Kerala High Court
M.V.Vishak Kumar vs Pathanamthitta District
Author: Shaji P.Chaly
Bench: Shaji P.Chaly
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT:
THE HONOURABLE MR. JUSTICE SHAJI P.CHALY
FRIDAY, THE 4TH DAY OF AUGUST 2017/13TH SRAVANA, 1939
WP(C).No. 19126 of 2017 (M)
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PETITIONER:
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M.V.VISHAK KUMAR, JUNIOR ACCOUNTANT,
PATHANAMTHITTA DISTRICT CO-OPERATIVE BANK,
PATHANAMTHITTA-689691, GENERAL SECRETARY OF
ALL KERALA DISTRICT CO-OPERATIVE BANK
EMPLOYEES CONGRESS, PATHANAMTHITTA.
BY ADVS.SRI.P.N.MOHANAN
SRI.C.P.SABARI
RESPONDENTS:
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1. PATHANAMTHITTA DISTRICT
CO-OPERATIVE BANK,
REPRESENTED BY GENERAL MANAGER,
PATHANAMTHITTA-689691.
2. THE MANAGING COMMITTEE OF
PATHANAMTHITTA DISTRICT CO-OPERATIVE BANK,
REPRESENTED BY ADMINISTRATOR,
PATHANAMTHITTA-689691.
3. STATE OF KERALA,
REPRESENTED BY SECRETARY TO GOVERNMENT,
CO-OPERATIVE DEPARTMENT,
SECRETARIAT,
THIRUVANANTHAPURAM-695001.
4. SECRETARY TO GOVERNMENT,
TRANSPORT DEPARTMENT,
SECRETARIAT,
THIRUVANANTHAPURAM.
--2--
--2--
WP(C).No. 19126 of 2017 (M)
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*ADDL. R5 IMPLEADED
5. KERALA STATE ROAD TRANSPORT CORPORATION,
REPRESENTED BY MANAGING DIRECTOR,
TRANSPORT BHAVAN,
NEAR ATTUKAL SHOPPING COMPLEX,
THIRUVANANTHAPURAM - 695 023.
ADDL. R5 IS IMPLEADED AS PER ORDER
DATED 13.06.2017 IN IA.8773/2017.
R1 & R2 BY SRI.T.P.PRADEEP, SC
R3 & R4 BY SPECIAL GOVERNMENT PLEADER
SRI.K.S.MOHAMMAD HASHIM
ADDL.R5 BY SRI.T.P SAJAN, SC
THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD
ON 27-07-2017, THE COURT ON 04-08-2017 DELIVERED THE
FOLLOWING:
mbr/
WP(C).No. 19126 of 2017 (M)
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APPENDIX
PETITIONERS' EXHIBITS:
EXHIBIT P1: A TRUE COPY OF THE ORDER DATED 05-06-2017 OF THE
FOURTH RESPONDENT.
EXHIBIT P2: A TRUE COPY OF THE NEWS ITEM PUBLISHED IN KERALA
KOUMUDI DAILY DATED 07-06-2017.
EXHIBIT P3: A TRUE COPY OF THE NEWS ITEM PUBLISHED IN KERALA
MALAYALA MANORAMA DAILY DATED 07-06-2017.
EXHIBIT P4: A TRUE COPY OF THE COMPLAINT DATED 7-6-2017
SUBMITTED BY THE PETITIONER BEFORE THE FIRST AND
SECOND RESPONDENTS.
EXHIBIT P5: A TRUE COPY OF THE CIRCULAR 63/2006
DATED 30-12-2006 OF THE REGISTRAR OF
CO-OPERATIVE SOCIETIES.
EXHIBIT P6 : A TRUE COPY OF THE KERALA CEILING ON GOVERNMENT
GUARANTEE ACT, 2003.
EXHIBIT P7 : A TRUE COPY OF THE CMA NORMS OBTAINED FROM THE
INTERNET OF THE CONCERNED CITE.
RESPONDENTS' EXHIBITS:
EXHIBIT R1A: TRUE COPY OF THE LETTER DATED 23.5.2017
SUBMITTED BY THE CHAIRMAN AND MANAGING DIRECTOR
OF KSRTC.
