Cooperatives Law Revoked: Out with the New, In with the Old

 
Agus Sahbani, Andin Aditya Rahman
 
As one of the backbones of Indonesia’s economy, as expressly entrenched under Article 33 of the 1945 Constitution, cooperatives have played a significant role in supporting  national economic growth. The nature of cooperatives in Indonesia is somewhat unique as they are based on communual principles,  the so-called gotong royong, under which the welfare of members is prioritized, different to modern corporations which prioritize profit and income.
 
This special nature of cooperatives in Indonesia is considered essential for the preservation of the  greater communal good. In the context of this historical background, in a recent decision the Constitutional Court has negated recent legislative developments on the management of cooperatives, especially under Law No. 17 of 2012on Cooperatives (2012 Cooperatives Law)
 
The Court has taken the view that the 2012 Cooperatives Law encourages cooperatives to adopt a model that ignores the constitutional basis for cooperatives and is therefore inconsistent with the 1945 Constitution.
 
Based on the jurisprudence that the modern commercial view of cooperatives is against the gotong royong principle, the Court recently granted a petition to declare the 2012 Cooperatives Law as null and void under its decision No. 28/PUU-XI/2013 (Decision).
 
The Decision also reinstates the previous cooperatives law, namely Law No. 25 of 1992on Cooperatives (1992 Cooperatives Law), to avoid a legal vacuum.
 
“The 1992 Cooperatives Law will be temporarily in force until a new law is enacted,” stated Justice Hamdan Zoelva, when reciting the decision last Wednesday.
 
The petition for the review of the 2012 Cooperatives Law was jointly filed by a number of  cooperatives, including the Cooperative Workers Group of the Republic of Indonesia (GPRI) of East Java, the Cooperatives Rural Unit Center (Puskud), and the East Java Women’s Cooperatives Center (Puskowanjati).
 
In addition, An-nisa Cooperatives Center of East Java, Bueka Assakinah Cooperatives Center of East Java, and the Indonesia Milk Cooperatives Group, as well as two individuals, Agung Haryono and Mulyono, were also involved in the petition.
 
The petitioners argued that the definition of a cooperative under the 2012 Cooperatives Law as a mere incorporated body blurs the fine line between cooperatives and other legal entities and as a consequence is  inconsistent with Article 33 of the 1945 Constitution.
 
They also argued that the 2012 Cooperatives Law revokes the independence of cooperatives by enabling capital participation by non-members.
 
“The petitioners’ argument that the definition of a cooperative contains individualism is legally cogent,” said Justice Maria Farida Indrati.
 
The provisions that grant the management of a cooperative, to accept or reject new members, including to terminate existing members, contradicts Articles 5(1) and 29(2) of the 1945 Constitution, as cooperatives are supposedly democracy-based and promote equality.
 
“These provisions contradict the principle of economic democracy,” explained Justice Indrati.
 
Justice Indrati continued that the requirement that cooperative members must purchase a cooperatives capital certificate is also not in accordance with the voluntary and open principle of cooperatives.
 
“This means that the orientation of cooperatives has shifted primarily towards a joint venture scheme,” Justice Indrati emphasized.
 
In conclusion, the Constitutional Court took the view that the 2012 Cooperatives’ Law encourages cooperatives to blend in with limited liability companies. This approach may result in the destruction of the constitutional spirit of cooperatives as an economic entity that is unique to Indonesia based on the gotong royong principle.
 
(For more information on the 2012 Cooperatives’ Law, see: ILD No. 283)
 
(hot/kc)