- Bookmark
- Share
- CaseIQ
The Vegetols Ltd. By... v. The Wholesale Co-Ope...
Structured Summary of the Opinion — W.P. No. 818 of 1953
Factual and Procedural Background
This appeal challenges the judgment of Balakrishna Ayyar, J., in W.P. No. 818 of 1953, which sought to quash the proceedings of the Additional Joint Registrar of Co-operative Societies, Madras, in R.P. No. 45 of 1953 (an appeal from an order of the Deputy Registrar of Chittoor dated 24th August 1953). The appellants are: (1) a limited liability company with registered office at Chittoor (the 1st appellant) and (2) its Managing Agent (the 2nd appellant). The 1st respondent is a Co-operative Society formed under the Madras Co-operative Societies Act VI of 1932 (the 1st respondent society).
On 7 July 1952 the 1st respondent entered into an agreement with the 1st appellant granting the 1st respondent the sole selling agency for raw groundnut oil and cake in Chittoor district. Material terms included an advance of Rs. 50,000 (interest-free) to the company, a security bond to indemnify the society, commission to the selling agent and later additional advances and instruments (a further advance of Rs. 50,000, a second indemnity bond, and a promissory note for Rs. 1,00,000 although only Rs. 50,000 was actually advanced).
The Registrar of Co-operative Societies objected to the advances on the terms of the agreement and directed their recall. The 1st respondent filed a claim under Section 51 of the Madras Co-operative Societies Act for Rs. 99,450-15-8 against the 1st appellant before the Deputy Registrar on 11th April 1953. The 1st appellant contended before the Deputy Registrar that (a) it could not be a member of the society under by-law No. 5 and (b) it was not a member on the date of the agreement (7 July 1952), so the Deputy Registrar lacked jurisdiction under Section 51. The Deputy Registrar overruled the membership objection on 16 June 1953. A revision petition to the Registrar was dismissed by the Additional Joint Registrar on 24 August 1953. The appellants filed the writ petition, which was dismissed by Balakrishna Ayyar, J. This appeal followed.
Legal Issues Presented
- Whether the 1st appellant limited liability company was eligible to be admitted as a member of the 1st respondent society under by‑law No. 5 of the society.
- Whether the Deputy Registrar had jurisdiction under Section 51 of the Madras Co‑operative Societies Act to entertain a claim arising from an agreement entered into when the 1st appellant was not yet a member (i.e., whether Section 51 covers claims against persons who were not members at the time of the transaction but became members later, or whether the dispute must be between the society and a person in his/her/its capacity as member).
Arguments of the Parties
Appellants' Arguments
- The 1st appellant company could not validly be admitted as a member under by‑law No. 5 because it was not a "person" over 18 years of age and was not one of the listed categories (public institution, bank, devasthanam, choultry, hotel, club).
- The 1st appellant was not a member on the date of the agreement (7 July 1952); it became a member only on 4 October 1952. Therefore, any liability under the agreement did not arise from the 1st appellant's capacity as a member, and the Deputy Registrar lacked jurisdiction under Section 51 to entertain the claim.
Respondent's Arguments
- The society (1st respondent) maintained that a limited liability company should be treated either as a "person" or as a "public institution" under by‑law No. 5 and therefore was eligible for membership.
- The society asserted that the agreement had been entered into on the distinct understanding that the 1st appellant would become a member and that the transaction should be treated as one between the society and one of its members (i.e., the parties contracted on the footing that the 1st appellant was a member despite delay in formal admission).
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Krishna Ayyar v. Urban Bank Ltd., Calicut (1933) 65 M.L.J. 367 : I.L.R. 56 Mad. 970 | Establishes that, for the Registrar to deal with a dispute under provisions analogous to Section 51, the dispute must be between the society and a member in his capacity as member (i.e., the dispute must arise out of acts in the character of membership). | The court applied this principle to hold that if the 1st appellant was not a member on the date of the agreement, liabilities under that agreement were not liabilities incurred in its capacity as a member; consequently, Section 51 would not confer jurisdiction on the Registrar over such a claim merely because the person later became a member. |
Court's Reasoning and Analysis
The court addressed the two principal contentions in turn.
