Holding

The Cadre Authority Society cannot be registered as a cooperative society under Section 4(1) of the Rajasthan Cooperative Societies Act, and the Registrar, under Rule 41, lacks authority to make the Central Cooperative Bank Rules imposing salary contributions on PACS, making those rules ultra vires.

Summary

The Primary Agriculture Credit Cooperative Societies (PACS) challenged the constitution of the Rajasthan Credit Cooperative Institutions Cadre Authority Limited and the Registrar's power to compel PACS to contribute to a salary fund for paid secretaries under the Central Cooperative Bank Rules, 1969. The Supreme Court examined whether the Cadre Authority Society could be registered as a cooperative society under Section 4(1) of the Rajasthan Cooperative Societies Act, 1965, whether PACS were bound to employ the paid secretaries, and whether the Registrar, under Rule 41 of the Cooperative Societies Rules, 1966, could make such Bank Rules. The Court held that the Cadre Authority Society does not fall within the categories of societies envisaged by Section 4(1) and therefore cannot be registered. It further held that paid secretaries are not officers or employees of PACS, so PACS are not obligated to take their services or contribute to their salaries, and that the Registrar lacks authority under Rule 41 to make the Bank Rules, rendering them ultra vires. Consequently, the appeals were dismissed.

Issues considered

Whether the Cadre Authority Society can be registered as a cooperative society under Section 4(1) of the Rajasthan Cooperative Societies Act, 1965.
Whether Primary Agriculture Credit Cooperative Societies are bound to employ the paid secretaries recruited by the Cadre Authority Society.
Whether the Registrar of Cooperative Societies, under Rule 41 of the Cooperative Societies Rules, 1966, has the power to make the Central Cooperative Bank Rules, 1969 requiring PACS to contribute to a salary fund.
Whether the paid secretaries appointed by District Cooperative Societies are officers or employees of the PACS.

Subjects

cooperative societiesregistrationpaid secretariesRule 41registrar's powersultra viresprimary agriculture credit cooperative societiescadre authority society

Judgment

A SAHKARI SAMITIYAN VYAVASTHAPAK UNION ETC.
v.
STATE OF RAJASTHAN AND ORS.

MARCH 1, 1996

B
[K. RAMASWAMY AND G.B. PATTANAIK, JJ.]

Rajasthan Cooperative Societies Act, 1965-Sections 4(1), 147, 148
Cooperative Societies Rules, 1966-Rule 41-Societies which may be
C registered and classified under the Act-Officers and employees of co-opera-
tive societies-Cadre Authority Society constituted u/s 4(l}-Whether can be
registered as a cooperative society-Held, No-Paid secretaries appointed by
District Cooperative Societies, recrnited & controlled by Cadre Authority
Society-Whether Primary Agriculture Credit Cooperative Societies are bound
to take service of paid secretaries-Held, No-They are outside the scope of
D cadre of these societies-Whether Registrar has power under Rule 41 to make
Central Cooperative Bank Rules, 1969-Held, No.

The Primary Agriculture Credit Cooperative Societies filed a writ 'r
petition challenging the validity of the constitution of the Rajas than Credit
Cooperative Institutions Cadre Authority Limited and also the power of
E the Registrar of the Cooperative Societies to make the rules calling upon
Primary Cooperative Societies to contribute to the Manager's Salary Fund
under Central Cooperative Bank Rules, 1969. The Cadre Authority Society
constituted u/s 4(1) of the Rajasthan Cooperative Societies Act, 1965 had
recruited paid secretaries who were sought to be posted to the Primary
F Cooperative Societies fastening liability of their salary on the Primary
Societies. The High Court held that the Cadre Authority Society cannot be
registered as a cooperative society u/s 4 of the Act and that the Bank Rules
were ultra vires the power of the Registrar under Rule 41 of the Cooperative
Societies Rules, 1966. These appeals were filed against the judgment of the
High Court. The appellants contended that the Registrar under Rule 41 of
G the Cooperative Societies Rules r/w ss. 147 (2) and 148(2)(xxx) of the Act
is empowered to regulate the service conditions of paid Secretaries and to
prescribe qualifications and consequently, the Cadre Authority Society
registered u/s 4(1) of the Act is a valid society; that the paid Secretaries
are competent persons to work as liaison between the Primary Societies
H and their members and that they are the members of the Primary Societies
104
SARKAR! SAMITIYAN VYAVASTHAPAK UNION v. STATE 105

and therefore, the Primary Societies are bound to contribute towards the A
salary and allowances of the paid Secretaries. and that the Primary
y
Societies are bound by the Bank Rules.

