KERALA COOPERATIVE AUDIT MANUEL VOLUME I PART IV CHAPTER IV

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PART IV

CHAPTER IV

1. Offences under the Kerala Co-operative Societies Act :- Section 94 of the Kerala Co-operative Societies Act, 1969 deals with offences :

(i) No person other than a society shall carry on any business or trade under any name or title of which the word ‘Co-operative is party, with out Government sanction.

(ii) Section 35 of the Act confers on the Co-operative Societies certain privileges. One of the privileges is the conferring of first charge on certain special assets of the members. Therefore if any member disposes of property in respect of which the Society has got a first charge it is an offence under the Act.

(iii) Willfully making false returns, furnishing of false information failure to produce cash balance on demand, failure in make available the records for audit inquiry, inspection etc, willfully or without any reasonable excuse disobeying any summons, requisition or lawful written order, issued under the K.C.S. Act, etc., are offences under the Act.

(iv) Section 37 of the Act empowers the pay disbursing officers to recover from the salary of the employee, the dues of the society, in which he is a member, subject to his executing an agreement authorising the employer to deduct the dues. After the execution of such an agreement by the member if such employer fails to deduct any amount as required, or fails to pay to the Society the amount so recovered within seven days from the date on which such deduction was made, have been made offences under the Act.

(v) Failure of any person to deposit the money collected for the formation of a society in the State Co-operative Bank, Central Co-operative Bank, or Post office savings account, or in any other approved Bank within 14 days of its collection, constitute an office. Misapplication of such share money is also an offence.

(vi) Misappropriation or unauthorised retention of money belonging to a society also constitute an offence. The offences under the Kerala Co-operative Societies Act are in addition to the offences under the Indian Penal Code or any other Act. The offence under the Indian Penal code is distinct from the offences under the Act.

2. Theft :- In order to constitute an offence, existence of certain essential factors have to be provided or established. Therefore to establish an offence of theft it, has to be proved that any movable property like cash, negotiable instruments or valuables contained in a safe or strong room of the Bank or Society have been removed or goods have been removed from its godown by any person intending to take it dishonestly.

3. Criminal misappropriation :- The offence commonly met within Co-operative society/Bank in the misappropriation of its funds. A person can be held liable for criminal misappropriation, only if he dishonestly misappropriates or converts for his own use, money, goods or other moveable property which has come into his possession. Dishonest intention to appropriate illegally is the basis for institution of criminal proceedings. Therefore, to sustain a charge of misappropriation the prosecution has to prove that the accused dishonestly misappropriated or retained for his use movable property. It is not required to prove the quantum of money misappropriated to prove the guilt. The dishonest intention to appropriate the property of another is common both in theft and misappropriation.

The fact that the accused was given time to remit the money misappropriated will not vitiate a conviction for criminal misappropriation, or shown that the matter is one to be dealt with  the civil court only.

4. Criminal breach of trust :- To constitute the offence of criminal breach of trust there must be dishonest misappropriation by a person in whom confidence is placed as to the custody or management of the funds or property, in respect of which the breach of trust is alleged. There must be an entrustment, there must be misappropriation to one’s own use, or use in violation of any legal contract and the misappropriation or conversion of money must be with a dishonest intention. The principal ingredient being entrustment of property, dishonest misappropriation or converting to own use. A failure for breach of any obligation to account for the property entrusted, will justifiably lead to an inference of dishonest misappropriation.

5. Fraudulent Deeds :- Section 421 to 424 and 206 to 210 of the I.P.C. deal with fraudulently dealing with one’s property to defeat creditors. On an analysis it is seen that sections 421 to 424 deal with the following topics:-

(a) Fraudulent concealment of property in one’s possession. (Sn. 421 and 424 of IPC).

(b) Fraudulently preventing debt being available for creditors (Sn. 422 of IPC)

(c) Fraudulent execution of a deed of transfer (Sn. 423 of IPC)

(d) Fraudulent release of a debt (Sn. 424 of IPC.)

All the above frauds are, as the above sections indicate, committed without reference to any proceedings in court by means of transactions between individuals acting in collusion with each other.

6. Duty of Auditor to help Police :- Whereas a case of misappropriation of funds of a society is reported to the Police for investigation, it is the duty of the Auditor to render possible assistance in making out a case. As Co-operative accounts are of a technical nature, the auditor will be able to help the Police to a very great extent.

Reported Cases

1. Bad debt or loss to the society :- In order to term a particular amount as bad debt or loss to the society, it must be shown that it is irrecoverable and all reasonable attempts were made to recover it. Circumstances such as limitations, insolvency of the party etc., will have to be considered (M.C.T. 1964-Sohanal Vs. Melghat Agricultural Sale Society).

2. Payment of dividend out of Capital :-

Leeds Estate Building and Investment Co. Vs. Shepherd

Where there were no profit and dividends to share holders and fees and bonuses of the directors and the Managers were paid out of capital, the directors and even the auditor, who had certified the inaccurate balance sheet were held liable.

3. In P.R. Pai Vs. Malwan Co-operative Bank it has been held that if the management or a board entrusted with management were to act flouting the express instruction lawfully issued, and on a result of such action loss has resulted, the action can by no means be regarded as prudent or bonafide.

4. The bye-laws of Co-operative Society are in a way a document of incorporation of the society from which it derives its powers. As the society derives its powers from the bye-laws, it cannot appoint the Managing Director in the absence of the provisions in the bye-laws with regard to such appointment.

The observation of the Tribunal is as follows:

“The payment of honorarium or advance referred to above is certainly in contravention of the bye-laws and hence the same is illegal and invalid and the Defendant is not at all entitled to the same. The receipt of such amount is in the nature of misapplication of the funds and the Defendant is liable to refund the same. (M.C.T. Laxman Vs. Amalnor Peoples Co-operative Credit Society).