Y.R. Vincent and others v. Joint Registrar of Co-operative Societies (G) & others, WP(C) No. 12783 of 2021

**IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** ## **THE HONOURABLE MR. JUSTICE SATHISH NINAN** **MONDAY, THE 21[ST] DAY OF FEBRUARY 2022 / 2ND PHALGUNA, 1943** ## **WP(C) NO. 12783 OF 2021** ## **PETITIONERS:** 1 Y.R.VINCENT AGED 46 YEARS FORMER PRESIDENT OF ARAYOOR SERVICE CO-OPERATIVE BANK, RESIDING AT V. S. BHAVAN, THOTTATHUVILA THOTTINKARA, PLAMOOTTUKADA P. O., THIRUVANANTHAPURAM. 2 K. P. KRISHNAN NAIR FORMER COMMITTEE MEMBER OF ARAYOOR SERVICE CO-OPERATIVE BANK, RESIDING AT POOVANNARA HOUSE, ARAYOOR, ARAYOOR P. O., THIRUVANANTHAPURAM. 3 B. SATHEESH KUMAR FORMER COMMITTEE MEMBER OF ARAYOOR SERVICE CO-OPERATIVE BANK, RESIDING AT VAZTHIVILA HOUSE, UDIYANKULANGARA, ARAYOOR P. O., THIRUVANANTHAPURAM. 4 A. PALRAJ FORMER COMMITTEE MEMBER OF ARAYOOR SERVICE CO-OPERATIVE BANK, RESIDING AT P. H. BHAVAN, ARAYOOR, ARAYOOR P. O., THIRUVANANTHAPURAM. 5 R. GIRIJA FORMER COMMITTEE MEMBER OF ARAYOOR SERVICE CO-OPERATIVE BANK, RESIDING AT MOOLAYIL HOUSE, ARAYOOR, ARAYOOR P. O., THIRUVANANTHAPURAM. 6 L. PREMALATHA FORMER COMMITTEE MEMBER OF ARAYOOR SERVICE CO-OPERATIVE BANK, RESIDING AT PALLIVILA HOUSE, KOCHOTTUKONAM, ARAYOOR P. O., THIRUVANANTHAPURAM. 7 S. YAMUNAKUMARI FORMER COMMITTEE MEMBER OF ARAYOOR SERVICE CO-OPERATIVE BANK, RESIDING AT PERINGALAMPADUPUTHEN HOUSE, KUDUPOTTUKUKONAM, VATTAVILA P. O., THIRUVANANTHAPURAM. 8 A. K. BINDU FORMER COMMITTEE MEMBER OF ARAYOOR SERVICE CO-OPERATIVE BANK, RESIDING AT GURUKKALKUDIYIRIPPU HOUSE, UDIYANKULANGARA, ARAYOOR P. O., THIRUVANANTHAPURAM. **WP(C) NO. 12783 OF 2021 -2-** 9 P. RAJASEKHARAN NAIR FORMER COMMITTEE MEMBER OF ARAYOOR SERVICE CO-OPERATIVE BANK, RESIDING AT PARAMESWARA VILASAM, ARAYOOR, ARAYOOR P. O., THIRUVANANTHAPURAM. 10 W. CRIPSIN FORMER COMMITTEE MEMBER OF ARAYOOR SERVICE CO-OPERATIVE BANK, RESIDING AT MEKKUMKARA HOUSE, KEEZHKOLLA, THIRUVANANTHAPURAM. 11 T. R. STEPHEN FORMER COMMITTEE MEMBER OF ARAYOOR SERVICE CO-OPERATIVE BANK, RESIDING AT ADARSH BHAVAN, UDIYANKULANGARA, VATTAVILA P. O., THIRUVANANTHAPURAM. 12 M. RAVEENDRAN NAIR FORMER SECRETARY OF ARAYOOR SERVICE CO-OPERATIVE BANK, RESIDING AT MURALEERAVAM, NADOORKOLLAM, AMARAVILA P. O., THIRUVANANTHAPURAM. 13 K. S. GIRIJA FORMER SECRETARY OF ARAYOOR SERVICE CO-OPERATIVE BANK, RESIDING AT KRISHNASREE, R. C. STREET, NEYYATTINKARA, THIRUVANANTHAPURAM. 14 P. MARY VALSALA SECRETARY IN CHARGE, ARAYOOR SERVICE CO-OPERATIVE BANK, RESIDING AT VIDYABHAVAN, NEDIYAMKODU, DHANUVACHAPURAM P. O., THIRUVANANTHAPURAM. BY ADVS. P.N.MOHANAN N.P.RENJITH RAO ## **RESPONDENTS:** 1 THE JOINT REGISTRAR OF CO-OP. SOCIETIES (G) OFFICE OF THE JOINT REGISTRAR OF CO-OPERATIVE SOCIETIES, JAGATHI, THIRUVANANTHAPURAM - 695 014. 2 THE GOVERNMENT OF KERALA REPRESENTED BY SECRETARY TO GOVERNMENT, CO-OPERATIVE DEPARTMENT, SECRETARIAT, THIRUVANANTHAPURAM - 695 001. 3 THE REGISTRAR OF CO-OPERATIVE SOCIETIES DEPARTMENT OF CO-OPERATION, OFFICE OF THE REGISTRAR OF COOPERATIVE SOCIETIES, JAWAHAR SAHAKARANA BHAVAN, DPI JUNCTION, THYCAUD P. O., THIRUVANANTHAPURAM - 695 014. **WP(C) NO. 12783 OF 2021 -3-** 4 ARAYOOR SERVICE CO-OPERATIVE BANK LTD. NO.692 ARAYOOR, NEYYATINKARA, THIRUVANANTHAPURAM - 695122, REPRESENTED BY ITS SECRETARY. 5 THE ADMINISTRATOR ARAYOOR SERVICE CO-OPERATIVE BANK LTD. NO.692, ARAYOOR, NEYYATINKARA, THIRUVANANTHAPURAM - 695122. 6 ASSISTANT REGISTRAR OF CO-OPERATIVE SOCIETIES (GENERAL) NEYYATINKARA, THIRUVANANTHAPURAM - 695121. 7 ADDL.R7. A.S.PRASAD AGED 44, S/O.APPUKUTTAN NAIR, VALIYAPURA VEEDU, ARAYOOR P.O., THIRUVANANTHAPURAM - 695 122. [ADDL.R7 IS IMPLEADED AS PER ORDER DATED 08.07.2021 IN I.A.1/2021 IN WP(C)12783/2021.] BY ADVS. SR.G.P SMT. K.M.RESMI R.T.PRADEEP M.SASINDRAN M.BINDUDAS K.C.HARISH THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 21.02.2022, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ## **SATHISH NINAN, J.** **= = = = = = = = = = = = = = = = = = W.P.