# PENTAKOTA SRIRAKULU v. THE CO-OPERATIVE MARKETING SOCIETY LTD

- **Citation:** [1965] 1 S.C.R. 186
- **Court:** Supreme Court of India
- **Decided:** 1964-08-28
- **Bench:** P. B. Gajendragadkar, J.C. Shah, N. Rajagopala B Ayyangar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/pentakota-srirakulu-v-the-co-operative-marketing-society-ltd-3340
- **Pages:** 9

## Headnote

Co-operative Societies-Moneys earned by alleged illegal transactions-
!tetention by n1en1bers of managen1e11t--Clai111-lf "a dispule touching tile
business of the society"-Whether c/aini could be made-ProceedingJ
whether under s. 51 or s. 49-,~fadra_\· Co~of)e,~ative Societies Act, 1932,
(Mad. 6 of !93Z) ss. 49, 51.
The appellant was the President of a Co-operative Marketing Society
constitu~ed mainly for the purpose oi en~bling its members to obtain credit
facilities and to arrange for the sale of agricultural products at rcasonahle
prices.
On complaints, an enquiry \vas
i1~stiluted into the affairs of the
~ocicty by the Registrar of Co-operative Societies and as a resull, the committee, 1hen in n1a.n.agement of rhe society v1as, after due notice to show
cause and a hearing, superseded by the Registrar.
A special officer was
ctppointcd to take charge of the affairs of' the society and this officer fileJ
a claim before lhe Regi~trar, inter alia, against the appcllanl. The main
uem of the claim was commission stated to have been actually earned by
the society on the sales effected by it of j<iggery belonging to its producermembers but which was not crcditt..~ to the society.
It was alleged lhat
while on paper the transactions entered into betv.·een the members of thr
~iety and the purchasers showed sales :lt the prices fixed by law, in reality,
higher prices were charged.
The society was entitled to charge commission on the sales effected through it.
As regards this it was stated that
commission was earned on the entire price at which gur \\'as sold, and
while the amount of commission payable on the basis of controlled pricca
was credited to the society, the commission earned in respect of the extra
price which its members obtained was, it was stated, not brought to the
credit of the society in its accounts but appropriated by members of the
management.
On receipt of the claim, the Registrar appointed, under
'- 51 (2) of the Madras Co-operative Societies Act, the Deputy Registrar of
Co-operative Societies to act as an arbitrator to adjudicate the claim.
lbereupon, the appellant file<! a pelition in rhe 1-ligh Court for the i5sue of a
writ of prqhihition under Art. 226 of the Constitution, prohibiting the
Deputy Registrar from dealing with the clain1 \vhich he was directed to
try.
The Single Judge allowed the petition.
On appeal by the respondent
the Di"ision Bench allowed the appc:il and dismi-.sed the v.-rit petition. On
appeal by special leave, it \\'as contended hy the app·~l:ant, that ( l) the
Registrar should have proceeded under s. 49 .-.nd not unllcr s. 51 of the Act,
(2) the dispute about the rctcnlion of money hclonging to the Society by
the ;io:.ellant v.·as not "a dispute touching. thr ln:sinc'is of the society", and
(3) the transaction of sale \\'hich gave rise to !he commission a11eged to he
improperly rclained \Vas illegal ?.nJ that therefore the socic1y could not, in
Jaw, make a clain1 on the basio;; of s•.:ch an illegal transaction.
HELD : (i) The case did not fall ucder s. 49 of the Act. Ifs. 49 did
not apply, suhject to other ar.~umcnts ahcut the ille~Jlitv of the order
of the P..cr,istrar. proceedin~s under s. 51
\I/,~'\ ncit o:ie:i tO objection. (1920].
Be.sides the factors that th~ claint v.·;1s one "ag.;iinst a person in managen1cnt (lf the ~ociety" and "fer the fr:ludulent rclcf"ltion of money or other
D
E
F
G
H
SlURAKULU v. MARKETiNG SOCIETY (Ayyangar /.)
187
A
piiipilty of the society", there was also anO!hcr condition which had to be
l&lilfied before s. 49 ( 1) could be attrilctedf' .. The facts g!Ving rise to the
clilifge had to be disclosed in tbe course of an audit under a. 37 or om
ellllllity under s. 38 or an inspection under a. 39 or on the windin&. up. of
tbl! aociefy. [191 G•H]
.
