Republic Act No. 2023

REPUBLIC ACT No. 2023

AN ACT TO PROVIDE THE GENERAL BASIC COOPERATIVE LAW AND TO CONSOLIDATE AND AMEND EXISTING LAWS ON NON-AGRICULTURAL CO-OPERATIVES IN THE PHILIPPINES WITH SPECIAL PROVISIONS FOR GIVEN TYPES OF CO-OPERATIVES.

CHAPTER I
Preliminary Provisions

Section 1. Short title. This Act shall be known as the "Philippine Non-Agricultural Co-operative Act."

Section 2. Declaration of policy and objectives. It is hereby declared to be the policy of Congress to assist the people to develop their enterprises on a co-operative basis to strengthen their economic independence within the framework of this Act by the promotion of organized methods of industrial production, marketing, distribution and credit, the improvement of processes and other activities and the removal of conditions which hamper the growth of a rising standard of living with a view to promote the general well-being of the people and to expand the national economy.

In furtherance of this policy, the Government shall encourage and assist in the establishment of a system of co-operative banks all over the country which shall provide banking facilities and reasonable credit for the non-agricultural co-operatives and encourage the distribution of consumer requirements through co-operatives by the establishment of a system of co-operative wholesale societies all over the country which shall provide steady and wholesale source of consumer requirements and act as a link between producers and consumers co-operatives by adopting a policy of gradual transfer of the business of procurement of consumer requirements from the National Marketing Corporation (NAMARCO) to the Philippine Co-operative Wholesale Society.

To achieve this policy, the Central Bank of the Philippines, the Department of Commerce and Industry and all other departments, agencies or instrumentalities of the Government shall, in cooperation with the Administrator, provide technical guidance, financial assistance and other facilities to develop a sound and stable co-operative movement in the Philippines.

Section 3. Definitions. As used in this Act and unless a different meaning is intended in the context

Section 4. Scope. (1) Every co-operative under the jurisdiction of the Co-operatives Administration Office existing at the time of the approval of this Act which has been registered under existing co-operative laws (Commonwealth Act five hundred sixty-five, Act twenty-five hundred eight and Act thirty-four hundred twenty-five, all as amended) shall be deemed to be registered under this Act, and its by-laws shall, so far as they are not inconsistent with the provisions of this Act, continue in force and be deemed to be registered under this Act.

Section 5. References. Upon the approval of this Act, all references to existing laws affecting non-agricultural co-operatives shall be construed as references to this Act, and no proceedings instituted and pending or anything done shall be deemed to have been invalid on the ground that such laws did not refer to this Act.

Section 6. Exemption of co-operatives from certain provisions of the Act. Upon recommendation of the Administrator, the Secretary of Commerce and Industry may, by regulation to be published in the Official Gazette, exempt any co-operative or type of co-operatives from any of the provisions of this Act, or may direct that such provisions shall apply to such co-operative or type of co-operatives with such modifications as may be specified in the regulation: Provided, however, That no regulation shall be issued without giving to such co-operative or type of co-operatives an opportunity to present its case.

Section 7. Corporation Law not applicable. The provisions of the Corporation Law shall not apply to co-operatives.

CHAPTER II
Administrator

Section 8. The Administrator. (1) The Administrator of the Co-operatives Administration Office under the Department of Commerce and Industry is hereby charged with the administration of this Act. There shall be one or more assistant administrator for each type of co-operative who shall be appointed by the President of the Philippines with the consent of the Commission on Appointments. Each assistant administrator shall receive an annual compensation which shall be fixed by the President at the time of his appointment.

CHAPTER III
Organization and Registration

Section 9. Purposes. A co-operative may be registered for the mutual benefit of the members thereof, who have for their common objective any lawful purpose or purposes, on a co-operative basis, more particularly those noted hereunder

Section 10. Service motive. The object to every co-operative shall be to provide maximum service to its members, not to earn the most profit for its members nor to operate the business for charitable purposes.

Section 11. Legality declared; not in restraint of trade. No co-operative or method or act thereof which complies with this Act shall be deemed a conspiracy or combination in restraint of trade or an illegal monopoly, or an attempt to lessen competition or fix prices arbitrarily in violation of any of the laws of the Philippines.

Section 12. Who may organize. Fifteen or more persons, citizens of the Philippines who are either ultimate consumers or primary producers and residing in the proposed area of operation of a co-operative, may organize a co-operative under this Act: Provided, That two or more co-operatives may unite to organize a federation of co-operatives.

Section 13. Survey and application. Every group of persons or co-operatives contemplating the organization of a co-operative under this Act, shall undertake a survey to draw up a program of activities, indicating the area of operation, the field of membership initial and potential and other data as may be required by the Administrator to enable him to determine the economic need and the advisability for registering the proposed co-operative. Such group of persons or cooperatives may thereupon apply to the Administrator for the registration of the co-operative.

Section 14. Co-operatives which may be registered. Subject to the provisions of this Act and of regulations issued pursuant hereunder, a co-operative which has as its purposes one or more of those specified in section nine may be registered under this Act, with or without limited liability: Provided, That the liability of a co-operative which has a co-operative as a member shall be limited.

Section 15. Administrator to decide certain questions. The Administrator shall decide all questions as to whether the articles of incorporation and the by-laws comply with the provisions of this Act and the regulations and whether the purposes of the proposed co-operatives are in accordance with section nine.

Section 16. Articles of incorporation. (1) Articles of incorporation of a proposed co-operative shall be signed by each of the subscribers and acknowledged by them if natural persons, and by the presidents or secretaries if co-operatives, before a notary public or other officers authorized to take acknowledgments.

Section 17. Adoption of by-laws; contents. (1) Each co-operative to be registered under this Act shall adopt for its management a code of by-laws not inconsistent with the powers granted by this Act. The by-laws shall be filed with the Administrator at the time of filing the articles of incorporation and shall take effect upon registration and issuance of a certificate of registration by the Administrator.

Section 18. Registration. (1) If the Administrator is satisfied that a co-operative has complied with the provisions of this Act and the regulations, and that its proposed articles of incorporation and by-laws are not contrary thereto, he may register the co-operative. The articles of incorporation and by-laws shall become operative only upon registration and issuance of a certificate to that effect by the Administrator.

