BACKGROUND

The Multi-State Cooperative Societies Act, of 2002, which governs cooperatives that serve the interests of members in more than one state, is being amended by this bill. This comprises the 21 national cooperative societies mentioned in the Bill, as well as federal cooperative societies whose membership is restricted to cooperative societies or multi-state cooperative societies.

According to the 2002 Act, a “cooperative society” is a society registered or deemed to be registered under any law relating to cooperative societies for the time being in force in any State. The Indian Cooperative Movement has grown immensely throughout the years. There are 8,54,355^[1] cooperatives in India today, with a membership of 290.06 million people. It is important to note that Maharashtra is one such state with the highest number of cooperative societies, that is 2.3 lakhs with 5 crore members.^[2]

Despite being a State Subject, and cooperation being an issue regulated by the State Governments, there are some cooperative societies which have their members and operations spread across multiple states for essential commodities such as milk and sugar etc.

In terms of operations, many cooperatives function interstate, such as the sugar mills of Karnataka and Maharashtra, which procure sugarcane from farmers from both states. There are 1435 such Multi-State Cooperative Societies operating in India today.^[3] In light of the 97th Constitutional Amendment Act of 2011, which added Part IXB to the Constitution, the Bill proposes to alter the Multi-State Co-operative Societies Act, of 2002.

WHAT IS IN THE BILL?

The Multi-State Co-operative Societies (Amendment) Bill, 2022 has been presented at the table of Parliament for substantial amendments in the areas of reformation in the electoral process of the Boards of the Multi-State Co-operative Societies as well as in establishing better monitoring and implementation of multi-state co-operative societies.
The bill amends Section 41 to reform the composition of the board and Section 45 to establish a ‘Co-operative Election Authority’. The insertion of Section 63A is notable in the establishment of the ‘Co-operative Rehabilitation, Reconstruction and Development Fund’ for the revival of the ailing and sick multi-State co-operative societies.
Sections 70A, Chapter IXA, and amendment of Section 104 have been brought about to increase monitoring through a concurrent audit, redressal of complaints, and increase of monetary penalties, respectively.
The bill is attempting to augment the information dissemination and transparent governance of multi-State co-operative societies through Sections 106 and 120A respectively by appointing a Co-operative Information Officer and electronic filing of documents, applications, returns, and statements of accounts.

Key Highlights of the Bill

Here are the significant Sections and Clauses of the Amendment Bill:

1. Substitution of Section 35

According to the Act, a member may redeem their shares of a cooperative organisation in accordance with the bylaws. Shares must be redeemed for their face value.
The cooperative society may refund the share capital that the government has kept, according to a proviso added to the bill. Shares may be redeemed for their face value or book value, whichever is higher.

Amendment of Section 41: Through Clause 15, the 2023 Bill aims to amend Section 41 of the Principal Act by reserving a seat for the Scheduled Castes, Scheduled Tribes, and women in the Board of Directors, thereby reforming the composition of the Board. This provision can have a significant impact on enhancing representation from minority groups and women in decision-making positions within the Multi-State Cooperatives of the country.
Substitution of Section 45: Clause 17 of the Bill proposes the substitution of Section 45 of the Act, thereby enabling the Central Government to establish a Cooperative Election Authority responsible for conducting elections. The implications of this authority’s power in overseeing elections can be far-reaching, particularly when considering its impact on cooperative governance and the role of state governments.
Amendment of Section 53: Amendment to Section 53 of the Act introduces the establishment of an Audit and Ethics Committee, as well as a Committee on the prevention of sexual harassment at the workplace. This amendment can have significant and diverse implications, not only by enhancing the safety of working conditions for women but also by establishing a formal reporting channel for incidents of sexual harassment.

5. Amendment of Section 63

This section deals with the disposal of net profits from multi-state cooperative societies. The Multi-State Cooperative Societies Act of 2002 mentioned that one per cent of the net profits should be credited to the Cooperative Education Fund maintained by the National Cooperative Union of India Limited (NCUI).
The amendment Bill 2022 grants the Central Government greater discretion on ascertaining the net profits, i.e., one percent credited would be maintained by Central Government, and the proceeds of the same will be utilized by NCUI, as prescribed by the Government.

