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Saturday, September 3, 2011

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.


                       IN THE SUPREME COURT OF INDIA


                        CIVIL APPEAL NO.  2188 OF 2008


A.P. Dairy Development Corporation                                               ... Appellant




B. Narasimha Reddy & Ors.                                                         ...Respondents


                      CIVIL APPEAL NOS.  2189-2212 OF 2008


                        CIVIL APPEAL NO.  4588 OF 2008


                                        J U D G M E N T


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.  


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 


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 


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 


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. 


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 


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 


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 


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 


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 


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 


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 


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. 


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.  


 (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 


(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 


         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 


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. 


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. 


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 


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)


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 


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 


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 


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 


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 


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 


(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 


           "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."


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 


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  


       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  


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  


             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  


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: 

         "   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  



                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 


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; 


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 


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  


       Similar   view   has   been   reiterated   in  A.   Manjula   Bhashini   & 

Ors. v. Managing Director, Andhra Pradesh Women's Cooperative 


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: 


          "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 


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 


                 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 


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. 



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-


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.     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 


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 


orders having been expressly incorporated in the Act 1995 by Section 

36,   thereof   there   was   no   justification   at   all   for   the   impugned 


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 


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, 


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 


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 


to provide for the constitution of board and functions of the board of 


       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 


       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. 


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 


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 


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.



                     (P. SATHASIVAM)


                     (Dr. B.S. CHAUHAN)

New Delhi,

September 2, 2011


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