Module 1

History and Development of Cooperative Movement

Cooperative Societies Act

Cooperative Societies Act:
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Though the Act is still in force, it has been specifically repealed in almost all the States and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.
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.
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].
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].
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].

Opportunities and Challenges faced by Cooperative Societies

Challenges:
1) Government Interference: The cooperative movement in India was initiated in 1904
under the auspices of British government. Right from the beginning the govt has adopted an
attitude of patronizing the movement. Cooperative institutions were treated as if these were
part and parcel of the administrative set up of the government. The govt interference thus
became an essential elements in the working of these institutions. As a result people’s
enthusiasm for the movement did not grow. The movement’s independence and self-reliance
existed only on paper and files. After attainment of independence in particular after beginning
of the planning, some healthy changes in the attitude of the govt did take place. It was not
given proper importance that it deserves in any plan. But even the cooperative movement has
not become full-fledged people movement. Even today quite often cooperative societies are
imposed upon the people. This does bring about an increase in the membership of the
societies. But the spirit of cooperation cannot flower fully in these circumstances. Neither it
growth took place according to any plan nor did it become a people’s movement. It just grew
very slowly and that too haphazardly. It was a state driven institution.

2) Non-accountability:

It is like if a child when given too many benefits it gets spoiled.

The same is the case with cooperatives in India. The government gave too many benefits to
cooperatives like reservation of items extra benefits like finance facilities so also it was also
provided with other support this was a good thing to do, but then there was no further
accountability which led to these cooperatives becoming more and more lethargic. Besides as
there was no competition they became more and more costly they were not at all efficient and
the worst part was that the government allowed them to function like this and pass on the
burden of costs to consumers.

3) Vested interest of some people:

A lot of times people who are in position in control of cooperatives are actually people who
have joined cooperatives for personal gains. One of the major problems this causes is
conflicting of personal interests with the interest of the cooperatives now this affects the
performance of the cooperatives in a negative way.

4) Lack of coordination

Generally what happens in cooperatives is that different cooperatives at different level don’t
coordinate this makes the work of cooperatives difficult. Coordination is the key to success of
any organization. The best example for this is AMUL which works best because of
coordination

5) The Internal Free Rider Problem

This problem arises when:

a) New members who provide very little capital enjoy the same benefits as long-standing or
founding members who have major investments in the cooperative in fixed assets (plant,
machinery, equipment) and working capital;

b) When the patronage of new members does not make the cooperative much more efficient
or competitive by producing significant economies of scale. New members get a “free ride”
on the investments and other efforts of existing members, thereby diluting the returns to
existing members. In this situation, new members do not have much incentive to provide
capital because it will not appreciate in value and existing members have little incentive to
provide capital that will disproportionately benefit new members.

6) Quality more than Quantity

This is another major problem faced by different cooperatives who go in for quantity this
causes a major problem because they think it’s a quick way to earn money so this basically
affects the productivity.

7) No Balanced Growth:

The cooperatives in northeast areas and in areas like West Bengal, Bihar, Orissa are not as
well developed as the ones in Maharashtra and the ones in Gujarat. There is a lot of friction
due to competition between different states, this friction affects the working of cooperatives.

8) Political Interference:

Now this is the biggest problem faced by Sugar cooperatives in Maharashtra. The Politicians
use the sugar coops as if they are their personal property and also they use it to their political
advantage. This is the biggest problem of cooperatives as they use them to increase their vote
bank. They also get their own favorites on the boards of such boards so they are on control
these cooperatives.

9) Lack of Awareness

People are not well informed about the objectives of the movement, the contributions it can
make in rebuilding the society and the rules and regulations of cooperative institutions.
Unfortunately, no special efforts have been made in this direction. People look upon these
institutions as means for obtaining facilities and concessions from the govt. So long as people
expect to get something from the govt, they see to it that societies somehow continue to
function. Lack of education, dirty politics of the village, casteridden elections to the offices of
cooperative societies, bureaucratic attitudes of the govt officers at the lower rank are some of
the hurdles in spreading the correct information about the cooperative movement and in
educating the people about its true character and vital role in the society.

