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CIVIL APPELLATE JURISDICTION
WRIT PETITION NO.6659 OF 2023
1. Pankaj Subhash Tatar
Aged – 41 years, Occ- Business.
Residing at Taharabad Road, Satana, Taluka – Satana, District – Nashik.
2. Kailas hari Yeola.
Aged – 48 years, Occ- Business.
Residing at Nampur Road, Satana, Taluka – Satana, District – Nashik. … Petitioners
2. Divisional Joint Registrar, Cooperative
Societies, Nashik Division, Nashik.
3. District Deputy Registrar, Cooperative
Societies, Nashik Division, Nashik.
Sahakar Sankul, Near Urdu High
School, Near Sarda Circle, Nashik.
4. The Satana Merchants Cooperative Bank
Ltd., Dhanlaxmi, Taharabad Road, Satana, Taluka – Satana, District – Nashik.
5. Ashok Laxman Nikam, Aged – Adult, Residing at Subhash Road No.1, Satana, Taluka – Satana, District Nashik.
6. Ramesh Sambhaji Deore, Aged – Adult.
Residing at Pimpleshwar Road, 7. Shridhar Ramchandra Kothawade,
8. Ajay Shantilal Raka, Residing at Om Shanti, Malegaon Road, 9. Pramod Sakharchand Raka, Residing at Raka Mill, Malegaon Road, 10. Yashwant Nimba Amrutkar, Residing at Malegaon Road, Satana, 11. Rajendra Balkrishan Alai, Residing at Swami Vivekanand Nagar, Malegaon Road, Satana, 12. Vitthal Kashinath yeolkar, Aged – 62 years.
Residing at Shivaji Road, 13. Yashwant Nayaran Yeola, Residing at Tilak Road, Satana, 14. Vijay Bhikchand Bhangdiya
Aged – 50 years.
Residing at Gopal Corner, Tilak Road, 15. Manoj Zipru Amrutkar, Residing at Tilak Road, Satana, Taluka – Satana, District Nashik. … Respondents
Mrs. V. S. Nimbalkar, AGP
, for the State – Respondent
Nos.1 to 3.
JUDGMENT
1. By the present writ petition, the petitioners question the legality and validity of the order passed by respondent No.1, whereby the order dated 22 April 2020 was set aside and the levy of costs under Section 85 of the Maharashtra Cooperative Societies Act, 1960 was confirmed in relation to an inquiry conducted under Section 83 of the said Act.
2. The background facts are these. The petitioners are former and existing members of the Managing Committee of respondent No.4 society. On the support and instance of respondent Nos.12 to 15, the petitioners came to be elected to the Managing Committee for the terms 2017 to 2022 and 2022 to 2027.
3. On a complaint lodged by respondent Nos.12 to 15, an Authorised Officer was appointed to conduct an inquiry under Section 83 of the MCS Act. The Authorised Officer submitted his report on 31 March 2018. In the said report, he recorded a prima facie finding that the petitioners were responsible for delay in securing the compensation amount from HDFC Insurance Company Limited under the HDFC Grameen Savings Scheme. On that basis, the Authorised Officer held the petitioners liable for expenses quantified at Rs.25,000 under Section 83. By communication dated 11 April 2018, the Authorised Officer addressed respondent No.3 and called upon recovery of an amount of Rs.25,000 from respondent No.4 Bank as expenses under Section 85 of the MCS Act. Thereafter, the Deputy Registrar again exercised powers under Section 85. After hearing the parties, he observed that the inquiry under Section 83 stood concluded, that an inquiry under Section 88 was pending, and that proceedings under Section 85 were independent in nature. He accordingly assessed the responsibility of the petitioners for recovery of expenses and by order dated 1 November 2018 directed recovery of Rs.25,000 from the petitioners under Section 85 of the MCS Act.
4. Out of twelve persons held responsible, nine persons, including the present petitioners, challenged the said order by filing an appeal before respondent No.2. Respondent No.2, after hearing all concerned, allowed the appeal by order dated 22 April 2020 and set aside the order dated 1 November 2018 passed by the District Deputy Registrar, Cooperative Societies, Nashik.
5. Being dissatisfied with the appellate order, respondent Nos.12 to 15 preferred Revision Application No.148 of 2022 before respondent No.1. During pendency of the revision, the Bank appeared and filed its reply. The Bank supported the appellate order and contended that in the inquiry under Section 88 the petitioners had been exonerated and, therefore, no liability could be fastened upon them to pay costs under Section 85. Respondent No.1, however, by the impugned order dated 12 April 2023 allowed the revision. He held that under Section 85, expenses of an inquiry under Section 83 must be recovered from the persons held guilty in such inquiry. On that reasoning, recovery of costs was directed. Aggrieved thereby, the petitioners have approached this Court by the present writ petition.
