PROVISIONS RELATING TO CO-OPERATIVE SOCIETIES IN MAHARASHTRA

VARIOUS LAWS APPLICABLE TO CO-OPERATIVE SOCIETIES IN

MAHARASHTRA

The Maharashtra Co-operative Societies Act, 1960 (MCS Act) and The Maharashtra

Co-operative Societies Rules, 1961 are applicable to any co-operative society registered in

Maharashtra and having no branches outside Maharashtra. If any state does not have its own

State Act, the Co-operative Societies Act, 1912 and Rules become applicable. However, if a

society has operations beyond one State, it is governed by a Central Act viz. the Multi-State

Co-operative Societies Act, 2002 (MSCS) and its Rules.

The income earned by a co-operative society is subject to income tax under the Income-tax

Act, 1961 and its Rules. It may be noted the income of a co-operative society is eligible for

deduction u/s 80P of the Income-tax Act and not an exemption u/s 10. Hence, it is mandatory

for all co-operative societies to file income tax return.

Co-operative societies are also governed by circulars, notifications and directives issued from

time to time by the various departments of co-operation. A society is also bound by its bye-

laws. It has also to follow various accounting and assurance standards issued by the Institute

of Chartered Accountants of India.

IMPORTANT PROVISIONS OF THE MCS ACT AND THE RULES

Chapter I (sections 1 and 2) deals with various definitions

Under section 2(27), “society” has been defined as “a co-operative society registered or

deemed to be registered under this Act”. Though co-operative society has not been defined,

section 4 states that a society which could be registered is one which has objects for

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promotion of the economic interests or general welfare of its members or of the public in

accordance with the co-operative principles.

The person governing this Act is called “Registrar”. In Maharashtra, he is known as

“Commissioner of Co-operation and Registrar of Co-operative Societies”.

Chapter II (sections 3 to 21) deals with registration, amendments, amalgamation, re-

organization and deregistration of societies.

Sections 4 to 11 deal with matters relating to registration of society. Under rule 10, after

registration of the society, the Registrar has to classify the society into any one class and sub-

class. There are 12 classes and 20 sub-classes listed in this rule.

Chapter III (sections 22 to 35) deals with matters relating to members, their rights and

liabilities.

As per section 22, an individual, who is competent to contract, a firm, company or other body

corporate, a registered society, a local authority, a public trust and government can become

members of the society. If a person has applied for admission and the society does not

communicate any decision within 3 months of receipt of such application, the applicant is

deemed to have been admitted as member of the society. Section 25 of MSCS Act permits

any person competent to contract to become a member.

Section 27 provides that during meetings, members have to remain present in person and no

proxies are allowed. Further, one person is allowed one vote only, no matter how many shares

he holds.

Section 28 provides that no member can hold shares exceeding 1/5 of the share capital of the

society or Rs. 20,000/- whichever is less. Under section 33 of the MSCS Act, maximum

shareholding can be as provided in the bye-laws, subject to a ceiling of 1/5 of the share

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capital.

As per rule 20, shares can be issued in joint names. Minors and persons of unsound mind,

inheriting the share of a deceased member, can also be admitted as member through their

legal representatives or guardians.

Section 29(3) permits a society to buy back its shares from its members on their resignation

etc., up to a maximum of 10% of the paid-up share capital every year. Rule 23 further

provides that the amount to be paid back should be based on the valuation of his share, which

in no case should exceed the amount paid for the purchase of those shares.

Section 30 read with rule 25 provides for nomination, including nomination of a minor or a

person of unsound mind.

Rule 21 permits a member to resign by giving 3 months’ notice.

The subsequent chapters (sections 91 to 167) deal with settlement of disputes, liquidation of

societies, agriculture and rural development banks, elections of committees and officers of

certain societies, offences and penalties, appeal, review and revision and other miscellaneous

issues relating to societies.

Books & Registers — In addition to regular books of account, section 79 read with rule 65

requires the society to maintain certain additional books which include Register of Members

in Form I, (Section 38, Rule 32), List of Members in Form J, (Section 39, Rule 33), Register

of shares, Register of debentures and bonds, Minute books of general meetings and board

meetings, Surety register, Register of audit objections and rectification in Form O (Rule 73)

etc.

STATEMENT OF ACCOUNTS & ITS VERIFICATION

As per rule 61, annual statement of accounts have to be prepared by the society within 45

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days of the close of the co-operative year. Rule 62 states that the balance sheet and profit &

loss account have to be prepared in Form ‘N’ by all the societies.

The balance sheet format of a co-operative society is quite different. In a co-operative

institution, loan, other assets etc. are all shown at gross figures and the over dues NPA

provisions, provision for other doubtful assets are reflected on the credit side.

