Multi-State Cooperative Society
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In this Article, Aditi Bohra of National Law University, Delhi gives an overview of Multi-State Cooperative Society and provides for the procedure to set up a multi-state cooperative society.

Introduction

The Multi-State Cooperative Societies (MSCS) Act 2002 which came into force in 2002 was enacted to consolidate and amend the laws relating to cooperative societies and to substitute the Multi-State Cooperative Societies Act, 1984. The objective of this Act is to facilitate the incorporation, functioning, and organization of the cooperative societies which have jurisdiction in more than one state. The Act facilitates voluntary formation and functioning of multi-state cooperative societies which are member driven institutions and are based on self-help and mutual aid. The Act also helps these societies to further their economic and social advancements and provides for their functional autonomy.

Definition of Multi-State Cooperative Society

Multi-State Cooperative Society has been defined under section 3(p) of MSCS Act 2002. It says that “multi-State co-operative society” means a society registered or deemed to be registered under this Act and includes a national co-operative society and a Federal co-operative.” The Act provides for the formation of both the types of cooperative societies viz primary (with both individual and institutional members) and Federal Cooperatives (with only institutional membership). The main objectives of the society are to work in the interest and welfare of its members in more than one state. It is not necessary that a society should have branches in more than one state, it may have branches limited to one state and it shall not cease to be a multi-state co-operative society, so long as it serves the interest of members in more than one state.

Procedure for registration of Multi-State Cooperative Society

The procedure for registration of Multi-State Cooperative Society has been prescribed in the MSCS Act 2002. Section 5 of the Act lays down that No multi-State co-operative society shall be registered under this Act unless its main objects are to serve the interests of members in more than one state and its bye-laws provide for the social and economic betterment of its members through self-help and mutual aid in accordance with the co-operative principles. Section 6 of MSCS Act 2002 provides for application of registration which shall be made to the Central Registrar in such form and with such particulars as may be prescribed. The application shall be signed:

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  • In the case of a multi-State co-operative society of which all the members are individuals, by at least fifty persons from each of the state concerned;
  • In the case of a multi-State co-operative society of which the members are co-operative societies, by duly authorized representatives on behalf of at least five such societies as are not registered in the same state.
  • In the case of a multi-State co-operative society of which another multi-State co-operative society and other co-operative societies are members, by duly authorized representatives of each of such societies: Provided that not less than two of the co-operative societies referred to in this clause, shall be such as are not registered in the same state;
  • In the case of a multi-State co-operative society of which the members are co-operative societies or multi-State co-operative societies and individuals, by at least,
    • fifty persons, being individuals, from each of the two states or more; and
    • one co-operative society each from two states or more or one multi-State co-operative society.
  • The application shall be accompanied by four copies of the proposed bye-laws of the multi-State co-operative society and the persons by whom or on whose behalf such application is made shall furnish such information in regard to the society as the Central Registrar may require.

Documents required for setting up a Multi-State Cooperative Society

  • Four copies of proposed Bye-Laws ;
  • List of contributors to the share capital including List of contributors to the share capital including details of the amount contributed by each member;
  • A certificate from the bank showing credit balance in the account of the proposed multi-state co-operative society;
  • A scheme showing economic viability of the proposed society and further state that registration of society shall be beneficial for the social and economic betterment of the members.
  • A resolution providing name and address of the chief promoter for any communication by the Central Registrar.
  • Copy of resolution in favor of the person authorized to make the alteration in the Bye-Laws of the proposed society.

Registration

Section 7 of MSCS Act provides for registration of society and its bye-laws if the application complies with requirements prescribed in the Act.

When is application deemed to have been accepted?

  • The application for registration shall be disposed of by the Central Registrar within a period of four months from the date of receipt thereof by him.
  • If the application for registration is not disposed of within a period of four months or the Central Registrar fails to communicate the order of refusal within that period, the application shall be deemed to have been accepted for registration and the Central Registrar shall issue the registration certificate in accordance with the provisions of this Act and the rules made thereunder.

Procedure for passing the refusal order

  • Where the Central Registrar refuses to register a multi-State co-operative society, he will give the opportunity to the society to be heard before passing such order.
  • He shall communicate, within a period of four months from the date of receipt of the application for registration, the order of refusal together with the reasons therefor to the applicant or applicants, as the case may be.

Other Relevant Provisions

Section 8 of the Act implies that certificate of registration, issued by the Central Registrar will be conclusive evidence of registration of the society under the Act.

