Audit Reports & Inquiry Orders Under Cooperative Societies Act Are "Preparatory Steps", Not Amenable To Revisional Jurisdiction: Bombay High Court

The Court clarified that the revisional power under Section 154 is specifically designed to correct errors in completed decisions that carry legal consequences, rather than to supervise every administrative or procedural move.

​The Bench of Justice Amit Borkar observed, “Therefore, applying the statutory scheme to the present controversy, it becomes evident that the Special Report dated 14 August 2024 and the order dated 12 September 2024 directing inquiry under Section 88 were merely preparatory steps within the statutory process. They did not determine rights or liabilities. Consequently, they were not amenable to revisional jurisdiction under Section 154. The inevitable conclusion is that the revisional authority exceeded its jurisdiction in entertaining and allowing the revision. The statutory process ought to have been permitted to continue so that the inquiry could reach its logical conclusion in accordance with law.”

Advocate Kirit Hakani appeared for the Petitioner, while Assistant Government Pleader S. L. Babar appeared for the Respondents.

Factual Background

A writ petition was filed challenging an order passed by the Minister for Cooperation, Government of Maharashtra, in a Revision Application purportedly in exercise of powers under Section 154 of the Maharashtra Cooperative Societies Act, 1960. By the said order, the revisional authority allowed the revision application and set aside the order passed by the Additional Registrar, whereby an inquiry under Section 88 of the Act had been directed. The revisional authority further annulled the Special Report submitted by the Statutory Auditor.

It was the case of the Petitioner that during their tenure as committee members, Respondent Nos. 6 to 18 allegedly committed several unauthorized acts. Although these transactions were initially reflected in approved balance sheets, the General Body later discovered irregularities and voted the respondents out of management in June 2023. Subsequently, a resolution was passed to initiate an inquiry. An initial report by Advocate Shri Bandu Kashid and a Special Report by the Statutory Auditor both recorded findings of cheating, misappropriation, and financial loss.

Based on the Auditor’s Special Report and independent valuations, the Additional Registrar passed an order on 12 September 2024 directing a formal inquiry under Section 88 of the Act. The petitioner maintains this was a purely administrative step to set the statutory mechanism in motion. However, the respondents filed a revision application under Section 154. Despite the petitioner’s objection that such an administrative order is not "revisable," the Minister entertained the application and annulled both the inquiry order and the Auditor’s Special Report.

Contention of the Parties

The petitioner contended that the Statutory Auditor’s Special Report and the subsequent order for inquiry are merely administrative triggers designed to set the legal machinery in motion, rather than final decisions that affect legal rights. Consequently, it was argued that the Minister lacked the jurisdiction to entertain a revision application under Section 154, as the inquiry process is a fact-finding mission that does not yet determine guilt or liability.

On the merits, the petitioner asserted that the inquiry is not barred by limitation—since the clock starts upon the discovery of loss, not the date of the transaction—and that prior approval of balance sheets by the General Body cannot shield the respondents from allegations of fraud or misappropriation. It was maintained that halting this investigation frustrates the public interest and effectively protects alleged defaulters from accountability for the society’s funds.

Conversely, the Respondents argued that the Special Audit Report and the inquiry order carry severe civil and penal consequences, including the filing of an FIR, which gives them a quasi-judicial character amenable to ministerial revision. Furthermore, the respondents pointed out that the Special Report relied entirely on external findings without independent verification and contradicted previous years' audits that found no discrepancies. They asserted that since the proceedings were initiated in a manner that violated constitutional protections and reasonable administrative standards, the Minister was right to intervene and quash the orders to prevent an abuse of power.

Observations of the Court

The Court analysed the nature and scope of audit under Section 81 of the Act. It was observed that the audit stage is meant to identify issues, not to conclude them finally. The auditor’s observations serve as an early warning within the statutory scheme. They enable the authorities to examine whether a deeper inquiry is required, the Court added.

“The law intentionally keeps this stage preliminary because financial scrutiny alone may not reveal the full picture. Questions of intention, responsibility, or liability can be properly examined only in subsequent proceedings where evidence is tested and explanations are heard. Therefore, when Section 81 speaks of audit, it contemplates a financial examination aimed at maintaining accountability within cooperative societies. The auditor acts as a fact searcher in the financial sense. He indicates concerns when necessary. But the audit itself does not amount to a decision determining rights or liabilities. It only lays the basis for further statutory action, if the circumstances so require," the Court said.

