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Allum Karibasappa v. State Of Mysore & Others

Karnataka High Court

Jun 1, 1973

Judgment

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Judgment Summary — Allam Karibasappa v. State of Mysore (notifications dated 11 August 1972)

Factual and Procedural Background

This is a petition under Article 226 seeking certiorari to quash two notifications dated 11 August 1972 in which the State Government, invoking Ss. 54 and 121 of the Mysore Co-operative Societies Act, 1959, purported to take control over the conduct of the business of the Bellary District Co-operative Central Bank Ltd., Hospet ("the Bank").

The petitioner, Allam Karibasappa, had been the elected President of the Bank from 1966 until the date of the impugned notifications. The Bank had share capital of Rs. 75 lakhs, of which the State Government subscribed Rs. 23.8 lakhs; it had loans from the Reserve Bank of India and the Apex Bank, and the State Government had guaranteed repayment to the Reserve Bank. The Bank had been inspected by the Reserve Bank; an inspection report dated 22 October 1971 was forwarded for Board action. On 2 August 1972 a confidential report by the Deputy Registrar (Bellary) recorded various irregularities but noted slight improvement in financial resources. The Joint Registrar recommended action under S. 54 and suggested increasing Government nominees on the Board from 3 to 15, and suggested particular officials for nomination. The Registrar forwarded that material to Government, requesting action under Ss. 54 and 121.

On 11 August 1972 the Government published two Extraordinary Gazette notifications: Notification I (DPC.162 CCB.72) declared that, under Ss. 54 and 121, the Government would have the right to nominate fifteen persons on the Bank's Board (with appointment of President, Vice‑President and Managing Director from among them), constitute an Executive Committee, make the Managing Director the Chief Executive Officer with extensive powers, and modify S.29 of the Act accordingly; Notification II nominated fifteen specified government officials and appointed the Deputy Commissioner of Bellary as President, thereby displacing the petitioner.

The petitioner filed the writ petition on 21 August 1972. The Court admitted the petition and initially issued an interim stay on 23 August 1972, but that stay was later vacated after notice to the State Government. The judgment under summary quashes the impugned notifications.

Legal Issues Presented

Whether the State Government's notifications of 11 August 1972, which expanded government nominees to fifteen and reorganised the Bank's management, were ultra vires the Mysore Co‑operative Societies Act, 1959 — particularly S. 54 (control where State aid not less than two lakhs) and S. 121 (modifications/exemptions by State).
Whether the action taken by the State Government violated principles of natural justice by removing the petitioner from the office of President without giving him an opportunity to be heard.
Whether the notifications were motivated by mala fide political considerations (i.e., issued to disadvantage the petitioner on account of political rivalry) and, if so, whether they should be set aside on that ground.

Arguments of the Parties

Petitioner's Arguments (Mr. M. K. Nambiyar)

The notifications were ultra vires the Mysore Co‑operative Societies Act (i.e., beyond the power conferred by the statute).
The action violated natural justice because the petitioner, as elected President, was removed without being given notice or an opportunity to be heard.
The notifications were actuated by mala fide political motive — issued to remove the petitioner (a leader of a rival political grouping) and to gain electoral advantage.

Respondent / State's Arguments (represented by the Advocate‑General, Mr. Byra Reddy)