·
B
Sundaram Iyer v. The Deputy Registrar of Co-operallve Socletle•, l.L.R.
(1957) Mad. 371, referred to.
Jii) The cl~im made before tbe ar~itrator waa "a dispute touching tbe
bt!Siness of society" .. It could not be

## Text

PENTAKOTA SRIRAKULU
A
v.
THE CO-OPERATIVE MARKETING SOCIETY LTD.
August 28, 1964
( P. B. GAJENDRAGADKAR, C.J., J.C. SHAH AND N. RAJAGOPALA
B
AYYANGAR JJ.)
Co-operative Societies-Moneys earned by alleged illegal transactions-
!tetention by n1en1bers of managen1e11t--Clai111-lf "a dispule touching tile
business of the society"-Whether c/aini could be made-ProceedingJ
whether under s. 51 or s. 49-,~fadra_\· Co~of)e,~ative Societies Act, 1932,
(Mad. 6 of !93Z) ss. 49, 51.
The appellant was the President of a Co-operative Marketing Society
constitu~ed mainly for the purpose oi en~bling its members to obtain credit
facilities and to arrange for the sale of agricultural products at rcasonahle
prices.
On complaints, an enquiry \vas
i1~stiluted into the affairs of the
~ocicty by the Registrar of Co-operative Societies and as a resull, the committee, 1hen in n1a.n.agement of rhe society v1as, after due notice to show
cause and a hearing, superseded by the Registrar.
A special officer was
ctppointcd to take charge of the affairs of' the society and this officer fileJ
a claim before lhe Regi~trar, inter alia, against the appcllanl. The main
uem of the claim was commission stated to have been actually earned by
the society on the sales effected by it of j<iggery belonging to its producermembers but which was not crcditt..~ to the society.
It was alleged lhat
while on paper the transactions entered into betv.·een the members of thr
~iety and the purchasers showed sales :lt the prices fixed by law, in reality,
higher prices were charged.
The society was entitled to charge commission on the sales effected through it.
As regards this it was stated that
commission was earned on the entire price at which gur \\'as sold, and
while the amount of commission payable on the basis of controlled pricca
was credited to the society, the commission earned in respect of the extra
price which its members obtained was, it was stated, not brought to the
credit of the society in its accounts but appropriated by members of the
management.
On receipt of the claim, the Registrar appointed, under
'- 51 (2) of the Madras Co-operative Societies Act, the Deputy Registrar of
Co-operative Societies to act as an arbitrator to adjudicate the claim.
lbereupon, the appellant file<! a pelition in rhe 1-ligh Court for the i5sue of a
writ of prqhihition under Art. 226 of the Constitution, prohibiting the
Deputy Registrar from dealing with the clain1 \vhich he was directed to
try.
The Single Judge allowed the petition.
On appeal by the respondent
the Di"ision Bench allowed the appc:il and dismi-.sed the v.-rit petition. On
appeal by special leave, it \\'as contended hy the app·~l:ant, that ( l) the
Registrar should have proceeded under s. 49 .-.nd not unllcr s. 51 of the Act,
(2) the dispute about the rctcnlion of money hclonging to the Society by
the ;io:.ellant v.·as not "a dispute touching. thr ln:sinc'is of the society", and
(3) the transaction of sale \\'hich gave rise to !he commission a11eged to he
improperly rclained \Vas illegal ?.nJ that therefore the socic1y could not, in
Jaw, make a clain1 on the basio;; of s•.:ch an illegal transaction.
HELD : (i) The case did not fall ucder s. 49 of the Act. Ifs. 49 did
not apply, suhject to other ar.~umcnts ahcut the ille~Jlitv of the order
of the P..cr,istrar. proceedin~s under s. 51
\I/,~'\ ncit o:ie:i tO objection. (1920].
Be.sides the factors that th~ claint v.·;1s one "ag.;iinst a person in managen1cnt (lf the ~ociety" and "fer the fr:ludulent rclcf"ltion of money or other
D
E
F
G
H
SlURAKULU v. MARKETiNG SOCIETY (Ayyangar /.)
