Section 88 surcharge of committee members: a charge of duties not performed is not misfeasance

An audit memo lands on the secretary's table. The society has recorded a loss, and the auditor says the managing committee cannot avoid responsibility for it. A few months later a charge under Section 88 follows, naming you personally as a past chairman or committee member. Before anything else, one practical question matters: what exactly are you being charged with? A 1998 Bombay High Court decision shows why the answer can decide the whole proceeding.

The case in brief

Mapusa Consumer Co-op. Society Ltd. recorded a loss of Rs. 40,850.21 in the year 1972-73. The senior auditor reported that the managing committee could not avoid responsibility for misappropriation of funds. Charges under Section 88 of the Maharashtra Co-operative Societies Act 1960 were then framed against committee members.

Gajanan Pandurang Shet Parkar, who was chairman for 1972-73, and Lavchandra, a committee member, challenged the Section 88 charges framed against them. The society filed a petition of its own, arguing that Section 88 covers malfeasance and nonfeasance as well.

The matter was decided by R.M.S. Khandeparkar, J., of the Bombay High Court (Goa Bench) on 17 March 1998, in Shri Gajanan Pandurang Shet Parkar & Anr. v. Authorised Person of the Registrar of Co-operative Societies, Writ Petition Nos. 188/96, 192/96 and 490/96, reported at 1998(2) Mh.L.J. 483 and 1998(3) Bom.C.R. 850. The question was this: does failure to perform duties cast by the bye-laws amount to misfeasance under Section 88(1)?

What the court decided

The court explained that misfeasance means the improper performance of an act. Not performing an act at all is nonfeasance, which is a different thing. The Section 88 charge against these two members had been framed on failure to perform duties, not on an act that was improperly done. On that charge, the court held, there was no scope to proceed against them for misfeasance.

The court also observed that buying and selling fertilisers was in the ordinary course of the society's business. Following the Division Bench in Gangadhar Dattatraya Sule v. C.K.P. Co-operative Credit Bank Ltd., Bombay, it said that fixing a committee member with misfeasance liability needs full and complete evidence, and it noted that the Registrar had not argued that the transactions were injurious to the society.

The Section 88 proceedings and the connected orders were quashed and set aside. The petitions of the two members were allowed and the society's petition was dismissed.

Please note how narrow this is. The court decided the question of misfeasance on the charge as it was framed. It did not hold that Section 88 can never reach inaction.

Why it matters for your society

A Section 88 finding is not a small matter for a housing society committee member. Under Section 154B-23(1)(iii) of the Act, a person who has been held responsible under section 79, 88, 154B-8(2) or 154B-27 is not eligible to be appointed, nominated, elected or co-opted as a member of the committee. So a finding against you can end your ability to serve on a housing society committee, not only expose you to a money claim.

This ruling therefore gives one useful lesson. The wording of the charge is not a technicality. If the allegation is that a committee member failed to do what the bye-laws required, and not that some act was done improperly, this decision supports a challenge on the ground that such a charge does not make out misfeasance. Whether that argument succeeds on your facts is a question for your advocate.

What your committee should do

1. 1Read the charge itself, word by word. Note whether it describes an act done improperly or a duty not performed, and keep a copy of every memo and notice.
2. 2Take legal advice at once on how the charge is framed, and place this decision before your advocate. Do not assume that it settles your case.
3. 3Get the accounts audited on time. Bye-law 151(b) makes it the committee's responsibility to have the accounts audited within six months of the close of the financial year, and in any case before the notice of the AGM is issued.
4. 4Produce everything the auditor asks for. Under bye-law 152, the secretary must produce all books, registers and records before the internal and statutory auditor and furnish the information needed for the audit.
5. 5Act on the audit report. Under bye-law 153(a), the secretary prepares the draft audit rectification report in form 'O' under Rule 73 of the MCS Rules 1961 and places it before the next committee meeting for approval. Rectification is to be done within three months of the audit report, and the committee submits the Audit Rectification Report to the Registrar and to the AGM.
6. 6Do not let the report go unsubmitted. Under bye-law 153(b), if the committee fails to submit it to the Registrar and the AGM, all committee members are deemed to have committed an offence under section 146 and are liable to penalty under section 147.
7. 7Record every decision in the minutes, with the reasons and the documents seen. Good records are your best evidence that duties were performed.

Limits of this ruling

This is a decision of a single judge of the Bombay High Court at Goa, given in 1998 under the Maharashtra Co-operative Societies Act 1960. The chapter for housing societies, Chapter XIII-B, came later. We have not seen it reported as overruled, but please do not treat that as a statement that it is still good law on every point.

The court left several questions open: the Registrar's jurisdiction under Section 88 while Section 91 dispute proceedings are pending, the burden of proof, and limitation. It did not decide malfeasance. It did not decide the breach of trust limb of Section 88. Section 88(3) was also left open.