The Court observed that Section 81(5B) must be understood within its specific statutory setting. The primary role of the auditor remains one of financial scrutiny and reporting, where an opinion is formed based on the records and explanations provided by the society. The Special Report serves as a statutory duty rather than an adjudicatory function; if an auditor fails to submit such a report when irregularities are found, they may be held negligent or even disqualified.

It was held that the Special Report does not impose liability, declare a person guilty, or direct the recovery of funds. It is not a judicial or quasi-judicial determination. Instead, it identifies "apparent" instances of loss based on the accounts without conducting a full inquiry or deciding responsibility conclusively. Ultimately, the report functions as an alert within the statutory framework. It brings specific transactions to the notice of the competent authority, "opening the door" for them to decide whether a formal inquiry, investigation, or further action is warranted under the law.

The Court emphasized the necessity of separating an audit finding from an adjudicatory determination, noting that although they may arise from the same facts, they operate in completely different legal spaces. An audit finding is essentially an informative observation based on a documentary and financial examination of books of account. It is meant to bring facts to light and point out discrepancies or irregularities that appear in the material. These findings are preliminary and informative, indicating that something may be wrong without reaching a final conclusion.

In contrast, an adjudicatory determination involves deciding rights and liabilities through a formal legal procedure. This process requires giving notice to affected parties, providing an opportunity to explain, considering evidence from both sides, and applying legal standards. While an audit finding raises questions, an adjudicatory determination answers them. The law maintains this step-by-step procedure so that the inquiry stage can test the correctness of preliminary audit observations before any real or enforceable consequences are imposed.

Regarding the meaning of “Order” or “Decision” under Section 154, the Court said, “Section 154 confers revisional powers upon the State Government and the Registrar. A careful reading of the provision shows that the power is supervisory in nature. The authority may call for and examine the record of any inquiry or proceedings where a decision or order has been passed by a subordinate officer and where no appeal lies against such decision or order. The purpose of this examination is limited. It is to satisfy itself about the legality, propriety, and regularity of the decision or order already made. If the revisional authority finds that such decision or order suffers from illegality or impropriety, it may modify, annul or reverse it after granting an opportunity of hearing to the affected person.”

The Court held that Sections 81, 88, and 154 must be read harmoniously as a gradual process where each provision operates in its own distinct sphere to maintain the rational scheme of the Act. Under this framework, an audit under Section 81 serves as a preliminary "fact-searching" stage that merely triggers attention by identifying possible irregularities. This is followed by an inquiry under Section 88, which is the determinative stage where evidence is tested and responsibility is formally examined in detail—a process that would be rendered redundant if audit findings were prematurely treated as final.

The Court said, “Once the statutory sequence is kept in view, the error in the approach of the revisional authority becomes apparent. The revision was entertained at a stage where the process had not been converted into an adjudicatory determination. By setting aside the Special Report and the order directing inquiry, the revisional authority effectively prevented the statutory inquiry from taking place. This amounts to interrupting the process before the truth could be examined through the procedure prescribed by law.”

It was held that if revisions are held maintainable against audit reports or orders initiating inquiry, every preliminary step under the Act would become open to challenge. The inquiry stage would rarely proceed to completion. The purpose of Sections 81 and 88 would be defeated. The legislature could not have intended such a result, it added.

Therefore, the Court held that, applying the statutory scheme to the present controversy, it became evident that the Special Report directing inquiry under Section 88 was merely a preparatory step within the statutory process.

Accordingly, the Court observed that the revisional authority exceeded its jurisdiction, hence, allowed the writ petition and set aside the impugned orders.

Cause Title: Shivkrupa Sahakari Patpedhi Limited v. State of Maharashtra and Ors. [Neutral Citation: 2026:BHC-AS:9333]

Appearances:

Petitioner: Advocate Kirit Hakani, Advocate Rahul Hakani, Advocate Niyati Hakani, Advocate Bhavana Ahire, Advocate Priyanka Singh.

Respondents: Assistant Government Pleader S. L. Babar, Advocate Shahaji Shinde, Advocate Shantanu Raktate, Advocate Amar Parsekar, Advocate Ajinkya Desai, Advocate Anil Sakhare, Advocate Vinayak Wagh, Advocate Vikas Bhosale.

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