1. The Petitioner is before this Court seeking for the
d. Grant such other order as this Hon'ble Court deems
fit under the facts and circumstances of the case, in
the interests of justice.
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2. The Petitioner claims to be aggrieved by the order
dated 18.10.2024, passed by the Assistant Registrar
of Co-operative Societies, appointing the Co-
operative Development Officer, Udupi to inspect the
books of the Petitioner's society in relation to an
alleged fraud and misappropriation of funds and
submit a report under Section 65 of the Karnataka
Co-operative Societies Act, 1959 (for short, 'the Act
of 1959').
3. The Petitioner claims to be incorporated with the
objective of developing cooperative spirit by
imparting knowledge regarding agriculture practices.
The Society is stated to cater to various villages in
Kundapura Taluk and that this Society undertakes
various activities to facilitate social and education
developments, at present having 3,516 'A' category
members, 4,079 'B' category members and 511 'D'
category members.
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4. Shri Dhananjay Joshi, learned Senior Counsel
appearing for the Petitioner would submit that:
4.1. In terms of Section 63 of the Act of 1959, every
co-operative society would get its accounts
audited at least once in a year before the first
of September following the close of the
cooperative year by an auditor. A detailed
audit of the accounts would be carried out and
report submitted, which has been so done in
the case of the Petitioner, to the Cooperative
Societies, Audit Department.
4.2. In the audit, it was found that there was a
misappropriation of Rs.3,95,65,000/-, as
regards which the former Acting Chief Executive
Officer and Manager were held responsible.
The Society being in the process of initiating
civil and criminal action, the Society having
accepted that they are the violators, there is no
further action required to be taken by anyone.
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4.3. He submits that Respondent No.4, being one of
the Directors of the Society, with the ulterior
political motive of damaging the reputation of
the management of the Society, had made an
application to Respondent No.3 to conduct an
inquiry, regarding the fraud and
misappropriation which has already been
accepted by the Society and action initiated.
When the Petitioner is in the process of
initiating action, the question of Respondent
No.3 vide the impugned order appointing the
Cooperative Development Officer to conduct a
further investigation, the audit having already
been conducted is not sustainable.
4.4. The audit conducted by the auditor under
Section 63 of the Act of 1959 not having been
faulted with, a detailed audit having been
conducted, the persons responsible for
misappropriation having been identified, there
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is no further rowing enquiry which is required
to be conducted by the Co-operative
Development Officer.
4.5. His submission is that an audit having been
conducted in terms of Section 63 of the Act of
1959, the auditor having access to all the books
has verified the same and has held that an
amount of Rs.3,95,65,000/- has been
misappropriated. This audit report being acted
upon, there is no need for a further enquiry
under section 64 of the Act of 1959. This
Society being a reputed one will take care of
the internal requirements of the Society.
4.6. In this regard, he relies on the citations stated
in the Memo dated 17.12.2024, wherein he
relies on the judgment of this Court in the case
of Bangalore Grain Merchants Association
NC: 2025:KHC:3725
v. District Registrar for Societies1, more
particularly Para 9 thereof, which is reproduced
hereunder for easy reference:
9. Now, we come to the more crucial and
controversial question i.e., what is the meaning
and import of the expression 'on his own motion'
and what is its interrelation to the immediately
following clauses of the same sub-section. There
could be, no doubt, that the expression 'on his
own motion' is synonymous to suo-motu, which
according to the dictionary means, "on one's
own initiative". 'Own motion' obviously implies
application of mind and formation of one's own
opinion. It does not matter how and from what
source he gets information. But, it does not
mean that the authority conferred with such
power should eschew from consideration
information or material furnished by external
sources and should look to the information
collected by his own self-effort. The exercise of
powers suo-motu or on one's own motion,
cannot and ought not to be construed in a
narrow sense and in a sense which defeats the
salutary purpose of the provision. No fetters can
be placed on the specified authority from the
stand point of source material on which it should
exercise the power. An authority exercising the
suo-moto power is not debarred from obtaining
informations and materials from various
sources. The only requirement is that on the
basis of such informations and materials
gathered either on its own initiative or received
from other sources, the concerned authority has
to come to the conclusion, on an active
application of mind whether to take up the
ILR 2001 KAR 766
NC: 2025:KHC:3725
enquiry or not. Undoubtedly, the decision must
be his own. He cannot mechanically act at the
behest of some other person or authority
without independent application of mind to
arrive at a conclusion on the need and
expediency of holding an enquiry. It is not
argued before us nor can it be disputed that the
suo-motu exercise of power does not cease to
be such merely because a member of the public
or someone in the know of things brings
relevant facts to the notice of the prescribed
authority, in this case, the Registrar. The
Registrar, on a consideration of such facts has to
decide whether it is a fit case warranting
initiation of enquiry in the over-all interests of
the society. The decision must be his and the
decision must ofcourse be based on relevant
factors, but there is no limitation as to the
sources by which he should be prompted to
action.