1. Eligibility under By-law No. 5.
By‑law No. 5 sets out eligibility categories: any person over 18 years of age, any society registered under the Act referred to in by‑law 1, and various institutions (public institution, bank, devasthanam, choultry, hotel, club). The appellants contended a limited company could not fit these categories because the age qualification is inapt to a company and the term "person" was aimed at human beings. The court observed that the by‑law's language is inaptly worded and that the literal reading might not cover a company. The court further observed that if "person" were read in an extended sense to include a company, the separate mention of "society" or "public institution" would be redundant. Weighing these considerations, the court concluded that a public limited company could reasonably be treated as a "public institution" within the by‑law's meaning and therefore be eligible for membership. The court also reviewed the lower tribunals' rulings and the High Court judge's estoppel finding, but found no reliable factual basis in the record to sustain an estoppel — counsel for the respondent could not point to any substantial advantage acquired by the company as a member after admission; the appellate court found insufficient evidence to ground estoppel.
2. Jurisdiction under Section 51 of the Act.
The court examined the language of Section 51 (including clauses and the Explanation) and the proper construction of the jurisdictional grant. It reasoned that Section 51 is intended to cover disputes that touch the business of the society and that, by necessary implication, the dispute must be between the society and the other party in the latter's capacity as a member. If a contrary construction were adopted, a person who was a stranger at the time of the transaction could thwart the ordinary jurisdiction of civil courts simply by becoming a member later, and disputes over prior transactions would fall into the Registrar's exclusive jurisdiction — an outcome the court found illogical and unintended. The court relied on Krishna Ayyar v. Urban Bank Ltd. to support the proposition that the Registrar's jurisdiction to adjudicate disputes is limited to disputes involving members qua members. Applying that principle, the court held that if the 1st appellant was not a member on the date of the agreement, the liability under the agreement was not one incurred by it as a member and thus fell outside Section 51.
3. Remedial direction and facts to be determined.
The court noted that the society alleged (in a counter‑affidavit) that the agreement was made on the distinct understanding that the 1st appellant would become a member, but there had been no factual inquiry into the correctness of that allegation. Because the determination of whether the agreement was entered into on that footing is a factual one that affects jurisdiction, the court declined to quash or confirm the orders under challenge. Instead, it remitted the matter to the Deputy Registrar with directions to take evidence on whether the parties contracted on the footing that the 1st appellant was to be treated as a member at the time of the agreement. If, after evidence, the Deputy Registrar finds that the agreement was entered into on that footing, he may proceed to inquire into the merits. If he finds that no such understanding existed and that the agreement was with the 1st appellant as a stranger, he must dismiss the claim for lack of jurisdiction under Section 51.
The court also observed, as a consequential point, that the 2nd appellant was undisputedly a member on the date of the agreement; if the Deputy Registrar concludes he lacks jurisdiction against the 1st appellant, he must consider how far the claim can proceed against the 2nd appellant alone.
Holding and Implications
Core Ruling: The court declined to quash or confirm the orders under challenge and remitted the factual question concerning the parties' mutual understanding at the time of the agreement to the Deputy Registrar for determination; depending on that factual finding, the Deputy Registrar is to proceed or to dismiss for want of jurisdiction under Section 51.
Specific holdings and immediate effects:
- The court held that, for the purposes of by‑law No. 5, a public limited liability company like the 1st appellant could reasonably be regarded as a "public institution" and thus eligible for membership of the society.
- The court held as a legal principle that Section 51 applies only to disputes that arise between the society and a party in that party's capacity as member; a liability incurred when a person was a stranger does not fall within the Registrar's jurisdiction merely because that person later becomes a member.
- Because the question whether the parties contracted on the footing that the 1st appellant was to be treated as a member is disputed and presents a factual issue, the court remitted the matter to the Deputy Registrar to take evidence and decide that question. If the Deputy Registrar finds such an understanding, he may continue the inquiry on merits; if not, he must dismiss the claim against the 1st appellant for lack of jurisdiction.