(C) No.12783 of 2021** **= = = = = = = = = = = = = = = = = = Dated this the 21[st] day of February, 2022** ## **J U D G M E N T** Order of surcharge under Section 68(2) of the Cooperative Societies Act (hereinafter referred to as “the Act”) and the consequential orders of disqualification and appointment of an Administrator, are under challenge in this writ petition. 2. Pursuant to an inspection conducted under Section 66 of the Act, on finding that loss has been caused to the Society by the persons/officers in management, surcharge proceedings under Section 68 of the Act was initiated. After inquiry and hearing in terms of Section 68(1) and (2), an order of surcharge was passed against the petitioners and another. Ext.P1 is the notice for inspection under Section 66, Ext.P3 is the report on inspection under Section 66, Ext.P6 is the report on enquiry under Section 68, and Ext.P11 is the final order of surcharge passed under Section 68(2). **W.P.(C) No.12783 of 2021** -: 2 :- 3. Heard Sri.P.N.Mohanan, learned counsel for the petitioners, Smt.Rashmi.K.M. the learned Government Pleader, Sri.M.Sasindran the learned counsel for respondents 4 and 5 and Sri.R.T.Pradeep the learned counsel for the 7[th] respondent. 4. According to the learned counsel for the petitioners, the proceedings under Section 68(1) and the resultant order Ext.P11, under Section 68(2) of the Act, is bad in law for reasons more than one. Challenging Ext.P11 he contends, - (a) Though the inspection under Section 66 related to the period from 01.04.2013 to 31.03.2018, the proceedings under Section 68 included period beyond 31.03.2018, which is not contemplated. **W.P.(C) No.12783 of 2021** -: 3 :- (b) Persons who assumed office/management after the period of inspection under Section 66 (i.e. after 31.03.2018) have been surcharged under Section 68(2), which is impermissible. (c) Persons who were not in management for the entire period in respect of which Section 66 inspection was conducted have been mulcted with liability for the entire period, which is unsustainable. (d) Liability of persons in management during the period in respect of which Section 66 inspection was conducted, but were no more when Section 68 proceedings were initiated, is fastened on the other members of the Committee, which is erroneous. - (e) No opportunity was afforded to pay off the liability and avoid an order of surcharge. **W.P.(C) No.12783 of 2021** ## -: 4 :- ## 5. Section 68 of the Act reads thus:- _“_ _**68. Surcharge:-** (1) If in the course of an audit, inquiry, inspection or the winding up of a society, it is found that any person, who is or was entrusted with the organization or management of such society or who is or has at any time been an officer or an employee of the society, has made any payment contrary to the Act and the rules or the bye-laws, or has caused to any loss or damage in the assets of the society by breach of trust or wilful negligence or mismanagement or has misappropriated or fraudulently retained any money or other property belonging to such society or has destroyed or caused the destruction of the records, the Registrar may, of his own motion or on the application of the committee, liquidator or any creditor, inquire himself or direct any person authorized by him by an order in writing in this behalf, to inquire into the conduct of such person._ _(2) Where an inquiry is made under sub-section (1), the Registrar may, after giving the person concerned an opportunity of being heard, by order in writing, require him 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 the Registrar may consider just and equitable._ **W.P.(C) No.12783 of 2021** -: 5 :- _(3) Where the money, property, interest, cost or compensation is not repaid or restored as per sub-section (2), the Registrar shall take urgent steps to recover such amounts from the concerned persons as arrears of public revenue due on land as specified in Section 79 of the Act.”_ Going by the Section, if in the course of an audit, inquiry, inspection or winding up, it is found that a person in management has caused loss to the Society by breach of the Act, Rules or bye-laws of the Society, or by wilful negligence, breach of trust etc., then, the conduct of such person is to be inquired into. His culpability / fault / responsibility, for the loss caused to the Society, and the quantum of loss caused by him, his action or inaction, are to be inquired into under Section 68. 