T. Ramaprasada Rao, J.
1. The Directors, the Secretary, the Jewel Appraiser, the Cashier and some of the Clerks of the Bodinaicknur Cardamom and Coffee Planters Co-operative Bank Limited were surcharged under Section 71 of the Tamil Nadu Co-operative Societies Act, 1961, for having mis-managed the affairs of the Bank and for having committed wilful negligence as also breach of trust in relation to the property of the Bank and thereby caused a deficit to the assets of the Bank to the extent of Rs. 1,63,179. The Bank gives loans from and out of its liquid assets to members for certain recognised purposes on the pledge of gold jewels amongst other articles. The by-laws of the Bank, which have been noticed by this Court, vest several responsibilities and obligations on the officers of 'he Bank. We are here concerned with by-law No. 44 which deals with loans on the security of gold jewels and bullion. The usual process by which an application for the grant of a loan on the pledge of a gold jewel is admittedly as follow. An application form is made out to the Secretary. The Secretary passes on the jewel to the Appraiser of the Bank who is obliged Under the by-laws to correctly evaluate the gold content of the jewel and look after the interests of the Bank. Thereafter the member is obliged to go to the jewel loan clerk to find out whether his application has been successfully processed through. The Secretary in turn, after being satisfied personally about the merits of the loan as well as the value of the jewel to be pledged, recommends the loan. It is also common ground that the Appraiser when he values the jewel brings the jewel to the Secretary, weighs the same in the presence of the Secretary and on the strength of the recommendation of the Secretary to sanction the loan the jewel is kept in the custody and control of the Secretary and thereafter customarily in the custody of the Bank. On such a recommendation made by the Secretary, the member approaches the Cashier, receives the cash and thus completes the loan application.... In or about July, 1966 it came to. light that several jewels which were pledged with Bank and on which loans were granted were spurious and an enquiry therefore was set afoot. It was found during the preliminary stages by the Auditor of the Bank that there was misappropriation to the tune of over a lakh under the jewel loan account in the Bank. On a further enquiry under Section 65 of the Act by the Co-operative Sub-Registrar, Periyakulam, it was found that jewels to the face value of Rs. 1,63,179 pledged in respect of 668 loans to the value of Rs. 1,25,522 were not of gold, but were either gold-patted or gold-covered. The deficiency having thus been discovered in the course of an enquiry under Section 65, the enquiry officer was of the view that such a loss was due to the mismanagement and wilful negligence on the part of those normally responsible for the conduct of the affairs of the Bank. This finding prompted the appropriate authority to take action under Section 71 of the Act. A notice under Section 71 was therefore issued to the petitioners in these writ petitions who are occupying one or the other of the posts already mentioned in the service of the Bank and all of them were jointly and severally called upon to make good the loss to the Bank and they were directed to pay interest on such loss. In the enquiry that ensued the Deputy Registrar of Co-operative Societies, in his Older dated 29th March, 1967, found the petitioners jointly and severally responsible and after a full enquiry and mainly basing his assessment of the material and records scrutinised by him apportioned the loss amongst the petitioners. It is not in dispute that all the petitioners were given a full opportunity to state their objections. The Deputy Registrar was of the view that on account of the conjoint mismanagement of the Directors, Secretary, Appraiser, Cashier and the Clerks, the loss has occurred and he therefore directed the petitioners to bear jointly and severally the loss to the tune of Rs. 1,63,179, On appeal by the aggrieved persons, the learned District Judge of Madurai agreed with the man findings of the Deputy Registrar and re-apportioned the liability amongst the alleged delinquent officials of the Bank.
