Gujarat High Court
Kamleshbhai Gunvantbhai Desai vs Director, Sugar on 9 September, 2022
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
C/SCA/5906/2020 CAV JUDGMENT DATED: 09/09/2022
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 5906 of 2020
With
R/SPECIAL CIVIL APPLICATION NO. 14628 of 2020
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
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1 Whether Reporters of Local Papers may be allowed
to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy
of the judgment ?
4 Whether this case involves a substantial question
of law as to the interpretation of the Constitution
of India or any order made thereunder ?
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KAMLESHBHAI GUNVANTBHAI DESAI
Versus
DIRECTOR, SUGAR
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Appearance:
MR B.S.PATEL, LD.SR.ADV WITH MR CHIRAG B PATEL(3679) for the
Petitioner(s) No. 1,2,3,4,5
MS MANISHA SHAH, LD.GP WITH MS.AISHWARYA GUPTA, LD.AGP for
the Respondent(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
Date : 09/09/2022
CAV JUDGMENT
1. Heard learned Senior Advocate Mr.B.S.Patel with learned advocate Mr.Chirag B. Patel for the Page 1 of 52 Downloaded on : Mon Sep 12 20:55:14 IST 2022 C/SCA/5906/2020 CAV JUDGMENT DATED: 09/09/2022 petitioners in Special Civil Application No.5906 of 2020, learned advocate Mr.Dipan Desai for the petitioners in Special Civil Application No.14628 of 2020 and learned Government Pleader Ms.Manisha Shah with learned Assistant Government Pleader Ms.Aishwarya Gupta for the respondent in both the matters.
2. In both these petitions, the petitioners have challenged the order dated 19th February, 2020 passed by the Director, Sugar, Gujarat State in exercise of powers under Section 160(1) of the Gujarat Co-operative Societies Act, 1961 (for short 'the Act, 1961') whereby it is ordered that the an individual member having supplied specified quantity of Sugarcane for minimum two years out of five years shall be considered as eligible voter in the election of the sugar CO- operative Society.
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3. As the issues arising in both the petitions are common, the same were heard analogously and are being disposed of by this common judgment and order. For sake of convenience, the Special Civil Application No.5906 of 2020 is treated as a lead matter.
4. Brief facts are as under:
4.1. The petitioners grow Sugarcane and supply the same to the Co-operative Sugar Mill in their area being members of the said Co-operative Sugar Mill.
4.2. By the Gujarat Act No.23 of 1982, the State Government introduced provision of Section 74C and made a special class for the society and as per Section 74C(i)(v), all Co-operative Sugar factories had been considered as specified Society.
4.3. Vires of Section 74C(1) were challenged and decided by the Division Bench of this Court Page 3 of 52 Downloaded on : Mon Sep 12 20:55:14 IST 2022 C/SCA/5906/2020 CAV JUDGMENT DATED: 09/09/2022 in case of Amreli District Sales & Purchase Union Limited Versus State of Gujarat1 and in paragraph Nos.66 and 67 of the said judgment the vires of section 74C was upheld, however, by Notification dated 3rd August, 2019, by Gujarat Act No.13 of 2019, Section 74C(i)(v) was deleted and accordingly, Co-operative Sugar factories are deleted from the list of the specified societies and chapter-XI read with Gujarat Specified Co-
operative Societies Election to Committee Rules, 1982 would not apply to the Co-operative Sugar factories. The vires of the Gujarat Act No.13 of 2019 was challenged by Sugarcane producers before this Court in Special Civil Application No.4449 of 2020 and allied matters. The Division Bench of this Court vide judgment and order dated 27.08.2021 allowed the Writ Petitions and declared the Gujarat Act No.13 of 2019 i.e., Gujarat Co-operative Societies (Amendment) Act, 2019 as ultra vires Article 14 of the 1 1984 (2) GLR 1244 Page 4 of 52 Downloaded on : Mon Sep 12 20:55:14 IST 2022 C/SCA/5906/2020 CAV JUDGMENT DATED: 09/09/2022 Constitution of India.
4.4. The Constitution of India has been amended by Constitution (97th amendment) Act, 2011 and the same came into effect immediately except Part IX-B and Co-operative Societies have been included in provision of Article 19(1)(c) and Article 43B of the Constitution of India which reads as under:
"19(1)(c)-to form associations or unions l[or co-operative societies;"
"43B. Promotion of co-operative societies. - The State shall endeavour to promote voluntary formation, autonomous functioning, democratic control and professional management of cooperative societies."
4.5. The Article 43B of the Constitution of India is the directive which the State shall endeavour to promote autonomous functioning and democratic control of the Co-operative Societies. Section 160A of the Act, 1961 was introduced by the Gujarat Act No.12 of 2015 on 7 th April, 2015 Page 5 of 52 Downloaded on : Mon Sep 12 20:55:14 IST 2022 C/SCA/5906/2020 CAV JUDGMENT DATED: 09/09/2022 whereby the powers of the State Government are restricted only to give directions in case of financial stake of the Government and Co- operative Societies.
4.6. Thus, Co-operative Societies are bound to function with the self-Governance and free to act independently. Section 160(1) of the Act, 1961 reads as under:
"160(1)-If the Registrar of his own motion or otherwise is satisfied that in public interest or for the purposes of securing the proper implementation of co-operative production and other development programmes approved or undertaken by the State Government or for linking and co-ordinating of co- operative activities such as marketing and credit, or securing the proper management of the business of the society generally or preventing the affairs of the society being conducted in a manner detrimental to the interests of the members, or of the depositors or the creditors thereof, it is necessary to issue directions to any class of societies generally or to any society or societies in particular, he may issue directions to them, from time to time, and all societies or the society Page 6 of 52 Downloaded on : Mon Sep 12 20:55:14 IST 2022 C/SCA/5906/2020 CAV JUDGMENT DATED: 09/09/2022 concerned, as the case may be, shall be bound to comply with such directions."
