The recent formation of the new Ministry of Cooperation under the Government of India has raised eyebrows and concerns. It is welcomed as a historic move by some, while others downgrade it as an attempt to enhance the power of the Central Government over Cooperatives. It is being interpreted as an attempt to invade upon the federal rights of the States, thus offending the principles of federalism constituting the core feature of India’s Constitution. 

The creation of the new Ministry is stated to realise the vision of prosperity through Cooperation, to provide a separate legal and policy framework for strengthening the Cooperative movements in the country and to deepen the cooperative as ‘a true people-based movement’ reaching up to the grass root level. Undoubtedly, cooperatives must be subject to democratic control. But whose endeavour it is, is the question being raised demanding clarity. 
    
A field under State List

Cooperative Societies is a subject under the State List, included under Entry 32 of List II of the Seventh Schedule of the Constitution. A Co-operative Society is a voluntary association of individuals having common needs and who join hands for the achievement of common economic interest. Its aim is to serve the interest of the weaker sections of the society through the principle of self- help and mutual-help.

It is an accepted notion that nobody joins a cooperative society to earn profit. People come forward as a group, pool their individual resources, utilize them in the best possible manner, and derive some common benefit out of it. The presence of cooperatives in farming, weaving, and consuming sectors is a salient feature of our country’s rural economy. A registered Co-operative society can hold property, enter into contracts, institute and defend suit and other legal proceedings, and do all things necessary for its constitution and functioning.

The Sociology of Cooperatives

Cooperatives have gained prominent attention in recent years as strategic elements to achieve sustainable economic development and greater social cohesion in the context of neo-liberal globalisation. The viability of cooperatives based on their strength and weakness requires detailed evaluation in the current social perspective. The role of cooperatives in promoting the local development and catering the stability of local communities will have to be stressed over and above its continuing role in economic globalisation.

Cooperatives are placed near the State-market continuum as an instrumentality in market intervention and as an extended arm of the State to deliver benefits to the people. Cooperatives cannot be allowed to fail. It must succeed always. As noted in the Statement of the All India Rural Credit Survey Committee, If Cooperation fails, there fails the last hope of rural India. If cooperatives had failed in the past, the remedy is more cooperation and not State intervention.

Cooperatives must empower and assist the State in reducing vulnerability. Cooperatives present a people-central business model having a vital role and particular impact in rural life by meeting their social and economic needs.  Eventually State partnership with cooperatives will have to be encouraged. Why cooperation works successfully in certain settings and fails in others is a matter to be assessed constantly. 

Voice of the People

Cooperation is something desirable and needed by society. Cooperatives will have to be promoted by the State.  State must recognise the right of the citizens to form cooperatives and must promote its autonomy, democratic control and professional management. The voice of cooperatives is the voice of the people. Cooperatives must be able to plant smiles on human faces. The success of Cooperative movements depends on good leaders. Its failures account from lack of autonomy, mismanagement, bureaucratization and unwanted State interference.

Transforming cooperatives as socio economic engines of growth and making them ‘true people-based movements’ at the grass root level is evidently a democratic aspiration and is an attempt to accomplish egalitarian goal of the society and people’s welfare. However, under the guise of regulation, the Centre cannot stretch its arms over its federal entities breaking the constitutional equilibrium prevailing between the Centre and the States.

Court clears the air

The recent Judgement of the Supreme Court in Union of India v. Rajendra N Shah (Judgement dated 20.07.2021) has generated beam of light on cooperatives and has made eloquently clear the scope of Centre’s intervention in the cooperative scenario. In the above case, the Court invalidated Part IX-B of the Constitution inserted by the Constitution (Ninety Seventh) Amendment Act, 2011 to the extent it deals with State Cooperative societies. 

A three-judge bench of the Supreme Court confirmed a 2013 Judgement of the Gujarat High Court which had struck down Part IX-B incorporated by the Ninety Seventh Constitutional Amendment on the ground that the Amendment was passed without obtaining the ratification of at least half of the State Legislatures as mandated by the proviso to Article 368(2) of the Constitution. 