EXHIBIT R1B: TRUE COPY OF THE LETTER DATED 8.6.2017
SUBMITTED BEFORE THE REGISTRAR OF THE CO-
OPERATIVE SOCIETIES.
EXHIBIT R1C: TRUE COPY OF THE LETTER DATED 8.6.2017
SUBMITTED BEFORE THE NABARD.
EXHIBIT R1D: TRUE COPY OF THE LETTER DATED 13.6.2017
ISSUED BY THE ASSISTANT GENERAL MANAGER, NABARD.
EXHIBIT R1E: TRUE COPY OF THE LETTER DATED 18.7.2017
SUBMITTED BY THE BANK.
//TRUE COPY//
P.S. TO JUDGE
mbr/
C.R.
SHAJI P.CHALY, J.
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W.P.(C).NO. 19126 OF 2017
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Dated this the 4th day of August, 2017
JUDGMENT
The petitioner in the writ petition is an employee of the first respondent bank and a trade union leader of all Kerala District Co-operative Bank Employees and also has deposits with the bank. The grievance raised by the petitioner is that the first and second respondents decided to grant loan of Rs.130 crores to the additional 5th respondent namely the Kerala State Road Transport Corporation (KSRTC) on the basis of guarantee contained in Exhibit P1.
2. According to the petitioner, the decision taken by the first and second respondents to sanction loan to the additional 5th respondent is illegal for the reason that, as per Section 59 of the Kerala Co-operative Societies Act (hereinafter called, 'the Act 1969'), loans or advances can be issued to members of bank only. Therefore, since the additional 5th respondent is not a member of the first W.P.(C).NO. 19126 OF 2017 2 respondent bank, loan cannot be granted. That apart, it is contended that the funds of the Society can be invested as provided in Section 57 of the Act, read with Rule 54 of the Rules and as directed in Exhibit P5 circular of the Registrar of Co-operative Societies. Therefore, additional 5th respondent will not come under the above purview.
3. It is also stated that, assuming if the KSRTC failed to pay the amount, no recovery steps can be taken as provided under Section 69 of the KCS Act, as the KSRTC is not a member and a claim will not lie against a non-member. That apart, it is stated that the maximum lending limit of the bank, according to the bye-law, is only Rs.40 lakhs. So also, it is contended, KSRTC is a sinking public sector undertaking who finds it difficult to pay salary and pension to their employees/retired employees, and therefore, Exhibit P1 order passed by the Government dated 05.06.2017 is illegal and arbitrary.
W.P.(C).NO. 19126 OF 2017 3
4. Third respondent has filed a counter affidavit refuting the allegations raised by the petitioner. Apart from other contentions, it is stated that, petitioner being an employee of Pathanamthitta District Co-operative Bank has no locus standi to challenge Exhibit P1 order issued by the 4th respondent. Exhibit P1 order was issued by the 4th respondent, ie. Secretary to Government, Transport Department, by according sanction for guarantee for loan of Rs.130 crores after fixing strict conditions in accordance with the Government orders and as per the provisions of the Kerala Ceiling of Government Guarantee Act, 2003. The said order was issued by the 4th respondent taking into account the requirement of a public utility service in the State of Kerala. Exhibit P1 order guarantees repayment by the KSRTC in terms of the order and the Government assured the payment, in case any default on the part of the 5th respondent, KSRTC.