Section 65 provides that appropriations of profit should be entered in the books of account

only after the annual general meeting approves it.

ITEMS ON LIABILITY SIDE OF BALANCE SHEET

(i) Membership, Share Capital & Voting

Under the head ‘Share Capital’, ‘individuals’ means share capital of all excluding co-

operative institutions and State Government.

(ii) Reserve Fund & Other Reserves

(a) Statutory Reserves

Section 66 states that at least 1/4 of the net profits should be transferred to Reserve Fund.

Registrar has power to reduce it up to 1/10 only. Subject to the rules and the bye-laws, this

Fund can be used in the business of the society. However, rule 54 states that Reserve Fund in

excess of the paid-up share capital only can be used in the business with the permission of the

Registrar.

Reserve Fund has to be invested in modes specified in section 70 read with rule 54. This

investment cannot be drawn upon, pledged or used except with the prior written permission

of the Registrar.

(b) Dividend Equalisation Fund

As per rule 52(3), a society may create Dividend Equalisation Fund by crediting to it a

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maximum of 2% of the paid-up share capital in any year until the fund amounts to 9% of the

paid-up share capital. The society can draw upon this fund in any year only when it is unable

to maintain a uniform rate of dividend it has been paying during the last preceding 5 years or

more.

(c) Bad & Doubtful Debt Reserve

Rule 49 states that bad debts have first to be written off against this fund before being written

off against Reserve Fund and Share Capital.

(d) Investment Fluctuation Fund

Rule 55(3) provides for creation of Investment Fluctuation Fund to cover anticipated loss that

may arise on disposal of investments held by the society, if not less than 10% of the working

capital is invested in securities. This amount is a charge on profit & loss account as per Rule

51(ii).

(e) Bonus Equalisation Fund

As per rule 52(1), a society may create a fund for payment of bonus to persons other than its

paid employees, who are not its members.

(f) Education Fund of State Federal Society

Section 68 provides for creation of a fund out of annual contributions given by all the

societies to the state federal society at the rates specified in Rule 53. This amount is payable

irrespective of whether the society earns a profit or not and whether a society has declared a

dividend or not. This amount has to be paid within 3 months after the close of the co-

operative year.

(g) Sinking Fund/Guarantee Fund

Rule 51(i) provides for creation of this fund to ensure due fulfillment of guarantee given by

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Government in respect of loans raised by the society.

(h) Share Capital Redemption Fund

It is a fund created under rule 51(iii) for redemption of share capital contributed by

government or a federal society.

(i) Additional Funds (Optional)

Besides the above funds, a society may create additional funds like Special Reserve Fund,

Building Fund, Members Welfare Fund, Staff Welfare Fund, Charity Fund etc. However, the

society has to frame rules for the formation of, additions to and use of these funds.

(iii) Deposits and Other Accounts

Under this head, deposits from “Individuals” means all deposits excluding those from central

co-operative banks and other societies.

(iv) Borrowings

Section 43 states that in case of a society, which has taken any financial assistance from the

Government in the form of share capital, loan or guarantee, the amount the said society can

receive as deposits and loans from its members and other persons is subject to restrictions

laid down in Rule 35 and in its bye-laws. Rule 46A prohibits borrowings from non-members.

(v) Secured Loans:

Nature of security should be shown in each case. If loan have been guaranteed by government

or other Cooperative society etc. should mentioned.

(vi) Contingent liabilities which have not been provided should be shown by way of note

on liability side.

(vii) Credit Balance in profit & Loss A/c :

Should be shown on liabilities side at last item.

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ITEMS ON ASSET SIDE

(i) Cash

Rule 107C lays down the maximum cash holding limits for certain societies. The excess

amount has to be deposited in an approved bank within 3 days.

(ii) Balance with Other Banks

Societies are required to obtain prior permission of the Registrar to open bank accounts with

banks other than co-operative banks.

(iii) Investments

Societies are allowed to invest their funds only in modes specified in Section 70 of the MCS

Act, read with Rule 55.

(iv) Advances

Section 44 of MCS Act, read with rules 41 to 48, regulate the lending activity.

Section 44 prohibits a credit society from giving loans or accepting guarantees of persons

other than its members. Loans to non-members against their deposits are however exempted.

Section 44 prohibits a society from granting loan against its own shares. Rule 41 specifies the

portion of working capital that can be used for lending.

Rule 45 lays down restrictions on members borrowing from more than one credit society.

Rule 45A states that loan against pledge of term deposits should not exceed 90% of the

deposit amount and the period of loan should not exceed beyond the maturity date of the

deposit.

(v) Fixed assets

There is no specific provision for depreciation and its rates under the MCS Act. However,

section 65(1), read with rule 49A under sub-clause (vi) states that for calculating net profit,

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depreciation has to be deducted from the gross profit.

