Pindimana Service Co-operative Bank Ltd. v. State of Kerala & Others (W.A. Nos. 10, 13, 49 & 101 of 2012)

# **IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT:** **THE HONOURABLE MR.JUSTICE C.N.RAMACHANDRAN NAIR & THE HON'BLE MR. JUSTICE BABU MATHEW P.JOSEPH** **TUESDAY, THE 7TH DAY OF FEBRUARY 2012/18TH MAGHA 1933** ## **WA.No. 10 of 2012 ()** **------------------------AGAINST THE ORDER/JUDGMENT IN WPC.34275/2010 DATED 28/11/2011 .....................** ## **APPELLANT/PETITIONER IN WPC:** **----------------------------------------** **JESSY SAJU PUNNAKKAL HOUSE, PINDIMANA KOTHAMANGALAM.** ## **BY ADV. SRI.THAMPAN THOMAS** ## **RESPONDENT(S)/RESPONDENTS IN WPC:** **-------------------------------------------------** **1. STATE OF KERALA REPRESENTED BY THE SECRETARY TO GOVERNMENT, CO-OPERATIVE DEPARTMENT, GOVERNMENT OF KERALA, THIRUVANANTHAPURAM - 695 001.** **2. THE JOINT SECRETARY TO GOVERNMENT OF KERALA, CO-OPERATIVE DEPARTMENT, THIRUVANANTHAPURAM - 695 001.** **3. THE JOINT REGISTRAR OF CO-OPERATIVE SOCIETIES, ERNAKULAM - 682 016.** **4. THE ASSISTANT REGISTRAR OF CO-OPERATIVE SOCIETIES, KOTHAMANGALAM, ERNAKULAM - 686 632.** **5. PINDIMANA SERVICE CO-OPERATIVE BANK LTD.NO.E.25 REPRESENTED BY ITS SECRETARY, PINDIMANA KOTHAMANGALAM - 686 681.** **svs** **.........2/-....** **...2...** ## **W.A. NO.10/2012** ## **6. ELDHO K.THOMAS** **KAVUNGHUMPILLIL HOUSE, CHELAD P.O.** **KOTHAMANGALAM - 686 632** **(LEADER OF CPIM AND FORMER CHAIRMAN OF THE ADMINISTRATIVE COMMITTEE) - 686 632.** ## **7. REJI JOSEPH** **AGED 53 YEARS, S/O.JOSEPH, RESIDING AT MALIYIL HOUSE PINDIMANA, KOTHAMANGALAM - 686 698 ERNAKULAM DISTRICT - 686 632.** **8. JOY THOMAS, AGED 56 YEARS, S/O.THOMAS RESIDING AT THUDUMMEL HOUSE,** **KOTHAMANGALAM TALUK, ERNAKULAM DISTRICT - 686 681. (ADDL.RESPONDENTS 7 & 8 ARE IMPLEADED AS PER ORDER DATED 28.11.2011 IN I.A.NO.18903 OF 2011).** ## **R1 TO R4 BY SR. GOVT. PLEADER SRI. SOMASUNDARAN** **THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 07-02-2012, ALONG WITH WA. 13/2012 AND CONNECTED CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** ## **svs** ## **C.N. RAMACHANDRAN NAIR &** ## **BABU MATHEW P. JOSEPH, JJ.** **---------------------------------------------------W.A. Nos. 10, 13, 49 and 101 OF 2012 -----------------------------------------------------** ## **Dated this the 7[th] day of February, 2012** ## **J U D G M E N T** ## Ramachandran Nair, J Pindimana Service Co-operative Bank Ltd., a Cooperative Society registered under the Co-operative Societies Act, 1969(hereinafter called as 'the Act') was managed by elected Managing Committee with appellant in W.A.13/2012 as the President during 2002-2006. Allegations were raised against the Board of the Managing Committee on the purchase of computer software, construction of the first floor of the building and also construction of a counter for the Branch of the Bank. After the tenure of the Managing Committee, an enquiry was ## **W.A. Nos. 10, 13, 49 and 101 OF 2012** ## **:2 :** ordered by the Administrative Committee who took over charge of the Managing Committee. In the first round of enquiry u/s 66 of the Act the Inspector of the Co-operative Societies found irregularities in respect of the four transactions referred to above. Based on the findings of the enquiry officer under Section 66, the Assistant Registrar of Co-operative Societies was appointed to conduct enquiry u/s 66 which led to surcharge orders against the Managing Committee consisting of all the nine members, including the President. In all the four transactions for purchase of computer software, the first floor construction of the branch and also the construction of a counter to the Branch, the total amount wasted or misappropriated was found to be Rs.6,65,705/-. This was divided by nine and each and every member of the Managing Committee including the President was directed to pay to the society the loss caused by them by way of surcharge u/s 68(2) of the Act. The individual liability ordered to be paid was Rs.73,967.20. Besides the liability to pay the surcharge ## **W.A. Nos. 10, 13, 49 and 101 OF 2012** ## **:3 :** amount which is only Rs.73,967/- , every member against whom such a surcharge order is passed will be disqualified from contesting the election to the Managing Committee of any society and the disability will also apply to the election to other Bodies including Panchayath. Among the nine persons surcharged, two of them filed appeal against surcharge orders before the Government which confirmed the orders against which a Writ Petition was filed before this court. One of the members of the Managing Committee directly filed Writ Petition challenging the surcharge order. 