Following an inquiry under Section 81 of the Tamil Nadu Co-operative Societies Act (hereinafter referred to as "the Act"), the Deputy Registrar, Chengalpet Co-operative Housing Zone, Chengalpet, first respondent herein, has issued a notice, dated 29.09.2008 to the petitioner, as to why surcharge proceedings should not be initiated under Section 87(1) of the Act and that he has been called upon to submit his explanation. Consequently, the Co-operative Sub-Registrar (Housing), Maraimalai Nagar Mahanagar Housing Scheme, Madurantakam Circle, Chengalpet, third respondent herein, has issued a notice, dated 29.10.2008, directing the petitioner to appear before the enquiry. Both the proceedings are under challenge in this Writ Petition.
2. Facts leading to the Writ Petition are as follows:
Maraimalai Nagar Maha Nagar Cooperative Housing Society formulated a scheme, wherein, lands were sought to be purchased from the individual land owners and transfer the same to the members of the Society for their benefit, at a fairly nominal price difference. In order to lubricate and reduce the burden of performing the ground work, this particular job was chalked out to the Petitioner to facilitate the Society. By virtue of the same, the Society entered into an agreement with the petitioner, wherein, it was agreed upon between the society and the petitioner that the Petitioner would purchase lands from the individual land owners, get approval from the Chennai Metropolitan Development Authority, perform other miscellaneous tasks and finally hand over possession of the lands to the Society. According to the petitioner, the agreement also provided for remuneration, which he is entitled to and the extent of profit the Society would gain, after effectuating the transfer to its members.
3. Pursuant to the agreement, the Petitioner took all the initiatives to the best of his efforts, purchased lands from individual land owners, obtained permission from Chennai Metropolitan Development Authority (CMDA), took steps to earmark the area for roads, parks etc., further prepared the layout in accordance with the Development Control Rules and finally, the terms of contract was duly performed is handing over possession of the lands to the Society.
4. The petitioner has further submitted that after completion of the scheme on 18.12.2007, the Society made a claim for Rs.32,85,733/-, which included the Society's profit percentage, i.e., Rs.2/- per sq.ft. and other incidental expenses. Though aggrieved by the said claim, the Petitioner on the same day, paid a sum of Rs.10,00,000/- as an initial payment to the Society followed by a payment of Rs.21,69,643/- on 4.1.2008 in complete satisfaction of the claim amount. According to the petitioner, there wais nothing left to be claimed or disputed by either of the parties.
5. In the meanwhile, on 14.5.2007, the Co-operative Deputy Registrar, Chengalpet Co-operative Housing Society (Maraimalai Nagar Mahanagar Housing Scheme), Chengalpet, 2nd Respondent submitted an Enquiry Report under Section 81 of the Tamil Nadu Co-operative Societies Act, 1983, wherein, 14 charges were framed against one Mr.A.Prabakaran, the then Special Officer, out of which, 6 charges were found to be proved and disciplinary action was sought to be initiated against the said Mr.A.Prabhakaran. In addition to this, the 2nd respondent declared that since no monetary loss had occasioned to the Society, there was no necessity to initiate surcharge proceedings under Section 87 of the Act.
6. According to the petitioner, the 2nd Respondent, while initiating the above proceeding summoned him only as a witness to assist in the enquiry and obviously no prima facie material existed against the Petitioner and no charge was framed against him. A notice under Section 81 of the Act was issued for which, he had suitably replied. In the enquiry report, dated 14.5.2007, it was found that the Society has not incurred any loss and that there remained nothing to be proceeded with. In these circumstances, the Deputy Registrar, Chengalpet Co-operative Housing Zone, Chengalpet, first respondent herein, has initiated surcharge proceedings under Section 87(1) of the Act and pursuant to the same, the third respondent has issued a notice, dated 29.09.2008, calling upon the petitioner to appear for an enquiry. Aggrieved by the same, the petitioner has preferred the present Writ Petition for the relief as stated supra.
