COOPERATIVE LAW

COOPERATIVE MOVEMENT IN INDIA

INTRODUCTION

The concept of Co-operation envisages a group of persons having one or more common
economic needs, who voluntarily agree to pool their resources-both human and material and
use them for mutual benefit through an enterprise managed by them on democratic lines.

The term co-operative finds its origin in Latin and is derived from the Latin words- ‘co’
meaning ‘with’ and ‘operari’ meaning ‘work’. Co-operatives aim to provide self-help as
well as mutual help. It is joint enterprise of those who are not financially strong and cannot
stand on their own and therefore, come together not with a view of getting profits but to
overcome disability arising out of want of adequate financial resources and thus better their
economic condition.

The term ‘co-operative’ has been defined by H. Calvert as "A form of organization in
which persons voluntarily associate together as human being on the basis of equality for
the promotion of the economic interests of themselves"

The International Cooperative Alliance defines the term ‘co-operative’ as “an

autonomous association of persons united voluntarily to meet their common economic,
social, and cultural needs and aspirations through a jointly-owned and democratically-
controlled enterprise.”

HISTORY OF COOPERATIVE MOVEMENT

Cooperation is a basic human instinct and examples of co-operatives can be traced as far back
as to the ancient Greek society. However, the modern Co-operative Movement was
founded by the Rochdale Pioneers in 1844 at Lancashire, England. The Movement
aimed to provide an affordable alternative to poor-quality and adulterated food and
provisions, using any surplus to benefit the community.
FW Raiffeisen is known as the founding father of credit coops and is credited with the
establishment of the first cooperative lending bank in 1864 with the aim of tackling
widespread rural poverty and to thwart the debt traps laid by loan sharks in rural
Germany. In 1866, he wrote a handbook on the establishment and governance of credit
coops which served as the global blueprint for creation of credit unions and cooperative
banks.

COOPERATIVES IN INDIA

The Indian Cooperative Movement was also a result of distress of the rural, debt-ridden
population suffering at the hands of local moneylenders or ‘Mahajans’. The Cooperative
Movement in India can be traced back to the Deccan Riots of 1875 which were led by
farmers in Pune and Ahmednagar who revolted against increasing agrarian distress. The
rioters targeted the debt bonds, decrees and documents held by the moneylenders,
which had been signed by the distressed rioters under duress or ignorance.

This led the British Government to form the Deccan Riots Commission, 1875 and the
Famine Commission, 1880. Based on the recommendations of the Commissions, the British
Legislature passed three laws to ease the unrest amongst farmers:

1. Deccan Agricultural Relief Act, 1879

2. Land Improvement Loan Act, 1883
3. Agriculturists Loan Act, 1884

Subsequently, in 1892, the Governor of Madras deputed Sir Fredrick Nicholson to study the
problems of the farmers as well as the organisation of agricultural movements in Europe.
After extensive travel and study, Sir Fredrick Nicholson submitted his Report in 1895 in
which he recommended the formation of Rural Cooperative Credit Societies on similar lines
as Raiffeisen. Due to his contributions, Sir Fredrick Nicholson is known as the father of
cooperative movement in India.

PRE-INDEPENDENCE

Initial Stage: Based on the Report of 1895, the British Government setup the Indian Famine
Commission in 1901 under the presidency of Sir Edward Law, and its recommendations
were adopted in the form of the Cooperative Credit Societies Act, 1904. This marked the
beginning of the initial stage of the Cooperative Movement in India and led to the
development of cooperatives in various states across the country.
Modification Stage: The drawbacks in the Act of 1904 were rectified to a certain degree
with the enactment of the Cooperative Credit Societies Act, 1912.

In 1915, the British Government appointed a committee under the leadership of Sir
Edward Maclagan to study the progress of the Cooperative Movement in India and to
assess whether the objectives of the movement were being met. The Committee observed
several glaring defects in the Cooperative Movement including- illiteracy, ignorance,
rampant corruption, unwarranted delays etc. and made key recommendations which
could not be enforced due to the outbreak of the First World War.

