Chapter 1

COOPERATIVE LEGISLATION - AN OVERVIEW

Introduction

Cooperation is as old as living beings. The instinct to cooperate with the

members of the same genus has been present in almost all living beings. The

tiny ant lives with other ants of its kind and stores its food for their common

benefit. It is a common thing to see that when a grain of rice or corn is too heavy

for a single ant to carry to its abode or nest, two or three ants join together for

carrying the grain to their common abode. Similar small insects cooperate

together and for instance, bees store honey for their common benefit. Animals in

the forest almost live in herds.

The human being is no exception. He is a sociable animal by nature. Man

cannot live alone by himself. He cannot produce by himself the food or clothing

that he needs. Nor can he erect by himself the hut he lives in. He takes the help

of the members of his family or others. When the early men began to live in

groups called settlements, they joined together; they lived together; they

protected from their common enemies, beasts and men; they converted forests

into arable lands; and the like. In course of time they adopted the cooperative

endeavor in their daily life. Thus the concept of cooperation is as old as human

society.

The necessity for the interdependence and mutual help, and the innate

social feeling in man are the basis for the very beginning of the history of modern

civilization, which in fact, is the history of cooperation (Bogardus 1946, Adams

1948, Jack Bailey 1955). The roots of formal cooperation can be traced to ancient

times. In primitive societies, evidence of cooperation could be found in religious

institutions and traditional custom. Working of the ancient custom and institutions
 ........... imninmmirnmium.ni ....................................................................................................................................................................................... m r m n.i....

throwing light on the instinct and tradition of mutual assistance, joint action, joint

possession and joint management are found in the thinking of people in all ages

and in all countries (ILO 1939, ILO 1955, and Batt 1956). Thus synergistic effect

of social feeling and economic rationale of collective action have led to the

emergence of Cooperation (Darling 1922, Coady 1950, Cole 1951, Casselman

1952, and Bowen 1953). For instance in villages, the common drinking water

tank or well is excavated and is being maintained by the villagers themselves

today. The village assembling place, school, temple etc. are other examples of

common properties resulted out of cooperative endeavor.

Instances of cooperative effort could be found in ancient India, China,

Egypt and Babylonia in agriculture and crafts. Cooperation has been known and

practiced in India in various forms since ancient times (Khan 1937, Jain 1959,

Bhatnagar 1960, Bannerjee 1961, and Hough 1966). The joint family system,

which is very old and exists till today is one instance of indigenous Cooperation

(Kaji 1932, Kahlon and Palta 1954, and Kulkarni 1962). Another form of

Cooperation is the ‘panchayat’ which is based on the principle of community self-

help. Although the system has gone somewhat into decay, panchayats are still

common and in all states they have been revived and practiced (Katve, 1958).

Then there are ‘chit funds’ commonly found in South India, which are based on

the principle of mutual association (Mukherjee 1923, John Mathai 1925, Wolff

1927, Mathur 1953, Mehta 1959, and Saxena 1974). The ‘nidhis’ prevalent in

South India provides a further instance of mutual credit association (Mamoria,

1977). In India the spirit of village communities was predominantly cooperative.

Villagers throughout the ages have worked together on an informal cooperative

basis (Pt. Jawaharlal Nehru, 1959). Craft guilds in banking are referred to in the

Vedas as well as in the Laws of Manu (Hough, 1966). Cooperative societies were

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found among ancient Greeks in the form of burial benefit societies and, religious

and cultural associations (Ewell Paul Roy, 1964). History records the organization

of first credit and savings banks in China for the purpose of enabling devout

Chinese to defray the expenses of their pilgrimage (Viswanathan, 1955, Digby,

1956). Crop protection against incendiarism and theft was another incentive for

some sort of cooperative organization (Kulkarni, 1962). In Roman era, Collegia, a

type of cooperative craftsmen organization came into prominence (Digby, 1960).

In the early Christian era also there were some instances of cooperative

experiments in the form of artisan societies, burial benefit societies and irrigation

societies (Hajela, 1997). During the middle ages, the Cooperative idea was

transformed from religious informal institution into a more formal business

institution (Mahajan, 1974).

The roots of formal Cooperation could be traced in three sources: (1)

Medieval European guilds, (2) Mutual self help association of early

industrialization period and (3) social experiments of Utopian socialists and other

cooperative leaders (Chinchankar and Namjoshi, 1977). The guilds of Middle

Ages (500 AD - 400 AD) resembled the modern trade unions, for they were

associations of craftsman for achieving their specific objectives of securing better

prices and wages. Guilds afforded a center of social activities and maintained

common funds which were drawn upon to pay funeral expenses of their

members, allowances to physically handicapped persons and grants to widows

(Ewell Paul Roy, 1964).

The guilds in France and Germany, which sprang up during the 16th

century, sought to safeguard wages and regulate supplies of goods and their

prices, through developing a common code of conduct (Jack Bailey, 1955). The

stress of cooperative action in a common pursuit makes the guilds the

forerunners of the more advanced type of Cooperatives that emerged in England

and elsewhere with the advent of factory system towards the beginning of

eighteenth century (Arnold Bonner, 1950, and Fauquet, 1951).

Swiss dairymen are reported to have engaged in cheese making through

cooperative associations as early as in thirteenth century. The German

‘Landschaften’ system (1767), a credit association of the land owning aristocracy

for obtaining credit against the land mortgage in favour of the association, has

also been regarded as the forerunner of mortgage banks (Fay 1948, Pedersen

Thor 1950). In Britain (1970’s) mills run by workers at Chatham and Woolwich on

cooperative lines, the businessmen of Philadelphia (USA) who organized a

mutual fire insurance association in 1752, and in the village of Fenwick in

Ayrshire, Scotland where a small group of weavers who conducted business on

cooperative basis, were called Penny Capitalists (Frank Robatka, 1957).

Although the germs of several cooperative ideas are found elsewhere, they had

no ulterior purpose and they were not linked together in any wider movement.

They were only isolated experiments with little practical effect (Krishnaswami,

1985).

However, the modern concept of cooperation was the result of the great

Industrial Revolution of Great Britain. It was somewhat different from the earlier

concept and denoted a special method of doing business (Maclagan Committee

1915, Bhatnagar 1960, Weeraman 1973). It was a new ideology developed a

solution to the domination and exploitation in the industrialist era. Cooperation

emerged as a defense against the early abuses of the rigors of capitalist

industrial system (Gadgil, 1962). Robert Owen (1771-1858) came as a messiah

with certain plans to reorganize the people on cooperative basis (John Winfred,

1987). This idea soon caught the imagination of the working class. Later, in

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1844, the movement entered into the field of distribution which proved to be the

turning point in the history of the Cooperative Movement (Mamoria 1963, ICA

1964), and paved way for the establishment of a new economic and social order

which provided opportunity, security and happiness for all (ILO 1950, Narasimhan

1959).

Today, cooperative organizations are found everywhere; they are found in

all countries irrespective of social, economic and political environments.

Cooperatives, however, are not best understood in terms of statistics and trends.

They take on their deepest meaning only when they are seen in the context of

people's lives. And one can find that meaning virtually everywhere around the

globe. They tend to assume monopoly in certain fields of the economy. The

United Nations estimated (1994) that the livelihoods of nearly three billion people

or half of the world’s population were made secure by cooperative enterprise.

