The Union Home and Cooperation Minister has announced the decision to amend the Multi-State Cooperative Societies (MSCS) Act, 2002 to plug the loopholes in the Act.

What is 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.
• The MSCS Act was passed to govern such cooperatives.
• For example, most sugar mills along the districts on the Karnataka-Maharashtra border procure cane from both states.

What are Multi-State Cooperatives?

• They draw their membership from two or more 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.

Why does the government plan to amend the Act?

(1) Issues with Central Registrar

• The exclusive control of the central registrar, who is also the Central Cooperative Commissioner, was meant to allow smooth functioning of these societies.
• The central Act cushions them from the interference of state authorities so that these societies are able to function in multiple states.
• What was supposed to facilitate smooth functioning, however, has created obstacles.
• For state-registered societies, financial and administrative control rests with state registrars who exercise it through district- and tehsil-level officers.

(2) Multiple checks and balances

• Thus if a sugar mill wishes to buy new machinery or go for expansion, they would first have to take permission from the sugar commissioner for both.
• Post this, the proposal would go to the state-level committee that would float tenders and carry out the process.
• While the system for state-registered societies includes checks and balances at multiple layers to ensure transparency in the process, these layers do not exist in the case of multistate societies.
• Instead, the board of directors has control of all finances and administration.

(3) Lack of govt control

• There is an apparent lack of day-to-day government control on such societies.
• Unlike state cooperatives, which have to submit multiple reports to the state registrar, multistate cooperatives need not.
• The central registrar can only allow inspection of the societies under special conditions — a written request by one-third of the members of the board.
• Inspections can happen only after prior intimation to societies.

(4) Lack of infrastructure

• The on-ground infrastructure for central registrar is thin — there are no officers or offices at state level, with most work being carried out either online or through correspondence.
• For members of the societies, the only office where they can seek justice is in Delhi, with state authorities expressing their inability to do anything.

(5) Ponzi schemes functioning as MCS

• There have been instances across the country when credit societies have launched ponzi schemes taking advantage of these loopholes.
• Such schemes mostly target small and medium holders with the lure of high returns.
• Fly-by-night operators get people to invest and, after a few instalments, wind up their operations.

What kind of amendments can be expected?

• The Centre is holding extensive consultations with experts from various fields: bankers, sugar commissioners, cooperative commissioners, housing societies federations etc.
• The centre might increase their manpower, first in Delhi and then in the states, to ensure better governance of the societies.
• Also, technology will be used to bring in transparency.

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