Surcharge Order Issued Under Local Fund Audit Act To Be Challenged In Appeal Under Panchayat Raj Act: Kerala High Court

A Division Bench comprising Justice Amit Rawal and Justice P.V. Balakrishnan delivered the judgment in an appeal against a 2013 District Court order which had quashed a surcharge order under Section 16 of the Kerala Local Fund Audit Act, 1994.

The surcharge—amounting to ₹1,40,749—had been imposed by the Director of Local Fund Audit in December 2011 for alleged financial irregularities.

The District Court had found the proceedings time-barred under Section 215(9) of the Kerala Panchayat Raj Act, 1994. The State, instead of filing an appeal under Section 215(13) of the Panchayat Raj Act, approached the High Court directly through a writ petition.

The Single Bench of the high court allowed the writ, citing the prolonged pendency of the matter for over a decade.

However, the Division Bench held that the case involved remedies under both the Kerala Local Fund Audit Act and the Panchayat Raj Act. It noted that Section 22 of the Local Fund Audit Act—which has an overriding effect on other laws in the case of the audit of accounts—did not exclude the appellate mechanism provided in Section 215(13) of the Panchayat Raj Act.

Which means that a Audit Act does not debar a party from approaching the high court in appeal under the Panchayat Raj Act. 

“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 overriding 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 Court observed.

Relying on Moni Achari C.V. v. Director (2012), the court clarified that such disputes should be pursued through the statutory appeal process, designated as a Miscellaneous First Appeal (MFA) under High Court Rules.

The Court noted that “The reason for relegating the affected parties to avail the remedy of appeal is to prevent miscarriage of justice to either of the parties.”

It further observed that in the present case, the District Court ruled in favour of the Panchayat Secretary, who is the appellant, and recorded certain adverse findings against him.

Since no decree was passed against him, the appellant could not challenge these findings directly in a writ proceeding.

It noted that if the matter proceeded as an appeal under Section 215(13) of Panchayati Raj Act, he could have filed cross-objections under Order 41 Rule 22 of the CPC — a right recognised by the Supreme Court in Bhargavi Constructions v. Kothakapu Muthyam Reddy (2018).

Observing that the appellant had been deprived of an opportunity to challenge adverse findings in the District Court's judgment, the Bench allowed the writ appeal.

Setting aside the single judge's order the bench permitted the State to file an appeal, ordering that the period spent in the writ petition against the judgment of the District Court dated 30.11.2013, will be excluded. 

It also noted that, in the absence of a specific limitation period in Section 215(13), Article 137 of the Limitation Act would apply.

The Bench also recorded its appreciation for amicus curiae Senior Advocate Santhosh Mathew, who provided detailed assistance on the statutory and constitutional framework.

Case Title - Mariamma Joseph and Others v Director of Local Fund Audit and Another

Citation - 2025 LiveLaw (Ker) 497

Case No - WA 1584/ 2024

Counsel for Appellants - Rajesh R

Counsel for Respondent - N K Karnis

Amicus Curiae - Santhosh Mathew

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