Thrikkalathoor Service Co-operative Societies (General) v. Joint Registrar of Co-operative Societies (General), Ernakulam; and Mutholy Service Co-operative Bank Ltd. v. Co-operative Audit Director, Trivandrum & The Joint Registrar of Co-operative Societies, Audit, Kottayam

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** ## **THE HONOURABLE MR. JUSTICE DEVAN RAMACHANDRAN** **FRIDAY, THE 14TH DAY OF JUNE 2019 / 24TH JYAISHTA, 1941** ## **WP(C).No.15462 of 2019** ## **PETITIONER/S:** **THRIKKALATHOOR SERVICE CO-OPERATIVE SOCIETIES (GENERAL), THRIKKALATHOOR P.O., ERNAKULAM DISTRICT, REPRESENTED BY ITS SECRETARY.** **BY ADVS. SMT.I.SHEELA DEVI SHRI.PRADEEP BABU P.D.** ## **RESPONDENT/S:** |**1**|**THE JOINT REGISTRAR OF CO-OPERATIVE SOCIETIES (GENERAL),**| |---|---| ||**ERNAKULAM, KAKKANAD, KOCHI - 682 030.**| |**2**|**THE CONCURRENT AUDITOR**| ||**ARAKKUZHA, OFFICE OF THE ASSISTANT DIRECTOR OF CO-OPERATIVE**| ||**SOCIETIES, MUVATTUPUZHA, PIN - 686 661.**| |**3**|**THE JOINT REGISTRAR OF CO-OPERATIVE SOCIETIES (AUDIT)**| ||**5TH FLOOR, B-2 BLOCK, CIVIL STATION, KAKKANAD,**| ||**ERNAKULAM, KOCHI - 682 030.**| ## **OTHER PRESENT:** **SMT.C.S.SHEEJA-SR.GP** **THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 14.06.2019, ALONG WITH WP(C).15578/2019, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** WP(C).Nos.15462 & **15578** of 2019 2 ## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR. JUSTICE DEVAN RAMACHANDRAN** **FRIDAY, THE 14TH DAY OF JUNE 2019 / 24TH JYAISHTA, 1941** ## **WP(C).No.15578 of 2019** **PETITIONER/S:** **THE MUTHOLY SERVICE CO-OPERATIVE BANK LTD.NO.1631,THEKKEMURI, PULIYANNOOR POST, KOTTAYAM DISTRICT, REPRESENTED BY ITS SECRETARY** **BY ADVS. SRI.MATHEW JOHN (K) SRI.ABY J AUGUSTINE SRI.MATHEW DEVASSI** ## **RESPONDENT/S:** **1 THE CO-OPERATIVE AUDIT DIRECTOR TRIVANDRUM,PIN-695 001 2 THE JOINT REGISTRAR OF CO-OPERATIVE SOCIETIES, AUDIT, KOTTAYAM,PIN-686 001** **THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 14.06.2019, ALONG WITH WP(C).15462/2019, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** WP(C).Nos.15462 & **15578** of 2019 3 ## **J U D G M E N T** I am considering these two writ petitions together since the factual scenario presented therein are similar, if not identical, to each other and because the reliefs to be granted in one will certainly regulate and modulate the reliefs to be granted in the other. 2. These cases have been filed by two different Cooperative Banks, who impugn the report of the Concurrent Auditor appointed under the provisions of the Kerala Cooperative Societies Act, as per which, they have been asked to maintain a reserve of 100% of the principal and 100% of the interest of the sums deposited by them with certain marketing and other societies, which are allegedly now in the red, and from whom they are unable to receive any interest or to recover such deposits. 3. The petitioners say that at the time when they made the deposits, the societies were doing very well and that they were receiving interest from them without fail until the last two years. However, they concede that the societies, in which they have made deposits, are presently not doing well at all. They, therefore, say that they have now initiated action for recovery of WP(C).Nos.15462 & **15578** of 2019 4 their fixed deposits from such societies and pray that the audit report of the concurrent Auditor to the extent to which they have been asked to maintain the afore reserves, be set aside. 