Laxmi Mahila Nagrik Sahkari Bank Maryadit vs State of Chhattisgarh

Manindra Mohan Shrivastava, J.

The writ petition has been filed by the petitioner assailing correctness and validity of order dated 19-7-2011 passed by the appellate authority-respondent No. 1, by which, the respondent No. 1 has set aside the order dated 18-1-2011 passed by the Registrar, Co-operative Societies, Chhattisgarh. The petitioner is a co-operative bank registered u/s 3 of the Chhattisgarh Co-operative Societies Act, 1960 (In short "the Co-operative Act") and issued registration certificate (Annexure P-2). The petitioner also holds banking license issued by the Reserve Bank of India (In short "the RBI") u/s 22(1) read with Section 56(O) of the Banking Regulations Act, 1949 (In short "the Banking Act"), copy of which has been placed on record as Annexure P-3.

The petitioner''s case as stated in the writ petition is that the respondent No. 5 was a co-operative bank like the petitioner but there were lot of irregularities in its functioning and the Managing Committee of the respondent No. 5-bank was superceded vide order dated 13-9-2006 (Annexure P-4) passed by the Registrar, Co-operative Societies. The prescribed authority was appointed to exercise powers and functions of the Managing Committee of the respondent-Bank.

Further case of the petitioner is that it took steps and initiated proceedings to see merger of the respondent-bank in the petitioner-bank and passed resolution dated 28-6-2007 (Annexure P-5) in the meeting of Managing Committee/General Body and application was made on 9-7-2007 (Annexure P-6) to the Registrar, Co-operative Societies for grant of permission to merge respondent-Bank with the petitioner bank. On 14-1-2008 (Annexure P-7), again application was made to the Registrar, Co-operative Societies to approve proposal of merger. The petitioner bank had already passed a resolution on 4-1-2009 in its annual general meeting approving merger of respondent bank. Further case of the petitioner is that the respondent bank also convened its annual general meeting through its prescribed authority on 7-11-2009 (Annexure P-9) in order to protect the interest of the members and share holders resolved to get respondent bank merged with the petitioner-bank and also to apply for cancellation of the registration of the merged bank. A merger scheme was formulated and approved in its meeting dated 26-5-2010. On 15-6-2010, the respondent bank through prescribed authority resolved to get merged with the petitioner bank by accepting the merger scheme, which was sent to the RBI. The RBI issued No Objection Certificate on 27-12-2010 (Annexure P-14). The Registrar, Co-operative Societies, upon receiving the No Objection Certificate of RBI, passed an order u/s 18(1) of the Co-operative Act.

The assets and liabilities of respondent-Bilasa Mahila Nagarik Sahkari Bank Maryadit, Bilaspur were amalgamated with the petitioner-bank with effect from 19-1-2011. The registration of respondent-bank was also cancelled.

The aforesaid order dated 18-1-2011 (Annexure P-15) passed by the Registrar, Cooperative Societies, in exercise of power u/s 18(1) of the Co-operative Societies Act, was challenged by way of appeal by the respondent No. 2 before the respondent No. 1 the appellate authority. The respondent No. 1 allowed the appeal holding that the order dated 18-1-2011 was illegal. It is this order, which is under challenge in this writ petition.

