Andhra HC (Pre-Telangana)
Reserve Bank Of India vs Joint Registrar/District ... on 8 March, 2004
Equivalent citations: 2004(6)ALD699, 2004(6)ALT335, [2005]125COMPCAS790(AP)
Author: G. Rohini
Bench: G. Rohini
JUDGMENT G. Rohini, J.
1. The Reserve Bank of India preferred this writ appeal aggrieved by the order of the learned Single Judge dated 17.12.2003 in W.P. No. 18519 of2003.
2. The 4th respondent herein, who is the Chairman of the 3rd respondent-Hyderabad Co-operative Bank Limited, Yakutpura, Hyderabad, filed the Writ Petition to quash the notice dated 28.8.2003 issued by the 1st respondent - Joint Registrar District Co-operative Officer, Hyderabad, whereunder the 4th respondent and other members of the Board of Directors of the Bank were called upon to show-cause as to why an order shall not be passed superseding the Board of Directors under Section 34 of A.P. Co-operative Societies Act, 1964 (for short "the Act").
3. The 4th respondent-Writ Petitioner pleaded that the 3rd respondent-Bank was established with due registration under the Act and it has been operating after obtaining necessary permission from the Reserve Bank of India in compliance with the Banking norms. It appears that during the months of September and October, 2002 the Reserve Bank of India caused an inspection of the 3rd respondent - Bank. The 4th respondent appears to have been elected as Chairman subsequently in April, 2003. He claims that during the inspection it was found by the Reserve Bank of India that the cash reserve ratio etc., are in better position than the stipulated norms. However, a notice dated 28.8.2003 was issued by the 1st respondent - Joint Registrar/District Co-operative Officer, Hyderabad calling upon the Chairman and other Board of Directors of the 3rd respondent-Bank to show-cause as to why orders shall not be passed for supersession of the Board of Directors of the Bank and appoint an Administrator under Section 115-B of the Act in terms of the requisition of the Reserve Bank of India dated 18.8.2003. The grievance of the 4th respondent is that a copy of the requisition of the Reserve Bank of India dated 18.8.2003 on the basis of which the show- cause notice dated 28.8.2003 was issued was neither furnished nor the contents of the said requisition were revealed. It is contended that since the substance of the so-called requisition of the Reserve Bank of India dated 18.8.2003 was not revealed, the 4th respondent was unable to submit any effective explanation to the show-cause notice and thus the entire action is in violation of the fundamental principles of natural justice without reference to any particular instance or circumstances by which it was alleged that the interest of the affairs of the Bank were being conducted in a manner detrimental to the interest of the depositors. In the circumstances, the impugned show-cause notice dated 28.8.2003 was sought to be quashed seeking a further direction not to interfere with the management and administration of affairs of the 3rd respondent-Bank by the elected Managing Committee.
4. On behalf of the 1st respondent a counter-affidavit has been filed stating that the impugned notice has been rightly issued in exercise of the power conferred under Section 115-B of the Act, in terms of the requisition received from the Reserve Bank of India.
5. In the counter-affidavit filed on behalf of the Reserve Bank of India it is stated that the RBI under Section 115-B(iii) of the Act is competent to issue necessary directions in public interest and in the interest of depositors and that the Registrar of Co-operative Societies is bound by such requisition. It is further stated that the Registrar of Co-operative Societies has no discretion except to pass orders for supersession of the Board of Directors and appointment of Administrator when a requisition is issued by the RBI under Section 115-B(iii) of the Act. It is contended that the power exercised by the Registrar of Co-operative Societies under Section 34 of the Act is different and distinct to that of the power under Section 115-B(iii) of the Act, and therefore, no further notice is required to the 3rd respondent-Bank or to its Board of Directors to supersede the Board when a requisition is issued by the RBI.
