The Bombay High Court has clarified that the failure of an auditor to file an FIR under the Maharashtra Cooperative Societies Act does not invalidate criminal proceedings initiated by a third party for offences under the Indian Penal Code. This judgment reinforces the principle that public interest in prosecuting financial fraud supersedes procedural formalities under special statutes.
Background & Facts
The Dispute
The applicants, Pavankumar Keshaorao Narwade (Secretary) and Natthu Kashiba Ranmale (President) of the Forest Labours Cooperative Society Limited, Chikhali, were convicted under Sections 408, 420, and 468 read with Section 34 of the Indian Penal Code for misappropriating funds and forging documents. The case originated from an audit conducted by Gulabrao Krushnarao Khasade, the Society’s Special Auditor, who discovered that salaries were fraudulently recorded for two individuals - Mahadeo Kotnake and Vitthal Pawar - who never received payment. The total misappropriated amount was Rs. 1,70,045.70, including Rs. 39,450 from the sale of teak wood retained by the President.
Key Facts
- The audit covered the period 01.04.1995 to 31.03.1997.
- Voucher No.55 dated 05.12.1995 falsely recorded Rs. 11,799.60 as salary paid to Mahadeo Kotnake (PW.2), who only received Rs. 300/month.
- Voucher No.131/1 falsely recorded Rs. 5,250 as salary to Vitthal Pawar (PW.3), who received nothing.
- Cash book entries (Exh.79, Exh.81) showed Rs. 79,546.10 in the President’s possession and Rs. 60.33 in the Secretary’s, neither of which was deposited.
- Total fraudulent vouchers: Rs. 22,800 under voucher Nos. 122/1 and 122/2.
- The Auditor submitted his report (Exh.73) and Special Report (Exh.83) to the Registrar but did not file an FIR.
- The FIR was filed by the complainant, Gulabrao Khasade, on 10.10.1998.
- Charge sheet filed on 15.12.1998.
Procedural History
- 10.10.1998: FIR registered at Police Station Darati.
- 15.12.1998: Charge sheet submitted.
- 05.01.2013: Judicial Magistrate First Class, Umarkhed, convicted both applicants under Sections 408, 420, 468 read with Section 34 IPC.
- 28.07.2017: Additional Sessions Judge, Pusad, dismissed Criminal Appeal No.6/2013, upholding conviction.
- 14.02.2017: Criminal Revision Application No.140/2017 filed by Pavankumar Narwade.
- 14.02.2017: Criminal Revision Application No.141/2017 filed by Natthu Ranmale.
- 05.03.2026: Judgment reserved.
- 24.03.2026: Judgment pronounced.
The Parties' Positions
Applicants (Accused Nos. 1 and 8): Argued that the FIR was invalid because it was not filed by the Registrar or an authorized person under Section 81(5B) of the Maharashtra Cooperative Societies Act, 1960. They contended that the Auditor’s failure to file an FIR rendered the entire prosecution illegal. They relied on Mahadeorao Uttamrao Rajurkar v. State of Maharashtra to support their claim.
Respondent (State): Contended that the revision petition was an attempt to reappreciate evidence, which is impermissible under Section 397 CrPC. They argued that the evidence of the Auditor, corroborated by PW.2 and PW.3, was sufficient to prove guilt beyond reasonable doubt. They further submitted that Section 81(5B) does not bar third parties from filing FIRs.
Relief Sought
The applicants sought quashing of the conviction and sentence, arguing that the prosecution was legally invalid due to non-compliance with Section 81(5B) of the Maharashtra Cooperative Societies Act, 1960.
The Legal Issue
Can a third party file an FIR for offences under the Indian Penal Code - such as criminal breach of trust and cheating - based on an auditor’s report, even if the auditor has not filed an FIR under Section 81(5B) of the Maharashtra Cooperative Societies Act, 1960?
