Kerala High Court
Pazhakulam Sivadasan vs The State Of Kerala on 9 February, 2021
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR. JUSTICE RAJA VIJAYARAGHAVAN V
TUESDAY, THE 09TH DAY OF FEBRUARY 2021 / 20TH MAGHA,1942
WP(C).No.20911 OF 2018(L)
PETITIONER/S:
1 PAZHAKULAM SIVADASAN,
THADATHIL, MELOOD P.O.,PAZHAKULAM,
PATHANAMTHITTA DISTRICT, PIN CODE: 691 554.
2 A REGHU KUMAR,
VIJAYA BHAVANAM, MELOOD P.O.,PAZHAKULAM,
PATHANAMTHITTA DISTRICT, PIN CODE: 691 554.
3 MB JAYAN,
THONDUKANDATHIL KIZHAKKEKKARA, MELOOD P.O.,
PAZHAKULAM, PATHANAMTHITTA DISTRICT,
PIN CODE: 691 554.
4 JOGINDAR G.
KURAKKONATHU THARAYIL PUTHAN VEEDU, MELOOD P.O.,
PAZHAKULAM, PATHANAMTHITTA DISTRICT,
PIN CODE: 691 554.
5 K.SARADAMMA,
MUKALAYYATHU, PAZHAKULAM P.O.,
PATHANAMTHITTA DISTRICT,PIN CODE: 691 527.
6 S.R.SANTHOSH,
SANTHOSH BHAVANAM, MELOOD P.O.,PAZHAKULAM,
PATHANAMTHITTA DISTRICT,PIN CODE: 691 554.
7 BINOY VIJAYAN,
SANTHALAYAM, MELOOD P.O.,PAZHAKULAM,
PATHANAMTHITTA DISTRICT,PIN CODE: 691 554.
8 KURIAN KOSHY,
KALATHOOR MELETHIL, AMMAKANDAKARA,
ADOOR P.O., PATHANAMTHITTA DISTRICT,
PIN CODE: 691 523.
9 JOSE PERINGANADU,
KALLUVILAYIL PUTHAN VEEDU, MELOOD P.O.,
PAZHAKULAM,PATHANAMTHITTA DISTRICT,
PIN CODE: 691 554.
BY ADVS.
SRI.GEORGE POONTHOTTAM (SR.)
SMT.NISHA GEORGE
WP(C).Nos.20911 & 22340 OF 2018 2
RESPONDENT/S:
1 THE STATE OF KERALA,
REPRESENTED BY THE PRINCIPAL SECRETARY TO
GOVERNMENT, DEPARTMENT OF CO-OPERATION,
GOVERNMENT SECRETARIAT, THIRUVANANTHAPURAM,
PIN CODE: 695 001.
2 THE JOINT REGISTRAR OF CO-OPERATIVE SOCIETIES
(GENERAL), OFFICE OF THE JOINT REGISTRAR OF
CO-OPERATIVE SOCIETIES (GENERAL), PATHANAMTHITTA
DISTRICT, PIN CODE: 689 645.
3 THE ASSISTANT REGISTRAR OF CO-OPERATIVE SOCIETIES
(GENERAL), (INSPECTING OFFICER APPOINTED UNDER
SECTION 66 & 68 OF THE KCS ACT), OFFICE OF THE
ASSISTANT REGISTRAR OF CO-OPERATIVE SOCIETIES
(GENERAL), ADOOR, PATHANAMTHITTA DISTRICT,
PIN CODE: 691 523.
4 THE PAZHAKULAM SERVICE CO-OPERATIVE BANK LTD.
NO.PT 64, PAZHAKULAM, PATHANAMTHITTA DISTRICT,
REPRESENTED BY ITS SECRETARY.
* ADDL. R5 IMPLEADED
5 R.KALESAN
S/O RAGHAVAKURUP (LATE), KALLELIL VADAKKETHIL,
PAZHAKULAM PERINGANADU VILLAGE, ADOOR TALUK,
PATHANAMTHITTA DISTRICT-691554
*
IS IMPLEADED AS ADDITIONAL R5 AS PER ORDER DATED
12.07.2018 IN IA NO.12230/2018.
R1 TO R3 BY SMT MABLE C KURIAN, GOVERNMENT PLEADER
R4 BY ADVS. SRI.K.JAJU BABU (SR.)
SRI.K.SHAJ
R5 BY ADV. SRI.K.K.SETHUKUMAR
THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON
09.02.2021, ALONG WITH WP(C).22340/2018(N), THE COURT ON THE
SAME DAY DELIVERED THE FOLLOWING:
WP(C).Nos.20911 & 22340 OF 2018 3
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR. JUSTICE RAJA VIJAYARAGHAVAN V
TUESDAY, THE 09TH DAY OF FEBRUARY 2021 / 20TH MAGHA,1942
WP(C).No.22340 OF 2018
PETITIONER/S:
R. DINESAN,
PALAZHI VEEDU, PAZHAKULAM P.O.,
ADOOR, PATHANAMTHITTA DISTRICT
(FORMER SECRETARY (RETIRED),
PAZHAKULAM SERVICE CO-OPERATIVE BANK
LTD NO.PT 64, PAZHAKULAM, MELOODU P.O.,
ADOOR, PATHANAMTHITTA DISTRICT).
