Jammu & Kashmir High Court
Bharat Bhushan vs Anti Corruption Bureau Jammu And on 3 January, 2025
Author: Javed Iqbal Wani
Bench: Javed Iqbal Wani
HIGH COURT OF JAMMU & KASHMIR AND LADAKH
AT JAMMU
Reserved on 04.12.2024
Pronounced on 03.01.2025
CRM(M) No. 317/2024
Bharat Bhushan .....Appellant(s)/Petitioner(s)
Through: Mr. Salih Pirzada, Adv.
(th. virtual mode)
vs
Anti Corruption Bureau Jammu and ..... Respondent(s)
another
Through: Ms. Monika Kohli, Sr. AAG
CRM(M) No. 133/2024
The Jammu Ladies Cooperative .....Appellant(s)/Petitioner(s)
House Building Society Limited.
Through: Mr. Salih Pirzada, Adv.
(th. virtual mode)
vs
Anti Corruption Bureau Jammu ..... Respondent(s)
Through: Ms. Monika Kohli, Sr. AAG
Coram: HON'BLE MR. JUSTICE JAVED IQBAL WANI, JUDGE
JUDGMENT
1. The issues involved in the instant petition are akin and analogous to each
others, as such, are being disposed of hereunder at this stage with the consent
of the appearing counsel for the parties.
CRM(M) No. 317/2024
2. In the instant petition, the petitioner herein has invoked the inherent power of
this Court saved under section 482 Cr.P.C. for quashing of the summons
issued by the respondents under Section 91 of the Code of Criminal Procedure
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CRM(M) Nos. 317/2024 and 133/2024
(for short the Code) vide communication No.
SSP/MSA/Misc.16/2023/ACB/1712 dated 02.04.2024.
3. The facts in brief pertaining to the case in hand as stated in the petition are
that the respondents upon initiation of a preliminary verification bearing No.
Misc-16/2023 ACB Jammu issued a communication bearing No.
SSP/MSA/Misc.16/2023/ACB/8961-62 dated 20.12.2023 requesting the Chair
of the Managing Director, ―J&K Cooperative Housing Cooperation Ltd,
Jammu‖ (For short ‗the Corporation’) which the petitioner herein is holding,
to provide various record/information pertaining to the ―Ladies Cooperative
House Building Society Limited, Samba‖ (for short ‗the Society’), whereupon
the petitioner, in consequence whereof claims to have written to the Secretary
of the Society to furnish the record/information, however, the Society instead
is stated to have challenged the said verification initiated by the respondents
herein before this Court in CRM(M) No. 133/2024 (the connected petition)
wherein an interim order dated 02.03.2024 was passed by this Court
providing that the preliminary verification may go on, however, the
respondents shall not register FIR on the basis of the verification without
seeking prior permission of the Court, whereafter, the passing of the said
order dated 02.03.2024 by this Court, the impugned summons dated
02.04.2024 is stated to have been issued by the respondents.
4. The petitioner herein has challenged the impugned summons in the instant
petition primarily on the premise that the power under section 91 of the Code
cannot be invoked in absence of the initiation of an investigation and that
since no investigation has been initiated and no enquiry or trial under the
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CRM(M) Nos. 317/2024 and 133/2024
Code is pending before any court in the matter therefore, the issuance of the
impugned summons under section 91 of the Code is without jurisdiction.
5. Respondents have not filed the reply to the petition.
Heard learned counsel for the parties and perused the record.
6. Before adverting to the aforesaid challenge urged by the petitioner herein in
the instant petition, a reference to the provisions of section 91 of the Code
becomes imperative, which reads as under:
“91. Summons to produce document or other thing.–(1)
Whenever any Court or any officer in charge of a police station
considers that the production of any document or other thing is
necessary or desirable for the purposes of any investigation,
inquiry, trial or other proceeding under this Code by or before such
Court or officer, such Court may issue a summons, or such officer a
written order, to the person in whose possession or power such
document or thing is believed to be, requiring him to attend and
produce it, or to produce it, at the time and place stated in the
summons or order.
(2) Any person required under this section merely to produce a
document or other thing shall be deemed to have complied with the
requisition if he causes such document or thing to be produced
instead of attending personally to produce the same.