Section 19. Evidence of registration. A certificate of registration signed by the Administrator under his official seal shall be conclusive evidence that the co-operative therein mentioned is duly registered unless it is proven that the registration of the co-operative has been cancelled.

Section 20. Amendment of articles of incorporation and by-laws. (1) The articles of incorporation and by-laws made under this Act and the regulations may be amended, repealed or abrogated by general assemblies of members and shall take effect upon registration thereof and the issuance of the corresponding certificate by the Administrator.

Section 21. Change of liability. A co-operative may, subject to the provisions of this Act and to any regulations made in this behalf, change its liability by amending its articles of incorporation and by-laws, provided that:

Section 22. Power of federation of co-operatives to direct amendment of by-laws. (1) Subject to the regulations, whenever it appears to a federation of co-operatives that an amendment of the by-laws of a co-operative which is a member and a debtor of such federation is necessary or desirable in the interest of such co-operative, it may in the prescribed manner, call upon the co-operative to make the amendment within such time as it may specify.

Section 23. Division of co-operatives. Any co-operative registered under this Act may, by a resolution approved by a vote of three-fourths of the members present and eligible to vote at a general assembly specifically convened for the purpose, resolve to divide itself into two or more co-operatives. The procedure for such division shall be prescribed in the regulations. The new co-operatives shall become legally established upon registration by the Administrator.

Section 24. Transfer of assets and liabilities of co-operatives. (1) Any co-operative registered under this Act may, by a resolution approved by a vote of three-fourths of the members present and eligible to vote at a general assembly held for the purpose, resolve to transfer its assets and liabilities to any other co-operative which has expressed willingness to accept them by a resolution of its general assembly. The resolution shall become effective upon approval by the Administrator and cancellation of the registration of the co-operative transferring its assets and liabilities.

Section 25. Federation of co-operatives. (1) A federation of co-operatives may be registered under this Act for any or all of the following purposes:

CHAPTER IV
Membership

Section 26. Qualifications of members. (1) Any natural person, co-operative or any nonprofit group shall be eligible for membership in a co-operative if the applicant meets the qualifications prescribed in the regulations and the by-laws. An applicant for membership shall be deemed a member after approval of his membership by the board of directors and shall exercise the rights of a member after having made such payment to the co-operative in respect of membership or acquired interest in the co-operative as may be prescribed by the regulations and the by-laws.

Section 27. Members to furnish information. A statement of assets and liabilities duly certified to be correct and true, in such form as may be prescribed, shall be furnished under oath:

Section 28. Liability of member. (1) In the case of a co-operative with limited liability a member shall be liable for the debts of the co-operative to the extent of the unpaid amount of his subscription to the capital stock or to the membership capital.

Section 29. Liability of past member. The liability of a past member for the debts incurred by a co-operative as they existed at the date of his ceasing to be a member shall continue for a period of two years from the said date.

Section 30. Withdrawal and expulsion of members. (1) A member may withdraw from a co-operative effective at the end of any fiscal year by giving a minimum of sixty days notice, with the approval of the board of directors. A resolution of the board of directors disapproving the application for withdrawal may be appealed to the general assembly of the members.

Section 31. Nomination of beneficiary. A member of a co-operative may nominate a person in whose favor the co-operative shall dispose of the share or interest of such member on his death without prejudice to the rights of other persons as provided under existing laws affecting the estate of a deceased person. The nominated beneficiary of the deceased member may apply for membership and pay the required entrance fee, but the board of directors shall have the right to approve or reject the said application. If the application is rejected the co-operative shall return his entrance fee and repurchase his shares or interest, provided that the latter can be done without jeopardizing the solvency of the co-operative. In case the co-operative cannot do so upon request, the beneficiary shall have the right to dispose of the share or interest to any person who is acceptable as a member to the board of directors of the said co-operative.

Section 32. Disposal of sums due to a withdrawing member. All sums calculated in accordance with the regulations and by-laws to be due from a co-operative to a withdrawing member, shall be paid to him either by the co-operative or by the approved transferee, as the case may be, in accordance with this Act.

Section 33. Bar to claims. All payments and transfers made by a co-operative in accordance with this Act shall be valid and effectual against any demand made upon the co-operative by any other person.

CHAPTER V
Administration

Section 34. Final authority of a co-operative. Subject to the provisions of this Act and the regulations, the final authority in every co-operative shall be vested in the general assembly of the members or the delegates of such members elected in the prescribed manner and assembled in a general meeting.

Section 35. Annual general assembly. The members' annual general assembly shall be composed of such members as are entitled to vote under the regulations and the by-laws, and when lawfully constituted, shall represent all the members. The annual general assembly shall be called by the board of directors and shall be held at least once each year within ninety days after the close of each fiscal year. The regulations shall prescribed the procedure and method of calling, holding, time, place and quorum requirement of, election and the business to be transacted in the annual general assemblies.

Section 36. Special general assembly. A special general assembly may be called at any time by a majority of the board of directors and such an assembly shall be called by the board of directors within one month after receipt of a request in writing from at least ten per centum of the total members or the Administrator or his duly authorized agent, or the federation of co-operatives of which it is a member to transact specific business covered by the call. The regulations shall prescribe the procedure and the method of calling and holding and quorum requirement of special general assemblies.

Section 37. Voting. (1) Each member of a co-operative shall have only one vote, except that where a co-operative includes in its membership co-operatives or any nonprofit groups the voting rights of such member co-operatives or groups may be as prescribed in the by-laws.

Section 38. Board of directors. A co-operative shall be managed by a board of not less than five nor more than fifteen directors elected by the general assembly for a term fixed in the by-laws but not exceeding two years and shall hold office until their successors are elected and have qualified or until removed. The by-laws may provide for a method of allocating the number of directors among the units of membership into which the co-operative may be divided, and for the election of directors by the respective units to which they are allocated. The procedure for the election of directors, officers and committee members together with the method of calling and holding of the meetings may be prescribed in the regulations.

Section 39. Qualifications of directors and committee members. (1) Any member of a co-operative who has acquired the right to vote and who does not possess any of the disqualifications provided in the regulations or the by-laws shall be eligible to be elected as director or committee member.

