Case: Pentakota Srirakulu Vs. The Co-Operative Marketing Society Ltd

submitted that there was an enquiry under S. 38 preceding the suppression and that in consequence the condition was fulfilled. It is true that there was an enquiry conducted into the affairs of the Society under S. 38, but that by itself is not sufficient. It has further to be proved that the facts alleged in the claim, and on which it is based, were disclosed at that enquiry. This can be proved or established only if the enquiry report which was submitted to the Registrar was placed before the Court and the facts disclosed therein corresponded with the facts alleged in the statement of claim. Mr. Ram Reddy admitted that the enquiry report was not before the Court and is not in the record of these proceedings. It is not, therefore, possible to say that there is correspondence between the facts disclosed in that report as a result of the enquiry under S. 38 and those found in the Statement of claim which was referred by the Registrar to the Deputy Registrar for arbitration under S. 51. The case must, therefore, be held not to fall under S. 49 of the Act. There can be no doubt that if S. 49 does not apply, subject to the other argument about illegality to which we shall advert, the order of the Registrar proceeding under S. 51 is not open to objection. This first point, therefore, has to be rejected.6. The next contention of learned Counsel was that the dispute about the retention of money belonging to the Society by the appellant was not "a dispute touching the business of the Society." The argument was that the expression "business of the society" included only what was legally permissible. In so far as it impinges on the third point urged by learned Counsel activity out of which the claim against the appellant was alleged to arise involved a contravention of the Gur Control Order it was not "a dispute touching the business of the society". We are unable to agree with this submission. In so far as it impinges on the third point urged by learned Counsel based on the maxim ex turpi causa non oritur actio we shall deal with it in considering that submission. But that apart, we do not see any basis for the argument that the claim made before the arbitrator was not a dispute touching the business of the Society. It could not be disputed that the sale of the produce belonging to the members of the Society was part of the business of the Society and then the charging of commission for those sales and the crediting of the Societys accounts with that commission would equally be the business of the Society. Apart, therefore, from the question of illegality raised by reason of the sale being at prices in excess of the controlled price, it is not capable of argument that the failure on the part of the appellant to credit to the Society the full amount of commission due on the sales effected by him on behalf of the Society and the resistance by him of that demand, would not be a dispute touching the business of the Society. This objection is clearly without substance and must be rejected.7. The last of the points urged by learned Counsel was that the transaction of sale which gave rise to the commission alleged to be improperly retained was illegal and that therefore the Society could not, in law, make a claim on the basis of such an illegal transaction. We see no substance in this point either. No illegality attached to the contract between the appellant and the Society; that was perfectly legal. It arose out of his position as the President of the Society and he was, in law, bound to account for the moneys he received on behalf of the Society. The fact that he entered into illegal transactions would have no bearing on the right of the Society to make the claim for an account of the commission due to the Society which he unjustly withheld. We consider the reasoning of the learned Judges of the Division Bench rejecting this argument to be correct. Moreover this matter has been examined by this Court in a decision reported as Kedar Nath Motani v. Prahlad Rai, 1960-1 SCR 861 : (AIR 1960 SC 213 ) and in view of this decision learned Counsel for the appellant did not himself press this point very seriously.8. Before parting with this case, however, there is one matter to which it is necessary to advert. The learned Judges, after allowing the appeal of the Society, stated in their judgment:"Lastly, we must observe that this Court is averse to lend its helping hand to persons who want to defraud others. Even assuming that any error of law, was committed by tribunals, that would not be a ground for invoking the extraordinary jurisdiction of this Court under Art. 226 of the Constitution, when it is not in furtherance of justice but tends to encourage dishonestly."9. Mr. Ram Reddy pointed out to us that the correctness of the allegations made in the claim filed before the arbitrator has yet to be decided and there was, therefore, no justification for the learned Judges assuming that the facts stated therein were proved and that the appellant had been guilty of fraud or dishonesty in his conduct of the business of the Society. We see force in this complaint of learned Counsel. In the circumstances, we would add that, having regard to the stage at which the matter was before the Court, the learned Judges were in error in making these observations. It is clear that they did not intend to prejudice the appellant in his defence before the Deputy Registrar in the arbitration proceedings under S. 51 of the Act but it is possible that it might have such an effect. What we have said earlier must suffice to dispel any such apprehension or effect.