Nearly 800 million individuals are members of Cooperatives. They provide an

estimated 100 million jobs. They are economically significant in several countries

where they provide foodstuffs, financial services as well as provision of services

to consumers. For instance, in the fields of health (Japan), schools (Columbia),

housing (Sweden), insurance and distribution of consumer articles (Great Britain),

handicrafts marketing (Brazil), thrift and savings (Sri Lanka) and burial

ceremonies (Portage la Praire, Manitaba, Canada), contributions of cooperative

are remarkable. Cooperation is the means by which farmers in Brazil, Uruguay, El

Salvador, Guatemala, Dominican Republic, Mexico, Canada and the United

States have been able to obtain land and water as well as credit and technology

for agricultural production (ICA, 1995).

The market shares they hold can show examples of the economic

significance of cooperatives. In Burkina Faso, agricultural cooperatives are the

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largest producers of fruits and vegetables and in coted’lvoire in France they are

responsible for 77 per cent of cotton production (ACI-CTA-AIAFD-SOCODEVI,

1999). In Uruguay, cooperatives process 90 per cent of national milk production

and export 70 per cent of the surplus wheat production (CUOE COP Website). In

the United States, in 1998, 3 per cent of agricultural markets have been owned by

Cooperatives and rural electric Cooperatives have operated more than half of the

electrical lines in US, providing power to more than 25 million people in 46 states

(NCB, website). In 1997, the contribution of cooperatives to Gross Domestic

Product (GDP) in the Philippines was 16 per cent (Gawigawen, 1998). During the

same year, Cooperatives in Denmark were responsible for 94 per cent of milk

processing, 69 per cent of farm supply and 66 per cent of cattle slaughtering

(Federation of Danish Cooperatives, 1998). In Sweden, insurance cooperatives

held 48.9 per cent of the household insurance market and 50 per cent of the

group life and accident insurance (FoJksam, 1997). In Korea 40 per cent of

agricultural produces were marketed through cooperatives (NACF, 1998). In

1996, 60 per cent of the dairy products in Canada were marketed through

Cooperatives (Government of Canada, 1998) and in Finland, Cooperatives were

responsible for 79 per cent of agricultural and 31 per cent of forestry production

(ICA, 1988).

In Japan babies are born in cooperative hospitals. In Columbia, young

children learn about computers in special schools run by agricultural

cooperatives. In Sweden, families live in housing cooperatives. In Germany,

people can buy their supplies in cooperative stores, one of the most impressive

chain store system in Europe. In India, consumers buy milk from machines that

are supplied by rural women organized into a powerful diary cooperative. In Great

Britain, consumers can purchase their insurance through Cooperative Insurance

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Society (CIS), one of the country’s largest Insurance Companies. The people of

Canadian Arctic depend largely for their income in the handicrafts they sell

through their cooperative. In Canada, members receive their last rites through

their own burial cooperative. The workers in Spain organize much of their lives

through an inter-related series of cooperatives embracing a side range of

economic activities. In Brazil, fishing people sell their products from the sea

through a powerful and successful cooperative. Rural families on the great plains

of the United States purchase their electricity from electric cooperatives. The

examples are few and the list is endless. Therefore, cooperative entrepreneurs

around the world have found hundreds of reasons for organizing cooperatives

and they find multitude of other reasons for doing so in the coming years.

Cooperation - Concept and Significance

Cooperation is a result-oriented system of economy. It is a synthesis of the

good qualities of both the laissez-faire economy and the planned economy. It is

direct challenge to private profit system and to the totalitarian rule (Bakken,

1963). Cooperation alone has both economic and social aims (quoted in Calvert

1959). It stands on individual rights tempered by consideration of justice, equality

and fair deal between man and man. it’s one great aim is to prevent the

exploitation of the weaker by the stronger. It is a vast movement which promotes

the voluntary association of individuals who strive after economic ends they have

in view, and which brings into this combination a moral effort and progressively

developing relation of their moral obligations (Kulkarni, 1962). It touches no man’s

fortune, seeks no plunder, causes no disturbance in society, gives no trouble to

statesmen. It enters into no secret association, it needs no trade unions to protect

its interest, contemplates no violence, it subverts no order, it envies no dignity, it

accepts no gifts nor asks any favor, it keeps no terms with the idle and will break

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no faith with the industrious. Thus cooperation has economic, social, ethical and

political objectives. Cooperation thus creates a new social order based on

freedom, fraternity, equality and equity. It has a spiritual basis also, because

cooperative form of organization alone is spirituality applied to business

(Krishnaswami, 1992). Its motto is “each for all, and all for each”. Cooperation is

totally opposed to the devilish doctrine of "every man for himself”. It is based on

sense of brotherhood and fellowship, and on love and sacrifice. Cooperation

develops in people unselfish spirit and good virtues like honesty, mutual trust,

caring and sharing. If a cooperative organization has to remain true to itself, these

values must be living realities in the activities and behaviour of cooperators. For

these values are “both a condition and a result of cooperation" (Fauquet, 1951).

Cooperative organizations develop these values in the cooperators through the

means they employ, and thus they raise people to a higher moral standard and

make them better men and women. The Cooperative faith is a belief in the beauty

and the nobility, the strength and efficiency of collective action by employing own

means not indeed suddenly to revolutionize but gradually to raise their own

material and moral condition (Alfred Marshall, quoted in Hajela 1990).

Sociologists see in the movement the potentialities of bringing about a social

transformation. Looked at from the socialists point of view, a cooperative is a

means of countering the exploitation of weaker sections by conferring on them a

better economic status. Economist considers it a business organization, which is

meant to protect the interests of people of limited means. In a legal sense, it

signifies special privileges and concessions conferred by law on its members. To

a moralist, it is a movement meant to raise the ethical values of society by helping

people to lead a virtuous life.

Moral and Ethical aspects of Cooperation

Cooperation is more than working together, it is faith, it is more than living

together, it is interacting for a purpose, for a cause, a cause as inclusive as all

mankind. (Emory Bogardus, 1964). Cooperation is a way of living; it is a

philosophy of life; it is a set of processes and procedures of behaving; it is

morality applied to business (Darling, 1964) and it is a set of principles or

fundamentals for the guidance of both individuals and human society.

Cooperation is a cause as far reaching as the welfare of mankind (Weddington

and Tod til, 1950).

In the words of Maclagan committee, the theory of cooperation is, very

briefly, that an isolated and powerless man can, by association with others and by

moral development and mutual support, obtain in his degree, the material

advantage available to the wealthy and powerful persons and thereby develop

himself to the fullest extent of his natural activities (quoted in G.S.Kamat 1978). It

returns money value for honesty and other virtues. Honesty may be a policy in

other organizations, but is a necessity in cooperation, which undoubtedly exerts a

strong influence in favour of the growth of those virtues.

The aim of cooperation is that life should grow sweeter and character more

fragrant in the field of mutual service. Cooperation stands for moral uplift, for

honesty and the homely virtues. It is therefore more than a system. It is a spirit

and an attitude of heart and the mind. Cooperation is religion applied to

business. The very motto of cooperation “each for all and all for each’ simplified

the loyalty, good fellowship and corporate feelings. The spirit of cooperation is

such that it will aim at fighting to death what a great writer called ‘The devilish

doctrine of every man for himself" (Fauquet, 1951).

