Smt. T. Vijayalaxmi, Hyd vs Deputy Registrar / Divisional Coop. ...
2023 Latest Caselaw 4290 Tel

Telangana High Court

Smt. T. Vijayalaxmi, Hyd vs Deputy Registrar / Divisional Coop. ... on 12 December, 2023

          * HON'BLE SRI JUSTICE C.V. BHASKAR REDDY

                 + WRIT PETITION No.5791 of 2011

% Date: 12.12.2023

Between:

Smt. T. Vijayalaxmi.                                  ... Petitioner
                                AND

Deputy Registrar / Divisional Coop. Officer,
Golconda Division, Hyderabad
and another.
                                                     ... Respondents

! Counsel for the Petitioner      : Sri S. Nageshwar Reddy
                                    learned counsel representing
                                    Sri T. Bala Mohan Reddy

^ Counsel for the Respondents: Govt. Pleader for Cooperation


> HEAD NOTE:

? Cases referred

   1) 1992 (3) ALT 50
   2) 1994 (2) ALT 39
   3) 1998(1) ALD 455 (DB)
   4) AIR 2000 SC 3243
   5) (2001) 10 SCC 191
   6) (2005) 3 SCC 422
   7) (2011) 14 SCC 770
   8) (2006) 7 SCC 592
   9) (2009) 9 SCC 466
   10) (2011) 1 SCC 109
                                           2


     THE HONOURABLE SRI JUSTICE C.V. BHASKAR REDDY

                    WRIT PETITION No.5791 of 2011

ORDER:

This Writ Petition, under Article 226 of the Constitution of

India, is filed by the petitioner, seeking the following relief:

"....to issue direction or order or writ more so in the nature of Writ of Certiorari calling for the records on the file of Hon'ble Cooperative Tribunal in CTA 56 of 2008 dated 30.09.2010, is illegal, bad, erroneous and against to the probabilities of evidence and passed order without application of mind and without following guidelines and due procedure and needs to be quashed and the impugned order is violative of principles of Natural Justice apart from violative of Articles 14, 21 of Constitution of India and violative of provisions of the A.P Co operative Societies Act, 1964 and quash the same...."

2. The brief facts that are necessary for disposal of the writ

petition are as under:

i) The respondent No.2-Vijaya Cooperative Urban Bank (W)

Limited, Road No.1, Banjara Hills, Hyderabad, was registered on

30.03.1997 with registration No.TA 1421 with initial membership of

2037 members and paid up share capital of Rs.20 lakhs. The bank

was exclusively organized to cater the financial needs of the women.

It started functioning with effect from 14.10.1997. During the course

of inspection under Section 35 of the Banking Regulation Act, 1949,

as to the working of the Bank, the Reserve Bank of India (Urban

Banks Dept), Hyderabad, observed serious financial irregularities and

also noticed serious lapses on the part of the Chartered Accountants

(who conducted statutory audit of the Bank), in grading the Bank "A"

by completely ignoring the weak status of the bank and requested to

conduct an inquiry under Section 51 of the Andhra Pradesh Co-

operative Societies Act, 1964 (for short "the Act") with special

emphasis on questionable transactions, alienation of securities,

defects in statutory audit and violation of various provisions of the

Act, as pointed out in their Inspection report vide R.B.I. Lr.No.UPD.

(H), No.705/15.36.01/2002-03, dated 21-08-2002. In pursuance of

the same, the Commissioner for Cooperation and Registrar of

Cooperative Societies vide Memo No.5551/2001/CB-1, dated 29-08-

2002 advised the Joint Registrar(J.R)/District Cooperative

Officer(DCO), to order statutory inquiry into the affairs of Bank.

Thereupon the J.R/DCO, Hyderabad (Urban), vide his proceedings in

RC.No.83/01-UB dated 07-09-2002 ordered an inquiry into the

affairs of the bank. The District Cooperative Audit Officer, Hyderabad

(Urban) was authorized to conduct inquiry under Section 51 of the

Act. The Inquiry Officer conducted the inquiry and submitted his

report stating that as against the total deposit of Rs.5,75,57,756-00,

an amount of Rs.3,62,21,041-00 is payable to the Cooperative Urban

Banks and Employees Cooperative Credit Societies and remaining

amount of Rs.2,13,36,715/- is payable to the individual depositors

besides interest and other liability; that an amount of

Rs.1,14,31,136/- was deposited in the First City Cooperative Urban

Bank, Jawahar Cooperative Bank, which was under liquidation and

there is least possibility for realization of those amounts. On the

basis of the findings in the inquiry report, the Divisional Cooperative

Officer, Golconda Division, Hyderabad, issued show cause notice to

the petitioner, Ex-Chairperson of the Bank and Ex-Board of Directors

of the Bank on 23.03.2004. The petitioner herein, who is Ex-

Chairperson of the Bank, Krishna Kumari and Smt.L.Mithili, who are

Ex-directors of the Bank, have submitted their explanations but the

other Ex-directors have not submitted their reply to the show cause

notice. The respondent No.1 passed surcharge order dated

07.06.2004 against the petitioner for payment of Rs.5,83,06,592.00.

