P L D 2016 Lahore 223 (PLP)

SYED MANSOOR ALI SHAH, J.

Petitioner Society has impugned orders of the District Officer Cooperative/Deputy Registrar dated 07.02.2015 and that of Secretary to Government of the Punjab Cooperative Department dated 07.04.2015 whereby the application for carrying out amendments in the By-laws of the society [more commonly referred in the record as the Model Election Rule ("Rules")] was declined.

2. Brief facts are that the Registrar of Cooperative Societies, Punjab, vide letter dated 03.11.2012, directed the District Officers Cooperatives (DOCs) in Punjab to issue directions under Section 44-D of the Cooperative Societies Act, 1925 ("Act") to the cooperative societies to adopt the Model Election Rules of the Cooperative Housing Societies and then obtain approval from the concerned DOC/DDOC by 31.12.2012. In pursuance thereof, the DOC, Lahore issued letter dated 17.11.2012 to the petitioner society exercising its power under Section 44-D of the Act. The letter directed the petitioner society "to convene Special or Annual General Body Meeting and place the new Model Election Rules before General Body Meeting for approval in toto at priority basis and obtain approval from the undersigned before 31.12.2012 positively." Petitioner society did the needful, as a result, Model Election Rules were approved and assumed the statutory status of By-laws of the society under the Act.

3. After sometime the petitioner Society felt the need to amend the under-mentioned By-laws (i.e., Model Election Rules) and, therefore, in the Annual General Meeting of the Society held on 19.10.2014, the following amendments were proposed in the By-laws:- MODEL ELECTION RULES NO. TEXT OF EXISTING MODEL ELECTION RULES TEXT OF THE PROPOSED/ AMENDED MODEL ELECTIONS RULES 3(d) He/she is not a member of the Society for more than one year from the date of filing of Nomination Papers. He/she is eligible in Election only as a Member of Society. Approved 3(e) He/she is a relative of any person who has a business dealing with Society directly/ indirectly or is in any contract/ employment with or under or on behalf of the Society. Approved for deletion Delete 3(m) He/she has interest in business, which create a conflict of interest with his/her proposed duties. Approved for deletion Delete The request for the aforesaid amendments was declined though the impugned orders, inter alia, on the ground that the amendments offended the provisions of the Act and the Co operative Societies Rules, 1927 ("Rules") and having been framed under the direction of the Registrar under Section 44-D of the Act, were in public interest and could not be altered or amended.

4. Learned counsel for the petitioner argued that Model Election Rules is an internal document of the petitioner society. It was emphasized that these Rules are separate and distinct from the By-laws and the Rules provided under the Act. Hence, Model Election Rules or any amendment therein does not require registration with the Registrar. Therefore, impugned orders passed by Secretary, Cooperative Department, as well as, District Officer Cooperative/Deputy Registrar, assuming that the Model Election Rules are equivalent to By-laws of the Society, are without lawful authority. In support of the above they placed reliance on Sections 10 and 16 of the Act. They also pointed out that Rules as defined under Section 3(g) of the Act are Rules framed under Section 71 of the Act which are the Cooperative Societies Rules, 1927, hence Model Election Rules are a distinct category of Rules that do not require registration. They also relied on Rules 4, 5 and 6(3) in support of their contentions. It is argued that Rule 53 is being pressed against the petitioner when the case of the petitioner society does not fall under the said Rule. They also placed reliance on an earlier order of this Court dated 20.10.2014 passed in somewhat connected W.P. No.16946/2013 to submit that the Registrar was under a direction by this Court to register the amendments in the By-laws.

5. Learned Law Officers and Mr. Zahid Saleem, Advocate representing the respondent, on the other hand, submits that Model Election Rules were dispatched by the orders of the Registrar, to all the DOCs with the direction under Section 44- D of the Act to the societies to adopt these Rules and to obtain the necessary approval from the DOC. It is argued that as these Rules have been made in pursuance to the direction issued by the Registrar, therefore, they could not be amended. He placed reliance on Bahadur Yar Jang Cooperative Housing Society Ltd. v. Feroze Shamsi and others (PLD 2010 SC 1058) and Mst.Haleema Rasheed v. Registrar Cooperative Housing Society and 32 others (2010 YLR 2497) in support of their contentions and also placed reliance on Sections 10, 16 and 16A of the Act. They submitted that amendments are opposed to Rule 53(2)(b) of the Rules and are against public interest. Regarding Order dated 20.10.2014 passed in W.P. No.16946/2013 it is submitted that the order itself provides that the amendment be carried out in accordance with law, which has been done through the impugned orders.

