Supreme Court of India
STATE OF M.P. AND OTHERSversusSANJAY NAGAYACH AND OTHERS
- Citation
- 2013 INSC 347
- Decided
- 16 May 2013
- Disposal
- Dismissed
- Bench
- K S RADHAKRISHNAN
Holding
The supersession order was illegal because the mandatory prior consultation with the RBI was not complied with, and the Board of Directors must be reinstated with its term extended as per the Act.
Summary
The Board of Directors of the District Cooperative Central Bank, Panna was superseded by the Joint Registrar of Co-operative Societies without prior consultation with the Reserve Bank of India, contrary to the second proviso of Section 53(1) of the Madhya Pradesh Co-operative Societies Act, 1960. The Board challenged the order, and the High Court set it aside, but the State appealed. The Supreme Court examined the statutory requirement of mandatory RBI consultation, the nature of the charges, and the legislative intent behind the term of office provisions. It held that the Registrar’s action violated the statutory condition precedent, was influenced by extraneous pressure, and the Board’s supersession was illegal. Consequently, the Board was ordered to be reinstated and allowed to complete its five‑year term, with costs awarded against the State and the Joint Registrar.
Issues considered
- When did the second proviso to Section 53(1) of the Madhya Pradesh Co-operative Societies Act, 1960, require a mandatory prior consultation with the RBI before superseding a co‑operative bank's Board?
- Whether the Joint Registrar complied with the statutory procedure and consulted the RBI effectively before issuing the supersession order?
- Whether the order of supersession was arbitrary, illegal and violative of the Board's statutory term under Section 49(7A)(i)?
- Whether the High Court could exercise jurisdiction under Article 226 despite the existence of an alternative remedy under Section 78 of the Act.
Legislation cited
- Banking Law (Application to Cooperative Societies) Act, 1965
- Banking Regulation Act, 1949
- Constitution of Indias. Article 226
- Deposit Insurance and Credit Guarantee Corporation Act, 1961
- Madhya Pradesh Co-operative Societies Act, 1960s. 31(1), s. 31(2), s. 49(7A)(i), s. 53(1), s. 53(2), s. 78
- National Bank for Agriculture and Rural Development Act, 1981
- Reserve Bank of India Act, 1934
Subjects
Co-operative societiesSupersession of elected boardStatutory consultationReserve Bank of IndiaSection 53(1) provisoArticle 226Administrative lawDemocratic governance
Judgment
[2013] 3 S.C.R. 738
A STATE OF M.P. AND OTHERS
v.
SANJAY NAGAYACH AND OTHERS
(Civil Appeal No. 4691 of 2013 etc.)
MAY 16, 2013
B
[K.S. RADHAKRISHNAN AND DIPAK MISRA, JJ.]
Madhya Pradesh Co-operative Societies Act, 1960:
s.31(1), second and third provisos and s.31(2) read with
C s.49(7A)(i), proviso - Supersession of Board of Directors of
District Co-operative Bank - Without prior consultation with
RBI ..:.. Held: When an authority invested with the power
purports to act on its own but in substance the power is
exercised by external guidance or pressure, it would amount
D to non-exercise of power, statutorily vested - In the instant
case, there is sufficient evidence to conclude that Joint
Registrar was acting under extraneous influence and under
dictation - Order of supersession is not only in clear violation
of second proviso to s.53(1), but also allegations raised in
E show cause notice are deficiencies mostly relating to systems
and procedures and are of general nature and not grave
enough to overthrow a democratically elected Board of
Directors - Board of Directors was superseded illegally, and,
therefore, in view of proviso to s. 49(7A)(i), they need to be .
F put back-if1'-office and' allowed to continue for the period they
were put out of office - Ordered accordingly - Costs imposed
on State Government and officer concerned - Legislation -
Legislative intent.
G s.31 (1) second proviso - Expression 'previous
consultation with the Reserve Bank' - Connotation of - Held:
Previous consultation is a condition precedent before forming
an opinion by Joint Registrar to supersede the Board of
Directors or not - Mere serving a copy of show cause notice
H 738
STATE OF M.P. v. SANJAY NAGAYACH 739
on RBI with supporting documents is not what is A
contemplated under second proviso to s. 53(1) - For a
meaningful and effective consultation, copy of reply filed by
Bank to various charges and a/legations levelled against
them should also be made available to RBI as well as the
action proposed by Joint Registrar, after examining the reply B
submitted by Bank - Only then, there will be ~n effective
consultation and views expressed by RBI will be a relevant
material for deciding whether elected Board be superseded
or not - In addition to six propositions laid doivn in the case
of Indian Administrative Services (SCS) Association, U.P., c
one more proposition that may be added is that when the
outcome of proposed action is to oust a democratically
elected body, previous consultation with RBI is to be
construed as mandatory.
Constitution of India, 1950: D
Art. 226 - Writ petition - Alternative remedy - Held: In
the instant case, Division Bench of High Court has rightly
exercised its jurisdiction under Art. 226 and the alternative
remedy of appeal is no bar in exercising that jurisdiction, E
since the order passed by Joint Registrar was arbitrary and
in clear violation of second proviso to s.53(1) of the Act -
Madhya Pradesh Co-operative Societies Act, 1960 - s. 78.
Co-operative Societies:
F
Supersession of elected bodies - Held: Co-operative
philosophy on society must rest on free universal association,
democratically governed and conditioned by equity and
personal liberty - Registrar/Joint Registrar, while exercising
power of supersession has to form an opinion and that opinion G
must be based on some objective criteria, which has nexus
with final decision and he is bound to follow judicial precedents
- The manner in which State Government took so much
interest by spending huge public money pursuing the matter
upto Supreme Court, that too without following binding H
740 SUPREME COURT REPORTS [2013] 3 S.C.R.
A precedents of High Court, depr,ecated - In vi~w of
mushrooming of cases in various courts challenging orders
of supersession of elected committees, general directions
given - Precedent - Judicial deprecation.
8 The Board of Directors of a District Co-operative
Central Bank were served with a show cause notice
dated 2.3.2009 issued by the Joint Registrar, Co-operative
Societies, u/s 53(2) of the Madhya Pradesh Co-operative
Societies Act, 1960, containing 19 charges. Detailed
C replies were sent by the Board of Directors on 6.5.2009
and 16.5.2011. However, by order dated 30.9.2011, the
Joint Registrar, Co-operative Societies, superseded the
Board of Directors of the Co-operative Bank and
appointed an Administrator. The Board of Directors of the
Bank challenged the order before the High Court on the
D ground of violation of the second proviso to s.53(1) of the
Act for non-consultation with the Reserve Bank of India
before taking the decision. The Single Judge disposed
of the writ petition directing the parties to avail of the
alternative remedy provided u/s 78 of the Act. However,
E the Division Bench of the High Court set aside the order
of supersession on the ground of non-compliance of the
second proviso
I
to s.53(1) of the Act.
