- 1 - HC-KAR NC: 2025:KHC:33903 WP No. 27142 of 2024 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 29TH DAY OF AUGUST, 2025 BEFORE THE HON'BLE MR. JUSTICE R. NATARAJ WRIT PETITION NO. 27142 OF 2024 (CS-RES) BETWEEN: 1. SRI. H.N. ASHOKA SON OF NARASAPPA H.G. AGED ABOUT 50 YRS, R/A NO.21, 1ST CROSS 1ST MAIN, KHB COLONY, BASAVESHWARANAGAR BENGALURU -560079 2. RAMA KRISHNAIAH S/O DODDABYRAIAH AGED ABOUT 70 YEARS, NO.7382, BESIDE PWD OFFICE, SUBHANAGAR MAIN ROAD, NELAMANGALA (TALUK), BENGALURU RURAL DISTRICT -562123 3. P.M.NAGARAJU S/O MARIYAPPA AGED ABOUT 75 YEARS, 196, BOGANAHALLI ROAD, PANNATHUR -560087 4. D.HANUMAIAH S/O DODDAIAH AGED ABOUT 68 YEARS, R/O CHOLONAYAKANAHALLI BENGALURU SOUTH TALUK, BENGALURU-560032. 5. CHUNCHEGOWDA S/O GANGAPPA AGED ABOUT 60 YEARS, THIMMASANDRA VILLAGE Digitally signed by SUMA Location: HIGH COURT OF KARNATAKA - 2 - HC-KAR NC: 2025:KHC:33903 WP No. 27142 of 2024 KANNAMANGALA POST, MADHURE HOBLI DODDABALAPUR TALUK -561203 6. SRI. K.S.SURESH S/O SANNAPPA AGED ABOUT 59 YEARS, R/A NO.100, KODIHALLI, NADEEVATHI (POST) BENGALURU-560067 …PETITIONERS (BY SRI. D.R.RAVISHANKAR, SENIOR ADVOCATE FOR SRI. SARAVANA S., ADVOCATE) AND: 1. THE STATE OF KARNATAKA DEPARTMENT OF COOPERATIVE M.S.BUILDING, BENGALURU-560001. BY ITS ADDITIONAL CHIEF SECRETARY 2. THE JOINT REGISTRAR OF CO-OPERATIVE SOCIETIES BENGALURU REGION NO.146, SAHAKARA SOUDHA 3RD MAIN ROAD, 8TH CROSS MARGOSA ROAD, BENGALURU-560003 3. BENGALURU DISTRICT CENTRAL CO-OPERATIVE BANK LTD., FORMERLY BENGALURU RURAL DISTRICT AND RAMANAGARA DISTRICT CENTRAL CO-OPERATIVE BANK LTD., NO.6, LAKSHMI SADANA, 5TH MAIN ROAD, CHAMARAJPET, BENGALURU -560018. BY ITS CHIEF EXECUTIVE OFFICER (REGISTERED UNDER THE KARNATAKA CO-OPERATIVE SOCIETIES ACT, 1959) 4. K.KRISHNAMURTHY S/O LATE KEMPAGOLLAIAH AGED ABOUT 55 YEARS, NO.4, TEJASHREE NILAYA, - 3 - HC-KAR NC: 2025:KHC:33903 WP No. 27142 of 2024 GOTTIGEPALYA, NAGARABHAVI, BENGALURU -560072 …RESPONDENTS (BY SRI. HARISHA A.S., ADDITIONAL GOVERNMENT ADVOCATE FOR RESPONDENT NOS.1 AND 2; SRI. DEVI PRASAD SHETTY, ADVOCATE FOR RESPONDENT NO.4; SRI. N. SHIVAKUMAR, ADVOCATE FOR RESPONDENT NO.3) THIS WP IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO DECLARE THE IMPUGNED DIRECTIONS OF RESPONDENT NO.2, DATED 12.09.2024 PASSED IN PROCEEDINGS NO.JRB/KALAM 64/DHOORU/06/2015-16 AS PER ANNEXURE-G IS WITHOUT JURISDICTION ILLEGAL AND ARBITRARY AND ETC. THIS PETITION, COMING ON FOR FINAL HEARING, THIS DAY, ORDER WAS MADE THEREIN AS UNDER: CORAM: HON'BLE MR. JUSTICE R. NATARAJ ORAL ORDER The petitioners have sought for a declaration that the directions issued by the respondent No.2 dated 12.09.2024 in proceedings No.JRB/Kalam 64/Dhooru/06/2015-16 is without jurisdiction. They have also sought for a writ in the nature of certiorari to quash the directions issued by the respondent No.2 in proceedings No.JRB/KALAM 64/01/2015-16 dated 28.02.2017 insofar as it relates to imposing liability against them. They have also sought for a writ in the nature of - 4 - HC-KAR NC: 2025:KHC:33903 WP No. 27142 of 2024 certiorari to quash the directions of the respondent No.2 dated 12.09.2024 in proceedings No.JRB/Kalam 64/Dhooru/06/2015- 16. 2. (i) The petitioners contend that they are the elected directors who constituted the Board of Management of the respondent No.3 for the term 2010 - 2015. They claimed that except the petitioner No.6, the others continue to be part of the Board of Management for the present term. They contend that the respondent No.4, who was then working as a supervisor at the silk exchange branch of the respondent No.3, was suspended and dismissed from service, as he was found involved in defrauding the funds of society by colluding with other employees. (ii) The respondent No.2 initiated an enquiry under Section 64 of the Karnataka Co-operative Societies Act, 1959 (henceforth referred to as ‘the Act, 1959’ for short) by order dated 07.05.2015. The enquiry officer submitted his report on 18.11.2016. Following this, an order was passed by the respondent No.2 on 28.02.2027 under Section 68 of the Act, 1959, to comply with certain directions, which primarily related to the imposition of liability on the respondent No.4, - 5 - HC-KAR NC: 2025:KHC:33903 WP No. 27142 of 2024 Mallikarjunaiah, Virupakshaiah. It was directed that if the misappropriated funds were not recovered from them, the liability would fall on the Board of Directors who were helming the affairs of the society and that proceedings under Section 29-C of the Act, 1959, would be initiated. It is relevant to note that when the respondent No.4 was working as a bank supervisor, the petitioners were the members of the Board of management. 