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 Capitalism has thrown out monstrosities of men; socialism dwarfs man;

cooperation alone retains man as man, a creature endowed with divine

institutions and moral capacities, who perceives unity in himself and among his

fellowmen, since it possesses the peculiar faculty of making virtue pay".

“Cooperation aims at the production of fine human beings” (Alfred Marshall,

1889).

Economic aspect of cooperation

The basis for starting a cooperative organization is the necessity of

satisfying a common economic need by mutual help and mutual effort. It is a

historical fact that the cooperative movement in its origin was intended as a shield

for the weak and the poor against the evils of capitalism and competition. It is

therefore, true to say that it is an organization for the purpose of doing some

business and intended for the material and economic welfare of the members.

By the satisfaction of their common economic needs by the cooperative method,

the members are by themselves able to improve their economic conditions and

raise themselves from weakness into strength. Cooperation is an organization of

the weak and vulnerable and a means for their self-defence against unequal

competition and economic exploitation (Krishnaswami, 1985).

Cooperation is a means where by the prosperity of the members can be

improved by self help through mutual help. Cooperative societies have a distinct

social and economic aim viz. to correct the present inequalities of wealth and

substitute for the competitive system of industry controlled by all for the common

interests and distributing on principles of equity and reason, mutually agreed on,

the wealth produced. Such is the significance of the economic aspect of

cooperation.

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Social aspect of Cooperation

Cooperation has a philosophy of life and a mission of its own. It is a moral

movement, the cooperative spirit helping to make better men and better society

(Horace Plunkett quoted in Karl Fogelstrom 1992). It serves as a field for the

evolution and cultivation of those faculties and capacities, which are essential for

running the greatest democratic institution, viz. the Government. It therefore

provides a training ground for democratic way of life. It trains the people to take

initiative in organizing, to assume responsibility in administration and direction

and to create experts from their own ranks to carry on enterprises in their own

interests. A significant result of the cooperative movement is that it teaches the

people to administer their own affairs. This in itself is a high purpose. It is a

constructive function. It does away with the competitive system. It tries to replace

the motive of profit seeking by the motive of service. It distributes the fruits of

joint efforts of the members on the principles of equity and reason; cooperation is

a remedy for the present inequalities of wealth. It revolutionizes the social order

by the revolution of mind. The social conditions established by this method of

evolution and devolution of mind can remain for a long time and can withstand

the tests of time and event. Its social ideal is the creation of the greatest

happiness of all. It can be said that cooperation is an industry where fine rational

human beings are produced with the materials of honesty, loyalty, unity, equality

and service. Thus cooperation is an economic, moral and social movement. In

the words of George Russell, the well known Irish cooperator “ membership of

cooperative societies is a practical education in economics fitting men for public

service and by its principles, it fosters the spirit of citizenship ” (George Russell

quoted in TN. Hajela, 1990).

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Cooperation - Meaning

A number of meaning and definitions have been attributed to the term

‘Cooperation’ by economists, cooperators, social thinkers and leaders in specific

context of the circumstances prevalent in their respective countries. Cooperation

in its ordinary sense would mean 'Working together'. Where as in its technical

sense the term would denote a special mode of doing business, which gives rise

to the formal organization and the methods and techniques associated with it

(Krishnaswami, 2000). C.R.Fay (1948), Calvert (1959), V.L.Mehta (1959), Katju

(1932, 1955), and Maclagan (1914) viewed Cooperation as an association for

undertaking joint trade and emphasized the principle of Patronage Dividend.

Herric (1962), Holyoake (1936), E.M.Hough (1968) stressed the principle of

Voluntary Membership (Quoted in Jalal, 1990). Prof. Paul Lambert emphasized

democratic control and social aspects of Cooperation (Paul Lambert, 1963).

Verhagen (1950), Mladenatz and Charles Gide (1930) has considered

cooperation as ‘an association of persons (or households), usually of limited

means, who have agreed to work together on a continuing basis to pursue one or

more common interests and who for that purpose have formed an economic

organization which is jointly controlled and whose costs, risks and benefits are

equitably shared among the members’ (Verhagen, 1984). John Peter Warbasse

(1987), Horace Plunkett (1928), and Emory Bogardus (1964) viewed Cooperation

as a way of life. The law governing the cooperatives of Japan, Romania, Britain,

Swiss, Australia, former USSR define cooperation as an organization of individual

of modest means in order to promote and develop according to the principles of

mutuality exercised by the members of their occupations and for improvement of

their economic conditions while Belgium and German law governing the

cooperatives interpret cooperatives as an organization for the furtherance of the

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commercial interests of members by means of a common business undertaking.

Cooperative Societies Acts in India define the cooperative society, which has its

object the promotion of the economic interests of its members in accordance with

cooperative principles. O.R.Krishnaswami defines Cooperation as a voluntary

and democratic association of human beings based on equality (tof opportunity

and control) and equity (of distribution and mutuality) for the promotion of their

common interests as producers and consumers (Krishnaswami, 2000). The

International Cooperative Alliance (ICA) Statement on the Cooperative Identity

(1995) defines a Cooperative as an autonomous association of persons united

voluntarily to meet their common economic, social and cultural needs and

aspirations through a jointly owned and democratically controlled enterprise (ICA,

1995).

These definitions help us to understand the characteristic features of

cooperation. Based on the definitions the attributes given below would enable for

holistic understanding of Cooperation. They are:

❖ An Association of Persons: A cooperative society comes into existence

when a group of individuals join hands and form an association. It is a union

of individuals rather than capitalists. Capital is assigned a minor role, while

people hold the primary position. ' One man one vote ‘ is a peculiar feature of

a cooperative society, which differentiates the cooperatives from other

economic organizations.

❖ An Enterprise: Though a cooperative lays stress on ethical standards, it is

basically an enterprise. The cooperative is run on business principles to

ensure economic benefits for members, apart from social and educational

gains. Members manage the cooperative organization collectively at their

own cost, and share jointly the gains, whether positive or negative.

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Voluntary Association: A Cooperative is a voluntary association. An

individual is free to join the society and resign from his membership of the

society at his will and discretion. “A voluntary association enlarges the

freedom of individuals, provides incentive for work and develops initiative “

(Bedi, 1983). But a certain degree of compulsion is justified in under

developed countries, where a large number of people are illiterate and poor,

and are unable to understand the relationship between their membership of

the cooperative society and the solution of their economic problems.

Service Objective: The main aim of a cooperative society is to serve its

members rather than to earn profits. This does not mean that the profit motive

does not operate in the functioning of a cooperative organization. A minimum

amount of profit is necessary even for a cooperative to ensure that its

members do not lose interest in it.

Democratic Management: The affairs of a society are handled in a

democratic manner. Every member has only one vote. Capital does not get

any special treatment over human beings. This safeguards self-respect of

members and leads to greater willingness on their part to work hard.

Equality: Cooperation is possible only among equals. All members are

treated on consideration of equality. No discrimination among members is

made on ground of religious faith, political ideology, economic status,

educational qualifications etc. All have equal access. In an environment of

equality, members feel free and the feeling of inferiority is completely

removed.

Norms of Social Justice: Cooperative societies have been evolved to do

away with the evil consequences of capitalism. The procedure evolved in the

distribution of surplus is therefore something different, from that in other

 private concerns. The surplus of the society is distributed among the

members on the basis of the volume of their transactions with the society.

This type of distribution helps the cooperative to secure social justice.

