See discussions, stats, and author profiles for this publication at: https://www.researchgate.

net/publication/228301309

Compliance and Obligations of Co-Operative Bank & Societies in Gujarat (India)

Article · October 2007

CITATIONS READS
0 6,543

2 authors, including:

Vrajlal K. Sapovadia
Shanti Business School
113 PUBLICATIONS   80 CITATIONS   

SEE PROFILE

All content following this page was uploaded by Vrajlal K. Sapovadia on 26 May 2014.

The user has requested enhancement of the downloaded file.

 Compliance and Obligations of Co-operative Bank & Societies
in Gujarat (India)

Dr. Vrajlal Sapovadia (FCA, Ph.D.)

Dilip V. Shah (FCA)

Compliance means conformity in fulfilling legal requirements, actions taken to comply or

act in accordance what is provided in applicable laws. Obligation means to perform duties;
hence compliance per se is an obligation of the concerned person. This reading material is
pertaining to compliances & obligations of a co-operative society in State of Gujarat.
Exhaustive list of compliance and obligation is theoretically not possible, however we have
focused discussion on major requirements for co-operative banks working in the State.
However there are various classes of co-operative banks; like ‘urban’, ’rural’, ’district’,
’schedule’ and so on and so forth, to whom separate sets of obligations and compliance
applies. For a bank, obligation and compliance requirements may be under different
legislations; like THE BANKING REGULATION ACT, 1949, Gujarat State Co-operative
Societies Act, Income Tax Act and other relevant legislations. But due to several
constrains, we have discussed important issues under legislations, which we have
mentioned in the previous lines.

Bank Regulation Act, 1949

Following provisions are relevant for a cooperative bank.

Section 8 - A co-operative Bank cannot take trading activities.

Section 9 - A co-operative cannot have Non-banking Immovable Assets (except for own
use) for more than seven years or as extended by RBI.

Section 14A - Co-operative bank cannot create floating charge on the undertaking or any of
its property unless RBI verifies it as not detrimental to the depositors of the bank

Section 18 - Co-operative Bank (Except Scheduled State Co-operative/Primary Co-

operative Bank) is required to maintain cash reserve with itself or in current account (net
balance) opened with the Reserve Bank or State Bank of India or State Co-operative Bank
National Banks (minimum 3%) or DTL as on last Friday and the record preceding the
fortnight and shall submit in prescribed form or return to RBI on or before the 15th of
subsequent month. In the case of a primary Co-operative bank, the cash reserve can be
maintained in the central Co-operative bank & the District. Any balance maintained by
such bank in Co-operative Bank shall set off the balance held by the Co-operative bank in
current account with any bank.
Section 20 - Co-operative bank cannot sanction loans/advances against its own shares.
Except on FD/LIC, loans and advances to Directors or the firms or relatives or Pvt. Ltd.
Co. in which they are interested is prohibited.

Section 20 A - Co-operative Bank would have to obtain prior approvals of RBI before
writing off any of its debt due to present or past Directors.

Section 24 - Every Co-operative bank shall maintain in cash or unencumbered approval

securities, which shall not be less than 25% or exceeding 40% of DTL on the close of
business on any day.

Section 24 A - RBI has power to exempt any bank from these provisions and Section 18
and Section 24.

Section 27 - Bank has to file return in form no. 9showing its assets and liabilities at the
close of the business on last Friday of every month or if it is public holiday on that day
preceding day should be considered.

Section 29/31 - Provision relating to Balance Sheet or P&L A/c

(A) Books should be closed on 31st March every year
(B) Three original copies of P&L A/c and Balance sheet together with the statutory
Auditors Report with the signature of Principal Officer and at least three
directors of bank to be submitted to RBI before 30th September.
(C) Balance sheet and Statutory Auditors Report to be published in local
newspapers before 30th September every year. Three copies of the newspapers
in which accounts are published should be submitted to RBI before 31st
December. RBI can extend 3 months for valid reasons for this.
(D) An application should be made to RBI before 30th September of the year giving
reasons for delay accompanied by Supporting Board resolution for extension if
any.
(D) If bank is weak and is unable to incur expenditure on newspaper publication,
bank can apply before 30th September of the year to Ministry of Finance with
valid reasons and Board resolution.
(E) Co-operative Banks other than Primary Co-operative Bank are required to send
to NABARD all the documents, which they are required to furnish to RBI U/s
24, 26, 27 and 31.

Section 35 - RBI or State Co-operative banks can authorize its officers to inspect Co-
operative banks on behalf of RBI.RBI can also scrutinize affairs of Co-operative banks
NABARD is also empowered to carry out inspection of Co-operative Banks (except
Primary Co-operative banks).

