IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE K.SURENDRA MOHAN THURSDAY, THE 1ST JULY 2010 / 10TH ASHADHA 1932 WP(C).No. 10255 of 2010(F) ----------------------------------------- PETITIONER(S): ------------------------ 1. P.V.MARKOSE, S/O.VARGHESE, PUDUSSERY HOUSE, NETTITHOZHU P.O., KOCHERA, IDUKKI DISTRICT. 2. JOSE JACOB, VANIYUPURAKKAL HOUSE, NETTITHOZHU P.O., VANDANMEDU, IDUKKI DISTRICT. BY ADVS. SRI.V.G.ARUN, SRI.T.R.HARIKUMAR. RESPONDENT(S): --------------------------- 1. THE DEPUTY DIRECTOR OF DIARY DEVELOPMENT, MINI CIVIL STATION, THODUPUZHA, IDUKKI DISTRICT. 2. NETTITHOZHU KSHEEROLPADAKA SAHAKARANA SANGHAM LTD.NO.I 38(D) APCOS, NETTITHOZHU P.O., VANDANMEDU, IDUKKI DISTRICT, REPRESENTED BY ITS SECRETARY IN CHARGE. *ADDL.R3 IMPLEADED: R3. SHAJI V.PHILIP, RESIDING AT VATTMALA, NETTIHOZHU P.O., VANDANMEDU, IDUKKI DISTRICT. (*ADDL.R3 IS IMPLEADED AS PER ORDER 30/03/2010 IN I.A.4669/10) R1 BY SR. GOVERNMENT PLEADER SRI. K.C. SANTHOSH KUMAR ADDL.R3 BY ADV. SRI.P.C.SASIDHARAN THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 01/07/2010,THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: Kss K.SURENDRA MOHAN, J ........................................... WP(C).NO.10255 OF 2010 ............................................ DATED THIS THE 1st DAY OF JULY, 2010 JUDGMENT The petitioner is the President and the second petitioner is one of the members of the Managing Committee of the second respondent, Society. The Committee of which petitioners are members took charge on 31.12.2009. The petitioners were members of the previous committee also. The Society is functioning profitably with its area of operation spread over Ward Nos.7, 8, 9 and portions of Ward Nos.6,10 and 11 of Vandanmedu Panchayat. 2. The Society is functioning from its own building which is situate in an extent of land admeasuring 6.5 cents. The office of the Society, Milk Collection Centre and Cattle Feed Godown are all functioning in the said building. As the building was old and dilapidated, the former Committee in office decided to renovate the building after obtaining permission from the departmental authorities, as per Ext.P1 resolution. 3. Since there was no Vetenary Hospital in Vandanmedu Grama Wpc 10255/2010 2 Panchayat, there was a persistent demand from the public for starting a Vetenary Hospital. It was felt that the functioning of the Vetenary Hospital would be beneficial to the members of the second respondent, Society also. Though a Vetenary Hospital had been sanctioned by the Government, there was no building for using the same. In the above circumstances, the Grama Panchayat as well as other Government officials requested the second respondent to provide a portion of its building for the purpose of housing the newly sanctioned Vetenary Hospital. Acceding to the said request, the then Managing Committee of the second respondent Society decided to provide a portion of its building for housing the Vetenary Hospital. Accordingly, a Committee was constituted for the purpose of collecting funds and for starting the Vetenary Hospital. The Society accordingly carried out the renovation of its building expending an amount of Rs.3,63,298.80 from its own funds. 4. After completion of the renovation, which was conducted under the periodic supervision of the authorities, the Vetenary Hospital was inaugurated on 9.11.2008, as evidenced by Ext.P2, by the Minister Wpc 10255/2010 3 for Food and Civil Supplies. It is submitted by the petitioner that the second respondent Director, Diary Development Department was himself among the persons who had felicitated the second respondent Society. 5. After the present Committee took charge, there were differences of opinion with the Secretary of the Society. The Secretary started abusing the Committee members in public and his conduct finally lead to his suspension. It is alleged that at his instance therefore allegations were raised that the Society had expended amounts for renovation of the building without proper sanction from the authority and that it had accepted the donation of Rs.25,779/- without sanction from the Department. Though the first respondent had issued an order on 11.2.2010 requiring the first petitioner to reinstate the Secretary, which is Ext.P3, he did not yield to the said request. According to the petitioners, the above stand antagonized the first respondent. 