Aggrieved by the said surcharge order, the petitioner filed an appeal

vide CTA No.121 of 2004 on the file of A.P. Cooperative Tribunal, at

Hyderabad, contending that no opportunity was given to her to

adduce oral and documentary evidence and surcharge order passed

is in gross violation of principles of natural justice. The point for

consideration before the Tribunal was, "whether the surcharge order

dated 07.06.2004 suffers from any illegalities or infirmities and liable

to set aside". No oral or documentary evidence was adduced by the

petitioner in the said C.T.A. Before the Tribunal, the learned counsel

for the petitioner contended that the petitioner was not given proper

opportunity to peruse the record and depose before the inquiry officer

for the inquiry under Section 51 of the Act. The records were with the

respondent No.1 and the petitioner was not given proper opportunity

to peruse the record and consequently the petitioner was prejudiced

on account of depriving her to peruse the records and depose before

the inquiry officer. It was further contended that the show cause

notice dated 23.03.2004 issued under Section 60 of the Act to the

petitioner indicates that she was liable to pay an amount of

Rs.1,13,13,870/- to the bank and she was asked to submit her

explanation within 10 days from the date of receipt of show cause

notice. The petitioner submitted her explanation on 19-05-2004

expressing her inability to give para wise reply to show cause notice

as she had not perused records, which were in the custody of the

Bank. It was further contended before the Tribunal that entire

proceedings does not indicate that the petitioner had misappropriated

any funds of the bank or there was mismanagement on her part.

Further, no notice was issued to other directors of the bank, who are

part of the alleged mismanagement of the Bank. Therefore, non-

joinder of necessary parties to the inquiry is fatal to the case and

inquiry proceedings initiated under Section 51 of the Act and findings

recorded in the inquiry report, are illegal and perverse. It was further

contended that since no independent inquiry conducted fixing

liability on the petitioner, the surcharge order was not only infraction

of statutory provisions but also violation of principles of natural

justice. In support of his contentions, the petitioner relied upon the

following decisions:

i) S. Ramadas vs. The Subordinate Judge and others 1

ii) Sameeta Rama Subba Rao vs. President, Kalkaluru Irrigation and Power Department Sub-Divisional Employees Coop. Credit Society Limited 2

iii) Challa Sanyasi Naidu vs. Deputy Registrar of Cooperative Society, Srikakulam 3

ii) The learned counsel for the respondents before the Tribunal

argued that inquiry under Section 51 of the Act was conducted

basing on the records of the bank and the respondent No.1 issued

show cause notice to the petitioner on the basis of inquiry report and

asked her to submit her explanation within 10 days. The petitioner

through her counsel approached the bank several times and perused

the records including the inquiry report. The contention of the

petitioner that she was not given an opportunity to cross-examine the

inquiry officer is devoid of merits and there is absolutely no necessity

to cross-examine the inquiry officer who submitted his report under

Section 51 of the Act, which is based on documentary evidence. The

respondent No.1 after giving ample opportunity and making available

1992 (3) ALT 50

1994 (2) ALT 39

1998(1) ALD 455 (DB)

all relevant records to the petitioner, passed the surcharge order and

there are no grounds to interfere with the same and prayed to

dismiss the appeal.

iii) The Tribunal has examined the inquiry report and the

surcharge order. The Tribunal in Para 14 of its judgment dated

26.04.2006 observed that "the enquiry report indicates that the

enquiry officer had recommended for liquidation of the bank. In

respect of the bank loss caused to a tune of Rs.4,79,92,722/-. He has

recommended to take action against the petitioner herein under Section

60 of the Act for Rs.1,13,13,870/- only". In Para 15 and 16, the

Tribunal observed as follows:

"15. It is further mentioned in the surcharge notice (show cause notice) by the 1st respondent to the following effect.

Whereas the Inquiry Officer made the Ex-Chairman of the bank directly responsible for the loss sustained by the bank in respect of the following items and stated that she is liable for action U/s. 60 of the APCS Act 7 of 1964 for realization of the amount as detailed below.

1. Due to entering into the MOU with Smt. D. Sukrutha Reddy regarding settlement of the due of World Wide Pharma without deciding the security for balance amount to the extent of Rs. 74,34,614-00

2. Sanction of loans to Smt.T.Maniyamma Smt. D. Susheela and Smt. Jayalaxmi without documentation and securities.

Rs.17,34,833-00

3. Waiver of interest to six institutions sanctioning the loans against the guidelines of RBI. As per the bye-laws the Managing Committee and General Body is competent to fix rate of interest whereas the Chairperson has reduced the rate of interest and caused loss to the Bank to the extent of Rs.18,67,771-00

4. Car and Scooter hire charges paid to Chief Advisor without Voucher.

Rs. 2,37,400-00

5. Tour expense outside the State Rs. 39,252-00 Total: Rs.1,13,13,870-00

16. In the show cause notice also, it is clearly mentioned that the appellant is liable for action U/s. 60 of the Act for an amount of Rs.1,13,13,870/-.