6. It is also stated that the RBI conducted the statutory inspection of the Books of Account of the 3rd respondent-Bank between 15th and 30th November, 2002 with reference to its financial position as on 30.9.2002 and that the inspection revealed the precarious financial position of the 3rd respondent-Bank. Several violations of various provisions of Banking Regulation Act, 1949 and fudging of its books of Account by the management and diversion of funds have been noted. The finding of the inspection have been enumerated in detail and it is further stated that in the circumstances, by letter dated 5.3.2003 the RBI forwarded a copy of the inspection report to the 3rd respondent-Bank with an advice to place it before its Board of Directors and also to call on the officials of the RBI for discussion on the findings of the inspection and submit its report of compliance. On the basis of the findings of the Inspection Report, the 3rd respondent-Bank was classified as a weak Bank and a copy of the Inspection Report was also forwarded to the Registrar of Co-operative Societies of Andhra Pradesh, Hyderabad. In pursuance thereof, the Chairman, Chief Executive Officer and two Directors of the 3rd respondent-Bank called on the officials of the RBI on 7.4.2003 to discuss about the findings of the inspection during which the Chairman and other officials of the 3rd respondent-Bank were informed about the seriousness of the violations pointed in the inspection and the need for urgent action to rectify the defects. The 3rd respondent-Bank by letter dated 23.5.2003 informed the RBI that the findings of the inspection report have been discussed in the meeting of its Board of Directors and the report of compliance was submitted, however, the same was found to be not satisfactory. The same was informed to the 3rd respondent-Bank. Though the 3rd respondent-Bank submitted an explanation and further compliance it was also found to be not satisfactory. The scrutiny of Books of Accounts revealed that the explanation submitted by the 3rd respondent-Bank and its report of compliance on reduction of NPAs., Fudging of its Books of Accounts and diversion of funds are false. Though sufficient opportunity was given, the 3rd respondent-Bank failed to rectify the defects, but made false claims regarding the compliance of violations pointed by the RBI and also submitted false statements regarding its financial position. The Board of Directors of the 3rd respondent-Bank being well aware of the Fudging of Books of Account, diversion of funds of Charminar Co-operative Urban Bank Limited and submission of false statements to the RBI failed to rectify the defects in the functioning of the Bank. In the circumstances, the RBI opined that the continuance of the Board of Directors of the 3rd respondent-Bank would be detrimental to the interest of depositors and public and also to the interest of the 3rd respondent-Bank and accordingly in exercise of its powers under Section 115-B(iii) of the Act issued directions to the Registrar of Co-operative Societies for supersession of the Board of Directors and appointment of an Administrator. Thus it is pleaded that the requisition made by the RBI is neither in violation of the principles of natural justice as alleged by the writ petitioner nor in contravention of the statutory provisions.
7. The learned Single Judge allowed the writ petition and set aside the show-cause notice dated 28.8.2003 holding that before resorting to the extreme step of supersession of the Committee in exercise of powers under Section 115-B(iii), the RBI is under an obligation to point out the deficiencies on the part of the members of the Board of Directors and to call upon them to explain as to why such steps should not be taken. The learned Single Judge concluded that since admittedly the RBI did not issue any show-cause notice to the petitioner before it has taken a decision to supersede the Board of Directors of the 3rd respondent-Bank, the requisition dated 16.8.2003 of the RBI which constituted the basis for the show-cause notice impugned in the writ petition does not conform to the requirement of law and therefore no action pursuant thereto can be taken against the writ petitioner. However, it was left open to the respondents to take such action as they intend to by duly following the procedure prescribed by law.
8. Aggrieved by the said order the Reserve Bank of India for short "RBI" (the 4th respondent in the writ petition) has come up with this appeal.
9. We have heard the learned Counsel for the appellant - RBI Sri K. Srinivasa Murthy and the learned Counsel for the 4th respondent Sri V. Venkata Ramana as well as the learned Government Pleader appearing for the Respondents and 2 and perused the order impugned and other material on record.
10. The learned Counsel for the appellant at the outset contended that the writ petition itself is not maintainable and liable to be dismissed as premature since the impugned notice was only a notice to show-cause. The learned Counsel further contended that a requisition issued by RBI in exercise of powers under Section 115-B(iii) of the Act is binding on the Registrar of Co-operative Societies and no further notice is required to be issued either to the Bank in question or to its Board of Directors to show-cause why the Board should not be superseded. Thus, according to the learned Counsel in the absence of any legal requirement to afford a prior opportunity to the affected party to explain, the plea that the impugned notice is vague and lacks in material particulars does not carry any weight. Even otherwise the learned Counsel states that a perusal of the material on record makes it very clear that 4th respondent and other Directors of the Board were very well aware of all the deficiencies pointed out by the RBI from time to time and in spite of the ample opportunity afforded, they failed to rectify the defects and therefore, there is absolutely no reason to hold that the requisition of the RBI is in violation of the principles of natural justice. The learned Counsel further contended that in view of the non-obstante clause, Section 115-B(iii) overrides Section 34 of the Act and therefore the right of hearing as contemplated under Section 34 stands excluded. Thus according to the learned Counsel for the appellant the entire premise on which the learned Single Judge allowed the writ petition is erroneous.
