## **IN THE HIGH COURT OF KERALA AT ERNAKULAM**
**PRESENT:**
**THE HONOURABLE MR. JUSTICE A.MUHAMED MUSTAQUE**
**WEDNESDAY, THE 11TH DAY OF JANUARY 2017/21ST POUSHA, 1938**
**WP(C).No. 38503 of 2010 (K)**
**--------------------------------------------**
**PETITIONER(S) : -------------------------**
**P.V.SIVADASAN, S/O. LATE RAMANKUTTY NAMBIAR, KADAMBOOR, P.O.EDAKKAD.**
**BY ADVS. SRI.M.V.AMARESAN SRI.P.N.MOHANAN**
**RESPONDENT(S) : -----------------------------**
**KANNUR DISTRICT EX SERVICEMEN MULTIPURPOSE CO-OP. SOCIETY LTD, P.O.PAYANGADI, PIN- 670 001.**
**BY ADV. SRI.M.SASINDRAN**
**THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 11-01-2017, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:**
Msd.
## **WP(C).No. 38503 of 2010 (K)**
## **--------------------------------------------**
## **APPENDIX**
## **PETITIONER(S)' EXHIBITS :**
**EXHIBIT P1: TRUE COPY OF THE ARBITRATION AWARD PASSED IN ARC NO. 352/2000 DATED 10.03.2005.**
**EXHIBIT P2: TRUE COPY OF JUDGMENT DATED 28.11.2009 OF THE KERALA CO-OP. TRIBUNAL, THIRUVANANTHAPURAM ON A.P.NO. 48/2005.**
- **EXHIBIT P3: TRUE COPY OF ENQUIRY REPORT DATED 14.08.2000.**
- **EXHIBIT P4: A TRUE COPY OF THE ARC FILED BY THE BANK ON 01.08.2000.**
- **EXHIBIT P5: A TRUE COPY OF THE PETITION FOR CONDITIONAL ATTACHMENT.**
- **EXHIBIT P6: A TRUE COPY OF THE AMENDED PLAINT.**
**EXHIBIT P7: A TRUE COPY OF THE E.P.NO. 218/2010.**
**EXHIBIT P3 IN I.A.NO. 9036/2012: A TRUE COPY OF THE JUDGMENT IN C.C.NO. 463/2007 DATED 05.03.2012 OF THE JUDICIAL FIRST CLASS MAGISTRATE.**
## **RESPONDENT(S)' EXHIBITS :**
**EXHIBIT R1(A): A TRUE COPY OF THE DEPOSITION GIVEN BY THE PETITIONER HEREIN THE ENQUIRY OFFICER.**
**EXHIBIT R1(B): A TRUE COPY OF THE DEPOSITION GIVEN BY THE PETITIONER HEREIN BEFORE THE ARBITRATOR IN THE ARC PROCEEDINGS.**
**EXHIBIT R1(C): A TRUE COPY OF THE DEPOSITION MADE BY THE PW1 IN THE ARC.**
**EXHIBIT R1(D): A TRUE COPY OF THE DEPOSITION MADE BY THE PW2 IN THE ARC.**
**//TRUE COPY//**
Msd.
**P.A.TO JUDGE.**
## **A.MUHAMED MUSTAQUE, J. =-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-= W.P.(C)No.38503 of 2010 =-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-= Dated this the 11[th] day of January, 2017**
## **JUDGMENT**
The petitioner was not a party to the arbitration suit originally initiated by the bank. He was impleaded during the pendency of the suit. The bank initiated proceedings against the defendants, who were originally arrayed in the party array on the premise that the defendants colluded together and misappropriated the bank fund. There was no allegation as set out against the petitioner in the suit. Pending suit, an enquiry report under section 65 of the Kerala Socieities Act, 1969 (hereinafter referred to as 'KCS Act' for short) was concluded. In the report, the name of the petitioner along with other committee members were referred. Accordingly in the suit, the petitioner was impleaded as the 11[th] defendant. It is to be noted that while impleading the petitioner, there was no specific allegations as against the involvement of the petitioner for claiming loss on the side of the bank. The petitioner was a Cashier in the bank. The bank instituted the suit alleging that the Director of the bank, who was worked as honarary Secretary, namely Sreedharan Nambiar granted gold loan to certain persons showing inflated value of gold and misappropriated the amount from the bank. It appears that Sreedharan Nambiar committed suicide. The bank thereafter, filed a
## **W.P.(C)No.38503 of 2010**
## **-:2:-**
## suit. It is appropriate to refer paragraph 4 of the plaint.
“An enquiry conducted by the Board of Directors with the help of the office of the Co-operative department found the total amount defrauded as detected so far at Rs.58,80,900/-. Sri.K.Sreedharan Nambiar and other defendents are found to be responsible for the loss. Since K.Sreedharan Nambiar is dead his legal heirs are responsible to compensate the bank. It is learnt and in evidence the legal heirs have inherited properties, acquired properties and carried on improvements using the defrauded money through K.Sreedharan Nambiar. The Governing body is satisfied that unless legal action is initiated the amount cannot be recovered.”
