IMPORTANT PROVISIONS OF THE MAHARASHTRA CO-OPERATIVE SOCIETIES ACT, 1960 AND MAHARASHTRA CO-OPERATIVE SOCIETIES RULES, 1961, AFFECTING AUDIT OF CO-OPERATIVE SOCIETIES & CO-OPERATIVE BANKS By CA. Ramesh S Prabhu Email: [email protected], M-09820106766/ 42551414 (A) Important Provisions of the Act and the Rules made there under. The audit staff members auditing the accounts of the co-operative societies will have to study very carefully the entire provision of the Maharashtra Co-operative Societies Act and Rules made there under. For their guidance, important provisions of the said Act and Rules made there under relating to their audits are discussed below: - (1) Registration and amendments. -Section 10; Rule 5 (3)-Registration Certificate. -It should be seen as evidence of registration of the society. Copy of the up-to-date byelaws incorporating all latest amendments should also be seen. Section 37; Rule 31-Registered address of the society. -Change of address also requires amendment of the relevant byelaws. Section 13(1) and (2), Rule 2. - Amendments of byelaws. -Copy of certificates registering the amendments should be seen. Amendments will have effect only after they have been registered. 2. Membership. -Section 22; Rule 19- Qualifications specified in the byelaws for membership of the society should be seen. It should be seen that all members, promoters as well others admitted to membership after registration of the society are duly qualified to become members of the society. The persons who are eligible to become members are 1) individual (who is competent to contract under the Indian contract act.) 2) Firm, company or any body corporate, 3) society registered under societies Registration Act. 4) Society registered under M.S.C.S. Act 5) State or Central Government. 6) Local authority such as Municipality or corporation, Zilla Parishad, etc. 7) public trust registered under law for the registration of such trust. It means that, the unregistered trust cannot be member of the society, or a society, which is not registered under M.S.C.S. Act, should not be member of the Cooperative society. This condition of registration also applies to the firms, which includes sole proprietorship, Partnership firm subject to the law in force for these kinds of firms and company registered under the Companies Registration act. The other conditions are specified in the Section 22 and Rule 19 of the Act. The rule 19 specifies conditions that, 1) the member should apply for membership, 2) the application should be approved by the committee, 3) he should fulfill the conditions of Act, rules and byelaws, 4) the body corporate should enclosed the resolution of their committee for applying membership.
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partnership, and collaboration of societies, for smooth conduct of business.
4) Transfer of shares.
5) Making available to members the books and records open for inspection.
6) Taking decision for borrowing, fixing its limits.
7) Making loan policy, disbursement, and sanction thereof, recovery of loans, and action
for recovery.
8) Transacting day-to-day business, with the help of the officers appointed by the
society. Taking policy decisions for the activities undertaken by the society.
9) Conducting meeting, Annual General meeting, special general meeting, appointing
sub committees, reviewing the decisions of sub committees.
10) Proper utilisation of funds of the society. There investments.
11) Sanctioning of financial statements, there review, budgets and monitoring the
budgetary provisions.
12) Conducting elections on due dates, and managing the societies affairs as per byelaws.
13) Submitting audit rectification reports, and other reports of financial agencies and
from cooperative department.
14) Dealing with all types of disputes arised while conducting the business of society.
15) All other duties specified in the Act, rules and by-laws of the society.
The by-laws also contain specific provisions relating to the constitution of the
committee, the powers to be exercised by it and the duties entrusted to it. The committee
generally exercises all powers except those, which have been especially reserved for
itself by the general body or denied to the general body by law. It has to be noted that
ultra virus acts the committee do not bind the society, if the byelaws define its powers
and duties exactly. Byelaws of the society should, therefore, be gone through carefully.
Although section 74 lays down that the qualifications for the appointment of the
secretary, accountant or any other officer shall be as may be prescribed, no rule has so far
been framed laying down specific qualification for appointment to these posts.
24. Joint and Several Resposibility of Directors:The subsection (1 )(AB) of the section
73 provides that the members of the committee are jointly and severally responsible for
the decisions taken by the committee during its term relating to the business of the
society, and they have to execute bond in relation to the joint and several responsibility of
them, for all the acts and omissions detrimental to the interest of the society, the
subsection further provides that, if the member elected who fails to execute such bonds
from the specified period shall be deemed to have vacated his office as a member of the
committee.
However, they will not be responsible if the losses incurred by the society or on account
of any natural calamities, accident or any circumstances beyond the control of such
members. Before fixing any liability, the Registrar should inspect the records of the
society, and decide the reasons for losses are due to the acts or omissions on the part of
the committee members or otherwise as stated above.
The sub section further provides that, the member who dose not agree with any of the
resolution or decision of the committee, may express his dissenting opinion, and should
be recorded in proceedings of the meeting and if he so desires may also communicate in
writing his dissenting note to the Registrar within 7 days from the date of said resolution
or decision, shall not be held responsible for the decision embodied in the said resolution
or such acts or omissions committed by the committee of that society as per the said
resolution. As well as the members are also not held responsible who were absent while
taking the such decision and subsequently dissented to the resolution at the time of
confirming it.
Under subsection 2 of the section Registrar is empowered to prescribe the maximum
number of members on the committee having regard to the area of operation, subscribed
share capital or turnover, of the society or class of the societies, by special or general
order.
25.Reservation and restrictions for the committee memberships: Under various sections
of the act, the reservations are prescribed, which includes scheduled castes, scheduled
tribes, other backward classes, denoted tribes, nomadic tribes, special backward classes
and weaker sections as per section 73 B and for employees and women under section 73
BB and 73 BBB respectively.
There should be only one member representing individual members, and members who
have not taken loans from the concern society on the committee of the District Central
Bank and Agricultural and Rural Development bank, agricultural credit society
respectively.
26. Disqualification for holding offices. -Section 73F lays down that a member whose
near relative is dealing in goods for purchase of which loans are given by a society is not
eligible to be on its committee. Rules 57 and 58 specify further disqualification for
holding officers in societies.
Under Sub-rule (1) of Rule 57, no officer of a society shall have any direct or indirect
interest otherwise than as such officer: -
(a) In any contract made with or by the society, or
(b) In any property sold or purchased by the society; or
(c) In any other transaction of the society except as a depositor or borrower of the
society or occupant of residential accommodation provided by the society to its
employees.
Sub-rule (2) lays down that no officer of a society shall purchase directly or indirectly,
any property of a member of the society sold for the recovery of his dues to the society.
