Part IX-B of Constitution relating to cooperative societies unconstitutional for want of ratification by half of the States; Provisions relating to multi-State cooperative societies severable and valid: SC

Supreme Court: A 3-Judge Bench has held that the Constitution (97th Amendment) Act, 2011 which inter alia inserted Part IX-B is ultra vires the Constitution insofar it is concerned with the subject of Cooperative Societies for want of the requisite ratification under Article 368(2) proviso. At the same time, the Court by a majority of 2:1, followed doctrine of severability in declaring that Part IX-B is operative insofar as it concerns Multi-State Cooperative Societies both within various States and in Union Territories.  R.F. Nariman and B.R. Gavai, JJ. formed the majority. Whereas K.M. Joseph, J. penned a separate opinion dissenting partly with the majority. He expressed inability to concur with the view on the application of doctrine of severability.

As recorded by the Court, the judgment was confined to the procedural aspect of Article 368(2) proviso, there being no substantive challenge to Part IX-B on the ground that it violates the basic structure doctrine.

Order of the High Court

The instant appeals raised an important question as to the vires of the Constitution (97th Amendment) Act, 2011 which inter alia introduced Part IX-B with chapter heading ‘The Co-operative Societies’. The Amendment Act came into force with effect from 15-2-2012. Public Interest Litigation was filed before the Gujarat High Court to decide was whether Part IX-B is non est for want of ratification by half of the States under the proviso to Article 368(2). The High Court had declared that the said constitutional amendment inserting Part IX-B is ultra vires the Constitution for want of the requisite ratification under Article 368(2) proviso. Aggrieved, the Union of India approached the Supreme Court in the instant appeal.

Constitution (97th Amendment) Act, 2011

On 7-12-2004, a conference of Ministers dealing with cooperatives in various States resolved to amend the Constitution to ensure democratic, autonomous and professional functioning of cooperatives; to address key issues of empowerment of cooperatives through voluntary formation, autonomous functioning, democratic control and professional management; for regular and timely conduct of elections, general body meetings and professional audit. After various consultations by the Centre with State Governments, the Constitution (97th Amendment) Act, 2011 was passed. A new Part IX-B was then inserted consisting of Articles 243-ZH to 243-ZT.

Challenge

The subject ‘Cooperative Societies’ falls within Schedule 7 List 2, i.e., the State List as a part of Entry 32 thereof. According to the writ petitioner, a careful reading of Part IX-B would show that the unfettered power of State Legislatures prior to the amendment has now been fettered by the provisions of Part IX-B in several material particulars: for example, fixation of maximum number of directors of cooperative societies; reservation provision contained in 243-ZJ; duration of the term of office of elected members of the board of cooperative societies, etc. In short, what has been done is to add exception after exception to Entry 32 thereby carving out of Entry 32 a number of matters which otherwise were exclusively within the domain of State Legislatures.

On this basis, it was challenged that as a direct inroad is made into Article 246(3) and Entry 32 List 2, such amendment would have to be struck down for want of ratification.

Analysis and Observations

Legislative relations between Union and States

The Court referred to the constitutional scheme of legislative relations between the Union of India and the States, which is laid down in Articles 245 and 246. A cursory reading of these Articles would show that whereas Parliament may make laws for the whole or any part of the territory of India, the legislation of a State may make laws for the whole or any part of the State.

The Court revisited Article 246 which refers to laws with respect to any of the matters enumerated in three Lists contained in the 7th Schedule to the Constitution. List 1 contains subjects or topics on which Parliament has exclusive power to make laws; List 3 in the Concurrent List contains topics on which both legislatures may make laws. List 2, with which the Court was directly concerned, gives the States exclusive power to make laws for such State or part thereof with respect to any of the matters contained therein. So far as Union Territories are concerned, Parliament is given power without constraint as it may also legislate with respect to topics covered by List 2.

Fields of legislation ─ Cooperative Societies

Whereas Article 246 contains power to legislate, the topics of legislation contained in the three Lists are described as ‘fields of legislation’.

It was noted by the Court that so far as Cooperative Societies are concerned, it is entirely a matter for the States to legislate upon, being the last subject-matter mentioned in Entry 32 List 2. Notably, however, when it comes to Multi-State Cooperative Societies with objects not confined to one State, the legislative power would be that of the Union of India which is contained in Entry 44 List 1. The Court stated:

“It may thus be seen that there is no overlap whatsoever so far as the subject ‘cooperative societies’ is concerned. Cooperative societies as a subject matter belongs wholly and exclusively to the State legislatures to legislate upon, whereas multi-State cooperative societies i.e., cooperative societies having objects not confined to one State alone, is exclusively within the ken of Parliament.“

Power to amend the Constitution of India

The power of amendment of the Constitution is contained in Article 368. The Court noted that Article 368(1) refers to Parliament, which may exercise its ‘constituent power’ to amend the constitution by way of addition, variation or repeal of any provision of the Constitution. This however has to be in accordance with the mandatory procedure laid down in the Article.

