The Nidamanuru Primary vs The State Of Andhra Pradesh,
2021 Latest Caselaw 1660 AP

     IN THE HIGH COURT OF ANDHRA PRADESH : AMARAVATI

HON'BLE MR. JUSTICE ARUP KUMAR GOSWAMI, CHIEF JUSTICE
                                     &
               HON'BLE MR. JUSTICE C. PRAVEEN KUMAR

                 Writ Appeal Nos.1530 & 1762 of 2018

                  (Taken up through video conferencing)


Writ Appeal No.1530 of 2018

The    Nidamanuru    Primary   Agricultural
Co-operative    Credit    Society      Ltd.,
O/o    H.No.1575,   Nidamanuru     Village,
Vijayawada Rural Mandal, Krishna District,
Rep. by its CEO/In charge Secretary
Mr.Kommineni Ravi Kumar
                                                                  .. Appellant.
    Versus

The State of Andhra Pradesh, Rep. by its
Principal Secretary, Co-operation Dept.,
A.P. Secretariat, Amaravathi, Guntur District
& 5 Others
                                                             ..Respondents

Counsel for the Appellant : Mr.R.N.Hemendranath Reddy

Counsel for respondent Nos.1 to 3 : G.P. for Cooperation

Counsel for respondent No.4 : Mr.Ganta Prasad

Counsel for respondent Nos.5 & 6 : --

Writ Appeal No.1762 of 2018

The Nidamanuru Primary Agricultural Co-

operative Credit Society Ltd., O/o H.No.1575,
Nidamanuru Village,        Vijayawada Rural
Mandal, Krishna District, Rep. by its CEO/In
charge Secretary Mr.Kommineni Ravi Kumar
                                                                  .. Appellant.
      Versus

Parimi Ramesh, S/o Purnachandra
Rao, Aged about 60 years, R/o
Nidamanuru Village, Vijayawada Rural
Mandal, Krishna District & 5 Others
                                                           ..Respondents





Counsel for the Appellant                 : Mr.R.N.Hemendranath Reddy

Counsel for respondent No.1               : Mr.Ganta Prasad

Counsel for respondent Nos.2 to 4         : G.P. for Cooperation

Counsel for respondent Nos.5 & 6          : --


Date of hearing                           : 16.02.2021

Date of pronouncement                     : 22.03.2021


                            COMMON JUDGMENT
(per C. Praveen Kumar, J)

1. As both these appeals are interconnected, they are disposed of by

this common order.

2. Heard Sri R.N.Hemendranath Reddy, counsel for the appellant in

both the appeals; Government Pleader for Cooperation for Respondents 1

to 3 in W.A.No.1530 of 2018 and Respondent Nos. 2 to 4 in W.A.No.1762 of

2018; and Sri Ganta Prasad, counsel for respondent No.4 in W.A.No.1530 of

2018 and respondent No.1 in W.A.No.1762 of 2018 and perused the record.

3. The appellant herein filed the Writ Petition No.15001 of 2017 seeking

issuance of writ of certiorari, calling for records in O.A.No.44 of 2016 on the

file of the A.P. Co-operative Tribunal at Vijayawada and to set aside the

order, dated 30.03.2017, passed in the said O.A.

4. Writ Petition No.11838 of 2018 was filed by the 4th respondent in

W.A. No.1530 of 2018 (1st respondent in W.A.No.1762 of 2018) seeking

issuance of writ of certiorari, calling for records relating to order, dated

21.03.2018, passed in M.P.No.96 of 2017 in O.A.No.44 of 2016 on the file

of the A.P. Cooperative Tribunal at Vijayawada and quash the same.