Sub-rule (1) of section 73 (FF) lays down further disqualification for membership of the
committee.
No person shall be eligible for appointment, nomination, co-option or election as a
member of the committee of a society if. -
(a) He is in defaulter of any society; which includes-
1) Default in repayment of the crop loan on due date.
2) In case of term loan defaults the payment of any installment of the loan granted to
him,
3) In case of any society (a) a member who has taken anamat or advance; or (b) a
member who has purchased any goods or commodities on credit or availed himself of any
services from the society for which charges are payable and fails to repay the full amount
of such anamat or advance or pay the price of goods or commodities or charges for such
service, after receipt of notice of demand by him from the concerned society or within
thirty days from the date of withdrawal of anamat or advance by him or from the date
delivery of goods to him or availing of services by him, whichever is earlier.
4) In case of non agricultural credit societies, a member who defaults the payment of
any installment of the loan granted,
5) In the case of housing societies, a member who defaults the payment of dues to
the society within three month from the date of service of notice in writing served by post
under certificate of posting demanding the payment of dues.
(b) He is in the opinion of the Registrar, persistently and deliberately committing breach
of the co-operative discipline with reference to liking up of credit with co-operative
marketing or co-operative processing, or
(c) He has been held responsible under Section 79 or 88 or has been held responsible for
payment of cost of inquiry under section 85, or
(i)He has incurred any disqualification under this act or the rules made there under; or
(ii)Carries on business of the kind carried on by the society either in his name or in the
name of any member of his family or he or any member of his family as a partner in a
firm, or a director in a company which carries on business of the kind carried on by the
society; or
(iii)Is a salaried employee of any society (other than a society of employees themselves)
or holds any office of profit under any society, except when he holds or is appointed to
the office of the Managing Director or any other office declared by the state Government
by general or special order not to disqualify its holder or is entitled to be or is selected or
elected to any reserved seat on the committee of a society under section 73 (BB).
(iv)He has more than two children, after the date of commencement of this provision i.e.,
after 7.9.2001.
For the purpose of this clause (v) of the section 73 FF (1) the family includes, wife,
husband, father, mother, brother, sister, son, daughter, son-in-law, or daughter-in-law.
Sub-rule (2) lays down that a member of the committee of a society shall cease to hold
office if he incurs any of the disqualification mentioned in sub-rule (1)
Clause (i) of sub-rule (3) lays down that a member of a society who carries on the
business of the kind carried on by the society, shall not be eligible to be a member of the
committee of that society, without the general or special sanction of the Registrar.
27. General Meetings-Section 72. -Section 72 lays down that the final authority of every
society shall vest in the general body of members in general meeting, summoned in such
manner as may be specified in the byelaws. Byelaws of societies contain specific
provisions regarding convening general meeting (both annual and special) and business
transacted. These should be noted. Rules 59 prescribe the procedures to be followed at
the first general meetings of the society and Rule 60 lays down the procedure for calling
general meeting and the manner in which business of the meeting is to be transacted.
Notice of every meetings has to be sent not only to all members of the society, but also
the Registrar and if the audit memo, is to be considered, to the auditor appointed under
section 81 also. Under sub-rule (2), no general meeting can be held or proceeded with
unless the number of members sufficient to form a quorum as specified in the byelaws is
present. Provisions regarding adjournment of meetings and holding of adjourned meeting
should also be noted (sub-rule 10).
28.Annual General Meeting. -Sub-section (1) of Section 75 lays down that every society
shall hold its annual general meeting within three months after the date fixed for making
up its accounts. The Registrar may, however, extend the period for holding the annual
general meeting for a further period of three months. For the urban banks the permission
to held annual general meeting after the period of three months is required to be obtained
from the State Government.
Under rule 61, every society is required to prepare its annual statements of accounts
within forty-five days of the close of the co-operative year, which is 31st March, in case
of all societies except societies belonging to certain classes (in whose case it may be
different). The annual accounts for all societies will, therefore, have to be ready before
15th
May and the annual general meeting will have to be held before 15th
August every
year unless the period for holding the meeting has been extend by the Registrar. Since the
Registrar can extend the period by only months, the annual general meetings must be
held before 15th
November.
If the society does not call its meeting within the prescribed period, the Registrar has
been empowered to call the meeting himself or authorise any person to call the meeting
and recover the expenses from the society or from the defaulting officers of the society.
Under rule 61, the following are the annual statements of accounts to be prepared by the
society, copies of which are required to be sent to the auditor within fifteen days from
their preparation, i.e., before 31st May every year. -
(i) Statement showing receipts and disbursements during the previous co-operative year.
(ii) The profit and loss account for the year;
(iii) The balance sheet as at the close of the year.
The rule further lays down that these statements shall be open for inspection by any
member of the society.
Sub-section (2) of section 75 lays down that at every annual general meeting of the
society, the committee shall lay before the society the following statements. -
(i) A statement showing the details of the loans (if any) given to any of the members of
the committee or any member of the family (as defined in the explanation to clause (v) of
sub section (1) of section 73(FF), (i.e. wife, husband, father, mother, brother, sister, son,
daughter, son-in-law, or daughter-in-law) of any committee member (including
a society or firm or company of which such member or members of his family is a
member, partner or director, as the case may be), and the details of repayment of loan
made, during the last preceding year and the amount outstanding at the end of that year.
(ii) Balance sheet ad profit and loss account for the year;
(iii) The audit memorandum submitted by the auditor appointed under section 81; and
(iv) The report of the committee.
Under rule 62, the balance sheet and the profit and loss account are required to be in form
“N” accompanying the rules. In the case of a society not carrying a business for profit, an
income and expenditure statement instead of the profit and loss account is to be placed
before the annual general meeting.
29. Contents of the Annual Report. -Under sub-section (3) of section 75, the following
matters are required to be dealt with in the annual report of the committee: -
(a) The state of the society’s affairs;
(b) The amounts proposed to be carried to the reserve fund;
(c) The committee’s recommendations regarding amounts to be paid by way of
dividends, bonus or honoraria to honorary workers.
(d) Any changes, which have occurred during the year in the nature of the society’s
business.
The committee’s report is required to be signed by the Chairman or any other officer
authorized to sign on behalf to the committee.
Sub-section (4) lays down the business to be transacted at the annual general meetings.