10) Restricted Coverage:

The cooperative movement has also suffered on account of two important limitations on its
working. One is that the size of these societies has been very small. Most of these societies
are confined to a few members and their operations extended to only one or two villages. As
a result their resources remain limited, which I make it impossible for them to expand their
means and extend their are of operations .Two, the most of the societies have been single
purpose societies. For this reason these societies are unable to take a total view of the persons
seeking help, nor can they analyze and solve problems from different angles.. the help these
societies render thus can not be adequate. By assessing the persons and the problems only
from one angle , these societies neither help properly the person nor make a optimal use of
their resources . Under these circumstances it has not been possible for these societies to
make much progress.

11) Functional Weakness:

The cooperative movement has suffered from inadequacy of trained personnel right from its
inception. Lack of trained personnel has been caused by two major factors. In the first place,
there has been a lack of institutions for this purpose of training personnel. Secondly because
of it unsatisfactory working of cooperative institutions, efficient personnel did not feel
attracted or motivated towards them. The functioning of the cooperative societies ,too suffer
from several weakness. 6 Some of these are, taking no care of the need of credit seekers or
their repaying capacity at the time of granting loans, making no adequate provision for the
return of loans, unsatisfactory keeping of accounts, factional politics in it management, lack
of coordination among various divisions of the 9 cooperative structure, too much dependence
on outside sources of finance ,lack of adequate auditing. Such weakness have prevented them
from progressing on healthy lines.

Thus there are several pitfalls. Poor infrastructure, lack of quality management,
overdependence on government, dormant membership, non-conduct of elections, lack of
strong human resources policy, neglect of professionalism, etc. are the limiting factors. Indian
cooperatives are also unable to evolve strong communication and public relations strategies
which can promote the concept of cooperation among the masses.

Opportunities

1. As cooperative societies reflect best the human participative nature, they are sooner
or later discovered as source of true happiness.
2. As they transcend the space and time in their “care for others” they give greater
chance for the survival of the world.
3. As they are based on learned and not inherited qualities they give chances to
literally every human being to be able to help others and be happy.
4. As they are based on personal interactions, they have greater chances in the times
of Internet, as long as it is not regulated by power-based institutions.
5. As they are based on long-time-perspective, they have greater chances to
accumulate knowledge and experience and they much more probable to survive
than power-based societies.

The Reserve bank of India now contributes a lot for the promotion of healthy cooperative
movement through it s several activities such as supervision, research, training facilities etc.
As result now there is more cooperation and coordination among different constituents of the
cooperative structure.
1. The scope of cooperatives have extended and diversified

2. Emphasis is given on multi purpose societies

3. Maximum number of societies are now run on the basis of limited liabilities

4. The size of the societies is extended on the basis of scientific principle

5. It is perceived as the powerful strategy of economic growth At present, the Government of

India is in the process of formulation.

Ques) Discuss ‘Cooperative Movement in India’ and Importance of Raiffeisen model.

HISTORICAL PROFILE OF COOPERATIVE MOVEMENT IN INDIA

Around the world modern cooperatives have developed for over 200 years. Cooperative
institutions exist all over the world providing essential services which would otherwise be
unattainable. In many Third World countries, cooperatives such as credit unions and
agricultural organizations have been very successful in helping people to provide for
themselves where private and other corporate capitals do not see high profitability . In 90
countries of the world, over 700 million individuals are members of cooperative institutions.
Globally, cooperatives have been able to elevate its position as a powerful economic model.
In some countries they are a sizeable force within the national economy.

