The Sugauli Sugar Works (Private) Ltd vs The Asstt. Registrar, Co-operative Societies

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeal No. 100 of 1962

Decision Date: 14 March 1962

Coram: Bhuvneshwar P. Sinha, N. Rajagopala Ayyangar, J.R. Mudholkar

In the appeal titled The Sugauli Sugar Works (Private) Ltd. versus The Assistant Registrar of Co‑Operative Societies, decided on 14 March 1962, the Supreme Court of India rendered its judgment. The opinion was authored by Justice Bhuvneshwar P. Sinha, who was joined by Justices N. Rajagopala Ayyangar and J. R. Mudholkar. The petitioner in the case was The Sugauli Sugar Works (Private) Ltd., a company incorporated under the Indian Companies Act with its registered office in Calcutta, which engaged in sugar manufacturing in Bihar. The respondent was the Assistant Registrar of Co‑Operative Societies, acting on behalf of the Union of Co‑Operative Societies that had been registered under the Co‑Operative Societies Act.

The central issue for determination was whether, under the Bihar and Orissa Co‑Operative Societies Act of 1935 as amended by the Bihar Co‑Operative Societies (Amendment) Act of 1948, the Registrar possessed jurisdiction under section 48(1) to entertain a reference made by a registered society against a person who was not a member of that society. The Union of Co‑Operative Societies had issued a reference under section 48 of the Act claiming that the petitioner owed a sum of Rs 1,20,809 odd as commission and interest for the supply of sugarcane during the 1959‑60 crop year. The Assistant Registrar, as the first respondent, registered the reference and served notice upon the petitioner.

The petitioner objected at the preliminary stage, contending that the Assistant Registrar lacked authority under the Act to consider the reference. The Assistant Registrar dismissed this objection, relying on a decision of the High Court. The High Court, in turn, upheld the Assistant Registrar’s order and dismissed the petitioner’s petition under Articles 226 and 227 of the Constitution in limine. The Supreme Court held that the High Court had adopted an erroneous view of the law. While section 48 of the Act permits the Registrar to entertain a claim by a financing bank against a non‑member to whom advance payment in cash or kind had been made, provided such claim is sanctioned under section 16(1), this provision does not extend to claims that do not fall within the category described in section 16(1) read with section 2(c). Specifically, a claim made by a registered society against a non‑member who is not an agriculturist does not fall within the scope of section 48(1) read with Explanation 1.

The Court further explained that the amendment of 1948, which inserted the word “non‑member” into Explanation 1, did not broaden the substantive reach of section 48(1) to render every dispute between a registered society and a non‑member cognizable by the Registrar. In the present case, the second respondent was not a financing bank, and the petitioner was not an agriculturist; consequently, the addition of “non‑member” could not be applied to give the Registrar jurisdiction over the matter.

The Court observed that the second respondent was neither a financing bank nor an agriculturist, and therefore the provision of section 48(1)(e) together with Explanation 1 of the Act could not be invoked in the present dispute. In reaching this conclusion, the Court also noted that the earlier authority of Union of India v. Registrar, Co‑operative Societies, Patna, reported in 1961 I.L.R. 40 Pat. 7, had been expressly overruled. This finding formed the factual and legal backdrop for the issues that were to be considered on the appeal before this Court.

