REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 2188 OF 2008
A.P. Dairy Development Corporation ... Appellant
Federation
Versus
B. Narasimha Reddy & Ors. ...Respondents
WITH
CIVIL APPEAL NOS. 2189-2212 OF 2008
AND
CIVIL APPEAL NO. 4588 OF 2008
J U D G M E N T
Dr. B.S. CHAUHAN, J.
1. All these appeals have been preferred against the impugned
judgment and order dated 1st May, 2007 of the High Court of
Judicature, Andhra Pradesh at Hyderabad in Writ Petition No. 2214 of
2006, by which the High Court has struck down the provisions of
Andhra Pradesh Mutually Aided Co-operative Societies (Amendment)
Act, 2006 (hereinafter called as `Act 2006') as unconstitutional and
further declared that even if the Act 2006 is to be considered
constitutional, provisions providing that the Boards of Directors
appointed under the Andhra Pradesh Mutually Aided Co-operative
Societies Act, 1995 (hereinafter called `Act 1995') shall be deemed to
have been continued under the provisions of A.P. Co-operative
Societies Act, 1964 (hereinafter called `Act 1964'), and further G.O.Ms.
No.10 Animal Husbandry, Dairy Development & Fisheries (Dairy-II)
Department, dated 4.2.2006 and the consequential proceedings/orders
of the Milk Commissioner and Registrar of Milk Co-operatives and the
District Collectors concerned in these regards, are quashed.
2. Facts:
A. The Government of Andhra Pradesh introduced an integrated
milk project in the State with the assistance of the UNICEF, according
to which, the rural surplus milk produced in the villages was
transported to chilling centres and supplied to consumers of Hyderabad.
A milk conservation plant/milk products factory was established at
Vijayawada in 1969 as a part of the project. In the meanwhile, the Act
1964 came into force w.e.f. 1.8.1964.
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B. In years 1970-71, the Government of Andhra Pradesh set up an
independent Dairy Development Department (hereinafter called the
`Department') and intensive efforts were made by the Government to
give a boost to the Department taking various measures.
C. In year 1974, Andhra Pradesh Dairy Development Corporation
Ltd. (hereinafter called the `Corporation'), a company under the Indian
Companies Act, 1956, fully owned by the State Government was
constituted and the entire dairy infrastructure and assets of the
Department of the State stood transferred to the said Corporation vide
order dated 15.4.1974. The employees of the Department were
absorbed in the Corporation. A huge amount has been contributed by
the Government from year 1974 onwards to develop the dairy products.
D. The Andhra Pradesh Dairy Development Cooperative Federation
Ltd. (hereinafter called `the Federation') was registered as a
Cooperative Society and all the assets and dairy infrastructure were
transferred to the Federation. The State Government vide order dated
10.12.1980 permitted the Federation to hand over the management of
the respective units set up at the State expenses to the Societies subject
to conditions stipulated in the agreement. Mainly the terms incorporated
therein provided for transfer of assets on lease basis, and the State to
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stand as a guarantor for the payment of loan component and financial
assistance etc.
E. The Government further permitted the Federation to hand over
the management of respective units and operation hitherto to various
societies with the right of procurement and further dairy development
activities such as manufacturing, processing, feed mixing plants
alongwith the concerned employees to the District Milk Producers Co-
operative Unions with effect from a mutually agreeable date.
F. During the years of 1991 and 1995, the benefits of financial
assistance rendered to the units by the State and the Central
Governments had been very huge i.e. Rs.159.45 lakhs and Rs.729.97
lakhs.
G. On commencement of the Act 1995 into force, the existing co-
operative societies registered under the Act 1964 could opt to be
covered by the Act 1995 with certain conditions, namely, the share
capital from the Government, if any, had to be returned and the
societies should not accept any Government assistance, and further the
societies had to enter into the Memorandum of Understanding
(hereinafter called the MoU) for outstanding loans and guarantees or
return of the government assistance. These had been conditions
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precedent for registration of a society under the Act 1995. A very large
number of new societies came into existence and were registered under
the Act 1995. Many societies already registered under the Act 1964 also
got themselves registered under the Act 1995.
H. There had been some irregularities in getting the registration
under the Act 1995 by certain societies registered under the Act 1964
and some of them did not execute the MoU. Thus, the Statutory
Authority issued show cause notices to such societies under Section
4(3) of the Act 1995 on 29.11.2004 to show cause as to why their
registration under the Act 1995 be not cancelled.
I. Eight writ petitions were filed by 8 District Milk Unions
challenging the said show cause notices before the High Court. The
Federation filed original petition in various Co-operative Tribunals
seeking dissolution of its societies under Section 40 of the Act 1995 as
the statutory requirements had not been complied with.
J. The Co-operative Tribunal vide its judgment and order dated
9.12.2004 dismissed the original petition against Visakha District
Union on the premises that the Act 1995 had not mentioned about
returns of assets and the Managing Director had no power to further
delegate the power to some one to file the petition.
5
K. The Legislative Assembly of the Andhra Pradesh vide
Resolution dated 8.2.2005 constituted a House Committee consisting of
its members belonging to different political parties to investigate into
irregularities committed by two of the eight District Unions, namely,
Visakha and Ongole (Prakasham) Unions, who also got registered under
the Act 1995. The Committee submitted its report pointing out certain
irregularities by the said Unions. The Committee also opined that the
Act 1995 had adverse consequences on the dairy co-operatives, as it had
broken down 3-tier structure, reduced the brand value of Vijaya Brand,
created conflict in marketing structures, weakened the financial position
of some District Milk Unions etc. and had broken down the common
cadre of employees.
L. After considering the said report, the State Government
constituted a Committee consisting of Ministers to consider the
recommendations of the House Committee vide order dated 23.8.2005.
It was this Committee which recommended that dairy co-operatives be
excluded from the purview of the Act 1995 and so far as the dairy co-
operatives are concerned, it should be restored to 3-tier structure.
