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Kerala High Court · body

2009 DIGILAW 1006 (KER)

Philomina Mathew v. Director

2009-10-22

S.S.SATHEESACHANDRAN

body2009
Judgment :- Writ petition is filed seeking the following reliefs: “i) To call for the records leading to Ext.P4. ii) To issue a writ of certiorari or any other writ, order or direction and quash Ext.P4 to the extent it holds that the action taken against the petitioner is not time barred. iii) To declare issuance of ext.p3 on the petitioner as contrary to the provisions contained in Rule 20 of the Kerala Local Fund Audit Rules. iv) To issue a writ of mandamus or any other writ, order or direction and quash Ext.P3. v) To issue a writ of mandamus or any other writ, order or direction to the respondents to initiate appropriate and positive action to execute the directions of the court below contained in paragraph 14 of Ext.P4. vi) To stay all further proceedings pursuant to Ext. P3 and Ext.P4. 2. Petitioner is a retired Municipal Secretary of the Perumbavoor Municipality. She retired from service on 31.05.2002. She was served with a surcharge notice on the basis of an audit report for the financial year 1999-2000 seeking her explanation over the findings made in the audit imputing that she had authorised and made illegal payment to the tune of Rs.80,084/-. She submitted a reply. Second respondent after considering her explanation waived a sum of Rs.14,333/- from the sum shown in the audit report, and served a surcharge certificate for the remaining sum of Rs.65,715/-. Ext.P3 is the copy of the surcharge certificate. She challenged Ext.P3 certificate under Section 16(3) of the Kerala Local Fund Audit Act, 1994, hereinafter called the Act, filing a petition before the District Court, Ernakulam. Learned District Judge after hearing both sides dismissed that petition vide Ext.P4 order. Propriety and correctness of Ext.P4 order is challenged in the writ petition invoking the supervisory jurisdiction vested with this Court under Article 227 of the Constitution of India. 3. Respondents have entered appearance and filed a counter affidavit. 4. I heard the counsel on both sides. The one and only point canvassed at the time of hearing by the learned counsel for the petitioner to challenge Ext.P4 order passed by the learned District Judge is based on the infringement of sub rule (11) of Rule 20 Kerala Local Fund Audit Rules, 1996, hereinafter referred to as the Rules, in the serving of surcharge certificate within the time stipulated. Reliance is placed on decisions rendered by this Court in two writ petitions, namely, judgment dated 10.11.2006 in W.P. (C).No.23800 of 2003 and judgment dated 13.1.2009 in W.P.(C).No.27559 of 2007, holding that a surcharge certificate served on person proceeded against beyond the period prescribed under sub rule (11) of Rule 20 is fatal and in such a case surcharge certificate is liable to be quashed. 5. The factual aspects involved leading to the issue of surcharge notice and, later, surcharge certificate against the petitioner need not be adverted to in the present case, since the challenge against such notice and certificate is canvassed only on the basis of the infringement of the Rule referred to above which has been stated to be fatal in two decisions rendered by this court holding that such delay would render the proceedings of surcharge vitiated and liable to be quashed. Both the decisions referred to by the learned counsel, no doubt, have given expression to the view canvassed holding that the time limit fixed under Sub rule (11) of Rule 20 of the Rules for issuing of charge/surcharge certificate on the person proceeded against is decisive and infringement thereof would render the entire proceedings vitiated and liable to be quashed. 6. The question posed for consideration is whether the time limit of four months for issuing the charge/surcharge certificate from the date of receipt of charge/surcharge notice by the person proceeded against is inviolable whatever be the reasons thereof. Sub rule (11) of Rule 20 of the Rules reads thus: “The charge/surcharge certificate shall be served on the person responsible within a period of four months from the date of receipt of charge/surcharge certificate by such person” Issue of a charge/Surcharge certificate beyond the period fixed under the rule is canvassed as fatal to the whole proceedings rendering the certificate issued beyond the time limit liable to be quashed. 7. In order to appreciate the challenge canvassed, it is necessary to examine Sub rule (11) of Rule 20 of the Rules with reference to the scheme of the Act, Kerala Local Fund Audit Act, 1994, its scope and object. The Act has been enacted to provide for and regulate the local funds under the management or control of certain local authorities in the State of Kerala. The Act has been enacted to provide for and regulate the local funds under the management or control of certain local authorities in the State of Kerala. A machinery is provided under the Act to streamline the auditing of local funds of such authorities mandating such auditing by the Director of Local Funds and preparing of an audit report specifying with particulars, payments which have been made contrary to law, deficiency or loss of