Report of the compliance in respect of RBI inspection, should be sent to the RBI within six
weeks or as may be permitted by RBI. Within four months of the report of RBI, bank has to
submit implementation of RBI report with Board Resolution.
Section 35 A - RBI can issue directions on all matters concerning the operation of a Co-
operative bank in particular or all co-operative banks or a group of Co-operative banks in
general.

Normally in such cases, RBI does not allow for new deposit or advances and renewal of old
deposits.

Section 36 - RBI can depute one or more of its officers to watch the proceedings of the Co-
operative banks or to observe the manner in which the officers of the Co-operative banks or
its officers or branches are being conducted and report the same to RBI.

Section 45 - Central Government with the recommendation of RBI can order moratorium in
respect of Co-operative banks.

Section 45 Y - Preserve books of accounts of Co-operative Bank.

Section 45 - Co-operative banks to return at the request of customers a original instrument

before the prescribed period of preservation after keeping in its possession a true copy there
at the cost of the customer.

Section 45 ZA - Bank has to enable the depositors/safe custody lockers holding of a bank
to nominate one person in prescribed format.

Penalties are prescribed in Section 46.

For Co Operative Society Sec 86 and Sec 93 of Gujarat Cooperative Societies Act are
very important. Sec. 86 (enquiry) is to decide the fraud and responsible person. While
Sec 93 is for deciding the amount. Before any criminal action inquiry under these
provisions of co operative act are required. Normally board and officers of the bank
are made responsible under these provisions. But it is pertinent to note that how it can
effect to chartered accountant as a professional director or auditor?

RBI CLASSIFICATION OF UCBS

Sr. No. Standard Grade - I Grade – II (if Grade – III Grade – IV

Norms meet any one (if meet any (if meet 1 &
criterion) two criterion 2, or 3)
out of three)
1 CRAR Min. as 1% below Within 50 – Below 50%
Compliance prescribed by the 75% of the of prescribed
RBI (9%) prescribed prescribed
(8%)
2 Net NPA Less than 10 – 15% of 10- 15% of 15% or more
10% of Net Net Loans & Net Loans & of Net Loans
Loans & advances advances & advances
 advances
3 Net Profit Net Profit Net Losses Net losses Net losses
(after (after only for the only for two for last three
adequate adequate FY just years out of years (after
provisions of provisions of ended (after last three adequate
NPAs & NPAs & adequate consecutive provisions of
other asset other asset provisions of years (after NPAs &
losses) losses) NPAs & adequate other asset
other asset provisions of losses)
losses) NPAs &
other asset
losses)
4 CRR/SLR No default Defaulted Defaulted Defaulted
(unless the
default was
inadvertent or
for other
acceptable
reason)
5 RBI special Compliance Violation - -
& specific
directives
Note: The criterions relevant for justification is just ended previous year’s.
CD Ratio:
CD Ratio should be in the range of 60-70%.

Deposit Interest:

Æ Saving Banks Deposits – maximum 3.5%, applicable to all types of banks

Æ Current Accounts – no interest
Æ F.D. & Advances Rates – As to be decided by BOD. RBI has advised to keep
interest rate in line with market rates.
Æ Any kind of incentives is not permitted to depositors.
Æ Brokerage to deposit collection agents is permitted to the reasonable limit (1.5 – 2
%).
Exposure Limits (for Advances)
Every half-year exposure limits to be fixed by the Board of Directors on the base of
latest Capital funds on the base of Audited Balance Sheet. For balance sheet of 30/9 –
Profit of half year will not be reckoned to work out the capital funds.
Maximum Limit of Capital Funds is as under
Individual Borrower – 15%
Group Borrower - 40%
Unsecured Loans (with sureties)
Total unsecured advances granted by the bank to its members should not exceed 15%
of its DTL. If borrower is enjoying such advances from another bank, NOC of that
bank is required.
Maximum limit is as under:
Category of Advances Non scheduled primary Scheduled primary
(urban) co-operative (urban) co-operative
bank whose DTL is banks
Less than 10 Rs. 10
crores crores or
more
Classified as Grade I
All types of unsecured Rs. 50000/- Rs.100000 Rs.200000/-
loans including clean /-
bills/multani hundis
purchased/ discounted
and withdrawals
allowed against
cheques sent for
collection
Classified as Grade Rs.25000/- Rs.50000/- Rs.50000/-
II,III or IV
Unsecured Loans (without sureties)
It can be extended in respect of purchase / discount / withdrawal against third party
cheques for a temporary period of 30 days.

