Bihar Co-operative Societies Act, 1935 – Explained in Simple Terms

Act No.: 6 of 1935
Enacted on: 29 May 1935
Applies to: Whole of the State of Bihar

Last Updated (this compilation):
Amendments are incorporated up to at least the late 1980s, including major changes to the managing committee provisions and new Chapters VI-A, VI-B and VII-A (e.g., provisions on co-operative banks, land development banks, PACS and distraint). Users should check the latest Bihar Gazette / India Code version for any amendments after this compilation.

Official Clean PDF (Samvida Edition): https://drive.google.com/file/d/128vcxF45040gsycJlmeSLyoes4KdmY91/view?usp=share_link Download Samvida Law Associates Edition

Created from verified official sources for readability; identical in substance to the official Gazette text.

(Official Gazette / India Code text is available on government sites; always rely on the latest official version for litigation or compliance.)

1. Introduction

The Bihar Co-operative Societies Act, 1935 is the core State law that governs registration, management, audit, dispute resolution and winding-up of co-operative societies in Bihar. It was originally framed to support agriculturists and others with common economic needs through thrift, self-help and mutual aid. Over time it has been extensively amended to deal with modern realities — co-operative banks, land development banks, PACS, farmers’ service societies and large State-aided co-operatives.

In practice, this Act sits at the centre of the co-operative ecosystem in Bihar: from small primary agricultural societies in villages to large apex institutions in sectors like milk, handloom, marketing and housing.

2. Structure of the Act

High-level chapter structure (based on the official text and contents):

3. Key Provisions Explained (with Bihar-focused Examples)

Section 1 & 2 – Scope and Key Definitions

The Act applies across Bihar and defines important terms like “co-operative year” (1 April–31 March), “registered society”, “managing committee”, “officer” and different kinds of co-operative institutions.

Example:
A primary agriculture credit society (PACS) in a block near Gaya will follow the “co-operative year” for its accounts and elections. Its managing committee members are “officers” for liability under penalties and surcharge provisions.

Sections 6–12 – Registrar and Registration

The State Government appoints a Registrar of Co-operative Societies and may appoint Additional Registrars and other officers, or confer some powers on co-operative federations / financing banks.

A society that meets the statutory conditions and whose bye-laws are not contrary to the Act and Rules can be registered; refusal must be reasoned and is appealable to the State Government within two months.

Example:
If a new dairy society in rural Patna applies for registration and the Registrar refuses, the promoters can appeal to the State Government, which may direct registration if legal requirements are actually satisfied.

Chapter III (Sections 13–14, 13A) – Incorporation & Governance

• Registration makes the society a body corporate with perpetual succession, common seal, and power to own property and sue/be sued.
• The State Government has an explicit duty to promote the co-operative movement, including subscribing to share capital and giving loans/guarantees in appropriate cases.
• Every registered society must have a registered address and a managing committee to run its affairs, with notice to the Registrar and financing bank when the address changes.

Example:
A district central co-operative bank in Bihar Sharif is a body corporate that can own its own building, borrow from apex institutions and sue defaulting borrowers in terms of the Act and its bye-laws.

Sections 18–23 – Reserve Fund, Investment & Priority of Dues

• Societies must carry a portion of profits to a reserve fund, which can only be used as permitted by the Act and rules.
• Funds may be invested in Government savings banks, approved securities, other societies, or banks approved by the Registrar.
• Distribution of profits as dividend/bonus is restricted and regulated by rules and bye-laws.
• Society dues can become a first charge on crops or produce supplied/financed by the society, subject to Government and landlord claims.

Example:
If a PACS finances seeds and fertiliser for a farmer in Samastipur, the society’s dues (subject to land revenue and rent) are a first charge on that season’s crop.

Section 32 – Liability of Past Members

A past member, or the estate of a deceased member, continues to be liable for the society’s debts as they existed on the date of exit/death for two years from that date. Section 55 cross-refers to this for recoveries.

Example:
A member of a housing co-operative who resigns after taking a loan remains liable for existing dues for two years; the society can still proceed against him or his estate during this period.

Chapter V – Audit, Inspection & Inquiry (Sections 33–36, 39–40)

• Annual statutory audit of every registered society by or under the Registrar is compulsory.
• The auditor must report illegal transactions, deficiencies due to negligence or misconduct, and misappropriation.
• The Registrar may conduct inspection or inquiry on his own, on request of the Collector, the managing committee majority, or one-third of members.
• After inquiry, surcharge orders can be passed to recover loss from responsible officers or members and can be enforced like public demands.

Bihar practice:
Adverse audit findings often trigger proceedings that can lead to surcharge, supersession of the managing committee or even criminal complaints.

Chapter VI – Supersession & Dissolution of Managing Committee (Section 41 etc.)

Section 41 allows the Registrar to dissolve the managing committee if it mismanages affairs, fails to improve the society, or is persistently negligent, after giving an opportunity of hearing.

