Sunday, 13 November, 2011



Instrument Executed by or on behalf of any Registered Co-operative Societies (G.O.MS) 795/60/Agri. dated, 8th October 1960
SRO No.75/60:-In exercise of the powers conferred by sub-section (1) and of section 35 of the Travancore Cochin Co-operative Societies Act, 1951 (Act X of 1952) and by sub-section (2) (a) and (2) (b), Section 30 of the Madras Co-operative Societies Act (VI of 1932) and in Supersession of all notifications issued on the subject,  the Government, of Kerala direct in respect of Co-operative Societies registered in the State as follows.
1.       The Stamp duty, registration fees and fees for encumbrance certificates payable under the Stamp Act and the Registration Act, in force in the State shall be remitted to the Co-operative Societies, in the following cases to the extent indicated in each case.
(a)     The whole stamp duty with which under the Kerala Stamp Act 1959 (Act 17 to 1959) Instruments executed by or on behalf of any registered Co-operative Society or instruments executed by “any Officer of such society or member in his own capacity or/and in the capacity of a Guardian of minor” and relating to the business thereof and decisions, awards or orders of the Registrar of the Arbitrators under the said Co-operative Societies Act.
(b)     One-half of all fees payable under the law of registration for the time being in force, in respect of any document executed by or on behalf of any registered Co-operative Society or by any officer of such society or member in his own capacity of a guardian of minor and relating to the business there of provided the fees at full rate shall be levied in respect of documents of the value exceeding Rs. Five thousand.
(c)     The whole of the search fees payable under Art XI of the table of fees prescribed under Section 78 of the Indian Registration Act 1908 (Act XVI of 1908) by notification No.G.O.(P) 687/66/RD dated 17th December 1966, in respect of applications for encumbrance certificate, made by the Land Mortgage Banks in connection with loans not exceeding Rs. Two thousand.
(d)       One-half of the search fees payable under Act XI of the table of fees prescribed under section 78 of the Indian Registration Act.  1908 (Act XVI of 1908) by notification No.G.O.(P) 687/66/RD dated 17th December
1966, in respect of applications for encumbrance certificate, made by the President or Secretary or the Managing Director of a registered Co-operative Society other than Land Mortgage Banks and in the case of Land Mortgage Bank by the President Secretary or Managing Director or by an officer not below the rank of an Inspector (or Supervisor where there is no Inspector) in connection with loans not exceeding Rs. Five thousand.

Note: 1.     (In clause (d) the word Managing Director has been substituted as per notification No.81174/C3/33/AD. Dated 3-4-1984)
          2.     The term ‘One half of all fees’ applies to all fees under the law of registration including.
          (1)   Fees for attendance at Private residences, Commission and the service of a female attendant at a private residence.
          (2)   Fees for appeals and enquires under section 35,41,72 and 73 of the Registration Act.
          (3)   Fees for attestation of power of Attorney
          (4)   Fine for late presentation and admission and safe custody of documents.
          (5)   Fees for memoranda and filing translations.
          (6)   Fees for copies of documents under section 65 of the Registration Act.
          (7)   Fees for excess pages used in copying in registers.

Remission granted under clause (c) applies in respect of applications from Co-operative Land Mortgage Banks for encumbrance certificates in connection with loans not exceeding Rs. 2,000 whereas concessions granted under clause (d) applies to application for encumbrance certificate in concession with Loans exceeding Rs. 2,000 but not exceeding Rs. 5,000.

Concessions in search fee under (c) and can be given irrespective of the fact whether the applications comprised properties situate in more than one village or result of the search disclosed more than the one ownership.

The concession granted cannot be extended to a document executed by a non member in favour of Co-operative Society or Land Mortgage Bank, even if presentation thereof is made by the President or any office bearer of such society or Bank.
Chitties or Kuries conducted by the Co-operative Societies the variola of which since come under Schedule 19 of Kerala Stamp Act is entitled to concession in stamp duty while no concession in fee is allowed for registration of the variola as the fees is prescribed under chitty Act and not under the law of registration (vide extract from Review of Inspection Notes of 1960 Page 40 & 41)

3.       Bill of Exchange, Cheques, Promissory notes, Bills of Lading, Letters of Credit, Policies of Insurance, Transfer of shares, Debentures, Proxies and receipt executed by or on behalf of the any Co-operative Societies are also exempted from stamp duty (Vide notification under Serial No.2)

