Bombay High Court
Mumbai District Central Co Op Bank ... vs The Commissioner And Registrar ... on 28 October, 2021
Bench: G. S. Kulkarni
Digitally signed
PRASHANT by PRASHANT
VILAS RANE
VILAS Date:
RANE 2021.10.28
21:58:16 +0530
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
WRIT PETITION NO.6697 OF 2021
Mumbai District Central Co-op. Bank Ltd. ...Petitioner
V/s.
1. The Commissioner and Registrar, Co-op.
Societies (Maharashtra State), Pune
2. The Divisional Joint Registrar,
Co-op.Societies.
3. Mr.Pratap Patil, Enquiry Officer ...Respondents
----
Mr.Vineet Naik, Senior Advocate i/b. Mr. N.N. Bhadrashete with Ms.
Priyanka Bhadrashete for Petitioner.
Mr. S. U. Kamdar, Senior Advocate with Mr. P. P. Kakade, GP and Mr. S.H.
Kankal, AGP for State/Respondents.
-----
C0RAM : G. S. KULKARNI, J.
RESERVED ON : 26 October, 2021
PRONOUNCED ON : 28 October, 2021
JUDGMENT:
1. This is a petition filed under Article 226 of the Constitution of India
wherein the petitioner has assailed an order dated 1 September 2021 issued
by respondent no.2/Divisional Joint Registrar, Co-operative Societies,
Mumbai Division, calling upon the petitioner to submit a rectification report
within fifteen days from the said communication in regard to a Test Audit
Report dated 10 August 2021 submitted by the auditor appointed as per the
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provisions of Section 81(3)(c) of the Maharashtra Co-operative Societies
Act,1960 (for short 'the Act'). The petitioner is also aggrieved by a
subsequent order dated 22 September 2021 also passed by the Divisional
Joint Registrar ordering an inquiry exercising powers under Section 83 of
the Act by appointing an inquiry officer, for an inquiry to be conducted on
ten points as set out in Appendix A to the said order. The petitioner has also
prayed for directions to the Divisional Joint Registrar to grant a reasonable
period of three months under Section 82 of the Act to submit its explanation
in respect of observations, defects, irregularities referred to in the test audit
report for the period 2015-2020 and for an opportunity to make submission
with reference to such observations, defects, irregularities, and to submit a
rectification report with reference to that regard.
2. The factual antecedents are required to be noted:
The petitioner is a co-operative society which was registered under
the Act on 6 August 1974. It is engaged in the business of banking. The
petitioner has contended that in the past the affairs, accounts and
transactions of the petitioner have been audited by the statutory auditors
appointed under Section 81 of the Act and the defects, if any, pointed out in
such audits have been explained by filing rectification reports. It addition,
NABARD had also regularly carried out inspection of the affairs of the
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petitioner. It is contended by the petitioner that the Divisional Joint
Registrar had ordered an inspection of the petitioner under Section 89A of
the Act and had appointed an Inspecting Officer, however, a copy of such
inspection report was not made available to the petitioner.
3. The petitioner has contended that by an order dated 16 February
2021, the Divisional Joint Registrar invoking powers under Section 81(3)(c)
of the Act appointed Mr.Nilesh B.Naik as a Special Auditor to carry out a
Test Audit of the accounts of the petitioner. The Special Auditor carried out
a Test Audit of the accounts of the petitioner for the period 2015-2016 to
2019-2020. A Test Audit report dated 10 August 2021 was also served on
the petitioner.
4. After furnishing of a copy of the Test Audit Report to the petitioner,
the Divisional Joint Registrar by the impugned order dated 1 September
2021 issued to the petitioner, called upon the petitioner to submit a
rectification report within a period of fifteen days, on the deficiencies as
pointed out in the Test Audit Report. This letter of the Divisional Joint
Registrar was received by the petitioner on 3 September 2021, however, it
appears that almost for about seventeen days the petitioner did not respond
to the said letter, as for the first time the petitioner on 20 September 2021,
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addressed a letter to the Divisional Joint Registrar, requesting for time to be
granted to the petitioner upto 31 December 2021 to submit a rectification
report.
5. The Divisional Joint Registrar thereafter passed an order dated 22
September 2021 initiating an enquiry against the petitioner under Section
83 of the Act on the basis of the Test Audit Report and a Special report of
the Auditor dated 20 August 2021 by appointing Mr.Pratap Patil, Deputy
Registrar, Co-operative Societies, as an enquiry Officer. This order directs
that the affairs of the petitioner and the loss which has been caused to the
petitioner be inquired into by the enquiry officer and the report be
submitted within three months from the date of such order. The order also
records that serious issues have been noted in the Test Audit Report dated
10 August 2021 and considering such Test Audit Report and Report of the
Special Auditor, it was thought appropriate that an inquiry be initiated in
the financial affairs of the petitioner on ten issues which are set out in
'Appendix A' as annexed to the said order. On the aforesaid backdrop, the
petitioner is before the Court in the present proceedings assailing the
communications dated 1 September 2021 and the order dated 22
September 2021, both issued by the Divisional Joint Registrar. This writ
petition was filed on 24 September 2021.
