PERSPECTIVE: The Multi-State Cooperative Societies (Amendment) Bill, 2023

SANSAD TV| PERSPECTIVE: The Multi-State Cooperative Societies (Amendment) Bill, 2023

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Context

• The Rajya Sabha gave its green light to the Multi-State Cooperative Societies (Amendment) Bill 2023.

Details:

• This Bill introduces significant amendments to the Multi-State Cooperative Societies (MSCS) Act.

These modifications aim to enhance the transparency and accountability of these cooperatives’ operations in a bid to improve governance. The MSCS Act has not seen changes since 2002, making these updates noteworthy.

• The Lok Sabha had previously approved the Bill.
• One of the key provisions in the amendments empowers the Centre to suspend an MSCS Board if it fails to meet within a prescribed time frame.
• The Union government also establishes a process for the liquidation of such cooperatives.
• To improve multi-state cooperative societies’ governance, the Bill includes provisions for the creation of a cooperative election authority, cooperative information officer, and a cooperative ombudsman.
• The election authority will ensure that elections are conducted in a fair, free, and timely manner, thus reducing complaints and malpractices.
• Furthermore, the Bill includes a provision to disqualify offenders from elections for three years, enhancing electoral discipline. The ombudsman will establish a structured system for member grievance redressal.

Introduction:

• Co-operatives are voluntary, democratic, and autonomous organisations controlled by their members who actively participate in their policies and decision-making.
• Even before formal cooperative societies were formed in India, there were instances of village communities collectively creating assets like village tanks and forests.
• After independence, the first five-year plan (1951-56), emphasised the adoption of co-operatives to cover various aspects of community development.
• Multi-state cooperative societies operate in more than one state. These operate in various sectors such as agriculture, textile, poultry, and marketing. 

Highlights of the bill:

• The Bill amends the Multi-State Co-operative Societies Act, of 2002. It establishes the Co-operative Election Authority to conduct and supervise elections to the boards of multi-state co-operative societies.
• A multi-state co-operative society will require prior permission from government authorities before the redemption of their shareholding.
• A Co-operative Rehabilitation, Reconstruction, and Development Fund will be established for the revival of sick multi-state co-operative societies. The Fund will be financed through contributions by profitable multi-state co-operative societies.
• The Bill allows state co-operative societies to merge into an existing multi-state co-operative society, subject to the respective state laws.

Key Issues and Analysis:

• Sick multi-state co-operative societies will be revived by a Fund that will be financed through contributions by profitable multi-state co-operative societies. This effectively imposes a cost on well-functioning societies.
• Giving the government the power to restrict the redemption of its shareholding in multi-state co-operative societies may go against the cooperative principles of autonomy and independence.

About Key Features:

Election of board members:

• Under the Act, elections to the board of a multi-state co-operative society are conducted by its existing board. The Bill amends this to specify that the central government will establish the Co-operative Election Authority to:
  • Conduct such elections,
  • Supervise, direct, and control the preparation of electoral rolls, and
  • Perform other prescribed functions.
• The Authority will consist of a chairperson, vice-chairperson, and up to three members appointed by the central government on the recommendations of a selection committee.

Amalgamation of co-operative societies:

• The Act provides for the amalgamation and division of multi-state co-operative societies. This can be done by passing a resolution at a general meeting with at least two-thirds of the members, present and voting. 
• The Bill allows state co-operative societies to merge into an existing multi-state co-operative society, subject to the respective state laws.
• At least two-thirds of the members of the cooperative society present and voting at a general meeting must pass a resolution to allow such a merger.

Fund for sick cooperative societies:

• A sick multi-state co-operative society is one that has:
  • Accumulated losses equal to or exceeding the total of its paid-up capital, free reserves, and surpluses, and
  • Suffered cash losses in the past two financial years.
• Multi-state co-operative societies that are in profit for the preceding three financial years shall finance the Fund. They will deposit either one crore rupees or one percent of their net profit into the Fund, whichever is less.

Restriction on redemption of government shareholding:

• The Act provides that the shares held in a multi-state co-operative society by certain government authorities can be redeemed based on the bye-laws of the society.
• These government authorities include:
  • The central government,
  • State governments,
  • The National Co-operative Development Corporation,
  • Any corporation owned or controlled by the government, or
  • Any government company.
• The Bill amends this to provide that any shares held by the central and state governments cannot be redeemed without their prior approval.

