The much talked about amendments in the MSCS Act 2002 to be introduced in the Monsoon Session of the Parliament, has many far-reaching changes in the 20 years old Act. As the draft has been circulated for feedback, we present here the Draft as proposed by the Ministry.
The major highlights can be cited as the creation of the Cooperative Election Authority, Cooperative Ombudsman, Cooperative Information Officer and Cooperative Rehabilitation, Reconstruction and Development Fund, among other things.
Besides submitting their response to the Ministry (cut-off date was 18th July), several co-op organizations have sent a copy of their response to the Indian Cooperative desk also. We would publish them one by one.
As for today, we publish the original draft of amendments as proposed by the Ministry verbatim.
Major Proposed Changes
Electoral Reforms
Establishment of Co-operative Election Authority for MSCS – Chairman, Vice Chairman and members not exceeding three (Section 3 & 45) / (97’h Constitutional Amendment).
Only active members eligible for election – Attendance in at least three meetings and consumption of products and services at a minimum level as specified in the bye-laws of MSCS (Section 45).
Reforms in Composition of Board, Meetings & Membership
Reservation of two seats for women and one seat for SC or ST in the Board (Section 41) / (97t) Constitutional Amendment).
Two co-opted Directors having experience in the field of banking, management, cooperative management and finance or having specialization in any field relating to the objects and activities undertaken by such MSCS (Section 41) / (97th Constitutional Amendment).
Grounds for disqualification from being a member of the Board of MSCS-
a) Being a director of an insolvent company (Section 43 (1));
b) Being a director of a multi-State co-operative society or co- operative bank, where such board has been superseded; disqualification after an opportunity of being heard has been given by Central Registrar (S.43(1A)).
c) Non-conduct of audit within six months of the close of the financial year; non-cooperation with election authority, non-contribution to Cooperative Education or Rehabilitation Fund, non-filing of annual returns, etc., disqualification after giving an opportunity of hearing by Central Registrar (S.43(2)).
Casual vacancy to be filled by nomination only up to 1/3rd of the Board strength. If casual vacancy exceeds 1/3rd of number of elected directors, elections to be conducted (Section 45) / (97th Constitutional Amendment).
Quorum prescribed for board meetings – 1/3rd elected Directors (Section 50).
If Chairman fails to direct convening of the meeting of the board within the quarter, the meeting shall be convened by CEO on the requisition of Deputy Chairman/Vice Chairman/Members of the board. In other cases, meetings to be convened by CEO on requisition from at least 50 % of the board members (Section 50).
Strengthening Governance and Transparency
Subsidiary institutions do not include institutions where members or their relatives hold majority of equity shares themselves or with other subsidiary institution (Section 19).
Minimum consumption, as specified in the bye-laws of MSCS, of products and services by members and payment of all dues to exercise the rights of a member (Section 28).
Director not to be present in the discussion and vote on matters where he or his relatives are an interested party. Violation to lead to disqualification and deemed vacation of office (Section 41).
Criteria for appointment of CEO (Section 51):
a) Age of CEO to be between 21 to 70 years. Beyond the age of 70 years, appointment to be made by a special resolution passed by 3/4th majority of the board;
b) Fit & Proper criteria prescribed by Central Registrar for multi- state credit cooperative societies; and
c) Not to be an insolvent or convicted person.
Board to constitute Committees for prevention of sexual harassment and for Audit and Ethics (Section 53).
Provisions for Investment of funds (Section 64):
a) In securities issued by Central/State Government/ Government Corporations/ Government Companies/ Authorities/ PUs or other securities backed by Government Guarantees; or
b) In the shares or securities of any other multi-state cooperative society or any cooperative society; or
c) In the shares, securities or assets of a subsidiary institution; “any other institution’ to be deleted; or
d) Other Scheduled Banks; or
e) In such other manner as may be prescribed by the Central Government rather than as per bye-laws of MSCS.
Appointment of auditors (Section 70) / (97th Constitutional Amendment)
a) For multi-State Cooperative Banks, multi-State credit cooperative societies with deposits of over 500 crore & multi- State non-credit cooperative societies with turnover of over 500 crore – from RBI’s panel.
b) For other multi-State co-operative societies – from the panel of the Central Government.
Concurrent Audit for multi-State cooperative societies with turnover/deposit more than a prescribed amount – from a panel of auditors approved by RBI (Section 70A).
Audit reports of Apex Multi-State Cooperative Societies to be laid in Parliament (Section 70) / (97th Constitutional Amendment).