Dismissing the appeal, the Court
F HELD: 1.1. Section 53 (1) of the Madhya Pradesh Co-
operative Societies Act, 1960 confers powers on the
Registrar to pass an order to remove the Board of
Directors and to appoint a person to manage the affairs
of the society, subject to certain conditions. The second
G proviso to s. 53(1), specifically states that in the case of
a Co-operative Bank, the order of supersession shall not
be passed without previous consultation with the RBI.
The proviso is clear and unambiguous and calls for no
interpretation or explanation. The third proviso to s. 53(i)
H states that if no communication containing the views of
STATE OF M.P. v. SANJAY NAGAYACH 741
the RBI on the action proposed is received within thirty A
days of the receipt by the bank of the request soliciting
consultation, it shall be presumed that the RBI agreed
with the proposed action and the Registrar shall be free
to pass such order, as he may deem fit. The second
proviso to s. 53 (1) refers to the expression "order of 8
supersession", which means that the final order of
supersession to be passed by the Joint Registrar after
complying with sub-s. (2) to s. 53. Second and third
provisos, read together, would indicate that no order of
supersession shall be passed without previous c
consultation with the RBI.The previous consultation is a
condition precedent before forming an opinion by the
Joint Registrar to supersede the Board of Directors or
not. [para 14-16] [759-D-G, H; 760-A-B-C; 761-A]
Latu Prasad Yadav and Another v. State of Bihar and D
=
Another 2009 (1) SCR 553 (2009) 3 SCC 553; and Ansa/
Properties and Industries Limited v. State of Haryana and
=
Another 2010 (4) SCR 334 (2010) 5 SCC 1 - referred to
Sussex Peerage case (1844) 11 CIT F.85 - referred to E
{2. The mere serving a copy of the show-cause-
notice on RBI with supporting documents is not what is
contemplated under the second proviso to s. 53(1). For
a meaningful and effective consultation, the copy of the
reply filed by the Bank to the various charges and F
allegations levelled against them should also be made
available to the RBI as well as the action proposed by the
Joint Registrar, after examining the reply submitted by
the Bank. Only then, there will be an effective
consultation and the views expressed by the RBI will be G
a relevant material for deciding whether the elected Board
be superseded or not. [para 16] [760-F-H]
1.3. While examining the meaning of the expression
'consultation', in addition to six propositions laid down H
742 SUPREME COURT REPORTS [2013) 3 S.C.R.
A in the case of Indian Administrative Services (SCS)
Association, U.P., one more propositio11 that may be
added is that when the outcome. of the proposed a,ctioJJ
is to oust a democratically elected body/and the
expression used is "shall not be passed without previous
B consultation", it is to be construed as mandatory. [para
17] [761-B-C]
Indian Administrative Services (SCSJ Association, U.P.
v. Union of India 1992 (2) Suppl. SCR 389 = 1993 Supp (1)
sec 730 - relied on
c
Reserve Bank of India v. Peerless Company (1987) 2
SCR 1, State of Jammu and Kashmir v. A.R. Zakki and Others
1991 (3) Suppl. SCR 216 =1992 Supp (1) SCC 548, Gauhati
High Court and Another v. Kuladhar Phkan and Another 2002
0 (2) SCR 808 = (2002) 4 SCC 524, Andhra Bank v. Andhra
Bank Officers and Another (2008) 7 SCC 203 - referred to.
1.4. This Court is of the view that the order of
supersession dated 30.9.2011 is not only in clear violation
E of the second proviso to s.53(1) of the Act, but also the
allegations raised in the show-cause-notice are
deficiencies mostly relating to systems and procedures
and are of general nature and not grave enough to
overthrow a democratically elected Board of Directors.
Both NABARD and RBI have expressed the view that the
F charges levelled against the Board of Directors do not
provide strong ground to supersede the Board. In view
of the views expressed by NABARD as well as RBI and
the fact that the Joint Registrar himself had passed the
order of supersession only after two and half years of the
G date of issuance of the show-cause-notice, it is evident
that the Board of Directors was superseded illegally, and,
therefore, they need to be put back in office and allowed
to continue for the period they were put out of office.
[para 22-23] [763-F-H; 764-A-B]
H
STATE OF M.P. v. SANJAY NAGAYACH 743
2.1. The statute has fixed the term of an elected Board A
of Directors as five years from the date on which first
meeting of Board of Directors is held. Once a Boar!i of
Directors is illegally supersedt"'d, suspended or removed,
the legislature in its wisdom ordained that the Board
should complete their full term of five years, because B
electorate has elected the Board for five years. The
proviso to s.49(7 A)(i) lays down that where a Board of
Directors superseded, suspended or removed under the
Act is reinstated as a result of any order of any court or
authority, the period during which the Board of Directors c
remained under supersession, suspension or out of office,
shall be excluded in computing the period of the term. The
legislative intention is clear. [para 24) [764-B-F]
2.2. The Board of Directors, in the instant case, took
charge on 16.10.2007, therefore, they could continue in D
office till 15.10.2012. The Board of Directors was,
however, superseded illegally on 30.9.2011 and, by virtue
of the judgment dated 13.2.2012 of the Division Bench of
the High Court, the Board should have been put back in
office on 13.2.2012, but an Administrator was appointed. E
Going by the proviso to s. 49(7A)(i), the period during
which the Board of Directors remained under
supersession be excluded in computing the period of
five years. In the facts and circumstances of the case, this
Court is of the considered opinion that the duly elected F
Board of Directors should get the benefit of the proviso,
which is statutory in nature. Therefore, this Court directs
the Joint Registrar, Co-operative Societies to put the
Board of Directors back in office so as to complete the
period during which they were out of office. The State of G
Madhya Pradesh to pay an amount of Rs.1,00,000/- to the
Madhya Pradesh Legal Services Authority by way of
costs and to also impose a cost of Rs.10,000/- as against
the Joint Registrar, Co-operative Societies, the officer who
passed the order, which will be deducted from his salary· H
744 SUPREME COURT REPORTS (2013] 3 S.C.R.
A and be deposited in the respondent bank. [para 25, 26 and
34] (764-G-H; 765-A-B; 767-G-H]
2.3. The Division Bench of the High Court has rightly
exercised its jurisdiction under Art. 226 of the Constitution
8 and the alternative remedy of appeal is not bar in
exercising that jurisdiction, since the order passed by the
Joint Registrar was arbitrary and in clear violation of the
second proviso to s.53(1) of the Act. (para 27] [765-C]
2.4. The Registrar/Joint Registrar, while exercising
C powers of supersession has to form an opinion and that
opinion must be based on some objective criteria, which
has nexus with the final decision. There may be situations
where the Registrar/Joint Registrar are expected to act
in the best interest of the society and its members, but
D in such situations, they have to act bona fide and within
the four corners of the Statute. The impugned order will
·not fall in that category. There is sufficient evidence to
conclude that the Joint Registrar was acting under
extraneous influence and under dictation. A legally
E elected Board of Directors cannot be put out of the office
in this manner by an illegal order. When an authority
invested with the power purports to act on its own but
in substance the power is exercised by external
guidance or pressure, it would amount to non-exercise
F of power, statutorily vested. (para 28, 29 and 30] (765-0-
E, G-H; 766-A-C·E]
2.5. Registrar/Joint Registrar is bound to follow the
Judicial Precedents. Ratio decidendi has the force of law
and is binding on all statutory authorities when they deal
G with similar issues. The Madhya Pradesh High Court in
several judgments has explained the scope of the
second proviso to s.53(1) of the Act. Joint Registrar, while
passing the impugned order, has overlooked those
binding judicial precedents. State of Madhya Pradesh did
H not show the grace to accept the judgment of the Division
STATE OF M.P. v. SANJAY NAGAYACH 745
Bench of the High Court. The State Government, A
Department of Co-operative Societies has taken so much
interest in this litigation and has spent huge public money
by litigating this matter even up to this Court, that too,
without following the binding precedents of the Madhya
Pradesh High Court, a practice this Court strongly B
deprecates. [para 28, 31- 33] [765-F; 766-F; 767-B-C, E]
Radheshyam Sharma v. Govt. of M.P. through C.K.
