A. Muhamed Mustaque, J.:—
Lives are changed when people connect. Life is changed when everything is connected.
-- 1[Qualcom motto]
1. In modern business model, success depends upon how one design or structure the business. The big shift in the business in a market economy is attributable to convergence, interdependency and technology. This era of acceleration is relatable to the afore-mentioned factors. The current model of business enterprise is deemed to be vulnerable if they fail to translate the above mentioned key factors into reality or to put them into practice. A co-operative movement representing collective ownership in their economic pursuit is no exception for the application of factors as above. While it is necessary to assert autonomy of cooperative enterprises through decision making at basic unit level, its affiliation to the central authority cannot be ignored to meet the challenges faced by it. The edifice of co-operative enterprise is built on autonomy with subsidiarity and solidarity as its bulwarks to remain independent. But that in itself cannot be decisive enough so as to remain competitive in pursuit of market interest. In as far as the urge to remain competitive is concerned it is not the organisational structure alone that matters but it is the factors that determine the interest in the market. Therefore, challenges in this regard are multi-fold. The policy makers may face the risk of existential crises if cooperative enterprises remain non responsive to market demands. It is therefore necessary to be propulsive and to embrace nuances to remain competitive in a market economy. The balancing of co-operative principles and factors reckoning market interest is a delicate task. Balancing interest as an object, the Government decided in principle to amalgamate the District Co-operative Banks with the Kerala State Co-operative Bank. The Government realised that such amalgamation of banks is necessary for the very existence of the Co-operative banks as well for the purpose of economic development and providing financial service to the people. The Government constituted an expert committee to obtain an expert view as per G.O.(Rt). No. 488/2016/Co.op, dated 28.9.2016. Accordingly, Professor M.S. Sreeram, IIM Bangalore, was appointed as the Chairman of the said committee. The committee suggested layering of the three tier structure into two tier structure. The committee was of the view that the present three tier structure of the District Co-operative Banks at the middle level only adds to the costs and that they being intermediary, can be avoided to undertake a two tier structure with the Kerala State Co-operative Bank and Primary Co-operative Banks being its constituents. The Government, in order to realize this expert opinion, invoked legislative mandate and amended statutory provisions for amalgamation. This resulted in filing these writ petitions.
2. The central issue that emerges in these writ petitions is how far the balancing exercise has been maintained through the legislation between the co-operative enterprise and the market interest, which is the ultimate cause for this amendment.
3. The present scenario of the co-operative banking sector as evident from Rule 15 of the Kerala Co-operative Societies Rules, 1969 (for short, the “K.C.S. Rules”) and proposed scenario based on amendment are as follows:
4. Before the amendment, the State Co-operative Bank at Apex level having only District Co-operative Bank as its members. After the amendment, the State Co-operative Bank would be known as the Kerala State Co-operative Bank as an Apex Society having Primary Agricultural Credit Socieites and Urban Co-operative Banks and other nominal or associate members of the District Co-operative Banks.
5. These writ petitions are filed by Primary Co-operative Banks, individual members of such co-operative banks or Societies and others challenging vires of amended statutory provisions and the process involved in amalgamation.
6. The State Legislature brought an amendment to achieve the objective of amalgamation of the District Co-operative Banks with the State Co-operative Bank. A new provision was incorporated as Section 14A under Chapter II and also a new Chapter XC of the Kerala State Co-operative Societies Act, 1969 (for short, the “K.C.S. Act”) for this purpose. Section 14A of the K.C.S. Act speaks about transfer of assets and liabilities of the District Co-operative Banks to the Kerala State Co-operative Bank. Chapter XC refers to special provisions for amalgamation through transfer of assets and liabilities of the District Co-operative Banks to the Kerala State Co-operative Bank. This provision of amalgamation is in the nature of merger which means that the assets and liabilities of Distroct Co-operative Bank will merge with the State Co-operative Bank. I shall advert to in detail regarding the process of amalgamation in the later part of the judgment.
