- 1 - HC-KAR NC: 2025:KHC:37671 WP No. 31517 of 2014 C/W WP No. 31516 of 2014 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 18TH DAY OF SEPTEMBER, 2025 BEFORE THE HON'BLE MR. JUSTICE R. NATARAJ WRIT PETITION NO. 31517 OF 2014 (CS-RES) C/W WRIT PETITION NO. 31516 OF 2014 (CS-RES) IN WP No. 31517/2014 BETWEEN: SRI. A. RAMACHANDRA RAO S/O. ANANDA RAO, AGED ABOUT 64 YEARS, RESIDING AT NO.142, 5TH CROSS, LOWER PALACE ORCHARDS, BANGALORE-560 003. …PETITIONER (BY SRI. SAILESH S.K., ADVOCATE) AND: 1. THE JOINT REGISTRAR OF CO-OPERATIVE SOCIETIES, URBAN BANKS CELL, RCS OFFICE, NO.1, ALI ASKER ROAD, BANGALORE-560 001. 2. SRI. M.CHANNABYRAIAH, EX-ASST. REGISTRAR OF CO-OPERATIVE SOCIETIES AND ENQUIRY OFFICER, FATHER'S NAME NOT KNOWN TO THE PETITIONER, MAJOR, MALLESWARAM CO-OPERATIVE BANK LTD., SOUTH CIRCLE, MALLESWARAM, BANGALORE-560 003. Digitally signed by SUMA Location: HIGH COURT OF KARNATAKA - 2 - HC-KAR NC: 2025:KHC:37671 WP No. 31517 of 2014 C/W WP No. 31516 of 2014 3. THE MALLESWARAM CO-OPERATIVE BANK LTD., NO.102, 7TH CROSS, MALLESWARAM, BANGALORE-560 003. 4. THE REGISTRAR OF CO-OPERATIVE SOCIETIES, NO.1, ALI ASKER ROAD, BANGALORE-560 001. 5. RAMESH. B., S/O. BORAIAH, AGED ABOUT 67 YEARS, NO. 22, 'SAMRUDDI', 8TH CROSS, SUDENDRANAGAR, S.P. EXTENSION, BANGALORE-560 003. 6. DR. SHANKAR. V., S/O. VENKATARAYAPPACHARI, AGED ABOUT 67 YEARS, NO. 58, 'BALAJI', 2ND CROSS, SRIRAMPURAM, BANGALORE - 560 021. 7. SRI. ANANTHAN. A.R., S/O. A. RAMACHAR., AGED ABOUT 67 YEARS, NO. 398, 9TH CROSS, MAHALAKSHMI LAYOUT, BANGALORE-560 086. 8. DR. RANGEGOWDA. N.S., S/O. NANJEGOWDA, AGED ABOUT 78 YEARS, NO. 64, 14TH 'A' MAIN, 2ND STAGE, 2ND PHASE, MAHALAKSHMIPURAM, BANGALORE - 560 086. PROPOSED RESPONDENT NO.8 IS DELETED VIDE ORDER DATED 11.09.2025 - 3 - HC-KAR NC: 2025:KHC:37671 WP No. 31517 of 2014 C/W WP No. 31516 of 2014 9. SRI. SINGRA IYENGAR. R. A., S/O. THIRUNARAYANA IYENGAR, AGED ABOUT 90 YEARS, NO.14/1, WEST PARK ROAD, 8TH CROSS AND 9TH CROSS MIDDLE, MALLESWARAM, BANGALORE-560 003. PROPOSED RESPONDENT NO.9 IS DELETED VIDE ORDER DATED 04.07.2025 10. SMT. ARUNA. K.V., D/O. KRISHNAMACHAR VARADACHAR, AGED ABOUT 53 YEARS, NO. 59 G, GANESGA BLOCK, 1ST MAIN ROAD, 2ND CROSS, SHESHADRIPURAM, BANGALORE - 560 020. 11. K.V.VENKATESH RAO, S/O.CHANDRASHEKAR RAO, AGED ABOUT 77 YEARS, 7TH CROSS, MALLESWARAM, BANGALORE - 560 003. AMENDMENT CARRIED OUT AS PER ORDER OF COURT DATED 18.09.2025. …RESPONDENTS (BY SRI. S.R.KHAMAROZ KHAN, ADDITIONAL GOVERNMENT ADVOCATE FOR RESPONDENT NOS.1 AND 4; SRI. T. SHESHAGIRI RAO, ADVOCATE FOR RESPONDENT NO.3; SRI. V. LAKSHMI NARAYANA, SENIOR ADVOCATE FOR SRI. VIKRAM BALAJI, ADVOCATE FOR RESPONDENT NO.7; SRI. K.V.LOKESH, ADVOCATE FOR RESPONDENT NOS.5, 10 AND 11; SRI. MANOJ S.N., ADVOCATE FOR RESPONDENT NO.6; SRI VIKRAM BALAJI, ADVOCATE FOR RESPONDENT NO.7 VIDE ORDER DATED 04.07.2025, PROPOSED RESPONDENT NO.9 IS DELETED; VIDE ORDER DATED 11.09.2025, PROPOSED RESPONDENT NO.8 IS DELETED; NOTICE IS SERVED ON RESPONDENT NO.2) - 4 - HC-KAR NC: 2025:KHC:37671 WP No. 31517 of 2014 C/W WP No. 31516 of 2014 THIS WP IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH THE ORDER PASSED BY THE RESPONDENT NO.1 (STATED AS RESPONDENT NO.2 IN THE PRAYER PORTION OF THE PETITION) AT ANNEXURE-A DATED 31.10.2012 IN ENQUIRY BEARING NO.UBC/1/165/ENQUIRY/2009-10 AND ETC. IN WP NO. 31516/2014 BETWEEN: SRI. N.M. SURESH S/O. LATE SRI N.MOHAN, AGED ABOUT 53 YEARS, RESIDING AT NO.162, 3RD MAIN ROAD, 3RD CROSS, WEST OF CHORD ROAD, II STAGE, MAHALAKSHMIPURAM, BANGALORE-560086. ...PETITIONER (BY SRI. SAILESH S K., ADVOCATE) AND: 1. THE JOINT REGISTRAR OF CO-OPERATIVE SOCIETIES, URBAN BANKS CELL, RCS OFFICE, NO.1, ALI ASKER ROAD, BANGALORE-560 001. 2. SRI. M.CHANNABYRAIAH, EX-ASST. REGISTRAR OF CO-OPERATIVE SOCIETIES AND ENQUIRY OFFICER, FATHER'S NAME NOT KNOWN TO THE PETITIONER, MAJOR, MALLESWARAM CO-OPERATIVE BANK LTD., SOUTH CIRCLE, MALLESWARAM, BANGALORE-560 003. - 5 - HC-KAR NC: 2025:KHC:37671 WP No. 31517 of 2014 C/W WP No. 31516 of 2014 3. THE MALLESWARAM CO-OPERATIVE BANK LTD., NO.102, 7TH CROSS, MALLESWARAM, BANGALORE-560 003. 4. THE REGISTRAR OF CO-OPERATIVE SOCIETIES, NO.1, ALI ASKER ROAD, BANGALORE-560 001. 5. RAMESH. B., S/O. BORAIAH, AGED ABOUT 67 YEARS, NO. 22, 'SAMRUDDI', 8TH CROSS, SUDENDRANAGAR, S.P. EXTENSION, BANGALORE-560 003. 6. DR. SHANKAR. V., S/O. VENKATARAYAPPACHARI, AGED ABOUT 67 YEARS, NO. 58, 'BALAJI', 2ND CROSS, SRIRAMPURAM, BANGALORE - 560 021. 7. SRI. ANANTHAN. A.R., S/O. A. RAMACHAR., AGED ABOUT 67 YEARS, NO. 398, 9TH CROSS, MAHALAKSHMI LAYOUT, BANGALORE-560 086. 8. DR. RANGEGOWDA. N.S., S/O. NANJEGOWDA, AGED ABOUT 78 YEARS, NO. 64, 14TH 'A' MAIN, 2ND STAGE, 2ND PHASE, MAHALAKSHMIPURAM, BANGALORE - 560 086. PROPOSED RESPONDENT NO.8 IS DELETED VIDE ORDER DATED 11.09.2025 - 6 - HC-KAR NC: 2025:KHC:37671 WP No. 31517 of 2014 C/W WP No. 31516 of 2014 9. SRI. SINGRA IYENGAR. R. A., S/O. THIRUNARAYANA IYENGAR, AGED ABOUT 90 YEARS, NO.14/1, WEST PARK ROAD, 8TH CROSS AND 9TH CROSS MIDDLE, MALLESWARAM, BANGALORE-560 003. PROPOSED RESPONDENT NO.9 IS DELETED VIDE ORDER DATED 04.07.2025 10. SMT. ARUNA. K.V., D/O. KRISHNAMACHAR VARADACHAR, AGED ABOUT 53 YEARS, NO. 59 G, GANESGA BLOCK, 1ST MAIN ROAD, 2ND CROSS, SHESHADRIPURAM, BANGALORE - 560 020. 11. 