Gujarat High Court
Mehsana Urban Cooperative Bank ... vs Union Of India on 21 September, 2021
Bench: Bhargav D. Karia
C/SCA/7344/2021 JUDGMENT DATED: 21/09/2021
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 7344 of 2021
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
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1 Whether Reporters of Local Papers may be allowed YES
to see the judgment ?
2 To be referred to the Reporter or not ? YES
3 Whether their Lordships wish to see the fair copy NO
of the judgment ?
4 Whether this case involves a substantial question NO
of law as to the interpretation of the Constitution
of India or any order made thereunder ?
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MEHSANA URBAN COOPERATIVE BANK LIMITED & 1 other(s)
Versus
UNION OF INDIA & 4 other(s)
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Appearance:
MR PRAKASH JANI, LD.SR.ADV WITH SHIVANG P JANI(8285) for the
Petitioner(s) No. 1,2
. for the Respondent(s) No. 1,2,5
MR DEVANG VYAS(2794) for the Respondent(s) No. 1
MR. TIRTHRAJ PANDYA(6685) for the Respondent(s) No. 3
NOTICE SERVED(4) for the Respondent(s) No. 4
SERVED BY RPAD (N)(6) for the Respondent(s) No. 2,4,5
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CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
Date : 21/09/2021
ORAL JUDGMENT
Heard learned Senior Advocate Mr.Prakash Jani
assisted by learned advocate Mr.Shivang Jani for the
C/SCA/7344/2021 JUDGMENT DATED: 21/09/2021
petitioners, learned Additional Solicitor General
Mr.Devang Vyas for the respondent Nos.1 and 2 and learned
advocate Mr.Tirthraj Pandya for the respondent No.3.
1. Rule, returnable forthwith. Learned Additional
Solicitor General Mr.Devang Vyas waives service of notice
of rule for the respondent Nos.1 and 2 and learned
advocate Mr.Tirthraj Pandya waives service of notice of
rule for the respondent No.3.
2. Respondent Nos.4 and 5, though served, have chosen
not to appear pursuant to the notice issued by this Court
and that respondent No.4 is similarly situated person to
that of respondent No.3 for which learned advocate
Mr.Pandya appears and respondent No.5 is an Arbitrator
appointed by the respondent No.2 and as such, they are
formal parties and no notice of Rule is required to be
served upon them.
3. Having regard to the controversy in narrow compass,
with the consent of the learned advocates for the
respective parties, the matter is taken up for hearing
today.
4.1. At the outset, learned advocate Mr.Pandya raised
preliminary objections which he has raised at the time of
issuance of notice by this Court on 20th May, 2021 with
regard to the maintainability of the petition filed by
the petitioner No.1-Bank through its Chairman and by
petitioner No.2 who is a Chief Executive Officer against
whom the inquiry was initiated by the respondent No.2
C/SCA/7344/2021 JUDGMENT DATED: 21/09/2021
under Section 78 of the Multi-State Cooperative Society's
Act, 2002 (for short 'the Act, 2002').
4.2. It was submitted by learned advocate Mr.Pandya that
as per the letter dated 6 th December, 2018 issued by the
Reserve Bank of India, list of the related accounts in
the petitioner-Bank was forwarded to the respondent No.2-
Central Registrar, Co-Operative Societies wherein, it was
pointed out that the petitioner-Bank has extended the
credit to the Chairman/Directors and/or their relatives
as per the said list. It was also submitted that the
Reserve Bank of India has imposed penalty upon the Bank
for extending the credit to its Chairman/Directors and/or
other relatives including the Chief Executive Officer. It
was therefore submitted that petition cannot be filed by
the Bank through such persons challenging the impugned
order dated 28th April, 2021 passed by the respondent No.2
appointing the Arbitrator under Section 84 of the Act,
2002 while conducting inquiry under Section 78 of the
Act, 2002 for the resolution of the disputes stated in
paragraph No.10 of the impugned order.
4.3. It was further submitted that the petitioner-Bank
cannot challenge such order by way of a petition under
Article 226 and/or Article 227 of the Constitution of
India on the ground that the petitioner-Bank is
represented by the Chairman and the Chief Executive
Officer against whom the inquiry was contemplated by the
respondent No.2 and therefore, such order could not have
been challenged at the cost of the Bank. It was submitted
that the petition is liable to be dismissed on this
ground only.
