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(A) Important Provisions of the Act and the Rules made there under.

The audit staff members auditing the accounts of the co-operative societies will

have to study very carefully the entire provision of the Maharashtra Co-operative

Societies Act and Rules made there under. For their guidance, important provisions of the

said Act and Rules made there under relating to their audits are discussed below: -

(1) Registration and amendments. -Section 10; Rule 5 (3)-Registration Certificate. -It

should be seen as evidence of registration of the society. Copy of the up-to-date byelaws

incorporating all latest amendments should also be seen.

Section 37; Rule 31-Registered address of the society. -Change of address also requires

amendment of the relevant byelaws.

Section 13(1) and (2), Rule 2. - Amendments of byelaws. -Copy of certificates

registering the amendments should be seen. Amendments will have effect only after they

have been registered.

2. Membership. -Section 22; Rule 19- Qualifications specified in the byelaws for

membership of the society should be seen. It should be seen that all members, promoters

as well others admitted to membership after registration of the society are duly qualified

to become members of the society. The persons who are eligible to become members are

1) individual (who is competent to contract under the Indian contract act.) 2) Firm,

company or any body corporate, 3) society registered under societies Registration Act. 4)

Society registered under M.S.C.S. Act 5) State or Central Government. 6) Local

authority such as Municipality or corporation, Zilla Parishad, etc. 7) public trust

registered under law for the registration of such trust.

It means that, the unregistered trust cannot be member of the society, or a society, which

is not registered under M.S.C.S. Act, should not be member of the Cooperative society.

This condition of registration also applies to the firms, which includes sole

proprietorship, Partnership firm subject to the law in force for these kinds of firms and

company registered under the Companies Registration act. The other conditions are

specified in the Section 22 and Rule 19 of the Act. The rule 19 specifies conditions that,

1) the member should apply for membership, 2) the application should be approved by

the committee, 3) he should fulfill the conditions of Act, rules and byelaws, 4) the body

corporate should enclosed the resolution of their committee for applying membership.

1. Limit for share-holding-Section 28-No individual member other than

Government or, with the permission of Government, Zilla Parishad or Panchayat Samiti,

can hold shares of the society, exceeding Rs. 20,000 or have interest exceeding one-fifth

of the total share capital of the society. However, Government has notified that for a

urban Co-operative Bank, the limit has been enhanced to Rs.5,00,000/-

Section 29; Rules 23 and 24-Share Transfers. -Restrictions on transfers and procedures

for transfers of shares and refund of share capital during any one-year specified in the

section and Rules should be noted. Rule 23 casts the responsibility of share valuation for

purpose of refunding to the members who have resigned. The method of valuation is

explained elsewhere.

4. Member Register-Section 38, Rule 32. -Members Register is required to be

maintained in Form “I ”, accompanying the Rules. List of members in Form “J” is also

required to be prepared every year. This section also requires that copies of the Act,

Rules and byelaws of the society should be kept open for inspection of public.

5. Restrictions on Acceptance of deposits and borrowing. -Section 43; Rules 35, 36 and

37,38,39. -Under Rule 35, borrowing limit for all types of societies other than those

specified in Rules 36 and 37 is ten times the paid-up share capital and accumulated

reserve fund and building fund minus accumulated losses. Deposits in excess of this limit

may be accepted with the permission of the Registrar subject to the condition that the

excess amount of deposit accepted or borrowed shall be invested in Government

securities which shall be deposited with the District Central Co-operative Bank in case of

urban banks and societies and with the Maharashtra Co-operative Bank in case of central

banks. While calculating total liabilities, amounts borrowed against security of

agricultural produce or other goods have to be excluded.

Central co-operative banks, urban banks, producers’ societies can borrow up to twelve

times their paid-up share capital plus reserve fund plus building fund minus accumulated

losses. Under Rules 36 the Maharashtra Co-operative Bank can borrow up to fifteen

times and land development banks can barrow up to twenty times respectively.

Section 43(2): Rule 40. -The Registrar has been empowered to prescribe the extent and

conditions for receiving deposits and loans from any creditor other than the central bank,

in respect of any society or class of societies, to whom financial assistance from the

Government, in the form of share capital, loan, or guarantee is provided. Other societies

are required to frame their own borrowing limits in their byelaws, and have to

communicate the same to the Registrar, for information.

Rule 46-A further lays down that no society shall borrow loans from non-members

including banking companies; commercial banks unless specially authorized by the

Registrar, subject to such conditions as may be imposed by him to enable the lender to

refer any dispute to the Registrar under Section 91.

Rule 38 provides that societies with unlimited liability should fix the maximum limit for

accepting deposits and borrowing from non-members, subject to the sanction of the

Registrar, who may reduce the limit for reasons to be communicated by him.

Rule 39 (1) lays down that the byelaws must specify the authorized share capital, value of

each share, installments in which the full value of the share has to be paid and also the

rights an liabilities attaching to each class of shares.

6. Restrictions on transactions with non-members-Section 45. Rule 42(6) lays down

that save as provided in this Act, the transactions of a society with persons other than

members, shall be subject to such restrictions, if any, as may be prescribed. Sub-rule (6)

of Rule 42 lays down that no society shall carry on transactions on credit or sanction

trade credit to its members or to non-members, except with the general directions that

may be issued by the Registrar in that behalf. Rule 46-b, which imposes restrictions on

credit sales to non-members, lays down that, where the bye-laws of a society permit

credit sales, such sales may be made to traders and other non-members, provided that the

person to whom such sales are made, gives an undertaking to the society, that any

dispute arising out of the transactions shall be referred to the Registrar for decision

under Section 91.

7. Limits against loans, against fixed deposits-Rule 45-A. -Although sub-section (1) of

Section 44 prohibits loans to non-members, sub-section (2) permits loans to a depositor

on the security of his deposit. Rule 45-A lays down limits for such loans (i.e. loans

against fixed deposits). The rule lays down that when a society makes a loan to a

depositor on the security of his fixed deposit with the society, the amount shall not

exceed 90 per cent of he deposit amount and the period for which the loan is granted,

shall not extend beyond the date of maturity of the fixed deposit. Sub-rule (2) of Rule 45-

A further provides that if the depositor does not repay the loan within the period for

which it is granted, the fixed deposit amount may be adjusted towards the repayment of

the loan amount and interest thereon and only the balance, if any, shall be paid by the

society to the depositor on the date of maturity.

8. Restrictions on loans and advances by co-operative societies-Section 44 (3)-Under

this section, Government and the Registrar have been given wide powers for regulating

the lending policies of co-operative societies not only to ensure safety of their funds, but

also for proper utilisation of such funds, in furtherance of their objects and keeping them

within the loan making limits.

Under sub-section (1) of section 44, loans are to be made to members only. Shares of the

society cannot be accepted as security for any loan to a member. Non-members cannot

be accepted as sureties for loans. Under provision to this section, although inter-

lending between societies is prohibited, the registrar may permit such inter-ladings,

Loans may also be given to a non-member depositor against the security of his deposit

subject to the restrictions laid down in Rule 45-A.

Under sub-section (3) of section 44, State Government has power to prohibit, restrict or

regulate grant of loans by societies on the security of any property. The provision below

the section also empowers the Registrar to regulate further, the extent, conditions and

manner of making loans, with the prior approval of the Apex Bank. Rule 42 gives wide

powers to the Registrar to regulate grant of loans by societies. Sub-rule (5) provides that

the Registrar, with the approval of the Apex Bank, may lay down the quantum of loans,

and the period of repayment both in refund to total advances to member and societies as

also against different types of securities.

Under sub-rule (7) of Rule 42, the Registrar has been empowered to lay down the

procedure for receiving application, assessing credit limits, making enquiries in respect of

production program for which the loan is required etc. and grant of loans by Central

Banks to their affiliated societies and by societies to their members. He may also impose

additional conditions to ensure proper utilization of loans and sale of agricultural produce

through specified co-operative organizations, before any finance is granted.

Under sub-rule (1), the Registrar may prescribe margins to be maintained in respect of

various types of loans and advances against moveable and immovable property, with

reference to different commodities, securities or classes of societies.

Under sub-rule (2), the Registrar may lay down maximum borrowing limits by way of

cash credit at specified multiples of owned funds of the society.

Under sub-rule (3), the Registrar has been empowered to issue directives to lending

institutions to ensure that adequate finance is made available for all creditworthy and

production-worthy purposes. Sub-rule (6) empowers the Registrar to issue general

directions regulating credit transactions of co-operative societies and grant of trade credit

of their members and non-members. Under sub-rule (8), the Registrar may, by general or

special order, prohibit or regulate grant of loans by the central bank to a society where he

considers it neither in the interest of the society nor in the interest of the co-operative

movement. He can thus keep check undesirable or unsound loan polices adopted by

financing agencies.

Under sub-rule (1) of Rule 43, every borrowing members of society is required to hold

shares of the society in proportion to the amount of the loan applied for by him as may be

specified in the bylaws of the society. However, as laid down in sub-section (1) of section

44, shares held by him cannot be offered as security for the loan. Under section 46, the

society has a charge and right of set-off upon the share or interest in the capital and on the

deposit held by a member, past member or deceased member for the dues of the society.

The society can also provide in its bylaws forfeiting the shares held by an expelled

member.

Under sub-rule (2) of rule 43, the Registrar has been empowered to lay down standards

for maximum limits to be granted to members for loans and repayment of loan by

members.

The Registrar has issued a number of order is exercise of the powers vesting in him under

provisions of Rules 42 and 43. These have been specified in appropriate places and the

auditor should carefully study that.

Sub-rule (2) of Rule 43 also provides that loans in excess of the individual limits

specified in the byelaws can only be made with the sanction of the central bank or federal

society. However, where the amount of the loan exceeds twice the limit specified in the

byelaws, sanction of the registering authority has also to be obtained.

Rule 45 lays down restrictions on borrowing from more than one credit society by

members who are members of more than one society dispensing credit. The rule lays

down that every person, who is a member of more than one resource society (other than

of Land Development Bank, or a central bank of a marketing society) dispensing credit

shall, if he has not already made, make a declaration in from ‘K’ that he will borrow only

from one such society to be mentioned in the declarations and shall send a copy of such

declaration duly attested to all societies of which he is or has become a member.