6. Insertion of Sections 63A, 63B, and 63C

The new Bill has also inserted sections 63A, 63B, and 63C for the establishment of a Co-operative Rehabilitation, Reconstruction, and Development Fund with the aim of rehabilitating and reconstructing the ailing societies and extending financial assistance for the development of the multi-state co-operative societies.
Under the subject of disposal of net profits by the Multi-state Cooperative societies in Section 63 of the Principal Act, the amendment proposes that they must credit annually one per cent of their net profits to a co-operative education fund which shall be maintained by the Central Government. The proceeds of this fund will then be further used by the co-operatives’ education and training through the NCUI, or any other agency that the Central Government may deem fit.
The Central Registrar has the power to declare any multi-State co-operative society as sick, and upon declaration, the Central Government may design schemes for its rehabilitation and reconstruction with the approval of the Reserve Bank of India.
The Central Government is also proposing to grant financial assistance (not more than 50%) to societies for infrastructural development that have contributed to the aforementioned fund for the continuous preceding five years.

7. Amendment of Section 70 and insertion of 70A

The section deals with the auditing of the multi-State co-operative societies and the appointment of officials for the same.
The new amendment in Section 70 has incorporated multi-State credit societies with deposits above five hundred crores and multi-State non-credit societies with a turnover of above five hundred crores to be audited by members of the audit panel appointed by the Central Registrar.
The insertion of Section 70A has incorporated a concurrent audit of multi-State co-operative societies with annual turnover or deposits of the amount mentioned above, by the auditor of a panel appointed by the Central Registrar.

8. Insertion of Third Schedule

The amendment bill of 2022 also constitutes the insertion of the Third Schedule, preceded by the first schedule on cooperative principles and the second schedule on the list of national cooperative societies.
The third schedule is for outlining various Acts such as; The Reserve Bank of India Act 1934, The Prevention of Food Adulteration Act 1954, The Prize Chits and Money Circulation Schemes (Banning) Act 1978, The Foreign Trade (Development and Regulation) Act 1992, The Prevention of Money-Laundering Act 2002, etc. for enhancing transparency, accountability, and improving monitoring mechanisms.

DISSECTING THE PROVISIONS

This Bill is considered necessary to achieve consistency with the Constitution (Ninety-Seventh) (Amendment) Act of 2011 and to address certain loopholes in the existing Act. Its new provisions aim to address various issues within Cooperatives, such as financial embezzlements, election-related delays and disputes, biased auditor selection, favoritism in recruitment, and limited member participation. However, as the new bill is envisioning stringent regulation of multi-State co-operative societies, it being a State subject, it’s full impact on the power and federalism held by the State over the matters of the cooperatives is yet to be assessed.

