Important sections in Maharashtra State Co-operative Act relating to Audit & Reporting Requirements

1. Important sections in Maharashtra State Co-operative Act relating to Audit & ReportingRequirements BY- CA P.G.KUKREJA CA P.G.KUKREJA

2. Economic Activities Three Sectors Private Public Co-operative CA P.G.KUKREJA

3. Individually owned Business • One Person -Owns -Controls -Operates -Benefits/Profits

4. Private Company • Investors are owners • Profits shared among investors • Voting weighted according to number of share investment

5. What is Co-operative???....

6. A cooperative is an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly owned and democratically controlled enterprise.

7. Professional Opportunities in Co-operative sector Co-operative Sector 1.Auditing 2.Accounting 3.Advisors 4.Members in Governing Body CA P.G.KUKREJA

8. Acts & Rules Applicable • Co-operative Societies Act under which registered. • Rules framed under the Act • Bye-Laws approved by the Registrar • Notifications and orders issued under the Power of Act, Rules. CA P.G.KUKREJA

9. Development of Laws • Co-op. Credit Societies Act, 1904- for credit • Co-op. Societies Act, 1912- for non credit • Co-op. Societies became a state subject in 1919 • Various State laws • Multi State Co-op. Societies Act(MSCS) 2002 • Now 97th Constitutional Amendment for co-ops. CA P.G.KUKREJA

10. 97th Constitutional Amendment for Co-op Reforms(Jan 2012) • Amendment of Article 19 - A Fundamental Right. • Insertion of Article 43B makes it a Directive Principle of State. • Election Commission like authority mandated: “The superintendence, direction & control of preparation of electoral rolls for, and conduct of, all elections to a cooperative society shall vest in such authority or body, as may be provided by the legislature of a state.” CA P.G.KUKREJA

11. 97th Constitutional Amendment contd. • Fixed term of five years to elected board. • Active members- Economic participation & attending meetings. • Professional mgt by expert & Functional Directors. • Equality by providing reservations for women & SC/ST. • Provides for Independent professional Audit. • Gives Right to Information to Members of Coop societies. • Empower Govt. to obtain periodic report & A/cs. • Provides for Offences relating to coop societies & Penalties for such offences. • Principles of Good Governance. CA P.G.KUKREJA

12. Gujarat High Court Decision 368(2). Power of Parliament to amend the Constitution and Procedure thereof. Bill is passed in each house by a majority of the total membership of that House of not less than 2/3rd of that member of that House present & voting. The amendment shall also require to be ratified by Legislatures of not less than ½ of the States by resolutions to that effect passed by those Legislatures. CA P.G.KUKREJA

13. We therefore allow this Public Interest Litigation by declaring that the Constitution [97th Amendment] Act,2011 inserting part IXB containing Article 243ZH to 243ZT is ultra vires the Constitution of India for not taking recourse to Article 368(2) of the Constitution providing for the Ratification by the majority of the State Legislatures. This order, however, will not affect other parts of the Constitution[97th Amendment] Act, 2011. CA P.G.KUKREJA

14. CONCEPT OF ACTIVE MEMBER • Section 2(19)(a-1) Active Member means one who - participates in the affairs of the co-operative society and - utilizes the minimum level of services or products of that society as maybe prescribed in the bye laws • Section 26(1) A member shall be entitled to exercise such rights as provided in the act, rules and bye laws. Provided that no member shall exercise the rights until: He has made such payment to the society in respect of membership or acquired such interest in the society - as maybe prescribed and specified under the by laws of the society CA P.G.KUKREJA

15. CONCEPT OF ACTIVE MEMBER • Section 26(2) It shall be duty of every member of a society a) To attend one general body meeting in five years ( this clause not to apply if absence is condoned by GB) b) To utilise minimum level of services atleast once in 5 years as per bye laws of the society. Provided ; • Member who does not perform above duties shall be classified as NON ACTIVE MEMBER’. • Society to inform classification within 30 days of the year • Non active member for 10 years liable for expulsion • Eligible to re classify as active member on complying. • Appeal lies before registrar within 60 days of knowing • Election done immediately – All members have voting lights CA P.G.KUKREJA

16. ACTIVE MEMBER AS PER BYE LAWS Provision made in new model bye laws- Housing. Bye law no.3 (xxiv) (a) defined an active member means a person; 1) Who has purchased and or owns the flat / Unit in the society . 2) Who attends at least one General body meeting of the society in the previous five consecutive years.( this clause not to apply if absence is condoned by GB) 3) He has at least paid the amount equivalent to one year of society maintenance and service charges within a consecutive period of five years. CA P.G.KUKREJA

