Calcutta High Court (Appellete Side)
Reserve Bank Of India & Ors vs Shri Mihir Chakraborty & Ors on 10 December, 2008
Author: Pratap Kumar Ray
Bench: Pratap Kumar Ray
IN THE HIGH COURT AT CALCUTTA
CIVIL APPELLATE JURISDICTION
(APPELLATE SIDE)
Present:
The Hon'ble Justice Pratap Kumar Ray
And
The Hon'ble Justice Manik Mohan Sarkar.
M.A.T. No. 2631 of 2007
With
W.P. No. 7486 (W) of 2007
C.A.N. No. 8850 of 2007.
Reserve Bank of India & Ors.
Versus
Shri Mihir Chakraborty & Ors.
For Appellants : Mr. Soumen Sen
Mr. Deb Dutta Sen
Mr. Malay Sen.
For Writ Petitioner/ : Mr. Anupam Chatterjee
Respondent Mr. Asit Kumar Chakraborty
Mr. Mukteswar Maity
For State : Mr. Prasenjit Basu
Mr. Sk. Golam Gous
For Respondent No.5 : Mr. Pabitra Charan Bhattacharya
Heard On :
Judgment On : 10TH DECEMBER, 2008.
Pratap Kumar Ray,J.
Challenging the judgment and order dated 31st July, 2007 passed by learned trial Judge in W.P. No. 7486 (W) of 2007 this appeal has been preferred by Reserve Bank of India along with two officers of the Bank, namely, the General Manager and the Executive Director. Writ application was moved assailing the dissolution of the Board of Directors of a Cooperative Society who is dealing with the banking business being an insured Cooperative Bank within the meaning of Clause (i) of Section 2 of The Deposit Insurance and Credit Guarantee Corporation Act, 1961, hereinafter for brevity referred to as "DICG Act", by the Registrar, Cooperative Society, West Bengal in terms of Section 30 Sub-section (2) of the West Bengal Cooperative Societies Act, 1983, hereinafter for brevity referred to as "Cooperative Societies Act". Relevant provision of Section 30 of the said Cooperative Societies Act reads such:
"S.30. Dissolution of board and appointment of administrator.- (1) if, in the opinion of the Registrar, -
(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 any other co-operative society, or
(iii) has willfully disobeyed or willfully failed to comply with any lawful order or direction of the State Government or the Registrar; or
(b) the affairs and business of any co-operative society have due to persistent default or negligence in the performance of duties by its board or a section thereof or otherwise come to a standstill.
The Registrar may, after service of a notice upon the board and giving it an opportunity of being heard, by order in writing stating reasons therefor, dissolve the board, the directors of which shall forthwith vacate their offices and the Registrar shall appoint one or more administrators to manage the affairs of the co-operative society for such period, not exceeding one year at a time, as may be specified in the order and may also by an order in writing extend such period so, however, that the total period shall not exceed three years.
(2) If, on receipt of a report from the Registrar, or of its own motion, the State Government is of opinion that in view of one or more circumstances referred to in sub-section (1), immediate dissolution of the board of any co-operative society is essential in the interest of that co-operative society or the co-operative movement in general, the State Government may, without giving such board any notice, by notification, giving reasons therefor, dissolve such board, the directors of which shall forthwith vacate their offices and the State Government shall appoint one or more administrators to manage the affairs of that co-operative society for such period, not exceeding two years at a time, as may be specified in the notification and may also by notification extend the period so, however, that the total period shall not exceed three years:
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 Bank 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 if the administrator or administrators appointed under sub-section (1) of sub-section (2) fail to reconstitute the board within the period of three years from the date of dissolution of the board, they shall be removed from office and thereupon the Registrar shall reconstitute the board in the manner laid down in the proviso to clause (a) of sub-section (1) of section 25 within one year from the date of removal of the administrator or administrators, and the board so reconstituted function till the directors of the board elected under section 25 assume charge.] (3) The Registrar shall, after service of a notice under sub- section (1), by order, depute a Government officer [.....] to the service of a co-operative society to manage its affairs till [the notice issued by the Registrar under sub-section (1) is revoked, or] an administrator or administrators is or are appointed by him under sub-section (1) [as the case may be] and such Government officer shall exercise such powers and perform such duties as the Registrar may specify in the order, and the board of the co-operative society shall allow the said Government officer to exercise his powers and perform his duties accordingly."
The writ petitioner was one of the Directors of the said Cooperative Bank and was the elected Chairman of the Bank at the material time. Other Directors of the said Cooperative Bank have not been made as parties in the writ proceeding assailing the order dissolving the Board of Directors in exercise of the power under Section 30(2) of the said Cooperative Societies Act and appointment of an Administrator and they are not party-aggrieved against the decision passed by the Registrar exercising of the power under Section 30(2) of the said Cooperative Societies Act. Initially, the decision under Section 30(2) of the said Cooperative Societies Act was communicated but there was no notification, a statutory requirement, under the said Act and during pendency of the writ application it was notified, which was accepted by the Court below and the writ application was disposed of on considering the decision impugned as notified in Gazette. The decision impugned in the writ application reads such:
"WHEREAS the existing board of Directors of the Baranagar Co-operative Bank Ltd., 13, B.K. Maitra Road, Kolkata : 700 036 (hereinafter referred to as "the said bank") has been committing a good number of serious irregularities, defaults etc. prejudicial to the interest of the said bank in terms of Section 30(1)(a)(ii) of the WBSC Act, 1983 (West Bengal Act XLV of 1983);
AND WHEREAS the R.B.I. has advised that in the public interest and for preventing the affairs of the said bank from being conducted in a manner detrimental to the interests of its depositors and for securing the proper management of the said bank, it is deemed necessary to supercede the existing Board of Directors of the said bank by way of appointing a Board of Administrators thereof;
AND WHEREAS the existing Board of Directors of the said bank extended no Co-operation either to the Officers attached to Assistant Registrar of Co-operative Societies concerned or to the Officers attached to the Office of the Director of Co-operative Audit, West Bengal;
AND WHREAS the Registrar of Co-operative societies, West Bengal has recommended for dissolution of the existing Board of Directors of the said Bank by way of appointing a Board of Administrators to manage the affairs of the said bank in the interest of its members and depositors in particular and also in the interest of Co- operative movement in general;
AND WHEREAS the Governor is of the opinion that it is expedient, in the interest of the said bank in particular and also in the interest of Co-operative Movement in the State in general to appoint a Board of Administrators by dissolving the existing Board of Directors of the said bank with immediate effect."
