Gujarat High Court
Shree Kalsari Seva Sahakari ... vs State Of Gujarat on 29 April, 2023
Bench: Sangeeta K. Vishen
C/SCA/7236/2023 JUDGMENT DATED: 29/04/2023
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 7236 of 2023
FOR APPROVAL AND SIGNATURE:
HONOURABLE MS. JUSTICE SANGEETA K. VISHEN sd/-
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1 Whether Reporters of Local Papers may be allowed No
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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SHREE KALSARI SEVA SAHAKARI MANDALI LIMITED
Versus
STATE OF GUJARAT
================================================================
Appearance:
MR BHARAT T RAO(697) for the Petitioner(s) No. 1
MR J. K. SHAH, ASSISTANT GOVERNMENT PLEADER/PP for the
Respondent(s) No. 1
DS AFF.NOT FILED (N) for the Respondent(s) No. 2
NOTICE SERVED BY DS for the Respondent(s) No. 3
SHIVANG P JANI(8285) for the Respondent(s) No. 4
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CORAM:HONOURABLE MS. JUSTICE SANGEETA K. VISHEN
Date : 29/04/2023
ORAL JUDGMENT
With the consent of the learned advocates appearing for the
respective parties, the matter is taken up for final disposal.
C/SCA/7236/2023 JUDGMENT DATED: 29/04/2023
2. Issue Rule, returnable forthwith. Mr J. K. Shah, learned
Assistant Government Pleader waives service of notice of Rule on
behalf of respondent nos.1 to 3. Mr Shivang P. Jani, learned
advocate waives service of notice of Rule on behalf of respondent
no.4.
3. By this petition, the petitioner has prayed for quashing and
setting aside of the order dated 21.02.2023 passed by District
Registrar, Co-operative Societies, Junagadh so also order dated
11.04.2023 passed by District Registrar, Co-operative Societies,
Junagadh under the provisions of Section 107 of the Gujarat Co-
operative Societies Act, 1961 (hereinafter referred to as "the Act of
1961"), it having been passed in breach of the principles of natural
justice.
4. Briefly stated are the facts:
4.1 The petitioner, is a co-operative society, registered under the
provisions of the Act of 1961. The respondent no.4 i.e. Junagadh
District Co-operative Bank (hereinafter referred to as "the
respondent no. 4 bank") has submitted a proposal dated 15.02.2023
to the respondent no.3; taking the petitioner society in liquidation
with a further request to appoint the liquidation officer for the said
purpose. Acting on the said proposal dated 15.02.2023, that order
dated 21.02.2023 came to be passed by the District Registrar, Co-
operative Societies.
4.2 Being aggrieved, the petitioner, filed an appeal no.8 of 2023
before the Additional Registrar (Appeals), Co-operative Societies
who, after hearing the petitioner passed an order dated 06.04.2023.
The said appeal filed by the petitioner, came to be rejected. While
rejecting the appeal, the interim stay granted on 14.03.2023, was
C/SCA/7236/2023 JUDGMENT DATED: 29/04/2023
directed to be vacated. The order dated 06.04.2023 was received by
the petitioner on 17.04.2023 and in the interregnum, the District
Registrar, Co-operative Societies passed an order dated 11.04.2023
of liquidation under the provisions of Section 104 of the Act of 1961
appointing the respondent no.4 bank as the liquidation officer. The
petitioner therefore aggrieved, has filed the captioned writ petition.
5. While inviting the attention of this Court to the provisions of
Section 107 of the Act of 1961, Mr B. T. Rao, learned advocate,
submitted that three eventualities are provided under sub-section
(1) of Section 107 for winding up of the society. The first eventuality
is contemplated in clause (a) of sub-section (1) of Section 107 of the
Act of 1961 which, would be after an inquiry under Section 86 or
inspection under the provisions of sub-section (8) of Section 84;
Section 87 or Section 88 or on the report of the Auditor auditing the
accounts of the society. The second eventuality is on receipt of an
application made upon a Resolution carried by 3/4th members of
the society present at a Special General Meeting or for the purpose
and third, of its own motion in the case of the society which, inter
alia, has not commenced working etc. It is submitted that it is only
after formation of the opinion by the Registrar that the society, can
be wound up by passing an interim order. It is further submitted that
sub-section (2) of Section 107 of the Act of 1961 provides that
where an interim order is made, on a ground specified in clause (a)
or sub-clause (iv) of clause (c) of sub-section (1) of Section 107, a
copy of the interim order is to be communicated, in the prescribed
manner, to the society calling upon it to submit its explanation to
the Registrar within a month from the date of issuance of such
order. Sub-section (3) of Section 107 of the Act of 1961, provides
that the Registrar, after giving an opportunity to the society of being
C/SCA/7236/2023 JUDGMENT DATED: 29/04/2023
heard shall make a final order vacating or confirming the interim
order. It is therefore submitted that an inbuilt mechanism is
provided in Section 107 of the Act of 1961 for the Registrar, to pass
an order under Section 107, interim or the final.
