Kerala High Court
N.J Rajan vs Joint Registrar Of Cooperative ... on 7 January, 2025
Author: N.Nagaresh
Bench: N.Nagaresh
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IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR.JUSTICE N.NAGARESH
TUESDAY, THE 7TH DAY OF JANUARY 2025 / 17TH POUSHA, 1946
WP(C) NO. 36208 OF 2024
PETITIONER:
N.J RAJAN
AGED 61 YEARS
(FORMER PRESIDENT,
URUKUNNU SERVICE CO-OPERATIVE BANK LTD. NO. Q190,
URUKUNNU), NELLIVILA PUTHEN VEEDU, URUKUNNU P.O,
KOLLAM, PIN - 691307
BY ADV P.C.SASIDHARAN
RESPONDENTS:
1 JOINT REGISTRAR OF COOPERATIVE SOCIETIES (GENERAL),
OFFICE OF THE JOINT REGISTRAR OF CO-OPERATIVE SOCIETIES,
KOLLAM, PIN - 691001
2 DIRECTOR OF AUDIT
OFFICE OF DIRECTORATE COOPERATIVE AUDIT,
THIRUVANANTHAPURAM, PIN - 695001
3 JOINT DIRECTOR
CO-OPERATIVE AUDIT,
OFFICE OF THE JOINT DIRECTOR OF AUDIT,
KOLLAM, PIN - 691001
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W.P.(C) No.36208/2024
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4 RAJESH S
SENIOR CO-OPERATIVE INSPECTOR,
OFFICE OF THE COOPERATIVE ASSISTANT REGISTRAR,
PUNALOOR, PIN - 691305
BY SMT.SHEEJA C.S., SENIOR GOVERNMENT PLEADER
THIS WRIT PETITION (CIVIL) HAVING COME UP FOR
ADMISSION ON 23.10.2024 AND THE COURT ON 07.01.2025
DELIVERED THE FOLLOWING:
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W.P.(C) No.36208/2024
:3:
N. NAGARESH, J.
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W.P.(C) No.36208 of 2024
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Dated this the 7th day of January, 2025
JUDGMENT
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The petitioner was the former Director and
President of the Urukkunnu Service Co-operative Bank from
December, 2016 to December, 2021. The petitioner is
aggrieved by Section 68(1) proceedings under the Kerala
Co-operative Societies Act, 1969 now initiated against him.
2. The petitioner states that his tenure as Director
and President of the Board of Directors went through
multiple challenges like Demonetization, Kerala Floods and
Covid-19 pandemic. The Government declared moratorium
on recovery of loans advanced by the Bank. In view of the
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One Time Settlement Scheme introduced by the
Government, the Managing Committee of the Bank took a
decision on 23.09.2020 to permit maximum interest waiver
to MDS Chitty subscribers, who are in default. Pursuant
thereto, 165 cases were settled and the Bank could collect
₹1,09,12,750/-. The petitioner demitted office in the year
2021.
3. Subsequently, an Audit was conducted. In the
Audit Report, a Note was made on waiver of interest and a
Special Report was also filed. An amount of ₹55,500/- was
found to be recoverable from the Secretary of the Bank. In
the Special Audit Report, it was noted that grant of interest
waiver to MDS subscribers was not in order as there was no
special provision to do so. The petitioner states that One
Time Settlement Scheme introduced by the Registrar and
the moratorium declared by the Government had provisions
for interest waiver at large. The petitioner therefore
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preferred Ext.P4 representation requesting the Director of
Audit to have a re-examination of the issue.
4. The petitioner states that under Section 64 of the
Kerala Co-operative Societies Act, 1969, during an audit, if
defects are disclosed, those should be brought to the notice
of the Society. If defects are serious, the Director shall
communicate the defects to the Registrar. The Director of
Audit shall direct the Society to take such action as may be
specified in the order to rectify the defects disclosed. The
Director did not respond to Ext.P4. However, the Joint
Director of Audit as per Ext.P5 informed that an amount of
₹53,30,184/- has been objected to in the Audit since waiver
of interest is not specifically provided for in the One Time
Settlement Scheme. It was also ordered that the loss be
recovered from the Secretary.
5. However, on 10.07.2024 the Assistant Registrar
sent Ext.P6 letter to the Joint Registrar recommending
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action under Section 68(1) of the Act. The Joint Registrar
issued Ext.P7 ordering Section 68(1) proceedings.
6. The petitioner states that the Joint Registrar has
not considered whether any grounds were made out for
initiating proceeding under Section 68(1). The facts of the
case do not justify Section 68(1) proceedings. The
Managing Committee decided to extend the benefit of One
Time Settlement to the long pending MDS. The resolution
was taken, considering the peculiar situation existing,
including Demonetisation, Floods and Covid-19 pandemic,
etc. The decision was taken to collect arrears from the
defaulters and in the better interest of the Society.
7. The petitioner further urged that respondents
were not justified in ordering Section 68(1) proceedings on
the basis of an Audit Report without giving opportunity to the
Society to cure the defects, if any. In fact, a request has
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been made to the Director of Co-operative Audit to waive
the audit objection, no decision has been taken thereon.
8. Relying on the judgment in Musthaffa T. H. and
others v. State of Kerala and others [2021 (5) KLT 165],
the petitioner argued that the first condition to initiate the
proceedings is that the employee or the other person has to
make payment contrary to the Act and Rules or Bye-laws.
The second condition is that such person should cause any
loss or damage in the assets of the Society by breach of
trust or willful negligence or mismanagement. Therefore,
loss or damage in the assets of the Society coupled with a
breach of trust or willful negligence or mismanagement by a
person who is or was interested with the organisation or
management of the Society, is necessary to attract the
proceeding under Section 68 of the Kerala Co-operative
Societies Act. Ext.P7 does not satisfy the conditions laid
down by this Court in the judgment in Musthaffa (Supra).