6. Shortly thereafter, the first respondent issued Ext.P5 asking them to show cause why proceedings should not be initiated under Section 68 of the Kerala Co-operative Societies Act, 1969( `the Act for Wpc 10255/2010 4 short) and the Rules thereunder. The petitioners submitted their reply, Ext.P6 explaining the allegations. On the basis of Ext.P6, the petitioners were heard on 17.3.2010. However, as per Ext.P7 order which bears the same date, 17.3.2010, the petitioners have been surcharged under Section 68 of the Act. As per another order dated 19.3.2010, the petitioners have also been disqualified under Rule 44(1) of the Rules. The petitioners have filed this writ petition challenging Exts.P7 and P8. 7. As per Ext.P7, the amounts spent for revocation is directed to be recovered from the eight persons who were the members of the Managing Committee at the relevant time. According to the counsel for the petitioners, there are absolutely no allegations of misappropriation or misutilization of the funds of the Society. The only allegation is that the sanction of the authorities were not obtained before expending the amount for renovation of the building. In view of the fact that there are no circumstances justifying invocation of the power under Section 68 present, there is absolutely no justification for the issue of Exts.P7 and P8 in the present case. The counsel for the petitioner places particular Wpc 10255/2010 5 reliance on the decision of this court by which it has been held that unless the specific conditions stipulated by Section 68 are present, invocation of the power under the said provision is not justified. Therefore, the counsel prays for quashing Exts.P7 and P8. 8. As per order in I.A.No.4669 of 2010, additional third respondent, the person who had made the complaint, referred to in Ext.P7, has got himself impleaded. The additional third respondent has filed a counter affidavit justifying Exts.P7 and P8 proceedings. According to the additional third respondent, Ext.P7 is an order issued after hearing the affected parties. It has been found in Ext.P7 that an amount of Rs.3,63,298.80 has been misappropriated from the general funds of the Society and therefore an order of surcharge has been passed on the petitioners. According to the additional third respondent, even the amounts spent without sanction of the authorities, are amounts misappropriated. The only funds that a Co-operative Society can spend without sanction of the authorities, are amounts for which provision has been made in the budget adopted by the General Body of the Society. Therefore, any amounts expended without budgetory Wpc 10255/2010 6 provision would have to be with prior special sanction obtained by the competent authorities. In the present case, it is submitted that amounts were spent without budgetory provision and the construction itself was undertaken without any sanction from the PWD. Therefore, it is pointed out that the action initiated is perfectly justified. 9. The learned Senior Government Pleader, K.C.Santhosh Kumar pointed out that the order Ext.P7 being one issued under Section 68 of the Act, is appealable under Section 83(1)(e) of the Act. Therefore, it is submitted that the petitioner is not entitled to challenge this order in this writ petition. It is also submitted that considering the gravity of the allegations raised against the petitioners, the impugned orders Exts.P7 and P8 are perfectly justified. It is also pointed out that Ext.P7 was issued after hearing the petitioners and that no opportunity for any further hearing is contemplated by the Act or Rules. Since the impugned orders were issued after considering all the contentions of the petitioners, it is submitted that the orders are justified both in law and fact. Therefore, he prays for the dismissal of this writ petition. 10. I have heard Adv.Sri.V.G.Arun, who appears for petitioners, Wpc 10255/2010 7 Sri.K.C.Santhosh Kumar, learned Government Pleader and Adv.P.C.Sasidharan, who appears for the third respondent, in detail. I have gone through the facts of the case and have considered the rival contentions of the parties. 11. The petitioners are the only two members of the present Managing Committee who have been proceeded with under Section 68 of the Act. This writ petition is filed by them. According to the petitioners, as per the decisions reported in A.K.Francis V. Joint Registrar (1990(2) KLT 470), it has been held as follows:- “The first requirement of the section, which constitutes the condition precedent for its operation, is that the payment contemplated or the deficiency in the assets of the society should have been found in the course of audit, inquiry, inspection or the winding up of the society. The section can be invoked by the Registrar only if the finding was made in this manner and not otherwise”. 