Tenetowl LogoTenetowl
High Court of KeralaSingle JudgeWrit petition disposed of; impugned orders unde...

James Mathew and others v. State of Kerala and others

Case / Petition Number:WP(C).No. 1036 of 2017

Case Details & Bench

Court
High Court of Kerala
Hon'ble Judges
  • A. Muhammed Mustaque
Judgment Date
2018-11-07
Court Decision / Holding
The impugned orders under Section 68 are set aside; the writ petition is allowed; no surcharge is warranted on the facts and materials presented.
Final Disposition
Writ petition disposed of; impugned orders under Section 68 set aside.

Parties to the Case

Appellants / Petitioners

  • James Mathew
  • Jetto Jose
  • Betty KuriaKose
  • Shibu D.
  • K.J.Joseph
  • Joseph Joseph
  • Sunny Mathew
  • Santhosh Joseph
  • Alex T. Joseph

Respondents

  • State of Kerala represented by Secretary to Government, Co-operation(C) Department, Secretariat, Thiruvananthapuram-695 001
  • Joint Registrar of Co-operative Societies, Collectorate PO, Kottayam-686 002
  • Melukavu Service Co-operative Bank Ltd.No.3183 Melukavu PO, Kottayam District-686 652
  • Adv. FrinsO Mathew aged 40 years S/O K.C.Mathew, Kallakavumkal House, KIZHAKKENMATTOM PO, MELUKAVU VILLAGE, KOTTAYAM DISTRICT-686652 (Addl. R4 impleaded)
  • Jolly Joseph S/O JOSEPH, THAYYIL HOUSE, MELUKAVAMATTOM PO, KOTTAYAM DISTRICT (Addl.R5)
  • Eapen Dominic aged 59 years S/O EAPEN, THEKKEKANDATHIL HOUSE, MELUVAKUMATTOM P.O., KOTTAYAM (Addl.R6)

Legal Representation & Advocates

Counsels for Petitioners

  • • Sri Shaji Thomas
  • • Sri B. Rajesh (Kottayam)
  • • Sri H. Kiran

Counsels for Respondents

  • • Special Government Pleader, Sri Mohammed Hashim
  • • Sri O.D.Sivadas
  • • Sri K.Rajeswary
  • • Sri K.T.Thomas
  • • Sri Mathew B. Kurian
  • • Sri V.M.KuriAn

Case Synopsis & Summary

This writ petition challenges Exts. P3 and P4 orders passed under Section 68 of the Kerala Co-operative Societies Act against nine members of the Board of Management of Melukavu Service Co-operative Bank Ltd. The petitioners had approved an investment of Rs 25 lakh in SBI Mutual Fund on 22.12.2006, which was withdrawn on 05.05.2014, earning a profit of Rs 7,99,696. The authorities contended that the investment violated a Registrar’s decision dated 13.12.2006 and triggered surcharge proceedings under Section 68. The court first clarifies that the circular relied upon by the impugned orders post-dates the decision and that Section 68 must be triggered only when the loss to the society is the result of wilful negligence or mis-management. It follows the precedent in A.K. Francis v. Joint Registrar to emphasise that negligence alone is not enough; mens rea is required and adequate material must demonstrate breach of trust, wilful negligence, misappropriation or fraud. The court notes that the society did not suffer any loss; rather, the deposit yielded profit. It considers the element of risk in mutual fund investments and the discretionary powers of management. Consequently, the impugned orders are set aside and the writ petition is allowed, as the invoked reliance on Section 68 was unsustainable given the lack of loss and mens rea."

Provisions of Law Cited

Section 68, Kerala Co-operative Societies ActSection 543, Companies Act

Legal Doctrines & Maxims

  • Negligence simpliciter is not sufficient to visit the officer of a co-operative society with Section 68; mens rea required.
  • Proceedings for surcharge are akin to misfeasance proceedings under Section 543 of the Companies Act; the remedy is serious and must be backed by adequate materials.
  • Surcharge should be invoked only if conditions under Section 68 are strictly complied with; the charge must be based on relevant material showing breach of trust, wilful negligence, misappropriation or fraud.
  • Balance between risk in investments and discretionary powers of management.

