IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE S.SIRI JAGAN MONDAY, THE 26TH OCTOBER 2009 / 4TH KARTHIKA 1931 WP(C).No. 26327 of 2009(I) -------------------------- PETITIONER(S): --------------- KUZHUPPILLY SERVICE CO-OPERATIVE BANK LTD.NO..138,AYYAMPILLY.P.O,ERNAKULAM DISTRICT REPRESENTED BY ITS SECRETARY. BY ADV. SRI.M.PAUL VARGHESE SRI.M.K.GINASH RESPONDENT(S): --------------- 1. STATE OF KERALA REPRESENTED BY ITS SECRETARY TO GOVERNMENT,DEPARTMENT OF CO-OPERATION GOVERNMENT SECRETARIAT,THIRUVANANTHAPURAM. 2. REGISTRAR OF CO-OPERATIVE SOCIETIES, THIRUVANANTHAPURAM. 3. JOINT REGISTRAR OF CO-OPERATIVE SOCIETIES(AUDIT),ERNAKULAM,COCHIN-16. 4. ASSISTANT REGISTRAR(AUDIT)KOCHI. SR.GOVT. PLEADER K.C.SANTHOSH KUMAR THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 26/10/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: S.SIRI JAGAN, J. ================== W.P(C).No.26327 of 2009 ================== Dated this the 26th day of October, 2009 J U D G M E N T The petitioner is a co-operative bank. They are aggrieved by the delay in completing the audit of the society for the years 2006-07, 2007-08 and 2008-09. They would contend that it is the duty of the respondents to see that audit of every society in the State for every year is completed during the next year. According to the petitioner, in spite of repeated requests, the respondents are not taking steps to conduct the audit of the accounts of the petitioner society, for the above three years. The petitioner, therefore, seeks the following reliefs: “(i) issue a Writ in the nature of mandamus or any other writ, order or direction, directing the respondents 2 to 4, to take necessary steps to conduct the Audit in the petitioner bank, for the years 2006- 2007, 2007-2008 and 2008-2009, and to issue the Audit Certificates, within a prescribed time, which may be fixed by this Hon'ble Court. (ii) in the alternative, direct the respondents 2 to 4 to allow the petitioner bank to get its accounts for the years 2006-2007, 2007-2008 and 2008-2009, audited by a Chartered Accountant to be engaged by the petitioner bank, and to issue the Audit Certificates on the basis of the same.” 2. The 3rd respondent has filed a counter affidavit taking the stand that the it is because of the inaction on the part of the society in conveying their agreement for conducting group audit and to agree to pay the audit charges as applicable to group audit that audit could not be conducted. W.P.C.26327/09 2 3. I have considered the rival contentions in detail. 4. The conduct of the audit of a society is covered by statutory provisions under the Kerala Co-operative Societies Act and Rules. Sections 63 and 64 are the provisions in the Kerala Co- operative Societies Act relating to audit which reads thus: “63. Director of Co-operative Audit.- (1) The Government shall, by notification in the official Gazette, appoint a person to be the Director of Co-operative Audit with jurisdiction over the whole of the State. (2) The qualification and the terms and conditions of the person to be appointed as the Director of Co-operative Audit shall be such, as may be prescribed. (3) The Government may by general or special order, confer on any officer all or any of the powers of the Director of Co-operative Audit under this Act. (4) It shall be the duty of the Director of Co-operative Audit to audit or to cause to be audited through persons authorised by him, the accounts of every society, at least once in each year. (5) The Government shall prescribe the manner, in which audit is to be conducted by the Director of Co-operative Audit. (6) Notwithstanding anything contained in any other law for the time being in force, the Audit certificate issued by the Director of Co- operative Audit, or by any officer authorised by him shall be valid for all purposes required to be filed before the State Government and non- Government authorities. 64. Scope of audit, powers of the Director of Co-operative Audit and procedure for audit.- (1) The audit 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 concerned and such other audit matters, as may be prescribed. (2) For the purpose of audit, the Director of Co-operative Audit or the person authorised by him under Sec.63 shall have the following powers, namely:- (a) he shall, at all reasonable times, have access to all the books, accounts, documents, papers and all other relevant records, securities, W.P.C.26327/09 3 cash and other properties belonging to, or in the custody or control of the society; (b) he may summon any person in possession of or responsible for the custody of any such books, accounts, documents, papers, other records, securities, cash or other properties, to produce the same at any place at the headquarters of the society or any branch thereof or where there is no working office for a society, at the office of the Director of Co- operative Audit or at the office of any of his subordinate officers, as may be specified by him; and (c) such other powers as may be prescribed. (3) Every person who is or has been, at any time, an officer or employee of the society and every member and past member of the society, who is in possession of any information and records in regard to the transactions and working of the society, shall furnish such information in regard to the transactions and working of the society, as the Director or the person authorised by the Government under sub-section (3) of Sec.63, may require. (4) The financial statement and other details required for the completion of audit shall be prepared by the society, within three months from the date of completion of the year and the fact shall be reported to the Director of Co-operative Audit or to the person authorised by him in this behalf. (5) The audit