Karnataka High Court: While deliberating over the instant petitions challenging the constitutional validity of Section 128-A of Karnataka Co-operative Societies Act, 1959 introduced by Amendment Act No. 27 of 2023, the Bench of Anant Ramanath Hegde, J.*, struck down the impugned provision as ultra-vires the Constitution stating that the right to form a co-operative society which is a fundamental right under Article 19(1)(c) of Constitution includes right to recruit, transfer the employees of a co-operative society and to initiate disciplinary action against its employees. The Court held that Section 128-A of the Act of 1959, which empowers Registrar to completely take away the right of a co-operative society to recruit, transfer or hold disciplinary enquiry against its employees, is ultra vires the Constitution for being violative of Article 43-B.
Background: The Court was considering petitions filed by several Primary Co-operative Societies registered under the Act of 1959, and members or office bearers of the Primary co-operative societies, who had challenged S. 128-A of the Act of 1959 as introduced 27-07-2023, Amendment Act No.27/2023. The impugned provision was challenged on the ground that it violated rights guaranteed under Article 19(1)(c) of the Constitution.
Section 128-A deals with the constitution of a common cadre, giving widespread powers to the Registrar.
Major contentions: Counsels for the petitioners contended that the fundamental right to form a co-operative society includes certain fundamental aspects of management of a co-operative society. The right to recruit, transfer the employees, and the right to initiate disciplinary proceedings are fundamental aspects associated with the formation of a co-operative society, and if such rights are taken away, then it violates the fundamental right guaranteed under the Constitution.
The petitioners argued that the restrictions in the impugned provision are not reasonable to claim protection under Article 19(4) of the Constitution and that the impugned confers unguided excessive power on the Registrar to make Regulations in respect of matters enumerated therein and as such said provision is arbitrary and unconstitutional.
Per contra, the respondents contended that Society not being a citizen cannot maintain the petition complaining of violation of fundamental rights. Though, the right to form a co-operative society is a fundamental right, said right stands exercised and fulfilled on its formation. There is no fundamental right to recruit, transfer or hold disciplinary action against the employees.
The respondents further argued that autonomous functioning recognized under the Act of 1959 cannot be construed to hold that the State has no control over matters like recruitment, transfer, or a matter concerning disciplinary action against employees of a co-operative society. Furthermore, the State has the power to impose reasonable restrictions under Article 19(4) of the Constitution.
Issue before the Court:
Whether the right to form a co-operative society under Article 19(1)(c) which admittedly is a fundamental right extends only till its formation and registration? Or does it also include the right to recruit and transfer the employees, and to initiate disciplinary action against its employees?
Court’s Assessment:
Perusing the “weird” history of the impugned provision, the Court first clarified that the plea of Res Judicata is not available. Though the constitutional validity of Section 128-A was upheld by the Division Bench of Karnataka High Court, in 1986, in Primary Co-operative Land Development Bank Ltd. v. State of Karnataka, 1986 SCC OnLine Kar 32, the said provision was omitted later and re-introduced in 2023. However, significant developments have taken place since the validity of the said provision was upheld in 1986.
“The premise on which the challenge is leveled has undergone a huge change, since the judgment in PCLD Bank (supra) in 1986 because of the 97th amendment to the Constitution which came into effect in 2012”. The second challenge is on new legal grounds which were not available at the time of the first challenge. Therefore, even the plea of constructive res judicata is not available.
The Court also opined that the petitions are not premature and there is a cause of action as the petitioners contend that the provision conferring the power on certain matters specified in Section128-A of the Act of 1959 on the Registrar itself is unconstitutional.
Deliberating over the afore-stated issue, the Court considered several precedents of the Supreme Court and stated that the Court must necessarily read the fundamental right to form a co-operative society conferred under Article 19(1)(c) through the prism of Article 43-B. “If not, the true flavor, fragrance, and dimension of fundamental right guaranteed under Article 19(1)(c) will be obscured”.
Perusing 97th Amendment to the Constitution, the Court pointed out that it was aimed at strengthening the Co-operative Societies, which have played a significant role in the economy of the nation. Some of the objects of the 97th amendment were crystallised in Article 43-B of the Constitution which directs the State to promote voluntary formation, autonomous functioning, democratic control, and professional management of co-operative societies.
The Court noted that the phrase ‘autonomous functioning’ as found in Article 43-B means self-control and self-governance and it also means less interference by outsiders. Furthermore, the expression “democratic control” speaks about the control of a co-operative society by the Elected Body/Board. Said control cannot be interpreted to say that the Board will have no power to recruit, transfer, and hold a disciplinary inquiry when those functions are undoubtedly essential in the management of a co-operative society. “The interpretation that the right to form a co-operative society is only confined to the formation and registration of a co-operative society and not beyond, will defeat the purpose of 97th amendment of the Constitution”.