187
A
piiipilty of the society", there was also anO!hcr condition which had to be
l&lilfied before s. 49 ( 1) could be attrilctedf' .. The facts g!Ving rise to the
clilifge had to be disclosed in tbe course of an audit under a. 37 or om
ellllllity under s. 38 or an inspection under a. 39 or on the windin&. up. of
tbl! aociefy. [191 G•H]
.
·
B
Sundaram Iyer v. The Deputy Registrar of Co-operallve Socletle•, l.L.R.
(1957) Mad. 371, referred to.
Jii) The cl~im made before tbe ar~itrator waa "a dispute touching tbe
bt!Siness of society" .. It could not be disputed that the sale of the produce
belonging to the members of the soci~ty was part Of the business of tbe
llOCllety, and then the charging of the commission would equally be the
business of ¢.e SQCiety; and [192 G-H]
·
(iii) .. ))lo illegality iittached to the contractrbetween the AP,Pellant and
the society; that was p~rfectly legal.
It arose 'tout of hla posltlon as the
c Pn!sident of the Society .and he was in law, bound to acoollllt for the moneys
he ti!<'elved on behalf of the society. [193 C]
Ked<rr Nath Motalll v. I'rahlod Rai, [1960] I S.C.R. 861; followed.
Ctv1L APPELLATl'! JURISDICTION: Civil Appeal No. 193 of
1962.
Appeal by special leave from the judgment and order dlited
D
August 18, 1959, of the Andhra Pradesh High Court id Writ
E
Appeal No. 111of1957.
A. V. V. Nair and P. Ram Reddy, for the appellant.
Naunit Lal, for the respondent No. 1.
K. R. Chaudhuri and IJ. R. G. K. Achar, for respondent No. 2.
The Judgment of the Court was delivered by
A~
J.
The appellant was the President of the
Anakapalli Co-operative Marketing Society Ltd.---a Society constituted mainly for the purpose of enabling its membels to obtain
crtldit facilities and to arrange for the sale of agri~tural products
F
at reasonable prices. There were complaints regarding the working
of rhe Society and accordingly an enquiry was instituted into its
aililrs by the Registrar of Co-operative Societies, Madras at a time
when Anakapalli, now in Andhra Pradesh, was in the State of
Madras.
As a result of the facts disclosed in the inquiry the
Committee then in management of the Society was, after due
G notice to shaw cause and a hearing; superseded by order of the
Registrar date<! February 15, 1952, such supersession being
authorised by s. 43 of the Madras Ca.operative Societies Act
(Act 6 of 1932) hereinafter called the Act. A special officer was
appointed to take charge of the affairs of the Society and this
officer filed a clilim before the Registrar, inter aliil, against the
H
appellant.
The amount claimed was Rs. 13,000 and odd and.
detllils were given 8$ to how this sum Wilt! made up. 'The main
item ~ the claim wllS commission stated to have been actually
188
SUPREME COURT REPORTS
[1955] I S.C.R.
earned by the Society on the sales effected by it of jaggery belonging
A
to its producer-members but which was not credited to the Society.
On itteipt of this claim the Registrar appointed, under s. 51 (2) of
the Act, the Deputy Registrar of Co-operative Societies, Visakhapatnam to act as an arbitrator to adjudicate the claim.
Immedia~ely this order was passed the appellant filed a peti8
tion in the High Court of Andhra Pradesh for the issue of a writ
of prohibition under Art. 226 of the Constitution, prohibiting the
Depul"; Registrar ftom dealing with the claim which he was directed
to try. The learned Single Judge who heard the petition allowed
the petition and granted the appellant the relief he sought. The
C0-0perative Society took the matter in appeal to the Division
C
Bench of the High Court which allowed the appeal and dismissed
the writ petition. Thereafter the appellant moved this Court for
special leave (certificate of fitness having been refused by the
High Court) and has preferred the present appeal.
Before adverting to the arguments addressed to us by Mr.
Ram Reddy, learned counsel for the appellant,
it is necessary
D
to state a few facts concerning the transactions which have given
rise to these proceedings. The C0-0perative Society of which the
appellant was the President till November, 1951, held a licence
under the Madras General Sales Tax Act for doing business as a
E
Commi>sion Agent and the Society was earning commission' on
the turnover of the sales effected of the agricultural produce of
its members and others. In October, 1950 the Government of
India promulgated the Gur Control Order fixing "1e maximum
price at which gur could be sold in different States. The prices
fixed varied from State to State.
