Ombachi r.m/muriungi d.

m
3rd year. April 2005 lectures

LAW OF BUSINESS ASSOCIATION II

UNIVERSITY OF NAIROBI,
FACULTY OF LAW

Lecture 1

Co-operatives & Partnerships

The Historical Development of the Cooperative movement.

Basically the cooperative movement was started in the 19th Century

in Europe. The Countries that featured here were Germany, France
and Britain. The initiative in these countries has been identified
with 3 personalities.

1. F W Raifferson in Germany
2. Charles Fourier in France
3. Robert Owen in Britain

However the movement is normally traced to the Rochdale

Equitable Pioneers Society that started operations in 1844. This
society was composed of a group of cotton weavers and other
workers in Rockdale Lancashire who met together to trade under
the name of the society. Their success inspired the creation of
other cooperatives. At the time Europe was experiencing
pronounced social as well as economic changes.

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The most significant of these arose from the industrial revolution
which had brought about poverty among many people. It had also
brought about concentration of wealth in a few huts. So
cooperatives formed in this early periods were a reaction to the
evils of poverty. Workers and peasants formed cooperatives in
order to minimise poverty through mutual assistance and self
reliance.

The original founders of cooperatives formulated guidelines with a

view to assisting them in their operations. These guidelines have
been subject to modifications over time.

In 1966 the international Cooperative Alliance which is a global

cooperative organisation made recommendations which resulted in
the formulation of the guidelines into 6 basic principles which
represent the essential features of a cooperative society as a formal
organisation.

This was the 23rd Congress Report of 1966 entitled the Report of
the Commission on Cooperative principles, recommendations and
conclusions. The principles relate to open membership,
democratic control, limited rate of interest on share capital,
disposal of surplus, promotion of Education and Cooperation with
other cooperative organisations.

THE BASIC PRINCIPLES OF COOPERATION

Cooperatives by their very nature contribute to the improvement of

the living conditions of their members especially the low income
earning segments of the population. Cooperatives through a
voluntarily agreed association are able to tap the energies of a
group effort and economies of scale for the benefit of their
members. The benefits that can accrue from an autonomous
mutually agree self-help and self-controlled systems of carrying

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out income earning activities through a cooperative are many and
varied.

Due to this ability to harness group energy that enables them to

collect surpluses at grass root level for the benefit of members,
they have been recognised as essential vehicles for economical
growth and development of a national economy.

A cooperative is defined as an autonomous association of

persons united voluntarily to meet their common economic,
social, cultural needs and aspirations through a jointly owned
and democratically controlled enterprise.

Like companies, cooperatives are economic organisations whose

income generating activities are devoted to the economic and
social welfare of their members by providing services which
enable individuals to improve their personal skills and economic
means for self advancement. They are based on the values of self
help, self-responsibility, democracy, equality and equity.

In the tradition of their founders, cooperative members believe in

the ethical values of honesty, openness, social responsibility and
caring for others. So the cooperative principles are guidelines by
which coperatives put their values into practice.

THE PRINCIPLES

1. Voluntary and open membership - the principle of open

membership establishes that there should be no limitation
to membership in a cooperative society. In accordance
with this principle there should be no artificial limitations
based on discrimination, placed in the way of a member to
bar membership. It does not however mean that everyone
who wants to join a particular society can become a
member. Limitations may be necessary for example

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 where the societies activities require that members must
have a certain common skill. Persons without the skill are
accordingly excluded from joining the society because
they lack the common skill required for membership in the
society. Thus one can say that cooperatives are voluntary
organisations open to all persons able to use their services
and willing to accept the responsibilities of membership
without gender, social, political or religious
discrimination.

2. Democratic member control The principle of democratic

control has several aspects to it.
(i) It establishes that members must have the final
authority in making decisions concerning their
society since they will have created it to serve their
needs. This aspect of democratic control finds
expression in provisions ensuring voting at general
meetings
(ii) The principle requires that every member has one
vote notwithstanding his or her share contributions.
This springs from the idea of equality of all members
in a cooperative society. Thus the economic
superiority of the member is not permitted to
adversely affect the equality of members in the
decision making process;
(iii) Since all members cannot participate in the day to
day affairs of the society, there must be a small
group of members normally the committee which
manages and administers the society. The
committee must be elected by members and be
accountable to them. The right of members to
appoint the committee entails the rights to remove it
if it does not perform its work well.

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3. Member Economic Participation; This principle
has two links
(i) Limited rate of interest on capital – cooperatives
differ from other types of business organisations
like companies and partnerships which are formed
with a profit motive. A cooperative is formed to
provide services and not as a means of facilitating
the accumulation of wealth. Accordingly, the
share capital of a cooperative gets a limited rate of
interest. The members contribute to and
democratically control the capital of their society.
At least part of that capital is usually the common
property of that cooperative. Members usually
receive limited compensation if any on the capital
subscribed as a condition of membership. They
allocate surpluses for any of the following
purposes. Developing their cooperative possibly
by setting up reserves part of which at least would
be indivisible benefiting members in proportion to
their transactions with the cooperative and
supporting other activities approved by the
membership

(ii) Disposal of surplus – the principle relating to the

disposal of surplus is intended to ensure that in a
cooperative society there is a fair and just
distribution of the surplus and no member gains at
the expense of the others. Here surplus refers to
the funds which remain after operational expenses
and all the expenses of the society including
statutory requirements are met. An efficiently ran
cooperative society ought to produce a surplus.
Fair and just distribution is achieved if the surplus
is distributed in proportion to a member’s
business transaction with the society.

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 4. Autonomy and Independence: cooperatives are
autonomous self-help organisations controlled by the
members. If they enter into arrangements with other
organisations 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.

5. Promotion of Education, Training and Information

the principle on the promotion of education of
cooperaters establishes that a member of a cooperative
society must be informed of all about cooperative
organisation. The education cooperatives must be
promoting. A member of a society must know his/her
rights obligations and must therefore exercise the rights
and meet the obligations with respect to his/her
membership from a position of knowledge. The
member must know the principles that guide the
functions of a society and other matters related to its
activities, its management and administration. The
educational effort should cover society officials and
employees as well as others who work with
cooperatives and members of the public ought to be
involved in the education process as well.

6. Cooperation among Cooperatives the principal of

cooperation of a society with other societies was
adopted as one of the cooperative principles in order to
strengthen the cooperative movement through mutual
assistance at the local national as well as international
level. The potential of a strong movement to bring
about social and economic development of people
regardless of their background was thus recognised.
The last of the cooperative principles recently enshrined

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7. Concern for the Community cooperatives work for the
sustainable development of their communities through policies
approved by their members.

HOW DID COOPERATIVES COME TO KENYA

1 Settler initiatives in Kenya

Relating to cooperatives: Cooperatives were introduced in Kenya

by the European settlers in the early 20th century. The first
cooperative society the Lumbwa Cooperative Society was formed
in 1908. This was followed by several others after the first world
war. Prominent features of these early cooperatives were firstly,
they were formed through member initiatives without the
government actively promoting their formation. Secondly they
were formed by European settlers.

The development of cooperatives among settlers must be

understood within the context of colonialism. It was only the
settler community that had the support and opportunity for
organised agriculture and marketing outlets in the early years of
colonialism. The lack of encouragement to Africans to form
cooperatives has also to be understood within the colonial context.
Their position was presumed to be subordinate and therefore no
incentive was given to them to improve their agriculture.

It also would have been politically unwise to encourage

cooperation among Africans during colonialism as these will
enhance their political consciousness.

COOPERATIVE LEGISLATION

The first cooperative legislation enacted in Kenya was in response

to settler cooperatives. This was the Cooperative Societies

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Registration Ordinance No. 24 of 1931. It allowed use of its
provisions by associations registered in other forms for example
companies as long as these engaged in cooperative marketing.

An amendment of the Ordinance in 1932 did not change the

situation. In fact it allowed persons, partnerships and
companies in the timber industry to fall within the definition of
cooperative societies. Cooperative in this early period in Kenya
were mainly concerned with assisting profit making organisations
in their operation.

It was not until 1943 when cooperative principles began to

emerge in cooperative law that ordinance No. 16 of 1943
amended the 1932 Act and provided a definition of a cooperative
society which reflected some attention to cooperative principles.
The amendments came at a time when major changes in African
policy were underway.

In 1945 a new cooperative society ordinance was passed with the

main purpose of encouraging Africans to form cooperatives. The
development of cooperatives among Africans is traceable to
several factors.

1. The general change of attitude towards African

agriculture – the depression of he 1930’s and the need for
self sufficiency in cereals and holticultural products
caused by the 2nd World war created sufficient impact on
the colonial economy to warrant exploitation of all
available capabilities in the economy in order to improve
the economic situation. African Agriculture was
encouraged.

In order to achieve its goals, the government had to have wide

powers in directing and regulating economic activities in both
settler and African areas. The cooperative effort was necessary

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if African agriculture was to be improved to ensure maximum
productivity. Where possibilities were identified, cooperatives
institutions were promoted among Africans under the
supervision of a newly appointed registrar of cooperatives.

The 1945 cooperative societies ordinance also provided for

supervisory government control.

For example Section 42 thereof empowered the Registrar of his

accord or on application over majority of a committee or on the
requisition of not less than one third of the members to hold an
inquiry or direct some person by order to hold an inquiry into the
constitution the working and financial condition of a society. The
registrar could cancel registration of a society after the
inquiry.

Section 59 made it an offence for a Registrar of Societies to

deliberately neglect to do any act or provide information required
for the purposes of the law by the Registrar or a person authorised
in writing to act for him. Furthermore under section 57 the
governor of the colony was empowered to make rules to govern
various affairs of society. The cooperative societies rules were
made in exercise of this power.

Rule 23 imposed a duty on the committee of every

registered society or some officers of such society
appointed for the purpose by the committee to prepare
yearly in the form prescribed by the registrar an
account showing that income and expenditure for the
year a profit and loss account and a balance sheet.

Rule 32 empowered the Registrar to prohibit or

restrict transactions of any registered society with none
members when proved to his satisfaction that such
transactions were opposed to cooperative principles or

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 involved and abuse of any of the privileges accorded to
registered societies.

The ordinance contained examples of cooperative ideals

beginning with a definition of a cooperative society. A
member’s shares in the society’s share capital was limited
to one fifth or less. Every member was to have one vote in
the affairs of the society except in the case of a society
which was a member of another society.