amount, which appears to have been caused by negligence or misconduct of any person, misappropriation or misutilisation of the local fund, amounts received but not accounted for, and any other material impropriety or irregularity by any person dealing with local funds. Procedure for auditing the local funds of the local authorities and also the steps to be taken after getting such audited report are also delineated under the Act stipulating that the Director of the Local Funds Audit shall sent to the Government, a consolidated report of the accounts audited giving such particulars which are necessary to be noticed; and , once such report is received, within three months of the receipt of the report thereof, the Government has to place it before the Legislative Assembly. Wherever any illegal payment is detected or any expenditure not sanction by law or deficiency or loss caused by the negligence or misconduct of person or persons dealing with funds or sums received as found has not been brought into account is detected, the auditor may disallow such item and surcharge the same against the person or body of persons responsible for the materials impropriety or irregularity or misutilisation of the local funds. So far as the consideration of the question raised in the present writ petition, it is not necessary to advert to all the salient features of the Act, which no doubt, has been enacted to have a close watch over the utilization of funds by the local authorities to ensure that there is no misappropriations or misutilisation or material impropriety or irregularity by any person dealing with such funds, as the present case involve proceedings taken after post auditing against a person, the petitioner, custodian of the local funds, for negligence or misconduct or misutilisation of funds, detected in the audit. The relevant section applicable in the Act to such a situation and the rules and the procedure laid down there under, how the issue of charge/surcharge certificate on detection of illegal payment or loss caused by negligence or misconduct should be preceded against the person found culpable, that alone, has significance in the present case. 8. Section 16 of the Act spells out what is the procedure to be followed as against a person found culpable of negligence or misconduct for the deficiency or the loss of local funds detected in the audit. Section 16 of the Act reads thus: 16. Audit to surcharge illegal payments and loss caused by negligence or misconduct:- (1) The auditor may disallow any item which appears to him to be contrary to law and surcharge the same against the person making or person or body of person authorising the making of the illegal payment and may charge against any person responsible therefore, the amount of any deficiency or loss caused by the negligence or misconduct of that persons or any sum received which ought to have been, but has not been brought into account by that person and shall, in every such case, certify the amount due from such person. (2) The auditor shall state, in writing the reasons for his decision in respect of every disallowance, surcharge or charge and shall communicate the same by registered post to the person against whom it is made together with an extract of the relevant objection in the audit report. (3) Any person aggrieved by disallowance, surcharge or charge made may, within one month after he has received or been served with the decision of the auditor, apply to the District Court, to set aside such disallowance, surcharge or charge and the court, after taking such evidence as is necessary, may confirm, modify or remit such disallowance, surcharge or charge. (3) Any person aggrieved by disallowance, surcharge or charge made may, within one month after he has received or been served with the decision of the auditor, apply to the District Court, to set aside such disallowance, surcharge or charge and the court, after taking such evidence as is necessary, may confirm, modify or remit such disallowance, surcharge or charge. (4) Every sum certified to be due from any person by the auditor under this Act shall be paid by such person to the Executive authority within one month after the intimation to him of the decision of the Director unless, within that time, such person has filed an application before the District Court against the decision under sub-section (3) and such amount, if not so paid, or such amount as the District Court shall declare to be due, shall be recoverable under the provisions of the Kerala Revenue Recovery Act, 1968 (15 of 1968) for the time being in force, as if it were an arrear of public revenue due on land. 9. A reading of Section 16 would indicate what is required on detection of loss or any deficiency or loss caused by the negligence or misconduct of any person of local funds in auditing, is the certification of the amount due from such person by the auditor and, them, issuing him the decision there of stating the reasons supporting such decision together with an extract of the relevant objections in the audit report. A person against whom such a charge or surcharge is made, has a statutory right to challenge that decision of the auditor before the District court, and the District Court, after taking such evidence, may