Sub-rule (2) Rule 45 empowers the Registrar to remove a defaulting member [i.e. a

member who does not comply with the provisions of this rule 45(I)] from the

membership of any or all such societies. The Registrar has also been empowered to

exempt any person from the operation of this Rule.

Rule 46 deals with the manner of recalling of loan, where the loan has been misapplied of

here has been a breach of any of the conditions for grant of such loan. Sub-rule (2)

empowers the Registrar to direct society to recall a loan sanctioned by it, after such

inquiries he may deem necessary and after giving show cause notice to the society.

9. Declarations by members of agricultural credit societies-Rule 48(1)-Under section 48

and Rule 48 (1) every member of an agricultural credit society is required to furnish a

“declaration” in from “L” prescribed under Rule 48, creating a charge on the lands held

by him or his interest in the land cultivated by him as a tenant, for the outstanding dues of

the society. A register of “Declaration” obtained from members is required to maintained

in form “M” under Rule 48 (2). The charge created under this section is required to be

entered in the revenue records of the society (village record-of rights Forms 7 and 12)

and continues to be in force until the person creating the charge ceases to be a member of

the society. The society with the approval of the Central Bank may release part of the

land from the charge with due regard to the security available to the balance of the loan

outstanding.

A declaration made may be varied with the consent of the society. No alienation of the

lands on which charge has been created can be made until the whole of the loan with

interest thereon has been repaid.

For the purpose of section 48 Government has specified central financing agencies,

which advances crop loans to farming societies and to gram swaraj societies in its

notification No. GNC & RDD No. CSL.1061/ 3643(1) Corp G dated 28th

February 1961.

Section 48 (A) the loan disbursed for the purpose of agriculture or for purposes

mentioned in the section 111 by the Agricultural and Rural Development Bank, and

agriculture produce is tendered by him in Agriculture Produce Market committee for sale,

the loan disbursed should be deducted in proportionate to the sale amount, from the sale

amount by the purchaser and required to submit the proceeds to the society, for recovery

of loan. The percentage of recovery is mentioned in the section 48 A for sale of

sugarcane at 100% for sale of cotton at 60 % and for other 40% of the sale amount.

10. Deduction from salary to meet dues of society-Section 49. -Societies formed by

salary earners/employees provide in their byelaws requiring their members to execute

agreements authorizing their employer to deduct from their salaries/wages, due to the

society. On execution of such an agreement, the employer will be responsible to deduct

from the salary or wages payable to his employee and pay to the society, the dues of the

society, as communicated by it. The society will, however, have to send its requisition in

writing. Sub-section (2) of Section 49 reads as follows: -

“On receipt of a copy of such agreement (agreement contemplated in sub section {1}),

the employer shall, if so required by the society by a requisition in writing, and so long as

the total amount shown in the copy of the agreement as payable to the society has been

deducted and paid, make the deduction in accordance with the agreement, and pay the

amount so deducted to the society, as if it were a part of the wages payable by him as

required under the Payment of Wages Act, 1936, on the day on which he makes the

payment.”

If after receipt of the requisition of the society, the employer fails to deduct the amount or

remit to the society, the whole of the amount deducted by him, the employer will be

personally liable for payment of the dues of the society and the dues can be recovered

from him as arrears of land revenue and will have priority as if they were wages in

arrears.

Under clause (b) of section 146, it will be an offence if any employer and every director,

manger, secretary or other officer or agent acting on behalf of such employer fail to

comply with the above provisions.

Provisions of Section 49, however, will not apply to railways, mines and oil refineries.

However, the Government of India has issued special orders directing disbursing officers

of such bodies to deduct dues of the societies formed by their employees, from their

salaries or wages. Notifications or special orders issued by Government should be seen.

11.Property and funds of societies. -Chapter VI of the Act, which deals with the

property and funds of societies, requires to be very carefully studied by the auditors. It is

the duty of the auditors to see that the funds contributed by members and by the State and

those created out of profits remain intact. Section 64 of the Act lays down that no part of

the funds other than the dividend and bonus equalization funds or the net profits of the

society shall be paid by way of bonus or dividend or otherwise distributed among its

members. A member, however, may be paid remuneration, on such scales as may be

laid down in the byelaws, for any service rendered to him by the society.

The next section, Section 65, and Rule 49 (A) deals with the manner in which the net

profits are to be calculated. Interest overdue, i.e., interest accrued and accruing in

accounts, which are overdue, cannot be taken to profits. In other words, only interest,

which has been actually realized and interest accrued and accruing in accounts in

which no part of the principal is overdue, can be taken to profits. If such overdue

interest is included in the profits, necessary provision will have to be made. Provision for

overdue interest is either deducted from the total amount of interest taken to profits or

shown on the liability side under the heading “Sundry Creditors and Provision.” The

Rule further lays down that the following deductions shall be made before arriving at the

figure of net profits: -

(i) Establishment charges;

(ii) Interest payable on loans and deposits;

(iii)Audit fees or supervision fees;

(iv) Working expenses including repairs;

(v) Rent and taxes;

(vi) Deprecation;

(vii) Bonus payable to employees under the Payment of Bonus Act, 1965

(viii) Provision for payment of income-tax;

(ix) Provision for payment of education fund of the State Federal society, i.e., Maharashtra

State Co-operative Union:

(x) Bad Debt Fund;

(xi) Dividend Equalization Fund;

(xii) Share Capital Redemption Fund;

(xiii) Investment Fluctuation Fund;

(xiii) Provision for retirement benefits to employees;

(xiv) In the case of consumers co-operative stores, provision for payment of purchase

rebate to customers (members as well as non-members);

(xv) Provision for amounts required for writing off bad debts and loss not adjusted

against any fund created out of profits.

Interest accrued in the preceding years, but actually recovered during the year, i.e., the

portion of overdue interest actually recovered, may be added to the net profits. The sub-

section further provides that the net profits arrives at the manner specified above, together

with the amount of profits brought forward from the previous year, shall be available for

appropriation.

The manner in which the net profits are to be appropriated has been laid down in sub-

section (2) of section 65. However, Rule 51 lays down that the following further

deductions shall be made from the net profits before they are available for appropriation

under sub-section (2) of Rule 49 A: -

(i) Contribution to be made of any sinking fund or guarantee fund constituted

under the provisions of the Act, Rules or bye-laws of the society to ensure due fulfillment

of any guarantee given by Government in respect of loans raised by the society.

(ii) Provision considered necessary for depreciation in the value of any security,

bonds or shares, held by the society as part of its investments;

(iii) Provision required to be made for the redemption of any share capital

contributed by Government of a federal society.

Items (ii) and (iii) of the above have already been specified in Rule 49 A (1) and only the

first item, viz., contribution to the guarantee fund has to be provided for before arriving at

the figure of net profits. It will be seen from the sub-section that not only the mode of

calculation of net profits has been prescribed, but the sub-section also provides for the

manner for appropriating the net profits inasmuch as a number of deductions to be made

under the sub-section cannot be strictly charged to profits, but properly from an

appropriation of the net profits. Quite a number for provisions required to be made and a

few other amounts to be compulsorily deducted, are not admissible under the Income-tax

Act and The profit and Loss Account will have be recast for purposes of filling in the

Income-Tax Return.

Sub-section (2) of Section 65 provides that the net profits calculated in the manner laid

down above {in sub section (1)} may be appropriated to the reserve fund or any other

fund, the payment of dividend to members on their shares, to the payment so bonus on

the basis of support received from members and persons who are not members to its

business, to payment of honoraria and towards any other purpose which may be specified

in the rules or byelaws.

The other purposes to which profits can be appropriated have been specified in Rule

50(1). They are education and enlightenment of the members of the society as also any

co-operative of charitable purpose including relief to the poor, education, medical relief

and advancement of any other general public utility, provided that the expenditure on

such items does not exceed 10 per cent of the net profits.

Section 65 further lays down that no part of the profits shall be appropriated except with

the approval of the annual general meeting and in conformity with the Act, Rules and

Byelaws. Provisions of the Act and the Rules have already been explained above. The

auditor will have to study carefully the relevant byelaws of the society, which specified

the manner of appropriation of the net profits. In particular, it should be seen that

appropriations are made towards the creation and maintenance of only such funds,

which are permitted to be created and maintained under the provisions of the Act,

Rules and Byelaws of the society. If the society has created any fund, which is not

provided for under the Act, Rules and Byelaws of the society, the auditor should raise

his objection.

12. Creation and Maintenance of the Bonus and Dividend Equalization Funds. -Rule

52 provides for the creation of the Bonus Equalization Fund and the Dividend

Equalization Fund. Sub-rule (1) provides societies to create out of their profits a Bonus

Equalization fund for payment of bonus to members and non-members (persons other

than paid employees). As regards payment of bonus to paid employees, it is a charge on

the net profits and has to be provided for before arriving at the amount of the net profits.

Under clause (4) of Section 2, “Bonus” means payment made in cash or kind out of the

profits of a society to a member or to a person who is not a member on the basis of his

contribution (including any contribution in the form of labour or service) to the business

of the society, and in the case of a farming society, on the basis of both such contribution

and also the value or income, or, as the case may be, the area of the lands of the members

brought together for joint cultivation, as may be decided by the society, but does not

include any sum paid or payable as bonus to any employee of the society under the

Payment of Bonus Act, 1965. It has to be noted that the Bonus Equalization Fund has to

be created out of the net profits and is not a charge on the profits unlike the Dividend

Equalization Fund, contribution to which has already been provided for under section

65(i).

Sub-rule (2) lays down that the Bonus Equalization Fund created under sub-rule (1) shall

be utilized only for payment of bonus as defined therein.

Sub-rule (3) provides for the creation of the Dividend Equalization Fund, out of the net

profits. As regards annual contributions to be made to this fund out of the net profits, it

has been laid down that contribution in any one year shall not exceed two percent of the

net profits. Also, contribution to this fund should cease when the amount of the fund

amounts to nine percent of the paid-up share capital. Drawings for this fund are

permitted only when the society is unable to maintain uniform rate of dividend it has

been paying during the last five years or more.

Sub rule (4) provides that no society shall declare a dividend at a rate exceeding that

recommended by its committee.

13.Reserve fund-Section 66-It provides for the maintenance of the statutory reserve fund.

