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TMI Blog1981 (8) TMI 234X X X X Extracts X X X X X X X X Extracts X X X X ..... wer. It is the case of the petitioners that since then malicious efforts were made by the local congress (I) M.L.As and workers to bring hurdles in the smooth working and administration of the karkhana. As a result of this political manoeuvring in September 1, 1980 a show cause notice was issued by the respondent No. 1 the Joint Director (Sugar) and Joint Registrar, Co-operative Societies under Section 78 of the Act. The said notice initially contained following 10 allegations: (1) In the year 1979-80, the karkhana worked only for 102 days and crushed only 79,327 metric tonnes of sugarcane against the capacity of 1.75 lacs of metric tonnes. Further the board did not initiate any action against the producer-members who did not supply sugarcane to the karkhana. (2) The board of directors failed to collect subscriptions in respect of shares from the karkhana's members. (3) The board of directors did not attempt to increase the number of producer-members. (4) The board of directors did not take adequate action to submit a rectification report to the registrar, clarifying the steps taken to rectify the defects of the audit reports of the years 1976-77 and 1977-78. They t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal itself was disposed of by the Government by order dated April 20, 1981. It is the case of the petitioners that no effective hearing was given to them by the respondent No. 2 and without giving any reasonable opportunity of being heard the appellate order was passed by the appellate authority. As already observed it is these orders i. e. first passed by the respondent No. 1 and the second by the appellate authority which are challenged in this writ petition on various grounds. 4. Shri Rane, the learned Counsel, appearing for the petitioners contended before us that the order passed under Section 78 of the Act is vitiated because of the mala-fide exercise of power. He also contended that the said order is bad in law because before issuing the said order, the federal society was not consulted as required by Section 78 of the Act. Shri Rane further contended that orders passed by the 1st and 2nd respondents are passed without any application ,of mind and are based on flimsy grounds. The respondents Nos. 1 and 2 never applied their judicial mind to the explanation given by the petitioners and the power has been exercised for the purpose which is beyond the scope and contemplatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is concerned, it is contended by Shri Sawant that since the respondent No. 2 Minister for State for co-operation agreed with the appreciation of the evidence as well as findings recorded by the respondent No. 1, it was not necessary for the appellate authority to restate the reasons for the findings or reproduce the evidence over again. The order passed by the appellate authority is a speaking one and as the appellate authority has fully agreed with the findings recorded by the trial Court, it cannot be said that the order passed in appeal is in any way perverse or illegal. In support of this contention Shri Sawant has placed reliance upon the decision of the Supreme Court in Tamchand Khatri v. Municipal Corporation of Delhi . 6. As to what is the ambit and scope of Section 78 of the Act, came for consideration of this Court in Little Gibbs Co-operative Housing Society Ltd. Bombay v. State of Maharashtra . The observations of this Court in the paras. 10 and 11 of the said decision are not only eloquent but are also pertinent. The said observations read as under (at p. III): 10. It is only when the Registrar forms an opinion as to the existence of the such situation that he c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the legal rights of the share holders as also the members of the managing committee. Such action has to be taken only to protect the interest of the society, or the community at large. That is why the Registrar cannot have recourse to such an extreme step unless the members of the managing committee are given an opportunity to explain their conduct. The scheme of the section is that action taken thereunder without affording due opportunity to show cause would be illegal and accordingly of no effect. 7. From these observations it is quite clear that Section 78 contemplates an extreme and drastic step. Apart from this section there are other provisions in the Act which enables the authorities concerned to exercise power and control over the society. It cannot be forgotten that the action contemplated by Section 78 is not only drastic but is extreme and abnormal in nature. In a democratic society it is of the essence that democratic institutions which are part and parcel of the scheme of the decentralisation of power and deconcentration of wealth, are allowed to function and not superseded on charges inadequately brought home or unreasonably accepted. Supersession not only affe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces were considered. (a) The contractor had agreed to pay interest at the rate of 9% on the mobilisation advance; (b) the contractor had agreed to offer bank guarantee to cover the mobilisation advance as well as the interest. It was argued that had these facts been brought to the notice of the Lt. Governor he might not have made the impugned order. If notice had been given to the committee, the committee would have certainly brought these facts to the notice of the Lt. Governor. Therefore the controversy raised before us will have to be decided in the context of these well established principles. 