- 1 - NC: 2025:KHC-D:2654 WP No. 105729 of 2018 IN THE HIGH COURT OF KARNATAKA, DHARWAD BENCH DATED THIS THE 11TH DAY OF FEBRUARY, 2025 BEFORE THE HON'BLE MR. JUSTICE M.NAGAPRASANNA WRIT PETITION NO. 105729 OF 2018 (CS-RES) BETWEEN: PRIMARY AGRICULTURE CREDIT CO-OPERATIVE SOCIETY (REG), BODANAYAKADINNI, BODANAYAKADINNI VILLAGE, TQ AND DIST: BAGALKOT, REPST BY ITS CHIEF EXECUTIVE OFFICER. …PETITIONER (BY SRI. SHIVARAJ C. BELLAKKI, ADVOCATE) AND: 1. STATE OF KARNATAKA, REPRESENTED BY ITS SECRETARY, DEPARTMENT OF CO-OPERATIVE SOCIETIES, GOVERNMENT OF KARNATAKA, M.S. BUILDING, BENGLAURU -560001. 2. THE DIRECTOR OF CO-OPERATIVE AUDIT NO.17, JAYA NIVAS, SHANKER MATH ROAD, BASVANAGUDI, BENGALURU. Digitally signed by VISHAL NINGAPPA PATTIHAL Location: High Court of Karnataka, Dharwad Bench, Dharwad - 2 - NC: 2025:KHC-D:2654 WP No. 105729 of 2018 3. THE DEPUTY DIRECTOR OF AUDIT OF CO-OPERATIVE SOCIETIES, BAGALKOTE DISTRICT, BAGALKOT. …RESPONDENTS (BY SMT. KIRTHILATA R. PATIL, HCGP) THIS WRIT PETITION IS FILED UNDER ARTICLE 226 AND 227 OF THE CONSTITUTION OF INDIA IS PRAYING TO ISSUE A WRIT IN THE NATURE OF CERTIORARI AND QUASH THE ORDER DATED 18.05.2018 BEARING NO.LEPASHA/BEVE/BAGALKOTKANI/ 76/ 2017-18/376 PASSED BY THE 2ND RESPONDENT PRODUCED AS ANNEXURE-"A". CONSEQUENTLY, ISSUE A WRIT IN THE NATURE OF CERTIORARI AND QUASH THE ORDER DATED 25.05.2018 BEARING NO. LEPASHA/BEVE/ BAGALKOTKANI/76/2017- 18/512 PASSED BY THE 2ND RESPONDENT PRODUCED AS ANNEXURE-"B". ISSUE A WRIT OF MANDAMUS, DIRECTING THE RESPONDNET NO.2 TO DELCARE THAT THE APPOINTMENT OF THE AUDITOR AS PER SPECIAL GENERAL BODY MEETING DATED 21.07.2017 I.E., MR. SRI.SRINIVAS DOTHOTIHAL VIDE ANNEXURE-"E" AS VALID. AND PASS ANY OTHER WRIT OR ORDERS AS DEEMED FIT UNDER THE CIRCUMSTANCES OF THE CASE. THIS WRIT PETITION, COMING ON FOR PRELIMINARY HEARING ‘B’ GROUP, THIS DAY, ORDER WAS MADE THEREIN AS UNDER: - 3 - NC: 2025:KHC-D:2654 WP No. 105729 of 2018 ORAL ORDER (PER: THE HON'BLE MR. JUSTICE M.NAGAPRASANNA) 1. The petitioner in this case is the Society-the Primary Agriculture Credit Co-operative Society. The petitioner is at the doors of this Court calling in question an order dated 18.05.2018 and 25.05.2018 by which re- audit is directed to be conducted by a particular chartered accountant. 2. Heard the learned counsel Sri Shivaraj C. Bellakki appearing for the petitioner and the learned HCGP Smt.Kirthilata R.Patil representing the respondent-State. 3. Facts in brief germane are as follows: The petitioner-Society in its general body meeting held on 26.09.2016 resolved to appoint one J.Thippeswamy as chartered accountant to undertake the task of auditing the accounts for the year 2016-17. The chartered accountant is said to have expressed his inability to conduct the auditing owing to his busy schedule. The - 4 - NC: 2025:KHC-D:2654 WP No. 105729 of 2018 petitioner then appears to have called for a special general body meeting and resolved to appoint Sri.Shrinivas S.Dhotihal as chartered accountant, to audit and submit the report. The 2nd respondent finds fault with the action of the Society in getting the audit conducted by a person other than who was authorized, by the annual general body meeting held for the year 2016-17. It is this that has driven the petitioner to this Court in the subject petition. 