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]This argument, however, proceeds on ignoring one further essential requisite for the application of S. 49 (1). Besides the two factors to which learned Counsel referred and which we have just set out, there is also another condition which has to be satisfied before S. 49(1) could be attracted. The facts giving rise to the charge have to be disclosed in the course of an audit under S. 37 or an enquiry under S. 38 or an inspection under S. 39 or on the winding up of theis not, therefore, possible to say that there is correspondence between the facts disclosed in that report as a result of the enquiry under S. 38 and those found in the Statement of claim which was referred by the Registrar to the Deputy Registrar for arbitration under S. 51. The case must, therefore, be held not to fall under S. 49 of the Act. There can be no doubt that if S. 49 does not apply, subject to the other argument about illegality to which we shall advert, the order of the Registrar proceeding under S. 51 is not open to objection. This first point, therefore, has to beare unable to agree with this submission. In so far as it impinges on the third point urged by learned Counsel based on the maxim ex turpi causa non oritur actio we shall deal with it in considering that submission. But that apart, we do not see any basis for the argument that the claim made before the arbitrator was not a dispute touching the business of the Society. It could not be disputed that the sale of the produce belonging to the members of the Society was part of the business of the Society and then the charging of commission for those sales and the crediting of the Societys accounts with that commission would equally be the business of the Society. Apart, therefore, from the question of illegality raised by reason of the sale being at prices in excess of the controlled price, it is not capable of argument that the failure on the part of the appellant to credit to the Society the full amount of commission due on the sales effected by him on behalf of the Society and the resistance by him of that demand, would not be a dispute touching the business of the Society. This objection is clearly without substance and must besee no substance in this point either. No illegality attached to the contract between the appellant and the Society; that was perfectly legal. It arose out of his position as the President of the Society and he was, in law, bound to account for the moneys he received on behalf of the Society. The fact that he entered into illegal transactions would have no bearing on the right of the Society to make the claim for an account of the commission due to the Society which he unjustly withheld. We consider the reasoning of the learned Judges of the Division Bench rejecting this argument to besee force in this complaint of learned Counsel. In the circumstances, we would add that, having regard to the stage at which the matter was before the Court, the learned Judges were in error in making these observations. It is clear that they did not intend to prejudice the appellant in his defence before the Deputy Registrar in the arbitration proceedings under S. 51 of the Act but it is possible that it might have such an effect. What we have said earlier must suffice to dispel any such apprehension ors not, therefore, possible to say that there is correspondence between the facts disclosed in that report as a result of the enquiry under S. 38 and those found in the Statement of claim which was referred by the Registrar to the Deputy Registrar for arbitration under S. 51. The case must, therefore, be held not to fall under S. 49 of the Act. There can be no doubt that if S. 49 does not apply, subject to the other argument about illegality to which we shall advert, the order of the Registrar proceeding under S. 51 is not open to objection. This first point, therefore, has to bee unable to agree with this submission. In so far as it impinges on the third point urged by learned Counsel based on the maxim ex turpi causa non oritur actio we shall deal with it in considering that submission. But that apart, we do not see any basis for the argument that the claim made before the arbitrator was not a dispute touching the business of the Society. It could not be disputed that the sale of the produce belonging to the members of the Society was part of the business of the Society and then the charging of commission for those sales and the crediting of the Societys accounts with that commission would equally be the business of the Society. Apart, therefore, from the question of illegality raised by reason of the sale being at prices in excess of the controlled price, it is not capable of argument that the failure on the part of the appellant to credit to the Society the full amount of commission due on the sales effected by him on behalf of the Society and the resistance by him of that demand, would not be a dispute touching the business of the Society. This objection is clearly without substance and must bee force in this complaint of learned Counsel. In the circumstances, we would add that, having regard to the stage at which the matter was before the Court, the learned Judges were in error in making these observations. It is clear that they did not intend to prejudice the appellant in his defence before the Deputy Registrar in the arbitration proceedings under S. 51 of the Act but it is possible that it might have such an effect. What we have said earlier must suffice to dispel any such apprehension or