5. In order to decide the issue raised, it would be appropriate to refer

to few facts which lead to filing of these two appeals. The appellant in both

the appeals and the writ petitioner in Writ Petition No.15001 of 2017 is

Nidamanuru Primary Agricultural Cooperative Credit Society Limited (for

short, 'the society') which is a primary agricultural society registered under

Andhra Pradesh Cooperative Societies Act, 1964 (for short, 'the Act'). The

4th respondent in W.A. No.1530 of 2018 (1st respondent in W.A.No.1762 of

2018) and petitioner in W.P.No.11838 of 2018, was the President of the

society from 1993 to 1996 and from 1999-2001. An enquiry under Section

51 of the Act was ordered against respondent Nos.4 to 6 in W.A.No.1530 of

2018 (Respondent Nos.1, 5 & 6 in W.A.No.1762 of 2018) i.e., Parimi

Ramesh, Tupakula Apparao and K.Hanumantha Rao, on 28.09.2001 by the

then Joint Registrar of Cooperative Societies, Krishna District. After a

thorough enquiry, a report was submitted holding that several irregularities

were committed in disbursement of loans and an amount of Rs.47 lakhs

was said to have been misappropriated. Basing on the said report,

surcharge proceedings were initiated under Section 60 of the Act. By

proceedings dated 07.03.2002, the 3rd respondent in W.A.No.1530 of 2018

(4th respondent in W.A.No.1762 of 2018) i.e., Deputy Registrar of

Cooperative Societies, passed an order fixing the culpability on the 4th

respondent in W.A. No.1530 of 2018 (1st respondent in W.A.No.1762 of

2018) and respondent Nos.5 & 6 in writ appeals, jointly and severally.

Challenging the said order, the 4th respondent in W.A.No.1530 of 2018

(1st respondent in W.A.No.1762 of 2018) preferred an appeal in O.A.No.130

of 2002 before the Andhra Pradesh Cooperative Tribunal under Section 76

of the Act, which was rejected on 03.04.2004. Thereafter, he preferred

W.P.No.9799 of 2004 before this Court, wherein this Hon'ble Court, by its

order, dated 05.11.2015, set aside the surcharge proceedings, dated

07.03.2002, issued by the 3rd respondent in W.A.No.1530 of 2018

(4th respondent in W.A.No.1762 of 2018) i.e., Deputy Registrar of

Cooperative Societies, and remanded the matter for de novo enquiry.

While remanding the matter, it was made clear that the Respondent -

Ex-President shall not alienate or create any charge over the properties,

which are subject matter of attachments till completion of de novo enquiry

by the Deputy Registrar.

6. Pursuant thereto, the Deputy Registrar conducted a fresh enquiry

under Section 60 of the Act and passed an order on 16.04.2016, fixing

liability on the Respondent - Ex-President to an extent of Rs.16,08,438/-

and on Ex-Secretary and others for a sum of Rs.42,34,266.70 ps. and

consequently directed recovery of the said amount from Respondent -

Ex-President and others along with interest at 18% per annum from the

date of occurrence of fraud till the date of recovery. Challenging the said

order, the Respondent - Ex-President preferred an appeal under Section 76

of the Act vide O.A.No.44 of 2016 before the A.P. Cooperative Tribunal.

Pending O.A., he filed M.A.No.39 of 2016 seeking interim stay of all further

proceedings in pursuance of the said surcharge proceedings. The said M.A.

was allowed granting interim stay of the surcharge proceedings on

03.06.2016. It is also to be noted here that the Respondent - Ex-President

also filed M.A.No.77 of 2016. Similarly, the 5th respondent herein i.e.,

former Secretary questioned the said surcharge order, dated 16.04.2016 in

O.A.No.9 of 2017 before the Tribunal, which was dismissed on 30.03.2017.

The said order has become final.

7. Challenging the order passed in M.A.No.77 of 2016 in O.A.No.44 of

2016, the society i.e., the appellant herein filed W.P.No.24812 of 2016

questioning the action of the Tribunal in reducing the rate of interest from

18% to 8%. By an order, dated 27.07.2016, this Hon'ble Court granted

interim suspension of the order till further orders and ultimately on

12.09.2016, the said writ petition was disposed of when the Respondent -

Ex-President agreed to deposit the entire surcharge amount at 18% interest

to prevent the society from executing the surcharge order. The material on

record discloses that he deposited the same on 21.09.2016 by way of a

fixed deposit, to the credit of O.A.No.44 of 2016. Subsequently, on

30.03.2017, the said O.A. was allowed setting aside the surcharge order

against the Respondent - Ex-President. From the findings of the Tribunal,

it would show that misappropriation was committed only by the

Ex-Secretary and the clerk and that the Respondent - Ex-President only

failed to supervise the affairs of the society.

8. Assailing the said order, the Writ Petition No.15001 of 2017 was filed

by the society, while the Writ Petition No.11838 of 2018 was filed by the

Respondent - Ex-President, challenging the order dated 21.03.2018 in

M.P.No.96 of 2017 in O.A.No.44 of 2016, wherein the Tribunal rejected the

request of the Respondent - Ex-President for return of Rs.60,45,000/-

deposited by him, which was rejected on the ground that Writ Petition

No.15001 of 2017 is pending before this Court.

9. By a common order, dated 29.10.2018, the learned Single Judge of

the High Court of Judicature at Hyderabad for the State of Telangana and

for the State of Andhra Pradesh dismissed the Writ Petition No.15001 of

2017 and consequently allowed the Writ Petition No.11838 of 2018.

