A.P.Dairy Dev.Corp.Federation vs B.Narasimha Reddy & Ors

A.P. Dairy Development Corporation ... Appellant

Federation

Versus

B. Narasimha Reddy & Ors. ...Respondents

WITH

CIVIL APPEAL NOS. 2189-2212 OF 2008

AND

CIVIL APPEAL NO. 4588 OF 2008

J U D G M E N T

Dr. B.S. CHAUHAN, J.

1. All these appeals have been preferred against the impugned

judgment and order dated 1st May, 2007 of the High Court of

Judicature, Andhra Pradesh at Hyderabad in Writ Petition No. 2214 of

2006, by which the High Court has struck down the provisions of

Andhra Pradesh Mutually Aided Co-operative Societies (Amendment)

Act, 2006 (hereinafter called as `Act 2006') as unconstitutional and

further declared that even if the Act 2006 is to be considered

constitutional, provisions providing that the Boards of Directors

appointed under the Andhra Pradesh Mutually Aided Co-operative

Societies Act, 1995 (hereinafter called `Act 1995') shall be deemed to

have been continued under the provisions of A.P. Co-operative

Societies Act, 1964 (hereinafter called `Act 1964'), and further G.O.Ms.

No.10 Animal Husbandry, Dairy Development & Fisheries (Dairy-II)

Department, dated 4.2.2006 and the consequential proceedings/orders

of the Milk Commissioner and Registrar of Milk Co-operatives and the

District Collectors concerned in these regards, are quashed.

2. Facts:

A. The Government of Andhra Pradesh introduced an integrated

milk project in the State with the assistance of the UNICEF, according

to which, the rural surplus milk produced in the villages was

transported to chilling centres and supplied to consumers of Hyderabad.

A milk conservation plant/milk products factory was established at

Vijayawada in 1969 as a part of the project. In the meanwhile, the Act

1964 came into force w.e.f. 1.8.1964.

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B. In years 1970-71, the Government of Andhra Pradesh set up an

independent Dairy Development Department (hereinafter called the

`Department') and intensive efforts were made by the Government to

give a boost to the Department taking various measures.

C. In year 1974, Andhra Pradesh Dairy Development Corporation

Ltd. (hereinafter called the `Corporation'), a company under the Indian

Companies Act, 1956, fully owned by the State Government was

constituted and the entire dairy infrastructure and assets of the

Department of the State stood transferred to the said Corporation vide

order dated 15.4.1974. The employees of the Department were

absorbed in the Corporation. A huge amount has been contributed by

the Government from year 1974 onwards to develop the dairy products.

D. The Andhra Pradesh Dairy Development Cooperative Federation

Ltd. (hereinafter called `the Federation') was registered as a

Cooperative Society and all the assets and dairy infrastructure were

transferred to the Federation. The State Government vide order dated

10.12.1980 permitted the Federation to hand over the management of

the respective units set up at the State expenses to the Societies subject

to conditions stipulated in the agreement. Mainly the terms incorporated

therein provided for transfer of assets on lease basis, and the State to

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stand as a guarantor for the payment of loan component and financial

assistance etc.

E. The Government further permitted the Federation to hand over

the management of respective units and operation hitherto to various

societies with the right of procurement and further dairy development

activities such as manufacturing, processing, feed mixing plants

alongwith the concerned employees to the District Milk Producers Co-

operative Unions with effect from a mutually agreeable date.

F. During the years of 1991 and 1995, the benefits of financial

assistance rendered to the units by the State and the Central

Governments had been very huge i.e. Rs.159.45 lakhs and Rs.729.97

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, namely, the share

capital from the Government, if any, had to be returned and the

societies should not accept any Government assistance, and further the

societies had to enter into the Memorandum of Understanding

(hereinafter called the MoU) for outstanding loans and guarantees or

return of the government assistance. These had been conditions

4

precedent for registration of a society under the Act 1995. A very large

number of new societies came into existence and were registered under

the Act 1995. Many societies already registered under the Act 1964 also

got themselves registered under the Act 1995.

H. There had been some irregularities in getting the registration

under the Act 1995 by certain societies registered under the Act 1964

and some of them did not execute the MoU. Thus, the Statutory

Authority issued show cause notices to such societies under Section

4(3) of the Act 1995 on 29.11.2004 to show cause as to why their

registration under the Act 1995 be not cancelled.

I. Eight writ petitions were filed by 8 District Milk Unions

challenging the said show cause notices before the High Court. The

Federation filed original petition in various Co-operative Tribunals

seeking dissolution of its societies under Section 40 of the Act 1995 as

the statutory requirements had not been complied with.

J. The Co-operative Tribunal vide its judgment and order dated

9.12.2004 dismissed the original petition against Visakha District

Union on the premises that the Act 1995 had not mentioned about

returns of assets and the Managing Director had no power to further

delegate the power to some one to file the petition.

5 K. The Legislative Assembly of the Andhra Pradesh vide

Resolution dated 8.2.2005 constituted a House Committee consisting of

its members belonging to different political parties to investigate into

irregularities committed by two of the eight District Unions, namely,

Visakha and Ongole (Prakasham) Unions, who also got registered under

the Act 1995. The Committee submitted its report pointing out certain

irregularities by the said Unions. The Committee also opined that the

Act 1995 had adverse consequences on the dairy co-operatives, as it had

broken down 3-tier structure, reduced the brand value of Vijaya Brand,

created conflict in marketing structures, weakened the financial position

of some District Milk Unions etc. and had broken down the common

cadre of employees.

L. After considering the said report, the State Government

constituted a Committee consisting of Ministers to consider the

recommendations of the House Committee vide order dated 23.8.2005.

It was this Committee which recommended that dairy co-operatives be

excluded from the purview of the Act 1995 and so far as the dairy co-

operatives are concerned, it should be restored to 3-tier structure.

