Calcutta High Court (Appellete Side)
108/2012 on 4 June, 2012
Author: Pratap Kumar Ray
Bench: Pratap Kumar Ray
1
4.6.2012
A.S.T. 108 of 2012
A.S.T.A. 68 of 2012
Mr. Tarun Kumar Ray
Mr. Dinesh Chandra Nandi
Mr. Biplab Ranjan Bose
Mr. Arnab Ray
... for the appellants
Mr. Sadhan Kumar Halder
Mr. Monoranjan Jana
... for the State
Mr. Krishnendu Banerjee
... for the respondent no.4
-----------------
Pratap Kumar Ray,J.
Heard the learned advocates appearing for the parties. Assailing the interim order dated 17th April, 2012 passed by the learned trial Judge in W.P. 6863 (W) of 2012, this appeal has been preferred.
The stay application has been moved today in connection with this appeal.
Having regard to the tenor of the order impugned and having regard to the question of maintainability of the writ application, which we have heard at length, we are of the view that appeal and stay application and concerned writ application could be disposed of by us by a common judgment.
Writ application accordingly is taken by us by exercising our appellate jurisdiction.
From the writ application and the stay application filed by the writ petitioner in connection with the writ and the appeal it appears that assailing the initiation of a proceeding under Section 35 of the West Bengal Co-operative 2 Societies Act, 2006, writ application was moved. Section 35 of the said Act reads such:
"35. Dissolution of the board and appointment of administrator.-(1) If, on receipt of a report from the Registrar, the State Government is of opinion that-
(a) any board-
(i) has persistently made defaults, or has been grossly negligent, in the performance of its duties under this Act or the rules or the by-laws, or
(ii) has committed any act prejudicial to the interest of the concerned co-
operative society or the members of any other co-operative society; or
(iii) has wilfully disobeyed or wilfully failed to comply with any lawful order or direction of the State Government or the Registrar issued under this Act; or
(b) the affairs and business of any co-operative society has com to a stalemate due to persistent default or negligence in the performance of duties by its board, the State Government may, after service of a notice upon the board and giving it an opportunity for stating its objections and upon hearing such objections, by a notification stating reasons therefor, dissolve the board, the directors of which shall forthwith vacate their offices and by the said notification [the State Government shall appoint one or more of its officers to manage the affairs of one or more co-operative societies who shall be called the administrator or administrators, as the case may be] for a period not exceeding six months and may also, by notification extend such period so, however, that the total period shall not exceed one year in any case:
Provided that the State Government shall not take any step towards immediate dissolution of the board of directors of the State Co-operative Bank or the Central Co- operative Land Development Bank or any Central Co-operative Bank or such other Co- operative Bank as comes within the provision of Part V of the Banking Regulation Act, 1949 (10 of 1949), without prior consultation with the Reserve Bank of India or the national Bank for Agriculture and Rural Development, as the case may be:
Provided further that the Registrar shall reconstitute an elected board of directors of the co-operative society in a general meeting to be convened for the purpose in accordance with the Act, rules and by-laws within the tenure of the office of the administrator as specified in the notification so that he may make over his charge to the newly elected board before expiry of his tenure.
[(1A) if an elected Board cannot be reconstituted within the period of one year from the date of dissolution of the board, the administrator shall be removed from his office by the State Government and thereupon the provision contained in subsection (7) of section 29 shall be followed.] (2) During the tenure of office of the administrator appointed under subsection (1)-
(a) all properties of the co-operative society shall vest in the Registrar; and
(b) subject to the control of the Registrar and notwithstanding the preferring of any appeal under section 147, the administrator shall exercise all the powers and perform all the duties which may be exercised or performed by the board or any officer of the co-operative society under this Act or the rules or the by-laws."
On a bare reading of said Section it appears that under sub-section (1) of Section 35, State Government is empowered to initiate a proceeding for dissolution of any Co-operative Society including any Co-operative Bank upon giving proper show-cause notice and hearing and thereafter by issuing a 3 notification assigning the reasons for such dissolution subject to prior consultation with the Reserve Bank of India for dissolution of any Co-operative Bank or the Central Co-operative Land Development Bank or other Banks, which are controlled and covered by Part V of the Banking Regulation Act, 1949.
