Part II - Review of Co-op Laws in Sri Lanka (1997)

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

Part II - Review of Country Laws in Sri Lanka (1997)

Source: Co-operative Laws in Asia and the Pacific
by G.K. Sharma (pp.166-171)

Sri Lanka

The first co-operative law in Sri Lanka was enacted in 1911 which
was meant only for credit co-operatives similar to Indian Co-operative
Law of 1904. It was only in 1921 the law was amended to cover other
type of co-operatives. The existing law was passed in 1972. Recently
a committee was appointed to draft a new law under the Chairmanship
of Mr. R. B. Rajaguru, former Regional Director of ICA ROAP, who
gave his report but it is still under discussion.

The Co-operative Society Law has 75  articles divided into 14 chapters.
After enactment in 1972 it was amended in August 1983 and in
March 1992.

Chapter I : Registration
Article 2 deals with appointment of Registrar and his officers. Under
the amended article 3:

(a) Society which has its object to provision, in accordance with
co-operative principles of specialised services contributing to
the economic, social and educational and cultural welfare of
its members. 

(b) A society consisting of registered co-operative societies as
its members established with the object of facilitating the
operation of societies referred to in para (a) may be registered. 

Section 4 further states that minimum of 10 persons in case of primary
co-operative and minimum of 3 co-operatives for a secondary
co-operatives are needed for registration. 

Section 5(3)(b) requires a feasibility report pertaining to economic
activities along with other requirements with the registration papers
According to amended article 11(c), "No person who is a member
of parliament, Provincial Council, Municipal Council, Urban Council
or Pradeshiya Sabha shall be eligible to be elected to or continue in
office as a member of the committee of a registered co-op society."

Chapter II : Members Rights and Liabilities
Under section 11(d), "a person shall be disqualified from being elected
as a Chairman of a society, the membership of which consists of
societies, if he is on date of his election, the Chairman of any other
society, the objects of which are not similar to the objects of the first
mentioned society the  membership of which consists of registered
co-operative societies".

Section 16(1) does not allow proxy in case of a primary co-operative.

Chapter IV : Privileges of Societies
Section 21 (1) makes obligatory to members to sell their produce
through the co-operatives as per bye-laws and in case of default they
can be asked to pay liquidated damages.

Section 22 authorises the Minister to issue orders directing producers
to sell their produce through a co-operative whether they are members
or not and such order has to be placed for approval by the Parliament.
The non-compliance of this order is an offence and liable to fine not
exceeding Rs. 1000 by summary trial before a magistrate (section 23).
The chapter also deals in detail procedure for the recovery of dues of a
co-operative and members responsibilities.

Chapter V : Exemptions from Stamp Duty and Fee
Section 35 provides exemption from payment of Stamp Duty and
registration fee to a co-operative and its members.

Chapter VI : Provisions Relating to Bye-laws
The chapter provides that interpretation of the bye-law done by
the Registrar will be final and cannot be questioned in a court. 

Chapter VII : Properties and Funds
This chapter deals with deposits, loans and profit distribution in
co-operatives from yearly surplus funds.

Chapter VIII : Audit, Enquiry, Inspection and Investigation
Under section 44 audit is the responsibility of the Registrar and
provide detailed procedure. 

Section 46 details the conditions for holding an enquiry or inspection
by the Registrar and powers of the enquiry/inspection officer during
the enquiry or inspection.
Chapter IX :
Amended section 48 authorises the registrar as a result of
enquiry/inspection and after giving a notice of the society to :

a. remove the offending committee member or members and
fill the resulting vacancy in accordance with the bye-law; and

b. dissolve the committee and elect a new committee or appoint
a suitable person or body of persons to manage the affairs of
the society. 

Section 48 (2) specifies that the committee or elected persons so
appointed shall hold office for the remainder of the period of the
office of the dissolved committee.

Chapter X : Dissolution
The Registrar can dissolve/cancel registration of co-operative:

1. Under section 49 after an enquiry or inspection or on
application made by three-fourths members, is satisfied that
the co-operative should be dissolved after giving an opportunity
to the co-operative to explain.

2.	Section 50 (a) the membership is reduced to ten.

2. 50 (b) has not commenced working during a year from
registration or has not been working for 2 years.

Chapter XI : Disputes
The chapter provides detailed procedure for settling disputes and
claims by the Registrar through arbitration.

Chapter XI-A : Special Provisions Relating to Co-operatives
Operating with State Funds
This is a new chapter  added by amendment in 1992. In this chapter
60-A (1) where a registered society obtains a loan, advance or grant
from the Government, every such loan, advance or grant shall be
subject to the following conditions:

a. that the approval, in writing of the Registrar, shall be obtained
by the society prior to acquiring by way of purchase, lease, gift
or otherwise any land, building or other movable or immovable
property or alienating by way of sale, mortgage, lease exchange
or in any other manner, and land, buildings and other movable or
immovable property for any purpose connected with its objects.

b. that the funds of the society shall be deposited or invested in
any securities other than in a primary mortgage of immovable
property in terms of section 20 of the Trust Ordinance or with
any banker or a person acting as banker approved for such purpose
by the Registrar, or in the shares, or on the security of any other
registered society, approved for the purpose by the Registrar, or
in any other mode provided for, by the rules.

Section 60 (A) gives powers to Registrar to give direction to the General
Body to remove the Board and elect a new one and in case of failure to
nominate a suitable person or persons to manage the affairs.

Under section 60 (b) the Registrar can also remove an officer of a
co-operative under certain condition and under section 60 (c) he can
nominate members on the Board which shall be less than half of the
total number of the members of the committee.

Chapter XII : Rules
Section 61 provides the subjects on which the Minister can make
rules under this act.

Chapter XIV : Miscellaneous
Section 66-A provides an important provision:

1. The Chairman and every member of the committee of a
registered society shall make, to the Commissioner of
Co-operative Development in the prescribed form, an
annual declaration of:
a. all his assets and liabilities; 
b.	all the assets and liabilities of his spouse; and 
c.	all the assets and liabilities of each of his children,
as on the thirty first day of March of the year in respect
of which such declaration is made.

2. The declaration referred to in sub-section (1) shall be made by
the Chairman or member of the committee of a registered society,
to the Commissioner of Co-operative Development, within three
months of his election or appointment, as the case may be, as such
Chairman or member, and unless he ceases to be such Chairman or
member before the first day of July of every year succeeding the
year in which he made his first declaration.

Under Section 72 (3) not giving information or not complying with the
orders of the Registrar is an offence which is punishable by imprisonment
of not more than 2 years and/or fine of not more than Rs. 1200.