Kerala High Court
Subbaya Bai vs Karunakaran Nambiar on 29 October, 2004
Equivalent citations: AIR2005KER72, 2005(1)KLT206, [2006]69SCL33(KER), AIR 2005 KERALA 72, (2005) ILR(KER) 1 KER 434 (2005) 1 KER LT 206, (2005) 1 KER LT 206
Author: J.B. Koshy
Bench: J.B. Koshy, K.P. Balachandran
JUDGMENT J.B. Koshy, J.
1. The issue to be decided in this case is the power of State Government in nominating Directors in the Board of Multi-State Co-operative Societies Under Section 48 of the Multi-State Co-operative Societies Act, 2002 (Act 39 of 2002) (hereinafter referred to as 'the 2002 Act'), vis-a-vis the power of nomination by the Central and State Governments as per the bye-laws. The Central Areacanut and Coco Marketing and Processing Cooperative Ltd., properly known as CAMP CO Ltd. is a Multi-State Co-operative Society. The bye-laws of the society were framed in conformity with the provisions of the Multi-State Co-operative Societies Act, 1984 (Act 51 of 1984) (hereinafter referred to as 'the 1984 Act'). The State Governments of Kerala and Karnataka have subscribed to the share capital of the second respondent society. Clause 16 of bye-laws of the society provides the constitution of the Board of Directors of the society. The total members of the Board is 19. As per Clause 16(1)(c) of the bye-laws, Kerala and Karnataka Governments are entitled to nominate two members each on the Board. Two Directors are to be nominated by the All India Term Loan Lending Institutions. The remaining 13 Directors are to be elected in the manner prescribed by the bye-laws.
2. Clause 16(1)(c) of the bye-laws reads as follows:
"Bye-law 16: Board of Directors
1. The Management of CAMPCO shall vest in a Board of Directors consisting of 19 Members as under:
...........................
(c) Four Directors to be nominated by the State Governments of Karnataka and Kerala, at the rate of two each, of which one each shall be a Senior Officer of the Co-operative Department of the respective States."
3. The provision for nomination of Government nominees Under Section 41 of the 1984 Act reads as follows:
"41. Nominee of Central Government or State Government on the Board.-- (1) Where the Central Government or a State Government has subscribed to the share capital of a Multi-State Co-operative Society or has guaranteed the repayment of principal and payment of interest on debentures issued by a Multi-State Co-operative Society or has guaranteed the repayment of principal and payment of interest on loans and advances to a Multi-State Co-operative Society, the Central Government or the State Government in this behalf, as the case may be, or any person authorised by the Central Government or the State Government, shall have the right to nominate on the board such number of persons as may be prescribed.
(2) The bye-laws of a Multi-State Co-operative Society may provide for the nomination of persons in excess of the limits prescribed under Sub-section(1).
(3) A person nominated under this section shall hold office during the pleasure of the Government by which he has been so nominated."
The section clearly provides that in spite of the provisions Under Section 41, bye-laws can provide for the nomination of persons in excess of the limits prescribed under Sub-section(1).
4. Rule 31 of the Multi-State Co-operative Societies (Registration, Membership, etc.) Rules, 1985 framed under the 1984 Act reads as follows:
"31. Central Government or State Government nominees on the board.-- (1) Where the Central Government or the State Government has subscribed to the share capital of a Multi-State Co-operative Society, or has guaranteed the repayment of principal and payment of interest on debentures issued by such society, or has guaranteed the repayment of principal and payment of interest on loans and advances to such society, or has provided grant or subsidy to such society, the Central Government or the State Government, as the case may be, or any other person authorised by the Central Government or the State Government, shall have the right to nominate on the board such number of persons not exceeding 3 or 1/3rd of the total number of members thereof, whichever is less.
(2) Notwithstanding anything contained in these rules, the bye-laws of a Multi-State Co-operative Society may provide for the nomination by the Central or State Government of persons in excess of the limits referred to in Sub-rule (1)."
Therefore, only three persons or one third of the total number of members thereof, whichever is less, can be nominated as per the 1984 Act as Government nominees. We have seen that as per the bye-laws two Directors each can be nominated by the Governments of Karnataka and Kerala. Thereafter, the 2002 Act came. In the 2002 Act, preamble of the Act says that, the Act was enacted to consolidate and amend the law relating to Co-operative Societies and to provide functional autonomy to the societies. Preamble of the 2002 Act is as follows:
"An Act to consolidate and amend the law relating to co-operative societies, with objects not confined to one State and serving the interests of members in more than one State, to facilitate the voluntary formation and democratic functioning of co-operatives as people's institutions based on self-help and mutual aid and to enable them to promote their economic and social betterment and to provide functional autonomy and for matters connected therewith or incidental thereto."
