2012 (7) TMI 1092 - HC - Indian Laws

Whether the absence of a seat reserved for the depositors in the Managing committee under the bye-law of the Sreekandamangalam Service Co-operative Bank Ltd. (Society), the Election Commission can provide it as a statutory requirement by operation of Section 28(1C) of the Kerala Co-operative Societies Act (Act) - HELD THAT - Court feel procedural compliance is required by the Registrar to re-classify the Society and issue fresh certificate under the category Primary Credit Society, the Managing committee of which compulsory requires one representative from the depositor's constituency. It is for the Registrar to direct the Society to first suitably amend the bye laws particularly object clause, for re-classifying it as a Primary Credit Society with corresponding changes and constitution of the Managing Committee by providing a seat for depositors quota in terms of Section 28(1C) of the Act. This shall be done at the earliest. However, we make it clear that since Note (ii) of Rule 15 provides only prospective effect for re-classification we make it clear that except for the election upheld by us the Registrar's order on re-classification will have prospective effect in terms of Note (ii) of Rule 15 as stated above. It is for him to consider the transactions already entered by the Society particularly in regard to rate of interest on deposits accepted and loans advanced and make arrangements without retrospective effect on transactions adversely affecting depositors and borrowers. Similarly if RBI sanction is required under the Banking Regulation Act, Registrar will give sufficient time to the Society to take approval from RBI which will apply for application for future operations. Writ appeals are allowed vacating the impugned judgment of the learned single Judge and by disposing of writ petitions as above. We feel the Registrar should arrange for a close scrutiny of the operations of all the Societies in the State and consider whether the societies function under the bye-laws and under the Act and if not, to take corrective measures including de-classification as required in this case.

Summary

Issues Involved:
1. Whether the Society is required to have a member representing depositors constituency under Section 28(1C) of the Kerala Co-operative Societies Act.
2. Whether the Election Commission is justified in providing one seat for the depositors quota while notifying the election to the Managing Committee in deviation from the bye-laws of the Society and the resolution passed by the Managing Committee.
3. Whether the Society has ceased to be a Primary Agricultural Credit Society and has become a Primary Credit Society.

Issue-Wise Detailed Analysis:

1. Requirement of a Member Representing Depositors Constituency:
The primary issue was whether the Society needed a member representing the depositors constituency as mandated by Section 28(1C) of the Kerala Co-operative Societies Act. The court noted that Section 28(1C) of the Act, which contains a non obstante clause, mandates that one seat in the committee of a Primary Credit Society or an Urban Co-operative Bank must be reserved for members having deposits of Rs. 10,000 or more. The court concluded that this provision is intended to protect the interests of depositors, especially in societies where public deposits form a significant part of the society's funds.

2. Justification of Election Commission's Actions:
The court examined whether the Election Commission was justified in notifying the election to include a seat for the depositors' quota despite the absence of such a provision in the Society's bye-laws. The court held that the Election Commission was justified in its actions because the non obstante clause in Section 28(1C) overrides the bye-laws of the Society. The court stated that the Election Commission acted within its rights to ensure compliance with Section 28(1C) to protect depositors' interests.

3. Status of the Society:
The court analyzed whether the Society had ceased to be a Primary Agricultural Credit Society and had become a Primary Credit Society. The court reviewed the financial activities of the Society, noting that the Society had significant public deposits amounting to Rs. 22.22 crores and non-agricultural loans totaling Rs. 20.41 crores, while agricultural loans were minimal. Based on these activities, the court concluded that the Society no longer functioned as a Primary Agricultural Credit Society but as a Primary Credit Society, as defined under Section 2(ob) of the Act. The court emphasized that the Society's operations and financial dealings indicated a shift from agricultural credit to general credit activities.

Conclusion and Directions:
The court declared that the Society is required to have a member elected to the Managing Committee from the depositors' constituency under Section 28(1C) of the Act. The court directed the Returning Officer to declare the election for the seat contested by the appellant and to constitute the Managing Committee with the elected member from the depositors' quota. Additionally, the court instructed the Registrar to reclassify the Society as a Primary Credit Society and issue a fresh certificate accordingly. The Registrar was also directed to ensure that the Society amends its bye-laws to reflect this reclassification and to include a seat for the depositors' quota in the Managing Committee.

The court vacated the impugned judgment of the learned single Judge and allowed the writ appeals, emphasizing the need for the Registrar to scrutinize the operations of all societies in the State to ensure compliance with the Act and to take corrective measures as necessary.