Full Judgment Text
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PETITIONER:
JOINT REGISTRAR OF CO-OPERATIVE SOCIETIES, MADRAS & ORS.
Vs.
RESPONDENT:
P. S. RAJAGOPAL NAIDU AND ORS.
DATE OF JUDGMENT:
06/04/1970
BENCH:
GROVER, A.N.
BENCH:
GROVER, A.N.
SHAH, J.C.
HEGDE, K.S.
CITATION:
1970 AIR 992 1971 SCR (1) 227
1970 SCC (1) 732
ACT:
Madras Cooperative Societies Act, 1961-Order of Registrar
under s. 72(1) (a) superseding the committee of a society
whether care be made only after following procedure in ss.
64, 65 & 66.
Constitution of India, 1950, Art. 226-Jurisdiction of High
Court.
HEADNOTE:
On 4th January, 1969 the Joint Registrar, Cooperative
Societies issued a notice under s. 72 of the Madras
Cooperative Societies Act, 1961 to the committee of the
North Arcot District Cooperative Supply and Marketing
Society Ltd. After examining the representation made by the
committee in reply to the notice, the Registrar recorded an
order on 11 th April, 1969 holding that the committee had
not been functioning properly and had failed to perform
its duties and discharge its responsibilities as required
under the Act. The committee was ordered to be suspended
for a period of one year and the Deputy Registrar of
Cooperative Society ties was appointed to work as Special
Officer to manage its affairs. The matter was taken in
appeal to the Registrar, who affirmed the order of the Joint
Registrar. Thereafter the President and Director of the Co-
operative Society moved the High Court under Art. 226 of the
Constitution. The writ petition was allowed by a Single
Judge on the view that an order under s. 72(1) can be passed
only after the procedure under ss. 64, 65 & 66 of the Act
has been followed. The Full Bench to which the matter was
referred in Letters Patent Appeal took the same view.
In appeal before this Court against the judgment of the High
Court the questions that fell for consideration were : (1)
Whether the Registrar before taking action under s. 72 must
have an audit made under s. 64 and an inquiry held under s.
65 and an inspection made under s. 66 of the Act and must
also give an opportunity for rectification of the defects
which may come to light as a result of such audit, inquiry
or inspection ? (2) What is the scope of interference by the
High Court with the order of a Registrar made under s. 72 of
the Act ?
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HELD,:(1) (a) If the intention of the Legislature was that
the supersession of the Committee under s. 72 can be ordered
by the Registrar only after recourse to ss. 64, 65 & 66
there is no reason why language analogous to s. 70(1)
which expressly mentions ss. 64 to 67 and s. 85(1)
which refers to ss. 65 to 67 should not have been employed.
[234 B]
All that is required by s. 72(1) (a) is that the Registrar
should form an opinion that the Committee of any Registered
Society is not functioning properly or has wilfully
disobeyed or ’failed to comply with any lawful order or
direction issued by him. The section cannot be read to mean
that before forming an opinion as to the proper functioning
of the society the Registrar must in the first instance
issue a direction to remedy the defects disclosed as a
result of the audit, inquiry or inspection, The functioning
of the society may be so irregular and the defects so
blatant and prejudicial to the society that no question can
arise of any direction
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being made in the first instance for their being remedied by
the persons of officers concerned. [234 D-F]
It may be that the opinion which the Registrar has to form
must be based on some objective facts but those objective
facts in the absence of any clear indication in S. 72 cannot
be confined to what may be disclosed after the Registrar has
exercised his powers in the matter of audit, inquiry and
inspection under the provisions of ss. 64, 65 & 66. The
requisite opinion has indisputably to be formed honestly and
after applying his mind by the Registrar to the relevant
material before him. The only condition precedent for
taking action under S. 72(1) is that provided in sub-S. (6),
namely, that the Registrar must consult the financing bank
to which the society is indebted. No other requirement or
condition precedent is laid down by the legislature,. it was
accordingly not possible to concur with the view taken by
the High Court. [235 A-D]
(b) The fact that one-third of the members of the committee
retire every year and new members have to be elected in
their place could not lead to a different conclusion.