BY ADVS.
SRI.K.SASIKUMAR
SRI.S.ARAVIND
SRI.P.S.RAGHUKUMAR
RESPONDENT/S:
1 STATE OF KERALA,
REPRESENTED BY THE PRINCIPAL SECRETARY TO
GOVERNMENT, DEPARTMENT OF CO-OPERATION,
GOVERNMENT SECRETARIAT,
THIRUVANANTHAPURAM 695001.
2 JOINT REGISTRAR OF CO-OPERATIVE SOCIETIES (GENERAL)
PATHANAMTHITTA DISTRICT-689645.
3 ASSISTANT REGISTRAR OF CO-OPERATIVE SOCIETIES
(GENERAL), ADOOR,
PATHANAMTHITTA DISTRICT-691523.
WP(C).Nos.20911 & 22340 OF 2018 4
4 PAZHAKULAM SERVICE CO-OPERATIVE BANK LTD.,
NO.PT 64, PAZHAKULAM, MELOODU P.O., ADOOR,
PATHANAMTHITTA DISTRICT 691554,
REPRESENTED BY ITS SECRETARY.
SMT MABLE C KURIAN BY GOVERNMENT PLEADER
R4 BY ADVS. SRI.K.JAJU BABU (SR.)
SRI.K.SHAJ
THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON
09.02.2021, ALONG WITH WP(C) NO.20911/2018(L), THE COURT ON THE
SAME DAY DELIVERED THE FOLLOWING:
WP(C).Nos.20911 & 22340 OF 2018 5
JUDGMENT
The petitioners in W.P.(C) No.20911 of 2018 were the managing committee
members of the Pazhakulam Service Co-operative Bank Limited ('the bank' for
short). The petitioner in W.P.(C) No.22340 of 2018 was the former Secretary of the
bank. They stand surcharged under Section 68 of the Kerala Co-operative Societies
Act, 1969 (hereinafter referred to as 'the Act') vide Exhibit P1 order dated
19/9/2017 of the Joint Registrar of Co-operative Societies (General), the 2nd
respondent herein. They preferred a statutory appeal before the Government
invoking Section 83 (1) (e) of the Act but by order dated 31.5.2018, the appeal
preferred by them stands rejected. The above orders are under challenge in this
petition filed under Section 226 of the Constitution of India.
2. The factual background of the proceedings under challenge can be
recapitulated in the following lines:
a) An inspection under Section 66 of the Act was initiated by the joint
Registrar into the following issues:
i) to ascertain whether there were any irregularities in
conducting sale of home appliances by the bank during the
years 2010-2011, 2011-2012, 2012-2013.
WP(C).Nos.20911 & 22340 OF 2018 6
ii) the amounts expended by the society for the construction
of the first floor of the building where the bank was
functioning was over and above the amount which was
authorised to be expended.
b) The inspecting officer inspected the books, records, stock,
documents, and properties belonging to the bank and after hearing the
parties, concluded that the Sales Fair of home appliances for the years
2010-2011, 2011-2012 and 2012-2013 were conducted without the requisite
permission from the authority, against the provisions of the byelaws and
without obtaining approval from the General Body.
c) For the financial year 2010 - 2011, a stock deficit of Rs.71,650/-
was found to have been suffered by the bank. It was concluded that the
above loss was sustained owing to the mismanagement and wilful
negligence of the members of the managing committee and the secretary.
d) Concerning the loan fair held on 2011-2012, the inspecting officer
concluded that home appliances were purchased by the Bank from M/s.
Kuruvithadam Agencies. The inspecting officer perused the invoices
maintained in the bank and handed over by the committee and found that
the purchase was for a sum of Rs.17,18,998/-. However, a perusal of the
bills revealed that those bills were manipulated as the invoice numbers were
all the same and there were obvious discrepancies in the item numbers
purchased. The Sales Tax and other requisite details which ought to have
WP(C).Nos.20911 & 22340 OF 2018 7
been there in the bill were found absent.
e) M/s.Kuruvithadam Agencies, which had sold the items to the
society, was asked to produce the bills issued by them to the bank and they
obliged. It was found that the bills which were produced by the agency was
for a sum of Rs.13,79,900/. The apparent difference was Rs.3,39,098/-
between the bills submitted by the bank before the inspecting officer and
the bills submitted by the agency. The committee members and the
secretary took the stand that the bills produced by them were genuine.
However, for each individual item, the price was much inflated and the
entries in the bill including the invoice number and item details were
discrepant.
f) The Inspecting officer found that the records maintained in the
society revealed that the sum of Rs.15,46,299/- was expended from the
funds of the bank for purchasing home appliances from M/s. Blue Moon
agencies, Kottayam for conducting the sales fair during the year 2012-2013.