2. I may at this stage state certain important but necessary facts which have a bearing upon the instant case. As soon as the fraud was discovered, the Appraiser who was the primary official to prompt the other officers to accept the security and part with the assets of the Banks was tackled. On 31 st July, 1966 the Appraiser admitted his guilt and undertook to be responsible for making good the loss to the Bank. With this object in view and in order to sustain the fair name of the Appraiser, the Appraiser together with the members of his family, such as his brothers and minor members of the coparcenary, executed sale deeds of properties, one on 1st August, 1966, covering the properties in Kerala State, and the other on 2nd August, 1966, comprising of properties in the State of Tamil Nadu. The Appraiser in the first instance desired that the deeds of sale should be accepted as a sale with a counter obligation on the part of the Bank to reconvey the properties after six years if the loan is otherwise made good. The Board in the first instance agreed to this peculiar request of the Appraiser, but the general body would not agree with the resolution of the Board which was inclined to treat the sale deeds as a conditional sale with a contemporaneous obligation attached thereto to reconvey the properties after six years when once the loan to the Bank has been paid off. I have already referred to the sale deeds which ex facie were not conditional in any sense, but were absolute. The share-holders of the Bank met on 14th August, 1966, accepted the sale deeds and ratified the action of the Board in having taken the sale deeds from the Appraiser and the other members of his family and thus having wiped out completely the monetary liability of the Appraiser towards the Bank in respect of his open mismanagement in the affairs of the Bank. After the general body thus ratified the sale deeds, the Bank, as owners thereto, leased out the pro-perties in favour of third parti's. Whilst this was the position, the Appraiser and the other members of his family, for reasons better known to themselves, sent a notice on 18th April, 1967, challenging the alienations made by him and the members of his family. Whilst this was the position, the Registrar of Co-operative Societies, by his order dated 9th September, 1967, ratified the action of the Bank in having accepted the conveyance of the properties of the Appraiser and the members of his family, situate both in the State of Tamil Nadu and in the State of Kerala. The Bank obviously felt apprehensive of the action of the Appraiser and the members of his family who by then began to go back on the solemn sale deeds executed by them in 1966. The Bank therefore took the precaution of filing regular suit's for possession in the civil Courts both in the State of Tamil Nadu and in the State of Kerala. It is reported that the Bank has taken possession of the properties which are the subject-matter of the sale situate in the State of Tamil Nadu on 28th March, 1972 and the properties in Kerala State also on 19th July, 1972. One noticeable feature in this case is that the Bank, ever since the sale deeds referred to above have been executed, was collecting rents from both the properties in Bodinaicknur in the State of Tamil Nadu and from the properties in the State of Kerala and has been appropriating the same for itself as owners thereof.
3. In the light of the above facts the petitioners have come up to this Court challenging the order of the Co-operative Tribunal. In W.P. Nos. 1740 and 1741 of 1970 the Directors of the Bank are the petitioners. In W.P. No. 2170 of 1970 the Secretary of the Bank, who was for a considerable length of time during 1957 and July 1966 its Secretary, is the petitioner. In W.P. No. 2171 of 1970 the Cashier who was functioning between July, 1961 and July, 1966, during which period the loans were advanced or renewed, is the petitioner. In W.P. No. 2172 of 1970 there are two petitioners ; the 1st petitioner acted as Secretary on different dates during the absence of the permanent Secretary and the 2nd petitioner acted for one day. In W.P. No. 2173 0f 1970 the senior clerk who acted on several dates as the Secretary during the relevant period is the petitioner. And lastly the Appraiser is the petitioner in W.P. No. 3152 of 1970.
4. The first contention of Mr. Venugopal is that under Section 71 of the Act, if any surcharge proceedings are issued under the provisions of that section, the Registrar can make an order requiring the delinquent to repay or restore the money or property or any part thereof with interest at such rate as the Registrar may fix, and all such directions serve the sole purpose of compensating the Bank for the loss occasioned by the misappropriation, misapplication of funds, fraudulent retainer, breach of trust or wilful negligence. It is therefore said that once the Bank has been sufficiently compensated and the loss recompensed by the Bank accepting the sales of immovable properties from the Appraiser, then no further proceedings for recovery of such loss which has already been recovered can be undertaken. In this view it is said that the entire surcharge proceedings which were admittedly initiated after the Appraiser along with his relations sold the properties in this State and in the State of Kerala, is opposed to the spirit of Section 71. This is because the loss suffered by the Bank has already been recovered. The shareholders have, by accepting the sales, wiped off the loss occasioned to the Bank by the alleged wilful negligence of all the petitioners. On the other hand, the learned Government Pleader would say that by such acceptance there is no scope for giving up the statutory process that can be set afoot under Section 71 of the Act, The course of dealings had by all the petitioners with the borrowers makes it clear that each one had a definite part to play in the causing of the loss to the Bank and therefore the delinquency of each has to be adjudged in a statutory enquiry under Section 71. This cannot be avoided on the only ground that one of the delinquents did satisfy the claim and such satisfaction was accepted by the shareholders as well as the Registrar of Co-operative Societies.