4. Learned counsel Sri. Shivaraj C. Bellakki appearing for the petitioner takes this Court through Section 63 of the Karnataka Co-operative Societies Act, 1959 (hereinafter referred to as ‘the Act’, for short) to contend that a direction to get the accounts re-audited by the State can come about only in terms of the Act. There is no allegation of falsification of records, misappropriation or otherwise, for the State to direct conduct of a re-audit in a routine manner, as is now directed. The learned counsel would submit if the chartered accountant to whom the work of undertaking audit was entrusted, was not - 5 - NC: 2025:KHC-D:2654 WP No. 105729 of 2018 willing to undertake the audit. The Society left with no choice get it audited. It is his emphatic submission that the person who has now audited the accounts also is from the panel and approved auditor by the State. 5. Learned HCGP would however defend the action of the impugned orders on the score that there is no proceeding produced with regard to special general body meeting, as the name was decided earlier by the annual general body, it could not have been tweaked or tinkered by the special general body except in accordance with law. She would seek dismissal of the petition on this score, on the ground that the entire narration is concocted. 6. I have given my anxious consideration to the submissions made by the learned counsel Sri Shivaraj C. Bellakki appearing for the petitioner and the learned HCGP Smt.Kirthilata R.Patil representing the respondent-State and perused the material on record. 7. The afore-narrated facts are not in dispute. The issue revolves around a narrow compass as it concerns the - 6 - NC: 2025:KHC-D:2654 WP No. 105729 of 2018 auditing of the Society, at whose hands, is the question. The auditing of the petitioner-Society was resolved to be handed to one J.Thippeswamy pursuant to on an annual general body meeting, for the financial year 2016-17. J.Thippeswamy declines to accept the offer owing to his heavy work. The communication to the Society by the auditor chosen, in the annual general body meeting, reads as follows: “UÉ, ªÀÄÄRå PÁAiÀÄð¤ªÁðºÀPÀgÀÄ, ¥ÁæxÀ«ÄPÀ PÀȶ ¥ÀwÛ£À ¸ÀºÀPÁj ¸ÀAWÀ ¤.