Sub-section (1) lays down that every society, which does, or can derive a profit shall

maintain a reserve fund. Thus, all societies expect those, which do not undertake any

business activities and do not earn profits, are required to maintain a reserve fund. Sub-

section (2) lays down that every society shall carry at least one-fourth of the profits

each year to the reserve fund. The section, however, empowers the Register, having

regard to the financial position of any society or class of societies, fix the contribution to

be made to the reserve fund at a lower rate, but not lower than one-tenth of the net

profits of the society or societies. The sub-section further provides that the reserve fund

may be used in the business of the society or may subject to the provisions of section 70,

be invested, as the State Government may direct, or may, with the previous sanction of

the State Government, be used in part for some public purpose likely to promote the

objects of this Act or for some such purpose of the State, or of local interest. The state

Government by notifications stated under below permitted societies to contribute the

reserve fund for the purpose mentioned below under Section 66(2).

Sr.

No.

Notification No. Class of

societies

Purpose for

which

contributed

Limit

prescribed

1 GNC &R D D No.

CSL.1562/ 54874-J

Dated 20.11.1962

All types of

societies

National

Defense fund

10 % of

reserve fund

2 GNC &R D D No.

CSL.1562/ 25415-J

Dated 18.4.64

All types of

societies

National

Defense

Certificates or

Defense

Deposit

Certificates

-

3 GNC &R D D No.

CSL.1567/ C-3 Dated

27.12.67

All types of

societies

Koyana Relief

Fund

-

4 CSL-2793/ CR-88/

15-C 1993 dated

All types of

societies

Chief Minister

Relief fund for

earthquake in

10 % of

reserve fund

Latur and

Osmanabad

District.

Sub-rule (1) of Rule 54, however, requires that the reserve fund shall be separately

invested in the modes given below

(i) In the case of primary societies, in the Central Banks;

(ii) In the case of Central Banks and urban banks, in the State Co-operative Bank;

(iii) In the debentures issued by the apex Land Development Bank; or in Government

loans or as per the Government Notification.

And only when the amount of the reserve fund exceeds its paid-up share capital the

society may, with the permission of the Registrar, invest in its business only that

portion of the reserve fund, which is in excess of the share capital. In the case of

Central Banks and the State Co-operative Banks, the registrar may authorise such banks

to invest fifty per cent of their reserve fund in their business. Sub-rule (2) further lays

down that no society whose reserve fund has been separately invested or deposited shall

draw upon, pledge or otherwise employ such fund except with the prior sanction of the

Registrar.

The requirements of this rule would be met if the society earmarks specific securities

purchased or held by it as representing investment of the reserve fund. There should be a

resolution of the Board or the Committee specifying the securities, which have been so

earmarked.

Under sub-rule (3) co-partnership housing societies are permitted to utilize their reserve

fund for maintenance, repair and renewal of the buildings of the society.

Under sub-rule (4) processing societies are permitted to utilize their reserve fund for the

acquisition, purchase or construction of land, building or machinery.

14: Restriction on dividend: Section 67 restricts to society that they should not pay

dividend to its members, at the rate exceeding 15 percent except with prior sanction of

the Registrar. It thus means that the societies who require to pay dividend more than 15

% are required to obtain permission from the Registrar. The Reserve Bank of India has

also restricted to pay dividend in case of Urban Banks who are not fulfilling the terms

and conditions of prudential norms, they have to take prior permission from the Reserve

Bank Of India.

15. Contribution to Education Fund-Section 68. Under Section 68, every society is

required to contribute to the Education Fund of the State Federal Society notified for the

purpose by the state Government. The Maharashtra Co-operative Union has been notified

by the state Government as the State Federal Society, for he purpose of the section

(Notification No. WPC.2872/10211/ C-5, dated 13.4.1972.). Sub-section (1) provides that

the rates of contribution to the education fund will be prescribed by the Rule. These have

been prescribed in Rule 53. Rates have been fixed according to classes of societies.

Under sub-section (2), contribution to the fund has to be paid within three months after

the close of the year. If default is made, the officer responsible will be personally liable to

made good the amount to the federal society.

Sub section 3 provides to recover the arrears of education fund contribution as arrears of

land revenue, and after the receipt from the federal society, the registrar should grant

certificate for recovery of the amount due as an arrears of land revenue after, making

such inquiry as he deems fit.

Auditor’s responsibility regarding education fund: It is the duty of the Auditors to see

that the amount of the education fund has been correctly calculated and remitted to the

State Co-operative Union within the prescribed time.

16. Charity Fund-Section 69. -It deals with contribution to public purpose and creation

and maintenance of the charity fund by societies. The section lays down that-

(i) Contributions to the charity fund shall be made only after transferring

necessary amounts to the statutory reserve fund.

(ii) Contribution to the fund in any year shall not exceed 20 per cent of the net

profits for the year.

(iii) Payments from out of the charity fund shall be made only with the approval

of the State Federal Society, i.e., the Maharashtra State Co-operative Union (Notification

No.WPC.2872/17441/ C-5 dated 5.7.1972).

(iv) Contributions shall be made only to: -

(a) Any co-operative purpose, or

(b) Any charitable purpose within the meaning of section 2 of the Charitable

Endowments Act, 1890, or

(c) To any other public purpose.

(v) There is no restriction on the amount to be paid. The entire amount or only part of the

amount can be paid.

Under Section 2 of the Charitable Endowments Act, charitable purpose includes relief to

the poor, education, medical relief and advancement of any other public utility.

17.Cooperative State Cadre Fund: Section 69A: Under Section 69 A, a fund is

constituted for the Secretaries of primary agricultural credit societies, multipurpose

cooperative societies and service cooperative and such other classes of societies by the

state Government. The fund is designated as Cooperative State cadre fund and should be

used for persons recruited in the above types of societies, as per sub section (1) of the

section 67 (A)

Under sub section (3) of the section The Maharashtra Rajya Sanvargikaran sahakari

Society ltd. Pune as been notified as Apex society for the purpose of state cadre fund,

(Notification No. CDR. 1481/ 57083/ CR 1151/ 2-C Dated 10.2.1981) and As per

Notification No. GTS 1486/ CR 108/ 2-C dated 3.2.87 The Taluka Cooperative

Supervising Unions are declared as Central Societies, in pursuance to the Sub section (4)

of the Section.

The object of the cadre fund is stated in subsection 3 of the section 69 A as, the fund shall

be utilised for meeting the expenses on the salaries, allowances and other emoluments to

be paid to the persons appointed to the Cooperative State cadre and the other expenditure

relating to the cadre. The rate of contribution to the cadre fund by the beneficiary

societies, services provided by the secretaries of cadre, is decided in Rule 53 (A) &

subsection (4) of the section 69 (A).

Auditors Responsibility regarding State Cadre Fund: The sub rule 53 B (3) required

auditor to submit a certificate, before 15th

August every year, regarding the annual

contribution payable by the societies of which they are auditing under rule 53 A. The Sub

rule 3 of Rule 53 B casts the responsibility on the auditors auditing,

a) The Maharashtra State Cooperative Marketing Federation Limited Mumbai.

b) Every District Central cooperative Bank, Excepting Mumbai District Central

Cooperative Bank and Ahmednager Urban District Central Cooperative Bank Ltd

Ahmadnagar.

c) Every Primary Cooperative Marketing Society; dealing in fertilizers, seed,

agricultural implements or sale of agricultural produce.

d) Every Cooperative Sugar Factory.

18. Investment of funds-Section 70. -Section 70 deals with the different modes in which

a society may invest its fund. The section requires every society to invest its funds in one

or more of the following: -

(a) In a central Bank or the State Co-operative Bank;

(b) In any of the securities specified in section 20 of the Indian Trust Act, 1882;

(c) In the shares or security bonds, or debentures, issued by any other society with limited

liability and having the same classification to which it belongs;

(d )In any other mode permitted by the Rules, or by general or special order of the State

Government.

(e) The societies are restricted to invest the fund to the maximum of their paid up capital.

This clause does not apply to any investment made by any agricultural credit society in

any processing society based on agricultural produce

As regards clause (a) it has to be noted that the central bank referred to in the clause in

the central bank of the district and not the central bank of any other district, including the

district or districts in which the society has a branch or branches. For opening accounts in

other district banks, permission of the Registrar has to be obtained. All State and Central

Government securities and loans and debentures issued by local bodies and other

institutions such as Finance Corporation, Electricity Board, etc., repayment of the

principal and interest has been guaranteed by the State or Central Government are trustee

securities for purpose of this clause.

Under clause (c) of section 146, if a committee of a society or an officer or member

thereof fails to invest funds or the society in the manner by section 70, commits an

offence and under clause (c) of section 147, is liable to a fine which may extend to rupees

five hundred.

19.Investment of other surplus funds: Under Rule 55(1), a society is permitted to invest

its funds (other than the reserve fund) in any of the modes specified in section 70, when

such funds are not utilized for the business of the society.

Note-Section 70 deals with investment of funds. A society can always invest its funds in

activities, which it is permitted to undertake under provisions of its byelaws. What the

section contemplates is investment of surplus funds, i.e., funds that are not immediately

required for purposes of its business. Under 55(1), business of the society includes

investment in immovable property with prior sanction of the Registrar: -

(a) In the process of recovery of the normal dues of the society.

(b) For constriction of building or buildings for its own use.

Clause (b) of section 70 permits a society to invest its funds in any of the securities

specified in section of the Indian Trust Act. However, the society cannot invest its funds

in loans against the security of immovable property. Which is permitted under clause (e)

of section 20 of the Indian Trust Act, since it cannot make loans to non-members except

against the security of their deposits with the society.

Rule 55 (2) empowers the Registrar, in case of any society or class of societies, to specify

by a special or general order, the maximum amounts to be invested in any class of classes

of securities.

20.. Constitution of Investment Fluctuation Fund. -Under Clause (ii) of Rules 51

provision considered necessary for depreciation in the value of any security, bonds or

shares held by the society as part of investments has to be deducted before arriving at the

figure of its net profits. Contributions to the Investment Fluctuation Fund, which is

required to be made by every society, which has invested more than then Ten per cent of

its working capital in securities, contributions to the investment Fluctuation fund are to be

charged to profits under this rule, Rule 55 (3) also empowers the Registrar to direct the

society that a specified per cent of the net profits every year shall be credited to the

Investment Fluctuation Fund until, in his opinion, the amount of the fund is adequate to

cover anticipated losses arising out the disposal of the securities.

