Inquiries Under Section 83 & 88 Of - PuneICAIpuneicai.org/wp-content/uploads/2015/03/R88.pdf · Inquiries Under Section 83 & 88 ... conducted The MCS Act 1960 and ... being primarily

Inquiries Under Section 83 & 88 Inquiries Under Section 83 & 88 Inquiries Under Section 83 & 88 Inquiries Under Section 83 & 88

Of Of Of Of

The Maharashtra CoThe Maharashtra CoThe Maharashtra CoThe Maharashtra Co----operative Societies Act 1961operative Societies Act 1961operative Societies Act 1961operative Societies Act 1961

BY CA. B. B. MANE

132 Certificate Course in Audit of Co-op Banks & Societies

B. B. Mane & CoB. B. Mane & CoB. B. Mane & CoB. B. Mane & Co., Chartered Accountants Ph. (020) 2687 3684 (M) 9422308272

11

Sections and Rules under which Inquires areSections and Rules under which Inquires areconducted The MCS Act 1960 and conducted The MCS Act 1960 and The MCS Rules1961The MCS Rules1961

1. Section 83 Inquiry by Registrar –

2. Rule 71 Procedure and principles for the conduct inquiry and inspection-

3. Section 88 Power of Registrar to Assess damages 3. Section 88 Power of Registrar to Assess damages against delinquent promoters, etc.

4. Rule 72 Procedure for assessing damages against delinquent promoters etc. under section 88

B. B. Mane & Co., Chartered Accountants Ph. (020) 2687 3684 (M) 9422308272

22

Nature of Inquiry under Section 83Nature of Inquiry under Section 83

� An enquiry is of the constitution, working and financial conditions of Society

� Sec 83 inquiry may be order by registrar on his own motion and should be ordered on the application of one-third members of society.on the application of one-third members of society.

� It is administrative nature inquiry of society and not individuals. Tirath Singh v Poona Contractors Co-op Bank 1970CTD 278-B

B. B. Mane & Co., Chartered Accountants Ph. (020) 2687 3684 (M) 9422308272

33

Who can conduct inquiry Who can conduct inquiry U/s 88 & 83 of MSC Act 1960U/s 88 & 83 of MSC Act 1960

a) Registrar himself; or

b) Person authorized by him.


44

Qualification of authorized officer (Inquiry Qualification of authorized officer (Inquiry Officer) circular No. ADM/184(Su) Dt. 2Officer) circular No. ADM/184(Su) Dt. 2--1212--1963.1963.

i. He should be held an post not lower in rank that isDistrict Dy Registrar, Dy Collector, or Civil Judge

ii. If above persons are not available than the person tobe selected should possess legal qualification andbackground, which will help him to take judiciousbackground, which will help him to take judiciousview.

iii. The character, moral background and reputationshould indicate capacity to give judgment withoutfear or favour.


55

Basis Basis on which Registrar can order on which Registrar can order inquiry U/s 88 of MCS Act1960inquiry U/s 88 of MCS Act1960

a. Auditor’s report; or

b. An authorized person’s inquiry report U/s 83; or

c. An authorized person’s inspection report U/s84; or

d. Liquidator’s report U/s 105; or

e. Otherwise, i.e. any other departmental report; or anyother information which registrar may have in

possession.


66

RegistrarRegistrar should satisfy on the basis of report, should satisfy on the basis of report, that any that any

persons who has taken part in thepersons who has taken part in the

1) Organization; or

2) Management or

3) Winding up; of society

and who have taken such part, within period of 5 years prior tocommencement of audit or inquiry, inspection, winding up ofsociety; (such person may be deceased / past / present officer ofsociety)

Such persons should have

a)Misapplied ora)Misapplied or

b)Retained or

c)He has became liable or accountable fori. Any money; orii. Property;and such person has been guilty of� Misfeasance;or� Breach of trust;in relation to Society


77

Procedure to be adopted while conducting enquiriesProcedure to be adopted while conducting enquiriesA. Enquiry Procedure most of the time is prescribed

by the statute under which enquiry is ordered.

B. Enquiry officer has to follow stringent tests laiddown by Evidence Act, to accept any material asevidence.

C. Enquiry officer more particularly in case of Quasi-Judicial inquiry will have to work as a Court and herequires to give reasonable opportunity to proveJudicial inquiry will have to work as a Court and herequires to give reasonable opportunity to provethe persons his/her/its point of view against whoseenquiry has ordered.

