UNION OF INDIA Vs. RAJENDRA N. SHAH & ANR.

R.F. NARIMAN, J.

20TH JULY 2021

LAW POINTS
  • Cooperative societies come under the “exclusive legislative power” of the State legislatures. Part IX B, which consists of Article 243ZH TO 243ZT has significantly impacted state’s legislative power over its co-operative sectors which come under Entry 32 of the State List.
  • Article 243ZI makes it clear that a state may only make law on the incorporation, regulation and winding up of a society, subject to the provision.
  • The 97th Amendment, which inserts the Chapter dealing with cooperative societies, has not been so ratified by the states.
  • Though an amendment is the exercise of constituent power, which differs from ordinary legislative power, such constituent power does not convert the Parliament into an original Constituent Assembly. The Parliament, being of a limited power, may only exercise such power by both the procedural and substantive limitations contained in the Constitution.
  • The Court did not strike down the portions concerning Multi-State Co-operative Societies, due to lack of ratification.
BRIEF BACKGROUND

The appeal raises an important question as to the vires of the Constitution (Ninety Seventh Amendment) Act, 2011 [the “Constitution 97th Amendment Act”] which inter alia introduced Part IXB under the chapter heading ‘The Co-operative Societies’. The Constitution 97th Amendment Act was passed by the requisite majority of the Lok Sabha on 27.12.2011 and the Rajya Sabha on 28.12.2011.

The Presidential assent to the  aforesaid Amendment  followed on  12.01.2012 and the said Amendment  was  published  in  the  Official  Gazette  of  India  on  13.01.2012, coming into force with effect from 15.02.2012. The important question raised in these petitions and decided by a division bench of the Gujarat High Court by the impugned judgment dated 22.04.2013 is whether Part IXB is non-est for want of ratification by half of the States under the proviso to Article 368(2).

The impugned judgment of the High Court has declared that the said constitutional amendment inserting Part IXB is ultra vires the Constitution of India for want of the requisite ratification under Article 368(2) proviso, which however will not impact amendments that have been made in Article 19(1)(c) and in inserting Article 43B in the Constitution of India.

ARGUMENTS ON BEHALF OF ATTORNEY GENERAL OF INDIA
  • As many as 17 out of 28 States have, after the 97th Amendment,  already enacted legislative measures in conformity with Part IXB and that therefore more than half of the States had, in effect, accepted and applied the provisions of Part IXB. The 97th Amendment was also preceded by a detailed consultation with the State Governments as a result of which no  State  Government  has come forward to challenge the same.
  • A reading of Part IXB would show that no additional legislative power has been given to the Union. All subject  matters  relating  to  co-operative  societies  fall solely within the legislative domain of the States.
  • The additional finding of the Division Bench that the Constitutional Amendment violated the basic structure of the Constitution, in that it tinkered with the federal structure of the Constitution, was wholly uncalled for and unwarranted inasmuch as the real issue in this case is one and one only, as to whether ratification is or is not necessary.
  • If the doctrine of severability is to be applied, then in the event of this Court finding that State co-operative societies cannot be impacted without following ratification, multi- State co-operative societies, which have ramifications beyond one state can be held to be covered by Part IXB, as would Union territories, and that on applying the aforesaid doctrine, Part IXB ought to be upheld, at least insofar as the multi-State co-operative societies are concerned.
ARGUMENTS ON BEHALF OF RESPONDENTS
  • A careful reading of Part  IXB  of  the  Constitution  would  show  that  the unfettered power of the State legislatures  prior  to  the  amendment  has  now been fettered by the provisions of Part IXB in several material particulars; for example, the fixation of the maximum number of directors of co-operative societies; the reservation provision  contained  in  243ZJ;  the  duration  of  the term of office of elected members of the board of co-operative societies etc.
  • There is a direct assault on Entry 32, List II of the 7th Schedule inasmuch as after one year, all State legislations that are contrary to the provisions of Part IXB are of no effect, and that an affirmative obligation is cast upon the States to enact legislation only in accordance with the restrictions contained in Part IXB.
  • Such amendment would have to be struck down for want of ratification as it impacts a very important part of the Constitution, namely,  the  federal structure and the distribution of legislative powers between the Union and the States.
  • The validity of a constitutional amendment does not depend upon whether a State government accepts it or whether a State government challenges it. Even if 17 States thereafter amend their laws in furtherance of the Constitutional Amendment, this would make no difference to the constitutional position if in fact the requisite ratification under Article 368(2).
  • The part relating to multi-State co-operative societies, not being severable, the entirety of Part IXB has correctly been held to be unconstitutional by the impugned judgment.
  • If this Constitutional Amendment is allowed to pass constitutional muster without ratification, there would be no end to further amendments which would then indirectly rob the States of their legislative powers, changing a quasi-federal state into a unitary one.
OBSERVATIONS OF THE HON’BLE SUPREME COURT

PRINCIPLE OF FEDERAL SUPREMACY VIS-A-VIS DEMARCATION OF LEGISLATIVE POWERS U/A 246

Though, undoubtedly, the Constitution exhibits supremacy of Parliament over the State Legislatures, yet the principle of federal supremacy laid down in Article 246 of the Constitution cannot be resorted to unless there is an irreconcilable direct conflict between the entries in the Union and the State Lists.

Thus, there is no quarrel with the  broad proposition that under the  Constitution there is a clear demarcation of legislative powers between the Union and the States and they have to confine themselves within the field entrusted to them. It may also be borne in mind that the function of the lists is not to confer powers; they merely demarcate the legislative field.

