J.P. Singh, J.@mdashThe Board of Directors of the Citizens Cooperative Bank Limited, Jammu was superseded by the Registrar Co-operative
Societies, Jammu and Kashmir, Jammu by his Order No. RCS/B&F/07 of 2009 dated 21.12.2009.
2. The Registrar's order, when appealed against by the Board of Directors, was set aside by the Jammu and Kashmir Special Tribunal, Jammu
vide its Order of April 05, 2010, treating the Board of Directors' Appeal as Revision exercising suo-moto revisional jurisdiction.
3. Mr. Rajeev Chunni, an Ex-Director of the Society, who had complained against the Board of Directors, and the Registrar Cooperative
Societies, Jammu and Kashmir, Jammu, questioned the Jammu and Kashmir Special Tribunal's order by their Writ Petitions OWP Nos. 389 and
390 of 2010 respectively. Allowing the Writ Petitions and setting aside the Tribunal's order, a learned Single Judge of this Court has restored the
Registrar's Order directing the Administrator appointed by the Registrar, to conduct elections to the Managing Committee of the Society within
four months.
4. The Board of Directors have filed these two Letters Patent Appeals questioning the Judgment delivered by the learned Single Judge in the two
Writ Petitions.
5. The facts leading to the filing of these Appeals may be summarized thus:
The Registrar Cooperatives, issued a Show Cause Notice to the Management of the Citizens Cooperative Bank Limited, Jammu, as to why it be
not superseded in terms of Section 30 of the Jammu and Kashmir Cooperative Societies Act, 1989. The Notice reads thus:
Govt. of Jammu and Kashmir
Office of the Registrar,
Cooperative Societies, J&K,
Jammu
Sub:- Inquiry into the Constitution, working and Financial condition of the Citizens Cooperative Bank Ltd. Jammu.
Show Cause Notice Whereas, the inquiry team constituted vide this office order No. 04-RCS/B&F of 2009 dated: 23.10.2009 issued under
endorsement No. RCS/B&F/J/58-II 1606-13 dated 23.10.2009, has submitted the final report on the Constitution, working and financial
condition of the Citizens' Cooperative Bank Ltd. Jammu;
Whereas, the final inquiry report received vide Joint Registrar Cooperative Societies, Audit Jammu's No. JRAJ/1541 dated 9.12.2009 has been
blended with the earlier inquiry report on the working of Citizens' Cooperative Bank Ltd. Jammu, submitted by the then Additional Registrar,
Cooperative Socieites, Jammu, vide his No. Adm/2489 dated 22.1.2009;
Whereas, the areas of concern listed in the inquiry report of Additional Registrar, Coop. Societies, Jammu were conveyed vide this Office No.
RCS/B&F/J-58/1039-43 dated 20.02.2009 to the Management for response besides, advising to initiate corrective measures;
Whereas, inconclusive report/response was received from the Management of the Bank under No. 899-903 dated 20.4.2009;
Whereas, instead of initiating measures to curb and arrest the recurrence of the omissions and comissions, the Management continued with its
policies otherwise, detrimental to the interests of the Bank in general and the members in particular;
Whereas, the volley of complaints received necessitated the instituting of fresh inquiry so as to dispel the apprehensions about the rampant
mismanagement in the Citizens' Cooperative Bank;
Whereas, the fresh inquiry has vindicated the apprehensions of the complainants on a number of counts and areas;
Whereas, the majority of the members of incumbent Management are from among the members of the sacked Management of 2004;
Whereas, the incumbent Management supposedly had to attend all the grey areas having led to their sacking way back in 2004, but for the reasons
best known to them have perpetuated/repeated their earlier style of working;
Whereas, in the awarded case of Kuldeep Singh and Company, the Management has recovered only an amount of Rs. 29.39 lacs against the
awarded amount of Rs. 44.52 lacs as principal and Rs. 8654071.50 as interest;
Whereas, the entire awarded amount had to be recovered by or before 11th January 2008, and the failure of the Management has given credence
to the fact that wait and watch policy has been resorted to;
Whereas, there is no reasons to believe that the Management is in league with the said company, constraining the Management to adopt a lenient
policy;
Whereas, during the year 2007-08 the Bank has booked a net loss of Rs. 158.52 lacs which speaks about the working of the Management against
