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H. Rajasekar v/s The Principal Secretary to Government, Chennai & Others

    W.P. No. 21100 of 2022

    Decided On, 18 August 2022

    At, High Court of Judicature at Madras

    By, THE HONOURABLE CHIEF JUSTICE MR. MUNISHWAR NATH BHANDARI & THE HONOURABLE MRS. JUSTICE N. MALA

    For the Petitioner: C.K. Chandrasehar, Advocate. For the Respondents: R1 to R3, R. Shunmugasundaram, Advocate General assisted by P. Muthukumar, State Government Pleader, A.G. Shakeenaa, Advocate.



Judgment Text

(Prayer: Petition filed under Article 226 of the Constitution of India praying for a writ of declaration declaring the Act No.33 of 2022 - Tamil Nadu Co-operative Societies Act 1983 amendment to Section 87(1) of the Tamil Nadu Co-operative Societies Act 1983 on 12.06.2022 by the 1st and 2nd respondents herein are illegal, unlawful, unreasonable and unconstitutional.)

Munishwar Nath Bhandari, CJ.

1. The writ petition has been filed to challenge the Act of 33 of 2022 amending Section 87(1) and the first proviso to Section 87(1) of the Tamil Nadu Co-operative Societies Act, 1983, by issuing Government Order dated 12.06.2022.

2. Learned counsel for the petitioner submitted that the amendment in Section 87(1) of the Tamil Nadu Co-operative Societies Act, 1983 [for short, "the Act of 1983"] has been made along with amendment of the first proviso to Section 87(1) ignoring Sections 82 to 84 of the Act of 1983 and, more specifically, Sections 80 and 83, which provides time limit for audit and inspection of books by financing bank. By virtue of the amendment in the first proviso, now surcharge proceedings can be initiated within seven years from the date of detection of any act or omission referred to in the sub-section. Prior to the amendment, the period of seven years to initiate proceedings was to be determined from the date of act or omission and not from the date of its detection. The prayer is accordingly to set aside the amendment.

3. It is stated that the issue in regard to the period of seven years, whether to be reckoned from the date of act or omission or from the date of detection is pending consideration before the Larger Bench. While the matter is pending, the amendment under challenge was brought and thereby the Larger Bench would be deciding the issue as to whether the first proviso to the amended provision would apply retrospectively or would be prospective in application. In any case, even if it is applied prospectively or retrospectively, the amended proviso deserves to be struck down, as it would offend Sections 80 and 83 of the Act of 1983.

4. The petitioner has given reference to his own case where surcharge proceedings were initiated after the expiry of seven years from the date of act or omission. The writ petition to challenge the surcharge proceedings was allowed. An appeal is pending before the Division Bench and in the light of conflicting judgments, it was referred to the Larger Bench. The amendment may affect the petitioner's right, thus, it has been challenged.

5. We have considered the submissions made by learned counsel for the petitioner and perused the records.

6. The challenge to the amendment in Section 87(1) of the Act of 1983 and the first proviso has been made in reference to Sections 80 to 84 of the Act of 1983 and, therefore, it would be relevant to quote the aforesaid provisions for ready reference:

"80. Audit.- (1) (a) Every registered society shall maintain the accounts and such accounts shall cause to be audited at least once in each financial year by auditors of the Government, or by the auditing firms in respect of such class or classes or category or categories of registered societies as may be prescribed, within the time limit specified in clause(e);

(b) The minimum qualification and the experience of auditors of the Government or auditing firms, that shall be eligible for auditing accounts of the registered society shall be such as may be prescribed;

(c) In case of appointment of auditing firms, the general body of such classes or categories of registered societies shall appoint auditing firms from a panel approved by the Government or an authority authorized by the Government in this behalf;

(d) The registered society shall prepare the financial statements and other details required for the completion of audit within three months from the close of each financial year;

(e) The accounts of every registered society shall be audited within six months from the close of the financial year to which such accounts relate.

(2) The audit under sub-section (1) shall include an examination of overdue debts, if any, the verification of the cash balance and securities and a valuation of the assets and liabilities of the society.

(3) The auditor of the Government or auditing firms appointed under sub-section (1) 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 summon any person in possession of, or responsible for, the custody of any such books, accounts, documents, securities, cash or other properties to produce the same at any place at the head quarters of the society or any branch thereof.

