Gujarat High Court
Amreli District Co-Operative Sale And ... vs State Of Gujarat on 17 July, 1984
Equivalent citations: (1984)2GLR1244
JUDGMENT B.K. Mehta, J.
1. By this group of Special Civil Applications the co-operative societies of diverse nature such as primary societies as well as federal societies extending service and credit facilities, producer societies banking societies rendering banking services at urban, district and State level, sales and purchase unions at taluka, district and State level, challenge the Gujarat Co-operative Societies (Amendment) Act, 1981 (hereinafter referred to as "the impugned Act of 1981) and the Gujarat Co-operative Societies (Amendment and Validation) Act, 1982 (hereinafter referred to as "the impugned Act of 1982) by which the Gujarat Co-operative Societies Act, 1961 (hereinafter referred to as "the principal Act) has been substantially amended. Since challenge to these two amending Acts in all these Special Civil Applications is almost on identical grounds and the main contentions urged by the Learned Counsel appearing in these matters are also identical, we propose to dispose of the entire group by this common order. However, in order to appreciate these contentions in the proper perspective we would set out a few facts by way of model facts from those Special Civil Applications which were described by the Learned Counsel as their main applications in which they have thought fit to address us.
2. Special Civil Applications Nos. 1027 of 1981 and 4622 of 1982 were argued by the Learned Counsel Mr. P. M. Raval. Similarly, Special Civil Applications Nos. 1040 of 1981, 4980 of 1982 and 5011 of 1982 were argued by the Learned Counsel Shri K. G. Vakharia. Special Civil Applications Nos. 1702 of 1981, 136 of 1983, 216 of 1983 and 217 of 1983 were argued by the Learned Counsel Shri Shanti Bhushan. It is from these Special Civil Applications that we have extracted the model facts since the respective petitioners in these Special Civil Applications broadly represent the diverse type of co-operative societies with which we are concerned in this group. We have, therefore, selected these Special Civil Applications for the purpose of model facts in the light of which we will examine the different grounds of challenge to the impugned Acts.
3. Special Civil Application No. 1027 of 1981 is filed on behalf of three petitioners. Petitioner No. 1 is Amreli District Co-operative Sales and Purchase Union Limited which is a federal society registered under the provisions of the Gujarat Co-operative Societies Act, 1961. Petitioner No. 2 is Dhari Taluka Co-operative Sales and Purchase Union Limited, which is a union operating at taluka leval and is a member of petitioner No. 1 union. Petitioner No. 3 is the President of the Amreli District Co-operative Sales and Purchase Union Limited, Amreli and Dhari Taluka Co-operative Sales and Purchase Union Limited. He has been elected as President of petitioner No. 1 union. Petitioners have challenged the impungned Act of 1981. Special Civil Application No. 4642 of 1982 is moved by different co-operative banks operating in the urban and rural areas, namely, Ahmedabad, Baroda, Adipur in Kutch, Babra in Rajkot and Harij taluka in Mehsana district. The Managing Director, the Chairman and the shareholders have also joined in this Special Civil Application on behalf of their respective banks and the provisions of the impugned Act of 1982 are under challenge in this Special Civil Application.
4. Special Civil Applications Nos. 1040 of 1981 and 4980 of 1982 are by Mehsana District Central Co-operative Bank and by Shri Atmaram Maganlal Patel who happens to be the Chairman of the said bank. Petitioner -bank is a federal co-operative society deemed to have been registered under the provisions of the principal Act. Petitioner bank is one of the oldest co-operative societies of the State of Gujarat since it was registered in the year 1916-17 under the Co-operative Societies Act as was in force in the erstwhile princely State of Baroda. In the course of working during the last more than 60 years, 1600 co-operative societies have affiliated themselves with the petitioner-bank as its members and about 10,400 individuals have also enrolled themselves as members. Petitioner No. 2 is the Chairman of the petitioner-bank. By Special Civil Application No. 1040 of 1981, the petitioner-bank challenges the provisions of the impugned Act of 1981. By Special Civil Application No. 4980 of 1982 the petitioner-bank challenges the impugned Act of 1982 Special Civil Application No. 5011 of 1982 is moved by Mehsana District Co-operative Purchase and Sales Union Limited. Petitioner No. 1 union is a federal co-operative society and the second petitioner is an elected Chairman of the said union while petitioner No. 3 is an individual member of the union and petitioner No. 4 is a primary co-operative society affiliated to the said union. The 3rd and the 4th petitioners are thus the members of the said union. They have also challenged both the impugned Acts in their capacity as nationals and citizens of this country. The objectives of the petitioner union are inter alia to purchase agricultural and allied products and to sell them to their members after charging minimum expenses and to non-members at a price to be determined by the union. There are three categories of membership - individual members, nominal members and co-operative societies.
5. Shri Mahuva Pradesh Sahakari Khand Udyog Mandli Limited at Zervavra and its Chairman Shri O.N. Patel have moved this Court by Special Civil Application No. 136 of 1983 challenging the impugned Act of 1982. Petitioner No. 1-society is engaged in manufacturing of sugar and consisting of only producer members who are actually engaged in cultivating sugarcane. According to the petitioners, there are about 12 sugar factories functioning in the State of Gujarat and are located in different parts of the State and on an average there are about 6,000 to 7,000 producer members of the societies. The turnover of sales of these sugar factories exceeds millions of rupees and they wield great influence in the rural areas since each one of the societies commands a respectable number of membership. The management of these sugar factories is entrusted to qualified technicians and persons having business experience and acumen under the guidance of the Managing Director or the Chairman as the case may be. These societies have in their employ highly qualified chemists, engineers, accountants, managers and development officers to look after the technical and financial affairs of the society. Petitioner-society is affiliated with the federal body, namely, Gujarat Rajya Sabakari Khand Udyog Sangh Limited, Ahmedabad which has also moved this Court by Special Civil Application No. 5088 of 1982 challenging these two impugned Acts.
6. Similarly, Special Civil Applications Nos. 216 of 1983 & 217 of 1983 are respectively by Shri Madhi Vibhag Khand Udyog Sahakari Mandli Limited, Surat, and Shri Chalthan Vibhag Khand Udyog Sahakari Mandli Limited, Surat and their respective managing director, Chairman and shareholders. Special Civil Application No. 1702 of 1981 is moved by the Gujarat State Co-operative Fruit and Vegetable Marketing Federation Limited which is deemed to have been registered under the principal Act inter alia for the purposes of sales of fruit and vegetables and export thereof on commission basis belonging to its affiliated or nominal members, though it has no individual membership but it has got affiliated membership of 26 Co-operative societies. It is claimed by petitioner federation that 95 per cent of the banana crop of South Gujarat is handled by the affiliated societies of the federation. The substantial trade of the fruits such as bananas, mangoes, chikoos and vegetables is controlled by the federation and the annual sales thereof exceed Rs. 15 crores. Petitioner No. 3 is the President of the federation while petitioner No. 4 is the manager thereof. The provisions of the impugned Act of 1981 are under challenge in this Special Civil Application.
7. Mehsana District Co-operative Milk Producers Union Limited has moved Special Civil Application No. 1459 of 1981 challenging the impugned Act of 1981. Petitioner No. 1 is the federal co-operative society registered under the principal Act while petitioner No. 2 is a member of the federal society. Petitioner No. 3 is a member of the executive committee and is the Chairman of the Board of Directors. Petitioner No. 4 is the Vice-Chairman while petitioners Nos. 5 & 6 are elected representatives. Petitioners Nos. 7 to 17 are the representatives of different primary co-operative societies. The challenge is to the impugned Act of 1981.
8. Before we set out the contentions urged by the respective Counsel it would be profitable to refer broadly the legislative development on the topic of co-operative societies particularly in pre-reorganised State of Bombay and thereafter in the State of Gujarat pursuant to bifurcation. It should be recalled that the Government of India had placed on the statute book the first piece of legislation pertaining to co-operative societies which was known as the Co-operative Credit Societies Act, 1904. The necessity of such legislation was felt because there was no other Act at that time under which an association or a society could be formed for the purposes of promoting the economic interest of its members in accordance with the well-recognised co-operative principles and therefore, the co-operative societies had to be organised under the Indian Companies Act, 1882. Some of the provisions of the Companies Act, 1882 were wholly inapt to the societies envisaged for implementation of the recognised co-operative principles. An appropriate legislation was, therefore, felt to be the need of those times so as to take out these societies from the operation of the general law on the subject and instead devise effective provisions relating to the constitution and objects of such societies. The Government also thought it desirable to confer upon such societies certain kind of privileges and facilities so as to encourage and assist the formation and working of such societies. The Law Committee appointed by the Government of India to consider the question of the establishment of the co-operative societies in India was of the opinion that it would be inappropriate to call these societies as banks and therefore, it preferred to call them as co-operative credit societies. The Act of 1904 was based on the English Friendly Societies Act of 1896. Two basic objectives prompted the Government of India to enact this Act, namely, simplicity and elasticity. Any programme of rural development postulates the gradual extension of the credit facilities. In order to satisfy this basic need, the credit societies were required to be formed. The Government, therefore, thought it necessary to put such an Act on the statute book not in deference to the public demand but only with a view to encourage and supervise the movement for imparting the advantages of organised thrift, self-help and mutual aid. The important features of that Act can be shortly recapitulated. Societies were classed as rural and urban and their area of operation was closely restricted. Loans could be disbursed only to the members on personal or such other satisfactory security. Annual audit was a compulsory feature. Members' interest in the share capital was strictly limited. All the transactions of the society were not liable to be subjected to stamp duties, registration charges or income-tax. These societies were put under the control, supervision and regulation of the officer known as Registrar who was invested with very wide powers in that behalf. The activities of the society were only to extend limited credit facilities to the people from small stations in life. The experience which the Government acquired in the course of working of the Act was not satisfactory since no worthwhile progress was marked in development of the rural credit. It was in order to remove the lacuna that the Co-operative Societies Act, 1912 was enacted which was the second phase of the co-operative movement in this country. The first major structural change which was sought to be achieved by the 1912 Act was that the distinction between rural and urban societies was done away with and co-operative societies with other objectives besides credit facilities were permitted to be formed so as to promote the economic interest of their members. Registrars had wide discretion in supervision of the co-operative structure. This Act of 1912 is still in force throughout the country except in Bombay and other states where it is replaced by the State Acts. Nonetheless, it should be emphasised that one of the most important activities which these societies carry on in this country is that of providing credit facilities. The third phase was reached with the appointment and report of Megteron Committee on Co-operation in 1915 which examined the entire movement from all the relevant angles and made many constructive suggestions which had far-reaching repercussions. The fourth phase was reached when by the Government of India Act, 1919 co-operation became a provincial subject and it came to be administered by the ministers of provincial Government. Pursuant to the said subject being transferred to the provincial Government, a number of committees of enquiry were set up which submitted reports pointing out important steps which the provincial Government should take in order to encourage co-operation movement. The provincial Governments felt the need of separate Acts to suit the requirements of co-operative movement as developed in the respective provinces. The erstwhile province of Bombay was the first provincial Government which took lead in the matter by enacting the Bombay Co-operative Societies Act, 1925. As contra-distinguished with the Act of 1912 which was restricted in its operation to agriculturists, artisans and persons of limited means, the Bombay Act of 1925 was extended to all the persons having common economic needs irrespective of the needs being limited or otherwise. The Preamble to 1925 Act recited that it was enacted with a view to facilitate the formation and working of co-operative societies for promotion of thrift, self-help and mutual aid not only amongst agriculturists but also other persons with common economic need so as to bring about better living, better business, and better methods of production. In 1925 Act, an attempt was made for the first time to classify distinctly the various societies having regard to their object, finance and methods of working. It was also for the first time that a scheme of the winding-up, liquidation and dissolution of societies on the lines of the Indian Companies Act, 1913 was incorporated in the 1925 Act. It also provided for summary recovery of the societies' dues as adjudicated in arbitration proceedings. Pursuant to the suggestions of two important committees set up by the Government of India in 1944, namely. Agricultural Finance Sub-committee and Co-operative Planning Committee and having regard to the reports of the committees set up by the Government of Bombay, namely, the Committee of Co-operative Education and Training, the Agricultural Credit Association Committee and the Committee for the Promotion of Village Industries, the Government of Bombay in 1948 undertook comprehensive legislation for amending the 1925 Act. The Statement of Objects and Reasons of the amending Act in 1948 revealed (i) the tendency of gradual removal of bureaucratic control over the co-operative movement; (ii) splitting up of a single society into two or more societies wherever the members so desire; and (iii) incorporating adequate safeguards for recovery of advances by the societies to their members. After the bifurcation of the Bombay State in May 1960 and consequent setting up of Gujarat State, the need was felt by the Government of the new State of Gujarat to consolidate and amend the law relating to co-operative societies in the State of Gujarat and therefore, the Gujarat Co-operative Societies Act, 1961 was enacted and put on the statute book. It appears that the Gujarat State Law Commission undertook the exercise of examining the principal Act with a view to find out what amendment should be made therein. It submitted its report on the working of the principal Act in January 1976 to the then Chief Minister of the State of Gujarat. Similarly, the Annual Conference of State Ministers of Co-operation held at Bangalore in June-July 1969 advocated certain reforms which the Conference felt it necessary in the different State Acts. It is in the light of this report of the State Law Commission and the suggestions of the Ministers' Conference that the State Government amended the principal Act first in 1981 and thereafter again extensively in 1982. What is the nature of the amendments made in the principal Act will be stated broadly hereafter so that the rival contentions can be appreciated in the proper perspective. The precise nature of the amendments in relevant sections will be indicated while dealing with the challenge to those amendments. It should be noted at this stage that in enacting the principal Act the State Government kept before its mind the recommendations made in the report of the two important Committees, namely, Rural Credit Survey Committee appointed by the Reserve Bank of India in August 1951 and the Committee appointed by the Government on Co-operative law. It can be safely stated without the fear of contradiction that a purposeful attempt is discernible in the principal Act that the Co-operative societies at different levels in particular and the Co-operative movement in general were sought to be developed systematically in accordance with the directive principles of the Constitution. Four points may be noted as indicative of the anxiety of the State Government to put the whole co-operative movement on systematic basis. The provision for associate, nominal and sympathiser membership so as to enable the societies to have the benefit of the experience of the outsiders is indicative of this anxiety on the part of the State Government. The provision for constituting the principal and subsidiary state partnership funds from which share capital contributions can be made to co-operative societies is another such indicative factor. The provision for amalgamation of the sick units with the healthy units is also indicative in this direction. That provisions relating to liquidation and consequential matters are codified and are brought in line with the provisions of the Companies Act, 1956 is also indicative of this anxiety on the part of the State Government. It is pertinent to emphasise that though Gujarat Act made vital departures from the Bombay Act it was nonetheless a consolidating and amending Act and not a new measure altogether. We may remind ourselves broadly as to what the two amending Acts sought to provide for in the principal Act. In order to appreciate these amendments it would be convenient to group these impugned provisions according to the relevant topics which are as under:
(A) Membership and voting powers.
(B) Amalgamation.
(C) Managing Committee.
(D) Control.
(E) Miscellaneous.
(A) Membership and Voting Powers:
The two sections which have been materially altered in this behalf are Sections 22 and 24. By Section 3 of the impugned Act of 1982, the membership is made open to the local authority or public trust registered under the Bombay Public Trusts Act, or any other corporate body constituted under any law. The material change brought about is in respect of Sub-section (2) of Section 22 of the Principal Act which is now deleted and a new Sub-section (2) is substituted. This amendment is very hotly contested. Broadly stated this new Sub-section (2) seeks to provide for deemed membership in cases of notified societies when such societies refuse to accept the application or membership subscription of a qualified person. Section 24 is another section pertaining to membership which has been materially altered. Broadly stated the amended provision enjoins all societies from refusing admission to any qualified person without sufficient cause and in case of failure to communicate the decision within a period of three months it provides for deemed membership.
(B) Amalgamation:
Section 17 of the principal Act provides for amalgamation, transfer, division or conversion of societies which can be effected by resolution passed by 2/3rd majority of the members present and voting at a special general meeting held for the purpose. By Section 2 of the Amending Act of 1982, a new section is sought to be inserted after Section 17 as Section 17-A. This is also hotly contested provision. The new Section 17A empowers the Registrar to pass an order of amalgamation of two or more societies in public interest or in the interest of the co-operative movement or for purposes of securing proper management of any society.
(C) Managing Committee:
(i) By the two impugned amending Acts a number of sections of the principal Act have been sought to be amened which pertain to the Managing Committee. Sections 74, 74A, 74B and 74C are the main sections which are sought to be amended in this behalf. By Section 2 of the impugned amending Act, 1981 the proviso is sought to be added to Section 74 by which the requirement of periodical retirement by rotation is dispensed with in cases of specified societies.
(ii) By the impugned amending Act of 1981 Sections 74A, 74B and 74C and Chapter XI-A have been newly inserted.
(iii) Section 74A prohibits the designated officer which means any Chairman, President and any other officer so declared by the State Government from simultaneously holding the offices in the specified societies or for being designated officer for the same society for a period of 10 years and on expiry of that period he ceases to be the officer of that society and would not be eligible for re-election until five years expired thereafter. By the Explanation to Section 74A the office tenure of such designated officer even before the amending Act became effective was to be included for computation of the overall period of ten years. This Explanation is, however, deleted by the amending Act, 1982.
(iv) The new Section 74B provides for reservation of three seats on the committee of certain societies - one each for the representatives of Scheduled Castes, Scheduled Tribes and small and marginal farmers. By the amending Act of 1982, the number of seats for Scheduled Castes and scheduled tribes is reduced to one from two.
(v) The new Section 74-C provides that the election of the members and officers on the committees of specified societies is to be conducted in the manner provided in Chapter XI-A inserted by the amending Act of 1981.
(D) Control:
A number of sections of the principal Act are sought to be amended by the amending Acts for purposes of making control of the Registrar of the State Government effective.
(i) A new provision is inserted by Sub-section (2) of Section 51 prohibiting every society from returning to the State Government the share capital subscribed by the State Government, except with its previous sanction.
(ii) A new provision is inserted by the impugned Act of 1982 as Section 74-D empowering the Registrar to appoint Custodian of the society which fails to elect a new management committee or where newly elected Managing Committee fails to function within six months of the expiry of the term of the office of the old committee.
(iii) Two new provisions are inserted by the amending Act, 1982 namely Sections 76-A and 76-B. Section 76-A says that the appointment of Managing Director of the Chief Executive Officer in the specified societies without previous approval of the Registrar would be void.
(iv) Section 76-B empowers the Registrar to remove any officer, after giving him an opportunity of hearing, being a persistent defaulter or negligent in performance of the duties imposed by the Act, the Rules or the Bye-laws, or who acts prejudicially to the interest of the society, or where he stands disqualified under the Act, and can prescribe disqualifications for such officer from holding or contesting any election to any office of society for a maximum period of four years.
(v) A wholly new provision is inserted as Sub-section (2) to Section 80 by the amending Act of 1982 empowering the State Government to nominate its representative on the committees of society to which the State Government has subscribed by way of share capital where it thinks necessary or expedient to do so.
(vi) A new provision is inserted as Section 80-A by the amending Act of 1982 empowering the State Government or the Registrar to extend the term of Management Committee appointed by it/him or to appoint a Custodian in its place, if it thinks necessary or expedient to do so, on expiry of the term thereof.
(vii) A wholly new provision is substituted in place of the old Sub-section (1) by Section 81 adding one more ground for exercise of the power of supersession, namely, failure to comply with the directions issued under Section 160, besides the grounds as prescribed in the original sub-section, namely negligence or persistent default of the committee in performance of the duties under the Act or acting prejudicially to the interest of the society.
(viii) Old Section 83 is wholly substituted by new provision empowering the Registrar to seize books and records of the society, or to take over the funds and properties likely to be misappropriated or misapplied.
(ix) A new clause is inserted in Section 107 as clause 4 empowering the Registrar to order winding up of a society on one more ground, namely, failure to comply with any of the directions issued by him.
(x) Sub-section (3) of Section 108 is wholly substituted by a new provision requiring the officers of the society to hand over to the Liquidator any property, books, records and other documents pertaining to the business of the society.
(xi) Old Section 160 is wholly substituted by empowering the Registrar to give directions to secure proper management or business of the society and preventing the management of the society in a manner prejudicial to the interest of the members, depositors or creditors, he is further empowered by Sub-section (4) to remove a member of the committee and appoint some other person in his place or to remove an employee for employment, if he is satisfied that such member or the officer has wilfully failed to carry out the directions.
(E) Miscellaneous:
Section 69 is wholly substituted by the amending Act of 1982 enjoining every society to contribute every year to the educational fund of the Gujarat State Co-operative Union a sum equal to such per cent not exceeding one of its income as may be prescribed by the State Government in respect of different classes of societies having regard to the financial condition of such class of societies. Such contribution is to be made within two months of the date of the Annual General Meeting and any officer committing wilful default in making this payment is personally liable for making good that amount to the said Gujarat State Co-operative Union.
9. This is the broad outline of the amendments made by the two impugned Acts of 1981 and 1982. We will now set out the contentions which have been urged by the Learned Counsel appearing in these petitions.
10. At the time of hearing of this group of petition the matter has been argued at great length by the Learned Counsel appearing for different petitioners and various contentions have been elaborately urged touching the different aspects of the matter. Instead of setting out these contentions separately, we have though fit to formulate the contentions arising in light of these submissions so that it would facilitates and enable us to deal with the different aspects of the matter more effectively. The contentions are as under:
(1) Inasmuch as the amending provisions of the impugned 1981 and 1982 Acts cumulatively tend to destroy the basic structure of co-operation, which is founded on the recognized principles, inter alia, of voluntary open membership and democratic functioning, the impugned Acts are beyond the legislative competence of the State Government under Entry 32, List II of the Seventh Schedule to the Constitution which provides for the topic amongst others of co-operative societies and therefore, void and ineffective.
(2) In any case, the provisions of the impugned Acts of 1981 and 1982, insofar as they try to override and control the relevant provisions of the principal Act which incorporate the basic principles of co-operation and thereby destroying the main purpose of the principal Act and/or creating repugnancy therewith, the said provisions of the impugned Acts are beyond the well recognized scope and width of the amending Acts.