Standards for auditing and accounting (S. 73):
a) For multi-State co-operative societies – the Central Government may prescribe the standards.
b) Co-operative banks – to adopt RBI’s standards.
c) Until such standards are prescribed, the ones specified by Institute of Chartered Accountants of India to be the deemed standards.
Appointment of Co-operative Ombudsman for MSCS by Central Government to inquire into the grievances of members. Enquiry to be completed within 3 months. MSCS to comply with the directions within a month. Appeal within a month before the Central Registrar (Section 85A).
Appointment of Information Officer by MSCS for providing information to its members. Information to be provided/rejected within 1 month. Appeal to Cooperative Ombudsman (Section 106).
Details to be sent in the Annual Return to Central Registrar of those Board decisions which are not unanimous (Section 120).
Transparency in recruitment-
a) No relative of a sitting Director to be recruited as employee (Section 45).
b) Procedure for deciding the number of employees, their designation & process of recruitment to be included in bye-laws of MSCS and recruitment procedure to be subject to rules as may be prescribed by Central Government (Section 10(2) (zk)).
) Disclosure regarding existing employees who are relatives of members of board (Section 120)
Necessary funds for cooperative sector
- Rehabilitation, Reconstruction and Development Fund to be maintained by Central Government- Contribution of 1% of net profit or 710 crore whichever is less, by MSCS in profit for last 3 financial years for revival of sick MSCS & financial assistance. Central Government to constitute a Committee to administer the Fund (Section 63A).
2.Co-operative Education Fund to be maintained by Central Government and proceeds to be used for Cooperative Education and Training through NCUl or/and any other agency(ies) as decided by the Central Government. (Section 63).
3.The arrears of the above funds to be recovered by attaching the bank accounts of defaulting MSCS (Section 98).
4.Provision of non-voting shares to allow MSCS to raise capital (Section 26).
Strengthening of Monitoring Mechanism
Re-admission period of an expelled member to be increased from 1 to 3 years (Section 30).
Restrictions on Borrowings: The limit during any financial year changed from ’10 times’ to ‘such multiples as prescribed’ of the sum of subscribed share capital and accumulated reserves minus losses (Section 67). Power of enquiry by Central Registrar on the basis of information provided by any Government agency or information available through any other means (Section 78).
Winding up of MSCS, after giving opportunity of being heard (Section 86):
a) If registration is obtained by misrepresentation, fraud, etc.
b) if the number of members falls short of the specified number, MSCS to be given 6-month time to restore the number.
Failure to file annual returns/information included as offence (Section 104)
Amount of monetary penalty for offences increased from a minimum of 72 thousand to 75 thousand and a maximum of 710 thousand to 71 Lakh (Section 104).
Causing unlawful loss to MSCS’s property/asset or obtaining unlawful personal gain included as an offence (Section 104).
Debarment from contesting elections for 6 years for committing an electoral offence (Section 104).
Receiving of gifts/promises/gratification for electoral malpractices, included as an offence (Section 104).
Supersession / suspension of Board by Central Government in case of specified MSCS, after giving an opportunity to the Board to state its objections, in case of: (Section 123)
a) Fraud or embezzlement of funds;
b) Failure of Co-operative Election Authority to conduct election after taking into account whether the Board had given requisition to the Cooperative Election Authority for holding elections within the time limit in the prescribed manner.
Specified multi-State cooperative society means any multi-State society where there is Government shareholding or loan or financial assistance or any guarantee by the Government, as compared to previous definition of Central Government not holding less than 51% equity (97’h Constitutional Amendment), Ease of doing business
Reducing period of registration of new MSCS from 4 to 3 months with a further extension of 2 months on the request of the applicant to rectify deficiencies (Section 7).
Deemed de-registration of a Cooperative Society under State Act upon its conversion into a Multi-State Cooperative Society without the need to obtain any further orders from concerned RCS (Section 22).
Provision for submission of applications, documents, annual return, fee, etc, and issue of certificates in digital form (Section 120).
Others
Provision for voluntary merger of State level cooperative societies with multi-State cooperative societies with resolution backed by not less than 2/3rd majority of members (Section 17).
Government shareholding not to be redeemed without prior approval of Government. Redemption to be on face / book value of shares (Section 35).
Option to organize multi-state co-operative societies formed by reorganization of States into co-operative societies by successor states (Section 103).
In case of a multi-State cooperative society carrying on the business of banking, the provisions of Banking Regulation Act, 1949 to apply in relation to Banking activities while provisions relating to incorporation, regulation and winding up shall be governed by this Act (Section 120B).
