V. Sundaram Iyer vs Deputy Registrar of Co-operative Societies and Others

Rajagopala Ayyangar, J.—These writ petitions are for the issue of writs of prohibition restraining the Deputy Registrar of Co-operative

Societies from proceeding with certain plaints filed before him u/s 51 of the Co-operative Societies Act, and they raise for consideration mainly the

proper construction of certain Sections of that enactment to which we shall advert presently. These petitions fall into two major divisions and each

relates to two co-operative societies which have now been superseded and whose management has now been vested in special officers appointed

by the Registrar of Co-operative Societies. W.P. Nos. 853, 914, 915 and 920 of 1955 arise out of claims made on behalf of the Sivaganga Co-

operative Urban Bank, Ltd., while W.P. Nos. 258 to 263 of 1955 relate to claims preferred on account of the Karaikudi Co-operative Stores,

Ltd.

It will be necessary to set out in brief outline the facts and the allegations on the basis of which claims have been made against the petitioners in

the several writ petitions, who are ex-directors of these societies, in order to appreciate the point raised on their behalf.

W.P. No. 853 of 1955 and 920 of 1955 seek the issue of writs of prohibition restraining the Deputy Registrars of Co-operative Societies, who

have been impleaded as the first respondent, from proceeding with the enquiry in A.R.C. No. 6239 of 1953-54 filed by the Special Officer

appointed to manage the affairs of the Sivaganga Co-operative Urban Bank, Ltd., W.P. No. 853 of 1955 being by the ex-director-President,

while W.P. No. 920 of 1955 is by eight other ex-directors who all have been impleaded as several defendants in this claim. The affairs of this

banking institution appear to have given rise to a number of complaints with the result that an enquiry was ordered into the affairs of this institution

by the Registrar on 17th January, 1954, u/s 38 of the Co-operative Societies Act. The operative part of this section provides:

(1) The Registrar may, of his own motion, and shall on the request of the Collector, or on the application of a majority of the committee or of

not less than one-third of the members, hold an enquiry, or direct some person authorised by him by order in writing in this behalf to hold an

enquiry into the constitution, working and financial condition of a registered society.

The Board was superseded on 19th February, 1954 and a Special Officer was appointed in the place of the Board by an order of the Registrar,

dated 26th February, 1954. The enquiring officer submitted an interim report on 28th June, 1954, in the course of which he reported the

irregularities, one of which is that which forms the subject-matter of the plaint A.R.C. No. 6239 of 1953-54 with which W.P. Nos. 853 and 920

of 1955 are concerned. In this plaint u/s 51 of the Cooperative Societies Act filed by the Special Officer, it is stated that the Secretary of the Bank,

impleaded as the first defendant in the case, had advanced moneys to the Secretary of the Raja Doraisingam Memorial College in breach of the

rules of the Society and that whereas the books of the Society showed that a sum of Rs. 48,800 was still outstanding from the college authorities,

the latter''s books showed only a sum of Rs. 14,100 and the college authorities had disclaimed liability for the rest. The Secretary of the Co-

operative Society was charged with fraud and misappropriation of this difference and similar charges were made against the directors, including the

petitioner in W.P. Nos. 853 and 920 of 1955. In paragraph 11 of the plaint, the Special Officer stated:

The directors have been privy to the fraud and have so contrived by their fraud to conceal it from the auditors, departmental officers and the

general body and the bank in general and was revealed to the bank only sometime after the supersession of the board.

On this basis, a claim is made against the defendants, including the petitioner in W.P. Nos. 853 and 920 of 1955, for a decree for this sum with

interest.