Meanwhile, the order passed by the Co-operative Tribunal was

challenged in the Writ Petition No. 1420 of 2006 in pursuance to the

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policy decision of the Government to exclude the dairy societies from

the purview of the Act 1995 and to bring them back under the Act 1964.

M. The State promulgated the Ordinance No.2/2006 excluding the

milk dairy co-operative societies from the societies covered by the Act

1995 and imported the fiction that such dairies would be deemed to

have been registered under the Act 1964, with effect from the date of

registration under the Act 1995.

N. Government Order dated 4.2.2006 was issued to give effect to

such amendments and also to take care of transitional position,

particularly providing that District Collector would appoint the person

in-charge under Section 32(7) of the Act 1964 to manage the affairs of

all primary milk producers co-operative societies till further elections or

until further orders, so that affairs of those societies would be managed

properly.

O. Writ Petitions were filed before the High Court by various

District Milk Producers Co-operative Unions challenging Ordinance

No.2/2006 and consequential Government Order dated 4.2.2006. The

High Court vide interim order dated 8.2.2006 stayed the operation of

the Government Order dated 4.2.2006. Meanwhile, the Ordinance was

7

converted into the Act. By the impugned judgment dated 1.5.2007, the

High Court allowed the writ petitions.

Hence, these appeals.

Rival Submissions:

3. Shri R. Venkataramani, Shri S.S. Prasad, learned senior counsel

appearing for the appellants have submitted that the impugned

judgment and order are untenable as the Legislature is competent to

amend the Act and while doing so the Legislature in its wisdom had

rightly decided to treat the milk dairy co-operatives distinctly from all

other kinds of societies. Thus, no grievance of discrimination could be

raised. More so, there is no discrimination among the milk dairies, as all

such dairies have been treated as a separate class. The amendment had

not taken away any vested or statutory right of the writ petitioners by

the impugned Act. Both the Acts i.e. Act 1964 as well as Act 1995 are

based on the same set of the co-operative principles and serve different

sectors of the co-operatives in different ways. Both the Acts co-exist

and are not mutually conflicting. Therefore, the question of doubting

the validity of the Act 2006 merely on the ground of having

retrospective application could not arise. The members of the

management committee of the District Unions/writ petitioners could

8

again contest the election for the posts in their respective society under

the Act 1964. Appointment of persons in-charge was merely a

temporary/transitional phase to facilitate such elections and, therefore,

there was no violation of fundamental rights of any of the writ

petitioners. The High Court erred in recording the finding that the Act

2006 stood vitiated on the ground that it had breached promissory

estoppel. The Government undoubtedly, had transferred the

management of the assets to the District Unions and as the said District

Unions would continue with such management of assets, there was no

question of breach of any of the promises made by the State. Doctrine

of promissory estoppel does not apply to legislature. There was a

rational nexus to enact the Act 2006 as a large number of the milk

dairy societies did not enter into the MoU as required under Section

4(4) of the Act 1995. Such legislative action could not be termed as

arbitrary and warranting attraction of the provisions of Article 14 of the

Constitution of India. There were valid reasons for excluding the

milk/dairy societies from the provisions of the Act 1995. Dairy industry

being peculiar and having distinct characteristics required State's

moderation and intervention. Having regard to the special and

distinctive features of the Dairy industry and the existence of large

9

number of financially weak and dependent primary milk Co-operative

Societies, and the necessity of State funding of these societies, it has

been found necessary to take dairy industry out of the purview of 1995

Act. The High Court failed to make distinction of dairy milk societies

from other co-operative societies as the dairy milk societies are having

with them substantial government interest, assets and government

investments. All the societies including the primary societies are

dependent on the government and its assets. Such a financial assistance

has been granted in view of the provisions of Section 43 of the Act

1964 and the government control over such societies under the Act

1964 is minimal. It was not that the Act 2006 had been brought to have

government control over milk dairy societies as under the Act 1995 the

government control was negligible. The societies under the Act 1995

"have to be self reliant". Thus, the Act assured such societies a

complete autonomy. The Act 2006 was enacted on the recommendation

of the House Committee which suggested remedial measures for

effective functioning of the dairies in the State. It was so necessary to

reconfirm the 3-tier structure e.g. apex society, central society and

primary society as such a classification was not available under the Act

1995. The Statement of Objects and Reasons of the Act 2006 clearly

10

provided for justification of amendment (impugned). Therefore,

appeals deserve to be allowed and the impugned judgment and order of

the High Court is liable to be set aside.

4. On the contrary, Mr. P.P. Rao, learned senior counsel, Mr. P.

Venkat Reddy, Mr. Niranjan Reddy and Mr. S. Udaya Kr. Sagar,

learned counsel appearing for the respondents have submitted that the

Act 2006 suffered from vice of arbitrariness, and has taken away the

accrued rights of the milk dairy co-operative societies. Act 2006 has

given a hostile discrimination to milk dairy co-operative societies as

no other kind of society i.e. Societies of Agro Processing, Fisheries,

Sheep Breeding etc. has been excluded from the operation of the Act

1995. A large number of new societies had initially/directly been

registered under the Act 1995. Therefore, the question of creating a

fiction that the same shall also stand excluded from the operation of the

Act 1995 and would be deemed to have been registered under the Act

1964 cannot be justified for the reason that such societies had not

initially been registered under the Act 1964. It was a political decision

of the State Authorities to amend the statute merely because of the

change of the Government and to have control on such societies. The

reasons for enacting the Act 2006 have been spelled out in the

11

Statement of Objects and Reasons of the said Act and none of them

really existed in fact and in order to introduce the Act 2006, the State

incorrectly construed the provisions of the Act 1995. A very few

societies had the government benefits and the said societies had also

ensured the compliance of the statutory provisions of the Act 1995.

Almost all the societies have returned the assets of the Federation.