The petitioner cannot invoke the rules of natural justice because no punitive action was taken against him; his right to continue as President was described as precarious.
The action was within the State's power to protect State interests and to keep intact the corporate character of the Bank; thus natural‑justice protections do not apply in this context.
Counsel relied on decisions (Radeshyam Khare; New Prakash Transport Co. Ltd.; Pidhu Bhusan Bagchi) to support the legal position that procedural protection was not required in these circumstances.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
G. Venkata Naidu v. Bellary Central Co-operative Stores Ltd.	Validity of notifications similar to those before the Court.	The Court noted this decision dealt with similar notifications but observed that the precise questions raised in the present petition were not considered in that case.
Chitradurga District Co-operative Central Bank Ltd. v. The State of Mysore	Interpreting S. 54 — power exercisable in public interest to safeguard State funds; requires circumstances exposing public funds to risk.	The Court relied on Narayana Pai, J.'s formulation to emphasise that S.54's exercise depends on cogent materials showing risk to public funds and that the purpose is to protect the security of State aid.
State of Punjab v. Raghunath Dass (Punjab High Court)	Meaning and limits of "control" — control permits checking, restraining or influencing but does not equate to wholesale command or taking over management.	The Court cited this authority to support the conclusion that 'control' is limited and does not include taking over ownership or complete management of a society; thus S.54 does not authorise management takeover.
Union of India v. P.K. Roy (Supreme Court)	Extent and application of doctrine of natural justice depend on nature of jurisdiction, character of rights affected, statutory scheme and other relevant circumstances.	Employed to frame the proposition that whether natural‑justice rules apply must be determined with reference to the nature of power and rights affected in the present case.
A. K. Kripak v. Union of India; Chandra Bhawan Boarding & Lodging Bangalore v. State of Mysore; Suresh Koshy George v. University of Kerala	Principles that natural justice applies to administrative action where necessary to prevent miscarriage of justice; no rigid formula—application depends on factual matrix.	The Court used these authorities to assert that administrative powers can attract natural‑justice obligations and to justify requiring an opportunity to be heard where statutory action affects substantive rights.
Daud Ahmad v. The District Magistrate, Allahabad	Application of audi alteram partem depends on purpose and provisions of the enabling statute and the circumstances of exercise.	Cited to reinforce that the need for hearing depends on the statutory scheme and the nature of the right affected.
Radeshyam Khare v. State of Madhya Pradesh; The New Prakash Transport Co. Ltd. v. The New Suwarna Transport Co. Ltd.; Pidhu Bhusan Bagchi v. State of West Bengal	Authorities relied on by the State to argue against the applicability of natural‑justice protections in the present context.	The Court observed that these decisions were relied upon by the Advocate‑General but held that they did not assist the State and were contrary to more recent Supreme Court pronouncements relied upon by the petitioner.

Court's Reasoning and Analysis

The Court proceeded in structured stages, setting out relevant statutory provisions and the scheme of the Act before applying those principles to the notifications.

1. Statutory framework and principles:

The Court summarised S.28 (nomination by Government where it has subscribed to share capital or guaranteed loans): Government may nominate "not more than three persons or one‑third of total number of members of the committee, whichever is less", and nominees hold office during pleasure unless term fixed.
S.30 permits the Registrar to supersede a society's committee after notice and consultation where the committee defaults or acts prejudicially; removal of committee or appointment of an Administrator is possible for specified periods (initially not exceeding two years, extendable up to an aggregate of four years).
S.54 (set out in full by the Court) permits the State, where it has given aid of not less than two lakhs, "if it is satisfied that it is necessary in public interest so to do", to take power to exercise such control over the conduct of business "as shall suffice in the opinion of the State Government to safe-guard the interests of the State." The Court emphasised that control must be exercised to safeguard State investment and should not be unreasonable or arbitrary.
S.121 allows the State to exempt or modify application of Act provisions to societies or classes of societies by order.
S.40 imposes a duty on the State to encourage and promote the co‑operative movement — a legislative policy background against which powers must be exercised.

2. Nature and limits of "control" under S.54:

The Court relied on Chitradurga (Narayana Pai, J.) and State of Punjab v. Raghunath Dass to explain that 'control' permits the State to check, restrain or regulate affairs so as to safeguard public funds, but it is not a licence to assume ownership or complete managerial control. The Court stressed that exercise of S.54 must be based on cogent materials on which the State honestly and bona fide forms the opinion that such control is necessary to protect public funds.

3. Application to the notifications:

The notifications increased Government nominees from the statutory norm to fifteen (in a board that previously had ten elected members), appointed Government officials to key positions (Deputy Commissioner as President, Joint Registrar as Vice‑President, Deputy Registrar as Managing Director), and declared those nominees to be subject to the supervision, direction and control of the State Government.
An Executive Committee was constituted dominated by Government nominees (President, Vice‑President, Managing Director, three persons nominated by the President from among Government‑nominated directors, plus one director elected by the Board). Given the majority of nominees, elected members had no realistic prospect of controlling decisions or electing officers.
The Managing Director (a Government nominee) was given CEO powers, including appointment, punishment and transfer of all employees (except the Secretary), authority to conduct and negotiate Bank business, sanction establishment expenditure and delegate powers — substantial operational control was conferred on a Government nominee.
The Court concluded that in substance these changes amounted to taking over the entire management of the Bank rather than merely regulating or supervising to protect State funds. That, the Court held, crossed the limits of S.54 because the Act provided alternative and specific remedies (for example, S.30 allowing the Registrar to supersede a committee after prescribed procedures) when full management control was warranted.