4.7. By relying on Bangalore Grain Merchants
Association's case (supra), the submission is
that there has to be an application of mind by
the concerned authority to come to a conclusion
whether to take up the inquiry or not. The
decision should be of the concerned authority,
and the authority cannot mechanically act at
the behest of some other person or authority
without independent application of mind. In
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this case, he submits that, merely because
respondent No.4 has submitted a request,
respondent No.3 could not have directed an
enquiry.
4.8. He further relies on the judgment of this Court
in the case of Century Club vs. District
Registrar of Societies and others2 more
particularly Paras 10, 14 and 15 thereof, which are
reproduced hereunder for easy reference:
10. I have considered the submissions made by
learned counsel on both the sides and have
perused the record. Before proceeding further it
is apposite to take note of Section 25(1) of the
Act, which reads as under:
25. Enquiry by the Registrar, etc.- (1) The
Registrar may on his own motion and
shall on the application of the majority of
the members of the governing body or of
not less than one-third of the members of
the society, hold an enquiry or direct
some person authorised by him by order
in writing in accordance with the rules
made in this behalf to hold an enquiry
into the constitution, working and
financial condition of a registered society.
The scope and ambit of power of the Registrar
under Section 25(1) of the Act was considered
by full Bench of this court in BANGALORE GRAIN
W.P.Nos.15717-718/2019 dated 6.8.2019
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MERCHANTS ASSOCIATION VS. DISTRICT
REGISTRAR FOR SOCIETIES AND OTHERS', ILR
2001 KAR 766. The full Bench inter alia while
dealing with meaning and import of the
expression 'on his own motion' held that an
authority exercising the suo motu power is not
debarred from obtaining information and
materials from various sources. The only
requirement is that on the basis of such
information and materials gathered either in its
own initiative or received from other sources,
the concerned authority has to come to the
conclusion on an active application of mind
whether to take up the enquiry or not. It has
further been held that undoubtedly, the decision
must be of the authority and he cannot
mechanically act at the behest of some other
person or authority without independent
application of mind and arrive at a conclusion on
the need and expediency of holding an enquiry.
14. It is well settled law that Supreme Court in
the case of 'S.N. MUKHERJEE V. UNION OF
INDIA', (1990) 4 SCC 594 has held that the
decisions of this Court referred to above indicate
that with regard to the requirement to record
reasons the approach of this Court is more in
line with that of the American courts. An
important consideration which has weighed with
the court for holding that an administrative
authority exercising quasi-judicial functions
must record the reasons for its decision, is that
such a decision is subject to the appellate
jurisdiction of this Court under Article 136 of the
Constitution as well as the supervisory
jurisdiction of the High Courts under Article 227
of the Constitution and that the reasons, if
recorded, would enable this Court or the High
Courts to effectively exercise the appellate or
supervisory power.
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15. It is trite law that even a quasi-judicial
authority is required to assign reasons for
passing the order. In view of the decision laid
down by the Supreme court in 'VICTORIA
MEMORIAL HALL vs. HOWRAH GANATANTRIK
NAGRIK', 2010 (3) SCC 732, reasons were held
to be the heartbeat of every conclusion, apart
from being an essential feature of the principles
of natural justice, that ensure transparency and
fairness, in the decision making process. [SEE:
'MAYA DEVI VS. RAJ KUMARI BATRA AND
OTHERS', (2010) 9 SCC 486, 'SANT LAL GUPTA
AND OTHERS VS. MODERN CO-OPERATIVE
GROUP HOUSING SOCIETY LIMITED AND
OTHERS', (2010) 13 SCC 336, 'UNION OF INDIA
AND ANOTHER VS. TALWINDER SINGH', (2012)
5 SCC 480, and 'UNION OF INDIA VS.
RAVINDER KUMAR', (2015) 12 SCC 291.]