The respondent State contended that the Registrar has no power to
make Bank Rules nor has he power to direct the Primary Societies to
contribute for the salary and allowance of the paid Secretaries. B

The questions raised for consideration were whether Cadre
Authority Society could be a cooperative society registered u/s 4(1) of the
Act; whether the Primary Cooperative Societies are bound to take the
service of the paid Secretaries; whether the Registrar as a delegate of the C
Government, can make rules in that behalf or create a fund under the Bank
Rules and whether the paid Secretaries appointed by the District Coopera-
tive Societies, recruited and controlled by the Cadre Authority Society are
the officers or employees of the Primary Societies.

Dismissing the appeals, this Court D
HELD : 1.1. The marginal note to Section 4(1) of the Rajasthan
Co-operative Societies Act, 1965, indicates that the classified societies are
to be registered under the Act. Subject to the provision of the Act, a
cooperative society which has its object the promotion of the economic
interests of "its members" in accordance with the cooperative principles, E
or a cooperative society established with the object of "facilitating the
operations of such societies", may be registered under the Act. The Cadre
Authority Society does not come under the first limb of Section 4(1). The
cooperative structure is built upon three-tier system, viz., PACS consisting
* of individual members, at the grass-root level within the area of operation F
of that society, the District Cooperative Societies and the Central Coopera-
tive Bank. The District Cooperative Societies and the Central Cooperative
Bank got the Cadre Authority Society which is not a lending institution,
registered and the paid Secretaries, who are otherwise a third agency,
recruited by it They are appointed by the Managers of the District
Cooperative Societies and are transferred by them to the PACS within the G
area of the operation of the District Bank. It does not come as a society to
facilitate the PACS in funding them for disbursement of loan to the
members of PACS. [109-H; 110-A-E]

1.2. According to Rule 41 of the Cooperative Societies Rules, 1966, H
106 SUPREME COURT REPORTS [1996] 3 S.C.R.

A notwithstanding anything contained in the bye-laws of the society, PACS
shall not appoint any person as its paid officer or employee in any of the
categories of service unless the concerned officer/employee is possessed of
the prescribed qualifications and security specified by the Registrar is
furnished in that behalf to the Society. The conditions of the service of the
employees of the Society shall be specified by the Registrar. The Society
B
would retain the paid officers or employees only on fulfilment of the condi-
tions prescribed by the Registrar. The paid officers or employees are the
employees governed by the Act, Rules and the bye-laws of the Society over
which the Society has had disciplinary power and jurisdiction, subject to the
control, supervision and directions of the Registrar. [111-H; 112-A·B]
c
1.3. Section 147(2) of the Rajasthan Cooperative Societies Act, 1965,
empowers the Government to authorise the Registrar to exercise their
powers under the Act subject to such conditions, if any, as may be specified
in that behalf in the notification. By virtue thereof, sub-section (2) of
D Section 148 gives power to the Registrar to make rules. Clause (XXX) of the
sub-section (2) gives power to the Registrar to prescribe qualifications of
a Manager, Secretary, Accountant or any other officer or an employee of
the Society and the conditions of their service including discipline and
control. It would thus be clear that the Manager, Secretary, Accountant or
any other officer or employee shall be of the Society; the conditions of
E service including discipline and control shall be in accordance with the
rules made by the Registrar under Rule 41 of the Rules. The Registrar, as
a delegate of the Government is empowered to prescribe qualifications of
the officers or employees of the Society, viz., PACS, District Cooperative
Societies or the Central Cooperative Bank, as the case may be, and the
F respective Societies require them to appoint the officers or employees, i.e.,
Manager, Secretary, Accountant or any other officer or employee over
whom they have disciplinary and controlling power. Under its own bye·
laws, the respective Societies have the power to make appointment under
the rules made by the Registrar in that behalf. [112-C-F]

