Full Judgment Text
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 11
CASE NO.:
Appeal (civil) 6052 of 2004
PETITIONER:
S.S. Rana
RESPONDENT:
Registrar, Co-operative Societies & Anr.
DATE OF JUDGMENT: 25/04/2006
BENCH:
S.B. Sinha & P.P. Naolekar
JUDGMENT:
J U D G M E N T
S.B. SINHA, J :
The petitioner was working as a Branch Manager in the Kangra
Central Co-operative Bank Ltd (Respondent No.2, "Society"). A
disciplinary proceeding was initiated against him purporting to be in
terms of Rule 56(b) of the Kangra Central Co-operative Bank
Employees (Terms of Employment and Working Conditions) Rules,
1980 (for short the "Rules") read with Section 35-B(4) of the Himachal
Pradesh Co-operative Societies Act, 1968 (for short the "Act"). He was
found guilty therein. The Managing Director of the Society, by an
order dated 18.11.1993, terminated his services purported to be in
exercise of his power under Rule 2(p) of Appendix 1(a) of the Rules. In
the meantime, an Administrator was appointed by the State to manage
its affairs. The appellant herein preferred an appeal against the said
order terminating his services before the Administrator on or about
2.12.1993. However, the Administrator had no occasion to deal with
the said appeal. By an order dated 18.11.1995, the Board of Directors
of the Respondent No.2 dismissed the said appeal. He reached the age
of superannuation on 30th September, 1996.
The appellant filed a writ petition before the High Court of
Himachal Pradesh at Shimla, inter alia, praying for quashing of the
order of termination dated 18.11.1995, as also the order of the appellate
authority dated 16.1.1996. He further prayed for grant of all
consequential benefits pursuant to or in furtherance of the quashing of
the said order of punishment.
The writ petition filed by the appellant was based on the premise
that the 1st respondent is a ’State’ within the meaning of Article 12 of
the Constitution of India. A Division Bench of the Himachal Pradesh
High Court, by reason of the impugned judgment and order dated
6.6.2003, dismissed the said writ petition holding that the writ petition
was not maintainable. The appellant is, thus, before us.
Mr. Vijay Kumar, learned counsel appearing on behalf of the
appellant submitted that the High Court committed a serious error in
coming to the conclusion that respondent No.1 is not a ’State’ within
the meaning of Article 12 of the Constitution of India. According to the
learned counsel, the activities of the Co-operative Society being to lend
money to the agriculturists, the same would come within the purview of
the law laid down by a Seven Judge Bench of this Court in Pradeep
Kumar Biswas vs. Indian Institute of Chemical Biology & Ors.
reported in (2002) 5 SCC 111. It was further contended that in terms of
the provisions of the Rules framed under the Himachal Pradesh Co-
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 11
operative Societies Act, 1968, the respondent No.1 was obligated to
comply with the principles of natural justice. It was submitted that the
impugned order is violative of the provisions of the Rules as, inter alia,
a copy of the inquiry report was not supplied to the Appellant, it was
wholly unsustainable.
Mr. J.S. Attri, the learned Additional Advocate General for the
State of Himachal Pradesh, on the other hand, would support the
judgment contending that it is not a case where the State had deep and
pervasive control over the affairs of the Society. It was pointed out that
out of three directors in the Board, the State could appoint only one.
The decision of the Board of Directors in all matters is final. The
membership of the State in the Co-operative Society was limited.
The legislature of the State of Himachal Pradesh enacted the
Himachal Pradesh Co-operative Societies Act, 1968; some of the
relevant provisions whereof are:
"31. Final authority in co-operative society:-
The final authority in a co-operative society
shall vest in the general body of members in a
general meeting:
Provided that where the bye-laws of a
co-operative society provide for the
constitution of a smaller body consisting of
delegates of the society elected or selected in
accordance with such bye-laws, the smaller
body shall exercise such powers of the general
body as may be prescribed or as may be
specified in the bye-laws of the society;
xxx xxx xxx
34. Managing Committee:- The manage-ment of
every society shall vest in a managing
committee constituted in accordance with the
rules and the bye-laws, which shall exercise
such powers and perform such duties as may
be conferred or imposed respectively, by this
Act, the rules and the bye-laws.
xxx xxx xxx
35-B. Appointment, powers and functions of
Managing Directors:- (1) Where the
Government has subscribed to the share
capital of a co-operative society to the extent
of rupees five lakhs or more, the Government
may, notwithstanding anything contained in
the bye laws of the society, nominate another
member in addition to those nominated under
section 35 and appoint him as Managing
Director:
Provided that no person shall be
appointed as Managing Director of a co-
operative society unless he is a member of the
Indian Administrative Service or Himachal
Pradesh Administrative Service or Class-I
Officer of the co-operative Department,
except the Himachal Pradesh State Co-
operative Land Development Bank and the
Himachal Pradesh State Co-operative Milk
Federation where technical persons may by
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 11
appointed as Managing Directors.