- As a related consequence, because the 2nd appellant was a member on the date of the agreement, if the claim against the 1st appellant is dismissed for want of jurisdiction, the Deputy Registrar must consider whether and to what extent the claim may proceed against the 2nd appellant alone.
- No order as to costs was made by the court.
Note: The court did not set aside the lower orders outright; it resolved the legal questions as above and directed a factual inquiry before the Deputy Registrar to determine how Section 51 should be applied in this case.
1. This is an appeal against the Judgment of Balakrishna Ayyar, J., in W.P. No. 818 of 1953 which was filed by the appellants under Article 226 of the Constitution for the issue of a writ of certiorari quashing the proceedings of the Additional Joint Registrar of Co-operative Societies, Madras, in R.P. No. 45 of 1953 on appeal from the order of the Deputy Registrar of Chittoor, dated 24th August, 1953. The 1st appellant is a limited liability company with its registered office at Chittoor. The 2nd appellant is its Managing Agent. The 1st respondent is a Co-operative Society formed under the Madras Co-operative Societies Act VI of 1932. The 1st respondent, entered into a contract with the 1st appellant, the terms of which were embodied in an agreement dated 7th July, 1952, under which the 1st appellant granted to the 1st respondent the Sole Selling Agency in respect of raw groundnut oil and cake in the district of Chittoor. The only terms of this agreement which are material for the purpose of this case are the following:
The Sole Selling Agent (the 1st respondent) shall advance a sum of Rs. 50,000 to the Company (1st appellant) and the Managing Agents (2nd appellant) and one of the representatives of the Company shall execute a Security Bond for the said sum of Rs. 50,000 on behalf of the Company to the Sole Selling Agent.
The said advance of Rs. 50,000 to be paid by the Sole Selling Agent to the Company shall not carry any interest.
The Company shall pay the Sole Selling Agent a commission of 1 per cent, on the gross sales turnover of the groundnut oil and cake.
In pursuance of this agreement, on 10th July, 1952, a security bond was executed by the 2nd appellant in favour of the 1st respondent acknowledging receipt of Rs. 50,000 and agreeing to indemnify the 1st respondent against any sum that may be found due at the expiry of the contract. In addition to this sum of Rs. 50,000 a further sum of Rs. 50,000 was also advanced by the 1st Respondent on 30th August, 1952. A second indemnity bond was executed by the 2nd appellant on 29th August, 1952. The 2nd appellant also executed a promissory note for Rs. 1,00,000 with interest payable at 6¼ percent per annum though the amount actually advanced was Rs. 50,000. The contract appears to have been acted upon by both parties for some time, but subsequently the Registrar of Co-operative Societies appears to have taken exception to the advances made by the 1st respondent to the 1st appellant on the terms contained in the above agreement and directed that the money should be called back. There upon the 1st respondent filed a claim for Rs. 99,450-15-8 against the 1st appellant on nth April, 1953, before the Deputy Registrar of Co-operative Societies, Chittoor, after sending a notice that the Registrar had advised that the agreement should be cancelled and that the advance of Rs. 1,00,000 should be recovered. The claim was filed under Section 51 of the Madras Co-operative Societies Act.
2. From the record, it appears that on the date of the execution of the agreement that is, on 7th July, 1952, the 1st appellant company was not a member of the 1st respondent society. But the 2nd appellant individually was a member. The 1st appellant was actually admitted as a member only on 4th October, 1952. The 1st appellant filed a written statement, in which it pleaded inter alia that the Deputy Registrar of Co-operative Societies had no jurisdiction under Section 51 of the Act to entertain the claim, because the 1st appellant as a limited liability company could not, under the by-laws of the society be admitted as a member of the society. On 16th June, 1953, the Deputy Registrar passed an order overruling this objection, and holding that he had jurisdiction to entertain the claim. A revision petition was filed against this order by the appellants to the Registrar. That petition was disposed of by the Additional Joint Registrar by his order, dated 24th August, 1953. Before him, in addition to the objection that the 1st appellant company could not be validly admitted as a member of the society, a further objection was raised, namely, that the 1st appellant was not in any event a member on the date of the agreement dated 7th July, 1952. The Joint Registrar rejected both these contentions of the appellants and dismissed the revision petition. It is to quash this order that the Writ Petition was filed by the appellants. Before the learned judge, both the points urged before the Joint Registrar were again urged, but the learned Judge rejected the contentions of the appellants and dismissed the petition.
