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97th Constitutional Amendment

August 3, 2022

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This article has been written by Naveen Talawar, a law student at Karnataka State Law University’s law school. The article deals with the 97th Constitutional Amendment, its main features and its Constitutional validity in detail.

It has been published by Rachit Garg.

Table of Contents

Introduction

The Constitution (97th Amendment Act), 2011 makes provisions for Co-operative societies in India. The Amendment provided legal status and protection to Co-operative societies, and it makes an effort to address all of their issues and develop effective management techniques. It also aims to promote Co-operative economic activities that advance rural India. The amendment was expected to ensure Co-operatives’ democratic and autonomous operation, as well as management transparency with members and other stakeholders.

The amendment limited the exclusive authority of States over their Co-operative societies, a sector considered to be a significant contributor to the economy. According to the International Labour Organization (ILO), a Co-operative is an organisation that is autonomously run by people who have voluntarily come together to address a shared economic, social, or cultural need through a joint and democratically controlled enterprise.

Need for the 97th Amendment Act

Some of the reasons for the introduction of 97th Constitutional Amendment Act are as follows :

At that time, when the Amendment came into existence, the Co-operatives have expanded significantly, but their qualitative performance hasn’t kept pace with expectations. Numerous discussions with state governments and meetings of state Co-operative ministers have taken place in light of the requirement for reforms in the State Co-operative Societies Acts. As a result, there was a strong need to amend the Constitution to protect Co-operatives from unnecessary outside interference while also ensuring their autonomous organisational structure and democratic functioning.
The ‘shortcomings’ in protecting the interests of Co-operative members and achieving the objectives of these institutions were regarded as the rational reason for the Amendment.
Fundamental reforms were required to revitalise these institutions to ensure their contribution to the country’s economic development and serve the interests of members and the public at large, as well as ensure their autonomy, democratic functioning, and professional management.
The Central Government was committed to ensuring that the country’s Co-operative societies operated democratically, competently, independently, and proficiently. In order to implement the required reforms, it was proposed to add a new section to the Constitution that would cover essential aspects of Co-operative society operation, such as democratic, autonomous, and professional functioning.
Since ‘co-operative societies’ were recognised as being covered by Entry 32 of the State List in the Seventh Schedule, it was proposed in the Amendment to create a framework for co-operative society operation. And cooperatives should be governed by state laws that follow the framework.

The 97th Amendment Act

A conference of Co-operative ministers from various states decided to amend the Constitution on December 7, 2004. The main purposes of the conference were as follows :

To ensure the democratic, independent, and professional operation of Co-operatives;
To address key Co-operative empowerment issues through voluntary formation, autonomous functioning, democratic control, and professional management;
To ensure that professional audits, general body meetings, and elections are held consistently and on time.

This conference served as a forerunner to the 97th Amendment, which was passed in 2011. The Amendment has resulted in several significant changes to the Indian Constitution.

The words ‘Co-operative societies’ were added to Part III of Article 19(1)(c) of the Constitution. The 97th Amendment to the Constitution adds this important clause to Article 19(1)(c) by recognising people’s right to form Co-operative societies as a fundamental right. In addition to providing them greater managerial capabilities and operational autonomy, it recognises them as being protected from political interference. It declared the freedom to form Co-operative societies as a fundamental right.
A new Article 43B was added to the Directive Principles of State Policy (Part IV) relating to the ‘Promotion of Co-operative Societies,’ which states that the State shall endeavour to promote Co-operative societies’ voluntary formation, autonomous functionality, and professional management.
The Amendment added a new Part IX-B to the Constitution, following Part IX-A, titled ‘The Co-operative Societies’ (Articles 243-ZH to 243-ZT).

However, the provisions of the Amendments were passed by Parliament without being ratified by state legislation. This was challenged before the Gujarat High Court in Rajendra N. Shah v. Union of India (2013) which has been explained in detail under the heading the constitutional validity of the 97th Amendment Act.

Main features of the 97th Amendment Act

The Amendment makes the right to form Co-operatives a fundamental right. Articles 243-ZH to 243-ZT provide an explanation of Co-operative societies.

