Chapter VIII AUDIT, INQUIRY, INSPECTION AND SURCHARGE

(1) Every co-operative society shall cause to be audited its accounts by an auditor, within six months from the close of a co-operative year to which the accounts relate. (2) The accounts of a co-operative society shall be audited by an auditor approved in the general meeting of the society from the panel of auditors notified by the Government in this behalf. The qualifications, experience, manner of preparation of the panel of auditors and authorization thereof; and audit fee or remuneration to be paid by the society alongwith the manner of making payment shall be such, as may be prescribed. (3) If at the time of audit, the accounts of a society are not complete, the auditor authorized under sub-section (2) may cause the accounts to be written up at the expense of the society. (4) The audit fee or the remuneration, if any, due from any society or the expenses incurred in writing up the accounts of a society shall be recoverable in the manner as provided in section 90. (5) Where a co-operative society fails to get its annual accounts (6) Where the Registrar is of the opinion that the affairs of any society aided as per the provisions of section 48, are not being managed in accordance with the cooperative principles or prudent commercial practices or the provisions of this Act, the rules or the bye-laws, he may by an order, provide for such special audit and the provisions of this Act, and the rules applicable to the audit shall also apply to such special audit: Provided that the Registrar, if satisfied, may order special audit of a society not being aided as per the provisions of section 48, if a request to this effect is made by atleast one-forth members of the society.

(1) The audit under section 61 shall include,- (a) a verification of the cash balance, securities and stocks; (b) a verification of the balance at the credit of the depositors and creditors and of the amounts due from the debtors of the society; (c) an examination of the overdue debts, if any; (d) a valuation of the assets and liabilities of the society; (e) an examination of the transactions including the monetary transactions of the society; (f) an examination of the statement of accounts to be prepared by the managing committee in such form as may be prescribed; (g) a certificate of the profits realised; and (h) any other matter that may be prescribed. (2) The statement of accounts thus audited, together with the modifications, if any, made therein by auditor shall be final and binding on the co-operative society.

The auditor shall, within 10 days from the date of the completion of the audit, submit to the co-operative society and to the Registrar, together with the statement of accounts audited, an audit report including a statement of,- (a) every transaction which appears to him to be contrary to law or to the rules or bye-laws; (b) every sum which ought to have been but has not been brought into account; (c) the amount of any deficiency or loss which appears to have resulted from any negligence or misconduct or which requires further investigation; (d) any money or property belonging to the society which appears to have been misappropriated or fraudulently retained by any person; (e) any of the assets which appear to him to be bad or doubtful; and (f) any other matter prescribed.

A co-operative society shall be afforded by the Registrar an opportunity of explaining any defects or irregularities pointed out by the auditor, and thereafter the society shall, within such time, and in such manner, as the Registrar may direct, remedy such defects and irregularities and report to the Registrar the action taken by it thereon.

The Registrar may, from time to time, inspect a registered society himself or cause it to be inspected by some person authorised by him in this behalf by general or special order, and shall communicate the result of his inspection to the society within a period of one month from the date of completion of such inspection.

(1) Subject to the provisions of sub-section (2), on the application of a creditor of a society, an inspection shall be made of the books of the society by the Registrar or by a person authorised by him in this behalf by general or special order in writing. (2) No such inspection shall be made unless,- (a) the Registrar, after giving the society an opportunity of being heard, is satisfied that the alleged debt is a sum then due, and that the creditor has demanded payment thereof and has not received satisfaction within a reasonable time; and (b) the creditor deposits with the Registrar such sum as security for the costs of the inspection as the Registrar may direct. (3) The Registrar shall communicate the result of an inspection under this section to the creditor, to a society and to the financing bank, if any, of which the society is a member.