C/SCA/7344/2021 JUDGMENT DATED: 21/09/2021
5.1. In the reply, learned Senior Advocate Mr.Prakash
Jani submitted that the impugned order passed by the
respondent No.2 is contrary to the provisions of the Act,
2002 and as such, the same is challenged by the
petitioner-Bank in view of the facts and circumstances
which are narrated in the memo of the petition in detail
and further pointed out that the respondent No.2-Central
Registrar, Cooperative Societies could not have appointed
an Arbitrator under Section 84 of the Act, 2002 by
conducting the proceedings under Section 78 of the Act,
2002 and therefore, the petitioner-Bank has rightly
challenged such order by filing this petition as such
illegal order cannot be sustained in the eye of law.
5.2. It was further submitted that the petitioner No.1-
Bank and the petitioner No.2-Chief Executive Officer are
authorized to file this petition as per the authority
given by the Board of the Directors of the petitioner
No.1-Bank.
6. By this petition under Articles 226 and 227 of the
Constitution of India, the petitioners have prayed for
the following reliefs :
"(A) Be pleased to issue a writ of certiorari or any other 'appropriate writ, order or
direction to quash and set aside the impugned order dated 28.04.2021 - Annexure-I,
passed by the respondent no.2 herein, whereby appointing the respondent no.5 as
the Arbitrator;
(B)Pending admission and final disposal of the present petition,
be pleased to stay and suspend the implementation, operation - and execution of the
impugned order dated 28.04.2021 -- Annexure-I, passed by the respondent no.2
herein, whereby appointing the respondent no.5 as the Arbitrator;
(C) Be pleased to pass such other and further orders as may be deemed fit and
proper."
C/SCA/7344/2021 JUDGMENT DATED: 21/09/2021
7. The brief facts of the case giving rise to this
petition are as under :
7.1. The petitioner No.1 is a Multi-State Cooperative
Society having 96,024 members, 58 branches and deposits
to the tune of Rs.6,331 Crore with extension of financial
assistance to various persons/companies to the tune of
Rs.4,591 Crore.
7.2. The respondent No.2 issued a show-cause notice dated
19.11.2019 under Section 78 of the Act, 2002 for the
purpose of holding inquiry pursuant to the letter dated
6th December, 2018 received from the Reserve Bank of India
and complaints received from the respondents Nos.3 and 4.
7.3. Reply was filed pursuant to the show-cause notice
dated 19th November, 2019 by the Chairman and the Chief
Executive Officer of the petitioner-Bank.
7.4. The respondent No.2 after considering the reply to
the show-cause notice, passed the impugned order dated
28th April, 2021 after giving an opportunity of hearing to
the Chairman and the Chief Executive Officer of the
petitioner-Bank.
7.5. In the impugned order dated 28 th April, 2021, in the
inquiry proceedings under Section 78 of the Act, 2002 the
respondent No.2 exercised its powers under Section 84 of
the Act, 2002 to appoint an Arbitrator for the issues
framed by the respondent No.2 in paragraph No.10 of the
C/SCA/7344/2021 JUDGMENT DATED: 21/09/2021
impugned order and directed such Arbitrator to submit a
report to the respondent No.2 by conducting the
arbitration proceedings as per the procedure as laid down
under the Arbitration and Conciliation Act, 1996. Being
aggrieved by the impugned order, the petitioners have
filed this petition with the aforesaid prayers.
8. At the time of admission hearing, the petitioners
submitted a draft amendment by placing on record the
notification dated 24th February, 2003 whereby, it was
directed that the powers exercised by the Central
Registrar under Section 84 of the Multi State Cooperative
Societies Act, 2002 shall also be exercised by the
Registrar, Cooperative Societies of the States. In such
draft amendment it is also pointed out that pursuant to
such delegated powers vide order dated 26th August, 2019,
the Registrar, Cooperative Societies, Gujarat passed an
order appointing Shri J.H.Champavat as an Arbitrator to
settle the disputes between the petitioner No.1-Bank and
the borrowers of the Bank for three years from 01.09.2019
to 31.08.2022. Such draft amendment was granted by this
Court and following order was passed on 20th May, 2021 :
"1. The draft amendment is tendered by the learned advocates appearing for
the petitioners.The same is taken on record and is allowed. The same is directed to
be carriedout forthwith.
2. Heard learned Senior Advocate Mr. Kamal Trivedi, learned Senior Advocate
Mr. S.N. Soparkar and learned Senior Advocate Mr. Prakash Jani assisted by
learned advocate Mr. Shivang P. Jani for the petitioners, learned Additional
Solicitor General Mr. Devang Vyas for the respondent nos. 1 and 2 and
learned advocate Mr. Tirthraj Pandya for the respondent no.3 through video
conference.
