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CASE NO.: Appeal (civil)  6052 of 2004

PETITIONER: S.S. Rana                                                      

RESPONDENT: Registrar, Co-operative Societies & Anr.               

DATE OF JUDGMENT: 25/04/2006

BENCH: S.B. Sinha & P.P. Naolekar

JUDGMENT: J U D G M E N T

S.B. SINHA, J :

       The petitioner was working as a Branch Manager in the Kangra  Central Co-operative Bank Ltd (Respondent No.2, "Society").  A  disciplinary proceeding was initiated against him purporting to be in  terms of Rule 56(b) of the Kangra Central Co-operative Bank  Employees (Terms of Employment and Working Conditions) Rules,  1980 (for short the "Rules") read with Section 35-B(4) of the Himachal  Pradesh Co-operative Societies Act, 1968 (for short the "Act").  He was  found guilty therein.  The Managing Director of the Society, by an  order dated 18.11.1993, terminated his services purported to be in  exercise of his power under Rule 2(p) of Appendix 1(a) of the Rules.  In  the meantime, an Administrator was appointed by the State to manage  its affairs.  The appellant herein preferred an appeal against the said  order terminating his services before the Administrator on or about  2.12.1993.  However, the Administrator had no occasion to deal with  the said appeal.  By an order dated 18.11.1995, the Board of Directors  of the Respondent No.2 dismissed the said appeal.  He reached the age  of superannuation on 30th September, 1996.   

The appellant filed a writ petition before the High Court of  Himachal Pradesh at Shimla, inter alia, praying for quashing of the  order of termination dated 18.11.1995, as also the order of the appellate  authority dated 16.1.1996.  He further prayed for grant of all  consequential benefits pursuant to or in furtherance of the quashing of  the said order of punishment.

       The writ petition filed by the appellant was based on the premise  that the 1st respondent is a ’State’ within the meaning of Article 12 of  the Constitution of India.  A Division Bench of the Himachal Pradesh  High Court, by reason of the impugned judgment and order dated  6.6.2003, dismissed the said writ petition holding that the writ petition  was not maintainable.  The appellant is, thus, before us.   

       Mr. Vijay Kumar, learned counsel appearing on behalf of the  appellant submitted that the High Court committed a serious error in  coming to the conclusion that respondent No.1 is not a ’State’ within  the meaning of Article 12 of the Constitution of India.  According to the  learned counsel, the activities of the Co-operative Society being to lend  money to the agriculturists, the same would come within the purview of  the law laid down by a Seven Judge Bench of this Court in Pradeep  Kumar Biswas vs. Indian Institute of Chemical Biology & Ors.  reported in (2002) 5 SCC 111.  It was further contended that in terms of  the provisions of the Rules framed under the Himachal Pradesh Co-

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operative Societies Act, 1968, the respondent No.1 was obligated to  comply with the principles of natural justice.  It was submitted that the  impugned order is violative of the provisions of the Rules as, inter alia,  a copy of the inquiry report was not supplied to the Appellant, it was  wholly unsustainable.           Mr. J.S. Attri, the learned Additional Advocate General for the  State of Himachal Pradesh, on the other hand, would support the  judgment contending that it is not a case where the State had deep and  pervasive control over the affairs of the Society.  It was pointed out that  out of three directors in the Board, the State could appoint only one.   The decision of the Board of Directors in all matters is final.  The  membership of the State in the Co-operative Society was limited.

       The legislature of the State of Himachal Pradesh enacted the  Himachal Pradesh Co-operative Societies Act, 1968; some of the  relevant provisions whereof are:

"31.    Final authority in co-operative society:-  The final authority in a co-operative society  shall vest in the general body of members in a  general meeting:

       Provided that where the bye-laws of a  co-operative society provide for the  constitution of a smaller body consisting of  delegates of the society elected or selected in  accordance with such bye-laws, the smaller  body shall exercise such powers of the general  body as may be prescribed or as may be  specified in the bye-laws of the society;

             xxx               xxx               xxx

34.     Managing Committee:- The manage-ment of  every society shall vest in a managing  committee constituted in accordance with the  rules and the bye-laws, which shall exercise  such powers and perform such duties as may  be conferred or imposed respectively, by this  Act, the rules and the bye-laws.  

                             xxx                       xxx                  xxx

35-B.   Appointment, powers and functions of  Managing Directors:-  (1)  Where the  Government has subscribed to the share  capital of a co-operative society to the extent  of rupees five lakhs or more, the Government  may, notwithstanding anything contained in  the bye laws of the society, nominate another  member in addition to those nominated under  section 35 and appoint him as Managing  Director:

       Provided that no person shall be  appointed as Managing Director of a co- operative society unless he is a member of the  Indian Administrative Service or Himachal  Pradesh Administrative Service or Class-I  Officer of the co-operative Department,  except the Himachal Pradesh State Co- operative Land Development Bank and the  Himachal Pradesh State Co-operative Milk  Federation where technical persons may by

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appointed as Managing Directors.

