Multi-state Cooperative Societies

What is a multistate cooperative society?

• Multistate cooperative society refers to a society registered under the Multistate Cooperative Societies Act, 2002 or deemed to be registered under this Act.
• Cooperatives are a state subject. However, some cooperative societies have been established with members and areas of operation spanning more than one state. Such societies are called multistate cooperative societies (MSCSs).
• On the Karnataka-Maharashtra border, many sugar mills procure sugar cane from both the states. They have members from both states with their board of directors having representation from the states in which they operate. Such bodies are registered under the MSCS Act.
• Other examples of such cooperatives include those for milk, banks, etc.
• The financial and administrative control of these societies is vested with the central registrar. The state government officials can’t wield any control over these societies.
• Since the enactment of the MSCS Act, some 1,479 such societies have been registered (9 of these have been deregistered since then).
  • The highest number (567) is in Maharashtra. UP (147) and New Delhi (133) also have high number of MSCSs.
  • Bulk of these MSCS are credit societies (610).
  • There are also a large number (244) of agro-based MSCSs– such as sugar mills and spinning mills.
  • 96 of these MSCSs are dairy cooperatives.
  • There are 66 multistate cooperative banks.

What are the challenges?

• The Central Registrar, who is also the Central Cooperative Commissioner, has exclusive control according to the MSCS Act. This was to insulate the post from state authorities’ interference and enable the smooth functioning of MSCSs. However, this has ended up creating obstacles.
• In case of state-registered societies, the administrative and financial control is vested with the state registrars and is exercised through officers at the district level and the tehsil levels.
• This means that if a state-registered sugar mills wishes to purchase new machinery or to expand, it requires permission– first from the sugar commissioner and then from the state-level committee, which would then float tenders.
• In summation, a system with checks and balances at multiple levels exist in case of state-registered societies. This ensures transparency.
• Similar kind of multi-level checks and balances don’t exist for MSCSs.
• A board of directors control all the administration and finances of the MSCS. An annual general body meeting of the MSCS is convened in case of an expenditure above a certain level.
• Experts have raised concern over the lack of day-to-day government control over the MSCSs.
  • MSCSs don’t have to submit multiple reports to the registrar, unlike in case of the state cooperatives.
  • Only under special conditions, the central registrar allows the inspection of MSCSs:

1. 1. 1. A written request from at least 1/3^rd of the board members or not less than 1/5^th of the society’s members
      2. Prior intimation to the MSCSs

• The central registrar has very sparse on-ground infrastructure and there aren’t any officers/ offices to aid the process at state level. Most of the work is being undertaken through correspondence or through online mode.
• The society members can seek justice only in Delhi as state authorities are unable to do anything more than forward complaints to the central registrar.
• There have been cases of credit societies launching Ponzi schemes to take advantage of loopholes in the MSCS Act. These schemes mainly target the smaller holders using promises of high returns. Fly-by-night operators convince people to invest in such schemes and then wind up operation after taking in a few instalments.
• The lack of ground staff for verifying such societies’ antecedents has meant that no action is taken on the multiple complaints received by state commissioners- as is the case in Maharashtra.
• There are also instances of societies taking advantage of the multistate status such as the case of a Sangli sugar mill that was registered under the MSCS Act but was then privatized by a resolution of the board of directors. It was among the 68 units sold by the Maharashtra State Cooperative Bank for defaulting on loans.

What is the way ahead?

• The MSCS Act has several loopholes as pointed out by experts. Recently, the Union Home and Cooperation Minister announced the decision to amend the 2002 Act to ‘plug the loopholes’. The centre is also holding consultations with various stakeholders and experts.
• To ensure better governance, the centre has said that it will be increasing manpower– 1^st in Delhi and then in other states.
• In addition to this, there have been suggestions of vesting the administrative control of MSCSs with the state commissioners to reduce cases of fraud.
• The use of technology can help bring transparency into the sector.