Category of Grade Limits Grade Limits

Banks
Scheduled Banks in Rs.25000 Banks other Rs.50000
Grade III & than Grade
IV III & IV
Non- Banks in Rs.10000 Banks other Rs.20000
Scheduled Grade III & than Grade
bank IV III & IV
Temporary Overdraft:
Maximum can be granted up to Rs. 5000/- for maximum period of 30 days
Loans and advances to Directors and their relatives of the firm/companies in
which they are interested is prohibited except -
(1) Loan against FD of the bank / LIC no other loans can be sanctioned
(2) Regular staff related loans to staff directors on the Board of UCB is
allowed.
(3) Normal employee related loan to Managing Director of Multi-State Co-
operative banks
(4) Normal loans as applicable to members is given to the Directors on the
boards of salary earners Co-operative bank.
(5) To submit information for every quarter to RBI and RCS in prescribed
form.

A person shall be deemed to be relative of another, if and only if:

(a) they are members of a Hindu Undivided Family; or
(b) they are husband and wife; or

(c) the one is related to the other in the manner indicated below:
1. Father 2. Mother including stepmother 3. Son including step-son 4. Son's wife 5.
Daughter including step-daughter 6. daughter's husband 7. Brother (including step-
brother) 8. Brother's wife 9. Sister (including step-sister) 10. Sister's husband
Housing Finance
(1) PCB can grant maximum 15% of its total deposit for this sector. However it
can exceed this limit by obtaining re-finance from the NHB or some other
higher finance agencies.
(2) Eligible Borrowers:
Æ Individual/Co-operative/Housing Group facilities.
Æ Housing Boards
(3) Maximum Period cannot exceed 15 years including moratorium
(4) Maximum finance to individual cannot exceed Rs. 25 lakhs.
Advances to Builders/Contractors
(1) If builders/contractors take advance payment from the prospective buyer, in
that case RBI advise to refrain from sanctioning advances to these category
of borrowers.
(2) If builders/contractors undertake construction work on their own, without
any advance payment from the prospective buyer bank may consider the
advances proposal.
 (3) Margin should be not less than 40 to 50%
(4) This cannot be treated as housing finance So, it is not lending under priority
sector.

Willful Defaulters:
The details of willful defaulters for advances of the borrowers exceeding Rs. 25 lacs, is
mandatory to be submitted to RBI. The submission should be done within reasonable
time after identification of such default.

Identification of assets as NPA’s should be done on an ongoing basis. Notification for

NPA criteria relaxation for Co-operative banks for 180 days is extended up to
31/03/2008.
Maximum Ceiling advances to Nominal Members

Bank Loans Maximum Ceiling (Rs.)

Deposits up to Rs.50crores Rs.50000 for borrowers
Deposits above Rs.50crores Rs.100000 for borrowers

Loans against shares and debentures

(1) Co-operative banks cannot grant loan against its own shares.
(2) Not permitted to extend any facilities to stockbrokers
(3) Loans against primary or collateral security of shares/debentures should be
limited to Rs. 5 lacs if it is in physical form and Rs. 10 lacs if it is in demat
form
(4) Minimum margin to be maintained is 50%
(5) Total exposure in this sector cannot exceed 20% of capital funds of the bank
(6) Bank has to submit the details in prescribed form to RBI on quarterly basis.
Finance to NBFC’s
(1) Bank cannot admit NBFC as their member other than those engaged in hire
purchase/leasing exclusively. Even before admitting such company bank
should get approval of RCS
(2) Co-operative banks having working fund exceeding Rs. 25 crores and
above can finance the equipment leasing/Hire for leasing/Hire purchase
companies subject to following limits.
Type Of NBFC Maximum limit on bank finance
(i) Equipment leasing and hire purchase 3 Times of the Net Owned Funds (NOF)
companies having not less than 75 of the NBFC
percent of their assets in equipment
leasing and hire purchase, and 75
percent of their gross income from these
two types of activities as per the last
audited Balance Sheet of the companies
(ii) Other Equipment and hire purchase 2 times of the Net Owned Funds (NOF)
companies of the NBFC
Priority Sector Lending
Targets for lending priority sector and weaker sections are as under:
(1) 60% of total loans and advances to priority sector
(2) Out of this, at least 25% to weaker sections (15% of total loans and
advances)
(3) Out pf priority SSI should get proper weightage. Sub-targets for SSI is as
under:
Sr. Category Investment in % to total SSI
No. plant and advances
machinery
I Cottage industries, khadi & Up to Rs. 5 lakh 40
village industries, artisans and
tiny industries
II Cottage industries, khadi & Between Rs.5lakh 20
village industries, artisans and and Rs.25lakh
tiny industries
III Other SSI units Between 40
Rs.25lakh and
Rs.100lakh
(4) Bank has to maintain Register for advances to priority/weaker sections. This
is important because in audit classification as per RCS it carries 15 marks if
total targets are achieved.
(5) Priority sector advance is not applicable to the salary earners bank.
(6) Advances to women are in priority sector.