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6. On behalf of the respondents, a reply affidavit has been filed by
Mr.Prashant Bhaurao Satpute, Deputy Registrar C.S., 'A' Ward, Mumbai,
interalia raising a preliminary objection to the maintainability of the writ
petition on the ground that the petitioner has an alternate remedy to file a
revision application. It is contended that the impugned order has already
been implemented as an enquiry has already commenced. It is contended
that the enquiry is required to be completed within a specified time and by
the present Writ Petition the petitioner is trying to deliberately prolong the
enquiry. It is stated that the enquiry is a fact finding enquiry and
recommendatory in nature and no harm or prejudice would be caused to
the petitioner if the enquiry is continued under the said Act. It is next
contended that the Registrar is always within his power to direct an inquiry
to be conducted under Section 83 of the Act and more particularly, in the
present case when there is a strong basis namely of Special Report
submitted by the Special Auditor. It is contended that although the statutory
audit has already been carried out by the petitioner from time to time,
however, as per Section 89A of the Act a power has been conferred to
inspect the working of the petitioner bank. Accordingly, the inspection was
carried out and a report dated 3 December 2020 and a revised report dated
14 January 2021 were submitted to the Commissioner for Co-operation. It is
stated that after examining such report, it was noted that there were serious
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irregularities in the functioning of the petitioner. It is contended that the
condition of the bank was also examined for the financial year 2018-2019
by the NABARD and after perusal of the NABARD's report, issues of concern
had come forward which are set out in seriatim (in vernacular) in
paragraph 5 of the affidavit. It is contended that in view of such serious
irregularities, it was found just and proper that an enquiry be initiated
under Section 83 of the Act and an enquiry officer was accordingly
appointed on the basis of the Special Report submitted by the Special
Officer. It is further stated that as per the order dated 16 February 2021 the
Test Audit was also conducted which is not disputed by the petitioner. The
Special Auditor has prepared his report dated 10 August 2021 which was
submitted to the Divisional Joint Registrar as also a special report dated 20
August 2021 was submitted making remarks that a detail inquiry is required
to be conducted. A copy of the Special Report dated 20 August 2021 is
annexed to the reply affidavit. It is stated that the impugned orders have
been issued as per the provisions of the Act. It is next contended that the
Test Audit Report is distinct from the statutory audit and hence, the benefit
of Section 82 of the Act is not available to the petitioner after the Special
Report is submitted by the Special Auditor. It is contended that there is no
provision in the Act to provide for hearing by the Special Auditor at the time
of submitting the Special Report, hence, the challenge in the petition is pre-
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mature and cannot be considered at the stage of the enquiry under Section
83 of the Act. The respondents have denied the petitioner's allegation of
violation of the principles of natural justice. It is contended that at the time
of passing an order of appointment of an enquiry officer, there is no
provision which would require an opportunity of hearing to be granted to
the petitioner. It is further stated that the power exercised by the Divisional
Joint Registrar to order an enquiry under Section 83 has been exercised in
his administrative capacity, therefore, no hearing is required to be granted
to the petitioner at the stage of ordering an enquiry. The respondents, thus,
pray that the petition be dismissed.
7. Mr.Vineet Naik, learned Senior Counsel appearing for the petitioner
has made extensive submissions which are primarily on the scheme of
Chapter VIII and more particularly, the provisions of Section 81 which
provides for an audit, Section 82 which provides for rectification of defects
in the accounts and Section 83 which pertains to an inquiry by the Registrar.
He has also drawn my attention to the provisions of Section 87 which
provides that the Registrar would to bring the defects disclosed in inquiry or
inspection to the notice of the society. The effect and consequences of these
provisions in its applicability to the facts of the present case, would be
adverted little later when the submission of Mr.Naik in that regard are being
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examined.
8. Mr.Naik has submitted that for the period prior to 2015-2020 a
regular audit of the accounts of the petitioner had taken place and there
was no cause of any concern for the petitioner. Mr.Naik submits that a Test
Audit Report was ordered by the Divisional Joint Registrar vide order dated
16 February 2021 which was on the basis of the inspection undertaken
under Section 89-A of the Act as also the report of the NABARD on ten
irregularities as noted in the order dated 16 February 2021 passed by the
Divisional Joint Registrar, appointing the Special Auditor. It is his
submission that the Special Audit Report dated 10 August 2021 necessarily
would be subject to the provisions of Section 82 which provides for an
opportunity to the society to rectify the defects in the accounts. It is
submitted that, in fact, by the impugned order dated 1 September 2021
such opportunity of rectification was made available to the petitioner,
however, the objection of the petitioner is that the time of 15 days as
prescribed in the said order to submit the rectification report was contrary
to Section 82, which provides for a period of three months for rectification
of such defects. It is therefore, his submission that the impugned
communication dated 1 September 2021 prescribing the period of fifteen
days for the rectification of the defects is in the teeth of the provisions of
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Section 82 of the Act, and hence, deserves to be set aside by ordering
appropriate compliance of Section 82 of the Act in the present facts.
9. The next submission of Mr.Naik is on the impugned order passed by
the Divisional Joint Registrar ordering an enquiry under Section 83 of the
Act. Firstly, the submission is that in ordering such an inquiry, the Divisional
Joint Registrar has referred to a Special Report dated 20 August 2021 of the
Special Auditor which has come to the knowledge of the petitioner for the
first time being referred to in the reference paragraph of the said order
dated 22 September 2021. It is submitted that such an action to initiate an
enquiry is rendered illegal on two counts, firstly; that it was premature to
order such inquiry, inasmuch as no opportunity was granted to the
petitioner of any rectification of the defects in the accounts as Section 82
would provide. It is his submission that in any event the provisions of
Section 83 under which the Registrar may order an inquiry on the basis of a
Special Report under the third proviso to sub-section (5-B) of Section 81,
cannot be invoked unless there is compliance of Section 82, namely of an
opportunity of rectification of the defects as prescribed by the said
provision. Hence, the submission is that for invoking Section 83, a prior
compliance of Section 82 would be a sine qua non in the legislative scheme
the provision stands under Chapter VIII of the Act.
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10. Mr.Naik has also referred to the provisions of Section 87 which,
according to him, also casts an obligation on the Registrar to bring defects
disclosed in inquiry or inspection to the notice of the society and to call
upon the society to rectify the defects. It is hence his submission that the
invocation of an inquiry by the Divisional Joint Registrar under Section 83
of the Act, apart from not being justified, is an arbitrary and an illegal
action.