The prices fixed for sale at F
Anakapalli, then in the State of Madras. were somewhat lower
than those which had been fixed in other ·States.
This gave
occasion for the inembers of the Society to sell their jaggery at
higher prices than fixed because there was demand for jaggery
from merchants at prices higher than the controlled price. It wa.<
alleged that while on paper the transactions entered into between
G
the members of the Society and the purcha.o;ers showed sales at
the prices fixed by law, in reality, higher prices were charged.
As stated already, the Society was entitled to charge commission
on the sales effected through it. As regards this it was stated that
commission was earned on the entire price at which the gur was
wld, and while the amount of commission payable on the ba.sis
H
of controlled prices was credited to the Society, the commission
earned in respect of the extra price which its members obtained,
SRIRAKULU v. MARKETING SOCIETY (Ayyangar I.)
189
A was, it was stated, not brought to the credit of. the Society in its
accounts but appropriated by members of the management. These
were the allegations and it is on the basis . of these allegations
that the claim against the appellant and others had been made.
!heir correctness have yet to be tested in the arbitration proceedmgs.
B
c
When this claim was made, inter alia, against the appellant
viz., of not bringing into the Society's accounts moneys due to the
.. Society ·and which had been earned through sales effected by the
Society, he filed, as narrated before, a writ petition and there
raised three points challenging the legality of the reference to
the Deputy Registrar to enquire into and determine the claim.
The first was that the transaction on the basis of which the claim
was said to have arisen was illegal being contrary to the Gur
Control Order issued by the Central Government under the
Essential Supplies Act and such an illegal transaction could not
fall within the words "Dispute touching the business of thi:
D Society" which alone could be referred to arbitration under s. 51
of the Act; the second was that the reference by the Registrar
of the dispute to !)le arbitration of the Deputy Registrar was illegal
as contrary to natural justice, because (a) the Deputy Registrar
had conducted an enquiry which had resulted in the supersession
of the management of the Society under s. 43 of the Act, and (b)
E
the Deputy Registrar being a subordinate of the Registrar could
not be expected to act fairly in this matter; and lastly, that the
Rr.gistrar should, in this case, have proceeded under s. 49 of the
Act and not under s. 51, the. former being more advantageous to
him, in that he could challenge any final order against him by
resort to the civil courts, whereas an award under s. 51 was
F
G
subject to departmental appeals and could not be questioned in
a civil court.
The learned Single Judge rejected the second and
the third points but upheld the first. His reasoning was that the
transaction of sale above the controlled price was illegal. that
illegality was. a bar to a claim for accounting by the Society
against its officer or agent, notwithstanding that the contract of
agency itself was not illegal. On appeal the learned Judges of
the High Court have, as stated earlier, rejected all the three points
urged on behalf of the appellant.
Mr. Ram Reddy, learned counsel for the appellant raised
be fore us three points. The first of them was that the Registrar
H
should have proceeded under s. 49 and not under s. 51 of the
Act. Section 49, which learned counsel says, was attracted to
the case runs, to quote only the material provision:
L!Sup./64-13
190
SUPREME COURT REPORTS
[1965] l S.C.R
"49. (I) Where in the course of an audit under section
\
37 or an inquiry under section 38 or an inspection under
section 39 or the winding up of a society, it appears that
any person who has taken pan in the organization or
management of the society or any past or present officer of
the society has misappropriated or fraudulently retained
any money or other propeny or been guilty of breach of
H
trust in relation to the society, the Registrar may, of his own
motion or on the application of the committee or liquidator
or of any creditor or contributory, examine into the conduct
of such person or officer and make an order requiring him
to repay or restore the money or property or any part thereof
<.
with interest at such rate as the Registrar thinks just or to
contribute such sum to the assets of the society by way of
compensation in respect of the mi;annropriation, fraudulent retention or breach of trust a~ the Registrar thinks just.
(2) The order of the Registrar under sub-section (I)
shall be final unless it is set aside by the District Court
having jurisdiction over the area in which the headquarters of the society are situated or if the headquarters of the
society are situa 1ed in the City o' Madras, by the Ci·y Civil
Court, on application made by the party aggrieved within
three months of the date of receipt of the order by him: ..
