GOKUL PRASAD BHARAT Vs. BOARD OF REVENUE

JUDGEMENT

(1.) THIS is a petition under Articles 226 and 227 of the Constitution for the issue of a writ of certiorari for quashing an order of "surcharge" made against the petitioners by the Deputy Registrar, Co-operative Societies Bilaspur, on 1st february 1961 under Section 42-D of the Co-operative Societies Act, 1912, as applied to Madhya Pradesh (hereinafter referred to as the Act), and for quashing a decision of the Board of Revenue upholding the said order of the Deputy Registrar.

(2.) THE matter arises thus. The petitioners, while they were members of the Board of Directors of the Bilaspur Co-operative Central and Land Mortgage Bank Ltd. , convened a meeting of the Board of Directors on 24th March 1959 and a general meeting, for the purpose of deciding the date and place of holding elections of the office-bearers of the Bank, on 10th April 1959. The Deputy Registrar taking the view that these meetings convened by the petitioners were wholly uncalled for and improper made an order of surcharge under Section 42-D of the Act making the petitioners liable for the repayment of certain amounts. Against this order the petitioners filed an appeal before the Board of Revenue, which was rejected. Thereupon they filed a a petition in this court under Articles 226 and 227 of the constitution (M. P. No. 233 of 1962), which was allowed on 18th December 1952, and the decisions of the Board of Revenue and the Deputy Registrar were quashed. In the appeal, which the applicants had filed before the Board of Revenue, the petitioners filed, along with the memorandum of appeal, a certified copy of a report made by the Circle Auditor which the petitioners thought had some bearing on the order of surcharge against which they had appealed. This certified copy had been obtained by the respondent-Bank at a cost of Rs. 12. 75 np. The petitioners alleged that on account of bias and prejudice against them, the Deputy Registrar shri Lande went to Gwalior to inspect the record of the appeal which they had filed with the Board of Revenue and on finding that the petitioners had filed with the memorandum of appeal a certified copy of the Circle Auditor's report which had been supplied to the Bank, initiated proceedings resulting in the surcharge order impugned in this petition. The applicants deposited to the credit of the Bank Rs. 12. 75 np. as cost of obtaining the certified copy when they received notices from the Assistant Registrar asking them to show cause why an order of surcharge should not be made against them for using in the aforesaid appeal the certified copy of the Circle Auditor's Report supplied to the Bank. Ultimately on 1st february 1961 the Deputy Registrar made an order under Section 42-D of the Act directing the petitioners to pay Rs. 16/- to the respondent-Bank and Rs. 30/- as cost to Government for the enquiry conducted under Section 42-D. The Deputy registrar based his order on the ground that the petitioners had misconducted themselves in utilising the certified copy supplied to the Bank for their own personal use and this caused a lass of Rs. 16/- to the Bank and that the fact that they had deposited Rs. 12. 75 np. to the credit of the Bank after receiving notices to show cause against the making of an order under Section 42-D could not relieve them of the consequential disqualification under byelaw 30 (8) of the Bank for directorship of the Bank. The Board of Revenue agreed with this reasoning and conclusion of the Deputy Registrar.

(3.) IN our judgment, this petition must be granted. The approach of both the deputy Registrar and the Board of Revenue to this matter of surcharge has been altogether wrong. Section 42-D of the Act, so far as it is material here, is as follows-"42-D. (1) If, in the course of an audit, inquiry, inspection, or the winding up of a registered society, it is found that any person, who is or was entrusted with the organization or management of such society or any past or present chairman, secretary, member of the committee or an officer or an employee of the society, has made any payment contrary to law or has caused any deficiency or loss by gross negligence or misconduct or has mis-appropriated or fraudulently detained any money or other property belonging to such society, the Registrar may, of his own motion or on the application of the committee, liquidator or any creditor, enquire himself or direct some person authorised by him, by an order in writing in this behalf, to enquire into the conduct of such person within three years of the date on which the act or omission occurred or within one year of the date on which it comes to the notice of the registrar, whichever is earlier. 2. If, on enquiry made under Sub-section (1), the Registrar is satisfied that there are good grounds for an order under this sub-section, he may make an order requiring such person to repay or restore the money or property or any part thereof, with interest at such rate, or to pay contribution and costs or compensation to such extent as the Registrar may consider just and equitable. . . . . . . . . . . . . . . . . . . . . . . . . . " it will be seen that an order under Sub-section (2) with regard to repayment of any money or restoration of any property can be made by the Registrar only after satisfying himself of the existence of good grounds for making an order under that sub-section and after finding that the person proceeded against has made any payment contrary to law or has caused any deficiency or loss by gross negligence or misconduct or has misappropriated or fraudulently retained any money or other property belonging to the co-operative society. Unless it is first found that the person or officer mentioned in Section 42-D (1) made any payment contrary to law or caused any deficiency or loss by gross negligence or misconduct or misappropriated or fraudulently retained any money or other property belonging to the co-operative society, an order under Sub-section (2) cannot be made. Now, here there was no question of any payment having been made by the petitioners contrary to law. The "deficiency or loss" referred to in Sub-section (1) must be one in the sense of shortage or deprivation which can never be recovered and must be the result of gross negligence or misconduct of the person against whom it is intended to make an order under Sub-section (2 ). The action or inaction of such a person constituting gross negligence or misconduct cannot itself be "deficiency or loss" falling within the description "deficiency or loss by gross negligence or misconduct". If the deficiency or loss consists in the very act of the person sought to be made responsible under Sub-section (2), then the case would be one of appropriation or retention by the person at any money or property belonging to the society. In such a case, no order under Sub-section (2) can be made against the person unless it is found that he has misappropriated or fraudulently retained any money or other property belonging to the society. It will be observed that Sub-section (1) of Section 42-D, speaks of "misappropriation or fraudulent retention". This implies appropriation or retention which is wrongful judged from the standard of honesty. The appropriation or retention of money or property must be with the intention of causing wrongful gain to the person appropriating or retaining it and wrongful loss to the society. A distinction must, however, be made between the gain or loss of property and gain or loss of the possession of the property. If the element of intention to cause wrongful gain or wrongful toss of property is absent, then the appropriation or retention of money or property would not be "misappropriation or fraudulent retention of any money or other property" for the purposes of Sub-section (1 ).