Enquiries And Audit Memos Under The Maharashtra Co-operative · PDF file ·...

Enquiries And Audit Memos Under

The Maharashtra Co-operative Societies Act

1961

BY

CA. B. B. MANECA. B. B. MANE

B. B. Mane & CoB. B. Mane & CoB. B. Mane & CoB. B. Mane & Co., Chartered Accountants Ph. (020) 2687 3684 (M) 9422308272

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News Headlines Regarding Financial Frauds

• Companies under probe for fraud in subprime loans: FBI

• FBI struggles with financial fraud cases Mumbai October 20,

2008, 0:03 IST

• IT Act to get more teeth to fight financial frauds28 Dec 2007,

0054 hrs IST, Niranjan Bharati, TNN

• Police panel wants financial, cyber crimes on federal list (• Police panel wants financial, cyber crimes on federal list (

Posted: Mar 11, 2007 at 0016 hrs IST)

• Database on frauds: You’ll get it from CIBIL Wednesday, 12

November , 2008, 19:03

• Losses resulting from mortgage fraud in US will reach $2.5

billion in 2008:


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Samples of Financial Cases handled by Non

financial persons

• Bihar police probe fraud of Rs.79 mn

November 10th, 2008 - 5:23 pm ICT by IANS - Patna, Nov 10 (IANS) Bihar police have begun probing a fraud case involving a Punjab National Bank (PNB) cashier, who is alleged to have fled with Rs.79 million deposited with the nationalised ..

• Skeletons tumble out in Kerala financial fraud case

September 4th, 2008 - 7:43 pm ICT by IANS -September 4th, 2008 - 7:43 pm ICT by IANS -Thiruvananthapuram, Sep 4 (IANS) Investigations into the financial fraud allegedly committed by a 20-year-old in Kerala were handed over to the state police crime branch Thursday and a government official was ... Posted in Uncategorized

• Total 4U fraud: Roma and Major Ravi questionedSunday, 28.09.2008, 10:54am (GMT)

TVM: Actress Roma Asrani and director Major Ravi were questioned by the police in connection with the INest and Total 4 U financial fraud


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Need felt by Society of Financial Persons as

Investigator

• Fraud Alert Posted on March 20, 2008

A nationwide survey indicates that India Inc is unprepared to handle increasing cases of corporate fraud

Nearly two decades after the Harshad Mehta scam rocked Indian markets and New Delhi armed the Securities and Exchange Board of India (SEBI) with more teeth, corporate India remains vulnerable to financial scams, says a recent study.study.

In fact, the study – a recently released KPMG report - says with booming business, corporate fraud will also increase in the next two years and Indian companies will just not be able to handle the crisis.

.


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Need felt by Society of Financial Persons as Investigator

• FBI struggles with financial fraud cases

Mumbai October 20, 2008, 0:03 IST

The Federal Bureau of Investigation (FBI) is struggling to find enough agents and resources to investigate criminal wrongdoing tied to the country’s economic crisis, according to current and former bureau officials.

The pressure on the FBI has recently increased with the The pressure on the FBI has recently increased with the disclosure of criminal investigations into some of the largest players in the financial collapse, including Fannie Mae and Freddie Mac.

The FBI is planning to double the number of agents working financial crimes by reassigning several hundred agents amid a mood of national alarm. But some people inside and out of the Justice Department wonder where the agents will come from and whether they will be enough.


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Government of India

Ministry of Company Affairs Site & Address

Serious Fraud Investigation OfficeGovernment of India

Ministry of Company Affairs

REPORTING A FRAUD TO THE SFIOREPORTING A FRAUD TO THE SFIO

http://www.sfio.nic.in/info_from_public.htm

• SERIOUS FRAUD INVESTIGATION OFFICEPARYAVARAN BHAVAN, 2nd FLOOR,(CGO COMPLEX, LODHI ROAD , NEW DELHI – 110 003)

• E.Mail address: [email protected]. 00 91 11 24369244, 24369245, 24369246


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Some of the extracts from Sawant Commission Report

�The inquiries held under such enactments have deterrent

and wider repercussions beyond the individuals and the

institutions concerned and the transactions and the actorsinstitutions concerned and the transactions and the actors

involved in them. Others are also put on notice and guard,

and take precautions while managing their institutions.