4. Natural‑justice analysis:

Although S.54 does not prescriptively require notice or hearing before taking power to exercise control, the Court applied established principles that the applicability of natural‑justice protections depends on the nature of the statutory power, the character of the rights affected, the scheme of the statute and the circumstances of the case (citing Union of India v. P.K. Roy and other authorities).
The Court found that the petitioner's position as elected President was a statutory right to remain in office and that the notifications removed him from that office without any notice or hearing. This removal affected a substantive right and therefore attracted the protections of natural justice in the circumstances.

5. Mala fide allegation:

The petitioner alleged political animus: that the notifications were issued to disadvantage him because of party rivalry and to influence impending elections. The petitioner supported this with averments about party splits and rivalries.
The Court examined the petitioner's affidavit, the counter‑affidavits of the Ministers and the Deputy Secretary, and other materials. The Court found no basis for the charge of mala fide against the Ministers named and rejected the mala fides allegation.

6. Result of analysis:

Having concluded that the notifications, in substance, effected a takeover of the Bank's management exceeding the scope of "control" under S.54 and that the petitioner was deprived of a substantive right without being given an opportunity to be heard, the Court held the notifications to be ultra vires S.54 and violative of natural‑justice requirements in the circumstances.

Holding and Implications

Holding: The petition is allowed and the impugned notifications dated 11th August 1972 are quashed as ultra vires S.54 of the Mysore Co‑operative Societies Act, 1959 and, in the circumstances, contrary to principles of natural justice. The charge of mala fide against the Ministers was rejected. The Court made no order as to costs.

Implications:

Direct effect: The specific Extraordinary Gazette notifications of 11 August 1972 (which nominated fifteen government officials, appointed Government officers to key posts and conferred extensive operational powers on a Government‑nominee Managing Director) were set aside. The immediate legal consequence is that those notifications are invalid and of no effect.
Legal principle / scope: The Court reaffirmed that S.54 confers a power of "control" to protect State aid but that 'control' has limits — it does not authorise wholesale assumption of management and ownership in the guise of control; where substantive rights of elected officeholders are affected, natural‑justice protections may be required depending on the statutory context and factual circumstances.
No finding of mala fides: The Court expressly rejected the petitioner's allegation that the notifications were motivated by political malice; that charge failed on the evidence before the Court.
Precedential note: The Court applied and relied upon extant authorities to interpret S.54 and the doctrine of natural justice; the judgment invalidated the particular notifications challenged but did not purport to lay down a novel principle beyond interpreting the statutory limits and procedural fairness applicable in such contexts.

End of summary — based exclusively on the text of the provided opinion.

Show all summary ...

Jagannatha Shetty, J.:— This is a petition under Art. 226, for the issue of a writ of certiorari to quash the two notifications dated 11th August 1972 issued by the State Government, with a view to have control over the conduct of the business of the Bellary District Co-operative Central Bank, Ltd., Hospet, (which we shall refer to as the “Bank”). The notifications were issued in exercise of the powers conferred by Ss. 54 and 121 of the Mysore Co-operative Societies Act, 1959 (briefly called the “Act”).

2. The facts are these:— Allam Karibasappa, the petitioner before us, was the President of the Bank, which is a society governed by the provisions of the Act. He was the President from 1966 up to the date of the impugned notifications. The management and administration of the Bank was conducted by a committee consisting of the President, the Vice-President, and ten elected members from various constituencies, with nominees of the State Government. At no time, the Government nominated more than three persons as its representatives. The Bank is having a share capital of Rs. 75 lakhs, out of which the State Government has contributed 23,8 lakhs. The Reserve Bank of India has advanced a loan of Rs. 135 lakhs, while the Apex Bank has given Rs. 200 lakhs. The State Government has guaranteed the repayment of loans to the Reserve Bank of India. The Bank was inspected from time to time by the officials of the Reserve Bank of India. The last inspection before the writ petition, was on 14th October, 1971. A report of inspection dated 22nd October, 1971, in terms ??? of S. 35 of the Banking Regulation Act, 1949 (as applicable in the Co-operative Societies), was forwarded to the Secretary of the Bank ??? to place it before the Board of Directors to rectify certain defects pointed out and to implement the suggestions made in the inspection ???. On 2nd August 1972, the Deputy Registrar of Co-operative Societies. Bellary, made a confidential report to the Joint Registrar of Co-operative Societies, Gulbarga Division, Raichur, on the affairs of the Bank. The report, though it sets out many irregularities, has stated that the financial resources of the Bank has improved slightly. On receipt of the said report, the Joint Registrar on 3rd August 1972, forwarded the same to the Registrar of Co-operative Societies, along with his comments and a suggestion to take action under S. 54 of the Act. He has suggested to amend S. 29 of the Act so as to increase the number of the nominees of the State Government from 3 to 15. His suggestion was that in the interest of the Bank, only officers should be nominated. He also suggested fifteen officials for being considered for nomination. On 4th August, 1972, the Registrar forwarded the said report to the Government approving the recommendation made by his subordinates and with a request to take action under Ss. 54 and 121 of the Act. On 11th August 1972, the Government issued the impugned notifications published in the Extraordinary Gazette of the same date, nominating fifteen officials as its nominees in the Board of Directors of the Bank, and appointing the Deputy Commissioner of the District, as the President, thereby displacing the petitioner.

