Patna High Court
Chapra District Central Co-Operative ... vs Union Of India (Uoi) And Ors. on 7 October, 2004
Equivalent citations: [2005(2)JCR64(PAT)]
Author: Aftab Alam
Bench: Aftab Alam
ORDER Aftab Alam, J.
1. This writ petition seeks to challenge the order, dated 21.1.2002 by which the Reserve Bank of India rejected the application for licence to conduct the business of banking made on behalf of Chapra District Central Co-operative Bank Limited in the district of Saran, Bihar (hereinafter referred to as 'the Co-operative Bank') under Section 22 of the Banking Regulation Act. It is filed by two persons one of whom describes himself as the Secretary of a Co-operative Society and a share-holder of the Co-operative Bank which was denied licence. The other petitioner describes himself as a member of the executive committee of a primary agricultural co-operative society being one of the constituents of the Co-operative Bank. Thus, the Co-operative Bank is purported to be represented before this Court by one of its share-holders. Hence, the writ petition was required first to meet the challenge to its maintainability.
2. It is not in dispute that the Co-operative Bank is a society registered under the Bihar Co-operative Societies Act. Section 13 of the Act, provides that registration of a society would render it a body corporate with power, inter alia, to institute and defend suits and other legal proceedings. Section 14 of the Act provides that the management of a registered society would vest in a managing committee constituted in accordance with the rules. Under Section 41 of the Act, the managing committee of a society may be suspended, dissolved etc. under certain conditions. Sub-section (3) of Section 41 provides that in case of dissolution of a managing committee the Registrar would appoint an Administrator who would exercise all powers and discharge all functions of the managing committee. It is an admitted position that at the time the impugned order was passed by the Reserve Bank of India, the Go-operative Bank was superseded and there was an administrator working in place of its managing committee. Under the provisions of the Co-operative Societies Act, therefore, it was only the Administrator who could claim to represent the bank and could file a writ petition on its behalf.
3. Dr. S.N. Jha, learned counsel appearing on behalf of the petitioners submitted that the writ petition was not filed by the Administrator for the simple reason that there was no Administrator for the bank any longer. He submitted that as a consequence of denial of the banking licence the Registrar passed an order of winding up of the Co-operative Bank under Section 42 of the Act, and following the winding up order, a liquidator of the Society was appointed. Dr. Jha submitted that the liquidator could only perform his assigned functions under the Act, he was neither empowered nor it was his function to seek relief (S) on behalf of the bank in regard to matters that led to its winding up and liquidation.
4. I find the submission unacceptable. In case the bank was aggrieved by the order passed by the Reserve Bank of India, rejecting its application for banking licence and it felt that the order was bad and illegal or unreasonable, unfair, unjust and arbitrary, it could easily seek relief (before a Court of law) through the Administrator acting in its behalf. The passing of the order by the Reserve Bank would in no way prevent the Administrator of the Bank who was in office on that date to challenge the validity and legality of that order and the subsequent actions/developments resulting from it. If the order was held to be bad and illegal, the subsequent developments of winding up and liquidation of the Co-operative Bank would naturally fall to the ground. In this connection if may be noted that the Co-operative Bank, acting through its Administrator had in fact tried to challenge the order passed by the Reserve Bank of India by filing an appeal before the Central Government under Section 22(5) of the Banking Regulation Act. That appeal was held to be not maintainable under Section 22(5) when it was pointed out by the Reserve Bank that the order passed by it was not in the nature of cancelling a licence but it was passed rejecting the application for licence made by the Co-operative Bank. Thereafter, it seems, the Administrator, for reasons best known to him, gave up any challenge to the order passed by the Reserve Bank of India and did not pursue any relief(s) on behalf of the Co-operative Bank.
5. On the basis of the discussions made above. I have no hesitation in holding that the two petitioners cannot claim to represent the Co-operative Bank and this writ petition cannot be taken as a petition filed by or on behalf of the bank.
6. It may be noted here that in support of the petitioners in the main writ petition an intervention petition (I.A. No. 4769 of 2003) is filed in this case. The petitioner in the I.A. is a primary agricultural credit co-operative society which is represented through an individual. The individual claiming to represent the PACS does not disclose his relationship with it but it is stated that the PACS is not only a member but also a share-holder of the Co-operative Bank. What is said above in respect of the petitioners in the main writ petition fully applies to the petitioner in the I.A.
7. At this stage Dr. Jha submitted that even though the claim of the petitioners to represent the Co-operative Bank may not be acceptable, the Court may still grant the reliefs prayed for in the writ petition. In support of his submission he relied upon Supreme Court decisions in (i) R.C. Railway Mazdoor Union v. Union of India, JT (1997) 8 SC 357, (ii) U.P. State Co-operative Land Development Bank Limited v. Chandra Bhan Dubey, (1999) 1 SCC 741 (paragraphs 23, 24, 25, 26 and 27) and (iii), All India Imam Organisation and Ors. v. Union of India and Ors., (1993) 3 SCC 584 (paragraphs 3, 6 and 7).
