06 April 1970
Supreme Court


Case number: Appeal (civil) 2525 of 1969






DATE OF JUDGMENT: 06/04/1970


CITATION:  1970 AIR  992            1971 SCR  (1) 227  1970 SCC  (1) 732

ACT: Madras  Cooperative Societies Act, 1961-Order  of  Registrar under  s. 72(1) (a) superseding the committee of  a  society whether  care be made only after following procedure in  ss. 64, 65 & 66. Constitution  of India, 1950, Art. 226-Jurisdiction of  High Court.

HEADNOTE: On  4th  January,  1969  the  Joint  Registrar,  Cooperative Societies  issued  a  notice  under  s.  72  of  the  Madras Cooperative  Societies  Act, 1961 to the  committee  of  the North  Arcot  District  Cooperative  Supply  and   Marketing Society Ltd.  After examining the representation made by the committee in reply to the notice, the Registrar recorded an order  on 11 th April, 1969 holding that the  committee  had not  been functioning properly   and had failed  to  perform its  duties and discharge its responsibilities  as  required under  the Act.  The committee was ordered to  be  suspended for  a  period  of  one year and  the  Deputy  Registrar  of Cooperative  Society ties was appointed to work  as  Special Officer  to  manage its affairs.  The matter  was  taken  in appeal to the Registrar, who affirmed the order of the Joint Registrar.  Thereafter the President and Director of the Co- operative Society moved the High Court under Art. 226 of the Constitution.   The  writ petition was allowed by  a  Single Judge on the view that an order under s. 72(1) can be passed only  after the procedure under ss. 64, 65 & 66 of  the  Act has  been followed.  The Full Bench to which the matter  was referred in Letters Patent Appeal took the same view. In appeal before this Court against the judgment of the High Court  the questions that fell for consideration were :  (1) Whether the Registrar before taking action under s. 72  must have an audit made under s. 64 and an inquiry held under  s. 65  and an inspection made under s. 66 of the Act  and  must also  give an opportunity for rectification of  the  defects which  may come to light as a result of such audit,  inquiry or inspection ? (2) What is the scope of interference by the High Court with the order of a Registrar made under s. 72 of the Act ?



HELD,:(1)  (a) If the intention of the Legislature was  that the supersession of the Committee under s. 72 can be ordered by  the  Registrar only after recourse to ss. 64,  65  &  66 there  is  no reason why language    analogous  to  s. 70(1) which expressly mentions ss. 64 to 67 and s. 85(1) which refers to ss. 65 to 67 should not have been  employed. [234 B] All  that is required by s. 72(1) (a) is that the  Registrar should form an opinion that the Committee of any  Registered Society   is  not  functioning  properly  or  has   wilfully disobeyed  or  ’failed to comply with any  lawful  order  or direction issued by him.  The section cannot be read to mean that before forming an opinion as to the proper  functioning of  the  society  the Registrar must in the  first  instance issue  a  direction  to remedy the defects  disclosed  as  a result of the audit, inquiry or inspection, The functioning of  the  society  may be so irregular  and  the  defects  so blatant and prejudicial to the society that no question  can arise of any direction 228 being made in the first instance for their being remedied by the persons of officers concerned. [234 D-F] It  may be that the opinion which the Registrar has to  form must  be based on some objective facts but  those  objective facts in the absence of any clear indication in S. 72 cannot be confined to what may be disclosed after the Registrar has exercised  his  powers in the matter of audit,  inquiry  and inspection  under  the provisions of ss. 64, 65 &  66.   The requisite opinion has indisputably to be formed honestly and after  applying  his mind by the Registrar to  the  relevant material  before  him.   The only  condition  precedent  for taking action under S. 72(1) is that provided in sub-S. (6), namely,  that the Registrar must consult the financing  bank to  which the society is indebted.  No other requirement  or condition precedent is laid down by the legislature,. it was accordingly  not possible to concur with the view  taken  by the High Court. [235 A-D] (b)  The fact that one-third of the members of the committee retire  every  year and new members have to  be  elected  in their  place  could  not lead  to  a  different  conclusion. Section  72  is  meant for superseding the  committee  as  a whole.   Even if the operation of S. 72 in certain  circums- tances  is  likely to operate harshly so far  as  the  newly elected  members of the committee are concerned, it  is  not possible  to read into it other provisions of the Act  which are  not  incorporated  in  the  section  expressly  or   by necessary implication. [235 F-H] (ii) There  were no infirmities in the orders of  the  Joint Registrar  or  Registrar  in the present  case  which  could justify the interference by the High Court under Art. 226 of the  Constitution.   The  High Court could  not  act  as  an appellate  court and reappraise and re-examine the  relevant facts  and  circumstances  which led to the  making  of  the orders of supersession. [236 B]

