By I C Naik
The equations are changing between Registrar, Management and Auditors of the Cooperative Societies in the State of Maharashtra. These significant players in cooperative movement are on a definite plank of a dramatic change as very well intended in the enactment of the Maharashtra Cooperative Societies (Amendment) Act 2013 (Mah. Act No. XVI of 2013).
This Act has come in to force w. e. f. 14-02-2013 incorporating in the M. C. S. Act 1960, most of the Constitutional mandates as per Part IXB: The Cooperative Societies (inserted under the Constitutional (97th Amendment) Act 2011) plus something more in terms of the new Article 43B inserted in Part IV of the Constitution.
It is aimed at presenting a brief prognosis of salient features of this change.
1. Article 43B of the Constitution of India seems to have a bit different undertone as compared to most other directive principles of State Policy (enshrined in Part IV of the Constitution). The direction of cooperative movement in tandem with the changing global panorama. is being given a new thrust by the Union of India, through Constitutional mandates with a view to address known weaknesses which inhibit the growth of cooperative movement: the constituents of the Union of India viz:- the States supposed to be playing a pivotal role in monitoring the micro issues in respective local contexts, reaching out to every nook and corner of the concerned State. In the Supreme legal document of this vast nation, India – this Article 43B is consciously preceded by a newly conferred fundamental right of forming cooperative society by the citizens, and aptly followed by a essential qualitative back up in new Part IXB: The Cooperative Societies, for the States to re-direct their legislative actions according due recognition to the constitutional mandates (AA 243ZI and 243ZT).
2. In that context good understanding of changing relationships of the trio is quite critical and is expected to hopefully re-shape the cooperative movement quite soon. Most new provisions affecting the roles of these three are inserted in Chapters II, VII and VIII of the M. C. S. Act 1960).
3. The three players of cooperative movement in our focus,have distinct and decisive complementary roles to play, towards one goal viz healthy and speedy growth in cooperative movement. This relationship is on the threshold of unfolding their true characters much faster than hitherto. The key change agent is the audit which is poised for strengthening even otherwise mightier authority, the Commissioner and Registrar of Cooperative Societies [referred to as the C & RCS] for eradicating most management ills, which had engulfed and corroded the movement from within for the last several years. But now no more.
4. Having got a promise of the autonomy in the management, that is no “interference of the State” the new dispensation has to demonstrate much higher accountability in the management which is to be vetted by the substantially revamped audit process and finally reassured by the mammoth organization of the C & RCS in its follow up actions expeditiously.
5. All three have to refresh the skills, tools and approaches of the people engaged by them to support them in their respective new avatars. People in the office of the C & RCS have to move up intellectually to create a qualitative impact of their activities. With a large proliferation of cooperatives and autocratic managements, it had already gone beyond reasonable scope of the C & RCS to keep good check on ills of management. His people will have to be ready to qualitatively associate to the managements hence forth. It would be no longer easy to shower favors to negligent and fraudulent managements as the cases will be supported by unassailable documentary evidences, in the midst of threatening RTI provisions.
THE COMMISSIONER AND REGISTRAR OF COOPERATIVE SOCIETIES
6. Now the C & RCS has no freedom to jump in to manage a cooperative societies, dismissing the delinquent managements of un-aided cooperative societies (and over a period all societies have to become self-reliant) through his own cronies for no real gains out of that. [Proviso 3 to New S. 78(A)] Instead has to keep a strict vigil through diligent exercise of newly conferred substantial powers of intervention:
i. Specifying mandatory Model Bye Laws [New Prv. to S. 14)]
ii. Scrutiny of returns ; Budget, Cash plans, audit deficiencies [S. 79(4)]
iii. Recourse to Flying Squad for examination of books [S. 81(2B)(b)
iv. Order Test audit of accounts if not satisfied with audit [ S. 81(2B)(c)]
7. The newly conferred authority of specifying the Bye Laws of cooperative societies – the day to day management rules- will itself need sharpening his tools, increasing deployment of communication technologies and improve quality of the staff to deal with emerging challenges and bring about a qualitative change in functioning. He will have to provide a new framework of management and in that undoubtedly he will have a strong support of the auditors to satisfy himself of the compliance of new Model Bye Laws.
An example of the shift in the style of functioning of Registrar’s office is in this provision. ”The Registrar shall maintain the list of societies district-wise, the list of working societies, the list of societies whose accounts are audited, the list of societies whose accounts are not audited within the prescribed time and reasons therefor. The Registrar shall co-ordinate with the societies and the auditors or auditing firms and ensure the completion of audit of accounts of all the co-operative societies in time every year” [Cl. 50 substituting S.81(1)(g)].The fact is the C & RCS is barely having a central list of societies at hands reach will have to re-vamp the organization to monitor this important society event – the annual accounts and audit rectification.