4.9. By relying on Century Club's case (supra), he
submits that the Registrar under sub-section
(1) of Section 25 of the Karnataka Societies
Registration Act, 1960, the decision of the
authority that is the Registrar has to be of his
own and not on the behest of someone else and
there have to be reasons which have to be
recorded by the authority before exercising
powers under sub-section (1) of Section 25.
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4.10. He further relies on the judgment of this Court
in the case of Lingasugur Taluk, Halumata
Abhivrudhi Samiti and others vs. The State
of Karnataka and others3, more particularly
Paras 7, 14, 15 and 16 thereof, which are
reproduced hereunder for easy reference:
7. The short question that arises for
consideration in the present matter is whether
the Registrar of Societies under Section 25 of
the Act, can initiate an enquiry based on
complaint received by him or his powers are
restricted to only three circumstances: namely
(i) suo moto; (ii) complaint by majority of the
governing Body or (iii) complaint by not less
than 1/3rd of the General body?
14. As regards first category, the Registrar may
on his own motion institute an enquiry. It is the
mean and purport of "on his own motion" which
is up for consideration in the present matter.
Merely because the third party were to submit a
complaint, the Registrar cannot initiate an
enquiry without application of his mind. If a
complaint is received by the Registrar and if the
Registrar on perusal of the said complaint were
to be of the opinion that enquiry is to be
instituted, then he can order to do so and when
such an order is made by the Registrar, it can
only be said to be on his own motion, since
there is an independent application of mind by
the Registrar.
W.P.No.201552/2023 dated 9.6.2023
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15. It is only in the event of the non-application
of mind by the Registrar and or the Registrar
blindly following the complaint lodged by a third
party that there is an embargo under Sub
Section (1) to Section 25 of the Act and such an
enquiry would not come within the purview of
Sub Section (1) to Section 25 of the Act.
16. In the present case, as could be seen from
the order of appointment of Enquiry Officer, on
receipt of a complaint, the Registrar issued two
notices for a preliminary enquiry and to find out
whether there is prima facie truth in the
allegations. It s upon receipt of the said report
that the Registrar applied his mind to the report
and came to an independent conclusion that an
enquiry is required to be held. Thus the
appointment of Enquiry Officer in the present
case is not based on the complaint received but
the registrar has acted upon it by instituting a
preliminary enquiry and acted upon the
preliminary enquiry as regards which he applied
his mind. This application of mind, in my
considered opinion, would constitute "on his own
motion".
4.11. By relying on Lingasugur Taluk, Halumata
Abhivrudhi Samiti's case, he submits that
even if the Registrar were to be authorized to
initiate suo moto proceedings, the same cannot
be merely because a third party were to submit
a complaint. If a complaint is received by the
Registrar and the Registrar were to be of the
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opinion that inquiry is to be instituted, his
application of mind is to be evidenced by the
order. Without that application of mind, the
Registrar could not have initiated enquiry. On
the basis of all the above, the submission of
Sri.Dhananjay Joshi, learned Senior Counsel is
that the impugned order passed is only at the
behest of a complaint filed by Respondent No.4.
There is no independent application of mind.
As such, the petition is required to be allowed.
5. Shri Jayakumar S.Patil, learned Senior Counsel,
appearing for Shri Rakshit Kumar on behalf of
Respondent No. 4, would submit that:
5.1. It having been categorically established that
there was misappropriation of monies to an
extent of Rs.3,95,65,000/-, an Annual General
Meeting of the Society was held, wherein,
1,034 members present unanimously resolved
for inquiry to be carried out with respect to the
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management and misappropriation of Society's
funds and it is in furtherance thereof, a
representation was submitted to Respondent
No.3 to take action in terms of Section 64 of
the Act of 1959.