7. I have heard learned Senior Counsel Shri George Poonthottam, Adv. P.N. Mohannan, Adv. D. Somasundaram and other counsel on behalf of the petitioners. I have also heard learned Additional Advocate General Shri K.K. Ravindranath, learned Senior Counsel Shri T.A. Shaji, Adv.P.C. Sasidharan, Adv.M. Sasindran and learned Special Government Pleader Shri Mohammad Hashim on behalf of the respondents, who supported the process of amalgamation. I have also heard the learned Senior Counsel Smt. Sumathi Dandapani for RBI and Adv. Gilbert George Correya for the State Co-operative Bank. The arguments spread over for more than two weeks.
8. The arguments can be broadly categorised into three parts - first, applicability of relevant provisions in regard to the process so initiated; second, vires of amended provisions and; third, in regard to the process of amalgamation.
9. Point (i).- The application of relevant statutory provisions for amalgamation of the District Co-operative Banks with the State Co-operative Bank:—
“14A. Provisions regarding transfer of assets and liabilities of District Co-operative Banks to the Kerala State Co-operative Bank.-(1) Notwithstanding anything contained in litis Act or in any other law for the lime being in force, the District Co-operative Banks may by a resolution passed by a simple majority of the members present and voting at the special general body meeting of the members, transfer its assets and liabilities in whole to the Kerala State Co-operative Bank and such transfer shall take effect from the date on which the Registrar approves the resolution.
(2) The resolution shall contain particulars of the assets and liabilities to be transferred.
10. The State Legislature incorporated Section 14A by Act 1 of 2019. The relevant provision reads thus:
11. A new Chapter XC was incorporated in the K.C.S. Act. The purpose of the Chapter XC is to amalgamate the District Co-operative Banks through transfer of assets and liabilities based on the resolution passed invoking Section 14A of the K.C.S. Act. It is appropriate to refer the relevant provision of Chapter XC which reads thus:
74H. Amalgamation of District Co-operative Bunks to the Kerala State Co-operative Bank.-(1) Notwithstanding anything contained in this Act or in any other law for the time being in force, the Registrar shall order the amalgamation of District Co-operative Banks in Kerala with the Kerala State Co-operative Bank on the basis of the resolution passed by the general body as provided under section 14A of this Act.
(2) With the prior approval of the Government the Registrar shall bring into effect the scheme of amalgamation, proposed by the Kerala State Co-operative Batik which is to be presented to the transferor banks.
(3) On and from the date of amalgamation, the shares held by the members of the transferor banks shall be deemed to be the shares of the transferee bank as such;
Provided that the value of shares shall be on the basis of face value of shares held by the members of the transferor banks.
(4) Notwithstanding anything contained in section 15 of this Act, on and from the date of amalgamation of the transferor banks and the transferee bank, the transferor banks shall cease to exist and its registration shall stand cancelled:
Provided that no new Registration Certificate is required for the transferee bank.
(5) The existing Board of Directors of transferor banks and transferee bank shall cease to exist on the date of amalgamation and the Government shall nominate an interim Board consisting of not more than three members for a period not exceeding one year from the date of amalgamation or till a newly elected Board of Directors takes charge. whichever is earlier,
12. This process is a two tier process, vis-à-vis, a voluntary resolution of the District Co-operative Bank to transfer assets and liabilities to the Kerala State Co-operative Bank by a resolution passed by the simple majority of the persons present at the Special General Body. The second tier is a compulsory statutory amalgamation based on the resolution passed under Section 14A of the K.C.S. Act which means that, once a resolution is passed to transfer assets and liabilities to the State Co-operative Bank, the Registrar is bound to order amalgamation of District State Co-operative Banks with Kerala State Co-operative Bank. He has no option but to order amalgamation once such a decision is taken by the District State Co-operative Banks concerned.