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Ext.P7 is therefore liable to be quashed, urged the
petitioner.
9. I have heard the learned counsel for the
petitioner and the learned Senior Government Pleader
representing respondents 1 to 3.
10. The petitioner was the President of the Director
Board of the Urukunnu Service Co-operative Bank from
December, 2016 to December, 2021. According to the
petitioner, the Bank went through challenges like
Demonetisation, Kerala Floods, Covid-19 pandemic, etc.
Following this, moratorium was declared by the Government
against recovery and a One Time Settlement Scheme was
floated by the Registrar of Co-operative Societies for
settlement of loan accounts. The Managing Committee of
the Bank decided to settle the MDS Chitty accounts granting
maximum interest waiver under OTS Scheme. The
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petitioner submits that 165 MDS recovery were settled and
₹1,09,12,750/- could be recovered by the Society.
11. After the petitioner demitting office in December,
2021, an Audit was conducted for the years 2018-2019,
2019-2020 and 2020-2021. The Audit Report contained a
note on waiver of interest. A special Audit Report was also
submitted, which found that the grant of interest waiver in
relation to MDS was not in order. The petitioner submitted
Ext.P4 representation to the Director of Audit and requested
to re-examine the issue. According to the petitioner, the said
request is still pending.
12. The argument of the petitioner is that in view of
the provisions contained in Section 64 of the Kerala Co-
operative Societies Act, 1969, the Director of Co-operative
Audit ought to have brought to the notice of the Society, the
defects found and ought to have given time to the Society to
clear the defects. That was not done. The further contention
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of the petitioner is that the Joint Registrar has not applied
his mind independently, did not assess the necessity to
have surcharge proceedings and has acted only on the
basis of a letter issued by the Assistant Registrar. The Joint
Registrar ought to have found that no loss or damage has
been caused to the assets of the Society by breach of trust
or wilful negligence or mismanagement by the Managing
Committee. On the other hand, the Society has been
benefitted by the action taken by the petitioner and the
Managing Committee. Ext.P7 order directing Section 68
proceeding, is therefore liable to be quashed.
13. Ext.P7 order is one directing Section 68(1)
proceedings to recover the loss caused to the Bank due to
the action of the Managing Committee in granting interest
waiver to MDS subscribers of the Bank. The contention of
the petitioner is that the orders, instructions and schemes
issued by the Government and the Registrar of Co-operative
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Societies did not specifically prohibit grant of interest waiver
benefit to the MDS subscribers.
14. If that be so, the petitioner will indeed get an
opportunity under Section 68(1) proceedings to put forward
his contentions before the authority. Whether the interest
waiver permitted by the Government / Registrar is
applicable to MDS Chitties and whether the Bank has
suffered any loss due to the interest waiver or whether the
Bank is benefitted by the action of the Director Board, and
even if the waiver was not applicable to MDS subscriptions,
whether the petitioner and other members of the Director
Board are to be surcharged for grant of interest waiver to
MDS subscribers as is admissible to other loans / advances
are matters that can be decided in Section 68(1)
proceedings.
15. In the judgment in W.P.(C) No. 41566 of 2023,
this Court held that in the absence of determination of
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individual liability, Section 68(1) proceedings are
unsustainable. However, the facts involved in the said case
will not be applicable to the situation in this writ petition.
W.P.(C) No.41566 of 2023 was a case of proceedings
arising from Section 66 inspection. The surcharge
proceedings in the present writ petition is on the basis of an
Audit Report. Even the petitioner does not dispute that
interest waiver which is in question in this writ petition, was
granted to the MDS subscribers on the basis of a decision
taken by the Managing Committee of which the petitioner
was the President.
16. The argument of the petitioner based on Section
64(9) is also unsustainable because the Director of Co-
operative Audit can, in the case of serious defects,
communicate the matter to the Registrar for further action.
Section 64 cannot be taken to mean that in every issue
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detected by the audit team, the Society should be given
opportunity to cure defects.
For all the afore reasons, I find that the writ
petition is without any merit. The writ petition is hence
dismissed.
Sd/-
N. NAGARESH, JUDGE
aks/06.01.2025
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APPENDIX OF WP(C) 36208/2024
PETITIONER'S EXHIBITS
Exhibit P1 A TRUE COPY OF THE RELEVANT PAGE OF
THE MINUTES BOOK HAVING DECISION NO.
2205 DATED 23.09.2020
Exhibit P2 A TRUE COPY OF THE PART A OF THE
XVIII SUMMARY OF DEFECTS
Exhibit P3 A TRUE COPY OF THE SPECIAL AUDIT
REPORT
Exhibit P4 A TRUE COPY OF THE REPRESENTATION
MADE BY THE PETITIONER TO THE
DIRECTOR OF AUDIT HAVING NO. 384/21-
22 DATED 11.10.2021
Exhibit P5 A TRUE COPY OF THE COMMUNICATION NO.
JDAKLM/367/2021-M DATED 11.08.2022
FROM THE JOINT DIRECTOR OF AUDIT
Exhibit P6 A TRUE COPY OF THE LETTER NO. 8-2024
DATED 10.07.2024, ISSUED BY THE
ASSISTANT REGISTRAR
Exhibit P7 A TRUE COPY ORDER NO.
JRGKLM/4345/2023-CRP DATED 27-08-2024
OF THE JOINT REGISTRAR
Exhibit P8 A TRUE COPY OF THE LETTER DATED
30.09.2024 BY PETITIONER TO THE JOINT
REGISTRAR
