- 1 - HC-KAR NC: 2025:KHC:32754 WP No. 15549 of 2021 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 21ST DAY OF AUGUST, 2025 BEFORE THE HON'BLE MR. JUSTICE R. NATARAJ WRIT PETITION NO. 15549 OF 2021 (CS-RES) BETWEEN: K.M. MUNIKRISHNAPPA S/O LATE K. MUNIYAPPA, AGED ABOUT 75 YEARS, FORMAL EX-SECRETARY, TAPCMS (LTD.,) R/AT NO. 384, SRI. ANNAPURNESHWARI NILAYA, BEHIND YELLAMMA TEMPLE, TACKLE ROAD, 3RD CROSS, PC-LAYOUT, KOLAR-563 101. …PETITIONER (BY SRI. T. DADAKHALANDAR, ADVOCATE FOR SRI. RAMACHANDRA N., ADVOCATE) AND: 1. DEPUTY REGISTRAR OF CO-OPERATIVE SOCIETIES, DISTRICT CO-OPERATIVE UNION BUILDING, 1ST FLOOR, NEAR DCC BANK, KOLAR-563 101. 2. TALUK AGRICULTURAL PRODUCTS SALE CO-OPERATIVE SOCIETY LTD., BANGARPET TALUK-563 101, KOLAR DISTRICT, REP BY ITS SECRETARY. 3. A. RAMACHANDRAPPA S/O. YELAPPA @ BEVURAPPA, FORMER-ASSISTANT, TAPCMS (LTD.,) BANGARPET, SINCE DECEASED BY IS LEGAL HEIRS OF Digitally signed by SUMA Location: HIGH COURT OF KARNATAKA - 2 - HC-KAR NC: 2025:KHC:32754 WP No. 15549 of 2021 3(a) SMT. RAJAMMA, W/O. A. RAMACHANDRAPPA, AGED ABOUT 60 YEARS, HUNUSEHALLI, BANGARPET TALUK, KOLAR DISTRICT-563 103. 3(b) SMT. MUNIRATHNAMMA W/O. NAGARAJU, AGED ABOUT 50 YEARS, NONDAMBALLI, SHAPURA POST, KOLAR TALUK AND DISTRICT, KOLAR-563 101. 3(c) RENUKA W/O. ANJANAPPA, AGED ABOUT 50 YEARS, HUNASAHALLI, BANGARAPETE POST AND TALUK, KOLAR DISTRICT-563 103. 3(d) SMT. YELLAMMA W/O. LOKESH, AGED ABOUT 47 YEARS, ARABHI KOTTANUR VILLAGE, NARASAPURA ROAD, KOLAR TALUK AND DISTRICT, KOLAR-563 101. 3(e) SMT. GEETHA W/O. NARENDRA KUMAR, AGED ABOUT 45 YEARS, GANDHI NAGAR, KOLAR-563 101. …RESPONDENTS (BY SRI. S.R.KHAMROZ KHAN, ADDITIONAL GOVERNMENT ADVOCATE FOR RESPONDENT NO.1; SRI. BASAVARAJAIAH, ADVOCATE FOR RESPONDENT NO.2; NOTICE IS SERVED ON RESPONDENT NO.3(B); VIDE ORDER DATED 09.01.2025, SERVICE OF NOTICE TO RESPONDENT NOS.3(A), 3(C), 3(D) AND 3(E) IS HELD SUFFICIENT) - 3 - HC-KAR NC: 2025:KHC:32754 WP No. 15549 of 2021 THIS WP IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH THE ORDER PASSED BY THE ARBITRATOR IN DISPUTE NO.DRK/DIS/02/2006-07 DATED 19.02.2018 VIDE ANNEXURE-F, AND ALSO THE ORDER PASSED ON 21.10.2019 BY THE HON'BLE TRIBUNAL IN APPEAL NO.186/2018 VIDE ANNEXURE-G. THIS PETITION, COMING ON FOR PRELIMINARY HEARING IN 'B' GROUP, THIS DAY, ORDER WAS MADE THEREIN AS UNDER: CORAM: HON'BLE MR. JUSTICE R. NATARAJ ORAL ORDER The petitioner has challenged an award passed by the Arbitrator/respondent No.1 in Dispute No.rDgïPÉ/zÁªÉ/02/2006-07 dated 19.02.2018 as well as the judgment dated 21.10.2019 passed by the Karnataka Appellate Tribunal, Bengaluru in Appeal No.186/2018. 2. The petitioner contends that he was deputed as a Secretary to the respondent No.2 - Society by the Department of Co-operation between 31.08.2002 and 22.08.2003. One of the objectives of the respondent No.2 was to provide seeds, fertilizers and agricultural implements to its members besides procuring food grains, storing and selling the products and acting as an agent of the State Government in the Public - 4 - HC-KAR NC: 2025:KHC:32754 WP No. 15549 of 2021 Distribution System. The now deceased respondent No.3 was then working as a ‘D’ group employee at the respondent No.2. He was entrusted with duties of financial transactions as well as to look after the wholesale trade by the Board of Management as per the resolution dated 31.03.2003. The respondent No.3 was responsible for any loss caused to the respondent No.2 on account of any of his acts. He was also entrusted with the responsibility of passing on receipts and to remit the amount collected to the bank on the same day after incorporating them in the books of accounts. 3. The petitioner contends that in the audit report for the year 2003-04, a double debit of Rs.1,87,000/- was made in the accounts book on 19.05.2003 and 27.05.2003. Similarly, a double false debit of Rs.2,72,000/- was made on 20.06.2003 and 26.06.2003. Likewise, a false double debit of Rs.2,52,000/- was made on 21.06.2003 and 27.06.2003. It was therefore reported that false debits of Rs.7,11,500/- were made in the accounts book thereby causing loss to the respondent No.2 - Society. The Auditor who audited the accounts observed that the petitioner and the respondent No.3 were responsible for the said false debits and therefore, - 5 - HC-KAR NC: 2025:KHC:32754 WP No. 15549 of 2021 observed that amount of Rs.7,11,500/- should be recovered from them. The respondent No.3 submitted a letter dated 17.08.2004 to the President of the respondent No.2 admitting that he alone was liable and responsible for the misappropriation and agreed to remit the amount in full by 31.08.2004. The respondent No.3 also admitted the misappropriation while responding to the notice issued by the Auditor on 15.09.2005. The respondent No.3 remitted a sum of Rs.11,500/- out of Rs.7,11,500/- to the respondent No.2 vide receipt No.956 dated 19.09.2005. 