4. The learned Senior Government Pleader Smt.C.S.Sheeja, in response to the above contentions, submits that the petitioners have made the deposits in the marketing and other societies concerned without obtaining prior permission of the Competent Authority and that since these deposits now appear to be incapable of being recovered, the Concurrent Auditor, in the best traditions of accounting, has directed the petitioner Banks to maintain a reserve representing 100% of the principal and the full interest pertaining to the amounts deposited by them, so that the corpus of the members of the petitioner Banks may be sufficiently protected. She says that there is nothing wrong in the audit report of the Concurrent Auditor and prays that the said report be not interdicted and left to operate. She then adds to this by saying that the Audit Certificate has now become final and therefore, that this Court may not obtain jurisdiction to interfere with the conclusions therein, as has been declared by a Division Bench of this Court in **Peroor Service Co-op. Society Ltd v. State of Kerala and** WP(C).Nos.15462 & **15578** of 2019 5 ## **others (W.A.No.288 of 2018 in W.P.(C)No.16321/2017).** 5. On hearing the learned Senior Government Pleader as afore, Sri.Mathew John and Smt.I.Sheela Devi, the learned counsel appearing for the petitioners in these two cases, submitted that this Court has already, in a similar matter, taken a particular view and they refer to the Judgment of this Court in W.P.(C)Nos.29549 & 29795 of 2017. They say that this Court has in the said judgment, directed the competent Authority to reconsider maintenance of such large reserves, finding that by doing so, the fiscal health of the Societies would be very severely prejudiced. They, therefore, pray that this Court follow the said judgment and give them the benefits as granted therein. 6. Additionally, Sri.Mathew John, in response to the submissions of Smt.C.S.Sheeja, the learned Senior Government Pleader with respect to the finalization of audit report, submits that the mere fact that the Audit Certificate has now been finalized by the Authority would not stand in the way of this Court setting it aside to a limited extent and in directing the Concurrent Auditor to redo the provisions with respect to the maintenance of reserves. He, therefore, prays that this Court set aside the Audit Certificate and direct the Concurrent WP(C).Nos.15462 & **15578** of 2019 6 Auditor/Auditor to modify the same in terms of the directions in the judgment in W.P.(C)Nos.29549 & 29795 of 2017. 7. When I consider the submissions as afore, there is no doubt that this Court has already concluded in the judgment in the aforementioned writ petitions, namely, W.P.(C)Nos.29549 & 29795 of 2017, a copy of which has been placed on record as Ext.P10 in W.P.(C)No.15578/2019, as under,: “5. When I assess the submissions made before me by Sri.P.N.Mohanan and Sri.P.V.Baby, the learned counsel appearing for the petitioners, there are various crucial aspects that come to mind; particularly as to how the petitioners have made the deposits in the Societies which are now stated to be in financial crisis. Though the learned counsel are unison in their submissions that at the time when these deposits were made, the said Societies were doing very well, there is hardly any material for me to affirmatively conclude upon these issues. Further, even though Sri.P.V.Baby submits that his clients have made the deposits based on the provisions of the Byelaws, which are duly approved by the Registrar, I fail to understand how the petitioners could have made those deposits in marketing and such other Societies being fully aware of the volatility of such investments and that to without obtaining prior permission from the Competent Authorities. Of course, these are matters for which an assessment of the relevant factual circumstances, materials and documents will be required and it will not be within the province of this Court to affirmatively state upon these issues, while acting under Article 226 of the Constitution of India. When I disclosed my mind as afore at the Bar, the learned counsel for the petitioners submitted that there is an aspect of arbitrariness also in these cases because on similar set of circumstances, the concurrent Auditor has imposed a much lesser reserve on various other Banks, who have also made deposits akin to the ones made by the petitioner Banks and they therefore, say that this amounts to hostile