12. K.V.VENKATESH RAO, S/O.CHANDRASHEKAR RAO, AGED ABOUT 77 YEARS, 7TH CROSS, MALLESWARAM, BANGALORE - 560 003. A. RAMACHANDRA RAO S/O ANANDA RAO, AGED ABOUT 74 YEARS, NO.142, 5TH CROSS, LOWER PALACE ORCHARDS BANGALORE-560 003. VIDE ORDER DATED 17.04.2025, I.A. NO.1/2024 IS DISMISSED IN SO FAR AS PROPOSED RESPONDENT - MR. A. RAMACHANDRA RAO IS CONCERNED AMENDMENT CARRIED OUT AS PER THE ORDER OF COURT DATED 18.09.2025. ...RESPONDENTS (BY SRI. S.R.KHAMAROZ KHAN, ADDITIONAL GOVERNMENT ADVOCATE FOR RESPONDENT NOS.1 AND 4; SRI. T. SESHAGIRI RAO, ADVOCATE FOR RESPONDENT NO.3; SRI. K.V.LOKESH, ADVOCATE FOR RESPONDENT NOS.5 TO 11; - 7 - HC-KAR NC: 2025:KHC:37671 WP No. 31517 of 2014 C/W WP No. 31516 of 2014 NOTICE IS SERVED ON RESPONDENT NO.2; VIDE ORDER DATED 04.07.2025, PROPOSED RESPONDENT NO.9 IS DELETED; VIDE ORDER DATED 11.09.2025, PROPOSED RESPONDENT NO.8 IS DELETED; VIDE ORDER DATED 17.04.2025, I.A. NO.1/2024 IS DISMISSED IN SO FAR AS PROPOSED RESPONDENT - MR. A. RAMACHANDRA RAO IS CONCERNED) THIS WP IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH THE FINDING OF THE RESPONDENT NO.2 AT ANNEXURE-A DATED 31.10.2012 IN ORDER BEARING NO.UBC/1/165/ENQUIRY/2009-10 AND ETC. THESE PETITIONS, COMING ON FOR ORDERS, THIS DAY, ORDER WAS MADE THEREIN AS UNDER: CORAM: HON'BLE MR. JUSTICE R. NATARAJ ORAL ORDER The petitioner in W.P. No.31517/2014 has challenged an order bearing No.AiÀÄÄ©¹-1/165/«ZÁgÀuÉ/2009-10 dated 31.10.2012 passed by the respondent No.1 under Section 68 of the Karnataka Co-operative Societies Act, 1959 (for short, ‘the Act, 1959’). He has also sought for a writ in the nature of certiorari to quash the order dated 06.06.2014 passed by the respondent No.4 in Appeal No.Dgï¹J¸ï/rJ¦/r1/1/2013-14. - 8 - HC-KAR NC: 2025:KHC:37671 WP No. 31517 of 2014 C/W WP No. 31516 of 2014 2. The petitioner in W.P. No.31516/2014 has sought to quash the finding of respondent No.2 recorded in the order bearing No.AiÀÄÄ©¹-1/165/«ZÁgÀuÉ/2009-10 dated 31.10.2012 passed by the respondent No.1 under Section 68 of the Karnataka Co-operative Societies Act, 1959 (for short, ‘the Act, 1959’). He has also sought for a writ in the nature of certiorari to quash the order dated 06.06.2014 passed by the respondent No.4 in Appeal No.Dgï¹J¸ï/rJ¦/r1/2/2013-14. 3. The petitioner in W.P. No.31517/2014 was the Vice- President of the respondent No.3 while the petitioner in W.P. No.31516/2014 was the President of the respondent No.3. The petitioner in W.P. No.31517/2014 and W.P. No.31516/2014 will henceforth be referred to as 'petitioners'. Both of them were members of the Investment Committee in the respondent No.3 apart from the General Manager. The said Investment Committee held proceedings and proposed to invest a sum of Rs.2,50,00,000/- in the bonds of the Industrial Investment Bank of India Limited for a term of 20 years. Later, it came to the notice of the Reserve Bank of India (‘RBI’ for short) when an inspection was conducted that the value of the investment - 9 - HC-KAR NC: 2025:KHC:37671 WP No. 31517 of 2014 C/W WP No. 31516 of 2014 made was far less than the sum of Rs.2,50,00,000/-. The Reserve Bank of India also found various lapses in the investment made by the respondent No.3. The RBI, therefore, passed an order of penalty and directed the President and Vice President of the respondent No.3 to pay a sum of Rs.5,00,000/- which was accordingly paid. Later on a direction by the RBI to the Deputy Registrar of Co-operative Societies, steps were taken for an enquiry under Section 64 of the Karnataka Co- operative Societies Act, 1959 (for short, ‘the Act, 1959’). The respondent No.2 was appointed as an Enquiry Officer to conduct an enquiry under Section 64 of the Act, 1959. He submitted a report indicting the petitioners for wrongfully making an investment through a single broker at rates which were far higher than the prevalent market price. The respondent No.2 was of the opinion that the petitioners were responsible for making such a bad investment. It appears that the investment so made was redeemed by the respondent No.3 after four years which yielded a sum of Rs.2,17,02,766/-. The respondent No.2 therefore recommended action to recover a sum of Rs.40,00,000/- and penalty of Rs.5,00,000/- imposed by the RBI i.e. total sum of Rs.45,00,000/- with interest at - 10 - HC-KAR NC: 2025:KHC:37671 WP No. 31517 of 2014 C/W WP No. 31516 of 2014 12% per annum from the petitioners jointly and severally/personally being the actual loss suffered by the respondent No.3, which included the partial loss of the principal amount invested and reasonable interest thereon. Following this report, the respondent No.1 passed an order under Section 68 of the Act, 1959, on 31.10.2012 directing the General Manager of the respondent No.3 - Bank to take steps for recovery of the loss suffered by the respondent No.3, in the light of the points mentioned in the preamble of the order, from the respective petitioners and to initiate disciplinary action against the staff of the respondent No.3 within 60 days from the date of the order i.e. 31.10.2012 and to submit a report in that regard. The petitioners challenged the said order/s before the respondent No.4 by preferring two separate appeals, which were dismissed in terms of the common order dated 06.06.2014 and therefore, the petitioners are before this Court challenging the said orders. 