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Relevant statute commonly required to be referred

while conducting Financial Enquiries1. Commission of Inquiry Act

2. Evidence Act,

3. Indian Penal Code,

4. Civil Procedure Code,

5. Criminal Procedure Code

6. General Clauses Act,

7. The Constitution of India,7. The Constitution of India,

8. The Companies Act,

9. Income-tax Act,

10. FEMA Act,

11. Stock Exchange Act,

12. Reserve Bank of India Act,

13. Banking Act,


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Relevant statute commonly required to be referred

while conducting Financial Enquiries

14. Sale of Goods Act

15. Co-operative Societies Act,

16. Excise Act,

17. Sales Tax Act,

18. Value Added Tax Act, (VAT)

19. Stamp Act,19. Stamp Act,

20. Labour Laws, etc.,

21. Money Laundering Act


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Sections and Rules under which Inquires are

conducted The MCS Act 1960 and

The MCS Rules1961

1. Section 83 Inquiry by Registrar –

2. Rule 71 Procedure and principles for the conduct

inquiry and inspection-inquiry and inspection-

3. Section 88 Power of Registrar to Assess damages

against delinquent promoters, etc.

4. Rule 72 Procedure for assessing damages against

delinquent promoters etc. under section 88

B. B. Mane & Co., Chartered Accountants Ph. (020) 2687 3684 (M) 9422308272

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Nature of Inquiry under Section 83

• An enquiry is of the constitution, working and financial conditions of Society

• Sec 83 inquiry may be order by registrar on his own motion and should be ordered on the application of one-third members of the application of one-third members of society.

• It is administrative nature inquiry of society and not individuals. Tirath Singh v Poona Contractors Co-op Bank 1970CTD 278-B

B. B. Mane & Co., Chartered Accountants Ph. (020) 2687 3684 (M) 9422308272

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Who can conduct inquiry

U/s 88 & 83 of MSC Act 1960

a) Registrar himself; or

b) Person authorized by him.b) Person authorized by him.


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Qualification of authorized officer (Inquiry Officer) circular

No. ADM/184(Su) Dt. 2-12-1963.

i. He should be held an post not lower in rank that is District

Dy Registrar, Dy Collector, or Civil Judge

ii. If above persons are not available than the person to be

selected should possess legal qualification andselected should possess legal qualification and

background, which will help him to take judicious view.

iii. The character, moral background and reputation should

indicate capacity to give judgment without fear or favour.


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Basis on which Registrar can order inquiry

U/s 88 of MCS Act1960

a. Auditor’s report; or

b. An authorized person’s inquiry report U/s 83; or

c. An authorized person’s inspection report U/s84; or

d. Liquidator’s report U/s 105; or

e. Otherwise, i.e. any other departmental report; or any other

information which registrar may have in possession.


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Registrar should satisfy on the basis of report, that any

persons who has taken part in the1) Organization; or

2) Management or

3) Winding up; of society

and who have taken such part, within period of 5 years prior tocommencement of audit or inquiry, inspection, winding up of society; (suchperson may be deceased / past / present officer of society)

Such persons should have

a)Misapplied or

b)Retained or

c)He has became liable or accountable forc)He has became liable or accountable for

i. Any money; or

ii. Property;

and such person has been guilty of

� Misfeasance; or

� Breach of trust;

in relation to Society


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Procedure to be adopted while conducting enquiries

A. Enquiry Procedure most of the time is prescribed by the

statute under which enquiry is ordered.

B. Enquiry officer has to follow stringent tests laid down by

Evidence Act, to accept any material as evidence.