So far as co-operative societies are concerned, it can be seen that it is entirely  a matter for the States to legislate upon, being the last subject matter mentioned in Entry 32 List II. It is important to note that Entry 43 of List I, which deals with incorporation, regulation and winding up of trading corporations including banking, insurance and financial corporations expressly excludes co-operative societies from its ambit. Entry 44 List I, which is wider than Entry 43 in that it is not limited to trading corporations, speaks of corporations with objects not confined to one State. Thus, on a reading of these entries, it comes out that Multi State  Co-operative Societies with objects not confined to one state, the legislative power would be that of the Union of India which is contained in Entry 44 List I.

NO OVERLAPPING ON SUBJECT “COOPERATIVE SOCIETIES”

Co-operative societies as a subject matter belongs wholly and exclusively to the State legislatures to legislate upon, whereas multi-State cooperative societies i.e.,  co- operative societies having objects not confined to one state alone, is exclusively within the ken of Parliament.

It may safely be concluded that there is no overlap and hence, there is no need to apply the federal supremacy principle.

PROCEDURAL REQUIREMENT OF RATIFICATION UNDER PROVISO TO ARTICLE 368(2)

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

Unlike the 73rd and 74th Constitution Amendments Acts, which inserted Part IX dealing with Panchayats and Part IXA dealing with Municipalities, which amendments were also ratified by not less than one half of the States, the 97th Amendment which inserts the chapter dealing with co-operative societies has not been so ratified.

It is undisputed that the proviso to clause (2) of Article 368 is attracted, requiring ratification by the specified number of State Legislatures before presentation of the Bill seeking to make the constitutional amendment to the President for his assent.

In a recent decision, namely, Dr. Jaishri Laxmanrao Patil v. Chief Minister  and Ors., 2021 SC, the 102nd Amendment Act was challenged, inter alia, on the ground that not being ratified by at least half of the States, the Constitutional Amendment was infirm. The 102nd Amendment was found not contrary to or violative of proviso to Article 368(2) of the Constitution of India. As a result, it was held that the writ petition is without merit.

The “change” spoken about by Article 368 (2) proviso in any provision of the Constitution need not be direct in the sense of adding, subtracting, or modifying the language of the particular Article or provision spoken of in the proviso.  The judgments above referred to speak of a ‘change-in effect’ which would mean a change which, though not in the language of any provision of the Constitution, would yet be a change which would impact a particular article and the principle contained therein in some significant way and would attract the proviso to Article 368(2) and therefore require ratification.

If the subject matter “co-operative societies” had been either expanded or curtailed by adding a definition clause in Article 366 of the Constitution of India, such expansion or curtailment would also require ratification as significant changes have been  made  in effect in Entry 32 List II of the Constitution of India.

ANALYSIS OF PART IX-B

The analysis of Part IXB of the Constitution leads to the result that though Article 246(3) and Entry 32, List II of the 7th Schedule have not been ‘changed’ in letter, yet

the impact upon the aforesaid articles cannot be said to be insignificant. On the contrary, it is clear that by curtailing the width of Entry 32, List II  of  the  7th Schedule, Part IXB seeks to effect a significant change in Article 246(3) read with Entry 32 List II of the 7th Schedule inasmuch as the State’s exclusive power to make laws with regard to the subject of co-operative societies is significantly curtailed, thereby directly impacting the quasi-federal principle contained therein.

Therefore, Part IXB, insofar  as  it  applies  to  co-operative  societies  which  operate within a State, would therefore require ratification  under  both  sub-clauses  (b)  and (c) of the proviso to Article 368(2) of  the  Constitution of  India.  Also, like  the  73rd  and 74th Amendments, the Constitution 97th Amendment Act also required ratification.

In the present case, ratification not having been affected, thereby the Amendment is non-est.

DOES ENACTMENT OF LEGISLATION BY STATES AMOUNTS TO RATIFICATION

It was argued that 17 out  of  28  States  had  enacted  legislations  incorporating provisions of Part IXB, and therefore, they had impliedly accepted the restrictions laid down in the said Part. This argument need not  detain  us  inasmuch  as  the  procedure laid down in Article 368(2) proviso requires ratification of legislatures of one half of the States by resolutions to that effect. This has admittedly not been  done  in  the  present case.

WHETHER THE PART DEALING WITH MULTI- STATE CO-OPERATIVE SOCIETIES IN PART IXB CAN BE SEVERED FROM THE PART DEALING WITH CO-OPERATIVE SOCIETIES OPERATING ONLY WITHIN A STATE.

The test of severability as laid down in Kihota hollohan v. Zachilhu & Others 1992 requires the Court to ascertain whether the legislature would at all have enacted the law if the severed part was not the part of the law and whether after severance what survives can stand independently and is workable.

The effect of Article 246ZR is as if  multi-State  co-operative  societies  are  separately dealt with in a separate sub-chapter contained within Part IXB. It  is  clear  that  the Scheme qua multi-State cooperative societies is separate from the Scheme dealing with “other cooperative societies, Parliament being empowered, so far as multi-State cooperative societies are concerned, and the State legislatures having to make appropriate laws laying down  certain  matters  so far as  “other cooperative  societies” are concerned. Also, there is  no  doubt  that  after  severance  what  survives  can  and does stand independently and  is  workable. Thus,  the  doctrine  of  severability,  applies to the present case.

DECISION- It is declared that Part IXB of the Constitution of India is operative only insofar as it concerns multi-State cooperative societies both within the various States and in the Union territories of India.

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