8. The scrutiny of annual returns itself should throw up a massive agenda for the people in the whole organization of the Commissioner and Registrar of Cooperative Societies which was hardly effective for variety of reasons. The auditor’s scope of responsibilities has been so much widened that cooperative society management cannot go scot-free when found acting negligently, not to talk of executing fraudulent schemes. Filing FIRS by auditors is the extreme provision of roping in auditors to make task of the Commissioner and Registrar of Cooperative Societies much easier.
MANAGEMENT
9. The managements are now going to be installed through an independent democratic process having no scope to manipulate thus making them more accountable [New S. 73CB]. The process of proving accountability is also being revamped through increased reporting requirements to the general body meeting [New Sub Section 2 of S. 75] and filing of Annual Return [New S. 79(1A)] This should elicit more response from the members – the ultimate actors and beneficiaries of cooperative movement.
10. The managing committees are given options to nominate experts and functional members on the committee to provide professional knowledge and expertise. [ S.2.(Cls. 11A, and 14A and New S. 73AAA]. Only active (not indifferent ones) members as defined in the M. C. S. Act 1960 [ S.2.Cl. 19(a1) are permitted to join the managing committee [S. 73CA(1) (ii)]. There is a sharp focus on training of members, the management and staff members so as to achieve efficiency and compliance of the most important elements for members reposing trust in management. The skeleton training infrastructure will have to be strengthened quite soon.[NEW S. 24A(1)] Built up of Education Fund is assured from contribution of every cooperative society. [NEW S. 24A(3)]
AUDIT
11. The audit process including reporting is imbibing key responsibilities which the office of the Commissioner and Registrar of Cooperative Societies could not successfully attend all these years. Just to quote a new audit report content:
“The auditor’s report shall provide,—
i. all particulars of the defects or the irregularities in finances and misappropriation or embezzlement of funds or fraud,
ii. extent of accounting irregularities and implications on the financial results.
iii. the lapses in functioning of the committees duly fixing the responsibilities for such irregularities or violations. [S. 81(1)(e)].
iv. Further three new provisos rope in auditor to file FIR for any financial irregularities after getting permission of the Registrar and the Registrar can file FIR and disqualify the auditor in case of auditor’s failure [S. 81(5B)]
12. As the auditor’s role is undergoing a sea change in its scope and structure, no longer limited to verifying and reporting on financial statements, but extending to functioning of the management Committees as per New Model Bye Laws , it is of utmost importance that the remuneration of the auditors is not prescribed at ridiculously low levels as was done so far. Proper criteria should be devised to arrive at a fair compensation for such an yeomen service to cooperative movement. The onus of fixation of audit fees was shifted to membership of cooperative societies by a provision in the Maharashtra Cooperative Societies (Amendment) Ordinance 2013 [Cl. 49 substituting S.81(1)(f)]. However in the Amendment Act it has been restored to State Government to fix under the M.C.S. Rules 1961. [Cl. 50 substituting S.81(1)(f)]
DEFINITE SCOPE FOR IMPROVEMENT
13. In an attempt of overburdening the auditors, could be rightly so, an important aspect is has missed the focus.
i. Subsection (2) of Section 81 of the M. C. S. Act 1960 Requires that “The audit under sub -section ( 1) shall be carried out as per Accounting Standards notified by the State Government from time to time …”
ii. Application of “Accounting Standards” is the prime responsibility of the management of a cooperative society and the Auditors have to report if the management has adhered to the same and if any deviations were observed the auditors have to report its impact on the operating results of the cooperative society concerned.
iii. The accounting standards framed for Corporate Sector by Union Government and Institute of Chartered Accountants ) are not applicable to cooperative societies and therefore it is necessary that first the accounting standards are laid down for businesses carried on in the cooperative sector. This need not be a State responsibility as that’s a waste of time. This should be entrusted to a central Agency.
14. There are more than two dozen classes of cooperatives and therefore certain standard accounting practices and procedures need be prescribed. Cooperative Sector is primarily divided in to two : Conducting Business for profits and non-profit motive member contribution based mutual benefit societies.
15. There must be a separate accounting formats, principles and practices for the Non-Profit motive sectors. The biggest chunk in this is cooperative housing societies which follow the accounting formats and practices applicable to Profit-Motive cooperative societies. The impact of this lacunae is disastrous, but unfortunately it has not been noticed by authorities responsible for the same. Under the new dispensation of “audit reports” there are all likely hood of this grave deficiency coming to light.
POOR PREPARATION BY THE STATE GOVERNMENT
16. The prognosis is incomplete if it does not record that most cooperative housing societies are bound to remain unaware of these changing equations as the Amendment Act was published in the Gazette on 13 8 2013 very late as several of them had conducted their annual meetings without taking benefit of extended deadline to 30th September. The ordinance giving effect to changes and in force on 14 2 2013 did hardly receive any notice of cooperative housing societies. Large part of discussions in this paper has implications only for next year.
17. Managements have to be on guard now onwards but that is not the case with people in the office of the C & RCS, for their lapses are not likely to be dealt with sternly as it can be imagined for managements and the auditors. This definitely slows down the cooperative movement.