¨ÉÆÃqÀ£ÁAiÀÄPÀ¢¤ß vÁ:f:¨ÁUÀ®PÉÆÃl ªÀiÁ£ÀågÉÃ, «µÀAiÀÄ: ¤ªÀÄä ¸ÀAWÀzÀ ¸À£ï 2016-17 £Éà ¸Á°£À ¯ÉPÀÌ¥Àj±ÉÆÃzsÀ£Á £ÉêÀÄPÁwAiÀÄ£ÀÄß ¤gÁPÀj¸ÀĪÀ PÀÄjvÀÄ. G¯ÉèÃR: ¤ªÀÄä ¥ÀvÀæ ¢£ÁAPÀ 26.09.2016 ºÁUÀÆ £ÉêÀÄPÁw oÀgÁªÀÅ £ÀPÀ®Ä **** ªÉÄð£À «µÀAiÀÄPÉÌ ¸ÀA§A¢ü¹zÀAvÉ, £ÀªÀÄä°è PÉ®¸ÀzÀ MvÀÛqÀ ºÉZÁÑVzÀÄÝ, ºÁUÀÆ ¹§âA¢AiÀÄ PÉÆgÀvÉ EzÀÄÝ, £ÀªÀÄUÉ ¤UÀ¢vÀ CªÀ¢üAiÀÄ°è ¯ÉPÀÌ¥Àj±ÉÆÃzsÀ£É ªÀiÁqÀ¯ÁUÀĪÀÅ¢®è DzÀ PÁgÀt £ÁªÀÅ vÀªÀÄä £ÉêÀÄPÁwAiÀÄ£ÀÄß ¤gÁPÀj¸ÀĪÀÅzÁV F ªÀÄÆ®PÀ w½AiÀÄ¥Àr¸ÀÄvÉÛêÉ. vÀªÀÄä «±Áé¹ ²æà eÉ. w¥ÉàøÁé«Ä ¯ÉPÀÌ¥Àj±ÉÆÃzsÀPÀgÀÄ, UÀAUÁªÀw. ¥ÁæxÀ«ÄPÀ PÀȶ ¥ÀwÛ£À ¸ÀºÀPÁj ¸ÀAWÀ ¤: ¨ÉÆÃqÀ£ÁAiÀÄPÀ¢¤ß vÁ|| f|| ¨ÁUÀ®PÉÆÃl ªÀÄÄRå PÁAiÀÄð¤ªÁðºÀPÀ” - 7 - NC: 2025:KHC-D:2654 WP No. 105729 of 2018 8. A special general body meeting is called immediately thereafter which resolves to appoint the person who has now audited. The special general body resolution reads as follows: “¸ÀܼÀ: ¸ÀAWÀzÀ PÀbÉÃj ¢: 21.07.2017 «µÀAiÀÄ : ¸À£ï 2015-16 & 2016-17 £Éà ¸Á°£À ¯ÉPÀÌ ¥Àj±ÉÆÃzsÀ£ÉUÉ ¯ÉPÀÌ ¥Àj±ÉÆÃzsÀPÀgÀ £ÉêÀÄPÀ PÀÄjvÀÄ. *** ¸À£ï 2015-16 £Éà ¸Á°£À ªÀÄvÀÄÛ ¸À£ï 2016-17 £Éà ¸Á°£À ¯ÉPÀÌ ¥Àj±ÉÆÃzsÀ£ÉUÁV ²æà eÉ w¥Éà¸Áé«Ä EªÀgÀ£ÀÄß ªÁ¶ðPÀ ªÀĺÁ¸À¨sÉAiÀÄ°è £ÉêÀÄPÀ ªÀiÁrPÉÆArvÀÄÛ. DzÀgÉ, CªÀgÀÄ °TvÀªÁV ¤gÁPÀj¹zÀ PÁgÀt, ¢: 21.07.2017 gÀAzÀÄ PÉÊUÉÆAqÀ £ÀªÀÄä ¸ÀAWÀzÀ ¸À£ï 2015-16 & 2016-17£Éà ¸Á°£À ¯ÉPÀÌ ¥Àj±ÉÆÃzsÀ£É ªÀiÁr¸ÀĪÀÅzÀÄ CªÀ±ÀåPÀvÉ EvÀÄÛ E¯ÁSÁ ¯ÉPÀÌ ¥Àj±ÉÆÃzsÀPÀgÀÄ ¯ÉPÀÌ ¥Àj±ÉÆÃzsÀ£É PÉÊUÉƼÀî®Ä DUÀzÉà EzÀÝ ¥ÀæAiÀÄÄPÀÛ, C¤ªÁAiÀÄðªÁV ¹.J AiÀĪÀgÁzÀ ²æà ²æäªÁ¸À J¸ï. zÉÆÃrºÁ¼À EªÀgÀ£ÀÄß £ÉëĹPÉÆAqÀÄ ¸À¨sÉAiÀÄ°è ¸ÀªÁð£ÀĪÀÄvÀ¢AzÀ oÀgÁªÀÅ ¥Á¸ÀÄ ªÀiÁqÀ¯Á¬ÄvÀÄ. ¸ÀÆZÀPÀgÀÄ : ²æà ºÀtªÀÄAvÀ gÁ. PÁ²£ÀPÀÄAn - ¤zÉÃð±ÀPÀgÀÄ C£ÀĪÉÆÃzÀPÀgÀÄ : ²æà ¥ÀgÀ¸À¥Àà ¸À. £ÁUÀgÁ¼À - ¤zÉÃð±ÀPÀgÀÄ” ¥ÁæxÀ«ÄPÀ PÀȶ ¥ÀwÛ£À ¸ÀºÀPÁj ¸ÀAWÀ ¤AiÀÄ«ÄvÀ ¨ÉÆÃqÀ£ÁAiÀÄPÀ¢¤ß vÁ|| f|| ¨ÁUÀ®PÉÆÃl 9. Pursuant to the resolution, accounts are audited and it is submitted to the State. It is then the impugned order comes about. The impugned order dated 18.05.2018 reads as follows: - 8 - NC: 2025:KHC-D:2654 WP No. 105729 of 2018 DzÉñÀ “¥Àæ¸ÁÛªÀ£ÉAiÀÄ°è «ªÀj¹¸ÀgÀĪÀ CA±ÀUÀ¼À »£À߯ÉAiÀÄ°è ªÁ¶ðPÀ ªÀĺÁ ¸À¨sÉAiÀÄ°è DAiÉÄÌ ªÀiÁrPÉÆAqÀ ¸À£ÀßzÀÄ ¯ÉPÀÌ¥Àj±ÉÆÃzsÀPÀjAzÀ ¯ÉPÀÌ¥Àj±ÉÆÃzsÀ£ÉAiÀÄ£ÀÄß ¤ªÀð»¹PÉƼÀîzÉ ¨ÉÃgÉ ¸À£ÀßzÀÄ ¯ÉPÀÌ¥Àj±ÉÆÃzsÀPÀjAzÀ ¯ÉPÀÌ¥Àj±ÉÆÃzsÀ£ÉAiÀÄ£ÀÄß ¤ªÀð»¹PÉÆArgÀĪÀÅzÀÄ PÀ£ÁðlPÀ ¸ÀºÀPÁgÀ ¸ÀAWÀUÀ¼À PÁAiÉÄÝ PÀ®A 63(1) gÀAvÉ PÁ£ÀÆ£ÁvÀäPÀªÀ®èzÀ PÁgÀt ¨ÉÆÃqÀ£ÁAiÀÄPÀ¢¤ß ¥ÁæxÀ«ÄPÀ PÀȶ ¥ÀwÛ£À ¸ÀºÀPÁgÀ ¸ÀAWÀ ¤., EzÀgÀ 2016-17 £Éà ¸Á°£À ¯ÉPÀÌ¥Àj±ÉÆÃzsÀ£Á ªÀgÀ¢AiÀÄ£ÀÄß C¹AzsÀÄUÉƽ¹ DzÉò¸À¯ÁVzÉ” 10. The consequential order to the impugned order dated 25.05.2018 reads as follows: DzÉñÀ “¥Àæ¸ÁÛªÀ£ÉAiÀÄ°è «ªÀj¹gÀĪÀ CA±ÀUÀ¼À »£À߯ÉAiÀÄ°è ¨ÉÆÃqÀ£ÁAiÀÄPÀ¢¤ß ¥ÁæxÀ«ÄPÀ PÀȶ ¥ÀwÛ£À ¸ÀºÀPÁgÀ ¸ÀAWÀ ¤., EzÀgÀ 2017-18 £Éà ¸Á°£À ±Á¸À£À§zÀÞ ¯ÉPÀÌ¥Àj±ÉÆÃzsÀ£ÉAiÀÄ£ÀÄß ¤ªÀð»¸À®Ä ¸ÀAWÀzÀ ªÁ¶ðPÀ ªÀĺÁ ¸À¨sÉAiÀÄ°è DAiÉÄÌAiÀiÁzÀ C±ÉÆÃPï PÉÆñÀAzÀgÀ & PÉÆÃ, ¸À£ÀßzÀÄ ¯ÉPÀÌ¥Àj±ÉÆÃzsÀPÀgÀÄ, gÀªÀjAzÀ¯Éà 2016-17 £Éà ¸Á°£À ¯ÉPÀÌ¥Àj±ÉÆÃzsÀ£ÉAiÀÄ£ÀÄß ¤ªÀð»¹PÉƼÀî®Ä PÀ£ÁðlPÀ ¸ÀºÀPÁgÀ ¸ÀAWÀUÀ¼À PÁAiÉÄÝ 1959, PÀ®A 63(2) gÀ ¥Á櫸ÉÆÃzÀ£ÀéAiÀÄ £ÉêÀÄPÀ ªÀiÁqÀ¯ÁVzÉ. ¸ÀAWÀzÀ ¯ÉPÀÌ¥Àj±ÉÆÃzsÀ£ÉAiÀÄ£ÀÄß F PɼÀPÀAqÀ µÀgÀvÀÄÛUÀ¼À£ÀéAiÀÄ ¤ªÀð»¸ÀvÀPÀÌzÀÄÝ. F DzÉñÀªÀ£ÀÄß ¹éÃPÀj¸ÀĪÀÅzÀPÉÌ ¹éÃPÀÈwAiÀÄ£ÀÄß ºÁUÀÆ F ¸ÀºÀPÁgÀ ¸ÀAWÀzÀ ¯ÉPÀÌ¥Àj±ÉÆÃzsÀ£ÉAiÀÄ£ÀÄß PÉÊUÉƼÀÄîªÀ §UÉÎ M¦àUÉAiÉÄ£ÀÄß ªÀÄgÀÄl¥Á°£À°è F PÀZÉÃjUÉ ¤ÃqÀvÀPÀÌzÀÄÝ.” 