4.7. On plain reading of the provisions of Section 160(1) of the Act, 1961, it is clear that the direction which can be issued as per provisions of Section 160(1) empowers the Registrar that in public interest or for the purpose of securing the proper implementation of Co-operative production and other development programmes approved or undertaken by the State Government or for linking and co-ordinating of co-operative activities such as marketing and credit or securing the proper management of the business of the society generally or preventing affairs of the Society being conducted in a manner detrimental to the interests of the members, or of the depositors or the creditors thereof, it is necessary to issue directions to any class of society,then such directions may be issued from time to time which will be binding to all societies.
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5. In view of the above provisions, it was submitted by learned Senior Advocate Mr.B.S.Patel that the impugned order dated 19th February, 2020 passed by the respondent is without jurisdiction inasmuch as such order restricting the eligibility of the members of the sugar Co- operative Society to vote in the election could not have been issued under Section 160(1) of the Act, 1961.
5.1. It was submitted that no opportunity of hearing is provided by the respondent before passing the impugned order to the petitioners who are directly affected by the same resulting into breach of principles of natural justice. 5.2. It was submitted that Gujarat Act No.13 of 2019 whereby, Section 74C was sought to be amended has been declared ultra vires by the Division Bench of this Court in case of Page 8 of 52 Downloaded on : Mon Sep 12 20:55:14 IST 2022 C/SCA/5906/2020 CAV JUDGMENT DATED: 09/09/2022 Pravinsinh Indrasinh Mahida and Others versus State of Gujarat in Special Civil Application No.5301 of 2020 with Special Civil Application No.4449 of 2020 and other allied matters and therefore, impugned order is also not sustainable as now Sugar factories would be treated as a specified society as per provisions of Section 74C(i)(v) of the Act, 1961.
5.3. Learned Senior Advocate Mr.Patel submitted that the powers under Section 160(1) could not have been delegated to the respondent- Director, Sugar as such powers have to be exercised by the State Government and on that count also the impugned order is without jurisdiction.
5.4. Learned Senior Advocate Mr.Patel submitted that the impugned order cannot be said to be in public interest inasmuch as curtailing the voting right of the members in the election Page 9 of 52 Downloaded on : Mon Sep 12 20:55:14 IST 2022 C/SCA/5906/2020 CAV JUDGMENT DATED: 09/09/2022 of a Co-operative Society. It was submitted that as held by the Division Bench of this Court in case of Amreli District Sales & Purchase Union Limited (Supra) in paragraph No.86, the State can exercise the powers in public interest but as far as Sugar Co-operative Societies are concerned, it has no public functioning and in any event, the Registrar or the Director cannot be given such powers for issuing the directions which has got civil consequences without giving any opportunity of being heard to anyone.
5.5. It was submitted that Sections 27 and 28 of the Act, 1961 provide for right to vote and voting powers of the members to cast vote for election of the Managing Committee of a Co- operative Society. Reference was made to the by- laws of the Society which provides that the Society can admit all Sugarcane producers as members under terms and conditions prescribed therein and there is another category of non- Page 10 of 52 Downloaded on : Mon Sep 12 20:55:14 IST 2022 C/SCA/5906/2020 CAV JUDGMENT DATED: 09/09/2022 producers members. It was therefore submitted that in view of the impugned order, producers members have lost their right to vote whereas the non-producers members continued their voting right but the right of the producers members have been curtailed on the ground of supply of specified quantity of Sugarcane for minimum two years out of five years which is an unreasonable restriction on the voting right of the members of the Sugar Mill contrary to the provisions of Sections 27 and 28 of the Act, 1961. 5.6. It was submitted that by impugned order which is stated to have been passed in public interest, is contrary to and in violation of Article 19(1)(c) of the Constitution of India, more particularly when in the Sugar Co-operative Societies, there is no Government stake involved and therefore the impugned order is also in breach of Article 43B of the Constitution of India read with section 160A of the Act,1961. Page 11 of 52 Downloaded on : Mon Sep 12 20:55:14 IST 2022 C/SCA/5906/2020 CAV JUDGMENT DATED: 09/09/2022 5.7. It was submitted that for curtailing the right of members and of the by-laws, there is a specific provision of Section 14 of the Act, 1961 whereby, the respondents can issue the directions to amend the by-laws of the Co-operative Societies but powers exercised under Section 160(1) of the Act, 1961 curtailing the voting right of the petitioners-members is arbitrary and in violation of Article 14 of the Constitution of India.
5.8. Learned Senior Advocate Mr.Patel submitted that the impugned order passed under the guise of public interest is in effect without any public interest as impugned order has usurped the powers of the members to vote in the election of the Sugar Co-operative Society. 5.9. It was submitted that the respondent could not have issued the directions under the impugned Page 12 of 52 Downloaded on : Mon Sep 12 20:55:14 IST 2022 C/SCA/5906/2020 CAV JUDGMENT DATED: 09/09/2022 order as the eligibility to vote can only be provided either in the Act, Rules and By-laws and for that purpose Section 160(1) of the Act, 1961 cannot be invoked.
5.10. It was submitted that the Sugar factories have framed election rules and have fixed eligibility criteria to vote by the members, therefore, the Director of Sugar is not entitled to change the eligibility criteria fixed by the election rules and by-laws of the society. 5.11. It was further submitted that the right to vote having already accrued to the petitioners-members, the same could not have been taken away by retrospectively applying the impugned order.
