Haripada Chakraborty And Ors. vs State Of Tripura And Ors.

Petitioners were elected members of the Board of Directors of the Tripura State Co-operative Bank Ltd., respondent No.4 herein. By the impugned notification dated 29/30.10.2018 issued by the Registrar of Cooperative Societies, Government of Tripura, the entire Managing Committee was superseded and instead Principal Secretary, Department of Co-operation was appointed as an Administrator to manage the affairs of the Bank.

Brief facts are as under:

The petitioners were members of Primary Co-operative Societies and were, therefore, eligible for being elected as members of the Managing Committee of the respondent No.4-Society. Election to constitute the Committee took place in the year 2016. All the petitioners were declared elected on 08.05.2016. The term of the elected members of the Committee being 5 years, ordinarily they would hold such elected position till 07.05.2021. However, their term was curtailed on account of the impugned notification superseding the Committee. Impugned notification reads as under:

"Whereas, a proposal was sent to the General Manager, Reserve Bank of India, Jackson Gate, Agartala, West Tripura District, by this office vide letter even number dated 19-09- 2018, to accord approval for removal of the present Committee of the "Tripura State Co-operative Bank Ltd" as per the provision of section 74(7) of the Tripura Co-operative Societies Act, 1974 as amended from time to time, but no views have yet been received by this office from the Reserve Bank of India;

Now, in exercise of powers conferred under section 74(1)(a)(ii) of the Tripura Co-operative Societies Act, 1974 as amended by Tripura Co-operative Societies (Fourth Amendement) Ordinance, 2018, the undersigned superseds the present Committee of the "Tripura State Co-operative Bank Ltd", Post Office Chowmuhani, P.O:-Agartala, West Tripura District, and appoints Sri Barun Kumar Sahu, IAS, Principal Secretary, Department of Co-operation, Government of Tripura, as Administrator of the "Tripura State Co- operative Bank Ltd" to manage the affairs of the Bank with immediate effect for the period not exceeding 2(two) months.

This Notification is issue as per the approval of the Government vide U.O No.4178/CM/2018, dated 29-10-2018.

Registrar of Coop. Societies,

Government of Tripura."

This notification the petitioners have challenged on various grounds. However, the principal ground of challenge is that the mandatory requirement provided in Section 74 of the Tripura Co-operative Societies Act, 1974 was not followed before impugned notification was issued. The contention of the petitioners also is that the entire action of the Government was predetermined and prejudged. In this context, learned counsel for the petitioners pointed out that originally under sub-section (7) of Section 74 of the Co-operative Societies Act, any supersession of the committee could only be done without the prior approval of the Reserve Bank of India. The Government of Tripura promulgated an ordinance on 15.10.2018 substituting sub-section (7) of Section 74 of the Co-operative Societies Act as per which the supersession of the committee of a State Co-operative Bank could be done with prior consultation with the Reserve Bank of India. Thus, the earlier requirement of previous approval was toned down to the requirement of consultation with RBI. Immediately thereafter the action of supersession followed.

Learned counsel for the petitioners submitted that no notice inviting objections of the petitioners was issued before the authority took the final decision of supersession. The consultation with RBI was also not effective or meaningful. Thus, without following mandatory statutory requirements flowing from Section 74 of the Co-operative Societies Act, entire action was taken in hot haste and in a predetermined manner. The Registrar of Co-operative was required to act impartially and exercise his discretionary powers on the basis of proper consideration of the materials on record. Since the petitioners were not given any opportunity to rebut the adverse materials collected by the respondents, the entire exercise was vitiated. In support of his contentions, counsel relied on the decision of Supreme Court in case of State of Madhya Pradesh and others vrs. Sanjay Nagayach and others reported in (2013) 7 SCC 25.

On the other hand, learned senior counsel Mr. S.M. Chakraborty appeared for the respondents No.3, 4 & 5 and learned Government Advocate appeared for respondents No.1 & 2. They submitted that proper procedure was followed by the competent authority before issuing the impugned notification. The management of the Bank had suffered enormously on account of acts and omissions on part of the petitioners. Annual accounts were not submitted within time. Annual General Meetings were not convened. An inspection report was prepared. On the basis of such inspection report the Registrar of Co-operative Societies came to the conclusion that the committee should be superseded. The respondents also contend that the requirements of substituted sub- section (7) of Section 74 of the Co-operative Societies Act were followed. A communication was sent to RBI seeking consultation. After waiting for a period of 30 days when no response was received from RBI, the authority proceeded to pass the order. Since the communication sent by the Registrar of Co-operative Societies to RBI was not on record, at my request a copy of the same was made available by the counsel for the Registrar with a copy to the counsel for the petitioners. The same is taken on record.

In order to resolve the controversy one may peruse the provisions of Section 74 of the Co-operative Societies Act, relevant portion of which reads as under:

"74. Power of removal of committee or member thereof-

(1) If, in the opinion of the Registrar, the committee of any society or any member of such committee persistently makes default, or is negligent in the performance of the duties imposed on it or him by this Act or the rules or the bye-laws, or commits any act which is prejudicial to the interests of the society or its members, or wilfully disobeys directions issued by the Registrar for the purposes of securing proper implementation of co-operative production and other development programmes approved or undertaking by Government, or is otherwise not discharging its or his function properly, the Registrar may, after giving the committee or the member, as the case may be, an opportunity of stating its or his objections (if any) within fifteen days from the date of issue of notice, and after consulting the federal society to which the society is affiliated, by order, published in the official Gazette.-

(a) remove the committee, and

(i) appoint a committee, consisting of three or more members of the society, in its place, or

(ii) appoint one or more administrators, who need not be members of the society,

to manage the affairs of the society for a period (not exceeding one year) specified in the order, which period may, at the discretion of the Registrar, be extended, from time to time, so however that the total period does not exceed three years in the aggregate;

(b) remove the member and appoint any person as a member of such committee, in his place, for the remainder of the term of office of the member removed.

