Opportunities and Challenges in the Multi-State Cooperative Societies Bill

Author: Neha Maria Benny

Context

The Lok Saha passed the Multi-State Cooperative Societies (Amendment) Bill, 2022 in July and the Rajya Sabha in August 2023. As the name suggests, multi-state societies operate in more than one state. The Multi-State Cooperative Societies Act (MSCS) of 1984 was enacted to introduce comprehensive central legislation that facilitates the organisation and functioning of multi-state societies. It aimed to bring uniformity in their administration and management. The Act was later modified in 2002, and this article discusses the recently passed amendments to the Act. 

Cooperative societies are voluntary and autonomous organisations run by actively participating members to fulfil their shared economic, social, and cultural objectives through a jointly owned and democratically managed enterprise. Stemming from agriculture as a means to prevent exploitation by moneylenders in the Indian context, these institutions have been instrumental in empowering rural communities and have been given legal recognition even in pre-colonial times. Post-independence, the Second Five Year Plan (1956-61) stressed “building up a cooperative sector as part of a scheme of planned development” as a part of the National Policy.

 

Key Provisions and Analysis

The Amendment Bill envisages the establishment of a Cooperative Election Authority responsible for conducting elections, supervising electoral roll preparation, and performing other prescribed functions for multi-state cooperative societies. The proposed Authority will consist of a chairperson, vice-chairperson, and up to three members appointed by the Central government through a selection committee.

The Bill permits the appointment of a Cooperative Ombudsman, an official representing the public interest, to redress grievances regarding deposits, equitable benefits of the society or individual rights of the members. It also allows for the merging and division of “any cooperative societies” registered under the State laws to merge into an existing multi-state cooperative society. The merger is subject to a resolution passed with at least two-thirds of the members of the Cooperative Society present and voting at a general meeting. Currently, only MSCS can amalgamate themselves and form a new MSCS.

The Bill directs the creation of a Cooperative Rehabilitation, Reconstruction, and Development Fund to revive sick multi-state cooperative societies with accumulated losses. The fund will be financed by multi-state cooperative societies profiting for the last three years. They will contribute either one crore rupees or one per cent of their net profit, whichever is lesser. The Bill also broadens the government’s powers to give directions and supersede the boards under the Cooperative Societies Act, 2002, to include any multi-state cooperative society where the government holds shares, extends loans, provides financial assistance, or guarantees.

A multi-state cooperative society’s board can have up to 21 directors and co-opt two additional directors. The Bill mandates the inclusion of one Scheduled Caste or Scheduled Tribe member and two women members on the board. Coopted members must have experience in banking, financing, cooperative management, or relevant specialisation. The MSCS Act outlines certain offences by a multi-state cooperative society, its officers, or members, including providing false returns, furnishing false information, or disregarding summons. The fine for such offences ranges from Rs 2,000 to Rs 10,000. The Bill introduces failure to file any return or information as an offence, with fines ranging from Rs 5,000 to one lakh rupees for all these offences.

Issues

While the Multi-State Cooperative Societies (Amendment) Bill, 2022, aims to revitalise the cooperative sector, certain aspects warrant a critical analysis. States like Kerala have opposed these amendments citing them as an encroachment on the States rights, revealing a potential conflict between federal and state authorities. Additionally, the role of the Central Registrar of Cooperative Societies may need to be revisited in this new framework to better define their duties and jurisdiction in the context of these amendments.

The MSCS Act allows certain government authorities, such as the central government, state governments, and National Cooperative Development Corporation, among others, to redeem shares in a multi-state cooperative society as per the society’s bye-laws. If the bye-laws do not address share redemption, it can be done through mutual agreement between the society and the entity.

However, the Bill proposes that shares held by the central and state governments can only be redeemed with their approval. Granting the central and state governments veto powers over the redemption of their shares leads to questions on democratic member control and autonomy of cooperatives. There is, additionally, a need for clear guidelines to ensure that the regulatory bodies function efficiently without stifling the growth and independence of cooperatives. Mandating the profit-earning cooperatives to bail out poorly functioning ones and financially reviving them may be an unbecoming cost to bear, consequently making these contributions insufficient to revive the sick MSCS.