Surcharge Order Under Local Fund Audit Act Open To Appeal Under Panchayat Raj Act | Section 22 Overrides – Special Law Prevails: Kerala High Court
Isabella Mariam
The High Court of Kerala Division Bench of Justice Amit Rawal and Justice P. V. Balakrishnan held that a judgment rendered while exercising powers under Article 226 is appealable as an intra‑court appeal and directed the parties to pursue the statutory appellate remedy before the High Court against the decree of the District Court. The Bench set aside the judgment of the Single Bench and permitted recourse to the appeal mechanism provided in law, while ordering exclusion of the period spent pursuing the writ proceedings from the computation of limitation.
The Court further recorded that, in the absence of a specific limitation period under the governing provision for appeals from the District Court, Article 137 of the Limitation Act would apply. The Bench disposed of the matter by allowing the writ appeal and clarifying that the affected party could take benefit of the applicable provisions while preferring the statutory appeal. The Court also acknowledged the assistance rendered by the Amicus Curiae in addressing the question of maintainability and the statutory scheme governing surcharge proceedings.
The judgment arises out of proceedings concerning surcharge liability under the Kerala Local Fund Audit Act, 1994. The matter before the Division Bench concerned an intra‑court appeal challenging the Single Bench decision that had allowed a writ petition against the District Court’s judgment in proceedings initiated pursuant to a surcharge certificate.
The record reflects that a surcharge certificate was issued by the Director of Local Fund Audit on 21.12.2011. This certificate fastened liability in the sum of Rs. 1,40,749/‑ upon the concerned individual, who was the Panchayat Secretary. The affected party, since deceased and represented by legal representatives, approached the District Court, Ernakulam by filing O.P.(L.F.) No. 109 of 2012. The District Court delivered its judgment on 30.11.2013. The judgment recorded a finding that the surcharge proceedings were beyond the period of limitation as per Section 215(9) of the Kerala Panchayat Raj Act, 1994, while also containing certain adverse findings against the party who had challenged the surcharge certificate.
The Single Bench later allowed a writ petition filed against the District Court’s judgment. The writ petition framed grounds including a prayer to set aside the District Court’s decision and for a declaration relating to the interplay between the Kerala Local Fund Audit Act, 1994 and the Kerala Panchayat Raj Act, 1994. Specifically, the writ petition sought a declaration that the bar of four years stipulated under the proviso to sub‑section (9) of Section 215 of the Kerala Panchayat Raj Act, 1994 or any provision of law in respect of the Acts mentioned in the Schedule to the Kerala Local Fund Audit Act would not operate against the provisions of the Kerala Local Fund Audit Act, 1994, in view of Section 22 which is characterized as a special law provision with overriding effect.
The Division Bench’s judgment sets out the statutory framework. Section 16 of the Kerala Local Fund Audit Act, 1994 empowers the auditor to disallow items contrary to law, surcharge illegal payments against the maker or authorizer, and charge amounts for deficiency or loss caused by negligence or misconduct, with certification of the amount due. The section further provides for communication of reasons and a right to apply to the District Court within one month to challenge the disallowance, surcharge, or charge; it also stipulates recovery through the Kerala Revenue Recovery Act in the event of non‑payment of sums certified due or sums declared due by the court. The judgment reproduces the text of Section 16(1)–(4) to set out the contours of the auditor’s authority and the remedial process.
The judgment also records Section 22 of the Kerala Local Fund Audit Act, 1994, which stipulates an overriding effect over any other law relating to audit of accounts of a local authority or local fund included in the Schedule, where provisions of such other law are repugnant to the provisions of the Act. The Division Bench notes that Section 22 addresses the audit of accounts and the precedence of the 1994 Act in the event of repugnancy on matters of audit.
In parallel, the judgment extensively sets out Section 215 of the Kerala Panchayat Raj Act, 1994. The provision deals with accounts and audit of the Panchayat, the role of the auditors (the Examiner of Local Fund Accounts and nominees), the conduct of audits, reporting requirements, and the power to disallow and surcharge expenditures contrary to law. Sub‑section (9) includes a four‑year bar on making a surcharge from the date on which the expenditure was incurred. Sub‑section (11) provides for an application to the District Court by any person aggrieved by a disallowance, surcharge, or charge within fourteen days after service of the decision. Sub‑section (12) identifies the auditors as the sole respondents in such proceedings. Sub‑section (13) provides that from the decision of the District Court under sub‑section (11), an appeal lies to the High Court. Provisions (14) through (17) address payment of sums certified due, consolidation and submission of reports to the Government, and laying of accounts and audit reports before the Legislative Assembly, among other requirements.
