Co-Operative Societies in India & the 97th Constitutional Amendment Act Explained (Part 1)

The cooperative movement in India, driven by the principles of self-help and mutual aid, plays a crucial role in the socio-economic development of the nation, particularly benefiting the weaker sections of society. To provide a robust legal and constitutional framework for the autonomous and democratic functioning of these organizations, the Indian Parliament enacted the 97th Constitutional Amendment Act, 2011. This comprehensive set of notes, Part 01, delves into the foundational aspects of cooperative societies in India, their historical journey, and the core provisions introduced by this landmark amendment, setting the stage for a deeper analysis of its implications and challenges.

📚 Co-operative Societies and the 97th Constitutional Amendment Act, 2011 – (Part 01)

1. Introduction to Co-operative Societies

A cooperative society is an 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. These organizations are built on the values of self-help, self-responsibility, democracy, equality, equity, and solidarity. They prioritize service to members over profit maximization.

In India, cooperatives have been instrumental in various sectors, including agriculture (credit, marketing, processing), dairy, housing, weaving, and consumer goods. They empower marginalized communities, facilitate access to resources, secure livelihoods, and promote inclusive growth. The formation of the Ministry of Cooperation on July 6, 2021, by the Central Government underscores the nation's renewed commitment to strengthening the cooperative sector.

2. Historical Evolution of Co-operative Movement in India

The cooperative movement in India has a rich history, evolving over more than a century to address the economic and social needs of its populace.

2.1. Pre-Independence Era

The genesis of the cooperative movement in India can be traced back to the late 19th and early 20th centuries, primarily as a response to agrarian distress and the widespread indebtedness of farmers to moneylenders.

Early Initiatives: Farmers in regions like Pune and Ahmednagar (Maharashtra) spearheaded early agitations against exorbitant interest rates, highlighting the need for collective self-help.
Cooperative Credit Societies Act, 1904: This was the first legislation to formally recognize cooperative societies in India. It laid down norms for their constitution, membership, registration, liabilities, and profit disposal, primarily focusing on credit cooperatives. The first credit cooperative society was formed in Banking in 1903.
Cooperative Societies Act, 1912: This Act was passed to rectify the drawbacks of the 1904 Act and expanded the scope to include non-credit and other types of societies.
Montague-Chelmsford Reforms, 1919: Under these reforms, "Cooperation" became a provincial subject. This allowed provinces to enact their own legislation for governing cooperatives, leading to diverse state-specific laws.
Multi-Unit Cooperative Societies Act, 1942: This Act was introduced by the British government to cover cooperative societies whose operations extended beyond a single province.

2.2. Post-Independence Era

After independence, the cooperative sector received significant attention as a tool for rural development and equitable economic growth.

National Development Council (NDC), 1958: Recommended a national policy on cooperatives, focusing on personnel training and establishing cooperative marketing societies.
National Cooperative Development Corporation (NCDC), 1963: Established as a statutory body under the National Cooperative Development Corporation Act, 1962, to plan, promote, and finance cooperative programs across various sectors.
Multi-State Cooperative Societies Act, 1984: Parliament enacted this to provide a unified legal framework for cooperatives operating in more than one state, replacing the earlier 1942 Act.
National Policy on Cooperatives, 2002: The government announced this policy to support the promotion and development of cooperatives, aiming to reduce regional imbalances and strengthen cooperative education and training.
All India Rural Credit Survey (1951-52): Highlighted the crucial role of cooperatives in the development of the rural economy, leading to a push for strengthening rural credit systems through cooperatives.

2.3. Need for Constitutional Recognition

Despite their significant role, cooperative societies faced numerous challenges, including:

Excessive State Control and Political Interference: State laws often allowed governments to interfere in the management and elections of cooperatives, undermining their autonomous and democratic character.
Lack of Democratic Functioning: Irregular elections, extended terms for boards, and lack of member participation were common issues.
Poor Management and Professionalism: Many cooperatives suffered from a lack of professional management and accountability, leading to inefficiency and poor services.
Financial Weaknesses: Deficiencies in audit and transparency often contributed to financial irregularities.

To address these systemic issues and ensure the democratic, autonomous, and professional functioning of cooperatives, a need was felt to provide them with constitutional status and protection. This would insulate them from undue political and bureaucratic interference, ensuring their long-term viability and effectiveness.

3. The 97th Constitutional Amendment Act, 2011

The Constitution (97th Amendment) Act, 2011, aimed to revitalize the cooperative sector in India by ensuring its autonomous, democratic, and professional functioning. The amendment received Presidential assent on January 12, 2012, and came into effect on February 15, 2012.