G 1.4. There is a dichotomy in the operational structure. The Society
is a unit by itself >1ith its members managed by the committee elected
under the provisions of the Act, the Rules and the bye-laws for specified
period. It is empowered to have control and to maintain discipline over its
officers and employees. The paid Secretaries are admittedly not the of-
H ficers appointed to the Society and by the Society. They are officers
}
SAHKARISAMITIYANVYAVASTHAPAKUNIONv. STATE 107

appointed by the District Cooperative Society by its Manager. 'Manager' A
is defined under the 1969 Rules to mean "the manager appointed under
., these rules and who shall be Chief Executive and paid employee of the
society". Manager shall have no relation with the services of the Bank
employees. Due to getting salary from the Managerial Fund at Bank level
he shall not be entitled for any benefits which are being given to Bank B
employees. And Society shall not appoint any person as "Manager". A paid
Secretary is not, therefore, a Manag~r appointed by the PACS.
(112-G-H; 113-A-B]
1.5. The power under Rule 41 is limited only to prescribing the
'( qualifications and conditions of service of the officers and employees
enumerated in clause (xxx) of sub-section (2) of Section 148. The Registrar, C
therefore, has no power to make rules governing appointment of paid
Secretaries and to create a fund under Bank Rules for payment of salaries
to them to fasten the liability on the PACS. In the instant case, the
Registrar travelled beyond the power delegated to him under the Act.
Making the Bank Rules or the creations of fund would, therefore, be D
beyond the power of the Registrar under Rule 41 read with Section 148(2)
(xxx) of the Act. Therefore, the Cadre Authority Society is not a society
'-<: registrable under Section 4(1) of the Act and that the Registrar has no
power under Rule 41 to make Bank Rules. (113-E-H]

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 4235 of E
1996 Etc.

From the Judgment and Order dated 9.5.91 of the Rajasthan High
Court iit D.B.C.W.P. No. 1018 of 1979.

R.K. Jain and R.P. Gupta for the Appellant in C.A. No. 4235/96. F
Dr. Rajiv Dhawan, R.P. Gupta and Ms. Omika for the Appellant in
.· C.A. No. 4174/96.

Jitendra Sharma, R.P. Gupta and Ms. Gunwant Dara for the Appel-
lant in C.A. No. 4175/96. G

Aruneshwar Gupta and Manoj K. Das for the Respondents.

Sunil K. Jain and Ms. Pratibha Jain for the impleading party.

The Judgment of the Court was delivered by H
108 SUPREME COURT REPORTS [1996] 3 S.C.R.

A K. RAMASWAMY, J. Leave granted in all the special leave petitions.

These appeals arise from the judgment and order dated May 9, 1991 'I
passed in Writ Petition No. 1018-20 of 1979 by a Division Bench of the
Rajasthan High Court. The facts arc fairly not in dispute.
B
Paid Secretaries were recruited by the Rajasthan Credit Co- opera-
tive Institutions Cadre Authority Limited [for short, the 'Cadre Authority
Socict y'] constituted under Section 4 [1J of the Rajasthan Co-operative
Societies Act, 1965 [for short, the 'Act']. They were appointee! in the
C respective District Co-operative Banks initially under Agricultural
Cooperative Credit Societies Service Rules 1969 [for short 'the 1969 Rules']
and thereafter under recruitment and Service Conditions of the Managers
of Agriculture Credit Cooperative Societies Rules, 1977 [1977 Rules] and
were sought to be posted to the Primary Agriculture Credit Cooperative
Societies [for short, the 'PACS'] fastening liability of their salary on the
D PACS who have challenged the validity of the constitution of Cadre
Authority Society and also the power of the Registrar of the Cooperative
Societies [for short, the 'RegistrarJ to make the rules calling upon PACS
to contribute to the Manager's Salary Fund under Central Cooperative
Bank Rules, 1969 [for short, the "Bank Rules"]. The Division Bench has
E held that the Cadre Authority Society cannot be registered as a cooperative
society under Section 4 of the Act, the Bank Rules are ultra vires the
powers of the Registrar under Ruic 41 of the Cooperative Societies Rules,
1966 [for short, the "Rules].

