Chapter VIII AUDIT, INQUIRY, INSPECTION AND SUPERVISION

1. (1) The Registrar shall audit, or cause to be audited by a person possessing prescribed qualifications and authorised by the Registrar by general or special order in writing in this behalf, the accounts of every society at least once in each year and the person so authorised shall be an auditor for the purposes of this Regulation: Provided that in case of a co-operative society carrying on the business of banking, the guidelines and audit as provided by the Reserve Bank from time to time shall be followed: Provided further that the co-operative banks shall obtain permission from the Reserve Bank for the appointment, re-appointment and termination of auditors as per the provisions of the Banking Regulation Act, 1949.
2. (2) The auditor shall for the purpose of audit, at all times have access to all the books, accounts, documents, papers, securities, cash and other properties belonging to, or in the custody of the society and may summon any person in possession or responsible for the custody of such books, accounts, documents, papers, securities, cash or other properties to be produced at the headquarters of the society or any branch thereof.
3. (3) If, it appears to the Registrar on an application or otherwise that it is necessary or expedient to get any account of the society re-audited, the Registrar may, by an order, provide for re-audit and the provisions of this Regulation applicable to the audit of accounts of the society shall apply to such re-audit.
4. (4) The Registrar shall, by an order, provide for a special audit of any society on its own motion or on the basis of the recommendation of the Reserve Bank or, as the case may be, the National Bank and the provisions relating to audit of accounts of the society under this section shall apply to such special audit.
5. (5) For auditing the accounts of a society under this section, every society shall be liable to pay to the auditor such amount of audit fee as may be prescribed for different categories or class of societies.
6. (6) The Registrar may, in consultation with the National Bank specify prudential norms including capital to risk weighted assets ratio for Primary Agricultural Credit Co-operative Societies Provided that in the case of a co-operative society carrying on the business of banking, the guidelines on prudential norms issued by Reserve Bank from time to time shall apply.
7. (7) The Administrator may, by rules, provide for the form and manner in which and the period within which the accounts of the society or the class of societies shall be prepared and submitted for the purpose of online audit.
8. (8) The auditor’s report shall contain,—
   • (i) all particulars of the defects or the irregularities observed in audit and in case of financial irregularities and misappropriation or embezzlement of funds or fraud, the auditor or the auditing firm shall investigate and report the modus operandi, the entrustment and amount involved;
   • (ii) the accounting irregularities and their implications on the financial statements shall be indicated in detail in the report with the corresponding effects on the profit and loss;
   • (iii) irregularities or violations observed or reported, the responsibilities for such irregularities or violations.
9. (9) If, it is brought to the notice of the Registrar that the audit report submitted by the auditor does not disclose the true and correct picture of the accounts, the Registrar or the authorised person may carry out or cause to be carried out a test audit of accounts of such society and such test audit shall include the examination of such items as may be prescribed, and specified by the Registrar in such order.
10. (10) If, during the course of audit of any society, the auditor is satisfied that some books of accounts or other documents contain any incriminatory evidence against past or present officer or employee of the society, the auditor shall immediately report the matter to the Registrar and with previous permission of the Registrar, may impound the books or documents and give a receipt thereof to the society.
11. (11) The auditor shall submit his report within a period of one week from its completion to the society and to the 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 up to which the accounts have been audited, and shall state 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 Regulation and present the true and correct picture of the financial transactions of the society: Provided that where the auditor has come to a conclusion in his audit report that any person, is guilty of any offence relating to the accounts or any other offences, he shall file a specific report to the Registrar within a period of fifteen days from the date of submission of his audit report and the auditor concerned shall, after obtaining written permission of the Registrar, file a First Information Report of the offence and the auditor, who fails to file First Information Report, shall be liable for disqualification and his name removed from the panel of auditors and shall also be liable to any other action as the Registrar may think fit: Provided further that when it is brought to the notice of the Registrar that, the auditor has failed to initiate action, the Registrar shall cause a First Information Report to be filed by a person authorised by him in that behalf: Provided also that on conclusion of his audit, if the auditor finds that there are apparent instances of financial irregularities resulting into losses to the society caused by any member of the Committee or officers of the society or by any other person, he shall prepare a special report and submit the same to the Registrar along with his audit report; and failure to file such Special Report, would amount to negligence on his part and he shall be disqualified for appointment as an auditor or any other action, as the Registrar may think fit.