11. On the other hand, the learned Counsel for the 4th respondent-writ petitioner contended that even before taking a decision by the RBI in exercise of power under Section 115-B(iii) of the Act, the elected Managing Committee of the Bank shall be put on notice. The learned Counsel submits that the power under Section 115-B(iii) of the Act is available only in the public interest or to prevent the affairs of the Bank being conducted in a manner detrimental to the interest of the depositors. He points out that since the notice dated 28.8.2003 was nothing but a mechanical reproduction of the language contained in Section 115-B(iii) and does not refer to any instance or circumstances by which it is alleged that in public interest the proposed supersession is suggested, the entire proceedings are vitiated. It is also contended that the show-cause notice is not only vague and lacking in material particulars but even the requisition of the RBI which forms basis for the entire proceedings initiated, was not furnished and thus on that ground alone it is liable to be set aside being in violation of the principles of natural justice.
12. It is not in dispute that by virtue of Section 56 of the Banking (Regulation) Act, 1949 the provisions of the said Act are made applicable to the Co-operative Banks with such modifications as stated therein. Thus, the RBI is vested with regulatory powers over the functioning of the Co-operative Banks and under Section 35-A of the Banking (Regulation) Act as it is applicable to the Co-operative Societies the Reserve Bank of India has been empowered to issue such directions as it thinks fit and proper in the public interest or in the interest of Banking Policy or to prevent the affairs of any Co-operative Bank being conducted in a manner detrimental to the interests of the depositors or in a manner prejudicial to the interests of the Co-operative Bank or to secure the proper management of the Banking business of any Co-operative Bank generally.
13. That apart, Section 115-B of A.P. Co-operative Societies Act which is a special provision applicable to "eligible Cooperative Banks" as defined under the Deposit Insurance Corporation Act, 1961, empowers the RBI, in the public interest or for preventing the affairs of a Bank being conducted in a manner detrimental to the interest of the depositors, to require the supersession of the Committee of Management or other managing body and the appointment of a Special Officer therefor.
14. It is not in dispute that the 3rd respondent-Bank was registered under the Act and it also falls within the definition of the "eligible Co-operative Banks" so as to attract Section 115-B under Chapter XIII-A of the Act.
15. Section 115-B to the extent it is relevant for the present case reads as under:
"115-B. Special provisions applicable to eligible Co-operative Banks:-Notwithstanding anything in this Act, the following provisions shall apply to an eligible Co-operative Bank, namely:
(i).................;
(ii).................;
(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 under the provisions of this Act for the supersession of the committee of management or other managing body (by whatever name called) of the bank and the appointment of a special officer therefore for such periods not exceeding five years in the aggregate as may, from time to time, be specified by the Reserve Bank":
16. A plain reading of Section 115-B(iii) shows that upon the directions of the RBI it is obligatory on the part of the Registrar to pass orders superseding the Board. The learned Counsel for the appellant placed reliance upon two decisions of the Bombay High Court in Mahendra v. State of Maharashtra and Ors., W.P. No. 2746 of 1990 dated 29.4.1992 and Prakash Ganesh Aaphali and Ors v. State of Maharashtra and Ors., W.P. No. 3658 of 2002 dated 18.9.2002, wherein the question whether the Registrar of the Cooperative Societies is bound to give a show-cause notice while passing an order under Section 110-A of the Maharastra Cooperative Societies Act was examined by two Division Benches. While considering the scope of Section 110-A of the said Act which is in part materia with Section 115-B of the A.P. Co-operative Societies Act, the Bombay High Court held that Section 110-A is an overriding provision brought on the statute book with a view to have the control of the Reserve Bank of India over the insured Co-operative Banks in certain matters and that the directive of the RBI to supersede the Committee and to make an appointment of an Administrator in public interest or for preventing the affairs of the Bank being conducted detrimental to the interest of the depositors or for securing the proper management of the Bank is binding upon the Registrar. It was also held that once a direction issued by the RBI the Registrar has no discretion in the matter, but to supersede the Committee and appoint an Administrator.
