Credit Co-operative Society

Multi State Cooperative Society (MSCS) Act: Summary of Provisions

Overview

The Multi State Cooperative Societies Act of 2002 was enacted to consolidate and amend the laws related to cooperative societies. It substituted the Multi State Cooperative Societies Act of 1984. The Act was passed in 2002 with an objective to facilitate the incorporation, functioning, and organization of the cooperative societies that have its jurisdiction in more than one state. The Act ensures voluntary formation and proper operation of the Multi State Cooperative Societies that are member-driven institutions, and they are based on self-help and mutual aid. The MSCS Act of 2002, along with MSCS Rules 2002, governs the compliance requirement of the Multi State Cooperative Society (MSCS).

Definition of Multi State Cooperative Society

It has been defined under section 3 (p) of the MSCS Act, 2002. It states that “Multistate Cooperative Society” means a society registered or deemed to be registered under this act and includes a national cooperative society and a Federal cooperative. The fundamental aim of the society is to work in the interest and welfare of its members in more than one state. It is not mandatory for society to have branches in more than one state, it may have it limited to one state, and it shall not cease to be a “Multi State Cooperative Society,” as long as it serves the interest of members in more than one state.

Multi State Cooperative Society: A body corporate

Section 9 of the Act states that the registration of MSCS renders it a body corporate which shall have or be-

• Common seal;
• Perpetual succession;
• Empowered to enter into any contract;
• Empowered to acquire, hold and dispose of properties, moveable and immoveable;
• Empowered to sue and to be sued;
• Empowered to do all things required for achieving the purpose of its constitution;
• Empowered to initiate and defend lawsuits and other legal proceedings;
• All transactions entered in good faith before the registration shall be deemed to be its transactions after registration for the facilitation of the objective of its registration.

Multi State Cooperative Society: Bye-Laws

Section 10 of the Act provides for the essential aspects which are covered under the bye-laws of the Multi State Cooperative Societies. The bye-laws shall be consistent with the provisions of the Act and the Rules made thereunder. The bye-laws may provide for either all of the matters or any of the following:

1. Name, address and the area of operation of the society;
2. Objects of the society;
3. Services that it shall provide to its members;
4. Membership and procedure for obtaining eligibility;
5. Procedure for withdrawal and transfer of membership;
6. Rights and duties of members;
7. Amount of capital of society;
8. Sources of funds by the MSCS;
9. Allocation/ Disbursement of net profits of the MSCS;
10. Constitution of various reserves;
11. Manner of convening board meetings;
12. Rights and duties of auditors;
13.  The principal place of business of MSCS;
14. Any other matter that may be prescribed.

Section 11 of the Act provides for the amendment in the bye-laws of the MSCS.

Multi State Cooperative Society: Registration

The procedure for registering the MSCS has been provided in the Act (MSCS Act 2002). Section 5 of the Act provides that no MSCS shall be registered under this Act unless its primary objective is to serve the interest of its members in more than one state, and the bye-laws of MSCS provide for social and economic betterment of its members by way of self-help and mutual aid. Section 6 of the Act provides for application for registration, which shall be made to the Central Registrar in the prescribed form and with prescribed particulars.

The documents required for setting up an MSCS include:

• Four copies of proposed bye-laws;
• Lists of contributors to the share capital including details of the contributed amount by each member;
• A certificate from the bank showcasing the credit balance in the proposed MSCS account;
• A resolution providing the name and the address of the chief promoter for communication by the Central Registrar;
• A copy of the resolution in favor of the person who is authorized to make any alteration in the bye-laws of the proposed MSCS.

Section 7 of the Act provides for registration of the society and the bye-laws if the application made complies with the requirements of the Act.

Acceptance and Refusal of the Registration

Acceptance-

The application of registration will be disposed of by the Central registrar within four months time from the date of receipt of the application. In case the application is not disposed within the prescribed period, or if the Central Registrar fails to communicate the order of refusal within the prescribed time limit, the application shall be deemed to have been accepted, and the Central Registrar shall issue a registration certificate according to the Act’s provisions, and the Rules made thereunder.

Refusal-

In case the Central registrar refuses to register a Multi State Cooperative Society, he shall provide the opportunity to the society to be heard before passing any order. He will communicate the order of refusal along with the reasons thereof to the applicants within a period of four months from the date of receipt of the application for registration.

Multi State Cooperative Society: Publication of name

Section 15 of the Act specifies the provision of publication of name by the MSCS. It provides for affixing or painting the name and the address of the registered office and to paint or affix it outside the office or place where it carries on its business in letters easily legible.

The Act requires the MSCS to engrave the name in legible characters on the seal and further mentioning the name and the address of the registered office in all its business letters, billheads, letter paper, notices and official publications in legible characters; further to mention the name in all bills of exchange, promissory note, cheques, endorsements, and orders purporting to be signed by or on behalf of the MSCS. 