No.ADL (3) 45416/64.     Office of the Registrar of Co-operative Societies
                                              Thiruvananthapuram, 27th October 1964
Sub :  Audit-Audit of accounts of wholesale Consumer Co-operative Stores-Instructions-Issued.
Consequent on the decision of the Government to entrust the Co-operatives wherever possible with the retail and wholesale  distribution of food grains, the business of the wholesale and primary Co-operative Stores has increased considerably and will continue to increase rapidly in future also.  Huge amounts are being lent to these societies under Government guarantee.  The need for prompt and efficient audit of these institutions has therefore become very important and the following instructions in this regard are issued to the Deputy Registrars (Audit).
Owing to the abnormal increase in the volume of transactions in the wholesale stores, the departmental auditor may not be able to check the numerous items in the sales chits and posting in the sales abstract and other subsidiary ledgers.  It  is therefore necessary to relieve the departmental auditor from such of the routine work which can safely be entrusted with internal checkers working under him and for this purpose it is suggested that an audit wing with one clerk (internal checker) for every four or five  branches may be created in every wholesale Co-operative Stores.  The cost of these clerks will be met by the stores concerned but they will work under the direct control of the departmental auditor.  This suggestion was approved of by the conference of President and Secretaries of wholesale consumer stores held on 26-101964 and the Secretaries of the Wholesale Stores are being addressed through the President to implement the suggestions and form audit wings by allotting the required number of Clerks to work under the Departmental Auditor.
The departmental auditor should himself check the following items and should on no account entrust the checking of these items to the internal checkers.
(a)     All items of receipts and vouchers with the cash book or day book.
(b)     All bills and invoices relating to cash or credit purchases.
(c)     Postings in the purchases, stock and issue register.
(d)     Personal accounts of merchants and others for purchases made by the stores.
(e)     All receipts of stocks into and the issue of stocks from the main godown.
(f)      All entries in the suspense assets and liabilities accounts.
(g)     All entries in the salesman’s personal account.
(h)     All entries in the Bank Accounts.
(i)      All entries in the borrowing ledger.
(j)      All entries in the general ledger.
(k)     Test check of the work done by internal checkers.

The following items of work may be entrusted to the internal checkers,
(a)     Checking of all sales chits with the sales abstract register.
(b)     Calculation of prices and striking of totals in the sales chits and sales abstract register.
(c)     Postings of the subsidiary ledgers.

The auditors should guard against the following common omissions and commissions in the maintenance of accounts in Co-operative stores, leading to misappropriations and fraud.
(a)     Inclusion of goods purchased on credit in the stock statement without creating a corresponding liability under sundry creditors.  This is a common fraud committed by unscrupulous office bearers to cover up the stocks misappropriated by them and also for showing on inflated profit.
(b)     For the supply of controlled rice and paddy the wholesale stores generally deposit large sums as advance with the Civil Supply authorities or with the suppliers at the production centre.  When goods against these advances pending also should be adjusted as value of the goods purchased.  If the sale proceeds alone were taken into account, without debiting the cost against the advances, the profits will be inflated.
(c)     In order to show a reduced cash balance sometimes the credit bills are converted into cash bills by correction or advantage is taken of a common bill for credit and cash sales (with cash/credit marked at the top) when neither of them is scored out to show clearly whether it is a cash or credit sale.  The Auditor should guard against such wrong entries made by unscrupulous employees.
(d)     Before verifying the cash balance, the auditor should verify the entries in the cash book up to the date of his visit with reference to the receipt, vouchers, cheque books etc., to ensure that all receipts have been brought to account and that no bogus payments are entered in it to show a reduced cash balance.
(e)     Before commencing the audit the auditor should go through the bye-laws of the society and note down the important bye-laws regarding constitution, working managements, etc.  He should also prepare a list of books maintained by the society and make a note, if any of the important books prescribed are not maintained and if there are cases of infringement of bye-laws.
(g)     While checking vouchers and receipts correcting and overwritings without proper attestation should be enquired into in detail.  The Auditor should examine whether the expenditure under establishment contingent and other charges are reasonable and are within the sanctioned limit.  An amount equal to the items objected under this head should be created as a liability also.  Heavy advances are being made to employees and purchasing agents for purchase which at times will be reimbursed in cash.  This would amount to temporary utilisation of the society’s funds and if there is any reason to believe that there is temporary swindling of cash in this manner a special report giving the details should be submitted.
(h)     The Auditor should check thoroughly all the entries in the purchase, issue and stock register and the actual balance of stocks under each description of the goods for which a separate folio is opened in the register should be tallied with the actual stock found on verification.  The cause for the deficit if any and the reasonableness of it should also be examined.
(i)      Under the double compartmental system, the maintenance of the salesman liability register is very important.  The retail stocks with the salesman should be verified at frequent intervals, at least once in a month. It should be examined
             (i) whether the salesman has remitted the entire cash collections every day to the Head Office.
             (ii) That the receipt of all articles from the Head Office is duly acknowledged by the salesman.  The Auditors should see that the accounts in the depots or branches are reconciled with the accounts in the Head Office.
(j)      The stock register of empty gunnies and empties are not properly maintained by many of the stores.  The Auditor should check those registers and see that the empties are properly accounted for by the stores.
(k)     The Auditor should also conduct surprise checking of the cash balances and certain items of stocks random as frequently as possible.
(l)      The balance due to the Government in the Civil Supplies Department and other suppliers by the stores as also the amounts due to the stores from Service Co-operatives and others should be verified by obtaining periodical confirmation statements from them.