Arguments Presented
For the Appellant
The applicants argued that Section 81(5B) of the Maharashtra Cooperative Societies Act, 1960, creates an exclusive procedure for initiating criminal proceedings in cases of financial irregularities in cooperative societies. They contended that only the auditor or the Registrar may file an FIR, and any FIR filed by a third party is void. They relied on Mahadeorao Uttamrao Rajurkar v. State of Maharashtra to assert that non-compliance with Section 81(5B) invalidates the entire prosecution. They further argued that the Auditor’s failure to file an FIR rendered the investigation and trial illegal.
For the Respondent
The State countered that Section 81(5B) imposes a duty on the auditor to report irregularities but does not prohibit others from initiating criminal proceedings. They emphasized that the Indian Penal Code offences are cognizable and triable under the CrPC, and any person may file an FIR under Section 154 CrPC. They cited Dhanraj N. Asawani v. Amarjeetsingh Mohindersingh Basi to argue that the interests of society demand that financial fraud be reported by any知情 party, not just the auditor.
The Court's Analysis
The Court began by acknowledging the limited scope of revisional jurisdiction under Section 397 CrPC, which permits interference only where there is a manifest illegality or gross miscarriage of justice. It held that reappreciation of evidence is impermissible, and concurrent findings of the trial court and appellate court must be respected unless demonstrably perverse.
The Court then turned to the central legal question: whether Section 81(5B) of the Maharashtra Cooperative Societies Act, 1960, bars third parties from filing FIRs. The applicants relied on the provision’s mandatory language: "the auditor shall file a specific report to the Registrar... and shall, after obtaining written permission of the Registrar, file a First Information Report." They argued this created an exclusive procedure.
The Court rejected this interpretation. It cited Dhanraj N. Asawani v. Amarjeetsingh Mohindersingh Basi (2023) 20 SCC 136, where the Supreme Court held that Section 81(5B) imposes a duty on the auditor but does not debar any other person from reporting the offence to the police. The Court emphasized:
"Section 81(5B) cannot be interpreted to mean that any other person who comes to know about the financial irregularity on the basis of the audit report is debarred from reporting the irregularity to the police. In the absence of any specific provision or necessary intendment, such an inference will be against the interests of the society."
The Court further relied on Lalita Kumari v. Government of U.P. and A.R. Antulay v. Ramdas Sriniwas Nayak, which affirm that criminal proceedings may be initiated by any person unless a statute expressly restricts locus standi. The Court noted that the IPC offences of cheating (Section 415) and criminal breach of trust (Section 405) are offences against society, not merely private wrongs.
The Court also observed that the Auditor’s report, supported by the testimony of PW.2 and PW.3 and documentary evidence (vouchers, cash book entries), established a prima facie case of dishonest misappropriation. The accused, as officers of the Society, were entrusted with property and misused their position - a classic case under Section 408 IPC.
The Court concluded that the trial court and appellate court correctly appreciated the evidence and that the revision petition was an impermissible attempt to reargue facts. The procedural irregularity alleged did not vitiate the trial, as the FIR was validly filed under CrPC and the prosecution was substantiated by credible evidence.
The Verdict
The revision applications were dismissed. The convictions under Sections 408, 420, and 468 read with Section 34 IPC are upheld. Both applicants shall surrender before the Superintendent, Yavatmal District Prison on 06.04.2026 to undergo rigorous imprisonment for one year and pay a fine of Rs. 1,000 each, in default to suffer one month’s imprisonment.
What This Means For Similar Cases
FIR by Third Parties Is Permissible Under IPC
- Practitioners may now confidently file FIRs for IPC offences based on audit reports, even if the auditor has not initiated proceedings.
- The Maharashtra Cooperative Societies Act does not create an exclusive criminal procedure for financial fraud; IPC provisions remain fully applicable.
Auditor’s Duty Is Complementary, Not Exclusive
- Auditors must still file reports under Section 81(5B), but their failure to file an FIR does not extinguish the State’s power to prosecute.
- Courts will not quash prosecutions merely because the auditor bypassed internal reporting channels.
Evidence Still Must Be Credible
- While the procedural hurdle is removed, conviction still requires proof beyond reasonable doubt.
- Documentary evidence (vouchers, cash books) and corroborative witness testimony remain essential.
- This judgment does not lower the burden of proof - it removes a procedural shield used to evade accountability.
