Supreme Court Upholds Right to File FIR in Co-operative Society Fraud Cases: Dhanraj N Asawani vs. Amarjeetsingh Mohindersingh Basi (2023) INSC 710 (25 July 2023)

Introduction

Date of the Judgment: 25 July 2023. Citation: (2023) INSC 710. Judges: Dr. Dhananjaya Y Chandrachud, CJI, J.B. Pardiwala, J., and Manoj Misra, J. Can a shareholder of a co-operative society report financial irregularities to the police, or is this right restricted to the auditor and Registrar? The Supreme Court of India addressed this critical question in a recent judgment, clarifying the scope of the Maharashtra Co-operative Societies Act, 1960, and the rights of individuals to initiate criminal proceedings. The Court held that the special provisions of the Act do not bar a member of a co-operative society from filing an FIR. The judgment was delivered by a three-judge bench comprising Chief Justice Dr. Dhananjaya Y Chandrachud, Justice J.B. Pardiwala, and Justice Manoj Misra, with the opinion authored by Chief Justice Chandrachud.

Case Background

The case revolves around alleged financial irregularities at Seva Vikas Co-operative Bank. Several complaints were lodged by members and depositors against the bank’s management, accusing them of cheating and misappropriation of funds. The Economic Offences Wing (EOW) initiated investigations in January 2019, registering FIRs based on these complaints. The appellant, a shareholder and former director of the bank, obtained an inspection report indicating financial irregularities. Based on this report, the appellant lodged an FIR against the first and second respondents, the bank’s CEO and former Chairperson, respectively, for offences under Sections 420, 406, 409, 465, 467, 468, and 471 read with Section 34 of the Indian Penal Code (IPC). The High Court of Judicature at Bombay quashed this FIR, holding that only the auditor or Registrar could file such a report under the Maharashtra Co-operative Societies Act, 1960.

Timeline

Course of Proceedings

The High Court of Judicature at Bombay quashed the FIR lodged by the appellant, holding that Section 81(5B) of the Maharashtra Co-operative Societies Act, 1960, provides a specific procedure for lodging an FIR based on an audit report, which must be followed. The High Court stated that the general provisions of the Code of Criminal Procedure, 1973 (CrPC) would not apply in this case. The High Court concluded that since the FIR was based on the audit report, the appellant could not bypass the procedure prescribed in Section 81(5B) of the 1960 Act. The matter was then appealed to the Supreme Court.

Legal Framework

The Supreme Court examined the interplay between the Code of Criminal Procedure, 1973 (CrPC) and the Maharashtra Co-operative Societies Act, 1960. Section 4 of the CrPC states that all offences under the Indian Penal Code shall be investigated, inquired into, tried, and otherwise dealt with according to the provisions of the CrPC. Section 4(2) of the CrPC states that offences under other laws shall also be dealt with under the CrPC, unless a special law provides a specific procedure for investigation, inquiry, or trial.
The Court also analyzed Section 81 of the Maharashtra Co-operative Societies Act, 1960, which mandates the audit of co-operative societies. Specifically, Section 81(5B) of the 1960 Act, which states:

“81(5B) 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 the annual general body meeting to the society and to the Registrar in such form as may be specified by the Registrar, on the accounts examined by him and on the balance sheet and profit and loss account as on the date and for the period up to which the accounts have been audited, and shall state whether in his opinion and to the best of his information and according to the Explanation given to him by the society, the said accounts give all information required by or under this Act and present the true and fair view of the financial transaction of the society:
Provided that, where the auditor has come to a conclusion in his audit report that any person, is guilty of any offence relating to the accounts or any other offences, he shall file a specific report to the Registrar within a period of fifteen days from the date of submission of his audit report. The auditor concerned shall, after obtaining written permission of the 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 the 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 in 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 alongwith his audit report. Failure to file such Special Report, would amount to negligence in the duties of the auditor and he shall be liable for disqualification for appointment as an auditor or any other action, as the Registrar may think fit.”

The Court noted that Section 81(5B) mandates the auditor to submit an audit report and, if any offences are found, to file a specific report to the Registrar and subsequently an FIR with the Registrar’s permission. The Court also noted that the Registrar is empowered to file an FIR if the auditor fails to do so. The Supreme Court had to determine if this special procedure under the 1960 Act overrides the general right of any individual to file an FIR under the CrPC.

Arguments

Appellant’s Submissions:

• The appellant, a shareholder and former director of the bank, argued that the right to initiate criminal proceedings is not restricted to the auditor or the Registrar under the 1960 Act.
• The appellant contended that the general principle of criminal law allows any individual to report a cognizable offence to the police, and this right cannot be curtailed unless there is a specific statutory bar.
• The appellant relied on the inspection report which revealed financial irregularities in the bank.

Respondents’ Submissions:

• The respondents argued that Section 81(5B) of the Maharashtra Co-operative Societies Act, 1960, provides a special procedure for filing an FIR based on an audit report.
• They contended that only the auditor or the Registrar is empowered to file an FIR under this provision.
• The respondents submitted that the special procedure under the 1960 Act overrides the general provisions of the CrPC.
• The respondents relied on the decisions of this Court in Jeewan Kumar Raut v. CBI [(2009) 7 SCC 526] and Jamiruddin Ansari v. CBI [(2009) 6 SCC 316] to support their argument that the special law will prevail over the general law.

Intervenor’s Submissions:

• The intervenor supported the appellant’s position, emphasizing that the right to initiate criminal proceedings is a fundamental right and should not be curtailed without express statutory provision.