5.2. The representation submitted by Respondent
No.4 is not on behalf of himself but is on behalf
of and behest of 1,034 members who were
present in the meeting and who have all
unanimously resolved for inquiry to be
conducted. This being necessitated on account
of the President of the Society not having taken
any immediate steps; there being several
resolutions which have been inserted in the
minute book; it is not just the accounts but
several actions on part of the management of
the Society which are required to be looked into
and inquired into since it is the collective
responsibility of the Office Bearers to discharge
their duties in a proper and required manner.
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His submission is that the concerned officers
have not acted in a proper manner requiring a
proper inquiry to be held in terms of section 65
of the Act of 1959.
5.3. In this regard, he relies upon the decision of
Bangalore Grain Merchants Association v.
District Registrar for Societies4, more
particularly Paras 9 and 10 thereof, which are
reproduced hereunder for easy reference:
9. Now, we come to the more crucial and
controversial question i.e., what is the meaning
and import of the expression 'on his own motion'
and what is its interrelation to the immediately
following clauses of the same sub-section. There
could be, no doubt, that the expression 'on his
own motion' is synonymous to suo-motu, which
according to the dictionary means, "on one's
own initiative". 'Own motion' obviously implies
application of mind and formation of one's own
opinion. It does not matter how and from what
source he gets information. But, it does not
mean that the authority conferred with such
power should eschew from consideration
information or material furnished by external
sources and should look to the information
collected by his own self-effort. The exercise of
powers suo-motu or on one's own motion,
cannot and ought not to be construed in a
ILR 2001 KAR 766
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narrow sense and in a sense which defeats the
salutary purpose of the provision. No fetters can
be placed on the specified authority from the
stand point of source material on which it should
exercise the power. An authority exercising the
suo-moto power is not debarred from obtaining
informations and materials from various
sources. The only requirement is that on the
basis of such informations and materials
gathered either on its own initiative or received
from other sources, the concerned authority has
to come to the conclusion, on an active
application of mind whether to take up the
enquiry or not. Undoubtedly, the decision must
be his own. He cannot mechanically act at the
behest of some other person or authority
without independent application of mind to
arrive at a conclusion on the need and
expediency of holding an enquiry. It is not
argued before us nor can it be disputed that the
suo-motu exercise of power does not cease to
be such merely because a member of the public
or someone in the know of things brings
relevant facts to the notice of the prescribed
authority, in this case, the Registrar. The
Registrar, on a consideration of such facts has to
decide whether it is a fit case warranting
initiation of enquiry in the over-all interests of
the society. The decision must be his and the
decision must ofcourse be based on relevant
factors, but there is no limitation as to the
sources by which he should be prompted to
action.
10. A three Judge Bench of the Supreme Court
held in the Board of Revenue, Madras vs. Raj
Brothers Agencies that a suomotu power
conferred on the Board of Revenue to call for
and examine an order passed and proceeding
recorded by the subordinate authority under the
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Madras General Sales Tax Act does not preclude
the Board to exercise its power at the instance
of an assessee. The Supreme Court observed
that the power is conferred on the Board to
remedy any injustice. It is open to an assessee
or the Revenue to bring to the notice of the
Board any error made by the subordinate
authority. It is upto the Board to consider
whether the case is a fit case for exercising its
revisional jurisdiction."