4. Learned counsel for the petitioners in both these writ petitions submitted that the petitioners were undoubtedly the members of the Investment Committee in the respondent No.3. He contends that as per the Circular dated 15.04.2004 - 11 - HC-KAR NC: 2025:KHC:37671 WP No. 31517 of 2014 C/W WP No. 31516 of 2014 issued by the RBI, all Primary (Urban) Co-operative banks were entitled to make investment in non-SLR debt securities in Institutions which were short-listed as per the Appendix II to the said Circular (Annexure 'E' to the petitions). One of the entities in Appendix II was the Industrial Investment Bank of India. He, therefore, contends that the decision of the Investment Committee of the respondent No.3 to invest in Industrial Investment Bank of India was authorized and in accordance with law. He contends that it was the claim of the respondent No.2 in his enquiry report that the value of the investment made was far less than a sum of Rs.2,50,00,000/-. However, when the bonds were redeemed on 30.06.2011, the total realized value of the redeemed bonds was a sum of Rs.2,17,02,766/-. Therefore, he contends that the respondent No.3 did not suffer any serious loss. On the contrary, he contends that this was a business loss that the respondent No.3 suffered. He further contends that the investment made by the Investment Committee of the respondent No.3 in the Industrial Investment Bank of India was placed before the Board/Managing Committee of the respondent No.3 and that the same was ratified by the Board. He, therefore, contends - 12 - HC-KAR NC: 2025:KHC:37671 WP No. 31517 of 2014 C/W WP No. 31516 of 2014 that such ratification approved the decision of the Investment Committee from the date of the Committee taking a decision to invest in the Industrial Investment Bank of India. He, therefore, contends that the petitioners being the President and Vice President of the respondent No.3 could not have been singled out for discriminatory treatment as the decision to invest in the Industrial Investment Bank of India was a collective decision of the members of the Managing Committee of respondent No.3 and therefore, all the members of the Board of the respondent No.3 were liable to account for it. In support of this contention, he relied upon the judgments rendered by the Hon’ble Apex Court in the following cases : i. Tarlochan Dev Sharma v. State of Punjab and others [(2001) 6 SCC 260]; ii. High Court of Judicature for Rajasthan v. P.P.Singh and Another [(2003) 4 SCC 239]; iii. Maharashtra State Mining Corpn. v. Sunil S/o Pundikarao Pathak [(2006) 5 SCC 96]; iv. Ashok Kumar Das and others v. University of Burdwan and others [(2010) 3 SCC 616]; and - 13 - HC-KAR NC: 2025:KHC:37671 WP No. 31517 of 2014 C/W WP No. 31516 of 2014 v. M/s. Bajaj Hindustan Ltd. v. State of U.P. and Ors. [Civil Appeal No.1467 of 2006 with C.A No.1468/2006 decided on 14.03.2016]. 5. The petitions are opposed by respondent No.3, who is common in W.P. No.31516/2014 and W.P No.31517/2014, by filing separate statement of objections, where similar contentions are taken up. The relevant portion of the statement of objections filed by respondent No.3 in W.P. No.31516/2014 reads as follows: "2. It is submitted that the Respondent No.2 upon holding an enquiry under Section 64 of Karnataka Co- operative Societies Act, had reached to a conclusion to the effect that in the board meeting held on 30.04.2007 the following persons viz.,. i. Sri. N.M. Suresh, President, ii. Sri. A.Ramachandra Rao, Vice President, iii. Sri. K.V. Venkatesh Rao, Director iv. Sri. B.Ramesh, Director v. Sri. L. Nagaraj, Director vi. Sri. S.V.Raja Rao, Director vii. Sri. C.R. Muralidhar, Director were present it is they who have ratified the decision taken by the investment committee dated 20.01.2007 so as to invest a sum of Rs.2,50,00,000/- with Industrial Investment Bank of India Ltd. (hereinafter referred to as 'IIBI') and further observed that they before ratifying the investment i.e., a sum of Rs.2,50,00,000/- they did not - 14 - HC-KAR NC: 2025:KHC:37671 WP No. 31517 of 2014 C/W WP No. 31516 of 2014 consult with Maverick Business Service Pvt. Ltd., Mumbai to the effect if a sum of Rs.2,50,00,000/- is invested on IIBI Bonds, whether the Bank would be able to take back the investment amount along with a reasonable profit. Further has recorded a finding to the effect that either the office bearers of the society or the management of the Bank has any right to take any decision affecting the interest of its account holder and their investment therein. Despite the fact, the Board of Directors on 30.04.2007 have ratified the decision of the investment committee to invest a sum of Rs.2,50,00,000/- on IIBI Bonds thereby the Board of Directors did not discharge their duties properly and on account of their dereliction of duties the bank sustained loss. Further he has recorded a finding to the effect that a sum of Rs.40,00,000/- and Rs.5,00,000/- with interest should be recovered from N.M. Suresh, former President and Sri. A. Ramachandra Rao former Vice President and in case if the bank is unable to recover the same from them then it should be recovered from the Board of Directors who participated in the meeting held on 30.04.2007 to ratify the report of the investment committee dated 20/01/2007 i.e., from the following persons :- i. Sri. K.B.Venkatesh Rao, No. 47, S.P.Road, Mallikarjunpuram, Malleswaram, Bangalore-560 003 ii. Sri. B.Ramesh, No. 22, 8th Cross, Suddendra Nagar, - 15 - HC-KAR NC: 2025:KHC:37671 WP No. 31517 of 2014 C/W WP No. 31516 of 2014 Malleswaram, Bangalore - 560 003. iii. Sri. L.Nagaraju, No. 4282, I Cross, Subramanyanagara, Bangalore-560 021. iv. Sri. S.V.Rajarao, (Died) Ananda Nilaya, No. 25/2, Swimming Pool Extension, Malleswaram, Bangalore-560 003. v. Sri. C.R.Muralidhara (died) No. Y 176/42, 14th A Cross, Vyalikaval, Bangalore-560 003 xxx 3. It is submitted that after the decision of the investment committee dated 20.01.2007 the bank has purchased 1000 bonds of the face value of Rs.27500/- per bond floated by IIBI from Karad Urban Co-operative Bank, at the rate of Rs.25000/- per bond said act was ratified by the managing committee i.e., Board of Directors. The illegality committed by the investment committee which was ratified by the Board of Directors of the Malleswaram Co-operative Bank was noticed by the RBI, when they came for inspection in the year 2009 and imposed a penalty of Rs.5,00,000/- to the bank for having made wrong investment with the IIBI. Further the RBI issued directions