17. ACTIVE MEMBER- As per bye laws Provision made in New Model Bye laws Co-op Bank: Bye Law no. (14) Active Member “Active Member” means a person who has been admitted as an ‘Ordinary Member” under the bye laws of the Bank and who complies following conditions: • To attend at least one general body meeting in the previous 5 consecutive yrs. (This clause not to apply, if absence is condoned by GB) • To utilize minimum level of services as provided on bye law no. 15 as following CA P.G.KUKREJA

18. Active Member – As per Byelaws Provision made in Co-op Bank New Bye laws no 15 model level of services for becoming Active Member: Proviso I: Aggregate deposits in all types of accounts as per above for the continuous period of not less than ONE YEAR in the Bank. Proviso II: ‘Borrower’ means an ordinary member, who is enjoying any type of sanctioned and availed credit facility of the Bank for continuous TWO YEAR during the last 5 years. CA P.G.KUKREJA

19. AUTHORISED PERSON –As per MSC Act,1960 • Sec2(2-A) of MSC Act, 1960 “Authorised Person” means any person duly authorised by the Registrar to take action under the provisions of this Act. • In Section 79(1A) of MSC Act, 1960- Every society shall file returns within 6 months of the close of F.Y. to which the accounts relate, to the Registrar or the person authorised by him. • In section 82 of MSC Act, 1960 to submit Audit Rectification report: Provided that, the registrar or the person authorised by him shall scrutinize the Audit rectification report accordingly and inform the society about such report within 6 months from the date of receipt thereof. • Thus registrar can discharge his function by appointing an authorized person on his behalf . CA P.G.KUKREJA

20. AUTHORIZED PERSON- contd. • Person Authorised under Act to discharge responsibilities/obligations otherwise liable for Penal Actions • Any Member of the Society any Committee member Entire Committee Auditor appointed by GB, any other person as per MCS Act who is made accountable. • Person appointed by Registrar to discharge his functions – u/s 77A, 79, 82, 88 and any other sections. • Any panel person any Officer any other person as per MCS Act, whom the Registrar has made Accountable. CA P.G.KUKREJA

21. PROFESSIONAL MGT • Section 2(11-A) “expert director” means & includes a person having experience in the field of Banking, management, Co-operation and includes a person having specialization in any other field relating to the objects and activities undertaken by the concerned society. • Section 2(14-A) “Functional director” means & includes a Managing Director or a C.E.O by whatever designation called, or any of the Head of Department of the concerned society, nominated by the committee. • Section 73-AAA(2) of the Act provides discussed hereinabove provides for co-option of 2 expert Directors and also one (upto 17 members) or two function directors (above 17 members) to bring professionalism in the working of co-operative societies. CA P.G.KUKREJA

22. HSG SOCIETY BYE-LAWS: PROFESSIONAL MGT. Housing Society Bye-Laws no 116(b) provides as under: • The Committee of the society may co-opt “2 Expert Directors” relating to the objects and activities of the society. • The no. of such co-opted members shall not exceed 2 in addition to the strength of the Committee. • Such co-opted members shall not have the Right to Vote in any election of the society & cannot be elected as office bearers of the committee. • 116(c) The Committee of the Society may co-opt 2 “Functional Director”, such members shall excluded foe the total com. Members & shall have no right to Vote. CA P.G.KUKREJA

23. PROVISION MADE IN THE NEW MODEL BYE LAWS Bye Law no. 116(a) provides that: “ Election of all the members of the committee shall be held once in 5 yrs. before expiry of its term, in accordance with the provisions of Section 73 CB of the Act & the Rules/procedures framed there under. Committee to intimate to the State Election Authority for holding of its election before expiry of its Term. On Failure – Committee ceases to hold Office after expiry & attract action by Registrar u/s 77A. CA P.G.KUKREJA

24. PROVISION MADE IN THE NEW MODEL BYE LAWS Bye Law no. 123 provides: “The 1st meeting of the newly elected & outgoing Committee shall be held within 15 days from the date of constitution of the new committee as per Bye law no. 119 & the provisions of Section 73AAA” CA P.G.KUKREJA

25. Democratic member control The People who own and control and finance the cooperative are those who use it. CA P.G.KUKREJA

26. Participation Roles Co-operatives operate through the roles of Principal parties by passing Resolutions/taking decisions in their respective meetings. • Members in General Meetings • Directors/Committee members • Functional Director/CEO/MD • Employees/staff- As per above decisions CA P.G.KUKREJA

27. Types of Societies • Type ‘A’ Societies-State level • State Level Apex or Federal Co-operative Societies. • Maharashtra State Co-operative Bank. • Maharashtra State Co-operative Land development Bank. • Maharashtra State Co-operative Housing Finance Corporation. • Maharashtra State Co-operative Tribal Development Corporation. CA P.G.KUKREJA

