Why in News

  • The Centre has decided to amend the Multi State Cooperative Societies (MSCS) Act, 2002 to “plug the loopholes in the Act”.
  • Earlier, a new Ministry of Cooperation was formed.

About the Multi State Cooperative Societies (MSCS) Act, 2002:

  • Multi State Cooperative Societies: Although Cooperatives is a state subject, 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.
  • For example, most sugar mills along the districts on the Karnataka-Maharashtra border procure cane from both states.
  • Maharashtra has the highest number of such cooperative societies at 567, followed by Uttar Pradesh (147) and New Delhi (133).
  • The MSCS Act was passed to govern such cooperatives.

Legal Jurisdiction:

  • 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.
  • The exclusive control of the central registrar was meant to allow smooth functioning of these societies, without interference of state authorities.

Lack of Checks and Balances:

  • 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 multi state societies.
  • The central registrar can only allow inspection of the societies under special conditions.
  • Further, inspections can happen only after prior intimation to societies.

Weak Institutional Infrastructure of Central Registrar:

  • 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.
  • Due to this, the grievance redressal mechanism has become very poor.
  • This has led to several instances when credit societies have launched ponzi schemes taking advantage of these loopholes.

Possible Reforms/Amendments:

Strengthening Institutional Infrastructure:

  • The Centre government after consultation with various stakeholders should strengthen necessary institutional infrastructure to ensure better governance of the societies. For example: Increasing the manpower. Technology shall be used to bring in transparency.

Involving States:

  • The administrative control of such societies should be vested in the state commissioners.

Cooperatives in India

  • The International Cooperative Alliance (ICA) defines a Cooperative as “an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise.”

Examples of Successful Cooperatives in India:

  • National Agricultural Cooperative Marketing Federation of India (NAFED),
  • Indian Farmers Fertilizers Cooperative Limited (IFFCO)
  • AMUL

Constitutional Provisions:

  • The Constitution (97th Amendment) Act, 2011 added a new Part IXB regarding the cooperatives working in India.
  • The word “cooperatives” was added after “unions and associations” in Article 19(1)(c) under Part III of the Constitution.
  • This enables all the citizens to form cooperatives by giving it the status of fundamental right of citizens.
  • A new Article 43B was added in the Directive Principles of State Policy (Part IV) regarding the “promotion of cooperative societies”.

Supreme Court Judgement:

  • In July, 2021, the Supreme Court struck down certain provisions of the 97th Amendment Act, 2011.
  • As per the SC, Part IX B (Articles 243ZH to 243ZT) has “significantly and substantially impacted” State legislatures’ “exclusive legislative power” over its co-operative sector.
  • Also, the provisions in the 97th Amendment were passed by Parliament without getting them ratified by State legislatures as required by the Constitution.
  • The SC held that states have exclusive power to legislate on topics reserved exclusively to them (cooperatives are a part of State list).
  • The 97th Constitutional Amendment required ratification by at least one-half of the state legislatures as per Article 368(2).
  • Since the ratification was not done in the case of the 97th amendment, it was liable to strike it down.
  • It upheld the validity of the provisions of Part IX B which are related to Multi State Cooperative Societies (MSCS).
  • It said that in case of MSCS with objects not confined to one state, the legislative power would be that of the Union of India.


With reference to ‘Urban Cooperative Banks’ in India, consider the following statements:

  1. They are supervised and regulated by local boards set up by the State Governments.
  2. They can issue equity shares and preference shares
  3. They were brought under the purview of the Banking Regulation Act, 1949 through an Amendment in 1966.

Which of the above statements given above is/are correct?

a) 1 only

b) 2 and 3 only

c) 1 and 3 only

d) 1, 2 and 3

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