17. In the explanation dated 8-5-04 submitted by the appellant to the 1st respondent for the show cause notice, she has clearly mentioned that the Inquiry Officer has not heard the institutions to whom the interest was said to have been waived. The appellant has categorically asserted in her explanation that due procedure was followed while sanctioning the loan and the loans were sanctioned after proper documentation......"

iv) The Tribunal further observed that the petitioner and other Ex-

Board of Directors specifically requested the Inquiry Officer to allow

them to verify the records to enable them to prove their innocence

and to that extent, the petitioner herein has submitted

representations dated 06.04.2004 requesting to furnish all the

relevant documents so as to submit proper explanation. The

respondent No.1 through letter dated 05.05.2004 addressed to the

respondent No.2 bank had requested the liquidator of the bank to

make available the required material to the petitioner herein for

perusal under his supervision. The representation dated 21.05.2004

submitted by the petitioner herein to the respondent No.1 indicates

that inspite of repeated requests and follow up action with concerned

authority, the inquiry report has not been furnished. Further, the

record also does not disclose that the Inquiry Report was furnished to

the petitioner. The Tribunal after verification of the relevant records

as well as surcharge notice and order of the respondent No.1 had

referred the deposits to the tune of Rs.5,75,57,756-15 and out of the

said amount, Rs.3,62,21,041-00 is payable to the Cooperative Urban

Banks and Employees Cooperative Credit Societies and the remaining

amount of Rs.2,13,36,750/- is payable to the individual depositors,

besides the interest and other liability and an amount of

Rs.1,14,41,136-00 has been deposited in the First City Cooperative

Urban Bank and Jawahar Cooperative Bank. Both the banks are

under liquidation and there is least possibility of realization of those

amounts. The 1st respondent has not given any finding in respect of

those amounts. The Tribunal in Paras 24, 25, 26, 27 and 28 of its

judgment dated 26.04.2006, observed as follows:

24. The 1st respondent at page 2 of the surcharge order observed as follows:

"whereas the inquiry officer has pointed out 11 cases persons and institutions to whom loans were sanctioned are without proper securities and sureties 'worth amount of Rs.4,79,92,722-00 and also fixed responsibility of Rs.1,13,13,870/- on loans sanctioned irregularly, waiver of interest without any authority, reason and against RBI guidelines of Car and Scooter hire/charges to chief advisor who is the husband of the Chair person without voucher and tour expenses outside the state. On the above points the Ex- Chairperson has replied which is not convincing and held responsible for the recovery of losses to an extent of Rs.1,13,13,870/-".

To understand this part of the surcharge order one has necessarily verify either inquiry, report of the surcharge notice. The 1st respondent has no patience to mention the names of the persons or institutions to whom the loan's were sanctioned without proper securities or sureties as alleged in the surcharge notice. When responsibility is fixed on the appellant to a tune of Rs.1,13,13,870/- it is the minimum duty, of the

1st respondent to clearly mention the names of the persons to whom the amounts were lent without proper securities and sureties. The said finding of the 1st respondent is very vague and ambiguous.

25. The 1st respondent has not at all followed the procedure akin to the Civil Court inquiry as held by the Hon'ble High Court of A.P. in the following three pronouncements.

26. In S. Ramadas Vs. The Subordinate Judge, (Cooperative Tribunal), Kothagudem and others (1992 (3) ALT 50) the Hon'ble High Court of A.P. held:

The inquiry under Section 51 of the Act is only an administrative inquiry for the satisfaction of the Registrar as to whether under Section 60 surcharge proceedings have to be initiated or not. Once the proceedings under Section 60 of the Act are initiated, the inquiry thereof should be akin to Civil Court inquiry as the Civil Court's jurisdiction is barred expressly in view of Section 121 of the Act. As no independent inquiry has been conducted by the second respondent herein to pass a decree for realization of the amount, the said order is not only an infraction of the statutory provisions, but also violative of the principles of natural justice."

27. "In Sammeta Rama Subba Rao Vs. President, Kaikaluru Irrigation and Power Department Sub-Divisional Employees Coop. Credit Society Limited, (1994 (2) ALT 39), the Hon'ble High Court of A.P, held:

"It is pertinent to mention that surcharge order fastening liability on any person including that of the petitioner in such a fashion has got the effect of depriving the right to property which was hitherto a fundamental right guaranteed under Art. 31 of the Constitution of India, now transformed into a constitutional guarantee under Art.300-A by which no person can be deprived of his property save by authority of law. The authority of law being in the instant case the statutory provision contained under Section 60(1) of the Act, the rules of fair-play have got to be followed."