The Deputy Registrars (Audit) will issue a circular on the above lines for the guidance of the departmental auditors appointed for the concurrent audit of the wholesale Co-operative Stores.

The Deputy Registrars (Audit) will acknowledge the receipt of this circular memorandum.
For Registrar of Co-opertive Societies

No.ADL (3) 32455/64.                                                       Office of the Registrar of Co-operative Societies
                                                  Thiruvananthapuram, 30th August 1965
Sub:      Co-operative Audit-Assessment of Bad and Doubtful Debts and other assets of Co-operative Societies-Criteria for estimating of-instructions-Issued.
Ref:  1 Letter No.ACD.Plan 202 PR.264-64/65 dated 28-7-1964
         2  G.O.Rt. 1593/65/Agrl. Dated 3-8-1965.
At the 26th meeting of the standing Advisory Committee on Agricultural Credit held on 10th April 1964, the Reserve Bank of India (Agricultural Credit Department) considered the various suggestions of the Registrars of Co-operative Societies in regard to the criteria for assessing Bad and Doubtful Debts and other Assets of Agricultural Credit Societies.  In the light of the recommendations made by the Committee, the Reserve Bank of India has finalised the criteria and requested the Department to adopt the same for the State.
Rules XLV of the Rules under the Travancore-Cochin Co-operative Societies Act 1951 (Act X of 1952) lays down the principle for assessment of bad and doubtful loan but there is no similar rule under the Madras Co-operative Societies Act.  With a view to enabling the adoption of a common criteria as suggested by the Reserve Bank of India in respect of societies governed by the Travancore-Cochin Co-operative Societies Act, the Sub Rules (1) & (2) to the Rule XLV under the said Act were amended in Government order cited as item (2) above.  Now it has been decided to adopt the criteria suggested by the Reserve Bank of India in respect of all Co-operative Societies in the State.  The following instructions are therefore issued to the Deputy Registrars on the matter.
1.       The criteria for estimating bad and doubtful debts and other assets of Co-operative Societies are set out in detail in the note attached to this Circular Memorandum.  The assessment of such debts will be made on the basis of criteria laid down in the Note.
2.       At present the auditors are assessing only the bad and doubtful loans leaving the other items of assets without assessment. The Note appended lays down the criteria for assessment of all items of assets including loans.  The classification of all items of assets as ‘doubtful’ or bad will therefore be done by auditors as explained in paras 9 to 11 of the Note.  The Deputy Registrar (Audit) will see that the criteria are adopted accordingly in Audit.
3.       The auditors should also be directed to tabulate the data as required in para 12 of the Note in the proforma appended and furnish the same along with Audit Reports.
4.       The Deputy Registrars (General) will issue necessary instructions to the societies in their Districts for the maintenance of books as suggested in para 13 of the Notes.  They will also see that these registers are properly maintained so as to enable the Auditors to make a correct assessment of the bad and doubtful debts.

The above procedure for assessment of debts should be adopted for the purpose of annual audit for 1964-65 onwards conducted after the date of this circular.
K. Narayanan
                                Registrar of Co-operative Societies


1.       The scope of audit has not been uniformly set out in all the states under the Co-operative Societies Act or the rules framed thereunder.  It generally includes the following:
              (a)     verification of the cash balance and securities;
              (b)     verification of the balance at the credit of the depositors and creditors and of the amounts due from the debtors of the society;
              (c)     examination of overdue debts, if any;
              (d)     valuation of assets and liabilities; and
              (e)     examination of the statement of accounts and balance sheets prepared by the managing committee of the society.

It must be emphasised that the audit report, to serve any useful purpose, should disclose fairly accurately the financial results of the dealings of the institution.  “It is the auditors duty in preparing the balance-sheet to see that all the assets which are shown in the books appear at their proper value, that they exist in fact and that no asset has been disposed of or charged in any way without the transactions being recorded in the books of the society.”  In this context, an examination of all loans due and their classification into good, doubtful or bad constitutes the most important duty of the auditor.  He has also to verify and take up valuation of the other assets including the amounts shown under “Sundry debtors” and see from the records available with the society whether any of the assets are irrecoverable wholly or in part or of such a doubtful nature requiring some provision for possible loss.


