Review of Co-op Laws in India (1997)

This document has been made available in electronic format
by the International Co-operative Alliance (ICA)

Part II - Review of Country Laws - India (1997)

Source: Co-operative Laws in Asia and the Pacific
by G.K. Sharma (pp.67-73)

In India the beginning of co-operative could be linked to `NIDHIS'
in Madras province in the second half of the 19th century which
were quite similar to Raiffeisen credit co-operatives. Other type of
co-operatives like consumer co-operatives were also organised on
Rochdale Model in the last decades of the century.  In the first ICA
Congress from August 19-23, 1895 held in London, one Mr. Krishna
Menon from the College of Agriculture, Madras stated, "I am glad to know more of the principles you are advocating as Indian labour,
especially agricultural labour, is not fairly remunerated. In earlier days
there was a system of profit sharing between the landowner, the farmer
and the labourer in Southern India, but the administration of the early
English officials led to an alteration, whereby, the position of the
agricultural labour has been reduced to one of day labour, in which,
he has no claim to the profits he makes.  The old system had several
redeeming features, specially in times of scarcity, when the labourers
were protected by a contribution from the community. He suggested
that the congress should impress upon the necessity of distributing
the deliberations of the congress throughout the great dependency so
as to create a sympathetic response from the Government of India". 

Another Indian delegate, Mr. Ambika Charan Ukul, in the 4th ICA
Congress in 1900 held in Paris, reported the efforts made by him in
promoting various types of co-operatives. In 5th Congress in Manchester
in 1902,  he stated that about 150 village banks had been formed and
including them about 200 co-operatives had been established. However,
it is difficult to believe he had information about the whole country, and
the number could be much larger. 

According to M. Digby, "The idea of introducing cooperation as it had been developed in Europe seems to have occurred to Lord Wenlock,
Governor of Madras, who was familiar with the work of Horace Plunkett
in Ireland and with the writings of Henry Wolff, the founder of
International Co-operative Alliance: Wenlock sent Mr. Nicholson
(afterwards Sir Frederic) to Europe, to study the agricultural co-
operative movement there, more specially in Germany and to report on
the possibility of introducing land and agricultural banks to Madras.
His report, issued in 1893, was the starting point of co-operatives in
India, though its first fruits did not mature for another 12 years."

In 1919 co-operation became a state subject under Montague
Chelmsford reforms and provinces were authorised to make their
own co-operative laws. Since then, every state has its own co-operative
law. To cover the co-operatives having membership from more than one
state the multi-state co-operative societies Act was enacted by the
Government of India in 1942 which was replaced by a new multi-state
co-operative law in 1972 which continues till date with amendments
made from time to time. 

After India became independent in 1947, the first Prime Minister of
India Pt. Jawaharlal Nehru was a firm believer in co-operatives and
considered co-operative as one of the three pillars of democracy.
Consequently, the Government of India got actively involved in
promoting and supporting cooperatives and recognised them as
an  important agency for economic development . An important change
in this regard came with the recommendation of Indian Rural Credit
Survey (1954) which proposed "State Participation" in share capital
of co-operatives. This further strengthened the belief in the Government
to treat co-operatives as state agency than fully autonomous bodies.
In the process, the main objective of state partnership in co-operatives
was lost and more and more stringent provisions in the co-operative
laws were added, giving powers to the state to involve in the
management of co-operatives.

The concept of agreeing the Government participation in co-operative
could be best explained in the statement of Dr. D.G. Karve a great
co-operative thinker and Chairman of ICA Commission on Co-operative
Principles; "In view of the acknowledged shortcomings of both, extreme
individualism and extreme statism, there is some justification for the
view that it would be better to have a system in which while attracting
all the support that comes from the community as a whole, and while
leaving as much scope to individual action as possible, all associated
in collective action should be put on a co-operative basis, ensuring
freedom as well as equality. For instance, it was in this spirit that later
on when we first become to talk of the Rural Credit Survey Committee
the idea of state partnered co-operative institutions appeared both
necessary and natural."*

