Credit cooperative societies, often referred to as cooperatives or co-ops, are member-owned financial institutions established to provide a range of financial services to their members. Unlike traditional banks or credit unions, credit cooperative societies operate on a cooperative basis, where members pool their resources to meet their common financial needs.
The primary purpose of credit cooperative societies is to promote thrift, savings, and financial inclusion within communities. They offer various services such as savings accounts, loans, insurance, and other financial products tailored to meet the specific needs of their members.
Credit cooperative societies play a vital role in providing accessible and affordable financial services to their members, while also promoting principles of cooperation, self-help, and economic empowerment.
What sets credit cooperative societies apart from other financial institutions is their member-focused approach. Members of these societies are also owners, with each member having an equal say in the decision-making process, regardless of the size of their financial contribution. This democratic structure ensures that the interests of the members are prioritized, fostering a sense of community ownership and accountability.
BENEFITS OF CREDIT CO-OPERATIVE SOCIETIES
Credit co-operatives offer numerous benefits to their members, contributing significantly to their financial well-being and overall community development.
- Access to credit: Credit co-operative societies provide acess to affordable credit facilities, especially to persons and small business who may struggle to secure loans from traditional financial institutions. By pooling resources and funds from members, these societies offer loans at reasonable interest rates, thus enabling members to meet their financial needs without falling into predatory lending debt.
- Member empowerment: Being member-owned and democratically controlled entities, Credit Cooperative Societies empower their members by providing them with a platform to collectively address their financial needs. Members actively participate in decision-making processes, ensuring that the society's operations align with their interests and goals. This sense of ownership fosters a strong sense of community and solidarity among members.
- Financial education and support: Credit Cooperative Societies not only provide financial services but also offer financial literacy programs and training to their members. These educational initiatives help members develop better financial management skills, make informed financial decisions, and ultimately improve their financial well-being. Additionally, members receive support and guidance from the society in navigating various financial challenges they may encounter.
- Sustainable community development: By promoting thrift and self-help among members, Credit Cooperative Societies contribute to the sustainable development of communities. They facilitate the growth of local businesses, create employment opportunities, and support entrepreneurial ventures, thereby fostering economic growth and stability at the grassroots level.
- Social Impact: Beyond financial benefits, Credit Cooperative Societies have a profound social impact on communities. They promote social cohesion, trust, and solidarity among members, fostering a sense of belonging and mutual support. Additionally, these societies often engage in philanthropic activities and community development projects, further enhancing their positive influence on society.
The Constitution of India emphasizes the responsibility of the State to promote individual and cooperative industries (especially in rural areas). Cooperative societies are governed under different regulations, based on the scope of their operation and objects. Cooperative Societies that have their objects confined to only one State, i.e., operating within only one State are governed by the respective State’s laws regarding cooperatives. For example, in the State of Uttar Pradesh, the Uttar Pradesh Co-operative Societies Act, 1965 and Rules are applicable, and in Delhi, the Delhi Co-operative Societies Act, 2003 and Rules 2007 apply. Whereas the cooperative societies with objects not confined to any one State, or confined to more than one State, are governed by the central law, i.e., the Multi-State Co-operative Societies Act, 2002.
Cooperative societies are thus registered under the various State enactments as applicable. In this article, we explain the procedure of registration of a co-operative society under the Delhi Co-operative Societies Act, 2003.
CLASSIFICATION OF COOPERATIVE SOCIETIES (NCT OF DELHI)
Cooperative societies can be classified on two bases.
- Federal or Primary co-operative societies.
- According to Section 2(v), a primary co-operative society is one in which only individuals are members.
- According to Section 2(m), a federal co-operative society is one which has only other co-operative societies as its members. Experts in the respective fields may also constitute the membership of the federal co-operative society that has been formed with the main objective of promoting activities in those fields, as long as these experts constitute a maximum of either 20 members, or one-fifths of the total strength of that society, whichever is less. Federal co-operative societies can be further classified based on their area of operation within the National Capital Territory of Delhi.
