B. Bakthavatsalu Naidu, President, The Co-operative Central Bank Limited vs The Registrar of Co-Operative Societies

Natesan, J.—The President of the Co-operative Central Bank Limited, Vellore, North Arcot District, has filed this appeal from the order of

our learned brother Alagiri Swami J., dismissing the Appellant�s petition under Article 226 of the Constitution, for a writ of prohibition

restraining the Respondent from taking further steps for superseding the committee of the bank in pursuance of his notice, dated 1st December

1967 u/s 72 of Madras Co-operative Societies Act (Madras Act LIV of 1961).

The bank in question which has been registered under the Madras Co-operative Societies Act, was formed inter alia for collection of funds for

financing registered co-operative societies; to develop, assist and co-ordinate the work of affiliated supervising unions and secure for them financial

help whenever necessary; to serve as a recognized exponent of non-official co-operative opinion in the area and to undertake such other work as

will promote the cause of co-operation. The management of the bank is vested in a committee consisting of 17 members, of whom one is nominee

of the State Government. The bank which had been functioning under the Madras Co-operative Societies Act; 1932, came under the Madras Co-

operative Societies Act, 1961, on the repeal of the former, with effect from 2nd October 1963. u/s 27(3)(a) of the Act, the term of office of an

elected member of any committee shall be three years. The proviso to the Sub-section requires that, as nearly as may be, one-third of the members

elected to the committee at the first election shall retire at the end of the first year and another one-third of the members shall retire at the end of the

second year, the members so to retire at the end of first and second year as aforesaid being determined by lots by the committee. In accordance

with the provisions of the Act and the bye-laws of the bank, one-third of the elected members of the committee retire on the 31st October of every

year and annual election is held to fill up the vacancies caused by such retirement. On 31st October 1966 the term of office of six of the members

coming to an end, there was an election for the six vacancies. On 31st October 1967 six members of the committee retired and the six vacancies

thus rendered were filled up according to the rules by election of five members and by co-option of one member. Of the six members who began

functioning from 1st November 1967, three of them were old members, there being no prohibition against retiring members getting re-elected.

Two-third of the members of the committee had thus entered the committee since 31st October 1966, by democratic process. The impugned

notice R.C. No. 47515/67-Al calling upon the members of the committee to show cause why the committee should not be dissolved u/s 72 of the

Act and a nominee of the Registrar appointed to manage the affairs of the bank, wag issued on 1st December 1967. The notice gave nine heads of

charges, to briefly specify failure to provide the requisite agricultural credit, failure to meet the obligation to the central financing agency and to

maintain the non-over due cover; improper sanction of loan applications; improper disbursements of loans -without fulfillments of the conditions

stipulated ; irregular operation of cash credit; violation of Rule 4 of the Madras Cooperative Societies Rules, 1963, irregularities in the investment

of funds; irregular expenditure, and committee members perpetuating themselves in power.

It is the contention of the Appellant that the substantial charges are. in respect of events that occurred long prior to 1st November 1967, to

instance; the failure to provide the requisite agricultural credit was for the period 1963-64; the improper sanction of loan applications was during

the period 1965 to June 1966; the irregular operation of cash credit accounts related to the period from 1963 to January 1967 and the sanctioning

of expenditure for construction of buildings was during the period from 1962 to 1964. It is urged that, with every retirement and fresh election of

the members in rotation a new committee comes into existence and that no action u/s 72 could be taken against the new committee for the sins of

omission and commission of the previous committee. The show cause notice, it is said, is, therefore, illegal and should be struck down, disentitling

the Respondent to proceed further in the matter.

The relevant part of Section 72 reads:

72(1)(a). If, in the opinion of the Registrar, the committee of any registered society is not functioning properly or wilfully disobeys or wilfully fails to

comply with any lawful order or direction issued by the Registrar under this Act or the rules, he may, after giving the committee an opportunity of

making its representations, by order in writing, dissolve the committee and appoint either a person (hereinafter referred to as the special officer) or

a committee of two or more persons (hereinafter referred to as the managing committee) to manage the affairs of the society for a specified period

not exceeding two years...

