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CASE NO.: Appeal (civil)  1210 of 2007

PETITIONER: Anilbhai M. Patel & Ors

RESPONDENT: Suryapur Bank Agent D.B.H. Samiti & Ors

DATE OF JUDGMENT: 08/03/2007

BENCH: S.B. Sinha & Markandey Katju

JUDGMENT: J U D G M E N T [Arising out of S.L.P. (C) No.  17465 of 2004] WITH CIVIL APPEAL NOS. 1211/2007 @ S.L.P.(C)Nos. 18362-18363 of 2004 CIVIL APPEAL NOS. 1212/2007 @ S.L.P.(C)Nos. 19602-19603 of 2004

S.B. SINHA, J.

       Leave granted.

       These appeals involving identical questions of law and fact and  arising out of the same judgment, were taken up for hearing together and are  being disposed of by this common judgment.

       Appellants herein are Directors of a Cooperative Bank known as the  City Cooperative Bank Ltd.  A loan was sanctioned by the said Cooperative  Bank to Suryapur Cooperative Bank as also one Pragati Alco-Chem Pvt.  Ltd. in the year 2002.  The Registrar’s Board of Nominees, Surat passed  awards for recovery of the amount advanced to the loanees.   

       The Bank, as also its Managing Directors, filed a writ petition wherein  rule nisi was issued.  An interim relief was also granted.  One Suryapur  Bank Agent Dainik Bachat Hitvardhak Samiti, respondent No. 1, without  approaching the Registrar, for ventilating its grievances in regard to the  purported mismanagement of the affairs of the said Bank, filed a writ  petition before the High Court of Gujarat at Ahmedabad.  Admittedly, no  prayer was made therein for appointment of an Administrator.  A learned  Single Judge of the said Court, however, purported to be keeping in view the  fact that the Reserve Bank of India had undertaken a statutory inspection, a  report in respect whereof was filed in the Court, directed appointment of an  Administrator in place of the elected body stating :-

"\0059.2)    By ad-interim order, it is directed that respondent  No. 2 shall appoint Administrator in place of elected body of  respondent No. 3 Bank within a period of one week from  today and respondent No. 2 shall appoint a person as  Administrator, who is well conversant with the banking  business and if required, respondent No. 2 may also consult  RBI in this regard.

9.3)    Until the Administrator is appointed, respondent No.  2 is directed to ensure that the charge from the elected body  is taken over by the  District Registrar, Surat as In-charge  Administrator tomorrow at the   opening time of the Bank i.e  between 10.30 to 11 O’Clock in the      morning.

9.4)    It is further directed that respondent No. 2 shall  inquire regarding the aforesaid illegal actions and  misapplication of the funds which is prima  facie considered

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by the Court, for the purpose of taking Civil as well as  Criminal action against the office-bearers of respondent No.  3 Bank.  Such inquiry shall be completed within a period of  fifteen days from the date of receipt of the order of this  Court and if, as an outcome of the said inquiry, it is found by  respondent No. 2 that the office-bearers of respondent No. 3  Bank, while in office, have committed offences or have  misapplied the funds or have committed illegality, necessary  action shall be taken within a period of fifteen days  thereafter and the report shall be submitted  to this Court  within two weeks after taking action.

       9.5)    The respondent No. 3 by further order, is restrained          from allowing functioning of its office-bearers from          tomorrow i.e. 12.8.2004 onwards..."

       We may at the outset notice that the Registrar of Cooperative  Societies in its affidavit filed before the High Court, stated:-

"9.  With reference to paragraph (7) of the petition, it is  submitted that the respondent No. 1 after conducting  the inspection of the respondent No. 4, Suryapur  Cooperative Bank Ltd., Surat with respect to its  financial position as on 30.6.2002 and the liquidity  problem faced by the bank in September, 2002, issued  direction under Section 35(A) of Banking Regulation  Act, 1949\005

10. With reference to paragraph (8) to (32) of the  petition, it is submitted that respondent No. 2 has  received the inspection reports relating to the City  Cooperative Banks Ltd., Surat through RBI on 4.4.2003   and other letters dated 8.7.2003, 18.7.2003, 4.9.2003,  17.9.2003, 28.10.2003, 19.11.2003 and 13.12.2003.   Respondent No. 2 had initiated proper actions on the  basis of the D.R.C.S. Surat report dated 11.11.2003  regarding the managerial aspects of the Bank.  Thereafter, the official of the bank were called for  necessary explanation on Dt. 24.11.2003 and 5.12.2003  respectively in respect of the point raised in the matter.   Thereafter, the City Cooperative Bank filed SCA No.  17116/03 before the Hon’ble Court on 10.12.2003,  whereby respondents were restrained to take civil or  criminal action against the officials of the Bank.  The  Hon’ble Court is pleased to dispose of the matter on  29.7.04.  Hence, the Registrar will take appropriated  action against the official of the City Cooperative Bank  for the violation of Sections 45 and 71 of the Act, now  as per the audit report and inquiry to be conducted  under Section 86 of the Act\005"