11. In regard to the respondents' contention as raised in the reply that
there is an alternate remedy as available to the petitioner to file a revision
application, it is submitted that the remedy is certainly not an efficacious
alternate remedy. In support of his such submission, Mr.Naik has referred to
paragraph 21 of the petition which refers to a newspaper report dated 24
September 2021 which records that the Hon'ble Minister for Co-operation
who is the revisional authority has justified the order passed by the
Divisional Joint Registrar ordering an inquiry. Hence, the remedy of revision
according to Mr.Naik, is certainly not an adequate remedy.
12. Mr.Naik has thus submitted that the impugned order dated 22
September 2021 passed against the petitioner under Section 83 is in
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violation of the principles of natural justice which are inherently recognized
under the provisions of Section 82 and hence, the reliefs as prayed for in
the petition ought to be granted.
13. On the other hand, Mr.Kamdar, learned Senior Counsel appearing for
the petitioner in supporting the impugned order has made extensive
submissions arguing on the legal effect as created by the provisions of
Section 81(3)(c) read with sub-section (5-B), and Section 83 of the Act, to
submit that these provisions are imperative when the co-operative bank like
the petitioner is concerned. It is his submission that Section 83 is an
independent provision. His submission is that for applicability and operation
of Section 83 there is no relevance of Section 82. Mr.Kamdar would submit
that in any event no prejudice whatsoever would be caused to the
petitioner, if an inquiry is ordered under Section 83 as under the provisions
of Section 87 an opportunity would be available to the petitioners, if any,
defects are pointed out in such enquiry. It is his submission that there was
sufficient material not only reflected in the order dated 16 February 2021
passed by the Divisional Joint Registrar under Section 81(3)(c) of the Act
but also from the report of the NABARD as referred therein and the Test
Audit Report prepared by the Special Auditor. It is submitted that the
argument of the petitioner to read Section 82 in the context of the
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applicability of Section 83 is completely misconceived and if such an
interpretation is accepted, Section 83 would be rendered ineffective, when
it is necessary for an enquiry to be undertaken by the Registrar in the
circumstances as provided by Section 83. It is his submission that Sections
81, 82 and 83 in the legislative scheme as they stand, are required to be
read in such a way that the provisions are rendered effective in the
circumstances the legislature intends that the object of these provisions to
be fulfilled. It is his submission that the petitioner would have a complete
opportunity of participating in the enquiry and it is not that the petitioner
becomes remediless, once an enquiry is completed. Mr.Kamdar would thus
submit that the writ petition is misconceived and ought to be dismissed.
Reasons and Conclusion
14. At the outset dealing with the objection of Mr.Kamdar on
maintainability of this petition on the ground that there is an alternate
remedy available to the petitioner, I am not inclined to accept his contention
in the facts and circumstances of the present case and more particularly, in
view of the averments as made in paragraph 21 of the petition to which I
have adverted above. Mr.Kamdar's objection is accordingly rejected.
15. Having heard the learned Senior Advocates for the parties and having
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perused the record and the impugned orders the following questions would
arise for consideration of this Court:-
(I) Whether the impugned order notice dated 1 September 2021
granting 15 days time to the petitioner to submit rectification of defects, is
violative of the provisions of Section 82 of the Act ?
(II) As to whether for an enquiry to be ordered under Section 83 of the
Act interalia on the basis of the Special Report submitted by the Special
Auditor under the third proviso to sub-section (5-B) of Section 81, an
opportunity of rectification of defects as provided under Section 82, would
be condition precedent ?
16. To answer these issues, it would be necessary to note the relevant
provisions as discussed above. The relevant provisions being Section 81(3)
(c) [Clause substituted by amendment Act 16 of 2013 dt.13-8-2013, (w.e.f.
14-2-2013)] read with sub-section (5-B) [as inserted by the Amendment
Act 10 of 1988, S.43(e)] alongwith the proviso and Section 82 of the Act to
begin with. Section 81 and 82 read thus:
"81. Audit.--
(1) (a) The Registrar shall audit, or cause to be audited, at least once
in each co-operative year, by a person authorised by him by general or
special order in writing in this behalf the accounts of every society
which has been given financial assistance including guarantee by the
State Government, or Government undertakings, from time to time,
and the accounts of the apex societies, State and District Level Federal
Societies, District Central Co-operative Banks, Co-operative Sugar
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factories, Urban Co-operative Banks, Co-operative Spinning Mills,
District and Taluka Co-operative Sale and Purchase Organizations, and
any such society or class of Societies which the State Government may,
from time to time, by notification in the Official Gazette, specify.
(b) The societies other than the societies referred to in clause (a) shall
arrange to get their accounts audited, at least once in each co-
operative year by an auditor from the panel of auditors maintained by
the Registrar, or by a chartered accountant holding a certificate in co-
operative audit issued by the institute of Chartered Accountants of
India:
Provided that, the Registrar may, for reasons to be recorded in writing,
audit or cause to be audited accounts of any such societies of any year
and at any time.
(2) The audit under sub-section (1) shall include examination or
verification of the following items, namely (i) over dues of debts, if
any;
(ii) cash balance and securities and a valuation of the assets and
liabilities of the society
(iii) whether loan and advances and debts made by the society on
the basis of security have been properly secured and the terms on
which such loans and advances are made or debts are incurred are not
pre-judicial to the interest of the society and its members;
(iv) whether transactions of the society which are presented merely
by book entries are not prejudicial to the interest of the society;
(v) whether loans and advances made by the society have been
shown as deposits;
(vi) whether personal expenses have been charged to revenue
account;
(vii) whether the society has incurred any expenditure in
furtherance of its objects;
(viii) whether the society has properly utilised the financial
assistance granted by government or Government undertakings or
financial institutions, for the purpose for which such assistance was
granted;
(ix) whether the society is properly carrying out its objects and
obligations towards members (2A) Where, in the opinion of the State
Government, it is necessary In the public interest to do so in relation
to any society or class of societies for ensuring management thereof in
accordance with sound business principles or prudent commercial
practices, the State Government may, by order, direct that such society
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or class of societies shall prepare and maintain its accounts in the form
determined by the State Government, from time to time and that cost
audit or performance audit or both, of such society or class of
societies, as may be specified in the order, shall be conducted. (2B)
where any order is issued under sub-section (2A), the Registrar shall
cause such audit of such society or class of societies to be conducted
by a cost accountant who is a member of the Institute of Cost and
Works Accountants of India constituted under section 3 of the Cost
and Works Accountants Act, 1959.
