{"id":262045,"date":"2011-05-04T00:00:00","date_gmt":"2011-05-03T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/surat-vs-state-on-4-may-2011"},"modified":"2017-11-16T13:47:09","modified_gmt":"2017-11-16T08:17:09","slug":"surat-vs-state-on-4-may-2011","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/surat-vs-state-on-4-may-2011","title":{"rendered":"Surat vs State on 4 May, 2011"},"content":{"rendered":"
Gujarat High Court<\/div>\n
Surat vs State on 4 May, 2011<\/div>\n
Author: Mr.S.J.Mukhopadhaya,&Nbsp;Honourable Mr.Justice Dave,&Nbsp;<\/div>\n
   Gujarat High Court Case Information System \n\n  \n  \n    \n\n \n \n    \t      \n         \n\t    \n\t\t   Print\n\t\t\t\t          \n\n  \n\n\n\t \n\t \n\t \n\t \n\t \n\t \n\t \n\t \n\t \n\t \n\t \n\t \n\t \n\t\n\n\n \n\n\n\t \n\nSCA\/2943\/2008\t 31\tJUDGMENT \n \n \n\n\t\n\n \n\nIN\nTHE HIGH COURT OF GUJARAT AT AHMEDABAD\n \n\n \n\n\n \n\nSPECIAL\nCIVIL APPLICATION No. 2943 of 2008\n \n\nWith\n\n\n \n\nSPECIAL\nCIVIL APPLICATION No. 2890 of 2008\n \n\nWith\n\n\n \n\nSPECIAL\nCIVIL APPLICATION No. 2769 of 2008\n \n\nWith\n\n\n \n\nSPECIAL\nCIVIL APPLICATION No. 4506 of 2008\n \n\nWith\n\n\n \n\nSPECIAL\nCIVIL APPLICATION No. 2767 of 2008\n \n\nWith\n\n\n \n\nSPECIAL\nCIVIL APPLICATION No. 2789 of 2008\n \n\nWith\n\n\n \n\nSPECIAL\nCIVIL APPLICATION No. 5849 of 2008\n \n\nWith\n\n\n \n\nSPECIAL\nCIVIL APPLICATION No. 2891 of 2008\n \n\n \nFor\nApproval and Signature:  \n \nHONOURABLE\nTHE CHIEF JUSTICE MR. S.J. MUKHOPADHAYA  \n\t\t\tAND\n\n\n \n\nHONOURABLE\nMR.JUSTICE ANANT S. DAVE\n \n \n=================================================\n<\/pre>\n
1<\/span><\/p>\n
Whether
\n\t\t\tReporters of Local Papers may be allowed to see the judgment
\n\t\t\t?\t\t\t\t\tYes<\/p>\n
2<\/span><\/p>\n
To
\n\t\t\tbe referred to the Reporter or not ?\t\tYes<\/p>\n
3<\/span><\/p>\n
Whether
\n\t\t\ttheir Lordships wish to see the fair copy of the judgment
\n\t\t\t?\t\t\t\t\t\tNo<\/p>\n
4<\/span><\/p>\n
Whether
\n\t\t\tthis case involves a substantial question of law as to the
\n\t\t\tinterpretation of the constitution of India, 1950 or any order
\n\t\t\tmade thereunder ?\t\t\tNo<\/p>\n
5<\/span><\/p>\n
Whether
\n\t\t\tit is to be circulated to the civil judge ?\t  No<\/p>\n
=================================================<\/p>\n
SURAT
\nDISTRICT COOPERATIVE BANK LIMITED. & 1 – Petitioner(s)<\/p>\n
Versus<\/p>\n
STATE
\nOF GUJARAT & 2 – Respondent(s)<\/p>\n
=================================================<\/p>\n
Appearance :\n<\/p>\n
MR
\nSN SHELAT, SR. ADVOCATE \twith MS VD NANAVATI, MR BS PATEL, MR NAVIN
\nPAHWA for  M\/S THAKKAR ASSOCIATES, MR BM MANGUKIYA, MR ASHISH H SHAH
\nand Ms NAYANA M PATEL, for Petitioners.\n<\/p>\n
MR KAMAL TRIVEDI, ADVOCATE
\nGENERAL with MS SANGITA VISHEN, AGP for Respondent – STATE,
\nMR
\nSN SOPARKAR, SR. ADVOCATE with MR AMAR N BHATT for Respondent –\n<\/p>\n
RESERVE BANK OF INDIA,                  \t\t\t\t\t\t\t\t\t     MR PK JANI with\nMS ARCHANA AMIN for Respondent -\nNABARD. \n<\/pre>\n
=================================================<\/p>\n
CORAM
\n\t\t\t:\n<\/p>\n
HONOURABLE
\n\t\t\tTHE CHIEF JUSTICE MR. S.J. MUKHOPADHAYA<\/p>\n
and<\/p>\n
HONOURABLE
\n\t\t\tMR.JUSTICE ANANT S. DAVE<\/p>\n
Date
\n:     04\/05\/2011
\nCOMMON CAV JUDGMENT <\/p>\n
(Per
\n: HONOURABLE THE CHIEF JUSTICE MR. S.J. MUKHOPADHAYA)<\/p>\n
\tIn