The section states at every annual general meeting, the balance sheet, the profit and loss
account, the audit memorandum submitted by the auditor appointed under section 81, and
the committee’s report shall be laid for adoption and such other business will be
transacted as may be laid down in the byelaws and of which due notice has been given. It
will thus be seen that in addition to the items specified in the byelaws and of which due
notice has been given (i.e. which have been included in the agenda for the meeting) can
be considered at the annual general meeting.
Sub-section (5). -Penal provisions for non-compliance of the above provisions. If default
is made, in calling a general meeting within the period, or as the case may be, within the
extended period or in complying with the provisions of sub-sections (2), (3) or (4), the
Registrar may declare any officer or member of the committee whose duty it was to call
the meeting or to comply with the above provisions, disqualified for being elected and for
being an officer or member of the committee for three years. If the officer is a servant of
the society, he may impose a fine not exceeding Rs. 100.
Section 76 contains provisions regarding convening of special general meetings. Under
clause (ii) of sub-section (1), the Registrar may direct a society to call a special general
meeting. Under sub-section (3), if the society fails to call the meeting, the Registrar may
himself call the meeting and take action against the defaulting committee or officer.
30. Removal of committee: Under section 78, power has been given to the Registrar to
remove the managing committee of a society or any member thereof and appoint one or
more administrators for conducting the business of the society. The committee of
administrator appointed by the Registrar, has power to exercise all the powers of the
Committee or of any officer of the society and take all action required in the interest of
the society. He can also call a special general meeting of the society to review or
reconsider the decision or resolution taken or passed at previous general meetings or
endorse the action taken by them.
The period of appointment of the administrator will be two yeas, but may be extended
from time to time, but the total period should not exceed four years.
31. Accounts of Co-operative Societies-Section 79-This section is of special importance
of auditors. Under the section, the Registrar has been empowered to direct any society or
class of societies to keep proper accounts with respect to-
(i) All sums of money received and expended by the society and matters in respect of
which receipts and expenditure take place.
(ii) Sales and purchases of goods by the society, and
(i) The assets and liabilities of the society.
Rule 65 further lays down that every society shall keep certain essential account books
specified in the rule.
Sub-section (1) of Section 79 further empowers the Registrar to direct any society (i) to
furnish such statements and returns and (ii) to produce such record as he may require
from time to time.
The officer or officers of the society are required to comply with the Registrar’s order
within the period specified therein.
It will thus be seen that the section empowers the Registrar not only to direct any society
or class of societies to maintain necessary account books and registered and produce
them whenever required by him (viz., for the purpose of audit under Section 81, inquiry
and inspection under section 83 and 84 and to the Examining Officer authorized by the
Registrar under section 88), but also to furnish to him such statements and returns as he
may require. The provisions have been further amplified in rule 67.
32. Powers of the Registrar : Sub-section (2) of Section 79 deals with the powers of the
Registrar to enforce performance of obligations. Where any society is required to take
any action under this Act, the rules or the byelaws, or to comply with an order made
under sub-section (1) of Section 79 and such action is not taken within the time specified
in the Act, Rules or byelaws or the order of the Registrar and where no time has been
specified for compliance notice in writing specifying the period within which action
should be taken by the society. Where no action is taken by the society, the Registrar may
himself or through any person authorized by him, take such action at the expense of the
society and recover the expenses from the society as arrears of land revenue. Sub-rule (2)
of Rule 67, prescribes the procedure for enforcement of these provisions. Under sub-
section (3), the Registrar has further been empowered to hold responsible opportunity of
being heard, may order them not only to reimburse the society the expenses paid to the
State Government as a result of their failure to take action, but further to pay to the
society an amount not exceeding Rs. 25 as may be ordered by him, for each day until the
Registrar’s directions are carried out.
33.Power of the Auditors: These are very important provisions and powers under this
section as well as those under the following section viz., section 80, rule 68 are also
available to the special auditors as under Government Notification No.
WPC/2872/35113-C-5, dated the 23rd August 1972, they have been delegated to all
Special Auditors in Class I and Class II in addition to the Divisional Joint Registrars and
District Deputy Registrars.
Rule 67, which deals with Registrar’s power to enforce performance of obligation,
reads as under; -
(1) The Registrar may require any society to furnish to him any return in such form as
may be specified by him on such date or at such intervals as may be specified by him in
the order. If there are any salaried officials of the society, they would be responsible for
the submission of these returns on due dates. If there are no salaried officers, the
Chairman or member of the committee, who attends to the executive functions of the
society, is responsible for submission of the returns.
(2) If the society fails to furnish any return on due dates, the Registrar, after giving due
notice to the person or persons responsible for submission of the returns, may depute an
employee of the Co-operative Department or of the Federal society to which the society
is affiliated to prepare the return and submit to him and recover the expenses incurred by
him from the society.
35.Government’s powers to give directions-Section 79-A. –This section, which has been
newly added, gives powers to Government to give directions where public interests are
affected. Whereas the previous section, section 79, empowers the Registrar to direct
societies to, maintain proper accounts, to produce books and accounts and furnish
statements and returns to him, this section (Section 79-A) empowers the State
Government to give directions in regard to the management of the society and conduct of
its affairs.
The Section State-
(1) If the State Government, on receipt of a report from the Registrar or otherwise, is
satisfied that in the public interest or for the purpose of securing proper implementation
of co-operative production and other development programs approved or undertaken by
Government, or to secure the proper management of the business of the society generally,
or for preventing the affairs of the society being conducted in a manner detrimental to the
interest of the member or of the depositors or the creditors thereof, it is necessary to issue
directions to any class of societies generally or to any society or societies in particular,
the State Government may issue directions to the, from time to time and all societies
concerned as the case may be, shall be bound to comply with direction.
(2) The State Government may modify or cancel any directions under sub-section (1)
and in modifying or canceling such directions may impose such directions as it may deem
fit.
Under section 78, the Registrar has been given power to remove the entire committee or
one or more members under circumstances specified in the section.
36. Power to seize records, etc.-Section 80 gives powers to the Registrar to seize records
and property of the society where he is satisfied that they are likely to be suppressed,
tampered with or destroyed, or the funds and property of a society are likely to be
misappropriated or misapplied. The procedure for seizing the records has also been
specified.
A liquidator, auditor, officers conducting inquiry under section 83 or inspection under
Section 84 or authorized under Section 88, may apply to the Executive Magistrate for
seizing and taking possession of records and property of the society when frauds are
suspected.
Rule 68 prescribes the procedure for seizing books, accounts, property, etc.
