Section 33 of the Co-operative Societies Act, 1912 - Funds Not to Be Divided by Way of Profit

Section 33 regulates how the funds and profits of a registered co-operative society may be dealt with. Its basic rule is that society funds cannot simply be divided among members as bonus, dividend or otherwise. The section then permits specified distribution from profits after the statutory reserve requirement is met.

Act: Co-operative Societies Act, 1912 (Act No. 2 of 1912) | Section 33

Text and meaning of Section 33

Section 33 - Funds not to be divided by way of profit.

No part of the funds of a registered society shall be divided by way of bonus or dividend or otherwise among its members.

However, after at least one-fourth of the net profits for a year has been carried to a reserve fund, payments may be made from the remaining profits, including available profits of past years, among members to the extent and subject to the conditions prescribed by the applicable rules or by-laws.

For a society with unlimited liability, distribution of profits additionally requires a general or special order of the State Government.

What Section 33 requires

  • General prohibition: the funds of a registered society are not freely divisible among its members as bonus, dividend or by another method.
  • Reserve fund first: at least one-fourth, or 25 percent, of the net profits of the year must first be carried to the reserve fund before the statutory exception for distribution can operate.
  • Distribution of the remainder: the balance of the current year's profits and available profits of past years may be distributed only to the extent and on the conditions permitted by the applicable rules or registered by-laws.
  • Unlimited liability societies: no distribution of profits may be made without the general or special order of the State Government.

Important terms

Registered society

Under Section 2 of the Act, a "registered society" means a society registered or deemed to be registered under the Act.

By-laws

Section 2 defines "by-laws" as the registered by-laws for the time being in force and includes a registered amendment of those by-laws. This is important because Section 33 makes permitted profit distribution subject to the applicable rules or by-laws.

Reserve fund

For the purpose of Section 33, the reserve fund is the fund to which at least one-fourth of the year's net profits must be carried before the remaining distributable profits can be considered for payment to members.

Practical effect of Section 33

The provision separates the society's general funds from profits that may lawfully become distributable. A registered society should therefore determine its net profits, make the required reserve allocation, and then verify the applicable rules and registered by-laws before making a bonus, dividend or other distribution to members.

Applicability note: Co-operative societies are also governed by State or Union Territory co-operative legislation and, where applicable, legislation governing multi-State co-operative societies. Before relying on Section 33 for a particular society, verify which enactment applies to that society and jurisdiction.

Official legal source

For the authoritative Central Act text, see the Co-operative Societies Act, 1912 on India Code. The official text contains Section 33 and the definitions in Section 2.