The Court was concerned with the procedure when it comes to amending certain specified articles/provisions in the proviso to Article 368(2).

Requirement for ratification

If the subject matter of an amendment falls within Article 368(2) proviso, then the additional procedural requirement is that such amendment shall also be required to be ratified by the legislatures of not less than one-half of the States by resolution to that effect passed by those legislatures before the Bill making provision for such amendment is presented to the President for assent.

The Court noted that the 97th Amendment which inserts the chapter dealing with Cooperative Societies had not been so ratified. The question which arose in the instant appeal was whether the addition of this chapter can be said to be void or non est for want of such ratification.

Applicability of proviso to Article 368(2)

The Court recorded that a challenge to a constitutional amendment may be on procedural or substantive grounds. The instant case was concerned with the procedural ground contained in Article 368(2) proviso.

Relying on judicial precedents where various tests for the application of Article 368(2) proviso have been laid down, the Court stated that the ‘change’ spoken about by Article 368(2) proviso in any provision of the Constitution need not be direct in the sense of adding, subtracting, or modifying the language of the particular Article or provision spoken of in the proviso. It was observed:

“The judgments [speak] of a ‘change-in effect’ which would mean a change which, though not in the language of any provision of the Constitution, would yet be a change which would impact a particular article and the principle contained therein in some significant way.“

Any significant addition or curtailment of a field of legislation which is contained in an Entry in List 2 of the 7th Schedule of the Constitution exclusively reserved to the States, would also amount to a ‘change’ so as to attract the proviso to Article 368(2) and therefore require ratification. The Court said that:

“It is always important to remember that in matters affecting the Constitution of India, form always gives way to substance.“

Part IX-B inserted by the Constitution (97th Amendment) Act, 2011

Analysing Part IX-B, the Court noted that as the Statement of Objects and Reasons of the Constitution (97th Amendment) Act shows, it is acknowledged that the subject ‘Cooperative Societies’ is exclusively allotted to the State legislature under Entry 32 of the State List. After this, it is stated that the Central Government is committed to ensure that Cooperative Societies in the country function in a democratic, professional, autonomous and economically sound manner. It is then stated that the new part to be inserted in the Constitution would contain provisions which would drastically curtail the powers of the State legislatures in that such legislations by the States would now have to conform to the newly inserted part. Part IX-B consists of Articles 243-ZH to 243-ZT.

Noting the restrictions[1] contained in Part IX-B, the Court observed that it is clear that the exclusive legislative power that is contained in Entry 32 List 2 has been significantly and substantially impacted in that such exclusive power is now subjected to a large number of curtailments. Article 243-ZI specifically mandates that the exclusive legislative power contained in Entry 32 List 2 of the State Legislature is now severely curtailed as it can only be exercised subject to the provisions of Part IX-B; further, Article 243-ZT makes it clear that all State laws which do not conform to the restrictions mentioned in Part IX-B automatically come to an end on the expiration of one year from the commencement of the Constitution (97th Amendment) Act. The Court was of the opinion:

“It is clear that by curtailing the width of Entry 32, List 2 of the 7th Schedule, Part IX-B seeks to effect a significant change in Article 246(3) read with Entry 32 List 2 of the 7th Schedule inasmuch as the State’s exclusive power to make laws with regard to the subject of cooperative societies is significantly curtailed thereby directly impacting the quasi-federal principle contained therein. Quite clearly, therefore, Part IX-B, insofar as it applies to cooperative societies which operate within a State, would therefore require ratification under both sub-clauses (b) and (c) of the proviso to Article 368(2) of the Constitution of India.“

The Court held that in the instant case, ratification not having been effected, the Amendment is non est.

Argument of implied ratification

Union of India argued that 17 out of 28 States had enacted legislations incorporating provisions of Part IX-B, and therefore, they had impliedly accepted the restrictions laid down in the said Part. This argument did not find favour with the Court inasmuch as the procedure laid down in Article 368(2) proviso requires ratification of legislatures of one-half of the States by resolutions to that effect. This has admittedly not been done in the instant case. Also, the argument that no State has come forward to challenge the 97th Constitution Amendment did not take the matter any further. The Court stated:

“When a citizen of India challenges a constitutional amendment as being procedurally infirm, it is the duty of the court to examine such challenge on merits as the Constitution of India is a national charter of governance affecting persons, citizens and institutions alike.“

Multi-State Cooperative Societies and the Doctrine of Severability

Union of India argued that even if it be held that Part IX-B is constitutionally infirm qua Cooperative Societies operating within a State, it would yet operate qua Multi-State Cooperative Societies and in States and Union Territories. This brought the Court to whether the part dealing with Multi-State Cooperative Societies in Part IX-B can be severed from the part dealing with Cooperative Societies operating only within a State.