During the British rule , Nicholson a British Officer in India suggested to introduce
Raiffersen model of German agricultural credit Cooperatives in India. As a follow-up of that
recommendation, the first Cooperative Society Act of 1904 was enacted to enable formation
of "agricultural credit cooperatives" in villages in India under Government sponsorship. With
the enactment of 1904 Act, Cooperatives were to get a direct legal identity as every
agricultural Cooperative was to be registered under that Act only. The 1904 Cooperative
Societies Act, was repealed by Cooperative Societies Act, 1912 which provided formation
of Cooperative societies other than credit. Under Administrative Reforms act,1919 ,
Cooperatives was made a provincial subject making each province responsible for
Cooperative development. In 1942, the British Government enacted the Multi-Unit
Cooperative Societies Act, 1942 with an object to cover societies whose operations are
extended to more than one state. The impulses of the Indian freedom movement gave birth to
many initiatives and institutions in the post independence era in India and armed with an
experience of 42 years in the working of Multi Unit Cooperative Societies and the Multi-Unit
Cooperative Societies Act, 1942, the Central Government enacted a comprehensive Act
known as Multi State Cooperative Societies Act, 1984, repealing the Act of 1942.

Raiffeisen model

Raiffeisen is one person to whom the co-operative movement owes the maximum. As a
Mayer of Wyerbusch, he came across with the poverty-stricken peasants and greedy
moneylenders. He constituted a poor people‟s committee which distributed food on credit to
the really deserving people. The committee also made recoveries of loans after a specific
period.

Raiffeisen laid the maximum stress on the moral aspects of the working of societies and the
concept of self-help, mutual-help, social equality, non-profit motive and joint liability. He
believed in the capitalization of character and wanted members to help one another and
increase their borrowing power by pooling their resources in present and in future. He
believed that societies were not business concerns in themselves but were meant to help the
members to improve their financial condition.

Committee on Co-operation (1964)

M.L.Dantwala Committee (1964) - Government of India appointed a committee on co-
operative marketing to review the pattern of organization of cooperative marketing and give
recommendations for ensuring sound and speedy development of agricultural marketing on
co-operative basis. The committee gave its interim report in 1966 with following major
recommendations such as-

1) for the future pattern of organization two-tire structure of marketing societies, apex
societies at State level and primary societies at mandi level.

2) State Trading Corporation and Food Corporation of India should purchase their
requirements of agricultural production through it.

Committee endorsed the recommendations for Fertilizer Committee (Sivaraman Committee)

that the chemical fertilizers should be distributed through co-op. marketing society. The State
Bank of India should give priority to meet the requirements of marketing societies.

Mirdha R.N. Committee (1964) - was appointed by Government of India to suggest

measures for proper development of the co-operative movement by eliminating non-genuine
societies and vested interests. Assessing the size of the problem of nongenuineness in the co-
operative movement, the report came to the conclusion that the movement was by and large
moving in the right direction and that it would be wrong to magnify a few malpractices and
come to a conclusion that the movement was replete with non-genuine societies. The
committee however, gave certain suggestions to overcome a wrong type of tendencies i.e. co-
operative training and education, regular audit of societies by an agency independent of
Registrar, Government assistance etc. The committee also examined the factors hitting self-
reliance and self regulation in the cooperative movement. After examined all the issues the
committee made many useful recommendations including setting up of National Co-operative
Bank to make the movement self reliant.
All India Rural Credit Review Committee (1969)
All India Rural Credit Review Committee (1969) – Government of India had appointed the
committee under the chairmanship of B.Venkatappiah. Main objective of the committee was
to suggest measures for the reorganization of rural credit. The Committee found that there is
marked increase in the co-operative credit between 1951- 52 and 1967-68 i.e. from Rs.24
crore to 500 crore. However, there was a lag in dispersal of co-operative credit in the
backward states of Assam, Bihar, Orissa, West Bengal, Rajasthan and Jammu & Kashmir. In
other parts of the country too, there were weaknesses in co-operative banking system by way
of low deposits, high overdue and general lack of business, management etc. recognizing
such weaknesses but the need for increased requirement of finance for agriculture in the wake
of green revolution technology. The Committee suggested the following points and
recommendations-

a) The establishment of Agricultural Credit Board,

b) Setting up of a Small Farmers Development Agency,

c) Creation of Electrification Corporation for the benefit of underdeveloped areas,

d) Formulation of a more active and much bigger role for ARDC,

e) Adoption of various measures for ensuring the timely and adequate flow of credit for
agriculture through co-operatives and through commercial banks.

