Kerala High Court
The Managing Committee vs State Of Kerala on 17 February, 2021
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR. JUSTICE RAJA VIJAYARAGHAVAN V
WEDNESDAY, THE 17TH DAY OF FEBRUARY 2021 / 28TH MAGHA,1942
WP(C).No.15206 OF 2018(A)
PETITIONER:
THE MANAGING COMMITTEE
PALA MARKETIG CO-OPERATIVE SOCIETY LIMITED NO.4214,
P.B. NO. 33, PALA, KOTTAYAM DISTRICT,
REPRESENTED BY ITS PRESIDENT.
BY ADV. SRI.P.C.SASIDHARAN
RESPONDENTS:
1 STATE OF KERALA
REPRESENTED BY THE SECRETARY TO GOVERNMENT,
CO-OPERATIVE DEPARTMENT,
SECRETARIAT,THIRUVANANTHAPURAM - 695 001.
2 THE JOINT REGISTRAR OF CO-OPERATIVE SOCIETIES
(GENERAL), KOTTAYAM - 686 001.
3 BINDU C.K.
SPECIAL GRADE INSPECTOR, KIDANGOOR UNIT INSPECTOR,
OFFICE OF THE ASSISTANT REGISTRAR (GENERAL),
MEENACHIL, KOTTAYAM - 686 577.
*ADDL R4 TO R6 IMPLEADED
*4 ADDL.R4 K.C SIBY
KIZHAKKEYIL, PALA.
*5 ADDL.R5 MANUAL THOMAS
KARIMPANACKAL, NEELOOR P.O, KOTTAYAM.
*6 ADDL.R6 SOUMY KURUVILA @ V.K KURUVILA
VADAKKEMURIL, ANJOOTTIMANGALAM P.O.,
PLASSANAL.
(ADDL.R4 TO R6 IMPLEADED AS PER ORDER DATED
17/10/2018 IN IA.NO.01/2018)
*7 *ADDL.R7 IS IMPLEADED
ANCY KURUVILA
W/O BABY THOMAS, CHERUKUNNEL HOUSE,
W.P.(C).NO.15206 OF 2018 2
RAMAPURAM BAZAR P.O., KOTTAYAM DISTRICT
PIN 686 576
(ADDL.R7 IMPLEADED AS PER ORDER DATED 17/2/2021 IN
IA.NO.01/2021)
R4-6 BY ADV. SRI.D.SOMASUNDARAM
R7 BY ADV. T.R.HARIKUMAR
R7 BY ADV. SRI.ARJUN RAGHAVAN
SMT MABLE C KURIAN, GP
THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON
17.02.2021, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:
W.P.(C).NO.15206 OF 2018 3
JUDGMENT
The Pala Marketing Co-operative Society Ltd No.4214 is a society
registered under the provisions of the Co-operative Societies Act and the
Rules framed thereunder. An enquiry under Section 65 of the Act was
ordered by the Joint Registrar into the constitution, working and financial
condition of the society after being satisfied that it was necessary to do so.
The Assistant Registrar (Planning) was appointed as the enquiry officer. The
said officer conducted an enquiry and submitted Exhibit P2 report before the
Registrar. The Registrar on being satisfied that the incidents for invocation of
surcharge proceedings under section 68 of the Act was made out from the
report, proceeded to pass an order to enquire into the conduct of the
persons mentioned in the report and appointed the 3rd respondent with a
further direction to conclude the enquiry and submit a report within a period
of two months. Being aggrieved by the above order, the petitioner herein, as
the President of the managing committee preferred Exhibit P3 appeal before
the Government invoking Section 83 of the Co-operative Societies Act. While
so on 28.6.2017, the Joint Registrar issued Exhibit P5 order by which the
enquiry officer was ordered to enquire into some additional aspects. On
being served with the order, the petitioner approached this Court and filed
W.P.(C) No. 23606 of 2017 and by order dated 18.7.2017, this Court directed
the State to consider the appeal and take a decision in an expeditious
manner. The appeal was considered and by Exhibit P8 order, the same was
rejected holding that the petitioner failed to make out any ground to
interfere either with the report under Section 65 of the Act or the notice
issued under Section 68(1) of the Act.