\nthese cases, while the petitioners have challenged the validity of
\nthe provisions of the Gujarat Co-operative Societies (Amendment) Act,
\n2008 [hereinafter referred to as “the Amending Act<\/a>, 2008″],
\nsought for a declaration that Sections 67, 73, 73A, 74, 74D, 76, 81
\nand 81A of the Gujarat Co-operative Societies Act, 1961 [hereinafter
\nreferred to as “the Principal Act”] as amended by the
\nAmending Act<\/a>, 2008  are unconstitutional and invalid.  Prayer has
\nalso been made to set aside the guidelines dated 10.7.2007 and
\n29.4.2008 issued by the Reserve Bank of India [hereinafter referred
\nto as “the RBI”].\n<\/p>\n
2.\tWhen
\nthe matter was taken up on 10.8.2010, Mr SN Soparkar, learned senior
\ncounsel appearing on behalf of the RBI,  informed that both the
\nguidelines dated 10.7.2007 and 29.4.2008 issued by the RBI have been
\nsubstituted by fresh guidelines dated 18.6.2008 and all the
\nco-operative societies have been allowed to function as per their
\nBye-laws.\n<\/p>\n
3.\tAn
\naffidavit is also filed on behalf of the 1st respondent –
\nState of Gujarat, which will be discussed in details at the
\nappropriate stage.  In view of the stand taken in the affidavit filed
\non behalf of the 1st respondent – State of Gujarat,
\nthe learned counsel addressed the Court on the question of validity
\nof the following provisions :-\n<\/p>\n
(i)\tSection 15<\/a> of the
\nAmending Act whereby Section 73A<\/a> was inserted.\n<\/p>\n
(ii)\tSection 18<\/a> of the
\nAmending Act whereby the proviso to Section 76<\/a> after existing proviso
\nwas inserted.\n<\/p>\n
4.\tIn
\nview of the stand taken by the RBI that earlier guidelines dated
\n10.7.2007 and 29.4.2008  have been substituted by the subsequent
\nguidelines dated 18.6.2008 and that all the co-operative societies
\nhave been allowed to function in terms with their Bye-laws, the
\nlearned counsel for the parties have not  pressed the prayer against
\nthe earlier guidelines issued by the RBI.\n<\/p>\n
5.\tFurther,
\nin view of the affidavit filed by the 1st respondent, the
\nlearned counsel for the petitioners had not raised nor argued the
\nquestion of validity of Sections 67<\/a>, 73<\/a>, 74<\/a>, 74D<\/a>, 81<\/a>, 81A<\/a> of the
\nAmending Act, 20008.\n<\/p>\n
6.\tFor
\nappreciation of the case, it is desirable to notice and refer to
\nSections 15<\/a> of the Amending Act, 2008 whereby new Section 73A<\/a> was
\ninserted in the Principal Act, and Section 18<\/a> of the Amending Act
\nwhereby two provisos were inserted after the existing proviso to
\nSection 76 of the Principal Act, as reproduced hereunder :-\n<\/p>\n
“15.\tIn
\nthe principal Act, after section 73<\/a>, the following section shall be
\ninserted, namely :-\n<\/p>\n
“73A.\tFreedom
\nfor affiliation or disaffiliation with a federal society of choice,\n<\/p>\n
– Notwithstanding anything contained in this Act or the rules for the
\ntime being in force, the societies in the co-operative credit
\nstructure shall be at liberty to affiliate or disaffiliate with any
\nfederal society of its choice provided a resolution approving such
\naffiliation or disaffiliation with a federal society is passed in the
\nannual general meeting held for the purpose with three – fourth
\nmajority of total members, and subject to the rules as may be
\nprescribed and the guidelines issued by the Reserve Bank of India.”\n<\/p>\n
18.\tIn