Section 72 is meant for superseding the committee as a
whole. Even if the operation of S. 72 in certain circums-
tances is likely to operate harshly so far as the newly
elected members of the committee are concerned, it is not
possible to read into it other provisions of the Act which
are not incorporated in the section expressly or by
necessary implication. [235 F-H]
(ii) There were no infirmities in the orders of the Joint
Registrar or Registrar in the present case which could
justify the interference by the High Court under Art. 226 of
the Constitution. The High Court could not act as an
appellate court and reappraise and re-examine the relevant
facts and circumstances which led to the making of the
orders of supersession. [236 B]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 2525 and
2526 of 1969.
Appeals from the judgment and decree dated October 8, 1969
of the Madras High Court in Writ Appeals Nos. 296 and 297 of
1969.
S. Govind Swaminathan, Advocate-General for the State of
Tamil Nadu, S. Mohan and A. V. Rangam, for the appellants
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(in both the appeals).
D. Munikanaiah and G. S. Rama Rao, for the respondent (in
C. A. No. 2525/1969).
D. Munikanaiah and G. Narasimhulu, for the respondents (in
C. A. No. 2526/1969).
The Judgment of the Court was delivered by
Grover, J. These appeals from a judgment of the Madras High
Court involve the true ambit, scope and content of Section
72 of the Madras Co-operative Societies Act, 1961
(hereinafter called the Act).
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The facts may be briefly stated. On 4th January, 1969 the
Joint Registrar of Co-operative Societies issued a Notice
u/s 72 of the Act to the Committee of the North Arcot
District Cooperative Supply and Marketing Society Ltd. It
was stated in the notice that the Committee had not been
functioning properly for sometime past. Charges were
mentioned in detail and the Committee was called upon to
make a representation against the proposal to dissolve it in
view of the defects and irregularities mentioned in the
notice. After examining the representation ’which was quite
lengthy and detailed, the Registrar recorded an Order on
11th April, 1969 dealing with each charge and holding that
the Committee had not been functioning properly and had
failed to perform its duties and discharge its
responsibilities as required under the Act. The Committee
was ordered to be suspended for a period of one year from.
12th April, 1969 to 11th April, 1970. The Deputy Registrar
of Cooperative Societies was appointed to work as a Special
Officer and to manage its affairs for that period. The
matter was taken in appeal to the Registrar by the
Committee. The Registrar affirmed the Order of the Joint
Registrar. Thereafter the President and the Director of the
Cooperative Society moved the High Court under Article 226
of the Constitution. A number of points were taken in the
writ petition but the main emphasis was laid on the proper
procedure not having been followed under sections 64, 65 and
66 of the Act before taking action u/s 72.
The learned single Judge of the High Court allowed the writ
petition which had been filed by the President and the
Director of the Co-operative Society. The learned Judge was
not satisfied that there was any justification for the
action taken by the Joint Registrar in the matter of
supersession of the Committee. On appeals having been taken
before a Division Bench under clause 15 of the Letters-
Patent the case was referred to a full Bench. The full
Bench based its decision largely on the view that the
procedure laid down, in sections 64, 65 and 66 must be
followed before any order could be made by the Joint
Registrar or the Registrar u/s 72. We may refer to the
following portion of the judgment;
"Sections 64, 65 and 66, which, are the
statutory procedural stems which interdict the
apparently arbitrary course of action which a
Registrar could undertake to interfere with
the affairs of a society, its members or
officers, provide a sufficient help to tighten
up such indiscriminate and unguided exercise
of the powers by the Registrar, when it
becomes necessary. In each of those sections
it is incumbent on the Registrar to give
opportunity to the member concerned officer
concerned or the Society to rectify the
defects" ......
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"In our view and under the scheme of the Act,
the condition precedent to the exercise of
jurisdiction by the Registrar under one or the
other of the sections considered above and in
particular Section 72 is to secure an audit
memorandum or a report of inspection or
inquiry, so that he may be provided with the
necessary material ’to act thereon. Unless
such a fact finding authority has provided the
Registrar with the hypothesis to act and ,-
ultimately supersede an elected body, the
impugned ,order of supersession will
undoubtedly be tainted with the absence of a
jurisdictional basis. Whether such a basis
exists, is subject to review by this Court in
exercise of its jurisdiction under Article 226
of the Constitution of India".
The full Bench affirmed the decision of the learned single
Judge.
The points which have been argued before us and which have
to be determined are :-
(i) Whether the Registrar before taking
action u/s 72 must have an audit made u/s 64
and inquiry held u/s 65 and an inspection made
u/s 66 of the Act and must also give an
opportunity for rectification of the, defects
which may come to light as a result of such
audit, inquiry or inspection ?
