Sri Jagadish M.K. v. State of Karnataka & Ors.

Key Legal Principles

For a co-operative bank governed by the Karnataka Co-operative Societies Act and the Banking Regulation Act:

1. The power to appoint a CEO depends upon the statutory classification of the society and the requirements of Section 29-G of the Karnataka Co-operative Societies Act.

2. The State Government or Registrar does not possess an unrestricted power to appoint a CEO of a non-assisted co-operative society without satisfying the statutory conditions.

3. A co-operative bank's appointment of a CEO is additionally subject to the previous approval requirement under Section 35B(1)(b) read with Section 56 of the Banking Regulation Act.

4. Subsequent correspondence seeking ex-post-facto approval cannot, by itself, cure an appointment which was made contrary to the statutory appointment procedure.

Key Legal Principles (Kannada)

Karnataka Co-operative Societies Act ಮತ್ತು Banking Regulation Act ಎರಡಕ್ಕೂ ಒಳಪಟ್ಟ co-operative bankನಲ್ಲಿ:

1. CEO ನೇಮಕ ಮಾಡುವ ಅಧಿಕಾರವು societyಯ statutory classification ಮತ್ತು Karnataka Co-operative Societies Actನ Section 29-Gಯ requirements ಮೇಲೆ ಅವಲಂಬಿತವಾಗಿರುತ್ತದೆ.

2. Assisted society ಅಲ್ಲದ co-operative societyಯ CEOಯನ್ನು statutory conditions ಪೂರೈಸದೆ State Government ಅಥವಾ Registrar ತಮ್ಮ ಇಚ್ಛೆಯಂತೆ ನೇಮಕ ಮಾಡಲು ಸಾಧ್ಯವಿಲ್ಲ.

3. Co-operative bankನ CEO appointmentಗೆ Banking Regulation Actನ Section 35B(1)(b) read with Section 56 ಅಡಿಯಲ್ಲಿ RBIಯ previous approval ಅಗತ್ಯವಾಗಬಹುದು ಮತ್ತು ಈ statutory requirement ಅನ್ನು ಪಾಲಿಸಬೇಕು.

4. Statutory appointment procedureಗೆ ವಿರುದ್ಧವಾಗಿ ಮಾಡಿದ appointment ಅನ್ನು ನಂತರ RBIಗೆ approval ಅಥವಾ ratificationಗಾಗಿ correspondence ಕಳುಹಿಸುವುದರಿಂದ ಮಾತ್ರ ಮಾನ್ಯಗೊಳಿಸಲಾಗುವುದಿಲ್ಲ.

Summary (English)

1. Facts

Sri Jagadish M.K., a KAS officer, was transferred and posted as Chief Executive Officer (CEO) of the Karnataka State Co-operative Apex Bank Ltd. with effect from 13.01.2025.

The petitioner assumed charge as CEO pursuant to the State Government's notification.

However, another person, Sri C.N. Devaraj, had already been appointed as CEO of the Apex Bank, and his tenure, which had received prior RBI approval, was continuing until June 2025.

The President of the Apex Bank questioned the legality of the petitioner's appointment and approached RBI and NABARD for clarification.

RBI subsequently communicated that the petitioner's appointment had not received its prior approval and was not in accordance with law.

The President of the Apex Bank thereafter issued a communication dated 05.03.2025 directing the petitioner to vacate the office of CEO.

The petitioner challenged that communication before the Karnataka High Court.

2. Legal Issue

The principal questions were

(a) whether the State Government could appoint the CEO of the Karnataka State Co-operative Apex Bank without a request from the Bank;

(b) whether the Apex Bank was an "assisted society" so as to attract the Government's power of appointment under Section 29-G of the Karnataka Co-operative Societies Act; and

(c) whether appointment of a CEO of a co-operative bank could take effect without the previous approval of RBI under Section 35B(1)(b) read with Section 56 of the Banking Regulation Act.

3. Court's Decision

The High Court dismissed the writ petition.

It held that the Karnataka State Co-operative Apex Bank was not shown to be an "assisted society" within the meaning of the Karnataka Co-operative Societies Act.

In the case of a co-operative society which is not an assisted society, the Government or Registrar can appoint a CEO only in accordance with the circumstances prescribed by Section 29-G, including the statutory requirement relating to a request by the society.

There was no material showing that the Apex Bank had requested the State Government to appoint the petitioner.

The Court further held that Section 35B(1)(b) of the Banking Regulation Act requires previous RBI approval for appointment, re-appointment or termination of a CEO of a banking company, and by virtue of Section 56, the provision applies to co-operative banks.

