One need to know what refuge area is. In a layman’s language, it is a safety area provided in a high rise building. As the name suggests, it is an area specifically demarked in any commercial or residential building where people can take shelter in case of an emergency. At times, the rescue forces failed to fight emergencies related to fire with a number of cases in the past. Not only do the fire fighting personal had a hard time reaching the central location of the fire in case of a high floor, it also put lives of residents especially children and elderly at grave risk.

It is dreadful fact that Chief Fire Officer, Fire Brigade Department, Mumbai has declared over 500 high rise buildings in the city as violators of safety norms where the mandatory refuge floors are either missing or locked. As a rule, the door to the refuge area should never be locked as also the space must be easily accessible in an emergency. The builders are required to clearly demark the refuge area with a door and sign board clearly mentioning such area as refuge area. The sign must be painted in luminous paint. Any lifts or staircases should not open in the refuge areas.

In over 60 per cent of the buildings the refuge areas are either being used for parties or for community cooking. Some have opened gymnasiums and health clubs while others are using it as storage or recreation areas. The worst use of the refuge area is to throw garbage in.

It was also found that the builders conveniently converted the refuge area into flats and sold them at very lucrative prices. Another building in one of the central suburbs was found guilty of an offence that the entire building has no refuge area whatsoever.

Numerous builders and developers were found guilty of demarking a large chunk of area under refuge areas to get clearance and later sold them at lucrative prices to various residents for their personal use. With an increase in the number of cases of misuse of refuge areas, the Government redrafted the basic guidelines for refuge areas in accordance with the modified Development Control Rules known as DCR introducing stringent provisions for fire-fighting and curb misuse of these areas by developers by manipulating and misusing certain portions of their towers.

The State Urban Development Department issued the notification that in case the height of the building in more than 30 meters, the first refuge area must be located at 24 meter mark or the 1st habitable floor which is higher. After the first refuge area, every 7th subsequent floor must have the same refuge area in the building.

As per the prevalent rule, the refuge area is restricted to a maximum of 4% of the habitable floor area it serves. The calculation of the refuge area is considered free of FSI. If however the refuge area exceeds the limit of 4%, then the refuge area so exceeded will be calculated under FSI which is the ratio of permissible built up area compared to the total size of the plot.

For buildings having a height of more than 70 meters or 24 floors, the law has introduced a provision for an alternate refuge area. The alternate refuge area can be provided as reinforced cement concrete cantilever projections at the every alternate mid-landing level of staircase. The minimum width for such alternate refuge areas has been fixed at 3 meters and minimum area to be covered is limited at 10 sq. meters for residential buildings and 15 square meters for the commercial buildings.

It is interesting to know that in the past, the Municipal Commissioners were extremely enthusiastic (!!!!!!) to sanction entire floors as refuge areas which the builders then misused the same for commercial gain. In one landmark residential tower near Worli Naka, one of the then Municipal Commissioners sanctioned a refuge area of 550 sq. ft outside every apartment!!!!!!!

Under the prevalent law, in high rise buildings up to 30 meters height, the terrace floor of the building is treated as the refuge area. A fire check floor in a building having height of more than 70 meters is mandatory. It will cover an entire floor at every 70 meters level.

The refuge area is not only used to rescue the resident members but also to struggle with fire hazards. Hence, the residents must be aware of importance of this life saving provision and be careful not to allow any misuse of the same.

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In the year 2003, the Special Bench of the ITAT, Mumbai, had delivered a judgment in the case of Walkeshwar Triveni Co-operative Housing Society Ltd. Vs. ITO [2003] 80 TTJ 673 (Mumbai) (SB), which had generated lot of controversy in the legal circles. This judgment disturbed the well settled legal position in respect of the tax treatment regarding the Transfer Fees received by a Co-operative Housing Society.

In the aforesaid judgment, the ITAT had laid down that:

(i) Transfer fees or premium received by a Co-Operative Housing Society from the outgoing member on Transfer of the flat etc., up to the limit allowed by law viz. Rs.25,000/- per flat; is not liable to tax.

(ii) Transfer fees or premium received from the incoming member or the Transferee is liable to tax. 