(3) The attempt of the Legislature to amend the principal Act by the impugned Act of 1981, insofar as it inserted proviso to Section 74 and added Section 74-A to 74-C and Chapter XI-A by Sections 2, 3 and 4, respectively, of the said amending Act, has misfired for all intents and purposes since the Legislature has proceeded on an assumption that there are no definite co-operative principles constituting the basic structure of co-operation in the principal Act and the said impugned provisions are void and ineffective because they have been inserted without amending the provisions of Sections 4, 73 and other relevant provisions of the principal Act in that behalf.
(4) The impugned Act of 1982, insofar as it seeks to amend the principal Act by insertion of Sections 17-A, 22(2) and 24 by Sections 2, 3 and 5 respectively of the said amending Act is bad in law and void inasmuch as the said provisions are violative of Article 19(1)(c) of the Constitution of India.
(5) (a) The impugned Act of 1981, insofar as it seeks to amend the principal Act by inserting proviso to Section 74 and added Sections 74-A to Section 74-C by Sections 2 and 3 respectively of the said amending Act is bad in law and void inasmuch as the said provisions are violative of Articles 19(1)(c) and (g) of the Constitution of India. (b) The impugned Act of 1982, insofar as it seeks to amend the principal Act by inserting Sections 51(2), 74-D, 76-A and 76-B. 80(2) and 80-A by Sections 8, 13, 15, 16 and 17, respectively, of the said amending Act is bad in law and void inasmuch as the said provisions are violative of Articles 19(1)(c) and (g) of the Constitution of India.
(c) The impugned Act of 1982, insofar as it seeks to amend the principal Act by substituting wholly Sections 83 and 160 of the principal Act by Sections 19 and 35 respectively of the said amending Act is bad in law and void since the said provisions are violative of Article 19(1)(c) of the Constitution of India.
(6) The impugned Act of 1982, insofar as it seeks to amend the principal Act by substituting new Section 69 in place of the old one by Section 9 of the said amending Act is ultra vires the powers of the State Legislature inasmuch as it amounts to levy of tax without authority of law and, therefore, violative of Article 265 of the Constitution of India.
(7) The impugned Act of 1982, insofar as it seeks to amend the principal Act by inserting Sections 17-A, 22(2), 74-D, 80(2) and 80-A and by substituting wholly Section 160 is bad in law and void since the said provisions are violative of Article 14 of the Constitution of India.
(8) The impugned Acts of 1981 and 1982, insofar as they seek to deprive the property rights of the members of co-operative societies who are petitioners in some of the petitions are ultra vires Articles 19(1)(f) and 31 of the Constitution which form the basic structure of the Constitution and the Parliament has no power or authority to take away the said rights by amending the Constitution in exercise of its powers under Article 368 of the Constitution and, therefore, the Constitution (44th Amendment) Act, 1976, is also beyond the powers of Parliament inasmuch as it violates Articles 19(1X0 and 31 of the Constitution of India.
(9) The impugned Act of 1982 is stillborn and, therefore, void and ineffective insofar as it has sought to insert new Section 17-A in the principal Act providing for compulsory amalgamation of two societies without the assent of the President as required under Article 31 (A) of the Constitution of India.
11. It should be noted that we have broadly formulated and set out the contentions which have been urged and/or adopted by the different Learned Counsel s appearing in different petitions in this group. Various subsidiary contentions were urged in course of such elaboration. It should also be noted that all the Counsels have not argued elaborately all the aforesaid contentions though they have adopted the arguments of other Counsel advanced in respect of the contentions specifically argued by each of them. Accordingly contentions Nos. 1, 2 and 3 were elaborately argued by Mr. P. M. Raval, Learned Counsel appearing in Special Civil Application No. 1027 of 1981 and other companion matters. Similarly, Mr. Shanti Bhusan argued elaborately contentions Nos. 4, 5 and 6 who appeared in Special Civil Applications Nos. 136 of 1983, 216 of 1983 and 217 of 1983. Mr. K. G Vakharia accordingly elaborated contentions Nos. 7, 8 and 9 who appeared in Special Civil Application No. 1040 of 1981 and other companion matters.
Re : Contention No. 1:
12. On behalf of the petitioners, our attention was invited to Section 4 of the principal Act which provides for registration of society. It was emphasised that before a society can claim registration under Section 4, it must have, as its object, the promotion of the economic interests or general welfare of its members, or of the public, in accordance with co-operative principles, or it is established with the object of facilitating the operation of any such society. In other words, it was sought to be urged that unless a society seeks to achieve the specified object in accordance with the recognized co-oparative principles, it will not be entitled to be registered since it cannot claim itself to be a co-operative society. The recognized co-operative principles form a system rather inseparable and re-enforce one another. They should be observed in their entirety by all co-operatives, if they claim to be carrying on co-operative movement. These principles, infer alia, are voluntary and open membership and democratic control. This principle of voluntary and open membership, according to the Learned Counsel , can be sub-divided into two sub-principles, namely, voluntary association and open membership. The voluntary nature of the membership postulates that application for membership should be of volition of a person and likewise admission of such person by the society should also be voluntary. The open nature of membership envisages absence of artificial restrictions on admission, non-discrimination on social, political or religious ground and availability thereof to all persons willing to be members. The principle of democratic functioning enjoins that the affairs of the society shall be administered by persons elected or appointed in a manner agreed by and accountable to the members, and such members shall have equal right of voting and participation in decision making of the society. The Learned Counsel , therefore, urged that if the State tries to interfere with these principles, which are the basis for a society to claim registration under Section 4, providing for voluntary membership or divesting the members of the society to manage and carry on the affairs of the society, through the representatives elected by them in the manner which they think proper, such restrictions on co-operative society are beyond the legislative topic under Entry 32, List II of 7th Schedule to the Constitution and, therefore, beyond the legislative competence of the State.
13. On the other hand, on behalf of the State Government, it was urged that it was precisely for the purpose of ensuring the effective implementation of these principles that the State Government has thought fit to introduce appropriate restrictions on recommendation and in light of the weighty opinions tendered by the independent bodies like State Law Commission or the Conference of Ministers for Co-operation of different States. In any case, on the doctrine of pith and substance the impugned amending Acts legislate for co-operative societies and merely because some of the impugned provisions do not adhere strictly to the classical concept of co-operation as envisaged by these well recognized principles, the amending Acts cannot be voided.
14. It is in the context of these rival submissions that we have to decide whether the impugned Acts can be said to be beyond the legislative competence of the State Legislature.
15. A statute apparently to be within the legislative competence but enacted without real legislative power is termed as "colourable legislation". Though the Legislature purports to exercise its enfettered legislative power, it is in fact a law which is not within its competence. It should not be lost sight of that the word "colourable" does not carry with it the taint of bad faith or evil motive in the context of the exercise of the legislative power. The concept of colourable legislation is essentially a concept of competency to legislate. In R.S. Joshi v. Ajit Mills the Supreme Court was concerned with the validity of Sections 37(1) and 46(2) of the Bombay Sales Tax Act, 1959 which enacted that sums collected by dealers by way of sales-tax though not exigible shall be forfeited to public exchequer on the ground that the said provisions were beyond the legislative power conferred by Entry 54 read with Entry 64 of List II of the 7th Schedule to the Constitution. Krishna Iyer J., speaking for the majority Court, spelt out the implications of colourable legislation in the following terms:
16. ...A thing is colourable which is in appearance only and not-in reality what it purports to be. In Indian terms, it is maya. In the jurisprudence of power colourable exercise of or fraud on legislative power or, more frightfully fraud on the Constitution are expressions which merely mean that the legislature is incompetent to enact a particular law although the label of competency is stuck on it, and then it is colourable legislation. It is very important to notice that if the legislature is competent to pass the particular law, the motives which impel it to pass the law are really irrelevant. To put it more relevantly to the case on hand, if a legislation, apparently enacted under one Entry in the List, falls in plain truth and fact, within the content, not of that Entry but of one assigned to another legislature, it can be struck down as colourable even if the motive were most commendable. In other words, the letter of the law notwithstanding what is the pith and substance, of the Act? Does it fall within any Entry assigned to that legislature's in pith and substance, or as covered by the ancillary power implied in that Entry ? Can the legislation be read down reasonably to bring it within the legislature's constitutional powers ? If these questions can be answered affirmatively, the law is valid. Malice or motive is beside the point, and it is not permissible to suggest Parliamentary incompetence on the score of mala fides.
16. In K.C.G. Narayan Deo v. State of Orissa (a decision which has been treated as settling the law on the subject of colourable legislation), Mukherjea, J. speaking for the Court, indicated the import and width of the court in determining colourable legislation in these terms:
(9) ...The idea conveyed by the expression is that although apparently a legislature in passing a statute purported to act within the limits of its powers, yet in substance and in reality it transgressed these powers, the transgression being veiled by what appears on proper examination, to be a mere pretence or disguise.
As was said by Duff J. in Attorney General for Ontario v. Reciprocal Insurers 1924 A. C. 328 at p. 337(B):
Where the law making authority is of a limited or qualified character it may be necessary to examine with some strictness the substance of the legislation for the purpose of determining what is that the legislature is really doing.
In other words, it is the substance of the Act that is material and not merely the form or outward appearance, and if the subject-matter in substance is something which is beyond the powers of that legislature to legislate upon, the form in which the law is clothed would not save it from consideration. The legislature cannot violate the constitutional prohibitions by employing an indirect method. In cases like these, the enquiry must always be as to the true nature and character of the challenged legislation and it is the result of such investigation and not the form alone that will determine as to whether or not it relates to a subject which is within the power of the legislative authority - Vide 1924 A. C. 328 at p. 337 (B). For the purpose of this investigation the court could certainly examine the effect of the legislation and take into consideration its object, purpose or design - Vide Attorney General for Alberta v. Attorney General for Canada 1939 A.C. 117 at p. 130(c). But these are only relevant for the purpose of ascertaining the true character and substance of the enactment and the class of subjects of legislation to which it really belongs and not for finding out the motives which induced the legislature to exercise its powers.
17. Two questions will have to be answered before we can determine as to whether or not the impugned amending Acts relate to the subject, namely, co-operative societies, which is within the power of the State legislature. The two questions are : What is the true nature and character of the impugned Acts ? And, whether there is any substantial encroachment on a forbidden field ? For the purpose of ascertaining the true nature and character of the impugned Acts, we have to examine the effect of the legislation and also consider the object, purpose and design of the said Acts.
18. On examination of the impugned Acts of 1981 and 1982, it cannot be gainsaid that the provisions in the principal Act relating to membership, management of the affairs of society through its representatives elected in the manner approved by them, the overall control and supervision of the management and administration by the General Body of the society and the winding up and dissolution thereof are sought to be controlled by the various provisions innovated, substituted and modified in the principal Act. Thus, the effect of these amending Acts is unequivocal. The objects of these impugned amending Acts are, as set out in the common reply affidavit filed in this group of petitions. It has been, inter alia, stated in paragraph 3 as under:
3. ...It was observed that the co-operative movement basically meant to encourage thrift, self-help and co-operation amongst people with small means is spread into a gigantic activity and has had wide ramifications in the society at large. It was further observed that the co-operative activity initially meant for the man of small means has been encroached upon by well-to-do and wealthy people and vested interests have been created. In order to ensure that the implementation of the principal Act does not result in creating disparities in society but helps to bring about an egalitarian society and distribution of wealth and material resources of the community, the Government of Gujarat has been instrumental in holding various conferences of officers of various co-operative societies for discussion and advice on the scheme of these amendments. The Gujarat State Law Commission which submitted its report on the working of the principal Act to the then Chief Minister Shri Babubhai Patel on 20-1-76 has inter alia made recommendations for amalgamation of societies, amendment to Sections 22 and 24 to achieve the spirit of the law, appointment of committee or administrator in case of failure to elect, removal of a member on the committee and powers for issuance of directives. The annual conference of State Ministers of co-operation held at Bangalore on 30-6-69 and 1-7-69 and Registrars' meeting held therewith advocated also for automatic open membership etc.
19. The object, purpose and design of the impugned amending Acts appear to be to remove the vices which have crept into the functioning of the co-operative sector in general and the co-operative societies of the State in particular as a result of which the membership of the society, in the opinion of the State Government, has become almost a closed shop or for that matter certain vested interests have taken hold of the movement particularly in semi-urban and rural areas arresting the promotion of economic interests and the general welfare of the people in accordance with the co-operative principles. We are afraid that it would be too tall a submission to contend that it would be sole and exclusive privilege of the members of an existing co-operative society to refuse admission to persons who are willing to accept the responsibilities of membership because it is for the existing members to decide with whom they should associate. The question as to whether the impugned provisions of deemed membership or for that matter compulsory amalgamation or restriction on the right to hold the directorship are violative of Article 19(1)(c) or (g) of the Constitution is a question apart. But to urge that the impugned provisions, insofar as they deviate, if at all they do so, from the strict co-operative principles, would render those provisions beyond the legislative competence, is a difficult proposition to be accepted. The principle of open membership has been explained in the publication by the International Co-operative Alliance (South-east region) of the report of study in depth of the co-operative laws in India in the context of applicability of cooperative principles by two eminent co-operative workers in the following terms and they are instructive on the point:
The principle of open membership means that:
(i) there shall be no artificial restriction on the admission of members;
(ii) there shall be no social, political, racial or religious discrimination against persons who wish to join, and
(iii) membership shall be available to all persons who need and can make use of the society's services and are willing to accept the responsibilities of membership.
Artificial restriction would mean limitations imposed on the size of the membership, without there being a practical need to set such limits. The existence of unavoidable restrictions to enrolling everyone who is in need of the services of the society is recognized. For example, a housing co-operative would have to limit the number of its members in relation to the extent of land available to it. That would be an unavoidable restriction. What is not allowed is the fixing of an arbitrary limit to the number of the members ....Co-operation, in the words of the ICA is 'natural ground on which people holding the most varied opinions and professing the most diverse creeds may meet and act in common.
'Open Membership' is often misinterpreted to mean that co-operatives are obliged to enrol all persons who may apply for membership. But, as said by the ICA Principles Commission, 'open membership has never meant that'. Those who do not have the common need or cannot make use of the society's services cannot be enrolled even though they may be prepared to buy shares in the society.
(emphasis supplied) (See : Indian Co-operative Laws vis-a-vis Co-operative Principles, 1973 Edition page 8 by P.E. Weeraman, R.C. Dwivedi & P. Sheshadri).
20. It would, therefore, amount to a misconception to contend that the law would be beyond competence if it tends to restrict the members of an existing society in exercising their privilege to refuse to associate themselves with persons holding opposite and different opinions or professing the diverse political, social or religious creeds. Similarly, the principle of democratic control has been explained in the above treatise in the following terms at page 12:
The principle of democratic control means that:
(1) the general meeting of the members of a co-operative society is the supreme authority in regard to the conduct of the affairs of the society.
(2) the members of a primary society shall enjoy equal rights of voting and participation in decisions affecting their society, each member having only one vote, and the members of a federal society shall enjoy these rights provided that they may enjoy voting power on any other democratic basis;
(3) the affairs of the society are administered by the management in accordance with the democratically expressed will of the members;
(4) the management is elected or appointed in a manner agreed by the members; and (5) the management is accountable to the members.
21. It is no doubt true that one of the important implications of these principles of democratic control is that the management is elected or appointed in a manner agreed by the members and therefore any interference by the State with the manner, mode and method of election or appointment of the members and office-bearers of the Governing Council or Executive Council of the Society would, to some extent, detract from the recognized principles of democratic functioning. Nonetheless, this would not tantamount to legislating beyond competence. If the manner, method and mode of election is sought to be regulated by the appropriate amendment in the principal Act as is sought to be done by the introduction of Chapter XI-A by the impugned amendment Act of 1981, it cannot be urged successfully that it is legislating beyond competence. In the ultimate analysis, in petition and substance, the State is trying to legislate for co-operative societies though the effect of such exercise may amount to deviation from the well recognized co-operative principles. If the validity of a legislation is challenged for want of legislative competence and it becomes necessary to ascertain to which Entry in the three Lists it is referable, the Courts have evolved the theory of pith and substance. A legislation under challenge may transgress its well recognized concepts and touch upon the subjects beyond legislative competence, but in pith and substance, if it is a legislation within one Entry, the Act as a whole would be upheld notwithstanding such transgression of limits (see : Ishwari Khetan Sugar Mills v. State of U.P.
22. In State of Karnataka v. Ranganatha Reddy the validity of the Karnataka Contract Carriages (Acquisition) Act, 1976, which empowered the State Government to acquire contract carriages, their permits and other assets for running them for purposes of State Transport Corporation with a view to prevent the misuse of contract carriage permits which were used virtually as stage carriage permits, was challenged. The Supreme Court, speaking through Untwalia, J., repelled the challenge as to the legislative competence of the State Legislature since the impugned legislation being on topic of inter-State trade and commerce was within the competence of the Parliament. The Court ruled that the pith and substance of the impugned Act before it has to be looked into and, therefore, it was not an Act which dealt with an inter-State trade and commerce and even assuming that it was in a sense partially relating to the inter-State trade and commerce, it did not seek to legislate in regard to the said topic and the incidental transgressing the limit cannot invalidate the Act. We do not think, therefore, that the Learned Counsel for the petitioners was justified in urging that inasmuch as the impugned provisions travel beyond certain well recognized co-operative principles, the Acts can be voided on the ground of want of legislative competence.
23. A similar contention was urged before the Full Bench of Karnataka High Court in H. Puttappa and Ors. v. State of Karnataka and Ors. A.I.R. 1978 Kant. 148 where the validity of Section 14-A of the Karnataka Co-operative Societies Act, 1959, as amended by Act 70 of 1976, providing for compulsory amalgamation of co-operative societies in public interest or in the interest of co-operative movement, or for purposes of securing proper management of any co-operative society was challenged on the ground of want of legislative competence. This very argument was advanced that the law relating to compulsory amalgamation was an antithesis of co-operative and, therefore, a colourable piece of legislation. The argument was also elaborated on the same lines before us as was done before the Full Bench. It was particularly urged that co-operative society was a democratic society in which no one was compelled to join it or prevented from withdrawing from it and, therefore, the impugned provision was negation of co-operative concept and, therefore, beyond the legislative competence of the State Legislature under Entry-32, List-I of the Seventh Schedule to the Constitution. Rejecting the contention, the majority view expressed by Shetty, J., ruled as under at page 157 in paragraph 11:
11. The voluntary principle is no doubt a precious asset of the co-operative movement and should remain as a golden rule, but then, it cannot be held to be a constraint on the plenary powers of legislation under Entry 32, List II. The principles of co-operation must be left to the good sense of our elected representatives and responsible Government.
After referring to the two decisions of the Supreme Court in K. C. Gajapati Narayan Deo v. State of Orissa (supra) and R.S. Joshi v. Ajit Mills Ltd. (supra) the majority Court summed up the position in the following terms:
Having regard to the nature of the legislation and the scope of Entry 32, we cannot say that Section 14-A in essence falls outside the said entry, or falls into another entry assigned to Parliament. The section is primarily concerned with the co-operative societies with regard to its amalgamation, division or reorganisation, and thus quite fairly and squarely falls within Entry 32, List II.
24. We respectfully agree with the above observations and we are, therefore, of the opinion that there is no substance in the first contention which is rejected.
Re : Contention No. 2:
25. The thrust of the arguments urged on behalf of the petitioners in support of this contention is that the provisions of the impugned Acts are beyond the reach and ambit of an amending Act inasmuch as they are repugnant to the principal Act and virtually destroy the basic principles of co-operation recognized and incorporated therein. In submission of the Learned Counsel for the petitioners, the legislative design of an amending Act is to make such addition to or alteration in the principal Act which, in the legislative wisdom, would better carry out the purpose of the principal Act. If, therefore, the provisions of a given amending Act destroy the very purpose of the principal Act, such provisions would be beyond the scope and width of amending Act. It is well recognized on principle and in authority that when a subsequent Act amends an earlier one in such a way as to incorporate itself or a part of itself into the earlier one, then the earlier Act must thereafter be read construed as if the altered words had been written into the earlier Act with pen and ink and the old words scored out so that there is no need to refer to the amending Act at all except where that would lead to a repugnancy, inconsistency or absurdity (see : Shamrao v. District Magistrate, Thana Crawford on Statutory Construction, P. 110; Suthernland on Statutory Construction P. 431; Endlich: Interpretation of Statutes, Section 294 and B. G. Chavan v. State of Bombay But the above principle would not tantamount to saying that the amendment itself must be taken to have been in existence as from the date of the earlier Act since that would be imputing to the amendment's retrospectivity which could be done only if the amending Act so provides expressly or by necessary implications. If, therefore, the effect of the amending provisions is to be examined qua any other statutory provisions outside the Act, the amendment cannot obviously be treated as a part of the original Act so as to attract the doctrine that a latter Act overrides the earlier Act (see : Shri Ram Narain v. Simla Banking & Industrial Co. Ltd. What is the nature of an amending Act is succinctly indicated in Corpus Juris Secundum where the principle digested from the decided cases reads as under:
An amendment is a legislative act designed to change some prior and existing law by adding or taking from it some particular provision; its purpose is to make such addition to, or change in, the original act as in the judgment of the legislature will better carry out the purpose for which it was enacted. (See : Volume 82, Article 243, page 411).
We do not think that the Learned Counsel for the petitioners were justified in urging that inasmuch as the well recognized principles of co-operation and more particularly open and voluntary membership as well the democaratic functioning thereof are sought to be controlled or regulated by the impugned provisions without amending Section 4 of the principal Act which incorporates those principles, the result is that a clear repugnancy ensures between the provisions of the principal Act and those of the impugned amending Acts. We find ourselves unable to agree with the Learned Counsel that by controlling or regulating the said principles they are for all intents and purposes destroyed and, therefore, the amending Acts cannot be read as a part of the original Act. It would be too spacious a contention to urge that the amending Acts cannot alter or rescind the original Act. In this very Article 243, Vol. 82, page 411 of Corpus Juris Secundum the digested principle is instructive on the point which reads as under:
... Amendments to statutes are not regarded as if they had been parts of the original instruments, but are considered rather in the nature of codicils or second instruments, altering or rescinding the originals to the extent to which they are in conflict, with a force superior to the originals to the extent of such conflict.