❖ Socio economic movement The cooperative movement is viewed as a

constituent part of the over all socio economic movement of the country. It is

capable of reforming and restructuring the society by peaceful means. “ The

cooperative movement claims to be the principal means of bringing about, in a

peaceful manner, a social change of a fundamental nature ushering in a social

order which is unexploitative, equalitarian and tolerant that harmonizes the

dignity of the individual with the well being of the community “ (V.C. Mehta,

1965).

Values and Principles

The International Cooperative Alliance at its Manchester Congress in

September 1995 listed the movement’s key values, and a revised set of principles

intended to guide cooperative organizations in the beginning of the twenty-first

century for cooperative identity.

Values : Cooperatives are based on the values of self-help, democracy, equality,

equity and solidarity. Cooperative members believe in the ethical values of

honesty, openness, social responsibility and caring for others.

Principles: The Cooperative principles are guidelines by which cooperatives put

their values into practice.

❖ Voluntary and Open Membership: Cooperatives are voluntary

organizations, open to all persons who are able to use their services and

willing to accept the responsibilities of membership. Cooperatives do not

believe in gender, social, racial, political or religious discrimination.

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❖ Democratic Member Control: Cooperatives are democratic organizations

controlled by their members, who actively participate in setting their

policies and making decision. Men and women serving as elected

representatives are accountable to the cooperative society. In primary

cooperatives members have equal voting rights (one member, one vote),

and cooperatives at other levels are also organized in a democratic

manner.

❖ Member Economic Participation: Members contribute equitably to, and

democratically control, the capital of their cooperative. They usually

receive limited compensation, if any, on capital subscribed as a condition

of membership, membership allocate surpluses for any or all of the

following purposes, developing their Cooperative; benefiting members in

proportion to their transactions with the cooperative, and supporting other

activities by their cooperative society.

❖ Autonomy and Independence: Cooperatives are autonomous, self-help

organizations controlled by their members. If they enter into agreements

with other organizations, including governments, or raise capital from

external sources, they do so, on terms that ensure democratic control by

their members and maintain their cooperative autonomy.

❖ Education, Training and Information: Cooperatives provide education

and training for their members, elected representatives, managers, and

employees so that they can contribute effectively to the development of

their cooperative societies. They inform the general public particularly

young people and opinion leaders about the nature and benefits of

cooperation.

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 ❖ Cooperation among Cooperatives: Cooperatives serve their members

most effectively and strengthen the cooperative movement by working

together through local, national, regional and international structures.

❖ Concern for Community: While focusing on member needs and wishes,

cooperatives work for the sustainable development of their communities

(ICA, 1995).

Evolution of Cooperative Legislation

Prior to 1857: In India, it was only when the British introduced a very rigid

and harsh new land revenue system, which had no relations with the capacity of

the farmers to pay, the period of stagnation started. By the end of 19th century,

under the British Land Revenue system, a large section of farmers became

landless and a new class of money lenders developed, who became owners of

the land converting the farmers to tenancy. England had also banned the use of

Indian printed and dyed Calicus made from Indian Cotton in 1700 and 1721. This

resulted to severe hardship to farmers and artisans. They were struggling for their

livelihoods, which was the cause of development of cooperatives, (quoted in

R.C.Dwivedi, 1997).

Background of Origin of Cooperative: Under the British rule, India

presented a picture of wide spread economic gloom, poverty, unemployment,

socio economic backwardness, utter lack of infrastructure, sufferings and neglect.

Despite, the fundamental approach of the British rules was to make maximum

use of India’s national resources for the economic progress, prosperity, affluence

of England and to perpetuate palpation, poverty and agony on the people of

India. The British destroyed the ages old basic economic structure of India for

their interests (Nehru, 1962). Prior to British Rule, the Indian economy,

particularly village economy, was well-organized, sound unit and integrated.

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Even the 1916 - 18 Indian Industrial commission (1963) mentioned in its report

that when the Western Europe, said to be pioneers of modern industrialization,

was the home tribes, living in forests, India was famous for the riches and wealth

of its rules and high skill of its artisans. Its industrial development was in no way

inferior to most progressive and developed European countries. A Britisher had

written about his visits to India during 17th Century that even in the smallest

villages, rice, flour, butter, milk, vegetables and sweets were available in plenty

(Dwivedi, 1997). But the political and economic exploitation, which followed the

advent of foreign rule in India, completely sapped the vitality and initiative of the

people and deprived them of self-confidence and self-reliance. Apart from

economic exploitation, the many social tensions as between capital and labour,

producers and consumers, landlords and tenants and between religious groups

have made thinking men every where turn to cooperation as the only hope of

redeeming mankind from exploitation of any kind.

Stagnation of the agricultural classes in the greater part of the country had

for many years attracted the attention of the Government and various remedies

had been tried for improving their material condition. A system of state loans was

introduced, post office savings banks were opened, the civil law relating to debt

was frequently and extensively amended, special legislation was initiated at

various times in different areas, dealing with the tenant rights, alienation of land,

general settlement of debt and curbing the usury (ICSSR, 1975). The really basic

problem was, of course, supply of adequate credit to the agriculturist on terms,

which he could afford, and in quantities which he needed. It was the absence of

these facilities, which lay at the bottom of all his difficulties. The different Takkavi

Acts passed in 1971, 1976 and 1979, the Land improvement Loans Act 1883 and

the Agriculturist Loans Act of 1884 were all included to advance short term and

18
long term loans to agriculturists for their operations. But the assistance offered

by them was very meagre and that too, could be obtained only after crossing

many hurdles. In fact, even after adoption of these measures, Governments’ role

as a direct supplier of credit was very insignificant.

Justice Ranade and Sir William Wedderburn, therefore in 1883, took the

initiative in formulating a scheme for the establishment of a Bank to finance the

agriculturists of Purandar Taluka. They expected that Government, through their

Revenue officers would help in the recovery of loans and that some other small

concessions would also be granted. They succeeded in raising a capital of Rs.10

lacs a large part of which was to have been initially applied to redeem the

outstanding debts of the ryots. The Government of Bombay and the Viceroy had

supported the scheme, but it was turned down by the Secretary of State mainly

on the ground that the bank would virtually be a Government institution. The first

attempt at establishing an Agricultural Bank in India thus ended in failure.

For some years about this time, the principle of cooperation as being

advocated and practiced in a few European countries as a method of recurring

credit for indigent but industrious and honest farmers or artisans and tradesmen

by their own effort. Particularly in Germany, where no way was rampant, two

pioneers, working independently of each other, made encouraging experiments to

combat that evil by forming cooperative organizations on the basis of self help of

the would be borrowers themselves. Schulze - Delitzsch worked to bring together

small artisans and traders and in 1850 forward a loan society which soon became

a self supporting institution with capital and shares. Raiffeisen, in 1862, formed a

cooperative society for poor peasants. This type of society had joint and

unlimited liability. Its area of operation was severely restricted and there was no

payment of salaries or distribution of profits among members. In Italy there came

19
to be established what was known as Luzzatti Peoples Bank that had limited

liability. In the course of a generation, it was found that such cooperative

societies were gradually becoming more and more popular though their members

did not indicate an increase, which would be commensurate with the size of the

problem they were intended to solve.

The loan office of Bengal was an institution of indigenous banks which

were subsequently registered under the Indian Companies Act. They accepted

deposits and paid on them interest at rates which varied between 4 and 8

percentage and advanced ■ loans to Zamindars and their tenants against

mortgages of land. As a result of debt legislation, which was later on passed by

the Bengal Government, the activities of these loan offices were considerably

circumscribed and gradually they went out of existence.