Note however that cooperatives mainly comprising of

Europeans were exempted from control by the Registrar.

2. Demobilised Soldiers

This was yet another factor prompting the colonial

government to serious consider the starting of cooperatives
among Africans after the 2nd World War. There was a need
to provide employment to demobilised African soldiers. Ex
Military personnel, it was considered would be absorbed as
members of the operative staff as well as active cooperators.
This was the view expressed by W H K Campbell an Ex-
Registrar of Cooperatives in Ceylon who had been
commissioned by the British government to study
possibilities of cooperative development in Kenya.

3. Attitude of British Labour Government

The government which came into power in 1945, the new

administration brought about many welfare changes for
colonies after the war. A new economic approach was
devised which had a positive attitude towards the formal
development of cooperatives. The role of cooperatives in

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 countries where they were introduced by the British was seen
as being twofold.

a. To provide members with economic advantages

which they would be unable to acquire as
individuals; and

b. Instilling thrifts, self-help, fair dealing and practical

training in application of democratic processes
through association in cooperative societies.

4. African Initiatives

Africans were engaged in efforts to uplift their lot from the low
economic position without assistance from the colonial
administration. Many ventured into trading enterprises and formed
regional and trading associations in competition with Asians and
Europeans. However, these associations were not genuine
cooperatives but because they aimed at fighting racist
organisations and also because their members were business
people who stood to benefit from their organisations as much as
the Europeans.

In spite of these however, the formation of cooperatives among the

emerging African middle class as a way of defending their interest
against those foreigners was an important factor in the
development of genuine cooperatives later because of a sense of
pride and self-confidence that characterised these early African
organisations. In fact in the 1950’s some societies demonstrated a
remarkable degree of independence in running their affairs without
seeking advice or help from the department of cooperatives.

Campbell expressed a view that customs for example those that

promoted group work on the land appeared to form the basis for
cooperative development. An important aspect of cooperative

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development among Africans became the encouragement of group
farms and group activities.

Many cooperatives were formed for marketing purposes and in

those areas where such cooperatives thrived, group farming of
cotton was introduced on an experimental basis on the assumption
that indigenous customs of the ethnic communities involved were
conducive to modern cooperation. By 1950 however, the African
Cooperatives formed were few in number.

5. Land Reform and Cooperatives

In the 1950 the colonial government embarked on land reform

aimed at individualisation of land tenure from communal to
individual type as recommended by the Swynnerton Plan. The
encouragement of cultivation on clearly demarcated land
especially of cash yielding crops went hand in hand with the
encouragement of cooperatives for the purpose of marketing the
produce. Efforts towards a closer integration of African and
European Agricultural Cooperative Marketing were also made. By
the late 1950’s the greater number of cooperatives were engaged in
the marketing of agricultural produce. In fact they “ traditional
function of cooperatives had continued to be agricultural marketing
cooperatives. By comparison other types of societies such as
consumer and credit societies were of minor significance.

6. Post Independence Developments

by the early 1960’s cooperatives had began to take root in

communities. With financial help from British government and the
world bank, a massive settlement of landless were carried out in
the large scale farming areas. Agricultural societies were created
to assist the new settlers. Some politicians asked people to form
cooperatives in order to purchase farms formally owned by
European Settlers. Other people decided to revive group

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production schemes in sugarcane and cotton growing areas in spite
of their failure in the 1940’s. Many sugar and Cotton cooperatives
were created to facilitate these skills. The term “movement” to
describe cooperatives in Kenya became justifiable around 1963 the
year of attainment of independence. Unfortunately the often
haphazard creation of cooperatives brought about many problems
to the movement. Many of them were not economically viable and
the department of cooperatives was handicapped in dealing with
the rapid increase.

By the end of 1967 there were 1783 cooperatives on the register as

compared to 847 in 1960. Lack of management capabilities in
these societies became a major drawback.

By the mid 1960’s the situation in the movement had deteriorated

due to inadequate administrative capability both in the department
of cooperatives and within the cooperatives themselves. Steps had
to be undertaken to ensure efficiency.

Law of Business Associations – Lecture 2

Steps taken to ensure efficiency

The Cooperatives Societies Act 1966 and the Cooperative

Societies Rules 1969

A major step to ensure efficiency in the cooperative management

was the enactment of the 1966 Cooperative Societies Act,
replacing the 1945 Ordinance.

It embodied stern measures of control invested in the Minister and

Commissioner of Cooperative Development to curb malpractices,
which had become rampant in cooperatives.

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The government was given wider supervisory powers than those
conferred under the 1945 Ordinance. An extensive administrative
machinery under the Commissioner of Cooperative Development
was created, comprising a Deputy Commissioner, Assistant
Commissioner, Senior Cooperative Officers and other junior
cooperative officers.

Extensive powers were vested in the Commissioner and a list of

offences was created to permit the Commissioner a consolidation
of the powers. Failure to comply with the provisions of the Act and
willful performance of any act, which required the assent, or
approval of the Commissioner without having first obtained such
approval became offences carrying a punishment of either a fine or
imprisonment.

The Act also conferred on the Commissioner the power to

surcharge in order to ensure the recovery of funds or property of a
society misapplied or retained by any person participating in the
management and organization of a society.

Provision was also made to allow for simultaneous criminal

proceedings in the event of such misapplication or retainer and for
breach of trust in respect of society property. Important controls
were also introduced regarding financial management, particularly
as part of the rule-making power of the Minister, which had
formerly been exercised by the Governor-in-Council under the
1945 Ordinance.

In addition to the matters outlined in the 1945 legislation, the

Minister’s rule-making power was extended to cover provisions
relating to the management of society’s finances. Of particular
importance in this connection was the power to make rules on the
form of the final accounts and balance sheet to be prepared
annually and any other statements and schedules relating thereto.

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The Act established an audit and supervision fund and a
cooperative societies liquidation account.

Furthermore provision was made that any negotiable instrument

and any order for goods or services in excess of a specified amount
by the registered society shall be ineffective unless countersigned
by the Commissioner or a person nominated by him for that
purpose.

There was also a requirement that any estimate of income and

expenditure of a registered society shall be submitted to the
Commissioner for approval and that this shall be ineffective until
so approved. Provision was made that no employee of a
cooperative union shall be appointed except with the approval of
the Commissioner.

Prescription of fees to be paid on application and registration and

other acts were to be done by the Commissioner or his
representative under the Act.

Pursuance to the power to make rules, the Minister made the

Cooperatives Rules in 1969. The rules made provision with respect
to the following:

1. registration of cooperatives and maintenance of records

related to management of cooperatives
2. content of bylaws and procedure for amendments
3. membership of a society
4. maintenance of books
5. services to be rendered by district cooperative unions
6. financial control through general meetings, special general
meetings, committee, board of representatives and employees
7. property and funds of the society
8. arbitration

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The Act and the Rules had a strong a strong bias towards
agricultural cooperatives and remained largely intact despite the
expansion of cooperatives in non-agricultural activities.

The sessional papers released since 1970 repeatedly mentioned

cooperatives as players in the social development of the country.
For example the Sessional Paper No. 4 of 1987 on renewed growth
through the cooperative movement quoted impressive figures. For
instance, at the time of its publication there were 3,500 registered
cooperatives, with a membership of more than 2 million people
and an annual turnover of Shs. 6 billion.

The guidelines of future development stated in the Sessional

Papers were on the engagement of cooperatives in diverse
activities in the export market, the informal sector , the
development of low-cost housing, among other activities.

State contribution to the development of cooperatives in Kenya

Despite their importance, cooperatives were faced with their

managerial incapacity and this justified state involvement and
control. So what was this state involvement and control?

State involvement and control

As stated, state involvement control of cooperatives commenced in

1931 when the first cooperative Ordinance was enacted in order to
regularize their operations. Before this, cooperatives were
registered under the Companies Law. The increased intervention
occurred in 1945 when a new Act came into being and the first
Commissioner for Cooperatives was appointed in 1946.

The 1945 Ordinance was the turning point for cooperatives. For
the first time the indigenous Kenyans were not only officially
allowed to form and join cooperatives but were also allowed to

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grow cash crops like coffee which was earlier restricted to the
white settlers.

By 1963 when Kenya attained independence there were 1,030

cooperative societies with a turnover of Shs.100 million.
Immediately after independence it was state policy to involve
people in the economic activities of the economy. Cooperatives
were a handy institutional framework through which many
indigenous Kenyans could participate. But cooperatives were
hampered by the following problems:

1. lack of integrity on the party of union, society committee

members and employees
2. misappropriation and misapplication of funds
3. excessive costs in handling member produce
4. general inefficiency in the business operations of the
movement

The main causes of these problems were:

1. lack of basic understanding among the cooperatives about the

purpose and functions of the movement
2. lack of training and managerial skills
3. lack of knowledge and experience on the part of the
employees

Arising out of these, and the government acceptance of the

movement as an important institutional framework with a great
role to play particularly in the small-scale farming areas, the state
was categorical that it will continue to encourage the movement.
This view was formalized and expounded in the first three
development plans, mainly 1970, 1974, and 1978. The aim was to
ensure that public and cooperative sector grow rapidly to embrace
a large section of the economy. Cooperative policies were
therefore instituted to:

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 1. enable cooperatives to improve their performance
2. enable cooperative enjoy marketing monopolies
3. consolidate the cooperative movement in those areas where it
was active.

In order to enable the movement to take off, the state strengthened

and intensified its supportive machinery for guiding and
controlling it in order to curb malpractices. Consequently, as noted,
the 1945 Cooperative Ordinance was revised giving way to the
Cooperatives Societies Act, Chapter 490 of the Law of Kenya, in
1966. With that Act, the state was able to be involved and therefore
influence the day-to-day activities of societies.

It was also able to inject massive assistance to the movement in the

form of finance and technical expertise. In order to provide this
support, the state entered into agreements with several donors who
included the World Bank, the United States, Germany and the
Nordic countries who assisted in technical expertise and finance as
loans and grants to needy societies.