Article 243 ZH: Definitions

Article 243 ZH provides for the definitions and accordingly some of the definitions are as follows:

Co-operative society

A ‘Co-operative Society’ is defined as any society that is registered or presumed to be registered under any co-operative society law currently in force in any State.

Multi-state Co-operative society

A ‘Multi-State Co-operative Society’ is a group of people whose goals are not limited to any one State and who are registered or presumed to be registered under any law currently in force that regulates such Co-operatives.

State-level Co-operative society

The term ‘state-level co-operative society’ refers to a Co-operative Society whose territory of operation includes the entire state in any law passed by the state legislature.

Article 243ZI: Incorporation of Co-operative Societies

Under Article 243ZI, Co-operative societies may be incorporated. The incorporation of Co-operative societies, regulation, and dissolution is based on the principles of voluntary association, democratic member control, member economic participation, and independent operation.

Article 243ZJ: Term of the office bearers

Article 243ZJ specifies the number and term of board members and office bearers, and as a result, the maximum number of directors of a Co-operative society cannot exceed 21. Additionally, it stipulates that all Co-operative societies with members who fall under the aforementioned categories must reserve one board seat for members of Scheduled Castes or Scheduled Tribes and two seats for women. In the case of elected members of the board and its office bearers, a fixed term of five years from the date of the election is provided.

Article 243ZL: Supersession and suspension of the board

Article 243ZL includes supersession, suspension of the board, and interim management. A Co-operative Society’s board of directors may be placed on supersession or suspended for a maximum period of six months.

Article 243ZN: General body meetings

According to Article 243ZN, the General Body Meeting of the Society shall be convened within 6 months of the end of the fiscal year to transact such business as may be provided in such law.

Article 243ZO: Right of Information

A member has the right to information under Article 243ZO. Granting members of Co-operative societies the right to access information.

Article 243ZR: Application for Multi-State Co-operative Societies

Article 243ZR provisions apply to Multi-State Co-operative Societies with the modification that State Government, State Act, and State Legislature shall be construed as Parliament, Central Government, or State Act, as the case may be.

Article 243ZS: Application to Union Territories

Article 243ZS provides for the application of this Article to Union territories. It provides that the provisions of this Part apply to Union territories, and to a Union territory with a Legislative Assembly, they apply as if references to the Legislature of a State were references to that Legislative Assembly, and to a Union territory without a Legislative Assembly, they apply as if references to the Administrator thereof appointed under Article 239.

However, the President may direct that any Union territory or portion of a Union territory specified in the notification is excluded from the provisions of this Part by notifying in the Official Gazette.

Significance of the 97th Amendment Act

The Amendment was approved to standardise the management of Co-operative societies. It addressed concerns about the efficient management of the Nation’s Co-operative Societies.
The Co-operatives are anticipated to operate independently and be virtually immune to political influence. The Amendment aims to harmonise Co-operative laws across India by making the right to form Co-operatives a fundamental right in Part III, Article 19 (1) (c) of the Constitution.
Additionally, it emphasises a uniform legal framework while attempting to give sectors (like farming, housing, credit and marketing sectors) more managerial flexibility and autonomy. The Co-operative sector has expanded rapidly while substantially influencing many areas of the national economy.
The Act addresses the issue of representation by ensuring that each Co-operative society has one reserved seat for SC/ST and two reserved seats for women on its board. The Act also allows Co-operatives to establish election monitoring agencies.
In addition to ensuring the autonomous and democratic operation of Co-operatives, the provisions adopted are meant to ensure management accountability to members and other stakeholders, as well as deterrence for violations of the provisions of law.

Constitutional validity of the 97th Amendment Act

As a result of the subject of ‘Co-operative Societies’ being listed in Entry 32 of the State List of the Seventh Schedule of the Constitution, state legislatures have passed legislation on the subject.’The Amendment included provisions governing the operation of Co-operative societies within a State. According to Article 368(2) of the Constitution, the subject was on the State list and “belongs wholly and exclusively to the State legislatures to legislate upon,” so any changes would need to be approved by at least half of the state legislatures. The 97th Amendment’s provisions, however, were approved by Parliament without being ratified by state legislation.