A cooperative society was started in Punjab as early as 1891 to govern the

common land of the village for the benefit of the Cosharers. The society

continued to function till 1922 in which year the land was partitioned among the

Cosharers. Another society was started in 1895. It covered 22 villages and

worked for some time.

The Madras Government was the first in India to be impressed by the

reports of the successful application of the cooperative principle in combating the

problem of indebtedness in European countries with a view to exploring the

possibilities of its introduction in India. They deputed one of their officers, Sir

Frederick Nicholson, “ to study the theory and practice of Agricultural and other

land banks in Europe and to suggest means by which a similar movement may

be popularized in India His report issued in 1895 and 1897 was exhaustive

and, is still considered to be an invaluable source of information regarding

European practices of those days. While Sir Frederick was engaged in this work,

20
another enquiry had been started in the United Provinces to find out the feasibility

of establishing agricultural banks in selected areas of the Province.

Mr.Dupernex, an ICS Officer was placed on special duty for the purpose and his

conclusions were set forth in his book “People’s Bank for Northern India”

published in 1900. He advocated the establishment of village cooperative

societies of Raiffeisan model and also of Urban Banks.

The concepts expounded by Nicholson and Dupernex soon attracted wider

attention and some enthusiastic district officers in parts of Punjab, Uttar Pradesh

and Bengal on their own initiative started a few pioneer societies. But it was

found by experience that unless special legislation was enacted to govern such

societies, progress in forming them was not possible, the existing Companies Act

of 1882, was too complex to suit them. The serious famines at the close of the

century further emphasized the importance of devising adequate steps to meet

the requirements of the rural population. Lord Curzon’s Government, therefore

appointed a committee under the chairmanship of Sir Edwardlaw to go into the

question and make proposals.

Before any legislation was undertaken by the Government for introducing

cooperative credit societies in India, Sir Anthony (later on Lord Macdonald) did

the pioneering work by establishing in 1901, a number of cooperative credit

societies in the United Provinces of Agra and Oudh. Similarly Captain Croswaite

(afterward Sir Edward) and Mr. Maclagan had also organized some societies in

Punjab, which at that time, could only be registered under the ordinary company

law. At the same time the Government of India impressed with the importance

and the future possibilities of the cooperative credit organizations appointed a

committee in 1901 and consequently the farmers were disinterested in increasing

the yield by putting more inputs as there is a genuine apprehension in their mind

21
that the resultant increased yield would be unjustly appropriated either by the

money lender by making credit more costly or by the landlord by increasing his

share in the yield. Before 1901 the Government were not unaware of the

difficulties, which farmers were facing in borrowing funds and had been anxious

to ease the situation. As early as 1882, Sir William and Justice Ranade prepared

a scheme for establishing an agricultural bank to provide loans to farmers. The

scheme was not accepted as such but its essential features were embodied in

the Land Improvement and Agriculturists Loans Act (XIX of 1883 and XII of 1884

respectively).

The seriousness and magnitude of the problem attracted the attention of

the Government of India in the early Eighties. Various measures were adopted to

meet the evils of indebtedness. Some aimed at removing the need for borrowing

by reducing the land revenue and making its collection less troublesome or by

popularizing the government systems of loans to agriculturists. However, partial

failure of the various measures and acts led those interested in abolishing

indebtedness to believe that the sovereign and permanent remedy for the

disease lay in the cooperative movement. The principle of operation of the

proposed banks was to borrow money at moderate rates of interest from the

capitalists whether European or Indian who were willing to lend and to lend it to

the agriculturists, at a higher rate of interest but never higher than the money

lenders rates of interest. These loans were popularly known as Takkavi loans,

but they did not prove a success for they were only granted at the end of much

official procedure and delay. Nor were loans granted under these Acts for the

redemption of old debts, and when they were granted the system of collection

was rather stringent. The security of loans was the ryots honesty and industry.

Sir William Wedderburn was the first to review the magnitude of agricultural

22
indebtedness in India and devised practical means to solve it. The thought

current started by him ultimately gave birth to the idea of introducing cooperative

credit movement in India for the problem as originally perceived by him has

always been the same viz. how to supply the Indian ryots with capital without the

loan being the cause of their rein.

Although much had been done to help the peasant community, the general

effect could only be described as partial and incomplete. Without, therefore,

abandoning the class of remedial measures previously attempted, the

Government turned to cooperation as the most hopeful method of dealing with

the problem before it. The theory of cooperation is, very briefly, that an isolated

and powerless individuals can, by association in cooperation with others and by

moral development and mutual support, obtain in its own degree the material

advantages available to wealthy and powerful persons and thereby develop

himself to the fullest extent of his natural abilities. The chief object of cooperation

in India was to deal with the stagnation of the poorer classes.

The Government of India looked for guidance to European experience

when it turned its attention to cooperative method. The ideas first brought to

public notice in this work and in Sir Fredrick Nicholson’s report soon began to

bear fruits and in parts of the Punjab, United Provinces and Bengal some district

officers on their own initiative established a few pioneer societies. But it was at

once apparent that no real advance could take place without special legislation.

The Companies Act 1882, with the 256 sections, elaborate provisions was wholly

motivated to societies of the kind, it was desired to be encouraged and Lord

Curzon’s Government was not long in satisfying itself that special legislation was

needed.

23
 In most of the countries with western civilization cooperative institutions

arose as spontaneous and unaided reactions of varying degree of complexity.

But this was not so everywhere, even in Europe. In England, Rochdale pioneers

made a successful attempt of organizing cooperative stores on the principle of

political neutrality but later on it gave birth to a political party. In Germany,

through the initiative, the perseverance and inventiveness of a Mayor in the

Rhineland, Raiffeisen, the most widespread type of cooperative, the rural thrift

and credit cooperative, was created after repeated trial and error. But in Bulgaria,

the Cooperative movement was launched by Government Agencies, partly based

on or in the tradition of the ancient Mohammedian institution of the Corn Granery.

In Finland, where one of the most sturdy and efficient cooperative movement has

grown up, the initiative came from a group of intellectuals; In Hungary, it came

from a paternalistic aristocracy. It is, however important to record that in these

countries the cooperative institution found its final form and its vitality only when

the initial impulse discarded its patternistic features and began to express the

forces at the root of the people’s consciousness. In Asia, Africa and particularly in

the countries, which belong or belonged to the British Common Wealth,

specialized Governmental departments took over the task of promoting and

guiding the cooperative movement until it could stand on its own feet.

The British knew what they were doing in introducing cooperation in India

and other countries. They had seen the power and influence that an independent

cooperative movement could acquire vis-a-vis the State. The Cooperative

movement of Denmark had done yeoman service to the movement for the

establishment of a constitutional monarchy in that country. The cooperative

movement in Great Britain was a force to reckon with and the International

Cooperative Alliance had been formed in 1895. Signs of national awakening and

24
revolt against foreign domination were becoming apparent in India. So the British

Government offered cooperation but it was only a palliative for they were careful

to ensure that the cooperative movement should go thus far and no further, for it

could have become a source of great strength to the movement for liberation.