D
and s. 51-the other provision-runs :
L
"Arbitration :
Disputes: 51. If any dispute touching the busines; of a
registered society (other than a disciute regarding discip'inary action talcen by the society o· its committee against a
paid servant of the society) arises-
( a) ..................................... .
(b) ..................................... .
r
(c) between the society or its cor.1mittce and any past
committee. any officer, a~ent or servant, or any nast
c;
officer, p;ist agent or past servant, or the nominee,
heirs or lc~al representatives of any deceased officer,
decea.sed a~ent or deceased servant. of the society. or
(d)
Explanation.-A claim by a re~is•ered society for any
debt or demand due to it from a member, past member or
the nominee. heir or legal renre,en•a•ive of a dcce1sed
member, whether such debt or demand be admitted or not,
II
A
B
SRIRAKULU v. MARKETING SOCIETY (Ayyangar J.)
191
is a dis1mte touching the business of the society within the
meaning of this sub-section.
( 2) The Registrar may, on receipt of such reference,-
( a) decide the dispute himself, or
(b) transfer it for disposal to any person who has been
invested by the State Government with powers in that
behalf, or
(c) subject to such rules as may be prescribed,' refer it for
disposal to an arbitrator or arbitrators."
In this connection learned Counsel relied on a decision of the
C Madras High Court in Sundaram Iyer v. The Deputy Registrar of
Co-operative Societies.(') There it was held that it was only in
case where the provisions of s. 49 were inapplicable that recourse
could be had to s. 51. In cases where a matter fell both within
ss. 49 and 51, the two provisions were not intended to operate
on parallel lines.
As s. 51 excluded the jurisdiction of civil
D courts, it must be strictly construed and for that reason, in cases
where s. 49 was applicable, s. 51 would be excluded.
Further,
it was held s. 51 was of a general nature providing for a variety ·
of matters and was almost exh'}ustive of the parties between whom
as well as the disputes that could arise in cooperative societies.
E
Section 49 on the other hand dealt with special types of disputes
which arise in exceptional circumstances, segregated out of the
larger group dealt with under s. 51.
When there was thus an
overlapping of the terms of both the sections the provisions of
s. 49 alone it was held would be applicable.
Based on this line
of reasoning, the submission of learned counsel was that the claim
F in the present case was one "against a person in management of
the Society" and "for the fraudulent retention of money or other
property of the Society" and, therefore, it was completely covered
by s. 49 and that in consequence the Registrar had no jurisdiction
to direct an enquiry by the Deputy Registrar under s. 51 of the
Act.
This argument, however, pto9eeds on ignoring one further
c essential requisite for the application of s. 49 (1).
Besides the
·two factors to which learned counsel referred and which we have
just set out, there is also another condition which has to be satisfied
before s. 49 ( 1) could be attracted.
The facts giving rise to the
charge have to be disclosed in the course of an audit under s. 37
or an enquiry unde• s. 38 or an inspection under s. 39 or on the
H
windin2 up of the Society.
Mr. Ram Reddy, while not disputing
that unless this condition is also satisfied s. 49 would not be attrac-
(I) I.LR. [195'~ M•d. 371.
'
192
.. -·);·'·,,-:-'->,: '\
'-' -
SUPRE11E COURT REPORTS
[i 965] I S.C.R.
ted, however submitted that there was an enquiry under s. 38
preceding the supersession and _that in consequence the condition
was fulfilled.
It is true that ti(d-e was an enquiry conducted into 1
the affairs of the Society under_s. 38,,but that by itself is not sufficient. It has further to be proved that the facts alleged in the
claim, and on which it is based, were disclosed at that enquiry.
This can be proved or established only if the enquiry report
which was submitted to the Registrar was placed before the Court
and the facts disclosed therein corresponded with the facts alleged
in the statement of claim. Mr. Ram Reddy admitted that the
enquiry report was not before the Court and is not"in the record of
these proceedings. It is not, therefore, possible to say that there
is correspondence between the facts disclosed in that report as a
result of the enquiry under s. 38 and those found in the Statement
of Claim which was referred by the Registrar to the Deputy Registrar for arbitration under s. 51.
