Co-operative Societies
Introduction
If we want to understand the 97th Constitutional Amendment, we must begin with one basic idea: Co-operative Societies are a form of collective effort—people voluntarily pool their resources to achieve common economic and social goals. India has a long tradition of co-operatives, whether in credit, housing, dairy (like Amul), or agriculture.
But over the decades, co-operatives suffered from political interference, corruption, delayed elections, lack of accountability, and weak autonomy.
To correct this, the 97th Constitutional Amendment Act, 2011 sought to give co-operatives constitutional status, safeguard democratic functioning, and ensure professionalism.
What Exactly Did the 97th Amendment Change?
The amendment made three major changes:
1. A New Fundamental Right (Article 19(1)(c))
The right to form co-operative societies became a fundamental right.
Earlier, citizens had the right to form associations/unions; now co-operatives were explicitly added.
2. New Directive Principle (Article 43-B)
A guiding principle added to ensure that the State promotes voluntary, autonomous, and democratic co-operative societies.
3. Addition of Part IX-B (Articles 243-ZH to 243-ZT)
Just like Panchayats (Part IX) and Municipalities (Part IX-A), co-operatives got their own constitutional framework.
This was the backbone of the reform and laid out detailed rules for governance, elections, auditing, oversight, etc.
Key Provisions of Part IX-B
1. Incorporation of Co-operatives
State Legislatures are empowered to create laws relating to:
- Incorporation
- Regulation
- Winding-up
But they must follow four universal principles:
- Voluntary formation
- Democratic member control
- Member-economic participation
- Autonomous functioning
These principles aim to prevent excessive government interference.
2. Composition & Term of the Board
Board Size
- Maximum 21 directors.
Reservation
Every co-operative society must reserve:
- 1 seat → SC/ST (if such members exist)
- 2 seats → Women
Term
- Elected members and office bearers hold office for 5 years.
Co-option
- Experts in banking, management, finance, etc., may be co-opted, but with following limitations:
- Maximum 2 co-opted members
- Cannot vote
- Cannot become office bearers
- Not counted in the maximum limit of 21
Functional Directors
- CEO/MD or other functional directors are also board members but not counted in the 21-member limit.
3. Elections
- Elections must be completed before the term ends, so the new board takes charge immediately.
- A State-appointed independent body supervises:
- Voter list preparation
- Conduct of elections
This ensures free and fair elections.
4. Supersession / Suspension of Board
A board can be superseded only on strict grounds:
- Persistent default
- Negligence of duties
- Acts against the interests of the society
- Functional or constitutional stalemate
- Election authority failing to conduct elections properly
Maximum period of supersession: 6 months.
Exception:
If the co-operative has no Government shareholding/loans/guarantees, then the board cannot be superseded.
This protects autonomy.
During supersession, an administrator runs the society and must conduct elections within 6 months.
5. Audit of Accounts
State laws must ensure:
- Annual maintenance of accounts
- Audit every financial year
- Audit to be done by auditors/firms approved by the State
- Audit to be completed within 6 months of closing the financial year
- The audit report of apex societies must be placed before the State Legislature
This brings transparency and accountability.
6. Annual General Body Meeting (AGM)
- To be held within 6 months of the end of the financial year.
7. Member’s Right to Information
Members must have access to:
- Books
- Accounts
- Records
- Other information
States may also provide for co-operative education and training of members.
8. Returns
Co-operatives must submit annual returns (within 6 months), including:
- Annual report
- Audited financial statements
- Plan for disposal of surplus
- Amendments to by-laws
- Declaration on AGM and elections
9. Offences & Penalties
Acts made punishable include:
- False returns/information
- Disobeying summons or orders
- Delayed payments by employers
- Failure to hand over records
- Corrupt election practices
This strengthens discipline.
10. Multi-State Co-operatives
| Aspect | For State Co-operative Societies | For Multi-State Co-operative Societies |
|---|---|---|
| Legislative Authority | State Legislature | Parliament |
| Governing Law | State Act | Central Act |
| Executive Authority | State Government | Central Government |
11. Application to Union Territories
Applicable to all UTs, unless the President exempts any.
12. Continuance of Existing Laws
State laws inconsistent with Part IX-B continued only for:
- One year, or
- Until amended/repealed
Whichever is earlier.
Why Was the 97th Amendment Needed? (Government’s Rationale)
The government gave three major reasons:
1. Declining Democratic Health of Co-operatives
- Indefinite postponement of elections
- Administrators running co-operatives for years
- Poor accountability
- Political interference
- Low professionalism
To revive autonomy and democratic functioning, constitutional protection was needed.
2. State Acts Were Not Sufficient
“Co-operative Societies” is in State List (Entry 32).
States passed their own laws, but many problems persisted:
- Low democratic standards
- Poor financial management
- Weak service delivery
Consultations with states showed a need for uniform constitutional safeguards.
3. Central Vision for Professionalised, Democratic Co-operatives
The Centre believed:
- A constitutional framework would promote autonomy
- Members’ rights would be protected
- Violations would attract penalties
- Co-operatives would become efficient and economically strong
Part IX-B was expected to bring transparency, professionalism, and democratic accountability.
Constitutional Validity: What Did the Courts Say?
This is extremely important for UPSC.
Gujarat High Court (Rajendra Shah, 2013)
Held that:
- Part IX-B is ultra vires the Constitution
- Because “Co-operative Societies” is a State subject, the amendment required ratification by half of the State Legislatures under Article 368
- Since such ratification was not done, Part IX-B could not be applied to State co-operatives
But the Court allowed:
- Article 19(1)(c)
- Article 43-B
These remained valid.
Supreme Court (2021 Judgment)
Upheld the Gujarat HC judgment with one important modification:
- Part IX-B is valid only for Multi-State Co-operative Societies
- But invalid with respect to State-level co-operatives (due to lack of state ratification)
Thus:
- Fundamental Right (Art. 19(1)(c)) → Valid
- Directive Principle (Art. 43-B) → Valid
- Part IX-B → Valid only for multi-state co-operatives
This is the current constitutional position.
Final Understanding (For UPSC Answer Writing)
The 97th Constitutional Amendment sought to democratize and professionalize co-operatives. It introduced constitutional safeguards to ensure timely elections, limited supersession, transparent audits, member rights, and autonomy. However, due to lack of state ratification, Part IX-B applies only to multi-state co-operatives, though the fundamental right and DPSP remain fully valid.
Articles related to Co-operative Societies
| Article No. | Subject-matter |
|---|---|
| 243ZH | Definitions |
| 243ZI | Incorporation of Co-operative Societies |
| 243ZJ | Number and Term of Members of Board and its Office Bearers |
| 243ZK | Election of Members of Board |
| 243ZL | Supersession and Suspension of Board and Interim Management |
| 243ZM | Audit of Accounts of Co-operative Societies |
| 243ZN | Convening of General Body Meetings |
| 243ZO | Right of a Member to Get Information |
| 243ZP | Returns |
| 243ZQ | Offences and Penalties |
| 243ZR | Application to Multi-state Co-operative Societies |
| 243ZS | Application to Union Territories |
| 243ZT | Continuance of Existing Laws |