The appeal before this Court, recorded as Civil Appeal No. 100 of 1962, was entertained by special leave pursuant to an order dated 4 December 1961. The appeal was taken from the judgment and order dated 30 October 1961 of a Division Bench of the Patna High Court in Miscellaneous Judicial Case No. 954 of 1961. The appellant, a private limited company incorporated under the Indian Companies Act and having its registered office in Calcutta, is engaged in the manufacture of sugar at its factory located at Sugauli in the Champaran district of Bihar. The first respondent is the Assistant Registrar of Co‑operative Societies for the Motihari Circle, situated in Motihari, Bihar. The second respondent is the Union of Co‑operative Societies, which is itself a society registered under the Bihar and Orissa Co‑operative Societies Act, 1935 (hereinafter referred to as “the Act”). The third respondent is the State of Bihar. On 14 August 1961 the second respondent filed a reference under section 48 of the Act against the appellant, claiming a sum of Rs 1,20,809‑odd as commission and interest for the supply of sugarcane during the 1959‑60 crushing season. This reference was entered by the first respondent as Award Case No. 101 of 1961 on 17 August 1961, and notice of the reference was served upon the appellant. On 26 September 1961 the appellant raised a preliminary objection challenging the jurisdiction of the first respondent to entertain and adjudicate the reference, and prayed that the reference be dismissed. The first respondent, relying on the Patna High Court decision reported in Union of India v. Registrar, Co‑operative Societies, Patna, overruled the appellant’s objection by an order dated 29 September 1961. The appellant subsequently moved the High Court of Patna seeking relief from that order. The High Court, following its earlier decision, dismissed the application summarily. Accordingly, the appellant applied to this Court for special leave to appeal against the High Court’s dismissal, which was granted on the date mentioned above.

In January eleven 1962 the Court heard the appellant’s application for a stay, and on that day the Court ordered that the appeal be heard peremptorily on February fifteenth of the same year. The matter therefore came before the Court for the hearing of the main appeal, as recorded in the citation (1) (1961) I.L.R. 40 Patna 7. The sole issue to be decided in this appeal was whether, under the provisions of the relevant Act, the first respondent possessed jurisdiction to hear and determine the dispute that had been referred to it by the second respondent. The Court explained that the answer to this question depended entirely on how the provisions of the Act were to be interpreted. Before examining the Act as it presently stood, the Court found it necessary to set out the legislative history of the law that governed cooperative societies.

The cooperative movement had begun in the early twentieth century, and the Indian Legislature enacted the Co‑operative Societies Act 1912 (Eleventh of 1912) to regulate such societies. That central legislation remained applicable in the provinces of Bihar and Orissa until it was repealed by the Bihar & Orissa Legislative Council through the Bihar & Orissa Co‑operative Societies Act 1935 (Act VI of 1935), after obtaining prior sanction of the Governor‑General under subsection 3 of article 80‑A of the Government of India Act. The 1935 Act was intended to consolidate and amend the law relating to cooperative societies within the province as it then existed. By virtue of section 5, all references in any enactment made by any authority in British India to the Co‑operative Societies Act 1912 were to be construed as references to the new 1935 Act. Section 7 provided that a society whose object was the promotion of the common interests of its members in accordance with cooperative principles, or a society established to facilitate such an object, could be registered under the Act. Upon registration, the society became a body corporate with perpetual succession, a common seal, and the power to acquire and hold property, to enter into contracts, and to institute and defend lawsuits. Section 15 stipulated that a registered society could receive deposits and loans from members and non‑members only to the extent and under the conditions that might be prescribed. Section 16 required that, ordinarily, a registered society could not make a loan to any person other than a member unless it obtained either general or special sanction from the Registrar and complied with any restrictions imposed by him. Section 17 further empowered the Provincial Government, by rule, to prescribe prohibitions and restrictions on the transactions of a registered society with persons who were not members. Finally, section 48 made it obligatory that any dispute touching the business of a registered society, whether between members, past members, their heirs or sureties, or between such persons and the society itself, be referred to the Registrar. By virtue of Explanation (1) to that section, a claim by a registered society for a debt or demand due from a member, a past member, an heir, legal representative, or surety—whether the surety was a member or not—constituted a dispute within the meaning of the main provision, even if the debt was admitted and the only issue was the manner of enforcement. The Court therefore concluded that the Act applied only to registered societies and their members in their mutual dealings, and that it extended to occasional borrowings by a registered society from non‑members only in accordance with the rules and bye‑laws prescribed by the competent authority.

The Court explained that any dispute concerning the business of a registered society, whether it is between current members, former members, persons claiming through members, former members or deceased members, or sureties of members, former members or deceased members—regardless of whether such sureties are members or non‑members—and also any dispute between those persons and the registered society itself, must be referred to the Registrar. By virtue of Explanation (1) to the relevant section, a claim made by a registered society for any debt or demand that is due to it from a member, a former member, the heir or legal representative of a former member, or from sureties—whether those sureties are members or non‑members—shall constitute a dispute within the meaning of the main provision, even if the debt or demand is admitted and the only issue in contention is the debtor’s ability to pay or the method by which payment may be enforced.

