States Have Exclusive Legislative Power In Cooperative Societies' Matter: Supreme Court

Co-operative societies as a subject matter belongs wholly and exclusively to the State legislatures to legislate upon, the Supreme Court observed in its judgment striking down the provisions of the Constitution(97th Amendment) Act to the extent it introduced Part IX B in the Constitution to deal with co-operative societies.

The bench comprising Justices RF Nariman, KM Joseph and BR Gavai reiterated that the Indian Constitution is quasi-federal in nature so far as legislative powers are concerned. Though there is a tilt in favour of the Centre vis-à-vis the State, yet within their own sphere, the States have exclusive power to legislate on topics reserved exclusively to them, the bench observed.

The court also clarified that the Union has legislative power with respect to Multi State Co-operative Societies with objects not confined to one state.

The majority judgment, first referred to the constitutional scheme of legislative relations between the Union of India and the States. Referring to Articles 246 and 247 of the Constitution, the court said:

15. A cursory reading of these Articles would show that whereas Parliament may make laws for the whole or any part of the territory of India, the legislation of a State may make laws for the whole or any part of the State. Article 246 then goes on to refer to laws with respect to any of the matters enumerated in 3 Lists contained in the 7th schedule to the Constitution of India. List I contains subjects or topics on which Parliament has exclusive power to make laws; List III in the Concurrent List contains topics on which both Legislatures may make laws; and List II, with which we are directly concerned, gives the States exclusive power to make laws for such State or part thereof with respect to any of the matters contained therein.

So far as Union territories are concerned, Parliament is given power under Article 246(4) without constraint as to subject matter as it may also legislate with respect to topics covered by List II.

23. 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.At this stage, 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. This Court has therefore held, on a reading of these entries, that when it comes to 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.

The judgment then referred to the doctrine of federal supremacy, which it described thus: Topics in the State List have to give way to topics contained in the Union or Concurrent List in the event of an overlap between entries in these lists. Such overlap is not to be easily found – on the contrary, it is only in the case of an inevitable and irreconcilable conflict that the width of an entry in the State List can be curtailed by an overlap with an entry in either List 1 or List 3. 

Also referring to some judgments on this doctrine, the court observed that there is no overlap whatsoever so far as the subject 'co-operative societies' is concerned and hence there is no need to apply the federal supremacy principle. The court observed:

"23. 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. At this stage, it is 35 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. This Court has therefore held, on a reading of these entries, that when it comes to 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.

"26. It may thus be seen that there is no overlap whatsoever so far as the subject 'co-operative societies' is concerned. 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. This being the case, it may safely be concluded, on the facts of this case, that there is no overlap and hence, no need to apply the federal supremacy principle as laid down by the judgments of this court. What we are therefore left with is the  exclusive power to make laws, so far as co-operative societies are concerned, with the State Legislatures, which is contained in Article 246(3) read with Entry 32 of List II. ".

The court said that Article 246(3) read with List II of the 7th Schedule of the Constitution of India reflects an important constitutional principle that can be said to form part of the basic structure of the Constitution, namely, the fact that the Constitution is not unitary but quasi-federal in character. The bench then proceeded to answer the question whether this principle has been infracted by inserting Part IXB into the  Constitution? 

"67. The aforesaid 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, 73 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. Quite clearly, 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", the Court said.

Also from the judgment

Supreme Court Strikes Down 97th Constitutional Amendment To The Extent It Relates To Co-operative Societies  

Case: Union of India vs Rajendra Shah [CA 9108-9109 of 2014]

Coram: Justices RF Nariman, KM Joseph and BR Gavai

Citation : LL 2021 SC 312.

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