Challa Sanyasinaidu vs Deputy Registrar of Co-op. Society, Srikakulam

P. Ramakrishnam Raju, J

The Civil Revision Petition is posted before us on a reference made by the learned single Judge for an authoritative pronouncement on the point :

"Whether Section 60 contemplates a detailed enquiry into the truth or otherwise of the alleged acts of misfeasance and willing negligence committed by the delinquent person before the Dy. Registrar passes an order of surcharge; or whether a valid surcharge order can be passed without conducting any such detailed enquiry, but on a consideration of the audit report or inspection report submitted in pursuance of the earlier audit or inspection of the accounts or records of the concerned Society and after giving an opportunity to the delinquent person to explain his conduct."

The Civil Revision Petition is directed against an order of the Appellate Tribunal under the AP. Co-operative Societies Act, 1964, cum-District munsif passed In C.M.A.No.1 of 1990.

The petitioner is the Ex-President; while Pydi Rama Rao is the Ex-Secretary of Dhariwada Primary Agricultural Co-operative Society, During the course of inspection, u/s 52 of the Co-operative Societies Act, 1964 hereinafter called "the Act", into the affairs of the Society, it was noticed that the petitioner and the Ex-Secretary have caused deficiency to the Society to the tune of Rs.20,310-50 Ps. by breach of trust and wilful negligence. Basing on the report of the Enquiry Officer, the Deputy Registrar of Cooperative Societies, issued show-cause-notice to the petitioner and the Ex-Secretary, as to why the said amount should not be recovered from them. The petitioner did not submit his explanation; while the Ex-Secretary in his explanation stated that, he has not misused the funds of the Society, and he has taken the signatures and thumb impressions of the persons on surety bonds, Loan Disbursement Statement, Ledger and Cash Book and distributed the amount to the loanees.

On the basis of the material available'' on record, the Deputy Registrar of Co-operative Societies by his proceedings dated 19-8-1989 found that the petitioner and the Ex-Secretary are responsible for causing loss to the Society in a sum of Rs.20,310-50 Ps. and accordingly fixed the liability of the petitioner at Rs. 11,004-25 Ps. payable with interest at 15 per cent from surchage notice dated 27-3-1985 till realisation. Questioning the said order, the petitioner filed C.M.A.No. 1 of 1990 before the Appellate Tribunal under the Act. The Appellate Tribunal confirmed the said order on 30-4-1992. Hence the revision.

The appellate Tribunal found that some witnesses were examined by the enquiry officer and their statements were also recorded; and the enquiry officer found that the petitioner and the Ex-Secretary forged the signatures and thumb impressions of some of the loanees and drew amounts from the Society and misappropriated. After the show-cause-notice was issued on 27-3-1985, petitioner requested for time to submit his explanation. He engaged an Advocate, but he did not choose, to submit his explanation, but went on taking time till 22-11-1988. The appellate Tribunal found that the petitioner was given notice more than once to show cause why order u/s 60 of the Act shall not be passed. No explanation was submitted by the petitioner, and on 22-11-1988 the request for further time was rejected. The contention of the petitioner, however, is that no opportunity was given to the petitioner to cross examine the witnesses or adduce evidence denying his liability. The argument of the petitioner is based on the Proviso to Section 60 of the Act which says that no order shall be passed against any person referred to in Sub-section (1) of Section 60 unless he has been given an opportunity of making his representation. The same argument was advanced before the learned single Judge who found that there is conflict of opinion on this point, and accordingly, referred the mailer to a Division Bench.

Section 60 may be usefully extracted :

"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 the Section 53, or the winding up of a society it appears that any person who is or was entrusted with the organisation 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 this behalf, of his own motion or on the application of the committee, liquidator or any creditor or contributor, 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 retention, 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 subsection unless the person concerned has been given an opportunity of making his representation."

The ingredients necessary for passing surcharge order are misappropriation, fraudulent retention of money or property or breach of trust in relation to the Society by a person entrusted with the management of the affairs of the Society. It is also necessary that it should so appear in the course of audit or enquiry or inspection or on the winding up of the Society, then the Registrar may on his own motion or on the application of the committee or Liquidator of Contributor to examine into the conduct of such person and make an order u/s 60 directing him to repay the money or restore the property. Therefore, before an Office bearer or servant of the Society is held liable, it has to be established that an obligation is cast on him under the bye-law; he committed breach of that obligation and there was resultant loss to the Society on account of that breach. While conducting inspection u/s 52 of the Act, the enquiry officer found that the petitioner and the Ex-Secretary forged the signatures and thumb impressions of some of the loanees, did not distribute a sum of Rs.20,310-50 Ps, and thus haying drawn the sum from the Society, have misappropriated. In fact, 23 persons were also examined by the enquiry officer and their statements recorded. Basing on the report of the enquiry officer, show cause notices were issued to the petitioner and the Ex-Secretary. Inspite of failure on the part of the Petitioner to submit his explanation, the petitioner maintains that passing order u/s 60 is bad for want of opportunity to the petitioner for not holding enquiry.

