The Constitution of India
Article 243ZM
Audit of accounts of co-operative societies
(1) The Legislature of a State may, by law, make provisions with respect to the maintenance of accounts by the co-operative societies and the auditing of such accounts at least once in each financial year.
(2) The Legislature of a State shall, by law, lay down the minimum qualifications and experience of auditors and auditing firms that shall be eligible for auditing accounts of the co-operative societies.
(3) Every co-operative society shall cause to be audited by an auditor or auditing firms referred to in clause (2) appointed by the general body of the co-operative society:
Provided that such auditors or auditing firms shall be appointed from a panel approved by a State Government or an authority authorised by the State Government in this behalf.
(4) The accounts of every co-operative society shall be audited within six months of the close of the financial year to which such accounts relate.
(5) The audit report of the accounts of an apex co-operative society, as may be defined by the State Act, shall be laid before the State Legislature in the manner, as may be provided by the State Legislature, by law.
Why this exists
This Article was added by the 97th Constitutional Amendment in 2011, along with other provisions in Part IXB, to give co-operative societies constitutional recognition and to fix long-standing problems of financial mismanagement, delayed audits, and weak oversight that had plagued many co-operative banks and societies in India. By requiring timely audits from qualified professionals chosen through a transparent, government-approved panel system, the framers hoped to protect depositors' and members' money and bring co-operative governance closer to standards expected of companies and public bodies.
How courts read it
In Union of India v. Rajendra N. Shah (2021), the Supreme Court examined the entire Part IXB (inserted by the 97th Amendment, including this Article) and held that since the amendment dealt with a subject falling within the States' exclusive domain (co-operative societies, a State List entry), it required ratification by at least half the State Legislatures under Article 368(2), which had not been done. The Court struck down Part IXB to the extent it applied to co-operative societies under State laws, though provisions relating to multi-State co-operative societies were allowed to stand. This significantly limited the direct enforceability of Article 243ZM against State-registered co-operative societies.
Common misconceptions
- Myth: Article 243ZM currently applies in full force to all co-operative societies across India.
Fact: The Supreme Court in Union of India v. Rajendra N. Shah (2021) struck down this and related provisions as they apply to State-registered co-operative societies, because the constitutional amendment introducing them wasn't ratified by State Legislatures as required. It largely survives only for multi-State co-operative societies. - Myth: Any member can act as the society's auditor if the general body agrees.
Fact: The auditor must meet minimum qualifications set by State law and be chosen from a panel already approved by the State Government or its authorised body—member approval alone isn't enough.