W.P.(C).NO. 19126 OF 2017 4
5. It is stated that the Managing Director of KSRTC, vide its letters dated 24.05.2017 and 13.06.2017 had requested the first respondent to grant a loan of Rs.130 crores and had assured that they will repay the loan amount through Escrow mechanism. In fact, the State Government had already accorded sanction as per Exhibit P1 providing guarantee to the repayment of loan and the first respondent had considered the request and had sought permission from the Registrar of Co-operative Societies for necessary sanction to disburse loan in accordance with credit monitoring arrangement norms and also to accept the guarantee given by the 4th respondent. Apart from the same, the 1st respondent, vide its letter dated 08.06.2017 had requested The National Bank for Agriculture and Rural Development (NABARD) for necessary permission to grant financial assistance to KSRTC by accepting Exhibit P1 guarantee given by the State Government. It is also stated that the 1st respondent Bank is functioning under the control W.P.(C).NO. 19126 OF 2017 5 of the Reserve Bank of India (RBI), and the provisions contained in the Banking Regulation Act, 1949 are applicable to the said bank. Under Section 56(cc) of Banking Regulation Act, a Co-operative bank is interpreted to mean; a State Co-operative Bank, a Central Co-operative Bank and a Primary Co-operative Bank and thereupon the Reserve Bank of India has granted license to Pathanamthitta District Co-operative Bank as per Section 22 of Banking Regulation Act, and hence a licensed Co-operative bank may accept deposit and lend money to a non-member. Therefore, the 1st respondent bank is competent to issue loans to the KSRTC subject to the norms prescribed by NABARD. As per the CMA norms prescribed by NABARD, the District Co-operative Bank is having sector wise eligibility for sanctioning 60% of the capital fund or 50% of the lendable resources, whichever is less, on the basis of the last audited balance sheet, ie. on 31.03.2016. In the case of 1st respondent, the capital fund is Rs.66.68 crores and lendable resource is Rs.344.54 crores. W.P.(C).NO. 19126 OF 2017 6 Therefore, 60% of capital fund is Rs.40 crores and 50% of the lendable resource is Rs.172.25 crores. Therefore, according to the State Government, the entire action on the basis of the request made by KSRTC to extent the guarantee subject to required permission by respective authorities is in accordance with law.
6. A counter affidavit is filed by the 5th respondent also, almost in similar lines, as that of one filed by the Government and justifies its action, especially due to the fact that it operates the stage carriages in order to protect the interest of the public at large, and is discharging its constitutional obligations so as to cater the needs of the citizens of this country. Therefore, according to the additional 5th respondent, the requisition made by it before the Government for extending guarantee and the request made to the 1st respondent to extend the loan facility are all in order, and therefore, the petitioner has not made out any case justifying interference of this court. W.P.(C).NO. 19126 OF 2017 7
7. A reply affidavit is filed by the petitioner reiterating the stand adopted in the writ petition and also producing certain documents.
8. First respondent has also filed a counter affidavit, among other contentions, it is stated that the KSRTC will repay the EMI of the loan amount through Escrow mechanism. It is also stated that as per clause 36 of the bye- laws of the bank; loans and overdraft/cash credit can also be sanctioned to non-members from bank's own funds subject to the rules framed by the Board and approved by the Registrar of Co-operative Societies. The lendable power of the bank as is stated in the counter affidavit of the State is repeated. The bank has also taken a decision on the basis of Exhibit R1(b) letter submitted by the KSRTC, and thereupon, forwarded Exhibit R1(c) letter to the NABARD. Accordingly, NABARD has advised as per Exhibit R1(d), and thereupon, Exhibit R1(e) is issued requesting NABARD to grant specific relaxation for sanctioning working capital loan to KSRTC. W.P.(C).NO. 19126 OF 2017 8 Therefore, according to the 1st respondent it can sanction and disburse the working capital loan after getting the approval of Registrar of Co-operative Societies and also the sanction of the NABARD.
9. Heard learned counsel for the petitioner, learned Advocate General appearing for the State, and the respective counsel appearing for the other respondents.
