Enabling Cooperative Societies Act for Fast Tracking Micro Finance and Financial Inclusion in India Dr S O Junare, Director National Institute of Cooperative

Enabling Cooperative Societies Act for Fast Tracking Micro Finance and

Financial Inclusion in India

Dr S O Junare, DirectorDr S O Junare, Director

National Institute of Cooperative National Institute of Cooperative Management, Gandhinagar GujaratManagement, Gandhinagar Gujarat

With Special Reference to the Present Status of the Gujarat State Cooperative Societies Act 1961

We proud of our modern cities, our high tech We proud of our modern cities, our high tech hospitals, our shining universities, our significant hospitals, our shining universities, our significant industrial growth, our huge Foreign Exchange industrial growth, our huge Foreign Exchange Reserve, we as a economic superpower, and our Reserve, we as a economic superpower, and our bright minds who go on to earn millions. And We bright minds who go on to earn millions. And We should be--- But should be--- But

But we should equally be ashamed of our dying But we should equally be ashamed of our dying villages, urban slums, where millions population villages, urban slums, where millions population sleep hungry, illiteracy is rampant and curable sleep hungry, illiteracy is rampant and curable diseases weaken our people. diseases weaken our people.

Ila Bhatt at Ila Bhatt at High level event on Milennium High level event on Milennium Development Goal at UN General Assembly in Development Goal at UN General Assembly in New York on 25New York on 25thth Sept. 2008 Sept. 2008

Recent Modification in Gujarat State Cooperative Societies Act

The Gujarat State Cooperative Societies Act of The Gujarat State Cooperative Societies Act of Gujarat Legislature, having been assented to by Gujarat Legislature, having been assented to by the Governor on 23-1-2008.the Governor on 23-1-2008.

Section – 1 : Short Title and Commencement: Section – 1 : Short Title and Commencement: The Gujarat State Cooperative Societies Act will The Gujarat State Cooperative Societies Act will

be called As “The Gujarat State Cooperative be called As “The Gujarat State Cooperative Societies (Amendment) Act 2008Societies (Amendment) Act 2008

It shall be deemed to have come into force on 8It shall be deemed to have come into force on 8 thth October 2008.October 2008.


Section – 2: Definition of Cooperative Credit Section – 2: Definition of Cooperative Credit Structure Structure

After clause 7, the following clause shall be After clause 7, the following clause shall be inserted, namely: inserted, namely: (Clause 7 – Defi. Of Coop Bank)(Clause 7 – Defi. Of Coop Bank)

(7 A): The Cooperative Credit Structure (7 A): The Cooperative Credit Structure means (I) the PACS, (II) DCCBs, and (III) means (I) the PACS, (II) DCCBs, and (III) SCBs. SCBs.


Section – 6: In case of Cooperative Credit Section – 6: In case of Cooperative Credit Structure I.e. (I) PACS, (II) DCCBs, and Structure I.e. (I) PACS, (II) DCCBs, and (III) SCBs. The society shall have power to (III) SCBs. The society shall have power to decide their respective area of operation decide their respective area of operation without any restriction.without any restriction.

Section:13 – Applications for registration of Section:13 – Applications for registration of amendment of bye laws of a society shall amendment of bye laws of a society shall be disposed of within 60 days from the date be disposed of within 60 days from the date of receipt.of receipt.


Section – 22: Person who may become memberSection – 22: Person who may become member In sub section (1) after clause (f) the following In sub section (1) after clause (f) the following

clause shall be inserted.clause shall be inserted.

“ “(g) Any group of individuals eligible under (g) Any group of individuals eligible under clause (a) whether incorporated on not whether clause (a) whether incorporated on not whether established or not by or under any law.”established or not by or under any law.”

(Now SHGs can become a member of any (Now SHGs can become a member of any Cooperative Society of three tier cooperative Cooperative Society of three tier cooperative credit structure)credit structure)


Section – 22: Person who may become memberSection – 22: Person who may become member In sub section (2) after the following clause shall be inserted.In sub section (2) after the following clause shall be inserted.