Key features:

• Dissolution for up to six months, extendable in “special circumstances” with State Government approval.
• An Administrator is appointed to manage the society with full powers of the committee.
• The Registrar must ensure elections and re-constitution of a new committee before the dissolution period ends.
• Section 14 (read with sub-sections inserted later) also fixes the normal term of a managing committee at three co-operative years and contemplates deemed supersession if elections are not held in time.

Example:
If a sugar co-operative’s board repeatedly ignores audit objections and fails to conduct elections after its term, the Registrar may dissolve the committee, appoint an Administrator, and conduct fresh elections.

Section 48 & Related Provisions – Dispute Resolution Mechanism

Section 48 creates a special forum for disputes “touching the business of a registered society” to be decided by the Registrar or arbitrators appointed by him, instead of ordinary civil courts. The Registrar and arbitrators have powers similar to a Civil Court for summoning witnesses, taking evidence and compelling production of documents.

Key points:

• Disputes can include those between members and the society, between societies, or between societies and past members, officers or sureties (depending on wording of the section).
• Registrar can refer particularly complex questions to the District Judge, whose decision is final in that reference.
• Section 57 bars civil/revenue court jurisdiction over matters reserved for Registrar, disputes under Section 48, and proceedings under Chapter VII-A, except as expressly provided.

Practical effect:
For most internal co-operative disputes in Bihar (e.g., expulsion of a member, loan recovery, election challenges where rules so provide), the first forum is the Registrar / co-operative tribunal, not the civil court.

Chapter VII – Penalties & Procedures (Sections 45 onwards)

The Act criminalises certain conduct:

• Intentional refusal to perform duties or furnish information required by the Act or rules.
• Wilful false returns or false information by officers/members.
• Special provisions (e.g., Section 45A, 45B) penalise failure to hand over charge and records when a secretary or office-bearer demits office or society is superseded, including possible imprisonment up to six months and forcible seizure of records with help of police and Magistrate.

This framework is frequently invoked in Bihar when outgoing committees or secretaries withhold records.

Chapter VII-A – Distraint for Recovery of Dues

This chapter allows a registered society, in specified cases, to recover dues by distraining crops or agricultural produce and other specified property, besides ordinary legal remedies.

• Distraint is ordered through the Registrar and executed through the Collector/distraining officer.
• Detailed rules govern application, proclamation, place and timing of sale, postponement, and application of sale proceeds.
• There is no general appeal under this Chapter, but a civil suit for compensation is possible where distraint was not legally permitted.

Example:
A PACS may seek distraint of paddy standing in the fields of a chronic defaulter within its area to secure repayment of an overdue crop loan.

Chapters VI-A and VI-B – Land Development Banks, Co-operative Banks & PACS

• Chapter VI-A defines “Land Development Bank” and allows them to lend for land improvement, redemption of mortgages, liquidation of agricultural debt, purchase of agricultural land and construction of farm houses.
• Detailed provisions cover debentures, mortgage enforcement and sale of mortgaged property.
• Chapter VI-B (Co-operative Banks) incorporates Reserve Bank and Deposit Insurance Corporation oversight, including sanction requirements for amalgamation, moratorium schemes and winding-up of co-operative banks.
• Chapter VI-B (PACS / Farmers’ / Multipurpose) gives the Registrar strong powers to liquidate non-viable societies and amalgamate them into new entities, including appointment of Government officers to manage new societies and timelines for elections.

These provisions are central to restructuring PACS and district banks in Bihar’s ongoing co-operative sector reforms.

Chapter VIII – Miscellaneous Privileges & Powers

• Registrar, liquidators, arbitrators and certain other officers are public servants under the IPC.
• Certified copies of society records are admissible evidence.
• Societies may be given tax, stamp and registration fee exemptions, and certain instruments related to shares and debentures are exempt from compulsory registration.
• Section 65A allows the State Government to review Registrar’s orders on key issues like constitution, amalgamation, election and supersession.
• Section 66 contains a broad rule-making power to frame Bihar Co-operative Societies Rules, 1959, which flesh out procedures in detail.

4. Practical Implications in Bihar

For Co-operative Societies

• Legal personality & governance: Societies gain corporate status with the ability to own assets and sue/ be sued, but must maintain a functioning managing committee, hold regular general meetings and follow their bye-laws and rules.
• Regulatory oversight: Expect regular audits, inspections and inquiries. Persistent non-compliance can lead to surcharge, supersession, or liquidation.

For Members and Office-Bearers

• Members have rights (vote, share in surplus, use of services) but also continuing financial liability for a period after exit or death and exposure to surcharge or even criminal prosecution for misconduct.
• Committee members and secretaries must treat records and assets as public-interest property; failure to hand over charge or records can attract penal consequences and forcible seizure.

For Government and Regulators

• The Act empowers the State to shape the co-operative sector: nominating members to boards (based on shareholding), promoting amalgamations or liquidations, and reviewing key decisions under Section 65A.
• For co-operative banks, the Reserve Bank and Deposit Insurance Corporation must be involved for moratoriums, reconstructions and winding-up.

For Banks, Creditors and Borrowers

• Co-operative societies and banks enjoy special recovery tools (first charge on crops, distraint, recovery as public demand), making them powerful local credit institutions.
• Borrowers must be aware that disputes and defaults are often dealt with through Registrar proceedings, not ordinary civil suits, which can be relatively quick and specialised.