F S/Shri R K. Jain, Rajiv Dhavan and Jitendra Sharma, learned senior
counsel appear for these Unions and Managers. Pending these appeals,
pursuant to the permission granted by this Court, the Government framed
the Conditions of Service of the Managers/Assistant Managers of the
Agricultural Credit Cooperative Societies Rules, 1995 and placed the same
G on record. The appellants are not agreeable to those Rules. Consequently,
the learned counsel have contended that under Section 4 [1], Cadre
· Authority 5ocicty is a society regulating facilitation of disbursement of the
loans by the PACS in terms of cooperative movement for which PACS
came to be registered under the Act. The Cadre Authority Society came
to be registered pursuent to the recommendation made by Daley Commit-
H tee which has gone into the credit structure and proper utilisation of the
}
SAHKARI SAMITTYAN VY AVASTI!APAK UNION'· STATE [K. RAMASWAMY, J.) 109

loans to the agriculturists made available by the Stale Government and A
distributed through the State Central Cooperative Credit Bank to the
l'
District Societies who in turn distribute the loans to PACS. For their
coordination, supervision and proper utilisation thereof the managers/As-
sistant Managers [hereinafter referred to as the "paid Secretaries"] are
competent persons to work as liaison between the PACS and their mem-
bers and the District Banks and Central Bank. The Registrar under Rule
B
41 of the Rules read with Section 147[2] and Section 148[2] (xxx) of the
Act is empowered to regulate the service conditions of paid Secretaries
and to prescribe qualifications. Consequently, the Cadre Authority Society
-~
registered under Section 4(1) of the Act is a valid society. It is also
contended that the 1969 Rules prescribe the mode of recruitment, method c
of appointment and control of the Managers. Bank Rules prescribe the
amounts collected from PACS to pay their salaries. Therefore, the PACS
are bound to contribute towards the salary and allowances of the paid
Secretaries. Shri Jitendra Sharma further contended that they are the
members of the PACS and that, therefore, the PACS are bound by the
D
Bank Rules. Shri Aruneshwar Gupta, learned counsel appearing for the
State contended that the Registrar has no power to make Bank Rules nor
-.(
has he power to direct the PACS to contribute for the salary and allowan-
ces of the paid Secretaries. The High Court, therefore, was right in record-
ing the findings in that behalf.
E
The question, therefore, is : whether the appellants are right in their
contentions? With a view to appreciate the contentions, the first question
that arises is : whether Cadre Authority Society could be a cooperative
society registered under Section 4(1) of the Act. Section 4 [1] reads thus:
... F
"4 [ 1]. Societies which may be registered and classified under this
Act : subject to the provisions of this Act, a Cooperative Society
which has its objects and accordance with the cooperative_ prin-
ciples, or a cooperative society established with the object of
facilitating the operations of such societies, may be registered
under this AcC 1
• G
-~
The marginal note indicates that the classified societies are to be
registered under the Act. Subject to the provisions of the Act, a coopera-
tive society which has its object the promotion of the economic interests of
"its members" in accordance with the cooperative principles, or a coopera- H
llO SUPREME COURT REPORTS [1996] 3 S.C.R.