to the Registrar of Co-operative Societies to take action in the matter. Copy of the order passed by the RBI dated 20.04.2016 is herewith produced and which is marked as ANNEXURE-R1 to the statement - 16 - HC-KAR NC: 2025:KHC:37671 WP No. 31517 of 2014 C/W WP No. 31516 of 2014 of objection. In pursuance of the same the Registrar of Co-operative Societies referred the matter to the 2nd Respondent to enquire into the matter and to submit a report in that regard. The 2nd respondent after holding enquiry on 12.01.2012 has submitted a report i.e. as per Annexure-A to the writ petition. xxx As against the order dated 06/06/2014 i.e., one passed by the first Respondent under Section 106 a revision is provided under Section 108 of the Co-operative Societies Act, the petitioner without exhausting the revisional remedy had no right to invoke the Writ Jurisdiction of the Hon'ble Court. xxx It is submitted that it was the RBI who assessed the loss for Rs.40,00,000/- to the bank and the penalty of Rs.5,00,000/-. The fact finding committee i.e., the 2nd Respondent after conducting the enquiry had reached a conclusion that because of the lapse on the part of the Petitioner who should pay the loss incurred to the bank and also the penalty. The Petitioner is a signatory to the investment book dated 20.01.2007. This Respondent herewith produces the copy of the investment book dated 20.01.2007 for kind perusal by this Hon'ble Court which is marked as ANNEXURE-R2 to the writ petition. xxx - 17 - HC-KAR NC: 2025:KHC:37671 WP No. 31517 of 2014 C/W WP No. 31516 of 2014 7. The further contention of the Petitioner that as could be seen from the inspection report of the RBI as on 22.01.2007 the value of each bond was at Rs.12,243/- and the total value of 1000 bonds would come to Rs. 1,22,43,000/-. However the investment committee valued each bond at Rs.27,500/- and have purchased the same at Rs.25,000/- upon surrender the bank got a sum of Rs.2,23,36,407/-. Thereby the bank sustained monetary loss to an extent of a of Rs.26,63,593/- i.e., under the head of principal and also it sustained huge loss of interest from 20.01.2007 i.e., from the date of investment till surrender of the bonds i.e., up till 30.06.2011. The assessment of RBI that determination of loss at Rs.40,00,000/- is no match. The Bank has suffered much more than that of the same. For every loss it was the investment committee and the Board of Directors are responsible for the same. The Petitioner with an intention to escape from his responsibility, has approached this Hon'ble Court with this frivolous petition by contending that he was in no way responsible for the loss sustained by the bank. As such the writ petition one presented by the Petitioner is unsustainable and which is of devoid of merits and liable to be rejected." Accordingly, respondent No.3 contended that the petitioners, investment committee and Board of Directors were responsible for the loss suffered by the respondent No.3 and that the - 18 - HC-KAR NC: 2025:KHC:37671 WP No. 31517 of 2014 C/W WP No. 31516 of 2014 findings of the respondent No.2 were justified and sought to dismiss both the petitions. 6. Respondent No.1 - State has filed separate statement of objections in both the petitions on similar lines. The relevant portion of the statement of objections in W.P. No.31517/2014 reads as follows: "2. It is submitted that the Writ Petition of the Petitioner is not maintainable either on law or on facts and the same is liable to be rejected. xxx 4. It is submitted that the Reserve Bank of India has stipulated certain conditions by its circular dated 20.04.2002 (Annexure-D) produced by the Petitioner. According to the said instructions, among others, the investment must be through the Brokers registered with NSE or BSE or OTCEL, should be utilized for acting as intermediatory. A limit of 5% of total transactions (both purchased and sales) enter into by a Bank during the year should be treated as aggregate upper contract limit for each of the approved brokers. Dealing and back-up function should be properly segregated. The officials deciding about the purchase and sale transactions should be separate from those responsible for settlement and accounting. All investment transactions should be pursued by the Board atleast once a month. The Reserve Bank - 19 - HC-KAR NC: 2025:KHC:37671 WP No. 31517 of 2014 C/W WP No. 31516 of 2014 further directs the Urban Co-operative Banks to the effect that the Banks should ensure all the investment transactions and undertaken strictly confirmed with the RBI directions. There are further directions by the RBI, any deviation from the guidelines/instructions issued by the RBI shall be viewed very seriously. The RBI further issued circular instructions dated 15.04.2004 regarding investment in non-SLR Debt Securities by Primary (Urban) Co-operative Banks (UCBs), According to the said circular, among others, the Banks were directed to ensure internal assessments for the said investment should be made and also directed that the system of regular (quarterly or half yearly) tracking of the financial position of the user, with a view to ensure continuous monitoring of the rating migration of the issuers/issues. The said circular dated 15.04.2004 is at Annexure-E produced by the Petitioner himself. 