The assets of an agricultural credit society are created from its credit as well as non-credit activities.  The latter would include investment of fund in banks in deposit accounts, Government and Trustee securities, shares of Co-operative institutions, buildings, furniture and even lands acquired from members in satisfaction of their dues.  Further, a credit society may undertake more and more service functions such as distribution of production requisites, e.g. chemical fertilizers, implements, etc. and essential consumer articles.  These functions may have been undertaken purely on an agency basis or on the society’s own account.  In the former case, the society does not invest its funds but is held responsible for the custody of the stocks entrusted to it and the remittance of the sale proceeds as and when the goods are sold.  In such a case, it would be necessary for the auditor to examine the terms of the agreement entered into by the society with the marketing society or any other institution from which the goods have been obtained and determine the extent of liability of the society, if any, and whether the liability has been fully provided for by a realizable asset.  In particular, it has to be examined as to who would be liable for the loss due to deterioration arising from the goods having remained unsold for long.  Where the auditor finds that the society would, in terms of the agreement, be held liable for the loss then a suitable provision would be necessary.  Where the society has invested its funds for undertaking the activities, it would be necessary for the auditor to verify as to what extent the assets do really exist and whether there has been any depreciation in the value of the stock in trades with reference to the current market prices.  Where the estimated market value of the goods held is less than the amount invested and shown in the balance-sheet, the difference would have to be treated as a bad asset.

As regards the other assets of an agricultural credit society, the auditor will have to bear in mind the following points while verifying and valuing them.

(a)     Cash in hand
Any difference between the cash balance as shown by the books of the society and the actual cash balance will have to be investigated in detail. If the difference is due to misappropriation by an office-bearer or an employee of the society the amount that is likely to be recovered from the person concerned will have to be ascertained in the light of his financial condition and the security, if any, held. The amount that is not likely to be recovered will have to be created as a bad asset.
(b)     Balance with banks
Agricultural credit societies keep a part of their funds in deposits with banks which are approved by the Registrar.  Ordinarily, the societies are required to keep their funds only with the central banks to which they are affiliated but in some cases they may have been permitted by the Registrar to do so with commercial banks.  In cases where the banks with which the fund have been kept have gone into liquidation, the auditor may treat the entire amount with such banks as “doubtful” in the first instance and after getting confirmation from the liquidator regarding the amount that the society may realise he may classify the unrealisable part as “bad” asset.

(c)     Investments
         (i) Shares :- Societies are required to invest a part of their owned funds in the shares of the central co-operative bank.  They are also required to buy shares of co-operative marketing societies.  In some states the societies have also invested in the shares of other Co-operative  institutions like co-operative sugar factories, co-operative printing presses, etc.  The auditor will have to verify these investments and see whether the society holds shares of co-operative institutions which have already gone into liquidation or which are functioning in a very bad way.  The “break-up” value of the investments in such cases will have to be worked out.  The difference between the paid-up value and the break-up value of such investments will represent a bad asset.  However, the shortfall in  the break-up value in relation to cost may be ignored during the first three years  following the commencement of functioning of a new co-operative venture.
         (ii) Government and Trustee Securities :- Societies may have also invested a part of their funds in Government and Trustee securities.  Such investments will have to be physically verified.  The auditor will have to satisfy himself that the endorsement on the securities are in order, and that interest is collected on them periodically.

