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TMI Blog2015 (8) TMI 1109X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 The Board of Directors was, however, superseded illegally on 30.9.2011 and, by virtue of the judgment of the Division Bench of the High Court dated 13.2.2012, the Board should have been put back in office on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 Registr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intervening applications. 3. As the question of laws involved in both the above mentioned appeals are common, we are disposing of both the appeals by a common judgment. Facts and Arguments 4. The Board of Directors of the Bank was elected to Office on 16.10.2007 and while in office they were served with a show-cause-notice dated 2.3.2009 issued by the Joint Registrar, Co-operative Societies under Section 53(2) of the Act containing 19 charges. Detailed replies were sent by the Board of Directors on 6.5.2009 and 16.5.2011 stating that most of the charges levelled against them were related to the period of the previous Committee and the rest were based exclusively on an Audit Report dated 25.9.2008. It was pointed out that the Board of Directors on receipt of the Audit report took necessary action and a communication dated 5.12.2008 was sent to the Branch Managers of Primary Societies to take immediate follow-up action on the basis of the Audit report. After filing the detailed reply, nothing was heard from the Joint Registrar but due to political pressure and extraneous reasons after two and half years of the show cause notice, an order of supersession was served on the Boa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receipt of the same and, therefore, it would be presumed that RBI had agreed to the proposed action and the Joint Registrar had rightly passed the order of supersession. Shri Mahavir Singh, learned senior counsel appearing for the Interveners also submitted that the High Court has committed an error interfering with the order of supersession and, in any view, if any of the parties were aggrieved, they ought to have availed of the alternate remedy available under the Act. 7. Shri Vivek Tankha, learned senior counsel appearing for the 1st respondent, submitted that the High Court has correctly understood the scope of the second proviso to Section 53(1) of the Act and rightly came to the conclusion that before passing the order of supersession, there should be a meaningful consultation with the RBI, therefore, the consultee could apply its mind and form an independent opinion as to whether the Board be superseded or not. Learned senior counsel submitted that merely forwarding the show cause notice along with other relevant materials is not sufficient compliance of the second proviso to Section 53(1) of the Act, so held by the Madhya Pradesh High Court in several judgments. Learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anna DCCB has not deducted tax on the interest paid to the depositors. In terms of the CBDT circular No. 9/2002 dated 11-9-2002 tax is deductible at source from any payment of income by way of interest other than income by way of interest on securities. Clause (v) of sub-section (3) of section 194A exempts such income credited or paid by a co-operative society to a member thereof from requirement of TDS. Clause (viia) of sub-section (3) of section 194A exempts from the requirement of TDS such income credited or paid in respect of deposits (other than time deposits made on or after 1-7-1995) with a co-operative society engaged in carrying on the business of banking. It is not clear from observation of JRCS, Panna that the interest accrued and paid was time deposit or saving bank deposit account made after 01.07.1995. ii) The amount collected as VAT was not remitted to the Government. VAT is not applicable to the banking transactions. Hence collection itself is not correct. iii) In terms of Audit para 21 of Audit Report for the FY ended 2000- 01, Panna DCCB in the year June 1997, without the approval of PACS Committee had stored pesticides. These medicines expired on Dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only one employee has been registered with police and the bank has not registered the cases against 27 employees. From the records made available to us, we do not observe any monitoring by JRCS, on the issue during the intervening period. It is evident that this matter was being discussed in the Board meetings of the present Board, some amount was already recovered, disciplinary action against the erring employees have been taken and the legal proceeding initiated against them is also pending. viii) As mentioned in Audit Report for the FY ended 2006-07, rectification of audit objections is not satisfactory. No action was taken on most of the audit objections and compliance submitted by the management is mere eyewash. Compliance to Audit Report is an ongoing process which needs to be monitored on a continuous basis. The table showing the allegations of the JRCS Panna, comments of Panna DCCB and the observation of RBI is enclosed herewith and marked as Exhibit IX. RBI, therefore, took the view that the deficiencies pointed out in the show- cause-notice were general in nature and did not warrant the supersession of the Board of Directors. RBI, however, opined that it wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roduced into the Regulation Act w.e.f. 1.3.1966. Section 55 of Part V provides for the application of the Regulation Act to Cooperative Banks. Any existing co- operative bank at the time of the commencement of the Act 23 of 1965 was required to apply grant of license within a period of three months from the date of the commencement of the Act and obtain a license from RBI under Section 22 of RBI Act. Every co-operative bank is also obliged to comply with the provisions of the Regulation Act and directions/guidelines issued by RBI from time to time. 12. We may, in this connection, refer to certain provisions of the DICGC Act which also confers certain powers to the RBI to supersede the committee of the management of the co-operative Bank in public interest. The Act has been enacted to provide for the establishment of a Corporation for the purpose of insurance deposits and guaranteed credit facilities for allied purposes. Section 3 of the Act has empowered the Central Government to establish the Deposit Insurance Corporation, a wholly owned