JUDGMENT: CIVIL  APPELLATE JURISDICTION: Civil Appeals Nos.  2525  and 2526 of 1969. Appeals  from the judgment and decree dated October 8,  1969 of the Madras High Court in Writ Appeals Nos. 296 and 297 of 1969. S.  Govind  Swaminathan, Advocate-General for the  State  of Tamil  Nadu, S. Mohan and A. V. Rangam, for  the  appellants



(in both the appeals). D.   Munikanaiah and G. S. Rama Rao, for the respondent  (in C.   A. No. 2525/1969). D.   Munikanaiah and G. Narasimhulu, for the respondents (in C.   A. No. 2526/1969). The Judgment of the Court was delivered by Grover, J. These appeals from a judgment of the Madras  High Court  involve the true ambit, scope and content of  Section 72   of   the  Madras  Co-operative  Societies   Act,   1961 (hereinafter called the Act). 229 The  facts may be briefly stated.  On 4th January, 1969  the Joint  Registrar of Co-operative Societies issued  a  Notice u/s  72  of  the Act to the Committee  of  the  North  Arcot District  Cooperative Supply and Marketing Society Ltd.   It was  stated  in the notice that the Committee had  not  been functioning  properly  for  sometime  past.   Charges   were mentioned  in  detail and the Committee was called  upon  to make a representation against the proposal to dissolve it in view  of  the defects and irregularities  mentioned  in  the notice.  After examining the representation ’which was quite lengthy  and  detailed, the Registrar recorded an  Order  on 11th  April, 1969 dealing with each charge and holding  that the  Committee  had not been functioning  properly  and  had failed   to   perform   its   duties   and   discharge   its responsibilities  as required under the Act.  The  Committee was  ordered to be suspended for a period of one year  from. 12th April, 1969 to 11th April, 1970.  The Deputy  Registrar of Cooperative Societies was appointed to work as a  Special Officer  and  to manage its affairs for  that  period.   The matter  was  taken  in  appeal  to  the  Registrar  by   the Committee.   The Registrar affirmed the Order of  the  Joint Registrar.  Thereafter the President and the Director of the Cooperative  Society moved the High Court under Article  226 of  the Constitution.  A number of points were taken in  the writ  petition but the main emphasis was laid on the  proper procedure not having been followed under sections 64, 65 and 66 of the Act before taking action u/s 72. The learned single Judge of the High Court allowed the  writ petition  which  had  been filed by the  President  and  the Director of the Co-operative Society.  The learned Judge was not  satisfied  that  there was any  justification  for  the action  taken  by  the  Joint Registrar  in  the  matter  of supersession of the Committee.  On appeals having been taken before  a  Division Bench under clause 15  of  the  Letters- Patent  the  case was referred to a full  Bench.   The  full Bench  based  its  decision largely on  the  view  that  the procedure  laid  down,  in sections 64, 65 and  66  must  be followed  before  any  order  could be  made  by  the  Joint Registrar  or  the Registrar u/s 72.  We may  refer  to  the following portion of the judgment;               "Sections  64,  65  and  66,  which,  are  the               statutory procedural stems which interdict the               apparently arbitrary course of action which  a               Registrar  could undertake to  interfere  with               the  affairs  of  a society,  its  members  or               officers, provide a sufficient help to tighten               up  such indiscriminate and unguided  exercise               of  the  powers  by  the  Registrar,  when  it               becomes necessary.  In each of those  sections               it  is  incumbent  on the  Registrar  to  give               opportunity  to the member  concerned  officer               concerned  or  the  Society  to  rectify   the               defects" ......               230