(d)     Other investments
The auditor will have also to examine the other investments of the society such as those made in “Building”, “Furniture”, “Land”, etc. and see whether adequate depreciation has been allowed on such investments.  In the case of “Buildings” as also “Land” acquired in satisfaction of claims; the title to the property will have to be carefully examined to see that it is clear and free from any encumbrances.
(e)     Sundry debtors
In most societies the assets side of the balance sheet includes a certain sum under the head “Sundry Debtors” or “Adjusting Heads”.  This item may include amounts advanced to office-bearers for attending meetings, etc. account for which may not have been rendered, amount recoverable from members in respect of goods supplied to them on credit, certain items of expenditure which have not the sanction of the requisite authority, etc.  In some cases the item may even conceal fictitious assets.  The auditor will have to carefully examine all the items under this head and particularly those that have been outstanding for long.  Where it is found on the basis of such a scrutiny that there are items which are not realisable then to that extent the amount shown under the head will have to be treated as bad.
In the valuation of the various assets listed above, the auditor may, in certain cases, find that the realisability of the amount is in doubt.  At the same time he may not be reasonably certain that they will turn out bad.  For instance, an office-bearer or an employee of a society may have misappropriated some funds of the society. He may be a person of means and if legal proceedings are instituted the amount can be expected to be realized.  But the society may not have all the necessary evidence to firmly establish the case and there may be a chance of the office-bearers’ or managers’ acquittal. Similarly, a society may have invested its funds in shares of a co-operative sugar factory. The factory may not have declared dividend year after year.  But there may be chances of reviving it under proper management, for which necessary steps are being taken.  In such cases the fall in the value of the investment may be considered as doubtful.  To the extent assets or parts there of in the opinion of the auditor, are doubtful of realisation, they have to be treated as “doubtful assets”.
The major activity of an agricultural credit society relates to “loans and advances”.  As indicated earlier, classification of these as good, doubtful or bad is an important duty of the auditor. Bad and doubtful debts may be generally defined as follows:
A bad debt is one which is considered to be irrecoverable.  Such a debt may have to be written off from the reserves since it is ascertained and reckoned as bad debt after all possible methods of recovery have been tried and proved futile.  A doubtful debt is one, the recovery of which, in whole or in part, is uncertain.  A prudent institution would make provision against them.
Although there does not appear to be uniformity in the instructions in force in the different States in regard to the classification  of a debt as bad or doubtful, two main considerations viz. Security behind the debt and the default in the repayment of the debt on due date have been uniformly emphasized in estimating bad and doubtful debts.  If the security is reduced to nil and the debt is outstanding for a fairly long period there is every chance of the debt turning bad.  If, however, the security has been impaired and the outstanding amount is overdue for a period which is not too long the debt may be termed doubtful.  It becomes necessary, therefore, to examine the security behind the loan and also the period of the overdue loan to determine whether a debt is bad or doubtful.  These two aspects of the matter are discussed below.
(a)     The security obtained by agricultural credit societies may broadly fall under one or more of the following categories;
           (i)  personal surety of one or two other members;
          (ii)  charge against crops;
         (iii)  land, either by obtaining a declaration under the Co-operative Societies Act or a regular mortgage;
         (iv)  pledge of produce; and
          (v)  pledge of jewels.

In regard to categories (iv) and (v) above, the auditor will have no difficulty in examining whether the security obtained is adequate or not as the security can be verified physically and their value worked out reasonably well. A careful scrutiny of the security falling under (i) to (iii) should be made.  Where loans are made on the personal security of a member supported by one or more other members acting as sureties, the auditor will have to ascertain, by reference to the normal credit statement of the property (haisiyat) register whether the borrower and his sureties have sufficient assets and repaying capacity. The security in the form of charge against the crops raised is very difficult of enforcement since the moment the crops come out of the field it would be difficult to establish that the crops with the members are those that have been raised on his land out of the loan provided by the society.  Where land has been obtained as security, the auditor will have to see whether the declarations obtained have been duly recorded in the village records according to the rules framed therefore, and where regular mortgage have been obtained whether the deeds have been duly registered and that there are no prior encumbrances.  The auditor should see whether the property provides adequate security on the basis of land values obtaining in the area.
(b)  The age of the overdue loan is another important aspect to be looked into.  Prima facie, the longer the period of the overdue loan, the greater is the chance of its becoming doubtful or bad.  The auditor will have first to satisfy himself that the overdue position of loans has been correctly worked out and that no attempt has been made to conceal the real position of overdues by resort to book adjustments or unauthorised extensions.  Where it becomes necessary, the auditor should arrive at the correct age of an overdue loan by ignoring book adjustments and unauthorised extensions.  After the list is prepared for all loans overdue for more than 3 years, the auditor should proceed to the examination of the security.  If this reveals that the security is of doubtful validity or has been impaired, it will be easy for him to classify the debt or a portion of it as good, bad or doubtful.  Very often such a scrutiny may bring to light cases of fraud, misappropriations benami transactions, alienation of property, non-disbursement of loan and such other irregularities.
The classification of debts as good, doubtful or bad, thus, will have to be preceded by an intensive examination of the debts in the light of the two major considerations indicated above.  No hard and fast criteria can be laid down in this connection because of the peculiar nature of co-operative advances based as they are on the anticipated crop and on the character of the borrower and that of his sureties.  However, a careful enquiry into the cases of default by the auditor ought to help in finding out what part of the debt is likely to turn out “doubtful” or “bad”.  The auditor will have, therefore, to list out all cases of loans which have fallen overdue, and also of those whose due dates have been extended without justifiable reasons.  As indicated earlier, the age of the overdues will serve to indicate the extent of damage that the society has (or is likely to) sustain. The overdues will have therefore to be classified period wise, i.e. those overdue for less than a year for less than two years and so on.
Ordinarily loans which are overdue for less than one year need not cause much alarm.  The crops during the previous year may have failed or the member may have utilised the sale proceeds of this crop to meet certain unforeseen expenditure.  But the member may be honest and can be expected to as he very often does, repay out of the next harvest.  It may not be necessary therefore, for the auditor to treat any part of such debts as doubtful of recovery.
When the member fails to repay the loan even after the second harvest then it indicates that all is not well with him.  The default may have occurred either because the crops have failed during the second successive season or because the member has no intention of meeting his obligation to the society on the due date. If it has arisen due to bad season there is every likelihood of the society recovering the dues out of the next harvest which may turn to be good.  But if the default is due to the wilful neglect of the member, the auditor will have to explore the possibilities of the recovery for this, i.e. will have to see whether the loan is supported by a bond and whether the managing committee has taken any action against the member.  The past dealings of the member with the society may serve to indicate the character of the borrower.  The assets and/or the income of the member and of his sureties, if any, will have to be ascertained to find out whether the loan is covered by sufficient security and/or is likely to be recovered if action is pursued.  If the loan is unsecured or insufficiently secured and the Managing Committee has not taken action against the member, it may be treated as “doubtful” in the first instance to the extent of the deficiency in the security.
When an overdue loan gets into the third year it is an indication that the society’s funds are getting “frozen” and that timely and energetic action is called for recovering the loan.  The auditor will have to see whether loan is supported by a pronote, which is not time barred. The period of limitations is three.  (The period of limitation is based on the general law of limitation.  Where there is specific provision in this regard in the Co-operative Societies Act, the period of  limitation may be computed accordingly) years from (i) the date of the pronote in the case of one payable on demand, (ii) the due date for repayment in the case of a pronote payable in lump sum and (iii) the due date of each instalment in respect of that instalment in the case of a pronote payable in instalments.  If the pronote has been registered, the period of limitation is six years instead of three years.  Where a payment of principal or interest against any loan is noted on the bond and acknowledged by the member (and his sureties) a fresh period of limitation begins from the date on which such payment is made.  It is necessary for the managing committee of the society to institute arbitration proceedings before the bond gets time barred.  Where a loan is also secured by “mortgage” of land, it is also necessary for the society to proceed against the property before the mortgage deed gets time-barred.  The period of limitation for enforcing the mortgage right is 12* years from the due date.
The auditor will have to see whether the committee of the society has instituted action before the documents get time barred.  He will have also to see whether the member (and his sureties) has sufficient assets from which the dues can be recovered.  Where it is observed that a portion of the debt is likely to be recovered, the other part may be treated as doubtful.  Before doing so, however, the auditor may also examine the operations against the loan account of the member to see whether the member has been making any, although small, part payments.  Such payments serve to indicate the intentions of the member to meet his obligations to the society.  Where such part payments are being made, the society may be able by bringing moral pressure to recover the dues.  In such cases the debts may be treated as good.  It may be useful also to examine the operations against the loan accounts of the sureties of a member who has defaulted to the society.  If such operations are satisfactory, it is safe to observe that society will very likely be able to recover the dues against the member, if the managing committee institutes action against the member and his sureties.