2. Thereafter, based on enquiry report under section 65 of the KCS Act, the petitioner was impleaded. Though there was no allegation against the petitioner in the plaint, taking note of the enquiry report, the only allegation that could have been possible against the petitioner is regarding dereliction of duties. The enquiry report in fact is not conclusive as against the petitioner. It is only a report for taking any action and before taking action, the petitioner should be given an opportunity. However, in spite of such report, the bank has not chosen to amend the pleadings to raise any claim against the petitioner in the suit, except simply impleading the petitioner in the party array with the pleadings referred as above. The petitioner appeared and contested the suit. Thereafter, the Arbitrator passed Ext.P1 award. The finding against the petitioner in arbitration award
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## is as follows:
“H.P.V.Sivadasan (defendant No.11)
This defendant was the Cashier cum accountant of the society during the period of alleged misappropriation. He deposed before the enquiry officer that he was the joint custodian of cash and stock along with the secretary. However, in evidence he denied the above statement. The allegation against this defendant is that he intentionally aided D1 and D6 to D9 to defraud society’s money by paying cash without ensuring the signature of the parties on the vouchers, given loan payments to same persons in excess of permissible limits etc. He admitted before the enquiry officer (Annexure 56 to Ext.A1) that he was aware of illegal activities of D1 but opted to keep silence for fear of action from D1. This is more clear from the fact that he admitted in evidence that a number loans were issued to one person same day and that loans more than 4 lakhs were issued to a person on a single day when the maximum loan that can be granted to a single person was Rs.10,000/-. As a responsible officer of the society D11 ought to have brought the infraction of bye-law provisions and other irregularities before the appropriate authorities. The failure in this regard is a clear dereliction of duty which resulted in heavy loss to the society and as such he should be made liable for the loss caused to the society. At the same it has to be noted that there is no allegation that he has appropriated any money of the society to his own benefit. He was negligent and the negligence has caused serious loss to the society. Considering the active involvement of the then secretary, D11 can only be described as a silent spectator of the entire activity deriving no monetary benefit out of it. He was acting as per the direction of the then secretary even exceeding his authorities. Considering all these relevant facts, I am of the view
## **W.P.(C)No.38503 of 2010**
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that there is no justification in fastening the responsibility of the entire amount of loans on his defendant. The following loan amounts were paid by D11 as cashier without obtaining signature on those vouchers or against forged signatures.
|Gl|5650|22000|
|---|---|---|
|GL|5933|15000|
|GL|5934|9000|
|GL|5935|20000|
|GL|6004|24000|
|GL|6007|30000|
|GL|5098|30000|
|GL|5100|32000|
|GL|5291|45000|
|GL|5294|45000|
|||---------------|
|||272000|
|||=======|
3. It is to be noted that, this finding has been entered without there being any attribution to the loss caused to the bank at the instance of the petitioner (11[th] defendant). The petitioner filed an appeal against the order before the tribunal. The tribunal in paragraph 23 of the judgment finds as follows:
“The discussions above would lead to the irresistible conclusion that there has been misappropriation of funds by falsification of records in sanctioning gold loans by D1 and D11 and that the defendants 6 to 9 obtained unlawful gains and they are defaulters.”
## **W.P.(C)No.38503 of 2010**
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This would shows that the petitioner has misappropriated the money along with others.
4. The question is whether the petitioner had caused loss to the society and misappropriated any amount. The main challenge in this writ petition raised by the learned counsel for the petitioner is that, no amount of evidence can be looked into without there being any pleading. It is submitted that principles of natural justice have been violated in the proceedings. The petitioner also relied upon the judgment of the Hon’ble Supreme Court in State of **Maharashtra v. Hindustan Construction Company** [2010 (4) SC 518], **Trojan & Co. v. R.M.N.N.Nagappa Chettiar** [AIR 1953 SC 235], **State of Orissa and another v. Mamata Mohanty** [2011 3 SC 436] and the petitioner also refers to mandate of Rule 67 of the KCS Rules and submits that this was not followed assuming that the report was filed along with impleading petition befofre the Arbitrator. It is to be noted that the loss sustained by the bank never quantified in the pleadings. The loss now calculated by the Arbitrator is without giving an opportunity to the petitioner to contradict components, which relied for calculating loss caused by the petitioner. In what manner the loss was caused is not known to the petitioner until the award was passed. It is seen from the award as referred above, the liability has been
## **W.P.(C)No.38503 of 2010**
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fastened taking note of the loan amount disbursed by the petitioner as a Cashier without obtaining signature on those vouchers or against forged signatures. Absolutely there is no such case in the pleadings raised against the petitioner nor was it found out in the documents produced. The primary aspect of giving an opportunity to the petitioner to contradict the calculation was not followed at in the adjudicatory process followed by the Arbitrator. The Arbitrator cannot bypass such procedure and practice. It appears that a Joint Registrar has approached the dispute as though he was conducting an enquiry under the KCS Act. It is to be noted that enquiry is different from an adjudication that contemplated under section 69 of the KCS Act. For any adjudication, there must be pre-existing facts being alleged and denied for adjudication. Without giving an opportunity to the parties to raise pleadings and to defend, no award can be passed against a party. In this case, there is a total violation of the principles of natural justice as the petitioner was never put to notice regarding quantification nor regarding the manner in which liability has to be fastened on him. In the absence of raising any pleadings, as against the petitioner, calling upon to defend. this court is of the view that any quantification of liability is without any basis.
In such circumstances, this court is of the view that the
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writ petition has to be allowed as authorities below committed jurisdictional error in exercising its power by fastening liability on the petitioner in a suit. Therefore, the writ petition is allowed as against the liability on the petitioner. It is made clear that this court has not interfered with the award passed against others. The writ petition is disposed of as above. No costs.
## Sd/
**A.MUHAMED MUSTAQUE JUDGE**
**jm/**