Aggrieved by the orders passed, the Nidamanuru Primary Agricultural

Cooperative Credit Society Limited preferred these two appeals.

10. Sri R.N.Hemendranath Reddy, learned counsel for the appellant,

would contend that the learned Single Judge failed to appreciate the

material evidence available on record, especially the categorical statement

made by the 5th respondent herein against the Respondent - Ex-President

during the enquiry and surcharge proceedings, in right perspective and that

the Court has come to an erroneous conclusion in holding the finding of the

Tribunal as correct. He further pleads that when the statement of the

5th respondent show that he has discharged his duties on the directions of

the Respondent - Ex-President and the managing committee of the society

and that he has handed over the amounts received from the depositors to

the Respondent - Ex-President, the learned Single Judge was in error in

holding the Respondent - Ex-President not liable for the acts of

misappropriation. He further pleaded that the contents of the enquiry

report were totally ignored by the Tribunal and by the learned Single Judge.

Relying upon the judgment of the Madras High Court, he would submit that

as the President of the Society is entrusted with the management of the

day-to-day affairs of the society, he cannot escape by throwing the blame

on the Secretary.

11. On the other hand, Sri Ganta Prasad, learned counsel appearing for

the Respondent - Ex-President, would submit that it was the Secretary,

who was responsible for the acts of misappropriation and that the President

has been falsely implicated in the case. He further pleads that the well

considered order of the learned Single Judge requires no interference. The

same stand was adopted by the learned Government Pleader for

Cooperation.

12. In order to appreciate the rival arguments advanced it is to be noted

here that O.A.No.9 of 2017 filed by the Secretary of the appellant-society

questioning the surcharge proceedings, dated 16.04.2016, was dismissed

on 30.03.2017. This order passed against the Secretary, holding him guilty,

has become final. It is also to be noted that O.A.No.44 of 2016 filed by the

4th Respondent in W.A.No.1530 of 2018 (1st respondent in W.A.No.1762 of

2018), who was the President of the society during the relevant period, was

allowed on the same day i.e., on 30.03.2017.

13. In paragraph No.9 of the order in O.A.No.9 of 2017, it was held as

under :

"9. During the cross-examination he stated that the KDCC Bank being the financing bank permitted the society for collection of fixed deposits to members, accordingly they have collected the fixed deposits from the non members also. He does not know how the FDR books were used but he contributed signatures on FDR's issued in the society. He also stated that he contributed his signatures on FDR's in the capacity of clerk. He was orally instructed by the managing committee to sign on the FDR's by noting his designation as Secretary, he also stated that he signed in the loan files as per the oral instructions of the managing committee. It is also suggested that this appellant have written records marked as Exs.A4 to A20. Thus the above part of cross-examination of the appellant goes to show that he had knowledge about the FDR's. In respect of fake deposit receipts this appellant deposed before the enquiry officer that he utilized an amount of Rs.12,00,000/- for his personal use out of fixed deposit loans. The FD loans not disbursed to FDR holders was also part of that Rs.12,00,000/-, in respect of loans he admitted before the enquiry officer on 9.10.2001 that he utilized Rs.2,60,000/- in respect of fertilizers and seeds, this appellant admitted before the enquiry officer on 9.10.2001 that he utilized Rs.3,69,000/-. Thus the various

admissions made by the appellant goes to show that he misappropriated the funds of the society. The Ex-President is not st involved, hence the 1 respondent rightly fixed the liability on the st appellant. The 1 respondent considered the oral and documentary evidence and rightly fixed the liability.

In the appeal filed by 3rd respondent it is found that he has liability, therefore, the 1st respondent ought to have fixed the entire liability on the appellant. Thus, the 1st respondent erred in fixing joint and several liability, against the 3rd respondent with appellant, therefore, the surcharge proceedings against the appellant is confirmed and that the appellant and Ex-Superviser Sri K.Hanumantha Rao are held responsible for the liability against them. No surcharge liability on the 3rd respondent. There is nothing to interfere with the findings of 1st respondent in the surcharge proceedings. Therefore, the appeal is liable to be dismissed and is dismissed accordingly."

This order of the Tribunal has become final as it was not subject matter of

challenge in any proceedings.

14. The surcharge order passed by the Deputy Registrar dealt with the

following aspects, as referred to by the learned Single Judge, which are as

under :

"23. The surcharge order passed by the Deputy Registrar dealt

with the following aspects :

(a) misappropriation through fake fixed deposit receipts;

(b) loans on fixed deposits not disbursed to fixed deposit holders;

(c) forgery of ST loans and disbursing less amounts than sanctioned;

(d) forgery of M.T. loans, not issuing receipts to loan instalments collected and not bringing the receipts to cash book;

(e) misappropriation of stocks of fertilizers and seeds by not bringing the stocks to stock register and cash book;

(f) deficit of stocks in the godown;

(g) receipts not brought to cash book, difference between receipts books and cash book regarding sale of seeds respectively;

(h) loan instalment payments not brought to cash book though receipts were issued;

(i) and misplacement of cash balance."

