ORDER
T.L. Viswanatha Iyer, J.
1. The petitioner challenges the order Ext. P13A passed by the Joint Registrar of Co-operative Societies under Section 68 of the Kerala Co-operative Societies Act, 1969 (the Act) and its confirmation in appeal by the proceedings Ext. P17 of the Government. The order Ext. P13A had previously been confirmed by the government by their order Ext. P15 which was challenged in a writ petition O.P. No. 3195 of 1986 in this court. This court was of the opinion that government had not dealt with the matter properly in the light of the principles laid down in decisions like Sundaram Iyer v. Dy. Registrar, Co-op. Societies, AIR 1957 Madras 634, Subbamal v. Tenkasi Co-op. Urban Bank, AIR 1977 Madras 92 and Sathyamangalam Co-op. Urban Bank Ltd. v. Dy. Registrar of Co-op. Society. (1980)2 MLJ 17. Ext. P15 was accordingly quashed and government was directed to reconsider the petitioner's appeal in accordance with law and in the light of the observations contained in the judgment. The order Ext, P17 was thereafter passed affirming the view taken earlier in Ext. P15. The petitioner has therefore filed this original petition challenging Exts. P13A and P17.
2. The petitioner was the Chief Promoter and Director of the Thiroor Service Cooperative Bank Ltd. (the Bank for short), and its President since 1964. The Bank is a Cooperative Society registered under the Act. The managing committee of the society had passed resolutions from time to time sanctioning payment of conveyance allowance to the petitioner at the rate of Rs. 100/- from 1-1-1976, Rs. 150/- from 1-1-1978, Rs. 250/-from 1-7-1979 Rs.300/- from 7-1-1981 and Rs. 450/- from 1-7-1982. The petitioner had drawn the conveyance allowance accordingly at the rates sanctioned amongst others, during the period from 1-2-1982 to 31-10-1983.
3. The Society had purchased a car for its purposes. But no driver was appointed. The vehicle was being driven by the petitioner himself. The vehicle was available for use between 1-2-1982 and 31-10-1983.
4. The budgets presented for the approval of the General Body of the Bank every year from 1978-79 to 1984-85 had made provision for the amount of conveyance allowance payable to the petitioner at the prevailing rates. The General Body had not raised any objection to the payment at any time. The payment of the conveyance allowance had thus the approval of the General Body of the Bank.
5. It is stated that in the years 1983 and 1984, some disgruntled elements in the Bank started creating trouble. Though the petitioner and his team got re-elected to the managing committee in 1983, they were not allowed to assume charge, alleging defects in the election procedure. Instead, an administrative committee was appointed to take charge of the affairs of the Bank. No fresh election was held, which prompted the petitioner to file O.P. No. 560 of 1984 in this court and get direction to conduct the election. The petitioner and his panel were successful in this election as well and assumed office. The petitioner was the President of the Bank when the original petition was filed.
6. Some members of the Bank had filed petition before the first respondent Joint Registrar alleging maladministration by the managing committee headed by the petitioner. A resolution was also passed at a meeting of the General Body held on 25-11-1984 to disallow the conveyance allowance due to the petitioner from 1-2-1982 to 31-10-1983. One of the irregularities alleged in the petition above mentioned was regarding the payment of conveyance allowance to the petitioner. On receipt of this petition, the Joint Registrar directed the Assistant Registrar (Vigilance), Trichur to conduct an enquiry. I must note here that no enquiry under Section 65 of the Act was ordered. On the basis of the report of the Assistant Registrar, the first respondent issued notice Ext. P13 dated 24-6-1985 directing the petitioner to show cause why an order should not be passed under Section 68 surcharging him for the amount of conveyance allowance of Rs. 9,000/- received between 1-2-1982 and 31-10-1983. The notice Ext. P13 stated that the drawing of the allowance was due to 'wilful negligence' and thereby the petitioner had wilfully caused deficiency of Rs. 9,000/- in the assets of the Bank.