Jaiswal and Ors. 1972 MPLJ 796, Board of Directors of Shri
Ganesh Sahakari Vipnan (Marketing) Sanstha Maryadit and C
Another v. Deputy Registrar, Co-operative Societies,
Khargone and Others 1982 MPLJ 46 and Sitaram v.
Registrar of Co-operative Societies and Another 1986 MPLJ
567 - referred to.
2.6. Co-operative philosophy on society must rest on D
free universal association, democratically governed and
conditioned by equity and personal liberty. Large number
of cases are coming up before this Court and the High
Courts challenging the orders of supersession and many
of them are being passed by the statutory functionaries E
due to external influence ignoring the fact that they are
ousting a democratically elected Board, the consequence
of which is also grave because the members of the Board
of Directors would also stand disqualified in standing for
the succeeding election as well. This Court gives general F
directions as enumerated in the judgment in view of the
mushrooming of cases in various courts challenging
orders of supersession of elected Committees. [para
10,29 and 35] [755-C-D; 766-A-B; 768-A]
Harbanslal Sahnia and Another v. Indian Oil Corpn. Ltd. G
and Others (2003) 2 SCC 107, United Bank of India v.
Satyawati Tondon and Others 2010 (9) SCR 1=(2010)8 SCC
110 and Om Prakash Saini v. DCM Ltd. and Others (2010)
11 sec 622 - cited.
H
746 SUPREME COURT REPORTS [2013) 3 S.C.R.
A Case Law Reference:
(2003) 2 sec 101 cited para 5
2010 (9) SCR 1 cited Para 5
(2010) 11 sec 622 cited para 5
B
2009 (1) SCR 553 referred to para 15
2010 (4) SCR 334 referred to para 15
1992 (2) Suppl. SCR 389 relied on para 17
c
1991 (3) Suppl. SCR 216 referred to para 17
(1987) 2 SCR 1 referred to para 17
2002 (2) SCR 808 referred to para 17
D (2008) 1 sec 203 referred to para 17
1972 MPLJ 796 referred to para 31
1982 MPLJ 46 referred to para 31
E 1986 MPLJ 567 referred to para 31
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
4691 of 2013.
From the Judgment & Order dated 13.02.2012 of the High
F Court of Judicature of Madhya Pradesh, Principal Seat at
Jabalpur in Writ Appeal No. 1065 of 2011.
WITH
C.A. No. 4692 of 2013.
G Dr. Abhishek Manu Singhvi, V.K. Bali, Vivek Tankha,
Ravindra Srivastava, C.D. Singh, Sunny Chaudhary, Abhimanyu
Singh, Anshuman Srivastav, D.S. Parmar, Akshat Goel, Anil
Kumar Gupta-II, Mahavir Singh, Samir Ali Khan, Rahul Kaushik,
Harsh .Parashar, A. Choudhary, H. Singh, Kuldeep S. Parihar,
H
STATE OF M.P. v. SANJAY NAGAYACH 747
H.S. Parihar, Pragati Neekhra, Suryanarayana Singh, Abha R. A
Sharma, Susheel Tamar, Alok Kumar, Neeraj Shekhar, Rohit
Singh for the Appearing parties.
The Judgment of the Court was delivered by
K.S. RADHAKRISHNAN, J. Leave granted. B
1. We are, in this case, concerned with the legality of an
order passed by the Joint Registrar of the Cooperative
Societies, Sagar Division, Sagar, M.P., superseding the Board
of Directors of District Cooperative Central Bank Ltd., Panna C
without previous consultation with the Reserve Bank of India,
as provided under the secc..nd proviso to Section 53(1) of the
Madhya Pradesh Cooperative Societies Act, 1960 [for short
'the Act'].
D
2. The Board of Directors of the Bank challenged the
above mentioned order on various grounds, including the
ground of violation of the second proviso to Section 53(1) of
the Act that is non-consultation with the Reserve Bank of India
[RBI] before taking a decision to supersede the Board of
Directors. The order was challenged by the Board of Directors E
by filing a writ petition before the High Court of Madhya
Pradesh, Jabalpui' Bench. Learned single Judge of the High
Court disposed of the writ petition directing the parties to avail
of the alternative remedy provided under Section 78 of the Act.
But on appeal, the Division Bench of the High Court set aside F
the order of supersession dated 30.9.2011 on the ground of
non-compliance of the second proviso to section 53(1) of the
Act. Aggrieved by the same, the State of M.P., through its
Principal Secretary, Department of Co-operation, the
Commissioner Cum Registrar, Co-operative Societies, Bhopal G
and the Joint Registrar, Co-operative Societies, Sagar, have
come up with Civil Appeal No. 4691 of 2013 [arising out of
SLP No. 6860 of 2012] and a private party filed Civil Appeal
No. 4692 of 2013 [arising out of SLP No. 13125 of 2012]
H
748 SUPREME COURT REPORTS [2013) 3 S.C.R.
A challenging the ju~gment of the High Court dated 13.2.2012,
followed by lot of intervening applications.
3. As the question of laws involved in both the above
mentioned appeals are common, we are disposing of both the
B appeals by a common judgment.
Facts and Arguments
4. The Board of Directors of the Bank was elected to
Office on 16.10.2007 and while in office they were served with
c a show-cause-notice dated 2.3.2009 issued by the Joint
Registrar, Co-operative Societies under Section 53(2) of the
Act containing 19 charges. Detailed replies were sent by the
Board of Directors on 6.5.2009 and 16.5.2011 stating that most
of the charges levelled against them were related to the period
0 of the previous Committee and the rest were based exclusively
on an Audit Report dated 25.9.2008. It was pointed out that the
Board of Directors on receipt of the Audit report took necessary
action and a communication dated 5.12.2008 was sent to the
Branch Managers of Primary Societies to take immediate
E follow-up action on the basis of the Audit report. After filing the
detailed reply, nothing was heard from the Joint Registrar but
due to political pressure and extraneous reasons after two and
half years of the show cause notice, an order of supersession
was served on the Board, followed by the appointment of an
F Administrator in gross violation of the second proviso to
Section 53(1) of the Act.