(2) A person nominated and appointed as the
Managing Director under sub-section (1)
shall be ex-officio member of the
committee and shall hold office during the
pleasure of the State Government and shall
have a right to participate in the
deliberations of the committee and shall
also have the right to vote.
(3) The Managing Director appointed under
sub-section (1) shall exercise such powers
as are assigned to him under the bye-laws
or delegated to him by the committee. He
shall discharge all such functions,
consistent with the bye-laws or delegated
to him by the committee. He shall
discharge all such functions, consistent
with the bye-laws, as are assigned to him
by the Government or the Registrar. He
shall work under the superintendence and
control of the committee.
(4) The Managing Director of a co-operative
society shall be its principal executive
officer. All employees of the society shall
function and perform their duties under his
superintendence and control.
(5) The Managing director appointed under
sub-section (1) shall be deemed to be on
deputation with the society and his salary
and allowances, as determined by the State
Government, shall be paid from the funds
of the society.
36. Powers to depute Government servant to
manage affairs of a co-operative society:-
The State Government may, on the
application of a society and on such
conditions as may be prescribed, depute a
Government servant to the service of the
society for the purpose of managing its affairs
and the Government Servant so deputed shall
exercise such powers and perform such duties
as may be prescribed.
xxx xxx xxx
70. Access to documents:- The Registrar and,
subject to any restriction prescribed, an
auditor, arbitrator or any person conducting
supervision or inspection or audit or inquiry
shall at all reasonable times have free access
to the books, accounts, documents, securities,
cash and other properties, belonging to or in
the custody of a society."
Pursuant to or in furtherance of the rule making power contained
in the said Act, the State made Rules known as the Himachal Pradesh
Co-operative Societies Rules, 1971, some of which are relevant for the
purpose of this case. Rules are as under:
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 11
"38. Constitution of Managing Committee \026
(1) The managing committee of a Co-
operative society shall be constituted
by:-
(a) election from amongst the
members of
the society at the annual/special
general meeting;
(b) appointment by the Registrar in the
manner provided in the Rule 39;
(c) nominees of the Government
under section 35 of the Act; and
(d) nominees of the other Co-
operative Societies as provided in
the bye-laws.
(2) The managing committee of the society
shall have not less than five nor more
than twenty-one members, including
the Government nominee as may be
fixed in the bye-laws.
(3) The terms of the Managing Committees
constituted under sub-rule (1) shall be-
(a) in relation to
Primary Societies \005 2 years;
(b) in relation to
Secondary Societies \005 3 years;
and
(c) in relation to apex
societies \005 4 years;
Provided that the out-going managing
committee shall, unless the State Government
otherwise directs, continue to function till another
Managing Committee is constituted under these
rules;
Provided further that no person shall be
eligible to hold office of President or Vice-President
or elected Member of the Managing Committee
continuously for more than two terms unless a
period of two years has elapsed after then expiry of
the term of the Managing Committee in which he
last hold office of President or Vice-President or
Vice-President or elected member.
(4) The committee shall, as soon as may be
possible, elect from among its members
a President, Vice President and such
other officers as are specified in the
bye-laws unless they provide for such
election by general meeting.
(5) A casual vacancy in the office of an
elected member shall be filled up by
co-option from amongst the members
of the society by the managing
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 11
committee. The managing committee
member so co-opted shall qualify all
the conditions laid down in the rules for
membership of the committee of a
society and shall retire within 90 days
or at the next annual general meeting,
whichever is earlier, and the vacancy
thus caused shall be filled up at such
meeting by election of a managing
committee member in whose place
originally occurred.
(6) Any dispute relating to the election to a
committee of a member or an officer shall
be referred to the Registrar under section
72 of the Act within 30 days from the date
of declaration of the result of such
election.
39. Appointment of Managing Committee
Member by the Registrar \026
(1) Notwithstanding any limits prescribed
in the bye-laws, in order to represent
appropriate interest, the Registrar shall
have powers to appoint an additional
number of members for the Managing
Committee, not exceeding one-third of
the number of elected member:
Provided that the total number of committee
members so appointed or nominated and elected
under clauses (a) (b), (c) and (d) of sub-rule (1) of
rule, 38 shall not exceed the maximum limit laid
down under sub-rule (2) of rule 38.