Counsel for Appellant contends that the provision for supersession is a penal provision and, as any supersession would cast a stigma on the

personnel of the committee at the time of supersession even if they be wholly free of all blame, in the context, the expression the committee in

Section 72 should be interpreted as having reference to its constitution when there were acts of omission and commission and not a reconstituted

committee. Any change in the membership, it is argued, brings about a change in the constitution and brings in a new committee. According to the

Appellant, every year in law, on annual retirement and filling up of one-third of the members, there is a new committee. The intention of the

enactment, it is said, being to supersede the malfunctioning committee as an entity the show cause notice must be issued to that committee and not

to a subsequently reconstituted committee. In answer the Respondent takes the stand, that the committee under the Act being the governing body

of the society statutorily formed, is a permanent body, a legal entity with continuous existence notwithstanding changes in its personnel.

We are inclined to agree with the contention for the Respondent. Having regard to the manner in which the personnel of the committee is

formed, if we accept the contention put forward for the Appellant, then the provision as to supersession of the committee may become a dead

letter. u/s 27, providing for the constitution of committees, where the Government or a financing bank have or has taken shares in, or given financial

or other assistance to, a registered society, the Government or the financing 1 bank as the case may be, may nominate to the committee such

number of persons not exceeding three or one-third of the total number of members of the committee, whichever is less, as the Government may

determine. The Government or the financing bank may, at any time, withdraw any person or persons nominated and fill up the vacancy or

vacancies by fresh nomination. The provision as to supersession comes under chapter VIII dealing with audit, inquiry, inspection, surcharge and

suppression. One may normally expect acts of omission and commission to come to light only after audit, inquiry and inspection which may take

some time. The Registrar must have reliable materials on which to form, say, the opinion that the society is not functioning properly. The co-

operative year ends with the 30th June of every year but in this bank one-third of the members of the committee retire on 31st October and new

members get elected in their place from the 1st of November yearly. The practical possibility of taking action against the committee has to be

considered in this background. There will hardly be any chance for the supervising authority to detect acts of omission or commission and issue

show-cause notice, if it should be ruled that there should be no change in the composition of the committee meanwhile the absurdity of the position

gets emphasized if we remember that retiring members may themselves get re-elected. Then, notwithstanding the fact that the same members are in

the governing body no action can be taken as according to the Appellant they form a new committee. Besides, the nominated members may be

withdrawn at any time and new persons nominated. Logically this also should bring about a new committee. But a rational reading of the provisions

of the Act makes it clear that the committee is a permanent body with a continuous legal existence, and it may come to an end on it suppression or

on the winding up or cancellation o, the registration of the society. The very object of providing for retirement of one-third of the members of the

committee and re-election in their place is to ensue recontinuity of the management.

Reliance was placed for the Appellant on the decision of one of us in Muthukumaraswami Naidu v. The Registrar of Co-operative Societies

Writ Petition No. 47 of 1959. But that decision was under the Madras Co-operative Societies Act of 1932. Under that Act, there was provision

in the bye-laws for both kinds of committees, a permanent committee a proportion of whose members would be periodically replaced as well as a

committee which can hold office for a fixed period. The writ petition there in question was concerned with a committee all of whose members held

office for a fixed period, and, with reference to such committee, it was observed that the committee which could be penalised was the

malfunctioning committee within its period of office. The distinction between a committee which has continuous existence and the one which

functions for a particular period is pointed out at the very beginning of the judgment thus:

It appears that under the bye-laws of certain societies, the periods of office of the individual members of such a committee may vary ; so that the

committee does not cease to exist as such, due to the efflux of time, on a particular date. But under the rules governing this society, this is not the

case whenever they might happened to have been elected, the members constituting the committee go out of office, as a committee, upon a definite

date.