Meanwhile, the order passed by the Co-operative Tribunal was
challenged in the Writ Petition No. 1420 of 2006 in pursuance to the
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policy decision of the Government to exclude the dairy societies from
the purview of the Act 1995 and to bring them back under the Act 1964.
M. The State promulgated the Ordinance No.2/2006 excluding the
milk dairy co-operative societies from the societies covered by the Act
1995 and imported the fiction that such dairies would be deemed to
have been registered under the Act 1964, with effect from the date of
registration under the Act 1995.
N. Government Order dated 4.2.2006 was issued to give effect to
such amendments and also to take care of transitional position,
particularly providing that District Collector would appoint the person
in-charge under Section 32(7) of the Act 1964 to manage the affairs of
all primary milk producers co-operative societies till further elections or
until further orders, so that affairs of those societies would be managed
properly.
O. Writ Petitions were filed before the High Court by various
District Milk Producers Co-operative Unions challenging Ordinance
No.2/2006 and consequential Government Order dated 4.2.2006. The
High Court vide interim order dated 8.2.2006 stayed the operation of
the Government Order dated 4.2.2006. Meanwhile, the Ordinance was
7
converted into the Act. By the impugned judgment dated 1.5.2007, the
High Court allowed the writ petitions.
Hence, these appeals.
Rival Submissions:
3. Shri R. Venkataramani, Shri S.S. Prasad, learned senior counsel
appearing for the appellants have submitted that the impugned
judgment and order are untenable as the Legislature is competent to
amend the Act and while doing so the Legislature in its wisdom had
rightly decided to treat the milk dairy co-operatives distinctly from all
other kinds of societies. Thus, no grievance of discrimination could be
raised. More so, there is no discrimination among the milk dairies, as all
such dairies have been treated as a separate class. The amendment had
not taken away any vested or statutory right of the writ petitioners by
the impugned Act. Both the Acts i.e. Act 1964 as well as Act 1995 are
based on the same set of the co-operative principles and serve different
sectors of the co-operatives in different ways. Both the Acts co-exist
and are not mutually conflicting. Therefore, the question of doubting
the validity of the Act 2006 merely on the ground of having
retrospective application could not arise. The members of the
management committee of the District Unions/writ petitioners could
8
again contest the election for the posts in their respective society under
the Act 1964. Appointment of persons in-charge was merely a
temporary/transitional phase to facilitate such elections and, therefore,
there was no violation of fundamental rights of any of the writ
petitioners. The High Court erred in recording the finding that the Act
2006 stood vitiated on the ground that it had breached promissory
estoppel. The Government undoubtedly, had transferred the
management of the assets to the District Unions and as the said District
Unions would continue with such management of assets, there was no
question of breach of any of the promises made by the State. Doctrine
of promissory estoppel does not apply to legislature. There was a
rational nexus to enact the Act 2006 as a large number of the milk
dairy societies did not enter into the MoU as required under Section
4(4) of the Act 1995. Such legislative action could not be termed as
arbitrary and warranting attraction of the provisions of Article 14 of the
Constitution of India. There were valid reasons for excluding the
milk/dairy societies from the provisions of the Act 1995. Dairy industry
being peculiar and having distinct characteristics required State's
moderation and intervention. Having regard to the special and
distinctive features of the Dairy industry and the existence of large
9
number of financially weak and dependent primary milk Co-operative
Societies, and the necessity of State funding of these societies, it has
been found necessary to take dairy industry out of the purview of 1995
Act. The High Court failed to make distinction of dairy milk societies
from other co-operative societies as the dairy milk societies are having
with them substantial government interest, assets and government
investments. All the societies including the primary societies are
dependent on the government and its assets. Such a financial assistance
has been granted in view of the provisions of Section 43 of the Act
1964 and the government control over such societies under the Act
1964 is minimal. It was not that the Act 2006 had been brought to have
government control over milk dairy societies as under the Act 1995 the
government control was negligible. The societies under the Act 1995
"have to be self reliant". Thus, the Act assured such societies a
complete autonomy. The Act 2006 was enacted on the recommendation
of the House Committee which suggested remedial measures for
effective functioning of the dairies in the State. It was so necessary to
reconfirm the 3-tier structure e.g. apex society, central society and
primary society as such a classification was not available under the Act
1995. The Statement of Objects and Reasons of the Act 2006 clearly
10
provided for justification of amendment (impugned). Therefore,
appeals deserve to be allowed and the impugned judgment and order of
the High Court is liable to be set aside.
4. On the contrary, Mr. P.P. Rao, learned senior counsel, Mr. P.
Venkat Reddy, Mr. Niranjan Reddy and Mr. S. Udaya Kr. Sagar,
learned counsel appearing for the respondents have submitted that the
Act 2006 suffered from vice of arbitrariness, and has taken away the
accrued rights of the milk dairy co-operative societies. Act 2006 has
given a hostile discrimination to milk dairy co-operative societies as
no other kind of society i.e. Societies of Agro Processing, Fisheries,
Sheep Breeding etc. has been excluded from the operation of the Act
1995. A large number of new societies had initially/directly been
registered under the Act 1995. Therefore, the question of creating a
fiction that the same shall also stand excluded from the operation of the
Act 1995 and would be deemed to have been registered under the Act
1964 cannot be justified for the reason that such societies had not
initially been registered under the Act 1964. It was a political decision
of the State Authorities to amend the statute merely because of the
change of the Government and to have control on such societies. The
reasons for enacting the Act 2006 have been spelled out in the
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Statement of Objects and Reasons of the said Act and none of them
really existed in fact and in order to introduce the Act 2006, the State
incorrectly construed the provisions of the Act 1995. A very few
societies had the government benefits and the said societies had also
ensured the compliance of the statutory provisions of the Act 1995.
Almost all the societies have returned the assets of the Federation.
Where it has not been returned, the matters are sub-judice, before the
Co-operative Tribunal, between the Federation and the societies. More
so, the character of the assets would not change upon conversion of a
society into one under the Act 1995. The character of a 3-tier structure
contemplated under the Act 1964 is different from one followed in the
State of Gujarat under the "Anand Pattern" and such 3-tier structure is
possible under the Act 1995 also. There can be no nexus in deeming
fiction created for treating the societies as having been registered under
the Act 1964 and it would definitely not bring back the 3-tier structure.