28. Type ‘A’ Societies-State level contd. • Maharashtra State Cotton Growers Co-operative Marketing Federation. • All Co-operative Sugar Factories. • All District Central Co-operative Banks. • All Co-operative Spinning Mills. • All Co-operative Milk Federations or Unions having average per day milk collection 1,00,000 liters or more during the preceding fin-year. CA P.G.KUKREJA

29. II. Type ‘B’ Societies • All Co-operative Urban Banks. • All Salary Earners Co-operative Banks. • Primary Agriculture Co-op. Credit Societies and Adiwasi Co-op Credit Societies having paid up share capital > Rs. 10 lakhs. • Having Deposits > Rs.100lakhs. • Salary earners Co-op Credit Societies having paid up share capital of > Rs.1 crore • All Govt. aided Co-op Processing Societies excluding Sugar Factories. • All Govt. aided Co-op. Industrial Societies or Industrial Estates. CA P.G.KUKREJA

30. Type ‘B’ Societies contd. • All District or Taluka Co-op. Sale Purchase Unions. • All District Central Co-op. Consumer Societies. • All Divisional and District Co-op. Boards • All Co-op. Milk Federation/Unions having Average per day milk collection • < 1,00,000 liters during the preceding financial year. • Any other District /Taluka Co-op. Federations/Unions which are not included in Type A Societies. CA P.G.KUKREJA

31. III. Type ‘C’ Societies • All Primary Agriculture Co-op. Credit Societies and Adiwasi Co-op. Credit Societies having paid up share capital of < Rs. 10 lakhs. • All Co-op. Credit societies having deposits not more than Rs. 100 lakhs or paid up share capital < Rs. 10lakhs. • Salary Earners Co-op. Credit Societies having paid up share capital of < Rs. 100 lakhs, as per last audit report. • Housing Societies having 100 and >100 members. • All Primary Consumer Co-op. Societies. • All Primary Co-op. Dairy, Poultry, Fishery, Piggery & Livestock Societies. • All non aided Co-op. Industrial Societies/Industrial Estates. CA P.G.KUKREJA

32. Type ‘C’ Societies contd. • All non aided Co-op. Processing Societies excluding Sugar factories. • All types of Primary Co-op. Marketing Societies. • All types of Primary Weavers (Handloom & Power loom ) co-op. Societies. • Other Agricultural co-op. Societies. • Co-o. lift irrigation & Water users Societies having 100 members more than 100 members. • Any other society or class of societies not falling under Type A, B above or Type D below. CA P.G.KUKREJA

33. IV. Type “D” Societies • All co-op Hsg having < 100 members • All co-op. Lift Irrigation & Water user Societies having < 100 members • All Labour Forest Co-op. Societies. • Other General Co-op Societies CA P.G.KUKREJA

34. PROVISIONS RELATING TO AUDIT CA P.G.KUKREJA

35. SECTION 75(2A) • Appoint Auditor /Auditing Firm from panel approved by State Govt. in its Annual General Meeting. • File form of return to Registrar, Name of auditor & his consent within 30 days from date of AGM. • Same Auditor shall not be appointed for more than 3 consecutive years. CA P.G.KUKREJA

36. SECTION 81 • Audit shall be completed within 4 months from close of financial year. • Failed to appoint Auditor & to file return u/s 75(2A) or 79(1B), Registrar shall appoint auditor from panel. • No Auditor accept audit of more than 20 societies excluding societies having paid up capital of < Rs. 1 Lakh. • Registrar shall submit audit report of every Apex society to State Government for being laid before both houses of State Legislature. • Audit Report shall have: • All particulars of defects or irregularities. • In case of financial irregularities & misappropriation or fraud, auditor shall investigate & report modus operendi, entrustment & amount involved. CA P.G.KUKREJA

37. ELIGIBILITY OF AUDITOR FOR PANEL • C.A. having fair knowledge of functioning of society & experience of at least one year in auditing of societies & working knowledge of मराठी. • Auditing Firm- Fair knowledge of functioning of society & knowledge of मराठी. • Certified Auditor- 1. Who holds degree. 2. Fair knowledge of functioning of society 3. 3 yrs experience in audit of society CA P.G.KUKREJA

38. Section 81(2) Audit shall be carried out as per Auditing Standards notified by State Government. CA P.G.KUKREJA

39. Section 81(5B) • Audit Report to submitted within 1 month from its completion & in any case before issuance of notice of Annual General Meeting. • Any person is guilty of an offence, auditor shall file specific report to registrar within 15 days of date of submission of his report & after obtaining permission from registrar file FIR. • Auditor who fails to file FIR, his name shall be removed from panel. • Financial irregularities resulting loss of society, auditor shall prepare report & submit along with audit report CA P.G.KUKREJA