5. Dr. Abhishek M. Singhvi, learned senior advocate
appearing for the State, submitted that the High Court was not
justified in interfering with the order of supersession passed by
G the Joint Registrar, while an alternative remedy was available
under Section 78 of the Act by way of an appeal before the Co-
operative Tribunal. Learned senior counsel placed reliance on
the judgments of this Court in Harbanslal Sahnia and Another
v. Indian Oil Corpn. Ltd. and Others (2003) 2 SCC 107,
H United Bank of India v. Satyawati Tondon and Others (2010)
STATE OF M.P. v. SANJAY NAGAYACH 749
[K.S. RADHAKRISHNAN, J.]
8 SCC 110 and Om Prakash Saini v. DCM Ltd. and Others A
(201 O) 11 sec 622. Learned senior counsel also submitted
that the Division Bench of the High Court has not correctly
appreciated the scope of the second proviso to Section 53(1)
of the Act. Learned senior counsel also pointed out that the
Joint Registrar has forwarded the show-cause notice dated B
23.2.2009 along with other materials to RBI seeking its views
on the proposed action of supersession and the RBI through
its communications dated 17.4.2009, 3.6.2009 and 8.12.2009
had only directed the Joint Registrar to indicate RBI of the
action taken against the Board of Directors. Consequently, the c
Joint Registrar was only required to inform the RBI of the action
taken against the Board of Directors. Learned senior counsel
also submitted that the charges levelled against the Board of
Directors were of serious nature and the order of supersession
was passed bona fide and in public interest and the Division D
Bench of the High Court was not justified in interfering with the
order of supersession.
6. Shri V. K. Bali, learned senior counsel appearing for the
appellants in Civil Appeal No. 4692 of 2013 [arising out of
SLP No. 13125 of 2012], also submitted that the charges E
levelled against the Board of Directors were of serious nature
and there was sufficient materials to establish those charges
and the Joint Registrar has rightly passed the order of
supersession and appointed the Collector, Panna as an
Administrator of the Bank. Learned senior counsel also pointed F
out that the Joint Registrar had forwarded the show-cause-
notice as well as the connected materials to RBI and RBI had
failed to respond to the show-cause-notice within 30 days of
the receipt of the same and, therefore, it would be presumed
that RBI had agreed to the proposed action and the Joint G
Registrar had rightly passed the order of supersession. Shri
Mahavir Singh, learned senior counsel appearing for the
lnterveners also submitted that the High Court has committed
an error interfering with the order of supersession and, in any
view, if any of the parties were aggrieved, they ought to have H
750 SUPREME COURT REPORTS [2013] 3 S.C.R.
A availed of the alternate remedy available under the Act.
7. Shri Vivek Tankha, learned senior counsel appearing for
the 1st respondent, submitted that the High Court has correctly
understood the scope of the second proviso to Section 53(1)
of the Act and rightly came to the conclusion that before
8
passing the order of supersession, there should be a
meaningful consultation with the RBI, therefore, the consultee
could apply its mind and form an independent opinion as to
whether the Board be superseded or not. Learned senior
counsel submitted tbat merely forwarding the show cause
C notice along with other relevant materials is not sufficient
compliance of the second proviso to Section 53(1) of the Act,
so held by the Madhya Pradesh High Court in several
judgments. Learned senior counsel submitted that the order of
supersession was passed by the Joint Registrar after a period
D of two and half years of the issuance of the show-cause-notice
and most of charges levelled against the Board of Directors
were related to the period when the previous Committee was
in office and even the charges based on the Audit Report dated
25.9.2008 were also rectified by the Board of Directors by
E addressing the primary societies. Learned senior counsel also
submitted that the order was passed at the instance of
respondents 2 and 3 herein on extraneous considerations and
was actuated by ma/a fide and ulterior motive. Learned counsel
submitted that the Joint Registrar had acted under the political
F pressure and was not exercising his powers in accordance with
the provisions of the Act and the order of supersession was
passed to disqualify the members of the Board of Directors
from contesting the ensuing election. Learned senior counsel
prayed that the Board of Directors be put back in office and
G be allowed to continue for the period they were put out of office
illegally.
8. We heard learned counsel on either side at great length.
When the matter came up for hearing before us on 17.10.2012,
we passed the following order, the operative portion of which
H reads as under:
STATE OF M.P. v. SANJAY NAGAYACH 751
(K.S. RADHAKRISHNAN, J.]
"We are informed that the period of the Managing A
Committee is already over and District Collector is acting
as the Administrator of the Cooperative Bank vide this
Court's order dated 23.02.2012. However, the legality of
the order has to be tested. Before that we feel it
appropriate to place the entire material before the Reserve B
Bank of India (for short, 'RBI') (Respondent NO. 7) for its
opinion as per Section 53 of the Act. The RBI will take a
final decision on that within' a period of two months and
forward the opinion to the Secretary General of this Court,
who will place it before the Court." c
RBI submitted its detailed report on 18.12.2012, in pursuance
to the order passed by this Court. RBI, referring to the second
proviso to Section 53(1) of the Act, took the view that the so-
called consultation made by the Joint Registrar cannot be
treated as previous consultation, as per law. RBI, after D
examining all the documents made available by the Joint
Registrar including the show-cause-notice, reply filed by the
Board of Directors opined as follows: ·
(i) The JRCS has alleged that Panna DCCB has not E
deducted tax on the interest paid t<;> the depositors.
In terms of the CBDT circular No. 9/2002 dated 11-
9-2002 tax is deductible at source from any
payment of income by way of interest other than
income by way of interest on securities. Clause (v)
F
of sub-section (3) of section 194A exempts such
income credited or paid by a co-operative society
to a member thereof from requirement of TDS.
Clause (viia) of sub-section (3) of section 194A
exempts from the requirement of TDS such income G
credited or paid in respect of deposits (other than
time deposits made on or after 1-7-1995) with a co-
operative society engaged in carrying on the
business of banking. It is not clear from observation
of JRCS, Panna that the interest accrued and paid H
752 SUPREME COURT REPORTS [2013) 3 S.C.R.
A was time deposit or saving bank deposit account
made after 01.07 .1995.
(ii) The amount collected as VAT was not remitted to
the Government.
B VAT is not applicable to the banking
transactions. Hence collection itself is not correct.
(iii) In terms of Audit para 21 of Audit Report for the FY
ended 2000-01, Panna DCCB in the year June
c 1997, without the approval of PACS' Committee
had stored pesticides. These medicines expired on
December 98 and August 99. Despite expiry, stock
of medicines worth Rs.16.28 lakh was left over
which could not be sold in the market. The amount
D should have been recovered from the employees
of the bank.
As per the reply furnished by the bank, the present
Board of Directors had initiated the process of
recovery of dues of which the major portion of
E outstanding dues has already been recovered. The
bank is effecting recovery from its 39 employees
through monthly deductions of Rs.500 to Rs1000.