Is Multi-State Cooperative Society a body corporate?

Section 9 lays down that registration of Multi-State Cooperative Society render it a body corporate which shall be/have-

  • Perpetual succession;
  • Common seal;
  • Empowered to acquire, hold and dispose of the properties, movable and immovable;
  • Empowered to enter into contract;
  • Empowered to institute and defend suits and other legal proceedings; and
  • Empowered do all things necessary for achieving the purpose of its constitution.
  • Empowered to sue or be sued.
  • All transactions entered into in good faith prior to the registration shall be deemed to be its transactions after registration for the furtherance of the objects of its registration.

Bye-laws of a Multi-State Cooperative Society

Section 10 provides for the important aspects which bye-laws of multi-state cooperative society may cover. The Bye-Laws must be consistent with the provisions of this Act and the rules made thereunder. Bye-Laws may either provide for all the following matters or any of them.

  • The name, address and area of operation of the society;
  • The objects of the society;
  • The services to be provided to its members;
  • The eligibility for obtaining membership;
  • The procedure for obtaining membership;
  • The conditions for continuing as member;
  • The procedure for withdrawal of membership;
  • The transfer of membership;
  • The procedure for expulsion from membership;
  • The rights and duties of the members;
  • The nature and amount of capital of the society;
  • The manner in which the maximum capital to which a single member can subscribe;
  • The sources from which the funds may be raised by the multistate co-operative society;
  • The purpose for which the funds may be applied;
  • The manner of allocation or disbursement of net profits of the multi-State co-operative society;
  • The constitution of various reserves;
  • The manner of convening general meetings and quorum thereof other than those provided under this Act;
  • The procedure for notice and manner of voting, in general and other meetings;
  • The procedure for amending the bye-laws; 9
  • The number of members of the board not exceeding twenty-one;
  • The tenure, of directors, chairperson and other office bearers of the society, not exceeding five years;
  • The procedure for removal of members of the board and for filling up of vacancies;
  • The manner of convening board meetings, its quorum, number of meetings in a year and venue of such meetings;
  • The frequency of board meetings;
  • The powers and functions of the Chief Executive in addition to those provided under section 52;
  • The manner of imposing the penalty;
  • The appointment, rights and duties of auditors and procedure for conduct of audit;
  • The authorisation of officers to sign documents and to institute and defend suits and other legal proceedings on behalf of the society;
  • The terms on which a multi-State co-operative society may deal with persons other than members;
  • The terms on which a multi-State co-operative society may associate with other co-operative societies;
  • The terms on which a multi-State co-operative society may deal with organisation other than co-operative societies;
  • The rights, if any, which the multi-State co-operative society may confer on any other multiState co-operative society or federal co-operative and the circumstances under which such rights may be exercised by the federal co-operative;
  • The procedure and manner for transfer of shares and interest in the name of a nominee in case of death of a member;
  • The educational and training programmes to be conducted by the multi-State co-operative society;
  • The principal place and other places of business of multi-State co-operative society;
  • The minimum level of services, to be used by its members;
  • Any other matter which may be prescribed.

Section 11 provides for the procedure for the amendment of the bye-laws of multi-state cooperative societies.

Publication of name by Multi-State Cooperative Society

Section 15 talks about the publication of name by Multi-State Cooperative Society. It provides for following ways for publication of name by MSCS.

  • Paint or affix the name and the address of the registered office and keep the same painted or affixed, on the outside of every office or place in which its business is carried on, inconspicuous position, in letters easily legible;
    • if the characters employed therefor are not those of the language, or of one of the languages in general use in that locality, also in the characters of that language or of one of those languages.
  • Engrave the name in legible characters on the seal.
  • Mention the name and the address of the registered office in legible characters in all its business letters, in all its bill heads and letter paper, and in all its notices and other official publications;
  • Mention the name in all bills of exchange, hundies, promissory notes, endorsements, cheques and orders for money or goods purporting to be signed by or on behalf of the multi-State co-operative society, and in all bills of parcels, invoices, receipts and letters of credit of the multi-State co-operative society.

Cancellation of registration certificate of Multi-State Cooperative Societies in certain cases

Section 21 provides for following certain cases in which registration certificate of Multi-State Cooperative Societies stands canceled.