The extensive data systems enabled the role of cooperatives,

particularly in Kenya’s agricultural sector, to be wide and varied.
Most of the production and marketing within small-scale holdings
was organized through cooperative societies. Official statistics
from the 1945 Economic Survey indicated that in 1944 the
cooperative movement in Kenya comprised of some 6,276
registered societies, of which 1,047 were dormant and 122 were in
the process of being liquidated. The active societies were therefore
5,107 out of which 44% were agricultural cooperatives. Of the
total cooperative turnover in 1944 of Shs.10 billion, the
agricultural cooperatives had 75% thereof.

For certain crops, cooperatives accounted for substantial

percentage of gross farm reserve. For example, according to the

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Economic Survey of 1995, in 1994 cooperatives accounted for
65% of gross farm revenues from coffee, 67% in the case of
pyrethrum, 22% in the case of dairy and 75% in the case of cotton.

The cooperative system was thus an important framework for

production and marketing of agricultural products in Kenya. State
support to the agricultural sector through cooperatives was used to
finance development of specific crop enterprises.

Management of cooperatives was one of the biggest problems

within the movement. Here the state consistently injected different
types of assistance but the area of management remained one of
the main concerns.

Through the Nordic technical cooperative project, substantial

assistance was available to cooperatives for the development of
management accounting systems in addition to seconding
management experts in cooperative societies. The government-run
Cooperative College of Kenya was established to train both
officers of the movement and the government.

One of the indicators of the influence that the state has had on the
development of cooperatives is the extent to which they have been
involved in industrial development. In building and construction,
the state developed detailed policies that enabled cooperatives to
own large office blocks in Nairobi and other towns.

One of the areas in which cooperatives did not take root despite
government assistance through grants and designs and printing
operative manuals was the consumer cooperatives. Partly as a
result of state promotion of SACCOs, cooperatives now play a
significant role in the finance and banking sector where they are
involved in the mobilization of savings from a large number of
small savers for various types of investment. The Cooperative

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Bank leads this cooperative movement, which is one of the biggest
banks in the country.

The other sectors are the Savings and Credit Cooperative Societies
(SACCOs). Even in the finance and banking sector, cooperatives
are significant players.

Government has promoted cooperatives in various sectors of the

economy with varying degrees of success. They will be found in
activities such as handicrafts, jua kali, transport, and hotel
business. They are encouraged to venture into all kinds of income-
earning opportunities for their members benefit.

After independence, the state promoted land-buying cooperatives

through a special arm of the Ministry of Cooperative Development,
administered by an Assistant Commissioner of Settlement. This
office enabled many cooperatives to acquired land for their
members. When that was done, the land-buying cooperatives were
transformed into marketing societies under the Cooperative
Settlement Office; the Office was reorganized and absorbed within
the other functions of the Ministry of Cooperative Development.

By recognizing cooperatives as an important economic system, and

promoting it, through both technical and financial support, these
have not only enabled members to acquire wealth and alleviate
poverty but also created employment to a large section of the
population. One can say that the state played a major role in the
development of the Kenya cooperative movement. It was
recognized that the movement had now reached a stage of
development where it should now shoulder its own responsibilities.
It also became clear that the first nurturing of the cooperative
movement and extensive benevolence of the government, was no
longer justified or sustainable.

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Furthermore, a continually supported movement was not likely to
be self-sustaining in the long run because of the dependence
syndrome. It became the policy of the state to liberalize the
cooperative sector in order to professionalize and democratize the
management of cooperatives and make them self-reliant, self-
controlled and commercially viable organizations. This lead to the
enactment of the Cooperative Societies Act of 1997, which came
into force on 1 June 1998 and the Cooperative Societies Rules of
1998, and these replaced the Cooperatives Societies Act of 1966
and the Cooperatives Societies Rules of 1969.

The Future Role of the State in cooperative development and

management as of 1997

We have seen that the rapid growth in cooperatives since

independence was fueled by heavy government support through
direct assistance and subsidized services. These created problems
related to dependence, which can be mainly summarized as
follows:

1. direct intervention in the day-to-day management of

cooperatives highly compromised the universally accepted
principles and values of cooperatives.
2. within the agricultural sector, the 60% rule compelled the
producers within the society area of operation to sell their
produce through the society. This created cooperative
monopolies, which were not faced by competition and
therefore had no incentive or incentives for initiative,
efficiency, and effectiveness as they were assured of their
income since they normally took the first charge on crop
proceedings.
3. heavy state involvement hindered emergence of member
control and member-managed cooperatives as members came
to rely on the state to safeguard their interests through
curbing of funds and other resources. This compromised

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 cooperative values including self-help, self-responsibility,
democracy, equality, and equity
4. As a result of continued involvement in cooperatives in the
form of free technical and financial assistance as well as
development of management and financial systems, the
movement came to be almost wholly dependent on the
government. Obviously this hindered the consolidation of the
cooperative values of self-responsibility, self-reliance and
self-control.
5. voluntary association is what renders cooperatives into a
movement. Heavy state involvement hindered the
development of cooperation between cooperatives. They did
not develop strong horizontal linkages between themselves.
The vertical linkages tended to end at the union level with
only specific-activity unions at the national level.

Government involvement, therefore, had to be substantially

reduced; it had to be re-orientated in order to democratize and
professionalize their management to conform to the true definition
of a cooperative and be operated and managed in accordance with
internationally accepted cooperative values and principles. With
liberalization, which emphasizes free market economy and the
divesting of the state from involvement in business enterprises, the
freed technical and financial assistance to cooperatives could no
longer be sustained.

The policy was therefore to liberalize the cooperative movement in

line with the national liberalization policy. This was for the first
time in 1997/98. The liberalization had to involve the revision of
the Cooperatives Societies Act and with each revision the Ministry
of Cooperative Development had to be restructured to conform and
be able to effectively address the newly emerging needs of the
liberalized movement. Under the old Act the Ministry of
Cooperative Development carried out the following functions:

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 1. cooperative policy and implementation
2. cooperative registration and extension services
3. accounting and auditing of cooperative societies
4. cooperative education and training
5. cooperative credit and finance
6. cooperative bank

These functions entailed involvement of the Ministry in the

following duties and responsibilities:
1. registration of societies
2. enforcement of the Cooperative Societies Act
3. policy formulation and implementation
4. advisory management services
5. audit supervision
6. inspection, inquiries and investigations
7. liquidation of societies
8. education and training
9. auditing, accounting and management systems
10. cooperative credit and finance
11. Cooperative Bank
12. amalgamation and subdivision of societies
13. approval of budgets, capital expenditure and allowances
14. hiring and firing of graded staff
15. removal and erection of management committee after
inquiries
16. inspections and investigations
17. settlement of disputes and institutional charges

In order to professionalize and democratize the management of the

cooperative movement and enable them to be member-based and
member-controlled, self-reliant organizations which will be in a
position to compete more effectively with the rest of the private
sector, the state involvement in the day-to-day management was to
be reduced substantially. Thus the following functions and duties,
which were to be performed by the Ministry of Cooperative

23
Development, were to be transferred gradually from the Ministry
to the cooperative movement. These are
1. education and training
2. auditing, accounting and management systems
3. cooperative credit and finance
4. cooperative bank
5. approval of budgets
6. capital expenditure and allowances
7. hiring and dismissal of graded staff
8. removal and election of management committees after
inquiry, inspections and investigations
9. settlements of disputes

Once these were transferred, it was envisaged that the role of the
Ministry would be largely regulatory and facilitative in nature
aimed at creating a conducive environment for the development of
autonomous and self-sustained cooperative movement. Thus the
main duties and responsibilities of the Ministry were to be as
follows:
1. registration and liquidation of societies
2. enforcement of the Cooperative Societies Act
3. formulation of cooperative policy
4. advisory and creation of a conductive environment for
cooperative growth and development
5. registration of cooperative audit
6. carrying out inquiries, investigation and inspections
hence the revision of the Act and its replaced by the 1997 act.

That Act removed all those clauses that allow government

involvement in the day-to-day management of cooperatives. It is
incorporated other clauses that clearly defined cooperative
principles and values and those that safeguard the interests of all
stakeholders including members and creditors. It allowed for
autonomy in the cooperative movement where they are free
from government involvement in their daily affairs.

24
 But it was envisaged that the government would continue to
facilitate procurement of external donor assistance under the
government’s normal laid-down procedures and regulations…

Soon after its enactment, there was a proposal, a draft proposal

to amend the Act by way of the Cooperative Societies
(Amendment) Bill 2001. In late 2003 there was a proposal for a
SACCO (Amendment) Bill 2004. All these are before
Parliament. The question is: is this an attempt to reinstate state
control over cooperatives and to de-liberalize the cooperative
movement once more?

Law of Business Associations–Lecture 3

Benefits of cooperative organizations

Basically cooperatives are vehicles for social economic
development contributes to economic growth and development in
many ways. The major benefits that come out of cooperative
organizations as be summarized as follows:

1. collection, transportation, processing and marketing

agricultural produce.
2. mobilization of savings and channeling the income of
individual members for specific developments projects.
3. support to agricultural production through distribution of
farm inputs.
4. dissemination of applied technology to members
5. provision of credit to member for defraying urgent expenses
at fordable rates and costs.
6. assisting in income distribution by participation through
enabling large sections of the population to engage in
various income generating economic activities.

25
 7. creating employment directly through engagements for
various cadre of staff and more importantly self-employment
as farmers and artisans.
8. a cooperative is an institutional framework through which
the following are achieved:
(a) otherwise small and uneconomic surplus can be
harnessed by taping economies of scale
(b) poverty can be alleviated by planning, organizing,
implementing and managing income-generating
activities.
(c) Agricultural producers can reap maximum benefits
out of their produce by eliminating middle men.
(d) Social control mechanisms become an acceptable
substitute for physical assets as collateral for loans
(e) Development funds are channeled to individual
members
(f) Members can be educated on economic and social
issues affecting them including development of
entrepreneurial skills
(g) Wealth and capital can be created and owned jointly
by large groups of low-income earners.
(h) The national economy can be indigenized since
cooperative members tend to be largely indigenous
people.

Structural framework of the cooperative movement in Kenya

The structure of the cooperative movement is a four-tier structure.
The Cooperative Societies Act recognizes these four specific
categories of society, namely:

(i) the primary

(ii) the secondary
(iii) the national cooperative organizations (NACOs)
(iv) the apex societies

26
Primary societies
The term primary society has been defined by the Act to mean “a
cooperative society whose membership is restricted to individual
persons”.

