Supreme Court Upholds Disqualification of Cooperative Society Chairman: Vipulbhai Mansingbhai Chaudhary vs. State of Gujarat (2017)

Date of the Judgment: 17 April 2017

Citation: (2017) INSC 381

Judges: J. Chelameswar and Abhay Manohar Sapre, JJ.

Can a person be disqualified from holding office in a cooperative society based on the same misconduct that led to their removal? The Supreme Court of India recently addressed this question in a case involving the chairman of a milk producers’ union in Gujarat. The court examined whether it is permissible to issue a second show-cause notice for disqualification after the initial removal from office, and if the same facts can be used for both actions. This judgment clarifies the scope of powers under the Gujarat Co-operative Societies Act, 1961. The judgment was delivered by a two-judge bench comprising Justice J. Chelameswar and Justice Abhay Manohar Sapre, with the majority opinion authored by Justice Chelameswar.

Case Background

Vipulbhai Mansingbhai Chaudhary was the Chairman of the Mehsana District Co-operative Milk Producers Union Ltd. (UNION), a society registered under the Gujarat Co-operative Societies Act, 1961. His term was from May 2, 2011, to May 1, 2014, but he continued in office due to Section 74C(2) of the Act. On January 12, 2015, the Registrar of Co-operative Societies issued a show-cause notice (Show-Cause Notice-I) to Chaudhary, seeking his removal under Section 76B(1) and (2) of the Act. This notice alleged various irregularities and misconduct. Chaudhary challenged this notice in the Gujarat High Court, which was dismissed as premature. The dismissal was upheld in a Letters Patent Appeal, leading Chaudhary to approach the Supreme Court.

During the pendency of the Supreme Court case, the Registrar passed a final order on March 10, 2015, removing Chaudhary from office and disqualifying him for three years from holding any office in any cooperative society. The Supreme Court directed maintenance of status quo to allow Chaudhary to challenge the Registrar’s order. Chaudhary then filed a revision before the State Government, which upheld the Registrar’s order on May 8, 2015. Subsequently, Chaudhary filed a writ petition in the High Court.

The High Court upheld the removal but set aside the disqualification, stating that proceedings under Section 76B(2) could only begin after an order under 76B(1). The Registrar then issued a second show-cause notice (Show-Cause Notice-II) on October 3, 2015, for disqualification. Chaudhary challenged this notice, but it was initially dismissed. However, in a Letters Patent Appeal, the High Court quashed Show-Cause Notice-II, holding that a separate notice for disqualification was not permissible after the initial order was partially set aside. Aggrieved by this, the State of Gujarat appealed to the Supreme Court.

Timeline

Course of Proceedings

The Gujarat High Court initially dismissed Chaudhary’s writ petition challenging Show-Cause Notice-I as premature. A Division Bench upheld this dismissal. Subsequently, after the Registrar’s order of removal and disqualification, the High Court, in Writ Petition No.9618/2015, upheld the removal but set aside the disqualification. The High Court reasoned that action under Section 76B(2) could only be initiated after an order under Section 76B(1). This decision led to the issuance of Show-Cause Notice-II, which was then challenged by Chaudhary.

The High Court initially dismissed the challenge to Show-Cause Notice-II. However, a Division Bench later quashed Show-Cause Notice-II, holding that it was not permissible to issue a separate notice for disqualification after the initial order was partially set aside, and no liberty was reserved to continue proceedings under Section 76B(2). The High Court rejected the Registrar’s argument that the disqualification order was quashed on grounds of natural justice and that Chaudhary was estopped from challenging the second notice. The State of Gujarat then appealed to the Supreme Court against the quashing of Show-Cause Notice-II.

Legal Framework

The case revolves around the interpretation of Sections 76B and 81 of the Gujarat Co-operative Societies Act, 1961.