“ “(g) a person seeking admission as a member (g) a person seeking admission as a member of a society, if duly qualified for membership of of a society, if duly qualified for membership of such society under the provisions of Act, rules, such society under the provisions of Act, rules, bye laws of the society, may make the application bye laws of the society, may make the application and the society will communicate decision with and the society will communicate decision with in 3 months.”in 3 months.”


Section – 22: Person who may become memberSection – 22: Person who may become member In sub section (2) after the following clause shall be inserted.In sub section (2) after the following clause shall be inserted.

All depositors having All depositors having deposits of Rs 10000 deposits of Rs 10000 of of above for a above for a period of 1 year period of 1 year and the and the borrowers borrowers shall be compulsorily made members shall be compulsorily made members in the in the PACs.PACs.

Provided that the depositors having deposits Provided that the depositors having deposits less less than Rs 10000 shall be made nominal membersthan Rs 10000 shall be made nominal members

State Government may modify the minimum State Government may modify the minimum amount by notification in the Official Gazette for amount by notification in the Official Gazette for Class of Society.Class of Society.


Section – 27: Section – 27: Prohibition on Exercise of Prohibition on Exercise of Voting Rights of a memberVoting Rights of a member

The person who has committed The person who has committed a default a default and remains as defaulter in making and remains as defaulter in making repayment of loan or interest thereron for a repayment of loan or interest thereron for a period of one year period of one year from the due date, shall from the due date, shall not be entitled to exercise voting rights not be entitled to exercise voting rights of a of a member of a society till all such member of a society till all such repayments are made.repayments are made.


Section – 44 A: Section – 44 A: Freedom to the Committee of Cooperative Freedom to the Committee of Cooperative Credit StructureCredit Structure

All cooperative Credit Societies of under Cooperative All cooperative Credit Societies of under Cooperative Credit Structure (as section 22), will have freedom to Credit Structure (as section 22), will have freedom to decided its financial and internal administrative matters: decided its financial and internal administrative matters: interest rates on deposits & loans, subject to RBI interest rates on deposits & loans, subject to RBI directives, borrowing, investment, deposits of surplus fund, directives, borrowing, investment, deposits of surplus fund, loan policies, and business policies, all personnel policies, loan policies, and business policies, all personnel policies, internal check and control system appointment of auditor, internal check and control system appointment of auditor, their compensation, their compensation,

Borrowing from any financial institutions regulated by Borrowing from any financial institutions regulated by Reserve Bank of India.Reserve Bank of India.


Section – 45: Membership is compulsory Section – 45: Membership is compulsory to to deposit or borrow from cooperative credit societydeposit or borrow from cooperative credit society

No person or group of person other than No person or group of person other than member shall eligible to borrow from or member shall eligible to borrow from or make deposit in PACs.make deposit in PACs.

Section 51:Section 51: State Government will not State Government will not subscribe more than subscribe more than 25% of total share 25% of total share capital capital of any Credit Society under 3 Tier of any Credit Society under 3 Tier Credit Structure. Credit Structure.


73 A: Freedom of Affiliation or 73 A: Freedom of Affiliation or Disaffiliation with a federal society of Disaffiliation with a federal society of choicechoice

Cooperative Societies under 3T Credit Cooperative Societies under 3T Credit Structure have freedom of Affiliation or Structure have freedom of Affiliation or Disaffiliation with a federal society of Disaffiliation with a federal society of choice, if resolution passed in AGM with choice, if resolution passed in AGM with three-fourth majority.three-fourth majority.


Section 74: subsection (1) Section 74: subsection (1) There shall be two professionals on the There shall be two professionals on the

committee of SCB and GSCB committee of SCB and GSCB The professionals will have all rights The professionals will have all rights

including voting right.including voting right. Section 76: Qualification for Appointment Section 76: Qualification for Appointment

of qualified CEO and Directors by DCCB of qualified CEO and Directors by DCCB & SCB will be decided by RBI, NABARD & SCB will be decided by RBI, NABARD


Section 80: subsection (2) Section 80: subsection (2) There shall be only one Government There shall be only one Government

Nominee on the Board of SCB and GSCB Nominee on the Board of SCB and GSCB where the Government has subscribed to where the Government has subscribed to the Share Capital.the Share Capital.

