Full Judgment Text
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CASE NO.:
Appeal (civil) 1210 of 2007
PETITIONER:
Anilbhai M. Patel & Ors
RESPONDENT:
Suryapur Bank Agent D.B.H. Samiti & Ors
DATE OF JUDGMENT: 08/03/2007
BENCH:
S.B. Sinha & Markandey Katju
JUDGMENT:
J U D G M E N T
[Arising out of S.L.P. (C) No. 17465 of 2004]
WITH
CIVIL APPEAL NOS. 1211/2007 @ S.L.P.(C)Nos. 18362-18363 of 2004
CIVIL APPEAL NOS. 1212/2007 @ S.L.P.(C)Nos. 19602-19603 of 2004
S.B. SINHA, J.
Leave granted.
These appeals involving identical questions of law and fact and
arising out of the same judgment, were taken up for hearing together and are
being disposed of by this common judgment.
Appellants herein are Directors of a Cooperative Bank known as the
City Cooperative Bank Ltd. A loan was sanctioned by the said Cooperative
Bank to Suryapur Cooperative Bank as also one Pragati Alco-Chem Pvt.
Ltd. in the year 2002. The Registrar’s Board of Nominees, Surat passed
awards for recovery of the amount advanced to the loanees.
The Bank, as also its Managing Directors, filed a writ petition wherein
rule nisi was issued. An interim relief was also granted. One Suryapur
Bank Agent Dainik Bachat Hitvardhak Samiti, respondent No. 1, without
approaching the Registrar, for ventilating its grievances in regard to the
purported mismanagement of the affairs of the said Bank, filed a writ
petition before the High Court of Gujarat at Ahmedabad. Admittedly, no
prayer was made therein for appointment of an Administrator. A learned
Single Judge of the said Court, however, purported to be keeping in view the
fact that the Reserve Bank of India had undertaken a statutory inspection, a
report in respect whereof was filed in the Court, directed appointment of an
Administrator in place of the elected body stating :-
"\0059.2) By ad-interim order, it is directed that respondent
No. 2 shall appoint Administrator in place of elected body of
respondent No. 3 Bank within a period of one week from
today and respondent No. 2 shall appoint a person as
Administrator, who is well conversant with the banking
business and if required, respondent No. 2 may also consult
RBI in this regard.
9.3) Until the Administrator is appointed, respondent No.
2 is directed to ensure that the charge from the elected body
is taken over by the District Registrar, Surat as In-charge
Administrator tomorrow at the opening time of the Bank i.e
between 10.30 to 11 O’Clock in the morning.
9.4) It is further directed that respondent No. 2 shall
inquire regarding the aforesaid illegal actions and
misapplication of the funds which is prima facie considered
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by the Court, for the purpose of taking Civil as well as
Criminal action against the office-bearers of respondent No.
3 Bank. Such inquiry shall be completed within a period of
fifteen days from the date of receipt of the order of this
Court and if, as an outcome of the said inquiry, it is found by
respondent No. 2 that the office-bearers of respondent No. 3
Bank, while in office, have committed offences or have
misapplied the funds or have committed illegality, necessary
action shall be taken within a period of fifteen days
thereafter and the report shall be submitted to this Court
within two weeks after taking action.
9.5) The respondent No. 3 by further order, is restrained
from allowing functioning of its office-bearers from
tomorrow i.e. 12.8.2004 onwards..."
We may at the outset notice that the Registrar of Cooperative
Societies in its affidavit filed before the High Court, stated:-
"9. With reference to paragraph (7) of the petition, it is
submitted that the respondent No. 1 after conducting
the inspection of the respondent No. 4, Suryapur
Cooperative Bank Ltd., Surat with respect to its
financial position as on 30.6.2002 and the liquidity
problem faced by the bank in September, 2002, issued
direction under Section 35(A) of Banking Regulation
Act, 1949\005
10. With reference to paragraph (8) to (32) of the
petition, it is submitted that respondent No. 2 has
received the inspection reports relating to the City
Cooperative Banks Ltd., Surat through RBI on 4.4.2003
and other letters dated 8.7.2003, 18.7.2003, 4.9.2003,
17.9.2003, 28.10.2003, 19.11.2003 and 13.12.2003.
Respondent No. 2 had initiated proper actions on the
basis of the D.R.C.S. Surat report dated 11.11.2003
regarding the managerial aspects of the Bank.
Thereafter, the official of the bank were called for
necessary explanation on Dt. 24.11.2003 and 5.12.2003
respectively in respect of the point raised in the matter.
Thereafter, the City Cooperative Bank filed SCA No.