21. Employees’ Provident Fund-Section 71. -Section 71 and Rule 56 deal with the

maintenance and investment of provident fund for employees. The section permits a

society to establish provident fund for its employees and also to make contributions to

that fund. However, the amount of the fund cannot be utilized in the business of the

society, but has to be invested as provided in Section 70. Every society, which has

established a provident fund for its employees, is required to frame regulations with the

previous approval of the Registrar, for the maintenance and utilization of the provident

fund for its employees. Among other matters, the regulations must provide for the

following: -

(i) Amount (not exceeding ten percent of the employees’ salary) of contribution to be

deducted from the employees’ salary.

(ii) The rate of contribution (not exceeding the annual contribution made by the

employee) to be made by the society:

(iii) Advances, which may be made against the security of the provident fund;

(iv) Refund of employees’ contribution and contribution made by the society;

(v) Mode of investment of the provident fund and payment of interest thereon.

Sub-section (2) of Section 71, however, provides that notwithstanding anything contained

in sub-section (1) above, a provident fund established by a society to which the

Employees’ provident Fund Act, 1952, is applicable, shall be governed by that act (i.e. by

the Provident Fund Act and not by this section).

22. Utilisation funds not for personal Use: under section 71 (A) prohibits to incur

expenditure on defraying the costs of any proceedings filled or taken by or against any

officer of the society in his personal capacity under sections 78, 96 or 144 T. These

sections deal with removal of committee members, expenditure incurred for disputes in

cooperative court like fees and expenses payable to court, and Disputes relating expenses

towards Election of managing committee respectively.

Auditor’s Responsibility towards personal expenses: Under Section 81 (2) (vi) auditor

has to verify the whether, the society has charged any personal expenses to revenue

account. Section 71 a deals with personal expenses, hence the auditors should cautious

that such expenditure should be carefully verified and reported in his report accordingly.

23. Management of societies-Section 73. -Duties: Section 73 deals with the constitution

of the managing committee, its power and functions. The section lays down that the

management of the society shall vest in the committee constituted in accordance with the

Act, Rules and byelaws of the society. The committee shall exercise such powers and

perform such duties as may be conferred or imposed respectively by this act, the Rules

and the byelaws. Powers to be exercised and duties to be performed under the various

provisions of the Act and the Rules explained herein should be carefully studied.

1) Amendment in by-laws

2) Accepting and sanctioning application for membership, resignations of membership,

expulsion, etc.

3) Taking decisions regarding amalgamation, reorganization, reconstruction,

partnership, and collaboration of societies, for smooth conduct of business.

4) Transfer of shares.

5) Making available to members the books and records open for inspection.

6) Taking decision for borrowing, fixing its limits.

7) Making loan policy, disbursement, and sanction thereof, recovery of loans, and action

for recovery.

8) Transacting day-to-day business, with the help of the officers appointed by the

society. Taking policy decisions for the activities undertaken by the society.

9) Conducting meeting, Annual General meeting, special general meeting, appointing

sub committees, reviewing the decisions of sub committees.

10) Proper utilisation of funds of the society. There investments.

11) Sanctioning of financial statements, there review, budgets and monitoring the

budgetary provisions.

12) Conducting elections on due dates, and managing the societies affairs as per byelaws.

13) Submitting audit rectification reports, and other reports of financial agencies and

from cooperative department.

14) Dealing with all types of disputes arised while conducting the business of society.

15) All other duties specified in the Act, rules and by-laws of the society.

The by-laws also contain specific provisions relating to the constitution of the

committee, the powers to be exercised by it and the duties entrusted to it. The committee

generally exercises all powers except those, which have been especially reserved for

itself by the general body or denied to the general body by law. It has to be noted that

ultra virus acts the committee do not bind the society, if the byelaws define its powers

and duties exactly. Byelaws of the society should, therefore, be gone through carefully.

Although section 74 lays down that the qualifications for the appointment of the

secretary, accountant or any other officer shall be as may be prescribed, no rule has so far

been framed laying down specific qualification for appointment to these posts.

24. Joint and Several Resposibility of Directors:The subsection (1 )(AB) of the section

73 provides that the members of the committee are jointly and severally responsible for

the decisions taken by the committee during its term relating to the business of the

society, and they have to execute bond in relation to the joint and several responsibility of

them, for all the acts and omissions detrimental to the interest of the society, the

subsection further provides that, if the member elected who fails to execute such bonds

from the specified period shall be deemed to have vacated his office as a member of the

committee.

However, they will not be responsible if the losses incurred by the society or on account

of any natural calamities, accident or any circumstances beyond the control of such

members. Before fixing any liability, the Registrar should inspect the records of the

society, and decide the reasons for losses are due to the acts or omissions on the part of

the committee members or otherwise as stated above.

The sub section further provides that, the member who dose not agree with any of the

resolution or decision of the committee, may express his dissenting opinion, and should

be recorded in proceedings of the meeting and if he so desires may also communicate in

writing his dissenting note to the Registrar within 7 days from the date of said resolution

or decision, shall not be held responsible for the decision embodied in the said resolution

or such acts or omissions committed by the committee of that society as per the said

resolution. As well as the members are also not held responsible who were absent while

taking the such decision and subsequently dissented to the resolution at the time of

confirming it.

Under subsection 2 of the section Registrar is empowered to prescribe the maximum

number of members on the committee having regard to the area of operation, subscribed

share capital or turnover, of the society or class of the societies, by special or general

order.

25.Reservation and restrictions for the committee memberships: Under various sections

of the act, the reservations are prescribed, which includes scheduled castes, scheduled

tribes, other backward classes, denoted tribes, nomadic tribes, special backward classes

and weaker sections as per section 73 B and for employees and women under section 73

BB and 73 BBB respectively.

There should be only one member representing individual members, and members who

have not taken loans from the concern society on the committee of the District Central

Bank and Agricultural and Rural Development bank, agricultural credit society

respectively.

26. Disqualification for holding offices. -Section 73F lays down that a member whose

near relative is dealing in goods for purchase of which loans are given by a society is not

eligible to be on its committee. Rules 57 and 58 specify further disqualification for

holding officers in societies.

Under Sub-rule (1) of Rule 57, no officer of a society shall have any direct or indirect

interest otherwise than as such officer: -

(a) In any contract made with or by the society, or

(b) In any property sold or purchased by the society; or

(c) In any other transaction of the society except as a depositor or borrower of the

society or occupant of residential accommodation provided by the society to its

employees.

Sub-rule (2) lays down that no officer of a society shall purchase directly or indirectly,

any property of a member of the society sold for the recovery of his dues to the society.

Sub-rule (1) of section 73 (FF) lays down further disqualification for membership of the

committee.

No person shall be eligible for appointment, nomination, co-option or election as a

member of the committee of a society if. -

(a) He is in defaulter of any society; which includes-

1) Default in repayment of the crop loan on due date.

2) In case of term loan defaults the payment of any installment of the loan granted to

him,

3) In case of any society (a) a member who has taken anamat or advance; or (b) a

member who has purchased any goods or commodities on credit or availed himself of any

services from the society for which charges are payable and fails to repay the full amount

of such anamat or advance or pay the price of goods or commodities or charges for such

service, after receipt of notice of demand by him from the concerned society or within

thirty days from the date of withdrawal of anamat or advance by him or from the date

delivery of goods to him or availing of services by him, whichever is earlier.

4) In case of non agricultural credit societies, a member who defaults the payment of

any installment of the loan granted,

5) In the case of housing societies, a member who defaults the payment of dues to

the society within three month from the date of service of notice in writing served by post

under certificate of posting demanding the payment of dues.

(b) He is in the opinion of the Registrar, persistently and deliberately committing breach

of the co-operative discipline with reference to liking up of credit with co-operative

marketing or co-operative processing, or

(c) He has been held responsible under Section 79 or 88 or has been held responsible for

payment of cost of inquiry under section 85, or

(i)He has incurred any disqualification under this act or the rules made there under; or

(ii)Carries on business of the kind carried on by the society either in his name or in the

name of any member of his family or he or any member of his family as a partner in a

firm, or a director in a company which carries on business of the kind carried on by the

society; or

(iii)Is a salaried employee of any society (other than a society of employees themselves)

or holds any office of profit under any society, except when he holds or is appointed to

the office of the Managing Director or any other office declared by the state Government

by general or special order not to disqualify its holder or is entitled to be or is selected or

elected to any reserved seat on the committee of a society under section 73 (BB).

(iv)He has more than two children, after the date of commencement of this provision i.e.,

after 7.9.2001.

For the purpose of this clause (v) of the section 73 FF (1) the family includes, wife,

husband, father, mother, brother, sister, son, daughter, son-in-law, or daughter-in-law.

Sub-rule (2) lays down that a member of the committee of a society shall cease to hold

office if he incurs any of the disqualification mentioned in sub-rule (1)

Clause (i) of sub-rule (3) lays down that a member of a society who carries on the

business of the kind carried on by the society, shall not be eligible to be a member of the

committee of that society, without the general or special sanction of the Registrar.

27. General Meetings-Section 72. -Section 72 lays down that the final authority of every

society shall vest in the general body of members in general meeting, summoned in such

manner as may be specified in the byelaws. Byelaws of societies contain specific

provisions regarding convening general meeting (both annual and special) and business

transacted. These should be noted. Rules 59 prescribe the procedures to be followed at

the first general meetings of the society and Rule 60 lays down the procedure for calling

general meeting and the manner in which business of the meeting is to be transacted.

Notice of every meetings has to be sent not only to all members of the society, but also

the Registrar and if the audit memo, is to be considered, to the auditor appointed under

section 81 also. Under sub-rule (2), no general meeting can be held or proceeded with

unless the number of members sufficient to form a quorum as specified in the byelaws is

present. Provisions regarding adjournment of meetings and holding of adjourned meeting

should also be noted (sub-rule 10).

28.Annual General Meeting. -Sub-section (1) of Section 75 lays down that every society

shall hold its annual general meeting within three months after the date fixed for making

up its accounts. The Registrar may, however, extend the period for holding the annual

general meeting for a further period of three months. For the urban banks the permission

to held annual general meeting after the period of three months is required to be obtained

from the State Government.