(3)………..‖A plain reading of section 91(supra) would reveal that the power under the
section can be invoked by any court or an officer incharge of a police station,
if the court or such officer considers that the production of any document or
other things is necessary or desirable for the purposes of any investigation,
inquiry, trial or other proceedings under this Code by or before such court
or officer. The words/expressions used in the section are ―investigation‖,
―inquiry‖ and ―trial‖, a reference whereof is made hereunder:-
Section 2(g) of the section 91 of the Code defines inquiry as under
―2. Definitions.–In this Code, unless the context otherwise
requires,–
(g) “inquiry” means every inquiry, other than a trial,
conducted under this Code by a Magistrate or Court;
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CRM(M) Nos. 317/2024 and 133/2024
Section 2(h) defines the investigation as under:
“(h) “investigation” includes all the proceedings under this
Code for the collection of evidence conducted by a police officer
or by any person (other than a Magistrate) who is authorised
by a Magistrate in this behalf;”
The expression ―trial‖, however, is not defined in the Code, however, in
criminal jurisprudence, a trial is said to have commenced when a court takes
substantive steps in the judicial process for adjudicating upon the guilt or
innocence of an accused and the exact stage of commencement depends on
the types upon the trial under the Code.
7. From the conjoint readings of the aforesaid definitions of the
terms/expressions, “inquiry”, “investigation” and “trial” under section 91
of the Code, it is manifest that the power under section 91 of the Code can be
invoked only during an inquiry, investigation or trial under the Code and the
term ―inquiry‖ under the Code refers to a judicial act and does not encompass
steps undertaken by the Police which are classified as either ―investigation‖
following the registration of a case under section 154 of the Code or as a
―preliminary inquiry‖ contemplated/conducted prior to the registration of an
FIR.
8. A preliminary verification, on the other hand, is a limited process aimed at to
assess the genuineness of a complaint or allegations before initiating a formal
investigation and whether a cognizable offence is made out, which would
warrant registration of an FIR. It thus postulates a limited inquiry or
verification of facts and documents without the formal order or procedural
safeguards associated with a full-fledged investigation, in that, the
preliminary verification does not amount to an investigation under the Code.
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CRM(M) Nos. 317/2024 and 133/2024
It needs to be pointed out here that the scope of a preliminary verification is
limited and narrow and signifies that it must not involve investigative powers
unless specifically permitted by law. The scope of a preliminary verification
as has been held by the Apex Court in case tilted as Lalita Kumari vs.
Government of U. P. reported in (2014) 2 SCC 1 is not to verify the veracity
or otherwise of the information received, but only to ascertain whether the
information reveals commission of a cognizable offence.
9. Perusal of the record reveals that in the case in hand, the matter is at the stage
of preliminary verification being conducted by the respondents and
respondents admittedly have no power under section 91 of the Code directing
summoning of the record from the petitioner pertaining to some preliminary
verification being conducted by the respondents, which in the face of the
aforesaid position of law, the respondents herein could not seek in exercise of
power under section 91 of the Code, thus, the impugned
communication/summons dated 02.04.2024 issued by the respondents to the
petitioner cannot, but said to be without jurisdiction and legally unsustainable.
10. For what has been observed, considered and analyzed hereinabove, the instant
petition succeeds, as a consequence whereof, the impugned
communication/summons bearing No. SSP/MSA/Misc.16/2023/ACB/1712
dated 02.04.2024 issued by the respondent 1 herein is quashed.
CRM(M) No. 133/2024
1. In this petition, as well, the petitioner-the “Jammu Ladies Cooperative
House Building Society Limited, Samba” (for short ―the petitioner
Society‖) has invoked the inherent power of this Court enshrined under
section 482 of the Code for quashing of the preliminary verification No.
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CRM(M) Nos. 317/2024 and 133/2024
Misc-16/2023 ACB Jammu initiated pursuant to the communication bearing
No. SSP/MSA/Misc. 16/2023/ACB/8961-62 dated 20.12.2023 (for short the
impugned verification).
2. The petitioner Society herein claims to be a Society registered under the
Jammu and Kashmir Cooperative Societies Act, 1989 (for short the Act of
1989), stating that its transactions with the J&K Cooperative Housing
Cooperation Limited (for short the Corporation) including advancement of
loans, repayment thereof etc. dated back to the year 1990 and the impugned
verification undertaken by the respondent herein relating to the period about
three decades old violates its rights and interests recognized under law
including that of its members, in that by now the information/documents
sought by the respondent herein in connection with the impugned verification
being more than three decades old, have been lost rendering the petitioner-
Society and its members defenseless, while stating further that there is no
audit report of the Registrar of the Corporative Societies in terms of the Act of
1989 that would otherwise indicate any irregularity in the financial aspect of
the petitioner-Society.