9. In this case we are dealing with a co-operative society which is known as specified society. As per the bye-laws the board of directors of the present society consists of following members: (a) 12 members elected by the producer-members; (b) 2 members elected by the ordinary members; (c) Managing Director ex-officio member; (d) The following nominees; (1) A nominee of the Co-operative financing agency, (2) Not more than 2 nominees of the financial corporation of India, Life Insurance Corpn. of India, Maharashtra State Co-op Bank, or other financing agencies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... produced before us. With the assistance of the learned Counsel appearing for both sides, we have gone through the entire material placed before us i.e. show cause notice, reply given by the petitioners to the show cause notice, complaints made by the petitioners complaining about certain activities of the persons belonging to the other group and the statements made by them from time to time in public meetings or otherwise. It is pertinent to note that specific allegations of malafides giving details are made by the petitioners in the petition and particularly in paras. III and XII of the petition which read as under: III. The petitioners submit that they belonged to a group that owed its allegiance to the congress (U) and they were led by petitioner No. 1 who was also the chairman of the karkhana. Their group had been in control of the karkhana since 1078. In the said year, the previous board of directors had been elected. The congress (U) group had obtained a majority in the said board and petitioner Nos. 1 and 2 had been elected as the chairman and vice-chairman respectively. The control of the congress (U) groups was retained in the elections held in December 1978, when the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mber 2, 1980 and November 11, 1980 this group arranged two rallies at villages Surud and Kakrud. These meetings were addressed by Shri Udaysinghrao Gaikwad, Shivajirao Deshmukh and others who informed the farmers that the Government had agreed to appoint an administrator to the karkhana. They further instigated the farmers to agitate against the present board and to adopt an attitude of non-co-operation by refusing to submit their sugarcane to the karkhana. The petitioners crave leave to refer to and rely upon a copy of press reports appearing in the local paper Pudhari on November 12,1980 which is hereto annexed and marked annxure 'F'. On November 24, 1980 the petitioners submitted a written representation to the director of Sugar informing him about the malafides and injurious activities of the congress (I) group. However the Director of Sugar did not take any action in the matter. The petitioners crave leave to refer to and rely upon the representation dated November 24, 1980 submitted to the Director of Sugar which is hereto annexed and marked annexure 'G'. The petitioners say that respondent No. 2 who belongs to congress (I) had been pressurised by his party ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said period of limitation is not yet over. From the finding recorded by the respondent No. 1 in this behalf, it is quite clear that it is not disputed by him that all over the State the crushing season was slack because of the paucity of sugarcane. However he has not accepted the explanation given by the petitioners that it was not proper in such circumstances to take action on a large scale. According to the respondent No. 1 action on large scale should have been taken. The finding is restricted only to the taking of action against the members. There appears to be a genuine and bonafide difference of opinion in that behalf between the authorities concerned and the board of directors. The initial charge No. 2 which relates to the recovery of the amount does not find place in the final order. Thus the said charge was given up. 14. So far charge No. 3 is concerned i.e. no efforts were made for increasing the number of producers members, it was contended by the petitioners that it is not correct to say that no efforts were made by them in that behalf. Moreover persons were not willing to become members because non-members get prompt payment for the sale of their sugarcane, and ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is much after the show cause notice was issued. Thus the petitioners had no opportunity to meet these allegations. The report of the auditor dated November 17, 1980 was not made subject matter of the show cause notice. In these circumstances in our opinion the finding recorded on charge No. 4 will have to be totally excluded from consideration as the petitioners had no opportunity to meet it. A finding recorded on the basis of the material which was not the subject matter of the charge or regarding which no opportunity was given to the petitioners to explain, cannot form part and parcel of the final order under Section 78 of the Act, it being contrary to the well established principles of natural justice. Therefore the said charge as well as finding recorded in that behalf will have to be excluded from consideration. In all fairness Shri Sawant has not disputed this position. 16. So far as the charge No. 5 is concerned, it is no doubt true that though the meeting of the board of directors was held every month, expenditure incurred was not sanctioned in each and every meeting. But it is nowhere alleged nor it is found that the expenditure incurred was either without authority or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9,000 and odd and the amount remained to be recovered was less than 4 per cent of the total amount spent. Further most of these dues were incurred during the tenure of the last board. The previous board had also filed suits against the erring contractors for recovery of dues accruing in the years 1976-1977, 1977-78 and 1978-1979. Therefore in our opinion if in its wisdom and in the interest of the society, the board of directors took a decision bonafide and in, good faith which was also ultimately found to be for the benefit of the society, then the society cannot be punished only because left to himself, respondent No. 1 would have acted differently. This is more so when there are no bye-laws in the field nor any directions, were issued by the competent authorities. 18. So far as the charge No. 7 is concerned, it is no doubt true that the advances given to the employees were not wholly regular. However it cannot be forgotten that the whole amount was repaid by the employees and therefore, ultimately the society was not put to any financial loss. The expenditure incurred by the employees was also sanctioned by the board, because the money was spent for the benefit of the karkhan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lled against the society were serious enough to call for an action under Section 78 of the Act. We are satisfied that nobody could have reasonably arrived at the opinion or satisfaction on the basis on such grounds; for taking drastic and extreme steps of supersession. The action seems to have been taken for totally irrelevant and extraneous purpose. 