D. Inquiry order some time has to be pronounced.

E. Inquiry officer need to act in different role asinvestigator, judge, expert and pleader whileconducting inquiryB. B. Mane & CoB. B. Mane & CoB. B. Mane & CoB. B. Mane & Co., Chartered Accountants Ph. (020) 2687 3684 (M) 9422308272

88

Procedure to be adopted while conducting enquiriesProcedure to be adopted while conducting enquiries

F. There is no standard format of enquiry report,however one needs to cover following points

i. Procedure adopted while conducting enquiry

ii. Reasons to frame opinion in respect offraming of charges sheet or to carry any actlike enquiring any person or investigatingactivity and its relevance.activity and its relevance.

iii. Inquiry officer also required to state in briefwhy particular procedure has been adopted toconduct enquiry.

iv. Inquiry officer needs to maintain diary, whichwill establishes how evidence has beencollected and which chronological order hasfollowed by Inquiry officer.


9 9

Procedure to be adopted while Procedure to be adopted while conducting conducting inquiriesinquiries

v. Even inquiry officer needs to give reasons, if anyperson who has named in inquiry order and ifinquiry officer is of opinion that such person’sname to be excluded from inquiry.

vi. Inquiry officer should analysis arguments ofattorneys and advocates and give reasoning foracceptance or non acceptance of arguments.acceptance or non acceptance of arguments.

vii. Inquiry officer should take precaution to obtainproper power of attorney from authorizedrepresentative, advocates, CharteredAccountants those who are appearing beforeInquiry officer


1010

Negligence by itself does not constitute misconduct. However,

gross negligence in the performance of duties is misconduct

even though it may not involve mens rea.

Recording of Statement of Witnesses: The Enquiry officer

need not record the evidence of the witnesses as in regular

courts, Sukh Dev Viswanth Berge Vs. Food Corporation of

India., 1989 (2) LLJ 277 (Bom).

The Rules of making of a memorandum of the substance ofThe Rules of making of a memorandum of the substance of

what the witness deposes and such memorandum shall be

written and signed. However it is advisable to record in detail

the statement of witnesses examined before the enquiry officer

to avoid accusation of bias, malafides.

The General principal of Law of Burden of proof is basic

principal which an enquiry officer has to follow.


1111

MISFESANCE

� Improper performance of some lawful Act, “In other

words it means misconduct, delinquency and breach of

duty resulting loss to the Institution”

(Delinquency means neglect of duty or wrong doing or

misdeed)

LOSSES

� Proceeding Under Section 88 have to be ordered when

losses are actually incurred by a Society and not onlosses are actually incurred by a Society and not on

losses may occur depending on some future events.

Losses to society must be direct one and not remote

one.

BREACH OF TRUST

� Violation or non-performance of duty imposed by lawon a person standing in a fiduciary relation to another.B. B. Mane & CoB. B. Mane & CoB. B. Mane & CoB. B. Mane & Co., Chartered Accountants Ph. (020) 2687 3684 (M) 9422308272

1212

KumariKumari JethiJethi T. T. SipahimalaniSipahimalani vsvs The Maharashtra State .. The Maharashtra State ..

(1974) 76 BOMLR 179(1974) 76 BOMLR 179

� Section 88 can be invoked by the Registrar only when he

comes to the conclusion prima facie that the personsconcerned with the management or organisation of thesociety had "misapplied or retained, or become liable oraccountable for, any money or property of the society or hasbeen guilty of misfeasance or breach of trust in relation to thebeen guilty of misfeasance or breach of trust in relation to thesociety" and every such person, who according to theRegistrar is liable, should contribute such sum to the Societyby way of compensation in regard to the appropriation, orretention or misfeasance or breach of trust. Having regard tothe General Body Resolutions passed in the present case inexercise of its plenary powers under Section 72, the Registrarhad no power to come to such a conclusion.

13

B. B. Mane & Co., B. B. Mane & Co., B. B. Mane & Co., B. B. Mane & Co., Chartered Accountants Ph. (020) 2687 3684 (M) 9422308272

Misfeasance & Negligence case LawMisfeasance & Negligence case Law� It appears to us that the Tribunal was completely wrong in

not examining the profitability and/or advisability of thetransaction of October 3, 1951 and arriving at its findingregarding negligence and misfeasance of the petitioner.Without examining first these questions the Tribunal shouldnot have proceeded to hold that the petitioner was guilty ofmisfeasance. Gangadhar Dattatraya Sule vs The C.K.P.Co-Operative Credit ... AIR 1973 Bom 186, (1972) 74Co-Operative Credit ... AIR 1973 Bom 186, (1972) 74BOMLR 814

14

B. B. Mane & Co., B. B. Mane & Co., B. B. Mane & Co., B. B. Mane & Co., Chartered Accountants Ph. (020) 2687 3684 (M) 9422308272

14

MISAPPLICATION

� Using the money of the society in a manner notwarranted by the law or rules made under the Actor by the bye-laws of the society.

RETENTION

� Retention is an act of retaining or withholding orkeeping for oneself. In such a case the propertymay not be misapplied but it is kept by the personfor his own use in his own custody unlawfully.