From the show-cause notice as annexed at page 92 of the stay application it appears that allegations of financial default and other irregularities have been mentioned in details. The show-cause notice as issued reads such:
"Government of West Bengal Co-operation Department Writers' Buildings, Kolkata-700001 Memo No. 684-Coop/D/3P-15/99 Dated: Kolkata, 1st March, 2012 From: The Joint Secretary to the Government of West Bengal. To: The Chairman, The Jalpaiguri Central Co-operative Bank Ltd.
Head Office - Temple Street, P.O. & Dist.- Jalpaiguri, PIN Code-735101.
Subject: Show Cause notice under section 35(1) of the W.B.C.S. Act, 2006.
Sir, The undersigned has been directed to say that the State Government in the Co- operation Department is in receipt of a report from the Registrar of Co-operative Societies, West Bengal vide memo No: 7813 Dated:- 30.09.2011 regarding affairs of The Jalpaiguri Central Co-operative Bank Ltd.
It appears from the said report that the R.C.S., West Bengal has caused inquiry in respect of the following complaints regarding affairs of your bank:-
Complaint No:-1 The Chairman of the said Bank sanctioned loan of Rs. 47.00 lac to one firm and five individuals, without any security. One of the individuals was Shri Sukanta Mukherjee. He drew his own loan of Rs. 11.00 lac and also other loans. Thus Shri Mukherjee received the entire Rs. 47.00 lac without proper security and documentation."
Regarding complaint No:- 1 the R.C.S., W.B. has observed to the following effect-
1) At least one loan case, in the name of Malabika Ghosh, appears fake. No resolution sanctioning this loan was found.
2) Documents and securities in most of the cases appear to be inadequate and improperly filed in.
3) Shri Sukanta Mukherjee was allowed to draw and utilize these loans for some other business. The loans were not utilized for the purpose for which those were sanctioned.
4) Shri Gobinda Roy became Chairman of the Board on 19.09.2006. Loan to Shri Hari Kumar Das and Timex Hardware were sanctioned in the year 2009 when Shri 4 Gobinda Roy was the Chairman of the Board. The loans were sanctioned in the Board meeting and not by the Chairman himself. Hence the responsibility of sanctioning such irregular loan lies with the entire Board which was functioning at that time.
5) Bank should immediately identify employees involved in the irregular activities and start disciplinary proceedings against them.
6) FIR should be lodged against Shri Sukanta Mukherjee for defrauding the Bank, in consultation with a criminal lawyer, immediately.
Complaint No:-2 "Shri Sukanta Mukherjee was earlier favoured with a loan of Rs. 50.00 lac for construction of a commercial complex at 1, Vidyasagar Road, Siliguri. The Bank purchased one flat in that complex. The purchase cost of Rs. 73.50 lac was adjusted with the fake loans mentioned above and the loan against the commercial complex remained unpaid."
Regarding Complaint No:-2 the R.C.S., W.B. has observed to the following effect-
1) The decision of I & L Committee (Investment and loan Committee) of the Bank dated 24.09.2005 sanctioning cash credit loan for construction of a building i.e., a fixed asset, is in violation of normal banking procedure.
2) The decision of the I & L Committee of the Bank dated 24.09.2005 sanctioning cash credit loan on the land already mortgaged to Bank is highly irregular.
3) Proceeds of the sale of flat to the Bank by Shri Mukherjee were adjusted with a few loans as mentioned in the complaint.
4) The present BOD was elected on 26.12.2009 and all these things happened before the present BOD took charge.
5) Shri Gobinda Roy, the Chairman of the present Board was Chairman of the previous Board also.
Complaint No:-3 "A fraud of Rs.350 lac was detected to be done by Shri Mukherjee in Siliguri Branch of the Bank. On 15/11/08 an inspection team was formed by the Board of the Bank. But the report of the inspection team was never placed in the Board. A lawyer entrusted by the Chairman, gave his opinion in this matter (which was placed before the Board), that the incident was clear fraud. It appears that Board suspended the Branch Manager of the Bank, who was involved in the fraud, but no action was initiated against Shri Mukherjee. Surprisingly, the Bank sanctioned a loan of Rs. 55.00 lac to Xecinta Petronet, where said Shri Mukherjee is the sole proprietor, without any security. The loan was renewed in regular intervals."