5.1 It is further submitted that in the present case, as is
discernible from the order dated 21.02.2023, no hearing much less
any opportunity, was offered to the petitioner and straightaway that
the order has been passed. Before passing the interim order of
liquidation on 21.02.2023, the District Registrar, Co-operative
societies, ought to have issued a notice upon receipt of the proposal
by the respondent no.4 bank on 15.02.2023; however, straightaway,
interim order has been passed on 21.02.2023. It is submitted that
such order, is in violation of principles of natural justice for, there
ought to have been a notice to the petitioner and after the notice
that such interim order could have been passed.
5.2 It is further submitted that the petitioner, being aggrieved,
preferred an appeal before the Additional Registrar (Appeals), Co-
operative Societies who, initially, granted stay on 14.03.2023 but,
rejected the appeal, on the ground that it will be open to the
petitioner to submit its response within a period of one month from
the date of passing of the order which opportunity, has been
specifically provided in the order dated 21.02.2023. While making a
a reference to sub-section (3) of Section 107 of the Act of 1961, it
has been stated that it is only after affording an opportunity, that
the order shall be confirmed or cancelled. It is submitted that said
order was received on 17.04.2023 by the petitioner and in the
interregnum, that the District Registrar, Co-operative Societies,
Rajkot has passed the final order under sub-section (3) of Section
107 of the Act of 1961 appointing respondent no.4 bank as a
C/SCA/7236/2023 JUDGMENT DATED: 29/04/2023
liquidation officer. It is submitted that the said order was received
by the petitioner only on 15.04.2023. It is submitted that not only at
the interim stage but also at the stage of passing the final order,
there is an infraction of principles of natural justice.
5.3 It is submitted that the issue, is no longer res integra. Reliance
is placed on the judgment of this Court in the case of Apexa Co-
operative Bank Limited v. District Registrar & Others reported in
(1993) 2 G.L.H. 861. It is submitted that the issue, inter alia, was
whether right to prior notice and hearing before making the interim
order is to be read in sub-section (1) of Section 107 of the Act of
1961. The Division Bench, considering the provisions of section 107
of the Act of 1961, held and observed that an interim order is made
by the competent authority after forming a considered opinion and
it remains in force till the final order, vacating or confirming the
interim order is made at the termination of the proceeding. It has
been held and observed that what the competent authority does at
the stage of passing an interim order is not merely to ascertain
whether a prima facie case exists for the purpose of passing an ex
parte ad-interim order, subject to modification after notice to the
affected party. The Division Bench, noted that as a result of the
making of such an order, serious consequences follow, especially
when a liquidator is appointed soon thereafter. While accepting the
submission of the petitioner therein, it has been held and observed
that the Court must readily infer, by necessary implication, the right
to prior notice and hearing before an interim order is made.
5.4 It is therefore urged that before passing the interim order
under sub-section (1) of Section 107 of the Act of 1961 that the
notice, ought to have been issued to the petitioner and it is only
after offering an opportunity of hearing to the petitioner that the
C/SCA/7236/2023 JUDGMENT DATED: 29/04/2023
order could have been passed. It is further submitted that not only
at the stage of passing the interim order but also at the stage of
passing the final order under sub-section (3) of Section 107 of the
Act of 1961, no opportunity of hearing was afforded. It is therefore
urged that the interim order dated 21.02.2023 so also the order
dated 11.04.2023 passed by the District Registrar, Co-operative
Societies, Junagadh deserve to be quashed and set aside.
6. On the other hand, Mr J. K. Shah, learned Assistant
Government Pleader, submitted that after passing of the order on
21.02.2023 by the District Registrar, Co-operative Societies, that an
opportunity was provided to the petitioner; however, the petitioner,
chose not to avail of that opportunity and straightaway, preferred an
appeal before the Additional Registrar (Appeals), Co-operative
Societies who, thereafter, has passed an order rightly dismissing the
appeal as the order dated 21.02.2023, itself required the petitioner
to file objections / suggestions within a period of one month. It is
further submitted that since no objections were received, the
District Registrar, Co-operative Societies having left with no option,
passed an order dated 11.04.2023 appointing the respondent no.4
bank as a liquidation officer. It is submitted that no error can be said
to have been committed by the Additional Registrar (Appeals), Co-
operative Societies, Junagadh. It is further submitted that if at all the
petitioner is aggrieved by the order, there is an alternative
efficacious remedy available to the petitioner by way of Section 155
of the Act of 1961. It is therefore urged that petition may not be
entertained.
7. Mr Prakash Jani, learned senior counsel appearing with Mr
Shivang P. Jani, learned advocate, submitted that the respondent
no.4, is a federal co-operative bank which advances money to the
C/SCA/7236/2023 JUDGMENT DATED: 29/04/2023
petitioner society and the farmers and traders, therefore, executes
the transactions with the respondent no.4 bank. It is submitted that
the statutory powers are available to the respondent no.4 bank and
are traceable under sub-section (8) of Section 84 of the Act of 1961.