\nthe principal Act, in Section 76<\/a>, after the existing proviso, the
\nfollowing proviso shall be added, namely :-\n<\/p>\n
“Provided
\nfurther that the qualifications for appointment of the Chief
\nExecutive Officer and the Directors of the Central Co-operative Banks
\nand the State Co-operative Bank shall be such, as may be determined
\nby the Reserve Bank of India from time to time.\n<\/p>\n
Provided
\nalso that the Registrar of the Co-operative Societies or the Board of
\nthe Central Co-operative Banks or the State Co-operative Bank shall
\nremove, at the request of Reserve Bank, such Directors and Chief
\nExecutive Officers who do not fulfill the criteria stipulated by
\nReserve Bank.  However, the existing elected Directors holding their
\npost as such Directors on the date of the commencement of the Gujarat
\nCo-operative Societies (Amendment) Act, 2008, shall continue to hold
\ntheir offices till the expiry of their current remaining term. ”\n<\/p>\n
7.\tMr
\nSN Shelat, learned senior counsel appearing on behalf of Surat
\nDistrict Co-operative Bank Ltd. submitted that the writ petition
\npreferred by the said co-operative bank is limited to Section 15<\/a> of
\nthe Amending Act, 2008 whereby Section 73A<\/a> has been inserted.
\nSection 73A<\/a> provides for freedom of affiliation and disaffiliation
\nwith federal society of its choice.  It
\nwas submitted that there is no nexus with the object sought to be
\nachieved by granting freedom of affiliation to primary agriculture
\nco-operative society to affiliate with any district bank within the
\nState is violative of Article 14<\/a> of the Constitution of India being
\narbitrary in character in view of the following :-\n<\/p>\n
(i)\tThe
\nprovisions for liberty to the societies in the co-operative credit
\nstructure to affiliate or disaffiliate with any federal society
\ndestroy the very basis of the co-operative credit structure.\n<\/p>\n
(ii)\tThe thrust
\nof the co-operative movement is development of villagers, farmers at
\nvillage level.  The primary societies are constituted to provide
\npromotion of agriculture in the rural area.\n<\/p>\n
(iii)\tThe
\nDistrict Federal Bank provides finances to the said society so as to
\nenable both of them to provide for integrated rural development of
\nthe area within which the District Co-operative Bank operates i.e. at
\nthe district level.\n<\/p>\n
(iv)\tThe
\nprimary agriculture societies are the members of the District
\nCo-operative Bank.\n<\/p>\n
(v)\tSection 4
\nof the Gujarat Co-operative Societies Act, 1961 provides for
\nregistration and it can refuse registration if it has adverse effect
\nupon any other society.\n<\/p>\n
(vi)\tThe object
\nis avoiding competition among primary societies within area so as to
\nenable the said society to provide co-operative facilities at the
\nvillage level.\n<\/p>\n
(vii)\tSection 6<\/a>
\nalso provides a clue to the object of the co-operative movement,
\nnamely, residence in the same town or village or in the same group of
\nvillages for a society with unlimited liability.\n<\/p>\n
(viii)\tPermitting
\nthe societies to affiliate themselves with outside the district bound
\nto take adverse effect upon the District Bank to which it is to be
\naffiliated.\n<\/p>\n
8.\tThe learned
\ncounsel submitted that the structure of the nationalized bank or
