TMI Blog2021 (3) TMI 908X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Cooperative Bank and to appoint Board of Administrators under the provisions of the Banking Regulation Act, 1949 read with Section 110A of the MCS Act. Whether the Registrar, Cooperative Societies was required to issue any show cause notice and grant any personal hearing to the petitioners before passing an order of superseding the Board of Directors of the respondent no.4 bank and appointing an administrator? - HELD THAT:- A conjoint reading of the unamended Section 110A(1)(iii) with the amended Section 110A(1)(iii) referred to aforesaid would clearly indicate that the period of five years originally prescribed under the said provision was substituted by a period of not exceeding one year in conformity with the period of one year period under Article 243 ZL of the Constitution of India. The constitutional validity of the said amendment carried out in the year 2013 in Section 110A(1)(iii) of the MCS Act has been admittedly not challenged by the petitioners on any ground in this petition. There is no substance in the submission of the learned senior counsel for the petitioners that in view of the amendment to Section 110A(1)(iii) of the MCS Act brought into the effe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Be that as it may, the petitioners have not made out any case for warranting interference with the order passed by the Registrar, Cooperative Societies. Petition dismissed. - WRIT PETITION NO. 2301 OF 2018 ALONG WITH CIVIL APPLICATION NO. 271 OF 2019 IN WRIT PETITION NO. 2301 OF 2018 ALONG WITH CIVIL APPLICATION NO. 1275 OF 2018 IN WRIT PETITION NO. 2301 OF 2018 - - - Dated:- 19-3-2021 - R.D. DHANUKA V. G. BISHT, JJ. Mr. Ashutosh A. Kumbhakoni, Advocate General a/w Mr. Akshay Shinde, A Panel a/w Mr. Yuvraj D. Patil, AGP for the Applicants-State in CAW/271/2019 and for Respondent Nos.1 to 3 in WP/2301/2018. Mr. Anil V. Anturkar, Senior Advocate a/w Mr. Yatin Malvankar i/by Mr.I. M. Khairdi for the Petitioners in WP/2301/2018. Mr. Ritesh Wagh h/for Mr. Tejpal S. Ingale for the Applicants in CAW/ 1275/2018. Mr. Shrinivas S. Patwardhan a/w Mr. Bhooshan R. Mandlik for the Respondent No.4. Mr. Venkatesh Dhond, Senior Advocate a/w Mr. Prasad Shenoy, Ms.Aditi Phatak and Ms. Kirti Ojha i/by Udwadia and Co. for the Respondent No.5-Reserve Bank of India. Mr. Girish S. Godbole i/by Mr. Vishwajeet Mohite and Ms. Pooja Mankoji for the Respondent Nos. 6 and 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cooperation and Registrar of Co-operative Societies pointing out the financial irregularities and the loss suffered by the respondent no.4 bank and that the respondent no.4 bank was left with no liquidity and was also not in a position to clear the daily transaction. It was stated that in the larger interest of the members of bank particularly farmers, it was necessary to remove the existing inefficient Board of Directors under Section 110A of the MCS Act and to appoint an Administrator immediately. The Divisional Joint Registrar, Co-operative Societies requested to submit proposal to the Reserve Bank of India (hereinafter referred as RBI ) under Section 110A of the MCS Act for removal of the present Board of Directors and appoint an administrator/ administrative board to look after the day-to-day affairs of the respondent no.4. 6. On 6th July, 2017, the said NABARD prepared a report and sought opinion of the General Manager of the Additional Chief Secretary, Corporation, Government of Maharashtra requesting the Government to advice the respondent no.4-bank to augment capital funds to achieve 9% CRAR, reduce NPAs, ensure KYC/AML compliance etc to improve the financial position ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors as pointed out by NABARD in its inspection report pursuant to the financial position as on 31st March, 2016 and unaudited financial position as on 31st March, 2017. The RBI enclosed a requisition dated 19th December, 2017 from its Director for supersession of the Board of Directors of respondent no.4 and for appointment of Board of Administrators and directed the Registrar, Co-operative Societies for necessary action under Section 110A(1)(iii) of the MCS Act. 11. On 29th December, 2017, the Commissioner for Co-operation and Registrar, Co-operative Societies, Maharashtra State, Pune passed an order as per the directives issued by RBI under Section 110A(1)(iii) of the MCS Act thereby superseding the then Board of Directors of the respondent no.4 and appointing Shri Milind Bhalerao, Divisional Joint Registrar, Co-operative Societies, Nashik as Administrator in place of the Board of Directors to manage the affairs of the bank. By the said order, the Administrator was directed to take the charge immediately till further order. It was made it clear that during the said period, Administrator shall take corrective measures in the working of the said bank. The said order dated 29th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prescribed therein and not beyond those grounds. None of those grounds were satisfied in this case. He submits that even otherwise directives issued by the RBI would not fall under any of those grounds. He invited our attention to the four provisos to Article 243 ZL of the Constitution of India. He submits that since the respondent no.4 is a co-operative society being formed under the provisions of MCS Act, the provisions of Article 243 ZL would apply with full force. 