5.12. In support of his arguments, learned Senior Advocate Mr.Patel placed reliance on the following decisions :
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C/SCA/5906/2020 CAV JUDGMENT DATED: 09/09/2022 (1) In case of Krishna Gopal Joshi Versus Annyonya Shahkari Mandli, Baroda2 while considering the provisions of Section 96(1)of the Act, 1961 whereby the jurisdiction is conferred upon the Registrar to entertain dispute touching the constitution of a society, it was held that the Registrar has a wide power to entertain dispute relating to the rejection of a nomination even before the elections are held and so far as election disputes are concerned, as it touches the constitution of a society, it is entertainable at any stage whether before the election is held or after the election is held and rejection of a nomination of a candidates affects the very election which constitutes the very substratum of a society. It was therefore submitted by learned Senior Advocate Mr.Patel that the election of a society touches the constitution of society and therefore, the 2 1975 GLR 1058 Page 14 of 52 Downloaded on : Mon Sep 12 20:55:14 IST 2022 C/SCA/5906/2020 CAV JUDGMENT DATED: 09/09/2022 respondent could not have exercised the powers under Section 160(1) of the Act, 1961.
(2) In case of Zoroastrian Co-operative Housing Society Limited and another Versus District Registrar Co-operative Societies (Urban) and Others3 where the Apex Court held as under:
"22. The validity of a bye-law, that too an approved bye-law, has to be tested in the light of the provisions of the Act and the rules governing co-operative societies. In so testing, the search should be to see whether a particular bye-law violates the mandate of any of the provisions of the Act or runs counter to any of its provisions or to any of the rules. Section 24(1) of the Act only provides for open membership subject to a person, aspiring to be a member, possessing the qualification prescribed by the bye-laws. It is not an open membership dehors the qualification prescribed by the bye-laws. When in Daman Singh this Court held that when a co-operative society is governed by the appropriate legislation it will be subject to the intervention made by the concerned legislation, it only meant that a legislative provision in the Act can be introduced for the purpose of eliminating a qualification for 3 (2005) 5 Supreme Court Cases 632 Page 15 of 52 Downloaded on : Mon Sep 12 20:55:14 IST 2022 C/SCA/5906/2020 CAV JUDGMENT DATED: 09/09/2022 membership based on sex, religion or a persuasion or mode of life. But so long as there is no legislative intervention of that nature, it is not open to the court to coin a theory that a particular bye-law is not desirable and would be opposed to public policy as indicated by the Constitution. The Constitution no doubt provides that in any State action there shall be no discrimination based either on religion or on sex. But Part III of the Constitution has not interfered with the right of a citizen to enter into a contract for his own benefit and at the same time incurring a certain liability arising out of the contract. As observed by the High Court of Bombay in Karvanagar Sahakari Griha Rachana Sanstha Maryadit and others vs. State (AIR 1989 Bombay 392) the members have joined the society in accordance with the bye-laws and the members join a housing society by ascertaining what would be the environment in which they will reside. It is not permissible for the State Government to compel the society to amend its bye-laws as it would defeat the object of formation of the society. In that case, the society was constituted with the object of providing peaceful accommodation to its members. Though there may be circumstances justifying the State taking steps to meet shortage of accommodation, it was not open to the State Government to issue a direction to the Registrar of Co-operative Societies to direct a co- operative society to make requisite amendments to their bye- laws and grant permission to its members to raise multistoried constructions. In Page 16 of 52 Downloaded on : Mon Sep 12 20:55:14 IST 2022 C/SCA/5906/2020 CAV JUDGMENT DATED: 09/09/2022 appeal from that decision reported as State of Maharashtra and others vs. Karvanagar Sahakari Griya Rachana Sanstha Maryadit and others (2000 (9) SCC 295) this Court while dismissing the appeal stated that it was clear that though a power was conferred on the Registrar to direct amendment of the bye-laws of a society, yet the paramount consideration is the interest of the society. So also, the power of the State Government to issue directions in public interest, could not be exercised so as to be prejudicial to the interest of the society. In the view of this Court, what was in the interest of the society was primarily for the society alone to decide and it was not for an outside agency to say. Where, however, the government or the Registrar exercised statutory powers to issue directions to amend the bye-laws, such directions should satisfy the requirement of the interest of the society. This makes it clear that the interest of the society is paramount and that interest would prevail so long as there is nothing in the Act or the Rules prohibiting the promotion of such interest. Going by Chheoki Employees' Cooperative Society Ltd.,'s case, neither the member, respondent No.2, nor the aspirant to membership, respondent No.3 had the competence to challenge the validity of the bye-laws of the Society or to claim a right to membership in the Society."
(3) In case of Vipulbhai M. Chaudhary Versus Gujarat Co-operative Milk Marketing Federation Page 17 of 52 Downloaded on : Mon Sep 12 20:55:14 IST 2022 C/SCA/5906/2020 CAV JUDGMENT DATED: 09/09/2022 Limited and Others4 where the Apex Court held has under :
"14. The cooperative societies having been conferred a constitutional status by the Ninety Seventh Amendment, the whole concept of cooperatives has undergone a major change. In 1993, the local self-governments, viz., panchayats and municipalities were also given constitutional status under Parts IX and IXA of the Constitution of India by the 73rd and 74th Amendments. The Statement of Objects and Reasons would show that the Constitution wanted the local bodies to function as vibrant democratic units of self-government. After two decades, cooperative societies were given the constitutional status by including them under Part IXB. The main object for the said amendment was also to ensure "their autonomy, democratic functioning and professional management.
15. The National Policy on Cooperatives announced in March 2002 has recognized democracy, equality, equity and solidarity as values of cooperatives. Cooperative society has been declared as a democratic institution. Democratic principles have all through been recognized as one of the cooperative principles though the constitutional affirmation of those principles came only in 2012.
