S.29-C Karnataka Co-Operative Societies Act | No Ground To Interfere With Disqualification Of Director Who Failed To Repay Loan: High Court

A single judge bench of Justice S Sunil Dutt Yadav dismissed the petition filed by G Nagaraju and said “The clearing of dues only on 01.06.2020 after the petitioner was elected makes out a case for disqualification.”

The petitioner was elected as Director of the Society on 16.02.2020. A complaint was stated to have been made by Ganga Rangaiah s/o late Ganga Boraiah on 19.05.2020 alleging that the petitioner was a defaulter.

While notices were issued to the petitioner on 17.07.2020, 28.07.2020 and 10.08.2020, a reply was made out by appearing on 28.08.2020 stating that he had cleared the dues and hence was not a defaulter and the question of disqualification did not arise.

The Assistant Registrar of Co-operative Societies relying upon the report of the Bank had recorded a finding that the petitioner was in default for the period between 31.03.2010 and 01.06.2020 and accordingly, had disqualified him on the ground of being a defaulter under section 29-C of the Karnataka Co-operative Societies Act, 1959.

The primary contention of the petitioner was that show cause notice as regards the disqualification was issued on 17.07.2020 on which date the dues were cleared. Accordingly, power under Section 29-C of the Act could not have been invoked, the power under Section 29-C of the Act could be invoked only as regards disqualification incurred after the election. At the same time, the default in the present case was a preelection default which could be enquired into only by invoking power under Section 70 of the Act, it was argued.

The government opposed the plea saying the default was cured by payment subsequent to the election which does not take away the cause of action to proceed for disqualification which subsisted post-election till dues were cleared, that the default gave rise to a continuing cause of action and as the said default was also postelection, Section 29-C of the Act could be invoked.

Findings:

The bench noted that the petitioner was elected on 16.02.2020, and the default in repayment continued till the dues were repaid, which was subsequent to his election.

Referring to 29-C which reads thus: Disqualification for membership of the board.- (1) No person shall be eligible for being elected or appointed or continued as a member of the board of any co-operative society, if- (a) he is in default to that society or any other cooperative society in respect of any dues from him as borrower.

Then it said “Clearly, the default extends to a person who owes "any dues from him as borrower."

Rejecting the petitioner's contention the court held “The petitioner was elected on 16.02.2020 and he has cleared the dues on 01.06.2020. In terms of Section 29-C of the Act, there was a ground for disqualification by virtue of being in default between 16.02.2020 and 01.06.2020. The mere initiation of action subsequently for an earlier default does not defeat the right accrued to initiate the proceedings for disqualification. The subsequent clearing of dues will not wipe out the disqualification that subsisted, from the date of election on 16.02.2020 till repayment on 01.06.2020.”

Further uphold the invoking of Section 29-C of the Act for disqualification by saying “The default admittedly in repayment of the three loans respectively from 31.03.2013, 31.03.2010 and 31.03.2016 till the date of election, no doubt, may have given rise to a cause of action for initiating proceedings under Section 70 of the Act, however, as regards the period post his election till 01.06.2020, clearly the default during such period gives rise to cause of action to initiate proceedings under Section 29C of the Act as it relates to a disqualification that continues even after election till repayment.”

Accordingly it rejected the petition.

Appearance: Advocate P Anand for Petitioner

HCGP Spoorthy Hegde for Respondents

Citation No: 2024 LiveLaw (Kar) 277

Case Title: G Nagaraju AND The Assistant Registrar of Cooperative Societies & Others Case No: WRIT PETITION NO. 13892 OF 2020