37.Audit and Auditors. -Section 81, sub-section (1) lays down that the Registrar shall
audit or cause to be audited by a person authorized by him by general or special order in
writing in this behalf, the accounts of every society which has been given financial
assistance including guarantee by the State Government, or Government undertakings,
from tome to time, and the accounts of the apex societies, state and District Level Federal
Societies, District Central Cooperative Banks, Cooperative Sugar factories, Urban
cooperative Banks, Cooperative Spinning Mills, District and taluka Cooperative Sale and
Purchase organizations, and any such society or class of Societies which the State
Government may, from time to time notifies, at least once a year. The Government has
notified under his No. CSL3, 1096/ CR-146/15-C dated 11th
November 1996, for this
purpose, the Urban credit societies, Salary Earners Cooperative societies, and primary
Agriculture Cooperative Credit Societies. Now from 2010-11, all urban co-operative
bank audits are being allotted to Chartered Accountants empanelled with the department
through the ICAI through e-prakash.
The societies excluding stated in clause (A) above are required to get their accounts
audited, at least once in each cooperative year by an auditor from the panel of auditors
maintained by the Registrar, or by a Chartered Accountant holding a certificate in
cooperative audit issued by the Institute of Chartered Accounts of India.
This subsection further provides that, the Registrar may, for reasons to be recorded in
writing, audit or cause to be audited accounts of any such societies of any year and at any
time.
Rule 69 deals with audit of co-operative societies.
Sub-Rule (1) provides that audit may be conducted by auditors belonging to the co-
operative department and working under the control of the Registrar or by certified
auditors appointed by him.
The rule empowers the Registrar to appoint certified auditors and fix terms and
conditions for their appointment.
Under provision to this rule, the Registrar has been empowered to issue general orders
permitting any society or class of societies to get its/their accounts audited by certified
auditors.
Under explanation (2) below this sub-rule, qualifications have been prescribed for
appointment as certified auditor. A panel of certified auditors is to be maintained by the
Registrars and published by him once at least every three years.
Sub-section (2) of Section 81 defines the scope of audit. The Section does not lay down
how audit is to be conducted, but merely specifies that audit shall include an examination
or verification of the overdue debts, if any, the verification of cash balance and securities,
valuation of assets and liabilities, loans and advances whether secured or unsecured,
terms of the loans, mere book entries which are not prejudicial to the interest of the
society, loans and advances shown as deposits, personal expenses charged to the profit
and loss account, expenses in furtherance of objects of the society, utilisation of the
Government Assistance, and carrying out its objects and obligations towards members,
audit according to the generally accepted principles, the auditor has to attend to the above
matters.
Sub section 2A and 2B provides, for Cost audit for any society or class of societies for
ensuring management thereof in accordance with sound business principles or prudent
commercial practices, ordered by the State Government and conducted by a cost
accountant who is a member of the Institute of Cost and Works Accounts of India.
Sub-section (3) (a) lays down that auditors shall have access to all book, accounts,
records, etc., of the society.
The sub-section also empowers the auditor to summon any person in possession or
responsible for the custody of account books, records, cash security and other property of
the society to produce them at the held quarters of the society or any branch thereof.
Sub section (3) (b) empowers Registrar to depute flying squad to a society or societies,
for examination of books, records, accounts and such other papers and for verification of
the balance. The report of flying squad is deemed audit report for taking further action.
This sub-section is inserted for the societies where suspected frauds are reported or there
is misapplication of the funds, for taking legal action rapidly the report of flying squad is
deemed as audit report.
Sub section (3) (c) provides, Registrar or the person authorised by him to carry out or
cause to carried out the test audit of accounts of any society. The test audit shall include
the examination of such items as may be prescribed. This subsection is inserted for the
detection of frauds and misapplication of funds, which were not detected during the
course of audit, or for which complaints are received to the Registrar. This a statutory test
audit is different from the test audit that is taken by the higher authorities of auditors to
guide them.
38.Auditor - public servant: Under Section 161, the Registrar, his assistants exercising
his powers, auditors appointed under Section 81, persons authorized to conduct inquiry
under Section 83 or inspection under Section 84, administrators appointed under Section
78, Registrar’s nominees appointed under Section 93 and liquidator appointed under
Section 103 are all deemed to be public servants with the meaning of Section 21 of the
Indian Penal Code. Disobedience of their authority such as failure to attend when
summoned, failure to produce books or records or to furnish information and explanation
called for etc., will be offences under the Indian Penal Code.
39. Powers and Rights: Under sub-section (4) of Section 81, auditor has been given
powers to call for information from present and past members of the society, its officers
and employees.
Under clause (e) of Section 146, any officer, agent or servant of a society, who fails to
comply with the requirements of this sub-section, commits an offence and is punishable
with a fine, which may extend to rupees five hundred. The auditor has thus power to put
questions and elicit information about the transactions of the society from any present or
past member, officer or employee of the society.
Under sub-section (5) of Section 81, auditor has a right to receive all notices and other
communications relating to the annual general meeting of the society, to attend the
meeting and to be heard threat, in respect of any part of the business with which he is
concerned as auditor.
Under sub section 5A the auditor after satisfying himself, is required to report about the
books of accounts or other documents contain any incriminatory evidence against past or
present officer of employee of the society, requires to impound the same. The previous
permission of the Registrar before impounding is necessary and the auditor has to give a
receipts for the books or documents, which he has impounded.
Under sub section 5B and Rule 69 (3), (4) and (5) auditor has to submit audit
memorandum duly signed by him to the society and Registrar in such form as may be
specified by the registrar, on the accounts examined by him and on the balance sheet and
profit and loss account as on the date and for the period upto which the accounts have
been audited. He has to state in it, whether in his opinion and to the best of his
information and according to the explanation given to him by the society the said
accounts give all information required by or under this act and present the true and fair
view of the financial transactions of the society.
Under rule 49, all bad debts and losses are required to be certified by the auditor
as irrecoverable before they can be written off against the bad debts fund.
40.Re-audit. -Sub-section (6) of Section 81 empowers the Registrar to order re-audit of
the accounts of a society. The sub-section further clarifies that all provisions of the Act
applicable to audit, shall also apply to re-audit ordered by the Registrar.
Sub-rule (3) of Rule 69 clarifies that audit under Section 81 includes annual or periodical
audit, continuous or concurrent audit, test audit or super audit and re-audit.
Rule 69 lays down the procedure for appointment of auditor and for conduct of audit.
