THE HON’BLE SRI JUSTICE B.PRAKASH RAO AND THE HON’BLE SRI JUSTICE SANJAY KUMAR WRIT APPEAL NO.2065 OF 2002 JUDGMENT (Per Sri Justice Sanjay Kumar) The appellant, a former President of Sri Lakshmi Primary Agricultural Co-operative Society (for short, ‘the Society’), Amalapuram, East Godavari District, is aggrieved by the order dated 30.10.2002 passed by the learned single Judge dismissing his writ petition, W.P.No.4014 of 1999. In the said writ petition, the appellant challenged the surcharge order dated 16.07.1991 passed by the Divisional Co-operative Officer- cum-Deputy Registrar of Co-operative Societies, Amalapuram, East Godavari District, the first respondent herein, under Section 60 of the Andhra Pradesh Co-operative Societies Act, 1964 (for short, ‘the Act of 1964’). He also challenged the order dated 26.10.1998 of the A.P. Co- operative Tribunal, Vijayawada, in O.A.No.79 of 1996, confirming the said surcharge order. The allegation against the appellant was that he had issued a cheque dated 23.02.1979 for a sum of Rs.11,080/- in favour of one P.Venkateswara Rao, the Clerk of the Society at that time, for encashment at Sri S.K.C.C. Bank Limited, Amalapuram Branch, Mukkamala, but the proceeds of the cheque were not brought to the books of account of the Society. In the enquiry conducted under Section 51 of the Act of 1964, P.Venkateswara Rao admitted that he had encashed the subject cheque and stated that the amount was paid either to the President or the Secretary of the Society on the same day. However, as both the President, the appellant herein, and the Secretary denied having received the said amount, the Enquiry Officer opined that P.Venkateswara Rao, the Clerk was himself responsible for this amount as there was no evidence to show that he had handed over the amount to anyone as claimed by him. The Enquiry Officer suggested that the amount should be recovered from P.Venkateswara Rao, as he was responsible for the loss and in the event there was no such possibility, to recover the same from the appellant as he was the President of the Society, and therefore the custodian of its properties. Basing on the enquiry under Section 51 of the Act of 1964, it appears that surcharge proceedings were issued earlier under order dated 14.08.1984 by the then Deputy Registrar of Co-operative Societies, Amalapuram. However, the same was set aside by this Court in W.P.No.13525 of 1986 filed by the appellant. This Court, by its order dated 14.06.1989, however left it open to the authorities to commence the enquiry afresh after giving notice and reasonable opportunity to the appellant. Thereupon, fresh notice was issued on 18.12.1990 under Section 60(1) of the Act of 1964 to the appellant, the former Secretary, and P.Venkateswara Rao, directing them to show cause as to why the amount of Rs.11,080/- should not be recovered from them with interest. It appears that the appellant and the other two charged officers of the Society filed their objections and basing thereupon, the impugned surcharge order dated 16.07.1991 was passed by the first respondent. The first respondent proceeded on the ground that the transaction was exclusively between the appellant and P.Venkateswara Rao and that the appellant ought not to have issued the cheque in favour of P.Venkateswara Rao without the knowledge of the Secretary. The first respondent held that the appellant ought to have seen that the proceeds of the cheque were handed over after encashment as he had general control over the affairs of the Society. Accordingly, he held that the appellant and P.Venkateswara Rao were jointly and severally liable to make good the loss of Rs.11,080/- caused to the Society with interest thereon. The appeal under Section 76 of the Act of 1964 filed by the appellant before the A.P. Co-operative Tribunal, Vijayawada, in O.A.No.79 of 1996 was dismissed by order dated 26.10.1998. The Tribunal held that the first respondent had observed the principles of natural justice during the course of hearing and had passed the surcharge order basing on the material available on record. The Tribunal found that there were no justifiable grounds to interfere with the said order and accordingly confirmed the same. Aggrieved by the aforestated two proceedings, the former President of the Society, the appellant herein, approached this Court by way of W.P.No.4014 of 1999. The learned single Judge, by order dated 30.10.2002, dismissed the writ petition on the ground that there were no reasons to interfere as the Tribunal’s findings were based on cogent reasons after proper appreciation of the material on record. Hence, this appeal. Heard Sri G.V.Shivaji, learned counsel for the appellant, and the learned Government Pleader for respondents 1 and 2. At the out set, it is relevant to note that the subject surcharge proceedings arose out of an incident which occurred as long back as in the year 1979. The first initiation, culminating in the surcharge order dated 14.08.1984, was set at naught by the order of this Court dated 14.06.1989 in W.P.No.13525 of 1986. Thereupon, the second round commenced with the first respondent initiating proceedings afresh under Section 60 of the Act of 1964 under his notice dated 18.12.1990. In this regard, it is relevant to note that except for calling for objections from the addressees of the notice viz., the appellant, the former Secretary of the Society and P.Venkateswara Rao, no full- fledged enquiry involving examination of witnesses was held by the first respondent. The matter proceeded only on the basis of the written objections filed by the charged officers of the Society. In CHALLA SANYASINAIDU V/s. DEPUTY REGISTRAR OF CO-OP. SOCIETY, SRIKAKULAM[1], a Division Bench of this Court dealt with the scheme of Section 60 of the Act of 1964. The observations of the Division Bench in this regard are apposite: “10. In the course of inspection under Section 52 of the Act, the Registrar may cause the inspection of Books of the Society with a view to find out the irregularities, acts of omission and commission. This enquiry is only administrative in nature, and if the Registrar prima facie is satisfied of the irregularities on the basis of the report of