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CASE NO.: Appeal (civil)  3040 of 1998

PETITIONER: Mehsana Dist. C.Co-op. Bank Ltd., & Ors.         

RESPONDENT: State of Gujarat & Ors.

DATE OF JUDGMENT: 28/01/2004

BENCH: S.N. VARIAVA & H.K. SEMA.

JUDGMENT: JUDGMENT

WITH

CIVIL APPEAL NO. 3041 OF 1998

Mehsana District Central Cooperative   Bank Ltd. & Ors.                                                        \005  Appellants Versus

Arvindbhai B. Patel & Ors.                                      ..   Respondents

SEMA,J

CIVIL APPEAL NO. 3040 OF 1998

       This appeal is against the judgment and order dated 16.4.1998 passed  by the Division Bench of the High Court.  The facts of this case may be  briefly recited:-         The appellant-society was registered under the Gujarat Co-operative  Societies Act, 1961 (hereinafter referred to as the Act).  It was carrying on  the banking activities.  Section 71(1)(a) to (f) of the Act enumerates various  institutions in which a co-operative bank is to make investments.  Clause (g)  of Section 71(1) empowers the State Government to permit any society to  invest the funds in any institution other than those mentioned in clauses (a)  to (f) of the Section.  Section 71 of the Act is relevant for the purpose of  disposal of the present appeal.  We shall be dealing with this Section in  detail at an appropriate time.  The appellant-bank sought permission of the  State government to invest funds in an institution outside those falling under  clauses (a) to (f) of Section 71(1) of the Act.  However, the Government  declined the request.  Inspite of  the refusal, the appellant-bank invested the  funds in Mutual Fund, which was outside the purview of clauses (a) to (f) of  Section 71 of the Act.  It is stated that for non-compliance of Section 71 of  the Act, notices were issued to the appellants calling for an explanation as to  why action should not be initiated against them as contemplated under the  Act.  It is also stated that the appellants have not filed their replies to those  notices and the matter is still pending with which we are not concerned in  this appeal.                             The appellant-bank undisputedly is a Cooperative Bank and is also a  Central Co-operative Bank.  The Banking Regulation Act, 1949 was  amended by the Central Act No.23 of 1965, which came into force with  effect from 1st March, 1966.  By the aforesaid amending Act, Part V was  inserted in the Banking Regulation Act, 1949, providing for application of  the Act to cooperative banks.         Mr. K.G. Vakharia, learned Senior counsel for the appellants,  contended that Section 5(b) of the Banking Regulation Act, 1949 defines  "banking" and provides that "banking" means the accepting, for the purpose  of lending or investment of deposits of money from the public.  He further  argued that sub-section (1)(a) of Section 6 of the Banking Regulation Act,

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1949 provides for business of banking companies which will include  cooperative banks.  He, therefore, urged that the appellant-bank is entitled to  be engaged in banking business in terms of the norms contemplated under  Sections 5 and 6 of the Banking Regulation Act and not according to the  norms of investment enumerated under Section 71 of the Gujarat Co- operative Societies Act.           The whole contention of the learned Senior counsel for the appellants  is based on repugnancy and inconsistency between the Central Act and the  State Act.  In other words, the conflict is between Section 71 of the Gujarat  Co-operative Societies Act and Sections 5(b) and 6(1)(a) of the Banking  Regulation Act.  To answer the aforesaid question it will be relevant to make  a quick survey of the relevant provisions of the Gujarat Co-operative  Societies Act and the Banking Regulation Act.         To appreciate the controversy in proper perspective Sections 5(b) and  6(1)(a) of the Banking Regulation Act and Section 71 of the Gujarat  Societies Act are extracted: - "5. Interpretation. - In this Act, unless there is anything  repugnant in the subject or context, - (a)\005\005\005. (b)"banking" means the accepting, for the purpose of lending or  investment, of deposits of money from the public, repayable on  demand or otherwise, and withdrawal by cheque, draft, order or  otherwise;    \005\005\005" "6. Forms of business in which banking companies may  engage. -(1) In addition to the business of banking, a banking  company may engage in any one or more of the following  forms of business, namely: -