2. According to the petitioner, the Government has failed to apply
its mind to the contentions advanced by the petitioner while assailing the
proceedings initiated by the Registrar. It is contended that the valid
contentions raised by the petitioner was ignored and the order was passed
on irrelevant considerations. The enquiry officer has proceeded to enquire
into matters which were not even referred, and this has resulted in grave
failure of justice. Furthermore, before proceeding to order an enquiry under
Section 68(1) of the Act, the enquiry officer ought to have been satisfied
that such an action was warranted, and that decision could have been taken
only after hearing the petitioner as well as the other managing committee
members. It is pointed out that the proceedings are vitiated for
noncompliance of Rule 66 of the Rules as the enquiry officer failed to
append the latest balance sheet and limited to the points in respect of which
enquiry was ordered. However, the enquiry officer has travelled much
beyond the scope of the enquiry and delved on matters which were not even
referred to him. According to the petitioner, on each and every independent
point which was referred to the enquiry officer, the petitioner had furnished
proper explanations to bring out that there was no wrongdoing. However, all
these relevant aspects were ignored while submitting the report. Though all
these aspects were highlighted in the appeal preferred before the
Government and interference was sought, the same was dismissed without
even a proper consideration of the submissions. It is in the above
circumstances that this writ petition is filed seeking to quash the report
under Section 65 as well as the notice calling for the appearance issued
under section 68 (1) of the Act and for a declaration that there were no
circumstances warranting the initiation of proceedings under Section 68 of
the Act and for incidental reliefs.
3. A counter affidavit has been filed by the second respondent. It
is stated that the report under Section 65 of the Act is complete in all
respects and it contains detailed evaluation of all the points referred to the
enquiry officer. The report contains the last audited balance sheet and the
latest tentative balance sheet of the society and it also contains the
summary of the financial position of the society. The enquiry revealed grave
irregularities in the functioning of the society, and it was also found that
serious loss and damage was caused to the assets of the society by the
persons in charge of the organisation and management of the society by
breach of trust, wilful negligence, mismanagement, and misappropriation of
funds of the society. A copy of the enquiry report was handed over to the
society. Since the defects are not minor in nature which can be remedied,
there was no reason to direct the officers to initiate appropriate action under
Section 65 (4) of the Act. The latest audit report shows that the Society
owns fixed assets worth about 21 crores but the same has not been
revalued. The society had failed to repay the deposits collected from the
general public and many other institutions. Funds were diverted and the
society failed to pay the Government dues. The report has revealed that the
society is working at a loss of about Rs.66 Crores and about Rs.62 Crores by
way of deposit and Rs.10.57 Crores by way of borrowings are liable to be
paid by the Society.
4. A counter affidavit has been filed by respondents 4 to 6
contending that the instant Writ Petition filed by the society challenging the
initiation of proceedings under Section 68 (1) of the Act is not maintainable
as the Board of Directors, which is a collective body is not entitled to
challenge the proceedings which have been initiated against the irregular
conduct of certain persons who were entrusted with the organisation or
management of the society. It is further stated that the enquiry under
Section 65 of the Act is merely a fact-finding enquiry and on its conclusion,
the Registrar is entitled to decide as to whether he should proceed either
under Section 32 of the Act to supersede the managing committee or to
initiate surcharge proceedings against the persons who are found
responsible for causing the loss to the society or to adopt any other mode. It
is further stated that when an enquiry report is submitted before the Joint
Registrar, there is no legal obligation to pass an order accepting the report
or to issue notice to the society regarding the report.
5. Sri. P.C. Sasidharan, the learned counsel appearing for the
petitioner, submitted that Exhibit P10 order issued by the Government
cannot be sustained. The learned counsel would refer to the decision of this
Court in Cheranallor Service Cooperative Society v Dy Registrar 1 and
it was argued that while ordering an enquiry under Section 65 of the Act,
the specific point or points on which the enquiry is to be made are to be
made known in the proceedings as insisted in Rule 66 of the Rules. The
enquiry is vitiated for non-compliance of the above Rule. According to the
learned counsel, in the appeal filed by the petitioner before the Government,
the petitioner had raised valid contentions to assail the report under Section
65 as well as the consequent order passed under Section 68 (1) of the Act.