7. Record of proceedings shows that while entertaining the Writ Petition, in M.P.No.1 of 2008, this Court, by order dated 11.12.2008, has granted interim stay of the impugned orders. Seeking vacation of the said orders, the first respondent has filed M.P.No.2 of 2009.
8. In the affidavit filed in support of the Vacate Stay Petition, the first respondent has contended inter alia that Chengalpattu Co-operative Housing Society took up a scheme of developing lands for the purpose of house sites in Panakottur near Maraimalai Nagar. The society has engaged the petitioner herein, as a developer. The guideline value of the area was Rs.3,30,000/- per acre, but he has purchased it at Rs.12,00,000/- per acre. He has purchased 71.39 acres from one Mr.Mahaveer Chand Kothari. The amount thus swindled is Rs.6,21,13,650/-. He has also siphoned a sum of Rs.10,50,56,550/- under the guise of developmental charges. Further, instead of remitting the developmental cost of Rs.16,01,760/- to the Municipality, the funds of the society were utilized for the purpose. The total amount of loss caused to the society works out Rs.16,87,71,960/-. These irregularities came to light from a Special report, dated 11.07.2007 of the Auditor who audited the accounts of the society for the year 2005-06. Therefore, the first respondent has ordered a statutory enquiry in pursuance of the said audit report.
9. Mr.Jayaraj, a Cooperative Sub Registrar, (Housing) Chengalpattu conducted an enquiry and the above irregularities have been confirmed in the enquiry. Pursuant to his Report (March 2008) and after getting legal opinion from the Assistant Public Prosecutor, Chengalpattu, first respondent has lodged a criminal complaint on 18.11.2008 with the Superintendent of Police CCIW-CID, Chennai. A criminal case has been registered as Crime No.4 of 2008 dated 02.12.2008. The complaint covered a sum of Rs.19,00,89,359/- which includes Rs.24,83,319/- which was not collected from the members, who were given sale deeds. Rs.1,90,00,000/- was omitted to be paid as stamp duty to the Government and Rs.8,34,080 representing the value of public purpose plots sold to individuals. The loss caused to the Society amounting to Rs.16,87,71,960 was suggested by the Enquiry Officer to be collected from the Petitioner and five others. Therefore, the first respondent issued a notice, dated 29.09.2008 to the Petitioner and others under Section 87 of the Tamilnadu Cooperative Societies Act, 1983.
10. The first respondent has further submitted that subsequent to these events, the Auditor who audited the accounts for the year 2006-07 has also submitted a special report. He has reported that a further loss of Rs.6,33,07,377/- has occurred to the society. In pursuance of this report, dated 16.07.2008, another enquiry under Section 81 of the Act was ordered, authorising the third respondent to make a thorough probe into the matter. Consequent to the directions issued by the first respondent, dated 27.08.2008, the third respondent has issued a summon, dated 29.10.2008 to the Petitioner to enquire him. The said summon has also been challenged in this Writ Petition.
11. The first respondent has further submitted that the Registrar of Cooperative Societies (Housing), Chennai, in his letter No.Rc.3234/05/E4, dated 11.05.2005, has permitted the Chengalpattu Cooperative House Building Society to purchase lands approved by the Director of Town Planning, in Panakottur Village near Maraimalai Nagar at the rate not exceeding Rs.102 per square foot from the land owners, Mrs.Padmavathi and her agent Mr.Mahaveer Chand Kothari and sell the developed plots at Rs.104 per square foot. The Registrar has also permitted collection of service charges at Rs.600. This permission envisages purchase of plots only at square foot rate and it also contemplated purchase of developed plots. But the Petitioner has indulged in purchase of land in bulk, aggregating 61.60 acre, at the rate of Rs.12,00,000 per acre, from Mr.Mahaveer Chand, as against the guideline value of Rs.3,30,000 per acre. Similarly, 9.97 acres of land was also purchased at the same rate in the same area. Thus, a total extent of 71.39 acres was purchased, for value of Rs.8.56 crores. The amount swindled in this deal alone works out to Rs.6.21 crores. The society has paid Rs.10.51 crores to the Petitioner allegedly towards expenditure for development of the plots. In addition to that, Rs.16 lakh was paid to the Municipality as development cost. Altogether Rs.16.88 crore was siphoned of under the guise of purchase and development of land.
