w w w . L a w y e r S e r v i c e s . i n



Cheriyan Mathew, Member, The Kanakkary Service Cooperative Bank Limited & Others v/s The Joint Registrar of Co-Operative Societies (General), Kottayam & Another


Company & Directors' Information:- B S AND SERVICE PRIVATE LIMITED [Active] CIN = U92419MH1946PTC004912

Company & Directors' Information:- CO-OPERATIVE COMPANY LIMITED [Active] CIN = U51226DL1910PLC299886

Company & Directors' Information:- CO-OPERATIVE COMPANY LIMITED [Active] CIN = U51226UP1910PLC000093

Company & Directors' Information:- GENERAL BANK PRIVATE LIMITED [Dissolved] CIN = U93090TN1935PTC000845

Company & Directors' Information:- A M MATHEW AND COMPANY PRIVATE LIMITED [Active] CIN = U65923TZ1955PTC000010

Company & Directors' Information:- OPERATIVE INDIA PRIVATE LIMITED [Active] CIN = U74300KA2008FTC048079

Company & Directors' Information:- T P MATHEW AND COMPANY PVT LTD [Active] CIN = U63090KL1991PTC006170

Company & Directors' Information:- SERVICE CORPORATION LIMITED [Dissolved] CIN = U93090KL1946PLC001075

    WP(C). No. 13880 of 2020 (H)

    Decided On, 16 July 2020

    At, High Court of Kerala

    By, THE HONOURABLE MR. JUSTICE V. RAJA VIJAYARAGHAVAN

    For the Petitioners: George Poonthottam, Sr. Advocate, Arun Chandran, Nisha George, Advocates. For the Respondents: Bimal K. Nath, Sr. Government Pleader.



Judgment Text


1. The petitioners herein are the members of the Kanakkari Service Cooperative Bank Ltd. No.3831 which is a society registered under the provisions of the Kerala Co-operative Societies Act [hereinafter referred to as the 'Act']. It appears that an inquiry was ordered by the 1st respondent under Section 65(1) of the Act into the working and financial condition of the Society and it resulted in the submission of Ext.P5 report. The report disclosed that the then members of the Board of Directors had caused deficiency in the assets of the society and consequent loss. In exercise of his powers conferred under Section 68(1) of the Act, an officer was authorised to conduct an inquiry into the conduct of such persons. On receipt of notice to appear for hearing as part of enquiry under Section 68(1) of the Act, the petitioners have rushed to this Court seeking the following reliefs:

“i) Call for the records leading to Ext.P5 and P7 and to quash the same by issuing a writ of certiorari.

ii) Declare that Ext.P5 inquiry report does not satisfy the fundamental requirements of a report as mandated in Rule 66(5) of the Kerala Co-operative Societies Rules and therefore the same is nullity in the eye of law;

iii) Issue a writ declaring that Ext.P7 order by which Ext.P6 proceedings have been initiated is not a proceedings as contemplated under the Statute and the said order is contrary to what is provided under law.”

2. Sri.George Poonthottam, the learned senior counsel appearing for the petitioners as instructed by Sri.Arun Chandran, the learned counsel, contended that the procedure for the conduct of inquiry and inspection is provided under Rule 66 of the Co-Operative Societies Rules (“Rules'' for short). The Rules mandate that the report shall invariably contain certain details, which details are incidentally lacking in Exhibit P5 report. He points out that the Registrar is bound to pass orders only after giving a reasonable opportunity of being heard to the person concerned particularly in view of Rule 66(5). For failure to comply with the above requirements, the report which is the basis of initiation of proceedings under Section 68(1) cannot be sustained, contends the learned counsel. He would also refer to Exhibit P5 report and it was argued that the report is vague and cryptic and ought not have been the basis of inquiry for ascertaining surcharge.

3. Sri.K.Bimal Nath, the learned Government Pleader has countered the submissions with vehemence. He argued that the notice was issued strictly in tune with the statutory provisions and that being the case, the petitioners have no valid cause of action to challenge the same at this stage as no order prejudicial to the interest of the petitioners has been passed till date. Relying on the report in State of Kerala v. Aravindakshan Nair (2010 (3) KLT 11), 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 others (2014 (4) KLJ 397 ) and it was argued that the petitioners would get sufficient opportunity of being heard under sub section (2) of 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 judgement 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.

4. I have carefully considered the submissions advanced by both sides and have gone through the records.

5. 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.

6. 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 Registrar [1990 (2) KLT 470]).

7. 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 the passing an order for enquiry (See Santhosh Vs. Assistant registrar Co Operative Societies and others [2014 (4) KLJ 397].

8. 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 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 petitioners 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.

9. 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 is 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 Laboratories [(2007) 13 SCC 270]; Siemens Ltd. v. State of Maharashtra [(2006) 12 SCC 33]. In that view of the matter, I am of the considered opinion that the petitioners have not made out a case for interference in exercise of the extraordinary jurisdiction under Article 226 of the Constitution of India.

10. However, I find that the petitioners have a contention that the initiation of proceedings by the Registrar is actuated is mala fides and that the valid contentions raised by the petitioners 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 visite

Please Login To View The Full Judgment!

d 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 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 petitioners on the merits of the inquiry and thereafter pass orders as contemplated under Section 68(2) of the Act. The petitioners 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.
O R