However, the said amount was not accounted for. The inspecting officer
issued notice to M/s. Blue Moon agencies calling upon them to produce
records. Invoices were produced which revealed that they had supplied
home appliances to the bank for a sum of Rs. 15,46,299/-.
g) Yet another manipulation noticed by the Inspecting officer
concerned decision No.833 dated 27.8.2012 passed by the Managing
WP(C).Nos.20911 & 22340 OF 2018 8
Committee of the bank authorizing a certain K. Prasannakumar, a
permanent staff of the bank to conduct home appliances fair for the year
2012-2013. The inspecting officer, on perusal of the resolutions passed
before and after the said date came to the conclusion that decision No.833
was manipulated at a later stage to keep under wraps, the illegal conduct of
the fair in the year 2012-2013. The inspecting officer found that decision
No. 833 dated 27.8.2012 of the bank was in respect of share of Rs.1 lakh
and thereafter decision No. 834 to 836 were seen recorded in series.
However, the entry concerning the authorization of K. Prasannakumar was
inserted immediately after decision No. 832 and on the bottom of the page.
This was found to be a manipulation of the minutes. The complaint lodged
by Sri.K.Prasanna Kumar detailing the manipulation bolstered the said
conclusion.
h) The inspecting officer concluded that for the construction of the
first floor of the building in which the bank is functioning, the committee
expended amounts in excess of what was authorized by the authorities and
without securing the necessary assent.
3. On receipt of the inspection report, the Joint Registrar appointed
the Inspector of Co-operative Societies, Adoor Unit, as enquiry officer under
Section 68 of the Act for fixing the liability of the amount quantified in the
report submitted under Section 66 of the Act.
WP(C).Nos.20911 & 22340 OF 2018 9
4. The officer conducted an inquiry and issued notice to the affected
persons and considered the objection and explanations. The petitioners
furnished their statements before the enquiry officer on 12.6.2017. On
conclusion of inquiry, a report was submitted before the Joint Registrar. The
Joint Registrar gave the petitioners an opportunity to submit their explanation
and after considering the same, passed orders under Section 68(2) surcharging
the petitioners.
5. The petitioners challenged the order before the Government by
preferring an appeal under Section 83(1)(e) of the Act. By Ext. P10 order, the
appeal was rejected.
6. I have heard Sri.George Poonthottam, the learned Senior Counsel
appearing for the members of the former managing committee as instructed
by Sri.Arun Chandran, Sri.K Sasikumar, the learned counsel appearing for the
Secretary, Sri.Jaju Babu, the learned Senior Counsel appearing for the
additional 5th respondent as instructed by Sri.K Shaj, the learned counsel and
Smt. Mable C. Kurian, the learned Government pleader.
7. Sri.George Poonthottam, the learned senior counsel, submitted that
the order passed by the Joint Registrar as confirmed in appeal by the
Government cannot be sustained as the findings are perverse and against all
tenets of law. According to the learned Senior Counsel, the entire proceedings
are vitiated as no notice of the proceedings were served on the petitioners
WP(C).Nos.20911 & 22340 OF 2018 10
herein and the copies of materials relied on by the inspecting officer for
passing the adverse orders were not served on them. It is argued that for
violation of the principles of natural justice, these orders are liable to be
unsettled. It is further urged that the order passed under Section 68(2) is
merely a reiteration of the inspection report under Section 66 of the Act and
has been issued without any application of mind and without considering the
valid contentions raised by the petitioners. According to the learned counsel,
when the audit reports for the years 2011-2012, 2012-2013 and 2013-2014 do
not show any wrong doing on the part of the petitioners, it is incomprehensible
that the inquiry officer would source out extraneous materials to issue an order
of surcharge. The learned senior counsel would point out the finding of the
respondents that the loan fair was conducted without any provision in the bye
laws and without sanction of the authorities is clearly untenable as the society
had only provided a platform for the agencies for exhibiting their products and
nothing more. According to the learned Senior Counsel, since the society had
not expended any amount for the conduct of the fair, the conclusion that loss
was caused to the society owing to mismanagement and acts on the part of
the petitioners cannot be sustained. It is submitted that when the appeal was
heard by the Government, directions were issued to Kuruvithadam Agencies to
produce the bills. However, they issued Ext.P13 letter stating that they were
unable to produce the records as those bills pertained to something which had
occurred seven years back and that they were not in possession of the records.
WP(C).Nos.20911 & 22340 OF 2018 11
According to the learned counsel, the provisions under Section 68 of the Act
have serious consequences and would entail disqualification under Rule 44 (l)
of the Co-operative Societies Rules.