As per recommendations, small farmer‟s development agencies were set up in selected

districts as well as Rural Electrification Corporation was also established in 1969. Most of the
recommendations of the committee were accepted by the government and included in the
Fourth Five Year Plan i.e. SFDA, MFAL, were launched with active involvement of
institutional credit agencies.

SEVENTH FIVE YEAR PLAN (1985-90)

The Seventh Five Year Plan aimed at developing the primary agricultural credit societies as
multipurpose viable units, promoting professional management and strengthening of effective
training for improving operational efficiency.45 During this plan period, The Reserve Bank
of India (RBI) Appointed Agricultural Credit Review Committee (ACRC) in august 1986
under the Chairmanship of Kushro. The Agricultural and Rural Development Committee
(ARDC) was a major committee after All India Rural Credit Survey Committee(AIRCSC)
which reviewed the Agricultural Credit Movement in the country.

The ARDC made the recommendations regarding role and effectiveness of lending
institutions role and functions of the Apex Level Institutions (ALI) in Agricultural credit,
lending cost and margins and organisational and management aspects and organisation and
management of National Bank for Agricultural and Rural Development (NABARD).
Similarly, in order to look into the system, viability and implication of Cooperatives, a
committee was constituted under the chairmanship of Sri S.R. Shankaran. The major
recommendations of the committee were as follows

a) Co-operatives should promote economic interest of the rural poor through collective
action.

b) Co-operatives should evolve a simple system of providing credit to poorer Sections of the
society on the basis of their repaying capacity instead of asking for land or other securities.

c) For the economic development of women, the Co-opcrativcs can provide an effective
organisational support in improving their economic status.

d) For the economic development of rural labourers, the labour Co-operatives should be
strengthened.

e) For the economic development of the tribal people the committee highly felt that the
LAMPS should prepare a time bound programme. During this plan the planning commission
constituted another committee under the chairmanship of Ch Brhahma Prakash to prepare the
model Co-operative.

This plan period aimed at implementation of special programmes for underdeveloped states
and to serve the weaker sections through the Co-operatives. The plan also aimed to reach the
targets set.

It has been recognised that in "India Co-operative movement is large and diversified and
touching all the sectors of the economy. In June 1980, there were 3.1 lakh of Co-operatives of
all types, with 860 lakh members with share capital of Rs. 1,679 crore and a working capital
of Rs. 13,789 crore. The turnover of Cooperative activity exceeds Rs. 15,000 crore per year
i.e., 25 % of the total National Income. Co-operatives have covered more than 80 million
people, 98% of villages and 50 % families. Credit Co-operatives supply 35 % of total credit
required by agriculturists."(It was 3% in 1954).

In this plan period, Co-operatives played a much important role in rural development besides
urban areas and particularly to serve weaker Sections. National Co-operative Policy
Resolution with 42 point action programme was in operation during the plan to serve all
small farmers, labourers, artisans and consumers etc., in general and rural areas in particular.

AGRICULTURAL CREDIT REVIEW COMMITTEE or KHUSROO

COMMITTE (1989)
The Agricultural Credit Review Committee under the chairmanship of A.M.Khusro was
appointed by the Reserve Bank of India in August, 1986 to undertake among others a review
of the rural financial system and to assess the credit requirements of the agricultural sector
during the next decade. Khusro Committee submitted its report in August 1989. The
Committee under the chairmanship of Prof. A.M.Khusro was to examine the problems of
agricultural and rural credit, take stock of structural and operational deficiencies, constraints,
quantitative and qualitative gaps and recommend major systemic improvements.

The Agricultural Credit Review Committee visualized that the direct demand for agricultural
credit will rise from Rs.27,557 crore in 1989-90 to Rs.57,316 crore in 1994-95 and further
Rs.1,10,873 crore in 1999-2000 (@ 1984-85 price level).