The post independence changes in the Co-operative Laws could
be best summarised in the extract from the foreword of the Report
of The Committee on model co-operative act by its chairman
Ch. Brahm Perkash another renowned and committed co-operator:
"In the post-Nehruvian period, however, co-operatives witnessed a
sharp reversal of the entire process of democratisation thereof on the
plea of Government participation in the share capital of co-operatives
and providing other financial assistance as also that of removal of
vested interest from co-operatives, making the co-operative laws
more stringent, undemocratic and restrictive in nature and approach.
Co-operatives as they stand today lost their genuine character

Considering this situation, the Planning Commission, Government
Of India in March 1990 appointed an expert committee to: 

i. make a broad rapid review of the status of the co-operative
        movement and suggest about future directions; and

ii. finalise the bill and submit the same to the Planning

Some of the restrictive provisions indicated by the Committee in its
Report are:

1.      Compulsory Amendment of bye-law by the Registrar.

2. The power of the Government to nominate Directors on
the committee of the Management. 

3.      Powers of the Government to veto annual resolutions.

4.      Powers to Registrar/State Government to give directions.

5.      Supersession/suspension of committee of management.

6. Automatic suspension of the Managing Committee
Of Credit societies 

7.      Restriction on terms of office of office-bearers.

8.      Restriction on holding office in a number of co-operatives

9. Compulsory amalgamation and division of co-operative
By Registrar. 

The Committee suggested a model co-operatives Bill for consideration
by the Government keeping the above aberration and distortions in
view. The object of the model law is "to give a genuine character to
co-operatives to facilitate building of integrated co-operative structure
so as to involve a co-operative system, make the federal organisations
at various levels more responsive and responsible towards their
members, to minimise government control and interference, to enable
co-operators and co-operatives develop self-reliance and self-confident
with power of decision making and eliminate politicalisation. The draft
law, thus, removes the colonial approach and character of existing laws
and truly meets the norms of governance of a democratic, autonomous
enterprise in the country so deeply committed to democratic values."

However, in spite of more than five years of the report, it has not
been implemented in spite of many assurances by the concerned
ministers in the public as also in the parliament. Further, to what extent
the model law will keep its original content only time will show.

Another important development in this regard has been the step of a
state government in South India, Andhra Pradesh (AP). AP has enacted
an another co-operative law with the title Andhra Pradesh Mutually
Aided Co-operative Societies Act in 1995. This law is largely based
on the model law and keeps co-operatives practically free from
Government's interference in their  management and is applicable to
only such co-operatives which do not take government share capital
or loans or have returned the same back to government. Some other
state governments have also initiated similar attempts but only half

There has also been a demand recently to allow co-operatives
To be registered under the Companies Act, which is a central
Government law and not a state government law. The opinion of
co-operative leaders is divided to the proposal and government view
is also not clear. 

In all, India today has more than 20 state co-operative laws and
Federal co-operative law. 

The multi-state co-operative law is a federal law of 1984 covering
Co-operatives not confined to one state and has 110 articles. The
important features of this law are:

Registration: Applications for registration and amendments have
To be disposed of within six months (Article 9). 

Membership : Under Article 19 Central Government, State
Governments, National Co-operative Development Corporation
And any other corporation owned or controlled by government and
Any Government Company can also become member of a co-operative.

Management: Under article 29 (3) only Chairman or Chief Executive
can represent a co-operative in any other co-operative. Article 33
suggests association of employees representative in the management.

Under article 34 for election to the Board one should have been a
member of the co-operative at least for one year. Further, under article
35 (4) non-member of General Body cannot contest election. Under 
article 35 conducting of elections in a multi-state co-operative is the
responsibility of an election officer to be appointed by the Central

Under article 36, no person can be Chairman of more than one
multi-state co-operative, as also not more than two terms (one term,
maximum 3 years). Under article 44 in a multi-state co-operative,
where government holds more than one-half of shares, the Chief
Executive has to be appointed with the approval of the Government.

Article 45 also details the functions of the Chief Executive who is also
an ex-officio member of the Board. 

Under article 47, Central Government can give directions in public
interest or for securing proper implementation of co-operative
production and of the development programmes.

Under article 48 Registrar can supersede the Board and nominate
an administrator or Board under specific circumstances indicated
in the article for a period of 2 years. 

Article 74  provides settlements of disputes by arbitration.

Under Article 77, power of winding up and appointment of liquidator
lies only with the Government/Central Registrar. 

Article 109 provides power to make rules under the act.