None of those contentions were adverted to by the Government while
rejecting the appeal. After having ordered an enquiry under Section 68(1),
the Joint Registrar has widened the scope of enquiry by Exhibit P5 order
which is clearly unsustainable under law. With reference to each and every
1 (1976 KLT 353)
finding in the enquiry report which was adverse to the petitioner society,
specific explanation was given by the petitioner. However none of these
aspects were taken note of by the Registrar or by the Government while
rejecting the appeal preferred by the petitioner
6. Smt.Mable C Kurian, the learned Government Pleader has
vehemently opposed the submissions. He would point out that the petitioner
could not have apparently challenged the report submitted by the enquiry
officer under Section 65 of the Act as it is merely a report and not an order
as contemplated under Section 83 of the Act. He would contend that the
notice issued under Section 68 (1) was issued strictly in tune with the
statutory provisions and that being the case, the petitioner has no valid
cause of action to challenge the same at this stage as no order prejudicial to
the interest of the petitioner has been passed till date. Relying on the report
in State of Kerala v. Aravindakshan Nair 2, it was argued that a hearing
under Rule 66 (5) is only for the purpose of determination of the costs of the
enquiry and in fixing of the liability and nothing more. He would also
profusely rely on the report in Santhosh V v Assistant registrar Co
Operative Societies and others3 and it was argued that the petitioner
would get sufficient opportunity of being heard under sub section (2) of
2 (2010 (3) KLT 11)
3 (2014 (4) KLJ 397 )
Section 68 and it is not the law that right of hearing is necessarily to be
afforded before any action is contemplated on the basis of a report. Reliance
is also placed on an unreported judgment of this Court in W.P.(C) No.888 of
2020 dated 14.1.2020 to bring home his point that only when an adverse
order is passed against any of the petitioners under Section 68 (2) of the
Act, can they be said to be aggrieved by the order for the purposes of
pursuing their remedies.
7. I have carefully considered the submissions advanced by both
sides and have gone through the records.
8. It would be relevant to have a glance at Section 68 of the Act
and Rule 66(7) of the Rules.
68. Surcharge.- (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 organization 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 the Act and the rules or the bye-laws, or
has caused any loss or damage in the assets of the society by breach of
trust, or wilful negligence or mismanagement 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 of 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-section (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.
Rule 66. Procedure for the conduct of inquiry and inspection:
(1) xxxxx xxx xxxx
(7) (i) The order in writing for an inquiry under sub section (1) of
Section 68 of the Act shall among other things contain the
following:-
(a) Name of the society whose affairs are to be inquired into or
whose books of accounts are to be inspected;
(b) name of the person authorised to conduct the inquiry:
(c) the specifIc point or points on which the inquiry is to be made;
(d) the period within which the Inquiry is to be completed and
report submitted to the Registrar;
(e) costs of inquiry or inspection;
(f) any other matter relating or pertaining to the inquiry.
(ii) On gelling the inquiry report, the Registrar shall give the person or
persons concerned an opportunity of being heard before issuing
an order of surcharge. The order for surcharge shall be in writing
and shall be sent under registered post with acknowledgement
due. The order shall among things contain the following:
(a) name of society;
(b) name/names of person/persons responsible to repay or restore
the money or any property or part thereof, by mentioning cleary
the total amount involved due from each;
(c) the rate of interest, if any, to be clearly specified;
(d) the amount of cost or compensation to be specified;
(e) the period within which the amount is to be realised;
(f) in case the person responsible is not remitting the amount
within the time limit so fixed, the Society shall report the matter
to the Registrar forthwith and the Registrar shall realize the
amount as per the Revenue Recovery Act.
9. The statutory scheme under the Act envisages that the Registrar
has to be satisfied with regard to the necessity for conducting an inquiry as
contemplated under Section 68 of the Act. Such subjective satisfaction of the
Registrar has to be based on material that is brought to his notice in the
course of an audit, inquiry, inspection or the winding up of a society. If the
Registrar finds that any person, who is or was entrusted with the
organisation or management of the society or who is or has at any time
been an officer or employee of the society, has made any payment contrary
to the Act and Rules, or has caused any loss or damage to the assets of the
society by breach of trust, willful negligence, mismanagement or
misappropriation or fraudulently retained any money or other property
belonging to such society or has destroyed or caused destruction of the
records of the society, he can proceed to the next stage. All that is required
at this stage is that fact giving rise to the charge has been disclosed in the
course of audit under Section 63, inquiry under Section 65, inspection under
section 66 or winding up of society and the Registrar is satisfied that he
needs to proceed further as per the statute (See A.K. Francis v Joint
Registrar4.
10. The Registrar may thereafter on his own motion or on the
application of the committee, liquidator or any creditor inquire into the
matter himself or may authorise a person by an order in writing to conduct
an inquiry into the conduct of such persons. This is the next stage of the
proceeding. No opportunity for hearing is contemplated before passing an
order for enquiry (See Santhosh V v Assistant registrar Co Operative
Societies and others5.
