Chapter VIII AUDIT, INQUIRY, INSPECTION AND SUPERVISION

1. (1) (a) The Registrar shall audit, or cause to be audited, at least once in each co-operative year, by a person authorised 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 time to time, and the accounts of the apex societies, State and District Level Federal Societies, District Central Co-operative Banks, Co-operative Sugar factories, Urban Co-operative Banks, Co-operative Spinning Mills, District and Taluka Co-operative Sale and Purchase Organizations, and any such society or class of Societies which the State Government may, from time to time, by notification in the Official Gazette, specify.
   • (b) The societies other than the societies referred to in clause (a) shall arrange to get their accounts audited, at least once in each co-operative year by an auditor from the panel of auditors maintained by the Registrar, or by a chartered accountant holding a certificate in co- operative audit issued by the institute of Chartered Accountants of India : Provided 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.
2. (2) The audit under sub-section (1) shall include examination or verification of the following items, namely
   • (i) over dues of debts, if any;
   • (ii) cash balance and securities and a valuation of the assets and liabilities of the society
   • (iii) whether loan and advances and debts made by the society on the basis of security have been properly secured and the terms on which such loans and advances are made or debts are incurred are not pre-judicial to the interest of the society and its members;
   • (iv) whether transactions of the society which are presented merely by book entries are not prejudicial to the interest of the society;
   • (v) whether loans and advances made by the society have been shown as deposits;
   • (vi) whether personal expenses have been charged to revenue account;
   • (vii) whether the society has incurred any expenditure in furtherance of its objects;
   • (viii) whether the society has properly utilised the financial assistance granted by government or Government undertakings or financial institutions, for the purpose for which such assistance was granted;
   • (ix) whether the society is properly carrying out its objects and obligations towards members (2A) Where, in the opinion of the State Government, it is necessary In the public interest to do so in relation to any society or class of societies for ensuring management thereof in accordance with sound business principles or prudent commercial practices, the State Government may, by order, direct that such society or class of societies shall prepare and maintain its accounts in the form determined by the State Government, from time to time and that cost audit or performance audit or both, of such society or class of societies, as may be specified in the order, shall be conducted. (2B) where any order is issued under sub-section (2A), the Registrar shall cause such audit of such society or class of societies to be conducted by a cost accountant who is a member of the Institute of Cost and Works Accountants of India constituted under section 3 of the Cost and Works Accountants Act, 1959.
3. (3) (a) The Registrar or the person authorised 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 any such books, accounts, documents, papers, securities, cash or other properties, to produce the same at any place at the headquarters of the society or any branch thereof.
   • (b) The Registrar shall be competent to depute Flying Squad to a society or societies for examination of books, records, accounts, and such other papers and for verification of cash balance. The report of the Flying Squad shall be deemed to be an audit report for the purpose of taking further action, if necessary.
   • (c) The Registrar or the person authorised by him in this behalf may carry out or cause to be carried out the test audit of the accounts of any society. The test audit shall include the examination of such items as may be prescribed.
4. (4) Every person who is, or has at any time been, an officer or employee of the society, and every member and past member of the society, shall furnish such information in regard to the transactions and working of the society as the Registrar, or the person authorised by him, may require
5. (5) The auditor appointed under sub-section (1) shall have the right to receive all notices and ever communication relating to the annual general meeting of the society and to attend such meeting and to be heard thereat, in respect of any part of the business with which he is concerned as auditor. (5A) 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. (5B) The auditor shall submit an audit memorandum duly signed by him 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 Act and present the true and fair view of the financial transactions of the society.
6. (6) If it appears to the Registrar, on an application by a society or otherwise, that it is necessary or expedient to re-audit any accounts of the society, the Registrar may by order provide for such re-audit and the provisions of this Act, applicable to audit of accounts of the society shall apply to such re-audit.

If the result of the audit held under the last preceding section discloses any defects in the working of a society the society shall within three months from the date of audit report, explain to the Registrar the defects, or the irregularities pointed out by the auditor, and take steps to rectify the defects and remedy irregularities and report to the Registrar the action taken by it thereon. 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. Where the 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, and shall on the application of one third of the members of a society, himself or by a person duly authorized by him in writing, in this behalf, hold an inquiry into the constitution, working and financial conditions of a society.
2. (2) Before holding any such inquiry on an application the Registrar may having regard to the nature of allegations and the inquiry involved, require the applicant to deposit with him such

sum of money as he may determine towards the cost of the inquiry. If the allegations made in the application are substantially proved at the enquiry, the deposit shall be refunded to the applicant, and the Registrar may under section 85, after following, the procedure laid down in that section, direct from whom and to what extent the cost of the inquiry should be recovered. If it is proved that the allegations were false, vexatious or malicious, the Registrar may likewise direct that such cost shall be recovered from the applicant. Where the result of the inquiry shows that the allegations were not false, vexatious or malicious, but could not be proved, such cost may be borne by the State Government.