C. Enquiry officer more particularly in case of Quasi-Judicial

inquiry will have to work as a Court and he requires to give

reasonable opportunity to prove the persons his/her/its point ofreasonable opportunity to prove the persons his/her/its point of

view against whose enquiry has ordered.

D. Inquiry order some time has to be pronounced.

E. Inquiry officer need to act in different role as investigator,

judge, expert and pleader while conducting inquiry


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F. There is no standard format of enquiry report, however one

needs to cover following points

i. Procedure adopted while conducting enquiry

ii. Reasons to frame opinion in respect of framing of charges

sheet or to carry any act like enquiring any person or

investigating activity and its relevance.

iii. Inquiry officer also required to state in brief whyiii. Inquiry officer also required to state in brief why

particular procedure has been adopted to conduct

enquiry.

iv. Inquiry officer needs to maintain diary, which will

establishes how evidence has been collected and which

chronological order has followed by Inquiry officer.


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v. Even inquiry officer needs to give reasons, if any person

who has named in inquiry order and if enquiry officer is of

opinion that such person’s name to be excluded from

inquiry.

vi. Inquiry officer should analysis arguments of attorneys and

advocates and give reasoning for acceptance or non

acceptance of arguments.acceptance of arguments.

vii. Inquiry officer should take precaution to obtain proper

power of attorney from authorized representative,

advocates, Chartered Accountants those who are

appearing before Inquiry officer


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Negligence by itself does not constitute misconduct. However, gross

negligence in the performance of duties is misconduct even though it

may not involve mens rea.

Recording of Statement of Witnesses: The Enquiry officer need not

record the evidence of the witnesses as in regular courts, Sukh Dev

Viswanth Berge Vs. Food Corporation of India., 1989 (2) LLJ 277

(Bom).

The Rules of making of a memorandum of the substance of what theThe Rules of making of a memorandum of the substance of what the

witness deposes and such memorandum shall be written and signed.

However it is advisable to record in detail the statement of witnesses

examined before the enquiry officer to avoid accusation of bias,

malafides.

The General principal of Law of Burden of proof is basic principal

which an enquiry officer has to follow.


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MISFESANCE

� Improper performance of some lawful Act, “In other words it

means misconduct, delinquency and breach of duty resulting

loss to the Institution”

(Delinquency means neglect of duty or wrong doing or misdeed)

LOSSES

� Proceeding Under Section 88 have to be ordered when losses� Proceeding Under Section 88 have to be ordered when losses

are actually incurred by a Society and not on losses may

occur depending on some future events. Losses to society

must be direct one and not remote one.

BREACH OF TRUST

� Violation or non-performance of duty imposed by law on aperson standing in a fiduciary relation to another.


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MISAPPLICATION

� Using the money of the society in a manner not warranted bythe law or rules made under the Act or by the bye-laws of thesociety.

RETENTION

� Retention is an act of retaining or withholding or keeping foroneself. In such a case the property may not be misapplied butit is kept by the person for his own use in his own custodyunlawfully.

REASONABLE OPPORTUNITYREASONABLE OPPORTUNITY

Reasonable opportunity implied: -

1) One is person against whom the charges are leveled should beinformed about the details of charges.

2) Reasonable time is given to him to put forth his say about thecharges leveled against him for submitting his explanation against

charges. “The reasonable opportunity means real and adequate

opportunity.”


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CORRUPTIONCorruption is essentially termed as an "impairment of integrity, virtue or moral principle; depravity, decay, and/or an inducement to wrong by improper or unlawful means, a departure from the original or from what is pure or correct, and/or an agency or influence that corrupts."

An extracts from Sawant Commission Report

� Corruption is only a species of maladministration, which besidescorruption, consists of the negligence, the lack of supervision,ignoring grievances and complaints against administration,ignoring grievances and complaints against administration,carelessness, and waste and inefficiency, among others. Broadlyspeaking, the improper conduct of the affairs of a publicinstitution, adversely affecting the interests of the public or thebeneficiaries will amount to maladministration.


