Kuttachan Kakkadu (deceased) and others v. State of Kerala, Joint Registrar of Co-operative Societies (General), Idukki, and Chakkupallam Service Co-Operative Bank Limited No. I 154, Chakupallam P.O., Idukki District

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** **THE HONOURABLE MR.JUSTICE THOTTATHIL B.RADHAKRISHNAN** **TUESDAY, THE 1ST DAY OF MARCH 2016/11TH PHALGUNA, 1937** **OP.No. 18970 of 2000 (G) -------------------------** |**PETITIONER(S):**||| |---|---|---| |**-------------**||| |**1.**|**KUTTACHAN KAKKADU,**|**DIED**| ||**KAKKADU HOUSE, CHAKKUPALLAM P.O.,**|| ||**IDUKKI DISTRICT.**|| |***ADDL.P2**|**SOSAMMA SKARIA,**|| ||**WIFE OF LATE KUTTACHAN KAKKATTU,**|| ||**KAKKATTU HOUSE,**|| ||**MEENADOM P.O., PAMPADY, KOTTAYAM.**|| |***ADDL.P3**|**SHAJI K.KAKKATTU, S/O. DO**|**-- DO--.**| |***ADDL.P4**|**RACHEL KARIAKUTTY, D/O. DO**|**--,**| ||**MARANJATTU HOUSE, KOZHIPPALLI,**|| ||**KOTHAMANGALAM.**|| |***ADDL.P5**|**ANCY SKARIAKUTTY, D/O. --DO--,**|| ||**EDAYADI MALIYIL, PEROOR,**|| ||**KOTTAYAM.**|| ***(ADDITIONAL PETITIONER NOS.2 TO 5 ARE IMPLEADED AS PER ORDER DATED 03.12.2008 IN I.A.NO.15516 OF 2008)** **BY ADV. SRI.V.G.ARUN** **RESPONDENT(S):** - **--------------** **1. STATE OF KERALA, REPRESENTED BY THE SECRETARY TO GOVERNMENT, TRIVANDRUM.** **2. THE JOINT REGISTRAR OF CO-OPERATIVE SOCIETIES (GENERAL),** **IDUKKI.** **3. CHAKKUPALLAM SERVICE CO-OPERATIVE BANK LIMITED NO.I 154, CHAKKUPALLAM P.O.,** **IDUKKI DISTRICT, REPRESENTED BY ITS SECRETARY.** - **R3 BY ADV. SRI.MATHEW JOHN (K) R1 & R2 BY ADV.V.K.RAFEEK, GOVERNMENT PLEADER** **THIS ORIGINAL PETITION HAVING BEEN FINALLY HEARD ON 01-03-2016, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** jg-4/5 ## **A. MUHAMED MUSTAQUE, J.** ------------------------------------ ## O.P. No.18970 of 2000 ------------------------------------ Dated this the 31[st] day of July, 2018 ## **J U D G M E N T** This original petition was filed challenging an order passed under Section 68 of the Kerala Co-operative Societies Act (for short, 'the Act'). The petition was originally filed by one Kuttachan Kakkadu who was the President of the Managing Committee of Chakkupalam Service Co-operative Bank. Kuttachan is no more. His legal heirs got themselves impleaded and are prosecuting this original petition. 2. Apart from assailing the order on merit, an interesting question arises for consideration in this original petition as to the legality of an order passed under Section 68 of the Act by the Joint Registrar in the light of an order passed by the Arbitrator under Section 69 of the Act, on the same set of facts and allegations on which the proceedings were initiated leading to order under Section 68. **O.P. No.18970/2000** **2** 3. Brief facts involved in this case are narrated as follows: Late Kuttachan was the elected President of the Bank during 1983-1984. The statutory audit conducted in relation to the aforesaid period revealed that Kuttachan had committed financial irregularities in the matter of sanctioning of IRDP loans. It was specifically observed that, he placed the orders of manufacture of looms to one Bapooji Sevak Samaj of which he himself was the President. This was done without inviting quotations from the open market. It was also noted that he had chosen 59 persons of his choice, for the supply of looms at the rate of Rs.10,000/- per loom. The audit report found serious lapses and irregularities in disbursal of the loan as well. The Managing Committee which succeeded Kuttachan decided to institute a suit invoking the provisions of Section 69 of the Act. That suit was dismissed mainly noting the lack of pleadings, evidence etc. The Bank appealed before the Tribunal. The Tribunal also dismissed the appeal. 4. Based on the audit report, the department initiated action under Section 68 of the Act. After considering the objection from Kuttachan, Joint Registrar passed the impugned **O.P. No.18970/2000** **3** order. 5. Section 68 of the Act refers to surcharge. Such action is initiated based on the audit report, enquiry report or the inspection conducted by the department. If it is found in the course of inspection or enquiry that the persons, who are entrusted with the organisation or management of a society, have caused any loss or damage in the assets of the society by way of breach of trust or willful negligence or mismanagement or by misappropriation or by fraud, the persons shall be ordered to repay or restore the money or other property or any part thereof, with interest at such rate or to pay contribution and costs or compensation to such extent, as may be considered just and equitable. It refers to the state of mind of a person at the time of action, resulting to loss or damage. That is to say, 'mens rea' must exist when omission or commission occurred on the part of a person. The 'surcharge' is defined under Black Law Dictionary as 'the imposition of personal liability on a fiduciary for willful or negligent misconduct in the administration of his fiduciary duties'. 