IMPORTANT POINT
An inquiry under Section 68 of the KCS Act requires specific findings of individual misconduct and quantifiable loss to the society; a general inquiry into collective conduct is insufficient for imposing a surcharge.

JUDGMENT :

1. The Managing Committee of the Mala Block Town Co-operative Society Ltd. No. R-1086, has approached this Court seeking to quash Ext.P1 proceedings issued by the 1st respondent by which an inquiry under Section 68(1) of the Kerala Co-operative Societies Act, 1969 (for short, the ‘KCS Act’) has been ordered.

2. The petitioner asserts that by Ext.P2 proceedings, the 1st respondent has initiated an inspection under Section 66 of the KCS Act based on a complaint lodged by an outsider. An inspection report was submitted by the Assistant Registrar before the 1st respondent and on its basis, Ext.P1 proceedings under Section 68(1) of the KCS Act have been initiated. The specific contention of the petitioner is that an action under Section 68 of the KCS Act could be initiated by the authority concerned only if it is found in the course of an audit, inquiry, inspection or winding up of the society that any officer or employee of the society has made any payment contrary to the Act, Rules or the bye-laws and that consequential loss or damage has been caused in the assets of the society by breach of trust, wilful negligence or mismanagement. It is contended that nowhere in Ext.P1 has it been mentioned that the Registrar was subjectively satisfied for invocation of the powers under Section 68(1) of the KCS Act on account of any wrongful act committed by any person responsible for the affairs of the Society. All that is stated in Exhibit P1 is that an inquiry is proposed to be conducted to ascertain the loss caused to the Society, which according to the petitioner is outside the domain of Section 68(1) of the KCS Act. There is no finding in Exhibit P1 that any loss has been occasioned to the Society on account of the act of any individual and the said loss is to be ascertained. It is contended that no amount is quantified in the course of the inspection under Section 66 of the KCS Act and there is no indication of the person responsible and therefore the order is not in tune with the mandate of Section 68(1) of the KCS Act.

3. In the statement filed by the 1st respondent, it is stated that the inspection report under Section 66 of the KCS Act was submitted to the 1st respondent on 17.6.2023 and the special report for the year of audit for 2021-2022 was submitted on 7.8.2023. Twelve items were given as ‘terms of reference’ in the proceedings to conduct a detailed inspection under Section 66 of the KCS Act. In the consequent report, it was specifically mentioned that loss occurred in four terms. It is stated that the society had made illegal payments against the Act, Rules, and bye-laws of the society. It is further stated that after considering the report under Section 66 of the KCS Act, it was found that in some items, the loss occurred due to the wilful negligence and mismanagement of the society due to payments that were made contrary to the provisions of the Act, the Rules, and Bye-laws.

4. Sri. George Poonthottam, the learned Senior counsel appearing for the petitioner submitted by referring to the law laid down in A.K. Francis v. Joint Registrar, 1990 (2) KLT 470 that to attract Section 68, the facts giving rise to the charge have to be disclosed in the course of the audit under Section 63, inquiry under Section 65, inspection under Section 66 or winding up of a society. Relying on the law laid down in Mustafa T.H. and Ors. v. State of Kerala and Ors. ILR 2021 (4) Ker. 74, it is submitted that an element of criminal intention in the action of the person mentioned in the provision is necessary to initiate proceedings under Section 68. Relying on the law laid down in Y.R. Vincent v. Joint Registrar, ILR 2024 (1) Kerala 344, it is submitted that the provisions deal with the individual conduct of the member concerned and not the collective conduct of the Committee. According to the learned counsel, the inquiry contemplated under the provision is an investigation and not a mere seeking for information. Referring to Exhibit P1 and P2