Expansion Stage: The Chelmsford-Montague Reforms of 1919 further supported and

encouraged cooperatives by placing cooperatives under the Provincial List. This allowed
the various provinces to take a more grass-roots approach to encourage cooperatives and
led to a significant increase in the membership of cooperatives. During this time, an
unprecedented expansion was observed in the Cooperative Movement and various
provinces passed their own laws to suit specific needs. These include the Cooperative
Societies Act of Bombay passed in 1925, Madras in 1932 and Orissa in 1935. While these
acts were based on the Cooperative Societies Act, 1912, they were able to better support
and promote the needs of the respective Provinces.

Consolidation and Re-structuring Stage: Between 1930 and 1938, different committees
were appointed in provinces such as Madras, Punjab, Bombay, Travancore etc. to
determine the possibility of restructuring cooperatives. Furthermore, in the aftermath of
the Great Depression of 1929, the Reserve Bank of India established an Agricultural
Credit Department.

Recovery Stage: The Second World War and the All India Cooperative Planning
Committee in 1945 further boosted the growth of the Cooperative Movement which led to
widespread adoption of the Cooperative Movement in India. Between 1939 and 1947, the
Indian Cooperative Movement witnessed a number of Consumer Cooperative Stores being
setup and also witnessed Industrial Cooperatives being setup to produce war material.

POST-INDEPENDENCE

After Independence, India adopted a Mixed Economy consisting of three sectors- Private,
Public and Cooperative. Cooperatives were visualized as the balancing factor between the
Private and Public Sectors. The Indian Government recognized the importance of
cooperatives in India, and accordingly, made cooperatives an integral part of the Five-Year
Plans formulated by the Planning Commission.

In 1958, the National Development Council recommended the formulation of a national

policy on cooperatives, training personnel and setting up cooperative marketing societies.
The National Policy on Cooperatives was finally announced in 2002 with the objective of:

a. Providing support for promotion and development of cooperatives

b. Reducing regional imbalances
c. Strengthening cooperative education, training and human resource development

In the Constitution of India, the responsibility of the State to foster cooperative societies has
been enshrined as part of the Directive Principles of State Policy under Art. 43.
Additionally, the Right to Form Cooperatives has been recognized as a Fundamental
Right under Article 14 as well as under Article 19 (1) (c). There have been subsequent
amendments to the Constitution of India vide The Constitution of Indian (Ninety-Seventh
Amendment) Act, 2011, which amended Article 19 (1) (c) to specifically include
cooperative societies and introduced Article 43B and Part IXB to the Constitution.

Post-Independence India has been significantly impacted by the Cooperative Movement

and cooperatives have been a critical reason behind the success of the White Revolution and
Green Revolution. In 2021, the Government of India has launched a new ministry called the
‘Ministry of Cooperation’ which has been tasked with streamlining the processes to
promote ‘ease of doing business’ and enable the development of multi-state cooperatives
in India.

OBJECTIVES OF COOPERATIVE SOCIETIES

a. To provide support and services to the members of the society and not to earn the
profit
b. To help each other mutually and not to have competition
c. To practice fair and transparent business activities
d. To deliver the quality goods and produce to the end customers
e. To promote self-help, self-reliance among people
f. To educate and train members and the public in democracy, economic and social
development

PRINCIPLES OF COOPERATIVES
The principles of cooperatives were reformulated by the International Cooperative
Alliance in September 1995 during its Centennial Congress. The principles set out by the
ICA can be categorized into three sets- the first four principles set out the working
methods of cooperatives, next two principles set out the essentials for continued progress
of the movement, and the last principle legitimizes its existence in the broader social
context. These principles are:

1. Voluntary and Open Membership

2. Democratic Member Control
3. Member Economic Participation
4. Autonomy and Independence
5. Education, Training and Information
6. Cooperation amongst Cooperatives
7. Concern for the Community

ADVANTAGES

1. Easy to Form
2. Open Membership
3. Democratic Management
4. Limited Liability
5. Stability
6. Economical Operations
7. Government Patronage
8. Low Management Cost
9. Mutual Co-Operation
10. No Speculation
11. Economic Advantages
12. Service Motive
13. Internal Financing
14. Income Tax Exemption
15. Durability
16. Cheaper Goods
17. State Patronage
 18. Elimination of Middleman
19. Equality
20. Perpetual Existence
21. Scope for Self-Governance