This makes it clear that the power granted by Article 368 of the Constitution namely, the power of Parliament to amend the Constitution was used to enforce the introduction of Part IX-B. It could be argued that since the State Legislature alone has jurisdiction over local self-government institutions, Parliament could not have passed any legislation pertaining to them without Article 368. It would be a questionable use of power for Parliament to attempt to encroach on territory that the State Legislature has exclusive authority over. In other words, Parliament tried to accomplish something indirectly that it was unable to accomplish directly by amending the Constitution to include provisions relating to local self-government.

The Gujarat High Court decision regarding 97th Amendment

The 97th Amendment Act was challenged in several High Courts across the country. The Gujarat High Court was pleased to rule that the aforementioned Act was unconstitutional in Rajendra N. Shah v. Union of India. The petitioner in the aforementioned case, among other things, contested the constitutionality of the 97th Amendment because ‘Co-operative Societies’ are solely a matter for state legislatures to pass laws. In other words, only the State Legislature has the power to pass legislation governing Co-operative societies. The petitioner based his argument on Entry 32 in List II of Schedule VII.

Entry 32 states that “incorporation, regulation, and dissolution of corporations other than those specified in List I, and universities; unincorporated trading, literary, scientific, religious, and other societies and associations; Co-operative societies“. The petitioner claimed that Parliament had used its authority to unfairly amend the Constitution and that Parliament could not do something indirectly that it was not allowed to do directly.

The learned Division Bench of the Gujarat High Court observed that if Part IX-B had not been included, the State Legislatures would have had complete discretion to pass legislation on the aforementioned subjects based on their decisions, whereas following the Amendment, the State Legislature has no choice but to follow or disregard those provisions. As a result, several restrictions on Co-operative society laws have been imposed by incorporating Part IX-B, limiting the authority of state legislatures to enact any Co-operative society laws on those aspects.

In other words, even though the law governing Co-operative societies is still listed in List II of the 7th Schedule, Parliament has controlled this power by requiring ratification by a majority of the State Legislature, in contravention of Article 368(2) of the Constitution, without moving the subject of Co-operative societies into List I or List III.

The learned Division Bench noted that the challenged Amendment also had an impact on federalism, one of the Constitution’s fundamental structures, after citing the Supreme Court’s ruling in S.R. Bommai v. Union of India (1994), As long as Co-operative societies were included in the State List of the 7th Schedule and the requirements of Article 368(2) were disregarded, it was determined that the Amendment violated the fundamental principles of the Constitution. As a result, the 97th Amendment Act was ruled unconstitutional because inserting Part IX-B without the necessary ratification was ultra vires. Dissatisfied with the High Court’s decision, the Union of India filed an immediate appeal to the Supreme Court.

The Supreme Court’s decision regarding 97th Amendment Act

The Gujarat High Court’s decision in Rajendra N. Shah v. Union of India to invalidate some provisions of the 97th Amendment Act (Part IX B) pertaining to the efficient management of Co-operative societies was upheld by the Supreme Court in a decision reached by a 2:1 majority, but it was overturned by a provision it had inserted pertaining to the Constitution and the functioning of Co-operative societies. The decision, which upheld a Gujarat High Courts decision, was made by judges R F Nariman, KM Joseph, and B R Gavai. According to a 2:1 majority decision by a three-judge bench of the Supreme Court, the 97th Amendment Act will be valid and in force with regard to multistate Co-operative societies, which are Co-operative societies that exist in multiple States or Union territories.

According to the majority opinion of Justices R F Nariman and B R Gavai, “we declare that Part IXB of the Constitution of India is operative insofar as multi-state co-operative societies are concerned…. Part IXB, insofar as it applies to co-operative societies operating within a State, would thus require ratification under Article 368(2) of the Indian Constitution. In the present case, because ratification has not occurred, the Amendment is non-est.”

The dissent opinion

K. M. Joseph, J., agreed in a separate opinion with the majority’s justification and conclusion that the provisions pertaining to Articles 240-ZI to 243-ZQ and Article 243-ZT are unconstitutional because they do not meet the requirements of the proviso to Article 368(2) of the Indian Constitution. However, he was unable to agree that the doctrine of severability would apply to support Articles 243-ZR and 243-ZS for Multi-State Co-operative Societies operating in the Union Territories but not for Co-operative societies limited to the Union Territories’.