(ii) What is the scope of interference by the
High Court with the Order of a Registrar made
u/s 72 of the Act ?
The Act was enacted to amend and consolidate the law relat-
ing to and to make better provision for the, Organisation of
Cooperative Societies in the State of Madras. Section 2 (2)
defines the expression "Committee " to mean the governing
body of a registered society to whom the management of its
affairs is entrusted. By Section 2 (1) the "Registrar" is
defined to-mean a person appointed to perform the duties of
a Registrar of Cooperative Societies under the Act, and
includes a person on whom all or any of the powers of a
Registrar under the Act have been conferred under section 3.
Section 4 provides for the societies which may be
registered. Chapter III gives the sections relating to the
Qualifications of the members and their rights and liabili-
ties. Chapter IV contains provisions in respect of
management of registered societies. Under section 26 (1)
the ultimate authority of a registered society vests in the
general body of its members. Under section 27 the general
body of a registered society
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has to constitute a Committee in accordance with the bye-
laws and entrust the management of the affairs of the
registered society to such Committee. The term of office of
an elected member of any Committee is 3 years but one-third
of the members elected to the Committee at the first
election have to retire at the end of the first year after
such election and the other one-third of the members elected
have to retire at the end of the second year after such
election and so on The members so to retire at the end of
the first and second years have to be determined by lot by
the Committee. According to section 28 (4) no member of a
Committee against whom an order under sub-section (1) of
section 71 has been passed, shall be eligible for election
or appointment as a member of the Committee for a period of
three years. Sub-section 5 of section 28 provides that no
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member of a Committee which has been superseded shall be
eligible for election or appointment to the Committee for a
period of three years from the date of expiry of the period
of supersession. Section 28 (A) is in the following terms
"(1) Where in the course of an audit under
Section 64 or an inquiry under Section 65 or
an inspection under section 66 or section 67,
it appears that a person who is, or was, a
member of a Committee has misappropriated or
fraudulently retained any money or other
property or been guilty of breach of trust in
relation to the society or of gross or
persistent negligence in connection with the
conduct and management of, or of gross
mismanagement of the affairs of the society or
of misfeasance or default in carrying out his
obligations and functions under the law, the
Registrar may, without prejudice to any other
action that may be taken against such member,
by order in writing, remove such person from
the office of member of committee if he holds
such office, or disqualify him from holding in
future the office of a member of the
committee, if he has ceased to hold such
office.
(2) No person shall be removed or
disqualified under sub-section (1) without
being given an opportunity of making his
representations, A copy of the order removing
or disqualifying him shall be communicated to
him".
Chapter V relates to the duties and privileges of registered
societies. Chapter VI relates to State aid to registered
societies and Chapter VI relates to their property and
funds. We are concerned primarily with the provisions of
Chapter VIII which begins with section 64. Sub-section ( 1
) thereof makes it obligatory on the Registrar to audit or
cause to be audited by some person authorised by
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him in writing the accounts of every registered society once
at least in every year. Under sub-section (4) every person
who is or has been an officer or employee of the society and
every member and past member has to furnish such information
in regard to the transactions and working of the society as
the Registrar or the person authorised by him may require.