15. It is submitted that the first proviso to Article 243 ZL mandates that the board of any co-operative society shall not be superseded or kept under suspension, where there is no government share holding or loan or financial assistance or any guarantee by the Government in favour of the respondent no.4 has not availed any financial assistance from the Government. There is an express prohibition by a constitutional provision under Article 243 ZL. In spite of such prohibition, the RBI issued directives to the said Registrar, Cooperative Societies to supersede the Board of Directors of the respondent no.4 and appoint a Board of Administrators. 16. It is submitted by the learned senior counsel that Chapter XA of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ragraphs 2, 24, 26, 42, 46, 47, 48 and 53 in support of the submission that in view of the inconsistency between Article 243ZL and other articles in that Chapter and Section 110A of the MCS Act, no reliance could be placed on Section 110A of the MCS Act by the Registrar, Co-operative Societies in the impugned orders. 22. The State Government did not carry out any corresponding amendment in line with the said Article 243ZL in Section 110A or in any other provision of MCS Act which ought to have been carried out within a period of one year from the date the said Article 243 ZL having brought into effect in the Constitution of India. The limited amendment though carried out in the year 2013 to Section 110A of the MCS Act is not in conformity with the said Article 243 ZL. 23. The next submission of the learned senior counsel for the petitioner is that under Section 110A(1)(iii) of the MCS Act, the Registrar, Co-operative Societies has discretion either to order for suspension or for supersession of the Board of Directors, as the case may be, and to order the appointment of the administrator in its place for the period not exceeding one year. He submits that the words as the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of Directors of the respondent no.4 bank under Section 110A of the MCS Act. Learned senior counsel however later urged that since the RBI has power to issue directives to suspend or remove the director of a co-operative bank under the provisions of the Banking Regulation Act, the RBI could not have exercised power under the provisions of State Act, i.e. Section 110A(1)(iii) of the MCS Act. 26. Mr.Dhond, learned senior counsel for the RBI, on the other hand, invited our attention to the prayer clause (a) of the writ petition filed by the petitioners and would submit that the petitioners have only impugned the order dated 29th December, 2017 passed by the Commissioner for Co-operation and Registrar of Co-operative Societies in the writ petition and has not challenged the directives issued by the RBI to the Registrar, Co-operative Societies to supersede the Board of Directors of the respondent no.4 bank. He submits that the petitioners thus cannot be allowed to challenge the powers of the RBI under the provisions of the MCS Act thereby issuing directives to the Registrar, Co-operative Societies to supersede the Board of Directors of the respondent no.4 bank. 27. It is submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... session of the Board of Directors as the case may be is the discretion given to the RBI while issuing such directives and not to the Registrar, Co-operative Society as sought to be canvassed by the learned senior counsel for the petitioners. The Registrar, Co-operative Societies has no discretion to select either the suspension or supersession. If the RBI directs the Registrar, Co-operative Society either to suspend or supersede the Board of Directors, the directions as issued by the RBI have to be abided by the Registrar, Co-operative Society. 31. Learned senior counsel invited our attention to Section 102 of the MCS Act and would submit that under the said provision the Registrar, Co-operative Societies is empowered to pass an order of winding up of a co-operative bank in the circumstances setout therein. The Registrar, Co-operative Societies while exercise such powers for winding up of the Co-operative bank, has to give an opportunity to the society and to the creditors of the society if any of being heard before passing the final order of winding up or confirming the interim order. The said provision is an independent provision and not in any manner connected with the bindi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id period of six months would not apply if any of the grounds under the first proviso was satisfied. 