3. Learned Senior Advocates appearing for the petitioners jointly submit that the
impugned order appointing the arbitrator under Section 84 of the MultiState
Cooperative Societies Act, 2002 which is dated 28.04.2021 and produced
at page no. 108 of the petition goes beyond the scope of the show cause
C/SCA/7344/2021 JUDGMENT DATED: 21/09/2021
notice dated 19.11.2019. Learned Senior Advocates further pointout that an
arbitrator has already been appointed to lookinto the similar allegations and the term
of the arbitrator gets over only in August, 2022, and therefore, the separate
proceedings were absolutely uncalled for.
4. Learned ASG Mr. Devang Vyas for the respondent nos. 1 and 2 defends
the order dated 28.04.2021 which is impugned in this petition and submits that the
order is absolutely just, legal and proper and does not require any interference.
5. Learned advocate Mr. Tirthraj Pandya, who appears on caveat, on
behalf of the respondent no.3 strongly objects the petition by questioning the
maintainability of the petition and submits that the petition by the Bank itself is
not maintainable and it should be by the persons against whom the complaint
is made by the respondent no.3. Learned advocate Mr. Pandya further submits
that looking to the allegations levelled against the office bearers of the Bank, no
relief be granted in favour of the present petitioners.
6. Considering the submissions made on behalf of the litigating parties, this
Court is of the view that, interest of justice would be served if the respondent
no.5, who is appointed as an Arbitrator by the respondent no.2 vide order
dated 28.04.2021 is directed not to convene the first meeting, till the next date of
hearing. The respondents may file their replies to the main petition as well as
to the amended petition before the next date of hearing.
7. Issue Notice to the respondents returnable on 08.06.2021.
8. Direct service is permitted. The respondents may be informed about this
order by way of email also, over and above the normal mode of service"
9. Learned advocate Mr.Pandya for the respondent No.3
has stated that the respondent No.3 has challenged this
order by preferring Letters Patent Appeal No.662 of 2021
before the Division Bench and such Appeal is pending.
However, it was submitted that if the grievance of the
respondent No.2 is considered with regard to the
maintainability of the petition, the respondent No.3 is
ready and willing to proceed with the matter finally and
accordingly, this matter is taken up for final hearing to
consider the submissions made on behalf of the respondent
No.3 with regard to the maintainability of the petition
along with the merits of the case.
10. In view of the above facts, learned advocate
C/SCA/7344/2021 JUDGMENT DATED: 21/09/2021
Mr.Pandya undertakes to withdraw the Letters Patent
Appeal No.662 of 2021 as the main matter is taken up for
hearing considering the preliminary objections raised on
behalf of the respondent No.3 as well as on merits. It
was further submitted by learned advocate Mr.Pandya that
the Letters Patent Appeal No.662 of 2021 was never heard
by the Division Bench till date.
11.1. Learned Senior Advocate Mr.Jani submitted that the
petitioners can only file this petition as aggrieved
persons because the respondent No.2-Registrar has passed
the impugned order dated 28th April, 2021 contrary to the
provisions of the law and therefore, the petitioner-Bank
being affected by such order has rightly preferred this
petition under Articles 226 and 227 of the Constitution
of India. It was also pointed out that the issues which
were considered by the respondent No.2-Central Registrar,
Cooperative Societies while issuing notice under Section
78 of the Act, 2002 and the issues which are framed by
referring the matter to the Arbitrator are also different
as the issue of election or re-election of the Chairman
as well as the Chief Executive Officer of the Bank was
never the part of the show-cause notice dated 19 th
November, 2019.
11.2. Learned Senior Advocate Mr.Jani further submitted
that the proceedings initiated under Section 78 of the
Act, 2002 could not have culminated into the order
appointing an Arbitrator under Section 84 of the Act,
2002, more particularly, when an Arbitrator under Section
84 of the Act, 2002 is already appointed for three years
C/SCA/7344/2021 JUDGMENT DATED: 21/09/2021
by the Registrar, Cooperative Societies, Gujarat State
while exercising his delegating powers pursuant to the
notification dated 24th February, 2003.