The Court pointed out that had the Parliament intended to make the formation of a co-operative society a fundamental right and confine the said fundamental right only to the extent of formation and registration of a co-operative society, there was no need to introduce Article 43-B of the Constitution. “Since the whole Amendment was aimed at providing functional autonomy and to strengthen the Co-operative Sector by promoting voluntary formation, it is imperative that the association of people who have come together to form a co-operative society should have a say in crucial matters relating to recruitment, transfer and disciplinary action against the employees”.
The Court thus opined that the fundamental right to form a co-operative society does not stop and stands fulfilled on the mere formation and registration of a cooperative society. The fundamental right to form a co-operative society in its fold also includes a right to autonomous functioning. The view that there is no fundamental right over the matter pertaining to recruitment, transfer and disciplinary action of employees of the co-operative society would defeat the object of Article 43-B of the Constitution.
Noting that once the Registrar frames Regulations under Section 128-A, the right of the Primary co-operative society over recruitment, transfer and disciplinary action gets extinguished, the Court had to consider whether this amounted to a reasonable restriction or unreasonable restriction infringing upon the fundamental right.
The Court pointed out that the respondent’s contention that the Registrar has only decided to confer the power of recruitment of the Chief Executive Officer of a co-operative society, and has not disturbed the power of the co-operative society to recruit other employees, does not come to the aid of the State in a challenge to the provision resting on a premise that the provision has conferred unguided power on the Registrar to frame Regulations curtailing the right to recruit, transfer and disciplinary action of any class of employees of a co-operative society.
The Court said that powers conferred under the impugned provision encroaches upon the rights of the members who enjoy a certain degree of autonomy in the functioning of a co-operative society which extends to recruitment and transfer of employees which are essential and fundamental to the functioning of the co-operative society. The Court opined that the power to recruit, transfer, and disciplinary action is fundamental in character in running the cooperative society cannot be taken away by the State and such power cannot be conferred on a third party (Federal Society) which has no role in the formation of a co-operative society.
The Court thus stated that the powers conferred on the Registrar under Section 128-A, will impose prohibition on the matters covered in the Regulations framed under the provision. “Thus, the Regulations cease to be regulations, and they amount to prohibition on the matters covered by the Regulations, and thus they become unreasonable, manifestly arbitrary and encroach upon fundamental rights”. The Court emphasised that Section 128-A confers power on the Registrar over the matters specified in the provision. Once such power is exercised by the Registrar, then the co-operative society loses its power over the matter of recruitment, transfer, and disciplinary action concerning its employees. Thus, Section 128-A cannot be construed as a Regulation and it is a total restriction amounting to prohibition on three matters specified in it and these three matters are essential and fundamental to the functioning of Society.
Taking note of the State’s contention that societies cannot complain about violation of fundamental rights, the Court stated that fundamental right is conferred on the citizens who form the Society; the said fundamental right to form a co-operative society must be exercised only by the members. After the registration of the co-operative society, the members collectively pursue the activity of the co-operative society in the name of the co-operative society.
The Court further stated that the whole idea of conferring the power to recruit an employee of a co-operative society on an entirely different Society (Federal Society) undermining the power to recruit the suitable person to meet the requirement of a co-operative society does not gel with philosophy of Article 43-B.
The State is competent to impose reasonable restrictions on the fundamental right to form a co-operative society and even on the matters relating recruitment, transfer, and disciplinary action against the employees of a co-operative society. However, the State cannot completely prohibit or take away the right of a co-operative society to recruit, transfer, and to initiate disciplinary action on its employees.
Therefore, with the afore-stated assessment, the petitions were allowed, and the impugned provision was declared unconstitutional.
[Uppinangady Co-operative Agricultural Society Ltd. v. State of Karnataka, 2024 SCC OnLine Kar 70, decided on 8-8-2024]
*Judgment by Justice Anant Ramanath Hegde
Advocates who appeared in this case :
Petitioners: KESHAVA BHAT A, ADVOCATE
Respondents: SRI K SHASHIKIRAN SHETTY, ADVOCATE GENERAL a/w SRI SIDDHARTH BABU RAO, AGA; SRI M.R RAJAGOPAL, SENIOR COUNSEL for SRI H.N BASAVARAJU, ADVOCATE for interveners, SRI B.V SHANKARANARAYANA RAO, SR. COUNSEL for SRI A. C BALARAJU, ADVOCATE for interveners AND SRI T.L KIRAN KUMAR, ADVOCATE for interveners
A very good judgment. The Cooperative Societies Act seems to have been written by criminal- minded officers. The officers are acting like highway robbers. They find every means to harass the societies with the sole aim of extorting money from them. Unfortunately, even some judges with low intellect also think that the cooperative societies are floated and run by unscrupulous people. That is the tragedy.