Case Note & Summary
Background: The dispute arose from the State Government's attempt to take control of the Bellary District Co-operative Central Bank Limited, Hospet, by issuing two notifications under the Mysore Co-operative Societies Act, 1959. The Bank was managed by a committee comprising an elected President, Vice-President, ten elected members, and a limited number of government nominees. The State had contributed Rs. 23.8 lakhs to the Bank's share capital and guaranteed repayment of loans from the Reserve Bank of India. Facts: The Reserve Bank of India inspected the Bank on 14 October 1971 and reported several irregularities, though noting slight improvement in financial resources. On 3 August 1972, the Joint Registrar forwarded the report and suggested action under section 54 of the Act. On 11 August 1972, the State Government issued two notifications invoking sections 54 and 121. The first notification recited the need to safeguard public funds and granted the State the right to nominate fifteen persons to the Board of Management, appoint one as President, one as Vice-President, and one as Managing Director, subject to State supervision. The second notification nominated fifteen persons, including the Deputy Commissioner as President. The respondent, the Bank's President, challenged the notifications in the High Court, contending they were ultra vires, violated natural justice, and were politically motivated. The High Court upheld the first two grounds and quashed the notifications. Legal Issues: The Supreme Court addressed whether section 54 permitted the State to supersede the entire committee of management and whether the notifications violated natural justice. Arguments: The respondent argued that section 54 only allows control over business, not supersession, and that section 30 provides the specific procedure for supersession requiring notice and opportunity. The State sought to justify the notifications as necessary in public interest to safeguard public funds, relying on section 54 and the modification power under section 121. Court's Analysis: The Supreme Court examined sections 29, 30, 54, and 121 of the Act. It held that section 54 does not confer power to remove the President and Vice-President or displace the committee; the word 'control' connotes check, restraint, or influence, not substitution. The State had indirectly achieved what it was directly prohibited from doing under section 54 by modifying section 29 through section 121. The Court further held that the notifications were in violation of natural justice because section 30 contemplates a notice before supersession, and no notice was given. Decision: The Supreme Court dismissed the State's appeal, affirming the High Court's order setting aside the notifications, and directed the State to pay costs to the respondents. The judgment reinforces the limits of administrative control over cooperative societies and the necessity of following statutory procedures and natural justice.
Headnote
A) Cooperative Societies - Supersession of Committee - Scope of Section 54 vs Section 30 - Mysore Co-operative Societies Act, 1959, Sections 54, 30 - The State Government, facing irregularities in a cooperative bank, issued notifications under section 54 to nominate fifteen persons to the Board of Management, effectively removing the existing President and Vice-President. The Court held that section 54 only permits exercise of control over conduct of business, meaning check, restraint, or influence, not displacement of the committee. Since the State did not follow the specific supersession procedure under section 30, which requires notice and opportunity, the notifications were ultra vires. Held that the State cannot indirectly achieve what it is directly prohibited from doing under section 54. (Paras 6-8) B) Administrative Law - Natural Justice - Opportunity of Hearing before Supersession - Mysore Co-operative Societies Act, 1959, Section 30 - The impugned notifications deprived the committee of management of its right to manage the society without any prior notice or opportunity to state objections. The Court emphasized that section 30 contemplates a notice where the State intends to supersede the management. Since no such notice was given, the action was in utter defiance of statutory powers and violated principles of natural justice. Held that the notifications were rightly set aside by the High Court. (Paras 7-8) C) Statutory Interpretation - Colourable Exercise of Power - Prohibition on Indirect Action - Mysore Co-operative Societies Act, 1959, Sections 54, 121 - The State attempted to modify section 29 via section 121 to increase government nominees to fifteen, thereby ousting elected members. The Court found this was an indirect attempt to achieve what section 54 did not permit, i.e., supersession. Held that the State had displaced the committee in the guise of exercising control, which is impermissible. (Paras 6-8)
Issue of Consideration
Whether the State Government, under section 54 of the Mysore Co-operative Societies Act, 1959, could supersede the committee of management of a cooperative society and whether such action violated principles of natural justice.
Final Decision
The Supreme Court dismissed the appeal, affirming the High Court's order setting aside the two notifications. It held that section 54 did not empower the State to supersede the entire committee or remove the President and Vice-President; such action required recourse to section 30. The notifications also violated natural justice because the committee was deprived of its right to manage without notice. The State was ordered to pay costs to the respondents.
Law Points
- Under section 54 of the Mysore Co-operative Societies Act
- 1959
- the power to exercise control over conduct of business does not include power to supersede the committee or remove office bearers
- such action must be taken under section 30 with prior notice
- the word 'control' implies check
- restraint
- or influence
- not displacement
- natural justice requires opportunity to be heard before supersession.