5. It is submitted that the Respondent No.3 is a Urban Co-operative Bank registered under the provisions of Karnataka Co-operative Societies Act, 1959. It has obtained Banking license from Reserve Bank of India for Banking transactions. The statutory directions issued by the RBI are binding on the Respondent No.3 Co-operative Bank. 6. It is submitted that for the irregularities in investment transactions committed by the Respondent No.3 Bank, a statutory enquiry U/s. 64. of the Act was ordered by this Respondent No. 1. Three (3) specific charges have been framed for enquiry. The charges - 20 - HC-KAR NC: 2025:KHC:37671 WP No. 31517 of 2014 C/W WP No. 31516 of 2014 includes that the Respondent no.3 Bank has violated the said circulars dated 20.04.2002 and 15.04.2004; the investment during 2006 and 2007 have been made exceeding the Single Party Exposure Norms; the Brokers have been selected by the Respondent No.3 Bank who were not in the approved list and in violation of approved list of the Brokers as per the guidelines issued by the Reserve Bank - in the circular dated 20.04.2002; the investment of huge amount of Rs.2.50 crores through M/s. Mevarik Business Services Private Limited, Brokers was made and the Bank has sustained loss of Rs.40-00 lakhs. 7. 7. It is submitted that the Respondent No.2 - Enquiry Officer and Assistant Registrar of Co-operative Societies (now retired from service) had conducted an enquiry, in accordance with Section 64 of the Act. The petitioner was given reasonable and sufficient opportunity to represent before him and to defend himself. In the enquiry, the Enquiry Officer after detailed scrutiny, has found that the Chief Executive Officer has filed a comparative statement dated 18.01.2007 the following effect:- "As per yield calculated, if the rate is 27500, the yield calculation - 6.5%. If the rate is 25,000, the yield works out to 6.628% of 6.63% which is less the than the Government security and inter-Bank Rate." Furthermore, the Chief Executive Officer has also stated that investment transactions proposed are in violation of the Reservation Bank circulars dated - 21 - HC-KAR NC: 2025:KHC:37671 WP No. 31517 of 2014 C/W WP No. 31516 of 2014 20.04.2002 and 15.04.2004, as much as the Brokers are not registered with the NSE or BSE or OTCEL. IT is also been pointed out by the Chief Executive Officer, as against the minimum requirement of 2 quotations for the comparison and decision taking purpose, only one quotation has been received directly by Sri N.M. Suresh, President. Hence, suggested that the investment through M/s.Mevarik Brokers with the Industrial Constructions Bank of India (IIBI) is not advisable. 8. It is submitted that the findings of the enquiry by the Respondent No.2:Enquiry Officer that contrary to the above comparative note, with firm opinion and against for investment with the said financial company through the said broker by the CEO of the Bank, the Petitioner has submitted a note to the following effect:- "As per our calculation, the Bond already purchased by the Bank from IIBI-2028 Bond works out at 13.84% cumulative interest. The investment may be made." The said note given by the Petitioner, who was the Vice- President was approved by Sri N.M.Suresh on 22.01.2007 and investment was made. 9. It is submitted that in the findings of the Enquiry Officer that as per the said note of the Chief Executive Officer and also the Reserve Bank inspection report, the current price at the relevant point of time on 22.01.2007 was Rs.12243-00 and for 1000 Bonds, the price works out was Rs.1,22,43,000-00. Instead of the - 22 - HC-KAR NC: 2025:KHC:37671 WP No. 31517 of 2014 C/W WP No. 31516 of 2014 above, by purchasing higher price, the Bank has sustained loss of Rs.40-00 lakhs. xxx 10. It is submitted that the conduct of the Petitioner in purchasing the Bonds by investment transactions has been critically examined by the Respondent NO.2: Enquiry Officer and given his specific findings at para (2) at page-4 of the enquiry report (ink page no.35). The Enquiry Officer has given a findings that the Petitioner was in the Board for several years from 2005. He was aware of the RBI Circulars regarding the investment transactions. When investment of the Bank funds which ultimately belongs to the Depositors were required to be made, a statutory duty was cast on the Petitioner to examine whether the decisions taken are in conformity with the Reserve Bank statutory directions and also whether the Chief Executive was justified in her above comparative statement. On the contrary, ignoring the comparative statement given by the Chief Executive Officer and persuading the President and others to take decision on the line suggested by the Petitioner, certainly the Petitioner is liable and responsible. The Petitioner is a "Trustee" as the Depositors have reposed confidence in him, as he was a Vice-President. The Petitioner has betrayed the confidence reposed in him. xxx 16. It is submitted that the 3rd Respondent Bank has remitted a fine of Rs.5.00 lakhs to the RBI as per the RBI - 23 - HC-KAR NC: 2025:KHC:37671 WP No. 31517 of 2014 C/W WP No. 31516 of 2014 Inspection report. The 3rd Respondent bank has not challenged the findings of the RBI. Wherein the RBI has held that the 3rd Respondent bank has suffered loss to the extent of Rs.40.00 lakhs due to the investment made by the Petitioners and others. As such the Petitioner who has not challenged the said direction of the RBI has now filed the Writ Petition before this Hon'ble Court. As such it is liable to be rejected in toto. 17. The averment of the Petitioner in thee paras are not tenable since the 2nd Respondent has clearly held the Petitioner and another responsible for the loss to the extent of Rs.40.00 lakhs to the 3rd Respondent Bank. Therefore, the contention of the Petitioner that is only an irregularly and that there is no loss caused to the 3rd Respondent Bank is not tenable and liable to be rejected. The respondent No.1, therefore, contended that based on the enquiry report dated 12.01.2012, he passed the impugned order dated 31.10.2012 and the respondent No.4 - Appellate Authority was justified in dismissing the appeal/s filed by the petitioners in terms of the impugned order dated 06.06.2014. Hence, the petitioners are not entitled to the reliefs sought for in the writ petitions. 