2. The three Writ Petitions challenging the surcharge orders and another connected case were heard by the learned Single Judge together. The learned Single Judge substantially allowed the Writ Petitions by vacating the surcharge orders with regard to the purchase of computers, construction of building and also construction of the counter. However, the learned Single Judge sustained the surcharge orders issued for the purchase of ## **W.A. Nos. 10, 13, 49 and 101 OF 2012** ## **:4 :** software for the Bank for Rs.1,86,000/-. As a result of the judgment, nine members including President of the Bank who were managing the Bank during 2002-2006 are called upon to pay Rs.20,000/- each by each of them towards the loss caused to the Bank for installation of computer software. It is against this judgment of the learned Single Judge, the present Writ Appeal Nos. 10, 13 and 49 of 2012 are filed. As of now, the appellant in W.A.13/12 is the President of the Pindimana Bank who came on reelection and the appellant in W.A.49/12 who was also a member of the Managing Committee got re-elected now. 3. So far as the appellant in W.A.10/12 is concerned she got elected as member of the District Panchayath and is continuing as such. Besides the liability to pay more than Rs.20,000/-, each of the appellants are facing disability to hold their office by virtue of the surcharge orders sustained by the Single Judge. The appellant in W.A.101/12 was the convener of the Administrative Committee for one year, during whose ## **W.A. Nos. 10, 13, 49 and 101 OF 2012** ## **:5 :** period enquiry was ordered against the appellants in other cases. It may be noted this appellant belongs to the rival political group. The appellant in W.A.101/12 and the appellant in the other three Writ appeals are members of rival political parties. 4. We have heard party respondents in the Writ Appeals. Some of the members of the society at whose instance enquiry was ordered and surcharge cases are booked were members of the Managing Committee, that was manging the society during the period between 2002 and 2006. 5. We have heard the senior counsel Sri.Thampan Thomas appearing for the appellants in the three connected cases and Advocate Sri. Alexander Joseph appearing for the appellant in W.A.101/12 and senior counsel Sri.M.C. Sen and Advocate Sri.V.G. Arun appearing for the party respondents and Sri.V. Somasundaram, Special Government Pleader appearing for Government and the statutory authorities. ## **W.A. Nos. 10, 13, 49 and 101 OF 2012** ## **:6 :** 6. In Writ Appeal Nos.10, 13 and 49 of 2012 the challenge is only against that part of the surcharge order sustained by the learned Single Judge making the appellants liable for the loss allegedly sustained by the Society in the purchase and installation of computer software for a total consideration of Rs.1,80,000/-. It may be noted that the learned Single Judge exonerated all the members of the Managing Committee from surcharge in respect of the three other transactions; one relating to construction of building and the other one pertaining to purchase of computer and the third relating to the construction of counter for the bank. The allegation of the appellants is that the surcharge proceedings initiated against them is politically motivated, because after that enquiry the then Government appointed the appellant in W.A.101/12 and the other members of the political parties to get enquiry ordered against the appellants that led to the surcharge notice. As already stated the learned Single Judge exonerated the appellants in respect of the three ## **W.A. Nos. 10, 13, 49 and 101 OF 2012** ## **:7 :** charges for the reason that there is no evidence to substantiate the allegations of misappropriation or mismanagement of the society. In fact, the finding of the learned Single Judge is that proceedings were initiated against construction of a strong room which was got done by the society by a reputed company. While the appellants in the three connected appeals are challenging the findings of the learned Single Judge in regard to the surcharge sustained for the acquisition of software for a total consideration of Rs.1,80,000/-, the appellant in Writ Appeal 101/12 is challenging the judgment of the learned Single Judge exonerating other appellants in respect of the three charges for which they are surcharged. The prayer in these Writ Appeals is for restoration of surcharge orders in full. 7. In the first place, after hearing both sides and on going through the judgment of the learned Single Judge we do not find any substance in the Writ Appeal No.101/12 because the learned Single Judge has considered in detail ## **W.A. Nos. 10, 13, 49 and 101 OF 2012** ## **:8 :** the surcharge order passed on the alleged irregularities in the construction of building, bank counter and purchase of computer. The findings of the learned Single Judge is that all the procedural formalities have been complied with and the Managing Committee have not misappropriated or misapplied funds. In fact the findings with regard to the construction of the strong room that it was done by a reputed company engaged by the Bank over which allegations were found to be not supported by any evidence. After going through the judgment we are satisfied that the learned Single Judge looked into the evidence in detail and he came to the conclusion that the findings cannot be sustained. So much so, we do not find any merit in W.A.101/12 and the same is accordingly dismissed. 