3. The petitioners therefore had diligently initiated recovery proceedings against the respondent No.4 and other employees. The property of the respondent No.4 was attached to recover the funds misappropriated by him, besides initiating criminal proceedings. The petitioners contend that they are in the process of recovery of the remaining misappropriated amount by following the due process of law. 4. When things stood thus, proceedings under Section 29-C of the Act, 1959, was initiated against the petitioners on the premise that there were lapses on the part of the petitioners in recovering the misappropriated funds from the respondent No.4. After a detailed enquiry, proceedings under - 6 - HC-KAR NC: 2025:KHC:33903 WP No. 27142 of 2024 Section 29-C of the Act, 1959, were dropped, wherein it was mentioned that the petitioners were in no way concerned with the illegal acts committed by the respondent No.4. The petitioners contend that they were discharging their duties in strict compliance with the directions issued by the respondent No.2 and were also taking all required steps to recover the misappropriated funds from the respondent No.4. In that regard, they initiated proceedings under Section 70 of the Act, 1959 and got 18 valuable properties attached, which was sufficient enough to realise the funds misappropriated. 5. The respondent No.4 filed WP No.17715/2023 without impleading the petitioners and secured a direction against the Deputy Registrar Co-operative Societies (henceforth referred to as ‘DRCS’ for short) to implement the orders passed under Section 68 of the Act, 1959. The DRCS by order dated 12.09.2024, issued a notice to the Chief Executive Officer of the society compelling him to enforce the orders passed under Section 68 of the Act, 1959 and also directed initiation of proceedings under Section 69 of the Act, 1959 and under Section 29-C of the Act, 1959, though proceedings under Section 29-C of the Act, 1959, was already initiated and - 7 - HC-KAR NC: 2025:KHC:33903 WP No. 27142 of 2024 dropped. The petitioners therefore being aggrieved by the directions issued by the respondent No.2 dated 28.02.2017 and dated 12.09.2024 have filed this petition. 6. The learned counsel for the petitioners contended that the petitioners being the members of the Board of Management, have taken all necessary steps for recovery of the misappropriated amount from the respondent No.4. He contends that the petitioners are not liable for the amount misappropriated by the respondent No.4 and as a responsible Board of Management, the petitioners are effectively trying to recover the amounts. He pointed to the proceedings initiated by the petitioners under Section 70 of the Act, 1959 as well as the criminal proceedings initiated against the respondent No.4. He contends that the order under Section 64 of the Act, 1959, directs that in case if the amounts cannot be recovered from the respondent No.4, then the members of Board of Management during whose term the respondent No.4 was functioning, should be proceeded against. He contends that such a situation has not arisen, as steps are underway to recover the amount from the respondent No.4. Therefore, he contends that initiation of proceedings against the petitioners - 8 - HC-KAR NC: 2025:KHC:33903 WP No. 27142 of 2024 based on the directions issued by the DRCS is thoroughly unjust, illegal and arbitrary and therefore, the same is liable to be interfered with. 7. Per contra, the respondent No.4 has filed a statement of objections admitting that he was an employee of the respondent No.3 - bank and worked as a supervisor at the silk exchange branch between 2007 and 2015. He also admitted that an enquiry under Section 64 of the Act, 1959 was conducted and an order under Section 68 of the Act, 1959 was passed by the respondent No.2, following which the respondent No.3 placed him under suspension. After the enquiry, he was dismissed from service, which he has questioned before respondent No.2. 