13. Before incorporation of Sections 14A and 74H of the K.C.S. Act, there were provisions relating to amalgamation of a society with other societies. This is contained in Section 14 of the K.C.S. Act. The relevant provisions of Section 14 reads thus:
“14. Amalgamation, transfer of assets and liabilities and division of societies (1) A society may, with the previous approval of the Registrar and by a resolution passed by a two-thirds majority of the members present and voting at a general body meeting of the society,
(a) transfer its assets and liabilities in whole or in part to any other society;
(b) divide itself into two or more societies
(2) Any two or more societies may, with the previous approval of the Registrar and by a resolution passed by a two-thirds majority of the members present and voting at a general body meeting of each such society, amalgamate themselves and form a new society.”
14. The K.C.S. Rules also laid down the procedure for amalgamation. It is relevant to refer to the relevant provisions of Rule 13 which reads as follows:
“13. Amalgamation, transfer of assets and liabilities or division of societies:
(1) Every co-operative society desiring to effect amalgamation, transfer of assets and liabilities or division shall convene a meeting of a special general body, called for the purpose, giving fifteen clear days notice and pass resolution, for amalgamation, transfer of assets and liabilities or division as the case may be, by a two third majority of the members present and voting at that meeting:
Provided that in the case of an insured cooperative bank, no resolution shall be passed without the prior approval in writing of the Reserve Bank of India and in the case of an assisted society, no resolution shall be passed without the prior approval of the Registrar. In the case of amalgamation or division, the resolution shall include the scheme and the draft bye-laws proposed for adoption, consequent on the approval of the proposals. The draft bye-laws shall include provisions of appointment of the first committee by nomination.”
15. The combined reading of Section 14 of the K.C.S. Act and Rule 13 of the K.C.S. Rules as above clearly establish that this process of amalgamation is based on the act of parties and therefore, it has to be understood as a voluntary amalgamation.
16. The learned counsel for the petitioners pointing out to Section 14A of the K.C.S. Act would argue that in the absence of reference for amalgamation under Section 14A, the process of amalgamation under Chapter XC will have to follow substantial statutory provisions under Section 14. Therefore, it was argued that there must be a resolution passed by two-third majority of the members present in the meeting convened for transfer of assets and liabilities. It is pointed out that of the 14 District Cooperative Banks in the State only 13 District Co-operative Banks have passed resolutions and that, out of such 13, 4 District Co-operative Banks have passed a resolution by simple majority. I need to examine the point in regard to the adherence to the process under Section 14 of the K.C.S. Act only if Section 14 would apply. In regard to the merit of the process, this Court can address the issue relating to the process at a later stage with reference to the same under Point (3).
17. Section 14A of the K.C.S. Act is a special provision for transfer of assets and liabilities of the District Co-operative Banks to the Kerala State Co-operative Bank. There is no reference of ‘amalgamation’ under Section 14A. On the other hand, Chapter XC of the K.C.S. Act laid out special provision for amalgamation through transfer of assets and liabilities. This clearly establishes a case of amalgamation through merger. When a statute prescribes a particular procedure for amgalgmation through merger by way of special provisions, general provisions relating to merger will not apply unless special provisions incorporate general provisions by reference. It is to be noted that 74H under Chapter XC begins with a notwithstanding clause. It is also necessary to refer 74H(18) of the K.C.S. Act. It reads as thus:
“Notwithstanding anything contained in this Act, the provisions of this chapter shall have overriding effect on all other provisions of the Act.”