W.P. No. 914 of 1955 is concerned with another claim made against the petitioner in W.P. No. 853 of 1955, who was the President of the

Bank at the relevant period. The interim report of the enquiring officer showed that a fixed deposit receipt had been issued on 28th December,

1953, to one Lakshmi Ammal for Rs. 4,000 whereas the amount available to her credit was only Rs. 672-11-6. A.R.C. No. 6244 of 1953-54

has been filed for the recovery of Rs. 3,327-5-6 the excess sum for which the fixed deposit receipt was wrongly issued. There are five defendants

in this action and the petitioner in this writ petition is the fifth defendant. The charge against the defendants is that though the accounts showed a

lesser amount as due to the depositor Lakshmi Ammal, the defendants had, either wantonly or grossly negligently, issued the fixed deposit receipt

for a large sum in favour of this constituent.

The claim in W.P. No. 915 of 1955 is very similar to that in W.P. No. 914 of 1955, the petitioner being the same individual. In this also, the

charge is that an amount of Rs. 1,000 received from one N. Section Ramaswami Chettiar had been misappropriated by the Secretary and the

cashier of the Bank and that the petitioner in this writ petition participated in it or connived at it, and failing that, was grossly negligent in scrutinising

the books of account before the issue of the fixed deposit receipt.

W.P. Nos. 258 to 263 arise, as we have mentioned earlier, out of proceedings taken by the Special Officer of the Karaikudi Co-operative

Stores, Ltd. In regard to this Society, the directors, of which were superseded after an enquiry u/s 38 and a Special Officer was appointed, the

report of the Special Officer disclosed that losses had been incurred by this Society in regard to three matters which form the basis of the claims

put forward in A.R.C. Nos. 127, 128 and 129 of 1954-55. In A.R.C. No. 127 of 1954-55, a claim is made against several defendants for the

recovery of a sum of Rs. 35,578-1-7 stated to be due on account of the improper sale and misappropriation of the value of 505 bags (of 64

measures each) of rice by the permanent officials of the Society with the connivance of the directors and the latter are the petitioners in W.P. Nos.

258 and 261 of 1955. W.P. Nos. 260 and 262 are concerned with the claim in A.R.C. No. 128 of 1954-55. This proceeding is for the recovery

of a sum of Rs. 36,790-11-11 treated as being excess payments of transport charges above those permitted by the rules, and comprise also

amounts due to the Society because of wrong debits on the basis of false receipts for moneys paid towards loading charges. The gravamen of the

charge against the directors, who are the petitioners in these two writ petitions, is that they have connived at or participated in the fraud which

resulted in this loss to the Society. W.P. Nos. 259 and 263 are directed to question the legality of the proceedings in A.R.C. No. 129 of 1954

filed for the recovery of Rs. 474-4-0 stated to have been paid on receipts alleged to be false, the charge against the directors being identical with

that in A.R.C. No. 128 of 1954-55.

All these several claims have, as stated before, been preferred u/s 51 of the Co-operative Societies Act. The relevant portion of Section 51

enacts:

(1) If any dispute touching the business of a registered society (other than a dispute regarding disciplinary action taken by the society or its

committee against a paid servant of the society) arises

(a)...

(b) between a member, past member or person claiming through a member, past member or deceased member and the society, its committee or

any officer, agent or servant of the society, or

(c) between the society or its committee and any past committee, any officer, agent or servant, or any past officer, past agent or past servant, or

the nominee, heirs or legal representatives of any deceased officer, deceased agent or deceased servant, of the society....

Such dispute shall be referred to the Registrar for decision.

Explanation. - A claim by a registered society for any debt or demand due to it from a member past member or the nominee, heir or legal

representative of a deceased member, whether such debt or demand be admitted or not, is a dispute touching the business of the society within the

meaning of this sub-section.

(2) The Registrar may, on receipt of such reference,

(a) decide the dispute himself, or

(b) transfer it for disposal to any person who has been invested by the (State Government) with powers in that behalf, or....

(5) The Registrar may, of his own motion or on the application of a party to a reference, revise any decision theron by the person to whom such

reference was transferred or by the arbitrator or arbitrators to whom it was referred.

(6)(a) Any decision passed by the Registrar under Clause (a) of Sub-section (2) or under subsection (5) shall be final and shall not be called in

question in any civil or revenue Court.