11.3. It was also submitted by learned Senior Advocate
Mr.Jani that the Registrar, Cooperative Societies had
also issued a notice dated 19th November, 2019 with regard
to the issue of election directing the petitioner-Bank to
re-conduct the election strictly as per the provisions of
the Act, 2002 and Rules made thereunder. It was pointed
out that the petitioner-Bank being aggrieved by such
notice has filed the Special Civil Application No.20930
of 2019 wherein, this Court vide order dated 27.11.2019
has stayed the operation of such notice/order dated 19th
November, 2019 and such proceeding is still pending for
adjudication before this Court.
11.4. It was submitted that in view of such facts
emerging from record, the respondent No.2 could not have
appointed another Arbitrator for the issues which are
framed in the paragraph No.10 of the impugned order.
11.5. Learned Senior Advocate Mr.Jani thereafter referred
to the provisions of Sections 78 and 84 of the Act, 2002
to submit that both the provisions operate in a different
field and could not have been invoked by the respondent
No.2 simultaneously.
12.1. On the other hand, learned advocate Mr.Pandya
submitted that the petition is not maintainable as the
respondent No.2 has initiated the proceedings against the
C/SCA/7344/2021 JUDGMENT DATED: 21/09/2021
Chairman and the Chief Executive Officer of the
petitioner-Bank who are directly affected parties by such
proceedings and therefore the petitioner-Bank could not
have filed this petition challenging the impugned order
passed by the respondent No.2 appointing an Arbitrator
while exercising powers under Section 84 of the Act.
12.2. It was submitted by learned advocate Mr.Pandya that
the petitioner-Bank cannot prosecute against its own
interest, more particularly, when serious allegations
were made by the respondent Nos.3 and 4 before the
respondent No.2 with regard to the functioning as well as
the involvement of the Chairman and Chief Executive
Officer of the petitioner-Bank and the irregularities
committed by them in financial matter by extending loans
to relatives as well as in the election process of the
petitioner-Bank.
12.3. It was submitted that the petitioner No.1-Bank,
represented by the Chairman and the petitioner No.2-Chief
Executive Officer are the persons against whom the
Reserve Bank of India has passed an order for extending
the loans to their relatives and therefore, such persons
cannot espouse the cause under the banner of the
petitioner-Bank to challenge the impugned order dated 28 th
April, 2021.
12.4. On merits, learned advocate Mr.Pandya submitted
that the respondent No.2 has all the powers vested upon
him by the Act of 2002 to invoke Section 84 while
conducting inquiry under Section 78 of the Act, 2002. It
C/SCA/7344/2021 JUDGMENT DATED: 21/09/2021
was submitted that in order to get assistance from
Arbitrator for the issues which are framed by the
respondent No.2 upon the complaint made by the respondent
Nos.3 and 4 read with the letter dated 06.12.2018 of the
Reserve Bank of India, more particularly, with regard to
the loans given to the relatives of the Chairman and
Chief Executive Officer of the petitioner-Bank as well as
the election process conducted by the petitioner-Bank for
appointment of the petitioner No.2-Chief Executive
Officer after his superannuation are in violation of the
rules and by laws of the petitioner No.1-Bank as well as
the election process was not in consonance with the
provisions of the Act, 2002 and rules made thereunder.
12.5. It was therefore submitted that for the purpose of
conducting inquiry under Section 78, the respondent No.2
has rightly invoked provisions under Section 84 of the
Act, 2002 to appoint the respondent No.5 as an Arbitrator
and submit a report within 90 days from the date of the
impugned order by following procedure under the
Arbitration and Conciliation Act, 1996.
12.6. It was submitted that no prejudice would be caused
to the petitioners if such arbitration proceeding is
conducted as per the direction given by the respondent
No.2 while passing the impugned order by exercising
powers under Section 84 of the Act, 2002 as Arbitrator is
only to submit a report under Section 84 so as to enable
the respondent No.2 to complete the inquiry proceedings
under Section 78 of the Act, 2002 and hence, it is only
to aid respondent No.2 to conduct and complete the
C/SCA/7344/2021 JUDGMENT DATED: 21/09/2021
inquiry under Section 78 of the Act, 2002, the impugned
order is passed by invoking the power under Section 84 of
the Act, 2002 to abide an Arbitrator by the respondent
No.2.
12.7. It was also submitted that as per the notification
dated 24th February, 2003, the respondent No.2 can also
exercise the power under Section 84 of the Act, 2002
simultaneously with the delegated power to the Registrar,
Cooperative Societies of the States and while exercising
such power under Section 84 of the Act, 2002, the
respondent No.5 is appointed as an Arbitrator to submit a
report on the issues which are framed by the respondent
No.2 in the paragraph No.10 of the impugned order dated
28th April, 2021.
