2021 (3) TMI 908 - HC - Indian Laws

Requirement of issuance of SCN - grant of personal hearing to the petitioners before passing the impugned order of supersession of the Board of Directors - discretionary power not to follow the directives issued by the RBI or in case of any directives to supersede or suspend the Board of Directors of the Co-operative Bank the Registrar could only suspend the Board of Directors of the co-operative bank - amendment to Section 110A(1)(iii) of the Maharashtra Co-operative Societies Act 1960 substituting the period of 5 years by one year - supercession of Board of Directors of the Cooperative Bank and to appoint Board of Administrators under the provisions of the Banking Regulation Act 1949 read with Section 110A of the MCS Act. Whether the Registrar Cooperative Societies was required to issue any show cause notice and grant any personal hearing to the petitioners before passing an order of superseding the Board of Directors of the respondent no.4 bank and appointing an administrator? - HELD THAT - A conjoint reading of the unamended Section 110A(1)(iii) with the amended Section 110A(1)(iii) referred to aforesaid would clearly indicate that the period of five years originally prescribed under the said provision was substituted by a period of not exceeding one year in conformity with the period of one year period under Article 243 ZL of the Constitution of India. The constitutional validity of the said amendment carried out in the year 2013 in Section 110A(1)(iii) of the MCS Act has been admittedly not challenged by the petitioners on any ground in this petition. There is no substance in the submission of the learned senior counsel for the petitioners that in view of the amendment to Section 110A(1)(iii) of the MCS Act brought into the effect w.e.f. 14th February 2013. The Registrar Co-operative Societies was required to issue a show-cause notice followed by personal hearing to the petitioners before passing order of suspension of the Board of the Directors and before appointing the sole administrator in respect of the affairs of respondent no.4 bank - the order passed by the Registrar Co-operative Societies is an executive and administrator order which was passed so as to comply with the mandatory directives issued by the RBI and was thus not a quasi-judicial order. The Registrar Co-operative Societies was thus neither required to issue any show-cause notice nor to grant any personal hearing to the petitioners before passing the impugned order. There is no merit in the contention raised by the learned senior counsel for the petitioners that the Registrar Co-operative Societies had discretionary power to suspend the Board of Directors of the respondent no.4 bank even if the RBI had directed to supersede the Board of Directors of the respondent no.4 bank in view of the words as the case may be in Section 110A(1)(iii) of the MCS - the submission made by the learned senior counsel is ex-facie contrary to the plain reading of the said provision i.e. Section 110A(1)(iii) of the MCS Act. There is no merit in the submission of the learned senior counsel for the petitioners that the Registrar Co-operative Societies was bound to follow the procedure prescribed under Section 102 of the MCS Act while superseding the Board of Directors of the respondent no.4 bank or while appointing a Board of Administrators - under Section 110(A)(1)(iii) of the MCS Act the Registrar Co-operative Societies is bound to comply with the directives issued by the RBI under the said provisions and has no discretion. The order passed by the Registrar Co-operative Societies to supersede or suspend the Board of Directors in compliance with the directives issued by the RBI is an administrative or executive order. Since order passed by the Registrar Co-operative Societies is in mandatory compliance with the directives issued by the RBI to supersede or suspend the Board of Directors of the respondent no.4 bank by the Co-operative Societies this Court cannot interfere with such order passed by the Registrar Co-operative Societies. The Registrar Co-operative Societies has not acted as a rubber stamp of the RBI. Be that as it may the petitioners have not made out any case for warranting interference with the order passed by the Registrar Cooperative Societies. Petition dismissed.

Summary

Issues Involved:
1. Requirement of show-cause notice and personal hearing before supersession.
2. Discretionary power of the Registrar vis-à-vis directives from RBI.
3. Conformity of the amendment to Section 110A(1)(iii) of the MCS Act with Article 243ZL of the Constitution.
4. Necessity of show-cause notice and personal hearing if the amendment is not in conformity.
5. Repugnancy between Article 243ZL and Section 110A(1)(iii) of the MCS Act.
6. Nature of the order by the Commissioner for Cooperation & Registrar.
7. RBI's authority to issue directives under the Banking Regulation Act and Section 110A of the MCS Act.
8. Procedure under Section 102 of the MCS Act in relation to directives under Section 110A(1)(iii).

Detailed Analysis:

1. Requirement of show-cause notice and personal hearing before supersession:
The court concluded that the Registrar, Co-operative Societies was not required to issue any show-cause notice or grant personal hearing to the petitioners before passing the order of supersession of the Board of Directors and appointing an administrator. The order was deemed an executive and administrative directive, not a quasi-judicial order, thus not necessitating such procedural requirements.

2. Discretionary power of the Registrar vis-à-vis directives from RBI:
The court held that the Registrar, Co-operative Societies has no discretion to refuse the directives issued by the RBI. The words "as the case may be" in Section 110A(1)(iii) of the MCS Act refer to the RBI's discretion, not the Registrar's. The Registrar must comply with the RBI's directives, whether they call for suspension or supersession.

3. Conformity of the amendment to Section 110A(1)(iii) of the MCS Act with Article 243ZL of the Constitution:
The court found that the amendment to Section 110A(1)(iii) of the MCS Act, which substituted the period of five years with one year, was in conformity with Article 243ZL of the Constitution. The amendment aligns with the constitutional provision that allows for a one-year period for the supersession of the board of a co-operative society carrying on the business of banking.

4. Necessity of show-cause notice and personal hearing if the amendment is not in conformity:
Given that the court found no repugnancy between the amendment to Section 110A(1)(iii) and Article 243ZL, there was no requirement for the Registrar to issue a show-cause notice or provide a personal hearing to the petitioners. The directives from the RBI were mandatory and binding.

5. Repugnancy between Article 243ZL and Section 110A(1)(iii) of the MCS Act:
The court ruled that there is no repugnancy between Article 243ZL and Section 110A(1)(iii) of the MCS Act. The provisions of Article 243ZL do not prevail over Section 110A(1)(iii) as both are consistent and the amendment to the MCS Act is in compliance with the constitutional provision.

6. Nature of the order by the Commissioner for Cooperation & Registrar:
The court determined that the order passed by the Registrar, Co-operative Societies was an administrative or executive order, not a quasi-judicial one. Therefore, it did not require a show-cause notice or personal hearing before being issued.

7. RBI's authority to issue directives under the Banking Regulation Act and Section 110A of the MCS Act:
The court confirmed that the RBI is empowered to issue directives to the Registrar, Co-operative Societies under Section 110A(1)(iii) of the MCS Act. The RBI's directives are binding and must be followed by the Registrar without discretion.

8. Procedure under Section 102 of the MCS Act in relation to directives under Section 110A(1)(iii):
The court clarified that the procedure under Section 102 of the MCS Act, which pertains to the winding up of a co-operative bank, does not apply to the compliance with directives issued by the RBI under Section 110A(1)(iii). The Registrar's duty to follow the RBI's directives is distinct and does not require the procedural steps outlined in Section 102.

Conclusion:
The court dismissed the writ petition, upheld the directives issued by the RBI, and mandated the petitioners to hand over charge to the appointed administrator. The court emphasized the binding nature of the RBI's directives on the Registrar, Co-operative Societies and the compliance with constitutional provisions.