       The RBI, however, in its counter affidavit stated :-

       "10.  With reference to paragraph 5 of the petition, it  is submitted that the Reserve Bank does not audit the  cooperative banks. The auditing of the cooperative  bank falls within the domain of Registrar of  Cooperative Societies under Gujarat Cooperative  Societies Act. However, Reserve Bank conducts  inspection of the cooperative banks under Section 35  of Banking Regulation Act, 1949 (AACS)."

       It is alleged that some directions have been issued by it under  Section 35A of the Bank Regulation Act, 1959. It also refers to the  inspections conducted by it, in regard to its financial position of the co-

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operative society on 31.12.2002.  It was furthermore averred :-

"16.   With reference to paragraphs 11 to 18 of the  petition, it is submitted that several petitions have been  filed by the borrowers against the City Coooperative  Bank and Suryapur Coopertive Bank challenging  attachment of their property and alleging fraud by the  members of the board which are subjudice before this  Hon’ble Court.  In compliance with the inspection  report of the Reserve Bank, the respondent No. 4 vide  its letter dated 31.5.2003 reported that the money was  given to banks including Suryapur Coop. Bank against  security of bankers’ cheque and the bank was not  lending any more for such purpose. The explanation of  the Respondent No. 4 was considered to be  unsatisfactory.  The respondent No. 4 was called upon  by letter dated 27.6.2003 to explain in detailed to RCS  the circumstances leading to grant of such loan.  The  reply given by the respondent No. 4 vide its letter dated  8.7.2003 was not acceptable and was again asked vide  letter 25.7.2003 to explain to the Registrar the position.   Reserve Bank vide letter dated 4.4.2003, 1/8.7.2003,  4.9.2003, 17.9.2003, 28.10.2003, 19.11.2003 and  13.12.2004 required the Registrar to take necessary  action and inform us the action taken by him.   The  Reserve Bank has not received any response from the  Registrar Cooperative Societies."

       An intra court appeal preferred thereagainst was also dismissed by  reason of the impugned judgment by a Division Bench of the said Court,  opining that although no specific prayer was made in the writ petition for  appointment of an Administrator but such a relief could be granted as a  general relief viz. "passing such and other further relief as may be  deemed just and proper by the Court", was prayed for.  The Division  Bench without going into the merit of the matter held that the remedy of  the appellants was to approach the learned Single Judge by way of proper  application for recalling or modifying or vacating the interim order and  on the said finding the appeal was dismissed.         Mr. Soli J. Sorabjee, the learned senior counsel appearing on  behalf of the appellants submitted that ; 1)      No prayer for appointment of Administrator having been made,  no such interim order could have been passed. 2)      The High Court should not have exercised the statutory  functions of the Registrar as in terms of Section 81 of the  Gujarat Cooperative Societies Act, 1961, he is the only  appropriate authority empowered to supersede the Committee.  3)      No copy of the report of the RBI having been furnished to the  appellants, reliance thereupon by the learned Single Judge was  wholly illegal.                    The writ petitioners-respondents, despite service of notice, have  not appeared before us.

         Mr. R.N. Trivedi, learned senior counsel appearing on behalf of  the RBI, however, would submit that the appellants herein committed  severe financial irregularities, and in that view of the matter and  furthermore in view of the fact that the term of the appellants herein, as  Directors of the said Bank is over, the question of their being reinstated  in their elected office(s) does not arise.  

       Gujarat Cooperative Societies Act, 1961 (The said Act) was  enacted to consolidate and amend the law relating to Cooperative  Societies in the State of Gujarat.  It is a self contained Code.  Registrar  under the said Act is a statutory authority.  Indisputably, it  has power to  supersede an elected body to manage the affairs of a Cooperative Society

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in terms of Section 81 of the said Act, Sub-section (3) whereof reads as  under :-

"(3) If at any time during any period or extended period  referred to in sub-section (1), it appears to the Registrar  that it is no longer necessary to continue to carry on the  affairs of the society as aforesaid, he may, by an order  published in the Official Gazette, direct that the  management shall terminate; and on such order being  made, the management of the society shall be handed  over to a new committee duly constituted."

