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This article is written by Vandita Bansal, of Symbiosis Law School, Noida. This article discusses cooperative societies and analyses the 97th Amendment of the Constitution.

Introduction

On 20th July 2021, the Supreme Court took the major decision of quashing some portions of the 97th Constitutional Amendment with the primary motive of boosting federalism, with this step the restricted control of states over the cooperative organization which is also the prominent sector in the national economy can now come under the jurisdiction of State.

A cooperative society is a self-organized collection of people who have common interests who work together to achieve a common economic aim. Its mission is to help the less fortunate members of society by employing self-help and mutual aid concepts. The main objective is to provide help to the subscribers. Folks come forth as a group, pool the available resources, make the best use of them, and benefit from all of this collectively. The Co-operative Societies Act of 1912, allows for the establishment of a cooperative society in India.

Background of the 97th Constitutional Amendment 

It was on December 7, 2004, that meetings of ministers across several states took place to discuss the major problems of cooperatives about their voluntarism principle, autonomy, democratic control, and professional management. The conference further decided to quash parts of this Constitutional Amendment with the aim to ensure the timelier election with features boosting independence and democracy. Here now let’s discuss the changes made in the Amendment with the vision of encouraging cooperative economic activity which is surely going to participate in the progress of rural India.”Cooperative societies” were added to the list of basic rights in order to follow Unions and associations in Article 19(1)(c). The Directive Principles of State Policy now include a new Article 43B on the promotion of cooperative organizations (Part IV). Part IX-B (Articles 243ZH to 243ZT) was added, which included a number of provisions for state laws governing cooperative societies. The Amendment discussed above was subsequently passed but it was not discussed by the legislature of state leading to the problem of the procedure described by the Constitution, hence it was not followed constitutionally. 

Cooperative societies

As per International Labour Organisation(ILO), a cooperative is an autonomous organization of individuals united voluntarily to achieve their shared economic, social, and cultural needs and ambitions through a jointly owned and democratically run corporation. Cooperative Societies is a State Subject under Entry 32 of the State List of Seventh Schedule of the Constitution of India.

Part IX B of the Constitution, for example, focuses on enabling the Parliament in the case of multi-State co-operative societies and the State Legislatures in the case of other co-operative societies to make proper law, establishing the following issues: 

  1. Provisions for incorporation, regulation, and winding up of co-operative societies formed on the basis of democratic member-control, member-economic participation, and autonomous functioning; 
  2. Stating the maximum number of directors of a cooperative society not exceeding 21 members
  3. Providing for a fixed period of 5 years from the date of the election in regard to the nominated board members and its office bearers;
  4.  Providing for a maximum time limit of six months under which a director of the company of a co-operative society can be kept under supersession or restriction;
  5.  Providing for an individual professional inspection
  6. Granting members of co-operative societies the right to information;
  7. Enabling state governments to acquire periodic reports on cooperative society operations and accounting;
  8. Allowing for the allocation of one seat on the board of every co-operative society with persons from the Scheduled Castes or Scheduled Tribes and two seats for women; providing for offenses related to co-operative societies and punishments in light of such offenses

Issues, objections, and reforms needed

  • Cooperative societies have proved flaws in protecting the interests of their members and achieving the goals for which they were formed. 
  • There have been cases where elections have been delayed for months, with nominated office bearers or administrators continuing in command of these organizations for an extended period of time. 
  • This lowers the accountability of co-operative society management to their members. Lack of professionalism in management has resulted in poor services and low production in many cooperative societies.
  • Co-operatives must operate under well-established democratic norms, with elections held on time and in a free and fair way. Hence, fundamental policies must be introduced to revive these organizations in order to ensure their involvement in the country’s economic development and to serve the interests of members and the general public, as well as to ensure their autonomy, democratic functioning, and professional management.
  • A major need has been identified for changing the Constitution in order to protect co-operatives from unwanted outside interference while guaranteeing their independent organizational structure and democratic functioning.
  • The expansion of co-operatives on a wide scale was planned within the framework of State Acts as part of order to guarantee social and economic justice and equal sharing of the benefits of expansion. However, it has been found that, despite the major development of co-operatives, their quality performance has not been up to the desired level.

Latest developments with regard to cooperatives

  • The government proposed the creation of a new Union Ministry of Cooperation.
  • It will provide a separate administrative, legal, and policy structure for the country’s cooperative movement.
  • It will contribute to the development of cooperatives as a real people-centered movement that reaches all the way to the masses.
  • A cooperative-based economic growth model, in which each member works with a sense of responsibility, is highly important in our country.
  • The Ministry will seek to improve processes for ‘ease of doing business’ for co-operatives and to facilitate the growth of Multi-State Co-operatives (MSCS).