The British had apprehended and feared that autonomy and freedom to

cooperatives may possibly lead to the emergence of local leadership which may

support and invigorate demand for political freedom and self rule (swaraj) which

was already being made. The British Rulers were conscious and aware of the fact

that they were giving the ‘law’ to their subject, which ought to be subjected. The

British had ironically pleaded and argued that Indians were not competent,

capable and matured enough to manage themselves the affairs of cooperatives,

therefore to ensure their proper working, administration, direction, supervision,

control and interference were necessary to be provided in the law itself (Dwivedi

R.C, 1997).

They drew up model schemes of management for both rural and urban

societies and discussed the form of legislation needed to secure for the societies,

the privileges which they recommended for their due working and supervision and

the extent to which they should be aided by the Government and subjected to

Government control. The result therefore was that on March 25th 1904 the

Cooperative Credit Societies Act was passed to encourage thrift, self-help, and

cooperation among the agriculturists, artisans and persons of limited means

(ICSSR, 1975).

Why Cooperative Law

The object of enacting a cooperative law in India by the British was not so

much their concern for the growth of cooperatives but more of a fear that

cooperatives might not become center of political awareness particularly in rural

areas. Thus in a country like Australia, which was also a part of British Empire no

cooperative law was contemplated at that time nor the Indian Cooperative law

was based on the UK. Provident Fund Industrial Societies Act ” in which the post

of Registrar had no regulating power as provided in the Indian Cooperative Law.

The slogan of Registrar of being “ friend, philosopher and guide ” was meant only

for Indians and not for their own country (P.E. Weeraman, 1974).

In many European countries, the cooperatives are regulated by

commercial laws, without any specific cooperative laws. The object of enacting

cooperative law is to foster a spirit of responsibility and self-reliance (Lord Curzon

and Henry Wolf — quoted in Weeraman, 1974). It should be to give a legal status

to the cooperatives and guide their working. It should also ensure the

cooperatives to work as genuine cooperatives according to the universally

accepted cooperative principles and statement of identity. The legal framework

of the cooperatives consists of the law, rules made under it and the bylaws

adopted by the members of cooperatives in accordance with the Act and the

Rules. All these together lay down procedure for the organization and working of

cooperatives and protect and preserve cooperative character. The Cooperative

law thus should have to facilitate the working without entailing the autonomous

working of cooperatives and change their basic character (Weeraman, 1971).

Although in the ultimate analysis, it is not the law that matter as much as

the man behind it (Committee on Cooperative Law, 1957), Cooperative law is

necessary on the following grounds:

❖ To lay down the fundamental condition which must be observed by

cooperatives if they are to remain true to their character.

❖ to give such societies a corporate existence without resort to the elaborate

provisions laid down for companies.

26
❖ to confer special privileges and facilities upon cooperatives in order to

encourage their formation and assist their operations.

❖ to take precautions to prevent speculations and capitalists from availing

themselves of privileges which are not intended for them.

❖ to enable cooperative to function freely and fully.

❖ to enable the state to be promoter, guide, coordinator, arbiter and watchdog of

the movement, especially where the state has initiated action for the

development of cooperation as in the case in Asia.

While moving the Cooperative Credit Societies Bill, Sir Denzil Ibbetson

clarified the Governments approach in framing cooperative law in the following

terms

11 Certain broad principles must be laid down and certain precautions must

be insisted upon; but within these principles and subject to those precautions, the

people must in the main be left to work out their own salvation on their own lines,

the function of the Government being confined to hearty sympathy, assistance

and advice. Guided by these considerations, we have kept the cardinal objects in

view, in framing the present bill. The first is simplicity. The second is elasticity.

Our aim has been to lay down merely the genera! outlines, and to leave the

details to be filled in gradually on lines which the experience of failure or success,

and the natural development of the institutions may indicate as best suited to

each part of the country ” (Quoted in Nadkarni R.V & Balsena, 1994).

How to interpret a Law: The 'Law' being a codified common sense has

to be interpreted with due cautions and wit. Following elements are to be adhered

to, while putting an Act of legislature to various tests or experimentations; that

❖ What was there common Law before making of the Act?

27
 ❖ What was the mischief or defect for which the common or general law

did not provide for?

❖ What remedy the legislature (Parliament or State legislatures) has and

appointed to cure the disease of the Common Wealth? and

❖ The true reason of remedy; and then the office of all judges is always to

make such construction as shall suppress the mischief, and advance

the remedy, and to suppress suitable inventions and evasions for

continuance of the mischief and “propriate commode” add force and life

to the cure and remedy according to the true intent of the makers of the

Act “Pro bono publico”.

These Rules of interpreting a Law have been laid by the Supreme Court in

Bengal Immunity Company Vs. State of Bihar AIR 1955, S.C. 661 relying on

Hydens Case (1584) 3 Co. Rep. 7 (a) wherein it was held for the sure and true

interpretation of all Statute in general (be they penal or beneficial, restrictive or

enlarging of the common law). Similarly where, this Cooperative Act is to be put

to different legal experiments, above-mentioned principles of Law must invariably

be adhered to (Trivedi, 1975).

Salient features of Cooperative Credit Societies Act 1904: The Act of

1904 was largely based on the English Friendly Societies Act. It was noted for its

elasticity and simplicity. It was a simple and small enactment containing 29

sections, suited to the large body of illiterate, ignorant and unsophisticated rural

population. The Act outlined the general fundamental principles above of

cooperative societies and left sufficient latitude to state governments to frame

suitable rules adapted to the conditions prevailing in their states and for the

control and development of the cooperative movement in their states. It was

elastic but restricted in scope in so far as it permitted registration of primary credit

28
societies above financing banks, other federal organizations of societies and non­

credit societies could not be registered under the Act. The salient features of the

Act of 1904 are the following:

❖ Any 10 persons living in the same area could form a cooperative society for

the encouragement of Thrift and Self Help among the members.

❖ The chief objective of a society would be to raise funds by deposits from

members, as well as loans from non-members, government and other

cooperative societies and to distribute these funds as loans to members, or

with the permission of the Registrar, to other cooperative credit societies.

❖ The cooperative credit societies in each Province were to be under the control

and administration of the Registrar of Cooperative Societies.

❖ The accounts of the societies were to be audited by the Registrar of

Cooperative Societies. Four fifths of the members of rural societies were to

be agriculturists and of urban societies, non-agriculturists.

❖ The rural societies were to be organized on the basis of unlimited liability

while in the case of urban societies the liability of the members could be either

limited or unlimited.

❖ In the case of rural societies dividends were not to be paid to the members

and the surplus of funds were to be deposited in the Reserve Fund. When

this fund would grow beyond the limits set by the Act, a bonus might be

distributed to the members.

❖ No dividend would be paid to the members in the case of urban societies, until

one fourth of the profits in a year had been deposited into the reserve fund.

❖ Loans could be advanced only to the members. Members could purchase

shares only upto the limit fixed under the Act.

❖ The credit societies were to be exempted from the fees and taxes.

29
 It would be seen that the Act of 1904 provided only for the organization of

credit societies in rural areas and urban areas. Immediately after the

appointment of Registrars in various provinces, the number of societies went on

increasing and in 1911 there were 5321 societies with 305.06 thousand members

and Rs.203.05 lakhs as working capital. It was, however, realized that the Act

had certain short comings in the sense that it did not provide any legal protection

to the societies organised for purposes other than credit or to the central

agencies, banks, unions etc. These defects were remedied by the Cooperative

Societies Act of 1912 (T.N.Hajela, 1990).