35. It is submitted that the second proviso in this case would not apply in view of the fact that in this case there was no Government shareholding or loans or financial assistance or any guarantee issued by the Government insofar as the respondent no.4 is concerned. He submits that under third proviso, in case of the co-operative society carrying on the business of the banking, the provisions of the Banking Regulation Act, 1949 shall apply in addition to the provision of the said Article 243 ZL. The provisions of the Banking Regulation Act are preserved by virtue of the said third proviso to Article 243 ZL of the Constitution of India. The said Article 243 ZL does not affect the power of the RBI to take any action under the provisions of the Banking Regulation Act or under Section 110A(1)(iii) of the MCS Act. 36. Learned senior counsel placed reliance on the judgment delivered by the Andhra Pradesh High Court in case of Reserve Bank of India, Central Office, Urban Banks Department, Mumbai vs. Pattem Surya Prakash Rao Others, 2007 SCC OnLine AP 736. He submits that the F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to supersede the Board of Directors of the respondent no.4 bank and to appoint a Board of Administrators. 39. It is submitted that merely because the Registrar, Co-operative Societies appointed only a sole administrator and not the Board of Administrators cannot be a ground for setting aside the order passed by the Registrar, Co-operative Societies. He submits that the Registrar, Co-operative Societies was right in complying with the mandatory directives issued by the RBI by superseding the Board of Directors of respondent no.4 bank and by appointing an administrator. 40. Mr. Godbole, learned counsel for the respondent no.6 to 9 also opposed the submissions made by the learned senior counsel for the petitioners. Learned counsel placed reliance on the judgment delivered by a Division Bench of this Court on 31st January, 2019 in case of Shri Bharat Sudam Sutkar and Anr. v/s. The State of Maharashtra, through Department of Cooperation and Ors. in Writ Petition No. 7131 of 2018 and other companion matters and in particular paragraphs 2 and 5 to 8 in support of the submission that the directions issued by the RBI under Section 110A(1)(iii) of the MCS Act are binding on the R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led by the RBI. The RBI in this case had issued such directives to the Registrar, Co-operative Societies to suspend the Board of Directors of the said bank in consultation with the NABARD. He also placed reliance on definition of Director under Section 56(cciii) which states that director in relation to a co-operative societies includes a member of any committee or body for time being vested with the management of the affairs of that society. 45. Learned counsel placed reliance on the judgment of Supreme Court in case of Joseph Kuruvilla Vellukunnel v/s. Reserve Bank of India and Ors., AIR 1962 SC 1371 and in particular paragraphs 12, 18, 20 and 45 and would submit that the principles laid down by the Hon ble Supreme Court in the said judgment squarely applies to the facts of this case. The word shall denotes that powers of RBI, directives issued by the RBI to the Registrar, Co-operative Societies are mandatory and not directory. He submits that in the said judgment the Hon ble Supreme Court has held that under Section 38(1)(c) of the Banking Regulation Act, if the RBI recommends on an application made by the RBI on satisfaction of the ground mentioned therein for windin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o hearing was contemplated under the said provisions of Section 110(1)(iii) of the MCS Act being an administrator order. 49. Mr. Anturkar, learned senior counsel for the petitioners in his rejoinder arguments submits that it is not the case of the petitioners that the RBI has no power to direct the Registrar, Co-operative Societies to supersede or suspend the committee of Board of Directors and to appoint an administrator on the board of the said respondent no.4 bank. Learned senior counsel made an attempt to distinguish the judgment of Supreme Court in case of Reserve Bank of India v/s. M. Hanumaiah and Ors., (2008) 1 SCC 770 on the ground that in the said judgment the Hon ble Supreme Court has not held that the High Court cannot refuse to windup a banking company if application for winding up is filed by the RBI. He relied upon paragraph 17 of the said judgment in support of this submission. 