S.P.Arumugam v. Deputy Registrar of Co-operative SocietiesKrishnagiri,Dharmapuri District.

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED: 18.12.2009CORAM:THE HONOURABLE MR.JUSTICE D.HARIPARANTHAMANW.P.No.2758 of 2007 (T)(O.a.No.1602 of 2001)S.P.Arumugam... Petitionerversus Deputy Registrar of Co-operative SocietiesKrishnagiri, Dharmapuri District. ... RespondentPRAYER: This writ petition came to be numbered under Article 226 of the Constitution of India by way of transfer of O.A.No.1602 of 2001from the file of the Tamil Nadu Administrative Tribunal with a prayer to call for and set aside the surcharge notice dated 23.05.2000 of the respondent in proceedings No. Surcharge Notice No.9/2000 Sa.Pa.For Petitioner: Mr.Karthik Rajan For Respondent: Mrs.C.K.Vishnu PriyaAdditional Government Pleader

O R D E RThe Original Application in O.A.No.1602 of 2001 before the Tamil Nadu Administrative Tribunal is the present writ petition.

Heard Mr.Karthik Rajan, learned counsel for the petitioner and Mrs.C.K.Vishnu Priya, learned Additional GovernmentPleader for the respondent.

The petitioner was Deputy Registrar of Co-operativeSocieties, Krishnagiri, Dharmapuri District and retired from service on 31.08.1997. On 14.02.1997, the petitioner was deputed as ManagingDirector (Additional Charge) of Krishnagiri Taluk AgriculturalProducers Co-operative Marketing Society, Pochampalli and the petitioner assumed charge on 20.02.1997. After 23 days, he was relieved of the additional charge and he continued as the DeputyRegistrar of Co-opearative Society. When he was serving as the Managing Director (Additional Charge) during 20.02.1997 to14.03.1997, the Society sold cotton on credit basis to M/s.Velmurugan& Co. to the tune of Rs.8,93,607/- and the details are as follows: https://hcservices.ecourts.gov.in/hcservices/

20.02.1997 – sold for Rs.4,38,550/- 20.02.1997 – sold for Rs.38,910/-27.02.1997 – sold for Rs.2,833/- 27.02.1997 – sold for Rs.92,517/- 27.02.1997 – sold for Rs.98,360/- 06.03.1997 – sold for Rs.1,67,161/- 06.03.1997 – sold for Rs.31,098/- 13.03.1997 sold for Rs.24,178/-. Admittedly, the sale amount was not realised and it became overdue. Therefore, an enquiry under Section 81 of the Tamil Nadu Co-operativeSocieties Act, 1983 (in short "the Act") was conducted. Based on the enquiry report, the respondent initiated surcharge proceedings under Section 87 of the Act by issuing the impugned notice dated23.05.2000.

The petitioner filed Original Application in O.A.No.1602of 2001 (W.P.No.2758/2007) to quash the aforesaid impugned notice dated 23.05.2000.

It is stated in the affidavit that the petitioner was only held the additional charge as Managing Director. According to the him, he was there in the Society only on three occasions. Thefirst occasion was on the date, when he took additional charge and later, when he handed the additional charge on and the last occasion was on a day between accepting the charge and handing over the charge. Hence, one of the contentions raised by the petitioner was that the respondent, without applying his mind issued the surcharge proceedings. Secondly, it is contended that when the basis for the initiation of surcharge proceedings under Section 87 is based on the enquiry report under Section 81 of the Act, the respondent could not proceed with the surcharge proceedings without furnishing a copy of the enquiry report. It is the case of the petitioner that the direction issued by the respondent to peruse the report in his office could not amount to sufficient and reasonable opportunity to encounter the surcharge proceedings. When the petitioner was asked to show cause why a surcharge proceedings under Section 87 of the Actshould not be initiated by way of impugned notice, it is incumbent on the part of the respondent to enclose the copy of the report and the failure to do so would go to the root of the matter.

In this regard, the learned counsel for the petitioner has relied on a judgment of this Court in SAMBANDAM VS. THE DEPUTYREGISTRAR (CREDIT) CO-OPERATIVE SOCIETIES, MYLAPORE, MADRAS ANDOTHERS reported in 1999 (III) MLJ 310. Para 9 of the said judgment is extracted here-under: "9. Coming to the next aspect, it is stated that except the show-cause notice the petitioner was not provided with the claim made by the first respondent https://hcservices.ecourts.gov.in/hcservices/ and the report of the enquiry Officer. In this regard, it is relevant to mention that if any surcharge proceeding is initiated under Section 71 of the Act the same has to be done in accordance with the said provision. The second proviso of Section 71(1) makes it clear that, "No order shall be passed against any person referred to in this sub-section unless the person concerned has been given an opportunity of making his representations. "The said provision makes it clear that if any proceeding is initiated under Sec.71, before passing final order, the person concerned must be given an opportunity to put forth his claim. In our case, even though an enquiry was conducted under Sec.65 of the Act, at the instance of the Registrar of Co-operative Societies the copy of the said enquiry report has not been furnished to the petitioner. Thesaid provision is clear even from the order of the third respondent. In the light of second proviso to Sec.71(1) in the absence of proof for furnishing copy of the enquiry report further action taken by the first respondent, in pursuance of the enquiry report cannot be sustained on the principles of violation of statutory provision as well as natural justice. Accordingly, I sustain the contention made by the learned counsel appearing for the petitioner".Hence, the impugned notice under Section 87 of the Act without providing a copy of the enquiry report is bad and illegal in view of the categorical pronouncement of this Court referred to above.

