Cooperative society

Also called: Cooperative · Topic: Civil Society, Pressure Groups, NGOs and Self-help Groups · NCERT: Class 6, Ch 9 "Family and Community"; Class 9, Ch 6 "Democracy"

Meaning

A cooperative society is a voluntary group of people who pool their money, labour or produce for a shared benefit. They share both the profits and the responsibilities. It is run democratically on the rule of one member, one vote. Since the 97th Amendment (2011), forming a cooperative is a fundamental right under Article 19(1)(c), and the Constitution has a full Part (Part IXB) on how cooperatives must be run.

It matters because cooperatives such as Amul and IFFCO show how ordinary people can grow economically together. It also matters because Rajendra N. Shah (2021) made cooperatives a test case for federalism.

Explanation

How a cooperative works

• Members pool resources. Farmers, weavers or depositors put in money, labour or produce.
• Gains and duties are shared. Members share the surplus. They also share the responsibilities.
• One member, one vote. Each member has one vote, however many shares they hold.
• In a company, votes follow shares, so a big shareholder has more say.

• In a cooperative, a small member and a large member have equal say.

• Place in civil society: a cooperative is a voluntary economic body owned by its members. It is not a pressure group (a group that tries to influence government policy). But large cooperatives, such as Maharashtra's sugar cooperatives, often become political bases.

• NCERT examples:
• Class 9, Democracy: cooperatives and trade unions are examples of democratic decision-making outside government.
• Class 6, Family and Community: Tenzing's mother works in a handicraft cooperative in Meghalaya. A community earns a living by working together.

The ICA's seven principles (1995)

The International Co-operative Alliance (ICA) listed these in its 1995 Statement on the Cooperative Identity:

1. Voluntary and open membership. Anyone who can use the services can join, without discrimination.
2. Democratic member control. One member, one vote.
3. Member economic participation. Members provide the capital and share the surplus fairly.
4. Autonomy and independence. The society controls itself. The government or lenders do not.
5. Education, training and information. Members and staff are trained.
6. Cooperation among cooperatives. Societies join local, national and global federations.
7. Concern for community. The society works for the sustainable development of its area. - Art. 43B (added in 2011) closely follows principles 1, 2 and 4.

How the movement grew

• Cooperative Credit Societies Act, 1904 (Curzon era):
• It aimed to give farmers cheap rural credit and free them from moneylenders.

• It allowed credit societies only.

• Cooperative Societies Act, 1912: it allowed non-credit societies (marketing, housing, weavers) and federations.

• Maclagan Committee (1915): it proposed a three-tier credit structure: primary society → central bank → provincial bank.
• Government of India Act, 1919: cooperation became a provincial subject. The first provincial law was the Bombay Cooperative Societies Act, 1925.
• All India Rural Credit Survey (1954):
• It found that cooperatives supplied only a small share of rural credit.
• Its famous line: "co-operation has failed, but co-operation must succeed".

• It recommended state partnership, which means the government takes shares in cooperatives.

• Landmarks:

• Amul (1946, Kaira, Gujarat): led by Tribhuvandas Patel and built up by Verghese Kurien.
• NDDB (1965): spread the "Anand pattern" to other states.
• IFFCO (1967) and KRIBHCO (1980): fertiliser cooperatives.

• Operation Flood (1970): the "White Revolution", which made India the largest milk producer.

• Ministry of Cooperation: a separate Union ministry created on 6 July 2021, with the slogan "Sahkar se Samriddhi" (prosperity through cooperation) [4].

Chronic problems

• Politicisation: party politicians use cooperative boards as stepping-stones.
• Registrar control: the Registrar of Cooperative Societies is the state official who registers, inspects and can dissolve societies. Registrars often controlled societies too tightly.
• Postponed elections and long supersession. Supersession means the government removes the elected board and puts an administrator in its place.
• Weak audit, frauds and dual control: cooperative banks answered both to the state Registrar and to the RBI.

In the Constitution and practice

Before 2011

• Seventh Schedule, State List, Entry 32: cooperative societies are a state subject.
• Union List, Entry 44: corporations whose work is not limited to one state. This covers multi-state cooperatives.
• Art. 43 (DPSP): the State shall try to promote cottage industries on an individual or cooperative basis in rural areas. A DPSP (Directive Principle of State Policy) is a guideline for government that no court can enforce.

The 97th Constitutional Amendment, 2011 (in force 15 February 2012)

• Its aim was cooperatives that are autonomous and democratic, with managers who answer to members [2].
• Art. 19(1)(c): "or co-operative societies" was added. Forming a cooperative became a fundamental right (a right the courts can enforce). Reasonable limits can still be placed on it under Art. 19(4).
• Art. 43B (new DPSP): the State shall promote the voluntary formation, autonomous functioning, democratic control and professional management of cooperatives.
• Part IXB (Arts. 243ZH–243ZT): detailed rules for running cooperatives.
• 243ZI: the state legislature makes laws on how societies are set up, regulated and wound up.
• 243ZJ: a board of at most 21 directors. One seat is reserved for SCs or STs and two for women. The term is five years.
• 243ZK: elections must be held before the term ends. A body set up under state law runs them.
• 243ZL: a board can be superseded or suspended for at most six months. For a society doing banking business, the Banking Regulation Act, 1949 also applies, and the cap is one year.
• 243ZM: accounts must be audited within six months of the end of the financial year.
• 243ZN: the general body meeting must be held within six months of the end of the financial year.
• 243ZO: members have a right to information about the society's books.
• 243ZP–243ZQ: returns must be filed. Offences and penalties are listed.
• 243ZR / 243ZS: Part IXB applies to multi-state societies and to Union Territories.
• 243ZT: existing state laws that do not match Part IXB continue for one year only.