shall be commenced within one month from the date of receipt of the report under sub-section (4) by the Director of Co- operative Audit or the person authorised by him, as the case may be, and shall be completed within a period of nine months. (6) The amount of fee for the audit of accounts of society for each year shall be such, as may be fixed by the Director of Co-operative Audit, in accordance with the rules made in this behalf. (7) The fee shall be paid by the society concerned within thirty days of intimation thereof and in case of non-payment of the fee within the period it shall be recoverable in the manner specified in Sec.79. (8) The procedure for payment of the fee shall be such, as may be prescribed. (9) If the result of the audit held under Sec.63 discloses any defects in the working of a society the Director of Co-operative Audit may bring such defects to the notice of the society and if the society is affiliated to another society, also to the notice of that other society. (10) If the result of the audit held under Sec.63 discloses any serious defects in the working of the society, the Director of Co-operative W.P.C.26327/09 4 Audit or the person authorised by him shall communicate the same forth with to the Registrar for immediate further action. (11) The Director of Co-operative Audit, may by order in writing, direct the society or its officers to take such action, as may be specified in the order, within the time mentioned therein to rectify the defects disclosed in the audit, under intimation to the Registrar.” Rules 64 and 65 are the corresponding provisions in the Kerala Co- operative Societies Rules, which read thus: “64. Audit:-(1) The audit under Section 63 shall in all cases extend back to the last date of the previous audit and shall be carried out upto the last date of the year immediately preceding the audit or where the Director of Co-operative Audit so directs in the case of any particular society or class of societies such other date as may be specified by the Director of Co-operative Audit. (2) The auditor shall submit an audit memorandum in the form prescribed by the Director of Co-operative Audit on the accounts examined by him and on the Balance Sheet and final accounts as on the date for the period upto which the accounts have been audited and shall state whether in his opinion and to the best of his information and according to the explanations given to him, the said accounts give all the information required by the Act and give a true and fair view:- (i) in the case of the balance sheets of the state of society's affairs as at the end of the year or any other subsequent date to which the accounts are made up and examined by him and (ii) in the case of the profit and loss account of the profit or loss for the year or the period covered by the audit, as the case may be. (3) The audit memorandum shall state:- (a) whether the Auditor had obtained all the information and explanations which to the best of his knowledge and belief were necessary for the purpose of his audit; (b) whether in his opinion, proper books of accounts, as required by the Act, these rules and the bye-laws of the society have been kept and regularly maintained by the society so far as it appears from the examination of the these books; and (c ) whether the balance sheet and the final accounts, examined by him are in agreement with the books of accounts and returns of the society. W.P.C.26327/09 5 (4) Where any of the matters referred to in sub-rule (3) are answered in the negative or with a qualification, the persons who does (sic) not audit shall specify the reasons for the answers in the audit memorandum. (5) The audit memorandum shall also contain schedules with full particulars of;- (i) all transactions which appear to be contrary to the provisions of the Act, the rules or the bye-laws of the societies; (ii) all sums which ought to have been, but have not been brought into account, by the society; (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 debt; (v) an audit classification statement prepared in accordance with the instructions issued by the Registrar from time to time; and (vi) any other matters specified by the Registrar on this behalf. (6) Within six months of the date of audit the Director of Co- operative Audit shall grant to the concerned society and audit certificate and a copy of the audit memorandum specified in sub-rule (2) duly signed by him. While communicating the audit memorandum, the Director of Co-operative Audit may modify or expunge any portion thereof which appears to him to be objectionable or not justified by facts. Provided that the annual statement of accounts of each year shall be prepared by the society within three months of the completion of that year and the fact that shall be reported by the Chief Executive to the Director of Co-operative Audit or to the person authorised in this behalf. The lapse on the part of the chief Executive in his regard will be considered as an offence under sub-section (4) of Section 94 of the Act. (7) The society shall publish or exhibit in the Notice Board of the society. (i) the audit certificate: (ii) the statement showing the receipts and disbursements for the year; (iii) the profit and loss account; and (iv) the balance sheet in the manner specified by the Director of W.P.C.26327/09 6 Co-operative Audit and shall also keep them open for inspection by any member of the society. The summary of the audit memorandum shall also be read out at the general body meeting of the society. (8) The Director of Co-operative Audit shall have powers to issue directions to the societies to prepare and submit any other statements and schedules and call for any details which are necessary for the conduct and completion of audit. (9) The Director of Co-operative Audit shall be an Officer on deputation from Indian Audit and Accounts Service not below the rank of Deputy Accountant General or an Officer from Indian Administrative Service. 