26. A great effort was made by the Learned Counsel for the petitioners that the impugned Acts are merely amending Acts and they are not consolidating or codifying Acts and, therefore, they can be read as part of the original statute provided there is no repugnancy, inconsistency or absurdity. It is no doubt true that there is a presumption in the construction of a consolidation Act that the Legislature did not intend to alter the existing law (see : Maxwell on the Interpretation of Statutes, 12th Edition, page 21). It is equally well recognized principle that a codifying statute purports to state exhaustively the whole of the law upon a particular subject and, therefore, an approach in construction of a codifying Act is quite different in spirit from that of consolidating Act (see : Maxwell on the Interpretation of Statutes, 12th Edition at page 25). This would, however, not mean that merely because an Act has been described as an Amending Act it is supposed to make only minor modifications and improvements. Whatever supplements existing legislation, in order to achieve more successfully the social object sought to be obtained, may be said to amend existing legislation, and, if the aim of the new Act is to clarify or correct uncertainties which arose from enforcement of the existing statute, or to reach situations which were not covered by the original statute, the new Act is amendatory, even though in its wording it does not purport to amend the language of the existing statute (see : Corpus Juris Secundum, Vol. 82, Article 243, at P. 412). The following observation at page 412 from the same volume of Corpus Juris Secundum is instructive:
The form which the latter act may take is not material, and, although it purports to be complete in itself, if it intermingles different provisions with the old ones or adds new provisions creating a new law from the prior act, the new one is amendatory. An act which adds a provision to a section of an existing statute is an amendment, as is also an express repeal of a section of a statute and the substitution of other provisions.
27. We do not think, in the first instance, that these basic co-operative principles are destroyed by the impugned amending Acts which seek to control or regulate them and because Section 4 which incorporates these basic co-operative principles is not amended, there is a repugnancy. We think that the entire argument suffers from the infirmity of contradiction in terms inasmuch as in one breath it is contended that the impugned amending Acts have destroyed the basic co-operative principles and in the next breath it is sought to be urged that there is a clear repugnancy between the basic principles incorporated in Section 4 of the principal Act and the impugned provisions of the amending Acts. We do not think, therefore, that the present contention is well founded so as to induce us to invalidate the amending Acts.
28. The impugned amending Acts cannot be treated as clarificatory legislation and it is nobody's case as well. Similarly, it cannot be urged successfully that the legislative intent was to continue the law as it was always understood to be and the impugned amendments were not effected in the law to remove certain mischief or difficulties experienced in the administration and interpretation of law. A reference to the state of law, and the mischief which the Legislation had intended to remove are legitimate guidelines to the interpretation of the statute in exercise whereof the change is effected in law in order to overcome the difficulty and not with intention to continue the law as it was always understood to be (see : R. P. Kapur v. Pratap Singh In view of this established principle of interpretation of statutes this entire contention is not well founded for the obvious reason that Section 4, if at all it empowers the Government to register only those societies which incorporate in their bye-laws the well recognized classical principles of co-operation must be read subject to the amendments made in the principal Act by the impugned amending Acts. Precisely this is what the legislative intent appears to be though the impugned amended provisions may amount to some deviation from those classical principles. Section 4 has, therefore, got to be read down as subject to the amended provisions in the principal Act. We are not impressed with the contention that this will result into a repugnancy or inconsistency and, therefore, the impugned provisions were beyond the scope of the amendatory Acts. As laid down in Simla Banking & Industrial Company's case (supra), it is only when one is concerned not with the meaning of any provision of the Act after the amendment but its effect on other statutory provisions outside the principal Act that the amendment cannot be treated as part of the original Act. It is not possible to sustain the contention that classical principles of co-operation are immutable and if those principles are deviated from under the amending statuate, the inevitable result would be the repugnancy or inconsistency between the principal Act and the amending Act and, therefore, the amended legislation should be struck down. We are, therefore, of the opinion that the second contention deserves to be and is rejected.
Re : Contention No. 3:
29. This contention is to be stated merely for rejecting it. With respect to the Learned Counsel for the petitioners, the entire contention is misconceived. The argument advanced in support of this contention runs like this. The Legislature while enacting the impugned amending Acts had proceeded on the assumption that there are no definite co-operative principles constituting the basic structure of co-operative societies and has inserted therein the impugned provisions in complete disregard of the basic premise underlying Section 4 incorporating the well recognised co-operative principles and that, therefore, it was free to legistate upon the constitution of the co-operative societies and if, therefore, the impugned amending Acts attempt to effect the basic structure of co-operative societies without amending Section 4 and such other similar sections recognizing the basic co-operative principles, such attempt of the Legislature would plainly misfire. In support of this contention the Learned Counsel has relied on the decisions of the Supreme Court of India as well as some English decisions. In support of this contention the Learned Counsel for the petitioners principally relied on the decision of the House of Lords in Ormand Investment Co. Ltd. v. Betts 1928 A.C. page 143. The observation which has been relied upon by the Learned Counsel appears in the opinion of Lord Buckmaster where the learned Lord quoted from the judgment of Lord Sterndale in Cape Brandy Syndicate v. Inland Revenue Commissioner (1921) 2 K.B. 403. The said passage reads as under:
I think it is clearly established in Attorney General v. Clarkson (1900) 1 Q.B. 156 that subsequent legislation on the same subject may be looked to in order to see the proper construction to be put upon an earlier Act where that earlier Act is ambiguous. I quite agree that subsequent legislation, if it proceeds upon an erroneous construction of previous legislation, cannot alter that previous legislation, but if there be any ambiguity in the earlier legislation then the subsequent legislation may fix the proper interpretation which is to be put upon the earlier.
30. We are afraid that the Learned Counsel has completely overlooked the context in which this principle has been reiterated. The context was very peculiar one. The appellants were a British company incoroorated on June 7, 1922 for purpose of carrying on business of investment company. They acquired in August, 1922 a large block of shares in Joseph Benn & Sons, an American company. On December 1922 the appellants received dividend on the block of the aforesaid shares. The Company was liable to be assessed under the Income-tax Act, 1918. By Rule 1 of Case V of Schedule "D" of the said Act, the tax from the dividend income from foreign shares was to be computed on the full amount thereof on an average of three preceding years as directed in Case I. Under the relevant rule applicable to Case I, which provided for assessment of trades, the tax was to be computed on the full amount of profits or gains upon a fair and just average of three years ending on that day of the year immediately preceding the year of assessment on which the accounts of the said trade have been annually made up, or on the fifth day of April preceding the year of assessment. Sub-rule (2) of Rule 1 applicable to Cases I and II prescribed the method of computation where the trade has been set up within the period of three years. The main contention urged on behalf of the appellants was that though the Court of Appeal was right to apply the rules exclusively relating to Case I, on the true construction of the Act, they could not apply to the circumstances of the appellants' case and in any view it was not legitimate to influence the construction by reference to the provisions of the latter statute. It was in that context that Lord Buckmaster has cited from the judgment of Lord Sterndale in Cape Brandy Syndicate's case (supra) the aforesaid observation. We do not think that this principle can at all be invoked and applied successfully in the case before us. The principal Indian decision on which reliance was heavily placed is in Hariprasad v. A.D. Divelkar A.I.R. 1957 S.C. 121 where the Court was concerned with the question of law as to whether the claim of the erstwhile workmen of the companies before the Court to compensation under Clause (b) of Section 25-F of the Industrial Disputes Act, 1947 was a valid claim in law inasmuch as the company had terminated the services of all the workmen in both the companies as a result of the closure or discontinuance of the business by the employer, and consequent ceasure of the existence of the industry. One of the contentions urged on behalf of the employer was that Section 25-FF inserted by the amending Act No. 41 of 1956 in the Industrial Disputes Act, 1947 is parliamentary exposition of the meaning of the definition clause in Section 2(oo) and Section 25-F of the Industrial Disputes Act. The Court considered the circumstances in which Section 25-FF was inserted. The legal position prevailing at the time of insertion of Section 25-FF in the principal Act was that any transfer or closure of business and any change of employer or management was judicially held to give rise to the claim for retrenchment compensation with the consequences which might result in a complete industrial deadlock. The Court held that the aim or object of the enactment inserted in Section 25-FF was to supersede partially the effect of the judicial decisions atleast with regard to the urgent matter of change of ownership or management of business undertaking which is of quite frequent occurrence, rather than parliamentary exposition of the preexisting law. The Court noted that on the narrower interpretation of the definition clause on the basis of the ordinary accepted connotation of retrenchment, Section 25-F will apply to a continuing or running business only and Section 25-FF will become largely unnecessary. The Court did not see any difficulty in Section 25-FF becoming unnecessary since the judicial decision on the basis of which Section 25-FF was enacted being held to be erroneous by the Court no hardship would ensue if Section 25-FF was rendered superfluous since its very purpose is served by the correct interpretation given by the Court. The Court thereafter referred to the observation of Lord Atkinson in his speech in Ormand Investment Company's case (supra), that an Act of Parliament does not alter the law by merely betraying an erroneous opinion of it. The Supreme Court thereafter observed as under:
(18) ...Legislation founded on a mistaken or erroneous assumption has not the effect of making that the law which the legislature had erroneously assumed to be so. In the cases before us, the legislature proceeded on the basis of the judicial decisions then available to it, and on that basis enacted Section 25-FF. We do not think that the general principle of parliamentary exposition or subsequent legislation as an aid to construction of prior Acts can be called in aid for construing the definition clause and Section 25F of the Act.
31. We do not think that this decision can be pressed in service for the apparent reason that it cannot be urged successfully that the impugned amending Acts proceeded on a mistaken or erroneous assumption of the existing law. As a matter of fact, the legislative intent evidenced by the impugned amending Acts is to remove the mischief perpetrated by the provisions of the principal Act or the difficulty experienced in administration thereof. The Legislature was clear in its mind in inserting these impugned amendments that what was precisely the position of law in the principal Act and how did it cause mischief or create difficulty in its working. We, therefore, reject this third contention which proceeds on a wrong premises altogether that there was erroneous assumption about the legal position on the part of the Legislature. The third contention, therefore, stands rejected.
Re : Contention No. 4:
32. In support of this contention, it was submitted that since the challenge is on the ground of violation of the fundamental rights to the three sections referred to in this contention, viz. Sections 17-A, 22(2) and 24 of the principal Act inasmuch as they are violative of Article 19(1) (c) of the Constitution, the Court should give widest possible meaning to the fundamental rights in question, and the attempt of the Court should be to expand the reach and ambit of the said rights rather than read them in a narrow and limited context so as to effectuate the content of the right, namely, the right to form as association and if the said right is sought to be circumscribed or restricted, the Court must examine the substantive and procedural provision of a given statute under challenge to satisfy the test of reasonableness. The permissible restrictions under Article 19(4) on this right to associate are only those restrictions which are imposed in the interest of sovereignty and integrity of India or public order and morality. It was submitted that the right to associate with other persons postulates the right not to associate also. It implies a right to continue association only with those who were voluntarily admitted in the association. The composition or the character of the association cannot be compulsorily or unilaterally altered by the State enacting a legislation in that behalf so as to defeat this right of association. The right to form an association confers the right to determine the constitution of the association and to organise and manage it through the representatives elected by the members who have voluntarily associated themselves into the union. The right to manage the affairs of such an association adheres in the members or their representatives elected in the manner decided by the members of the association. If, therefore, any restrictive legislation is placed on the statute book so as to circumscribe this right to association, it can be done only within a the permissible limits, namely, in the interest of the sovereignty and integrity of the country or on the ground of public order and morality. A number of authorities were cited at the bar in support of this contention.
33. The State of Madras v. V.G. Row is a leading case on the topic. The Supreme Court was concerned with the question of the validity of the notification issued on March 10, 1950 under Section 15(2)(b) of the Indian Criminal Law Amendment Act, 1908 as amended in 1950 declaring the People's Education Society as an unlawful association. It was published in the Official Gazette as required by the said Act, though no notice was given to the Secretary of the Society or to any other office-bearer. The respondent contended that the said section as well as the impugned notification was bad in law and void as they violated his fundamental right to form an association. The reply affidavit of the Government disclosed that the society was using its funds in actively supporting the Communist Party in Madras which was declared unlawful in 1949. The Government claimed that under the relevant section, the unlawful nature of an association is to be determined on the subjective satisfaction of the authority and was not justiciable. The crucial point before the Court was as to whether the restrictions imposed under the said section, though in the interest of public order, were reasonable. The Division Bench of the Madras High Court unanimously held that the restrictions imposed under Section 15(2)(b) were not reasonable, inter alia, on the ground of (i) inadequacy of the publication of the notification; (ii) the omission to fix a time limit for the Government for submitting its papers to the Advisory Board or for the latter to make its report without any safeguards for the penalties that might be imposed meanwhile; and (iii) the denial of the right to appear either in person or through Advocate before the Advisory Board in support of the representation. The Supreme Court, speaking through Patanjali Sastri, C.J., agreed with the view of the High Court and rested its decision on a broad and more fundamental ground. It ruled as under:
15. This Court had occasion in Dr. N. B. Khare v. State of Delhi 1950 SCR 519 to define the scope of the judicial review under Clause (5) of Article 19 where the phrase 'imposing reasonable restriction on the exercise of the right' also occurs, and four out of the five Judges participating in decision expressed the view (the other Judge leaving the question open) that both the substantive and the procedural aspects of the impugned restrictive law should be examined from the point of view of reasonableness, that is to say, the Court should consider not only factors such as the duration and the extent of the restrictions, but also the circumstances under which and the manner in which their imposition has been authorised. It is important in this context to bear in mind that the test of reasonableness, wherever prescribed, should be applied to each individual statute impugned and no abstract standard or general pattern of reasonableness can be laid down as applicable to all cases. The nature of the right alleged to have been infringed, the underlying purpose of the restrictions imposed, the extent, and urgency and the evil sought to be remedied thereby, the disproportion of the imposition, the prevailing conditions at the time, should all enter into the judicial verdict. In evaluating such elusive factors and forming their own conception of what is reasonable, in all the circumstances of a given case, it is inevitable that the social philosophy and the scale of values of the Judges participating in the decision should play an important part, and the limit to their interference with legislative judgment in such cases can only be dictated by their sense of responsibility and self-restraint and so bearing the reflection that the Constitution is meant not only for people of their way of thinking but for all, and that the majority of the elected representatives of the people have in authorising the imposition of the restrictions, considered them to be reasonable.
34. The next important decision which has a bearing so far as this contention is concerned is of the Supreme Court in the Hindi Sahitya Sammelan and Ors. v. Shri Jagdish Swarup and Ors. The Hindi Sahitya Sammelan was a society registered under the Societies Registration Act, 1860. Broadly stated, the object of the society, inter alia, was propagation of Hindi, under the Bye-laws where there were three classes of members and the society carried on its affairs through a Governing Body, a Working Committee and several other sub-committees. It owned lands and buildings at various places and was holding considerable funds for carrying on its activities. It appears that in the year 1950 some difference arose between the members of the society which was hitherto successfully carrying out its objects. As a result of the difference, an attempt was made by one section to alter the constitution which was opposed by another section which resulted in a litigation. Three suits were instituted in Civil Courts at Allahabad in this connection and some interim reliefs were sought by one party against the other. Ultimately the Court appointed a Receiver. In view of these circumstances, the U. P. Legislature passed an Act known as "The U.P. Hindi Sahitya Sammelan Act No. 36 of 1956" which constituted Hindi Sahitya Sammelan which was to take over the management and properties of the aforesaid society. The Allahabad High Court declared the said Act to be void on the ground that it violated Article 19(1)(c) of the Constitution and was not saved under Article 19(4). The Parliament, therefore, passed the Hindi Sahitya Sammelan Act No. 13 of 1962 which declared the original Sammelan to be the institution of national importance and vested its properties in the new Sammelan set up under the said Act as a body corporate. All the existing members of the society were made members of the new Sammelan though many outsiders were also inducted as members under the said Act. The rules framed under the said Act prescribed qualifications for enroling new members without the concurrence of the original members. The Act also provided for vesting of the property of the society in the Sammelan transferring all rights and liabilities of the society to the Sammelan and made other consequential provisions. The first Governing Body was to consist of a Chairman, a Secretary and 13 other members and was to be set up by a notification in the Official Gazette of the Central Government. 13 members of the Committee were to be appointed so as to include one representative each of the Education Ministry, Finance Ministry of the Union Government and three members from amongst the former Presidents of the society and the remaining to be the eminent members in the field of Hindi language or Hindi literature as claimed by the Central Government. The Society and its 72 members challenged the Act by moving the Allahabad High Court under Article 226 on the ground that it was ultra vires Article 19(1)(c) of the Constitution. Since the writ petition failed in the High Court, the society as well as the other petitioning-members came in appeal before the Supreme Court in which a writ petition was also moved under Article 32 of the Constitution by one of the aggrieved members of the society. The contention which was advanced on behalf of the contesting respondents and which contention found favour with the High Court was that the Act did not deprive the society and its members of any right which they had under the constitution of the Society and did not interfere with their right of association since all were included as members in the new Sammelan. In the alternative, it was urged that Parliament legislated having realised the national importance of the Sammelan which conducted its activities under the auspices of the Society. The Act did not dissolve the society but converted it into a statutory body under the Act. In this backdrop the Supreme Court upheld the challenge to the Act and Bhargava, J. speaking for the Court, spelt out the contents of this fundamental right of association, and having regard to the various provisions of the impugned Act found that there was a clear interference with the right of the members of the society to form and continue the association. The relevant part of this decision, insofar as it has a bearing on the question before us, reads as under:
5. It, however, appears on examination of the provisions of the Act that the Sammelan under the Act is composed not only of persons who were members of the Society, but of others who have been given the right to be members of the Sammelan without the consent of the pre-existing members.... These members have been added without any option being available to the existing members of the society to elect or refuse to elect them as members which was the right they possessed under the constitution of the Society itself.... The number of such new members could even be so large as to leave the original members in a small minority with the result that those members could become totally ineffective in the Society.... It will thus be seen that the Sammelan which has come into existence under the Act, is not identical with the Sammelan which was registered as a Society under the Societies Registration Act, 1860. Certain persons have been added as members by the Act and by the Rules. Admission of future members is no longer at the choice of the original members who had formed the Association. Persons in whose admission as members the members of the Society had no hand, can become members and get the right of associating with them in the Sammelan, without the original members having any right to object. This is a clear interference with the right to form an association which had been exercised by the members of the Society by forming the Society with the constitution, under which they were members and future members could only come in as a result of their choice by being elected by their Working Committee... 6. It was argued that the right guaranteed by Article 19(1)(c) is only to form an association and, consequently, any regulation of the affairs of the Association, after it has been formed, will not amount to a breach of that right. It is true that it has been held by this Court that after an Association has been formed and the right under Article 19(1)(c) has been exercised by the members forming it, they have no right to claim that its activities must also be permitted to be carried on in the manner they desire. Those cases are, however, inapplicable to the present case. The Act does not merely regulate the administration of the affairs of the Society; what it does is to alter the composition of the Society itself as we have indicated above. The result of this change in composition is that the members, who voluntarily formed the Association, are now compelled to act in that Association with other members who have been imposed as members by the Act and in whose admission to membership they had no say. Such alteration in the composition of the Association itself clearly interferes with the right to continue to function as members of the Association which was voluntarily formed by the original founders. The right to form an association, in our opinion necessarily implies that the persons forming the Association have also the right to continue to be associated with only those whom they voluntarily admit in the Association. Any law, by which members are introduced in the Voluntary Association without any option being given to the members to keep them out, or any law which takes away the membership of those who have voluntarily joined it, will be a law violating the right to form an association. If we were to accept the submission that the right guaranteed by Article 19(1)(c) is confined to the initial stage of forming an Association and does not protect the right to continue the Association with the membership either chosen by the founders or regulated by rules made by the Association itself, the right would be meaningless because, as soon as an Association is formed, a law may be passed interfering with its composition, so that the Association formed may not be able to function at all. The right can be effective only if it is held to include within it the right to continue the Association with its composition as voluntarily agreed upon by the persons forming the Association. This aspect was recognised by this Court, though not in plain words, in the case of G. K. Ghosh v. E.X. Joseph case thus supports our view that the right to form an Association includes the right to its continuance and any law altering the composition of the Association compulsorily will be a breach of the right to form the Association.
35. In All India Bank Employees' Association v. The National Industrial Tribunal (Bank Disputes) Bombay and Ors. the constitutional validity of Section 34-A of the Banking Companies Act, 1949 was challenged which absolved the Banks from the obligation of disclosure of the quantum of their secret reserves or their nature or as regards the provision made for bad and doubtful debts. The Bank Employees' Association claimed before the National Industrial Tribunal (Bank Disputes), which was constituted by the Central Government under Section 10(1)(a) of the Industrial Disputes Act, 1947, that the Bank should produce amongst other documents, statement showing the secret reserves in any form from each of the Banks from 1954 upto 1959 as well the statements showing the provision made for bad and doubtful debts. The Banks claimed privilege of non-disclosure under the aforesaid provision. The National Industrial Tribunal upheld the validity of the section with the result that the Bank Employees went in appeal before the Supreme Court while those employees which were not parties to the application for production before the National Industrial Tribunal moved the Supreme Court by way of writ petition. In that context, it was contended by the Bank Employees' Association that the reach and ambit of Article 19(1)(c) could not be cut down and the right to form unions carried with it a guarantee of their effective functions and the unions could not function effectively in respect of the industrial disputes unless they are able to uphold or enforce the demand of the workmen in respect of their wages, prospects or conditions of work. The workers' union could achieve this purpose only if it is assured the right to know the case of the management from the records and documents relevant and material to the issues in dispute. Unless, therefore, the guaranteed right comprehended these aspects, the right to form a union would be most illusory. Negativing this contention, the Supreme Court, speaking through Ayyangar, J. observed in paragraphs 18 & 19 as under:
18. The point for discussion could be formulated thus: When Sub-clause (c) of Clause (1) of Article 19 guarantees the right to form associations, is a guarantee also implied that the fulfilment of every object of an association so formed is also a protected right, with the result that there is a constitutional guarantee that every association shall effectively achieve the purpose for which it was formed without interference by law except on grounds relevant to the preservation of public order or morality, set out in Clause (4) of Article 19 ? Putting aside for the moment the case of Labour Unions to which we shall refer later, if an association were formed, let us say for carrying on a lawful business such as a joint stock-company or a partnership, does the guarantee by Sub-clause (c) of the freedom to form the association, carry with it a further guaranteed right to the company or the partnership to pursue its trade and achieve its profit-making object and that the only limitations which the law could impose on the activity of the association or in the way of regulating its business activity would be those based on public order and morality under Clause (4) of Article 19 ? We are clearly of the opinion that this has to be answered in the negative. An affirmative answer would be contradictory of the scheme underlying the text and the frame of the several fundamental rights which are guaranteed by Part III and particularly by the scheme of the seven freedoms or groups of freedoms guaranteed by Sub-clause (a) to (g) of Clause (1) of Article 19. The acceptance of any such argument would mean that while in the case of an individual citizen to whom a right to carry on a trade or business or pursue an occupation is guaranteed by Sub-clause (g) of Clause (1) of Article 19, the validity of a law which imposts any restriction this guaranteed right would have to be tested by the criteria laid down by Clause (6) of Article 19. If, however, he associated with another and carried on the same activity say as a partnership, or as a company etc., he obtains larger rights of a different content and with different characteristics which include the right to have the validity of legislation restricting his activities tested by different standards, viz. those laid down in Clause (4) of Article 19. This would itself be sufficient to demonstrate that the construction which the Learned Counsel for the appellant contends is incorrect, but this position is rendered clearer by the fact that Article 19 as contrasted with certain other Articles like Articles 26, 29 and 30 grants rights to the citizen as such, and associations can lay claim to the fundamental rights guaranteed by that Article solely on the basis of their being an aggregation of citizens, i.e. in right of the citizens composing the body. As the stream can rise no higher than the source, associations of citizens cannot lay claim to rights not open to citizens, or claim freedom from restrictions to which the citizens composing it are subject.
