Supreme Court of India
AP. DAIRY DEVELOPMENT CORPORATION FEDERATIONversusB. NARASIMHA REDDY & ORS.
- Citation
- 2011 INSC 635
- Decided
- 2 September 2011
- Disposal
- Dismissed
- Bench
- P SATHASIVAM
Holding
The 2006 Amendment Act is unconstitutional as it arbitrarily and retrospectively excluded dairy co‑operative societies from the 1995 Act, violating Articles 14 and 19(1)(c).
Summary
The Andhra Pradesh government enacted the Mutually Aided Co-operative Societies (Amendment) Act, 2006, which retrospectively excluded dairy‑milk co‑operative societies from the 1995 Act and deemed them to be registered under the 1964 Act, thereby increasing state control. Eight district milk unions challenged the amendment, arguing that it violated their vested rights, the right to form associations under Article 19(1)(c), and the equality clause of Article 14. The Supreme Court examined whether the classification was reasonable, whether the retrospective operation was permissible, and whether the State could be estopped from changing its policy. It held that the 2006 Act arbitrarily discriminated against dairy co‑operatives, lacked a rational nexus to its stated objectives, and infringed both Articles 14 and 19(1)(c). Consequently, the amendment was declared unconstitutional and the High Court’s order striking it down was upheld. The appeals were dismissed.
Issues considered
- The constitutional validity of the Andhra Pradesh Mutually Aided Co‑operative Societies (Amendment) Act, 2006 under Article 14.
- Whether the amendment violates the freedom of association guaranteed by Article 19(1)(c) of the Constitution.
- Whether the retrospective deeming of societies as registered under the 1964 Act infringes vested rights.
- Whether the State can be estopped from altering its policy concerning co‑operative societies.
- Whether the classification of dairy co‑operatives as a separate class is reasonable and has a rational nexus to the legislative objective.
Legislation cited
- Andhra Pradesh Co‑operative Societies Acts. Section 32(7), s. Section 4
- Andhra Pradesh Mutually Aided Co‑operative Societies Acts. Section 36, s. Section 4(3)
- Andhra Pradesh Mutually Aided Co‑operative Societies (Amendment) Acts. Section 1A, s. Section 4(3)(a)
- Constitution of Indias. Article 12, s. Article 14, s. Article 19(1)(c)
Subjects
Co‑operative societiesArticle 14Article 19(1)(c)Retrospective legislationClassificationDoctrine of estoppelConstitutional validityState controlThree‑tier structure
Judgment
[2011] 14 (ADDL.) S.C.R. 1
AP. DAIRY DEVELOPMENT CORPORATION A
FEDERATION
v.
B. NARASIMHA REDDY & ORS.
(Civil Appeal No. 2188 of 2008)
SEPTEMBER 2, 2011 B
[P. SATHASIVAM AND DR. B.S. CHAUHAN, JJ.]
. Co-operative Societies: i'
c
Andhra Pradesh Mutually Aided Co-operative Societies
(Amendment) Act, 2006 - 2006 Amendment Act excluding
the milk dairy co-operative societies from the societies
covered by the 1995 Act and importing the fiction that such
qairies would be deemed to have been registered under the
0
1964 Act- Constitutional validity of the 2006 Amendment Act
- Held: By the Amendment Act, the extensive control of co·
operative societies by the Registrar under the Act 1964
became incompatible and inconsistent with the co-operative
principles which mandate ensuring democratic member E
control and autonomy and independence in the manner of
functioning of the co-operatives - It obstructed and frustrated.
the object of the development and growth of vibrant co·
operative societies in the State - Restrictions so imposed by
the 2006 Amendment Act, with retrospective effect, extending
over a decade and importinQ the fiction that all the dairy/milk F
co-operative societies shall be deemed to have been
excluded from the provisions of the 1995 Act and the societies
would be deemed to have been registered under the 1964 Act,
without giving any option to such societies suggest the
violation of Article 19(1)(c) and are not saved by clause (4) G
of Article 19 - It is arbitrary and violative of Article 14 -
Reverting back to the co-operative societies under the Act
. 1964 is a retrograding process by which the government would
1 H
2 SUPREME COURT REPORTS [2011] 14 (ADDL.) S.C.R.
A 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 a/so
be taken away with retrospective effect - Thus, the order
passed by the High Court that 2006 Amendment Act is
B unconstitutional, is upheld - Andhra Pradesh Mutually Aided
Co-operative Societies Act, 1995 - Andhra Pradesh Co-
operative Societies Act, 1964.
Constitution of India, 1950:
C Article 14 - Class legislation - Permissibility of - Held:
Article 14 forbids class legislation - However, it does not
forbid reasonable classification for the purpose of legislation
- Thus, class legislation is permitted in law provided the
classification is founded on an intelligible differentia.