As per the provisions of sub-section (8) of Section 84, the
respondent no.4 bank has a power to inspect the accounts of the
petitioner society and therefore, on 11.01.2023, the petitioner, was
required to remain present on 19.01.2023. The petitioner, did not
remain present and therefore, the report came to be made on
20.01.2023 to the head bank and thereafter, on 09.02.2023 to the
respondent no.4 bank stating that the affairs of the petitioner
society may be wound up. It is further submitted that on
10.02.2023, a Resolution no.31, came to be passed by the
respondent no.4 bank. As is clear from the paragraph 8 of the
Resolution, that the erstwhile secretary, has recovered an amount
of Rs.6,77,804/- and has issued a duplicate receipt as well as no
objection certificate. The said amount instead of depositing it with
the bank, had been utilized for the personal use for which, First
Information Report has been registered with the concerned police
station. As per paragraph 10 of the Resolution, reference is made of
a letter by the Branch Manager dated 11.01.2023 requiring the
petitioner society to remain present on 19.01.2023 so as to verify
the accounts for the period from 30.09.2021, 31.03.2022 and
30.09.2022; however, the officers of the petitioner did not remain
present and therefore, the inspection, could not be carried out. In
absence of any inspection, the procedure could not be followed. It is
therefore submitted that there are other aspects also against the
petitioner society which, led to the filing of the proposal on
15.02.2023 which, came to be accepted by the District Registrar,
Co-operative Societies, Junagadh which, led to the passing of the
C/SCA/7236/2023 JUDGMENT DATED: 29/04/2023
order dated 21.02.2023.
7.1 It is further submitted that the issue of offering an opportunity
of hearing, is no longer res integra; however, the Division Bench, in
the said judgment, has carved out an exception that in exceptional
circumstances where compulsive necessity so demands on grounds
such as when public injury is likely to flow from the least delay of
dire social necessity that the hearing, can be waived. It is therefore
urged that in the present case, the petitioner, though was offered an
opportunity, did not avail of so also the conduct may not help the
petitioner society in raising the contention that the orders have
been passed without hearing the petitioner.
8. Heard the learned advocates appearing for the respective
parties and perused the documents available on record.
9. Pertinently, the District Registrar, Co-operative Societies has
passed an order dated 21.02.2023 on the proposal dated
15.02.2023 of the respondent no.4 bank. Being aggrieved, the
petitioner, filed an appeal before the Additional Registrar (Appeal)
Co-operative Societies who, initially, had granted stay on
14.03.2023 and after hearing the petitioner, dismissed the appeal
relegating the petitioner to approach District Registrar, Co-operative
Societies as liberty was provided to the petitioner to file objections /
suggestions within a period of one month. After passing of the order
dated 06.04.2023 and before the order reached to the petitioner, in
the interregnum, that the District Registrar, Co-operative Societies,
Junagadh passed an order dated 11.04.2023 appointing respondent
no.4 as liquidation officer of the petitioner society.
10. Being aggrieved, that the petitioner, has filed the captioned
writ petition. This Court, on 21.04.2023, issued the notice which,
C/SCA/7236/2023 JUDGMENT DATED: 29/04/2023
was made returnable on 28.04.2023. In the meantime,
learned Assistant Government Pleader was requested to take
instructions as to whether any hearing to the petitioner was
afforded or not. Today, Mr J. K. Shah, learned Assistant
Government Pleader, upon instructions, has stated before this
Court that opportunity of hearing to the petitioner was not
provided.
11. The said instruction is strengthened by the preamble of the
order as, the District Registrar, Co-operative Societies in the order
dated 21.02.2023 has read three things namely; (i) the provisions of
Sections 107 and 108 of the Act of 1961; (ii) the Resolution dated
21.07.2011 of the State Government and (iii) the proposal dated
15.02.2023 of the respondent no. 4 bank. Discernibly, no notice was
issued much less, any hearing was afforded to the petitioner. The
interim order, as can be discern out only provides a month's time to
the petitioner to lodge any objection. Therefore, it is clear that no
hearing much less, any notice was issued to the petitioner before
passing the interim order dated 21.02.2023.
12. As discussed hereinabove, on 11.04.2023, the District
Registrar, Co-operative Societies, has passed the final order which,
was after the order dated 06.04.2023 and before it reached to the
petitioner. In the said order also, there is no reference of hearing or
any notice to the petitioner. The District Registrar, Co-operative
Societies has straightaway passed an order under the provisions of
Section 107 of the Act of 1961 appointing the respondent no.4 bank
as a liquidation officer. Except direction appointing the respondent
no.4 bank, there is not a whisper or discussion of the aspects which
have been argued by the learned senior counsel appearing for the
C/SCA/7236/2023 JUDGMENT DATED: 29/04/2023
respondent no.4 bank and therefore, there does not arise any
question of going into those aspects of irregularities and illegalities
committed by the petitioner society, at this stage.