17116/03 before the Hon’ble Court on 10.12.2003,
whereby respondents were restrained to take civil or
criminal action against the officials of the Bank. The
Hon’ble Court is pleased to dispose of the matter on
29.7.04. Hence, the Registrar will take appropriated
action against the official of the City Cooperative Bank
for the violation of Sections 45 and 71 of the Act, now
as per the audit report and inquiry to be conducted
under Section 86 of the Act\005"
The RBI, however, in its counter affidavit stated :-
"10. With reference to paragraph 5 of the petition, it
is submitted that the Reserve Bank does not audit the
cooperative banks. The auditing of the cooperative
bank falls within the domain of Registrar of
Cooperative Societies under Gujarat Cooperative
Societies Act. However, Reserve Bank conducts
inspection of the cooperative banks under Section 35
of Banking Regulation Act, 1949 (AACS)."
It is alleged that some directions have been issued by it under
Section 35A of the Bank Regulation Act, 1959. It also refers to the
inspections conducted by it, in regard to its financial position of the co-
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operative society on 31.12.2002. It was furthermore averred :-
"16. With reference to paragraphs 11 to 18 of the
petition, it is submitted that several petitions have been
filed by the borrowers against the City Coooperative
Bank and Suryapur Coopertive Bank challenging
attachment of their property and alleging fraud by the
members of the board which are subjudice before this
Hon’ble Court. In compliance with the inspection
report of the Reserve Bank, the respondent No. 4 vide
its letter dated 31.5.2003 reported that the money was
given to banks including Suryapur Coop. Bank against
security of bankers’ cheque and the bank was not
lending any more for such purpose. The explanation of
the Respondent No. 4 was considered to be
unsatisfactory. The respondent No. 4 was called upon
by letter dated 27.6.2003 to explain in detailed to RCS
the circumstances leading to grant of such loan. The
reply given by the respondent No. 4 vide its letter dated
8.7.2003 was not acceptable and was again asked vide
letter 25.7.2003 to explain to the Registrar the position.
Reserve Bank vide letter dated 4.4.2003, 1/8.7.2003,
4.9.2003, 17.9.2003, 28.10.2003, 19.11.2003 and
13.12.2004 required the Registrar to take necessary
action and inform us the action taken by him. The
Reserve Bank has not received any response from the
Registrar Cooperative Societies."
An intra court appeal preferred thereagainst was also dismissed by
reason of the impugned judgment by a Division Bench of the said Court,
opining that although no specific prayer was made in the writ petition for
appointment of an Administrator but such a relief could be granted as a
general relief viz. "passing such and other further relief as may be
deemed just and proper by the Court", was prayed for. The Division
Bench without going into the merit of the matter held that the remedy of
the appellants was to approach the learned Single Judge by way of proper
application for recalling or modifying or vacating the interim order and
on the said finding the appeal was dismissed.
Mr. Soli J. Sorabjee, the learned senior counsel appearing on
behalf of the appellants submitted that ;
1) No prayer for appointment of Administrator having been made,
no such interim order could have been passed.
2) The High Court should not have exercised the statutory
functions of the Registrar as in terms of Section 81 of the
Gujarat Cooperative Societies Act, 1961, he is the only
appropriate authority empowered to supersede the Committee.
3) No copy of the report of the RBI having been furnished to the
appellants, reliance thereupon by the learned Single Judge was
wholly illegal.
The writ petitioners-respondents, despite service of notice, have
not appeared before us.
Mr. R.N. Trivedi, learned senior counsel appearing on behalf of
the RBI, however, would submit that the appellants herein committed
severe financial irregularities, and in that view of the matter and
furthermore in view of the fact that the term of the appellants herein, as
Directors of the said Bank is over, the question of their being reinstated
in their elected office(s) does not arise.
Gujarat Cooperative Societies Act, 1961 (The said Act) was
enacted to consolidate and amend the law relating to Cooperative
Societies in the State of Gujarat. It is a self contained Code. Registrar
under the said Act is a statutory authority. Indisputably, it has power to
supersede an elected body to manage the affairs of a Cooperative Society
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in terms of Section 81 of the said Act, Sub-section (3) whereof reads as
under :-
"(3) If at any time during any period or extended period
referred to in sub-section (1), it appears to the Registrar
that it is no longer necessary to continue to carry on the
affairs of the society as aforesaid, he may, by an order
published in the Official Gazette, direct that the
management shall terminate; and on such order being
made, the management of the society shall be handed
over to a new committee duly constituted."
Section 86 of the Act provides for an inquiry by the Registrar in
regard to the constitution, working and financial conditions of a Society.
The procedure for holding such an inquiry has been laid down in the said
Act. Section 115A empowers the Reserve Bank of India, to take action for
winding up, reconstruction, supersession of the Committee in the following
terms :-
"3. If so required by the Reserve Bank of India 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 by the Registrar for
supersession of the committee and the appointment of an
administrator in place thereof for such period or periods,
not exceeding five years in the aggregate, as may from
time to time be specified by the Reserve Bank of India,
and the administrator so appointed shall, after the expiry
of his term of office, continue in office until the day
immediately preceding the date of the first meeting of the
new committee of such bank."