5.4. He submits that the usage of the word 'own
motion' in Section 65 of the Act of 1959 would
include on the basis of an application made by
any person, once it was brought to the
knowledge of Respondent No.3 that there are
irregularities and/or violations, and the
Registrar if satisfied that the allegations are
serious requiring inquiry, merely because a
complaint is filed by a one person or a third
party, so long as the Registrar has applied his
own mind and directed enquiry, the same
would not fall foul of Section 65 of the Act of
1959. The Annual General Meeting having
been conducted, the quorum being present for
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the said AGM, the members present and voting
having resolved unanimously for inquiry to be
conducted, the resolution will have to be taken
to be a resolution passed by the entire Society
and therefore, the Registrar acting on a
resolution passed by the members of the
Society cannot be found fault with. In this
regard, he relies upon the decision of the
Hon'ble Apex Court in the case of Bengal
Secretariat Cooperative vs. Aloke Kumar5
more particularly Para 53, thereof which is
reproduced hereunder for easy reference:
53. By now it is well established position that
once a person becomes a member of the Co-
operative Society, he loses his individuality with
the Society and he has no independent rights
except those given to him by the statute and
bye-laws. The member has to speak through the
Society or rather the Society alone can act and
speaks for him qua the rights and duties of the
Society as a body (see : Daman Singh v. State
of Punjab, reported in (1985) 2 SCC 670 : AIR
1985 SC 973). This view has been followed in
the subsequent decision of this Court in the case
of State of U.P v. Chheoki Employees Co-
operative Society Ltd., reported in (1997) 3 SCC
Civil Appeal No.7261/2022 dated 18.10.2022
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681 : AIR 1997 SC 1413. In this decision, this
Court further observed that the member of a
Society has no independent right qua the
Society and it is the Society that is entitled to
represent as the corporate aggregate. This
Court also observed that the stream cannot rise
higher than the source. Suffice it to observe that
so long as the Resolutions passed by the
General Body of the Appellant Society are in
force and not overturned by a forum of
competent jurisdiction, the said decisions would
bind the Respondent No. 1. He cannot be
permitted to take a stand alone position but is
bound by the majority decision of the General
Body. Notably, the Respondent No. 1 has not
challenged the Resolutions passed by the
General Body of the Appellant Society to
redevelop the property and more so, to appoint
the Hi-Rise as the Developer to give him all the
redevelopment rights.
5.5. He submits that the Assistant Commissioner
having applied his mind and discussed in detail
about the misconduct and thereafter having
passed the order, no fault can be found with.
The monies which have been misappropriated
are public monies and therefore the Respondent
- authorities are well within their right to
initiate such proceedings.
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6. In reply, Shri Dhananjay Joshi, learned Senior
Counsel for the Petitioner submits that
6.1. the AGM held on 21.9.2024 consisted of
ineligible members. They, being ineligible in
terms of Clause (a-iv) of Sub-Section (2) of
Section 20 of the Act of 1959, thus, any
resolution passed in the said meeting cannot be
said to be a resolution of the Society, nor it can
be binding on all the members of the Society.
His further submission is that the Petitioner
lacks locus standii to file the present petition.
6.2. His submission is that the present petition has
been filed by the President. Allegations have
been made against the Chief Executive Officer
and the Manager of the Society, and they being
held to be responsible, there being no Chief
Executive Officer of the Society, the petition
could not be filed by the Chief Executive Officer
and as such has been filed by the President
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acting in the interest of the Society. Thus, he
submits that the petition as filed is proper and
maintainable.
7. Heard Shri Dhananjay Joshi, learned Senior Counsel
appearing for the Petitioner and Sri.Jayakumar
S.Patil, learned Senior Counsel for respondent No.4
and perused papers.
8. The points that would arise for consideration of this
Court are:
1) Whether a direction for holding an inquiry
under Section 65 of the Act of 1959 on the
basis of a representation submitted by a
single member would satisfy the
requirement of Section 65 of the Act of
1959 or not?
2) Whether on the basis of the contention of
the Society that the Society is taking
action against delinquent Directors and
Officers of the Society, an inquiry under
Section 65 of the Act of 1959 can be
dispensed with?
3) What order?
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9. Section 64 and Section 65 of the Act of 1959 are
reproduced hereunder for easy reference:
64. Inquiry by Registrar.- (1) The Registrar may, of his
own motion, by himself or by a person authorized by him,
by order in writing, hold an inquiry into [any matter
specified in the order touching] the constitution, working
and financial condition of a co-operative society.
(2) An inquiry of the nature referred to in sub-section (1)
shall be held on the application of,--
(a) a co-operative society to which the society concerned
is affiliated;
(b) a majority of the members of the *board* of the
society; or
(c) not less than one-third of the total number of members
of the society.
(2A) An inquiry under sub-section (1) shall be completed
[within a period of twelve months which may however be
extended [by the Registrar for the reasons to be recorded in
writing] for a further period of six months]
[Provided that the State Government shall, on a report
made by the Registrar, shall have power to extend the
period for holding the enquiry beyond eighteen months if it
is satisfied that, there are genuine grounds for the
extension.]
