Dismissed

M.v.Rajendran v. Joint Registrar of Co-Operative Societies

Kerala HC8 Nov 2018WP(C)/27622/2017

Case brief

AI extract

What is this about?

The Kerala High Court dismissed a writ petition seeking to quash a show-cause notice issued under Rule 44 of the Kerala Co-operative Societies Rules against directors of a co-operative bank and a producer company. The Court held that it would not interfere at the notice stage absent a prima facie case of lack of jurisdiction or abuse of process, remanding the matter for a proper inquiry into wheth

What did the court decide?

The writ petition is dismissed; the petitioners must submit explanations to the Registrar within two weeks.

M.v.Rajendran Vs Joint Registrar of Co-Operative… — Cooperative Societies | Kerala HC (2018)

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IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT

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THE HONOURABLE MR. JUSTICE ANIL K.NARENDRAN

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THURSDAY, THE 8TH DAY OF NOVEMBER 2018/ 17TH KARTHIKA, 1940

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WP(C).No. 27622 of 2017

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PETITIONERS:

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1 M.V.RAJENDRAN,

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MEMBER, BOARD OF DIRECTORS, ADAT FARMERS SERVICE CO-OPERATIVE BANK LTD NO.R.689, THRISSUR DISTRICT - 680 551.

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2 C.C.HANEESH,

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MEMBER, BOARD OF DIRECTORS,

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ADAT FARMERS SERVICE CO-OPERATIVE BANK LTD.NO.R.689,

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THRISSUR DISTRICT - 680 551.

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3 T.R.JAYACHANDRAN,

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MEMBER, BOARD OF DIRECTORS,

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ADAT FARMERS SERVICE CO-OPERATIVE BANK LTD.NO.R.689,

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THRISSUR DISTRICT - 680 551.

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4 P.N.RUDRAN NAMBOOTHIRI,

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MEMBER, BOARD OF DIRECTORS,

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ADAT FARMERS SERVICE CO-OPERATIVE BANK LTD.NO.R.689,

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THRISSUR DISTRICT - 680 551.

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BY ADV.SRI.GEORGE POONTHOTTAM

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RESPONDENTS:

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1. JOINT REGISTRAR OF CO-OPERATIVE SOCIETIES, THRISSUR - 680001.

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2. BABULNATH K.S., MEMBER NO. 23963, ADAT FARMERS SERVICE CO-OPERATIVE BANK LTD.NO.R.689, THRISSUR DISTRICT - 680 551.

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3. Addl.R3. MANAGING DIRECTOR, ADAT FARMERS SERVICE CO-OPERATIVE BANK LTD NO.R.689, THRISSUR DISTRICT-680551.

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(ADDL.R3 IMPLEADED AS PER ORDER DATED 20.09.2017 IN I.A.NO.14766 OF 2017)

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R2 BY ADV. SRI.T.B.HOOD R2 BY ADV. SMT.M.ISHA R2 BY ADV. SRI.AMAL KASHA R1 BY ADV. GOVERNMENT PLEADER ADDL.BY ADV. SRI.P.C.SASIDHARAN, SC, ADAT FARMERS SERVICE CO-OPERATIVE BANK LTD.

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BY ADV.SRI.MOHAMMED HASHIM, SPECIAL GOVERNMENT PLEADER

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THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 10.08.2018, THE COURT ON 08-11-2018, DELIVERED THE FOLLOWING:

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WP(C) No.27622 OF 2017

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JUDGMENT

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The petitioners, who are the members in the Board of Directors of Adat Farmers Service Co-operative Bank Ltd., Thrissur have filed this writ petition under Article 226 of the Constitution of India, seeking a writ of certiorari to quash Ext.P1 show-cause notice dated 09.08.2017 issued by the 1^st respondent Joint Registrar of Cooperative Societies and seeking a declaration that in terms of clause (i) of sub-rule (1) of Rule 44 of the Kerala Co-operative Societies Rules, 1969 and the allegation of similarity in the activity with that of Thrissur Paddy Farmers Producer Company Ltd., the proceedings initiated as per Ext.P1 show-cause notice does not attract disqualification as against the petitioners and therefore the proceedings are bad. The petitioners have also sought for a declaration that as they are no more Directors of Thrissur Paddy Farmers Producer Company Ltd., even before the issuance of Ext.P1 notice and therefore the said notice is bad in law; and a writ of mandamus commanding the 1^st respondent Joint Registrar to provide a copy of the complaint and the report, based on which action has been initiated against them as per Ext.P1.