3.1. Objectives of the Amendment

The primary objectives of the 97th Amendment were to:

Grant constitutional status and protection to cooperative societies.
Ensure democratic, autonomous, and professional management of cooperatives.
Promote transparency and accountability in their operations.
Facilitate their voluntary formation and member-driven control.
Create an environment conducive to their growth and contribution to the national economy.

3.2. Key Constitutional Changes

The 97th Amendment Act introduced three significant changes in the Indian Constitution:

a) New Fundamental Right (Article 19(1)(c))

It amended Article 19(1)(c) of Part III (Fundamental Rights) by inserting the words "or co-operative societies" after "unions and associations."
This conferred the right to form cooperative societies as a Fundamental Right, placing it on par with the right to form associations and unions.
Like other rights under Article 19, this right is also subject to "reasonable restrictions" under Article 19(4) in the interests of sovereignty and integrity of India, public order, or morality.

b) New Directive Principle of State Policy (Article 43B)

It inserted a new Article 43B in Part IV (Directive Principles of State Policy) of the Constitution.
Article 43B states: "The State shall endeavour to promote voluntary formation, autonomous functioning, democratic control, and professional management of co-operative societies."
This DPSP mandates the state to create a supportive environment for cooperatives, aligning with the principles of cooperative governance.

c) New Part IXB: "The Co-operative Societies" (Articles 243-ZH to 243-ZT)

It inserted a new Part IXB titled "The Co-operative Societies" after Part IXA (Municipalities) of the Constitution.
This part contains elaborate provisions from Article 243-ZH to 243-ZT, laying down the framework for the incorporation, regulation, and winding up of cooperative societies.

3.3. Salient Features of Part IXB

Part IXB includes several provisions designed to ensure the democratic, professional, and autonomous functioning of cooperative societies:

Incorporation (Article 243ZI): State legislatures can make laws for the incorporation, regulation, and winding up of cooperative societies, adhering to principles of voluntary formation, democratic member control, member economic participation, and autonomous functioning.
Number and Term of Board Members (Article 243ZJ):
- The maximum number of directors on the board of a cooperative society shall not exceed twenty-one.
- Reservation of one seat for Scheduled Castes or Scheduled Tribes and two seats for women on the board of every cooperative society consisting of individuals as members and having members from such classes.
- A fixed term of five years for the elected members of the board and its office bearers from the date of election.
Elections (Article 243ZK): Conduct of elections to a cooperative society's board must be supervised, directed, and controlled by a body or authority constituted by the state legislature.
Supersession and Suspension of Board (Article 243ZL):
- A board cannot be superseded or kept under suspension for more than six months.
- However, in the case of a cooperative society carrying on the business of banking, the supersession period can be up to one year.
- The provision also specifies conditions under which a board can be superseded (e.g., persistent default, negligence, financial irregularities).
- No supersession if there is no government shareholding or loan or financial assistance or guarantee by the government.
Audit of Accounts (Article 243ZM): Mandatory audit of accounts of cooperative societies every financial year.
Convening of General Body Meetings (Article 243ZN): Ensures regular and timely convening of general body meetings.
Right of Members to Information (Article 243ZO): Mandates state legislatures to provide, by law, for access to every member of a cooperative society to its books, information, and accounts related to their business transactions.
Return (Article 243ZP): Filing of annual returns by cooperative societies.
Offences and Penalties (Article 243ZQ): Provisions for offences and penalties related to cooperative societies.
Application to Multi-State Cooperative Societies (Article 243ZR): Parliament has the power to make laws for multi-state cooperative societies.
Application to Union Territories (Article 243ZS): Provisions applicable to Union Territories.
Continuance of Existing Laws (Article 243ZT): Existing laws relating to cooperative societies continue until amended or repealed.

4. Significance and Objectives of the Amendment

The 97th Amendment Act was a transformative step for the cooperative sector in India, aiming to:

Strengthen Democracy: By ensuring regular and timely elections, fixed terms for board members, and member participation, the amendment sought to infuse democratic principles into the functioning of cooperatives.
Promote Autonomy: Constitutional recognition aimed to protect cooperatives from undue governmental control and political interference, allowing them to function independently.
Enhance Professionalism and Accountability: Provisions for timely audits, access to information, and limits on supersession aimed at improving financial discipline and managerial efficiency.
Boost Rural Development: By strengthening cooperatives, especially agricultural credit and marketing societies, the amendment sought to empower rural communities and contribute to inclusive economic growth.
Uniformity in Governance: The detailed provisions in Part IXB intended to bring about a degree of uniformity in the governance structure and operational aspects of cooperatives across different states.