the interests of the Bank;
Whereas, the reasons tendered by the Management for the loss sustained have been furnished in quite disregard of the fact that the quantum of
provisioning necessitated on volume of NPA's was mainly due to the bad loaning and imprudent decisions of the successive Management;
Whereas, in case of Sh. Sunil Maini, once the Vice Chairman on the Management, the Bank has suffered a loss of Rs. 19.52 lacs which otherwise
is the hard earned money of the depositors;
Whereas, during the year 2008-09 the Management of the Bank has put a big chunk of members to avoidable inconvenience in holding the Annual
General Body Meeting at Akhnoor;
Whereas, in upholding the request of the majority of the share holders of the Bank, this office and the Co-regulator Reserve Bank of India
prevailed upon the Management to reconsider the decision of holding the Annual General Body Meeting at Akhnoor;
Whereas, the Management proceeded a head with its decision, thereby defying the advice of the statutory authorities besides causing an avoidable
expenditure of Rs. 3.00 lacs for a weak Institution like Citizens' Cooperative Bank;
Whereas, during the last two years the cost of Management of the Bank has considerably increased, notwithstanding the commitment of the
Management under Development Action Plan to reduce the same.
Whereas, the Management has been following the Policy of appeasement, promoting the officers/officials over the head of their seniors;
Whereas, the Management has substantiated the elevation of the officers and the officials on the strength of their merit cum suitability without
indicating the mechanism to fathom/measure the merit.
Whereas, the Management has resorted to ruthless and imprudent loaning, having granted adhoc Cash Credit Limits in favour of number of parties
during the year 2009-2010.
Whereas, in the sanctioning of adhoc of Cash Credit limits the hard earned money of the depositors has been exposed to risk allegedly for the
pecuniary benefits of the members of Management.
Whereas, during the year 2009-2010 the Management has fallen prey to money laundering which otherwise, is quite alien to the cooperative
Banking Sector;
Whereas, the Management of the Bank has failed to formulate any investment policy and the investments made with the State Financial
Corporation depsite having matured has not been redeemed.
Whereas, the investment portfolio of the Bank including both SLR and NON-SLR during the year 2007-08 has been to the order of Rs. 2551.79
lacs as compared to Rs. 2330.03 lacs during 2006-07, which is otherwise, not desirable;
Whereas, the Citizens' Cooperative Bank Ltd. Jammu has been awarded the Grade III Status by the Reserve Bank of India for its weak financial
position and the highest magnitude of non performing assets;
Whereas, no pragmatic steps have been initiated by the Management to reduce the quantum of NPA's and revive the sticky accounts of different
parties;
Whereas, last but not the least, in the awarded cases the Management has demonstrated the highest degree of slackness to execute such awards;
Now, therefore, in view of the above areas of concern and the other omissions and commissions persisting in the working of the Bank I, G.N. Sufi,
Registrar, Cooperative Societies, J&K, Jammu, call upon the Management of the Citizens' Cooperative Bank Ltd. Jammu as to why it is not
superceded in terms of Section 30 of the J&K Cooperative Societies Act of 1989, objections if any be furnished within 7 days from the date of
issue of this Show Cause Notice.
Sd/-
(G.N. Sufi)
Registrar,
Cooperative Societies, J&K,
Jammu
No: RCS/B&F/J-58/689-94 Dated : 11.12.2009
6. The Board of Directors did not file any reply to the Show Cause Notice within the time stipulated therein and its reply is stated to have been
received by the Registrar after he had issued order No. RCS/B&F/07 of 2009 dated 21.12.2009 superseding the Board of Directors of the
Citizens Cooperative Bank Limited, which is reproduced hereunder for facility of reference.
Govt. of Jammu and Kashmir
Office of the Registrar, Cooperative Societies, J&K,
Jammu.
Sub: Inquiry into the constitution, working and financial condition of the Citizens' Cooperative Bank Ltd. Jammu, supercession of the Management
thereof.
