Multistate cooperatives: Govt plans to amend the Law – Explained, pointwise

Introduction

The central government has decided to amend the Multi State Cooperative Societies (MSCS) Act, 2002 to plug the loopholes in the Act.

Further, it has also begun the process of formulating a new cooperative policy, with the newly created Ministry of Cooperation writing to key stakeholders for suggestions.

What is the rationale behind the move?

– To have an effective regulatory mechanism for the multi State cooperative societies.

– To keep the legislation in tune with the changing economic policies.

– To make the management accountable to the members of the societies.

– To protect the interests of the depositors and the shareholders of the societies.

What is the MSCS Act?

Cooperatives are a state subject, but 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.

The MSCS Act, 2002  was passed to govern such cooperatives.

What are the Multi-state Cooperative Societies?

Multi-state cooperatives draw their membership from more than one states, and they are thus registered under the MSCS Act.

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.

Maharashtra has the highest number of multistate cooperative societies at 567, followed by Uttar Pradesh (147) and New Delhi (133).

Credit societies constitute the bulk of the registered societies, followed by agro-based ones (which include sugar mills, spinning mills etc).

What are the issues/concerns with the current MSCS Act?

The exclusive control of the central registrar, who is also the Central Cooperative Commissioner, was meant to allow smooth functioning of multistate cooperatives. The central Act cushions them from the interference of state authorities so that these societies are able to function in multiple states. However, this has created obstacles as the societies have to seek approvals for new proposals (like expansion of capacity) from officials of all states they are operating in.

No checks and balances: For state-registered societies, financial and administrative control rests with state registrars, who exercise it through district- and tehsil-level officers. There are enough checks and balances to ensure transparency in their functioning. But, in case of multistate cooperatives, these layers do not exist. Instead, the board of directors has control of all finances and administration.

Lack of day-to-day control: There is an apparent lack of day-to-day government control on multistate cooperatives.

– Reports: State cooperatives have to submit multiple reports to the state registrar. However there is no such requirement for the multistate cooperatives.

– Inspections: The central registrar can only allow inspection of the societies under special conditions. A written request has to be sent to the office of the registrar by not less than 1/3^rd of the members of the board, or not less than 1/5^th of the number of members of the society. Inspections can happen only after prior intimation to societies.

Lack of proper infrastructure: Central Registrar doesn’t have enough on-ground infrastructure.

– Officers: There are no officers or offices at the state level, with most work being carried out either online or through correspondence. Further, in cases of complaints of Ponzi schemes run by many credit societies, there is a lack of ground staff necessary for verifying their antecedents.

– For members of the multistate cooperative societies, the only office where they can seek justice is in Delhi. The State authorities are unable to do much apart from forwarding complaints to the central registrar.

Privatisation of cooperative mills: Sugar cooperative mills registered under the central Act are being privatised in some states like Maharashtra. For instance: A mill in Sangli was privatised after the then board of directors passed a resolution. This mill was among the 68 sold off by the Maharashtra State Cooperative Bank for defaulting on loans. Taking advantage of the multi-state status, the mill declared itself as a sick unit before it was auctioned off.

What is the way forward?

The Government is holding extensive consultations with experts from various fields: bankers, sugar commissioners, cooperative commissioners, housing societies federations etc. The proposed amendments to the Act should include the following reforms:

– Increase in manpower, both in Delhi and as well as the states, to ensure better governance of the societies.

– Technology should be used to bring in transparency.

– For implementing day to day control, the administrative control of multistate cooperatives could be vested in the state commissioners.