             "In our view and under the scheme of the  Act,               the  condition  precedent to the  exercise  of               jurisdiction by the Registrar under one or the               other of the sections considered above and  in               particular  Section 72 is to secure  an  audit               memorandum  or  a  report  of  inspection   or               inquiry,  so that he may be provided with  the               necessary  material ’to act  thereon.   Unless               such a fact finding authority has provided the               Registrar  with the hypothesis to act  and  ,-               ultimately  supersede  an  elected  body,  the               impugned    ,order   of   supersession    will               undoubtedly  be tainted with the absence of  a               jurisdictional  basis.  Whether such  a  basis               exists, is subject to review by this Court  in               exercise of its jurisdiction under Article 226               of the Constitution of India". The  full Bench affirmed the decision of the learned  single Judge. The  points which have been argued before us and which  have to be     determined are :-                (i)  Whether  the  Registrar  before   taking               action  u/s 72 must have an audit made u/s  64               and inquiry held u/s 65 and an inspection made               u/s  66  of  the Act and  must  also  give  an               opportunity for rectification of the,  defects               which  may come to light as a result  of  such               audit, inquiry or inspection ?               (ii)  What is the scope of interference by the               High Court with the Order of a Registrar  made               u/s 72 of the Act ? The Act was enacted to amend and consolidate the law  relat- ing to and to make better provision for the, Organisation of Cooperative Societies in the State of Madras.  Section 2 (2) defines the expression "Committee " to mean the  governing body  of a registered society to whom the management of  its affairs  is entrusted.  By Section 2 (1) the "Registrar"  is defined to-mean a person appointed to perform the duties  of a  Registrar  of Cooperative Societies under  the  Act,  and includes  a  person on whom all or any of the  powers  of  a Registrar under the Act have been conferred under section 3. Section   4  provides  for  the  societies which  may   be registered.  Chapter III gives the sections relating to  the Qualifications of the members and their rights and  liabili- ties.    Chapter  IV  contains  provisions  in  respect   of management  of registered societies.  Under section  26  (1) the ultimate authority of a registered society vests in  the general  body of its members.  Under section 27 the  general body of a registered society 231 has  to constitute a Committee in accordance with  the  bye- laws  and  entrust  the management of  the  affairs  of  the registered society to such Committee.  The term of office of an elected member of any Committee is 3 years but  one-third of  the  members  elected  to the  Committee  at  the  first election  have to retire at the end of the first year  after such election and the other one-third of the members elected have  to  retire at the end of the second  year  after  such election  and so on The members so to retire at the  end  of the  first and second years have to be determined by lot  by the  Committee.  According to section 28 (4) no member of  a Committee  against  whom an order under sub-section  (1)  of section  71 has been passed, shall be eligible for  election or appointment as a member of the Committee for a period  of three  years.  Sub-section 5 of section 28 provides that  no