6. Therefore, the scope of proceedings is very clear. It is to penalise such persons, who, by their illegal action, caused **O.P. No.18970/2000** **4** loss to the society. Mere loss would not be sufficient. It has to be proved that such loss has been caused on account of any of the attributable factors as referred in Section 68. Therefore, the provision of penal nature and enquiry is directed more as against the nature of action that resulted in the loss or damage. 7. Section 69 of the Act provides a Forum for the society for adjudication of any disputes including monetary disputes between a society and any other society or between a society and its members including past members. The scope of enquiry is like in any other lis in adversary litigation. Thus, it can be seen that the scope of enquiry under Section 68 is relatable to a penal action that can be initiated against persons referred under Section 69 by the department and Section 69 is a Forum for adjudication of any disputes referred under the provision. In that background, the question that has to be considered is 'whether the decision rendered under Section 69 would have a binding effect in a proceedings under Section 68'. 8. This Court had in fact considered the scope of Section 68 in relation to Section 69 in _**Thrikkadavoor Service Co-operative Society Ltd.** vs._ _**Sivasankaran Pillai**_ **O.P. No.18970/2000** **5** (1990 (2) KLT 594) and opined that the two sections are complementary to each other, liable to be invoked within their own sphere by the persons authorised. 9. The principles relating to 'Res Judicata' will not have any application as the scope of application of statutory provisions are for different purposes. However, the application of 'principle of issue-estoppel' would arise for consideration. Before considering the application of doctrine of issueestoppel in the light of the facts involved in this case, it is necessary to refer the nature of the decision to be rendered under Section 68 of the Act and also about the decision rendered based on the adjudication under Section 69 of the Act. A decision rendered under Section 69 is akin to a judicial decision. An Adjudicator's approach is objective and guided by law to decide a dispute. The functions of an Adjudicator are referable to determination of the rights and obligations of parties involved in the dispute and also to the ascertainment of facts by means of evidence. On the other hand, the decision in administrative function focuses on a solution on the aspects the law intend to be achieved for governance or administration. The administration and management of the **O.P. No.18970/2000** **6** society is streamlined by taking appropriate penal action against persons who found in mismanagement of the society. In view of the fact that the nature of decision varies under Sections 68 and 69, the question of res judicata does not arise. However, certainly the question of issue-estoppel is germane for consideration. A decision in enquiry under Section 68 may not bind the Adjudicator under Section 69 even though it may be possible to rely it as piece of evidence before such Adjudicator. The decision under Section 69 would bind the authority under Section 68 if such issue has been decided on merits by the Adjudicator. In order to bind such decision of an Adjudicator under Section 69 upon the authority under Section 68, the same issue of fact and law have to be determined in the proceedings under Section 69. This is the purport of the principle of issue-estoppel. Therefore, in such proceedings the fact in issue has to be proved or disproved. 10. In this case, the arbitration case was dismissed for want of sufficient pleadings and evidence. There was no determination of issue. Merely because a claim was rejected in the arbitration case under Section 69 itself will not operate as a bar in a subsequent or separate proceedings under **O.P. No.18970/2000** **7** Section 68 unless there is determination of issue by ascertainment of facts. 11. In view of the above, the issue-estoppel is no avail for the petitioner to defend a proceedings under Section 68. 12. On merits, it can be seen that the order was passed after adverting to the audit report. All the relevant aspects were taken into account by the auditor. There is no infirmity with the decision making process. As seen from the audit report and the impugned order, the beneficiaries selected by the original petitioner are found to be fictitious persons. In such circumstances, this Court cannot interfere with the findings on facts. This writ petition is dismissed. No costs. Sd/- ## **A. MUHAMED MUSTAQUE JUDGE** smp