# tion shall stand dismissed. THE REGISTRAR, CO-OPERATIVE SOCIETIES v. DHARAM CHAND AND OTHERS

- **Citation:** [1962] 2 S.C.R. 433
- **Court:** Supreme Court of India
- **Decided:** 1962
- **Case number:** Civil Appeal No. 1 of 1958
- **Bench:** P. B. Gajendragadkar, A. K. Sarkar, K. N. Wanchoo, K. C. Das Gupta, N. Rajagopala Ayyangar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/tion-shall-stand-dismissed-the-registrar-co-operative-societies-v-dharam-chand-2264
- **Pages:** 8

## Headnote

Co-operative Societies-Co-operative Bank-Defalcation of bank
funds-Show cause notice to committee members and subsequent
removal by the Registrar-Misfeasance application by shareholders
against committe.e members-Hearing of application by the Registrar
-Legaiity-Bias-N atural justice-Co-operative Societies Rules,
rr. 17, 18, :JG(J}-Co-operative Societies Act, 1912 (2 of 1912),
s. 17.
An investigation of the affairs of a Co-operative Bank registered under the Co-operative Societies Act, 19r2, on the disappearance of the manager of the bank in r953, showed that a
very large amount of money had been defalcated. On February
26, r955, the Registrar of Co-operative Societies gave notice to
the members of the managing committee of the bank asking
them to show cause why the committee should not be suspended
under r. 30(3} of the Rules framed under the Act. In reply the
members denied allegations of mismanagement etc., but the
Registrar, however, appointed an administrator of the bank
after removing the managing committee. Jn the meantime,
some of the shareholders of the bank made an application before
the Registrar under r. r8 of the Co-operative Societies Rules, in
the nature of a misfeasance proceeding against the members of
the managing committee, praying for an award directing them
to pay the amount found defalcated, on the ground that it had
been occasioned by a glaring breach of the law and the rules
April 27.
434
SUPREME COURT REPORTS
[1962]
196 1
and the bye-laws of the bank aad betrayal of confidence by the
.
members of the committee. The Registrar originally appointed
Registrar, Coan arbitrator for this purpose, but, on the inability of the arbioperative Societies trator to act due to his illness, the Registrar informed the
v.
parties that he would decide the dispute himself. The legality
Dharam Chand of the procedure adopted by the Registrar was challenged in a
petition filed before the Judicial Commissioner, on the ground
that he was in the position of a party and had expressed his
opinion unequivocally against the members of the committee in
the notice he gave on February 26, 1955, and therefore his constituting himself as a tribunal to decide the dispute under r. 18
was against the principles of natural justice, inasmuch as a
party constituted himself the judge. The Judicial Commissioner
took the view that although the Registrar had no pecuniary or
proprietary interest in the dispnte yet in view of the circumstances of the case there was a strong likelihood of bias and
therefore his acting as the tribunal would be against the principles of natural justice.
Held, that the notice dated February 26, 1955, was concerned with the collective responsibility of the members of the
managing committee in the discharge of their duties, while the
application made under r. 18 of the Co-operative Societies Rules
was in the nature of misfeasance proceedings in which their
individual responsibility as members to make good the loss
caused by the embezzlement fell to be considered, and consequently there could be no inference oi bias against the Registrar simply because he gave notice to show cause against the
removal of the managing committee, as the two matters were
quite different.
Held, further, that the fact that Registrar had general
supervision over all co-operative societies could not be said to
amount to a bias in him so as to disentitle him to act as a judge
or arbitrator under r. 18.
CIVIL
APPELLATE
JURISDICTION: Civil
Appeal
No. 1 of 1958.
Appeal from the judgment and order dated April
18, 1956, of the former Judicial Commissioner, Ajmer,
in Civil Writ Petition No. 1 of 1956.
G. C. Ka8liwal, Advocate-General for the State of
Rajasthan, S. K. Kapur and D. Gupta, for the appellant.
S.S. Deedwania and K. P. Gupta, for respondent
No. 1.