DISADVANTAGES

1. Limited Capital
2. Inefficient Management
3. Absence of Motivation
4. Differences and Factionalism among Members
5. Rigid Rules and Regulations
6. Lack of Competition
7. Cash Trading
8. Lack of Secrecy
9. Weightage to Personal Gains
10. Lack of Incentive and Initiative
11. Corruption
12. Limited Consideration
13. High Interest Rate
14. Undue Government Intervention
15. Differences of Opinion
16. Lack of Expertise
17. State Control
18. Lack of Loyalty
19. Lack of Understanding of Principle of Cooperative Societies
20. Lack of Universal Applicability
PUNJAB COOPERATIVE SOCIETIES ACT, 1961

INTRODUCTION

After Independence, several states which had previously adopted the Cooperative Societies
Act, 1912 to govern cooperative societies, began to implement state legislations that were
largely based on the Act of 1912, subject to additions and amendments to suit the
requirements of modern times, and such modifications as were suited to the conditions
in specific states.

The State of Punjab brought into force the Punjab Cooperative Societies Act, 1961 on 08th
July 1961 after the Act received the assent of the President of India on 22nd June 1961.
The Act was enacted with the objective of consolidating and amending the law relating to
cooperative societies in the State of Punjab and extended to the whole of the State of
Punjab, as set out in Section 1 of the Act.

The term ‘co-operative society’ has been defined under Section 2 (c) of the Act and
includes any society registered or deemed to be registered under the Act. Further, the Act
provides for two types of cooperative societies, namely- cooperative societies with limited
liability as defined under Section 2 (d), wherein the members’ liability is limited to their
unpaid share or to such amount that an individual member has undertaken to
contribute to the assets of the society; and cooperative societies with unlimited liability as
defined under Section 2 (e), wherein the members are jointly and severally liable for any
deficiency in the assets at the time of winding up.

The Act is a comprehensive Code in conjunction with the Punjab Cooperative Societies
Rules, 1963 for the regulation and management of cooperative societies in the State of
Punjab. The Act contains 86 sections divided into 12 chapters.

SALIENT FEATURES

1. Includes provisions regarding the registration of Co-operative Societies in the state

of Punjab under Chapter II
a. Section 3-14 of the Punjab Cooperative Societies Act, 1961
b.Rule 3-13 of the Punjab Cooperative Societies Rules, 1963
2. Includes provisions regarding membership of cooperative societies and the rights
and liabilities of members under Chapter III
 a. Section 15-22 of the Punjab Cooperative Societies Act, 1961
b.Rule 14-21 of the Punjab Cooperative Societies Rules, 1963
3. Includes provisions regarding the management of cooperative societies under
Chapter IV
a. Section 23-29 of the Punjab Cooperative Societies Act, 1961
b.Rule 22-29 of the Punjab Cooperative Societies Rules, 1963
4. Includes provisions regarding the privileges of cooperative societies under Chapter
V
a. Section 30-40 of the Punjab Cooperative Societies Act, 1961
5. Includes provisions regarding the management of properties and funds under
Chapter VI
a. Section 41-47 of the Punjab Cooperative Societies Act, 1961
b.Rule 30-46 of the Punjab Cooperative Societies Rules, 1963
6. Includes provisions regarding audit, inquiry, inspection and surcharges under
Chapter VII
a. Section 48-54 of the Punjab Cooperative Societies Act, 1961
b.Rule 47-50 of the Punjab Cooperative Societies Rules, 1963
7. Includes provisions regarding the settlement of disputes under Chapter VIII
a. Section 55-56 of the Punjab Cooperative Societies Act, 1961
b.Rule 51-57 of the Punjab Cooperative Societies Rules, 1963
8. Includes provisions regarding winding up of cooperative societies under Chapter IX
a. Section 57-61 of the Punjab Cooperative Societies Act, 1961
b.Rule 58-70 of the Punjab Cooperative Societies Rules, 1963
9. Includes provisions regarding the execution of awards, decrees, orders and
decisions under Chapter X
a. Section 62-67 of the Punjab Cooperative Societies Act, 1961
b.Rule 71-74 of the Punjab Cooperative Societies Rules, 1963
10. Includes provisions regarding appeals and revisions under Chapter XI
a. Section 68-70 of the Punjab Cooperative Societies Act, 1961
b.Rule 75 of the Punjab Cooperative Societies Rules, 1963
11. Includes provisions regarding offenses and penalties under Chapter XII
a. Section 71-86 of the Punjab Cooperative Societies Act, 1961
b.Rule 76-81 of the Punjab Cooperative Societies Rules, 1963
REGISTRATION OF COOPERATIVE SOCIETIES
The registration of cooperative societies has been covered under Chapter II of the Punjab
Cooperative Societies Act, 1961.

