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

1. The appellant was the President of the Anakapalli Co-operative Marketing society Ltd. -a Society constituted mainly for the purpose of enabling its members to obtain credit facilities and to arrange for the sale of agricultural products at reasonable prices. There were complaints regarding the working of the Society and accordingly an enquiry was instituted into its affairs by the Registrar of Cooperative Societies, Madras at a time when Anakapalli, now in Andhra Pradesh, was in the State of Madras. As a result of the facts disclosed in the inquiry the Committee then in management of the Society was, after due notice to show cause and a hearing, superseded by order of the Registrar dated February 15, 1952, such suppression being authorised by S. 43 of the Madras Co-operative Societies Act (Act VI of 1932) hereinafter called the Act. A special officer was appointed to take charge of the affairs of the Society and this officer filed a claim before the Registrar, inter alia, against the appellant. The amount claimed was Rs. 13,000/- and odd and details were given as to how this sum was made up. The main item of the claim was commission stated to have been actually earned by the Society on the sales effected by it of jaggery belonging to its producer-members but which was not credited to the society. On receipt of this claim the Registrar appointed, under S. 51 (2) of the Act, the Deputy- Registrar of Co-operative Societies, Visakhapatnam to act as an arbitrator to adjudicate the claim.2. Immediately this order was passed the appellant filed a petition in the High Court of Andhra Pradesh for the issue of a writ of prohibition under Art. 226 of the Constitution prohibiting the Deputy Registrar from dealing with the claim which he was directed to try. The learned Single Judge who heard the petition allowed the petition and granted the appellant the relief he sought. The Co-operative Society took the matter in appeal to the Division Bench of the High Court which allowed the appeal and dismissed the writ petition. Thereafter the appellant moved this Court for special leave (certificate of fitness having been refused by the High Court) and has preferred the present appeal.3. Before adverting to the arguments addressed to us by Mr. Ram Reddy learned Counsel for the appellant, it is necessary to state a few facts concerning the transactions which have given rise to these proceedings. The Co-operative Society of which the appellant was the President till November, 1951 held a licence under the Madras General Sales Tax Act for doing business as a Commission Agent and the Society was earning commission on the turnover of the sales effected of the agricultural produce of its members and others. In October, 1950 the Government of India promulgated the Gur Control order fixing the maximum price at which gur could be sold in different States. The prices fixed varied from State to State. The prices fixed for sale at Anakapalli, then in the State of Madras, were somewhat low than those which had been fixed in other States. This gave occasion for the members of the Society to sell their jaggery at higher prices than fixed because there was demand for jaggery from merchants at prices higher than the controlled price. It was alleged that while on paper the transactions entered into between the members of the Society and the purchasers showed sales at the prices fixed by law, in reality, higher prices were charged. As stated already, the Society was entitled to charge commission on the sales effected through it. As regards this was stated that commission was owned on the entire price at which the gur was sold, and while the amount of commission payable on the basis of controlled prices was credited to the Society, the commission earned in respect of the extra price which its members obtained, was, it was stated, not brought to the credit of the Society in its accounts but appropriated by members of the management. These were the allegations and it is on the basis of these allegations that the claim against the appellant and others had been made. Their correctness have yet to be tested in the arbitration proceedings.4. When this claim was made, inter alia, against the appellant viz., of not bringing into the Societys accounts moneys due to the Society and which had been earned through sales effected by the Society, he filed, as narrated before, a writ petition and there raised three points in challenge of the legality of the reference to the Deputy Registrar to enquire into and determine the claim. The first was that the transaction on the basis of which the claim was said to have arisen was illegal being contrary to the Gur Control Order issued by the Central Government under the Essential Supplies Act and such an illegal transaction could not fall within the words "Dispute touching the business of the Society" which alone could be referred to arbitration under S. 51 of the Act; (2) The second was that the reference by the Registrar of the dispute to the arbitration of the Deputy Registrar was illegal as contrary to natural justice, because (a) the Deputy Registrar had conducted an enquiry which had resulted in the suppression of the management of the Society under S. 43 of the Act, and (b) the Deputy Registrar being a subordinate of the Registrar could not be expected to act fairly in this matter; (3) Lastly, that the Registrar should, in this case, have proceeded under S. 49 of the Act and not under S. 51, the former being more advantageous to him, in that he could challenge any final order against him by resort to the Civil Courts, whereas an award under S. 51 was subject to departmental appeals and could not be questioned in a Civil Court. The learned Single Judge rejected the second and the third points but upheld the first. His reasoning was that the transaction of sale above the controlled price was illegal, that illegality was a bar to a claim for accounting by the Society against its officer or agent, notwithstanding that the contract of agency itself was not illegal. On appeal the learned Judges of the High Court have, as stated earlier, rejected all the three points urged on behalf of the appellant.

Court's reasoning:
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