Proviso to Section 60 no doubt contemplates an opportunity being given to the person for making a representation before an order is passed. By issuing show cause notice, no doubt, an opportunity was given to the petitioner. According to the learned Counsel for the petitioner, Mr. D.Ramalinga Swamy, issue of a notice is not enough, but a full-fledged, enquiry should be conducted after furnishing a copy of the report of the enquiry officer to the petitioner and also affording an opportunity to the petitioner to cross-examine the witnesses examined by the enquiry officer.

Our learned brother Subhashan Reddy, J. in S. Ramadas Vs. The Subordinate Judge and others, , took the view that once the proceedings u/s 60 of the Act are initiated, the enquiry thereof should be akin to Civil Court enquiry as the Civil Court''s jurisdiction is barred expressly in view of Section 121 of the Act. The learned Judge again in S. Rama Subba Rao v. President, Kaikaluru irrigation and Power Department Sub-Divisional Employees Cooperative Credit Society Limited 1994 (1) APLJ 200 observed as follows :

"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 Article 31 of the Constitution of India, now transformed into a constitutional guarantee under Article 300A 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 u/s 60(1) of the Act, the rules of fair-play have got to be followed.''''

P. Rama Rao, J. of course, took a contrary view in Mohd Ghouse v. Deputy Registrar of Co-operative Societies, Vikarabad and others 1996 (2) ALT 108. The learned Judge observed as follows :

"The proviso to Section 60 mandates adequate opportunity before passing the order. The issuance of notice proposing to fix the liability u/s 60 is imperative and as such there is no breach of principles of natural justice. Section 60 is an immediate and necessary consequence of enquiry and audit and inspection and the enquiry for the second round is considered to be superfluous. The affected person is not prejudicided or disadvantaged as the enquiry is done in anterior proceedings.''''

The Scheme of Section 60 of the Act in our view unfolds itself as follows :

In the course of inspection u/s 52 of the Act, the Registrar may cause the inspection of Books of the Society with a view to find out the irregularities, acts of omission and commission. This enquiry is only administrative in nature, and if the Registrar prima facie is satisfied of the irregularities on the basis of the report of the enquiry officer, he may initiate surcharge proceedings u/s 60. That report may form the basis for the Registrar to proceed u/s 60 and issue a surchage order eventually. The person against whom a report is sent u/s 52 has no opportunity to squarely meet the allegations against him at that stage. He is not allowed to cross examine the witnesses from whom statements are recorded implicating his involvement. He cannot also adduce rebuttal evidence. That is not the stage where a demand can be made against him to pay back the sum or liability fastened to him as per the report of the enquiry officer. On the contrary, 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 enquiry 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 enquiry 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 enquiry. 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 enquiry report, statements of witnesses recorded during the said enquiry, 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 is passed. Therefore, we respectfully agree with the view taken by the learned Judge in S. Rama Subba Rao v. President, Kaikuluru Irrigation and Power Department Sub-Divisional Employees Co-operative Credit Society Limited (supra). Even in Mohd. Ghouse v. Deputy Registrar of Cooperative Societies, Vikarabad and others (supra) the learned Judge has rightly observed that the proviso to Section 60 mandates adequate opportunity before passing the order, and the issuance of notice proposing to fix the liability u/s 60 is imperative and as such there is no breach of principles of natural justice. Having said so, the learned Judge went on observing that Section 60 is an immediate and necessary consequence of enquiry and audit and inspection and the enquiry for the second round is considered to be superfluous and the affected person is not prejudicided or disadvantaged as the enquiry is done in anterior proceedings. These later observations of the learned Judge appear to strike a contrary note, and we do not therefore subscribe to the same.

Coming to the facts of this case, the Petitioner though granted number of opportunities to submit his explanation, having asked for time on number of occasions to submit his explanation and having engaged an Advocate, finally failed to submit his explanation. Although he asked for a copy of the Inspection report and when the authorities directed him to pay the charges for supply of a copy, he failed to do so. He never informed the Registrar that he intends to examine anybody on his behalf, nor filed any list of witnesses. Having regard to these circumstances, it is clear that although sufficient opportunity was given to the petitioner, he did not avail of the same. He did not even dispute the inspection report by filing his explanation. Under these circumstances, we are rather constrained to hold that petitioner is not denied fair play or sufficient opportunity before the order u/s 60 is passed. As such, we do not find any ground to interfere with the order of the lower Court.

The Civil Revision Petition, therefore fails, and is accordingly dismissed. No costs.