Section 40. Removal of directors, officers and committee members. An elective officer or committee member may be removed by a vote of the majority of the members entitled to vote at an annual or special general assembly. The person involved shall have an opportunity to be heard at said assembly.

Section 41. Filling vacancy in board of directors. When a vacancy in the board of directors occurs other than by expiration of term, the remaining members of the board, by a majority vote, shall fill the vacancy, unless the by-laws provide for an election of directors by units of members. In such case, the board of directors shall immediately call a special general assembly of the members entitled to vote in that unit of membership to fill the vacancy.

Section 42. Contract for profit prohibited. No director, officer, committee member or employee, during the term of his office, shall be a party to a contract for profit with the co-operative. However, contracts that may be entered into by the members with the co-operatives, may be entered into by the same director, officer or committee member or employee.

Section 43. Election of officers. A co-operative shall have the following officers: a president, one or more vice-presidents, a secretary and a treasurer, or a secretary-treasurer. The officers shall be elected annually by the directors unless the by-laws otherwise provide. The president and at least one vice-president must be directors, but no other officer need necessarily be a director.

Section 44. Duties of directors, officers and committee members. The duties and responsibilities of directors, officers and committee members shall be as prescribed in the regulations and the by-laws of a co-operative.

Section 45. Liability of directors and committee members for unlawful acts. The directors and committee members shall, in the discharge of their respective duties, be personally responsible, jointly and severally, for any transaction, act or omission made in violation of law, the regulations, the by-laws, the resolution of the general assemblies or the rules of the co-operative except those who entered a protest at the time when such transaction, act or omission was acted upon.

Section 46. Committees. (1) An executive committee of the board of directors may be created in such manner and with such powers and duties, subject to the general direction and control of the board, as the by-laws may prescribe.

Section 47. Compensation of directors and committee members. A co-operative may, subject to regulations, provide a fair remuneration for the time actually spent by its directors, committee members and officers in its service.

Section 48. Certain administrative powers. Subject to the regulations, the Administrator shall, so far as is necessary to carry out the purposes of this Act, have the following administrative powers:

CHAPTER VI
Duties, responsibilities and privileges of co-operatives

Section 49. Address of co-operatives. Every co-operative shall have an official postal address registered with the Administrator in accordance with the regulations, to which all notices and communications shall be sent, and shall send to the Administrator notice of every change thereof.

Section 50. Copy of Act, regulations, etc., to be open for inspection. Every co-operative shall keep open to its members and representatives of the Co-operatives Administration Office for inspection free of charge at all reasonable times at its official address:

Section 51. Maintenance of books, records, and accounts and their production. The president of a co-operative shall cause the up-to-date keeping of books, records and accounts in the manner prescribed by the regulations and shall be responsible for the production of the same at the time of audit, inspection and inquiry. All the books, records and accounts so kept shall not be removed outside of the headquarters of a co-operative, except upon orders of courts or of the Administrator.

Section 52. Duty to account and publish financial statements. Each co-operative shall maintain records and accounts in such a manner that the true and correct condition and the results of the operation of the business of the co-operative may be ascertained therefrom at any time, and the financial statements, audited according to regulations, shall be annually published in the prescribed manner.

Section 53. Annual Report. (1) Every co-operative shall annually make a report of its financial affairs as of December 31st of each year, which shall be filed with the Administrator or his duly authorized representative on or before the first day of February of each year or within the extension which may be granted by the Administrator in exceptional cases. The report shall in such form and manner and shall contain such matters as may be prescribed by the regulations and shall be certified by one of the officers of the co-operatives as true and correct in all respects, to the best of his knowledge and belief.

Section 54. Duty to furnish information and required reports. (1) Every officer, director, committee member, member and employee of a co-operative shall furnish such information in regard to the transactions or working of the co-operative as may be required of him by the Administrator or any person authorized by him.

Section 55. Bonding of accountable officers. Every director, officer and employee handling funds, securities or property on behalf of any co-operative shall, subject to regulations, execute and deliver adequate bonds for the faithful performance of his duties and obligations.

Section 56. Restrictions on borrowing. A co-operative shall receive deposits and loans from members only to such extent and under such conditions as may be prescribed by the regulations and the by-laws.

Section 57. Restrictions on loan. Subject to the restrictions that may be imposed by the Administrator, a co-operative shall make loans only to its members and not in excess of either the maximum or of the normal credit determined by the co-operative for that member in accordance with the regulations whichever may be prescribed. Nonmembers may obtain loans on the deposits they hold in the co-operative.

Section 58. Restrictions on other transactions with nonmembers. Subject to the provision of Sections fifty-six and fifty-seven, a co-operative shall not transact business with nonmembers to exceed that done with members.

Section 59. Co-operatives to be bodies corporate. A co-operative after registration under this Act shall be a body corporate by the name under which it is registered till the registration is cancelled, with perpetual succession and a common seal and with power to hold property, to enter into contracts, to institute and defend suits and other legal proceedings and to do all things necessary for the purposes of its constitution.

Section 60. Co-operative's power to call for statement of claims. (1) When a member of a co-operative, which includes among its purposes granting of loans to its members, applies for a loan or when a person applies for membership in such a co-operative, the co-operative may in the prescribed manner serve a notice on any creditor named in the application or ascertained after subsequent inquiry, and may also publish a general notice on all creditors, requiring him or them to furnish a written statement of his or their claim, in the prescribed form and within the time specified in the notices, which shall not be less than ten days.

Section 61. Debts due to co-operatives shall be a first charge. (1) Notwithstanding the provisions of existing laws, rules and regulations, but subject to the prior claim of the Government in respect of any sum recoverable as a public demand or of Government financing institutions for whatever amount they have extended as loans in connection with production, storage, processing and marketing, or of a landlord in respect of share or rent or any sum recoverable as share or rent, any debt or outstanding demand owing to a co-operative from any member, past member or the estate of a deceased member shall be a first charge:

Section 62. Agreements with members for deductions from salary to meet claims of co-operative permitted. (1) A member of a co-operative may, notwithstanding the provisions of existing laws, execute an agreement in favor of the co-operative authorizing his employer to deduct from the salary or wages payable to him by the employer such amount as may be specified in the agreement and to pay the amount so deducted to the co-operative in satisfaction of any debt or other demand owing from the member to the co-operative.

