AI Drafter 
TaxTMI 
TaxTMI 
2021 (11) TMI 1203
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.... 806 of 2019, dated 19th July 2019, registered with Pimpri Police Station for the offences punishable under sections 420, 406, 409, 465, 467, 468 and 471 read with 34 of the Indian Penal Code, 1860 ('Penal Code') at the instance of the respondent No. 2-the first informant. 2. The background facts necessary for determination of these petitions can be stated as under:- (a) The petitioner No. 1-Amarjeetsingh Basi in Criminal Writ Petition No. 4134 of 2019, is the Chief Executive Officer of Seva Vikas Co-operative Bank, which is a society registered under the Maharashtra Co-operative Societies Act, 1960 ('The Act, 1960'). The petitioner No. 2-Amar S. Mulchandani, who was allowed to join as a Co-petitioner by an order passed by this Court on 19th March 2021, is the former Chairman of Seva Vikas Co-operative Bank Limited ("Bank"). Mr. Amar S. Mulchandani and Mr. Chandrashekhar Ahirrao, a former Director of the society, are the petitioner No. 2 and petitioner No. 1, respectively, in Writ Petition No. 1110 of 2021. (b) Identical reliefs of quashment of FIR No. 806 of 2019 on almost identical grounds have been sought in both the petitions. Thus, it may b....
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...., the mistake was committed in the process of uploading of the order and, therefore, the registry was directed to ensure that the uploaded version was duly corrected in accordance with the order signed by the Court. The petitioners assert that the respondent No. 1 and its officers, including the Registrar, Co-operative Societies and Mr. Jadhawar, the Auditor, were fully aware of the fact that by the interim order dated 16th April 2019, the Division Bench had stayed the effect, operation and implementation of the order dated 14th February 2019 passed by the Registrar, Co-operation. (g) In the meanwhile, FIR Nos. 235 of 2019 and 241 of 2019, were registered at the instance of the Bank with Pimpri Police Station in connection with the loan transactions. On 8th May 2019, the Police Inspector, Pimpri Police Station addressed a communication to the Commissioner, Co-operation, soliciting certain documents. The Commissioner, Cooperation, in turn, requested Mr. Jadhawar, the Auditor, to submit inspection report. On 29th May 2019, the Police Inspector again called upon Mr. Jadhawar, the Auditor to submit inspection report in respect of the accounts which were the subject matter of F....
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....d offences. (k) The petitioners have approached this Court seeking quashment of the above FIR on multiple grounds. First, the entire exercise of ordering a third test audit was tainted with malafide. The appointment of Mr. Jadhawar, who was serving on the establishment of Sugar Commissionerate, was made with an oblique motive. In the face of the interim order passed by this Court in Civil Writ Petition No. 4828 of 2019, dated 16th April 2019, whereby interim relief was granted in the nature of stay of execution, operation and implementation of the order passed by the Registrar, Co-operation, under section 81(3)(c) of the Act, 1960, no further action could have been taken by Mr. Jadhawar. According to the petitioners, the authorities went ahead with the audit despite being fully cognizant of the order dated 16th April 2019. Thus on this ground alone, the FIR, which is based on the inspection report carried out in teeth of the restraint ordered by the Court, deserves to be quashed and set aside. (l) In any event, the initiation of the prosecution at the instance of respondent No. 2-first informant is legally unsustainable being barred by the express statutory provis....
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....cie made out, the investigating agency was enjoined to register the FIR in view of the law laid down by the Supreme Court in the case of Lalita Kumari Vs. Government of Uttar Pradesh & Ors. (2014) 2 SCC 1. Therefore, the instant petition does not deserve to be entertained. The respondent No. 2 has adverted to various acts of omission and commission which prima-facie reveal the complicity of the petitioners. 6. On factual premise, it was denied that the authorities conducted audit despite being aware of the restraint order passed by the Division Bench in Civil Writ Petition No. 4828 of 2019. Adverting to the orders passed by the Division Bench on 16th April 2019, 2nd May 2019 and 13th June 2019, an endeavour was made on behalf of the respondent No. 2 to demonstrate that till 13th June 2019, ad-interim order in terms of prayer clause (b) only i.e., affording opportunity of the personal hearing to the petitioners, was in operation and not the stay to the execution, operation and implementation of the test audit order, dated 14th February 2019 passed by the Commissioner of Co-operation and Registrar, Cooperative Society. 7. On the legal premise, the respondent No. 2 contested the....