5. Section 48 of the 2002 Act reads as follows:
"48. Nominee of Central Government or State Government on Board.-(1)Where the Central Government or a State Government has subscribed to the share capital of a multi-State co-operative society, the Central Government or the State Government, as the case may be or any person authorised by the Central Government or the State Government shall have right to nominate on the board such number of persons as the members on the following basis, namely:-
(a) where the total amount of issued equity share capital held by the Central Government or the State Government is less than twenty six per cent of the total issued equity share capital, one member of the board;
(b) where the total amount of issued equity share capital held by the Central Government or the State Government is twenty six per cent or more but less than fifty-one per cent of the total issued equity share capital, two members of the board;
(c) where the total amount of issued equity share capital held by the Central Government or the State Government is fifty-one percent, or more of the total issued share capital, three members of the board:
Provided that the number of such nominated persons shall not exceed one-third of the total number of members of the board:
Provided further that where the Central Government or a State Government has guaranteed the re-payment of principal and payment of interest on debentures issued by a multi-State co-operative society or has guaranteed the repayment of principal and payment of interest on loans and advances to a multi-State co-operative society or has given any assistance by way of grants or otherwise to a multi-State co-operative society, the Central or the State Government in this behalf, as the case may be, or any person authorised by the Central Government, shall have the right to nominate person on the board of such a society in the manner as may be prescribed.
(2) A person nominated under this section shall hold office during the pleasure of the Government by which he has been so nominated."
Since the share capital is less than twenty six per cent of the total issued equity share capital, as per the Act, the State Government has power to nominate only one Director in the normal circumstances. Section 126 of the Act 2002 protects the provisions of the bye-laws unless they are inconsistent With the provisions of the earlier Act. Under the earlier Act and bye-laws two persons were already nominated as per Ext.P2 by the State Government. When the new Act came into force, by Ext.P4, the appellant was also nominated as a Director in addition to the two Directors already in the board. Ext.P4 states that in view of the new Act Government of Kerala is entitled to nominate one more person to the Board of Directors and hence the appellant. B. Subbaya Rai was nominated. The petitioner in the Original Petition challenged the above order rule It was the submission that already there were two nominated Directors and on the basis of the new Act no additional member can be nominated as already more than one Government nominees are in the Board. Learned Single Judge accepted the above contention and allowed the Original Petition.
6. It is not disputed that bye-laws should be consistent with the provisions of the statute and if there are inconsistent provisions in the Act and bye-laws, the Act will prevail. Under Section 48 of the 2002 Act, the Government is entitled to nominate at least one nominee if the share capital held by the Government is less than twenty-six per cent of the total issued equity share capital. In the bye-laws, in fact Kerala Government is entitled to nominate two persons. The bye-laws are not inconsistent with the Act. In effect instead of one person the bye-laws enable the Kerala State to promote two persons in the Board. Provisions of the Bye-laws are protected Under Section 126 of the 2002 Act. It is not stated in the Act that power Under Section 48 of the 2002 Act is in addition to the power of nomination given under the bye-laws. If that be so, it would have been very clearly stated in the statute. As stated in the preamble of the new Act, Act was amended so that the society is more autonomous. It is for the members of the society to govern the Board. Of course, the Government is entitled to nominate more Directors as per the proviso to Section 48 of the 2002 Act. Here, the one additional Director nominated in Ext.P4 is not in accordance with the proviso to Section 48, but only under Sub-section (1)(a) of Section 48 of the 2002 Act. Already there were two Directors nominated by the State Government, i.e. more than the minimum required Under Section 48(1) of the 2002 Act. It is true that if the Government has given power under the statute to nominate three members despite the powers of the bye-laws to appoint two members, Government would have been entitled to nominate one more Director as the provisions in the statute will prevail. But, here as per the bye-laws two persons can be nominated, whereas the minimum requirement under the statute is only one. There are already two Government nominees. Therefore, in terms of statute as well as the bye-laws one more Director cannot be appointed merely because 2002 Act provides for appointment of one Government nominee in the board.
7. Learned counsel for the appellant relied on the decision of a learned Single Judge of this Court in Pavithran v. State of Kerala (1970 KLT 581). There the Court set aside Rule 37(4) of the Co-operative Societies Rules, which gives power to the Registrar to appoint two persons to serve on the Committee of the society, as it was in excess of the powers given to the Registrar under the Act. That is not the present issue. Whether disqualifications of an elected member is applicable to a nominated member is the question decided by the learned Single Judge of this Court in Edavanna Service Cooperative Bank Ltd. v. Shoukathali (1981 KLT 335) and the same relied on by the appellant is also not relevant for the purpose of this case. Learned counsel for the appellant also placed before us a Division Bench decision of the Karnataka High Court in W.A. Nos.5933 & 5943 of 2003. In that case, following the Full Bench decision of the Karnataka High Court in CM Udasi v. State of Karnataka (1994 (3) Kar.L.J.5 (FB)) the Division Bench held that power of nomination Under Section 48 is independent of nomination made under the bye-law and therefore in addition to the members that can be nominated under the bye-laws, further nominees can be made. We are unable to accept the above proposition. The bye-laws are framed as per the requirements of the statute and also it should be in conformity with the statute. It is true that the provisions of the Act and bye-laws should not be inconsistent. Here, there are no inconsistent provisions. The Act gives State Government to nominate minimum one person. The bye-laws provides that two nominees can be made by the State Government and already two persons were nominated. In fact under the 1984 Act the State Government has power to nominate more persons. At that time only two persons were nominated, The present Act limits the power of State Government to give nomination of only one person. But, in view of Section 126 of the 2002 Act, the bye-laws continues to be operative and two persons in the board is already continuing and in such circumstances, in view of the amendment, the State Government will not get a right to nominate an additional Director over and above the Directors already nominated. Therefore, we agree with the views of the learned Single Judge of this Court and respectfully disagree with the views expressed in the decision of the Karnataka High Court referred earlier.