Laxmikanth Summary: Co-Operative Societies

Table of Contents
1. Cooperative Societies
2. Constitutional provisions (Part IX-B)
3. Reasons for the 97th Constitutional Amendment (2011)
4. Key Cooperative Principles Emphasised
5. Centre, States and Multi-State Cooperatives
6. Differences from Corporate Entities
7. Problems and Challenges
8. Importance and Implications of Constitutional Recognition
9. Conclusion
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Cooperative Societies

Cooperative societies are a voluntary association of persons with common economic, social or welfare objectives who come together for their mutual commercial, economic and developmental benefit. They are member-driven organisations based on principles of collective ownership and democratic control.

Constitutional changes introduced by the 97th Constitutional Amendment Act, 2011

The 97th Constitutional Amendment Act, 2011 conferred constitutional status on cooperative societies and introduced the following major changes:

1. Right to form cooperative societies: Recognised the right to form cooperative societies within the scope of fundamental rights under Article 19.
2. Directive Principle of State Policy: Inserted a new Directive Principle, Article 43-B, concerning the promotion of cooperative societies.
3. New Part IX-B: Added a separate Part titled "The Cooperative Societies" - Articles 243-ZH to 243-ZT - laying down constitutional provisions for co-operative legislation and functioning.

Constitutional provisions (Part IX-B)

Part IX-B of the Constitution enables State Legislatures and, in certain cases, the Parliament to make provisions for the incorporation, regulation and winding up of cooperative societies, while emphasising cooperative principles such as voluntary formation, democratic member control, member economic participation and autonomous functioning.

Incorporation and regulation

The State Legislature may make provision for the incorporation, regulation and winding up of cooperative societies founded on the accepted cooperative principles. For multi-state cooperative societies, legislative provisions are made by Parliament.

Number and composition of governing body

• The State legislature may determine the number of directors on the board of a cooperative society.
• A co-operative society shall not have more than twenty-one directors.
• Term of office: Directors generally hold office for a period of five years, unless otherwise provided by law.

Election of governing body

• Election of the board must be held before the expiry of the term of the existing board.
• The superintendence, direction and control of preparation of electoral rolls and conduct of elections shall vest in such authority or body as may be provided by the State Legislature.

Supersession, suspension and interim management

A board of a co-operative society may be superseded or placed under suspension for a specified period (not exceeding six months in ordinary circumstances) on grounds that include:

• Persistent default by the board;
• Negligence in performance of its duties;
• Acts prejudicial to the interests of the society or its members;
• Stalemate in the constitution or functioning of the board;
• Failure of the election authority to conduct elections in accordance with the State Act.

Audit of accounts

• The State Legislature may require co-operative societies to maintain proper accounts and have those accounts audited at least once in every financial year.
• Where applicable, the audit report of the accounts of an apex co-operative society is to be laid before the State Legislature.

Convening of general body meetings

The State Legislature may provide that the annual general body meeting of every co-operative society be convened within six months from the close of the financial year, so that members can consider accounts, audit reports and other statutory business.

Returns and reporting

Every co-operative society is required to file returns to the authority designated by the State Government within six months of the close of each financial year. These returns enable statutory oversight and transparency.

Offences and penalties

The State Legislature may make provisions to define offences relating to cooperative societies and prescribe penalties for such offences to ensure accountability and protect member interests.

Application of Part IX-B

• Part IX-B applies to multi-state co-operative societies; in such cases Parliament is empowered to make provisions for their regulation.
• Part IX-B also applies to Union Territories, but the President may, by order, exclude all or any of the provisions of this Part in respect of any Union Territory.

Reasons for the 97th Constitutional Amendment (2011)

The amendment sought to provide constitutional recognition and protection to co-operative societies for the following reasons:

• The cooperative sector made significant contributions to several sectors of the national economy and exhibited large-scale growth, but often failed to adequately safeguard members' interests or fulfil cooperative objectives.
• Cooperative societies are a subject under Entry 32 of the State List (Seventh Schedule), and State legislatures historically enacted laws governing co-operatives; constitutional recognition sought to strengthen this framework.
• Growth of co-operatives was envisaged as part of measures to secure social and economic justice and equitable distribution of development benefits.
• Many co-operative institutions suffered from inadequate professionalism and weak management, resulting in poor services and low productivity.
• Frequent postponement of elections and prolonged administration by nominated office bearers diluted democratic accountability in many co-operatives.

Key Cooperative Principles Emphasised

• Voluntary formation: Membership must be voluntary and open to all who can use the services.
• Democratic control: One member, one vote principle and members' participation in decision-making.
• Member economic participation: Members contribute equitably to, and democratically control, the capital of their cooperative.
• Autonomous functioning: Cooperatives should be self-governing and free from undue state or outside interference.
• Professional management: Promotion of capable and accountable management while preserving member control.

Centre, States and Multi-State Cooperatives

Cooperative societies are primarily a State subject, with State Legislatures empowered to legislate on incorporation, regulation and winding up. For multi-state cooperative societies, Parliament has authority to make laws. The existing Multi-State Co-operative Societies Act provides a statutory framework for cooperatives that operate across State boundaries; Part IX-B gives constitutional backing to the legislative competence of Parliament in this area.

Differences from Corporate Entities

• Object: Co-operatives are formed to serve members' common economic and social needs; companies aim primarily for profit maximisation for shareholders.
• Control: Cooperatives follow democratic control (one member, one vote) whereas companies follow voting by shareholding.
• Membership: Membership in a co-operative is open and based on use and participation; company membership is based on shareholding.
• Surplus distribution: Surplus in cooperatives is normally used for the benefit of members or re-invested, whereas companies distribute profits as dividends to shareholders.

Problems and Challenges

• Political interference and lack of autonomy in many cooperatives.
• Poor professional management and inadequate training of office bearers.
• Delays or avoidance of elections leading to long periods of nominated administration.
• Weak financial discipline, poor audit practices and lack of transparency in certain cooperatives.
• Variation in State laws and implementation creates inconsistency across the country.

Importance and Implications of Constitutional Recognition

• Constitutional recognition elevates the cooperative movement's status and urges legislatures to provide a stable, democratic and accountable legal framework.
• Article 43-B, by making cooperative promotion a Directive Principle, guides policy and legislative priorities for both State and Central governments.
• Part IX-B facilitates legislative measures to ensure elections, audits, reporting and member rights, strengthening cooperative governance and protecting member interests.
• Clear constitutional backing helps reconcile the need for autonomy with the need for statutory oversight and professionalisation.

Conclusion

Cooperative societies play a vital role in India's economy and rural development. The 97th Constitutional Amendment (2011) sought to provide these institutions with constitutional protection and to promote their democratic functioning, financial accountability and professional management while preserving their cooperative character. Effective implementation of Part IX-B and associated State and Central legislation is essential to address the longstanding weaknesses in the cooperative sector and to realise its potential for inclusive development.