This Amendment Bill aims to enhance the Ease of Doing Business, promote transparency in governance, and facilitate diversity in membership. It streamlines the structure of multi-state cooperative societies and enables more effective regulation. For instance, the Central Registrar, responsible for overseeing multi-state cooperatives under the principal Act, faces various administrative and physical challenges that hamper its effectiveness in resolving complaints. Through improved use of digital tools like e-filing and digital assistance, the 2023 Bill intends to improve the Registrar’s functionality and enhance the convenience of conducting business.
The insertion of sections 63A and 63B, aimed at establishing a new Co-operative Rehabilitation, Reconstruction, and Development Fund, provides the Central Government with an improved ability to manage amounts credited by the multi-State co-operative societies. Previously, net profits were credited to the cooperative education fund maintained by NCUI. However, with the new amendment, funds are allocated to NCUI based on prescriptions set forth by the Central Government. This significantly enhances the influence of the Central Government in the management of these funds.
Under section 63B(1), the Central Registrar possesses the authority to declare Multi-State Cooperative Societies (MSCS) as ailing if they deem it suitable and necessary. This raises the question of whether these changes consider the complete interest of the cooperative societies. However, it should be noted that this occurs due to the insufficient number of monitoring mechanisms for multi-state cooperatives when compared to state cooperatives.
The 97th Constitutional Amendment Act 2011, which inserted Part IXB in the Constitution, also contains Articles 243ZH and 243ZI distinguishing between the Cooperative Societies of State and Multi-State Cooperative Societies governed by the Union Government. A State Cooperative Society under State law and a Multi-State Cooperative Society cannot be combined under any provision of the Constitution. The decision of the Bill to amend this criterion leans towards favouring the Centre over the States.
Clause 6 of the Amendment Bill also seeks to amend Section 17 of the Act by allowing any cooperative society to merge into an existing multi-state cooperative society, going beyond the purview of the Union, as the state-cooperative societies are within the exclusive jurisdiction of the States. The mechanisms and rules for this may be better defined to prevent any potential ambiguity.
Clause 13 requires the Centre’s approval for the redemption of shares of multi-State co-operative societies. Moreso, Clause 45 of the proposed Bill seeks to amend Section 123 of the Act by inserting a provision potentially overriding the authority of the Board of Directors. The Bill also allows for the appointment of an Administrator who may not necessarily be a member of the society. These provisions seem to contradict the principles outlined in the 97th Constitutional Amendment, which emphasizes the autonomous functioning of cooperative societies.
Clause 24 of the Amendment Bill seeks to create a Fund, which could potentially place a burden on the Cooperative Societies, thereby impacting their autonomous functioning.
Clause 45 of the proposed Bill seeks to amend Section 123 of the Act by inserting a provision overriding the Board of Directors and giving the Union the authority to appoint an Administrator who may not be a member of the society. This contravenes the principle of autonomy provided through the 97th Constitutional Amendment.
The Bill text, in accordance with the recommendations of the Joint Parliamentary Committee report, seeks to insert a Section 70A. This section essentially establishes a concurrent audit to be carried out by the appointed panel of auditors. Moreover, it lays down auditing and accounting standards as determined by the Central government.

RECOMMENDATIONS

It is essential to note that the Central Registrar’s operations need to be strengthened. The majority of grievance redressal processes are done online (through the e-grievance section on the Multi-State Cooperative Society website) or via correspondence.^[4] As a

result, the grievance resolution process has changed significantly, being advantageous for primarily those who have easy access to technology. Consequently, grievances may go unaddressed, and there is a possibility of an increase in cases of financial irregularities. In an attempt to make the redressal process more robust, the related Sections in the Amendment Bill must be reworked.^[5]

The 2023 Bill represents a significant legislative effort to increase diversified representation by recomposing the Board of Directors of a Multi-State Cooperative through the amendment proposed in Section 41 of the Act. However, this alone may not bring about change unless the socio-economic benefits of having more minority group representation at all levels of the workforce are accepted and acknowledged. For it to become ingrained in an organization’s culture, top-down messaging is also necessary.

DISCLAIMER: The opinions expressed herein are entirely those of the author(s). Swaniti makes every effort to use reliable and comprehensive information, but Swaniti does not represent that the contents of the report are accurate or complete. Swaniti is a non-profit, non-partisan group. This document has been prepared without regard to the objectives or opinions of those who may receive it.

[NOTE: This Bill analysis is prepared on the basis of information and materials available in media sources or the public domain only. The Bill is yet to be introduced in the Parliament, hence, the note will be updated as and when a text of the Bill is available]

[1] Ministry of Cooperation. 2021. Strengthening the Cooperative Movement.

[2] Article: Maharashtra Cooperative Society Act

[3] National Cooperative Union of India. 2018. Indian Cooperative Movement: A Statistical Profile 2018 .

[4] Office of the Central Registrar of Cooperative Societies. 2022. Notification.

[5] India’s cooperative sector and the Multi-State Cooperative Societies (Amendment) Bill, 2022/ Explained

| India’s cooperative sector and the Multi-State Cooperative Societies (Amendment) Bill, 2022 – The Hindu