Gujarat High Court judgment

As this news sparked controversy a large number of applications were subsequently passed in front of the Gujarat High Court as well as several other courts in different states. A writ petition by Mr. Rajendra N. Shah was filed arguing the violation of the fundamental framework of the Constitution. The prime fact of the contention was the Amendment done in 2011 in the Indian Constitution which expends the entry of IXB including Article from 243ZH to 243ZT, violates the Indian Constitution by failing to apply Article 368(2) of the Constitution, which requires formal ratification by a majority of State legislatures. The respective petition successfully establishes the claim that Article 368 was not passed by the procedure established in the Constitution hence violating the basic structure. The petitioner mentioned a major point as the cooperative societies do not fall in Schedule VII Entry 45 List 1 and are also excluded from List 43 so therefore petitioner asked for dismissal of the Amendment. Further, one more question arose whether multi-state cooperative societies could be separated from legal cooperative societies in Part IX-B or not.

State governments were stripped down from their vital authority was concluded by the Gujarat High Court. Hence, the High Court decided to strike down Part IX B as it was not constitutionally established due to a lack of proper ratification. Union of India was dissatisfied by the decision and moved to the Supreme Court but the Supreme Court affirmed the decision of the High court on July 20, 2021. It was therefore established that this Amendment needed further argument by both the governments but that did not happen.

Analysis of the decision of the Supreme Court

The decision was taken by a three-judge bench R.F. Nariman, K.M. Joseph, and B.R. Gavai. Two of the judges concluded to strike down only Part IX B whereas the third judge was in favor of shutting down the entire Amendment.

According to the All India Kisan Sabha, the Constitutional Amendment was trying to create more centralization leading to undermining of the federal system. And, in order to keep the inflow of workers going, it was important to keep the powers with the states intact and to keep the Centre out of the picture. This system was dipped in several flaws, one of many was the inability to follow the proper ratification process.

While the government tried to save itself while stating that its goal was more about creating a professional working environment following a more democratic approach, timely conduct of elections, etc. Final points made by Justice Nariman stated that the Amendment was saved because according to the judgment it not only restricts the power of members but it also controls them.

Reason for striking down

The Amendment included sections dealing with the operation of cooperative societies in a state. It was overruled because the subject matter was on the state list and “belongs fully and solely to the State legislatures to legislate upon,” and any amendment would require approval by at least one-half of the state legislatures, as required by Article 368(2) of the Constitution.

Part IXB of the Indian Constitution is considered to be in force so long as it covers multi-State co-operative organizations both within the different States and in the Union Territories of India.

The Supreme Court ruled that if the Centre wants to create uniformity (the reason for the Amendment, as stated by the Centre), the only option was to use Article 252 of the Constitution, which deals with the Parliament’s ability to act for two or more states by consent. Also, various provisions of the Amendment relating to cooperative societies violated the basic structure of federalism.

Dissenting opinion 

In this case, justice KM Joseph had a view that was opposite of both the other judges he was in favor of striking down the entire Amendment as it did not follow the procedure established by the Constitution, he also refused to accept the severability of this issue if implied because it also contains an article of multi-state cooperative society which works under Union Territories, but not cooperative societies restricted to the territories of Union Territories. He pointed out that the provisions of Articles 243-ZR and 243-ZS are entirely dependent on the provisions of Articles 243-ZI through 243-ZQ.

Conclusion

With its decision, the Court established two significant facts: it supported the quasi-federal framework of Indian polity and it also provided guidance to the Ministry that they could further deliberate on the 97th Amendment and restore it if they properly follow the procedural code. This decision has been welcomed by legal experts as a support to the concept of federalism, which is part of the basic framework of the Indian Constitution. Also, it clarified the scope of the new Union Ministry of Corporation’s operations. If the Court rejected the 97th Amendment due to a procedural fault, the Centre can still take steps to fix that flaw and restore the 97th Amendment’s force.

References

  1. https://taxguru.in/corporate-law/quashing-97th-constitutional-amendment-partly-step-upholding-federal-structure.html
  2. https://www.nextias.com/current-affairs/22-07-2021/quashing-of-part-of-97th-constitutional-amendment
  3. https://www.insightsonindia.com/2021/07/26/explain-why-the-supreme-court-has-recently-struck-down-part-of-the-97th-constitutional-amendment-also-analyse-its-impact-on-federal-principles-in-india/
  4. https://www.scconline.com/blog/post/2021/07/21/constitution-97th-amendment-act-2011/

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