The leading urban cooperative bank of South India, Visakhapatnam Cooperative Bank, also known as VCB, has submitted its Wishlist to the apex body Nafcub on the proposed Draft Amendments to MSCS Act 2002. Signed by the acting Chairman Gudivada Bhaskara Rao, the letter is titled “Comments and Suggestions on the Draft Amendments to MSCS Act 2002”. For readers’ benefits we produce the letter verbatim:
Comments and Suggestions on the Draft Amendments to MSCS Act 2002
In continuation of the personal discussion had with the NAFCUB President on the above subject inviting comments / Suggestions on the proposed amendments to MSCS Act, 2002, forwarded by Government of India, Ministry of Cooperation. We furnish below our comments / suggestions on the proposed amendments for your consideration and onward transmission to the Ministry of Cooperation.
1. Section 10 (2) (2k) : –
The new subsection inserted, states that the procedure for number of employees, their designations and recruitment, including that of CEO, is to be in adherence to such rules as prescribed by Central Government.
This subsection seeks to bring in approval and permit raj, on a routine administrative decision of Multi State Cooperative Society, which would result in both avoidable delay and additional cost for undertaking recruitment. Especially in the case of Multi State Cooperative Banks, need for recruitment, number of vacancies to be filled cadre wise and methodology to be adopted for the recruitment of different cadres would depend on the size and paying capacity of the Cooperative Bank. As such, ‘one size fits all’ clause in the MSCS Act, or methodology as prescribed by Government of India would be detrimental to the system. Hence this clause may be deleted or suitably modified to exclude Cooperative Urban Banks.
2. Section 29 (b): – Disqualification of Members of Multi State Cooperative Society.
In addition to the proposed insertion of * if he fails to use the minimum level of products or services as specified in the Bye-laws for two consecutive years’, It is suggested that non-payment of dues to the society for loans or advances availed may also be added.
The addition of such a clause would help in ensuring that a defaulting member is not eligible to contest or vote in the elections to the board.
3. Section 35:- Redemption of Shares. In the explanation to the clause it is stated “book value of shares means value of the shares as shown in the books taking into account total share capital, free reserves and surpluses. Though the amendment to this section is applicable for the purpose of redemption to Central Government, State Government or any other corporation or agency owned or controlled by the government, seeking to include a proportion of accumulated reserves and surpluses since inception of the society, to the value of shares being redeemed is both unethical and against the cooperative spirit. The accumulated reserves are the property of the society and should remain so till the society is liquidated. Dissipating the accumulated assets of the society would not be in the interest of the society and hence this amendment is to be withdrawn.
4. Section 41 (6):- Insertion of the clause seeks to list the relatives with reference to an individual. The list of relatives numbering 24 includes four generations. In the society, where joint families have given place to nuclear families of only parents and their children, in most of the cases one may not even be aware of the name of the father’s father and mother’s father or the two generations down the line, such as daughter’s daughter’s husband. In such circumstances, the prudence in including such relations defies logic and rationale.
5. Section 45 (G) (6) : Expenses for holding Elections – As per Article 243zk (2) to 97′ Amendment to Constitution, elections to Cooperative societies shall be done by the authority that may be provided by the legislature, by law. As such, the conduct of elections to all Multi State Cooperative Societies is the responsibility of the Central Government, as per Constitution. For discharge of a responsibility cast on the Government of India by the constitution, the expenditure incurred therefore, cannot and should not be collected from the Multi State Cooperative Society. That would be ultra-vires to the constitution. Hence, this subsection needs to be deleted.
6. Section 63 (1) (b): – Cooperative Education Fund – As per the existing MSCS Act provisions, all societies are contributing 1% of their net profits to Cooperative Education Fund maintained by National Cooperative Union of India Limited, New Delhi. However, the manner in which the accumulated amounts are being spent for imparting education and training to the members or directors of Cooperative Societies is not known. Most of the societies feel that State and National Federation of Cooperatives, who are vested with the responsibility to educate the members and directors of the societies and UCBs, should be allowed to conduct training / Seminar sessions and they should be allowed to draw from the corpus, subject to certain conditions. Provision for enabling such expenditure from the corpus amount is to be incorporated in the Act.
7. Section 63 A (1):- Cooperative Rehabilitation, Reconstruction and Development Fund – Contribution of 10 crores or 1% of profit, whichever is less, by all Multi State Cooperative societies.
This will be an additional charge on the net profits of the Multi state cooperative societies, especially Cooperative Urban Banks. All UCBs, including Multi State UCBs, contribute a substantial amount towards DICGC. The amount is to assist the UCBs that are ordered for liquidation, and used for repayment of their depositors. This, in essence, is for rehabilitation of sick UCBs. In addition to contributing several cores every year towards the premium of DICGC, all UCBs have to contribute 25% towards Income Tax. This is an additional charge, which was not there earlier. Further, the need to spend sizable amounts towards Cyber Security, computerization etc, take up substantial amounts. In addition to these, statutory reserves at 25%, Deficit Cover Fund at 10% and provisions and reserves towards PAs and Investments, leave very less for distribution of Dividend to Shareholders and Bonus to Staff. It is imperative that a reasonable return on shares and bonus to staff are paid for their continued support. In view of the above, any additional charge on the Multi State Cooperative Urban Banks, in the name of Rehabilitation and Reconstruction Fund, would be unreasonable and detrimental to the interests of the sector. Hence this must be withdrawn.
8. Section 70 A:- Concurrent Audit – The draft amendment to the act prescribes that Multi state cooperative societies having a deposit of more than a prescribed amount should appoint concurrent auditors from the panel of auditors approved by Reserve Bank of India.
For concurrent audit of a set of two branches at least one concurrent auditor would be needed. As such, to appoint concurrent auditors approved by RBI would become both unwieldy and a huge drain on the resources of the society. As such, there is a need to delete this addition to the act. The existing arrangement in the case of Urban Cooperative Banks for appointing Statutory auditors from the panel of auditors approved by RBI can be continued.
9. Section 85 A:- Appointment of Cooperative Ombudsman for redressal of complaints. The subsection 85 A (2) states that the Ombudsman on receipt of a complaint, completes the process of inquiry and adjudicates within a period of three months and issues directions.
In any cooperative institution, existence of different groups, contests and animosity is common. As such, there is a need to ensure that the system of Ombudsman is not misused by groups inimical to the Board of Directors. For this purpose, certain safeguards are to be inserted. For instance; It should be made mandatory that the complaint is to be forwarded to the Chairman of Board of Directors of the Society and a written response from him or his authorised representative is obtained before adjudicating on the complaint. If necessary, both the complainant and the Chairman or his representative may be called for personal hearing / presentation before taking a final view and adjudicating on the complaint.
What if the Chairman is himself a culprit?
Then what?