M. Patel & Ors Vs. Suryapur Bank Agent D.B.H. Samiti & Ors  Insc 249 (8
S.B. Sinha & Markandey Katju
[Arising out of S.L.P. (C) No. 17465 of 2004] WITH
CIVIL APPEAL NOS. 1211/2007 @ S.L.P.(C)Nos. 18362-18363 of 2004 CIVIL APPEAL
NOS. 1212/2007 @ S.L.P.(C)Nos. 19602-19603 of 2004 S.B. SINHA, J.
These appeals involving identical questions of law and fact and arising out
of the same judgment, were taken up for hearing together and are being disposed
of by this common judgment.
Appellants herein are Directors of a Cooperative Bank known as the City
Cooperative Bank Ltd. A loan was sanctioned by the said Cooperative Bank to
Suryapur Cooperative Bank as also one Pragati Alco-Chem Pvt.
Ltd. in the year 2002. The Registrar's Board of Nominees, Surat passed
awards for recovery of the amount advanced to the loanees.
The Bank, as also its Managing Directors, filed a writ petition wherein rule
nisi was issued. An interim relief was also granted. One Suryapur Bank Agent
Dainik Bachat Hitvardhak Samiti, respondent No. 1, without approaching the
Registrar, for ventilating its grievances in regard to the purported
mismanagement of the affairs of the said Bank, filed a writ petition before the
High Court of Gujarat at Ahmedabad. Admittedly, no prayer was made therein for
appointment of an Administrator. A learned Single Judge of the said Court,
however, purported to be keeping in view the fact that the Reserve Bank of
India had undertaken a statutory inspection, a report in respect whereof was
filed in the Court, directed appointment of an Administrator in place of the
elected body stating :- "9.2) By ad-interim order, it is directed that
respondent No. 2 shall appoint Administrator in place of elected body of
respondent No. 3 Bank within a period of one week from today and respondent No.
2 shall appoint a person as Administrator, who is well conversant with the
banking business and if required, respondent No. 2 may also consult RBI in this
9.3) Until the Administrator is appointed, respondent No.
2 is directed to ensure that the charge from the elected body is taken over
by the District Registrar, Surat as In-charge Administrator tomorrow at the
opening time of the Bank i.e between 10.30 to 11 O'Clock in the morning.
9.4) It is further directed that respondent No. 2 shall inquire regarding
the aforesaid illegal actions and misapplication of the funds which is prima
facie considered by the Court, for the purpose of taking Civil as well as
Criminal action against the office-bearers of respondent No.
3 Bank. Such inquiry shall be completed within a period of fifteen days from
the date of receipt of the order of this Court and if, as an outcome of the
said inquiry, it is found by respondent No. 2 that the office-bearers of respondent
No. 3 Bank, while in office, have committed offences or have misapplied the
funds or have committed illegality, necessary action shall be taken within a
period of fifteen days thereafter and the report shall be submitted to this
Court within two weeks after taking action.
9.5) The respondent No. 3 by further order, is restrained from allowing
functioning of its office-bearers from tomorrow i.e. 12.8.2004 onwards..."
We may at the outset notice that the Registrar of Cooperative Societies in
its affidavit filed before the High Court, stated:- "9. With reference to
paragraph (7) of the petition, it is submitted that the respondent No. 1 after
conducting the inspection of the respondent No. 4, Suryapur Cooperative Bank
Ltd., Surat with respect to its financial position as on 30.6.2002 and the
liquidity problem faced by the bank in September, 2002, issued direction under
Section 35(A) of Banking Regulation Act, 1949
10. With reference to paragraph (8) to (32) of the petition, it is submitted
that respondent No. 2 has received the inspection reports relating to the City
Cooperative Banks Ltd., Surat through RBI on 4.4.2003 and other letters dated
8.7.2003, 18.7.2003, 4.9.2003, 17.9.2003, 28.10.2003, 19.11.2003 and
Respondent No. 2 had initiated proper actions on the basis of the D.R.C.S.
Surat report dated 11.11.2003 regarding the managerial aspects of the Bank.
Thereafter, the official of the bank were called for necessary explanation
on Dt. 24.11.2003 and 5.12.2003 respectively in respect of the point raised in
Thereafter, the City Cooperative Bank filed SCA No.
17116/03 before the Hon'ble Court on 10.12.2003, whereby respondents were
restrained to take civil or criminal action against the officials of the Bank.