(iv) In terms of Audit para 32 of Audit Report for the FY
F ended 2000-01, an outstanding amount of
Rs23200/- to be recovered from cashier Shri D.L.
Tiwari is still pending for recovery.
It is seen from the records that the bank has
initiated disciplinary proceedings against the erring
G employees besides filing a recovery suit with Civil
Court, Powai.
(v) In terms of Audit para 16 of Audit Report for the FY
ended 2000-01, Shri Jawaharlal Srivastav,
H Manager of Laxmipur PACs had committed fraud
, ,.
..
STATE OF M.P. v. SANJAY NAGAYACH 753
[K.S. RADHAKRISHNAN, J.]
of Rs.20.93 lacs thereby misappropriated the A
bank's funds. He has been removed from services
and an amount of Rs.36,637/- has been recovered·
from his claims. Bank vide its letter dated
15.02.2002 has written to Kotwali Police Panna to
register the case. No action has been initiated by B
the present Board in the matter.
The Bank has already registered a case against
Shri Jawaharlal Srivastav. However, it appears from
the records and reply furnished by tl-49 bank that no
effective steps were taken after 15,02.2002 to
c
lodge FIR in the matter. Even the present Board of
Directors apparently has not taken any effective
steps after it took over during the end of 2007.
(vi) In terms of Audit para 23 of Audit Report for the FY D
ended 2000-01, reconciliation of entries in the
books of accounts of DCCB Panna was pending
and it has not been resolved.
Non-reconciliation of books by DCCB Panna is an
E
operational risk which has also been pointed out by
NABARD in its inspection reports for the FY 2008-
2009 and 2010-2011. Therefore, the compliance
submitted by the bank does not appear to be
satisfactory.
F
(vii) In terms of Audit para 13 of Audit Report for the FY
ended 2003-04, fraud in respect of 37 Managers
to the tune of Rs.43.34 lakh was mentioned and the
cases are still pending. 27 Employees have been
terminated from the services. Case against only G
one employee has been registered with police and
the bank has not registered the cases against 27
employees.
From the records made available to us, we do not
H
754 SUPREME COURT REPORTS [2013] 3 S.C.R.
A observe any monitoring by JRCS, on the issue
during the intervening period. It is evident that this
matter was being discussed in the Board meetings
of the present Board, some amount was already
recovered, disciplinary action against the erring
B employees have been taken and the legal
proceeding initiated against them is also pending.
(viii) As mentioned in Audit Report for the FY ended
2006-07, rectification of audit objections is not
satisfactory. No action was taken on most of the
c audit objections and compliance submitted by the
management is mere eyewash.
Compliance to Audit Report is an ongoing process
which needs to be monitored on a continuous
D basis.
The table showing the allegations of the JRCS
Panna, comments of Panna DCCB and the
observation of RBI is enclosed herewith and
marked as Exhibit - IX.
E
RBI, therefore, took the view that the deficiencies pointed out
in the show-cause-notice were general in nature and did not
warrant the supersession of the Board of Directors. RBI,
however, opined that it would be desirable that new election of
F the Board of Directors be conducted in accordance with the
provisions of the Act and the Management of the Bank be
handed over to the newly elected body by the present
administrator.
G Legal Framework
9. The validity of the order of supersession has to be tested
under the legal framework in which the Cooperative Bank and
its controlling authorities have to function under the Act read with
the provisions of the Reserve Bank of India Act, 1934 (for short
H
STATE OF M.P. v. SANJAY NAGAYACH 755
[K.S. RADHAKRISHNAN, J.]
'RBI Act'), the Banking Regulation Act, 1949 (for short A
'Regulation Act'), the Banking Law (Application to Cooperative
Societies) Act, 1965 (23 of 1976), the Deposit Insurance and
Credit Guarantee Corporation Act, 1961 (for short 'DICGC Act'),
the National Bank for Agricultural and Rural Development Act,
1981 (for short 'NABARD Act') etc. Since the order impugned B
results in the supersession of a body elected to achieve social
and economic democracy with emphasis on weaker sections
of the society, as the preamble of the Act depicts, a close look
at the powers of the functionaries instrumental in over-turning
an elected body is of paramount importance. c
10. Co-operative philosophy on society must rest on free
universal association, democratically governed and
conditioned by equity and personal liberty. First legislation in
India relating to cooperative societies was the Co-operative
Societies Act, 1904, established for the purpose of credit only, D
but to extend the privilege of credit societies to other societies
also a legislation with wider scope and object, that is
Cooperative Societies Act 1912, was passed which was
applicable to the whole of British India, which was a Central Act.
Later, after independence different States enacted separate E
Acts of which we are in this case concerned with the 1960 Act
· in force in the State of Madhya Pradesh.
11. We find, until the year 1965, the Cooperative Banks
were not being regulated by the RBI but it was felt necessary F
to bring the cooperative societies carrying on the business of
banking within the purview of the Regulation Act. Since, large
number of cooperative societies were carrying on the banking
business, and also to ensure the growth of cooperative banking
on sound banking principles, the Parliament enacted the Act G
·23 of 1965, called the Banking Law (Application to
Cooperative Societies) Act, 1965 and Part IV was introduced
into the Regulation Act w.e.f. 1.3.1966. Section 55 of Part V
provides for the application of the Regulation Act to Cooperative
Banks. Any existing co-operative bank at the time of the H
756 SUPREME COURT REPORTS [2013] 3 S.C.R.
A commencement of the Act 23 of 1965 was required to apply
grant of license within a period of three months from the date
of the commencement of the Act and obtain a license from RBI
under Section 22 of RBI Act. Every co-operative bank is also
obliged to comply with the provisions of the Regulation Act and
B directions/guidelines issued by RBI from time to time.
12. We may, in this connection, refer to certain provisions
of the DICGC Act which also confers certain powers to the RBI
to supersede the committee of the management of the co-
operative Bank in public interest. The Act has been enacted
C to provide for the establishment of a Corporation for the
purpose of insurance deposits and guaranteed credit facilities
for allied purposes. Section 3 of the Act has empowered the
Central Government to establish the Deposit Insurance
Corporation, a wholly owned subsidiary of RBI. Section
D 2(gg)(iii) of DICGC Act states that "eligible co-operative bank"
means a co-operative bank, the law for the time being
governing, which provides that:
"2(gg)(iii) If so required by the Reserve Bank of India
E in the public interest or for preventing the affairs of the bank
being conducted in a manner detrimental to the interest of
the depositors or for securing the proper management of
the bank, an order shall be made for the supersession of
the committee of management or other managing body (by
F whatever name called) of the bank and the appointment
of an administrator therefor for such period or periods not
exceeding five years in the aggregate as may from time
to time be specified by the Reserve Bank."
RBI never thought it necessary to invoke the above
G mentioned provision as against the first respondent.
NABARD Act has been enacted to provide and regulate
credit facilities and for other related and individual matters.
Section 3 of the Act has empowered the Central
Government to establish such a National Bank, i.e.