Since the petitioner's appointment had not obtained prior RBI approval and was independently not in accordance with Section 29-G, the later communications seeking ex-post-facto approval could not cure the defect.

The direction requiring the petitioner to vacate the office was therefore upheld.

4. Court's Reasoning

The Court first examined the statutory classification under the Karnataka Co-operative Societies Act.

An "assisted society" is a society which has received Government or State assistance in the form of share capital, loan, grant or guarantee for repayment of loan or interest.

The Court found no material establishing that the Apex Bank was an assisted society.

Section 29-G therefore did not give the State Government an unrestricted power to appoint the CEO.

For a co-operative society outside the assisted-society category, appointment by the Government or Registrar is subject to the statutory conditions contained in Section 29-G. In the case of a co-operative credit structure, the society has the option of requesting the Government or Registrar to appoint the CEO.

No such request by the Apex Bank was established.

The Court then considered the Banking Regulation Act.

Section 35B(1)(b) provides that appointment, re-appointment or termination of appointment of a CEO of a banking company cannot take effect without previous RBI approval. Section 56 extends the relevant Banking Regulation Act provisions to co-operative banks.

The petitioner had not obtained prior RBI approval.

The Court therefore held that the State Government's subsequent correspondence seeking ratification or approval could not validate an appointment which was already contrary to Section 29-G and had not obtained the statutory prior approval.

The Court also noted that the previously appointed CEO, whose appointment had RBI approval, continued in office. The Apex Bank could not simultaneously function with two CEOs.

5. Relevance to Co-operative Banks

This judgment is particularly relevant to the governance and management of co-operative banks.

It is useful for determining:

• who has statutory authority to appoint a CEO;

• the distinction between an assisted society and other co-operative societies;

• the role of the State Government and Registrar in CEO appointments;

• the role of the bank's Board;

• the mandatory nature of prior RBI approval;

• the interaction between the Karnataka Co-operative Societies Act and the Banking Regulation Act; and

• the validity of appointments made without the required regulatory approval.

For co-operative banks, the judgment demonstrates that an appointment valid under the co-operative-society framework must also satisfy the additional banking-regulatory requirements applicable to co-operative banks.

6. Practical Application

Before appointing, re-appointing or terminating a CEO of a co-operative bank, the bank should verify both statutory frameworks.

The bank should maintain a clear record showing:

1. the legal status of the society;

2. whether it is an assisted society;

3. whether it falls within the co-operative credit structure;

4. the authority competent to make the appointment;

5. whether the Board has passed the necessary resolution;

6. whether the society itself has made any required request to the Government or Registrar;

7. whether previous RBI approval is required; and

8. whether that approval has actually been obtained before the appointment takes effect.

The case is particularly useful where the State Government, Registrar, Board and RBI appear to have taken different positions regarding the appointment of a CEO.

It also cautions co-operative banks against treating post-appointment correspondence with RBI as an automatic substitute for the statutory requirement of previous approval.

Summary (Kannada)

1. ವಾಸ್ತವಾಂಶಗಳು

ಶ್ರೀ ಜಗದೀಶ್ ಎಂ.ಕೆ. ಅವರು KAS ಅಧಿಕಾರಿಯಾಗಿದ್ದು, 13.01.2025ರಿಂದ ಕರ್ನಾಟಕ ರಾಜ್ಯ ಸಹಕಾರಿ ಅಪೆಕ್ಸ್ ಬ್ಯಾಂಕ್ ಲಿಮಿಟೆಡ್‌ನ Chief Executive Officer (CEO) ಆಗಿ ವರ್ಗಾವಣೆ ಮತ್ತು ನೇಮಕಗೊಂಡಿದ್ದರು.

ರಾಜ್ಯ ಸರ್ಕಾರದ notification ಆಧಾರದ ಮೇಲೆ ಅವರು CEO ಆಗಿ ಅಧಿಕಾರ ವಹಿಸಿಕೊಂಡರು.

ಆದರೆ, ಶ್ರೀ C.N. Devaraj ಅವರು ಈಗಾಗಲೇ Apex Bankನ CEO ಆಗಿ ನೇಮಕಗೊಂಡಿದ್ದು, ಅವರ ನೇಮಕಾತಿಗೆ RBIಯ ಪೂರ್ವಾನುಮೋದನೆಯೂ ಇತ್ತು ಮತ್ತು ಅವರ tenure ಜೂನ್ 2025ರವರೆಗೆ ಮುಂದುವರಿಯಬೇಕಾಗಿತ್ತು.