(3) (a) The Registrar or the person authorised shall, for the purpose of
audit, at all times have access to all the books, accounts, documents
papers, securities cash and other properties belonging to, or in the
custody of, the society, and may summon any person in possession or
responsible for the custody of any such books, accounts, documents,
papers, securities, cash or other properties, to produce the same at any
place at the headquarters of the society or any branch thereof.
(b) The Registrar shall be competent to depute Flying Squad to a
society or societies for examination of books, records, accounts, and
such other papers and for verification of cash balance. The report of
the Flying Squad shall be deemed to be an audit report for the
purpose of taking further action, if necessary.
(c) The Registrar or the person authorised by him in this behalf
may carry out or cause to be carried out the test audit of the accounts
of any society. The test audit shall include the examination of such
items as may be prescribed.
(4) Every person who is, or has at any time been, an officer or
employee of the society, and every member and past member of the
society, shall furnish such information in regard to the transactions
and working of the society as the Registrar, or the person authorised
by him, may require
(5) The auditor appointed under sub-section (1) shall have the
right to receive all notices and ever communication relating to the
annual general meeting of the society and to attend such meeting and
to be heard thereat, in respect of any part of the business with which
he is concerned as auditor.
(5A) If, during the course of audit of any society, the auditor is
satisfied that some books of accounts or other documents contain any
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incriminatory evidence against past or present officer or employee of
the society the auditor shall immediately report the matter to the
Registrar and, with previous permission of the Registrar, may impound
the books or documents and give a receipt thereof to the society.
(5B) The auditor shall submit an audit memorandum duly signed by
him to the society and to the Registrar in such form as may be
specified by the Registrar, on the accounts examined by him and on
the balance sheet and profit and loss account as on the date and for
the period up to which the accounts have been audited, and shall state
whether in his opinion and to the best of his information and
according to the explanation given to him by the society the said
accounts give all information required by or under this Act and
present the true and fair view of the financial transactions of the
society.
Provided that, where the auditor has come to a conclusion in
his audit report that any person is guilty of any offene relating to the
accounts or any other offences, he shall file a specific report to the
Registrar within a period of fifteen days from the date of submission of
his audit report The Auditor concerned shall, after obtaining written
permission of the Registrar, file a First Information Report of the
offence. The auditor who fails to file First Information Report, shall be
liable for disqualification and his name shall be liable to be removed
from the panel of auditors and he shall also be liable to any other
action as the Registrar may think fit;
Provided further that, when it is brought to the notice of the
Registrar that, the Auditor has ailed to initiate action as specified
above, the Registrar shall cause a First Information Report to be filed
by a person authorised by him in that behalf.
Provided also that, on conclusion of his audit, if the auditor
finds that there are apparent instances of financial irregularities
resulting into losses to the society caused by any member of the
committee or officers of the society or by any other person, then he
shall prepare a Special Report and submit the same to the Registrar
alongwith his audit report. Failure to file such Special Report, would
amount to negligence in the duties of the auditor and he shall be
liable for disqualification for appointment as an auditor or any other
action, as the Registrar may think fit.
(6) If it appears to the Registrar, on an application by a society or
otherwise, that it is necessary or expedient to re-audit any accounts of
the society, the Registrar may by order provide for such re-audit and
the provisions of this Act, applicable to audit of accounts of the society
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shall apply to such re-audit.
82. Rectification of defects in accounts.--
If the result of the audit held under the last preceding section discloses
any defects in the working of a society the society shall within three
months from the date of audit report, explain to the Registrar the
defects, or the irregularities pointed out by the auditor, and take steps
to rectify the defects and remedy irregularities and report to the
Registrar the action taken by it thereon and place the same before the
next general body meeting. The Registrar may also make an order
directing the society or its officers to take such action, as may be
specified in the order to remedy the defects within the time specified
therein.
If, the committee of a society fails to submit the audit
rectification report to the Registrar and to the annual general body
meeting, all the members of the committee shall be deemed to have
committed an offence under section 146 and accordingly shall be
liable for penalty as provided in section 147. Where the society
concerned is a member of a federal society, such order of imposition of
penalty shall be made after consulting the State federal society
concerned:
Provided that, the Registrar or the person authorised by him
shall scrutinise the audit rectification report accordingly and inform
the society about such report within six months from the date of
receipt thereof:
Provided further that, it shall be the responsibility of the
auditor concerned to offer his remarks on the rectification report of
the society, itemwise, till entire rectification is made by the soceity and
submit his report to the Registrar:
Provided also that, such federal society shall communicate its
opinion to the Registrar within a period of forty five days from the
date of receipt of communication, failing which it shall be presumed
that such federal society has no objection to the proposed action and
the Registrar shall be at liberty to proceed further to take action
accordingly. "
(NOTE: For convenience the highlighted portion is referred as 'Part I' and
the underlined portion as "Part II" of Section 82.)