7. The petitioner showed cause, but that was not accepted by the first respondent and he passed the order Ext. P13A directing recovery of Rs. 9,000/- with interest at 18% per annum from 31-10-1983 from the petitioner. In making this direction the first respondent was not prepared to give credit for the resolutions of the managing committee sanctioning the payment. It was stated that 'as the first officer' of the Bank, petitioner cannot absolve himself of his responsibility in this fashion by relying on the managing committee's resolutions. The petitioner's contention that the Act or the Rules or the bye-laws did not prohibit such payment was treated as negative. 'This again adds that he has wilfully neglected the legal aspects by means of his negative reasoning.' It was also held that the petitioner had not given the log book and tour notes to the Bank. Further the General Body resolution of 25-11-1984 had objected to the payment of the amount. For all these reasons the order or recovery of Rs. 9,000/- was passed, as stated above.
8. Petitioner challenged the order unsuccessfully in appeal and Ext. P17 is theultimate order of the government in theappeal after the reconsideration ordered bythis court. ;
9. The petitioner contends that none of the ingredients of Section 68(1) exists in this case. He points out that the very basic condition for invoking the provision is that the 'deficiency in assets' alleged should have been found 'in the course of an audit enquiry, inspection or the winding up of the Society'. That is not the case here. He further states that the payment of conveyance allowance had been sanctioned by the managing committee and approved by the General Body and, therefore, there could be no case of wilful negligence on his part attracting Section 68. It is also pointed out that the payment of conveyance allowance as such is not prohibited by the rules, in support of which he relies on rules 48 and 49 of the Kerala Co-operative Societies Rules, 1969 (the Rules).
10. The respondents on the other hand state that Rule 48 has no application, Rule 49 enables payment of remuneration or honorarium to the members of the managing committee only as laid down in the bye-laws of the Bank, and with the approval of the Registrar. There is no provision in the bye-laws of the Bank for such payment, nor had the approval of the Registrar been obtained. The payment of conveyance allowance to the petitioner was, therefore, totally unauthorised. Section 68 is attracted in such cases.
11. The question for consideration is whether the action is valid, and whether it is justified under Section 68 of the Act. Section 68 reads:
'68. Surcharge.-- (1) If in the course of an audit inquiry, inspection or the winding up of a society, it is found that any person, who is or was entrusted with the organisation or management of such society or who is or has at any time been an officer or an employee of the society, has made any payment contrary to this Act, the rules or the bye-laws, or has caused any deficiency in the assets of the society by breach of trust or wilful negligence pr has misappropriated or fraudulently, retained any money or other property belonging to such society or has destroyed or caused the destruction of the records, the Registrar may, of his own motion or on the application of the committee, liquidator or any creditor, inquire himself or direct any person authorised by him by an order in writing in this behalf, to inquire into the conduct of such person.'
The first requirement of the section, which constitutes the condition precedent for its operation, is that the payment contemplated or the deficiency in the assets of the society should have been found in the course of audit, inquiry, inspection or the winding up of the society. The section can be invoked by the Registrar only if the finding was made in this manner and not otherwise. The facts giving rise to the charge have to be disclosed in the course of an audit under Section 63, inquiry under Section65, inspection under Section66 or on the winding up of the society. -- vide Pentakota Sriramulu v. Co-operative Marketing Society Ltd., AIR 1965 SC 621, where the Supreme Court spoke as follows with reference to an analogous provision in Section 49(1) of the Madras Co-operative Societies Act, 1932:---
'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 Section 49(1) could be attracted. The facts giving rise to the charge have to be disclosed in the course of an audit under Section 37 or an enquiry under Section 38 or an inspection under Section 39 or on the winding up of the Society.'
It is evident that the Supreme Court related the audit, enquiry and inspection to the statutory proceedings contemplated by the Act, which in this case fall under Sections 63, 65 and 66. There is no case that the disclosure about the conveyance allowance was made in the course of any audit or inspection. The enquiry ordered by the first respondent on the complaint petition was also not one under Section 65 of the Act. Therefore, the essential condition for Section 68 to be invoked did not exist and the entire proceedings leading to Exts. P13A and P17 have to fall as wanting in jurisdiction. (See also para. 6 of ILR 1979 (1) (Volume 29) Karnataka 739, Gopal Krishna Vishweshwar v. Yellapura T. A. P. C. M. Society).