12. The first respondent has further submitted that the land was purchased at exorbitant rates, disproportionate and unreasonable charges were added and the gullible public who were the members of the society were cheated. These things had happened contrary to the Registrar's letter dated 11.05.2005 and purely for personal gains. The public was taken for a ride and the money collected from them in the name of the society was misappropriated. This enquiry officer has colluded with the petitioner and others and he gave a report without proper verification of the accounts of the society. He only suggested disciplinary action against Mr.Prabhakaran, then Special Officer of the society. The audit of accounts of the society for the year 2005-06 was completed and a Special report was submitted by the auditor on 11.07.2007. This report revealed serious irregularities involving misappropriation of funds of the society by the Petitioner. Based on this audit report an enquiry under Section 81 was ordered on 28.08.2007. In pursuance of this enquiry the notice No.Tha.The.No.8/2008-09 E, dated 29.09.2008 was issued for the recovery of the loss of Rs. 16.88 crores.
13. In the above factual background, though the petitioner has raised several grounds, assailing the impugned proceedings, Mr.S.Parthasarathy, learned senior counsel for the petitioner, would confine himself only to the jurisdiction aspect raised in this Writ Petition, regarding the authority of the respondents 1 and 3 in proceeding against the petitioner, who is an agreement holder with the society. Therefore, the correctness of the impugned orders are tested only with reference to the above said issue.
14. Learned senior counsel for the petitioner further submitted that the petitioner is only an agreement holder with the Chengalpet Co-operative Housing Society and that he was only a developer of the land, having entrusted with the work of purchasing of land from the individual land owners and to transfer the same to the society. According to him, the petitioner was only an intermediary and not a paid servant or in the management of the affairs of the society.
15. Referring to the statutory provision, Section 87 of the Act, learned Senior Counsel for the petitioner submitted that the orders impugned suffer from a prima facie infirmity and lack of jurisdiction on the part of the respondent to initiate the surcharge proceedings, which according to him, can be initiated only against a person entrusted with the management of a society or an officer or servant of such society duly appointed under the statute and that any amount alleged to have been quantified as loss to the society can be realised only from the persons entrusted with the Management of the Society or officer or servant of such society duly appointed under the statute.
16. Answering the question of jurisdiction, Mr.P.Subramanian, learned Additional Government Pleader submitted that Section 87 of the Act provides for surcharge proceedings against a person entrusted with the management of the affairs of the society. He further submitted that the petitioner was entrusted with the money and the affairs of the organisation towards development of plots as per the scheme and therefore, invoking the statutory provisions against the petitioner by the respondents 1 and 3 under Sections 81 and 87 of the Tamil Nadu Co-operative Societies Act cannot be said without jurisdiction.
17. Referring to the statutory provisions under Sections 81 and 87 of the Tamil Nadu Co-operative Societies Act, learned Additional Government Pleader further submitted that a detailed enquiry was conducted into the affairs of the society and it was categorically found that the petitioner had committed serious financial irregularities resulting in loss of several crores of rupees and therefore, when the enquiry report submitted in the month of March' 2008 and Special Audit Report for the year 2007-08, dated 11.07.2007 revealed huge of embezzlement of funds. It is well open to the respondents 1 and 3 to take appropriate action against those, who were entrusted with the management.