18. This clearly points out that no other provision would apply in regard to amalgamation of the District Co-operative Banks other than Chapter XC of the K.C.S. Act. Once a resolution is passed by the District Cooperative Bank to transfer assets and liabilities, the Registrar in such an event is bound to proceed for amalgamation in the manner indicated under Chapter XC. Rule 13 of the K.C.S. Rules may not have any application as it sets out a different procedure of amalgamation based on the voluntary act of Co-operative Bank. Non obstante clause is a legislative device to give an overriding effect to certain provisions over some contrary provisions that may be found within the same enactment or some other enactment (See State (Nct Of Delhi) v. Sanjay [(2014) 9 SCC 772]. There is a subtle distinction between voluntary process of amalgamation and statutory process of amalagamtion. As noted above, Section 14 and Rule 13 are related to voluntary process of amalgamation and not related to statutory process of compulsory amalgamation. It is also to be noted that Section 14 or Rule 13 does not speak about amalgamation through the process of transfer of assets and liabilities. The amalgamation referred to under Section 14 and Rule 13 is ‘distinct and different’ from transfer of assets and liabilities. Transfer of assets and liabilities is distinctly mentioned as different from the amalgamation in the afore statutory provisions itself. On the other hand, once resolution is passed under Section 14A for transfer of assets and liabilities, Chapter XC step in for compulsory amalgamation. This is a special provision, available only to the District Co-operative Banks. Therefore, I have to hold that, statutory amalgamation under Chapter XC alone would apply in the matter for amalgamating the District Co-operative Banks with the the Kerala State Co-operative Bank if such resolution is passed invoking Section 14A to transfer assets and liabilities. Thus, the argument that Section 14 of the K.C.S. Act and Rule 13 of the K.C.S. Rules would apply must fail.
19. Point No. 2.- Challenging vires of amended provisions incorporated by the Act 1 of 2019:-
20. As afore-noted, new provisions have been incorporated in the K.C.S. Act to facilitate amalgamation of the District Co-operative Banks with the State Co-operative Bank. The learned counsel for the petitioners referred to the ninety-seventh amendment to the Constitution. The very purpose of the amendment to the Constitution according to the petitioner is to uphold co-operative principles and to negate outside interference including interference by the State. The learned counsel pointed out to Article 43B of the Constitution to buttress their argument that the State shall not interfere with the autonomous character of the co-operative societies. This argument, in fact, is raised in the context of compulsory statutory amalgamation as referred under Chapter XC of the amended provision. The learned counsel also referred to Schedule II to the K.C.S. Act which refers to ‘co-operative principles’. Section 2(eccc) inserted by K.C.S. Act 8 of 2013 defines co-operative principles as referred under Schedule II. Some of the co-operative principles are Voluntary & Open Membership, Democratic Member Control, Members' Economic Participation, Autonomy & Independence etc.
21. Placing reliance on the judgment of the Apex Court in Vipulbhai M. Chaudhary v. Gujarat Cooperative Milk Marketing Federation Limited [(2015) 8 SCC 1], it was argued by the learned counsel for the petitioners that democratic functioning is the essential feature of the co-operative society. Thus, it is contended that the amendment brought by the Act 1 of 2019, vis-à-vis, Section 2(ia), that the existing District Co-operative Banks would cease to exist is ultra vires to the Constitution.
22. The District Co-operative Banks, State Co-operative Bank and other Primary Co-operative Banks in the Society are registered as Co-operative Societies. They are classified under Rule 15 of the K.C.S. Rules as different types after the registration of the Society based on the principal object provided in the bye-laws. The learned Additional Advocate General would argue that classification of the District Co-operative Bank was accorded by virtue of the statutory provisions and, therefore, there is no embargo for the Legislature to de-classify the type of the Society. The learned Additional Advocate General also placed reliance on the judgment of the Division Bench of this Court in Philip v. State Of Kerala [2008 (2) KLT 555]. That was a case arising from a challenge to the amendment to the K.C.S. Act by excluding certain types of co-operative societies from voting rights in the District Co-operative Banks. The Division Bench observed that the wisdom of the Legislature should prevail and that representatives of the people are the best judges to say what is good for the people. Therefore, it was argued that, it is the law that recognizes the type of society, i.e., a District Co-operative Bank and the same law can also de-recognize such type of society.
23. Article 19(c) and 19(g) of the Constitution recognize rights of Citizen to form Associations and to practice any trade or business but that does not carry within itself a right to form a society to function as a District Co-operative Bank. One has to distinguish the fundamental right available and recognized under Article 19 from the nature of the activity that could be carried out by such citizen. No one has a fundamental right to carry on any banking business except through the procedure prescribed under law. The District Co-operative Banks are creation of the statute and therefore, the statute can also take away its existence. Therefore, it is clear that the right accrued to the Society is based on legislative sanction and therefore that the same sanction can be taken away by the Legislature.
