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Constitutional Law

Cooperative Societies

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 05-Nov-2024

Introduction 

  • Part IX B of the Constitution of India, 1950 (COI) specifically deals with the provisions related to the Cooperative Societies introduced through 97th Constitutional Amendment Act, 2011. 
  • According to the International Labour Organisation (ILO), a cooperative is 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. 
  • There are many types of cooperatives such as Consumer Cooperative Society, Producer Cooperative Society, Credit Cooperative Society, Housing Cooperative Society and Marketing Cooperative Society. 
  • The United Nations General Assembly had declared the year 2012 as the International Year of Cooperatives. 
  • India is an agricultural country and laid the foundation of World’s biggest cooperative movement in the world. 
  • Recently, a separate ‘Ministry of Co-operation’ has been created by the Central Government to give a new push to the cooperative movement.

97th Constitutional Amendment Act, 2011 

  • The Constitution of India grants constitutional status to cooperative societies through the 97th Constitutional Amendment Act, 2011 
  • the following provisions shall govern cooperative societies in India: 
    • Part III - Fundamental Rights: 
      • Article 19(1)(c) read with Article 19(4): -  
        • Guarantees fundamental right to form cooperative societies - Subject to reasonable restrictions imposed by law. 
    • Part IV - Directive Principles of State Policy: 
      • Article 43B: -  
        • Mandates the State to promote voluntary formation, autonomous functioning, democratic control and professional management of cooperative societies. 
    • Part IXB - The Cooperatives: 
      • Article 243ZH to 243ZT Provides constitutional status to cooperative societies and ensures democratic functioning and professional management. 
      • Article 243ZH: Definitions: 
        • This Article states the definition which can be used for reference to understand the terminologies used under the provisions related to cooperative society. 
        • These are as follows: 
          • “Authorised person” means a person referred to as such in article 243ZQ. 
          • “Board” means the board of directors or the governing body of a co-operative society, by whatever name called, to which the direction and control of the management of the affairs of a society is entrusted to. 
          • “Co-operative society” means a society registered or deemed to be registered under any law relating to co-operative societies for the time being in force in any State.  
          • “Multi-State co-operative society” means a society with objects not confined to one State and registered or deemed to be registered under any law for the time being in force relating to such co-operatives;  
          • “Office bearer” means a President, Vice-President, Chairperson, Vice-Chairperson, Secretary or Treasurer, of a co-operative society and includes any other person to be elected by the board of any co-operative society;  
          • “Registrar” means the Central Registrar appointed by the Central Government in relation to the multi-State co-operative societies and the Registrar for co-operative societies appointed by the State Government under the law made by the Legislature of a State in relation to co-operative societies;  
          • “State Act” means any law made by the Legislature of a State;  
          • “State level co-operative society” means a co-operative society having its area of operation extending to the whole of a State and defined as such in any law made by the Legislature of a State. 
  • Article 243ZI: Incorporation of Co-operative Societies: 
    • This article states that State may, by law, make provisions with respect to the incorporation, regulation and winding up of co-operative societies based on the principles of voluntary formation, democratic member-control, member-economic participation and autonomous functioning. 
  • Article 243ZJ: Number and term of members of board and its office bearers: 
    • This article states the constitution of cooperative society as: 
      • The board shall have the directors as prescribed by state legislature by law. 
      • The maximum limit for the directors is 21. 
      • Reservation of one seat for the Scheduled Castes or the Scheduled Tribes and two seats for women on board of every co-operative society consisting of individuals as members and having members from such class of category of persons may he provided by state legislature. 
      • The term for elected member of the board and the office bearers shall be five years from the date of election and the term of office bearers shall be conterminous with the term of the board. 
      • The casual vacancies on the board shall be filled by nomination out of the same class of members in respect of which the casual vacancy has arisen, if the term of office of the board is less than half of its original term. 
      • For co-option of persons to be members of the board having experience in the field of banking, management, finance or specialization in any other field relating to the objects and activities undertaken by the co-operative society, as members of the board of such society laws shall be made by state legislature. 
      • The number of such co-opted members shall not exceed two in addition to twenty-one directors as specified. 
      • The co-opted members shall not have the right to vote in any election of the co-operative society in their capacity as such member or to be eligible to be elected as office bearers of the board. 
      • The functional directors of a co-operative society shall also be the members of the board and such members shall be excluded for the purpose of counting the total number of directors. 
  • Article 243ZK:  Election of members of board: 
    • the election of a board shall be conducted before the expiry of the term of the board so as to ensure that the newly elected members of the board assume office immediately on the expiry of the term of the office of members of the outgoing board. 
    • The superintendence, direction and control of the preparation of electoral rolls for, and the conduct of, all elections to a co-operative society shall vest in such an authority or body, as may be provided by the Legislature of a State, by law. 
    • the Legislature of a State may, by law, provide for the procedure and guidelines for the conduct of such elections. 
  • Article 243ZL: Supersession and suspension of board and interim managementL 
    • No board shall be superseded or kept under suspension for a period exceeding six months. 
    • The board may be superseded or kept under suspension in a case 
      • of its persistent default; or  
      • of negligence in the performance of its duties; or  
      • the board has committed any act prejudicial to the interests of the co-operative society or its members; or  
      • there is stalemate in the constitution or functions of the board; or 
      • the authority or body as provided by the Legislature of a State, by law, under clause (2) of article 243ZK, has failed to conduct elections in accordance with the provisions of the State Act 
    • The board of any such co-operative society shall not be superseded or kept under suspension where there is no Government shareholding or loan or financial assistance or any guarantee by the Government. 
    • In case of a co-operative society carrying on the business of banking, the provisions of the Banking Regulation Act, 1949 shall also apply. 