REDUCTION OF SHARE CAPITAL :

In cooperative Banks borrower is required to subscribe share capital up to 2.5% for secured
advance or 5% for unsecured advance subject to the bye-laws of the Bank. There is also
restriction in co operative act for maximum share holding of individual share holder
 Co operative institution can refund the share capital to their share holder if there is
provision in the bye-laws of the society. However as per model bye-laws there is also
restriction of 10% of share capital which can be returned to the members of the society
during the financial year

BONUS SHARES
As there is restriction on payment of dividend, some of the Urban Co-operative Banks were
permitted by the RCS to issue bonus shares. The issue of bonus shares amounts to outflow of
money in case of resignation by the members etc. and depletion of reserves. So, the Reserve Bank
of India has taken a decision that the primary co-operative bank should not be permitted to
issue bonus shares to their members.

Holding shares and debentures in Private sector Companies or institutions other than
Co-operative sector
The primary (urban) co-operative banks should not subscribe to the initial or subsequent
issue of shares/debentures of private sector companies or bodies or organizations other than
in co-operative sector unless specifically permitted by the Reserve Bank.

Restrictions on holding shares in other Co-operative Societies

As per Section 19 of the BR Act, Co-operative bank cannot hold shares in any other co-
operative society except to such extent and subject to such conditions as the RBI may specify
except in following cases:
(1) Shares acquired through funds provided by State Government for that purpose
(2) For PCB or Central Co-operative Bank share in State Co-operative Bank or with
concerned Central Co-operative bank.
(3) RBI can permit investment up to 2% of owned funds of investor bank.
(4) Investment of other co-operative banks together should not exceed 5% of the subscribed capital
of the accepting bank.

DIVIDEND - DECLARATION
Grade I – Bank – can declare dividend
Grade III & IV – Bank – cannot declare dividend till they are upgraded to Grade I or II.
Grade II – Bank – can declare dividend with the permission of RBI regional office,
which is possible subject to following compliances:
Æ CRAR – Minimum 9%
Æ Net NPA – Less than 10%
Æ No default in CRAR norms/SLR during the year for which dividend is proposed.
Æ Dividend to be paid out of Net profit after making all provisions as per RBI norms
and adjustment for accumulated losses.
Æ The above criteria to be certified by Auditors of the bank or latest RBI inspection
 Maximum Dividend:
Æ Multi State Cooperative Bank can declare dividend up to 20%. More dividends
can be declared with permission of Central RCS. Gift to shareholders in any form can
be given subject to permission of CRCS.
Æ Cooperative Banks working under RCS can declare dividend up to 15%. Gift to
shareholders in any form can be given subject to permission of RCS. RCS has no
power to declare more dividend than prescribed.

KYC Norms:

As per RBI Guide lines co operative banks also has to observe KYC Norms (Know
Your Customer) on the line of other commercial banks for opening of Deposit A/c..
Introduction, Nomination, for cash transactions etc. They are also required to be vigilant
for cash transaction exceeding Rs. 5 lacs, non issue of draft against cash exceeding Rs.
50000/-.

ACQUISITION /CONSTRUCTION OF PREMISES

Reserve Bank has observed that some of the Urban Co-operative Banks have
constructed/acquired premises much in excess of their reasonable requirements even
taking into consideration their expansion in foreseeable future and have let out portion(s) of
such premises for commercial purposes. It is also indicated some banks have undertaken
construction of commercial complexes/godowns on landed property owned/acquired for the
purpose of letting out the same on rent. The Reserve Bank has advised the Urban Co-
operative-- that such activities undertaken by the banks, not only contravenes the
provisions of Sec.9 of the Banking Regulation Act, 1949 (as applicable to C.S.), but also
amounts to carrying out the activities which are not permissible u/s.6 of the Act ibid. Banks
are advised to refrain from acquiring or constructing any immovable property which is not
required for their own use and also take steps to dispose off immovable property(s), which
are not required for their own use.

Donations/Contributions for public/charitable purposes

Normal Donations restricted to a ceiling of 1% of the published profits for the previous
year.
Normal donations together with other donations made to National funds and other funds
recognized/sponsored by Central/State Government may not exceed 2%.
Any fund available in the charity fund or any similar reserve created can be used only in
these limits.
Banks having accumulated losses in their balance sheet are not eligible to make donations.
Board of directors

To ensure professionalism in the Board, the banks should have at least two directors
with suitable banking experience (at middle/senior management level) or with relevant
professional qualifications i.e., chartered accountants with bank accounting/auditing
experience. The banks should also have a suitable provision in their by-laws to ensure
this.