28. In Challa Sanyasi Naidu Vs. Deputy Registrar of Cooperative Society, Srikakulam 1998(1) ALD 455 (DB), a Division Bench of Hon'ble High Court of A.P followed the ratio laid down in S. Ramadas case 1992 (3) ALT 50 and Sammeta Rama Subba Rao case 1994 (2) ALT 39 and held:

"Section 60 clearly contemplates an opportunity being given to the delinquent by making a representation. In our view, this is the proper occasion where the officer or the servant has to be given an opportunity of explaining his stand and allow him to participate in the inquiry before a final order is passed. This is a valuable right given to the delinquent which cannot be brushed aside in a routine manner. After the show-cause- notice is served and an explanation is called for, an

opportunity should be given to the affected person to cross- examine the witnesses examined in the course of inquiry u/s 52 or permit him to examine his witnesses to rebut their evidence. Until this is done the spirit of making a representation, as contemplated u/s 60, cannot be fulfilled. Although Section 60 does not prescribe any particular procedure before passing surcharge order, nonetheless, it is mandatory that principles of natural justice shall be followed in the inquiry. Evidence recorded behind the back of the defaulter cannot be relied upon to fasten the liability on him without giving him an opportunity to cross-examine the witnesses. The Registrar in his surcharge proceedings is a Court whose order can very well form the subject-matter of judicial review under Article 226 of the Constitution of India. Therefore, it is in the fitness of things that an opportunity like supply of copy of inquiry report, statements of witnesses recorded during the said inquiry, and also an opportunity to cross-examine those witnesses, or permit him to examine his own witnesses by the delinquent by way of rebuttal should be allowed before an order U/s. 60 of the Act is passed.

v) The Tribunal considering the above referred judgments and

also the material on record, vide judgment dated 26.04.2006 has

allowed the appeal by setting aside the surcharge order passed by the

respondent No.1 in R.C.No.3315/2004-E dated 07.06.2004 on the

following reasons and remanded the matter to the surcharge

authority to pass a fresh reasoned surcharge order within 5 months

from the date of its judgment:

"(I). The Inquiry Officer, has not given any finding in his report U/s 51 of the Act that the loans given to the 11 Institutions or Individuals to the extent of Rs.4,79,92,722/- which are not having proper securities or sureties, is the sole responsibility of the appellant. The inquiry report has pointed that it is the sole responsibility of the appellant in respect of the amount of Rs.1,13,13,870/- and he recommended for action U/s. 60 of the Act against the appellant for the said amount.

(II) In the show cause notice also it is not mentioned that the appellant is solely responsible for advancing the loans to 11 institutions/ Individuals to a tune of Rs.4,79,92,722/-, without proper securities and sureties. In the show cause notice it is clearly mentioned that the inquiry officer has made the appellant directly responsible for the loss sustained by the bank In respect of the amount of Rs.1,13,13,870/-.

(III). The Inquiry Report as well as surcharge notice give an impression that the management of the Bank is responsible for lending the loans to 11 Institutions/persons to a tune of Rs.4,79,92,722/- without proper securities and sureties. They also give an Impression that the appellant is solely responsible for the loss of Rs.1,13,13,870/-.

(IV). The 1st respondent was appointed as Special Officer U/s 34 of the Act to manage the affairs, of the bank by superseding the Managing Committee. He was the Special Officer of the bank during the inquiry U/s 51 of the Act and he was having personal knowledge about this case. The 1st respondent cannot sit in judgment over the matter in which he is having personal knowledge. The possibility of bias and prejudice cannot be ruled out and as such the 1st respondent grossly violated the principles of natural justice.

(V). The appellant was not furnished with the inquiry report along with the show cause notice for submitting an explanation to show cause notice. She was not given ample opportunity to go through the records and formulate her defence. On 21-05-04 the 1st respondent received a representation that she was not furnished with the inquiry report and other records till 18-05- 2004, the 1st respondent has not considered her request and hastily passed the Impugned surcharge order on 07-

06-2004. There is absolutely no record to show that the 1st respondent has given ample opportunity to the appellant to put forth her defence. The 1st respondent has not maintained either docket sheet or note file to show that he had given ample opportunity to the appellant. Since huge amount had been involved, the 1st respondent in fitness of things should have given ample opportunity to the appellant. He has not at all examined any witnesses connected with the transactions concerned. Mere observation of the 1st respondent that on perusal of the records and documents of the bank he felt that Ex-Chairperson of the bank has dominated the affairs of the bank and she is directly responsible, as also opined by the inquiry officer is not an answer that the 1st respondent has followed the due procedure akin to Civil Court inquiry as held by the Hon'ble High Court of A.P in the above mentioned three cases. The Inquiry Officer has not at all passed any reasoned order. The order passed by the 1st respondent is not based on any oral and documentary evidence. He has solely depended on the inquiry report and came to an abrupt conclusion that the appellant is liable to pay Rs.5,83,06,592/- with Interest at 18% pa. till the date of recovery."