The case must, therefore, be held
not to fall under s:-49 of theAct. There can be no doubt that if
A
B
c
s: 49 does not apply, subject to_ the other argument about illegality
0
to which we shall ·advert, the order of the Registrar proceeding
under s. 51 is not open to -objection. This first point, therefore,
has to be rejected. -
· -
The next contention of learned Counsel was that the dispute
about the retention of money belonging to the Society by the appelE
!ant was not "a dispute touching the business of the Society." The
argument was that the expression _"business of the society" included
only what was legally permissible as the legitimate business of the
Society and since the business activity out of which the claim
against the appellant was alleged to arise involved a contravention
of the Gur Control Order it was not "a· dispute touching the F
business of the society. We are unable io agree with this submission. In so far as it irnpinge.5 on the third point urged by learned
counsel based on the maxim Ex turpi causa non oritur actio 'we
shall deal with it in considering that submission. But that apart,
we do not see any basis for the argument that the claim made
before the arbitrator was not a dispute touching the business of _ G
the Society. It could not be disputed that the sale of the produce
belonging to the members of the Society was part of the business
.of the Society, and then the charging of commission for those sales
and the crediting of the Society's accounts with that commission
would equally be the business of the Society. Apart, therefore,
from the question of illegality raised by reason of the sale being H
at prices in excess of the controlled price, it is not capable of
.....
argument that the failure on the part of the :qijiellant to credit
A
B
c
D
SRIRAKULU. v. MARKETING SOCIETY (Ayyangar J.)
193
to the ,.Society the full amount of commission due on the sales
effected by him on behalf of the· Society and the resistance by him
of that demancr; would 'n<(t be a dispute touching the business of
the Society. This objection is clearly without substance and must
be rejected.
The la 't of the Points urged by learned counsel was that the
trnn.~action of sale which gave rise to the commission alleged to be
ii:1properry retained was illegal and that therefore the Society could
not, in law, make a claim on the basis of such an illegaJ.transaction.
We see no substance in this point either. No illegality attached
to th.e contract between the appeUant al!d the Society; that was
perfectly legal. It arose out of his position as the PI8Sident of
the Society and he was, in law, bound to account for the moneys
he recel.ved on behalf of the Society. The fact that he entered into
illegal transactions would have no bearing on the right of the
Society to make the claim for an account of tlie commission due
to th~ Society which he unjustly withheld. We consider the reasoning of the learned Judges of tlie Division Bench rejecting this
argument to be correct. Moreover tl1is· matter has been examined
by this Court in a decision reported as Kedgr Nath Motani v.
· Prah!ad Rai(1) and· in view of this decision learned counsel for
!'he appellant did not himself press this point very seriously.
E
Bifore parting with this case, however, there is one matter
to which it is necessary to advert.
The learned Judges, after
· all<?wing tlie ,appeal of the Societ~. stated iq their judgment :
"Lastly, we must observe that this Comi is averse to
lend its helping hand to persons who want to defraud
.others.
Even assuming that any error of law was commitF
ted by Tribunals, that would not .be a ground for invoking
tile extraordinary jurisdiction of this Court under Art. 226
of the Constitution, when it is not in furtherance of justice
but tends to encourage dishonesty."
G
H
Mr. Ram Reddy pointed out to us that the correctness ot the
<tllegations mnde in the claim filed before the arbitrator have yet
to be decided rmd there wa~, therefor.,, no justification for the
learned Judges assuming that the facts qated therein were proved
and that tl1c appellant had been guilty of fraud or dishonesty in
his conduct of the business of the Society. We sec force in tltis
complaint of learned counsel.
Jn the circu1mtanccs. we would
add that. having regard to the stage at which the matte.r wa~
before the Court, the learned Judges were in error in making
(l) [196~] I S.C.R. 861.
194
SUPREME COURT REPO~TS
[1965] I S.C.R.
lbcsc ob,crv:itions. Tt is ciCllr that they did not intend to prejudice A
the appellant in his defence before the Deputy Registrar in the
~rbitration proceedings under s. 51 of the Act but it is possible
that it might have such ~n effect. What we have said cJrlier mtL~t
suffice to lfapcl any such apprchcn,ion or effect.
The appeal fails and is dismissed with costs. one set.
B