MULTI-STATE COOPERATIVE SOCIETIES (AMENDMENT) BILL, 2022 - POLITY

News: On amending the cooperative societies Act

 

What's in the news?

       The Bill to amend the Multi-State Cooperative Societies Act, 2002, was introduced in the Lok Sabha on December 7.

       Opposite parliamentarians alleged that the provisions encroached upon the rights of the state government, demanding that it be referred to a Standing Committee.

 

What are Multi-State Cooperatives?

       According to the International Cooperative Alliance (ICA), cooperatives 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 farmer-producers organization 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.

 

Issues with the cooperative sector:

       The independent and autonomous character of cooperative societies was to be crucial in their functioning. However, 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.

       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.

       The MSCSS were formed to ease the operation of collectives throughout the country. On the contrary, MSCSS are facing issues regarding trust, which is the very basis of cooperation.

       Lack of autonomy and multiple controls from the central government leads to ineffective functioning of MSCSS.

 

Key features of the Amendment Bill:

       To plug the loopholes in the MSCSS Act, 2002, the Centre introduced a Bill seeking to amend the 2002 law for more "transparency" and "ease of doing business".

       The amendment also seeks

       to improve governance

       reform the electoral process

       strengthen monitoring mechanisms

       improve the composition of the board and ensure financial discipline

       enabling the raising of funds and

       enhance transparency and accountability.

       The Bill provides for the creation of a Central Co-operative Election Authority to supervise the electoral functions of 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 Co-operative Rehabilitation, Reconstruction and Development Fund for the revival of sick Multi-State Co-operatives Societies.

       This fund shall be financed by existing profitable Multi-State Co-operative 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 Women and Scheduled Caste/Tribe members on the boards of multi-State cooperative societies have also been included.

 

Issues:

       The Bill may lead to "the concentration of power of the center", which could impact the "autonomy" of MSCSS and create potential for "misuse".

       Contradiction with the SC Judgement:

       The constitutional domain of states in regulating cooperative societies was upheld by the Supreme Court last year when it struck down a part of the 97th Constitution Amendment.

       Additional burden on the MSCSS:

       The deposit of either 1 crore or 1% of the net profit by the existing profitable MSCSS into the Co-operative Rehabilitation, Reconstruction and Development Fund will hamper their finances and functions.

 

Go back to basics:

97th Constitution Amendment Act, 2011:

       The Constitution (97th Amendment) Act, 2011 relates to the cooperative societies working in India.

       It aims to overcome all the problems faced by these societies and bring about an efficient way to manage them.

       The 97th Constitution Amendment Act, 2011 provided for amendment of following things:

       It amended Article 19(I) c by inserting, after the words ‘or unions’ the words ‘or Co-operative Societies’.

       It also inserted Article 43B in Part IV of the Constitution as “The State Shall endeavor to promote Voluntary formation, autonomous functioning, democratic Control and professional management of the Co-operative societies” and

       After Part IX-A of the Constitution, Part IX-B was inserted. Part IX-B extended from Article 243ZH to Article 243ZT.

 

Key features:

The Major features of the Act are as follows.

       Incorporation, regulation and winding up of cooperative Societies based on the principles of Voluntary formation, democratic member Control, member economic participation and autonomous functioning;

       Maximum number of directors of a Co-operatives Society to be not exceeding twenty-one members;

       A fixed term of five years from the date of election in respect of the elected members of the board and its office bearers; and an authority or body for the Conduct of elections to a Cooperative Society;

       A maximum time limit of Six months during which board of directors of a Co-operative Society Could be kept under Supersession or suspension;

       Independent professional audit;

       Right of information to the members of the Co-operative Societies;

       Empowering the State Governments to obtain periodic reports of activities and accounts of Co-operatives Societies;

       Reservation of one seat for the Scheduled Castes or the Scheduled Tribes and two Seats for women on the board of every Cooperative Society, which have individuals as members from such categories; and

       Penalties in respect of offences relating to Co-Operatives Societies.

 

Recent SC Judgement:

       The Supreme Court in a 2:1 majority verdict upheld the validity of the 97th constitutional amendment (Part IX B) that deals with issues related to effective management of cooperative societies but struck down a part inserted by it which relates to the Constitution and working of cooperative societies.

       The Amendment introduced clauses dealing with the working of cooperative societies working within a state. It was struck down stating that the subject matter fell in the state list and “belongs wholly and exclusively to the State legislatures to legislate upon” and any change would require the ratification by at least one-half of the state legislatures as per Article 368(2) of the Constitution.

       It is declared that Part IXB of the Constitution of India is operative only in so far as it concerns multi-State co-operative societies both within the various States and in the Union territories of India

       The top court had said if the Centre wanted to achieve uniformity (the reason for Amendment, as quoted by Centre) then the only way available was to take the recourse under Article 252 of the Constitution which deals with the power of Parliament to legislate for two or more states by consent.

       Certain provisions of the amendment pertaining to cooperative societies violated the basic structure of federalism.