Where it has not been returned, the matters are sub-judice, before the

Co-operative Tribunal, between the Federation and the societies. More

so, the character of the assets would not change upon conversion of a

society into one under the Act 1995. The character of a 3-tier structure

contemplated under the Act 1964 is different from one followed in the

State of Gujarat under the "Anand Pattern" and such 3-tier structure is

possible under the Act 1995 also. There can be no nexus in deeming

fiction created for treating the societies as having been registered under

the Act 1964 and it would definitely not bring back the 3-tier structure.

The farmers had not been facing any problem for redressal of which the

amendment was necessary. Thus, the facts and circumstances of the

case do not require any interference with the impugned judgment and

appeals are liable to be dismissed.

12 5. We have considered the rival submissions made by learned

counsel for the parties and perused the record.

6. Before we examine the merits of the arguments advanced by

learned counsel for the parties, it may be necessary to make a reference

to some of the relevant findings recorded by the High Court :

(i) The ordinance/Act suffers from vice of hostile discrimination

against dairy farms and milk producers without scientific or

rational basis for such distinction-merely because the National

Dairy Development Board distinctly deals with dairy activities,

cooperatives dealing with such activities cannot form a separate

and distinct class in so far as co-operative activity is concerned.

(ii) The irregularities noted by the House Committee with regard to

the Visakha Union, Prakasham Union are managerial lapses

which are possible both under the `Act 1964' and the `Act 1995'.

(iii) Non-compliance with the terms and conditions of the transfer

agreements regarding business and service matters and

irregularities noted in the audit reports and House Committee is

possible both under the `Act 1995' and the `Act 1964'.

(iv) The conclusion of the House Committee in respect of two of the

district unions out of eight districts converted into `Act 1995'

cannot be relevant material for any rational conclusion.

13

(v) Both Section 2(e) of the `Act 1964' and Section 2(k) of the `Act

1995' enable formation of Apex Societies, Central Societies and

Primary Societies. Exclusion of the Dairy/Milk Cooperative

Societies from `Act 1995' to achieve the object of a three-tier

structure is a non-existent cause.

(vi) Both the `Act 1964' and `Act 1995' have procedure for

auditing, enquiry, inspection and surcharge etc., it is nowhere

stated as to how the `Act 1964' is more effective or

comprehensive in the matter of protecting any government assets

in possession of the societies or as to how the `Act 1995' is

inadequate for the purpose.

(vii) Till June 2004, the Federation found everything positive and

nothing negative in the functioning of the District Union.

(viii) Adverse effects on the interest of dairy farms due to registration

or conversion of dairy/milk co-operative societies under `Act

1995' are not existing.

(ix) Fundamental right under Section 19(1)(c) of the Constitution of

India to form association or union is infringed by the impugned

Ordinance/Act.

(x) The retrospective legislation undoubtedly interferes with vested

rights and accrued rights and such interference is based on

classification not in tune with the parameters of equality under

14 Article 14 of the Constitution and not having any nexus with the

objects sought to be achieved.

(xi) The agreement dated 8.1.1981 (between the State Government

and the Indian Dairy Corporation); the letter of understanding

dated 21.1.1988 (between the State Government and the National

Dairy Development Board) and acted upon by the State

Government and the concerned agencies estopped the State

Government from backing out on the assurance.

(xii) Section 32(7) of the `Act 1964' does not confer power on the

government to appoint person-in-charge. In the absence of any

other provision, the government order (G.O.Ms No. 10 dated

4.2.2006) is not legal and enforceable.

7. Thus, the question does arise as to whether in view of the

submissions advanced by the learned counsel for the parties, it is

desirable to interfere with the aforesaid findings or any of them.

8. It is well settled law that Article 14 forbids class legislation,

however, it does not forbid reasonable classification for the purpose of

legislation. Therefore, it is permissible in law to have class legislation

provided the classification is founded on an intelligible differentia

which distinguishes persons or things that are grouped together from

others left out of the group and that differentia must have a rational

15

relation to the object sought to be achieved by the statute in question.

Law also permits a classification even if it relates to a single individual,

if, on account of some special circumstances or reasons applicable to

him, and not applicable to others, that single individual may be treated

as a class by himself. It should be presumed that legislature has

correctly appreciated the need of its people and that its laws are

directed to problems made manifest by experience and that its

discriminations are based on adequate grounds. There is further

presumption in favour of the legislature that legislation had been

brought with the knowledge of existing conditions. The good faith on

the legislature is to be presumed, but if there is nothing on the face of

the law or the surrounding circumstances brought to the notice of

the court on which the classification may reasonably be regarded as

based, the presumption of constitutionality cannot be carried to the

extent of always holding that there must be some undisclosed and

unknown reasons for subjecting certain individuals or corporations to

hostile or discriminating legislation. The law should not be irrational,

arbitrary and unreasonable in as much as there must be nexus to the

object sought to be achieved by it. (Vide: Budhan Choudhry & Ors.

v. State of Bihar, AIR 1955 SC 191 ; and Ram Krishna Dalmia v.

16 Justice S.R. Tendolkar & Ors., AIR 1958 SC 538)

9. In Harbilas Rai Bansal v. State of Punjab & Anr., AIR 1996

SC 857, this Court struck down the provisions of the East Punjab

Urban Rent Restriction (Amendment) Act, 1956, on the ground that the

amendment had taken away the right of landlord to evict his tenant

from non-residential building even on the ground of bonafide

requirement holding that such provisions of amendment were violative

of Article 14 of the Constitution and the landlord was entitled to seek

eviction on ground of requirement for his own use. The Court further

held that it is obvious from the objects and reasons of introducing the

said amended Act, that the primary purpose for enacting the Act was to

protect the tenants against the malafide attempts by their landlords to

evict them. Bona fide requirement of a landlord was, therefore,

provided in the Act - as original enactment - a ground to evict tenant

from the premises whether residential or non residential.