17. The statutory scheme as contained in Chapter VIII of the Act provides
for, 'Audit, Inquiry, Inspection and Supervision', within which the above
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provisions find their place, appears to be quite clear. Section 81 as noted
above interalia provides for an 'Audit' to be caused of the accounts of the
society at least once in each financial year by an auditor or an auditing firm,
from the panel prepared by the Registrar and approved by the State
Government from amongst whom such auditor would be appointed by the
General body of the Society. It also provides for the consequences of failing
to undertake an audit and filing of returns in which case the Registrar
would cause the accounts to be audited. Section 81 provides for a complete
mechanism in regard to the audit. However, what is relevant for the
purposes of the present proceedings is the provisions of sub-section (3)(c)
of Section 81 which stipulates that if it is brought to the notice of the
Registrar that the audit report submitted by the auditor does not disclose
the true and correct picture of the accounts, the Registrar or the authorised
person may carry out or cause to be carried out a test audit of the accounts
of such society. It provides that the test audit shall include the examination
of such items as may be prescribed and specified by the Registrar in such
order. Clause (c) of sub-section (3) was incorporated by an amendment
brought about by the Maharashtra Act 16 of 2013 with effect from 14
February 2013.
18. In the present case, the Divisional Joint Registrar invoking the powers
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conferred under sub-section (3)(c) of Section 81 of the Act passed an order
dated 16 February 2021 appointing a Special Auditor Mr.Nilesh B.Naik to
undertake a test audit and make a report. The said order also set out the ten
issues which according to the Divisional Joint Registrar necessitated the
'Test Audit'. It is not in dispute that such an order of the Divisional Joint
Registrar passed under sub-section (3)(c) of Section 81 of the Act was acted
upon, culminating into a Test Audit Report dated 10 August 2021 prepared
by the Special Auditor of which a copy was furnished to the petitioner.
Further, the petitioner was also called upon by the impugned order/notice
dated 1 September 2021 to rectify the defects within 15 days of receipt of
the said notice. The petitioner however by its letter dated 20 September
2021 addressed to the Divisional Joint Registrar, had sought a longer time
upto 31 December 2021 to submit a rectification.
19. In any event, on a plain reading of Section 82, two facets of the
provisions are evident. The provision can be split into two parts, first part
creating an obligation on the society to rectify the defects pointed out in an
audit and the second part speaking about the powers of the Registrar to
order compliance. In regard to the first part of Section 82, it provides that if
the result of the audit held under Section 81 discloses any defects in the
working of the society, the society shall within three months from the date
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of the audit report, explain to the Registrar, the defects or the irregularities
pointed out by the auditor and take steps to rectify the defects and remedy
the irregularities and report to the Registrar the action taken by it thereon
and place the same before the next general body meeting. Thus, the first
part of Section 82 is purely an obligation cast on the society to achieve
compliances by rectifying the defects for which a period of three months is
prescribed. Thus, the law itself makes available to the society a period of
three months to rectify the defects, and report the same to the Registrar. In
the present case the audit report dated 10 August 2021 was certainly made
available to the petitioner. There is no dispute in this regard. However, it
appears that the petitioner has so far not filed any rectification report, as
the first part of Section 82 would mandate.
20. Be that as it may, the second part of Section 82 confers a power on
the Registrar to make an order directing the society or its officer to take
action as may be specified in such order, to remedy the defects within the
time as may be specified in such order, and in the event the Committee of
the society fails to submit an audit rectification report to the Registrar and
at the Annual General body meeting, the provision ordains that all members
of the Committee in that event shall be deemed to have committed an
offence under Section 146 of the Act and render themselves liable for
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punishment as provided under Section 147. Thus in regard to the second
part of Section 82 of the Act, for the Registrar to make an order to take
action to remedy the defects, no specific period has been prescribed. Thus,
the petitioner's contention that the period of three months ought to have
been provided by the Registrar in the impugned notice dated 1 September
2021, cannot be accepted, as it would not be a requirement of Section 82,
in so far as the Registrar exercising powers under Section 82 was
concerned.
21. In any event, it cannot be overlooked that the Test Audit Report itself
was dated 10 August 2021, considering such date of the Test Audit Report a
straight period of three months namely upto 10 November 2021 is available
to the petitioner by virtue of the first part of Section 82 to make rectification
of the defects. Hence, by the very operation of law, the period of three
months is available to the petitioner, and so far as such period is concerned,
no specific order was required to be passed by the Registrar. Thus, the
petitioner's contention that the three months period was not made available
to the petitioner as per the provisions of Section 82 of the Act is wholly
unfounded when tested on the anvil of the clear reading of the first part of
Section 82. In fact such argument of the petitioner goes contrary to the first
part of Section 82.
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22. In so far as the Second part of Section 82 is concerned, the powers
conferred on the Registrar under the second part of Section 82 to make an
order directing the Society to take action as may be specified in such order
to remedy the defects, within the time the Registrar may specify, stands
completely independent of the availability of three months as prescribed by
the first part of Section 82. For these reasons, no fault can be found in law
in the Divisional Joint Registrar issuing the impugned notice dated 1
September 2021 calling upon the petitioner to make such compliance
within fifteen days, considering the circumstances and with due regard to
the fact that petitioner is a bank and is accountable also to the public at
large. Needless to observe that it is the petitioner's own case that by its
letter dated 20 September 2021 the petitioner had asked for extension upto
20 December 2021 to make rectification of the defects as pointed out in the
Test Audit Report. In the facts and circumstances of the case, it is for the
Divisional Joint Registrar to consider such request and if so, permissible in
law, to accept the request of the petitioner as made by it in its letter dated
20 September 2021.
23. Thus the impugned order/notice dated 1 September 2021 granting
fifteen days time to the petitioner to submit rectification of defects, cannot
be said to be violative of the provisions of Section 82 of the Act.
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24. Now adverting to the second question as to whether for an inquiry to
be ordered under Section 83 of the Act, an opportunity of rectification of
defects as provided under Section 82 would be a condition precedent, the
following discussion would aid the conclusion.
25. The petitioner's challenge to the order dated 22 September 2021
passed by the Divisional Joint Registrar ordering an enquiry under Section
83 of the Act on the ten issues which are set out in the appendix to the said
order is concerned, it clearly appears that such an enquiry has been ordered
on the basis of a Special Test Audit Report dated 10 August 2021 submitted
by the Special Auditor, as also on the basis of a Special Report dated 20
August 2021 as submitted by the Special Auditor. It would be appropriate to
extract the official translation of the said order, which reads thus:-
[Translation from the photo copy of the Order, typewritten in Marathi]
Exhibit - G
Divisional Joint Registrar,
Co-operative Societies, Mumbai Division, Mumbai.