13.1. Learned Additional Solicitor General Mr.Devang Vyas
submitted that the impugned order is just and proper
while the respondent No.2 has exercised the power
conferred upon him under Section 84 of the Act, 2002 so
as to enable him to complete the inquiry proceedings
under Section 78 of the Act, 2002.
13.2. It was also submitted by learned Additional
Solicitor General Mr.Vyas that by the impugned order the
respondent No.2 has taken into consideration the aspects
which were pointed out by the Reserve Bank of India as
well as the complaints made by the respondent Nos.3 and 4
and thereafter, the impugned order is passed so as to
resolve the disputes which have been raised by the
respondent Nos.3 and 4 in the compliant filed before the
C/SCA/7344/2021 JUDGMENT DATED: 21/09/2021
respondent No.2 while exercising the powers under Section
84 of the Act, 2002.
14. Having heard the learned advocates for the
respective parties and having gone through the relevant
provisions of the Act, 2002 as well as the material on
record, the respondent No.2-Central Registrar of
Cooperative Societies has passed the impugned order dated
28th April, 2021 during the course of proceedings under
Section 78 of the Act, 2002 and appointed respondent No.5
as an Arbitrator under Section 84 of the said Act.
15. So far as the preliminary objections raised on
behalf of the respondent No.3 with regard to the
maintainability of the petition is concerned, the
submissions made on behalf of the respondent No.3 that
the petitioner No.1-Bank cannot file this petition with
regard to the proceedings initiated under Section 78 of
the Act, 2002 against the Chairman and Chief Executive
Officer of the petitioner No.1-Bank is concerned, it is
required to be noted that the impugned order passed by
the respondent No.2 is with regard to the inquiry
contemplated under Section 78 of the Act, 2002 which is
for the purpose of the petitioner No.1-Bank. It would
therefore be germane to refer to provision of Section 78
of the Act, 2002 which reads as under :
"78. Inquiry by Central Registrar.--
(1) The Central Registrar may, on a request from a federal co-operative to which a multi-
State co-operative society is affiliated or a creditor or not less than one-third of the
members of the board or not less than one-fifth of the total number of members of a multi-
State co-operative society, hold an inquiry or direct some person authorised by him by
order in writing in this behalf to hold an inquiry into the constitution, working and financial
condition of a multi-State co-operative society: Provided that no inquiry under this sub-
C/SCA/7344/2021 JUDGMENT DATED: 21/09/2021
section shall be held unless a notice of not less than fifteen days has been given to the multi-
State co-operative society.
(2) The Central Registrar or the person authorised by him under sub-section (1) shall have
the following powers, namely:--
(a) he shall at all reasonable times have free access to the books, accounts,
documents, securities, cash and other properties belonging to or in the custody
of the multi-State co-operative society and may summon any person in
possession or responsible for the custody of any such books, accounts,
documents, securities, cash or other properties to produce the same, at any
place specified by him;
(b) he may, notwithstanding any bye-law specifying the period of notice for a
general meeting of the multi-State co-operative society, require the officers of
the society to call a general meeting of the society by giving notice of not less
than seven days at such time and place at the headquarters of the society to
consider such matters, as may be directed by him; and where the officers of the
society refuse or fail to call such a meeting, he shall have power to call it
himself;
(c) he may summon any person who is reasonably believed by him to have any
knowledge of the affairs of the multi-State co-operative society to appear before
him at any place at the headquarters of the society or any branch thereof and
may examine such person on oath.
(3) Any meeting called under clause (b) of sub-section (2) shall have all the powers of a
general meeting of the society called under the bye-laws of the society and its proceedings
shall be regulated by such bye-laws.
(4) The Central Registrar shall, within a period of three months of the date of receipt of the
report, communicate the report of inquiry to the multi-State co-operative society, the
financial institutions, if any, to which the society is affiliated, and to the person or authority,
if any, at whose instance the inquiry is made."