(iii) Any amount received by the Society from any member whether the Transferor or the Transferee on the sale of flat beyond the limits prescribed in the Bye-Laws or the Government Notification, is liable to tax.

However, contrary to the above, in the year 2013, the Mumbai Income-Tax Appellate Tribunal exempted the Transfer Fees received by a South Mumbai based Housing Society against an appeal filed in a dispute relating to Transfer Fees received from two of its members in the fiscal year 2008-09.

In its judgment, the Tribunal held the Transfer Fees of nearly Rs. 45 lakhs as tax exempt received by the Chambers Co-operative Housing Society. Last year, too, the Society had obtained a favorable order from the Tribunal on the same issue.

Transfer Fees continue to be the breeding ground of tax litigation in Mumbai. According to Income-Tax Authorities, Housing Societies charge exorbitant Transfer Fees ranging from 1% to 5% of the value of a flat which has been sold. Usually, these payments are contributed equally by the flat Seller and Buyer. The Housing Society Model Byelaws in Maharashtra and the Govt. Notification prescribes that the Transfer Fee to be recovered by Housing Society should not exceed Rs. 25,000/-.

However, such payments are often disguised and camouflaged as payments received towards repair fund, amenities fund or even voluntary donations. Hence, Income-Tax Authorities assert that these Societies in fact, are generating a lucrative profit and hence, the amount so received should be taxed.

But given this order, Housing Societies in Mumbai can now continue to breathe easy. The principle of mutuality which is governing the favorable decisions by the Tribunal implies that no one can make a profit out of itself. Thus, there can be no tax incidence. Transfer Fees received in whatever form are credited to a fund which is used for the welfare of the Housing Society and its members. The cardinal requirement is that the flat owners, who are members of the Society, are entitled to participate in the surplus, if any, as per the experts’ opinion from certain CA’s and Legal Firms.

In the given case, the Tribunal relied on precedents set by the High Court in the Case of Mittal Court Premises where it had been held that contributions paid by new members towards a fund, be it a common amenity, repair or welfare fund is not taxable in the hands of the Housing Society as the principles of mutuality prevail. (Refer the Judgment: http://indiankanoon.org/doc/388672/)

A Special Leave Petition filed by the Income-Tax Department against this order is pending in the Supreme Court. The Tribunal also relied on another ruling of High Court in the case of Sind Co-operative Housing Society where Transfer Fee in the form of voluntary contribution received from incoming and outgoing members, was also treated as tax exempt. (http://itatonline.org/archives/wp-content/files/walkeshwar_sind_co-op_society_transfer_fees_mutuality.pdf).

It now remains to be seen as to how the Supreme Court reckons this issue and sets the legal criterion in the matter of Transfer Fees received by the Housing Societies irrespective of any amount in any form beyond the limit prescribed under the law. 

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CONSUMER DISPUTES REDRESSAL FORUM MUMBAI SUBURBAN DISTRICT

Admn.Bldg., 3rd Floor, Near Chetana College, Bandra (E), Mumbai  400 051.

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Consumer Complaint No:  333-2004

Date of Filing: -            21/08/2004

Date of Judgment: -     23/07/2014

(The case has been decided after 10 years………….)

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1. Mhatre Palace Co-operative Housing Society Ltd.,

106-Link Road, I.C. Colony,

Borivali (West),

Mumbai 400 103                              .......  Complainant

V/s

1. M/s Nimesh Enterprises,

Rashmi Palace,

Behind Shanti Aashram,

Borivali (W), Mumbai 400 103

 

2. Mr. Balchandra Mhatre, Partner

M/s Nimesh Enterprises,

Rashmi Palae,

Behind Shanti Aashram,

Borivali (W), Mumbai 400 103     ……   Opponent No. 1 & 2

 

Corium: Hon’ble President, Shri. M. Y. Mankar

              Hon’ble Member,   Shri. S. R. Sanap

 

Complaint through Representative: Shri. Jagdish Babu Shetty

Opponent through Advocate: Shashank Thatte

 

JUDGEMENT

1. This Complaint has been filed by the complainant against the Developer for the breach of contractual as well as statutory obligations.