4 (2015) 8 SCC 1 Page 18 of 52 Downloaded on : Mon Sep 12 20:55:14 IST 2022 C/SCA/5906/2020 CAV JUDGMENT DATED: 09/09/2022
16. The principle of representative democracy is the election of representatives by the people otherwise eligible to caste their vote and the people thus elected, constituting the body for the management of an institution. Thus, in the case of cooperative societies, after the amendment in the Constitution, there has to be a Board of elected representatives, which may be called Board of Directors or Governing Body or a Managing Committee, etc., to which the members entrust the direction and control of the management of the affairs of the society. That representative body selects one among the elected representatives as its Chairman or any other office bearer, as the case may be. Selection is the act of carefully choosing someone as the most suitable to be the leader or office bearer. Thus, there is a lot of difference between election of delegates/representatives to constitute a body and selection of a person by the body from amongst the elected members to be the leader. It is to be borne in mind that the management and control of the society is entrusted to the representative body, viz., the Board of Directors and that the Chairperson elected by the Board of Directors is the Chairperson of the society and not of the Board of directors."
(4) In case of Citizens Co-operative Bank Limited Versus State of Government in Special Civil Page 19 of 52 Downloaded on : Mon Sep 12 20:55:14 IST 2022 C/SCA/5906/2020 CAV JUDGMENT DATED: 09/09/2022 Application No.8720 of 2011 where it is held as under :
"8. One of the grounds of challenge against the order / direction dated 26.11.2010 in the appeal filed before the appellate authority is that the said order / direction was passed and issued by the Registrar, Cooperative Societies, without issuing notice and without granting any opportunity of hearing to the petitioner society. It is further claimed and contended that the system and practice which is directed to be discontinued by virtue of the impugned order and direction dated 26.11.2010 constituted substantive rights of the petitioners and that therefore, any order affecting said right and discontinuing said practice could not and ought not have been passed without issuing notice and granting opportunity of hearing. During hearing of present petitions, the petitioners have contended that though the said objection was raised before the appellate authority, the appellate authority failed to consider and appreciate the said contention and rejected the appeals.
12. In this context, it would be appropriate to take into account the decision in case of Arun Co-operative Housing Society Ltd. v. State of Gujarat & Ors. [2002 (4) GLR 2882] wherein the requirement of opportunity of hearing is upheld. The Court has observed, inter alia, that:-Page 20 of 52 Downloaded on : Mon Sep 12 20:55:14 IST 2022
C/SCA/5906/2020 CAV JUDGMENT DATED: 09/09/2022 "22..... The scheme of Section 14 itself provides that an opportunity of being heard is a must before passing the final order directing the registration to the amendment in the byelaws. ....."
23. The aforesaid clearly goes to show that while exercising the power under Section 14(2) of the Act if the society refuses to comply with the directions under Section 14(1) of the Act the Registrar has to give an opportunity of hearing to the society concerned and thereafter has to arrive at a finding that such an amendment in the byelaws is necessary or desirable in the interest of the society. What can be the interest of or desirability in the interest of a particular society is to be decided objectively on the facts and circumstances of the case of each society............."
The said observations would be applicable, so far as the aspect related to opportunity of hearing and principles of natural justice is concerned, in respect of the proceedings under Section 73 read with Rule 15.
13. Having regard to the said decision and also having regard to the fact that the impugned order / direction suffers from vice of principles of natural justice, the said order / direction dated 26.11.2010 is set aside on the Page 21 of 52 Downloaded on : Mon Sep 12 20:55:14 IST 2022 C/SCA/5906/2020 CAV JUDGMENT DATED: 09/09/2022 said limited ground."
(5) In case of Jivan Commercial Co-operative Bank Limited versus State of Gujarat in Special Civil Application No.18717 of 2019, this Court held as under :
"13. Where the provisions for management of the society is made under the bye-law and the bye-laws are approved and are in operation under the provisions of Gujarat Co-operative Societies Act and when such bye-law is to be either deleted from the bye-laws in any manner then such provisions are made in the Gujarat Co-operative Societies Act itself and remedy is available for objecting to such bye-laws by the aggrieved persons but when there is no grievance by the members of the society under Section 160, or that keeping in operation such bye-law and its implementing is not specifically held to be detrimental to interest of the society, it is not open for Registrar to take on himself to issue the directions to render an existing bye-law ineffective, to that extent also the Court is of the view that in the present case the Registrar appears to have exceeded his jurisdiction. It is more so, as the impugned directions are in effect deleting particular bye-law from the approved bye-laws of the society by the Registrar."Page 22 of 52 Downloaded on : Mon Sep 12 20:55:14 IST 2022
C/SCA/5906/2020 CAV JUDGMENT DATED: 09/09/2022 6 Learned advocate Mr. Dipen Desai adopted the submissions of learned senior advocate Mr. Patel and further invited the attention of the Court to the decision of the Division Bench in Special Civil Application Nos.5301 of 2020 and 4449 of 2020, whereby the Gujarat Act No.13 of 2019 is declared ultra vires Article 14 of the Constitution of India and the same is under challenge before the Apex Court, wherein it is held as under:
"128. Our final conclusion may be summarized as under:
[1] The impugned amendment is discriminatory as it fails to disclose the object which could be termed as reasonable or in public interest. The impugned amendment is also manifestly arbitrary.
[2] The differentiation pointed out by the State has no nexus with the object sought to be achieved. The classification in the present case between the federal and primary societies on the ground of administrative exigency and saving money could be termed as absurd, unreasonable and not in public Page 23 of 52 Downloaded on : Mon Sep 12 20:55:14 IST 2022 C/SCA/5906/2020 CAV JUDGMENT DATED: 09/09/2022 interest. In view of the same, the classification itself has become irrelevant.