Section 63. Lien and set off on members' interest. A co-operative shall have an absolute lien upon the capital, deposits or interest of a member or past member for any debt or demand due to a co-operative from such a member, either as a principal or as a surety, and may set off any sum credited or payable to a member or past member in or towards payment of any such debt or demand.

Section 64. Register of members. Any register or list of members or shares kept by any registered co-operative shall be prima facie evidence of the following particulars entered therein:

Section 65. Admissibility of copy of entry as evidence. (1) A copy of any entry in any book, register or list regularly kept in the course of business in the possession of a co-operative shall, if duly certified in such manner as may be prescribed by the regulations, be admissible in evidence of the existence of the entry and shall be admitted as prima facie evidence of the matters and transactions therein recorded in every where, and to the same extent to which, the original entry would, if produced, have been admissible to prove such matters.

Section 66. Exemptions. Co-operatives registered under this Act shall, notwithstanding the provisions of existing law to the contrary, enjoy the following exemptions:

Section 67. Other privileges. Co-operatives registered under this Act shall, notwithstanding the provisions of any law, be accorded also the following privileges:

CHAPTER VII
Capital, property and funds

Section 68. Capital. The capitalization of co-operatives and the accounting therefor shall be governed by the provisions of this Act and the regulations issued hereunder.

Section 69. Source of funds. Co-operatives registered under this Act may, subject to the regulations derive funds from:

Section 70. Limitation on individual share holdings. No member of a co-operative other than a co-operative or the Government of the Philippines or any of its subdivisions shall, unless expressly authorized in writing by the Administrator in special circumstances, own or hold more than five thousand pesos worth of shares or twenty per centum of the subscribed share capital of the co-operative as may be prescribed by the regulations.

Section 71. Limited return on capital. Interest on share capital shall not exceed eight per centum per annum upon the fully paid-up shares and such interest shall be non-commutative.

Section 72. Restriction on transferability of shares. Subject to the provisions of section seventy, a member shall not transfer any share held by him or his interest in the co-operative or any part thereof unless:

Section 73. Share capital. The term "share" refers to a unit of capital, the par value of which may be fixed at any figure of not less than one peso. The share capital of a co-operative with capital stock is the money paid or authorized or required to be paid for conducting its operations, whereas the share capital of a co-operative without capital stock is the money pair or required to be paid and is not limited by any authorized amount. The method of issuing and the contents of stock or membership certificates may be prescribed in the regulations.

Section 74. Interest or fine on unpaid capital contribution. The by-laws of a co-operative may prescribed interest or fine on unpaid capital contribution.

Section 75. Recall or purchase of shares. A co-operative may, by resolution of the members of a general assembly recall the holdings of any member in excess of the amount requisite for membership: Provided, That no purchase shall be made when the debts of the co-operative exceed fifty per centum of the assets thereof. All shares that shall be purchased under sections thirty-one, thirty-two, seventy-two and seventy five shall be reissued or cancelled.

Section 76. Investment of funds. (1) A co-operative shall invest or deposit its funds:

Section 77. Government aid to co-operatives. (1) Notwithstanding the provisions of any law, the Government of the Philippines and its subdivisions may, subject to such regulations as may be prescribed on this matter, grant loans to, take shares in, or give financial assistance in any other form to any co-operative registered under this Act.

Section 78. Revolving capital. The general assembly of members of any co-operative may by a majority vote decide to raise a revolving capital to strengthen the capital structure of their co-operative by deferring the payment of patronage refunds or by the authorized deduction if a percentage from the proceeds of products sold or per unit of product handled. The board of directors shall issue revolving-fund certificates with serial number, name, and amount and shall distinctly set forth that the time of retirement of such certificates and the amounts to be returned are at the discretion of the directors. The rate of interest to be paid on capital raised by this method shall not exceed five per centum per annum.

CHAPTER VIII
Allocation and distribution of savings

Section 79. Computation of savings. Notwithstanding the provisions of existing laws or other regulations, the computation of savings for co-operatives shall be as may be prescribed in the regulations. Every co-operative shall compute the savings at least once at the close of every business year and at such other time as may be prescribed by the Administrator.

Section 80. Savings, not profit. The net savings shall not be construed as profit but shall be construed as excess payments made by patrons which shall be deemed to have been returned to them if the net savings are distributed as prescribed in section eighty-one, eighty-two, eighty-three, eighty-four and eighty-five.

Section 81. Reserve fund. (1) Every co-operative shall create and maintain in the following manner a reserve fund for the stability of the co-operative and to meet losses in its business:

Section 82. Educational fund. (1) Every co-operative shall create and maintain in the following manner an educational fund for co-operative educational and other purposes as may be prescribed:

Section 83. Other funds. The general assembly of the members of a co-operative may set aside a land and building fund, community development fund and any other necessary fund the total of which may not exceed ten per centum of the net savings of each year.

Section 84. Interest on capital and patronage refund.

Section 85. Patronage refunds. The sums allocated for patronage refunds shall be distributed at the same rate to all patrons of the co-operative in proportion to their individual patronage: Provided, That:

CHAPTER IX
Audit, inquiry and inspection

Section 86. Audit. (1) The Administrator shall audit or cause to be audited by some person, hereinafter referred to as the auditor, authorized by him in writing the accounts of every co-operative registered under this Act as least once a year.

Section 87. Power of Administrator to have accounts written up. If at the time of audit the accounts of a co-operative are not complete, the Administrator or his duly authorized representative may cause the accounts to be written up at the expense of the co-operative or the employees, as he deems fit.

Section 88. Nature of audit. (1) The audit under Section eighty-six shall include:

Section 89. Audit report. The auditor shall, on such date as may be prescribed, submit to the co-operative and to the Administrator an audit report in the prescribed form and manner, including a statement of:

Section 90. Inquiry. (1) The Administrator may, on his own initiative, at any time conduct an inquiry or direct some person authorized by him in writing in this behalf, to conduct an inquiry into the constitution, working and financial condition of a co-operative.