2. The case of the Complainant in brief is that it is a registered Society which came to be registered on 5th March, 2001. The building consists of 10 floors compromising 40 flats and the Society is having 38 flat purchasers as Members.  The Members of the Society individually entered into the agreement with the Opposite Party. The Opposite Party agreed to construct and sale the flats for consideration in the building known as Mhatre Palace in Borivali (West).  The Building was constructed and the Members of the Complainant Society were given possession in or about year 1997-98 after having received the full consideration.

3. The Opponent could not provide the service as per the agreement and statute.  The deficiency in their service is found regarding the obtaining of Occupation Certificate, failure to form and register the Society, failure to pay Municipal Taxes, failure to provide proper lift service, the Members were required to pay extra water charges and property taxes for want of  Occupancy Certificate to the tune of Rs. 4,42,624/- and Rs. 3,73,590, failure to execute the Conveyance Deed, failure to pay maintenance charges in respect of two flats in possession of the Opposite Party, failure to provide proper fire hydrant, failure to install proper electric meter in a room with ventilation and failure to provide garden and children playing equipment. The Complainant has accordingly prayed for the various reliefs. However, at the time of argument the claim for maintenance charges of two flats in possession of the Opponents and the claim for electric meter room with ventilation were not pressed for.  The Complainant have filed affidavit in support of the complaint as well as the written argument.     

4. The Opponents have filed the written statement. The main contention of the Opponents is that the complaint is barred by limitation. The possessions of the flats were taken by the Members of the Complainant with the knowledge that Occupation Certificate has not been granted.  The 60 % of the 120 feet D.P. Link Road area is in the possession of the landlord and that the landlord is not ready, willing and co-operating in selling the said 60% of the D. P. Link Road to the Opponent in spite of landlord’s promise to do the same and in absence of the same the Opponent can not apply for the Occupation Certificate and the BMC cannot process the same.  The Opponents had introduced one Mr. Masane for formation  & registration of the Society and the opponents had completed all the formalities and handed over the documents to him and who in turn handed over the said documents to the then Secretary Mr. John B. Fernandes to complete all the necessary formalities from the Members.  The Opponents have paid all the taxes for the Land under Construction till the year 2000. Some Members were defaulter in making the payment. The affairs of the building were handed over to the Complainant in March 2001. The Complainant was responsible for maintaining the lifts after receiving the charge.  The Conveyance Deed in favour of the Complainants is not possible as the Occupancy Certificate has not been obtained and the Landlord has not been joined as party. It is denied that the amenities of garden and children playing equipment were not provided. According to the Opponents the passing of the resolution for filing of the complaint as per Section 9 of Maharashtra Co-operative Societies Act 1960 was necessary. In absence of the same, the complaint is not tenable.  The Opponents have filed their affidavit and Written Argument.

5. Ld. Adv Shirish Deshpande appearing for the Complainant was heard. He argued that the amount was collected for formation and registration of the Society but the Complainant had to pay the amount for the same and the amount so paid to the Opponents should be refunded along with interest. He argued that in view of the recurring expenses required to be paid by the Complainant, the amendment was made and the amount thus incurred was added in the complaint and the same is demanded. He submitted that the fact of not obtaining the Occupation Certificate and not conveying property is clearly admitted by the Opponents. He submitted that the claim of the Complainant as regards to the Deficiency in Service be accepted and the amount as claimed may be awarded against the Opponents.

6. Ld. Adv. Thatte argued that the Opponents had raised the primary issue regarding the limitation in filing of the case. He also objected to the updation for claiming the amount, after filing of the complaint. He submitted that no resolution has been filed to show that the person was authorized to file the complaint and for claiming various reliefs. He argued that the application for updation was made after the Opponents had filed the written statement.  He submitted that the Complaint is liable to dismissed.

7. Ld. Adv. Shri. Deshpande withdrew himself after the permission was granted to Adv. Thatte for arguing in the matter. Thereafter Mr. Jagdish Babu Shetty for the Complainant gave the reply.

8. In view of the pleadings of the parties and the arguments advanced it can be said that the following facts are admitted.

The Complainant is a registered Society with effect from 05/03/2001. The Opponents are Builders/Developers. The Members of the Complainant had purchased the flat from the Opponents.  The possession was taken in the year 1997-98 without the Occupation Certificate. The amount was collected for formation and registration of Society. The building is having two lifts and it is 10 storied building.  The Occupation Certificate has not been obtained. The Conveyance Deed has not been executed.