Regarding Compalint No:-3 the R.C.S., W.B. has observed to the following effect-
1) The matter of fraud including the action taken against the responsible employees was discussed several times in the BOD.
2) Bank initiated action against Shri Sukanta Mukherjee for commissioning of fraud with the Bank and also initiated legal measures for recovery of the amount. However, the process is already much delayed and the Bank should take all necessary legal measures to ensure recovery of the amount immediately.
3) Cash Credit loan limit to Xecinta Petronet was enhanced to Rs. 25.00 lac on 30.03.2009 when the loan account was already overdue. It can be concluded that as because, the loan was shown in D-2 category in the NPA Statement as on 30.03.2011, this implies that the loan was overdue for at least 4 years i.e. the loan 5 became overdue latest by 31.03.2008. This was done during the latest part of the tenure of the last Board. After that it has never been enhanced or renewed.
Complaint No:-4 "The amount involved in the fraud by said Shri Mukherjee has been shown as loan to Shri Muklherjee by the Bank, although no such loan was sanctioned by the Board of the Bank."
Regarding Complaint No:-4 the R.C.S., W.B. has observed to the following effect-
1) The amount of fraud in the cash credit account of Shri Sukanta Mukherjee was shown as loan.
Complaint No:-5 "In a number of Government sponsored Schematic lending, the loan component (carrying an interest rate of 13.75%) has been kept as fixed deposit (carrying an interest rate of 8.25%) in the Bank and only the subsidy component was disbursed to the beneficiaries. The Bank has lost 5.5% interest in all these cases and the total loss of the bank was to the tune of Rs. 2.00 crore. This loss was caused with the intention of personal gain by the Chairman. The projects could not take off."
Regarding Complaint No:-5 the R.C.S., W.B. has observed to the following effect-
1) No instance was found where the subsidy amount alone was physically disbursed and the loan amount was kept as fixed deposit in the Bank.
2) In all these cases under Government Scheme the beneficiaries were selected by the concerned sponsoring agency and not by the Board or Chairman of the Bank.
3) Recovery in these cases is not satisfactory. Often the projects could not take off due to various reasons. Monitoring of these loan cases and these projects at the Bank level is almost absent. Respective sponsoring authority cannot evade their responsibility in this matter.
Complaint No:-6 "Engineers' and Labour Co-operative Societies were allowed loans against Government Work Order. The cheques deposited by the Engineers' and Labour Co- operatives into their account were allowed to be withdrawn, despite outstanding balances in their loan accounts. This has resulted in Rs. 20.00 crore NPA in such loan accounts. This was done in violation of the BOD resolution dated 25.05.2004 and Office Order No. 706/J dated 14.06.2004."
Regarding Complaint NO:-6 the R.C.S., W.B. has observed to the following effect-
1) No instance was found where cheques deposited by the Engineers' and Labour Co- operatives into their account were allowed to be withdrawn, despite outstanding balances in their loan accounts, excepting one. So this appeared to be not a practice of the Bank.
2) The policy adopted by the Board as per its resolution dated 25.05.2004 was genrally followed.
Complaint No:-7 "Proprietor of Balaji Automobiles, Siliguri, Shri Surajit Saha, outstanding Principal and interest taken together was Rs. 47.00 lac. He was allowed one time settlement of his 6 account after payment of Rs. 26.00 lac only. Said Shri Saha as proprietor of Shalimar Enterprises was granted a loan of Rs. 150.00 lac against the security of Rs. 25 lac and a piece of land measuring 0.33 decimal, valued at Rs. 2.12 lac approximately. Later a valuation report of the same land was submitted where the valuation was mentioned as Rs. 80.00 lac."
Regarding Complaint No:-7 the R.C.S., W.B. has observed to the following effect-
1) Interest relief extended to Balaji automobiles and in other loan accounts were highly irregular.
2) The loan to Shalimar Enterprise was sanctioned much earlier that the OTS in the account of the Balaji Automobiles. Its limit was enhanced from time to time on the basis of the value of the Work Order issued by the competent authority and placed by the borrower to the Bank. The loan was not covered under security as desired in the sanction letter. The value of the landed property offered as collateral security should also be verified immediately. However, the transaction of the borrower in the loan account is regular.