The farmers had not been facing any problem for redressal of which the
amendment was necessary. Thus, the facts and circumstances of the
case do not require any interference with the impugned judgment and
appeals are liable to be dismissed.
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5. We have considered the rival submissions made by learned
counsel for the parties and perused the record.
6. Before we examine the merits of the arguments advanced by
learned counsel for the parties, it may be necessary to make a reference
to some of the relevant findings recorded by the High Court :
(i) The ordinance/Act suffers from vice of hostile discrimination
against dairy farms and milk producers without scientific or
rational basis for such distinction-merely because the National
Dairy Development Board distinctly deals with dairy activities,
cooperatives dealing with such activities cannot form a separate
and distinct class in so far as co-operative activity is concerned.
(ii) The irregularities noted by the House Committee with regard to
the Visakha Union, Prakasham Union are managerial lapses
which are possible both under the `Act 1964' and the `Act 1995'.
(iii) Non-compliance with the terms and conditions of the transfer
agreements regarding business and service matters and
irregularities noted in the audit reports and House Committee is
possible both under the `Act 1995' and the `Act 1964'.
(iv) The conclusion of the House Committee in respect of two of the
district unions out of eight districts converted into `Act 1995'
cannot be relevant material for any rational conclusion.
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(v) Both Section 2(e) of the `Act 1964' and Section 2(k) of the `Act
1995' enable formation of Apex Societies, Central Societies and
Primary Societies. Exclusion of the Dairy/Milk Cooperative
Societies from `Act 1995' to achieve the object of a three-tier
structure is a non-existent cause.
(vi) Both the `Act 1964' and `Act 1995' have procedure for
auditing, enquiry, inspection and surcharge etc., it is nowhere
stated as to how the `Act 1964' is more effective or
comprehensive in the matter of protecting any government assets
in possession of the societies or as to how the `Act 1995' is
inadequate for the purpose.
(vii) Till June 2004, the Federation found everything positive and
nothing negative in the functioning of the District Union.
(viii) Adverse effects on the interest of dairy farms due to registration
or conversion of dairy/milk co-operative societies under `Act
1995' are not existing.
(ix) Fundamental right under Section 19(1)(c) of the Constitution of
India to form association or union is infringed by the impugned
Ordinance/Act.
(x) The retrospective legislation undoubtedly interferes with vested
rights and accrued rights and such interference is based on
classification not in tune with the parameters of equality under
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Article 14 of the Constitution and not having any nexus with the
objects sought to be achieved.
(xi) The agreement dated 8.1.1981 (between the State Government
and the Indian Dairy Corporation); the letter of understanding
dated 21.1.1988 (between the State Government and the National
Dairy Development Board) and acted upon by the State
Government and the concerned agencies estopped the State
Government from backing out on the assurance.
(xii) Section 32(7) of the `Act 1964' does not confer power on the
government to appoint person-in-charge. In the absence of any
other provision, the government order (G.O.Ms No. 10 dated
4.2.2006) is not legal and enforceable.
7. Thus, the question does arise as to whether in view of the
submissions advanced by the learned counsel for the parties, it is
desirable to interfere with the aforesaid findings or any of them.
8. It is well settled law that Article 14 forbids class legislation,
however, it does not forbid reasonable classification for the purpose of
legislation. Therefore, it is permissible in law to have class legislation
provided the classification is founded on an intelligible differentia
which distinguishes persons or things that are grouped together from
others left out of the group and that differentia must have a rational
15
relation to the object sought to be achieved by the statute in question.
Law also permits a classification even if it relates to a single individual,
if, on account of some special circumstances or reasons applicable to
him, and not applicable to others, that single individual may be treated
as a class by himself. It should be presumed that legislature has
correctly appreciated the need of its people and that its laws are
directed to problems made manifest by experience and that its
discriminations are based on adequate grounds. There is further
presumption in favour of the legislature that legislation had been
brought with the knowledge of existing conditions. The good faith on
the legislature is to be presumed, but if there is nothing on the face of
the law or the surrounding circumstances brought to the notice of
the court on which the classification may reasonably be regarded as
based, the presumption of constitutionality cannot be carried to the
extent of always holding that there must be some undisclosed and
unknown reasons for subjecting certain individuals or corporations to
hostile or discriminating legislation. The law should not be irrational,
arbitrary and unreasonable in as much as there must be nexus to the
object sought to be achieved by it. (Vide: Budhan Choudhry & Ors.
v. State of Bihar, AIR 1955 SC 191 ; and Ram Krishna Dalmia v.
16
Justice S.R. Tendolkar & Ors., AIR 1958 SC 538)
9. In Harbilas Rai Bansal v. State of Punjab & Anr., AIR 1996
SC 857, this Court struck down the provisions of the East Punjab
Urban Rent Restriction (Amendment) Act, 1956, on the ground that the
amendment had taken away the right of landlord to evict his tenant
from non-residential building even on the ground of bonafide
requirement holding that such provisions of amendment were violative
of Article 14 of the Constitution and the landlord was entitled to seek
eviction on ground of requirement for his own use. The Court further
held that it is obvious from the objects and reasons of introducing the
said amended Act, that the primary purpose for enacting the Act was to
protect the tenants against the malafide attempts by their landlords to
evict them. Bona fide requirement of a landlord was, therefore,
provided in the Act - as original enactment - a ground to evict tenant
from the premises whether residential or non residential.
Thus, the issues require to be examined arise as to whether
the Act 2006 is arbitrary, discriminatory or unreasonable or has taken
away the accrued rights of the Milk Dairy Societies registered directly
under the Act 1995 or got conversion of their respective registration
under the Act 1964 to the Act 1995.
17
10. Article 19(1)(c) guarantees to all citizens, the right to form
associations or unions of their choice voluntarily, subject to reasonable
restrictions imposed by law. Formation of the unions under Article
19(1)(c) is a voluntary act, thus, unwarranted/impermissible statutory
intervention is not desired.