The Hon'ble Court is pleased to dispose of the matter on 29.7.04. Hence, the
Registrar will take appropriated action against the official of the City
Cooperative Bank for the violation of Sections 45 and 71 of the Act, now as per
the audit report and inquiry to be conducted under Section 86 of the Act"
The RBI, however, in its counter affidavit stated :- "10. With
reference to paragraph 5 of the petition, it is submitted that the Reserve Bank
does not audit the cooperative banks. The auditing of the cooperative bank falls
within the domain of Registrar of Cooperative Societies under Gujarat
Cooperative Societies Act. However, Reserve Bank conducts inspection of the
cooperative banks under Section 35 of Banking Regulation Act, 1949
It is alleged that some directions have been issued by it under Section 35A
of the Bank Regulation Act, 1959. It also refers to the inspections conducted
by it, in regard to its financial position of the co- operative society on
31.12.2002. It was furthermore averred :- "16. With reference to
paragraphs 11 to 18 of the petition, it is submitted that several petitions
have been filed by the borrowers against the City Coooperative Bank and
Suryapur Coopertive Bank challenging attachment of their property and alleging
fraud by the members of the board which are subjudice before this Hon'ble Court.
In compliance with the inspection report of the Reserve Bank, the respondent
No. 4 vide its letter dated 31.5.2003 reported that the money was given to
banks including Suryapur Coop. Bank against security of bankers' cheque and the
bank was not lending any more for such purpose. The explanation of the
Respondent No. 4 was considered to be unsatisfactory. The respondent No. 4 was
called upon by letter dated 27.6.2003 to explain in detailed to RCS the
circumstances leading to grant of such loan. The reply given by the respondent
No. 4 vide its letter dated 8.7.2003 was not acceptable and was again asked
vide letter 25.7.2003 to explain to the Registrar the position.
Reserve Bank vide letter dated 4.4.2003, 1/8.7.2003, 4.9.2003, 17.9.2003,
28.10.2003, 19.11.2003 and 13.12.2004 required the Registrar to take necessary
action and inform us the action taken by him. The Reserve Bank has not received
any response from the Registrar Cooperative Societies."
An intra court appeal preferred thereagainst was also dismissed by reason of
the impugned judgment by a Division Bench of the said Court, opining that
although no specific prayer was made in the writ petition for appointment of an
Administrator but such a relief could be granted as a general relief viz.
"passing such and other further relief as may be deemed just and proper by
the Court", was prayed for. The Division Bench without going into the
merit of the matter held that the remedy of the appellants was to approach the
learned Single Judge by way of proper application for recalling or modifying or
vacating the interim order and on the said finding the appeal was dismissed.
Mr. Soli J. Sorabjee, the learned senior counsel appearing on behalf of the
appellants submitted that ;
1) No prayer for appointment of Administrator having been made, no such
interim order could have been passed.
2) The High Court should not have exercised the statutory functions of the
Registrar as in terms of Section 81 of the Gujarat Cooperative Societies Act,
1961, he is the only appropriate authority empowered to supersede the
3) No copy of the report of the RBI having been furnished to the appellants,
reliance thereupon by the learned Single Judge was wholly illegal.
The writ petitioners-respondents, despite service of notice, have not
appeared before us.
Mr. R.N. Trivedi, learned senior counsel appearing on behalf of the RBI,
however, would submit that the appellants herein committed severe financial
irregularities, and in that view of the matter and furthermore in view of the
fact that the term of the appellants herein, as Directors of the said Bank is
over, the question of their being reinstated in their elected office(s) does
Gujarat Cooperative Societies Act, 1961 (The said Act) was enacted to
consolidate and amend the law relating to Cooperative Societies in the State of
Gujarat. It is a self contained Code. Registrar under the said Act is a
statutory authority. Indisputably, it has power to supersede an elected body to
manage the affairs of a Cooperative Society in terms of Section 81 of the said
Act, Sub-section (3) whereof reads as under :- "(3) 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, he 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
Section 86 of the Act provides for an inquiry by the Registrar in regard to
the constitution, working and financial conditions of a Society.
The procedure for holding such an inquiry has been laid down in the said
Act. Section 115A empowers the Reserve Bank of India, to take action for
winding up, reconstruction, supersession of the Committee in the following
terms :- "3. If so required by the Reserve Bank of India in the public
interest or for preventing the affairs of the bank being conducted in a manner
detrimental to the interests of the depositors or for securing the proper
management of the bank, an order shall be made by the Registrar for
supersession of the committee and the appointment of an administrator in place
thereof for such period or periods, not exceeding five years in the aggregate,
as may from time to time be specified by the Reserve Bank of India, and the
administrator so appointed shall, after the expiry of his term of office,
continue in office until the day immediately preceding the date of the first
meeting of the new committee of such bank."
