Gom Clears Co-Op Entry Into Capital Market

The group of ministers studying the Alagh committee report on co-operatives has cleared a proposal to allow them to tap the capital market.

Top government officials told Business Standard that there could be conditions on who could subscribe to the share capital. Sources said one of the options being considered was to allow only primary producers as shareholders.

As per the GoM clearance, there will also be a cap on the returns shareholders can get on their holdings. The balance gains would be transferred to a fund which would be used to meet the liquidity requirements of the cooperatives. At a later date, the fund would also cater to their technology upgradation needs.

The proposal, which would be taken up by the Cabinet shortly, permits multi-state cooperatives to register themselves under the Companies Act. Currently, they register with the state registrar of cooperatives under the Multi-state Co-operatives Act. They can also raise funds from financial institutions and banks through issue of debentures like companies.

A member of the co-operative which opts to register as a company would, however, be entitled to only one vote irrespective of its shareholding, officials said.

A co-operative opting to convert to a company would be able to do so easily. It would be, however, be very difficult for the company to convert itself back into a co-operative. Officials said that provisions regarding assets and liabilities to creditors would be prescribed to avoid co-operative-turned companies from vanishing with funds raised in the markets.

The proposal also defines multi-state co-operatives as those that have objects in more than two states instead of the current definition where cooperatives with members or shareholders in more than two states come under the Multi-state Co-operatives Act. As a result they would have to register with the registrar of companies under the purview of the department of company affairs.

"The state administrations would not be able to misuse the RoC setup for manipulation of elections. The annual general meetings of these cooperatives would be held regularly and professional directors would be appointed to the board as required under the Companies Act. The documents of these cooperatives would become available for inspection and they would have to streamline their accounts," officials said.

They also said that these co-operatives would have greater access to superior technology, professional management and aggressive marketing strategies. This was important because the Indian economy is still predominantly agricultural and higher growth rates in the rural sector were imperative for higher GDP growth rates, they added.