11. The impugned order dated 18.05.2018 declines to accept the report of the auditor and the consequential order dated 25.05.2018 directs a re-audit at the hands of a particular auditor. In the considered view of this Court, both are legally untenable. What is deployed in 18.05.2018 is Section 63(1) of the Act and what is directed for a re-audit is under Section 63(2) of the Act. Therefore, I deem it appropriate to notice the aforesaid - 9 - NC: 2025:KHC-D:2654 WP No. 105729 of 2018 provision of the Karnataka Co-operative Societies Act, 1959. 12. Section 63 reads as follows: “63 Audit.- (1) Every Cooperative society shall get its accounts audited at least once in a year before the first of September following the close of the cooperative year by an auditor or an auditing firm appointed by the general body of the cooperative society from a panel of auditors or auditing firms approved by the Director of cooperative audit; Provided that the Director of co-operative audit shall be the authority competent to prepare and maintain a list of auditors and auditing firms who satisfy the prescribed qualification and experience for undertaking the audit of accounts of co-operative societies in the state. 1[Provided further that, the National Bank shall prepare a list of auditors and auditing firms who satisfy, the prescribed qualification and experience for undertaking the audit of accounts of State Co-operative Bank and District Central Co-operative Banks.] (2) The general body of every cooperative society shall at its general meeting appoint an auditor or an auditing firm to audit the accounts of the society for the cooperative year in which the general meeting is held. [Provided that, if the Director of Co-operative audit is satisfied that the society has failed to appoint an auditor or an auditing firm to audit its accounts for a Co- operative year their general body and to intimate the same, the Director of Co-operative Audit,after giving an opportunity in writing to such society and after confirming that the society has not appointed an auditor or auditing firm, may appoint an auditor or an auditing firm to audit the accounts of that society from the approved panel of auditors or auditing firms and such appointed auditor or - 10 - NC: 2025:KHC-D:2654 WP No. 105729 of 2018 auditing firm shall be deemed as the auditor or the auditing firm for the purpose of conducting audit of that society for that particular co-operative year under consideration." Provided, further that in case of Government auditors mentioned in the panel of auditors or auditing firms maintained by the director of Co-operative audit, they shall be mentioned by designation only and that in case of a Co-operative Society selecting a Government auditor from the empanelled list, the Co-operative Society shall intimate to the