State of Mysore Vs. Allum Karibasappa
& Ors  INSC 133 (6 August 1974)
RAY, A.N. (CJ) RAY, A.N. (CJ) MATHEW, KUTTYIL
CITATION: 1974 AIR 1863 1975 SCR (1) 601 1974
SCC (2) 498
Mysore Co-operative Societies Act,
1959--Sections, 30 and 54--Scope of--Supersession--Natural justice.
Pursuant to an inspection report submitted by
the Reserve Bank of India pointing out many irregularities in the working of a
district Co-operative Central Bank, the State Government issued two
notifications under s. 54 of the Mysore Co-operative Societies Act, 1959. By
the first notification the Committee of Management of the Bank was superseded
and by the second, another Committee was appointed in its place. The
respondent, who was the President of the Bank, challenged the notifications as
being ultra vires the Act and in violation of principles of natural justice.
The High Court set aside the notifications, Dismissing the appeal,
HELD : (1) The High Court rightly set aside
the two notifications. The impeached orders suffered from two insurmountable
infirmities. The entire Committee of Management had been superseded. The State
Government did not take recourse to the provision under s. 30 of the Act to
supersede the Management. Section 54 of the Act, which contemplates exercise of
control over the conduct of business, does not confer any power to remove the
President and Vice-President of the Bank. The word "control" suggests
check, restraint or influence. Control is intended to regulate and hold in
check and restrain from action. In the guise of exercising control the State
had displaced the Committee of Management and substituted its own Committee.
The State had indirectly intended to achieve
what it was directly prohibited from doing under s. 54 of the Act.
(2) The notification was in violation of
principles of natural justice. Section 30 of the Act contemplates a notice
where the State intends to supersede the Management.
In utter defiance of the powers under the
statute the Committee had been arbitrarily deprived of their right to manage
the affairs of the society.
CIVIL APPELLATE JURISDICTION : Civil Appeal,
No. 971 of 1973.
(Appeal by special leave from the Judgment
and Order dated 1st June, 1973 of the Mysore High Court at Bangalore in W.
P. No. 1949 of 1972.) F. S. Nariman Addl.
Solicitor General of India and Veerappa for the appellant.
S. S. Javali and B. P. Singh, for Respondents
Nos. 1, 17-28.
The Judgment of the Court was delivered by
RAY, C. J.-This is an appeal by special leave from the judgment dated 1 June,
1973 of the High Court of Mysore.
The respondent Karibasappa was the President
of the Bellary District Co-operative Central Bank Limited, Hospet. He
challenged two notifications dated 11 August, 1972 issued by the State
Government. The notifications were issued in exercise of the, powers conferred
by sections 54 and 121 Of the Mysore Co-operative Societies Act, 1959
hereinafter referred to as the Act.
602 The management and administration of the
Bank was conducted by the Committee consisting of the President, the Vice-
President, and ten elected members from various constituencies and certain
nominees of the State Government.
At no time the Government nominated more then
three persons as its representatives.
The Bank had a share capital of Rs. 75 lakhs.
The State Government contributed Rs.23.8 lakhs. The Reserve Bank of India
advanced a loan' of Rs. 135 lakhs. The Apex Bank also gave a loan of Rs. 200
lakhs.. The State Government guaranteed the repayment of loans to the Reserve
Bank of India.
The Reserve Bank of India from time to time
inspected the Bank. There was an inspection on 14 October, 1971. The report
referred to many irregularities and stated that the financial resources of the
Bank had improved slightly.
The Joint Registrar on 3 August, 1972
forwarded the report to the Registrar of Co-operative Societies and suggested
action under section 54 of the Act. In this background the Government issued
the impugned notifications on 11 August, 1972.
