This article is written by Anubhuti Awasthi.

Introduction

The International Labour Organisation defines a co-operative as (see here) “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”. The United Nations General Assembly had declared 2012 as the International Year of Cooperatives and adding to it the 97th Amendment Act, 2011 had also come into force on 15th February, 2012, acting on the mandates of the United Nations. The above development with respect to co-operatives was also highlighted recently as a new “Ministry of Cooperation” has also been established to give a major boost to the Indian economy which is still dealing with repercussions of the pandemic.

The 97th Amendment Act, 2011 was partially struck down by the three judge bench of the Supreme Court in Union Of India Vs. Rajendra N Shah, 2021, (see here) delivered by Justice Rohinton F. Nariman. The 97th amendment comprised of the part IX-B which dealt with functioning of ‘co-operative societies’ in the country. The court had applied the doctrine of severability to come to the conclusion of quashing the remnants of the 97th amendment. The court upheld that the 97th Amendment Act had failed to achieve the requisite ratification by half of the states which is necessary as per Article 368(2) of the Indian Constitution.

Coram: Justice R.F. Nariman, Justice B.R. Gavai and Justice K.M. Joseph.

Background

 A conference of ministers dealing with co-operatives was held on December 7, 2004, in various states. To address the major concerns of voluntary formation, autonomous functioning, democratic control, and professional management of cooperatives in the country. The conference resolved to amend the Constitution to ensure democratic, autonomous functioning and timely conduct of elections with respect to cooperative societies. As a result, it was a precursor which finally led to the 97th amendment after consultation by various states and ministries. The amendment made changes to Article 19(1)(c) by the addition of the word ‘co-operative societies’ and insertion of Article 43B for ‘promotion of cooperative societies. A new part IX B dealing with co-operative societies, by inserting Article s 243ZH to 243ZT, was added to the Constitution. 

Later, a writ petition was filed in the Gujarat High Court for quashing the 97th amendment as it was ultra vires to the Indian Constitution. The Court upheld the petitioners’ stand that insertion of part IX B to the Constitution is ultra vires as it falls short of the requisite ratification, that is by half of the states as per Article 368(2) in Rajendra N. Shah Vs. Union Of India, 2013 (see here). However, the judgement did not impact the amendments made under Article 19(1)(c) and 43B of the Indian Constitution. The prayer for a stay of operation of Gujarat High Court judgement was also filed by the Union of India which was rejected by the court. As a result, an appeal was filed by the Union Of India in the Supreme Court as it was aggrieved by the decision of the Gujarat High Court. The issue that arose before the court in Union Of India Vs. Rajendra N Shah, 2021 was regarding the Constitutionality of the 97th amendment whether the ratification by half of the states is necessary or not. Additionally, a second issue also arose, whether multi-state co-operative societies are severable from the co-operative societies in part IX-B?

Arguments made by Appellants

1. 1. Attorney General, K.K. Venugopal argued that 97th Amendment Act has been instrumental in achieving vital social and economic growth with regards to the functioning of cooperative societies in India, which is a sector that has given a major boost to the economy of the nation. Adding to it, he said that part IX-B has provisions which are in two separate parts for both co-operative societies as well as a multi-state co-operative society. Although there was no challenge insofar as multi-State co-operative societies were concerned, the entire Part IXB has been struck down by the High Court, “throwing out the baby with the bathwater”.
   2. He further argued that 17 out of 28 states have enacted legislative measures which are in conformity with the said amendment. No state government has also challenged it so far as a detailed consultation had already taken place before the amendment came into force.
   3. As a matter of fact, a reading of part IX B would show that no additional legislative power has been bestowed to the Union with respect to cooperative societies and it all rests within the domain of the States. 
   4. The findings of the division bench (Gujarat High Court) that the said amendment violated basic structure was “uncalled and unwarranted” as the real issue at hand was whether ratification is necessary. He further pressed his argument that the application of the doctrine of severability in “Part IX-B ought to be upheld, at least insofar as the multi-State co-operative societies are concerned”.
   5. Shri Prakash Jani, the senior advocate, agreed with the arguments of the Attorney General and further added that while inserting part IX-B parliament has exercised its ‘constituent’ power and not ‘legislative’ power, by giving an example of the insertion of Article 21A by Constitution (Eighty-Sixth Amendment) Act, 2002. 