\nprivate bank cannot be brought into the co-operative sector because –\n<\/p>\n
(a)\tarea of
\noperation has to be limited i.e. at the village \tlevel.\n<\/p>\n
(b)\tthe object
\nis development of agriculture.\n<\/p>\n
(c)\tthrifty
\nhabits are to be promoted which have direct impact on the bank
\nfunctioning within the limited area.\n<\/p>\n
9.\tHe further
\nsubmitted that the farmers of primary co-operative society in Surat
\ndistrict seeking affiliation at Kutch or Rajkot Bank can lead to the
\nfollowing consequences :-\n<\/p>\n
(a)\tThe farmers
\nmay have to travel outside the district which itself is opposed to
\nthe co-operative principle.\n<\/p>\n
(b)\tThose
\nDistrict Bank may not have acquainted with the characteristic of
\nother region as regards availability of soil, irrigation facilities,
\ncropping pattern, marketing pattern and basic character of
\ninhabitants.\n<\/p>\n
(c)\tIt is not
\nlikely to serve the basic object of the co-operative movement that is
\nuplifting of the rural economy if freedom of affiliation is granted
\nand is not likely to promote the co-operative movement.\n<\/p>\n
10.\tIn
\nsupport of the aforesaid submissions, the learned counsel referred to
\nthe  following extract from the Text Book “Rural Economic”
\nby Shri AR Patel and DP Khankhoje (Page 254) :-\n<\/p>\n
“The
\nposition of Central Co-operative Bank is of crucial importance in the
\nco-operative structure.  They form an important link between the
\nState Co-operative Bank at the apex and the primary agricultural
\ncredit societies at the base.  The Maclagan Committee suggested that
\nthe term “Central Bank” should be applied to all local
\nfinancing institutions directly financing the primary societies
\n“within an area sufficiently limited to allow them to exercise
\nalso the duties of supervision and control over these societies”.
\n The Standing Advisory Committee on Agricultural Credit constituted
\nby the Reserve Bank recommended that as a general proposition, there
\nshould be one Central Co-operative Bank for one district.  This view
\nwas also expressed by the Rural Credit Society Survey Committee.  A
\nprogramme of rationalization of the Central Co-operative Banking
\nstructure was taken up in the States during the Second Plan period
\nthrough a process of merger or amalgamation of uneconomic or weaker
\nunits with a view to having one strong viable central bank in each
\ndistrict.  The process of reorganization is almost complete.\n<\/p>\n
\tCentral
\nbanks are the intermediate agency between the primary credit
\nsocieties at the village level run by the agriculturists having no
\ntouch with the money market and the State Co-operative Banks run
\nmainly from the metropolitan cities, having little direct association
\nwith the countryside.  This agency is closer to the primary societies
\nthan an apex bank could be and affords opportunities to them for
\ninfluencing its policies to suit their requirement and enables them
\nto train themselves in sound banking principles and practices.  The
\nCentral Bank’s primary function is to mobilize the resources in the
\ndistrict for financing its members to maximum extent possible in
\naddition to channeling the flow of funds from the State Co-operative
\nBanks.”\n<\/p>\n
\tHe
\nrelied on the decision of a Division Bench of this Court in the case
\nSiddhpur Taluka Co-operative Purchase & Sales Union vs.
