This piece was meant for usual cooperative query section. But it reflects a few questions which are turning out to be bane of our housing co-operative society in recent times. Thus we have decided to front-page this piece. A reader Mr Vijay Menon has raised certain questions which our Columnist Mr I C Naik has painstakingly answered. We are sure general readers are going to benefit from this-Editor
I stumbled upon your contact while browsing the net for certain information related to Co-operative Housing Society issues. I’m an Associate Member of a Co-operative Housing Society in Navi Mumbai. I used to be secretary for 3 yr tenure from 2012 to 2014. Now with the rule Associate Member cannot contest election, I had to opt out in the election held early this year.
A matter of concern for me in my society is that most of the right minded members are either now old or not interested in taking active part in the society affairs since the beginning of the society around 30 years ago. Therefore few members have always remained in the committee forming a coterie and managing the affairs to suit their interest.
They have even committed illegalities like encroaching onto society passage space which have gone unchallenged because rest of the members did not bother as some of them were also allowed this luxury of taking some space from the passage into their flat. Some members including those from the Managing Committee have converted illegally their open terrace into bedroom and other utility spaces.
A major malpractice that has been going on for the last several decades is favouring just one Contractor for all major work in the society running to several lakhs of rupees. A tender is first floated in the newspaper when a work is planned and later this favoured contractor is asked to quote little lesser than the quotes of the other bidders and the contract is awarded to him. This has been going on from the inception of the society.
One man who has been in the committee since its formation and still continues as Chairman manages the coterie and does all the manipulation of tendering process. During the period 2012-2014 while I was the secretary he was there as the Chairman. However, he couldn’t do much as I managed to get couple of new honest members who supported me and as such we could keep this favourite contractor of the Chairman away from all society work. Now that I’m out of the committee, the Chairman has managed to get some members who are willing to go by his bidding. Out of the 8 members 7 are with him and the lone member has been resisting his policies to no avail.
Now a major work costing approx. 8 lakhs for roofing the terrace for protection from rain water seepage was under consideration and as usual tender was invited and the Chairman’s favoured contractor awarded the contract from among 14 bidders. The lone member who resisted this has been side tracked and Work Order issued and work begun.
The main reason for this particular contractor being unanimously favoured by successive managing committee members for the last several years is that at any given point of time majority of the members in the committee are those who are predisposed to his selection because of their personal association with him as all of them hire him for interior and other personal work in their respective flats. In the current committee 7 out of 8 members have hired him in the past and still continue to engage him for their personal work. As such a conflict of interest is very much evident in the selection of this contractor.
The undersigned and the lone member who has resisted this favouritism to the same contractor are at a loss to understand the process to get this work stopped at the earliest possible. Can you please help us by guiding us to the appropriate process and procedures to have this illegal work stopped without any delay?
Thanking you in advance for your help and guidance.
I C Naik
The management characteristics so patiently narrated by you are chronic and well meaning member like is definitely caught between the devil and the deep sea. The Committee comprised of majority members having mutual interest with a major vendor of the Society is a situation not a rarity but it goes unchallenged for a pretty long time because of indifferent membership (the deep Sea). But as I can see, for exceptions like you and your friend have an opportunity to do some great service to the indifferent membership. This is because the State’s approach towards cooperatives is poised for a dramatic change after the Constitution ( 97th Amendment ) Act 2011 (97CAA) especially after the first comprehensive analysis of what 97CAA means to Indian Cooperative Movement in CIVIL APPEAL NO. 3047 OF 2015 Chairman Vipulbhai M. Chaudhary Vs. GCMMF dated 19 2 2015].
[ http://www.scdecision.in/volume/42/494 ] Consequent upon this Constitutional amendment the M C S Act 1960 had to be perforce amended vide the Maharashtra Cooperative Societies (Amendment) Act 2013 making audit provisions far more stringent as compared to earlier. www.indiancooperative.com sincerely wish and offers best wishes to you to take this opportunity. We give below idea of stringent audit provisions for you and your friend to understand digest and get worked up to take bull by horn.
1.Stricter audit report specifications and auditor’s obligations for filing FIR against the delinquent management members are nw made part of auditor’s job with a threat of disqualification as an auditor.
