Karnataka High Court
Sri Shivananjappa vs The Deputy Registrar Of Co Op Society on 25 June, 2013
Equivalent citations: 2014 (1) AKR 201, AIR 2014 (NOC) (SUPP) 474 (KAR)
Author: S.Abdul Nazeer
Bench: S. Abdul Nazeer
R
IN THE HIGH COURT OF KARNATAKA AT BANGALORE
DATED THIS THE 25TH DAY OF JUNE 2013
BEFORE
THE HON'BLE MR.JUSTICE S. ABDUL NAZEER
WRIT PETITION NO.23878/2010 (CS-RES)
Between:
Sri Shivananjappa,
S/o late Madappa,
Aged about 62 years,
R/o Thoravally Village,
Nanjanagud Taluk,
Mysore District. .... Petitioner.
(By Sri M.R.Rajagopal, Adv.)
And:
1 The Deputy Registrar of Co-op. Society,
Chamarajanagara District.
2 Sri N. Manjunath,
Major, Superintendent,
Office of Asst. Registrar of Co-op. Society,
Chamarajanagar Dist.
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3 The Secretary Taluk Agricultural
Produce Co-op. Marketing Society Ltd.,
Chamarajanagara Tq. & Dist. .... Respondents.
(By Sri Nasrulla Khan, HCGP for R1
Sri M.V.Charati & H.M.Manjesh, Advs. For R2 and R3)
---
This Writ Petition is filed under Articles 226 & 227 of the
Constitution of India, praying to quash the order of respondent
No.1 dated 9.2.2010 as per Annexure 'D', etc.
This Writ Petition coming on for Further Hearing this day,
the Court passed the following:
ORDER
In this case, the petitioner has called in question the validity of the order at Annexure 'D' dated 9.2.2010 whereby the first respondent has granted sanction to prosecute the petitioner under sub-section (2) of Section 111 of the Karnatata Co-operative Societies Act, 1959.
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2. The petitioner was the Secretary of the Taluk Agricultural Produce Co-operative Marketing Society Limited, Chamarajanagar Taluk from the year 1991-1992 till 31.12.2000. He was originally appointed as an Inspector of Co-operative Societies. He was promoted as Senior Inspector. Thereafter, he was further promoted as Co-operative Development Officer. He retired from service on 31.8.2006 on attaining the age of superannuation.
3. An enquiry was initiated under Section 64 of the Karnataka Co-operative Societies Act, 1959 (for short 'the Act') into the affairs of the third respondent Society. During the course of enquiry, it was found that the petitioner had committed various irregularities and his liability was determined at Rs.24,13,932.13 ps. On submission of the report under Section 64, an order was passed under Section 68 on the basis of which third respondent initiated surcharge proceedings under Section 69, which is pending before the first respondent. The third respondent sought permission to prosecute the petitioner by his communication dated 4 12.10.2009. On the basis of the said communication, a show cause notice was issued by the first respondent dated 20.10.2009 calling upon the petitioner as to why the sanction should not be granted. The petitioner has sent the reply dated 19.12.2009 opposing the grant of sanction. As stated above, the first respondent has given sanction to prosecute the petitioner as per Annexure 'D', which is under challenge in this writ petition.
4. Learned Counsel for the petitioner has made two fold submissions. Firstly, he submits that after holding an enquiry under Section 64, a report was submitted to the competent authority under Section 68 of the Act. This was followed by surcharge proceedings under Section 69(1). Before conclusion of the proceedings under Section 69(1), prosecuting the petitioner is not permissible in law. Secondly, it is contended that the sanction cannot be given without granting the person concerned an opportunity to represent his case. Though the petitioner has sent the reply to the show cause notice, the same has not been considered by the first respondent. It is 5 argued that before the grant of sanction, the second respondent has not recorded a finding as to whether petitioner has acted in good faith or not.
5. On the other hand, learned HCGP appearing for the first respondent submits that there is no bar for the competent authority to prosecute the petitioner simultaneously with the surcharge proceedings under Section 69(1). It is further argued that a show cause notice was issued to the petitioner and the petitioner has sent his reply. After considering the reply, the order impugned has been passed. He prays for dismissal of the writ petition.
6. Having regard to the contentions urged, the first question for consideration is whether it is permissible for prosecution of the petitioner during the pendency of the surcharge proceedings under Section 69(1)?
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7. Section 64 of the Act provides for holding an enquiry by the Registrar. It states that the Registrar may, of his own motion, by himself or by a person authorized by him, by order in writing hold an enquiry into any matter specified in the order touching the constitution, working and financial condition of a co-operative society. The purpose of an enquiry is enumerated in sub-section (3) of Section 64. The Registrar has to send a copy of the enquiry report and the result of the enquiry to the society and to the Co- operative society, to which that society is affiliated and also to the Director of Co-operative Audit. Thereafter, the Board of Directors have to initiate immediate necessary action for rectification of deficits, if any in the enquiry report and place the report before the annual general meeting or a special general meeting convened for the purpose at the earliest. Sub-section (5) states that if the result of the enquiry held under sub-section (1) discloses any defects in the working of the society, the society shall within forty-five days from the date of the receipt of the enquiry report and communication of the result of the enquiry, explain to the Registrar the defects or the 7 irregularities pointed out in the enquiry and take steps to rectify the defects and remedy the irregularities and report to the Registrar the action taken by it thereon.
8. Section 68 empowers the Registrar to make an order directing the co-operative society or its office bearers to take such action as may be specified in the order within the time mentioned therein to rectify the defects and remedy the irregularities disclosed in the enquiry under Section 64 or inspection under Sections 65 and 65-B.