12. The further requirement of Section 68 is that the payment or deficiency in the assets of the society was made, or caused by breach of trust of wilful negligence or misappropriation or fraudulent retention of money. It is not the mere wrongful payment or causing of deficiency in the assets that attracts Section 68, but the further fact that such payment or deficiency was made or caused by the breach of trust, wilful negligence, misappropriation or fraud of the person concerned. Unless the latter ingredient is found to exist, action under Section 68 is ruled out.
13. The charge against the petitioner is that he wilfully neglected the legal aspects. The first respondent's case is that he was wilfully negligent, though it is not clarified as to how he was wilfully negligent. The cliche 'wilful neglect' finds a place in Ext. P13A. But Government does not find wilful negligence on the part of the petitioner anywhere in Ext. P17, though they uphold the action of the Joint Registrar. The question, therefore, is whether the petitioner is guilty of such negligence as would justify action under Section 68 assuming that he has caused deficiency of Rs. 9,000/- in the assets of the Bank.
14. In Subbammal v. Tenkasi Co-op. Urban Bank, AIR 1977 Madras 92, Rama-nujam, J. held that wilful negligence means intentional and purposeful omission. Mere negligence, however gross it may be, may not be sufficient to attract the section. The learned Judge observed thus after referring to various decisions on the point (at page 95):--
'The above decisions clearly indicate that the use of the phrase 'wilful negligence' in Section 71 of the Act is for the purpose of holding a person in management liable if he has caused loss to the Society by his intentional and purposeful omission. Therefore, the learned Counsel for the petitioners is right in his submission that mere negligence, however gross it may be, may not be sufficient to attract the section,'
A Bench of the Madhya Pradesh High Court dealt with the matter in Nanhelal v. Asst. Registrar, AIR 1970 MP 39. The Court was dealing with 'gross negligence' under Section 63(1) of the Madhya Pradesh Co-operative Societies Act, 1960. It was observed in that context that 'gross negligence' connotes a higher degree of negligence; it is negligence not arising merely from some want of foresight or mistake of judgment but from some pulpable default. The liability under the section arises when loss is caused by gross negligence, and not merely by ordinary negligence. In the absence of a finding that the officer was guilty of 'gross negligence', the order of surcharge was not sustainable.
15. The matter received elaborate consideration at the hands of Ratnavel Pandian, J. as he then was, in Sathvamangalam Co-op. Urban Bank Ltd. v. Dy. Registrar of Co-op. Society, 1980 (2) MLJ 17. Section 71 of the Tamil Nadu Co-operative Societies Act 53 of 1961, which is pari materia with Section 68 of the Kerala Act was under consideration. Numerous decisions, English and Indian, which dealt with the words wilful default, wilful neglect and the like were referred to and discussed. The learned Judge stated as follows :--
'The degree of negligence that is contemplated under Section 71(1) of the Tamil Nadu Co-operative Societies Act is not mere negligence, but wilful negligence. The word 'wilful' has not been defined in the Act, 'wilfulness' or 'wantonness' imports premeditation or knowledge and consciousness that an injury or loss is likely to result from the act done or from the omission to act. It imports a constructive intention as to the consequences which, entering into the wilful act, the law imputes to the offender and in this way a charge, which otherwise would be mere negligence, becomes by reason of a reckless disregard of probable consequences, a wilful wrong. The act done or omitted to be done must be intended or must involve such reckless disregard of security and right as to imply bad faith. In examining whether there is wilful negligence, it has to be seen whether the person concerned is guilty of negligence and if so, whether that negligence is wilful and secondly, whether the said wilfulnegligence is the proximate cause of the injuryor loss-sustained.
XX XX XX Having regard to the interpretations and discussions in respect of the term 'wilful' appearing in various enactments, as found in the case law decided by the learned English and Indian Judges which serve as a guide to the construction of the term 'wilful' used in Section 71(1) of the Act, I am of the view that in order to pass a surcharge order under that section against a person entrusted with the organisation and management of a co-operative society or an officer or servant thereof, such person should have done an actionable wrong, either by commission or omission, in a deliberate and reprehensible manner, with reckless callousness and with a supine indifference (but not by accident or inadvertence), without taking due care and precaution ordinarily expected from a reasonable and prudent man under those existing circumstances, that is to say, not caring what the result of his carelessness would be. To make it explicit, it may be stated that he should have acted in breach of legal obligations or in conscious disregard of duty or with an intentional failure to perform the manifest duty, in the performance of which the public have an interest, and that such commission should be the proximate cause of the loss or deficiency in question.'