REGISTRAR AND OTHER OFFICERS

 The State Government has been empowered to appoint the Registrar of Cooperative
Societies [Section 3(1)]. To assist the Registrar in the exercise of his functions, the
State Government may appoint any number of Additional Registrars, Joint Registrars,
Deputy Registrars, Assistant Registrars and other persons [Section 3(2)].
 Any officer appointed under Section 3(2) may be conferred with any or all powers of
the Registrar by the State Government by general or special order [Section 3(3)] and
the exercise of such powers is subject to the general superintendence of the Registrar
[Section 3(4)].
 Any action taken by a person in exercise of powers conferred under subsection 4 shall
be considered as an action of the person taking the action and not an action of the
Registrar for the purposes of appeal [Section 3(5)]

Case Law:- Ajmer Singh v The Registrar, Cooperative Societies, Punjab [PHHC]-
The general superintendence of the Registrar under Section 3(4) is limited to the exercise
of their powers and functions by subordinate officers and not the exercise of the powers
of Registrar conferred upon them by the State Government.

WHICH SOCIETY CAN BE REGISTERED?

a. Society formed with the object of promotion of the economic interest of its members
in accordance with cooperative principles, or
b. Society established with the object of facilitating the operations of other cooperative
society/ies [Section 4(1)]
c. The liability of the society may generally be limited or unlimited, but, in the event
that government is a member of a society, the liability will be limited [Proviso to
Section 4(1)]
d. The term ‘Limited’ or its equivalent in any Indian language will be the last word of
the name of a limited society [Section 4(2)]
Case Law:- Pritam Singh Gill v. State of Punjab [PHHC]- In this case, a Writ Petition
was filed against a cooperative society. The Court considered the question of whether a
cooperative society can be categorized as “other authorities” for the purposes of Article
12, and held that and the Full Court Bench answered in the negative, i.e., cooperative
society is not an instrumentality of state under Article 12.

e. A society cannot be registered unless:

(i) it has a cooperative society as member
(ii) it has ten or more members above the age of eighteen [Section 5]
f. The Act lays down certain restrictions in respect of holding of shares [Section 6]:
a. A member, not being the Government, a PSU or a cooperative society, cannot
hold portion in share capital which exceeds 1/10th of the total share capital
b. In the case of milk producers cooperative societies registered after the
commencement of the Amendment Act, 1978, no member can have or claim
interest in the shares of such society exceeding Rs. 1000. [Proviso to Section
6]

REGISTRATION OF SOCIETY

 The Application for registration of a society has to be made to the Registrar [Section
7(1)]
 The Application for registration shall be signed
o When no member is a cooperative society- by at least ten persons above the
age of eighteen [Section 7(2)(a)]
o When all members are cooperative societies- by a duly authorized person on
behalf of each society [Section 7(2)(b)]
o When some members are cooperative societies- by duly authorized person on
behalf of each society and ten other members, or by all other members when
they are less than 10 [Section 7(2)(b)]
 The Application shall be made in accordance with the Form provided under Appendix
A. The Application is required to include inter alia the name and address of one of the
applicants to whom correspondences may be issued. [Rule 3]
 The Application shall be accompanied by three copies of the proposed bye-laws and
must contain the signatures of not less than two applicants duly authorized by the
members of the proposed cooperative society. [Rule 4]
 If the Registrar is satisfied that [Section 8 (1)]:-
a) The application complies with the provisions of this Act and Rules
b) The objects of the proposed society are in accordance with section 4
c) The proposed bye-laws are not contrary to the provisions of this Act and the
Rules, and
d) The proposed society has reasonable chances of success
then, he shall register the society.
 If the Registrar refuses to register a society, he shall communicate the order of refusal
alongwith reasons. [Section 8 (2)]
 Any application for registration must be disposed of by the Registrar within a period
of two months from the date of registration and may register the society and its bye-
laws. [Section 8 (3)]
 After the registration of a society under the Act, the Registrar shall issue a certificate
of registration signed by him. The certificate shall serve as conclusive evidence is
duly registered under law. [Section 9]

Case Law: Ramji Mandir v. Narsing Nagar: Registration clothes a cooperative society
with legal personality. Where there is no registration any agreement entered into between
a non-existent cooperative society and third person would be a nullity.