9. In view of the above facts and circumstances it would be necessary to examine each claim of the Complainant.  The Complainant is seeking direction for obtaining Occupancy Certificate and in default for ordering the amount towards compensation. It is a statutory duty for obtaining the Occupancy Certificate before the residents are allowed to occupy the premises.  It is an admitted fact in this case the Occupancy Certificate has not been obtained.  The Opponents have given the reason for not obtaining the Occupancy Certificate. According to them the Landlord is not ready and willing to sell the 60% of the D.P. Link Road area to the Opponents in spite of the promise made.  It will be important to see whether this reason is proper and can be accepted. The possession was handed over in the year 1997-98. The Society was formed in March 2001. This complaint came to be filed on 21/08/2004. The written statement was filed on 19/11/2004. At the time of filing of the written statement nearly 6 years had passed since handing over of the possession to the Members of the Complainant. However, the record does not show that the Opponents have adopted any method for obtaining the 60% of area from the Landlord. The record does not show that the Opponents have appointed any Arbitrator or Mediator to find out some solution. Similarly the record does not show that the Opponents had filed any proceeding in any Court for compelling the Landlord to transfer the 60% of area of the D.P. Link Road. One can say under circumstances that the Opponents are hand in glow with the Landlord. The Opponents may get some benefit by postponing of not obtaining of Occupancy Certificate and not conveying the property but, definitely the Complainants are at loss. Hence, the ground put forth by the Opponents cannot be said to be proper reasonable and justified.

10. The Complainant has asked for the refund of the amount paid by the 38 Members towards the formation and registration of the Society. The copy of agreement for sale executed between the Opponent and Mr. Marian A. Menezes and Leela M. Menezes shows that the Opponent had collected the amount of Rs. 250+1+ 2,500/- as mentioned in Para No. 25 of the Agreement for formation and registration of the Society. Though the Opponents say that they had appointed one Mr. Masane for the said task and handed over the documents, however, they are silent about making of the payment to Mr. Masane and other legal payments.  On the contrary the Complainant has come out with the case that the Members took initiative and formed and registered the Society without the co-operation from the Opponent. The amount of Rs. 2751/- is collected for each flat as per the Agreement for Sale.  Collecting the amount for a specific work and not executing the same would amount to Deficiency in Service as well as he would be liable for returning the same. As per Section 10 of Maharashtra Ownership Flat Act it is the Promoter who has to take the steps for formation of the Society.  

11. The Complainant is seeking direction for directing the Opponent to make the payment of Property Tax to the BMC during the land under construction.  The Complainant has produced the warrant of attachment received from BMC for the amount of Rs. 13,09,606/-.  The copy of the same is placed on record.  The Opponents have come out with the case that they have paid all the taxes for land under construction till 2000 and thereafter it was the responsibility of the Complainant.  The copy of the warrant of attachment shows that the taxes were not paid for the period from 01/10/1995 to 30/09/1997, 01/04/2000 to 31/03/2001 and from 01/04/2002 to 31/03/2003. These Opponents have come out with the case that they have paid the taxes till the year 2000. But the warrant of attachment shows the period prior to year 2000 also. The Opponents have not produced any receipt to support their claim. Admittedly the property has not been conveyed and so it would be the duty of Opponents to pay the property taxes. The provision of section 6 of Maharashtra Ownership Flats Act 1963 can be referred to.

12. The Complainant has claimed that though the two lifts are installed but only one lift was operational and lifts are not suitable for 10 storied building and the Complainant was required to incur expenses. The Complainant has produced the documents to show the expenses incurred by it. It is the case of Opponents that they would not be liable for the maintenance after the affairs were handed over.  According to them the proper certificates were obtained before operating the lifts. The documents produced by the Complainant are for the period after the Formation of the Society. The Complainant has not produced any document to support the contention that the lifts are not suitable for 10 storied building.   