D
Article 14 - Violation of - Held: Article 14 strikes at
arbitrariness because an action that is arbitrary, must
necessarily involve negation of equality - Doctrine of
arbitrariness is not restricted only to executive actions, but
E a/so applies to legislature - There must be a case of
substantive unreasonableness in the statute itself for declaring
the act ultra vires of Article 14.
Article 19(1)(c) - Right to form associations or unions
under - Scope of $tatutory intervention - Held: Formation of
F the unions under Article 19(1)(c) is a voluntary act - Thus,
unwarranted/impermissible statutory intervention is not desired
- By statutory interventions, the State is not permitted to
change the fundamental character of the association or alter
the composition of the society itself - Encroachment upon
G 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
H
AP. DAIRY DEVELOPMENT CORPORATION FEDERATION v. 3
B. NARASIMHA REDDY
get registered under a particular statute, if there are more than A
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 - Co-operative societies.
Administrative law - Doctrine of estoppel - Applicability
8
of, to policy decision - ·Held: 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, C
unreasonable or against policy, the State should not change
its stand merely because the other politicai PfJrlY has come
into power - Estoppel - Doctrines.
On the commencement of the Andhra Pradesh D
Mutually Aided Co-operative Societies Act, 1995, the
existing Andhra Pradesh Dairy Development Co-operative
Societies registered under the Andhra Pradesh Co-
operative Societies Act, 1964 could opt to be covered by
the 1995 Act with certain conditions. Some of the E
societies already registered under the 1964 Act committed
some irregularities in getting themselves registered under
the 1995 Act. The Statutory Authority were issued notices
to show cause as to why their registration under the 1995 ·
Act should not be cancelled. Eight District Milk Unions F
filed writ petitions challenging the said show cause
notices. The Andhra Pradesh Dairy Development Co-
operative Federation Ltd. filed original petition in various
Co-operative Tribunals seeking dissolution of the said
societies and the same was dismissed against 'V' District G
Union. Thereafter, a House Committee was constituted to
Investigate into the irregularities committed by two of the
District Unions who had got themselves registered under
the 1995 Act. The Committee submitted its report that the
said Unions had committed certain irregularities; and that
H
4 SUPREME COURT REPORTS [2011] 14 (ADDL.) S.C.R.
A the Act 1995 had adverse consequences on the dairy co-
operatives, as it had broken down 3-tier structure. The
State Government constituted a Committee to consider
the recommendations of the House Committee. This
Committee recommended that dairy co-operatives be
B excluded from the purview of the Act 1995 and brought
back under the Act 1964 and be restored to 3-tier
structure. Pursuant to the said policy decision of the
Government, the order passed by the Co~opera·tive
Tribunal was challenged. Thereafter, the State
c promulgated the Ordinance No.2/2006 excluding the milk
dairy co-operative societies from the societies covered by
the 1995 Act and imported the fiction that such dairies
would be deemed to have been registered under the 1964
Act, with effect from the date of registration under the Act
1995. Government Order dated 4.2.2006 was issued to
0
give effect to such amendments. Various District Milk
Producers Co-operative Unions filed writ petitions
challenging Ordinance No.2/2006 and consequential
Government Order dated 4.2.2006. The High Court by an
interim order stayed the operation of the Government
E Order dated 4.2.2006. Meanwhile, the Ordinance was
converted into the Andhra Pradesh Mutually Aided Co-
operative Societies (Amendment) Act, 2006. Thereafter,
the High Court allowed the writ petitions striking down
the provisions of the 2006 Act as unconstitutional and
F held that even if the 2006 Act is to be considered
constitutional, provisions providing that the Boards of
Directors appointed under the Andhra Pradesh Mutually
Aided Co-operative Societies Act, 1995 shall be deemed
to have been continued under the provisions of Andhra
G Pradesh Co-operative Societies Act, 1964, and that the
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
H
AP. DAIRY DEVELOPMENT CORPORATION FEDERATION v. 5
8. NARASIMHA REDDY
the District Collectors are quashed. Therefore, the A
appellants filed the instant appeals.
Dismissing the appeals, the Court
HELD: 1. Article 14 forbids class legislation, however,
it does not forbid reasonable classification for the B
purpose of legislation. Thus, 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 C
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 D
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 E
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 F
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 G
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. [Para 8] [26-E-H; 27-A-C]
H
6 SUPREME COURT REPORTS [2011] 14 (ADDL.) S.C.R.
A Budhan Chaudhry & Ors. v. State of Bihar AIR 1955 SC
191: 1955 SCR 1045; Ram Krishna Dalmia v. Justice S.R.
TendolkB( & Ors. AIR 1958 SC 538:1959 SCR 279 - relied
on.
Harbilas Rai Bansal v. State of Punjab & Anr. AIR 1996
8
SC 857: 1995 (6) Suppl. SCR 178 - referred to.