member  of  a Committee which has been superseded  shall  be eligible for election or appointment to the Committee for  a period of three years from the date of expiry of the  period of supersession.  Section 28 (A) is in the following terms               "(1)  Where  in the course of an  audit  under               Section  64 or an inquiry under Section 65  or               an inspection under section 66 or section  67,               it  appears  that a person who is, or  was,  a               member  of a Committee has misappropriated  or               fraudulently  retained  any  money  or   other               property or been guilty of breach of trust  in               relation  to  the  society  or  of  gross   or               persistent  negligence in connection with  the               conduct   and  management  of,  or  of   gross               mismanagement of the affairs of the society or               of misfeasance or default in carrying out  his               obligations  and functions under the law,  the               Registrar may, without prejudice to any  other               action that may be taken against such  member,               by  order in writing, remove such person  from               the office of member of committee if he  holds               such office, or disqualify him from holding in               future   the  office  of  a  member   of   the               committee,  if  he  has ceased  to  hold  such               office.               (2)   No   person   shall   be   removed    or               disqualified  under  sub-section  (1)  without               being  given  an  opportunity  of  making  his               representations, A copy of the order  removing               or disqualifying him shall be communicated  to               him". Chapter V relates to the duties and privileges of registered societies.   Chapter VI relates to State aid  to  registered societies  and   Chapter VI relates to  their  property  and funds.   We are concerned primarily with the  provisions  of Chapter VIII which begins with section 64.  Sub-section (  1 )  thereof makes it obligatory on the Registrar to audit  or cause to be audited by some person authorised by 232 him in writing the accounts of every registered society once at least in every year.  Under sub-section (4) every  person who is or has been an officer or employee of the society and every member and past member has to furnish such information in regard to the transactions and working of the society  as the  Registrar or the person authorised by him may  require. Sub-section  (5)  says that the Registrar may, by  order  in writing,  direct  any officer of the society  to  take  such action  as may be, specified in the order to  remedy  within such time as may be specified the defects, if any, disclosed as  a  result  of  the audit.   Section  65  authorises  the Registrar  on  his  own motion or on the  application  of  a majority  of  the  Committee  or  on  the  request  of   the Collector,  to  hold  an  inquiry,  or  direct  some  person authorised  by  him in writing to hold an inquiry  into  the constitution,   working   and  financial  condition   of   a registered  society.  Under Subsection (2) powers have  been conferred  interalia  to have free access to  the  books  of accounts etc., summoning and examination of persons on  oath having  knowledge  of the affairs of the society.   When  an inquiry  is held u/s 65 the Registrar must  communicate  its result  in the manner and to the persons and institute  ions set out in sub-section (3).  Sub-section (4) lays down  that Registrar  may, by order in writing, direct any  officer  of the society or its financing bank to take such action as may be  specified in the order to remedy the defects,  disclosed



as  a  result  of  the enquiry.   Section  66  empowers  the Registrar  on  his  own motion or on the  application  of  a creditor  of a registered society to inspect or  direct  any person  to  inspect  the books of the  society.   After  the inspection  has been made the Registrar has  to  communicate the results of the inspection in the manner set out in  sub- section (2).  Subsection (3) enables the Registrar to direct any  officer  of the society to take such action as  may  be specified  in  the  order to remedy  the  defects,  if  any, disclosed  as a result of the inspection.  Section 67  gives the  right to a financing bank to inspect the books  of  any registered society which is indebted to it.  Section 70  (1) is reproduced below:               "70(1)  Where in the course of an audit  under               section  64 or an inquiry under section 65  or               an inspection under section 66 or section  67,               it  is brought to the notice of the  Registrar               that a paid officer or servant of a registered               society  has committed or has  been  otherwise               responsible  for misappropriation,  breach  of               trust  or  other offence. in relation  to  the               society,   the  Registrar,  may,  if  in   his               opinion, there is prima facie evidence against               such paid  officer  or  servant   and   the               suspension of such paid officer or servant  is               necessary  in  the interests of  the  society,               direct  the committee of the  society  pending               the investigation and disposal of the  matter,               to  place  or  cause to be  placed  such  paid               officer or servant                233               under  suspension from such date and for  such               period as may be specified by him". Section  71  contains provisions relating to  surcharge  and says  that  where  in the course of an audit u/s  64  or  an inquiry u/s 65 or an inspection u/s 66 or section 67 or  the winding  up of a society, it appears that any person who  is or was entrusted with the Organisation for management of the society  or  any past or present officer or servant  of  the society  has  misappropriated or fraudulently  retained  any money  or  other property or has been guilty  of  breach  of trust  in  relation to the society or has caused  any  defi- ciency  in the assets of the society by breach of  trust  or wilful  negligence...... the Registrar may enquire into  the conduct of such person, officer or servant and make an order requiring  him to repay or restore the money or property  or to  contribute such sum to the assets of the society by  way of compensation.  Under the proviso, such an inquiry must be held within 6 years from the date of any act or omission and an  opportunity must be afforded to the person against  whom the order is sought to be made.  Section 72 (1) (a) which is material for our purposes reads :               "72(1)  (a).   If,  in  the  opinion  of   the               Registrar,  the  committee of  any  registered               society   is  not  functioning   properly   or               wilfully disobeys or wilfully fails to  comply               with  any lawful order or direction issued  by               the Registrar under this Act or the rules,  he               may, after giving the committee an opportunity               of  making  its representations, by  order  in               writing,  dissolve the committee  and  appoint               either  a person (hereinafter referred  to  as               the special officer) or a committee of two  or               more  persons (hereinafter referred to as  the               managing  committee) to manage the affairs  of