11. The provisions however contemplate a further opportunity of
being heard before any action could be initiated under the said provision. As
held in Aravindakshan (supra), whenever action is contemplated based on
inspection report, whether it is the supersession of the management of the
society under S.32 or whether it is a surcharge on the officers or employees
concerned under S.68(2), separate opportunity of hearing specifically
4 [1990 (2) KLT 470]
5 [2014 (4) KLJ 397]
contemplated under the relevant sections has to be necessarily afforded. In
the instant case, since the action proposed against the respondents is based
on surcharge under S.68(2), the Registrar will be competent to pass an
order surcharging a person only after giving the person concerned an
opportunity of being heard. This provision provides effective opportunity to
file objections and hearing, and if required, to adduce evidence by the
persons concerned. The fact that action under S.68(2) is initiated against the
petitioner based on the inspection report does not mean that the Registrar
cannot give it up on being satisfied that no case is made out by him in the
notice based on the report. In other words, in the course of adjudication
under S.68, it is upto the Registrar to accept the contention of the aggrieved
persons and turn down or reject the findings in the inspection report. It is to
be noted that the opportunity referred to in S.68(2) is specifically mentioned
in R.66(7)(ii) of the Rules, which is a repetition of the opportunity referred to
in S.68(2) of the Act.
12. Now the question is whether any interference is warranted. It is
by now settled that when notice is issued under a statutory provision, the
Courts should be reluctant to interfere with the notice at that stage unless
the notice is shown to have been issued without jurisdiction or palpably
without any authority of law. No such circumstances are brought out in this
case. Furthermore, when the provisions of the statute entitles the party with
an opportunity to put forth his contentions before the authorities, this Court
would not be justified in interfering with the same under writ jurisdiction.
(See Union of India v. Vicco Laboratories6; Siemens Ltd. v. State of
Maharashtra7. In that view of the matter, I am of the considered opinion
that the petitioner has not made out a case for interference in exercise of
the extraordinary jurisdiction under Article 226 of the Constitution of India.
13. However, I find that the petitioner has a contention that the
initiation of proceedings by the Registrar is actuated by mala fides and that
the valid contentions raised by the petitioner will not be considered during
the section 68 (2) proceedings. It would be felicitous for the Registrar to
remember that the special statutory remedy of surcharge is invoked only if
the conditions prescribed by S.68 are strictly complied with. A person can be
proceeded against, and vested with liability, only if an objective assessment
of the evidence and the materials available on record leads to the irresistible
inference that the person concerned is guilty of one or other of the acts
specified in the section. A mere routine, mechanical chanting of the section
or of the acts mentioned, without anything more, is not sufficient in law to
sustain an order of surcharge. It should be based on relevant and adequate
materials on which a court could satisfy itself that the person concerned was
6 [(2007) 13 SCC 270]
7 [(2006) 12 SCC 33]
guilty of breach of trust, wilful negligence, misappropriation or fraud. This
has been held so in A.K. Francis (supra). The Registrar shall also do well to
remember that should he decide to proceed with the inquiry on the strength
of the report, then he shall follow the procedure contemplated under Section
68(2), hear the objections of the petitioner on the merits of the inquiry and
thereafter pass orders as contemplated under Section 68(2) of the Act. The
petitioner may at that stage raise all their objections including the objections
that they have raised with respect to non-compliance of Rules.
While dismissing the writ petition, I direct the respondents to conclude
the proceedings within a period of two months from the date of receipt of a
copy of this judgment.
Sd/-
RAJA VIJAYARAGHAVAN V
JUDGE
PS
APPENDIX
PETITIONER'S EXHIBITS:
EXHIBIT-P1 TRUE COPY OF THE ORDER DATED 04/01/2016
ISSUED BY THE 2ND RESPONDENT
EXHIBIT-P2 TRUE COPY OF THE ENQUIRY REPORT DATED
03/03/2017
EXHIBIT-P3 TRUE COPY OF THE APPEAL DATED 16/06/2017
EXHIBIT-P4 TRUE COPY OF THE ORDER DATED 30/03/2017
OF THE 2ND RESPONDENT
EXHIBIT-P5 TRUE COPY OF THE ORDER DATED 28/06/2017
EXHIBIT-P6 TRUE COPY OF THE ORDER DATED 18/07/2017
IN W.P(C) 23606/2017
EXHIBIT-P7 TRUE COPY OF THE COMMUNICATION DATED
12/10/2017 OF THE 1ST RESPONDENT
EXHIBIT-P8 TRUE COPY OF THE ORDER GRANTING
PERMISSION FOR SALE OF PROPERTY DATED
07/02/2015 OF THE 2ND RESPONDENT
EXHIBIT-P9 TRUE COPY OF THE NOC GRANTED BY THE
POLLUTION CONTROL BOARD DATED 29/01/2010
EXHIBIT-P10 TRUE COPY OF THE ORDER G.O(MS)
214/2018/CO-OP DATED 31/03/2018
EXHIBIT-P11 TRUE COPY OF THE NOTICE OF HEARING DATED
20/04/2018
RESPONDENTS EXHIBITS:NIL
//TRUE COPY//
P.S TO JUDGE