(1) The Registrar may, of his own motion, by himself or by a person authorised by him by order in writing, hold an enquiry into the constitution, working and financial condition of a society. (2) An enquiry of the nature referred to in sub-section (1) shall be held on the application of,- (a) a society to which the society concerned is affiliated; or (b) a majority of the members of the managing committee of the society; or (c) not less than one-third of the total number of members of the society. (3) The Registrar or the person authorised by him under sub-section (1) shall, for the purpose of an enquiry under this section have powers, namely:- (a) he may, notwithstanding any rule or bye-law specifying the period of notice for general meeting of the society, require the officer of the society to call a general meeting at such time and place at the head-quarters of the society or any branch thereof and to determine such matters as may be directed by him, and where the officers of the society refuse or fail to call such a meeting, he shall have power to call himself; and (b) any meeting called under clause(a) shall have all the powers of a general meeting called under the bye-laws of the society and its proceedings shall be regulated by such bye-laws except that no quorum shall be necessary for such meeting. (4) Where an enquiry is made under this section, the Registrar shall communicate the result of the inquiry to the society, the co-operative society, if any, to which that society is affiliated and to the persons or authority, if any, at whose instance the enquiry is made.

Where an enquiry is held under section 67 or an inspection is made under section 66 on the application of a creditor, the Registrar may apportion costs, or such part of the costs as he may deem fit between the co-operative society to which the society concerned is affiliated, the society, the members or creditors demanding an inquiry or inspection, and the officers or former officers of the society: Provided that- (a) no order of apportionment of the costs shall be made under this section unless the society or the person that might be made liable to pay the costs thereunder has had a reasonable opportunity of being heard; (b) the Registrar shall state in writing the grounds on which the costs are apportioned.

(1) If in the course of an audit, inquiry, inspection or the winding up of a co-operative society, it is found that any person who is or was entrusted with the organisation or management of such society, or who is or has at any time been an officer or an employee of the society, has made any payment contrary to the provisions of this Act, the rules or the bye-laws or has caused any deficiency in the assets of the society by breach of trust, or wilful negligence or has misappropriated or fraudulently retained any money or other property belonging to the society, the Registrar may, of his own motion or on the application of the committee, liquidator, or any creditor, inquire himself or direct any person authorised by him, by an order in writing in this behalf, to inquire into the conduct of such person : Provided that no such inquiry shall be held after the expiry of six years from the date on which any act of commission or omission referred to in this sub-section comes to knowledge. (2) Where an inquiry is made under sub-section (1), the Registrar may, after giving the person concerned an opportunity of being heard, make an order requiring him to repay or restore the money or property or any part thereof with interest at such rate, or to pay contribution and cost or compensation to such extent, as the Registrar may consider just and equitable. (3) This section shall apply notwithstanding that the act is one for which the offender may be criminally responsible.

The Registrar and, subject to any restriction prescribed, an auditor, arbitrator, or any person conducting supervision or inspection or audit or inquiry 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 a society.

(1) In exercising the functions conferred on him by or under this Act, the Registrar, the arbitrator or any other person deciding a dispute under section 73 and the liquidator of a co-operative society or person entitled to audit, inspect or hold any inquiry shall have all the powers of civil court while trying a suit, under the Code of Civil Procedure, 1908 (5 of 1908), in respect of the following matters:- (a) summoning and enforcing the attendance of any person and examining him on oath; (b) requiring the discovery and production of any document; (c) proof of facts by affidavit; and (d) issuing commission for examination of witnesses. (2) In the case of an affidavit, any officer appointed by the Registrar, the arbitrator or any other person deciding a dispute and the liquidator, as the case may be, may administer oath to the deponent.