(2)     A person nominated and appointed as the  Managing Director under sub-section (1)  shall be ex-officio member of the  committee and shall hold office during the  pleasure of the State Government and shall  have a right to participate in the  deliberations of the committee and shall  also have the right to vote.   

(3)     The Managing Director appointed under  sub-section (1) shall exercise such powers  as are assigned to him under the bye-laws  or delegated to him by the committee.  He  shall discharge all such functions,  consistent with the bye-laws or delegated  to him by the committee.  He shall  discharge all such functions, consistent  with the bye-laws, as are assigned to him  by the Government or the Registrar.  He  shall work under the superintendence and  control of the committee.

(4)     The Managing Director of a co-operative  society shall be its principal executive  officer.  All employees of the society shall  function and perform their duties under his  superintendence and control.

(5)     The Managing director appointed under  sub-section (1) shall be deemed to be on  deputation with the society and his salary  and allowances, as determined by the State  Government, shall be paid from the funds  of the society.

36.     Powers to depute Government servant to  manage affairs of a co-operative society:-   The State Government may, on the  application of a society and on such  conditions as may be prescribed, depute a  Government servant to the service of the  society for the purpose of managing its affairs  and the Government Servant so deputed shall  exercise such powers and perform such duties  as may be prescribed.

                         xxx                xxx                xxx

70.     Access to documents:-     The Registrar and,  subject to any restriction prescribed, an  auditor, arbitrator or any person conducting  supervision or inspection or audit or inquiry  shall at all reasonable times have free access  to the books, accounts, documents, securities,  cash and other properties, belonging to or in  the custody of a society."

Pursuant to or in furtherance of the rule making power contained  in the said Act, the State made Rules known as the Himachal Pradesh  Co-operative Societies Rules, 1971, some of which are relevant for the  purpose of this case.  Rules are as under:

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"38.    Constitution of Managing Committee \026

(1)     The managing committee of a Co- operative society shall be constituted  by:-

(a)     election from amongst the  members of  the society at the annual/special  general meeting;         

(b)     appointment by the Registrar in the  manner provided in the Rule 39; (c)     nominees of the Government  under section 35 of the Act; and

(d)     nominees of the other Co- operative Societies as provided in  the bye-laws.

(2)     The managing committee of the society  shall have not less than five nor more  than twenty-one members, including  the Government nominee as may be  fixed in the bye-laws.

(3)     The terms of the Managing Committees  constituted under sub-rule (1) shall be-

(a)     in relation to  Primary  Societies       \005 2 years;

(b)     in relation to  Secondary Societies    \005 3 years;  and

(c)     in relation to apex societies                    \005 4 years;                  Provided that the out-going managing  committee shall, unless the State Government  otherwise directs, continue to function till another  Managing Committee is constituted under these  rules;

Provided further that no person shall be  eligible to hold office of President or Vice-President  or elected Member of the Managing Committee  continuously for more than two terms unless a  period of two years has elapsed after then expiry of  the term of the Managing Committee in which he  last hold office of President or Vice-President or  Vice-President or elected member.

(4)     The committee shall, as soon as may be  possible, elect from among its members  a President, Vice President and such  other officers as are specified in the  bye-laws unless they provide for such  election by general meeting.

(5)     A casual vacancy in the office of an  elected member shall be filled up by  co-option from amongst the members  of the society by the managing

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committee.  The managing committee  member so co-opted shall qualify all  the conditions laid down in the rules for  membership of the committee of a  society and shall retire within 90 days  or at the next annual general meeting,  whichever is earlier, and the vacancy  thus caused shall be filled up at such  meeting by election of a managing  committee member in whose place  originally occurred.

(6)     Any dispute relating to the election to a  committee of a member or an officer shall  be referred to the Registrar under section  72 of the Act within 30 days from the date  of declaration of the result of such  election.

39.     Appointment of Managing Committee  Member by the Registrar \026

(1)     Notwithstanding any limits prescribed  in the bye-laws, in order to represent  appropriate interest, the Registrar shall  have powers to appoint an additional  number of members for the Managing  Committee, not exceeding one-third of  the number of elected member:

Provided that the total number of committee  members so appointed or nominated and elected  under clauses (a) (b), (c) and (d) of sub-rule (1) of  rule, 38 shall not exceed the maximum limit laid  down under sub-rule (2) of rule 38.