vi) The respondent No.1 after receipt of the records from the

Tribunal has issued notice dated 17.08.2006 to the petitioner, Ex-

Chairperson and liquidator of the bank i.e, respondent No.2 herein to

appear with relevant documents in support of their contentions. In

the meanwhile, challenging the judgment dated 26.04.2006 passed in

CTA No.121/2004 by the A.P Cooperative Tribunal, Hyderabad, the

liquidator of the bank filed Writ Petition No.16823 of 2006 on the file

of this Court. In the said Writ Petition, this Court vide order dated

25.08.2006 directed the respondent No.1 not to create any

encumbrances against the property which was held by the petitioner

herein as on that date, during the pendency of the writ petition and

finally, the said Writ Petition was dismissed on 21.02.2007. After

dismissal of the Writ Petition, the respondent No.1 herein has again

issued notice to the petitioner herein and Liquidator of the Bank and

initiated surcharge proceedings afresh. On receipt of the notice, the

petitioner filed an application on 28.09.2006 to summon the official

Liquidator of the Bank and inquiry officer for examination and also

filed another application to direct the Liquidator of the bank to

produce all the relevant documents in relation to loans sanctioned to

i) Worldwide Pharma ii) K.V.Subbaiah and Group iii) Smt.Maniyamma

iv) Latha Enterprises v) Raju Gupotha vi) Sudhamani, vii) Smt. Anand

Bai viii) Smt.K.V.Ramanamma ix) Smt.Razia Sultana x) Sri K.V.

Ramana & Group, and xi) Smt.Leena Lath Enterprises. The

Liquidator filed counter and opposed the application. The Liquidator

filed his chief examination and also produced the documents and the

same were marked as Exs.A.1 to A.21 and according to the bank, still

an amount of Rs.4,79,92,722/- has to be recovered from the

petitioner herein. The counsel for the petitioner cross-examined the

official liquidator. Thereafter, the petitioner herein has filed another

application to summon the inquiry officer and the said application

was allowed and the inquiry officer appeared before the respondent

No.1 on 14.09.2007 and he was cross-examined by the counsel for

the petitioner. According to the inquiry report and the contention of

the bank, the petitioner is solely responsible for the loss sustained by

the bank to the tune of Rs.4,79,92,772/- and said amount has to be

recovered from her. It is further contention of the Bank that

petitioner attested all the resolutions of the General Body and no

member signed the minutes. Further, as per By-laws of the Bank, the

Board of Directors are competent to consider applications for

sanction of loans and advances and discounting of Bills and

determine the terms and conditions but the petitioner only attested

all the resolutions of the General body meetings and no other

member signed and there is no evidence in support of issuance of

General Body notice by distributing pamphlets. The respondent No.1

after referring various documents and the material on record, by

virtue of powers vested in him under Section 60(1) of APCS Act, 1964,

has passed surcharge order vide proceedings Rc.No.3315/02-D dated

18.01.2008 and held the petitioner is responsible and liable for the

sum of Rs.3,73,63,281/- for causing deficit to the assets of the Bank

and directed the petitioner to pay the said amount with interest @

18% per annum from 01.04.2003 to till the date of recovery.

vii) Questioning the surcharge proceedings in Rc.No.3315/02-D

dated 18.01.2008 passed by the respondent No.1, the petitioner

herein has filed appeal vide C.T.A.No.56/2008 on the file of

Cooperative Tribunal, Hyderabad. Before the Tribunal, the petitioner

contended that the Respondent No.1 passed the surcharge order in

mechanical fashion without application of mind and without following

the guidelines and due procedure. Nowhere in the complaint, the

official liquidator made any allegations against the petitioner with

regard to any willful negligence or fraudulent intention or

misappropriation of any money or property of Respondent No.2 bank.

But even then the Respondent No.1 fastened the liability upon the

petitioner. The inquiry report is barred by limitation. Though the

petitioner filed a memo asking the Respondent No.1 to issue fresh

show cause notice clarifying the surcharge amount but no such

notice was issued and continued the inquiry basing on the earlier

show cause notice. It was further contended by the petitioner that the

Respondent No.1 has aggregated two amounts mentioned in the show

cause notice, illegally. The official liquidator has also admitted in his

cross examination that the property mortgaged for some of the loan

accounts were still with the bank and substantial amounts were

already realized. With regard to the fault on the part of liquidator

regarding some of the loan accounts, responsibility cannot be

fastened on the petitioner. The liquidator in his evidence, denied

availability of the mortgaged documents, which is against the record.

The liquidator has released some of the documents without complete

recovery of the due amounts from the guarantors. The liquidator did

not prepare inventory list of the documents in the custody of the

respondent No.2 bank. The petitioner could not lead evidence about

the material documents as they were available with the bank itself.

On the aforesaid grounds, the petitioner prayed the Tribunal to set

aside the surcharge order and allow the appeal. The point for

consideration before the Tribunal was "whether the surcharge

proceedings passed by the respondent No.1 are illegal and liable to be

set aside". The Tribunal vide its judgment dated 30.09.2010

dismissed the appeal upholding the order dated 18.01.2008 in

surcharge proceedings R.c.No.3315/02-D passed by the respondent

No.1 on the observation that there was willful negligence on the part

of the petitioner being Chairperson in managing the affairs of the

respondent No.2-Bank and that lead to its liquidation and huge

monetary loss.