Submissions & Arguments

Contentions of Appellants / Petitioners

The petitioners contend that Section 68 surcharge is not applicable to their case. They emphasize that the deposit of Rs.25 lakh in SBI Mutual Fund on 22.12.2006 was an investment decision taken by the Board in the ordinary course of administration and was not made to cause any loss to the society. The deposit yielded a profit of Rs.7,99,696, and there is no demonstration of wilful negligence or mismanagement. The circulars relied upon post-date the decision and cannot retrospectively validate an order under Section 68. Citing A.K. Francis v. Joint Registrar, they assert that negligence alone cannot trigger surcharge; there must be mens rea and material evidence showing breach of trust or fraud. The risk inherent in mutual fund investments and the preservation of discretionary powers of management are also highlighted. Given there was no loss to the society, the impugned orders lack a sound basis in law and evidence and must be quashed.

Contentions of Respondents

The respondents contend that Section 68 authorizes surcharge for losses caused by wilful negligence or mismanagement by the board. They argue that the Rs.25 lakh investment in SBI Mutual Fund, though yielding profit, was contrary to the Registrar’s order dated 13.12.2006 and the circular relied upon, justifying action under Section 68. They emphasize that surcharge is a serious remedy akin to misfeasance and should be based on relevant materials establishing breach of trust, wilful negligence, misappropriation or fraud. They point out that the investment involved risk and that the decision was not in strict compliance with regulatory directives; the output of the investment being profitable does not negate the possibility of mispractice if the actions were not properly authorized. The court must adhere to the statutory remedy and the recordings in the exhibits and orders reflect due process.

Cited Precedents (2)

Case NameCitationTreatmentExplanation
A.K.Francis v. Joint Registrar[(1990(2) KLT 470)]PositiveCited to establish that negligence alone is not sufficient to invoke Section 68; mens rea and adequate material are required.
W.P.(C) No.15663/201205.07.2012Mentioned OnlyExhibit R6(d) references this judgment; no discussion in the current judgment.

Diagnostic Tool

Beta

Does this judgment govern your specific facts?

Don't risk relying on a distinguishable precedent. Enter your facts or proposition below. We will test it against James Mathew and others v. State of Kerala and others and instantly map out authorities that support, challenge, or govern your position.

Extracted Judgment Text

Exact text extracted from official judgment records.