The Court observed that the Act is confined in its operation to registered societies and their members in their interactions with one another. It holds that only in exceptional situations—such as when a registered society borrows from non‑members in accordance with the rules and bye‑laws prescribed by the competent authority, or when a loan is made to a non‑member under the provisions of section 16—can there be dealings between a registered society and a non‑member. Apart from those limited cases, the only other circumstance that brings a non‑member into the sphere of the society’s dealings is when a non‑member acts as a surety for a member; such sureties are nonetheless covered within the framework of transactions between a society and its members.

The Court then turned to the statutory background, noting that these provisions were part of the Act as amended by the Bihar Co‑operative Societies (Amendment) Act 1942 and the Bihar Co‑operative Societies (Amendment) Act 1944. Both amendment Acts were enacted by the Governor of Bihar exercising powers conferred by the proclamation of 3 November 1939 issued under section 93 of the Government of India Act 1935. For the purpose of this judgment, it was sufficient to highlight certain amendments introduced by the 1944 amendment, identified as Bihar Act X of 1944.

Section 2 of the original 1935 Act was altered by clause (c) of subsection 2, which inserted the definition of “financing bank” to read: “(c) financing bank means a registered society the main object of which is to make advances in cash or kind to other registered societies or to agriculturists who are not members of registered societies or to both such societies and agriculturists.” Further, section 16 of the 1935 Act was amended by adding subsection (3), which now provides: “(3) Where the Registrar has accorded sanction to a financing bank under the provisions of sub‑section (1), a registered society which is a member of such financing bank may, subject to the terms of the sanction and such other terms and conditions as may be prescribed by the Registrar, act as agent for the financing bank and as such agent carry out, with or without any commission, all or any transactions connected with loans or advances made or to be made by the financing bank.” A consequential amendment was also made to section 23 of the Act.

By inserting clause 23‑A into the 1935 Act, the legislature made any debt or outstanding demand that a registered society holds against a non‑member a first charge on the property of that non‑member. The most significant amendment was effected by clause 6 to section 48 of the principal Act, which provided that after clause (d) the words “shall be inserted” were added and a new clause (e) was introduced. Clause (e) reads: “(e) between a financing bank authorised under the provisions of sub‑section (1) of section 16 and a person who is not a member of a registered society.” In addition, the explanation to subsection (1) was altered by inserting the word “non‑member” after the words “from a member,” and by inserting the words “or non‑member” after the phrase “of a deceased member.” It was not necessary to recount the other consequential amendments or the addition of a new chapter 7A concerning the manner of recovery. These amendments, originally enacted by the Governor of Bihar under his special powers, were later re‑enacted as Act XVI of 1948; henceforth they are referred to as the amendments of 1948. A Division Bench of the Patna High Court, in Union of India v. Registrar, Co‑operative Societies (Patna 1), held that the explanation to section 48(1) encompasses a claim by a registered society for any debt or demand from a non‑member, and consequently the claim of a registered society against the railway company for compensation for short supply fell within the ambit of section 48. The Bench further concluded that the Assistant Registrar, Co‑operative Societies possessed jurisdiction to determine the dispute under section 48(2). Relying on that decision, the High Court dismissed the appellant’s petition under Articles 226 and 227 of the Constitution, in limine. The appellant has now questioned the correctness of that decision. The core issue therefore is whether the High Court adopted the proper view of section 48, whose relevant provisions state: “48 (1) If any dispute touching the business of a registered society … arises‑ (a) amongst members, past members, persons claiming through members, past members or deceased members, and sureties of members, past members or deceased members whether such sureties are members or non‑members; or (b) between a member, past member, persons claiming through a member, past member or deceased member or sureties of members, past members or deceased members, whether such sureties are members or non‑members, and the society, its managing committee or any officer, agent or servant of the society; or (c) … (d) … (e) between a financing bank authorised under the provisions of sub‑section (1) of (1) (1961) I.L.R. 40 Pat. 7. section 16 and a person who is not a member of a registered society;”