5. Constitutional Challenge and Supreme Court Verdict: An Overview (for Part 01)

While the 97th Amendment Act was lauded for its intent to empower cooperative societies, its constitutional validity, particularly concerning the extent of its application to state-level cooperatives, was challenged.

5.1. Union of India v. Rajendra N. Shah (2021)

A Public Interest Litigation (PIL) was filed before the Gujarat High Court, challenging the constitutional validity of the 97th Amendment, particularly Part IXB.
The Gujarat High Court, in 2013, struck down parts of the amendment, ruling that it required ratification by at least one-half of the state legislatures as per Article 368(2) of the Constitution because it dealt with a subject (co-operative societies) that falls under the exclusive legislative domain of the states (Entry 32 of the State List in the Seventh Schedule).
The Central Government challenged this decision in the Supreme Court.

5.2. Supreme Court's Majority Verdict (2021)

On July 20, 2021, a three-judge bench of the Supreme Court, in a 2:1 majority verdict, upheld the Gujarat High Court's decision to strike down a major part of the 97th Constitutional Amendment Act, 2011.
The Court held that the provisions of Part IXB dealing with single-state cooperative societies were unconstitutional for want of ratification by the state legislatures as mandated by Article 368(2).
The court emphasized that "co-operative societies" fall under Entry 32 of the State List, granting states exclusive legislative power over them. Any amendment that "significantly and substantially impacted" this exclusive power required state ratification.

5.3. Doctrine of Severability

Crucially, the Supreme Court applied the doctrine of severability.
It upheld the validity of the provisions of Part IXB that dealt with multi-state cooperative societies (MSCS).
The Court reasoned that for MSCS, with objects not confined to one State, the legislative power falls under Entry 44 of the Union List (List I). Therefore, Parliament had the competence to legislate on them without state ratification.
Justice K.M. Joseph, however, gave a partly dissenting verdict, arguing for striking down the entire amendment, holding that the doctrine of severability was not applicable.

This verdict highlighted the significance of India's federal structure and the procedural requirements for amending the Constitution, particularly when state legislative powers are affected. This aspect will be explored in greater detail in Part 02 of these notes.

6. Diagrams, Tables & Conceptual Visuals

6.1. Table: Key Changes Introduced by the 97th Constitutional Amendment Act, 2011

Feature	Pre-97th Amendment Status	Post-97th Amendment Status	Constitutional Article
Right to form Co-operative Societies	Not a Fundamental Right (covered under Right to form Associations)	Fundamental Right	Article 19(1)(c) (Amended)
Promotion of Co-operative Societies	Not explicitly a DPSP	Directive Principle of State Policy (State to promote voluntary formation, autonomous functioning, democratic control, professional management)	Article 43B (Inserted)
Constitutional Status & Governance Framework	No specific constitutional recognition or detailed framework; governed by state-specific laws	Constitutional Status & Detailed Governance Framework (Incorporation, election, audit, supersession, etc.)	Part IXB (Articles 243-ZH to 243-ZT) (Inserted)

6.2. Flowchart: Structure of Part IXB - The Co-operative Societies

Explanation: This flowchart illustrates the hierarchical and interconnected nature of the provisions within Part IXB. Each box represents an Article or a key principle governing cooperative societies as introduced by the 97th Amendment. The arrows indicate the flow of provisions from general to specific aspects of cooperative governance.

7. Conclusion & Summary (Part 01)

The 97th Constitutional Amendment Act, 2011, marked a pivotal moment in the history of India's cooperative movement. By elevating the right to form cooperatives to a Fundamental Right, incorporating their promotion into the Directive Principles of State Policy, and introducing a detailed constitutional framework through Part IXB, the amendment sought to address long-standing issues of democratic deficit, lack of autonomy, and professional management. The overarching goal was to foster a vibrant, self-reliant, and democratically controlled cooperative sector, contributing significantly to inclusive growth and rural prosperity.

However, the Supreme Court's subsequent verdict in Union of India v. Rajendra N. Shah (2021), striking down parts of the amendment related to state cooperative societies due to procedural lapses concerning federal principles, introduced complexities. This ruling reaffirmed the sanctity of the federal structure and the importance of adhering to constitutional amendment procedures, particularly when subjects under the State List are involved. While the provisions for multi-state cooperative societies remain intact, the verdict necessitates a nuanced understanding of cooperative governance in India, especially concerning the division of legislative powers between the Union and the States. These aspects will be further elaborated in Part 02.