8. Sri.K.Sasikumar, the learned counsel appearing for the Secretary,
would adopt the arguments of the learned senior counsel appearing for the
managing committee. According to the learned counsel, the petitioners were
not granted an opportunity to explain the falsity of the bills procured by the
inspecting officer from the agencies from where the home appliances were
allegedly purchased. It is contended that the actual invoices issued by the
vendors were produced by the society before the inspecting officer. The bills
procured by the inspecting officer, according to the learned counsel, are forged
and brought to existence to show the petitioners in bad light. According to
the learned counsel, the stock registers maintained in the society clearly reveal
that the amount received by the society after the sales of the home appliances
and realized by way of interest is much more than the purchase value of those
items and hence, it cannot be said that loss was caused to the society. It is
further urged that the assessment of loss by the inspecting officer is imaginary
in nature and in that view of the matter, the imposition of surcharge cannot be
sustained. It is further contended that for the year 2012-2013 no fair was
conducted in the society and the findings to that effect are erroneous. It is
further contended that the bills procured by the inspecting officer from M/s.
Blue Moon Agencies are fabricated.
WP(C).Nos.20911 & 22340 OF 2018 12
9. Smt. Mable C. Kurian, the learned Government Pleader, has
strenuously opposed the submissions of the learned counsel appearing for the
petitioners. She would painstakingly take this Court through the inspection
report as well as the surcharge order and the order passed by the Government
in appeal. According to the learned Government pleader, it was only on
20/6/2014 that the Joint Registrar had granted permission to the society to
conduct a loan fair. In that view of the matter, the fairs which were held from
2010-2011 to 2012-2013 were without authorization. The learned Government
Pleader would invite the attention of this Court to Exts. R2(c) and R2(d)
invoices produced in W.P.(C) No.20911 of 2018 and it was pointed out that
even a casual perusal of the bills would reveal that the same was brought into
existence with clear fraudulent motive. The learned Government Pleader
submitted that the minutes were manipulated to make it appear that the
society was not involved in the loan fair which was held in the year 2012-
2013. The attention of this Court was invited to Ext.R2(e), copy of resolution
produced in W.P.(C) No.20911 of 2018 to bring home her point that decision
No.833 found in page 42 is a fraudulent entry. Referring to page No. 43 of
Ext.R2(e), it is pointed out that decision No. 833 to decision No. 836 recorded
on 27.8.2012 is in respect of other matters. According to the learned
Government pleader, the contention of the petitioners that the inspection
under Section 66 and the enquiry under Section 68 of the Act was carried out
by one and the same person is not correct. The inspection under Section 66(2)
WP(C).Nos.20911 & 22340 OF 2018 13
was conducted by the Asst. Registrar (General), Adoor and the inquiry under
Section 68(1) was conducted by Sri. Subash, Inspector of Co-operative
societies, Adoor unit. It is further submitted that the petitioners were duly
heard at each stage and the explanations were also considered before passing
the order. It is further contended that the committee members cannot wash off
their hands from the liability and claim that the responsibility was that of the
secretary in office. She would assert that the entire matters were considered in
the proper perspective by the jurisdictional authorities and no interference is
warranted.
10. Sri. Jaju Babu, the learned Senior Counsel appearing for the
additional respondent submitted that the inspection report as well as the
inquiry conducted under Section 68 of the Act revealed that the members of
the managing committee as well as the secretary by their acts and omissions
had caused heavy loss to the bank by mismanagement, misappropriation and
fraud. They produced forged bills which required no detailed investigation as it
was apparent from the bills itself that they were brought into existence for the
purpose of hoodwinking the inspecting officer. The learned Senior Counsel
pointed out that no invoices can have the very same number, but invoices
presented by the society before the inspecting officer though issued on
different dates carry the very same number. He would also refer to the
invoices presented by the managing committee and it was argued that even
while calculating the total number of items, discrepancies are seen. According
to the learned senior counsel, the mere fact that the findings which were noted
in the inspection under Section 66 was not noted during the audit is no reason
to ignore them. According to the learned senior counsel, it is the statutory
duty of the committee to ensure proper custody and accounting of cash and
other assets and the committee is clearly answerable for any
misappropriation.
11. I have anxiously considered the submissions advanced and have
carefully perused the records.
12. Since the questions raised involve an order of surcharge passed
against the petitioners under Section 68 of the Act, it would be apposite to
have a glance at the relevant provision.
13. S.68 of the Kerala Co-operative Societies Act, 1969 reads as
follows:
"(1) If in the course of an audit, inquiry, inspection or the winding
up of a society, it is found that any person, who is or was entrusted
with the organisation or management of such society or who is or
has at any time been an officer or an employee of the society, has
made any payment contrary to this Act and the rules or the bye
laws, or has caused to any loss or damage in the assets of the
society by breach of trust or wilful negligence or has
misappropriated or fraudulently retained any money or other
property belonging to such society or has destroyed or caused the
destruction of the records, the Registrar may, of his own motion or
on the application of the committee, liquidator or any creditor,
inquire himself or direct any person authorised by him by an order
in writing in this behalf, to inquire into the conduct of such person.