3. The petitioner-Society has maintained the instant petition on the following
grounds:
a) That the Jammu & Kashmir Cooperative Societies Act, 1989
contains an inbuilt mechanism to regulate the functioning of
registered Societies, modulating such affairs pertaining to the
object of the Society as permitted by the Act. The regulation
includes financial monitoring and holding and disposing of
properties by the Societies. Such regulatory powers are expressly
provided and nominate the Registrar for the enforcement. The
Registrar is conferred with the sole responsibility to manage the
affairs of the Societies in compliance of the scheme as provided
under the Act which includes financial regulation to be scrutinized
7CRM(M) Nos. 317/2024 and 133/2024
by carrying out mandatory audits followed by rectificatory modes
in the event of any default by any Society. ln the event of any
default, the Registrar can take corrective measures followed by
retributive action resulting in winding up or cancellation of
registration. The Registrar while exercising powers of Civil Court
in conducting an inquiry, has unimpeded access to scrutinize the
books of any Society, in pursuance of which the finding of the
Registrar can be enforced. This inbuilt mechanism is the sole
methodology as provided under the Act by virtue of which any
default, which may eventually be attracted to criminal culpability,
can be determined. The Respondent-ACB in the instant case is
seeking to siphon the determinative powers, requiring technical
expertise, to come to a conclusion under the garb of criminal
investigative powers. Such an action to supplant the statutory
methodology for determining any misdoing by the petitioner-
society is without any jurisdiction and violative of the procedure
prescribed under the Act of 1989. Therefore, the impugned
verification launched by the Respondent-ACB is without any legal
justification and liable to be set aside,
b) That the impugned verification has been initiated after a period
of around 34 years from the date of the incident as contained in the
communication addressed by the Respondent-ACB. The petitioner
cannot be subjected to the peril of loss of defence due to efflux of
time, lest to be exposed to an incurable defect and loss of the
Constitutional right of the leading effective defence. The
investigating agency in the instant case is proscribed from carrying
the impugned inquiry at this belated stage and in contravention to
the components of the Prevention of Corruption Act. The
Respondent ACB is not possessed with the statutory competence to
carry out the inquiry in the instant case and the conferment of
jurisdiction upon the investigating agency in absence of satisfying
the prerequisite stipulation is violative of the procedure regulated
under the said Act, Moreover, the embargo against initiating any
inquiry or investigation prior to the statutory assent to be granted
by the relevant authority is absolute and cannot be permitted under
the cover of the impugned verification. Therefore, the initiation of
inquiry being incompetent and rendered otiose due to efflux of lime
is liable to be set aside.
c) That the registration of the impugned verification in respective
of the determination of criminal culpability is without any
jurisdiction or sanctity of law as being registered after a period of
over 3 decades. ln this regard, it is submitted that the petitioner
while facing such inquiry is divested from the constitutional
guarantees of defence and as such the inquiry in contrary to the
criminal jurisprudence. The petitioner cannot be exposed to an
unreasonable prosecution emanating from delayed registration of
the impugned verification, lest to be exposed to an incident
uninsulated by the procedure established by law including the right
to defend even before the investigating agency. The anticipated
action of the prosecution to subject the petitioner to an unmerited
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CRM(M) Nos. 317/2024 and 133/2024
prosecution in the underlying event cannot be allowed to sustain.
The dilution of the rights of the petitioner as a result of such delay
renders the impugned verification without any plausible cause or
justification. Therefore, the impugned verification being devoid of
sanction of law is liable to be set aside.
d) That the authorities prescribed under the Jammu & Kashmir
Cooperative Societies Act including the Registrar, being vested
with the power of rendering a decision pertaining to any financial
default or otherwise by any Society, restrictively possess the
powers to rule on the technicalities of the subject. ln absence of any
such adjudication by the Registrar pertaining to the financial
irregularities or dealing with the properties of the societies, the
respondent does not have any jurisdiction to determine the same in
circumvention of the mandates of the Cooperative Societies Act,
the impugned inquiry is sought to be undertaken to the detriment of
the petitioner. Therefore, the impugned verification launched by the
respondent is liable to be set aside.