The need for a close scrutiny of the documents supporting the loan is greater in the case of debts which have fallen under this class.  The bonds in those cases may have ceased to be alive rendering legal action against the member difficult.  The managing  committee in such cases will have only to look to the good sense of the member either to pay or to execute a fresh document.  Where the bond has become time barred, the auditor will be justified to treat the debt as “bad”.  In other cases, i.e. where the bonds are not time barred, the auditor will have to examine the operations against the loan account to see whether any part payments are at all being made.  The security behind the loans should also be examined to see whether it is adequate and enforceable.  Where the position is found unsatisfactory i.e. where the loan is not properly secured or where the security offered is defective and cannot be proceeded against such as where a prior encumbrance on the property is found to exist or where the property given as security has gone down in value for a variety of reasons, and where timely action has not been taken against the member (and his sureties) and it is feared that this has diminished the chances of recovery of the debt, the auditor may treat the loan as doubtful.

It will be difficult to lay down precisely as to when a loan should be considered as “bad” as distinguished from “doubtful”.  It will very largely depend upon several factors which will have to gone into in each individual case. These will include, the character of the member and of his sureties, the security behind the loan, action taken by the managing committee against the member (and his sureties) for recovering the dues. Ordinarily, an overdue loan may be considered as “bad” if it had been treated as “doubtful” during the preceding two years.  But instances may also arise where the managing committee has instituted action against the member and his sureties but for some reasons or other there has been delay in executing the decree.  Such debts may continue to be shown as “doubtful”.  In cases, however, where the member has died leaving no property and the sureties shave also no property or income to pay the dues, the bond and the security obtained from the member have become time barred and have therefore become unenforceable or the managing committee has not taken any action against the member who has been in default for over three years, the loan may be treated as “bad”.  A prudent society will have to build up a reserve to the full extent of such bad debts.

To sum up, the auditor may generally classify a debt as “doubtful” or “bad’ under the following circumstances.