[3] The Court may not look into the motive of the legislature, but, definitely, the object of the legislation can be looked into.
[4] All the specified societies form one class / one homogeneous group for the purpose of its members to ensure free and fair elections under Chapter XI-A of the Act and the Rules, 1982.
129. In view of the aforesaid, all the writ applications succeed and are hereby allowed. The Gujarat Cooperative Societies (Amendment) Act, 2019 is declared as ultra vires Article 14 of the Constitution of India."
Referring to above decision, it was submitted that now the sugar factories are specified co-operative societies and hence impugned order is liable to be quashed and set aside.
7. On the other hand, learned Government Pleader Ms.Manisha Lavkumar Shah submitted that Page 24 of 52 Downloaded on : Mon Sep 12 20:55:14 IST 2022 C/SCA/5906/2020 CAV JUDGMENT DATED: 09/09/2022 the order is issued by exercising powers under Section 160 (1) of the Act, 1961 and not under Section 160A of the Act, 1961, which empowers the Director (who acts as a Registrar) to issue directions.
7.1. It was submitted that the petitioners are individual members whose name are not included in voters' list due to impugned order. It was further submitted that they do not have locus as it should be the societies who shall be aggrieved by the impugned order as directions are issued to Sugar Co-operative societies. 7.2. It was submitted that by way of amendment, Sugar Co-operative societies were deleted from Section 74C of the Act, 1961. By way of judgment rendered in Special Civil Application No.5301 of 2020 dated 27.8.2021, the amendment is declared ultra vires. It was submitted that the impugned order is completely distinct as it is Page 25 of 52 Downloaded on : Mon Sep 12 20:55:14 IST 2022 C/SCA/5906/2020 CAV JUDGMENT DATED: 09/09/2022 not based on the amendment. It was therefore submitted that the amendment being held ultra vires would not in any manner effect the impugned order.
7.3. It was further submitted that it is also not the case of the petitioners in the petitions co-relating the amendment and impugned order. It was submitted that completely new argument is raised by petitioners by relying upon judgment declaring the amendment to section 74C as ultravires.
7.4. It was submitted that the by-laws of few Sugar Co-Operative societies provide for minimum supply of sugarcane which are already in consonance with the impugned order. It was further submitted that after issuance of impugned order, the societies have to comply with directions instead of amending by-laws, hence societies have conducted elections accordingly. Page 26 of 52 Downloaded on : Mon Sep 12 20:55:14 IST 2022 C/SCA/5906/2020 CAV JUDGMENT DATED: 09/09/2022 7.5. It was submitted that out of total 13 sugar Co-operative societies, 11 societies have already conducted elections in accordance with directions given in impugned order. It was further submitted that the elections of 2 societies are at abeyance by virtue of interim orders of this Court in respective petition. 7.6 It was submitted that the impugned order merely narrates the chronology of facts wherein the mention of amendment is made. It was further submitted that at relevant point of time, the amendment was in force and hence, it is mentioned in the preface of the order. It was further submitted that however, powers are exercised under Section 160 (1) of the Act, 1961 only. 7.7. It was submitted by learned Government Pleader Ms.Shah that the impugned order is merely directing the eligibility of voters list and the Page 27 of 52 Downloaded on : Mon Sep 12 20:55:14 IST 2022 C/SCA/5906/2020 CAV JUDGMENT DATED: 09/09/2022 order does not in any way affect the election provisions of Chapter-XI under Sections 145A to 145Z.
7.8. It was submitted that the impugned order declares those member Farmers eligible who had supplied minimum production of sugarcane for minimum 2 years and the purpose behind such order is to empower the Sugar Co-operative Society with sufficient raw material of sugarcane and for their effective development.
7.9. It was submitted that by virtue of impugned order, the members having minimum supply of production shall be eligible for nomination as Chairman/Vice Chairman in the society.
8. Having heard the learned advocates for the respective parties and on perusal of the relevant provisions of the Act, 1961 and considering the settled legal position, the short question which Page 28 of 52 Downloaded on : Mon Sep 12 20:55:14 IST 2022 C/SCA/5906/2020 CAV JUDGMENT DATED: 09/09/2022 arises for consideration is whether the respondent-Director, Sugar could have exercised the powers under Section 160(1) of the Act, 1961 to curtail the right to vote of the petitioners- members on the ground of supply of specified quantity of Sugarcane in two years out of five years.
9. Section 74C of the Act, 1961 provides for conduct of the Elections of Committees and Officers of certain societies and term of Office of members of the Committee as specified society. Section 74C of the Act, 1961 reads as under :
"74C. Provision for conduct of elections of committees and officers of certain societies and term of office of members of committee :
(1) The election of the members of the committees and of the officers by the committee, of the societies of the categories mentioned below shall be subject to the provisions of Chapter XI-
A and shall be conducted in the manner laid down by or under that Chapter:-
(i) Apex societies mentioned in the Page 29 of 52 Downloaded on : Mon Sep 12 20:55:14 IST 2022 C/SCA/5906/2020 CAV JUDGMENT DATED: 09/09/2022 Schedule and such other apex societies as the State Government may, by general or special order, published in the Official Gazette, from time to time specify in this behalf, having regard to financial position and share capital of such societies;
(ii) all District Central Co-
operative Banks;
(iii) all Primary Land Development Banks;
(iv) (a) all District Co-operative Sale and Purchase Organisations;
(b) all Taluka Co-operative Sale and Purchase Organisations;
(v) all Co-operative Sugar
Factories;
(vi) all Co-operative Spinning
Mills.
(a) all district co-operative milk unions;
(b) all taluka co-operative processing societies.