On receipt of the said report from the Registrar of Co-operative Societies, West Bengal, the State Government is of the opinion that the Board of Directors of the Jalpaiguri C.C.B. Ltd:-
(i) has, prima-facie, persistently made defaults and/or has been grossly negligent in the performance of its duties as provided in the W.B.C.S. Act, 2006 and the W.B.C.S. Rules, 2011 and the bye-laws of the said Bank,
(ii) has, prima-facie, committed acts prejudicial to the interest of the concerned Co-
operative bank.
You are, therefore, requested to state your objections, if any, to what have been stated hereinbefore and to show cause as why the Board shall not be dissolved.
Your objections, if any, should reach this end as early as possible preferably within a period of fifteen days from the date of receipt of this show cause notice failing which, it shall be presumed that you do not have objection to the proposed dissolution of the Board. You are also requested to appear for hearing of your objections, if any, on 19th March, at 2.00 p.m. in the office-chamber of the Secretary of this Department.
Please take note that you are at liberty to take inspection of the documents which have been relied upon by the State Government in forming such opinion as stated hereinbefore prior to stating objections or hearing upon prior intimation to the State Government in the Co-operation Department.
With thanks, Yours faithfully, Sd/-
Joint Secretary to the Government of West Bengal."
A reply of this show-cause was filed by the present writ petitioners/appellants, which is annexed at page 97, which reads such:
"Memo No. 2296/J Dated: 14/03/12.
To
The Joint Secretary to the Govt. of West Bengal,
7
Co-operation Department,
Writers' Buildings,
Kolkata - 700 001.
WITHOUT PREJUDICE
Sub: Reply to the show-cause notice under Section 35(1) of the WBCS Act, 2006. Ref: Your Memo. No. 684-Co-op/D/3P-15/99 dated Kolkata, the 1st March, 2012 Sir, Kindly refer to the above-cited unsigned show-cause notice where-under, you have asked to state objections, if any, to what have been stated therein and to show cause as to why the Board of the Jalpaiguri Central Co-operative Bank Ltd. Shall not be dissolved.
For your kind information, the present Board took charge of the Bank duly elected democratically by the members of the Society on 26/12/2009. From the very inception, all efforts of the Board were directed towards boosting up the morale of the employees and guiding the bank out of the financial stress, which the bank was facing at that time. Bank has extended its business and income generation has become almost three-fold. At times, the Board has to alter its way of functioning in order to cope up with modern challenges of banking by implementing computerized systems. The Board has introduce several schemes of deposits and lending to cater grassroots level of the poor farmers, artisans and entrepreneurs of the district. The Board has to struggle often for recovery of old overdue loans. The Board has always tried its best to regularize such loans by persuasion and/or knocking doors of law. All the members of the Board are very much open to any lawful inspection and/or enquiry. We believe that inspection/inquiry reports act as mirror and guide the management to manage the affairs with prudence. Thus we always welcome constructive inspection/inquiry reports.
In the present case, the inspection was conducted by two officers of the Apex Bank under the instruction of the Managing Director of the West Bengal State Co-operative Bank Ltd., u/s 99(2) of the West Bengal Co-operative Societies Act, 2006. In the order of the MD, WBSCB Ltd. Vide No. HO/MD/72/1633 dated 25/07/11, causing the inspection, it was stated that the RCS, West Bengal, under memo no. 5019/I-390/46 dated 07/07/11 requested the MD, WBSCB Ltd. To cause an inquiry into the complaint alleged to have been lodged by three Board members of our Bank through Sri Debaprasad Roy, Member, Legislative Assembly, Alipurduar and complaints of two persons, said to be the members of Nityanandanagar SKUS Ltd. and Baruapara SKUS ltd., through Sri Sukhbilas Barma, Member, Legislative Assembly, Jalpaiguri.
The MD, WBSCB Ltd., was pleased to submit the inspection report of 2 officers of The West Bengal State Co-operative Bank Ltd. to the RCS, West Bengal, copy of which was forwarded information to the Chief Executive Officer of The Jalpaiguri Central Co- operative Bank Ltd. along with copy of the inspection report. The inspection report itself ruled out several fake complaints that framed with malafide intentions. The inspection report was vividly discussed in the Board Meeting dated 17/09/2011, wherein Chief Executive Officer was authorised to prepare a compliance, if necessary and when the same is asked for from the department concerned. The Chief Executive Officer is also authorized to initiate proper action against the alleged employees whose names has been mentioned in the inspection report (extract of BOD meeting dated 17/09/11 is enclosed). Such report might be forwarded to the authority under Law, if asked for.