8. We now proceed to consider the challenge made in W.A.Nos.13/12 and 49/12 filed by the three former members of the Managing Committee of the Bank of which two are now in the Board of Directors and one of them who ## **W.A. Nos. 10, 13, 49 and 101 OF 2012** ## **:9 :** is the appellant in W.A.13/2012 is the President. According to appellants, the contract was awarded after inviting tenders and in fact the supplier installed the software which worked without any difficulty for two years. Even thereafter the Secretary of the Bank allegedly found out some problem in the working of the software which led to eventually replacement of the software by the Bank. The total cost incurred is taken as loss caused by the members of the managing committee and the entire amount of Rs.1,80,000/- is ordered to be paid by the members of the Managing Committee towards surcharge. 9. The Special Government Pleader appearing for the State and the statutory authorities do not defend the surcharge orders. On the other hand, he has cited the decision of this court reported in **A.K. Francis v. Joint Registrar** ( **1990 (2) KLT 470)** wherein this court held that S.68 proceedings will lie only if there is proved breach of trust or willful negligence or misappropriation or fraudulent retention of money. The appellant's counsel as ## **W.A. Nos. 10, 13, 49 and 101 OF 2012** ## **:10 :** well as the counsel for the special Government Pleader submitted that computerization of the society was done under the leadership of a committee constituted with others including the District Co-operative Bank President, General Manager etc. 10. According to the appellants contract was awarded after inviting tenders and the software was in fact installed in the computer which worked without any difficulty for two years. The allegations were deliberately made on political considerations, is the specific case of the appellants. The counsel for the respondents, on the other hand, contended that the supplier who supplied the software did not care to do the service which led to the complete collapse of the system. Further, according to them the subsequent letters of the Secretary of the Society were not even responded by the supplier. Ultimately, since the loss caused to the society is the loss caused by the appellants, it offers sufficient justification for imposing surcharge u/s 68(2), is the case of the respondents. After ## **W.A. Nos. 10, 13, 49 and 101 OF 2012** ## **:11 :** hearing both the sides, we are unable to sustain the surcharge order as well as the judgment of the learned Single Judge sustaining it in respect of the alleged loss caused for the purchase of the computer software. Obviously, Board of Directors of the Co-operative Society are not experts in software. In fact, it is the Secretary of the Society who should have been more careful about the installation of the software, back up support and service from the suppliers. The Secretary did not give any evidence to the effect that the software was not properly installed and commissioned in terms of the tender conditions. On the other hand, the finding of the authorities below is that the software worked for two years and the alleged failure happened for want of service after two years. There is no allegation against the appellants that they have collected any commission or shared any amount from the suppliers or are involved in any fraud. On the other hand, the only presumption that could be drawn is that the failure of the software is on account of want of ## **W.A. Nos. 10, 13, 49 and 101 OF 2012 :12 :** proper service by the supplier and the quality of the software supplied. We are, therefore, unable to sustain the order of surcharge. What we notice is that this is a case of breach of contract by the supplier of the software who refused to do back up service. It is not known whether the computer company itself was wound up because subsequent letters were found to be returned without service, is the case of the respondents themselves. In any case, going by the law laid down by this court in the decision reported above, we do not find any materials to hold that the members of the Board of Directors were involved in any financial fraud, misappropriation or misapplication of the society's fund for the purchase of software, the total consideration of which was Rs.1,80,000/-. Therefore, we do not find any merit in the surcharge order sustained by the learned Single Judge in the purchase of software for Rs.1,80,000/-. Considering the serious consequences and disabilities the appellant will have to suffer as a result of surcharge order, the evidence ## **W.A. Nos. 10, 13, 49 and 101 OF 2012** ## **:13 :** required should be such that it would establish beyond any doubt involvement of the appellants in mis-management, misapplication or misappropriation of funds. Since there is no positive finding about any benefit received by any of the members of the committee or want of any case on the part of the committee in awarding the contract for supply of software, we are unable to sustain the surcharge order which was confirmed by the learned Single Judge. We, therefore, allow Writ Appeals by vacating the judgment of the learned Judge on this issue and allow the Writ Petition by vacating the surcharge order namely Ext.P1 in WPC 24794/10 for the supply of computer software also. ## **C.N. RAMACHANDRAN NAIR, JUDGE.** **BABU MATHEW P. JOSEPH, JUDGE.** ul/-