The Board meeting should be held frequently. Bank should have various sub
committee of their board like Audit Committee, Deposits Mobilization Committee,
Advances Committee, Recovery Committee, Investment Committee etc.,

As per RBI guidelines directors has to observe Dos and DON’TS circular. They
should observe the discipline and involve thoroughly in the matter of general policy
and ensure that performance of the bank is monitored adequately at board level. They
should play constructive and developmental role.

The directors should bestow attention on the following aspects of the bank's working:
(a) Compliance with monetary and credit policies of
RBI/Government
(b) observance of cash reserve and statutory liquidity ratio
(c) efficient management of funds and improving profitability
(d) compliance with guidelines on income recognition, asset
classification, provisioning towards non _performing assets.
(e) deployment of funds to priority sector/weaker sections
(f) over dues and recovery - ensure that recoveries are made
promptly and over dues reduced to the minimum.
(g) review of action taken on RBI inspection /statutory audit reports.
(h) vigilance, frauds and misappropriation strengthening of internal control system
and housekeeping viz. proper maintenance of books of accounts and periodical
reconciliation.
(i) reviews on several items as prescribed by RBI/Government
(j) customer service
(k) Development of a good management information system
(l) Computerization.

The directors should not

(1) Interfere in the day to day functioning of the Bank
(2) Involve themselves in the routine or every day business and in the
management functions.
(3) Send instructions/directions to any individual officer/employee of the bank
in any manner.
(4) He should not sponsor any loan proposal, any candidate for recruitment etc.
(5) He should maintain confidentiality.
 PAYMENT OF FEES AND ALLOWANCES TO DIRECTORS

All expenses on the conduct of Board meetings etc. may be shown separately in P&L
Account. Such expenses would include amounts actually paid to the directors and Local
Committee members as also amounts spent on their behalf for attending such meetings.
They can only pay reasonable sitting fees to their directors.

Investments (Non SLR)

Bank can invest in following Non SLR securities maximum up to 10% of totals
deposits of the bank.
(1) CD’s issued by scheduled commercial banks and/or any financial
institutions approved by RBI
(2) Bonds of PSU’s
(3) Bonds/equity of All India financial Institutions
(4) Unsecured redeemable bonds floated by nationalized banks
(5) Units of UTI.

Minimum SLR holding in Government Securities:

At present, the primary (urban) co-operative banks are required to invest in

government and other approved securities as indicated below:

Sr. Category of banks Minimum SLR holding in

No Government and other
approved securities as
percentage of
Net Demand and Time
Liabilities (NDTL)
1. Scheduled banks 25%
2. Non-Scheduled banks
a) With NDTL of Rs. 25 crore & above 15%
b) With NDTL of less than Rs. 25 crore 10%
c) Unit bank/ multiple branch within a single district with w.e.f.17.2.06 exempted up to
deposit base upto Rs. 10 cr. the ceiling kept with interest
bearing deposits with
(upto March 31,2008)

The Cooperative Banks are required to consider following provisions of Gujarat State
Cooperative Act - STATUTORY OBLIGATIONS OF COOPERATIVE SOCIETIES
(including Cooperative Banks)
Section 29 – In any society no member other than the State government or a society shall
hold more than such portion not exceeding one-fifth of the total share capital of the society
as may be prescribed.

Section 30 – Subject to provision of sec 29 (2), a transfer of, or charge on, the share or
interest of a member in the capital of society shall be subject to such conditions as may be
prescribed. A member shall not transfer any share held by him or his interest in the capital
or property unless:
a) he has held such share or interest for not less than one year
b) the trasfer or charge is made to the society or to a member of the society or
to a person whose application for membership has been accepted by the
society and
c) the committee has approved such transfer.
Section 39 – Every society shall keep a register of its member and enter particulars as
prescribed.
Section 44 – A society shall receive deposit and loans from members and other persons
only to such conditions as may be prescribed or specified by bye-laws.
Section 45 – Restrictions on loan, no society shall make a loan to any person other than
member or on the security of its own shares or on the security of any person who is not a
member, provided that with special permission of the Registrar, a society may make loan to
another society. A society can make to a depositor on the security of his deposit.
Section 46 – the transaction of a society with persons other than members, shall be subject
to such restriction if any as may be prescribed.
Section 49 – any person who take loan from the society, shall if offer any security of land,
shall make declaration of creating the charge on such property, and the member than will
not able to transfer any right thereof in the said property, and any transfer of right shall be
void except as exceptions are provided in the Act.
Section 67 - No society shall pay a dividend to its members, at a rate prescribed under the
Act. Every society which does, or can, derive a profit from its transactions, shall maintain a
reserve fund. At least one - fourth of the net profits of the society each year, shall be carried
to the reserve fund; and such reserve fund may be used in the business of the society or
may, subject to the provisions of section 71, be invested, as the State Government may be
general or special order direct, or may with the previous sanction of the Stage Government,
be used in part for some public purpose likely to promote the objects of this Act, or from
some such purpose of the State, or of local interest.
Section 69 - Every society shall contribute every year to the education fund of the Gujarat
State Co - operative Union a sum, equal to such percentage not exceeding one percentage
of its income, as may be prescribed and different percentages may be prescribed for
different classes of societies, having regard to financial condition of such class of societies.
Such fund shall be transferred within two month of such adoption in AGM.