It is created by individuals at the lowest level of structures of

cooperatives. The individuals have common economic interests
and a desire for promoting those interest by pooling their interests
together and working as a team in order to minimize the costs of
doing the same thing as individuals.

For example, artisans may find that as a group organized formally,

rather than as separate individuals they are in a better position to
buy in bulk materials necessary for their trade since bulk purchases
attracts discounts. They are better able to organize reliable
marketing outlets easily as a group since they will produce more
than if they worked as individuals. So they may form a primary
cooperative to enhance their objectives.

Individuals may also form savings and credit societies which will
enable then to pool their money from which they can borrow in
time of need. Individuals in SACCOs are able to borrow money
from their societies at more reasonable terms than they would
obtain from commercial banks.

Individual farmers may form a primary society which will enable

them to market their produce collectively and to share facilities
such as factories which can serve all of them.

Primary societies are the backbone of cooperatives in Kenya.

Examples include:

1. Harambee Cooperative Savings and Credits Society Ltd,

formed mainly by the employees of the Office of the
President;

27
 2. Afya Cooperative Savings and Credit Society Ltd, formed by
employees of the Ministry of Health.

Second Society
The Act defines a secondary society as “a cooperative society
whose membership is comprised of primary societies”.

The Act further defines a cooperative union to mean “a cooperative

society whose membership is restricted to primary societies”.

Similarly a district cooperative union is defined by the Act to mean

“a cooperative union whose membership is restricted to primary
societies having their headquarters in a particular district.”

The NACCOs
The NACCOs offer specialized services to their affiliates. The
services include insurance and banking. Currently there are 9
NACCOs, namely,

1. Cooperative Bank of Kenya ltd

2. Kenya Union of Savings and Credit Cooperative Ltd
(KUSCCO)
3. Kenya Rural SACCO Societies
4. National Housing Cooperative Union Ltd (NACHU)
5. Kenya Cooperative Creameries Ltd (KCC)
6. Kenya Planters Cooperative Union Ltd (KPCU)
7. Kenya Farmers Cooperative Association Ltd (KFA)
8. Cooperative Data and Information Centre (CODIC) Ltd
9. Cooperative Insurance Company Ltd(CIC)

The apex societies

The Act defines an apex society as meaning “a cooperative society
the membership of which is restricted to cooperative unions and
includes a society established to serve the cooperative movement

28
by providing facilities for banking, insurance and the supply of
goods and services.”

The apex organization in Kenya is the Kenya National Federation

of Cooperatives. It is the mouthpiece for Kenyan cooperatives to
preserve and propagate both in the country and abroad the
cooperative principles and values on which the movement was
founded.

Type of activities in cooperative societies

Primary societies are engaged in a wide range of activities. There
are seven broad categories although the list is not exhaustive,
namely

1. agricultural cooperatives
2. savings and credit societies (SACCOs)
3. housing cooperatives
4. service cooperatives
5. industrial cooperatives
6. consumer cooperatives
7. multipurpose cooperatives

Agricultural cooperatives
Agricultural cooperatives have continued to occupy the most
important part of the cooperative movement in Kenya. They
include farm purchase cooperatives and agricultural marketing
cooperatives created to collect, process and market farm produce.
Most farm purchase cooperatives were created immediately after
independence to enable their members purchase farms owned by
European settlers.

Agricultural cooperatives are formed to assist members with

collection, processing, storage and sale of produce. They also assist
members to obtain credit facilities, farm inputs and farm

29
machinery which are normally arranged through cooperative
unions. Many of them are involved in the production of crops

The saving and credit cooperatives (SACCOs)

A savings and credit society affords members an opportunity for
saving regularly accumulating savings and thereby creating a pool
from which they can borrow exclusively for production purposes at
fair and reasonable rates of interests than would be obtained in
financial institutions. Most SACCOs are found in urban areas
among the salaried workers in the formal sector including
government ministries, parastatals and other organizations.
Members contributions are deducted from salaries on a regular
basis and remitted to the society. Loan recoveries are similarly
handled.

SACCOs popularity arises from their ability to lend money without

demanding substantial security. Usually a member’s shares,
coupled by a guarantee by society members are considered
adequate security for a loan and loans attracts a low interest and a
borrower may receive 3 to 4 times his shares and have 36 to 48
months to repay their loans.

SACCOs have also invested in projects such as building of office

blocks and residential houses. Their other investment include
hotels, warehouses and other commercial properties.

Housing cooperatives
A housing cooperative society is formed in order to provide living
accommodation for its members for fair and reasonable prices. It
can also be created to lend money to its members to enable them to
construct houses.

Service coperatives

30
A service cooperative is created with the objective of providing a
service, for example in insurance or transport. Thus a group of
people who own matatus or buses and other conveyances can form
a cooperative or a transport cooperative to ferry passengers and
goods.

Industrial cooperatives
These are formed by persons who have special skills in the
manufacture of or production of particular commodities who
produce these commodities and the society arranges for purchase
of materials, grading, transportation and marketing of the product.

Consumer cooperatives
Consumer cooperatives are formed to obtain and to supply to
members articles of good quality for use of members, e.g.
household goods. A society would normally establish a shop or
shops where it sells the particular goods.

The multipurpose cooperatives

A multipurpose cooperative society is formed to carry out a wide
range of activities. For example, it can be formed to supply farm
implements, market produce of members, carrying out construction
and to provide transport. The multiplicity of its activity would be
reflected in the society’s byelaws.

Formation of the cooperative society under the Act

1. In relation to officers:
Section 3 of the Cooperative Societies Act provides for officers of
cooperative societies:
(i)There is a Commissioner for Cooperative Development
who is responsible for the growth and development of
cooperative societies;

31
 (ii)There shall be such number of Deputy Commissioners
for Cooperative Development and other officers as the
Minister may deem fit to be appointed by the Public
Service Commission

(iii)There is a Registrar of Cooperative Societies

(IV) There shall be a Deputy Registrar of Cooperative

Societies and such number of Assistant Registrars as may
be necessary for the purposes of the Act. The
Commissioner and the Registrar are public officers
designated by the Minister for that purpose.

(v) The Minister may by notice in the Kenya Gazette and

without prejudice to the power of the Registrar or Deputy
Registrar to exercise such powers or perform such duties,
delegate any of the powers or duties conferred on imposed
on the Registrar to any Assistant Registrar.

Registration of cooperative societies

In order for a society to be registered as a cooperative, it must
satisfy the following requirements:

1. It must have for its objects the promotion of the economic

interest of its members in accordance with cooperative
principles which are outlined under the Act.

If it is a primary society, it must consist of at least 10 persons all

of whom qualify for membership of the society according to the
Act, section 14 thereof.

If it is a cooperative union it must consist of 2 or more

registered primary societies.

32
 If it is an apex society it must consist of 2 o more secondary
societies.

An application to register a society is made to the

Commissioner in the prescribed form and signed:

1) in case of primary societies by at leas 3 persons

qualified for membership of the society under section
14.

2) in the case of a secondary and apex society by a person

duly authorized on that behalf by each society or union
as the case may be who are members thereof.

The application is accompanied by four copies of the proposed by-

laws of the society in English and the person or persons by whom
or on whose behalf such an application is made shall furnish such
information with regard to the society as the Commissioner may
require. If the Commissioner is satisfied that the society has
complied with the provisions of the Act and rules, and its proposed
by-laws are not contrary to the Act or rules, he may register the
society and its by-laws under the Act.

Provisional registration
If the Registrar or Commissioner is not satisfied that the society
has complied with the Act and Rules or is not satisfied that its by-
laws conform with the Act and Rules and is of the opinion that
steps can be and will be undertaken with due diligence by the
applicants for registration to comply with the Act and Rules and
make the by-laws conform, he may in his discretion provisionally
register the society for such period not exceeding one year and
subject to its compliance with the terms and conditions and
provisions, he may specify to the applicants in writing a
provisional registration enabling the society to operate as a
cooperative society and while so entitled is deemed to be a body

33
corporate with perpetual succession and a common seal and with
power to hold movable and immovable property, to enter into
contracts and institute and defend suits and other legal proceedings
and do things necessary for the purpose for which it was
constituted.

Subject to the provisions of the Act, any reference in any written

law to a cooperative shall unless the context otherwise requires
include a reference to a provisionally registered society. This
provisionally registered society is required to state the fact that it is
provisionally registered in legible Roman letters in all billheads,
letter papers, notices, advertisements and other official
publications of the society and on a conspicuous sign board outside
any premises where it operates.

The Commissioner may for any good cause cancel the provisional
registration, specify the reason thereof and that cancellation
operates as a refusal to register that society and it from henceforth
ceases to be registered as a cooperative society.

At the expiration of the period specified for provisional registration

if a society has not been registered in the meantime it ceases to be
a registered cooperative society. Where it so ceases, the following
consequences follows:

1. The Commissioner may appoint a competent person to be

liquidator.
2. The validity of transactions entered into by that society
during the period of provisional registration shall not be
affected.

At any time during the period of provisional registration, the

Commissioner, if satisfied that the society has complied with the
Act and the Rules, and that its bylaws conform with the Act may
register the society under section 5. Thereupon the society is

34
deemed to have been registered on the date of its provisional
registration.

Where a society which has been provisionally registered

contravenes section 7 (3), the society and every person who
purports to act as officer of the society shall be guilty of an offence
and liable to a fine not exceeding 10,000 shillings or in the case of
a continuing offence to 1,000 shillings for each day it contravenes.

Amendment of bylaws
A cooperative society may, subject to the Act, amend its bylaws
including the bylaw declaring its name. However, no amendment
is valid unless registered under the Act and for this purpose a copy
of the amendment shall be forwarded to the Registrar in the
prescribed manner. The company may register the amendment if
satisfied that it is not contrary to the Act of the Rules.

An amendment which changes the name of the society does not

affects the rights of its members and any legal proceedings pending
may be continued by the society under its new name.

When the Commissioner registers an amendment he issues to the

society a copy of the amendment certified by him which is
conclusive evidence of its registration. The word amendment
includes the making of a new bylaw, or variation or revocation of a
bylaw but not the variation of the registered address or office or
society where this forms part of its bylaws.

