BOARD OF DIRECTORS OF ANDHRA PRADESH CO~ v. CHITTOR PRlMARY CO-OPERATIVE LAND MORTGAGE

24th March, 1972 of the Andhra Pradesh High Court at Hyderabad in Wtit Petitions Nos. 6005 of 1970, 1547 of 1971 and 5784 of 1970. M. Krishna Rao. B. Balamulwnda Reddy anll B. Partha:;aralhi, for the appe11ant (in all the appeals). M. K. Ramanwrthy a11d J. Ranwmurthi, for n;spondcnt no. 1 (:;1 C. A. No. 2230). S. Dasaratharama Reddy and T.A. Ramc!tamlran, for respondent No.1 (in C.A. 2231). The Judgment of the Court was delivered by JAGANMOHAN REDDY, J. In the three writ petitions filed by the G respective respondents challenging the vires of r. 70 of the Andhra Pradesh Co-operative Societies Act. 1964-hereinafter called 'the Act'-the Andhra Pradesh High Court held that rule to be 1tltra vires the Board of Directors of the Andhra Pradesh Co-operative Central Land Mortgage Bank Ltd.,-hereinafter referred to as 'the Central Land Mortgage Bank. These appeals arc by special leave against that judgment. H The respondent in Civil Appeal No. 2229/72 is an Assistant Accountant in the Chittor Primary Co-operative Land Mortgage Bank A B c D E F G H A.P. CO·OP. MORTGAGE BANK 'v. CHITTOR BANK (Jaganmohan Reddy, ].). In Civil Appeal No. 2230/72 the respondents are employees of Ltd. the different Co-operative Land Mortgage Banks. The respondent in Civil Appeal No. 2231/72 is the Nellore Co-operative Land Mortgage Bank Ltd. In the first of the appeals the petitioner/respondent com plained that when he was due for promotion for the post of an Accoun tant, under r. 70 his right to promotion based on seniority had been taken away. According to him, but for r. 70, he would have had a right to promotion under Bye-law 10 on the basis of his seniority among the Assistant Accountants of that Bank. The petitioners/res pondents in the second of the appeals had urged that a co-operative society was a body corporate and the ultimate authority over Society was vested in its general body oodcr s. 30 of the Act, and the Managing Committee thereof had the right to manage all its affairs including the power to appoint, transfer and dismiss its employees. That power of the Society is sought to be interfered with not only by vesting the Board with power r." w-.~··>·•c>.,de'lce under s. 115 of the Act -out also by r .. 70 made pursuant to that section. Not only s. 115 and r. 70 but also 's. 116A of the Act according to them, were wholly ultra vires the State Legislature. The respondent in the third of the appeals apprehends that r. 70 takes away its right of ·appointment, dismissal and control over certain of its employees which render them liable to be transferred by the Central Land Mortgage Bank to other ;nortgage banks elsewhere in the State which is an interference with the right of management of the Primary Land Mortgage Banks. The High Court, while negativing the contention that ss. 115 and 116A of the Act were u.'tra 1·ires the State Legislatur·~, has, however, held, as already adverted to, that r. 70 was ultra vires of s. 130(1) read with s. 115 of the Act. Before us, the arguments were confined question whether 1he High Court was right in declaring r. 70 of the Rules to be ultra l'ires of s. 115 of the Act. The impugr:ed r. 70 'is purported to be made under sub-s. (1) of s. 130 rca <I w1th s. 115 of the Act. These two sections and impugned rule arc as follows : s. 115-"Subjcct to the provisions of this Act, the Doard shc.ll h~ve s~ch power of :;up~rvision over the mortgage banks m~lud!ng power of appomtment, transfer and discipli nary actton m rc~pcct of the employees of mortgage banks as may be yrescnbed, and may, wi~h the previous approval of the R?gtstrar, make such regulatiOn as may be necessary for carrymg O\lt all or any of the purposes of this Chapter.'' s,. 130-:-"0) The Government may, by notification pubh?hed m the Andhra Pradesh Gazette, make rules for carrymg out all or any of the purposes of this Act, for the whole or any part of the State and for any class .of societies." r. 70-(1) The Board of Directors of Central Land Mortgage Bank· hereinafter 'Board' shall constitute a .centralised service for the mortgage banks in the State and Wtth effect from such constitution the Board shall have power to make appointments to the posts brought unde.r referred to as ..... i - i··· 444 SUPREME COURT- REPORTS [1974]3 s.c.a, centralised service and the mortgage banks· shall have no · .. ·power to make appointments to such posts. X X X X · (13) The Board shall have power to call upon mortgage banks to contribute to the cos~ <;>f service rendered . by the Central Mortgage Bank by provtdmg the services of members of the centralised service to work in the mortgage banks and the mortagage banks shall pay the cost at th.e rates prescribed from time to time b~ th_e