The Cooperative Societies Act (Act II of 1912) 1912: With the increase

in the number of societies in several parts of the country, many problems also

relating to their working arose. It was soon realized that of the Act of 1904 was

not adequate to solve the growing and diverse problems of the movement. The

several shortcomings of the Act were removed by the enactment of the

Cooperative Societies Act, 1912. The new Act, however, retained the simplicity

and elasticity of the earlier Act. It permitted registration of diverse types of

societies including financing banks and supervising unions (Rajagopalan, 1970).

Salient Features of 1912 Act: The salient features of the Act of 1912 are

the following:

❖ Any society, which aimed at the promotion of the economic interests of

members, could be established.

❖ The liability of central societies was to be limited while that of the member of

rural credit societies was to be unlimited. After carrying one fourth of the

annual profits to the Reserve Fund, 10 per cent of the balance could be spent

for charitable purpose.

30
❖ Local governments were permitted to use their discretion in making rules and

byelaws of societies.

❖ The term cooperative could not be used as part of the title or any business

concern registered under the Act unless it was already doing the business

under that name before the commencement of the Act.

❖ Shares and interests in cooperatives were exempted from attachment.

❖ Cooperative societies were given priority in regard to the recovery of certain

dues.

❖ Other provisions of the Act of 1904 were retained as they were.

The Act of 1912 thus recognised the formation of non-credit societies and

the central cooperative societies. The societies were classified as limited and

unlimited societies. A number of societies for the sale of agricultural produce,

purchase of manures, implements and other necessaries were organized

(T.N.Hajela, 1990). With a view to ensuring that the cooperative movement was

developing along the right lines, the Government of India appointed a committee

under the chairmanship of Sir Maclagan in October 1914. The report of this

committee was submitted in 1915 which included various recommendations

regarding (a) requirements which would make primary cooperatives as truly

cooperative in their character, the extreme importance of systematically

inculcating the main principles of cooperation, both before and after the

registration of a society, the need to increase efficiency and financial stability, (b)

the need to increase own funds of societies, and (c) regulation of loans to

members, etc.

This committee observed that the impression of the people was that the

cooperative societies were government agencies and, therefore, the committee

emphasized that the urge towards the establishment of cooperative societies

should be, as far as possible, spontaneous. The committee further stressed the

need for a thorough audit and supervision of the movement for inspiring

confidence among the people. The movement went on making rapid progress

and the number of societies increased to 25192 with 11 lakh members and

Rs.760.09 lakhs as working capital (T.N.Hajela, 1990).

Constitutional Reforms 1919

The first world war ended under the Treaty of Warsailes in 1919.

Constitutional Reforms known as the Montague Chelmsford Reforms were

introduced in India under which cooperation became a transferred subject, a

subject to be administered by the States. The state governments began to feel

the need for separate cooperative acts for their states. Bombay had cooperative

law in 1925. This was followed by other states. In 1927, the government of

Madras appointed a committee headed by Townsend to examine the progress

made by the movement in the state and to suggest lines of future development.

This committee recommended, among other things, that suitable legislation

should be undertaken to remedy the shortcomings in the actual working of the Act

of 1912. In 1928 there was a Royal Commission on Agriculture, which reiterated

that cooperation was the best hope of India.

With the transfer of cooperation as a provincial subject under the Reforms

Act of 1919, further stimulus was provided to the cooperative movement. Several

Provinces appointed committees of enquiry and cooperative Acts were passed.

The Royal Commission on Agriculture also studied the working of the cooperative

movement and it suggested the organization of cooperatives for the development

of agriculture. The Central and Provincial Banking Enquiry Committee also made

suggestions for the improvement of the working of the cooperative societies. The

movement continued to make rapid progress. During this period the number of

32
credit societies reached 87991 with 3,00,400 members and Rs.32.38 crores as

working capital. The number of non-credit societies was 9761 with 9,92,000

members and Rs.13.63 lakhs as working capital. This period has been

characterized as a period of indiscriminate and unplanned expansion.

The Madras Cooperative Societies Act 1932

In the thirties, there was world wide economic depression and a steep fall

in agricultural prices, which had an adverse effect on the movement. Arrears in

cooperatives increased and many societies became morbid. The Madras

Cooperative Societies Act 1932 was enacted giving effect to the suggestions of

the Townsend Committee and embodying the results of the experience of the

movement. The Act strengthened the hands of the Registrar in dealing with

unsatisfactory societies, speedy collection of arrears in societies and

reorganization of cooperative societies on better lines.

The salient features of the 1932 Act are the following:-

❖ Provision for division and amalgamation of cooperatives, registering other

types of societies, prohibiting members from exercising their rights till due

payment are made by them, provision for general body giving importance

to the democratic functioning of the cooperatives, Government aid to

registered societies were introduced in this Act.

❖ The overall controlling powers of the Registrar were enhanced under this

Act. Provisions for inspection and investigation, inspection of books by the

financing bank, provision for surcharge, execution of decree, decision,

awards and orders, supersession of the board of cooperatives and

settlement of disputes were newly introduced.

 ❖ Under offences and penalties, punishment for furnishing false information,

punishment for contravention of the provisions of the cooperative Act and

punishment for other minor offenses were also introduced.

❖ The Act contained 66 sections as against 49 in 1912 and 29 in 1904.

Increase in provisions simultaneously vested the powers in the hands of

the Registrar besides the general body.

In the periods from 1930 to 1938, the most significant features were the

great depression and the establishment of the Reserve Bank of India in 1935.

The depression hit hard the movement. The outstanding loans rose heavily. In

some provinces viz. Central Provinces, Berar, Bihar, Orissa and Bengal the

movement nearly collapsed. Several central banks were closed and many

societies were wound up. The depression cleared the haze and exposed the

defects in the structure and organization of the cooperative societies in the

country. A number of committees were appointed in provinces to suggest ways

and means for the reconstruction of the movement. Further expansion of the

movement was stopped and steps were taken to consolidate the position.

Obviously, official control was bound to increase. Cooperative acts were passed

by more and more provincial governments. Accordingly, the Reserve Bank of

India conducted investigations and enquiries and on the basis of its findings it

advised the Provincial governments to improve the working of the credit societies.

During this period, the number of societies came down to 1,22,000 with 53.7 lakh

members and Rs. 106.47 crore working capital. There was a marked decrease in

the overdues in the case of agricultural credit societies.

During the period from 1939 to 1946, the cooperative movement made

rapid progress as a result of the Second World war. The farmers gained heavily

owing to an increase in the prices of agricultural commodities. They paid off their

34
debts. The deposits of the societies increased and the demand for fresh loans

was rather low. Consequently, many banks were faced with a problem of surplus

funds. Consequent upon the introduction of controls and food rationing, a

number of consumer cooperative stores were established. Industrial

cooperatives were also set up chiefly to produce war materials and also to supply

commodities to the civilians. During this period the number of societies increased

from 1,22,000 in 1938-39 to 1,72,000 in 1945 - 46. The membership and working

capital during the same period rose from 53.7 lakhs to 91.6 lakhs and Rs.106.47

crore to 164 crore respectively. The war also gave fillip to the organization of non

credit societies and the multipurpose cooperatives. The prosperity of the

movement was, however, short lived. With the termination of hostilities a number

of societies were wound up. In 1944, the government of India appointed the

Agricultural Finance Sub Committee under the chairmanship of Prof.D.R.Gadgil.