16. On perusal of the above provision which falls under
Chapter VIII of the Act, 2002 captioned as "Audit,
Inquiry, Inspection and Surcharge" stipulates that the
respondent No.2-Central Registrar may, on a request from
a federal co-operative to which a multi-State co-
operative society is affiliated or a creditor or not less
than one-third of the members of the board or not less
than one-fifth of the total number of members of a multi-
State co-operative society, hold an inquiry or direct
some person authorized by him by order in writing in this
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behalf to hold an inquiry into the constitution, working
and financial condition of a multi-State co-operative
society. Therefore, once an inquiry is initiated by the
respondent No.2 against the petitioner No.1-Bank, any
order passed by the respondent No.2 can be challenged by
the petitioner No.1-Bank. It is also pertinent to note
that the petitioner No.1-Bank is aided by the Chairman
and the Chief Executive Officer who are the
administrative heads of the petitioner No.1-Bank and
therefore, such petition can only be filed by the
Chairman and by the Chief Executive Officer. Therefore, I
am of the view that the objections raised by the
respondent No.3 are not tenable and are accordingly
rejected.
17. With regard to the merits, it is not in dispute that
the respondent No.2 issued a show-cause notice dated
19.11.2019 under Section 78 of the Act, 2002 for
conducting inquiry on the basis of the complaint received
from the respondent Nos.3 and 4 as well with regard to
the issuance of the loan by the Bank to the relatives of
the Chairman and Chief Executive Officer of the
petitioner No.1-Bank and with regard to the conduct of
affairs of the Bank by the Chief Executive Officer of the
petitioner No.1-Bank. According to the said show-cause
notice, opportunity of hearing was given to file reply.
The reply was filed on 19.12.2019 by the petitioner-Bank
explaining in detail, the false allegations levelled
against the Chairman and Chief Executive Officer of the
petitioner No.1-Bank.
C/SCA/7344/2021 JUDGMENT DATED: 21/09/2021
18. It is also emerging from the record that the Deputy
Commissioner (C&C) of the Department of Agriculture
Cooperation Farmer Welfare of the Central Government with
the approval of the respondent No.2 called upon the
petitioner No.2 to re-conduct the election strictly in
accordance with the provisions of the Act, 2002 and Rules
made thereunder including the election schedule along
with other directions. The said order dated 19.11.2019
was challenged by the petitioners by preferring Special
Civil Application No.20930 of 2019 wherein, this Court
(Coram: Hon'ble Mr.Justice Biren Vaishnav) passed the
following order on 27.11.2019 :
"1. In this petition under Article 226 of the Constitution of India, the order under
challenge is dated 19.11.2019 passed by the respondent - Union of India.
2. Mr. Prakash Jani, learned Senior Counsel appearing with Mr. Shivang Jani,
learned counsel for the petitioner, assails the order on several counts. Reading the
impugned order, Mr.Prakash Jani, learned Senior Counsel for the petitioner, would
contend that the election of the Board has been held on 09.09.2019. The bank by its
letter dated 25.09.2019 informed the competent authority of the election so having
been done.
3. By the impugned order, the respondent has opined that the election has not been
held in accordance with the mandatory provisions of the Multi State Co-operative
Societies Act, 2002, (for short "the Act) essentially the schedule to the rule. The
respondent by the impugned order has, therefore, in the operative portion of the
order observed that the bank should submit a status report within 15 days. However,
reading of the order indicates that the bank has been directed to initiate a fresh
election process, failing which the author of the impugned order would be compelled
to take action under Section 45(6) of the Act.
3.1 Taking me through the contents of the election petition filed pursuant to the order
of this Court in Special Civil Application No.13923 of 2019, Mr.Jani, learned Senior
Counsel, would contend that a remedy by filing an election petition is already
invoked, wherein, similar contentions have been raised. Interim order has been
refused therein. Letters Patent Appeal against the order of the learned Single Judge
is pending and the election programme was not stayed.
4. Mr.Dipen Desai, learned counsel appearing for the Caveator would submit by
drawing my attention to the provisions of the Act, especially to Section 45 to contend
that it is general body which has to hold elections. In the present case, it is the Board
which has done so. Issue Notice to the respondents, returnable on 17.12.2019. In
C/SCA/7344/2021 JUDGMENT DATED: 21/09/2021
the meantime, there shall be ad interim relief, in terms of para 9(B), till then."
19. Thus, the issue with regard to the election raised
before the respondent No.2 in the proceedings under
Section 78 of the Act, 2002 after service of the show-
cause notice is already sub judice before this Court and
the implementation and execution of the order dated
19.11.2019 passed by Ministry of Agriculture and Farmers
Welfare, Department of Agriculture, Cooperation and
Farmers Welfare is already stayed by this Court.