Learned trial Judge passed the judgment in favour of the writ petitioner by quashing the said impugned decision on two-fold reasons; (1) there was no emergent situation to dissolve the Board of Directors as the cause of action arose long back in the year 2005 when the Reserve Bank of India on finding out the different irregularities of maintaining the accounts and sanctioning of loan etc. informed the Registrar, Cooperative Societies, West Bengal to supersede the Board of Directors of the Bank and to appoint an Administrator and issued several reminders to that effect till the year 2007. (2) that no reason assigned to supercede the Board of Directors under Section 30(2), which was sine qua non/condition precedent to exercise such power.
On the aforesaid two reasoning, the learned trial Judge passed the judgment. Relevant findings read such:
"Before adverting to the merits of the rival submissions raised at the bar, it would be profitable to take note of Section 30 of the Act to the extent relevant for the present purpose which reads as under:
"S.30. Dissolution of board and appointment of administrator.- (1) if, in the opinion of the Registrar, -
(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 any other co-operative society, or
(iii) has willfully disobeyed or willfully failed to comply with any lawful order or direction of the State Government or the Registrar; or
(b) the affairs and business of any co-operative society have due to persistent default or negligence in the performance of duties by its board or a section thereof or otherwise come to a standstill. The Registrar may, ***************** (2) If, on receipt of a report from the Registrar, or of its own motion, the State Government is of opinion that in view of one or more circumstances referred to in sub-section (1), immediate dissolution of the board of any co-operative society is essential in the interest of that co-operative society or the co-operative movement in general, the State Government may, without giving such board any notice, by notification, giving reasons therefor, dissolve such board, the directors of which shall forthwith vacate their offices and the State Government shall appoint one or more administrators to manage the affairs of that co-operative society for such period, not exceeding two years at a time, as may be specified in the notification and may also by notification extend the period so, however, that the total period shall not exceed three years:
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 Bank 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]."
It is evident from a bare reading thereof that summary action is permitted if it be essential in the interest of the co-operative society or the co-operative movement in general. However, such action would be justified if there be an actual emergency. It would, therefore, be necessary to mote the sequence of the events for arriving at a decision as to whether emergency existed or not calling for drastic action under Section 30(2) of the Act.
But the preliminary objection raised by Mr. Sen requires consideration at the outset. By the impugned notification, certain acts of omission/commission have been attributed to the directors of the Board of the Bank, which in the opinion of the State Government, has the effect of jeopardizing the interest of the Bank. The petitioner is one such director. He is aggrieved because the Board of which he is also a part has been condemned unheard. He has contended that there was no valid reason to pass an order under Section 30(2) of the Act. In such a circumstance, the petitioner in the humble view of this Court is definitely a person aggrieved having the locus standi to present a writ petition before this Court. The objection being without merit, thus, stands overruled.
The contention of Mr. Sen in relation to recommendation of the RBI not being under challenge shall be dealt with when this Court would consider the applicability of the decision in Harisidh Co-operative (supra) to the facts of the present case.
The RBI by its communication dated 9.7.05 addressed to the Registrar, for reasons disclosed therein, enclosed a requisition of even date for supersession of the Board of Directors of the Bank and recommended invocation of provision of Section 29(2) of the Act to prohibit unscrupulous directors in the present Board of Directors from being relected. An inspection into the functioning of the Bank was also conducted and a report prepared. Communication issued by the RBI dated 2.9.05 followed, wherein a reference was made to the earlier communication dated 9.7.05 and a request was made to the Registrar to take suitable action in the matter of supersession of the Board of Directors of the Bank. Despite the Registrar not having taken any action for supersession of the Board of Directors, no reminder appears to have been issued by the RBI to activate him during the entire period of 2006. On 19.1.07, the Registrar was informed by the RBI that no action in terms of its request was taken and, as such, a meeting was asked to be arranged for in the first week of February, 2007 for discussion on the issue. No reply was given by the Registrar which led to a reminder dated 21.3.07 being issued by the RBI whereby, again, a request was made for fixing up a suitable date for meeting.
From the above sequence of facts it is manifest that the foundation for supersession of the Board of Directors of the bank was laid as far back as in July, 2005 and the ingredients to proceed against the Board under Section 30(1) of the Act had come into existence then, yet, the Board of the Bank was allowed to function. Reminders issued by the RBI failed to activate the Registrar or the State Government. It is only after a reminder was issued in February, 2007 that the State machinery woke up from its slumber and sprung into action, and by exercising power conferred by Section 30(2) of the Act the impugned notification was issued.
It appears from the impugned notification that the same recites as follows:
"WHEREAS the existing board of Directors of the Baranagar Co-operative Bank Ltd., 13, B.K. Maitra Road, Kolkata : 700 036 (hereinafter referred to as "the said bank") has been committing a good number of serious irregularities, defaults etc. prejudicial to the interest of the said bank in terms of Section 30(1)(a)(ii) of the WBSC Act, 1983 (West Bengal Act XLV of 1983);
AND WHEREAS the R.B.I. has advised that in the public interest and for preventing the affairs of the said bank from being conducted in a manner detrimental to the interests of its depositors and for securing the proper management of the said bank, it is deemed necessary to supercede the existing Board of Directors of the said bank by way of appointing a Board of Administrators thereof;
AND WHEREAS the existing Board of Directors of the said bank extended no Co-operation either to the Officers attached to Assistant Registrar of Co-operative Societies concerned or to the Officers attached to the Office of the Director of Co-operative Audit, West Bengal;
AND WHREAS the Registrar of Co-operative societies, West Bengal has recommended for dissolution of the existing Board of Directors of the said Bank by way of appointing a Board of Administrators to manage the affairs of the said bank in the interest of its members and depositors in particular and also in the interest of Co-operative movement in general;
AND WHEREAS the Governor is of the opinion that it is expedient, in the interest of the said bank in particular and also in the interest of Co-operative Movement in the State in general to appoint a Board of Administrators by dissolving the existing Board of Directors of the said bank with immediate effect."
