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PETITIONER: STATE OF MYSORE

       Vs.

RESPONDENT: ALLUM KARIBASAPPA & ORS.

DATE OF JUDGMENT06/08/1974

BENCH: RAY, A.N. (CJ) BENCH: RAY, A.N. (CJ) MATHEW, KUTTYIL KURIEN

CITATION:  1974 AIR 1863            1975 SCR  (1) 601  1974 SCC  (2) 498

ACT: Mysore  Co-operative Societies Act, 1959--Sections,  30  and 54--Scope of--Supersession--Natural justice.

HEADNOTE: Pursuant  to an inspection report submitted by  the  Reserve Bank  of  India  pointing out  many  irregularities  in  the working  of a district Co-operative Central Bank, the  State Government  issued  two  notifications under s.  54  of  the Mysore  Co-operative  Societies  Act, 1959.   By  the  first notification  the  Committee of Management of the  Bank  was superseded   and  by  the  second,  another  Committee   was appointed  in  its  place.   The  respondent,  who  was  the President of the Bank, challenged the notifications as being ultra  vires  the  Act and in  violation  of  principles  of natural   justice.    The   High   Court   set   aside   the notifications, Dismissing the appeal, HELD  :  (1)  The  High Court  rightly  set  aside  the  two notifications.   The  impeached  orders  suffered  from  two insurmountable   infirmities.   The  entire   Committee   of Management  had been superseded.  The State  Government  did not take recourse to the provision under s. 30 of the Act to supersede  the  Management.  Section 54 of  the  Act,  which contemplates  exercise  of  control  over  the  conduct   of business, does not confer any power to remove the  President and Vice-President of the Bank.  The word "control" suggests check,  restraint  or  influence.  Control  is  intended  to regulate and hold in check and restrain from action.  In the guise  of  exercising control the State  had  displaced  the Committee  of Management and substituted its own  Committee. The  State  had indirectly intended to achieve what  it  was directly prohibited from doing under s. 54 of the Act. (2)  The  notification  was in violation  of  principles  of natural  justice.   Section  30 of the  Act  contemplates  a notice where the State intends to supersede the  Management. In  utter  defiance  of the powers  under  the  statute  the Committee  had been arbitrarily deprived of their  right  to manage the affairs of the society.

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JUDGMENT: CIVIL  APPELLATE  JURISDICTION : Civil Appeal,  No.  971  of 1973. (Appeal  by special leave from the Judgment and Order  dated 1st  June, 1973 of the Mysore High Court at Bangalore in  W. P. No. 1949 of 1972.) F. S. Nariman Addl.  Solicitor General of India and Veerappa for the appellant. S. S. Javali and B. P. Singh, for Respondents Nos. 1, 17-28. The Judgment of the Court was delivered by RAY,  C.  J.-This  is an appeal by special  leave  from  the judgment dated 1 June, 1973 of the High Court of Mysore. The respondent Karibasappa was the President of the  Bellary District  Co-operative  Central Bank  Limited,  Hospet.   He challenged    two notifications dated 11 August, 1972 issued by  the State Government.  The notifications were issued  in exercise of the, powers conferred by sections 54 and 121  Of the  Mysore  Co-operative Societies  Act,  1959  hereinafter referred to as the Act. 602 The management and administration of the Bank was  conducted by  the  Committee consisting of the  President,  the  Vice- President,   and   ten   elected   members   from    various constituencies and certain nominees of the State Government. At no time the Government nominated more then three  persons as its representatives. The  Bank  had a share capital of Rs. 75 lakhs.   The  State Government  contributed Rs.23.8 lakhs. The Reserve  Bank  of India advanced a loan’ of Rs. 135 lakhs.  The Apex Bank also gave  a  loan  of  Rs.  200  lakhs..  The  State  Government guaranteed  the  repayment of loans to the Reserve  Bank  of India. The  Reserve Bank of India from time to time  inspected  the Bank.   There  was an inspection on 14 October,  1971.   The report  referred to many irregularities and stated that  the financial resources of the Bank had improved slightly. The  Joint Registrar on 3 August, 1972 forwarded the  report to  the  Registrar of Co-operative Societies  and  suggested action under section 54 of the Act.  In this background  the Government  issued the impugned notifications on 11  August, 1972. Broadly stated, the notifications recited that the State had given Rs. 23. 80 lakhs to the Bank and it was necessary,  in public interest to take powers to exercise control over  the conduct of the business of the Bank to safeguard the  public funds.   The  State  Government in exercise  of  the  powers conferred by section 54 of the Act should have the right  to nominate  as  its representatives, fifteen  persons  on  the Board  of  Management and to appoint one among them  as  the President,  one as the Vice-President and one other  as  the Managing  Director  of the Bank.  The President,  the  Vice- President  and the Managing Director under the  notification should exercise powers and discharge their functions subject to  the  supervision,  direction and control  of  the  State Government.  The notification further stated that section 29 which conferred power on the State Government subject to any notification  under  section 54 or section 121 to  have  the right to nominate as its representatives not more than three persons  or one third of the total number of members of  the Committee  of  the Cooperative Society,  whichever  is  less would be modified by substituting the words "have the  right to  nominate  as  its  representatives  15  persons  of  the Committee  of the Co-operative Society of whom one shall  be appointed as Managing Director".  The notification conferred power  on  the  Managing  Director  subject  to  the  policy