\nState of Gujarat<\/a>, reported in 2002 (2) GLR 1357,
\nwherein the Division Bench, after examining the scheme of the Act and
\nthe relevant bye-laws, at para 17, observed that qualifications,
\nconstitution and structure of the societies from State level down to
\nTaluka level are based on the territorial revenue areas of District
\nand Taluka.\n<\/p>\n
11.\tReference
\nwas also made to the provisions of the National Bank for Agriculture
\nand Rural Development Act, 1981.  The preamble of the said Act is
\nrequired to be considered.  It is the Bank for Agriculture and Rural
\nDevelopment for providing credit for the promotion of agriculture,
\nsmall scale industries and economic activities in rural areas with a
\nview to promote integrated rural development securing prosperity of
\nrural areas.\n<\/p>\n
12.\tThe learned
\ncounsel also referred to the terms “central co-operative bank”,
\n“rural development” and “State co-operative bank”
\nas defined in Sections 2(d)<\/a>, 2(q)<\/a> and 2(u)<\/a> of the  National Bank for
\nAgriculture and Rural Development Act, 1981.  It was submitted that
\nSection 21<\/a> provides for function of the National Bank and Section
\n21(v)<\/a> provides for marketing activities at the village level.  The
\nproviso to Section 22<\/a> enables the NABARD to make loans and advances
\nto the Central Co-operative Bank for a specified period in case of
\ncalamities. It was submitted that the scheme of the Act, therefore,
\nrecognizes the District Co-operative Bank to function within the
\ndistrict.\n<\/p>\n
\tHe further
\nsubmitted that the provisions of the Bombay Co-operative Act, 1925
\nand the preamble to the said Act and that the said Act was repealed
\nand the Gujarat Co-operative Societies Act was amended.\n<\/p>\n
13.\tUnder the
\n2nd proviso to Section 76<\/a>, as was inserted by Section 18<\/a>
\nof the Amending Act, 2008, qualifications for appointment of the
\nChief Executive Officer and the Directors of the Central Co-operative
\nBanks and the State Co-operative Bank, are ordered to be determined
\nby the RBI from time to time; the same has been challenged by the
\nlearned counsel for the other petitioner on the following grounds :-\n<\/p>\n
\tBy inserting
\nthe 2nd proviso, the State legislatures have abdicated its
\nessential legislative function of providing for qualification of the
\nChief Executive Officer and Directors of the Central Co-operative
\nBanks and State Co-operative Bank in favour of the RBI and,
\ntherefore, it is violative of Article 14<\/a> of the Constitution.\n<\/p>\n
\tEven if it is
\nassumed, though not admitted, that such delegation was permissible,
\nthe 2nd proviso requires to be read as applicable to those
\nDirectors who are in receipt of any remuneration by way of salary or
\nreward and it cannot be applied to the officers who are not receiving
\nany remuneration.  Such power vested in the RBI is excessive and
\nthereby unconstitutional being violative of Article 14<\/a> of the
\nConstitution.\n<\/p>\n
\tThe 2nd
\nproviso is violative of Article 19(1)(c)<\/a> and (g)<\/a> of the Constitution,
\nthere being a freedom to form an association guaranteed under Article
\n19(1)(c)<\/a> upon which only the reasonable restriction can be imposed by
\na legislation by the appropriate legislative authority as
\ncontemplated under clause (4) of Article 19.<\/a>  The right to form an
\nassociation confers the right to determine the constitution of the
\nassociation and to organize and manage it through the representatives
\nelected by the members who have voluntarily associated themselves
\ninto the Union.  The sweep of the fundamental rights guaranteed under
\nArticle 19<\/a> being very wide and being the fundamental right of a
\ncitizen of a free country, it cannot be destroyed by the impugned 2nd
\nproviso inserted in Section 76<\/a> by Section 18<\/a> of the Amending Act,
\n2008 so as to destroy the very genesis of the association, which is
\nviolative of Article 19<\/a> of the Constitution.\n<\/p>\n
14.\tThe learned
\ncounsel for the petitioners would contend that the co-operative
\nmovement by its very nature  is a form of voluntary association where
\nindividuals or their association unite for the purpose of promoting
\neconomic interest of its members in accordance with the well
\nrecognized co-operative principles as embodied in the 1st
\nSchedule to Multi State Co-operative Societies Act<\/a>, 2002.  The
