Cooperative Society Can't Claim Citizen's Fundamental Rights : Kerala High Court Upholds Ordinances Merging District Cooperative Banks

Delivering a detailed judgment on the issue, Justice Raja Vijayaraghavan held,

"The challenge raised … to the constitutional validity to the amendment made .. vide Ordinance 6 of 2020 and repromulgated .. has to necessarily fail on all grounds."

What led up to the proceedings in the High Court

The Kerala Cooperative Societies Rules proposes systems at three levels, primary, district, and at the state to mobilise agricultural credit.

1. Agricultural Credit Cooperative Societies,service co-operative banks, Regional Co-operative Banks, Rural Banks, Farmers Service Co-operative Banks at the primary level,
2. District Cooperative bank for each districts, and
3. Kerala State Cooperative Bank at the apex.

After consultations, the Government of Kerala proposed changes to the existent structure, stating that the District as well as Sate level were adding to the cost on interest without offering any significant benefits to the lower tier, the Primary Agricultural Credit Societies (PACS). An ordinance amending Section 14 of the Kerala Cooperative Society Act, insofar as it pertained to District Cooperative Banks was promulgated to amalgamate the District and State Banks.

Following an unsuccessful challenge to the Ordinance, the Malappuram District Cooperative Bank opposed the proposal to amalgamate its district cooperative bank with the state cooperative bank.

Another Ordinance was promulgated allowing the Registrar of Cooperative societies to order the amalgamation of the District Cooperative Bank with the Bank at the State Level.

In court, some petitioners opposed the ordinances, while some sections of the Malappuram District Cooperative Bank sought expedited amalgamation of their bank with the Kerala State Cooperative Bank.

The questions the High Court was confronted with

Whether the act allowing for amalgamation other than by a voluntary act of parties infringe the fundamental right to associate under Article 19(1)(c) of the Constitution

The Court underscored that Article 19(1)(c) protects the rights of citizens to associate. Relying on a High Court ruling that declared that cooperative societies were not citizens in terms of Article 19(1)(c), the Court pointed out,

"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."

The Court also stated,

"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 Co-operative societies are governed by statute. They are created by statute, they are controlled by statute and so, there can be no objection to statutory interference with their composition on the ground of contravention of the individual right of freedom of association."

On legislative competence and whether the repromulgation of the ordinances amounted to colourable exercise of power

The Court drew attention to Entry 32 of List II read with the Ninth Schedule and stated that the State was empowered to legislate upon the subject of cooperative societies.

Additionally, the Court referred the objects and reasons behind the Kerala Cooperative Societies Act and held that the amendment to expedite the process of amalgamation was not outside legislative purview.

"It cannot therefore be said that the legislature was incompetent to bring on the amendment for effectuating their policy decision to delayer the Co-operative structure," the judgment holds.

Whether the amendment eroded co-operative principles

Holding in the negative, the Court held that the amendments would effectively further the spirit behind the Cooperative Societies Act, because farmers and individuals at the primary level would now be able to voice their views in the apex body rather than through an intermediary organisation.

"By removing the middle tier, the lowermost tier will have a direct role in the decision making process in the State Level Bank. In other words, the ultimate beneficiary would be the member, who constitutes the DNA of the co-operative structure," the Court opined.

On whether District Cooperative Banks were singled out violating Article 14 of the Constitution

The Court took the stance that the classification was backed by reason and had a sound and intelligible basis.

It was stated,

"Having considered the basis on which the classification was made, the reasons for the same, the purpose for which the same was made, I have no doubt in my mind that singling out DCB for the purpose of merger cannot be said to be arbitrary and discriminatory. The impugned Ordinance, therefore, has adopted a classification on sound and intelligible basis and can quite clearly stand the test laid down in the decisions of the Apex Court as well as this Court. Whatever objections there may be against the validity of the impugned Acts the arbitrariness and unreasonableness of the same does not, prima facie, appear to me to be one of them."

Since the legislature was competent to legislate upon the subject, the Court additionally stated that no allegation of mala fides could be made on the ordinance.

Whether the repromulgation of the ordinance is a colourable exercise of power

The Court ultimately upheld the repromulgation of the ordinance stating that the same had been done in light of the pandemic. Touching upon the pandemic raging unabated even as the judgment was delivered, the Judge stated,

"I am of the considered opinion that it is due to an extraordinary and unprecedented situation that the Government was unable to introduce and push through in the legislature a Bill containing the same provisions as in the Ordinance and it is due to the said circumstance that the Governor found it necessary to re-promulgate the Ordinance. The Pandemic is still raging unabated even when this judgment is being delivered and the nation is facing a crisis like never before."

On these broad grounds, the Court upheld the Ordinances relating to the amalgamation of the District Cooperative Banks and the Kerala Cooperative Bank and ordered expedited amalgamation of the Malappuram Cooperative Bank with the Kerala Bank.

Click here to download the judgment