18. Learned Additional Government Pleader further submitted that merely because, the petitioner had entered into an agreement with the society as a developer, it is not open to him to contend that the criminal acts and the financial irregularities committed by him, causing huge loss to the society should be erased for want of jurisdiction. He further submitted that action is taken not only against Mr.Prabhakaran, the then Special Officer, but it is also against two Sub-Registrars, one Deputy Registration, two Secretaries of the Society, vendor of the property and also the petitioner. As a person, who had an occasion to dealt with by the Management of the society in respect of purchase of lands from the individual land owners, on payment of land cost and for such other benefits as per the lease agreement and statutory provisions, the petitioner is very much aware of the statutory provisions under Sections 81 and 87 of the Act and therefore, the interim order of stay granted by this Court has to be vacated.
19. Placing reliance on a decision of the Division Bench judgment in W.A.No.2319 to 2327 & 2374 of 1999, dated 25.01.2008, Mr.P.Anbarasan, learned counsel appearing for the fourth respondent-Society, submitted that the action can be taken against any person, who is or was entrusted with the organisation and the powers of the competent authority under Sections 81 and 87 of the Act, cannot be restricted to mean that action can be taken only against the Board of Directors or paid servants or officers of the society. He further submitted that the petitioner is a member of the respondent-society and therefore, prayed for dismissal of the Writ Petition.
Heard the learned counsel for the parties and perused the materials available on record.
20. Pleadings disclose that an inquiry under Section 81 of the Co-operative society Act, was ordered by the Deputy Registrar of Co-operative Societies (Housing), Chengalpet, first respondent herein, pursuant to an audit report, dated 11.07.2007, who audited the accounts of the society for the year 2005-06, which revealed financial irregularities committed by the persons, who were entrusted with the organisation or management of the society and the total amount of loss caused to the society worked out to Rs.16,17,70,960/-.
21. It is not in dispute that the Co-operative Sub Registrar (Housing), Chengalpet, who conducted an inquiry into the irregularities, under Section 81 of the Act, confirmed the financial irregularities in his report submitted in March 2008. On the bais of the report, a criminal complaint was lodged by the Superintendent of Police, CCI, CID, Department, Chennai, by the Deputy Registrar of Co-operative Societies (Housing), Chengalpet, by his letter, dated 18.11.2008 and a criminal case was also registered as Cr.No.4 of 2008, dated 02.12.2008 and that the complaint covered a total sum of Rs.19,00,89,359/-.
22. Pleadings further disclose that subsequent to the submission of the enquiry report by the Co-operative Sub-Registrar (Housing), Chengalpet, in March' 2008, another auditor, who audited the accounts of the society, for the year 2006-07, submitted a Special Rport, dated 16.07.2008, detailing a further loss of Rs.6,33,07,377/- to the society. Therefore, the Deputy Registrar of Co-operative Societies, Chengalpet, exercised his powers once-again under Section 81 of the Act, by order, dated 28.08.2008, authorise the third respondent, Co-operative Sub Registrar to make a thorough probe into the matter. Accordingly, the third respondent has issued a summon, dated 29.10.2008 to the petitioner to enquire into the financial irregularities committed in the society.
23. Sections 82 and 83 deal with Inspection and Investigation and Inspection of books of the financial bank respectively.
24. It is the admitted case of the petitioner that pursuant to the agreement with the society, he was entrusted with the functions of purchase of land from the individual land owners and get approval from CMDA, perform such other miscellaneous works and finally handover possession to the society. The recitals of the agreement also provided for renumeration to the petitioner and the extent of profit, which the society would gain, after effecting transfers to its members. At paragraph 3 of the affidavit filed in support of the Writ petition, the petitioner himself has admitted that he had taken all the initiatives to purchase lands from the individual land owners and to obtain permission from CMDA, took steps to mark the area for roads and parks and further prepared the lay out in accordance with the Developmental and Control Authority and finally handedover the possession to the society.