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On 21.08.2017, when this writ petition came for admission, the learned Government Pleader took notice for the 1^st respondent. Urgent notice by speed post was ordered to the 2^nd respondent, who is

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a member of Adat Farmers Service Co-operative Bank, who is the complainant before the 1^st respondent Joint Registrar. This Court granted an interim order to the effect that further proceedings pertaining to Ext.P1 notice, especially with effect from the hearing scheduled on 22.03.2017, will stand deferred for a period of one month. The said interim order was extended from time to time.

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The Managing Director of Adat Farmers Service Co-operative Bank Ltd. filed I.A.No.14766 of 2017 seeking an order to implead him as additional respondent. By the order dated 20.09.2017, the said interlocutory application was allowed and he was impleaded as additional 3^rd respondent.

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A counter affidavit has been filed on behalf of the 1^st respondent Joint Registrar, opposing the reliefs sought for in this writ petition. The petitioners have also filed a reply affidavit.

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Heard the learned counsel for the petitioners, the learned

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Senior Government Pleader for the 1^st respondent Joint Registrar and also the learned counsel for the additional 3^rd respondent. Despite service of notice, none appears for the 2^nd respondent.

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The sole issue that arises for consideration in this writ petition is as to whether any interference is warranted on Ext.P1 showcause notice dated 09.08.2017 issued by the 1^st respondent Joint

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Registrar, whereby the petitioners have been asked to appear before the said respondent on 23.08.2017 for personal hearing to show-cause why proceedings under clause (i) of sub-rule (1) of Rule 44 of the Kerala Co-operative Societies Rules for disqualification shall not be taken against them.

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The pleadings and materials on record would show that the petitioners are the members in the Board of Directors of Adat Farmers Service Co-operative Bank (for brevity 'Adat Bank'), which is a society registered under the Kerala Co-operative Societies Act (for brevity, 'the Act'). They were elected as Board of Directors of Adat Bank on 02.03.2014. While continuing as Board of Directors of Adat Bank, the petitioners along with others incorporated Thrissur Paddy Farmers Producers Company Ltd. on 24.02.2016, a company registered under the provisions of the Companies Act. By Ext.P1 notice, the petitioners have been asked to show-cause why they should not be disqualified from continuing as Board of Directors of Adat Bank, in view of the provisions under clause (i) of sub-rule (1) of Rule 44 of the Kerala Cooperative Societies Rules, 1969 (for brevity, 'the Rules'). A reading of Ext.P1 notice would show that regarding the disqualification of the petitioners, the 2^nd respondent submitted a complaint dated 04.07.2017. Based on the said complaint, the 1^st respondent Joint

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Registrar obtained a report dated 10.07.2017 from the Assistant Registrar of Co-operative Societies (General), Thrissur.

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On receipt of Ext.P1 show-cause notice, the 1^st petitioner submitted Ext.P2 request before the 1^st respondent Joint Registrar for obtaining a copy of the complaint dated 04.07.2017 made by the 2^nd respondent and also a copy of the report of the Assistant Registrar dated 10.07.2017. Relying on Exts.P3 to P5 resignation letters dated 20.01.2017 addressed to the Board of Directors of Thrissur Paddy Farmers Producer Company Ltd., the petitioners would contend that petitioners 2 to 4 had in fact resigned from the Board of Directors of the said Company, with effect from 10.02.2017. The resignation letters were duly accepted by the Board of Directors of the Company on 09.02.2017 and intimated to the Registrar of Companies. Likewise, the 1^st petitioner tendered resignation by submitting Ext.P6 resignation letter on 25.07.2017, with effect from 02.08.2017, which was accepted by the Board of Directors of the Company on 02.05.2017 and the said fact was also intimated to the Registrar of Companies. Relying on Exts.P3 to P6 resignation letters, the petitioners would contend that they are no more Directors of Thrissur Paddy Farmers Producer Company Ltd., and as such Ext.P1 notice is legally unsustainable. The document marked as Ext.P7 is the list of the remaining Directors of

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Thrissur Paddy Farmers Producer Company Ltd., available in the official website of the Ministry of Corporate Affairs.