ORDER No. RCS/B&F/07 of 2009
Dated 21.12.2009
Whereas, a Show Cause Notice to the Board of Directors of Citizens Cooperative Bank Ltd. Jammu was issued vide this office endorsement No.
RCS/B&F/J-58/689-94 dated 11.12.2009 and delivered to the Management on 12.12.2009 against proper receipt;
Whereas, the areas of concern having constrained, to issue the Show Cause Notice have been listed out separately;
Whereas, the Management had to Show cause within a period of seven days for the action being initiated/contemplated against it for the
mismanagement and financial irregularities;
Whereas, the failure of the Management to reply the charges has given credence to the fact that it has nothing to say in its defence;
Now, therefore, I, G.N. Sufi, Registrar, Cooperative Societies, J&K, Jammu, in exercise of the powers vested in me u/s 30 of the J&K,
Cooperative Societies Act of 1989, supersede the Board of Directors of the Citizens' Cooperative Bank Ltd. Jammu with immediate effect. The
appointment of Administrator/Board of Administrators shall follow.
Sd/-
(G.N. Sufi)
Registrar,
Cooperative Societies, J&K,
Jammu.
No: RCS/B&F/14/777-83
Dated : 21.12.2009
7. The Registrar's Order has been found unsustainable by the Jammu and Kashmir Special Tribunal on the following grounds:
1) The Citizens Co-operative Bank Limited, being a Banking Society, could be superseded by the Registrar, only if so required in writing, by the
Reserve Bank or National Bank for Agriculture or Rural Development, in the Public Interest or for preventing the affairs of the Co-operative Bank,
being conducted in a manner detrimental to the interest of the depositors or for securing the proper management of a Co-operative Bank. There
being no such requisition by the Reserve Bank or National Bank, the Registrar's order was invalid.
2) The Society being a Co-operative Bank, power u/s 30(1) of the Act could not be exercised by the Registrar for its supersession.
3) The Registrar's order was illegal because it had been passed without forming 'opinion' as contemplated by Section 30 of the Co-operative
Societies Act.
4) The Registrar's order was void for non-application of mind and having been issued on the dictates of the Minister Incharge and his Subordinate
Staff.
5) The material relied upon by the Registrar to supersede the Board of Directors did not pertain wholly to the period the Board of Directors had
remained in office and was referable to the period starting from the inception of the Society.
6) The inquiry reports relied upon by the Registrar to supersede the Board of Directors lacked legal sanction. Interpreting the provisions of the
Jammu and Kashmir Cooperative Societies Act, 1989, the learned Single Judge has held that supersession of a Banking Society may not always
require requisition from the Reserve Bank, because the Registrar, even otherwise, possessed jurisdiction to supersede the Banking Society on
being satisfied in terms of Section 30(1) of the Act. His Lordship was further of the view that the 'opinion' contemplated by Section 30(1) of the
Act may be formulated by the Registrar on any material available with it and not necessarily on the basis of the inquiry or Audit Report.
8. Holding that the principles of Natural Justice were not violated by the Registrar, the learned Single Judge upheld the Registrar's order relying on
the facts indicated in the Show Cause Notice. We have heard learned Counsel for the parties, perused the records and gone through the
provisions of the Jammu and Kashmir Co-operative Societies Act and the case law cited at the Bar.
9. The issues which need determination in these Letters Patent Appeals pertain to the interpretation of the provisions of Section 30 of the Jammu
and Kashmir Cooperative Societies Act, 1989. This Section, which needs a closer look, is, therefore, reproduced hereunder for reference:
30. Supersession/removal of Committee
[(1) If in the opinion of the Government or Registrar, a Committee or Board, by whatever name called, of a Co-operative Society is persistently
making a fault or is negligent in the performance of the duties imposed on it by this Act or the rules or bye-laws made thereunder or has committed
any act which is prejudicial to the interest of the society or its members, or has failed to comply with any direction given to it by the Government by
the Registrar for the purpose of securing proper implementation of Cooperative production and other development programmes or that there is a
stalemate in the constitution or functioning of the Committee or the Board, the Government or Registrar may, after giving the Committee or the
Board, as the case may be, opportunity to state its objections, if any, by order in writing remove the Committee or the Board and appoint one or
more Administrators to manage the affairs of the society for a period not exceeding six months and the elections shall be held within such period for
the reconstitution of the Committee or the Board, as the case may be.]