Learned Senior Counsel has raised many fold contentions. It was contended that the order dated 18-1-2011 passed in substance related to order of amalgamation of a co-operative bank followed by cancellation of registration of amalgamated bank. Therefore, in view of the bar engrafted u/s 79(ii), appeal preferred against the order dated 18-1-2011 is not maintainable under the law. Therefore, order passed by the respondent No. 1 is unsustainable in the eye of law. It is next contended that insofar as operation and function of co-operative bank is concerned, provisions contained in the Banking Act regulate the functioning of a Co-operative bank by virtue of special provisions contained in Chapter V of the Banking Act. These provisions have overriding effect on the provisions contained in the Co-operative Act. The respondent No. 5 was not acting in accordance with the rules and regulations applicable in the matter of operation of a bank as provided under the Banking Act. The said bank also committed serious financial irregularities resulting in violation of financial norms and disciplines statutorily prescribed by the RBI from time to time, in addition to violation of statutory provisions contained in the Banking Act. The Board of Directors/Managing Committee of respondent No. 5 was superceded by the Registrar, Co-operative Societies. Thereafter, in the interest of members and share holders of respondent No 5, the prescribed authority decided to get the respondent No. 5 merged with the petitioner-bank and the merger scheme prepared by the petitioner was forwarded to the Registrar, Cooperative Societies as also to the RBI. The RBI approved the proposal and thereafter, the Registrar, Co-operative Societies passed an order of amalgamation/merger of respondent-bank with the petitioner-bank and consequently, order of cancellation of registration of respondent No. 5 was passed by the registrar, Co-operative Societies. The provisions with regard to amalgamation as provided in the Co-operative Act and the rules made thereunder as also the provisions contained in the Banking Act governing the procedure and norms of amalgamation/merger of one existing bank to other bank were fully complied with. Learned counsel for the petitioner also argued that the decision with regard to merger was a decision of expert of financial and banking matter i.e. RBI. The appellate authority could not have interfered with the decision of the respondent-RBI to approve merger/amalgamation of respondent No. 5 With the petitioner-bank in the background of; poor financial condition on account of severe financial irregularities and violation of norms by the Managing committee of respondent No. 5. Whether merger is necessary or not, could be decided only by the RBI. Therefore, the respondent No. 1 had exceeded its jurisdiction in setting aside the merger/amalgamation of respondent-bank with the petitioner-bank. It is further contended that the appeal was not maintainable at the instance of respondent No. 2, as she was no longer President of respondent No. 5. It is also contended that the RBI was a necessary party and no order could be passed without hearing the RBI. Learned counsel for the petitioner also argued that the impugned order passed by the appellate authority is in excess of jurisdiction because the banking license issued by the RBI in favour of respondent No. 5 no longer operates and exists and that in the absence of a valid license of banking, respondent No. 5 could not continued with the banking business. The specific provision with regard to maintainability was not decided by the appellate authority.

On the other hand, learned counsel for the State/respondent Nos. 1 and 3 submitted that in the present case, order has been passed by the State in its capacity as quasi-judicial authority. The concerned Minister of the Department has passed the order and the lis is between the petitioner on one hand and the respondent Nos. 2, 3 and 5 on the other hand. The appellate authority found that the decision to merge the respondent-bank with the petitioner bank was taken despite serious objection of the appellant.

Learned counsel for respondent Nos. 2 and 5 submitted that the appellate authority had rightly set aside the order dated 18-1-2011 passed by the Registrar, Co-operative Societies, as the order was found to be in utter violation of the provisions contained in Section 16(5) of the Co-operative Act. Under the scheme of Co-operative Act and the rules made thereunder, there is a scheme of merger which has to be initiated by the concerned co-operative society which has to be merged or amalgamated. The members of the society never passed any resolution by required majority either by framing any scheme of merger/amalgamation nor any such scheme was approved or forwarded to the Registrar, Co-operative Societies. The pre-scribed authority was managing the affairs of the society, who took undue advantage of the position and without calling the general meeting of the members of the respondent-Bank, of its own, proceeded to accept the unauthorised scheme prepared by the bank and forwarded the same to the RBI, which is in complete violation of the provisions contained in sub-sections (2), (5), (6) and (12) of Section 16 of the Co-operative Act. It is further submitted that the provisions contained in Rule 11 of the Chhattisgarh Cooperative Society Rules, 1962 were also violated. Therefore, there was no amalgamation in the eye of law. The appellate authority has power under the law to examine the correctness and validity of the order of cancellation of registration passed by the Registrar, Cooperative Societies u/s 18(1) of the Co-operative Act. Therefore, bar u/s 79 is not attracted.

Learned counsel for the respondent No. 4-RBI has argued that the respondent No. 5 while operating his bank, is required to comply with the statutory mandate contained in the Banking Act and the directions issued by the RBI from time to time. The respondent No. 5 committed several financial irregularities and its financial condition revealed huge loss to the bank. This was noted by the RBI. The Registrar, Co-operative Societies, in these circumstances, forwarded the proposal of merger of respondent-bank with the petitioner-bank, which was approved and No Objection Certificate was granted by the RBI, whereafter, order of merger/amalgamation was passed by the Registrar, Co-operative Societies. The respondent No. 5 violated the instructions issued by the RBI on 1-10-2003 not to give loans and advances to the directors and directions/instructions of the RBI were violated. The order passed by the appellate authority with a direction to handover the charge and also to transfer the amount of Rs. 1,09,89,135/- cannot be implemented as no appeal and revision lies against the scheme of re-organization or amalgamation of co-operative bank approved by the RBI.

Intervention application has been filed by some of the members of the respondent-Bank supporting the order passed by the appellate authority on the same submissions as has been urged before this Court by learned counsel for respondent Nos. 2 and 5.