Further, the learned counsel for the petitioner submits that the very initiation of the proceedings under Section 87 of the Act requires that there should be an allegation of any of the ingredients referred to in Section 87 of the Act. According to the petitioner, either there should be an allegation of misappropriation or fraudulent retention of money or other property or breach of trustor wilful negligence, that caused deficiency in the assets of the Society. According to the petitioner, no allegation is made in the show cause notice that he committed anyone of the ingredients of Section 87 of the Act. The whole basis for the proceedings under Section 87 of the Act is the non-recovery of the sale amount from the customer pursuant to credit sales. The Society has initiated proceedings under Section 90 of the Act for recovery from the concerned party. Not even negligence is alleged in the notice or even in the reply affidavit. Mere negligence itself is not sufficient to proceed against the petitioner and it should have been https://hcservices.ecourts.gov.in/hcservices/ stated that there was wilful negligence resulting in the loss. Asstated above, the basis for initiation under Section 87 of the Actwas the non-recovery of sale amount when the sale took place in the normal course of business.

The learned counsel for the petitioner has heavily relied on a Division Bench judgment of this Court in S.SUBRAMANIAN VS. THEDEPUTY REGISTRAR OF CO-OPERATIVE SOCIETIES (HOUSING) CUDDALORE ANDOTHERS reported in 2002 (3) LW 185 and contends that unless it is specifically alleged in the impugned notice anyone of the ingredients mentioned in Section 87 the Act, the impugned notice is without jurisdiction. Para 14 of the said judgment is extracted here-under: "14. In our considered view, the learned singleJudge had dismissed the writ petition in limine asset out above without reference to the statutory provisions of the Cooperative Societies Act and the pronouncements and the view of the learned singleJudge runs counter to the earlier Division Bench aswell as pronouncements of two other learned SingleJudges of this Court. It is not mere negligence, it must be wilful negligence. Further it is not a case of misappropriation even according to the respondents. When the requirements of Section 87 had not been satisfied and when the basic requirement of Section 87 which warrants initiation of surcharge proceedings is not satisfied or established on mere assumptions the appellant cannot be fastened with the liability. It has to be pointed out that neither in the show cause notice, nor in the proceedings of the first or third respondent, it has been held that the appellant has acted wilfully or wantonly with premeditation with a view to cause loss to the assets of the society. Mere negligence cannot be a ground of surcharge and it must be a wilful negligence or intentional negligence and not mere carelessness or intention or inadvertence or a single lapse by oversight. "

I have perused the impugned show cause. There is no allegation of negligence or any other ingredients mentioned in Section 87 of the Act to attract surcharge proceedings. In this context, para 4 of the reply affidavit is extracted here-under: "4) It is submitted that the applicant was regularly working as the Deputy Registrar of Co-op. Societies / Special Officer, Dharmapuri Co-Op. TownBank on Foreign Service Terms. Due to vacancy of the Deputy Registrar/Managing Director of Co-op. Marketing Society, the applicant was posted to hold https://hcservices.ecourts.gov.in/hcservices/ additional charge and look after the affairs of the Society. Accordingly the applicant was working as Additional Charge Managing Director from 20.02.1997to 14.03.1997. During his tenure, the Society has sold cotton to M/s.KARTHIKEYA COTTON MERCHANT,KALLAVI, on credit basis to the tune of Rs.6,63,898/-without the following sales procedure as persociety's trade regulations Rules. Later that amount has became overdue and did not able to collect such amount. So, the Society has filed an arbitration under Section 90 of the Tamil Nadu Co-op. SocietiesAct 1983 and Rules 1988 before the Respondent and the dispute is still pending. On the other hand the respondent has issued surcharge notice under section87 of the Tamil Nadu Co-op. Societies Act, 1983against the applicant and four others jointly in his proceedings No. Tha. Thi.6/2000 dated 23.05.2000. Theapplicant has been included in this case, for not taken effective steps to collect the over dues and properly not followed the trade procedure while releasing the cotton. "