REASONABLE OPPORTUNITY

Reasonable opportunity implied: -

1) One is person against whom the charges are leveledshould be informed about the details of charges.

2) Reasonable time is given to him to put forth his say aboutthe charges leveled against him for submitting hisexplanation against charges. “The reasonable opportunitymeans real and adequate opportunity.”


15 15

Misapplication & Breach of Trust Case lawMisapplication & Breach of Trust Case law

� It could not be said that honorarium paid was misapplicationwhen it was granted by the General Body in exercise of itspowers. It could not also be said that it was retained illegallyby petitioner No. 6 or any one else, or any of them hadbecome liable or accountable for any money or property ofthe society or has been guilty of misfeasance or breach oftrust in relation to the society. The Registrar could not have,trust in relation to the society. The Registrar could not have,therefore, directed the enquiry under Section 88. In the factsand circumstances of this case, the Inquiry Officer could nothave framed any charges in this case. Kumari Jethi T.Sipahimalani vs The Maharashtra State (1974) 76BOMLR 179

16

B. Mane & CoB. Mane & CoB. Mane & CoB. Mane & Co., Chartered Accountants Ph. (020) 2687 3684 (M) 9422308272

KisanlalKisanlal S/O S/O DagdulalDagdulal RathiRathi vsvsThe State Of Maharashtra The State Of Maharashtra CRIMINAL WRIT PETITION NO. 922 OF 2008CRIMINAL WRIT PETITION NO. 922 OF 2008

�There cannot be two opinion about the legal proposition thatwhen the FIR does not indicate any material about complicityof the petitioners, then the same may be quashed in theexercise of writ jurisdiction under Article 227 of theConstitution. The civil dispute cannot be ordinarily allowed tobe converted into criminal action. At the same time, it is wellsettled that if on same set of facts, civil wrong as well assettled that if on same set of facts, civil wrong as well ascriminal wrong is shown to have been committed, then themere existence of civil remedy is not a ground for quashing theFIR.

. B. Mane & Co. B. Mane & Co. B. Mane & Co. B. Mane & Co., Chartered Accountants Ph. (020) 2687 3684 (M) 9422308272

17

KisanlalKisanlal S/O S/O DagdulalDagdulal RathiRathi vsvsThe State Of Maharashtra The State Of Maharashtra CRIMINAL WRIT PETITION NO. 922 OF 2008CRIMINAL WRIT PETITION NO. 922 OF 2008

� For the reasons stated hereinabove, I am of the opinion that there is some material, which may not be sufficient enough to immediately reach conclusion of the guilt, but has some potentiality to indicate connivance of the petitioners with the Directors and officials of the CPCO Bank for creating the loan documents with oblique intention to misappropriate the amounts. It cannot be overlooked that the financial bunglings of the concerned Directors, officials and such borrowers have of the concerned Directors, officials and such borrowers have ultimately brought severe financial crisis to the discredit of the CPCO Bank. Considering these aspects, I do not find any substantial reason to interfere with the FIRs at the premature stage.


18

Case Laws of FIRCase Laws of FIR�In "R. Kalyani v. Janak C. Mehta and others" (2009) 1 SCC 516,the Apex Court held that where the allegations do not showthat the property was entrusted with the appellant orotherwise had dominion over it, or any criminal breach of trustwas committed, the quashing of the FIR would be proper andneed not be interfered with.

�In "Mahesh Chaudhary v. State of Rajasthan and another"(2009) 4 SCC 439, the Apex Court held that ( 28 ) dispute(2009) 4 SCC 439, the Apex Court held that ( 28 ) disputebeing primarily of a civil nature by itself is not a ground toquash the proceedings because in cases of forgery and fraud,there would always be some element of civil nature. Theevidence pertaining to charge of conspiracy is yet to becollected.

19


Charge sheet should include following Charge sheet should include following things:things: --

�Details of charges leveled.

�Specific allegations against each of the individual,

one who has charge-sheeted.one who has charge-sheeted.

�How misfeasance or nonfeasance has led to a loss.

�The amount of loss should clearly indicated.


20 20

List of Documents and Records to be List of Documents and Records to be maintained by Inquiry Officermaintained by Inquiry Officer

1. Copy of Order of Appointment of inquiry officer,

2. Copy appointment acceptance/rejection letter,

3. Copy of summons issued to principal officer,

4. Working papers of prima-facie Inquiry,

5. Any other Inquiry report or Special audit report,5. Any other Inquiry report or Special audit report,audit report or liquidator’s report, or inspectionreport or any other report on which basis inquiryhas been institute.

6. List of delinquents along with their address.


2121


7) List of all relatives of decease delinquent who haveinherited property of delinquent.

