Co-operative Societies

Constitutional Status and Protection (97th Amendment Act, 2011)

• Granted constitutional status and protection to co-operative societies.
• Made the right to form co-operative societies a fundamental right (Article 19(1)(c)).
• Included a new Directive Principle of State Policy on promotion of co-operative societies (Article 43-B).
• Added a new Part IX-B, "The Co-operative Societies" (Articles 243-ZH to 243-ZT).

Constitutional Provisions (Part IX-B)

• Incorporation: State legislature may make provisions for incorporation, regulation, and winding-up based on principles of voluntary formation, democratic member-control, member-economic participation, and autonomous functioning.

• Board Members:

  • Board to consist of a number of directors as per state legislature, but not exceeding twenty-one.
  • Reservation of one seat for Scheduled Castes/Tribes and two seats for women if members belong to such categories.
  • Term of office: Five years from the date of election.

• Co-opted Members:

  • State legislature can provide for co-option of persons with experience in banking, management, finance, or related fields (max. two).
  • Co-opted members cannot vote in elections or be elected as office bearers.

• Functional Directors:

  • Functional directors are members of the board and excluded when counting total directors.

• Election of Board Members:

  • Elections to be conducted before term expiry to ensure immediate office assumption by newly elected members.
  • Superintendence, direction, and control of electoral rolls and election conduct vested in a body provided by the state legislature.

• Supersession/Suspension of Board:

  • No supersession/suspension for more than six months, except one year in the case of co-operative banks other than multi-state co-operative banks.
  • Grounds: Persistent default, negligence, acts against interests, stalemate, failure of election body.
  • No supersession/suspension if no government shareholding, loan, financial assistance, or guarantee.
  • Administrator appointed upon supersession to conduct elections within six months.

• Audit of Accounts:

  • State legislature to provide for maintenance of accounts and annual auditing.
  • Minimum qualifications and experience for auditors/firms to be specified.
  • Auditor/firm appointed by the general body from a panel approved by the State Government (or authorized body).
  • Accounts to be audited within six months of financial year close.
  • Audit report of apex co-operative society to be laid before the state legislature.

• General Body Meetings:

  • State legislature to ensure annual general body meeting convened within six months of financial year close.

• Right to Information:

  • State legislature to provide members access to books, information, and accounts.
  • Provisions to ensure member participation in management and co-operative education/training.

• Returns:

  • Every co-operative society shall file the returns, within six months of the close of every financial year, to the authority designated by the State Government.
  • Includes annual report, audited statement of accounts, plan for surplus disposal, list of by-law amendments, declaration regarding date of holding of its general body meeting and conduct of elections when due.
  • Any other information required by the Registrar.

• Offences and Penalties:

  • State legislature to provide for offences relating to co-operative societies and penalties.
  • Examples: False returns, disobeying summons, failure to pay employee deductions, failure to handover records/property, corrupt election practices.

• Application to Multi-State Co-operative Societies:

  • Provisions apply with modifications: "State Legislature," "State Act," or "State Government" construed as "Parliament," "Central Act," or "Central Government."

• Application to Union Territories:

  • Provisions apply, but the President may direct non-application to any Union territory or part.

• Continuance of Existing Laws:

  • Inconsistent laws in force before the 97th Amendment Act, 2011, continue until amended/repealed or for one year from commencement, whichever is less.

Reasons for 97th Amendment

1. Need for Reforms:
   • Co-operative sector contributed to national economy but showed weaknesses.
   • Instances of indefinitely postponed elections and nominated office bearers reduced accountability.
   • Inadequate professionalism led to poor services.
   • Need for democratic principles, timely elections, and free and fair manner.
   • Aim to revitalize institutions, ensure economic contribution, serve members/public, ensure autonomy, democratic functioning and professional management.
2. State Subject:
   • "Co-operative societies" in Entry 32 of the State List.
   • State legislatures enacted legislations.
   • Growth of co-operatives as part of securing social/economic justice and equitable distribution.
   • Experienced that their performance in qualitative terms has not been up to the desired level.
   • Need for reforms in the Co-operative Societies Acts of the States, keep the co-operatives free from unnecessary outside interferences and also to ensure their autonomous organisational set up and their democratic functioning.
3. Central Government Commitment:
   • To ensure democratic, professional, autonomous, and economically sound functioning.
   • Proposed incorporating a new part with provisions covering vital aspects.
   • Expected to ensure autonomous/democratic functioning, accountability, and deterrence for violation of laws.

Constitutional Validity of 97th Amendment

• Rajendra Shah Case (2013): Gujarat High Court declared Part IX-B ultra vires due to lack of state ratification under Article 368.

  • Did not impact amendments to Article 19(1)(c) and insertion of Article 43-B.

• Union of India vs. Rajendra N. Shah (2021): Supreme Court upheld the Gujarat High Court judgement except to the extent that it strikes down the entirety of Part IX-B of the Constitution of India.

  • Part IX-B operative only for multi-state co-operative societies within states and union territories.

Table 72.1 Articles Related to Co-operative Societies at a Glance

Article No.	Subject-matter
243ZH	Definitions
243ZI	Incorporation of Co-operative Societies
243ZJ	Number and Term of Members of Board and its Office Bearers
243ZK	Election of Members of Board
243ZL	Supersession and Suspension of Board and Interim Management
243ZM	Audit of Accounts of Co-operative Societies
243ZN	Convening of General Body Meetings
243ZO	Right of a Member to Get Information
243ZP	Returns
243ZQ	Offences and Penalties
243ZR	Application to Multi-state Co-operative Societies
243ZS	Application to Union Territories
243ZT	Continuance of Existing Laws