25. In W.A.No.2319 of 1999 etc., dated 25.11.2008, the writ petitioner therein was an employee of Peico Electronics and Electricals Ltd., Madras and he voluntarily retired from service. The employees of the said company formed a society called "The Philips Employees Co-operative Thrift and Credit Society Ltd.," which was organised to look after the interest of its members. As a retired employee of the said company, he had extended his assistance in writing accounts. While so, the Deputy Registrar of Co-operative Societies (Credit) and the Registrar of the District (Madras), Chennai, third respondent therein, initiated surcharge proceedings against the Board of Directors. Since he was assisting the society in writing the accounts, he was also impleaded in the said proceedings and an enquiry under Section 65 of the Act (now 81) was conducted into the affairs of the The Philips Employees Co-operative Thrift and Credit Society Ltd. In the course of enquiry, it was brought to light that, deficiency was caused to the assets of the society by breach of trust, willful negligence, falsification of accounts and misappropriation. Therefore, surcharge proceedings were initiated against four persons, including the petitioner therein under Section 71 of the Act (now Section 87), after complying with the formalities contemplated under the provisions of the Act. Liability was also fixed on the petitioner. The surcharge proceedings challenged by the retired employee before the Tribunal, was rejected. While testing the correctness of the order of the Tribunal, a learned Single Judge of this Court held that it is not open to the society to mulct with the liability against the petitioner, even if there is any loss to the society. The learned single Judge held that inasmuch as the petitioner was neither a President nor Secretary of the Society, no action can be taken against him under Section 71 of the Act (now Section 87) for reposing or entrusting certain work to the society, i.e., writing accounts for the society. The Writ Petition was allowed holding that surcharge proceedings cannot be taken against a member of the society, who was entrusted with the work. Aggrieved by the same, the Administrator, Philips Employees Co-operative Thrift and Credit Society Ltd., filed an appeal. Having regard to the position of the petitioner as a member of the society and that he had taken up the key post of maintaining of accounts of the socieity, the Division Bench held as follows:
"Though he is referred as an ordinary member he had taken the key post of maintenance of the accounts, which according to us, has involved himself in the organization of the society as contemplated under Section 71 of the Act. The words "a person who is or was entrusted with the organization", only means that any ordinary member other than the member of the society involved in the management, but who has dealt with the organization of the society. He need not be a Member of the Board of Directors or paid Secretary or officer of the society. Therefore, there is ample evidence of involvement of the petitioner in the maintenance of accounts and causing financial deficiency to the society. It was not only proved in the enquiry but also in the surcharge proceedings initialed by the fact finding body of the Tribunal. Therefore, we are unable to accept the reasons given by the learned single Judge in exonerating the Writ petitioner from the above said allegations of causing financial deficiency to the society by breach of trust, willful negligence and falsification of accounts."
26. As per Sections 80 to 83 of the Tamil Nadu Co-operative Societies Act, (1) The Registrar shall audit or cause to be audited by a person authorised by him by general or special order in writing in this behalf, the accounts of every registered society once at least in every co-operate year. The Registrar shall communicate the result of the audit to the registered society concerned.
(2) the Registrar may, of his own motion and shall on the application of a majority of the board or of not less than one-third of the members or on the request of the financing bank or of the District Collector, hold an inquiry, or direct some person authorised by him by order in writing in this behalf to hold an inquiry into the constitution, working and financing condition of a registered society or any alleged misappropriation, fraudulent retention of any money or property, breach of trust, corrupt practice, or mismanagement in relation to that society or into any particular aspect of the working of that society.
(3) The Registrar may, of his own motion, or on the application of a creditor of a registered society inspect or investigate or direct any person authorised by him n this behalf by general or special order in writing to inspect the affairs of the registered society in general or to investigate into any alleged misappropriation, fraudulent retention of any money or property, breach of trust, corrupt practice or mismanagement in relation to that society or into any particular aspect of the working of that society and the Registrar when holding an inquiry under section 81.