6. I have heard the arguments of the parties, analyzed the provisions of the Act and the Rules and have gone through the case law. OPINION OF THE COURT

7. Two legal questions arise in this case:- a. Whether by-laws (Model Election Rules), which have been framed in pursuance to a direction of the Registrar under Section 44-D of the Act can be amended by the Registrar? b. Whether any direction issued by the Registrar under Section 44-D of the Act (even if it is translated into By-laws of the society i.e., Model Election Rules) is subject to judicial review by this Court?

8. A co-operative (also known as co-op, cooperative or coop) is an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly owned and democratically controlled enterprise.1 According to the International Cooperative Alliance established in England in 18952, co-operative is an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise. Co-operatives are based on the values of self-help, self-responsibility, democracy, equality, equity and solidarity. In the tradition of their founders, co-operative members believe in the ethical values of honesty, openness, social responsibility and caring for others.

9. The co-operatives are founded on the following principles3:-

1. Voluntary and Open Membership Co-operatives are voluntary organizations, open to all persons able to use their services and willing to accept the responsibilities of membership, without gender, social, racial, political or religious discrimination.

2. Democratic Member Control Co-operatives are democratic organizations controlled by their members, who actively participate in setting their policies and making decisions. Men and women serving as elected representatives are accountable to the membership. In primary co-operatives members have equal voting rights (one member, one vote) and co-operatives at other levels are also organised in a democratic manner.

3. Member Economic Participation Members contribute equitably to, and democratically control, the capital of their co-operative. At least part of that capital is usually the common property of the co operative. Members usually receive limited compensation, if any, on capital subscribed as a condition of membership. Members allocate surpluses for any or all of the following purposes: developing their co-operative, possibly by setting up reserves, part of which at least would be indivisible; benefiting members in proportion to their transactions with the co-operative; and supporting other activities approved by the membership.

4. Autonomy and Independence Co-operatives are autonomous, self-help organizations controlled by their members. If they enter into agreements with other organizations, including governments, or raise capital from external sources, they do so on terms that ensure democratic control by their members and maintain their co-operative autonomy.

5. Education, Training and Information Co-operatives provide education and training for their members, elected representatives, managers, and employees so they can contribute effectively to the development of their co-operatives. They inform the general public - particularly young people and opinion leaders - about the nature and benefits of co-operation.

6. Co-operation among Co-operatives Co-operatives serve their members most effectively and strengthen the co-operative movement by working together through local, national, regional and international structures.

7. Concern for Community Co-operatives work for the sustainable development of their communities through policies approved by their members.

10. Cooperatives in Pakistan are fashioned in a similar manner under the Cooperative Societies Act, 1925, which provides for the formation, registration and regulation of co-operative societies for the promotion of thrift, self help and mutual assistance amongst agriculturist or other persons with common economic or social interests and for achieving better standard of living and for the matters connected therewith and incidental thereto.4 While the cooperative society enjoys its democratic independence, the government, in order to ensure that the cooperative principles are not compromised or overlooked, regulates its affairs. Regulation by the government under the Act is not to stifle the voluntary character and democratic spirit behind a cooperative society but to safeguard the foundational cooperative principles, at work, behind any cooperative society.

11. Under Chapter VII of the Act, the Registrar (regulator) enjoys the power to inspect the affairs of the society. Section 44-D, in particular, empowers the Registrar to give directions to a society where the Registrar is satisfied that such a direction is required to be issued in the public interest or to prevent the affairs of any society from being conducted in a manner detrimental to the interest of its members or depositors of the society or to secure the proper management of any society generally. Section 44-D further provides that a society is bound to comply with the said directions. Any omission in compliance of the direction attracts criminal penalty under Section 62-A of the Act. Sections 44-D and 62-A are reproduced hereunder for ready reference:-- " 44-D. Power of Registrar to give directions.--(1) Where the Registrar is satisfied that in the public interest or to prevent the affairs of any society from being conducted in a manner detrimental to the interest of its members or depositors of the society or to secure the proper management of any society generally, it is necessary to issue directions to the societies generally or to any society in particular, it may issue necessary directions and the societies or as the case may be the society shall be bound to comply with such directions. (2) The Registrar may on a representation made to him or on his own motion modify or cancel any direction issued under sub-section (1) and in so modifying or cancelling any direction impose such conditions as he may think fit subject to which the modification or cancellation shall have effect." Section 62-A. Penalty.

(1) Whoever contravenes the provisions of sub-section (3) of section 44-C or any directions given by the Registrar under section 44-D shall be guilty of an offence punishable with imprisonment of either description for a term which may extend to six months or with fine or with both. (2) Whoever contravenes an order passed under section 44-E shall be guilty of an offence which shall be punished with imprisonment for a term which may extend to three years but which shall not be less than six months and shall also be liable to be punished with fine.