(vii) 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 in this behalf, regard being Page 30 of 52 Downloaded on : Mon Sep 12 20:55:14 IST 2022 C/SCA/5906/2020 CAV JUDGMENT DATED: 09/09/2022 had to the financial position and share capital of such institutions.
(2) When the election of all the members of the committee of any such societies held at the same time, the members elected on the committee at such general election shall hold office for a period of [3] [three years] from the date on which the first meeting is held and shall continue in office until immediately before the first meeting of the members of the new committee.
(3) Notwithstanding anything in the bye-
laws any such society, the committee of management shall be elected by a general body of members of the society and all other committees authorised by or under the bye-laws may be constituted by electing or appointing persons from among the persons who are members of the committee of management, and all such committees shall be sub-committees of the committee of management, and shall be subordinate to it :
Provided that it shall be lawful for the State Government,-
(a) to nominate its representatives on a Committee of any such society under section 80, or
(b) to nominate the first Committee of Management of any such society where the bye-laws of such society so provide."Page 31 of 52 Downloaded on : Mon Sep 12 20:55:14 IST 2022
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10. Vires of the above provision was challenged and decided by the Division Bench of this Court in case of Amreli District Sales & Purchase Union Limited (Supra) as under :
"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 Page 32 of 52 Downloaded on : Mon Sep 12 20:55:14 IST 2022 C/SCA/5906/2020 CAV JUDGMENT DATED: 09/09/2022 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 Page 33 of 52 Downloaded on : Mon Sep 12 20:55:14 IST 2022 C/SCA/5906/2020 CAV JUDGMENT DATED: 09/09/2022 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".
11. 97th Amendment of Constitution of India inserted word "Co-operative Societies" in Articles 19(1)(c) of the Constitution of India giving fundamental right to form a Co-operative Society to the citizens of India. However, directive principles of Article 43B of the Constitution of India was also inserted with regard to promotion of Co-operative Societies Page 34 of 52 Downloaded on : Mon Sep 12 20:55:14 IST 2022 C/SCA/5906/2020 CAV JUDGMENT DATED: 09/09/2022 giving directives to the State to promote voluntary promotion to the autonomous functioning, democratic control and professional management of Co-operative Societies. Therefore the State Government is required to ensure the promotion of Co-operative Societies in democratic set up.
12. The Division Bench of this Court in case of Amreli District Sales & Purchase Union Limited (Supra) has upheld the vires of Section 160(1) of the Act, 1961 by holding Sections 160(3) and 160(4) as ultra vires as under :
"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 Page 35 of 52 Downloaded on : Mon Sep 12 20:55:14 IST 2022 C/SCA/5906/2020 CAV JUDGMENT DATED: 09/09/2022 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 Page 36 of 52 Downloaded on : Mon Sep 12 20:55:14 IST 2022 C/SCA/5906/2020 CAV JUDGMENT DATED: 09/09/2022 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."
13. The Apex Court in case of Vipulbhai M. Chaudhary (Supra) elaborated seven co-operative principles in following paragraphs :
"4. The International Cooperative Alliance Statement on the Cooperative Identity was adopted in Manchester, United Kingdom on 23.09.1995. The 'cooperative' is defined as:
"A co-operative is an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly- owned and democratically-controlled enterprise.
5. The Statement also provides for 'values' on which cooperatives should model themselves, which reads as follows:
"Co-operatives are based on the
values of self-help, self-
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responsibility, democracy, equality, equity and solidarity. In the tradition of their founders, co- operative members believe in the ethical values of honesty, openness, social responsibility and caring for others."
6. The Statement further provides for 'seven cooperative principles' as guidelines by which the cooperatives put their values into practice. Following are the principles:
"1st Principle: Voluntary and Open Membership Co-operatives are voluntary organizations, open to all persons able to use their services and willing to accept the responsibilities of membership, without gender, social, racial, political or religious discrimination.
2nd Principle: Democratic Member Control Co-operatives are democratic organizations controlled by their members, who actively participate in setting their policies and making decisions. Men and women serving as elected representatives are accountable to the membership. In primary co-operatives members have equal voting rights (one member, one vote) and co-operatives at other levels are also organized in a democratic manner.
3rd Principle: Member Economic Participation Members contribute equitably to, and democratically control, the capital of their co-
Page 38 of 52 Downloaded on : Mon Sep 12 20:55:14 IST 2022 C/SCA/5906/2020 CAV JUDGMENT DATED: 09/09/2022 operative. At least part of that capital is usually the common property of the co-operative.
Members usually receive limited compensation, if any, on capital subscribed as a condition of membership. Members allocate surpluses for any or all of the following purposes: developing their co-operative, possibly by setting up reserves, part of which at least would be indivisible; benefiting members in proportion to their transactions with the co-operative; and supporting other activities approved by the membership.
4th Principle: Autonomy and
Independence Co-operatives are
autonomous, self-help organizations controlled by their members. If they enter to agreements with other organizations, including governments, or raise capital from external sources, they do so on terms that ensure democratic control by their members and maintain their co- operative autonomy.
5th Principle: Education, Training and Information Co-operatives provide education and training for their members, elected representatives, managers, and employees so they can contribute effectively to the development of their co-operatives. They inform the general public - particularly young people and opinion leaders - about the nature and benefits of co-
operation.
Page 39 of 52 Downloaded on : Mon Sep 12 20:55:14 IST 2022 C/SCA/5906/2020 CAV JUDGMENT DATED: 09/09/2022 6th Principle: Co-operation among Co- operatives Co-operatives serve their members most effectively and strengthen the co- operative movement by working together through local, national, regional and international structures.
7th Principle: Concern for Community Co-operatives work for the sustainable development of their communities through policies approved by their members."