Malhotra House, 6th Floor, Opp. GPO, Fort,
Mumbai- 400 001.
Telephone No. 022 22691094
email-ID - [email protected]
Outward No. D.J.R./Mumbai/
U.Bank/Sec.83/M.D.C.C.B./3733/2021
Date - 22/09/2021
Read :-
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1) Section 83 of the Maharashtra Co-op. Societies Act, 1960.
2) This Office Order bearing outward No. D.J.R./ Mumbai/ ADMN./
Mumbai Bank/Section 81(3), 81(3)C/Order/642/2021 dated
16/02/2021.
3) Test Audit Report dated 10/08/2021 in respect of the Mumbai
District Central Co-operative Bank Ltd. submitted by the Special
Auditor, Class - 1, Co-operative Societies (Consumer), North
Mumbai.
4) Administrative Special Report bearing No. SA. Class-
1/C.N.M/T.A./Mumbai Bank/165/year 2021 dated 20/08/2021 in
respect of the Test Audit, submitted by Special Auditor, Class-1,
Co-operative Societies (Consumer) North Mumbai.
WHEREAS, Mumbai District Central Co-operative Bank Ltd.
Mumbai, Mumbai Bank Bhavan, Dr. D.N. Road, Fort, Mumbai- 400001
is a Co-operative Society registered under the Maharashtra Co-op.
Societies Act and the same comes within the purview of this office,
AND,
WHEREAS, pursuant to the order dated 16/02/2021, of this Office,
the Special Auditor, Class - 1, Co-operative Societies (Consumer),
North Mumbai, under the Report referred to hereinabove at Sr. No. 2
(? 3), has submitted the Test Audit Report in respect of the Mumbai
District Central Co-operative Bank Ltd., Mumbai to this office and has
mentioned many serious issues therein, AND,
WHEREAS, on the date 20/08/2021, the Special Auditor, Class-1,
Co-operative Societies (Consumer), North Mumbai, has submitted
Administrative Special Report in respect of administrative
irregularities on the points mentioned in the aforesaid order, at the
time of aforesaid Test-Audit.
WHEREAS, on perusing the said Test Audit Report as well as
Administrative Special Report, I am of the view that it is necessary to
carry out thorough enquiry in respect of the affairs and financial
condition of the Bank.
----x----
APPENDIX - A
This office order bearing outward No. D.J.R./ Mumbai / U.Bank /
Sec. 83/ M.D.C.C.B./3733/2021 dated 22/09/2021.
Points in the Enquiry
1) To carry out thorough enquiry in respect of the point mentioned in
the Test Audit Report dated 10/08/2021 regarding the
expenditure incurred by the Bank during last five years on the
things viz. Up-dating the computer program, system
maintenance expenditure, hardware purchases.
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2) To carry out thorough enquiry in respect of the point mentioned
in the Test Audit Report dated 10/08/2021, regarding the
expenditure incurred during the period from the year 2015-
2016 to 2019-2020 on the repairs and renovation of the
immovable property / property on rental basis.
3) To carry out thorough enquiry in respect of the point mentioned
in the Test Audit Report dated 10/08/2021, regarding the
account of loan given by the Bank under Corporate Loan Policy
and which is not recovered / outstanding.
4) To carry out thorough enquiry in respect of the point mentioned
in the Test Audit Report dated 10/08/2021, regarding the
account of loan given by the Bank to the Co-operative Housing
Societies under Self-Sufficient Development Policy.
5) To carry out thorough enquiry in respect of the point mentioned
in the Test Audit Report dated 10/08/2021, regarding the
account of loan given by the Bank by violating the area of
operation mentioned in the By-Laws as well as by violating the
area of operation mentioned in the Licence issued by the
Reserve Bank of India and which is not recovered / outstanding
(Sugar factories and other societies).
6) To carry out thorough enquiry in respect of the point mentioned
in the Test Audit Report dated 10/08/2021, regarding the gold
mortgage loan account in the unproductive category as well as
in respect of the irregularities during last 5 years.
7) To carry out thorough enquiry in respect of the point mentioned
in the Test Audit Report dated 10/08/2021, regarding the
matter of loans disbursed during the period from the year 2015-
2016 to 2019-2020 to the Labourers' Co-operative Societies and
which are outstanding as on the date 31/03/2020.
8) To carry out thorough enquiry in respect of the point mentioned
in the Test Audit Report dated 10/08/2021, regarding the
account of loan given to the Co-operative housing societies on
the basis of bogus documents.
9) To carry out thorough enquiry in respect of the point mentioned
in the Test Audit Report dated 10/08/2021, regarding the
account of loan given to the members-co-operative societies,
without fully recovering the amount of shares in the proportion
mentioned in the By-laws of the Bank.
10) To carry out thorough enquiry in respect of the point mentioned
in the Test Audit Report dated 10/08/2021, regarding the
provision made / to be made by the Bank in respect of
unproductive property as on the date 31/03/2020.
(Bajirao Shinde)
Divisional Joint Registrar,
Place - Mumbai Co-operative Societies,
Mumbai Division, Mumbai.
Date - 22/09/2021
Therefore, I issue following order to carry out the enquiry of the
affairs of the Mumbai District Central Co-operative Bank Ltd., Mumbai.
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ORDER
I, Bajirao Shinde, Divisional Joint Registrar, Co-operative Societies,
Mumbai Division, Mumbai, in exercise of the powers delegated to me
under section 83 of the Maharashtra Co-operative Societies Act, 1960,
by this Order, appoint Shri. Pratap Patil, District Deputy Registrar, Co-
operative Societies, Mumbai - (2), Eastern Suburbs, as an Enquiry
Officer to carry out enquiry in respect of the affairs of the Bank viz.