Further, for your information, the alleged complainants (three directors) have submitted written statements before the inspecting officers to the effect that fake allegations have been submitted by using their names and some unknown persons are behind the screen with motivated interests. In respect of other complainants (of Nityanandanagar SKUS Ltd. & Baruapara SKUS Ltd.) written communications have been received by the inspecting officers from the societies to the effect that such persons 8 do not exist at all in the member list of the societies. In the course, fabricated allegations have been forwarded through Hon'ble Members of Legislative Assembly (Jalpaiguri & Alipurduar) shattering their credibility as well.
Furthermore, with much humbleness, we would like to put on record some anomalies observed by the Board of this bank in the process of inspection and the show- cause thereafter, which are as follows:
a) The unsigned memo under reference was received by us on 5th day of March 2012 by fax. From the content of the memo, it has come to our notice that 19th March 2012 is earmarked to appear for hearing objections, if any, in the office chamber of the Secretary of the Department, though a time of 15 (fifteen) days from the date of receipt of the show-cause notice is given to state objections. Fixing a prior date of appearance for hearing objections before elapsing 15 days time of furnishing the objections, is a serious prejudice to our concern. You may note that the date of hearing should not be before 20th of March, 2012, the 17th and 18th instant being a Saturday and a Sunday and the Government offices remaining closed on both the days and the Bank is really getting 11 days' time for filing the objection by the 16th .
b) The MD, WBSCB Ltd., despite being requested to cause an inquiry, directed two of his subordinate officers to hold an inspection u/s 99(2) of the West Bengal Co-
operative Societies Act 2006 instead of an inquiry as contemplated u/s 100 of the Act.
c) The management of the bank and its officers had extended full co-operation to the inspecting Team in course of their inspection.
d) The MD, WBSCB Ltd., apparently submitted the inspection report signed on 30.08.2011 prepared by the said two officers of the West Bengal State Co-operative Bank Ltd. to the RCS, West Bengal, a copy of which was forwarded for information to the Chief Executive Officer of our Bank. In your above referred memo, you have stated that the memo was issued considering the inquiry report caused by the RCS, West Bengal. But we humbly state that the Registrar of Co-operative Societies, West Bengal did not hold any inquiry, either by himself or by any person authorized by him, into the complaints regarding the affairs of the bank, nor any such report was ever communicated by his office to our Bank at any material point of time and in fact, the alleged complaints and the observations of the RCS in your unsigned memo are merely quoted from the aforesaid inspection report prepared by the said two officers of the apex Bank and the observations of the RCS are nothing but the verbatim reproduction of the conclusions recorded by the said two officers.
e) Any opinion required to be formed u/s 35(1) of the West Bengal Co-operative Societies Act 2006, has not been obviously done, as the defaults and acts of omission and commission pointed out in your memo are prima facie. So, it is felt that, statutory requirement has not been fulfilled. Formation of opinion is sine qua- non for any steps u/s 35 of the Act.
f) It has also been noted that legal necessity of prior consultation with Reserve Bank of India as mandated by the Legislature under the first proviso to Sec. 35(1)(b) of the West Bengal Co-operative Societies Act, 2006 is lacking in the instant case.
g) Sec. 2(2) of the Act also debars any interference into the affairs of the bank.
h) Further, in view of the Chapter XIIIA of the Act, our bank is recognized as a Co- operative Credit Structure Entity and is enjoying special statutory protection as regards its autonomy in all financial and internal administrative matters.
i) Your kind attention is also drawn towards latest amendment of the Constitution of India assented to by the President on 12th January, 2012, wherein, a new Article 43B has been introduced and made part of our Constitution obligating the State to promote autonomous functioning and democratic control of co-operative societies. Article 243ZI is also introduced for democratic and autonomous management of the co-operative societies.
