Matsyafed Is 'Financing Bank' Under Kerala Co-operative Societies Act, Consultation Mandatory Before Supersession: High Court

According to Section 32(2), the Registrar of the Co-operative Societies shall consult the financing bank and Circle Co-operative Union or State Co-operative union, as the case may be, before passing an order under Section 32(1) for superseding a Committee.

Justice K Babu, was delivering the judgment in a petition challenging the order of supersession of the Managing Committee of a Co-operative Society.

The petitioner, who is the former President of the Ernakulam West Rural Fisherman Development and Welfare Co-operative Society submitted that a Managing Committee of the society assumed charge on 30.10.2020. Later, an order was issued by the Registrar of Co-operative Societies, Fisheries Department under Section 66 of the Act to inspect the functioning of the society.

The Registrar, on 13.01.2025, superseded the Board of Directors and appointed a part-time Administrator for the Society on the ground that the Managing Committee had indulged in illegal actions. This order was challenged in the petition.

The petitioner argued that before issuing an order superseding the Managing Committee of a Society, the registrar shall consult with the Financing Bank and the Circle Co-operative Union or the State Co-operative Union according to the Section 32 of the Act.

The respondents submitted that the consultation under Section 32(2) does not arise when the Society is not affiliated to the Circle Co-operative Union. It was also submitted that only District Co-operative Society or State Co-operative Bank can be considered as Financing Bank within the meaning of sub-section 32 of the Act.

The Court examined whether Matsyafed, the State Co-operative Federation for Fisheries Development Limited is a financing bank within the meaning of section 32(2) of the Act.

Rejecting the State's contention that only District or State Co-operative Banks could be treated as financing banks, the Court held that the definition of 'financing bank' under Section 2(j) is determinative. A financing bank is any co-operative society whose members are other co-operative societies and whose object includes raising funds and lending to its members.

Applying this definition, the Court held that Matsyafed, an apex society extending micro-finance credit to primary fishermen co-operative societies falls within the meaning of a financing bank. Consequently, consultation with Matsyafed was legally mandatory prior to supersession.

“Section 2(j) makes it clear that a co-operative society having other co-operative societies as its members and where the object of such society is to raise money and lend the same to its members would constitute a “financing bank“. Admittedly, the primary societies like respondent No.4 society are the only members of the Apex Society/ Matsyafed. Micro finance credit facility is being extended to respondent No.4 society from the funds of the Matsyafed/the apex society for the purpose of disbursing loans, which would make the Apex Society the “financing bank“ of respondent No.4 society.” the Court noted.

The Court further went on to examine whether the statutory consultation to a financial bank was necessary under Section 32(2).

The respondents argued that the society in question is not affiliated to the Circle Co-operative Union and hence Section 32(2) is not mandatory.

The Court emphasised that Circle and State Co-operative Unions are democratically constituted institutions entrusted with advisory functions, including offering views on supersession. Their consultative role cannot be bypassed merely because a society has failed to affiliate, especially when the Act itself prescribes separate consequences for non-affiliation under Section 90.

“ I am of the view that the intention of sub-section (2) of Section 32 of the Act is to rule out the arbitrariness of proceedings of supersession by the Registrar. The mandate of consultation with the Circle Co-operative Union or the State Co-operative Union, a democratic body, protects the arbitrary supersession of a Committee elected in a democratic process. The character of the Circle Co-operative Union as provided in Section 88 of the Act indicates its democratic structure.” the Court noted.

The Court examined the consequences of non-affiliation of co-operative society to the State Co-operative Union under Section 90 of the Act to determine whether the non - affiliation of a co-operative society would confer the Registrar the power to supersede such a society without consultation with the Union.

The Court relied on a set of precedents, including Vallapuzha Service Co-operative Bank Ltd. v Joint Registrar [2009 (3) KLT 838], State of Kerala v Urukunnu Service Co-operative Bank Ltd. [2013 (2) KLT 74] and reaffirmed that the Registrar before passing an order under Section 32(1) of the Act to supersede the Committee shall consult the Circle Co-operative Union or the State Co-operative Union, irrespective of the fact that the society concerned is affiliated to the Circle or State Co-operative Unit.

The Court thus observed that no exceptional reason for not invoking Section 32(2) of the Act has been placed in the superseding order and hence the impugned order needs to be set aside. It has thus restored the Managing Committee into office.

While the Court disposed of the petition, by setting aside the order it noted that the Registrar is not precluded from proceeding afresh against the Managing Committee in accordance with law.

Case Title: K V Sabu v Registrar of Co-Operatives Societies and Ors.

Case No: WP(C) 5292/ 2025

Citations: 2026 LiveLaw (Ker) 69

Counsel for Petitioners: Joy George, Praicy Joseph, Arjun Raghavan, Tanya Joy

Counsel for Respondents: Sheeja (Sr.GP)