Sub-rule (1) provides that audit may be carried out by departmental auditors or by
certified auditors. Qualifications for appointment of certified auditors are laid down.
Panel of certified auditors is required to be maintained by the Registrar and published in
the official gazette once at least every three years
Sub-rule (2) specifies the period to be covered by audit. Audit shall extend back to the
date of previous audit and shall be carried out upto the close of the co-operative year. The
registrar may also direct that audit for a further period so as to bring it up-to-date may be
carried out.
Under sub-rule (3), the auditor after completing his audit is required to submit to the
society and the Registrar an audit memorandum for different types of societies
appropriate to the nature of business activities undertaken by them. The audit
memorandum is in the form of queries relating to the different aspects of the operations
of the society and its financial position and replies are to be furnished against each query
by the auditor. In addition, a report containing general remarks and suggestions has also
to be enclosed along with the printed audit memorandum.
Sub-rule (4) specifies the contents of the audit memorandum. Besides, replying all the
queries in the audit memo and furnishing his general remarks and suggestions, the auditor
is required specifically to report whether he has obtained all the information and
explanations required by him and whether in his opinion proper books of accounts as
required under the Act, Rules and byelaws of the society, which give all the information
required by the act, have been kept by the society. He has further to certify that the
balance sheet and the profit and loss account examined by him are in agreement with the
books of accounts and returns of the society and express his opinion whether the balance
sheet exhibits a true and fair view of the financial position of the society as the date of
audit or subsequent date upto which the accounts are audited by him and whether the
profit and loss account gives a true and fair view of the profit or loss made by the society
during the financial year or the period covered by his audit.
Sub-rule (5) provides that where the auditor is unable to furnish a clean report or
considers it necessary to qualify his report, he has to state reasons for the same.
Under rule 69 (6), the auditor is also required to enclose along with his audit
memorandum schedules furnishing detailed information regarding: -
(i) All transactions which appear to be contrary to the provisions of the Act, Rules
and byelaws of the society.
(ii) All sums, which ought to have been, but have not been brought into accounts.
(iii) Any material impropriety or irregularity in the expenditure or in the realisation of
moneys due to the society.
(iv) Any money or property belonging to the society, which appears to the auditor
to be bad or doubtful of recovery.
The registrar may also specify other matters in respect of which detailed information is
required to be furnished by the auditor.
The registrar has specified the forms of the schedules. These schedules are required to
accompany the audit memorandum and form part of the audit memorandum. The
Registrar has specified schedules for Governments Assistance for share capital, loans and
grant in aid, and education fund in addition to the forms specified above.
Sub-rule (7) requires the auditor to prepare a summary of his audit memorandum, which
is to be read at the general meeting. The audit memorandum together and its
accompaniments are public documents and are to be kept open to inspection by any
member of the society (item number 6 of documents specified in rule 30).
Sub-rule (7) provides that if the Registrar is of opinion that any portion of the audit
memorandum is of an objectionable nature or not justified by facts, he has power to order
that such portions as he considers objectionable shall be expunged from the audit
memorandum.
The auditor should, therefore, restrict his observations to reporting facts only and while
expressing opinion, should not draw any unwarranted inferences.
For purpose of audit, the auditor requires certain statements to be prepared and
information to be furnished regarding the operation of the society. Sub-rule (8) empowers
the Registrars to specify the forms in which the statements of accounts and information
shall be prepared by the society.
Sub-rule requires the auditor, on conclusion of his audit, to award an audit class to the
society. All societies are required to be awarded an audit classification letters, - A, B, C,
or D in accordance with the instructions issued by the Registrar from time to time. The
list of societies to be published in the official gazette under sub-section (3) of section 12
is required to show the audit class of the society.
41.Audit of liquidators’ accounts: Section 108 contains provisions relating to audit of
societies in liquidation.
The liquidator is required to prepare statement of receipts and payments in the prescribed
from and furnish vouchers and information required by the auditor.
Summary of audited accounts is to be prepared and sent to all contributories by the
liquidator.
42. Rectification of defects disclosed in audit-Section 82. -On receipt of the audit
memorandum from the auditor, the management of the society is required to take steps to
rectify the defects reported by the auditor and implements the suggestions made by him.
Section 82 requires every society to explain to the Registrar, within three months from
the date of receipt of the audit memo, the defects or irregularities pointed out by the
auditor and report to the Registrar, the action taken by it to remedy the defects and rectify
the irregularities. The section further empowers the Registrar to direct the society and its
officers to take specific action to remedy the defects within the specified time. Such order
is to be issued after consulting the federal society to which the society is affiliated.
43.Submission of audit rectification report by the society. Rule 73-The Registrar has
issued instruction that every society shall submit its audit rectification report in the form
prescribed in rule 73 i.e., in “O” form, within three months from the date of receipt of the
audit memo by it, through the auditor who has carried out the audit. The auditor has to
forward the audit memo to the Registrar or other registering authority having jurisdiction
report and recover costs from the society.
After considering the remarks of the auditor and the explanation of the society, the
Register would issue directions under section 82 requiring the society to take specific
action.
Sub-section (4) of section 87 lays down that, where the society fails to remedy the defects
disclosed in the course of or as a result of Audit under Section 81 or fails to rectify the
defects as directed by the Registrar, the Registrar may himself take steps to have the
defects rectified and recover the costs from the officer or officers of the society who, in
his opinion, have failed to rectify the defects.
Rule 73 lays down that the rectification report to be submitted by the society in
compliance of the orders issued by the Register shall be in form “O” accompanying the
rules. The Rule further requires the society to continue to submit such reports to the
Registrar until all the defects and irregularities are rectified to the satisfaction of the
Registrar.
44. Enquiry and Inspection. -Section 83 provides for inquiry by the Registrar into the
constitution, working and financial condition of the society. The Registrar shall hold such
inquiry-
(a) At his own motion;
(b) On the application of one-third of the members of the society.
Sub-section (3) A & B defines powers of the inquiry officer and provides for punishment
for non-production of books and documents and refusal to answer questions. Subsection
lays down that the results of the inquiry shall be communicated to the society.
Sub section 4 of the section 83 provides that, the Registrar should communicate the
results of inquiry to the society.
45.Inspection: Section 84 provides for the inspection of books of an indebted society on
the application of a creditor of the society. Such an application has to be accompanied
with necessary deposit. The Registrar communicates the result of inspection to the
applicant. The Registrar can exercise these power at his own motion as per sub section 4
of the section, wherein Government has substantial interest by way of financial
assistance, by way of share capital or otherwise.