discrimination. They further add that since they have taken action for recovery of the fixed deposits from the various Societies, to which such deposits have been made and since such action is now still going on, the Joint Director of Audit may be directed to at least reconsider the percentage of the reserve now ordered to be maintained, by reducing it to 5%, as has been done in the case of various other Banks in identical circumstances. They say that if this prayer of theirs is allowed, they will approach the Joint Director of Audit and impress upon him their need to bring down the WP(C).Nos.15462 & **15578** of 2019 7 ## percentage of reserve, so that they will not fall into a “loss category”. Taking specific note of the afore submissions and since I am certain that this Court cannot state conclusively on any of the issues raised in these cases, I deem it appropriate to allow the petitioners to approach the Joint Director of Audit, Kottayam, with an appropriate representation seeking to reduce the percentage of reserve to be maintained by them, by detailing the action taken for recovery of the deposits made by them with the defaulting Societies as also the other measures adopted by them to preserve their fiscal health, within a period of two weeks from the date of receipt of a copy of this judgment; in which event, the said Authority will decide upon the same, after affording an opportunity of being heard to the concerned officials of the petitioners-Banks thereafter and issue an appropriate order keeping in mind the specific contention of the petitioners that in identical circumstances certain other Societies have been burdened only with the requirement of maintaining a percentage between 5 and 10 of the capital invested as reserve. The consideration as afore directed will be made by the Joint Director of Audit also adverting to the action taken by the Banks for recovery of the amounts due to them from the defaulting Societies and also all other attendant circumstances; and if it is so possible, he may issue the resultant orders either reducing the percentage of reserve appropriately or modifying the impugned orders in such a manner as may be permitted in law. “ 8. I am certain that the petitioners herein must get the same benefits as has been offered in the afore judgment, but the only issue which bothers me at this time is the manner in which they will have to be given the said benefit. I say this because, it is the specific submission of the learned Senior Government Pleader that since the Audit Certificate has already been finalized, the petitioners must invoke their alternative remedy of filing a revision and that the Revisional Authority can act in terms of the afore judgment. However, it is also vehemently WP(C).Nos.15462 & **15578** of 2019 8 contended by Sri.Mathew John and Smt.I.Sheela Devi, that this Court can re-open the Audit Certificate under Article 226 of the Constitution of India, without asking them to file a revision, since it is only an alternative remedy, which will not impair the jurisdiction of this Court when a legal discrepancy is validly pointed out by them. 9. Even though I hear Sri.Mathew John and Smt.I.Sheela Devi as afore, I refrain from acceding to their above contention and request solely because the Audit Certificate is stated to have been finalized as per the provisions of the KCS Act and Rules and has consequently attained finality thus rendering the Concurrent Auditor/Auditor functus officio. Therefore, the only method by which I can authorise the said Authority to act further, will be if I set aside the Audit Certificate and direct the said Authority to finalize it again. 