Mumbai District Central Co-operative Bank Ltd., Mumbai, Mumbai
Bank Bhavan, Dr. D. N. Road, Fort, Mumbai - 400 001, mentioned in
the Test Audit Report and Administrative Special Report of the same
and in respect of the points regarding the financial condition of the
said Bank as mentioned in Appendix - A.
The Enquiry officer, after carrying out thorough enquiry in respect
of the aforesaid affairs and the financial loss incurred by the Bank in
the said transactions, should submit his self-explanatory report within
three months.
(Bajirao Shinde)
Place - Mumbai Divisional Joint Registrar,
Co-operative Societies,
Date - 22/09/2021 Mumbai Division, Mumbai.
Copy to : -
1) Shri. Pratap Patil, District Deputy Registrar, Co-operative Societies,
Mumbai (2), Eastern Suburbs and Enquiry Officer, Mumbai
District Central Co-operative Bank Ltd. Mumbai.
2) Chairman / Executive Director, Mumbai District Central Co-
operative Bank Ltd., Mumbai, Mumbai Bank Bhavan, Dr. D. N.
Road, Fort, Mumbai - 400001.
Copy respectfully submitted
for information to :-
The Co-operation Commissioner and Registrar,
Co-operative Societies, Maharashtra State,
Divisional Joint Registrar,
Pune.
Co-operative Societies,
Mumbai Division, Mumbai.
26. From a reading of the impugned order dated 22 September 2021 as
extracted above, it clearly appears that the Divisional Joint Registrar has
proceeded on the basis of irregularities as pointed out in the report dated
20 August 2021 of the Special Auditor namely the ten irregularities as
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pointed out in the Appendix to the said order which forms the very subject
matter of the enquiry as ordered by the Divisional Joint Registrar, under
Section 83. The question is whether a prior opportunity of rectification of
the infirmities and defects as provided for under Section 82 of the Act, is a
pre-condition for the Registrar to initiate an enquiry under Section 83 of the
Act. To examine this contention, it would be necessary to note the
provisions of Section 83 which reads thus:-
"83. Inquiry by Registrar
(1) The Registrar may of his own motion, and shall on the
application of one third of the members of a society, himself or by a
person duly authorized by him in writing, in this behalf, hold an
inquiry into the constitution, working and financial conditions of a
society.
(2) Before holding any such inquiry on an application the
Registrar may having regard to the nature of allegations and the
inquiry involved, require the applicant to deposit with him such
sum of money as he may determine towards the cost of the inquiry.
If the allegations made in the application are substantially proved
at the enquiry, the deposit shall be refunded to the applicant, and
the Registrar may under section 85, after following, the procedure
laid down in that section, direct from whom and to what extent the
cost of the inquiry should be recovered. If it is proved that the
allegations were false, vexatious or malicious, the Registrar may
likewise direct that such cost shall be recovered from the applicant.
Where the result of the inquiry shows that the allegations were not
false, vexatious or malicious, but could not be proved, such cost
may be borne by the State Government.
(3) (a) All officers, members and past members of the society in
respect of which an inquiry is held, and any other person who, in
the opinion of the officer holding the inquiry is in possession of
information, of books and papers relating to the society, shall
furnish such information as in their possession, and produce all
books and papers relating to the society which are in their custody
or power, and otherwise give to the officer holding an inquiry all
assistance in connection with the inquiry which they can
reasonably give.
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(b) If any such person refuses to produce to the Registrar or any
person authorised by him under sub section (1), any book or
papers which it is his duty under clause (a) to produce or to answer
any question which is put to him by the Registrar or the person
authorised by the Registrar in pursuance of sub-clause (a), the
Registrar or the person authorised by the Registrar may certify the
refusal and the Registrar after hearing any statement which may be
offered in defense, punish the defaulter with a penalty not
exceeding five hundred rupees. Any sum imposed as penalty under
this section shall, on the application by the Registrar or the person
authorised by him, to a Magistrate having jurisdiction, be
recoverable by the Magistrate as if it were a fine imposed by him.
(4) The result of an enquiry under this section shall be
communicated to the society whose affairs have been investigated.
(5) It shall be competent for the Registrar to withdraw any
inquiry from the officer to whom it is entrusted, and to hold the
inquiry himself or entrust it to any other person as he deems fit."
27. On a bare reading of Section 83(1) it is manifestly clear that the
Registrar may suo motu, or, on the application of the one-fifth members of
the society or on the basis of Special Report under the third proviso to sub-
section (5B) of Section 81, himself or by a person duly authorized by him in
writing, in this behalf, shall hold an inquiry into the constitution, working
and financial conditions of the society. The provisions of sub-section (2) to
sub-section (5) of Section 83 may not be relevant in the present context, as
what has been invoked by the Divisional Joint Registrar is ordering an
inquiry as per the powers conferred on him under sub-section (1) of Section
83. Sub-section (2) and (3) would pertain to the facets in the course of the
inquiry. Whereas sub-section (4) provides that the result of any inquiry
under this Section shall be communicated to the society, whose affairs were
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investigated. Sub-section (5) provides that it shall be competent for the
Registrar to withdraw any inquiry from the officer to whom it is entrusted
and to hold the inquiry himself or entrust it to any other person as he deems
fit.