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In the counter affidavit filed on behalf of the 1^st respondent, it is contended that Ext.P1 show-cause notice has been issued invoking the powers under clause (i) of sub-rule (1) of Rule 44 of the Rules, which provides that no member of a society shall be eligible for being elected, or appointed as member of the Society under Section 28 of the Act, if he is carrying the same business as is being carried on by the Society. As per clause (a) of sub-rule (2) of Rule 44, a member of the Committee shall cease to hold his office as such, if he becomes disqualified under sub-rule (1) of Rule 44. The petitioners, while continuing as Board of Directors of Adat Bank, continued as Board of Directors of Thrissur Paddy Farmers Producer Company Ltd. The object of the Adat Bank, among other things, are lending of short term, medium term and long term loans as advance to the members for productive purpose, procurement and sale of agricultural and dairy products directly or through other agencies and grant loan on that security, to implement agricultural service and works with the help of own or rented agricultural machineries, to lend loan for agricultural instruments and machineries within the area of operation of the Bank. As per the memorandum of association of Thrissur Paddy Farmers

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Producers Company Ltd., it is a Private Limited Company formed for agricultural production, processing, marketing, distribution of machineries, consumer products, to give loans to its members, accept deposit, lending of loans and dealing of promissory note, debentures, Bill of Exchange, etc. Therefore, the 1^st respondent would contend that the petitioners, while continuing as Board of Directors of Adat Bank, were carrying on the same business in Thrissur Paddy Farmers Producer Company Ltd.

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Relying on Ext.R1(a) information furnished by the Registrar of Companies, Kerala as on 13.07.2017, the 1^st respondent would contend that at the time of issuance of Ext.P1 show-cause notice, the petitioners were continuing as members in the Board of Directors of Thrissur Paddy Farmers Producer Company Ltd. The 1^st respondent would also point out that, as per Exts.P3 to P5 resignation letters dated 20.01.2017, petitioners 2 to 4 have submitted resignation with effect from a future date, i.e. 10.02.2017. Likewise, as per Ext.P6 resignation letter dated 25.07.2017, the 1^st petitioner submitted resignation with effect from 02.08.2018. Regarding Ext.P2 request made by the 1^st petitioner, the 1^st respondent would point out that a copy of the complaint made by the 2^nd respondent as well as the report of the Assistant Registrar of Co-operative Societies were furnished to

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the 1^st petitioner on 18.08.2017.

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In the counter affidavit filed on behalf of the 1^st respondent Joint Registrar it is pointed out that an overdraft of Rs.15 crores has been sanctioned by the Board of Directors of Adat Bank and Thrissur Paddy Farmers Producer Company Ltd. availed that overdraft facility without executing proper documents and offering proper security. When the overdraft facility was withdrawn, Thrissur Paddy Farmers Producer Company Ltd. approached this Court seeking instalment facility to clear the arrears. However, instalments were not paid by the Company as per the directions issued by this Court in the judgment dated 23.08.2017 in W.P.(C) No. 26203/2017. In addition to this, for purchasing shares in the Company, amount of Adat Bank was utilised without any sanction and that, there is siphoning of large amounts of Adat Bank in favour of the Company.

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The learned counsel for the petitioners would contend that Thrissur Paddy Farmers Producer Company Ltd. is a Company registered under the Companies Act, which is a separate legal entity. The business carried on by the Company cannot be treated as the business carried on by the members of its Board of Directors. Therefore, even if the Company was carrying on the same business carried on by Adat Bank, the provisions of clause (i) of sub-rule (1) of

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Rule 44 of the Rules will not be attracted.

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As already noticed, clause (i) of sub-rule (1) of Rule 44 provides that, no member of a society shall be eligible for being elected, or appointed as member of the society under Section 28 of the Act, if he is carrying the same business as being carried on by the Society. As per clause (a) of sub-rule (2) of Rule 44, a member of the Committee shall cease to hold his office as such, if he becomes disqualified under sub-rule (1) of Rule 44. In the instant case, t he pleadings and materials on record would show that the petitioners, while continuing as members in the Board of Directors of Adat Bank, which is a Co-operative Society, registered under the Kerala Cooperative Societies Act, continued as Board of Directors of Thrissur Paddy Farmers Producer Company Ltd., a Company incorporated under the provisions of the Companies Act, which is alleged to be carrying on the same business carried on by Adat Bank. The fact that, during the relevant time, the petitioners were members in the Board of Directors of that Company is discernible from the pleadings and materials on record, especially Ext.R1(a) information furnished by the Registrar of Companies, Kerala, as on 13.07.2017.

