Cooperative Societies Act

July 19th, 2017

Cooperative Societies Act is a Central Act. However, ‘Cooperative Societies’ is a State Subject (Entry 32 of List II of Seventh Schedule to Constitution, i.e. State List). Though the Act is still in force, it has been specifically repealed in almost all the States and those States have their own Cooperative Societies Act. Thus, practically, the Central Act is mainly of academic interest. – – – As per preamble to the Act, the Act is to facilitate formation of cooperative societies for the promotion of thrift and self-help among agriculturists, artisans and persons of limited means.

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The Statement of Objects and reasons states as follows – (a) Cooperative Society can be established for purpose of credit, production or distribution. (b) Agricultural credit societies must be with unlimited liability. (c) Unlimited society is not best form of cooperation for agricultural commodities. However, the provision is continued as in several provinces (now States) such societies do exist and are working.  It is not intended to give them undue encouragement, but to legalise their existence. (d) Unlimited society can distribute profits with permission of State Government.

Registration of Society – State Government will appoint Registrar of Cooperative Societies. State Government can appoint persons to assist Registrar and confer on such persons all or any of powers of Registrar. [section 3]. Function of Registrar starts with registration of a society. He has powers of general supervision over society. Returns of Society are to be filed with Registrar. He can order inquiry or inspection against society. He can order dissolution of society.

Societies which may be registered – A society which has as its object the promotion of economic interests of its members in accordance with cooperative principles can be registered as a Society. Similarly, a society established with the object of facilitating operation of such a society can also be registered under the Act. The society can be registered with limited or unlimited liability. However, unless State Government otherwise directs, (1) Liability of a society of which a member is a registered society shall be limited. (2) Liability of a society of which object is to creation of funds to be lent to members, and of which majority of members are agriculturists and of which no member is a registered society shall be unlimited [section 4]. Thus, a registered society can be member of another society, but liability of such other society must be limited, unless State Government otherwise directs.

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Who can form a society – A society can be formed with at least 10 members of age above 18 years. If object of society is creation of funds to be lent to its members, all the members must be residing in same town, village or group of villages or all members should be of same tribe, class, caste or occupation, unless Registrar otherwise directs.  – – The provision of minimum 10 members or residing in same town/village etc. is not applicable if a registered society is member of another society. – – The last word in name of society should be ‘Limited’. If the Society is registered with limited liability. [section 6]. Registrar is empowered to decide whether a person is agriculturist or non-agriculturist or whether he is resident of same town/village or whether the members belong to same caste/tribe etc. and his decision will be final. [section 7].

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Restrictions on society with limited liability – If a society has limited liability, any individual member of such society cannot have share capital more than one-fifth of total capital. An individual member cannot have interest in shares exceeding Rs 1,000. – – This restriction of 20% shares or Rs 1,000 shares value is not applicable to a registered society which is member of another society. [section 5]. – – Thus, if a registered society is member of another society, it can hold shares exceeding 20% or exceeding Rs 1,000 in value.

Amendment of bye-laws – Any Amendment to bye-laws shall be registered with Registrar. If Registrar is satisfied that the amendment is not contrary to Act or rules, he will register the amendment. He will issue a certificate of registration along with copy of amendment certified by him, which is conclusive evidence that the amendment has been duly registered. [section 11].

Rights and liabilities of members – If liability of members is not limited by shares, each member shall have one vote irrespective of amount of his interest in the capital. [section 13(1)]. If liability of members of a registered society is limited by shares, each member will have as many votes as may be prescribed in bye-laws. [section 13(2)]. If a registered society has invested in shares of other registered society, it can vote by appointing a proxy. [section 13(3)].  – – A member of registered society shall not exercise his rights as member, unless he has made payment to society in respect of membership or has acquired interest in society, as may be prescribed by rules or bye-laws. [section 12]. Thus, if there is any default in payment to society, the member cannot exercise his rights. 

Management of society –  Each society will be managed by Committee. – – Committee means the governing body of a registered society to whom the management of its affairs is entrusted. [section 2(b)]. Officer of society includes a Chairman, Secretary, treasurer, member of Committee or other person empowered under rules or bye-laws to give directions in regard to business of society. [section 2(e)].

Registered Society is body corporate – A registered cooperative society is a body corporate with perpetual succession and common sea. (just like a company). It can hold property, enter into contracts, institute and defend suit and other legal proceedings and to do all things necessary for the purposes of its constitution. [section 18].

Priority claim of society dues from member  – A registered society is entitled to priority to other creditors and enforce outstanding demand due to society from any member. However, the priority is subject to prior claims of (a) Government dues in respect of land revenue or (b) Dues of landlord in respect of rent receivable by the landlord. The priority of society is in respect of following – (a) Supply of seed or manure or loan for purchase of seed or manure. The priority is upon the crops or other agricultural produce upto 18 months from date of supply of seed/manure or loan. (b) Supply of cattle or fodder of cattle, agricultural implements or machinery or raw materials or loan for these. The priority is upon the cattle/fodder/ machinery / raw materials supplied or any articles manufactured from raw materials supplied or purchased form loan given by society. [section 19].

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Liability of past member – Liability of past members towards society as on the date he ceased to be member will continue for two years. [section 23].

Restrictions on loans – A registered society can give loans only to its members. However, it can give loan to another registered society with permission of Registrar. [section 29(1)]. A society with unlimited liability cannot lend money on security of movable property without sanction of registrar. [section 29(2)]. State Government, by issuing a general or special order, can prohibit or restrict lending of money on mortgage of immovable property by any registered society or class of registered society. 

Inspection of affairs of society – Registrar can hold an enquiry or direct some person authorised by him to hold enquiry in following circumstances – (a) Of his own motion (b) Request of Collector (c) Application by majority of committee members of society or (d) At least one-third of members of society. [section 35(1)]. All officers and members of society shall furnish necessary information to registrar or person authorised by him. [section 35(2)].

Dissolution of society – Registrar, after inspection or inquiry, or on application received from 75% of members of society, may cancel the registration of society, if in his opinion, the Society should be dissolved. Any member can appeal against the order of Registrar within two months to State Government or other Revenue Authority authorised by State Government. If no appeal is filed within two months, the order of dissolution shall become effective. If appeal is filed, the order will become effective only after it is confirmed by appellate authority. [section 39].

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Companies Act not applicable – Provisions of Companies Act are not applicable to registered cooperative society. [section 48].

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