A tive society established with the object of "facilitating the operations of such
societies", may be registered under the Act. The Cadre Authority Society,
admittedly, dues not come under the first limb of Section 4(1 ]. The coten-
tion is that since the object of the Cadre Authority Society is to facilitate
the operations of the PACS, it is a cooperative society registered under the
B Act. In support thereof, Sri Jain placed the model bye-laws as part of the
record. The model bye-laws would indicate that membership of a society
consists of A Class members, viz., individuals who are above the age of 18
years and B Class memebrs, viz., institutions who are admitted as members
of the society. The institutions are lending societies. One of the objects is
to recruit paid Secretaries to the District Cooperative Soceities. At this
C stage, it is necessary to mention that the cooperative structure is built upon
three-tier system, viz., PACS consisting of individual members, at the
grass-root level within the area of operation of that society, the District
Cooperative Soceities and the Central Cooperative Bank. It is not in
dispute that the District Cooperative Societies and the Central Cooperative
D Bank got the Cadre Authority Society which is not a lending institution,
registered and the paid Secretaries, who are otherwise a third agency,
recruited by it. They arc appointed by the Managers of the District
Cooperative Societies and are transferred by them to the PACS within the
area of the operation of the District Bank. It would, therefore, be clear that
it does not come as a society to facilitate the PACS in funding them for
E disbursement of loan to the members of PACS.

The question is : whether the PACS are bound to take the services
of the paid Secretaries? Rule 41 of the Rules reads thus :

F "41. Officers and employees of co-operative societies. - [1] Not-
withstanding anything contained in the bye-laws of society no
Cooperative society shall appoint any person as its paid officer or
employee in any category of service, unless he possess the
qualificactions and furnishes the security if so specified by the
Registrar from time to time, for such category of service in the
G society, or for the class of society to which it belongs. The condi-
tions of service of the employees of the societies shall be as
specified by the Registrar.

[2] No co-operative society shall retain in service any paid
H officer or employees, if he does not acquire the qualifications or
SAHKARI SAMffiY AN VYAVASfHAPAK UNION"· STATE [K RAMASWAMY, J.] 111

furnish the security as is referred to in sub-rule [1] within such A
time as the Registrar may direct.

[3] The Registrar may for special reasons, 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. B

[4] Where in the course of an audit under See. 68 or an inquiry
under Sec. 70 or an inspection under 71 or Section 72 it is brought
to the notice of the Registrar that a paid officer or servant of a
society has committed or has been otherwise responsible for misap- C
propriation, 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 on the interest of the
society direct the committee of the society pending the investiga-
tion and disposal of the matter, to place or cause to be placed such D
paid officer or servant under suspension from such date and for
such period as may be specified by him.

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

[6] The Registrar may direct the committee to extend from time
to time the period of suspension and the paid officer or servant
suspended shall not be reinstated except with the previous sanction F
of the Registrar whose decison thereon shall be final.

[7] If the committee fails to comply with the direction issued
under sub-rule [4], the Registrar may make an order placing such
period officer or servant under suspension from such date and for G
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. 11

It would thus be clear that notwithstanding anything contained in the
bye-laws of the Society, P ACS shall not appoint any person as its paid
officer or employee in any of the categories of service unless the concerned H
112 SUPREME COURT REPORTS [1996] 3 S.C.R.

A officer/employee is possessed of the prescribed qualifications and security
specified by the Registrar is furnished in that behalf to the Society. The
conditions of the service of the employees of the Society shall be specified
by the Registrar. The Society would retain the paid officers or employees
only on fulfilment of the conditions prescribed by the Registrar. The paid
officers or employees are the employees governed by the Act, Rules and
B
the bye-laws of the Society over which the Society has had disciplinary
power and jurisdiction, subject to the control, supervision and directions
of the Registrar.

Section 147 [2] of the Act empowers the Government to authorise
C the Registrar to exercise their powers under the Act subject to such
conditions, if any, as may be specified in that behalf in the notification. By
virtue thereof, sub-section [2] of Section 148 gives power to the Registrar
to make rules. Clause [xxx] of the said sub-section [2] gives power to the
Registrar to prescribe qualifications of a Manager, Secretary, Accountant
D or any other officer or an employees of the Society and the conditions of
their service including discipline and control. It would thus be clear that
the Manager, Secretary, Accountant or any other officer or employee shall
be of the Society; the conditions of service including discipline and control
shall be in accordance with the rules made by the Registrar under Rule 41
of the Rules. In other words, the Registrar, as a delegate of the Govern-
E ment is empowered to prescribe qualifications of the officers or employees
of the Society, viz., PACS, District Cooperative Societies or the Central
Cooperative Bank, as the case may be, and the respective Societies require
them to appoint the officers or employees, i.e., Manager, Secretary, Ac-
countant or any other officer or employee over whom they have disciplinary
F and controlling power. Under its own bye-laws, the respective Societies
have the power to make appointment under the rules made by the
Registrar in that behalf.