9. Section 69 provides for surcharge proceedings. Sub- sections (1) and (2) of Section 69 are relevant for the purpose of this case, which are as under:
"69. Surcharge: (1) If in the course of an audit, inquiry, inspection or the winding up of a co- operative society, it is found that the Committee of Management including Government nominees and ex 8 officio members of such society or the President, Vice-President, the Chairman, Vice-Chairman or any other member of the Committee of Management or any person who is or was entrusted with the organization or management of such co-operative society or who is or has at any time been an officer or an employee of a co-operative society has made any payment contrary to the Act, the rules or the bye- laws or has made any payment contrary to the Act, the rules or the bye-laws or has caused any deficiency in the assets of the co-operative society by breach of trust or negligence has misappropriated or fraudulently retained any money or other property belonging to such co-operative society, the Registrar may, or his own motion or on an application of the Committee, Liquidator or any creditor, frame charges against such person or persons and after giving such persons and in the case of a deceased person, to his representative who inherits his estate, an opportunity of making representation, make an order requiring him to pay or restore the money or property or any part thereof with interest at such rate as he may determine or to contribute such sum to the assets of 9 the co-operative society by way of compensation to such extent as he may consider just and equitable.
(2) This Section shall apply, notwithstanding that the act is one for which the person concerned may be criminally liable."
10. The proceeding under Section 69(1) is independent of the proceeding under Section 64. Section 69(1) is attracted only when in the course of an audit, enquiry, inspection or winding up of the society it is found that a person incharge of the management of affairs of the society has spent or misappropriated the money belonging to it. Thus, the special machinery has been provided under Section 69(1) for recovery of the amount that may be due from the servant of a co-operative society as a consequence of negligence or misconduct on the part of such servant. Therefore, a finding in an enquiry under Section 64 is not sufficient to impose surcharge without following the procedure under Section 69(1) and 10 without an independent finding given for the imposition of the surcharge.
11. Sub-section (2) of Section 69 states that the said Section applies notwithstanding that the act is one for which the person concerned may criminally be liable. Thus, the question for consideration is whether the co-operative society should await the outcome of surcharge proceedings in order to prosecute a person against whom surcharge proceedings is pending?
12. A conjoint reading of Section 69(1) and (2) makes it clear that proceedings under Section 69(1) can be initiated notwithstanding that the act is one for which a person concerned may be criminally liable. In other words, even if a person is criminally liable for misappropriation of the money belonging to a co-operative society, there is no bar for initiating surcharge proceedings against him under Section 69(1).
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13. There is no merit in the contention that pending disposal of surcharge proceedings under Section 69(1), the person concerned cannot be prosecuted by the Co-operative Society. Breaches of law is injurious to the society. A crime is an act punishable by law as forbidden by statute or injurious to public welfare. It is a threat to every member of the Society, even though it may be in reality an offence against only one specific person. The dominant purpose of criminal proceedings is to achieve the protection of the society.
14. The object of surcharge proceedings is entirely different. It is to recover the loss sustained by the co-operative society on account of misappropriation or retention of any money or other property belonging to the co-operative society. There is no bar to proceed against a person under Section 69(1) and to prosecute him before the competent Court simultaneously.
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15. That brings me to the next question as to whether the sanction given by the first respondent is in conformity with sub- sections (2) and (3) of Section 111 of the Act?
16. Section 111 provides for taking cognizance by the Court. It is as under:
"111. Cognizance of offences: (1) No Court inferior to that of a Magistrate of the First Class shall try any offence under this Act.
(2) No prosecution shall be instituted under this Act without the previous sanction of-
(a) the Director of Co-operative Audit in respect of matters arising out of audit other than matters relating to co-operative credit structure society;
(b) the Registrar in respect of all other matters including matters relating to audit in respect of co-
operative credit structure society:
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Provided that no sanction of the Registrar or the Director of Co-operative Audit shall be necessary for filing criminal complaints against the delinquents for alleged misappropriation or embezzlement of funds of a co-operative society detected during the course of audit, inquiry or inspection or in the normal course of business of a co-operative society.
(3) The sanction under sub-section (2) shall not be given,-
(i) without giving to the person concerned an opportunity to represent his case;
(ii) if the Chief Auditor or the Registrar, as the case may be is satisfied that the person concerned has acted in good faith."
17. It is clear that no prosecution can be instituted under the Act without the previous sanction of the authorities mentioned in sub-sections (2)(a) and (2)(b) of Section 111. The proviso to this 14 Section makes an exception in relation to previous sanction for prosecution. In certain cases such as alleged misappropriation or embezzlement of funds of a co-operative society detected during the course of audit, enquiry or inspection or in the normal course of business of a co-operative society, it is not necessary to obtain a sanction for filing of criminal cases against the delinquents. Previous sanction is necessary only in other cases. In cases where sanction is necessary, it cannot be granted without giving to the person concerned an opportunity to represent his case. Therefore, the authority concerned has to issue show cause notice to the delinquent as to why sanction should not be given for his prosecution. After considering the reply, if the authority is satisfied that the person concerned has acted in good faith, the request for sanction to prosecute should be rejected.
18. In the present case, the first respondent has issued the show cause notice calling upon the petitioner as to why sanction should not be given for his prosecution. He has not decided as to 15 whether sanction is necessary having regard to the nature of allegations made against the petitioner. If he is of the opinion that sanction is necessary, he has to record his opinion as to whether petitioner has acted in good faith or not. The order impugned has been passed without following the procedure prescribed in proviso to sub-section (2) and sub-section (3) of Section 111 of the Act. I am of the view that the first respondent has to reconsider the matter.
19. The writ petition is allowed in part and the order at Annexure 'D' dated 9.2.2010 passed by the first respondent is hereby quashed. The matter is remitted back to the first respondent for fresh disposal in accordance with law and in the light of the observations made above. No costs.
Sd/-
JUDGE.
BMM/-