Court Rules Registrar of Cooperative Societies Violated Statutory Procedures and Principles of Natural Justice; Society to be Revived as Credit Society Without Banking Business
In a landmark judgment delivered on September 16, 2026, a Division Bench of the Calcutta High Court, comprising Justices Shampa Sarkar and Arjun Ray Mukherjee, set aside the winding-up order of the Pranabananda Cooperative Bank Ltd., Burdwan, originally passed by the Registrar of Cooperative Societies (RCS), West Bengal, on August 6, 2002. The Court found that the winding-up order and the appointment of the liquidator were arbitrary, illegal, and violative of the principles of natural justice.
The case arose from the Reserve Bank of India's (RBI) rejection of the bank's application for a banking license in 2001, following inspections that revealed grave irregularities and financial deficiencies. The RBI, invoking powers under the Banking Regulation Act, 1949, directed the RCS to wind up the bank. Acting on this direction, the RCS issued the winding-up order under Sections 99 and 100 of the West Bengal Cooperative Societies Act, 1983, without following the mandatory procedural safeguards.
The appellants, including Sri Bhaskar Mukherjee, a former board member of the bank, challenged the winding-up order on grounds that the RCS failed to conduct an inquiry or inspection as required by law, did not serve the inspection report to the appellants, and denied them an opportunity of hearing before passing the order. The Court noted that although the RCS claimed an inspection was conducted in 1999, the report was never served on the appellants. Moreover, the elected board was dissolved before the inspection, and the appointed Board of Administrators, whose appointment was later declared illegal by this Court, had no interest in defending the society.
The Court observed that the principles of natural justice, particularly the audi alteram partem rule (right to a fair hearing), are mandatory even in the absence of explicit statutory provisions. Citing seminal Supreme Court judgments such as A.K. Kraipak v. Union of India, Maneka Gandhi v. Union of India, and Swadeshi Cotton Mills v. Union of India, the Court held that the non-communication of the inspection report and denial of hearing amounted to a violation of Article 14 of the Constitution of India. The Court further emphasized that the RBI's requisition to wind up the bank did not absolve the RCS from complying with the procedural safeguards under the Cooperative Societies Act.
Rejecting the State's contention that the order of the RBI was binding and that the appellants could not maintain proceedings in the name of the society post winding-up, the Court clarified that members have a statutory right to appeal against winding-up orders under Section 136 and the Third Schedule of the Cooperative Societies Act. The Court also criticized the lower courts for overlooking the statutory and constitutional infirmities in the process.
In a significant directive, the Court quashed the winding-up order and the liquidation proceedings and ordered the revival of the society as a cooperative credit society. However, the society is prohibited from carrying on banking business as a cooperative bank. The RCS was directed to supervise the handing over of assets and to proceed in accordance with law if further action is warranted. The Court underlined that statutory violations cannot be cured by the mere passage of time, and a citizen's right to fair treatment and hearing must be upheld despite delays or changed circumstances.
This judgment reinforces the imperative of adherence to natural justice in administrative actions with civil consequences and clarifies the limits of RBI's regulatory powers vis-a-vis the Registrar of Cooperative Societies under the Cooperative Societies Act. It also highlights the judiciary's role in ensuring lawful and fair exercise of power in the cooperative banking sector.
Bottom Line:
Cooperative Societies Act - Principles of natural justice must be adhered to before winding up a cooperative society. Statutory violations cannot be diluted by the passage of time.
Statutory provision(s):
West Bengal Cooperative Societies Act, 1983 Sections 92, 93, 99, 100, 136, 145; Banking Regulation Act, 1949 Sections 11(1), 22(3)(a), 22(3)(b), 22, 35A; Deposit Insurance and Credit Guarantee Corporation Act, 1961 Section 13D(1)
Sri Bhaskar Mukherjee v. State of West Bengal, (Calcutta)(DB) : Law Finder Doc Id # 2979894