40. Criteria for removal of name of Auditor from Panel 1. Non submission of Audit Report. 2. Not Disclosing correct picture of accounts. 3. Audit not completed within stipulated time u/s 81(1). 4. Non submission of special report. 5. Failure to file Special report. 6. Failure to file F.I.R. 7. Non submission of report of scrutiny. 8. Test Audit or Re-audit – Omissions 9. Auditor is borrower & conducted audit. 10. Auditor or his family member is employee/ Ex-employee. 11. Auditor conducting Concurrent or internal audit of concerned co-op society. 12. Auditor or family member is committee member of concerned co-op society 13.Auditor conducted audit without appointment order issued. CA P.G.KUKREJA

41. SECTION 65 & RULE 49(a) • Amounts to be deducted before calculating Net Profit: • Interest payables on loans & deposits • Establishment Expenses • Rent, Rates & Taxes • Audit Fee • Provision for depreciation • Provision for Bonus • Provision for Bad & Doubtful Debts • Provision for Gratuity • Capital redemption fund • Provision for Depreciation in Investment • Retirement Benefits • Other claims in any other Law. CA P.G.KUKREJA

42. SECTION 73CA DISQUALIF’N OF D’TOR • Defaulter to Society • Default in payment of Loan • Taken advance or anamat or goods on credit & not paid within 30 days of demand or date on which advance availed whichever is earlier • Committed breach of Co-operative Discipline. • Classified as non-active member u/s 26(2). • He carries business carried by society. • Held responsible u/s 79 or 88. • Incurred any disqualification under Acts/ Rules. • Salaried Employee of any Society. • Has > 2 children • Guilty for any offence u/s 146 & convicted u/s. 147. CA P.G.KUKREJA

43. RULE 107 (a)- Travelling expense of Directors • Chairman or Vice Chairman- Federal Society, State level society, Sugar factory, spinning mill- by Air only- Attach ticket • Director- Share capital 50crore or more can travel by train first class. Can claim 1 1/2 of actual fare . • If ticket not attached – entitled to second class fare CA P.G.KUKREJA

44. SECTION 28- RESTRICTION ON HOLDING SHARES A MEMBER CANNOT HOLD SHARES OF I/5TH OF TOTAL SHARE CAPITAL OR MORE THAN RS. 20,000/- HOWEVER STATE GOVT. BY NOTIFICATION IN OZ CAN SPECIFY ANY CLASS OF SOCIETY HIGHER/LOWER THAN THE ABOVE LIMIT. CA P.G.KUKREJA

45. RULE 23- Valuation of shares • Person ceases to be a member then share are returned to him or to nominee by making valuation of shares Value per share=Net Worth No of shares Net Worth= Paid up share capital+ Free Reserves-Accumulated Loss - shortfall in provisions Eg1: NV=Rs.1000/-, Valuation= Rs. 400/- Society shall return share=no of shares x 400/- Eg 2: If the Valuation comes at Rs. 1,200/- society shall return Rs. 1,000/-per share. • Specialized Report u/s 88. CA P.G.KUKREJA

46. SECTION 44ACHARGING OF INTEREST • Urban Co-operative bank cannot recover as interest > the principal for Loan granted for Agriculture purpose • Non Agriculture Loan up to Rs.10,000/-. • The above shall not apply to loan exceeding Rs.1lakh given by Co-op Agri. & Rural Multipurpose Dev. Bank to any member. CA P.G.KUKREJA

47. SECTION 43RESTRICTION ON BORROWINGS • Only to extent as may be prescribed. • Limit as per Rule=Paid up share capital+ Reserve fund+ Building fund- Accumulated Loss x 10. • Not Applicable- No financial assistance from Govt. • Not Applicable to C.C.S.E. CA P.G.KUKREJA

48. SECTION 79(1A) File returns within 6 months of close of financial year to registrar • Annual Report of activities • Its audited statements of accounts • Plan for disposalof surplus • List of amendment to bylaws • Declaration of date of holding AGM & conduct of election when due. • Statement regarding Appointment of Auditor. • Statement of Rectification of audit. • Statement regarding Co-operative education & training. • Contribution made to Co-operative education & training. • Provisions made for contribution to Election Fund. • Status of preparation of list of Active & Non Active members. CA P.G.KUKREJA

49. SECTION 79(1B) File return regarding name of auditor & his written consent within 1 month from AGM CA P.G.KUKREJA

50. SECTION 81(1)(f) Remuneration to Auditor/ Auditing firm Borne by Society Rates as may be Prescribed CA P.G.KUKREJA