AMENDMENT

 Only amendments that are duly registered under the Act shall be valid. [Section
10(1)]
 Every proposal for amendment shall be forwarded to the Registrar. [Section 10
(2)]
 The Registrar shall register the amendment if he is satisfied that:-
i. It is not contrary to the provisions of the Act and Rules
ii. It does not conflict with the cooperative principles
iii. It will promote the economic interests of the members of the society
 The Registrar shall forward a copy of the registered amendment to the society
alongwith a certificate which shall serve as conclusive proof of registration of the
amendment. [Section 10(3)]
 If the Registrar refuses to register the amendment, he shall communicate the order
of refusal alongwith the reasons therefor. [Section 10 (4)]
  The Registrar is empowered to direct amendment of the bye-laws of a cooperative
society within a period of three months if [Section 10A]-
a) The amendment is necessary
b) The amendment is desirable in the interest of the society or the
Cooperative Movement
c) The amendment shall bring the bye-laws in conformity with the provisions
of the Act or Rules
d) The Registrar shall make such direction by way of notice in writing and
call upon the society to make such amendment within a period of three
months of the date of service of the notice.

Case Law: V. Rajashwarama v. Commissioner: Bye-laws are a statutory

requirement and are to be made by following an elaborate process. Such a power
should be exercised by persons so authorized under law and cannot be delegated.

CHANGE OF NAME

 A cooperative society may by way of amendment, change its name. The registrar
shall enter the new name into the register and amend the society accordingly.
[Section 11]

CHANGE OF LIABILITY

 A cooperative society may change the form or extent of its liability by way of
amendment. [Section 12 (1)]
 A notice shall be issued in writing to all members and creditors, who shall have an
option of withdrawing his loan, share or deposit within one month from date of
notice. [Section 12 (2)]
 If the member does not exercise such option within the prescribed time, it shall be
deemed that he has assented to the amendment. [Section 12 (3)]
 The amendment shall not be registered until either:
a) Assent of all members and creditors is obtained, or
b) Claims of members and creditors who exercise option have been met in
full [Section 12 (3)]

AMALGAMATION/ TRANSFER OF ASSETS/ DIVISION

 A cooperative society may, with the prior approval of the Registrar and Resolution by
2/3rd majority [Section 13]:
o Transfer its assets and liabilities to another registered society
o Divide itself into two or more societies
 Two or more cooperative societies amalgamate themselves into a new cooperative
society after prior consent of Registrar and resolution with 2/3rd majority
 The Registrar, if deemed necessary or desirable, direct the division, amalgamation or
transfer of assets and liabilities of cooperative societies.

CANCELLATION OF REGISTRATION

 The registration certificate of a cooperative society shall be cancelled, if [Section

14]:-
a. Assets and liabilities have been transferred to another cooperative society
b. Two or more cooperative societies have amalgamated- registration of the
amalgamating societies shall be cancelled and a fresh certificate shall be issued for
the new society.
c. Cooperative society divides into two or more- registration of the original
cooperative society shall be cancelled and a fresh certificate shall be issued to the
newly formed cooperative societies.
 The Registrar may after winding up of a cooperative society and considering report of
the Liquidator order the cancellation of registration, which shall be communicated to
the President of the cooperative and any financial institutions of which the
cooperative society was a member. [Section 61]
MEMBERSHIP OF COOPERATIVE SOCIETIES
MEMBERS

 The following persons can be members [Section 15] :-

a. Individual competent to contract under Section 11 of the Indian Contract Act,
1872
b. Any other cooperative society
c. Government
d. PSU
e. Class or classes of persons or associations of persons as notified by the
Government

 No individual can be admitted as a member of a central society [cooperative societies

including primary societies (societies comprising solely of individuals) as a member]
or apex society [societies comprising of a central society as member] unless exempted
by the Government [Section 15A]

 A person shall be disqualified for membership if [Rule 14]:

o He has applied to be declared insolvent or declared as insolvent

o Sentenced for an offence, not being a political offence or offence involving
moral turpitude, and a period of five years from the date of expiry of sentence
has not elapsed.