(2) The Registrar may fix such remuneration for the Administrators, as he may think fit, and the remuneration shall be paid out of the funds of the
Co-operative Society.
(3) The Administrator shall, subject to the control of the Registrar and to such instructions, as he may, from time to time give, have power to
perform all or any of the functions of the Committee or the Board or of any officer of the Co-operative Society and take all such actions as may be
required in the interests of the Society.
(4) Save as otherwise provided in Sub-section (5), the Administrator shall, before the expiry of his term of office, arrange for the constitution of a
new Committee or Board, as the case may be, in accordance with the bye-laws of the Co-operative Society.
(5) Where the Administrator is appointed under Sub-section (1), the Registrar may by order in writing giving reasons therefore, direct the
Administrator to arrange for the constitution of a new Committee or Board for such Cooperative Society in accordance with the byelaws of such
Society and immediately on the constitution of such Committee or the Board, the Administrator shall hand over the management of such Society to
such newly constituted Committee or the Board and shall cease to function.
(6) Before taking action under Sub-section (1), the Registrar shall consult the Federal Society concerned.
(7) Notwithstanding any thing contained in this Act, the Registrar shall in case of Cooperative Bank, if so required in writing by the Reserve Bank
or National Bank for Agriculture and Rural Development, in the public interest or for preventing the affairs of the Co-operative Bank being
conducted in a manner detrimental to the interest of the depositors or for securing the proper management of a Cooperative Bank, pass an order
for the supersession of the Committee or the Board of that Cooperative Bank and for the appointment of an Administrator for such period or
periods not exceeding one year in the aggregate as may, from time to time, be specified by the Reserve Bank or National Bank for Agriculture and
Rural Development.
10. First of all, We would deal with the question as to whether the Committee or the Board of Directors of a Co-operative Society, doing Banking
business can be superseded only on a requisition by the Reserve Bank or National Bank and not otherwise.
11. Section 30(7) of the Jammu and Kashmir Cooperative Societies Act, 1989, ""the Act"" for short, is a non-abstante clause, phraseology used
wherein, demonstrates the legislative intent, to invest the Registrar, with additional power and authority, to supersede a Co-operative Bank, when
required in writing, so to do, by the Reserve Bank of India or National Bank for Agriculture and Rural Development, in the public interest or for
preventing the affairs of the Co-operative Bank being conducted in a manner detrimental to the interest of the depositors or for securing the proper
management of the Co-operative Bank.
12. This sub-section does not, in our view, control, in any manner whatsoever, the power of the Registrar to supersede a Committee or Board of a
Cooperative Society in terms of Section 30(1) of the Act, in that, the area of operation of Sections 30(1) and 30(7) is different.
13. While acting u/s 30(7) of the Act, the Registrar, when required by the Reserve Bank or National Bank, so to do, has no other option, but to
act according to the requisition, in superseding the Committee or the Board of the Co-operative Society, whereas u/s 30(1), the Government or
the Registrar has the absolute discretion to consider supersession or otherwise of the Committee or Board of a Co-operative Society, on fulfillment
of the conditions appearing in the Section. Merely because a Co-operative Society was undertaking banking business, would not deprive it of its
inherent status as that of a Co-operative Society, thus making its Committee or Board amenable to supersession by the Registrar or the
Government in terms of Section 30(1) of the Act too.
14. The Citizens Co-operative Bank Limited, being a Co-operative Society; registered as such, under the Co-operative Societies Act, the
Registrar had thus the jurisdiction to pass orders u/s 30(1) of the Act, even in the absence of any requisition by the Reserve Bank of India or
National Bank.
15. We, therefore, do not find any merit in the appellant's learned Counsel's first contention that in the absence of requisition by the Reserve Bank
or National Bank for Agriculture or Rural Development, the Registrar could not supersede the Board of Directors of the Citizens Co-operative
Bank Limited.