17. As a matter of fact the learned Single Judge has also accepted the binding nature of the requisition of the RBI under Section 115-B(iii) and held that hardly any scope is left for the authority under the Act, except to make an order as required by the RBI. If that be so, as rightly contended by the learned Counsel for the appellant, the notice dated 28.8.2003 impugned in the writ petition which was issued by the 1st respondent-Registrar in terms of the directive of the RBI does not warrant scrutiny on any one of the grounds raised in the writ petition. However, the learned Single Judge proceeded to examine the issue in question from a different angle and declared that the requisition by the RBI under Section 115-B (iii) which constituted the basis for the show-cause notice dated 28.8.2003 itself does not conform to the requirements of law and therefore, no action pursuant thereto can be taken against the writ petitioner. The learned Single Judge expressed that whereas the decision as such for supersession is to be taken by the RBI, the corresponding order shall be made under the provisions of the Act by the authority under the Act i.e., the Registrar and that Section 34(1) is not rendered inapplicable for the eligible Cooperative Banks in its entirety. Thus it was concluded that a combined reading of Sections 115-B(iii) and 34 makes it clear that the requirement to give an opportunity of making a representation before the decision to supersede the Board of Directors remains intact and therefore the RBI is under an obligation to issue a prior notice to the validly elected Committee.
18. We are unable to agree with the reasoning of the learned Single Judge. There is a clear distinction between Section 34 and Section 115-B(iii) of the A.P. Cooperative Societies Act, 1964. As can be seen the two provisions are independent and the circumstances to exercise the power under the said two sections are entirely different. Whereas Section 115-B(iii) deals with the power of the RBI to pass orders in 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, Section 34 deals with supersession of the Committee if in the opinion of the Registrar the Committee is not functioning properly or wilfully disobeys or fails to comply wilfully with any lawful order or direction issued by the Registrar under the Act or the Rules. It is relevant to note that in view of the non-obstante clause incorporated, Section 115-B(iii) of the Act overrides the provisions of Section 34. Section 115-B specifically states that it is applicable notwithstanding anything contained in the said Act. Thus it is clear that the provisions of Section 115-B(iii) are independent to that of Section 34 and that the right of hearing as contemplated under Section 34 of the Act stands excluded.
19. The learned Counsel for the respondent placed much reliance upon the words "under the provisions of the Act" incorporated in clause (iii) of Section 115-B, and vehemently contended that the procedure prescribed under Section 34 which is the only provision available for supersession remains in tact and cannot be said to be excluded. In our considered opinion the said words employed in Section 115-B(iii) would only enable the Registrar who is the competent authority under the Act to make an order in terms of the directive of the RBI and nothing more. Once it is held that the requisition of the RBI is binding no further discretion is left to the Registrar and therefore the opportunity as contemplated under Section 34 of the Act cannot be insisted upon.
20. However, we are of the view that the exclusion of Section 34 from the scheme of Section 115-B(iii) does not entitle the RBI to unilaterally take a decision regarding the supersession without affording an opportunity of making a representation to the elected Managing Committee. Even the appellant has never put forth such an extreme argument, but only contended that ample opportunity was given to the 3rd respondent-Bank to rectify the defects and ultimately when it emerged that the lapses on the part of the management are persistent, the directive under Section 115-B(iii) was issued to supersede the Board of Directors of the 3rd respondent-Bank. The learned Counsel for the appellant submits that since full and fair opportunity has been given to the 3rd respondent-Bank to meet the allegations and the deficiencies found in the statutory inspection, there is no necessity to give a further opportunity before making a requisition for supersession under Section 115-B(iii). The learned Counsel contends that in the facts and circumstances of the case, the conclusion of the learned Single Judge that the directive of the RBI is in violation of the principles of natural justice is unwarranted and cannot be sustained.
21. We have carefully gone through the entire material on record. As can be seen the statutory inspection of the 3rd respondent-Bank was conducted during the month of November, 2002 with reference to its financial position as on 30.9.2002. The major findings of the inspection were furnished to the Government by letter dated 5.3.2003. The findings include that the 3rd respondent-Bank violated the RBI directives/guidelines. It is clear that a copy of the said letter was also communicated to the 3rd respondent-Bank calling for a compliance report with regard to the remarks made thereunder. The 3rd respondent-Bank by letter dated 23.5.2003 furnished the compliance report. Again by letter dated 19.6.2003 the RBI informed the- 3rd respondent-Bank that the compliance in respect of some paragraphs is not complete and thus advised the 3rd respondent-Bank to furnish further compliance in respect of the aspects specified thereunder within three weeks. In pursuance thereof, the 3rd respondent-Bank by letter dated 16.8.2003 submitted the compliance. The RBI by letter dated 4.9.2003 informed the 3rd respondent-Bank that the compliance submitted in respect of five paragraphs is not acceptable and therefore required the 3rd respondent-Bank to furnish further compliance within three weeks in respect of the said five paragraphs clearly specified therein. It appears that the 3rd respondent by letter dated 11.9.2003 submitted further compliance. However, that was also found to be unsatisfactory and the RBI by letter dated 3.10.2003 required the 3rd respondent-Bank to furnish compliance with regard to the four paragraphs specified therein within three weeks, which they failed to do. The Respondent No. 4 - writ petitioner did not deny the letters addressed by the RBI from time to time specifying the lapses and the response by the members of the Board of Directors, but in the reply affidavit it is only alleged that in the correspondence there was no indication of diversion of funds or about any other act which is attributed to the Management Committee.
