Maharashtra Cooperative Societies Act | Audit Test Cannot Be Ordered Without Inspection Of Audit Report: High Court
The Bombay High Court has held that a Test Audit under Section 81(3)(c) of the Maharashtra Cooperative Societies Act, 1960, can only be directed when there is a specific finding, based on an inspection of the audit report, that the audit does not reflect a true and correct picture of the accounts of a cooperative society. Without such inspection and recording of satisfaction, an order for...
The Bombay High Court has held that a Test Audit under Section 81(3)(c) of the Maharashtra Cooperative Societies Act, 1960, can only be directed when there is a specific finding, based on an inspection of the audit report, that the audit does not reflect a true and correct picture of the accounts of a cooperative society. Without such inspection and recording of satisfaction, an order for Test Audit is arbitrary and unsustainable in law.
A Division Bench of Justice Suman Shyam and Justice Manjusha Deshpande was hearing a writ petition filed by Kulswami Cooperative Credit Society Ltd., challenging the order dated 25 May 2022 passed by the Commissioner for Cooperation and Registrar of Cooperative Societies under Section 81(3)(c) of the MCS Act, appointing a Test Auditor to examine the Society's accounts for the period 2015–2021 on the basis of a complaint filed by a “Bachav Committee” of former members.
The petitioner contended that the order was issued without any hearing and that the same allegations had already been addressed in an earlier enquiry under Section 89A. It was argued that the order violated the principles of natural justice and was not supported by any subjective satisfaction. The Respondent contended that the order dated 25th May 2022 was passed on the basis of the complaint filed by the 'Bachav Committee,' which highlighted the irregularities in the financial management and audit reports of the petitioner-society.
The Court noted that the impugned order was issued solely on the basis of the Bachav Committee's complaint and the 2020–2021 audit report, without there being any satisfaction about the correctness or substance of the allegations made by the Respondent Nos. 5 to 9- 'Bachav Committee'.
“Respondent No. 2 could have passed such order only after verification about the truthfulness in the allegations of the Respondents… prima facie the order does not reflect that there was any material produced before Respondent No. 2 to record his satisfaction… the impugned order is not only unreasoned but also passed without recording subjective satisfaction in an arbitrary and capricious manner,” the Court observed.
The Court observed that the power under Section 81(3)(c) can be exercised only after the Registrar has satisfied himself, upon scrutiny of audit reports, that they fail to disclose a true and correct picture of the accounts. The Court remarked that the powers under Section 81(c)(3) are to be exercised in a judicious manner.
“… without there being any inspection of the audit report for the period from 2015 to 2020, a Test Audit of the same has been directed, which is not in consonance with Section 81(3)(c) of the MCS Act… When there is no inspection of the statutory Audits of the said period, the question of recording of satisfaction does not arise,” the Court observed.
Holding that the impugned is ex facie arbitrary and untenable, passed without recording any reasons in exercise of power under Section 81(3)(c) of the MCS Act, the Court quashed and set aside the order dated 25 May 2022.
Case Title: Shri Kulswami Co-operative Credit Society Ltd. v. State of Maharashtra & Ors. [Writ Petition No. 2946 of 2025]