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Judgment
Venkatadri, J.—This appeal raises a question of general importance as to the jurisdiction of an auditor to disallow and surcharge items of
expenditure made by a local authority, whose accounts he is under a statutory duty to audit.
The Appellant herein has been a Chairman of the Cuddalore Municipality. The Examiner of Local Fund Accounts surcharged the Appellant and
the other members of the Cuddalore Municipal Council to a sum of Rs. 6,496-06 nP. on the ground that the Municipality incurred a loss to that
extent on account of the negligence of the said councilors. Originally, the Cuddalore Municipality passed a resolution to illuminate all important
centers of the Cuddalore town with the mercury vapor lamps for the benefit of the public, and for that purpose invited sealed tenders for the supply
of 36 mercury vapor lamps together with the fittings. A notification calling for tenders Was also published in the newspaper; the Hindu and the
Swadesamitran on 12th September 1956. In response to the notification calling for tenders, tenders were received from the following firms:-(1)
Neo Hindustan Electrical, Madras, (2) The Modern Electrical, Cuddalore, (3) Radio Lamp Works, Madras and (4) Electric Power Devices,
Company, Bangalore. The two tenders received from the third and the fourth firms respectively were not placed before the Council by the
Commissioner, as they did not make the tenders in proper form and also because the said two firms did not quote the rates for all the items
required. Therefore, the Council considered only the two tenders received from the Neo-Hindustan Electricals, Madras and the Modern
Electricals, Cuddalore at its meeting held on 22nd April 1957. The Council, while considering the two tenders, thought it desirable to call for
quotations also from individual firms. Accordingly, the Commissioner of the Cuddalore Municipality called for quotations. The General Electric
Company, Madras, The Radio Lamp Works, Madras and the Modern Electricals, Cuddalore, gave their quotations. When the matter came up
again before the Council at its meeting held on 10th June 1957, the Council took into consideration the tenders only and ultimately accepted the
tender of the Modern Electricals, Cuddalore. In pursuance of the acceptance of the tender, the Cuddalore firm supplied 36 lamps and the
Municipality paid the amount. In the course of audit, the Examiner of Local Fund Accounts took objection to the procedure adopted by the
Municipality. In his opinion the decision of the Council to call for quotations when the tenders, were placed before the meeting amounted to a
rejection of the tenders although it had not been specifically recorded, and that when quotations were received, the Council was not justified in
accepting the tender of Modern Electricals, Cuddalore. He concluded that the Appellant and the other members of the Council were thoroughly
negligent in discharging their duties and had acted in a manner detrimental to the Municipality. In the view of the Examiner, the Council wanted to
favour one individual in Cuddalore. In the end, he issued a surcharge certificate under Rule 60 of schedule IV of the Madras District Municipalities
Act, that a sum of Rs. 6,496-06 nP. representing the loss caused to the Cuddalore Municipal Council fund was surcharge able and due jointly and
severally from the Appellant and the other members of the Council.
The Appellant herein questioned the propriety and correctness of the certificate and filed Original Petition No. 143 of 1959, out of which this
appeal arises, before the Sub-Court, Cuddalore. The learned Subordinate Judge dismissed the petition with the finding that the Appellant and the
other councilors really acted in a manner detrimental to the financial interests of the Municipal Council of Cuddalore. It is against this order that the
Chairman of the Council has preferred this appeal.
The only ground of complaint of the auditor against the Municipality seems to be that they accepted tender which was not the lowest, when
there was a quotation which they themselves called for was the cheapest. It is true that originally the Municipality called for tenders; when the
tenders came up for consideration at the meeting on 22nd April 1957, the Municipality passed a resolution to the effect,
Resolved to call for quotations for the supply of materials and lights etc.
After quotations were received the council at its meeting held on 10th June 1957, considered once again both the tenders and quotations, and
finally passed a resolution to the effect,
The lowest tender of Modern Electricals at rupees six hundred...as accepted....
The explanation that was offered by the Chairman and the other councilors was that they never intended to reject the tenders, and when the
tenders came up for consideration, they wanted to call for quotations also, and in the final meeting, they took into account all facts and
circumstances and decided to accept the lowest tender of the Modern Electricals, Cuddalore. They gave the reason that the Modern Electricals,
Cuddalore, being a local firm would be under their control, and on account of urgency, they would insist upon him to supply all the 36 mercury
vapor lamps, to be installed in Cuddalore Town. They never rejected the tenders, when they called for quotations.