Boa~d.. If any. mortgage Bank fails to pay such contn~utu;m w1thm the ttme fixed, the Registrar may, on the apphcat10n of Central Mortgage Bank and after such enquiry as he may consider necessary make an order requiring the mortgage bank to pay amount and every such order shall be enforceable againstt~ mortgage bank under section o3 (2) of the Act as if it was an award. ( 14) On constitution of centralised service all rights and privilcg.::s a~crued n_nd employees in relatiOn to h1s servtce 111 the mortgage bank shall stand vested with the Board. li<!bili~ies incurred by X X X X c D It may be mentioned that s. 115 of the Act is in Ch. XIU dealing with Land Mortgage Banks. Clauses (a), (b) and (c) of s. 84 in Ch. Xlll define ~'lloard''. "Central Mortgage Bank" and "Mortgage Bank" rcsp~ctivcly. According to these Jcfmitions the "Board" me:ms the Board of Directors of Central Mortgage Bank; "Central .Mortga:g~ E Bank" means the Andhra Pradesh Co-operative Central Land Mort· gage Bank; and "Mortgage Bank" means a co-operative land mort~agc bank registered or deemed to be registered under the Act and adm1tted as a member of the Central Mortgage Bank. That section also ddin~s "trus~~" but it is not necessary for our purposes to It may also be mentioned that the ruks under s. 2(!) of dcfimuon. the Act mean the rules made under the Act. rcf.:r f Under s. 85 of the Act tht; provisions of Ch. Xlll apply to the mortgage banks ad\:ancing loans for the purposes thcrei!l enumerat:u ar~tl under s. 97 subJect to the provisions of the Act and tn accordan': W1Lh the rules. made thereunder, it shall be comp::tcnt for a mortgl~ bank to advance loans for the purposes referred to in s. 85 and t~ ~ol . lands, the possession of which is transferred to it under the proVJStons G of Ch. XIII. The mode of n:covcry of the amounts advanced by~.: mortgage banks i.o; set out in ss. 100 to 109 of the Act, und.:r ''h11:t any loan granted by a mortgage bank including any interest chargcab ~ thereon and co~ts, if any, incurred in' connection therewith, shall whcll !hey become due, be rccoverablt: by the mortgage bank, All powe~ In respect of the recovery of loans arc conferred on the mortga~ banks, s~ch as. on an application muue by any of r11e mortgage .. tJan~s II the RegJ!;tr~ Js empowered to grant a certificate for recoverY of a loan due to ll. The other provisions confer power on the Collector t~ make recoveries during a certain pc_riod; and a power of distraint an< A.P. co-oP. MQllTGAGE BANK V. CHlTTOR. BANK (JQ[ftlnmt>han Reddy, J.) sale. When power of sale is to be exercised; powers of the mortgage bank where mortgaged property is destroyed or security becomes in sufficient; power of Board or Trust~ to distrain and _sell all prope.rty are also provided for. These provistons further pr~lde tha~ the tttle of purchaser is not to be questioned on ground or megulanty; mort gage is not to be q,uestioned on insolvency of mortgagor. They also deal with the appomtment of a receiver and his powers etc. Apart from these sections, it may be noticed that ss. 93 and 94 empower, notwithstanding anything contained in any law for the time being in force, a mortgage bank or the Central Mortgage Bank t!} purchase any mortgaged property sold ulJ,.der Ch. XIII of the Act and the property _so purchased shall be disposed of by such bank by sale wiU!in such period as may be fixed by the Trustee. By sub-s. (2) of s. 93 this power wa'l to override the maximum limit of agricultural holding fixed \tndv the Andhra Pradesh Ceiling on Agricultural Holdings Act, 1961. Section 94 provides that the mortgages executed in favour of, and all other assets transferred to, a mortgage bank by the members thereof shall, with effect from the date of such execution or transfer, be deemed to have been transferred by such mortgage bank to the Central Mort· gage "Bank and shall vest in the Trustee. Section 95 provides t11l.\ payments of all moneys due to the mortgage bank are payable tO:: ~\ and such payments shall be valid as if the mortgage had not been, !tQ _ It is also provided that the mortgage bank shall, it! t:l\e transferred. absence ·of any specific direction to the contrary issued by the Boiid or Trust'!e and communicated to the mortgage bank, be entitled tb rue on the mortgage or take any other proceeding for the recovery of the moneys due under the mortgage. We have set out some of the relevant provisions to show that there is npthing in 'the .1\.ct which . empowers the Central Mortgage Bank, 119twithstanding the fact it provides funds to the mortgage b$nks, to make collection of the loans advanced by the mortgage banks: The ruJe..making power conferred on the Government for carrying out aU or any of the purposes of the Act 'must be confined to such' of purposes as are enumerated or indicattd in the preamble or in any of the provisions of the Act. The oaly provision to which a refei:~ce has been ronde specifically as empowering the Board of Directors of the Central Mortgage Bank tQ constitute a centralised service for the mortgage banks is s. 115 of the Act. A ,careful reading of s. ll~. however, does not justify the contention that the Central Mortga.a~ Bank either bas the power directly to collect the loans and ady~ given by the member banks, namely, tbe mortgage banks, or to crea.t.