Thus, the issues require to be examined arise as to whether

the Act 2006 is arbitrary, discriminatory or unreasonable or has taken

away the accrued rights of the Milk Dairy Societies registered directly

under the Act 1995 or got conversion of their respective registration

under the Act 1964 to the Act 1995.

17 10. Article 19(1)(c) guarantees to all citizens, the right to form

associations or unions of their choice voluntarily, subject to reasonable

restrictions imposed by law. Formation of the unions under Article

19(1)(c) is a voluntary act, thus, unwarranted/impermissible statutory

intervention is not desired.

11. Constitution Bench of this Court in M/s. Raghubar Dayal Jai

Prakash v. The Union of India & Anr., AIR 1962 SC 263, while

dealing with a similar issue held as under:

"An application for the recognition of the association for

the purpose of functioning under the enactment is a

voluntary act on the part of the association and if the

statute imposes conditions subject to which alone

recognition could be accorded or continued it is a little

difficult to see how the freedom to form the association is

affected unless, of course, that freedom implies or

involves a guaranteed right to recognition also."

12. In Smt. Damyanti Naranga v. The Union of India & Ors.,

AIR 1971 SC 966, this Court examined question related to the Hindi

Sahitya Sammelan, a Society registered under the Societies

Registration Act, 1860. The Parliament enacted the Hindi Sahitya

Sammelan Act under which outsiders were permitted to become

members of the Sammelan without the volition of the original

18

members. This court while examining its validity held that any law

altering the composition of the Association compulsorily will be a

breach of the right to form association because it violated the

composite right of forming an association and the right to continue it as

the original members desired. The Court held as follows :

"It is true that it has been held by this Court that,

after an Association has been formed and the right

under Art.19(1)(c) has been exercised by the

members forming it, they have no right to claim that

its activities must also be permitted to be carried on

in the manner they desire. Those cases are, however,

inapplicable to the present case. The Act does not

merely regulate the administration of the affairs of

the Society, what it does is to alter the composition

of the Society itself as we have indicated above. The

result of this change in composition is that the

members, who voluntarily formed the Association,

are now compelled to act in that Association with

other members who have imposed as members by

the Act and in whose admission to membership they

had no say. Such alteration in the composition of

the Association itself clearly interferes with the right

to continue to function as members of the

Association which was voluntarily formed by the

original founders. The right to form an association,

in our opinion, necessarily implies that the persons

forming the Association have also the right to

continue to be associated with only those whom they

voluntarily admit in the Association. Any law, by

which members are introduced in the voluntary

Association without any opinion being given to the

members to keep them out, or any law which takes

away the membership of those who have voluntarily

joined it, will be a law violating the right to form an

association". (Emphasis supplied)

19

13. In Daman Singh & Ors. v. State of Punjab & Ors., AIR 1985

SC 973, this Court examined a case where an unregistered society was

by statute converted into a registered society which bore no

resemblance whatever to the original society. New members could be

admitted in large numbers so as to reduce the original members to an

insignificant minority. The composition of the society itself was

transformed by the Act and the voluntary nature of the association of

the members who formed the original society was totally destroyed.

The Act was struck down by the Court as contravening the

fundamental right guaranteed by Art. 19(1)(f).

14. In Dharam Dutt & Ors. v. Union of India & Ors., (2004) 1

SCC 712, this Court held that the first test is the test of reasonableness

which is common to all the clauses under Article 19(1), and the second

test, is to ask for the answer to the question, whether the restrictions

sought to be imposed on the fundamental right, fall within clauses (2)

to (6) respectively, qua sub-clauses (a) to (g) of Article 19(1) of the

Constitution, and the Court further held that a right guaranteed by

Article 19(1)(c), on the literal reading thereof, can be subjected to those

restrictions which satisfy the test of clause (4) of Article 19. The rights

20

not included in the literal meaning of Article 19(1)(c) but which are

sought to be included therein as flowing therefrom i.e. every right

which is necessary in order that the association brought into

existence fulfils every object for which it is formed, the

qualifications therefor, would not merely be those in clause (4) of

Article 19, but would be more numerous and very different.

Restrictions which bore upon and took into account the several fields in

which the associations or unions of citizens might legitimately engage

themselves, would also become relevant. Therefore, the freedom

guaranteed under Article 19(1)(c) is not restricted merely to the

formation of the association, but to the effective functioning of the

association so as to enable it to achieve the lawful objectives.

15. In The Tata Engineering and Locomotives Co.Ltd. v. The

State of Bihar & Ors., AIR 1965 SC 40, Constitution Bench of this

Court held, that a fundamental right to form the association cannot

be coupled with the fundamental right to carry on any trade or

business. As soon as citizens form a company, the right guaranteed to

them by Article 19(1)(c) has been exercised, and no restrain has been

placed on that right and no infringement of that right is made. Once a

company or a corporation is formed, the business which is carried on

21

by the said company or corporation is the business of the company or

corporation, and is not the business of the citizens who get the

company or corporation formed or incorporated, and the rights of the

incorporated body must be judged on that footing alone and cannot be

judged on the assumption that they are the rights attributable to the

business of individual citizens. Thus, right under Article 19(1)(c) does

not comprehend any concomitant right beyond the right to form an

association and right relating to formation of an association. (See also:

All India Bank Employees' Association v. National Industrial

Tribunal (Bank Disputes) Bombay & Ors., AIR 1962 SC 171; S.

Azeez Basha & Anr. v. The Union of India etc., AIR 1968 SC 662;

and D.A.V. College, etc.etc. v. State of Punjab & Ors., (1971) 2 SCC

269.)