6. Now, coming to the contentions urged by the petitioner, I shall deal with them one by one. **W.P.(C) No.12783 of 2021** -: 6 :- _**(a) Though the inspection under Section 66 related to the period from 01.04.2013 to 31.03.2018, the proceedings under Section 68 included period beyond 31.03.2018, which is not contemplated.**_ Drawing the attention of the Court to the quantification of loss under the heads in Sl. Nos. 4, 5, 6 and 8, at pages 12 to 15 and 19 of Ext.P11 order of Surcharge, the learned counsel for the petitioner would contend that, amounts beyond the period in respect of which the Section 66 inspection was conducted has been included therein. 7. The question as to whether a surcharge proceeding is restricted to the period of a preceding inquiry or inspection does not arise for consideration in the present case for reason which I shall immediately state. **W.P.(C) No.12783 of 2021** -: 7 :- 8. A reading of the narrations under the heads referred to by the petitioner indicate that, it is only the accrued interest on the heads under various loan liabilities which were already reported in the Section 66 inspection, that is mentioned there. It is only the quantification of liability, on including the interest accrued pending the proceedings. Even under Section 68(3), interest, compensation, costs etc can be included. Therefore, the contention that, the surcharge proceeding has gone beyond the period of the preceding inquiry, does not hold good. 9. Though a contention was urged that, under the head “loss caused in the materials depot” the period beyond 31.03.2018 has been included, a reading of the entire narrations in Ext.P11 order under the head indicates that there has been no such inclusion. Therefore, the said ground of challenge fails. **W.P.(C) No.12783 of 2021** -: 8 :- _**(b) Persons who assumed office/management after the period of inspection under Section 66 (i.e. after 31.03.2018) have been surcharged under Section 68(2), which is impermissible.**_ As held supra, what is being enquired into in a proceeding under Section 68 of the Act is, into the conduct of a person in management, who in a preceding inquiry is found to have caused loss to the Society. The extent of loss caused by such person, while in management, is being ascertained. Therefore, a person who assumed office subsequent to the period in respect of which the preceding enquiry or inspection was conducted, cannot be roped in a proceeding under Section 68. 10. The learned counsel for the petitioner points out that, petitioners 9 to 11 assumed management only on 04.11.2018, and petitioner No.14 assumed charge as **W.P.(C) No.12783 of 2021** -: 9 :- Secretary only on 01.06.2018, which is after the period in respect of which Section 68 inspection was conducted. As noticed earlier, the inspection under Section 66 was in respect of the period from 01.04.2013 to 31.03.2018. It being so, Ext.P11 order of surcharge insofar as it relates to fastening of liability on petitioners 9 to 11 and 14 is unsustainable. _**(c) Persons who were not in management for the entire period in respect of which Section 66 inspection was conducted, but only portions thereof, have been mulcted with liability for the entire period, which is unsustainable.**_ The subject matter of a Section 68 proceedings being the conduct, the culpability, the responsibility, the blame, on the part of the personnel in office, necessarily his liability can only arise for the period he held office and the recurring accruals thereon like, interest. Therefore, his liability cannot be for a period prior to which he assumed office. **W.P.