10. The sole question to be considered is, whether Exhibit P1 order passed by the State Government to extend guarantee to the loan sought for by the additional 5th respondent from the 1st respondent, and the steps taken accordingly by the 1st respondent is legally justifiable or not. The crux of the contention advanced by learned counsel for the petitioner is that, as provided under Section 59 of the Act, 1969, no loan can be sanctioned to a non-member of the 1st respondent bank. In that regard, appreciation of Section 59 is relevant and apposite. Section 59 states that a society shall not make a loan to any person or a society other than a W.P.(C).NO. 19126 OF 2017 9 member. However, the first proviso thereto states that a District Co-operative Bank may make loan to nominal or associate members. The second proviso enables a society with general or special sanction of the Registrar to make loans to another society. Be that as it may, as per sub-section (2) of Section 59, notwithstanding anything contained in Sub-section (1) a society may make a loan to a depositor on the security of its deposit. According to the learned counsel for the petitioner, the said provision read along with Section 2(ia) makes it clear that the first respondent is not having the power to lend money to any persons other than as specified above. However sub-section (1) of Section 2 of Act, 1969 defines, District Co-operative Bank to mean, "A central society, the principle object of which is to raise funds to be lend to its members and individuals with jurisdiction over one revenue district having its members, any type of Primary Societies, Federal Co-operative Societies and Central Societies having head quarters in such revenue district and W.P.(C).NO. 19126 OF 2017 10 having nominal or associate members as specified in the proviso to sub-section (1) of Section 18 of Act, 1969. According to the learned counsel, Section 18 deals with nominal or associate members and a society may admit any individual as a nominal or associate member. Therefore, the conspectus of the contentions raised by the learned counsel for the petitioner is that, these are the enabling provisions empowering the 1st respondent society to lend money and since there is no power vested to lend money outside the parameters provided in the aforesaid provisions, attempt of the 1st respondent to issue loan to the KSRTC cannot be sustained under law.
11. Moreover, it is contended that, even though the Society is functioning after securing necessary sanction from the Reserve Bank of India as provided under the Banking Regulation Act, 1949 (hereinafter called, 'Act 1949'), since the Kerala Co-operative Societies Act has received the assent of the President of India, it has got its own independent W.P.(C).NO. 19126 OF 2017 11 existence against the provisions contained under the Banking Regulation Act, and therefore, the respondents are not at liberty to harp on the provisions of the Banking Regulation Act to justify the action initiated by providing Exhibit P1 guarantee. However, the learned Advocate General has invited my attention to Entry 45 of List 1 to the Seventh Schedule of the Constitution of India, whereby the power to make regulations in the banking sector is provided to the Central Government. Entry 32 in the State List provides for opening up of societies. Anyhow, so far as the banking sector of the Societies is concerned, Entry 45 of List 1 will be operative and there is no conflict of interest existing by and between the provisions of Co-operative Societies Act, 1969 and the Banking Regulation Act, 1949. If at all there is any repugnancy, the Central law will prevail, by virtue of Article 254(1) of the Constitution of India. That apart, privilege extended to a State law under Article 254(2) with respect to receipt of assent of the President of India is only W.P.(C).NO. 19126 OF 2017 12 with regard to any matters enumerated in the Concurrent List, however such a contigency has not arisen in this case and therefore, there is no force in the arguments so advanced by learned counsel for the petitioner. There is no dispute that the 1st respondent is functioning after securing necessary license from the Reserve Bank of India. Learned Advocate General has invited my attention to Section 22 of the Banking Regulation Act which deals with licensing of banking companies. Sub-section (4) of Sec. 22 is relevant to this context, which read thus:-
"22. Licensing of banking companies.-
(1) xxxxxxxxxxxxxxxx (2) xxxxxxxxxxxxxxxx (3) xxxxxxxxxxxxxxxx (4) The Reserve Bank may cancel a license granted to a banking company under this section -
(i) if the company ceases to carry on banking business in India; or
(ii) if the company at any time fails to comply with any of the conditions imposed upon it under sub-
section (1); or
(iii) if at any time, any of the conditions referred to in W.P.(C).NO. 19126 OF 2017 13 sub-section (3) (and sub-section (3A)) is not fulfilled:
Provided that before cancelling a license under clause
(ii) or clause (iii) of this sub-section on the ground that the banking company has failed to comply with or has failed to fulfil any of the conditions referred to therein, the Reserve Bank, unless it is of opinion that the delay will be prejudicial to the interests of the company's depositors or the public, shall grant to the company on such terms as it may specify, an opportunity of taking the necessary steps for complying with or fulfilling such condition.
(5) xxxxxxxxxxxxxxxx (6) xxxxxxxxxxxxxxxx."
