K TULASIRAM Vs. CHAIRMAN, MUNICIPAL COUNCIL, RSNAIDU

JUDGEMENT

(1.) The appellant in this case was Chairman of the Madura Municipality from 11th June, 1921 till 25 June, 1923. He was succeeded by Hajee B. Syed Shamsuddin Bahadur, whose term of office lasted till 1 July, 1923, when he, in his turn, was. succeeded by the defendant in the suit, Mr. R.S. Naidu. The rules framed under the District Municipalities Act provide for periodical auditing of Municipal accounts and the Government have prescribed that there shall be an audit every half-year. During the appellant's term of office such audits were regularly made. In 1924, when Mr. R.S. Naidu was Chairman, it was discovered that extensive frauds had been going on in the street-lighting department of the Municipality and a supplemental audit was made of the accounts of the period from 1 April, 1921 till 18 January, 1924. It was ascertained that, owing to the negligence of successive Chairmen, a large sum of money had been misappropriated and the auditor surcharged the appellant, his immediate predecessor and his two successors. In the case of the appellant and of Mr. R.S. Naidu, the surcharges were large, Rs. 7,000 odd and Rs. 6,000 odd respectively. The rules in Scheduel IV of the Act allow to persons surcharged in this way either of two remedies. They may apply to the District Court to set aside the surcharges or "in lieu of such application" may appeal to the Local Government. All four of the aggrieved persons chose the latter course. Three of them succeeded in getting their surcharges remitted completely. The appellant did not; all that he obtained was a reduction to Rs. 2,500. He then filed a suit in order to get an injunction restraining Mr. R.S. Naidu from recovering this sum from him under Rule 62. The two main questions raised by it were these- -whether the auditor had jurisdiction to re-open audits already closed and whether the plaintiff had any right to sue. The Sub-Judge found on the first issue in favour of the appellant. The District Judge, though with some hesitation, dissented from this finding and held that there was nothing in the rules that prevented an audit being re-opened. That was not quite the right method of approaching the problem. The question was rather whether there was anything in the rules that allowed the re-opening of a closed audit. If the rules prescribe a half-yearly audit and nothing more, whence is derived the power to re-open that audit, to conduct an extraordinary or supplemental audit and, as a result, to make surcharges? Certainly not from anything in the rules themselves. On the second issue, the Sub- judge and the District Judge again disagreed. The former considered that the appellant had a right of suit. The latter was of a different opinion. Both seem to have thought (and there was nothing in the plaint to disabuse them of that idea) that the suit was brought under Rule 61. If that had been so, the Sub-Judge was quite wrong in holding that the remedies allowed by the rule were not mutually exclusive. It is quite plain that, if an aggrieved person has resorted to one, he cannot have the benefit of the other as welt Mr. Vaz now points out that this is a regular suit and not an application under Section 61, which is not a suit at all and would have had to be presented to the District Court. His case is that all that was done was without any legal foundation and that his client has therefore a right to sue. He concedes, of course, that, had there been any jurisdiction to conduct an extraordinary audit, his right to sue would have been barred by the special remedies provided by the statute.

(2.) We will now deal with the first question--whether there was any jurisdiction to conduct a supplementary audit. The relevant rules are Rules 56 to 58 in Scheduel IV of the District Municipalities Act. Rule 56 directs the Chairman to submit to the auditor such accounts as. he needs. Rule 57 empowers the auditor to summon documents and persons and to question such persons. Rule 58(a) requires the auditor to report irregularities in expenditure or collection of money to the Council. Under Sub-rule (b) he must keep the Council informed of the progress of the audit. By Sub-rule (c) he is instructed to report to the Council any loss or waste of money, caused by neglect or misconduct, with the names of the persons directly or indirectly responsible. Sub-rule (d) runs (the auditor shall) "submit to the Council a final statement of the audit and a duplicate copy thereof to the Local Government within a period of 3 months from the end of the financial year or within such period as the Local Government may notify." And the Local Government have notified that the audit is to be made half-yearly. The District Judge thought that, as Sub-rule (c) contained no time-limit, the auditor was under an obligation to report financial irregularities to the Council, whenever he discovered them. We do not agree that Sub-rule (c) can be isolated in this manner from the rest of the rule. It must be that the report referred to is one arising out of and based on the audit prescribed by Sub-rule (d). Similarly Rules 56 and 57 appear to be designed for the purpose of that audit and no other. By Rule 58(a) the auditor must report what he has observed--obviously, what he has observed in the course of that audit. Sub-rule (b) also must refer to that audit and to no other. The rules then, in our judgment, provide for one recurring audit only, as the result of which defaulters can be charged or surchaged. They do not provide for extraordinary audits or the re-opening of audits when once they have been closed.

(3.) As the rules are obviously framed on English precedents, it may be noted that, at one time and, in the case of one statute, up till a quite recent date, the position was the same. The statutes provided for periodical audits, but said nothing about any other. And it was held that there was no jurisdiction to re-open audits that had been completed. There is a case under the Poor Law Act that dates back to 1862, Reg V/s. The Inhabitants of Chiddinstone (1862) 26 Justice of the Peace 246. An attempt was made to force a Poor Law auditor to re-open the audits of the six previous years. He refused on the ground that he was functus officio in respect of those audits and had no power to re-open accounts that had been examined, audited and closed. A writ of certiorari was issued, but the Court held that his refusal was legally correct. Four years later, in 1866, the Poor Law Amendment Act empowered the Poor Law Board to require an auditor to hold an extraordinary audit, which was to be deemed to be an audit "within the meaning of the several Acts relating to the audit of the accounts of the poor rate." Section 247 of the Public Health Act of 1875 prescribed--in its original form--an annual audit of the accounts of certain authorities. It is divided into ten sub-sections, which, in many respects, resemble and may well have served as a model for the relevant rules in Scheduel IV of the District Municipalities Act. The commentators on the Act point out that there is no provision in the section as in the Poor Law Amendment Act of 1866--for holding an extraordinary audit and state that the Local Government Board consistently refused to allow such an audit. This state of affairs lasted till 1922, when an Act was passed giving the Minister of Health the power of ordering an extraordinary audit to be held. The view therefore in England has always been that if an Act, which prescribes the holding of periodical audits, omits to give power to direct the holding of an extraordinary audit, an account which has been audited and closed at one of the periodical audits cannot be re-opened. In this view, we cannot avoid the conclusion that in this case, there being no power reserved by the rules in Scheduel IV to re-open audited accounts, the extraordinary audit and the surcharge certificate were without any legal validity whatever. Even apart from the English precedents, the matter seems plain enough. On the face of them, the rules provide for one audit only, the periodical one and it is quite impossible to read into them a power to hold any other kind of audit or to re-open a closed account. The appellant therefore succeeds on the first point.