A Board of a co-operative Society in terms of Section 30 of the Act may be dissolved if there are reasons sufficient to form an opinion that any of the incidents mentioned in clauses (a) and (b) of Section 30(1) of the Act have occurred. Those would constitute the jurisdictional facts for assuming jurisdiction. From the above extract, it is clear that without disclosing any particulars in respect of the serious irregularities, defaults, etc. committed by the Board prejudicial to the interest of the Bank and without disclosing the particulars when the existing Board of Directors of the Bank failed to extend cooperation to the officers named therein, the State Government proceeded to issue the impugned notification. To avoid any charge of arbitrariness and to ensure fairness and transparency in its action, it was obligatory for the State Government to disclose with sufficient clarity particulars of default, irregularities, non-cooperation, etc. committed by the Board. Mere recital of the acts of omission/commission sans particulars would not be sustainable in law on the authority of the Division bench decision relied on by Mr. Chatterjee where, in similar circumstances, the order passed under Section 30(2) of the Act was interfered with.
It is settled law that wider the power one is conferred with, it calls for more care and caution before it is actually exercised. While issuing the notification dated 21.3.07, the Government made no reference to the several requests made by the RBI since July, 2005. There was no drastic change in the functioning of the Bank for the worse, since then. At least no such indication can be found from the impugned notification. Emergency could not have occurred overnight so as to deprive the Board of Directors a valuable opportunity of presenting their defence against the proposed dissolution of the Board and appointment of a Board of Administrators. Even if it had occurred, the same ought to have found reflection therein and the Government should have recorded its satisfaction that an immediate action is called for. No satisfaction in this respect is recorded. Although the RBI had recommended supersession of the Board of Directors of the Bank more than 15 months prior to the impugned order was made, there was no sufficient justification for the State Government to invoke the provisions of Section 30(2) of the Act instead of the Registrar taking action under Section 30(1) thereof. This Court is satisfied on the basis of facts presented before it that there was no real emergency which would justify an action under Section 30(2) of the Act and the act of the Government appears to be ministerial in that a stamp of approval to the advice of the RBI and the recommendation of the Registrar has been given without application of mind by it.
This Court has considered the decisions cited by Mr. Sen. The decision in Suryanarayana (supra) has no manner of application in the present case. It is nobody's case that the order of the State Government impugned herein was passed contravening the first proviso to 30(2) of the Act which requires consultation with the RBI. The question of obtaining sanction of the RBI which was the issue before the Andhra Pradesh High Court cannot have relevance in any manner with regard to an action taken by the State Government on grounds of emergency which is not reflected in the order.
The decision in Harisidh Co-operative (supra) appears to be an interim order passed in a pending appeal. This Court has not been referred to any provision in the Act which makes the recommendation of the RBI binding on the Registrar or the State Government and consequently in an appropriate case it may be open to the Registrar or the State Government not to take action under Section 30(1) or (2), as the case may be, if circumstances in their opinion do not warrant dissolution of a cooperative society despite a recommendation in this behalf by the RBI. In Harisidh Co-operative (supra) it has been held that the Registrar was legally bound to pass an order as directed by the RBI and, therefore, the decision is clearly distinguishable and ratio, if at all laid down by the said interim order, would not be applicable in the fact of the present case.
For the reasons aforesaid, the impugned notification cannot be sustained in law and, accordingly, stands set aside. However, this order shall not prevent the Registrar as well as the RBI from taking steps in accordance with law against the Bank. The writ petition is allowed to the extent indicated above without costs."
Before us i.e. in the appeal Court the appellant has urged the following points for adjudication:
(1) When other Directors of the Board are not at all aggrieved and did not file any writ application either as a writ petitioner or they were not made as party respondent even, writ application was not maintainable as the other Board of Directors of the said Cooperative Bank were the party necessary for effective adjudication of the issue in question as their rights also have been decided and adjudicated in absentia of them, which is not legally permissible.
(2) That as there is a provision of appeal under Section 136 said Cooperative Societies Act even by any of the Directors of the Board, the writ application was not maintainable in view of existence of efficacious and alternative remedy under the statute i.e. Cooperative Act.
(3) That the present Cooperative Bank admittedly an insured Cooperative Bank within the meaning of Clause (i) of Section 2 of DICG Act, having regard to the meaning of the eligible Cooperative Bank in terms of the definition under Section 2(gg) and (iii) of the said DICG Act read with definition of Cooperative Bank in terms of Section 2(dd) of the said DICG Act. The present Bank when admittedly is attracted by the provisions of the statutes, namely, (a) Banking Regulation Act, 1949, for brevity referred to as BR Act; (b) said DICG Act and (c) WBCS Act, 1983 as referred to above, Banking Regulation is fully controlled by the Reserve Bank of India and in doing such when the Reserve Bank of India identified the irregularities and illegalities thereof, detailing the reasons and requested the Registrar, Cooperative Society to supercede the Board of Directors and to appoint an Administrator for the benefit of the members of the Cooperative Society and for smooth functioning of the banking activities, the reason assigned under Section 30(2) even in a criptive manner, the same has satisfied the statutory provision of reasoned decision and learned trial Judge ought not to have allowed the writ application even on merit.
(4) That Reserve Bank of India is the sole authority to regulate the banking activities of the scheduled Banks as well as Cooperative Banks concerned and Court should have been slow to interfere with any action under the statutory provision of Banking Regulation Act, 1949 read with said DICG Act.