 In cases of Primary Land Mortgage Bank or cooperatives that advance loans for
raising crops or seasonal agricultural operations, the date of admission of a member
shall be deemed to be the date on which his application was first received and the
registrar may pass an order determining ineligibility of a member, at which time, his
membership shall cease [Section 15B].

 A person can be admitted as a nominal or associate member [Section 16(1)]. Such

members are not entitled to any share in the profit [Section 16(2)] but shall have the
privileges and rights as well as liabilities of a member [Section 16(3)]
  The rights can be exercised by a member only after making all necessary payments or
acquiring interest as per bye-laws. [Section 17 and Rule 16A]

 In central and apex societies, at least one-third shares held by individual members
shall be retired every year and full payment shall be made in full at one time. [ Rule
18A]

 A register of the members shall be maintained and it shall include [Rule 20]:

o Name, address and occupation alongwith statement of shares

o Date of entry of name in register
o Date of cessation of membership
o Name of nominee appointed by member

Case Law: Madan Gopal v. Union Territory, Chandigarh: Members who have
surrendered their membership and accepted refund of amount deposited by them, cannot
be permitted to claim restoration of membership when no assertive action was taken by
them to dispute surrender of membership.

RIGHTS AND POWERS

VOTING

 All members shall have one vote in the affairs of the cooperative. [Section 18]
 In the case of equally split votes, the Chairman shall have casting vote. [Proviso (a)
to Section 18]
 Nominal or associate member shall not have vote (ref Section 16(2)) [Proviso (b) to
Section 18]
 When the Government is a member, each person nominated by the government shall
have one vote. [Proviso (c) to Section 18]
 The vote can be exercised in person and no person is permitted to vote by proxy.
[Section 19 (1)]
 A cooperative society which is a member of another cooperative society shall appoint
a person to vote on behalf of the member cooperative society and in case such person
 is voted to the committee, his term of office shall be co-terminus with the term of the
committee. [Section 19(2)]

TRANSFER OF SHARE OR INTERST

 The transfer of share or interest of a member in the capital of a cooperative society is

subject to the conditions specified under Section 6. [Section 20]
 On the death of a member, the cooperative society may transfer the share or interest to
a person nominated in accordance with rules in respect of such transfer. [Section 21]
 If no person has been nominated, the share or interest shall be transferred to a person
appearing to be a legal heir of the deceased member, or pay the legal heir a sum
representing the value of the share or interest of the deceased member. [Section
21(1)]
 In case of limited society, upon the death of a member, the share shall be transferred
to the nominee or legal heir within one month from the death of the deceased member,
provided such member is qualified for such membership. [Proviso ii to Section
21(1)]
 The cooperative society shall make the payment of all monies within six months from
the date of death of the deceased member, unless prevented by a court order. [Section
21(2)]

LIABILITY

 The liabilities of past members or estate of deceased members for debts of the society
shall continue for a period of two years from the date:
o Past Member- on which person ceased to be a member [Section 22(1)(a)]
o Deceased Member- on which the person died [Section 22(1)(b)]
 If the cooperative society is being wound up, the liability of past member or deceased
member shall continue throughout the liquidation process if such cessation of
membership or death occurred within two years preceding the order of winding up.
[Section 22(2)]

Case Law: Hassan Mohammed v. Cooperative Credit Society: When a person claims
that he is not a past member, and therefore not liable, he has the right to get his claim
investigated by a Civil Court.
AUDIT, INQUIRY, INSPECTION AND SURCHARGE

AUDIT

 The accounts of a cooperative society shall be audited at least once in each year by the
Registrar or by a person authorized by the Registrar by general or special order in
writing. [Section 48(1)]
 The audit shall include an examination of over-due debts, verification of cash balance
and valuation of the assets and liabilities. [Section 48(2)]
 The auditor/ auditing firm shall be given free access to the books, accounts, papers,
vouchers, stock and other property of the cooperative society alongwith access to cash
balance and securities for verification. [Section 48(3)]
 The directors, managers, administrators or other officers of the cooperative society
shall furnish all information regarding transactions and workings required by the
auditor. [Section 48(4)]
 The auditor shall have the powers to:
o Summon any officer, agent, servant or member of the society (past or present)
in connection with transactions, working or management of the cooperative
o Require production of any book or document relating to affairs of or cash or
securities, and in the event of any serious irregularities, take them into
custody. [Section 48(5)]
 If the accounts are not complete at the time of audit, the auditor may cause the
account to be written up at the expense of the society [Section 48(6)] and audit fee, if
any, shall also be recoverable from the society [Section 48(7)].

