Multi-State Cooperatives | 15 Oct 2022

Why in News?

The Union Cabinet has approved the Multi-State Cooperative Societies (MSCS) Amendment Bill, 2022, which seeks to amend the Multi-State Cooperative Societies Act, 2002

• A new Ministry of Cooperation was formed in July 2021 with an objective to provide renewed impetus to the growth of Cooperative Sector.

What are the Changes Proposed in the Bill?

• The amendments seek to improve ease of doing business, bringing greater transparency and enhance governance.
• It has included provisions relating to representation of women and Scheduled Caste/Scheduled Tribe members on the board of multi-state cooperative societies.
• The amendments have been brought to reform the electoral process, strengthen monitoring mechanisms and enhance accountability.
• It will also widen the composition of board and ensure financial discipline, besides enabling the multi-state cooperative societies to raise funds.
• 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.
• There will also be a provision for issuing non-voting shares in multi-state co-operative societies to help them raise funds.
• Further, the newly proposed Rehabilitation, Reconstruction & Development Fund will help in revitalising sick co-operative societies.
• The Bill will incorporate the provisions of the 97^th Constitutional Amendment.
• Moreover, the provision for stipulating prudential norms will bring in financial discipline. The amendments relating to auditing mechanism will ensure more accountability.

What are the Key Points of MSCS Act, 2002?

• About:
  • Multi State Cooperative Societies: Although Cooperatives is a state subject, there are many societies such as those for sugar and milk, banks, milk unions etc whose members and areas of operation are spread across more than one state.
    • For example, most sugar mills along the districts on the Karnataka-Maharashtra border procure cane from both states.
    • Maharashtra has the highest number of such cooperative societies at 567, followed by Uttar Pradesh (147) and New Delhi (133).
    • The MSCS Act was passed to govern such cooperatives.
  • Legal Jurisdiction: Their board of directors has representation from all states they operate in.
    • Administrative and financial control of these societies is with the central registrar, with the law making it clear that no state government official can wield any control on them.
    • The exclusive control of the central registrar was meant to allow smooth functioning of these societies, without interference of state authorities.
• Associated Concerns:
  • Lack of Checks and Balances: While the system for state-registered societies includes checks and balances at multiple layers to ensure transparency in the process, these layers do not exist in the case of multi state societies.
    • The central registrar can only allow inspection of the societies under special conditions.
    • Further, inspections can happen only after prior intimation to societies.
  • Weak Institutional Infrastructure of Central Registrar: The on-ground infrastructure for central registrar is thin — there are no officers or offices at state level, with most work being carried out either online or through correspondence.
    • Due to this, the grievance redressal mechanism has become very poor.
    • This has led to several instances when credit societies have launched ponzi schemes taking advantage of these loopholes.

What are Cooperatives in India?

• Definition:
  • The International Cooperative Alliance (ICA) defines a Cooperative as “an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise.”
  • Examples of Successful Cooperatives in India:
    • National Agricultural Cooperative Marketing Federation of India (NAFED),
    • Indian Farmers Fertilisers Cooperative Limited (IFFCO)
    • AMUL
• Constitutional Provisions:
  • The Constitution (97^th Amendment) Act, 2011 added a new Part IXB regarding the cooperatives working in India.
    • The word “cooperatives” was added after “unions and associations” in Article 19(1)(c) under Part III of the Constitution.
      • This enables all the citizens to form cooperatives by giving it the status of fundamental right of citizens.
    • A new Article 43B was added in the Directive Principles of State Policy (Part IV) regarding the “promotion of cooperative societies”.
• Supreme Court Judgement:
  • In July, 2021, the Supreme Court struck down certain provisions of the 97th Amendment Act, 2011.
    • As per the SC, Part IX B (Articles 243ZH to 243ZT) has “significantly and substantially impacted” State legislatures’ “exclusive legislative power” over its co-operative sector.
    • Also, the provisions in the 97th Amendment were passed by Parliament without getting them ratified by State legislatures as required by the Constitution.
    • The SC held that states have exclusive power to legislate on topics reserved exclusively to them (cooperatives are a part of State list).
      • The 97^th Constitutional Amendment required ratification by at least one-half of the state legislatures as per Article 368(2).
      • Since the ratification was not done in the case of the 97th amendment, it was liable to strike it down.
      • It upheld the validity of the provisions of Part IX B which are related to Multi State Cooperative Societies (MSCS).
      • It said that in case of MSCS with objects not confined to one state, the legislative power would be that of the Union of India.

Source: TH