1.      (1-A) Out of the persons appointed under  sub-rule (1) one shall be a person  belonging to scheduled castes, one  belonging to scheduled tribes and the  remaining, if any, representing other  appropriate interests including the interests  of women, unless a member each  belonging to the Scheduled castes and  scheduled tribes and representing other  interests has already been elected on such  Committee.

2. (2)  The members so appointed under sub- rules (1) and (1-A) shall hold office till  the next election of the Managing  Committee or till another person is  appointed in his place, whichever is  earlier and shall have the right to vote.   The Registrar shall either confirm their  membership to the committee or shall  appoint other persons in their place for  the next term of the Committee.

(3)     Managing Committee members  appointed under this rule may or may  not be the members of the society but  should have all the qualifications  prescribed for membership of a Co- operative Society and the managing

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committee.

(4)     If a vacancy occurs in the office of an  appointed member on the managing  committee the vacancy shall be filled  up by an appointment by the Registrar,  and not by co-option.

The rule empowers the Registrar to make  appointments  on the managing committee of a  society to represent certain appropriate interests not  represented on the committee.  The appointments  made under this rule shall be subject to the  provisions contained under sub-rule 2 of rule No.38.

xxx                  xxx                xxx      

40.     Proportion of individuals and societies for  constituting committee - In a Co-operative Society,  the membership of which is not exclusively confined  to individuals the representation of individuals and  societies on the committee and the general body  shall be such as may be laid down in the bye-laws of  the Co-operative Society.

50.     Duties of Managing Committee \026 The  managing committee shall observe in all their  transactions the provisions of the Act, rules and bye- laws, and in particular, shall perform the following  duties;

(a)     to receive and disburse money;  

(b)     to maintain true accounts of money  received and expended, and accounts of  the assets and liabilities;

(c)     to prepare for submission to the annual  general meeting \026 (1)     Receipt and Disbursement  Statement; (2)     Balance Sheet; (3)     Trading and Profit and Loss  Account; (4)     Appropriation of Profits;

(d)     to prepare the statements of accounts  required at audit and to place them  before the Auditor;

(e)     to prepare, and submit all statements  and returns, required by the Registrar in  such form as he may direct;

(f)     to enter accounts of the society  regularly and periodically in proper  books;

(g)     to maintain a register of members up to  date;

(h)     to facilitate the inspection of books and  audit of accounts of the society by  those entitled to inspect/audit them;

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(i)     to convene general meetings;

(j)     to convene the annual general meeting  in due time;

(k)     to ensure that loans and advances are  applied for the purposes for which they  are made, and that they are punctually  repaid;

(l)     to examine and take prompt action in  cases of all arrears and defaults in  repayments of loans and advances;

(m)     to perform such other duties as may be  entrusted by the general meeting; and

(n)     in general to carry on the business of  the society in accordance with its bye- laws.    

   xxx             xxx            xxx

56.     Officers and employees of Co-operative  Societies -

(1)     Notwithstanding anything contained in  the bye-laws of a society, no Co- operative Society shall appoint any  person as its paid officer or employees  in any category of service unless he  possesses the qualifications and  furnishes the security, if so specified by  the Registrar, from time to time, for  such category of service in the society,  or for the class of society to which it  belongs.  The conditions of service of  the employees of the societies shall be  specified by the Registrar.

(2)     No Co-operative society shall retain in  service any paid officer or employee, if  he does not acquire the qualification or  furnish the security as is referred to in  sub-rule (1) within such time as the  Registrar may direct.

(3)     No Co-operative society shall employ a  salaried officer or servant with total  monthly emoluments exceeding rupees  ’one thousand’ without the previous  permission of the Registrar.  The  promotion of an employee to a higher  post shall be deemed to be an  appointment under this sub-rule.

(4)     The Registrar may for special reasons  to be recorded in writing relax in  respect of any paid officer or employee.   The provisions of this rule in regard to  the qualifications he should possess or  the security he should furnish.

(5)     "Where, in the course of an audit under  section 61, or an inspection under

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section 65 or an inspection under  section 66, or an inquiry under section  67, it is brought to the notice of the  Registrar that the paid officer or servant  of the society had committed, or has  been otherwise responsible for mis- appropriation breach of trust or other  offence, in relation to the society or has  willfully neglected or failed to  discharge his duties and functions as  enjoined on him under the Act, rules or  bye-laws or is otherwise responsible for  any act or omission thereby adversely  affecting the interest of the society, the  Registrar if in his opinion there is  prima facie evidence against the paid  officer or servant, and suspension of  such paid officer or servant is necessary  in the interest of the society, direct the  committee of the society, pending the  investigation and disposal of the matter,  as the case may be, to place or cause to  be placed such  paid officer or servant  under suspension from such date and  for such period as may be specified by  him.