6. Mr. Motkari, learned Advocate appearing for the petitioners, submitted that a conjoint reading of Sections 83 and 85 of the Maharashtra Cooperative Societies Act shows that the burden of costs and expenses of an inquiry under Section 83 falls on those who seek such inquiry or inspection, and not on the persons who are merely held prima facie responsible in the inquiry report. He urged that a report under Section 83 is only tentative in nature and does not finally establish guilt. He pointed out that in the subsequent inquiry under Section 88, the present petitioners have been fully exonerated. He further submitted that in the report dated 31 March 2018, the costs of Rs.25,000 were directed to be borne by the Bank under Section 85. Once the report itself fastens the liability of costs on the Bank, the same amount cannot thereafter be recovered from the petitioners by invoking Section
85. On these grounds, he prayed that the impugned order be quashed and set aside.
7. In support of his submissions, reliance was placed on the judgment of this Court in Tirathsingh Bisansingh vs. Maharashtra State Cooperative Tribunal and others, reported in 1977 U.C.R. (Bom) 78, arising out of Special Civil Application No.1701 of 1970, decided on 11 August 1975. In the said decision, the Division Bench observed that once the competent authority delivers its final verdict in proceedings under Section 88 of the MCS Act, the findings recorded by the Inquiry Officer under Section 83, as well as the order relating to imposition of costs, stand on a fragile footing. The Bench further observed that, as a normal rule, an order apportioning costs under Section 85 should not be passed until the inquiry under Section 88 is concluded, save and except in exceptional situations. At the same time, the Bench clarified that it was not laying down any absolute rule that no order regarding costs of an inquiry under Section 83 can ever be passed under Section 85 before completion of proceedings under
8. Learned counsel also relied upon the judgment of this Court in Vilasrao Bhauso Shinde vs. Sangli District Central Cooperative Bank and others, reported in 2015 (4) Mh.L.J. 236. On the strength of the said decisions, he reiterated his prayer that the impugned judgment and order deserves to be set aside.
9. On the other hand, the learned Assistant Government Pleader supported the impugned order. He submitted that the inquiry under Section 83 from the persons who are held responsible in the inquiry report. According to him, the subsequent exoneration of the petitioners in proceedings under Section 88 has no bearing on the liability to pay costs of the earlier inquiry, as the two inquiries operate in distinct spheres and their costs are assessed independently. He further contended that the Division Bench judgment relied upon by the petitioners has lost relevance in view of the amendment to Section 85, which now prescribes a time limit of six months for completion of proceedings under that section. This amendment, according to him, indicates that the under Section 88 before exercising powers under Section 85. He, therefore, prayed that the writ petition be dismissed.
10. Respondent Nos.12 to 15, despite service of notice, have chosen to remain absent.
11. For the purpose of deciding the controversy raised in the present writ petition, it is necessary to examine the relevant statutory framework governing the field. In that context, Sections 83, 85 and 88 of the Maharashtra Cooperative Societies Act, 1960 assume particular importance. These provisions have a direct and substantial bearing on the issues involved in the matter and, therefore, deserve consideration at the outset. The said provisions read thus. “83. Inquiry by Registrar.—(1) The Registrar may suo motu, or, on the application of the one-fifth members of the society or on the basis of Special Report under the third proviso to sub-section (5-B) of Section 81, himself or by a person duly authorised by him in writing, in this behalf, shall hold an inquiry into the constitution, working and financial conditions of the society. (2) Before holding any such inquiry on an application, the and the inquiry involved, require the applicant to deposit with him such sum of money as he may determine,] towards the cost of the inquiry. If the allegations made in the application are substantially proved at the inquiry, the deposit shall be refunded to the applicant, and the Registrar may under Section 85, after following the procedure laid down in that Section, direct from whom and to what extent the cost of the inquiry should be recovered. If it is proved that the allegations were false, vexatious or malicious, the recovered from the applicant. Where the result of the inquiry shows that the allegations were not false, vexatious or malicious, but could not be proved, such cost may be borne by the State Government. (3) (a) All officers, members and past members of the society in respect of which an inquiry is held, and any other person who, in the opinion of the officer holding the inquiry is in possession of information, books and papers relating to the society, shall furnish such information as in their possession, and produce all books and papers relating to the society which are in their custody or power, and otherwise give to the officer holding an inquiry all assistance in connection with the inquiry which they can reasonably give. (b) If any such person refuses to produce to the (1), any book or papers which it is his duty under Clause (a) to produce or to answer any question which is put to him by the Registrar or the person authorised by the Registrar in pursuance of sub-clause (a), the Registrar or the person authorised by the Registrar may certify the refusal and the in defence, punish the defaulter with a penalty not exceeding [five thousand rupees]. Any sum imposed as penalty under this Section shall, on the application by the Registrar or the person authorised by him, to a Magistrate having jurisdiction, be recoverable by the Magistrate as if it were a fine imposed by himself.