50. Learned senior counsel for the petitioners submits that the petitioners have not challenged the directions issued by the RBI to the Registrar, Co-operative Societies to supersede or suspend the committee of Board of Directors or to appoint the Board of Administrators of the resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and would submit that those provisions specifically empowered the RBI to remove managerial and other persons from the management of the banking company in the public interest or in various situations set out in those provisions. He relied upon Section 56(zb) and 56(za) and would submit that in case of Multi State Co-operative Bank, the RBI is empowered to exercise the powers under Section 110A(1)(iii) of the MCS Act. He submits that in case of a Single State Co-operative Society, RBI has no power under the provisions of the MCS Act to supersede the Board of Directors of such a co-operative bank. The RBI has to call upon the Registrar, Cooperative Societies to supersede the Board of Directors of such bank in case of public interest or various other circumstances set out under Section 56 of the Banking Regulation Act having occurred. 54. Learned senior counsel for the RBI submits that the said Section 36ACA of the MCS Act is already omitted as the RBI will have power to direct the Register, Co-operative Societies to supersede or to suspend the committee of Board of Directors only in case of Multi State Cooperative Society Limited. 55. It is submitted by the learned senior coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of Article 243ZL and Section 110(1)(iii) of the MCS Act and if so, whether Article 243ZL of the Constitution of India would prevail ? (f) Whether order passed by the Commissioner for Cooperation Registrar of Cooperative Societies appointing the sole administrator of the respondent no.4 bank is quasi judicial order or the executive/administrative order and thus does not contemplate any show cause notice or personal hearing before passing the order of supersession of Board of Directors and appointment of an administrator? (g) Whether RBI is empowered to issue directives to the Registrar of Cooperative Societies to superseded the Board of Directors of the Cooperative Bank and to appoint Board of Administrators under the provisions of the Banking Regulation Act, 1949 read with Section 110A of the MCS Act or not? (h) Whether the Registrar, Co-operative Societies is required to follow the procedure prescribed under Section 102 of the MCS Act while complying with the directives issued by the RBI Section 110A(1) (iii) of the MCS Act and superseding the Board of Directors of the Cooperative Bank or while appointing board of administrators/sole administrator ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g judgments :- (a) Judgment of this Court in case of Ishwardas Premkumar Choradiya v/s. State of Maharashtra, 2002 (4) BCR 1 (b) Judgment of Andhra Pradesh High Court in case of Reserve Bank of India v/s. Pattern Surya Prakash Rao and Ors., 2007 SCC OnLine AP 736 (c) Judgment delivered by a Division Bench of this Court in case of Mahendra Husanji Gadkari v/s. State of Maharashtra and Ors., 1992(2) Mh.L.J. 1442 (d) Judgment delivered by a Division Bench of this Court in case of Shri Bhagwat Munjabhau Shelke v/s. State of Maharashtra in Writ Petition No. 7131 of 2018 and other connected mattes delivered on 31st January, 2019 (e) Judgment of Supreme Court in case of Reserve Bank of India vs. M. Hanumaiah and Ors., (2008) 1 SCC 770 (f) Judgment delivered by a Division Bench of this Court in case of L.V. Sasmile v/s. State of Maharashtra, 1992 CTJ 729 (g) Judgment delivered by a learned Single Judge of this Court in case of Namdeo s/o Natha Sanap and Anr. v/s. The State of Maharashtra and Ors., 2015(1) Mh.L.J. 838 (h) Judgment delivered by a Division Bench of this Court on 31st January, 2019 in case of Shri Bharat Sudam Sutkar and An ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egate, as may from time to time be specified by the Reserve Bank of India, and the Administrator so appointed shall, after the expiry of his term of office, continue in office until the day immediately preceding the date of the first meeting of the new Board of Directors are substituted by the words For suspension or supersession of the Board of Directors, as the case may be, and the appointment of an administrator in its place for such period, not exceeding one year . 65. A conjoint reading of the unamended Section 110A(1)(iii) with the amended Section 110A(1)(iii) referred to aforesaid would clearly indicate that the period of five years originally prescribed under the said provision was substituted by a period of not exceeding one year in conformity with the period of one year period under Article 243 ZL of the Constitution of India. The constitutional validity of the said amendment carried out in the year 2013 in Section 110A(1)(iii) of the MCS Act has been admittedly not challenged by the petitioners on any ground in this petition. 