8. He contends that when he was working as the supervisor at the silk exchange branch, the transactions in the branch were not computerized. Therefore, it was alleged that the respondent No.4 had misappropriated Rs.11.47 crores. The respondent No.2 on a report of the respondent No.3 had ordered for an enquiry under Section 64 of the Act, 1959 to find out the truth and also passed an order dated 25.06.2015 - 9 - HC-KAR NC: 2025:KHC:33903 WP No. 27142 of 2024 extending the time for completing the process of enquiry. However, the enquiry officer who conducted the enquiry submitted his report. He contended that the enquiry officer reported that charge No.1 was proved against the respondent No.4 and other employees. Similarly, charge Nos. 5, 6, 9, 10, 11 and 12 were also held to be proved and the liability was fixed upon the Chief Executive Officer as well as the Board of Management and it was held that they were responsible and liable for the omissions and commissions, which took place at the relevant point in time. Based on the report, the respondent No.2 passed an order under Section 68 of the Act, 1959, with direction to respondent No.3 to take necessary steps, in the form of civil and criminal action against the employees/Chief Executive Officer and also the Board of Management of the respondent No.3. 9. He contends that the respondent No.3 was required to take steps against the employees as well as the CEO and the Board of Directors and it was incumbent upon the respondent No.3 to comply with the said directions and to report the same to the respondent No.2. He claimed that the respondent No.3 initiated civil and criminal action only against him and four - 10 - HC-KAR NC: 2025:KHC:33903 WP No. 27142 of 2024 other employees of the respondent No.3 and also the Chief Executive Officer and President of the Primary Agricultural Co- operative Society by raising a dispute under Section 70 of the Act, 1959, to recover Rs.11,47,60,000/-. The said dispute was filed before the respondent No.2, but the Board of Directors as well as the Chief Executive Officer were not made parties. The respondent No.4 therefore contends that the respondent No.3 selectively proceeded against the respondent No.4 and other employees to protect the members of the Board of Management and the Chief Executive Officer. 10. (i) He contends that the respondent No.4 did not lodge a complaint with the police against the Board of Directors and Chief Executive Officer, who had worked at the relevant point of time, but lodged a complaint only against the respondent No.4 and other employees. He therefore contends that the measures taken to comply of Section 68 of the Act, 1959 is discriminatory and based on the whims and fancies of the respondent No.3. He contends that the report of the enquiry officer under Section 64 of the Act, 1959, specifically observed that the Board of Management had failed to supervise its activities properly as per Section 28-C of the Act, 1959. He - 11 - HC-KAR NC: 2025:KHC:33903 WP No. 27142 of 2024 contends that therefore the Chief Executive Officer of the respondent No.3 had to be discharged in view of Section 29-G of the Act, 1959. (ii) He also claimed that proceedings initiated against the Board of Directors under Section 29-C of Act, 1959 was dropped illegally, as it was they who were responsible. He therefore contends that he made a representation to the respondents to take necessary action against the Chief Executive Officer as well as the Board of Directors by his representation dated 08.11.2022. He contends that since the authorities did not take any action, he was forced to file WP No.17715/2023, which allowed the writ petition and directed the respondent Nos.2 and 3 to take appropriate decision on the representation filed by him. He contends that in view of the order passed by this Court, the respondent No.2 has passed the impugned order. (iii) The learned Additional Government Advocate for the respondent Nos.1 and 2 submitted that the respondent No.2 had taken out proceedings against the petitioners in view of the direction issued by this Court in WP No.17715/2023. The - 12 - HC-KAR NC: 2025:KHC:33903 WP No. 27142 of 2024 learned counsel for respondent No.4 reiterated the above contentions and submitted that the petitioners are equally liable and therefore, the respondent No.2 was justified and taken out proceedings against the petitioners. 