Apex Bankನ President ಅವರು petitionerನ ನೇಮಕಾತಿಯ ಕಾನೂನುಬದ್ಧತೆಯನ್ನು ಪ್ರಶ್ನಿಸಿ RBI ಮತ್ತು NABARDರಿಂದ clarification ಕೋರಿದರು.

ನಂತರ RBI, petitionerನ ನೇಮಕಾತಿಗೆ ತನ್ನ prior approval ದೊರೆತಿಲ್ಲ ಮತ್ತು ಆ ನೇಮಕಾತಿ ಕಾನೂನಿಗೆ ಅನುಗುಣವಾಗಿಲ್ಲ ಎಂದು ತಿಳಿಸಿತು.

ಅದರ ನಂತರ 05.03.2025ರಂದು Apex Bankನ President ಅವರು petitionerಗೆ CEO ಹುದ್ದೆಯಿಂದ vacate ಮಾಡಲು communication ನೀಡಿದರು.

ಈ communication ಅನ್ನು petitioner Karnataka High Courtನಲ್ಲಿ ಪ್ರಶ್ನಿಸಿದರು.

2. ಕಾನೂನು ಪ್ರಶ್ನೆ

ಮುಖ್ಯವಾಗಿ ಕೆಳಗಿನ ಪ್ರಶ್ನೆಗಳು ನ್ಯಾಯಾಲಯದ ಮುಂದೆ ಇದ್ದವು:

(a) ಬ್ಯಾಂಕಿನಿಂದ ಯಾವುದೇ request ಇಲ್ಲದೆ State Government ಕರ್ನಾಟಕ ರಾಜ್ಯ ಸಹಕಾರಿ ಅಪೆಕ್ಸ್ ಬ್ಯಾಂಕಿನ CEOಯನ್ನು ನೇಮಕ ಮಾಡಬಹುದೇ;

(b) Apex Bank Karnataka Co-operative Societies Actನ ಅರ್ಥದಲ್ಲಿ "assisted society" ಆಗಿದೆಯೇ; ಮತ್ತು

(c) Banking Regulation Actನ Section 35B(1)(b) read with Section 56 ಅಡಿಯಲ್ಲಿ RBIಯ previous approval ಇಲ್ಲದೆ co-operative bankನ CEO ನೇಮಕಾತಿ ಜಾರಿಗೆ ಬರಬಹುದೇ.

3. ನ್ಯಾಯಾಲಯದ ತೀರ್ಪು

High Court writ petition ಅನ್ನು dismiss ಮಾಡಿತು.

Karnataka State Co-operative Apex Bank ಒಂದು "assisted society" ಎಂದು ತೋರಿಸುವ ಯಾವುದೇ material ದಾಖಲೆಗಳಲ್ಲಿ ಇಲ್ಲ ಎಂದು ನ್ಯಾಯಾಲಯ ಹೇಳಿತು.

Assisted society ಅಲ್ಲದ co-operative societyಯ ಸಂದರ್ಭದಲ್ಲಿ, Section 29-Gನಲ್ಲಿ ನಿಗದಿಪಡಿಸಿರುವ statutory requirementsಗೆ ಅನುಗುಣವಾಗಿಯೇ Government ಅಥವಾ Registrar CEOಯನ್ನು ನೇಮಕ ಮಾಡಬಹುದು.

Apex Bank State Governmentಗೆ petitionerನನ್ನು CEO ಆಗಿ ನೇಮಕ ಮಾಡಲು request ಮಾಡಿತ್ತು ಎಂಬುದಕ್ಕೆ ಯಾವುದೇ material ಇರಲಿಲ್ಲ.

ಇದಲ್ಲದೆ Banking Regulation Actನ Section 35B(1)(b) ಪ್ರಕಾರ CEOನ appointment, re-appointment ಅಥವಾ termination ಜಾರಿಗೆ ಬರಲು RBIಯ previous approval ಅಗತ್ಯವಿದೆ ಎಂದು ನ್ಯಾಯಾಲಯ ಹೇಳಿತು. Section 56 ಮೂಲಕ ಈ provision co-operative banksಗೂ ಅನ್ವಯಿಸುತ್ತದೆ.

Petitionerನ appointmentಗೆ prior RBI approval ಇರಲಿಲ್ಲ ಮತ್ತು ಆ appointment ಸ್ವತಃ Section 29-Gಗೆ ಅನುಗುಣವಾಗಿರಲಿಲ್ಲ.