5. Under Section 71, the essence of the surcharge proceedings lies in the misappropriation or fraudulent retention of any money or property of the Bank. Further, such acts of delinquency which border on breach of trust should have caused deficiency in the assets of the Bank. The concerted action of the persons concerned, which might be characterised as wilful negligence on their part, should result in a loss to the Bank. It is therefore clear that there should be a provable nexus between the delinquency and the resultant loss to the Bank. The conduct of the person, officer or servant of the Bank should be such that it should lead to the Bank being deprived of its assets. If, therefore, such a link is established between the impugned act and the resultant loss to the Bank, then the Registrar in surcharge proceedings under Section 71 has the power to direct such delinquent person to contribute to the assets of the Bank by way of compensation in respect of such misappropriation, misapplication of funds, fraudulent retention thereof, breach of trust to the affairs of the Bank or wilful negligence on their part. It appears to me, therefore, that once the Bank's assets 1 have been made good by one or more of the delinquents in charge of its affairs and such contributions made by those responsible have been accepted in lieu of the loss sustained by the Bank, then it would be superfluous to undertake an enquiry under Section 71 and surcharge Once over such delinquent persons and direct them to contribute various sums of money towards the assets of the Bank which have depreciated by reason of their guilty acts.
6. The nature and responsibility which the guilty officials of the Bank should suffer is almost the same as that of the Directors and officers of a company under Section 235 of the Companies Act, 1913. Considering the scope of such a liability, Krishnaswami Nayudu, J. in The Kamataka Films Limited v. The Official Receiver, Madras : AIR1952Mad481 , after considering the relevant case law On the question, accepted the well-known principle in Coventry and Dixon's case (1880) 14 Ch.D. 660. In that case the Law Lords said:
This is not a section for punishing a man who has been guilty of misfeasance, but for compensating the company in respect of the loss occasioned by his misfeasance.
In Gopalaswami Gounder v. Krishnaswami Gounder : AIR1941Mad53 , Leach, C.J., dealing with the scope of Section 235 of the Companies Act, said that the section contemplates a loss to the company. Quoting with approval Maugham, J. in In re Etic Ltd. (1928) 1 Ch. D. 861, the learned Chief Justice said:.Breach of duty of course would include a misfeasance or a breach of trust in the stricter sense, and the section will apply to a true case of misapplication of money or property of the company, or a case where there has been retention of money or property which the officer was bound to have paid or returned to the company.