(5) On application of Section 30(2) of WBCS Act, 1983, it cannot be said that impugned decision of writ was not in exercise of the emergency power on the factual foundations as discussed by the learned trial Judge as two years time was taken for the reason to identify the irregularities by enquiry and ultimately direction was given to the Registrar, Cooperative Society followed by different reminders to pass the necessary order of superseding the Board.
This appeal has been opposed by the respondent-writ petitioner on the following points:
(1) The Reserve Bank of India has no locus standi to prefer an appeal against the impugned judgment of learned trial Judge as there was no appeal filed by the authority, who issued the order under Section 30(2) of the WBCS Act, 1983.
(2) That there was breach of principle of natural justice under the anvil of "reasoned decision", which is a sine-qua-non to pass any order under Section 30(2) of WBCS Act.
Having regard to the rival contention of the parties, the nucleus of the lis practically revolves on issue whether requirements of Section 30(2) of WBCS Act, 1983 to supersede the Board and appointment of an Administrator thereon, were satisfied in the angle of, (1) presence of circumstances and/or situation, which required dissolution of the Board by exercise of emergency power; (2) reasons therefor to dissolve the Board. Before adjudicating those central issues, other two issues as raised, namely, maintainability of the appeal as urged by the respondent-writ petitioner and maintainability of the writ application on the ground of alternative appellate forum as raised by the appellant, are required to be dealt with.
So far as the maintainability of the writ application as has been urged by the appellant on the ground of existence of a specific appeal provision under the said Cooperative Act, it is the view of this Court that mere existence of an appellate forum ipso facto cannot debar the jurisdiction of the Court to entertain a writ application inasmuch as when the question involved in the writ application is breach of natural justice under the "doctrine of speaking order" to exercise the power under Section 30(2) of said Act and non-fulfillment of statutory requirement by an opinion that dissolution of Board was only remedy. As a question of breach of natural justice, whose species is the "speaking order doctrine" in view of the statutory requirement of giving the reasons thereof, is involved and as the exercising of power is circumscribed by statute under Section 30(2) of the said Act, only on a situation of emergency, which requires an immediate dissolution of the Board, the writ application is maintainable irrespective of the fact of alternative remedy of statutory appeal available to any member of the Board assailing the decision passed under Section 30(2) of the said Cooperative Societies Act. It is a settled legal position that for violation of principle of natural justice or for enforcement of fundamental rights or when order impugned passed without jurisdiction, irrespective of availability of alternative remedy under the statute, writ application is maintainable. Reliance may be placed to the judgment passed in the case M.P. State Agro Industries Development Corpn. Ltd. Vs. Johan Khan, reported in (2007) 10 SCC 88 (3 Judges Bench), Guru Vayoor Devaswom Managing Committee vs. C.K. Rajan, reported in (2003) 7 SCC 546 (3 Judges Bench), Harbanslal Sahnia & Anr. Vs. Indian Oil Corpn. Ltd. & Ors., reported in (2003) 2 SCC 107, wherein the case of Whirlpool Corporation vs. Registrar of Trade Marks, Mumbai & Ors., reported in (1998) 8 SCC 1 was relied upon. On that score, we are of the view that writ application is maintainable on the pleadings and averments made touching the question of breach of natural justice on the ground that no reasons assigned, a mandatory provision, to pass a decision impugned and there were absence of emergent situation to dissolve the Board. Beside such, it is a settled law that when a mandatory statutory provision within domain of natural justice field is breached, writ is maintainable, despite alternative forum.
Regarding maintainability of the appeal by the appellant without any approval of the Central Government as has been urged by the writ petitioner- respondent, the question to be decided on the basis of the pleading of the parties and the function of the Reserve Bank of India so far as its controlling power over any insured Cooperative Bank. It is an admitted fact that the concerned Cooperative Bank wherein the writ petitioner was elected as one of the Directors is a Cooperative Bank under Section 2(dd) of DICG Act and in terms of Section 2(gg)(iii), Reserve Bank has the controlling power even to supersede a Committee of the Management and/or Managing Body of the Bank and to appoint an Administrator. The relevant provision of the Section 2(dd), Section 2(gg) and Section 2(i) of DICG Act reads such:
"2(dd). "co-operative bank" means a State Co-operative Bank, a Central Co-operative Bank and a primary Co-operative Bank.
2(gg). "eligible Co-operative Bank" means a Co-operative Bank the law for the time being governing which provides that -
(i) an order for the winding up, or an order sanctioning a scheme of compromise or arrangement or of amalgamation or reconstruction, of the bank may be made only with the previous sanction in writing of the Reserve Bank;
(ii) an order for the winding up of the bank shall be made if so required by the Reserve Bank in the circumstances referred to in Section 13-D;
(iii) if so required by the Reserve Bank in the public interest or for preventing the affairs of the bank being conducted in a manner detrimental to the interests of the depositors or for securing the proper management of the Bank, an order shall be made for the supersession of the committee of management or other managing body (by whatever name called) of the bank and the appointment of an Administrator therefore for such period or periods not exceeding five years in the aggregate as may from time to time be specified by the Reserve Bank;
(iv) an order for the winding up of the bank or an order sanctioning a scheme of compromise or arrangement or of amalgamation or reconstruction or an order for the supersession of the committee of management or other managing body (by whatever name called) of the bank and the appointment of an administrator therefor made with the previous sanction in writing or on the requisition of the Reserve Bank shall not be called in question in any manner; and
(v) the liquidator or the insured bank or the transferee bank, as the case may be, shall be, under an obligation to repay the Corporation in the circumstances, to the extent and in the manner referred to in Section 21.
