W.P.(C). Nos. 4449 & 6060 of 2004

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** ## **THE HONOURABLE MR. JUSTICE SHAJI P.CHALY** ## **WEDNESDAY, THE 27TH DAY OF JULY 2016/5TH SRAVANA, 1938** ## **WP(C).No. 4449 of 2004 (D)** **-----------------------------------------** ## **PETITIONER(S) : -------------------------** **1. A.RAJAPPAN, ATHUMPUNKAL, CHENGALAM P.O., KOTTAYAM.** **2. M.E.ISMAIL,** - **MULLANMADAKKAL HOUSE, VANCHIMALA P.O., KOTTAYAM.** **3. M.G.KRISHNAN NAIR, MULAKKAL HOUSE, OORALI P.O., KOTTAYAM.** - **4. MATHAI THOMAS,** - **MUTTATHUNGAL HOUSE, -DO- -DO-.(DIED)** **5. V.T.JOSEPH,** - **VELLAPANYIL HOUSE, -DO- -DO-.** **6. K.P.SAROJINI AMMA,** - **MANGAT HOUSE, PANAMTHANAM P.O.,, OORALI, KOTTAYAM.** **7. C.K.KUMARAN, CHIRAKKAL HOUSE, OORALI P.O., KOTTAYAM.** ## *** ADDITIONAL P8 AND P9 IMPLEADED** **8. MARYKUTTY MATHEW, W/O.MATHAI THOMAS, PUTHENPURAKKAL HOUSE, KOORALI POST, KOTTAYAM.** **9. SUNNY MATHEW, S/O.MATHAI THOMAS, PUTHENPURAKKAL HOUSE, KOORALI POST, KOTTAYAM.** - **ADDITIONAL P8 & P9 ARE IMPLEADED AS PER ORDER DATED 07.07.2016 IN I.A.NO.10368 OF 2016.** **BY ADVS. SRI.MATHEW JOHN (K) SRI.SUJESH MENON V.B.** **..2/-** **..2..** ## **WP(C).No. 4449 of 2004 (D)** ## **-----------------------------------------** **RESPONDENT(S) :** - **----------------------------** **1. THE SECRETARY TO GOVERNMENT, CO-OPERATION, TRIVANDRUM.** **2. THE JOINT REGISTRAR OF CO-OPERATIVE SOCIETIES, KOTTAYAM.** **3. THE ENQUIRY OFFICER, ASST. REGISTRAR OF CO-OPERATIVE SOCIETIES (GENERAL), KANJIRAPPALLY.** **4. ELANGULAM SERVICE CO-OPERATIVE BANK LTD. NO.3576, KOORALI P.O., KOTTAYAM DISTRICT.** - **R1 TO R3 BY SR. GOVERNMENT PLEADER SRI.V.VIJULAL R4 BY ADV. SRI.TOM JOSE** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 18-07-2016, ALONG WITH W.P(C).NO.6060 OF 2004, THE COURT ON 27-07-2016 DELIVERED THE FOLLOWING:** Msd. ## **WP(C).No. 4449 of 2004 (D)** ## **-----------------------------------------** ## **APPENDIX** ## **PETITIONER(S)' EXHIBITS :** **EXHIBIT P1: A TRUE COPY OF THE NOTICE ISSUED TO THE 2ND PETITIONER BY THE 3RD RESPONDENT.** - **EXHIBIT P2: A TRUE COPY OF THE NOTICE ISSUED TO THE 2ND PETITIONER DATED 10.09.1998 BY THE 3RD RESPONDENT.** - **EXHIBIT P3: A TRUE COPY OF THE OBJECTION BY THE 4TH PETITIONER DATED 22.09.1998.** - **EXHIBIT P4: A TRUE COPY OF THE NOTICE DATED 23.02.2000.** - **EXHIBIT P5: A TRUE COPY OF THE REPLY SUBMITTED BY THE 4TH PETITIONER DATED 26.03.2000.** - **EXHIBIT P6: A TRUE COPY OF THE NOTICE ISSUED TO THE 3RD PETITIONER DATED 17.06.2000.** - **EXHIBIT P7: A TRUE COPY OF THE REPLY BY THE 3RD PETITIONER DATED 24.06.2000.** - **EXHIBIT P8: A TRUE COPY OF THE PROCEEDINGS DATED 14.07.2000.** - **EXHIBIT P9: A TRUE COPY OF THE MEMORANDUM OF APPEAL FILED BY THE PETITIONERS.** ## **EXHIBIT P10: A TRUE COPY OF THE HEARING NOTE.** - **EXHIBIT P11: A TRUE COPY OF THE ORDER DATED 14.10.2003 BY THE 1ST RESPONDENT.** ## **RESPONDENT(S)' EXHIBITS :** ## **NIL** **//TRUE COPY//** **P.A.TO JUDGE.** Msd. ## **'C.R.'** ## **SHAJI P. CHALY, J.** ---------------------------- W.P.(C). Nos. 4449 & 6060 of 2004 **----------------------------------------** Dated this the 27[th] day of July, 2016 ## **JUDGMENT** Above writ petitions are intrinsically connected and therefore I propose to pass a common judgment. The orders under challenge are passed by the second and first respondents respectively. The facts discernible from W.P.(C)No. 4449/2004 are recited and wherever separate facts are required, same will be stated separately. Petitioners are members of Board of Directors of the 4[th] respondent Bank in both these writ petitions for the period upto 4.9.1997. On 4.9.1997, the Board of Directors of the 4[th] respondent Bank was superseded by invoking Section 32 of the Kerala Cooperative Societies Act (hereinafter referred to as 'the Act'). Later, third respondent was appointed as enquiry officer to enquire into the allegations of financial irregularities allegedly occurred in the 4[th] respondent W.P.