2015 (8) TMI 1109 - SC - Indian Laws

Supreme Court restores Cooperative Bank Board after illegal supersession, stresses independence

The Supreme Court upheld the High Court's decision to set aside the illegal supersession order of the Board of Directors of a District Cooperative Central ... Previous consultation with the Reserve Bank of India - supersession of Board of Directors - mandatory consultation as condition precedent - judicial review under Article 226 despite alternative remedy - reinstatement and exclusion of supersession period from term - statutory functionary acting under extraneous influence - obligation to follow binding judicial precedentsPrevious consultation with the Reserve Bank of India - mandatory consultation as condition precedent - Legality of supersession order passed without meaningful previous consultation with the Reserve Bank of India under the second proviso to Section 53(1) of the Madhya Pradesh Cooperative Societies Act, 1960. - HELD THAT: - The second proviso to Section 53(1) unambiguously requires 'previous consultation' with the RBI before passing an order of supersession in the case of a Co-operative Bank. Mere forwarding of the show-cause notice and supporting documents, without furnishing the bank's reply and the specific action proposed by the Registrar so that RBI can apply its mind, does not satisfy the statutory requirement. Read with the third proviso, a presumption of RBI agreement arises only if no communication of views is received within thirty days of solicitation; it does not validate a consultation that is ineffective or lacks the materials and proposal necessary for meaningful consideration. Applying these principles to the facts, RBI and NABARD both concluded the deficiencies were general and did not justify supersession; the Joint Registrar proceeded without prior effective consultation and therefore acted in clear violation of the proviso. [Paras 14, 16, 20, 22]Order of supersession dated 30.9.2011 is invalid for non-compliance with the requirement of previous consultation with the Reserve Bank of India.Supersession of Board of Directors - reinstatement and exclusion of supersession period from term - Appropriate relief upon finding illegality in supersession - whether the elected Board should be reinstated and the supersession period excluded from computation of their five-year term. - HELD THAT: - Section 49(7A)(i) provides that where a Board superseded under the Act is reinstated by court order, the period of supersession shall be excluded in computing the five-year term. Given the illegality of the supersession and the views of NABARD and RBI that did not justify removal, the Court directed reinstatement of the Board to complete the period during which they were illegally kept out of office. The Court found it appropriate to give effect to the statutory proviso so that the electorate's choice is not defeated by an illegal supersession. [Paras 24, 25, 26]The Board of Directors shall be reinstated and the period during which they were out of office shall be excluded in computing their five-year term.Judicial review under Article 226 despite alternative remedy - Whether the High Court rightly entertained writ jurisdiction under Article 226 despite the availability of an alternative statutory remedy under Section 78 of the Act. - HELD THAT: - The Court held that alternative remedy is not an absolute bar to exercise of writ jurisdiction where the impugned order is arbitrary and in clear violation of statutory mandates. The Joint Registrar's order was found to be arbitrary and in breach of the statutory requirement of prior consultation with RBI; on that basis the High Court was justified in exercising its writ jurisdiction to quash the order and grant relief. [Paras 2, 27]High Court correctly exercised its jurisdiction under Article 226; availability of an alternative remedy did not preclude judicial review in the circumstances.Statutory functionary acting under extraneous influence - obligation to follow binding judicial precedents - Findings as to the Joint Registrar having acted under extraneous influence and failure to follow binding precedents, and consequential costs and directions. - HELD THAT: - The Court found sufficient evidence that the Joint Registrar acted under external pressure and overlooked binding decisions of the Madhya Pradesh High Court on the scope of the second proviso. A statutory authority must form an independent opinion based on objective criteria and follow judicial precedents. In consequence the Court imposed costs, directed partial recovery from the Joint Registrar's salary to be deposited in the Bank, ordered the State to pay costs to the Legal Services Authority, and issued broader directions to prevent arbitrary supersessions, to require bona fide exercise of powers, and to subject officials acting under political pressure to disciplinary proceedings. [Paras 28, 31, 34, 35]Joint Registrar held to have acted under extraneous influence; costs imposed on State and Registrar and general directions issued to ensure statutory officers act independently and follow precedent.Final Conclusion: The order of supersession of the District Cooperative Central Bank, Panna is quashed for failure to carry out meaningful previous consultation with the