Sub-section (5) says that the Registrar may, by order in
writing, direct any officer of the society to take such
action as may be, specified in the order to remedy within
such time as may be specified the defects, if any, disclosed
as a result of the audit. Section 65 authorises the
Registrar on his own motion or on the application of a
majority of the Committee or on the request of the
Collector, to hold an inquiry, or direct some person
authorised by him in writing to hold an inquiry into the
constitution, working and financial condition of a
registered society. Under Subsection (2) powers have been
conferred interalia to have free access to the books of
accounts etc., summoning and examination of persons on oath
having knowledge of the affairs of the society. When an
inquiry is held u/s 65 the Registrar must communicate its
result in the manner and to the persons and institute ions
set out in sub-section (3). Sub-section (4) lays down that
Registrar may, by order in writing, direct any officer of
the society or its financing bank to take such action as may
be specified in the order to remedy the defects, disclosed
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as a result of the enquiry. Section 66 empowers the
Registrar on his own motion or on the application of a
creditor of a registered society to inspect or direct any
person to inspect the books of the society. After the
inspection has been made the Registrar has to communicate
the results of the inspection in the manner set out in sub-
section (2). Subsection (3) enables the Registrar to direct
any officer of the society to take such action as may be
specified in the order to remedy the defects, if any,
disclosed as a result of the inspection. Section 67 gives
the right to a financing bank to inspect the books of any
registered society which is indebted to it. Section 70 (1)
is reproduced below:
"70(1) Where in the course of an audit under
section 64 or an inquiry under section 65 or
an inspection under section 66 or section 67,
it is brought to the notice of the Registrar
that a paid officer or servant of a registered
society has committed or has been otherwise
responsible for misappropriation, breach of
trust or other offence. in relation to the
society, the Registrar, may, if in his
opinion, there is prima facie evidence against
such paid officer or servant and the
suspension of such paid officer or servant is
necessary in the interests of the society,
direct the committee of the society pending
the investigation and disposal of the matter,
to place or cause to be placed such paid
officer or servant
233
under suspension from such date and for such
period as may be specified by him".
Section 71 contains provisions relating to surcharge and
says that where in the course of an audit u/s 64 or an
inquiry u/s 65 or an inspection u/s 66 or section 67 or the
winding up of a society, it appears that any person who is
or was entrusted with the Organisation for management of the
society or any past or present officer or servant of the
society has misappropriated or fraudulently retained any
money or other property or has been guilty of breach of
trust in relation to the society or has caused any defi-
ciency in the assets of the society by breach of trust or
wilful negligence...... the Registrar may enquire into the
conduct of such person, officer or servant and make an order
requiring him to repay or restore the money or property or
to contribute such sum to the assets of the society by way
of compensation. Under the proviso, such an inquiry must be
held within 6 years from the date of any act or omission and
an opportunity must be afforded to the person against whom
the order is sought to be made. Section 72 (1) (a) which is
material for our purposes reads :
"72(1) (a). If, in the opinion of the
Registrar, the committee of any registered
society is not functioning properly or
wilfully disobeys or wilfully fails to comply
with any lawful order or direction issued by
the Registrar under this Act or the rules, he
may, after giving the committee an opportunity
of making its representations, by order in
writing, dissolve the committee and appoint
either a person (hereinafter referred to as
the special officer) or a committee of two or
more persons (hereinafter referred to as the
managing committee) to manage the affairs of
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the society for a specified period not ex-
ceeding two years".
Sub-section (6) makes it obligatory on the Registrar to
consult the financing bank to which the society is indebted
before taking any action under sub-section (1). It will be
useful at this stage to reproduce section 8 5 (1) which
relates to winding up of registered societies
"85(1). If the Registrar, after an inquiry
has been held under section 65 or an
inspection has been made under section 66 or
section 67, or on receipt of an application
made by not less than three fourths of the
members of a registered society, is of opinion
that the society ought to be wound up, he may,
after giving the society an opportunity of
making its representations, by order in
writing direct it to be wound up. A copy of
the order
234
shall forthwith be communicated to the society
by registered post".