- Apex federal co-operative societies – operate within the whole of the National Capital Territory of Delhi
- Central federal co-operative societies – operate in any specific part of the National Capital Territory of Delhi.
- Under Rule 4 of the Delhi Co-operative Societies Rules, 2007, cooperative societies are classified based on their primary objectives and activities. These are further divided into 10 classes:
- Resource co-operative society (Urban Thrift and Credit co-operative societies fall under this class).
- Producers co-operative society
- Consumers co-operative society
- Co-operative housing society
- Processing co-operative society
- Marketing co-operative society
- Joint farming co-operative society
- Collective farming co-operative society
- Co-operative Union
- Multipurpose CO-operative Society
FORMATION OF A CO-OPERATIVE SOCIETY
By following these steps and meeting the outlined requirements, the credit cooperative society can successfully form and register under the Cooperative Societies Act with limited liability.
- Objective of the Cooperative Society: The cooperative society should aim to promote the economic, social, and cultural interests of its members, adhering to cooperative principles. [Section 4(1)]
- Viability Norms: The society must fulfill viability norms to ensure economic soundness, as prescribed for cooperative societies. [Rule 5(1)(i)] This step ensures that the registration won't harm the development of the cooperative movement. [Proviso to Section 4(1)]
- Limited Liability: The society can be registered under the Act with limited liability, which means members' liability is restricted to their contributions to the society.
- Name Requirement: The word "limited" or its equivalent in any Indian language should be the last word in the society's name for registration under limited liability. [Section 4(2)] Also, the name of a cooperative society in the application form must not show any discrimination based on gender, social status, inequality, race, political ideology, or religious beliefs. [Rule 5(1)(a)]
- Membership Criteria: The society must consist of at least 15 qualified members who reside within the society's operational area (i.e. Delhi). [Section 5]
In the case of a primary cooperative society, each member must belong to a different family, where "family" includes parents, spouse, and dependent children.
- Share Capital Limitation: No member, except the Government or another cooperative society, can hold more than a prescribed portion of the share capital, with a maximum limit of one-tenth. [Section 6]
- Compliance with Regulatory Bodies: The society needs to comply with regulatory bodies overseeing cooperative societies, ensuring adherence to legal and operational standards.
Any required documentation, such as the society's bylaws and financial statements, must be prepared and submitted as per regulatory requirements.
These are given in Schedule I of the Delhi Co-operative Societies Act, 2003, and are as follows:
- Voluntary and open membership
- Democratic member control
- Member’s Economic participation
- Autonomy and independence
- Education, training and information
- Co-operation among co-operatives
- Concern for community
PROCEDURE FOR REGISTRATION OF A CO-OPERATIVE SOCIETY
- Application submission
The application for registration of a co-operative society is made to the Registrar in Form-1 in either Hindi or English. It must be signed by 20 promoter-members. The application must be attested by Gazetted officer / MLA / MP, and delivered by registered post or by hand to the Registrar. The application may be submitted on the RCS Online Portal after creating log-in credentials, accompanied by the following documents:
- 4 copies of proposed bye-laws signed by all promoter-members.
- List of promoter-members along with their names, address, profession, monthly income, and proof of residence (signed by all promoter-members of proposed society).
- ID’s of all members duly attested by Gazetted officer / MP / MLA.
- Certificate from financing bank for deposit of share capital file.
- List of promoter-members who have contributed to share-capital (along with amount contributed by each, and entrance fee paid).
- Proposal for approval of Registrar (along with affidavit of chief promoter).
- The scheme of working of the co-operative society, which must be drawn in accordance with viability norms as given in Schedule VI to the Delhi Co-operative Societies Rules, 2007.
- The legal status of the premises proposed to be used must be clear. – Ownership document (GPA sale deed / NOC from land lord in respect of proposed premises).
