Short Answer

A society must maintain its Reserve Fund and Sinking Fund accounts separately and manage them strictly as per Section 66 and Section 67 of the Gujarat Cooperative Societies Act, 1961 and Rule 36 of the Gujarat Cooperative Societies Rules, 1965. These funds are meant for long-term stability and maintenance — they cannot be used for day-to-day expenses without prior approval from the Registrar of Cooperative Societies.

Detailed Explanation

The Gujarat Cooperative Societies Act, 1961 mandates that every registered cooperative housing society must create and manage specific statutory funds to ensure the society’s financial health and structural safety over time. The two primary funds are the Reserve Fund and the Sinking Fund, both of which serve distinct purposes and have regulated usage.

• Reserve Fund (Section 66):

The Reserve Fund is created out of the society’s annual profits.

Every year, at least 25% of the net profits must be transferred to this fund.

The fund is meant to strengthen the society’s finances, cover unexpected liabilities, and maintain long-term sustainability.

The amount in this fund must be invested safely, such as in fixed deposits, government securities, or cooperative banks approved by the Registrar.

The society cannot withdraw or use any portion of the Reserve Fund without prior written permission from the Registrar.

• Sinking Fund (Section 67 and Rule 36):

The Sinking Fund is specifically meant for major repairs, reconstruction, or replacement of building parts such as roofs, walls, water tanks, or lift systems.

Contributions to this fund are made annually by all members, usually as part of maintenance charges.

The contribution rate (for example, 0.25% to 0.5% of building cost per year) is decided by the General Body in consultation with the Registrar’s guidelines.

The fund must be kept separately from the society’s operational accounts and deposited in a dedicated bank account.

The society can only withdraw from the Sinking Fund after a General Body Resolution and approval from the Registrar, typically for major repair works or redevelopment expenses.

• Rules for Handling the Funds (Rule 36 of GCSR, 1965):

Both funds must be reflected as separate line items in the annual balance sheet and audit report.

The amounts cannot be used for routine maintenance, staff payments, or other administrative expenses.

Any misuse or unapproved withdrawal from these funds is considered a financial irregularity under the Act, and responsible committee members can face action under Section 93.

Real-world Scenarios

Scenario 1: A cooperative housing society in Ahmedabad maintains a Reserve Fund for financial security and a Sinking Fund for building repairs. After 20 years, the society uses the Sinking Fund (with Registrar approval) to repair the entire terrace and drainage system.

Scenario 2: A Surat society improperly used its Reserve Fund to pay for lift maintenance. The Registrar intervened, fined the committee, and directed them to restore the fund amount.

Scenario 3: In Vadodara, a society accumulated ₹10 lakh in its Sinking Fund over 15 years, later using it (after members’ approval) for repainting and waterproofing the entire building.

Step-by-step process for managing these funds:

Annually transfer 25% of net profits to the Reserve Fund.

Collect Sinking Fund contributions from members along with maintenance.

Maintain separate bank accounts for each fund.

Record transactions transparently in the balance sheet and audit reports.

Seek Registrar approval before using funds for major repairs or emergencies.

References

Section 66 – Reserve Fund, Gujarat Cooperative Societies Act, 1961: Official PDF

Section 67 – Other Reserve and Sinking Funds, Gujarat Cooperative Societies Act, 1961: Official PDF

Rule 36 – Management of Funds, Gujarat Cooperative Societies Rules, 1965: Official PDF