The decision, far from helping the Appellant, brings out the distinction between a committee which has continuous legal existence and a committee

which comes to an end on a definite date by its members going out of office. The decision of Ramakrishnan J., in Umapathy v. The Joint Registrar

of Co-operative Societies Writ Petition No. 2257 of 1967 relied upon for the Appellant no doubt is under the new Act. There the writ petition

was dismissed at the admission stage with certain observations. That decision, accepts the contention now put forward and pressed before the

learned Judge by the Petitioner there (sic) placing reliance on Muthukumaraswami Naidu''s Case Writ Petition No. 47 of 1959. It is apparent from

a perusal of the order that the attention of the learned Judge was not drawn to the fact that the decision in Muthukumaraswami Naidu''s Case Writ

Petition No. 47 of 1959 was under the old Act and to the difference between the provisions of the old Act and the new Act. A case in point is the

decision of the Federal Court in Umayal Achi v. Lakshmi Achi and Ors. (1945) F.C.R. 142 where the validity of a legislation was questioned on

the ground that, after the vacation of three seats in the Indian Legislature by the members elected or nominated to represent Burma on the

separation of Burma on 1st April 1937, the Legislature was so radically different in composition as no longer to be the same. Legislature as prior to

1st April 1937. In upholding the validity of the Legislation, the Federal Court observed:

It follows, in my opinion, that by a proper enactment binding upon the Legislature, the compulsory vacation of some members of their seats does

not and cannot IPSO FACTO cause the continuing Legislature, less those members, to be a different Legislature in law. Indeed, the very opposite

deduction, namely, that it is the same Legislature carrying on without the excluded members, seems to me to be the proper one to be drawn from

the provisions in question.

The Act in question here provides for a governing body, to whom the management of the affairs of the bank is entrusted. It is designated a

committee and the general body once a year elects members of the committee. The provision in the Act is for retirement of one-third of the

members of the committee elected at the first election every year and filling up the vacancies by re-election. There is no reference in Section 27 to

the duration or term of the committee. Section 27(3)(a) provides only that the term of office of an elected member of any committee constituted

under the Act shall be three years. When construing a statute, where the language is susceptible to more than one meaning, we have to bear in

mind the effects or consequences that will result from any particular interpretation, as they often point out the true meaning of the words used. True

the committee as such is not made under the Act a body corporate with perpetual succession and a common seal. But that does not affect the

determination of the question we are now called upon to decide. There is, no doubt, a reference to a past committee in Section73 of the Act. That

could well refer to the committee under the old Act as existing societies were saved when the new Act came into force. Also the word committee

in certain contexts can refer to the members constituting the committee. But the crux of the matter is that no period is fixed for the life of the

committee, and its continued existence is secured in the provisions as to its constitution. We are clearly of the view that for initiation of proceedings

u/s 72, there can be no question of previous committee and present committee. Action can be taken under the Section against the governing body

of the bank as a legal entity having continuous existence, notwithstanding the annual retirement of one-third of the members of the committee and

re-election in their place.

But this conclusion of ours does not dispose of the instant case. It is the positive case of the Appellant that the charges that the committee is now

called upon to answer are stale ones in respect of events that had occurred long before. Learned Counsel submits that, even in respect of

surcharge u/s 71 of the Act, there is prohibition against any inquiry after the expiry of six years from the date of any act or omission which can give

rise to surcharge. While, so, it is said that it will be opposed to all principles of natural justice, leave alone common sense to supersede a committee

when the members might have just got themselves elected, for the sins of omission and commission of their predecessors years back. The question

we have to consider is: Does Section 72 empower the Registrar to penalise members of the committee of a society by superseding it, for events

which happened long prior to their election. In our view, while the annual retirement and re-election of one-third of the members of a committee by

itself cannot stand in the way of suppression of the committee for any previous acts of omission or commission, and a fresh composition of

members will not take away the jurisdiction of the Registrar in the matter under Section72, the Section by the very force of its language imposes a

limit in this regard. The Section empowers the Registrar to take proceedings for supersession, if, in his opinion.

the committee of any registered society is not functioning properly or wilfully disobeys or wilfully fails to comply with any lawful order or direction

issued by the Registrar under the Act or the rules.