2(i). "insured bank" means a [a banking company][or a corresponding new bank [or a Regional Rural Bank] or an eligible Co- operative Bank for the time being registered under the provisions of this Act and includes for the purposes of Sections 16, 17, 18 and 21 -
(i) a banking company referred to in clause (a) or clause (b) of sub-section (1) of Section 13, or (ia) a corresponding new bank to which the provisions of clause (a) of sub-section (1) of Section 13 apply, or
(ii) a Co-operative Bank referred to in clause (a) or clause (b) of Section 13-C, the registration whereof has been cancelled under Section 13, or as the case may be, under Section 13-C."
Besides such, under Section 145 of the West Bengal Cooperative Societies Act, 1983, the Reserve Bank of India has the controlling power to grant necessary sanction for any action of Registrar, Cooperative Societies, West Bengal, under the said Act relating to the affairs of the Bank. Section 30(2) of the said Act also provides a say of the Reserve Bank of India as the Cooperative Bank concerned has been brought within the provision of Part-5 of the Banking Regulation Act, 1949, as it appears from the first proviso of Section 30(2) of the WBCS Act. The relevant provision of Section 30(2) proviso and Section 145 reads such:
"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 Bank 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].
S. 145. Insured co-operative bank.-Notwithstanding anything contained elsewhere in this Act, the Registrar shall not take any action under this Act in respect of an insured co-operative bank without obtaining previous sanction of the Reserve Bank of India and without compliance with the requirements of the Deposit Insurance Corporation Act, 1961 (47 of 1961).
Explanation. - "Insured co-operative bank" shall mean a co- operative bank which is an insured bank within the meaning of clause (1) of section 2 of the Deposit Insurance Corporation Act, 1961."
As the Reserve Bank of India has the control as supervising authority to look after the affairs of the Cooperative Bank and also has the power to accord necessary sanction for any action as to be followed by the Registrar, Cooperative Societies and as the writ petitioner accordingly added the Reserve Bank of India as a party respondent in the writ application, we are of the view that Reserve Bank of India is legally entitled to prefer an appeal against any decision as the impugned decision, which has been quashed by the learned trial Judge was a decision on the advice/recommendation made by the Reserve Bank of India identifying the financial irregularities and illegalities committed by the said Cooperative Bank. Accordingly, we are of the view that the Reserve Bank of India is a party aggrieved to prefer an appeal and there was no necessity of sanction by Central Government. The point accordingly answered in favour of the appellant holding that appeal is maintainable.
So far as the nucleus of the entire lis as already framed, we are answering the same on interpretation of the statutory provision of Section 30(2) of Cooperative Societies Act by identifying the test whether there was a breach of natural justice or not. Section 30 of the said Cooperative Act provides the situation wherein dissolution of a Board and appointment of an Administrator could be made prescribing a lengthy procedure. The relevant provision of Section 30 Sub-section (1) and (2) reads such:
"30(1). if, in the opinion of the Registrar, -
(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 any other co-operative society, or
(iii) has willfully disobeyed or willfully failed to comply with any lawful order or direction of the State Government or the Registrar; or
(b) the affairs and business of any co-operative society have due to persistent default or negligence in the performance of duties by its board or a section thereof or otherwise come to a standstill, the Registrar may, after service of a notice upon the board and giving it an opportunity of being heard, by order in writing stating reasons therefor, dissolve the board, the directors of which shall forthwith vacate their offices and the Registrar shall appoint one or more administrators to manage the affairs of the co-operative society for such period, not exceeding one year at a time, as may be specified in the order and may also by an order in writing extend such period so, however, that the total period shall not exceed three years.
(2) If, on receipt of a report from the Registrar, or of its own motion, the State Government is of opinion that in view of one or more circumstances referred to in sub-section (1), immediate dissolution of the board of any co-operative society is essential in the interest of that co-operative society or the co-operative movement in general, the State Government may, without giving such board any notice, by notification, giving reasons therefor, dissolve such board, the directors of which shall forthwith vacate their offices and the State Government shall appoint one or more administrators to manage the affairs of that co-operative society for such period, not exceeding two years at a time, as may be specified in the notification and may also by notification extend the period so, however, that the total period shall not exceed three years:
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 Bank 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 if the administrator or administrators appointed under sub-section (1) of sub-section (2) fail to reconstitute the board within the period of three years from the date of dissolution of the board, they shall be removed from office and thereupon the Registrar shall reconstitute the board in the manner laid down in the proviso to clause (a) of sub-section (1) of section 25 within one year from the date of removal of the administrator or administrators, and the board so reconstituted function till the directors of the board elected under section 25 assume charge.] On a bare reading of Section 30 Sub-section (1) it appears that on the grounds mentioned in Section 30 Sub-section (1)(a) or (b), the Registrar of Cooperative Societies by serving a notice upon the Board and giving an opportunity of hearing to the said Board, may dissolve the Board by a reasoned decision in writing. Under the framework of Section 30(1) it appears that the statute mandated the compliance of principle of natural justice, namely, audi alterem partem and also the another species of natural justice, namely, "speaking order doctrine".