19. The resulting position may be illustrated thus : If an association were formed for the purpose of carrying on business, the right to form it would be guaranteed by Sub-clause (c) of Clause (1) of Article 19 subject to any law restricting that right conferring to Clause (4) of Article 19. As regards its business, activities, however, and the achievement of the objects for which it was brought into existence, its rights would be those guaranteed by Sub-clause (g) of Clause (1) of Article 19 subject to any relevant law on the matter conferring to Clause (6) of Article 19. while the property which the association acquires or possesses would be protected by Sub-clause (f) of Clause (1) of Article 19 subject to legislation within the limits laid down by Clause (5) of Article 19.
The ratio of the decision in All India Bank Employees' Association's case (supra) was extended and applied in Raghubir Dayal v. Union of India where the constitutional validity of the operative provisions of the Forward Contracts (Regulation) Act, 1952 and of a notification dated 11th February, 1959 issued under Section 15 of the said Act by which the Commodity of gur was brought within the purview of the enactment with immediate effect and of another notification fixing the price at which the forward contracts subsisting on the aforesaid date were to be settled were challenged by writ petitions under Article 32 of the Constitution by the six petitioners. The petitioners belonged to associations which were not recognized under the Act till June, 1959. They broadly contended that if the object of an association was lawful, no restrictions could be imposed except in the interest of public order and morality. The guaranteed freedom did not mean only the formation of an association as such but it should be extended so as to enable it to achieve its lawful object. The right to form association carried with it the right to determine internal management by framing its bye-laws and regulations. Negativing these contentions, the Court, speaking through Ayyangar J., ruled as under:
(12) We consider this argument is without force. In the first place, the restriction imposed by Section 6 of the Act is for the purpose of recognition and no association is compelled to apply to the Government for recognition under that Act. An application for the recognition of the association for the purpose of functioning under the enactment is a voluntary act on the part of the association and if the statute imposes conditions subject to which alone recognition could be accorded or continued, it is a little difficult to see how the freedom to form the association is affected unless, of course, that freedom implies or involves a guaranteed right to recognition also. Could it be contended that there is a right in the association guaranteed by the Constitution to obtain recognition?... Parliament could well have chosen to affect the regulation directly through an official agency instead of through the medium of a voluntary association. In such an event, neither the traders nor their associations could complain of any violation of the law. The mere fact therefore that Parliament chose to utilise the machinery of voluntary trades associations for the purpose of enforcing regulatory control could not invalidate the provision of laws which designed to ensure effective control over the mechanism of forward trading.
36. In G. K. Ghosh v. E. X. Joseph the Court was concerned with the validity of Rule 4-B of the Central Civil Services (Conduct) Rules, 1955. Rule 4-B enjoined the Government servant to withdraw his membership from the Service Association of Government servants as soon as the recognition accorded to the said Association was withdrawn or no recognition was accorded to it within six months of its formation. The respondent Joseph, who was Secretary of the Civil Accounts Association, which consisted of non-gazetted staff of the Accountant General's office and affiliated to All India Non-gazetted Audit and Accounts Association, challenged the validity of Rule 4-B when he was called upon to resign as a member in pursuance of the withdrawal of the recognition of the All India Association by the Government of India in December, 1956. He also challenged Rule 4-A which permitted the departmental proceedings to be held for breach of the Conduct Rules. The High Court of Bombay upheld the validity of Rule 4-A. However, as regards Rule 4-B, the High Court held that it was invalid and, therefore, departmental proceedings in respect of the breach of the said Rules were quashed. In appeal to the Supreme Court, Gajendragadkar, J., speaking for the Court, held that the validity of the impugned Rule was to be judged on the basis that the respondent and his co-employees had a right to form association or union which was unreasonably restricted by Rule 4-B inasmuch as it virtually compelled a Government servant to withdraw his membership from a service Association as soon as the recognition is withdrawn or not accorded. The restriction was held to be unreasonable since it was difficult to see any direct or reasonable connection between the recognition of the Association and the discipline amongst and the efficiency of the members of the said Association, nor there was any connection between the recognition and the public order.
37. In Ch. Tika Ramji and Ors. v. The State of Uttar Pradesh and Ors. the State Government of Uttar Pradesh in exercise of its powers under Sub-section (1) (a) read with Sub-section (2)(b) of Section 16 of the U. P. Sugarcane (Regulation of Supply and Purchase) Act, 1953, issued a notification dated September 27, 1954 ordering that where not less than 3/4 of the cane growers of the area of operation of a Cane growers Co-operative Society are members of the Society, the occupier of the factory for which the area is assigned shall not purchase or enter into agreement to purchase cane grown by a cane grower except through such cane Growers Co-operative Society. A second notification was also issued on November 9, 1955 under Section 15 of the said Act reserving or assigning to the Sugar Federations mentioned in the Schedule the Cane Purchasing Centres specified against each of the federations for the crushing season 1955-56 subject to the prescribed conditions and explanations. The effect of these two notifications was that the former related to the agency of supply of sugarcane to the factories and the later related to the creation of zones for more factories. The earlier notification was challenged, inter alia, as violative of Article 19(1)(c) of the Constitution. In that context, the Court speaking through Bhagwati, J. negativing the contention held that there is no compulsion at all on any cane grower to become a member of a Cane Growers Co-operative Society nor any cane grower was prevented from resigning his membership of such society since they were voluntary organisations which a cane grower was entitled to join or not, at his choice. In that context, a contention was urged on behalf of the cane growers that the right to form an Association or a Union was a positive right which necessarily implied the negative aspect, namely, a right not to form an Association or a Union and, therefore, a citizen could not be compelled to become a member of an Association or a Union, and for that matter a Cane Growers Co-operative Society, before he could sell his goods to the owner of a factory. Rejecting this contention, Bhagwati, J. observed as under:
In the first place, assuming that the right to form an association implies a right not to form an association, it does not follow that the negative right must also be regarded as a fundamental right. The citizens of India have many rights which have not been given the sanctity of fundamental rights and there is nothing absurd or uncommon if the positive right alone is made a fundamental right. The whole fallacy in the argument urged on behalf of the petitioners lies in this that it ignores that there is no compulsion at all on any cane grower to become a member of the Canegrowers' Co-operative Society.
38. In D.A.V. College, Jullundur v. The State of Punjab and Ors. the validity of the notification under Section 5(3) of the Guru Nanak University Amritsar Act 1969 dated March 16, 1970 specifying the date from which the colleges in the areas specified under Sub-section (1) thereof, which were affiliated to Punjab University ceased to be affiliated to that University and were deemed to be associated with and admitted to the privileges of Guru Nanak University was challenged as violative of Article 19(1)(c) of the Constitution. Jaganmohan Reddy, J. speaking for the Court, indicated the content of this right to form an association as implying that several individuals get together and form voluntarily an association with a common end legitimate purpose and having a comity of interest, and that insofar as the impugned notification severed the connection of the colleges in the specified area from one university and prescribed compulsory affiliation with another university, it cannot be impugned successfully since the right guaranteed under Article 19(1)(c) did not carry with it a concomitant right to recognition of or affiliation to a particular university.
39. It is in the context of this settled legal position that we have to examine as to whether the challenge to Sections 17-A, 22(2) and 24 of the amending Act of 1982 as violative of Article 19(1)(c) is well founded.
40. It cannot be gainsaid that the sweep of the fundamental right guaranteed under Article 19(1)(c) to form an association is very wide one. It is an invaluable right enshrined in the Constitution. Any restriction which a State intends to impose on this right must be judged from the twin standpoint of they being in the interest of the sovereignty and integrity of India or public order or morality and must be reasonable. In applying the test of reasonableness, it is necessary to recapitulate what the Supreme Court has said in V. G Row's case (supra) that there cannot be any abstract standard or general pattern of reasonableness which can be universally applied is all situations. The nature of the right infringed, the purpose of restriction, the extent and urgency of the evils to be removed should all be borne in mind and in evaluating such factors the value judgment also plays an important part and the Court should exercise self-restraint and act with a sense of responsibility in interfering with the legislative judgment. It is trite position in law that both substantive and procedural provisions of law must satisfy the test of reasonableness. The restriction in the interest of public order did not mean that any restriction, however remote it may be, can be justified since "the connection contemplated between restriction and public order must be real and proximate and not far-fetched or problematic" (see Ram Manohar Lohia v. State A.I.R. 1960 S.C. 633).
Re : Section 17-A:
41. The first provision which is under challenge is Section 17-A introduced in the principal Act by Section 2 of the impugned amending Act of 1982. Section 17-A should be set out in extenso since it is one of the very important provisions which have been introduced in the principal Act. Section 17-A reads as under:
17-A (1) Where the Registrar is satisfied that it is essential in the public interest or in the interest of co-operative movement, or for the purpose of securing proper management of any society that two or more societies should be amalgamated or that any society should be re-organised, then, notwithstanding anything contained in Section 17 but subject to the provisions of this section, the Registrar may, after consulting such federal society as may be notified in this behalf by the State Government by order published in the Official Gazette, provide for the amalgamation of these societies into a single society or, as the case may be, for the re-organisation of that society, with such constitution, property rights, interests and authorities, and such liabilities, duties and obligations as may be specified in the order. Such order may also provide for the constitution of the committee of management or any other committees of the new amalgamated, re-organised society, the persons who shall be, or continue to be, the officers of such society and the period after which such committee or committees may be re-constituted.
(2) No order shall be made under this section unless:
(a) a copy of the draft of the proposed order has been sent to the society or each of the societies concerned;
(b) the Registrar has considered suggestions and objections if any received either from the society or from any member or class of members thereof or from any creditor or class of creditors within such period (not being less than one month from the date on which the copy of the order as aforesaid was received by the society) as the Registrar may fix in that behalf and has, if necessary, modified the same in the light of such suggestions and objections.
(3) The order referred to in Sub-section (1) may contain such incidental, consequential and supplemental provisions as may, in the opinion of the Registrar, be necessary to give effect to the amalgamation or re-organisation.
(4) Every member of each of the societies so amalgamated shall be deemed to be a member of the new amalgamated society, and every member of the society so-re-organised shall be deemed to be a member of the new re-organised society and all such members shall have all rights, privileges and liabilities of the members of the concerned new society;
Provided that any member of the new society so amalgamated, or re-organised may, within such period and in such manner as may be prescribed, resign his membership of the new society and on such resignation he shall be entitled to withdraw his share and any other dues and interest in the society.
(5) (a) On the issue of an order under Sub-section (1) in respect of any societies or society, or notwithstanding anything contained in any law for the time being in force, all the assets, rights and liabilities of the amalgamated societies, or, as the case may be, the original society which is re-organised shall stand transferred to, and vest in, the new amalgamated society, or, as the case may be, the new re-organised society;
(b) the provisions of Sub-sections (3) and (4) of Section 17 and the provisions of Section 18 shall apply in relation to the amalgamation or re-organisation of the societies under this section as if:
(i) the order of amalgamation were a resolution of societies concerned with amalgamation, and
(ii) the original society was re-organised under Section 17.
This provision has been challenged on behalf of the petitioners on the ground that it invests the Registrar with an arbitrary and uncanalised power destroying the basic structure of the co-operative movement and it is not capable of being sustained on the twin test of its necessity in public order or morality, nor on the ground of its reasonableness since there is no procedural or substantive safeguards provided in the section.
42. On behalf of the State Government, the provision is supported by contending that there is an implied guideline provided in the section for exercise of this power. There is an in-built safeguard provided in the section since the order which the Registrar can make is only after consulting the concerned federal society and, therefore, the power is not capable of being abused. The amendment has become necessary since the Government of India and the Reserve Bank of India insisted that only viable primary agricultural society should be amalgamated or re-organised, or taken into liquidation. Section 17 of the principal Act which provides for voluntary amalgamation was found to be inadequate having regard to the resistance by the members of such sick societies to the amalgamation with healthy units since they desired to continue separate entity and preserve their offices to the prejudice of the interests of the members who were not able to avail of the credit facilities extended by the Reserve Bank of India. The Committee to Review Arrangements for Institutional Credit for Agricultural and Rural Development known as "CRAF1CARD" appointed by the Reserve Bank of India also in its report emphasised that the re-organisation etc. of such societies should be hastened and completed expeditiously within one year at the latest. There were, therefore, two alternatives before the Government-either to take these societies in liquidation or to amalgamate them with economically viable societies. In the reply affidavit filed on behalf of the State Government in Sp. C. A. No. 5138 of 1982 which has been treated as common reply affidavit in this group of special civil applications in paragraph 4 it has been inter alia, stated as under:
4. ...The relevance of this measure becomes all the more evident in the context of primary agricultural credit societies, the continuation of non-viable primary credit societies pose the grave problem of the lack of a critical input for the farmers in the area of its operation. With the increase in the number of non-viable societies, it becomes imperative to re-organise those societies to see that the farmers are not deprived of the credit support. It is in this context the Planning Commission emphasised need of re-organisation of the primary societies and the Reserve Bank asked the State Government to work out 'a one year' time bound programme to re-organise to non-viable societies by amalgamation etc. Such a time bound programme cannot be executed without a legal provision for compulsory amalgamation. In any case the amalgamation is not to be effected arbitrarily, but is to be done in consultation with the concerned financial agency and the concerned federal body. Thus compulsory amalgamation, far from being an arbitrary provision imposed by a bureaucratic fiat is a part of a well laid out plan to see that the felt needs of a particular group of people are not left at large particularly when such groups of people happen to be the agriculturists. It would be pertinent to note that excepting the State of Gujarat all other States in the country have already carried on this re-organisation programme of the primary societies. I, therefore, deny that the provisions contained in the Section 17A have been enacted giving arbitrary powers to the federations of various societies or to the Registrar for compulsory amalgamation. I assert that the provisions for amalgamation have been enacted as per the well considered views of the Reserve Bank of India, the highest banking institution of the country and of the Planning Commission. I deny that this provision has been enacted with a political motivation to facilitate the working of a particular political group, as is evident from the deliberations in this regard by various institutions or committees of national importance. I also deny that this provision in any way impinges on the right of association or right of property inasmuch as amalgamation does not force an institution out of existence but only facilitates its functioning in a more effective and meaningful way...
43. It cannot be gainsaid that this is a power of very wide import invested in the Registrar the exercise of which apparently tends to interfere with the right of association as well right to carry on trade or business of the members of a society in respect of which such an action is taken. It can possibly be contended that the object and form of the action may affect the right to associate. It is a provision which, therefore, restricts the right to association no doubt, and it can be urged therefore that it should be justified on the ground of public order or morality and the extent and duration of it must be reasonable. This is precisely what has been contended by the petitioners, and no doubt, the contention appears to be quite attractive. But on the close scrutiny, we find it difficult to persuade ourselves that this provision can be impugned as violative of Article 19(1)(c) qua all societies irrespective of the nature of the societies concerned or Article 14 of the Constitution for the reasons which we will indicate immediately after setting out as to what is the correct legal position when a provision in form and in substance tends to affect the right of association but its direct and inevitable effect is on the right to carry on business. In such a situation it is settled on principle and authority that the State's action is to be justified only in relation to the right to carry on business.
44. A seven judges' Bench of the Supreme Court in Maneka Gandhi v. Union of India was concerned, inter alia, in the context of impounding of passport of Indian citizen by the Government of India as to whether Section 10(3)(c) of the Passports Act offended Article 19(1)(a) or 19(1)(g) or Article 21 of the Constitution. The majority Court, expressing its view through Bhagwati J. posed a question as to what is the test to be applied for determining whether a statute infringes a particular fundamental right. Bhagwati, J. referred to the earlier view of the Supreme Court in A. K. Gopalan v. State of Madras A.I.R. 1951 S.C. 27 as affirmed in Ram Singh v. State of Delhi which gave rise to the theory that the object and form of State action determining the extent of protection which may be claimed by an individual and the validity of such an action has to be judged by considering whether it is directly in respect of the subject covered by any particular article of the Constitution, or touches the said article only incidentally or indirectly. The test to be applied, therefore, for determining the constitutional validity of the State action with reference to the fundamental right according to the earlier view is that what is the object of the authority in taking the action, what is the subject matter of the action and to which fundamental right did it relate to. This test held its sway for a considerable time and was again applied for in Naresh Shridhar Mirajkar v. State of Maharashtra Bhagwati, J., however, pointed out that the two decisions given by the Supreme Court prior to Mirajkar's case (supra) struck a different note. Bhagwati, J., referred to the decision of the Supreme Court in Express Newspapers (P) Ltd. v. The Union of India A.I.R. 1959 S.C. 578 and Sakal Papers (P) Ltd. v. The Union of India The ratio of those two decisions was that it is the substance and the practical result of the act of the State that should be considered rather than its purely legal aspect, and the correct approach in such cases should be to inquire as to what is substance is the loss or injury caused to the citizen and not merely what manner and method has been adopted by the State in placing the restriction. In other words, to find out what is the direct and immediate effect of the impugned provision or order. Bhagwati, J. thereafter referred to the case in R. C. Cooper v. Union of India where it was ruled that the doctrine that the object and form of the State action alone determine the extent of protection that may be claimed by an individual and that the effect of the State action on the fundamental right of the individual is irrelevant' was finally rejected. Bhagwati, J., thereafter observed as under:
68. ... It may be pointed out that this doctrine is in substance and reality nothing else than the test of pith and substance which is applied for determining the constitutionality of legislation where there is conflict of legislative powers conferred on Federal and State Legislatures with reference to legislative Lists. The question which is asked in such cases is: what is the pith and substance of the legislations; if it is within the express powers, then it is not invalidated if incidentally it affects matters which are outside the authorised field. Here also, on the application of this doctrine, the question that is required to be considered is: what is the pith and substance of the action of the State, or in other words, what is its true nature and character, if it is in respect of the subject covered by any particular fundamental right, its validity must be judged only by reference to that fundamental right and it is immaterial that it incidentally effects another fundamental right.
Bhagwati, J. thereafter referred to the dissenting judgment of Mathew, J., in Bennett Coleman & Co. v. Union of India and ruled as under:
68.... The pith and substance theory was thus negatived in the clearest terms and the test applied was as to what is the direct and inevitable consequence or effect of the impugned State action on the fundamental right of the petitioner. It is possible that in a given case the pith and substance of the State action may deal with a particular fundamental right but its direct and inevitable effect may be on another fundamental right and in that case, the State action would have to meet the challenge of the latter fundamental right. The pith and substance doctrine looks only at the object and subject matter of the State action but in testing the validity of the State action with reference to fundamental rights, what the court must consider is the direct and inevitable consequence of the State action. Otherwise, the protection of the fundamental rights would be subtly but surely eroded.
68-A. ...Now, if the effect of State action on a fundamental right is direct and inevitable, then a fortiori it must be presumed to have been intended by the authority taking the action and hence this doctrine of direct and inevitable effect has been described by some jurists as the doctrine of intended and real effect. This is the test which must be applied for the purpose of determining whether Section 10(3)(c) of the impugned order made under it is violative of Article 19(1)(a) or (g).
45. We do not agree with the Learned Counsel for the petitioners that this is an unguided, unfettered and arbitrary power since the guideline is clearly prescribed in the opening part of the section by the Legislature. It is only on the satisfaction about the objective facts which have been prescribed by the Legislature that the authority can exercise the power under Section 17-A. The objective conditions which must be satisfied before the Registrar can exercise the power are the public interest or the interest of the co-operative movement, or for the purpose of securing proper management of any society. It was urged on behalf of the petitioners that the entire guideline is vague and imprecise, inasmuch as there is absolutely no standards for determining as to what is in the interest of co-operative movement, or for that matter public interest or how the purpose of securing proper management can be best achieved. We are unable to persuade ourselves to agree with this criticism for the obvious reason that in the very nature of things it is not possible for the Legislature to lay down specific contingencies in the context of which this power can be exercised. In the very nature of the diverse situation that may arise as a result of the widespread tentacles of the co-operative movement where diverse situation of grave complexity and import may arise from time to time that if any attempt is made to lay down a strict formula the very purpose of the power would be defeated. The connotation of public interest as well as the interest of the co-operative movement may be overlapping, but it is not difficult to conceive a situation where the exercise of the power may be called for in the interest of the co-operative movement though it may not be strictly justified from the view point of public interest. The public interest is a larger circle while the interest of the co-operative movement is a smaller circle inside it. Though it is difficult to exhaustively enumerate what contingencies would constitute public interest and what would constitute the interest of co-operative movement, the two contingencies can be very well illustrated. The contingency of public interest arises when in the larger public interest some corrective measure is necessary in respect of the two societies e.g. where the two trading societies act in a concert so as to earn profit in utter disregard of consumers and thereby undermining the public interest. The contingency of co-operative movement interest arises when the corrective measure is necessary so that the co-operative movement may not suffer a set-back e.g. where two co-operative societies carry on business which, though apparently satisfying all the requirements of law, compete in a manner so as to undermine the genuine co-operative principles. The contingency of securing proper management is self-explanatory which hardly requires any illustration. We have merely given the illustrations for clarifying that the contingencies are not imprecise or vague. We should not he meant to lay down that in the illustrated situations the amalgamation of such societies is an imperative necessity. The later two contingencies can be said to be, in the ultimate analysis, a matter of public interest since any set-back in co-operative movement or any step for securing the proper management for any society is in the ultimate analysis necessary in the larger public interest. The amended provision though restricting the right of the concerned co-operative societies to carry on business according to their bye-laws and the decision of the societies, the restriction is justified in the public interest. It cannot be successfully urged, therefore, that the power is violative of the right to associate qua business or trading societies since its direct and inevitable effect is on the right to carry on business of the societies.
