Kerala HC Upholds Amendment To Keep Coop Societies Other Than Primary Agricultural Credit Societies & Urban Coop Banks From Controlling District Coop Bank [Read Judgment]

Says any society availing loan or financial help from any agency with govt links should always be under the watchful eyes of the Department

Upholding the amendment to the Kerala Cooperative Societies Act which does not provide voting rights to primary societies in the District Cooperative Bank and admits them as nominal members only, the Kerala High Court has held that the government was well within its powers to exclude cooperative societies other than Primary Agricultural Credit Societies and Urban Co-operative Banks from the management control of District Co-operative Banks as otherwise the volume of agricultural lending was reduced to 10 percent of total lending by the involvement of other co-operative societies.

Justices V Chitambaresh and Satish Ninan said so while deciding the pleas of some primary cooperative societies challenging Section 2(ia), the third proviso to Section 18(1) and Explanation I to Section 32(1) of the Kerala Co-operative Societies Act, 1969 brought in by the Kerala Co-operative Societies (Amendment) Act, 2017.

As per Section 2(ia), Primary Agricultural Credit Societies and Urban Co-operative Banks have the right to vote as members in the District Co-operative Bank. As per third proviso to Section 18(1) of the Act, other co-operative societies registered under the Act can only be admitted as nominal or associate members to the District Co-operative Bank without any right to vote.

The appellants urged that the right to be members of the District Co-operative Bank without any right to vote violates Article 19(1)(c) of the Constitution of India. The same also acts against the Co-operative Principles - particularly Democratic Member Control - enunciated in Schedule II formulated under Section 2(eccc) of the Act.

They contended that the amendment facilitates the government to topple down democratically elected committee to the societies by supersession for the slightest displeasure which will not be in the best interest of a society which is bound to function as a democratic institution and conduct its affairs based on democratic principles.

In deciding the appeals, the court first decided the question: Does the denial of the right to vote to other co-operative societies as nominal or associate members infringe Article 19(1)(c) of the Constitution of India?

In answering this question, the court said, “The right of a citizen to form a co-operative society has been protected under Article 19(1)(c) by virtue of the Constitution (Ninety-seventh Amendment) Act, 2011 with effect from 15.2.2012. It is one thing to say that a citizen has a right to form a co-operative society and quite another thing to say that a member society has a right to form a Central Society. Firstly, a co-operative society is not a citizen who alone can have fundamental rights guaranteed under Part III of the Constitution of India and secondly, even a citizen has no fundamental right to be a member of a society. The right of a citizen to be a member of a society is governed by the Act, Rules and bye-laws (as held in Zoroastrian Co-op. Housing Society Ltd. v. District Registrar [(2005) 5 SCC 632]).”

“The contention that the fundamental right of co-operative societies other than Primary Agricultural Credit Societies and Urban Co-operative Banks is infringed is totally misconceived,” said the bench.

On the argument of the appellant that as per Article 43-B of the Constitution of India, the state should endeavour to promote autonomous functioning, democratic control and professional management of co-operative societies, the bench said, “We do not think that the constitution of the District Co-operative Bank is in any way undemocratic as the Government have their own justification in not extending the right to vote to all co-operative societies.”

Topsy-turvy credit system, committee recommends limiting voting rights

The bench noted that there exists a three-tier co-operative credit system comprising of Primary Agricultural Credit Societies at primary level, District Co-operative Banks at middle level and State Co- operative Bank at apex level and that the government had appointed a committee to study and report about the changes to be made in the Board of Management of District Co-operative Banks.

This committee comprising the Registrar of Cooperative societies, additional registrar (credit), additional registrar (consumer) and deputy registrar (credit), had recommended that the voting right in District Co-operative Banks should be limited to Primary Agricultural Credit Societies and Urban Co-operative Banks and not for all.

“Otherwise it turned the co-operative credit structure topsy-turvy shrinking the volume of agricultural lending to ten percent of total lending by the involvement of other co-operative societies. The committee opined that the management control should be vested with the Primary Agricultural Credit Societies and Urban Co-operative Banks which are part of short term credit system. The business decisions by the involvement of other co-operative societies may not be credit-oriented and hence the necessity to keep them away from the management control,” noted the bench.

“The Government was well within their powers to exclude co-operative societies other than Primary Agricultural Credit Societies and Urban Co-operative Banks from the management control of District Co-operative Bank. The legislative wisdom of this act by amending Section 2(ia) and adding the third proviso to Section 18(1) of the Act cannot be tested or substituted by this Court. It is settled law that court should show undue deference to the parliamentary wisdom and exercise self-restraint while examining the vires of legislations validly enacted,” it said.

 Loan granting agency with govt links should be under its watchful eyes

Justifying the amendments to the Act and limiting the voting rights, the bench said, “The Government has thought it fit to confer the right of vote only on the Primary Agricultural Credit Societies and Urban Co-operative Banks as members of the District Co-operative Bank (DCB) which cannot be said to be irrational.”

“The idea behind this is that any society availing loan or financial assistance from any agency having Government links should always be under the watchful eyes of the Department. Any default, negligence, disobedience or misappropriation contrary to the avowed object of the Act should result in unseating the members from the managing committee of the society. The power of supersession of the managing committee of a society is canalised and strictly governed by the statutory provisions on pre-existing conditions. We do not think that the adding of Explanation I after the third proviso to Section 32(1) of the Act would entail in toppling down the elected managing committee from office arbitrarily”.

The bench borrowed from the observation of Justice K Balakrishnan Nair in Philip v. State of Kerala to say, “We think that the wisdom of the legislature should prevail. Its representatives are the best judges of what is good for the people. If the legislature thinks that a particular type of societies alone should be admitted as members of the DCB, it has to be recognised as the law of the land. If the legislature thinks that some other type of societies should also be admitted to the membership of the DCB, it has to be recognised as the law of the land.”