24. The co-operative principles flowed out from the ninety-seventh amendment of the Constitution and recognized under the Directive Principles under Article 43-B of the Constitution certainly reinforce the right of an association to remain autonomous with democratic control. One of the characters of a co-operative society under the K.C.S. Act is its affiliation to the Apex Society. This affiliation is provided under the Statute itself. This is based on the subsidiarity principles. Subsidiarity principles means to say that a central authority would perform only such tasks which cannot be performed at local level. These principles guarantee a degree of independence to a lower authority in relation to the higher authority. Therefore, the central authority will not interfere with the decision making authority of a lower authority. The Central authority will have a limited role to perform such tasks that cannot be undertaken at the lowest level. That be so, it can be seen that the Kerala State Co-operative Bank at the apex level only performs such tasks which cannot be performed by the lower unit that is to say, Primary Agricultural Credit Societies and Urban Banks. It is important to note that the Primary Agricultural Credit Societies and Urban Banks have close proximity with the community. One of the main objectives of the Co-operative Principles as referred in the Schedule is concern for the community. Thus, by the amendment to the K.C.S. Act, the lowest unit without intermediary of the District Cooperative Bank would have a direct access to the decision making process at apex level being a constituent of the apex body. The local community, therefore, would have direct participation in decision making process at apex level through their representative of primary co-operative societies and urban banks. Further, modern banking business is technology driven and competitive. The lowest constituent unit of a hierarchical rung cannot by itself afford competition and bear the cost of technology at the same time. At apex level, the State Co-operative Bank can provide practical solutions to the problems that may be encountered by the lowest units. The principle of subsidiarity functions as a tool for the practical allocation of tasks in such circumstances. And by avoiding the District Co-operative Banks at the intermediator level, the objectives can be achieved at reduced cost, thereby, increasing economic efficiency. Thus, the amendments go on to show that they have been made upholding the co-operative principles in the light of the spirit of the ninety-seventh amendment of the Constitution.
25. The learned counsel pointed out to the question of compulsory amalgamation without there being a democratic decision at District Co-operative Bank level. This argument is based on the ground that a resolution passed under Section 14A of the K.C.S. Act is only for transfer of assets and liabilities and not for amalgamation. Therefore, it is argued that compulsory amalgamation as referable under Section 74H of Chapter XC of the K.C.S. Act is against the autonomous character of co-operative society of the District Co-opertive Bank. This argument is misconceived. Chapter XC of the K.C.S. Act refers to the scheme of amalgamation proposed by the Kerala State Co-operative Bank. This has to be presented to the District Co-operative Bank. The scheme of amalgamation has been placed before the District Co-operative Bank. District Cooperative Bank while passing a resolution for transfer of assets and liabilities in whole to the Kerala State Co-operative Bank is expected to be aware of the consequence that would follow in terms of Chapter XC. There is no compulsion under law for a District Co-operative Bank to adopt a resolution to transfer its assets and liabilities. That is the reason why one of the District Co-operative Banks, the Malappuram District Co-operative Bank opted not to transfer its assets and liabilities to the Kerala State Co-operative Bank. That be so, it can be easily concluded that compulsory amalgamation as referred under Chapter XC is based on voluntary initiation of transfer of assets and liabilities by the District Co-operative Bank to the Kerala State Co-operative Bank. The decision is purely a decision of the District Co-operative Bank. When the assets and liabilities have been decided to be transferred, the Registrar has no option but to merge the entity with the Kerala State Co-operative Bank. This does not affect the autonomous character of a society formed as District Co-operative Bank. Therefore, this argument must also fail.
26. Point (3).- Violation of process of amalgamation:-.
27. The petitioner had pointed out the alleged violations involved in the process of amalgamation. I shall deal each violations, one by one.