If, the result of the audit under section 90 and inspection under sections 93 and 94 discloses any defects in the working of the society, the society shall within a period of two months from the date of the audit and inspection report, clarify to the Registrar as regards the defects or the irregularities so pointed out in audit and inspection report, and if clarification in respect of any defect or irregularity is not accepted, take steps to rectify the defects and remedy irregularities within such period as may be specified by the Registrar and shall report to the Registrar, failing which the Registrar shall have power to impose a penalty of such amount not exceeding ten thousand rupees and where society concerned is a member of a federal society, such order shall be made after consulting the federal society.

1. (1) The Registrar may, of his own motion, or—
   • (a) on the requisition of a society duly authorised by rules made in this behalf to make such requisition, in respect of any of its members, such member being itself a society;
   • (b) on the application of a majority of the Committee of a society; or
   • (c) on the application of one-third of the members of a society, shall hold such an inquiry himself, or by a person duly authorised by him in writing in this behalf, hold an inquiry into the constitution, working and financial conditions of a society.
2. (2) Every officer, member and previous member of the society in respect of whom an inquiry is held, and any other person who is in possession of information, books and papers relating to the society, shall on being so required furnish such information as is in his possession, and produce all books and papers relating to the society which are in his custody or power, and otherwise give to the officer holding the inquiry all assistance in connection with the inquiry which he may reasonably give.
3. (3) If, any person referred to in sub-section (2) refuses to produce to the Registrar or any person authorised by him under sub-section (1), any book or paper which it is his duty under sub-section (2) to produce or to answer any question which is put to him by the Registrar or the person authorised by him in pursuance of sub-section (2), the Registrar or the person authorised by him may certify the refusal and the Registrar may impose on the defaulter a penalty of an amount not exceeding five thousand rupees and before imposing such penalty, the Registrar shall give, or cause to be given an opportunity to the defaulter, of showing cause against the action proposed to be taken against him.
4. (4) If, at any stage of the inquiry under this section, the Registrar is satisfied that in the interest of the members of the society, it is necessary to take over all books and papers relating to the society during the period of inquiry, he may make an order in writing to that effect and direct the society to hand over all books and papers relating to the society to such officer as may be specified in the order and the Registrar may also issue a direction to the society to refrain from doing such acts or engaging in such activities as may be specified in the direction.
5. (5) The society shall be bound to comply with any direction issued to it under sub-section (4).
6. (6) The books and papers taken over under sub-section (4) shall be returned to the society on the completion of the inquiry.
7. (7) When an inquiry is held under this section, the Registrar shall communicate the result of the inquiry—
   • (i) in case the Administration has subscribed directly to the share capital of the society, to such society or to any officer appointed by it in this behalf;
   • (ii) to the federal co-operative society concerned; and
   • (iii) to the society concerned.
8. (8) The Registrar may, by an order and for the reasons mentioned therein, withdraw the responsibility of inquiry from the officer to whom it is entrusted, and to hold the inquiry himself or entrust it to any other person as he deems fit.

1. (1) On the application of a creditor of a society who,—
   • (a) satisfies the Registrar that there is a debt which is due, and that he has demanded payment thereof and has not received satisfaction within reasonable time; and
   • (b) deposits with the Registrar such sum as the Registrar may require as security for the costs of any inspection of the books of the society, the Registrar may, if he thinks it necessary or expedient, inspect or direct a person authorised by him by order in writing in this behalf to inspect the books of the society.
2. (2) The Registrar shall communicate the result of any such inspection to the applicant, and to the society whose books have been inspected.
3. (3) The Registrar may, by an order and for the reasons mentioned therein, withdraw any inspection from the officer to whom it is entrusted, and to carry out the inspection himself or entrust it to any other person as he deems fit.