5. FAQs – Real-World Questions People Ask

Q1. Is registration under this Act compulsory for every co-operative in Bihar?
No. But to be a “registered society” with corporate status and enjoy benefits like statutory recovery, tax/stamp exemptions and access to government support, a co-operative must register under this Act and follow its rules.

Q2. Where are disputes between members and a society decided? Can I go straight to civil court?
Generally, disputes “touching the business of a registered society” must go under Section 48 to the Registrar / arbitrator. Civil court jurisdiction is barred except where specifically allowed, for example certain suits for wrongful distraint or where statute allows appeal to civil courts.

Q3. What happens if the managing committee does not hold elections after three co-operative years?
The Act fixes the term at three co-operative years and provides that if elections are not held within the extended grace period, the committee is deemed superseded and the Registrar must arrange for an Administrator and fresh elections, tying into Section 41 on dissolution of managing committees.

Q4. Can a former member be sued by the society after leaving?
Yes, but only for debts that existed when he/she left and only for two years after leaving (or death, in case of estates), as per Sections 32 and 55.

Q5. Are PACS and farmers’ service societies treated differently?
Yes. Special provisions in Chapter VI-B empower the Registrar to liquidate non-viable PACS, amalgamate multiple societies into one, and manage the transition until a new elected committee is in place.

6. Case Laws & Judicial Interpretation

(1) Dinesh Prasad Yadav v. State of Bihar (Supreme Court, 1995)

The Supreme Court examined how to compute the three-year term of a managing committee under the Act and Rules, and the State Government’s power to nominate members to the committee.

The Court clarified that:

• The term is to be counted with reference to co-operative years.
• Managing committees cannot continue indefinitely beyond statutory limits merely because elections are delayed.

This case is central for election-related disputes in Bihar co-operatives.

(2) Ram Sanjivan Prasad Yadav v. State of Bihar (Patna High Court, 2016)

Here, the Patna High Court dealt with the dissolution of a managing committee under Section 41, in the context of audit-based irregularities in a co-operative set-up.

The Court discussed:

• The nature of the Registrar’s “opinion” on mismanagement.
• The linkage between audit findings (Sections 33, 40) and action under Section 41.
• The importance of following procedural safeguards (notice and opportunity of hearing) before supersession.

Other recent Patna High Court decisions also stress that where a Section 48 remedy is available, parties should normally invoke it instead of directly approaching the writ court, unless special constitutional issues arise.

7. Related Laws in Bihar

• Bihar Co-operative Societies Rules, 1959 – detailed procedures on elections, audit, surcharge, references under Section 48, etc.
• Sector-specific schemes / orders under the Act for PACS, dairy co-operatives, marketing unions, housing societies etc.
• Central banking and insurance laws (e.g., Reserve Bank of India Act, 1934; Banking Regulation Act, 1949; Deposit Insurance and Credit Guarantee Corporation Act, 1961) as referenced in Chapter VI-B for co-operative banks.

8. Summary

The Bihar Co-operative Societies Act, 1935 is the foundational statute for co-operative activity in Bihar. It gives societies a clear legal identity and lays down the full life-cycle of a co-operative: formation and registration; corporate status and governance; fund management and profit distribution; regulatory supervision through audit, inspection and inquiry; special provisions for financial institutions like co-operative banks and land development banks; and, finally, mechanisms for supersession, dissolution and liquidation.

Members and office-bearers are not merely participants in a private association; they operate within a statutory framework that imposes specific duties and liabilities. Past members and estates can remain liable for existing debts for a defined period. Office-bearers can be surcharged for losses or even prosecuted if they withhold records or commit fraud. At the same time, societies enjoy special privileges — easier recovery mechanisms, evidentiary presumptions, and potential tax and stamp duty concessions.

Dispute resolution is largely internalised within the co-operative legal system through Section 48 and related provisions: many conflicts must go first to the Registrar or co-operative fora rather than ordinary courts, with civil court jurisdiction expressly limited. For PACS, farmers’ service societies, and co-operative banks, additional chapters bring in the Reserve Bank and State authorities to manage amalgamations, moratoria and liquidations, reflecting the systemic importance of these institutions in Bihar’s rural credit and development structure.

Anyone involved with a co-operative in Bihar — as a member, office-bearer, employee, creditor or regulator — should be broadly familiar with this Act and the 1959 Rules. For any concrete dispute or compliance question, however, the latest official text and case law must be checked carefully, and independent legal advice should be sought where necessary.

(A Hindi version of this explainer can be prepared on request.)

9. Featured Image Prompt (for both English & Hindi Posts)

Prompt:
“Minimal vector illustration showing co-operative societies and community finance in a Bihar context — small farmers, a co-operative office building, documents and ledgers, and a simple courthouse icon in the background — neutral background, no text.”

🗣️ This article is part of Samvida Law Associates’ effort to simplify Bihar’s laws for public understanding. For individual legal problems, it is always advisable to consult a qualified advocate.

Disclaimer: This post is for informational purposes only and does not constitute legal advice.