Note4Students

From UPSC perspective, the following things are important :

Prelims level: MSCS Act, 2002

Mains level: Cooperatives in India

The Multi-State Cooperative Societies (Amendment) Bill, 2022, aimed at bringing in transparency in the sector, was introduced in the Lok Sabha.

What is MSCS Act, 2002?

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.

(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.

At present, India has more than 1,500 multi-State cooperative societies.
The Bill seeks to strengthen governance, reform the electoral process, improve the monitoring mechanism, and ensure ease of doing business in multi-State cooperative societies.
It also aims to improve the composition of boards and ensure financial discipline, besides enabling the raising of funds in multi-State cooperative societies.

In order to make the governance of multi-State cooperative societies more democratic, transparent and accountable, the Bill has provisions for setting up of –

Constitution of interim board: The Bill allows the central registrar to declare any multi-state cooperative society as sick. The Central government may, on the recommendation of the registrar, appoint an interim board for a maximum of five years. The central registrar can also declare a cooperative to be viable within the five years. The board of directors before the cooperative was declared sick shall be reinstated.
Elections: The Act states that elections shall be conducted by the existing board. The Bill amends this to state that the Central government may appoint a Cooperative Election Authority to conduct elections in cooperative societies to be prescribed.
Constitution of Fund: The Bill states that the central government shall set up the Cooperative Rehabilitation and Reconstruction Fund. A cooperative society shall credit 0.005% to 0.1% of its turnover to the fund, provided it does not exceed Rs 3crores per year.