2.Newly inserted Clause (e) of Sub-Section; 1 of Section 81 reads as under;
(e)The auditor’s report shall have,—
all particulars of the defects or the irregularities observed in audit and in case of financial irregularities and misappropriation or embezzlement of funds or fraud, the auditor or the auditing firm shall investigate and report the modus operandi, the entrustment and amount involved ;
accounting irregularities and their implications on the financial statements to be indicated in detail in the report with the corresponding effects on the profit and loss;
the functioning of the committee and sub-committees of the societies be checked and if any irregularities or violations are observed or reported, duly fixing the responsibilities for such irregularities or violations.
3.Further the Registrar has been given more powers by the Maharashtra Cooperative Societies (Amendment) Act 2013 inserting two clauses (b) and (c) in Sub-section 3 of Section 81 reading as under:
“(3) (b) If the Registrar has reason to believe that there exists an element of fraud, misapplication of funds, manipulation of the accounts and the accounts of the society are likely to be tampered with, thereby causing loss to the society, he shall be competent to depute Flying Squad to a society or societies for examination of books, records, accounts, and such other papers and for verification of cash balance. The report of the Flying Squad shall be treated as sufficient evidence for further action, if any..
“(c) If it is brought to the notice of the Registrar that the audit report submitted by the auditor does not disclose the true and correct picture of the accounts, the Registrar or the authorised person may carry out or cause to be carried out a test audit of accounts of such society. The test audit shall include the examination of such items as may be prescribed and specified by the Registrar in such order.
4.The Audit provisions are made much more stringent by inserting several Provisos to Sub-Section; 5(B) of that Section;
Provided that, where the auditor has come to a conclusion in his audit report that any person is guilty of any offence relating to the accounts or any other offences, he shall file a specific report to the Registrar within a period of fifteen days from the date of submission of his audit report. The Auditor concerned shall, after obtaining written permission of the Registrar, file a First Information Report of the offence. The auditor who fails to file First Information Report, shall be liable for disqualification and his name shall be liable to be removed from the panel of auditors and he shall also be liable to any other action as the Registrar may think fit:
Provided further that, when it is brought to the notice of the Registrar that, the Auditor has failed to initiate action as specified above, the Registrar shall cause a First Information Report to be filed by a person authorised by him in that behalf:
Provided also that, on conclusion of his audit, if the auditor finds that there are apparent instances of financial irregularities resulting into losses to the society caused by any member of the committee or officers of the society or by any other person, then he shall prepare a Special Report and submit the same to the Registrar along with his audit report. Failure to file such Special Report, would amount to negligence in the duties of the auditor and he shall be liable for disqualification for appointment as an auditor or any other action, as the Registrar may think fit.”
5.Sub-Section; 5 (B) has also been amended providing that ‘The auditor shall submit his audit report within a period of one month from its completion and in any case before issuance of notice of the annual general body meeting’
6.The managing committee is required to file audit error rectification report to the Registrar within 3 months and to place it before next annual general meeting. The amended provision reads as under:
“If, the committee of a society fails to submit the audit rectification report to the Registrar and to the annual general body meeting, all the members of the committee shall be deemed to have committed an offence under section 146 and accordingly shall be liable for penalty as provided in section 147. Where the society concerned is a member of a federal society, such order of imposition of penalty shall be made after consulting the State federal society concerned:
Provided that, the Registrar or the person authorised by him shall scrutinise the audit rectification report accordingly and inform the society about such report within six months from the date of receipt thereof:
Provided further that, it shall be the responsibility of the auditor concerned to offer his remarks on the rectification report of the society, item wise, till entire rectification is made by the society and submit his report to the Registrar:
Provided also that, such federal society shall communicate its opinion to the Registrar within a period of thirty days from the date of receipt of communication, failing which it shall be presumed that such federal society has no objection to the proposed action and the Registrar shall be at liberty to proceed further to take action accordingly.”
7.Sections 146/147 have been amended to insert a penal provision under new clauses l-l namely;
‘(l-l) the Committee fails to submit audit rectification report to the Registrar and the annual general body meeting as per section 82’ AND “(l-1) if it is an offence under clause (l-1) under that section, with fine which may extend to five thousand rupees
It is a challenge to act upon these provisions. But Cooperatives is founded on self help. So help your- self. We are with such bold cooperators.