B. P. Maheshwari, for respondent No. 9.
1961. April 27. The judgment of the Court was
delivered by
2 S.C.R. SUPREME COURT REPORTS
435
WANCHOO, J.-This is an appeal on a certificate
1961
granted by

## Text

2 S.C.R
SUPREME COURT REPORTS
433
customs duty and against the order imposing penalty
for importation without licence.
We would accordingly allow the petition.
French India
Importing Corporation, Delhi
BY CouRT. In accordance with the opinion of the
v.
majority, the petition is allowed in part and the orders Chief Controller of
of the Government in so far as they impose a penalty Imports & Exports
on the petitioners for importing goods without a
licence, are set aside; except to this extent., the petiDas c .. pta J.
tion shall stand dismissed.
THE REGISTRAR, CO-OPERATIVE SOCIETIES
v.
DHARAM CHAND AND OTHERS
(P. B. GAJENDRAGADKAR, A. K. SARKAR,
K. N. WANCHOO, K. C. DAS GUPTA and
N. RAJAGOPALA AYYANGAR, JJ.)
Co-operative Societies-Co-operative Bank-Defalcation of bank
funds-Show cause notice to committee members and subsequent
removal by the Registrar-Misfeasance application by shareholders
against committe.e members-Hearing of application by the Registrar
-Legaiity-Bias-N atural justice-Co-operative Societies Rules,
rr. 17, 18, :JG(J}-Co-operative Societies Act, 1912 (2 of 1912),
s. 17.
An investigation of the affairs of a Co-operative Bank registered under the Co-operative Societies Act, 19r2, on the disappearance of the manager of the bank in r953, showed that a
very large amount of money had been defalcated. On February
26, r955, the Registrar of Co-operative Societies gave notice to
the members of the managing committee of the bank asking
them to show cause why the committee should not be suspended
under r. 30(3} of the Rules framed under the Act. In reply the
members denied allegations of mismanagement etc., but the
Registrar, however, appointed an administrator of the bank
after removing the managing committee. Jn the meantime,
some of the shareholders of the bank made an application before
the Registrar under r. r8 of the Co-operative Societies Rules, in
the nature of a misfeasance proceeding against the members of
the managing committee, praying for an award directing them
to pay the amount found defalcated, on the ground that it had
been occasioned by a glaring breach of the law and the rules
April 27.
434
SUPREME COURT REPORTS
[1962]
196 1
and the bye-laws of the bank aad betrayal of confidence by the
.
members of the committee. The Registrar originally appointed
Registrar, Coan arbitrator for this purpose, but, on the inability of the arbioperative Societies trator to act due to his illness, the Registrar informed the
v.
parties that he would decide the dispute himself. The legality
Dharam Chand of the procedure adopted by the Registrar was challenged in a
petition filed before the Judicial Commissioner, on the ground
that he was in the position of a party and had expressed his
opinion unequivocally against the members of the committee in
the notice he gave on February 26, 1955, and therefore his constituting himself as a tribunal to decide the dispute under r. 18
was against the principles of natural justice, inasmuch as a
party constituted himself the judge. The Judicial Commissioner
took the view that although the Registrar had no pecuniary or
proprietary interest in the dispnte yet in view of the circumstances of the case there was a strong likelihood of bias and
therefore his acting as the tribunal would be against the principles of natural justice.
Held, that the notice dated February 26, 1955, was concerned with the collective responsibility of the members of the
managing committee in the discharge of their duties, while the
application made under r. 18 of the Co-operative Societies Rules
was in the nature of misfeasance proceedings in which their
individual responsibility as members to make good the loss
caused by the embezzlement fell to be considered, and consequently there could be no inference oi bias against the Registrar simply because he gave notice to show cause against the
removal of the managing committee, as the two matters were
quite different.
Held, further, that the fact that Registrar had general
supervision over all co-operative societies could not be said to
amount to a bias in him so as to disentitle him to act as a judge
or arbitrator under r. 18.
CIVIL
APPELLATE
JURISDICTION: Civil
Appeal
No. 1 of 1958.
