Explainer | India promises ’new era’ for multi-state cooperatives

Maharashtra leads the way with 654 registered MSCS since 1986. The state accounts for close to 42 percent of multi-state cooperative societies across India. Uttar Pradesh with 163 registered MSCS is a distant second.

Union home minister Amit Shah, who is also the nodal minister for the ministry of cooperation, said the Cabinet had given its approval to the bill to increase the transparency, accountability and profit of multi-state cooperative societies.

The joint committee which studied the bill said there have been complaints in some of the multi-state cooperative societies about financial embezzlements, delay and disputes regarding holding elections, biased selection of auditors, and favouritism in recruitment, lack of active participation of members.

The statement of objects and reasons highlights some of the salient features of the amendment bill:

Reform board composition

Election authority

Establishment of a fund to revive ‘Sick’ MSCS

Concurrent audit

Ombudsman (one or more) for complaint redressal

Higher monetary penalties for entities violating norms

Allowing filing of key documents in electronic form

The amendment bill authorises the Centre to set up an election authority comprising a chairperson, vice-chairperson and not more than three members to usher in reforms in the electoral process. The members shall hold office for three years or 65 years, whichever is earlier. They shall be eligible for re-appointment. Union home minister Amit Shah said that it will be an independent body similar to the Election Commission.

The authority shall:

Conduct elections

Supervise, direct, matters wrt preparation of electoral rolls

Any other function as may be prescribed

The rationale behind the amendment can be traced to Article 243ZK(2) of the Constitution, which states "the superintendence, direction and control of the preparation of electoral rolls for the conduct of elections shall vest in an authority or body as may be provided by the legislature of the state, by law."

The amendment bill enables any co-operative society to voluntarily merge into an existing MSCS, subject to state laws. A resolution by not less than two-thirds of the members present and voting at a general meeting would do the job. The older version allows amalgamation of only multi-state cooperative societies. The Centre feels that this will help existing state cooperative societies improve their viability and achieve economies of scale.

The new amendment bill mandates prior approval to redeem Centre or state government’s shareholdings. No such permission was required earlier.

Profit-making (for 3 financial years) multi-state cooperatives shall credit Rs 1 crore or 1 percent of their net profit, whichever is less to a fund meant for revival of sick MSCS.

The 2002 Act gave the Central government the powers to supersede or suspend the board and appoint administrator(s) to manage affairs of ‘’specified multi-state cooperative societies.’’ However, it applied only to those MSCS where the Central government had a shareholding of 51 percent of paid-up share capital or total shares.

In the amendment bill, specified multi-state cooperative societies means ‘’any multi-State co-operative society where there is Government shareholding or loan or financial assistance or any guarantee by the Government.’’ So, essentially, the Centre’s super powers would potentially apply to more MSCS.

MSCS with annual turnover or deposit over the approved sum will be subjected to a concurrent audit. The government’s rationale is that it will ensure early detection of fraud or irregularities in the society and accordingly prompt course corrections can be taken.

The penalty imposed for furnishing false information has been increased to upto Rs 1 lakh from Rs 10,000. The monetary penalty amount for other offences has been hiked as well.

The amendment bill empowers the Centre to appoint one or more ombudsman to enquire into complaints filed by MSCS members.

The concept of funding from profitable MSCS to bail out sick entities may be seen as an unfair cost imposition. Also, the Companies Act doesn’t provide for any such rule.

Government authorities’ potential power to veto its share redemption may give it a pre-emptive advantage against a mal-functioning MSCS. However, it dilutes the spirit of the First Schedule of the existing act, which says, ‘Cooperatives are autonomous, self-help organisations controlled by their members. If cooperatives enter into an agreement with other organisations, including the government, or raise capital from external sources, they do so on terms that ensure their democratic control by members and maintenance of cooperative autonomy.’

Allowing any co-operative society to merge into an existing MSCS could be interpreted as the Centre trying to invade the state’s domain. The Centre in his defence has clarified that since the merger is subject to State Cooperative Acts, it doesn’t violate the federal structure.