             the  society  for a specified period  not  ex-               ceeding two years". Sub-section  (6) makes it obligatory on the   Registrar  to consult the financing bank to which the society is  indebted before taking any action under sub-section (1).  It will  be useful  at  this stage to reproduce section 8  5  (1)  which relates to winding up of registered societies               "85(1).   If the Registrar, after  an  inquiry               has   been  held  under  section  65   or   an               inspection  has been made under section 66  or               section  67, or on receipt of  an  application               made  by  not less than three fourths  of  the               members of a registered society, is of opinion               that the society ought to be wound up, he may,               after  giving  the society an  opportunity  of               making   its  representations,  by  order   in               writing  direct it to be wound up.  A copy  of               the order               234               shall forthwith be communicated to the society               by registered post". It  is significant that section 72(1) does not  contain  any mention  of sections 64 to 67 which appear in section  70(1) and of sections 65, 66 and 67 which are expressly  mentioned in  section 85(1).  If the intention of the Legislature  was that the supersession of the Committee under section 72  can be ordered by the Registrar only after recourse to  sections 64, 65, and 66, there is no reason why language analogous to section  70(1)  or  section 85  (1)  containing  an  express mention  of  the aforesaid sections, should, not  have  been employed.   An audit under section 64 has to be  done  every year  in view of the mandatory form of the language of  that section 64.  But as regards sections 65 and 66 the Registrar has been given discretionary powers to make an inquiry or an inspection  in accordance with those sections, there  is  no duty  or  obligation  cast on him for  doing  so  before  he proceeds  to  take action u/s 72.  All that is  required  by section  72  (1) (a) is that the Registrar  should  form  an opinion that the Committee of any Registered society is  not functioning properly or has wilfully disobeyed or failed  to comply with any lawful order or direction issued by him.  So far as the question of the society not functioning  properly is  concerned,  that  may  depend  on  what  the   Registrar discovers after a proper audit, enquiry and inspection.  But he  can  form that option even on material aliunde  and  the language  of  the  section does  not  warrant  by  necessary implication the taking of the view that he is bound to  form that opinion after following the entire procedure prescribed by  the other sections under discussion.  At any rate it  is not  possible to read a requirement while taking action  u/s 72 of satisfying the provisions in the aforesaid sections by making  a  direction  in the first instance  to  remedy  the defects  disclosed  as  a result of the  audit,  inquiry  or inspection.   The  functioning  of the  society  may  be  so irregular   and  the  defects  disclosed  so   blatant   and prejudicial to the society that no question can arise of any direction  being made in the first instance for their  being remedied  by the persons or officers concerned.  It may  ’be that  when  the  Registrar acts under  the  second  limb  of section  72 (1) (a) and proposes to supersede the  committee for wilful disobedience or wilful failure to comply with any lawful order or direction issued by the Registrar under  the Act  or the rules that the provisions contained in  sections 64,  65 and 66 may become relevant.  But that does  not  and cannot mean that the Registrar must as a condition precedent