(6)     On receipt of a direction from the  Registrar under sub-rule (5), the  committee of society shall  notwithstanding any provision to the  contrary in the bye-laws, place or cause  to be placed the paid officer or servant  under suspension forthwith.

(7)     If the committee fails to comply with  the direction issued under sub-rule (5),  the Registrar may make an order  placing such paid officer or servant  under suspension from such date and  for such period as he may specify in the  order and thereupon the paid officer or  servant, as the case may be, shall be  under suspension.

(8)     The officer or servant suspended under  this rule shall be re-instated only after  the previous approval of the Registrar."       

       Respondent No.1-Co-operative Society also framed its bye-laws  in terms of Rule 2(c) whereof the Board would mean all Directors of  the Bank or the Managing Committee.   

It is not in dispute that the Society has not been constituted under  an Act.  Its functions like any other Co-operative Society are mainly  regulated in terms of the provisions of the Act, except as provided in  the bye-laws of the Society.  The State has no say in the functions of the  Society.  Membership, acquisition of shares and all other matters are  governed by the bye-laws framed under the Act.  The terms and  conditions of an officer of the Co-operative Society, indisputably, are  governed by the Rules.  Rule 56, to which reference has been made by  Mr. Vijay Kumar, does not contain any provision in terms whereof any  legal right as such is conferred upon an officer of the Society.  

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       It has not been shown before us that the State exercises any direct  or indirect control over the affairs of the Society for deep and pervasive  control.  The State furthermore is not the majority shareholder.  The  State has the power only to nominate one director.  It cannot, thus, be  said that the State exercises any functional control over the affairs of  the Society in the sense that the majority directors are nominated by the  State.  For arriving at the conclusion that the State has a deep and  pervasive control over the Society, several other relevant questions are  required to be considered, namely: (1) How the Society was created?;  (2) Whether it enjoys any monopoly character?; (3) Do the functions of  the Society partake to statutory functions or public functions?; and (4)  Can it be characterized as public Authority?          The respondent No.1-Society does not answer any of the afore- mentioned tests.  In the case of a non-statutory society, the control  thereover would mean that the same satisfies the tests laid down by this  Court in Ajay Hasia vs. Khalid Mujib Sehravardi [(1981) 1 SCC  722].    [See Zoroastrian Coop. Housing Society Ltd. vs. District  Registrar, Coop. Societies (Urban) & Ors. reported in 2005 (5) SCC  632.]

 It is well settled that general regulations under an Act, like  Companies Act or the Co-operative Societies Act, would not render the  activities of a company or a society as subject to control of the State.   Such control in terms of the provisions of the Act are meant to ensure  proper functioning of the Society and the State or statutory authorities  would have nothing to do with its day-to-day functions.

       The decision of the Seven Judge Bench of this Court in Pradeep  Kumar Biswas (supra), whereupon strong reliance has been placed, has  no application in the instant case.  In that case, the Bench was deciding  a question as to whether in view of the subsequent decisions of this  Court, the law was correctly laid down in Sabajit Tewary vs. Union of  India & Ors. [(1975) 1 SCC 485], and it not whether the same  deserved to be overruled.  The majority opined that the Council of  Scientific and Industrial Research (CSIR) was a ’State’ within the  meaning of Article 12 of the Constitution of India.  This Court noticed  the history of the formation thereof, its objects and functions, its  management and control as also the extent of financial aid received by  it.  Apart from the said fact it was noticed by reason of an appropriate  notification issued by the Central Government that CSIR was amenable  to the jurisdiction of the Central Administrative Tribunal in terms of  Section 14(2) of the Administrative Tribunals Act, 1985.  It was on the  aforementioned premises this Court opined that Sabhajit Tewary  (supra) did not lay down the correct law.  This Court reiterated the  following six tests laid down in Ajay Hasia vs. Khalid Mujib  Sehravardi [(1981) 1 SCC 722]:                      "(1)    One thing is clear that if the entire share  capital of the corporation is held by Government, it  would go a long way towards indicating that the  corporation is an instrumentality or agency of  Government.

(2)     Where the financial assistance of the  State is so much as to meet almost entire  expenditure of the corporation, it would afford some  indication of the corporation being impregnated with  Governmental character.

(3)     It may also be relevant factor  \005..whether the corporation enjoys monopoly status  which is State conferred or State protected.     

