Sustainability of order for surcharge enquiry.

The Directors, the Secretary, the Jewel Appraiser, the Cashier and some of the Clerks of the Bodinaicknur Cardamom and Coffee Planters Co-operative Bank Limited were surcharged under section 71 of the Tamil Nadu Co-operative Societies Act, 1961, for having mismanaged the affairs of the Bank and for having committed wilful negligence as also breach of trust in relation to the property of the Bank and thereby caused a deficit to the assets of the Bank to the extent of Rs. 1,63,179. The Bank gives loans from and out of its liquid assets to members for certain recognised purposes on the pledge of gold jewels amongst other articles. The by-laws of the Bank, which have been noticed by this Court, vest several responsibilities and obligations on the officers of the Bank. we are here concerned with by-law No. 44 which deals with loans on the security of gold jewels and bullion. The usual process by which an application for the grant of a loan on the pledge of a gold jewel is admittedly as follow. An application form is made out to the Secretary. The Secretary passes on the jewel to the Appraiser of the Bank who is obliged under the by-laws to correctly evaluate the gold content of the jewel and look after the interests of the Bank. Thereafter the member is obliged to go to the jewel loan clerk to find out whether his application has been successfully processed through. The Secretary in turn, after being satisfied personally about the merits of the loan as well as the value of the jewel to be pledged, recommends the loan. It is also common ground that the Appraiser when he values the jewel brings the jewel to the Secretary, weighs the same in the presence of the Secretary and on the strength of the recommendation of the Secretary to sanction the loan the jewel is kept in the custody and control of the Secretary and thereafter customarily in the custody of the Bank. On such a recommendation made by the Secretary, the member approaches the Cashier, receives the cash and thus completes the loan application. In or about July, 1966 it came to light that several jewels which were pledged with the Bank and on which loans were granted were spurious and an enquiry therefore was set afcot. It was found during the preliminary stages by the Auditor of the Bank that there was misappropriation to the tune of over a lakh under the jewel loan account in the Bank. On a further enquiry under section 65 of the Act by the Co-operative Sub-Registrar, Periya-kulam, it was found that jewels to the face value of Rs. 1,63,179 pledged in respect of 668 loans to the value of Rs. 1,25,522 were not of gold, but were either gold-plated or gold-covered. The deficiency having thus been discovered in the course of an enquiry under section 65, the enquiry officer was of the view that such a loss was due to the mismanagement and wilful negligence on the part of those normally responsible for the conduct of the affairs of the Bank. This finding prompted the appropriate authority to take action under section 71 of the Act. A notice under section 71 was therefore issued to the petitioners in these writ petitions who are occupying one or the other of the posts already mentioned in the service of the Bank and all of them were jointly and severally called upon to make good the loss to the Bank and they were directed to pay interest on such loss. In the enquiry that ensued the Deputy Registrar of Co-operative Societies, in his order dated 29th March, 1967, found the petitioners jointly and severally responsible and after a full enquiry and mainly basing his assessment of the material and records scrutinised by him apportioned the loss amongst the petitioners. It is not in dispute that all the petitioners were given a full opportunity to state their objections. The Deputy Registrar was of the view that on account of the conjoint mismanagement of the Directors, Secretary, Appraiser, Cashier and the Clerks, the loss has occurred and he therefore directed the petitioners to