Chapter IX LOANS AND BORROWINGS

(1) A co-operative society shall advance loans to its members, its employees under a scheme approved by the Registrar or to its depositors on the security of their deposits: Provided that a co-operative society may make a loan to another co-operative society who is not its member with the prior approval of the Registrar. (2) At least one-third of the total amount of loan to be advanced by a co-operative credit and service society, farmer‘s service society, primary agriculture and rural development bank or a co-operative urban bank, in a year, shall be sanctioned to the members of the weaker section if they apply for the grant of loan. (3) Loans and advances shall be made on such terms and conditions against such securities, guarantee and for such purposes as may be prescribed: Provided that all long term loans shall be advanced against mortgage or charge on land or other immovable property: Provided further that in case land or other immovable property is not owned by the loanee, long term loans may be advanced to him, on furnishing two sureties and subject to the further condition that he shall hypothecate or create a charge on, the assets, movable or immovable acquired out of such loan in favour of the society: Provided further that all loans advanced under short term, medium term and long term duration for which Reserve Bank of India/National Bank for Agriculture and Rural Development (NABARD)

Notwithstanding anything contained in this Act, rules, bye-laws or in any agreement in this behalf, a co-operative society shall not recover interest on short term loans given to members in excess of the principle amount of the loan advanced. Explanation:- For the purpose of this section, short term loan means a loan granted for a period upto fifteen months.

(1) With the previous sanction of the trustee, a co-operative society may float debentures or issue bonds of one or more denominations, for such periods, as it may deem expedient, on the security of the mortgages and charges and other assets transferred or deemed to have been transferred by a society to it and on the security of all or any of its other assets : Provided that the debentures may be floated or bonds issued for long-term loans advanced without mortgage or charge on land or other immovable property subject to the condition that guarantee is given by the State Government for the repayment of the loans so advanced. (2) Such debentures or bonds may contain a term fixing a period not exceeding twenty-five years from the date of issue during which they shall be irredeemable or reserving to the borrowing society the right to call in at any time of the debentures or bonds in advance of the date fixed for redemption, after giving to the debenture or bond holder concerned not less than three months notice in writing. (3) The total amount due on the debentures or bonds issued by a society and outstanding at any time shall not exceed the aggregate of the amounts due on the mortgages, charges, the value or other assets transferred or deemed to have been transferred to the borrowing society and the amount on account of long term loans advanced without mortgage, or charge on land or other immovable property under this Act.

(1) Where the funds are raised by floating of debentures or issue of bonds, the Registrar shall be the trustee for the purposes of securing the fulfilment of the obligation of the borrowing society. (2) The mortgages, charges and other assets transferred to the borrowing society shall vest in the trustee from the date of transfer. (3) The holders of the debentures or bonds shall have a first charge on all such mortgages, charges and assets and on the amount paid under such mortgages or charges and remaining in the hands of the society issuing debentures or of the trustee and on their other properties. (4) The powers and functions of the trustee shall be governed by the instrument of trust executed between the borrowing society and the trustee which may be modified, from time to time, by mutual agreement between them.

The principal and interest on the debentures or bonds issued under section 66 shall be guaranteed by the State Government on such terms and conditions as it may deem fit to impose.

The borrowing society may, subject to the approval of the trustee and of the State Government, make regulations – (i) for fixing the period of debentures or bonds and the rate of interest payable thereon; (ii) for calling in debentures or bonds after giving notice to the debenture or bond holders; (iii) for the issue of new debentures or bonds in place of debentures or bonds damaged or destroyed; (iv) for converting one class of debentures or bonds into another class bearing a different rate of interest; and (v) generally for carrying out the provisions of section 66.

Where any property mortgaged and charged in favour of a co-operative society is wholly or partially destroyed, or for any reason the security is rendered insufficient and the loanee, having been given a reasonable opportunity by the society to provide further security in order to make the deficiency good or to repay such portion of the loan as may be determined by the society, has failed to provide such security or repay such portion of the loan, the loan shall be deemed to have fallen due at once and the society shall be entitled to take action against the loanee for the recovery thereof. Explanation:- Security shall not be deemed to be insufficient within the meaning of this section unless the value of the property mortgaged or charged including improvements made thereon exceeds the amount for the time being, due on the mortgage or charge by such proportion as may be prescribed in the rules or regulations or bye-laws of the borrowing society.

When a loan advanced by a society is not utilised for the purpose for which it was advanced, the society may, irrespective of the period for which the loan was advanced, recall and recover the entire loan along with interest and costs and charges, if any, incurred in advancing and effecting recovery after giving the debtor an opportunity of being heard. Explanation:- For the purposes of this chapter, the borrowing society means a society which borrows loans by way of floating debentures or issuing bonds.