Under sub-section (1) of Section 87, the Registrar has to bring to the notice of society
defects disclosed in inquiry or inspection. He has also been empowered to take necessary
action to remedy the defects within a specified time and on the failure of the society, he
may take necessary action himself and recover the cost from the defaulting officers of the
society.
46.Registrar power to inspect working of society: Section 89 (A): The registrar is
competent to inspect or cause to inspected the working of any society to ensure the
following matters;
1) The provisions of the Act, rule and bye-laws of the society are being properly
followed by the society;
2) The records and books of accounts are kept in proper forms;
3) The business of the society is being run on sound business principles; the society is
following the cooperative principles and the directives or direction given by the State
Government in accordance with the provisions of this Act and the rules made there
under:
It further provides that, the officer not below the rank of Deputy Registrar should carry
the inspection.
Subsection 2 empowers the Registrar to access all records and books of account of the
society, and summon any officer or employee who has the custody of the records or
books of accounts of the society to produce them before him for the purpose of inspection
under this section.
47. Assessment of damages. -Section 88 empowers the Registrar to assess damages
against delinquent promoters, committee members and other officers. This is a very
important section and has to be carefully studied by the auditors as the initiation and
success of the action under this section depend mainly upon his report and the diligence
with which he has carried out his duties.
This section is more generally known as “Misfeasance Section” and in view of its
importance has been dealt with in detail elsewhere.
Sub-section (3) provides that the section shall apply, notwithstanding the act is one for
which the person is criminally liable. Hence, proceedings under this section can be
instituted simultaneously with criminal proceedings. It has, however, to be noted that the
application of this section is limited to cases falling within a period of five years prior to
the date of commencement of audit, inquiry or inspection or date of order of winding up.
The section lays down a summary procedure.
48. Powers of officers to enforce attendance. -Section 89 gives powers to the person
acting under Sections 83, 84 and 88 to summon and enforce attendance of any persons o
give evidence or compel production of any document. Similar powers given to the auditor
under section 81 (4) are available against a non-member who has dealings with the
society.
49. Supervision over working of societies-Section 90 provides for the constitution or
recognition of a federal authority of supervises working of societies. Sub-section (2)
provides for the assessment of supervision fees.
50. Payment of T.A. and D.A.- Payment of Traveling Allowance and Daily allowance to
Managing Committee or Board members of Co-operative societies will be governed by
the provisions of section 160-B & Rule 107-A of the Maharashtra Co-operative Societies
Rules, 1961.
51. Security to be furnished by officers and employers handling cash, etc.-Every officer
and employee of a society, who is required to handle cash, securities or property
belonging to the society, is to furnish security as prescribed under Rule 107-B of the
Maharashtra Co-operative Societies Rules, 1961.
52. Cash balance on hand. -Rule 107-C of the Maharashtra Co-operative Societies
Rules, 1961, lays down the limits of a cash balance to be handle or kept on hand by the
office bearers of the Co-operative Societies.
The remaining sections contain administrative provisions and deal with procedural
matters and hence have not been dealt with here. Provisions relating to Land
Development Bank contained in Chapter VI are required to be studied carefully by
auditors in charge of these banks. These have been explained in the Chapter dealing with
the audit of different types of societies.
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BANKING REGULATION ACT, 1949 (Act No. 10 of 1949)
(As applicable to Co-operative Societies)
The Banking Regulation Act, 1949 (as applicable to Co-operative Societies), which had come into tree from 1st March 1966, has vested the Reserve Bank with various statutory powers of control and Supervision over the Co-operative Banks. The powers in regard to incorporation, management etc. of these Banks, however, continue to vest in the Registrars of Co-operative Societies of the States concerned. Further the provisions of the B. R. Act, 1949 (as applicable to Co-operative Societies) shall be in addition to, and not, save as expressly provided in the Act, in derogation of any other law for the time being in force. This means that the Co-operative Banks are required not only to comply with the provisions of the B. R. Act, but also other laws applicable to them. In respect of matters specifically provided for in the B. R. Act. the provisions of the said act will prevail over the provisions of the Co-operative Societies Acts. The salient features of some of the important sections of the Act and Rules are as under: Sec.5 (ccv): In terms of this Section, a "Primary Co-operative Bank" means a
Co-operative Society other than a primary Agricultural Credit Society :
1. Primary object or principal business of which is the transaction of
banking business
2. the paid-up share capital and reserves of which are not less than one
lakh of Rupees and
3. the bye-laws of which do not permit admission of any other Co-operative
Society as a member provided that this sub-clause shall not apply to the
admission of a Co-operative Bank as a member reason of such Co-
operative Bank subscribing to the share capital of such Co-operative
Society out of funds State Government for the purpose.
Sec.6: The forms of business in which the Co-operative Bank may engage have
been specified in sec.6. However, undertake such other business in which the Central Government may by a notification in the official gazette specify under clause (o) of Sub-sec. (1) of sec.6 of the Act, as a form of business in which it is lawful for a Co-operative Bank to engage itself.
a) The Government of India by a Notification dated 12.12.1995, has
specified "hire purchase" and ::orient leasing" as forms of business in
which it is lawful for a Primary Co-operative Bank to engage.
b) The Government of India by a notification has notified Insurance as a
form of business, which may be undertaken by the Co-operative Banks
Note Ref UBD.CO. BSD (SCB). No.5 dated 31.08.2009 1. A Ref is invited to Section 6 (1)(f) of the Banking Regulation Act (B.R.
Act), 1949 (AACS), in terms of which banks may also engage in
managing, selling and realizing any property which may come into its
claims.
2. The Reserve Bank hereby directs UCBs not to acquire any property
which is not meant for their own identifiable/justifiable satisfaction, or
part satisfaction, of any of its claims. are to be disposed of within the
period stipulated under Section 9 of the B.R. Act, 1949 (AACS). These
instructions and directions must be noted for meticulous compliance.
Sec. 8 A Co-operative Bank cannot undertake trading activities. Sec.9: A Co-operative Bank is prohibited from holding any immovable property
howsoever acquired as is required for its own use, for any period exceeding seven years from the acquisition thereof or from the commencement of the Act, i.e. 1st March, 1966, whichever is later, if a Bank cannot dispose off the property within the stipulated period, it has to seek extension of time. In case of a Primary Credit Society, which becomes a Primary Co-operative Bank, after the commencement of the Banking Laws (Amendment) Act, 1983, the period of 7 years for holding the non-banking assets acquired by it shall commence from the day it becomes a Primary Co-operative Bank. Further, the Reserve Bank can extend the aforesaid period of 7 years by such further period, as it may consider necessary to do so, in cases where it is satisfied that such extension would be in the interest of the depositor of the Co-operative Bank.