It was contended by Mr. Rajah Iyer learned Counsel for the Appellant that the Examiner committed a mistake in coming to the conclusion that,
when the Municipality called for quotations, it should be deemed that the tenders had been rejected. According to the learned Counsel, it was the
intention of the Council, when the tenders came up for consideration to call for quotations also from some more firms before deciding the matter,
and that only by inviting quotations, they could get some more information about the market position of the goods. But the Council never intended
to reject the tenders. They were aware of the procedure laid down in Rule 4 of the tender rules that if they wanted to reject the tenders they should
get the sanction of the Government for dispensing with the tenders and accepting the quotations. Now, the relevant provision which authorizes the
auditor to issue the certificate is Rule 60(1) in schedule IV to the Madras District Municipalities Act, 1920. It is as follows:
The auditors may disallow every item contrary to law and surcharge the same on the person making, or authorizing the making of illegal payment;
and may charge against any person responsible therefore the amount of any deficiency, loss, or unprofitable outlay incurred, by the negligence or
misconduct of that person or of any sum which ought to have been but is not brought into account by that person and shall in every such case,
Certify the amount due from such person.
Now, this rule has to be interpreted for deciding this appeal. This rule is quite analogous to Section 247, Sub-Section 7 of the Public Health
Act, 1875, which is in the following terms:
Any auditor acting in pursuance of this section shall disallow every item of account contrary to law, and surcharge the same on the person making
or authorizing the making of the illegal payment, and shall charge against any person accounting the amount of any deficiency or loss incurred by the
negligence or misconduct of that person, or of any sum which ought to have been but is not brought into account by the person, and shall in every
such case certify the amount due from such person, and on application by any party aggrieved shall state in writing the reasons for his decisions in
respect of such disallowance or surcharge and also of any allowance which he may have made.
The scope of this section was considered on a number of occasions in the Court of Appeal. The leading case, and perhaps the earliest case on
this subject, is that of Rex v. Roberts (1908) 1 K.B. 407. In that case, in the course of audit, the auditor surcharged jointly and severally upon
certain members of the highway committee of the council several sums representing losses incurred by the council in respect of contracts for horse
forage, fine crushed ballast, carbolic acid, and boots respectively, by reason, as the auditor alleged, of the negligence or misconduct of such
members in the selection of tenders for the articles in question. Farwell L.J., in the course of the arguments observed:
Any body acquainted with business must know that it is frequently a most injudicious thing to accept the lowest tender....
7.1 Lord Justice Fletcher Moulton observed:
It is so obvious that the acceptance of the lowest tender is only a matter of discretion, and that often it is wiser to accept a tender that is not the
lowest....
7.2 Another Noble Lord observed in the same case,
In my opinion, it is plain that this is a matter of administration, not of policy....
7.3 Therefore, the mere acceptance of the lowest tender would not be enough for an auditor to issue a certificate. But he must go further and
prove that there was negligence or misconduct on the part of the councilors concerned when they accepted the lowest tender in preference to the
lowest quotation. Therefore, we have to see whether there was any negligence or misconduct on the part of the councilors, when they accepted the
lowest tender in spite of the fact that they had before them the lowest quotation. The Appellant has stated that the council never rejected the
tenders. He also gave reasons why the council accepted the tender in preference to the quotation. No fraud, or corruption has been suggested by
the auditor except a vague insinuation, namely, that, in order to prefer a local man, the councillors accepted the lowest tender. The members of the
council were admittedly honest in their recommendation, and to find them guilty of negligence, merely because they accepted the lowest tender in
preference to the lowest quotation, is not proper or justifiable. It is useful to refer to a passage of Lord Farwell at page 435:
The auditor found that the highest instead of lower tenders had been accepted, and asked the reason and was told that the committee thought it
best and they declined to answer further. No one, of course, would say that the lowest tender must or ought necessarily to be accepted, but Sir. R.
Finly pushed his contention to the extent that if one tender for the same material was five times greater than any other, the auditor must bow to their
decision without more. In my opinion, it is plain that this is a matter of administration not of policy....
A further question arises for consideration, whether the words
surcharge the same on the person making or authorizing the making of illegal payment and may charge against any person responsible therefore....
refer to all the members of the Municipal Council or the person who made the payment is responsible for the loss. In the instant case, the auditor
surcharged all the councilors'' of the Municipality in spite of the fact several councilors filed statements to the effect they were not well acquainted
with the procedure, some of them stating that they were not advised, warned or guided at the time of passing the resolution and one of the
councilors alleged that the Commissioner himself recommended the local tender On the fact of these allegations, can the auditor surcharge all the
councilors when the rule says that:
surcharge the same on the person making or authorizing the making of illegal payment
The answer is provided by the dissenting judgment of L.J. Fletcher Moulton in Rex v. Roberts (1908) 1 K.B. 407
It is clear that persons answering to either of these descriptions must necessarily be persons who are before the auditor in his capacity as such,
and must be persons who either have had money of the corporation for which they must properly account, or have had control of funds of the
corporation which they had authority to pay away, and for the proper expenditure of which they have therefore to account But to my mind it is
impossible to call an individual corporator as such a ''person accounting''. He brings in no accounts, and no money of the corporation passes
through his hands. The corporation is the person accounting, and person or persons to whom are delegated duties which include the receipt and
disbursement of moneys for specific purposes will become thereby ''persons accounting'', because they personally have to bring in accounts which
must be put into right form by the auditor. I do not pretend that these categories exhaust the possible ways in which an individual corporator may
become a person accounting, but to my mind he does not become in his personal capacity subject to the jurisdiction of the auditor, and liable to be
directly charged by him, merely, because he is a corporator. He may well become liable in respect of deficiencies due to the surcharges or
disallowances made by the auditor in the accounts brought in by the corporation, but if so his liability must be established (as between himself and
the corporation that has been surcharged) by the ordinary processes of law. The auditor has neither the power nor the jurisdiction to hold an
enquiry as to which of the individual corporators are to be visited with the consequences of what he deems to be an net of negligence on the part of
the corporation.