give a direction under those sections for the defects or the irregularities  to be remedied and should take  action  only under   the  second  limb  i.e.  when  there  is  a   wilful disobedience  or wilful failure to comply with those  orders or  directions.   It  may  be that  the  opinion  which  the Registrar has to  235 form  must  be  based  on some  objective  facts  but  those objective. facts in the absence of any clear indication  u/s 72  cannot  be confined to what may be disclosed  after  the Registrar  has  exercised. powers in the matter  of  audit,, inquiry and inspection under the provisions of sections  64, 65  and 66.  Thus even though the opinion. may be  a  purely subjective  process, there must be cogent material on  which the  Registrar has to form his opinion that the  society  is not functioning properly in order to sustain the issuance of a  notice. u/s 72 ( 1 ) (a) and subsequent  supersession  of the  Committee  after considering  its  representation,  The requisite opinion has indisputably to be formed honestly and after  applying  his mind by the Registrar to  the  relevant material before him the only condition precedent for  taking action  u/s  72(1) is that the Registrar  must  consult  the financing  bank to which the society is indebted (vide  sub- section  6).   There is no other requirement  or  condition. precedent  laid down by the Legislature which the  Registrar must fulfil before he acts in the matter of supersession  of the  Committee.  We are unable to concur in the view of  the High  Court  that an action taken u/s 72 without  giving  an opportunity to the member, officer or the society to rectify the  defects  found after an audit,, inquiry  or  inspection held  under  sections  64, 65 and 66  would.  constitute  an exercise of power without jurisdiction. The  Single Judge laid a great deal of emphasis on the  Com- mittee being an elected body and the prejudice that would be caused  to  its  members  if  they  are  visited  with   the consequences  of supersession on account  of  irregularities and  improper  functioning of the previous  members  of  the Committee.   What was argued before the High Court was  that one-third members of the Committee have to retire every year and  fresh  members have to be elected.   If  certain  grave irregularities are committed say in the year 1964, 1965,  it would be unfair to the new members who have been. elected to supersede  the Committee in 1968.  We do not  consider  that that would be the correct approach in construing section 72’ which is meant for superseding the Committee as a whole when its working disclose s such irregularities or  improprieties as  would  justify its supersession.  Normally it  would  be expected that only that Committee would be superseded  whose functioning  has  been found to be  highly  defective.   The object  of supersession apparently is to appoint  a  Special Officer or a managing committee in order to set the  working of  the  society right.  It is not difficult to  envisage  a situation  where  maladministration by a  committee  has  so adversely affected the functioning of the society that it is essential  in  the interests of the society itself  to  give temporarily  the  control  of  its  affairs  to  a   neutral authority.   At any rate if the operation of section  72  in certain circumstances is likely to operate harshly so far as certain members of the committee are concerned, it is not 236 possible  to read into it other provisions of the Act  which are  not  incorporated  in  the  section  expressly  or   by necessary implication. We have been taken through the material parts of the  orders of the Registrar and the Joint Registrar and we do not  find



any   such   infirmities  in  them   which   would   justify interference  by  the High Court under Article  226  of  the Constitution.  The High Court could not act as an  appellate Court  and reappraise and re-examine the relevant facts  and circumstances  which  led  to the making of  the  orders  of supersession as if the matter before it had been brought  by way  of appeal.  The limits of the jurisdiction of the  High Court  under Article 226 when a writ in the nature  of  cer- tiorari  is to be issued are well-known and well-settled  by now and it is pointless to re-state the grounds on which any such writ or direction can be issued.  We are satisfied that there  was  no  justification whatsoever  for  quashing  the orders  of the Joint Registrar and that of the Registrar  in appeal.  The appeals are consequently allowed with costs and the  judgment  of  the High Court is set  aside.   The  writ petitions are ordered to be dismissed One hearing fee. G.C.                                   Appeals allowed. L11 SupCI(NP)/70-2500-30-6-71 GIPF. 237