(c) The Registrar or the officer authorised by him shall complete the inquiry and submit his report as far as possible within a period of six months and in any case not later than nine months. (4) The result of any inquiry under this Section shall be communicated to the society whose affairs have been investigated. (5) It shall be competent for the Registrar to withdraw any inquiry from the officer to whom it is entrusted, and to hold the inquiry himself or entrust it to any other person as he deems fit.
85. Costs of inquiry and inspection.—(1) Where an inquiry is held under Section 83 or an inspection is made under the last preceding Section, the Registrar may apportion the costs, or such part of the costs, as he may think just, between the society, the members or creditors demanding the inquiry or inspection, the officers or former officers and the members or past members or the estates of the deceased members of the society [and pass such order within a period of six months from the date of submission of inquiry report: Provided that,— (a) no order of apportionment of the costs shall be made under this Section, unless the society or persons, or the legal representative of the deceased person liable to pay the costs thereunder, has or have been heard, or have had a reasonable opportunity of being heard; (b) the Registrar shall state in writing the grounds on which the costs are apportioned. (2) No expenditure from the funds of a society shall be incurred, for the purpose of defraying any costs in support of any appeal preferred by any person other than the society against an order made under the foregoing sub-section.
88. Power of Registrar to access damages against delinquent promoters, etc..—(1) Where, in the course of or as a result of an audit under Section 81 or an inquiry under Section 83 or an inspection under Section 84 or the winding up of a society, the Registrar is satisfied on the basis of the report made by the auditor or the person authorised to make inquiry under Section 83 or the person authorised to inspect the books under Section 84 or the liquidator under Section 105 or otherwise that any person who has taken any part in the organisation or management of the society or any deceased, or past or present officer of the society has, within a period of five years prior to [the date of commencement of such audit or date of order for inquiry, inspection or] winding up, misapplied or retained, or become liable or accountable for, any money or property of the society or has been guilty of misfeasance or breach of trust in relation to the society, the Registrar or a person authorised by him in that behalf may frame charges against such person or persons, and after giving a reasonable opportunity to the person concerned and in the case of a deceased person to his representative who inherits his estate, to answer the charges, make an order requiring him to repay or restore the money or the property or any part thereof, with interest at such rate as the Registrar or the person authorised under this Section may determine, or to contribute such sum to the assets of the society by way of compensation in regard to the misapplication, retention, misfeasance or breach of trust, as he may determine: Provided that, proceedings under this sub-section, shall be completed by the authorised person within a period of one year from the date of issue of order by the Registrar: Provided further that, the Registrar may, after recording the reasons therefor, extend the said period for a maximum period of six months: Provided also that, the Government may, on the report of the Registrar or suo moto, for the reasons to be recorded in writing, extend the said period as may be required, from time to time, to complete the proceedings under this subsection: Provided also that, in case of the proceedings under this sub-section which have not been completed within the aforesaid period on the date of commencement of the Maharashtra Co-operative Societies (Amendment) Act, 2017, the Government may, on the report of the Registrar or suo moto, for the reasons to be recorded in writing, extend the period, from time to time, for completion of such proceedings as may be required. (2) The Registrar or the person authorised under subsection (1) on making any order under this Section, may provide therein for the payment of the cost or any part thereof, as he thinks just and he may direct that such costs or any part thereof shall be recovered from the person against whom the order has been issued.
3) This Section shall apply, notwithstanding that the act is one for which the person concerned may be criminally responsible.
12. The three provisions cannot be read in isolation. The Legislature has designed them as parts of one continuous scheme. Each provision serves a specific role. Each applies at a distinct stage. Difficulty arises only when one provision is stretched beyond its purpose and made to perform the function of another.
13. Section 83 is the starting point. It deals only with inquiry. It authorises the Registrar to look into the affairs of a society. The inquiry may begin on his own motion or on a complaint by members. At this stage, the law only wants facts to surface. It wants to know what has happened. It does not decide who is finally at fault. This limited role of Section 83 is clear from its language and structure. Sub-section (2) of Section 83 makes this position even clearer. Before starting an inquiry on an application, the Registrar may ask the applicant to deposit money towards inquiry expenses. This shows that the law expects the person who seeks an inquiry to bear its initial cost. The provision then explains what happens after the inquiry. Three situations are visualised. If allegations are proved, the deposit is returned and the Registrar may decide costs under Section 85. If allegations are false or malicious, the applicant may be made to bear the costs. If allegations are not false but remain unproved, the State may bear the burden. This structure itself shows that the inquiry report is tentative. It does not finally fix liability on anyone.