9In view of what has been state above, we feel that, lawfully any steps towards dissolution of the Board of the Jalpaiguri Central Co-operative Bank Ltd. cannot be taken on the basis of presumptions, fake allegations or extraneous considerations. Thus we call upon you to relieve the undersigned from the allegations made in memo under reference and refrain from dissolution of the Board of The Jalpaiguri Central Co- operative Bank ltd. Else, the Bank will have no other alternative but to resort to the Court of Law for safeguarding its legal and constitutional rights. We hope your good office will accept the submissions stated herein with much consideration and extend co-operation to this Board in advancing Co-operative Movement in the District with your advice and invaluable suggestions. I also assure you that I will attend the hearing on 19th March, 2012 on due tome to raise the objections in the same line.
Thanking you, Yours faithfully, Sd/-
(GOBINDA ROY) Chairman The Jalpaiguri Central Co-operative Bank Ltd."
In the reply, a point has been taken that show-cause notice was not maintainable as there was no prior consultation with the Reserve Bank of India in terms of the proviso of Section 35 sub-section (1) of the said Act. The constitutional point also has been taken by asserting the fact that in the democratic and autonomous management of any Co-operative Society the Government should not interfere.
Learned trial Judge refused to stay the proceeding initiated under Section 35 of the said Act, but passed an order that any steps would abide by the result of the writ application. The writ petitioners being aggrieved by the said order has preferred this appeal. The impugned order reads such:
"Affidavit of service filed in Court today be kept on record. This writ petition has been taken out by Jalpaiguri Central Co-operative Bank Limited and its Chairman, being the writ petitioner nos. 1 and 2 respectively.
After considering the submissions made by the learned advocates for the parties and upon perusing the instant writ petition, it appears that the main challenge in the instant writ petition is in respect of a show-cause notice dated 1st March, 2012, issued by the respondent no.5, being the Joint Secretary, Co-operation Department, Government of West Bengal, requiring the writ petitioner no.2 to state his objections as to why the present Board of Directors of the writ petitioner no. 1 should not be dissolved.
Since it appears that the writ petitioner no. 2 has already been participated in the show-cause proceedings and a written reply has been submitted by him, this matter is required to be heard out on affidavits.
Accordingly, let affidavit in opposition be filed within a period of three weeks from date. Reply, if any, within a fortnight thereafter.
The matter shall appear under the heading, 'For Final Disposal', in the monthly combined list to be published for the month of June 2012.10
In the meanwhile, if any steps are taken by the concerned authorities pursuant to the show-cause proceedings initiated in terms of the memo dated 1st March, 2012, issued by the Joint Secretary, Co-operative Department, Government of West Bengal, the same shall abide by the result of the instant writ petition."
Mr. Ray, learned senior advocate, appearing for the writ petitioners/appellants has vehemently submitted that without consultation with the Reserve Bank of India there was no scope even to issue any show-cause notice without prior consultation under Section 35 sub-section (1) of the said Act. Mr. Ray further has referred to Chapter XIIIA of the said Act and the provisions incorporated by West Bengal Co-operative Societies (Amendment) Act, 2010.
It is contended that the present appellants/Bank is a Co-operative Credit Structure Entity under definition of Section 134B of said Act and as such, is entitled to have protection of Clause (a) of Sub-section (11) of Section 134C of the said Act. Clause (a) sub-section (11) of Section 134C reads such:
"134C. Special provisions applicable to the Co-operative Credit Structure Entities.- (1)..........................
(11)(a) The Board of the State co-operative bank or a central co-operative bank shall be superseded only with the prior approval of the Reserve Bank of India."
It is submitted that on false allegation, which is outcome of mala fide action of some fictitious persons, the State Government initiated a move by holding an inspection through Registrar, Co-operative Society for the purpose of dissolving the present board of the appellant/bank. It is contended that initially State Government directed to hold an enquiry on the allegations as reported to the State Government by the apex bank but the apex bank, namely, West Bengal State Co-operative Bank Limited, without making an enquiry held an inspection under Section 99 of the said Act and submitted a report. It is basic attack regarding initiation of proceeding that when the statute has given a protection to such type of banks by incorporating provision of prior consultation with the Reserve Bank of India in proviso of Section 35 sub-section (1) and prior approval in case of supersession of the board under Section 134C, there was no scope to issue any show-cause notice without prior consultation of the Reserve Bank of India under proviso of sub-section (1) of Section 35 and without prior approval of 11 Reserve Bank of India under clause (a) sub-section (11) of Section 134C of the said Act. We are afraid to accept such argument. In the event it is accepted that it will be nothing but to put the cart before the horse.