16. The next question that falls for consideration is as to whether the Registrar's order dated 21.12.2009, superseding the Board of Directors of
the Citizens Cooperative Bank Limited, Jammu, was sustainable, in the absence of Registrar's 'opinion' contemplated by Section 30(1) of the Act.
17. As the learned Single Judge has not dealt with this issue which had weighed with the Special Tribunal as one of its reasons to hold the
Registrar's order bad in law in the absence of requisite opinion of the Registrar in terms of Section 30 of the Act, so we would like to examine the
issue ourselves on the basis of the material available on records. Perusal of the Registrar's order as also the Show Cause Notice indicates that the
Registrar has not indicated his ""Opinion"", in the Show Cause Notice or in the supersession order for exercising power u/s 30(1) of the Act.
Whereas the Show Cause Notice does indicate facts, culled from the records, hinting at Co-operative Bank's alleged defaults, however, without
forming any Opinion thereon, but the order of supersession, neither indicates any alleged lapse or commission and omissions of the Board nor any
Opinion of the Registrar in terms of Section 30. It proceeds solely on the premise that having not responded to the Show Cause Notice, the Board
of Directors had nothing to say in its defence. The question that, therefore, needs to be considered, in these facts, is as to whether formation of
Opinion by the Registrar is the sine-qua-non for exercise of power to supersede a Committee of a Cooperative Society.
18. Perusal of Section 30(1) of the Act reveals that power to supersede or remove a Committee or Board of a Co-operative Society may be
exercised by the Government or the Registrar, if it was of the opinion that the Committee or the Board of Directors' working, attracts one or the
other(s) of the following situation(s):
1. that the Society is persistently making a fault or is negligent in the performance of the duties imposed on it by the Act or the rules or bye-laws
made thereunder; Or
2. has committed any act which is prejudicial to the interest of the Society or its members; Or
3. has failed to comply with any direction given to it by the Government or by the Registrar for the purpose of securing proper implementation of
Co-operative production and other development programmes; Or
4. that there is a stalemate in the constitution or removal of a Committee or Board of Co-operative Society.
19. The formation of Opinion by the Government or the Registrar as to the existence of one or more of the above extracted contingencies, is thus a
Statutory Compulsion before the power of supersession of a Committee or Board of Directors of a Co-operative Society, may be exercised.
20. It may thus be safely concluded that formation of opinion by the Government or the Registrar as to the existence of one or the other
Contingencies contemplated by Section 30(1) of the Act, as extracted herein-above, is the sine-qua-non for exercise of power of supersession, in
that, it is only the existence of one or the other factors indicated herein-above which give jurisdiction to the Government or the Registrar to
supersede or remove a Committee or Board of Directors of a Co-operative Society.
21. Perusal of the Registrar's order dated 21.12.2009, even when read with the Show Cause Notice does not indicate formation of opinion by the
Registrar as to the existence of one or more of the contingencies necessary for exercise of power of supersession, as contemplated by Section
30(1) of the Act.
22. In terms of the provisions of Section 30(1) of the Act, the Government and the Registrar are required to form opinion twice before directing
supersession of a committee or Board of Directors of a Co-operative Society. First being the prima facie opinion, before the issuance of the Show
Cause Notice, and the Second, the Final Opinion, after considering the Society's objections to the Show Cause Notice.
23. The Show Cause Notice and the supersession Order do not indicate Registrar's Opinion as to the existence of any, one or the others of the
four contingencies, on satisfaction whereof, supersession of a Committee or Board of Directors of a Co-operative Society may be contemplated.
24. That apart, the Show Cause Notice and the Supersession Order demonstrates absence of independent application of mind by the Registrar to
find out the existence or otherwise of the contingencies contemplated by Section 30(1) of the Act justifying supersession of a Committee or the
Board of Directors of a Co-operative Society. He appears to have acted on whatever was put up to him by the Deputy Registrar (Counsel).
Rather than forming his own independent and conscious opinion, in terms of Section 30 of the Act, he appears to have acted on the advice of the
Deputy Registrar (Counsel), who appears to have played major role in issuance of the Show Cause Notice and drafting of the Supersession
Order.