16. In view of the above, it becomes evident that the right of the

citizens to form the association are different from running the business

by that association. Therefore, right of individuals to form a society

has to be understood in a completely different context. Once a co-

operative society is formed and registered, for the reason that co-

operative society itself is a creature of the statute, the rights of the

society and that of its members stand abridged by the provisions of the

22

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

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 doctrine of

arbitrariness is not restricted only to executive actions, but also

applies to legislature. Thus, a party has to satisfy that the action was

reasonable, not done in unreasonable manner or capriciously or at

pleasure without adequate determining principle, rational, and has been

done according to reason or judgment, and certainly does not depend

on the will alone. However, the action of legislature, violative of

Article 14 of the Constitution, should ordinarily be manifestly

arbitrary. There must be a case of substantive unreasonableness in the

statute itself for declaring the act ultra vires of Article 14 of the

Constitution. (Vide: Ajay Hasia etc. v. Khalid Mujib Sehravardi &

Ors. etc. AIR 1981 SC 487; Reliance Airport Developers (P) Ltd. v.

Airports Authority of India & Ors., (2006) 10 SCC 1; Bidhannagar

23

(Salt Lake) Welfare Assn. v. Central Valuation Board & Ors. AIR

2007 SC 2276; Grand Kakatiya Sheraton Hotel and Towers

Employees and Workers Union v. Srinivasa Resorts Limited &

Ors. AIR 2009 SC 2337; and State of Tamil Nadu & Ors. v. K.

Shyam Sunder & Ors. (2011) 8 SCALE 474).

18. In State of Andhra Pradesh & Anr. v. P. Sagar, AIR 1968 SC

1379, this Court examined the case as to whether the list of backward

classes, for the purpose of Article 15(4) of the Constitution has been

prepared properly, and after examining the material on record came to

the conclusion that there was nothing on record to show that the

Government had followed the criteria laid down by this Court while

preparing the list of other backward classes. The Court observed as

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 citizens cannot be upheld merely

because the law maker was satisfied that what he did

was right or that he believes that he acted in manner

consistent with the constitutional guarantees of the

citizen. The test of the validity of a law alleged to

infringe the fundamental rights of a citizen or any act

done in execution of that law lies not in the belief of the

maker of the law or of the person executing the law, but

in the demonstration by evidence and argument before

the Courts that the guaranteed right is not infringed."

24

19. In Indra Sawhney II v. Union of India, AIR 2000 SC 498,

while considering a similar issue regarding preparing a list of creamy

layer OBCs, this Court held that legislative declarations on facts are

not beyond judicial scrutiny in the constitutional context of Articles

14 and 16 of the Constitution, for the reason that a conclusive

declaration could not be permissible so as to defeat a fundamental

right.

20. In Harman Singh & Ors. v. Regional Transport Authority,

Calcutta Region & Ors., AIR 1954 SC 190, this Court held:

"....A law applying to a class is

constitutional if there is sufficient basis or reason for it.

In other words, a statutory discrimination cannot be set

aside as the denial of equal protection of the laws if any

state of facts may reasonably be conceived to justify it."

21. In D.C. Bhatia & Ors. v. Union of India & Anr., (1995) 1 SCC

104, this Court held:

".....This is a matter of legislative policy. The

legislature could have repealed the Rent Act

altogether. It can also repeal it step by step.......It is

well settled that the safeguard provided by Article 14

of the Constitution can only be invoked, if the

classification is made on the grounds which are

totally irrelevant to the object of the statute. But, if

there is some nexus between the objects sought to be

25

achieved and the classification, the legislature is

presumed to have acted in proper exercise of its

constitutional power. The classification in practice

may result in some hardship. But, a statutory

discrimination cannot be set aside, if there are facts

on the basis of which this statutory discrimination can

be justified....The court can only consider whether the

classification has been done on an understandable

basis having regard to the object of the statute. The

court will not question its validity on the ground of

lack of legislative wisdom.

Moreover, the classification cannot be done

with mathematical precision. The legislature must

have considerable latitude for making the

classification having regard to the surrounding

circumstances and facts. The court cannot act as a

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:

"......The legislature is undoubtedly competent to

legislate with retrospective effect to take away or

impair any vested right acquired under existing laws

but since the laws are made under a written'

Constitution, and have to conform to the do's and

don'ts of the Constitution neither prospective nor

retrospective laws can be made so as to contravene

Fundamental Rights. The law must satisfy the

requirements of the Constitution today taking into

account the accrued or acquired rights of the parties

today. The law cannot say twenty years ago the

parties had no rights therefore, the requirements of

the Constitution will be satisfied if the law is dated

back by twenty years. We are concerned with today's

26

rights and not yesterday's. A Legislature cannot

legislate today with reference to a situation that

obtained twenty years, ago and ignore the march of

events and the constitutional rights accrued in the

course of the twenty years. That would be most

arbitrary, unreasonable and a negation of history...

................... Today's equals cannot be made

unequal by saying that they were unequal twenty

years ago and we will restore that position by making

a law today and making it retrospective.........the

provisions are so intertwined with one another that it

is wellnigh impossible to consider any life saving

surgery. The whole of the Third Amendment Act must

go."

23. In B.S. Yadav & Ors. v. State of Haryana & Ors., AIR 1981

SC 561, Constitution Bench of this Court similarly held that the date

from which the rules are made to operate must be shown to have

reasonable nexus with the provisions contained in the statutory rules

specially when the retrospective effect extends over a long period.

24. In Chairman, Railway Board & Ors. v. C. R.

Rangadhamaiah & Ors., AIR 1997 SC 3828, this Court similarly held

as under:

".......an amendment having retrospective operation

which has the effect of taking away a benefit already

available to the employee under the existing rule is

arbitrary, discriminatory and violative of the rights

guaranteed under Articles 14 and 16 of the

Constitution."

27

Thus, wherever the amendment purports to restore the

status quo ante for the past period taking away the benefits already

available, accrued and acquired by them, the law may not be valid.