Sec.11: No Co-operative Bank shall commence or carry on the business of Banking in India unless the aggregate value of its paid up capital and reserves is not less than Rupees one lakh. For the purpose of this Section, "value" means the real or exchangeable value and not the nominal value shown in the books of the bank. A determination by the Reserve Bank of aggregate value of the paid up capital and reserves of a Co-operative Bank shall be final for the purpose of the Act.
Sec.14A: No Co-operative Bank shall create a floating charge on the
undertaking or on any of its property or on any part thereof, unless the creation of such floating charge is certified in writing by the Reserve
Bank as not being detrimental to the interests of the depositors of such Co-operative Bank.
Sec.18: A Co-operative Bank other than a Scheduled State Co-operative
Bank/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 of the State concerned or with any other Bank notified by the Central Government not less than 3% of DTL as on the last Friday of the second preceding fortnight and shall submit in prescribed form, a return to the Reserve Bank on or before the 15th of the subsequent month showing the amount so held on alternate Fridays of the month. The banks notified under this section are the State Bank of India, the State Associated Banks and the / Nationalised Banks. In the case of a Primary Co-operative Bank, the cash reserve can be maintained in the Central Co-operative Bank of the District concerned or in a Central Co-operative Bank outside the District provided the Urban Bank has its branch in the said District.
The balance held by the Co-operative Bank in current account with the State Bank of India or a subsidiary bank or the nationalised banks shall be set off by the balances held by the said banks with such Co-operative Bank and only the net balance in the current account shall be regarded as Cash Reserve.
Sec.20: Prohibits sanction of loans or advances on the security of its own
shares and also unsecured loans and advances to Directors or the firms or private companies in which they are interested. In the case of Primary Co-operative Banks unsecured loans to directors are subject to the Directives issued by the Reserve Bank from time to time.
Sec.20A: Co-operative Banks would have to obtain prior approval of the
Reserve Bank to remit in whole or in part any debt due to it by any of its past or present directors.
Sec.21: Empowers the Reserve Bank to determine the policy in relation to
advances to be followed by Co-operative Banks generally or by any Co-operative Bank in particular. Under this section, the Reserve Bank may issue directive to Co-operative Banks generally, or to any Co-operative Bank in particular as to:
(a) the purpose for which advances may or may not be made; (b) the Margin to be maintained in respect of secured advances; (c) the maximum amount of advances or other financial accommodation, which may be made by a Co-operative Bank to any one party;
(d) the maximum amount upto, which guarantees may be given by a Co- operative Bank on behalf of . any one party; (e) the rate of interest and other terms and conditions on which advances or other financial accommodation may be made.
Sec.21 A: Notwithstanding anything contained in the Usurious Loans Act,
1918 or any other law relating to indebtedness in force in any State, transactions between a Co-operative Bank and its debtor shall not be reopened by any court on the ground that the rate of interest charged by the Co-operative Bank in respect of any such transaction is excessive.
Sec.22: The Co-operative Banks, which existed as on 1-3-1966, were required to apply to the Reserve Bank for a license within a period of three months from the commencement of the Act. Such Banks were permitted to carry on banking business if licenses were granted to them or until they were informed that license couldn't be granted to them. New banks should invariably obtain a license before commencing banking easiness. A Co-operative Bank which comes into existence as a result of the division of any other Co-operative Society carrying on business, shall before the expiry of three months from it so coming into existence, apply in writing to the Reserve Bank, for a license for carrying on banking business under this Section.
Sec.23: State Co-operative Banks and the Primary Co-operative Banks are
required to obtain prior permission of the Reserve Bank for opening new branches. Central Co-operative Banks need not obtain such permission for opening branches within their areas of operation, with an advance copy of the application Erectly to the Reserve Bank. Urban Co-operative Banks can however submit their application directly to the Reserve Bank.
Sec.24: Every Co-operative Bank shall maintain in cash or unencumbered
approved securities an amount which shall not, at the close of business on any day, be less than 25 percent or such other percentage not exceeding 40 percent of the total of its Demand and Time Liabilities in India or as the Reserve Bank may specify from time to time.
Sec.24A: This new section empowers the Reserve Bank, without prejudice to the provisions of sec.53, to exempt by issue of notification in the official gazette any Co-operative Bank or class of Co-operative Banks with reference to all or any of the offices of such bank or banks or with reference to the whole or any part of the assets and liabilities of such Co-operative Bank or Banks from the application of whole or any part of the provisions of Sec.18 and Sec.24 for such period and on such conditions as may be specified in such notification.
Sec. 27: Every bank is required to submit to the Reserve Bank of India a
return in the prescribed form and manner showing its assets and
liabilities as at the close of the business on the last Friday of every month or if that Friday is a public holiday at the close of the business on the preceding working day before the close of Tie month succeeding that to which it relates.
Sec.29 and 31: In terms of the notification issued under amended sec.29, the
banks are now required to prepare their Profit & Loss account and Balance sheet as at 31st March of each year. The banks will have to submit to the Reserve bank, three typed copies of Profit & Loss account and Balance Sheet together with the s:atutory auditors report signed by the Principal Officer of the bank and at least three Directors, before 30th September of each year. The published Balance Sheet should also contain Statutory Auditors Report. The RBI has reiterated that if the audited balance sheet and profit and loss account along with Auditors Report is not submitted before 30th September, every year it will invite penalties u/s.46 and on 47A of BR Act, 1949. The Balance Sheet is also required to be published as required under Rule 10 in one of the local newspapers. For valid reasons, extension of time may be allowed by Reserve Bank of India, for a further period not exceeding 3 months. An application giving reasons for the delay, accompanied by supporting Board Resolution and information, should be submitted before 30th September of the year. In terms of Rule 10, three copies of the newspaper in which Accounts and Balance Sheet together with Statutory Auditor's Certificate has been published should be sent to the Reserve Bank.
Note: 1 (a) The report of the Internal Auditor is not deemed to be statutory
Auditor's Report. (b) Submission of printed booklet in the form of Annual Report is
not acceptable as return. (c) The publication of the financial statement with the Internal
Auditor's Report without Statutory Auditor's Report will not be considered as proper compliance.