Recommendations:
The Committee recommended:

1. Prompt elections

2. The committee recommended ceiling on lending rate of commercial banks on

agricultural lending at 15.5 per cent, whereas in case of Primary Land Development
Banks, it was suggested at 5 per cent and for the RRBs 8.65 per cent.

3. It is also suggested in areas where RRBs are not economically viable may be merged
into sponsoring commercial banks.

4. It has visualized that the rural credit system has two borrowing categories to be
served, the larger category of well specified and the low income and socially weaker
sections. Concern to them, the surplus generated in the economy as well as in the
credit system from the efficient operation of the larger category should go to meet
some of the cost and if and to the extent necessary, some specific subsidies for the
low income category.

5. It also recommended the creation of National Co-operative Bank to function as

national apex bank for all co-operative institutions in the country, elimination of
control and interference, well paid and qualified secretaries, business development
plan, etc.

6. Improvement in quality of staff and accountability

7. Staff to be selected by societies

8. Incentive system

The Committee has suggested that the Eighth Plan should, in fact, become the plan for
revival of the weak primary agricultural credit societies.

Committee on Organization of Co-operatives for Rural Poor (1990)

Committee on Organization of Co-operatives for Rural Poor (1990) – At the same time in
October 1990 another committee was set up on organization of cooperatives for rural poor
under the chairmanship of Sankam S.R. (Secretary, Department of Rural Development). The
committee submitted report in June 1991. It explained that the co-operatives which engaged
as organizations to protect the poor from economic exploitation were no longer helping them.
As the result of that a bulk of the rural poor population was still dependent on private
moneylenders for meeting their requirements. Concern to the supply of credit to rural masses
committee suggested that the co-operatives should evolve a simple system of providing credit
to the poor people, based on the repaying capacity of the poor the co-operatives should help
them in organizing themselves into self-help groups. Committee suggested several measures
for supplying credit to the rural masses in general and to help specially women, rural labor
and tribal in particularly.

National Policy on Co-operatives (2002)

National Policy on Co-operatives (2002)- Government of India announced the wide-ranging
National Policy on Co-operatives in April 2002. Under the policy, cooperatives would be
provided necessary support, encouragement and assistance so as to ensure that they work as
autonomous, self-reliant and democratically managed institutions accountable to their
members and make a significant contribution to the national economy.

Due to the several internal and structural weaknesses of cooperatives, wide regional
imbalances, and lack of proper policy support had neutralized their positive impact. This had
necessitated the need for a clear cut National Policy on cooperatives. The policy aims at
ensuring the functions of cooperatives based on the Manchester statement of International
Co-operative Alliance 1995. While upholding the values and principles of Cooperation, the
National Policy recognizes the Co-operatives as autonomous association of persons, united
voluntarily to meet their common economic, social and cultural needs and aspirations through
a jointly owned and democratically controlled enterprise; Upholds the preservation of the
different identity of Co-operatives, its values and principles by providing an appropriate
environment and taking the required administrative and legislative measures; Recognizes Co-
operatives as a distinct economic sector and integral part of the socio-economic system of the
country and an effective and potential instrument of socio-economic development.

Government must accept the need to phase-out its share holdings/ equity participation in the
cooperatives. The Co-operative shall be enabled to set up holding companies/ subsidiaries,
enter into strategic partnership, venture into futuristic areas like insurance, food processing
and information technology etc., and shall be independent to take the financial decisions in
the interest of the members and the furtherance of their stand. The role of the Government in
ensuring, the benefits of liberalization and globalization in the rising special provision in the
Cooperative Societies Act with regard to banking, housing, real estate development,
processing, manufacturers Co-operatives, infrastructure development etc.; Under the National
Policy on Co-operatives Government has to set up and carry out suitable programmes and
schemes to build and develop co-operative institutions in the under developed states/ regions
with particular reference to the North Eastern States including Sikkim.