2. 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.
C Forma.tion of the unions under Article 19(1)(c) is a
voluntary act, thus, unwarranted/impermissible statutory
intervention is not desired. The right of the citizens to
form the association are different from running the
business by that association. Therefore, right of
D 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
E 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
F functionaries. [Paras 10, 16] [28-A; 31-C-E]
All India Bank Employees' Association v. National
Industrial Tribunal (Bank Disputes) Bombay & Ors. AIR 1962
SC 171: 1962 SCR 269; S. Azeez Basha & Anr. v. The
Union of India etc. AIR 1968 SC 662: 1968 SCR 833; D.A. V.
G College, etc.etc. v. State of Punjab & Ors. (1971) 2 SCC 269
- relied on.
Mis. Raghubar Dayal Jai Prakash v. The Union of India
& Anr. AIR 1962 SC 263: 1962 SCR 547; Smt. Damyanti
H
AP. .DAIRY DEVELOPMENT CORPORATION FEDERATION v. 7
B. NARASIMHA REDDY
Naranga v. The Union of India & Ors. AIR 1971 SC 966: 1971 A
(3) SCR 840; Daman Singh & Ors. v. State of Punjab & Ors.
AIR 1985 SC 973: 1985 (3) SCR 580; DharamDutt & Ors. v.
Union of India & Ors. (2004) 1 SCC 712: 1964 SCR 885; The
Tata Engineering and Locomotives Co. Ltd. v. The State of .
Bihar & Ors. AIR 1965 SC 40 - referred to. B
3. Article 14 of the Constitution strikes at arbitrariness
becau.se .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 C
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 D
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. [Para 17] (31-
F-H] E
Ajay Hasia etc. v. Khalid Mujib Sehravardi & Ors. etc. AIR
1981 SC 487: 1981 (2) SCR 79; Reliance Airport Developers
(P) Ltd. v. Airports Authority of India & Ors. (2006) 10 SCC 1:
2006 (8) Suppl. SCR 398; Bidhannagar (Salt Lake) Welfare F
Assn. v. Central Valuation Board & Ors. AIR 2007 SC 2276:
2007 (7) SCR 430; Grand Kakatiya Sheraton Hotel and
Towers Employees and Workers Union v. Srinivasa Resorts
Limited & Ors. AIR 2009 SC 2337: 2009 (3) SCR 668; State
of Tamil Nadu & Ors. v. K. Shyam Sunder & Ors. (2011) 8
G
SCALE 474 - relied on. ·
State of Andhra Pradesh & Anr. v. P. Sagar AIR 19~8 SC
1379:1968 SCR 565; Indra Sawhney II v. Union of India AIR
2000 SC 498: 1999 (5) Suppl. SCR 229; Harman Singh &
H
8 SUPREME COURT REPORTS (2011) 14 (ADDL.) S.C.R.
A Ors. v. Regional Transport Authority, Calcutta Region & Ors.
AIR 1954 SC 190: 1954 SCR 371; D. C. Bhatia & Ors. v.
Union of India & Anr. (1995) 1 SCC 104: 1994 (4 ) Suppl.
SCR 539; State of Gujarat & Anr. v. Raman Lal Keshav Lal
Soni & Ors. AIR 1984 SC 161:1983 (2) SCR 287; B.S. Yadav
B & Ors. v. State of Haryana & Ors. AIR 1981 SC 561: 1981
SCR 1024; Chairman, Railway Board & Ors. v. C. R.
Rangadhamaiah & Ors. AIR 1997 SC 3828: 1997 (3) Suppl.
SCR 63; Tulsi Das and Ors. vs. Government of A.P. & Ors.
AIR 2003 SC 43; National Agricultural Cooperative Marketing
C Federation of India Ltd. & Anr. v. Union of India & Ors. (2003)
5 SCC 23: 2003 (3) SCR 1 - referred to.
4. 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,
D 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
E 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
F' 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
G 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. [Para
H 27] [36-A-E]
A.P. DAIRY DEVELOPMENT CORPORATION FEDERATION v. 9
8. NARASIMHA REDDY
Onkar Lal Bajaj etc. etc. v. Union of India & Anr. etc. etc. A
AIR 2003 SC 2562: 2002 (5) Suppl. SCR 605; State of
Karnataka & Anr. v. All India Manufacturers Organization &
Ors. AIR 2006 SC 1846: 2006 (1) Suppl. SCR 86; State of
Tamil Nadu & Ors. v. K. Shyam Sunder & Ors. (2011) 8
SCALE 474 - relied on. ' ......... . B
A. Manju/a Bhashini and Ors. v. Managing Director,
Andhra Pradesh Women's Cooperative Finance Corporation
Ltd. & Anr. (2009) 8 sec 431: 2009 (1 O) SCR 634; M.
