CO-OPERATIVE SOCIETIES

INTRODUCTION

• Co-operatives play a major role in India’s rural economy, agricultural development, credit structure, housing, dairy, fisheries and socio-economic empowerment.
• They represent voluntary associations of persons who unite to meet common economic, social and cultural needs through a democratically controlled enterprise.
• To strengthen their autonomy and democratic functioning, the Constitution was amended through the 97th Constitutional Amendment Act, 2011.

CONSTITUTIONAL FRAMEWORK (POST 97th CAA)

1. Fundamental Rights (Article 19(1)(c))
• The right to form co-operative societies was elevated to a Fundamental Right.
• Article 19(1)(c) now includes:
  – Freedom to form associations, unions and co-operative societies.
• This ensures constitutional protection for cooperative movements.

2. Directive Principles of State Policy – Article 43B
• Added through the 97th Amendment.
• States:
  “The State shall endeavour to promote voluntary formation, autonomous functioning, democratic control and professional management of co-operative societies.”
• This guides states to strengthen transparent and people-driven cooperative mechanisms.

3. Part IX-B (Articles 243ZH to 243ZT) – “The Co-operative Societies”
• Introduces a structured framework for democratic functioning, elections, auditing, accountability and autonomy of cooperative societies.
• Co-operatives continue to be a State subject under Entry 32 of the State List, but the Amendment sets minimum standards for governance.

KEY DEFINITIONS (Article 243-ZH)
• Co-operative Society: Voluntary association of individuals for mutual economic benefit.
• Board: Governing body of a cooperative, vested with control and management.
• Registrar: State-appointed authority for regulation and oversight.

PROVISIONS UNDER PART IX-B

A. INCORPORATION, REGULATION AND WINDING UP
• State legislatures may enact laws for:
  – Incorporation
  – Regulation
  – Winding up
• These laws must follow cooperative principles:
  – Voluntary membership
  – Democratic control
  – Member economic participation
  – Autonomy and independence

B. BOARD OF DIRECTORS
• Maximum number of directors: 21.
• Composition determined by state legislature.
• Term of office: 5 years.
• Professional and expert members may be co-opted (without voting rights).

C. ELECTIONS TO THE BOARD
• Elections must be conducted before expiry of the term of the outgoing board.
• States must create an independent body for:
  – Preparation of electoral rolls
  – Conduct of elections
• Ensures autonomy and prevents political interference.

D. SUPERSESSION AND SUSPENSION OF BOARD
Board can be superseded for a maximum of 6 months only under specific grounds:
• Persistent default.
• Negligence in duties.
• Acts prejudicial to the interests of the cooperative or its members.
• Functional stalemate in the board.
• Failure of election authority to conduct timely elections.
Purpose: Prevent indefinite government control and misuse of supersession powers.

E. AUDIT AND ACCOUNTS
• Annual accounts must be maintained as per state law.
• Mandatory audit at least once every financial year.
• Audit report of apex cooperative societies must be placed before the State Legislature.
• Ensures transparency and financial discipline.

F. GENERAL BODY MEETINGS
• State law must ensure:
  – Annual General Meeting (AGM) within six months of the end of the financial year.
• AGM considers:
  – Annual accounts
  – Audit report
  – Performance review
  – Election of board members

G. FILING OF RETURNS
Cooperative societies must submit annual returns within six months of end of financial year, including:
• Annual accounts
• Audit report
• Membership details
• Details of board elections
• Any changes in bye-laws

H. OFFENCES AND PENALTIES
State legislature may define offences related to:
• Mismanagement
• Fraud
• Non-filing of returns
• Violation of cooperative norms
Penalties ensure accountability of board members and officials.

WHY THE 97th CONSTITUTIONAL AMENDMENT WAS REQUIRED

1. Democratic Deficit in Cooperatives
• Elections often postponed indefinitely.
• Administrators or nominated persons remained in charge for long periods.
• Undermined democratic functioning and member participation.

2. Weakening of Cooperative Movement
• Despite growth in numbers, quality of cooperatives remained weak.
• Internal governance was poor and often politically influenced.
• Members’ voices were diluted.

3. Professional and Financial Weakness
• Many cooperatives lacked:
  – Professional management
  – Transparency in accounts
  – Efficient service delivery
• Resulted in low productivity and financial losses.

4. Political Interference
• Excessive state intervention compromised autonomy.
• Supersession of boards was often misused.
• Led to erosion of trust among members.

5. Need for Constitutional Protection
• To promote:
  – Autonomous functioning
  – Democratic management
  – Accountability
  – Professionalism
• Government wanted to revive cooperatives as strong grassroots economic institutions.

6. To Promote Inclusive Socio-Economic Development
• Cooperatives play a crucial role in:
  – Rural credit
  – Agriculture
  – Dairy (e.g., AMUL model)
  – Housing
  – Fisheries
  – Small industries
• Strengthening cooperatives supports equitable development and social justice.

IMPACT & SIGNIFICANCE OF 97th AMENDMENT

• Elevates cooperatives to a constitutional space.
• Encourages transparency, timely elections and member participation.
• Reduces arbitrary state interference.
• Creates uniform governance standards across states.
• Strengthens cooperative autonomy in spirit of “cooperation among cooperatives.”

SUPREME COURT JUDGMENT (2021) ON 97th AMENDMENT (IMPORTANT FOR OPSC)

• SC held Part IX-B unconstitutional **insofar as it applies to state cooperatives**.
• Reason: Constitutional amendment affecting State subjects requires ratification by half of the states.
• However, SC upheld:
  – Article 19(1)(c) (Right to form cooperatives)
  – Article 43B (DPSP)
  – Provisions relating to Multi-State Cooperatives

Meaning:
• States must regulate state cooperatives as per their laws.
• Central norms apply only to Multi-State Cooperative Societies (MSCS).

CURRENT ISSUES IN COOPERATIVE SECTOR

• Excessive politicisation of cooperatives.
• Financial irregularities.
• Weak auditing and monitoring.
• Dual control (State Registrar + Financial Institutions).
• Lack of professionalism.
• Inadequate member participation.
• Corruption in cooperative credit societies.

WAY FORWARD

• Strengthen democratic governance with transparent elections.
• Build professional management capacities.
• Reduce bureaucratic and political interference.
• Adopt technology-based auditing and monitoring.
• Extend strong accountability and grievance mechanisms.
• Encourage successful cooperative models like AMUL, Lijjat, IFFCO.

CONCLUSION

Cooperatives are powerful instruments for grassroots empowerment and economic inclusion. The 97th Constitutional Amendment sought to revive the democratic, autonomous and professional functioning of cooperatives. While the Supreme Court limited its application to state cooperatives, the spirit of the amendment continues to guide policy reforms. For OPSC, this topic is crucial in Polity, Governance and Rural Development sections.
 

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Subject: Polity

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