28. The learned counsel Shri P.N. Mohannan pointing out to Section 44A of the Banking Regulation Act, 1949 argued that without there being a resolution passed by a majority representing two-third of shares of value, a banking company cannot amalgamate with other banking company. It is to be noted that the District Co-operative Banks as well as the Kerala State Co-operative Bank are banking companies that possess banking licences from the Reserve Bank of India to carry banking activities. In W.P. (C). No. 3960/2019, the Reserve Bank of India had filed a counter affidavit. It is stated in the counter affidavit that Section 44A of Banking Regulation Act, 1949 is not applicable to co-operative banks. It is to be noted that Section 56 of the Banking Regulation Act omits Part III therein, except Sections 45(1), (2) & (3). Section 44A is forming part of Part III. Therefore, Section 44A of the Banking Regulation Act has no application in the matter of amalgamation of the Co-operative Society.
29. In regard to Violation of Section 14 of the K.C.S. Act and Rule 13 of the K.C.S. Rules, the learned counsel for the petitioners argued that the permission granted by the Reserve Bank of India in-principle was an approval for amalgamation of the District Co-operative Banks and not for merger of the District Co-operative Banks with the Kerala State Co-operative Bank. Therefore, amalgamation can only happen in accordance with Section 14 of the K.C.S. Act and Rule 13 of the K.C.S. Rules. While dealing in point No. 1, this Court had already found that Section 14 and Rule 13 have no application.
30. Regarding competency of an Administrator in proposing the scheme of amalgamation:
The Kerala State Co-operative Bank as well as the District Co-operative Banks are under the control of the Administrator as there is no elected managing committee in office. Therefore it is argued that, without there being a resolution in the general body meeting of the Kerala State Co-operative Bank, no scheme can be proposed by the KSCB to amalgamate with the District Co-operative Banks as contemplated under Section 74H of Chapter XC of the K.C.S. Act. It was argued that the Administrator is appointed under Section 33 of the K.C.S. Act only to carry out day-today affairs and that it is impossible for him to take vital policy decisions such as amalgamation. The learned counsel for the petitioners by referring to Rule 44A of the K.C.S. Rules submitted that if the affairs of the Society are managed by the Administrator, the Administrator only has a power to nominate any member of the society as a delegate in the other society. Therefore, it was argued that without there being such delegation in a Special General Body of the State Co-operative Bank, no scheme of amalgamation can be proposed. The learned counsel for the petitioners, placing reliance on Devasia Chacko v. Joint Registrar [1990 (2) KLT 917], Gangadharan v. Administrator [1988 (1) KLT 624], Trissur District Co-Operative Bank v. State Of Kerala [2003 (2) KLT 606] and Rajan N. v. State of Kerala [ILR 2016 (2) Kerala 870], also submitted that the Administrator cannot take any policy decision in regard to amalgamation without there being a Special General Body convened for the same and further argued that, in view of the fact that the proposal itself is bad in law, all that follow should collapse. To buttress this argument learned counsel Shri P.N. Mohannan placed reliance on the judgment of the Apex Court in Chairman-cum-Managing Director, Coal India Limited v. Ananta Saha [(2011) 5 SCC 142]. The question arises whether a Special General Body of the State Co-operative Bank is necessary or not for the purpose of proposing the scheme of amalgamation of the District Cooperative Bank. Section 74H(2) of Chapter XC of the K.C.S. Act states that the Registrar shall bring into effect the scheme of amalgamation as proposed by the Kerala State Cooperative Bank which is presented to the transferor banks with the prior approval of the Government. It is to be noted that Chapter XC of the K.C.S. Act relating to compulsory amalgamation based on resolution of the District Co-operative Banks, itself provides for scheme of amalgamation. The Administrator of the State Co-operative Bank is only forwarding the scheme as in Chapter XC of the K.C.S. Act to the transferor banks, i.e, the District Co-operative Banks, for their decision to accept it or not. It is also to be noted that the District Co-operative Banks are the only members of the State Co-operative Bank. Therefore, the Administrator of the Kerala State Cooperative Bank himself has no role in the decision making process of the amalgamation. The scheme proposed by him is not his own device but a statutory scheme. The acceptance of the scheme is left to the discretion of the transferor bank. The transferor bank has the option to either accept or reject it. The precedents relied upon by the petitioner only interdict the Administrator from taking a policy decision. It does not interdict an Administrator from acting upon the statutory provisions. What is done by the Administrator is only forwarding the proposal as referable under Chapter XC of the K.C.S. Act to the transferor banks.
