(18) In Kartar Singh vs State of Punjab the Division Bench has held the provisions as to consultation to be directory in nature' not vitiating the action of supersession in the absence of proof of any grave prejudice or miscarriage of justice to the parties.
(19) We find ourselves in agreement with the view taken by High Court of Kerala and Madras. We do not subscribe to the view taken by High Court of Orissa that the Registrar cannot issue even a notice to show cause against supersession without having a consultation with the financing institution. Consultation with financing institution is justifiably necessary when the Registrar is not satisfied with the cause shown and explanation offered by the managing committee and decides to proceed further. If the explanation is sufficient to drop the show-cause notice where is the necessity of consulting the financing institution ? Financing institution has concern with supersession; it is not concerned with show-cause notice merely which may or may not be acted upon ultimately. We are of the view that consultation with financing institution need not necessarily precede the issuance of show-cause notice under S.32(1) and a show-cause notice issued without such consultation is not vitiated.
(20) As to the order made under S.59 of the Act, it is submitted that an enquiry contemplated by Section 59 cannot be held after the expiry of six years from the date of any act or omission referred to in sub- section (1) of S. 59. It is further submitted that the order (Annexure-K) is conspicuously silent about the date of the act forming basis of the order and if only the relevant dates would have been mentioned it would have been clear that the action for recovery of surcharge was barred by time and hence was without jurisdiction.
(21) Section 59 provides as under : - "S.59. Surcharge. (1) If in the course of an audit, inquiry, inspection or the winding up of a co-operative society, it is found that any person, who is or was entrusted with the organisation or management of such society7 or who is or has at anytime been an officer or an employee of the society, has made any payment contrary to this Act, the rules or the bye-laws or has caused any deficiency in the assets of the society by breach of trust or willful negligence or has misappropriated or fraudulently retained any money or other property belonging to such society, the Registrar may, of his own motion or on the application of the committee, liquidator or any creditor, inquire himself or direct any person authorised by him, by an order in writing in this behalf, to inquire into the conduct of such person: Provided that no such inquiry shall be held after the expiry of six years from the date of any act or omission referred to in this sub section (2) Where an inquiry is made under sub- section (1), the Registrar may, after giving the person concerned an opportunity of being heard, make an order, requiring him to repay or restore the money or -property or any part thereof, with interest at such rate, or to pay contribution and costs or compensation to such extent, as the Registrar may consider just and equitable."
(22) On the petitioner society having been apprised of the order (Annexure-K), its has filed objections setting out its contentions including the one raised before this Court. On the representation so made there has been no decision by the Registrar/Joint Registrar (23) In our opinion, the question whether the inquiry under Section 59 is barred by time or not, is basically a question of fact. Inasmuch as the order dated 6th December, 1994 (Annexure K) does not set out the relevant dates and as the contention has already been raised before the Joint Registrar, we deem it appropriate to leave it to him to take a decision on the question after hearing the petitioner society.
(24) The challenge laid to the show cause notice dated 23.1.1995 (Annexure-N) issued under Section 32 of the Delhi Cooperative Societies Act, 1972 fails. The RCS/Joint Registrar may have consultation with the financing institutions of the petitioner society either afresh or may apply his mind to the opinion already given by the financing institutions. The Registrar would however see and satisfy himself if the process of consultation satisfies the test laid down by Kerala High Court in Jose Kuttiyani's case ( supra) with which we find ourselves in respectful agreement. Thereafter, he may take decision on the necessity of superseding managing committee or not. As to order dated 6.12.94 ( Annexure-K) under Section 59 of the Act the Registrar/Joint Registrar shall hear the petitioner society on the contentions (including the one on the question of limitation) raised by it in its representation dated 19.1.1995 and thereafter take a decision thereon in accordance with law before proceeding further.
(25) The petition stands disposed of in the terms above said accordingly. No order as to costs.