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Though, a Company registered under the Companies Act is a different legal entity distinct from its shareholders or directors, the

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said legal status of a Company cannot be put forward as a shield by the members of the Managing Committee of a Co-operative Society registered under the Kerala Co-operative Societies Act and the rules made thereunder, when proceedings for disqualification have been initiated against them, invoking clause (i) of sub-rule (1) of Rule 44. For the purpose of the clause (i), the business carried on by the Company incorporated by the members in the Managing Committee of a Co-operative Society along with others, can be treated as the business carried on by such persons. Otherwise, it will defeat the very object of the provisions for disqualification contained in clause (i) of sub-rule (1) of Rule 44. Therefore, it is for the 1^st respondent Joint Registrar to find out, based on the explanation offered by the petitioners to Ext.P1 show-cause notice, as to whether the Company was carrying on the same business as being carried on by Adat Bank.

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As far as the challenge made in this writ petition against Ext.P1 show-cause notice is concerned, it is one issued by the 1^st respondent Joint Registrar, in exercise of his powers under Rule 44 of the Kerala Co-operative Societies Rules, which deals with disqualification of membership of Committee.

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In State of U.P v. Brahm Datt Sharma [(1987) 2 SCC

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179] the Apex Court held that, when the show cause notice was

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issued under a statutory provision calling upon to show cause, the courts should be reluctant to interfere with the notice at that stage unless the notice is shown to have been issued palpably without any authority of law. The purpose of issuing show cause notice is to afford an opportunity of hearing and once cause is shown it is open to the authority to consider the matter in the light of the facts and submission placed before it and only thereafter a final decision in the matter could be taken. Therefore, interference by the Court before that would be premature.

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17. In Seimens Ltd v. State of Maharashtra [(2006) 12

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SCC 33] the Apex Court held that ordinarily, a writ court may not exercise its discretionary jurisdiction to entertain a writ petition questioning a notice to show cause unless the notice appears to have been without jurisdiction.

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18. In Union of India v. Vicco Laboratories [(2007) 13 SCC

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270] the Apex Court held that, normally, the writ court should not interfere at the stage of issuance of show cause notice by the authorities. In such a case, the parties get ample opportunity to put forth their contentions before the authorities concerned and satisfy the authorities concerned about the absence of case for proceeding against the person against whom the show cause notices have been issued.

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Abstinence from interference at the stage of issuance of show cause notice in order to relegate the parties to the proceedings before the authorities concerned is the normal rule. However, the said rule is not without exceptions. Where a show cause notice is issued either without jurisdiction or in an abuse of process of law, certainly, in that case, the writ court would not hesitate to interfere even at the stage of issuance of the show cause notice. The interference at the show cause notice stage should be rare and not in a routine manner. The mere assertion by the writ petitioner that notice was without jurisdiction and/or abuse of process of law would not suffice. It should be prima facie established to be so. Where factual adjudication would be necessary, interference is ruled out.

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In view of the law laid down in the decisions referred to supra, no interference under Article 226 of the Constitution of India is warranted on a show cause notice issued under a statutory provision unless the notice is shown to have been issued palpably without any authority of law or that it is an abuse of process of law. The mere assertion in the writ petition that the show cause notice has been issued without any authority of law or that it is an abuse of process of law would not suffice. It should be prima facie established to be so. Where factual adjudication would be necessary, no interference of this

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Court in exercise of the extraordinary jurisdiction under Article 226 of the Constitution is warranted.

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Having considered the submissions made by the learned counsel on both sides, the averments and the ground raised in this writ petition, in the light of the law laid down in the decisions referred to supra, this Court finds that the petitioners have not made out a case warranting interference on Ext.P1 show-cause notice, in exercise of the extraordinary jurisdiction of this Court under Article 226 of the Constitution of India. It is for the petitioners to show-cause to Ext.P1 notice by submitting a proper explanation, based on the copy of the complaint of the 2^nd respondent and report of the Assistant Registrar, which are already furnished to the 1^st petitioner on 18.08.2017. The petitioners shall submit their explanations to Ext.P1 show-cause notice before the 1^st respondent Joint Registrar, within two weeks from the date of receipt of a certified copy of this judgment. The 1^st respondent Joint Registrar shall consider the same and take a final decision on the matter, strictly in accordance with the law, with notice to the petitioners and after affording them an opportunity of being heard, as expeditiously as possible, at any rate, within a further period of four weeks.

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In the result, without prejudice to the right of the petitioners to

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submit a proper explanation to Ext.P1 show-cause notice, this writ petition stands dismissed, leaving open all legal and factual

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contentions raised by the petitioners.

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Sd/-

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