Where the loan is overdue for a period exceeding one year and the Managing Committee has not taken action against the member and there is reason to believe that the default is due either to the wilful neglect of the member or to failure of crops in successive seasons affecting his repaying capacity, it may be treated as “doubtful” to the extent of the deficiency in the security.

10.     BAD  DEBTS

(a)     Ordinarily, a debt which had been treated as “doubtful” during the preceding two years may be treated as “bad” if it is observed that the Managing Committee has not taken any action against the member and the member has also not shown any indication of meeting his obligations to the society.
(b)     In circumstances such as the following.
          (i)   Where the member and his sureties are declared insolvent or have died leaving no property;     
          (ii)  where the member has left the area of operation of the society, has no property and the sureties have also no property or income to pay the dues;
          (iii) Where the debt has not been recovered even after an award had been obtained and the execution proceedings instituted have proved futile;
          (iv) When the bond (or the document) obtained from the member has become time-barred and has, therefore, become unenforceable.

While actually estimating the bad and doubtful debts due from a member such amounts as the share money or deposits of the member with the society may be deducted and the balance alone considered as bad or doubtful, as the case may be, provided the Co-operative Societies Act permits the societies setting off the share money and deposits of the members against his dues.


In order to have a degree of uniformity in the presentation of data regarding bad and doubtful debts, the auditors may be advised to tabulate the data as shown in the Annexure to this note.


To facilitate the assessment of bad and doubtful debts by the auditors it is essential that the co-operative societies should maintain all their books duly posted.  In particular, the Haisiyat or “assets” registers of members, surety registers, record of pronotes, arbitrations etc. should be kept up-to-date.  The societies should also maintain systematic records to indicate the progress in the execution of awards.  They should obtain pass books or statement of accounts from banks with which deposits are kept. Certificates in respect of their investments in the shares of central banks, marketing societies etc. should be available for scrutiny by the auditor at the time of audit.

................................Co-operative Credit Socity
Classification of debts under “bad” and “doubtfal” as at the end of the year 196
Account No.
Name of the member
of loan
Amount outstanding
Of which overdue
Period for which it is overdue
Nature of security*
Amount considered
Doubtful         Bad
Reason for doing so

*   Indicate here.......................................
‘Personal’, land, building , etc.

Kerala Destruction of Records Act- Rules for the destruction of records relating to arbitration reference, revision petitions, execution petitions etc., under section 2 (c) of the Act issued
(Agriculture – Co-operation)
G.O.M.S.543/65/AD  Dated, Trivandrum, 20-9-1965
Read:   Letter No.G 2. 2625/65 dated 5-8-1965 from the Registrar of Co-operative Societies.
In the Kerala Destruction of Records Act 1961, it has been laid down in section 2 (2) (c) that in the case of documents in the possession or custody of any public office other than the High Court or the Board of Revenue the Government or the Head of the Department concerned or any officer specially authorised in that behalf by the Government are competent authorities to make rules for the disposal of documents.
2.       According to Rule XL(1) of the Rules under the Travancore Cochin Co-operative Societies Act and Rule XVII (1) of the Rules under the Madras Co-operative Societies Act, records and books of a Society which has been wound up and the final proceedings of liquidation will be destroyed by the Registrar after the expiry of three years from the completion of liquidation. The rules do not say anything about the destruction of the records relating to Arbitration and Execution cases. The Registrar of Co-operative Societies has therefore reported that it is desirable to prescribe rules for the destruction of records relating to Arbitration references, revision petitions, execution petitions etc.,  under section 2(2)(c) of the Kerala Destruction of Records Act. The suggestion of the Registrar of Co-operative Societies is accepted. Government approve the rules appended for the destruction of the records relating to Arbitration and Execution cases under section 2 (2) (c) of the Kerala Destruction of Records Act 1961,
By order of the Governor
V. M. Sankunny Nair
Assistant Secretary
Rules for the disposal, by destruction or otherwise of records relating to arbitration references, revision petitions, execution petitions under sub section S (1) and (2) (c) of the Kerala Destruction of Records Act 1961,
1.       The arbitration records kept in the office of the Registrar of Co-operative Societies and/or the office of the Deputy Registrars of the Districts may be destroyed, under the specific orders of the Registrar of Co-operative Societies, if the debts covered by such arbitration awards are fully satisfied and after the expiry of a period of 3 years from the date of complete satisfaction of the awards.

2.       The records relating to Execution Petitions under Section 57A of the Madras Co-operative Societies Act or those relating to Execution Petitions under Section 63 of the Travancore-Cochin Co-operative Societies Act may be destroyed on the expiry of 6 years after the complete satisfaction of the decree or award or on the expiry of 15 years from the date of the decree or award sought to be executed whichever is earlier.