Appeals against refusal to register

A society may appeal to the Minister against the Commissioner’s
refusal to register it and its bylaws or its amendment thereof. Any
society aggrieved by the decision of the Minister may appeal
against that decision to the Cooperative Tribunal established under
section 77 of the Act.

35
Note: No society shall be registered under a name identical with
that of any other society or under any name likely in the opinion of
the Commissioner to mislead members of the public as to its
identity.

The word “Cooperative” forms part of the name of every society

and the word “Limited” is the last name of any society having
limited liability.

A certificate of registration or provisional registration signed by

the Commissioner is conclusive evidence that the society therein
mentioned is dully registered or provisionally registered unless it
has been proved that it has been cancelled or terminated. This
certificate must be displayed at the head office of every society. In
addition, every society shall publish particulars of its registration in
the Kenya Gazette. A copy of the bylaws or amendments thereof
certified by the Commissioner is prima facie evidence for all
purposes of registration of such bylaws or amendments. Any
document purporting to be signed by the Commissioner is
presumed to have been so signed until the contrary is proved.

LAW OF BUSINESS ASSOCIATION II Lecture 4

PRIVILEGES OF REGISTERED SOCIETIES:

Under Section 12 of the Act upon registration every society

becomes a body corporate by the name under which it is registered.
It has perpetual succession and a common seal. It has the power to
hold moveable and immovable property of every description. It
has the power to enter into contracts and it has the power to sue
and be sued and to do all things necessary for the purpose of or in
accordance with its bylaws. The bylaws when registered by the
society and its members to the same extent as if they were signed

36
by each member for himself and his personal representatives to
observe all their provisions.

RIGHTS & LIABILITIES OF MEMBERS

First in relation to qualification for membership:

A person other than a cooperative society shall not be qualified for

society membership unless the following requirements are met.

1. He has attained the age of 18 years;

2. His employment occupation or profession falls within the
category or description of those for which the society was
formed;
3. He is resident within or occupies land within the society’s
area of operation as described in the relevant by-law;

Under Section 15 there is a limitation on holding of share

capital. It is to the effect that no member other than a
cooperative society shall hold more than one fifth of the issued
and paid-up share capital of any society.

No company incorporated or registered under the Companies

Act and no unincorporated body of persons shall be entitled to
become a member of a cooperative society except with a written
authorisation through a resolution by an annual general meeting
of that society.

No member of a society shall exercise any of the rights of a

member unless he has made such payments to the society in
respect of membership or has acquired such interest in the
society as maybe prescribed by the Act or under Society bylaws.

Section 18 provides a limitation of membership to one society.

It provides that no person shall be a member of more than one

37
society with unlimited liability and no person shall be a member
of more than one society having the same of similar object.
(there is limitation to membership to how many societies one
can belong to) but there is a proviso to the effect that a person
who is a member of the society and carries on business on land
or at premises outside the area of operation of that society
maybe a member of a society in whose area of operation that
land or those premises are situated not withstanding that its
objects are the same or similar to those of the first mentioned
society.

Section 19 provides for voting rights of members stating that

each member has only one vote in the affairs of the society
irrespective of the number of shares that he holds. (number of
shares is irrelevant it is a question of one person one vote.) but
there is a proviso stating that a society which is a member of a
cooperative union or an apex society shall have as many votes
as may be prescribed by the by laws of the cooperative union or
apex society of which it is a member and may subject to such by
laws appoint any member of its committee members no
exceeding the number of such votes to exercise its voting
power.

Shares or Transfer of Shares is provided for under Section 20

stating that the transfer or charge of the share or interest of a
member in the capital of a society is subject to such conditions
as to maximum holding as are laid down in section 15. Section
15 deals with the principles that you cannot have more than one
fifth of the paid up capital. In the case of a society registered
with unlimited liability a member shall not transfer or charge
any share held by him or his interests in the capital of the
society or any part thereof unless

1. He has held such share or interest for at least one year; and

38
 2. The transfer or charge is in favour of the society or a member
of the society; (transfers are subject to holding the shares for
one year effected to either the society or member of the
society and not to strangers.

RIGHTS OF MEMBERS

A member of a society has the following rights under Section 21

1. To attend and participate in the decisions taken at all annual
general and special meetings of the society and to vote;

3. He has a right to be elected to the organs of the society

subject to its bylaws;
4. right to enjoy the use of all the facilities and services of the
society subject to its bylaws;
5. A right to all legitimate information relating to the society
including internal regulations, registers, minutes of general
meetings, supervisory committee meetings all reports, annual
accounts and inventories and investigation reports at the
society’s head office.

On the other hand a member has the following obligations:

(a) To observe and comply with all the society’s by laws and
decisions taken by the relevant organs of the society in
accordance with its bylaws;
(b) He has the obligation to buy and pay up for shares or make
any other payments provided for in its bylaws;
(c) He has the obligation to meet the debts of the society in
case of bankruptcy in accordance with the provisions of
the Act and Society bylaws.

DUTIES OF COOPERATIVE SOCIETIES

39
1. Every society is required to have a registered address to
which notices and communication may be sent and is
required to send to the registrar notice of every change of
address within one month thereof.

2. Every society is required to keep a copy of the act and

rules and of its own bylaws as well as a list of its members
at its registered office. These shall be kept open for
inspection by any person free of charge at all reasonable
times during business hours.

3. every society is required to keep proper books of accounts

prepared in accordance with generally accepted
accounting standards and which shall be necessary to give
a true and fair view of the state of affairs of the society and
to explain its transactions including the following:

(a)All sums of money received and paid by the society and

the reasons thereto;
(b) All sales and purchases of goods by the society;
and
(c)All assets and liabilities of the society.

These books of accounts are to be kept at the registered office

and or such other places as may be determined by the society
and shall at all times be available for inspection by any
member of its supervisory committee and the auditor.

4. It is a duty of every society to cause its accounts to be

audited at least once a year by an auditor appointed at an
annual general meeting held 3 months before the end of
the financial year. Where at such meeting no auditor or
auditors are appointed or deemed to be reappointed, the
commissioner is required to convene a special general
meeting of the society with a direction to appoint a person

40
to fill the vacancy and his or her remuneration to be borne
by the society. Such remuneration is to be fixed by the
society in an annual general meeting or in such manner as
it may be determined. The audited accounts shall include
the following matters:

(a)A balance Sheet;

(b) A surplus and loss account; and
(c)A cash flow statement and shall be approved by the
members of the committee and authenticated by at least
3 office bearers including the treasurer of the society in
accordance with its by-laws.

Every auditor shall submit the audited accounts and

balance sheet to the members in an annual general meeting
convened 3 months after the end of the counting period
and shall include his opinion as to whether or not the
society’s business has been conducted

(i) in accordance with the provisions of the Act and

whether the books of accounts kept by the society
are in agreement therewith and give a true and fair
view of its state of affairs; and
(ii) The society’s business must be conducted in
accordance with the society’s objectives, bylaws and
any other decisions made by the society in a general
meeting.

The auditor has the right of access to the accounting

records and all books and documents of the society and
may demand such information and explanations from
every officer and employee as he may deem necessary in
the performance of his duties as an auditor. The auditor
has a right to attend any general meeting of the society to
receive all notices and other communication relating to

41
 any general meeting which a member of the society is
entitled to receive and he has a right to be heard at such
meeting on any part of the business which concerns him as
an auditor. He has the power where necessary to do the
following:

1. To summon at the time of his audit any officer,

agent, servant or member of the society whom he
has reasons to believe can give information in
regard to the transactions of the society or
management of its affairs;

2. He has the power to require the production of any

book or document relating to the affairs of the
society or any cash or securities belonging to the
society by the officer, agent, servant or member
having custody or possession of such book,
document, cash or securities

Under Section 25 (9) every society shall within 30 days of the

annual general meeting at such time or in such form as may be
prescribed file with the registrar any annual return together with a
certified true copy of the audited accounts and Balance Sheet of
the society for each period of 12 months.

Under Section 26 of the Act it is provided that “any officer, agent,

servant or member of the society who is required by the registrar or
by a person authorised in writing by him so to do shall at such
place and time as the registrar may direct produce all monies
securities, books, accounts and documents belonging to or relating
to the affairs of such society which are in his custody.

MANAGEMENT OF COOPERATIVE SOCIETIES

42
Section 27 of the Act provides that the committee of a society shall
be its governing authority and subject to any direction from a
general meeting of the society and its bylaws, it shall direct the
affairs of the society with the following powers:

A. To enter into contract;

B. To institute and defend suits and other legal
proceedings brought in the name of or against the society;
C. To do all other things necessary to achieve the
society’s objects in accordance with its bylaws.

The committee shall ensure that any payment made by cheque has
been signed by such officers as the bylaws authorise and the
committee shall also be responsible for the custody of all monies
belonging to the society. It is required to hold regular meetings at
which the following are done.

1. The minutes of its previous meeting are considered and

confirmed;
2. The accounts bank books and cash in hand are scrutinised
and checked and its observation thereon recorded in the
minutes;
3. Any loans due and owing to the society are considered and
any action considered necessary in respect of such loans is
authorised and recorded in the minutes; and
4. any current business is conducted.

It is the committee’s responsibility to send annually to the registrar

the audited balance sheet of the society and annual return. It is
further required to keep available for inspect at the society’s
registered offices the following documents:

(a) The Certificate of Registration;

(b) A copy of the Act, rules and registered bylaws;
(c) A list of members and

43
 (d) A list of Officers.

In the conduct of its affairs committee members are required to

exercise the prudence and diligence of ordinary men of business
and shall be held jointly and severally liable for any losses
sustained through any of their acts which are contrary to the Act,
the Rules, the Bylaws or the directions of any General Meeting. It
may delegate any of its duties to an officer or officers of the
society but such delegation shall not absolve it from its
responsibilities of running the affairs of the society in a proper and
businesslike manner.

AMALGAMATION & DIVISION OF SOCIETIES

IN RELATION TO AMALGAMATION:

Section 29 of the statute provides that any two or more societies

referred to as the amalgamating societies may by special resolution
referred to as the Preliminary Resolution resolve to amalgamate as
a single society referred to as the amalgamated society. A copy of
the preliminary resolution shall be sent to all members and
creditors of each of the amalgamating societies and to all other
persons whose interests in the amalgamating societies will be
affected by the amalgamation.