16. The uniform trend of decisions is, therefore, that negligence simpliciter is not sufficient to visit the officer of a co-operative society with proceedings under Section 68. His conduct should be wilful, implying culpability with an element of deliberatenes or mens rea involved in the conduct or omission which resulted in the loss. Without such conduct or omission, resulting in loss to the society, the Registrar is not entitled to proceed under Section 68 or to pass an order of surcharge.
17. Proceedings for surcharge are serious in their import, akin to misfeasance proceedings under Section 543 of the Companies Act. Under that Act, however, the procedure is elaborate as in civil cases, and the person concerned gets full opportunity of putting forward his pleas before the High Court in relation to the charge of misfeasance or malfeasance. On the other hand, the proceedings under Section 68 are at a departmental level, at the level of the Joint Registrar of Co-operative Societies in ordinary cases, with only the remedy of an appeal to government. It is, therefore, imperative that the special statutory remedy of surcharge is invoked only if the conditions prescribed by Section 68 are strictly complied with. A person can be proceeded against, and visited with liability, only if an objective assessment of the evidence and the materials available on record leads to the irresistible inference that the person concerned is guilty of one or other of the acts specified in the section. A mere routine, mechanical chanting of the section or of the acts mentioned, without anything more, is not sufficient in law to sustain an order of surcharge. It should be based on relevant and adequate materials on which a court could satisfy itself that the person concerned was guilty of breach of trust, wilful negligence, misappropriation or fraud.
18. The order Exts. P13A and P17 have to be examined in the light of the law as expounded above. The undisputed facts are that the managing committee of the Bank had repeatedly sanctioned payment of the conveyance allowance to the petitioner by its resolutions ranging between 1976 and 1982, namely Exts. P1 to P6. The committee had disclosed the payment of the conveyance allowance, to the General Body by making provision for it in the budgets presented for the years 1978-79 to 1984-85 namely Exts. P9 to P13. The payments to the petitioner had, therefore, the imprimature of the General Body as well. It is not as if anything had been concealed or done in a hole and corner fashion. On the other hand, everything had been laid on the table, disclosed and got approved.
19. There is no objection to the payment of the conveyance allowance for the period up to February 1, 1982. The dispute is only in relation to the subsequent period of twenty-one months when the Bank had a car. It is significant that the General Body had not demurred to the budgetary provisions or payment for this period. The objection if at all, was only long afterwards, ex post facto on 25-11-1984, after the payments had been made and received, evidently on other considerations as mentioned in paragraphs supra.
20. The question is whether on these facts, the petitioner could be held to have been wilfully negligent, for which he could be surcharged. The acts which led to the payment or deficiency, are not solely those of the petitioner, but of the managing committee and of the entire society in general meeting. If at all any mistake has been committed in overlooking or misreading any provision of the Act, Rules or the bye-laws, it is a mistake common to all, the managing committee and the society in general. When such a common mistake has been committed by all concerned, it could not be stated with any degree of justifiability that the petitioner has been guilty of wilful negligence, resulting in deficiency in the assets of the Bank. May be, there was negligence on the part of the concerned parties, in overlooking Rule 49, the necessity for provision in the bye-laws, and for getting the approval of the Registrar, but that is far from saying that the negligence was wilful. The culpable mind which necessarily has to accompany the act, before the negligence can be termed wilful for the purpose of Section 68, is absent. Exts. P13A and P17 do not disclose any particular reasons how the petitioner could be branded as having been wilfully negligent in the matter justifying proceedings under Section 68. Exts. P13A and P17 have been passed without taking note of the essential prerequisites of Section 68. They are not sustainable in law.
21. In this view of the matter, it is not necessary for me to consider the subsidiary contention of Sri. Siby Mathew for the petitioner that Ext. P17 is vitiated for the reason that it was passed by Sri. S.K. Bhanu Das, though the hearing of the appeal was by Sri. Kunhimuhammed.
The original petition is, therefore, allowed, Exts. P13A and P17 are quashed. No. costs.