       Section 86 of the Act provides for an inquiry by the Registrar in  regard to the constitution, working and financial conditions of a Society.   The procedure for holding such an inquiry has been laid down in the said  Act.  Section 115A empowers the Reserve Bank of India, to take action for  winding up, reconstruction, supersession of the Committee in the following  terms :-

       "3.  If so required by the Reserve Bank of India in the  public interest or for preventing the affairs of the bank  being conducted in a manner detrimental to the interests  of the depositors or for securing the proper management  of the bank, an order shall be made by the Registrar for  supersession of the committee and the appointment of an  administrator in place thereof for such period or periods,  not exceeding five years in the aggregate, as may from  time to time be specified  by the Reserve Bank of India,  and the administrator so appointed shall, after the expiry  of his term of office, continue in office until the day  immediately preceding the date of the first meeting of the  new committee of such bank."

       It is not in dispute that the writ petitioners had not approached the  Registrar for inquiring into the alleged mismanagement of the affairs of the  Bank and/or members of the Committee.  They did not say so even before  the High Court.  Mr Trivedi submitted that the RBI had drawn the attention  of the Registrar by its letters in regard to financial irregularities of the  disputes of the society but the said letters are not before us.  It is, thus, not  clear that as to whether the RBI had called upon the Registrar to inquire into  the affairs of the Bank or cause such an inquiry to be made by a competent  authority.  It is true that an inspection had been made by the authorities of  the  RBI but it is not clear as to whether copy of its report have been served  upon the Cooperative Bank and/its Directors or not.  Although before us, a  contention has been raised that a copy of the report had been served but from  a perusal of the impugned judgment of the learned Single Judge, it appears,  that in the writ proceedings RBI refused to serve the copy of its report upon  the Bank on the specious plea that the same was a confidential document.  Section 35(1-A) of the Banking Regulation Act provides for furnishing of  such a copy of a report upon the party concerned in the following terms:- "35 (1-A) (a)  Notwithstanding anything to the contrary  contained in any law for the time being in force and  without prejudice to the provisions of sub-section (1), the  Reserve Bank, at any time, may also cause a scrutiny to  be made by any one or more of its officers, of the affairs  of any banking company and its books and accounts; and

(b)  a copy of the report of the scrutiny shall be furnished  to the banking company if the banking company makes a  request for the same or if any adverse action is  contemplated against the banking company on the basis  of the scrutiny."

       Indisputably, no prayer was made in the writ petition for  appointment of an Administrator.  Ordinarily, a Court would allow a

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statutory functionary to perform its statutory function. We have noticed  hereinbefore that the Registrar of the Cooperative Societies in no  uncertain terms had stated before the High Court that it could not earlier  initiate any inquiry in the matter as a stay order was operating and as the  said order of stay was vacated,  an inquiry would be instituted by it.   

       The learned Single Judge did not apply his mind in regard to the  said statements of the Registrar.  He relied upon the purported inspection  report of the RBI, treating the same to be sacrosanct.  Even the necessary  ingredients for passing an interim order were not taken into  consideration.   

       A Cooperative Society should ordinarily be allowed to function  through its elected representatives.  This although  does not mean that the  members of the Committee have a right to mismanage the affairs of the  Cooperative Society but there cannot be any doubt whatsoever that  allegations in relation to the mismanagement and commission/omission  of illegalities, or irregularities or other acts of omission and commission,  the remedies as contemplated under the statute should ordinarily be  resorted to. This Court held so in Union of India & Anr. v. S.B. Vohra &  Ors. [(2004) 2 SCC  150], stating :

"22.  The legal right of an individual may be founded upon a  contract or a statute or an instrument having the force of  law. For a public law remedy enforceable under Article 226  of the Constitution, the actions of the authority need to fall  in the realm of public law \026 be it a legislative act of the  State, an executive act of the State or an instrumentality or a  person or authority imbued with public law element. The  question is required to be determined in each case having the  aforementioned principle in mind.  However, it may not be  possible to generalize the nature of the action which would  come either under public law remedy or private law field nor  is it desirable to give exhaustive list of such actions."

       This Court yet again in State of UP vs. Section Officer Brotherhood &  Anr.  [(2004) 8 SCC 286] held :- "30. Judicial review is a highly complex and  developing subject. It has its roots long back and its  scope and extent varies from case to case. It is  considered to be the basic feature of the Constitution.  The court in exercise of its power of judicial review  would zealously guard the human rights, fundamental  rights and the citizens right of life and liberty as also  many non-statutory powers of governmental bodies as  regards their control over property and assets of various  kinds which could be expended on building hospitals,  roads and the like, or overseas aid, or compensating  victims of crime\005. *                               *                               * 32. It is not possible to lay down the standard  exhaustively as to in what situation a writ of mandamus  will issue and in what situation it will not. In other  words, exercise of its discretion by the court will also  depend upon the law which governs the field, namely,  whether it is a fundamental law or an ordinary law. 33. It is, however, trite that ordinarily the court will not  exercise the power of the statutory authorities. It will at  the first instance allow the statutory authorities to  perform their own functions and would not usher the  said jurisdiction itself."