3. The petitioner, complaining that he had no immediate knowledge of the said notifications, moved this Court on 21st August 1972, for the above stated reliefs. On 23rd August, 1972, this Court after admitting the writ petition, issued an interim order staying the notification but it was later vacated after notice to the State Government.

4. With that, we turn now to the impugned notifications. They are set out below:—

“THE MYSORE GAZETTE

Published by Authority

(EXTRAORDINARY)

BANGALORE, FRIDAY, AUGUST 11, 1972 No. 319

(SRAVANA 20, SAKA ERA 1894).

Development, Housing, Panchayat Raj and

Co-operation Secretariat.

NOTIFICATION — I.

Bangalore, dated 11th August, 1972

5. S.O 1445. Whereas State aid amounting to Rs. 23,80 lakhs has been given to the Bellary District Co-operative Central Bank, Ltd., Hospet, in the form of subscription to the Share Capital of the said Bank;

6. And whereas, the State Government is satisfied that it is necessary in public interest to take powers to exercise control over the conduct of business of the said Bank to safeguard the public funds placed in the hands of the said Bank;

7. And whereas for the aforesaid purpose, it is necessary that—

(1) the State Government shall have power and the right to modify the provisions of S. 29 of the Mysore Co-operative Societies Act, 1959 to enable the State Government to nominate fifteen persons as its representatives on the Committee of the said Bank, and appoint one of them as the President, one of them as Vice-President and one of them as Managing Direction

(2) the State Government should have the right to—

(a) constitute the Executive Committee of the said Bank;

(b) appoint an officer of the State Government as the Managing Director of the Bank;

(c) empower the Managing Director to exercise certain powers and discharge certain functions in respect of the business of the said Bank; and

(d) determine by order the salary and allowances payable by the said Bank to the persons appointed as the President, the Vice President and the Managing Director;

8. Now, therefore, in exercise of the powers conferred Dy Ss. 54 and 121 of the Mysore Co-operative Societies Act, 1959 (Mysore Act 11 of 1959), the Government of Mysore hereby directs, that,—

(1) the State Government shall have the right to nominate as its representatives, fifteen persons on the Board of Management of the Bellary District Co-operative Central Bank, Ltd., Hospet and to appoint one among them as the President, one as Vice-President and one other as the Managing Director of the said Bank;

(2) the President, the Vice-President and the Managing Director and the other nominated members shall exercise their powers and discharge their functions subject to the supervision, direction and control of the State Government;

(3) the State Government shall have the right to determine, by order the salary and allowances payable by the said Bank to the persons appointed as the President, the Vice-President and the Managing Director;

(4) sub-section (1) of the S. 29 of the Mysore Co-operative Societies Act, 1959 (Mysore Act 11 of 1959) shall apply to the Bellary District Co-operative Central Bank, Ltd., Hospet, subject to the modifications that for the words “have the right to nominate as its representative not more than three persons or one-third of the total number of members of the Committee of the Co-operative Society, whichever is less” occurring in sub-sec. (1) of S. 29, the words “have the right to nominate as its representatives fifteen persons as members of the Committee of the Co-operative Society of whom one shall be appointed as the President, one as the Vice-President and one other shall be appointed as Managing Director” shall be substituted;

(5) the Executive Committee of the said Bank shall consist of the following members, namely:—

(i) the President;

(ii) the Vice-President;

(iii) the Managing Director;

(iv) Three persons nominated by the President from among the Directors nominated by the State Government.