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....in FIR No. 806 of 2019 at the instance of respondent No. 2-first informant is in order. The court is not expected to delve into the question as to whether in the facts of the case, the allegations in the FIR make out prima-facie offences. 11. Evidently, the challenge to the initiation and continuation of the prosecution is two fold. One, the authorities could not have proceeded ahead with audit/inspection in view of the interim order passed by this Court in Civil Writ Petition No. 4828 of 2019 on 16th April 2019. Two, the FIR could not have been registered on the basis of the report lodged by the first informant as its substratum was the inspection report furnished by Mr. Jadhawar and nothing else. Resultantly, the interdict contained in section 81(5B) of the Act, 1960 came into play. 12. In the light of the aforesaid nature of the controversy, Mr. Kadam, the learned Senior Counsel for the petitioners would urge that the exercise of inspection carried out in teeth of the order passed by this Court on 16th April 2019 cannot be a basis for initiation of any action whatsoever on the strength thereof. Mr. Kadam would urge that what exacerbated the situation in the case at hand is....
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....e allegations against the petitioners are of grave financial fraud. In the circumstances, the registration of FIR on the basis of the inspection report, which gives a vivid account of the fraudulent activities on the part of the petitioners and co-accused, cannot be faulted at. Placing reliance on the recent pronouncement of the Supreme Court in the case of M/s. Neeharika Infrastructure Pvt. Ltd. Vs. State of Maharashtra & Ors. AIR 2021 SC 1978, Smt. Pai would urge that this is not a fit case to exercise the extraordinary jurisdiction to quash the prosecution. 16. Mr. Kulkarni, the learned counsel for the respondent No. 2-first informant supplemented the submissions of Smt. Pai, the learned Public Prosecutor. A strenuous effort was made by Mr. Kulkarni to draw home the point that the FIR is not based on the audit report. Consequently, neither the provisions contained in section 81(5B) of the Act, 1960 nor the restraint order passed by this Court on 16th April 2019 in Civil Writ Petition No. 4828 of 2019 constituted an impediment in registering the FIR. Mr. Kulkarnisubmitted that the first informant, who had been pursuing the matter of malfeasance and misappropriation, since long....
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....s, thereby directing the Respondent Nos. 3 to afford an opportunity of personal hearing to the Petitioner to satisfy the requisitions/defects/queries, if any, raised by the Respondent No. 3 and be further granted an opportunity to either satisfy the queries or requisitions or to remedy the defects which may be pointed out by the Respondent No. 3 before the Report of the test audit is submitted by Respondent No. 3 Officer." 20. Indisputably, the aforesaid order dated 16th April 2019 came to be corrected by an order dated 13th June 2019. As the controversy revolves around the true import of the order dated 16th April 2019, it may be expedient to extract the speaking to the minutes order dated 13th June 2019, which reads as under: "1 Matter was listed before us today on the basis of an application filed for speaking to minutes of order dated 16th April 2019. It is submitted on behalf of the petitioner that the uploaded order, copy of which he has filed along with the praecipe, indicates Clause (b) at paragraph 4 of the said order. On verification of the order, we find that said Clause (b) has been corrected as Clause (d) at the time of signing of the said order. Consequent....