Any member of any of the amalgamating societies may

notwithstanding any bylaw to the contrary by notice in writing
given to his society at least one month before the date of
amalgamation intimate his intention not to become a member of
the amalgamated society.

Any creditor of any of the amalgamating societies may

notwithstanding any agreement to the contrary by notice in writing
given to such society at least one month before the date of

44
amalgamation intimate his intention to demand payment of any
money due to him.

Any other person whose interest will be affected by the

amalgamation may by notice given to the concerned amalgamating
society not less than one month before the dates of the
amalgamation object to the amalgamation unless his claim is
satisfied. Not less than 3 months after the date of the meeting at
which the preliminary resolution was passed a further special
general meeting of each of the amalgamating societies shall be
held to consider the preliminary resolution and any notices
received by a member, a creditor or any other person.

At the special general meeting provision shall be made by a further

resolution of the society referred to as the Secondary Resolution
for

1. The payment of the share capital of any member who

has given notice;
2. The satisfaction of any claims by creditors who have
given notice;
3. the Satisfaction of the claims of such other persons
who have given notice for the securing of their claims
in such a manner as may be determined or directed by
the registrar.

There is a proviso to the effect that provided that no member of

creditor or other person shall be entitled to such repayment of
satisfaction until the confirmation of the Preliminary Resolution.

Each amalgamating society made by further resolution passed by a

two thirds majority of the members present and voting confirm the
preliminary resolution if within such time as the registrar considers
reasonable he is satisfied that the secondary resolution of each of
the amalgamating societies complies with the provisions of the

45
Act, he may register the amalgamated society and its bylaws and
thereupon the following will result:

1. Each of the amalgamating societies shall stand dissolved

and its registration cancelled;
2. the registration of the amalgamated society shall be a
sufficient conveyance to vest the assets and liabilities of
the amalgamating societies in the amalgamated society;
3. The remaining members of the amalgamating societies
shall become members of the amalgamated society and
subjected to its bylaws; and
4. Any shareholders of the amalgamating societies or any
other persons who have claims against the amalgamating
societies and whose claims were not satisfied in
accordance with the secondary resolution may pursue such
claims against the amalgamated society.

If the registrar refuses the amalgamation those societies may

appeal against such refusal to the cooperative society’s tribunal
established under Section 77 of the Act.

LAW OF BUSINESS ASSOCIATION II Lecture 5

DIVISION OF SOCIETIES:

A society referred to as an existing society may by special

resolution called the preliminary resolution resolve to divide itself
into two or more societies referred to as new societies. The
preliminary resolution shall contain proposals for the division of
assets and liabilities of the existing societies among the new
societies in which it is proposed to be divided. It may also
prescribe the area of operation and specify the members who will
constitute each of the new societies.

46
A copy of the preliminary resolution is required to be sent to all
members and creditors of the existing societies and to any other
persons whose interests will be affected by the division. Any
member of the existing society may not withstanding any bylaw to
the contrary by notice in writing given to the society within two
months of receiving a copy of the preliminary resolution intimate
its intention not to become a member of any of the new societies.

1. Member:

2. Any creditor of the existing society may again

notwithstanding any agreements to the contrary by notice
in writing given to the existing society within two months
after receiving a copy of the preliminary resolution
intimate his intention to demand payment of any money
due to him.

3. Any other person whose interest will be affected by the

division may by notice in writing given to the existing
society within two months of receiving the preliminary
resolution object to the division. (3rd parties who might be
affected by the division).

After the expiry of the 3 months after the date of the preliminary
resolution a further special general meeting of the existing society
shall be held to consider the preliminary resolution and any notices
received. At this meeting provisions shall be made by a further
resolution for the repayment of the share capital of any member
who has given notice and the satisfaction of any claims by
creditors who have given notice and the satisfaction of the claims
of other persons who have given notice for the securing of their
claims as the registrar may determine or direct.

Note that no member or creditor or other person shall be entitled to

such repayment or satisfaction until the confirmation of the

47
preliminary resolution. The society may by a further resolution
passed by a two thirds majority of the members present and voting
confirm the preliminary resolution with or without changes as in
the opinion of the registrar are not substantial and the decision or
the registrar relating to these changes is final.

If the registrar is satisfied within such a time as he considers

reasonable that the provisions of the second resolution and the law
have been complied with then he may register the societies into
which the existing society has been divided and their bylaws.
Once that is done then the following occurs;

(a) The registration of the existing societies shall stand

dissolved;

(b) The registration of the new societies shall be sufficient to

vest the assets and liabilities of the existing society in the
new societies as specified in the preliminary resolution;

(c) The remaining members of the existing societies become

members of one or other of the new societies as provided
by the preliminary resolution;

(d) Any shareholders or creditors of the existing societies and

any other persons who have claims against the existing
societies which were not satisfied in accordance with a
second resolution may pursue such claims against one or
other or the new societies. If the registrar refuses to
approve the division of an existing society it may appeal
against such refusal to the cooperative societies tribunal
established under Section 77.

These are the provisions under which the societies want to

amalgamate themselves.

48
RIGHTS & OBLIGATIONS OF SOCIETIES

Number one relates to a society having a charge over members

produce. This is in relation to agricultural societies. Here a
society which has as one of its objects the disposal of any
agricultural produce may enter into a contract with its members
either in its by laws or by a separate document binding the
members to dispose of all their agricultural produce or such
amounts or descriptions of the same as may be stated to or through
the society and the contract may bind the members to produce the
quantities of agricultural produce mentioned therein and the
contract may further provide for payments of a specific sum per
unit of weight or other measure as liquidated damages for any
breach of the contract and any such sum on becoming payable
shall be a debt due to the society and shall be a charge upon the
immoveable property of the member. Such contract has the effect
of creating in favour of the society a charge upon the proceeds of
sale mentioned therein whether existing or future.

A society may on the authority of a resolution passed in general

meeting pledge the produce deliverable by members under any
such contract as security for loans made to it as if it were the
owner.

No contracts entered therein shall be contested in any court on the

ground that it constitutes a contract in restraint of trade. (in
relation with a society to have a charge over members produce)

2 Fines for violation of bylaws

Society by laws may subject to the Act and rules provide for the
imposition of fines on its members for any infringement of its
bylaws but such a fine shall not be imposed until written notice to

49
impose it and the reason for it has been served on a member and he
has had an opportunity to show cause why it should not be
imposed and to be heard with or without witnesses.

Such a fine shall be a civil debt due to the society and shall without
prejudice to any other means of recovery be recoverable
summarily. The whole or any part of such a fine may be set-off
against any money due to such a member in respect of produce
delivered by him to the society. Note however that a member shall
not be taken to have infringed society by laws by reason of his
having failed to deliver produce to it if the failure was due to the
fact that before becoming a member he had contracted to deliver
such a produce to some other person and the contract had been
disclosed to the society. In fact every person applying for society
membership is duty bound to disclose to it particulars of all such
contracts.

3. Society to have first Charge over debts and assets

in certain cases:

Here, subject to any other written law as to priority of debt where a

society has

(a) Supplied to any member or past member any seeds or

manure or any animals feeding stuff, agricultural or
industrial implements or n machinery or materials from
manufacture of buildings or;

(b) Render any services to any member or past member or;

(c) Lend money to any member or past member to enable

him to buy any of the things aforesaid or obtain any
such services, the society shall have a first charge upon
such things or upon any agricultural produce, animals

50
 or articles produced therewith with the aid of such
money and that charge shall exist for such period as the
loan or value of services rendered shall remain unpaid.

(d) Society to have first charge over members share: It is

provided that a society shall have a first charge upon
the share or interest in the capital and on the deposits of
a member or past member and upon any dividend,
bonus or accumulated funds payable to him in respect
of any debts due from him to the society and may set
off any sum credited or payable to him in or towards
the payment of any such debt.

(e) Remittance of Deductions from employees emoluments

to the society and interest payable on default: where
the employer of a person who is a member of a society
having with the agreement of such member and the
society concerned made a deduction from his
emoluments for remittance by the employer to the
society concerned fails to remit it within 15 days after
the date upon which the same was made, the society
concerned shall be entitled after having given such
employer not less than 7 days notice in writing
requiring immediate payment to file proceedings for
recovery of such deductions. The notice shall be in
writing and require that the employer concerned shall
within 7 days after service thereof pay the sum
deducted to the society and further provide that failure
to pay before the period specified in the notice will lead
to proceedings being taken for summary recovery of the
amount concerned together with compound interest at
the rate of not less than 3% per month through the
courts and the action shall be taken without further
notice to the employer. (one of the least observed

51
 rules) In proceedings instituted the society may be
represented by the registrar.

(f) Members shares not to be subject to attachment : The

share or interest of a member in the capital of a society
shall not be liable to attachment or sale under any
decree or order of a court in respect of any debt or
liability incurred by him and trustee in bankruptcy shall
not have any claim on such share or interest provided
that where a society is dissolved the share or interest of
any member who is adjudged bankrupt shall vest in the
trustee in bankruptcy.

(g) Liability of past members: The liability of a past

member of a society shall be in respect of the debts of
the society as they existed at the date when he ceased to
be a member and proceedings in respect thereof may be
commenced within a period of two years from such
date. Provided that in the case of a society with limited
liability if the first audit of its accounts after his ceasing
to be a member discloses that it is solvent, the financial
liability of such member shall cease forthwith.

(h) Liability of Estate of Deceased Members: It is

provided that the Estate of a deceased member shall be
liable for the debts of the society as they existed at the
time of his death and proceedings in that respect may be
commenced within one year of the death. Provided that

(i) (i) In the case of a society with limited liability, if the

first audit of its accounts after the death discloses a
credit balance in favour of the society then the financial
liability of the Estate shall cease forthwith;

52
 (ii) A personal representative shall not be liable
except in respect of assets in his possession
or under his control;

(j) Transfer of Shares or Interest of a Deceased Member:

On the death of a member a society may transfer his share or
interest to the following:

(i) The person nominated in accordance with the Act

and Rules;

(iii) If there is no person so nominated such

person as may appear to the committee of
the society to be the personal representative
of the deceased; or
(iv) If either of such persons is not qualified
under the Act or bylaws or the society
bylaws, such person specified by the
nominee or personal representative as the
case may be who is so qualified or may pay
to such nominee or personal representative a
sum representing the value of such member
share or interest ascertained in accordance
with any rules made under the Act or the
society by laws. Provided that

(a) IN the case of a society with unlimited

liability such nominee or personal
representative may require the society to
pay him the value of the share or the
interest of the deceased member
ascertained in a manner provided by the
bylaws or
(b) In the case of a society with limited
liability it shall transfer the share or

53
 interest of the deceased to such nominee or
personal representative being qualified in
accordance with the Act or any Rules or
Society bylaws for membership on his
application within one month of the death.
All other monies due do the deceased from
the society shall be paid to such a nominee
or personal representative. All transfers
and payments by a society made herewith
shall be valid and effectual against any
demand made upon the society by any
other person.