3. Before us, once again both the objections were pressed. The first objection is based entirely on by-law No. 5 of the society, which runs thus:
Any person over 18 years of age, who is competent to contract, any Society registered under the Co-operative Societies Act referred to in the third sentence of the by-law 1 and any public institution, bank, or devasthanam, choultry, hotel, club, shall be eligible for admission as a member but no person or Co-operative Society or institution can claim admission as a matter of right.
It was contended on behalf of the appellants that the 1st appellant company is not qualified to be admitted as a member of the society, because the company is not a "person" over 18 years of age; nor is it a public institution, bank, or devasthanam, choultry, hotel or club. The Deputy Registrar took the view that a limited liability company like the 1st appellant would be a "person" within the meaning of the by-law and also a public institution. The Joint Registrar, without giving any definite indication as to the basis of his conclusion, held that as the by-laws stood the admission of the 1st appellant company as a member was not illegal. The learned Judge, Balakrishna Ayyar, J., did not decide whether the 1st appellant company was or was not eligible to be a member of the society. He overruled the appellant's objection on the ground that the 1st appellant was estopped from raising this objection. He observed:
... rightly or wrongly, the first petitioner was admitted to the benefits of the membership of the first respondent Stores, and having as a result of such admission, obtained substantial advantages, it is estopped from saying that it was not a member at all.
It is not clear on what facts the learned Judge held that, there was any estoppel. Learned Counsel for the respondent was unable to mention any substantial advantage which the 1st appellant company obtained after it was admitted to the membership of the society. We do not think that there is sufficient evidence to support a plea of estoppel, we have, therefore, to decide whether the 1st appellant is eligible under by-law 5. That by-law is certainly not happily worded. If the language of the by-law is understood literally, it may not cover a limited company. In the absence, however, of any indication that a limited company was not eligible to become a member, we are inclined to hold that the 1st appellant company would fall within one or other of the categories mentioned in the by-law. It is undoubtedly true that the qualification of age is inappropriate to the case of a company. It is also fairly clear that only a human being was contemplated as coming within the clause of 'persons' in that by-law. Though ordinarily the word "person" might include a company, it is obvious that in the by-law a distinction is drawn between a person and a society and a public institution. If the word "person" was intended to bear an extended meaning, then the mention of 'society' or 'public institution' is absolutely redundant, because a society would be a person within the meaning of the extended definition of that term. We do not find it, however, impossible to hold that a public limited liability company like the 1st appellant is a public institution. The word "institution" may not be very apt, but it is general enough to include a public company. We hold that the 1st appellant company is a public institution within the meaning of by-law No. 5, and therefore it was eligible for membership of the society.