Section 76B of the Gujarat Co-operative Societies Act, 1961, deals with the removal of an officer of a cooperative society and their subsequent disqualification. It states:

“76B. Removal of officer – (i) If, in the opinion of the Registrar, any officer makes persistent default or is negligent in performance of the duties imposed on him by this Act or the rules or the bye-laws or does anything which is prejudicial to the interests of the society or where he stands disqualified by or under this Act, the Registrar may, after giving the officer an opportunity of being heard, by order remove such officer and direct the society to elect or appoint a person or a qualified member in the vacancy caused by such removal and the officer so elected or appointed shall hold office so long only as the officer in whose place he is elected or appointed would have held if the vacancy had not occurred.

(2) The Registrar may, by order, direct that the officer so removed shall be disqualified to hold or to contest election for any office in the society from which he is removed and in any other society for a period not exceeding six years from the date of the order and such officer shall stand disqualified accordingly.”

Section 81 of the Gujarat Co-operative Societies Act, 1961, provides for the supersession of the committee of a society and the appointment of a substitute committee or an administrator. It states:

“Section 81(1) If in respect of a committee of a society having the Registrar as its member, the State Government and in respect of a committee of a Society which does not have the Registrar as its member, the Registrar, is of the opinion that;
(i)the committee persistently makes default; or
(ii)the committee is negligent in the performance of its duties imposed on it by or under this Act or the rules made thereunder or the bye-laws; or
(iii)the committee has committed any act prejudicial to the interest of the society or its members;
the State Government or, as the case may be, the Registrar, after giving the committee an opportunity of being heard, within fifteen days from the date of issue of notice, by an order in writing, supersede the Committee and appoint–
(a) a Committee, consisting of one or more mem –
bers of the society, not being the members of the com –
mittee superseded under this sub-section, or
(b) an Administrator from amongst the officers of
the Cooperation Department of the State Government
–
to manage the affairs of the society for a period not exceeding one year as may be specified in the order, which period may, at the discretion of the State Government or the Registrar, as the case may be, be extended from time to time, so, however, the term of the Committee or the Administrator shall be, the remaining term of the committee in whose place he is appointed or two years in aggregate, whichever is less.”

Other relevant definitions include:

Section 2(5) defines “committee” as the managing committee or governing body of a society.

Section 2(14) defines “officer” as a person elected or appointed by a society to any office, including a chairman or member of the committee.

Section 2(19) defines “society” as a co-operative society registered under the Act.

These provisions are crucial in understanding the powers of the Registrar to take action against individual officers and the managing committees of cooperative societies. The legal framework is designed to ensure the proper functioning and governance of cooperative societies in Gujarat.

Arguments

Arguments on behalf of Chaudhary:

• Illegality of Show-Cause Notice-II: Chaudhary argued that the Registrar could not issue Show-Cause Notice-II without explicit permission from the High Court, as the High Court had already set aside the disqualification order in the first round of litigation.
  • This argument was based on the premise that the High Court’s decision to set aside the disqualification was final and could not be revisited without express leave.
• Void Ab Initio Action: If Show-Cause Notice-II was illegal, all subsequent actions, including the disqualification order, were void from the beginning.
  • This argument aimed to invalidate the entire process of disqualification initiated by the second show-cause notice.
• Action Against the Committee: Chaudhary contended that the alleged misconduct was by the entire governing body of the society, not just him. Therefore, action should have been taken against the whole committee under Section 81 of the Gujarat Co-operative Societies Act, 1961, instead of against him individually under Section 76B.
  • This argument suggested that the Registrar should have targeted the entire committee for collective misconduct instead of singling out an individual member.
• Improper Use of Section 76B: Chaudhary argued that the same facts were used for both removal under Section 76B(1) and disqualification under Section 76B(2), which was improper. The considerations for each action should be different.
  • This argument highlighted the need for distinct considerations when removing an officer and when disqualifying them, suggesting that the Registrar conflated the two actions.
• Disqualification Period: Chaudhary argued that the six-year disqualification was unsustainable because Section 76B(2) did not mandate a six-year disqualification in every case.
  • This argument aimed to reduce the period of disqualification, challenging the maximum penalty imposed.
• Lack of Reasons: The order under Section 76B(2) did not disclose the specific reasons for imposing the maximum six-year disqualification, rendering it arbitrary.
  • This argument challenged the lack of transparency and justification for the maximum disqualification period.