It is not in dispute that the writ petitioners had not approached the
Registrar for inquiring into the alleged mismanagement of the affairs of the
Bank and/or members of the Committee. They did not say so even before
the High Court. Mr Trivedi submitted that the RBI had drawn the attention
of the Registrar by its letters in regard to financial irregularities of the
disputes of the society but the said letters are not before us. It is, thus, not
clear that as to whether the RBI had called upon the Registrar to inquire into
the affairs of the Bank or cause such an inquiry to be made by a competent
authority. It is true that an inspection had been made by the authorities of
the RBI but it is not clear as to whether copy of its report have been served
upon the Cooperative Bank and/its Directors or not. Although before us, a
contention has been raised that a copy of the report had been served but from
a perusal of the impugned judgment of the learned Single Judge, it appears,
that in the writ proceedings RBI refused to serve the copy of its report upon
the Bank on the specious plea that the same was a confidential document.
Section 35(1-A) of the Banking Regulation Act provides for furnishing of
such a copy of a report upon the party concerned in the following terms:-
"35 (1-A) (a) Notwithstanding anything to the contrary
contained in any law for the time being in force and
without prejudice to the provisions of sub-section (1), the
Reserve Bank, at any time, may also cause a scrutiny to
be made by any one or more of its officers, of the affairs
of any banking company and its books and accounts; and
(b) a copy of the report of the scrutiny shall be furnished
to the banking company if the banking company makes a
request for the same or if any adverse action is
contemplated against the banking company on the basis
of the scrutiny."
Indisputably, no prayer was made in the writ petition for
appointment of an Administrator. Ordinarily, a Court would allow a
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statutory functionary to perform its statutory function. We have noticed
hereinbefore that the Registrar of the Cooperative Societies in no
uncertain terms had stated before the High Court that it could not earlier
initiate any inquiry in the matter as a stay order was operating and as the
said order of stay was vacated, an inquiry would be instituted by it.
The learned Single Judge did not apply his mind in regard to the
said statements of the Registrar. He relied upon the purported inspection
report of the RBI, treating the same to be sacrosanct. Even the necessary
ingredients for passing an interim order were not taken into
consideration.
A Cooperative Society should ordinarily be allowed to function
through its elected representatives. This although does not mean that the
members of the Committee have a right to mismanage the affairs of the
Cooperative Society but there cannot be any doubt whatsoever that
allegations in relation to the mismanagement and commission/omission
of illegalities, or irregularities or other acts of omission and commission,
the remedies as contemplated under the statute should ordinarily be
resorted to. This Court held so in Union of India & Anr. v. S.B. Vohra &
Ors. [(2004) 2 SCC 150], stating :
"22. The legal right of an individual may be founded upon a
contract or a statute or an instrument having the force of
law. For a public law remedy enforceable under Article 226
of the Constitution, the actions of the authority need to fall
in the realm of public law \026 be it a legislative act of the
State, an executive act of the State or an instrumentality or a
person or authority imbued with public law element. The
question is required to be determined in each case having the
aforementioned principle in mind. However, it may not be
possible to generalize the nature of the action which would
come either under public law remedy or private law field nor
is it desirable to give exhaustive list of such actions."
This Court yet again in State of UP vs. Section Officer Brotherhood &
Anr. [(2004) 8 SCC 286] held :-
"30. Judicial review is a highly complex and
developing subject. It has its roots long back and its
scope and extent varies from case to case. It is
considered to be the basic feature of the Constitution.
The court in exercise of its power of judicial review
would zealously guard the human rights, fundamental
rights and the citizens right of life and liberty as also
many non-statutory powers of governmental bodies as
regards their control over property and assets of various
kinds which could be expended on building hospitals,
roads and the like, or overseas aid, or compensating
victims of crime\005.
*
32. It is not possible to lay down the standard
exhaustively as to in what situation a writ of mandamus
will issue and in what situation it will not. In other
words, exercise of its discretion by the court will also
depend upon the law which governs the field, namely,
whether it is a fundamental law or an ordinary law.
33. It is, however, trite that ordinarily the court will not
exercise the power of the statutory authorities. It will at
the first instance allow the statutory authorities to
perform their own functions and would not usher the
said jurisdiction itself."
Recently this Court in Muni Suvrat Swami Jain S.M.P. Sangh v.