(Vide: P. Tulsi Das & Ors. v. Government of A.P. & Ors., AIR 2003

SC 43)

25. In National Agricultural Cooperative Marketing Federation

of India Ltd. & Anr. v. Union of India & Ors., (2003) 5 SCC 23, this

Court held that the legislative power to amend the enacted law with

retrospective effect, is also subject to several judicially recognized

limitations, inter- alia, the retrospectivity must be reasonable and not

excessive or harsh otherwise it runs the risk of being struck down as

unconstitutional.

26. Vested right has been defined as fixed; vested; accrued; settled;

absolute; and complete; not contingent; not subject to be defeated by a

condition precedent. The word `vest' is generally used where an

immediate fixed right in present or future enjoyment in respect of a

property is created. It is a "legitimate" or "settled expectation" to

obtain right to enjoy the property etc. (Vide: Mosammat Bibi Sayeeda

& Ors., etc. v. State of Bihar & Ors., etc., AIR 1996 SC 1936;

28 Howrah Municipal Corporation & Ors. v. Ganges Rope Co. Ltd. &

Ors., (2004) 1 SCC 663; and J.S. Yadav v. State of Uttar Pradesh &

Anr., (2011) 6 SCC 570).

27. In the matter of Government of a State, the succeeding

Government is duty bound to continue and carry on the unfinished job

of the previous Government, for the reason that the action is that of the

"State", within the meaning of Article 12 of the Constitution, which

continues to subsist and therefore, it is not required that the new

Government can plead contrary from the State action taken by the

previous Government in respect of a particular subject. The State,

being a continuing body can be stopped from changing its stand in a

given case, but where after holding enquiry it came to the conclusion

that action was not in conformity with law, the doctrine of estoppel

would not apply. Thus, unless the act done by the previous

Government is found to be contrary to the statutory provisions,

unreasonable or against policy, the State should not change its stand

merely because the other political party has come into power. "Political

agenda of an individual or a political party should not be subversive of

rule of law". The Government has to rise above the nexus of vested

interest and nepotism etc. as the principles of governance have to be

29

tested on the touchstone of justice, equity and fair play. The decision

must be taken in good faith and must be legitimate. [Vide: Onkar Lal

Bajaj etc. etc. v. Union of India & Anr. etc. etc. AIR 2003 SC 2562;

State of Karnataka & Anr. v. All India Manufacturers

Organization & Ors. AIR 2006 SC 1846; and State of Tamil Nadu

& Ors. v. K. Shyam Sunder & Ors. (Supra)].

28. In State of Tamil Nadu & Ors. v. K. Shyam Sunder & Ors.

(supra), this Court while dealing with the issue held as under:

"The Statement of Objects and Reasons appended to

the Bill is not admissible as an aid to the construction

of the Act to be passed, but it can be used for limited

purpose for ascertaining the conditions which

prevailed at that time which necessitated the making of

the law, and the extent and urgency of the evil, which it

sought to remedy. The Statement of Objects and

Reasons may be relevant to find out what is the

objective of any given statute passed by the legislature.

It may provide for the reasons which induced the

legislature to enact the statute. "For the purpose of

deciphering the objects and purport of the Act, the

court can look to the Statement of Objects and Reasons

thereof". (Vide: Kavalappara Kottarathil Kochuni @

Moopil Nayar v. The States of Madras and Kerala &

Ors., AIR 1960 SC 1080; and Tata Power Company

Ltd. v. Reliance Energy Ltd. & Ors., (2009) 16 SCC

659)."

Similar view has been reiterated in A. Manjula Bhashini &

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

30

Finance Corporation Ltd. & Anr., (2009) 8 SCC 431 observing that

for the purpose of construction of a provision, the wholesome reliance

cannot be placed on objects and reasons contained in the Bill, however,

the same can be referred to for understanding the background, the

antecedent state of affairs and the mischief sought to be remedied by

the statute. The Statement of Objects and Reasons can also be looked

into as an external aid for appreciating the true intent of the

legislature and/or the object sought to be achieved by enactment of

the particular Act or for judging reasonableness of the classification

made by such Act.

29. In M. Ramanathan Pillai v. State of Kerala & Anr., (1973) 2

SCC 650, this Court relied upon American Jurisprudence, 2d. at page

783 wherein it has been stated as under:

"Generally, a State is not subject to an estoppel to the

same extent as an individual or a private corporation.

Otherwise, it might be rendered helpless to assert its

powers in government. Therefore, as a general rule the

doctrine of estoppel will not be applied against the State

in its governmental, public or sovereign capacity."

30. In State of Kerala & Anr. v. The Gawalior Rayon Silk

Manufacturing (Wvg.) Co. Ltd. etc., (1973) 2 SCC 713, a similar

view has been re-iterated by this Court observing as under:

31 "We do not see how an agreement of the Government

can preclude legislation on the subject. The High Court

has rightly pointed out that the surrender by the

Government of its legislative powers to be used for

public good cannot avail the company or operate against

the Government as equitable estoppel."

Therefore, it is evident that the Court will not pass any

order binding the Government by its promises unless it is so necessary

to prevent manifest injustice or fraud, particularly, when government

acts in its governmental, public or sovereign capacity. Estoppel does

not operate against the government or its assignee while acting in such

capacity.

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.

The co-operative movement by its very nature, is a form

of voluntary association where individuals unite for mutual benefit in

the production and distribution of wealth upon principles of equity,

reason and common good. So, the basic purpose of forming a co-

operative society remains to promote the economic interest of its

32

members in accordance with the well recognised co-operative

principles. Members of an association have the right to be associated

only with those whom they consider eligible to be admitted and have

right to deny admission to those with whom they do not want to

associate. The right to form an association cannot be infringed by

forced inclusion of unwarranted persons in a group. Right to associate

is for the purpose of enjoying in expressive activities. The

constitutional right to freely associate with others encompasses

associational ties designed to further the social, legal and economic

benefits of the members of the association. By statutory interventions,

the State is not permitted to change the fundamental character of the

association or alter the composition of the society itself. The

significant encroachment upon associational freedom cannot be

justified on the basis of any interest of the Government. However,

when the association gets registered under the Co-operative Societies

Act, it is governed by the provisions of the Act and rules framed

thereunder. In case the association has an option/choice to get

registered under a particular statute, if there are more than one statutes

operating in the field, the State cannot force the society to get itself

registered under a statute for which the society has not applied.