Appeal from the judgment and order dated April
18, 1956, of the former Judicial Commissioner, Ajmer,
in Civil Writ Petition No. 1 of 1956.
G. C. Ka8liwal, Advocate-General for the State of
Rajasthan, S. K. Kapur and D. Gupta, for the appellant.
S.S. Deedwania and K. P. Gupta, for respondent
No. 1.
B. P. Maheshwari, for respondent No. 9.
1961. April 27. The judgment of the Court was
delivered by
2 S.C.R. SUPREME COURT REPORTS
435
WANCHOO, J.-This is an appeal on a certificate
1961
granted by the Judicial Commissioner, Ajmer. The
R
. 1
c
b .
f
h
egis rar,
onef facts necessary or present purposes are t ese. operative societies
There is a Bank in Ajmer known as the Commercial
v.
Co-operative Bank Limited, Ajmer (hereinafter referDharam Chand
red to as the Bank), which is registered under the Cooperative Societies Act, No. II of 1912 (hereinafter
Wanchoo, f.
referred to as the Act). Dharam Chand, respondent
No. I (hereinafter referred to as the respondent), along
with certain other respondents were members of the
managing committee of the Bank. One Nandlal
Sharma was the paid manager of the Bank. This
man disappeared in 1953 and thereafter defalcation
to the extent of about Rs. 6,34,000 was detected. Consequently, the managing committee passed a resolution suspending the business of the Bank subject to
the approval of the Registrar. The then Registrar
Shri Nagar approved the resolution and appointed an
Inspector of Co-operative Societies to hold an immediate inquiry. He also appointed a firm of Chartered Accountants as investigating auditors.
On
investigation by the auditors embezzlement to the extent of about Rs. 6,34,000 was found.
Thereupon the
successor Registrar, Shri Chitnis, gave notice to the
respondent and other members of the mana.ging committee on February 26, 1955, asking them to show
cause why the committee should not be suspended
under r. 30(3) of the Rules framed under the Act. A
reply to the notice was given by the respondent and
others in which they denied allegations of mismanagement, etc. The then Registrar Shri Chitnis however
appointed an administrator of the Bank after removing the managing committee. In the meantime, an
application was made under r. 18 of the Rules by
seven shareholders of the Bank to the Registrar on
April 4, 1956. Rule 18 authorises the Registrar to
decide any dispute brought before him under that rule
either himself or through the appointment of one or
more arbitrators. Any dispute concerning the business
of a Co-operative Society between members or past
members of the Society or pe1·sons claiming through
them, or between a member or past member or person
436
SUPREME COURT REPORTS
[1962]
'96'
so claiming aud the Committee or any officer can be
Registrar, Coreferr,ed u~der r. 18. _ Sue~ r,ef~rence can be ma.de ~y
operatfoe Societies the Committee or by the So01ety by resolut10n m
•.
general meeting or by any party to the dispute, or if
Dharam Chand the dispute concerns a sum due from a member of the
committee to the Society by any member of the
Wanchoo J.
Society. In consequence of this application the then
Registrar appointed Shri Hem Chand Sogani, an
advocate, as an arbitrator. The application was in the
nature of a misfeasance proceeding against the members of the managing committee and the prayer was
for an award against thirteen persons (including the
respondent) directing them to pay certain amounts including the entire loss amounting to about Rs. 6,34,000,
which was said t.o have been occasioned on account of
glaring breach of law and the rules and the bye-laws
of the Bank and betrayal of confidence by the members of the managing committee. The appointment
of the arbitrator was challenged by the president of
the managing committee before the Deputy Commissioner through a revision petition but the challenge
failed.
As however Shri Sogani was in ill-health, he
expressed his inability to act as arbitrator. Consequently, on December 13, 1955, the then Registrar set aside
the order appointing Shri Sogani as arbitrator and
informed the parties that he would decide the dispute
himself. This order was also challenged in revision
before the Deputy Commissioner; but the attempt
failed.