13. Hence, this Court, is of the opinion that both the orders
interim and the final, under Section 107 of the Act of 1961, have
been passed without offering any opportunity to the petitioner or
following the principle laid down by this Court in the case of Apexa
Co-operative Bank Limited v. District Registrar & Others (supra). Apt
would be reference of Section 107 of the Act of 1961. Section 107
under Chapter X titled 'Liquidation', provides that if the Registrar is
of the opinion that a society ought to be wound up, he may make an
interim order directing it to be wound up. Certain eventualities have
been provided by virtue of clauses (a), (b) and (c). Sub-section (2) of
Section 107 of the Act of 1961, provides that where an interim order
is made, on a ground specified in clause (a) or sub-clause (iv) of
clause (c) of sub-section (1) a copy thereof shall be communicated,
in the prescribed manner, to the society calling upon it to submit its
explanation to the Registrar within a month from the date of the
issue of such order. After the copy is provided of the interim order to
the society, that the Registrar after giving an opportunity to the
society shall make a final order vacating or confirming the interim
order. The scheme of Section 107 of the Act of 1961 provides for an
inbuilt mechanism and a procedure of passing the orders by the
District Registrar or by the authority competent, to wound up the
society in question. Clearly, sub-section (1) of Section 107 of the Act
of 1961 does not speak about the hearing or any notice to the
society; however, sub-section (3) of Section 107 of the Act of 1961
provides for giving an opportunity to the society of being heard and
passing of the final order by the Registrar.
C/SCA/7236/2023 JUDGMENT DATED: 29/04/2023
14. The said provision, had fallen for consideration before this
Court in the case of Apexa Co-operative Bank Limited v. District
Registrar & Others (supra). The Division Bench, has considered the
provisions of Section 107 of the Act of 1961 vis-a-vis Article 14 of
the Constitution of India. The issue, as discussed hereinabove, was
the scope of the power of the Registrar to pass an interim order
directing winding up of a society and section not providing for prior
notice and hearing before such interim order is made. The Division
Bench, considered whether the right to prior notice and hearing
before making interim order is to be read in the section, the Division
Bench, held and observed that extent of hearing to be provided may
vary depending on the situational requirements but such hearing
must satisfy the test of fair play in action. It has been held and
observed that what the competent authority does at the stage of
passing an interim order is not merely to ascertain whether a prima
facie case exists for the purpose of passing an ex parte ad-interim
order, subject to modification after notice to the affected party. It
has been held that as a result of the making of such an order
serious consequences follow especially when a liquidator is
appointed soon thereafter. The mechanism of winding up in Section
107 contemplates taking of two distinct essential steps in a proper
sequence. The right of hearing provided at the second stage of the
proceeding cannot be treated as having excluded, by necessary
implication, the right of hearing at the first stage. It has also been
pointed out that the Legislature could not possibly have left the
right of hearing to be implied at the second stage having regard to
the fact that it is the final step in the process of liquidation and such
a step cannot ordinarily be taken unless a reasonable opportunity of
hearing is afforded. It has been concluded that an express provision
in regard to a reasonable opportunity of hearing at the stage
C/SCA/7236/2023 JUDGMENT DATED: 29/04/2023
cannot, therefore, be pressed into service to exclude hearing at the
first stage by implication.
14.1 It has been held and observed that sub-section (1) of Section
107 of the Act of 1961, contemplates of making an interim order
liable to be vacated or confirmed by a final order which would be
made after giving an opportunity to the society of being heard it has
been held what the competent authority does while exercising the
power thereunder is not merely to ascertain whether a prima facie
case exists for the purpose of passing an ex parte ad-interim order,
subject to modification after notice to the affected party. In
substance and effect, the competent authority makes an interim
order after forming a considered opinion that the society ought to
be wound up and such interim order remains in force till he makes
the final order vacating or confirming the interim order at the
termination of the proceeding. It has been held and observed that In
other words, an order under sub-section (1) of Section 107 is not
comparable to an exparte ad-interim order which a Court or Tribunal
makes in urgent situation on its being satisfied about the existence
of a prima facie case before hearing the other side and which, if
confirmed, remains operative as interim order till the proceeding
before such Court or Tribunal ends. The Division Bench, noted that
the interim order contemplated by the statute is, in substance and
reality, the first and inevitable step in the process of winding up and
once such an order is made, the process of winding up commences
with all its consequences, except the realization of the assets of the
society by sale or otherwise, in cases where a liquidator is appointed
under sub-section (1) of Section 108. Relevant paragraphs 41 to 48,
read thus:
"41. Taking up first sub-section (1), as the express words of
C/SCA/7236/2023 JUDGMENT DATED: 29/04/2023
the sub-sec. indicate, the power to make an interim and final
order is conferred on the Registrar....
41 A . The State Government has, in exercise of the powers
conferred by sub-section (3) of Section 3, conferred upon all
District Registrars and Assistant District Registrars the
powers of the Registrar under Section 107, except in cases of
22 apex co-operative societies and 15 sugar manufacturing
co-operative societies. We are told that there are in all 26590
registered co-operative societies in the State and the
statement accordingly made is supported by the particulars
furnished in writing, which are taken on record with the
consent of parties, by the authorities. It would thus appear
that except in case of a minimal few, the powers under
Section 107 are capable of being exercised by an officer at
the lower rung of the hierarchy, namely, Assistant District
Registrar. This is one aspect of the matter which is required
to be borne in mind while construing the relevant provision.