(2) Where an inquiry is made under sub-s. (1), the Registrar may,
after giving the person concerned an opportunity of being heard,
by order in writing, require him to repay or restore the money or
other property or any part thereof, with interest at such rate, or to
pay contribution and costs or compensation to such extent, as the
Registrar may consider just and equitable."
(3) Where the money, property, interest, cost or compensation is
not repaid or restored as per sub section (2), the Registrar shall
take urgent steps to recover such amounts from the concerned
persons as arrears of public revenue due on land as specified in
Section 79 of the Act."
14. While interpreting Section 68 of the Act, a learned single Judge of
this Court in A.K. Francis v. Joint Registrar 1 had occasion to hold as
follows:
"The first requirement of the section, which constitutes the
condition precedent for its operation, is that the payment
contemplated or the deficiency in the assets of the society should
have been found in the course of audit, inquiry, inspection or the
winding up of the society. The Section can be invoked by the
Registrar only if the finding was made in this manner, and not
otherwise. The facts giving rise to the charge have to be disclosed
in the course of an audit under S.63, inquiry under S.65, inspection
under S.66 or on the winding up of the society. The further
requirement of S.68 is that the payment or deficiency in the assets
of the society was made or caused by breach of trust or wilful
negligence or misappropriation or fraudulent retention of money. It
1 [1990 (2) KLT 470]
is not the mere wrongful payment or causing of deficiency in the
assets that attracts S.68, but the further fact that such payment or
deficiency was made or caused by the breach of trust, wilful
negligence, misappropriation or fraud of the person concerned.
Unless the latter ingredient is found to exist, action under S.68 is
ruled out."
15. Recently, in Mahendran P.K. and Ors. v. Joint Registrar of
Co-operative Societies (General), Alappuzha and Ors. 2, a learned Single
Judge of this Court had occasion to delineate the pith and tenor of Section 68
and it was observed as follows:
14. It is indubitable from the manner in which S.68 is drafted that
any of the afore mentioned classes of persons, who either makes
payment contrary to the Act, Rules and Bye - laws; or causes any
loss or damage to the assets of the Bank on account of breach of
trust, willful negligence, mismanagement or misappropriation
would certainly become liable to answer the rigor of the said
Section. Pertinently, the word 'Mismanagement' in the said
Section has been used without any other qualification and
therefore, a simplicitor mismanagement, even without it being
willful or otherwise, certainly would bring the responsible person
under the clutches of the said Section. This is incontestable
because, in the other areas of the Section, it is clearly mandated
that the loss or damage to the assets of the Bank must be made
either by breach of trust; or by willful negligence; or by
misappropriation; or by fraudulent retention of money, but when
it comes to "mismanagement" there is no such qualification that
it ought to be be willful, fraudulent or in violation of trust. I am,
2 [2019 (3) KLT 627]
therefore, firm in my mind that even simplicitor case of
mismanagement would be sufficient to bring the enumerated
classes of persons within the ambit of the said Section.
16. With the above principles in mind, I shall consider the merit of
the contentions raised by the parties.
17. The first contention raised by the learned counsel appearing for
the petitioners is that the opportunity as contemplated under law was not
granted to the petitioners, during the conduct of the inspection under Section
66 and in the proceedings of surcharge under Section 68 of the Act. Insofar as
the proceedings under Section 66 of the Act is concerned, it is by now settled
by this Court in Santhosh v. Assistant Registrar (General) of Co-
operative Societies, Tvm and Ors3 that a person against whom an inquiry
has been ordered under Section 68(1) of the Act need not be heard before
issuing an order to conduct an enquiry. Relying on the judgment of the
Division Bench in State of Kerala v. Aravindakshan Nair4, it was held that
Rule 66(5) does not contemplate any opportunity to be given to any society or
any person, except with regard to the proposal of the Registrar for ordering
cost of inspection, whether it be in terms of the report or in variation with the
recommendation contained in the report. It was further held that any other
interpretation would result in a situation where immediately on receipt of a
report under Section 66, the petitioner would have to be afforded an
3 [ILR 2015 (1) Ker. 187]
4 [2010 (3) KLT 11]
opportunity of being heard even if what is contemplated is to order a further
inquiry as contemplated under Section 68 of the Act. Section 68(2) of the Act
contemplates a further opportunity of being heard before any action could be
initiated under the said provision. However, in this case, the records would
reveal that the inspecting officer had in fact issued notice to the managing
committee and to the Secretary on 5.5.2016 and the managing committee and
the Secretary had submitted their explanation on 12.5.2016. The statement
given by the managing committee members has been produced by the
respondents as Ext.R2(a) in W.P.(C) No. 20911 of 2018. Furthermore, to the
notice under Section 68(1) of the Act, the petitioners have filed their objections
and the copies of the same have been produced as Ext.R2(f) in W.P.(C) No.
20911 of 2018. The said contention advanced by the petitioners cannot be
sustained.