7. Per contra, the learned Additional Government Advocate for respondent Nos.1 and 4 submitted that the investment made by the Investment Committee of the - 24 - HC-KAR NC: 2025:KHC:37671 WP No. 31517 of 2014 C/W WP No. 31516 of 2014 respondent No.3 was mired in controversy in as much as the Committee throwed caution to the wind as the General Manager of the respondent No.3 voted against making such an investment. Nonetheless, the petitioners and the Chief Executive Officer of the respondent No.3 proceeded to make an investment in the Industrial Investment Bank of India beyond the term that is provided under Section 58 of the Act, 1959. He also contended that the amount was invested without verification of the market value of the bonds of Industrial Investment Bank of India from the National Stock Exchange as well as the Bombay Stock Exchange. He also contends that the investments were made beyond the territorial limits of the respondent No.3 which again was in violation of the investment policy of the respondent No.3 as well as Section 58 of the Act, 1959. Therefore, he contends that on all counts, the investments made by the Investment Committee headed by the petitioners were sticky and there was a potential chance of losing the entire investment as the investments were made with zero coupon bonds which were prohibited by the Reserve Bank of India. With these and other contentions, he contended that it was not beyond a pale of doubt that the petitioners even - 25 - HC-KAR NC: 2025:KHC:37671 WP No. 31517 of 2014 C/W WP No. 31516 of 2014 while knowing that such an investment was not in accordance with law had proceeded to make such an investment and thereby had exposed the respondent No.3 to potential financial risk. He contends that any decision taken by the Investment Committee to invest the funds of the respondent No.3, which were the contribution by the stakeholders of the respondent No.3, must be made diligently and in accordance with law. He submits that when Investment Committee of the respondent No.3 shortlisted on the agents through whom the bonds had to be subscribed and the rate at which it had to be subscribed as well as the amount to be invested, the same was not placed before the Board of Management of the respondent No.3. On the contrary, after the investment was made and after the bonds were secured in the hands of the respondent No.3, the resolution of the Investment Committee was placed before the Board which ratified the decision of the Investment Committee. He contends that ratification only ratifies past acts which are regular/irregular and not illegal. He tried to draw a distinction between irregular acts and illegal acts and contended that the Board of Management of respondent No.3 is entitled to waive off irregular acts such as not issuing a notice of the meeting, - 26 - HC-KAR NC: 2025:KHC:37671 WP No. 31517 of 2014 C/W WP No. 31516 of 2014 proceeding sheets not signed by the Directors etc. which differs from illegal acts. He contends that therefore mere ratification of an illegal act, did not result in the decision of the Investment Committee becoming valid. 8. Learned counsel for the respondent No.3 also reiterated the above and submitted that the Managing Committee of the respondent No.3 did not have any other option than to ratify the decision of the Investment Committee as by that time, Investment Committee had already made decision and had already invested the amounts in the bonds of the Industrial Investment Bank of India and the bonds were already received in the hands of the respondent No.3. He also reiterated the contention of the learned Additional Government Advocate and submitted that what could be ratified are only irregular acts and not illegal acts and in the case on hand, the petitioners being the then Vice President and President of respondent No.3, who were responsible for taking a decision in the best interest of the respondent No.3, failed and deliberately made an investment in bonds that had very low return or no return. - 27 - HC-KAR NC: 2025:KHC:37671 WP No. 31517 of 2014 C/W WP No. 31516 of 2014 9. Learned senior counsel for respondent No.7 in W.P. No.31517/2014 and learned counsel for respondent Nos.5, 10 and 11 in W.P. No.31517/2014 and learned counsel for respondent Nos.5 to 11 in W.P. No.31516/2014 and learned counsel for respondent No.6 in W.P. No.31517/2014 submitted that the Investment Committee had committed the following illegalities in making the deposit in the Industrial Investment Bank of India. 1. The bank had made investments beyond the limits for single party exposure norms on two occasions during 2006 and 2007. 2. The bank had not obtained/verified market rates from other brokers / sources and was directly dealing with the broker. 3. The bank had transacted at prices far above the market rates thereby causing loss to the bank to the tune of Rs.40 lakh. 4. The Bank had not fixed any accountability on the officials responsible for investment operations. 