Section 30(2) is the provision whereby and whereunder the lengthy procedures of dissolution of the Board and appointment of Administrator by giving opportunity of hearing to the Board have been exempted prescribing the exercise of the power under this sub-section on emergent situation, which requires immediate dissolution of Board by giving reasons therefor. Under Section 30(2) its applicability requires fulfillment of two conditions, namely, (1) a decision that emergent dissolution of the Board is required; (2) that Board should be superseded on the reasons as to be specified. If both these two condition precedents of exercising the statutory power under Section 30(2) are not fulfilled, the exercise of such power will be void ab-initio as both the said two statutory compliance are within the domain of mandatory provision of the statute. There is no doubt that provision of giving reasons for dissolution of the Board and to notify the said reasons in absence of any mandatory word of "shall", is a mandatory provision to be complied with, in view of the settled legal position that identification of a provision whether mandatory or directory, solely does not depend on use of the auxiliary verb "shall", but it is dependent upon further on the purpose of the statute for which the particular provision was enacted, rights and liabilities fixed thereon and the encroachment of any right of anybody, its extent and amplitude thereof. As it appears that protective umbrella of hearing under Sub-section (1) of Section 30 before dissolution of the Board since has been lifted from the ambit of Sub-section (2) of Section 30 by the statute by providing a specific provision of assignment of the reasons thereof, disclosure of the reasons accordingly is a condition precedent of exercise of such power under Sub-section (2) of Section 30 of the said Cooperative Societies Act as the reasons are the only protection, which word afford to the affected person to ensure as to whether the reasons detailed, which impelled the authority to exercise such power were germane to the contend and scope of the power vested to him and also to identify that those were not irrelevant and unjustified for the decision as taken. In a similar identical issue, a Constitution Bench of Apex Court in the case The Collector of Monghyr & Ors. Vs. Keshav Prasad Goenka & Ors., reported in AIR 1962 SC 1694 while interpreting the depth, amplitude and purpose of Section 5A of Bihar Private Irrigation Works Act (Bihar & Orissa Act, 5 of 1992)(as amended by Bihar Act 10 of 1939), wherein there exists an identical provision of lifting of opportunity of hearing provision to the affected party by providing a statutory provision of assignment of reasons for taking a decision under the emergency condition in terms of Section 5A to direct the work of irrigation etc., addressed the issue identifying the legal question that when a protective umbrella of opportunity of hearing was lifted, assignment of reasons should be considered as a mandatory provision and breach thereof would make the decision void. The relevant paragraph 12 and 13 of said case is profitable to adjudicate the present case, which reads such:
"12. Some time after this circular, and as stated by the State in the counter-affidavit filed by it in answer to the writ petitions under Article 226 from the orders on which Civil Appeals 53-81 of 1960 arise, in pursuance of this circular, the officials of the Revenue Department submitted reports to Sub-Divisional Officers who were vested with the powers of a Collector under section 5A pointing out that the irrigation works specified by them needed repairs and thereafter orders were passed by the collector in these terms:
"Whereas it appears to me that the repair of an existing irrigation work, viz............situated in village ..................Thana..........District Monghyr is necessary for the benefit of the aforesaid village and the failure of repair of such irrigation work adversely affects and is likely of affect adversely the lands which are dependent thereon for supply of water, and Whereas I am satisfied that my intervention is necessary because, in my opinion, delay in the repair of the existing irrigation work which may be occasioned by the proceedings commenced by a notice under section 3 adversely affects or is likely to affect adversely the land which depends on such irrigation work for supply of water it is deemed expedient to proceed under section 5A of the BPIW Act. I therefore hereby order that the said work be forthwith put to execution under section 5A of the said Act. A public notice under section 5A(1) be given at a convenient place at the aforesaid village that the work mentioned therein has already begun."
13. The public notice that the work has already been commenced section 5A(1) was issued and the work was completed. Thereafter there was an apportionment of the total cost and in line with the circular of Government which we have recited earlier, the landlord's share of the contribution was determined as 50% of the total cost of the work. When these sums were sought to be demanded from the landlords (from whom it might be stated that by the date of this demanded their estates had been taken over by Government under the provisions of the Bihar Land Reforms Act (Act I of 1950) they came forward to question the legality of the demand."
In another case, while dealing with the decision of Selection Committee by a reasoned decision in terms of Regulation 5(5) of IAS/IPS (Appointment by Promotion) Regulations, 1955 whereby reason of supersession was required to be addressed, the Selection Committee simply recorded a rubber stamp reason "suitable", the Apex Court identified the issue as a breach of mandatory provision of providing reasons in terms of the said Regulation by holding "reasons are the links between the materials on which certain conclusions are based and the actual conclusions. They disclose how the mind is applied to the subject matter in a decision whether it is purely administrative or quasi judicial. They should reveal a rational nexus between the facts considered and the conclusions reached. Only in this way can opinions or decisions recorded be shown to be manifestly just and reasonable", in the case Union of India vs. Mohan Lal Capoor & Ors., reported in (1973) 2 SCC 836.
When a Board is dissolved naturally the existing elected Directors are being deprived of to complete their tenure in terms of the statutory provision of Cooperative Act and their statutory right is affected. Beside such, it could be considered as suffering of a "civil consequences" in terms of the judgment passed in the case S.L. Kapoor, reported in AIR 1981 SC 136, a judgment of three Judges' Bench and Mohinder Singh Gill & Anr. Vs. Chief Election Commissioner, New Delhi & Ors., reported in (1978) 1 SCC 405, a Constitution Bench judgment.
A new horizon has been opened in the Administrative Law by evolving the principle of doctrine of fairness and reasonableness in all governmental function in the case Maneka Gandhi vs. Union of India, reported in AIR 1978 SC 597 (para 56), a basic case and duty to act fairly and reasonably has now got a deep root in administrative action. Statutory provision under Section 30(2) of the said Cooperative Act to give reasons mandatory and in absence of such reasons, the condition precedent of passing any administrative decision and/or quasi judicial decision by complying with the principle of fairness and reasonableness doctrine renders the action arbitrary and unreasonable exercise of power, which otherwise attracts the constitutional provisions of Article 14, 19 and 21. Reliance may be placed to the judgment passed in the case The State of West Bengal vs. Anwar Ali Sarkar & Anr., reported in AIR 1952 SC 75, S.G. Jaisinghani vs. Union of India & Ors., reported in AIR 1967 SC 1427, E.P. Royappa vs. State of Tamil Nadu & Anr., reported in (1974) 4 SCC 3, Maneka Gandhi (supra), Mohinder Singh Gill (supra), Union of India & Anr. Vs. Tulsiram Patel, reported in (1985) 3 SCC 398. So acting fairly is an additional weapon in the armory of the Court to identify an issue. Acting fairly is within the domain of natural justice principle. However, it appears from the judgment of the Courts of United Kingdom that the Court intended to distinguish the fairness doctrine, fairness of procedure and the natural justice under different pedestal by holding that acting fairly would apply within the domain of procedure by making a distinction of procedural law and substantive law. The Apex Court of India looked into the matter in the case Management of M/s. M.S. Nally Bharat Engineering Co. Ltd. Vs. State of Bihar & Ors., reported in (1990) 2 SCC 48 being a case wherein the government on an application by a dismissed workman transferred his case from one Labour Court to another Labour Court without issuing a notice or giving opportunity to the employer. The Court while setting aside the order invoked the doctrine of "acting fairly". The relevant paragraph reads such:
"Fairness, in our opinion, is a fundamental principle of good administration. It is a rule to ensure the vast power in the modern State is not abused but properly exercised. The State power is used for proper and not for improper purposes. The authority is not misguided by extraneous or irrelevant considerations. Fairness is also a principle to ensure that statutory authority arrives at a just decision either in promoting the interest or affecting the rights of persons. To use the time hallowed phrase "that justice should not only be done but be seen to be done" is the essence of fairness equally applicable to administrative authorities. Fairness is thus a prime test for proper and good administration. It has no set form or procedure. It depends upon the facts of each case. As Lord Pearson said in Pearlberg v. Varty (at p. 547), fairness does not necessarily require a plurality of hearings or representations and counter-representations. Indeed, it cannot have too mush elaboration or procedure since wheels of administration must move quickly."