12. With reference to Ext.P7, it is pointed out by the counsel for the petitioner that in the present case, the proceedings are initiated Wpc 10255/2010 8 pursuant to a complaint made by the additional third respondent cited as reference No.1 therein. Since the preliminary conditions required for initiating proceedings under Section 68 are absent, it is submitted that there is no illegal payment or deficiency in assets that has been found in the inspection that was conducted. What has been found is only that money was expended without previous sanction, which is not sufficient for initiation of action under Section 68. The counsel for the petitioners also complain that no opportunity of being heard was afforded before issuing Ext.P8 disqualifying the members. 13. As rightly pointed out by the learned Senior Government Pleader, Ext.P7 is an order against which a remedy by way of appeal has been specifically provided by Section 83(1)(e) of the Act. Since the petitioners have an alternative and effective remedy for challenging Ext.P7, it is sufficient that they are relegated to the said remedy. Therefore, I do not venture to consider the contentions raised on behalf of the petitioners on the merits. 14. Ext.P8 order has been passed three days after the issue of Ext.P7. As per Ext.P8, the petitioners have been disqualified to be Wpc 10255/2010 9 members of the committee under Rule 44(1)(l) of the Co-operative Societies Rules, 1969(`the Rules' for short). It is the case of the petitioners that they were not heard before Ext.P8 order was passed. The learned Senior Government Pleader as well as the counsel for the additional third respondent submits that the disqualification suffered by the petitioners was a consequence of being surcharged under Section 68 of the Act. Therefore, immediately on being surcharged under Section 68, the disqualification under Rule 44(1)(l) takes effect, without there being any further proceedings to declare such disqualification. Since the petitioners were disqualified, even in the absence of Ext.P8, issuance of the said order does not in any way affect the said legal position one way or the other. Therefore, it is submitted that there was no necessity of the petitioners being heard before the issuance of Ext.P8. The counsel for the petitioner places particular reliance on the decision in T.P.Paulose V. Joint Registrar (1993(2) KLJ 36). 15. It cannot be disputed that the petitioners are persons who were qualified to be members of the Managing Committee as on the Wpc 10255/2010 10 dates on which they were elected to the said posts. Having been eligible members, they could be disqualified from holding the said post only when they are disqualified in accordance with the provisions of Rule 44 of the Rules. Therefore, the disqualification of the petitioners cannot be considered to be automatic on the issue of surcharge proceedings under Section 68 of the Act. A further declaration that he was ceased to be a member of the Committee of the Society is necessary for the said purpose. The said declaration can be issued under Rule 44(3) of the Rules. It is the said declaration that has been made as per Ext.P8 proceedings. However, before any such proceedings is issued under the said provision, it is mandatory that an opportunity to state his objections against the proposed action should be given to the said person. In the present case, nobody has a case that any such opportunity of hearing was given to the petitioners. Since a hearing is mandatory under Section 44(3) of the Act, Ext.P8 proceedings cannot be sustained. For the above reason alone, Ext.P8 is unsustainable and is liable to be set aside. 16. In the above circumstances, the impugned proceedings Wpc 10255/2010 11 Ext.P8 are quashed. However, the first respondent would be at liberty to initiate fresh action against the petitioners under Rule 44(3) of the Rules, if circumstances insist such action. The petitioners shall be at liberty to challenge Ext.P7 proceedings by filing an appeal against the same under Section 83(1)(e) of the Act. If such an appeal is filed within ten days of receipt of a copy of this judgment, the same shall be entertained without any objection as to limitation, treating the period during which this writ petition has been pending before this court as time spent pursuing the other legal remedies and such appeal shall be considered and disposed of in accordance with law, on merits. Writ petition is disposed of as above. No costs. K.SURENDRA MOHAN, JUDGE lgk