1. Surcharge proceedings against cooperative society board members under Section 71 of the Tamil Nadu Cooperative Societies Act, 1961, alleging wilful negligence causing financial loss. (Para 2 )
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1993 Supreme(SC) 937
SUPREME COURT OF INDIA
G.N.Ray : S.P.Bharucha
Pollachi Co-operative Marketing Society
Versus
K.N.Valuswami
Case No. : 3120 of 1983
Date of Decision : 10/7/93
Important Points
Under Section 71 of the Tamil Nadu Cooperative Societies Act, 1961, liability for surcharge requires 'wilful negligence,' which implies a consciousness that injury or loss was likely to result from an act or omission, or a reckless disregard of duty implying bad faith, rather than mere negligence.
Subject
Cooperative Law - Surcharge Proceedings
Act Referred
Headnote
Constitution of India - Article 227 - Against the judgment – Condo nation of delay – Jurisdiction - Surcharge proceedings were initiated by Registrar of Cooperative Societies against Respondents 1-14 under provisions of Article 71 of the said Act, which makes members in management of a Cooperative Society liable in the event of negligence. In these proceedings the Registrar found Respondents 1-14 liable to pay sum interest thereon at the rate of twelve-and-a-half per cent per annum from the date of his order till the date of, to the appellant society. Respondents 1-14 preferred appeals to the Special tribunal for Cooperative Cases, which dismissed the appeals – Held, Respondents thereupon preferred writ petitions under Article 227 to High court - High court noted that the decree of negligence which was contemplated under Section 71 of said Act was negligence word it held imported premeditation or knowledge and consciousness that an injury or loss was likely to result from act done or from the omission to act - It imported a constructive intention as to the consequence. Quoting an earlier judgment, delivered by in Cooperative Urban Bank Ltd. Deputy Registrar of Cooperative Society, it held that to constitute negligence, the act done or omitted to be done must involve such reckless disregard of duty as to imply bad faith - High court observed that the very approach of the Special tribunal for Cooperative Cases was wrong as it had posed for answer the following question - Main point for consideration would be whether the purchases were effected as per regulation and whether the subsequent series were done in good faith and in the interest of the society - High court came to the conclusion that evidence before the tribunal and the findings arrived at by it on the basis of such evidence did not justify the legal inference that Respondents 1-14 had been guilty of negligence - High court was, in our view, right in emphasizing that the degree of negligence that had to be established under Section 71 was not mere negligence but negligence and that this imported a consciousness that injury or loss was lively to arise from an act of commission or omission. The basis upon which the tribunal considered the matter was therefore, erroneous. Once we come to the conclusion that the test applied by the High court was the right test, we must concur with High court in its finding that the evidence did not disclose the legal inference that Respondents 1-14 had been guilty of negligence – Appeal dismissed
Legal Category Hierarchy
Table of Contents
2. Whether the financial losses were caused by mere negligence or wilful negligence involving reckless disregard of duty as required for liability under Section 71. (Para 3 )
3. The court found the tribunal's approach erroneous for failing to distinguish between general good faith and the specific requirement of consciousness regarding likely loss. (Para 3 , 4 )
4. Wilful negligence requires a consciousness that injury or loss is likely to arise from an act or omission, implying a reckless disregard of duty and bad faith. (Para 3 , 4 )
5. Appeal dismissed. (Para 5 )
6. What is the legal standard for wilful negligence under Section 71 of the Tamil Nadu Cooperative Societies Act, 1961?
Wilful negligence requires premeditation or knowledge and consciousness that an injury or loss was likely to result from the act or omission, involving a reckless disregard of duty that implies bad faith. (Para 3 , 4 )
7. Is mere negligence sufficient to establish liability in surcharge proceedings under Section 71 of the Tamil Nadu Cooperative Societies Act, 1961?
No, the degree of negligence required is not mere negligence but wilful negligence, which imports a consciousness that injury or loss was likely to arise from an act of commission or omission. (Para 3 , 4 )
(1) THIS appeal by special leave is directed against the judgment and order of the High court of Madras allowing writ petitions filed under Article 227 of the Constitution of India by the present Respondents 1-14.
(2) THE appellant is a cooperative society registered under the provisions of the Tamil Nadu Cooperative Societies Act, 1961 . Respondents 1-14 were for the year 1974-75 members of its Board of Management. An enquiry under Section 65 of the said Act into the affairs of the appellant-society was ordered by the Deputy Registrar of Cooperative Societies on 26/9/1976 in relation to sales and purchases of Cholam and Ragi. The inquiry report revealed that there had been a loss in the business of Cholam and Ragi during the said year in the sum of Rs. 1,31,990.33; that the amount of Rs6661 had been paid in excess of the prevailing market rate of Ragi; and that a loss in the sum of Rs. 8638.35 had occurred due to reduction in retail prices. Accordingly, surcharge proceedings were initiated by the Registrar of Cooperative Societies against Respondents 1-14 under the provisions of Article 71 of the said Act, which makes members in management of a Cooperative Society liable in the event of wilful negligence. In these proceedings the Registrar found Respondents 1-14 liable to pay the sum of rs 1,23,350.98, with interest thereon at the rate of twelve-and-a-half per cent per annum from the date of his order till the date of realisation, to the appellant society. Respondents 1-14 preferred appeals to the Special tribunal for Cooperative Cases, which dismissed the appeals.
(3) RESPONDENTS 1 -14 thereupon preferred writ petitions under Article 227 to the High court. The High court noted that the decree of negligence which was contemplated under Section 71 of the said Act was wilful negligence. The word wilfulness, it held, imported premeditation or knowledge and consciousness that an injury or loss was likely to result from the act done or from the omission to act. It imported a constructive intention as to the consequence. Quoting an earlier judgment, delivered by Pandian, J. (as he then was) in Sathyamangalam Cooperative Urban Bank Ltd. v, Deputy Registrar of Cooperative Society, it held that to constitute wilful negligence, the act done or omitted to be done must involve such reckless disregard of duty as to imply bad faith. The High court observed that the very approach of the Special tribunal for Cooperative Cases was wrong as it had posed for answer the following question: "The main point for consideration would be whether the purchases were effected as per the regulation and whether the subsequent series were done in good faith and in the interest of the society." The High court came to the conclusion that the evidence before the tribunal and the findings arrived at by it on the basis of such evidence did not justify the legal inference that Respondents 1-14 had been guilty of wilful negligence.
(4) THE High court was, in our view, right in emphasising that the degree of negligence that had to be established under Section 71 was not mere negligence but wilful negligence and that this imported a consciousness that injury or loss was lively to arise from an act of commission or omission. The basis upon which the tribunal considered the matter was, therefore, erroneous. Once we come to the conclusion that the test applied by the High court was the right test, we must concur with the High court in its finding that the evidence did not disclose the legal inference that Respondents 1-14 had been guilty of wilful negligence.
(5) IN the result, the appeal is dismissed. There shall be no order as to costs.