Ramanathan Pillai v. State of Kera/a & Anr. (1973) 2 SCC C
650: 1974 (1) SCR 515; State of Kera/a & Anr. v. The
Gawalior Rayon Silk Manufacturing (Wvg.) Co. Ltd. etc. (1973)
2 SCC 713: 1974 (1) SCR 671- referred to.
5. The Government has inherent power to promote
the general welfare of the people and in order to achieve D
the said goal, the State is free to exercise its sovereign
powers of legislation to regulate the conduct of its
citizens to the extent, that their rights shall not stand
abridged. The co-operative movement by its very nature,
is a form of voluntary association where individuals unite E
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- •F
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 G
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 H
10 SUPREME COURT REPORTS [2011] 14 (ADDL.) S.C.R.
A 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
encroacllment upon associational freedom cannot be
B 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
c 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. [Para 31] [38-0-H; 39-A-C]
6.1 In the instant case, the recommendations of the
D House Committee and the Group of Ministers, were 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 did
not recommend the amendment with retrospective effect,
E 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
F far as the societies initially registered under the Act 1995,
were concerned. [Paras 32, 33] [39-0-F; 40-B-C]
6.2 The restrictions so imposed by the Act 2006, with
retrospective effect, extending· over a decade and
G 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 claus.e (4) of
Article 19 of the Constitution. It is by no means
conceivable, that the grounds on the basis of which
H
AP. DAIRY DEVELOPMENT CORPORATION FEDERATION v. 11
8. NARASIMHA REDDY
reasonable restrictions could be Invoked were available. A
[Para 34] [40-D-E]
6.3 The impugned provisions have no nexus with the
object of enforcing the 3-tier structure inasmuch as the
1964 and the 1995 Acts, both permit registration of
8
Federations; the Act 1964 does not contain any express
provision providing for 3-tier structure; 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 co-operative milk unions
convened by the Chief Secretary on 26.8.2003; and even C
the Act 1964 does not treat Dairy Co-operatives as a
separate class to be governed by a separate structure.
As such from the stand point of structure and basic co-
operative principles, all co-operative societies, are alike.
The impugned provisions are arbitrary and violative of D
Article 14 as they deprived the Dairy Co-operative
Societies of the benefit of the basic principles of co-
operation. The amendments are contrary to the national
policy on Co-operatives. They obstruct and frustrate the
object of the development and growth of vibrant co- E
operative societies in the State. [Para 36] [41-B-D]
6.4 After conversion into Mutually-Aided Societies
under the Act 1995 with the permission of the Government
as stipulated l>y Section 4(3)(a), the co-operative societies F
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 G
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 attactiment and sale of property and
execution of orders having· been expressly incorporated
1
in the Act 1995 by Section 36, ttiereof there was no H.
12 SUPREME COURT REPORTS [2011] 14(ADDL.) S.C.R.
A justification at all for the impugned Amendments. [Para
37] [41-E-G]
6.5 After the incorporation of the co-operative
principles in Section 4 of the A.P. Cooperative Societies
Act, 1964 read with Rule 2(a) of the A.P. Co-operative
8
Societies Rules, 1964, by Amendment Act No. 22 of 2001,
the extensive control of co-operative societies by the
Registrar under the Act 1964 has become incompatible
and inconsistent with the said co-operative principles
C which mandate ensuring democratic member control and
autonomy and independence in the manner of
functioning of the co-operatives. These two, namely,
extensive State control and ensuring operation of co-
operative principles cannot be done at the same time.
[Para 38] [41-H; 42-A-C]
D
6.6 The 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
E minimal under the Act 1995. Also the role of the Registrar
under the Act 1964 is much more than under the Act 1995
as under the Act 1964. [Para 39] [42-D-F]
6.7 The statement of objects and reasons of the Act
F 1995 clearly stipulate that State participation in the
financing and management of co-operatives in the past
had led to an unfortunate situation and the co-operative
societies were not governed/guided by the universally
accepted principles of co-operation. Thus, the purpose
· to enact the Act 1995 was to provide more freedom to
G conduct the affairs of the co-operative societies by its
members. 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
H
AP. DAIRY DEVELOPMENT CORPORATION FEDERATION v. 13
B. NARASIMHA REDDY
provides for State regulation to the barest minimum, the A
Act 1964 provides for extensive State control and
regulation of co-operative societies which is inconsistent
with the national poliC}' with regard to co-operative
societies evolved in consultation and collaboration with
the States which stands accepted by the State of A.P. and B
reflected in the Scheme of the Act 1995 which is based
on the model law recommended by the Planning
Commission of India. Thus, reverting back tC" the co-
operative societies 1mder the Act 1964 is a retrograding
process by which the government would enhance its c
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. [Para 40] [43-
H; 44-A-G]
D
6.8 Co-operative 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 E
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, F
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 G
something indirectly, if it is not permis~ible to be done
directly. [Para 41] [44-H; 45-A-C]
'
Sant Lal Gupta & Ors v. Modern Co-operative Group
Housing Society Ltd. & Ors:' JT 2010 (11) SC 273 - relied H
on.