1. (1-A) Out of the persons appointed under
sub-rule (1) one shall be a person
belonging to scheduled castes, one
belonging to scheduled tribes and the
remaining, if any, representing other
appropriate interests including the interests
of women, unless a member each
belonging to the Scheduled castes and
scheduled tribes and representing other
interests has already been elected on such
Committee.
2. (2) The members so appointed under sub-
rules (1) and (1-A) shall hold office till
the next election of the Managing
Committee or till another person is
appointed in his place, whichever is
earlier and shall have the right to vote.
The Registrar shall either confirm their
membership to the committee or shall
appoint other persons in their place for
the next term of the Committee.
(3) Managing Committee members
appointed under this rule may or may
not be the members of the society but
should have all the qualifications
prescribed for membership of a Co-
operative Society and the managing
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 11
committee.
(4) If a vacancy occurs in the office of an
appointed member on the managing
committee the vacancy shall be filled
up by an appointment by the Registrar,
and not by co-option.
The rule empowers the Registrar to make
appointments on the managing committee of a
society to represent certain appropriate interests not
represented on the committee. The appointments
made under this rule shall be subject to the
provisions contained under sub-rule 2 of rule No.38.
xxx xxx xxx
40. Proportion of individuals and societies for
constituting committee - In a Co-operative Society,
the membership of which is not exclusively confined
to individuals the representation of individuals and
societies on the committee and the general body
shall be such as may be laid down in the bye-laws of
the Co-operative Society.
50. Duties of Managing Committee \026 The
managing committee shall observe in all their
transactions the provisions of the Act, rules and bye-
laws, and in particular, shall perform the following
duties;
(a) to receive and disburse money;
(b) to maintain true accounts of money
received and expended, and accounts of
the assets and liabilities;
(c) to prepare for submission to the annual
general meeting \026
(1) Receipt and Disbursement
Statement;
(2) Balance Sheet;
(3) Trading and Profit and Loss
Account;
(4) Appropriation of Profits;
(d) to prepare the statements of accounts
required at audit and to place them
before the Auditor;
(e) to prepare, and submit all statements
and returns, required by the Registrar in
such form as he may direct;
(f) to enter accounts of the society
regularly and periodically in proper
books;
(g) to maintain a register of members up to
date;
(h) to facilitate the inspection of books and
audit of accounts of the society by
those entitled to inspect/audit them;
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 11
(i) to convene general meetings;
(j) to convene the annual general meeting
in due time;
(k) to ensure that loans and advances are
applied for the purposes for which they
are made, and that they are punctually
repaid;
(l) to examine and take prompt action in
cases of all arrears and defaults in
repayments of loans and advances;
(m) to perform such other duties as may be
entrusted by the general meeting; and
(n) in general to carry on the business of
the society in accordance with its bye-
laws.
xxx xxx xxx
56. Officers and employees of Co-operative
Societies -
(1) Notwithstanding anything contained in
the bye-laws of a society, no Co-
operative Society shall appoint any
person as its paid officer or employees
in any category of service unless he
possesses the qualifications and
furnishes the security, if so specified by
the Registrar, from time to time, for
such category of service in the society,
or for the class of society to which it
belongs. The conditions of service of
the employees of the societies shall be
specified by the Registrar.
(2) No Co-operative society shall retain in
service any paid officer or employee, if
he does not acquire the qualification or
furnish the security as is referred to in
sub-rule (1) within such time as the
Registrar may direct.
(3) No Co-operative society shall employ a
salaried officer or servant with total
monthly emoluments exceeding rupees
’one thousand’ without the previous
permission of the Registrar. The
promotion of an employee to a higher
post shall be deemed to be an
appointment under this sub-rule.
(4) The Registrar may for special reasons
to be recorded in writing relax in
respect of any paid officer or employee.
The provisions of this rule in regard to
the qualifications he should possess or
the security he should furnish.
(5) "Where, in the course of an audit under
section 61, or an inspection under
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 11
section 65 or an inspection under
section 66, or an inquiry under section
67, it is brought to the notice of the
Registrar that the paid officer or servant
of the society had committed, or has
been otherwise responsible for mis-
appropriation breach of trust or other
offence, in relation to the society or has
willfully neglected or failed to
discharge his duties and functions as
enjoined on him under the Act, rules or
bye-laws or is otherwise responsible for
any act or omission thereby adversely
affecting the interest of the society, the
Registrar if in his opinion there is
prima facie evidence against the paid
officer or servant, and suspension of
such paid officer or servant is necessary
in the interest of the society, direct the
committee of the society, pending the
investigation and disposal of the matter,
as the case may be, to place or cause to
be placed such paid officer or servant
under suspension from such date and
for such period as may be specified by
him.
