Jacob Cherian v State of Kerala, Joint Registrar of Co-operative Societies (General) and Attuvathala Service Co-operative Bank Limited

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** ## **THE HONOURABLE SMT. JUSTICE P.V.ASHA** **TUESDAY, THE 24TH DAY OF MAY 2016/3RD JYAISHTA, 1938** ## **WP(C).No. 11984 of 2011 (W)** **----------------------------** ## **PETITIONER :** **----------------------** **JACOB CHERIAN, KOITHARA PUTHEN VEEDU, KAINAKARY P.O.,ALAPPUZHA DISTRICT, PIN-688 501.** ## **BY ADV. SRI.V.VARGHESE** **RESPONDENT(S):** **-----------------------------** **1. STATE OF KERALA, REPRESENTED BY THE SECRETARY TO GOVERNMENT, CO-OPERATION DEPARTMENT, SECRETARIAT, THIRUVANANTHAPURAM-01** **2. JOINT REGISTRAR OF CO-OPERATIVE SOCIETIES (GENERAL), ALAPPUZHA. PIN-688 121** **3. ATTUVATHALA SERVICE CO-OPERATIVE BANK LIMITED NO.1541, KAINAKARI P.O., ALAPPUZHA DISTRICT, PIN-688 501.** **R1 & R2 BY SR GOVERNMENT PLEADER SRI.K.K.SAIDALAVI** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 24-05-2016, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **sts** ## **WP(C).NO.11984/2011** ## **APPENDIX** ## **PETITIONER'S EXHIBITS:** - **P1 COPY OF THE ORDER NO.(2) 1867/99/KDIS DATED 3/1/2007 OF THE 2ND RESPONDENT** - **P2 COPY OF THE RELEVANT EXTRACT OF THE NOTICE DATED NIL OF THE 2ND RESPONDENT UNDER SECTION 66 OF THE ACT.** - **P3 COPY OF THE RESOLUTION NO.123 OF THE BOARD OF DIRECTORS OF THE SOCIETY.** - **P4 COPY OF THE RESOLUTION NO.147 OF THE BOARD AND THE MINUTES OF THE ANNUAL GENERAL BODY MEETING OF THE SOCIETY DATED 19/6/1987** - **P5 COPY OF THE RESOLUTION NO.147 OF THE BOARD AND THE MINUTES OF THE ANNUAL GENERAL BODY MEETING OF THE SOCIETY DATED 19/6/1987** - **P6 COPY OF THE REPLY DATED 8/9/1999 SUBMITTED BY THE PETITIONER WITHOUT ITS ENCLOSURES** - **P7 COPY OF THE REPLY DATED 6/9/2005 SUBMITTED BY THE PETITIONER WITHOUT ITS ENCLOSURES** - **P8 COPY OF THE LETTER NO.CRP(2) 1801/07/L.DIS DATED 03/4/2007 OF THE 2ND RESPONDENT** - **P9 COPY OF THE APPEAL DATED 8/6/2007 FILED BY THE PETITIONER BEFORE THE GOVERNMENT** - **P10 COPY OF THE GO(RT) NO.94/11/CO-OP DATED 14/2/2011** - **P11 COPY OF THE LETTER NO.7435/CI/07 CO-OP DATED 24/11/2009 ISSUED BY THE ASSISTANT REGISTRAR OF CO-OPERATIVE SOCIETIES, KUTTANAD TO THE PETITIONER.** **RESPONDENT'S EXHIBITS: NIL** ## **/TRUE COPY/** **sts** **P.A.TO JUDGE** ## **P.V.ASHA J.** **-------------------------------------------W.P.(C) No.11984 of 2011** **---------------------------------------------** Dated this the 24[th ] day of May, 2016 ## **J U D G M E N T** The petitioner was working as a salesman under the 3[rd] respondent- Attuvathala Service Co-operative Bank Limited. On 30.6.1998, the Joint Registrar of Co-operative Societies ordered an enquiry under Section 65 of the Cooperative Societies Act, 1969 ('the Act' for short) through the Assistant Registrar of Co-operative Societies, Kuttanad. Assistant Registrar submitted his report on 25.09.1999, wherein serious irregularities were found in the functioning of the Bank, which caused huge financial loss. Based on this report inquiry was ordered Section 68 (1) of the Act, as per order dated 29.1.2001 of the Joint Registrar and the Assistant Registrar furnished his report on 31.5.2005. Notices were accordingly issued to those found responsible, including the petitioner who was working as a salesman at the relevant time. As per Ext.P2 notice issued under Section 66(5) of the Act, the loss caused by the petitioner was mainly towards the shortage of goods in Maveli store while he was working as salesman W.P.(C) No.11984 of 2011 2 and the amount found in the audit certificate for 1994-95 towards shortage of fertilizers and pesticides. Petitioner was thus found liable for the loss to the tune of Rs.53,901/- and was directed to show cause against realisation of the same under Section 68. The petitioner submitted Ext.P6 reply before the Joint Registrar, stating that he was given charge of the fertilizers and pesticides' unit only on 1.07.1997 as per Ext.P3 resolution of the Bank dated 08.08.1997. He relied on Ext.P4 resolution dated 29.1.1986 by which the Bank had decided to sell the goods of poor quality by way of reduction sale, after taking a decision in presence of concurrent auditor and Ext.P5 minutes of the general body meeting on 19.06.1987 which refers to the reply given therein that shortage in trading account of Maveli store was caused by the poor quality of goods, pestering by rats and the reduction sale held. He stated that he was not responsible for the shortage or the loss caused to the Bank and that therefore the amount referred to in Ext.P2 notice was not liable to be realised from him. According to him, he was W.P.