4. In the meanwhile, an enquiry under Section 64 of the Karnataka Co-operative Societies Act, 1959 (for short, ‘the Act, 1959’) was ordered into the affairs of the respondent No.2. The respondent No.3 admitted before the Enquiry Officer that he had remitted Rs.11,500/- on 19.09.2005 and admitted his liability to pay Rs.7,00,000/- in a statement made on oath before the Enquiry Officer on 16.06.2005. Accordingly, the Enquiry Officer in his report held that the respondent No.3 is alone liable to pay the misappropriated amount of Rs.7,11,500/-. - 6 - HC-KAR NC: 2025:KHC:32754 WP No. 15549 of 2021 5.(i) The petitioner contends that he had produced all the above materials in his defence to the claim made by the respondent No.2 on the basis of the audit report for the year 2003-04. However, the respondent No.1 did not consider the admission made by the respondent No.3 herein as stated above but passed an order on 19.02.2018 holding that the petitioner herein and the legal heirs of the deceased respondent No.3 herein are liable to pay a sum of Rs.7,00,000/- along with interest at the rate of 15% per annum from 22.06.2003 till the date of payment. (ii) Being aggrieved by the said order, the petitioner filed an appeal which was numbered as 186/2018 before the Karnataka Appellate Tribunal (henceforth referred to as ‘the Tribunal’) under Section 105 of the Act, 1959. However, the Tribunal held that a ‘D’ group employee cannot be entrusted with the responsibility of handling financial transactions, maintaining accounts etc. It held that the petitioner being the Secretary of the respondent No.2 - Society was responsible to take care of the financial transactions notwithstanding the admission of the now deceased respondent No.3 that he had misappropriated the amount and had agreed to pay - 7 - HC-KAR NC: 2025:KHC:32754 WP No. 15549 of 2021 Rs.7,11,500/- by 31.08.2004. The Tribunal in terms of its judgment dated 21.10.2019, dismissed the appeal and confirmed the order dated 19.02.2018 passed by the respondent No.1. 6. Being aggrieved by the said order/s passed by the respondent No.1 and the Tribunal, the petitioner is before this Court. 7. The writ petition is opposed by the respondent No.2 strangely contending that the resolution of the Board of Directors of respondent No.2 dated 31.03.2003 is contrary to the Act, 1959 and the Rules thereunder. It has referred to Section 29-G(4) of the Act, 1959 where it is ordained that the Chief Executive shall be the Chief Administrative Officer of the Society and shall, subject to the general supervision and control of the Board and such other conditions and restrictions as may be specified in the bye-laws,— (a) be responsible for general supervision and control over the employees of the society and be responsible for the day-to-day management and business of the society; (b) carry on the authorized and normal business of the Society; (c) make arrangement for repayment - 8 - HC-KAR NC: 2025:KHC:32754 WP No. 15549 of 2021 of loans due to the State Government and loans obtained on Government guarantee and other loans, and shall send report to the Registrar in this behalf; (d) be responsible for operating the bank accounts in accordance with the provisions of the bye- laws and shall make arrangements for safe custody of cash: (e) sign and authenticate all documents of the co-operative society for and on behalf of the society; (f) be the custodian of all records and documents of the co-operative society and shall make arrangements for the correct maintenance of accounts and various books and records of the society. Therefore, it is contended that the petitioner being the Chief Executive of the respondent No.2-Society ought to have guided the management of the Society properly. Therefore, it is contended that the petitioner is liable for the lapses. 