(6) On receipt of a direction from the
Registrar under sub-rule (5), the
committee of society shall
notwithstanding any provision to the
contrary in the bye-laws, place or cause
to be placed the paid officer or servant
under suspension forthwith.
(7) If the committee fails to comply with
the direction issued under sub-rule (5),
the Registrar may make an order
placing such paid officer or servant
under suspension from such date and
for such period as he may specify in the
order and thereupon the paid officer or
servant, as the case may be, shall be
under suspension.
(8) The officer or servant suspended under
this rule shall be re-instated only after
the previous approval of the Registrar."
Respondent No.1-Co-operative Society also framed its bye-laws
in terms of Rule 2(c) whereof the Board would mean all Directors of
the Bank or the Managing Committee.
It is not in dispute that the Society has not been constituted under
an Act. Its functions like any other Co-operative Society are mainly
regulated in terms of the provisions of the Act, except as provided in
the bye-laws of the Society. The State has no say in the functions of the
Society. Membership, acquisition of shares and all other matters are
governed by the bye-laws framed under the Act. The terms and
conditions of an officer of the Co-operative Society, indisputably, are
governed by the Rules. Rule 56, to which reference has been made by
Mr. Vijay Kumar, does not contain any provision in terms whereof any
legal right as such is conferred upon an officer of the Society.
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 11
It has not been shown before us that the State exercises any direct
or indirect control over the affairs of the Society for deep and pervasive
control. The State furthermore is not the majority shareholder. The
State has the power only to nominate one director. It cannot, thus, be
said that the State exercises any functional control over the affairs of
the Society in the sense that the majority directors are nominated by the
State. For arriving at the conclusion that the State has a deep and
pervasive control over the Society, several other relevant questions are
required to be considered, namely: (1) How the Society was created?;
(2) Whether it enjoys any monopoly character?; (3) Do the functions of
the Society partake to statutory functions or public functions?; and (4)
Can it be characterized as public Authority?
The respondent No.1-Society does not answer any of the afore-
mentioned tests. In the case of a non-statutory society, the control
thereover would mean that the same satisfies the tests laid down by this
Court in Ajay Hasia vs. Khalid Mujib Sehravardi [(1981) 1 SCC
722]. [See Zoroastrian Coop. Housing Society Ltd. vs. District
Registrar, Coop. Societies (Urban) & Ors. reported in 2005 (5) SCC
632.]
It is well settled that general regulations under an Act, like
Companies Act or the Co-operative Societies Act, would not render the
activities of a company or a society as subject to control of the State.
Such control in terms of the provisions of the Act are meant to ensure
proper functioning of the Society and the State or statutory authorities
would have nothing to do with its day-to-day functions.
The decision of the Seven Judge Bench of this Court in Pradeep
Kumar Biswas (supra), whereupon strong reliance has been placed, has
no application in the instant case. In that case, the Bench was deciding
a question as to whether in view of the subsequent decisions of this
Court, the law was correctly laid down in Sabajit Tewary vs. Union of
India & Ors. [(1975) 1 SCC 485], and it not whether the same
deserved to be overruled. The majority opined that the Council of
Scientific and Industrial Research (CSIR) was a ’State’ within the
meaning of Article 12 of the Constitution of India. This Court noticed
the history of the formation thereof, its objects and functions, its
management and control as also the extent of financial aid received by
it. Apart from the said fact it was noticed by reason of an appropriate
notification issued by the Central Government that CSIR was amenable
to the jurisdiction of the Central Administrative Tribunal in terms of
Section 14(2) of the Administrative Tribunals Act, 1985. It was on the
aforementioned premises this Court opined that Sabhajit Tewary
(supra) did not lay down the correct law. This Court reiterated the
following six tests laid down in Ajay Hasia vs. Khalid Mujib
Sehravardi [(1981) 1 SCC 722]:
"(1) One thing is clear that if the entire share
capital of the corporation is held by Government, it
would go a long way towards indicating that the
corporation is an instrumentality or agency of
Government.
(2) Where the financial assistance of the
State is so much as to meet almost entire
expenditure of the corporation, it would afford some
indication of the corporation being impregnated with
Governmental character.
(3) It may also be relevant factor
\005..whether the corporation enjoys monopoly status
which is State conferred or State protected.
(4) Existence of deep and pervasive State
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 10 of 11
control may afford an indication that the corporation
is a State agency or instrumentality.
