Surcharge Proceedings Under AP Cooperative Societies Act Not Applicable To District Bank Employees For Lapses In Primary Societies: Andhra Pradesh High Court

"In view of the specific language of Section 60, Surcharge proceedings, under this provision, can be initiated, only against past or present employees or persons who had been entrusted with the affairs of the society. Surcharge proceedings cannot be initiated against any person, other than those enumerated in Section 60 of the Act." Andhra Pradesh High Court, in a significant ruling, held that surcharge proceedings under Section 60 of the Andhra Pradesh Co-operative Societies Act, 1964, cannot be initiated against employees of a District Cooperative Central Bank for irregularities found in affiliated Primary Agricultural Cooperative Societies.

A bench comprising Chief Justice Dhiraj Singh Thakur and Justice R. Raghunandan Rao observed that such proceedings are strictly limited to those past or present officers, servants, or managers specifically entrusted with the affairs of the society subjected to the inquiry.

The appellants, employees of the Guntur District Cooperative Central Bank (District Bank), were deputed to oversee loan disbursements by affiliated Primary Agricultural Cooperative Societies (PACS). Following reports of fake loans and financial irregularities in these Primary Societies, an inquiry was initiated under Section 51 of the AP Co-operative Societies Act. The Inquiry Officer recommended civil, criminal, and disciplinary action against both the Primary Societies' staff and the District Bank employees for failing to conduct proper field inspections and identity verifications.

The primary question before the court was whether an inquiry under Section 51 of the Act could examine the conduct of non-employees and whether surcharge proceedings under Section 60 could be extended to employees of the District Bank who were not members or staff of the concerned Primary Societies.

Scope of Inquiry Under Section 51

Registrar Empowered To Conduct General Inquiry Into Society Affairs

The Court first addressed the scope of Section 51 of the Act, which empowers the Registrar to hold an inquiry into the constitution, working, and financial condition of a society. The bench noted that the language of this section is broad and focuses on the "affairs of the society" rather than the specific individuals involved.

Inquiry Not Restricted To Members Or Employees Only

The Court observed that such an inquiry might reveal that the actions of non-employees or non-members have adversely affected the society's working. The bench held that the Registrar has the discretion to order an inquiry into the affairs of a society based on information received, and this inquiry can lawfully examine the role of outsiders.

"The general language, in which Section 51 of the Act is couched, makes it clear that the inquiry is into the affairs of the society. It may be that such an inquiry may reveal that actions of non employees or non members may have affected the working of the society."

Limitations of Surcharge Under Section 60

Surcharge Proceedings Are Restricted To Specific Classes Of Persons

While the inquiry under Section 51 is wide-ranging, the Court highlighted that the consequential surcharge proceedings under Section 60 are significantly more restrictive. Section 60 allows for the recovery of money only from persons "entrusted with the organisation, affairs or management" or "past or present officer or servant" of the specific society.

District Bank Employees Are Not Servants Of Primary Societies

The bench found that the appellants were employees of the District Bank and not the Primary Societies whose affairs were under investigation. The Court noted that no material was placed to show that these appellants were entrusted with the management or organization of the Primary Societies themselves.

"In the present case, the appellants are either past or present officers or servants of the primary societies... The appellants in the present case are employees of the District Bank. They are not employees of the primary society, whose affairs were subjected to an inquiry."

Affirmation Of Precedent In K. Satyanarayana Case

The Court relied upon and affirmed the view taken by the erstwhile High Court of Andhra Pradesh in K. Satyanarayana and Ors. v. A.P. Co-operative Tribunal. That judgment established that employees of one cooperative society involved in loan disbursements for another society cannot be subjected to surcharge proceedings under Section 60.

"We would affirm the said view... employees of one cooperative society who may have been involved in the disbursement of the loans, of another society, cannot be subjected to the surcharge proceedings under Section 60 of the Act."

Permissibility of Other Legal Actions

Disciplinary and Criminal Proceedings Not Barred

Although the Court quashed the surcharge proceedings, it clarified that the authorities are not precluded from initiating disciplinary or criminal actions based on the information revealed in the inquiry report. The bench emphasized that a Section 51 inquiry report is not a "settled finding of fact" but serves as a basis for further proceedings.

Inquiry Report Serves As Informational Basis For Action

The Court noted that if an inquiry reveals that the actions of outsiders have been harmful to the interest of the society, authorities can proceed with disciplinary or criminal measures. The appellants maintain the right to rebut any allegations made against them in those specific forums.

"It would only be that the authorities, on the basis of the information available in the inquiry report, can take action, either in disciplinary proceedings or in criminal proceedings. Neither this order nor the judgment of the learned single Judge, shall be treated as any finding of fact."

The High Court partly allowed the writ appeals, restraining the respondents from taking further steps under Section 60 of the Act against the District Bank employees. However, the Court reserved liberty for the authorities to initiate disciplinary or criminal proceedings as deemed fit, leaving all questions of fact open for adjudication in those proceedings.

Date of Decision: 23 April 2026