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2025 Supreme(Online)(KAR) 4527
IN THE HIGH COURT OF KARNATAKA, DHARWAD BENCH
MR. JUSTICE M.NAGAPRASANNA, J
Primary Agriculture Credit Co-operative – Appellant
Versus
State Of Karnataka – Respondent
WRIT PETITION NO. 105729 OF 2018 (CS-RES)
Advocate Appeared:
For the Appellant :SRI. SHIVARAJ C. BELLAKKI, ADVOCATE
For the Respondent: SMT. KIRTHILATA R. PATIL, HCGP
A re-audit of a cooperative society's accounts can only be ordered upon prima facie evidence of fraud or misappropriation, not merely procedural disputes.
Headnote:(A) Karnataka Co-operative Societies Act, 1959 - Section 63 - Audit of cooperative society - The petitioner challenged orders directing re-audit by a specific auditor, arguing no misappropriation was alleged, and the auditor appointed was from the approved panel - The court found the orders legally untenable as no prima facie case for re-audit was established. (Paras 11, 13)
(B) Legal principles - A re-audit can only be ordered in cases of fraud or misappropriation not detected during regular audits - The society acted within its rights to appoint an auditor from the approved panel when the initially appointed auditor declined. (Paras 12, 13)
Facts of the case:
The petitioner-Society appointed an auditor for the financial year 2016-17, but the auditor declined due to scheduling conflicts, leading to the appointment of another auditor. The State directed a re-audit, claiming procedural violations.
Findings of Court:
The court ruled that the State's orders were invalid as there was no evidence of misappropriation or fraud, and the Society acted lawfully in appointing the auditor.
Issues: The main issues were whether the State could direct a re-audit without allegations of fraud and the legality of the Society's auditor appointment.
Ratio Decidendi: The court emphasized that re-audit orders must be based on prima facie evidence of fraud or misappropriation, which was absent in this case.
Result: Petition allowed; impugned orders quashed.
ORAL ORDER
(PER: THE HON'BLE MR. JUSTICE M.NAGAPRASANNA)
1. The petitioner in this case is the Society-the Primary Agriculture Credit Co-operative Society. The petitioner is at the doors of this Court calling in question an order dated 18.05.2018 and 25.05.2018 by which re- audit is directed to be conducted by a particular chartered accountant.
2. Heard the learned counsel Sri Shivaraj C. Bellakki appearing for the petitioner and the learned HCGP Smt.Kirthilata R.Patil representing the respondent-State.
3. Facts in brief germane are as follows:
The petitioner-Society in its general body meeting held on 26.09.2016 resolved to appoint one J.Thippeswamy as chartered accountant to undertake the task of auditing the accounts for the year 2016-17. The chartered accountant is said to have expressed his inability to conduct the auditing owing to his busy schedule. The petitioner then appears to have called for a special general body meeting and resolved to appoint Sri.Shrinivas S.Dhotihal as chartered accountant, to audit and submit the report. The 2nd respondent finds fault with the action of the Society in getting the audit conducted by a person other than who was authorized, by the annual general body meeting held for the year 2016-17. It is this that has driven the petitioner to this Court in the subject petition.
4. Learned counsel Sri. Shivaraj C. Bellakki appearing for the petitioner takes this Court through Section 63 of the Karnataka Co-operative Societies Act, 1959 (hereinafter referred to as ‘the Act’, for short) to contend that a direction to get the accounts re-audited by the State can come about only in terms of the Act. There is no allegation of falsification of records, misappropriation or otherwise, for the State to direct conduct of a re-audit in a routine manner, as is now directed. The learned counsel would submit if the chartered accountant to whom the work of undertaking audit was entrusted, was not willing to undertake the audit. The Society left with no choice get it audited. It is his emphatic submission that the person who has now audited the accounts also is from the panel and approved auditor by the State.
5. Learned HCGP would however defend the action of the impugned orders on the score that there is no proceeding produced with regard to special general body meeting, as the name was decided earlier by the annual general body, it could not have been tweaked or tinkered by the special general body except in accordance with law. She would seek dismissal of the petition on this score, on the ground that the entire narration is concocted.
6. I have given my anxious consideration to the submissions made by the learned counsel Sri Shivaraj C. Bellakki appearing for the petitioner and the learned HCGP Smt.Kirthilata R.Patil representing the respondent-State and perused the material on record.
7. The afore-narrated facts are not in dispute. The issue revolves around a narrow compass as it concerns the auditing of the Society, at whose hands, is the question. The auditing of the petitioner-Society was resolved to be handed to one J.Thippeswamy pursuant to on an annual general body meeting, for the financial year 2016-17. J.Thippeswamy declines to accept the offer owing to his heavy work. The communication to the Society by the auditor chosen, in the annual general body meeting, reads as follows:
8. A special general body meeting is called immediately thereafter which resolves to appoint the person who has now audited. The special general body resolution reads as follows:
9. Pursuant to the resolution, accounts are audited and it is submitted to the State. It is then the impugned order comes about. The impugned order dated 18.05.2018 reads as follows:
10. The consequential order to the impugned order dated 25.05.2018 reads as follows:
11. The impugned order dated 18.05.2018 declines to accept the report of the auditor and the consequential order dated 25.05.2018 directs a re-audit at the hands of a particular auditor. In the c