(b) Any decision that may be passed by the person to whom a reference is transferred or by the arbitrator or arbitrators to whom it is referred

shall, save as otherwise provided in Sub-section (5), be final and shall not be called in question in any civil or revenue Court.

In addition to the Registrar''s powers of revision u/s 51(5) extracted supra the State Government has vested in it a power of revision u/s 57,

which runs:

The State Government or the Registrar may call for and examine the record of any enquiry or the proceedings of any officer subordinate to

them, for the purpose of satisfying themselves as to-the legality or propriety of any decision or order passed and as to the regularity of the

proceedings of such officer. If in any case it shall appear to the State Government or the Registrar that any decision or order or proceedings so

called for should be modified, annulled, or reversed, the State Government or the Registrar, as the case may be, may pass such order theron as to

it or him, may seem fit.

Mr. Rajah Aiyar who appeared for the petitioner in W.P. Nos. 853 of 1955 and 914 and 915 of 1955 and addressed the main arguments in

these petitions, raised three contentions:

(1) The Deputy Registrar, before whom these claims have been preferred, has no jurisdiction to proceed with them, since the subject-matter of the

claims does net come within the definition of ""dispute touching the business of the society"" is within the opening words of Section 51(1).

(2) If these were disputes within Section 51, the provision in the section is unconstitutional as opposed to Article 14 of the Constitution.

(3) Assuming that, the claim is a dispute within Section 51 and that provision is valid, still the claim is also one within Section 49 of the Act, and if a

matter is both within Sections 49 and 51, it can be proceeded with only u/s 49 and not u/s 51. This he urged as a matter construction based upon

general principles of statutory interpretation .

In the view which we take of the last of these points it is not necessary for us to deal in any great detail with the other two urged by the learned

Counsel for the petitioner. We have, however, pointed out that we are unable to agree with the submission of learned Counsel for the petitioner

that the subject-matter of the claim in these writ petitions is not a dispute touching the business of a society within Section 51. In the case of the

society concerned in W.P. Nos. 853, 920, etc., its business is that of banking. The dealings out of which the claims which form the subject-matter

of A.R.C. Nos. 6239, 6244, 6245 of 1953-54 arise, touch and concern that business. They also arise between the parties mentioned in Section

51(1)(b) and (c). We are, therefore, unable to accept the contention that it is not a claim which would fall within Section 51 of the Act. Nor are we

able to agree with the learned Counsel that Section 51 contravenes Article 14, though not having heard full arguments upon the point, we do not

wish to state it finally.

It is the third of the submissions of the learned Counsel that we consider is well founded. Section 49 enacts:

(1) Where in the course of an audit u/s 37 or an inquiry u/s 38 or an inspection u/s 39 or the winding up of a society, it appears that any person

who has taken part in the organisation or management of the society or any past or present officer of the society has misappropriated or

fraudulently retained any money or other property or been guilty of breach of trust in relation to the society, the Registrar may, of his own motion

or on the application of the committee or liquidator or of any creditor or contributory, examine into the conduct of such person or officer End make

an order requiring him to repay or restore the money or property or any part thereof with interest at such rate as the Registrar thinks just or to

contribute such sum to the assets of the society by way of compensation in respect of the misappropriation, fraudulent retainer or breach of trust as

the Registrar thinks just.

(2) The order of the Registrar under Sub-section (1) shall be final unless it is set aside by the District Court having jurisdiction over the area in

which the headquarters of the society are situated or if the headquarters of the society are situated in the City of Madras, by the City Civil Court,

on application made by the party aggrieved within three months of the date of receipt of the order by him.

(3) Any sum ordered under this section to be repaid to a society or recovered as a contribution to its assets may be recovered on a requisition

being made in this behalf to the Collector by the Registrar in the same manner as arrears of land revenue.

(4) This section shall apply notwithstanding that such person or officer may have incurred criminal liability by his act.

