Legislation governing multi-state cooperative societies set for big change

The three brand new cooperatives to promote indigenous seeds, organic farming, and exports of goods made by coops are being formed under an Act, which itself is undergoing multiple changes.

The Multi-State Cooperative Societies (MSCS) Act, under which the three new co-ops are being formed was last amended in 2002.

It is the mother act that governs the functioning of over 1,600 MSCS across the country. MSCS are those that serve the interest of members in more than one state.

India, at present, has around 800,000 cooperative societies, of which around 1,600 are MSCS.

Of this, according to some reports, the maximum number of MSCS are in Maharashtra (570), followed by UP (150), and then in New Delhi (133).

Credit cooperatives constitute the bulk of the Multi-State Cooperatives (610), followed by agriculture-oriented MSCS (244).

There are around 100 multi-state cooperative dairies and 70 multi-state cooperative banks.

For cooperative banks, the banking functions will be governed by the Banking Regulation Act, but for all other operational issues of such entities including the functioning of the board etc, the MSCS Act and its new amendments will be at play.

So what are the major amendments to the MSCS?

The union cabinet a few weeks back, cleared major changes to the MSCS Act, the first since 2002 that will make the functioning of these co-ops transparent, bring accountability over the management of the MSCS and also improve their governance structure.

One major provision of the amendments is to empower the Central government to suspend the Board of an MSCS if it has not been meeting within a stipulated time frame. It also lays down the process for the liquidation of such cooperatives.

That apart, to improve the governance of multi-state cooperative societies, the Bill has specific provisions for setting up of Cooperative Election Authority, Cooperative Information Officer, and Cooperative Ombudsman.

The election authority will ensure that elections are held in a fair, free and timely manner, which in turn will help reduce incidents of complaints and malpractices.

There is a provision to debar offenders for three years to bring in more electoral discipline.

The ombudsman will provide a mechanism for the redressal of member grievances in a structured fashion, while cooperative information officers will enhance transparency by providing members with timely access to information.

For ease of doing business, the amendment Bill proposes to reduce the period of registration, with a provision for the applicants to seek additional time of two months for rectification of mistakes. It also provides for electronic submission and issuance of documents, thus providing for a comprehensive digital ecosystem.

There will also be a provision for issuing non-voting shares in multi-state cooperative societies to help them raise funds.

Further, a newly-proposed Rehabilitation, Reconstruction & Development Fund is to be created to help revitalise sick co-operative societies.

The Amendments also provide for electronic submission and issuance of documents, thus providing for a comprehensive digital ecosystem for MSCS.

However, not all seem to be happy.

The National Cooperative Union of India (NCUI), in a statement a few months back had opposed the draft amendments on the grounds that some of the changes are against the "democratic and autonomous principles of cooperatives".

According to the NCUI statement, its members had raised objections to a provision on setting up a Cooperative Rehabilitation, Reconstruction and Development Fund for the revival of sick MSCS, where MSCS, which are in profit for three years may credit fund.

"The members felt that this is an additional burden for profit-making MSCS and will hamper requirements of funds for further business development," it added.

The members have objected to another provision that does not allow cooperatives to redeem shares without prior approval of the government, and the redemption will be on face value or book value of shares which is agreed upon by the authorities.

The members felt that according to cooperative principles, the shares of cooperative societies are issued and redeemed at face value only. They felt the shares of cooperatives are neither tradable nor listed on stock exchanges.

"The provision for refund of share capital on book value to the government authorities is not practical to implement as it is against the principle of equality," the NCUI had said in the statement.

On a proposal to appoint auditors from the panel of Reserve Bank of India for non-credit MSCS, NCUI said the members felt this will adversely affect the functioning of such societies as the nature of the business conducted by MSCS and Multi-State Cooperative banks are entirely different, so the existing provision in the Act should be retained.

That apart, members felt that a restriction on the employment of relatives of sitting directors of MSCS is an infringement of fundamental rights under the constitution to earn a livelihood.

But, with the union cabinet going ahead with the amendments and the same just awaiting Parliament’s nod now. MSCS themselves are set to undergo some fundamental and perhaps much-needed change.