1. (1) The Registrar or the person authorised by him in this behalf shall have the right to inspect the books of any society and shall have free access to the books, accounts, documents, securities, cash and other properties belonging to, or in the custody of the society.
2. (2) Every person who is or has at any time been an officer or employee of the society and every member and previous member of the society shall furnish such information in regard to such transactions and working of the society as the Registrar or the person authorised by him may require.
3. (3) Where a society is indebted to any co-operative financing bank, such bank shall have the right to inspect the books of that society and the inspection may be made either by an officer of the bank authorised by the Committee of such bank or by a member of its paid staff certified by the Registrar as competent to undertake such inspection.
4. (4) The officer or member so inspecting shall at all reasonable times, have free access to the books, accounts, documents, securities, cash and other properties belonging to or in the custody of the society and may also call for such information, statements and returns, as may be necessary, to ascertain the financial condition of the society and the safety of the sums lent to it by the bank.
5. (5) Where a society is a member of a federal society recognised by the Administration under section 101, such federal society shall have the right to inspect the books of that society and the inspection may be made either by an officer of the federal society authorised by the Committee of such federal society or by a paid employee of such federal society certified by the Registrar as competent to undertake such inspection.
6. (6) The officer or employee referred to in sub-section (5), shall at all reasonable times have free access to the books, accounts, documents, securities, cash and other properties belonging to, or in the custody of the society and may also call for such information, statements, and returns as may be necessary.

1. (1) Where, in the course of an audit under section 90 or an inquiry under section 92 or an inspection under section 93 or section 94, it is brought to the notice of the Registrar that a paid officer or servant of a society has committed or has been otherwise responsible for misappropriation, breach of trust or other offence, in relation to the society, the Registrar may, if he is of opinion that there is a prima facie evidence against such paid officer or servant and the suspension of such paid officer or servant is necessary in the interest of the society, direct the Committee of the society pending the investigation and disposal of the matter, to place or cause to be placed such paid officer or servant under suspension from such date and for such period as may be specified by him: Provided that no paid officer or servant shall be suspended, unless such officer or servant has been given an opportunity of hearing in the matter.
2. (2) On receipt of a direction from the Registrar under sub-section (1), the Committee of the society shall, notwithstanding any provision to the contrary in the bye-laws, place or cause to be placed the paid officer or servant under suspension forthwith.
3. (3) The Registrar may direct the Committee to extend from time to time, the period of suspension and the paid officer or servant suspended shall not be reinstated except with the previous sanction of the Registrar.
4. (4) If the Committee fails to comply with the direction issued under sub-section (1), the Registrar may make an order placing such paid officer or servant under suspension from such date and for such period as he may specify in the order and thereupon the paid officer or servant, as the case may be, shall be under suspension.

1. (1) Where an inquiry is held under section 92 or an inspection is made under section 94, the Registrar may apportion the costs, or such part of the costs, as he may think just, between the society, the members or creditors demanding the inquiry or inspection, the officers or former officers and the members or past members or the estates of the deceased members of the society and pass such order within a period of six months from the date of submission of inquiry report: Provided that—
   • (a) no order of apportionment of the costs shall be made under this section, unless the society or persons or the legal representative of the deceased person liable to pay the costs thereunder, has or have been heard, or have had a reasonable opportunity of being heard;
   • (b) the Registrar shall state in writing the grounds on which the costs are apportioned.
2. (2) No expenditure from the funds of a society shall be incurred for the purpose of defraying any costs in support of any appeal preferred by any person other than the society against an order made under the foregoing sub-section.

Any sum imposed as penalty under sections 81, 82, 91 or section 92 or awarded by way of costs under section 96 may, on an application by the Registrar or a person authorised by him in that behalf to a Magistrate having jurisdiction in the place where the person from whom the penalty or costs are recoverable resides or carries his business, be recovered by the Magistrate as if it were a fine imposed by himself and such Magistrate shall proceed to recover the same in the same manner as if it were a fine imposed by himself.

