IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE P.S.GOPINATHAN WEDNESDAY, THE 31ST MARCH 2010 / 10TH CHAITHRA 1932 WA.No. 579 of 2010() ------------------------------- AGAINST THE JUDGEMENT/ORDER IN WPC.28629/2009 Dated 24/03/2010 .................... APPELLANT(S): RESPONDENTS 1 TO 3 IN WPC ------------------------ 1. STATE OF KERALA REP.BY SECRETARY, DEPARTMENT OF CO-OPERATION, GOVT.SECRETARIAT, THIRUVANANTHAPURAM. 2. THE REGISTRAR OF CO-OPERATIVE SOCIETIES, GOVERNMENT OF KERALA, THIRUVANANTHAPURAM. 3. THE JOINT REGISTRAR OF CO-OPERATIVE SOCIETIES (G), ERNAKULAM. BY GOVERNMENT PLEADER RESPONDENT(S): PETITIONERS & RESPONDENT 4 TO 6 IN THE WPC -------------------------- 1. M.ARAVINDAKSHAN NAIR, S/O.V.GOPALAN NAIR, BUILDING NO.VI/249,(NEW NO. VI/275) NEAR CTO ANAVATHIL, KOCHI 682002. 2. B.S.RAMESH, X/194 (NEW NO.10/201 JD NORTH STREET, FORT KOCHI,KOCHI- 682 001. 3. URSULE LENIN, KALIYATH HOUSE, BUILDING NO.XVII/1204, MUNDAMVELI, KOCHI 682007. 4. A.P.KALYANASUNDARAM, VI/1158 (NEW NO.6/ 1209), KOTTUKULAM ROAD, KOCHI 682002. 5. DEPUTY GENERAL MANAGER, RESERVE BANK OF INDIA, URBAN BANKS DEPARTMENT, THIRUVANANTHAPURAM-695 033. W.A. NO.579/2010 6. MATTANCHERY MAHAJANIK CO-OPERATIVE URBAN BANK LTD. 665 P.O. BOX 304, PALLIARAKKAVU ROAD, KOCHI- 682 002 REP.BY ITS GENERAL MANAGER. 7. ADMINISTRATOR/ASST.REGISTRAR OF CO-OP. SOCIETIES(G), KOCHI, MATTANCHERY MAHAJANIK CO-OPERATIVE URBAN BANK LTD. 665 P.O.BOX 304, PALLIARAKKAVU ROAD, KOCHI 682 002. THIS WRIT APPEAL HAVING COME UP FOR ADMISSION ON 31/03/2010, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: tss “CR” C.N.Ramachandran Nair & P.S.Gopinathan, JJ. ================================================== W.A.No.579 of 2010 ================================================== Dated this the 31st day of March, 2010. JUDGMENT Ramachandran Nair, J. 1.This writ appeal is filed by the State challenging the judgment of the learned single Judge vacating surcharge orders issued under Section 68(2) of the Kerala Co-operative Societies Act, 1969, hereinafter referred to as the “Act”, against respondents 1 to 4 and the consequent orders issued by the Joint Registrar as violative of Rule 66(5) of the Co-operative Societies Rules, hereinafter referred to as the “Rules”. 2.We have heard learned Government Pleader for the appellants and Adv.Sri.George Poonthottam for respondents 1 to 4. WA579/10 -:2:- 3.An inspection was ordered by the Registrar into the affairs of the sixth respondent society consequent upon the report furnished by the Reserve Bank of India pointing out financial irregularities in the affairs of the society. In the report prepared by the Inspector of Co- operative Societies, respondents 1 to 4 were indicted for causing loss to the society. Based on the findings, the Registrar initiated proceedings under Section 68(1) against respondents 1 to 4 and after giving notice and serving copy of the enquiry report, Ext.P8 order was issued under Section 68(2) of the Act. Subsequent to the surcharge orders, respondents 1 to 4 were served with orders under Rule 44(1) (a) of the Rules disqualifying all of them from being members of the committee. After disqualification of respondents 1 to 4, the managing committee lost required number of WA579/10 -:3:- members for sustenance and consequently the Joint Registrar issued Ext.P25 order appointing Administrator to take over the charge of the management of the society. Appeal filed by respondents 1 to 4 against surcharge orders issued vide Ext.P8 before the Government were rejected. Writ petition was filed by respondents 1 to 4 challenging all these orders and since the basic order is Ext.P8, the learned single Judge went into the legality of the said order and on finding it untenable by virtue of violation of Rule 66(5), he vacated the said order and consequently all follow up orders were quashed. It is against this judgment of the learned single Judge, the State has filed this writ appeal. 