the enquiry officer, he may initiate surcharge proceedings under Section 60. That report may form the basis for the Registrar to proceed under Section 60 and issue a surcharge order eventually. The person against whom a report is sent under Section 52 has no opportunity to squarely meet the allegations against him at that stage. He is not allowed to cross examine the witnesses from whom statements are recorded implicating his involvement. He cannot also adduce rebuttal evidence. That is not the stage where a demand can be made against him to payback the sum or liability fastened to him as per the report of the enquiry officer. On the contrary, Section 60 clearly contemplates an opportunity being given to the delinquent by making a representation. In our view, this is the proper occasion where the officer or the servant has to be given an opportunity of explaining his stand and allow him to participate in the enquiry before a final order is passed. This is a valuable right given to the delinquent which cannot be brushed aside in a routine manner. After the show-cause-notice is served and an explanation is called for, an opportunity should be given to the affected person to cross-examine the witnesses examined in the course of enquiry under Section 52 or permit him to examine his witnesses to rebut their evidence. Until this is done the spirit of making a representation, as contemplated under Section 60, cannot be fulfilled. Although Section 60 does not prescribe any particular procedure before passing surcharge order, nonetheless, it is mandatory that principles of natural justice shall be followed in the enquiry. Evidence recorded behind the back of the defaulter cannot be relied upon to fasten the liability on him without giving him an opportunity to cross-examine the witnesses. The Registrar in his surcharge proceedings is a Court whose order can very well form the subject-matter of judicial review under Article 226 of the Constitution of India. Therefore, it is in the fitness of things that an opportunity like supply of copy of enquiry report, statements of witnesses recorded during the said enquiry, and also an opportunity to cross-examine those witnesses, or permit him to examine his own witnesses by the delinquent by way of rebuttal should be allowed before an order under Section 60 is passed. …” (emphasis added). It is to be noticed that the earlier surcharge order had been set aside by this Court specifically directing the authorities under the Act of 1964 to give notice and reasonable opportunity to the appellant and thereafter pass appropriate orders as per law. In spite of such a clear direction, no full-fledged enquiry was held by the first respondent by examining witnesses and calling for relevant records from the Society to make out the case as alleged. In the absence of such an enquiry, the valuable right of the appellant to make out his defence is prejudiced. That apart, Section 60 of the Act of 1964 seeks to attach responsibility and liability upon the person who, being entrusted with the organization, affairs or management of the society, has misappropriated or fraudulently retained any money or other property or has been guilty of breach of trust in relation to the society or has caused any deficiency in the assets of the society by breach of trust or willful negligence or has made any payment contrary to the provisions of the Act, the Rules or the Bye-laws. In the present case, it is not made out that the appellant, being the former President of the Society misappropriated the amount under the subject cheque. In fact, the varying versions put-forth by P.Venkateswara Rao as to what he did with the proceeds of the cheque clearly indicate that the appellant could not be charged with such misappropriation. It appears that the first respondent and thereafter, the Co-operative Tribunal, attached responsibility and liability upon the appellant only because he, being the President of the Society, was the custodian of its properties. That by itself, in our opinion, would not be sufficient as per the language of Section 60 to make him liable. Unless willful negligence is established, such liability cannot be pinned upon the appellant merely because of his being the President of the Society at that point of time. No such willful negligence has been established in the present case. In that view of the matter, as the Section 60 enquiry was not in accordance with the expected norm and the appellant was in fact deprived of a full opportunity of putting forth his case owing to the failure on the part of the first respondent to examine witnesses and call for the entire record, the surcharge proceedings on the basis of such enquiry are liable to be set aside. Even on merits, no willful negligence is established as against the appellant warranting his being made jointly and severally liable with P.Venkateswara Rao for the amount encashed under the subject cheque. Further, the learned Government Pleader fairly conceded that in spite of the joint liability imposed by the surcharge order and in spite of absence of challenge to the same by P.Venkateswara Rao, no action has been taken against him for recovery of the amounts due. In the totality of the above circumstances, keeping in mind the fact that the issue has been kept alive for nearly three decades, we are of the opinion that the matter deserves to be given a quietus. In spite of an opportunity being given in the first round of litigation, the authorities under the Act of1964 failed to make use of the same and once again committed a procedural error in the surcharge enquiry proceedings. The orders under challenge, being the order of the first respondent dated 16.07.1991 and the order of the Co-operative Tribunal dated 26.10.1998 confirming the same, are accordingly set aside. The writ appeal is allowed and in the circumstances of the case, without costs. ----------------------------- B.PRAKASH RAO, J. ---------------------------- SANJAY KUMAR, J. __________ OCTOBER, 2009. PGS THE HON’BLE SRI JUSTICE B.PRAKASH RAO AND THE HON’BLE SRI JUSTICE SANJAY KUMAR WRIT APPEAL NO.2065 OF 2002 (Per Sri Justice Sanjay Kumar) __________ OCTOBER, 2009. [1] 1998(1) ALD 455 (DB)