The impugned order passed by the Cooperative Department of the State of Chhattisgarh as appellate authority reveals that the order was passed on an appeal filed by the respondent No. 2 in her purported capacity as President of Bilasa Mahila Nagrik Sahakari Bank Maryadit, Bilaspur. The appellate authority has recorded finding that in the annual general meeting of respondent No. 5 convened by authorized officer of the bank on 7-11-2009, objections were raised by respondent No. 2 and other members/share holders against proposal of amalgamation of respondent No. 5, which were not considered and resolution in favour of merger was passed. It is also recorded that while forwarding such proposal, objections raised by the members were not apprised to higher officers. The appellate authority has also recorded a finding that the records of the case do not disclose that the provisions contained in Section 16(5) of the Co-operative Act was complied with. The appellate authority further proceeded to record that as the appeal has been preferred, order of cancellation of registration has not become final nor it can be said that the registration has come to an end. The Registrar Co-operative Societies was misled by giving incorrect information. It has also been recorded that though term of office of prescribed authority upon super cession of Managing Committee was extended up to 12-9-2011, before expiry of that period, proceedings of cancellation of registration have been drawn, which is not proper.

On the aforesaid consideration, the appellate authority held that the order dated 18-1-2011 passed by the Registrar Co-operative Societies is not sustainable in law and is therefore, liable to be set aside.

The petitioner has specifically pleaded in this writ petition that before the appellate authority, specific objection with regard to very maintainability of the appeal was raised but the same was not considered and ignored. This pleading and submission based on this pleading deserves to be accepted because a perusal of preliminary objection dated 25-4-2011 (Annexure P-26) filed by the petitioner before the appellate authority shows that specific objection with regard to maintainability of appeal u/s 79 of the Co-operative Act was raised, as is clear from the averments made in para 2 (ba) of the preliminary objection.

The principal argument of the petitioner that the appeal filed by the respondent No. 2 before the State Government was not maintainable under the law, requires serious consideration as it goes to the root of jurisdiction of the appellate authority. In order to appreciate this submission, it is necessary to reproduce relevant provisions contained in Section 79 of the Co-operative Act relating to appeals.

No appeal or review in certain cases.--

Notwithstanding anything to the contrary contained in this Act, where with previous sanction in writing or on the requisition of the Reserve Bank of India--

(i) an order for the winding up of a cooperative bank; or

(ii) for a scheme of compromise or arrangement or reconstruction or reorganisation or amalgamation; or

(iii) an order of supersession or suspension of the Board by whatever name called of a Co-operative Bank and the appointment of an officer-in-charge therefore, has been made.

No appeal or review shall he or be permissible against that, and such order or the sanction or requisition of the Reserve Bank of India shall not be liable to be called in question where such order, scheme compromise, arrangement, reconstruction, reorganisation or amalgamation is passed or made.

A perusal of the aforesaid provision shows that the provisions of Section 79 of the Co-operative Act carve out exception cases, where no appeal or review would he. The opening word of this provision make it clear that the provision has overriding effect.

The provision in no uncertain words categorically provides that where previous sanction; in writing or on the requisition of the Reserve Bank of India any scheme of com-promise or arrangement or re-construction or re-organization or amalgamation has been made, no appeal or review shall lie or be permissible and such sanction or requisition of the Reserve Bank of India shall not be liable to be called in question when such amalgamation is made. The statutory scheme, is therefore, clear that in cases, where amalgamation of a bank which necessarily implies involvement of another bank, has taken place with the previous sanction in writing of the Reserve Bank of India or requisition of the RBI has been made, the ordinary course of redressal or grievances provided under the scheme of the Act shall not available to anyone. This is so because the law makers in its wisdom thought that in cases of co-operative banks, sanction or requisition of RBI involves financial aspects which can be best assessed by the RBI and the appellate authority under the Co-operative Act should not be allowed to scrutinize the correctness and validity of the process of amalgamation of a co-operative bank.

What is therefore required to be examined is whether the order dated 18-1-2011 passed by the Registrar, Co-operative Societies was an appealable order or appeal against such an order was barred in view of the statutory provisions contained in Section 79 of the Co-operative Act.