(a) the borrowing, raising, or taking up of money; the lending or  advancing of money either upon or without security; the  drawing, making, accepting, discounting, buying, selling,  collecting and dealing in bills of exchange, hoondees,  promissory notes, coupons, drafts, bills of lading, railway  receipts, warrants, debentures, certificates, scrips and other  instruments and securities whether transferable or negotiable or  not; the granting and issuing of letters of credit, traveler’s  cheques and circular notes; the buying, selling and dealing in  bullion and specie; the buying and selling of foreign exchange  including foreign bank notes; the acquiring, holding, issuing on  commission, underwriting and dealing in stock , funds, shares,  debentures, debenture stock, bonds, obligations, securities and  investments of all kinds; the purchasing and selling of bonds,  scrips or other forms of securities on behalf of constituents or  others, the negotiating  of loans and advances; the receiving of  all kinds of bonds, scrips of valuables on deposit or for safe  custody or otherwise; the providing of safe deposit vaults; the  collecting and transmitting of money and securities;"     

"71. Investment of funds. -(1) A society may invest or deposit  its fund, - (a)     in a Central Bank, or the State Co-operative Bank, (b)     in the State Bank of India, (c)     in the Postal Savings Bank, (d)     in any of the securities specified in section 20 of the Indian  Trust Act, 1882 (II of 1992), (e)     in shares, or security bonds, or debentures, issued by any  other society with limited liability, or (f)     in any co-operative bank or in any banking company  approved for this purpose by the Registrar, an on such  conditions as the Registrar may from time to time impose, (g)     in any other mode permitted by the rules, or by general or  special order of the State Government.                (Emphasis supplied)

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(2) Notwithstanding anything contained in sub-section (1), the  Registrar may, with the approval of the State Co-operative  Council, order a society or a class of societies to invest any  funds in a particular manner, or may impose conditions  regarding the mode of investment of such funds."     

We may also extract clause (7) and clause (19) of Section 2 of the  Gujarat Co-operative Societies Act: (7) "co-operative bank" means a society registered under this  Act and doing the business of banking, as defined in clause (b)  of sub-section (1) of section 5 of the Banking Companies Act,  1949 (X of 1949);   

(19) "society" means a co-operative society registered, or  deemed to be registered, under this Act;"

       Section 2 of the Banking Regulation Act, 1949 reads as under:- "Application of other laws not barred. - The provisions of  this Act shall be in addition to, and not, save as hereinafter  expressly provided, in derogation of the Companies Act, 1956  (1 of 1956), and any other law for the time being in force."

       We may also notice that while introducing the Gujarat Co-operative  Societies Act, 1961 (Gujarat Act No. X of 1962), the aims and objects of the  Act were to consolidate and amend the Law relating to co-operative societies  in the State of Gujarat.  The synopsis read as follows: - (1)     Act complete code falling in Entry 32 of List II of Schedule  VII not repugnant under Article 254.  

(2)     Object of Co-operative Movement. (3)     Resolution pertaining to internal management cannot be  held illegal.  

The Gujarat Co-operative Societies Act was assented to by the  President on the 1st March, 1962.         The Constitution Bench of this Court in M. Karunanidhi   Vs.   Union of India and another, (1979) 3 SCC 431 had considered the  question of repugnancy and inconsistency between the Central Act and the  State Act and held that before any repugnancy can arise the conditions  which must be satisfied are:  "(1) that there is a clear and direct inconsistency between the  Central Act and the State Act;  