The district registrar of cooperative societies has filed criminal cases against the chairman
& managing director of Kheralu Nagrik Sehkari Bank Limited, Mehsana, for breach of the
provisions of Gujarat Cooperative Societies Act, 1961. An affidavit submitted by the
district registrar to a Gujarat High Court division bench comprising Chief Justice K
Sreedharan and Justice A R Dave stated that criminal cases have been filed against the
erring persons while effective steps had been initiated against the bank for breach of
provisions under sections 71 (1) and 147 (8) of the Act.

The petitioner, Bharatkumar J. Pandya, a share-holder and member of the bank who filed a
public interest litigation in February this year, had urged the court through his counsel
Prakash K Jani that the bank authorities invested huge amount of about Rs 1.35 crore with
CRB Capital Markets Limited by violating the provisions of the Cooperatives Act. He had
submitted that CRB had crashed and the amount was unlikely to be recovered. Therefore,
the board of directors of the bank in complete violation of the act incurred heavy loss to the
bank. The petitioner had further prayed the court to issue a writ of mandamus directing the
registrar, cooperative societies to take appropriate action against the chairman and
managing director of the bank for recovering the loss caused to the bank on account of their
illegal action in investing the amount with CRB Limited.

The petitioner later joined the state government, registrar cooperative Societies, district
registrar and deputy general manager of Reserve Bank of India (RBI) in the petition
seeking directions. The petitioner prayed that action under Section 81 of the Act be
initiated by which the present board being superseded. The court had issued notices to all
the respondents returnable on March 2. Later the hearing was fixed on April 17 as, the
district registrar was directed to file an affidavit. The court on Monday observed that action
against such cooperative banks were delayed on account of challenge made by certain
banks on the constitutional validity of Section 71 of the Act, which the court had upheld by
a judgment dated April 16, 1998.

The court further ruled that the affidavit filed on behalf of district registrar showed that all
possible legal steps have been initiated against the bank and its erring officials thus there
was no reason to issue any further direction in the Special Civil Application. Thus, the
application has become infructuous and was accordingly dismissed, the court ruled.

Every cooperative societies is required to conduct annual general body meeting as per
provision of relevant section
(b) to conduct the election of managing committee regularly and to get the accounts
approved from the general body meeting.

Section 70 - After providing for the reserve fund as provided in section 67 and for the
educational funds as provided in section 69, a society may set aside a sum not exceeding
twenty per cent, of its net profits, and utilise form time to time, with the approval-(a) of the
Gujarat State Co - operative Union, if the society operates in more than one district, and(b)
of the District Co - operative Board, in any other case, the whole part o such sum in
contributing to any prescribed co - operative purpose, or to any charitable purpose within
the meaning of section 2 of the Charitable Endowments Act, 1890, or to any other public
purpose.

Section 71 - A society may invest, or deposit its fund, -(a) in a Central Bank, or the State
Co - operative Bank,(b) in the State Bank of India,(c) in the Postal Savings Bank,
(d) in any of the securities specified in section 20 of the Indian Trusts Act, 182.(e) in
shares, or security bonds, or debentures, issued by any other society with limited liability,
or(f)in any co - operative bank or in any banking company approved for this purpose by the
Registrar, and on such conditions as the Registrar may from time to time impose,(g) in any
other mode permitted by the rules, or by general or special order of the State
Government.(2) Notwithstanding anything contained in sub - section, (1) the Registrar
may, with the approval of the State Co - operative Council, order a society or a class of
societies to invest any funds in a particular - manner, or may impose conditions regarding
the mode of investment of such funds.
72. (1) Any society may establish for its employees a provident fund, into which shall be
paid the contributions made by its employees and by the society. Such provident fund shall
not be used in the business of the society, nor shall if form part of the assets of the society;
but shall be invested under the provisions of section 71 and shall be administered in the
prescribed manner.
(2) Notwithstanding anything contained in sub - section (1) a provident fund established by
a society to which the Employees’ Provident Funds Act, 1952, is applicable, shall be
governed by that Act.
73. Subject to the provisions in this Act and the rules the final authority of every society
shall be vest in the general body of members in general meeting, summoned in such a
manner as may be specified in the bye - laws: Provided that, where the bye - laws of a
society provide for the election of delegates of such, members, the final authority my vest
in the delegates of such members elected in the prescribed manner, and assembled in
general meeting.
74. The management of every society shall vest in a committee, constituted in accordance
with this Act, the rules and bye - laws, which shall exercise such powers and perform such
duties as may be conferred or imposed on it respectively by this Act, the rules and the bye -
laws :
1 (Provided that a Committee of a society falling in any of the categories mentioned in sub
- section (1) of section 74C shall not be so constituted as to require a certain part of
number, of its members to periodically retire by rotation and any bye - law of such society
containing such provision shall with effect of and from the commencement of section 2 of
the Gujarat Co - operative Societies (Amendment) Act, 1981 cast to be in force.) rules and
the bye - laws:

83. (1) Where the Registrar is satisfied that the books and records of a society are likely to
be suppressed, a tampered with or destroyed or the funds and property of a society are
likely to be mis-appropriated or mis-applied or the officer or the person is in possession
unreasonably refuses to give possession of the records, funds and property, the Registrar
may issue an order directing the person duly authorised by him in writing to seize and take
possession of such books and records, funds and property of the society, and the officer of
the society responsible for the custody of such books, records, funds and property or person
in possession of the same shall give delivery thereof forthwith to the person so authorised.
If the officer of the society or person in possession does not so give the delivery, then,
without prejudice to any other action that may be taken against such officer, person or
society under the provisions of this act, the Registrar of the person authorised by him may
apply to the Executive Magistrate within whose jurisdiction the society is functioning for
seizing and taking the possession of the records and property of the society.(2) On receipt
of an application under sub - section (1), the Magistrate may authorise police officer not
below the rank of a Sub - Inspector to enter and search any place where the records and
property free kept or likely to be kept and to seize them and hand over possession there of
to the Registrar or the person authorised by him, as the case may be.)

84. (1) the Registrar shall audit, or cause to be audited by a person possessing prescribed
qualifications and authorised by the Registrar by general or special order in writing in this
behalf, the accounts of every society at least once in each year. The person so authorised
shall be an auditor for the purposes of this Act.(2) The audit under the foregoing sub -
section shall include an examination of overdue debts, if any, the verification of the cash
balance and securities, and a valuation of the assets and liabilities of the society.(3) The
Registrar or the auditor 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 head - quarters of the society or any
branch thereof.(4) Every person who is, or has at any time been, an officer or employee of
the society, and every number and past member of the society shall furnish

85. If the result of the audit held under section 84 discloses any defects in the working of
the society, the society shall within three months from the date of the audit report, explain
to the Registrar the defects of 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 and within such time as may be specified therein to remedy the defects. Where
the society is a member of a federal

86.(1) The Registrar may of his own motion himself, or by a person duly authorised by him
in writing in this behalf, hold an inequity into the constitution, working and financial
conditions of a society.

(2) The Registrar shall hold such an inquiry -

(a) on the requisition of a society duly authorised by rules made in this behalf to make such
requestion, in respect of any of its members, such member being itself a society, or
(b) on the application of a majority of the committee of a society, or
(c) on the application of one - third of the members of a society.

(3) (a) Every, officer, member and past member of the society in respect of which an
inquiry is held, and any other person who is in possession of information, books and papers
relating to the society, shall on being so required furnish such information as is in his
possession, and produce, all books and papers melting to the society which are in his
custody or power, and otherwise give to the officer holding the inquiry all assistance in
connection with the inquiry which he 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 paper 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 may impose, on the defaulter a penalty of an amount not exceeding five
hundred rupees. Before imposing such penalty, the Registrar shall give, or cause to be
given a reasonable opportunity to the defaulter, of showing cause against the action
proposed to be taken in regard to him.

87. (1) On the application of a creditor of a society who-(a) satisfies the Registrar that the
debits a sum then due, an that he has demanded payment there of 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 a person authroised by him by
order in writing in this behalf to inspect, the books of the society.(2) The Registrar shall
communicate the result of any such inspection to the applicant, and to the society whose
books have been inspected.(3) It shall be competent for the Registrar to withdraw any
inspection from the officer to whom it is entrusted, and to carry out the inspection himself
of entrust it to any other person as he deems fit.