modify or remit such disallowance, charge or surcharge. Auditor is defined in Section 2 (a) of the Act as the Director of Local Fund Audit and includes any other officer of the Local Fund Audit Department empowered by the Director to perform the functions of the auditor under the Act. Auditor is defined in Section 2 (a) of the Act as the Director of Local Fund Audit and includes any other officer of the Local Fund Audit Department empowered by the Director to perform the functions of the auditor under the Act. Whereas, sub sections (1) to (3) of Section 16 confers authority on the auditor, which would include any officer of the Local Fund Audit Department empowered by the Director to perform the functions of an auditor to take such steps as necessary for proceeding against a person by issuing surcharge or charge notice duly certifying the amount due from such person with an extract of the relevant objection in the audit report Sub section (4) of Section 16 of the Act, which deals with the time limit fixed for remittance of the amount due and in the event of default, prescribing the mode of recovery to be effected, slightly deviates from Sub section (1) to (3) of the above section stating that the communication of the decision as certified by the auditor to the person proceeded has to be from the director. It is to be noticed that Sub-section (1) to (3) only states of issue of the intimation to the person proceeded against as to the amount due duly certified, with the extract of the relevant objections in the audit report by the auditor. Sub section (4) indicates of sending the intimation to the person, the decision of the Director with respect to the surcharge or charge of the amount due from such person. Sub section (4) indicates of sending the intimation to the person, the decision of the Director with respect to the surcharge or charge of the amount due from such person. Even assuming that the auditor mentioned under Sub sections (1) to (3) should be read as the Director, as the competent authority who has to issue the surcharge or charge notice with the amount due duly certified with an extract of the relevant objections in the audit report it has to be noted that the provision in the Statute as covered by the section does not spell out any time limit within which the surcharge or charge on the amount due should be intimated to the person by the Director, whether a reply is furnished or not by the person proceeded in respect of the proceedings initiated for realisation of the amount due as duly certified towards the deficiency or the loss by his negligence or misconduct, or of his default, or of his impropriety or irregularity in not bringing the amount received into the account of the authority. However, in the Local Fund Audit Rules, a procedure is laid down as under Rule 20 fixing time limits as to the various stages of the proceedings in the issue of charge or surcharge certificate. It may be useful to reproduce Rule 20 as such to analyse and appreciate how far the noncompliance of the time limit under sub rule (11) of that Rule is fatal to charge or surcharge proceedings. 10. Rule 20 of the Rules reads thus: 20. Procedure for charge/surcharge proceedings. (1) The officer authorized to issue the report on the audit of accounts of the local authorities/local funds shall while issuing the further remarks under sub rule (3) or rule 23 of these rules forward to the Director a proposal for charge/surcharge action in respect of the pending cases of losses pointed out in the audit report concerned. The charge/surcharge proposal shall be in Form VIII appended to these rules. (2) On receipt of the proposals for charge/surcharge proceedings from the officer authorised to issue the auditor report, the Director shall as early as practicable but before the completion of four months from the date of receipt of such proposals, issue, charge/surcharge notices to the officer (s) held responsible for the losses detected by the auditors. (2) On receipt of the proposals for charge/surcharge proceedings from the officer authorised to issue the auditor report, the Director shall as early as practicable but before the completion of four months from the date of receipt of such proposals, issue, charge/surcharge notices to the officer (s) held responsible for the losses detected by the auditors. (3) The charge/surcharge notices shall be in Form IX and IX (A) appended to these rules. (4) The charge/surcharge notices (in duplicated) along with extracts of the relevant objections in the audit report shall be communicated to the person against whom it is made by registered post with acknowledgment due. (5) The duplicate copy of the charge/surcharge notice shall be returned to the Director by the person receiving it, with his dated acknowledgment in proof of having received the notice. (6) Copy of the charge/surcharge notice shall be issued to the Executive authority concerned. (7) Unless the person served with a charge/surcharge notice remit to the Executive authority concerned the amount involved in the notice and furnish the details thereon to the Director within two months, from the date of receipt of the notice, or furnish satisfactory explanations, such person shall be served with charge/surcharge certificate in Form X