- Also, the description of immovable property proposed to be purchased by / acquired by / transferred to the Co-operative must be attached, where applicable.
- Affidavit of each promoter-member (1. not a member of the family of any other promoter joining in the application 2. not member of any other co-operative society of the same kind)
- Resolution of nomination of Chief Promoter of the proposed society.
- Affidavit of chief promoter member.
- Proof of residence of promoter-members in area of operation of the co-operative society.
- Statement disclosing the financial position of each promoter-member.
- Resolution of promoter-members adopting bye-laws, and authorizing 2 office-bearers to make alterations / additions in proposed bye-laws, and disclosing name and address of person who would maintain correspondence with the Registrar.
- Any other document, which may include application for awarding of shields to certain classes of societies [find application for awarding of shields to urban thrift and credit societies here]
- Application Signatories
- Details of promoter members
- Details of elected members
- Application Compliance
- Objectives Compliance
- Bye-laws Review
- Reserve Bank Permission (for Co-operative banks)
- Viability Assessment
CERTIFICATE OF REGISTRATION
After registration of the co-operative society and its bye-laws, a certificate of registration signed by the Registrar is issued to the co-operative society in Form-3, along with a copy of the bye-laws registered, certifying that such bye-laws have been registered by him. The co-operative society is considered to be registered from the date of registration mentioned in the certificate, and must commence business within 180 days from the date of its registration. The model bye-laws made by the Registrar may be adopted by the co-operative society with or without changes [Find the model bye-laws of urban thrift and credit societies here].
CONDITIONS FOR MEMBERSHIP
A cooperative society cannot be registered under this Act unless it has at least fifteen members who live in the society's operational area and qualify as members under this Act. Following are the conditions to qualify:
- They must be a citizen of India.
- They must have submitted the prescribed membership form provided by the co-operative society.
- Their membership application must have been approved by the co-operative’s committee (which functions similarly to the Board of Directors of a Company). A nominal / associate / sympathizer member’s application must be approved by an authorized officer designated by the committee.
- The member must have fulfilled all provisions of the Delhi Co-operative Societies Act, Rules, and bye-laws of the Co-operative society.
- If the member is an entity (such as a company or organisation), such entity must have passed a Resolution authorizing the entity to apply for membership in the Co-operative society.
- They cannot have applied for insolvency or be an undischarged insolvent.
- They cannot have been sentenced for any offense (involving moral dishonesty) within the past 5 years.
- Cooperative societies must cease to be members of Federal/Apex or Central Societies under certain conditions, such as becoming members of other federal societies of the same class, becoming defunct, liquidation or cancellation of registration, or failure to pay annual subscription continuously for three or more years.
DUTIES OF MEMBERS
The member's duties to the cooperative society are:
- Follow rules: Obey laws, rules, and decisions made by the cooperative's governing bodies.
- Contribute funds: Pay share capital and other fees as required by the cooperative's rules.
- Support cooperation: Help other members and the cooperative grow and develop.
- Economic commitment: Meet minimum economic commitments and support the cooperative's activities.
- Share liability: Take responsibility for debts and losses within their share capital limit.
- Compensate for damages: Pay for any harm caused to the cooperative society as per the rules and laws.
LOAN DECLARATION AND SECURITY PROCEDURES FOR MEMBERS
- Members borrowing loans must fill out Form-9, including required declarations according to section 45 of the Act.
- The cooperative society must maintain a register of these declarations using Form-10.
- If a member pledges immovable property for a loan, the charge remains until the loan is repaid or the member leaves the society.
- If a member pledges land or tenant rights as security, the cooperative society can use the property to recover the loan if necessary.
- The cooperative society must record details of the charge on the property in the village's record of rights, serving as notice of the charge.
- Financial institutions and cooperative societies involved in financing, agriculture, and credit activities fall under the provisions of section 45 of the Act as per the rules.
Article written by Khadija Firdaus an intern at Corpzo