Under rule 61, every society is required to prepare its annual statements of accounts

within forty-five days of the close of the co-operative year, which is 31st March, in case

of all societies except societies belonging to certain classes (in whose case it may be

different). The annual accounts for all societies will, therefore, have to be ready before

15th

May and the annual general meeting will have to be held before 15th

August every

year unless the period for holding the meeting has been extend by the Registrar. Since the

Registrar can extend the period by only months, the annual general meetings must be

held before 15th

November.

If the society does not call its meeting within the prescribed period, the Registrar has

been empowered to call the meeting himself or authorise any person to call the meeting

and recover the expenses from the society or from the defaulting officers of the society.

Under rule 61, the following are the annual statements of accounts to be prepared by the

society, copies of which are required to be sent to the auditor within fifteen days from

their preparation, i.e., before 31st May every year. -

(i) Statement showing receipts and disbursements during the previous co-operative year.

(ii) The profit and loss account for the year;

(iii) The balance sheet as at the close of the year.

The rule further lays down that these statements shall be open for inspection by any

member of the society.

Sub-section (2) of section 75 lays down that at every annual general meeting of the

society, the committee shall lay before the society the following statements. -

(i) A statement showing the details of the loans (if any) given to any of the members of

the committee or any member of the family (as defined in the explanation to clause (v) of

sub section (1) of section 73(FF), (i.e. wife, husband, father, mother, brother, sister, son,

daughter, son-in-law, or daughter-in-law) of any committee member (including

a society or firm or company of which such member or members of his family is a

member, partner or director, as the case may be), and the details of repayment of loan

made, during the last preceding year and the amount outstanding at the end of that year.

(ii) Balance sheet ad profit and loss account for the year;

(iii) The audit memorandum submitted by the auditor appointed under section 81; and

(iv) The report of the committee.

Under rule 62, the balance sheet and the profit and loss account are required to be in form

“N” accompanying the rules. In the case of a society not carrying a business for profit, an

income and expenditure statement instead of the profit and loss account is to be placed

before the annual general meeting.

29. Contents of the Annual Report. -Under sub-section (3) of section 75, the following

matters are required to be dealt with in the annual report of the committee: -

(a) The state of the society’s affairs;

(b) The amounts proposed to be carried to the reserve fund;

(c) The committee’s recommendations regarding amounts to be paid by way of

dividends, bonus or honoraria to honorary workers.

(d) Any changes, which have occurred during the year in the nature of the society’s

business.

The committee’s report is required to be signed by the Chairman or any other officer

authorized to sign on behalf to the committee.

Sub-section (4) lays down the business to be transacted at the annual general meetings.

The section states at every annual general meeting, the balance sheet, the profit and loss

account, the audit memorandum submitted by the auditor appointed under section 81, and

the committee’s report shall be laid for adoption and such other business will be

transacted as may be laid down in the byelaws and of which due notice has been given. It

will thus be seen that in addition to the items specified in the byelaws and of which due

notice has been given (i.e. which have been included in the agenda for the meeting) can

be considered at the annual general meeting.

Sub-section (5). -Penal provisions for non-compliance of the above provisions. If default

is made, in calling a general meeting within the period, or as the case may be, within the

extended period or in complying with the provisions of sub-sections (2), (3) or (4), the

Registrar may declare any officer or member of the committee whose duty it was to call

the meeting or to comply with the above provisions, disqualified for being elected and for

being an officer or member of the committee for three years. If the officer is a servant of

the society, he may impose a fine not exceeding Rs. 100.

Section 76 contains provisions regarding convening of special general meetings. Under

clause (ii) of sub-section (1), the Registrar may direct a society to call a special general

meeting. Under sub-section (3), if the society fails to call the meeting, the Registrar may

himself call the meeting and take action against the defaulting committee or officer.

30. Removal of committee: Under section 78, power has been given to the Registrar to

remove the managing committee of a society or any member thereof and appoint one or

more administrators for conducting the business of the society. The committee of

administrator appointed by the Registrar, has power to exercise all the powers of the

Committee or of any officer of the society and take all action required in the interest of

the society. He can also call a special general meeting of the society to review or

reconsider the decision or resolution taken or passed at previous general meetings or

endorse the action taken by them.

The period of appointment of the administrator will be two yeas, but may be extended

from time to time, but the total period should not exceed four years.

31. Accounts of Co-operative Societies-Section 79-This section is of special importance

of auditors. Under the section, the Registrar has been empowered to direct any society or

class of societies to keep proper accounts with respect to-

(i) All sums of money received and expended by the society and matters in respect of

which receipts and expenditure take place.

(ii) Sales and purchases of goods by the society, and

(i) The assets and liabilities of the society.

Rule 65 further lays down that every society shall keep certain essential account books

specified in the rule.

Sub-section (1) of Section 79 further empowers the Registrar to direct any society (i) to

furnish such statements and returns and (ii) to produce such record as he may require

from time to time.

The officer or officers of the society are required to comply with the Registrar’s order

within the period specified therein.

It will thus be seen that the section empowers the Registrar not only to direct any society

or class of societies to maintain necessary account books and registered and produce

them whenever required by him (viz., for the purpose of audit under Section 81, inquiry

and inspection under section 83 and 84 and to the Examining Officer authorized by the

Registrar under section 88), but also to furnish to him such statements and returns as he

may require. The provisions have been further amplified in rule 67.

32. Powers of the Registrar : Sub-section (2) of Section 79 deals with the powers of the

Registrar to enforce performance of obligations. Where any society is required to take

any action under this Act, the rules or the byelaws, or to comply with an order made

under sub-section (1) of Section 79 and such action is not taken within the time specified

in the Act, Rules or byelaws or the order of the Registrar and where no time has been

specified for compliance notice in writing specifying the period within which action

should be taken by the society. Where no action is taken by the society, the Registrar may

himself or through any person authorized by him, take such action at the expense of the

society and recover the expenses from the society as arrears of land revenue. Sub-rule (2)

of Rule 67, prescribes the procedure for enforcement of these provisions. Under sub-

section (3), the Registrar has further been empowered to hold responsible opportunity of

being heard, may order them not only to reimburse the society the expenses paid to the

State Government as a result of their failure to take action, but further to pay to the

society an amount not exceeding Rs. 25 as may be ordered by him, for each day until the

Registrar’s directions are carried out.

33.Power of the Auditors: These are very important provisions and powers under this

section as well as those under the following section viz., section 80, rule 68 are also

available to the special auditors as under Government Notification No.

WPC/2872/35113-C-5, dated the 23rd August 1972, they have been delegated to all

Special Auditors in Class I and Class II in addition to the Divisional Joint Registrars and

District Deputy Registrars.

Rule 67, which deals with Registrar’s power to enforce performance of obligation,

reads as under; -

(1) The Registrar may require any society to furnish to him any return in such form as

may be specified by him on such date or at such intervals as may be specified by him in

the order. If there are any salaried officials of the society, they would be responsible for

the submission of these returns on due dates. If there are no salaried officers, the

Chairman or member of the committee, who attends to the executive functions of the

society, is responsible for submission of the returns.

(2) If the society fails to furnish any return on due dates, the Registrar, after giving due

notice to the person or persons responsible for submission of the returns, may depute an

employee of the Co-operative Department or of the Federal society to which the society

is affiliated to prepare the return and submit to him and recover the expenses incurred by

him from the society.

35.Government’s powers to give directions-Section 79-A. –This section, which has been

newly added, gives powers to Government to give directions where public interests are

affected. Whereas the previous section, section 79, empowers the Registrar to direct

societies to, maintain proper accounts, to produce books and accounts and furnish

statements and returns to him, this section (Section 79-A) empowers the State

Government to give directions in regard to the management of the society and conduct of

its affairs.

The Section State-

(1) If the State Government, on receipt of a report from the Registrar or otherwise, is

satisfied that in the public interest or for the purpose of securing proper implementation

of co-operative production and other development programs approved or undertaken by

Government, or to secure the proper management of the business of the society generally,

or for preventing the affairs of the society being conducted in a manner detrimental to the

interest of the member or of the depositors or the creditors thereof, it is necessary to issue

directions to any class of societies generally or to any society or societies in particular,

the State Government may issue directions to the, from time to time and all societies

concerned as the case may be, shall be bound to comply with direction.

(2) The State Government may modify or cancel any directions under sub-section (1)

and in modifying or canceling such directions may impose such directions as it may deem

fit.

Under section 78, the Registrar has been given power to remove the entire committee or

one or more members under circumstances specified in the section.

36. Power to seize records, etc.-Section 80 gives powers to the Registrar to seize records

and property of the society where he is satisfied that they are likely to be suppressed,

tampered with or destroyed, or the funds and property of a society are likely to be

misappropriated or misapplied. The procedure for seizing the records has also been

specified.

A liquidator, auditor, officers conducting inquiry under section 83 or inspection under

Section 84 or authorized under Section 88, may apply to the Executive Magistrate for

seizing and taking possession of records and property of the society when frauds are

suspected.

Rule 68 prescribes the procedure for seizing books, accounts, property, etc.

37.Audit and Auditors. -Section 81, sub-section (1) lays down that the Registrar shall

audit or cause to be audited by a person authorized by him by general or special order in

writing in this behalf, the accounts of every society which has been given financial

assistance including guarantee by the State Government, or Government undertakings,

from tome to time, and the accounts of the apex societies, state and District Level Federal

Societies, District Central Cooperative Banks, Cooperative Sugar factories, Urban

cooperative Banks, Cooperative Spinning Mills, District and taluka Cooperative Sale and

Purchase organizations, and any such society or class of Societies which the State

Government may, from time to time notifies, at least once a year. The Government has

notified under his No. CSL3, 1096/ CR-146/15-C dated 11th

November 1996, for this

purpose, the Urban credit societies, Salary Earners Cooperative societies, and primary

Agriculture Cooperative Credit Societies. Now from 2010-11, all urban co-operative

bank audits are being allotted to Chartered Accountants empanelled with the department

through the ICAI through e-prakash.

The societies excluding stated in clause (A) above are required to get their accounts

audited, at least once in each cooperative year by an auditor from the panel of auditors

maintained by the Registrar, or by a Chartered Accountant holding a certificate in

cooperative audit issued by the Institute of Chartered Accounts of India.