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(3) The Registrar, or the person authorized by him under
sub-section (1) shall, for the purposes of an inquiry under
this section have the following powers, namely:--
(a) he shall, at all times, have free access to the books,
accounts, documents, 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, securities,
cash or other properties to produce the same at any public
office at the headquarters of the society or any branch
thereof;
(b) the inquiry officer may also summon any officer of a
financing bank or a credit agency as the case may be or any
person having any kind of business relationship with the
society or any person who is connected with the functioning
of and who has knowledge about the affairs of the society to
produce any records or documents, if any, related to the
transactions with and working of the society and furnish
such information and the explanations, at the registered
office or branch of the society or at any public office at the
headquarters of the society, as the inquiry officer may
require for the purpose of the inquiry.]
(c)(i) he may, notwithstanding any rule or bye-law
specifying the period of notice for a general meeting of the
society, require the [office bearers] of the society to call a
general meeting at such time and place at the headquarters
of the society or any branch thereof and to determine such
matters as may be directed by him, and where the [office
bearers] of the society refuse or fail to call such a meeting
he shall have power to call it himself;
(ii) any meeting called under clause (i) shall have the
powers of the general meeting called under the bye-laws of
the society and its proceeding shall be regulated by such
- 25 -
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bye-laws except that no quorum shall be necessary for such
meeting.
(4) When an inquiry is made under this section, the
Registrar shall [send a copy of the inquiry report and
communicate] the result of the inquiry to the society and to
the co-operative society, if any, to which that society is
affiliated [and also to the Director of Co-operative Audit]
4A) On receipt of the inquiry report and the result of the
inquiry from the Registrar, it shall be the responsibility of
the board to initiate immediate necessary action for
rectification of deficits, if any, therein and place the report
before the annual general meeting or a special general
meeting convened for the purpose at the earliest.
Provided that the general body of the cooperative society
shall not be competent to pass a resolution negativing the
findings of the inquiry]
(5) If the result of the inquiry held under sub-section (1)
discloses any defects in the working of the society, the
society shall within [forty five days] from the date of the
receipt of the inquiry report and communication of the result
of the inquiry explain to the Registrar the defects or the
irregularities pointed out in the inquiry and take steps to
rectify the defects and remedy the irregularities and report
to the Registrar the action taken by it thereon. The Registrar
may also make an order directing the society or its office
bearers to take such action, as may be specified in the order
to remedy the defects within the time specified therein.]
65. Inspection of books of a co-operative society.- (1)
The Registrar may of his own motion, or on the application
of a creditor of a co-operative society, inspect or direct any
person authorized by him by order in writing in this behalf,
to inspect the books of the society:
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Provided that no such inspection shall be made on the
application of a creditor unless the applicant,--
(a) satisfies the Registrar that the debt is a sum then due,
and that he has demanded payment thereof and has
not received satisfaction within a reasonable time;
and
(b) deposits with the Registrar such sum as security for the
costs of the proposed inspection as the Registrar may
require.
(2) The Registrar shall [send a copy of the inspection report
and communicate] [the result of any such inspection to the
Director of Co-operative Audit and]
(a) where the inspection is made of his own motion to the
society; and
(b) where the inspection is made on the application of a
creditor, to the creditor and the society.
(2A) On receipt of the inspection report and the result of the
inspection from the Registrar, it shall be the responsibility of
the board to initiate necessary action for rectification of
defects, if any, therein and place the report before the
annual general meeting or a special general meeting
convened for the purpose at the earliest.
Provided that the general body of the cooperative society
shall not be competent to pass a resolution negativing the
findings of the inspection]
(3) If the result of the [inspection] held under sub-section
(1) discloses any defects in the working of the society, the
society shall within [forty five days] from the date of the
receipt of the [inspection] report and communication of the
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result of the [inspection] explain to the Registrar the
defects or the irregularities pointed out in the [inspection]
and take steps to rectify the defects and remedy the
irregularities and report to the Registrar the action taken by
it thereon. The Registrar may also make an order directing
the society or its office bearers to take such action, as may
be specified in the order to remedy the defects within the
time specified therein
65A. Report of inquiry, inspection and final report to
be made available to a credit agency.- The Registrar
shall draw the attention of a credit agency financing a co-
operative society to [the defects noticed in any inquiry] or
inspection of such co-operative society and shall also supply
a copy of each of [such inquiry or inspection report] , if
demanded in writing by such credit agency.