(Emphasis supplied) The cooperative movement in India started at the beginning of the 20th century. Though the movements were also based on some of the values and principles stated above, it appears that the cooperatives in India did not have effective autonomy, democratic functioning and professional management. The National Policy on Cooperatives announced by the Department of Agriculture and Cooperation, Ministry of Agriculture, Government of India adopted in March, 2002, is wholly based on the definition, values and principles stated above. 97th Amendment to the Constitution of India, in fact, gave a constitutional frame to this policy. Apart from providing for the right to form cooperative societies to be a fundamental right under Article 19 of the Constitution of India and insertion of Article 43B under the Directive Principles of State Policy on promotion of cooperative societies, the amendment also introduced a new Part IXB on Cooperative Societies. Reference to the Statement of Objects and Reasons of the Page 40 of 52 Downloaded on : Mon Sep 12 20:55:14 IST 2022 C/SCA/5906/2020 CAV JUDGMENT DATED: 09/09/2022 amendment would give a clear picture as to the need to strengthen the democratic basis and provide for a constitutional status to the cooperative societies. Thus, one has to see the constitutional aspirations on the concept of cooperative societies after the 97th Amendment in the Constitution of India which came into effect on 12.01.2012....."
14. Thus, in view of above, the autonomous function of all Co-operative Societies, is a requirement under Article 43B of the Constitution of India. The Co-operative Society is therefore bound to function with self-governance and free to act independently. It can be said that the Co- operative Society is free, independent, self- determining, self-governing and sovereign for its functioning. Therefore, the directions which can be issued as per the provisions of Section 160(1) of the Act, 1961 empowers the State Government to issue directions in public interest for the purpose of securing and proper implementation of the CO-operative production and other development programmes approved or under taken by the State Page 41 of 52 Downloaded on : Mon Sep 12 20:55:14 IST 2022 C/SCA/5906/2020 CAV JUDGMENT DATED: 09/09/2022 Government or for linking and coordination of the co-operative activities such as marketing and credit or securing the proper management of the business of the Society or to prevent the affairs of the Society being conducted in a manner detrimental to the interest of members, depositors or creditors. Thus, the State Government could not have issued the directions curtailing rights of the members of the Sugar Co- operative Societies by prescribing eligibility criteria or voting in the election of the Society in violation of Sections 14, 27 and 28 of the Act, 1961.
15. Section 14 of the Act, 1961 provides for direction to be given by the Registrar to the Society to amend the by-laws whereas, Section 27 of the Act, 1961 refers to the right to vote of a member and Section 28 of the Act, 1961 provides for voting powers of members. When the provisions are made under the statute, the respondents could Page 42 of 52 Downloaded on : Mon Sep 12 20:55:14 IST 2022 C/SCA/5906/2020 CAV JUDGMENT DATED: 09/09/2022 not have exercised the powers under Section 160(1) of the Act, 1961 for the purpose of prescribing eligibility criteria for voting by the members of the Sugar Co-operative Societies.
16. In view of the decision of the Division Bench in Special Civil Application No.4449 of 2020, as the Gujarat Act No.13 of 2019 is held to be ultra vires, the Sugar factories are continued as a specified society under Section 74C of the Act, 1961 and therefore, on that count also, the impugned order passed under Section 160(1) of the Act, 1961 is without any basis. However, this finding is subject to outcome of the pending proceedings before the Hon'ble Supreme Court.
17. Section 74 of the Act, 1961 provides for committee, its powers and functions, which reads as under:
"74. Committee, its powers and functions:Page 43 of 52 Downloaded on : Mon Sep 12 20:55:14 IST 2022
C/SCA/5906/2020 CAV JUDGMENT DATED: 09/09/2022 (1) The management of every society shall vest in a commttee, constituted in accordance with this Act, the rules and bye-laws, which shall exercise such powers and perform such duties as may be conferred or imposed on it respectively by this Act, the rules and the bye-
laws :
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 byelaw of such society containing such provision shall with effect on and form the Employees provident fund. XIX of 1952. Final authority of society. Freedom for affiliation or disaffiliation with a federal society of choice. Committee, its powers and functions. Guj. 6 of 1981. [1962: Guj. X Gujarat Co-operative Societies Act, 1961 commencement of section 2 of the Gujarat Co-operative Societies (Amendment) Act, 1981 cease to be in force.] (2) There shall be two professionals on the committee of the Central Cooperative Bank and the State Co-operative Bank having qualification prescribed by the Reserve Bank of India or, as the case may be, the National Bank. If such members are not elected on committee of the Central Co-operative Bank and the State Co-operative Bank, the Registrar shall direct the concerned bank to co-Page 44 of 52 Downloaded on : Mon Sep 12 20:55:14 IST 2022
C/SCA/5906/2020 CAV JUDGMENT DATED: 09/09/2022 opt such professional on the committee within the time limit specified in such direction of the Registrar. If the bank fails to comply with the aforesaid directions, the Registrar shall appoint such professional member on the committee of the concerned bank. The professional member shall have all the rights of members inclusive of voting right and the term of member shall be coextensive with the term of other elected members."
18. The above provision of Section 74 of the Act, 1961, provides that the management of every society shall vest in a committee, constituted in accordance with this Act, the rules and the by- laws meaning thereby that the formation of the Committee touches the constitution of the Co- operative Society and as such, election for such committee cannot be subjected to the powers to be exercised under Section 160(1) of the Act, 1961. The respondent could not have passed such an order in exercise of powers under section 160(1) of the Act,1961 which curtails the right of the petitioners-members to vote in the election which ultimately touches the constitution of the co- Page 45 of 52 Downloaded on : Mon Sep 12 20:55:14 IST 2022 C/SCA/5906/2020 CAV JUDGMENT DATED: 09/09/2022 operative society in violation of Article 19(1)
(c) read with Article 43B of the Constitution of India.