In the instant cafe the Bank accepted the sale deeds executed by the Appraiser and his relations. Undoubtedly the sale deeds were accepted by the Bank and the Bank exercised rights of ownership and possession over such properties which were the subject-matter of sale. It is common ground that large sums of money have been 1ealised by way of rents from the purchased properties and such collection of rents is attributable to the trait of ownership annexed to the Bank when the sale deeds executed by the Appraiser and others were accepted not Only by the Bank in general, but also by the statutory authority, namely, the Registrar himself in particular. Under Section 71, the power of the Registrar to issue surcharge proceedings could be extended only to the extent of covering the loss to the Bank or to build up the void in the deficiency in the assets of the Bank; Once, therefore, the statutory authority, namely, the Registrar himself accepted the sale deeds as in this case by his order dated 9th September, 1967, the very same statutory authority cannot further process the surcharge proceedings for which notice? were issued prior to his approval of the sale deeds and cause his deputy or other authorised officer to contemporaneously hold an enquiry under Section 71 and ultimately issue a surcharge order. This will be exposing the delinquent to double jeopardy. The Bank is not prejudiced. The deficiency in the assets of the Bank has been made good. The money which was wrongfully utilised by acts of omissions and commissions on the part of all the petitioners has been made good. There is therefore no present loss for the Bank eo instant the properties were purchased by the Bank and the consideration for such purchases being the loss or deficiency in the assets of the Bank. I am unable to agree with the learned Government Pleader that such liability contemplated under Section 71 has to be enquired into and found, and it is necessary that the proceedings should go on willy-nilly notwithstanding the admitted fact that there is no loss to the Bank and no deficiency in its assets by accepting the sales made by one of the delinquent officers of the Bank.
7. It is also common ground that the Bank not only formally accepted the sales but acted upon them by leasing out the properties and recovering rents and profits therefrom. When it was threatened by the vendors in such sale deeds that the sales were exacted by compulsion by the officers of the Bank, the Bank in exercise of its rights as owners and absolute proprietors of the properties instituted civil suits for recovering possession of those properties and has since recovered such possession as well under orders of Court. These various acts of the Bank ever since 1966 when the sales were executed till date, positively give the impression that at no time it was thought that the assets of the Bank suffered any deficiency or that any more money of the Bank was recoverable from the delinquent officers or that there was still loss to the Bank which was to be made good by the petitioners, even assuming that all or any of them are responsible for such loss, deficiency, etc. It is the fundamental principle of law that no person shall be condemned twice on the same cause of action. The content of Section 71 of the Act is only reflective of the power of the Bank concerned through the Registrar to demand contribution from the guilty officers of the Bank and thus secure compensation for the loss occasioned by the misfeasance of the officers. Once that loss has been secured and contribution has been made and the money restored and the Bank has been fully compensated, Section 71 can no more be pressed into service ; for the section does not contemplate punitive measure, but its sole and whole intention is purely compensatory in scope
8. The learned District Judge was of the view that as the venders in the sale deeds are questioning the sales it cannot be said that the title of the Bank to the properties is absolute and therefore the surcharge proceedings are not premature.' This would be begging the question., It is not for the Court to say whether the conveyances accepted by the Bank we're sufficient in its mind. The Bank accepted it after obtaining legal opinion. The shareholders unanimously agreed to treat it as a substitute for the loss. The Registrar approved it and there is therefore nothing for this Court or any Co-operative Tribunal to speculate up-in and consider the sufficiency or otherwise of the acts of the Bank. The Co-operative Tribunal would not agree that the surcharge proceedings under Section 71 could not be undertaken only On the ground that there were odd chances of the sales being set aside in further proceedings in a civil Court. It might happen or it might not happen. So long as a person who is to be recompensed, is satisfied and as long as such person accepts alternative property as the equivalent to the loss in money to that person, then it is not for Courts to re-weigh such a subjective satisfaction of the appropriate person and consider on a priori grounds that the deficiency has not been offset. I am therefore of the view that the first contention of Mr. Venugopal has to be upheld. The course of conduct of the Bank as well as the Registrar acting Under' the Act is clear. The properties are now the properties of the Bank. The Bank owned them, owns them and has demonstrated that it is the owner by filing civil actions and securing possession of such properties through a Court of Law. It cannot now resale as it is not possible for it to do so. The Bank therefore cannot have both the properties as well as an order for surcharge against the delinquent officers. That would lead to unjust enrichment. The Co-operative Tribunal therefore erred in its jurisdiction in proceeding further in the matter and considering the quantum of liability or responsibility which could be placed on each of the petitioners in respect of the acts of misfeasance, misconduct and breach of trust Committed by the petitioners either as a whole or individually. The award of the Cooperative Tribunal, therefore, has to be set aside on this preliminary ground alone.