Innovativeness of the argument: The appellant’s argument was innovative in asserting that the special procedure under the 1960 Act does not bar a member’s right to file an FIR, highlighting the importance of public interest in prosecuting financial crimes. The respondents’ arguments were based on a literal interpretation of Section 81(5B), claiming that it created an exclusive mechanism for reporting financial irregularities.

Issues Framed by the Supreme Court

The Supreme Court framed the following issue for consideration:

1. Whether the provisions of Section 81(5B) of the Maharashtra Co-operative Societies Act, 1960, can be construed as preventing a shareholder of the society from independently setting the criminal law in motion.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Judgment

How each authority was viewed by the Court?

• The Court distinguished Jeewan Kumar Raut v. CBI [(2009) 7 SCC 526], stating that the Transplantation of Human Organs Act, 1994, had a specific bar on taking cognizance except on a complaint by an appropriate authority.
• The Court distinguished Jamiruddin Ansari v. CBI [(2009) 6 SCC 316], noting that the Maharashtra Control of Organized Crime Act, 1999, had a non-obstante clause and specific bars on taking cognizance.
• The Court relied on Lalita Kumari v. Government of U P [(2014) 2 SCC 1] to emphasize the importance of an FIR in setting the criminal law in motion.
• The Court cited A R Antulay v. Ramdas Sriniwas Nayak [(1984) 2 SCC 500] to reiterate that the concept of locus standi is not recognized in criminal jurisprudence.
• The Court referred to State of Haryana v. Bhajan Lal [(1992) Supp (1) SCC 335] to explain the High Court’s power to quash an FIR when there is an express legal bar, which was not applicable in this case.

What weighed in the mind of the Court?

The Supreme Court emphasized that Section 81(5B) of the Maharashtra Co-operative Societies Act, 1960, imposes a duty on the auditor and Registrar to report financial irregularities, but it does not create an exclusive mechanism that bars other individuals from reporting such crimes. The Court reasoned that the absence of any negative language in the provision prohibiting others from filing an FIR indicates that the legislature did not intend to restrict the right of any person to set the criminal law in motion. The Court also highlighted the public interest in ensuring that financial irregularities in co-operative societies are reported and investigated to protect the interests of the members of the society. The Court noted that the criminal law can be set in motion by any individual unless there is a specific bar. The Court also emphasized the independent power of the police to investigate an offence once it is brought to their attention.

Fact:Law Ratio

Logical Reasoning:

The Court considered alternative interpretations, such as the argument that Section 81(5B) creates an exclusive mechanism for reporting financial irregularities. However, the Court rejected this interpretation, emphasizing that the absence of any express bar in the provision indicates that the legislature did not intend to restrict the right of any person to report a crime. The Court also considered the public interest in ensuring that financial irregularities are reported and investigated. The final decision was reached based on a plain reading of the statute, the principles of criminal jurisprudence, and the need to protect the interests of society.

The Court’s reasoning was based on the following points:

• Section 81(5B) of the 1960 Act places a duty on the auditor and Registrar but does not bar others from filing an FIR.
• The CrPC allows any individual to report a cognizable offence unless there is a specific statutory bar.
• The public interest requires that financial irregularities in co-operative societies are reported and investigated.
• The police have an independent duty to investigate once an offence is reported.

The Court quoted from the judgment:

“The criminal proceedings are initiated in the interests of the public to apprehend and punish the guilty.”

“This general principle of nearly universal application is founded on a policy that an offence… is not merely an offence committed in relation to the person who suffers harm but is also an offence against society.”

“Punishment of the offender in the interest of the society being one of the objects behind penal statutes enacted for larger good of the society, right to initiate proceedings cannot be whittled down, circumscribed or fettered by putting it into a strait-jacket formula of locus standi unknown to criminal jurisprudence, save and except specific statutory exception.”

There were no dissenting opinions in this case.

Key Takeaways

• A shareholder or member of a co-operative society can independently file an FIR regarding financial irregularities, even if an audit report has been prepared.
• Section 81(5B) of the Maharashtra Co-operative Societies Act, 1960, does not create an exclusive mechanism for filing FIRs, and it does not bar other individuals from reporting crimes.
• The general principles of criminal law allow any person to report a cognizable offence to the police unless there is a specific statutory bar.
• This judgment reinforces the importance of public participation in reporting financial crimes and ensuring accountability in co-operative societies.
• The police have an independent duty to investigate an offence once it is brought to their attention, regardless of whether the auditor or Registrar has filed an FIR.

Directions

The Supreme Court set aside the High Court’s judgment and allowed the police to proceed with the investigation on the FIR filed by the appellant. The Court clarified that the proceedings challenging the order of the Minister in-charge of the Co-operative department would not be affected by this order.

Development of Law

The ratio decidendi of this case is that Section 81(5B) of the Maharashtra Co-operative Societies Act, 1960, does not bar a member of a co-operative society from independently filing an FIR regarding financial irregularities. This clarifies that the special procedure under the 1960 Act does not override the general right of any individual to file an FIR under the CrPC. It also reinforces the principle that criminal law can be set in motion by any individual unless there is a specific statutory bar.

Conclusion

The Supreme Court’s judgment in Dhanraj N Asawani vs. Amarjeetsingh Mohindersingh Basi clarifies that the special provisions of the Maharashtra Co-operative Societies Act, 1960, do not restrict the right of a shareholder or member of a co-operative society to file an FIR regarding financial irregularities. The Court emphasized the importance of public participation in reporting crimes and ensuring that financial irregularities are investigated. This decision upholds the general principles of criminal law and reinforces the accountability of co-operative societies.