8. Mr. R.K. Dutta appearing for respondent No. 6 (the Bihar State Co-operative Bank Limited that seems to take a strongly supportive stand for the petitioners) on the issue of maintainability of the writ petition relied upon the Supreme Court decision in R.C. Cooper v. Union of India, AIR 1970 SC 564 (paragraphs 12 to 19).
9. I do not see any reason to discuss this aspect of the matter further because I find that the writ petition is bound to fail on merits as well.
10. On behalf of the petitioners it was stated that the Co-operative Bank was established on 14.6.1923. In 1965 the Chapra Central Co-operative Bank, Chapra was amalgamated with Siwan Central Cooperative Bank, Siwan and the merger resulted in the formation of Siwan-Chapra Central Co-operative Bank Limited, Siwan. After amendment of the Banking Regulation Act, 1949 by Act 23 of 1965, the co-operative banks too became legally obliged to obtain licence from Reserve Bank of India to conduct banking business. The Siwan-Chapra Central Co-operative Bank Limited, Siwan, accordingly, applied for the licence on 23.5.1966. In the year, 1981 the old Chapra district (of which Siwan used to be a part) was divided for creation of a separate and new district of Siwan. Following the separation of Siwan as district from Chapra the previously amalgamated Cooperative Bank was also divided and Chapra Central Co-operative Bank Limited was once again restored to its earlier separate and independent position. Chapra District Central Co-operative Bank on its separation from the Siwan Co-operative Bank made an application to the Reserve Bank of India for grant of licence in its new form on 22.12.1981.
11. From the impugned order of the Reserve Bank it appears that it was passed on the earlier application made on 23.5.1966. In the order denying the licence, it is stated that the application was kept in abeyance in view of various deficiencies/irregularities observed in the functioning of the bank as revealed in the various inspections conducted by NABARD under Section 35 of the Banking Regulation Act. The bank was, however, allowed to continue its banking business in terms of proviso (i) to Sub-section (2) of Section 22 of the Act. Finally, the statutory inspection of the Cooperative Bank was made by NABARD which gave its report with reference to the bank's financial position as on March 31, 1999. The report disclosed "high level of accumulated losses" and gross irregularities of several kinds in the conduct of business. On the basis of the report of statutory inspection by NABARD the Co-operative Bank was given a notice, dated 25.9.2001 to show cause why is application, dated 23.5.1966 for licence to carry on banking business should not be rejected and why steps should not be taken for its winding up. The Co-operative Bank submitted its reply to the show cause on 6.11.2001. It did not, however, submit any action-plan to improve its financial position. On a consideration of the show cause submitted by the Co-operative Bank and all other relevant materials the Reserve Bank of India passed the order, dated 21.2.2002, rejecting the licence application made on behalf of the Co-operative Bank under Section 22 of the Banking Regulation Act.
12. The order takes note of the financial position of the Co-operative Bank in some detail and enumerates the deficiencies and irregularities in its working from serial Nos. (i) to (xii) in para 2 of the order. On a consideration of the relevant materials the Reserve Bank came to the conclusion that there was no chance of revival of the bank and allowing the bank to continue its banking business would be detrimental to the interests of its present/future depositors and, therefore, the claim made on its behalf for issuing licence to carry on banking business was liable to be rejected.
13. Dr. Jha did not seriously dispute the reasons stated in the order for rejecting the application for grant of licence. He, however, submitted that large amounts of the bank were due against the State Government, the Government of India and the State Co-operative Bank and that was largely responsible for its very poor financial conditions.
14. Learned counsel assailed the action of the Reserve Bank leading to the winding up and liquidation of the bank mainly on two grounds; one was that the impugned order was passed without holding an enquiry as required by law and the other was that the order of rejection appertained to the application made in 1966 by the bank that had come into existence on merger of two co-operative banks but the later application made by the present bank in 1981 still remained undisposed of. In regard to his first submission Dr. Jha invited my attention to the Banking Regulation (Co-operative Societies) Rules, 1966. He submitted that Rule 22 of these rules excluded the application of the Banking Companies Rules, 1949 to co-operative societies. He further submitted that an application for banking licence by co-operative societies was required to be made under Rule 6 of the Rules; and in so far as the present Co-operative Bank was concerned, Sub Rule (b) of Rule 6 was relevant which laid down that an application for licence was to be made in Form IV. He further submitted that Rule 11 of the Banking Regulation (Co-operative Societies) Rules laid down an elaborate procedure for holding an enquiry but no enquiry as envisaged under that rule was held by the Reserve Bank before passing the impugned order.