H NABARD. Section 35 of the Regulation Act empowers the
STATE OF M.P. v. SANJAY NAGAYACH 757
[K.S. RADHAKRISHNAN, J.]
RBI to conduct inspection of the affairs of a banking A
company. RBI has also got the power under Sub-section
(b) of Section 35 of the Regulation Act to authorise
NABARD to conduct inspection of the District Cooperative
Bank.
B
13. Section 2(d) of the NABARD Act defines the term
"Central Co-operative Bank". NABARD in exercise of the
powers conferred on it, is also authorised to conduct inspection
on the affairs of District Co-operative Banks.
14. We will now examine the scope of Section 53 of the C
Act, especially the second proviso to Section 53(1) of the Act,
in the light of the above discussion. Section 53 relevant to our
purpose is given below:
"53. Supersession of Board of Directors- (1) If in D
the opinion of the Registrar the Board of Directors of any
society-(a) is negligent in the performance of the duties
imposed on it by or under this Act or byelaws of the society
or by any lawful order passed_ by the Registrar or is
unwilling to perform such duties; or
E
(b) commits acts which are prejudicial to the interests
of the society or its members; or
(c) violates the provisions of this Act or the rules
made thereunder or byelaws of the society or any order F
passed by the Registrar. The Registrar may, by order in
writing remove the Board of Directors and appoint a
person ·orpersons to manage the affairs of the society for
a specified period not exceeding two years in the first
instance: G
Provided that if in opinion of the Registrar, the Board
of Directors of any Primary Agriculture Credit Co-
operative Society-
. (i) incurs losses for three consecutive years; or H
758 SUPREME COURT REPORTS [2013] 3 S.C.R.
A (ii) commits serious financial irregularities or fraud is
identified; or
(iii) there is perpetual lack of quorum in the meetings
of the Board of Directors.
B The Registrar may, by order in writing remove the
Board of Directors an appoint a person or persons to
manage the affairs of the society for two months which may
be extended by him for such period not exceeding six
months for reasons to be recorded in writing:
c
Provided further that in case of Co-operative Bank,
the order of supersession shall not be passed without
previous consultation with the Reserve Bank;
Provided further that if no communication containing
D the views of the Reserve Bank of India on action proposed
is received within thirty days of the receipt by that bank of
the request soliciting consultation, it shall be presumed that
the Reserve Bank of India agree with the proposed action
and the Registrar shall be free to pass such order as he
E may deem fit.
Provided also that if a non-official is appointed in the
Board of Directors of a primary society, he shall be from
amongst the members of that society, entitled for such
F representation and in case of central or Apex society, if a
person is appointed in the Board of Directors of such
society, he shall be a member of one of its affiliated
societies entitled for such representation.
(2) No order under sub-section (1) shall be passed
G unless a list of allegations, documents and witnesses in
support of charges levelled against it has been provided
and the Board of Directors has been given a reasonable
opportunity of showing cause against the proposed order
and representation, if any, made by it, is considered.
H
STATE OF M.P. v. SANJAY NAGAYACH 759
[K.S. RADHAKRISHNAN, J.]
)()()( )()()( )()()( A
)()()( )()()( )()()(
(7) Before taking action under sub-section (1) in respect
of a financing bank or in respect of a society indebted to
a financing bank, the Registrar shall consult, in the former B
case, the Madhya Pradesh State Co-operative Bank
Limited and, in the latter case, the financing bank,
counterved regarding such action. If the Madhya Pradesh
State Co-operative Bank Limited or the financing bank, as
the case may be, fails to communicate its views within C
thirty days of the receipt by such bank of the request
soliciting consultation, it shall be presumed that the
Madhya Pradesh State Co-operative Bank Limited or the
financing bank, as the case may be, agreed with the
proposed action." D
Section 53 (1) confers powers on the Registrar to pass an
order to remove the Board of Directors and to appoint a person
to manage the affairs of the society, subject to certain·
conditions, of which, we are primarily concerned with the E
applicability of the second proviso to Section 53(1), which
specifically states that in the case of a Co-operative Bank, the
order of supersession shall not be passed without previous
consultation with the RBI. The third proviso to Section 53 states
that if no communication containing the views of the RBI on the
F
action proposed is received within thirty days of the receipt by
that bank of the request soliciting consultation, it shall be
presumed that the RBI agreed with the proposed action and
the Registrar shall be free to pass such order, as he may deem
fit. Sub-section (2) to Section 53 of the Act specifically states
that no order under Sub-section (1) (order of supersession) G
shall be passed unless a list of allegations, documents and
witnesses in support of charges levelled against it has been
provided and the Board of Directors has been given a
reasonable opportunity of showing cause against the proposed
order and representation, if any, made by it, is considered. The H
760 SUPREME COURT REPORTS [2013) 3 S.C.R.
A second proviso to Section 53 (1) refers to the expression
"order of supersession", means that the final order of
supersession to be passed by the Joint Registrar after
complying with sub-section (2) to Section 53. Second and third
provisos, read together, would indicate that no order of
B supersession shall be passed without previous consultation with
the RBI. Before passing an order of supersession, the show-
cause-notice along with other relevant materials, including the
reply received from the bank, has to be made available to the
RBI for an effective consultation.
c 15. We have already quoted the second proviso to Section
53(1), the meaning of which is clear and unambiguous which,
in our view, calls for no interpretation or explanation. In this
respect, reference to the often quoted principle laid down by
Tindal, C.J. in Sussex Peerage case (1844) 11 CIT F.85 is
D useful, which reads as follows: "If the words of the Statute are
in themselves precise and unambiguous, then no more can be
necessary than to expound those words in the natural and
ordinary sense." Reference may also be made to the judgments
of this Court in Latu Prasad Yadav and Another v. State of
E Bihar and Another (2009) 3 SCC 553 and Ansal Properties
and Industries Limited v. State of Haryana and Another (2010)
5 sec 1.
16. The mere serving a copy of the show-cause-notice on
F RBI with supporting documents is not what is contemplated
under the second proviso to Section 53(1). For a meaningful
and effective consultation, the copy of the reply filed by the Bank
to the various charges and allegations levelled against them
should also be made available to the RBI as well as the action
G proposed by the Joint Registrar, after examining the reply
submitted by the Bank. On the other hand, RBI should be told
of the action the Joint Registrar is intending to take. Only then,
there will be an effective consultation and the views expressed
by the RBI will be a relevant material for deciding whether the
H elected Board be superseded or not. In other words, the
STATE OF M.P. v. SANJAY NAGAYACH 761
[K.S. RADHAKRISHNAN, J.]
previous consultation is a condition precedent before forming A
an opinion by the Joint Registrar to supersede the Board of
Directors or not.
17. This Court in Indian Administrative Services (SGS)
Association, U.P. v. Union of India 1993 Supp (1) SCC 730, B
has laid down six propositions while examining the meaning
of the expression 'consultation'. We may add one more
proposition that when the outcome of the proposed action is
to oust a democratically elected body and the expression used
is "shall not be passed without previous consultation", it is to C
be construed as mandatory. Reference may also be made to
the judgments of this Court in Reserve Bank of India v.