93. (1) Where, in the course of or as a result of an audit under section, 84, or an inquiry
under section 86 or an inspection under section 87, 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 86, or the person authorised to inspect the books under
section 87, or the Liquidator under section 110, that any person who has taken any part in
the organisation or management of the society or any deceased, or past or

93. (1) Where, in the course of or as a result of an audit under section, 84, or an inquiry
under section 86 or an inspection under section 87, 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 86, or the person authorised to inspect the books under
section 87, or the Liquidator under section 110, 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 such audit, inquiry,
inspection or order for winding up, misapplied or retained, or become liable or accountable
for, any money or property of the society, or has been guilty of misfeasance or breach of
trust in relation to the society, the Registrar or a person authorised by him i that behalf may
investigate the conduct of such person or persons and after framing charges against the
conduct of such person or persons and after framing 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 rate 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) The Registrar or the person authorised under sub - section (1) in making any order this
section, may provide therein for the payment of the costs of any part thereof of such
investigation, as he thins 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) This section shall apply, notwithstanding that the act is one for which the person
concerned may be criminally responsible.

94. The Registrar or the person authorised by him, when acting under section 86, 87 or 94
shall have the power to summon and enforce the attendance of any person to give evidence
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 Civil Court under the Code of Civil
Procedure, 1908.

Other Legislations relevant to any cooperative enterprise: Provisions of Income Tax

Act, Central Sales Tax, VAT, Professional Tax, Bonus Act, Service Tax, Excise and
applicable legislations as per nature of the transaction and business is equally applicable
like any other enterprise.

Reserve Bank of India – important rate as on 30/09/2007

Bank Rate 6%
Repo Rate 7.75%
Reverse Repo rate 6%
PLR 12.75 – 13.25%
Saving Bank Rate 3.5%
Deposit – 7.5 – 9.60%

CO-OPERATIVE BANKS
(Period of Preservation of Records, rues framed under Gujarat State
Cooperative Act)
NO. PARTICULARS PRESERVATION
PERIOD
A. Audit And Inspection: -
1. Notes of inspected Accounts Permanently
(Audit Memo)
2. Inspection Notes 10 years
B. Miscellaneous Books of Accounts:-
1. Cash Book Permanently
2. Dead Stock Register Permanently
3. General Ledger Register Permanently
4. Register of Power of Attorney Permanently
5. Permanent Instruction Register Permanently
6. Investment Register 10 years
7. Bills Receivable/ Bills Payable 7 years
8. Branch Ledger 7 years
9. Draft Register 5 years
10. Library Register 1 year
After making library register, old register
11. Passbook/Statement for Bank Accounts 3 years
maintained with other Banks
12. Bank Deposits Pay-in-slip (Counterfoil) 3 years
13. Counterfoil of Receipt Books 7 years
14. Salary Register of Employees 5 years
15. Inventory Stock Register 3 years
C. Capital: -
1. Agreement & Appointment Letter file Permanently
2. Dividend Register 10 years
3. Indemnity Bond Permanently
4. Shareholder Register Permanently
5. Share Certificate Register/Ledger 10 years
6. Shareholders and Share Application Permanently
7. Counterfoil of Issued Share Certificate 15 years
8. Share Transfer Applications & Register 10 years
D. Bye laws for Communicated Letters:
1. Branch Statement 10years
2. Law, Order and Bye-Laws Registration Permanently
Certificate
3. Letter Communication files 5years
E. Deposits, Fixed Deposits and Current: -
1. Account Opening Form Till 3years after
closure of Account
2. Cheque Book Issue Register 3years
3. Acceptance Letter 3years
4. Running Accounts Individual Ledger 10years
5. Savings Account 10years
6. True Copy of Authority letter for Operating Till 3years after
Instructions of Accounts closure of accounts
7. Specimen Signature 3years
8. Counterfoil of Fixed Deposits Receipts 5years
9. Fixed Deposits Statements 10years
10. Indemnity Bond for lost Receipts Permanently
F. Loans and Advances: -
1. Acceptance Statement 3years
2. Advances Ledger 10years
3. Perpetual Credit Register 5 years
4. To return Individual Loan Account Holders ---
after the closure of Accounts- Sale Deed/
Pledge/ Mortgage Deed/ Acceptance Letter.
G. Report of Operations: -
1. General Meeting, Managing Committee, Permanently
Minutes Books of Meetings.
 2. Papers related to Election To comply with
election related
regulations and
destroy
accordingly.
H. Other Books not mentioned above:-
1. Signed Cheques/ F.D.R- if returned 10years
2. Properties Statement, Housing Societies and Permanently
Banks
3. Members Credit Register and Investment 6 years
Register
4. Sale-Purchase Books 5years
5. Letters of Communication relating to properties Permanently
sale and purchase
6. Arbitration Ledger 5years

View publication stats