Their Lordships finally refused to surcharge the members for the loss suffered by the Council.
In case of The King (Kennedy) v. Browne (1907) 2 IRR. 505 certain members of a rural council employed solicitor and directed them to
prepare bonds. (which included agreements and warrants) for the contractors for the building of cottages and the fencing of plots. When the
solicitors furnished bill of costs, in which a charge of � 2-2-S. was made for the preparation and execution of these documents, the same was
allowed. When the accounts of the council subsequently came to be audited, the auditor disallowed certain amounts and surcharged the councilors
who authorized the employment of the solicitors with these sums. Lord O''Brien L.C.J., posing a question, was the particular payment that was
made an illegal payment?, observed thus:
I think not. I see no illegality whatever in the contract between the council and Mr. Cullinan. There was no suggestion of fraud or collusion. All
want of bona fides was more than once emphatically disclaimed. The contract between Mr. Cullianan and the council was a valid contract, infected
with no illegality, no corruption, no fraud, no collusion, no mala fides.
In the instant case also, I cannot say that the mere acceptance of the local tender is not a valid contract and nor can I say that the same is
infected with illegality, corruption, fraud, collusion or mala fides. In the same judgment, the following passage from the case of In Re Faure Electric
Accumulator Company (1888) 40 Ch. D. 141 is quoted:
Mere imprudence is not enough; want of judgment is not enough; grave error of judgment is not enough.
Similarly, in the case of Rex v. Roberts S urr. Ex parte (1924) 2 K.B. 695 while considering a surcharge certificate issued by an auditor upon the
councilors on the ground that they made overpayments to their employees, Scrutton L.J., observed at page 719:
But in determining what is reasonable and what is excessive, I think the auditor must give full effect to the consideration that he is dealing with a
representative body entrusted by Parliament with wide powers.... A wide margin should be allowed for error of judgment, not amounting to
misconduct, or for deliberate policy, not being illegal, with which the auditor cannot interfere.
What is negligence or misconduct was explained in a case decided on similar facts in Pentecost v. London District Auditor (1951) 2 K.B. 759.
In that case, a district auditor refused to surcharge a local authority or their officers concerned in respect of payments in full to contractors which
the officers had authorized though the work to which the payments related was defective. It was said on behalf of the objectors that the district
auditor applied the wrong test, when he directed himself to find gross negligence. In this connection, Lynskey, J., observed at page 764:
Negligence is well known and well defined. A man is either guilty of negligence or ho is not guilty of negligence. Gross negligence is not known to
the English common law so far as civil proceedings are concerned, and one has only to consider the phrase in criminal cases, particularly in cases
of motor manslaughter. In the ordinary case in civil proceedings, either a man is guilty of negligence or he is not.
In the same case, Devlin J., observed as follows:
Clearly, ''negligence'' is intended to be an alternative to ''misconduct and if one adds to negligence the element of moral culpability, it is difficult to
see any distinction between negligence with moral culpability, and misconduct. I therefore think that the right construction of the word ''negligence''
in its ordinary meaning.... It does not follow that every mistake or every want of judgment or every error of judgment on the part of any local
authority or official will lead to a surcharge. The test will be that of negligence in its ordinary sense, which is commonly applied in these Courts.
On a review of the case law on this question whether the auditor was right in issuing the surcharge certificate, I come to the conclusion that
merely because the councilors accepted the lowest tender when there was a cheapest quotation their action would not amount to negligence or
misconduct. It may be mere imprudence or want of judgment or grave error of judgment; but it is certainly not negligence or misconduct. After all,
these people came to the municipality:
to give their services to the community in this way. The task is at best remunerative, and often thankless; but if those who accept it are to be liable
to have their conduct pronounced upon and their character and property injured by decisions, not of any of the Courts of law. of the country, to
which they are of course amenable, but of a special tribunal consisting of an official chosen by a Government department without any powers or
qualifications for holding a judicial inquiry, and discharging these functions without any of the securities which protect the individual before our
Courts, and if the jurisdiction of that individual is not to be limited to requiring an account of municipal money for which the accused has made
himself responsible, but extends to calling him to account for the reasons and motives of all his actions, no self-respecting man will take part in
municipal affairs. Rex v. Roberts (1908) 1 K.B. 407, 433.
In the result, this appeal is allowed; but in the circumstances of the case, there will be no order as to costs.