The question, therefore, emerges : whether the paid Secreta_ries
appointed by the District Cooperative Societies, recruited and controlled
G by the Cadre Authority Society are the officers or employees of the Society
i.e., PACS? It is seen that there is a dichotomy in the operational structure: )
The Society is a unit by itself with its members managed by the committee
elected under the provisions of the Act, the Rules and the bye-laws for
specified period. It is empowered to have control and to maintain discipline
H over its officers and employees. The paid Secretaries are admittedly not
}
SAHKARI SAMITIYAN VYAVASIBAPAK UNION'· STATE (K RAMASWAMY, J.J 113

the officers appointed to the Society and by the Society. They are officers A
appointed by the District Cooperative Society by its Manager. 'Manager'
~
is defined under the 1969 Rules to mean "the manager appointed under
these rules and who shall be Chief Executive and paid employee of the
society. Manager shall have no relation with the services of the Bank
employees. Due to getting salary from the Managerial fund at Bank level
he shall not be entitled for any benefits which are being given to bank B
employees. And Society shall not appoint any person as Manager". A paid
Secretary is not, therefore, a manager appointed by the PACS. It is seen
that the structure of the employees is indicated in Section 148 [2] (xxx) as
i Manager, Secretary, Accountant or any other officer or employee of the .
society. Therefore, in addition to the said establishment, there cannot be c
any paid Secretary to the Society, i.e., PACS. Obviously, therefore, the
Societies have objected that they cannot be fastened with the liability to
contribute fund under Bank Rules for payment of the salary of Surveillance
Officer appointed by the District Cooperative Society and to be controlled
by the Cadre Authority Society. It would, therefore, be clear that they are
outside the scope of the Cadre of PACS.
D

-< The question, then is : whether the Registrar as a delegate of the
Government, can make rules in that behalf or create a fund under the Bank
·Rules? It is seen that the power under Rule 41 is limited only to prescribing
the qualifications and conditions of service of the officers and employees E
enumerated in clause (xxx) of sub-section [2] of Section 148. He, therefore,
has no power to make rules governing appointment of paid Secretaries and
to create a fund under Bank Rules for payment of salaries to them and to
fasten the liability on the PACS. The Registrar travelled beyond the power
~ delegated to him under the Act. We have come across Section 69A of the F
Maharashtra Cooperative Societies Act which, as amended by the statute,
gives such a power for creation of a Society as recruitment agency to make
appointment of such recruited candidates to the Primary Cooperative
Societies and posting them to the primary societies. Statute also fastened
the liability on the primary societies to contribute certain percentage
towards salary and allowances of such paid Secretaries. Making the Bank G
_,, Rules or the creation of a fund would, therefore, be beyond the powers of
the Registrar under Rule 41 read with Section 148 [2] (xxx) of the Act. The
High Court, therefore, was clearly right in its findings that Cadre Authority
Society is not a socieity registrable under Section 4 [1] of the Act and that
the Registrar has no power under Rule 41 to make Bank Rules. H
\.

114 SUPREME COURT REPORTS [1996) 3 S.C.R.

A The contention of Shri Jitendra Sharma that they are members of
PACS under 1%9 Rules cannot be given countenance for the reason that
1969 Rules stood superseded by 1977 Rules. Admittedly, they are not
members nor are they appointed as officers or employees of the PACS.
When we called upon the counsel to produce any order of appointment
B given to the paid Secretaries by any of the PACS, he conceded that he did
not have any such letters. Thefefore, they cannot be declared to be mem-
bers or officers or employees of the PACS. Thus considered, we are of the
firm opinion that the view taken by the High Court is not vitiated by any
error of law.

C The appeals arc accordingly dismissed but, in the circumstances,
without costs.

R.A. Appeals dismissed.

)