10. They also referred to a letter dated 10.06.2009 addressed by the General Manager of respondent No.3 to Smt. Usha Thorat, Deputy Governor, RBI, Central Office, Mumbai, the relevant portion of which reads as follows: - 28 - HC-KAR NC: 2025:KHC:37671 WP No. 31517 of 2014 C/W WP No. 31516 of 2014 "Inspite of our request the Chief General Manager, Urban Banks Department, Central office, RBI, Mumbai has imposed the monetary penalty of Rs. 5 lakh on our Bank vide his speaking order referred above (which we have already paid) and published the imposition of penalty in the NEWS papers. Therefore, this appeal. IIBI is an All India Financial Institutions. We had to buy the bonds of IIBI in trading lots only. We were under the impressions that the individual exposure limit would not be applicable to the bonds of All India Financial Institutions and therefore, transgression had taken place on two occasions. This is only a procedural irregularities. IIBI had AAA rating at the time of our investment. FIMMDA was not publishing the price of zero coupon bonds and therefore, we relied upon local market price. We made oral enquiry with some local banks who purchased the bond ranging between Rs.30000 to Rs.35000. We purchased the bonds at Rs.25000/- per Bond, which was the lowest price ruling in the market at that time. The scrutiny officers has arrived the value of IIBI- zero coupon bonds on the basis of marking to market and assessed the MTM loss at Rs.40 lakhs. The methodology adopted to assess the market value of these bonds is not appropriate. MTM is not applicable to zero coupon bonds as the interest is not periodically paid but accrued by adding the interest to the principal amount. The value is to be found out as given below. This is not a cash loss but a book loss for which sufficient - 29 - HC-KAR NC: 2025:KHC:37671 WP No. 31517 of 2014 C/W WP No. 31516 of 2014 provision is available in investment depreciation reserve account. The date of Issue of IIBI bond 08-09-2003 Issue Price Rs. 16000/- Maturity Date 08-09-2028 Maturity amount Rs.100000/- Interest is compounded Interest accrued over 25 years: Rs.16000=Rs.84000/- Rs.100000- Therefore, interest per year on Rs.16000/- is 84000/25 years = Rs.3360. This interest is on simple basis works out at 3360/16000*100=21%. When we find out the actual rate of interest it is compounded it comes to 10% per annum. The Bond has completed the period of 5.5 years. If we calculate compounded interest at half yearly rests on issue price of Rs.16000/- it comes to Rs.9062. Therefore, the value of one bond is Rs.16000/- + Rs.9062=Rs.25062 as on 31-03-2009. If we take the above value of bond, the diminution per bond works out to Rs.NIL. We have invested in the zero coupon bonds issued by Industrial investment Bank India (IIBI) formerly known as Industrial reconstruction Bank of India (IRBI) to the extent of Rs.250 lakhs comprising 1000 bonds of total maturity value of Rs.1000 lakhs. Total diminution as on 31-03-2009 is Rs. NIL for which no provision is required to be made. The MTM loss of Rs.40 lakhs assessed by the scrutiny officer is only diminution in the acquisition value of Non-SLR securities which is to be treated as a book loss and not - 30 - HC-KAR NC: 2025:KHC:37671 WP No. 31517 of 2014 C/W WP No. 31516 of 2014 cash loss and provision has to be made if there is a diminution. The Investment committee has made investment in IIBI bonds and the same is ratified by the Board. Purchase has been made through DEMAT account and the funds have been moved through Current account of the Bank with HDFC Bank, Bangalore and there is no complicity or collusion of any Director/Official in the transaction. As the investment in IIBI bonds and other NON- SLR transactions taken place in the usual course, the Board has felt that the imposition of monetary penalty of Rs.5 lakhs on the Bank and publishing the name of 88 year old Bank in the News paper may loose the confidence of the customers and the Board is also afraid that the action of the RBI may lead to negative growth and cause liquidity problems to the Bank. However, the Board of Directors hereby assures your good self that no scope will be given for such irregularities or lapses in future. In the light of the above facts we request you to kindly view the transactions in their proper perspective and consider waiver of the monetary penalty and drop fixing of accountability and give an opportunity to this 88 year old co-operative Bank to remain and grow. With regards, Yours faithfully, For The Malleswaram Co-operative Bank Ltd. Sd/- General Manager” - 31 - HC-KAR NC: 2025:KHC:37671 WP No. 31517 of 2014 C/W WP No. 31516 of 2014 They, therefore, contend that this decision to invest in the Industrial Development Bank of India was the decision of the petitioners which was not brought to the notice of the Board of the Management of respondent No.3 prior or after the investment was made but it was placed long after the bonds were received in the hands of the respondent No.3. They contend that by ratification, illegal acts cannot be validated and therefore, mere validation of the illegal act of the Investment Committee and making an investment in the Industrial Investment Bank of India is not only unenforceable but does not impose any liability on the Directors of the Board of Management. 11. With these and other contentions, they submitted that the petitioners who were solely liable for the investment made are bound to answer to the report submitted by the respondent No.2 which is upheld by the respondent No.1 in an order passed under Section 68 of the Act, 1959. 12. I have considered the submissions of the learned counsel for the respective petitioner in these petitions and the learned Additional Government Advocate for the official - 32 - HC-KAR NC: 2025:KHC:37671 WP No. 31517 of 2014 C/W WP No. 31516 of 2014 respondents as well as the learned Senior counsel for the respondent No.7 in W.P. No.31517/2014 and learned counsel for respondent Nos.5, 10 and 11 in W.P. No.31517/2014 and for respondent Nos.5 to 11 in W.P. No.31516/2014 and learned counsel for respondent No.6 in W.P. No.31517/2014. 