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�The broader connotation of the word CORRUPTION varies with the

office held by the person who is accused of the corrupt act. Higher the

power and its reach and responsibility, the more the acts which come

under the scanner of public accountability. It is not only the acts done

in return for bribe in whatever form it is received, but the acts of

favoritism, of wielding influence, of pressurizing and inducing others

including the subordinates to do or refrain from doing acts, of showing

partiality and preference, of ignoring the law and the rules, of side-partiality and preference, of ignoring the law and the rules, of side-

tracking the usual practice and procedure for unfair purpose, of using

the discretionary power arbitrarily and selectively to promote partisan

interests, of acting under the influence of or to oblige, third parties or

extraneous considerations, of conniving at irregularities and illegalities

of condoning them, of acting in excess of power, or of not exercising

the requisite power for improper reasons, will all among others, amount

to the acts of corruption.B. B. Mane & CoB. B. Mane & CoB. B. Mane & CoB. B. Mane & Co., Chartered Accountants Ph. (020) 2687 3684 (M) 9422308272

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�The expression “Corruption” is not to be construed narrowly

but has to be understood in a wider sense. There may be no

proof of the actual bribe received by the individual

concerned. It is enough, if it is shown that the acts are

motivated by oblique or improper motives or by extraneousmotivated by oblique or improper motives or by extraneous

considerations. Favouritism is also one form of corruption.

The conferment of a benefit or advantage on another

showing patent partiality, the repeated favour to a particular

person or persons, and favours to undeserving persons also

amount to the corrupt acts.


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�The genesis of the Commission of Public Inquiry Act lies in

the need for an instrument in the hands of the people to ensure

accountability of those who are entrusted with the public

power, for their acts and omissions. In the representatives

democracies of the present day, where the day to day affairs

of the society have to be carried on by the representatives of

the people, with practically no machinery to control or


the people, with practically no machinery to control or

supervise their activity, such enactments, provide a welcome

measure of relief to the people to redress their grievances. The

very existence of such machinery has a salutary effect on

those who wield power and expand public funds


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Charge sheet should include following things: -

�Details of charges leveled.

�Specific allegations against each of the individual,

one who has charge-sheeted.one who has charge-sheeted.

�How misfeasance or nonfeasance has led to a loss.

�The amount of loss should clearly indicated.


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List of Documents and Records to be maintained by

Inquiry Officer

1. Copy of Order of Appointment of inquiry officer,

2. Copy appointment acceptance/rejection letter,

3. Copy of summons issued to principal officer,

4. Working papers of prima-facie Inquiry,

5. Any other Inquiry report or Special audit report, audit5. Any other Inquiry report or Special audit report, audit

report or liquidator’s report, or inspection report or any

other report on which basis inquiry has been institute.

6. List of delinquents alongwith their address.


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7) List of all relatives of decease delinquent who have

inherited property of delinquent.

8) Copies of show cause notices issued to delinquents.

9) Replies received from delinquents to show cause notice.

10) List of delinquents to be prepared and maintained on whom

charges are framed.


Inquiry Officer

charges are framed.

11) Copies of charges framed to be maintained.

12) List of witnesses.

13) Replies received from delinquents to charges.


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14) Analysis of Arguments of attorneys and advocates and

reasoning of acceptance or non acceptance of arguments.

15) Relevant laws and other statutory circulars etc., should be

kept in separate file.

16) Notes, noting of important points to be verified


Inquiry Officer

16) Notes, noting of important points to be verified

subsequently, come across during hearing.

17) Preparation of Enquiry Report


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U/s 89 Of MCS ACT 1960

Power to enforce, attendance etc.,

The registrar or the person authorized by him, when

acting under section 83, 84 or 88 shall have the power to

summon and enforce the attendance of any person 4[and

examining him on oath or affirmation or by affidavit] or

to compel the production of any document or otherto compel the production of any document or other

material object by the same means and in the same

manner as is provided in the case of a Civil Court under

the Code of Civil Procedure, 1908.


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…/…/20..

DRAFT OF SUMMONS USA/INQ./1/20..-20..