We shall first consider the argument advanced by Mr. Naidu on behalf of the Special Officer of the Sivaganga Co-operative Urban Bank,

Ltd., that the claims in these plaints are not within Section 49. Section 49 postulates three conditions before it could be brought into operation:

(1) There must have been an audit u/s 37, or an enquiry u/s 38, or an inspection u/s 39, or the society must be in the course of winding up; (2)

during the course of the proceedings set out in condition (1), a person who has taken part in the organisation, or management of the society or any

past or present officer, must have (a) misappropriated, or (b) fraudulently retained any money or property, or (c) been guilty of breach of trust in

relation to the society. If these two sets of conditions are satisfied, then (3) the Registrar may, of his own motion or on the application of the

committee, liquidator, creditor or contributory, examine into the conduct of such person, and may make the order requiring the person to repay or

restore the money or property.

Mr. Naidu, learned Counsel for the special officer of the Sivaganga Go-operative Urban Bank, Ltd., urged that conditions 1 and 2 above were

not satisfied and so condition 3 could not come into play.

Taking the conditions in that order, we are clearly of the opinion that the first condition is satisfied. Learned Counsel urged that the final report

of the special officer was submitted only on 12th November, 1954, whereas the claims were preferred towards the end of July, 1954. But this

ignores the fact that the enquiry u/s 38 was ordered on 17th January, 1954 and the enquiry officer made an interim report on 281b. June, 1954

and it was as a result of the matters disclosed in this report that the claims in A.R.C. Nos. 6239, 6244 and 6245 of 1953-54 were filed. No

doubt, there was a further report on 12th November, 1954 and even this was only an interim report, the final report having been submitted long

subsequently. Section 49(1) does not exclude matters appearing in an interim report u/s 38 from the purview of that provision. We therefore, hold

that the first condition is satisfied.

Mr. Naidu urged that the charge made against the directors, i.e., the petitioners in the several writ petitions, did not amount to

misappropriation, fraudulent retention of money or breach of trust, but only, to gross negligence. He therefore, urged that the second condition was

not satisfied. In our judgment this contention also has to be repelled. The section names three kinds of wrong doing : (1) misappropriation ; (2)

fraudulent retention of money or property; and (3) breach of trust in relation to the society. In the context there is no basis for the argument that the

last one is identical with the other two. Misappropriation is where the money or property has been absorbed, expended or dissipated on his own

account by the wrong-doer. Fraudulent retention of money implies that the money or property is still intact though it is dishonestly kept back by the

wrong-doer, and this is the second head of misconduct. In the context of the preceding claims the expression ""breach of trust"" in the third of the

above categories has to be read as exclusive of the two types of misconduct covered by one and two. The language of Section 49 may be usefully

compared with that employed in somewhat analogous provisions, Section 235 of the Indian Companies Act, VII of 1913 (Section 543 of the

Companies Act of 1956):

Where in the course of -winding up of a company, it appears that any person who has taken part in the formation or promotion of the company, or

any past or present director, or manager or liquidator or any officer of the company, has misapplied or retained or become liable or accountable

for any money or properties of the company, or been guilty of any misfeasance or breach of trust in relation to the company, the Court may compel

him to repay or restore the money, etc.

That section applies to every act of commission or omission which is a breach of duty, the expression breach of trust being understood in the sense

of a breach of duty in the case of persons like directors who occupy a fiduciary relationship to the company. If there is a breach of fiduciary

obligation on the part of a person named in the section, the matter would be within Section 235 of the Companies Act, and in our opinion, also

within Section 49 of the Co-operative Societies Act, so as to enable the Registrar to make an order directing the person to repay or restore the

money or property to the society. We have examined the plaints in the several cases in the light of the above and have reached the conclusion that

they clearly involve a charge of breach of trust in relation to the society as that term is used in Section 49.