(5) If the functions of the corporation are
of public importance and closely related to
Governmental functions, it would be a relevant
factor in classifying the corporation as an
instrumentality or agency of Government.
(6) ’Specifically, if a department of
Government is transferred to a corporation, it would
be a strong factor supportive of this inference’ of the
corporation being an instrumentality or agency of
Government."
This Court further held:
"This picture that ultimately emerges is that
the tests formulated in Ajay Hasia are not a rigid set
of principles so that if a body falls within any one of
them it must, ex hypothesi, be considered to be a
State within the meaning of Article 12. The
question in each case would be whether in the light
of the cumulative facts as established, the body is
financially, functionally and administratively
dominated by or under the control of the
Government. Such control must be particular to the
body in question and must be pervasive. If this is
found then the body is a State within Article 12. On
the other hand, when the control is merely
regulatory whether under statute or otherwise, it
would not serve to make the body a State."
(Emphasis supplied)
As the respondent No.1 does not satisfy any of the tests laid
down in Pradeep Kumar Biswas (supra), we are of the opinion that the
High Court cannot be said to have commtted any error in arriving at a
finding that the respondent-Bank is not a State within the meaning of
Article 12 of the Constitution of India.
We are, however, not oblivious of a three judge Bench decision
in Gayatri De vs. Mousumi Cooperative Housing Society Ltd. &
Ors. [(2004) 5 SCC 90], wherein this Court held a writ petition to be
maintainable against the cooperative society only stating:
"We have, in paragraphs supra, considered the
judgments for and against on the question of
maintainability of writ petition. The judgments
cited by the learned Senior Counsel appearing for
the respondents are distinguishable on facts and on
law. Those cases are not cases covered by the
appointment of a Special Officer to manage the
administration of the Society and its affairs. In the
instant case, the Special Officer was appointed by
the High Court to discharge the functions of the
Society, therefore, he should be regarded as a public
authority and hence, the writ petition is
maintainable."
The said decision, therefore, is of no assistance to us.
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 11 of 11
Our attention has also been drawn to U.P. State Cooperative
Land development Bank Ltd. vs. Chandra Bhan Dubey & Ors.
[(1999) 1 SCC 741], wherein the writ petition was held to be
maintainable principally on the ground that it had been created under an
Act. Reliance has also been placed upon Ram Sahan Rai vs. Sachiv
Samanaya Prabandhak & Anr. [(2001) 3 SCC 323], wherein again
the appellant thus was recruited in a Society constituted under the U.P.
Cooperative Land Development Bank Act, 1964 and this Court, having
examined different provisions of rules, bye-laws and regulations, was of
the firm opinion that the State Government exercised all-pervasive
control over the Bank and moreover its employees were governed by
statutory rules, prescribing an entire gamut of procedure of initiation of
disciplinary proceedings by framing a set of charges culminating in
inflicting of appropriate punishment, after complying with the
requirements of giving a show-cause and an opportunity of hearing to
the delinquent.
It is, therefore, evident that in Ram Sahan Rai (supra) also the
cooperative society was held to be established under a statute. We may
notice that in Nayagarh Cooperative Central Bank Ltd. & Anr. vs.
Narayan Rath & Anr. [(1977) 3 SCC 576], this Court was of the
opinion that:
"The High Court has dealt with the question
whether a writ petition can be maintained against a
cooperative society, but we are inclined to the view
that the observations made by the High Court and its
decision that such a writ petition is maintainable are
not strictly in accordance with the decisions of this
Court. We would have liked to go into the question
for ourselves, but it is unnecessary to do so as
Respondent 1 by his writ petition, was asking for
relief not really against a cooperative society but in
regard to the order which was passed by the
Registrar, who was acting as a statutory authority in
the purported exercise of powers conferred on him
by the Cooperative Societies Act. The writ petition
was in that view maintainable."
We may notice in some decisions, some High Courts have held
wherein that a writ petition would be maintainable against a society if it
is demonstrated that any mandatory provision of the Act or the rules
framed thereunder, have been violated by it. [See Bholanath Roy &
Ors. vs. State of West Bengal & Ors. reported in (1996) Vol.1
Calcutta Law Journal 502.]
The Society has not been created under any statute. It has not
been shown before that in terminating the services of the appellant, the
Respondent has violated any mandatory provisions of the Act or the
rules framed thereunder. In fact, in the writ petition no such case was
made out.
For the foregoing reasons, the appeal being devoid of any merit is
dismissed. However in the facts and circumstances of the case, there
shall be no order as to costs.