The Division Bench records that Section 16 of the Kerala Local Fund Audit Act is para materia to Section 68 of the Kerala Co‑operative Societies Act, which likewise empowers surcharge in respect of illegal payments and losses caused by negligence or misconduct, and provides a remedy to approach the District Court within a specified period for setting aside such surcharge. While noting the parallel, the Division Bench focuses on the Kerala Panchayat Raj Act’s express appellate remedy—an appeal from the District Court to the High Court under Section 215(13)—in contrast with the Kerala Local Fund Audit Act, which does not, by its own terms, provide an appellate provision against the District Court’s decision.
The judgment further narrates the procedural posture that led to the intra‑court appeal. The Single Bench had allowed the writ petition by reference to a Division Bench decision in a prior matter, noting the lapse of approximately eleven years during the writ petition’s pendency and opining that relegating the parties to a statutory appeal would not be appropriate in the circumstances. The present Division Bench appointed an Amicus Curiae—Senior Counsel Mr. Santhosh Mathew, assisted by Mr. Adeen Nazar—to address whether the remedy availed against the District Court’s judgment was to be treated as one under Article 227 of the Constitution of India or as one under Article 226, which would bear on the maintainability of an intra‑court appeal under the High Court’s rules.
Upon examination of the prayers in the writ petition, the Division Bench concluded that the relief of certiorari had been sought to quash the District Court’s judgment dated 30.11.2013. On that basis, the Court proceeded to assess the maintainability of the intra‑court appeal as one arising from a judgment under Article 226.
The Division Bench also considered prior decisions, including the Single Bench decision in Moni Achari C.V. v. Director, which was approved by the Division Bench in The Director of the Local Funds Audit v. V.C. Joseph (W.A. No. 461 of 2012). Those decisions addressed the relationship between the two statutory schemes and the availability of the appellate remedy prescribed by Section 215(13) of the Kerala Panchayat Raj Act, with the Division Bench in the earlier matter permitting withdrawal of the writ petition to enable filing of an appeal and allowing exclusion of the time spent pursuing the writ for the purpose of limitation.
In the present case, the Division Bench found that a similar course was warranted to prevent miscarriage of justice and to allow the affected party the opportunity to contest adverse findings through the statutory mechanisms, including by way of cross‑objections if applicable under the Code of Civil Procedure.
The Division Bench recorded the following observation regarding the maintainability of the intra‑court appeal based on the character of the relief sought in the writ petition: “By looking at the prayers (supra), it is evident that the prayer of certiorari was sought for quashing the judgment of the District Court dated 30.11.2013. Thus in our considered view, it was not purely a relief sought under Article 227 but, under Article 226. Therefore, any judgment passed while exercising the power under Article 226, as per Section 5 of the High court Rule, is appealable as an intra court appeal.”
On the statutory scheme, the Court stated that Section 22 of the Kerala Local Fund Audit Act has an overriding effect on other enactments in matters relating to audit of accounts, and reproduced the language of the provision to state its scope: “If any provision contained in any other law for the time being in force relating to the audit of accounts of a local authority or a local fund included in the Schedule is repugnant to the provisions of this Act, the latter shall prevail and the former be void to the extent of such repugnancy.”
Regarding the Kerala Local Fund Audit Act’s surcharge mechanism, the Court set out Section 16 and recorded: “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 persons 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 person… and shall, in every such case, certify the amount due from such person.”
The Bench also noted the procedural safeguards and remedies within Section 16: “The auditor shall state in writing the reasons for every disallowance, surcharge or charge, and communicate the same by registered post to the person concerned, along with an extract of the relevant audit objection.”
The Court recorded the avenue for recourse: “Any person aggrieved by a disallowance, surcharge or charge may, within one month of receiving the auditor’s decision, apply to the District Court. The court may confirm, modify or remit the decision.” It further noted the recovery mechanism: “All sums certified due must be paid within one month of intimation—unless an appeal is filed under subsection (3). Any unpaid amount, or the sum declared due by the court, is recoverable under the Kerala Revenue Recovery Act, 1968, as if it were an arrear of public revenue due on land.”
On the relationship between the two enactments and the appellate remedy, the Court recorded: “The Single Bench, in Moni Achari case, noticed that the provisions of Section 215 of the Kerala Panchayat Raj Act, 1994, have a synonymity/akin to the provisions of Section 16 of the Kerala Local Fund Audit Act, 1994, except that the Local Fund Audit Act do not envisage any provisions of appeal against the judgment and decree of the District Court but, the same has been provided under sub Section 13 of Section 215 of the Kerala Panchayat Raj Act.” The Bench extracted Section 215 in full to delineate the statutory rights and obligations, including the right of appeal to the High Court from a District Court decision under sub‑section (11).