\nco-operative principles visualize co-operative institutions as
\ndemocratic organization controlled by the members making elected
\nrepresentative responsible and accountable to the members. The power
\nof the members of the co-operative society to conduct the affairs of
\nthe society, having right of voting and participation in decision
\nmaking process being the basic power of a co-operative movement,
\ncannot be affected in the manner as prescribed under the 2nd
\nproviso to Section 76 of the Principal Act.\n<\/p>\n
15.\tMr Kamal
\nTrivedi, learned Advocate General appearing on behalf of the State
\nwhile submitted that there is always a presumption in favour of the
\nconstitutional validity of any legislation, made the following
\nsubmissions :-\n<\/p>\n
\tArticle
\n19(1)(c)<\/a>  of the Constitution of India guarantees freedom to all
\ncitizens to form an association, but such freedom is always subject
\nto certain permissible restrictions imposed by law.  According to
\nhim, the main provisions are not violative of Article 19(1)(g)<\/a> of the
\nConstitution since in case of an individual citizen to whom a right
\nto carry on a trade or business or pursue an occupation is guaranteed
\nunder the said provisions and they do not not infringe the freedom of
\nany association.  The validity of the legislative provisions which
\nseek to impose any restriction on the right guaranteed under Article
\n19(1)(g)<\/a> of the Constitution, is required to be decided by the
\ncriteria laid down by clause (b) of Article 19.<\/a>  In the present case,
\nthere being a rationale behind enactment of the said provisions and
\nhas a nexus between the said provisions on one hand and the object
\nsought to be achieved by the said provisions on the other hand, the
\nsame are also not violative of Article 14<\/a> of the Constitution.\n<\/p>\n
\tEntry No. 32<\/span><\/p>\n
in List – II of the 7th Schedule of the Constitution
\nrelates to co-operative societies.  Under the said Entry, the State
\nlegislature is competent to make law with respect to the co-operative
\nsocieties as regards to incorporation, regulation and winding up etc.
\n Therefore, it is competent to enact the Amending Act<\/a>, 2008 which
\ncontains the impugned provisions which are in public interest and
\nregulatory in character.\n<\/p>\n
16.\tThe learned
\nAdvocate General referred to the suggestions of the Task Force
\nconstituted by the Government of India to suggest an action plan for
\nreviving rural co-operative credit institutions including legal
\nmeasures necessary for facilitating the said process, as also the
\nrelevant recommendations of the Task Force for enactment of multi
\nco-operative law. Reliance was also placed on the Memorandum of
\nUnderstanding {“the MoU” for short) between the Central
\nGovernment, State Government and NABARD arrived on 21.12.2006 for
\nimplementation of the package for revival of rural Co-operative
\nCredit Structure (CCS), comprising the State Co-operative Banks,
\nCentral Co-operative Banks and Primary Agricultural Credit Societies
\nas per the consensus arrived at through serious of discussions by the
\nCentral Government with the State Governments and the recommendations
\nmade by the Vaidyanathan Committee on revival and reform of
\nCo-operative Credit Structure.  They will be discussed at the
\nappropriate stage.  It was contended that in view of the aforesaid
\ndevelopments, the new provisions as contained in Sections 73A<\/a>, 74D<\/a>,
\n76<\/a>, 67A<\/a> and 81<\/a> have been brought into play by the Amending Act<\/a>, 2008.\n<\/p>\n
17.\tWith regard
\nto each of the provisions, the learned Advocate General highlighted
\nthe stand of the State Government, as noticed hereunder.\n<\/p>\n
\tRegarding
\nSection 73A<\/a>, he would contend that the apprehension of the
\npetitioners does not have any basis.  Prior to enactment of Section
\n73A<\/a>, primary agricultural co-operative society had no choice in the
\nmatter of availment of finance, more particularly, in the area of
\nrate of interest, availability of finance, etc. because it was
\nsupposed to be affiliated with only one District Central Co-operative
\nBank of the concerned district.   On the contrary, the new provisions
\nseek to offer financial freedom of a greater degree which should not
\nbe allowed to be viewed in a parochial fashion.  Even otherwise, the
\nenactment of the provisions is very much in line of the Clauses 9.5.