(4)     Existence of deep and pervasive State

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control may afford an indication that the corporation  is a State agency or instrumentality.

(5)     If the functions of the corporation are  of public importance and closely related to  Governmental functions, it would be a relevant  factor in classifying the corporation as an  instrumentality or agency of Government.

(6)     ’Specifically, if a department of  Government is transferred to a corporation, it would  be a strong factor supportive of this inference’ of the  corporation being an instrumentality or agency of  Government."  

This Court further held:

       "This picture that ultimately emerges is that  the tests formulated in Ajay Hasia are not a rigid set  of principles so that if a body falls within any one of  them it must, ex hypothesi, be considered to be a  State within the meaning of Article 12.  The  question in each case would be whether in the light  of the cumulative facts as established, the body is  financially, functionally and administratively  dominated by or under the control of the  Government.  Such control must be particular to the  body in question and must be pervasive.  If this is  found then the body is a State within Article 12.  On  the other hand, when the control is merely  regulatory whether under statute or otherwise, it  would not serve to make the body a State."       

                                           (Emphasis supplied)  

       As the respondent No.1 does not satisfy any of the tests laid  down in Pradeep Kumar Biswas (supra), we are of the opinion that the  High Court cannot be said to have commtted any error in arriving at a  finding that the respondent-Bank is not a State within the meaning of  Article 12 of the Constitution of India.  

We are, however, not oblivious of a three judge Bench decision  in Gayatri De vs. Mousumi Cooperative Housing Society Ltd. &  Ors. [(2004) 5 SCC 90], wherein this Court held a writ petition to be  maintainable against the cooperative society only stating:

"We have, in paragraphs supra, considered the  judgments for and against on the question of  maintainability of writ petition.  The judgments  cited by the learned Senior Counsel appearing for  the respondents are distinguishable on facts and on  law.  Those cases are not cases covered by the  appointment of a Special Officer to manage the  administration of the Society and its affairs.  In the  instant case, the Special Officer was appointed by  the High Court to discharge the functions of the  Society, therefore, he should be regarded as a public  authority and hence, the writ petition is  maintainable."

The said decision, therefore, is of no assistance to us.

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Our attention has also been drawn to U.P. State Cooperative  Land development Bank Ltd. vs. Chandra Bhan Dubey & Ors.  [(1999) 1 SCC 741], wherein the writ petition was held to be  maintainable principally on the ground that it had been created under an  Act.  Reliance has also been placed upon Ram Sahan Rai vs. Sachiv  Samanaya Prabandhak & Anr. [(2001) 3 SCC 323], wherein again  the appellant thus was recruited in a Society constituted under the U.P.  Cooperative Land Development Bank Act, 1964 and this Court, having  examined different provisions of rules, bye-laws and regulations, was of  the firm opinion that the State Government exercised all-pervasive  control over the Bank and moreover its employees were governed by  statutory rules, prescribing an entire gamut of procedure of initiation of  disciplinary proceedings by framing a set of charges culminating in  inflicting of appropriate punishment, after complying with the  requirements of giving a show-cause and an opportunity of hearing to  the delinquent.

It is, therefore, evident that in Ram Sahan Rai (supra) also the  cooperative society was held to be established under a statute.  We may  notice that in Nayagarh Cooperative Central Bank Ltd. & Anr. vs.  Narayan Rath & Anr. [(1977) 3 SCC 576], this Court was of the  opinion that:

"The High Court has dealt with the question  whether a writ petition can be maintained against a  cooperative society, but we are inclined to the view  that the observations made by the High Court and its  decision that such a writ petition is maintainable are  not strictly in accordance with the decisions of this  Court.  We would have liked to go into the question  for ourselves, but it is unnecessary to do so as  Respondent 1 by his writ petition, was asking for  relief not really against a cooperative society but in  regard to the order which was passed by the  Registrar, who was acting as a statutory authority in  the purported exercise of powers conferred on him  by the Cooperative Societies Act.  The writ petition  was in that view maintainable."

We may notice in some decisions, some High Courts have held  wherein that a writ petition would be maintainable against a society if it  is demonstrated that any mandatory provision of the Act or the rules  framed thereunder, have been violated by it.  [See Bholanath Roy &  Ors. vs. State of West Bengal & Ors. reported in (1996) Vol.1  Calcutta Law Journal 502.]

The Society has not been created under any statute.  It has not  been shown before that in terminating the services of the appellant, the  Respondent has violated any mandatory provisions of the Act or the  rules framed thereunder.  In fact, in the writ petition no such case was  made out.

For the foregoing reasons, the appeal being devoid of any merit is  dismissed.  However in the facts and circumstances of the case, there  shall be no order as to costs.