28. It is the petitioner's case that the Registrar before ordering an inquiry
under Section 83 ought to have granted an opportunity to the petitioner of
rectification of defects as provided for under Section 82. In other words, the
submission is that an inquiry could not have been ordered by the Registrar
under Section 83 unless a prior opportunity to rectify the defects as
available under Section 82 is utilised by the society. In my opinion, such
contention as urged on behalf of the petitioner cannot be accepted, on a
plain and cumulative reading of Sections 82 and 83 of the Act. Section 82,
as discussed above, is an independent provision, which as noted above in
the first part deals with the rectification of the defects in the accounts, by
providing an opportunity to the society to explain the defects and
irregularities pointed out by the auditor and to take steps to rectify the
defects and remedy the irregularities and report to the Registrar the action
taken as also place the same before the general body of the society within
three months from the date of the audit report. Thus, it casts an obligation
on the society to remove any such defects and bring about an accountability
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and orderliness in regard to the irregularities as pointed out by the audit
report, which needs to be undertaken by the society within a period of three
months. Apart from this, on the second part of the provision as noted above,
it confers powers on the Registrar to make an order directing the society or
its officers to take such action as may be specified in such order, to remedy
the defects and within the time as may be specified by the Registrar. Such
time may vary in the facts and circumstance of any such order, which may
be fixed depending upon the exigency of the situation and the nature of the
society, requiring the Registrar to use his discretion to make such an order.
Significantly, the consequences of non compliance of such order are quite
serious, as if despite such orders of the Registrar, an audit rectification
report is not submitted by the Committee of the Society, to the Registrar and
to the Annual General Body meeting, the members of the committee are
deemed to have committed an offence under Section 146 of the Act and
render themselves liable for a punishment as provided under Section 147 of
the Act for such offence to be tried, by no Court inferior to that of a
Metropolitan Magistrate or a Judicial Magistrate First Class as provided by
Section 148 of the Act. The second proviso to Section 82 stipulates that it
shall be the responsibility of the auditor to offer his remarks on the
rectification report of the society, itemwise, till entire rectification is made
by the society and submit his report to the Registrar. Thus, in regard to the
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rectification of the defects, Section 82 lays down a complete mechanism, so
as to achieve an object of accountability, transparency for the lawful
conduct of the affairs of the society, by removal of the defects and
deficiencies as pointed out in the audit report. There is an obligation that
the society and the Registrar and the General Body of the members are kept
aware about such defects and its rectification. It is hence clear that Section
82 is intended to achieve accountability by rectification and compliance of
the defects and irregularities so as to generate confidence of the members of
the society, as also the general public in a given case, on the committee of
the society, managing its affairs as per the rules and regulations by
maintaining the society's house in order, by rectifying the defects pointed
out in the audit report. The first proviso below Section 82 confers power on
the Registrar or a person authorized by him to scrutinise such audit
rectification report and inform the society about such report within six
months from the date of such receipt.
29. In contradistinction, Section 83 is a power conferred on the Registrar
to hold an inquiry on the wider issues like constitution, working and
financial conditions of the society, the basis of such inquiry can also be a
special report under the third proviso to sub-section (5B) of Section 81.
Section 83 nowhere makes it discernible, that it takes within its fold
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anything in regard to the rectification of defects in the account in a manner
as provided by Section 82. Thus, the petitioner's contention that an
opportunity of rectification as available under Section 82 needs to be a
condition precedent for ordering an inquiry under Section 83, is certainly a
proposition alien to the plain consequence brought about by the provisions
of Section 83. Such a proposition, if accepted, would amount to reading
something into Section 83 which has not been provided for by the
legislature and/or explicitly kept out. Moreover, the inclusion of the rigors
of the third proviso to sub-section (5B) of Section 81 for the purposes of an
enquiry to be ordered under Section 83, namely, of a Special Report being
prepared by the auditor, if he finds interalia that there are apparent
instances of financial irregularities resulting into losses to the society has
been consciously included by the legislature within the purview of Section
83 as a vital aspect, for initiating an inquiry to be ordered by the Registrar.
Hence, substantive powers are conferred on the Registrar to order an
inquiry on the basis of such Special Report which stand fully independent
and unconnected with anything in relation to the provisions of Section 82
or its implication. Section 83, thus operates independent of Section 82 as
there is neither any inter-dependency between Section 82 and/or it has any
other bearing creating any fetter on the operation of Section 83 for the
Registrar to exercise a power to order an enquiry. Thus, no fault can be
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found with the Divisional Joint Registrar to order an enquiry, when
sufficient material was available, interalia, on the basis of a Special Report
dated 20 August 2021 to order an inquiry under Section 83 against the
petitioner. Hence, no illegality whatsoever in the Registrar ordering an
inquiry in the present facts. The second question stands accordingly
answered.
30. In so far as the petitioner's contention that also an opportunity is
available to the petitioner under the provisions of Section 87 to comply with
any difficulties in the audit report and for removal of such difficulties within
sixty days as provided for in sub-section (2). In my opinion, the contention
is pre-mature as sub-section (1) of Section 87 clearly provides that the
Registrar would bring to the notice of the society, difficulties disclosed in
any inquiry held under Section 83 and make an order against the society or
its officers to take such action to remedy the difficulties which are revealed
in the inquiry. Similarly, directions can be issued when such difficulties are
noticed in the inspection under Section 84. The provision of sub-section (4)
of Section 87 of the Act do not in any manner impede the powers of the
Registrar to order an enquiry under Section 83.
31. Before parting, it also needs to be observed that no prejudice would
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be caused to the petitioner, if an inquiry is ordered under Section 83 more
particularly when the nature of the business as conducted by the petitioner
is banking business which involves trust and confidence of its depositors
and which certainly would have cascading effect on the public at large.
Even if such an inquiry is undertaken and on conclusion of an inquiry, there
are defects which are pointed out, clearly Section 87 of the Act provides for
an opportunity to the petitioner to comply with the deficiencies and/or
defects which may be pointed out even in such inquiry. In these
circumstances, the petitioner ought not to be concerned, when an inquiry
has been ordered to bring about transparency and accountability in the
affairs of the petitioner, more particularly, when financial irregularities and/
or substantial defects are alleged to be noted in the audit report as also in
the report of the Special Auditor.
32. As a sequel to the above discussion, no case has been made out by the
petitioner for grant of any reliefs as prayed for. The petition is accordingly
dismissed. No costs.
(G. S. KULKARNI, J.)