A further requirement of Section 49 is also satisfied in the present case in that the claim against the directors has come before the registrar in

the manner specified in Section 49. The section contemplates the claim against the delinquent personal being taken cognisance of by the Registrar

either suo motu or on application to him by the Committee or liquidator or creditor or contributory. The claim was preferred in this present case by

the Special Officer who by statutory definition is the committee of the society. ""Committee"" is defined by Section 2(b) as meaning the governing

body of registered society to whom the management of its affairs is entrusted. The Board of directors of the two societies involved in these writ

petitions was superseded by the Registrar u/s 43(1) which runs:

If in the opinion of the Registrar, the committee of any registered society is not functioning properly, he may, after giving an opportunity to the

committee to state its objections, if any, by order in writing, dissolve the committee and appoint a suitable person or persons to manage the affairs

of the society for a specified period not exceeding two years. The period specified in such order may, at the discretion of the Registrar, be

extended from time to time provided that such order shall not remain in force for more than four years in the aggregate.

And Section 43(2) provides;

The person or persons so appointed shall, subject to the control of the Registrar and to such instructions as he may from time to time give, have

power to exercise all or any of the functions of the committee or of any officer of the society, and to take all such action as may be required in the

interests of the society.

It was the special officer appointed who was invested with the power u/s 51 of the Act. The jurisdiction of the Registrar was therefore invoked by

a person competent to move him u/s 49 and the relief prayed for was an order requiring the defendants to repay or restore or to contribute the

sums named to the assets of the society by way of compensation. We are therefore of the opinion that all the conditions of Section 49 are satisfied

and from what we have stated above it would be seen that the claims in these several plaints fall both u/s 51 as also u/s 49.

On the basis the question that has next to be considered is whether on a proper construction of the two provisions, the Registrar has

jurisdiction to proceed under either and whether if such a construction were proper the unfettered discretion of the Registrar would not attract the

ban imposed by Article 14 of the Constitution.

We will now advert to the nature of the proceedings u/s 49 and Section 51. Under the latter provision, the enquiry and disposal is by an officer

or other person nominated by the Registrar or by the Registrar himself and if he chooses the former course, the decision of the Deputy Registrar is

subject to the revisional powers of the Registrar. In cases where he conducts the enquiry and decides the matter, the local Government have

revisional powers u/s 57. But in both the cases there is no right of recourse to the Civil Courts, for Sub-sections 6(a) and (b) of Section 51

expressly enact that the decisions of the authorities u/s 51 are not to be called in question in any Civil Court. The parties aggrieved are, therefore,

shut out from any access to the Courts, where questions of fact or even of law could be agitated. On the other hand, where the Registrar passes an

order of surcharge u/s 49(1), the aggrieved party has right of recourse to the Civil Court u/s 49(2) and when once it reaches that forum, its

decisions would be subject to the normal procedure and appeals applicable to such Courts. Thus, we have on the one hand, a provision which

removes from the jurisdiction of the Civil Courts any interference with the decisions of the special forum, while on the other hand, a parallel

procedure in which access is provided to the Civil Court, where questions of fact and law could be agitated. In a case where the provisions of

Section 49 are inapplicable, it is clear that recourse could be had to Section 51 and the procedure there contained would alone be applicable. But

in cases falling within Section 49 where (1) Section 51 has no application and (2) cases where a matter falls both within Sections 49 and 51, the

normal rule of construction would be that the two provisions are not intended to operate on parallel lines, leaving it open to the Registrar or the

departmental authorities to choose to act under either provision in his or their unfettered discretion. But that Section 51 which excludes the

jurisdiction of the Civil Court will be strictly construed and that in cases where Section 49 is applicable, Section 51 would for that reason be

excluded.

This matter may be viewed from another aspect, viz., by the application of the rule of construction that special provisions exclude general ones.