(v) One Director elected by the Board of Directors

(6)(a) the Managing Director shall be the Chief Executive Officer of the Bank and shall exercise control over all the employees of the Bank, have the power to appoint, punish and transfer all the employees except the Secretary of the Bank, subject to any policy decision of the Board and also shall have power to:—

(i) generally conduct the business of the Bank and to implement the policies and programmers laid down by the Board and the Executive Committee or other Sub-Committees;

(ii) conduct, negotiate and carry on all activities connected with the business of the Bank, sanction expenditure on establishment including expenditure on traveling allowance and approve payments

(b) delegate any of his, powers to the Secretary or any other Officer of the Bank;

(7) in the absence of the Managing Director, the Board of Directors may authorise the Secretary to exercise the powers and discharge the duties of the Managing Director;

(8) the Bye-laws of the said Bank shall in so far as they are inconsistent with the provisions of this notification have no effect.

(No. DPC. 162 CCB. 72)

By Order and in the name of the Governor of Mysore.

N.J Gorepeerzade

Deputy Secretary to Government,

Development, Housing, Panchayatraj and

Co-operation Department”.

GOVERNMENT OF MYSORE.

Mysore Government,

Secretary,

DPC. 162 CCB. 72.Vidhana Soudha,

Dated: 11th August, 1972.

Bangalore,

NOTIFICATION — II.

9. In pursuance of the provisions of Notification II, No. DPC. 162 CCB. 72, dated 11th August 1972, the Government of Mysore hereby nominate the following persons as its representatives on the Board of Directors of the Bellary District Co-operative Central Bank Ltd. Hospet, namely:—

1) The Deputy Commissioner, Bellary District, Bellary;

2) The Joint Registrar of Co-operative Societies, Gulbarga Division, Raichur.

3) The Deputy Registrar of Co-operative Societies, Bellary District, Bellary;

4) The Deputy Director of Agriculture, Bellary;

5) The Assistant Registrar of Co-operative Societies, Hospet;

6) The Assistant Registrar of Co-operative Societies, Bellary;

7) The Assistant Commissioner, Bellary;

8) The Assistant Commissioner, Hospet;

9) The Special Deputy Commissioner, Bellary;

10) The Assistant Director of Agriculture, Bellary;

11) The Assistant Director of Agriculture, Kudlig;

12) The Deputy Director of Soil Conservation, Bellary;

13) The District Development Assistant to the Deputy Commissioner, Bellary;

14) The Block Development Officer, Hospet;

15) The Block Development Officer, Bellary.

10. The Government of Mysore hereby appoints the Deputy Commissioner, Eellary to be the President, the Joint Registrar of Co-operative Societies, Gulbarga Division, Raichur Division, as Vice-President and the Deputy Registrar of Co-operative Societies, Bellary District, Bellary, as the Managing Director of the said Bank.

By Order and in the name of the Governor of Mysore,

Sd/- N.J Gorepeerzade.

The Registrar of Co-operative Societies in Mysore.”

11. The validity of some notifications which were almost similar to those before us, came up for consideration in two decisions of this Court, G. Venkata Naidu v. Bellary Central Co-operative Stores, Ltd.(1) and The Chitradurya District Co-operative Central Bank Ltd. v. The State of Mysore(2). But in neither of these decisions, the questions urged before us were raised.

12. Mr. M.K Nambiyar, learned counsel for the petitioner, made three points. First, he contended that the action of the Government was ultravirus of the Act. Secondly, that the action was bad as there was a denial of natural justice, and, thirdly, that the action was taken out of political rivalry with an evil intention to remove the petitioner from his office, as he belongs to a rival political party.

13. We must consider these points in turn.

14. To appreciate the first contention, it is necessary to set out the main principles of the Act. S. 28 provides for the nomination of the nominees of the Government on the committee of a Co-operative Society where the State Government has subscribed to the share capital of a co-operative society or guaranteed the repayment of loans. The Government can nominate as its representatives not more than three persons or one-third of the total number of members of the committee, whichever is less. The nominated members, unless the order specifically fixes the term, shall hold office during the pleasure of the State Government. S. 30 provides for the supersession of the committee. If in the opinion of the Registrar, the committee of any society makes default or commits any act which is prejudicial to the interests of the society or its members, the Registrar after notice to the committee and after consulting any financial institution to which the society is indebted, can remove the committee and appoint a new committee or an Administrator to manage the affairs of the committee. The initial period of supersession should not exceed two years at the beginning and that period could be extended from time to time for the aggregate period of four years.

15. Next comes S. 54 with which we are primarily concerned. It is better to set out the same in full.

“54. The Control of Society assisted.—Where State aid amounting to not less than two lakhs of rupees is given to any co-operative society, the State Government, if it is satisfied that it is necessary in public interest so to do, may by notification in the official Gazette take power to exercise such control over the conduct of business of such society as shall suffice in the opinion of the State Government to safe-guard the interests of the State.”