15. As stated earlier, though the Enquiry Officer, who conducted enquiry

under Section 51 of the Act, held that the Respondent - Ex-President is

jointly liable along with respondent Nos.5 & 6, but, however, the Deputy

Registrar in surcharge proceedings held that the Ex-Secretary alone is liable

for misappropriation of Rs.42,34,266.70 ps. and the Respondent - Ex-

President was negligent in supervising the functioning of Ex-Secretary and

Clerk.

16. At this stage, the learned counsel for the appellant tried to contend

that letters written by the Respondent - Ex-President establishes his

involvement in the commission of the offence.

17. Byelaw No.26 of Byelaws of the society deals with the power of

President. It postulates that he is the competent authority for running the

administration of the society; that he is the custodian of all the properties

of the society; and that he is authorized to delegate custody of the

properties of the society, such as cash and other stocks to the Secretary.

Further, under Section 60 of the Act, the order of surcharge can be passed

only if the Officer or Servant of the Society had misappropriated or

misapplied funds or fraudulently retained money or committed breach of

trust or is guilty of wilful negligence.

18. Basing on the evidence available on record and the admissions made

by the Secretary, who signed and issued fake Fixed Deposit Receipts, it was

held that he alone is responsible for the same.

19. It will be appropriate to extract the findings of the Tribunal in

O.A.No.44 of 2016, which are as under :

"Byelaw No.26 does not mention that the President is responsible for the misappropriation committed by other employees of the society. He also admitted that there is no documentary evidence to show that the appellant committed misappropriation of funds of the society. Thus absolutely no material to show that the appellant committed misappropriation but the liability was fixed for not supervising. On all these aspects, the counsel for the appellant argued that the day to day administration of the society has to be attended by the Secretary and the clerk of the society. In case the Secretary of the society places the registers and cash books reflecting the entries then as President he has to verify the same. At best it could be concluded that the President was negligent but not wilful negligent in managing the affairs of the society. Intentionally he never caused loss to the society.

As per Section 55-A of the Act the President and Secretary are having responsibility for the true and genuineness of the entries made in the account books of the society. When misappropriation was identified and both President and Secretary denied their liability and responsibility for causing loss to the funds of the society, then depending upon the responsibility created Under Section 55-A of the Act, liability could be fixed, but when the Ex-Secretary admitted that he committed misappropriation, then no liability could be fixed and the 1st respondent ought to have fixed liability on the Ex-Secretary only by exonerating the Ex-President who is appellant herein.

As per Section 60 of the Act whoever entrusted with the organization, affairs or management of the society has been guilty of breach of trust in relation to the society or has caused any deficiency in the assets of the society by breach of trust or wilful negligence then an order may be passed to recoup that loss. In this case on hand no allegations of breach of trust but it is alleged lack of supervision. As per the above proviso it amounts to negligence. The 1st respondent alleged that it amounts to wilful negligence. In order to attach the same the society has to prove that the appellant acted deliberately and intentionally in order to cause loss. In this regard the counsel for the appellant placed reliance in a decision reported in 1977 AIR Madras 92 in between

Subbammal appellant Vs. President, The Tenkasi Cooperative Urban Limited Tenkasi wherein the Ex-Clerk of the society committed misappropriation of the funds of the society and on identifying the irregularities an enquiry was conducted, issued surcharge proceedings against the President, Vice President, Directors and Ex-Clerk of the society. In that case the Modus operandi adopted by the Clerk for misappropriating the amounts was not known for about 17 years unless a special enquiry was ordered and then identified the irregularities. It is held that the society was subjected to departmental audit annually and persons who are specially trained did not detect the misappropriation made by the clerk. In those circumstances the Secretary and clerk were alone liable but not the President, Ex-President and Directors of the society. It is held that there is no wilful negligence on the part of Ex-President, Ex-Vice President, and Directors of the society.

In this case on hand the Ex-Secretary Sri T.Appa Rao admitted that he committed misappropriation of funds of the society. He also addressed letters to the Divisional Cooperative Officer, Vijayawada and also gave statements before the enquiry officer. The admissions that were made by the Secretary were not under any influence but they were made on several occasions therefore, one cannot conclude that they were made under threat. This material goes to show that it is the Secretary and Sri K.Hanumantha Rao have committed the misappropriation and liability has to be fixed against them only. Hence Point No.1 is answered in favour of the appellant."