Section 51 is a rule of general application. It provides for a variety of matters and is almost exhaustive of the parties between whom disputes could

arise in Co-operative societies. Out of this larger group some types of disputes which arise in exceptional circumstances, as indicated in the

opening words of Section 49(1) are the subject of special treatment. The circumstances in which the provision could be invoked do not cover the

entire field of the life of the society. The complaint is one special viz., the existence of misappropriation fraudulent retention or breach of trust on the

part of officers of the society, heads which are very much narrower than the claims or disputes falling within Section 51. These cases are, so to

speak, segregated and a special procedure is devised by which the Registrar is vested with jurisdiction to take up a matter even suo motu and pass

an order if as a result of the enquiry which he conducts he is satisfied that the case discloses the existence of the type of misconduct specified

against the persons named in the provision. From the order of surcharge after what must really be a summary enquiry the section provides for a

resort to ordinary Courts for the aggrieved persons for redress. This, therefore, is a special rule applicable to particular persons and in particular

circumstances. The rule of construction, therefore, that where there are two sets of provisions, the one general and the other special, the latter

alone would apply to cases falling within it, notwithstanding the generality of the other provision, applies to the construction of these two provisions,

and it has to be held that where there is overlapping of the terms of Sections 51 and 49(1), the later alone would be applicable to cases covered

by it. The reasonableness of such a construction is indicated by the fact that, in these cases of serious misconduct resort is permitted to the Civil

Court, a protection not available in the less serious ones dealt with by Section 51.

Mr. Naidu, however, urged that the Registrar had an unfettered discretion under Section49(1), indicated or provided for by the use of the

word ""may"" in the expression ""the Registrar may of his own motion, etc.,"" to proceed under this section or not, and that the construction which we

have indicated earlier would negative this discretion and should not, therefore, be adopted. We are not impressed by this argument, since the use

of the word ""may"" does not connote the discretion of the type urged by the learned Counsel. On the other hand, the word ""may"" is consistent with

its being read as compulsive or as ""shall"" if the conditions postulated by the section are satisfied. It would really be a breach of duty on the part of

the Registrar if the type of misconduct set out in the section came to his knowledge in the manner provided in Section 49(1) and yet he refused to

take any notice of it or pass an order which he might pass under the last portion of sub-section (1).

As we have reached this construction of the two provisions, we are of the view that the Registrar could act in the case of the persons named in

Section 49(1) against whom claims have been made in the several A.R.Cs. only u/s 49(1) and not u/s 51 and that the reference of the dispute to

the Deputy Registrar for disposal u/s 51(2)(b) is, therefore, incompetent. In view of what we have stated above as to the proper construction of

Sections 49 and 51, it is not very necessary to consider whether if a contrary construction were adopted, it would involve a violation of Article 14

of the Constitution.

The result, therefore, is that though the plaints have been properly filed before the Registrar by the Special Officers who are vested with the

powers of the committees u/s 43, the Registrar was bound to treat them as invoking his jurisdiction u/s 49 and proceed accordingly in the case of

those of the defendants who fall within that provision and that those claims could not be proceeded against them u/s 51. Further in view of our

conclusion that the claims covered by these several A.R.Cs. are also within Section 51 of the Act, it would follow that as regards the defendants to

whom Section 49 is inapplicable, the plaints invoking the Registrar''s jurisdiction u/s 51 would be in order. Thus analysed the claims against the

defendants named below in the several A.R.Cs. do not fall within Section 49 and the Registrar can therefore proceed against them on the plaints as

filed under sec don 51 of the Act:

In these several A.R.Cs. the Registrar would be at liberty to proceed u/s 51 against the defendants named above and to this extent the rule nisi

is discharged. In regard to the other defendants, however, the Registrar would have to proceed u/s 49 and deal with the claims against them

accordingly. The petitioners in the several writ petitions are all persons whose cases are covered by Section 49 and consequently the rule nisi

already issued will be made absolute and the Deputy Registrar will be restrained from proceeding with the matter before him in respect of the

defendants other than those whom we have listed above u/s 51 of the Act. There will be no order as to costs in these writ petitions.