This happened in a CMF unit from the bush? These CMF units were pretty renowned for being full of men who were either stereotyped as Country Party hacks/sons (an unfair stereotype, but it was there--my father knew some men like that because he was Country Party), or, more accurately, employees in primary industries which had always had access to plenty of exemptions from conscription/overseas service in the past.
But I'm really surprised that the militia chain of command was asking such a hypothetical (unauthorised, even?) question and using it as an excuse to dismiss men.
This would be a massive scandal if it happened now.
I think it is time for you to read _Defending the National Tuckshop._ Australia's extra-parliamentary right has maintained networks of anti-Labour activists. This is particularly true in armed rural organisations. As can be seen in _Defending the National Tuckshop_ the extra-parliamentary right was fundamentally loyal in nature; only activated accidentally due to racial and Labourist fears; and, was planned as a way to ensure the continuity (in the 1920s and 1930s) of the constitution that "we really knew we had meant to have written" in case of emergency.
I'm not suggesting that such a complex survived intact into the 1960s, but I'm suggesting that a streak of extra-legal armed loyalism exists in rural communities, even if it has degraded into the "National-Independent" kind of discourse. Such a mentality can readily encompass strongly encouraging resignations in situations where "loyalty" is in question.
(The towns were no better, see the Catholic versus Protestant intrigues in Government departments.)
Yet another thread in the rich fabric of Australian cultures.
yours,
Sam R.