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR. JUSTICE A.MUHAMED MUSTAQUE WEDNESDAY,THE 07TH DAY OF NOVEMBER 2018 / 16TH KARTHIKA, 1940** ## **WP(C).No. 1036 of 2017** ## **PETITIONER/S:** |**1**|**JAMES MATHEW**| |---|---| ||**THEKKEL HOUSE, MELUKAVUMATTOM,KONIPPAD PO, KOTTAYAM**| ||**DISTRICT-686 652.**| |**2**|**JETTO JOSE**| ||**PADINJAREPEDIKAYIL HOUSE, EDAMARUKU PO, KOTTAYAM**| ||**DISTRICT-686 652.**| |**3**|**BETTY KURIAKOSE**| ||**KANJIRAMALAYIL HOUSE, KIZHAKKANMATTOM PO, KOTTAYAM**| ||**DISTRICT-686 652.**| |**4**|**SHIBU D.**| ||**KAPPAKALAYIL, KONIPPAD PO,KOTTAYAM DISTRICT-686 652.**| |**5**|**K.J.JOSEPH**| ||**KOOTTUMKAL HOUSE,EDAMARUKU PO, KOTTAYAM DISTRICT-686**| ||**652.**| |**6**|**JOSEPH JOSEPH**| ||**KARIMKUTTIKULATHU HOUSE, KONIPPAD PO, KOTTAYAM**| ||**DISTRICT-686 652.**| |**7**|**SUNNY MATHEW**| ||**VADAKKE MULANJANAL HOUSE, KIZHAKKANMATTOM PO, KOTTAYAM**| ||**DISTRICT-686 652.**| |**8**|**SANTHOSH JOSEPH**| ||**VALLANATTU HOUSE, MELUKUVMATTOM,KONIPPAD PO, KOTTAYAM**| ||**DISTRICT-686 652.**| |**9**|**ALEX T.JOSEPH**| ||**THADATHILANICKAL HOUSE, ERUMAPRAMATTOM PO,KOTTAYAM**| ||**DISTRICT-686 586.**| ||**BY ADVS.**| ||**SRI.SHAJI THOMAS**| ||**SRI.B.RAJESH (KOTTAYAM)**| ||**SRI.H.KIRAN**| **WP(C).No. 1036 of 2017** **2** ## **RESPONDENT/S:** **1 STATE OF KERALA REPRESENTED BY SECRETARY TO GOVERNMENT, CO-OPERATION(C) DEPARTMENT,SECRETARIAT, THIRUVANANTHAPURAM-695 001. 2 JOINT REGISTRAR OF CO-OPERATIVE SOCIETIES COLLECTORATE PO, KOTTAYAM-686 002. 3 MELUKAVU SERVICE CO-OPERATIVE BANK LTD.NO.3183 MELUKAVU PO, REPRESENTED BY ITS SECRETARY,KOTTAYAM DISTRICT-686 652.** ADDL. **4 ADV. FRINSO MATHEW AGED 40 YEARS S/O K.C.MATHEW, KALLAKAVUMKAL HOUSE, KIZHAKKENMATTOM PO, MELUKAVU VILLAGE, KOTTAYAM DISTRICT-686652. (** ADDL.R4 IS IMPLEADED AS PER ORDER DATED 09.02.2017 IN I.A.NO.2164/2017** ADDL. **5 JOLLY JOSEPH S/O JOSEPH, THAYYIL HOUSE, MELUKAVAMATTOM PO, KOTTAYM DISTRICT. (**ADDL.R5 IS IMPLEADED AS PER ORDER DATED 09.02.2017 IN I.A.NO.2172/2017** ADDL. **6 EAPEN DOMINIC AGED 59 YEARS S/O EAPEN, THEKKEKANDATHIL HOUSE, MELUVAKUMATTOM P.O., KOTTAYAM. (**ADDL.R6 IS IMPLEADED AS PER ORDER DATED 22.06.2017 IN I.A.NO.9290/2017) BY ADVS. SPECIAL GOVERNMENT PLEADER, SRI. MOHAMMED HASHIM SRI.O.D.SIVADAS SMT.K.RAJESWARY SRI.K.T.THOMAS SRI.MATHEW B. KURIAN SRI.V.M.KURIAN** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 07.11.2018, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **WP(C).No. 1036 of 2017** **3** ## **JUDGMENT** The petitioners are the members of Board of Management of Melukavu Service Co-operative Bank Limited, Kottayam District. The impugned Exts. P3 and P4 orders are passed by the authority under Section 68 of the Kerala Co-operative Societies Act. 2. While petitioners are the members in the Board of Management, a decision was taken to invest Rs.25,00,000/- (Rupees Twenty Five Lakhs only) in SBI Mutual Fund. The deposit was based on a decision taken on 22.12.2006. The amount was withdrawn on 05.05.2014. It carried a profit of Rs.7,99,696/-. Proceedings were initiated under Section 68 of the Kerala Co-operative Societies Act, stating that this deposit was in violation of **WP(C).No. 1036 of 2017** **4** decision of Registrar dated 13.12.2006. If the deposit was made in District Co-operative Bank, it would have carried 8% interest and the Co-operative Bank would fetch more amount calculated at sum of Rs.6,74,824.39/- by way of interest. Citing bank suffered a loss of Rs. 6,74824.39, proceedings under Section 68 of Kerala Co-operative Societies Act were initiated. 3. First of all, it is to be noted that the circular relied in the impugned order came into force subsequent to the decision taken by the bank. Secondly this is not a case where Section 68 of the Kerala Co-operative Societies Act is attracted. Action under Section 68 of the Act can be initiated only if the loss suffered by the Society is on account of any wilful negligence or mis-management on the part of the Board of management. Any action cannot be the subject **WP(C).No. 1036 of 2017** **5** matter of surcharge unless that decision is the result of any of the factors as referred in Section 68, initiated action under the above provision. 4. It is to be noted that the petitioner had made deposit in a public sector undertaking. Therefore, it cannot be said that it was collusive action. 