1. Claim by a co-operative society against a former officer for failure to credit commission earned on sales — Reference to arbitration under Section 51, Madras Co-operative Societies Act. (Para 1 , 3 )
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1964 Supreme(SC) 193
SUPREME COURT OF INDIA
P.B. GAJENDRAGADKAR, C.J.I., J.C. SHAH AND N. RAJAGOPALA AYYANGAR, JJ.
Pentakota Sriramulu, Appellant
Versus
Cooperative Marketing society Ltd., Anakapalli and another, Respondents.
Civil Appeal No. 193 of 1962.
Advocates appeared
M/s. A. V. V. Nair and P. Rama Reddy, Advocates, for Appellant; Mr. Naunit Lal, Advocate, for Respondent No. 1; M/s. K. R. Chaudhuri and B. R. G. K. Achar, Advocates, for Respondents No. 2.
Advocates:
A.V.Velayudhan Nair, B.R.G.K.Achar, K.R.CHAUDHARY, NAUNIT LAL, P.RAM REDDY
A.V.Velayudhan Nair, B.R.G.K.Achar, K.R.CHAUDHARY, NAUNIT LAL, P.RAM REDDY
An officer's duty to account for funds received on behalf of a co-operative society persists even if the underlying transactions were illegal. Such disputes still constitute "business of the society" for the purpose of arbitration under the relevant Co-operative Societies Act.
Headnote:(A) Co-operative Societies Act - Sections 49 and 51 - Dispute touching the business of a registered society - Applicability of Section 49 versus Section 51 - For Section 49 to be attracted, the facts giving rise to the charge must be disclosed in the course of an audit, enquiry, inspection, or winding up - In the absence of evidence that the enquiry report disclosed the specific facts alleged in the claim, Section 49 is not applicable, and the Registrar is justified in proceeding under Section 51. (Para 5)
(B) Co-operative Societies Act - Section 51 - "Dispute touching the business of the society" - Sale of produce and charging commission for such sales constitutes the business of the society - The fact that transactions were conducted in contravention of a government control order does not exclude such disputes from the ambit of "business of the society". (Para 6)
(C) Legal Principle - Claim for accounting - Duty of an officer to account for moneys received on behalf of a society - The illegality of the underlying transaction (e.g., sale at prices exceeding controlled limits) does not absolve an officer of the legal obligation to account for and credit the moneys received to the society, as the contract of agency or the officer's position remains legal. (Para 7)
Facts of the case:
A former president of a co-operative society was accused of failing to credit commission earned from the sale of agricultural produce to the society's accounts. The sales were allegedly conducted at prices higher than those fixed by a government control order. The Registrar referred the dispute to arbitration under Section 51 of the Act. The appellant challenged this, arguing that the matter should have been handled under Section 49, that illegal transactions are not "business of the society," and that the illegality of the sales barred the claim for accounting.
Findings of Court:
The court found that Section 49 was not applicable because the specific facts of the claim were not shown to have been disclosed during the preceding enquiry. It further held that the sale of produce and the associated commission are part of the society's business, regardless of whether the price violated a control order. Finally, it ruled that the officer's duty to account for funds received on behalf of the society is independent of the legality of the specific transactions.
Issues: Whether the Registrar should have proceeded under Section 49 instead of Section 51; whether a dispute arising from transactions in violation of a control order constitutes a "dispute touching the business of the society"; and whether the illegality of the transaction bars a claim for accounting.
Ratio Decidendi: Section 49 requires the facts of misappropriation to be disclosed during a statutory audit or enquiry; without such proof, Section 51 governs. "Business of the society" is interpreted broadly to include the core activities of the society, even if performed illegally. An officer's fiduciary duty to account for money received for the society is not extinguished by the illegality of the transaction through which the money was obtained.
Result: Appeal dismissed.
Legal Category Hierarchy
Table of Contents
2. Whether the dispute fell under Section 49 or 51 — Whether illegal transactions under price control orders constitute business disputes — Whether the arbitrator's appointment violated natural justice. (Para 4 , 5 )
3. Section 49 requires facts to be disclosed during specific statutory enquiries — Commission on sales constitutes business — Duty to account for funds persists despite underlying transaction illegality. (Para 5 , 6 , 7 )
4. A claim for accounting by a society against its officer is a business dispute, and the duty to account remains regardless of the legality of the underlying transaction. (Para 6 , 7 )
5. Appeal dismissed. (Para 10 )
6. When is Section 49 of the Madras Co-operative Societies Act applicable instead of Section 51?
Section 49 applies when a person in management misappropriates funds or commits breach of trust, provided the facts giving rise to the charge were disclosed during an audit, enquiry, inspection, or winding up. If these conditions are not met, the Registrar may proceed under Section 51. (Para 5 )
7. Does a dispute arising from transactions that violate government control orders constitute a dispute touching the business of a co-operative society?
Yes. The sale of produce and the charging and crediting of commission are part of the society's business. The failure to credit commission due to the society is a business dispute, regardless of whether the sale price violated control orders. (Para 6 )
8. Can a society claim an account of moneys from an officer if the transactions involving those moneys were illegal?
Yes. If the contract between the officer and the society is legal, the officer is bound to account for moneys received on behalf of the society, even if the specific transactions entered into were illegal. (Para 7 )
Judgment
AYYANGAR, J. :
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 commmission 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 th