The present continuous, not functioning properly, and the present indefinite, wilfully disobeys and wilfully fails while indicating to an extent habitual

action, require also that the action and conduct calling for proceedings cannot be of some remote past. The expressions wilfully disobeys and

wilfully fails indicate what is actually taking place and their significance should not be lost sight of when taking penal action.

While the governing body as a legal entity may have continuous existence, it acts only through its members '' who come and go. The members are

the human agency through which the committee thinks and acts. The acts of commission and omission on which the charges for supersession are

based must be related to the committee as constituted, when supersession is proposed. There must be some nexus that the virus infecting the

society could be found in the committee, when it is proposed to dissolve it. By supersession, the negligent and the irresponsible or the erring and,

recalcitrant or much worse members, could be removed from the scene. The object of supersession when the affairs of the society are in a mess is

manifest. The management of the affairs of the society is, for a time, vested in a special officer or a managing committee consisting of two or more

nominated persons. We can envisage a case where an awakened general body shaking of its lethargy and indifference, in a three year period, has

completely displaced its erring and effete or undesirable committee members with a view to arrest the growing deterioration in the affairs of the

society, and brought in a new body of members expecting them to work the society with zeal. Before any opportunity is given to the members of

the governing body so constituted to set right matters and before they have had time to take steps in that regard, is this body to be superseded u/s

72 of the Act solely for the acts of their predecessors? It may be that the Registrar would not do so. In our view, Section 72 does not contemplate

action in such a case. To supersede the committee in the circumstances would be abuse of powers. It would be a case where the committee was

not functioning properly, or had wilfully disobeyed or had wilfully failed to carry out orders, while for action u/s 72, the Registrar must be of

opinion that the committee is not functioning or wilfully disobeys or wilfully fails to comply with lawful orders or directions. The Section in reality

provides for action against committee composed of recalcitrant members and lethargic committees that could not be activated.

The illustration given above is an extreme case. On the other side, except for annual elections, the affairs may be in such a state that it is self

evident that the committee has, for all practical purposes, ceased to function and render the service expected of it. If the annual elections to the

committee become a farce and if in spite of general deterioration and complaints there is no serious and genuine attempt to set right the affairs of

the society and the matters are allowed to drift, there being no improvement even with influx of fresh members, it will certainly be open to the

Registrar to consider action u/s 72, without reference to the composition of the committee. Equally, though the committee is an entity by itself, the

Registrar can look to the realities behind the legal facade to ascertain the causes for the deterioration in the affairs of the society. Only the power

u/s 72 has to be exercised in a manner that is just and reasonable. Supersession, as indicated already, is a drastic step and would carry a stigma on

the members constituting the committee when it is superseded. It is essentially a penal provision and the requirements of the law for its application

have to be so construed, that is strictly.

There has been no attempt before us for the Respondent to analyse the charges and exclude therefrom acts of omission and commission which

cannot properly form the basis for action now, u/s 72, in the light of the foregoing discussion. Having regard to the charges as detailed in the show

cause notice, evidently this is not an easy matter. Learned Counsel for the Respondent submitted that in the circumstances we may give liberty to

the Registrar to issue fresh show cause notice and initiate fresh proceedings, if and when necessary, having regard to the requirements of Section

72 for action thereunder. The show cause notice, dated 1st December 1967, is, therefore, quashed leaving the Registrar to initiate fresh action, if

called for. As it is, no further proceedings can legally be taken in pursuance of the show cause notice, dated 1st December 1967. A writ of

prohibition is accordingly issued. The writ appeal is allowed. No costs.