(C) No.12783 of 2021** -: 10 :- 11. The petitioners would contend that the 12[th] petitioner held the office of the Secretary for the period from 01.02.2009 to 31.05.2017, that the 13[th] petitioner was in office only from 01.06.2017 to 31.05.2018 but were still fastened with the liability for the entire period. As regards the 12[th] petitioner, his liability cannot go beyond the loss caused to the Society after 31.05.2017 when he ceased to be in office, but for the liability for interest or recurring loss under the same head after 31.05.2017. Similarly, 13[th] petitioner assumed office only on 01.06.2017. He cannot be saddled with the liability for the period from 01.04.2013 to 01.06.2017. Though prima facie it appears that it is only the proportionate liability that has been imposed on them, since the finding on contention (c) above needs to be reconsidered by the Joint Registrar, this issue regarding correctness of the apportionment shall also be looked into. **W.P.(C) No.12783 of 2021** -: 11 :- _**(d) Liability of persons in management during the period in respect of which Section 66 inspection was conducted but were no more when Section 68 proceedings were initiated, is fastened on the other members of the Committee, which is erroneous.**_ The enquiry under Section 68 being into the culpability of the personnel in office and the proceeding having a penal consequence also namely, a life long prohibition on being a committee member, there could not be such an enquiry or a consequential order of surcharge against a person who is no more. The personnel whose conduct is sought to be charged with, has necessarily to be afforded an opportunity to offer his explanation against the charges levelled against him. 12. However, that does not mean that, the share of the liability that might have been cast upon him, can be added to the share of the others. The liability of a person in management is based on his conduct in relation **W.P.(C) No.12783 of 2021** -: 12 :- to the head of loss caused. The liability of one person cannot be fastened on the other merely for the reason that one of them is no more. This is for the reason that, the liability is fixed on the finding regarding personal conduct. This is all the more clear in the light of Rule 66(7)(ii)(b) which mandates that the surcharge order shall specify the liability of each of the members. This indicates that, the liability is not joint and several, but to the extent of the loss caused by that person. As regards the loss caused to the Society by the deceased, appropriate steps are to be taken in accordance with law. 13. Therefore, Ext.P11 order, in so far as it burdened the surviving members with the liability of the other members who also were in management at the relevant time, but are no more, cannot be sustained. **W.P.(C) No.12783 of 2021** -: 13 :- ## _**(e) No opportunity was afforded to pay off the liability and avoid an order of surcharge.**_ The learned counsel for the petitioner submits that, pursuant to the objections submitted by the petitioners during the course of the hearing under Section 68(2), the liability was brought down/reduced while passing the order of surcharge. However, after the hearing, the petitioners were not put on notice regarding their liability. This disabled them from paying off the amount and avoiding the order of surcharge. In substance the contention is that, a provisional order should have been passed, enabling payment of the amount and to avoid an order of surcharge. 14. A proceeding under Section 68 does not contemplate or provide for passing of any such provisional order or the grant of opportunity to pay and to avoid the order of surcharge. May be, the liability could be paid off and an order avoided prior to the ## **W.P.(C) No.12783 of 2021** -: 14 :- passing of an order of surcharge. Section 68(2) contemplates only the passing of order of surcharge and not any preliminary order. This view has found favour with a Division Bench of this Court in _**E.J.Thomas and others v. The Joint Registrar of Co-operative Societies and another, Writ Appeal No.1447 of 2021.