13. The fact that the petitioners were members of the Investment Committee of an Urban Co-operative Bank, namely, respondent No.3 is not in dispute. It is also not in dispute that the petitioners as the members of the Investment Committee which had made an investment of Rs.2,50,00,000/- in the bonds of Industrial Investment Bank of India through a broker named M/s.Maverick Finance. 14. The RBI had taken exception to the way in which the investment was made and had imposed penalty of a sum of Rs.5,00,000/- on the then President and Vice President of respondent No.3 which was paid up by the respondent No.3 thereby tacitly accepting the fact that the investment was not made in accordance with law. Even before this Court, the learned counsel for the petitioners did not contend that the investment was in compliance with Section 58 of the Act, 1959 - 33 - HC-KAR NC: 2025:KHC:37671 WP No. 31517 of 2014 C/W WP No. 31516 of 2014 or under the prevalent Rules / guidelines issued by the RBI from time to time. The sole contention urged by the learned counsel for the petitioners was that the decision to invest in the Industrial Investment Bank of India was though taken by the Investment Committee of the respondent No.3 that was placed before the Management of respondent No.3 which took a decision to ratify the decision of the Investment Committee. It is not in dispute that by the time the Managing Committee took a decision to ratify the decision of the Investment Committee, the investment was already made by the petitioners in the bonds of Industrial Investment Bank of India and the investment bonds were received by respondent No.3. The question regarding ratification of an illegal act, as rightly contended by the learned Additional Government Advocate as well as the learned senior counsel for the respondent No.7 in W.P. No.31517/2014, cannot be of an act which is illegal or unlawful but could at the most be only of those acts which were irregular. The expression "ratification" is the approval of an act, word or conduct which was done improperly or without proper authority performed in the first instance. In the case on hand, the allegations made in the report of the respondent - 34 - HC-KAR NC: 2025:KHC:37671 WP No. 31517 of 2014 C/W WP No. 31516 of 2014 No.2 under Section 64 of the Act, 1959 reinforce the fact that the investments were not mere irregular but were clearly illegal. In addition, the ratification came at a point when the investments were already made and the investment bonds were already received in the hands of the respondent No.3. Therefore, even if a ex-post facto approval was granted by the respondent No.3, that could not result in ratification of the illegal act done by the petitioners. In Orissa Lift Irrigation Corporation Limited v. Rabi Sankar Patro and others [(2018) 1 SCC 468], the Hon'ble Apex Court held as follows: "56. It was laid down by this Court in Annamalai University v. Deptt. of Information and Tourism [(2009) 4 SCC 590 : 3 SCEC 532] that no relaxation could be granted in regard to the basic things necessary for conferment of a degree and if a mandatory provision is not complied with by an administrative authority, the action would be void. This leads us to conclude that the permissions granted by DEC in the first instance allowing the deemed to be universities in question to introduce courses leading to the award of degrees in Engineering were illegal and opposed to law. The illegality in the exercise of power was to such an extent that it could not be cured by ex post facto approvals granted later. We have also seen that the exercise of grant of ex post facto approvals, as a matter of fact, was only superficial and - 35 - HC-KAR NC: 2025:KHC:37671 WP No. 31517 of 2014 C/W WP No. 31516 of 2014 perfunctory. Such exercise was done in the face of declared policy statements governing the field and even when specific complaints were received about deemed to be universities concerned. Yet, without causing any inspection such power was exercised which part is already dealt with and the exercise of power has been found by us to be suffering from illegality and infirmity. The only thing in favour of the deemed to be universities concerned is the fact that the Joint Committee of UGC- AICTE-DEC had endorsed the decision though such exercise was also completely flawed. That exercise was against Para 10 of the MoU dated 10-5-2007, which contemplated causing of inspections and the decision dated 11-5-2007 of the Joint Committee itself that for an institution/university to offer distance education programmes it was mandatory to offer the same in face to face mode. 57. Having found the entire exercise of grant of ex post facto approval to be incorrect and illegal, the logical course in normal circumstances would have been not only to set aside such ex post facto approvals but also to pass consequential directions to recall all the degrees granted in pursuance thereof in respect of courses leading to award of degrees in Engineering." 15. In view of the above, this Court is also of the opinion that mere ratification of an illegal act by the Investment Committee of the respondent No.3 headed by the petitioners, does not obliterate their liability to the respondent No.3. In - 36 - HC-KAR NC: 2025:KHC:37671 WP No. 31517 of 2014 C/W WP No. 31516 of 2014 that view of the matter, this Court does not see any exception to the impugned order dated 31.10.2012 passed by the respondent No.1 as well as the common impugned order dated 06.06.2014 passed by the respondent No.4 in two separate appeals filed by the respective petitioner in these petitions warranting interference. Accordingly, the Writ Petitions fail and are dismissed. Sd/- (R. NATARAJ) JUDGE SMA List No.: 1 Sl No.: 2