Unit 3: Registration of Cooperative Societies
Registration of Cooperative Societies
Registration is the legal process through which a cooperative society becomes an officially recognized organization under the Cooperative Societies Act.
Steps for Registration
1. Minimum number of members (as required by the state act) come together with a common objective.
2. Prepare a proposal for registration along with the society’s bye-laws.
3. Submit the following to the Registrar of Cooperative Societies:- Application form
- Bye-laws
- List of promoter members
- Proof of address of the society
- Fees
5. If satisfied, the Registrar:
- Registers the society
- Issues a Registration Certificate
- Approves or registers the Bye-laws
After this, the society becomes a legal body.
Duties and Privileges of Registered Societies
A. Duties of Registered Societies
Once registered, a cooperative society must:
- Follow the Cooperative Act and Rules.
- Follow approved Bye-laws.
- Maintain proper accounts, records, and books.
- Conduct regular General Body Meetings.
- Submit annual audit reports and returns to the Registrar.
- Use funds only for cooperative objectives.
- Promote member welfare and democratic functioning.
B. Privileges of Registered Societies
Registered societies get several legal and financial privileges:
- Legal Status: They can sue and be sued in their own name.
- Separate Entity: Society’s property is separate from individual members.
- Perpetual Succession: Society continues even if members change.
- Tax and Stamp Duty Benefits (in some states).
- Eligibility for Government Loans, Grants, Subsidies.
- Priority lending from cooperative banks.
- Bye-laws have legal force once approved.
Properties and Funds of Registered Societies
A. Properties of a Cooperative Society
A registered cooperative society can own:
- Land and buildings
- Machinery, equipment
- Vehicles
- Stocks and inventory
- Financial assets (cash, deposits, securities)
These are owned by the society, not by individuals.
B. Funds of a Cooperative Society
A cooperative has various financial resources:
- Share Capital (member contribution)
- Reserve Fund
- Deposits from members
- Loans from banks or government
- Profits / Surplus
- Donations or grants
Funds must be used only for the objectives of the society.
Net Profit Distribution
After meeting all expenses, the society earns net profit or surplus.
Its distribution is guided by law and bye-laws.
How Net Profit is Distributed
- Reserve Fund – Minimum 25% of net profit is transferred to the reserve fund (mandatory in most states).
- Dividend to Members – Paid on the share capital.
- Bonus to Employees – As per rules.
- Education Fund – A fixed percentage goes to the Cooperative Education Fund (State Federation).
- Welfare Activities – Community development, member welfare.
- Rebates / Patronage Refund – Based on the services used by members (optional).
Important Principle
Profit distribution must follow cooperative principles, especially:
- Limited return on capital
- Surplus distribution based on participation, not capital
Audit in Cooperative Societies
Audit means the examination of accounts of a cooperative society by an authorized auditor to ensure transparency and correctness.
Objectives of Cooperative Audit
- Check accuracy of accounts.
- Ensure legal compliance with the Cooperative Act and Bye-laws.
- Detect fraud, mismanagement, or misuse of funds.
- Confirm financial position of the society.
- Suggest improvements in management and accounting.
Who conducts the audit?
- A government-approved auditor
- Or an auditor appointed by the Registrar of Cooperative Societies
What does audit include?
- Verification of cash, assets, liabilities
- Checking of loans, share capital, deposits
- Review of management decisions affecting finances
- Auditor prepares an Audit Report
Inquiry (Section for inquiry in Cooperative Acts)
Inquiry is a formal investigation ordered by the Registrar when there is suspicion of:
- Mismanagement
- Fraud
- Member complaints
- Violation of the Act or Bye-laws
When can the Registrar order an Inquiry?
- On a written complaint by members (minimum number required)
- Suo-moto (Registrar’s own decision)
- On request from a financing bank or apex cooperative body
What happens during Inquiry?
- Records of society are examined
- Officers and board members are questioned
- Findings are noted in an official Inquiry Report
Outcome of Inquiry
- Suspension of the Board
- Surcharge proceedings
- Removal of CEO/officials
- Orders to rectify defects
- Initiation of criminal proceedings
Inspection
Inspection is a routine check of the society’s functioning and records.
Who conducts Inspection?
- Registrar
- Authorized officer
- Financing bank or Cooperative Union (in some cases)
Objectives
- Ensure society is functioning as per law
- Check if management is following cooperative principles
- Identify irregularities early
Difference Between Inquiry & Inspection
| Inquiry | Inspection |
|---|---|
| Conducted when there is a serious complaint | Routine or periodic check |
| More detailed and investigative | Less detailed |
| Leads to strict actions | Usually leads to corrective suggestions |
Settlement of Disputes
Any dispute related to a cooperative society must be settled within the cooperative system, not in regular courts.
Types of Disputes
- Between members and society
- Between past members and society
- Between society and employees (in some states)
- Between two cooperative societies
How disputes are settled?
1. First referred to the Registrar
2. Registrar may:
- Decide the dispute
- Refer it to Arbitration
- Appoint an arbitrator
- Send it to Cooperative Tribunal
Matters generally considered as disputes:
- Loan recovery
- Membership cancellation
- Election disputes
- Share or dividend issues
- Management decisions
Surcharge Proceedings
Surcharge is a financial penalty imposed on individuals responsible for causing loss to the society.
When is Surcharge applied?
If during audit, inquiry, or inspection, it is found that:
- A board member or employee misused funds
- There was negligence or dishonest behavior
- Loss was caused to the society due to misconduct
Who can be surcharged?
- Member of the Board
- Officers
- Employees
- Any person involved in managing or handling funds
What does Surcharge mean?
- Person responsible must repay the loss
- They may also face disqualification from holding office
- They may face criminal proceedings
Offences and Penalties
Cooperative laws define various offences and their penalties to maintain discipline and transparency.
Common Offences
- Tampering or destroying society records
- Misappropriation of funds
- False reporting or fake auditing
- Failure to conduct elections
- Not maintaining accounts
- Disobeying Registrar’s orders
- Fraud or cheating members
Penalties
Penalties vary depending on the seriousness of the offence:
1. Monetary Fines- For not submitting audit reports
- For violating bye-laws
- For improper maintenance of books
2. Imprisonment
- In cases of fraud
- Misappropriation of funds
- Destruction of records
3. Disqualification
From holding any post in the cooperative society
4. Recovery of Loss
Through surcharge
Simple Summary for Exams
- Audit = Checking accounts.
- Inquiry = Investigation due to complaint or suspicion.
- Inspection = Routine checking.
- Dispute Settlement = Handled by Registrar / Arbitration, not civil courts.
- Surcharge = Recovering loss from responsible persons.
- Offences & Penalties = Fines, imprisonment, disqualification