This subsection further provides that, the Registrar may, for reasons to be recorded in

writing, audit or cause to be audited accounts of any such societies of any year and at any

time.

Rule 69 deals with audit of co-operative societies.

Sub-Rule (1) provides that audit may be conducted by auditors belonging to the co-

operative department and working under the control of the Registrar or by certified

auditors appointed by him.

The rule empowers the Registrar to appoint certified auditors and fix terms and

conditions for their appointment.

Under provision to this rule, the Registrar has been empowered to issue general orders

permitting any society or class of societies to get its/their accounts audited by certified

auditors.

Under explanation (2) below this sub-rule, qualifications have been prescribed for

appointment as certified auditor. A panel of certified auditors is to be maintained by the

Registrars and published by him once at least every three years.

Sub-section (2) of Section 81 defines the scope of audit. The Section does not lay down

how audit is to be conducted, but merely specifies that audit shall include an examination

or verification of the overdue debts, if any, the verification of cash balance and securities,

valuation of assets and liabilities, loans and advances whether secured or unsecured,

terms of the loans, mere book entries which are not prejudicial to the interest of the

society, loans and advances shown as deposits, personal expenses charged to the profit

and loss account, expenses in furtherance of objects of the society, utilisation of the

Government Assistance, and carrying out its objects and obligations towards members,

audit according to the generally accepted principles, the auditor has to attend to the above

matters.

Sub section 2A and 2B provides, for Cost audit for any society or class of societies for

ensuring management thereof in accordance with sound business principles or prudent

commercial practices, ordered by the State Government and conducted by a cost

accountant who is a member of the Institute of Cost and Works Accounts of India.

Sub-section (3) (a) lays down that auditors shall have access to all book, accounts,

records, etc., of the society.

The sub-section also empowers the auditor to summon any person in possession or

responsible for the custody of account books, records, cash security and other property of

the society to produce them at the held quarters of the society or any branch thereof.

Sub section (3) (b) empowers Registrar to depute flying squad to a society or societies,

for examination of books, records, accounts and such other papers and for verification of

the balance. The report of flying squad is deemed audit report for taking further action.

This sub-section is inserted for the societies where suspected frauds are reported or there

is misapplication of the funds, for taking legal action rapidly the report of flying squad is

deemed as audit report.

Sub section (3) (c) provides, Registrar or the person authorised by him to carry out or

cause to carried out the test audit of accounts of any society. The test audit shall include

the examination of such items as may be prescribed. This subsection is inserted for the

detection of frauds and misapplication of funds, which were not detected during the

course of audit, or for which complaints are received to the Registrar. This a statutory test

audit is different from the test audit that is taken by the higher authorities of auditors to

guide them.

38.Auditor - public servant: Under Section 161, the Registrar, his assistants exercising

his powers, auditors appointed under Section 81, persons authorized to conduct inquiry

under Section 83 or inspection under Section 84, administrators appointed under Section

78, Registrar’s nominees appointed under Section 93 and liquidator appointed under

Section 103 are all deemed to be public servants with the meaning of Section 21 of the

Indian Penal Code. Disobedience of their authority such as failure to attend when

summoned, failure to produce books or records or to furnish information and explanation

called for etc., will be offences under the Indian Penal Code.

39. Powers and Rights: Under sub-section (4) of Section 81, auditor has been given

powers to call for information from present and past members of the society, its officers

and employees.

Under clause (e) of Section 146, any officer, agent or servant of a society, who fails to

comply with the requirements of this sub-section, commits an offence and is punishable

with a fine, which may extend to rupees five hundred. The auditor has thus power to put

questions and elicit information about the transactions of the society from any present or

past member, officer or employee of the society.

Under sub-section (5) of Section 81, auditor has a right to receive all notices and other

communications relating to the annual general meeting of the society, to attend the

meeting and to be heard threat, in respect of any part of the business with which he is

concerned as auditor.

Under sub section 5A the auditor after satisfying himself, is required to report about the

books of accounts or other documents contain any incriminatory evidence against past or

present officer of employee of the society, requires to impound the same. The previous

permission of the Registrar before impounding is necessary and the auditor has to give a

receipts for the books or documents, which he has impounded.

Under sub section 5B and Rule 69 (3), (4) and (5) auditor has to submit audit

memorandum duly signed by him to the society and Registrar in such form as may be

specified by the registrar, on the accounts examined by him and on the balance sheet and

profit and loss account as on the date and for the period upto which the accounts have

been audited. He has to state in it, whether in his opinion and to the best of his

information and according to the explanation given to him by the society the said

accounts give all information required by or under this act and present the true and fair

view of the financial transactions of the society.

Under rule 49, all bad debts and losses are required to be certified by the auditor

as irrecoverable before they can be written off against the bad debts fund.

40.Re-audit. -Sub-section (6) of Section 81 empowers the Registrar to order re-audit of

the accounts of a society. The sub-section further clarifies that all provisions of the Act

applicable to audit, shall also apply to re-audit ordered by the Registrar.

Sub-rule (3) of Rule 69 clarifies that audit under Section 81 includes annual or periodical

audit, continuous or concurrent audit, test audit or super audit and re-audit.

Rule 69 lays down the procedure for appointment of auditor and for conduct of audit.

Sub-rule (1) provides that audit may be carried out by departmental auditors or by

certified auditors. Qualifications for appointment of certified auditors are laid down.

Panel of certified auditors is required to be maintained by the Registrar and published in

the official gazette once at least every three years

Sub-rule (2) specifies the period to be covered by audit. Audit shall extend back to the

date of previous audit and shall be carried out upto the close of the co-operative year. The

registrar may also direct that audit for a further period so as to bring it up-to-date may be

carried out.

Under sub-rule (3), the auditor after completing his audit is required to submit to the

society and the Registrar an audit memorandum for different types of societies

appropriate to the nature of business activities undertaken by them. The audit

memorandum is in the form of queries relating to the different aspects of the operations

of the society and its financial position and replies are to be furnished against each query

by the auditor. In addition, a report containing general remarks and suggestions has also

to be enclosed along with the printed audit memorandum.

Sub-rule (4) specifies the contents of the audit memorandum. Besides, replying all the

queries in the audit memo and furnishing his general remarks and suggestions, the auditor

is required specifically to report whether he has obtained all the information and

explanations required by him and whether in his opinion proper books of accounts as

required under the Act, Rules and byelaws of the society, which give all the information

required by the act, have been kept by the society. He has further to certify that the

balance sheet and the profit and loss account examined by him are in agreement with the

books of accounts and returns of the society and express his opinion whether the balance

sheet exhibits a true and fair view of the financial position of the society as the date of

audit or subsequent date upto which the accounts are audited by him and whether the

profit and loss account gives a true and fair view of the profit or loss made by the society

during the financial year or the period covered by his audit.

Sub-rule (5) provides that where the auditor is unable to furnish a clean report or

considers it necessary to qualify his report, he has to state reasons for the same.

Under rule 69 (6), the auditor is also required to enclose along with his audit

memorandum schedules furnishing detailed information regarding: -

(i) All transactions which appear to be contrary to the provisions of the Act, Rules

and byelaws of the society.

(ii) All sums, which ought to have been, but have not been brought into accounts.

(iii) Any material impropriety or irregularity in the expenditure or in the realisation of

moneys due to the society.

(iv) Any money or property belonging to the society, which appears to the auditor

to be bad or doubtful of recovery.

The registrar may also specify other matters in respect of which detailed information is

required to be furnished by the auditor.

The registrar has specified the forms of the schedules. These schedules are required to

accompany the audit memorandum and form part of the audit memorandum. The

Registrar has specified schedules for Governments Assistance for share capital, loans and

grant in aid, and education fund in addition to the forms specified above.

Sub-rule (7) requires the auditor to prepare a summary of his audit memorandum, which

is to be read at the general meeting. The audit memorandum together and its

accompaniments are public documents and are to be kept open to inspection by any

member of the society (item number 6 of documents specified in rule 30).

Sub-rule (7) provides that if the Registrar is of opinion that any portion of the audit

memorandum is of an objectionable nature or not justified by facts, he has power to order

that such portions as he considers objectionable shall be expunged from the audit

memorandum.

The auditor should, therefore, restrict his observations to reporting facts only and while

expressing opinion, should not draw any unwarranted inferences.

For purpose of audit, the auditor requires certain statements to be prepared and

information to be furnished regarding the operation of the society. Sub-rule (8) empowers

the Registrars to specify the forms in which the statements of accounts and information

shall be prepared by the society.

Sub-rule requires the auditor, on conclusion of his audit, to award an audit class to the

society. All societies are required to be awarded an audit classification letters, - A, B, C,

or D in accordance with the instructions issued by the Registrar from time to time. The

list of societies to be published in the official gazette under sub-section (3) of section 12

is required to show the audit class of the society.

41.Audit of liquidators’ accounts: Section 108 contains provisions relating to audit of

societies in liquidation.

The liquidator is required to prepare statement of receipts and payments in the prescribed

from and furnish vouchers and information required by the auditor.

Summary of audited accounts is to be prepared and sent to all contributories by the

liquidator.

42. Rectification of defects disclosed in audit-Section 82. -On receipt of the audit

memorandum from the auditor, the management of the society is required to take steps to

rectify the defects reported by the auditor and implements the suggestions made by him.

Section 82 requires every society to explain to the Registrar, within three months from

the date of receipt of the audit memo, the defects or irregularities pointed out by the

auditor and report to the Registrar, the action taken by it to remedy the defects and rectify

the irregularities. The section further empowers the Registrar to direct the society and its

officers to take specific action to remedy the defects within the specified time. Such order

is to be issued after consulting the federal society to which the society is affiliated.

43.Submission of audit rectification report by the society. Rule 73-The Registrar has

issued instruction that every society shall submit its audit rectification report in the form

prescribed in rule 73 i.e., in “O” form, within three months from the date of receipt of the

audit memo by it, through the auditor who has carried out the audit. The auditor has to

forward the audit memo to the Registrar or other registering authority having jurisdiction

report and recover costs from the society.

After considering the remarks of the auditor and the explanation of the society, the

Register would issue directions under section 82 requiring the society to take specific

action.