33 32. The cases in hand require to be examined in the light of the

aforesaid settled legal propositions.

The recommendations of the House Committee and the Group

of Ministers, are not based on relevant material as there was no

investigation of all the co-operative societies either converted to or

registered under the Act 1995. The House Committee had primarily

been assigned the task to look into the three District Milk Unions

namely, Visakha, Ongole and Chittoor which had been running partly

on the government aids. Out of the said three milk unions, Visakha and

Ongole converted under the Act 1995, while Chittoor remained under

the Act 1964 throughout and the material on record reveal that it was

under liquidation even prior to the constitution of the House

Committee. There is nothing on record to show that the House

Committee had considered either the functioning of other more than

3500 societies registered under the Act 1995, or consensus thereof

arrived at by the Government, the Federation and the Unions at the

meeting convened by the Chief Secretaries on 26.8.2003 alongwith

other high officials of the co-operative section to solve the problems

faced by the Government, the Federation and the Milk Unions within

the framework of the Act 1995 and consistent with the statutory co-

34 operative principles. The House Committee also placed a very heavy

unwarranted reliance on the views of the Federation communicated

vide its letter dated 20.8.2005, without ascertaining the views of the

District Unions.

33. Be that as it may, the House Committee did not recommend the

amendment with retrospective effect, particularly, for the conversion of

dairy co-operative societies registered under the Act 1995 into societies

deemed to have been registered under the Act 1964. More so, the

Committee did not consider at all as to whether it was permissible in

law, to provide for such a course, so far as the societies initially

registered under the Act 1995, were concerned.

34. The restrictions so imposed by the Act 2006, with retrospective

effect, extending over a decade and importing the fiction that the

societies would be deemed to have been registered under the Act 1964,

without giving any option to such societies suggest the violation of

Article 19(1)(c) and are not saved by clause (4) of Article 19 of the

Constitution. It is by no means conceivable, that the grounds on the

basis of which reasonable restrictions could be invoked were available

in the instant case.

35 35. It is evident from the record and elaborate discussion by the

High Court that Mulkanoor Women Mutually Aided Milk Producers

Co-operative Union Limited (W.P. No.3502 of 2006) increased its

membership from 72 to 101 village dairy co-operative societies

between 2000 and 2006, and increased milk procurement from 6000

litres to 17,849 litres from the value of Rs.24.24 lakhs to Rs.53.00

lakhs. The milk sales went up from Rs.9.30 lakhs to Rs.82.53 lakhs.

The society declared bonus to the producers and substantially

discharged its loans. It is encouraging thrift among the members by

compulsorily organizing Vikasa Podupu scheme, which swelled from

Rs.11.88 lakhs to Rs.1.13 crores. This society directly formed under

the Act 1995 has to retain its character and there would be no

justification to bring such a society with about 15,000 women members

under a nominated agency.

36. The impugned provisions have no nexus with the object of

enforcing the 3-tier structure inasmuch as (a) the 1964 and the 1995

Acts, both permit registration of Federations; (b) the Act 1964 does

not contain any express provision providing for 3-tier structure; (c) the

object of having a 3-tier structure could be achieved by the Federation

36

registering itself under the Act 1995 as decided at the meeting of

cooperative milk unions convened by the Chief Secretary on

26.8.2003; and (d) even the Act 1964 does not treat Dairy Cooperatives

as a separate class to be governed by a separate structure. As such from

the stand point of structure and basic cooperative principles, all

cooperative societies, are alike. The impugned provisions are arbitrary

and violative of Article 14 as they deprived the Dairy Cooperative

Societies of the benefit of the basic principles of cooperation. The

amendments are contrary to the national policy on Cooperatives. They

obstruct and frustrate the object of the development and growth of

vibrant cooperative societies in the State.

37. After conversion into Mutually - Aided Societies under the Act

1995 with the permission of the Government as stipulated by Section 4

(3)(a), the cooperative societies originally registered under the Act

1964 cannot be treated as aided societies or societies holding the assets

of the government or of the Federation. The Statement of Objects and

Reasons itself shows that the government decided not to withdraw its

own support suddenly. In fact, there was no aid given by the State after

conversion. Chapter X of the Act 1964 which empowers the Registrar

to recover dues by attachment and sale of property and execution of

37

orders having been expressly incorporated 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 Section 4

of the A.P. Cooperative Societies Act, 1964 read with Rule 2(a) of the

A.P. Cooperative Societies Rules, 1964, by Amendment Act No. 22 of

2001, the extensive control of cooperative societies by the Registrar

under the Act 1964 has become incompatible and inconsistent with the

said cooperative principles which mandate ensuring democratic

member control and autonomy and independence in the manner of

functioning of the cooperatives. These two, namely, extensive State

control and ensuring operation of cooperative principles cannot be

done at the same time. Therefore, the impugned Act 2006 which by a

fiction in sub-section (1A) of Section 4 of the Act 1995 declares that all

the dairy/milk cooperative societies shall be deemed to have been

excluded from the provisions of the A.P. Cooperative Societies Act,

1964 is arbitrary and violative of Article 14 of the Constitution.