(C). Nos. 4449 & 6060 of 2004 2 Bank. The enquiry was conducted in exercise of powers conferred under Section 65 of the Act. According to petitioners, an enquiry under section 65 can be invoked only if the Registrar choses to do so in his own motion or consequent to an enquiry report of the Vigilance officer appointed under Section 65A of the Act or on a report of the Director of the Co-operative Auditor appointed under Section 63 of the Act or on an application by the majority of the members of the committee or the society or by not less than 1/3[rd] members in the general body meeting whichever is less, or an application by the Apex Society or financing bank of which such society is a member, or on an application of the society to which the society concerned is affiliated. 2. According to petitioners, in the instant case none of the jurisdictional pre-conditions for invoking the powers vested under Section 65 of the Act are available. In that view of the matter, the very initiation of the W.P.(C). Nos. 4449 & 6060 of 2004 3 enquiry under Section 65 is vitiated for want of power or jurisdiction to initiate the same. That apart it is also contended that, the parameters provided under Rule 66 of the Kerala Co-operative Societies Rules (hereinafter referred to as 'the Rules') are also mandatory and since there is breach of conditions of the said Rule, the enquiry under Section 65 would stand invalidated. That, there is no order as provided under Rule 66 and therefore, the very initiation of the enquiry under Section 65 is vitiated. That apart, despite the repeated requests of the petitioners for furnishing the copy of the report under Section 65 of the Act, same has not been considered and till date they are not furnished with the enquiry report, conducted under Section 65 of the Act. 3. It is also urged that, after sometime, third respondent issued another notice dated 10.9.1998 purporting to be one under Section 68(1) of the Act, evident from Ext.P2. Ext.P2 refers to a report said to W.P.(C). Nos. 4449 & 6060 of 2004 4 have been prepared by the third respondent in purported exercise of powers under Section 65 of the Act, but, no details of the enquiry report have been referred to in Ext.P2 notice. But, the notice intimated the petitioners that, liability to the tune of Rs.27,49,450/- has been proposed on them, and the petitioners were directed to show cause as to why tentative liability shall not be finalised against them. Pursuant to the same, petitioners have submitted Ext.P3, in which they have pointed out that, the entire proceedings have been initiated against them in violation of the principles of natural justice. That part it is also contended that, the Board of Directors of the 4[th] respondent Bank did not act illegally or irregularly and they have acted in compliance with the provisions of the Act, Rules and byelaws of the society. Apart from other circumstances, petitioners have disputed the alleged sanctioning of the loans without adequate securities and again requested for the copy of the 5 W.P.(C). Nos. 4449 & 6060 of 2004 enquiry report alleged to have been prepared. Thereafter, petitioner was served with Ext.P4 notice dated 23.2.2000. Ext.P4 refers to the details of the amounts outstanding by way of loan and it is clearly stated thereunder the particular officers in charge of the particular section of the bank who were responsible for the loss caused to the Bank. However, after entering a positive finding accordingly, second respondent has chosen to fasten the liability on the petitioners on the reasoning that, the petitioners did not take effective steps to prevent the officers from misappropriating the funds. Petitioners have submitted Ext.P5 reply to Ext.P4, wherein also petitioners repeated the request for furnishing copy of the enquiry report under Section 65 of the Act and the enquiry report under Section 68(1) of the Act, and further that, they may be provided with sufficient time to submit a detailed and effective reply to Ext.P4. It was also stated therein that, petitioners have 6 W.P.