Deputy Registrar vs Abdul Raheem and others

N.Y. Hanumanthappa, J.—WANo.1680 of 1998 is filed by the Government against the judgment in WP No.7814 of 1996 for allowing the same and WA No.1781 of 1998 is filed against the judgment in WP No.2S309 of 1996, by the petitioner therein, for dismissing the same. As a common question of law arises in both the appeals, the same are being disposed of by a common judgment.

The point for consideration in those writ appeals is, where when a person, officer or servant of a Society is surcharged for his acts, misconduct, misappropriation, negligence or committing shortage of funds, the inquiry conducted as of that person or Officer of the Society on the allegations made so against him are to be placed before the general body meeting for its approval and secondly whether Section 60 of the Andhra Pradesh Co-operative Societies Act, 1964 (hereinafter referred to as "the Act") contemplates placing such an inquiry report before the general body meeting of the Society is mandatory.

According to Sri D. V. Bliadmm, learned Counsel appearing for the writ petitioners, if one understands the effect of Sections 51, 52, 53 and 60 of the Act, placing the inquiry report before the general body meeting of the Society is a must. In support of his contentions he placed reliance on three judgments rendered by this Court in WP No.6175/88 dated 27-3-1989, WP No.13944/91 dated 14-7-1994 and WP No.6213/96 dated 13-12-1996. Thus contending he sought that the order passed by the learned single Judge in WP No.7814 of 1996 shall have to be upheld and the surcharge proceedings initiated against the petitioners, which was confirmed by the appellate authority, shall have to be held as illegal.

Whereas, on the other hand, Mr. Rajanna, learned Government Pleader for Co-operation, contended that the placement of inquiry report, particularly in respect of surcharge proceedings, before the general body of the Society is not necessary. According to him the surcharge proceedings is different from the other proceedings. He also read out the relevant provisions which in fact were read by Mr. Bhadram. According to him the judgment rendered by S.R.Nayak, J., supports his contention, whereas the other judgments referred to by Mr. Bhadram on facts has no application.

As far as the initiation of surcharge proceedings against the petitioners is concerned there is no serious dispute by Mr, Bhadram. There is also no dispute about the surcharge proceedings subsequently upheld in the appeal. But, the controversy is as mentioned earlier. However, to resolve the contentions of both the parties, as to placing of inquiry report before the general body meeting of the Society is mandatory or otherwise, it is appropriate to extract the relevant provisions of law.

Chapter VII of the Act, Sections 50, 51, 52 and 53 deals with audit, inquiry, inspection and surcharge respectively. They read thus:

"50. Audit:--(1) There shall be a separates wing for audit in the Co-operative Department headed by the Chief Auditor who will work under the general superintendence and control of the Registrar of Co-operative Societies. The Chief Auditor shall audit or cause to be audited by a person authorised by him by a general or special order in this behalf, the accounts of a society atleast once in every year and shall issue or cause to be issued an audit certificate with such particulars as may be prescribed, before the end of the succeeding Co-operative year. Such audit shall primarily cover an examination of the debts, overdue, if any, verification of the cash balance and securities and valuations of the assets and liabilities of the society.

(2) Every person who, is or has at any time being, an Officer or employee of the society and every member including a past member shall furnish such information in regard, to, any transaction working and affairs of the society as Chief Auditor or such person authorised by him may require.

(3) The committee shall prepare and submit or cause to be prepared and submitted within such period not exceeding six months as may be prescribed for different classes of societies after the end of the co-operative year, to the Chief Auditor or the person authorised by him as the case may be, such statements and reports as may be prescribed for the purpose of the audit of accounts "of''the Society for the Cooperative year.

(4) The audit shall be completed within a period of six months from the close of the co-operative year of the registered society concerned and such other further period not exceeding six months as the Chief Auditor may permit for reasons to be recorded in writing.

"51. Inquiry :--The Registrar may, of his own motion and shall, on the application of a Society to which the society concerned is affiliated, or of not less than one-third of the members of the committee, or of not less than one-fifth of the total number of members of the Society, hold an inquiry or direct some person authorised by him by an order in this behalf to hold an inquiry into the constitution, working an financial condition of a society. Such inquiry shall be completed within a period of four months from the date of commencement of the enquiry and the report of enquiry along with the findings of the Registrar thereon shall be placed before the next general meeting of the society:

Provided that the Registrar may, for reasons to be recorded in writing extend the period aforesaid for a further period not exceeding two months.

Inspection :--(1) The Registrar may, of his own motion or on the application of a creditor of a society inspect or direct any person authorised by him by a general or special order in this behalf to inspect the books of the society:

Provided that no such inspection shall be made or directed on the application of a creditor unless the creditor:-

(a) satisfies the Registrar that the debt is '' a sum then due and that he has demanded payment thereof and has not received satisfaction within a reasonable time; and

(b) deposits with the Registrar such sum as security, for the costs of the proposed inspection as the Registrar may require.

(2) The Registrar or any person authorised by him under sub-section (1) shall prepare a report of inspection which shall be placed before the general meeting of the society together with the findings of the Registrar of Co-operative Societies thereon.

Inspection of books by financing bank or federal society :-A financing bank or a federal society shall have the right to inspect the books of any society which is indebted to it. The inspection may be made either by an Officer of the financing bank or federal society authorised by the committee of such bank or society or by a member of its paid staff certified by the Registrar as competent to undertake such inspection. The Officer or member so inspecting shall at all reasonable times have free access to the books accounts, documents, securities, cash and other properties belonging to or in the custody of the society and may also call for such information, statements and returns as may be necessary to ascertain the financial condition of the society and the safety of the sums lent to it by such bank or society.