9. If it however becomes necessary to apportion the liability on the foot that proceedings under Section 71 can be initiated notwithstanding the acceptance of sales of properties belonging to one of the delinquent officers, then the argument is that such liability could only be apportioned in proportion to their delinquency and there cannot be a joint and several liability amongst all the petitioners for the simple reason that they were functioning as officers of the Bank in one capacity or other during the period in question. This is the second argument of the learned Counsel for the petitioners. I cannot subscribe to this general contention. If there is material on record to establish' a concerted action on the part of the officers-in-charge and if the proved loss is attributable to such acts of omissions and commissions on the part of the persons in charge of the affairs of the Bank then it would be difficult to hold that such persons acting in unison cannot be held to be jointly and severally responsible for the resultant loss. I have already traced the process adopted by this Bank when it grants loans. By-law 44 (7) which is referred to by the learned District Judge clearly rests a heavy responsibility on the principal officers of the Bank to see that loans on jewels are given after a proper check and verification. By-law 44 (7) (g) enjoins the Directors to verify the pledged jewels as often as necessary and at least once a year. In the nature of things 'verification' is not to be equated to a formal check with reference to books and entries therein; but it obviously means an objective satisfaction by the Board of Directors that gold jewels were pledged with the Bank and that loans were given On such gold jewels and the pledged jewels are intact with the Bank. If, therefore, for a considerable number of years the Directors were formally executing their re possibility by subjectively satisfying themselves about the correctness of events without any objective standards adapted by them to verify the gold content of the jewels, etc., then obviously this is case where they were not only wilfully negligent, but deliberately negligent. A bare report by certain officers deputed by the Board that all jewels have been checked and found correct has now transpired to be a written falsehood. By-law 44 (7) (i) speaks to the preservation of the jewels in the custody of the President and Secretary. But it appears that they were left in the custody of the Secretary, Cashier and Head Clerk. This again shows some oblique purpose in the principal officers of the Bank when they deliberately deviated from the mandates provided in the bylaw. The Secretary of the Bank who is the petitioner in W.P. No. 2170 of 1970, who is one of the principal persons who figures in the entire action resulting in loss to the Bank, has been found by the learned District Judge to be responsible for a prima facie loss to the tune of Rs. 67,723. Whether he should be made jointly responsible for the balance also is a matter to be considered.
10. The petitioners in W.P. No. 3172 of 1970, are two clerks who acted for some time as Secretary. The duties of the Secretary are well described in the by-laws. The 1st petitioner in this writ petition, when he acted as Secretary, recommended loans On spurious jewels to the tune of Rs. 3,020 and the 2nd petitioner to the tune of Rs. 290. In fact, the 2nd petitioner acted only for a day as Secretary. Here again the learned. District Judge found that they are liable to contribute only the above amounts respectively attributed to their misdemeanour. In W.P. No. 2173 of 1970 the Head Clerk who acted as Secretary between 1st July, 1965 to 27th July, 1966 has been found to have recommended under similar circumstances loans on jewels to the tune of Rs. 54,489. The Appraiser who is the petitioner in W.P. No. 3152 of 1970, has been found to be the person solely responsible for the entire loss and he has been asked to make good Rs. 1,25,522 which was the deficiency caused to the Bank.