It is not in dispute that the writ petitioners had not approached the
Registrar for inquiring into the alleged mismanagement of the affairs of the
Bank and/or members of the Committee. They did not say so even before the High
Court. Mr Trivedi submitted that the RBI had drawn the attention of the
Registrar by its letters in regard to financial irregularities of the disputes
of the society but the said letters are not before us. It is, thus, not clear
that as to whether the RBI had called upon the Registrar to inquire into the
affairs of the Bank or cause such an inquiry to be made by a competent
authority. It is true that an inspection had been made by the authorities of
the RBI but it is not clear as to whether copy of its report have been served
upon the Cooperative Bank and/its Directors or not. Although before us, a
contention has been raised that a copy of the report had been served but from a
perusal of the impugned judgment of the learned Single Judge, it appears, that
in the writ proceedings RBI refused to serve the copy of its report upon the
Bank on the specious plea that the same was a confidential document.
Section 35(1-A) of the Banking Regulation Act provides for furnishing of
such a copy of a report upon the party concerned in the following terms:-
"35 (1-A) (a) Notwithstanding anything to the contrary contained in any
law for the time being in force and without prejudice to the provisions of
sub-section (1), the Reserve Bank, at any time, may also cause a scrutiny to be
made by any one or more of its officers, of the affairs of any banking company
and its books and accounts; and (b) a copy of the report of the scrutiny shall
be furnished to the banking company if the banking company makes a request for
the same or if any adverse action is contemplated against the banking company
on the basis of the scrutiny."
Indisputably, no prayer was made in the writ petition for appointment of an
Administrator. Ordinarily, a Court would allow a statutory functionary to
perform its statutory function. We have noticed hereinbefore that the Registrar
of the Cooperative Societies in no uncertain terms had stated before the High
Court that it could not earlier initiate any inquiry in the matter as a stay
order was operating and as the said order of stay was vacated, an inquiry would
be instituted by it.
The learned Single Judge did not apply his mind in regard to the said
statements of the Registrar. He relied upon the purported inspection report of
the RBI, treating the same to be sacrosanct. Even the necessary ingredients for
passing an interim order were not taken into consideration.
A Cooperative Society should ordinarily be allowed to function through its
elected representatives. This although does not mean that the members of the
Committee have a right to mismanage the affairs of the Cooperative Society but
there cannot be any doubt whatsoever that allegations in relation to the mismanagement
and commission/omission of illegalities, or irregularities or other acts of
omission and commission, the remedies as contemplated under the statute should
ordinarily be resorted to. This Court held so in Union of India & Anr. v.
S.B. Vohra &
Ors. [(2004) 2 SCC 150], stating :
"22. The legal right of an individual may be founded upon a contract or
a statute or an instrument having the force of law. For a public law remedy
enforceable under Article 226 of the Constitution, the actions of the authority
need to fall in the realm of public law be it a legislative act of the State,
an executive act of the State or an instrumentality or a person or authority
imbued with public law element. The question is required to be determined in
each case having the aforementioned principle in mind. However, it may not be
possible to generalize the nature of the action which would come either under
public law remedy or private law field nor is it desirable to give exhaustive
list of such actions."
This Court yet again in State of UP vs. Section Officer Brotherhood &
Anr. [(2004) 8 SCC 286] held :- "30. Judicial review is a highly
complex and developing subject. It has its roots long back and its scope and
extent varies from case to case. It is considered to be the basic feature of
The court in exercise of its power of judicial review would zealously guard
the human rights, fundamental rights and the citizens right of life and liberty
as also many non-statutory powers of governmental bodies as regards their
control over property and assets of various kinds which could be expended on
building hospitals, roads and the like, or overseas aid, or compensating
victims of crime.
* * *
32. It is not possible to lay down the standard exhaustively as to in what
situation a writ of mandamus will issue and in what situation it will not. In
other words, exercise of its discretion by the court will also depend upon the
law which governs the field, namely, whether it is a fundamental law or an
33. It is, however, trite that ordinarily the court will not exercise the
power of the statutory authorities. It will at the first instance allow the
statutory authorities to perform their own functions and would not usher the
said jurisdiction itself."
Recently this Court in Muni Suvrat Swami Jain S.M.P. Sangh v.
Arun Nathuram Gaikwad [AIR 2007 SC 38] held :- "52The grievance of the
appellant herein has been that without issuing a notice under Section 351 of
the Act and without giving an opportunity to the appellant of being heard the
structure of the temple could not be ordered to be demolished by the High
Court. The power under Section 351 of the Act, in our opinion, has to be
exercised only by the Municipal Commissioner and it is left to the Municipal
Commissioner under the provisions of Section 351(2) either to order or not to
order the demolition of the alleged unauthorized temple"
We furthermore are of the view that when such serious questions were raised
before a Division Bench of the High Court, the same should not have been
considered in a casual or cavalier fashion. The Division Bench did not hold
that an appeal was not maintainable and, thus, it was obligatory on its part to
address itself to the merit of the matter.