46. A further question which arises is as to whether in cases of those co-operative societies which are carrying on activities in nature of mere services and not carrying on any business or trading activities this provision contained to Section 17A could be said to be violative of Article 19(1)(c). In other words, a question may arise about the vires of this provision in the context of a society discharging the functions which are in nature of mere services in course of which incidental transactions of sales and purchases may take place. In context of such societies, which are non-business or non-trading societies, the validity of such a provision is open to challenge. What types of societies can be said to be mere service societies is a question which is concluded by the decision of a Division Bench of this Court, consisting of P.D. Desai, J. (as he then was) and myself in Sales Tax Reference No. 17 of 1978 decided on August 10, 1982 (per : B.K. Mehta, J.) where this question has been at length considered in the context of a society which had amongst its objects the betterment of the quality of cotton by distribution and multiplication of hybrid quality of cotton-seeds, popularly known as "SHANKER-4" cotton and the supply thereof to its members and non-members under the Scheme drawn by the Planning Commission of the Government of India. The Division Bench was required to consider as to whether such a society can be said to be a dealer carrying on business as defined in Section 2(10) of the Gujarat Sales Tax Act, 1969 under which activities in the nature of mere services were excluded from the import of the term "business". The Division Bench pointed out as to when a society can be said to be rendering mere services so as to be out of the category of a business or a trading society in the following terms:
... It should be emphasised that the broad test to determine whether a person carries on business or is that the essential characteristics of his activities must be commercial and undertaken with a set purpose of earning, profit. In the ultimate analysis, it is a question of intention of a person which can be inferred from the course of transaction having regard to its volume, frequency, continuity and the system, though this test of volume, frequency continuity and system is not conclusive....
... In a sense, the element of service is implicit in any business or trading activity but that element does not detract from the commercial nature of such activity. It is the commercial overtone of an activity which in ultimate analysis determines its essential nature....
... What is the precise nature of an activity carried on by an assesse would, therefore, be the crux of the problem whenever a question arises as to whether the assesse is doing business or rendering mere service. The real question is: Is the given activity commercial in the sense that it is not carried on with an objective of rendering service exclusively? Such objects or purposes which may render an activity to be service can be, amongst others, helping, aiding or assisting the member, client, customer or a beneficiary, as the case may be. Such activity must be with a view only to serve the client, customer or the beneficiary. Even if the object or the purpose includes, inter alia, the authority to sell or buy articles, it would not detract from its real nature which must be of service only. The fact that some profit is generated out of such activity would not render it a business....
(Vide Mehsana District Shanker-4 Seeds Produce and Sale Co-operative Society Ltd. v. The State of Gujarat (1982) 51 STC 289, at pages 303, 307 and 308).
It should be noted that the Supreme Court of India has rejected the appeal preferred by the State Government against the aforesaid judgment vide its order dated 6-1-84 in S.L.P. (civil) No. 3103 of 1983. We are, therefore, of the opinion that if the Registrar seeks to exercise his powers in respect of such societies which are carrying on activities in the nature of mere services and are non-trading or non-business societies, such an exercise of the power would tend to interfere with the fundamental right to associate under Article 19(1)(c) inasmuch as the members of the amalgamating societies would not have option available to them to accept or refuse to accept the members of other societies as the members of the new society, and the members of such a society would also lose the right of management of the affairs of their original societies. The members of the amalgamating societies would become the members of the amalgamated society without the latter having any right to object to the former becoming the members which would thus constitute a clear interference with the right to form an association and such a provision restricting the rights of the original societies has got to be justified on the ground of public order or morality or the sovereignty of the country, which, by no stretch of imagination, can be visualised. The stand of the State Government in the reply affidavit clearly indicates that the provision has been envisaged and inserted in the principal Act at the instance of the Reserve Bank of India and the CRAFICARD in the context of primary agricultural credit societies since the continuation of non-viable primary credit societies pose grave problem of the lack of a critical input for the farmers in the area of its operation. The inadequacy of the provision contained in Section 17 is felt in the context of such societies which carry on business of extending credit to its members. It is only in light of the experience of the financing agencies that farmers were gradually deprived of the credit support with the increase in the number of non-viable primary credit societies that it became necessary for the Reserve Bank to give directions to different State co-operative departments to have one year time bound programme so that the structure of these primary credit societies can be re-organised with the objective of making them viable. It is, therefore, clear that it is in the context of this commercial activity of providing credit that this provision has become necessary and not irrespective of the nature of the activities carried on by the societies. We are, therefore, fortified in taking the view that the provision contained in Section 17A is applicable in the context of the business or trading societies and not in the context of co-operative societies which are carrying on activities in the nature of mere services. Any other view is likely to make the entire provision vulnerable. If the provision is restricted to the societies which are carrying on business or trading activities, it is capable of being sustained on the ground of public interest. We are, therefore, of the opinion that the grievance of the petitioners that Section 17A is ultra vires Article 19(1)(c) is not well founded since in our opinion it is conceived and inserted in the principal Act for purposes of facilitating compulsory amalgamation of the trading or business societies and not the societies which are carrying on activities in nature of mere services.
47. The validity of compulsory amalgamation power in different Co-operative Societies Acts has been a subject matter of decisions in different High Courts and it is instructive to refer to them briefly. One of the most important decisions on this point is rendered by a five Judges Full Bench of Karnataka High Court in H. Puttappa and Ors. v. The State of Karnataka and Ors. A.I.R. 1978 Karnataka 148 where the main provision contained in Section 14-A as inserted in the Karnataka Co-operative Societies Act, 1959 by Act No. 70 of 1976, which is pan materia with the one with which we are concerned, was, inter alia, challenged on the ground of it being violative of Article 14, inasmuch as the power granted was unfettered and uncanalised and, therefore, arbitrary, and also because it did not provide for any opportunity of hearing and also on the ground of it being violative of Article 19 (1) (c) of the Constitution. The main provision of Section 14-A read as under:
14-A. (1) Notwithstanding anything contained in this Act or the rules made thereunder and the bye-laws of the co-operative societies concerned, where the Registrar is satisfied that it is essential in public interest or in the interest of co-operative movement or for the purpose of securing the proper management of any co-operative society that any two or more co-operative societies should be amalgamated to form a single co-operative society or any co-operative society should be divided or any co-operative society should be re-organised, then, the Registrar shall order the amalgamation, division or re-organisation of such co-operative societies.
The majority view of the Court was expressed by Jagannatha Shetty, J. for himself and P. P. Bopanna and N. Venkatachala, JJ. while negativing the challenge on both the grounds, the majority Court held that the Karnataka Co-operative Societies Act which did not provide any compulsion for any person to form a co-operative society nor did it preclude any one from going out of the society cannot be said to be violative of Article 19 (1) (c). In the opinion of the majority Court. the provisions of the said Act governed, regulated and controlled, inter alia, the trading activities of the societies in the interest of public or in the interest of the advancement of the co-operative movement, and the process of amalgamation, division or re-organisation of co-operative societies related only to structural alterations in the corporate bodies and cannot be construed as a restriction on the right guaranteed to the citizens by Article 19 (1) (c) and registration of a corporate body under a Co-operative Societies Act was not guaranteed by the said Article. Jagannatha Shetty, J. made it clear at the outest while dealing with the challenge under Article 19(1) (c) that if Section 14A purports to restrict the right of the citizens as guaranteed under Article 19 (1) (c), the validity of it presents little problem as it cannot be said to be a law imposing reasonable restrictions, in the interest of the sovereignty and integrity of India or public order or morality as provided under Article 19(1) (c). The majority view emphasised that Section 112 of the Karnataka Act prohibited, persons other than a co-operative society from trading or carrying on business under the name of "co-operative" or the equivalent in any Indian language, and it must be registered as a co-operative society under the Act for doing business or carrying on like other activities. The right to association guaranteed under Article 19 (1) (c) in light of the decision of the Supreme Court in All India Bank Employees' case (supra) does not include the freedom to achieve any object of the association. The passage which we have extracted from the above decision was quoted and it was held that the amalgamation compulsive or consensual pertains to the rights of the latter category, i.e. freedom to achieve the object of the association. In other words, the implication of this decision is, therefore, clear enough that if any restriction is placed on the freedom to achieve the object of association, inter alia, of trading or carrying on business, it can be sustained provided it is in public interest. Our view is fortified partially to that extent. We have been taken through the minority view, expressed in that decision, by the Learned Counsel for the petitioners but, with respect, we are not able to persuade ourselves to agree to it.
48. In Seethapathi Nageswara Rao and Ors. v. The Govt. of A.P. and Ors. a somewhat similar provision of compulsory amalgamation contained in Section 15-A inserted in the Andhra Pradesh Co-operative Societies Act, 1964 by Act No. 6 of 1977, was challenged, inter alia, on the ground of it being violative of Article 19 (1) (c) The grounds on which the Registrar can exercise powers are for ensuring economic viability of any or all the societies, or for avoiding overlapping or conflict of jurisdictions of societies in any area, or for securing proper management of any society, or in the interest of the cooperative movement in general and of co-operative credit structure in particular in the State or for any other reason in the public interest. The Registrar has to identify the non-viable societies which should be merged or amalgamated and a notice is to be published in the District Gazette indicating the amalgamation of non-viable with viable society, and invite objections or suggestions from the societies, their members, depositors, creditors, employees and other persons concerned with the affairs of the society, and decide about the amalgamation thereafter. A Full Bench of five Judges of the Andhra Pradesh High Court viewed this restriction as one on the business activity of the co-operative societies regulating their trade or business activities and found it to be a reasonable restriction in the public interest. This decision also, therefore, partially fortifies our view.
49. The third decision to which our attention is invited is of Patna High Court in Harakh Bhagat v. Assistant Registrar Co-operative Societies where the order of the Assistant Registrar, Barh directing compulsory amalgamation of two societies in exercise of his powers under Rule 39 of the Bihar Co-operative Societies Rules, 1959 was challenged, inter alia, on the ground of it being violative of Article 19 (1) (c). Rejecting the challenge, the Division Bench of Patna High Court, speaking through Narasimhan, C.J. (as he then was) held that the power of individual members to form association and union as provided under Article 19 (1) (c) is not taken away nor anyone is compelled to become a member of a co-operative society or to continue as a member of the amalgamated society, if he wishes to resign from the new society, and since the co-operative society is a corporate body created by an Act, any provision in the Act for exercise of supervision and control over such a corporate body would be wholly outside the scope of Article 19 of the Constitution. The Division Bench further held that co-operative societies are primarily intended to carry on business on co-operative lines and they are not merely charitable, cultural or political societies having no business objective, and if co-operative societies in a particular region are found to be functioning unsatisfactorily thereby affecting credit system in the area and also adversely affecting a large section of the people, the Registrar would be justified in making statutory provisions for the purpose of revitalising such societies with a view to make them viable, and, therefore, the validity of rule (39) should be examined with a view to see whether it confirmed to Clause (6) of Article 19 and not whether it whether it confirmed only to Clause (4) of Article 19 and when subjected to such scrutiny, it was found to be reasonable and constitutionally valid. This decision also, therefore, partially fortifies our view.
50. As regards the challenge to this Section 17-A as violative of Article 14 is dealt with while dealing with contention No. 7, we, therefore, need not dilate on that point at present.
Regarding Sections 22(2) & 24:
51. By Section 3 of the impugned amending Act of 1982, the original Sub-section (2) of Section 22 of the principal Act has been substituted by the new Sub-section (2). Under the original Sub-section (2) of Section 22 of the principal Act, the decision of refusal to admit a person as a member of a co-operative society was to be communicated to the aggrieved person within 15 days of the date of the decision. New Sub-section (2) seeks to provide for deemed membership of a society of such class as may be notified by the State Government in the Official Gazette in this behalf. Section 24, as it originally stood in the principal Act, provided for open membership. The original Sub-sections (1) & (2) of the said section prohibited prescribed societies from refusing the admission to any qualified person without sufficient cause, and any person aggrieved by the decision of such a society has a right to appeal to the Registrar whose decision was final. By Section 5 of the impugned amending Act of 1982, the entire new section is substituted in place of the old Section 24 which comprised of three sub-sections, while the new Section 24 comprises of seven sub-sections. The net effect of this amended provision of Section 24 is that the prohibition to refuse admission for membership is now extended to all societies irrespective of their prescribed class [vide Sub-section (1)]. If the decision to refuse membership is not communicated within a period of three months from the date of the receipt of the application, such person is deemed to become member of such society on the expiry of the said period [vide Sub-section (2)]. The society is put under an obligation to communicate reasons in writing for such refusal within the aforesaid period [vide Sub-section (3)]. A right of appeal is conferred on the society against deemed membership as well as on a member against refusal [vide Sub-sections (3) & (4)]. The period of limitation for filing such appeal is two months from the date of the deemed membership or refusal for admission [vide Sub-section (5)]. The Registrar's decision is made final [vide Sub-section (6)]. Sub-section (7) is important and, therefore, it is reproduced hereinbelow:
(7) Nothing in this section shall apply to a society belonging to a class notified under Sub-section (2) of Section 22.
In other words, in respect of notified societies, the right of deemed membership accrues to a qualified person in case of refusal to accept the application or membership subscription by the Society from the date of the receipt of the application and/or payment of subscription forwarded by Registrar who can be moved by an aggrieved person by tendering his application and subscription to him.
52. The petitioners are very much agitated by these provisions not only because they violate their valuable right of association particularly in the context of voluntary nature of co-operative societies which is one of the cardinal well recognised principles of co-operative movement, but also by the certainty of these provisions particularly Section 22(2) being abused in the context of shifting political allegiance to different political parties of power-hungry and position-crazy political careerists. In submission of the Learned Counsel for the petitioners, the power of such a widest amplitude has been invested in the Registrar, who would be hardly capable of acting in a fearless and independent manner, when he is occupying the office at the pleasure of unscrupulous political powers that would be. A great reliance has been placed on behalf of the petitioners on the decision of the Supreme Court in Hindi Sahitya Sammelan's case (supra) in support of their challenge under Article 19(1) (c) and also tried to support the apprehension of the abuse of the power by citing one such actual incident where as many as 700 applications were accepted by the Registrar together with subscription of more than Rs. 20,000/- and forwarded to the District Co-operative Bank in Saurashtra though it must be stated that this was not supported by any affidavit on record.
53. On behalf of the State Government, the justification for the impugned amended provision in Sections 22(2) & 24 has been set out in paragraphs 5 & 7 of the reply affidavit of Shri D. K. Patel, Deputy Secretary in Co-operation Department of the State Government in Special Civil Application No. 5138 of 1982 to which our attention has been invited by the learned Advocate General. The justification is set out in the following terms:
5. ...I say that Sub-clauses (c) and (d) of the said Sub-section (2) provide that the society can move the Registrar by submitting its case as to why such a person cannot be admitted as a member. I, therefore, deny that this section is arbitrary. It has been observed that inspite of a person having qualification to be a member of a society under the principal Act, rules made thereunder and the bye-laws of society itself, the societies do not admit such person as a member thereof. Thus the society denies the right of a person to be member having due qualifications for the purpose, In order to obviate this situation this provision of automatic membership subject to the conditions laid down in the said provision has been made. Also a provision under Sub-section (3) for disqualifications to be a member for a person carrying the same profession, business, or employment as a society is engaged in or which may conflict with the object of a society has been made. This provision is for ensuring that a person may not become a member of society for achieving his professional and business benefit. This provision is therefore necessary to ensure that membership may not be utilised by anybody for his own personal gain. Incidentally the Gujarat Law Commission has also recommended for a clear enunciation of such disqualifications. I say that similar provisions exist in the Maharashtra Co-op. Societies Act since 1969. In the principal Act there was no time limit prescribed for taking decision regarding admission of members and therefore the societies sometimes keep the applications for membership pending for an indefinite period. To cope with such a situation the amended provisions provide time limit and automatic admission. The say of the petitioners that a decoit, a person without Integrity and any objectional element can be deemed to have become member is denied as the provision is clear that a membership to a person is very much subject to his being duly qualified even under the bye-laws of the society. I deny that there is no built-in provision for remedying a wrong decision of the Registrar inasmuch as the Section 155 of the Act leaves the doors open for a revision of an order of the Registrar, if the illegality or impropriety of the latter's decision is pointed out to the Government.
7. ... I say that a co-operative society is essentially for service to its members and persons qualified to be members of the society who are otherwise suitable to be members should not be denied the right of membership and thereby services of the society. Under the Act registration of a new society is not to be done if it is likely to have adverse effects on an existing society. In case membership is not extended to the new coming members who are otherwise qualified, the net effect would be to deprive them of the required services. It is, therefore, necessary that they should have an opportunity of becoming members of an existing cooperative society when they are qualified for the same. The amended provision is made keeping in view this position and the recommendations of the Annual Conference of the State Ministers of Co-operation and Officers held at Banglore on 30-6-1969 and 1-7-1969. The Reserve Bank of India, in the conditions for granting permission to primary (urban) co-operative banks, has also stated that the membership in any bank should not be restricted but should be open to all eligible persons irrespective of community, religion, caste, creed, language, trade etc. The open membership does not mean that anybody can demand as of right, admission to any co-operative society. It only means that a society with certain definite objectives shall keep its door open for all people who have similar objectives and who are otherwise qualified...
(emphasis supplied)
54. We must state at the outset that we have not been able to appreciate the necessity of new provision contained in Section 22(2) of deemed membership of a class of societies as may be notified by the State Government in the Official Gazette when the amended provision contained in Section 24 almost seeks to serve the same purpose. Apart from this initial inability of ours, we have not been able to persuade ourselves that this amended provision contained in Section 22(2) can be justified either on the ground of public interest much less on the ground of public order or morality, even if we agree with the learned Advocate General that this restriction should be tested on its reasonableness in public interest. The rights of the members in any voluntary association, incorporated or otherwise, inter alia, in respect of as to with whom they should associate is an essential content of the fundamental right to association under Article 19(1)(c). Any provision restricting such right must be justified on the twin ground, as stated above, as permitted under Article 19(4) of the Constitution, namely the restriction is reasonable and necessary on the grounds of sovereignty of the country or public order or morality. In our opinion, there is not a whisper in the reply affidavit to justify this restriction except that persons qualified to be members should not be denied the right of becoming members of co-operative society. There is in fact no right, statutory or otherwise, for any person within the area of operation of a co-operative society to become a member. He has only a right to be considered for being a member, and it is for that society which has to determine as to whether a particular person seeking membership should or should not be admitted to the society. As a matter of fact the underlined portion of the paragraph which we have quoted from paragraph 7 of the reply affidavit negatives the necessity of their insertion. We are in complete agreement when it is stated in the reply affidavit that the open membership does not mean that anybody can demand as of right, admission to any co-operative society. It only means that the society must keep its doors open for all such persons who are prepared to subscribe to their objectives. It is not the case of the Government, and it could not have been, that the petitioner-societies, or for that matter the co-operative societies in the State, have closed their doors for eligible persons on the ground of community, religion, caste, creed, language, trade etc. They could not have provided in the bye-laws for the close shop since otherwise they would not have qualified themselves to be registered under the Act. The statement made on behalf of the State Government in the reply affidavit that any society aggrieved by the deemed membership of any person under Section 22(2) has been given a right to move the Registrar by an application seeking declaration that such person shall be ceased to be a member with effect from such date as may be specified by the Registrar, if in the opinion of the society such person is not qualified for being a member or should not be continued as a member can hardly justify such a provision. We think that this is merely an apology for justification of such a restrictive provision. No material has been placed on the record by the State Government from the record of the office of the Registrar, or the District Registrar, as the case may be, that a widespread malpractice had crept into the working of the societies in the State as a result of which they had become close shop for all intents and purposes and, therefore, such a provision was necessary even on the ground of public interest assuming that this impugned provision under Section 22(2) violates Article 19(1)(g) and not merely Article 19(1)(c). We must, therefore, hold that the impugned provision contained in Section 22(2) is violative of Article 19(1)(c) of the Constitution and, therefore, must be quashed and set aside.
55. As regards Sub-section (]) of Section 24, we are of the opinion that it also suffers from the same vice of it being violative of Article 19 (1) (c). The marginal note of Section 24 indicates that it provides for open membership which only postulates that the society has to keep its doors open for all those persons who are prepared to subscribe to their objectives and there should be no restrictive clause refusing membership on the ground of caste, creed or religion etc. Admittedly its can never mean that any person can demand as of right admission to any cooperative society. This position is accepted by the State Government in the reply affidavit as stated above. Whether a person should be admitted even though he may be qualified to the membership of a society is a matter within the internal management of that society. It is for the members of the society to decide whether or not a person seeking admission should be enrolled as a member. Section 24(1) in our opinion is either redundant or violative of Article 19(1)(c). If as to with whom one should associate is inherent content of the right to associate under Article 19(1)(c) any provision, as in the nature of Section 24 (1), investing the right of admission in any person duly qualified under the Act, the rules and the bye-laws of the society, unless there is sufficient cause for refusing the membership, is clearly violative of Article 19(1)(c) since the condition that admission can be refused only on the ground of the cause which must be objectively sufficient cannot be said to be a restriction necessary on the ground of public order or morality even if it is reasonable. In any case, an aggrieved person has always a right to move the Courts by seeking appropriate remedies by regular civil action in civil Court or before Registrar by invoking his special jurisdiction where the membership is refused on flimsy and trivial grounds. Sub-section (2) also, in our opinion, providing for the deemed membership to such person who is not communicated the decision of the society to which he is seeking the membership within a period of three months, is equally offensive of Article 19(1)(c) of the Constitution for the self-same reasons. The consequential provisions of appeal and limitation thereof in Sub-sections (3), (4), (5) and (6) would also fail since the main provisions have been held to be suffering from the infirmity as stated above. Sub-section (7) also becomes redundant in the view of the matter which we have taken on the impugned provision in Sub-section (2) of Section 22. We are, therefore, of the opinion that the provisions contained in Sections 22 (2) and 24(1) & (2) are bad in law and void inasmuch as they are violative of Article 19(1)(c) of the Constitution.