Section 91. Inspection. (1) The Administrator may, on his own initiative or on the application of a creditor of a co-operative, inspect or direct any person authorized by him in this behalf in writing to inspect the co-operative.

Section 92. Cost of inquiry and inspection. (1) The Administrator may prescribe the cost of inquiry under Section ninety and inspection under Section ninety-one and may, after giving the parties an opportunity to be heard, apportion the cost or such part of the cost as he may think right between the co-operative, the members or creditor demanding an inquiry or inspection, the officers or former officers and the members or past members of the co-operative. The grounds on which the Administrator has apportioned the cost shall be specified in writing.

Section 93. Rectification of defects pointed out in audit, inquiry or inspection. If the result of audit under Section eighty-six or an inquiry under Section ninety or an inspection under Section ninety-one discloses any defects or irregularities in the working of a co-operative, the Administrator shall bring such defects or irregularities to the notice of the co-operative, and if the co-operative is a member of a federation of co-operatives to the notice of it, and shall afford them an opportunity of explaining such defects or irregularities pointed out in audit, inquiry or inspection, and thereafter if the co-operative or its proper officers or the federation of co-operatives fail to remedy such defects or irregularities, then the Administrator may proceed to take action as provided under Section ninety-four.

CHAPTER X
Supersession

Section 94. Supersession. (1) If the Administrator, after an audit under Section eighty-six or an inquiry under Section ninety or an inspection under Section ninety-one is satisfied that the board of directors or any committee responsible to the members of a co-operative is not functioning properly or have neglected to perform their duties, he may, after giving an opportunity to the board of directors or the committee to explain its reason for such circumstances and to state its objections, if any, and after considering the reasons and objections raised, call a general assembly of members to dissolve and reconstitute the board of directors or the committee. He may order that all or any of the directors or committee members shall be disqualified from being reelected to the board of directors or to any of the committees of the co-operative for a period to be specified in the order not exceeding three years: Provided, That the Administrator may from time to time extend the period specified in such order for further periods not exceeding one year at a time, but not exceeding in the aggregate of two years.

CHAPTER XI
Liquidation and arbitration

Section 95. Winding up. (1) The Administrator may, subject to the regulations prescribed, by an order in writing, direct that a co-operative shall be liquidated if:

Section 96. Appointment of a liquidator and necessary assistance. When an order is issued under Section ninety-five for the winding up of the affairs of a co-operative, the Administrator shall, the provisions of the Rules of Court or of any law to the contrary notwithstanding, appoint a competent person or persons to be liquidator of the co-operative and such other assistance and may retain such of the officers or employees of the co-operative as he deems necessary and fix their remuneration to be paid out of the funds of the co-operative. He may remove any such person and appoint another in his place.

Section 97. Powers of liquidator. (1) Notwithstanding the provisions of subsections (3) and (4) of Section ninety-five, a liquidator appointed under Section ninety-six shall have the power, from the date of his appointment, to take immediate possession and control of the business, property, assets, claims, books, records, and other documents of every description of the co-operative, and he shall investigate the existing financial condition of the co-operative at the time of his appointment and make an inventory of the property, and shall draw up a balance sheet, all of which shall be forwarded to the Administrator for approval. The Administrator may, if he thinks necessary, consult the general assembly of members before such approval.

Section 98. Bar of suit during liquidation and cancellation of registration. Save in so far as is expressly provided in this Act no court shall take cognizance of any civil matter connected with the liquidation or dissolution of a co-operative under this Act and when a liquidation order has been made no suit or other legal proceeding shall lie or be proceeded with against the co-operative except by leave of the Administrator and subject to such terms as he may impose.

Section 99. Effect of liquidation of co-operative on past members or on estate of deceased member. Notwithstanding the provisions of section twenty-nine, when a co-operative is directed to be liquidated under Section ninety-five, the liability of a past member and the estate of a deceased member of the co-operative, as it existed on the date of the winding up order, shall continue until all the liabilities of the co-operative are settled.

Section 100. Cancellation of liquidation or registration.

Section 101. Arbitration. (1) All civil controversies touching the constitution or business of a co-operative arising between members or past members of the co-operative or persons claiming through a member or past member or between members or past members or persons so claiming and any officer, director, committee member, agent or employee of the co-operative past or present, or between co-operative or its board, committee and any officer, director, committee member, agent, member or employee of the co-operative past or present, shall be referred to the Administrator for decision by himself or his nominee or, if either of the parties involved in the controversy so desires, to arbitration of three persons one of whom shall be the Administrator of his nominee and the two to be nominated by each of the parties concerned.

A controversy shall include claims by a co-operative for debts or demands due from persons noted under this subsection whether such debts or demands be admitted or not.

Provide, That if the controversy between parties is one involving complicated questions of law and fact, the Administrator may, if he thinks fit, suspend the proceedings and advise the parties to file a regular suit in a court having jurisdiction. If no proceedings are instituted by either of the parties within six months from the date of such advice, the Administrator shall decide the controversy himself.

Section 102. Power to direct payment of dues. Notwithstanding the provisions on arbitration, the Administrator may, on his own initiative or on the written request of his assistants appointed under Section eight hereof, or of a co-operative or of a federation of co-operatives for the recovery of any loan or amount due by a defaulting member, after due inquiry, make an award directing payment by such member of the amount found to be due.

Section 103. Powers of Administrator and others. The Administrator, subject to any restrictions prescribed in the regulations, the auditor under section eighty-six, the liquidator under section ninety-six the arbitrator under section one hundred one, the person appointed under section ninety-four or any person conducting an inquiry under section ninety, or an inspection under section ninety-one, shall at all reasonable times have free access to the books, accounts, vouchers, documents, securities, cash and other properties belonging to or in the custody of a co-operative and shall, in so far as is necessary for carrying out of any of the purposes of this Act, have power to summon and enforce attendance of witnesses and parties concerned who, he has reason to believe, can give valuable information in regard to any transaction of the co-operative or the management of its affairs and to compel them to give evidence upon oath and to compel the production of any books, accounts, vouchers, documents, securities, cash and other properties relating to the affairs of the co-operative at any place at the headquarters of the co-operative or at the office of the Administrator, by the same means and, as far as possible, in the same manner as that provided for the courts in civil cases.