1. (3) (a) All officers, members and past members of the society in respect of which an inquiry is held, and any other person who, in the opinion of the officer holding the inquiry is in possession of information, of books and papers relating to the society, shall furnish such information as in their possession, and produce all books and papers relating to the society which are in their custody or power, and otherwise give to the officer holding an inquiry all assistance in connection with the inquiry which they can reasonably give.
   • (b) If any such person refuses to produce to the Registrar or any person authorised by him under sub section (1), any book or papers which it is his duty under clause (a) to produce or to answer any question which is put to him by the Registrar or the person authorised by the Registrar in pursuance of sub-clause (a), the Registrar or the person authorised by the Registrar may certify the refusal and the Registrar after hearing any statement which may be offered in defense, punish the defaulter with a penalty not exceeding five hundred rupees. Any sum imposed as penalty under this section shall, on the application by the Registrar or the person authorised by him, to a Magistrate having jurisdiction, be recoverable by the Magistrate as if it were a fine imposed by him.
2. (4) The result of an enquiry under this section shall be communicated to the society whose affairs have been investigated.
3. (5) It shall be competent for the Registrar to withdraw any 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 the debt is a sum then 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, inspect or direct some 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 inspection to the applicant, and to the society whose books have been inspected.
3. (3) It shall be competent for the Registrar to withdraw any order of inspection from the officer, to whom it is entrusted, and to inspect himself or entrust it to any other person as he deems, fit.
4. (4) The powers of inspection conferred on the Registrar by this section may be exercised by him of his own motion in respect of any society, which is indebted to Government or for which share capital (wholly or partly) is provided by Government or where any financial interest of

Costs of inquiry and inspection.-

1. (1) Where an inquiry is held under section 83 or an inspection is made under the last preceding section, 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 : Provided that;
   • (a) no order of apportionment of the costs shall be made under this section unless the society or person or the legal representative of the deceased person liable to pay the costs there under, has or have been heard, or has 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 awarded by way of costs under the last preceding section, may be recovered, on an application by the Registrar to a Magistrate having jurisdiction in the place where the person from whom the money is claimable resides or carries on business, 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 83 or an inspection made under section 84 discloses any defects in the constitution, working or financial condition or the books of society, the Registrar may bring such defects to the notice of the society. 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, within sixty days from the date of any order made by the Registrar under the foregoing sub-section, appeal against it to the State Government.
3. (3) The State Government may, in deciding the appeal, annul, reverse, modify or confirm the order of the Registrar.
4. (4) If a society fails to rectify the defects disclosed in the course of or as a result of an audit under section 81 or fails to rectify the defects as directed by the Registrar, and where no appeal has been made to the State Government within the time specified in the order, or where on the appeal so made the State Government 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 officer or officers of the society, who in his opinion, has or have failed to rectify the defects.

1. (1) Where, in the course of or as a result of an audit under section 81 or an inquiry under section 83 or an inspection under section 84 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 83 or the person authorised to inspect the books under section 84 or the Liquidator under section 105 or otherwise 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 misfeasance or breach of trust in relation to the society, the Registrar or a person authorised by him in that behalf may frame 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 rates 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.
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 cost or any part thereof, 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.
3. (3) This section shall apply, notwithstanding that the act is one for which the person concerned may criminally responsible.

Where the Registration his own motion decides and orders an inquiry under section 83 or proceeds or authorizes to make inquiry under section 88, he may, having regard to the nature of allegations and the inquiry involved, require the society concerned to deposit with him such sum of money as he may determine, towards the cost of inquiry. If the sum so determined is not deposited with the Registrar within 15 days from the date of receipt of the order requiring the society to deposit the sum, it shall on a certificate issued by the Registrar, be recoverable as an arrears of land revenue,

The Registrar or the person authorised by him, when acting under section 83, 84 or 88 shall have the power to summon and enforce the attendance of any person and examining him on oath or affirmation or by affidavit or to compel the production of any document or other material object by the same means and in the same manner as is provided in the case of a

Power to inspect working of society.—

1. (1) It shall be competent for the Registrar to inspect or cause to be inspected the working of any society to ensure that-
   • (a) the provisions of the Act, rules and bye-laws of the society are being properly followed by the society;
   • (b) the records and books of accounts are kept in proper forms;
   • (c) the business of the society is being run on sound business principles;
   • (d) the society is following the co-operative principles and the directives or directions given by the State Government in accordance with the provisions of this Act and the rules made there under : Provided that, inspection of the societies specified under Section 73-G shall be undertaken by the Registrar or by the officer not below the rank of Deputy Registrar of Co-operative Societies authorised by him in this behalf.
2. (2) For the purpose of supervision over the societies, the Registrar shall have the power-
   • (a) to inspect the records and books of accounts of the society and for that purpose he shall have, at all times, access to all the records and books of accounts of the society; and
   • (b) to summon any officer or employee who has the custody of the records or books of accounts of the society to produce them before him
3. (3) The State Government may levy supervision fees on any society or class of societies at such rates, as the State Government may, having regard to the area of operation, the nature of business and the objects of the society, by notification in the Official Gazette, fix from time to time.
4. (4) Every society liable to pay the fees levied under sub-section (3) shall pay such fees by such date and in such manner as the State Government may specify in the notification issued under sub-section (3).
5. (5) The State Government may, having regard to the financial position of any society or class of societies, by general or special order published in the Official Gazette, exempt such society or class of societies from payment of such fees for such period as may be specified in such order, or reduce or remit in whole or in part such fees.

1. (1) The State Government may constitute or recognize one or more co-operative federal authorities, in such manner as may be prescribed and subject to such conditions as the State Government may impose, for the supervision of a society or a class of societies and may frame rules for making grants to such an authority.
2. (2) The State Government may, by general or special order, 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 reimbursement of expenditure which the State Government or any person authorised in that behalf has incurred or is likely to incur, in respect of supervision of societies:
3. (3) A society to which sub-section (2) is applicable shall pay to such authority such fee as may be prescribed within a reasonable time and, if it fails to pay such fee within a reasonable time, the authority may recover it as if it were arrears of land revenue.