No Government nominee will be nominated No Government nominee will be nominated on the board of PACs whether Govt. has on the board of PACs whether Govt. has subscribed share capital or not. subscribed share capital or not.


Section 81 A:The Registrar can remove the Section 81 A:The Registrar can remove the committee of PACs if: committee of PACs if:

It It incurs loss for 3 consecutive yearsincurs loss for 3 consecutive years If If serious financial irregularities, fraud serious financial irregularities, fraud identifiedidentified If there is If there is perpetual lack of quorum over a period perpetual lack of quorum over a period

of 3 monthsof 3 months After removal the members will not be eligible to After removal the members will not be eligible to

become a member for atleast next 3 years.become a member for atleast next 3 years.


Section 84 :The Audit of District Central Section 84 :The Audit of District Central Cooperative Bank and SCB will be done Cooperative Bank and SCB will be done only by the only by the Chartered AccountantChartered Accountant

115A: Appointment of liquidator with in 115A: Appointment of liquidator with in two months by the permission of RBI. two months by the permission of RBI.

145 F: 145 F: Defaulter in District Central Defaulter in District Central Cooperative Bank or SCB for more than 12 Cooperative Bank or SCB for more than 12 month period can be elected or can be month period can be elected or can be contd. As a directorcontd. As a director..


Section 146 Section 146

Prohibition on PACS to use word Bank, Prohibition on PACS to use word Bank, Banking, Baker in its name.Banking, Baker in its name.

Modification in Gujarat State Cooperative Societies ActChapter : X-B (Chapter inserted after failure of Chapter : X-B (Chapter inserted after failure of

Madhavpura and other urban cooperative Madhavpura and other urban cooperative banks)banks)

Section 115 C: Qualifications & Section 115 C: Qualifications & Disqualifications for being committee Disqualifications for being committee members: member for 3 yrs. Deposit 25K for members: member for 3 yrs. Deposit 25K for one year, No Defaulter of any bank or society, one year, No Defaulter of any bank or society, Company in which he/she has interest not in Company in which he/she has interest not in default of loans, not committed crime default of loans, not committed crime punishable for fine of Rs. 25K or 6 month punishable for fine of Rs. 25K or 6 month imprisonment.imprisonment.


Madhavpura and other urban cooperative banks)Madhavpura and other urban cooperative banks)Joint Accountibility and Liabilities of Directors Joint Accountibility and Liabilities of Directors

have been fixedhave been fixedSection 115 D: Right to vote (1 year member)Section 115 D: Right to vote (1 year member)Section 115 E: 2 Terms (3 year each) as Chairman, VC or Section 115 E: 2 Terms (3 year each) as Chairman, VC or

MD.MD.

Sections 115 F to 115 L Other provisions (Timely Sections 115 F to 115 L Other provisions (Timely submission of correct Returns, Action of submission of correct Returns, Action of recovery in one year, criminal proceeding recovery in one year, criminal proceeding initiated Timely against defaulters)initiated Timely against defaulters)

Suggested Modifications in Gujarat State Cooperative Societies Act Section – 22 (Applicability to other cooperatives Section – 22 (Applicability to other cooperatives

also)also) SHG to be eligible to become a member of any SHG to be eligible to become a member of any

other cooperative societies. Such as Dairy, other cooperative societies. Such as Dairy, Labor, Marketing, Urban Credit Societies, Labor, Marketing, Urban Credit Societies, Processing Cooperatives and Handloom and Processing Cooperatives and Handloom and Handicraft Cooperative Societies.Handicraft Cooperative Societies.

Federations at Taluka Level and District Level to Federations at Taluka Level and District Level to be set up and linked to the Cooperative Societies be set up and linked to the Cooperative Societies or may be set up as Cooperative Societyor may be set up as Cooperative Society..