12. Therefore, it is the contention of the learned Advocate General that, there is no prohibition created under the Banking Regulation Act to provide loan to a non-member of a Society and on the contrary, if the 1st respondent is not functioning in accordance with the provisions, the license is liable to be cancelled. So also, Section 56 of Act, 1949 was brought to my notice by learned counsel appearing for the additional 5th respondent, and specifically to clause (d) therein which read thus:-
W.P.(C).NO. 19126 OF 2017 14
"56. Act to apply to Co-operative Societies subject to modifications.-
(d) for section 5 A, the following section shall be substituted, namely:-
5 A. Act to override bye-laws, etc. -
1, The provisions of (this act) shall have effect, notwithstanding anything to the contrary contained in the bye-laws of a co-operative society, or in any agreement executed by it, or in any resolution passed by it in general meeting, or by its Board of Directors or other body entrusted with the management of its affairs, whether the same be registered, executed or passed; as the case may be before or after the commencement of the Banking Laws (Application to Co-operative Societies Act, 1965 (23 of 1965).
2. Any provision contained in the bye-laws, agreement or resolution aforesaid shall, to the extent to which it is repugnant to the provisions of [this act,] become or be void, as the case may be."
13. The said provisions were introduced into the statute book by Amendment Act 58 of 1968 and brought into force with effect from 01.02.1969. So also, learned counsel for the 1st respondent bank has invited my attention to Section 101 of KCS Act, whereby power is conferred on the State Government to exempt any society or any class of the societies from any of the provisions of the Act or direct that W.P.(C).NO. 19126 OF 2017 15 such provision shall apply to such society or class of societies subject to such modifications as may be specified in the order. Therefore, according to the counsel, every power is vested with the Government to extend a guarantee to a loan secured by the additional 5th respondent from the 1st respondent society.
14. Having evaluated the fact situations, I am of the considered opinion that, by virtue of the powers conferred on the 1st respondent bank under Section 22 read with Section 56(d) of the Act, 1949, the 1st respondent is entitled, as of right, to carry on the banking business. Section 56(d) makes it clear that de hors any provisions contained in the bye-laws of a Co-operative Society or in any agreement executed by it etc. etc.., the bank has every power to lend money. That apart, it is evident that, clause 28 of the bye- laws of the society empowers the Board of Directors to grant loans, advances, overdrafts and cash credit to members, individuals, partnership firms, companies, local bodies, W.P.(C).NO. 19126 OF 2017 16 societies registered under Charitable Societies Act and registered trust and on such terms and conditions as they may determine from time to time.
15. So also Section 2(ia) of Act, 1969 defines, "District Co-operative Bank" to mean a Central Society, the principal object of which is to raise funds to be lent to its members and "individuals" etc. etc.. The Chambers Concise Dictionary new edition defines "individual" to mean; "subsisting as one, pertaining to one only or to each one separately of a group or a single person or till considered as a separate member of its specious or as having an independent existence." Therefore, in my considered opinion, it cannot be said that the Act has not taken care of a situation where loan is advanced to a person other than a member. Therefore, on a compendious reading of the aforesaid provisions, it is convincingly clear that the 1st respondent bank has got every power to enter into financial dealings with the additional 5th respondent viz, the KSRTC.
W.P.(C).NO. 19126 OF 2017 17
16. Moreover, 2nd proviso to Section 18(1) of Act, 1969 makes it clear that, any individual, depositor or any loanee residing within its area of operation can be made a member of the 1st respondent. So the contention advanced by the petitioner that the 1st respondent is not vested with power to issue loan to a non-member is diluted substantially, especially due to the reason that, the grant of loan to a non- member is explicit and clear from the said provision. So also, from Section 69(1)(f) and 1(g) of Act, 1969, it is clear that loan granted to a non-member and guarantor can be recovered by resorting to the said provisions which thus also means that the Act contemplates implied grant of loans to non-members also.
