B.K. Rajendra and Others vs The Principal Secretary to Government Cooperation Department and Others

H.G. Ramesh, J.

Petitioners are the members of respondent No. 6 - Society, which is registered under the provision of the Karnataka Co-operative Societies Act, 1959 (for short, ''the Act''). It is their case, the Committee members have persistently been making defaults by being negligent in performing their duties and also made the Society suffer losses by committing gross financial irregularities and fraud. As such, the petitioners and other members gave a complaint to respondent No. 2 - The Registrar of Cooperative Societies against the present Executive Committee pointing out the illegalities, misappropriation of funds and irregularities, etc. The said complaint was sent to the Joint Registrar of Co-operative Societies who in turn, forwarded the same to the Assistant Registrar so appointed by the Joint Registrar to hold an inquiry and after his report was sent, respondent No. 2 issued a notice to the Committee under Section 30(1) of the Act framing as many as fourteen charges. Respondent No. 2 in the light of the proof of charges leveled against the Managing Committee which were of a nature pertaining to misuse of funds, non-adherence to the mandatory requirements under the Act and Rules, superseded the Society and appointed the Deputy Registrar of Co-operative Societies as the Administrator. As against this, the Committee filed a Revision Petition before respondent No. 1 which was allowed on 3-12-2012. The said order was challenged in W.P. Nos. 3722-3726/2013.

Pending disposal before this Court, the petitioners once again gave a complaint to respondent No. 3 - The Director of Co-operative Audit and respondent No. 3 by a letter dated 31-3-2012, issued a notice under Section 63(3) of the Act holding that the Managing Committee of respondent No. 6 - Society is responsible for illegalities and irregularities that has been committed during the years 2008-09 to 2012-13 as per audit conducted by the Senior Auditor and as such, they have been called upon to show-cause within eight days from the date of receipt of the said notice as to why action shall not be initiated against them. Since no reply was received from the Managing Committee, the Statutory Co-operative Auditor once again issued notice by way of reminder dated 23-2-2013 seeking for their explanation and noting that proceedings under Section 69 of the Act shall be initiated, if there is no reply within seven days. In the meanwhile, the Act was amended by Act No. 3 of 2013 with effect from 11-2-2013 whereunder, Section 63 of the Act was amended so as to enable a Society to be audited by a private Auditor (empanelled with the Directorate of Cooperative Audit). Taking gross advantage, respondent No. 6 - Society approached the Deputy Director of Cooperative Audit requesting to send the approved list of Auditors to enable it to entrust the audit work to the said Auditor surprisingly for the same years, i.e. 2008-09 to 2012-13 who without realising the illegality in the demand put forth by the Managing Committee and their dishonest intention to cover up their lapses which was detected on the previous audit already conducted by the Department of Co-operative Auditor, mechanically sent the approved list of Auditors to entrust the Audit of the Society for the period 2008-09 to 2012-13. The approved Auditor namely Sri S. Sathyanarayana Gupta found lot of illegalities, irregularities and misappropriation of funds of the Society by the Committee members at the time of verification of the books of account and declined to take up the audit of the accounts of respondent No. 6 - Society. Thereafter, quite shockingly the Society directly communicating with a private Auditor, namely Sri N. Ravikumar - respondent No. 5 requested him to audit the books of the Society for the period 2008-09 to 2012-13 wrongly referring to the Judgment of this Court when there is no such judgment of this Court which enables any private Society to choose any empanelled Auditor or any private Auditor without the concurrence of the Department of Co-operation.

In the meanwhile, writ petitions were disposed of at the Dharwad Bench on 5-7-2013 in W.P. Nos. 79003-79014 of 2013 declaring that the second proviso to sub-section (1) of Section 63 of the Act which restricts the choice of a Co-operative Society to choose an Auditor or an Auditing Firm from a panel of Auditors and Auditing Firms, not exceeding ten, is unconstitutional and void being violative of Article 14 and the proviso to Clause (3) of Article 243ZM of the Constitution.

As such, the petitioners gave a representation to respondent No. 3 pointing out that respondent No. 6 - Society was super ceded by the Registrar of Co-operative Societies. Therefore, it was just and necessary to set-aside the appointment of respondent No. 5 appointed by the Society and also to direct respondent No. 3 to appoint a competent authorised statutory auditor for undertaking the audit of respondent No. 6 - Society for the years 2008-09 to 2012-13. The grievance of the petitioners is that despite giving such representation to respondent No. 3, no action is initiated despite amendment brought to Section 63 of the Act on 11-2-2013. Thus, petitioners have challenged the appointment of respondent No. 5 as the Auditor of respondent No. 6 - Society was only by the Managing Committee and not by the General Body and such an appointment made cannot be given retrospective effect to conduct the audit for previous period. Respondent No. 5 has no right to carry out the audit of respondent No. 6 - Society for the period from 2008-09 to 2012-13 stating that already audit has been conducted for the said period and there is no question of a fresh audit being conducted by respondent No. 5 for the said period. Evidently, respondent No. 3 has not considered the representation of the petitioners who is statutorily bound to pass orders.

The submission of the learned counsel for the petitioners is subsequent appointment of private auditor in respect of audit which has already been carried out by the approved auditor in respect of the period from 2008-09 to 2012-13 is bad in law as there is no need and necessity to re-audit the audited accounts.

Per contra, learned counsel for respondents No. 5 and 6 submit that there is no illegality committed by re-auditing the accounts as the appointment of private auditor to audit the accounts of the previous years is in conformity with the amended provisions of Section 63.

Learned Additional Government Advocate submitted that respondent No. 5 is one of the persons empanelled as Private Auditor and there is no illegality in that.

Learned counsel for respondent No. 6 submitted that in so far as audit for the years 2011-12 from 2007-08 can be done by the Auditor appointed by the Government and there is no objection for the same.

Section 63 of the Act provides for Audit - Every co-operative society shall get its accounts audited at least once in each year by the Director of Co-operative Audit or by a person authorised by him by general or special order in writing in this behalf.

Based on the above proviso, it is submitted by learned counsel for the respondent No. 5 that he has got the authority to conduct the audit for previous years. But, his submission cannot be accepted because this proviso relates to appointment of auditing firms with the prescribed qualification for undertaking audit of accounts. But, does not relate to re-auditing which is the case herein.

So far as re-auditing is concerned, if there is no proper audit or if there is any irregularity, the Registrar of Co-operative Societies can entrust the audit of previous years to the person or firm authorised by the Director of Co-operative Audit. Person empanelled can only look into audit and also balance sheet. However, subsequent to amendment, re-audit for the earlier period can be done if it is only formed by the Co-operative Society. If any illegality is committed, such examination of accounts and balance sheet may be for purpose of further auditing and the balance sheet could be looked into for incidental purposes. For subsequent period after amendment, the same would be carried out by respondent No. 5 in a General Body meeting to be held.

With above clarifications, petitions are disposed of.