subsidiary of RBI. Section 2(gg)(iii) of DICGC Act states that eligible co-operative bank means a co-operative bank, the law for the time be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that if in opinion of the Registrar, the Board of Directors of any Primary Agriculture Credit Co-operative Society- i) incurs losses for three consecutive years; or ii) commits serious financial irregularities or fraud is identified; or iii) there is perpetual lack of quorum in the meetings of the Board of Directors. The Registrar may, by order in writing remove the Board of Directors an appoint a person or persons to manage the affairs of the society for two months which may be extended by him for such period not exceeding six months for reasons to be recorded in writing: Provided further that in case of Co-operative Bank, the order of supersession shall not be passed without previous consultation with the Reserve Bank; Provided further that if no communication containing the views of the Reserve Bank of India on action proposed is received within thirty days of the receipt by that bank of the request soliciting consultation, it shall be presumed that the Reserve Bank of India agree with the proposed action and the Registrar shall be free to pass such order as he may deem fit. Provided also that if a non-official is appointed in the Board of Directors of a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in support of charges levelled against it has been provided and the Board of Directors has been given a reasonable opportunity of showing cause against the proposed order and representation, if any, made by it, is considered. The second proviso to Section 53 (1) refers to the expression order of supersession , means that the final order of supersession to be passed by the Joint Registrar after complying with sub-section (2) to Section 53. Second and third provisos, read together, would indicate that no order of supersession shall be passed without previous consultation with the RBI. Before passing an order of supersession, the show-cause-notice along with other relevant materials, including the reply received from the bank, has to be made available to the RBI for an effective consultation. 15. We have already quoted the second proviso to Section 53(1), the meaning of which is clear and unambiguous which, in our view, calls for no interpretation or explanation. In this respect, reference to the often quoted principle laid down by Tindal, C.J. in Sussex Peerage case (1844) 11 CIT F.85 is useful, which reads as follows: If the words of the Statute are in themselves precise and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egulation Act, with reference to the financial position as on 31.3.2007, when the previous Board was in office and thirty six fraud cases at Primary Agricultural Credit Societies (PACS) involving ₹ 37.05 lacs had been reported. Certain deficiencies in the bank s functioning, like non-adherence to the provisions of the Income Tax Act, lack of internal checks and control systems and unsatisfactory compliance to their previous inspection report, had also found a place in their inspection report, the copy of which was forwarded to the RBI vide their communication dated 1.2.2008. 19. The Joint Registrar, Co-operative Societies, as already stated, issued a notice to Panna DCB to show cause as to why the Board of Directors be not superseded and an Administrator be appointed. The show-cause- notice was sent to the RBI, which RBI received on 4.3.2009. RBI vide its letter dated 17.4.2009 requested the Joint Registrar to inform the action being taken on the reply submitted by the Board of Directors of Panna DCB. RBI vide its letter dated 30.3.2009 forwarded the copy of the show-cause- notice to the Chief General Manager, NABARD for their comments. Since, NABARD had conducted inspecti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 22. We are of the view that the 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. 23. Learned senior counsel Shri Vivek Tankha submitted that since the Board of Directors was superseded illegally, they, be put back in office a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 28. We are of the view that this situation has been created by the Joint Registrar and there is sufficient evidence to conclude that he was acting under extraneous influence and under dictation. A legally elected Board of Directors cannot be put out of the office in this manner by an illegal order. If the charges levelled against the Board of Directors, in the instant case, were serious, then the Joint Registrar would not have taken two and half years to pass the order of supersession. State of Madhya Pradesh did not show the grace to accept the judgment of the Division Bench of the High Court and has brought this litigation to this Court spending huge public money, a practice we strongly deprecate. Registrar/Joint Registrar and External Influence: 29. Statutory functionaries like Registrar/Joint Registrar of Co- operative Societies functioning under the respective Co-operative Act must be above suspicion and function independently without external pressure. When an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the impugned order, has overlooked those binding judicial precedents. 33 We fail to notice why the State Government, Department of Co- operative Societies has taken so much interest in this litigation. Joint Registrar in his letter dated 19.8.2009 to RBI stated that in the case of District Co-operative Bank, the powers under Section 53(2) of the Act are vested with Regional Joint Registrar and the notice issued by the Joint Registrar is not meant for the opinion of the State Government. Assuming, the State Government has powers under Section 49-C of the Act, no report has been forwarded by the Registrar to the State Government and no direction have been issued by the State Government with regard to the supersession of the Board. Sorry so note that the State Government has spent huge public money by litigating this matter even up to this Court, that too, without following the binding precedents of the Madhya Pradesh High Court on the scope of the second proviso to Section 53(1) of the Act. 34. In such circumstances of the case, we are inclined to dismiss both the appeals with costs directing re-instatement of the first respondent Board of Directors back in office forthwith an ..... 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