25. A Statutory Authority is required to discharge its duties as the Statute requires it so to do and in this view of the matter, enjoined by the Statute
to form ""Opinion"" before directing supersession of a Committee or Board of Directors of a Co-operative Society, the Registrar was required to
apply his independent mind for formation of opinion, as to the existence of requisite conditions justifying supersession of the Board. The Registrar
has failed to discharge its Statutory duty as required by Section 30 of the Act. His order, therefore, cannot be sustained. Another aspect which
needs to be noticed is that the allegations appearing against the Board of Directors, in the Show Cause Notice are vague, ambiguous and
irrelevant.
26. The Show Cause Notice attributes the activities of the erstwhile Board of Directors to the present Board of Directors merely because it
included some of the members of the Board who had been the members of the erstwhile Board too, which was superseded way back in 2004.
Reference has been made in the Show Cause Notice to the reports of the Committees which had been constituted by the Registrar to inquire into
the constitution, working and financial conditions of the Citizens Co-operative Bank Limited, Jammu; but neither the reports of the inquiry
Committee appear to have been supplied to the Bank nor does the Show Cause Notice refer to the findings of the inquiry Committees.
27. Reading of the Show Cause Notice as a whole, indicates it to be a blend of vague, ambiguous and irrelevant information about the working of
the Board of Directors, without indicating as to how such information indicated existence of any of the contingencies, necessitating exercise of
power u/s 30 of the Co-operative Societies Act for supersession of the Board of Directors.
28. Such a Show Cause Notice, which delineates only allegations, sans requisite opinion of the Registrar as contemplated by Section 30 cannot
thus be sustained, in that, the Board of Directors sought to be superseded, cannot be expected to file their objections to the Show Cause Notice
unless they were informed of the Registrar's tentative opinion as to how had its working, actions or conduct, been found, by the Registrar,
attracting the provisions of Section 30 of the Act, justifying its supersession.
29. Another fact which needs to be noticed is that looking to the volley of the Complaints and acts attributed to the Board of Directors of its
mismanagement in the Show Cause Notice, which runs into 29 paragraphs, one cannot make out as to which set of allegations/factors had
prevailed with the Registrar to direct issuance of the Show Cause Notice and consequent Supersession Order.
30. In these circumstances, the Show Cause Notice could not be appropriately replied by a person of ordinary prudence, particularly when the
Registrar had neither spelt out his mind nor expressed his opinion as to how the omissions and commissions in the working of the Board had
attracted any one or the other(s) of the four requisites contemplated by Section 20, 30 of the Act for supersession of the Board of Directors.
31. The absence of requisites in the Show Cause Notice contemplated by Section 30 of the Act, had, therefore, deprived the Board of Directors
of its right to file objections to its intended supersession.
32. Formation of opinion being the sine-qua-non before initiation of action u/s 30 of the Act for supersession/removal of the Committee, the
Registrar was, therefore, required to spell out his prima facie opinion in the Show Cause Notice and final opinion in the Supersession Order before
directing supersession of the Board of Directors.
33. Omission to form requisite opinion, which is a Statutory pre-requisite, for exercise of power of supersession, therefore renders the
supersession of Board of Directors of the Citizens Co-operative Bank Limited, illegal.
34. In view of the above discussion, We, therefore, find that the Registrar had acted illegally in directing the supersession of the Board of Directors
of the Citizens Co-operative Bank Limited.
35. Finding that the Registrar's order was bad in law, having been issued without complying with the requirements of Section 30(1) of the Act, We
do not find any necessity to deal with the other submissions advanced at the Bar, for these Appeals need to be disposed of in view of our finding
on the above issue. These Appeals are, accordingly, allowed, setting aside learned Single Judge's Judgment and Order dated July 08, 2010 in Writ
Petitions OWP Nos. 389 and 390 of 2010 respectively.
36. Resultantly, the Show Cause Notice dated 11.12.2009 and the Supersession of the Board of Directors of the Citizens Co-operative Bank
Limited ordered vide Registrar's Order No. RCS/B&F/07 of 2009 dated 21.12.2009 shall stand quashed.