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.... embark upon a detailed enquiry to ascertain as to whether the authorities were under an erroneous impression. It would be suffice to note that when the petitioner in Civil Writ Petition No. 4828 of 2019 initiated the proceedings for contempt of the order dated 16th April 2019, being Contempt Petition (Stamp) No. 20847 of 2019 in Civil Writ Petition No. 4828 of 2019, the learned Assistant Government Pleader informed the concerned authorities especially Mr. Jadhawar, the Joint Registrar (Audit) that if the report of inspection (which forms the basis of the FIR) is not withdrawn, the Court may issue contempt notice against the respondents, as during the course of hearing of the said contempt petition, the Court expressed an opinion that the inspection report amounted to contempt of the interim order of the Court dated 16th April 2019. 25. It would be contextually relevant to note that on 25th July 2019, the Commissioner, Co-operation and Registrar, Co-operative Societies, addressed a communication, purported to be drafted on 18th July 2019 (the date on which the statement of the first informant was recorded by Police) to the effect that the order of test audit, passed by him on 14....
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...., was not complied with inasmuch as no opportunity of hearing was afforded to the petitioners in Writ Petition No. 4828 of 2019 before the inspection report was furnished to the police. 29. The fact that the inspection report was submitted on 13th June 2019, on the very day the speaking to the minutes of order was passed might be a matter of sheer coincidence. However, in the backdrop of the exchange of correspondence between the authorities under the Act, 1960, the investigating agency and the Government Pleaders, the proximity of time of submission of inspection report to the order of speaking to the minutes is too close for comfort. We do not propose to observe anything more. 30. The submission on the part of the respondents that what Mr. Jadhawar had submitted to the police inspector, EOW, was only an inspection report and not the test audit report, and, therefore, the said report was not in teeth of the interim order, and, resultantly, bar under section 81(5B) of the Act, 1960 did not come into play, now falls for consideration. Evidently, there are two facets to this submission. First, whether the submission is sustained by the facts borne out by the record. Second, whe....
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....the respondents that the auditor had submitted a mere inspection report and it did not amount to test audit report falls through. Since, this Court had stayed the execution, operation and implementation of the order of test audit, and there was no other source of authority to Mr. Jadhawar, the respondents cannot be permitted to wriggle out of the situation by canvassing a submission that it was an inspection report and not the audit report. 34. On the legal premise, as the submissions revolved around the provisions contained in section 81 of the Act, 1960, it may be apposite to note the relevant provisions of section 81:- "81. Audit-- (1) (a) The society shall cause to be audited its accounts at least once in each financial year and also cause it to be completed within a period of four months from the close of financial year to which such accounts relate by auditor or auditing firm from a panel prepared by the Registrar and approved by the State Government or an authority authorised by it in this behalf possessing required qualifications and experience as may be prescribed to be eligible for auditing accounts of societies, appointed by the general body of a soc....
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.... on an application by a society or otherwise, that it is necessary or expedient to re-audit any accounts of the society, the Registrar may by order provide for such re-audit and the provisions of this Act, applicable to audit of accounts of the society shall apply to such re-audit." 35. Sub-section (1) of section 81 casts a duty on the society to cause its accounts to be audited at least once in each financial year by auditor or auditing firm from a panel prepared by the Registrar and approved by the State Government or an authority authorized by it in this behalf. In the event of failure of the society to intimate and file the return as provided by sub-section 2(A) of section 75 and sub-section (1B) of section 79, the first proviso to section 81 empowers the Registrar to cause the accounts of the society to be audited by the auditor from the panel of auditors approved by the State Government or an authority authorised by it in this behalf. Under sub-section (2A) of section 81, the State Government is empowered to direct cost audit or performance audit or both, if it is of opinion that it is necessary in the public interest to have such audit in relation to any society or class ....
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....Registrar, file a First Information Report of the offence. The Auditor who fails to file First Information Report, shall be liable for disqualification and his name shall be liable to be removed from the panel of auditors and he shall also be liable to any other action as the Registrar may think fit. Provided further that, when it is brought to be notice of the Registrar that, the Auditor has failed to initiate action as specified above, the Registrar shall cause a First Information Report to be filed by a person authorised by him that behalf; Provided also that, on conclusion of his audit, if the auditor finds that there are apparent instances of financial irregularities resulting into losses to the society caused by any member of the committee or officers of the society or by any other person, then he shall prepare a Special Report and submit the same to the Registrar along with his audit report. Failure to file such Special Report, would amount to negligence in the duties in the duties of the auditor and he shall be liable for disqualification for appointment as an auditor of any other action, as the Registrar may think fit." 39. The action on audit report i....