13. The document dated 14/06/2004 shows that the major repairs were to be carried out in the lift and the other document dated 28/05/2000 shows that the safety system was not fixed in the lift cabin. The facts on record show that the Members of the Complainant were put in possession in the year 1997-98 and the Society is formed in the year 2001. So there is a period about three years which required the maintenance and working of the lifts to be looked after.  The bills for this period are not produced by either party regarding the maintenance or repairs of the lifts. However the record shows that the safety system was not fixed in the lifts.

14. The Complainant has averred that they are required to pay extra water charges as the Occupancy Certificate has not been obtained by the Opponent.  The Complainant has claimed an amount of Rs. 4,42,624/- for the period up to filing of complaint and thereafter an amount of 3,73,590/- for the period from 08/04/2004 till 09/11/2009.  On this point the Opponents have come out with the case that the Members had taken the possession with full knowledge that the Occupancy Certificate was not issued. In our view, it was also the responsibility of the Opponents not to hand over the possession before obtaining the Occupancy Certificate and they cannot just run away from their duty by saying that the Members were insisting for the possession. Similarly the Members of the Complainant cannot claim ignorance and immunity in view of the provision of Section 3(2)(i) of Maharashtra Ownership Flat Act. The amount of claim has not been specifically denied by the Opponents.

15. The Complainant has prayed for directing the Opponents to complete the fire hydrant system as per the norms. The Opponents have simply denied about the facts. But, they have not produced any certificate from the competent authority to show that the fire hydrant system is in place and complete in all respect.  This fact becomes more important as the Occupancy Certificate has not been obtained. Surely this amounts to Deficiency in Service. 

16. The Complainant has prayed for providing garden and children playing equipment. The Opponents have simply denied this fact but failed to produce any photograph and the bills for placing order for the children playing equipment.  The bills could have been a good answer to the claim made by the Complainant. The copy of the agreement for sale clearly shows that in the list of amenities at annexure C, the beautiful garden with playing apparatus for children is mentioned under the head V other amenities at Sr. No. h. Hence claim of the Opponents that these amenities are provided is not substantiated by the record.

17. The Para 28 of the agreement for sell shows that the property was to be conveyed. The provision of Section 11 of Maharashtra Ownership Flats Act also casts obligation on the Promoter to convey the property.  The discussion in respect of the Occupation Certificate also holds good in respect of the ground taken by Opponents on this point. The ground is not justified. This also amounts to Deficiency in Service.

18. As we have mentioned above that the Opponents had taken the ground of limitation. They had filed an application to that effect which is dated 19/11/2004. The record shows that the Complainant had filed the application for condonation of delay and the Forum had passed the order dated 06/04/2010 and observed that there is no delay in the filing of the complaint and delay if any deserved to be condoned. In our view, in view of order dated 06/04/2010 we cannot consider the point of limitation.

19. Ld. Adv. Thatte had vehemently argued on the point of absence of the resolution though the Complainant is a registered Society. As per Section 2(1)(m)(iv) of Consumer Protection Act, the unregistered Society means a person who hires or avails of any service becomes a Consumer and a Consumer means a Complainant as per Section 2(1)(b)(i) of Consumer Protection Act. Hence in our view too much importance cannot be given to the resolution in a complaint under Consumer Protection Act. Moreover there is nothing on record to show that any of the 38 Members has at any time objected about any of the act of the Complainant.

20. The Members of the Complainant are also liable for taking the possession without Occupancy Certificate and so it will disentitle them from claiming the full amount on account of paying extra charges at least till filing of the complaint.  

21. Hence, considering the above discussion it is clearly made out that the Opponents have failed to carry out the contractual as well as statutory obligations. There is Deficiency in Service on their part. Hence we pass the following the order. 

22. The case could not be decided earlier because of the work load and other administrative factors.  

ORDER

1. The complaint is partly allowed.

2. It is hereby declared that there is Deficiency in Service provided by the Opponents.

3. The Opponents would be jointly and severally liable to comply the order.

4. It is hereby ordered that the Opponent should obtain the Occupation Certificate from the Competent Authority and hand over it to the Complainant  within 2 (two) months from date of this order. Failing which they shall be liable to pay Rs. 3800/- per month from the date of filing of the complaint till realization (excluding the period from 08/04/2004 to 09/01/2009).