11. Constitution Bench of this Court in M/s. Raghubar Dayal Jai
Prakash v. The Union of India & Anr., AIR 1962 SC 263, while
dealing with a similar issue held as under:
"An application for the recognition of the association for
the purpose of functioning under the enactment is a
voluntary act on the part of the association and if the
statute imposes conditions subject to which alone
recognition could be accorded or continued it is a little
difficult to see how the freedom to form the association is
affected unless, of course, that freedom implies or
involves a guaranteed right to recognition also."
12. In Smt. Damyanti Naranga v. The Union of India & Ors.,
AIR 1971 SC 966, this Court examined question related to the Hindi
Sahitya Sammelan, a Society registered under the Societies
Registration Act, 1860. The Parliament enacted the Hindi Sahitya
Sammelan Act under which outsiders were permitted to become
members of the Sammelan without the volition of the original
18
members. This court while examining its validity held that any law
altering the composition of the Association compulsorily will be a
breach of the right to form association because it violated the
composite right of forming an association and the right to continue it as
the original members desired. The Court held as follows :
"It is true that it has been held by this Court that,
after an Association has been formed and the right
under Art.19(1)(c) has been exercised by the
members forming it, they have no right to claim that
its activities must also be permitted to be carried on
in the manner they desire. Those cases are, however,
inapplicable to the present case. The Act does not
merely regulate the administration of the affairs of
the Society, what it does is to alter the composition
of the Society itself as we have indicated above. The
result of this change in composition is that the
members, who voluntarily formed the Association,
are now compelled to act in that Association with
other members who have imposed as members by
the Act and in whose admission to membership they
had no say. Such alteration in the composition of
the Association itself clearly interferes with the right
to continue to function as members of the
Association which was voluntarily formed by the
original founders. The right to form an association,
in our opinion, necessarily implies that the persons
forming the Association have also the right to
continue to be associated with only those whom they
voluntarily admit in the Association. Any law, by
which members are introduced in the voluntary
Association without any opinion being given to the
members to keep them out, or any law which takes
away the membership of those who have voluntarily
joined it, will be a law violating the right to form an
association". (Emphasis supplied)
19
13. In Daman Singh & Ors. v. State of Punjab & Ors., AIR 1985
SC 973, this Court examined a case where an unregistered society was
by statute converted into a registered society which bore no
resemblance whatever to the original society. New members could be
admitted in large numbers so as to reduce the original members to an
insignificant minority. The composition of the society itself was
transformed by the Act and the voluntary nature of the association of
the members who formed the original society was totally destroyed.
The Act was struck down by the Court as contravening the
fundamental right guaranteed by Art. 19(1)(f).
14. In Dharam Dutt & Ors. v. Union of India & Ors., (2004) 1
SCC 712, this Court held that the first test is the test of reasonableness
which is common to all the clauses under Article 19(1), and the second
test, is to ask for the answer to the question, whether the restrictions
sought to be imposed on the fundamental right, fall within clauses (2)
to (6) respectively, qua sub-clauses (a) to (g) of Article 19(1) of the
Constitution, and the Court further held that a right guaranteed by
Article 19(1)(c), on the literal reading thereof, can be subjected to those
restrictions which satisfy the test of clause (4) of Article 19. The rights
20
not included in the literal meaning of Article 19(1)(c) but which are
sought to be included therein as flowing therefrom i.e. every right
which is necessary in order that the association brought into
existence fulfils every object for which it is formed, the
qualifications therefor, would not merely be those in clause (4) of
Article 19, but would be more numerous and very different.
Restrictions which bore upon and took into account the several fields in
which the associations or unions of citizens might legitimately engage
themselves, would also become relevant. Therefore, the freedom
guaranteed under Article 19(1)(c) is not restricted merely to the
formation of the association, but to the effective functioning of the
association so as to enable it to achieve the lawful objectives.
15. In The Tata Engineering and Locomotives Co.Ltd. v. The
State of Bihar & Ors., AIR 1965 SC 40, Constitution Bench of this
Court held, that a fundamental right to form the association cannot
be coupled with the fundamental right to carry on any trade or
business. As soon as citizens form a company, the right guaranteed to
them by Article 19(1)(c) has been exercised, and no restrain has been
placed on that right and no infringement of that right is made. Once a
company or a corporation is formed, the business which is carried on
21
by the said company or corporation is the business of the company or
corporation, and is not the business of the citizens who get the
company or corporation formed or incorporated, and the rights of the
incorporated body must be judged on that footing alone and cannot be
judged on the assumption that they are the rights attributable to the
business of individual citizens. Thus, right under Article 19(1)(c) does
not comprehend any concomitant right beyond the right to form an
association and right relating to formation of an association. (See also:
All India Bank Employees' Association v. National Industrial
Tribunal (Bank Disputes) Bombay & Ors., AIR 1962 SC 171; S.
Azeez Basha & Anr. v. The Union of India etc., AIR 1968 SC 662;
and D.A.V. College, etc.etc. v. State of Punjab & Ors., (1971) 2 SCC
269.)
16. In view of the above, it becomes evident that the right of the
citizens to form the association are different from running the business
by that association. Therefore, right of individuals to form a society
has to be understood in a completely different context. Once a co-
operative society is formed and registered, for the reason that co-
operative society itself is a creature of the statute, the rights of the
society and that of its members stand abridged by the provisions of the
22
Act. The activities of the society are controlled by the statute.
Therefore, there cannot be any objection to statutory interference with
their composition or functioning merely on the ground of contravention
of individual's right of freedom of association by statutory
functionaries.