Peerless Company (1987) 2 SCR 1, State of Jammu and
Kashmir v. A.R. Zakki and Others 1992 Supp (1) SCC 548,
Gauhati High Court and Another v. Kuladhar Phkan and
Another (2002) 4 SCC 524, Andhra Bank v. Andhra Bank D
Officers and Another (2008) 7 SCC 203.
Discussion
18. District Cooperative Bank, Panna (for short 'Panna E
DCB"), a Bank registered under the Act, was issued a license
to conduct the banking services in India by RBI on 3.6.2010
under Section 22 of the Regulation Act. Panna DCB is a
Central Co-operative Bank as defined under Sub-section 2(d)
of NABARD Act. NABARD had conducted an inspection of the F
Panna DCB under Section 35 of the Regulation Act, with
reference to the financial position as on 31.3.2007, when the
previous Board was in office and thirty six fraud cases at
Primary Agricultural Credit Societies (PACS) involving
Rs.37.05 lacs had been reported. Certain deficiencies in the
bank's functioning, like non-adherence to the provisions of the G
Income Tax Act, lack of internal checks and control systems and
unsatisfactory compliance to their previous inspection report,
had also found a place in their inspection report, the copy of
which was forwarded to the RBI vide their communication dated
1.2.2008. H
762 SUPREME COURT REPORTS [2013] 3 S.C.R.
A 19. The Joint Registrar, Co-operative Societies, as already
stated, issued a notice to Panna DCB to show cause as to why
the Board of Directors be not superseded and an Administrator
be appointed. The show-cause-notice was sent to the RBI,
which RBI received on 4.3.2009. RBI vide its letter dated
B 17.4.2009 requested the Joint Registrar to inform the action
being taken on the reply submitted by the Board of Directors
of Panna DCB. RBI vide its letter dated 30.3.2009 forwarded
the copy of the show-cause-notice to the Chief General
Manager, NABARD for their comments. Since, NABARD had
c conducted inspection of Panna DCB under Section 35 of the
Regulation Act, NABARD vide its letter dated 29.6.2009
informed the same to the RBI and also opined as follows:
"..... We are of the view that the deficiencies mostly relating
to systems and procedures are of general nature, which
D do not provide strong ground for supersession of the
Board as far as the inspection by NABARD is concerned."
20. RBI, again, vide its letter dated 3.6.2009 wrote to the
Joint Registrar to inform RBI the outcome of the reply submitted
E by the Bank to the show-cause-notice. RBI, then sent a
reminder on 22. 7.2009 to the Joint Registrar, since no reply was
received. RBI, it is seen has received a reply from the Joint
Registrar on 10.8.2009. RBI, then sent a communication to the
Joint Registrar vide its letter dated 8.5.2009 to know the action
F taken on the reply submitted by the Board of Directors. The Joint
Registrar then sent a detailed reply dated 19.8.2009 to the RBI
stating that in the case of a Co-operative Bank, order of
supersession would not be issued without previous consultation
with RBI, however, if no communication containing the views
G of RBI on the action was received within 30 days, it should be
presumed that the RBI had agreed to the proposed action and
the Registrar would be free to pass orders as might be deemed
fit. It was further stated that in the case of District Co-operative
Bank, the powers under Section 53(2) of the Act are vested
with the Regional Joint Registrar and notice issued by the Joint
H
STATE OF M.P. v. SANJAY NAGAYACH 763
[K.S. RADHAKRISHNAN, J.]
Registrar was not sent for the opinion of the State Government. A
Further, it was also pointed out that the Bank had submitted
its reply on 8.5.2009 and internal decision would be taken as
per the legal provisions and RBI would be informed accordingly.
Yet, another letter dated 24.12.2009 was also received by the
RBI, wherein it was stated that the :iearing was going on and B
the RBI would be informed of the final decision. Later, without
informing the RBI of the proposed action and also without
forwarding the reply submitted by Panna DCB to the show-
cause-no.tice to RBI, the order of supersession dated
30.9.2011 was passed by the Joint Registrar. c
21. We find seven charges levelled against the Board of
Directors were relating to the period of the previous Committee,
for which the first respondent Board of Directors could not be
held responsible. Further, even though the Board had taken
charge in October 2007, the audit report was submitted before D
the Board only after nine months and that the Board of Directors.
took follow up action on the basis of the audit report dated
25.9.2008. The Joint Registrar, it seems, was found to be
satisfied with the detailed replies dated 6.5.2009 and
16.5.2011submitted by the Board of Directors of the Bank, E
possibly, due to that reason, even though the show-cause-notice
was issued on 22.3.2009, it took about two and half years to
pass the order of supersession.
22. We are of the view that the order of supersession F
dated 30.9.2011 is not only in clear violation of the second
proviso to Section 53(1) of the Act, but also the allegations
raised in the show-cause-notice are deficiencies mostly relating
to systems and procedures and are of general nature and not
grave enough to overthrow a democratically elected Board of G
Directors. Both NABARD and RBI have expressed the view that
the charges levelled against the Board of Directors do not
provide strong ground to supersede the Board.
23. Learned senior counsel Shri Vivek Tankha submitted
that since the Board of Directors was superseded illegally, they, · H
764 SUPREME COURT REPORTS [2013) 3 S.C.R.
A be put back in office and allow to continue, for the period they
were put out of office. We find force in that contention,
especially in view of the views expressed by NABARD as well
as RBI and the fact that the Joint Registrar himself had passed
the order of supersession only after two and half years of the
B date of issuance of the show-cause-notice.
24. The legislative intention is clear from the following
statutory provisions. The statute has fixed the term of an elected
Board of Directors as five years from the date on which first
meeting of Board of Directors is held. Once a Board of
C Directors is illegally superseded, suspended or removed, the
legislature in its wisdom ordained that the Board should
complete their full term of five years, because electorate has
elected the Board for five years. The proviso to Section
49(7A)(i) reads as follows:
D
"7A{i) The term of the Board of Directors shall be five
years from the date on which first meeting of the Board of
Directors is held:
Provided that where a Board of Directors
E
superseded, suspended or removed under the Act is
reinstated as a result of any order of any Court or authority,
the period during which the Board of Directors remained
under supersession, suspension out of office, as the case
may be, shall be excluded in computing the period of the
F term aforesaid."
25. The Board of Directors, in the instant case, took charge
on 16.10.2007, therefore, they could continue in office till
15.10.2012. The Board of Directors was, however, superseded
G illegally on 30.9.2011 and, by virtue of the judgment of the
Division Bench of the High Court dated 13.2.2012, the Board
should have been put back in office on 13.2.2012, but an
Administrator was appointed. Going by the proviso referred to
above, the period during which the Board of Directors remained
H under supersession be excluded in computing the period of five
STATE OF M.P. v. SANJAY NAGAYACH 765
[K.S. RADHAKRISHNAN, J.]
years. In the facts and circumstances of this case, we are of A
the considered opinion that the duly elected Board of Directors
should get the benefit of that proviso, which is statutory in nature.