(1) Notwithstanding anything contained in any law for the time being in force, if any dispute touching the constitution, management, or the business of a co-operative society arises— (a) among members, past members and persons claiming through members, past members and deceased members; or (b) between a member, past member or a person claiming through a member, past member or a deceased member and the society, its committee or any officer, agent or employee of the society or liquidator, past or present; or (c) between the society or its committee and any past committee, any officer, agent or employee, or any past officer, past agent or past employee or the nominee, heirs or legal representatives of any deceased officer, deceased agent, or deceased employee of the society; or (d) between the society and any other co-operative society, between a society and liquidator of another society or between the liquidator of one society and the liquidator of another society; or (e) a surety of a member, past member or a deceased member or a person other than a member who has been granted a loan by the society under section 58 whether such surety is or is not a member of the society; such disputes shall be referred to the Registrar for decision and no court shall have jurisdiction to entertain any suit or other proceeding in respect of such dispute. (2) For the purposes of sub-section (1), the following shall be deemed to be disputes touching the constitution, management, or the business of a co-operative society, namely:- (a) a claim by the society for any debt or demand due to it from a member or an employee, or the nominee, heir or legal representative of a deceased member or an employee, whether such debt or demand be admitted or not; (b) a claim by a surety against the principal debtor where the society has recovered from a surety any amount in respect of any debt or demand due to it from the principal debtor as a result of default of the principal debtor, whether such debt or demand is admitted or not; (c) any dispute arising in connection with the election of any officer of the society. (3) If any question arises whether a dispute referred to the Registrar under this section is or is not a dispute touching the constitution, management or the business of a co-operative society, decision, thereon, of the Registrar shall be final and shall not be called in question in any court.

(1) The Registrar may, on receipt of the reference of a dispute under section 72,- (a) decide the dispute himself; or (b) transfer it for disposal to any person who has been invested by the State Government with powers in that behalf; or (c) refer it for disposal to an arbitrator. (2) The Registrar may withdraw any reference transferred under clause (b) of sub-section (1) or referred under clause (c) of that sub-section and decide it himself or refer the same to another arbitrator for decision. (3) The Registrar or any other person to whom a dispute is referred for decision under this section may, pending the decision of the dispute, make such interlocutory orders as he may deem necessary in the interest of justice. (4) The Registrar or the arbitrator to whom the dispute is referred, after giving the parties a reasonable opportunity of being heard, shall give his decision or award as the case may be. (5) Where the decision or award has been made in the absence of a party, the said party, if aggrieved, may apply within one month of the date of such decision or award for an order to set aside such decision or award and if it satisfies the Registrar or the arbitrator that there was sufficient cause of its non appearance when the matter was called on for hearing, the Registrar or arbitrator shall make an order setting aside his decision or award as the case may be.

Where a dispute has been referred to the Registrar under section 72 or transferred or referred to arbitration under clauses (b) and (c) of sub-section (1) of section 73, the Registrar, or the person invested with the powers to decide such dispute or the arbitrator, as the case may be, if satisfied on inquiry or otherwise that a party to such arbitration with intent to delay or obstruct the execution of any award that may be made- (a) is about to dispose of the whole or any part of his property; or (b) is about to remove the whole or any part of his property from the jurisdiction of the Registrar; may, unless adequate security is furnished, direct a conditional attachment, and such attachment shall have the same effect as if made by a competent civil court.

The award of the arbitrator or a decision by the Registrar, or the person invested with the power to decide disputes, under section 73 shall not be liable to be called in question in any civil or revenue court.

No suit shall be instituted against a society or any of its officers in respect of any act touching the constitution, management or the business of the society, until the expiration of two months after notice in writing has been delivered to the Registrar or left at his office, stating the cause of action, the name, description and place of residence of the plaintiff and the relief which he claims; and the plaint shall contain a statement that such notice has been so delivered or left.

(1) Notwithstanding anything contained in this Act, where a compromise or arrangement is proposed between a society and its creditor or creditors or any class of them, the Registrar, upon an application made in the prescribed manner by the society or by any creditor, or, in the case of a society in respect of which an order has been passed for the winding up thereof, by the liquidator, may order a meeting of the creditors or the class of creditors, as the case may be, to be called, held and conducted in such manner as may be prescribed. (2) If a majority in number of the creditors, or the class of the creditors, as the case may be, representing claims to three-fourth of the debts due by the society to the creditors, or the class of the creditors, present either in person or by proxy at the meeting, agree to any compromise or arrangement, the compromise or arrangement shall, if sanctioned by the Registrar, upon publication in the prescribed manner, be binding on all the creditors or the class of creditors, as the case may be, and also on the society or, in the case of a society in respect of which an order has been passed for the winding up thereof, on the liquidator and on all persons who have been or may be required by the liquidator under section 80 to contribute to the assets of the society.