Cases in which registration certificate of MSCS stands cancelled

• If the whole of the assets and liabilities of an MSCS is transferred to another MSCS or to a cooperative society according to the provisions of section 17 in such case the registration of the first-mentioned MSCS stands cancelled, and the society shall be deemed to have been dissolved, and therefore it ceases to exist as a corporate body.
• If an amalgamation of two or more Multi State Cooperative Society (MSCS) into a new MSCS takes place according to the provisions of section 17, in such a case registration of all amalgamation societies shall be cancelled, and each of the amalgamating society shall be deemed to have been dissolved, and therefore it ceases to exist as a corporate body.
• If there is a division of an MSCS into two or more MSCS or two or more cooperative societies according to the provisions of section 17, in such case the registration of that society shall be cancelled, and that society shall be deemed to have been dissolved, and therefore it ceases to exist as a corporate body.
• According to the provisions of the MSCS Act, the amalgamation or the division of the MSCS does not in any manner affect the rights and obligation of the resulting MSCS or render defective any legal proceedings and any legal proceedings that might have been continued or started by or against the MSCS or societies, as the case may be, prior to the amalgamation or division, may be continued or started by or against the resulting MSCS or societies.

Multi State Cooperative Society: Duties, Rights and Liabilities of its Members

Chapter IV of the Act provides for the qualification, duties, rights, and liabilities of the members of the Multi State Cooperative Society. Section 26 of the Act states that an MSCS may admit a person as nominal or associate member if it’s provided in its bye-laws however such nominal or associate member shall not be entitled to subscribe the shares of the society or have any interest in the management thereof including the right to vote, elected as a member of the board or participate in the general body meetings.

Further section 27 makes it necessary for every MSCS to organize cooperative education programs for its members, employees, and directors. Section 31 of the Act empowers the member of MSCS with the right to vote, and section 32 lays down the manner of exercising such right. The Act also has the provision of transfer of interest on the death of members and also provides for liabilities of past members and estate of the deceased member.

Managing bodies of Multi State Cooperative Societies

Chapter V of the Act lays down the provisions for the management and direction of the MSCS. It provides for the constitution, power, and functions of Multi State Cooperative Societies. Further, it prescribes general and special meetings of the general body, association of employees in the management decision-making process, board of directors, conditions of disqualification of a board member.

It also provides for some instances prohibiting chairperson, president, vice president to hold office, removal of elected members by the general body, power and functions of the board and chief executive and specific cases where possession of records, etc. can be secured.

Multi State Cooperative Society: Privileges

Chapter VI of the Act lays down the provision of privileges for MSCS. It may charge and set off in respect of share or interest of member or contribution. With it share of contribution or interest is also not liable to attachment, any register or list of members or shares kept by MSCS shall be prima facie evidence of the date on which any person entered in such register or list became a member or the date on which a person ceased to be a member.

It also provides for the admissibility of the copy of entry as evidence, exemption from mandatory instruments registration, deduction from salary to meet the claim of MSCS in some instances, and Government aid to Multi State Cooperative Societies.

Government aid to MSCS under Privileges (chapter VI)

As per Section 61 of the Act, the Central or State Government, on a receipt of a request from a Multi State Cooperative Society (MSCS) and with an intention to promote cooperative environment may-

• Subscribe to the share capital of an MSCS;
• Give loans or give advances to an MSCS;
• Guarantee the repayment of the principal and payment of interest on debentures issued by a MSCS;
• Guarantee the repayment of the share capital of an MSCS and dividends thereon at rates specified by the Central or State Government;
• Guarantee the repayment of the principal and payment of interest on loans and advances to an MSCS;
• Provide financial assistance in any other form;
• Provide aid to any other MSCS on such terms and conditions prescribed.

Multi State Cooperative Society: Audit, Enquiry, Inspection and Surcharge

Chapter VIII of the Act lays down the provision of audit, inquiry, inspection, and surcharge of MSCS. It prescribes provisions for the appointment and remuneration of the auditors, qualification and disqualification of auditors, their powers and duties, inspection and inquiry of Multi State Cooperative Societies, inspection of books of indebted Multi State Cooperative Societies and provisions for costs of inquiry, inspection, recovery and repayment of such costs.

Conversion of a Cooperative Society into Multi State Cooperative Society

A Cooperative Society may extend its jurisdiction by converting into an MSCS by an amendment to its bye-laws, provided such amendment shall be registered by the Central Registrar. Section 22 of the Act lays down the steps for converting cooperative society into an MSCS.

Steps for Conversion-

1. The proposal for such amendment of bye-laws is forwarded to the Central Registrar;
2. Central Registrar may register the amendment after consulting the Registrar of Cooperative Societies of the concerned state;
3. The copy of registered amendment and certificate signed by the Central Registrar is forwarded to the Cooperative Society;
4. If the Central Registrar refuses to register such amendment, he shall communicate it with the reasons to the society in the prescribed manner;
5. When the amendment of bye-laws is registered from then on, the Cooperative Society shall become a Multi State Cooperative Society.

Conclusion

As the name itself suggests, MSCS, its operational area, is not confined to a state. It serves its members in more than one state with a view to facilitate the voluntary formation and democratic functioning of cooperatives as an institution of people based on self-help and mutual aid. It helps them to promote their economic and social betterment and to provide functional autonomy. Moreover, from the tax point of view, the Multi State Cooperative Society enjoys the benefit of section 80 P of the Income Tax Act, 1961.