?Depositor who invests heavily does so at own risk? | india | Hindustan Times
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?Depositor who invests heavily does so at own risk?

THE STATE?S cooperative movement is under threat with mounting complaints of credit cooperative institutions cheating the gullible members. Several such people who had invested their life?s earnings are faced with the threat of losing their money as cooperatives after cooperatives ? as is being witnessed in Indore ? show signs of going into the red.

india Updated: Feb 09, 2006 13:22 IST
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THE STATE’S cooperative movement is under threat with mounting complaints of credit cooperative institutions cheating the gullible members. Several such people who had invested their life’s earnings are faced with the threat of losing their money as cooperatives after cooperatives – as is being witnessed in Indore – show signs of going into the red.

Registrar, Cooperative Societies, Malay Shrivastav, who has recently been made Urban Administration and Development Commissioner, tells Padma Shastri of steps taken to maintain the cooperative spirit. Excerpts

Q. What steps have been taken against cooperative societies working as banks without licence from Reserve Bank of India?
A few cooperative societies reportedly in Indore are doing banking business without the department’s or RBI’s approval. A cooperative bank duly licensed under Banking Regulation Act can certainly obtain deposits from non-members whereas a society can accept deposits only from its members. Madhya Pradesh Swayatta Sahakarita Adhiniyam, 1999 states that a cooperative may raise funds as equity capital, deposits and loans from members to the extent its byelaws permit.

To ensure that the cooperatives have not made any provision in their byelaws that run contrary to the Act, a circular was issued on 11.10.2004 to the departmental officials. Cooperatives are expected to amend byelaws if they are breaching the law. The office of the Registrar has sought report whether the circular has been complied with. If an organisation is violating Banking Regulation Act, the authority concerned may take suitable action.

Q. The equity could be upto 10 times of the deposit. If it exceeds this limit, then the deposits are not insured. Who will return depositors’ money in case of liquidation?
Borrowings by a cooperative are not related to the deposits. The equity forms the basis for its own capital and mainly entitles a cooperative to borrow. Deposits on the other hand are a liability and never form the basis of entitlement to borrow. Banking Regulation Act provides for liquid assets to be maintained by a bank while accepting deposits. Because such regulations are not applicable to a non-banking cooperative, they are not supposed to accept deposits from non-members. Deposit Insurance Corporation insures the deposits received by a banking organisation. There is no such provision for non-banking entity.

Q. The RBI says that it is not responsible for deposits. But cooperative bodies are taking deposits from non-members. Who will be responsible for refunding depositors’ money in case of liquidation?
It has already been pointed out that deposits from non-members should not be accepted. It appears that some cooperatives have exceeded the laid provisions. Their report is being sought.

As regards a society registered under Cooperative Societies Act, 1960, the Registrar or the divisional or district officer have authority to inspect, supersede, audit, remove or liquidate such bodies or the persons as may be the case. But Registrar has no interfering powers under 1999 Act. In such circumstances the other laws of the land duly step in to play.

Therefore if there is a cheating, forgery, breach of trust or misuse of power, the suitable provisions have got to be invoked by the aggrieved parties.

In respect of non-members depositing money with a cooperative not having a banking licence, the responsibility of refunding the depositors’ money lies primarily with the officers or office-bearers accepting them. In liquidation cases, the liquidator settles it by disposing of the assets.

A depositor being allured to invest heavily does so at his own risk. For disputes, relief has to be sought through Registrar under Section 64 of the 1960 Act, arbitration council or cooperative tribunal under the 1999 Act.

Q. Dissolved boards are running large number of cooperative bodies. Please comment.
Act 1999 provides for the cooperatives themselves to hold their elections. The 1960 Act does provide for the Registrar to hold elections. The cooperatives under 1999 law only submit returns to Registrar. Officials have been asked to ensure that returns are received on time and the cooperatives are suitably advised to act in accordance with the provisions of the law.

Despite clear instructions in 1999 Act, chartered accountants don’t mention in their audit report whether the board of directors has been freshly elected, whether liabilities have exceeded limits or whether the cooperatives can disburse social pension.

There is a nationwide demand that chartered accountants undertake the audit of all cooperatives. The audit staff in the cooperative department is inadequate. Cooperatives are expected to follow the law.

As regards, cooperatives undertaking jobs like disbursement of social pension, the cooperative principle of 1999 Act says that cooperatives enter into agreements with other organisations including government or raise capital from external sources, they do so on terms that ensure democratic control by their members and maintain their cooperative autonomy.

Q. The Department is not taking audit fees from cooperatives. Is it a loss to Government exchequer?
Section 51 of Act 1999 provides that the cooperatives registered under it may opt for an audit by chartered accountants. In such situation, the audit fee is not receivable by government. Even in case of cooperative societies registered under the 1960 Act, the audit fee payable to a chartered accountant is also not receivable by the government. There is thus no loss to Government exchequer in this respect.

First Published: Feb 09, 2006 13:22 IST