17. However, petitioner has a contention that the KSRTC is not a financially viable establishment running on profit, and therefore, if the loans are advanced, the likelihood of repayment is bleak and almost remote. In my considered opinion, the State Government is extending a guarantee as W.P.(C).NO. 19126 OF 2017 18 provided under Exhibit P6, Kerala Ceiling on Government Guarantees Act, 2003 which is an enabling enactment empowering the State Government to offer guarantees in accordance with the stipulations contained thereunder. Therefore, the contentions advanced by the petitioner that the 3rd respondent has no power to extent such a guarantee cannot be said to be correct. In this regard, I have gone through Exhibit P1, guarantee offered by the government dated 05.06.2017, whereby sanction is accorded for the government guarantee for a loan of Rs.130 crores to the KSRTC from District Co-operative Bank, Pathanamthitta as per the conditions indicated thereunder which are as follows:-
"Sanction is accorded for the Government guarantee for a loan of Rs. 130 crore (Rupees one hundred and thirty crore only) to Kerala State Road Transport Corporation from District Co- operative Bank, Pathanamthitta as per the conditions indicated below:
I. Gurantee Commission @ 0.75% shall be remitted as per order in G.O (MS) 487/04/Fin dated 16.10.2004 and Guarantee W.P.(C).NO. 19126 OF 2017 19 Act.
II. Simple interest @ 12% shall be charged for delayed payments as specified in clause 5 of Government Order dated 16.10.2004.
III. Half yearly report shall be sent to Government in Finance Department with attested copies of chalans remitting Guarantee Commission & Penal Interest, if any indicating details of guaranteed amount, outstanding, guarantee commission payable (with details of calculation).
IV. Transport Department will ensure the remittance of Guarantee Commission dues if any, before the execution of deed.
V. Since Guarantee Commission cannot be waived as per Guarantee Act, a proper mechanism shall be evolved for the strict payment of Guarantee Commission without any fault.
VI. The Guarantee deed shall invariably contain the Govt Order No. & date of Government Guarantee, Amount & Period of Guarantee & the Ceiling limit as per KCGG Act, 2003 & should be get vetted by Law Dept & Fin. Dept."
18. Therefore, Exhibit P1 makes it clear that the Government is extending guarantee for the entire amount of Rs.130 crores, and the stipulations contained thereunder are only to ensure that the repayments are made by the KSRTC in accordance with the the arrangements provided thereunder. In my considered opinion, the stipulations contained thereunder are only an arrangement by and between the W.P.(C).NO. 19126 OF 2017 20 State Government and the KSRTC, and that will not in any manner interferes with the guarantee offered by the State Government to the 1st respondent bank on account of the financial transaction by and between 1st respondent and KSRTC. Moreover, I find from Exhibits R1(a) to R1(e) produced along with the counter affidavit filed by the 1st respondent, requisite sanctions are sought for by the 1st respondent from the Registrar of Co-operative Societies as well as the NABARD. It is also made clear in the counter affidavit filed by the 1st respondent that the loans will be issued to the additional 5th respondent only on securing necessary sanction from the respective statutory authorities. So also, the documents produced by the 1st respondent will show that the repayment is done through an Escrow mechanism provided for the purpose. Taking into account the relevant inputs made by the State Government and the respective respondents, I am satisfied that guarantee is offered by the State Government in order to issue loan. So W.P.(C).NO. 19126 OF 2017 21 also, the repayment is secured through a mechanism stipulated as per Exhibit P1 as well as by opening up an Escrow account in order to wipe off the loan transaction. Above all these aspects, Exhibit P6 enables power to the State Government to execute a guarantee for and on behalf of the 5th respondent in order to secure the loan transactions. However,the same will not in any manner excludes the State Government from acting against the provisions contained under the Indian Contract Act, relating to duties and obligations of a guarantor. Therefore, when the guarantee is offered by the State Government, the State Government is imposed with a legal duty as provided under various provisions of Indian Contract Act to repay the loan amount in the event of the KSRTC failing to discharge its liabilities. In this context, Section 145 of Indian Contract Act assumes importance and the remedy available to a guarantor is to recover all amounts paid for and on behalf of the principal debtor.
W.P.(C).NO. 19126 OF 2017 22
19. Takinginto account the entire situations discussed above, I am of the considered opinion that, petitioner has failed to make out any case of illegality, arbitrariness or any other legal infirmities, justifying interference of this Court under Article 226 of the Constitution of India. However, I make it clear that the guarantee offered by the State Government shall be, in every sense, a fullest guarantee offering to repay the amount to the 1st respondent bank in the event of failure of the 5th respondent to repay the same in accordance with the contract entered into by and between the first respondent and the fifth respondent.
The writ petition is dismissed, however subject to the above observations.
Sd/-
SHAJI P.CHALY JUDGE rk