1. (1) If, the result of any inquiry held under section 92 or inspection made under section 93 or 94, discloses any defect in the constitution, working or financial condition or the books of a society, the Registrar may bring such defects to the notice of the society and the Registrar may also make an order directing the society or its officers to take such action as may be specified in the order to remedy the defects, within the time specified therein.
2. (2) The society concerned may make an appeal against an order made by the Registrar under sub-section (1) to the Administrator within a period of two months from the date of the communication of the order to the society.
3. (3) The Administrator may, in deciding the appeal, annul, reverse, modify or confirm the order of the Registrar.
4. (4) Where the society fails to rectify the defects as directed by the Registrar and where no appeal has been made to the Administrator under sub-section (2) or where on the appeal so made the Administrator has not annulled, reversed or modified the order, the Registrar may himself take steps to have the defects rectified, and may recover the cost from the officers of the society who, in his opinion, have failed to rectify the defects.

1. (1) Where, in the course of or as a result of an audit under section 90, or an inquiry under section 92 or an inspection under section 93 or section 94, or the winding up of a society, the Registrar is satisfied on the basis of the report made by the auditor or the person authorised to make inquiry under section 92, or the person authorised to inspect the books under section 93 or 94 or the Liquidator under section 117, that any person who has taken any part in the organisation or management of the society or any deceased, or past or present officer of the society has, within a period of five years prior to the date of commencement of such audit or date of order for inquiry, inspection or winding up, misapplied or retained, or become liable or accountable for, any money or property of the society, or has been guilty of misfeasance or breach of trust in relation to the society, the Registrar or a person authorised by him in that behalf may investigate the conduct of such person or persons and after framing charges against such person or persons, and after giving a reasonable opportunity to the person concerned and in the case of a deceased person to his representative who inherits his estate, to answer the charges, make an order requiring him to repay or restore the money or property or any part thereof, with interest at such rate as the Registrar or the person authorised under this section may determine, or to contribute such sum to the assets of the society by way of compensation in regard to the misapplication, retention, misfeasance or breach of trust, as he may determine: Provided that the proceedings under this sub-section, shall be completed by the authorised person within a period of two years from the date of issue of order by the Registrar: Provided further that the Registrar may, after recording the reasons therefor, extend the said period for a maximum period of six months: Provided also that the Administrator may, on the report of the Registrar or suo motu, for the reasons to be recorded in writing, extend the said period as may be required, from time to time, to complete the proceedings under this sub-section.
2. (2) The Registrar or the person authorised under sub-section (1) in making any order under this section, may provide therein for the payment of the costs or any part thereof of such investigation, as he thinks just, and he may direct that such costs or any part thereof shall be recovered from the person against whom the order has been issued. Explanation.—For the removal of doubts, it is hereby clarified that the provisions of this section shall apply, notwithstanding that the act is one for which the person concerned may be criminally responsible.

The Registrar or the person authorised by him, when acting under sections 92, 93, 94 or section 99 shall have the power to summon and enforce the attendance of any person to give evidence or to compel the production of any documents or other material object by the same means and in the same manner as is provided in the case of a civil suit under the Code of Civil Procedure, 1908.

1. (1) The Administration may constitute Committees or recognise one or more co-operative federal societies in such manner as may be prescribed and subject to such conditions as the Administration may determine, for the supervision of a society or a class of societies and may frame rules for making grants to such Committee or federal society.
2. (2) The Administration may, by general or special order in writing, require a society or a class of societies to make contribution of such sum every year as may be fixed by the Registrar towards the recoupment of expenditure which the Administration or any person authorised or a Committee in that behalf has incurred or is likely to incur, in respect of the supervision of societies.
3. (3) A society to which sub-section (2) is applicable shall pay to such authority such fee within such period as may be prescribed and, if it fails to pay such fee within the period, the authority may recover it as if it were an arrear of land revenue.