ನಂತರ RBI approval ಪಡೆಯಲು ಕಳುಹಿಸಿದ letters ಅಥವಾ ex-post-facto approvalಗಾಗಿ ಮಾಡಿದ correspondence ದೋಷಪೂರಿತ ನೇಮಕಾತಿಯನ್ನು ಸರಿಪಡಿಸಲು ಸಾಧ್ಯವಿಲ್ಲ ಎಂದು ನ್ಯಾಯಾಲಯ ತೀರ್ಮಾನಿಸಿತು.

ಆದ್ದರಿಂದ petitioner CEO ಹುದ್ದೆಯಿಂದ vacate ಮಾಡುವಂತೆ ನೀಡಿದ್ದ communication ಅನ್ನು High Court ಎತ್ತಿಹಿಡಿಯಿತು.

4. ನ್ಯಾಯಾಲಯದ ಕಾರಣಗಳು

ಮೊದಲಿಗೆ Karnataka Co-operative Societies Actನಡಿ societyಯ statutory classification ಅನ್ನು ನ್ಯಾಯಾಲಯ ಪರಿಶೀಲಿಸಿತು.

"Assisted society" ಎಂದರೆ Government ಅಥವಾ State assistance ಅನ್ನು share capital, loan, grant ಅಥವಾ loan/interest repayment guarantee ರೂಪದಲ್ಲಿ ಪಡೆದಿರುವ co-operative society.

Apex Bank assisted society ಆಗಿದೆ ಎಂದು ತೋರಿಸುವ ಯಾವುದೇ material ದಾಖಲೆಗಳಲ್ಲಿ ಇರಲಿಲ್ಲ.

ಆದ್ದರಿಂದ Section 29-G State Governmentಗೆ CEO ನೇಮಕ ಮಾಡುವ unrestricted power ನೀಡುವುದಿಲ್ಲ.

Assisted society ಅಲ್ಲದ co-operative societyಯಲ್ಲಿ Government ಅಥವಾ Registrar CEO ನೇಮಕ ಮಾಡುವ ಅಧಿಕಾರ Section 29-Gಯ statutory conditionsಗೆ ಒಳಪಟ್ಟಿರುತ್ತದೆ. Co-operative credit structureಗೆ ಸೇರಿದ societyಗೆ Government ಅಥವಾ Registrar ಮೂಲಕ CEO ನೇಮಕ ಮಾಡಿಸಿಕೊಳ್ಳಲು societyಗೆ statutory option ಇದೆ.

Apex Bank ಅಂತಹ request ಮಾಡಿತ್ತು ಎಂಬುದು ಸಾಬೀತಾಗಲಿಲ್ಲ.

ನಂತರ ನ್ಯಾಯಾಲಯ Banking Regulation Actನ provisions ಅನ್ನು ಪರಿಗಣಿಸಿತು.

Section 35B(1)(b) ಪ್ರಕಾರ banking companyಯ CEOನ appointment, re-appointment ಅಥವಾ termination of appointment RBIಯ previous approval ಇಲ್ಲದೆ ಜಾರಿಗೆ ಬರಲು ಸಾಧ್ಯವಿಲ್ಲ. Section 56 ಮೂಲಕ ಈ provision co-operative banksಗೂ ಅನ್ವಯಿಸುತ್ತದೆ.

Petitionerನ appointmentಗೆ prior RBI approval ಇರಲಿಲ್ಲ.

ಆದ್ದರಿಂದ State Government ನಂತರ RBIಗೆ ratification ಅಥವಾ approvalಗಾಗಿ correspondence ಕಳುಹಿಸಿರುವುದರಿಂದ ಮಾತ್ರ, ಈಗಾಗಲೇ Section 29-Gಗೆ ವಿರುದ್ಧವಾಗಿ ಮಾಡಿರುವ ಮತ್ತು statutory prior approval ಪಡೆಯದ appointment ಮಾನ್ಯವಾಗುವುದಿಲ್ಲ ಎಂದು ನ್ಯಾಯಾಲಯ ತೀರ್ಮಾನಿಸಿತು.

ಈಗಾಗಲೇ RBI approval ಪಡೆದಿದ್ದ ಹಿಂದಿನ CEO ಕೂಡ ಹುದ್ದೆಯಲ್ಲಿ ಮುಂದುವರಿದಿದ್ದರು. Apex Bank ಒಂದೇ ಸಮಯದಲ್ಲಿ ಇಬ್ಬರು CEOs ಹೊಂದಿ ಕಾರ್ಯನಿರ್ವಹಿಸಲು ಸಾಧ್ಯವಿಲ್ಲ ಎಂದು ನ್ಯಾಯಾಲಯ ಗಮನಿಸಿತು.