INSPECTION

 The Registrar, or any person (authorised by general or special order in this behalf by
the Registrar) may inspect a co-operative society who shall have access to all books,
accounts, papers, vouchers, securities, stock and other property of the society.
 In case of serious irregularities, such person shall have the power to take into custody
any such books, accounts, papers, vouchers, securities, stock and other property of the
society as deemed necessary.
 Such person shall also have the power to verify the case balance and subject to a
special or general order of the Registrar, call a committee and general meeting.
 Every member and officer of the cooperative society shall furnish the information
sought by the inspector. [Section 49]
 Upon an application of a creditor of a cooperative society, the Registrar shall inspect
or direct some person in writing to inspect the books of the society [Section 51], after
the Applicant [Proviso to Section 51]:
o Satisfies the Registrar that the debt is due and he has not received satisfaction
within reasonable time after demanding payment
o Deposits the sum required by Registrar to be paid as security for the costs of
proposed inspection

Case Law: State of AP v. Shri Ramrao: Under Article 226, the High Court cannot
reappreciate evidence or set it aside. The powers of the High Court are limited to the
evaluate whether there was any irregularity or illegality caused in the inquiry and whether
adequate opportunity of being heard was given.

INQUIRY BY REGISRAR

 The Registrar may suo moto or on application by majority of members or not less than
1/3rd of members, direct an inspection by general or special order. [Section 50(1)]
 The inquiring officer shall have the following powers [Section 50 (2)]:
o For the purposes of examination, free access to books, accounts, cash and
other properties
o Power to summon any person in possession of any such books, accounts,
documents, securities, cash or other properties or any person who the inquiry
officer believes to have knowledge regarding the affairs of the society.
o Require the committee to call a general meeting and in case of refusal by
officers, call it himself.
 Such meeting shall have all the powers of a general meeting and the proceedings shall
be regulated by the bye-laws. [Section 50(3)]
 A brief report of the inquiry shall be communicated to society, financing institutions
and person(s) at whose application inquiry was made. [Section 50(4)]

COSTS
 The cost of an inquiry under Section 50 or inspection under Section 51, the costs or
part of costs between the society, members or creditors demanding inquiry/inspection
and officers/members (past or present) of the society [Section 52].
 Such costs shall be apportioned after giving a reasonable opportunity to person liable
to pay costs [proviso (a) to Section 52] and the Registrar shall state the grounds for
apportioning costs in writing under his own hand [proviso (b) to Section 52].
 Any costs awarded under Section 52 may be recovered by application to Magistrate
having jurisdiction in the place of residence or work of the person from whom
recovery is sought and the Magistrate shall make such recovery as if it were a fine
imposed by him. [Section 53]

SURCHARGE

 The Registrar may order an enquiry into the conduct of a person suo moto or on
application, if it is discovered during audit, inquiry, inspection or winding up, that,
such person entrusted with the affairs of the cooperative society:
o made a payment contrary to the Act, Rules or Bye-Laws,
o otherwise caused deficiency of assets,
o by breach of trust, wilful negligence or
o misappropriated or fraudulently retained money or property belonging to the
cooperative society [Section 54 (1)]
 No such inquiry can be conducted after the expiration of six years from the date of
any act or omission [proviso to Section 54(1)]
 After a reasonable opportunity to be heard, the Registrar may order such person to
repay or restore the money/ property or part thereof with interest, or pay
contribution/costs/compensation as may be just and equitable. [Section 54(2)]
SETTLEMENT OF DISPUTES

DISPUTES

 Any dispute touching upon the constitution, management, business of a cooperative

society shall be subjected to arbitration if it arises [Section 55(1)]:-
(a) Among members, past members and persons claiming through members, past
members or deceased members
(b) Between member, past member, person claiming under current/past/deceased
member and the society, committee or officer of the cooperative society or
liquidator
(c) Between cooperative societies
(d) Between cooperative society and liquidator of another cooperative society
(e) Between liquidators of different cooperative societies
 The following disputes shall be deemed to touch upon constitution, management or
business [Section 55(2)]:
o By a society- claim for debt or demand due from a member
(present/past/deceased)
o By a surety- against principal debtor when society has recovered the debt from
the surety as a result of default of principal debtor
o Any dispute arising in connection with election of officer of society
 In case of question regarding the nature of the dispute, the decision of registrar shall
be final and binding and not subject to appeal or review. [Section 55(3)]