(4) Every person who is or has at any time been an officer or employee of the society and every member and past member of the society shall furnish such information in regard to the transaction and working of the society as the auditor of the Government or auditing firms appointed under sub-section (1) may require.

(5) The Registrar may by order in writing, direct any officer of the society to take such action as may be specified in the order to remedy within such time as may be specified therein the defects, if any, disclosed as a result of the audit.

(6) Every registered society shall pay to the Government such fee for the audit of its accounts for each co-operative year as may be fixed by the Registrar in accordance with the rules made in this behalf and the fee levied for audit shall be recoverable in the manner specified in section 148:

Provided that the Government may, by general or special order, exempt any registered society or class of registered societies from the payment of the whole or any part of the fee payable for audit for any co-operative year.

(7) If the result of the audit discloses any defect, the registered society shall, within three months from the date of communication of the result of the audit, take steps to remedy the defects disclosed as a result of the audit, and report to the Registrar of the action taken by it thereon.

(8) If it appears to the Registrar on an application by a registered society or otherwise, that it is necessary or expedient to re–audit any account of that society, the Registrar may by order provide for such re-audit and the provisions of this Act applicable to audit of accounts of that society shall apply to such re-audit.

(9) The audit report of the accounts of an apex society shall be laid before the Legislative Assembly of the state in such manner, as may be prescribed.

81.Inquiry. - (1) The Registrar may, of his own motion and shall, on the application of a majority of the board or of not less than one third of the members or on the request of the financing bank or of the District Collector, hold an inquiry, or direct some person authorised by him by order in writing in this behalf to hold an inquiry in to the constitution, working and financial condition of a registered society or any alleged misappropriation, fraudulent retention of any money or property, breach of trust, corrupt practice or mismanagement in relation to that society or into any particular aspect of the working of that society.

(2) The Registrar or the person authorised by him under sub-section (1) shall have the following powers, namely:-

(a) He 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 summon any person in possession of, or responsible for the custody of, any such books, accounts, documents, securities, cash or other properties to produce the same at any place at the headquarters of the society or any branch thereof.

(b) Where any person summoned under clause (a) fails or refuses to produce any record or property of the registered society as specified in the summons, any Metropolitan Magistrate or any Judicial Magistrate of the first class in whose jurisdiction the office of such society or the records and properties of such society is or are situated , shall on application by the Registrar or the person authorised by him under sub-section (1), direct the delivery to the Registrar or such person of the possession of the records and properties of such society :

Provided that no such application shall be made by the person authorised under sub - section (1) without the previous sanction of the Registrar.

(c) He may seize the books, accounts or documents of the society, if he considers that such seizure is necessary to ensure the safety of such books, accounts or documents or to facilitate his inquiry, and shall give the person from whose custody the books, accounts or documents have been seized a receipt for the same:

Provided that the books, accounts or documents seized shall be retained by him only for so long as may be necessary for their examination and for the purpose of inquiry:

Provided further that the books, accounts or documents shall not be retained for more than three months at a time except with the permission of the next higher authority.

(d) He may summon any person who, he has reason to believe, has knowledge of any of the affairs of the society and may examine such person on oath and may summon any person to produce any books, accounts or documents belonging to him or in his custody if the Registrar , or the person authorised as afore said has reason to believe that such books, accounts or documents contain any entry relating to transactions of the society.

(e) (i) He may, notwithstanding any rule or by – law specifying the period of notice for a general meeting of the society or for a meeting of the board, require any officer or officers of the society to call a general meeting or a meeting of the board at such time and place at the headquarters of the society or any branch thereof to consider such matters as may be specified by him and the provisions of sub - clauses (i) and (ii) of clause (b) of sub-section (4) of section 32 shall apply to any meeting called under this sub-clause as if it were a meeting called in pursuance of a requisition under clause (a) of sub-section (3) of that section.

(ii) If the officer or officers of the society refuses or refuse or fails to call such meeting or if in the opinion of the Registrar there is no board or officer or officers competent under this Act, the rules or the by-laws to call such meeting, or if there be an order of the Registrar or of the Civil Court restraining the board to function, the Registrar or the person authorised by him under sub-section (1) shall have power to call the meeting himself and the provisions of clause (b) of sub-section (4) of section 32 and sub- section (5) of that section shall apply to such meeting as if it were a meeting called under clause (a) of the said sub- section (4).