It is a settled legal position that all state action must be non-arbitrary otherwise Article 14 of the Constitution will be violated. Reliance may be placed to the Constitution Bench judgment passed in Maneka Gandhi (supra), which has been followed and relied with reference to a case regarding communication of confidential reports, which was not adverse but 'good', inviting objection on issue of upgradation of such entry as 'very good', in the case Dev Dutt vs. Union of India & Ors., reported in (2008) 8 SCC 725.
The right to reason and the relevancy of the reason, is a sine-qua-non of exercising of such power and condition precedent to identify the decision as non- arbitrary, opposite thereof will be attracted by Article 14 of the Constitution of India. Even in absence of any statutory provision to assign reason, the Court has evolved the doctrine of fairness and reasonableness in every state action in the case Maneka Gandhi (supra).
In this present case, there is a statutory provision, which on the application of the Constitution Bench judgment Keshav Prasad Goenka & Ors. (supra) provides a protective umbrella by way of reasoned decision. Hence, we are of the view that assigning reason therefor for superseding a Board is a mandatory provision and if the same is not complied with, the action would be void ab-initio.
Furthermore, as the power to exercise the statutory provision of Section 30(2) is with the condition precedent of fulfillment of a situation, wherein an emergent decision is required to be taken, we are of the view that in the decision itself under Section 30(2), there should be disclosure of such a situation for which the Registrar exercised the power to dissolve the Board and to appoint the Administrator thereon. If in the decision itself, which has been notified, there is no such materials and no such disclosure of emergent situation, surely that will attract the principle of "non application of mind" and as such, said decision would be an arbitrary decision due to non-consideration and non-fulfillment of statutory provision of emergency situation.
Having regard to those legal issues as framed by us that assigning of the reasons for dissolution of a Board under Section 30(2) of the said Act is a mandatory provision and that in the decision emergent situation should be reflected giving at least a criptive idea, the impugned decision of writ application now to be tested.
The impugned decision of the writ application reads such:
"WHEREAS the existing board of Directors of the Baranagar Co-operative Bank Ltd., 13, B.K. Maitra Road, Kolkata : 700 036 (hereinafter referred to as "the said bank") has been committing a good number of serious irregularities, defaults etc. prejudicial to the interest of the said bank in terms of Section 30(1)(a)(ii) of the WBSC Act, 1983 (West Bengal Act XLV of 1983);
AND WHEREAS the R.B.I. has advised that in the public interest and for preventing the affairs of the said bank from being conducted in a manner detrimental to the interests of its depositors and for securing the proper management of the said bank, it is deemed necessary to supercede the existing Board of Directors of the said bank by way of appointing a Board of Administrators thereof;
AND WHEREAS the existing Board of Directors of the said bank extended no Co-operation either to the Officers attached to Assistant Registrar of Co-operative Societies concerned or to the Officers attached to the Office of the Director of Co-operative Audit, West Bengal;
AND WHREAS the Registrar of Co-operative societies, West Bengal has recommended for dissolution of the existing Board of Directors of the said Bank by way of appointing a Board of Administrators to manage the affairs of the said bank in the interest of its members and depositors in particular and also in the interest of Co- operative movement in general;
AND WHEREAS the Governor is of the opinion that it is expedient, in the interest of the said bank in particular and also in the interest of Co-operative Movement in the State in general to appoint a Board of Administrators by dissolving the existing Board of Directors of the said bank with immediate effect."
On a bare reading of the impugned decision it appears that there was no reason assigned for dissolution of the Board, save and except a criptive repetition of the grounds stipulated under Section 30(1)(a). There is no particular materials given about the default made by the Board, the amount thereof and/or any particulars to that extent to understand that the reasons were not irrelevant reasons and that the reasons as impelled the Registrar to pass such a decision satisfied the contents and purpose of Section 30(2) of the said Act. Learned advocate for the writ petitioner-respondent has relied upon an unreported decision of Division Bench of Calcutta High Court (Coram: R. Dayal & S.B. Sinha,JJ.) (as there Lordships' then were) passed in the case FMAT 4186 of 1998, wherein the Division Bench while making judicial scrutiny of an order passed under Sub-section (2) of Section 30 of the said Cooperative Societies Act, held to this effect:
"The reasons are said to have been given in opening three paragraphs of the notification dated 30th October, 1998, which read as under:
"Whereas the board of directors of Bankura coop. Agril & Rural Dev. Bank Ltd. (hereinafter referred to as the said bank) has persistently made defaults and has been grossly negligent in the performance of duties imposed on it by the W.B.C.S. Act, 1983 (West Bengal Act XLV of 1983) and the rules and by-laws made thereunder.
And whereas the affairs of the said bank are being mismanaged for a considerable period.
And whereas the Registrar of Co-operative Societies, W.B., recommended immediate dissolution of the board of directors of the said bank for the cooperative interest in general."