Arguments made by Respondents

• Shri Masoom K. Shah argued with respect to the Parliament that “donee of a limited amending power cannot do indirectly what it is not permitted to do directly”. He kept his point as a point of fact that Part IX-B of the Constitution would show that the “unfettered power” of the State legislatures before the 97th amendment has now been “fettered by the provisions of Part IXB” in several aspects such as the fixation of the maximum number of directors of co-operative societies, the reservation policy contained in Article 243ZJ, the duration of the term of elected members of the board of co-operative societies and many more.
• The 97th amendment has to be quashed for want of ratification as it impacts the vital parts of the Indian Constitution namely, the federal structure and the distribution of legislative powers between the Union and the States. He further argued that even if 17 States have made laws in furtherance with the 97th amendment, still it lacks the necessary ratification under Article 368(2). It fails to achieve the Constitutional position.
• The respondents counter-argued that the validity of a Constitutional amendment is not dependent upon whether a State government accepts it or challenges it. With respect to multi-state co-operative societies, firstly given the tests of severability, multi-State co-operative societies are “inextricably entwined with co-operative societies” and the objective of 97th Constitution Amendment while enacting it for multi-State co-operative societies solely would have not been on the table too. If the said amendment is allowed to pass ‘Constitutional muster without ratification’, it will eventually rob the States’ legislative power converting the federal structure into that of unitary one.
• Smt. Ritika Sinha, learned counsel appearing for the Intervenor, put emphasis on the language of Article 243ZI and 243ZT. According to her, these Articles have made it clear that the States’ legislative competence is made subject to the provisions of Part IX B, as an exception, to Entry 32 of List II. Also, the clause in Article 243ZT is overriding the legal provisions on the contrary making it clear that State legislatures have to mandatory enact provisions of Part IX-B in the place of earlier State legislations.

 Judgement

 Majority View:

• This Supreme Court has therefore upheld, “that when it comes to Multi State Co-operative Societies with objects not confined to one state, the legislative power would be that of the Union of India which is contained in Entry 44 List I. Article 243ZR of Part IXB makes it clear that all the provisions of this Part which apply to multi-State co-operative societies would apply subject to the modification that any reference to a “Legislature of a State, State Act or State Government” shall be construed as a reference to “Parliament, Central Act or the Central Government” respectively”.
• • Co-operative societies as a subject matter which belongs exclusively to the State legislatures to legislate upon, whereas multi-State cooperative societies is “exclusively within the ken of Parliament”. The court while ascertaing the facts of the case held that the federal supremacy principle will not apply as laid down by the judgments of this court as there is no overlap. The exclusive power to make laws, with respect to co-operative societies lies with the State Legislatures under Article 246(3) read with Entry 32 of List II.

• The Supreme Court while referring to the Parliament’s ‘constituent power’ under Article 368(1). Amending the Constitution is a constituent power different from legislative power but it “does not convert Parliament into an original constituent assembly”. Parliament, being a donee of a limited power should exercise that power accordingly subjecting to the constraints of both the procedural and substantive limitations as enshrined in the Constitution of India. “The present case concerns itself with the procedural ground contained in Article 368(2) proviso there being no substantive challenge to Part IXB on the ground that it violates the basic structure doctrine as laid down in Kesavananda Bharati’s case”.
• “There can be no doubt that our Constitution has been described as quasi-federal in that, so far as legislative powers are concerned, though there is a tilt in favour of the Centre vis-à-vis the States given the federal supremacy principle outlined hereinabove, yet within their own sphere, the States have exclusive power to legislate on topics reserved exclusively to them“.
• The Supreme Court laid down the restrictions contained in Part IXB in the following order:

“I.) Under Article 243ZI, the legislature of a State may make laws affecting co-operative societies only if such laws follow the principles of voluntary formation, democratic member control, member economic participation and autonomous functioning. 

II.) Under Article 243ZJ(1), the maximum number of directors of a co-operative society cannot exceed twenty one. Further, the State law must compulsorily provide for reservation of one seat for scheduled castes or scheduled tribes and two seats for women on the board of every co-operative society which consists of individuals as members. 

III.) Under Article 243ZJ(2), the term of office of elected members shall be five years from the date of election. 

IV.) The State Legislature under Article 243ZJ(3) is bound to make provisions for co-option of members to the board having experience in the field of banking, management, finance or specialization in any other field relating to the objects and activities undertaken by the co-operative society, the number of such co-opted members being restricted to two, as also the fact that such co-opted members shall not have the right to vote. 