5. The Opponents to refund Rs. 1,04,538/- (Rs. 2751/- X 38 Members) collected on account of formation and registration of Society to the Complainant on or before 01/09/2014. Failing which it will carry an interest @ 18% from the date of filing of the complaint till realization.

6. The Opponents would be liable to pay the taxes for the land till the property is conveyed to the Complainant.

7. The Opponents to pay Rs. 1,00,000/- for failure to provide security safety in the lifts on or before 01/09/2014. Failing which it will carry an interest @ 18% from the date of filing of the complaint till realization.

8. The Opponents to pay Rs. 3,31,968/- (the amount after deducting 25% towards the liability of the Complainant) to the Complainant towards extra water charges on or before 01/09/2014. Failing which, it will carry the interest @ 18% from the date of filing of the complaint till realization.

9. The Opponents to pay Rs. 3,73,590/- to the Complainant towards extra water charges for the period from 08/04/2004 till 09/01/2009 on or before 01/09/2014. Failing which it would carry the interest @ 18% from the date of filing of the complaint till realization.

10. The Opponents to convey the land property as specifically described in second schedule to the Agreement for Sale read with first Schedule along with the structure  on it along with all the rights and interest so also the unutilized FSI and the future FSI in favour of the Complainant within 2 months from the date of order. Failing which the Opponents would be liable to pay an amount of Rs. 3,800/- per month from the date of filing of the complaint till realization.

11. The Opponents to provide proper, complete and appropriate Fire Hydrant System to the Complainant duly certified by the competent authority on or before 01/09/2014. Failing which they would be liable to pay Rs. 5,000/- per month from the date of filing of the complaint till realization.

12. The Opponents to pay an amount of Rs. 2,00,000/- in lump-sum  for the amenity of garden and children playing equipments to the Complainant on or before 01/09/2014. Failing which it will carry the interest @ 18% for the date of filing of the complaint till realization. 

13.     The Opponents to pay Rs. 50,000/- as cost to the complainant for the litigation on or before 01/09/2014. The Opponents have to bear their own cost of litigation.

14. The Parties to file their affidavits regarding compliance/non compliance of this order on 06/09/2014 as per the circular dated 05/07/2014 issued by Hon’ble Maharashtra State Consumer Disputes Redressal Commission, Mumbai.

15. The complaint stands disposed off.

16. Copy of this order to be provided to both the parties free of cost by post.

Place: - Mumbai.

Date: - 23/07/2014.

 

                     (S. R. Sanap)          (M. Y. Mankar)

                             Member                      President

 

Counselor’s comments: Why the Forum did not rule that the judgment so delivered in this particular case, should also be made applicable to all those delinquent and felonious Builders in Mumbai who have blatantly violated the provisions under Section 11 of MOFA, 1963 by not conveying the respective properties in favour of housing societies within a stipulated period of 4 months and that all such dishonest Developers must be forced to pay water charges, municipal taxes and other charges as applicable until the time the entire property is conveyed to the housing Society???

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A time has come to demand that the Auditor function and perform by being more of a bloodhound sniffing out Fiscal Frauds and misfeasance in Co-operative Societies and cease to be a mere toothless watchdog that neither growls nor bites. With an upsurge in Accounting Scams in Co-operative Societies including Housing Societies, the detection of Accounting Irregularities had become an emerging topic of great importance for the Government of Maharashtra.

The failure of Internal and Statutory Audit System of the Society in identifying such Accounting Frauds compelled the Office of the Commissioner for Cooperation and Registrar, Cooperative Societies, Maharashtra State, Pune to issue the following Circular on 14/07/2010.

No. URB/D-4/1442/Accounts/Misc/Funds/Action/2010

Office of the Commissioner for Cooperation and Registrar, Cooperative Societies, Maharashtra State Pune

Date- 14/07/2010

CIRCULAR

Subject-Launching of prosecution on account of Misutilisation and Misappropriation of Funds of Cooperative Societies.

