AUDIT, ENQUIRY, INSPECTION AND SURCHARGECentral

Section 77 of The Multi-State Co-operative Societies Act, 2002

(1)Where the Central Government is of the opinion--
1. (a)that the affairs of any multi-State co-operative society are not being managed in accordance with self-help and mutual aid and co-operative principles or prudent commercial practices; or with sound business principles; or
2. (b)that any multi-State co-operative society is being managed in a manner likely to cause serious injury or damage to the interest of the trade, industry or business to which it pertains; or
3. (c)that the financial position of any multi-State co-operative society is such as to endanger its solvency, the Central Government may at any time by order direct that a special audit of the multi-State cooperative society's accounts for such period or periods as may be specified in the order, shall be conducted and may by the same or a different order appoint either a chartered accountant as defined in clause (b) of sub-section (1) of section 2 of the Chartered Accountants Act, 1949 (38 of 1949) or the multi-State co-operative societys auditor himself to conduct with special audit: Provided that the Central Government shall not order for special audit of a multi-State co-operative society's accounts if that Government or the State Government either by itself or both hold less than fiftyone per cent. of the paid up share capital or of the shares in such multi-State co-operative society.
(2)The chartered accountant or the multi-State co-operative society's auditor appointed under subsection (1) to conduct a special audit as aforesaid is hereafter in this section referred to as the special auditor.
(3)The special auditor shall have the same powers and duties in relation to the special audit as an auditor of a multi-State co-operative society has under section 73: Provided that the special auditor shall, instead of making his report to the members of the multi-State co-operative society, make the same to the Central Government.
(4)The report of the special auditor shall, as far as may be, include all the matters required to be included in the auditors report under section 73 and, if the Central Government so directs, shall also include a statement on any other matter which may be referred to him by that Government.
(5)The Central Government may by order direct any person specified in the order to furnish to the special auditor within such time as may be specified therein such information or additional information as may be required by the special auditor in connection with the special audit.
(6)On receipt of the report of the special auditor, the Central Government may take such action on the report as it considers necessary in accordance with the provisions of this Act or any other law for the time being in force: Provided that if the Central Government does not take any action on the report within four months from the date of its receipt, that Government shall send to the multi-State co-operative society either a copy of, or relevant extract from, the report with its comments thereon and require the multi-State cooperative society either to circulate that copy or those extracts to the members or to have such copy or extracts read before the multi-State co-operative society at its next general meeting.
(7)The expenses of, and incidental to, any special audit under this section (including the remuneration of the special auditor) shall be determined by the Central Government which determination shall be final and paid by the multi-State co-operative society and in default of such payment, shall be recoverable from the multi-State co-operative society as an arrear of land revenue.

Summary

The Central Government can order a special audit of a multi-State co-operative society if its affairs are not managed prudently or are endangering its solvency, or if they are causing damage to its industry.
The Central Government can only order this special audit if the Central Government or State Government holds at least fifty-one per cent of the society's paid-up share capital or shares.
The special auditor has the same powers and duties as a regular auditor, but must submit their audit report directly to the Central Government instead of the members.
If the Central Government does not act on the special audit report within four months, it must send the report or extracts to the society to be shared with members or read at the next general meeting.
The expenses of the special audit are determined by the Central Government and must be paid by the society, with unpaid expenses recoverable as arrears of land revenue, which is a method for collecting unpaid taxes on land.

Practical examples

1The Central Government suspects that the National Wool Co-operative, where the Government holds sixty per cent of the shares, is being run in a way that risks bankruptcy. Under Section 77, the Government appoints Vikram, a chartered accountant, to conduct a special audit and report his findings directly back to the Ministry.

2Following a special audit of the Central Handloom Co-operative, the Central Government takes no official action after three months. At the four-month mark, the Government must send the audit extracts to the co-operative's office so they can be read aloud at the next member meeting.

FAQ

1. Under what financial conditions can the Central Government order a special audit under Section 77 of the Multi-State Co-operative Societies Act, 2002?

Under Section 77 of the Multi-State Co-operative Societies Act, 2002, a special audit can be directed if the society's affairs are not managed in accordance with co-operative principles or prudent commercial practices, if it is causing serious damage to its industry, or if its financial position endangers its solvency.

2. Can the Central Government order a special audit of any multi-State co-operative society under Section 77 of the Multi-State Co-operative Societies Act, 2002?

No, under Section 77 of the Multi-State Co-operative Societies Act, 2002, the Central Government cannot order a special audit if the Central and State Governments together hold less than fifty-one per cent of the paid-up share capital or shares in the society.

3. To whom does the special auditor report under Section 77 of the Multi-State Co-operative Societies Act, 2002?

Under Section 77 of the Multi-State Co-operative Societies Act, 2002, the special auditor must submit the report to the Central Government instead of making it to the members of the society.

4. What happens if the Central Government does not take action on a special audit report within four months under Section 77 of the Multi-State Co-operative Societies Act, 2002?

Under Section 77 of the Multi-State Co-operative Societies Act, 2002, if no action is taken within four months of receiving the report, the Government must send a copy or extract of the report with comments to the society to be circulated to members or read at the next general meeting.

Test yourself

Q1.Under Section 77 of the Multi-State Co-operative Societies Act, 2002, what minimum government shareholding is required for the Central Government to order a special audit?

Q2.How does the reporting duty of a special auditor under Section 77 of the Multi-State Co-operative Societies Act, 2002 differ from a regular auditor under Section 73?

Q3.Under Section 77 of the Multi-State Co-operative Societies Act, 2002, if the Central Government fails to take action on the special audit report, what is the timeline within which they must forward the report extracts to the society?

Q4.If a multi-State co-operative society defaults on paying the expenses of a special audit ordered under Section 77 of the Multi-State Co-operative Societies Act, 2002, how are those funds recovered?

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