Regarding Contention No. 5 (a):
56. By Sections 2 and 3 of the amending Act of 1981, Section 74 of the principal Act is amended. The amendment is two-fold viz. insertion of proviso to Section 74 and addition to Sections 74-A, 74-B and 74-C after original Section 74. These amendments have been challenged as violative of Articles 19(1)(c) and (g) of the Constitution of India. Section 74, as it originally stood in the principal Act, provided for vesting of the management of every society in a committee constituted in accordance with the Act, Rules and Bye-laws. The proviso which has been inserted reads as under:
Provided that a committee of a society falling in any of the categories mentioned in Sub-section (1) of Section 74C shall not be so constituted as to require a certain part or number of its members to periodically retire by rotation and any bye-law of such society containing such provision shall with effect on and from the commencement of Section 2 of the Gujarat Co-operative Societies (Amendment) Act, 1981 ceases to be in force.
New Section 74A provides for disqualification for being designated officer simultaneously of certain specified societies or for being designated officer of the same society for more than six years. Section 74B provides for reservation of two seats - one for the persons belonging to the scheduled castes and the scheduled tribes and one for the persons who are small farmers and marginal fanners - on the committees of the society as may be specified by the State Government. Section 74C(1) (i) enjoins that in respect of Apex societies, as may be specified by the State Government, regard being had to the financial position and share capital of such institutions, such as all District Central Co-operative Banks, all Primary Land Development Banks, all District and Taluka Co-operative Sale and Purchase Organisations, all co-operative Sugar Factories, all Co-operative Spinning Mills and any other society or class of societies which the State Government may, by general or special order published in the Official Gazette, from time to time, specify, that their elections will be conducted in the manner laid down in Chapter XI-A which has been inserted by the same Act by Section 4 after Section 145 of the principal Act.
57. On behalf of the petitioners, it has been urged that the impugned amending provisions under consideration totally destroy, in respect of the specified societies, the right of management of the members of the society. The content of the fundamental right, under Article 19(1)(c), of association postulates the right to manage the association in the manner as may be decided by the members of that association inter se. These impugned provisions, therefore, insofar as they seek to circumscribe this right of management through the representatives elected as agreed upon by the members amongst themselves, are violative of Article 19(1)(c). According to the petitioners, these impugned provisions also circumscribe and thereby restrict this right of the members to carry on their trade or business, which restriction cannot be sustained since there is no question of public interest requiring such a restriction.
58. On the other hand, on behalf of the State Government, it has been contended that the impugned provisions have been inserted in the principal Act in order to introduce a uniform system of election of committee and office bearers. As regards the retirement by rotation, the proviso was required to be inserted in Section 74 of the principal Act on the ground that the retirement of Directors by rotation as prescribed in the Bye-laws was a just provision when the sphere of co-operative institutions dealing in primary needs of credit and storage of input and their area of operation were limited and confined to a small constituency. However, with the growth of co-operative institutions and the movement, the evil of vested interest which has crept into the system on account of retirement by rotation made the provision obsolete and retrograde and was entirely inconsistent with the democratic framework of the societies. According to the State Government, this provision was inserted so that the aspirations of the younger generation craving to bring about socio-economic change through the co-operative apparatus might not be thwarted by the vested interest of the leadership which resisted any such changes. By Section 74A, a disqualification has been prescribed to a person to be a designated officer of more than one society and falling in categories 1, 2 and 3. Category I comprises of the societies having State vide operations. Category 2 comprises of the societies whose operations extend for the city of Ahmedabad having authorised share capital of more than Rs. 10 lacs, or of those societies whose area of operations extends to one or more districts, or those societies which have share capital exceeding Rs. 10 lacs. Category 3 comprises of taluka level societies whose share capital exceeds Rs. 5 lacs but not exceeding Rs. 10 lacs. A further disqualification has been prescribed that no person shall be or continue to be a designated officer in more than two societies in the aggregate in the three categories. Sub-section (3) of Section 74-A prescribes that any person holding more than a number of offices prescribed above will either resign so as to hold the office within 'the prescribed number, otherwise he would cease to hold the office beyond the prescribed number, within 90 days of the commencement of the amending Act of 1981. Sub-section (4) provides that if a person becomes a designated officer, after the commencement of the Act, of societies in excess of the number prescribed, he would either resign or cease to be member within 90 days of the declaration of his election. Sub-section (5) provides that no person shall be or continue to be a designated officer of any of the societies from any of the aforesaid categories for a consecutive period of more than ten years, and at the expiration of that period any such person shall cease to be a designated officer of that society, and shall not be eligible for being re-elected or re-appointed as a designated officer until a period of five years has elapsed after the expiry of the aforesaid period of ten years. By explanation to Sub-section (5), it has been provided that for counting the period of ten years, his office tenure before the impugned amending Act of 1981, will also be counted. A further explanation has been added to Sub-section (5) by prescribing a deeming fiction that a person shall be deemed to have completed ten years on his resignation within 12 months of the date on which the consecutive period of ten years would have been completed. The case of the State Government in respect of Section 74A is that this was necessary in order to break the domination of co-operative societies by single person or group of persons for a long period to the detriment of the institutions, so that it will achieve twin purpose of inducting new leadership and removal of the monopolistic control of a single individual or group of individuals. Such restriction is also prescribed, according to the State Government, in Maharashtra Co-operative Societies Act, 1960. Such a change was under consideration since 1970 and the matter was left to the good sense of the co-operative societies to prescribe a code of conduct and a self-discipline so as to evolve new leadership. Since the co-operative bodies failed to agree for a code of conduct and self-negation, the State Government was required to insert this provision in conformity with the co-operative principles and according to the specific recommendation of the Law Commission appointed by the State Government in 1974. It has been further stated in the reply affidavit that this overall period of ten years has been now fixed at six years and the office tenure of a particular member before the amending Act of 1981 is not to be counted for this overall period of six years. This amendment has been brought about by the amending Act, of 1982. Apart from the State Law Commission suggesting this innovation, the Chief Ministers and ministers of Co-operatives of different States made the recommendation in their conference held in June, 1978 to prescribe such a restriction on the right to hold office more particularly because the liberty to hold any number of offices resulted into negligence in the management of the affairs of the societies having adverse impact on the working of co-operative organisations.
59. Section 74-B has not been seriously challenged at the time of hearing and we, therefore, need not dilate upon the necessity of the said provision.
60. As regards Section 74C, the case of the State Government is that it is with a view to ensure impartial and independent machinery for conducting elections in co-operative societies that the same has been introduced as suggested in the Conference of the representatives of the Co-operative Societies operating in the State. Such provisions are also to be found in the Maharashtra Co-operative Societies Act.
61. It is in the background of the above rival cases that we have to examine whether new proviso to Section 74 and insertion of the three new Sections 74-A, 74-B and 74-C are ultra vires the Constitution. As observed above, since the challenge to Section 74-B, which provides for reservation of one seat for Scheduled castes and Schedule tribes and one seat for small and marginal farmers etc. was not pressed so vehemently, we do not think that we should dilate on the question about the validity of this provision which must be upheld as it reserves two seats for the representatives of weaker sections of the village or urban community who may not be able to get themselves elected on their own in the elections of the societies on general seats. It need not be reiterated as to what should be the approach when legislative provisions are sought to be impugned from the stand point of two fundamental rights, namely, right of association and right to carry on business or trade, under Article 19(1)(c) and (g) as in the present case. The approach has been indicated by the Supreme Court in All India Bank Employees' Association's case (supra). We should. remind ourselves that the right to form association does not ensure the right to carry on business in any manner the Association likes. The State can control the right of association to carry on business or trade in a reasonable manner in public interest. We will, therefore, first examine as to whether the State Government has been able to justify the restrictions which have been provided either in the proviso or in Section 74-A or 74-C from the stand point of Article 19(1)(g). If we are satisfied that these restrictive provisions are valid, we may then address ourselves to the question as to whether they violate Article 19(1)(c) of the Constitution.
62. We must frankly admit that we have not been impressed by the case of the State Government seeking to justify the restrictions introduced by the proviso to Section 74. How retirement of all directors would be more democratic or conducive in the induction of new leadership is not clear to us. The retirement by rotation is a provision which is well recognised not only in the statutes pertaining to Corporations, and Joint Stock Companies but also under the Constitution of the Council of State in the Union Government or the Legislative Council of the State Government under the Constitution as well as Representation of the People Act. The wholesale retirement of all the directors from the board would not necessarily ensure that new representatives will be able to get themselves elected and provide a new leadership to the societies, since ultimately it depends partly on their credentials. The provision pertaining to the retirement by rotation would, in its turn, require all the directors to retire, of course, by turn. It, therefore, cannot be urged that vested interests would be able to perpetuate themselves in the office. In our opinion, on the contrary the provision for retirement by rotation ensures continuity and also provides for change. We are, therefore, unable to agree with the learned Advocate General that the impugned proviso, insofar as it deletes the provision of retirement by rotation from the Bye-laws of the societies specified in Section 74-C (1), is a reasonable restriction in public interest. We must, therefore, hold that the said proviso to Section 74 is ultra vires Article 19(1)(g) of the Constitution. We therefore need not consider whether it also violates Article 19(1)(c).
63. So far as Section 74-A is concerned, we will examine the impugned provision first from the angle of Article 19(1)(g) and then, if we are satisfied that the restriction is reasonable, we may proceed to address ourselves from the angle of Article 19(1)(c). The Scheme of sec 74-A appears to be to provide for twin restriction against holding office of President, Chairman or any other designated office as may be notified by the State Government. The twin restriction is holding the office in more than one society in any one of the three categories of the society, and secondly to hold more than one office in more than two societies in aggregate in the three categories. In other words, the net effect of the restriction is that one cannot be a designated officer in more than one society in any of the three categories and also more than two societies in three categories taken together. The categorisation of the societies has been made with reference to their area of operation or their authorised share capital. The justification which has been pleaded by the State Government is on four grounds. Firstly, it is designed to remove the monopoly of individual member or class of members over these societies. Secondly, it is with a view to induct new leadership. Thirdly, it is made in pursuance of the recommendations of the High Power Body like Law Commission or the different States Chief Ministers and Co-operative Ministers conference, and fourthly, it is inserted with a view to provide efficient management of the societies whose affairs are neglected if the persons are allowed to hold office in more than one society. In order to adjudge the validity of a provision from the angle of restriction in public interest no such restriction can be justified without regard being had to the connection between the restriction and the public interest which must be real and proximate and not far-fetched or problematic (see Ram Manohar Lohia's case - supra). It is no doubt true that there cannot be any universal standard or criteria for testing the reasonableness of a provision which can be uniformly applied in all situations. It is ultimately the nature of the right infringed, the purpose of the restriction and the extent of urgency of the evils to be removed which should be borne in mind in judging the reasonableness of a provision. The test of reasonableness must satisfy substantive and procedural provisions of law. No doubt a similar provision is to be found in Section 275 of the Companies Act, 1956 which provides that no person shall hold office at the same time as Director in more than 20 companies. It does not provide for holding the office of President or Chairman of the Board of Directors in more than one specified class of companies. In other words, this restriction in Section 275 will virtually amount to prohibiting the holding of the office of President or Chairman on the Board of Directors in more than 20 companies. It cannot be gainsaid that every member of the society has a right to contest the election for being a member of the Executive Committee or for being a Director on the Board of Directors and in turn to stand at the election for being President or Chairman of the society. This is a very valuable right granted to every member of the society which is a voluntary association of persons and subscribing to the common objectives of the society. What is the extent and urgency of the evil which was sought to be removed by the insertion of this provision in Section 74-A is not clear to us since in the reply affidavit, we do not find any material worth its name which may unable us to appreciate the extent of the evil, the resultant mischief and the urgency of removal thereof. The twin restriction prescribed in the impugned provision contained in Section 74-A operates not only in respect of the State level societies but also in respect of the district level and taluka level societies having share capital of more than Rs. 5 lacs. We have not been furnished with any material by the State Government as to how many societies would be affected by the impugned provision since, as stated above, the prohibition is extended right upto the Taluka level societies. The only evil which has been generally referred to as vested interest of individual or a class of individuals is too vague and imprecise as to give us any idea about the extent of the evil which has crept into the co-operative sector, if at all it has so crept in. It should be emphasised that the impugned provision contained in Section 74A is not similar to one contained in Section 275 of the Companies Act. Because the restriction which has been prescribed is only for holding designated office which means the Chairman or the President or any other office designated by the State Government. How the evils of vested interests can be curbed or eliminated by providing restriction on the right to be President or Chairman or to hold a designated office is a matter which we have not been able to comprehend properly. If the evil of vested interest has crept into the co-operative sector, it may be due to some individuals or a syndicate of individuals getting themselves elected into the Executive Committees or on the Board of Directors and thus trying to control the vintage point of the co-operative societies operating in vulnerable areas. This evil is not sought to be restricted. What is sought to be restricted is holding of the office of President or Chairman or any other designated office. It is difficult to visualise as to how one individual office bearer, may be a President or a Chairman, can control the views and the working of the majority of the Board of Directors or the members of the Executive Committee who can determine the method and manner of the management of the society by their majority view. The explanation of the State Government that liberty to hold office of President or Chairman in more than one society resulted into negligence in the management is merely an apology of the explanation. It is difficult to agree with the learned Advocate General that the restriction on the right to hold the office of President or Chairman would generate efficiency in the management of the society because, in the ultimate analysis, he cannot streamline the management and make it efficient and effective without the backing of the majority of the members of the Executive Committee or the Board of Directors. We have not been able to persuade ourselves that the connection between this restriction and the public interest is real and proximate. We are afraid that this apprehension of the evil of vested interest and the resultant negligence by a person holding more than one office is far-fetched and problematic. We are, therefore, of the opinion that the impugned provision contained in Sections 74-A (1) and (2) cannot be said to be reasonable restriction much less in public interest and, therefore, it should be held to be violative of Article 19(1)(g) of the Constitution.
Sub-sections (3) and (4) of Section 74-A are consequential provisions to Section 74-A (1) and (2) and, therefore, they also fail as a result of our view on Sub-section (1) and (2).
64. Sub-section (5) of Section 74-A provides for a further two-fold restriction. Firstly that no person shall be or shall continue to be a designated officer of any society of any of the categories referred to in Sub-section (2) for a consecutive period of more than ten years, and secondly he will not be eligible for re-appointment unless five years elapsed after he ceases to be member on expiry of ten years. This provision also, for the very same reasons, is held to be violative of Article 19(1)(g). The two-fold restriction prescribed in Sub-section (5) would be, in our opinion, counter productive inasmuch as it would create a void of experienced and competent leadership in the co-operative field. Sub-section (5) should, therefore, be held to be ultra vires Article 19(1)(g).
65. In the above view of the matter we need not go into the larger question as to whether the provision contained in Section 74-A is violative of Article 19(1)(c) of the Constitution of India.
66. This takes us to the challenge to Section 74-C which provides for the conduct of elections of certain specified societies in accordance with the provisions contained in Chapter-XI-A. It should be first examined as to whether the impugned provision is violative of Article 19(1)(g) of the Constitution, and, if necessary, then to examine whether it offends Article 19(1)(c). At the outset it must be emphasised that Chapter XI-A which contains detailed provisions as to how elections are to be conducted is made applicable by this provision contained in Section 74-C only to Apex societies as may be specified by the Government by a general or special order in the Official Gazette, or District Central Co-operative Banks, or Primary Land Development Banks, District & Taluka Sales and Purchase Unions, Sugar Factories and Spinning Mills. It cannot be gainsaid that the conduct of the elections to all these offices which are almost in the nature of public offices having regard to the important functions these societies discharge, must be so conducted as to inspire confidence amongst not only the members of the societies in particular but also the members of public at large who may be the consumers or the workers or the customers of these societies. It does not require much of imagination to appreciate that many malpractices are being committed in these elections by not only the participating candidates but their supporters and sympathisers. There are black-sheep and bullies in all these public institutions who try to the elections. If, therefore, the Legislature has thought fit to make detailed provisions about the conduct of the elections, it cannot be objected to on the ground of violation of fundamental right to carry on business or trade since they are all reasonable restrictions in larger public interest. We must therefore, reject this challenge to this section on touch stone prescribed in Article 19(6) of the Constitution of India.
67. As regards the challenge by the petitioners on the ground of Article 19(1)(c), we are of the opinion that, having regard to the class of societies which have been specified in Section 74-C (1) (ii) to (vii) and the nature of functions which they discharge, the test to be applied for determining the validity of such restriction is from the angle of the doctrine of intended and real effect as laid down in Maneka Gandhi's case (supra). The direct and inevitable effect is not on the right to form association but the right to carry on business through their elected representatives. The impugned provision contained in Section 74-C read with Chapter XI-A is, therefore, one which no doubt affects the right of association as well as right to carry on business. As observed in Maneka Gandhi's case (supra) it is possible that in a given case the pith and substance of the State action may deal with a particular fundamental right but its direct and inevitable effect may be on another fundamental right and in that case, the State action would have to meet the challenge of the latter fundamental right. In that view of the matter, therefore, we are of the opinion that Section 74-C read with Chapter XI-A, insofar as it directly and inevitably effects the right to carry on business through the elected representatives, the restrictive provision contained in the section is valid since it is reasonable and in public interest. The challenge to this Section 74-C should, therefore, be rejected.
Re : Contention No. 5(b):
68. The petitioners contend that the impugned Act of 1982, insofar as it seeks to amend the principal Act by inserting Sections 51(2), 74-D, 76-A and 76-B, 80(2) and 80-A by Sections 8, 13, 15, 16 and 17, respectively, of the said amending Act, is bad in law and void as violative of Articles 19(1)(c) and (g) of the Constitution of India. We will first examine these provisions from the angle of the challenge under Article 19(1)(g) and then Article 19(1)(c), if necessary.
Re : Section 51(2):
69. Section 51 of the principal Act is a part of Chapter V dealing with State aid to societies. Section 51, as it originally stood in the principal Act, provided for direct partnership of State Government with societies. Section 52 provides for indirect partnership of the State Government with societies. By original Section 51, the State Government may subscribe directly to the share capital of a society with limited liability. Section 52 enables the State Government by making an appropriation under law to provide moneys to a society for the purchase directly or indirectly of shares in other societies with limited liability and such society to which moneys are so provided for the aforesaid purpose is described as 'Apex society.' It is in Section 51 that the impugned Act, 1982 made an amendment by numbering the original section as 51(1) and by inserting a new provision as Sub-section (2) in the said section. The newly inserted Sub-section (2) provides as under:
(2) The share capital subscribed by the State Government under Sub-section (1) shall not be returned to the State Government by a society except with the previous sanction of the Government.
The grievance of the petitioners is that though the marginal note of the section prescribes the provision as 'direct partnership of State Government in societies', it is in effect and substance the financial assistance given by the State Government since it is a part of the Chapter captioned, 'State Aid to Societies'. Though, the State purchases shares of the society, the real nature of the arrangement is of partnership and, therefore, even if the societies are in a position to repay the State loan which is invested in the purchase of shares, the State Government, by the newly inserted provision, wants to put an embargo on that right of the society which it enjoys under its Bye-laws. In submission of the Learned Counsel for the petitioners, no financial assistance can be foisted on any person much less a co-operative society which can always repay the loan which has been once advanced by way of assistance. Even if the assistance is provided by purchasing the shares of the society, these shares must be treated as redeemable shares which the society can always redeem by paying the share capital to the State Government. The Learned Counsel for the petitioners, therefore, urged that there is no public interest which dictated the embargo on such a right much less it can be said to be reasonable restriction on the light. On behalf of the State Government, it has been contended that there is no absolute prohibition on the return of the capital. It is only the previous sanction which is required before it could be returned. In the common reply affidavit filed on behalf of the State Government, in paragraph 9 the justification for the provision is made in the following terms:
9... In order to strengthen financially the society coming into existence the State Government under Section 80(1) of the principal Act nominates not more than 3 representatives on the committee of such society. It is observed that in order to avoid State representation in the Committee, the societies tend to return subscription of the State Government even by borrowing the amount with high interest. Thus at the cost of financial soundness, societies resorted to return the share capital of the Government. It is with a view to ensure that a society does not return the share capital contributed by the Government merely to avoid Government nominees on its committee that this provision is enacted. It may be further added that the Government support to the co-operative is not confined to the contribution to the share capital only, but flows in the form of other indirect benefits such as preferential treatment accorded to the co-operatives, exemptions from the corporate tax into a certain extent and concessional finances from the various financial institutions; these are a few of the various support measures extended by the Government. I say further, that the membership of a co-operative society ceases only by acquiring any disqualifications due to death, resignation or transfer of shares and the society cannot terminate the membership of any member unilaterally without following the procedure prescribed in the bye-laws and provisions of Section 36 of the Act even in case of a member responsible for any action detrimental to the interests of the society. I say that by contributing sizeable amounts of share capital the Government acquires membership of a society, and, therefore, it should have the statutory protection of preserving its membership, and enjoy the rights of membership. I, therefore, deny that it is a fundamental right of a co-operative society to return the share capital contributed by the Government...
