Multi-State Cooperatives Societies

• The Multi-State Cooperative Societies (MSCS) Amendment Bill, 2022, which proposes to amend the Multi-State Cooperative Societies Act, of 2002, has been approved by the Union Cabinet.

• In July 2021, a new Ministry of Cooperation was established with the goal of giving the cooperative sector expansion fresh life.

What modifications are proposed by the bill?

• The changes aim to make doing business easier, increase openness, and strengthen governance.

• On the board of multi-state cooperative organizations, it has provisions relating to the representation of women and members of Scheduled Castes/Scheduled Tribes.
• The changes were made to improve accountability, strengthen the monitoring systems, and modernize the voting process.
• Along with making it possible for the multi-state cooperative societies to generate money, it will also ensure financial discipline and broaden the membership of the board.
• The Bill contains particular provisions for the establishment of the Cooperative Election Authority, Cooperative Information Officer, and Cooperative Ombudsman in order to enhance the governance of multi-state cooperative societies.
• Additionally, a provision will be made to allow multi-state cooperative societies to issue non-voting shares in order to assist them in raising money.
• The recently planned Rehabilitation, Reconstruction & Development Fund will also assist in reviving failing cooperative groups.
• The 97th Constitutional Amendment's provisions will be incorporated into the Bill.
• Additionally, the section establishing prudential standards will promote financial discipline. More accountability would be ensured through the auditing mechanism amendments.

What are the main components of the 2002 MSCS Act?

• Cooperative Societies of Multiple States: Although cooperatives are a state-regulated issue, there are several societies with members and regions of operation that are dispersed throughout multiple states, including those for milk and sugar, banks, milk unions, and others.

• For instance, the majority of sugar mills in the areas near the border between Karnataka and Maharashtra get their cane from both states.
• These cooperative societies are most prevalent in Maharashtra, where there are 567 of them, followed by Uttar Pradesh (147), and New Delhi (133).
• To regulate these cooperatives, the MSCS Act was passed.
• Legal Jurisdiction: All of the states in which they conduct business are represented on their board of directors.
• The law clearly states that no state government official can have any authority over these societies and that the central registrar has administrative and financial control over them.
• The central registrar's sole authority was granted to ensure that these societies could operate without interference from the government.

Relevant Concerns

• Insufficient checks and balances While the system for state-registered organizations have numerous layers of checks and balances to guarantee process transparency, these layers do not apply to multi-state societies.

• The central registrar can only permit a society's inspection under specific circumstances. Additionally, inspections can only take place after notifying societies in advance.
• Weak Central Registrar Institutional Infrastructure: The central registrar's physical infrastructure is weak; there are no state-level officers or offices, and the majority of work is done online or via correspondence.
• As a result, the grievance resolution process has degraded significantly.
• As a result, credit organizations have started Ponzi schemes in a number of instances, taking advantage of these loopholes.

In India, what are cooperatives?

• A cooperative is described as "an independent group of citizens united voluntarily to achieve their common economic, social, and cultural needs and ambitions through a jointly owned and democratically controlled firm" by the International Cooperative Alliance (ICA).

• Examples: Indian Farmers Fertilizers Cooperative Limited, National Agricultural Cooperative Marketing Federation of India (NAFED), AMUL.

Constitutional Provisions:

• With relation to the cooperatives operating in India, a new Part IXB was added by the Constitution (97th Amendment) Act, 2011.
• Article 19(1)(c) of Part III of the Constitution was amended to include the phrase "cooperatives" after the words "unions and associations."
• By elevating it to the level of a fundamental right of citizens, permits all citizens to establish cooperatives.
• The Directive Principles of State Policy (Part IV) now includes a new Article 43B titled "Promotion of Cooperative Societies."

Supreme Court Decision

• The Supreme Court invalidated some parts of the 97th Amendment Act, 2011, in July 2021.

• Part IX B (Articles 243ZH to 243ZT), in the words of the SC, has "significantly and considerably impacted" the "exclusive legislative power" of State legislatures over their cooperative sector.
• Additionally, the 97th Amendment's contents were approved by Parliament without receiving the constitutionally required ratification of State legislatures.
• The SC ruled that states have sole authority to enact laws on matters that are strictly their responsibility (cooperatives are a part of the State list).
• According to Article 368, the 97th Constitutional Amendment has to be approved by at least half of the state legislatures (2).
• The 97th amendment was potentially invalidated since the ratification process was not completed in that case.

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