concerned deputy director of the Co- operative audit of the concerned district to cause the audit from a departmental auditor mentioning the auditors designation only.] (13) If it appears to the State Government on an application by a cooperative society or otherwise that it is necessary or expedient to re-audit the accounts of a society, the State Government may, by an order provide for such re-audit and the provisions of the Act, and the rules applicable to the audit shall also apply to such re-audit.[The result of the re-audit shall be incorporated by the co- operative society in the next audit report to be issued] Provided that such re-audit shall be ordered only when there is a prima-facie case of fraud or mis-appropriation or embezzlement of funds not detected or properly examined by the auditor or auditing firms during regular audit or misclassification of accounts or for any other valid reasons with a view to truly reflect the financial position of the society. [(13A)- Notwithstanding anything contained in the preceding sub-sections, the Director of Co- operative Audit subject to the approval of State Government shall have power to re-examine or reverify particular account or accounts of the audited accounts of any Co- operative Society pertaining to preceding three years and instruct the concerned auditor to rectify the lapses observed - 11 - NC: 2025:KHC-D:2654 WP No. 105729 of 2018 during such re-examination or reverification in the next audit report to be issued.]” 13. Section 63 deals with audit, inspection and surcharge on a Society. Sub-section (13) of Section 63 of the Act assumes certain significance for the reason that a re-audit can be ordered only if the allegation is of misappropriation or embezzlement of funds which is not been detected properly by the auditor. It is not the case of the State that there has been misappropriation of funds in the case at hand. All that the State alleges is change of the auditor without it being placed before the annual general body. It is an admitted fact that the auditor now who has audited the Society is also from the panel that finds approval from the hands of the State. In that light, no fault can be found to the Society getting it audited from Shrinivas Dhotihal owing to the unavoidable circumstances of J.Thippeswamy denying it. Both of them are in the panel. The order directing in particular re-audit to be conducted by the hands of the particular auditor runs foul - 12 - NC: 2025:KHC-D:2654 WP No. 105729 of 2018 of Sub-section (13) of Section 63 of the Act as observed hereinabove. Therefore, the petition deserves to succeed. 14. For the aforesaid reasons, the following: ORDER i. Petition is allowed. ii. The impugned orders dated 18.05.2018 and 25.08.2018 passed by the 2nd respondent vide Annexure-A and Annexure-B stand quashed. Sd/- (M.NAGAPRASANNA) JUDGE KGK/CT-GTB/List No.: 1 Sl No.: 11