e) That the petitioner cannot be subjected to investigation or trial in
the impugned verification for determination of culpability as none
of the ingredients of any offence are made out so as to enable the
respondent from carrying the impugned investigation after a period
of over three decades. The prejudice to be caused to the petitioner
is manifest as the defence in the likelihood of a trial is impaired
beyond redemption by the efflux of time and in no manner can
assume the fairness required for trying the petitioner in accordance
with procedure established by law. ln this regard, it is submitted
that the prejudice caused by such a delay renders the impugned
verification otiose and thus liable to be set at naught. Moreover,
petitioner cannot be subjected to face the investigation or the
prospective trial in the instant case as being divested of the
constitutional right to defend. The alleged incident being of the
year 1990 and the prospect of an early trial already lost exposes the
petitioner to the loss of evidence and constructive defence, as the
Ex-President of the Society before whom the relevant record was
kept had expired on 22nd of May, 2017 and as such, could not be
examined, ln such an event, subjecting the petitioner to an
unmerited investigation and trial is an abuse of process of law and
thus demands interference by this Hon’ble Court under the inherent
powers to remedy the wrong.
f) That the impugned verification has resulted in severe miscarriage
of justice, therefore, the inherent jurisdiction of this Hon’ble Court
is invoked to secure the ends of justice.
4. Reply to the petition has been filed by the respondent herein, wherein the
petition is being opposed, inter alia, on the premise that upon receipt of a
complaint, a miscellaneous verification came to be initiated by the respondent
herein and during the course of said verification, the Managing Director J&K
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CRM(M) Nos. 317/2024 and 133/2024
Cooperative Housing Cooperation Limited, in terms of letter dated
20.12.2023 came to be called upon to provide copies of requisite
record/information of the Corporation pertaining to the finance/loans
advanced by the Corporation in favour of the petitioner-Society during the
period with effect from 1990 till date, besides the present status of such
finances/loans, revenue papers/record pertaining to the land in question and
other related information, which information, however, was not furnished by
the said Managing Director of the Corporation, however, the Managing
Director of the Corporation forwarded a copy of letter dated 22.12.2023 to
indicate that the information has been sought from the Secretary of the
petitioner-Society for its onward submission to the respondent herein, has not
been provided so far by the petitioner-Society till date, while stating further
that the petitioner-Society avoided the furnishing of the record, while
referring to the provisions of the J&K Cooperative Societies Act, 1989.
Heard learned counsel for the parties and perused the record.
5. Before proceedings further in the matter, a reference to the following
provisions of the Act of 1989 would be appropriate, having regard to the
respective pleadings of the parties:-
Section 3 The Registrar
1) The Government may appoint a person to be the Registrar of
Cooperative Societies for the whole State for all types of societies
and may appoint a person or persons to assist him.
2) The Government may, by general or special order, confer on any
person appointed to assist the Registrar, all or any of the powers of
the Registrar under this Act.
3) Every person appointed to assist the Registrar shall exercise the
powers conferred on him under sub-section (2) subject to the
general superintendence and control of the Registrar.
4) The Government may appoint any number as Additional
Registrar Cooperative Societies to assist the Registrar. The person
or persons so appointed to assist the Registrar and on whom any
10CRM(M) Nos. 317/2024 and 133/2024
power of Registrar is conferred shall work under the general
guidance, superintendence and control of the registrar.‖
Section 30. Supersession/removal of Committee
1) If in the opinion of the Government or Registrar, a Committee or
Board, by whatever name called, of a Co-operative Society is
persistently making a default or is negligent in the performance of
the duties imposed on it by this Act or the Rules or the Bye-laws
made thereunder or has committed any act which is prejudicial to
the interests of the Society or its members, or has failed to comply
with any direction given to it by the Govt. or by the Registrar for
the purpose of securing proper implementation of Cooperative
production and other development programmes or that, there is a
failure in constituting or functioning of, the Committee or the
Board, the Government or Registrar, may, after giving the
Committee or the Board, as the case may be, opportunity to state its
objections, if any, within 15 days and after considering the
objections, if received by an order in writing remove the
Committee or the Board and appoint one or more Administrators to
manage the affairs of the Society for a period not exceeding two
months and the elections shall be held within such period for the
reconstitution of the Committee or the Board, as the case may be:
Provided that the Government or the Registrar may, for the reasons
to be recorded in writing, extend the period of such appointment for
a further period but in any case such extension shall not exceed six
months from the date of such appointment:
Provided further that the supersession of the Committee of an Apex
Co-operative Bank or a Central Co-operative Bank shall be done
only in consultation with the Reserve Bank.
Notwithstanding anything contained in sub-section (1), the
committee of a Primary Agricultural Credit Society shall be
superseded by the Registrar only under the following
circumstances, namely:
(a) that the Society has incurred losses for three consecutive
years; or
(b) that serious financial irregularities or frauds have been
identified ; or
(c) that there are judicial directives to this effect ; or
(d) there is perpetual lack of quorum for three consecutive
meetings
Provided that members of the committee of a Primary Agricultural
Credit Society which has been superseded shall be disqualified to
contest the election to any committee for a period of at least three
consecutive years from the date of supersession].