31. That be so, the Administrator is well within his competence to forward the proposal to the transferor banks.
32. The petitioners would contend that no District Co-operative Bank had passed any resolution for amalgamation and therefore, that the proposed amalgamation is illegal. It is to be noted that the scheme of amalgamation proposed by the State Co-operative Bank was placed before the District Co-operative Bank in its Special General Body. As mentioned in the foregoing paragraphs, the District Co-operative Bank is put under a statutory notice in regard to amalgamation as referable under Section 74H consequent upon passing of resolution for transfer of assets and liabilities. Thus, the passing of resolution for transfer of assets and liabilities itself constitutes an acceptance of amalgamation. It is to be noted that the scheme of amalgamation as proposed by the Kerala State Cooperative Bank is forwarded to the District Co-operative Banks through the Registrar. It is in the Special General Body meeting of the District Co-operative Bank, that the decision is taken to transfer the assets and liabilities. The decision therefore, is not taken by the Administrator or Administrative Committee. Thus, it is clear that Administrator of the District Co-operative Banks or the Kerala State Co-operative Bank have no role in themselves in deciding the amalgamation. Further, out of 14 District Co-operative Banks, 13 District Co-operative Banks have opted to pass the resolution and therefore, there is no scope for taking any other decision for amalgamation by convening a Special General Body of the State Co-operative Bank.
33. The learned counsel Shri P.N. Mohannan appearing for the petitioners by referring to Section 74H(1) which stipulates that,- “notwithstanding anything contained in this Act or in any other law for the time being in force, the Registrar shall order the amalgamation of District Co-operative Banks in Kerala with the Kerala State Cooperative Bank on the basis of the resolution passed by the general body as provided under Section 14A of this Act”, argued that amalgamation is possible only in respect of all banks in Kerala and that no amalgamation is possible without all of them having passed a resolution under Section 14A of the K.C.S. Act. This argument is essentially with reference to “amalgamation of District Co-operative Banks in Kerala with the Kerala State Co-operative Bank” as referred to in Section 74H(1). The word ‘Kerala’ denoted is with reference to location of such bank. Even in the absence of such reference, the legislative mandate assumes that it can only be confined to the geographical location in Kerala. There is no stipulation that all District Banks in Kerala should pass resolution. It only denotes the District Banks in Kerala. Resultantly, it is to mean that at least majority of the District Co-operative Banks have to have agreed for the proposal of the Kerala State Co-operative Bank. It is also to be noted that even if a resolution is passed under Section 14A, scheme of amalgamation can be given effect only based on the prior approval of the Government. The Government therefore, has a say in the matter. The argument that all the District Co-operative Banks in Kerala passed a resolution is misconceived.
34. The learned Senior Counsel George Poonthottam appearing for the petitioners, pointed out to the in-principle approval granted by RBI in its communication addressed to the Chief Secretary of Kerala dated 3.10.18 stipulated that certain conditions are to be complied with before consideration of final approval. The Government was directed to complete the process by 31/3/2019. It is stated in the communication that the State Co-operative Bank may approach the RBI through NABARD for final approval. One of the conditions for grant of in-principle approval is as follows:
“A resolution passed by two-third majority of the members present and voting at a General Body meeting of the St.CB and each DCCBs shall be a pre-requisite for amalgamation for St.CB and each DCCBs”.