14 SUPREME COURT REPORTS (2011] 14 (ADDL.) S.C.R.
A 6.9 The 2006 Act 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.
B 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.
[Para 42] [45-D-E]
c 6.10 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
D 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
E 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 co-operatives. More so, the Act is vitiated by
F non-application of mind and irrelevant and extraneous
considerations. [Para 43] [45-F-H; 46-A]
Mosammat Bibi Sayeeda & Ors., etc. v. State of Bihar &
Ors., etc., AIR 1996 SC 1936: 1996 (1) Suppl. SCR 799;
G Howrah Municipal. Corporation & Ors. v. Ganges Rope Co.
Ltd. & ors. (2004) 1 sec 663; 2003 (6) Suppl. SCR 1212;
J.S. Yadav v. State of Uttar Pradesh & Anr. (2011) 6 SCC 570
- referred to.
H
AP. DAIRY DEVELOPMENT CORPORATION FEDERATION v. 15
B. NARASIMHA REDDY
Case Law Reference: A
1955 SCR 1045 Relied on Para 8
1959 SCR 279 Relied on Para 8
1995 (6) SuppL SCR 178 Referred to Para 9
B
1962 SCR 547 Referred to Para 11
1971 (3) SCR 840 Referred to Para 12
1985 (3) SCR 580 Referred to Para 13
1964 SCR 885 Referred to Para 14
c
AIR 1964 SC 40 Referred to Para 15
1962 SCR 269 Relied on Para 15
1968 SCR 833 Relied on Para 15 D
(1971) 2 sec 269 Relied on Para 15
1981 (2) SCR 79 Relied on Para 17
2006 (8 ) Suppl. SCR 398 Relied on Para 17 E
2007 (7 ) SCR 430 Relied on Para 17
2009 (3)-,,SCR 668 Relied on Para 17
(2011) 8 SCALE 474 Relied on Para 17, 28
F
1968 SCR565 Referred to Para 18
1999 (5) Suppl. SCR 229 Referred to Para 19
1954 SCR 371 Referred to Para 20
G
1994 (4) Suppl. SCR 539 Referred to Para 21
1983 (2) SCR 287 Referred to Para 22
1981 SCR 1024 Referred to Para 23
1997 (3) Suppl. SCR 63 Referred to Para 24 H
16 SUPREME COURT REPORTS [2011] 14 (ADDL.) S.C.R.
A AIR 2003 SC 43 Referred to Para 24
2003 (3) SCR 1 Referred to Para 25
1996 (1) Suppl. SCR 799 Referred to Para 26
2003 (6) Suppl. SCR 1212 Referred to Para 26
B
(2011) 6 sec 570 Referred to Para 26
2002 (5) Suppl. SCR 605 Relied on Para 27
2006 (1) Suppl. SCR 86 Relied on Para 27
c 2009 (10) SCR 634 Referred to Para 28
1974 (1) SCR 515 Referred to Para 29
1974 (1) SCR 671 Referred to Para 30
D JT 2010 (11) SC 273 Relied on Para 41
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
2188 of 2008.
From the Judgment & Order dated 01.05.2007 of the High
E Court of Judicature, Andhra Pradesh at Hyderabad in Writ
Petition No. 2214 of 2006.
WITH
C.A. Nos. 2189-2212 & 4588 of 2008.
F
R. Venkataramani, S.S. Prasad, P.P. Rao, D. Mahesh
Babu, Savita Dhanda, Alto K. Joseph, Ramesh Allanki, C.K.
Sucharita, Nirada Das, Y. Rajagopala Rao, Vaismai Rao,
Hitendra Rath, Harsh Reddy, Utsav Sidhu, Filza Moonis,
G Apeksha Sharan, Y. Ramesh, P. Venkat Reddy, Anil Kumar
Tandale, Liz Mathew, Deep Kirti Verma, Niranjan Reddy, P.S.
Harsha Reddy, Sana A.R. Khan, (Mclm & Co.), T. Anamika,
Chandramohan Anisetty, S. Udaya Kr. Sagar, Bina Madhavan,
Rayjith Mark (for Lawyer's Knit & Co.) for the appreaing parties.
H The Judgment of the Court was delivered by
AP. DAIRY DEVELOPMENT CORPORATION FEDERATION v. 17
B. NARASIMHA REDDY
DR. B.S. CHAUHAN, J. 1. All these appeals have been A
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 B
_(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') c
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 D.
Commissioner and Registrar of Milk Co-operatives and the
E>istrict Collectors concerned in these regards, are quashed.