70. Though it is not clear on the pleadings as to in which of the petitioner-societies' bye-laws the shares purchased by the State Government can be redeemed and capital would be repaid, we find that atleast in Junagadh District Central Co-operative Bank Limited, which is one of the petitioners in this group of petitions, the share capital of the Bank is of Rs. 400 lacs divided into shares of three categories. A, B and C. 'A' class of shares of Rs. 1000/- each is to be allotted to the State Government and/or the State Co-operative Banks. As per bye-law No. 3, 'A' class shares can be allotted only to the State Government and/or the State Co-operative Banks with liberty to the District Bank to repay in whole or in part after a period of five years from the date of allotment. Similarly in Bye-laws of Madhi Vibhag Khand Udyog Sahakari Mandii Limited-petitioner-society of Special Civil Application No. 216 of 1983 a similar provision is to be found that shares of the value of Rs. 35 lacs will be allotted to Gujarat State on the condition of re-purchase. A similar provision is also to be found in Chalthan Vibhag Khand Udyog Sahakari Mandii Limited, which is also a petitioner of Special Civil Application No. 217 of 1983. The very fact that by the impugned Amending Act of 1982 this provision is inserted postulates that the Bye-laws of the societies whose shares are purchased by the State reserve the liberty to such societies to redeem such shares. We have, therefore, to examine whether this impugned provision can be said to be a reasonable restriction on the right of the societies to redeem share capital in public interest. We are unable to find any justification in the reply affidavit as to for what real purpose this provision is inserted. The justification pleaded is that some of the societies with an ulterior motive to deprive the Government of its representatives, use to redeem the shares and repay the capital. An additional ground is also pressed in service that besides this financial assistance, the societies receive other kinds of assistance and facilities from the State Government as well as the Central Government and other financial agencies and, therefore, in order to safeguard the interest of the members of the society by participating in the management, the Registrar of Co-operative Societies exercises the control over the working of such societies. We are unable to agree with the learned Advocate General that this restrictive provision is a reasonable one in the public interest. The reasons for our view are obvious. In the first place, the real nature of the arrangement is of direct partnership as the marginal note of the section indicates. It should be recalled that it was pursuant to the report of the Rural Credit Survey Committee appointed by the Reserve Bank of India of 4th August, 1951 to survey the problems connected with the rural credit and make recommendations with its reorganisation, which was published in December, 1954 that the Committee had suggested, inter alia, State partnership with co-operatives and this Section 51 was introduced in the Bombay Co-operative Societies Act empowering the Government to subscribe directly to the share capital of the societies with limited liability. The object of the section appears to be the proper development of the societies and for fulfilling the task providing credit to the members or discharging activities according to Bye-laws. If, therefore, a society is in a position to repay the capital by redeeming the shares, what public interest is to be subserved by the impugned provision is a matter of anybody's guess. If the arrangement is in effect and substance of partnership, it can be always dissolved and accounts be made up. If it is in a nature of subscription to share capital which is redeemable, according to the Articles or Bye-laws, no provision can be made so as to circumscribe this right unless it is dictated in public interest. The explanation of the State Government that some of the societies were trying to redeem such shares by borrowing at a higher rate of interest is not convincing enough. We have not been satisfied by any cogent and authoritative material that the societies on a large scale indulge in uneconomic borrowings to redeem the share capital subscribed by the State Government with the ulterior motive to deprive them of their right of representation. As a matter of fact, the State Government has been invested with a power under Section 80(2) to nominate its representative on the Committee of such societies if it is necessary or expedient so to do having regard to the public interest as if the State Government has subscribed to the share capital of the society. We have, therefore, not been satisfied as to what was the extent of the measure of mischief and the urgency of its removal that this provision has been inserted. Assuming that it is in public interest that the share capital cannot be repaid to the State Government without its previous sanction, we do not find any guideline in the section which will govern the grant of such sanction. The discretion invested in the Government to grant sanction is so unfettered that the provision really verges on arbitrariness. There is no procedural or substantive inbuilt safeguard in the provision so that the societies can be denied the permission to repatriate the capital. We are, therefore, of the opinion that the restriction cannot be said to be reasonable restriction. In that view of the matter, therefore, the new Sub-section (2) in Section 51 must be held to be ultra vires Article 19(1)(g) and should, therefore, be held to be non est. Re : Section 74-D:
71. Section 74-D provides for appointment of custodian in certain circumstances. We do not think that we can sustain the challenge to this provision as alleged on behalf of the petitioners. It is said that the Registrar has been invested with the power to appoint Custodian for any reason whatsoever. At the bar, it has been stated on behalf of the petitioners, that in past the Registrar had invoked his power under Section 74-D even when the functioning of the new committee of management was restrained under the orders of the Civil Court or the High Court. We are afraid that this can be hardly said to be a ground for impugning the provision. We do not think that by this power any fundamental right either as to forming association or to carry on business or trade is negatived or restricted in any way. As a matter of fact, the provision is an enabling provision that when a new committee of management is not elected or having been elected not functioning after the expiry of six months of the term of the office of members of the old committee of management of such society, the Registrar is empowered to appoint a sole Custodian or a committee of persons as custodian of such society. The Registrar cannot exercise the power where the election of the managing committee or functioning thereof after election is restrained under the orders of the Court. It is only when, on account of the voluntary default of society in electing a new committee or on account of a default of newly elected committee to function that the Registrar is entitled to exercise the power. We must therefore, treat this provision as a provision in public interest and we do not think that it can be said to be unreasonable since the custodian is to exercise his powers subject to the control of the Registrar and such instructions as may be given from time to time. This is a stop-gap arrangement until a new management committee is elected or a newly elected committee starts functioning. The challenge to this section is, therefore, rejected and the provision must be upheld as valid and intra vires the Constitution.
72. An apprehension was expressed that this power of the Registrar to appoint a sole Custodian or a committee of persons as Custodian on such society is unrestricted since such an appointment can be made without any restriction on the tenure thereof. We are of the opinion that the apprehension is not well founded since Section 80A which is complimentary to Section 74-D provides the tenure of Custodian or the management committee. By necessary implication, therefore, the tenure of the custodian or the management committee appointed by the Registrar under Section 74-D also should not exceed the tenure of two years, as prescribed under Section 80-A. Re : Sections 76-A and 76-B:
73. We read the sections as under:
76-A (1) No Managing Director or Chief Executive Officer of such society or a society falling within such class of societies as the State Government may, by notification in the Official Gazette, specify (hereinafter in this section referred to as 'the notified society') or person exercising the powers and performing the functions and duties of the Managing Director or Chief Executive Officer of such notified society by whatever designation known, shall be appointed or removed by such society except with the previous approval of the Registrar.
(2) Any appointment or removal of a Managing Director or a Chief Executive Officer or a person exercising the powers and performing the functions and duties of such Director or Officer made without the previous approval of the Registrar shall be void.
76-B (1) If, in the opinion of the Registrar, any officer makes persistent default or is negligent in performance of the duties imposed on him by this Act or the rules or the bye-laws or does anything which is prejudicial to the interests of the society or where he stands disqualified by or under this Act, the Registrar may, after giving the officer an opportunity of being heard, by order remove such officer and direct the society to elect or appoint a person or a qualified member in the vacancy caused by such removal and the officer so elected or appointed shall hold office so long only as the officer in whose place he is elected or appointed would have held if the vacancy had not occurred.
(2) The Registrar may, by order, direct that the officer so removed shall be disqualified to hold or to contest election for any office in the society from which he is removed and in any other society for a period not exceeding four years from the date of the order and such officer shall stand disqualified accordingly.
74. On behalf of the petitioners these provisions have been challenged on the ground that they interfere with the right of management which is an integral part of the fundamental right of association inasmuch as no Managing Director or Chief Executive Officer can be appointed or removed in respect of such class of societies as the State Government may by notification in the Official Gazette specify, except with the previous approval of the Registrar, and any appointment without such approval is void. The power of the Registrar under Section 76-B to remove any officer who makes persistent default or is negligent in performance of his duties imposed by principal Act or the Rules or Bye-laws, or does anything which is prejudicial to the interest of the society, or is disqualified by or under the Act to direct the society to elect or appoint a person in the vacancy caused by such removal, is also challenged on the same ground. The State Government has in the common reply affidavit filed an its behalf by Shri D. K. Patel tried to justify the insertion of these two new provisions on the following ground:
16. With reference to Section 76-A as inserted in the principal Act by the amending Act it is stated that it has been observed that experienced, qualified and competent Managing Directors or Chief Executive Officers of societies are arbitrarily removed by the society and in their place new persons are appointed though lacking in qualifications and experience requisite for holding such responsible position by nepotism and favouritism. In fact, for efficient management of major types of cooperatives, it has been found necessary that chief executive officers are selected and appointed by such societies by proper method of recruitment and on the basis of adequate qualifications and experience required for the job. Security to the tenure of the chief executives or objective selection of the latter is very much necessary in the overall interest of co-operative movement. Non-security or insecurity of service is one of the reasons coming in the way of the emergence of competent professional management for the co-operative institutions. The newly added section, therefore, only requires that the management of the specified societies have to adhere to certain standards of recruiting their chief executive and other senior officers and it is for ensuring this that the provisions for approval of Registrar for such appointment or removal is provided. In the interest of cooperative movement, it is essential to discourage arbitrary decisions of appointment or dismissal of these officers...-.
17. With reference to Section 76-B, it is stated that if the managing committee of the society persistently makes defaults or is negligent in performance of duty imposed on it by the principal Act rules made thereunder or the bye-laws of the society or if it does any act then prejudicial to the interest of the society or its members under provisions of Section 81 of the principal Act the managing committee of society is liable to be removed and an administrator can be appointed in its place. There was no provision in the principal Act for the removal of any individual officer for the Acts of omission and commission. Thus, on account of the default of the Chairman of a society or that of a single office bearer whole managing committee was liable to be removed. This is considered harsh and as such at this new provision action on the individual found responsible for such default is contemplated without disturbing the whole managing committee. This provision has been made in the interest of good management of society....
75. So far as the challenge to Section 76-B is concerned we must reject it forthwith. The reasons are obvious. The provision is an enabling provision since in its absence the whole committee would expose itself to the extreme penalty of supersession for the persistent default or negligence of one of the officers of the society. It is only in order to locate the fault of that particular officer and for taking action against him so that the whole committee may not be exposed to supersession that the new provision is made by insertion of Section 76-B. It cannot be said to be in any way denying or circumscribing the right to form association. It also does to not curtail the right to carry on business or trade guaranteed under Article 19(1)(g) having regard to the purpose of the section. The challenge to this Section 76-B is therefore rejected.
76. However as regards Section 76-A, we are afraid that no case has been made out by the State Government as to why such a provision was found necessary in public interest. The arbitrary, capricious or unauthorised removal of the Managing Director can always be challenged by an aggrieved party in a court of law and any mala fide or illegal action can be impugned by a Court. No public interest can, therefore, be served by enjoining previous approval of the Registrar before exercising such power of Managing Director or Chief Executive Officer of any society.
77. As regards the appointment, we have not been provided with any cogent and authoritative material to persuade us that in the matter of appointment at such senior managerial level, there is a widespread malpractice committed by the societies. The extent of evil or the urgency for removal thereof is also not substantiated by the State Government. The justification of ensuring the appointment of qualified, experienced and competent persons on the posts in such senior managerial level does not appear to us to be impressive for the obvious reason that the Board of Directors or the Managing Committee will be the worst sufferer in the matter if such appointment is made indifferently or mala fide since it would have its far reaching repercussions not only on the integrity and bona fides of the members of the Managing Committees or the Board of Directors, but would have also a chain of reaction in the financial results of the societies which have substantial turnover of business and high financial stakes in the working of the societies. Apart from this obvious reason, we have not been pointed out as to how many such objectional appointments have been made which required the State Government to intervene and provide for previous approval of the Registrar. How the previous approval of the Registrar would also be able to curb the malpractices if any there be, is also debatable. The provision is also open to challenge as violative of Article 14 with which we will deal at the appropriate time. The inevitable and direct effect of this restrictive provision is more on the right to association and, therefore, to manage through its officers and, therefore, the State action is to be judged from the angle of the necessity of such a restriction from the point of public order or the sovereignty of the country. It is hardly possible to contend that such a restriction is necessary in public order. Assuming that the direct and inevitable effect is on the right to carry on business, even then it is difficult to persuade ourselves as to which type of societies or class of societies the State Government has found large scale malpractice and therefore thought it necessary for curbing it to make such provision. In that view of the matter, therefore, the provision contained in Section 76-A is violative of Article 19(1)(c) of the Constitution and in any case Article 19(1)(g) thereof.
Re : Section 80(2):
78. Section 80, as it originally stood in the principal Act, empowered the Government to nominate its representatives not exceeding three on the Committee of a society to the share capital of which the State Government has directly or indirectly subscribed or has guaranteed the repayment of the principal and interest on debentures issued or loans raised by such society. Two fold amendment has been made in Section 80; firstly, by empowering the State Government to nominate its representatives notwithstanding anything contained in the Bye-laws of such societies and, secondly, by inserting new Sub-section (2) empowering the State Government to nominate the representatives on the committee of a society having regard to the public interest involved in the operation of such society it has been found necessary or expedient to do so as if the State Government had subscribed to the share capital of the society. We must reject the challenge to this new provision inserted by Sub-section (2). The power is an enabling power which can be exercised only if the Government is satisfied that it is necessary or expedient to do so in the public interest. The number of nominees cannot exceed three since it has been specifically provided that the provision of Sub-section (1) shall, so far as may be, apply to such nomination. The tenure of such nominated persons shall be as may be specified in the order by which they are appointed and, therefore, if this power is sought to be abused by the State Government, it can be always subject to challenge in the Court of Law. It does not curtail the right of association nor the right to carry on business or trade guaranteed under Article 19(1)(c) and (g) respectively. This provision, therefore, must be sustained.
79. Before we part with the discussion pertaining to Section 80 (2) we must clarify since the petitioners apprehend abuse of this power that the State Government cannot exercise the power conferred by this section by appointing such persons who are disqualified to be members or who have incurred the disqualification as prescribed in the Bye-laws. It is expected that the Government has to exercise such a wide power in a manner which does not infringe or violate the Bye-laws prescribing the qualifications and/ or disqualifications for being members of the society in question since otherwise this power would be arbitrary as it can be exercised for appointing those persons who might have been defeated at the elections or who would not have been entitled to be members or to continue as members of a given society in the ordinary course under the Bye-laws such as persons who have committed defaults in the refund of the advances by the Society or who may be occupying offices in the society, or partners in the firm or appropriators of business having conflicting interests with that of the society. It is, therefore, expected of the State Government that it will prescribe a proper guideline in the matter of exercise of this power and see to it that the power is not exercised contrary to such guideline.
Re: Section 80-A:
80. This is a new insertion in the principal Act after Section 80. It provides for extension of term of nominated committee or appointment of custodian. The power is an enabling power only in order to provide for a stop-gap arrangement where a new committee could not be elected before the expiry of the term of office of the members of the Committee of Management nominated by the State Government or the Registrar for such period not exceeding two years in the aggregate or until a new committee of management is elected, whichever is earlier. This does not curtail any of the fundamental rights under Article 19 (1) (c) or 19 (1) (g) of the Constitution. The provision must, therefore, be upheld as valid and intia vires the Constitution.
Re: Contention No. 5 (c):
81. The petitioners have contended that the impugned Act of 1982, in so far as it seeks to amend the principal Act substituting wholly Sections 83 and 160 of the principal Act by Sections 19 and 35 respectively of the said amending Act is bad in law and void since the amending provisions are violative of Article 19(1) (g) of the Constitution of India.
Re: Section 83:
The original section of the principal Act is deleted and in its place new section has been substituted. Section 83 provides for Registrar's power to seize records etc. Under the original section, the Registrar was empowered to make an order directing a person duly authorised by him in writing to seize and take possession of books and records, funds and properties of the society where he is satisfied that the books and records of the society are likely to be tampered with or destroyed or the funds and properties of the said society are likely to be misappropriated or misapplied. The officer of such a society was obliged on such directions being given to give delivery thereof to the person so authorised. The new provision which is to be substituted by Section 19 of the amending Act, 1982 empowers the Registrar in additional contingencies than those prescribed under the old section. The new contingencies provided for in the amending section for exercise of such power are suppression of books and records, or in case of unreasonable refusal by the officer or person in possession to hand over the records, funds and properties. In the original section, no consequences were prescribed for the refusal or failure of the officer of the society to hand over the possession, as required by the Registrar, of the property, funds and records. The amended provision enables the Registrar in case of such failure or refusal to apply to the Executive Magistrate having jurisdiction over the society for seizing and taking possession of the records and properties of the society and Sub-section (2) which is also a new provision empowers the Magistrate on receipt of such an application to authorise any police officer not below the rank of Police Sub-Inspector to enter and search any place where the properties and records are kept or likely to be kept, and seize them and handover the possession thereof to the Registrar or his authorised representative. This new provision has been challenged on the ground that it is violative of the right of the society to carry on trade or business inasmuch as the power is so wide that it almost verges on arbitrariness and unwarranted by public interest since it has been left to the subjective satisfaction of the Registrar as to whether the books and records are likely to be suppressed or even where Registrar thinks that the person in possession thereof unreasonably refuses to give their possession. On behalf of the State Government, in the common reply affidavit which has been filed, it has been contended that the provision was necessary to meet with the mischievous situation when a person having possession of such records or properties is reluctant to part with them and thereby virtually putting a stop to the activity and functioning of the society. The apprehension expressed on behalf of the petitioners that there are no similar safeguarding provisions as to be found in the Cods of Criminal Procedure in the matter of search and seizure under the present amended section is, according to the State Government, not well founded since the concerned police officer authorised by the Magistrate for search and seizure would exercise his powers under the relevant provisions of the Criminal Procedure Code. We must state at the outset that the additional contingencies in the new provision, insofar as it empowers the Registrar to exercise his power under Section 83 when the person in possession unreasonably refuses to give possession of the records, funds and properties appears to be redundant particularly in view of the stand which has been taken by the State Government. The stand of the State Government which prompts us to take this view reads as under:
21. With reference to Section 83, 1 say that in the provisions of pre-amended sec 83, the Registrar was empowered to seize the books and records of the society. if he was satisfied that those were likely to be tampered with or destroyed or the funds or the property of the society likely to be misappropriated or misapplied, Under the amended provisions, it has been added that when the Registrar's directions for seizure are not complied with by responsible persons, in whose possession such records etc. are, the Registrar or persons authorised by him may apply to the concerned Executive Magistrate for seizing and taking the possession of records and property of the society.... This provision is, therefore, necessary so as to ensure taking possession of these books and properties of the society, if a person having his possession such records or property is reluctant to part with them and thereby stops the activity and functioning of the society....
82. We have, therefore, not been able to appreciate as to what is the purpose in inserting the additional contingencies in the new amended provision namely, "the person in possession unreasonably refuses to give possession of the records, funds and property", for exercise of the power of seizure, if ultimately the refusal by the officer to hand over such possession enables the Registrar to move the Executive Magistrate for authority for search and seizure. The word "unreasonably refusal" are of uncertain import, and it can be a matter of fruitful litigation between the Registrar and the reluctant officer of the society. Such a wide power of seizure, merely on the ground that in the satisfaction of the Registrar the person in possession unreasonable refuses to give possession of such records and property, is clearly violative of Article 19(1)(g) since it will directly and inevitably tend the substantially and prejudicially restrict the right of the society to carry on business or trade. Unless, therefore, such a restriction can be justified on the ground of public interest, we do not think that such a contingency can be sustained for exercise of the power of seizure. The Registrar had, under the original provision as well as the new provision, the power of seizure where, in his opinion, the books or records and likely to be tampered with or destroyed or the funds and property of the society are likely to be misappropriated or misapplied. Similarly further contingency for exercise of the powers under the new provision, namely, likelihood of suppression of the books is also unreasonable restriction which cannot be sustained on the ground of public interest for the simple reason that the contingency is covered under the broad head of likelihood of the records and books being tampered with or destroyed. The suppression of the documents would be with a view either to destroy them or with a view to tamper with them. "Suppression" is ordinarily for unauthorised maddling with the records which would be covered by the broad contingency "tamper with the records of books". Non disclosure of books for valid reasons viz. with a view the protect the interest of the society can also be claimed by the Registrar as "suppression of books". Unless, therefore, the suppression is with ulterior motive such as tampering with it or destroying it, it cannot be held to be a ground on which such a power of seizure can be exercised in public interest. We are, therefore, of the opinion that the amended provision of Section 83(1) in so far as it empowers the Registrar to exercise the power of seizure on the ground that the books are likely to be suppressed that the person in possession thereof unreasonably refuses to give possession are violative of Article 19(1)(g) of the Constitution and, therefore, to that extent they must be struck down from new Section 83.
Re : Section 160:
83. Original Section 160 is substituted wholly by new provision. Section 160 empowers the Registrar to issue directions. The original section comprised of two sub-sections. The new provisions comprise as many as four sub-sections. Sub-section (1) of original Section 160 empowered the Registrar with the prior approval of the State Co-operative Council to give from time to time all or any of the societies or any class or classes of societies such directions as, in his opinion, are necessary or expedient for the purposes of effective and proper implimentation of the production programme linking and co-ordinating marketing and credit activities of co-operative societies and conforming to co-operative discipline for such purpose. Sub-section (2) empowered the Registrar to levy and exact fine of Rs. 10/-per day for each day of default till the instructions are carried out in case the society or the officer responsible for carrying out the directions fails to comply with them after giving opportunity of hearing to the party concerned. The new Section 160 provides for additional contingencies for the exercise of this power of issuing directions. The additional grounds on which such power can be exercised is the general ground of public interest or where the affairs of the society are conducted in a manner detrimental to the interests of the members or the depositors or the creditors thereof. By Sub-section (2) of new provision, the Registrar is empowered suo motu or otherwise to modify or cancel any directions issued under Sub-section (1), and while doing so to impose such other conditions as he may think fit. Sub-section (3) empowers the Registrar to remove the defaulting committee and to appoint a new committee in its place of one or more members or to appoint one or more Administrators to manage the affairs of the society for a period not exceeding two years, which may be extended at his discretion from time to time so as not to exceed the overall period of four years. This power he can exercise under Section 81(1)(b) inserted in the principal Act by Section 18 of the Amending Act of 1982. Similarly he can also exercise his power under Section 107 of winding up of such society. Power under Section 81(1)(b) or under Section 107(1) can be exercised only when the Registrar is satisfied that the Committee or the general body of the society is responsible for non-compliance of the provisions. Sub-section (4) provides for the consequences where non-compliance is by a person whose duty it was to comply with the directions. The Registrar in that case is empowered by order in writing to remove such person if he is a member of the committee of the society or remove him as a member of the society, if he is an ordinary member, and if he is an employee, he may remove him from employment of the society forthwith. The Registrar can exercise the power after giving an Opportunity of hearing to the person concerned.