(C). Nos. 4449 & 6060 of 2004 no manner of liability for the loans advanced by the officers to the loanees especially, in Ext.P4, the officers who are responsible are identified. Petitioners also claimed protection of their bonafide action under Section 106 of Act which provides immunity for the acts done or purporting to done in good faith. That apart, it is stated that, instead of complying with the request sought for in Ext.P5, Ext.P6 notice was issued to which petitioners have submitted Ext.P7 reply again requesting to furnish copies of the reports as sought for in Ext.P5. According to petitioners, report under Section 65 or 68 (1) are not privileged documents and despite this the respondents did not choose to provide copies of the report requested to by the petitioners thus effectively preventing the petitioners from defending their case. Thereafter, as per Ext.P8, the Joint Registrar rejected the request of the petitioners and passed an award on 14.7.2000 fastening liability to the tune of Rs.29,15,126/-. W.P.(C). Nos. 4449 & 6060 of 2004 7 4. Aggrieved by Ext.P8 petitioners preferred Ext.P9 appeal before the first respondent, contending that, procedure adopted by the respondents is illegal, and materials have been gathered against the respondents to establish that the whole exercise is violative of principles of natural justice. The appeal preferred by the petitioners were heard along with appeal preferred by other Board of Directors, and some of the petitioners have submitted Ext.P10 hearing note. After providing opportunity of hearing, first respondent has passed Ext.P11 order confirming Ext.P8 order passed by the second respondent. It is thus aggrieved by Exts.P8 and P11, these writ petitions are preferred by the petitioners. 5. First respondent has filed a counter affidavit disputing the allegations, statements, claims and demands raised by the petitioners. It is stated therein that, powers of the Registrar have been delegated to W.P.(C). Nos. 4449 & 6060 of 2004 8 Joint Registrar and hence Joint Registrar is empowered to hold an enquiry by himself or any person authorised by him. That apart it is contended that, the impugned order was issued by the Joint Registrar on his own motion and hence within the jurisdiction. It is also stated that, notices were issued to the petitioners by the enquiry officer for hearing, during the course of enquiry. The Board of Directors cannot evade from the responsibilities by passing on the liability to the Secretary and staff alone for the irregularities and misappropriation. The Board of Directors can interfere in the day to-day affairs of the Bank and if the Secretary and staff of the Bank have committed irregularities and misappropriation, it can be interfered with by the Director Board. Petitioners participated in the enquiry. Opportunity was provided to the petitioners for personal hearing and it was thereafter that, the report was submitted by the enquiry officer. After considering the W.P.(C). Nos. 4449 & 6060 of 2004 9 statements and the evidences recorded during the enquiry, according to the respondents, there are no provisions in the Act and Rules to provide copy of the enquiry report to the committee members. 6. It is also stated that, enquiry report under Section 65 revealed serious irregularities and the working of the Bank and hence an enquiry was ordered under Section 65 of the Kerala Co-operative Societies Act, 1969 to enquire into the conduct of the Board of Directors, and employees of the bank, and it was found that the Bank has suffered loss of Rs.27,49,450/- and on the basis of the said enquiry report enquiry under Section 68 also has been ordered. Under Section 68, petitioners are given opportunity for personal hearing. Enquiry officer submitted the report after considering the objection filed by the petitioners and examination of recorded evidence. Therefore, it is contended that, there is no violation of principles of natural justice as alleged. It is further stated 10 W.P.(C). Nos. 4449 & 6060 of 2004 that, the recommendation of the Secretary is not a sufficient reason for sanctioning loan and the committee has the power to accept or reject the loan application on merits. The Board of Directors did not act in accordance with the provisions of the Act, Rules and byelaws of the Bank. It is specifically contended that, the whole exercise was completed by the enquiry officer in accordance with law, and further that, since petitioners are responsible for the loss suffered by the Bank, the liability can be fixed against the petitioners. 7. 4[th] respondent has also filed a counter affidavit refuting the allegations almost on similar lines with the counter affidavit filed by the first respondent. That apart it is also contended that, steps have already been taken to recover the amounts from the petitioners as well as the co-obligant to the loan transaction. 