2. Facts:
A. The Government of Andhra Pradesh introduced an E
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 F
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 G
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 H
18 SUPREME COURT REPORTS [2011] 14 (ADDL.) S.C.R.
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
B Corporation. A huge amount has been contributed by the
Government from year 1974 onwards to develop the dairy
produc~. ·
D. The Andhra Pradesh Dairy Development Cooperative
c 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
D 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 assistan~e etc.
E 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 manufacturinQ,
processing, feed mixing plants alongwith the concerned
F 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
G Central Governments had been very huge i.e. Rs.159.45 lakhs
and Rs. 729.97 lakhs.
G. On commencement of the Act 1995 into force, the
existing co-operative soCieties registered under the Act 1964
could opt to be covered by the Act 1995 with certain conditions,
H namely, the share capital from the Government, if any, had to
AP. DAIRY DEVELOPMENT CORPORATION FEDERATION v. 19
I B. NARASIMHA REDDY [DR. B.S. CHAUHAN, J.]
I ~e returned and the societies should not accept any A
) $overnment 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 B
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 C
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
sho~ cause as to why their registration under the Act 1995 be D
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 E
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 F
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.
G
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) H·
20 SUPREME COURT REPORTS [2011] 14 (ADDL.) S.C.R.
A Unions, who als.o 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
B 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
C 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
D 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 th ~m back under the Act
1964.
E
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
F 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
G 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 th.ose societies would be managed properly.
H 0. Writ Petitions were filed before the High Court by
AP. DAIRY DEVELOPMENT CORPORATION FEDERATION v. 21
B. NARASIMHA REDDY [DR. B.S. CHAUHAN, J.]
various District Milk Producers Co-operative Unions A
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 oper9tion of the Government
Order dated 4.2.2006. Meanwhile, the Ordinance was
converted into the Act. By the impugned judgment dated B
1.5.2007, the High Court allowed the writ petitions. ·
Hence, these appeals.
Rival Submissions:
c
· 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
0
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. 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 F
retrospective application coulc 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 G
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 H
22 SUPREME COURT REPORTS [2011] 14 (ADDL.) S.C.R.
A 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 estoppal does not apply to legislature.
There was a rational nexus to enact the Act 2006 as a large
B 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 ~ttraction of the provisions of Article 14 of the
Constitution of India. There were valid reasons for excluding the
C 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
D 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
E 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
F 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
G 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
H Statement of Objects and Reasons of the Act 2006 clearly
AP. DAIRY DEVELOPMENT CORPORATION FEDERATION v. 23
B. NARASIMHA REDDY [DR. B.S. CHAUHAN, J.]
provided for justification of amendment (impugned). Therefore, A
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
8
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 C
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 D
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 E
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 F
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. G
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 H
' ,
24 SUPREME COURT REPORTS [2011] 14 (ADDL.) S.C.R.
A 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
B 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.
c
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 :
D
(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
E 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
F 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
G 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
H
AP. DAIRY DEVELOPMENT CORPORATION FEDERATION v. 25
8. NARASIMHA REDDY [DR. B.S. CHAUHAN, J.]
of two of the district unions out of eight districts A
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 B
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 ca,use.
(vi) Both the 'Act 1964' and 'Act 1995' have procedure c
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 D
inadequate for the purpose.
(vii) Till June 2004, the Federation found everything
positive and nothing negative in the functioning of
the District Union. E
(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.
F
(ix) Fundamental right under Section 19(1)(c) of the
Constitution of India to form association or union is
infringed by the impugned Ordinance/Act.
(x) The retrospective legislation undoubtedly interferes
G
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 b.e achieved.
H
26 SUPREME COURT REPORTS [2011] 14 (ADDL.) S.C.R.
A (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
B 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-
c 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
D the submissions advanced by the learned counsel for the
parties, it is desirable to inter'ere with the aforesaid findings
or any of them.
8. It is well settled law that Article 14 forbids class
E 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
F and that differentia mus! 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
G 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
H
A.P. DAIRY DEVELOPMENT CORPORATION FEDERATION v. 27
8. NARASIMHA REDDY [DR. 8.S. CHAUHAN, J.]
knowledge of existing conditions. The good faith on the A
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 B
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. c
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 D
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 E
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 nialafide attempts
by their landlords to evict them. s·ona fide requirement of a F
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 G
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.
H
28 SUPREME COURT REPORTS [2011) 14 (ADDL.) S.C.R.
A 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.
B
11. Constitution Bench of this Court in Mis. 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
c 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,
D 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
E 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 orif;)inal members. This court while examining its
validity held that any law altering the composition of the
F Association compulsorily will be a breach of the right to form
association because it violated the composite right of formir;ig
an association and the right to continue it as the original
members desired. The Court held as follows :
G "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 caffied on in the manner they desire.