REFERENCE TO ARBITRATION

 The Registrar, on receipt of dispute to arbitration [Section 56 (1)]:

a. Decide the dispute himself
b. Transfer it for disposal to any person invested with powers in this behalf by the
Government
c. Refer it to disposal to one arbitrator
 Matters referred under clause (b) or (c) above, the Registrar may withdraw the
reference or refer it to another arbitrator for decision. [Section 56 (2)]
 The adjudicating authority pay pass such interlocutory orders as may be deemed
necessary in the interest of justice, during the pendency of the reference. [Section 56
(3)]
WINDING UP OF COOPERATIVE SOCIETIES

WINDING UP

 The Registrar, after an inquiry or inspection, or on receipt of an application by not

less than 3/4th members of a cooperative society, is satisfied that a cooperative society
must be wound up, pass an order directing such winding up. [Section 57(1)]
 The Registrar may order winding up on his own motion where:
o It is a condition of the registration of the society that there shall be not less
than ten members and the members reduce to a number less than ten.
o The cooperative society has not commenced to function or ceased to function
in accordance with the cooperative principles [Section 57(2)]
 Such an order of winding up may be cancelled by the Registrar if he is satisfied that
the cooperative society should continue to exist. [Section 57(3)]
 The order of winding up shall be communicated to any financial institutions of which
the cooperative society is a member. [Section 57 (4)]

APPOINTMENT OF LIQUIDATOR

 The Registrar may appoint a liquidator and fix his remuneration after making an order
for winding up. [Section 58(1)]
 The liquidator shall take into custody/control, the property, effects and claims to
which society is or appears to be entitled. He shall take all steps necessary or
expedient to prevent loss, deterioration or damage of such property, effects and
claims. [Section 58(2)]
 In cases of appeals against an order of winding up, such order of winding up shall not
operate till the appeal is disposed [Section 58(3)]. During the pendency of the appeal,
the liquidator shall continue to have control/ custody over the property, effects and
claims. [proviso to Section 58(3)]
 If the order of winding up is set aside, the property, effects and claims shall be
reverted to the society. [Section 58(4)]

POWERS OF LIQUIDATOR

 The whole of the assets of a cooperative society shall be vested in the liquidator from
the date on which the date of the order of winding up takes effect. [Section 59 (1)]
  The liquidators shall have the following powers, subject to the control of the Registrar
[Section 59 (2):
a. To institute and defend suits and other legal proceedings on behalf of
cooperative societies
b. Determine the contribution (including debts and costs of liquidation) to be
made or remaining to be made by members (present, past, or deceased) or
office bearers (past or present)
c. Investigate all claims against the cooperative society and decide priority
between different claimants
d. Pay claims against cooperative society including interest up to the date of
winding up, in full or rateably (as permitted by assets) and utilize the surplus,
if any, for payment of interest at rate fixed by him (RoI cannot exceed the
contract rate)
e. Determine the persons who shall bear the cost of liquidation and their
proportions
f. To determine who is a member
g. To give directions regarding collection and distribution of assets of society
h. To carry on business of the society as may be necessary for winding up
i. To make compromise/ arrangement with creditors alleging a present/ past/
future claim
j. To make compromise/ arrangement with persons/ societies with whom the
society has a dispute and refer disputes to arbitration
k. To dispose of surplus after paying claims against society in consultation with
members
l. To compromise all calls/ liabilities to call/ debts/ liabilities capable of resulting
in debts, claims and ensure discharge of all calls, liabilities, debts and claims.
 After winding up the affairs of the cooperative society, the liquidator shall make a
report to the Registrar and deposit the records of the society as per directions of the
Registrar in this regard. [Section 59 (3)]
 The Registrar may after winding up of a cooperative society and considering report of the
Liquidator order the cancellation of registration, which shall be communicated to the
President of the cooperative and any financial institutions of which the cooperative
society was a member. [Section 61]