The Multi-State Cooperative Societies (Amendment) Bill, 2022

July 28, 2023

GS Paper II Indian Polity and Governance

Context: Recently, the Multi-State Cooperative Societies (Amendment) Bill, 2022, was passed by the Lok Sabha to amend the Multi-State Cooperative Societies (MSCS) Act, 2002

Probable Question:

Q. Discuss the challenges faced by the cooperative sector. How does the Multi-State Cooperative Societies (Amendment) Bill, 2022 seek to address them?

About Multi-State Cooperatives:

Multi-State cooperatives are those which have operations in more than one State and are registered.
- For example: Agriculture Development Cooperative Federation
They are registered under the Multi-State Cooperative Societies Act of 2002 with the Central Registrar.
The Board of Directors is from all the States these collectives operate in and controls all finances and administration functions.

Need of the Multi-State Cooperative Societies (Amendment) Bill, 2022 Bill:

In Sync with the Constitutional (Ninety-Seventh) (Amendment) Act, 2011: Amendment to the Multi-State Cooperative Societies Act, 2002 is necessary to be in consistency with the Constitutional (Ninety-Seventh) (Amendment) Act, 2011.
Plugging Loopholes: It aims to plug loopholes in the existing legislation and to strengthen governance in the Multi State Cooperative Societies , in accordance with the following Cooperative Principles, namely:
- Voluntary and Open Membership; Democratic Member Control; Member’s Economic Participation; Autonomy and Independence; Education, Training and Information; Cooperation among Cooperatives; and Concern for Community.
Ease of Doing business: The Bill would expedite the registration process and ensure ease of doing business.

Key Provisions of the Multi-State Cooperative Societies (Amendment) Bill, 2022 Bill:

Provision	Multi-State Cooperative Societies Act of 2002	Multi-State Cooperative Societies (Amendment) Bill, 2022
Election of Board Members	Under the Act, elections to the board of a multi-state co-operative society are conducted by its existing board.	It establishes the Co-operative Election Authority to conduct and supervise elections to the boards of multi-state co-operative societies. 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 with at least two-thirds of the members consent
Fund for sick co-operative societies:	—	The Bill establishes the Co-operative Rehabilitation, Reconstruction and Development Fund for revival of sick multi-state co-operative societies. Multi-state cooperative societies that are in profit for the preceding three financial years shall finance the Fund.
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	The Bill amends to provide that any shares held by the central and state governments cannot be redeemed without their prior approval.
Redressal of Complaints	–	The central government will appoint one or more Cooperative Ombudsmen with territorial jurisdiction.

Concern related to Bill:

Reviving sick co-operative societies may burden profitable societies: The Bill is effectively imposing a cost on well-functioning co-operatives to bail out poorly functioning ones.

Advantages of cooperative society:

Democratic Management: A cooperative society is managed in a democratic manner. It is based on the principle of ‘one man one vote’. All members have equal rights and can have a voice in its management.
Limited Liability: The liability of the members of a co-operative society is limited to the extent of capital contributed by them. They do not have to bear personal liability for the debts of the society.
Stability: A co-operative society has a separate legal existence. It is not affected by the death, insolvency, lunacy or permanent incapacity of any of its members.
Easy to Form: A cooperative society is a voluntary association and may be formed with a minimum of ten adult members. Its registration is very simple and can be done without much legal formalities.
Open Membership: Membership in a cooperative organization is open to all people having a common interest. A person can become a member at any time he likes and can leave the society at any time by returning his shares, without affecting its continuity.

Issues with the Cooperative Sector:

Lax Corporate Governance: Poor standards of governance combined with political influence hinders their day-to-day functioning.
Competition from Private Businesses: Private businesses often have more resources and can offer products and services at lower prices, which can make it difficult for cooperatives to compete.
Lack of Skilled Management: Many cooperatives lack skilled management, which can hinder their effectiveness and efficiency.
Limited government support for the cooperative sector has hindered its growth and development.
Inadequate Professionalism:Often, cooperative societies lack skilled professionals who can handle financial and operational aspects effectively.
Inadequate Technology Adoption: Many cooperative societies still rely on manual processes and outdated technology.
Market Competition: The cooperative sector faces competition from private and public entities, which may offer similar services.
Rampant Corruption: Offering or accepting bribes to influence decisions or secure favourable treatment within the cooperative society is a common norm.

Constitutional Provisions:

The 97th constitutional amendment, Part IXB (The Co-Operative Societies) was inserted into the Constitution.
The right to form cooperative societies was included as the Right to Freedom under Article 19 (1).
Article 43-B (Promotion of Cooperation societies) was also inserted as one of the Directive Principles of State Policy.
The subject ‘cooperative societies’ is mentioned in entry 32 of the State List under the Seventh Schedule of the Constitution.
2021: Ministry of Cooperation was created by the Government of India for realising the vision of ‘Sahkar se Samriddhi’.

Way Forward:

Local Factor: Cooperative societies should be formed while taking the local environment into account.
Abolition or Merger: The weak and inefficient cooperative societies should either be abolished or merged with strong and efficient ones
Financial and technical assistance: The government could provide more financial and technical assistance to cooperatives to help them grow and thrive..
More Access to financial resources: Cooperatives could be given greater access to financial resources, such as loans and grants, to help them grow and expand.

Additional Information:

Magnitude of Cooperative Sector in India:

Currently, there are about 10 lakh cooperatives, of which 1.05 lakh are financial cooperatives.
India has 1,514 primary urban cooperative banks (UCBs), of which, 52 are scheduled and the rest unscheduled, some are multi-State UCBs.
Among the financial co-operatives, rural cooperatives have a three-tier system with around 1.02 lakh primary agricultural cooperative societies (PACS), 351 District Central Cooperative Banks (DCCBs), 34 State Cooperative Banks (SCBs), besides 616 rural cooperatives for long-term lending.

News Source: The Hindu