It is apparent that though it is stated that the board has made defaults and has been grossly negligent in the performance of the duties imposed on it by the W.B.C.S. Act, 1983 and the rules and by-laws made thereunder, it does not give any idea as to how defaults have been made and how the board has been grossly negligent in the performance of its duties. The notification also states that the affairs of the bank are being mismanaged for a considerable period but it does not give any idea as to the manner in which the mismanagement has been done and also the magnitude thereof. It is also stated that the Registrar of Co- operative Society recommended immediate dissolution of the Board of Directors of the said bank for the co-operative interest in general but it does not state that Government was also satisfied about this. The mere fact that the Government acted on the recommendation of the Registrar, does not necessarily mean that the Government applied its mind to the facts and circumstances of the case and formed on proper consideration and evaluation of material on record the opinion that immediate dissolution of the Board of Directors was essential.
It is submitted on behalf of the contesting respondents that there are adequate materials on record to show that gross mismanagement has taken place. But the satisfaction is to be the concerned authority and the Court is not to substitute its own opinion for the opinion of the authority contemplated in the Act. In a case like this, if the Court finds that necessary conditions which must have been fulfilled before exercising the statutory power by the State Government had not been fulfilled, the Court should not give a seal of approval on such an act and leave the Government to take action in the manner provided under the law.
In view of the reasons abovementioned, the learned Counsel for the parties agree that the entire writ petition should be disposed of on the above terms. Accordingly, we dispose of the appeal as also the writ application setting aside the impugned notification dated 30th October, 1998 as contained in annexure 'C' to the writ application. We, however, make it clear that this order shall not stand in the way of the state of West Bengal. Registrar Co-operative Societies or any other statutory authority to take an appropriate action in the manner prescribed by law."
Hence, it appears that "assigning of reason", a mandatory provision, was not complied with by detailing in short, the default, irregularities and the caution of the Reserve Bank of India as identified and therefore we are of the view that in the impugned decision of writ, there was no reasons disclosing the materials satisfying the reasonableness and fairness doctrine as well as statutory requirements of reasons under the anvil of speaking order doctrine. It is a settled legal position that "speaking order" principle is a basic/root principle of good administration. Lord Denning,MR. in Breen vs. Amalgamated Engineering Union, reported in (1971) 1 All. E.R. 1148 held "the giving of reasons is one of the fundamental of good administration". In the case Alexander Machinery (Dubley) Ltd. Vs. Crabtree, reported in 1974 ICR 120 (NIRC), the Court held "Failure to give reasons amounts to denial of justice. Reasons are live links between the mind of the decision - takes to the controversy in question and the decision or conclusion arrived at". In the case State of West Bengal & Anr. Vs. Alpana Roy & Ors., reported in (2005) 8 SCC 296, a judgment of two Judges' Bench, wherein in para 8, the Court held "Reasons substitute subjectivity by objectivity. The emphasis on recording reasons is that if the decision reveals the inscrutable face of the sphinx, it can, by its silence, render it virtually impossible for the Courts to perform their appellate function or exercise the power of judicial review in adjudging the validity of the decision. Right to reason is an indispensable part of a sound judicial system, reasons at least sufficient to indicate an application of mind to the matter before Court". In the case Jagtamba Devi vs. Hem Ram, reported in (2008) 3 SCC 509 the Apex Court on referring the cases Breen (supra), Alexander Machinery (Dubley) Ltd. (supra) and State of Punjab vs. Bheg Singh, reported in (2004) 1 SCC 547 emphasized the speaking order principle as a root of good administration and breach thereof, an arbitrary action.
So far as exercise of emergency power under Section 30(2) of the said Act, it appears that there is no whisper in the impugned decision about such emergent situation though from the affidavits as exchanged by the parties including the present appellant it appears that since the year 2005, Reserve Bank of India started to issue different communication requesting supersession of the Board on the ground of financial irregularity in banking transaction, its management and administration with follow-up of different reminders for a long spell of time i.e. for 2 years from the year 2005. There was no steps taken by the Registrar, Cooperative Societies. Even the Reserve Bank of India who under the statutory provision as already referred to being Section 2(gg)(iii) had the power to supercede the Board for mismanagement, did not take any steps. All on a sudden in a fine morning, a decision was taken exercising the emergency power of Section 30(2) of the said Act without disclosing such situation and/or emergent condition. Learned trial Judge discussed the said issue in details and we are confirming the view expressed by the learned trial Judge to hold that there was no emergency founded to exercise power under Sub-section (2) of Section 30 of the said Cooperative Societies Act, to dissolve the Board.
Having regard to the aforesaid findings and observation, accordingly, we are holding that the mandatory provision "disclosing the reasons" thereof, in terms of Sub-section (2) of Section 30 of the said Cooperative Societies Act and the disclosure of situation and/or contingency of exercising such emergency power, since both have been breached, which are the conditions precedent of exercise of power under Sub-section (2) of Section 30 of the said Act, the impugned decision of writ application was an arbitrary decision and the same was not sustainable in the eye of law. Learned trial Judge rightly passed the judgment, quashing the impugned decision passed in the writ application and we are confirming the same. In the result, accordingly, appeal stand dismissed on the aforesaid findings and observation on merit. No order as to costs. However, it is made clear that this judgment will not debar the appellant-Reserve Bank of India and/or the Registrar, Cooperative Societies, West Bengal and/or the State Government to take appropriate steps in accordance with law on issue of alleged irregularities/default alleged. It is made clear that we have not gone into the merits about factual foundation of default/irregularities alleged. Points are kept open. In view of the dismissal of the appeal, the application for stay being CAN 8850 of 2007, is also dismissed.
(Pratap Kumar Ray,J.) I agree, (Manik Mohan Sarkar,J.) Later:
Urgent xerox certified copy of this order, if applied for, be given to the parties.
(Pratap Kumar Ray,J.) (Manik Mohan Sarkar,J.)