8. It is claimed that the petitioner had signed the cash book without verifying the correctness of each entry. Therefore, the petitioner did not diligently perform his duty but blindly signed the cash book and the respondent No.3 took advantage of it. Therefore, it is contended that the petitioner failed in his duty to supervise and keep control over the employees and to ensure correct maintenance of the books of - 9 - HC-KAR NC: 2025:KHC:32754 WP No. 15549 of 2021 account and submission of periodical statements and returns. It admitted that the respondent No.3 had undertaken vide his letter dated 17.08.2004 that he would remit the amount of Rs.7,11,500/- to the respondent No.2-Society in six installments and that he had remitted only Rs.11,500/- on 19.09.2005 to the Society. It is alleged that the petitioner did not pursue the respondent No.3 to remit the balance amount of Rs.7,00,000/- and therefore, acted negligently. It denied that the Enquiry Officer in his report had held that respondent No.3 alone was liable for the alleged misappropriation. It admitted that the Auditor passed an order under Section 68 of the Act, 1959 vide No.DRK:Lepa:Hadu:11:2006-07 dated 30.06.2006 instructing the respondent No.2-Society to rectify the defects and send a compliance report. The petitioner challenged para 42 of this order under Section 106 of the Act, 1959 before the Joint Registrar of Co-operative Societies, (for short, 'the JRCS'), Bengaluru, in Appeal No.JRB/Appeal/03/2007-08. The JRCS in terms of the order dated 05.05.2008, set aside the said order dated 30.06.2006 issued under Section 68 of the Act, 1959 as far as the petitioner herein was concerned. The respondent No.1 – Deputy Registrar of Co-operative Societies (for short, - 10 - HC-KAR NC: 2025:KHC:32754 WP No. 15549 of 2021 ‘DRCS’), Kolar had deleted the name of the petitioner herein in proceedings No.DRK/Dis/02/2006-07 initiated by the respondent No.2-Society under Section 70 of the Act, 1959 against the petitioner and respondent No.3. The aforesaid order dated 05.05.2008 passed by the JRCS was challenged by the Secretary of the respondent No.2-Society under Section 108 of the Act, 1959 before the Secretary to Government, Co- operation Department, in Revision Petition No.CMW/47/CAP/2008. The Secretary to Government passed an order dated 20.07.2009 setting aside the order dated 05.05.2008 passed by the JRCS, Bengaluru Region in case No.JRB/Appeal/03/2007-08 and confirming the order dated 30.06.2006 passed by the DRCS, Kolar, in Dispute No. DRR/Le.pa/Hadu/11/2006-07. The petitioner then challenged the order dated 20.07.2009 passed by the Secretary to the Government, Department of Co-operation, in a writ Petition before this Court in W.P No.38476/2009 which was dismissed in terms of the order dated 10.12.2010. It is contended that though as per the order dated 30.06.2006 passed by the DRCS under Section 68 of the KCS Act, 1959, it was the respondent No.3 herein who was responsible for the misappropriation of - 11 - HC-KAR NC: 2025:KHC:32754 WP No. 15549 of 2021 Rs.7,11,500/-, however, it was held that the petitioner was responsible for dereliction of duty which resulted in misappropriation of the said amount. It is contended that this Court did not accept the claim of the petitioner herein that he was liable only for dereliction of duty alone. It thus contended that it is the respondent No.3 and the petitioner who were responsible for misappropriation of Rs.7,11,500/- and the Tribunal has considered the same in the right perspective and passed the impugned order. 9. Learned counsel for respondent No.2 reiterated the above contentions. He contended that the respondent No.3 was a Class IV employee and therefore, such huge financial responsibilities could not have been entrusted to him. He contends that even if it was entrusted, it was the petitioner who was responsible for the overall supervision of the employees and for maintenance of the records etc. He therefore contends that the impugned order passed by the respondent No.1 and the confirming order passed by the Tribunal are just and proper. - 12 - HC-KAR NC: 2025:KHC:32754 WP No. 15549 of 2021 10. Learned counsel for the petitioner contends that the petitioner was placed in additional charge of the post of the Secretary of the respondent No.2. He