(2) The Registrar may fix such remuneration for the
Administrators, as he may think fit and the remuneration shall be
paid out of the funds of the Cooperative Society.
(3) The Administrator shall, subject to the control of the Registrar
and to such instructions, as he may, from time to time give, have
power to perform all or any of the functions of the Committee or
the Board or of any officer of the Co-operative Society and take all
such actions as may be required in the interests of the Society.
(4) Save as otherwise provided in sub-section (5), the
Administrator shall, before the expiry of his term of office, arrange
11CRM(M) Nos. 317/2024 and 133/2024
for the constitution of a new Committee or Board, as the case may
be, in accordance with the bye-laws of the Co-operative Society.
(5) Where the Administrator is appointed under sub-section (1), the
Registrar may, by order in writing giving reasons therefor, direct
the Administrator to arrange for the constitution of a new
Committee or Board for such Co-operative Society in accordance
with the bye-laws of such Society and immediately on the
constitution of such Committee or the Board, the Administrator
shall hand over the management of such Society to such newly
constituted Committee or the Board and shall cease to function.
(6) Before taking action under sub-section (1), the Registrar shall
consult the Federal Society concerned.
(7) Notwithstanding anything contained in this Act, the Registrar
shall in case of Co-operative Bank, if so required 1[in consultation
with the Reserve Bank] or National Bank for Agriculture and Rural
Development, in the public interest or for preventing the affairs of
the Co-operative Bank being conducted in a manner detrimental to
the interest of the depositors or for securing the proper management
of a Co-operative Bank, pass an order for the supersession of the
Committee or the Board of that Co-operative Bank and for the
appointment of an Administrator for such period or periods 2[not
exceeding two years] in the aggregate as may, from time to time, be
specified by the Reserve Bank or National Bank for Agriculture
and Rural Development.”
Section 31 Securing possession of records:
(1) If the Committee or the Board, as the case may be, of Co-
operative Society is reconstituted at a general meeting of the
Society or the Committee or the Board of a Co-operative Society is
removed by the Registrar under section 30 or if the Society is
ordered to be wound up under section 74 and the outgoing member,
of the Committee or the Board refuse to hand over charge of the
records and property of the Society to the new Committee or Board
or to the Administrators or the liquidators, as the case may be, the
new Committee or Board or the Administrators or the liquidators
may apply to the Executive Magistrate, within whose jurisdiction
the Society functions, for securing the records and property of the
Society.
(2) If the custodian of records and the property, movable and
immovable, of the Society refuses to hand over the records or
property of the Society to the newly constituted Committee,
Administrators or liquidators or refuses to produce such records or
property before an officer or official of the Cooperataive
Department conducting enquiry, audit, inspections under the
provisions of this Act, such Committee, Board, Administrators,
liquidators, officers or officials, as the case may be, may apply to
the Executive Magistrate within whose jurisdiction the Society falls
for securing the possession of records and property of the Society.
Explanation.–For the purposes of this section, Accountant, paid
Secretary and Storekeeper, Cashier and salesman shall be deemed
to be the custodian of records, stocks and property respectively.
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CRM(M) Nos. 317/2024 and 133/2024
(3) The officer or official conducting enquiry, inspection or audit
shall not remove the records from the headquarter of the Society.
However, the authorities deciding disputes, appeals, revision or
review can call for such records and these records shall be
produced before such authorities on a written requisition made by
them.
(4) On receipt of an application under sub-section (1), the
Executive Magistrate may by a warrant authorise any Police
Officer, not below the rank of Inspector to enter and search any
place where the records and the property are kept or are believed to
be kept and to seize such records and property and the records and
property so seized shall be handed over to the newly constituted
Committee, Board or Administrators of the Society or the
liquidator, officer or officials, as the case may be.
(5) Where the Registrar or any other officer of the Department not
below the rank of the Deputy Registrar is satisfied that the books
and records of the society are likely to be suppressed or destroyed,
or the funds and property of the society are misappropriated, or
misapplied or likely to be misappropriated or misapplied, the
Registrar or any other person not below the rank of Deputy
Registrar may apply to Executive Magistrate 1st Class within
whose jurisdiction the Society is functioning for seizing and taking
possession of records and property of the Society.