(k) Evidence of Members Interest: any register or list of

members or of shares which is kept by a society is prima
facie evidence of any of the following particulars therein
entered:
(i) The dates on which the name of any person was entered
in such a register or list as a member;
(ii) The date on which such persons ceased to be a member;
(iii) The number of shares held by him;

A copy of any entry in a book of a society regularly kept in

the course of its business shall if certified in accordance with
the rules be prima facie evidence in any proceedings of the
existence of such entry and of the matters transactions and
accounts therein recorded.

(l) Restriction on Production of Society Books: No officer of a

society shall in any legal proceedings to which the society or
liquidator is not a party may be compelled to produce any of
the society’s books where the contents can be proved as
herein above mentioned or to appear as a witness to prove the
matters transactions and accounts therein recorded unless the
court for special course otherwise orders.

54
LAW OF BUSINESS ASSOCIATION II Lecture 6

PROPERTY AND FUNDS OF SOCIETIES

Application of Societies Property and Funds:

1. Section 42 provides that society property and funds shall

only be applied for its benefit and its members benefit.
2. Restriction on giving Loans – this provides that a society
shall not give a loan nor allow any credit to a person other
than a member unless its bylaws provide for giving such a
loan subject to a resolution passed at the annual general
meeting.
3. Restriction on Borrowing: Here a society may receive
receipts loans from non-members only to such extent and
under such conditions as its bylaws or rules allow. In this
connection a deposit of money under a higher purchase
agreement shall be deemed to be a law.
4. Investments of society funds: A society may invest or
deposit its funds only in the following:
(a) In the Post Office Savings Bank;
(b) In and upon such investments and securities as are
for the time being authorised for investment of Trust
Funds;
(c) In the Shares of any other cooperative;
(d) With any bank licensed under the Banking Act; and
(e) In the stock or any statutory body established in
Kenya or in any limited liability company
incorporated in Kenya or in any other manner
approved by a resolution at an annual general
meeting.

5. Declaration and Payment of Bonus: Every society shall

declare each year all bonuses due to members but where the

55
 bonuses are required for re-investment for capital
development or for the redemption of Bonus Certificates, it
shall issue Bonus Certificates to members in lieu of cash
payments redeemable from a revolving fund established for
that purpose. No society shall pay a dividend bonus or
distribute any part of its accumulated funds without a balance
sheet and audited account and report disclosing the surplus
funds out of which these are to be made. A Society shall pay
a dividend at such a rate as may be recommended by the
management committee and approved by the annual general
meeting.

6. Maintenance of a Reserve Fund: It is provided that every

society which does or can derive surplus from its
consumptions shall maintain a reserve fund to which may be
carried such portion of the net surplus in each year as may be
prescribed by rules under the Act or Society bylaws.

CHARGES BY COOPERATIVE SOCIETIES

A cooperative may from time to time charge the whole or any part
of its property if its expressly empowered by its bylaws subject to
approval by the annual general meeting. Such charge shall comply
with the provisions of the law applicable to it. It is the duty of
every cooperative to register with the registrar every charge
created and its particulars. Provided that registration of a charge
may be effected on the application of any person interested and
where the registration is effected in this way, the person registering
shall recover from the society the fees paid for registration. If any
cooperative fails to send to the Registrar for registration the
particulars of any charge created within the prescribed time then,
unless it has been effected by some other person the society and
every officer thereof shall be guilty of an offence and liable to a
fine.

56
The registrar shall with respect to each society register in such a
form as may be prescribed by or under the Act all charges
requiring registration and enter in the register with respect to each
of them the following particulars:

1. If the charge is one created by the Society, the date of its

creation and if the charge was a charge on existing society
property, the date of the acquisition of the property;

2. The amount secured by the charge;

3. Short particulars of the property charged;

4. The persons entitled to the charge;

The registrar is required to issue a certificate of registration stating

the amount secured and this shall be conclusive evidence that the
requirements of the Act have been complied with. That register
shall be open for inspection by any interested person on payment
of the prescribed fee. The registrar is required to keep a
chronological index in the prescribed form and containing the
prescribed particulars of the charges entered in the register. Once
he receives evidence to his satisfaction that the date for which any
registered charge was given has been satisfied or paid, he shall
order that a Memorandum of Satisfaction be entered on the register
and shall furnish the society concerned with a copy.

If any person obtains an order for the appointment of a receiver or

manager of the property of a society or if the registrar appoints
such a receiver or manager under any powers contained in any
instrument he shall within 7 days from the date of the order or of
the appointment give written notice of that fact to the registrar who
shall enter the notice in the register of charges. Where such
appointed person ceases to act he shall give written notice of the

57
fact to the registrar who shall enter the notice in the register of
charges.

Failure to comply with these requirement the person who has failed
to do so is guilty of an offence and liable to payment of a fine.

Every society is required to cause a copy of every instrument of

charge requiring registration to be kept at its registered address. At
that address there shall be kept a register of charges, the property
affected and also of floating charges on the property or assets of
the society and particulars of the property charged, the amount of
the charge and the name of the person entitled thereto.

Failure by any officer of the society to make the entries in any

register, he shall be guilty of an offence and liable to a fine.

All charges kept at the registered office shall be open for

inspection by any creditor or member free of charge subject to
such reasonable restrictions as the society in general meeting may
impose. Failure or refusal to allow inspection of the register of
charges is an offence.

INQUIRY & INSPECTION

1. In relation to inquiry –Section 58 provides that the

registrar may of his own accord and shall on the direction
of the Minister or on the application of not less than one
third of the members voting at a meeting of the society
duly advertised hold an inquiry into the bylaws working
and financial condition of any society. All officers and
members of the society shall produce such cash accounts
books, documents and securities of the society and furnish
such information in regard to its affairs as the person
holding the inquiry may require. The registrar shall report
the findings of his inquiry by tabling it at a general

58
 meeting which shall determine what action or steps to take
on such report.
2. IN relation to Inspection:Section 59 provides that the
registrar may if he thinks fit on the application of a
creditor inspect or direct some persons authorised by him
in writing to inspect the books of the society if
(a) The creditor satisfied the registrar that the debt is a
sum then due and he has demanded payment and has
not received satisfaction within a reasonable time;

(b) The applicant deposits with the registrar such sum as

security for the expenses of the inspection as the
registrar may require. After the inquiry the registrar
shall inform the creditor of the results of the
inspection.

Where an inquiry is held or an inspection is made the registrar may

make an order apportioning the expenses of the inquiry or
inspection between the society, the members or creditors
demanding the inquiry or inspection and the officers or former
officers of the society and his decision thereof is final. Any sum
awarded by way of expenses shall be a civil debt recoverable
summarily on the production of the registrar’s certificate.

DISSOLUTION OF SOCIETIES

If the registrar after holding an inquiry or making an inspection or

receiving an application made by at least three quarters of the
members is he of the opinion that the society ought to be
dissolved he may in writing order its dissolution and subsequent
cancellation of registration. Any member who feels aggrieved by
this order may within two months after its making appeal against it
to the Minister with a final appeal to the tribunal. Where no appeal
is filed within the prescribed time the order shall take effect on the
expiry of that period but where an appeal is file within time the

59
order shall not take effect unless confirmed by the minister or by
the tribunal.

When the registrar makes that order, he must make a further order
relating to the custody of the books and documents of the society
and the protection of its assets. It should be noted that no society
shall be dissolved or wound up except by an order of the registrar.
Where a society has less than the prescribed number of members
the registrar may in writing order its dissolution and that order
takes effect immediately and where registration is cancelled the
society ceases to exist as a corporate body from the date the order
takes effect.

It should also be noted that Section 64 applies the provisions

relating to winding up of companies to winding up of cooperative
societies.

Where a registration is cancelled the registrar may appoint one or

more persons to be liquidator or liquidators of that society and all
the property of such a society vests in him from the date upon
which the order of cancellation takes effect. Once a liquidator has
been appointed he has the following powers:

(a) To appoint a day in the prescribed manner before which

the creditors whose claims are not already recorded in the
society books shall state their claims for admission or ask
to be excluded from any distribution made before they
have proved them;

a. He has the power to institute and defend suits and other

legal proceedings by or on behalf of the society in his
own name or office and to appear before the tribunal as
litigant in person on behalf of the society;

60
(b) He has the power to appoint an advocate to assist him in
the performance of his duties;

(c) He has the power to refer disputes to the Tribunal in the

prescribed manner;

(d) He has the power to determine from time to time the

contributions to be made by members and past members
and by the estates of deceased members to the funds of the
society;

(e) He has the power to investigate all claims against the

society and to decide questions of priority arising between
them;

(f) He has the power to call such meeting of members and

creditors as may be necessary for the proper conduct of the
liquidation;

(g) He has the power to sell the moveable and immovable

property and rights of action of the society by public
auction or private contract with power to transfer the same
to any person or company;

(h) He has the power to carry on the business of the society as

far as may be necessary for the proper liquidation of its
affairs;

(i) He has the power to determine from time to time by what

persons and in what proportion the expenses of the
liquidation are to be borne;

(j) He has the power to take possession of the books,

documents and assets of the society;

61
 (k) He has the power to arrange for the distribution of the
assets of the society in a convenient manner when a
scheme of distribution has been approved by the registrar;

(l) He has the power to give such directions in regard to the

disposal of the books and documents of the society as may
appear to him necessary for winding up the affairs of the
society;

(m) He has the power to compromise with the approval of the

registrar any claim by or against the society;

(n) He has the power to apply to the registrar for his discharge
from the duties of liquidator after completion of the
liquidation proceedings.

