Cooperative Societies and the Impact of the 97th Constitutional Amendment Act in India – (Part 02)

Cooperative societies are vital organizations in India, offering economic, social, and political benefits to their members. The 97th Constitutional Amendment Act of 2011 aimed to strengthen these societies by recognizing their right to exist and operate independently. This amendment established standards for management and accountability, enhancing the cooperative movement’s effectiveness across the country.

The Role and Significance of Cooperative Societies in India

Benefits of Cooperative Societies

• Economic Benefits of Cooperative Societies:

• • • Cooperative societies provide substantial credit to farmers at affordable rates, reducing dependence on money lenders and promoting fair competition.
    • Thrift and self-help habits are fostered among rural communities, with cooperatives educating villagers about banking practices and encouraging the use of banks for productive purposes.
    • The cooperative movement addresses rural unemployment by empowering educated youth to form various cooperative societies, improving their economic conditions.
• Social Benefits of Cooperative Societies:
  • Cooperative societies raise awareness about the negative effects of bad habits, promoting consciousness about wasteful expenses on occasions like marriage and religious ceremonies.
  • Welfare activities, including provisions for drinking water, drainage, hospitals, and scholarships for higher studies, are undertaken by cooperative societies.
  • The cooperative movement fosters a spirit of community living, emphasizing the principle of “all for each and each for all” to promote a sense of unity among people.
  • Members of cooperative societies recognize the importance of education, understanding its role in cooperative functioning and developing a cooperative social outlook, facilitating dispute resolution through mutual discussions.
• Political Benefits of Cooperative Societies:
  • Cooperative societies, through their election methods and representative selection, contribute to political awareness and democratic practices among the people.
  • By promoting local governance and autonomy, cooperatives help in decentralizing power and reducing dependency on centralized political systems. This aspect nurtures local leadership and community-driven development.
  • Cooperatives can collectively lobby for policies and regulations that benefit their members, thereby influencing political decisions and promoting policies that support sustainable and equitable development.

Challenges in the Cooperative Sector

• Legislative and Policy Constraints: The National Cooperative Policy of 2002 points out legislative and policy constraints that impact the autonomy of cooperatives.
• Resource Crunch in Agricultural Credit Societies: A significant challenge in the cooperative sector is the severe resource crunch, particularly affecting agricultural credit societies.
• Infrastructural Constraints in Rural Areas: Rural areas face infrastructural constraints, posing challenges to the effective functioning of cooperatives in these regions.
• Institutional Challenges and Dual Controls: Issues like the lack of professional management contribute to instances where federal cooperatives compete with primary cooperatives, and dual controls in the financial sector further complicate matters.
• Lack of Awareness on Rights: A notable challenge is the lack of awareness among cooperative members regarding their rights and privileges.
• Political Interference in Management: Cooperative societies often grapple with political interference in their management, shifting the focus from member-driven to government-driven institutions.
• Woes in Cooperative Banking Sector: The cooperative banking sector faces its own set of challenges, with increasing concerns about financial frauds and mismanagement becoming matters of significant concern.

Significance of the 97th Constitutional Amendment

• Establish Uniform Management Standards: The Amendment sought to establish uniform management standards for Co-operative societies and address concerns related to the efficient administration of the country’s Co-operative Societies.
• Foster Independent Operation: The primary aim of the Amendment was to foster independent operation for Co-operatives, ensuring that they remain free from undue political influence.
• Standardise Co-operative Laws: It aspired to standardise Co-operative laws throughout India by enshrining the right to form Cooperatives as a fundamental right within Part III, Article 19 (1) (c) of the Constitution.
• Representation to SC/ST/Women for the First Time: Representation concerns were addressed through the Act, guaranteeing that each Co-operative society reserves one seat for Scheduled Castes/Scheduled Tribes (SC/ST) and two seats for women on its board.
• Enhance Management Accountability: Beyond ensuring the autonomous and democratic operation of Co-operatives, the provisions incorporated into the Amendment were designed to enhance management accountability to members and other stakeholders while also serving as a deterrent against violations of the law.

Constitutional Validity of 97th Amendment

The Amendment faced legal challenges in multiple High Courts across the country, each raising distinct concerns. Two major reasons are mentioned below:

Co-operative Societies Subject to State List

• One key issue was the placement of ‘Co-operative Societies’ within Entry 32 of the State List in the Seventh Schedule of the Constitution. This placement conferred authority to State legislatures for enacting related laws.
• Article 368(2) of the Constitution explicitly stipulated that the cooperatives, being in the State list, were exclusively under the jurisdiction of State legislatures, requiring changes to be ratified by at least half of the State legislatures.
• Remarkably, the 97th Amendment’s provisions were approved by Parliament without this ratification by states, leading to legal contention.

Misuse of Article 368 by Parliament

• An argument emerged regarding the use of Article 368 of the Constitution, granting Parliament the power to amend the Constitution, for introducing Part IX-B.
• It was suggested that, since local self-government institutions fell within the exclusive purview of State Legislatures, Parliament couldn’t have passed legislation concerning them without invoking Article 368.
• This raised questions about the appropriateness of Parliament attempting an indirect encroachment on matters over which the State Legislature had sole jurisdiction.

Courts Observation

Gujarat High Court Decision on the 97th Amendment

• • The Gujarat High Court issued a verdict declaring the Act unconstitutional in the case of Rajendra N. Shah v. Union of India. 

• Limitations on State Powers: The Court noted that the Amendment restricted State legislatures’ authority, making it difficult for them to create laws about cooperative societies.