42. The conditions for winding up are incorporated in clauses
(a), (b) and (c) of sub-section (1) of Section 107. Clause (a)
enumerates three circumstances for the exercise of such
power and they are: (1) after an inquiry has been held under
Section 86, (2) after an inspection has been made under
Section 87, and (3) on the report of the auditor auditing the
accounts of the society. On a plain reading of this clause, it is
apparent that upon any of the three eventualities occurring,
it would be competent to the competent authority to make, in
a given case, an interim order directing a society to be wound
up, if he is of the opinion that the society ought to be wound
up. In other words, an interim order winding up a society
could be conceivably made in a given case upon the report of
the auditor even without giving to the society an opportunity
to explain the defects or irregularities pointed out by the
auditor or to take steps to rectify such defects and
irregularities either suo motu or under the direction of the
Registrar. Similarly, an interim order could conceivably be
made soon after an inquiry has been held or an inspection
has been made even without bringing the defects disclosed in
the course of the inquiry on inspection to the notice of the
society and without directing the society or its officers to
remedy the defects....
43. Under clause (b), an interim order of winding up could be
made on receipt of an application made upon a resolution
carried by three-fourths of the members of a society present
at a special general meeting called for the purpose. This is, in
substance and reality, winding up of the society at the behest
of substantially large number of its members present at the
special general meeting called for the purpose.
C/SCA/7236/2023 JUDGMENT DATED: 29/04/2023
44. Clause (c) confers suo motu powers on the competent
authority to make an interim order winding up a society in
four cases and they are: (1) When a society has not
commenced working, (2) when a society has ceased working,
(3) when a society possesses shares of members' deposits
not exceeding five hundred rupees, and (4) when a society
has ceased to comply with any directions as to registration
and management prescribed in the Act, rules or by-laws. The
first two conditions would be attracted where a society is
defunct, in the sense that it is not working and its continued
existence does not any longer appear to be necessary. So far
as the third condition is concerned, it would appear that it
covers a society whose funds are so inadequate that it would
not be really able to function effectively to carry out its
objects. The fourth condition takes in the case of a society
which ceases to comply with any conditions as to registration
and management laid down in the statute, rules or by-laws
and the power to wind up such societies has obviously been
conferred with a view terminating the existence of societies
which fail to comply with such basic requirements.
45. It is significant to bear in mind that mere existence of any
one or more of the conditions laid down in clauses (a), (b)
and (c) is not by itself sufficient to warrant the making of an
interim order of winding up, for, the law requires the
competent authority to form an opinion that the society
ought to be wound up, having regard to the facts and
circumstances of the case. The opinion must be formed
reasonably and bona fide, on the proof of the existence of the
objective circumstances, one or more, set out in the three
clauses which are conditions precedent for the formation of
the opinion. If the opinion is formed without application of
mind, or on the existence of circumstances on the basis of
which no rational human being could have formed the
opinion, or it rests on grounds which are extraneous and not
germane, or is arrived at mala fide, the opinion could not be
said to have been formed as required by the statute and it
would be open to judicial scrutiny even in a collateral
proceeding such as a writ petition, apart from the
departmental hierarchical forum. (See Barium Chemicals Ltd.
v. Company Law Board, A. I. R. 1967 S. C. 295 and Rohtas
Industries Ltd. v. S. D. Agarwal, A. I. R. 1959 S.C. 707.) But
these are not the only cases in which the opinion becomes
vulnerable. If, in the formation of the opinion in perfect good
faith, the competent authority has misconstrued the
provisions giving it power to act or refused to take into
account something which it was required to take into
consideration, then also the opinion would be vitiated and the
consequential order would be ultra vires. (See Anisminic Ltd.
v. Foreign Compensation Commission, (1969) 1 All. E. R. 208
and Union of India v. Tarachand Gupta & Brothers, A. I. R.
C/SCA/7236/2023 JUDGMENT DATED: 29/04/2023
1971 S. C. 1558.) It would thus appear that the competent
authority would have to form the requisite opinion without
committing any of these errors and that an order, which is
based upon an opinion which is vitiated by any of such errors,
would be clearly in excess of jurisdiction.
46. The necessary implication of the aforesaid limitation is
that the competent authority will have to make a speaking
order setting out the ground for the exercise of power and
the reasons which has led him to form the requisite opinion.
It is only when an order is accordingly made that it would be
possible to ascertain whether the power has been exercised
within the terms of the statute or whether it is ultra vires as
being vitiated by any of the errors indicated above. Whether
the authority, which has to ascertain this fact, when the order
is challenged is the departmental authority or an outside
authority such as this Court exercising the writ jurisdiction, it
would not be possible for such authority to arrive at a just
conclusion in the absence of a Reasoned order, nor would it
be possible for the aggrieved society to challenge such order
in the appropriate forum on the ground of it having been
vitiated by any of the afore-mentioned errors, unless the
material grounds which went into the formation of the
opinion are disclosed by a reasoned order. Besides,
insistence upon reasoned order Itself would be an effective
safeguard against arbitrary exercise of powers and even from
that point of view, the requirement of making a reasoned
order must necessarily be applied. It is also relevant to bear
in mind that the competent authority has to form the
requisite opinion and make an interim order provided the
prescribed conditions exist and that the action of the
competent authority is bound to prejudicially affect the
society and is likely to entail serious consequences for the
society and its office-bearers. It cannot possibly be disputed,
therefore, that the function of the competent authority in
making an interim order is a quasi-judicial act. Law is now
well-settled that when an authority makes an order in
exercise of quasi-judicial function, it must record its reasons
in support of the order it makes. Every quasi-judicial order
must be supported by reasons. This is the minimal
requirement of the law. (See Mahindra and Mahindra v. Union
of India, A. I. R. 1979 S. C. 798.) Having regard to all these
considerations, it is apparent that an interim order made by
the competent authority must contain reasons in support of
such order.