(2) that such an inconsistency is absolutely irreconcilable; and  

(3) that the inconsistency between the provisions of the two  Acts is of such a nature as to bring the two Acts into direct  collision with each other and a situation is reached where it is  impossible to obey the one without disobeying the other."                     A fascicule reading of Sections 2,5 and 6 of the Banking Regulation  Act and Section 71 of the Gujarat Co-operative Societies Act would clearly  posit that Section 71 of the Act is not in derogation of any other law such as  the Banking Regulation Act but in addition to it.  In the instant case, the  State Act being dominant legislation under Article 254(2) the intendment of  legislature that there is no repugnancy between the State Act and the Central  Act is clearly expressed due to the assent by the President in view of the  provisions of Section 71 of the State Act providing restrictive mode of  investment by the co-operative bank.  Section 71 was brought to the Statute  book with a view to strengthen the already existing law namely the Banking  Regulation Act and to safeguard the interests of the members of co-operative  banking business by discouraging the members from investing in the  institutions other than those specified in clauses (a) to (f) of Section 71,  without prior sanction of the State Government.  Therefore, it would not be  opt to say that either the legislature or the President intended to create any

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repugnancy between these two Acts.  The fact that the assent of the  President was sought for, could only be in addition to and not in derogation  of any other Law such as the Central Act.  It is also clear from the language  employed in Section 2 of the Banking Regulation Act that the provisions of  the Act were in addition to and not in derogation of any other Law for the  time being in force.          Conjoint reading of Sections 2, 5 and 6 of the Banking Regulation Act  and Section 71 of the Gujarat Co-operative Societies Act, in our view, there  is no repugnancy or inconsistency between the State Act and the Central Act  which satisfies the test set out by this Court in M. Karunanidhi’s case  (supra).  The contention of the learned counsel for the appellants is not well  founded.  The appeal is devoid of merits and is accordingly dismissed.    

CIVIL APPEAL NO. 3041 OF 1998

       This appeal is directed against the judgment and order dated  17.4.1998 passed by the Division Bench of the High Court in SCA No.5473  of 1997 (PIL).           Briefly stated the facts are:-

       A complaint was filed by the respondents herein to the effect that the  Central Cooperative Bank is governed by the provisions contained in the  Gujarat Cooperative Societies Act, 1961 and the Rules framed thereunder.  It  is further alleged that the Mehsana District Central Cooperative Bank had  violated the provisions contained in Section 71 of the Gujarat Cooperative  Societies Act by investing large sums in undertakings other than those  enumerated in Section 71(a) to (f).  Consequently, the Mehsana District  Central Cooperative Bank had lost substantial amount.  Though the matter  had been brought to the notice of the State Government, Registrar of  Cooperative Societies and the District Registrar, no action had been initiated  against the Mehsana District Central Cooperative Bank and the Members of  the Board of Directors.   A prayer was also made for issuance of a writ of  mandamus directing the authorities under the Gujarat Cooperative Societies  Act to initiate necessary proceedings against the respondents/appellants  herein for having committed  breach of the provisions contained in Section  71 of the Act.  It was further alleged that the Mehsana District Central  Cooperative Bank had invested a sum of Rs. 95 crores in four different  establishments which do not fall within the ambit of institutions enumerated  in Section 71(a) to (f) of the Act without the approval of the State  Government or the appropriate authority.          Mr. Mahendra Anand, learned Senior counsel contended that the High  Court ought not to have entertained the petition in the form of PIL as the  petition had been preferred by a person no other than the business rivalry of  the appellants due to clash of interest.   We see no substance in the  contention.           In the facts and circumstances stated above, the High Court by the   impugned order issued a  writ of mandamus, directing respondent Nos. 4 and  5 to take appropriate action against the appellants in accordance with the  provisions contained in the Gujarat Cooperative Societies Act and the rules  framed thereunder.   We do not see any infirmity in the impugned order.   The Acts and Rules are made to be followed and not to be violated.  When  the Statute prescribes the norms to be followed, it has to be in that fashion.   Converse would be contrary to law.  If there is any allegation of violation of  statutory rules which have been brought to the notice of the authorities and if  the concerned authorities do not perform their statutory obligation, as in the  present case, any aggrieved citizen can always bring to the notice of the  High Court about the inaction of the statutory authorities and in such event it  would  always be open to the High Court to pass an appropriate order as  deemed fit and proper in the facts and circumstances of the case.  In the  present case, the facts as alluded above, would clearly reveal that the High  Court was clearly justified in issuing a writ of mandamus, which cannot be  faulted.

       These two appeals are dismissed being devoid of merits.  Parties are

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asked to bear their own costs.