8. Practice Questions & Answers

To test your understanding of the concepts discussed in Part 01:

8.1. Multiple-Choice Questions (MCQs)

1. Which of the following constitutional changes were introduced by the 97th Constitutional Amendment Act, 2011? 1. Insertion of Article 43B in Part IV. 2. Amendment to Article 19(1)(c) making the right to form co-operative societies a fundamental right. 3. Insertion of Part IXB in the Constitution. 4. All of the above.

Correct Answer: 4 Explanation: The 97th Amendment Act, 2011, indeed brought about all three significant changes: it inserted Article 43B as a DPSP, amended Article 19(1)(c) to include co-operative societies as a fundamental right, and introduced a new Part IXB (Articles 243ZH to 243ZT) dedicated to co-operative societies.

2. As per the 97th Constitutional Amendment Act, what is the maximum number of directors allowed on the board of a cooperative society? 1. 15 2. 18 3. 21 4. 25

Correct Answer: 3 Explanation: Article 243ZJ, inserted by the 97th Amendment, stipulates that the maximum number of directors of a co-operative society shall not exceed twenty-one.

3. The Supreme Court, in Union of India v. Rajendra N. Shah (2021), struck down parts of the 97th Constitutional Amendment Act primarily due to: 1. Violation of the Basic Structure doctrine. 2. Lack of ratification by at least one-half of the state legislatures. 3. Encroachment on the executive powers of the states. 4. Violation of fundamental rights of individuals.

Correct Answer: 2 Explanation: The Supreme Court's majority verdict held that the provisions of Part IXB concerning single-state cooperative societies required ratification by at least one-half of the state legislatures as per Article 368(2) because co-operative societies fall under the State List. Since this was not done, those parts were struck down.

4. Which Article inserted by the 97th Amendment mandates the State to endeavour to promote voluntary formation, autonomous functioning, democratic control, and professional management of co-operative societies? 1. Article 19(1)(c) 2. Article 43A 3. Article 43B 4. Article 243ZH

Correct Answer: 3 Explanation: Article 43B, newly inserted in Part IV (DPSP) of the Constitution by the 97th Amendment, contains this mandate for the State.

5. Under the 97th Amendment, what is the maximum period for which the board of a cooperative society (other than banking) can be kept under supersession or suspension? 1. Three months 2. Six months 3. Nine months 4. One year

Correct Answer: 2 Explanation: Article 243ZL provides that the board of a cooperative society shall not be superseded or kept under suspension for a period exceeding six months. For banking cooperatives, this period is one year.

8.2. Scenario-Based Questions

1. Scenario: A state government passes a law that allows its officials to supersede the board of a multi-state cooperative society operating within its territory for a period of two years without any specific provision for such an extension in the Multi-State Cooperative Societies Act. * Question: Analyze the constitutional validity of this state law in light of the 97th Constitutional Amendment Act and relevant judicial pronouncements.

Analysis:

Constitutional Provisions: The 97th Constitutional Amendment Act introduced Part IXB, which includes Article 243ZR, empowering Parliament to make laws for multi-state cooperative societies. The Supreme Court in Union of India v. Rajendra N. Shah (2021) specifically upheld the provisions of Part IXB related to multi-state cooperative societies, recognizing that legislative power over them lies with the Union (Entry 44, Union List).
Conflict of Laws: Part IXB (Article 243ZL) also sets a maximum supersession period of six months (one year for banking cooperatives) for cooperative societies generally. While state legislatures have powers over single-state cooperatives, their jurisdiction over multi-state cooperatives is limited, as the latter falls under the Union's legislative domain.
Conclusion: The state law allowing supersession for two years for a multi-state cooperative society would be unconstitutional. It would be ultra vires the powers of the state legislature as multi-state cooperative societies are governed by parliamentary laws (Multi-State Cooperative Societies Act) and the constitutional framework laid down in Part IXB as it applies to MSCS. The state law would contradict the fixed tenure and supersession limits specified in the constitutional provisions (Part IXB) and central legislation, which would prevail.

2. Scenario: A group of citizens wants to form a cooperative society for urban development but is denied registration by the state authorities on arbitrary grounds, citing that "forming a cooperative" is not a fundamental right. * Question: Advise the citizens on their legal recourse, citing relevant constitutional provisions.