Section 77 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Section 77 lets the Central Government order a special audit of a multi-State co-operative society's accounts where it forms one of three opinions about the way the society is run or its solvency. It sets out who may conduct the audit, the powers of the special auditor, how the report is handled and who bears the expenses. A proviso limits the power to societies in which the Governments hold fifty-one per cent or more. Section 77 was not amended in 2023. It is stated here as per the Ministry of Cooperation copy of the Act read with the Multi-State Co-operative Societies (Amendment) Act, 2023.
If the Central Government is of the opinion that a society is not managed in accordance with self-help, mutual aid and co-operative principles or prudent commercial practices, is being managed in a manner likely to cause serious injury to the trade, industry or business to which it pertains, or has a financial position that endangers its solvency, it may order a special audit. But it cannot do so if the Central and State Governments, by themselves or together, hold less than fifty-one per cent of the paid up share capital or of the shares. The special auditor reports to the Central Government, and the society pays the expenses.
Section 77(1): the three opinions and the order
The sub-section begins "Where the Central Government is of the opinion—". The three grounds are:
| Clause | Opinion |
|---|---|
| (a) | that the affairs of the society are not being managed in accordance with self-help and mutual aid and cooperative principles or prudent commercial practices; or with sound business principles |
| (b) | that the society is being managed in a manner likely to cause serious injury or damage to the interest of the trade, industry or business to which it pertains |
| (c) | that the financial position of the society is such as to endanger its solvency |
Clause (a) is printed "prudent commercial practices; or with sound business principles; or", which reads as a garbled joining of two alternatives. We quote it as printed and do not correct it. The First Schedule sets out the co-operative principles; see our note on the First Schedule.
On forming any of these opinions, "the Central Government may at any time by order direct that a special audit of the multi-state cooperative society's accounts for such period or periods as may be specified in the order, shall be conducted". By the same or a different order it may appoint either "a chartered accountant as defined in clause (b) of sub-section (1) of section 2 of the Chartered Accountants Act, 1949 (38 of 1949)" or the society's own auditor "to conduct with special audit" (as printed). Check the current law for the corresponding provision of the Chartered Accountants Act, 1949.
If you are advising a society on how to respond to such an order, our legal due diligence team can help you review the accounts for the period named.
The limiting proviso
"Provided that the Central Government shall not order for special audit of a multi-state cooperative society's accounts if that Government or the State Government either by itself or both hold less than fifty-one per cent of the paid up share capital or of the shares in such multi-state cooperative society."
So the power can be used only where the Central Government, a State Government, or both together hold fifty-one per cent or more of the paid up share capital or of the shares. The text says "that Government or the State Government either by itself or both", so it counts the holdings of the two Governments together. A society with no Government shareholding, or with a smaller holding, is outside the power on the text. Government share capital and nominee seats on the board are also dealt with in section 48; see our note on Government nominees on the board.
Section 77(2) and (3): the special auditor
Sub-section (2) names the chartered accountant or the society's auditor appointed under sub-section (1) "the special auditor". Sub-section (3): the special auditor "shall have the same powers and duties in relation to the special audit as an auditor of a multi-state cooperative society has under section 73". The proviso says he makes his report "to the Central Government" instead of to the members. For the powers he inherits, see our note on powers and duties of auditors.
Section 77(4) and (5): the report and information
The report "shall, as far as may be, include all the matters required to be included in the auditors' report under section 73 and, if the Central Government so directs, shall also include a statement on any other matter which may be referred to him by that Government."
Sub-section (5): the Central Government "may by order direct any person specified in the order to furnish to the special auditor within such time as may be specified therein such information or additional information as may be required by the special auditor". The direction can go to "any person", not only to officers of the society.
Section 77(6): action on the report and the four-month rule
On receipt of the report, "the Central Government may take such action on the report as it considers necessary in accordance with the provisions of this Act or any other law for the time being in force". The proviso adds a transparency rule: "if the Central Government does not take any action on the report within four months from the date of its receipt, that Government shall send to the multi-state cooperative society either a copy of, or relevant extract from, the report with its comments thereon and require the multi-state cooperative society either to circulate that copy or those extracts to the members or to have such copy or extracts read before the multi-state cooperative society at its next general meeting."
| Step | Who | Timing |
|---|---|---|
| Report | Special auditor to Central Government | Per the order |
| Action | Central Government, as it considers necessary | At its discretion |
| If no action | Central Government sends a copy or extract with comments to the society | After four months from receipt of the report |
| Members informed | Society circulates the copy or extracts, or has them read at its next general meeting | At the society's next general meeting |
The Act does not say what counts as "action" for this purpose.
Section 77(7): expenses
"The expenses of, and incidental to, any special audit under this section (including the remuneration of the special auditor) shall be determined by the Central Government which determination shall be final and paid by the multi-state cooperative society and in default of such payment, shall be recoverable from the multi-state cooperative society as an arrear of land revenue." The society bears the cost; the Central Government's determination is "final"; and unpaid sums are recoverable as arrears of land revenue.
A practical example
The Central Government and a State Government together hold sixty per cent of the paid up share capital of Kosi Multi-State Co-operative Society. The Central Government forms the opinion that the society's financial position endangers its solvency. By order it directs a special audit for the last two financial years and appoints a chartered accountant. The society's officers fail to give him some documents, and the Central Government by order directs a named person to furnish them within a stated time. The special auditor reports to the Central Government. Four months pass without action, so the Government must send the society a copy or extract with its comments, and the society must circulate it or have it read at its next general meeting. Had the Governments held forty per cent, the proviso would have barred the order.
What the 2023 Amendment Act changed
| Provision | Before | After |
|---|---|---|
| s.77 | As printed above | Unchanged |
The 2023 Amendment Act is Act 11 of 2023 and came into force on 3 August 2023 by notification S.O. 3493(E). The principal Act came into force by notification, date not in the source.
Need help with a special audit?
A society that receives a special audit order, or a member who wants to understand what follows a report, should start from the text of section 77 and the order itself. Our legal due diligence team can help you prepare the records and understand the timelines.
Key takeaways
- The Central Government may order a special audit on one of three opinions about management or solvency.
- It cannot do so if the Governments together hold less than fifty-one per cent of the paid up share capital or shares.
- The special auditor has the powers and duties of an auditor under section 73 but reports to the Central Government.
- If no action is taken within four months of the report, a copy or extract with comments goes to the society for circulation or reading at the next general meeting.
- The Central Government determines the expenses, and the society pays; default is recoverable as an arrear of land revenue.
Read next
- Powers and duties of auditors and audit standards (section 73)
- Inquiry by the Central Registrar (section 78)
- Inspection of societies and of books of indebted societies (sections 79 and 80)
- Multi-State Co-operative Societies Act, 2002: complete guide
Disclaimer: Based on the Ministry of Cooperation copy of the Multi-State Co-operative Societies Act, 2002 read with the Multi-State Co-operative Societies (Amendment) Act, 2023 (in force from 3 August 2023), as consulted on 2 October 2026. The Multi-State Co-operative Societies Rules, 2002 as amended, later notifications and later amendments are not covered and should be checked. This article is general information, not legal advice; check the official text before acting.