and X (A) appended to these rules, with copy to the Executive authority concerned. (8) The report showing details of remittance of amounts involved in the charge/surcharge notices to be furnished by the person (s) responsible under sub-rule (7) above shall be forwarded to the Director through the Executive authority concerned. The Executive authority shall retransmit the same to the Director with a certificate to the effect that the details furnished have been verified by him and found correct. (9) The charge/surcharge certificate (in duplicate) shall be communicated to the person against whom it is made, by registered post with acknowledgment due. (10) The duplicate copy of the charge/surcharge certificate shall be returned to the Director by the person receiving it with his/her dated acknowledgment affixed on it. (11) The charge/surcharge certificate shall be served on the persons responsible within a period of four months from the date of receipt of the charge/surcharge notice by such person. (12) The Director shall serve on the person responsible for any loss to a local authority/local fund supplementary charge/surcharge notice or charge/surcharge certificate relating to the same audit report if the circumstances so warrant. (12) The Director shall serve on the person responsible for any loss to a local authority/local fund supplementary charge/surcharge notice or charge/surcharge certificate relating to the same audit report if the circumstances so warrant. (13) Every sum charge/surcharged by the Director on any person shall be remitted by such person to the Executive Authority within one month from the date of receipt of such charge/surcharge certificate, unless within that time such person files an application before the District Court against the decision of the auditor. Such amount if not so paid or such amount as the District Court shall declare to be due under sub section (3) of Section 16 of the Act shall be recoverable under the provision of the Kerala Revenue Recovery Act, 1968 (15 of 1968) for the time being in force, as if it were arrears of public revenue due on land. 11. No doubt, Rule 20 has been carved out to provide an opportunity to the person proceeded against to show cause against the charge or surcharge notice before final orders are passed in such proceedings by the Director, and thus, complying with the principles of natural justice. However, it is noticed that such opportunity of hearing is extended to the person proceeded against under the Rule without taking notice of the incongruities that may follow in default of the person proceeded against in furnishing a reply within a reasonable time after serving of intimating of a charge or surcharge notice. A time limit has been fixed under Sub rule (11) of Rule 20 that the Director has to issue a charge of surcharge certificate within four months from the date of receipt of charge or surcharge notice by the person proceeded against. Rule 20 regulating the procedure for issuing of charge or surcharge against any person fixes various time limits in respect of the steps to be taken before the final issue of the charge or surcharge. The Director has to act on the proposal of the officer who was authorized to issue the report on the audit of accounts of a local authority in the matter of issuing charge or surcharge notice against any person who is shown to be culpable as early as practicable, but, before the completion of four months from the date of receipt of the proposal. The charge or surcharge notices with extract of objections has to be sent to the person against whom it is made by registered post with acknowledgement due. Copy of the charge or surcharge notice has to be issued to the Executive authority concerned also. Sub rule (5) of Rule 20 mandates that the person proceeded against whom charge/surcharge notice is issued shall return the duplicate copy of the charge/surcharge notice to the Director with the date of acknowledgment in proving of having received such notice. Sub rule (7) of Rule 20 mandates that if the person, who is proceeded against by issue of a charge/surcharge notice fails to remit to the Executive Authority the amount involved or furnish satisfactory explanation within two months from the date of receipt of the notice or charge, he shall be served with a charge or surcharge certificate with copy to the Executive Authority concerned. Sub rule (8) of Rule 20 mandates that the person proceeded against while sending the details of remittance of amount in the charge/surcharge notice shall forward it to the Director through the Executive Authority concerned, and that Executive Authority, after verifying such payment, has to sent it to the Director with the certification of payment. When such procedural compliance before finalisation of the issue of the charge or surcharge certificate from the Director, most of which are required to be complied within the time limit fixed by the person proceeded against after receipt of the notice of charge or surcharge and also by the Executive Authority concerned, is it prudent, correct and justifiable to hold that the time limit fixed under Sub rule (11) of Rule 20, the period of four months from the date of receipt of the notice of charge/surcharge notice for issuing of charge or surcharge certificate, is fatal to the surcharge proceedings, more so when no such time limit is fixed under the Act, rendering the entire proceeding liable to be quashed. 