35. Thus, it is argued that without complying with these procedures, amalgamation proceedings cannot be proceeded further. The Government can very well explain to RBI its compliance of conditions as above. It is for the RBI to be satisfied with the conditions stipulated as above. Since final approval is yet to be granted by RBI, it is for RBI alone to decide whether the conditions have to be satisfied or not. It is open for RBI to accept the present procedure adopted so far by the Registrar and District Co-operative Banks or to insist for convening a meeting as above. This Court need not substitute the satisfaction to be entered or arrived at by the RBI at this stage. Therefore, I leave open the issue.
36. The next objection is voicing the grievance of the Primary Co-operative Society, a share holder of the District Co-operative Bank. It was argued that the Primary Agricultural Credit Societies and Urban Banks alone have membership in the District Co-operative Banks with voting rights. The learned Senior Counsel Shri George Poonthottam pointed out with details that a large number of Primary Societies have been left out in the process of amalgamation by precluding them from raising grievances against such amalgamation. Therefore, it was argued that the process vitiate democratic nature of the cooperative society if it is proceeded without hearing all shareholders. This argument though appearing to be attractive, does not hold good for the simple reason that none of the primary co-operative societies have been affected by the process of amalgamation. What is being changed is their affiliation. Instead of they being affiliated with the intermediary District Co-operative Banks, they are now directly affiliated to the Kerala State Co-operative Bank. It is more advantageous to them. There was a challenge against taking away of their voting right before this Court. This Court in W.A. No. 594/2018 negatived their challenge. No autonomous character of Primary Co-operative Soceity is affected by amalagamtion of the District Co-operative Banks with the Kerala State Cooperative Bank. Right to vote in an Apex Society is a statutory creation. If law does not recognize such right, the Court cannot create such right. Thus, this argument must also fail.
37. The learned Senior Counsel Shri George Poonthottam referred to a communication of the General Manager of NABARD. The communication was issued in response to the proposal of the Government for merger of the District Co-operative Banks with the Kerala State Co-operative Bank. The learned counsel pointed out two of the conditions which reads thus:
“ii. The StCB has to evolve a suitable mechanism/exit-route to retire/refund the share to Societies desirous of exiting, within a specified time bound period. The retirement of shares has to be done at book value and not at face value.
iii. The swap ratio for shares in the amalgamated Bank should be based on real net worth of DCCBs. The realizable value of unit of share of each DCCB as on the date of merger needs to be assessed by taking into account all internal liabilities, reserves, undistributed profits, etc. A transfer price for each unit share in the StCB may be arrived at accordingly.”
38. The learned counsel then referred to proviso to Section 74H(3) of the K.C.S. Act which stipulates that, “provided that the value of shares shall be on the basis of face value of shares held by the members of the transferor bank” and argued that there is repugnancy of condition with regard to the scheme of amalgamation under Section 74H. This Court need not enter into any finding in regard to the issue at this stage. The Administrators are the best authorities to take a decision as to the manner in which the amalgamation process should be completed. Any person who is finally aggrieved by the final approval can very well challenge such final approval. Therefore, I leave open this issue.
39. The challenge is also made on the ground that the Kerala State Co-operative Bank is a scheduled bank and that it cannot amalgamate with a non scheduled bank. It is further argued that NABARD is the major stake holder and creditor as far as the District Co-operative Bank is concerned. Thus, it is argued that no scheme of amalgamation can be implemented by invoking provisions under the K.C.S. Act to amalgamate with a scheduled bank listed under the RBI as the scheduled bank is regulated by the Central Legislation. The banking activity is regulated by Section 22 of the Banking Regulation Act, 1949. It is for the RBI to decide in what manner final approval can be given. No challenge would be maintainable before final approval is granted by the RBI unless there is glaring procedure of violation.
40. As an upshot of discussions as above, all these writ petitions must fail. There is no scope for interference with the process initiated to amalgamate the District Cooperative Banks with the Kerala State Co-operative Bank. Accordingly the writ petitions are dismissed. No order as to costs.
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