17. It is a settled legal proposition that Article 14 of the Constitution
strikes at arbitrariness because an action that is arbitrary, must
necessarily involve negation of equality. This doctrine of
arbitrariness is not restricted only to executive actions, but also
applies to legislature. Thus, a party has to satisfy that the action was
reasonable, not done in unreasonable manner or capriciously or at
pleasure without adequate determining principle, rational, and has been
done according to reason or judgment, and certainly does not depend
on the will alone. However, the action of legislature, violative of
Article 14 of the Constitution, should ordinarily be manifestly
arbitrary. There must be a case of substantive unreasonableness in the
statute itself for declaring the act ultra vires of Article 14 of the
Constitution. (Vide: Ajay Hasia etc. v. Khalid Mujib Sehravardi &
Ors. etc. AIR 1981 SC 487; Reliance Airport Developers (P) Ltd. v.
Airports Authority of India & Ors., (2006) 10 SCC 1; Bidhannagar
23
(Salt Lake) Welfare Assn. v. Central Valuation Board & Ors. AIR
2007 SC 2276; Grand Kakatiya Sheraton Hotel and Towers
Employees and Workers Union v. Srinivasa Resorts Limited &
Ors. AIR 2009 SC 2337; and State of Tamil Nadu & Ors. v. K.
Shyam Sunder & Ors. (2011) 8 SCALE 474).
18. In State of Andhra Pradesh & Anr. v. P. Sagar, AIR 1968 SC
1379, this Court examined the case as to whether the list of backward
classes, for the purpose of Article 15(4) of the Constitution has been
prepared properly, and after examining the material on record came to
the conclusion that there was nothing on record to show that the
Government had followed the criteria laid down by this Court while
preparing the list of other backward classes. The Court observed as
under:
"Honesty of purpose of those who prepared and
published the list was not and is not challenged, but the
validity of a law which apparently infringes the
fundamental rights of citizens cannot be upheld merely
because the law maker was satisfied that what he did
was right or that he believes that he acted in manner
consistent with the constitutional guarantees of the
citizen. The test of the validity of a law alleged to
infringe the fundamental rights of a citizen or any act
done in execution of that law lies not in the belief of the
maker of the law or of the person executing the law, but
in the demonstration by evidence and argument before
the Courts that the guaranteed right is not infringed."
24
19. In Indra Sawhney II v. Union of India, AIR 2000 SC 498,
while considering a similar issue regarding preparing a list of creamy
layer OBCs, this Court held that legislative declarations on facts are
not beyond judicial scrutiny in the constitutional context of Articles
14 and 16 of the Constitution, for the reason that a conclusive
declaration could not be permissible so as to defeat a fundamental
right.
20. In Harman Singh & Ors. v. Regional Transport Authority,
Calcutta Region & Ors., AIR 1954 SC 190, this Court held:
"....A law applying to a class is
constitutional if there is sufficient basis or reason for it.
In other words, a statutory discrimination cannot be set
aside as the denial of equal protection of the laws if any
state of facts may reasonably be conceived to justify it."
21. In D.C. Bhatia & Ors. v. Union of India & Anr., (1995) 1 SCC
104, this Court held:
".....This is a matter of legislative policy. The
legislature could have repealed the Rent Act
altogether. It can also repeal it step by step.......It is
well settled that the safeguard provided by Article 14
of the Constitution can only be invoked, if the
classification is made on the grounds which are
totally irrelevant to the object of the statute. But, if
there is some nexus between the objects sought to be
25
achieved and the classification, the legislature is
presumed to have acted in proper exercise of its
constitutional power. The classification in practice
may result in some hardship. But, a statutory
discrimination cannot be set aside, if there are facts
on the basis of which this statutory discrimination can
be justified....The court can only consider whether the
classification has been done on an understandable
basis having regard to the object of the statute. The
court will not question its validity on the ground of
lack of legislative wisdom.
Moreover, the classification cannot be done
with mathematical precision. The legislature must
have considerable latitude for making the
classification having regard to the surrounding
circumstances and facts. The court cannot act as a
super-legislature...."
22. In State of Gujarat & Anr. v. Raman Lal Keshav Lal Soni &
Ors., AIR 1984 SC 161, this Court while dealing with a similar issue
observed as under:
"......The legislature is undoubtedly competent to
legislate with retrospective effect to take away or
impair any vested right acquired under existing laws
but since the laws are made under a written'
Constitution, and have to conform to the do's and
don'ts of the Constitution neither prospective nor
retrospective laws can be made so as to contravene
Fundamental Rights. The law must satisfy the
requirements of the Constitution today taking into
account the accrued or acquired rights of the parties
today. The law cannot say twenty years ago the
parties had no rights therefore, the requirements of
the Constitution will be satisfied if the law is dated
back by twenty years. We are concerned with today's
26
rights and not yesterday's. A Legislature cannot
legislate today with reference to a situation that
obtained twenty years, ago and ignore the march of
events and the constitutional rights accrued in the
course of the twenty years. That would be most
arbitrary, unreasonable and a negation of history...
................... Today's equals cannot be made
unequal by saying that they were unequal twenty
years ago and we will restore that position by making
a law today and making it retrospective.........the
provisions are so intertwined with one another that it
is wellnigh impossible to consider any life saving
surgery. The whole of the Third Amendment Act must
go."
23. In B.S. Yadav & Ors. v. State of Haryana & Ors., AIR 1981
SC 561, Constitution Bench of this Court similarly held that the date
from which the rules are made to operate must be shown to have
reasonable nexus with the provisions contained in the statutory rules
specially when the retrospective effect extends over a long period.
24. In Chairman, Railway Board & Ors. v. C. R.
Rangadhamaiah & Ors., AIR 1997 SC 3828, this Court similarly held
as under:
".......an amendment having retrospective operation
which has the effect of taking away a benefit already
available to the employee under the existing rule is
arbitrary, discriminatory and violative of the rights
guaranteed under Articles 14 and 16 of the
Constitution."
27
Thus, wherever the amendment purports to restore the
status quo ante for the past period taking away the benefits already
available, accrued and acquired by them, the law may not be valid.
(Vide: P. Tulsi Das & Ors. v. Government of A.P. & Ors., AIR 2003
SC 43)
25. In National Agricultural Cooperative Marketing Federation
of India Ltd. & Anr. v. Union of India & Ors., (2003) 5 SCC 23, this
Court held that the legislative power to amend the enacted law with
retrospective effect, is also subject to several judicially recognized
limitations, inter- alia, the retrospectivity must be reasonable and not
excessive or harsh otherwise it runs the risk of being struck down as
unconstitutional.
