Cooperatives: history, principles and constitutional status

Detail

1. What a cooperative is

• Cooperative society: a 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. Each member has one vote, however many shares they hold (one member, one vote). This is what makes it different from a company, where votes follow shares.
• 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. This shows a community acting together to earn a living.

• Place in civil society: a cooperative is a voluntary, member-owned economic body. It is not a pressure group, although large cooperatives (for example sugar cooperatives) often become political bases.

2. The ICA's seven principles

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

#	Principle	Plain meaning
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, not the government or lenders
5	Education, training and information	Members and staff are trained
6	Cooperation among cooperatives	Societies link up in local, national and global federations
7	Concern for community	The society works for the sustainable development of its area

• Art. 43B of the Constitution (added in 2011) closely follows principles 1, 2 and 4.

3. History of the cooperative movement

Colonial phase

• Cooperative Credit Societies Act, 1904 (Curzon era):
• Its aim was cheap rural credit, to free farmers from moneylenders.

• It allowed credit societies only.

• Cooperative Societies Act, 1912:

• It allowed non-credit societies (marketing, housing, weavers).

• It allowed federations (central banks and unions).

• Maclagan Committee (1915): reviewed the movement and recommended a three-tier credit structure: primary society → central bank → provincial bank.

• Government of India Act, 1919: cooperation became a provincial subject. Provinces then passed their own laws, the first being the Bombay Cooperative Societies Act, 1925.

After 1947

• All India Rural Credit Survey (1954): it found that cooperatives supplied only a small share of rural credit. Its famous line was "co-operation has failed, but co-operation must succeed". It recommended state partnership, meaning the government takes shares in cooperatives.
• Landmarks:

Year	Body	Note
1946	Amul, Kaira district (Gujarat)	Led by Tribhuvandas Patel; Verghese Kurien built it up
1965	NDDB (National Dairy Development Board)	Copied the "Anand pattern" in other states
1967	IFFCO	Fertiliser cooperative
1970	Operation Flood	Made India the largest milk producer ("White Revolution")
1980	KRIBHCO	Fertiliser cooperative
—	Maharashtra sugar cooperatives	Became political bases for state leaders

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

4. Chronic problems

• Politicisation: boards become stepping-stones for party politicians.
• 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 in an administrator.
• Weak audit, frauds, and dual control of cooperative banks (the state Registrar plus the RBI).
• PMC Bank collapse (2019) → Banking Regulation (Amendment) Act, 2020. The Act amended the Banking Regulation Act, 1949 to give the RBI more power over cooperative banks [6][7]:
• The RBI can set qualifications for the chairman and remove one who is not "fit and proper" [6].
• The RBI can supersede the board of a cooperative bank after consulting the state government [6].
• The bank's audit is done on par with scheduled commercial banks, and the RBI must approve the auditor [7].
• With prior RBI approval, a bank may raise equity or unsecured debt from the public [6].
• The RBI can reconstruct or amalgamate a bank without first imposing a moratorium [7].
• In force for urban cooperative banks from 26 June 2020 [6].

5. Constitutional position before 2011

• Seventh Schedule, State List, Entry 32: cooperative societies are a state subject.
• Union List, Entry 44: corporations whose objects are not confined to one state, which 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.

6. The 97th Constitutional Amendment, 2011

• Constitution (Ninety-seventh Amendment) Act, 2011, in force 15 February 2012. Its aim was autonomous and democratic cooperatives whose managers answer to members [2].

Change	Where	Effect
"or co-operative societies" added	Art. 19(1)(c)	Forming a cooperative becomes a fundamental right (a right the courts can enforce), subject to reasonable limits under Art. 19(4)
New DPSP	Art. 43B	The State shall promote voluntary formation, autonomous functioning, democratic control and professional management of cooperatives
New Part	Part IXB, Arts. 243ZH–243ZT	Detailed rules for running cooperatives

Key articles of Part IXB

• 243ZH: definitions.
• 243ZI: the state legislature makes laws on incorporation, regulation and winding up, in line with the principles above.
• 243ZJ: board of at most 21 directors:
• one seat reserved for SCs or STs and two for women;

• a five-year term.