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....d to be initiated in the manner ordained by law, Mr. Kadam, banked upon the oft-quoted judgment of the Privy Council in the case of Nazir Ahmad and the King-Emperor AIR 1936 PC 253 (2), wherein it was enunciated that 'the rule which applies is a different and not less well recognised rule, namely, that where a power is given to do a certain thing in a certain way the thing must be done in that way or not at all. Other methods of performance are necessarily forbidden'. 43. The aforesaid pronouncement was followed with approval by the Supreme Court in the case of State of Uttar Pradesh Vs. Singhara Singh and Ors. AIR 1964 SC 358. In the said case, the conviction was based on the confession recorded by the Magistrate, who was not empowered to record the confession. Adverting to the rule adopted in Taylor Vs. Taylor (1875) 1 Ch. D. 426, 431 and the judgment in the case of Nazir Ahmad (Supra), the Supreme Court expounded the legal position as under: "7 In Nazir Ahmed's case, the Judicial Committee observed that the principle applied in Taylor v. Taylor to a Court, namely, that where a power is given to do a certain thing in a certain way, the thing must be done i....
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....uade ourselves to accede to this submission for the reasons which we have noted above. At the cost of repetition, it must be noted that the source of authority of Mr. Jadhawar was the order passed by the Commissioner, Cooperation and Registrar, Cooperative Societies to conduct test audit under section 81(3)(c) of the Act, 1960. The authorities were thus not free to circumvent the statutory prescription in an indirect manner by furnishing a document, with a nomenclature, "inspection report", and initiate the prosecution on the strength thereof. The said course of action is clearly in teeth of the rule that where a power is given to do a certain thing in a certain way the thing must be done in that way or not at all. 45. It is pertinent to note that, here the deviation is in two ways. One, the authority empowered to lodge the FIR namely the auditor or any other officer authorised by the Registrar, has not lodged the FIR. Two, the method of initiation of the prosecution. A special report is required to be submitted by the auditor and thereupon the Registrar has to grant permission to lodge the report. A document titled "inspection report" cannot be a substitute for the statutorily ....
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.....odt writing" will have to be read by applying the principles of reading down. 19. Thus, what emerges from the above discussion is that under Section 81 (5-B) of the Act, 1960, the auditor shall submit his audit report within a period of one month from its completion and in any case before issuance of notice of annual general body meeting, presenting the true and fair view of the financial transaction of the society and where he comes to a conclusion that any person is guilty of any offence relating to accounts or any other offences, he shall file a specific report to the Registrar within a period of 15 days from the date of submission of audit report and shall after written permission of the Registrar, file a First Information Report. On failure to do so, shall be liable for any action as the Registrar may think fit, including disqualification and removal from panel of auditors. Furthermore, when it is brought to the notice of the Registrar such failure on the part of the auditor, the Registrar shall cause a First Information Report to be filed by a person authorised by him in that behalf." 47. In the said case also, a submission was sought to be canvassed, like the ca....
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.... recorded by the auditor. However, where the allegations of commission of the offences are solely based on the audit conducted under section 81 of the Act, 1960, then the peremptory procedure prescribed in sub-section (5B) of section 81 is required to be scrupulously followed. Since the FIR in question is based on the report of the auditor appointed under section 81(3)(c) of the Act, 1960, it is not open for the respondents to fall back on the general proposition that anybody can set the criminal law in motion and the police are duty-bound to register the FIR de-hors the statutory prescription. 51. The conspectus of the aforesaid consideration is that the initiation of the prosecution is legally unsustainable on both the counts. One, the inspection report being an outcome of the audit, which was stayed by this Court by order dated 16th April 2019. Two, the first information report is registered in contravention of the provisions contained in sub-section (5B) of section 81 of the Act, 1960. The situation is clearly covered by the proposition contained in clause 6 of paragraph 102 of the judgment in the case of State of Haryana & Ors. Vs. Bhajan Lal and Ors. (Supra). "(6)....