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

Can a cooperative society chairman be disqualified for actions deemed detrimental to the society? The Supreme Court of India addressed this question in a case concerning the Gujarat Co-operative Societies Act, 1961. The court examined the legality of disqualifying a chairman after his removal from office. This case highlights the powers of the Registrar of Cooperative Societies. The judgment was delivered by a two-judge bench of Justices J. Chelameswar and Abhay Manohar Sapre, with Justice Chelameswar authoring the opinion.

Case Background

Vipulbhai Mansingbhai Chaudhary was the Chairman of the Mehsana District Co-operative Milk Producers Union Ltd. (UNION). He was elected for a three-year term starting May 2, 2011. Chaudhary continued in office beyond this term due to a provision in the Gujarat Co-operative Societies Act, 1961.

On January 12, 2015, the Registrar of Co-operative Societies issued a show-cause notice to Chaudhary. This notice, called “Show-Cause Notice-I,” proposed his removal from office. It cited various reasons under Section 76B(1) and (2) of the Act. Chaudhary challenged this notice, but the Gujarat High Court dismissed his petition.

On March 10, 2015, while Chaudhary’s challenge was pending, the Registrar ordered his removal. The Registrar also disqualified him from holding any office in any cooperative society for three years. The Supreme Court initially maintained a status quo on the Registrar’s order. This allowed Chaudhary to approach the appropriate forum to challenge the order.

Timeline

Course of Proceedings

Chaudhary 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 his removal from office but set aside the disqualification. The court reasoned that disqualification proceedings under Section 76B(2) should start only after an order under Section 76B(1). Since the Registrar issued a combined notice, the disqualification was invalid.

Chaudhary appealed against the removal order, but the appeal was dismissed. Following this, the Registrar issued a fresh show-cause notice on October 3, 2015 (“Show-Cause Notice-II”). This notice sought to disqualify Chaudhary under Section 76B(2). Chaudhary challenged this notice, but the High Court initially dismissed his challenge.

However, on appeal, the High Court quashed Show-Cause Notice-II. The court held that since the earlier disqualification order was set aside without reserving liberty to issue a fresh notice, the second notice was invalid. The State of Gujarat and the Registrar then appealed to the Supreme Court.

Meanwhile, Chaudhary was elected to the Managing Committee of the UNION. After the Supreme Court allowed Chaudhary to reply to the second show-cause notice, the Registrar disqualified Chaudhary for six years. The High Court partly allowed Chaudhary’s plea, reducing the disqualification to three years, which was upheld by the division bench.

Legal Framework

The case revolves around Sections 76B and 81 of the Gujarat Co-operative Societies Act, 1961. Section 76B outlines the process for removing an officer of a cooperative society. It also allows the Registrar to disqualify a removed officer from holding office or contesting elections for a specified period.

Specifically, Section 76B(1) states that if an officer is negligent in their duties, acts against the society’s interests, or is disqualified, the Registrar can remove them. This action can only be taken after giving the officer a chance to be heard. Section 76B(2) allows the Registrar to disqualify the removed officer for up to six years.

Section 81 of the Act deals with the supersession of a society’s committee. If a committee defaults on its duties, is negligent, or acts against the society’s interest, the Registrar can supersede the committee. The Registrar can then appoint a new committee or an administrator.

The Act defines “society” as a registered cooperative society (Section 2(19)). An “officer” includes a chairman, vice-chairman, or any person directing the society’s business (Section 2(14)). A “committee” is the governing body managing the society (Section 2(5)).

The Supreme Court noted that Section 76B allows action against individual officers, while Section 81 allows action against the entire committee.

Arguments

Submissions on behalf of Chaudhary:

• The High Court had set aside the Registrar’s order related to Section 76B(2). Therefore, Show-Cause Notice-II could not be issued without the High Court’s permission.
• If Show-Cause Notice-II was illegal, all actions based on it are invalid.
• The actions against Chaudhary were either taken or ratified by the society’s governing body. Therefore, action should have been against the entire governing body under Section 81, not against Chaudhary individually under Section 76B.
• Show-Cause Notice-II used the same facts and reasons for action under both Section 76B(1) and 76B(2). The considerations for removal and disqualification should be different.
• The Registrar’s decision to disqualify Chaudhary for six years was excessive. It is not mandatory to disqualify a person for the maximum period.
• The order under Section 76B(2) should state the reasons for imposing the maximum disqualification period. The order was silent on this, making it arbitrary.

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

• The High Court wrongly concluded that Show-Cause Notice-II was illegal. It was not necessary to obtain the High Court’s permission to issue it.
• The High Court did not cite any legal basis for its conclusion that the Registrar needed the court’s permission.
• Chaudhary is estopped from arguing that the notice under Section 76B(2) is illegal. In a previous writ petition, he argued that a separate notice was required for action under Section 76B(2).
• The Registrar’s findings against Chaudhary were based on facts. These findings showed that Chaudhary’s actions were detrimental to the society. They justified both his removal and disqualification.
• Even if the actions were approved by the committee, Section 76B allows action against individual members.

