Supreme Court held that Part IX-B of Indian Constitution is unconstitutional and applying doctrine of severability it was held that Part IX-B is operative insofar as it concerns Multi-State Cooperative Societies both within various States and in Union Territories: SC

Union of India V Rajendra N Shah and ors.

Civil Appeal No.2825 and 2826 OF 2021 Decided on July 20, 2021

BENCH- R.F. Nariman, B.R. Gavai and K.M. Joseph, JJJ.

FACTS– On December 7, 2004, a conference of ministers dealing with co-operatives was held in various states. To address the major concerns of voluntary formation, autonomous functioning, democratic control, and professional management of cooperatives in the country. The conference resolved to amend the Constitution to ensure democratic, autonomous functioning and timely conduct of elections with respect to cooperative societies. As a result, it was a precursor which finally led to the 97th amendment of Indian Constitution after consultation by various states and ministries. The amendment made changes to Article 19(1)(c) of Constitution of India (COI) by the addition of the word “co-operative societies” and insertion of Article 43B for “promotion of cooperative societies.” A new part IX B dealing with co-operative societies, by inserting Article 243ZH to 242ZT, was added to the Indian Constitution. 

Later, a writ petition was filed in the Gujarat High Court for quashing the 97th amendment as it was ultra vires to the Indian Constitution. The Court upheld the petitioners’ stand that insertion of part IX B to the Constitution is ultra vires as it falls short of the requisite ratification that is by half of the states as per Article 368(2), COI in Rajendra N. Shah vs. Union of India, 2013. However, the judgement did not impact the amendments made under Article 19(1)(c) and 43B of the Indian Constitution. The prayer for a stay of operation of Gujarat High Court judgement was also filed by the Union of India which was rejected by the court. As a result, an appeal was filed by the Union of India in the Supreme Court as it was aggrieved by the decision of the Gujarat High Court.

ISSUES–

1.      Whether 97^th Amendment Act relating to Cooperative Societies is unconstitutional for want of ratification by half of the states?

Held- The Supreme Court held that 97^th Amendment relating to Cooperative Societies is unconstitutional and stated that a challenge to a constitutional amendment may be on procedural or substantive grounds. The instant case was concerned with the procedural ground contained in Article 368(2) proviso, Indian Constitution. Relying on judicial precedents where various tests for the application of Article 368(2) proviso have been laid down, the Court stated that 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. It was observed by the Supreme Court that the judgments 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 affect a particular article and the principle contained therein in some significant way. Any significant addition or curtailment of a field of legislation which is contained in an Entry in List 2 of the 7th Schedule of the Constitution exclusively reserved to the States, would also amount to a ‘change’ so as to attract the proviso to Article 368(2) and therefore require ratification.

After analysing Part IX-B, the Supreme Court noted that as the Statement of Objects and Reasons of the Constitution (97th Amendment) Act shows, it is acknowledged that the subject ‘Cooperative Societies’ is exclusively allotted to the State legislature under Entry 32 of the State List. After this, it is stated that the Central Government is committed to ensure that Cooperative Societies in the country function in a democratic, professional, autonomous and economically sound manner. It is then stated that the new part to be inserted in the Constitution would contain provisions which would drastically curtail the powers of the State legislatures in that such legislations by the States would now have to conform to the newly inserted part. Part IX-B consists of Articles 243-ZH to 243-ZT.

Noting the restrictions contained in Part IX-B, the Supreme Court observed that it is clear that the exclusive legislative power that is contained in Entry 32 List 2 has been significantly and substantially impacted in that such exclusive power is now subjected to a large number of curtailments. Article 243-ZI specifically mandates that the exclusive legislative power contained in Entry 32 List 2 of the State Legislature is now severely curtailed as it can only be exercised subject to the provisions of Part IX-B; further, Article 243-ZT makes it clear that all State laws which do not conform to the restrictions mentioned in Part IX-B automatically come to an end on the expiration of one year from the commencement of the 97th Amendment Act. Therefore, Supreme Court was of opinion that Part IX-B, insofar as it applies to cooperative 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 held that in the instant case, ratification not having been effected, the Amendment is non est.

2.      Whether multi-state co-operative societies are severable from the co-operative societies in part IX-B?

Held- In the opinion of the Supreme Court, there can be no doubt that in application of IX B to Multi-State Cooperative Societies, neither Article 246(3) nor Entry 32 List 2 of the 7th Schedule would be attracted. The scheme (IX B) in the capacity of 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. The Supreme Court observed that the effect of Article 246-ZR is as if multi-State cooperative societies are separately dealt with in a separate sub-chapter contained within Part IX-B. Also, there is no doubt that after severance what survives can and does stand independently and is workable. Such being the case, the Court declared that Part IX-B of the Constitution of India is operative insofar as Multi-State Cooperative Societies are concerned.

The Court recorded that Article 246(3) does not apply to Union Territories. Instead, Article 246(4) applies to Union Territories, by means of which Parliament can use the State List also to legislate insofar as the Union Territories are concerned. However, excluding the role of Entry 32 List 2 of the 7th Schedule from Part IX-B, what would operate in Union Territories is Part IX-B only insofar as it applies to Multi-State Cooperative Societies. It was held that so far as cooperative societies within a Union Territory are concerned, the same infirmity as is found in the part of the judgment continues insofar as the legislative subject ‘co-operative societies’ is concerned under Entry 32 List 2. Therefore, the Court ruled that for Cooperative Societies which have no ramifications outside the Union Territory itself, Part IX-B will have no application.

Conclusively the Supreme Court dismissing the appeal held that Part IX-B is operative only insofar as it concerns Multi-State Cooperative Societies both within various States and in Union Territories of India.