  • In case of transfer of the whole of the assets and liabilities of a multi-State co-operative society to another multi-State co-operative society or to a co-operative society in accordance with the provisions of section 17. In such cases, the registration of the first-mentioned multi-State co-operative society stands canceled and the society is deemed to have been dissolved and ceases to exist as a corporate body.
  • In case of amalgamation of two or more multi-State co-operative societies into a new multi-State cooperative society in accordance with the provisions of section 17. In such cases, the registration of each of the amalgamating societies stands canceled on the registration of the new society, and each of the amalgamating societies is deemed to have been dissolved and ceases to exist as a corporate body.
  • In case of division of a multi-State co-operative society into two or more multi-State co-operative societies or two or more co-operative societies in accordance with the provisions of section 17. In such cases, the registration of that society stands canceled on the registration of the new societies and that society is deemed to have been dissolved and ceases to exist as a corporate body.
  • The amalgamation or division of multi-State co-operative societies does not in any manner whatsoever affect any right or obligation of the resulting multi-State co-operative society or societies or render defective any legal proceedings by or against the multi-State co-operative society or societies, and any legal proceedings that might have been continued or commenced by or against the multistate cooperative society or societies, as the case may be, before the amalgamation or division, may be continued or commenced by or against the resulting multi-State co-operative society or societies.

Amendment in the laws governing Multi-State Cooperative Society

The Multi-State Cooperative Societies (MSCS) Act 2002 was enacted to substitute the Multi-State Cooperative Societies Act, 1984. Keeping in view the changing economic policies and in order to enable the cooperative societies to gain the advantage of emerging opportunities, a grave need was felt to make further amendments in the MSCS Act 2002.

These amendments were based on the interaction and feedback of various stakeholders and on the recommendation of High Powered committee which was constituted by Government of India under the chairmanship of Shri S.O.Patil.

This Act was amended in 2010 with an intention to increase the faith of the public in cooperatives and to ensure better accountability of the management towards its members and law of land. The key amendments to the Act pertain to the time limit for disposal of application for registration, distribution of shares, the constitution of the interim board, holding of elections, constitution of fund and dispute settlement.

  • Disposal of registration: The Bill has extended the time of disposal of application to five months after giving reasons in writing. The Bill has also added that if an application is not disposed of within the time period of five months, it shall be deemed to have been accepted as a member.    
  • Distribution of shares: The Bill has added the proviso that the cooperative society may refund the share capital held by the government. The redemption of shares shall be on face value or book value of shares, whichever is higher.
  • Constitution of the 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 Bill states 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 3 crores per year.
  • Dispute settlement: The Bill amends dispute settlement scheme by stating that all disputes shall be referred to the Central Registrar. If there is a question as to whether a dispute touches the constitution or management of a society, it shall be decided by the Central Registrar and shall not be questioned by the court.

With the introduction of New 97th Constitutional Amendment Act 2012, the major amendments made in the Act are-

  • 2 ladies in governing body are the must.
  • 1 member of either SC/ST is compulsory on the governing body list.

Further, in the year of 2016, The Central Government in an exercise of the powers conferred by section 124 of the Multi-State Co-operative Societies Act 2002, made the Multi-State Cooperative Societies (Amendment) Rules, 2016 in order to amend the Multi-State Cooperative Societies Rules, 2002.

Conversion of a co-operative society into a multi-State co-operative society

A cooperative society may extend its jurisdiction and convert itself into a multi-State co-operative society by an amendment of its bye-laws, provided amendment of bye-laws of a co-operative society shall be registered by the Central Registrar. The steps for converting the cooperative society into a multi-state cooperative society have been laid down in section 22 MSCS Act 2002.

Steps involved

  • Every proposal for such amendment of bye-laws shall be forwarded to the Central Registrar in accordance with the provisions contained in sub-section (4) of section 11.
  • Central Registrar, after consulting the Registrars of Co-operative Societies of the States concerned may register the amendment within a period of six months from the date of receipt thereof by him after satisfying himself that such amendment—
    • fulfills the requirements of the members being from more than one state;
    • is in accordance with the provisions contained in sub-section (4) of section 11,
    • Provided that no co-operative society shall be deemed to have been converted into a multi-State cooperative society on any ground whatsoever unless such society is registered as a multi-State co-operative society.
  • A copy of the registered amendment together with a certificate signed by Central Registrar shall be forward to the co-operative society by the Central Registrar
  • Where the Central Registrar refuses to register an amendment of the bye-laws or a co-operative society, he shall communicate the order of refusal together with the reasons therefor to the society in the manner prescribed within seven days from the date of refusal.
  • Once the amendment of bye-laws has been registered by the Central Registrar, the co-operative society shall, as from the date of registration of amendment, become a multi-State co-operative society.

