Polity (cooperative societies)

97th Constitutional Amendment Act (2011) and Cooperative Societies

Introduction to the Amendment

The 97th Constitutional Amendment in 2011 gave cooperative societies a constitutional status, introducing key changes:

• Fundamental Right: Forming cooperative societies became a fundamental right (Article 19(1)(c)).
• Directive Principle: Encourages the promotion of cooperative societies (Article 43-B).
• New Part (Part IX-B): This part in the Constitution addresses various aspects of cooperative societies, from incorporation to management (Articles 243-ZH to 243-ZT).

Key Provisions in Part IX-B

1. Incorporation and Functioning

• State legislatures can regulate the incorporation, regulation, and winding up of cooperative societies.
• Cooperative societies should operate on principles of voluntary formation, democratic control, and member participation.

1. Board of Directors

• Maximum of 21 members on the board.
• Reserved seats for Scheduled Castes/Scheduled Tribes and women.
• Elected members serve a 5-year term.

1. Election and Governance

• Elections are to occur before the board’s term expires.
• Supervision of elections is managed by state-appointed bodies.
• Supersession of Board: A board may only be superseded for specific reasons, such as non-performance or misconduct. Suspension cannot exceed six months, except for cooperative banks.

1. Financial Oversight

• Annual Audits: Required for cooperative societies, conducted by state-approved auditors.
• Accounts should be audited annually and completed within six months after the financial year ends.
• Apex cooperative society audit reports must be presented to the state legislature.

1. General Body Meetings

• The general body meeting of each cooperative society must be held annually, within six months of the financial year-end.

1. Member Rights and Accountability

• Members have access to society records and financial information.
• Societies must provide annual reports, audited financials, amendments, and election records to the state authority.

1. Offences and Penalties

• The state legislature can define offences such as:
  • Providing false information.
  • Misuse of funds or assets.
  • Election malpractice.

1. Application to Multi-State Cooperative Societies and Union Territories

• Provisions apply to multi-state cooperatives, with any state references replaced by Parliament and the Central Government.
• Applicable to Union Territories, with exceptions as per the President’s directive.

Purpose and Rationale Behind the 97th Amendment

• Improved Accountability: To address issues like indefinite election delays, lack of professionalism, and accountability within cooperatives.
• State Control Minimization: Ensuring cooperatives can function autonomously, without unnecessary state interference.
• Strengthening Economic and Social Roles: Emphasizing democratic, professional, and independent management to enhance their economic contributions.

Constitutional Validity and Judicial Review of the 97th Amendment

1. Gujarat High Court Ruling (2013)

• Rationale: The Gujarat High Court deemed the 97th Constitutional Amendment partially invalid as it lacked the required ratification by state legislatures under Article 368 of the Constitution.
• Outcome: The court ruled that the amendment’s provisions on forming cooperative societies (under Article 19(1)(c)) and promoting cooperative societies (Article 43-B) were valid, but Part IX-B was not applicable to state-level cooperative societies.

1. Supreme Court Ruling (2021)

• Decision: The Supreme Court upheld the Gujarat High Court’s decision. It ruled that Part IX-B applies only to multi-state cooperative societies, clarifying that state legislatures retain control over cooperative societies operating solely within their state.

Articles Related to Cooperative Societies at a Glance

The following articles in Part IX-B detail the provisions for cooperative societies:

Reasons for the 97th Amendment: Detailed Breakdown

1. Enhancing Accountability and Democratic Processes

• Issues Addressed: Delays in elections and prolonged administration by unelected officials often compromised transparency and member interests.
• Solution: The amendment introduced structured election schedules and defined criteria for board suspensions to ensure fair governance.

1. Strengthening Professional and Economic Contributions

• Challenge: Limited professional management in many cooperatives hindered their effectiveness.
• Reform: Mandating professional audits and supporting cooperative education improved both management practices and accountability.

1. Reducing State Interference for Autonomous Functioning

• Background: Cooperative societies were historically subject to extensive government control, leading to inefficiencies and stifling autonomy.
• Amendment Goal: By enshrining autonomous functioning and democratic principles, the amendment sought to empower cooperatives to self-manage and enhance economic growth without external intervention.

Impact and Significance of the Amendment

1. Economic and Social Development

• Cooperative societies, often fundamental to local economies, are now better positioned to support economic justice, provide equitable opportunities, and foster local development.

1. Promotion of Social Justice

• By mandating democratic governance and transparency, the amendment aids in equitable resource distribution and inclusion of marginalized communities, reinforcing social justice through economic empowerment.

1. Alignment with Constitutional Principles

• Integrating cooperative societies into the Constitution aligns with the Directive Principles of State Policy, which emphasize democratic control and autonomous functioning, reinforcing India’s foundational social and economic values.