47. As indicated above, in cases covered by clause (a) the
competent authority will have to take into account the
existence of various statutory alternatives before he forms an
opinion that the society ought to be wound up. For example,
in cases where defects or irregularities are disclosed in the
C/SCA/7236/2023 JUDGMENT DATED: 29/04/2023
working of a society in the report of an auditor appointed
under Section 84, he will have to consider whether the
circumstances demand and the occasion requires to wind up
a society even without giving to such society an opportunity
to rectify the defects and remedy the irregularities under
Section 85. Similarly, if any defect is disclosed in the
construction, working or financial conditions or the books of a
society pursuant to an inquiry held under Section 86 or an
inspection made under Section 87, before forming the
requisite opinion under Section 107(1), the competent
authority will have to take into account the alternative course
provided by Section 92 and to consider whether winding up
must be ordered by an interim order, having regard to the
special facts and circumstances of the case, without recourse
to such course. As earlier pointed out, winding up is the
process whereby the life of the society is ended and such a
step would ordinarily be taken only if the alternatives
provided by the various other provisions of the statute are
found to be inadequate to infuse healthy life in an erring or
defaulting society.
48. It is necessary to emphasize before we leave sub-section
(1) that what it contemplates is the making of an interim
order liable to be vacated or confirmed by a final order which
would be made after giving an opportunity to the society of
being heard. What the competent authority does while
exercising power thereunder is not merely to ascertain
whether a prima facie case exists for the purpose of passing
an ex parte ad interim order subject to modification after
notice to the affected party. In substance and effect, the
competent authority makes an interim order after forming a
considered opinion that a society ought to be wound up and
such interim order remains in force till he makes the final
order vacating or confirming the interim order at the
termination of the proceeding. In other words, an order under
Section 107(1) is not comparable to an ex parte ad interim
order which a Court or Tribunal makes in urgent situation on
its being satisfied about the existence of a prima facie case
before hearing the other side and which, if confirmed,
remains operative as interim order till the proceeding before
such Court or Tribunal ends. The interim order contemplated
by the statute is, in substance and reality, the first and
inevitable step in the process of winding up and, as we shall
presently show, once such an order is made, the process of
winding up commences with all its consequences, except the
realization of the assets of the society by sale or otherwise, in
cases where a liquidator is appointed under Section 108(1)."
14.2 The Division Bench, confined the issue to the prior notice and
C/SCA/7236/2023 JUDGMENT DATED: 29/04/2023
hearing at the stage of making of an interim order and the aspect
about the statute being silent regarding the opportunity of hearing
at that stage. The Division Bench, in paragraph 75, did not accept
the arguments made on behalf of the respondent that the hearing,
since is provided at the stage of making of a final order the right to
prior notice and hearing is deemed to have been excluded at the
state of making of an interim order. The Division Bench, while not
accepting such contention, held and observed that mechanism of
winding up in Section 107 of the Act of 1961 contemplates taking up
two distinct essential steps in proper sequence and therefore, right
of hearing provided at the second stage of the proceedings, cannot
be treated as having excluded, by necessary implication, the right of
hearing at the first stage. Relevant paragraphs 74 to 83, read thus:
"74. On behalf of the petitioner, quite the contrary line of
reasoning was adopted and it was strenuously contended
that having regard to the nature of the power, the person
upon whom it is conferred, the dire consequences which
follow upon the making of an interim order, which, indeed, is
an effective step in the process of liquidation, and the
scheme of the relevant provision, audi alteram partem rule
must necessarily be implied at the stage of the making of an
interim order and, if not implied, the provision would itself
be violative of Art. 14.
75. The contour of the controversy having been thus
defined, we must proceed to-resolve the problem in the light
of the guidelines referred to earlier. We are not impressed
by the argument that merely because a hearing is provided
at the stage of making of a final order, the right to prior
notice and hearing must be deemed to have been excluded
at the stage of making of an interim order. In the first pace,
as earlier pointed out, the mechanism of winding up in
Section 107 contemplates taking of two distinct essential
steps in a proper sequence. Therefore, the right of hearing
provided at the second stage of the proceeding cannot be
treated as having excluded, by necessary implication, the
right of hearing at the first stage. In the next place, the
Legislature could not possibly have left the right of hearing
to be implied at the second stage, having regard to the fact
C/SCA/7236/2023 JUDGMENT DATED: 29/04/2023
that it is the final step in the process of liquidation and such
a step cannot ordinarily be taken unless a reasonable
opportunity of hearing is afforded. An express provision in
regard to a reasonable opportunity of hearing at that stage
cannot, therefore, be pressed into service to exclude hearing
at the first stage by implication. In the last place, as earlier
pointed out, an interim order is made by the competent
authority after forming a considered opinion and it remains
in force till the final order vacating or confirming the interim
order is made at the termination of the proceeding. What the
competent authority does at the stage of passing an interim
order is not merely to ascertain whether a prima facie case
exists for the purpose of passing an ex parte ad interim
order, subject to modification after notice to the affected
party. As a result of the making of such an order, serious
consequences follow, especially when a liquidator is
appointed soon thereafter. The office-bearers of the society
are excluded from the management, the assets of the
society vest in the liquidator and its business would
automatically come to a standstill, since its image would be
tarnished, having regard to the fact that the process of
winding up has commenced. Under such circumstances, the
right or prior notice and hearing cannot be jettisoned by
implication, save in very exceptional circumstances where
compulsive necessity so demands on grounds such as when
public injury is likely to flow from the least delay or dire
social necessity. The onus on those who urge limited
exclusion of hearing at the stage of making of an interim
order cannot be discharged by merely pointing out the
provision with regard to a full-fledged hearing at a totally
different stage of the proceeding.