[Explanation.--For the purpose of this section and section
65B credit agency includes a financing Bank.]
65B. Inspection of books of co-operative society by a
credit agency.- (1) A credit agency shall have the right to
inspect the books of any co-operative society which has
either applied to the credit agency for financial assistance or
is indebted to it.
(2) The inspection may be made either by an officer of the
credit agency or a member of its paid staff authorized by the
credit agency as competent to undertake such inspection.
(3) The officer or member so inspecting shall, at all
reasonable times, have free access to the books, account,
document, securities, cash and other properties belonging to
or in the custody of the co-operative society and may also
call for such information, statements and returns as may be
necessary to ascertain the financial conditions of the co-
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operative society, and to ensure security of the sums lent to
it by the credit agency;]
10. Answer to Point No.1: Whether a direction for
holding an inquiry under Section 65 of the Act
of 1959 on the basis of a representation
submitted by a single member would satisfy the
requirement of Section 65 of the Act of 1959 or
not?
10.1. The facts are not in dispute, inasmuch as even
the petitioner admits that as per the audit
report, an amount of Rs.3,95,65,000/- has
been misappropriated. It is on the basis of the
said audit report that a meeting was held of
about 1,034 members who had unanimously
resolved for inquiry to be conducted and
authorized Respondent No.4 to submit a
representation to the Registrar. In furtherance
of which Respondent No.4 had submitted a
representation. Thus, it cannot be said that the
representation and/or complaint filed by
Respondent No. 4 is an individual complaint or
representation, but can be said to be a
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representation submitted at least on behalf of
1,034 members.
10.2. Though Shri Dhananjay Joshi, learned Senior
counsel submits that they were ineligible
members and no meeting could be held by such
ineligible members, the fact remains that they
are members and the aspect of whether they
could pass such a resolution pales into
insignificance in the face of the admission made
by the petitioner itself that there is a
misappropriation of a sum of Rs.3,95,65,000/-.
It is on the basis of such a representation that
the Assistant Registrar of Cooperative Societies
appointed the Cooperative Development
Officer, Udupi to inspect the books of the
Petitioner Society and submit a report under
Section 65 of the Act of 1959.
10.3. Section 65, which has been extracted
hereinabove provides for the Registrar to, on
his own motion or on the application of a
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creditor of a Co-operative Society, inspect or
direct any person authorized by him by order in
writing in that behalf to inspect the books of
the Society. Section 64 provides for inquiry by
the Registrar, where the Registrar may, of his
own motion, by himself or by a person
authorized by him, by order in writing, hold an
inquiry into any matter specified in the order
touching the Constitution working and financial
condition of a Cooperative Society.
10.4. What is sought to be contended by Sri
Dhananjay Joshi, learned Senior Counsel is
that, there is no application of mind by the
Assistant Registrar and without such application
of mind, the Cooperative Development Officer
could not be directed to inspect the books and
submit a report in terms of Section 65.
10.5. This brings me to the question as to what is the
application of mind, required of by the Assistant
Registrar of Cooperative Society. When an
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allegation is made in a complaint, it would be
required of the Assistant Registrar to apply his
mind to the allegation to ascertain the veracity
and the truth thereof and if and only if he is
satisfied as regards the prima facie veracity of
the allegation, an inquiry could be ordered.
This aspect would arise if the allegation made in
the complaint were to be denied by the Society
and its officers. In the present case, when the
Society itself has admitted to the
misappropriation, the allegations made in the
representation/complaint by respondent No.4
on the basis of meeting held by 1034 members
is not denied by the petitioner. In fact, the
petitioner has accepted the same. If that be
so, there would be no requirement of the
Assistant Registrar applying his mind to arrive
at a conclusion as to whether there is any
misappropriation or not. The misappropriation
having been accepted, the representation not
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having been submitted by a single member, but
in furtherance of a meeting held by 1,034
members, I am of the considered opinion that
the direction issued by the Assistant Registrar
appointing the Cooperative Development Officer
to inspect the books and submit a report is
sufficient compliance with Section 65 of the Act
of 1959.