Sub-section (4) of section 87 lays down that, where the society fails to remedy the defects

disclosed in the course of or as a result of Audit under Section 81 or fails to rectify the

defects as directed by the Registrar, the Registrar may himself take steps to have the

defects rectified and recover the costs from the officer or officers of the society who, in

his opinion, have failed to rectify the defects.

Rule 73 lays down that the rectification report to be submitted by the society in

compliance of the orders issued by the Register shall be in form “O” accompanying the

rules. The Rule further requires the society to continue to submit such reports to the

Registrar until all the defects and irregularities are rectified to the satisfaction of the

Registrar.

44. Enquiry and Inspection. -Section 83 provides for inquiry by the Registrar into the

constitution, working and financial condition of the society. The Registrar shall hold such

inquiry-

(a) At his own motion;

(b) On the application of one-third of the members of the society.

Sub-section (3) A & B defines powers of the inquiry officer and provides for punishment

for non-production of books and documents and refusal to answer questions. Subsection

lays down that the results of the inquiry shall be communicated to the society.

Sub section 4 of the section 83 provides that, the Registrar should communicate the

results of inquiry to the society.

45.Inspection: Section 84 provides for the inspection of books of an indebted society on

the application of a creditor of the society. Such an application has to be accompanied

with necessary deposit. The Registrar communicates the result of inspection to the

applicant. The Registrar can exercise these power at his own motion as per sub section 4

of the section, wherein Government has substantial interest by way of financial

assistance, by way of share capital or otherwise.

Under sub-section (1) of Section 87, the Registrar has to bring to the notice of society

defects disclosed in inquiry or inspection. He has also been empowered to take necessary

action to remedy the defects within a specified time and on the failure of the society, he

may take necessary action himself and recover the cost from the defaulting officers of the

society.

46.Registrar power to inspect working of society: Section 89 (A): The registrar is

competent to inspect or cause to inspected the working of any society to ensure the

following matters;

1) The provisions of the Act, rule and bye-laws of the society are being properly

followed by the society;

2) The records and books of accounts are kept in proper forms;

3) The business of the society is being run on sound business principles; the society is

following the cooperative principles and the directives or direction given by the State

Government in accordance with the provisions of this Act and the rules made there

under:

It further provides that, the officer not below the rank of Deputy Registrar should carry

the inspection.

Subsection 2 empowers the Registrar to access all records and books of account of the

society, and summon any officer or employee who has the custody of the records or

books of accounts of the society to produce them before him for the purpose of inspection

under this section.

47. Assessment of damages. -Section 88 empowers the Registrar to assess damages

against delinquent promoters, committee members and other officers. This is a very

important section and has to be carefully studied by the auditors as the initiation and

success of the action under this section depend mainly upon his report and the diligence

with which he has carried out his duties.

This section is more generally known as “Misfeasance Section” and in view of its

importance has been dealt with in detail elsewhere.

Sub-section (3) provides that the section shall apply, notwithstanding the act is one for

which the person is criminally liable. Hence, proceedings under this section can be

instituted simultaneously with criminal proceedings. It has, however, to be noted that the

application of this section is limited to cases falling within a period of five years prior to

the date of commencement of audit, inquiry or inspection or date of order of winding up.

The section lays down a summary procedure.

48. Powers of officers to enforce attendance. -Section 89 gives powers to the person

acting under Sections 83, 84 and 88 to summon and enforce attendance of any persons o

give evidence or compel production of any document. Similar powers given to the auditor

under section 81 (4) are available against a non-member who has dealings with the

society.

49. Supervision over working of societies-Section 90 provides for the constitution or

recognition of a federal authority of supervises working of societies. Sub-section (2)

provides for the assessment of supervision fees.

50. Payment of T.A. and D.A.- Payment of Traveling Allowance and Daily allowance to

Managing Committee or Board members of Co-operative societies will be governed by

the provisions of section 160-B & Rule 107-A of the Maharashtra Co-operative Societies

Rules, 1961.

51. Security to be furnished by officers and employers handling cash, etc.-Every officer

and employee of a society, who is required to handle cash, securities or property

belonging to the society, is to furnish security as prescribed under Rule 107-B of the

Maharashtra Co-operative Societies Rules, 1961.

52. Cash balance on hand. -Rule 107-C of the Maharashtra Co-operative Societies

Rules, 1961, lays down the limits of a cash balance to be handle or kept on hand by the

office bearers of the Co-operative Societies.

The remaining sections contain administrative provisions and deal with procedural

matters and hence have not been dealt with here. Provisions relating to Land

Development Bank contained in Chapter VI are required to be studied carefully by

auditors in charge of these banks. These have been explained in the Chapter dealing with

the audit of different types of societies.

********************

BANKING REGULATION ACT, 1949 (Act No. 10 of 1949)

(As applicable to Co-operative Societies)

The Banking Regulation Act, 1949 (as applicable to Co-operative Societies), which had come into tree from 1st March 1966, has vested the Reserve Bank with various statutory powers of control and Supervision over the Co-operative Banks. The powers in regard to incorporation, management etc. of these Banks, however, continue to vest in the Registrars of Co-operative Societies of the States concerned. Further the provisions of the B. R. Act, 1949 (as applicable to Co-operative Societies) shall be in addition to, and not, save as expressly provided in the Act, in derogation of any other law for the time being in force. This means that the Co-operative Banks are required not only to comply with the provisions of the B. R. Act, but also other laws applicable to them. In respect of matters specifically provided for in the B. R. Act. the provisions of the said act will prevail over the provisions of the Co-operative Societies Acts. The salient features of some of the important sections of the Act and Rules are as under: Sec.5 (ccv): In terms of this Section, a "Primary Co-operative Bank" means a

Co-operative Society other than a primary Agricultural Credit Society :

1. Primary object or principal business of which is the transaction of

banking business

2. the paid-up share capital and reserves of which are not less than one

lakh of Rupees and

3. the bye-laws of which do not permit admission of any other Co-operative

Society as a member provided that this sub-clause shall not apply to the

admission of a Co-operative Bank as a member reason of such Co-

operative Bank subscribing to the share capital of such Co-operative

Society out of funds State Government for the purpose.

Sec.6: The forms of business in which the Co-operative Bank may engage have

been specified in sec.6. However, undertake such other business in which the Central Government may by a notification in the official gazette specify under clause (o) of Sub-sec. (1) of sec.6 of the Act, as a form of business in which it is lawful for a Co-operative Bank to engage itself.

a) The Government of India by a Notification dated 12.12.1995, has

specified "hire purchase" and ::orient leasing" as forms of business in

which it is lawful for a Primary Co-operative Bank to engage.

b) The Government of India by a notification has notified Insurance as a

form of business, which may be undertaken by the Co-operative Banks

Note Ref UBD.CO. BSD (SCB). No.5 dated 31.08.2009 1. A Ref is invited to Section 6 (1)(f) of the Banking Regulation Act (B.R.

Act), 1949 (AACS), in terms of which banks may also engage in

managing, selling and realizing any property which may come into its

claims.

2. The Reserve Bank hereby directs UCBs not to acquire any property

which is not meant for their own identifiable/justifiable satisfaction, or

part satisfaction, of any of its claims. are to be disposed of within the

period stipulated under Section 9 of the B.R. Act, 1949 (AACS). These

instructions and directions must be noted for meticulous compliance.

Sec. 8 A Co-operative Bank cannot undertake trading activities. Sec.9: A Co-operative Bank is prohibited from holding any immovable property

howsoever acquired as is required for its own use, for any period exceeding seven years from the acquisition thereof or from the commencement of the Act, i.e. 1st March, 1966, whichever is later, if a Bank cannot dispose off the property within the stipulated period, it has to seek extension of time. In case of a Primary Credit Society, which becomes a Primary Co-operative Bank, after the commencement of the Banking Laws (Amendment) Act, 1983, the period of 7 years for holding the non-banking assets acquired by it shall commence from the day it becomes a Primary Co-operative Bank. Further, the Reserve Bank can extend the aforesaid period of 7 years by such further period, as it may consider necessary to do so, in cases where it is satisfied that such extension would be in the interest of the depositor of the Co-operative Bank.

Sec.11: No Co-operative Bank shall commence or carry on the business of Banking in India unless the aggregate value of its paid up capital and reserves is not less than Rupees one lakh. For the purpose of this Section, "value" means the real or exchangeable value and not the nominal value shown in the books of the bank. A determination by the Reserve Bank of aggregate value of the paid up capital and reserves of a Co-operative Bank shall be final for the purpose of the Act.

Sec.14A: No Co-operative Bank shall create a floating charge on the

undertaking or on any of its property or on any part thereof, unless the creation of such floating charge is certified in writing by the Reserve

Bank as not being detrimental to the interests of the depositors of such Co-operative Bank.

Sec.18: A Co-operative Bank other than a Scheduled State Co-operative

Bank/Primary Co-operative Bank is required to maintain cash reserve with itself or in Current Account (net balance) opened with the Reserve Bank or State Bank of India or State Co-operative Bank of the State concerned or with any other Bank notified by the Central Government not less than 3% of DTL as on the last Friday of the second preceding fortnight and shall submit in prescribed form, a return to the Reserve Bank on or before the 15th of the subsequent month showing the amount so held on alternate Fridays of the month. The banks notified under this section are the State Bank of India, the State Associated Banks and the / Nationalised Banks. In the case of a Primary Co-operative Bank, the cash reserve can be maintained in the Central Co-operative Bank of the District concerned or in a Central Co-operative Bank outside the District provided the Urban Bank has its branch in the said District.

The balance held by the Co-operative Bank in current account with the State Bank of India or a subsidiary bank or the nationalised banks shall be set off by the balances held by the said banks with such Co-operative Bank and only the net balance in the current account shall be regarded as Cash Reserve.

Sec.20: Prohibits sanction of loans or advances on the security of its own

shares and also unsecured loans and advances to Directors or the firms or private companies in which they are interested. In the case of Primary Co-operative Banks unsecured loans to directors are subject to the Directives issued by the Reserve Bank from time to time.

Sec.20A: Co-operative Banks would have to obtain prior approval of the

Reserve Bank to remit in whole or in part any debt due to it by any of its past or present directors.

