2015 (8) TMI 1109 - SC - Indian Laws

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

State of M.P. and Others Versus Sanjay Nagayach and Others

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 ... Superseding of the Board of Directors of District Cooperative Central Bank Ltd., Panna without previous consultation with the Reserve Bank of India - Violation of second proviso to Section 53(1) of the Madhya Pradesh Cooperative Societies Act, 1960 - Held that:- Seven charges levelled against the Board of Directors were relating to the period of the previous Committee, for which the first respondent Board of Directors could not be held responsible. Further, even though the Board had taken charge in October 2007, the audit report was submitted before the Board only after nine months and that the Board of Directors took follow up action on the basis of the audit report dated 25.9.2008. The Joint Registrar, it seems, was found to be satisfied with the detailed replies dated 6.5.2009 and 16.5.2011submitted by the Board of Directors of the Bank, possibly, due to that reason, even though the show- cause-notice was issued on 22.3.2009, it took about two and half years to pass the order of supersession. Order of supersession dated 30.9.2011 is not only in clear violation of the second proviso to Section 53(1) of the Act, but also the allegations raised in the show-cause-notice are deficiencies mostly relating to systems and procedures and are of general nature and not grave enough to overthrow a democratically elected Board of Directors. Both NABARD and RBI have expressed the view that the charges levelled against the Board of Directors do not provide strong ground to supersede the Board. - Board of Directors, in the instant case, took charge on 16.10.2007, therefore, they could continue in office till 15.10.2012. The Board of Directors was, however, superseded illegally on 30.9.2011 and, by virtue of the judgment of the Division Bench of the High Court dated 13.2.2012, the Board should have been put back in office on 13.2.2012, but an Administrator was appointed. Going by the proviso referred to above, the period during which the Board of Directors remained under supersession be excluded in computing the period of five years. In the facts and circumstances of this case, we are of the considered opinion that the duly elected Board of Directors should get the benefit of that proviso, which is statutory in nature. Joint Registrar, Co-operative Societies, Sagar directed to put the Board of Directors back in office so as to complete the period during which they were out of office. - High Court, in our view, has therefore rightly exercised its jurisdiction under Article 226 of the Constitution and the alternative remedy of appeal is not bar in exercising that jurisdiction, since the order passed by the Joint Registrar was arbitrary and in clear violation of the second proviso to Section 53(1) of the Act. - Decided against Appellant. 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.