76. We are also not impressed by the argument founded on
the alleged administrative immediacy or urgency. Even
assuming that the intention of the framers of the law in
enacting the provision for the making of an interim order
was to implement the relevant recommendation of the Laud
Committee, we are not satisfied that it is necessary to
jettison audi alteram partem on the ground of alleged
immediacy or urgency arising out of possible destruction of
records and evidence by the office-bearers. This aspect,
which has been pressed into service to warrant expediency,
overlooks the provision of Section 83 which confers upon the
Registrar the power to seize and take possession of books
and records of a society, in case he is satisfied that they are
"likely to be tampered with or destroyed" or the funds and
property of a society, in case he is satisfied that they are
"likely to be misappropriated or misapplied". What could be
achieved by a mere exercise of power of seizure cannot be
allowed to be achieved by making an interim order of
winding up without affording an opportunity of being heard.
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The ground of immediacy or urgency is also difficult to be
appreciated because the interim order is subject to an
appeal in certain cases. The very provision for appeal with
all the possible reliefs that could be granted, including
interim relief, destroys the basis of this argument. That
apart, in our opinion, the taking of an action behind the back
of the society cannot be justified on this ground because it
does not appear to us that such situation exists in every
case. A clearest case of public injury or dire necessity is,
therefore, not made out which would justify the casualty of
audi alteram partem.
77. There is no substance in the argument that the society
must be assumed to know or, in fact, knows what is alleged
against it and what is likely to happen to it when an interim
order is made and that, therefore, compliance with audi
alteram partem would be an empty formality. This argument
neglects the various conditions for the exercise of power and
the alternative courses open to the competent authority to
deal with an erring society. Take, for example, the grounds
stated in clause (a) of sub-section (1) of Section 107. A
society against which an auditor has made a report under
Section 84, or against which an inquiry has been held under
Section 86, or in respect of the books of which an inspection
is held under Section 87, even if it is aware of defects or
irregularities in its constitution, working or financial
condition, or in its books, as the case may be, would hardly
be able to apprehend the course of action which the
competent authority might take. The society might well
expect, on its own appreciation of the situation, that a
remedial action under Section 85 or Section 92 might be
taken against it. The competent authority, on the other
hand, on its own assessment of the situation, might consider
it desirable to take the extreme action of winding up the
society. Even assuming, however, that such extreme action
is apparently warranted on the facts and in the
circumstances of the case, it would not justify the contention
that no prior notice and hearing is necessary, as it would be
an empty formality, because the society must be deemed to
know the inevitability of such course of action. The
argument, in substance, is that fair play in action does not
demand a prior notice and hearing because adverse result is
a foregone conclusion. The submission, in our opinion,
demonstrates unfairness because it rests on a pre-judgment
of the case even before the whole of the case is disclosed
and a chance of meeting the same is afforded. One cannot
overlook that even there are manifest grounds for action, for
a proper assessment of the situation and for forming an
objective opinion in a just and fair manner, a prior hearing
even after the defects and irregularities are brought to the
surface would be necessary.
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78. The last ground urged in support of the exclusion theory
is equally baseless. In the first place, there is no difference in
principle, so far as observance of rules of natural justice is
concerned, between decisions which are final and those
which are not. Natural justice is attracted even where a
preliminary point which affects the parties' rights is to be
decided or where the limited scope of the decision is
whether there is a prima facie case for taking action. [(See
Wiseman v. Borneman, (1969) 3 All E. R. 275 (H. L.)] In the
next place, an interim order under Section 107 is not a
temporary order, in the sense of an ex parte ad interim
order made to meet an urgent situation and liable to be
varied at short notice upon the motion of the affected party.
We have earlier explained the true legal effects and
consequences of an interim order. Merely because it is liable
to be vacated or confirmed by a final order that may be
passed at the termination of proceeding after full-fledged
hearing, it cannot be regarded as a temporary or provisional
order having a limited play. Besides, the right of hearing
provided at the stage of the making of a final order cannot,
strictly speaking, be regarded as a post decisional remedial
hearing. The right of hearing provided at that stage is
intended to give an opportunity to the affected party to
show cause against the final step in the process of
liquidation being taken. Such a right cannot be equated with
a post decisional remedial hearing being afforded to the
affected party soon after an interim order is made with a
view to seeking its review.