Suggested Modifications in Gujarat State Cooperative Societies Act Section 25: Nominal Associate and Section 25: Nominal Associate and

Sympathizer Member in Non-Credit Coop Sympathizer Member in Non-Credit Coop Societies or Federations for business purpose Societies or Federations for business purpose

Section - 37: Societies to be bodies corporate: Section - 37: Societies to be bodies corporate:

SHG be considered as Bodies corporate like SHG be considered as Bodies corporate like cooperatives so as to enable SHGs to hold cooperatives so as to enable SHGs to hold property, enter into contract, legal proceedings,property, enter into contract, legal proceedings,

Suggested Modifications in Gujarat State Cooperative Societies Act

Section – 43 Powers to exempt from Taxation Section – 43 Powers to exempt from Taxation Concept of Exception for Cooperatives: In any Concept of Exception for Cooperatives: In any

transactions of Cooperative, the motive is not commercial transactions of Cooperative, the motive is not commercial or profit making and what ever profit society earns is or profit making and what ever profit society earns is returned in shape of dividend, bonus, wages salary etc. returned in shape of dividend, bonus, wages salary etc. some societies do business on “No Profit – No Loss”some societies do business on “No Profit – No Loss”

Similarly : Similarly : Stamp Duty, Fees of registration, Court Stamp Duty, Fees of registration, Court Fees, Surcharge. Duty relating to purchase of Fees, Surcharge. Duty relating to purchase of property, registration of property, mortgage of property, registration of property, mortgage of property, duties and taxes may be levied by the property, duties and taxes may be levied by the Government. Government.


Section -51 : Direct Partnership of State Section -51 : Direct Partnership of State Government in Societies or Contribution Government in Societies or Contribution of Share Capitalof Share Capital

(After registration of SHG as Coop Society)(After registration of SHG as Coop Society) Section - 63: Other forms of State Aid to Section - 63: Other forms of State Aid to

Societies : Loans, government guarantee, Societies : Loans, government guarantee, other supports like subsidies other supports like subsidies (After (After registration of SHG as Coop Society)registration of SHG as Coop Society)


Section – 74 B : Reservation of weaker section Section – 74 B : Reservation of weaker section seat on committees of certain societies is seat on committees of certain societies is mandatory on committees of Primary Societies mandatory on committees of Primary Societies I.e. PACs , milk, industrial, Oilseeds, UCBs I.e. PACs , milk, industrial, Oilseeds, UCBs Processing, Marketing Processing, Marketing

Reservation of One SC/ST and one Small & Reservation of One SC/ST and one Small & Marginal FarmersMarginal Farmers

Section 74 BB : Reservation of seat for woman in Section 74 BB : Reservation of seat for woman in committee of society (1 seat for 11 member committee of society (1 seat for 11 member committee, 2 for >11.committee, 2 for >11.


Section – 80: Power to appoint Government Section – 80: Power to appoint Government Nominee, where government has Nominee, where government has contributed share capitalcontributed share capital

(SHG should be excluded)(SHG should be excluded)


Chaper _ VIII: Audit Inquiry, Inspection Chaper _ VIII: Audit Inquiry, Inspection and Supervisionand Supervision

Section : 84 Auditor Business Turnover > Section : 84 Auditor Business Turnover > Rs. 50000 Rs. 50000

Section: 87 – Inspection of Books of Section: 87 – Inspection of Books of indebted Societiesindebted Societies


Madhavpura and other urban cooperative banks)Madhavpura and other urban cooperative banks)Certain other provisions relating to Urban Certain other provisions relating to Urban

Cooperative Banks Cooperative Banks Section 115 B : DefinitionsSection 115 B : DefinitionsSection 115 C: Qualifications & Disqualifications Section 115 C: Qualifications & Disqualifications

for being committee membersfor being committee membersSection 115 D: Right to voteSection 115 D: Right to voteSection 115 E: Term of office of officersSection 115 E: Term of office of officersSections 115 F to 115 L Other provisionsSections 115 F to 115 L Other provisions

Modification in Gujarat State Cooperative Societies Act

Chapter – XIIChapter – XII

Offences and PenaltiesOffences and Penalties

Section 146 : Prohibition of use of the Word Section 146 : Prohibition of use of the Word “ Cooperative”“ Cooperative”

Section- 161: Powers to exempt societies Section- 161: Powers to exempt societies from provisions of Actfrom provisions of Act

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Documents

Enabling Cooperative Societies Act for Fast Tracking Micro Finance and Financial Inclusion in India Dr S O Junare, Director National Institute of Cooperative