10. I am afraid that I do not intend to do that at this stage because, the petitioners concededly have an efficacious, alternative remedy of filing a Revision and particularly because, even in the judgment afore extracted, I only given them permission to approach the concerned Authority, with certain consequential directions having been issued to the said WP(C).Nos.15462 & **15578** of 2019 9 ## Authority. In the afore circumstances, I order these writ petitions and direct the petitioners to prefer statutory Revisions against the Audit Certificate in terms of Section 87 of the KCS Act; and if such revisions are filed by them within a period of one month from the date of receipt of a copy of this judgment, the competent Revisional Authority will act specifically in terms of the judgment afore extracted and grant all eligible benefits to the petitioners taking note of the fact that the provision for maintenance of such high reserves in their books of account will certainly lead them to perdition in future. I expect the Revisional Authority to rise to the occasion and to act dispassionately, taking note of the observations afore extracted in the judgment of this Court in W.P.(C)No. 29549 & 29795 of 2017, also after affording an opportunity of being heard to the concerned Authorities of the petitioners herein and to complete the afore directed exercise through a resultant order, as expeditiously as is possible but not later than two months from the date on which the revisions are filed before him. I make it clear that the Reevisional Authority will be fully WP(C).Nos.15462 & **15578** of 2019 10 competent to reconsider the provisions in the Audit Certificates in terms of law and to re-open the same, if it is so necessary, to comply with the directions of the afore mentioned judgment. Needless to say, until such time as the afore exercise is completed, all action pursuant to the provision, for maintenance of reserve of 100% of the principal and interest, in the Audit Certificates shall be deferred and such action, if any, will be pursued only in terms of the decision to be taken by the Revisional Authority in terms of this judgment. ## **Sd/-** ## **DEVAN RAMACHANDRAN** rp **JUDGE** WP(C).Nos.15462 & **15578** of 2019 11 ## **APPENDIX OF WP(C) 15462/2019** **PETITIONER'S/S EXHIBITS: EXHIBIT P1 TRUE COPY OF FIXED DEPOSIT RECEIPT DATED 7.12.2005. EXHIBIT P2 TRUE COPY OF CALCULATION STATEMENT OF THE RUBCO AS ON 31.3.2018. EXHIBIT P3 TRUE COPY OF AWARD IN A.R.C. NO.44/2008 DATED 26.3.2010 PASSED BY THE JOINT REGISTRAR OF COOPERATIVE SOCIETIES (GENERAL), ERNAKULAM. EXHIBIT P4 TRUE COPY OF RELEVANT PAGE OF THE MINUTES BOOK OF THE PETITIONER BANK. EXHIBIT P5 TRUE COPY OF COMPLAINT DATED 23.9.2017 SUBMITTED BY THE PETITIONER BANK BEFORE THE 3RD RESPONDENT. EXHIBIT P6 TRUE COPY OF ORDER NO.M.1480/17 DATED 13.12.2017 ISSUED BY THE 3RD RESPONDENT TO PETITIONER. EXHIBIT P7 TRUE COPY OF DECISION OF THE ANNUAL GENERAL BODY MEETING HELD ON 24.12.2017 FORWARDED TO THE 3RD RESPONDENT BY THE PETITIONER BANK. EXHIBIT P8 TRUE COPY OF COMMUNICATION DATED 3.4.2018 ISSUED BY THE CONCURRENT AUDITOR, OFFICE OF THE ASSISTANT DIRECTOR OF CO-OPERATIVE SOCIETIES, MUVATTUPUZHA. EXHIBIT P9 TRUE COPY OF MINUTES OF THE BOARD MEETING HELD ON 27.7.2018 OF THE PETITIONER'S BANK. EXHIBIT P10 TRUE COPY OF THE COMMUNICATION AS PER LETTER NO.M/145/18/R.DIS DATED 30.11.2018 ISSUED BY THE 3RD RESPONDENT AND AUDIT REPORT.** WP(C).Nos.15462 & **15578** of 2019 12 ## **APPENDIX OF WP(C) 15578/2019** ## **PETITIONER'S/S EXHIBITS:** **EXHIBIT P1 A TRUE COPY OF THE CIRCULAR DATED 22.3.1997 BY THE 2ND RESPONDENT EXHIBIT P2 A TRUE COPY OF THE LETTER DATED 23.4.1998 EXHIBIT P3 A TRUE COPY OF THE LETTER DATED 7.5.2018 ACKNOWLEDGING VARIOUS DEPOSITS MADE BY THE PETITIONER WITH M/S. RUBBER MARK EXHIBIT P4 A TRUE COPY OF THE READABLE COPY OF EXT.P3 EXHIBIT P5 A TRUE COPY OF THE JUDGMENT DATED 1.10.2009 IN W.P(C) NO.17793 OF 2009 EXHIBIT P6 A TRUE COPY OF THE RESOLUTION BEARING NO.190 DATED 20.6.2018 EXHIBIT P7 A TRUE COPY OF THE JUDGMENT IN W.P.(C) NO.6520 OF 2017 DATED 9.2.2018 EXHIBIT P8 A TRUE COPY OF THE CIRCULAR NO.40/2007 DATED 10.12.2007 EXHIBIT P9 A TRUE COPY OF THE AUDIT CERTIFICATE ISSUED BY THE 1ST RESPONDENT DATED 2.2.2019 EXHIBIT P10 A TRUE COPY OF THE JUDGMENT DATED 13.3.2019 IN W.P. (C)NO.29795 OF 2017**