The Amendment was brought by the UPA Government, but it failed to pass the Constitutional muster and some of the provisions brought by the Amendment have now been painted with the brush of unconstitutionality by the Apex Court for want of required concurrence from the States.

Not Unitary, but Quasi-Federal

Exclusivity of State Legislatures over entries included in the State List is a facet of the quasi-federal nature of our Constitution. The Constitution is not unitary, but quasi-federal and this is part of its basic structure. Cooperative societies are an exclusive subject of the State Legislature and legislative power of Parliament could be exercised only with respect to Multi-State Co-operative Societies functioning within States and Union Territories. 

Curtailment of the exclusive legislative power of the State is akin to changing the entry from the State list. Part IX-B inserted in the Constitution seeks to effect a significant change with respect to Cooperative Societies which comes within the State’s exclusive power to make laws, by curtailing States’ legislative power thereby directly impacting the quasi-federal principle.

The Supreme Court says: “There can be no doubt that our Constitution has  been described as quasi-federal, in that, so far as  legislative powers are concerned, though there is a tilt in favour of the Centre vis-à-vis the States given the federal supremacy principles, yet within their own sphere, the States have exclusive power to legislate on topics reserved exclusively to them”.

The executive powers of the Centre and State Governments are co-extensive with the legislative powers. Article 73(1) which specifies the extent of executive power of the Union states that it shall extent to the matters with respect to which Parliament has power to make laws. Article 162 of the Constitution, in identical terms, stipulates that the executive power of a State shall extent to the matters with respect to which the Legislature of State has power to make laws. Supreme Court has now clarified the scope of Parliament’s power over the cooperatives. The principles laid down by the Court when applied will limit the scope of executive power of the Union to Multi-State cooperative societies alone.

Though the Ninety Seventh Constitutional Amendment had recognised the right to form cooperative societies as part of the fundamental right of citizens to form association under Article 19(1)(c) and further inserted Article 43-B casting an obligation on the State by promoting voluntary formation, autonomous functioning, democratic control and professional management of cooperative societies, significantly, these provisions have not been affected in any manner by the  Judgment of the Supreme Court. Thus the Court has not rendered the entire Constitutional Amendment as still-born, but only invalidated Part IX-B. In the history of Constitutional Amendments, the Supreme Court has partially struck down seven amendments as unconstitutional and one as wholly unconstitutional.  The Ninety Seventh Amendment thus forms part of one such amendment which was partially struck down by the Court.

Varying approach

Quite differently, a Constitutional Bench of the Supreme Court in Pandurang Ganpati Chaugule Case (Judgment dated 5.5.2020) upheld Parliament’s power to legislate over cooperatives with regard to the scope of the legislative field covered by Entry 45 of the Union List which pertains to banking. The Court has answered the reference by holding that banking function of cooperatives could be included within the purview of central legislation.

State’s power over cooperatives exists in matters such as incorporation, regulation and winding up. Cooperative societies involved in banking are within the meaning of ‘banking company’ defined under the Banking Regulation Act 1949, a Central legislation relatable to Entry 45 of the Union List. Thus, Centre’s legislative power could be exercised in respect of banking activities of Cooperative Banks run by the cooperative societies.

Concern for the Community

Cooperatives exist close to Government. They must have autonomy within their sphere of functioning and must enjoy ease of doing business. At the same time, there should be democratic control over them by the legislative bodies for making them as ‘true people based movement’ at the grass root level.  Controls shall not pierce them or make them weaker or less effective. The exercise of legislative and executive powers of the Union and States must ensure that autonomy and democratic elements of cooperatives are not impaired or emasculated. 

Cooperatives must show concern for the community. They must transform the very structure and systems that cause poverty and enhance growth and development at the rural levels through good governance and good management. The versatility of the cooperative model permits creation of innovative strategies capable of addressing the unmet social needs. The vision of the new Ministry must be to accomplish the constitutional mission of transforming cooperatives as robust bodies and honest institutions emitting the fragrance of participation, representation, openness, accountability, transparency and trust. 

(The writer is a prominent Lawyer, an acclaimed writer and a distinguished academician based in Kochi)