= a centralised ~re of service from among the employees of the mort gage banks which are members of the· Central Mortgage Bank. Tbat section merely confers power of supervision on the Board of the: Central Mortgage Bank over the mortgage b.nks which power includes th~ power of appointment, transfer and disciplinary action in res~ of the employees of the 11Wtaage be, nks. It may be that some questiOns may be J'l.ised in respect of the actic)Qs of the mohgage banks in the ma~ter ~appointment, ~«and ~ip\itw'y 3Ctions of its em~. Whenevcsr such quettions are ~~~d, the Board of Directot's of 'the Central, tdortgage Bank iJl exercbe of its power of supervision can go 16- L954 S.'PCf/14 u C 1) £ F G H ·:~. :.·· .·.: ~ 446 SUPREME COUR1' REP<*TS [ 1974] 3 s.C,R, into. the question of such appointments, transf~rs and disciplinary acqo~s 'J'!U5 power, therefore,. can m made or taken by the mortgage bv, nks, no circumstances be construed as empowenng the Board of Dll'eCtors of ·the Central Mortgage Bank to recruit employees for the mortgage banks or to make appo~tments to a common cadre created by it from out of the employees of the member mortgage banks. If the employees aie.appointed by the Central Mortgage Bank, their salaries and orher emolutnents should be paid by it. But evidently this is not so, as sub·rr. (13) & (14) of r. 70 authorise the Central Mortgage Bank to call for contribution for the cost of the serviCe rendered by the Central Mortgage Bank to be b«;~rne by the mortgage banks and provides that once a centralised cadre is constituted aU rights and privileges accrued and liablities incurred by the employee in relation to his service in the It is this power mortgage bank shall stand vested with the Board. that the appellants are seeking to draw from s. 115, because only it . such a power can be found in that provision, or in any other provision ~the Act, l!an be impugned r. 70 be made under sub-s. (1) of s. 130 :Of the Act. In this connection it should be observed that the key words ins. 115 .are 'employees of the mortgage banks'. The power Q( ·su~rvision including the power: of appointment, transfer and punitive action may be taken by the Central Mortgage Bank against _ persons who are. the employees of the mortgage banks. But r. 70 seeks - to bring into being a centralised service, tbe employees whereof shaH be the employees of the Central Mortgage Bank and not of the mortgage vtmks. Such a centralised service js not contemplated by s.l15. 1t is contended by the learned Advocate for the appellants that the word 'transfer' in section 115 would indicate that -it can only be ~pe(:t . .Of ·:the transfer of employees ·from one mortgage bank anothet.: We canrtot read this power in the manner suggested, and if so this would authoriSe the constitution of a centralised cadre. · As we mive · explained afrea:dy the power of the Central Mortgage Bank: ooly of. su~ion -,~h power to·supervise is to include the powet lt is only where what Of ·~~point'lne~_t, transfer aild disciplinary action. Is not inclutJed in ~ particular term as generally understood or whert t~ra i~ some· doubt in respect Of any particuJar matter being included, thi~ the Legislature specifies it. by including that .matter. The super· v~y power in res~ of ~he employees M the mortgage banks does nut include the p()wer to .transfer an employ~ fr9m one mortgage bank t·o. anotHer -creating--thereby a ·cORtract of serviCe with a . different emp~oyer. . _The· wo.::cJ 'transfer', therefore, must be read as. a transfer from one branch of. the same mortga,e bank to -aQother of 1ts branch. The learned. Advocate for the appellants stated thai· the mortgage banb baw. no ~anches. · ·w,e· wo~ld DOt,· however; :venture. to say so. As ~ted out by- the learned.· Advocate. fdi· the first respondent· in Civil Appe<!l No. 2231 df 1972 -'that Bye. Law 20 of the Model"Bye·Laws of Co.<lpetative Land Mortgage Bank _Ltd. provides· fonnaintaiiiing a reeuro of ser-vice -by the Bank in respeet d ·each emp1oyee· lit whleh aU Changes affecting ra:nk, emoluments, ·trusfen ~ other aUied ~atters sbl]l be not~ in the fe!istet under tlte attestation of . tile Secretary. This provision shows .that the Bye-Laws envisage a transfer of an A B c D E F G H ' . _, ' I ,.. . A.P. CD-OP. MORTGAGE BANK V."CHlTTOR BANK (/,?ganmohan Reddy, 1.) . 