Provided that decree or awards under execution shall be allowed to continue without being destroyed, even if the period of 15 years mentioned in this rule is executed.

3.       Records relating to Revision Petitions may be destroyed after the expiry of a period of  12 years from the date of judgement of the revision petition.

4.       Before the records described in the foregoing rules are destroyed, a list of such records shall be prepared. The list shall contain the description of the records sought to be destroyed, with a certificate by the Deputy Registrar of Co-operative Societies and with a certificate from the concerned Deputy Registrars in the office of the Registrar of Co-operative Societies (Deputy Registrars (Administration), Planning, Credit and Farming and Harijan Welfare as the case may be)  and it shall be put to the Registrar. The Registrar will review the lists with the certificates and may pass orders for destruction if he is satisfied about the necessity for such destruction.

5.         Notwithstanding anything contained in the foregoing rules, it shall be competent for the Registrar of Co-operative Societies to withhold any records from destruction for valid reasons. But before doing so , he shall record in writing the reason or reasons for such action.

No.ADL (3)-21070/66.                                                       Office of the Registrar of Co-operative Societies
                                              Thiruvananthapuram. 7th June 1966
Sub:   Audit-Conference of Departmental Officers held on the 25th, 26th and 27th April 1966 - Points relating to audit instructions-Regarding.
Ref:   Endorsement on G2-19101/66.
The following further instructions are issued to the Deputy Registrars with regard to the decisions made relating to ‘Audit’ (item 15 of the Minutes).
1.   Summary of Defects
The Deputy Registrars (Audit) should devote more attention in improving the quality of audit.  It should be noted that while preparing the Summary of Defects, the auditors should point out all important and serious defects while at the same time care should be taken to see that all sorts of unnecessary and flimsy objections and making personal attacks against non-official directors are avoided.  The Deputy Registrars (Audit) will issue necessary  instructions to the Auditors in this regard.
2.       Regarding the issue of Audit Certificates by the Assistant Registrars, and the Audit reports to be forwarded to Registrar’s Office, the Deputy Registrars (Audit) should strictly adhere to the instructions issued under item 15 of the Minute of the Conference.
3.       Salesman’s Liability Registers
It was pointed out that salesman’s liability Registers are not being maintained in the societies having ration business, and that double compartmental system of accounting is not introduced in such societies.  The Deputy Registrars (General)  are requested to issue necessary instructions and see that double compartmental system of accounting is introduced for the non-credit business in all such societies.  They will also instruct the societies to maintain Salesman’s Liability  Registers written up properly and up-to-date.
4.       Valuation of Closing Stock.
The valuation of closing stock was also discussed and it was resolved that transporting charges also should be added to the cost price.  The Deputy Registrars (General) will issue necessary instructions to the societies concerned to apportion the transporting charges and to add it to the closing stock for purposes of valuation of closing stock.
5.       Audit Defects Rectification Register
As resolved in the conference the Deputy Registrars (General) will issue necessary instructions to the societies, to maintain an Audit Defects Rectification Register so that the auditors may point out the defects noted in audit then and there and to see that the defects are brought to the notice of the Board of Directors promptly and that all the unrectified defects are brought to the notice of Deputy Registrars (Audit).
For Registrar of Co-operative Societies

No. ADL 2-19189/67/R.Dis.                                               Office of the Registrar of Co-operative Societies
                                                  Thiruvananthapuram, 9th May 1967
Sub:   Audit classification of Central Banks-Assessment of short term liabilities and short term assets-Instructions issued.
Ref:   Letter No.ACD/OPR/7616/A22-66/67  dated 28-4-1967 from the Reserve Bank of India.
Certain norms have already been prescribed for the audit classification of Central Banks.  One among them is the assessment of “short term liabilities” and “short term assets”.  It has been observed that no uniform procedure is seen adopted by the Central Banks in the assessment of short term liabilities and short term assets.  In order to enforce a uniform procedure in this regard, the following further instructions are issued, in consultation with the Reserve Bank of India.
Short term liabilities will include:
                (i)     Current deposits.
                (ii)    Savings deposits.
                (iii)   Call deposits.
                (iv)   Fixed deposits matured but not claimed.
                (v)    Fixed deposits maturing within the next twelve months and
                (vi)   Loans and advances repayable within the next 12 months.
          Short term assets will include the following items:
                (i)     Cash in hand
                (ii)    Balance with other Banks in current Account, and balance in Savings Account.
                (iii)   Investments matured.
                (iv)   All investments in Government securities.  (irrespective of the period of maturity)
                (v)    Other investments maturing in the next 12 months and
                (vi)   Loans and advances (excluding overdues) falling due for repayment within the next 12 months.
Registrar of Co-operative Societies

1 comment:

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