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decision of the Board, the right to conduct the business  of the  Bank and to sanction expenditure on  establishment  and certain other powers. The  second notification nominated fifteen persons  to  form the Board of Directors of the Bank.  The Deputy Commissioner Bellary was appointed the President of the Bank. The  Bank  challenged the notifications  on  three  grounds. First, the action of the Government was ultra vires the Act; second,  the  action was bad in violation of  principles  of natural justice; third, the 603 action  was taken because of political rivalry with an  evil eye to remove the President from the office. The  High  Court upheld the first two  contentions  and  set aside the order. Section  54  of  the  Act  provides  that  where  State  aid amounting  to not less than two lakhs of rupees is given  to any  co-operative  society, the State Government, if  it  is satisfied that it is necessary in public interest so to  do, may  by notification in the official gazette take  power  to exercise  such control over the conduct of business of  such society  as  shall  suffice  in the  opinion  of  the  State Government to safeguard the interests of the State. Section 121 enacts that the State Government may, by general or  special order published in the official gazette,  exempt any cc-operative society or any class of societies from  any of  the  provisions  of this Act or  may  direct  that  such provisions shall apply to such society or class of societies with such modifications as may be specified in the order. At  this stage, reference may be made to section 30  of  the Act  which provides for supersession of Committee.   If,  in the  opinion  of  the Registrar, the Committee  of  any  Co- operative Society persistently makes default or is negligent in  the performance of the duties imposed on it by this  Act or  the, Rules or the bye-laws, or commits any act which  is pre judicial to the interests of the society or its members, or is otherwise not functioning properly, the Registrar may, after  giving  the  committee an opportunity  to  state  its objections,  if  any,  by  order  in  writing,  remove   the committee  and appoint a new committee consisting of one  or more  members of the society in its place or appoint one  or more Administrators who need not be members of the  society. Section  30 further provides that the Registrar  can  manage the  affairs of the society for such period or  periods  not exceeding  two  years.   There  is  also  a  provision   for extension  of the period so that the aggregate  period  does not exceed four years. Section 29 to which reference has already been made provides for  the  nomination  by the Government of  persons  on  the committee  of  the Society where the  State  Government  has subscribed to the share capital of a co-operative society or guaranteed the repayment of loans.  The members nominated by the  Government under section 29 of the Act does not  exceed three or one-third of the total number of members of the Committee, whichever is less. Section 54 of the Act indicates that the power thereunder is to  be exercised in public interest.  The control  over  the business of the Society contemplated under section 54 should be  such  as  is  sufficient in the  opinion  of  the  State Government to safeguard the interests of the State. In  the present case, the impeached orders suffer  from  two insurmountable   infirmities.   One  is  that   the   entire committee  of  Management has been superseded.  There  is  a provision  under  section  30 of the Act  to  supersede  the management.  The State Government does

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604 not  take  recourse  to  the  =don.   Indirectly  the  State Government  has  overthrown-  the  Committee  of  Management including   the  President  and  the  Vice-President.    The President  and  the Vice-President are officers  within  the meaning  of  section 2(g) of the Act.  Section 54  does  not confer  any  power  to remove the President  and  the  Vice- President of the Society.  Section 54 contemplates  exercise of  control  over  the conduct of the  business.   The  word "control"  suggests check, restraint or influence.   Control is intended to regulate and hold in check and restrain  from action.   In  the  guise exercising control  the  State  has displaced  the committee of Management and  substituted  its own Committee.  The State has indirectly intended to achieve what  it is directly prohibited from doing under section  54 of the Act. The  second  vice  of  the notification is  that  it  is  in violation  of principles of natural justice.  Section 30  of the  Act  contemplates a notice where the State  intends  to supersede  the Management.  The Committee has been  deprived of  their right to manage the affairs of the Society.   They have  been  deprived of the right arbitrarily and  in  utter defiance of the powers under the statute. The   High   Court   rightly   set   aside   the   impeached notifications. For  these reasons, the appeal fails and is dismissed.   The State will pay costs to the respondents. P.B.R.                        Appeal dismissed. 605