16. Chapter VIII of the Act deals with audit, enquiry, inspection and surcharge. We do not propose to set out the details of the provisions therein. The Registrar may make an order directing the Society or its officers to take such action as may be specified in the order within that time mentioned therein, to remedy the defects if any, disclosed in the audit under S. 63 or the enquiry under S. 64 or inspection under S. 65. Chapter X deals with winding up and dissolution of co-operative societies. If the Registrar after an enquiry held under S. 64 or an inspection made under S. 65 or on receipt of an application made by not less than three-fourths at the members of a co-operative society, is of the opinion that the society ought to be wound up, he may issue an order directing it to be wound up.

17. Basic to the whole scheme of the Act is S. 40. It is a command of the legislature. It states that it shall be the duty of the State Government to encourage and promote the co-operative movement including encouragement of co-operative farming in the State and to take such steps in this direction as may be necessary.

18. The Act, thus provides various measures to encourage and promote the co-operative movement in the State. In that context, the power is conferred on the Registrar and also on the State. In the case of erring co-operative societies, the Registrar could take remedial measures under the provisions of Ss. 63 to 69. If such measures are not sufficient to safeguard the interest of the society or its members, he could take action under S. 30 by removing the democratically constituted committee and appointing a new committee, or one or more Administrators to manage the affairs of the society for a specified period. In other words, the Registrar could take the entire management of the society.

19. Sections 54 and 121 which are material for our purpose, deal with the power of the State Government. By S. 121, the State may by special or general order either exempt any society or a class of societies from any of the provisions of the Act, or may direct that such provisions shall apply with such modifications to any society or class of societies as may be specified in the order. The State also could invoke the provisions of S. 54, where it has given aid amounting to not less than two lakhs of rupees. It can take power to exercise certain control over the conduct of the business of the society. The control should be limited to safeguard the investment made by the State. In other words, it should not be unreasonable or arbitrary. While dealing With the ambit of this power, in the Chitradurga District Co-operative Central Bank's case, Narayana Pai, J. (as he then was) said at page 334:

“13. The language of S. 54 makes it perfectly clear that the power thereunder is to be exercised in public interest, and that the control over the conduct of business of the society should be such as is sufficient in the opinion of the State Government to safeguard the interests of the State. The context suggests that public interest mentioned in the section is the interest which the public undoubtedly have in safeguarding the interest of the State, which, in the setting of Chapter VI, means the security or safety of aid given to the society from out of public funds.

“14. Prima facie, therefore, the exercise of that power is dependent upon existence of circumstances which expose public funds placed in the hands of co-operative societies to the risk or danger of being lost or frittered away or diverted to purposes other than those for which they were made available to the society in the light of the policy of the statute set out in S. 40 and connected sections.”

20. It seems to us, that the formation of the State, to safeguard its interest and exercise such control ever any matter touching the business of the Bank, may be purely a subjective process, but, there must be cogent materials on which the State must honestly and bona fide form its opinion. The word ‘control’ is of wide and ambiguous import but it is certainly a word of limitation. Though it is neither possible nor desirable to lay down the method or manner in which that power could be exercised, it suggests the power of the State to check or regulate the conduct of the business of the Bank or the Society in any manner it thinks fit. But that word is not wide though to include the power to take over the ownership or the management of the Bank. Our view finds support from the decision of the Punjab High Court in State of Punjab v. Raghunath Dass(3), wherein Tek Chand, J., at page 84, said:—

“The employment of the word ‘control’ is significant. The use of the word ‘control’ suggests the power of the State Government to check, restrain or influence the authority which is being placed under the control of the Government. It is a right to regulate or verify what is actually done by another subordinate to the authority controlling. Both etymologically and also in the dictionary sense, to ‘control’ means to hold in check, curb, restrain from action, to hinder or prevent. It is a word of limitation. Having regard to the commonly accepted meaning of the word ‘control’ and also in the background of the context, it cannot connote a command or a direction justifying interference by the State Government in an individual case or a particular matter.”

21. It may be remembered that the management of the Bank could be taken over only under S. 30, by observing the statutory requirements provided therein and not in the guise of exercising control under S. 54 of the Act.