Submissions Table

Issues Framed by the Supreme Court

The Supreme Court addressed the following issues:

1. Whether Show-Cause Notice-II was illegal for being issued without the High Court’s permission.
2. Whether the actions against Chaudhary should have been under Section 81 instead of Section 76B.
3. Whether the use of the same facts in both Show-Cause Notices-I and II was legal.
4. Whether the disqualification period of six years was valid.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court considered the following authorities:

Judgment

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

How each authority was viewed by the Court?

The Supreme Court relied on Thimmasamudram Tobacco Co. v. Assistant Collector of Central Excise, Nellore Division, Nellore, AIR 1961 AP 324* and Superintendent (Tech.I) Central Excise I.D.D. Jabalpur & Others v. Pratap Rai, (1978) 3 SCC 113* to conclude that when an order is set aside for not following proper procedure, the authority can start the procedure again.

The court considered Section 14 of the General Clauses Act, 1897* and Section 14 of the Gujarat General Clauses Act* to support the principle that statutory power can be exercised from time to time.

The court also considered Section 7 of the Gujarat General Clauses Act, 1904* to determine the effect of repealing an enactment. This was used to decide the retrospective effect of the amendment to Section 76B.

The court explained the scope of Section 76B* and Section 81 of the Gujarat Co-operative Societies Act, 1961*.

What weighed in the mind of the Court?

The Supreme Court’s decision was influenced by several factors. The Court emphasized the importance of maintaining the integrity of cooperative societies. The court noted that Chaudhary’s actions led to financial irregularities and losses for the society. The court also considered the large number of milk producers affected by the actions of the society.

The Court found that the Registrar had followed due process. The court also considered that the High Court had already upheld the findings of facts against Chaudhary. The court also noted that the Registrar had the discretion to choose between action against individual officers or against the entire committee.

Ratio of Fact:Law

The court’s reasoning was based more on the factual findings of misconduct by Chaudhary (60%) and less on the legal interpretation of the provisions (40%).

Logical Reasoning

Issue 1: Legality of Show-Cause Notice-II

Issue 2: Action Under Section 81

Issue 3: Use of Same Facts in Notices

Issue 4: Validity of Disqualification Period

The court reasoned that the Registrar’s actions were within the law. The court also stated that the Registrar had the power to take action against individual officers. The court also held that the same facts could be used for both removal and disqualification. The court, however, reduced the disqualification period to four years.

The court stated that the High Court’s conclusion that the Registrar needed permission to issue Show-Cause Notice-II was incorrect. The court relied on previous judgments that an authority can start the procedure again if an order is set aside for breach of natural justice.

The court also stated that the Registrar has the discretion to take action against individual officers or the entire committee. The court rejected Chaudhary’s argument that action should have been taken against the committee under Section 81.

The court also held that the same facts could be used for both removal and disqualification, though the reasons can differ. The court also found that the Registrar’s order to disqualify Chaudhary was justified based on the facts of the case.

However, the court held that the disqualification period could not exceed four years. The court reasoned that the amendment allowing six years was not retrospective.

The court quoted from the judgment in Superintendent (Tech.I) Central Excise I.D.D. Jabalpur & Others v. Pratap Rai, (1978) 3 SCC 113*:
“… in a case where the flaw in the order appealed against consists of in the non-observance of certain procedure or in not giving effect to the maxim ‘audi alteram partem’, it is open to the officer concerned to start the procedure once again with a view to follow the rules of procedure and the principles of natural justice.”

The court also noted that:
“Any statutory power could ‘be exercised from time to time as occasion requires’.”

The court also stated that:
“From the language of sub-section (2), it appears to us that the Registrar is not obliged to disqualify every officer against whom an order of removal under Section 76B(1) is passed.”

The court did not find any merit in the arguments of Chaudhary.

Key Takeaways

• The Registrar of Cooperative Societies has the power to remove and disqualify officers for misconduct.
• The Registrar can initiate fresh proceedings if an earlier order is set aside for breach of natural justice.
• The Registrar has the discretion to take action against individual officers or the entire committee.
• The same facts can be used as the basis for both removal and disqualification, though the reasons can differ.
• The disqualification period cannot exceed the statutory limit applicable at the time of the misconduct.

Directions

The Supreme Court did not provide any specific directions in this case.

Development of Law

The ratio decidendi of this case is that the Registrar of Cooperative Societies has the power to remove and disqualify officers for misconduct. The Registrar can initiate fresh proceedings if an earlier order is set aside for breach of natural justice. The same facts can be used as the basis for both removal and disqualification. The disqualification period cannot exceed the statutory limit applicable at the time of the misconduct.

This case clarifies the powers of the Registrar of Cooperative Societies. It also clarifies the relationship between Sections 76B and 81 of the Gujarat Co-operative Societies Act, 1961. It also clarifies that when an order is set aside for breach of natural justice, the authority can initiate fresh proceedings.

Conclusion

The Supreme Court upheld the disqualification of Vipulbhai Mansingbhai Chaudhary. The court found that the Registrar’s actions were within the law. The court also held that the Registrar had the power to take action against individual officers. The court also stated that the same facts could be used for both removal and disqualification. However, the court reduced the disqualification period to four years. The court clarified the powers of the Registrar of Cooperative Societies and the procedure to be followed in such cases.