**_ There, the Division Bench held thus:- _“As noted, the scope of the proceedings under Section 68 of the Act is only to ascertain whether loss or damage has been caused to the assets of the society on account of the reasons made mention of therein and to surcharge the persons responsible for the same and to recoup the loss caused to the society, if it is found that loss or damage has been caused to the assets of the society, after affording the parties concerned an opportunity of hearing. The above being the scope of the proceedings, there is absolutely no merit in the contention of the petitioners and others that they should have been given an opportunity to recoup the loss, once it is found that_ **W.P.(C) No.12783 of 2021** -: 15 :- _loss has been caused by them, before surcharging them, for the provision does not provide for such a course of action. The scheme of the provision is that the parties concerned shall have an opportunity to recoup the loss_ _caused to the assets of the society only before deciding the question as to whether loss has been caused and not thereafter.”_ Therefore, the contention of the petitioner that the proceeding is bad for lack of opportunity to pay off the amount, fails. 15. The learned counsel for the additional respondent no.7 would contend that, one among the surcharged, who has not joined in this writ petition, has availed the statutory appellate remedy and that the petitioners are also to be relegated to the same. The learned Government Pleader submitted that, no such appeal could be traced out as pending before the authority. Be that as it may, the writ petition was **W.P.(C) No.12783 of 2021** -: 16 :- pending on the files of this Court since 24.06.2021. Pleadings were submitted by rival contestants and the matter was heard exhaustively. At this distance of time and at this stage of the proceedings I do not deem it appropriate or just to relegate the parties to the appellate remedy. 16. On the findings as above in respect of contentions (b), (c) and (d), it is necessary that fresh orders be passed by the authority. Exhibit P11 order is thus liable to be interfered with. 17. Resultantly, Exhibit P11 order and the consequential orders of disqualification and appointing an administrator are quashed. The 1[st] respondent shall pass fresh orders in the light of the findings entered into in this judgment, after affording an opportunity of hearing to the parties. Let orders be passed within a period of one month from the date of receipt of a copy of this judgment. Since administrator had been in **W.P.(C) No.12783 of 2021** -: 17 :- management from 18.06.2021 he shall continue in office subject to the outcome of the proceedings. Writ Petition is allowed as above. Sd/- **SATHISH NINAN JUDGE** kns/- //True Copy// P.S. to Judge ## **APPENDIX OF WP(C) 12783/2021** PETITIONER EXHIBITS |Exhibit P1|A TRUE COPY OF THE ORDER DATED 17.04.2018 OF| |---|---| ||THE FIRST RESPONDENT.| |Exhibit P2|A TRUE COPY OF THE JUDGMENT DATED 14.08.2020| ||IN WP(C) NO.15033/2018.| |Exhibit P3|A TRUE COPY OF THE ENQUIRY REPORT DATED| ||28.09.2018 ALONG WITH COVERING LETTER| ||ADDRESSED TO THE JOINT REGISTRAR.| |Exhibit P4|A TRUE COPY OF THE JUDGMENT AS REPORTED IN| ||1997 (2) KLT 85.| |Exhibit P5|A TRUE COPY OF THE ORDER DATED 22.10.2020 OF| ||THE FIRST RESPONDENT.| |Exhibit P6|A TRUE COPY OF THE REPORT DATED 19.01.2021| ||ALONG WITH COVERING LETTER DATED 28.01.2021.| |Exhibit P7|A TRUE COPY OF THE OBJECTION DATED 09.02.2021| ||FILED BY THE PETITIONERS.| |Exhibit P8|A TRUE COPY OF THE OBJECTION DATED 17.03.2021| ||FILED BY THE PETITIONERS.| |Exhibit P9|A TRUE COPY OF THE OBJECTION DATED 03.05.2021| ||FILED BY THE PETITIONERS.| |Exhibit P10|A TRUE COPY OF THE LETTER DATED 27.04.2021 OF| ||THE FIRST PETITIONER TO THE FIRST RESPONDENT.| |Exhibit P11|A TRUE COPY OF THE SURCHARGE ORDER DATED| ||16.06.2021 OF THE JOINT REGISTRAR.| |Exhibit P12|A TRUE COPY OF THE DISQUALIFICATION ORDER| ||DATED 16.06.2021 OF THE FIRST RESPONDENT.| |Exhibit P13|A TRUE COPY OF THE JUDGMENT REPORTED IN 2018| ||(3) KLT 244.| |Exhibit P14|A TRUE COPY OF THE JUDGMENT REPORTED IN 2009| ||(4) KLT SN 16 (CASE NO.16).| APPENDIX/ **WP(C) 12783/2021** -2- Exhibit P15 A TRUE COPY OF THE ORDER DATED 18.06.2021 OF THE JOINT REGISTRAR. Exhibit P16 A TRUE COPY OF THE JUDGMENT AS REPORTED IN ILR 1985 KER 335. Exhibit P17 A TRUE COPY OF THE JUDGMENT AS REPORTED IN 1990 (2) KLT 470. -----