The PACS Board Meeting With Four Valid Directors and a Loan to the Chairman's Brother
The Krishi Upaj Seva Sahakari Samiti, a primary agricultural credit society with 1,240 members, has a sanctioned board strength of nine and a registered bylaw fixing quorum at five. Its bylaws also provide that a member in default for more than 90 days ceases to be a member until the dues are cleared. The registrar's audit for the last financial year flagged Rs 6.20 lakh outstanding, including Rs 85,000 against director S, whose account has been irregular for seven months.
A board meeting is called at short notice on 18 June with five directors present, including S and the chairman. Four directors, among them the vice-chairman, are absent. The agenda has three items: sanction of a Rs 18 lakh crop loan to the chairman's brother, approval of a lease of the society's shop to a private firm at Rs 9,000 per month, and noting of the audit report. The chairman calls S's default 'technical' and proceeds. All three items are passed unanimously and the minutes are signed the same day.
1. Was the meeting validly constituted? Can it transact business? Give reasons.
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No, and no.
- By the society's own bylaw a member in default for more than 90 days ceases to be a member. S has been irregular for seven months with Rs 85,000 outstanding, so he was not a member on 18 June and could not sit as a director. The chairman's label of 'technical default' has no basis in the bylaw; only the board or the registrar can regularise a default, and no such order is on record.
- Excluding S, only four valid directors were present. Quorum is five. Four is short, so the meeting could not transact business, and the resolutions are not operative.
- Short notice is an independent defect. If the bylaws prescribe seven clear days, absent members can also challenge the meeting on that ground.
Consequence: record the items as transacted without quorum and not operative, and place them before a properly convened meeting. A later ratification does not cure the loan item, because a separate conflict-of-interest defect attaches to it.
2. Analyse the Rs 18 lakh loan to the chairman's brother and the shop lease, and state the correct course.
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Loan - conflict of interest. The borrower is a related party. The chairman must disclose the interest at the start, vacate the chair, abstain from voting, and not be counted in the quorum for that item. Presiding, voting and counting himself in quorum makes the sanction voidable and an automatic audit objection.
Loan - other defects. A Rs 18 lakh exposure is likely beyond the board's delegated sanction limit and should go to the loan sub-committee or follow the registrar's norms; no appraisal, security or repayment schedule is recorded. A single borrower taking Rs 18 lakh while Rs 6.20 lakh is already sticky is a concentration risk for a society of 1,240 members.
Lease. Approved at Rs 9,000 a month with no valuation, no tendered quotation and no reserve price. The society cannot show it obtained the best price, and the auditor will treat it as a lease at an unverified rate.
Correct course: record the disclosure, defer the loan to a fresh meeting with a written appraisal and security, seek the registrar's guidance if the limit is exceeded, and call sealed quotations with a reserve price for the shop.
3. You are the secretary. What do you do with the minutes, the audit para and the lease before the next meeting?
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- Do not sign a clean minute. Record attendance with S's default noted against his name, record the quorum shortfall, record the chairman's ruling, and mark the three resolutions as not operative. The minutes are evidence; a tidy version signed the same day converts an irregularity into a cover-up.
- Convene a fresh meeting with seven days' notice, full agenda and the audit report attached, with a quorum that excludes any defaulter.
- Audit para. Place the Rs 6.20 lakh, including S's Rs 85,000, before the board with a dated recovery plan. If S does not clear the dues, report to the Registrar and proceed under the recovery provisions applicable to cooperative societies rather than letting the default sit on the books.
- Lease. Fix a reserve price, invite sealed quotations, and place a comparative statement before the board before any approval; withdraw the earlier resolution.
- Paper trail. Put your dissent in writing to the chairman the same week, so that the record shows the defects were flagged at the time and not constructed later.