3. Heard Sri S.Nageshwar Reddy, learned counsel representing

Sri T. Bala Mohan Reddy, learned counsel for the petitioner and

learned Government Pleader for Cooperation for the respondents.

Perused the record.

4. The learned counsel for the petitioner has vehemently

contended that in the impugned judgment dated 30.09.2010 passed

in CTA No.56 of 2008, the Tribunal without discussing the crucial

aspects relating to the validity or otherwise of the inquiry conducted

under Section 51 of the Act or the show cause notice dated

23.03.2004 issued to the petitioner under Section 60(1) of the Act,

vide Rc.No.3315/02-D, wherein the responsibility/liability is fixed

only to the extent of Rs.1,13,13,870/- and without considering the

findings recorded by the Tribunal in CTA No.121/2004, has

erroneously come to conclusion in upholding surcharge proceedings

Rc.No.3315/02-D dated 18.01.2008 issued by the respondent No.1. It

is further contended that the respondent Nos.1 and 2 have not

followed the procedure as prescribed under law. The learned counsel

argued that the inquiry report submitted by the inquiry officer

exercising powers under Section 51 of the Act is not valid as the said

inquiry report was not filed within a period of four months from the

date of appointing inquiry officer and therefore, the inquiry report

itself is illegal and invalid and the same cannot be considered under

any circumstances as the same is opposed to the provisions of the

Act. Further, in the absence of extension of time by the competent

authority/Registrar or approval of the same by the General Body, the

same cannot be relied on while determining the liability on the

petitioner under Section 60 of the Act. The learned counsel further

argued that inquiry initiated against the petitioner is not suo moto

inquiry and basing on the report submitted by the District

Cooperative Officer inquiry was ordered against the petitioner and as

such inquiry must be completed in terms of the procedure and any

deviation to the statutory procedure invalidates the inquiry report

and that would not bind on the petitioner. It is further argued that in

the show cause notice dated 23.03.2004 issued to the petitioner, she

was asked to pay Rs.1,13,13,870/- whereas the respondent No.1 has

passed surcharge order dated 18.01.2008 fixing the liability on the

petitioner to the tune of Rs.3,73,63,281/-, which is contrary to the

amount mentioned in the show cause notice. Therefore, said action

on the part of the respondent No.1 amounts to gross violation of

principles of natural justice. It is further contended that petitioner

alone is not responsible for the affairs of the society, as society being

run by the collective members of the managing committee. The

Inquiry Officer ought to have distributed the liability on every

member/managing director rather than imposing the responsibility/

liability on the petitioner alone. Learned counsel further contended

that after remand, the respondent No.1 has mechanically passed

orders vide Proceedings Rc.No.3315/02-D dated 18.01.2008. The

respondent No.1 failed to consider the findings recorded by the

Tribunal in its judgment dated 26.04.2006 passed in CTA

No.121/2004, which attained finality as the Writ Petition

No.16823/2006 filed by the liquidator of the bank challenging the

said judgment dated 26.04.2006 was dismissed. It is further argued

that while conducting subsequent inquiry, the Inquiry Officer is not

having any power or authority to traverse beyond the scope of the

show cause notice. The learned counsel further argued that both the

respondents have failed to take into consideration that inquiry should

be confined only to the extent of show cause notice and giving

findings or fixing liability/responsibility on the petitioner over and

above show cause is not permissible and therefore, the impugned

judgment dated 30.09.2010 passed in CTA No.56 of 2008 by the

Tribunal confirming the surcharge order dated 18.01.2008 vide

Proceedings Rc.No.3315/02-D passed by the respondent No.1 are

liable to be set aside by allowing the Writ Petition as prayed for.

5. Per contra, learned Government Pleader for Cooperation has

submitted that after following due procedure, inquiry officer

conducted inquiry under Section 51 of the Act, and gave a finding

that the petitioner is personally liable to pay Rs.1,13,13,870/-. Since

the petitioner has discharged her duties as Chairman of the

respondent No.2-bank, she is liable to pay entire amounts as

determined under Section 51 of the Act. It is further contended that

it is not mandatory to seek extension of time or approval of the

managing committee for the inquiry conducted under Section 51 of

the Act. The learned Government Pleader submitted that the scope of

judicial review under Article 226 of the Constitution of India is very

limited and this Court, in exercise of its jurisdiction under Article 226

of the Constitution of India, cannot interfere with the decision of an

authority unless it is found that such a decision is capricious, mala

fide, arbitrary, without jurisdiction or that the decision making

process is flawed. There is no illegality or infirmity in the impugned

judgment dated 18.01.2008 passed by the Tribunal warranting

interference by this Court under Article 226 of the Constitution of

India and ultimately prayed to dismiss the writ petition.