(6) On the receipt of an application under sub-section (5), the
Executive Magistrate 1st Class may authorise any police officer,
not below the rank of Inspector to enter and search any place where
the records and property are kept or likely to be kept, and to seize
them and hand over the possession thereof to the Registrar or any
other person empowered under sub-section (5), as the case may be.
Section 64. Audit
(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 co-operative society at least once in
each year.
1
[(1A) A Primary Agricultural Credit Society shall get its accounts
audited at least once in each year by the Registrar or by a person
authorised by him, by general or special order in writing in this
behalf, or a Chartered Accountant appointed by its committee.
(1B) Notwithstanding anything contained in sub-section (1), the
accounts of an Apex Co-operative Bank or a Central Co-operative
Bank shall be audited and certified by Chartered Accountants
appointed by its committee from the panel approved by the
National Bank.
(1C) The Registrar shall get conducted a special audit of an Apex
Cooperative Bank or a Central Co-operative Bank 2[in consultation
with the Reserve Bank and the National Bank within the time]
stipulated by the Reserve Bank and shall endorse a copy of the
report of such special audit to the Reserve Bank and the National
Bank within the time stipulated by the Reserve Bank.]
(2) The audit 3[under sub-sections (1), (1A), (1B) or (1C)] shall
include an examination of overdue debts, if any, the verification of
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CRM(M) Nos. 317/2024 and 133/2024
cash balance and securities and valuation of the assets and
liabilities of the society.
(3) 4[The Registrar or the authorised person or the Chartered
Accountant appointed under sub-sections (1A), (1B) or (1C)] shall
at all times have access to all the books, accounts, documents,
papers, securities, cash and other properties belonging to, or in the
custody of, the society and may summon any person in possession
or responsible for the custody of any such books, accounts,
documents, papers, securities, cash or other properties, to produce
the same at any place at the headquarters of the society or any
branch thereof.
(4) Every person who is, or has at any time been, an officer or
employee of the society and every member and past member of the
society shall furnish such information in regard to the transactions
and working of the society as the 4[Registrar or the person
authorised by him or the Chartered Accountant appointed under
sub-sections (1A), (1B) or (1C)] may require.
Explanation.–For purposes of this section,–
(1) ‗Audit’ shall mean annual audit of accounts of a co-operative
society for each co-operative year and shall include Recurring
Audit and Re-audit.
(2) Recurring audit shall mean audit of accounts of a co-operative
society within a co-operative year on monthly or quarterly basis as
the Registrar may decide.
(3) ‗Re-audit’ shall mean audit of the accounts of a co-operative
society for checking up the quality or standard of any previous
audit. A co-operative society shall pay for every audit recurring
audit or re-audit such audit fee in such manner as may be
prescribed :
5
[Provided that a Co-operative Credit Structure Society shall be
free to decide the compensation for audit, recurring audit or re-
audit.]
Section 65. Communication of defects in audit to Co-operative
Society (1) If the result of the audit held under section 64 discloses
any defects in the working of a co-operative society, the Registrar
may bring such defect to the notice of the society and if the society
is affiliated to another co-operative society also to the notice of that
other society.
(2) A co-operative society shall rectify the defects pointed out in
the audit report and submit to the Registrar a report of compliance
within 45 days from the date of receipt of the audit report from the
Registrar.
(3) Where the Registrar is of the opinion that the defects pointed
out in the audit report have not been fully rectified by the co-
operative society, he may direct the co-operative society to rectify
defects still persisting in the accounts and to submit a further report
of compliance with explanation within 45 days from the date of
receipt of such direction, and the co-operative society shall rectify
such defects and submit a further report of compliance accordingly.
Section 66. Inspection of books of a co-operative society
(1) The Registrar may of his own motion and shall on the
application of a creditor of a cooperative society, inspect or direct
any person authorised by him by order in writing to inspect the
books of the society and the Registrar or the person so authorised
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CRM(M) Nos. 317/2024 and 133/2024
shall have all the powers of the Registrar when holding an inquiry/
inspection under section 67 :
Provided that no such inspection shall be made on an application of
a creditor under sub-section (1) unless the creditor–
(a) satisfies the Registrar that the debt or deposit is a sum then due
and that he has demanded payment or return thereof and has
received satisfaction within a reasonable time ; and
(b) deposits with the Registrar such sum as security for the cost of
the proposed inspection as the Registrar may require.
(2) The Registrar shall communicate the result of any such
inspection,–
(a) where the inspection is made of his own motion to the society ;
and
(b) where the inspection is made on the application of a creditor, to
creditors including the Financing Bank, to which the society is
indebted and the society.