12. Rule 20 of the rules, it is interesting to note, does not fix any time limit on the person proceeded against in furnishing his reply or objections to the notice of charge or surcharge. 12. Rule 20 of the rules, it is interesting to note, does not fix any time limit on the person proceeded against in furnishing his reply or objections to the notice of charge or surcharge. If he fails to remit the amount of furnish statutory explanation within two months, then such person shall be served with charge or surcharge certificate, is the mandate of Sub rule (7) of Rule 20, but, the remittance of sum, if any, made by the person in relation to the notice of charge or surcharge has to be forwarded by him to the Director through the Executive Authority concerned. As per Sub rule (8), the Executive Authority has to certify that payment as correct and “shall retransmit the same to the Director with such certificate”. Any delay on the part of the Executive Authority, where a portion of the amount alone under the charge or surcharge notice is paid by the person raising objections to the rest of the amount in such notice in retransmitting such details of that certification of the amount collected, needless to point out, would hamper the Director from finalising the issue of charge or surcharge certificate within the time limit of four months from the date of receipt of charge or surcharge notice by the person proceeded against, as covered by Sub rule (11) of Rule 20. The rule also does not state that an objection raised by the person proceeded against beyond the period of two months from the date of receipt of the notice of charge or surcharge, cannot be looked into or considered by the Director, if sufficient cause is shown for the delay in the submission of such objections. There may be cases where a person proceeded against him has objections only to a portion of the sum stated as due in the charge or surcharge notice, but, not to the rest of the amount. In such cases, his objection can be considered only after verification as to whether remittance has been made with respect to the remittance of the amount which has not been objected to, and that definitely requires transmission of the details submitted by him before the Executive Authority with due certification. In such cases, his objection can be considered only after verification as to whether remittance has been made with respect to the remittance of the amount which has not been objected to, and that definitely requires transmission of the details submitted by him before the Executive Authority with due certification. Further more, where objections are raised by the person proceeded as to the amount due under the notice of charge or surcharge, it may become necessary for the Director to call for further details from the Executing Authority concerned or even from the auditor, who after scrutiny of the accounts, had noted the audit objections. 13. The Director cannot be expected to pass an order mechanically for issuing a charge or surcharge certificate without applying his mind to the objections raised by the person proceeded against with reference to the audit objections alone. So much so, in the backdrop that the Act does not provide for any time limit for the Director in the issue of charge or surcharge certificate after the receipt of a charge or surcharge notice by the person proceeded against, in respect of the amount due from him on the basis of the audit objections raised in the report after auditing of the accounts of the local authority, and also the satisfaction to be formed by him in fixing the amount due from the person under the charge or surcharge certificate, which can be done only after complying with the requirements envisaged under the sub rules of Rule 20 and also after having a due enquiry and application of mind on the disputed questions arising for consideration, it appears, the word “shall” under Sub rule (11) of Rule 20 has to be read as obligatory and not mandatory. Since in the decisions rendered in the two writ petitions referred to above, a contrary view has been expressed that the time limit of four months from the date of receipt of the charge or surcharge notice on the person proceeded against has to be adhered to in the issue of charge or surcharge certificate by the Director, an authoritative pronouncement by a Division Bench of this Court in the matter is found to be necessary. 14. 14. The question emerging for reference is whether a charge or surcharge certificate after the expiry of four months from the date of receipt of the charge or surcharge notice by the person proceeded against under the Local Fund Audit Act, 1994 and Local Fund Audit Rules, 1996 is liable to be quashed as violative of Sub rule (11) of the above rule or whether the time limit under that Sub rule has to be treated only as fixing an obligation on the Director to complete the proceedings expeditiously. Registry is directed to place the matter before the Honorable the Chief Justice for reference to the Division Bench to render an authoritative pronouncement on the above question.