(C) No.11984 of 2011 3 put in charge of the fertilisers and insecticides' unit only on 01.07.1997 as per resolution No.123 dated 8.8.1997. The petitioner submitted another representation before the Joint Registrar of Co-operative Society on 06.09.2005 again saying that he was not responsible for the loss alleged to have been caused in Ext.P2 notice. Thereafter, by Ext.P1 dated 03.01.2007, the Joint Registrar of Co-operative Societies issued surcharge proceedings under Section 68(2) of the Act allowing the Bank to recover a sum of Rs.10433.60/- towards shortage of stock in Maveli store and another sum of Rs.6406.15/- as per audit certificate from the assets of the petitioner. 2. The petitioner filed Ext.P9 appeal before the Government. Government after hearing the petitioner as well as the Bank and Joint Registrar of the Co-operative Societies passed Ext.P10 order, rejecting the appeal. The petitioner had in the appeal stated that he was not responsible for the loss caused to the Society and that the loss if at all caused was not due to his negligence. The Government in Ext.P10 found that in the enquiry under W.P.(C) No.11984 of 2011 4 Sections 65 and 68, it was found that petitioner was not vigilant in discharging his duties. The Bank had stated before the Appellate Authority that he was given charge of the Manure Depot as per resolution dated 2.2.1982 and 24.2.1984 and the charge of the Maveli Store was also entrusted to him. According to the Society, there is a deficit of stock amounting to Rs.10,433.60 in the Maveli Store during period of 1984-85 and 85-86 and the same was liable to be recovered from the appellant. Government rejected contention raised by the petitioner and found that the loss was seen during his period as salesman in Maveli Store. Stating that that petitioner was accused of similar charges earlier also when the Board of Directors had decided to realise the loss from him and observing that it was necessary to refer the service records also, Govt. rejected the appeal. Petitioner is challenging the surcharge proceedings and the order of Govt. contending that he was not in charge of the units at the relevant time when shortage occurred and that his contentions were not considered properly. W.P.(C) No.11984 of 2011 5 3. The Government has filed counter affidavit stating that the proceedings which culminated in Ext.P1 was surcharge proceedings initiated in accordance with law seeing that the petitioner was liable for stock deficit of a sum of Rs.10,433.60/- for the period from 1984 to 1987 and the manure stock deficit to Rs.6406.15/- for the year 1994-95. It is stated that the petitioner who was in charge of the manure depot as well as the Maveli store was liable to make payment as directed in Ext.P1 and thereby to make good the loss caused to the society. 4. Heard the learned counsel for the petitioner, learned Government Pleader and the learned counsel for the respondents 1 and 2. 5. Sub section 1 of Section 68 of the Act, which is relevant in this context reads as follows: **“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 W.P.(C) No.11984 of 2011 6 society, has made any payment contrary to the Act and the rules or the bye-laws, or has caused to 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 or 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.” 6. Therefore in order to conduct or direct an inquiry under Section 68 of the Act, against an employee of the Society, he should have caused loss to society and the said loss should have been one caused either by breach of trust or wilful negligence or mismanagement or misappropriation retention of money or other property of the society, at the instance of the employee. The learned counsel for the petitioner relied on the judgment of this W.P.