H Those cases are, however, inapplicable to the present
AP. DAIRY DEVEL.OPMENT CORPORATION FEDERATION v. 29
8. NARASIMHA REDDY [DR. 8.S. CHAUHAN, J.)
case. The Act does not merely regulate the A
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 B
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 c
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 0
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 Jaw which takes away the membership of those
who have voluntarily joined it, will be a law violating the E
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 F
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 G
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) H
30 SUPREME COURT REPORTS [2011] 14 (ADDL.) S.C.R.
A 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,
B 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
c 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 nL!merous
0 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
E 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
F association cannot be coupled with the fundamentai 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 thpt right is made. Once a company or
G 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
H alone and cannot be judged on the assumption that they are
AP. DAIRY DEVELOPMENT CORPORATION FEDERATION v. 31
B. NARASIMHA REDDY [DR. B.S. CHAUHAN, J.]
the rights attributable to the business of individual citizens. Thus, A
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 B
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 sec 269.)
16. In view of the above, it becomes evident that the right
of the citizens to form the association are different from running C
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 D
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 E
functionaries.
17. It is a settled legal proposition that Article 14 of the
Constitution strikes at arbitrariness because an action that is
arbitrary, must necessarily involve negation of equality. This F
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 G
according to reason or judgment, and certainly does not
depend on the will alone. However, the action of legislature,
violative of Art.icle 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. H
32 SUPREME COURT REPORTS (2011] 14 (ADDL.) S.C.R.
A Khalid Mujib Sehravardi & Ors. etc. Al R 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
B 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
C 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
0 list of other backward classes. The Court observed as under:
"Honesty of purpose of those who prepared and published
the list was not and is not challenged, but the validity of a
law which apparently infringes the fundamental rights of
E 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
F 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 demonslration 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
G 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
H
AP. DAIRY DEVELOPMENT CORPORATION FEDERATION v. 33
B. NARASIMHA REDDY [DR. B.S. CHAUHAN, J.]
permissiole so as to defeat a fundamental right. A
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 B
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."
c
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 D
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 obj~ct of the
statute. But, if there is some nexus between the objects
sought to be achieved and the classification, the E
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 F
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. G
Moreover, the classification cannot be done with
mathematical precision. The legislature must have
considerable latitude for making the classification having
H
34 SUPREME COURT REPORTS [2011] 14 (ADDL.) S.C.R.
A regard to the surrounding circumstances and ·facts. The
court cannot act as a super-legislature .... "
22. In State of Gujarat & Anr. v. Raman Lal Keshav Lal
Soni & Ors., AIR 1984 SC 161, this Court while dealing with
a similar issue observed as under:
8
"...... 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
c 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
D 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
E 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
F unequal by saying that they were unequal twenty years
ago and we will restore that position by making a law today
and making it retrospective ......... the provisions are so
intertwined with one another that it is wellnigh impossible
to consider any life saving surgery. The whole of the Third
Amendment Act must go."
G
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
H contained in the statutory rules specially when the retrospective
'
A.P. DAIRY DEVELOPMENT CORPORATION FEDERATION v. 35
B. NARASIMHA REDDY [DR. B.S. CHAUHAN, J.]
effect extends over a long period. A
24. In Chairman, Railway Board & Ors. v. C. R.
Rangadhamaiah & Ors., AIR 1997 SC 3828, this Court
similarly held as under:
"....... an amendment having retrospective operation which B
has the effect of taking away a benefit already available
to the employee under the existing rule is arbitrary,
discriminatory and violative of the rights guaranteed under
Articles 14 and 16 of the Constitution."
c
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. TulsiDas & Ors. v. Government of A.P.
& Ors., AIR 2003 SC 43) D
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 am$nd
the enacted law with retrospective effect, is also subjed to
several judicially recognized limitations, inter- alia, the E
retrospectivity must be reasonable and not excessive or harsh
otherwise it runs the risk of being struck down as
unconstitutional.
26. Vested right has been defined as fixed; .vested; F
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 G
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 sec 570).
H
36 SUPREME COURT REPORTS [2011] 14 (ADDL.) S.C.R.
A 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,
B 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
C 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
0
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
E 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)].
F 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
G
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
H
AP DAIRY DEVELOPMENT CORPORATION FEDERATION v. 37
8. NARASIMHA REDDY [DR 8.S. CHAUHAN, J.]
out what is the objective of any given statute passed by A
the legislature. It may provide for the reasons which
induced the legislature to e·nact 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 @ B
Moopi/ Nayar v. The States of Madras and Kera/a & Ors.,
AIR 1960 SC 1080; and Tata Power Company Ltd. v.
Reliance Energy Ltd. & Ors., (2009) 16 SCC 659)."