26. Vested right has been defined as fixed; vested; accrued; settled;
absolute; and complete; not contingent; not subject to be defeated by a
condition precedent. The word `vest' is generally used where an
immediate fixed right in present or future enjoyment in respect of a
property is created. It is a "legitimate" or "settled expectation" to
obtain right to enjoy the property etc. (Vide: Mosammat Bibi Sayeeda
& Ors., etc. v. State of Bihar & Ors., etc., AIR 1996 SC 1936;
28
Howrah Municipal Corporation & Ors. v. Ganges Rope Co. Ltd. &
Ors., (2004) 1 SCC 663; and J.S. Yadav v. State of Uttar Pradesh &
Anr., (2011) 6 SCC 570).
27. In the matter of Government of a State, the succeeding
Government is duty bound to continue and carry on the unfinished job
of the previous Government, for the reason that the action is that of the
"State", within the meaning of Article 12 of the Constitution, which
continues to subsist and therefore, it is not required that the new
Government can plead contrary from the State action taken by the
previous Government in respect of a particular subject. The State,
being a continuing body can be stopped from changing its stand in a
given case, but where after holding enquiry it came to the conclusion
that action was not in conformity with law, the doctrine of estoppel
would not apply. Thus, unless the act done by the previous
Government is found to be contrary to the statutory provisions,
unreasonable or against policy, the State should not change its stand
merely because the other political party has come into power. "Political
agenda of an individual or a political party should not be subversive of
rule of law". The Government has to rise above the nexus of vested
interest and nepotism etc. as the principles of governance have to be
29
tested on the touchstone of justice, equity and fair play. The decision
must be taken in good faith and must be legitimate. [Vide: Onkar Lal
Bajaj etc. etc. v. Union of India & Anr. etc. etc. AIR 2003 SC 2562;
State of Karnataka & Anr. v. All India Manufacturers
Organization & Ors. AIR 2006 SC 1846; and State of Tamil Nadu
& Ors. v. K. Shyam Sunder & Ors. (Supra)].
28. In State of Tamil Nadu & Ors. v. K. Shyam Sunder & Ors.
(supra), this Court while dealing with the issue held as under:
"The Statement of Objects and Reasons appended to
the Bill is not admissible as an aid to the construction
of the Act to be passed, but it can be used for limited
purpose for ascertaining the conditions which
prevailed at that time which necessitated the making of
the law, and the extent and urgency of the evil, which it
sought to remedy. The Statement of Objects and
Reasons may be relevant to find out what is the
objective of any given statute passed by the legislature.
It may provide for the reasons which induced the
legislature to enact the statute. "For the purpose of
deciphering the objects and purport of the Act, the
court can look to the Statement of Objects and Reasons
thereof". (Vide: Kavalappara Kottarathil Kochuni @
Moopil Nayar v. The States of Madras and Kerala &
Ors., AIR 1960 SC 1080; and Tata Power Company
Ltd. v. Reliance Energy Ltd. & Ors., (2009) 16 SCC
659)."
Similar view has been reiterated in A. Manjula Bhashini &
Ors. v. Managing Director, Andhra Pradesh Women's Cooperative
30
Finance Corporation Ltd. & Anr., (2009) 8 SCC 431 observing that
for the purpose of construction of a provision, the wholesome reliance
cannot be placed on objects and reasons contained in the Bill, however,
the same can be referred to for understanding the background, the
antecedent state of affairs and the mischief sought to be remedied by
the statute. The Statement of Objects and Reasons can also be looked
into as an external aid for appreciating the true intent of the
legislature and/or the object sought to be achieved by enactment of
the particular Act or for judging reasonableness of the classification
made by such Act.
29. In M. Ramanathan Pillai v. State of Kerala & Anr., (1973) 2
SCC 650, this Court relied upon American Jurisprudence, 2d. at page
783 wherein it has been stated as under:
"Generally, a State is not subject to an estoppel to the
same extent as an individual or a private corporation.
Otherwise, it might be rendered helpless to assert its
powers in government. Therefore, as a general rule the
doctrine of estoppel will not be applied against the State
in its governmental, public or sovereign capacity."
30. In State of Kerala & Anr. v. The Gawalior Rayon Silk
Manufacturing (Wvg.) Co. Ltd. etc., (1973) 2 SCC 713, a similar
view has been re-iterated by this Court observing as under:
31
"We do not see how an agreement of the Government
can preclude legislation on the subject. The High Court
has rightly pointed out that the surrender by the
Government of its legislative powers to be used for
public good cannot avail the company or operate against
the Government as equitable estoppel."
Therefore, it is evident that the Court will not pass any
order binding the Government by its promises unless it is so necessary
to prevent manifest injustice or fraud, particularly, when government
acts in its governmental, public or sovereign capacity. Estoppel does
not operate against the government or its assignee while acting in such
capacity.
31. The Government has inherent power to promote the general
welfare of the people and in order to achieve the said goal, the State is
free to exercise its sovereign powers of legislation to regulate the
conduct of its citizens to the extent, that their rights shall not stand
abridged.
The co-operative movement by its very nature, is a form
of voluntary association where individuals unite for mutual benefit in
the production and distribution of wealth upon principles of equity,
reason and common good. So, the basic purpose of forming a co-
operative society remains to promote the economic interest of its
32
members in accordance with the well recognised co-operative
principles. Members of an association have the right to be associated
only with those whom they consider eligible to be admitted and have
right to deny admission to those with whom they do not want to
associate. The right to form an association cannot be infringed by
forced inclusion of unwarranted persons in a group. Right to associate
is for the purpose of enjoying in expressive activities. The
constitutional right to freely associate with others encompasses
associational ties designed to further the social, legal and economic
benefits of the members of the association. By statutory interventions,
the State is not permitted to change the fundamental character of the
association or alter the composition of the society itself. The
significant encroachment upon associational freedom cannot be
justified on the basis of any interest of the Government. However,
when the association gets registered under the Co-operative Societies
Act, it is governed by the provisions of the Act and rules framed
thereunder. In case the association has an option/choice to get
registered under a particular statute, if there are more than one statutes
operating in the field, the State cannot force the society to get itself
registered under a statute for which the society has not applied.