6. According to the petitioner, the inquiry report submitted by the

inquiry officer exercising powers under Section 51 of the Act is not

valid as the said inquiry report was not filed within a period of four

months from the date of appointing inquiry officer. Admittedly,

inquiry into the affairs of the respondent No.2-bank under Section 51

of the Act was initiated in pursuance of the proceedings in

RC.No.83/01-UB dated 07-09-2002 issued by the District

Cooperative Officer, Hyderabad (Urban). As per Section 51 of the Act,

inquiry shall be completed within a period of four months and the

report of inquiry along with the findings of the Registrar thereon shall

be communicated to the managing committee of the society. It shall

be the responsibility of the managing committee to place the inquiry

report before the General Body or Special General Body convened for

the purpose for its information, within a period of one month from

the date of communication of the inquiry report by the Registrar. The

procedure adopted by the respondents herein is contrary to the

procedure prescribed under the Act, and therefore, the same is

vitiated and unsustainable.

7. The next contention of the petitioner is that in the show cause

notice dated 23.03.2004 issued under Section 60 (1) of the Act, to the

petitioner vide Rc.No.3315/02-D, the responsibility/liability of the

petitioner is fixed only to the extent of Rs.1,13,13,870/- but contrary

to the same, in the surcharge order dated 18.01.2008 passed by the

respondent No.1 as well as the impugned judgment dated 30.09.2010

passed in CTA No.56/2008 by the Tribunal, the responsibility/

liability is fixed on the petitioner to the tune of Rs.3,73,63,281/-. It is

well settled law that show cause notice should be confined to the

specific allegations and the explanation submitted therefor and

traversing beyond the scope of show cause notice for the amounts

mentioned therein and fixing liability on the petitioner over and above

the amount specified in the show cause notice amounts to violation of

principles of natural justice and the same is liable to be set aside.

8. In Badrinath vs. State of Tamil Nadu and others 4 and

State of Kerala v. Puthenkavu N.S.S. Karayogam & another 5,

the Hon'ble Supreme Court observed that once the basis of a

proceeding is gone, all consequential acts, actions, orders would fall

to the ground automatically and this principle is applicable to

judicial, quasi-judicial and administrative proceedings equally.

9. In Mangal Prasad Tamoli (dead) by Lrs. v. Narvadeshwar

Mishra (dead) by Lrs. And others 6, the Hon'ble Supreme Court held

that if an order at the initial stage is bad in law, then all further

proceedings, consequent thereto, will be non est and have to be

necessarily set aside.

10. In State of Punjab v. Davinder Pal Singh Bhullar and

others 7, the Hon'ble Supreme Court held as follows:

"It is a settled legal proposition that if initial action is not in consonance with law, all subsequent and consequential proceedings would fall through for the reason that illegality strikes at the root of the order. In such a fact-situation, the legal maxim "sublato fundamento cadit opus"

meaning thereby that foundation being removed, structure/work falls, comes into play and applies on all scores in the present case."

11. It may further be noted that the Hon'ble Supreme Court in a

catena of judgments has held that the grounds, upon which the

AIR 2000 SC 3243

(2001) 10 SCC 191

(2005) 3 SCC 422

(2011) 14 SCC 770

action is to be taken against a person, are required to be mentioned

in the show cause notice. In Commissioner of Customs, Mumbai v.

Toyo Engineering India Ltd. 8, the Hon'ble Supreme Court held has

under:

"16. Learned counsel for the Revenue tried to raise some of the submissions which were not allowed to be raised by the Tribunal before us, as well. We agree with the Tribunal that the Revenue could not be allowed to raise these submissions for the first time in the second appeal before the Tribunal. Neither the adjudicating authority nor the Appellate Authority had denied the facility of the project import to the respondent on any of these grounds. These grounds did not find mention in the show cause notice as well. The Department cannot travel beyond the show- cause notice. Even in the grounds of appeals these points have not been taken.

12. In Commissioner of Central Excise, Bhubaneshwar v.

Champdany Industries Ltd. 9, the Hon'ble Supreme Court has held

as under:

"38. Apart from that, the point on Rule 3 which has been argued by the learned counsel for the Revenue was not part of its case in the show- cause notice. It is well settled that unless the foundation of the case is made out in the show-cause notice, the Revenue cannot in Court argue a case not made out in its show cause notice. (See Commr. of Customs v. Toyo Engg. India Ltd. [(2006) 7 SCC 592] ) Similar view was expressed by this Court in CCE v. Ballarpur Industries Ltd. [(2007) 8 SCC 89] In para 27 of the said Report, learned Judges made it clear that if there is no invocation of the Rules concerned in the show-cause notice, it would not be open to the Commissioner to invoke the said Rules."