10.6. Though it is contended by Shri Dhananjay
Joshi, learned Senior Counsel that action is
proposed to be initiated against two of the
officers, it would be required to be ascertained
if there is anyone else who is guilty of such
misappropriation or who has participated in the
said misappropriation. The decisions relied
upon by the learned Senior Counsel for the
petitioner would only indicate that there has to
be an independent application of mind by the
concerned authority before passing an order of
inquiry. As observed, the application of mind
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would be required if the allegations are
disputed, but when there is an admission made
and an audit report already on the record
indicating the misappropriation, the same
would satisfy the requirement of Section 65.
10.7. Hence, I answer Point No.1 by holding that the
direction issued by respondent No.3 for holding
an inquiry under Section 65 of the Act of 1959
on the basis of a representation submitted,
though by a single member, by the same being
on the basis of an auditor's report which
evidenced misappropriation, which
misappropriation has been accepted by the
Society, is proper and correct and does not
suffer from any legal infirmity.
11. Answer to Point No.2: Whether on the basis of
the contention of the Society that the Society is
taking action against delinquent Directors and
Officers of the Society, an inquiry under Section
65 of the Act of 1959 can be dispensed with?
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11.1. In the present case, it is not in dispute that
there is a misappropriation of monies. In fact,
the Petitioner itself admits that an amount of
Rs.3,95,65,000/- has been misappropriated as
per the report of the auditor, which had been
submitted. The only contention of Shri
Dhananjay Joshi, learned Senior counsel for the
petitioner is that the said misappropriation has
been done by the former Acting Chief Executive
Officer, and the Manager of the Society. The
President and other Office Bearers cannot be
held to be responsible or liable for the same.
The President and other Office Bearers are
taking action against the former Acting Chief
Executive Officer and Manager. Therefore,
further enquiry is not required to be held. His
submission is that the Office Bearers have
established bona fides by intending to take
action.
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11.2. This submission would have to be taken into
consideration by referring to the audit report,
which has been produced along with the
petition. The audit report indicates that the
misappropriation of the aforesaid amounts has
happened over a period of time, and it is not
that the said misappropriation happened at one
go or at one time or overnight.
11.3. Though the Petitioner were to contend that it is
the former Acting Chief Executive Officer and
the Manager of the Society who were
responsible, it is yet to be ascertained as to
who was is responsible since the audit report
only indicates that there is a misappropriation
which has occurred. For the purpose of
ascertaining and fixing responsibility as to who
has misappropriated money, which is admitted
to be misappropriated, it is required that a
proper inquiry is held in that regard.
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11.4. Merely because the Board of the Society is
coming forward to say that they are proposing
to take action, when in fact no action has been
taken till date, the audit report having been
submitted on 20.9.2024 does not inspire any
confidence in the actions on part of the
Petitioner. If at all the Petitioner were serious
about action being taken, they would have done
so by now and not kept quiet.
11.5. Be that as it may, even if action were taken by
the Society against two persons, that would not
mean that no other person is responsible for
the admitted misappropriation. Any inquiry
under Section 65 would only lay bare the facts
and the truth of the matter which would be in
the interest of all the members of the Society.
11.6. In my considered opinion it would be required
for an inquiry to be conducted and affix
responsibility on the wrongdoers. Merely
because the Petitioner is stating that they have
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identified two persons who are allegedly
responsible for the misappropriation and an
action is proposed to be taken, would not
absolve the requirement of inquiry under
Section 65 of the Act of 1959.
11.7. Hence I answer point no.2 by holding that
merely on the basis of the contention of the
Society that the Society is taking action against
delinquent Officers of the Society, an inquiry
under Section 65 of the Act of 1959 can not be
dispensed with, an enquiry would have to be
conducted to ascertain the true facts and affix
responsibilities as also liabilities.
12. Answer to Point No.3: What order?
above, no grounds being made out, the petition
stands dismissed.
Sd/-
(SURAJ GOVINDARAJ)
JUDGE