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(4) If at any time during any period or extended period referred to in sub-section (1), it appears to the Registrar that it is no longer necessary to continue to carry on the affairs of the society as aforesaid, the Registrar may, by an order published in the official Gazette, direct that the management shall terminate; and on such order being made, the management of the society shall be handed over to a new committee duly constituted.

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(7) The committee of a State Cooperative Bank shall be superseded only in consultation with Reserve Bank of India.

Explanation: The process of consultation may be completed within thirty days. The period of thirty days will be counted from the date on which the proposal is first sent to any office of RBI, or of NABARD for forwarding to RBI. The views of the State Government after the period of consultation shall be final."

It appears that in the original form the Tripura Co-operative Societies Act did not contain sub-section (7) in Section 74. By the Tripura Co-operative Societies (Second Amendment) Act, 2009 sub-section (7) was inserted and which was substantially different from the present sub-section (7) as substituted by the said amendment dated 15.10.2018 which was followed by the Act of the State legislature. The sub-section (7) which was thus inserted by the Tripura Co-operative Societies (Second Amendment) Act, 2009 read as under:

"(7) The committee of a State Cooperative Bank shall be superseded only with the prior approval of the Reserve Bank."

Analysis of the said provisions would show that under sub- section (1) of Section 74 though the Co-operative Registrar has the power to remove the committee of any Co-operative Society or any of its members, such powers are hedged by certain mandatory requirements. One may appreciate that in the process of exercising such powers, an executive authority would be removing an elected member of a Co-operative Society or in a given case the entire committee. Sub-section (1) of Section 74 itself envisages the grounds on which such removal can take place. Such grounds are that the member of the committee persistently makes default or is found to be negligent in performance of the duties imposed under Act or the rules or the bye-laws etc. Sub-section (1) of Section 74 under such circumstances would authorize the Registrar of Co-operatives to pass an order of removing the member of a committee or the committee after giving such member or the committee an opportunity of stating the objections to the proposed action and after consultation with the federal society to which the society is affiliated. The minimum requirement of principle of natural justice is thus inbuilt in sub-section (1) of Section 74 of the Act and without following which no such drastic action as removal of an elected member or the committee can be taken.

Sub-section (7) of Section 74 as it stood prior to its substitution, required that any action of supersession of a committee of the State Co- operative Bank can be taken only with the prior approval of the Reserve Bank of India. It is true that this sub-section was substituted by the ordinance and the action which the Co-operative Registrar in the present case has taken was after such substitution. However, even the substituted sub-section (7) of Section 74 required consultation with RBI before taking any such action. In series of decisions the Supreme Court has laid down that such consultation must be meaningful and effective and not a mere formality.

With this analysis of the statutory provisions we may revert back to the facts on record. It seems undisputed that no notice giving opportunity to the members of the committee to oppose the supersession was issued by the Registrar before taking the final decision. His entire action was thus unilateral and ex parte. This is the first and fundamental breach of a mandatory requirement flowing from sub-section (1) of Section 74 of the Act. Even the consultation with RBI was not effective. Firstly, the communication dated 09.09.2018 from the Registrar of Co-operative Societies to the RBI was prior to the substitution of sub-section (7) of Section 74 of the Act. The requirement at that stage was a prior approval of the RBI. Any approach by Co-operative Registrar to the RBI for supersession of the committee, therefore, had to be for the purpose of obtaining the approval since that was the statutory requirement at that stage. Even if sub-section (7) of Section 74 was thereafter substituted and which replaced the requirement of prior approval by a mere consultation, the Co- operative Registrar cannot rely on the simple communication to RBI issued by him on 09.09.2018 and cite the reason of no response from RBI for 30 days to justify his stand that the requirements of sub-section (7) of Section 74 as substituted stood satisfied. There is yet another reason why this consultation was wholly ineffective. In order to consult RBI the Registrar of Co-operatives had to place full material before it so that RBI could respond either positively or negatively to the proposed supersession of the committee. Along with the said letter dated 09.09.2018 the Co-operative Registrar had only sent a copy of the inspection report. Since no response from the petitioners was called for and obtained, obviously the Co-operative Registrar did not send the opposition of the petitioners to the proposed action or even to oppose the findings of the inquiry report. RBI thus did not have full material before it to give any effective advice to the Co-operative Registrar. There was thus no valid consultation in eye of law and on the basis of which the Co-operative Registrar could have proceeded to supersede the entire elected body.

As correctly pointed out by the counsel for the petitioners in case of Sanjay Nagayach and others (supra) it was observed that a legally elected Board of Directors cannot be put out of office by an illegal order. It was further observed that previous consultation with RBI before taking such an action was mandatory. Mere forwarding of a copy of a show-cause notice issued on Board of Directors seeking their reply does not amount to consultation.

I would certainly have struck down the impugned notification and restore the original position of the petitioners as members of the Board of Directors of the Co-operative Bank. However, two things stopping me; firstly, as noted, the original term of the elected body would expire on 07.05.2021, i.e. less than six weeks from now. Secondly, I am informed by learned senior counsel Mr. S.M. Chakraborty that initially the Administrator was appointed only for a period of two months and was soon thereafter replaced by a newly elected body. This elected body is thus functioning since over two years by now. They are not joined as respondents in this petition. On such grounds, while declaring that the petitioners have succeeded in persuading me that the impugned order suffers from material illegalities, the final relief of quashing the order and reinstating the petitioners to their earlier position is not granted.

Petition disposed of accordingly.

Pending application(s), if any, stands disposed of.