84. On behalf of the petitioners this section has been very vehemently attacked inasmuch as it gives unbriddled power to the Registrar firstly, because under the old section he was under an obligation to obtain before exercising the powers of issuing directions, the prior approval of the State Co-operative Council and secondly the additional contingencies of public interest or the conduct of the society's affairs in a detrimental manner to the members, depositors, or creditors' interests are of uncertain import and in the present atmosphere where the fortunes of the political powers fluctuate from time to time, it would be too dangerous to invest such power of wide import which now expose the society or any member or employee thereof to the consequences, which were very limited under the old section. In submission of the Learned Counsel for the petitioners, the consequence to which a society is exposed for non-compliance of the directions which may be given in the name of public interest or prejudicial management of the affairs, is of winding up under Section 107. The society is not given any opportunity of hearing before the Registrar can exercise his power under Section 81(1) or Section 107(1) as provided in Sub-section (3) of new Section 160. Similarly, the consequence for erring member or officer is also very serious inasmuch as he may be removed as a member of the society or he may be removed from the employment as the case may be. This restriction cannot be said to be reasonable according to the Learned Counsel for the petitioners having regard to the extent to which all the consequences to which a society or an individual member or employee is exposed to.
85. On. behalf of the State Government in the common reply affidavit these contentions have been sought to be repelled by urging that the Registrar, under the old section, was not able to issue directions because at times for a considerably long period the State Co-operative Council could not be constituted due to political changes or President's Rule and became of the statutory provisions relating to its formation and having regard to the inevitable time leg in obtaining its approval which made the wholesome power virtually infructuous. The absence of any opportunity of hearing before issuing the directions is sought to be justified by urging that it would not cause any prejudice to an aggrieved party since the Registrar has been empowered under new Sub-section (2) for modification of the directions either suo motu or otherwise which by necessary implications indicates that the aggrieved society or a person can make representation with regard to the directions. The powers are not unfettered since an appeal is provided to the State Government under Section 153 of the Act.
86. In our opinion the consequences prescribed for non-compliance of the directions amount to unreasonable restrictions which cannot be justified on the ground of public interest. The reasons are obvious. We have not been able to appreciate in the first place the mischief ensuing as a result of the old Section 160 as pleaded by the State Government. The old section insofar as it provided an obligation of obtaining prior approval of the State Co-operative Council was a very healthy and a necessary safeguard against the power of the Registrar of issuing directions becoming too arbitrary and subjective. The additional ground for exercise of the power namely public interest or the prejudicial management of the affairs of the society are terms of uncertain import. The inbuilt check which was prescribed in the original Section 160 was required to be removed because according to the State Government the State Co-operative Council could not be constituted on account of political changes or President's Rule or its permission could not be obtained within reasonable time. This is to say mildly an apology of justification. The inaction on the part of the authorities to constitute Council due to political changes or President's Rule or delay in obtaining its approval can hardly be said to be a mischief ensuing as a result of any lacuna in the old section. The difficulties, if there were any, ensuing as a result of abrupt transfer of political powers or the necessity of President's Rule cannot be said to be mischievous reason out of any inherent lacuna in the section or as a result of working thereof. The extent of the consequences ensuing as a result of the remedy which has been provided now in the new section is too far reaching and that too without any opportunity of hearing to the aggrieved society or a person concerned. Merely because the Registrar has a power to modify his directions can hardly be said to be a substitute for the opportunity of hearing before the power is exercised. We must, therefore, hold that the consequences prescribed in Sub-section (3) and (4) make the entire power an unreasonable restriction on the fundamental right to carry on business or trade. We must, therefore, hold that Sub-sections (3) and (4) should be held to ultra vires Article 19(1)(g) of the Constitution and must be quashed and set aside.
Re: Contention No. 6:
87. On behalf of the petitioners, Section 69 of the principal Act, which has been newly inserted by Section 9 of the impugned amending Act of 1982 in place of original Section 69 of the principal Act, has been challenged as violative of Article 265 of the Constitution of India, inasmuch as the impost levied is in the nature of tax which the State Legislature has no power to impose under List II of the Seventh Schedule to the Constitution of India. The original Section 69 provided for contribution to the educational fund of the Gujarat State Co-operative Union. The contribution was to be made at such rate as was to be prescribed. The amended provision of Section 69 provides for contribution every year to the education fund of the Gujarat State Co-operative Union a sum equal to such percentage not exceeding one percent of its income as may be prescribed and different percentages may be prescribed for different classes of societies having regard to the Financial conditions of such class of societies. The required contribution is to be made within two months from the date on which its accounts are adopted by the general body of the members at an annual general meeting, and any officer wilfully failing to comply with the requirement of the section is to be held personally liable for making good the amount to the Gujarat State Co-operative Union. The grievance made on behalf of the petitioners is two-fold; that the rate prescribed under the original Section 69 was on the basis of the net profit of the year and varied according to the rate of dividend (see Rule 31 of the Gujarat Co-operative Societies Rules, 1965). It is, therefore, urged that the provision contained in the new Section 69 inasmuch as it prescribes contribution on the basis of the income, it amounts to tax which the State Legislature is not competent to levy. The second limb of the contention is that the provision contained in new Section 69 insofar as it empowers the State Government to prescribe different rates having regard to the financial conditions of different classes of societies is too arbitrary, unreasonable and uncanalised since it is well-neigh impossible to assess such condition in fact no attempt has been made so far to assess the financial conditions of different classes of societies in the State. The power, therefore, becomes arbitrary and uncanalised inasmuch as the financial conditions of different societies in the same class of societies may be materially different and any attempt to club these different societies would be treating unequals as equals. In submission of the Learned Counsel for the petitioners, the contribution envisaged under original Section 69 is more in the nature of fees since it was to be made on the basis of the net profit and was linked up with the rate of dividend declared by each of the societies. The new Section 69 which provides for a flat percentage of contribution on the basis of the income would virtually amount to a tax on the income and in any case as there is no quid pro quo between the services rendered and the extent of impost it assumes more a form of a tax.
88. In the common affidavit in reply of Shri D. K. Patel, Deputy Secretary, filed on behalf of the State Government, the levy is justified in the following terms:
10. ...I say that the section makes it imperative on every co-operative society to contribute certain percentage not exceedingly 1% of its income towards the education fund of the Gujarat State Co-operative Union. I say that the said Union is engaged in the task of training the staff of Co-operative institutions with a view to enhance their efficiency to run the co-operatives. In order to ensure the financial viability of the said Union, the provision for contribution by societies is made. I say that under this new provision, the percentage of contributions by different classes of the societies having regard to the financial condition of such class of societies are to be prescribed. I say that this provision would lead to strengthening of the said Union and ultimately Co-operative societies would stand to benefit from the activities of the Union.
89. It is well recognised position in law that distinction between a tax and fee lies primarily in the fact that tax in levied as a part of common burden while fee is for a special benefit or a privilege, and though both the imposts are actuated out of public interest, there is some special benefit which an individual receives in the matter of fees (see first Shirulmath's case). A fee in order to be a legal impost must satisfy two conditions. Firstly, there must be an element of quid pro quo, that is to say, the authority levying the fees must render some services for the fees levied however remote the services may be, and, secondly, the income from the fees must be spent for the purpose of imposition and must not be merged in general revenue (see Chief Commissioner, Delhi v. D.C. & G. Mills Co. It is axiomatic that the special service rendered must be to the payer of the fee. The element of quid pro quo must be established between the payer of the fee and the authority charging it, though it may not be the exact equivalent of the fee by a mathematical precision. It is also recognised that the authority collecting fee must show that the service which they are rendering in lieu of fee is for some special benefit of the payer of the fee. Generally and broadly speaking it must be shown with some amount of certainty, reasonableness or preponderance of probability, that quite a substantial portion of the amount of fee realised is spent for the special benefit of its payers. (Keval Krishan v. State of Punjab In the ultimate analysis the Court must be satisfied before any impost in the nature of fee can be upheld that the levy has reasonable co-relationship with the services rendered. The co-relationship may be of a general character and not as of arithmetical exactitude (see India Mica & Micanite Industries Ltd. v. State of Bihar (1971) Supp. S.C.R. 319).
90. The principles laid down in Keval Krishan's case were again referred to with approval in Shri Admar Mutt v. Commissioner H. R. & C. E. Dept, where the Court was concerned with the validity of a fee varying from 3% to 5% of the annual income of the institution levied under the rules framed under the Madras Hindu Religious and Charitable Endowments Act, 1961. The majority view of the Court upheld the levy and held as under:
15. The rules framed under the Madras Act of 1951 prescribe a fee varying from 3 to 5 per cent of the annual income of the institutions. The figures furnished by the Commissioner in the third statement dated August 10, 1967 which was filed in pursuance of the directive issued by the High Court show that the total demand made on all the religious institutions for fees during the years 1957 to 1964 amounted to Rs. 8,80,389/- while the allocable expense for the services was Rs. 7,54,160/-. It is not without significance that though the total demand made on the Mutts during the said period was in the sum of Rs. 3,64,591/-, the contribution received from the mutts was Rs. 24,526/- only. In the absence of any acceptable evidence showing the department had built up large accumulations or reserves out of the fees collected from the various institutions and considering that services are required to be rendered to a large class of institutions, we do not think that we can positively come to the conclusion that there is no approximation or correspondence between the fees levied on the appellants and the services rendered to the class to which they belong. The second contention therefore, fails.
91. In Municipal Corporation of Delhi and Ors. v. Siraj Uddin where the Municipal Corporation had increased the fees for slaughtering animals from 0-50 paise to Rs. 2/- per animal in case of small animals and from Re. 1/- to Rs. 8/- in case of large animals was challenged on the ground that it assumed the form of a tax. In that context, the Supreme Court, speaking through Chinnappa Reddy J., reviewed the case law on the subject and summed up the position as under in paragraph 9:
9. What do we learn from these precedents? We learn that there is no generic difference between a tax and a fee, though broadly a tax is a compulsory exaction as part of a common burden, without promise of any special advantages to classes of taxpayers whereas a fee is a payment of services rendered, benefit provided or privilege conferred. Compulsion is not the hall-mark of the distinction between a tax and a fee. I hat the money collected does not go into a separate fund but goes into the consolidated fund doss not also necessarily make a levy a tax. Though a fee must have relation to the services rendered, or the advantages conferred, such relation need not be direct, a mere casual relation may be enough. Further, neither the incidence of the fee nor the service rendered need be uniform. That others befitted does not detract from the character of the fee. In fact the special benefit or advantage to the payers of the fees may even be secondary as compared with the primary motive of regulation in the public interest. Nor is the court to assume the role of a cost accountant. It is neither necessary nor expedient to weigh too meticulously the cost of the services rendered etc. against the amount of fees collected so as to evenly balance the two. A broad correlationship is all that is necessary. Quid pro quo in the strict sense is not the one and only true index of a fee; nor is it necessarily absent in a tax.
(emphasis supplied) In view of this settled position, we have to examine whether the challenge to the levy of contribution under new Section 69 is justified.
92. We are grieved to note that no attempt has been made on behalf of the State Government to indicate even generally as to what services are rendered; what aggregate amount is collected by way of this contribution and what disbursement the State makes from the funds so constituted. No whisper is made in the reply affidavit to indicate broad co-relationship between the impost and the cost of services. It is no doubt true that neither the incidence of fee nor the services rendered may be uniform. In the present case, no material is placed on the record of the case by the State Government to show as to why the State Government was required to change the basis of this contribution which originally was the net profit of a society linked up with the percentage of dividend. The basis adopted in the new Section 69 is the gross income and the percentage to be determined with reference to the financial conditions of the classes of societies. This is, as rightly submitted on behalf of the petitioners that the power to prescribe is not only unreasonable and arbitrary but it would be well neigh impossible since there would be no recognised and/or reasonable method to evaluate the financial conditions of a class of societies. Apart from this, the power becomes almost unfettered and uncanalised. We mast, therefore, hold that the new provision contained in Section 69 is ultra vires Article 14 of the Constitution. In any case, since it is not a levy of fee, it assumes the character of a tax and, therefore, violative of Article 265 of the Constitution. The new provision of Section 69 must, therefore, be struck down.
Re : Contention No. 7:
93. This contention is merely a second facet of the challenge to Sections 17A, 22(2), 74-D, 80(2), 80-A and 160, which are wholly substituted by the impugned Act of 1982 as violative of Article 14 of the Constitution.
Re : Section 17-A:
94. The Learned Counsel appearing on behalf of the petitioners in Special Civil Applications Nos. 511 of 1982 and 1040 of 1981 has urged that Section 17A is ultra vires Article 14 of the Constitution inasmuch as there are no procedural safeguards, nor there is any duty to act fairly nor there is any obligation of publishing the proposed order. He also pointed out that no notice is envisaged to individual members, nor any hearing opportunity is provided. Thus it would deprive the members as well as the creditors of the effective representation. The power of making modification is also unacanlised and arbitrary. No appeal is provided against such order of amalgamation. It is, therefore, urged that it is clearly violative of Article 14. We are unable to agree with the Learned Counsel for the petitioners that the power of amalgamation is uncanalised and arbitrary. The guideline is clearly provided in the section. There is an ample hedging of the power inasmuch as the Registrar is obliged to consult the federal society concerned and as notified by the State Government in this behalf before he can exercise the power. No order can be made under the section unless a draft of the proposed order is sent to the society or to each of the societies concerned and the Registrar has to consider the suggestions and objections received either from the society or from any member or class of members thereof or from any creditor or class of creditors filed within a period as may be fixed by the Registrar which should not be less than one month from the date of the receipt of the order by the Society. The Registrar is empowered to modify the proposed order in light of the suggestions and objections. It, therefore, cannot be said that there is no hearing opportunity. It is no doubt true that the proposed draft order is not sent to the members or the creditors individually which in the very nature of things an impossible task. The society, on receipt of such order, is expected to apprise its members and creditors of the proposed amalgamation because the society concerned would be interested either way and, therefore, would like to strengthen its case by the support of the members or the creditors. Though no appeal is provided against the order of the Registrar, there is a power of the State Government to satisfy about the legality or propriety of the decision or order passed by the Registrar. In that state of law, it cannot be said that the power is arbitrary and uncanalised and there is no procedural safeguards and, therefore, it is violative of Article 14 of the Constitution. We are, however, of the opinion that in order that there may be effective opportunity of hearing to all the members and creditors of a concerned society, the Registrar should publish the proposed order in the newspapers having widest circulation in the area where the society concerned may be operating inviting the objections to the proposed amalgamation. The Registrar can direct the society to notify such proposed order on its board or conspicuous place where the society carries on business. The Registrar is, while exercising the powers under Section 17-A, not only required to consider the suggestions and objections but also to modify the order as he may see necessary in light of such suggestions and objections and is, therefore, bound to act in a just and fair manner. The challenge to Section 17-A on this ground is, therefore, rejected.
Re : Section 22(2):
95. Since we have held that the provision contained in new Section 22(2) of the principal Act is violative of Article 19(1)(c), it is not necessary to elaborately discuss as to whether it violates Article 14 of the Constitution. The only ground on which the challenge under Article 14 is raised against this provision is that there is no provision to determine the eligibility of members and, therefore, the provision is arbitrary. We do not think that this grievance is justified since Section 22(2)(a) which provides for deemed membership can be evoked only by those persons who are duly qualified for membership of a society to which they are seeking admission. The contention should, therefore be rejected.
Re : Section 74-D:
96. Section 74-D, as noted above, provides for appointment of custodian in certain circumstances. We have rejected the contention that Section 74-D is violative of Articles 19(1) (c) and (g). The challenge to this section on the ground of it being violative of Article 14 is limited inasmuch as it does not provide for any hearing before the custodian is appointed. It is challenged as arbitrary. We must read the obligation of hearing a society before an order is made under Section 74-D in the amended provision. The Registrar shall, before appointing a person or a committee of persons, to be custodian of a society, shall give an opportunity of hearing to the society before any order is made. The challenge on the ground of Article 14 must, therefore, be rejected.
Re: Section 80 (2):
97. We have rejected the challenge to this new provision as being violative of Articles 19(1)(c) and (g). The challenge on the ground of Article 14 is again limited that it suffers from the same infirmity as pleaded in respect of Section 74-D. In other words, Section 80(2) does not provide for hearing opportunity. Section 80(2), it should be recalled, empowers the Government to nominate its representatives not exceeding three on the committee of a society to the share capital of which the State Government has directly or indirectly subscribed or has guaranteed the repayment of the principal and interest on debentures issued or loans raised by such society. We do not think that any hearing opportunity should be provided in case where the power is exercised for nominating the representatives on the committee of a society to the share capital of which the State Government has directly or indirectly subscribed or where the payment of the principal and interest amount on debentures issued by the society is guaranteed, because in the very agreement of the guarantee such a provision has necessarily to be made, or in the Bye-laws where the Government has subscribed to the share capital. It is only in those cases where the power is sought to be exercised under new Sub-section (2) of Section 80 which is inserted in the principal Act by Section 16 of the impugned amending Act, 1982 that a grievance can be validly made that before such a power is exercised in public interest to nominate its representatives on the committee as if the State Government has subscribed to the share capital of the society. The power is really very wide and extensive power that we must read in Sub-section (2) the obligation on the State Government to hear the society in respect of which the State Government proposes to exercise the said power since otherwise one of the conditions for exercise of the power, namely, exigency in public interest, is too relative depending upon the subjective satisfaction of the officer concerned. We are, therefore, of the opinion that before the power can be exercised under Sub-section (2) of Section 80, the State Government must hear the society concerned in respect of which the power of nomination is proposed to be exercised.
Re : Section 80-A:
98. We have rejected the challenge to Section 80-A on the ground of it being violative of Article 19(1)(c) or 19(1)(g). It should be recalled that Section 80-A provides for extension of the term of any committee of management where the term of the office of the members on such committee nominated by the State Government or the Registrar expires. The short ground on which it has been challenged from the infringement of equality clause contained in Article 14 is that there is no guideline when the State Government or the Registrar is to exercise the option of appointing a person or a committee of persons to be custodian instead of extending the term of the office of the members of the committee nominated by it. It is no doubt true that the discretion is left to the Registrar or the State Government, as the case may be, but in the very nature of the power it depends on the exigency of situation as to when that option is to be exercised. We, therefore, do not think that this provision can be challenged as arbitrary or unreasonable.
Re: Section 160:
99. We do not think it necessary to examine this challenge to Section 160 as violative of Article 14 in view of the matter which we have taken on the challenge to the said section as violative of Article 19(1)(g). It should be recalled that we have held that Sub-sections (3) and (4) of Section 160 are violative of Article 19(1) (g). It is, therefore, not necessary to again examine the provision from the angle on the basis of Article 14 of the Constitution.
Re : Contention No. 8:
100. It has been urged that the impugned Act of 1982 is still-born to the extent of new Section 17-A providing for compulsory amalgamation of two societies since it has been inserted without the assent of the President as required under Article 31 of the Constitution of India. Article 31 A, in so far as material for our purposes reads as under:
31A. (1) Notwithstanding anything contained in Article 13, no law providing for:
(a) xx xx
(b) xx xx
(c) the amalgamation of two or more corporations either in the public interest or in order to secure the proper management of any of the corporations, or
(d) xx xx
(e) xx xx shall be deemed to be void on the ground that it is inconsistent with. or takes away or abridges any of the rights conferred by Article 14 or Article 19. Provided that where such law is a law made by the Legislature of a State, the provisions of this Article shall not apply thereto unless such law, having been reserved for the consideration of the President, has received his assent...
101. The State Government has not shown that the impugned Act of 1982, insofar as it sought to insert Section 17-A was reserved for the consideration of the President and has received the assent. The only result, however is that State has to justify the provision from the angle of Articles 14, 19 and 31 of the Constitution. There would be no other consequence if such a legislation is not reserved for consideration and received the assent of the President. We have, therefore, examined this provision for purposes of its validity from the different angles of Articles 14 and 19. The contention, therefore, fails and is rejected.
Re : Contention No. 9:
102. It is not necessary to go into this larger contention in the view of the matter which we have taken in respect of the different provisions of the impugned amending Acts of 1981 and 1982.
103. Before we part with the matter, we must also state that the Learned Counsel Mr. Shanti Bhushan, has challenged Sections 51, 74A, 74B, 74C, 74D, 76A 76B, 80(2) and 80A as violative of Article 21 of the Constitution It should be noted that in none of these petitions the plea that these sections are violative of Article 21 has been taken with the result that the State Government has not got the opportunity to file reply affidavit justifying the provisions as not offending the said Article. It should also be noted that though the petitioners have sought the amendments from time to time in these petitions, no amendment is made so as to raise this plea of violation of Article 21. Merely because the amendments could have been prayed for or new petitions can be filed it would justify, the Court in examining such a challenge. We, therefore, do not think that we should go into this larger challenge under Article 21 of the Constitution of India.
104. The result therefore is that we must declare Sections 22(2), 24(1) and (2), 76-A as violative of Article 19(1) (c), proviso to Section 74 and Sections 74-A, 51(2), 83 and 160(3) and (4) as violative of Article 19(1)(g) and Section 69 as violative of Article 265 of the Constitution of India. They must, therefore, be to that extent quashed and set aside. Rule is made absolute accordingly to that extent in each of these petitions with no order as to costs.
105. The learned Advocate General on behalf of the State Government makes an oral application for the grant of certificate for leave to appeal to the Supreme Court under Article 132(1) read with Article 133(1) of the Constitution. Having regard to the issue involved in these matters, we are of the opinion that the case involves not only substantial questions of law of general importance but also of the interpretation of the Constitution as contended on behalf of the petitioners in this group of petitions which questions, in our opinion, are of great importance and require to be decided by the Supreme Court. We grant the certificate as prayed for in all these matters.
Ad interim relief of the stay of the operation of this judgment and order subject to the condition that the State Government will not pass any further order under the sections which have been held to be invalid.
106. The Learned Counsel for the petitioners urged that the petitioners are aggrieved with some part of the judgment by which some of the provisions have been held to be valid, but they would file application for leave to appeal to the Supreme Court after studying the judgment for which they require some time. They also pray that this Court should reserve liberty to them for seeking appropriate interim relief in the matter after they file the application. Liberty is reserved as prayed for.