\n9.6 and 9.7 of the MoU.\n<\/p>\n
\tEarlier, many
\na times primary agricultural co-operative societies had to suffer
\nbecause of inefficiency or weak financial position of the higher
\ntiers above them and  some times because of the partisan approach
\nbeing adopted by the same.  In view of the aforesaid amendment, the
\nhigher tiers being otherwise supposed to be stronger in position,
\nwill be confronted with an element of competition for remaining more
\nfocused and competitive so as to see that the primary agricultural
\nco-operative societies remain wedded to them.  Under the
\ncircumstances, the liberty sought to be given to lower tiers of the
\nco-operative credit structure will not destroy the same as being
\napprehended by the petitioners and, therefore, there is no question
\nof the said provision being violative of Articles 14, 19(1)(c) and
\n19(1)(g) of the Constitution.\n<\/p>\n
\tWith regard to
\nSection 76<\/a> which relates to appointment of officers and employees and
\ntheir conditions of service, he would contend that as per the revised
\nfit and proper criteria dated 18.3.2009, age limit and other
\nqualifications which were in picture with reference to the Directors
\nwill be taken care of.  The petitioners cannot have any grievance as
\nto the qualifications prescribed for the professional Directors
\nvis-a-vis of Chief Executive Officers including the criterion
\nrelating to the age.  Such aspects are of utmost requirement for any
\norganization being vibrant and efficient.  Only with the fit and
\nproper persons appointed as Directors and Chief Executive Officer for
\nthe District and\/or State Co-operative Banks, such banks can succeed.
\n For improving the environment of the whole co-operative structure in
\nthe State as well as the country in general and for the revival of
\nthe rural co-operative credit environment in particular, such
\nmeasures should in fact be commended, which may re-invite confidence
\nof the people at large which is almost on the brink of eclipse.\n<\/p>\n
18.\tIn view of
\nthe stand taken in the reply affidavit filed on behalf of the 1st
\nrespondent – State of Gujarat, the counsel for the petitioners
\nhad not pressed the challenge to Sections 74D(1)(1A)<\/a> relating to
\nappointment of Custodian and conduct of elections, Section 67A<\/a>
\nregarding writing off of bad debts and Section 81<\/a> with reference to
\nappointment of persons as Administrators for managing the affairs of
\nthe society.  Such prayer has not been made in view of the following
\nstand, as shown and quoted hereunder :-\n<\/p>\n
“9.2\tRe
\n: Provisions contained in section 74-D<\/a> more particularly contained in
\nsub-section (1) and sub-section (1A) relating to appointment of
\nCustodian and conduct of elections.\n<\/p>\n
(a)\tThe
\npetitioners seek to challenge the said provisions on the supposition
\nthat till today there are large number of cases where election
\nauthority has failed to hold election before the expiry of the term
\nof the Managing Committee\/Board of Directors and as a consequence,
\nco-operative societies have been constrained to file petitions for
\ndirection to hold elections.  Earlier, as per the judgment of this
\nHon’ble Court, according to the petitioner, it was not permissible
\nfor the authority to appoint a Custodian for a period of six months
\nafter the expiry of the term of the Managing Committee\/Board of
\nDirectors and that too not without hearing the affected parties,
\nwhich aspects are now sought to be given a go0bey in the new
\nprovisions.  In view of this, according to the petitioners, the said
\nnew provisions which mandate appointment of Custodian before the
\nexpiry of the term of the Managing Committee\/Board of Directors if a
\nnew Committee of Management is, for any reason whatsoever, not
\nelected, within a term of two months within which election is
\nrequired to be held and the Committee is required to be constituted,
\nis violative of Article 14<\/a> of the Constitution.\n<\/p>\n
(b)\tThe
\nabove stated premise adopted by the petitioners in challenging the
\nsaid provisions contained in Section 74-D<\/a> of the Act is misconceived.