18. The next contention advanced by the petitioners is that the
finding in the report that loss was sustained to the bank due to the conduct of
the loan fair in the year 2011-2012 is not based on any materials on record.
They also have a contention that the bills procured by the inspecting officer to
conclude that loss was sustained are fabricated. I have gone through
Ext.R2(b) invoices which have been produced by the respondents in W.P.(C)
No. 20911 of 2018. Those are the invoices which were produced before the
inspecting officer by M/s.Kuruvithadam Agencies. The total value of 228 items
covered under the invoices which have been numbered serially is
WP(C).Nos.20911 & 22340 OF 2018 19
Rs.13,79,900/-. Those invoices include the value of goods, output VAT at
12.5% and output Social Security Cess at 1%. The invoices also carry their
Company's VAT TIN and CST number. Ext.R2(c) are the invoices presented by
the petitioners before the inspecting officer at the time of inspection. Even in
the appeal presented before the Government as well as before this Court, the
petitioners have been contending that the bank has paid a sum of
Rs.17,17,998/- towards six invoices issued by M/s.Kuruvithadam Agencies,
Ernakulam on 6.9.2011 and 14.9.2011. It is the specific contention of the
petitioners that the said vouchers were signed by the members of the sub
committee as well as the Chief Executive of the Bank. They also contend that
they are unaware of the bills presented before the inspecting officer allegedly
by M/s. Kuruvithadam Agencies. I have carefully gone through Ext.R2(c)
invoices which the petitioners claim are genuine invoices. Though the invoices
were issued on 6.9.2011 and 14.9.2011, most of the invoice numbers are one
and the same, i.e., YR11-570. Though the bills are computer generated, there
is discrepancy even in the quantity of items. For instance, in Ext.R2(c)(1),
though the number of washing machines purchased are 20 Nos., in the total
quantity, what is stated is 25 Nos. The same discrepancy is present in
Ext.R2(c)(5) as well. The price of the very same item is much more than what
is given in Ext.R2(b). The value of the items have been calculated without
including the output VAT as well as the Cess and the VAT TIN Number and CST
Number are not printed. These discrepancies are visible even to the naked eye
WP(C).Nos.20911 & 22340 OF 2018 20
and it is apparent that those bills were produced using a word processing
software and manipulated to appear as if they are genuine. The inspecting
officer was well justified in concluding that by the acts of the petitioners,
wrongful loss has been sustained to the assets of the society. The
explanations offered by the petitioners to these discrepancies are down right
lame and do not appeal to commonsense. During the hearing of the writ
petitions, the petitioners in W.P.(C) No. 20911 of 2018 have produced Ext.P13
letter purported to have been issued by M/s.Kuruvithadam Agencies to the
Government Secretary that the invoices are not in their possession due to
lapse of time. When it is apparent that the bills which are admitted to be
presented by the petitioners are fabricated, there is no point in harping on to
the point that the bills presented before the inspecting officer are cooked up.
The contention of the learned counsel appearing for the Secretary that no loss
would have been sustained as the bank has managed to sell the entire
products and gain profit cannot be accepted. The inspecting officer has
concluded that by the acts, loss to the tune of Rs.3,39,098/- was sustained to
the bank based on the records available.
19. The next contention is with regard to the loan fair which was held
during the year 2012-2013. It was argued before this Court that the bank has
not conducted any fair during the Onam season during the financial year 2012-
2013. However, the records reveal that during inspection, an amount of
Rs.15,46,299/- was expended from the funds of the bank for purchasing home
WP(C).Nos.20911 & 22340 OF 2018 21
appliances from M/s. Blue Moon Marketing Enterprises. Ext.R2(d) are the
invoices of M/s. Blue Moon Marketing Enterprises. The agency has also
submitted before the inspecting officer by Ext.R2(d) communication that the
bills are genuine and the purchaser was Pazhakulam SCB, Adoor. Ext.R2(e) is
the copy of the Minutes of the Bank which reveals that Decision No.833 was
taken by the managing committee authorising Sri.K.Prasannakumar, a
permanent staff of the bank to conduct the loan fair. However, the subsequent
pages of the minutes book reveal that resolution No.833 was in respect of
some other matter. The inspecting officer has concluded that the Decision
found in page No.42 is a manipulation and brought into existence to make it
appear that the committee had authorised Sri. K.Prasannakumar to conduct
the loan fair. It appears that the aforesaid Prasannakumar lodged a complaint
on 7.6.2013 when he realized that the records of the loan fair held in the year
2012-2013 and the purchases made from M/s. Blue Moon Marketing
Enterprises were not entered in the bank records. These are grave allegations
and the explanation offered by the petitioners to the findings of the inquiry
officer cannot be accepted.
20. The next contention advanced by the petitioners is that the audit
conducted for the aforesaid period did not disclose any of the alleged
irregularities noted by the respondents. The mere fact that the discrepancies
above noted escaped the eyes of the auditors is no reason to give a clean chit
to the petitioners.