CHAPTER XII
Surcharge and attachment of property

Section 104. Surcharge. When in the course of an audit under section eighty-six, or an inquiry under section ninety or an inspection under section ninety-one, or the liquidation of a co-operative, it appears that any person who has taken part in the organization or management of the co-operative or any past or present officer, director or committee member of the co-operative has at any time after the effectivity of this Act and within a period of four years prior to the date of such audit, inquiry, inspection or winding up, as the case may be, or within two years of the date on which it comes to the notice of the Administrator, whichever is earlier:

Section 105. Attachment of property. Whenever it shall appear to the Administrator that any person or co-operative with intent to defeat or delay the execution of any order that may be issued under Chapters XI, XII or XIV

CHAPTER XIII
Regulations

Section 106. Regulations. The Administrator, subject to the previous approval of the Secretary of Commerce and Industry, shall prescribe the necessary regulations to carry out the provisions of this Act. Such regulations shall be published in the Official Gazette before they become effective.

CHAPTER XIV
Offenses and penalties

Section 107. Prohibition of the use of the word "Co-operative". (1) No person or group of persons other than a co-operative registered under this Act, except as authorized under other co-operative laws, shall carry on business under any name or title of which the word "co-operative" or its equivalent in vernacular forms part without the sanction of the Secretary of Commerce and Industry: Provided, That any person or group of persons or their successors in interest using the word co-operative or its equivalent in the vernacular in any name or title under which they carried on business before the enactment of existing co-operative laws and this Act may continue to use the word co-operated or is equivalent in vernacular.

(2) Whoever violates the provisions of subsection (1) shall be punished by a fine of not exceeding two hundred pesos at the discretion of the court, and in the case of continuing offense, by a further fine of twenty pesos for each day such offense is continued.

Section 108. Offenses. (1) Any officer, director or committee member of a co-operative:

Section 109. Penalty for nonperformance of obligations. Notwithstanding the provisions of this Act, where a co-operative or a person required to take action under this Act, under the regulations or the by-laws and such action is not taken

Section 110. Penalty for certain acts. Where it appears to the Administrator, that any person has contravened the provisions of this Act, the regulations or the by-laws

the Administrator may apply to the court for an order, which shall after affording such person an opportunity to be heard, directing such person to pay to the assets of the co-operative by way of penalty such sum as the court deems fit in respect of every such contravention.

Section 111. Penalty for disposing of property in contravention of Section 61. Any member or past member, or the heir or legal representative of a deceased member who, in violation of the provisions or section sixty-one, fraudulently disposes of any property over which a co-operative has charge under that section or doing any other act and to the prejudice of such charge, shall, in addition to other legal remedies, be punished by a fine of not exceeding five hundred pesos in the discretion of the court after hearing the party concerned.

Section 112. Prosecution of offenses. No prosecution for offenses under sections one hundred seven, one hundred eight, one hundred nine, one hundred ten and one hundred eleven of this Act shall be lodged without the previous written sanction of the Administrator, who shall not give sanction until after hearing the party concerned: Provided, That if the offenses constitute criminal acts punishable under the Revised Penal Code, the same may be prosecuted even without the previous sanction of the Administrator.

CHAPTER XV
Special Provisions relating to co-operative banks

Section 113. Applicability of provisions. The special provisions under this Chapter are applicable only to co-operative banks registered under this Act and the other provisions of this Act will apply to them only in so far as they are not against the express provisions contained in this Chapter.

Section 114. Definitions. As used in this Act, unless a different meaning is intended in the context

Section 115. Objects. (1) The objects of the co-operative banks are to facilitate the operation of non-agricultural co-operatives by furnishing credit for the Co-operative Movement, and the Philippine National Co-operative Bank may

Section 116. Registration. No co-operative bank shall be registered by the Administrator unless the articles of incorporation and the by-laws of such bank have been approved by the Secretary of Commerce and Industry and the Central Bank of the Philippines and the co-operative bank satisfies all the provisions for registration of federations of co-operatives. There may be registered one co-operative bank at the national level to serve as the chief bank for non-agricultural and other types of co-operatives together with their federations, and one Provincial Co-operative Bank in each province.

Section 117. Name and jurisdiction. The co-operative bank at the national level may be known as "The Philippine National Co-operative Bank." The co-operative banks at the provincial level may be known as "The Provincial Co-operative Bank" and shall include in their names the name of the province for which they are registered. The jurisdiction of the Philippine National Co-operative Bank may extend to the entire country with its headquarters at Manila while the jurisdiction of the provincial co-operative banks may extend to the province for which each one is registered unless necessary sanction is obtained under subsection (3) of section twenty-five of this Act and their headquarters shall be in the capital or any city of the province concerned as determined by the Administrator.

Section 118. Membership. Membership of co-operative banks may include co-operatives, federations of co-operatives and individual members who join in the articles of incorporation of the co-operative bank and co-operatives, federations of co-operatives and individual members admitted to membership by the board of directors of such bank after registration. Affiliated co-operatives shall be known as class "A" members and individual members shall be known as class "B" members.

Section 119. Board of Directors. The general assembly of every co-operative bank shall elect a board of directors, whose number and proportionate representation between class "A" and class "B" members shall be determined from time to time by the Secretary of Commerce and Industry in the regulations or by special order in writing, but in no case shall the directors representing the class "B" members be more than one third of the entire board of directors. Each class of members shall exercise their right to elect their share of representatives in the board of directors. The President, Secretary, Treasurer and Manager of every co-operative bank shall be appointed, their salaries determined and paid by the Secretary of Commerce and Industry in consultation with the board of directors of the co-operative bank concerned and the Administrator, until such time as, but not earlier than five years after registration of, the co-operative bank concerned, through a resolution of its general assembly, expresses to the Secretary of Commerce and Industry that it can elect or appoint, as the case may be, all or any of the said persons and pay their or his salary out of its fund without jeopardizing the co-operative bank's financial stability and thereafter the Secretary of Commerce and Industry shall withdraw all or any of the persons appointed by him and requested to be withdrawn by the co-operative bank and allow the co-operative bank to fill in the post according to its by-laws. The persons appointed by the Secretary of Commerce and Industry and the Administrator or his representative shall be ex officio directors of the board and ex officio members of the executive committee, if any, created. The president shall be the chairman of the general assembly, board and the executive committee.