21. Further the director of sugar who is incidentally joint director of the co-operative society and the nominees of the financial agencies are members of the board of directors. The director of sugar and the Joint Registrar of the cot-operative societies has been given representation on the board of directors for obvious reasons. He is expected to guide the society in its working, management and also protect the interest of the State, members of the society as well as consumers. He cannot sit on the fence and be an onlooker. He is expected to act as a participant. We are informed at the bar that neither the Director of Sugar and Joint Registrar or his nominee ever attended any meeting of the board of directors. This appears to be the admitted position. The right of representation given to him is not ornamental nor it is a mere empt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unds! would not have affected the ultimate opinion or decision, more so when none of the grounds were so serious. Therefore to the present case the observations of the Supreme Court in Binny Ltd. v. Their Workmen , would aptly apply. To such a case the decision of the Supreme Court: in Swam Singh v. State of Punjab , is not applicable. 23. So far as the appellate order is concerned in our opinion there is much substance in the grievance made by Shri Rane. An appeal is provided under Section 152 against an order under Section 78 of the Act. While dealing with such a contention the Supreme Court in Rangnath v. Daulatrao , has observed as under: As has been repeatedly pointed out by this Court the State Government ought to have disposed of the statutory appeal of the appellant filed under Section 2A(2) of the Abolition of Inams Act by a speaking order. It may not be possible in all cases to say that a non-speaking order is bad or invalid on that account alone but when an order is liable to be challenged under Article 226 or 227 of the Constitution of India, courts do insist that an appeal of the kind filed by the appellant should be and ought to have been disposed of by a speaki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngineering and Manufacturing Committee v. Union of India , the Supreme Court has reiterated as to why the order should be speaking one and the authority making such an order in exercise of the quasi-judicial function should record its findings with reasons. It appears to be a settled law that where the authority makes an order in exercise of quasi-judicial functions, it must record its reasons in support of the order it makes. Every quasi-judicial order must be supported by reasons. This is what the Supreme Court has observed in Simens Engineering's case (at page 1789): If courts of law are to be replaced by administrative authorities and tribunals, as indeed, in some kinds of cases, with the proliferation of administrative law, they may have to be so replaced, it is essential that administrative authorities and tribunals should accord fair and proper hearing to the persons sought to be affected by their orders and give sufficiently clear and explicit reasons in support of the orders made by them. Then alone administrative authorities and tribunals exercising quasi-judicial function will be able to justify their existence and carry credibility with the people by inspiring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 1 shows predetermination and, therefore, in the present case a duty was cast on the appellate authority to pass a reasoned order, in the background of the allegations made regarding the malafides. In this view of the matter in our opinion the order passed in appeal also cannot be sustained. 27. So far as the contention raised by Shri Rane about non-consultation with the federal society is concerned, Shri Sawant has placed reliance upon the two decisions of this Court reported in Karbhari Govindrao Patil v. B.D. Pawar [1976] Mah. L.J. 841, and P.K. Patil's case [1978] Reporter of Unreported Cases 139. On the other hand Shri Rane has placed reliance upon subsequent decision of the Supreme Court in Union of India v. Sankalchand Himatlal Sheth, and has contended that the law laid down in the earlier decisions of this Court is no more good law. According to Shri Rane consultation contemplated by Section 78 is a condition precedent for passing an order and is not mere empty formality. Therefore according to the learned Counsel this consultation should be full and effective in all cases and mere sending copy of show cause notice to Federal Society cannot amount to consultation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he reply of the committee to the said charges was forwarded to the Bank with such comments as the Registrar proposed to make therein. It is no doubt true that the committee of its own accord forwarded a copy of its reply Annexure 'B' to the Reserve Bank but again it is extremely doubtful if the Bank authorities could connect the two documents and realise the importance and urgency of the matter to convey their opinion in the matter. The proper course for the Registrar was to send a copy himself inviting attention of the Bank to the earlier communication and requesting them to favour him with their opinion. This has not been done. 24. The Registrar did not even care to pursue the matter and to send any reminder or to press for an opinion at an early date before taking a decision in the matter, thus it appears that a mere formality of sending a copy of show cause notice was performed and a decision was taken without taking any steps to obtain the opinion of the Reserve Bank in the matter. However, in the view which we have taken it is not necessary to deal with this contention any further. 28. In the result, therefore, rule is made absolute with cost. Orders passed b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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