20. Further, a perusal of the order in O.A. would show that Ex-Secretary

admitted in his statement :-

(i) that he has utilized Rs.12,00,000/- for his personal use out of

Fixed Deposits and Fixed Deposit Loans;

(ii) that he also admitted that he has collected fixed deposits and

misappropriated the funds of the society not disbursing Rs.69,000/- to FDR

holders. He accepted his liability/responsibility in his letter addressed to the

Divisional Cooperative Officer, Vijayawada on 05.01.2002;

(iii) that on allegation of forgery of ST loans and M.T. loans, the

Enquiry Officer opined that only Ex-Secretary is liable and not respondent -

Ex-President; and

(iv) that in so far as items relating to fertilizers and seeds, the

records indicate that the 5th respondent sold fertilizers by issuing receipts

without date and the same were not brought to the cash book; that there

was a difference between receipt books and cash book towards sale of

seeds, which was not brought to cash book; and the Ex-Secretary stated

before the Enquiry Officer that he utilized Rs.6,69,000/- for personal use

out of fertilizer sales amounts.

21. Basing on the material available on record the Tribunal held that it is

the Ex-Secretary who is responsible for the misappropriation and the

Respondent - Ex-President failed to supervise the affairs of the society.

22. It is also to be noted that the appellant-society made an application

under Order 41 Rule 27 to receive resolution copies evidencing involvement

of the Respondent - Ex-President. After due consideration, the Tribunal

categorically held that these documents do not show the involvement of the

Respondent - Ex-President at any point of time. Since they are silent with

regard to the act of the Respondent - Ex-President, the application filed

vide M.P.No.58 of 2017 was rejected. Thereafter, these documents came

to be filed before this court i.e., in the writ petition.

23. Sri R.N.Hemendranath Reddy, learned counsel for the appellant,

submits that letter, dated 07.05.2015, clearly indicate that the Respondent

- Ex-President also admitted the act of misappropriation. But, a perusal of

letter, dated 07.05.2015, does not reveal any admission by the

Respondent - Ex-President, to the effect that he has misappropriated the

amount. It only says that he is willing to pay the misappropriated amount.

Therefore, by no stretch of imagination it can be said that it was an

admission by the Respondent - Ex-President, more so, when the evidence

on record show that it was the Ex-Secretary, who misappropriated the

same. It will be appropriate to extract the contents of the letter, which is

as under :

"Respected Sir,

Sub: Request for settlement of misappropriation amount for Nidamanuru Society.

I would like to bring to your kind notice that, in which you notified me with regard to the misappropriation amounts incurred in Nidamanuru Society. Due to my current unfortunate circumstances and dire financial straits, I am unable to make the proposed payment. Now I am willing to pay the misappropriate amount along with interest @8% per annum. That is the only sum I can afford. It is my intention to discharge this misappropriation amount at the earliest possible opportunity and therefore, I assure you of my integrity and commitment to pay you the said sum after receipt of your approval.

Further, I request you to kindly issue a clearance letter from misappropriation cases relating to any courts, after the above said dues are cleared from my side.

Your kind consideration and approval shall be much appreciated."

24. Therefore, having regard to the fact that the order in O.A.No.9 of

2017 has become final and in view of the material available on record,

which categorically show that the Ex-Secretary and Clerk are responsible for

their acts of misappropriation; that the Respondent - Ex-President was only

negligent in supervising the affairs of the society and taking into

consideration the explanation given, coupled with the rule position, we do

not intend to interfere with the orders under challenge.

25. Accordingly, W.A.No.1530 of 2018 is dismissed and consequently

W.A.No.1762 of 2018 filed against the order in W.P.No.11838 of 2018,

wherein the Court ordered issuance of cheque for Rs.60,45,000/- to the

Respondent - Ex-President with interest @ 8% per annum, also stands

dismissed. No costs.

As a sequel, all the pending miscellaneous applications shall stand

closed.

ARUP KUMAR GOSWAMI, CJ                          C. PRAVEEN KUMAR, J

                                                                    skmr





       IN THE HIGH COURT OF ANDHRA PRADESH : AMARAVATI

HON'BLE MR. JUSTICE ARUP KUMAR GOSWAMI, CHIEF JUSTICE & HON'BLE MR. JUSTICE C. PRAVEEN KUMAR

WRIT APPEAL Nos.1530 & 1762 of 2018 (per Hon'ble Mr.Justice C.Praveen Kumar)

Skmr

Date : 22.03.2021