• • Impact on Federalism: The Court emphasized that the Amendment affected federalism, which is an important aspect of the Constitution.

• Ruling on the 97th Amendment Act: As a result, the 97th Amendment Act was ruled unconstitutional because Part IX-B was included without the necessary approval from the states, making it invalid (ultra vires).

• Appeal to the Supreme Court: The Union of India was unhappy with this decision and quickly appealed to the Supreme Court.

Supreme Court Ruling on the 97th Amendment Act

• The Supreme Court upheld the Gujarat High Court’s decision to invalidate certain provisions of the 97th Amendment Act (Part IX-B) related to the efficient management of Co-operative societies. 
• This decision was reached by a 2:1 majority, with one provision inserted concerning the Constitution and the functioning of Co-operative societies.

Analysis of the Supreme Court’s Ruling

• Exclusive State Legislation: As per the Constitution’s interpretation, there is a bias in favour of the central government and federal supremacy over State governments. 
  • According to this principle, States hold the exclusive authority to legislate on matters reserved solely for them. 
  • The court explicitly affirmed that Article 243 ZI clarifies the States’ ability to enact laws regarding the formation, regulation, and dissolution of societies under this Act.

• Requirement for State Ratification: In cases where an Amendment falls within the purview of Article 368(2), it must also receive approval from at least half of the State legislatures through a resolution before the Amendment’s Bill can be presented to the President for approval. 
  • The Court observed that the 97th Amendment, which adds to the section on Co-operative Societies, had not undergone such ratification.
• Validation of Multi-State Co-operative Societies Provisions: The Court upheld the legitimacy of the provisions governing Multi-State Co-operative Societies, emphasising that Parliament holds authority over them, while State legislatures are responsible for enacting laws pertaining to “Other Co-operative Societies.” 
  • It clarified that Multi-State Co-operative Societies do not fall under Article 246(3) or Entry 32 of List-2 in the 7th Schedule.

Impact of the Court’s Ruling

• Recognition of Federalism: The decision has been praised by constitutional experts for strengthening federalism, a key principle of the Indian Constitution.
• Technical Grounds for Rejection: While a major part of the Amendment was dismissed due to technical issues, its importance remains clear.
• Establishing a Framework: The Amendment provided cooperative societies with a structured framework and standards to follow.
• • Fundamental Right: It recognized the right to establish cooperative societies as a fundamental right, leading to significant implications.

• Encroachment on State Authority: However, the Amendment overstepped the exclusive legislative authority of State Legislatures.

Ministry of Cooperation

Establishment

• Establishment of the Ministry: In 2021, the Government of India created a dedicated “Ministry of Cooperation.”
• Vision for Cooperation: The ministry aims to achieve the vision of “Sahakar se Samriddhi” (Prosperity through Cooperation) and to revitalize the cooperative movement.
• Formation of the Ministry: This new ministry was established by transferring existing responsibilities related to cooperation and cooperatives from the previous Ministry of Agriculture, Cooperation, and Farmers Welfare.
• Official Notification: The formation of the ministry was confirmed by the Cabinet Secretariat’s Gazette Notification dated July 6, 2021.

Objectives

The Ministry of Cooperation was set up with the following objectives:

• Framework for Strengthening Cooperatives: To create a distinct administrative, legal, and policy framework aimed at strengthening the cooperative movement in the country.
• People-Centric Growth: To foster the growth of cooperatives as a genuine people-centric movement, reaching down to the grassroots level, and cultivating a cooperative-based economic model where each member acts with a sense of responsibility.
• Streamlining Processes: To streamline processes, facilitating “Ease of Doing Business” for cooperatives and promoting the development of Multi-State Co-operative Societies.
• Enhancing Transparency and Modernization: To focus on enhancing transparency, modernization, computerization, fostering competitive cooperatives, and consistently working to provide development opportunities for the underprivileged in rural areas. 
• Connecting Villages with Cooperatives: The ministry also aims to connect every village with cooperatives, thereby promoting prosperity with the guiding principle of “Sahakar se Samriddhi,” ultimately contributing to the nation’s prosperity.

Criticism

Some experts have criticized the establishment of the Ministry of Cooperation, which are as follows: 

• Duplication of Efforts: Critics argue that the creation of a separate ministry for cooperation is unnecessary as there are already existing ministries and departments dealing with cooperative matters. 
  • They argue that the new ministry will simply duplicate the efforts of these existing bodies and lead to increased bureaucracy.
• Federal Issue: Critics also argue that the creation of the Ministry of Cooperation will lead to the centralization of power in the hands of the central government. 
  • Since co-operative societies fall under the purview of the State List in the Seventh Schedule of the Constitution, creating such a central-level ministry could potentially consolidate power within the Union government.
• Politicization of Cooperatives: Critics also fear that the Ministry of Cooperation will politicize cooperative societies, which are traditionally non-political organizations. 
  • They argue that this could lead to the misuse of cooperatives for political purposes.
• Unclear Role and Objectives: Critics also argue that the role and objectives of the Ministry of Cooperation are unclear. 
  • They argue that the ministry’s mandate is vague and that it is not clear what it will actually do.
• Funding Concerns: Critics also argue that the creation of the Ministry of Cooperation will lead to increased government spending. 
  • They argue that the ministry will require significant funding, which could take away from other important government programs.

Conclusion

Cooperative societies play a vital role in India’s socio-economic landscape, fostering community spirit and collective empowerment among members. 

• While cooperative societies fall under the State List, the establishment of a central ministry has sparked debates about power distribution. 
• Collaborative efforts between central and state governments are crucial for further sector improvement and grassroots prosperity.

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