4.The sole question to be considered is whether there is violation of Rule 66(5) of the Rules in this case. On facts, the conceded position is that enquiry was ordered based on R.B.I. report WA579/10 -:4:- and after receiving enquiry report, the Registrar proposed to take action against respondents 1 to 4 under Section 68 (2) of the Act. Respondents 1 to 4, apprehending that orders will be issued surcharging them without giving them copy of the report and without hearing them, approached this Court and this Court, by Ext.P5 judgment, directed the Registrar to afford opportunity of hearing to respondents 1 to 4 and to take a decision, in accordance with law. Thereafter, respondents were served with copy of the report and were given opportunity to file reply before surcharge orders were issued under Section 68(2) of the Act. However, after surcharge orders and follow up orders were issued disqualifying respondents, they approached this Court with the writ petition that led to the impugned judgment alleging that there is violation of the principles of natural justice in as much as there was non-compliance of Rule 66(5) of the Rules. WA579/10 -:5:- The controversy is on the interpretation of Rule 66(5), which prima facie applies only in regard to the apportionment of cost of inspection among the persons referred to in Section 67. However, counsel for the respondents contended that opportunity referred to in Rule 66(5) is for every action to be taken by the Registrar pursuant to the report. We notice that, the latter part of Rule 66(5) providing for an opportunity and an adjudication by the Registrar refers to only sharing of cost under Section 67. In this context, it is worthwhile to refer to Section 67 and Rule 66(5), which are extracted hereunder: Section 67. “Cost of inquiry or inspection:-Where an inquiry is held under Section 65, or an inspection is held under Section 66 on the application of a creditor, the Registrar may, by order, apportion the cost, or such portion of the cost, as he may deem fit, between the society to which the society WA579/10 -:6:- concerned is affiliated, the society, the member or creditor demanding an enquiry or inspection, and the officers or former officers of the society; Provided that:-- (a) no order of apportionment of the cost shall be made under this section unless the society or the person sought to be made liable to pay the costs thereunder has had a reasonable opportunity of being heard. (b)The Registrar shall state in writing the grounds on which the costs are apportioned. Rule 66(5).-The person authorised to conduct the inquiry or inspection shall submit his report to the Registrar on all points mentioned in the order referred to in Clause (c) to sub-rule (1). The report shall invariably contain a latest balance sheet of the society and the last known addresses of the members of the Committee and of the Secretary. The report shall also contain his findings and the reason therefor; supported by such documentary or other evidence as recorded by him during the course of the inquiry or inspection. He shall also specify in his report the costs of the inquiry or inspection together with reasons and recommend to the WA579/10 -:7:- Registrar the manner in which the entire cost or a part thereof may be apportioned amongst the parties specified in Section 67. The Registrar shall pass such orders thereon as may be considered just after giving a reasonable opportunity of being heard to the society, person or persons concerned.” 5.What is clear from the above is that cost of inspection could be demanded from the society concerned or creditor or member, as the case may be. Latter part of Rule 66(5) states that, in the report of inspection it is for the inspecting officer to recommend whether cost of inspection should be shared among the persons referred to in Section 67. Obviously, the Registrar is bound to take a decision on the recommendations contained in the report of the inspecting officer and in this regard Rule 66(5) specifically provides that orders to be passed against a person or society should be only after giving opportunity to the society or person concerned. The persons among WA579/10 -:8:- whom the cost is to be shared contained in Section 67 are incorporated in Rule 66(5) and it is also made very clear that the adjudication by the Registrar under Rule 66(5) is only on Section 67. So much so, we are inclined to accept the argument of the Government Pleader that the principle contemplated under Rule 66(5) is only on orders imposing cost on the society and persons concerned referred to in Section 67 in terms of or in variance with the report of the inspecting officer contained in the inspection report. The contention raised by the counsel for the respondents is that orders to be passed by the Registrar after giving opportunity to the society or persons concerned referred to in Rule 66(5) applies to all against