Ajit Singh And Others v. State Of Punjab And Others

- The Registrar, Co-operative Societies, issued a notice under Section 27 of the Punjab Co-operative Societies Act, 1961 (hereinafter called the Act) on 19th of September, 1963, to the President of the Ferozepur Central Co-operative Bank Ltd., to show cause why its directors should not be removed. The reply of the directors was sent through the President on 25th of October, 1963. The Registrar, Co-operative Societies, on November 20, 1963, made an order that the directors should be removed under Section 27(1)(b) of the Act. Ten, out of the fourteen, directors, who had been so removed, have moved this Court under Article 226 of the Constitution of India to challenge the validity of the order of removal. 2. According to the petitioners, Mohinder Singh, respondent 4, having been removed from the position of the President of the Central Co-operative Bank, Ferozepur, has been instrumental in getting the show cause notice issued and their eventual removal from the Board. According to the petitioners, Mohinder Singh is a relation of a Member of Parliament (Shri Iqbal Singh) and through his influence the Registrar has been persuaded to issue this notice. Apart from a bare assertion nothing has been made out to show any mala fides on the part of Mohinder Singh and there is no material to reach the conclusion that the Registrar had been actuated to issue the notice through his influence. 3. The second objection which has been raised by the petitioners relates to the legality of the notice issued under Section 27. Sub-section (1) of Section 27 is to this effect : "If, in the opinion of the Registrar, the Committee of any co-operative society persistently makes default or is negligent in the performance of the duty imposed on it by this Act or the rule the by-laws, or commits any act which is prejudicial to the interest of the society, or its members the Registrar may, after giving the committee an opportunity to state its objections, if any, by order in writing remove the committee; and (a) order fresh election of the committee, or (b) appoint one or more administrators who need not be members of the society, to manage the affairs of the society for a period not exceeding one year. * * * Sub-section (5) of Section 27 enjoins on the Registrar the duty of consultation and may be reproduced :- "Before taking any action under sub-section (1) in respect of a co-operative society, the registrar shall consult the financing institutions to which it is indebted." It is not disputed that the Punjab State Co-operative Bank, Chandigarh, is the principal creditor of the Bank of which the petitioners have been the board of directors. A letter was sent from the office of the Registrar, Co-operative Societies to the President of the Punjab State Co-operative Bank, Chandigarh, on 19th of September, 1963, in which it was stated that the Ferozepur Central Co-operative Bank had been persistently making defaults was negligent in the performance of its duties and had been acting in a way which was prejudicial to the interests of the Bank. It was further mentioned in this letter that the Registrar intended to remove the Managing Committee and a copy of the show cause notice of the 19th of September, 1963, was enclosed with this letter in which formal consultation of the Punjab State Co-operative Societies Act. 4. Mr. Jagan Nath Kaushal, the learned counsel for the petitioners, has urged that the consultation which is the statutory duty of the Registrar has been reduced to a farce in the present case as the reply which was sent by the petitioners was never sent to the Punjab State Co-operative Bank Chandigarh. The resolution passed by the Board of the Directors of the Punjab State Co-operative Bank on 31st of October, 1963, consisted only of the words "no objection". It cannot be said that the cryptic form of the resolution conveyed the approval of the State Co-operative Bank to the eventual removal of the directors. It might well be spelled out from the words "no objection" that the Board meant to raise no objection to the show cause notice which was being issued by the Registrar and a copy of which was enclosed with the letter which was sent to the President in any event, the Board of Directors of the Punjab State Co-operative Bank could not exercise their minds on the issue involved without hearing the reply which was sent by the directors through their President on 25th of October, 1963. The consultation envisaged in Sub-section (5) of Section 27 is not an empty formality of mere information as contended for by the learned counsel for the State. In order to be effective, this consultation must mean that the Board of Directors are placed in possession of full facts before they communicate their views to the Registrar, about the defaulting Co-operative Society. The letter of the Registrar merely informed the President of the State Co-operative Bank that action was proposed against the Bank of which the petitioners were the directors on the grounds which are mentioned in sub-section (1) of Section 27. A copy of the show-cause notice was being sent along with this letter and the object clearly was to inform the State Co-operative Bank the grounds on which action was proposed to be taken. No one could possibly reach a decision merely on ex parte allegations and it is not intended that the financing institution was merely to be informed of the action and no effective opinion could be given on the proposed action without taking into consideration the reply which was sent by the petitioners. 5. It will further be observed that the requirement of Sub-section (5) of Section 27 of the Act has not been strictly complied with. The Registrar is enjoined to consult the financing institution before taking any action under sub-section (1). The issue of a show cause notice is not an action under sub-section (1). The Registrar in my opinion, was obliged to consult the financing institution before any of the actions contemplated in Section 27(1) was taken, and the consultation would be ineffective and unless the full material was placed before the financing institution. From whatever aspect this matter is looked at, the conclusion is irresistible that the Registrar has not followed in spirit the provisions of Sub-section (5) of Section 27 of the Act and the removal of the petitioners is contrary both in letter and spirit to Section 27. 6. On behalf of the respondent, it is contended that the petitioner did not exhaust their remedy available under the Act. Under clause (e) of sub-section (1) of Section 68 of the Act, an appeal shall lie against "an order of the Registered removing the committee of a cooperative society made under Section 27". No appeal having been filed by the petitioners, it is contended that this petition should not be entertained. Mr. Kaushal has brought to my notice the Punjab Co-operative Societies Rules, 1956, framed under the Punjab Co-operative Societies Act, 1954, which was repealed by the Punjab Co-operative Societies Act, 1961. The repealing provisions which is Section 86, however states that notwithstanding such repeal, anything done or any action taken under the repealed Act, shall to the extent of being consistent with this Act, be deemed to have been done or taken under this Act". Rules under the Act of 1961 were framed in January, 1964, but on the date when the order of removal was passed the Rules under the Act of 1954 were fully in force. Under clause (b) of rule 40 of 1956 Rules :- "When the Registrar has passed an order under Section 43 (1) of the Act, the committee or the board of directors of the society concerned may within 90 days of the communication of the order by the Registrar by registered post, appeal to Government, against the said order : Provided that the decision to file an appeal is taken by the general meeting of the society : Provided further that no appeal shall be entertained unless it is accompanied by a copy of the order appealed against along with a copy of the resolution of the general body authorising the committee to file the appeal". Rule 19 says that a general meeting of a society may be convened from time to time by an officer of the society under the directions of the committee or the board of directors. It is pointed out by Mr. Kaushal that the filing of an appeal required the sanction of the general meeting which could only be convened by the board of directors who had been removed. It is submitted that the remedy of appeal in such circumstances had really become illusory inasmuch as there were no directors to convene the meeting and the procedure of concerning a meeting by process of request was too cumbersome. In my opinion, the remedy by way of appeal in such circumstances does not bar the right of the petitioners to move this Court under Article 226 of the Constitution. 7. In the result, this petition is allowed and order for removal of the board passed by the Registrar on 20th of November, 1963, would stand quashed. There would be no order as to costs of this petition. Petition allowed.