Sec.21: Empowers the Reserve Bank to determine the policy in relation to

advances to be followed by Co-operative Banks generally or by any Co-operative Bank in particular. Under this section, the Reserve Bank may issue directive to Co-operative Banks generally, or to any Co-operative Bank in particular as to:

(a) the purpose for which advances may or may not be made; (b) the Margin to be maintained in respect of secured advances; (c) the maximum amount of advances or other financial accommodation, which may be made by a Co-operative Bank to any one party;

(d) the maximum amount upto, which guarantees may be given by a Co- operative Bank on behalf of . any one party; (e) the rate of interest and other terms and conditions on which advances or other financial accommodation may be made.

Sec.21 A: Notwithstanding anything contained in the Usurious Loans Act,

1918 or any other law relating to indebtedness in force in any State, transactions between a Co-operative Bank and its debtor shall not be reopened by any court on the ground that the rate of interest charged by the Co-operative Bank in respect of any such transaction is excessive.

Sec.22: The Co-operative Banks, which existed as on 1-3-1966, were required to apply to the Reserve Bank for a license within a period of three months from the commencement of the Act. Such Banks were permitted to carry on banking business if licenses were granted to them or until they were informed that license couldn't be granted to them. New banks should invariably obtain a license before commencing banking easiness. A Co-operative Bank which comes into existence as a result of the division of any other Co-operative Society carrying on business, shall before the expiry of three months from it so coming into existence, apply in writing to the Reserve Bank, for a license for carrying on banking business under this Section.

Sec.23: State Co-operative Banks and the Primary Co-operative Banks are

required to obtain prior permission of the Reserve Bank for opening new branches. Central Co-operative Banks need not obtain such permission for opening branches within their areas of operation, with an advance copy of the application Erectly to the Reserve Bank. Urban Co-operative Banks can however submit their application directly to the Reserve Bank.

Sec.24: Every Co-operative Bank shall maintain in cash or unencumbered

approved securities an amount which shall not, at the close of business on any day, be less than 25 percent or such other percentage not exceeding 40 percent of the total of its Demand and Time Liabilities in India or as the Reserve Bank may specify from time to time.

Sec.24A: This new section empowers the Reserve Bank, without prejudice to the provisions of sec.53, to exempt by issue of notification in the official gazette any Co-operative Bank or class of Co-operative Banks with reference to all or any of the offices of such bank or banks or with reference to the whole or any part of the assets and liabilities of such Co-operative Bank or Banks from the application of whole or any part of the provisions of Sec.18 and Sec.24 for such period and on such conditions as may be specified in such notification.

Sec. 27: Every bank is required to submit to the Reserve Bank of India a

return in the prescribed form and manner showing its assets and

liabilities as at the close of the business on the last Friday of every month or if that Friday is a public holiday at the close of the business on the preceding working day before the close of Tie month succeeding that to which it relates.

Sec.29 and 31: In terms of the notification issued under amended sec.29, the

banks are now required to prepare their Profit & Loss account and Balance sheet as at 31st March of each year. The banks will have to submit to the Reserve bank, three typed copies of Profit & Loss account and Balance Sheet together with the s:atutory auditors report signed by the Principal Officer of the bank and at least three Directors, before 30th September of each year. The published Balance Sheet should also contain Statutory Auditors Report. The RBI has reiterated that if the audited balance sheet and profit and loss account along with Auditors Report is not submitted before 30th September, every year it will invite penalties u/s.46 and on 47A of BR Act, 1949. The Balance Sheet is also required to be published as required under Rule 10 in one of the local newspapers. For valid reasons, extension of time may be allowed by Reserve Bank of India, for a further period not exceeding 3 months. An application giving reasons for the delay, accompanied by supporting Board Resolution and information, should be submitted before 30th September of the year. In terms of Rule 10, three copies of the newspaper in which Accounts and Balance Sheet together with Statutory Auditor's Certificate has been published should be sent to the Reserve Bank.

Note: 1 (a) The report of the Internal Auditor is not deemed to be statutory

Auditor's Report. (b) Submission of printed booklet in the form of Annual Report is

not acceptable as return. (c) The publication of the financial statement with the Internal

Auditor's Report without Statutory Auditor's Report will not be considered as proper compliance.

2. Co-operative Banks other than Primary Co-operative banks are also required to send to NABARD, copies of the returns and documents which they are required to furnish to the Reserve Bank u/s. 24, 26, 27 and 31.

Sec.35: This section empowers the Reserve Bank, to authorise its officers, to

inspect Co-operative Banks and supply to the Co-operative Banks so inspected, a copy of its report. In case of Primary Co-operative Banks, the. Reserve Bank may authorise the State Co-operative Bank of the State concerned, to carry out the inspection on behalf of the Reserve Bank. In addition to conducting regular inspection under this Section, the Reserve Bank is also empowered to carry out a scrutiny of the affairs of the Co-operative Bank, at any time it is considered necessary to do so

Note: NABARD has also been statutorily empowered to carry out the inspection of Co-operative Banks (excluding Primary Co-operative Banks). Sec.35A: The Reserve Bank to issue directions, to Co-operative Banks in

general and to any Co-operative Bank in particular, regarding any aspect of the working of the Co-operative Banks/Bank concerned. While sec.21 referred to earlier confer powers to issue directions in regard to advances by Co-operative Banks, sec.35A covers all aspects of the functions of Co-operative Banks. These two sections together give powers to In terms of new Sub-Sec.(4-A), any Co-operative Bank other than a Primary Co-operative Bank requiring permission, shall submit the application for opening of a new place of business or changing the location of an existing place of business, to the Reserve Bank through the National Bank for Agriculture and Rural Development, the Reserve Bank to issue directions on all matters concerning the operations of a Co-operative Bank in particular, or all Co-operative Banks, or a group of Co-operative Banks, in general.

Sec.36: The Reserve Bank is empowered to depute, in case it is considered essential to do so, for the re organisation or expansion of Co-operative credit on sound lines, one or more of its Officers to watch the proceedings at any meeting of the Board of Directors of any Co-operative Banks or any other body constituted by it and require such bank to give an opportunity to the Officers, so deputed, to be heard at such meeting(s). The Reserve Bank may appoint one or more of its Officers to observe the manner in which the affairs of the Co-operative Bank or its Offices or branches are being conducted, requiring such Officers to make a report thereon.

Sec.45: The Reserve Bank can recommend to the Central Government, to order

a moratorium in respect of a Co-operative Bank. The power to issue such a moratorium however rests with the Central Government.

Sec.45Y: The Central Government to make rules, in consultation with the

Reserve Bank, specifying the periods for which a Co-operative Bank shall (a) preserve its books of account and other documents and (b) keep with itself different instruments paid by it.

Sec.45Z: The Co-operative Banks to return at the request of the customer

(including Governments and Statutory Corporations), a paid instrument before the prescribed period of preservation, only after making and keeping in its possession a true copy thereof, made by mechanical process or other process which in itself ensures the accuracy of the copy. The Bank is also entitled to recover from the customer the cost of making such copies of the instruments.

Sec.45ZA: Enables depositors of a Bank to nominate one person to whom, in the event of the death of the sole depositor or the death of all the depositors, the amount of deposit may be returned by the Bank. In pursuance of the provisions of this section, the Co-operative Banks (Nomination) Rules, 1985, have been framed and the nomination forms in deposits, safe custody, lockers have been prescribed.

Sec.45ZB: Gives protection to a Co-operative Bank in respect of claims made

by persons, other than persons in whose names a deposit is held with it. However, if a notice/order is issued by a Court of Competent Jurisdiction, then the Bank should take due notice of it.

Sec.45ZC: Enables a Co-operative Bank to return the articles kept by a person

with it, in safe custody, to his nominee in the event of his death. Sec.45ZD: Gives protection to a Co-operative Bank in respect of any claim to

any article made by any person other than the person who placed the article in safe custody with it.

Sec.45ZE: Enables an individual locker holder to nominate one person to

whom, in the event of his □earn, the Co-operative Bank may give access to the locker and liberty to remove the contents of the locker.

Sec.45ZF: Gives protection to a Co-operative Bank in respect of claims from

persons other than the hirers of the locker. Sec.46: The various penalties that may be imposed on Co-operative Banks, for

non compliance with the any visions of the B.R. Act, have been specified. Sec 46 (4): If any other provision of this Act is contravened or if any default is

made in complying with any requirement of this Act or of any order, or direction made or condition imposed there under, by any persons such person shall be punishable with fine which may extend to fifty thousand rupees or twice the amount involved in such contravention or default, where such amount is quantifiable, whichever is more, and wtoese a contravention or default is a continuing one, with a further fine which may extend to two thousand and five hundred rupees for every day, during which a contravention or default continues.

Sec.47A: Under this section the Reserve Bank is empowered to impose penalties on a Bank for on and defaults of the nature referred to in sub-sec. (3) and (4) of Sec.46 of the Act, ibid, without recourses to the Court of Law. An enquiry is to be conducted and a reasonable opportunity of being heard given to the Bank. The procedure for conducting the enquiry is laid down in Rule 11 of the Banking Regulation (Co-operative Societies) Rules, 1966.)

The procedure stipulates the appointment of an Enquiry Officer by the Reserve Bank for holding the enquiry. The Enquiry Officer is required to send a statement giving sufficient particulars of the contravention or default of the nature referred to in sub-sec. (3) or sub-sec. (4) of sec.46 of the Act and to give 30 days time time for sending the reply. The enquiry officer shall fix the date for conducting the enquiry, which should be on a day to day basis. The bank is entitled to be represented at the enquiry by its authorised representative, who may be a Director or Officer but not by a legal practitioner. The procedure also provides for cross examination of the both by the representative of the Reserve Bank or of the Co-operative Bank. After completion of enquiry the said officer shall record his findings and submit the entire report to the Reserve Bank.

Sec.47A (1)(b): "Where the contravention or default is of the nature referred to

in sub-sec. (4) of Sec.46, A PENALTY not exceeding five lakh rupees or twice the amount involved in such contravention or default where such amount is quantifiable, whichever is more, and where such contravention or default is a continuing one, a further penalty which may extend to twenty-five thousand rupees for every day, after the first, during which the contravention or default continues.

Sec.47A (2): "For the purpose of adjudging the penalty under sub-sec. (1), the

Reserve Bank shall serve notice on the banking company, requiring it to show cause why the amount specified in the notice should not be imposed and a reasonable opportunity of being heard shall also be given to such banking company."

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