14. The report under Section 83 is therefore only a first step. It assists the Registrar in deciding what should follow. It may lead to further proceedings. It may justify corrective directions. It may even result in proceedings under Section 88. But it is not a final verdict. It does not declare anyone guilty in the eyes of law.
15. Section 85 has a narrow and specific role. It only deals with costs of inquiry or inspection. It does not punish. It does not award damages. It only decides who should bear the expenses of the inquiry process. Even this power is not automatic. The Registrar must hear the persons concerned. He must record reasons. The law insists on fairness. This shows that costs cannot be imposed mechanically or merely because a name appears in the inquiry report. Section 85 also allows the Registrar to distribute costs among different persons. These may include the society, members who demanded the inquiry, present or past officers, and even past members. The law does not say that costs must always be recovered from those named in the Section 83 report. The guiding words are “as he may think just”. Justice here depends on the facts, the stage of proceedings, and what happens later.
16. The amendment prescribing a six-month time limit under Section 85 does not alter this position. It only ensures that cost proceedings are completed without delay. It does not change the nature of the power. It does not turn a prima facie finding into a final decision. It does not authorise the Registrar to ignore the outcome of proceedings under Section 88.
17. Section 88 stands on an entirely different plane. It is the stage where guilt is examined and decided. Here the Registrar frames charges. He gives a full opportunity of hearing. He passes a binding order directing repayment, restoration, or compensation. This provision determines civil consequences. It alone fixes delinquency. It also separately empowers recovery of costs of Section 88 proceedings from the delinquent person. This shows a clear legislative distinction between inquiry expenses and punishment for wrongdoing.
18. When a person is cleared under Section 88, the very basis of delinquency disappears. The law does not allow a tentative inquiry report to survive independently after final adjudication. The inquiry under Section 83 only feeds into Section 88. It cannot override it. Once the final authority finds no misfeasance or breach of trust, the earlier prima facie view loses its significance.
19. Viewed this way, the petitioners’ submissions fit squarely within the statutory scheme. Section 83 places the initial burden of inquiry cost on the applicant. Section 85 allows fair sharing of expenses. It does not authorise punishment through costs. Section 88 alone decides guilt and liability. Recovering inquiry costs from persons who are finally exonerated would mean treating suspicion as proof. The statute does not permit such a result.
20. The scheme is therefore clear. Section 83 explores. Section 85 distributes expenses fairly. Section 88 adjudicates and penalises. Each provision must remain within its own limits. Any interpretation that mixes these stages would be unfair and contrary to legislative intent.
21. In the present matter, two aspects deserve close attention. First, the Inquiry Officer himself directed that the costs should be borne by the Bank. This direction formed part of the report under Section 83. At that stage, there was no finding that the petitioners were required to pay the expenses from their own pocket. Second, the later inquiry under Section 88 has concluded in complete exoneration of the petitioners. This position is admitted and not in dispute.
22. Once the final inquiry has cleared the petitioners of all blame, the foundation for recovering costs from them no longer survives. Costs do not exist in isolation. They follow fault. They accompany responsibility. When responsibility is finally ruled out, fastening costs on the same persons loses both legal justification and fairness. Such recovery then becomes arbitrary.
23. The reliance placed on the amendment to Section 85 does not advance the case of the respondents. The time limit prescribed by the amendment only ensures that the question of costs is decided without delay. It does not alter the nature of the power. It does not dilute the requirement of fairness. It does not turn a tentative view into a final verdict. It also does not permit recovery of costs even after a person is found not guilty in substantive proceedings.
24. The principle laid down by the Division Bench in Tirathsingh Bisansingh continues to hold the field. That judgment has not been neutralised by the amendment. Its core reasoning remains valid. Costs imposed on the strength of a preliminary inquiry cannot survive once the final adjudication takes a contrary view, unless exceptional circumstances are shown. No such exceptional circumstances are demonstrated in the present case.
25. The revisional authority proceeded on an erroneous understanding of the law. It assumed that once a report under Section 83 is submitted, recovery of costs under Section 85 must follow as a matter of course. In this background, the revisional order cannot stand. For these reasons, the impugned order is liable to be quashed and set aside.
26. The writ petition, therefore, deserves to be allowed on these grounds. (AMIT BORKAR, J.)