Union of India v. Rajendra N. Shah (20 July 2021)

• Bench: R.F. Nariman and B.R. Gavai formed the majority. K.M. Joseph dissented in part.

• Procedure the Court applied (Art. 368(2) proviso): 1. The bill is introduced in either House of Parliament. No prior sanction from the President is needed. 2. Each House passes it by special majority: a majority of the total membership and two-thirds of the members present and voting. 3. If the bill changes a matter in the proviso, such as the Seventh Schedule lists, the legislatures of at least half the states must ratify (approve) it by simple majority. 4. The President must give assent (24th Amendment, 1971).

• Holding:

• Part IXB cut into an exclusive State List subject (Entry 32).
• Half the states had not ratified it, so it was invalid for state cooperatives.

• The Court used severability (cutting out the invalid part and keeping the rest). Part IXB was saved for multi-state cooperatives, which fall under Union List Entry 44.

• Part IXB now works only for multi-state co-operative societies, both in the states and in the UTs [3].

• Dissent: K.M. Joseph would have struck down the whole of Part IXB.
• What survives in full: Art. 19(1)(c) and Art. 43B, because they did not need state ratification.

Multi-State Cooperative Societies Act, 2002

• It replaced the 1984 Act. It covers societies working in more than one state, under the Central Registrar of Cooperative Societies (CRCS) [5]. Examples are IFFCO, KRIBHCO and NAFED.
• MSCS (Amendment) Act, 2023: notified on 3 August 2023, with Rules on 4 August 2023. It brought the 97th Amendment's norms into the 2002 Act [5]:
• two women and one SC/ST seat on each board [5];
• a Cooperative Election Authority for timely, regular and transparent elections [5];
• non-voting shares, which give no voting or board rights [5];
• online registration, with the time to decide an application cut from 4 months to 3 months [5].

Key instances in practice

• PMC Bank collapse (2019) led to the Banking Regulation (Amendment) Act, 2020, which gave the RBI more power over cooperative banks [6][7]:
• The RBI can remove a chairman who is not "fit and proper" [6].
• The RBI can supersede a bank's board after consulting the state government [6].
• Audit is done on par with scheduled commercial banks, and the RBI must approve the auditor [7].

• It came into force for urban cooperative banks from 26 June 2020 [6].

• Sahara cooperatives: on 29 March 2023, the Supreme Court ordered ₹5,000 crore to be moved to the CRCS [8]. The CRCS-Sahara Refund Portal was launched on 18 July 2023 for depositors of four multi-state societies [8][9]. By February 2026, ₹8,783.55 crore had been paid to about 40.33 lakh depositors [9].

Don't confuse with

• Company: in a company, votes follow shares. In a cooperative, it is one member, one vote, however many shares a member holds.
• Art. 43 vs Art. 43B: Art. 43 (original DPSP) is about promoting cottage industries on a cooperative basis. Art. 43B (added in 2011) is about the voluntary formation, autonomy, democratic control and professional management of cooperatives.
• Part IX / Part IXA vs Part IXB: Part IX covers Panchayats and Part IXA covers Municipalities. Only Part IXB (Arts. 243ZH–243ZT) covers cooperatives.
• Pressure group: a pressure group tries to influence government policy. A cooperative is a member-owned economic body, even if some large cooperatives become political bases.

Prelims Hooks

• 97th Amendment, 2011 (in force 15 February 2012) added "or co-operative societies" to Art. 19(1)(c). This is a Fundamental Right, not a DPSP.
• Entry 32, State List = cooperative societies. Entry 44, Union List = multi-state corporations, which covers multi-state cooperatives.
• Part IXB board: up to 21 directors, 1 SC/ST + 2 women seats, 5-year term. Supersession is capped at 6 months (1 year for cooperative banks).
• Rajendra N. Shah (2021): Part IXB needed ratification by half the states under the Art. 368(2) proviso. Through severability, it now applies only to multi-state cooperatives [3]. Art. 19(1)(c) and Art. 43B survive in full.
• 1904 Act: credit societies only. 1912 Act: non-credit societies and federations. 1919: cooperation became a provincial subject. AIRCS 1954: "co-operation has failed, but co-operation must succeed".
• Ministry of Cooperation: created 6 July 2021 [4]. MSCS (Amendment) Act, 2023 set up a Cooperative Election Authority [5].

Mains Points

• Federalism vs uniform standards:
• Rajendra N. Shah shows that Parliament cannot rewrite a State List subject through Art. 368 without state ratification. This protects cooperative federalism (the Union and the states working together, each in its own field).
• But state cooperatives are now left without uniform constitutional rules on elections, audit and supersession.

• Possible fix: a fresh amendment ratified by half the states, or model state laws.

• Autonomy vs regulation:

• Cooperatives are meant to be run by their members (ICA principle 4, Art. 43B).
• Yet the PMC Bank (2019) and Sahara cases show that weak oversight hurts depositors.

• The 2020 Banking Regulation amendment and the 2023 MSCS amendment move towards professional, RBI- and CRCS-style control [5][6]. Critics fear this weakens democratic member control and reduces the states' role.

• Politicisation vs development:

• Maharashtra's sugar cooperatives and repeated board supersessions show cooperatives being used as political bases.
• Reforms: independent election authorities (as under the 2023 Act), time-bound audit, members' right to information, and limits on the Registrar's discretion.
• Amul and Operation Flood show what a well-run cooperative can do: drive inclusive growth (the White Revolution) and work alongside SHGs (self-help groups) to empower women, as in NCERT's Meghalaya handicraft cooperative.

Related concepts

• Rajendra N. Shah case
• Multi-State Cooperative Societies Act 2002

Read more

• Cooperatives: history, principles and constitutional status