8. Petitioners have filed a reply affidavit reiterating the stand adopted in the writ petitions. That apart it is W.P.(C). Nos. 4449 & 6060 of 2004 11 also stated that, in respect of the loans provided, petitioners have acted bonafidely and therefore, the proceedings initiated against the petitioners under Section 65 and 68 cannot be sustained under law. 9. Petitioners 8 and 9 were impleaded consequent to the death of the 4[th] petitioner. 10. Heard learned counsel for petitioners, learned Government Pleader and learned counsel appearing for respondents in both these writ petitions. 11. It is made clear that, similar contentions are raised in the other writ petition. Perused the pleadings and documents on record. The question to be considered is whether any interference is required in the impugned orders passed by the first and second respondents. 12. The crux of the contention advanced by the learned counsel for the petitioners is that, the whole exercise of the enquiry is violative of principles of natural justice since no copy of the enquiry report was provided W.P.(C). Nos. 4449 & 6060 of 2004 12 to the petitioners in the enquiry conducted under Sections 65 and 68 of the Act. Therefore, according to the counsel, the same is in absolute violation of principles of natural justice, especially due to the fact that, the report so furnished are not privileged documents, enabling the second and third respondents to refuse copy. In that view of the matter it is contended that, proceedings and the orders passed are vitiated by arbitrariness and illegality liable to be interfered by this Court exercising power of judicial review under Article 226 of the Constitution of India. Evident from the counter affidavits and Ext.P6 one thing is discernible that, no copy of the enquiry reports are furnished to the petitioners. But, in Ext.P6 it is stated that, the petitioners are free and at liberty to peruse the reports and the petitioners were invited to the office of the second respondent on 24.6.2000 at 10.30 a.m and provided time for such perusal upto 1'O clock. However, W.P.(C). Nos. 4449 & 6060 of 2004 13 petitioners have allegedly issued reply dated 25.6.2000 stating that, the petitioners are entitled to get copy of the reports, and further, that without furnishing copy of the reports petitioners would not be in a position to submit a reply. Admittedly, there are no further correspondence from the second respondent Bank to the petitioners. But, on a perusal of Ext.P8 it is stated therein that, opportunity was provided to the petitioners to peruse the reports in the office of the second respondent. 13. Therefore, the question is whether since opportunity was provided to the petitioners for perusal of the reports, whether the petitioners are entitled to take up a contention that, since no copies are served to the petitioners, principles of natural justice is violated. In this regard learned counsel for the petitioners has invited my attention to a Division Bench judgment of this Court in **Abbas v. Joint Registrar of Co-operative Societies** W.P.(C). Nos. 4449 & 6060 of 2004 14 [2004(1) KLT 182], wherein this Court held that as per Rule 24 of the Rules there is no Bar for providing a certified copy of the report, which is not privileged under the Evidence Act. So also learned counsel has invited my attention to a judgment of this Court in **Prakash v. State of Kerala** [2000(2) KLT 580], wherein this Court was considering a question, with respect to the nature of enquiry _vis a vis_ the principles of natural justice in a matter of Scheduled Castes and Scheduled Tribes Regulation of Issue of Community Certificate Act, 1996 and has held that, report prepared thereunder is in gross violation of the principles of natural justice, since scrutiny committee did not give a fair opportunity to the petitioner to challenge the statements relied on by the Vigilance Officer. 14. As I have stated earlier, eventhough no copy of the report was served on the petitioners, they were given liberty to be present in the office of the second W.P.