79. The alternative argument, namely, that there is a
provision for appeal and that the power is vested in a high
authority who has to form an objective opinion subject to
judicial review is equally ill-founded.
80. A limited right of appeal under Section 109 against an
interim order is no substitute for hearing before the order is
made. In Malloch v. Aberdeen Corporation, (1971) 1 Weekly
Law Reports, 1578 at 1598, Lord Wilberforce observed as
follows :-
"A limited right of appeal on the merits affords no argument
against the existence of a right to a precedent hearing, and,
if that is denied, to have the decision declared void."
These observations have been approvingly cited in Mohinder
Singh's case and they completely answer the first ground
urged on behalf of the respondents.
81. The submission that the power of winding up is vested in
high authority is not only statutorily but factually unsound.
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We have dealt with that aspect of the matter earlier. The
power can and has, in fact, trickled down to an Assistant
District Registrar who, by no stretch of imagination, can be
said to be a high authority or highly placed officer. Once the
power is shown to have been invested not in a high authority
but in lower rungs of administration, the immunity which is
ordinarily afforded to discretionary orders made by highly
placed officials cannot be invoked. There may not be
personal mala fides in every case. Legal mala fides,
however, cannot be straightway ruled out. For want of
expertise, experience or adequate comprehension of the
nature of power and its dire consequences, the possibility
that the power might be exercised in situations which do not
justify the exercise of such power cannot altogether be ruled
out. The remedy by way of a writ petition against such ultra
vires orders besides being expensive, is of a restricted
nature. It cannot always be invoked in all situations and, if
invoked, would not necessarily give an expeditious relief.
82. It would thus appear that the various grounds urged for
our consideration for holding that audi alteram partem is
impliedly excluded at the stage of making of an interim
order do not impress us. We are unable to hold on those
grounds that the applicability of the rule is ruled out by
necessary implication at that stage.
83. We find much merit, on the other hand, in the
submission made on behalf of the petitioner that having
regard to the various considerations, the Court must readily
infer, by necessary implication, the right to prior notice and
hearing before a interim order is made. And what are those
considerations - First, the constitutional mandate contained
in Article 14, which sanctifies natural justice and makes it a
pervasive principle applicable to all State actions. Second,
the nature of the action, namely, the first step in the process
of winding up which is the beginning of the process of
imposition of a death sentence on a live society, even
assuming that it is leading a wasted life. It is inconceivable
that such an extreme measure could be allowed to be taken
without affording even a minimal hearing especially when
quasi-judicial power is exercised while making an interim
order. Third, the framework of the law, namely, the very
conditions prescribed for the exercise of power, the choice of
available alternatives, the exercise of discretionary power on
the objective set of facts present in each case, the
consequential step of the appointment of a liquidator with all
the attendant circumstances and so on and so forth would
make it extremely difficult, if not impossible for the
competent authority to act fairly and justly without affording
to the concerned society a prior opportunity of being heard.
An opinion that the society ought to be wound up cannot
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possibly be rationally and honestly formed unless the
viewpoint of the society is before him. Fourth, as earlier
pointed out, the power has trickled down to the lower
hierarchical level and the constitution of the tribunal
exercising the power does not afford guarantee or immunity
against the abuse of power. Last, and above all, the
implication of audi alteram partem is not ruled out either on
the ground of overriding public interest or dire social
necessity, nor on the ground that importing the right to be
heard will have the effect of paralysing the administrative
process. Quite the contrary conclusion can easily be
reached. We are of the view, therefore, that this is a fit and
proper case in which the Court would read in sub-section (1)
of Section 107 the right to a prior notice and hearing before
an interim order is made."
15. Therefore, the said judgment of the Hon'ble Division Bench,
applies on all fours to the facts of the present case.
16. In the present case, it is not in dispute rather admitted by the
learned advocates appearing for the respondents that before
passing the order dated 21.02.2023 so also order dated 11.04.2023
by the District Registrar, Co-operative Societies, Junagadh, no notice
much less, any hearing was given to the petitioner society and
therefore, only on this limited ground the orders deserves to be
quashed and set aside and, are hereby quashed and set aside.
17. The petition, therefore, succeeds and is accordingly allowed. It
is clarified that the orders dated 21.02.2023 so also 11.04.2023
passed by the District Registrar, Co-operative Societies, Junagadh,
have been quashed and set aside, only on the ground of they having
been passed in violation of principles of natural justice and it will be
open to the respondent authorities to proceed in accordance with
law. Since the petition stands allowed only on this limited ground of
violation of principles of natural justice, other contentions raised by
the learned senior counsel appearing for the respondent no.4, on
merits, are not gone into and are kept open.
C/SCA/7236/2023 JUDGMENT DATED: 29/04/2023
18. Needless to say that the petitioner, shall co-operate with the
proceedings, if any, that may be initiated by the respondent
authorities. Rule is made absolute. No order as to costs.
Sd/-
(SANGEETA K. VISHEN,J)
RAVI P. PATEL
