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Unit 12: Special Features of Audit

3. Books, Accounts and other records of Co-operative Societies: Under section 43(h) of the Notes
Co-operative Societies Act, a state government can frame rules prescribing the books and
accounts to be kept by a co-operative society.

Example: In Maharashtra the co-operative societies are required to maintain cash book,
general ledger, personal ledger, stock register, property register, etc. It is very much clear that
requirement under State Acts resembles the provisions made under Section 209 of the Companies
Act, 1956.

4. Restrictions on shareholdings: According to Section 5 of the Co-operative Societies Act,
1912, in the case of a society where the liability of a member of the society is limited, no
member of a society other than a registered society can hold such portion of the share
capital of the society as would exceed a maximum of twenty percent of the total number of
shares or of the value of shareholding to 1,000. The auditor of a co-operative society will
be concerned with this provision so as to watch any breach relating to holding of shares.
One should also watch whether any provision in the bye-laws of the society is not contrary
to this statutory position. The State Acts may provide limits as to the shareholding, other
than that provided in the Central Act.
5. Restrictions on loans: A registered society shall not make a loan to any person other than
a member. With the special sanction of the Registrar, a registered society may make a loan
to another registered society (Section 29).The State Government may further put such
restrictions as it thinks fit on the loaning powers of the society to its members or to other
societies in the interest of the society concerned and its members.
6. Restrictions on borrowings: A registered society may accept loans and deposits from its
members and others subject to the restrictions and limits of the bye-laws of the society.
The auditor will have to examine the bye-laws in this respect (Section 30).
7. Investment of funds: According to Section 32 of the Central Act the modes of investment
of funds of a society may be stated as follows. A society may invest its funds in any one or
more of the following:
(i) In the Central or State Co-operative Bank.
(ii) In any of the securities specified in Section 20 of the Indian Trusts Act, 1882.

(iii) In the shares, securities, bonds or debentures of any other society with limited
liability.
(iv) In any co-operative bank, other than a Central or State co-operative bank, as approved
by the Registrar on specified terms and conditions.
(v) In any other moneys permitted by the Central or State Government.

The principal provision relating to the investments of funds of a co-operative society, the
Central as well as State Acts does not mention anything about the investment of reserve
fund outside the business specifically.
8. Appropriation of profits: Section 33 of the Central Act states that 25% of the profits should
be transferred to Reserve Fund, before distribution as dividends or bonus to members.
However, having regard to the financial position of the society, the Registrar may reduce
the percentage of transfer, but in any case not less than 10%. Generally in case of newly
started salary earners’ credit societies this liberal view is taken.

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