11. In the light of the by-laws of the Bank the Directors, the permanent Secretary, the Head Clerk who acted as Secretary for a considerable length of time and the Appraiser cannot escape joint responsibility. From the manner! in which loan applications are made and having regard to the recommendations made by the Secretary and the responsibilities fixed on the Directors I am unable to escape the conclusion that all the above four principal officers of the Bank cannot escape joint responsibility besides being severally liable as found by the District Judge. Unless one has understood the misconduct of another in the course of the illegal activity the loss could not have been occasioned. The understanding may be the result of inaction as well. It may savour of wilful negligence resulting in breach of trust. 'Wilful neglect' has been interpreted by' Lord Russel in R. v. Senior (1899) 1 Q.B. 283, as meaning that the act is done deliberately and intentionally and not by accident or inadvertence, but that the mind of the person who does the act goes with it. Expressions alone sometimes cannot determine the magnitude of responsibility or liability with which a person should be inflicted in cases where the concerted action of such per son has resulted in a loss to a public institution. They ought to have been conscious and aware of their responsibility and the measure of supervision which they should have evinced in the course of the discharge of their official duties. If they ignored the same for sometime it might bolder on tolerance. But if they persist in it after having had the means to know the fuller impact of such transactions then it would certainly amount to wilful negligence which tantamounts to breach of trust. The shareholders reposed absolute confidence in the team of officers elected by them and they depend upon their bona fides and perpetual supervision for their safeguard. But if such principal officers, such as the Directors, the permanent or the acting Secretary and the Appraiser, neglect to perform their functions, and so neglect as to give the impression to a reasonable person that they deliberately wanted to commit the Bank to a loss, then they cannot escape responsibility. I, therefore, agree with the learned Government Pleader that this a case in which the Order of the learned District Judge, in so far as it fixes individual responsibility for the reckoned amounts only on the Directors, Secretary, Appraiser and the acting Secretary (Head Clerk) cannot be sustained. While therefore upholding the order of the learned District Judge I modify the same by making the petitioners in W.P. Nos. 1740,1741, 2 170, 2173 and 3152 of 1970, jointly and severally responsible for the total loss of Rs. 1,25,522 caused to the Bank.
12. I sustain the Order of the learned District Judge in so far as the petitioners in W.P. No. 2172 of 1970 are concerned. I am not of the view that these two petitioners who acted as Secretary for a day or a few days could have known or could have had the means to know the fraud committed by the permanent Secretary and other principal officers of the Bank early in the course of years. They casually occupied the post and discharged their responsibilities to the best of their ability. But even then they cannot escape total liability on the ground that they are casual occupants of the office. I therefore sustain the order of the learned District Judge holding them severally responsible for the amounts as indicated by him. The 1st petitioner in W.P. No. 2172 of 1970, is made liable for Rs. 3,020 and not jointly liable for any other amount, and the 2nd petitioner in the same writ petition is made liable for the sum of Rs. 290.
13. Regarding the Cashier I do not think that he can be made liable either jointly or severally for any amount. He was a disbursing officer or a pay officer. He paid out the monies under orders of his superiors. In so far as the disbursement of the money of the Bank is concerned it cannot be said that he misused the same or misappropriated the same with the object of creating loss to the Bank. He disbursed the loans in accordance with the sanctions given by the other principal and superior officers of the Bank. It cannot be said that he was negligent Or much less wilfully negligent or committed breach of trust while discharging his duties as Cashier. I therefore exonerate him fully and set aside the order of the learned District Judge who made the Cashier liable for the entire amount of Rs. 1,25,522 jointly and severally along with the others. W. P. No : 2171 of 1970, is therefore allowed. But there will be no order as to costs.
14. In the light of the observations as above the order of the learned District Judge, who was the Co-operative Tribunal, is modified and orders shall issue accordingly. There will be no order as to costs in all these writ petitions.
15. These petitions having been set down this day 18th September, 1972 for being mentioned on the letter of the Advocate for petitioner in W.P. Nos. 2170 to 2173 of 1970, in the presence of the said Advocates, the Court made the following Order (18th September, 1972) (and the Court however directing that this Order shall be deemed to have been made on 18th August, 1972).
16. These writ petitions have been ported today for being spoken to and there is justification for the same. After hearing parties, the following Order is mad' which shall be deemed to have been made on 18th August, 1972. In the light of the observations as above, W.P. No. 2171 of 1970 is allowed. The other writ petitions are allowed, since I accept the technical object; on raised that a second enquiry under Section 71 of the Co-operative Societies Act is not available as the security offered by the Appraiser has been accepted. But this will not prevent the Department from enforcing the security given by Thiru Natarajan, the petitioner in W.P. No. 3152 of 1970. There will be no order as to costs.