15. As regards the second Dr. Jha submitted that after separation of Chapra and Siwan Co-operative Banks on 14.4.1981, the Co-operative Bank, in its present form, had made an application for licence on 22.12.1981. The later application still remained undisposed of and yet as a consequence of the order passed by the Reserve Bank steps were taken for its winding up and liquidation.
16. Mr. T.K. Jha, Senior Advocate appearing for the Reserve Bank of India submitted that an application for grant of licence made by a co-operative bank was required to be considered and disposed of under the provisions of Section 22 of the Banking Regulation Act and Rule 11 of the Banking Regulation (Co-operative Societies) Rules, 1966 had no application to the process of grant of licence. An enquiry as provided under the rule was, therefore, quite inapplicable to the process of grant of licence. Mr. Jha is clearly right because the opening words of the rule referred to by Dr. Jha make it plain and clear that the enquiry envisaged under Rule 11, is for the purpose of Sub-section (2) of Section 47-A of the Act. Section 47-A of the Act, provides for penalities for certain specified offences/irregularities committed by the bank. Section 47-A has got nothing to do with the grant or refusal of a licence to conduct banking business that is governed by the provisions of Section 22 of the Act. it is, therefore, clear that the impugned order would remain completely unaffected by the fact that no enquiry under Rule 11 was made before passing the order.
17. Mr. T.K. Jha further submitted that a co-operative bank dealing mainly with agricultural finance primarily came under the control and supervision of NABARD. In this case NABARD has held an in depth, statutory enquiry in regard to the working of the bank and had submitted its report to the Reserve Bank. The report brought to light a large number of deficiencies and irregularities in the working of the bank. The bank was given a notice to show cause to which it gave its reply. The Reserve Bank fully considered the report by NABARD, the reply of the Co-operative Bank to the notice given to it and all other relevant materials before passing the order. Mr. Jha submitted that the process complied with not only the provisions of Section 22 but also with the principles of natural justice.
18. As regards the application claimed to have been submitted in the year, 1981, Mr. Jha stated that it was not available at the Reserve Bank. Dr. Jha appearing for the petitioners submitted that only showed that the application was lost at the Reserve Bank because there was clearly evidence of its being submitted by the Go-operative Bank.
19. In my view the 1981 application will not make any material difference in the position. The denial of licence is on the basis of objective findings regarding the financial condition of the Co-operative-Bank. Those findings will remain the same whether it is the 1966 application or the later application said to have been filed on 1981. The consideration of the 1981 application will not change the objective findings in regard to the bank's financial position and the decision would thus be the same on the later application.
20. I, thus, find no merit in either of the two points raised on behalf of the petitioners.
21. Mr. R.K. Dutta appearing on behalf of the Bihar State Co-operative Bank was also highly critical of the action of the Reserve Bank leading to the winding up and liquidation of the Co-operative Bank. Mr. Dutta submitted that the action of the Reserve Bank failed to take into account the wider perspective and the impugned order, leading to the liquidation of the Cooperative Bank would have far reaching consequences. He submitted that the cooperative scheme for financing agriculture consisted of a three-tiered structure, at the apex of which was the State Co-operative Bank and at the bottom, the beneficiaries, the farmers, through the Primary Agricultural Credit Co-operative Society. The Dist Co-operative Bank comprised the middle tier of this structure, connecting the source of funds at the apex to the beneficiaries, the farmers at the bottom. The liquidation of the Co-operative Bank, as a result of the impugned order passed by the Reserve Bank had knocked off the middle tier of the structure and, thus the means to give credit facilities to the farmers in the district of Chapra was completely dislocated.
22. In this connection he submitted that while the Co-operative Bank's appeal against the order passed by the Reserve Bank was pending before the Central Government, the appellate authority on 5.7.2002 had directed the Reserve Bank, the State Government of Bihar and the State Co-operative Bank to have a joint meeting in Mumbai and try to plan a restructuring plan by which it could be possible to run this bank. The order was passed since both the State Govt. and the State Co-operative Bank had shown interest in the revival of the bank.
23. Mr. Dutta submitted that pursuant to that order, the Bihar State Co-operative Bank Limited submitted an action-plan for revival of Chapra District Central Co-operative Bank as a prelude to the tripartite meeting but the Reserve Bank did not make any response, much less show the slightest interest in the revival of the bank. According to him, the Reserve Bank scuttled all efforts for revival of the bank despite the direction by the appellate authority.
24. This Court is not willing to go into these much larger questions sought to be raised by the Bihar State Co-operative Bank which is one of the respondents in this case. In case the State of Bihar or the State Co-operative Bank feel aggrieved by the action of the Reserve Bank, it is open to them to move the Court and to seek their relief(s). It appears quite inappropriate for the State Co-operative Bank to indulge into indirect litigation and to use a writ petition filed by others to express its grievances against the action of the Reserve Bank of India.
25. For the reasons discussed above, I see no merit in this writ petition. It is dismissed subject to the above observations.