RBI; the elected Board is to be reinstated and the period of supersession excluded from its five-year term. The High Court rightly exercised writ jurisdiction; costs are imposed and directions issued to ensure statutory functionaries act independently and in accordance with the statute and binding precedents. Issues Involved:1. Legality of the supersession order of the Board of Directors of District Cooperative Central Bank Ltd., Panna without prior consultation with the Reserve Bank of India (RBI) under Section 53(1) of the Madhya Pradesh Cooperative Societies Act, 1960.2. Justification of the High Court's interference in the supersession order despite the availability of an alternative remedy.3. Compliance with the statutory requirement of consultation with RBI.4. Examination of the charges against the Board of Directors and their sufficiency to warrant supersession.5. Impact of political pressure and extraneous influence on the decision of the Joint Registrar.6. Restoration of the Board of Directors and the calculation of their term.7. Conduct and accountability of statutory functionaries like the Registrar/Joint Registrar.8. Judicial precedents and their binding nature on statutory authorities.9. Directions for handling future cases of supersession of elected Committees/Boards.Detailed Analysis:1. Legality of the Supersession Order:The core issue was the legality of the order passed by the Joint Registrar of Cooperative Societies, Sagar, superseding the Board of Directors of the District Cooperative Central Bank Ltd., Panna without prior consultation with the RBI, as mandated by the second proviso to Section 53(1) of the Madhya Pradesh Cooperative Societies Act, 1960. The Supreme Court found that the order was indeed in violation of this statutory requirement.2. Justification of the High Court's Interference:The High Court of Madhya Pradesh set aside the supersession order on the ground of non-compliance with the second proviso to Section 53(1) of the Act. The Supreme Court upheld this decision, emphasizing that the High Court rightly exercised its jurisdiction under Article 226 of the Constitution as the order passed by the Joint Registrar was arbitrary and violated statutory provisions.3. Compliance with Statutory Requirement of Consultation with RBI:The Supreme Court highlighted that the mere forwarding of the show-cause notice to the RBI did not meet the requirement of 'previous consultation.' For effective consultation, the RBI needed to be informed of the Board's reply to the charges and the proposed action by the Joint Registrar. The RBI's detailed report indicated that the deficiencies pointed out were general in nature and did not warrant supersession.4. Examination of Charges Against the Board:The Court found that several charges against the Board of Directors related to the period of the previous Committee, and the Board had taken corrective actions based on the audit report. Both NABARD and RBI opined that the charges did not provide strong grounds for supersession. The Joint Registrar's delay of two and a half years in passing the supersession order further indicated a lack of urgency or seriousness in the charges.5. Impact of Political Pressure and Extraneous Influence:The Supreme Court noted that the Joint Registrar acted under political pressure and external influence, which led to an arbitrary and illegal supersession order. The Court condemned this practice and emphasized the need for statutory functionaries to act independently and without external pressure.6. Restoration of the Board of Directors:The Court directed the reinstatement of the Board of Directors to complete their term, excluding the period they were out of office due to the illegal supersession. The legislative intent was clear that an elected Board should complete its full term of five years.7. Conduct and Accountability of Statutory Functionaries:The Court stressed that statutory functionaries like the Registrar/Joint Registrar must function independently and without suspicion. They should base their decisions on objective criteria and not act under external influence or political pressure. The Court imposed costs on the Joint Registrar for his arbitrary actions.8. Judicial Precedents:The Supreme Court underscored the importance of following judicial precedents. The Joint Registrar overlooked binding precedents from the Madhya Pradesh High Court on the scope of the second proviso to Section 53(1) of the Act, which contributed to the illegal supersession order.9. Directions for Future Cases:The Supreme Court issued general directions to handle future cases of supersession of elected Committees/Boards, emphasizing that supersession should be an exception, elected bodies should be given time to rectify defects, and statutory formalities must be complied with. The Court also warned against political influence and unnecessary litigation funded by public money.Conclusion:The Supreme Court upheld the High Court's decision to set aside the supersession order, directed the reinstatement of the Board of Directors, and emphasized the need for statutory functionaries to act independently and in compliance with legal requirements. The Court issued specific directions to ensure fair handling of future cases involving the supersession of elected bodies.