The State of Karnataka, Secretary to Government, Department of Co-operation, The Director of Cooperative Audit and The Registrar of Co-operative Societies vs The Karnataka Milk Federation

P.D. Dinakaran, C.J.—Heard Sri Udaya Holla, the learned Advocate General appearing for appellant No. 1 and Sri Basavaprabhu S Patil,

learned Senior Counsel appearing for appellants-2 and 3 and Sri Jayakumar S Patil, learned Senior Counsel appearing for the respondent.

The above appeal is directed against the interim order dated 13.11.2008 made in writ petition No. 14153/2008 staying all further proceedings

impugned in the above writ petition dated 5.11.2008 initiated u/s 63(11) of the Karnataka Co-operative Societies Act, 1959 (for short hereinafter

referred to as the ""Act"") on the ground that the same cannot be resorted to, in view of Section 63(10) of the Act, particularly with reference to

Section 2(AA) of the Act which are referred to as hereunder:

Sectlon-2(AA) -Director of Co-operative Audit, Additional Director of Co-operative Audit, Joint Directors of Co-operative Audit, Deputy

Directors of Co-operative Audit and Assistant Directors of Co-operative Audit:

(1) The State Government may, appoint a person to be the Director of Co-operative Audit of Co-operative Societies for the State.

(2) The State Government may appoint an Additional Director of Co-operative Audit of Co-operative Societies and as many Joint Directors of

Co-operative Audit, Deputy Directors of Co-operative Audit and Assistant Directors of Co-operative Audit of Co-operative Societies, as it thinks

fit, for the purpose of assisting the Director of Cooperative Audit.

(3) The State Government may appoint such other officers with such designations as it deems fit to assist the Director of Cooperative Audit.

(4) All officers and persons employed in the Administration of this Act relating to audit shall be subject to the superintendence, direction and

control of the State Government and the Director of Cooperative Audit and the officer or officers to whom each officer appointed under this

Section shall be subordinate shall be determined by the State Government:

Provided that the power vested in the State Government and the Director of Co-operative Audit under this Sub-section shall not be exercisable so

as to interfere with the discretion of any authority in exercise of any quasi-judicial function whether as original or appellate authority.

(5) The State Government may by general or special order confer on any person appointed as Additional Director of Co-operative Audit, Joint

Directors of Co-operative Audit, Deputy Directors of Co-operative Audit and Assistant Directors of Co-operative Audit of Co-operative

Societies, all or any of the powers of the Director of Co-operative Audit under this Act.

(6) Notwithstanding anything contained in this Act, matters relating to audit of every Cooperative Society shall be subject to the supervision and

control of the Director of the Co-operative Audit.

Section 63(10) - If it appears to the State Government on application by a co-operative society or otherwise that it is necessary or expedient to

re-audit any account of a society, the State Government may, by an order provide for such re-audit and the provisions of the Act and the rules

applicable to the audit shall apply to such re-audit:

Provided also that such re-audit shall be ordered only when there is a prima-facie case of fraud, misappropriation or embezzlement of funds not

detected or properly examined by the auditor during regular audit or misclassification of accounts or for any other valid reasons with a view to truly

reflect the financial position of the Society;

Section 63(11) - Notwithstanding anything contained in the preceding sub-sections, the Director of Co-operative Audit shall have power to re-

examine or re-verify the audited accounts of any co-operative society pertaining to any year and incorporate the lapses observed during such re-

examination or re-verification in the next audit report to be issued.

Appreciating the contentions of the learned Counsel for the respondent/writ petitioner, the learned Single Judge stayed all further proceedings

which are intended for reexamining/re-verifying the audited accounts and the object being to earth-out the alleged fraud, misappropriation or

embezzlement, of funds, as the case may be, which are not deducted or properly examined by the auditor during the regular audit or

misclassification of the accounts of the Society in question.

In our considered opinion, when the object of re-examination/re-verification of the audit is intended for a laudable purpose to earth-out the

alleged fraud, misappropriation/embezzlement of funds, it may not be proper for this Court to stay such proceedings initiated under the statutory

power unless such powers provided under the said provision is held ultravires or the power exercised is held to suffer from erroneous or illegal

exercise of such power.

Therefore, in order to meet the ends of justice, the order dated 13.11.2008 under appeal is modified as hereunder:

The appellant No. 1 is at liberty to proceed with the re-examining/re-verification of the audited accounts of the Co-operative society in question

strictly in accordance with law. However, the result of such re-examination/re-verification of the audited accounts shall be given effect to, only after

the disposal of the writ petition.

It is also further made clear that it shall not be given effect to unless and until the writ petition is heard and finally disposed of and both the parties

are at liberty to request the learned Single Judge concerned for early disposal of the case.

The writ appeal is disposed of, accordingly.