He believed that in order to uphold these provisions, the Court would have to revive the expired provisions in Articles 243-ZI through 243-ZQ and Article 243-ZT. Justice Joseph contends that in order to apply the doctrine of severability on more solid legal grounds, the unconstitutional provisions must be preserved in order for Articles 243-ZR and 243-ZQ to be functional.

Analysis of the Supreme Court’s ruling

Exclusive State Legislation

According to the Constitution’s interpretation, there is a tilt in favour of the Centre and Federal supremacy for the States. According to this principle, States have the sole authority to legislate on matters reserved solely for them. The court clearly stated that Article 243 ZI makes it clear that states can make law on the incorporation, regulation, and dissolution of a society under this Act.

Requirement for ratification by the States

If the subject matter of an Amendment falls within the scope of Article 368(2), it must also be ratified by the legislatures of at least one-half of the states through a resolution passed by those Legislatures before the Bill containing the Amendment is presented to the President for assent. The Court noted that the 97th Amendment, which adds to the chapter on Co-operative Societies, had not been ratified.

Upheld the Validity of the Multi-State Co-operative Societies Provisions

With Parliament having control over Multi-State Co-operative Societies and State legislatures responsible for enacting laws governing “other Co-operative Societies,” the scheme governing Multi-State Co-operative Societies differs from the scheme governing “Other Co-operative Societies.” There is no question, in the Court’s opinion, that Multi-State Co-operative Societies would not be covered by Article 246(3) or Entry 32 List 2 of the 7th Schedule.

Impact of the judgment

While upholding the validity of the 97th Constitutional Amendment, the Supreme Court’s three-judge bench struck down a section dealing with the formation and operation of Co-operative Societies within a State.

The Supreme Court decision was based on the reasoning that the concerned subject matter of Co-operative fell under the State list and thus belongs wholly and exclusively to the State legislatures to legislate upon, and any change would require ratification by at least one-half of the State Legislatures as per Article 368(2) of the Constitution, which was not done for the 97th Constitutional Amendment. Constitutional experts have praised this development as strengthening the federalism principle, which is a cornerstone of the Indian Constitution.

Conclusion

India’s Co-operative societies are governed by the 97th Amendment to the Indian Constitution, which was enacted in 2011. The Co-operative sector significantly impacted many aspects of the national economy. They have grown significantly over the years. The ability of these societies to assist the less fortunate segments of Indian society is enormous. Additionally, it guarantees fair economic growth. As part of the initiatives to ensure social and economic justice and the equitable distribution of the benefits of development, the widespread expansion of Co-operatives was envisaged.

But the majority of the Amendment was rejected on a technicality. However, the necessity of the Amendment cannot be disputed. It gave Co-operative societies a proper framework and standards to aspire to. This Amendment makes it our fundamental right to create a Co-operative society, which has massive consequences. However, the Amendment affected State Legislatures’ exclusive legislative authority.

Frequently asked questions (FAQs)

What is the 97th Constitutional Amendment?

The 97th constitutional Amendment addresses issues relating to the efficient management of Co-operative societies in the nation. The Amendment also recognised the right to form Co-operative societies as a fundamental right.

Which Directive Principle was added through the Amendment?

A new Article 43B was added to the Directive Principles of State Policy (Part IV) relating to the promotion of Co-operative societies, which states that the State shall endeavour to promote Co-operative societies’ voluntary formation, autonomous functionality, and professional management.

Has the 97th Amendment been completely quashed?

No, it has not been completely quashed. According to a 2:1 majority ruling by a three-judge bench of the Supreme Court, the Constitution (97th Amendment) Act 2011 will remain valid and in effect with respect to multistate Co-operative societies, which are Co-operative societies that exist in multiple states or union territories.

References

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97th Constitutional Amendment

Introduction

Need for the 97th Amendment Act

The 97th Amendment Act

Main features of the 97th Amendment Act