5. ಸಹಕಾರಿ ಬ್ಯಾಂಕುಗಳಿಗೆ ಇರುವ ಪ್ರಸ್ತುತತೆ

Co-operative banksನ governance ಮತ್ತು managementಗೆ ಈ ತೀರ್ಪು ಬಹಳ ಪ್ರಸ್ತುತವಾಗಿದೆ.

ವಿಶೇಷವಾಗಿ ಇದು ಕೆಳಗಿನ ವಿಷಯಗಳನ್ನು ನಿರ್ಧರಿಸಲು ಉಪಯುಕ್ತವಾಗಿದೆ:

• CEOಯನ್ನು ನೇಮಕ ಮಾಡುವ statutory authority ಯಾರು;

• assisted society ಮತ್ತು ಇತರ co-operative societies ನಡುವಿನ ವ್ಯತ್ಯಾಸ;

• CEO appointmentನಲ್ಲಿ State Government ಮತ್ತು Registrarನ ಪಾತ್ರ;

• bank Boardನ ಪಾತ್ರ;

• RBI previous approvalನ mandatory nature;

• Karnataka Co-operative Societies Act ಮತ್ತು Banking Regulation Act ನಡುವಿನ ಸಂಬಂಧ; ಮತ್ತು

• ಅಗತ್ಯ regulatory approval ಇಲ್ಲದೆ ಮಾಡಿದ appointmentನ validity.

Co-operative society frameworkನಲ್ಲಿ appointment ಮಾನ್ಯವಾಗಿದ್ದರೂ, co-operative bankಗೆ ಅನ್ವಯಿಸುವ additional banking-regulatory requirementsನ್ನೂ ಪೂರೈಸಬೇಕು ಎಂಬುದನ್ನು ಈ ತೀರ್ಪು ಸ್ಪಷ್ಟಪಡಿಸುತ್ತದೆ.

6. ಪ್ರಾಯೋಗಿಕ ಬಳಕೆ

Co-operative bankನಲ್ಲಿ CEOಯನ್ನು appoint, re-appoint ಅಥವಾ terminate ಮಾಡುವ ಮೊದಲು bank ಎರಡೂ statutory frameworks ಅನ್ನು ಪರಿಶೀಲಿಸಬೇಕು.

Bank ಕೆಳಗಿನ ದಾಖಲೆಗಳನ್ನು ಸ್ಪಷ್ಟವಾಗಿ ನಿರ್ವಹಿಸಬೇಕು:

1. societyಯ legal status;

2. ಅದು assisted society ಆಗಿದೆಯೇ;

3. ಅದು co-operative credit structureಗೆ ಸೇರುತ್ತದೆಯೇ;

4. appointment ಮಾಡಲು competent authority ಯಾರು;

5. Board ಅಗತ್ಯ resolution ಪಾಸು ಮಾಡಿದ್ದೇ;

6. Government ಅಥವಾ Registrarನ appointment ಅಗತ್ಯವಿದ್ದರೆ societyಯಿಂದ ಅಗತ್ಯ request ಮಾಡಲಾಗಿದೆಯೇ;

7. RBI previous approval ಅಗತ್ಯವಿದೆಯೇ; ಮತ್ತು

8. appointment ಜಾರಿಗೆ ಬರುವ ಮೊದಲು RBI approval ವಾಸ್ತವವಾಗಿ ದೊರೆತಿದೆಯೇ.

State Government, Registrar, Board ಮತ್ತು RBI CEO appointment ಕುರಿತು ವಿಭಿನ್ನ ನಿಲುವುಗಳನ್ನು ತೆಗೆದುಕೊಂಡಿರುವ ಸಂದರ್ಭಗಳಲ್ಲಿ ಈ ಪ್ರಕರಣ ವಿಶೇಷವಾಗಿ ಉಪಯುಕ್ತವಾಗಿದೆ.

Appointment ಮಾಡಿದ ನಂತರ RBIಗೆ correspondence ಕಳುಹಿಸುವುದನ್ನು statutory previous approvalಗೆ automatic substitute ಎಂದು ಪರಿಗಣಿಸಬಾರದು ಎಂಬುದನ್ನೂ ಈ ತೀರ್ಪು ಎಚ್ಚರಿಸುತ್ತದೆ.