33
32. The cases in hand require to be examined in the light of the
aforesaid settled legal propositions.
The recommendations of the House Committee and the Group
of Ministers, are not based on relevant material as there was no
investigation of all the co-operative societies either converted to or
registered under the Act 1995. The House Committee had primarily
been assigned the task to look into the three District Milk Unions
namely, Visakha, Ongole and Chittoor which had been running partly
on the government aids. Out of the said three milk unions, Visakha and
Ongole converted under the Act 1995, while Chittoor remained under
the Act 1964 throughout and the material on record reveal that it was
under liquidation even prior to the constitution of the House
Committee. There is nothing on record to show that the House
Committee had considered either the functioning of other more than
3500 societies registered under the Act 1995, or consensus thereof
arrived at by the Government, the Federation and the Unions at the
meeting convened by the Chief Secretaries on 26.8.2003 alongwith
other high officials of the co-operative section to solve the problems
faced by the Government, the Federation and the Milk Unions within
the framework of the Act 1995 and consistent with the statutory co-
34
operative principles. The House Committee also placed a very heavy
unwarranted reliance on the views of the Federation communicated
vide its letter dated 20.8.2005, without ascertaining the views of the
District Unions.
33. Be that as it may, the House Committee did not recommend the
amendment with retrospective effect, particularly, for the conversion of
dairy co-operative societies registered under the Act 1995 into societies
deemed to have been registered under the Act 1964. More so, the
Committee did not consider at all as to whether it was permissible in
law, to provide for such a course, so far as the societies initially
registered under the Act 1995, were concerned.
34. The restrictions so imposed by the Act 2006, with retrospective
effect, extending over a decade and importing the fiction that the
societies would be deemed to have been registered under the Act 1964,
without giving any option to such societies suggest the violation of
Article 19(1)(c) and are not saved by clause (4) of Article 19 of the
Constitution. It is by no means conceivable, that the grounds on the
basis of which reasonable restrictions could be invoked were available
in the instant case.
35
35. It is evident from the record and elaborate discussion by the
High Court that Mulkanoor Women Mutually Aided Milk Producers
Co-operative Union Limited (W.P. No.3502 of 2006) increased its
membership from 72 to 101 village dairy co-operative societies
between 2000 and 2006, and increased milk procurement from 6000
litres to 17,849 litres from the value of Rs.24.24 lakhs to Rs.53.00
lakhs. The milk sales went up from Rs.9.30 lakhs to Rs.82.53 lakhs.
The society declared bonus to the producers and substantially
discharged its loans. It is encouraging thrift among the members by
compulsorily organizing Vikasa Podupu scheme, which swelled from
Rs.11.88 lakhs to Rs.1.13 crores. This society directly formed under
the Act 1995 has to retain its character and there would be no
justification to bring such a society with about 15,000 women members
under a nominated agency.
36. The impugned provisions have no nexus with the object of
enforcing the 3-tier structure inasmuch as (a) the 1964 and the 1995
Acts, both permit registration of Federations; (b) the Act 1964 does
not contain any express provision providing for 3-tier structure; (c) the
object of having a 3-tier structure could be achieved by the Federation
36
registering itself under the Act 1995 as decided at the meeting of
cooperative milk unions convened by the Chief Secretary on
26.8.2003; and (d) even the Act 1964 does not treat Dairy Cooperatives
as a separate class to be governed by a separate structure. As such from
the stand point of structure and basic cooperative principles, all
cooperative societies, are alike. The impugned provisions are arbitrary
and violative of Article 14 as they deprived the Dairy Cooperative
Societies of the benefit of the basic principles of cooperation. The
amendments are contrary to the national policy on Cooperatives. They
obstruct and frustrate the object of the development and growth of
vibrant cooperative societies in the State.
37. After conversion into Mutually - Aided Societies under the Act
1995 with the permission of the Government as stipulated by Section 4
(3)(a), the cooperative societies originally registered under the Act
1964 cannot be treated as aided societies or societies holding the assets
of the government or of the Federation. The Statement of Objects and
Reasons itself shows that the government decided not to withdraw its
own support suddenly. In fact, there was no aid given by the State after
conversion. Chapter X of the Act 1964 which empowers the Registrar
to recover dues by attachment and sale of property and execution of
37
orders having been expressly incorporated in the Act 1995 by Section
36, thereof there was no justification at all for the impugned
Amendments.
38. After the incorporation of the cooperative principles in Section 4
of the A.P. Cooperative Societies Act, 1964 read with Rule 2(a) of the
A.P. Cooperative Societies Rules, 1964, by Amendment Act No. 22 of
2001, the extensive control of cooperative societies by the Registrar
under the Act 1964 has become incompatible and inconsistent with the
said cooperative principles which mandate ensuring democratic
member control and autonomy and independence in the manner of
functioning of the cooperatives. These two, namely, extensive State
control and ensuring operation of cooperative principles cannot be
done at the same time. Therefore, the impugned Act 2006 which by a
fiction in sub-section (1A) of Section 4 of the Act 1995 declares that all
the dairy/milk cooperative societies shall be deemed to have been
excluded from the provisions of the A.P. Cooperative Societies Act,
1964 is arbitrary and violative of Article 14 of the Constitution.
