How a Supreme court order could render the new co-op ministry a non-starter

Top court upheld the role of states in governing societies within their jurisdiction; Centre is said to be exploring options to ensure the newly-formed ministry of cooperation isn't crippled

A few days back, the Supreme Court of India in a landmark judgment struck down parts of the 97th amendment to the Constitution that sought to crimp the powers of the state governments over their cooperative societies.

In its order, the top Court upheld the 2013 Gujarat High Court verdict that had struck down certain portions of the 97th constitutional amendment passed by the Parliament.

The judgment could have huge ramifications on the functioning of the newly-formed cooperative ministry headed by none other than the country’s Home Minister.

The Amendment was passed by Parliament in December 2011 and had come into effect on February 15, 2012, during the UPA regime.

Apart from making the formation of cooperatives a fundamental right, the amendment had also laid several guidelines for the state legislations governing the cooperative societies.

These, according to some experts, included provisions for incorporation, regulation and winding-up of cooperative societies based on the principles of democratic member control, member-economic participation and autonomous functioning.

It specified the maximum number of directors of a cooperative society at not more than 21 members, and also provided for a fixed term of five years from the date of election in respect of the elected members of the board and its office bearers.

The amendment also provided for a maximum time limit of six months during which the board of directors of a cooperative society could be kept under supersession or suspension; provided for independent professional audit; provided for right of information to the members of the cooperative societies; empowered the State Governments to obtain periodic reports of activities and accounts of cooperative societies; provided for the reservation of one seat for the Scheduled Castes or the Scheduled Tribes and two seats for women on the board of every cooperative society which has individuals as members from such categories; and also provided for offences relating to cooperative societies and penalties in respect of such offences.

“The objective of the reform was to ensure that cooperative societies function in a democratic, professional, autonomous and economically sound manner,” former union agriculture secretary T Nanda Kumar wrote in an online article.

Nanda Kumar told Business Standard that the amendment was brought after much thought in 2012 and was the outcome of several national conferences participated by states where they themselves sought these changes.

“Or how else would you explain that as many as 17 states have amended their respective cooperative laws in line with the Constitutional amendment, while no state had challenged its constitutionality in the Courts,” Nanda Kumar said.

A bunch of petitions was filed in the Gujarat High Court on the grounds that the process followed in getting the amendments passed wasn't constitutional.

The main argument of the petitioners was that the amendment required ratification by at least half the states since it impacted a subject in the state list.

The Gujarat High Court accepted the argument of the petitioners to strike down the entire portion of that part of the amendment which laid down directions for state legislations for cooperatives.

The Supreme Court in its judgment, while upholding the Gujarat High Court Order, had saved the application of the amendment for Multi-State Cooperative Societies which come under the jurisdiction of the Central government.

The apex court judgment upheld the supremacy of state governments in governing the cooperative societies that fall within their jurisdiction.

The Supreme Court, while upholding one part of the amendment, struck down the other but only for state cooperatives.

As mentioned before, the ruling could have implications on the functioning of the newly-formed cooperative ministry.

Options for the government

Stung by the Supreme Court order, the Centre is believed to be exploring multiple options to ensure that functioning of the newly formed ministry of cooperation is not crippled.

One of which may go with the Supreme Court’s interpretation of the matter and let its jurisdiction remain only in respect of those cooperatives which have operations in more than one state, that is Multi State Cooperative Societies (MSCS).

In an amendment  is carried out to go in line with the Supreme Court judgment, then in that that case, the newly formed ministry of cooperation headed by the virtually number-two in the Narendra Modi government will only be responsible for managing the affairs of the 1500 odd MSCS, leaving the entire universe of around 800,000 cooperatives outside its scope, barring off course the Urban and State Cooperative Banks, which are being regulated by the Reserve Bank of India as per amendments made to The Banking Regulation Act, 1949 in 2020.

The RBI amendments provide additional powers to the Reserve Bank of India (RBI) for more effective regulation of co-operative banks.

According to a Parliament Reply, as on date, India has around 34 State Cooperative banks (StCBs), 351 District Central Cooperative Banks (DCCBs) and 1,534 Urban Cooperative banks (UCBs) functioning in the country.

The second option which T Nanda Kumar pointed out was to validate that part of original amendment that seek to violate state powers by getting the same ratified by atleast half of the state legislatures as pointed out by the Supreme Court or a third and a more radical approach will be to adopt the same process of getting a amendment ratified by state legislatures to put cooperation into the Concurrent List.

At present, Cooperation and winding up of cooperatives is in the state list and putting it in the concurrent list will empower the Central government to legislate on matters related to the cooperatives.

However, several experts feel that the third approach is highly unlikely and given the complexities of the whole issue and immense bad blood between Centre and states, any attempt to unsurp powers of the states through coercion will yield little results.

“I don’t think it is a sensible move and I'm not aware of any such proposal being discussed. I strongly feel that Centre should not get in framing rules and regulations for small cooperatives which fall within the purview of the state governments,” said DN Thakur, former bureaucrat and National Vice President of Sahakar Bharti, which is the cooperative wing of the Rashtriya SwayamSevak Sangh (RSS), the ideological parent of the ruling BJP.

Pandora’s box

The SC ruling with regards to cooperatives which some interpret as underlying the supremacy of the state governments when it comes to matters in the state list of the Constitution could open a pandora’s box if the same principle starts getting applied on some other recent moves.

The most notable among them is the three Central farm legislation passed by Parliament last year.

In the three, the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Ordinance, 2020, also known as the Trade Facilitation Act as it seeks to lay down rules of trading outside the APMCs in an area known as trade area is the most crucial.

Several state governments feel that the Act and its provisions which seeks to create an area outside the APMCs as a free-trading zone where no taxes or levies can be imposed by anyone including the states violates their right and the Centre does not have any jurisdiction to frame a law concerning agriculture as it is a state subject.

Though, the Central government has time and again clarified that it has used the powers granted by it under the Entry 42 of the Union list along with the Entry 33 of the Concurrent List to frame the legislation that frees up the inter-state trade in all agricultural commodities and intra-state trade in specific farm produces.

But, states said that its interpretation is flawed. The matter is now being looked at by the Courts.

The entry 42 empowers the Centre to frame laws for inter-state trade, while the entry 26 of the State list empowers states to frame rules and laws to regulate trade within their boundaries.

But, the provisions of entry 26 are subject to the entry 33 of the Concurrent list which empowers both the Centre and states to frame rules and laws relating to production, distribution and supply of foodstuffs, including edible oil and oilseeds.

As cited above, Union law has supremacy over state legislation in the Concurrent list.

However, not all feel that the two events can be equated.

“In the case of constitutional amendment for Cooperatives, the Centre had tried to lay down rules for states to follow, while in case of farm laws, there is no direct interference in the activities of the states and they haven’t been told to do anything and also it hasn’t taken over the law making power of the states,” said D N Thakur of Sahakar Bharti.