(C) No.11984 of 2011 7 Court in **A.K.Francis v. Joint Registrar** [1990 (2) KLT 470] in support of his contention that there is no basis for the surcharge proceedings since loss was not caused because of his wilful negligence. The expressions 'wilful negligence' occurring in the Section 68(1) of the Act was considered by this Court, in paragraphs 12 and 16 of the judgment which read as follows: “12. The further requirement of S.68 is that the payment or deficiency in the assets of the society was made, or caused by breach of trust of wilful negligence or misappropriation or fraudulent retention of money. It is not the mere wrongful payment or causing of deficiency in the assets that attracts S.68, but the further fact that such payment or deficiency was made or caused by the breach of trust, wilful negligence, misappropriation or fraud of the person concerned. Unless the latter ingredient is found to exist, action under S.68 is ruled out. xxxxxxx xxxxxxxx 16. The uniform trend of decisions is therefore, that negligence simpliciter is not sufficient to visit the officer of a cooperative society with proceedings under S.68. The conduct should be W.P.(C) No.11984 of 2011 8 wilful, implying culpability with an element of deliberateness or mens rea involved in the conduct or omission which resulted in the loss. Without such conduct or omission, resulting in loss to the society, the Registrar is not entitled to proceed under S.68 or to pass an order of surcharge.” 7. Further, it was held that a person can be proceeded against, and visited 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. In the case of petitioner it is seen that there is a finding that loss was caused to the society on account of the shortage of goods in respect of the sale of manure and the shortage of goods in the Maveli store. But nowhere it is seen stated that the loss to the Society or the shortage of goods was caused by the wilful negligence of the petitioner. Therefore, from the records available, the conditions specified in Subsection 1 of Section 68 of the Act are not seen fulfilled. W.P.(C) No.11984 of 2011 9 8. The petitioner has another contention also in this writ petition with respect to the statement of the appellate authority while rejecting his appeal, to the effect that petitioner was proceeded against and was found guilty on several occasions. The petitioner has specifically stated in paragraph 14 of the writ petition that such statements are incorrect and that he was never accused of any similar charges earlier. He asserts that he has never caused loss to the society. Paragraph 14 of the writ petition is quoted below: “In this context, it is most respectfully submitted that the petitioner was never proceeded against or warned for any loss, nor was there even an allegation of loss against him except the one mentioned in Ext.P2. He was never accused of similar charges. The fact that loss was not incurred during his tenure is evident from Ext.P3. He was never furnished copies of the enquiry reports. There is no factual basis for the findings in Ext.P10 against the petitioner. The service records of the petitioner are totally irrelevant and extraneous materials in Section 65 or 68 proceedings.” W.P.(C) No.11984 of 2011 10 9. According to the petitioner, the surcharge proceedings related to the period prior to 1997-98, as can be seen from the notice Ext.P2 and from Ext.P1 order. According to him no proceedings were ever initiated against him till that time; therefore the findings of Govt while upholding the surcharge proceedings Ext.P10, were totally baseless and factually incorrect. The petitioner has also raised the contention that in view of Exts.P3 to P5 resolutions of the Society, it was evident that he was not responsible for the loss caused to the Maveli store or society at the relevant time. But Govt found that he was in charge of the units at the relevant time. 10. However, I find force in contention of the learned Counsel for the petitioner that there is no finding as to the 'wilful negligence' on the part of petitioner, which is a condition precedent for proceedings under Section 68 of the Act, as held by this Court in the judgment in **A.K.Francis** (supra), Ext P1 does not reveal any such finding. However, since the petitioner has not raised such a contention in the writ petition and the W.P.(C) No.11984 of 2011 11 respondents did not get an opportunity to controvert the same, I leave it to Govt. to consider this contention of the petitioner, along with other contentions. 11. In these circumstances, I quash Ext.P1 and P10 and direct the Government to re-consider Ext.P9 appeal and pass orders thereon afresh after affording an opportunity of hearing to the petitioner and the Society. It will be open to the petitioner to raise additional contentions or produce additional documents if any. Orders shall be passed within a period of 'four months' from the date of receipt of copy of the judgment. This writ petition is disposed of accordingly. Sd/- **P.V.ASHA, JUDGE.** AS/27/5/16