Arun Nathuram Gaikwad [AIR 2007 SC 38] held :-
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"52\005The grievance of the appellant herein has been that
without issuing a notice under Section 351 of the Act and
without giving an opportunity to the appellant of being
heard the structure of the temple could not be ordered to
be demolished by the High Court. The power under
Section 351 of the Act, in our opinion, has to be
exercised only by the Municipal Commissioner and it is
left to the Municipal Commissioner under the provisions
of Section 351(2) either to order or not to order the
demolition of the alleged unauthorized temple\005"
We furthermore are of the view that when such serious questions
were raised before a Division Bench of the High Court, the same should
not have been considered in a casual or cavalier fashion. The Division
Bench did not hold that an appeal was not maintainable and, thus, it was
obligatory on its part to address itself to the merit of the matter.
The learned Single Judge passed the order after hearing counsel for
the appellants. It was, therefore, of no use directing them to go back to
the learned Single Judge by filing an application for vacating the interim
order of injunction impugned before it. In all fairness, the Division
Bench should have considered the matter itself particularly when the
effect of such an order was grave inasmuch as appellants were displaced
from their posts of Directors of the Cooperative Bank to which they were
otherwise entitled to. We, however, by saying so, do not intend to mean
that the Court can never issue such a direction in a rare and exceptional
case which the public authority should have passed vide Comptroller and
Auditor General of India, Gian Prakash, New Delhi & Anr. v. K.S.
Jagannathan & Anr. [(1986) 2 SCC 679] and other decisions following
the same, but the High Court while passing such orders must consider
each case on its own merit.
Ordinarily, the statutory functionaries alone can perform their
statutory functions and the court cannot arrogate to itself the functions of
the statutory authority vide G. Veerappa Pillai v. Raman Ltd. [AIR 1952
SC 192], State of U.P. v. Raja Ram Jaiswal [(1985) 3 SCC 31], U.P.
State Road Transport Corporation and Another v. Mohd. Ismail and
Others [(1991) 3 SCC 239], S.B. Vohra (supra), Arun Nathuram
Gaikward (supra) etc. Only in case of inaction on their part and in rare
and exceptional cases, the Court can exercise its jurisdiction in such
cases. This is not a case where the Registrar of the Cooperative Societies
refused or neglected to take any action. It could not do so in view of an
interim order passed against it. The interest of the Bank could have been
safeguarded by passing other orders; even the Registrar should have
permitted to look into the matter and pass an appropriate order. The
manner in which the impugned order had been passed by the learned
Single Judge betrays fairness. It not only directed appointment of an
Administrator but he was asked to take over the affairs of the
Cooperative Bank on the same day.
The question, however, which remains to be considered is, as to
whether in view of the fact that the terms of the appellants are over, what
relief this Court should grant. Before, however, we issue necessary
directions in this behalf upon the said question, we may notice that a
Division Bench of this Court in Mehsana District Central Bank Ltd. &
Ors. v. State of Gujarat & Ors. [(2004) 2 SCC 463] observed as under :-
"14. Briefly stated the facts are :
A complaint was filed by the respondents herein to the
effect that the Central cooperative bank is governed by
the provisions contained in the Gujarat Cooperative
Societies Act, 1961 and the Rules framed thereunder. It is
further alleged that Mehsana District Central Cooperative
Bank had violated the provisions contained in Section 71
of the Gujarat Cooperative Societies Act by investing
large sums in undertakings other than those enumerated
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in Sections 71(a) to (f). Consequently, Mehsana District
Central Cooperative Bank had lost substantial amount.
Though the matter had been brought to the notice of the
State Government, the Registrar of Cooperative Societies
and the District Registrar, no action had been initiated
against Mehsana District Central Cooperative Bank and
the members of the Board of Directors. A prayer was also
made for issuance of a writ of mandamus directing the
authorities under the Gujarat Cooperative Societies Act
to initiate necessary proceedings against the
respondents/appellants herein for having committed
breach of the provisions contained in Section 71 of the
Act. It was further alleged that Mehsana District Central
Cooperative Bank had invested a sum of Rs 95 crores in
four different establishments which do not fall within the
ambit of institutions enumerated in Sections 71(a) to (f)
of the Act without the approval of the State Government
or the appropriate authority.
In the above facts and circumstances of this case, we are therefore
of the opinion that interest of justice would be subserved if these appeals
are disposed of with the following directions:-
1. The Administrator would continue to hold office as an
officer of the Court.
2. The Administrator must, however, get the election of the
Committee Members held, as expeditiously as possible, and
preferably within a period of three months from the date of
communication of this order.
3. The inquiry initiated by the Registrar pursuant to the order
of the learned Single Judge shall continue as if the same had
been initiated by the Registrar on his own motion and not on
the basis of the order passed by the High Court.
4. The RBI would be entitled to take such action (s) as it may
deem fit and proper under the provisions of Section 115 A
of the Act or under any other Statute and as may be
permissible in law if it so desires, including one under the
Deposit Insurance Act.
These appeals are accordingly disposed of with the aforementioned
directions. However, in the facts and circumstances of the case, there
shall be no order as to costs.