22. With those principles in mind, we look again to the impugned notifications, to examine their true nature, character, object and design. By these notifications, the State Government nominated fifteen officials as its representatives on the Board of Directors which consisted of ten elected members. Formerly, the President of the Bank was an elected member. So was the Vice-President. Now, the State Government has appointed the Deputy Commissioner of Bellary District as the President, removing the petitioner from that office. The Joint Registrar of Co-operative Societies, Gulbarga Division, was appointed as the Vice-President. The Deputy Registrar of Co-operative Societies, Bellary Division, was appointed as the Managing Director. All these officials shall exercise their powers and discharge their functions subject to the supervision, direction and control of the State Government, (see clause (2) of the first notification Exhibit C).

23. The Government has also constituted another committee called the “Executive committee” of the Bank, (see clause (5) of Exhibit C). This committee consists of the following members:—

1) The President,

2) The Vice-President,

3) The Managing Director,

4) Three persons nominated by the President from among the Directors nominated by the State Government, that is, out of the fifteen nominees; and

5) One director elected by the Board of Directors.

24. In this election, there is absolutely no chance for any member of the Bank to get elected as the nominated members of the Board are admittedly in a majority.

25. Thus, the entire Executive Committee consists of the nominees of the State Government. In addition to that, the Managing Director was constituted as the Chief Executive Officer of the Bank with the power to appoint, punish and transfer all the employees except the Secretary of the Bank. He has also been given the power to generally conduct the business of the Bank and to implement the policies and programmers laid down by the Board and the Executive Committee or other sub-committees. He is to conduct, negotiate and carry on all the actions connected with the business of the Bank. To recall he is also the nominee of the Government.

26. Let us see the position of the Board of Directors. It has been completely swamped by the fifteen nominated officials. It has lost its democratic structure. The elected members being in a minority cannot decide anything. Thus, in substance, the entire management of the Bank has been taken over by the nominated President, Vice-President, Managing Director, the Executive Committee and the Board of Directors in which there is a clear majority of the nominees of the Government.

27. While carefully considering the true character of the notifications, it seems to us that the Government in the guise of exercising control over the conduct of the business of the Bank, have thrown their not very wide and in substance, they have taken over the management of the Bank in clear disobedience to the ??? mandate expressed in S. 40 that it is the duty of the State Government to encourage and promote the co-operative movement. That being the position, the impugned notifications must be struck down as ultra vires of S. 54 of the Act.

28. We shall now turn to the second question whether the action taken was contrary to the principles of natural justice or whether the petitioner in any event should have been given an opportunity to have his say before he was removed from the office of the President of the Bank. It is true that S. 54 does not contemplate the holding of any enquiry or issuance of any notice before the State Government takes power to exercise any control over the business of the Bank. But, whenever a complaint is made before a Court that some principle of natural justice has been contravened, the Court has to decide whether the observance of that rule was necessary for a just decision of the case. The observance of the rules of natural justice depends upon the nature of the statutory power, the type of control which the Government wants to exercise and the character of the rights of the persons affected thereby. Extensive citation on this principle, in our opinion, is undesirable because, the principles are now well established. In Union of India v. P.K Roy(4), the Supreme Court observed at page 858:

“But the extent and application of the doctrine of natural justice cannot be imprisoned within the strait jacket of a rigid formula. The application of the doctrine depends upon the nature of the jurisdiction conferred on the administrative authority, upon the character of the rights of the persons affected, the scheme and policy of the statute and other relevant circumstances disclosed in the particular case.”

29. There is absolutely no doubt about the application of the principles of natural justice to, the exercise of the administrative powers. The statement of the law as stated by the Supreme Court in A.K Kripak v. Union of India(5) and reiterated in Chandra Bhawan Boarding and Lodging Bangalore v. State of Mysore(6), is this:—

“If the purpose of the rules of natural justice is to prevent miscarriage of justice one fails to see why those rules should be made inapplicable to administrative enquiries. Often times it is not easy to draw the line that demarcates administrative enquiries from quasi-judicial enquiries. Enquiries which were considered administrative at one time are new being considered as quasi-judicial in character. Arriving at a just decision is the aim of both quasi-judicial enquiries as well as administrative enquiries. An unjust decision in an administrative enquiry may have more far-reaching effect than a decision in a quasi-judicial enquiry. As observed by this Court in Suresh Koshy George v. University of Kerala, Civil Appeal No. 990 of 1968, dt. 15-7-1968 (AIR. 1969 SC. 198) the rules of natural justice are not embodied rules. What particular rule of natural justice should apply to a given case must depend to a great extent on the facts and circumstances of the case, the framework of the law under which the enquiry is held and the constitution of the Tribunal or body of persons appointed for that purpose.”