2. Co-operative Banks other than Primary Co-operative banks are also required to send to NABARD, copies of the returns and documents which they are required to furnish to the Reserve Bank u/s. 24, 26, 27 and 31.
Sec.35: This section empowers the Reserve Bank, to authorise its officers, to
inspect Co-operative Banks and supply to the Co-operative Banks so inspected, a copy of its report. In case of Primary Co-operative Banks, the. Reserve Bank may authorise the State Co-operative Bank of the State concerned, to carry out the inspection on behalf of the Reserve Bank. In addition to conducting regular inspection under this Section, the Reserve Bank is also empowered to carry out a scrutiny of the affairs of the Co-operative Bank, at any time it is considered necessary to do so
Note: NABARD has also been statutorily empowered to carry out the inspection of Co-operative Banks (excluding Primary Co-operative Banks). Sec.35A: The Reserve Bank to issue directions, to Co-operative Banks in
general and to any Co-operative Bank in particular, regarding any aspect of the working of the Co-operative Banks/Bank concerned. While sec.21 referred to earlier confer powers to issue directions in regard to advances by Co-operative Banks, sec.35A covers all aspects of the functions of Co-operative Banks. These two sections together give powers to In terms of new Sub-Sec.(4-A), any Co-operative Bank other than a Primary Co-operative Bank requiring permission, shall submit the application for opening of a new place of business or changing the location of an existing place of business, to the Reserve Bank through the National Bank for Agriculture and Rural Development, the Reserve Bank to issue directions on all matters concerning the operations of a Co-operative Bank in particular, or all Co-operative Banks, or a group of Co-operative Banks, in general.
Sec.36: The Reserve Bank is empowered to depute, in case it is considered essential to do so, for the re organisation or expansion of Co-operative credit on sound lines, one or more of its Officers to watch the proceedings at any meeting of the Board of Directors of any Co-operative Banks or any other body constituted by it and require such bank to give an opportunity to the Officers, so deputed, to be heard at such meeting(s). The Reserve Bank may appoint one or more of its Officers to observe the manner in which the affairs of the Co-operative Bank or its Offices or branches are being conducted, requiring such Officers to make a report thereon.
Sec.45: The Reserve Bank can recommend to the Central Government, to order
a moratorium in respect of a Co-operative Bank. The power to issue such a moratorium however rests with the Central Government.
Sec.45Y: The Central Government to make rules, in consultation with the
Reserve Bank, specifying the periods for which a Co-operative Bank shall (a) preserve its books of account and other documents and (b) keep with itself different instruments paid by it.
Sec.45Z: The Co-operative Banks to return at the request of the customer
(including Governments and Statutory Corporations), a paid instrument before the prescribed period of preservation, only after making and keeping in its possession a true copy thereof, made by mechanical process or other process which in itself ensures the accuracy of the copy. The Bank is also entitled to recover from the customer the cost of making such copies of the instruments.
Sec.45ZA: Enables depositors of a Bank to nominate one person to whom, in the event of the death of the sole depositor or the death of all the depositors, the amount of deposit may be returned by the Bank. In pursuance of the provisions of this section, the Co-operative Banks (Nomination) Rules, 1985, have been framed and the nomination forms in deposits, safe custody, lockers have been prescribed.
Sec.45ZB: Gives protection to a Co-operative Bank in respect of claims made
by persons, other than persons in whose names a deposit is held with it. However, if a notice/order is issued by a Court of Competent Jurisdiction, then the Bank should take due notice of it.
Sec.45ZC: Enables a Co-operative Bank to return the articles kept by a person
with it, in safe custody, to his nominee in the event of his death. Sec.45ZD: Gives protection to a Co-operative Bank in respect of any claim to
any article made by any person other than the person who placed the article in safe custody with it.
Sec.45ZE: Enables an individual locker holder to nominate one person to
whom, in the event of his □earn, the Co-operative Bank may give access to the locker and liberty to remove the contents of the locker.
Sec.45ZF: Gives protection to a Co-operative Bank in respect of claims from
persons other than the hirers of the locker. Sec.46: The various penalties that may be imposed on Co-operative Banks, for
non compliance with the any visions of the B.R. Act, have been specified. Sec 46 (4): If any other provision of this Act is contravened or if any default is
made in complying with any requirement of this Act or of any order, or direction made or condition imposed there under, by any persons such person shall be punishable with fine which may extend to fifty thousand rupees or twice the amount involved in such contravention or default, where such amount is quantifiable, whichever is more, and wtoese a contravention or default is a continuing one, with a further fine which may extend to two thousand and five hundred rupees for every day, during which a contravention or default continues.
Sec.47A: Under this section the Reserve Bank is empowered to impose penalties on a Bank for on and defaults of the nature referred to in sub-sec. (3) and (4) of Sec.46 of the Act, ibid, without recourses to the Court of Law. An enquiry is to be conducted and a reasonable opportunity of being heard given to the Bank. The procedure for conducting the enquiry is laid down in Rule 11 of the Banking Regulation (Co-operative Societies) Rules, 1966.)
The procedure stipulates the appointment of an Enquiry Officer by the Reserve Bank for holding the enquiry. The Enquiry Officer is required to send a statement giving sufficient particulars of the contravention or default of the nature referred to in sub-sec. (3) or sub-sec. (4) of sec.46 of the Act and to give 30 days time time for sending the reply. The enquiry officer shall fix the date for conducting the enquiry, which should be on a day to day basis. The bank is entitled to be represented at the enquiry by its authorised representative, who may be a Director or Officer but not by a legal practitioner. The procedure also provides for cross examination of the both by the representative of the Reserve Bank or of the Co-operative Bank. After completion of enquiry the said officer shall record his findings and submit the entire report to the Reserve Bank.
Sec.47A (1)(b): "Where the contravention or default is of the nature referred to
in sub-sec. (4) of Sec.46, A PENALTY not exceeding five lakh rupees or twice the amount involved in such contravention or default where such amount is quantifiable, whichever is more, and where such contravention or default is a continuing one, a further penalty which may extend to twenty-five thousand rupees for every day, after the first, during which the contravention or default continues.
Sec.47A (2): "For the purpose of adjudging the penalty under sub-sec. (1), the
Reserve Bank shall serve notice on the banking company, requiring it to show cause why the amount specified in the notice should not be imposed and a reasonable opportunity of being heard shall also be given to such banking company."