(2006) 7 SCC 592

(2009) 9 SCC 466

13. In Commissioner of Central Excise, Chandigarh v. Shital

International 10. Relevant paragraph of the said judgment is

delineated below:

"19. As regards the process of electrifying polish, now pressed into service by the Revenue, it is trite law that unless the foundation of the case is laid in the show-cause notice, the Revenue cannot be permitted to build up a new case against the assessee. (See Commr. of Customs v. Toyo Engg. India Ltd. [(2006) 7 SCC 592] , CCE v. Ballarpur Industries Ltd. [(2007) 8 SCC 89] and CCE v. Champdany Industries Ltd. [(2009) 9 SCC 466] ) Admittedly, in the instant case, no such objection was raised by the adjudicating authority in the show-cause notice dated 22-6-2001 relating to Assessment Years 1988-1989 to 2000-2001. However, in the show-cause notice dated 12-12-2000, the process of electrifying polish finds a brief mention. Therefore, in the light of the settled legal position, the plea of the learned counsel for the Revenue in that behalf cannot be entertained as the Revenue cannot be allowed to raise a fresh plea, which has not been raised in the show cause notice nor can it be allowed to take contradictory stands in relation to the same assessee."

14. The principle that emerges from the above judgments is

patently clear that a show cause notice is required to provide details

of the nature of the offence and the grounds on which the show cause

notice has been issued. Furthermore, the order that is subsequently

passed, based on the show cause notice, cannot go beyond the said

show cause notice and cannot in any manner penalise the noticee on

grounds that were not stated in the show cause notice.

(2011) 1 SCC 109

15. In the earlier round of litigation, the appeal vide CTA

No.121/2004 filed by the petitioner, was allowed vide judgment dated

26.04.2006 by setting the impugned surcharge order passed by the

respondent No.1 in R.C.No.3315/2004-E dated 07.06.2004 and the

matter was remanded to the original authority to pass a fresh

reasoned order within five months from the date of judgment. In

Paras 13 and 14 of the said judgment dated 26.04.2006, a specific

finding was recorded that the petitioner is liable for action under

Section 60 of the Act for an amount of Rs.1,13,13,870/- only but

after remand, the respondent No.1 has fixed responsibility/liability

on the petitioner to the tune of Rs.3,73,63,281/- and the same was

confirmed by the Tribunal vide judgment dated 30.09.2010 passed in

CTA No.56/2008. It may be noted that on remand, while re-

examining the case, respondent No.1 has no authority or power to go

beyond the scope of show cause notice and come to a different

conclusion, which action on the part of the respondent No.1 amounts

to second inquiry and the same is not permissible. Since the Tribunal

in Paras 13 and 14 of its judgment dated 26.04.2006 passed in CTA

No.121/2004 has given a specific finding that as per the show cause

notice, the petitioner is liable to pay an amount of Rs.1,13,13,870/-

only, the respondent No.1 has no power to conduct fresh inquiry. In

view of the lapses on the part of the respondents in obtaining

necessary permission for extension of time for submitting report as

required under Section 51 of the Act and further, since there is no

approval of the general body for the inquiry report under Section 51

of the Act, which is the basis for passing impugned order under

Section 60 of the Act, this Court is of the view that the impugned

judgment dated 30.09.2010 passed in CTA No.56 of 2008 by the

Tribunal confirming the surcharge order dated 18.01.2008 passed

vide Proceedings in Rc.No.3315/02-D by the respondent No.1, are

liable to be set aside and the matter is liable to be remitted back to

the respondent No.1 for conducting fresh inquiry to the extent of

fixing the liability on the petitioner as mentioned in the show cause

notice.

16. It is the specific case of the petitioner that in the show cause

notice dated 23.03.2004 issued to her, she was liable to pay only an

amount of Rs.1,13,13,870/- and even if liability/responsibility is

fixed on her, she is liable to pay said amount only. Therefore, this

Court deems it appropriate to direct the petitioner to furnish the

bank guarantee or security for an amount of Rs.1,13,13,870/- along

with 18% interest to the respondent No.2-bank.

17. In the result, this Writ Petition is allowed and the surcharge

order dated 18.01.2008 passed vide Proceedings in Rc.No.3315/02-D

by the respondent No.1 as confirmed by the Tribunal in the

impugned judgment dated 30.09.2010 passed in C.T.A.No.56/2008

are set aside and the matter is remitted back to the respondent No.1

for conducting fresh inquiry to the extent of liability of the petitioner

as mentioned in the show cause notice dated 23.03.2004 for an

amount of Rs.1,13,13,870/-. Further, the respondents are directed to

raise the attachment of the properties of the petitioner attached

pursuant to surcharge order dated 07.06.2004 in Proceedings

R.C.No.3315/2004-E subject to petitioner furnishing bank

guarantee/security for an amount of Rs.1,13,13,870/- along with

18% interest to the respondent No.2. The security furnished by the

petitioner shall be subject to final adjudication of the surcharge

proceedings against the petitioner.

As a sequel, miscellaneous petitions pending if any, shall stand

closed. No order as to costs.

___________________________ C.V. BHASKAR REDDY, J Date: 12.12.2023 Note: L.R Copy to be marked: YES/ NO scs