whom action is contemplated based on the report. However, this argument cannot be accepted because, wherever action is contemplated based on inspection report, whether it is the supersession of the WA579/10 -:9:- management of the society under Section 32 or whether it is the surcharge on the officers or employees concerned under Section 68(2), separate opportunity of hearing specifically contemplated under the relevant sections has to be afforded. In fact, in this case, the action proposed against the respondents is based on surcharge under Section 68(2) and for this the section itself provides that, the Registrar shall pass order surcharging a person only after giving the person concerned an opportunity of being heard. This provision provides effective opportunity to file objections and hearing and if required, to adduce evidence by the persons concerned. The fact that action under Section 68(2) is initiated against any person concerned based on inspection report does not mean that the Registrar cannot give it up on being satisfied that there is no case is made out by him in the notice based on the report. In other words, in the course of WA579/10 -:10:- adjudication under Section 68, it is upto the Registrar to accept the contention of the aggrieved persons and turn down or reject the findings in the inspection report. It is to be noted that, the opportunity referred to in Section 68(2) is specifically mentioned in Rule 66(7)(ii)of the Rules, which is a repetition of the opportunity referred to in Section 68 (2)of the Act. 6.In our view, Rule 66(5) does not contemplate any opportunity to be given to any society or any person, except with regard to the proposal of the Registrar for ordering cost of inspection, whether it be in terms of the report or in variation with the recommendation contained in the Report. 7.In this case, one another additional feature is WA579/10 -:11:- that, after getting Ext.P5 judgment, the respondents cannot complain of any violation of the principles of natural justice except in regard to proceedings initiated under Section 68 (2) of the Act because, before this Court, the respondents had no case that there is any violation of the principles of natural justice in so far as the inspection is concerned and the report prepared by the inspecting officer. It is to be noted that the report of the enquiry under Section 65 or report of inspection under Section 66 does not call for any formal confirmation on the findings or otherwise by the Registrar. In fact, whatever be the findings in the enquiry report, unless the Registrar proceeds to take action, whether it be under Section 32 for supersession or for surcharging under Section 68 (2), there is no need to grant opportunity to anybody about finding in a report under any provision in the Act or Rules. If any action is WA579/10 -:12:- proposed based on the report, necessarily the person against whom action is proposed should be given an opportunity to adduce evidence and for hearing. So much so, in our view, Rule 66(5) does not contemplate any opportunity being given by the Registrar before accepting any report or for initiating any action based on the Report. In other words, the opportunity contemplated under the various provisions of the Act are only against specific action and opportunity should be given only to the person against whom action is contemplated. 8.In view of our findings above, we allow this writ appeal by vacating the judgment of the learned single Judge. However, since the respondents have challenged Ext.P8 and other impugned orders on other grounds, the matter should go back to the learned single Judge for deciding all other grounds raised against the impugned orders. We, therefore, restore the writ petition for hearing WA579/10 -:13:- on those matters by the learned single Judge. We make it clear that the position emerging as of now, that is restoration of management of the society to the respondents, will continue until the disposal of the writ petition. However, we grant stay of all the orders impugned in the writ petition for a period of three months, within which time, the Registry will post the writ petition soon after re-opening before the learned single Judge for hearing. It is upto the learned single Judge to extend the interim orders, if the writ petition could not be disposed of within three months' time. C.N.Ramachandran Nair, Judge. P.S.Gopinathan, Judge. sl.