19. Moreover, the impugned order is passed providing retrospective effect as it stipulates that the member of the Sugar Co-operative Society would be eligible only if such members has supplied specified quantity of Sugarcane in two years out of the five years. The reasons given in the impugned order by the respondent are also not germane to exercise the powers under Section 160(1) of the Act, 1961. The impugned order is also in flagrant breach of principles of natural justice as the petitioners-members who are directly affected have never been heard prior to passing of the impugned order.
20. The contentions raised by the learned Government Pleader for the respondent, relying upon the provisions of Sections 4 to 8 of the Page 46 of 52 Downloaded on : Mon Sep 12 20:55:14 IST 2022 C/SCA/5906/2020 CAV JUDGMENT DATED: 09/09/2022 Act, 1961 for registration of the Society and the functioning of such society in the interest of members and exercise of powers under section 160(1) by the respondent in public interest, it is pertinent to note that it was a feeble attempt on part of the respondent to justify the impugned order inasmuch as election of a co-operative society to be conducted as per the provisions of the Act,1961, Rules and byelaws cannot be said to be in public interest and under guise of public interest the respondent could not have assumed jurisdiction to pass the impugned order under section 160(1) of the Act,1961.
21. Moreover, the contention raised in the affidavit-in-reply with regard to the availability of alternative remedy under Section 153 of the Act, 1961 is concerned, as the petitioners have challenged the jurisdiction of the respondent as well as the contention of breach of the principles of natural justice is Page 47 of 52 Downloaded on : Mon Sep 12 20:55:14 IST 2022 C/SCA/5906/2020 CAV JUDGMENT DATED: 09/09/2022 taken, the petition under Articles 226 and 227 of the Constitution of India is required to be entertained in view of the settled legal position in case of Whirlpool Cooperation Vs. Registrar of Trade Marks, Mumbai & Others5.
22. The contention with regard to the object of passing the impugned order, so as to point out that the impugned order is for the benefit of the Sugar Co-operative Societies to ensure the sufficient supply of Sugarcane for the maximum use of the infrastructure of the Sugar Mills are concerned, it is required to be noted that by imposing the condition of eligibility to vote could not have been exercised under the guise of ensuring sufficient supply of Sugarcane from the members of the Sugar Co-operative Society.
23. By the impugned order, the respondent has indirectly amended the by-laws of the Sugar 5 (1998) 8 SCC 1 Page 48 of 52 Downloaded on : Mon Sep 12 20:55:14 IST 2022 C/SCA/5906/2020 CAV JUDGMENT DATED: 09/09/2022 Co-operative Societies which is the prerogative of the management of the Co-operative Society or the Registrar under Section 14 of the Act, 1961 to direct the Co-operative Society to amend the by-laws but the powers under Section 160(1) of the Act, 1961 could not have been exercised by the respondent. To ensure that the Sugar Co- operative Societies can achieve production in accordance with their full capacity, the autonomy and independence of the Sugar Mills could not have been compromised contrary to the settled legal position as enumerated hereinabove.
24. It was submitted by learned Government Pleader that out of total 31 Sugar factories in the State, only 13 are working, 9 are under liquidation and 6 are closed units. It was pointed out that the major contributing factor for the Sugar Co-operative Societies which has gone into liquidation was inadequate supply of Sugarcane as compared to the capacity of plant Page 49 of 52 Downloaded on : Mon Sep 12 20:55:14 IST 2022 C/SCA/5906/2020 CAV JUDGMENT DATED: 09/09/2022 resulting into huge expenditure and losses and non-functioning of such sugar factories have caused great difficulties for its members as it was logistically difficult for them to supply Sugarcane to other factories and many a times, the members have to divert the Sugarcane into different products such as jaggery, leading to a substantial reduction in profit and income. It was therefore sought to justify the impugned order on the ground of public interest to maintain the delicate balance between the member- Farmer and the Sugar factory at large. It was submitted that out of 13 societies, members of 11 societies have not challenged the impugned order dated 19.02.2020 and only the members of the 2 Sugar Co-operative Societies have come before this Court. It was submitted that in all election of 11 societies out of 13 societies were held however, on account of the pendency of the litigation, challenging the validity of the amendment dated 03.08.2019 whereby, Section Page 50 of 52 Downloaded on : Mon Sep 12 20:55:14 IST 2022 C/SCA/5906/2020 CAV JUDGMENT DATED: 09/09/2022 74C(i)(v) was deleted and Co-operative Sugar factories were excluded from the list of specified societies, the result of the said elections are ordered not to be declared by this Court in various petitions. In view of the order of the Division Bench in Special Civil Application No.4449 of 2020 and other allied matters, holding the amendment to Section 74C(i)
(v) being ultra vires, the provisions of Chapter- XI read with Rules, 1982 would be applicable subject to the final outcome from the pending proceedings before the Apex Court.
25. However, in view of the forgoing reasons whatever may be the outcome with regard to the inclusion of the Sugar Co-operative factories in the list of specified society or otherwise, the respondent could not have exercised powers to issue the impugned order while exercising jurisdiction under Section 160(1) of the Act, 1961 and as such, impugned order is without Page 51 of 52 Downloaded on : Mon Sep 12 20:55:14 IST 2022 C/SCA/5906/2020 CAV JUDGMENT DATED: 09/09/2022 jurisdiction and is liable to be quashed and set aside. The petitions, therefore, succeed and are accordingly allowed. The impugned order dated 19th February, 2020 passed by the respondent while exercising the powers under Section 160(1) of the Act, 1961 is hereby quashed and set aside. Rule is made absolute. There shall be no order as to cost.
(BHARGAV D. KARIA, J) PALAK Page 52 of 52 Downloaded on : Mon Sep 12 20:55:14 IST 2022