(C). Nos. 4449 & 6060 of 2004 15 respondent on 24.6.2000 and provided time to peruse the reports. But, petitioners did not utilise the said opportunity instead insisted for issuance of copy to them. If the petitioners had complied with the opportunity provided under Ext.P6 and after perusal of the documents if the petitioners were convinced that without receipt of copy of reports petitioners will not be in a position to provide a proper reply, the things would have been entirely different. Therefore, in absolute terms it can never be said that the respondents have violated the principles of natural justice and their actions were arbitrary. In the judgments of this Court referred (supra), from the facts I could not locate such a course of action adopted by the contesting respondents thereunder. Therefore, the question considered was whether the enquiry report under Sections 65 and 68 are privileged documents and whether there is any prohibition in providing copies of the enquiry reports to W.P.(C). Nos. 4449 & 6060 of 2004 16 the petitioner therein. Even though, there is no provision under the Act and Rules mandating the authority concerned to provide copies of the reports to the affected parties, since the documents are not privileged and since petitioners may be able to provide proper reply after perusing the document, there is nothing wrong in providing a copy of the report to the petitioners. 15. However, in the particular fact situations of this case discernible from Ext.P6 dated 17.6.2000 and Ext.P8 order of the second respondent it is categoric and clear that, petitioners were provided with an opportunity to peruse the reports, which is not disputed by the petitioners. Such a situation can only be viewed as a ploy with the intention of building up a foundation for a future course of legal action, which cannot be permitted under law. Principles of natural justice has its foundation upon deprivation of constitutional guarantees, common law and natural rights. The principles are not streamlined, it W.P.(C). Nos. 4449 & 6060 of 2004 17 depends on fact and circumstances of each case. The basic requirement is that, a person should be provided with an effective opportunity before he is condemned. There also 'effective opportunity' is dependent on facts of each case. As I stated earlier, in this case an opportunity was provided to the petitioners to peruse the documents, which was not availed of by the petitioners with the intention to make a foundation to meet a requirement in future. Therefore, it can never be said that the principles of natural justice is violated by the authorities in the present set of facts. It cannot also be said that the petitioners were put to prejudice in any manner. Apart from all these, from Ext.P8 it is categoric and clear that, petitioners did not participate in the proceedings in spite of service of notice under Section 68(2) of the Act. It is in the said circumstances, Ext.P8 order was passed. True, in Ext.P9 appeal, petitioners have raised this as a ground so also in Ext.P10 argument notes. However, 18 W.P.(C). Nos. 4449 & 6060 of 2004 from Ext.P11, it is categoric and clear that, the first respondent has considered the said issue raised by the petitioner and held that petitioners have not utilised the opportunity provided and thereby the Director Board members evaded from the responsibility. Taking into account the aforesaid aspects I am unable to reconcile with the arguments put forth by the learned counsel for the petitioners, with respect to denial of natural justice and that, Exts.P8 and P11 orders are vitiated by law and hence arbitrary. 16. Yet another contention put forth by the learned counsel is that, as provided under Section 65 of the Act, the Registrar of Co-operative Societies alone is vested with powers to conduct the enquiry with respect to matters enumerated under Clause (a) to (f) of subsection(1). However, on a perusal of sub-section (2) it is categoric and and clear that, the enquiry can be conducted either by the Registrar or the persons W.P.