Arguments on behalf of the State of Gujarat and the Registrar:

• Legality of Show-Cause Notice-II: The State argued that the High Court erred in holding that Show-Cause Notice-II was illegal because no leave was obtained from the High Court when it partially set aside the order dated March 10, 2015.
  • The State argued that there was no legal basis for requiring leave from the High Court to issue a fresh show-cause notice after the initial order was partially set aside.
• No Legal Basis for Leave: The High Court’s conclusion that the Registrar needed leave before issuing Show-Cause Notice-II was not supported by any legal principle or provision.
  • The State highlighted the lack of legal backing for the High Court’s requirement of obtaining leave.
• Estoppel: Chaudhary was estopped from arguing that the notice under Section 76B(2) was illegal, as he had previously argued that a composite notice under Section 76B(1) and (2) was illegal.
  • The State argued that Chaudhary’s previous stance against composite notices prevented him from now arguing against separate notices.
• Findings of Fact: The Registrar’s findings that Chaudhary committed various acts prejudicial to the society were findings of fact, which justified both the removal and the disqualification under Section 76B.
  • The State maintained that the Registrar’s findings of misconduct were valid and sufficient for both actions under Section 76B.
• Action Under Section 76B: Even if the actions were ratified by the Committee, Section 76B allows action against individual members, and it does not prohibit action against individual members of the Committee.
  • The State clarified that action against individual members under Section 76B was permissible, even if the committee was also responsible.

Submissions

Issues Framed by the Supreme Court

The Supreme Court considered the following issues:

1. Whether the Registrar could issue a second show-cause notice for disqualification under Section 76B(2) of the Gujarat Co-operative Societies Act, 1961, after the High Court had set aside the initial disqualification order.
2. Whether the same facts and findings could be used for both the removal of an officer under Section 76B(1) and the subsequent disqualification under Section 76B(2).
3. Whether action under Section 76B could be taken against an individual officer, when the alleged misconduct was by the entire committee, and action under Section 81 should have been taken against the entire committee.
4. Whether the disqualification period of six years was valid, considering the amendment to Section 76B(2) and the facts of the case.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Legal Provisions Considered:

• Section 76B of the Gujarat Co-operative Societies Act, 1961: This section deals with the removal and disqualification of officers of a cooperative society. The Court analyzed the different requirements of sub-sections (1) and (2).
• Section 81 of the Gujarat Co-operative Societies Act, 1961: This section provides for the supersession of the committee of a society. The Court examined the relationship between actions under this section and Section 76B.
• Section 14 of the General Clauses Act, 1897: This section allows for the exercise of statutory powers from time to time. The Court discussed its applicability to the Registrar’s power under Section 76B.
• Section 14 of the Gujarat General Clauses Act: This section allows for the exercise of statutory powers from time to time. The Court discussed its applicability to the Registrar’s power under Section 76B.
• Section 7 of the Gujarat General Clauses Act, 1904: This section deals with the effect of repeal of an enactment. The Court analyzed its impact on the disqualification period under Section 76B(2).

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• Thimmasamudram Tobacco Co. v. Assistant Collector of Central Excise, Nellore Division, Nellore, AIR 1961 AP 324: The Supreme Court approved the principle laid down by the Andhra Pradesh High Court that when an order is set aside for non-observance of procedure or natural justice, the authority can start the procedure again.
• Superintendent (Tech.I) Central Excise I.D.D. Jabalpur & Others v. Pratap Rai, (1978) 3 SCC 113: The Supreme Court followed its earlier judgment, which approved the principle laid down in Thimmasamudram Tobacco Co.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• Procedural Correctness: The Court emphasized that when an order is set aside due to a procedural flaw or a violation of natural justice, the authority can re-initiate proceedings by following the correct procedure. This was a key factor in upholding the validity of the second show-cause notice.
• Discretion of the Registrar: The Court recognized that the Registrar has discretionary power to take action against individual officers or the entire committee, based on the facts and circumstances of each case. This discretion was crucial in upholding the action against Chaudhary under Section 76B.
• Nature of Misconduct: The Court took into account that Chaudhary was found guilty of misconduct that caused financial irregularities and losses to the society. This was a significant factor in upholding the disqualification, albeit for a reduced period.
• Interpretation of the Act: The Court interpreted Sections76B and 81 of the Gujarat Co-operative Societies Act, 1961, to allow for action against individual officers even if the misconduct was ratified by the committee. This interpretation was based on the wording of the Act and its intent to ensure accountability.
• Retrospective Application: The Court held that the amendment to Section 76B(2), which increased the maximum disqualification period to six years, was not retrospective. This was a crucial factor in reducing the disqualification period to four years.
• Precedent: The Court relied on precedents from the Andhra Pradesh High Court and its own previous decisions to support its conclusions.