(3) When an inquiry is held under this section, the Registrar shall within such time as may be prescribed communicate the result of the inquiry –

(i) in case the Government have subscribed directly to the share capital of the registered society or in case any moneys are due from the registered society either to the Principal State Partnership Fund or to the Subsidiary State Partnership Fund referred to in chapter VI, to the Government or to any officer appointed by the Government in this behalf;

(ii) to the financing bank, if any, to which the society is affiliated; and

(iii) to the society concerned.

(4) The inquiry shall be completed within a period of three months from the date of ordering the inquiry or such further period or periods not exceeding three months at a time as the next higher authority may permit provided that such extended periods shall not exceed six months in the aggregate.

(5) It shall be competent for the Registrar to withdraw any inquiry from the person authorised by him under sub-section (1) and to hold the inquiry himself or entrust it to any other person as he deems fit.

(6) The Registrar may, by order in writing, direct the registered society or any officer of the society or its financing bank to take such action as may be specified in the order to remedy, within such time as may be specified therein, the defects, if any, disclosed as a result of the inquiry.

82. Inspection and investigation. - (1) The Registrar may, of his own motion, or on the application of a creditor of a registered society inspect or investigate or direct any person authorised by him in this behalf by general or special order in writing to inspect the affairs of the registered society in general or to investigate into any alleged misappropriation, fraudulent retention of any money or property, breach of trust, corrupt practice or mismanagement in relation to that society or into any particular aspect of the working of that society and the Registrar or the person so authorised shall have all the powers of the Registrar when holding an inquiry under section 81:

Provided that no such inspection or investigation shall be made or directed on 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 or investigation as the Registrar may require.

(2) Where an inspection or investigation is made under sub-section (1), the Registrar shall within such time as may be prescribed communicate the results of such inspection or investigation to the society and where the inspection or investigation is made on the application of a creditor, also to the creditor, and to the financing bank, if any, to which the society is affiliated.

(3) It shall be competent for the Registrar to withdraw any inspection or investigation from the person to whom it is entrusted and to conduct the inspection or investigation himself or entrust it to any other person as he deems fit.

(4) The inspection or investigation shall be completed within a period of three months from the date of ordering the inspection or investigation or such further period or periods not exceeding three months at a time as the next higher authority may permit, provided that such extended periods shall not exceed six months in the aggregate.

(5) The Registrar may, by order in writing, direct the registered society or any officer of the society to take such action as may be specified in the order to remedy within such time as may be specified therein the defects, if any, disclosed as a result of the inspection or investigation.

83. Inspection of books by financing bank .- (1) A financing bank may at any time, but shall at least once in every year, inspect through an officer or a member of its paid staff the books of every registered society which is indebted to it. A financing bank shall also have the right to inspect the books of any other registered society financed by any registered society which is indebted to the financing bank.

(2) An officer or member of the paid staff of the financing bank inspecting the books of a registered society 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, that society and may also call for such information, statements and returns as may be necessary to ascertain the financial condition of that society.

(3) For the purposes of making inspection under sub - section (2), the officer or member of the paid staff referred to in that sub- section shall also, have power to summon any person in possession of, or responsible for, the custody of any books, accounts, documents, securities, cash and other properties referred to in that subsection to produce the same for inspection or verification at any place at the headquarters of the registered society or any branch thereof in respect of which the inspection is made.

84. Maintenance of accounts, and books by registered society. - The chief executive that is, the principal paid officer of every registered society by whatsoever designation he is called or the president of that society, if there is no such chief executive in that society, shall be bound to keep and maintain such accounts and books relating to that society in such manner as may be prescribed. He shall be responsible for the correct and upto date maintenance of such accounts and books and for producing them when called for in connection with audit under section 80 or inquiry under section 81 or inspection or investigation under section 82 or inspection of books under section 83."