(4) A financing bank may at any time, but shall at least once in every year, inspect through an officer or a member of its paid staff the bvooks of every registered society which is indebted to it. A financing bank shall also have the right to inspect the books of any other registered society financed by the registered society which is indebted to the financing bank.
27. On the facts of this case, the petitioner himself has admitted that he was negotiating with individual land owners as well as transacting the business of the Society, like taking steps with the CMDA for getting approval of the lands earmarking the area for roads, parks etc. and further prepared the layout in accordance with the Development and Control Rules and finally the terms of the contract was duly performed thereby handing over possession to the Society and is therefore, very much entrusted with the work relating to the organisation of the society.
28. A surcharge proceeding is taken against those, who are involved in financial irregularities, such as, misappropriation, fraudulent retention of any money or property, breach of trust, corrupt practice, or mismanagement in relation to that society or into any particular aspect of the working of that society, by giving a reasonable opportunity before making an order, requiring to repay or restore the money or property or any part thereof with interest at any such rate, as the Registrar or the person authorised as thinks just or to contribute such sum to the assets of the society by way of compensation in respect of the misappropriation, misapplication of funds, fraudulent retainer, breach of trust or willful negligence or payments which are not in accordance with the Tamil nadu Co-operative Society Act and the rules framed thereunder or the by-laws.
29. Section 87 of the Co-operative Society Act is an enabling provision, by which, the loss sustained by the society on account of financial irregularities committed by those involved or entrusted with the organisation or management of the society. When anyone of the actions specified in Sections 81 to 83 of the Act, leading to misappropriation, misapplication of funds, fraudulent retention, breach of trust or wilful negligence or payments or valuation of assets, etc., is enquired and proved, then it is open to the Registrar, by himself, or by any person on his behalf, to take action for recovery of the amount by invoking Tamil nadu Revenue Recovery Act, 1864.
30. The Division Bench judgment relied on by the learned counsel for the Special officer, second respondent-bank is applicable to the facts of this case. It is also to be noted that the contention of the Special Officer of the society that the petitioner is also one of the members of the society, who purchased the portion of the lands, said to have been negotiated by him, as a developer, has not been disputed. In view of the statutory provisions and having regard to the decision of this Court empowering the Registrar or a person authorised by him to initiate action under Section 87 of the Act, against a person, who is a member or not, and entrusted with the management or work relating to the organistion, as the case may be, this Court is of the considered view that the show causes notices, issued by the first respondent under Section 87 of the Act, is well within his jurisdiction and there is no illegality.
31. As stated supra, the Special Audit report, dated dated 11.07.2007 for the year 2006-07 had disclosed the revenue loss of the respondents. Under Section 81 of the Act, Register is empowered to issue summons to any person. Therefore, the summons issued to the petitioner cannot be said to be contrary to the statute.
32. In the light of the forgoing discussion, the contentions made by the learned counsel for the petitioner cannot be countenanced in law and hence, the writ petitioner has not made out any valid grounds for interference. Hence, the Writ Petition is dismissed. No costs. Consequently, connected Miscellaneous Petition is also closed.
11.09.2009 Index: Yes Note to Office:
Issue order copy on 08.10.2009 skm To
1. The Deputy Registrar, Chengalpet Co-operative Housing Zone, Chengalpet, Kancheepuram District.
2. The Co-operative Deputy Registrar, Enquiry Officer, Chengalpet Co-operative Housing Society, (Maraimalainagar Mahanagar Housing Scheme), Chengalpet Taluk, Kancheepuram District.
S. MANIKUMAR, J.
skm
3. The Co-operative Sub-Registrar (Housing), Enquiry Officer, (Maraimalainagar Mahanagar Housing Scheme) Madurantakam Circle, Chengalpet, Kancheepuram District.
4. The Chengalpet Co-operative Housing Building Society Ltd., rep. by its Special Officer, No.34A, Alagesan Road, Vedachalam Nagar, Chengalpattu-603 001.
W.P.No.29235 of 2008 11.09.2009