39. Comparative study of the statutory provisions of the Act 1964

with that of Act 1995 makes it crystal clear that Government has much

more control over the co-operative societies registered under the Act

38

1964 and minimal under the Act 1995. The principles of co-operation

adopted at international level have been incorporated in the Act 1995

itself, while no reference of any co-operative principle has been made

in the Act 1964. The Government is empowered to make rules on

every subject covered by the Act 1964, while no such power has been

conferred on the Government to make rules under the Act 1995. The

affairs of the co-operatives are to be regulated by the provisions of the

Act 1995 and by the bye-laws made by the individual co-operative

society. The Act 1995 provide for multiplicity of organisations and the

statutory authorities have no right to classify the co-operative societies,

while under the Act 1964 the Registrar can refuse because of non-

viability, conflict of area of jurisdiction or for some class of co-

operative. Under the Act 1964, it is the Registrar who has to approve

the staffing pattern, service conditions, salaries etc. and his approval is

required for taking some one from the Government on deputation,

while under the Act 1995 the staff is accountable only to the society.

Deputation etc. is possible only if a co-operative so desires. The size,

term and composition of board fixed under the Act 1964 and the

Registrar is the ultimate authority for elections etc. and he can also

provide for reservations in the board. Under the Act 1995, the size,

39

term and composition of the board depend upon bye-laws of the

particular society. For admission and expulsion of a member, Registrar

is the final authority under the Act 1964, while all such matters fall

within the exclusive prerogative of the co-operative society under the

Act 1995. The Government and other non-members may contribute

share capital in the societies registered under the Act 1964, wherein

members alone can contribute share capital in a society registered

under the Act 1995. Mobilisation of funds of co-operative society is

permissible only within the limits fixed by the Registrar under the Act

1964, while such mobilisation is permissible within the limits fixed by

the bye-laws in a co-operative society under the Act 1995. Subsidiary

organisations may be up by a co-operative under the Act 1995, while it

is not no permissible under the Act 1964. In resolving of disputes,

Registrar or his nominee is the sole arbitrator under the Act 1964,

while the subject is exclusively governed by the bye-laws under the

Act 1995. Role of the Government and Registrar under the Act 1964 is

much more than under the Act 1995 as under the Act 1964, the

Registrar can postpone the elections; nominate directors to Board; can

appoint persons in-charge for State level federations; frame rules; and

handle appeals/revisions/reviews; can give directions to co-operatives

40

regarding reservations on staff and set up Special Courts and Tribunals,

while so much control is not under the Act 1995. Similarly, Registrar

has more say under the Act 1964 in respect of registering of bye-laws;

approval of transfer of assets and liabilities or division or

amalgamation or in respect of transfer of all members or

disqualification of members etc.

40. Statement of objects and reasons of the Act 1995 clearly

stipulate that State participation in the financing and management of

cooperatives in the past had led to an unfortunate situation and the

cooperative societies were not governed/guided by the universally

accepted principles of cooperation. Thus, the purpose to enact the Act

1995 was to provide more freedom to conduct the affairs of the

cooperative societies by its members. Clause 7 thereof clearly

described the salient features of the legislation, inter-alia, to enunciate

the cooperative principles which primarily place an assent on

voluntarily self-financing autonomous bodies for removal from State

control; to accept the cooperative societies to regulate their functioning

by framing bye-laws subject to the provisions of the Act and to change

the form or extent to their liability, to transfer their assets and liabilities

41

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

directors.

Principles of co-operation as incorporated in Section 3 and given

effect to in the other provisions of the Act 1995 permit better

democratic functioning of the society than under the Act 1964.

Whereas the Act 1995 provides for State regulation to the barest

minimum, the Act 1964 provides for extensive State control and

regulation of cooperative societies which is inconsistent with the

national policy with regard to cooperative societies evolved in

consultation and collaboration with the States which stands accepted by

the State of A.P. and reflected in the Scheme of the Act 1995 which is

based on the model law recommended by the Planning Commission of

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 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.

42 41. Cooperative law is based on voluntary action of its members.

Once a society is formed and its members voluntarily take a decision to

get it registered under the Act X, the registration authority may reject

the registration application if conditions prescribed under Act X are not

fulfilled or for any other permissible reason. The registration authority

does not have a right to register the said society under Act Y or even a

superior authority is not competent to pass an order that the society

would be registered under the Act Y. Such an order, if passed, would

be in violation of the first basic cooperative principle that every action

shall be as desired by its members voluntarily. Introducing such a

concept of compulsion would violate Article 19(1)(c) of the

Constitution of India. It is not permissible in law to do something

indirectly, if it is not permissible to be done directly. (See: Sant Lal

Gupta & Ors v. Modern Co-operative Group Housing Society Ltd.

& Ors., JT 2010 (11) SC 273)

42. Act 2006 had been enacted without taking note of the basic

principles of co-operatives incorporated in Section 3 of the Act 1995

which provide that membership of a co-operative society would be

voluntary and shall be available without any political restriction. The

co-operative society under the Act would be a democratic organisation

43

as its affairs would be administered by persons elected or appointed in

a manner agreed by members and accountable to them.

43. The legislature has a right to amend the Act 1995 or repeal the

same. Even for the sake of the argument, if it is considered that

legislature was competent to exclude the milk cooperative dairies from

the operation of the Act 1995 and such an Act was valid i.e. not being

violative of Article 14 of the Constitution etc., the question does arise

as to whether legislature could force the society registered under the

Act 1995 to work under the Act 1964. Importing the fiction to the

extent that the societies registered under the Act 1995, could be

deemed to have been registered under the Act 1964 tantamounts to

forcing the members of the society to act under compulsion/direction of

the State rather than on their free will. Such a provision is violative of

the very first basic principles of cooperatives. More so, the Act is

vitiated by non-application of mind and irrelevant and extraneous

considerations.

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.

44 ............................J.

(P. SATHASIVAM)

...........................J.

(Dr. B.S. CHAUHAN)

New Delhi,

September 2, 2011

45