Redressal of complaints:

• As per the Bill, the central government will appoint one or more Co-operative Ombudsman with territorial jurisdiction.
• The Ombudsman shall inquire into complaints made by members of multi-state co-operative societies regarding:
  • Their deposits,
  • Equitable benefits of the society’s functioning, or
  • Issues affecting the individual rights of the members.
• The Ombudsman shall complete the process of inquiry and adjudication within three months from the receipt of the complaint. Appeals against the directions of the Ombudsman may be filed with the Central Registrar (who is appointed by the central government) within a month.

Cooperative Societies in India:

• A Cooperative Society can be defined as a voluntary association of individuals united voluntarily to meet their common economic, social, and cultural Interests.
• It aims to serve the interest of society through the principle of self-help and mutual help.
• The roots of cooperative Societies in India were sown when the first Cooperative Societies Act was passed in 1904.
• The Government Passed the Co-operative Societies Act of 1912.
• In 1958, the National Development Council (NDC) recommended a national policy on cooperatives and the setting up of Cooperative Marketing Societies.
• National Cooperative Development Corporation (NCDC) was set up under the National Cooperative Development Corporation Act, of 1962.
• Union Government announced a National Policy on Cooperatives in 2002.
• The 97th Constitutional Amendment Act of 2011 granted constitutional status and protection to cooperative societies. This Amendment introduced 3 changes in the Constitution:
• It made the right to form cooperative societies a fundamental right (Article 19 ).
• It included a new Directive Principle of State Policy on the promotion of cooperative societies (Article 43B).
• It added Part IX-B in the Constitution “The Co-operative Societies” (Articles 243-ZH to 243-ZT).

Provisions under the Indian Constitution:

• Indian Constitution under Part IX-B contains various provisions related to cooperative societies.
• The state legislature may make provisions for the incorporation, election, regulation, and winding-up of cooperative societies.

Organisation Structure:

• The board shall consist of some directors as may be provided by the state legislature, but, the maximum number of directors of a cooperative society shall not exceed 21.
• The state legislature shall provide for the reservation of one seat for the Scheduled Castes or the Scheduled Tribes and two seats for women on the board of every cooperative society having members from such a category of persons.
• The functional directors of a cooperative society shall also be the members of the board and such members shall be excluded to count the total number of directors (21).
• The term of office of elected members of the board and its office bearers shall be 5 years from the date of the election.

Concerns related to cooperative societies:

• Cooperative Societies usually do not come forward to organise cooperatives of their consensus, many times it is done by the government or local administration.

• The cooperatives have limited resources.
• They grant loans only for agricultural operations. Farmers approach the money lenders to meet their other requirements.
• Lack of co-operation, as the people rarely understand the importance of cooperation in their lives. The absence of willing cooperation on their part hinders the growth of the cooperative movement.
• Political interference acts as a barrier to the growth of cooperative societies. The selection of beneficiaries is mostly done on political relations.
• The cooperative credit structure is criticized on the ground that it is mostly managed by landlords and large farmers.
• Poor performance, increasing debt and overdue, inefficient administration and management of Cooperative societies.

Way Forward:

• Need to ensure transparency in the processes and independence in the functioning of Boards.
• Good Cooperative management includes setting up clear objectives, accountability, sound planning, and establishing performance evaluation measures.
• The objectives of the cooperative societies must be recognized in their long-term strategy.
• Increase access to competitive and affordable external financing.
• Better operational and financial performance through improved strategic decision-making.
• Take a comprehensive approach including working with the government, other institutions, and the public.
• Take a practical, ground-level approach.
• Improve the decision-making process, and introduce specialists at the board meeting.
• Put the right people in the right place, and don't let internal organizational structures be politically influenced.

Conclusion:

• The Act provides that the central government may give directions and supersede the boards of malfunctioning multi-state co-operative societies, where the central government has a shareholding of at least 51%.  
• Restricting the redemption of government shareholding would ensure that malfunctioning multi-state co-operative societies cannot pre-emptively redeem government shares before the supersession of the board.
• However, the Bill proposes to empower the government to supersede the boards of any multi-state co-operative society where the government has any shareholding or has extended any loan, financial assistance, or guarantee.

CITATIONS:

https://sansadtv.nic.in/episode/perspective-he-multi-state-co-operative-societiesamendmentbill-2022-27-july-2023

https://www.livelaw.in/news-updates/parliament-passes-multi-state-cooperative-societies-amendment-bill-2023-234219

https://prsindia.org/billtrack/the-multi-state-co-operative-societies-amendment-bill-2022

https://www.livelaw.in/articles/multistate-cooperative-societies-amendment-bill-234607

https://www.cnbctv18.com/business/mscs-multi-state-cooperative-societies-amendment-bill-india-promises-new-era-17334281.htm

https://www.rediff.com/business/report/rajya-sabha-passes-multi-state-cooperative-societies-amendment-bill/20230802.htm