Broadly stated, the notifications recited
that the State had given Rs. 23. 80 lakhs to the Bank and it was necessary, in
public interest to take powers to exercise control over the conduct of the
business of the Bank to safeguard the public funds. The State Government in
exercise of the powers conferred by section 54 of the Act should have the right
to nominate as its representatives, fifteen persons on the Board of Management
and to appoint one among them as the President, one as the Vice-President and
one other as the Managing Director of the Bank. The President, the Vice-
President and the Managing Director under the notification should exercise
powers and discharge their functions subject to the supervision, direction and
control of the State Government. The notification further stated that section 29
which conferred power on the State Government subject to any notification under
section 54 or section 121 to have the right to nominate as its representatives
not more than three persons or one third of the total number of members of the
Committee of the Cooperative Society, whichever is less would be modified by
substituting the words "have the right to nominate as its representatives
15 persons of the Committee of the Co-operative Society of whom one shall be
appointed as Managing Director". The notification conferred power on the
Managing Director subject to the policy decision of the Board, the right to
conduct the business of the Bank and to sanction expenditure on establishment
and certain other powers.
The second notification nominated fifteen
persons to form the Board of Directors of the Bank. The Deputy Commissioner
Bellary was appointed the President of the Bank.
The Bank challenged the notifications on
First, the action of the Government was ultra
vires the Act;
second, the action was bad in violation of
principles of natural justice; third, the 603 action was taken because of
political rivalry with an evil eye to remove the President from the office.
The High Court upheld the first two
contentions and set aside the order.
Section 54 of the Act provides that where
State aid amounting to not less than two lakhs of rupees is given to any
co-operative society, the State Government, if it is satisfied that it is
necessary in public interest so to do, may by notification in the official gazette
take power to exercise such control over the conduct of business of such
society as shall suffice in the opinion of the State Government to safeguard
the interests of the State.
Section 121 enacts that the State Government
may, by general or special order published in the official gazette, exempt any
cc-operative society or any class of societies from any of the provisions of
this Act or may direct that such provisions shall apply to such society or
class of societies with such modifications as may be specified in the order.
At this stage, reference may be made to
section 30 of the Act which provides for supersession of Committee. If, in the
opinion of the Registrar, the Committee of any Co- operative Society
persistently makes default or is negligent in the performance of the duties
imposed on it by this Act or the, Rules or the bye-laws, or commits any act
which is pre judicial to the interests of the society or its members, or is
otherwise not functioning properly, the Registrar may, after giving the committee
an opportunity to state its objections, if any, by order in writing, remove the
committee and appoint a new committee consisting of one or more members of the
society in its place or appoint one or more Administrators who need not be
members of the society.
Section 30 further provides that the
Registrar can manage the affairs of the society for such period or periods not
exceeding two years. There is also a provision for extension of the period so
that the aggregate period does not exceed four years.
Section 29 to which reference have already
been made provides for the nomination by the Government of persons on the
committee of the Society where the State Government has subscribed to the share
capital of a co-operative society or guaranteed the repayment of loans. The
members nominated by the Government under section 29 of the Act does not exceed
three or one-third of the total number of members of the Committee, whichever
Section 54 of the Act indicates that the
power there under is to be exercised in public interest. The control over the
business of the Society contemplated under section 54 should be such as is
sufficient in the opinion of the State Government to safeguard the interests of
In the present case, the impeached orders
suffer from two insurmountable infirmities. One is that the entire committee of
Management has been superseded. There is a provision under section 30 of the
Act to supersede the management. The State Government does 604 not take
recourse to the =don. Indirectly the State Government has overthrown- the
Committee of Management including the President and the Vice-President. The
President and the Vice-President are officers within the meaning of section
2(g) of the Act. Section 54 does not confer any power to remove the President
and the Vice- President of the Society. Section 54 contemplates exercise of
control over the conduct of the business. The word "control" suggests
check, restraint or influence. Control is intended to regulate and hold in check
and restrain from action. In the guise exercising control the State has
displaced the committee of Management and substituted its own Committee. The
State has indirectly intended to achieve what it is directly prohibited from
doing under section 54 of the Act.
The second vice of the notification is that
it is in violation of principles of natural justice. Section 30 of the Act
contemplates a notice where the State intends to supersede the Management. The
Committee has been deprived of their right to manage the affairs of the
Society. They have been deprived of the right arbitrarily and in utter defiance
of the powers under the statute.
The High Court rightly set aside the
For these reasons, the appeal fails and is
dismissed. The State will pay costs to the respondents.