26. In such circumstance~. we direct the Joint Registrar,
Co-operative Societies, Sagar to put the Board of Directors B
back in office so as to complete the period during which they
were out of office.
27. The High Court, in our view, has therefore rightly
exercised its jurisdiction under Article 226 of the Constitution
and the alternative remedy of appeal is not bar in exercising C
that jurisdiction, since the order passed by the Joint Registrar
was arbitrary and in clear violation of the second proviso to
Section 53(1) of the Act.
28. We a.re of the view that this situation has been created D
by the Joint Registrar and there is sufficient evidence to
conclude that he was acting under extraneous influence and
under dictation. A legally elected Board of Directors cannot be
put out of the office in this manner by an illegal order. If the
charges levelled against the Board of Directors, in the instant E
case, were serious, then the Joint Registrar would not have
taken two and half years to pass the order of supersession.
State of Madhya Pradesh did not show the grace to accept the
judgment of the Division Bench of the High Court and. has
brought this litigation to this Court spending huge public money,
a practice we strongly deprecate.
F
Registrar/Joint Registrar and External Influence:
29. Statutory functionaries like Registrar/Joint Registrar of
Co-operative Societies functioning under the respective Co- G
operative Act must be above suspicion and function
independently without external pressure. When an authority
invested with the power purports to act on its own but in
substance the power is exercised by external guidance or
pressure, it would amount to non-exercise of power, statutorily H
766 SUPREME COURT REPORTS [2013) 3 S.C.R.
A vested. Large number of cases are coming up before this Court
and the High Courts in the country challenging the orders of
supersession and many of them are being passed by the
statutory functionaries due to external influence ignoring the fact
that they are ousting a democratically elected Board, the
B consequence of which is also grave because the members of
the Board of Directors would also stand disqualified in standing
for the succeeding election as well.
30. The Registrar/Joint Registrar, while exercising powers
of supersession has to form an opinion and that opinion must
C be based on some objective criteria, which has nexus with the
final decision. A statL•tory authority shall not act with pre-
conceived notion and shall not speak his masters' voice,
because the formation of opinion must be his own, not
somebody else in power, to achieve some ulterior motive. There
D may be situations where the Registrar/Joint Registrar are
expected to act in the best interest of the society and its
members, but in such situations, they have to act bona fide and
within the four corners of the Statute. In our view, the impugned
order will not fall in that category.
E
Judicial Precedents
31. Registrar/Joint Registrar is bound to follow the Judicial ·
Precedents. Ratio decidendi has the force of law and is binding
on all statutory authorities when they deal with similar issues.
F The Madhya Pradesh High Court in several judgments has
explained the scope of the second proviso to Section 53(1) of
the Act. Reference may be made to the judgments in
Radheshyam Sharma v. Govt. of M.P. through C.K. Jaiswal
and Ors. 1972 MPLJ 796, Board of Directors of Shri Ganesh
G Sahakari Vipnan (Marketing) Sanstha Maryadit and Another
v. Deputy Registrar, Co-operative Societies, Khargone and
Others1982 MPLJ 46 and Sitaram v. Registrar of Co-
operative Societies and another 1986 MPLJ 567.
H 32. We fail to see why the Joint Registrar has overlooked
STATE OF M.P. v. SANJAY NAGAYACH 767
[K.S. RADHAKRISHNAN, J.]
those binding judicial precedents a.nd the ratio decidendi. A
Judicial rulings and the principles are meant to be followed by
the statutory authorities while deciding similar issues based on
the legal principles settled by judicial rulings. Joint Registrar,
While passing the impugned order, has overlooked those
binding judicial precedents. B
33. We fail to notice why the State Government,
Department of Co-operative Societies has taken so much
interest in this litigation. Joint Registrar in his letter dated
19.8.2009 to RBI stated that in the case of District Co-operative C
Bank, the powers under Section 53(2) of the Act are vested
with Regional Joint Registrar and the notice issued by the Joint
Registrar is not meant for the opinion of the State Government.
Assuming, the State Government has powers under Section 49-
C of the Act, no report has been forwarded by the Registrar to
the State Government and no direction have been issued by D
the State Government with regard to the supersession of the
Board. Sorry so note that the State Government has spent huge
public money by litigating this matter even up to this Court, that
too, without following the binding precedents of the Madhya
Pradesh High Court on the scope of the second proviso to E
Section 53( 1) of the Act.
34. In such circumstances of the case, we are inclined to
dismiss both the appeals with costs directing re-instatement of
the first respondent Board of Directors back in office forthwith F
and be allowed to continue for the period they were put out of
office by the impugned order which has been quashed. We also
direct the State of Madhya Pradesh to pay an amount of
Rs.1,00,000/- to the Madhya Pradesh Legal Services Authority
within a period of one month byway of costs and also impose G
a cost of Rs.10,000/- as against the Joint Registrar, Co-
operative Societies, Sagar, the officer who passed the order,
which will be deducted from his salary and be deposited in the
Panna DCB within a period of two months from today. Ordered
acc'?rdingly.
H
768 SUPREME COURT REPORTS [2013) 3 S.C.R.
A 35. Further, we are inclined to give the following general
directions in view of the mushrooming of cases in various
Courts challenging orders of supersession of elected
Committees:
(1) Supersession of an elected managing Committee/
B
Board is an exception and be resorted to only in
exceptional circumstances and normally elected
body be allowed to complete the term for which it
is elected.
c (2) Elected Committee in office be not penalised for
the short-comings or illegalities committed by the
previous Committee, unless there is any deliberate
inaction in rectifying the illegalities committed by the
previous committees.
D
(3) Elected Committee in Office be given sufficient
time, say at least six months, to rectify the defects,
if any, pointed out in the audit report with regard to
incidents which originated when the previous
committee was in office.
E
(4) Registrar/Joint Registrar are legally obliged to
comply with all the statutory formalities, including
consultation with the financing banks/Controlling
Banks etc. Only after getting their view, an opinion
F be formed as to whether an elected Committee be
ousted or not.
(5) Registrar/ Joint Registrar should always bear in
mind the consequences of an order of supersession
G which has the effect of not only ousting the Board
out of office, but also disqualify them for standing
for election in the succeeding elections. Registrar/
Joint Registrar therefore is duty bound to exercise
his powers bona fide and not on the dictation or
direction of those who are in power.
H
STATE OF M.P. v. SANJAY NAGAYACH 769
[K.S. RADHAKRISHNAN, J.]
(6) Registrar/Joint Registrar shall not act under political A
pressure or influence and, if they do, be subjected .
to disciplinary proceedings and be also neld
personally liable for the cost of the legal
proceedings.
B
(7) Public money not to be spent by the State
Government or the Registrar for unnecessary
litigation involving disputes between various
factions in a co-operative society. Tax payers
money is not expected to be spent for settling those C
disputes. If found necessary, the same be spent
from the funds available with the concerned Bank.
RP. Appeals dismissed.
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