The learned Single Judge passed the order after hearing counsel for the
appellants. It was, therefore, of no use directing them to go back to the
learned Single Judge by filing an application for vacating the interim order of
injunction impugned before it. In all fairness, the Division Bench should have
considered the matter itself particularly when the effect of such an order was
grave inasmuch as appellants were displaced from their posts of Directors of
the Cooperative Bank to which they were otherwise entitled to. We, however, by
saying so, do not intend to mean that the Court can never issue such a
direction in a rare and exceptional case which the public authority should have
passed vide Comptroller and Auditor General of India, Gian Prakash, New Delhi
& Anr. v. K.S.
Jagannathan & Anr. [(1986) 2 SCC 679] and other decisions following the
same, but the High Court while passing such orders must consider each case on
its own merit.
Ordinarily, the statutory functionaries alone can perform their statutory
functions and the court cannot arrogate to itself the functions of the
statutory authority vide G. Veerappa Pillai v. Raman Ltd. [AIR 1952 SC 192],
State of U.P. v. Raja Ram Jaiswal [(1985) 3 SCC 31], U.P.
State Road Transport Corporation and Another v. Mohd. Ismail and Others
[(1991) 3 SCC 239], S.B. Vohra (supra), Arun Nathuram Gaikward (supra) etc.
Only in case of inaction on their part and in rare and exceptional cases, the
Court can exercise its jurisdiction in such cases. This is not a case where the
Registrar of the Cooperative Societies refused or neglected to take any action.
It could not do so in view of an interim order passed against it. The interest
of the Bank could have been safeguarded by passing other orders; even the
Registrar should have permitted to look into the matter and pass an appropriate
order. The manner in which the impugned order had been passed by the learned
Single Judge betrays fairness. It not only directed appointment of an
Administrator but he was asked to take over the affairs of the Cooperative Bank
on the same day.
The question, however, which remains to be considered is, as to whether in
view of the fact that the terms of the appellants are over, what relief this
Court should grant. Before, however, we issue necessary directions in this behalf
upon the said question, we may notice that a Division Bench of this Court in
Mehsana District Central Bank Ltd. &
Ors. v. State of Gujarat & Ors. [(2004) 2 SCC 463] observed as under :-
"14. Briefly stated the facts are :
A complaint was filed by the respondents herein to the effect that the
Central cooperative bank is governed by the provisions contained in the Gujarat
Cooperative Societies Act, 1961 and the Rules framed thereunder. It is further
alleged that Mehsana District Central Cooperative Bank had violated the
provisions contained in Section 71 of the Gujarat Cooperative Societies Act by
investing large sums in undertakings other than those enumerated in Sections
71(a) to (f). Consequently, Mehsana District Central Cooperative Bank had lost
Though the matter had been brought to the notice of the State Government,
the Registrar of Cooperative Societies and the District Registrar, no action
had been initiated against Mehsana District Central Cooperative Bank and the
members of the Board of Directors. A prayer was also made for issuance of a
writ of mandamus directing the authorities under the Gujarat Cooperative
Societies Act to initiate necessary proceedings against the
respondents/appellants herein for having committed breach of the provisions
contained in Section 71 of the Act. It was further alleged that Mehsana
District Central Cooperative Bank had invested a sum of Rs 95 crores in four
different establishments which do not fall within the ambit of institutions
enumerated in Sections 71(a) to (f) of the Act without the approval of the
State Government or the appropriate authority.
In the above facts and circumstances of this case, we are therefore of the
opinion that interest of justice would be subserved if these appeals are
disposed of with the following directions:-
1. The Administrator would continue to hold office as an officer of the
2. The Administrator must, however, get the election of the Committee
Members held, as expeditiously as possible, and preferably within a period of
three months from the date of communication of this order.
3. The inquiry initiated by the Registrar pursuant to the order of the
learned Single Judge shall continue as if the same had been initiated by the
Registrar on his own motion and not on the basis of the order passed by the
4. The RBI would be entitled to take such action (s) as it may deem fit and
proper under the provisions of Section 115 A of the Act or under any other
Statute and as may be permissible in law if it so desires, including one under
the Deposit Insurance Act.
These appeals are accordingly disposed of with the aforementioned
directions. However, in the facts and circumstances of the case, there shall be
no order as to costs.