(3) A Financing Bank may cause the books of a co-operative
society affiliated to it to be inspected by an officer of such Bank or
by a member of its paid staff, authorised by the Registrar, by order
in writing in this behalf. The officer or member so inspecting shall
at all reasonable times have free access to books, accounts,
documents, securities, cash and other properties belonging to, or in
the custody of, the society and may also call for such information,
statements and returns as may be necessary to ascertain the
financial condition of the society.
Section 67. Inquiry by Registrar
(1) The Registrar may of his own motion and shall on the
application of a majority of the committee or of not less than one
third of the members hold an inquiry, or direct some person
authorised by him by order in writing in this behalf to hold enquiry
into the constitution, working and financial condition of a co-
operative society.
(2) The Registrar or the person authorised by him under sub-section
(1) shall have the following powers, namely:–
(a) he shall at all reasonable times, have free access to the books,
documents, securities cash and other properties belonging to or in
the custody of the society and may summon any person in
possession or responsible for the custody of any such books,
accounts, documents, securities, cash or other properties to produce
the same at any place, at the headquarters of the society or any
branch thereof;
(b) he may summon any person who he has reason to believe, has
knowledge of any of the affairs of the society to appear before him
at any place, at the headquarter of the society or any branch thereof
and may examine such person on oath ; and
(c) (i) he may, notwithstanding any rule or bye-law prescribing the
period of notice for a general meeting of the society, require the
officers of the society to call a general meeting at such time and
place at the headquarters of the society or any branch thereof and to
determine such matters as may be directed by him. If the officers of
the society refuse or fail to call such a meeting he shall have power
to call it himself ;
(ii) any meeting called under sub-clause (i) shall have all the
powers of a general meeting called under the bye-laws of the
society and its proceedings shall be regulated by such bye-laws ;
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CRM(M) Nos. 317/2024 and 133/2024
(iii) the Registrar shall communicate the result of any such inquiry
where the inquiry is held of his own motion or on the application of
the majority of the committee or of not less than one-third of the
members, to the society and to the Financing Bank, if any, to which
the society is indebted.
Section 69. Surcharge
(1) If in the course of an audit, enquiry, inspection or the winding
up of a co-operative society, it is found that any person, who is or
was entrusted with the organization or management of such society,
or who is or has at any time been an officer or an employee of the
society, has made any payment contrary to this Act, the rules or the
bye-laws or has caused any deficiency in the assets of the society
by breach of trust or willful negligence or misappropriated or
fraudulently retained any money or other property belonging to
such society, the Registrar may, of his own motion or on the
application of the committee, liquidator or any creditor, inquire
himself or direct any person authorized by him, by an order in
writing in this behalf, to inquire into the conduct of such person.
(2) Where an inquiry is made under sub-section (1), the Registrar
may, after giving the person concerned an opportunity of being
heard, make an order requiring him to repay or restore the money
or pay contribution and costs or compensation to such extent, as the
Registrar may consider just and equitable.
Section 74 Winding up of Co-operative Societies
(1) If the Registrar, after enquiry has been held under section 67 or
an inspection has been made under section 66 or on receipt of an
application made by not less than three-fourth of the members of a
Co-operative Society, is of opinion that the society ought to be
wound up, he may issue an order directing it to be wound up.
Before issuing such an order the Registrar shall consult the
concerned federal society.
(2) The Registrar may of his own motion make an order directing
the winding up of a co-operative society–
(a) Where it is a condition of the registration of the society that the
society shall consist of at least one hundred members in respect of
primary Agricultural Societies, fifty members in respect of primary
non-Agricultural Societies and number of members has been
reduced to less than one hundred or fifty, as the case may be ;
(b) where the co-operative society has not commenced working has
ceased to work.
(3) The Registrar may cancel an order for the winding up of a
cooperative society at any time, in any case, wherein his opinion,
the society should continue to exist.
(4) Notwithstanding anything contained in sub-sections (1), (2) and
(3), no Co-operative Bank shall be wound up except with the
previous sanction in writing of the NABARD or Reserve Bank or
India.
(5) Notwithstanding anything to the contrary contained in this Act
the Registrar shall make an order for the winding up of a Co-
operative Bank, if so required by the NABARD or Reserve Bank of
India in the circumstances mentioned in section 13-D of the
Deposit Insurance Corporation Act, 1961.