V). Under Article 243ZK(1), the non-obstante clause contained therein makes it clear that the State legislature has to lay down that the election of a board shall be conducted before the expiry of the term of the board. 

VI.) Under Article 243ZL, a State legislature can only supersede a board for a period not exceeding 6 months, if certain enumerated conditions alone are satisfied. 

VII.) Under Article 243ZM, minimum qualifications and experience of auditors and auditing firms have to be laid down by a State Legislature, and co-operatives societies have to be audited only by such persons or firms. 

VIII). Under Article 243ZN, the Legislature of a State must provide that the annual general body meeting of every co-operative society shall be convened within a period of six months of the close of the financial year. 

IX.) Under Article 243ZP, every co-operative society is to file returns within the specified period of six months of the close of every financial year, indicating the list of matters set out in the said provision. 

X.) Under Article 243ZQ, the Legislature of a State may make provisions for offences relating to co-operative societies and penalties for such offences, provided that under sub-clause (2), in respect of five separate subject matters, the Legislature of a State must mandatorily include such subject matters”.

• The court upheld that the above restrictions have put curtailments with respect to states’ exclusive power to deal with co-operative societies under Entry 32 List II. It further states that Article 243ZI makes it clear that those state laws that will not conform to the restrictions imposed in part IX-B will come to and end after one year of commencement of the 97th Amendment Act, 2011
• The Supreme Court concluded it’s judgement by the following words, “The judgment of the High Court is upheld except to the extent that it strikes down the entirety of Part IX-B of the Constitution of India. As held by us above, it is declared that Part IX-B of the Constitution of India is operative only insofar as it concerns multi-State cooperative societies both within the various States and in the Union territories of India”. 

The Dissent

• • The dissenting judgement was given by Justice K.M Joseph in the above case, stating that the entire part IX-B should be quashed, as he could not achieve parity on the point of application of doctrine of severability with the majority.

• He was in complete agreement with the ratio decidendi of the majority view with regards to the provisions relating to Article 240ZI to Article 243ZQ and Article 243ZT, those being ultra vires for non-compliance, with regards to the proviso to Article 368(2) of the Indian Constitution. But however he couldn’t agree on the point of application of doctrine of severability that it “will apply to sustain Article 243ZR and Article 243ZS to the multistate cooperative societies operating in the Union Territories, and that, it would not apply to cooperative societies confined to the territories of the Union Territories”. 
• The dissent was concluded on the following note that the “Doctrine of Severability must apply on surer foundations. It is my view that unless the provisions, which have been found unConstitutional, are kept alive, Article s 243R and 243ZQ are plainly unworkable”.

Conclusion

The Union of India Vs. Rajendra N Shah (see here) has laid down a landmark judgement in a 2:1 majority to come to the conclusion of quashing the remnants (co-operative society) of the 97th Amendment Act, 2011. It upheld that the 97th amendment for cooperative societies (which are registered or deemed to be registered under any law related to cooperative societies in any state) is inoperative as it lacked the ratification by half of the states as per Article 368(2). But for multi-state co-operative societies, (which are registered or deemed to be registered under any law related to cooperative societies and not limited to any one state or union territory solely) the court held that they can operate as parliament is empowered to make laws regarding multi-state co-operative societies which is contained in Entry 44 List I that is the union list and doesn’t require ratification.

It is essential to note as per section 2 of the 97th Amendment Act, 2011 Article 19(1)c and Article 43B were also amended with respect to cooperatives. Provisions related to above Article s remains intact as those have not been challenged in the appeal. The judgement has set new precedents with regards to Constitutionality of amendments by stating that “When a citizen of India challenges a Constitutional amendment as being procedurally infirm, it is the duty of the court to examine such challenge on merits as the Constitution of India is a national charter of governance affecting persons, citizens and institutions alike.” Although, the judgement given by the court has a dissenting view with regards to application of doctrine of severability. I would like to quote James William Fulbright on this, “In a democracy, dissent is an act of faith”.

References

1. https://www.ilo.org/global/topics/cooperatives/lang–en/index.htm
2. https://www.un.org/en/events/coopsyear/
3. Union Of India Vs. Rajendra N Shah 2021 SCC OnLine SC 474
4. Rajendra N. Shah Vs. Union Of India WRIT PETITION (PIL) NO. 166 of 2012

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