NON-PERFORMING ASSETS (NPA) – FOR CO-OP. SOCIETIES

Asset Classification & Provision for Specified Co-operative Societies

Asset Classification Provision requiredPerforming (Standard) Asset (Overdue up to 3 quarters [9 months]) (Proposed to be reduced to 2 quarters [6 months] for F.Y. 2009-10 and 1 quarter [3 months] from F.Y. 2010-11 onwards)

NIL

Non-Performing Asset (NPA) (Overdue > 9 months) (Proposed to be reduced to > 2 quarters [6 months] for F.Y. 2009-10 and 1 quarter [3 months] from F.Y. 2010-11 onwards)

Sub Standard- (NPA up to 12 months)- Doubtful (NPA > 12 months)

5%10/15/20% for secured doubtful O/s up to 2 years/ 2-3 years /> 3 years resp. 50% for unsecured doubtful advances

- Loss (No chance of recovery) 100%Note : NPA provision for small loans up to Rs.10,000/- per borrower need not be provided.

VERIFICATION OF PROFIT & LOSS ACCOUNT

Though, as per Accounting Standards, mercantile system of accounting has to be followed,

the Act is silent on this aspect. However, reading Rule 49A regarding depreciation, various

provisions for income tax, bad and doubtful debts, investment fluctuation, retirement benefits

etc., Form ‘N’ of MCS Rules it appears that the accounts have to be maintained on mercantile

basis.

Rule 107-A gives the maximum rates of travelling and daily allowance and sitting fees

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payable to committee members.

Section 66 requires the societies to maintain Reserves fund, by transferring annually 25% of

net profit.

Rule 52 empowers the society to create Bonus/Dividend Equalisation fund, amount not

exceeding 2% of paid up capital may be transferred each year, however accumulated balance

should not exceed 9% of paid up capital.

Any society should not pay dividend exceeding 15% of the capital. However, after getting

approval from registrar of cooperative societies, Society can pay higher rate of dividend.

Section 69 of the Act provides that society may set aside amount not exceeding 20% of the

net profit for charitable purpose.

Investment of funds. Section 70 provides that funds of co-operative society shall be invested

in a specific form only as given below.

i) Central Bank or State co-operative Bank.

ii) Trust Securities

iii) Any security issued by other societies having limited liabilities.

iv) Co-operative Bank

v) Specified by order of the Government.

According section 68, every society shall contribute annually towards the education fund and

Rule No. 53 prescribed the rate of contribution.

Class of society Rate

1 Primary Consumers society - 2 ps. Per Rs.100 of working capital, maximum Rs.1000/-

2 Urban Credit society - 10% of the working capital, subject to maximum Rs.500/-

3 Co-operative Sugar Factory - 25 ps. Per ton of sequence crused subject to maximum

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Rs.25,000/-

4 Backword class

Housing society class Rs.1, per member

Housing society Rs.10 per member

5 Urban Credit Society - 1 /10 % of working capital subject to a maximum of Rs.1000.

FORMAT OF PROFIT AND LOSS A/C (N TYPE)

Particulars Amt. Particulars Amt.To Gross Loss (if any)To Interest PaidAdd : OutstandingLess : PrepaidTo Bank ChargesTo Salaries and AllowancesTo ContributionTo Provident FundTo Managing Director’sAllowance and SalariesTo Managing Committee’s RemunerationTo Rent, Rates & Taxes To Postage and TelegramTo Audit Fees To Printing & Stationery To Supervision Charges To Depreciation on AssetsTo Reserve for Doubtful DebtsTo Other Expenses & Fees, if anyTo Net Profit transferred

-----------

--------

-

By Gross Profit (if any)By Interest Recd. OnLoans/investmentBy Dividend on SharesBy other Incomes –a) Share Transfer feeb) Rent Receivedc) Discount and InterestReceivedd) Income from sale ofFormse) Sundry IncomeBy Net Loss transferred

--

-

---

-

--

--- --- --- ---

Balance Sheet (N Type)

Fig. Liabilities Amt. Fig. Assets Amt.

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ofPre.Year

ofPre. Year

Share capitalAuthorized, Issued & paid-upPurchased by the Govt.Purchased by Cooperative SocietiesPurchased by IndividualsShares in AdvanceLess : Calls in ArrearsAdd : Calls in AdvanceSubscription / Deposits towards Shares

Cash BalanceOn handAt Bank(also calledDeposits)InvestmentsGovernmentSecuritiesShares in CooperativeInstitutionsFixed Deposits withBanks

Reserve Fund and Other FundsReserve FundBuilding FundDevelopment FundReserve for Doubtful DebtsDepreciation FundDividend FundBonus Equalisation FundOther Equalisation FundStaff Provident Fund