The Officer or member so inspecting shall prepare a report of inspection which shall be placed before the general meeting of the society together with the findings of the Registrar of Co-operative Societies thereon."

Section 50 deals with audit into the financial position of the society and appointment of departmental auditors. Section 51 deals with the inquiry into the constitution, working and financial condition of a society. From this it is clear that the Registrar either suo motu or on the application filed by some one-else shall cause an inquiry as to constitution, working or financial condition of a society. Such an inquiry shall be completed within four months. This report shall be placed along with the Registrar''s findings before the next general meeting of the Society, inquiry cannot be construed as one relates to misappropriation or misfeasance. It relates to functions of the members of the Society and how they are working. Working can otherwise be called as business of the society. Financial conditions relate to its profits and loss and how the funds of the society have been utilised or misutilised by the Society. After inquiry it is the duty of the Registrar to bring the same to the notice of the general body meeting of the society. The idea behind it is to see that the mistakes pointed out in the audit conducted pursuant to Section 51 of the Act are rectified.

Section 52 speaks about inspection by the Registrar in respect of debts which is not paid. Section 53 speaks about inspection of books by an Officer of the Financing ~Bank or federal society. That means it gives power to the Central Cooperative Bank to which the primary society is affiliated to look into and inspect the books of accounts.

In none of these three sections the word "surcharge" is found. Surcharge we find only in Section 60 of the Act, which reads thus:

"60. Surcharge :--(1) Where in the course of an audit u/s 50 or any inquiry u/s 51 or an inspection u/s 52 or Section 53, or the winding up of a society it appears that any person who is or was entrusted with the organisations, affairs or management of the society or any past or present officer or servant of the society has misappropriated or fraudulently retained any money or other property or has been guilty of breach of trust in relation to the society or has caused any deficiency in the assets of the society by breach of trust or wilful negligence or has made any payment contrary to the provisions of this Act, the rules or the bye-laws the Registrar himself, or any person specially authorised by him in (his behalf, of his own motion or on the application of the committee, liquidator or any creditor or contributory, may inquire into the conduct of such person or officer or servant and make an order requiring him to repay or restore the money or property or any part thereof with interest at such rate as the Registrar or the person authorised as aforesaid thinks just or to contribute such sum to the assets of the society by way of compensation in respect of the misappropriation, misapplication of funds, fraudulent retainer, breach of trust, or wilful negligence as the Registrar or the person authorised as aforesaid thinks just:

Provided that no order shall be passed against any person referred to in this sub-section unless the person concerned has been given an opportunity of making his representation.

(2) Any sum ordered under this section to be repaid to a society or recovered as a contribution to its assets may be recovered on a requisition being made in this behalf by the Registrar to the Collector in the same manner as arrears of land revenue.

(3) This section shall apply notwithstanding that such person or officer or servant may have incurred criminal liability by this act."

10, Section 60 clearly indicates that .the report of inquiry that has been conducted under Sections 50, 51, 52 and 53 of the Act, of course, has to be placed before the general meeting of the Society. But the further limb of this section speaks that where any past or present Officer of the Society who was entrusted with the funds of the Society has misappropriated or fraudulently retained any money or other property of the Society or has been guilty of breach of trust in relation to such society or lias caused any deficiency in the assets of the society by breach of trust or wilful negligence or has made any payments contrary to the provisions of this Act or rules or bye-laws, the Registrar or any person authorised by him, suo moto or on the application made by the committee or when the society is in liquidation by a liquidator or any creditor like financial bank or a contributor of any friendly society, who have advanced money, may cause an inquiry into the conduct of such a person or officer or servant. After such an inquiry power is given to the Registrar to direct such a person to pay the monies so found short to misappropriated or occasioned loss due to breach of trust, within a particular period that too by paying interest. Power also has been given to the Registrar in certain cases to direct such person to pay compensation in respect of misappropriation, misapplication of funds or has retained fraudulently the funds or properties of the society or such loss occasioned because of such Officer''s or servant''s negligence. The section further contemplates that the Registrar shall not pass any order imposing such penalty unless such person being given an opportunity of making a representation. On such determination, if the said person fails to pay the said money, the same can be recovered like the land revenue by making a requisition to the Collector concerned. Section 60(3) of the Act deals about the criminal liability, with which we are not concerned.

From the above it is quite clear that placing of an inquiry report, in respect of surcharge before the general body meeting of the society was neither thought of nor suggested to make available such a report before the general body meeting of the society. Because the subject to be placed before the general meeting of the society will normally be general in nature and some limes where a policy decision has to be taken by the Society through its members and not in the case of a person responsible for causing loss of funds or properties of the society, either by way of mistrust misappropriation or negligence etc. If the proposition that was laid down by Mr. Bhafiram, taking the substance from some of the decisions referred by him is to be accepted as correct, then it is impossible to catch the culprits who caused financial loss to the institution. In our view, the intention of Section 60 of the Act is not to cover up the misdeeds of an Officer or a servant or a person of the Society who is trying to take shelter under an umbrella of majority of members, but on the other hand it is to sec that such persons are penalised. Placing of an inquiry report in respect of surcharge proceedings before the general body meeting of the Society, neither the Registrar thought it just and reasonable nor the section contemplates, so also the law does not envisage. Thus, in our view, there is no merit in the contentions raised by Mr. Bhadram. On the other hand the contentions raised by the learned Government Pleader Mr. Rajanna, deserve to be accepted and, we accordingly, accept the same.

In view of our above discussion and for the reasons stated above, WA No.1680 of 1998 filed by the Government is allowed and WA No.1781 of 1998 filed by the writ petitioner is dismissed. However, there shall be no order as to costs.