39. Comparative study of the statutory provisions of the Act 1964
with that of Act 1995 makes it crystal clear that Government has much
more control over the co-operative societies registered under the Act
38
1964 and minimal under the Act 1995. The principles of co-operation
adopted at international level have been incorporated in the Act 1995
itself, while no reference of any co-operative principle has been made
in the Act 1964. The Government is empowered to make rules on
every subject covered by the Act 1964, while no such power has been
conferred on the Government to make rules under the Act 1995. The
affairs of the co-operatives are to be regulated by the provisions of the
Act 1995 and by the bye-laws made by the individual co-operative
society. The Act 1995 provide for multiplicity of organisations and the
statutory authorities have no right to classify the co-operative societies,
while under the Act 1964 the Registrar can refuse because of non-
viability, conflict of area of jurisdiction or for some class of co-
operative. Under the Act 1964, it is the Registrar who has to approve
the staffing pattern, service conditions, salaries etc. and his approval is
required for taking some one from the Government on deputation,
while under the Act 1995 the staff is accountable only to the society.
Deputation etc. is possible only if a co-operative so desires. The size,
term and composition of board fixed under the Act 1964 and the
Registrar is the ultimate authority for elections etc. and he can also
provide for reservations in the board. Under the Act 1995, the size,
39
term and composition of the board depend upon bye-laws of the
particular society. For admission and expulsion of a member, Registrar
is the final authority under the Act 1964, while all such matters fall
within the exclusive prerogative of the co-operative society under the
Act 1995. The Government and other non-members may contribute
share capital in the societies registered under the Act 1964, wherein
members alone can contribute share capital in a society registered
under the Act 1995. Mobilisation of funds of co-operative society is
permissible only within the limits fixed by the Registrar under the Act
1964, while such mobilisation is permissible within the limits fixed by
the bye-laws in a co-operative society under the Act 1995. Subsidiary
organisations may be up by a co-operative under the Act 1995, while it
is not no permissible under the Act 1964. In resolving of disputes,
Registrar or his nominee is the sole arbitrator under the Act 1964,
while the subject is exclusively governed by the bye-laws under the
Act 1995. Role of the Government and Registrar under the Act 1964 is
much more than under the Act 1995 as under the Act 1964, the
Registrar can postpone the elections; nominate directors to Board; can
appoint persons in-charge for State level federations; frame rules; and
handle appeals/revisions/reviews; can give directions to co-operatives
40
regarding reservations on staff and set up Special Courts and Tribunals,
while so much control is not under the Act 1995. Similarly, Registrar
has more say under the Act 1964 in respect of registering of bye-laws;
approval of transfer of assets and liabilities or division or
amalgamation or in respect of transfer of all members or
disqualification of members etc.
40. Statement of objects and reasons of the Act 1995 clearly
stipulate that State participation in the financing and management of
cooperatives in the past had led to an unfortunate situation and the
cooperative societies were not governed/guided by the universally
accepted principles of cooperation. Thus, the purpose to enact the Act
1995 was to provide more freedom to conduct the affairs of the
cooperative societies by its members. Clause 7 thereof clearly
described the salient features of the legislation, inter-alia, to enunciate
the cooperative principles which primarily place an assent on
voluntarily self-financing autonomous bodies for removal from State
control; to accept the cooperative societies to regulate their functioning
by framing bye-laws subject to the provisions of the Act and to change
the form or extent to their liability, to transfer their assets and liabilities
41
to provide for the constitution of board and functions of the board of
directors.
Principles of co-operation as incorporated in Section 3 and given
effect to in the other provisions of the Act 1995 permit better
democratic functioning of the society than under the Act 1964.
Whereas the Act 1995 provides for State regulation to the barest
minimum, the Act 1964 provides for extensive State control and
regulation of cooperative societies which is inconsistent with the
national policy with regard to cooperative societies evolved in
consultation and collaboration with the States which stands accepted by
the State of A.P. and reflected in the Scheme of the Act 1995 which is
based on the model law recommended by the Planning Commission of
India.
Thus, reverting back to the cooperative societies under the Act
1964 is a retrograding process by which the government would
enhance its control of these societies registered under the Act 1995.
They would be deprived not only of benefits under the said Act, but
rights accrued under the Act 1995 would also be taken away with
retrospective effect.
42
41. Cooperative law is based on voluntary action of its members.
Once a society is formed and its members voluntarily take a decision to
get it registered under the Act X, the registration authority may reject
the registration application if conditions prescribed under Act X are not
fulfilled or for any other permissible reason. The registration authority
does not have a right to register the said society under Act Y or even a
superior authority is not competent to pass an order that the society
would be registered under the Act Y. Such an order, if passed, would
be in violation of the first basic cooperative principle that every action
shall be as desired by its members voluntarily. Introducing such a
concept of compulsion would violate Article 19(1)(c) of the
Constitution of India. It is not permissible in law to do something
indirectly, if it is not permissible to be done directly. (See: Sant Lal
Gupta & Ors v. Modern Co-operative Group Housing Society Ltd.
& Ors., JT 2010 (11) SC 273)
42. Act 2006 had been enacted without taking note of the basic
principles of co-operatives incorporated in Section 3 of the Act 1995
which provide that membership of a co-operative society would be
voluntary and shall be available without any political restriction. The
co-operative society under the Act would be a democratic organisation
43
as its affairs would be administered by persons elected or appointed in
a manner agreed by members and accountable to them.
43. The legislature has a right to amend the Act 1995 or repeal the
same. Even for the sake of the argument, if it is considered that
legislature was competent to exclude the milk cooperative dairies from
the operation of the Act 1995 and such an Act was valid i.e. not being
violative of Article 14 of the Constitution etc., the question does arise
as to whether legislature could force the society registered under the
Act 1995 to work under the Act 1964. Importing the fiction to the
extent that the societies registered under the Act 1995, could be
deemed to have been registered under the Act 1964 tantamounts to
forcing the members of the society to act under compulsion/direction of
the State rather than on their free will. Such a provision is violative of
the very first basic principles of cooperatives. More so, the Act is
vitiated by non-application of mind and irrelevant and extraneous
considerations.
44. In view of the above, we do not see any cogent reason to
interfere with the impugned judgment and order. The appeals lack
merit and are accordingly dismissed. No costs.
44
............................J.
(P. SATHASIVAM)
...........................J.
(Dr. B.S. CHAUHAN)
New Delhi,
September 2, 2011
45