contends that the respondent No.3 was well versed in the transactions of the respondent No.2 and therefore, the Board of the respondent No.2 felt it appropriate to authorize the respondent No.3 to bring about financial transactions and also wholesale trade as per the resolution dated 31.03.2003. He contends that the respondent No.3 himself admitted that it was he who had misappropriated the amount not only while replying to the notice issued by the Auditor but also by a letter submitted on 17.08.2004 to the President of the respondent No.2. He contends that the respondent No.3 in continuation of his admission, had deposited a sum of Rs.11,500/- with the respondent No.2. He contends that even in the enquiry under Section 64 of the Act, 1959 the respondent No.3 admitted his liability to pay a sum of Rs.7,00,000/- and agreed to pay the same. He, therefore, contends that in light of these admissions, the respondent No.1 as well as the Tribunal committed an error in fastening the said liability to pay Rs.7,00,000/- on the petitioner and the legal heirs of - 13 - HC-KAR NC: 2025:KHC:32754 WP No. 15549 of 2021 respondent No.3 with interest stated therein. He submits that the respondent No.3 has now expired and the respondent Nos.3(a) to 3(e) who have inherited his estate are alone liable to pay Rs.7,00,000/- to the respondent No.2. 11. The learned Additional Government Advocate for the respondent No.1 submitted that the petitioner was the Chief Executive of the respondent No.2-Society and was therefore responsible for the maintenance and preservation of books, accounts etc of the respondent No.2. He, therefore, contends that the petitioner cannot escape liability. Therefore, he contends that the impugned order passed by the respondent No.1 and the confirming order passed by the Tribunal are just and proper and no indulgence is warranted with the impugned orders. 12. I have considered the submissions of the learned counsel for the petitioner, learned Additional Government Advocate for respondent No.1 and the learned counsel for respondent No.2. 13. It is not in dispute that the respondent No.3 had owned up the fact that he had misappropriated an amount of - 14 - HC-KAR NC: 2025:KHC:32754 WP No. 15549 of 2021 Rs.7,11,500/- belonging to the respondent No.2- Society. It is not in dispute that respondent No.3 had remitted Rs.11,500/- to the account of respondent No.2 and had agreed to pay the balance amount. Therefore, it is more than clear that it was not the petitioner who had misappropriated the amount but it was the respondent No.3. It is true that the petitioner being the Chief Executive of the respondent No.2 was entirely responsible for the supervision over the employees, maintenance of records and ensuring the correctness of entries made in the books of accounts etc. However, when the respondent No.3 himself had admitted that he had misappropriated the amount, the respondent No.1 and the Tribunal were not justified to proceed against the petitioner, who was in no way responsible for the misappropriation. If there was any negligence or dereliction of duty by the petitioner that could have been suitably met by taking out suitable departmental action but he cannot be held responsible for payment of Rs.7,00,000/- with interest. Though the respondent No.3 has now expired, he has left behind his wife and children who purportedly inherited the properties of the respondent No.3. In that view of the matter, the respondent - 15 - HC-KAR NC: 2025:KHC:32754 WP No. 15549 of 2021 No.2 can pursue the proceedings and recover the amount from the legal heirs of the respondent No.3 and not against the petitioner. Therefore, the Writ Petition is allowed and the impugned award dated 19.02.2018 passed by the respondent No.1 in Dispute No.rDgïPÉ/zÁªÉ/02/2006-07 and the judgment dated 21.10.2019 passed by the Karnataka Appellate Tribunal in Appeal No.186/2018 are quashed. However, the respondent No.2 is at liberty to proceed against respondent Nos.3(a) and 3(b) in accordance with law to recover a sum of Rs.7,00,000/- along with interest at 15% per annum from the date the amount became payable till the date of deposit, if they have inherited the properties of the deceased respondent No.3, which shall only be to the extent of the value of such inheritance. Sd/- (R. NATARAJ) JUDGE sma/List No.: 1 Sl No.: 58