Similar view has been reiterated in A. Manjula Bhashini C
& 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 objeets and
reasons contained in the Bill, however, the same can be
referred to for understanding the background, the antecedent D
state of affairs and the mischief sought to be remedied by the
statute. The Statement of Objects and Reasons can als.o 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 E
of the classification made by such Act.
29. In M. Ramanathan Pillai v. State of Kera/a & Anr.,
(1973) 2 SCC 650, this Cou_rt relied upon America_n
Jurisprudence, 2d. at page 783 wherein it has been stated as F
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 G
doctrine of estoppel will not be applied against the State
in its governmental, public or sovereign capacity." ·
30. In State of Kera/a & Anr. v. The Gawalibr Rayon Silk
Manufacturing (Wvg.) Co. Ltd. etc., (1973) 2 SCC 713, a H
38 SUPREME COURT REPORTS [2011] 14 (ADDL.) S.C.R.
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
B 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
C binding the Government by its promises unless it is so
necessary to prevent manifest injustice or fraud, particularly,
wheri government acts in its governmental, public or sovereign
capacity. Estoppal does not operate against the government
or its assignee while acting in such capacity.
D
31. The Government has inherent power to promote the
general welfare of the people and in order to achieve the said
goal, the State is free to exercise its sovereign powers of
legislation to regulate the conduct of its citizens to the extent,
that their rights shall not stand abridged.
E
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
F 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
G 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
H encompasses associational ties designed to further the social,
AP. DAIRY DEVELOPMENT CORPORATION FEDERATION v. 39
B. NARASIMHA REDDY [DR. B.S. CHAUHAN, J.]
legal and economic benefits of the members of the association. A
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 B
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 c
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.
D
· 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 E
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 F
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 G
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- H
40 SUPREME COURT REPORTS [2011] 14 (ADDL.) S.C.R.
A 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.
B 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
C 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
D 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
E 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
F 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
G 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
H
A.P. DAIRY DEVELOPMENT CORPORATION FEDERATION v. 41
B. NARASIMHA REDDY [DR. B.S. CHAUHAN, J.]
be no justification to bring such a society with about 15,000 A
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
8
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 C
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 D
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.
E
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 F
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 G
and sale of property and execution of orders having been
expressly incc-rporated in the Act 1995 by Section 36, thereof
there was no justification at all for the impugned Amendments.
38. After the incorporation of the cooperative principles in
H
42 SUPREME COURT REPORTS [2011) 14 (ADDL.) S.C.R.
A 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 200.1, the extensive control of
cooperative societies by the Registrar under the Act 1964 has
become incompatible and inconsistent with the said
B 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
c 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.
D 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
E 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
F 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,
G 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
H . Government on deputation, while under the Act 1995 the staff
AP. DAIRY DEVELOPMENT CORPORATION FEDERATION v. 43
B. NARASIMHA REDDY [DR. B.S. CHAUHAN, J.]
is accountable only to the society. D~putation etc. is possible A
only if a co-operative so desir~'s. 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 boar.<;! depend upon bye- B
laws of the particular society. For adm~ssi,on a~d 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 c
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 o
limits fixed by the bye-laws in a co-operative society under the
Act 1995. Subsidiary organisations may IDe 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 E
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; F
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 ~as more
say under the Act 1964 in respect of registering of bye-laws;
approval of transfer of assets and liabilities or division or G
amalgamation or in respect of transfer of all members or
disqualification of members etc.
40. Statement of objects and reasons of the Act 1995
H.
44 SUPREME COURT REPORTS (2011] 14 (ADDL.) $.C.R.
A. 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
B 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
c 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 ptovide for the constitution
of board and functions of the board of directors.
D 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
E 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
F law recommended by the Planning Commission of India.
Thus, reverting back to the cooperative societies under the
Act 1964 is a retrograding process by which the government
would enhance its control of these societies registered under
G 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
H
AP. DAIRY DEVELOPMENT CORPORATION FEDERATION v. 45
B. NARASIMf-1.A REDDY [DR. B.S. CHAUHAN, J.]
take a decision to get it registered under the Act X, the A
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 B
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
1
voluntarily. Introducing such a concept of compulsion would
violate Article 19(1 )(c) of the Constitution of India. It is not c
permissible in law to do something indirectly, if it is not
· permissible to be done directly. (See: Sant Lal Gupta & Ors
v. Modem Co-operative Group Housing Society Ltd. & Ors.,
JT 2010 (11) SC 273)
42. Act 2006 had been enacted without taking note of the· D
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 E
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 F
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 G
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
46 SUPREME COURT REPORTS [2011] 14 (ADDL.) S.C.R
A compulsion/direction of the State rather than on their free will.
Such a provision is violative of the very first basic principles o1
cooperatives. More so, the Act is vitiated by non-application
of mind and irrelevant and extraneous considerations.
B 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.
N.J. Appeals dismissed.
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