447. A <!mployee from one ~;.:ancil ~o ·another of a mortgage bank. This bye Jaw is consistent with s. 115 of the Act which confers a supervisory power in respect -of transfer of an employee from one branch to another of the mongage bank and-not from one mortgage bank to another. B c· The learned Advocate for the appellants contends that it is the Cen tral Mortgage Bank which advances the funds to its members,..;namely, ' the mortgage banks and the responsibility is on the Central Mortgage Bank to see that the amounts advanced by the member banks are col lected and the loans advanced by it· are properly secured. While no doubt the Central Mortgage Bank may be concerned with securing its loans to the mortgage banks, the provisions of the Act do not coroier upon the Central Mortgage Bank the power to collect any Ioaris advanc ed by the member banks i.e. the mortgage banks. The security given to the mortgage banks in respect of tbe loans advanced by them no doubt is deemed to have been transferred to tlw Central Mortgage Bank, but that is only by way of securing the monies advanced by the Central Mortgage Bank to the mortgage banks. Nonetheless, as we have seen earlier, the duty to collect the loans is upon the mortgage banks and notwithstanding the deemed transfer to the Central Mort gage Bank of any property mortgaged to the mortgage banks, .amount due to the mortgage banks is payable to the mortgage banks only and not to the Central Mortgage Bank. Unless there is any speci fic provision in the Act which directly creates a contractual liability between the Central Mortgage Bank and the borrowers from the mort gage banks, the liability or the borrowers for payment of loans advimc cd to them is only to the mortgage banks which actually advanced the loans to them. The borrowers have no liability to the Central Mort- · gage Bank. The l£:gisiature apparently realised the absence of any power in the Act, and therefore provided for creation of a common cadre of emplo yees when it enacted s. 116A empowering the Registrar to create a common cadre of employees for any class of society, if he considers it necessary in the interest of the co-operative movement to. do so. This section reads as under : s. 116A-"(1) Notwithstanding anything in this Act where the Registrar, in the interest of the co-operative move ··· .-: ment; considers that the creation of a common cadre of em . ployees for any class of societies is necessary, he may, constitute an appointment committee or authorise one or more federal societies to which such class of societi~s is affi liated, to exercise the power of appointment, transfer and disciplinary action in respect of such categories of employees of that class of societies as may be specified by him and. make ·. such regulations as· may be necessary for carrying out said purpose. wpere such appointment committee is cons tituted or federal society is authorisd by the Registrar, the affiliated societies shall not have powers to deal with . such categories of employees except to the- extent the regulation may permit. · · D E F G H 448 SUPREME COURT REPORTS [ 1974] 3 S.C.R. (2) The Registrar shall have power to require the affiliat ed societies to make contribution o~ suoh sum every year to wards expenditure, as the appoi'ntment committee or federal If society is likely to incur or has incurred for the purpose. any society fails to pay the said ~\lm tQ such authority as may be specified by tbe Registrar and within the time fixed by him, the Registrar may on. the application of the authority, and after such enquiry as he may ,consider necessary, make an order requiring the society 'io pay the amount, and every such order shall be enforceable against the society as if it were a decision under section 62." The power of the Registrar, it will be noticed is, to create a com mon cadre of employees for any class of societies. The power, therc fo.rc, is of a general nature and is applicable to the mortgage banks as the Act. well as to the other societies registered as societies under the affiliated Sect-ion 116A also empowers the Registrar to require societies to make contribution of such sum every year towards expen diture as may be incurred for the purposes of creation of any COIDII10ll the High cadre and make .such payment enforceable. Clmrt is right in holding that when a centralised service or any cadre of employees of the mortgage banks cannot be created by the Board in exercise of its power under s. 115 of the Act, r. 70 cannot vest such In this view, r. 70 is ultra vires the rule-making power in the Board. power of the State under sub-s. (1) of s. 130 read with s. 115 of the Act. In our view The appeals arc accordingly dismissed with costs. One set. A B c D s.~.w. Appeal dismissed