The Court found substance in the Union’s argument that instead of having two separate parts within Part IX-B, one dealing with State Cooperative Societies and one dealing with Multi-State Cooperative Societies, the well-known legislative device of “reference” to existing provisions was instead utilised by Article 243-ZR and that therefore the matter should be viewed as if a separate part within Part IX-B has been enacted insofar as Multi-State Cooperative Societies are concerned.

In the opinion of the Court, there can be no doubt that in its application to Multi-State Cooperative Societies, neither Article 246(3) nor Entry 32 List 2 of the 7th Schedule would be attracted. The Scheme qua Multi-State Cooperative Societies is separate from the Scheme dealing with “other cooperative societies”, Parliament being empowered so far as Multi-State Cooperative Societies are concerned, and the State legislatures having to make appropriate laws laying down certain matters so far as “other cooperative societies” are concerned. The Court observed that:

“The effect of Article 246-ZR is as if multi-State cooperative societies are separately dealt with in a separate sub-chapter contained within Part IX-B. … Also, there is no doubt that after severance what survives can and does stand independently and is workable.“

Such being the case, the Court declared that Part IX-B of the Constitution of India is operative insofar as Multi-State Cooperative Societies are concerned.

Affect in Union Territories

The Court recorded that Article 246(3) does not apply to Union Territories. Instead, Article 246(4) applies to Union Territories, by means of which Parliament can use the State List also to legislate insofar as the Union Territories are concerned. However, given the truncation of Entry 32 List 2 of the 7th Schedule by Part IX-B, what would operate in Union Territories is Part IX-B only insofar as it applies to Multi-State Cooperative Societies. It was held that:

“So far as cooperative societies within a Union Territory are concerned, the same infirmity as is found in the main part of the judgment continues insofar as the legislative subject ‘co-operative societies’ is concerned under Entry 32 List 2.“

Therefore, the Court ruled that for Cooperative Societies which have no ramifications outside the Union Territory itself, Part IX-B will have no application.

The Dissent

In a separate opinion, K.M. Joseph, J., agreed with the reasoning and conclusion by the majority in regard to the provisions relating to Article 240-ZI to Article 243-ZQ and Article 243-ZT, being unconstitutional for non-compliance with the mandate of the proviso to Article 368(2) of the Constitution. However, he expressed inability to concur with the view that doctrine of severability will apply to sustain Article 243-ZR and Article 243-ZS to the Multi-State Cooperative Societies operating in the Union Territories, and that it would not apply to cooperative societies confined to the territories of the Union Territories.

Considering whether provisions of Article 243-ZR and 243-ZS are independent provisions and workable, Joseph, J. noted that both these provisions are entirely dependent upon the provisions contained in Article 243-ZI to 243-ZQ. This is for the reason that both these provisions expressly provide that the “provisions of this part”, which clearly means the foregoing provisions, which are contained in Article 243-ZI to 243-ZQ, are to apply in regard to Multi-State Cooperative Societies and to Union Territories with the modifications, which are indicated therein. He was of the opinion that:

“There can be application and modifications of something which exists. There cannot be either, when the elaborate provisions are to be treated as not born.“

He was of the view that to sustain these provisions the Court would have to resurrect the dead provisions contained in Article 243-ZI to 243-ZQ and Article 243-ZT. Opining that the doctrine of severability must apply on surer foundations, Joseph, J., held that unless the provisions which have been found unconstitutional are kept alive, Articles 243-ZR and 243-ZS are plainly unworkable.

Decision of the Court

In view the majority decision, the judgment of the High Court was upheld except to the extent that it struck down the entirety of Part IX-B of the Constitution. As mentioned above, it was declared that Part IX-B is operative only insofar as it concerns Multi-State Cooperative Societies both within various States and in Union Territories of India. The appeals were accordingly disposed of.  [Union of India v. Rajendra N. Shah, 2021 SCC OnLine SC 474, decided on 20-7-2021]

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[1] The restrictions contained in Part IX-B were set out seriatim by the Court:

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

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

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

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

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

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

(vii) Under Article 243-ZM, minimum qualifications and experience of auditors and auditing firms have to be laid down by a State Legislature, and Cooperative Societies have to be audited only by such persons or firms.

(viii) Under Article 243-ZN, the Legislature of a State must provide that the annual general body meeting of every Cooperative Society shall be convened within a period of six months of the close of the financial year.

(ix) Under Article 243-ZP, every Cooperative Society is to file returns within the specified period of six months of the close of every financial year, indicating the list of matters set out in the said provision.

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

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Tejaswi Pandit, Senior Editorial Assistant has reported this brief.