Meaning of Related Party

Cooperative society does not have definition of Related Party. Section 40A(2) of Income Tax Act 1961 and Companies Act has a definition for the same. In simple terms a related party transaction means:

A deal or arrangement made between two parties who are joined by a preexisting business relationship or common interest.

Definition of Officer

Gujarat Cooperative Society Act Sec 2.14 defines “Officer” and is an important definition from related party transaction point of view.

“Officer” means a person elected or appointed by a society to any office of such society according to its bye-laws; and includes a chairman, vice-chairman, president, vice-president, managing director, manager, secretary, treasurer, member of the committee, and any other person elected or appointed under this Act, the rules or the bye-laws, to give directions in regards to the business of such society;

Rule 35: Gujarat Cooperative Society Rules

Servants of Society not to have interest in transaction, etc –

  1. No officer or servant of a society shall have any interest directly or indirectly otherwise than as such officer or servant
    • in any contract made with the society, or
    • in any property sold or purchased by the society, or
    • in any transaction of the society except as investments made or as loan taken from the society or the provision of residential accommodation by the society to any paid employee or the society.
  2. No officer or servant of the society shall purchase, directly or indirectly any property of a member of the society sold for the recovery of his dues to the society.
  3. No person who carries on business of the kind carried on by the society shall be eligible to be appointed as a servant or officer of the society without the sanction of the Registrar.
  4. Where any person is appointed as a servant or officer of the society in contravention of this sub-rule (3) shall be removed from the office as a servant or officer of the society by the Registrar:
    • Provided that Registrar, shall, before making such order of removal, give the person concerned an opportunity of being heard.

Societies taking Services of Members

Rule 5.k: Gujarat Cooperative Society Rules: The Scale of remuneration to be paid to a member who has rendered any service to the society

From the above rule, it clear that Society can avail services from Members (who do not fall under definition of Officers) on chargeable basis.

Reference

  1. Gujarat Co operative Societies Act, 1961
  2. Related Party Transactions – Companies Act 2013

2 thoughts on “Related Party Transaction in Cooperative Society

  1. Dear Sir,

    Is it mandatory to call extraordinary GBM to appoint an executive committee while taking charge from builder or just resignation of builder appointed committee and formation of new committe by recording the resolution.

    Also is it necessary to communicate the details of the new commitee to the district registrar?

    Thanks

    1. 1. Society handover will happen between existing committee and new committee and not from builders in books. On books as per RERA developer have to handover the society within 3 months of Building Usage (BU) Permission
      2. As per election rules for housing societies, any vacant position in housing society has to be filled by way of election unless the terms of the committee is more than 2.5 years. In this case the whole committee will change and thus not be applicable.
      3. New committee is formalised only after SGM and thus it is mandatory to call SGM
      4. It is not necessary to communicate new committee details to the registrar.

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