8) Copies of show cause notices issued to delinquents.

9) Replies received from delinquents to show causenotice.

10) List of delinquents to be prepared and maintained onwhom charges are framed.

11) Copies of charges framed to be maintained.

12) List of witnesses.

13) Replies received from delinquents to charges.


2222


14) Analysis of Arguments of attorneys and advocatesand reasoning of acceptance or non acceptance ofarguments.

15) Relevant laws and other statutory circulars etc.,should be kept in separate file.should be kept in separate file.

16) Notes, noting of important points to be verifiedsubsequently, come across during hearing.

17) Preparation of Enquiry Report


2323

U/s 89 Of MCS ACT 1960U/s 89 Of MCS ACT 1960Power to enforce, attendance etc.,Power to enforce, attendance etc.,

The registrar or the person authorized by him,when acting under section 83, 84 or 88 shall have thepower to summon and enforce the attendance of anyperson 4[and examining him on oath or affirmation orby affidavit] or to compel the production of anyby affidavit] or to compel the production of anydocument or other material object by the same meansand in the same manner as is provided in the case of aCivil Court under the Code of Civil Procedure, 1908.


2424

Elements of fraudElements of fraud

� Common law fraud has nine elements:

1. a representation of an existing fact;

2. its materiality;

3. its falsity;

4. the speaker's knowledge of its falsity;

5. the speaker's intent that it shall be acted upon by thevictim;victim;

6. plaintiff's ignorance of its falsity;

7. plaintiff's reliance on the truth of the representation;

8. victim's right to rely upon it; and

9. consequent damages suffered by victim.


25

25

IngradienceIngradience of Financial Enquiriesof Financial Enquiries

1) One needs to find out who was rightful person who isauthorized to utilize funds and its purpose for which same hasbeen sanctioned.

2) What are duties cast upon the persons or organization who aredealing with funds?

3) In case of Financial enquiry Inquiry officer needs to interpretfinancial records, before accepting any financial records as a partfinancial records, before accepting any financial records as a partof enquiry material and its relevance and creditability to betested.

4) Inquiry officer need to give reasonable opportunity to concernperson to prove or to allow any other interpretation of recordsby record keeper to prove his view.


2626

IngradienceIngradience of Financial Enquiriesof Financial Enquiries

5) Inquiry officer in case of financial enquiry require tounderstand prevalent commercial practice in the country,trade or activity to be enquired.

6) Enquiry reports and/or order in case of financial enquiryneeds to be Judicious.

7) Inquiry officer can accept oral evidence/information butit requires to be passed through or stringent test ofit requires to be passed through or stringent test ofEvidenceAct.


2727

…/…/20..

DRAFT OF SUMMONS USA/INQ./1/20..-20..

To

The Principal Officer

Ref.: - Registrar of Co-operative Societies Order No. 100 / NESS / NEYAMAN / INQUIRY / 88 / 20.., Dated …/…/20…

Sir,

As an Inquiry Officer, appointed by the Registrar of Co-operative Society, Delhi, by his order dated …/…/20… Issuedoperative Society, Delhi, by his order dated …/…/20… IssuedUnder Section 88 of The Maharashtra Co-operative SocietiesAct, 1960, to assess damages and to pronounce final order ofrecovery of damages with interest from delinquent persons.

Whereas your attendance is necessary, you are herebyrequired to produce documents and papers as listed below, andgive information before me on the …day of … 20.. at …:.. am/pmin the forenoon/afternoon at our/ your office. If you are fail tocomply with this order without lawful excuse,


2828

you will be subject to the consequences of non-attendance laiddown in Rule 12 of order XVI of Code of Civil Procedure, 1908.

GIVEN under my hand and the seal of an Enquiry Officer,this … day of …… 20…

SD/-

(U. S. Know)

(Inquiry Officer)

Copy to: - The Inquiry officer appointing authority.Copy to: - The Inquiry officer appointing authority.

Enclosed List of Documents to be produced.

1. Names of directors alongwith present address for theperiod 19..-20..

2. An expenses details of Purchases of lime, Mill SanitationMaterial and advances., etc., stated in above referredorder issued by inquiry officer appointing authority.

3. An audit report alongwith Balance Sheet, Profit & LossAccounts for period as stated above.


2929

TALANT & TACTTALANT & TACT

Talent knows what to do,

Tact knows how to do,

Talent makes man respectable,

Tact makes man acceptable.

Talent is wealth

Tact is ready moneyTact is ready money

“Don’t waste time learning the tricks of trade,

Instead learn the trade.”

“GOOD INQUIRY OFFICER IS ONE, WHO HAS EAGLE’S EYE, LION’S HEART AND HAVE RIGHT

COMBINATION OF TALENT & TACT”


3030


3131