Article 243ZH

Article 243ZH of the Indian Constitution, forming part of Part IXB, provides the essential definitions and terminologies governing co-operative societies. Introduced by the 97th Constitutional Amendment Act, 2011, this article lays the groundwork for the constitutional framework of co-operative societies in India. Its objective is to promote democratic functioning, accountability, and autonomy within co-operative institutions, ensuring their effective contribution to socio-economic development.

Background and Constitutional Context

Before the 97th Amendment, co-operative societies were primarily governed by state-specific legislation. However, due to inconsistencies in governance and lack of uniformity across states, there arose a need for a constitutional framework that would promote independent and democratically managed co-operatives.
The 97th Amendment inserted Part IXB (Articles 243ZH to 243ZT) into the Constitution, extending principles similar to those applicable to Panchayats (Part IX) and Municipalities (Part IXA) to the co-operative movement. Article 243ZH is the opening provision of this Part, providing precise definitions that ensure uniform understanding and application of terms in subsequent articles.

Key Definitions under Article 243ZH

Article 243ZH defines several critical terms used in the constitutional and legislative context of co-operative societies. These definitions bring clarity to the legal and operational framework for the governance of co-operatives.
1. Co-operative SocietyA co-operative society is defined as a society registered or deemed to be registered under any law relating to co-operative societies in force in any state.

• This definition accords legal recognition to co-operative institutions functioning under different state laws.
• It emphasises the voluntary association of individuals who unite to meet their common economic, social, and cultural needs through a jointly owned and democratically controlled enterprise.

2. Co-operative BankA co-operative bank refers to a co-operative society engaged in banking business, including accepting deposits and lending money, particularly to members.

• These banks function under the Banking Regulation Act, 1949, and the Reserve Bank of India Act, 1934, along with state-specific co-operative laws.
• They play a vital role in rural finance, supporting agricultural credit, small industries, and self-help groups.

3. Co-operative Society with Share CapitalThis type of co-operative society has members contributing capital in the form of shares.

• Ownership and voting rights are based on membership rather than shareholding, following the democratic principle of “one member, one vote”.
• Profits, if any, are distributed as dividends proportionate to members’ share contributions, though the focus remains on service rather than profit-making.

4. Co-operative Society without Share CapitalA co-operative society without share capital operates primarily to provide services rather than generate profits.

• Members contribute through membership fees or patronage rather than shareholding.
• Examples include consumer co-operatives, housing societies, and service co-operatives, where the emphasis lies on collective benefit and service delivery.

5. DirectorA Director is a member of the board of directors of a co-operative society.

• Directors are responsible for policy-making, strategic decisions, and governance oversight.
• Their election, tenure, and functions are regulated by state co-operative laws and the bye-laws of individual societies.

6. General BodyThe general body constitutes all members of a co-operative society and serves as its highest decision-making authority.

• It approves major policies, budgets, and annual reports.
• It elects the board of directors and can also remove them for misconduct or inefficiency.
• The general body embodies the democratic foundation of the co-operative movement.

7. MemberA member is an individual or entity admitted into the co-operative society in accordance with its bye-laws.

• Members enjoy voting rights, participation in general meetings, and a share in the benefits and responsibilities of the society.
• Membership can include individuals, co-operative societies, and in some cases, government bodies or corporations, depending on the society’s structure.

8. Office-bearerAn office-bearer is a director or an officer of a co-operative society who holds a position of authority.

• Office-bearers are responsible for administrative, managerial, and operational functions, including the execution of board decisions.
• Common office-bearers include the Chairperson, Vice-Chairperson, Secretary, and Treasurer.

9. StateIn the context of Part IXB, the term “State” refers to a state listed in the First Schedule of the Constitution.

• This definition is crucial for determining jurisdiction, as co-operative societies are a State Subject under Entry 32 of the State List in the Seventh Schedule.
• However, the 97th Amendment introduced constitutional provisions applicable across states, while preserving the autonomy of state legislatures to regulate co-operatives.

Legal and Institutional Framework

The definitions in Article 243ZH lay the foundation for the broader constitutional scheme under Part IXB, which governs:

• Incorporation, regulation, and winding up of co-operative societies;
• Election of the board of directors and their tenure;
• Audit and supervision of accounts;
• Autonomy and democratic control of co-operatives;
• Rights of members and their participation in governance.

These provisions complement existing state co-operative laws and central legislations like the Multi-State Co-operative Societies Act, 2002, which regulates societies operating across multiple states.

Judicial Interpretation and Case Law

The Supreme Court of India, in Union of India v. Rajendra N. Shah (2021), examined the constitutional validity of the 97th Amendment. The Court held that:

• The amendment, in so far as it applied to co-operative societies operating exclusively within a state, was invalid due to the absence of ratification by half the states, as required under Article 368(2).
• However, the provisions relating to multi-state co-operative societies were upheld as valid.
• The judgment reinforced the principle that co-operative societies fall primarily under state jurisdiction, though constitutional recognition enhances their democratic accountability.

This ruling clarified the federal balance between the Union and the States in regulating co-operative institutions while retaining the significance of Article 243ZH in defining core concepts.

Significance of the Definitions

The definitions in Article 243ZH are not merely semantic; they play a pivotal role in shaping the governance of co-operatives:

• They provide clarity and uniformity in interpreting key terms across states and central laws.
• They ensure that co-operatives function on democratic and participatory lines, consistent with the Directive Principles of State Policy, particularly Article 43B, which promotes co-operative autonomy.
• They safeguard the rights and responsibilities of members, office-bearers, and directors.
• They form the foundation for subsequent provisions under Part IXB, including those relating to elections, audits, and regulation.

Practical Implications

Understanding the definitions under Article 243ZH is essential for policymakers, administrators, and members of co-operative societies, as they:

• Determine membership eligibility and governance structures;
• Define roles and accountability of directors and office-bearers;
• Regulate the operation of co-operative banks and financial co-operatives;
• Support the growth and professionalism of the co-operative sector in agriculture, banking, housing, and services.