Section 120. Budget control. The board of directors shall not recommend a budget to the general assembly nor shall the general assembly approve a budget which shall involve an expenditure exceeding such percentage of the gross earnings of the previous year or the anticipated realizable gross earnings of the next year whichever is lower as shall be determined by the Administrator and the Central Bank of the Philippines.

Section 121. Loans. All loans which shall be granted by the co-operative banks to the affiliated co-operatives shall be for short and intermediate terms, the former not to exceed a maximum period of fifteen months and the latter not to exceed a maximum period of three years and shall be brought to the notice of the Administrator, except loans on investments held or deposited by the affiliated co-operatives in the co-operative banks. Loans which are declared to be risky by the Administrator shall not be granted by the board of directors of the co-operative banks. Class "B" members shall not be eligible for loans except on deposits they hold in the co-operative banks and other securities that may be approved by the board of directors.

Section 122. Administrative control. The co-operative banks registered under this Act shall submit to the supervision of the Administrator so far as the provisions of this Act are concerned and the Monetary Board of the Philippines on banking transactions so far as the supervision of the Monetary Board of the Philippines is not inconsistent with the provisions of this Act.

Section 123. Capital. (1) The Philippine National Co-operative Bank shall have an authorized capital of ten million pesos (P10,000,000) divided into shares of one hundred pesos par value each. The shares shall be divided into two groups marked series "A" and series "B".

Section 124. Audit. Subject to the provisions of Section eighty-six the general assembly of every co-operative bank shall also make separate arrangement for audit of their accounts and shall appoint an auditor to audit the accounts of the bank and to submit report to the board of directors and the general assembly as often as is required by them.

Section 125. Distribution of savings. The provisions under Chapter VIII Allocation and Distribution of savings of this Act shall apply to the distribution of savings of co-operative banks except that the Reserve Fund to be set apart shall at least be twenty-five per cent of the net saving and the general assembly shall decide whether to allow patronage refund or not; and if to be allowed, the amount to be utilized for patronage refund.

Section 126. Privileges. In addition to the privileges granted in Chapter VI, the co-operative banks shall be granted the following privileges:

CHAPTER XVI
Special provisions relating to co-operative wholesale societies

Section 127. Applicability of provisions. The special provisions under this Chapter are applicable only to co-operative wholesale societies registered under this Act and the other provisions of this Act will apply to them only in so far as they are not against the express provisions contained in this Chapter.

Section 128. Objectives. (1) The objects of co-operative wholesale societies are to facilitate the operation of consumers and producers co-operatives in particular and retailers in general by being a source of steady supply and disposal of domestic requirements of their members, and The Philippine Co-operative Wholesale Society may

Section 129. Registration. No co-operative wholesale society shall be registered by the Administrator, unless the articles of incorporation and the by-laws of such co-operative wholesale society have been approved by the Secretary of Commerce and Industry and the co-operative wholesale society satisfies all the provisions for registration of federations of co-operatives. There may be registered one co-operative wholesale society at the national level to serve as the chief source of supply and marketing of goods required and produced by the affiliated co-operatives and one provincial co-operative wholesale society in each province.

Section 130. Name and jurisdiction. The co-operative wholesale society at the National level may be known as "The Philippine Co-operative Wholesale Society" with its jurisdiction all over the country and headquarters at Manila. The co-operative wholesale societies at the provincial level may be known as "The Provincial Co-operative Wholesale Society" and shall include in their names the name of the province for which they are registered. The jurisdiction of the provincial co-operative wholesale societies shall extend to the province for which each one is registered unless necessary sanction is obtained under subsection (3) of Section twenty five of this Act and their headquarters shall be in the capital or any city of the province concerned as determined by the Administrator.

Section 131. Membership. Membership of co-operative wholesale societies may consist of consumers and producers co-operatives together with their federations and retailers or their associations or corporations and shall include all those of the above description who join in the articles of incorporation of any co-operative wholesale society and all those of the above description admitted to membership by the board of directors of such co-operative wholesale society after registration. Affiliated co-operatives shall be known as class "A" members and retailers and their associations or corporations shall be known as class "B" members.

Section 132. Voting. Each member attending the general assembly shall have one vote as a member and shall have as many votes in addition according to the scale to be prescribed in the by-laws, giving weight for the business done with the co-operative wholesale society concerned.

Section 133. Board of directors. The general assembly of every co-operative wholesale society shall elect a board of directors, whose number and proportionate representation between class "A" and class "B" members shall be determined from time to time by the Secretary of Commerce and Industry in the regulations or by special order in writing. Each class of members shall exercise their right to elect their share of representatives in the board of directors. The President, Secretary, Treasurer and Manager of every co-operative wholesale society shall be appointed, their salaries determined and paid by the Philippine Government in consultation with the board of directors of the co-operative wholesale society concerned and the Administrator, until such time as, but not earlier than five years after registration of, the co-operative wholesale society concerned through a resolution of its general assembly, express to the Secretary of Commerce and Industry that it can elect or appoint, as the case may be, all or any of the said persons and pay their or his salary out of its fund without jeopardizing its financial stability and thereafter the Secretary of Commerce and Industry shall withdraw all or any of the persons appointed by him and requested to be withdrawn by the co-operative wholesale society and allow the co-operative wholesale society to fill in the post according to its by-laws. The persons appointed by the Secretary of Commerce and Industry, the Administrator or his representative and the General Manager of the National Marketing Corporation or his representative so long as the National Marketing Corporation exists, shall be ex officio directors of the board and ex officio members of the Executive committee, if any, created. The President shall be the chairman of the general assembly, board and the executive committee.

Section 134. Manager. The Manager of the co-operative wholesale society shall be responsible for the day-to-day management of the business in accordance with the decisions of the board and the executive committee. The duties of the manager shall be specified in the by-laws of every co-operative wholesale society.

Section 135. Budget control. The board of directors shall not recommend a budget to the general assembly nor shall the general assembly approve a budget which shall involve an expenditure exceeding such percentage of the gross earnings of the previous year or the anticipated realizable gross earnings of the next year whichever is lower as shall be determined by the Administrator.

