Saradha fallout: Govt puts curbs on new co-op societies

Alarmed by a spurt in the registration of new cooperative societies, mostly credit ones, around the time the now-infamous Saradha chit fund scam broke out in West Bengal, the Union has put checks on such registrations.

The government suspected that chit fund companies were filing for registrations as cooperative societies.

Interestingly, one name in the pending list of applicants was also from a credit cooperative society called Ma Sarada Agro Multi-State Cooperative Credit Society Ltd from West Bengal.

A senior official from the agriculture ministry said the department of cooperation under the ministry received around 100 applications for registration under the Multi State Cooperative Societies Act, 2002, a month during the November, 2012 to April 2013 period.

As many as 80 per cent of those applications are for credit cooperative societies.

In a normal course, only a couple of applications come for such registrations.

“This was something unusual as since 2002 (when the Act came into force) the total number of registered cooperatives in the country was just over 800, and during November-April, we used to receive almost 100 applications per month,” he said.

An alarmed department ordered a thorough investigation and was baffled to find that illegal chit fund companies masqueraded as cooperative credit societies.

They applied in droves under the MSCS Act, taking advantage of the provisions under the Act to escape the long arm of law.

As per the MSCS Act, a multi-state cooperative society is one which operates in more than one state and has a minimum of 50 members in one state.

“This made it very easy for chit fund companies and money circulation firms to masquerade as credit cooperative society as their pattern of operation was similar,” the official said.

He said the department usually takes around four-five months to give clearance to any cooperative society. So, the applications made in November came up for scrutiny around April.

“Standard rules like getting authorisation from the board before adding a new member, etc was easily flouted,” the official said.

The worried department of cooperation immediately ordered that all new and pending applications for registration as a credit cooperative society under the MSCS Act must have a no objection certificate (NoC) from all the states where it plans to operate.

There are now 500 pending applications since February.

The number was higher when taken from November, but many of the applications have been rejected, the official explained.

It also directed the Registrar of Cooperatives in all states to investigate the business model of all existing cooperative societies, particularly those which have a credit disbursal model.

“Typically, these societies would start with just a few members and gradually enlarged their membership. In the initial few years, all members would get good return, but things would start getting difficult when the chain became too big and then these companies invariably went bust,” the official said.

He said the crackdown is more on credit cooperative societies and cooperatives of other kind need not worry. EoM

MSCS ACT, 2002: A PRIMER

The Act guides the operation, running, definition, etc, of a multi-state cooperative society

What is a multi-state cooperative society

Any cooperative society which functions in more than one state and has more than 50 members in one state

How chit funds used the facility provided under the Act

Chit fund companies which had a similar membership and functioning pattern applied for registration under the Act to escape the long arm of the law

What has been done

All new and pending applications for registration under MSCS for cooperative societies need a no-objection certificate from state governments.

State registrars of cooperatives have been directed to investigate the functioning of cooperatives, particularly the credit cooperatives

Image: Saradha group owner Sudipta Sen