Maharashtra Co-Operative Societies Act: If Committee Fails To Submit Audit Rectification Report All Its Members Shall Be Liable U/s. 146: Bombay HC

The Bombay High Court has held that if the committee of society fails to submit the audit rectification report to the Registrar and to the annual general body meeting, then all its members shall be liable under Section 146 of the Maharashtra Cooperative Societies Act, 1960.

The Court held this in a case wherein the petitioner i.e., a Federal Society of the dairy societies in the district Kolhapur had filed a writ petition to question the Test Audit initiated by the State Government under the provisions of the 1960 Act.

A Division Bench comprising Justice Nitin Jamdar and Justice Manjusha Deshpande observed, “Section 82 provides for the Rectification of defects in accounts. It states that if the result of the audit held under Section 81 discloses any defects in the working of a society, the society shall, within three months from the date of the 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 the irregularities and report to the Registrar the action taken by it thereon and place the same before the next general body meeting. Thereafter, if the committee of society fails to submit the audit rectification report to the Registrar and to the annual general body meeting, all the committee members shall be deemed to have committed an offence under Section 146. Accordingly, they shall be liable for penalty as provided in Section 147.”

The Bench added that thereafter, under section 88, the Registrar may frame charges and after giving a reasonable opportunity, pass such orders regarding the misapplication, retention, misfeasance, or breach of trust, as he may determine.

Senior Advocate Anil Anturkar appeared for the petitioner while Senior Advocate as Special Counsel A.Y. Sakhare and Senior Advocate G.S. Godbole appeared for the respondents.

Facts of the Case -

The subject matter of the case was a Test Audit order under the 1960 Act which was enacted to provide for the orderly development of the co-operative movement in the Maharashtra State and to consolidate and amend the law relating to co-operative societies in the State. One of the members of the Board of Directors of the petitioner (society) made grievances regarding its functioning and addressed a letter to its Chairman, calling for information regarding the changes in the price paid for the purchase of milk. Thereafter, an auditor was appointed but then the said member again raised grievances regarding taking of certain vehicles on hire without calling for tender.

The Auditor on completion of the audit, submitted the same to the petitioner but according to the said member, the audit report contained various irregularities. An Annual General Body Meeting of the petitioner was held but the member said that the auditor showed irregularities which were highlighted continuously through representations. Upon a complaint, the Minister of Animal Husbandry and Dairy Development, Maharashtra Government directed examination of the issue and then the Special Officer (BOD) directed Test Audit to be carried out and hence the matter was before the court.

The High Court after considering the submissions of the counsel noted, “The Petitioner- Society has not taken active steps to recover the dues from the purchasers of milk and milk products, from the member dairies to whom the "animal food" is supplied, and from the contractors to whom advance payments or excessive payments were made. Amounts are paid as donations, with the cheques drawn in the individual names without obtaining prior permission from the Cooperation Department.”

The Court said that there are illegal expenses on advertisements for events such as birthdays, etc. and various transactions are called for without inviting tender, such as for Fodder Seeds and Can Repairing and no record regarding the production of cost of milk products is maintained.

“Works are ordered by ignoring the lowest bid. There are irregularities in internal management, such as the signatures of the Managers are not taken on vouchers; various vouchers are not signed. Daily accounts not signed by Accounts and supporting documents are not annexed to some of the vouchers. We do not intend to draw any final conclusion but considering the scheme of Chapter-VIII of the Act of 1960, it is not possible for us to hold that this material was not sufficient for ordering the Test Audit”, further noted the Court.

The Court also observed that the said member continuously made a grievance and demanded supply of documents regarding the proceedings of the Board of Directors and the Managing Committee of the petitioner and therefore, there is no substance in the contention that the member was estopped from opposing the petition.

“… the Test Audit is not the end of the process and the statute provides elaborate process. Therefore, the Test Audit itself will not fructify into any immediate action, but there are various stages before even inquiry against the individual director is carried out. The Petitioner and its directors will have an opportunity. Pursuant to the liberty by this Court, Test Audit is complete and the report is ready. Further process under the Act of 1960 will follow”, directed the Court.

The Court concluded that the attempt of the petitioner is to scuttle the inquiry of its accounts at the initial stage itself.

Accordingly, the High Court dismissed the writ petition.

Cause Title- Kolhapur Zilla Sahakari Doodh v. State of Maharashtra & Ors. (Neutral Citation: 2023:BHC-AS:24556-DB)

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