66. We are not inclined to accept the submission of the learned senior counsel for the petitioners that there is repugnancy in Article 243 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egistrar, Co-operative Societies had discretionary power to suspend the Board of Directors of the respondent no.4 bank even if the RBI had directed to supersede the Board of Directors of the respondent no.4 bank, in view of the words as the case may be in Section 110A(1)(iii) of the MCS. A perusal of Section 110A(1)(iii) of the MCS Act clearly indicates that if it is required by the RBI in public interest or for preventing the affairs of the bank being conducted in a manner detrimental to the interest of the depositors or for securing the proper management of the bank, the discretion vests in the RBI to pass an order or directives against the Registrar, Co-operative Societies either for suspension or supersession of the Board of Directors, as the case may be. Such discretion under the said provision does not vest in the Registrar, Co-operative Societies either to suspend or supersede the Board of Directors upon receipt of such directives from the RBI under the said provision. In our view, the submission made by the learned senior counsel is ex-facie contrary to the plain reading of the said provision i.e. Section 110A(1)(iii) of the MCS Act and also the principle of law laid down ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the petitioners that the Registrar, Co-operative Societies was bound to follow the procedure prescribed under Section 102 of the MCS Act while superseding the Board of Directors of the respondent no.4 bank or while appointing a Board of Administrators. In our view, under Section 110(A)(1)(iii) of the MCS Act the Registrar, Co-operative Societies is bound to comply with the directives issued by the RBI under the said provisions and has no discretion. The order passed by the Registrar, Co-operative Societies to supersede or suspend the Board of Directors in compliance with the directives issued by the RBI is an administrative or executive order. 73. The Registrar, Co-operative Societies is empowered to pass an order of winding up of such co-operative bank, if after an enquiry has been held under Section 83 or inspection made under Section 84 or 89A or on the report of the Auditor auditing the account of such society or on the compliance with the requirements made therein or on happening of contingencies set out therein. The powers of the Registrar under Section 102 of the MCS Act cannot be equated with the duty of the Registrar, Co-operative Societies to comply with the direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or loan or financial assistance or any guarantee issued by the Government insofar as the respondent no.4 is concerned, the second proviso to Article 243 ZL of the Constitution of India would not apply. In the fourth proviso it is provided that in case of a co-operative society, other than a multi-State co-operative society, carrying on the business of banking, the provisions of that clause shall have the effect as if for the words six months , the words one year had been substituted. The embargo under the Article 243 ZL that no board shall be superseded or superseded for a period exceeding 6 months will have to be read with the proviso under the said Article and the said period of six months would not apply if any of the ground under the first proviso was attracted. The provisions of the Banking Regulation Act are preserved by virtue of the said third proviso to Article 243 ZL of the Constitution of India and does not affect the power of the RBI to take any action under the provisions of the Banking Regulation Act or under section 110A(1)(iii) of the MCS Act. 78. In our view, the learned Advocate General appearing for the State of Maharashtra is right in his submission that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the respondent no.4 not having complied with those directions issued by the RBI, this Court cannot substitute its judgment for that of RBI. Neither it is pleaded by the petitioners that the order passed by the Registrar, Co-operative Societies was passed with malafide intention nor the same has been demonstrated before this Court. 83. In our view, since order passed by the Registrar, Co-operative Societies is in mandatory compliance with the directives issued by the RBI to supersede or suspend the Board of Directors of the respondent no.4 bank by the Co-operative Societies, this Court cannot interfere with such order passed by the Registrar, Co-operative Societies. The Registrar, Co-operative Societies has not acted as a rubber stamp of the RBI. Be that as it may, the petitioners have not made out any case for warranting interference with the order passed by the Registrar, Cooperative Societies. Writ petition is devoid of merit. 84. We, therefore, pass the following order :- (a) Writ Petition No.2301 of 2018 is dismissed. Rule is discharged. (b) Ad-interim relief granted by this Court stands vacated. (c) The petitioners are directed to handover charge of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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