It was observed that any dispute falling within the categories listed in section 48 was required to be referred to the Registrar. Explanation 1 clarified that a claim made by a registered society for any debt or demand owed to it by a member, a non‑member, a past member, the nominee, heir or legal representative of a deceased member or non‑member, or by sureties of members, past members or deceased members—regardless of whether those sureties were themselves members or non‑members—constituted a dispute touching the business of the society within the meaning of the subsection. This applied even when the debt or demand was admitted and the sole contentious issue was the ability to pay or the manner of enforcing payment. The provision further stated that, except as expressly provided in the section, a decision of the Registrar made under this section, and subject to the Registrar’s orders on appeal or review, would be final when the dispute had been transferred or referred under clause (b) or (c) of sub‑section (2). From the provisions set out above, the Court noted that the Act created a special tribunal, namely the Registrar of Co‑operative Societies, to adjudicate the specific disputes enumerated in section 48(1)(a) to (e). The purpose of establishing this special tribunal was to shorten litigation and to provide speedy relief to registered societies and their members in disputes among themselves concerning the business of the society. Before the amendments introduced by the Act of 1948, the Registrar could entertain disputes only among members, past members or their heirs or sureties, or between a society and other registered societies, without exhaustively listing all possible categories. Prior to those amendments, a person who was not a member of a society, nor claiming through a member, past member or deceased member, nor a surety of a member or deceased member, was outside the jurisdiction of the Registrar under section 48. Consequently, any dispute between a society—or its members, past members, deceased members or their sureties—and a non‑member was not covered by the section. Therefore, the appellant company, which was neither a registered society nor a member of any registered society, could not have its claim, or a claim against it by a registered society, referred to the Registrar for decision under this section. Such disputes between a society or its members and a non‑member had to be brought before the ordinary courts for determination. The Court expressed the opinion that the contention raised on behalf of the appellant was correct. By the amending Act of 1948, the relevant and important amendments were introduced into the Act. The effect of those amendments was that a claim by a financing bank against a non‑member, to whom the bank had made an advance in cash or kind with the sanction of the Registrar under section 16(1), would be entertainable by the Registrar upon reference. However, the passage concluded without addressing further consequences.

In this case the Court explained that a claim which does not fall within the description set out in section 16(1) read with section 2(c), when it is made by a registered society against a non‑member who is not an agriculturist, cannot be brought within the scope of section 48(1) read with its Explanation. The Explanation, the Court observed, does not add a new category to the list of disputes classified under sub‑sections (a) to (e) of section 48(1) that may be referred to the Registrar. Rather, the Explanation was originally introduced to clarify that even if a debt or a demand is admitted and the sole issue is the debtor’s ability to pay or the method of enforcing payment, such a dispute still falls under the ordinary provisions of section 48(1). The Court further noted that the amendment made by the 1948 Act, which inserted the word “non‑member” into the first Explanation, did not expand the meaning of section 48(1) so as to render every type of disagreement between a registered society and a non‑member cognizable by the Registrar, thereby removing the jurisdiction of the regular courts. Turning to the facts, the Court found that the present controversy was between the second respondent, a registered society, and the appellant, a non‑member, concerning a claim for commission and interest on the supply of sugarcane. The appellant also asserted a counter‑claim of one lakh fifty thousand rupees alleging short and irregular supply of sugarcane by the respondent. The Court held that these matters lie entirely outside the ambit of section 48 of the Act because the second respondent is not a financing bank and the appellant is not an agriculturist who received, or could have received, any cash or kind advances that would bring him within section 48(1)(e) and the associated Explanation 1. Consequently, the Court found that the decision of the Patna High Court, which had allowed the reference to the Registrar, was erroneous. Accordingly, the appeal was allowed with costs. The Court directed that the Registrar must not entertain the reference, must not adjudicate the dispute, and must not make any award. The parties were therefore left to pursue their respective remedies in the ordinary courts. The appeal was allowed.