11. I have considered the submissions of the learned counsel for the petitioners and the learned Additional Government Advocate for the respondent Nos.1 and 2 and the learned counsel for the respondent No.4. 12. The report of the enquiry under Section 64 of the Act, 1959, specifically indicted the respondent No.4 and other employees of misappropriating the funds of the society and therefore directed suitable action against the respondent No.4 and other employees to recover it from the respondent No.4 and other employees. The order under Section 68 of the Act, 1959 also reiterates the above and it is held that in the event of failure to recover from the respondent No.4, the petitioners would be liable to make good the misappropriation done by the respondent No.4. It appears that the petitioners have taken out steps against respondent No.4 by getting the properties of the respondent No.4 attached and also taking out civil and criminal - 13 - HC-KAR NC: 2025:KHC:33903 WP No. 27142 of 2024 action against him to recover the amounts misappropriated. The respondent No.4 with a guile intent to rope in the petitioners, filed a representation stating that the petitioners, who were the managing committee members at the relevant point of time, were also liable to be proceeded against. It was a classic case of the pot calling the kettle black. The respondent No.4 without arraying the petitioners herein, filed WP No.17715/2023, innocuously praying for a writ in the nature of mandamus to consider his representation. This Court directed the respondent No.2 to consider the representation in accordance with law. The respondent No.2 was oblivious of the enquiry under Sections 64 and 68 of the Act, 1959, casually issued the impugned directions imposing liability on the petitioners. No doubt, when the acts of misappropriation were committed by the respondent No.4, the petitioners constituted the Board of Management, which was assisted by the Chief Executive Officer. For such acts of misappropriation, the Board of Management, which was negligent in not ensuring the protection of the funds of the society, would be liable in the event of failure to recover the misappropriated money from the respondent No.4. However, when the petitioners have taken all - 14 - HC-KAR NC: 2025:KHC:33903 WP No. 27142 of 2024 necessary steps to recover the misappropriated money from the respondent No.4, the respondent No.2 could not have overreached the steps taken by the petitioners by issuing the impugned directions and imposing liability on the petitioners. 13. In that view of the matter, this petition deserves to be allowed. If the entire misappropriated amount cannot be recovered from the respondent No.4 as per the report under Section 68 of the Act, 1959, liberty is reserved to the respondent No.2 to recover any shortfall from the petitioners.. 14. Hence, the following order is passed: ORDER i. The writ petition is allowed-in-part. ii. The impugned proceedings No.JRB/Kalam 64/Dhooru/06/2015-16, dated 12.09.2024 at Annexure-G is quashed. iii. It is however open for the respondent No.2 to recover any shortfall from the petitioners if the entire misappropriated amount is not recovered by the petitioners diligently from the respondent - 15 - HC-KAR NC: 2025:KHC:33903 WP No. 27142 of 2024 No.4, as per the report under Section 68 of the Act, 1959. The petitioners shall endeavour to recover the amount misappropriated within one year from the date of receipt of a copy of this order, failing which liberty is reserved to respondent No.2 to move this petition again for passing appropriate orders. Sd/- (R. NATARAJ) JUDGE BKN List No.: 1 Sl No.: 25