20. In such circumstances, the respondent No.2 could not
have travelled beyond the contents of the show-cause
notice by including the issue of election in the
proceedings under Section 78 of the Act, 2002 and could
not frame the following issues in paragraph No.10 of the
impugned order which reads as under :
"10. This authority has taken cognizance of the submissions
made before it. Prima facie, there are facts placed by the
parties which need proper adjudication by placing them before
an arbitrator u/s 84 of the MSCS Act, 2002. The following
issues need to be adjudicated upon:
1. Whether the appointment of Chief Executive Officer
(CEO), Shri Vinodbhai Patel after superannuation is in
violation of the rules as laid down in the bye-laws of the
bank.
2. Whether any loans have been extended which are
violative of the provisions of section 29 and 43 of the
MSCS Act, 2002 or any of the provision of MSCS Rules 2002
& the guidelines of RBI.
3, Whether the directors who have been re-elected in the
board including the Chairman of the bark mentioned in the
RBI's report dated 06.12.2018 were eligible to contest in
the election held in September 2019.
4. Whether the election process was in consonance with the
provisions of MSCS Act, 2002 and rules made there under."
21. The respondent No.2 has invoked power under Section
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84 of the Act, 2002 for determination of the aforesaid
issues framed while passing the order in the inquiry
proceedings initiated by him under Section 78 of the Act,
2002. Therefore it would be necessary to refer to the
provision of Section 84 which reads as under :
"84. Reference of disputes :
(1) Notwithstanding anything contained in any other law for
the time being in force, if any dispute [other than a dispute
regarding disciplinary action taken by a multi-state
cooperative society against its paid employee or an industrial
dispute as defined in clause (k) of section 2 of the
Industrial Disputes Act, 1947 (14 of 1947)] touching the
constitution, management or business of a multi-state
cooperative society arises-
(a) among members, past members and persons claiming
through members, past members and deceased members, or
(b) between a member, past members and persons
claiming through a member, past member or deceased
member and the 55 multi-state cooperative society, its
board or any officer, agent or employee of the multi-
state cooperative society or liquidator, past or
present, or
(c) between the multi-state cooperative society or its
board and any past board, any officer, agent or
employee, or any past officer, past agent or past
employee, heirs or legal representatives of any
deceased officer, deceased agent or deceased employee
of the multi-state cooperative society, or
(d) between the multi-state cooperative society and
any other multi-state cooperative society, between a
multi-state cooperative society and liquidator of
another multi-state cooperative society or between the
liquidator of one multi-state cooperative society and
the liquidator of another multi-state cooperative
society, such dispute shall be referred to
arbitration.
(2) For the purposes of sub-section (1), the following shall
be deemed to be disputes touching the constitution, management
or business of a multi-state cooperative society, namely:-
(a) a claim by the multi-state cooperative society
for any debt or demand due to it from a member or the
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nominee, heirs or legal representatives of a deceased
member, whether such debt or demand be admitted or
not;
(b) a claim by a surety against the principal debtor
where the multistate cooperative society has
recovered from the surety any amount in respect of
any debt or demand due to it from the principal
debtor as a result of the default of the principal
debtor, whether such debt or demand is admitted or
not;
(c) any dispute arising in connection with the
election of any officer of a multi-state cooperative
society.
(3) If any question arises whether a dispute referred to
arbitration under this section is or is not a dispute touching
the constitution, management or business of a multi-state
cooperative society, the decision thereon of the arbitrator
shall be final and shall not be called in question in any
court.
(4) Where a dispute has been referred to arbitration under
sub-section (1), the same shall be settled or decided by the
arbitrator to be appointed by the Central Registrar.
(5) Save as otherwise provided under this Act, the provisions
of the Arbitration and Conciliation Act, 1996 (26 of 1996)
shall apply to all arbitration under this Act as if the
proceedings for arbitration were referred for settlement or
decision under the provisions of the Arbitration and
Conciliation Act, 1996. "
22. On plain reading of Section 84 which falls under
Chapter IX "Settlement of Disputes" of the Act, 2002
refers to reference of the disputes by the Central
Registrar, Cooperative Societies with regard to the
disputes touching the constitution, management or
business of a multi-state cooperative societies amongst
the members between the similarly situated Multi-State
Cooperative Societies etc., as enumerated in the Sub-
section (1) of the Section 84 of the Act, 2002. Sub-
section (2) of Section 84 elaborates that what would
constitute or deemed to be the disputes touching the
constitution, management or business of the Multi-State
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Cooperative Societies in Clause (a) to (c) which includes
any dispute arising in connection with the election of
any Officer of a Multi-State Cooperative Society.