4. The second objection, however, cannot be lightly dismissed, and we do not think that it has received the consideration it merits from the learned Judge, Balakrishna Ayyar, J., held that against the 1st appellant mainly relying on the wide and comprehensive language used in Section 51 of the Co-operative Societies Act. That section, in so far as it is relevant, is as follows:
There is an Explanation, which says that a claim by a registered society for a debt or demand due to it from a member, or past member, whether such debt or demand be admitted or not, is a dispute touching the business of the society within the meaning of the sub-section. The learned Judge was apparently inclined to the view that it was sufficient if at the time of the dispute the person against whom the claim was is a member of the society, and that under the section it is not necessary that he should have been a member of the society at the time of the transaction in respect of which the dispute has subsequently arisen. Reading clauses (a), (b), (c) and (d) and Sub-section (1) of Section 51, we think that by necessary intendment, the dispute should be between the society and member qua member. Otherwise, the result would be that the jurisdiction of a civil Court to decide a dispute between the society and a stranger in respect of a transaction would be taken away long after the transaction by the stranger becoming a member of the society. Logically, such a construction would also lead to this position, namely, that if the society enters into a transaction with a person who was at one time a member and who had long ceased to be a member, and a dispute arises about it, such dispute would have to be adjudicated by the Registrar of Co-operative Societies. Obviously, that would not have been contemplated or intended. The reference to members, past members, officers and past officers must be taken along with the nature of the dispute which alone will bring it within Section 51 of the Act, namely, that it should touch the business of a registered society. This should not only be from the point of view of the society but also from the point of view of the other party to the dispute, whether member, past member, officer or past officer. For a claim to fall within Section 51, it should be a claim by the society against a member as a member touching the business of the society. There may be a liability of a member to the society which is not a liability incurred by the member as member. Such a liability will be outside the scope of Section 51. Some light is thrown on this point by the decision of this Court in Krishna Ayyar v. Urban Bank Ltd., Calicut (1933) 65 M.L.J. 367 : I.L.R. 56 Mad. 970. In that case, a lawyer was a member, director, and legal officer of a Co-operative Bank. He was also a vakil of the bank conducting litigation on its behalf, receiving fees in each case he appeared in. A dispute arose between him and the bank in respect of certain sums of money which included out of pocket expenses charged by the vakil, extra fees charged by him for which there was no sanction of the directors, and amounts alleged to have been paid in by the vakil to the bank out of collections made by him from the bank's borrowers which were not entered in the books of the bank and for which the vakil was unable to produce valid receipts. The secretary of the Bank filed a claim under Section 51 of the Act against the vakil for the recovery of the said sums. An objection was raised that the Deputy Registrar of Co-operative Societies before whom the claim was filed had no jurisdiction under that section to entertain the claim on the ground that the claim did not relate to what the vakil had done in his capacity as a member of the society. This objection was upheld. Beasley, C.J., who delivered the judgment, of the Court, observed:
I think it is clear that both under the Building societies act and the friendly societies act in England which contain somewhat similar provisions as regards the settlement of disputes within the Society by the Registrar that, in order that such a dispute can be dealt with by the Registrar, it must be a dispute between the Society and a member in his capacity as member.
The principle of this decision clearly applies to the present case. If the 1st appellant company was not a member on the date of the agreement of 7th July, 1952, any liability under that agreement would not be a liability incurred by it in the capacity of a member. The fact that it became a member subsequently would not make any difference.
5. It was, however, urged by learned Counsel appearing for the society that the agreement itself was entered into on the distinct understanding that the 1st appellant would become a member and that the transaction was deemed to be a transaction between the society and one of its members. It is said that there was delay in making the actual admission, but the parties contracted on the footing that the 1st appellant was a member. This position was set out in the counter-affidavit, filed on behalf of the society, but there has been no investigation as to the correctness of this allegation. If that be so, in fact, then clearly the 1st appellant is estopped from raising this objection. If, on the other hand, there is no truth in this allegation, then it follows that the Deputy Registrar of Co-operative Societies had no jurisdiction to entertain the claim under Section 51 of the Act.
6. In this view, we are unable to quash the order of the Joint Registrar or the Deputy Registrar or confirm it. We, however, direct the Deputy Registrar of Co-operative Societies to deal with this question after taking such evidence as may be adduced by the parties before he embarks on further inquiry into the merits. If after considering the evidence the Deputy Registrar comes to the conclusion that the agreement was entered into on the footing that the 1st appellant was a member of the society, though he had actually not been admitted as such by that date, them the Deputy Registrar shall proceed with the further inquiry. But if he comes to the conclusion that there was no such understanding and that the agreement was entered into with the 1st appellant as a stranger, then the Deputy Registrar shall dismiss, the claim as he would have no jurisdiction to entertain it.
7. It was not denied that the 2nd appellant was a member of the society even on the date of the agreement. If ultimately the Deputy Registrar decides that he has no jurisdiction to entertain the claim as against the 1st appellant, he will then have to consider how far the claim can be entertained by him as against the 2nd appellant only. No order as to costs.
Alert