30. Again, in Daud Ahmad v. The District Magistrate, Allahabad(7), the Supreme Court again observed that the application of the doctrine of audi alterm partem to the exercise of any statutory power depends primarily on the purpose and provisions of the Act. It was also held that the principles of natural justice have been made applicable to administrative enquiries or quasi-judicial enquiries and it is the nature of power and the circumstances and conditions under which it is exercised that will occasion the invcoation of the principles of natural justice.

31. Mr. Byra Reddy, learned Advocate-General, argued that the petitioner cannot invoke the principles of natural justice because the State Government has not taken any punitive action against the petitioner and that the petitioner's right to continue as the President of the Bank was a precarious right. He also, submitted that the action taken was only to protect the interest of the State while keeping in tact the corporate character of the Bank and therefore the petitioner cannot claim the protection of the rules of natural justice. He relied on the following two decisions of the Supreme Court and one decision of the Calcutta High Court:—

Radeshyam Khare v. The State of Madhaya Pradesh(8); The New Prakash Transport Co. Ltd. v. The New Suwarna Transport Co. Ltd.(9) and Pidhu Bhusan Bagchi v. The State of West Bengal(10).

32. We do not think that the principles of these decisions will be of any assistance in deciding the question before us. Nor can we accept the position of law which is contrary to the recent pronouncements of the Supreme Court.

33. The argument of the learned Advocate-General was based on the assumption that the petitioner had no right to hold the office. It is a wrong assumption. The petitioner was an elected President of the Bank. He had a statutory right to remain and continue in the said office. The State Government has appointed the Deputy Commissioner as the 1 resident of the Bank without any notice of the petitioner. The removal of the petitioner from his office certainly affected his right to be the President and manage the affairs of the Bank. The action of the State Government is therefore, clearly against the principles of natural justice.

34. This takes us to the last contention for the petitioner, on the charge of mala fide made against the State Government and in particular against the Hon'ble Minister of Finance Mr. M.Y Ghorphade and the Hon'bie Minister for Co-operation Mr. Shankara Alva. The facts and allegations alleged by the petitioner are these:—

“That after the split in the Indian National Congress and after the General Elections to the State Government, the Congress (R) party has been in control of the State Government 1, Vice-President and all the elected directors of the Bank belong to the rival organization Congress. I am holding the important and responsible post in the Mysore Pradesh State Congress (Organization). I am the President of the District Congress Committee (O), Bellary. I had contested the Assembly Election as a candidate on behalf of the Organization Congress and against the Congress (R) Shri H. Linga Reddy. The present Minister of Finance Shri M.Y Ghorphade is a member of the Congress (R). So also the Co-operative Minister Shri Shankara Alva. Even before the split in the Congress, Shri Ghorphade and I belonged to rival groups within the Congress and we had fought on various matters. I submit that the above mentioned two Ministers have brought about the passing of the notification Exhibits ‘C’ and ‘D’. That the Taluk Board and election to the Bank is to be held very shortly. Both the Congress wings (R) and (O) are participating in the election. I submit that the impugned Notifications are issued just on the eve of election just to get an upper hand and to demoralize the opposite camp, i.e, the Congress (O)”.

35. Mr. Nambiyar also referred us to the Statement of the progress of the Bank for the last several years and said that the Bank Deposit and the Profit have increased from year to year with the maximum recovery in the last financial year. He also said that the reports of the Deputy Registrar and the Joint Registrar were got up all of a sudden for the purpose of passing the impugned notifications. As regards the irregularities pointed out in the inspection report of the officials of the Reserve Bank, counsel said that they are of minor nature, ordinarily found in every inspection report and the Board of Directors would attend to them. The allegations in the affidavit of the petitioner are denied in the counter-affidavits filed by the said two Ministers and also by the Deputy Secretary of the Department of Co-operation. After perusing the affidavit, the counter-affidavits and on considering the other circumstances we are fully convinced that the charge of mala fide made against the said two Ministers has absolutely no basis. It is true that the petitioner belongs to a rival political party. But that by itself is no ground for us to hold that the impugned notifications were issued just to get an upper hand and demoralise the opposite party to which the petitioner belongs. We, therefore, reject this contention, without expressing any opinion on the performance of the Bank.

36. In the result, the petition is allowed, quashing the impugned notifications. As the petitioner has failed on the charge of mala fide, though he has succeeded on the other questions, we make no order as to costs.