Read – 1. Government of Maharashtra, Agriculture and Cooperation Department, No: CCL1270/84605/C-7, Sachivalaya Annexe, Bombay - 32 Dated I31'1 June 1972

2. No ADT-552 of 1972, Office of the Cooperative Societies, M.S. Poona.Dated 5th September, 1972

3. Government of Maharashtra, Home Department Circular No CI1, 3769/52181) VII A Sachivalaya Bombay-32 Dated 7th August 1972

4. Government of Maharashtra, Agriculture and Cooperation Department, Circular No: C3M-1381/30472/6-C Mantralaya Annexe Bombay-32, Dated 12th June 1981

5. Government of Maharashtra, Agriculture and Cooperation Department Sachivalaya Annexe Bombay -32, 2nd February 1971, Circular No. CCI -   1270-34605-C-3

6. Government of Maharashtra, Home Department Government Circular No. Gil -0108/Pra.Kra -1l/POL-12 Mantralaya Mumbai -32 Dated 14th January 2008

This Circular outlines the need and modalities of launching and monitoring prosecution against the concerned regarding misutilisation and misappropriation of funds of Cooperative Societies, the instances which came to be detected during the process of audit.

There are instances seen in recent years that misutilisation and misappropriation of funds of Cooperative Societies are ascertained in Re-Audit, Special audit, Test audit and report of flying squad which is taken subsequently by Registrar. However, Statutory Audit report does not reflect misutilisation and misappropriation of funds of Cooperative Society of the same year.

Recently, the instances are reported where the Auditors entrusted with the duty of verification and audits have been indulging in acts of misreporting consisting of two broad categories. The First category is non reporting of serious instances which are detected/ could have been detected during audit and timely reporting of which could save further complications which adversely affect the well being of Members, Depositors and Society at large.

The Second category is misreporting of instances which present an altogether different picture of the status and affairs of the Society which also due to this kind of misreporting tends to jeopardize the well being of Members, Depositors and Society at large. The first is called Suppression of Truth and the other is Representation of Falsehood. There may be a possibility that these Iwo may overlap and there may be a string of instances wherein both are present.

These instances are to be differentiated from mere negligence, though amounting to professional lapse or shortcoming; not amounting to fraudulent reporting consisting of suppression of truth or suggestion of falsehood which either singly or jointly constitutes fraud, which is an offence in itself. As such, the following guidelines are issued to take care of fraudulent reporting and not for mere negligence in conducting audit process or reporting the outcome of Audit Process.

Where fraudulent reporting is observed, it be ascertained whether the concerned professional is prima facie liable under conspiracy along with the other persons who have actually committed the acts of commission and omission while conducting the affairs of Society. If that is so, the concerned Auditor or person responsible for verification will be liable jointly and severally with the other offenders.

However, where the clement of conspiracy cannot be substantiated then it should be seen whether the concerned Professional, who is also a Public Servant while conducting his statutory responsibility, has conducted himself to protect any person from legal punishment or to save any person from punishment or to save any person from punishment of a higher degree and has tried to bring such person under another kind of a higher degree and has tried to bring such person under another kind of punishment which is of a lesser degree.

This kind of conduct is covered under Section 217 of Indian Penal Code, I860 which provides for an offence by a Public Servant disobeying direction of law with intent to save any person from punishment or any properly from forfeiture.

In the present circumstances, there is a need to analyze deviations from statutory duty minutely to ascertain whether the delinquent Office Bearers Employees and other persons are tried to be protected by Professionals who themselves are responsible for an early detection of frauds and other serious misdeeds on part of people entrusted with the management of the Societies, such, this circular is issued to take care of fraudulent reporting by Professionals where conspiracy is involved or otherwise.

Copy forwarded for information to:-

1. The Chief Secretary, Maharashtra State, Mantralaya Mumbai -400 032

2. The Additional Chief Secretary, (Home), Home Department, Maharashtra State, Mantralaya Mumbai - 400 032

3. The Principal Secretary, (Cooperation & Marketing), Maharashstra State, Mantralaya Mumbai -400 032

Copy forwarded for information and necessary action to:-

1. Divisional Joint Registrar, Cooperative Societies (All)

2. Divisional Joint Registrar, Cooperative Societies (Audit) (All)

3. District Deputy Registrar, Cooperative Societies, (All)

4. District Special Auditor, Cooperative Societies, (All) Commissioner for Cooperation and Registrar Cooperative' Societies, Maharashtra State, Pune

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