7. The amended sub-section (1) to Section 87 of the Act of 1983 and the first proviso thereto are also quoted hereunder:

"87. Surcharge. - (1) Where in the course of an audit under section 80 or an inquiry under section 81 or an inspection or investigation under section 82 or inspection of books under section 83 or the winding-up of a society, it appears that, any person who is or was entrusted with the organisation or management of the society or any past or present officer or servant of the society, either on his own or in connivance with any other person, has misappropriated or fraudulently retained or transferred any money or other property or 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 negligence or has made any payment which is not in accordance with this Act, rules or by–laws, the Registrar himself or any person specially authorised by him in this behalf, of his own motion or on the application of the Board, liquidator or any creditor or contributory, may frame charges against such person or officer or servant or such other person and after giving a reasonable opportunity to the person concerned and in the case of his demise, to his representative who inherits his estate or a person who holds his estate, to answer the charges, 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 retention or transfer of money or other property, breach of trust or negligence or payments which are not in accordance with this Act, rules or by-laws as the Registrar or the person authorised as aforesaid thinks just:

Provided that no action shall be commenced under this sub-section after the expiry of seven years from the date of detection of any act or omission referred to in this sub-section."

8. As per the amended proviso, surcharge proceedings can be initiated within a period of seven years from the date of detection of any act or omission, while as per the unamended proviso, it could have been within the period of seven years from the act or omission. It is a fact that there are conflicting judgments of the Division Bench interpreting the first proviso then existing, which is quoted hereunder:

"Provided that no action shall be commenced under this sub-section after the expiry of seven years from the date of any act or omission referred to in this subsection."

9. One set of judgments has interpreted the unamended proviso, quoted above, to the effect that the period of seven years is to be reckoned from the date of any act or omission, while the other set of judgments reckoned the period of seven years from the date of detection of any act or omission. Therefore, the matter was referred to the Larger Bench, which heard the arguments and reserved it for judgment.

10. The challenge to the amendment is precisely on the ground that Sections 80 and 83 of the Act of 1983 would be offended by the amended first proviso to Section 87(1). It is mainly on the ground that there is time limit for audit and even for the inspection of books and if the period of seven years is reckoned from the date of detection of any act or omission, it would offend Sections 80 and 83 of the Act of 1983.

11. We do not find amending first proviso to Section 87(1) would offend Sections 80 and 83 of the Act of 1983. It is for the reason that if the audit is to be conducted within the time schedule, then it is not nullified by the first proviso to Section 87(1), as amended. Rather, if the audit is to be conducted within the time schedule, the detection of any act or omission requiring surcharge proceedings would be initiated from the date of detection of act or omission in the audit proceedings which may be conducted within the time schedule. The proviso aforesaid would not nullify or amend the time s

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chedule of the audit. 12. In the same manner, if time schedule is given for inspection of books under Section 83 of the Act of 1983, it is not offended by amending the proviso to Section 87(1). Rather, within the time schedule and during the course of inspection of books of accounts if any act or omission is detected, that date would be relevant for initiation of the surcharge proceedings under Section 87 of the Act of 1983. It would be within the period of seven years from the date of detection of an act or omission. 13. The finding aforesaid has been recorded not only to clarify that the amended first proviso to Section 87(1) would not nullify the time schedule given under Sections 80 and 83 of the Act of 1983, but if any act or omission is detected during the audit or the inspection of books, the date of detection would be relevant to reckon the period of seven years for initiation of the proceedings, because beyond the period of seven years of detection of the act or omission, surcharge proceedings could not be initiated. In the light of the aforesaid, we do not find that the amended first proviso to Section 87(1) offends Sections 80 and 83 or Sections 82 and 84 of the Act of 1983. 14. The issue that now remains is as to whether the proviso aforesaid would have retrospective effect or prospective effect. Since the Larger Bench is seized of the issue aforesaid, even as admitted by learned counsel for the petitioner herein, the judgment of the Larger Bench would govern the issue. Accordingly, we hold that the amendment in the first proviso to Section 87(1), so as the amendment in Section 87(1) of the Act of 1983 is constitutionally valid and is not offending any of the provisions of the Act of 1983. The issue as to the whether the first proviso to Section 87(1) will have prospective or retrospective effect would be governed by the outcome of the judgment of the Larger Bench in the case of the Special Officer, S.1945, Madagondapalli Primary Agricultural Co-operative Bank Ltd., Madagondapalli, Hosur Taluk, Krishnagiri District v. The Deputy Registrar of Co-operative Societies, Krishnagiri Circle, Krishnagiri District and others [W.A.No.1522 of 2009] etc. batch. 15. With the aforesaid, the writ petition is disposed of. There will be no order as to costs. Consequently, W.M.P.No.20115 of 2022 is closed.
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