5. It is appropriate in this context to refer to a judgment of this Court in _**A.K.Francis v. Joint Registrar [(1990(2) KLT 470)]**_ , wherein paragraph 16 and 17, it was observed as follows: _16. The uniform trend of decisions is therefore, that negligence simpliciter is not sufficient to visit the officer of a co-operative society with proceedings under Section 68. His conduct should be 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_ **WP(C).No. 1036 of 2017** **6** _under Section 68 or to pass an order of surcharge._ _17. Proceedings for surcharge are serious in their import, akin to misfeasance proceedings under Section 543 of the Companies Act. Under that Act however, the procedure is elaborate as in civil cases, and the person concerned gets full opportunity of putting forward his pleas before the High Court in relation to the charge of misfeasance or malfeasance. On the other hand, the proceedings under Section 68 are at a departmental level, at the level of the Joint Registrar of Co-operative Societies in ordinary cases, with only the remedy of an appeal to government. It is therefore, imperative that the special statutory remedy of surcharge is invoked only if the conditions prescribed under Section 68 are strictly complied with. 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 irresistable inferance that the person concerned is guilty of one or other of the acts specified in the section. A mere routine, mechanical chanting of the section or of the acts mentioned, without anything more, is not sufficient in law to sustain an order of surcharge. It should be based on relevant and adequate materials on which a court could_ **WP(C).No. 1036 of 2017** **7** _satisfy itself that the person concerned was guilty of breach of trust, wilful negligence, misappropriation or fraud._ 6. As it is clear that there must be an element of mens rea to cause loss to the society, it is to be noted that the interest rate offered by the bank is fluctuating. The deposit in mutual fund involves an element of risk. If the management is not given such power, it would amount to surrender of all discretionary power in carrying out the administration and management of the society. In every business, there is an element of risk. It is only when such decision is vitiated by any of the elements as referred in Section 68 of the Kerala Co-operative Societies Act. Proceedings can be initiated for surcharge. 7. In this matter Society had not suffered any loss, but on other hand, the deposit fetched a **WP(C).No. 1036 of 2017** **8** profit of more than Rs.7 Lakhs. A loss could not be estimated in comparison with similar investment made in other bank. It is doubtful an action could be initiated under Section 68 based on presumptive loss. No management would be able to take any decision in regard to the business if such presumptive loss is attributed. Therefore, the impugned order is set aside. Thus,the writ petition is disposed of accordingly. ## **Sd/-** ## **A.MUHAMED MUSTAQUE** ## **JUDGE** RK/08.11.2018 //TRUE COPY// PA TO JUDGE **WP(C).No. 1036 of 2017** **9** ## **APPENDIX** ## **PETITIONER'S/S EXHIBITS:** **EXHIBIT P1 : TRUE PHOTOCOPY OF THE ORDER NO.CP(4)61881/12 DATED 2-11-2014 ISSUED BY THE REGISTRAR OF CO-OPERATIVE SOCIETIES.** - **EXHIBIT P2 : TRUE PHOTOCOPY OF THE REPORT DATED 22-72015 OF THE UNIT INSPECTOR KIDANGOOR.** - **EXHIBIT P3 : TRUE PHOTOCOPY OF THE ORDER NO.CRP(1) 340/2015/K/DIS DATED 31-12-2015 ISSUED BY THE 2ND RESPONDENT.** - **EXHIBIT P4 : TRUE PHOTOCOPY OF THE GO(RT) NO.645/2016/CO.OP DATED 22-12-2016 ISSUED BY THE 1ST RESPONDENT.** - **EXHIBIT P5 : TRUE PHOTOCOPY OF THE ORDER DATED 1-10-2013 ISSUED BY THE 1ST RESPONDENT IN EXACTLY IDENTICAL MATTERS.** - **EXHIBIT P6 : TRUE PHOTOCOPY OF THE ORDER DATED 10-02-2014 ISSUED BY THE 1ST RESPONDENT IN EXACTLY IDENTICAL MATTERS.** - **RESPONDENT'S EXHIBIT:** - **EXHIBIT R6(a) : TRUE COPY OF THE APPEAL FILED BY 1ST PETITIONER** - **EXHIBIT R6 (b) TRUE COPY OF THE ORDER DATED 22.11.2011 ISSUED BY THE 2ND RESPONDENT** - **EXHIBIT R6(c): TRUE COPY OF THE APPEAL DATED 30.01.2012 FILED BY 6TH RESPONDENT** **EXHIBIT R6(d) TRUE COPY OF THE JUDGMENT DATED 05.07.2012 IN W.P.(C) NO.15663/2012** **EXHIBIT R6(e) TRUE COPY OF THE ORDER DATED 31.10.2012** **WP(C).No. 1036 of 2017** **10** ## **PASSED BY THE 1ST RESPONDENT** **//TRUE COPY//** **PA TO JUDGE** **RK**