Thereafter the present petition was filed by
the respondent before the Judicial Commissioner,
Ajmer, and a large number of grounds were urged in
support of it, and it was prayed that the Registrar be
prohibited from proceeding to deal with the application under r. 18 and the proceedings arising therefrom
be quashed.
The petition was decided by the Judicial Commissioner on April 18, 1956. He negatived all the contentions raised on behalf of the respondent except one;
and it is with that contention only that we are con ..
cerned in the present appeal. That contention is that
the Registrar is in the position of a party and had expressed his opinion unequivocally against the respondent and other members of the committee in the notice
2 S.C.R. SUPREME COURT REPORTS
437
which he gave on February 26, 1955, and therefore his
I96I
constituting himself as a tribunal to decide the dispute
R
.
d
18
. t th
.
. l
f
l .
•egistrnr Coun er r.
was agams
e prmc1pdes
1
_o
n
1
aftn
1
ra. JUS- opernlivc s'ocietics
tice, inasmuch as a parLy constitute umse tie Judge.
v.
This contention found favour with the learned JudiDharom Chand
cial Commissioner a.nd he held that although the
Registrar had no pecuniary or proprietary interest in
Wanc/ioo 1 ·
the dispute yet in view of the circumstances of the
case there was a strong likelihood of bias and therefore the Registrar's acting as the tribunal would be
against the principles of natural justice. He further
held that if the Registrar had not suffered from the
disability inherent in the situation, he would have
been the most proper person to decide the dispute.
The petition was therefore allowed and a writ of
prohibitio1i was issued to the Registrar directing him
not to proceed with the dispute before him. This was
followed by an application to the Judicial Commissioner for a certificate of fitness in order to file an
appeal to this court, which was granted; and that is
how the matter has come up before us.
The official bias of the Registrar is sought to be
based on two circumstances: the first is the notice
issued by the then Registrar on February 26, 1955,
asking the members of the managing committee (including the respondent) to show cause why they should
not be suspended, and the second is that the Registrar
is the head of the Co-operative Department and as
such has certain legal powers over all Co-operative
Societies (including the Bank) in his administrative
capacity and therefore he would not be an impartial
person to decide this dispute, particularly in view of
the provisions of s. 17 of the Act.
We are of opinion that there is no force in either of
the contentions. Turning to the notice of February
26, 1955, we are of opinion that there can be no inference of bias against the Registrar as such because he
gave that notice and afterwards ordered the removal
of the managing committee. That notice was based
on the report of the investigating auditors and was
concerned with the collective responsibility of the
56
438
SUPREME COURT REPORTS
[1962]
x96x
managing committee in the discharge of their duties.
.
c
The proceedings under that notice have nothing in
RegtStrn'
o-
. h h
d'
. th
t d'
t
ope
tive s~cieties common wit
t e procee mgs m , e presen
1spu e
••
v.
which, as we have already said, are in the nature
Dh•••m Chand of misfeasance proceedings against certain members
of the managing committee and in which their
Wonchoo J.
individual responsibility as members of the managing committee to make good the loss caused by
the embezzlement falls to be considered. So far as the
proceedings under the notice are concerned, the only
question was whether on the facts found by the
investigating auditors the managing committee should
as a whole be allowed to act as such and all that the
Registrar in that connection did was to decide on the
facts found by the investigating auditors that the
managing committee should no longer be allowed to
manage the affairs of the Bank. That is a very
different matter from the dispute in the present proceedings, namely, whether the particular members of
the managing committee against whom the application under r. 18 has been made are responsible for
making good the loss ca.used to the Bank by the
embezzlement, the fact of which is not in dispute. In
the present proceedings therefore the Registrar will
have to decide the individual responsibility of the
various members of the managing committee (including the respondent) in the matter of making good the
loss caused to the Bank. We are therefore of opinion
that the fa.ct that the Registrar gave that notice for the
purpose of the removal of the managing committee is
no reason to hold that he would be biased in the
investigation of individual responsibility of various
members of the managing committee in this matter.
We cannot therefore agree with the Judicial Commissioner that there can be any official bias in the Registrar on this ground in connection with the present
dispute and that such bias disentitles him to act as a.
judge or arbitrator under r. 18.