The Court then observed the effect of Section 22 vis‑à‑vis the appellate provision contained in Section 215(13): “On plain and simple reading of the provisions of sub Section 13 of Section 215 of the Kerala Panchayat Raj Act r/w Section 22 of the Kerala Local Fund Audit Act, provide an over riding effect and there is no ambiguity in non applicability of the provisions of Section 215(13) of the Kerala Panchayat Raj Act, as, Section 22 of the Kerala Local Fund Audit Act only deals with the audit of accounts whereas Section 215(13) envisages a remedy of appeal against the judgment of the District Court.”
The Bench referenced that this position aligns with what “has been laid down by the Single Bench of this court in Moni Achari’s case,” and that the Division Bench in the earlier matter had permitted the affected parties to “withdraw the writ petition to file an appeal, permitting to exclude the period spent in pursuing the wrong remedy ie., writ, for, filing MFA as per the provisions of High Court Act Rules and Regulations.”
Turning to the implications for the parties, the Court recorded that the course adopted would obviate prejudice arising from the District Court’s adverse findings that could not otherwise be challenged in the absence of a decree against the appellant: “The reason for relegating the affected parties to avail the remedy of appeal is to prevent miscarriage of justice to either of the parties. In the instant case, the District Court, in the judgment dated 30.11.2013, though had passed a decree in favor of the appellant‑respondent in the writ petition, but, had given certain adverse findings against the appellant and the appellant has been prevented from assailing the same in the absence of any decree against him.”
The Court then noted the avenue for cross‑objections under the Code of Civil Procedure upon an appeal being filed: “In case, the State is relegated to avail the remedy of appeal, the affected party, though against certain findings in the judgment, can always prefer a cross objection as envisaged under Order 41 Rule 22 of the Code of the Civil Procedure.” The Bench referenced the Supreme Court’s decision to clarify the settled nature of the law after the 1977 amendment: “The law with regard to the entertainment of cross objection is no longer res integra, after causing amendment in the Code of the Civil Procedure in the year 1977 and in this regard, relied upon the judgment of the Supreme Court in Bhargavi Constructions and Anr v. Kothakapu Muthyam Reddy and others (2018(3) SCC 480).”
On limitation, the Court noted the absence of a specific period under Section 215(13) for filing an appeal from the District Court and recorded: “We cannot remain oblivious of the fact that sub Section 13 of Section 215 of the Act do not prescribe any limitation for preference of an appeal against the judgment and decree of the District Court. In such circumstances, the provisions of Article 137 of the Limitation Act would apply.” The Bench then clarified the relief to be made available: “The affected party ie., the Local Audit Fund, would have a remedy to take the benefit of such provisions, in case of any necessity by preferring an appeal.”
The Division Bench issued the following directions and final orders. The Court stated: “In this view of the matter, we set aside the judgment of the Single Bench and permit the petitioner in the writ petition to avail the remedy of appeal by ordering that the period spent in the writ petition against the judgment of the District Court dated 30.11.2013, will be excluded.”
In clarifying the legal position on limitation for the appellate process, the Court recorded: “We cannot remain oblivious of the fact that sub Section 13 of Section 215 of the Act do not prescribe any limitation for preference of an appeal against the judgment and decree of the District Court. In such circumstances, the provisions of Article 137 of the Limitation Act would apply. The affected party ie., the Local Audit Fund, would have a remedy to take the benefit of such provisions, in case of any necessity by preferring an appeal.”
The Court also recorded the manner in which adverse findings could be addressed upon appeal through cross‑objections under the Code of Civil Procedure, stating: “In case, the State is relegated to avail the remedy of appeal, the affected party, though against certain findings in the judgment, can always prefer a cross objection as envisaged under Order 41 Rule 22 of the Code of the Civil Procedure.”
Regarding the maintainability of the intra‑court appeal, the Bench held: “Thus in our considered view, it was not purely a relief sought under Article 227 but, under Article 226. Therefore, any judgment passed while exercising the power under Article 226, as per Section 5 of the High court Rule, is appealable as an intra court appeal.”
Finally, the Court concluded the proceedings by pronouncing the operative result: “Writ Appeal stands allowed.” The Bench also appended its appreciation for the assistance of the Amicus Curiae: “We record an appreciation to Sri.Santhosh Mathew, Amicus curiae, with regard to the assistance of provided to us in dealing with the controversy as indicated above.”
Advocates Representing the Parties
For the Petitioners: Shri. Rajesh R., Advocate
For the Respondents: Shri. N. K. Karnis, Advocate
Case Title: Addl. R3 Smt. Mariamma Joseph & Ors. v. The Director of Local Fund Audit & Koovappady Block Panchayath
Neutral Citation: 2025:KER:58854
Case Number: Writ Appeal No. 1584 of 2024
Bench: Justice Amit Rawal; Justice P. V. Balakrishnan