12. Petitioner Society was directed to adopt the Model Election Rules through a direction issued by the Registrar/DOC under Section 44-D of the Act. The said direction was complied with and the Model Election Rules were approved by the society in an AGM and then duly sanctioned by the District Officer Cooperatives, hence assuming the status of By-laws of the society under the Act and the Rules.

13. After some years of adoption of the Model Election Rules (By-laws), the new management of petitioner Society sought the following amendments in the Model Election Rules: MODEL ELECTION RULES NO. TEXT OF EXISTING MODEL ELECTION RULES TEXT OF THE PROPOSED/ AMENDED MODEL ELECTIONS RULES 3(d) He/she is not a Member of the Society for more than one year from the date of filing of Nomination Papers. He/she is eligible in Election only as a Member of Society. Approved 3(e) He/she is a relative of any person who has a business dealing with Society directly/indirectly or is in any contract/employment with or under or on behalf of the Society. Approved for deletion Delete 3(m) He/she has interest in business, which create a conflict of interest with his/her proposed duties. Approved for deletion Delete

14. The said request was declined on the ground that the amendments were against the provisions of the Act and the Rules besides the said By-laws having been framed on the direction of the Registrar could not be altered.

15. The Act does not provide for any appellate or remedial forum, for the cooperative society to challenge the direction(s) issued under Section 44-D of the Act. In the absence of any other remedy, directions (or the discretion of the Registrar) can be judicially reviewed by this Court on the touchstone of the parameters given for the exercise of such discretion under Section 44-D of the Act. Even though in this case, the direction given by the Registrar stood translated into the adoption of the Model Election Rules as the By-laws of the society, still any amendment in such like By-laws would amount to challenging the direction of the Registrar, which can best be done through invoking the constitutional jurisdiction, rather than by approaching the Registrar, who in the first place directed that the said By-laws be adopted.

16. The discretion of the Registrar under Section 44-D is structured on the basis of the following parameters: public interest or to prevent the affairs of any society from being conducted in a manner detrimental to the interest of its members or depositors of the society or to secure the proper management of any society generally. The By-laws (which are in fact the direction of the Registrar under Section 44-D of the Act) and the proposed amendments by the society can be reviewed and examined on the above criteria. The impugned direction has assumed the status of By-laws, which can be amended at any stage by the Members of the society (see Section 16A of the Act). As the By-laws can be amended at any stage under the Act, so can a direction under Section 44-D, if it has a bearing on the By-laws of the Society. This is because Society is an ever-evolving democratic association of persons and can be the best judge to reconsider, modernize or alter its governance structure at any stage, in accordance with law. Therefore, a society is free to amend its By-laws as a part of its evolutionary process and by the same token, a direction which directs the Society to adopt Model By-laws can also be judicially reviewed at any stage.

17. It is clarified that order dated 20.10.2014 passed in W.P. No.16946/2013 has no bearing on this case. It simply directs that the amendments be made in accordance with law and by no stretch of imagination does it mean that the amendment be made per force under the direction of the Court, as argued by the learned counsel for the petitioner Society.

18. On the basis of the above reasoning the direction under Section 44-D of the Act, now available in the shape of By-laws, is judicial examined hereunder. Rule 3 provides for disqualification of a candidate and states that "no person shall be eligible to contest election of the Managing Committee of the society, if he/she suffers from any of the following disqualifications:- a) _____ b) _____ c) _____ d) He/she is not a member of the Society for more than one year from the date of filing of the nomination papers. e)

" The amendment sought by the Society is as follows:- MODEL ELECTION RULES (election by-laws) EXISTING PROPOSED AMENDMENT 3(d) He-she is not a Member of the Society for more than one year from the date of filing of Nomination Papers. He/she is eligible in Election only as a Member of Society. Under the Act (Section 7A) the only requirement for an individual to be eligible to become a member of a society is that he is above the age of 18 years, is of sound mind, is solvent and has not applied to be adjudged as an un-discharged insolvent. The period of one year as directed by the Registrar under Section 44-D of the Act transgresses the scope of the Act. Second, the discretion under Section 44-D can only be exercised to achieve the statutory requirement mentioned in the said Section, which requires that a direction must be in public interest or to prevent the affairs of any society from being conducted in a manner detrimental to the interest of its members or depositors of the society or to secure the proper management of any society generally. No reasons have been given in the letter carrying the direction by the Registrar/DOC as to why lapse of one year is a basic requirement for contesting elections and how does absence of it invoke Section 44-D of the Act. This Court has to draw a balance between the democratic and independent character of a cooperative society and the extent of intrusion and interference into its affairs by the regulator. In doing so, the emphasis will always remain in favour of maintaining a strong democratic and an independent association of persons. In the present case no reason has been brought on the record to justify this policy directive. On the face of it, none of the parameters mentioned in Section 44-D stand attracted. Hence the direction of the Registrar to this extent is modified, the impugned orders to this extent are set aside and the proposed amendment in Rule 3(d) of the Model Election Rules (By-laws) is allowed.