(C). Nos. 4449 & 6060 of 2004 19 authorised by him under sub-section (1). Therefore, I do not think that petitioners are entitled to succeed on the said point also. 17. That apart, it is also contended that, there is a clear finding in the report that, the persons responsible for providing the loans in question are the officers of the Bank and since there is categoric finding with respect to the same, no manner of liability can be fastened on the petitioners. However, from the impugned orders in question, it is crystal clear that, petitioners were members of the Director Board and they were responsible for the day to-day affairs of the bank. It is also found that, petitioners were duty bound to scrutinize the loan applications and were at liberty to accept or reject the same, taking into account the fact situations in each loan applications. It is also found that, the petitioners have failed to discharge their responsibilities as Director Board members of the Bank and thereby W.P.(C). Nos. 4449 & 6060 of 2004 20 failed to protect the interest of the bank. In this regard learned counsel has invited my attention to a judgment of this Court in **A.K.Francis v. Joint Registrar** [1990 (2)KLT 470 and **Ellakkal Service Co-operative Bank v. State of Kerala** [1997(2) KLT 85], wherein this Court was considering the nature of the enquiry to be conducted and the power enjoyed by the Joint Registrar. On a perusal of the documents and the impugned orders I do not think that the fact situations available in the said writ petitions are available in this case enabling the petitioners to secure the benefit of law laid down there under. 18. Learned Government Pleader has invited my attention to a judgment of this Court in **Thrikkadavoor Service Co-operative Society Ltd. v. Sivasankara Pillai** [1990(2) KLT 594], wherein it was held by this Court that, when funds are misappropriated, committee cannot wash off their hands from liability, contending W.P.(C). Nos. 4449 & 6060 of 2004 21 ## that there was a Secretary in office. Learned Government Pleader has invited my attention specifically to paragraph 11 which read thus:- “I am afraid the Tribunal has committed gross errors of law and of fact in exonerating respondents 2 to 9 from liability. Rule 47(b) of the Kearla Co-operative Societies Rules provides that it is the duty of the President of the society to arrange to maintain accounts and registers in proper form and to keep the cash balance and other assets under safe custody. He is to act as the Treasurer of the society if there is no specific provision in the bye-laws to elect or appoint a treasurer. Sub clause (d) of the Rule states that the committee of the society shall primarily be responsible for the maintenance and safety of all accounts, records, cash and other assets of the society. It is their duty to see that the officers concerned discharge their functions and duties as laid down in the rules and the bye-laws. It is evident from these provisions, that there is a statutory duty cast on the committee of the society for the proper custody and accounting of the cash and other assets of the society and that they are answerable for any misappropriation of the same during their tenure. They cannot wash off their hands of liability, by contending that there was a Secretary in office.” ## 19. Referring to the enquiry report, learned Government Pleader contended that, the loans were provided, without securing necessary details and W.P.(C). Nos. 4449 & 6060 of 2004 22 entering the same in the registers kept in the Bank and further that, loans were issued without securing adequate securities from the loanees. It is also contended that, petitioners have not made out any circumstances warranting interference of this Court exercising the power of judicial review. 19. On evaluation of fact situations, reckoning the legal circumstances discussed above and verification of documents produced along with these writ petitions, I am of the considered opinion that, petitioners have not made out any case to enable this Court to exercise the power of judicial review conferred on this Court under Article 226 of the Constitution of India, since the contentions put forth by the petitioners were taken note of by the appellate authority and has passed a reasonable order, which is not suffering from any error of law, arbitrariness or illogical conclusions. W.P.(C). Nos. 4449 & 6060 of 2004 23 Sequel to the above discussion is that the writ petitions fail and accordingly, they are dismissed. Sd/- ## **SHAJI P. CHALY, JUDGE** dlk/21/7/