PROPERTIES AND FUNDS OF MULTI-STATE CO-OPERATIVE SOCIETIESCentral

Section 63 of The Multi-State Co-operative Societies Act, 2002

(1)A multi-State co-operative society shall, out of its net profits in any year,--
1. (a)transfer an amount not less than twenty-five per cent. to the reserve fund;
2. (b)credit one per cent. to co-operative education fund maintained, by the National Co-operative Union of India Limited, New Delhi, in the manner as may be prescribed;
3. (c)transfer an amount not less than ten per cent. to a reserve fund for meeting unforeseen losses.
(2)Subject to such conditions as may be prescribed, the balance of the net profits may be utilised for all or any of the following purposes, namely:--
1. (a)payment of dividend to the members on their paid-up share capital at a rate not exceeding the prescribed limit;
2. (b)constitution of, or contribution to, such special funds including education funds, as may be specified in the bye-laws;
3. (c)donation of amounts not exceeding five per cent. of the net profits for any purpose connected with the development of co-operative movement or charitable purpose as defined in section 2 of the Charitable Endowments Act, 1890 (6 of 1890);
4. (d)payment of ex gratia amount to employees of the multi-State co-operative society to the extent and in the manner specified in the bye-laws.

Summary

It mandates that every profit-making multi-state co-operative transfer at least twenty-five per cent of its net profits to its reserve fund each year.
It requires societies to credit one per cent of their annual net profit to a central co-operative education fund managed by the government.
It forces societies to set aside at least ten per cent of their net profits into a specific reserve fund dedicated to covering unexpected future losses.
It permits the remaining net profits to be spent on member dividends, staff bonus payments, specialized local funds, or charitable donations up to five per cent.

Practical examples

1The Nilgiri Tea Co-operative Society earns a net profit of four lakh rupees this year. Following Section 63, they first transfer one lakh rupees (twenty-five per cent) to their general reserve fund, set aside forty thousand rupees (ten per cent) for unforeseen losses, and send four thousand rupees (one per cent) to the Central Government's education fund. This leaves them with two lakh fifty-six thousand rupees to distribute as dividends and staff rewards.

2A multi-state credit union wants to donate fifty thousand rupees to a local hospital. They have a net profit of ten lakh rupees. Under Section 63, their charitable donations cannot exceed five per cent of their net profits, which is exactly fifty thousand rupees. Because they have fulfilled their mandatory reserve transfers first, they are legally permitted to make this donation under the Charitable Endowments Act.

FAQ

1. What percentage of its net profits must a multi-state co-operative society transfer to its reserve fund under the Act?

Under Section 63, sub-section (1), clause (a) of the Multi-State Co-operative Societies Act, 2002, a society must transfer at least twenty-five per cent of its net profits to its reserve fund each year.

2. How is the co-operative education fund funded under Section 63 of the Act?

Under Section 63, sub-section (1), clause (b) of the Multi-State Co-operative Societies Act, 2002, every society must credit one per cent of its annual net profit to this fund, which is maintained by the Central Government for training through the National Co-operative Union of India.

3. What is the maximum limit for charitable donations under Section 63 of the Act?

Under Section 63, sub-section (2), clause (c) of the Multi-State Co-operative Societies Act, 2002, a society can donate up to five per cent of its net profits for co-operative development or charitable purposes under the Charitable Endowments Act, 1890.

Test yourself

Q1.Under Section 63 of The Multi-State Co-operative Societies Act, 2002, what minimum percentage of annual net profit must be set aside for meeting unforeseen losses?

Q2.Under Section 63 of The Multi-State Co-operative Societies Act, 2002, the one per cent net profit credited to the co-operative education fund is used for training through which organization?

Q3.If a multi-state co-operative society has no share capital, can it declare and pay a dividend to its members under Section 63 of The Multi-State Co-operative Societies Act, 2002?

Q4.Under Section 63 of The Multi-State Co-operative Societies Act, 2002, suppose a society has gross profits of 2,00,000 rupees, but after making all mandatory deductions under Section 62, its net profit is 1,00,000 rupees. What is the minimum amount the society must transfer to its general reserve fund under Section 63?

62PreviousSection 62 Funds not to be divided by way of profit.63ANextSection 63A Establishment of Co-operative Rehabilitation, Reconstruction and Development Fund.

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