    • in case of a co-operative society, other than a multi-State co-operative society, carrying on the business of banking, the provisions of this clause shall have the effect as if for the words “six months”, the words “one year” had been substituted. 
    • In case of supersession of a board, the administrator appointed to manage the affairs of such co-operative society shall arrange for conduct of elections within the period and handover the management to the elected board. 
    • The Legislature of a State may, by law, make provisions for the conditions of service of the administrator. 
  • Article 243ZM: Audit of accounts of co-operative societies: 
    • The Legislature of a State may, by law, make provisions with respect to the maintenance of accounts by the co-operative societies and the auditing of such accounts at least once in each financial year.  
    • The Legislature of a State shall, by law, lay down the minimum qualifications and experience of auditors and auditing firms that shall be eligible for auditing accounts of the co-operative societies.  
    • Every co-operative society shall cause to be audited by an auditor or auditing firms referred to in clause (2) appointed by the general body of the co-operative society 
    • It is provided that such auditors or auditing firms shall be appointed from a panel approved by a State Government or an authority authorized by the State Government in this behalf.  
    • The accounts of every co-operative society shall be audited within six months of the close of the financial year to which such accounts relate. 
    • The audit report of the accounts of an apex co-operative society, as may be defined by the State Act, shall be laid before the State Legislature in the manner, as may be provided by the State Legislature, by law. 
  • Article 243ZN: Convening of general body meetings: 
    • The state legislature may by law make provisions for the annual general body meeting of every co-operative society shall be convened within a period of six months of close of the financial year to transact the business as may be provided in such law. 
  • Article 243ZO: Right of a member to get information: 
    • The state legislature may by law provide for access to every member of a co-operative society to the books, information and accounts of the co-operative society kept in regular transaction of its business with such member. 
    • The state legislature may make provisions to ensure the participation of members in the management of the co-operative society providing minimum requirement of attending meetings by the members and utilizing the minimum level of services as may be provided in such law. 
    • The state legislature may provide for co-operative education and training for its members. 
  • Article 243ZP: Returns: 
    • This article states that every co-operative society shall file returns, within six months of the close of every financial year, to the authority designated by the State Government including the following matters: 
      • Annual report of its activities;  
      • Its audited statement of accounts;  
      • Plan for surplus disposal as approved by the general body of the co-operative society;  
      • List of amendments to the bye-laws of the co-operative society, if any; 
      • Declaration regarding date of holding of its general body meeting and conduct of elections when due; and  
      • Any other information required by the Registrar in pursuance of any of the provisions of the State Act. 
  • Article 243ZQ: Offences and penalties: 
    • The state legislature may make provisions for the offences relating to the co-operative societies and penalties for such offences. 
    • It shall include the commission of the following act or omission as offences as: 
      • A co-operative society or an officer or member thereof wilfully makes a false return or furnishes false information, or any person wilfully not furnishes any information required from him by a person authorised in this behalf under the provisions of the State Act 
      • Summons, requisition or lawful written order issued under the provisions of the State Act 
      • Any employer who, without sufficient cause, fails to pay to a co-operative society amount deducted by him from its employee within a period of fourteen days from the date on which such deduction is made; 
      • Any officer or custodian who willfully fails to handover custody of books, accounts, documents, records, cash, security and other property belonging to a co-operative society of which he is an officer or custodian, to an authorized person; and  
      • Whoever, before, during or after the election of members of the board or office bearers, adopts any corrupt practice. 
  • Article 243ZR: Application to multi-State co-operative societies: 
    • Provisions provided for the cooperative society shall apply to the multi-State co-operative societies subject to the modification that any reference to “Legislature of a State”, “State Act” or “State Government” shall be construed as a reference to “Parliament”, “Central Act” or “the Central Government” respectively. 
  • Article 243ZS. Application to Union territories: 
    • Provisions provided for the cooperative society shall apply to the Union territories and shall, in their application to a Union territory, having no Legislative Assembly as if the references to the Legislature of a State were a reference to the administrator thereof appointed under article 239 and, in relation to a Union territory having a Legislative Assembly, to that Legislative Assembly. 
    • The President may, by notification in the Official Gazette, direct that the provisions of this Part shall not apply to any Union territory or part thereof as he may specify in the notification. 
  • Article 243ZT: Continuance of existing laws 
    • This article states that any provision of any law relating to co-operative societies in force in a State immediately before the commencement of the Constitution (Ninety-seventh Amendment) Act, 2011, which is inconsistent with the provisions of this Part, shall continue to be in force until amended or repealed by a competent Legislature or other competent authority or until the expiration of one year from such commencement, whichever is less.

Supreme Court’s Ruling Based on 97th Constitutional Amendment 

  • Recently, the Supreme Court (SC) upheld a 2013 judgment of the Gujarat High Court [Rajendre N. Shah v. Union of India (2013)] and struck down certain provisions of the Constitution (97th Amendment). 
  • It gave a major boost for federalism as the 97th Amendment shrank the exclusive authority of States over its co-operative societies, a sector considered as a massive contributor to the economy. 
  • It held that the 97th Constitutional Amendment required ratification by at least one-half of the state legislatures as per Article 368(2) of the Constitution, since it dealt with an entry which was an exclusive state subject (co-operative societies). 
  • It is declared that Part IXB of the Constitution is operative only insofar as it concerns multi-State cooperative societies both within the various States and in the Union Territories.

Conclusion

The cooperative movement in India represents a vital socio-economic institution that has been strengthened significantly through constitutional recognition. Through the 97th Constitutional Amendment Act, 2011, cooperative societies have been elevated from merely statutory organizations to constitutionally protected entities, with their formation becoming a fundamental right under Article 19(1)(c).