WP(C).Nos.20911 & 22340 OF 2018 22
21. The records also reveal that some amounts were expended in
excess of what was authorised for the construction of the building. The audit
certificate also revealed that an amount of Rs.1,75,011/- for the year 2011-
2012 and a sum of Rs.1,27,173/- for the year 2012-2013 was due to the
society under the head 'Purchase Advance'.
22. The petitioners have a contention that minor mismanagement or
supervisory lapses cannot lead to initiation of surcharge proceedings against
the petitioners herein. On a reading of Section 68 of the Act, it is clear that if
in the course of inspection, as in the instant case, it is found that any person
who is or was entrusted with the management of society or as has been as an
officer or employee, makes payment contrary to the Act, Rules and Bye-laws or
causes any loss or damage to the assets of the Bank on account of breach of
trust, willful negligence, mismanagement or misappropriation would certainly
come within the four corners of the Section and would be answerable.
Furthermore, Rule 47 of the Kerala Co-operative Societies Rules deals with
custody, cash, securities, records, seal etc. of the society. Sub Clause (d) of
Rule 47 states that notwithstanding anything contained in the above clauses,
the committee of the society shall primarily be responsible for the maintenance
and safety of all accounts, records, cash and other assets of the society. It is
the duty of the committee to see that the officers concerned discharge their
functions and perform their duties as laid down in the rules and byelaws.
23. Sri.George Poonthottam, the learned counsel appearing for the
WP(C).Nos.20911 & 22340 OF 2018 23
petitioners would refer to Ext.P8 and it was argued that the petitioners were
not afforded an opportunity to repay or restore the money or other property or
any part thereof, with interest as contemplated under Section 68(2) of the Act.
The said submission cannot be accepted as the petitioners have no case that
they have offered to make good the loss or restore the money.
24. Having considered the entire facts, I find no reason to interfere
with Ext.P8 order of surcharge or Ext.P10 order passed by the 1st respondent.
These writ petitions will stand dismissed. There will be no order as to costs.
Sd/-
RAJA VIJAYARAGHAVAN V
JUDGE
ps
WP(C).Nos.20911 & 22340 OF 2018 24
APPENDIX OF WP(C) 20911/2018
PETITIONER'S/S EXHIBITS:
EXHIBIT P1 TRUE COPY OF THE ORDER NO. C.R.P.
(2)4411/17 DATED 19.09.2017 PASSED BY
THE 2ND RESPONDENT.
EXHIBIT P2 TRUE COPY OF THE REPORT ON INSPECTION
SUBMITTED BY THE INSPECTING OFFICER
DATED 17.03.2017.
EXHIBIT P3 TRUE COPY OF THE AUDIT CERTIFICATE FOR
THE YEAR 2011-2012.
EXHIBIT P4 TRUE COPY OF THE AUDIT CERTIFICATE FOR
THE YEAR 2012-2013.
EXHIBIT P5 TRUE COPY OF THE AUDIT CERTIFICATE FOR
THE YEAR 2013-2014.
EXHIBIT P6 TRUE COPY OF THE ORDER BEARING NUMBER
C.R.P.(3).6750/14 DATED 22.03.2017
ISSUED BY THE 2ND RESPONDENT.
EXHIBIT P7 TRUE COPY OF THE REPORT OF INQUIRY UNDER
SECTION 68(1) SUBMITTED BY THE 3RD
RESPONDENT DATED 15.06.2017.
EXHIBIT P8 TRUE COPY OF THE ORDER BEARING NUMBER
C.R.P.(3).6750/14 DATED 16.09.2017
ISSUED BY THE 2ND RESPONDENT.
EXHIBIT P9 TRUE COPY OF THE APPEAL DATED 03.10.2017
PREFERRED BY THE PETITIONERS BEFORE THE
1ST RESPONDENT.
EXHIBIT P10 TRUE COPY OF THE G.O. (RT)
NO.347/2018/CO-OP DATED 31.05.2018.
EXHIBIT P11 COPY OF THE LETTER/ORDER ISSUED BY THE
PRESIDENT OF PAZHAKULAM SERVICE CO-
OPERATIVE BANK.
EXHIBIT P12 COPY OF THE CHART SHOWING THE DIFFERENCE
OF ITEMS, VALUE ETC.
WP(C).Nos.20911 & 22340 OF 2018 25
EXHIBIT P12(a) COPY OF THE CHART SHOWING THE DIFFERENCE
OF ITEMS, VALUE ETC.
EXHIBIT P13 TRUE COPY OF THE REPLY/COMMUNICATION
SUBMITTED BY M/S. KURUVITHADAM AGENCIES
PVT. LTD. DATED 27.02.2018.
RESPONDENT'S/S EXHIBITS:
EXHIBIT R2(a) TRUE COPIES OF THE STATEMENT GIVEN BY THE
PETITIONERS BEFORE THE ENQUIRY OFFICER.
EXHIBIT R2(b) TRUE COPIES OF THE INVOICES SUBMITTED BY
KURVITHADAM AGENCIES BEFORE THE ENQUIRY
OFFICER.
