Why Government is Amending Cooperative Societies Act?

Relevance of Cooperative Societies  for UPSC

Cooperative Societies: Cooperative Societies covers GS Paper 2: Government Policies & Interventions, GS Paper 3: Growth & Development, Industrial Growth.

Why Cooperative Societies in News?

Cooperative Societies are in news because the bill to amend the Multi­ State Cooperative Societies (MSCS) Act, 2002, was introduced in the Lok Sabha on December 7, 2022.

What are Multi ­State cooperative Societies?

• According to the International Coopera­tive Alliance (ICA), cooperative Societies are peo­ple­ centered enterprises jointly owned and democratically controlled by and for their members to realize common economic, social and cultural needs and aspirations.
• Multi­ State cooperatives are societies that have operations in more than one State — for instance, a farmer­producers organisa­tion which procures grains from farmers from multiple States.
• The board of direc­tors are from all the States these collectives operate in and control all the finances and administration.
• There are close to 1,500 MSCSs registered in India with the highest number being in Maharashtra.

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What are the issues with the cooperative sector?

• The independent and autonomous charac­ter of cooperative societies was to be crucial in their functioning. However, H.S. Shylendra, professor at the Institute of Ru­ral Management, Anand (IRMA) points out in a 2021 paper that the inclusion of coop­eratives in the planning process as deve­lopment instruments made the sector an avenue for dispensing patronage to the supporters of ruling political parties.
• Mo­reover, the policy of State governments to contribute to the share capital of the coop­eratives enabled governments, “in the name of public interest” to directly inter­vene in the working of cooperatives which are legally autonomous.
• Notably, the po­tency of cooperatives as an apparatus of political control can be seen in States such as Maharashtra, Kerala, Gujarat, parts of Karnataka, Tamil Nadu, Madhya Pradesh and West Bengal. Besides,
• MSCSs were formed to ease the operation of collectives throughout the country. On the contrary, IRMA researcher Indranil De points out that in spite of their potential, MSCSs are facing issues regarding trust, which is the very basis of cooperation.
• This has brought MSCSs under multiple controls from the Centre. Monitoring is one of the important institutional functions in a col­lective organisation but if monitored from much above, it takes a top­ down approach as opposed to a grassroots one.

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Which are the Constitutional Provisions Regarding Co-Operative Societies?

• The Constitution (97th Amendment) Act, 2011 added a new Part IXB right after Part IXA (Municipals) regarding the cooperatives working in India.
• The word “cooperatives” was added after “unions and associations” in Article 19(1)(c) under Part III of the Constitution.
• This enables all the citizens to form cooperatives by giving it the status of fundamental right of citizens.
• A new Article 43B was added in the Directive Principles of State Policy (Part IV) regarding the “promotion of cooperative societies”.

What was Supreme Court’s Judgement on Co-Operative Societies in the Year 2021?

• In July, 2021, the Supreme Court struck down certain provisions of the 97th Amendment Act, 2011.
• It gave a major boost for federalism as the amendment shrank the exclusive authority of States over its co-operative societies.
• Part IX B dictates the terms for running co-operative societies.
• As per the SC, Part IX B (Articles 243ZH to 243ZT) has “significantly and substantially impacted” State legislatures’ “exclusive legislative power” over its co-operative sector.
• Also, the provisions in the 97th Amendment were passed by Parliament without getting them ratified by State legislatures as required by the Constitution.
• The SC held that states have exclusive power to legislate on topics reserved exclusively to them (cooperatives are a part of State list).
• The 97th Constitutional Amendment required ratification by at least one-half of the state legislatures as per Article 368(2).
• Since the ratification was not done in the case of the 97th amendment, it was liable to strike it down.
• It upheld the validity of the provisions of Part IX B which are related to Multi State Cooperative Societies (MSCS).
• It said that in case of MSCS with objects not confined to one state, the legislative power would be that of the Union of India.

Why does the Government Wants to Amend the Co-Operative Societies Act?

• To plug the “loopholes” in the Multi State Co-Operative Societies Act(MSCS Act, 2002) the Centre introduced a Bill seeking to amend the  law for more “transparen­cy” and “ease of doing business”.
• The amendments have been introduced to im­prove governance, reform the electoral process, strengthen monitoring mechan­isms and enhance transparency and ac­countability.
• The Bill also seeks to improve the composition of the board and ensure financial discipline, besides enabling the raising of funds in multi ­State cooperative societies.

What will be the key changes?

• The Bill provides for the creation of a central Co­operative Election Authority to supervise the electoral functions of the MSCSs.
• The Authority will have a chairper­son, vice­ chairperson, and up to three members appointed by the Centre.
• It also envisages the creation of a Co­op­erative Rehabilitation, Reconstruction and Development Fund for the revival of sick multi­ State co­operatives societies.
• This fund shall be financed by existing profita­ble multi­ State co­operative societies which will have to deposit either ₹1 crore or 1% of the net profit into the Fund.
• In order to make the governance of mul­ti­ State cooperative societies more demo­cratic, the Bill has provisions for appoint­ing a Cooperative Information Officer and a Cooperative Ombudsman.
• To promote equity and facilitate inclusiveness, provi­sions relating to the representation of wo­ men and Scheduled Caste/Tribe members on the boards of multi-­State cooperative societies have also been included.

What Next?

In 1991, the Choudhary Brahm Perkash Committee of the planning commission made far ­reach­ing recommendations to reorgnise multi­ State cooperatives but the Act has not been modified as per the report. So, its high time to refresh the act as per the need of today’s times.

FAQs on Cooperative Societies Act

Q1. Which Constitutional Amendment Act deals with Cooperative Societies in India?

Ans. The Constitution (97th Amendment) Act, 2011 added a new Part IXB right after Part IXA (Municipals) regarding the cooperatives working in India.

Q2. Which are MSCSs?

Ans. Multi­ State cooperatives are societies that have operations in more than one State — for instance, a farmer­producers organisa­tion which procures grains from farmers from multiple States.

Q. Has the word “cooperatives” any mention in article 19 of Indian Constitution?

Ans. The word “cooperatives” was added after “unions and associations” in Article 19(1)(c) under Part III of the Constitution.

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