• 243ZK: elections must be held before the term ends. They are run by a body set up under state law.

• 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, and the law lists offences and penalties.
• 243ZR: Part IXB applies to multi-state societies.
• 243ZS: it applies to Union Territories.
• 243ZT: existing state laws that do not conform continue for one year only.

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

• Bench: R.F. Nariman and B.R. Gavai in the majority; K.M. Joseph dissented in part.
• Procedure the Court applied (Art. 368(2) proviso):

Step	Requirement
1. Bill introduced in either House of Parliament	No prior presidential sanction needed
2. Passed by each House	Special majority: a majority of the total membership and two-thirds of members present and voting
3. Ratification by the states (needed if the bill changes a matter in the proviso, such as the Seventh Schedule lists or the distribution of legislative powers)	Legislatures of at least half the states, by simple majority
4. Presidential assent	The President must give assent (24th Amendment, 1971)

• Holding:
• Part IXB cut into an exclusive State List subject (Entry 32).
• It was not ratified by half the states, so it was invalid for state cooperatives.

• Using severability (a court cuts out the invalid part and keeps the rest), it was saved for multi-state cooperatives, which fall under Union List Entry 44.

• Since then, Part IXB works only for multi-state co-operative societies, both in the states and in the UTs, and not for local state cooperatives [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.
• The 97th Amendment as an amendment, and the basic-structure angle, are covered in amendment-basic-structure.

8. Multi-State Cooperative Societies Act, 2002

• Multi-State Cooperative Societies (MSCS) Act, 2002 (Act 39 of 2002) replaced the 1984 Act. It covers societies working in more than one state, under a Central Registrar of Cooperative Societies (CRCS) [5].
• Examples: IFFCO, KRIBHCO, NAFED, and large multi-state credit societies.
• MSCS (Amendment) Act, 2023: the Act was notified on 3 August 2023 and its 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 through the CRCS portal, with the time to decide an application cut from 4 months to 3 months [5].

• Sahara group societies: their failure showed gaps in how multi-state credit societies were regulated.

• The Supreme Court ordered on 29 March 2023 that ₹5,000 crore be moved from the Sahara–SEBI Refund Account to the CRCS [8].
• The CRCS-Sahara Refund Portal was launched on 18 July 2023. It covers depositors of four multi-state societies: Sahara Credit (Lucknow), Saharayn Universal (Bhopal), Humara India Credit (Kolkata) and Stars Multipurpose (Hyderabad) [8][9].
• By February 2026, ₹8,783.55 crore had been paid to about 40.33 lakh depositors, straight into Aadhaar-linked bank accounts [9].
• The Supreme Court allowed another ₹5,000 crore and extended the refund period to 31 December 2026 [9].

Prelims Hooks

• Art. 19(1)(c) gained "or co-operative societies" through the 97th Amendment, 2011, in force 15 February 2012. It sits in Fundamental Rights, not DPSPs.
• Art. 43B (DPSP) covers voluntary formation, autonomous functioning, democratic control and professional management of cooperatives. Do not confuse it with Art. 43 (cottage industries on a cooperative basis).
• Part IXB = Arts. 243ZH–243ZT. Part IX covers Panchayats and Part IXA covers Municipalities. Classic trap.
• Board of up to 21 directors, 1 SC/ST + 2 women seats, 5-year term, supersession capped at 6 months (1 year for cooperative banks).
• Entry 32, State List covers cooperative societies. Entry 44, Union List covers multi-state corporations.
• Rajendra N. Shah (2021): Part IXB needed ratification by half the states under the Art. 368(2) proviso. It now applies only to multi-state cooperatives, through severability.
• 1904 Act: credit societies only. 1912 Act: non-credit societies. 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]. The Banking Regulation (Amendment) Act, 2020 applies to UCBs from 26 June 2020 [6].

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. 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 member-run (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. Critics fear this weakens democratic member control and reduces the states' role.
• Politicisation and capture: 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;

• limits on Registrar discretion.

• Development role: Amul and Operation Flood show cooperatives can drive inclusive growth (the White Revolution). They can also complement SHGs in women's empowerment, as seen in the Meghalaya handicraft cooperative in NCERT.