Sentiment Analysis of the Reasoning:

• Pragmatic: The Court’s reasoning was pragmatic, focusing on ensuring the effective functioning of cooperative societies. The Court’s approach was practical in allowing re-initiation of proceedings after a procedural error.
• Balanced: The Court balanced the interests of the society and the individual officer. While upholding the disqualification, the Court reduced the period to four years, acknowledging the limits of retrospective application of the amendment.
• Legalistic: The Court’s decision was deeply rooted in legal principles and statutory interpretation. The Court carefully examined the wording of the Act and previous precedents.
• Fair: The Court ensured that the process followed was fair, giving Chaudhary an opportunity to be heard. The decision to reduce the disqualification period reflects the Court’s commitment to fairness.

Final Decision

The Supreme Court allowed the appeal filed by the State of Gujarat, setting aside the judgment of the High Court that had quashed Show-Cause Notice-II. The Supreme Court upheld the Registrar’s power to issue a second show-cause notice for disqualification after the initial disqualification order was set aside for procedural reasons. The Court also upheld the Registrar’s decision to remove Chaudhary from office. However, the Court reduced the disqualification period from six years to four years, as the amendment to Section 76B(2) was not retrospective.

In summary, the Supreme Court held that:

• The Registrar could issue a second show-cause notice for disqualification.
• The same facts could be used for both removal and disqualification.
• Action could be taken against an individual officer under Section 76B, even if the misconduct was by the entire committee.
• The disqualification period was reduced to four years.

Implications and Key Takeaways

The Supreme Court’s judgment in Vipulbhai Mansingbhai Chaudhary vs. State of Gujarat has significant implications for cooperative societies and their officers. The key takeaways are:

• Power of the Registrar: The judgment reaffirms the Registrar’s power to take action against officers of cooperative societies for misconduct. The Registrar has the discretion to choose the appropriate course of action, whether against an individual officer under Section 76B or the entire committee under Section 81.
• Re-initiation of Proceedings: When an order is set aside for procedural flaws or violation of natural justice, the authority can re-initiate proceedings by following the correct procedure. This principle ensures that justice is not defeated by technicalities.
• Discretionary Power: The power to disqualify an officer is discretionary. The Registrar must consider the facts and circumstances of each case. However, the disqualification period must be within the limits prescribed by law.
• Accountability of Officers: Officers of cooperative societies are accountable for their actions, even if those actions are ratified by the committee. Individual officers can be held responsible for misconduct, regardless of the committee’s involvement.
• Retrospective Application: Amendments to laws are generally not retrospective unless explicitly stated. This principle was crucial in reducing the disqualification period.
• Importance of Natural Justice: The judgment highlights the importance of following the principles of natural justice. While the Registrar can take action against officers, they must be given a fair opportunity to be heard.
• Clarity on Section 76B: The judgment provides clarity on the interpretation of Section 76B, clarifying that the same facts can be used for both removal and disqualification, although the reasons and logic may differ.

This judgment serves as a crucial guideline for cooperative societies and their officers, emphasizing accountability, procedural fairness, and adherence to the law. It also clarifies the powers of the Registrar and the limitations on retrospective application of amendments.

Flowchart of the Legal Process