22. In the light of the admitted facts is clear that the 3rd respondent-Bank was not put on notice as to the deficiencies observed in the inspection conducted by the RBI during November, 2002. Clause 2(xi) of the Report of the Inspection communicated to the Bank specifically mentions all the violations of the guidelines, which were observed during the statutory inspection. Compliance report dated 9.5.2003 which was approved by the Board of Directors of the 3rd respondent-Bank in the meeting held on 9.5.2003 vide Resolution No. 3 makes it clear that all the Board of Directors were very well aware of the lapses pointed out and steps were taken to rectify the same. The material on record also shows that after a prolonged correspondence it was opined by the RBI that there was persistent violation on the part of the management and the same resulted in the directive for supersession under Section 115-B(iii). Thus it is clear that the directive issued by the RBI for supersession in terms of Section 115-B cannot be said to be without notice to the 3rd respondent-Bank and the Board of Directors about the deficiencies found in the statutory inspection. The RBI arrived at a conclusion that it is a fit case to invoke the provisions of clause (iii) of Section 115-B of the Act only after affording ample opportunity to the 3rd respondent-Bank to rectify the lapses. In the requisition dated 16.8.2003 the RBI recorded its satisfaction that in the public interest it is necessary to supersede the Board of Directors of the 3rd respondent-Bank and to have an Administrator appointed therefor. In the facts and circumstances of the present case, the requisition cannot be read in isolation and if the said requisition is read with reference to the earlier correspondence with the 3rd respondent-Bank intimating them the deficiencies found in the inspection and calling upon them to rectify the same, it cannot be said that the RBI failed to point out the deficiencies on the part of the members of the Board of Directors.
23. It is relevant to note that the statute docs not expressly provide for any prior opportunity under Section 115-B(iii) of the Act for superseding a Co-operative Bank. However, the law is well-settled that even the statutory silence does not automatically imply exclusion of applicability of principles of natural justice which constitute the basic elements of fair play and justice. The parties to the controversy cannot be denied a fair opportunity for stating their case or for correcting or contradicting the lapses alleged before any adverse order is passed against them. It is also now well-settled that the principles of natural justice do not have a rigid formula and the compliance thereof varies from case to case depending upon the facts and circumstances of each case. As held in Keshava Mills Company Limited v. Union of India, , the only essential point that has to be kept in mind in all cases is that the person concerned should have a reasonable opportunity of presenting his case and that the administrative authority concerned should act fairly, impartially and reasonably.
24. As expressed above, in the facts and circumstances of the case we have no manner of doubt to conclude that the 3rd respondent-Bank as well as the Board of Directors were clearly made known the alleged violations and were given all reasonable opportunities to make out their own case and to rectify the lapses found in the statutory inspection. Therefore, they cannot be allowed to make any grievance of the fact that they were not given a formal notice by the RBI calling upon them to show-cause why the Managing Committee should not be superseded. On appreciation of the material on record we are of the view that they had the reasonable opportunity to meet the stand of the RBI and further show-cause notice would be only a futile exercise.
25. In the circumstances, the conclusion of the learned Single Judge that the requisition of the RBI does not conform to the requirements of the principles of natural justice cannot be maintained. Hence, in our considered opinion, the 1st respondent-Registrar is bound to make the appropriate orders in terms of Section 115-B(iii) of the Act.
26. For the aforesaid reasons, we do not see any reason to hold that the notice dated 28.8.2003 issued by the 1st respondent-Registrar warrants any interference. It is always open to the writ petitioner to submit the appropriate explanation if he so chooses.
27. Accordingly the writ appeal is allowed setting aside the order impugned and the writ petition shall stand dismissed. However, leave and liberty is granted to the petitioner to submit necessary explanation to the impugned show-cause notice, within a period of two weeks from today. No costs.