On interpretation of Section 35 sub-section (1) we are of the view that on the basis of report from the Registrar, State Government if holds an opinion that any board has persistently made defaults or has been grossly negligent on the performance of the duties under this Act or the rules or the by-laws or has committed any act prejudicial to the interest of the concerned co-operative society or the members of any other co-operative society or has willfully disobeyed and willfully failed to comply with the lawful order or direction of the State Government or the Registrar or the affairs of business of any co-operative society has come to a stalemate due to persistent default or negligence in the performance of duties by its board, after service of a notice upon the board and giving opportunity of hearing and by issuing a notification, may dissolve the board.
The proviso of sub-section (1) of Section 35 provides that the Board of Directors of the banks covered under Chapter V of the Banking Regulation Act, 1949 should not be dissolved without prior consultation of the Reserve Bank of India. There is no ambiguity in the language in sub-section (1) of Section 35 of the said Act including its proviso. As per our reading and understanding, we are of the view that proviso of sub-section (1) of Section 35 would be attracted to adjudicate allegations of default and other negligence to duty as stated thereof in the said Section and if allegations are proved then prior to dissolution of board, there will be necessity of consultation with the Reserve Bank of India.
Section 35 sub-section (1) and its proviso are covering the field of a decision making process on analyzing the factual matrix of allegations on the basis of reply as to be made by the Board of Directors of the concerned bank and there is no scope of prior consultation with Reserve Bank of India till there is prima facie opinion of the adjudicator, i.e., the State Government that it is a fit case for dissolution of board of the concerned bank on the basis of the proved allegations.
12Hence so long there is a stage of show-cause notice, reply and hearing for adjudication of allegations stated in show-cause notice, the consultation provision could not be applied. The consultation chapter with Reserve Bank of India would be necessary prior to passing of any actual order of dissolution of the Board of Directors of the bank and there is no necessity of consultation prior to issuance of a show-cause notice asking Board of Directors to reply against the allegations as made thereof.
Similarly in the case of supersession of Board of Directors in terms of Section 134C sub-section (11) clause (a) when the actual order of supersession to be passed prior approval of the same would be necessary. Whether the Board of Directors of the concerned co-operative banks covered under the Banking Regulation Act, 1949, could be dissolved or whether the Board should be superseded, depends upon adjudication of allegation of default or negligent, which to be faced by the Board of Directors and prior to finality of such adjudication of allegations, which is within the domain of factual matrix, there is no scope for seeking any approval to dissolve or supersede the bank. The authority concerned under the statute is competent to initiate a proceeding under Section 35 of said Act to maintain democratic rights of the members of the co-operative society and to protect the constitutional rights of members, which are the basic ingredients of forming a co-operative bank and to protect their interest so that the bank's money is not utilized illegally. The legislatures at their wisdom has provided a protective umbrella in the form of adjudication of allegations of default or negligence by initiation of a proceeding under Section 35 sub-section (1) of the said Act.
So long the allegations are not proved by giving an opportunity of show- cause and hearing the Board of Directors, there is no question of taking further steps of dissolving the Board of Directors or superseding the Board of Directors and when such situation will arise only then, the question of approval of the Reserve Bank of India or consultation with the Reserve Bank of India would be necessary. Hence, the writ application as moved by the writ petitioners/appellants was premature to throttle the adjudicatory process to 13 identify their default or negligence on the basis of the allegations made in the show-cause notice by initiation of a proceeding under Section 35 sub-section (1) of the said Act.
In view of such legal position, we are of the view that writ application was not maintainable. The writ petitioners/appellants have already submitted a reply on the legal points only. Mr. Ray, learned advocate for the appellants, prays leave of this Court to submit a proper reply on factual points of allegations made in the show-cause notice.
Having regard to the prayer made, leave is granted to file an additional reply with reference to the show-cause notice within two weeks from this date.
In view of the position as discussed, hence, writ application is not maintainable and writ application, appeal and the stay application all stand dismissed.
Affidavit of service as filed in Court today be kept with the record.
(Pratap Kumar Ray,J.) I agree, ab (Subal Baidya,J.)