Along with these steps, the Central Registrar shall forward to the co-operative society a certificate signed by him to the effect that such society has been registered as a multi-State co-operative society and also forward a copy of the same to the Registrar of Co-operative Societies of the State concerned. The Registrar of Co-operative Societies shall thereupon make an order directing that the society had, as from the date of registration by the Central Registrar, ceased to be a society under the law relating to co-operative societies in force in that state.

Members of Multi-State Co-operative societies and their duties, rights, and liabilities

Chapter IV of the MSCS Act provides for qualification, rights, duties, and liabilities of members of Multi-State Co-operative society. Section 25 provides for qualification for being a member of Multi-State Co-operative society. Section 26 says that a multi-State co-operative society may admit a person as nominal or associate member if it is provided in its bye-laws, provided such nominal or associate member shall not be entitled to-

  • Subscribe the shares of such society;
  • Or have any interest in the management thereof including the right to vote, elect as a director of the board or participate in the general body meetings.

Section 27 makes it mandatory for every Multi-State Co-operative Society to organize cooperative education programmes for its members, directors, and employees. Section 29 lays down conditions for disqualification of a member and section 30, in furtherance of that lays down the procedure for expelling a member of Multi-State Cooperative society. Section 31 entitles every member of Multi-State Co-operative Society a right to vote and section 32 provides for the manner of exercising this right. Section 33 and 34 put the restriction on members on holding of shares and on the transfer of shares or interest respectively. Section 36 provides for the transfer of interest on death of members and section 37 provides for Liabilities of past member and estate of the deceased member.

Managing bodies of Multi-State Cooperative Societies

Chapter V of MSCS Act 2002 lays down provisions for direction and management of Multi-State Cooperative Society. It provides for constitution, power, and functions of Multi-State Cooperative society. It further provides for general and special meetings of general body, board of director, association of employees in management decision making process, conditions for Disqualifications of a member of board, certain cases prohibiting chairperson or president or vice-chairperson or vice president to hold office, elections of members of board, removal of elected members by general body, nominee of Central Government or State Government on board, powers and functions of board, meeting of board, position of Chief Executive, powers and functions of Chief Executive, committees of board and certain cases in which possession of records, etc can be secured.

Privileges of Multi-State Cooperative Society

Chapter VI of MSCS Act provides for privileges of Multi-State Cooperative society. A Multi-State Cooperative Society may charge and set-off in respect of share or contribution or interest of members. Along with it, share of contribution or interest is also not liable to attachment, any register or list of members or shares kept by any multi-State co-operative society shall be prima facie evidence of-

  • The date on which any person entered in such register or list became a member;
  • Or the date on which any such person ceased to be a member.

It also provides for the admissibility of the copy of entry as evidence, exemption from compulsory registration of instruments, deduction from salary to meet the claim of multi-State cooperative society in certain cases and Government aid to multi-State cooperative societies.

Audit, Enquiry, inspection and surcharge of Multi-State Cooperative Society

Chapter VIII of MSCS Act provides for Audit, Enquiry, inspection, and surcharge of Multi-State Cooperative Society. It prescribes provisions for appointment and remuneration of auditors, provision as to resolutions for appointing or removing auditors, qualifications and disqualifications of auditors, powers and duties of auditors,signature of audit report, provision for reading and inspection of auditor’s report, right of auditor to attend general meeting, power of Central Government to direct special audit in certain case, inspection and inquiry of multi-State cooperative societies, inspection of books of indebted multi-State cooperative societies, provisions for costs of inquiry and inspection and recovery and repayment of such costs.

Is Multi-state cooperative society a banking company?

Section 5(c) of Banking Regulation Act provides for the definition of Banking Regulation Act, 1949. Multi-state cooperative society is not a company under Banking Regulation Act and therefore it is not a banking company.

Position held by Supreme Court

The honorable Supreme Court in the case of Greater Bombay Co-op. Bank Ltd. V M/S United Yarn Tex. Pvt. Ltd. & Ors. held that “Multi-State Cooperative Societies registered under Multi-State Co-operative Societies Act, 2002 are not Banking Companies under Section 5(c) of Banking Regulation Act 1949. The similar position was held by Supreme Court in its interim order passed in the case of Vinayak Credit Co-operative society Ltd V State of Rajasthan and Others.  

References

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