To

The Principal Officer

Ref.: - Registrar of Co-operative Societies Order No. 100 / NESS /

NEYAMAN / INQUIRY / 88 / 20.., Dated …/…/20…

Sir,

As an Inquiry Officer, appointed by the Registrar of Co-operative

Society, Delhi, by his order dated …/…/20… Issued Under Section 88 of The

Maharashtra Co-operative Societies Act, 1960, to assess damages and toMaharashtra Co-operative Societies Act, 1960, to assess damages and to

pronounce final order of recovery of damages with interest from delinquent

persons.

Whereas your attendance is necessary, you are hereby required to

produce documents and papers as listed below, and give information before

me on the …day of … 20.. at …:.. am/pm in the forenoon/afternoon at our/

your office. If you are fail to comply with this order without lawful excuse,


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you will be subject to the consequences of non-attendance laid down in Rule

12 of order XVI of Code of Civil Procedure, 1908.

GIVEN under my hand and the seal of an Enquiry Officer, this …

day of …… 20…

SD/-

(U. S. Know)

(Inquiry Officer)

Copy to: - The Inquiry officer appointing authority.Copy to: - The Inquiry officer appointing authority.

Enclosed List of Documents to be produced.

1. Names of directors alongwith present address for the period 19..-20..

2. An expenses details of Purchases of lime, Mill Sanitation Material

and advances., etc., stated in above referred order issued by inquiry

officer appointing authority.

3. An audit report alongwith Balance Sheet, Profit & Loss Accounts

for period as stated above.


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Ingradience of Financial Enquiries

1) One needs to find out who was rightful person who is authorized

to utilize funds and its purpose for which same has been

sanctioned.

2) What are duties cast upon the persons or organization who are

dealing with funds?

3) In case of Financial enquiry Inquiry officer needs to interpret

financial records, before accepting any financial records as a partfinancial records, before accepting any financial records as a part

of enquiry material and its relevance and creditability to be

tested.

4) Inquiry officer need to give reasonable opportunity to concern

person to prove or to allow any other interpretation of records by

record keeper to prove his view.


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Ingradience of Financial Enquiries

5) Inquiry officer in case of financial enquiry require to understand

prevalent commercial practice in the country, trade or activity to

be enquired.

6) Enquiry reports and/or order in case of financial enquiry needs to

be Judicious.

7) Inquiry officer can accept oral evidence/information but it

requires to be passed through or stringent test of Evidence Act.requires to be passed through or stringent test of Evidence Act.


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TALANT & TACT

Talent knows what to do,

Tact knows how to do,

Talent makes man respectable,

Tact makes man acceptable.

Talent is wealth

Tact is ready moneyTact is ready money

“Don’t waste time learning the tricks of trade,

Instead learn the trade.”

“GOOD INQUIRY OFFICER IS ONE, WHO HAS EAGLE’S EYE, LION’S HEART AND HAVE RIGHT

COMBINATION OF TALENT & TACT”


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Need felt by Society of Financial Persons as

Investigator• Police panel wants financial, cyber crimes on federal list

Tanu Sharma Posted: Mar 11, 2007 at 0016 hrs IST

Drawing the attention of the Supreme Court to the “pressing need” to categorise certain offences as federal, the Bureau of Police Research and Development (BPR&D) has proposed expanding the list of federal crimes as envisaged by the Malimath Committee.

Advocating the categorisation of financial frauds and cyber terrorism Advocating the categorisation of financial frauds and cyber terrorism as federal crimes, besides a few other offences, the BPR&D in its affidavit said: “A financial fraud involving a series of transactions or where investigation and prosecution are likely to require specialised knowledge of financial market conditions or which require legal, financial, investment and investigative skills or even those which appear complex to the regulators, banks or capital markets” have to designated as ones which have national or even international ramifications.

The BPR&D said the specialised agency would have “concurrent jurisdiction” with the state police in dealing with these offences. This was in line with the recommendations of the Soli Sorabjee Committee and the NHRC

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