It is significant that section 72(1) does not contain any
mention of sections 64 to 67 which appear in section 70(1)
and of sections 65, 66 and 67 which are expressly mentioned
in section 85(1). If the intention of the Legislature was
that the supersession of the Committee under section 72 can
be ordered by the Registrar only after recourse to sections
64, 65, and 66, there is no reason why language analogous to
section 70(1) or section 85 (1) containing an express
mention of the aforesaid sections, should, not have been
employed. An audit under section 64 has to be done every
year in view of the mandatory form of the language of that
section 64. But as regards sections 65 and 66 the Registrar
has been given discretionary powers to make an inquiry or an
inspection in accordance with those sections, there is no
duty or obligation cast on him for doing so before he
proceeds to take action u/s 72. All that is required by
section 72 (1) (a) is that the Registrar should form an
opinion that the Committee of any Registered society is not
functioning properly or has wilfully disobeyed or failed to
comply with any lawful order or direction issued by him. So
far as the question of the society not functioning properly
is concerned, that may depend on what the Registrar
discovers after a proper audit, enquiry and inspection. But
he can form that option even on material aliunde and the
language of the section does not warrant by necessary
implication the taking of the view that he is bound to form
that opinion after following the entire procedure prescribed
by the other sections under discussion. At any rate it is
not possible to read a requirement while taking action u/s
72 of satisfying the provisions in the aforesaid sections by
making a direction in the first instance to remedy the
defects disclosed as a result of the audit, inquiry or
inspection. The functioning of the society may be so
irregular and the defects disclosed so blatant and
prejudicial to the society that no question can arise of any
direction being made in the first instance for their being
remedied by the persons or officers concerned. It may ’be
that when the Registrar acts under the second limb of
section 72 (1) (a) and proposes to supersede the committee
for wilful disobedience or wilful failure to comply with any
lawful order or direction issued by the Registrar under the
Act or the rules that the provisions contained in sections
64, 65 and 66 may become relevant. But that does not and
cannot mean that the Registrar must as a condition precedent
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give a direction under those sections for the defects or the
irregularities to be remedied and should take action only
under the second limb i.e. when there is a wilful
disobedience or wilful failure to comply with those orders
or directions. It may be that the opinion which the
Registrar has to
235
form must be based on some objective facts but those
objective. facts in the absence of any clear indication u/s
72 cannot be confined to what may be disclosed after the
Registrar has exercised. powers in the matter of audit,,
inquiry and inspection under the provisions of sections 64,
65 and 66. Thus even though the opinion. may be a purely
subjective process, there must be cogent material on which
the Registrar has to form his opinion that the society is
not functioning properly in order to sustain the issuance of
a notice. u/s 72 ( 1 ) (a) and subsequent supersession of
the Committee after considering its representation, The
requisite opinion has indisputably to be formed honestly and
after applying his mind by the Registrar to the relevant
material before him the only condition precedent for taking
action u/s 72(1) is that the Registrar must consult the
financing bank to which the society is indebted (vide sub-
section 6). There is no other requirement or condition.
precedent laid down by the Legislature which the Registrar
must fulfil before he acts in the matter of supersession of
the Committee. We are unable to concur in the view of the
High Court that an action taken u/s 72 without giving an
opportunity to the member, officer or the society to rectify
the defects found after an audit,, inquiry or inspection
held under sections 64, 65 and 66 would. constitute an
exercise of power without jurisdiction.
The Single Judge laid a great deal of emphasis on the Com-
mittee being an elected body and the prejudice that would be
caused to its members if they are visited with the
consequences of supersession on account of irregularities
and improper functioning of the previous members of the
Committee. What was argued before the High Court was that
one-third members of the Committee have to retire every year
and fresh members have to be elected. If certain grave
irregularities are committed say in the year 1964, 1965, it
would be unfair to the new members who have been. elected to
supersede the Committee in 1968. We do not consider that
that would be the correct approach in construing section 72’
which is meant for superseding the Committee as a whole when
its working disclose s such irregularities or improprieties
as would justify its supersession. Normally it would be
expected that only that Committee would be superseded whose
functioning has been found to be highly defective. The
object of supersession apparently is to appoint a Special
Officer or a managing committee in order to set the working
of the society right. It is not difficult to envisage a
situation where maladministration by a committee has so
adversely affected the functioning of the society that it is
essential in the interests of the society itself to give
temporarily the control of its affairs to a neutral
authority. At any rate if the operation of section 72 in
certain circumstances is likely to operate harshly so far as
certain members of the committee are concerned, it is not
236
possible to read into it other provisions of the Act which
are not incorporated in the section expressly or by
necessary implication.
We have been taken through the material parts of the orders
of the Registrar and the Joint Registrar and we do not find
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any such infirmities in them which would justify
interference by the High Court under Article 226 of the
Constitution. The High Court could not act as an appellate
Court and reappraise and re-examine the relevant facts and
circumstances which led to the making of the orders of
supersession as if the matter before it had been brought by
way of appeal. The limits of the jurisdiction of the High
Court under Article 226 when a writ in the nature of cer-
tiorari is to be issued are well-known and well-settled by
now and it is pointless to re-state the grounds on which any
such writ or direction can be issued. We are satisfied that
there was no justification whatsoever for quashing the
orders of the Joint Registrar and that of the Registrar in
appeal. The appeals are consequently allowed with costs and
the judgment of the High Court is set aside. The writ
petitions are ordered to be dismissed One hearing fee.
G.C. Appeals allowed.
L11 SupCI(NP)/70-2500-30-6-71 GIPF.
237