In November 1999, the Ministry of Law, Justice and Corporate Affairs convened a committee to examine legislation and make recommendations for legislative changes that would enable incorporation of cooperatives as companies and conversion of existing cooperatives into companies. It was chaired by economist Y. K. Alagh, with members Bhagat Singh (Additional Secretary, Department of Agriculture and Cooperation); Amrita Patel (Chairman, NDDB); Vinay Kore (Chairman, Warana Rural Co-operative Complex); Sudha Pillai (Jt. Secretary, Department of Rural Development); N. L. Vaidyanathan (Senior Legal & Legislative Consultant); K. D. Singh (Jt. Secretary & Legal Advisor, Department of Legal Affairs); and R. D. Joshi (Jt. Secretary, Department of Company Affairs and member-secretary). The committee would also ensure that the proposed legislation accommodated unique elements of cooperative businesses within a regulatory framework similar to that of a private limited company.

This initiative was driven by significant changes in the Indian economy over the previous decade: liberalization, improved communication and transportation infrastructures, and the adoption of modern commercial, banking, and international-trade methods. The need for new institutions to link the rural economy with national and global markets became evident, given the role of biotechnology, information technology, and computerization in enhancing farmers’ living standards.

Historically, cooperatives in India evolved as a response to rural challenges and became vehicles for government programs after Indian independence, leading to issues of government control, bureaucratization, and political interference. Recognizing the importance of cooperatives in national policy, as emphasized in the Ninth Five-Year Plan and by the United Nations, the committee underscored the need for legislative changes to modernize and make cooperatives more efficient. The committee’s findings highlighted the necessity for cooperatives to operate under a legal framework similar to companies, which would give flexibility to national and international joint ventures. One key proposed legislative provision would govern the formation of producer companies with a minimum of 10 individuals or two or more institutions as owners, encompassing diverse activities such as production, pooling, marketing, processing of primary produce, technical services, and financial support. Governance structures would involve defined roles for the General Body, board of directors, and chief executive, with voting rights based on single votes irrespective of shareholding. Financial provisions included member equity purchase and company borrowing, with mandatory internal and external audits ensuring accountability.

The committee recommended enacting legislation to register and operate producer companies, with voluntary conversion of cooperatives into companies. The proposed legislation, appended to a draft bill to amend the Companies Act of 1956, would enable cooperatives to be treated as equals to private and public limited companies, emphasizing mutual-assistance principles. Speedy adoption of this legislation would be crucial to provide rural producers with an effective organizational form that would promote professionalization and modern corporate culture while retaining cooperative values.

Following the report, the Companies (Amendment) Act of 2002 introduced a new part (IX-A) into the Companies Act of 1956 that provided for the formation of producer companies. This legislative change enabled cooperatives to convert into companies while retaining their cooperative principles, allowing them to operate with the flexibility of private companies and in the same regulatory framework.