EXHIBIT R2(c) TRUE COPIES OF THE INVOICES SUBMITTED BY
THE BANK BEFORE THE ENQUIRY OFFICER.
EXHIBIT R2(d) TRUE COPY OF THE REPORT SUBMITTED BY BLUE
MOON AGENCIES BEFORE THE ENQUIRY OFFICER.
EXHIBIT R2(e) TRUE COPY OF THE RESOLUTION DATED
27.08.2012 OF THE MANAGING COMMITTEE.
EXHIBIT R2(f) TRUE COPIES OF THE STATEMENT SUBMITTED
THE PETITIONERS BEFORE THE 68(1) ENQUIRY
OFFICER.
EXHIBIT R5(a) TRUE COPY OF THE NOTICE ISSUED BY THE 4TH
RESPONDENT BANK IN THE YEAR 2011-12.
EXHIBIT R5(b) TRUE COPY OF NOTICE ISSUED BY THE 4TH
RESPONDENT BANK IN THE YEAR 2012-2013.
/ TRUE COPY/
P.A. TO JUDGE
WP(C).Nos.20911 & 22340 OF 2018 26
APPENDIX OF WP(C) 22340/2018
PETITIONER'S/S EXHIBITS:
EXHIBIT P1: A TRUE COPY OF THE ORDER DATED 19-9-2017
ISSUED BY THE 2ND RESPONDENT.
EXHIBIT P2: A TRUE COPY OF THE REPORT DATED 17-03-2017
SUBMITTED BY THE 3RD RESPONDENT BEFORE THE
2ND RESPONDENT.
EXHIBIT P3: A TRUE COPY OF THE AUDIT CERTIFICATE FOR
YEAR 2011-12.
EXHIBIT P4: A TRUE COPY OF THE AUDIT CERTIFICATE FOR
YEAR 2012-13.
EXHIBIT P5: A TRUE COPY OF THE AUDIT CERTIFICATE FOR
YEAR 2013-14.
EXHIBIT P6: A TRUE COPY OF THE ORDER DATED 22-03-2017
ISSUED BY THE 2ND RESPONDENT.
EXHIBIT P7: A TRUE COPY OF THE REPORT DATED 15.6.2017
FILED BY THE 3RD RESPONDENT.
EXHIBIT P8: A TRUE COPY OF THE ORDER DATED 16-9-2017
ISSUED BY THE 2ND RESPONDENT.
EXHIBIT P9: A TRUE COPY OF THE APPEAL MEMORANDUM
SUBMITTED BY THE PETITIONER BEFORE THE 1ST
RESPONDENT.
EXHIBIT P10: A TRUE COPY OF THE ORDER DATED 31-05-2018
ISSUED BY THE 1ST RESPONDENT.
EXHIBIT P11 A TRUE COMPILATION OF THE DETAILS REGARDING
THE GOODS PURCHASE AND ADDED TO STOCK OF
THE BANK AS PER EXT R2(d) BILLS WHICH ARE
NOT INCLUDED IN THE EXT.R2(c)BILLS.
EXHIBIT P12 A TRUE COMPILATION OF DETAILS OF THE GOODS
CONTAINED IN EXT.R2(c) BILL AND NOT
INCLUDED IN THE EXT.R2(d) BILLS WITH THE
BANK.
WP(C).Nos.20911 & 22340 OF 2018 27
RESPONDENT'S/S EXHIBITS:
EXHIBIT R2(a) TRUE COPIES OF THE EXPLANATIONS OF THE
PETITIONER AND ALL AFFECTED PARTIES.
EXHIBIT R2(b) TRUE COPIES OF THE CASH VOUCHERS OF
RS.17,18,998.
EXHIBIT R2(c) TRUE COPIES OF THE INVOICES SUBMITTED BY
M/S. KURUVITHADOM AGENCIES, ERNAKULAM.
EXHIBIT R2(d) TRUE COPIES OF THE INVOICES OF
RS.17,18,998/- PRODUCED BY THE BANK.
EXHIBIT R2(e) TRUE COPIES OF THE NOTICE FOR CONDUCTING
HOME APPLIANCES MELA PUBLISHED BY THE BANK.
EXHIBIT R2(f) TRUE COPIES OF THE INVOICES AND RECEIPT FOR
AN AMOUNT OF RS.15,46,299/-.
EXHIBIT R2(g) TRUE COPY OF THE RESOLUTION OF MANAGING
COMMITTEE ON 07/07/2012 TO CONDUCT HOME
APPLIANCES MELA IN THE YEAR 2012-13.
EXHIBIT R2(h) TRUE COPY OF THE RESOLUTION DATED
27.08.2012.
EXHIBIT R4 A THE PHOTOCOPY OF THE NOTICE ISSUED FOR THE
MELA BY THE BANK FOR THE YEAR 2012-2013.
/ TRUE COPY/
P.A. TO JUDGE