In the exercise of his powers he has the power to summon and

enforce the attendance of witnesses and to compel the production
of documents by the same means and in the same manner as
provided in the case of a court under the Civil Procedure Act.

The registrar is required to keep an account called the Cooperative

Societies Liquidation Account with such banks as may be
prescribed and to be administered in the prescribed manner.

In the exercise of his powers the liquidator is subject to control of

the register and also subject to limitations imposed by the registrar
and the registrar may do the following things

(a) Rescind or vary any order made by the liquidator and

make any new order he thinks proper;
(b) Remover the liquidator from office and appoint a new
liquidator in his place;
(c) Call for all books, documents and assets of the society;

62
 (d) By order in writing in any particular case, limit the powers
of the liquidator;
(e) At his discretion require accounts to be rendered to him by
the liquidator;
(f) Procure the auditing of the liquidators account and
authorise the distribution of the assets of the society;
(g) Make an order for the remuneration of the liquidator;
(h) Grant a discharge to the liquidator on application by him
after completion of the liquidation proceedings;
(i) Require any member or past member or the society and
any trustee banker, receiver, agent or officer of the society
to pay deliver, convey, surrender or transfer forthwith or
within such a time as he shall direct to t he liquidator any
money property books or papers in his hands to which the
society appear to be entitled.
(j) Appoint a special manager for the management of society
business and determine his remuneration and what if any
security he shall give for the proper performance of his
duties;
(k) Refer any dispute between a liquidator and a third party to
the tribunal if that party consents in writing to be bound by
the decision of the tribunal;
(l) Require the indemnification of the liquidator.

The decision of the tribunal on any matter referred to it binds

parties and is exercisable in the same manner as an order made by
the registrar. Where any matter is referred to a tribunal the cost of
reference and award is under discretion of the tribunal. Anyone
aggrieved by an order or decision of the registrar or the liquidator
may appeal against it to the tribunal within 14 days thereof.
Anyone aggrieved by the decision of the tribunal may appeal to the
High Court within 14 days thereof.

Any order or decision made on being filed in court may be

enforced in court in the same manner as if it were the court

63
decision. If the liquidator of a society whose registration has been
cancelled alleges that anyone of the offences specified in the
applied sections of the Companies Act has been committed, he
shall report the facts to the registrar who shall if he thinks fit,
institute such proceedings as may be necessary.

Any person who is convicted of an offence under the applied

sections of the Companies Act shall cease to be or remain an
officer of a society and shall cease to be concerned in all take part
in the management of a society for a period of 5 years from the
date of his conviction and if he does so he shall be guilty of an
offence and liable to imprisonment for a term not exceeding 2
years.

LAW OF BUSINESS ASSOCIATION II Lecture 7

SURCHARGE

Under Section 73 BA it is provided that where it appears that any

person who has taken part in the organization or management of a
society or any past or present officer or member has misapplied or
retained or become liable or accountable for any money or
property or the society or has been guilty of misfeasance or breach
of trust in relation to the society the registrar may of his own
accord or on the application of the liquidator or of any creditor or
member inquire into the conduct of such person and report his
findings and recommendations at a general meeting of the society
convened for that purpose.

If the registrar’s findings or recommendations indicate that the

person be required to repay or restore the money or property to the
society with interest as determined by the registrar or to contribute
such sum to the assets of the society by way of compensation for

64
the misapplication, retainer, dishonesty or breach of trust, the
matter shall be determined by the general meeting in accordance
with the society bylaws. For this purpose the registrar shall have
the power to direct the secretary and/or the chairman of the society
concerned to convene a general meeting of that society. If they do
not call such a meeting then they shall be guilty of an offence.

The decision taken hereof shall not prejudice the fact that the same
act or default upon which the decision or action was based may
constitute an offence under some other law for which the person
has been prosecuted or is being or is likely to be prosecuted.

A person aggrieved by the decision taken by the general meeting

may appeal to the minister with the final appeal to the tribunal.
Any money ordered by an order made hereon to be repaid or
contributed to the society shall without prejudice to any other
mode of recovery be a civil debt recoverable summarily.

SETTLEMENT OF DISPUTE

Under Section 76 of the Statute it is provided that if any dispute

concerning the business of a cooperative arises

(a) Among members Past members and persons claiming

through members, past members and deceased
members or;
(b) Between members, past members or deceased members
and the society, its committee or any officer; or
(c) Between the society and any other cooperative society
it shall be referred to the tribunal.

A claim by a cooperative society for any debt or demand due to it

from a member or past member or from the nominee or personal
representative of a deceased member whether such a debt or
demand is admitted or not is a dispute.

65
Section 77 established the cooperative tribunal consisting of a
chairman and deputy chairman appointed by the Chief justice , 3
members appointed by the minister or of whom shall be legally
qualified and at least one of whom shall be an advocate of the high
court of Kenya.

However, no person shall be qualified for appointment as chairman

or deputy chairman unless he holds or has held for a total period of
not less than 5 years the qualifications specified in sections 12 and
13 of the advocates Act. All appointments to the tribunal are by
Gazette notice issued by the minister for a period of 3 years.

The officer of a member of the tribunal shall become vacant under

the following circumstances;

a. at the expiration of 3 years from the date of his

appointment;
b. if he accepts any office the holding of which if he were not
a member of the tribunal would make it ineligible for
appointment to office of a member of the tribunal;
c. If he is removed from membership for failure to discharge
the functions of his office whether arising form infirmity
of body or mind or from any other cause or for
misconduct;
d. If he resigns from office.

In its proceedings the tribunal is not bound by the rules of

evidence. Section 78(2) provides as follows the tribunal shall upon
an application made to it in writing by any party or a reference
made to it by the commissioner, the registrar or any committee or
officer of a society on any matter relating to the Act, the rules or
bylaws inquire into the matter and make an award thereon and
every award made shall be notified to the parties concerned. The

66
tribunal sits at such times and in such places as it may decide.
Currently they are sitting at Re insurance plaza.

The proceedings of the tribunal are open to the public except

where otherwise directed by the Tribunal. Except as expressly
provided the tribunal regulated its own procedure. Under Section
79 the Tribunal may

1. Make such orders for the purposes of securing the

attendance of any person at any place, the discovery or
production of any document or the investigation of
contravention of the Act as it deems necessary or
expedient;
2. The tribunal may take evidence on oath and for that
purpose administer oaths; or
3. On its own motion summon and hear any person as a
witness.

Any person who under paragraph 79(2)

(a) fails to attend to the tribunal after being summoned;
(b) Refused to take oath or to answer satisfactorily to the best
of his knowledge and belief any question lawfully put to
him in any proceedings before the tribunal; or to produce
any article or document when required to do so or
(c) Knowingly gives false evidence or information which he
knows to be misleading or;
(d) At any sitting of the tribunal wilfully insults any member
or officer or wilfully interrupts the proceedings or
commits contempt of the tribunal shall be guilty of an
offence.

For the purposes of hearing and determining any cause or matter

the chairman and two members form a quorum. Provided that
where for any reason either or both of the members is or are not
present for any part of the hearing the jurisdiction of the tribunal

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may be exercised by the chairman sitting either with one such
member or alone.

A tribunal member who has a direct interest in any matter which is

the subject of the proceedings before it shall not take part in those
proceedings. Any matter considered by the tribunal shall be
decided by majority vote and the person presiding has a casting as
well as deliberative vote. But any point of law arising in any
proceedings shall be reserved to and pronounced upon by the
person presiding exclusively. All interlocutory applications shall
be determined by the Chairman of the Tribunal.

However any power conferred or duty imposed on the chairman

may unless a contrary intent appears be exercised or performed by
the deputy chairman if the chairman is unable to exercise or
perform that power, due to illness or absence or where the
Chairman authorises the deputy chairman to exercise or perform
that power or duty.

Section 81 deals with appeals and is to the effect that any party to
the proceedings aggrieved by any order of the tribunal may within
30 days of such order appeal against it to the High Court. the high
court reserves the power to extend that period. upon the hearing of
an appeal, the high court may do any of the following

1. Confirm set aside or vary the order in question;

2. Remit the proceedings to the tribunal with such
instructions for further consideration, report proceedings
or evidence as the court may deem fit to hear;
3. Exercise any of the powers which could have been
exercised by the tribunal in the proceedings in connection
with which the appeal is brought or;
4. Make such other order as it may deem just including an
order as to the costs of the Appeal or of earlier
proceedings in the matter before the tribunal.

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It should be noted that the decision of the high court on any appeal
is final.

Under Section 82 the Chairman of the tribunal may appoint any

person with special skills or knowledge on cooperative issues
which are the subject matter of any proceedings or inquiry before it
to act as an assessor in an advisory capacity in any case where it
appears to him that those skills are required for the proper
determination of the matter. It is an offence for any person to
engage in acts or commission amounting to contempt of the
tribunal and it may punish such person for contempt.

The remuneration of the Chairman and Tribunal members shall be

determined by the minister from time to time. Further the minister
shall appoint a public officer to be secretary to the tribunal whose
allowances shall be determined by the minister. The minister is
further empowered to establish one or more branches of the
tribunal in any part of Kenya as he deems appropriate in
consultation with the chairman.

Any person who is a party to proceedings may appear in person or

be represented by an Advocate.

Section 88 deals with immunity herein, the chairman or other

members of the tribunal shall not be liable to be sued in a civil
court for an act done or omitted to be done or ordered to be done
by them in the discharge of their duties whether or not within the
limits or their jurisdiction as long as they at the time in good faith
believed themselves to have jurisdiction to do or order the acts
complained of. No officer of the tribunal or other person bound to
execute the lawful warrants, orders or other processes of the
tribunal shall be liable to be sued in any court for the execution of
a warrant order or process which he would have been bound to
execute if within the jurisdiction of the Tribunal issuing it.

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GENERAL PROVISIONS:

This deals with inter alia with matters relating to remuneration of

cooperative societies officers. It specifies that no person other than
a cooperative society shall use the term cooperative without a
written approval of the registrar and any person who contravenes
this is guilty of an offence.

This section also deals with empowerment of the minister to make

rules and the minister as pursuant to this Section made the
Cooperative Societies Rules of 1998. It also empowers the
minister to exempt some societies from some or all the provisions
of the Act. Finally it creates certain offences under Section 94.

Kenya Gazette Supplement no. 89 Bills Bill no. 27

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