The committee expressed the view that cooperation would provide the best and

the most lasting solution for the problem of agricultural credit. In 1945, the

government of India appointed the Cooperative Planning Committee under the

Chairmanship of Shri.R.G.Saraiya for drawing up a plan for the future

development for cooperative movement. Its report was submitted in 1946.

In the legislative circle, a Multi-unit Cooperative Societies Act extending to

the whole of India was passed in 1942 to provide for the incorporation, regulation

and winding up of cooperative societies which have operations outside the

province also.

Multi-unit Cooperative Societies Act - Act No. VI of 1942

This is an Act to provide for the incorporation, regulation and winding-up of

cooperative societies having business operations extended to other provinces.

35
The act of the Indian Legislature received the accent of the Governor General on

the 2nd March 1942.

The main features of the Act are:

❖ It provided for incorporation, regulation and winding up of cooperatives with

objects not confined to one State, but registration is possible in any State;

❖ It provided for incorporation of societies prior to and after the commencement

of this Act;

❖ It provided that area of operation and not the nature of business of a society is

given consideration for deciding the fact of a particular unit, i.e., a cooperative

society;

❖ The newly opened branch of a society on other State is required under the law

(of the State of registration or location) to submit to Registrar of the State its

Bylaws within six months and shall be under the full control, administration

and supervision of the State Registrar.

❖ It also provided for registration, control and dissolution according to the

provision of the State (State Cooperative Societies Act) in which it is

registered.

❖ It provided for appointment of a Central Registrar by the Central Government

for exercising the powers on such societies. All such powers were delegated

to State Registrar.

❖ It provided for fine on societies for not submitting the returns to the Registrar

of the State as prescribed in the State Laws, Rules etc.

❖ It provided for delegation of powers of Central Registrar to State Registrar by

name, for facilitating regulation and control of the concerned societies.

Post Independence Period

36
 After independence, the partition of the country resulted in communal riots

and bloodshed and led to macro migration from one dominion to another. A large

number of problems cropped by and the movement passed through a difficult

period. The progress was, however maintained and cooperatives were continued

to be associated with the progress of economic development for establishing “ an

integrated and just society, providing individual liberty in its sense, equality of

opportunity and basic economic minimum for all “. The first five-year plan

recognised cooperation as an “Instrument of planned economic action in

Democracy”, suiting to the requirement of the government for implementing the

development plans particularly for agriculturists and the weaker sections of the

community. The government, therefore at various levels provided active

financial, administrative and legislative assistance to the movement.

The first five-year plan stated, “ As it is the purpose of the plan to change

the economy of the country from an individualistic to social and cooperative basis,

its success should be judged among other things, by the extent to which it is

implemented through cooperative organizations". Accordingly, the Government

of India appointed a committee of Direction of the All India Rural Credit Survey in

1954 under the chairmanship of Shri.A.D.Gorwala, to define the approach to

cooperative development specifically in agricultural sector. The committee

observed: " cooperation has failed in India; but it must succeed ” and

recommended a well defined institutional frame work for cooperative organization

particularly for meeting the needs of rural India.

About this time the Madras Government appointed a Committee on

Cooperation under the chairmanship of Sri.T.M.Narayanasami Pillai and the

committee submitted its report to Government in 1956. The committee

suggested several amendments to provisions of the Act of 1932. Although the

37
recommendations of the committee were accepted for implementation, the critical

view of Pandit Nehruji is worth reviewing. Panditji while addressing the third

Indian cooperative congress in April 1958 said “Now I want to make a confession

to you, and that is that I think our government was quite wrong in accepting some

of the decisions of the Rural Credit Survey Committee - not all but some. I am

sorry for it. I am responsible for it as much as any body else, it is as much my

fault as anybody else's. The more thoughts I have given to it, the more I have

realized that the approach of the Rural Credit Survey Committee in some

respects was not a right or sound approach and they tended to push the

cooperative movement in the country in the wrong direction. What was this

wrong direction? There was a tendency, on the part of that committee to distrust

our people if I may say so, our common people a tendency to think that they are

not competent enough, that they cannot do a job by themselves; that therefore

government officials must come in and help that government money should push

them up. If government money comes, that money is followed by government

officials. The small cooperative has not enough resources or money or

competent technical personnel; therefore, you should have large cooperatives,

which can be started and helped by government and so on. Now I believe that,

that approach which has certainly something to say for it, it may be argued that

there is some reasons behind it - was nevertheless, a wrong approach, and it has

given a wrong turn to our cooperative movement. Ever since I realized this, I

have been trying to point out this; and here on this occasion I should like to say to

you, who are chiefly responsible, that, that approach even though it might bring

some results locally and temporarily, pushes the cooperative movement in a

direction which is not cooperative at all, which is something else, and which

offends against the whole philosophy which I believe has grown up round this

38
movement. Because, if it is to be a state sponsored movement, with government

officials running it, it may do some good if the government officials are competent

enough, but it does infinite harm in the sense that it does not allow the people to

learn how to do things for themselves, how to develop a spirit of self reliance, self

dependence and even to make mistakes, if they have to make mistakes“ (NCUI,

1973).

Madras Cooperative Societies Act - 1961: In view of the acceptance of

the recommendations of the Rural Credit Survey Committee and in view of the

important role assigned to cooperatives in the several schemes in the 2nd Five

Year Plan, the need was felt to revise the existing cooperative societies acts and

the rules and to bring about a large degree of uniformity in the legislation

governing cooperative societies as is possible throughout the country. The

central government constituted a Committee on Cooperative Law in 1956. The

committee submitted its report in 1957 with a model cooperative societies bills

and rules. For the several reasons stated earlier, the government of Madras

repealed the Madras Cooperative Societies Act 1932 by the Enactment of the

Madras Cooperative Societies Act of 1961 and framed the Madras Cooperative

Societies Rules, 1963. This Act was brought into force on 2nd October 1963

(Rajagopalan, 1970).

Note on the salient features of the 1961 Act: The Madras Cooperative

Societies Act 1961 and the Madras Cooperative Societies Rules 1963 were more

comprehensive than the previous Acts and Rules. The Act contained 123

sections and 103 rules as compared to 29 sections of the Act of 1904, 49

sections of the Act of 1912 and 72 sections of the Act of 1932 and 36 Rules. The

interference of civil courts in disputes connected with cooperatives has been

barred. The Act however provided ample provisions to render justice to all

39
aggrieved parties, the societies, their committees and their members including

past members and nominees, heirs or legal representatives of deceased

members. It provided for the constitution of a judicial tribunal and for appeals and

review and for revision of decisions, decrees, awards or orders issued.

Conclusion

An overview of the Cooperative legislation shows that although

cooperatives develop particularly in the later stages of their development,

requires protection from the statute. When this fact is established, the question

remains whether the statute proceeds for the establishment of cooperatives or

vice-versa. In countries like India, it is known that the law sows the seed for the

establishment of cooperatives which gradually resulting to empowering the state

to take care of cooperatives besides promoting peoples participation. The Indian

Cooperative law have been conferring wide powers on the government and the

Registrar, which appeared to be drastic to a cursory reader of the Act. But

careful examination of the provisions of the Act, may reveal the importance that

the government has given to the cooperative movement and its intense interest in

the proper growth and development of cooperative societies and the cooperative

movement as a whole.
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