(6) Where a Co-operative Bank, being an insured Bank within the
meaning of the Deposit Insurance Corporation Act, 1961, is wound
up or is taken into liquidation and the Deposit Insurance
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CRM(M) Nos. 317/2024 and 133/2024
Corporation has become liable to pay to the depositors of the
insured Bank under sub-section (1) of section 66 of that Act, the
Deposit Insurance Corporation shall be reimbursed in the
circumstances, to the extent and in the manner provided in section
21 of the Deposit Insurance Corporation Act, 1961.‖
As is evident from the aforesaid provisions, section 3 provides for the
appointment of the Registrar and section 30 empowers the Government or
Registrar to remove the Managing Committee of the Society if it fails in its
duties, neglects compliance, or harms society’s interest. Section 31 provides
for securing possession of records, etc and empowers the Registrar to direct
seizure of the record of the society, if the same are at the risk of suppression
or funds misappropriated and the Registrar or Deputy Registrar can request
the magistrate to authorize police the seizure of Society’s property or record.
Section 64 provides for mandatory annual audits, covering accounts, recurring
audits (monthly/quarterly) and re-audits, whereas Section 65 provides for
communication of defects in audit to co-operative society. Sections 66 and 67
empower the Registrar to initiate inquiries or inspection into a society’s
financial and operational condition on its own or at members’ request. Section
69 provides that if the mismanagement, negligence or misappropriation is
discovered, the Registrar can order responsible persons to repay losses or
compensate the society, whereas Section 74 provides for winding up of a
society by the Registrar following an enquiry, inspection or application by 3/4
of the members with prior consultation of the federal society.
6. As is manifest from the aforesaid provisions of the Act of 1989, same
provides a frame work for regulation, scrutiny, audit and accountability of a
corporative society in Jammu and Kashmir, aimed at to ensure transparency,
accountability and safeguarding the members’ interest in a society and in the
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CRM(M) Nos. 317/2024 and 133/2024
event, an irregularity is noticed and found by the Registrar, he has sufficient
and ample power to deal with same under the provisions of the Act of 1989.
7. Having regard to the aforesaid provisions and reverting back to the case in
hand, indisputably the transactions under inquiry initiated by the respondent
date back to the year 1990. The petitioner-Society admittedly is in existence
even today and in terms of the provisions of the Act of 1989, is subject to
audit, scrutiny and inspection envisaged under the Act of 1989 and in view of
the fact that the Registrar has never initiated an action under any of the
provision of the Act of 1989 against the petitioner-Society, same tends to give
rise to a strong presumption that there has been no irregularity in the affairs of
the petitioner-Society, which would necessitate holding of a verification by
the respondent herein. Furthermore, the fact of a considerable delay in
initiating the preliminary verification relating to a three decades old
transaction cannot, but said to be inherently prejudicial to the society and its
members rendering it unable to effectively defend itself and it cannot be
overlooked that such prolonged delay might have resulted in irretrievable loss
of the records, documents and the names of the individuals involved in the
transactions of the petitioner- Society and as such, under these circumstances,
it can safely be concluded that the petitioner-Society would be incapable of
mounting an effective defence essentially affecting and violating the
principles of natural justice, placing the petitioner-Society at an
insurmountable disadvantage violating its right to a fair defence and such
delayed initiation of verification proceedings against the petitioner-Society is
bound to give room for allegations of bias, mala fide and misuse of power.
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CRM(M) Nos. 317/2024 and 133/2024
8. Lastly, it would be pertinent to note here that in view of the activities of the
petitioner-Society being aimed at public welfare, the verification inquiry
initiated against the petitioner-Society would certainly disrupt its operations
and in the process harm the interests of its members.
9. Having regard to the aforesaid position obtaining in the matter and the
peculiar facts and circumstances of the case, this Court deems it proper and
appropriate and in the interest of justice to allow the instant petition.
10. Accordingly, the petition is allowed and the preliminary verification No.
Misc-16/2023 ACB Jammu ordered vide No. SSP/MSA/Misc.16/2022/8961-
62 dated 20.12.02023 initiated by the respondent herein is quashed. However,
the quashing of the same shall not be treated as a binding precedent for other
cases, in that, no general principle of law has been laid down in the instant
case applicable beyond the peculiarity of the present matter and shall be
deemed to have been confined strictly to the issues involved in the instant
petition and the parties herein.
11. A copy of this judgment shall be placed on the record file of each petition.
12. The record produced by the counsel for the respondents be returned back.
(JAVED IQBAL WANI)
JUDGE
Jammu
03.01.2025
Rakesh
Whether the order is speaking: Yes/No
Whether the order is reportable: Yes/No
Rakesh Kumar
2025.01.07 15:46
I attest to the accuracy and
integrity of this document
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