The next cont.ention is that the Registrar being the
administrative head of the Department is in control
of a.II the Co-operative Societies in Ajmer, including
the Bank. It is said that because of that administrative control which the Registrar exercises through his
2 S.C.R. SUPREME COURT REPORTS
439
subordinates in the Department, he is imerested to
i96z
see that the blame is put on the managing committee R
. 1
c
and that his Department is freed from all blame. In ope::i:;;a;~,;:,;"
particular our attention has been drawn to s. 17 which
v.
enjoins that the Registrar shall audit or cause to be Dha.am Chand
audited by some person authorised by him the
accounts of every registered society once at least in
Wanchoo J.
every year. It is said that under this provision the
Registrar has been appointing Chartered Accounta.nts
to audit the accounts of the Bank and that nothing
wrong was discovered in the annual audits till the
paid manager Nandlal absconded and the defalcations
came to light. We fail to appreciate how this general
supervision of the Registrar over all Co-operative
Societies can be said to amount to a bias in him so as
,
to disentitle him to act as a judge or arbitrator under
r. 18. It is not the respondent's case that the
Registrar is in any way responsible for the day to day
working of the Bank. All that he is concerned with
is to see that the accounts of the Bank are audited
yearly, and if necessary, to make inspections of the
Bank, if so authorised by the Act and the Rules.
That, however, does not mean that the Registrar is
bound to shield the auditors or his subordinates who
might have made the inspection of the Bank and
would so conduct the proceedings as to put the blame
on the members of the managing committee. Even if
some blame attaches to the auditors appointed by the
Registrar or to his subordinates who might have
inspected the Bank, their fault would be that they
failed to detect the embezzlement till the paid manager absconded. That, however, does not mean that
the. Registrar was at any time a party to the fraud
which resulted in the embezzlement.
Even the
Judicial Commissioner recognises that tho Registrar
has no personal interest in the matter and that he
would but for the bias found by the Judicial Commissioner have been a. most proper person to decide
the dispute. Therefore even if we bear in mind the
fact that the Registrar is the administrative head of
the Department, we see nothing inherent in the situation wh.ich shows any official bias whatsoever in him
so far as adjudication of this dispute is concerned.
440
SUPREME COURT REPORTS
[1962]
1961
We have no reason to suppose that if any of his subRegist>ar. Coordinates or the auditors app~inted by him are in any
operative societies way found to be connected with the fraud he would
v.
not put the responsibility where it should lie- We are
Dh.,am Chand therefore of opinion that the Judicial Commissioner
was wrong in the view that there was anything
IVanchoo J.
inherent in the situation which made the Registrar a
biased person who could not act as a judge or an
arbitrator in this case.
It seems to us, therefore, that the learned Judicial
Commissioner was in error in thinking that the Registrar was biased. For the reasons earlier mentioned,
we do not think that any such blemish attached to the
Registrar. That being so, no question of his inability
to act as a judge under the rule of natural justice that
no man shall be judge in his own cause, arises. The
judgment of the learned Judicial Commissioner has to
be set aside on this ground alone.
We do not wish however to be understood as having made any pronouncement that if it had been proved that the Registrar was suffering from any bias,
then the present would have been a fit case for the
issue of a writ of prohibition as asked by the respondent. Before the writ could be issued a further question would have to be decided whether in view of the
statute, that is, r. 18 of the Rules framed under s. 43
of the Act, there was any scope for applying the rule
of natural justice on which the contesting respondent
relied.
A question of this kind was mentioned in
Gullapalli Nageswar Rao and Others v. State of Andhra
Pradesh and Others (1). In the view that we have taken
it is unnecessary to go into that question and we do
not do so.
The result is that the appeal is allowed and the
judgment of the Judicial Commissioner is set aside.
The petition will stand dismissed. Respondent No.
1 will pay the costs throughout. We trust that there
will be no further reason to delay the termination of
the proceedings under the rules by the Registrar.
Appeal allowed.
(1) [1960] 1 S.C.R. 5ko, 587.