THE KANJIRAPPALLY SERVICE CO Vs. STATE OF KERALA

JUDGEMENT

(1.) The manner and mode of investment of the funds of a Cooperative Society, incorporated and registered under the provisions of the Kerala Co-operative Societies Rules, 1969 ('the KCS Rules' for brevity), is scrupulously prescribed in Chapter VI thereof. This Chapter begins with Rule 53 and ends at Rule 63. The leet motif of these provisions is that the funds of a Society will have to be, as far as possible, maintained as fluid resource in such form and according to the standards fixed by the Government from time to time. Liquid resource means assets which may be converted into ready cash and includes balance with the banks, post office savings bank and unencumbered investments representing the statutory reserve fund. The mode of investment of reserve fund is also provided under Rule 60 of the Rules and it postulates investment in the Central Cooperative Bank or the Apex Bank as the case may be and in trust securities. This being the essential manner in which funds are to be deployed.

(2.) The genesis of the controversy in this case is that the first respondent Society invested a large portion of its funds in certain mutual funds without obtaining the permission of the Registrar of Co-operative Societies. The allegation against the first respondent Society is that these modes of investments, which are alleged to be high risk ones, are not provided for in the bye-laws of the Society and, therefore, that it ought to have been done only with the previous express sanction of the Registrar of Co-operative Societies, thus being in violation of the provisions contained in Rule 180 of the Rules.

(3.) The Society in question is a Primary Agricultural Credit Society as defined under Section 2(oaa) of the Act with its principal object being to provide loans and advances for agricultural purposes. Their investment in the mutual funds, therefore, invited objections because such investments were seen to be high risk ones and not fluid thereby being in violation of the principal object for which the funds could have been utilised. It is asserted by the respondent that even if the Society wanted to make such investments, it could have done so only after obtaining the express sanction from the Registrar of Co-operative Societies and that their action in not obtaining such sanction before making such investments amounts to gross illegality and misfeasance on the part of the members of the Managing Committee of the Society.