The Multi-State Co-operative Societies (Amendment) Act, 2023 —Key Provisions, Issues, and Analysis

Introduction

The Multi-State Co-operative Societies (Amendment) Act, 2023 has been implemented to amend the Multi-State Cooperative Societies Act, 2002 that came into force 20 years ago. The Amendment Act 2023 aims at empowering cooperatives by bringing transparency to their functioning, facilitating elections at regular intervals, and laying out specific criteria for the appointment of employees, so as to prevent favouritism. It focuses on complying with the provisions stated under Part IXB of the Constitution and dealing with the issues of administration and functioning of the cooperative societies.   

What are Cooperatives?

Cooperatives, or cooperative societies, are groups of people having common needs and economic interests, who voluntarily come together for the purpose of self-help and mutual help as well as helping the other sections of society. These are democratic and independent associations that are administered by their members. All the policies are framed and all the decisions are taken by these members. Some examples of cooperative societies are Indian Farmers Fertiliser Cooperative Limited (IFFCO) and Amul Dairy.   

The Need for Cooperatives

Cooperative societies play an important role in covering a number of aspects of community development. So, the First Five-Year Plan (1951–56) laid emphasis on the establishment of co-operatives.

What the Constitution Says regarding Cooperatives

With the 97th Amendment (in 2011), Article 43B (Directive Principles of State Policy) was inserted into the Indian Constitution. It asserts that it is the responsibility of the states to facilitate the following:

• forming cooperative societies;
• ensuring their independent functioning;
• encouraging their democratic control; and
• managing the cooperative societies professionally.

Defining Multi-State Cooperative Societies

Multi-state cooperative societies (MSCSs) are cooperative societies that operate in two or more states. They can function in various sectors, such as agriculture, poultry, textile, marketing, etc. For example, Farmer-Producers Organisation (FPO) obtains grains from farmers of different states. Other examples of MSCSs are the IFFCO, the National Agricultural Cooperative Marketing Federation (NAFED), the British Council, etc. The multi-state cooperatives are formed and operated as per the provisions of the Multi-State Cooperative Societies Act, 2002.

Problems related to the Functioning of Cooperative Societies

Cooperative societies have been facing many problems with respect to their functioning. Some of these problems are mentioned as follows:

• There is a lack of proper governance.
• Cooperatives have been politicised, and the government plays an excessive role in their functioning.
• Active membership is not ensured.
• No heed is paid to the capital formation.
• Competent professionals are not inclined to join these societies.
• Elections to cooperative boards are often delayed for an indefinite period.  

Key Provisions of the Multi-State Co-operative Societies

(Amendment) Act, 2023

Some of the main provisions of the Amendment Act, 2023 are as follows:

1. The categorisation of the MSCSs that are involved in the thrift and credit business will be based on their deposits into various categories, including micro, small, medium, and large.
2. MSCSs cannot issue funds or loans against their own shares kept as security.
3. An MSCS can redeem the shares held by the central government (or the state government, or the National Cooperative Development Corporation, or any corporation owned by the government or any government company) in the cooperative only with their prior approval. However, the Act of 2002 states that the MSCS can redeem such shares, subject to the bylaws of the society.
4. All MSCSs shall contribute a certain amount to the Cooperative Education Fund, which is regulated by the central government. The fund will be headed by the secretary, the Ministry of Cooperation as its chairperson. One per cent of the net profit of every year earned by such societies shall constitute this amount. Besides, it shall be credited within six months from the closing of the relevant financial year.
5. The central government is responsible for appointing one or more Cooperative Ombudsmen for the purpose of redressal of complaints made by the members. The territorial jurisdiction of such ombudsman shall be notified by the central government. The entire process of inquiry and adjudication shall be completed by the ombudsman within three months from the filing of the complaint. If the aggrieved member is not satisfied with the directions of the ombudsman, he/she can appeal against them to the Central Registrar (appointed by the central government) within a month.
6. Under sub-section (1) of section 106, if any member wants to gather information, he/she shall submit an application either in writing or via electronic means to the Cooperative Information Officer. The Right to Information (Regulation of Fee and Cost) Rules, 2005 states the provisions regarding the amount of application fee, other fares for sharing the information, and the manner of payment.
7. An objective, transparent, and familiar competitive process would be used to recruit employees at different levels. Such a process would include educational and experience criteria specified in the bylaws of the society.
8. The following criteria should be met by the person who would be appointed as Chief Executive (CE) of a non-credit MSCS:

• He/she shall have graduated or have a diploma in commerce, humanities, law, agri-business management, fisheries management, cooperative business management, dairy-sector management, science and technology, cost accountancy, chartered accountancy, or any other relevant field.
• He/she shall have work experience in the cooperative sector of at least three years.

9. If a meeting has been demanded by one-fourth of the board members, it is the responsibility of the CE to hold a board meeting.
10. If the CE has attained the age of 70, he/she has to resign from this post. However, with the prior approval of the central registrar, he/she can continue working as the CE even after turning 70. In addition to this, a special resolution, containing the explanatory statement along with the notice for such a motion, should be passed. This would serve as an evidence for justifying the appointment of such persons.
11. The Cooperative Election Authority should be formed by the central government to conduct and regulate elections to the boards of MSCSs. The authority will comprise a chairperson, a vice-chairperson, and three other members. All of these will be appointed by the central government with the consent of a selection committee. As per the Act of 2002, the existing board of a multi-state co-operative society used to conduct such elections.
12. The time limits for the submission of annual accounts would be extended to 15th May every year.
13. The Cooperative Rehabilitation, Reconstruction and Development Fund shall be set up. The profitable MSCSs (i.e., the cooperatives that have earned profit in the last three financial years) are required to contribute either one crore rupees or one per cent of their net profits to this fund, whichever is less. The purpose of this fund is to extend help and support to the sick MSCSs.
14. The state cooperatives can merge with the existing MSCSs in accordance with the respective state laws. However, as per the Act of 2002, the MSCSs can be merged with other societies or divided by passing a resolution at a general meeting. Such a resolution should be passed with at least two-thirds of the members present and voting.

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A sick MSCS refers to a society that has to bear cash losses in the past two financial years and whose total losses are equivalent to or more than the sum of its paid-up capital, free reserves, and surpluses.

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Issues and Analysis

• As per the Amendment Act of 2023, a fund financed by the profitable MSCSs will be used for the revival of the sick MSCSs. Consequently, the well-functioning cooperatives would have to effectively bear a cost to save the cooperatives running in loss; however, it would not be appropriate to impose a financial burden on profitable cooperatives. Besides, under the Companies Act, 2013, it is not compulsory for an established company to provide for the revival of sick companies.

It was recommended by the High Powered Committee on Cooperatives (HPC) (2009) that a National Cooperative Rehabilitation and Institutional Protection Fund should be formed for the revival of sick units. Besides, the state governments should make their contribution to the fund.  

• The Amendment Act of 2023 gives the power to the government to prohibit the MSCSs from redeeming its shares. That is, the cooperatives cannot redeem the shares held by the central and the state governments without their prior approval. This opposes the principles of autonomy and independence, as stated for the cooperative societies in the First Schedule of the 2002 Act. However, it may provide the government with control over malfunctioning cooperatives.
• It has been recommended by the HPC 2009 that the government should not participate in the share capital of the cooperatives, as it results in government control, which could take away the autonomy of the cooperatives. It further suggested that the government can aid these cooperatives by providing them with grants and interest-free loans. Even if the initial share capital has been provided by the government, the cooperatives must redeem them at the earliest.

Conclusion  

The progressive role of the cooperative sector is very important for India to become a US$ 5 trillion economy. As the work of the cooperatives has been extended to various areas, such as LPG and petrol pump dealerships, there is a possibility of a significant increase in the number of jobs in this sector.

 

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