19. The two other proposed amendments provide are as follows:- 3(e) He/she is a relative of any person who has a business dealing with Society directly/indirectly or is in any contract/employment with or under or on behalf of the Society. Approved for deletion. 3(m) He/she has interest in business, which create a conflict of interest with his/her proposed duties. Approved for deletion. Rules 3(e) and 3(m) find support from Rule 53(2)(c) read with Rules 55(4), (5) and (6) of the Rules which provide for transparency and good governance in the following manner:- Rule 53(2)(c): who is interested, directly or indirectly in any contract or employment with or under or by or on behalf of the society; Rules 55(4), (5) (6) are as under: (4) Except with the previous sanction of the Registrar, no relative of any member of the committee or of the Honorary Secretary of such society shall be appointed in the service of the society. (5) No person shall be elected on the committee of such a society or appointed Honorary Secretary of such society if any relative of his is in the service of the society. (6) If a person is elected on the Committee of such a society, or is appointed as the Honorary Secretary of such a society, and it is at any stage discovered that any relative of his is in the employment of the society, such person shall cease to hold office on the committee or as Honorary Secretary, as the case may be." Besides, Rule 53 (2) of the Rules does not only apply to co-operative banks but to societies which have a paid up capital of Rs.20,000/- or above.

20. Even otherwise, when viewed objectively, the said By-laws avoid conflict of interest and engender transparency and good governance which is in the general welfare of the Society. These By-laws fully meet the requirement of the parameters mentioned in Section 44-D of the Act. I, therefore, in public interest and in the interest of the society do not interfere to the extent of these amendments. The direction of the Registrar and the impugned decisions to the extent of these two proposed amendments in Rules 3(e) and 3(m) of the Model Election Rules amendments are upheld and the proposed amendments declined.

21. Another dimension that requires clarity is the structure of governance of a Society under the law. The statutory instruments that regulate a society are the Act, the Rules, the Directions issued under Section 44-D of the Act and the By-laws and the statutory force of these instruments is also in the same descending order. The Act provides for the formation, registration and regulation of the co-operative societies. Sections 3(g) and 71 provide that Rules are made under the Act to carry out the purposes of this Act. Directions are issued by the Registrar under Section 44-D of the Act in public interest or to prevent the affairs of any society from being conducted in a manner detrimental to the interest of its members or depositors of the society or to secure the proper management of any society generally. Section 3(a) provides that a society shall have By-laws that are registered under the Act and include the amendments to such By-laws. Rule 4(1) of the Rules provides matters in respect of which every society shall make By-laws, while Rule 4(2) provides that every society may make By-laws in respect of any other matter incidental to the management of its business. A society, registered under the Act, is governed by the above-mentioned statutory instruments, except the specialized in-house rules of the society provided under Rule 55 of the Rules, which provides:- Rule 55 : Power to make Rules:- (1) The committee of every Cooperative Bank and society having a working capital of over Rupees one lac, shall frame rules for regulating the appointment, removal, dismissal and promotion of its employees. (2) The rules to be made under sub-rule (1) shall not be deemed to be in force until they have been approved by the Registrar. It is important to highlight that even these specialized rules are required to be approved by the Registrar. These specialized rules, however, have no application to the present case. Therefore, assumption of the petitioner Society that Model Election Rules are some distinct internal rules, separate from the By-laws envisaged under the Act, is misconceived and is opposed to the scheme and spirit of the Act. Society under the Act can be governed by the above mentioned statutory instruments that have a binding force and can regulate an individual and third parties. As a matter of good governance a society under the Act should not have any other governing instrument and if at all such an instrument does exist, it can at best be an internal guideline for the society, having no biding force on an individual or third party. In fact the nomenclature of the Model Election Rules should have been Model Election Bye-laws. Under Rule 4 of the Rules, a society can only frame By-laws except the rules mentioned in Rule 55 of the Rules, therefore, reference to By-laws as Rules is not only confusing but also against the structure of the Act and the Rules.

22. This writ petition is decided in the above terms.

23. This judgment will decide the instant petition, as well as, connected Writ Petition No.25827/2015 as both these cases raise common questions of law and facts. KMZ/M-41/L Order accordingly.