65. Levy of Audit fees:- (1) Every Co-operative Society shall pay to Government within one month of receipt of the annual audit certificate and audit fee calculated on the Working Capital as on the last day of the Co-operative year to which the audit relates or on the total sales during the year on the gross income during the year as the case may be, as shown below:- Type of Society (1) Audit fees to be calculated (2) (1) Credit Societies (Excepting Primary Co-operative Agricultural and Rural Development Bank, Housing Societies and House Mortgage Banks On Working Capital. (2) Primary Co-operative Agricultural and Rules Development Bank, House Mortgage Banks, Housing Societies On the aggregate of loans issued and that recovered during the year under audit. (3) Societies having credit and non-credit activities On working capital or on sale proceeds of goods whichever is higher. (4) Societies dealing in goods (excepting Coir Societies) On sale proceeds. W.P.C.26327/09 7 (5) Coir Co-operative Societies On proceeds of Coir sold as owners as well as on the commission realised on goods sold as agents. (6) Transport Societies On hire charges collected and sale proceeds of articles. (7) Other Societies On gross income. If any doubt arises as to to which of the categories, a particular co- operative society is to be included for the purpose of calculation of audit fees, the matter shall be decided by the Director of Co-operative Audit. (2)(a) The Director of Co-operative Audit shall be competent to appoint one or more Auditors specially or exclusively for the audit of the accounts of one or more Societies, each having a Working Capital or annual sales exceeding Rs.5 lakhs. (b) Where the Director of Co-operative Audit appoint Auditors under the forgoing sub-rule the fee/cost of such persons shall be payable by such society or societies, the entire or the proportionate cost of the staff as may be determined by the Director of Co-operative Audit. (3) The following classes of societies are exempted from the payment of audit fees- (a) All Co-operative Societies of which all or a majority of the members are Harijans or Girijans. (b) All Farming Societies. (c ) All Social Welfare Societies. (d) Any Society or group of societies which has its accounts audited at its own expense by an officer of the Co-operative Department by virtue of the provisions contained in sub-rule (2), or under an arrangement approved by the Registrar to audit the accounts of the society. (e) Any society for the 1st year of audit, irrespective of the date of commencement of business. (f) Any Weavers' Society or Coir Co-operative Society or Housing Society, or Primary Society formed for the benefit of fishermen until it has completed the sixth Co-operative year after its commencement of business. (g) Any credit society the working capital of which does not W.P.C.26327/09 8 exceed Rs.2000 and any other society the sales of gross income of which does not exceed Rs.10,000/- (4) The audit fees for the purpose of sub-rule (1), shall be calculated at the rate of 50 paise for every 100 rupees or part thereof on the working capital, the value of sales or the gross income, as the case may be, provided that the maximum audit fees payable by the society shall not exceed Rs.25,000.” The Act and Rules do not stipulate single audit or group audit or consent of the society regarding any particular type of audit. On the other hand, Section 63(4) specifically lays down that it shall be the duty of the Director of Co-operative Audit to audit or to cause to be audited through persons authorised by him, the accounts of every society, at least once in each year. Going by that Section it is the bounden duty of the Director of Co-operative Audit appointed under the Section 63 to complete the audit of every society within an year. The audit fees payable is also specifically laid down in Rule 65 (4) which specifically stipulates that the audit fees for the purpose of sub rule (1) of Rule 65 shall be calculated at the rate of 50 paise for every 100 rupees or part thereof on the working capital, the value of sales or the gross income, as the case may be, provided that the maximum audit fees payable by the society shall not exceed Rs.25,000/-. Of course it is for the Director of the Co-operative Audit to decide as to how the audit of a particular society has to be done, but that shall only be in accordance with Sections 63 and 64 of the Act and Rules 64 and 65 of the Rules. For such audit, the respondents cannot also demand W.P.C.26327/09 9 audit fees in excess of what has been prescribed under Rule 65. 5. In the above circumstances, I directed the learned Government Pleader to ascertain within what time the audit of the petitioner society can be completed as provided under the Act and Rules. The learned Government Pleader today submitted that the audit for the year 2006-07 can be completed by Apri, 2010, the audit for year 2007-08 can be completed by 31.10.2010 and the audit for the year 2008-09 can be completed by 30.4.2011. Accordingly, the respondents are directed to see that the audit of the petitioner society is completed in accordance with Sections 63 and 64 of the Act and Rules 64 and 65 of the Rules within the above said period. I also direct that the audit of subsequent years shall also be conducted without delay so that the auditing can be made regular every year as contemplated under the Act and Rules. The writ petition is disposed of as above. Sd/- sdk+ S.SIRI JAGAN, JUDGE ///True copy/// P.A. to Judge W.P.C.26327/09 10