Provident Fund Investment(including advances toprovident fund)Loans & AdvancesLoansCash CreditsDues from the Managing CommitteeDues from Employees

Secured LoansDebenturesCash CreditOverdraftsLoansGovernment LoansOther Secured Loans

Unsecured LoansFrom BanksFrom GovernmentBills PayableOthers

Sundry DebtorsFor Credit SalesFor AdvancesCurrent AssetsTool and EquipmentsClosing StockWork in ProgressFixed AssetsLand and BuildingPlant & MachineryLivestocks/ DeadstocksVehicles

DepositsFixed DepositsSavings DepositsRecurring DepositsOther Deposits

Other Expenses & Liabilities Bills Payable Losses (not written off)Others Preliminary Expenses

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Current Liabilities & ProvisionsSundry LiabilitiesOutstandingSalaries etc.AdvancesUnclaimed DividendInterest due but not paidOther Liabilities

AdvancesPayment of TaxesGoodwillDeferred Revenue ExpensesExpenses in connection with issue of DebenturesOther DebtorsAdvances paidInterest Accrued but not receivedOther DuesLossesAdd : Current Loss

TOTAL TOTAL

Maharashtra Co-operative Societies (Amendment) Ordinance, 2013

97th constitutional Amendment on 14th February, 2013 by Government of India.

State Government has amended Maharashtra Co-operative Societies Act, 1960 by

Maharashtra Co-operative Societies (Amendment) Ordinance, 2013.

The Latest amendment aims to infuse fresh blood into this Co-operative Sector. It not only

recognizes the right to form co-operatives as our fundamental right, but it also endeavour to

promote voluntary formation, autonomous functioning, democratic control and professional

management of co-operative societies. In many ways, the scope for the Government control

and interference in the functioning of co-operatives reduced.

We have briefed some important amendments in Maharashtra Co-operative Societies

(Amendment) Ordinance, 2013 as follows:

1. There will be only 2 types of members i.e. Nominal & Associate member as against

Nominal, Associate & Sympathiser member as per old Act. Sympathiser member is deleted.

2. Member is further classified as “Active Member & non-active Member”. “Active Member

defined as one who participates in the affairs of the Society and utilizes the minimum level of

services or products of that society as may be specified in the bye-laws.

3. Member not attended 1 AGM in 5 years and not utilize minimum level of services at least

once in 5 consecutive years as may be specified in bye-laws shall be classified as Non-Active

Member.

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4. Non-Active Member shall be liable for expulsion u/s 35 and also not entitled for Vote.

Non-Active Member can be active member on fulfillment of above criteria.

5. A new State Co-operative Election Authority would be constituted by State Government

u/s 73CB to conduct elections of Co-operative Societies to have transparency in election

process.

6. It is duty of Present Committee to intimate State Co-operative Election Authority for

holding of its election before expiry of its terms. If there is default on the side of Committee

to inform, action u/s 77A will be initiated against committee members.

7. Every society will have to deposit in advance the estimated amount of election expenses as

the Election fund with State Co-operative Election Authority.

8. Every Committee member shall undergo co-operative education and training through State

Federal Societies or the State Apex Training Institutes for the prescribed period as decided by

Govt.

9. Every Society shall contribute annually towards such education and training fund of State

Federal Societies or the State Apex Training Institutes at the rates as may be prescribed.

10. Contribution to Education Fund as per old provision u/s 68 discontinued.

11. Maximum number of Committee members should be 21.

12. Section 73BBB w.r.t. reservation of Woman member in committee deleted. But

reservation for women given in new section 73C for 2 women irrespective of size of

committee.

13. Committee member will be disqualified if he is classified as non-active member

14. Government has withdrawn powers of Registrar to suspend Managing Committee of

Housing Societies & to appoint an Administrator in Housing Societies.

15. Due date for taking AGM will be 30th September i.e. 6 months after end of financial year.

No extension will be granted for postponing AGM after 30th September. If Society fails to

conduct AGM within due date, Registrar will have the authority to conduct AGM.

16. Society has to file Returns to Registrar within 6 months after end of financial year and

inform Name of Auditor to Registrar within 1 month of AGM.

17. Auditor should not accept audits more than 20 societies (excluding paid up share capital

of less than Rs. 1 Lac) in a financial year.

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18. Audit Rectification report should be placed before next AGM and also to be submitted to

the Registrar.

19. Every Society has to form Grievances Settlement and Redressal Committee to deal with

the grievances of the members and the society, relating to its business & management. The

Grievances Settlement and Redressal Committee should be formed in AGM. The said

committee should consist of 3 active members & shall be other than Managing Committee

members.

BIBLIOGR APHY

www.wikipedia.org

www.google.com

www.caclubindia

Advanced Financial Accounting – Dr Varsha . M. Ainapure.

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