However, in the facts of the case, when the respondent
No.2 has already initiated the proceedings under Section
78 of the Act, 2002, two questions would arise for
determination by this Court. (i) Whether any proceedings
should have been initiated by the respondent No.2 under
Section 78 of the Act, 2002 in the facts of the case and
(ii) If the answer to the question No.(i) is yes, whether
the respondent No.2 could have invoked provisions of
Section 84 during the inquiry proceedings under Section
78 of the Act, 2002 by appointing respondent No.5 as an
Arbitrator or not.
23. With regard to the first question whether the
respondent No.2 could have initiated the proceedings
under Section 78 of the Act, 2002 or not, it is necessary
to analyze Section 78 conferring power upon the
respondent No.2 to initiate inquiry because as per
section 78 of the Act, 2002, such inquiry can be
initiated by the Central Registrar in four eventualities
on the request from (i) a Federal Cooperative Societies
to which Multi-State Cooperative Societies affiliated or
(ii) A Creditor or (iii) not less than one third of the
members of the Board or (iv) not less than one fifth of
the total number of members of a Multi-State Cooperative
Societies. In the facts of the case, neither of the four
conditions is fulfilled as no request is received either
from the Federal Cooperative Societies to which the
petitioner No.1-Society is affiliated or a Creditor or
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not less than one third of the members of the Board or
not less than one fifth of the total number of the
members of the petitioner No.1-Society. In such
circumstances, the respondent No.2 could not have
initiated the proceedings under the Section 78 of the
Act, 2002 only on receipt of a letter dated 06.12.2018
from the Reserve Bank of India as well as the complaints
received from respondent Nos.3 and 4 under Section 78 of
the Act, 2002.
24. In such circumstances, there is no need to answer to
question No.(ii). However, as the impugned order refers
to Section 84 of the Act, 2002 by appointing an
Arbitrator during the proceedings of Section 78 of the
Act, 2002, it would be necessary to answer the said
question also for the simple reason that the respondent
No.2 could not have invoked the provision of Section 84
of the Act, 2002 while conducting the inquiry under
Section 78 of the Act, 2002. Sub-section (1) of Section
78 of the Act, 2002 clearly stipulates that such inquiry
which may be initiated by the Central Registrar can
either be conducted by himself or he can by order in
writing in this behalf authorize any person working to
hold such inquiry. Thus, Sub-section (1) of Section 78 of
the Act, 2002 is having self contained procedure for
holding such inquiry and for that purpose, the Central
Registrar is not required to take recourse to Section 84
of the Act, 2002 which is for settlement of disputes and
has nothing to do with the inquiry under Section 78 of
the Act, 2002.
25. On perusal of the Section 84 of the Act, 2002 it is
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only with regard to the reference to be made to the
Arbitrator for the disputes which may arise between the
members or the Multi-State Cooperative Societies or
Federal Cooperative Societies as enumerated therein. Even
the disputes which are considered to be deemed disputes
are also specified in Sub-section (2) thereof. It is true
that the Central Registrar, Cooperative Societies can
exercise power of appointment of an Arbitrator though
such powers can be delegated as per the notification
dated 24th February, 2003 but at the same time when the
Registrar, Cooperative Societies of State has already
appointed an Arbitrator for three years then matter for
settlement of disputes can be referred to Arbitrator
already appointed pursuant to the exercise of delegated
power by the Registrar, Cooperative Societies of the
State and in that view of the matter also by the impugned
order, respondent No.5 could not have been appointed as
an Arbitrator while exercising powers under Section 84 of
the Act, 2002.
26. Thus, looking from any angle of the matter, the
impugned order cannot be sustained for the foregoing
reasons and is accordingly quashed and set aside. The
petition is accordingly allowed. The impugned order dated
28th April, 2021 is hereby quashed and set aside. Rule is
made absolute to the aforesaid extent.
27. At this juncture, learned advocate Mr.Pandya submits
that the respondent Nos.3 and 4 may not be precluded from
filing further complaints or the respondent No.2 may not
be precluded from initiating further proceedings in
accordance with law if required in future. It is needless
C/SCA/7344/2021 JUDGMENT DATED: 21/09/2021
to say that the respondent No.2 is empowered to initiate
any proceedings in accordance with law and any
observation made in this order cannot restrain or
preclude the respondent No.2 from exercising his
statutory powers in accordance with law.
(BHARGAV D. KARIA, J)
PALAK