       Recently this Court in Muni Suvrat Swami Jain S.M.P. Sangh v.  Arun Nathuram Gaikwad  [AIR 2007 SC 38] held :-

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"52\005The grievance of the appellant herein has been that  without issuing a notice under Section 351 of the Act and  without giving an opportunity to the appellant of being  heard the structure of the temple could not be ordered to  be demolished by the High Court.  The power under  Section 351 of the Act, in our opinion, has to be  exercised only by the Municipal Commissioner and it is  left to the Municipal Commissioner under the provisions  of Section 351(2) either to order or not to order the  demolition of the alleged unauthorized temple\005"

       We furthermore are of the view that when such serious questions  were raised before a Division Bench of the High Court, the same should  not have been considered in a casual or cavalier fashion.  The Division  Bench did not hold that an appeal was not maintainable and, thus, it was  obligatory on its part to address itself to the merit of the matter.          The learned Single Judge passed the order after hearing counsel for  the appellants.  It was, therefore, of no use directing them to go back to  the learned Single Judge by filing an application for vacating the interim  order of injunction impugned before it.  In all fairness, the Division  Bench should have considered the matter itself particularly when the  effect of such an order was grave inasmuch as appellants were displaced  from their posts of Directors of the Cooperative Bank to which they were  otherwise entitled to.  We, however, by saying so, do not intend to mean  that the Court can never issue such a direction in a rare and exceptional  case  which the public authority should have passed vide Comptroller and  Auditor General of India, Gian Prakash, New Delhi & Anr. v. K.S.  Jagannathan & Anr. [(1986) 2 SCC 679] and other decisions following  the same, but the High Court while passing such orders must consider  each case on its own merit.   

       Ordinarily, the statutory functionaries alone can perform their  statutory functions and the court cannot arrogate to itself the functions of  the statutory authority vide G. Veerappa Pillai v. Raman Ltd. [AIR 1952  SC 192], State of U.P. v. Raja Ram Jaiswal [(1985) 3 SCC 31], U.P.  State Road Transport Corporation and Another v. Mohd. Ismail and  Others [(1991) 3 SCC 239], S.B. Vohra (supra), Arun Nathuram  Gaikward (supra) etc.  Only in case of inaction on their part and in rare  and exceptional cases, the Court can exercise its jurisdiction in such  cases.  This is not a case where the Registrar of the Cooperative Societies  refused or neglected to take any action.  It could not do so in view of an  interim order passed against it.  The interest of the Bank could have been  safeguarded by passing other orders; even the Registrar should have  permitted to look into the matter and pass an appropriate order.  The  manner in which the impugned order had been passed by the learned  Single Judge betrays fairness.  It not only directed appointment of an  Administrator but he was asked to take over the affairs of the  Cooperative Bank on the same day.

       The question, however, which remains to be considered is, as to  whether in view of the fact that the terms of the appellants are over, what  relief this Court should grant.  Before, however, we issue necessary  directions in this behalf upon the said question, we may notice that a  Division Bench of this Court in Mehsana District Central Bank Ltd. &  Ors. v. State of Gujarat & Ors. [(2004) 2 SCC 463] observed as under :- "14. 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 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

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in Sections 71(a) to (f). Consequently, Mehsana District  Central Cooperative Bank had lost substantial amount.  Though the matter had been brought to the notice of the  State Government, the Registrar of Cooperative Societies  and the District Registrar, no action had been initiated  against 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 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 Sections 71(a) to (f)  of the Act without the approval of the State Government  or the appropriate authority.           In the above facts and circumstances of this case, we are therefore  of the opinion that interest of justice would be subserved if these appeals  are disposed of with the following directions:- 1.      The Administrator would continue to hold office as an  officer of the Court. 2.      The Administrator must, however, get the election of the  Committee Members held, as expeditiously as possible, and  preferably within a period of three months from the date of  communication of this order.   3.      The inquiry initiated by the Registrar pursuant to the order  of the learned Single Judge shall continue as if the same had  been initiated by the Registrar on his own motion and not on  the basis of the order passed by the High Court.   4.      The RBI would be entitled  to take such action (s) as it may  deem fit and proper under the provisions of  Section 115 A  of the Act or under any other Statute and as may be  permissible in law if it so desires, including one under the  Deposit Insurance Act.

       These appeals are accordingly disposed of with the aforementioned  directions.  However, in the facts and circumstances of the case, there  shall be no order as to costs.