Section 136. Borrowing. Subject to the regulations, the general assembly shall fix a maximum limit of borrowings for each year. As far as possible, all the banking transactions shall be done with the co-operative banks.

Section 137. Terms of business. All sales to members shall be on cash basis: Provided, however, That the members may order supplies on indent basis with a deposit of a percentage of the value as determined by the board of directors at the time of order and payment of the balance on delivery: Provided, further, That when a member refuses to receive and pay for the supplies after order, the said deposit may be forfeited in whole or in part at the discretion of the board.

Section 138. Capital. (1) The Philippine Co-operative Wholesale Society shall have an authorized capital of ten million pesos (P10,000,000) divided into shares of one hundred pesos par value each. The shares shall be divided into two groups marked series "A" and series "B".

Section 139. Warehouse financing. The Government of the Philippines through any of its agencies may provide long term loans to any or all co-operative wholesale societies or authorize them issue debentures to finance the building of warehouses, provided that such co-operative wholesale societies finance at least twenty per centum of the cost of the warehouse. The security for the loans or the debentures shall be the warehouse built.

Section 140. Audit. Subject to the provisions of Section eighty six the general assembly of every co-operative wholesale society shall also make separate arrangement for audit of their accounts and shall appoint an auditor to audit the accounts of the co-operative wholesale society and to submit report to the board of directors and the general assembly as often as in required by them.

Section 141. Distribution of savings. The provisions under Chapter VIII Allocation and Distribution of Savings of this Act shall apply to the distribution of savings of co-operative wholesale societies except that the Reserve Fund to be set aside shall at least be twenty-five per cent of the net savings.

Section 142. Liquidation. Subject to the provisions of Chapter XI, every co-operative wholesale society shall seek liquidation when one half of its paid-capital has been lost. The Philippine Government shall have first charge on the assets of the co-operative wholesale society under liquidation.

Section 143. Privileges. In addition to the privileges granted in Chapter VI, the co-operative wholesale societies shall be granted the following privileges:

CHAPTER XVII
Miscellaneous

Section 144. Money how recovered. Every order issued for the recovery of any sum granted or transferred under this Act in respect of which no specific mode of recovery is provided, shall, if not carried out, on a certificate signed by the Administrator or liquidator which shall be deemed as a decree of court, be executed by any court having jurisdiction in the same manner as a decree of such court, or on a certificate signed by the Administrator and forwarded to the Collector of Internal Revenue who shall proceed to recover the amount in the same manner as if it were an arrears of internal revenue and the collection handed over to the Administrator for disposal to the proper authority, provided that all sums due from a co-operative to the Government or otherwise recoverable from a co-operative may be recovered firstly, from the property of the co-operative; secondly, in the case of a co-operative with limited liability from the members, past members, estates of deceased members or their sureties subject to the limit of their liability and thirdly, in the case of other co-operatives from the members, past members or estates of deceased members or their sureties to such extent or in such proportion as may be determined by the Administrator.

Section 145. Enforcement of orders. Every order issued under Chapters IX, XI and XII, in addition to any other method of enforcement under this Act, shall be submitted to a court of competent jurisdiction for approval and enforcement as in any ordinary case.

Section 146. Register of co-operatives. The Administrator shall maintain a register wherein he shall chronologically note every co-operative registered or cancelled under this Act together with information required under Section sixteen and any other information considered useful by him. He shall publish every year a list of co-operatives in existence, under dissolution and whose registration is cancelled during the year together with such information on each of them as may be prescribed in the regulations.

Section 147. Acts of co-operative, etc., not to be invalidated by certain defects. (1) No act of a co-operative or board or committee or of any officer or liquidator done in good faith in the course of the business of the co-operative shall be deemed to be invalid by reason only of some defect subsequently discovered in the registration of the co-operatives or in the formation of the general assembly or in the constitution of board or committee or in the appointment or election of directors, committee members, liquidator or officer or on the ground that such person was disqualified for his appointment.

Section 148. Notice to Administrator in suits against co-operatives necessary. No suit shall be instituted against a co-operative or persons representing it in respect of any act touching the business of the co-operative until the expiration of two months after notice in writing has been delivered to the Administrator, stating the cause of action, the name and postal address of the person giving notice and the relief he claims, together with a statement that such notice has been delivered.

Section 149. Private transfer of property made after issue of certificate void against co-operative. Any private transfer or delivery of, or encumbrance or charge in, property made or created after the issue of the certificate of the Administrator or liquidator, as the case may be, under section one hundred forty-four shall be null and void as against the co-operative on whose application the said certificate was issued.

Section 150. Board of directors of National Co-operative Union. The composition of the board of directors of the National Co-operative Union shall be such as to consist of all interest representing the Co-operative Movement and the Government of the Philippines.

Section 151. Review and revision. (1) Within thirty days from notice of an order issued by the Administrator in a proceeding under this Act, any person aggrieved thereby may obtain a review of such order by the Secretary of Commerce and Industry. Upon such petition for review or motu propio, the Secretary of Commerce and Industry shall have the power to affirm, modify, or set aside, in whole or in part, any order of the Administrator.

Section 152. Repeals. All acts, executive orders, rules and regulations or parts thereof in conflict with the provisions of this Act, are repealed. If any provision of this Act shall be held invalid the remainder shall not be affected thereby.

Section 153. Appropriation: nonagricultural co-operative fund. To carry out the provisions of this Act, there is hereby authorized to be appropriated, out of any funds in the National Treasury not otherwise appropriated, the sum fifty million pesos (P50,000,000.00), which shall be known as the Non-Agricultural Co-operative Fund: Provided, however, That of the said sum, two million two hundred fifty thousand pesos (P2,250,00) shall be made immediately available from the proceeds of the bonds authorized to be issued under Republic Act Numbered One Thousand for the following purposes:

Section 154. Report to Congress. The Administrator, through the Secretary of Commerce and Industry, shall submit to Congress copy of the rules and regulations promulgated by him in accordance with the provisions of this Act, as well as an annual report of the nonagricultural co-operatives program established under this Act.

Section 155. Effectivity. This Act shall take effect upon its approval.

Approved: June 22, 1957.