Order dated 18-1-2011 (Annexure P-15) goes to show that the task force in its meeting dated 4-1-2009 had recorded merger of respondent No. 5-Bank in petitioner-bank, on which, consent of both banks was sought. Vide letter dated 9-11-2009, the prescribed authority of respondent No. 5 forwarded merger proposal and resolved in annual general meeting dated 7-11-2009 of respondent-bank and forwarded to the Registrar, Co-operative Societies. The petitioner-bank had also forwarded merger proposal on the basis of approval of annual general meeting vide letter dated 4-1-2009 to the Registrar, Cooperative Societies. Due diligent report dated 7-7-2010 given by the petitioner-bank was also forwarded to the Registrar, Co-operative Societies, whereafter merger proposal of both the banks along with merger report was sent to the RBI vide letter dated 14-7-2010 seeking no objection.

Order dated 18-1-2011 further records that the RBI granted its sanction for merger by giving no object in vide letter dated 27-12-2010 (Annexure P-14) with information to both the banks.

Sanction letter dated 27-12-2010 (Annexure P-14) of the RBI shows that the merger proposal was examined by the RBI with regard to financial aspects and it is stated that as per the guidelines of merger/amalgamation of Urban Co-operative Banks, RBI has no objection to the proposed merger of respondent No. 5 with the petitioner-bank.

On the basis of the aforesaid consideration, the Registrar proceeded to pass an order of amalgamation/merger of respondent No. 5-bank with the petitioner-bank and stated that as on 19-1-2011 all the assets and liabilities of respondent No. 5-bank shall become that of the petitioner-bank and for that purpose, 19-1-2011 has been declared as the date of amalgamation. Thereafter, the Registrar also passed consequential order, reference of which, is not necessary. Having passed the order of amalgamation, which resulted in transfer of the assets and liabilities of respondent No. 5-bank to the petitioner-bank, the Registrar proceeded to pass consequential order of cancellation of registration as required u/s 18(1) of the Cooperative Act. The statutory mandate of Section 18(1) leaves no discretion in the hands of the Registrar, once it transfers whole of the assets and liabilities of one society to other society. The use of word ''shall'' in subsection (1) of Section 18 leaves no manner of doubt that the moment, whole of the assets and liabilities of one society are transferred to the another society, cancellation of registration of the earlier society has to follow as a necessary consequence.

From the above analysis, it is crystal clear that the order dated 18-1-2011 (Annexure P-15) in sum and substance is an order of amalgamation of respondent No. 5-Co-operative bank with the petitioner-Co-operative bank under the scheme of amalgamation with the previous sanction in writing of the RBI. Therefore, order dated 18-1-2011 in one of the orders as described in Section 79 of the Co-operative Act.

The result is obvious that bar engrafted u/s 79 of the Co-operative Societies Act came into play and consequently, the ordinary remedy of statutory appeal against the order of the Registrar, Co-operative Societies passed on 18-1-2011 was not available to be invoked by any party aggrieved by the said order. This important aspect of the matter, which goes to the root of the jurisdiction of the appellate authority was not at all considered, though specifically raised by the petitioners in their preliminary objections.

For the reasons aforesaid, the appeal filed by the respondent No. 2 before the respondent No. 1 was wholly incompetent under the law. The respondent No. 1, therefore, had no competence or jurisdiction to entertain the appeal against the order dated 18-1-2011 (Annexure P-15) passed by the Registrar, Co-operative Societies.

During the course of arguments, learned counsel for respondent Nos. 2 and 5 raised manifold contentions, particularly with regard to violation of the provisions contained in Section 16 of the Co-operative Societies Act and Rule 11 of the Chhattisgarh Co-operative Societies Rules, 1962 and contended that order dated 18-1-2011 suffers from serious illegality and statutory violation.

There is some force in the submission of learned counsel for respondent Nos. 2 and 5, which might be examined by a competent Court or authority or Tribunal having authority under the law. However, on that ground, the order passed by the incompetent authority cannot be allowed to remain in force. Once it is found that the remedy of appeal was not available under the law in view of the bar engrafted u/s 79 of the Cooperative Societies Act against the order dated 18-1-2011, the order passed by the appellate authority cannot be allowed to remain in force and has to be set aside.

The order passed by the appellate authority having been found to be without jurisdiction and authority of law on the count that the remedy of appeal under the law is not available, this Court is not inclined to examine other issues raised by the parties. In the result, the writ petition is allowed. The impugned order dated 19-7-2011 (Annexure P-1) passed by the respondent No. 1 is declared illegal and the same is hereby set aside. However, it will be open for the respondent Nos. 2 and 5 to take recourse to such remedy as may be available to them under the law to assail legality and validity of order dated 18-1-2011 passed by the Registrar, Co-operative Societies. No orders as to cost.