\n In fact, the petitioners should have appreciated that behind the
\nenactment of the said new provisions, the idea is to see that timely
\nelections are ensured before the expiry of the term of the earlier
\nbody.  This apart, earlier, Custodians used to carry on for a very
\nlong time.  However by restricting the said period, the State
\ninterference in the management of co-operative societies for longer
\nperiod is reduced so as to have elected body in place.  Such
\nprovisions are not unknown so far as various Panchayats, Market
\nCommittees and Municipal Corporations under the Gujarat Panchayats
\nAct, 1993, the Gujarat Agricultural Produce Market Committees Act,
\n1963 and under the BPMC Act, 1949, respectively, are concerned.  This
\napart, the enactment of the said provisions are also in line with
\npara 9.15 of the aforesaid MoU.\n<\/p>\n
9.4\tRe
\n: Provision contained in Section 67-A<\/a> regarding writing off of Bad
\nDebts :\n<\/p>\n
(a)\tThe
\npetitioners’ challenge against the provisions of section 67-A<\/a> is with
\nreference to the proviso containing provisions as regards ‘the
\npassing of the resolution in the General Meeting of the society by a
\nmajority of total members of the society’ and ‘by a majority
\nof not less than 2\/3rd of the members of the society
\npresent and voting’.  The petitioners want to read  ‘or’ in place of
\nthe aforesaid ‘and’ used in the said proviso, since according to
\nthem, the provisions would be otherwise arbitrary.\n<\/p>\n
(b)\tThe
\naforesaid stand of the petitioners is not in consonance with the
\nspirit for which Section 67-A<\/a> came to be inserted.  To take a
\ndecision for writing off of Bad Debts of any Bank is a very serious
\ndecision affecting the financial position of the Bank, for which
\nvarious pros and cons are required to be examined preferably by the
\nwhole body of the society.  It may so happen that even though the
\ndebts are recoverable, attempt may be made to brand them as
\nirrecoverable for being written off against the Bad Debt Reserve
\nFund.  Thus, the said provision is to see that such a writing off
\nsucceeds only in genuine cases for which there would be required a
\nlarger number of members of the society approved the same.\n<\/p>\n
(c)\tIn
\nthat view of the matter, the petitioners’ grievance referred to above
\nis not sustainable in law.\n<\/p>\n
9.5\tRe
\n: Provisions contained in section 81<\/a>, more particularly with
\nreference to appointment of persons as Administrators for managing
\nthe affairs of the society.\n<\/p>\n
(a)\tThe
\npetitioners seek to challenge the said provisions on the ground that
\nchoice of Administrator is only from amongst the members of the
\nsociety or the officers of Co-operative Department of the State
\nGovernment and that as per the provisions of unamended section 81<\/a>,
\nchoice in this behalf was not confined to the said two categories
\nonly, for it was very wide for which provision was made in Rule 37-A
\nof the Rules.  It is the contention of the petitioners that there is
\nno rationale in restricting the appointment of the Administrator to
\ntwo categories as mentioned above and hence the said provisions are
\nviolative of Articles 14 and 19 of the Constitution.\n<\/p>\n
(b)\tThe
\nabove-stated perception of the petitioners in undertaking the
\nchallenge against the insertion of the new provisions in section 81<\/a>
\nof the Act is totally baseless inasmuch as the sole idea in amending
\nsub-clauses (I) and (ii) of clause (b) of section 81(1)<\/a> of the Act
\nwas to see that any Member of the Committee who has been removed
\nunder the said section 81<\/a>, is not appointed as an Administrator.
\nHowever the provisions of Rule 37-A of the Rules have been kept
\nintact and hence the apprehension of the petitioners that the choice
\nof the appointment of Administrator is now confined to the aforesaid
\ntwo categories pales into insignificance.\n<\/p>\n
19.\tIt appears
\nthat the Government of India had set up a Task Force to suggest an
\naction plan for reviving rural co-operative credit institutions
\nincluding legal measures necessary for facilitating the said process
\nand the following references were made to the Task Force :-\n<\/p>\n
1.\tTo recommend
\nan implementable action plan for reviving the Rural Co-operative
\nBanking Institutions, taking into consideration, inter alia, main
\nrecommendations made by various committees in this regard.\n<\/p>\n
2.\tTo suggest
\nan appropriate regulatory framework and the amendments which may be
\nnecessary for the purpose in the relevant laws.\n<\/p>\n
3.\tTo make an
\nassessment of the financial assistance that the Co-operative Banking
\nInstitutions will require for revival, the mode of such assistance,
\nits sharing pattern and phasing.\n<\/p>\n
4.\tTo suggest
\nany other measures required for improving the efficiency and
\nviability of Rural Co-operative Credit Institutions.\n<\/p>\n
\tThe Task Force
\nafter careful examination of all records and recommendations of the
\nearlier Committees met several co-operators, officials, politicians
\nfrom all over the country and made certain recommendations.  The
\nreport was placed in public domain in the websites of the Government
\nof India, Reserve Bank of India and NABARD, which elicited responses
\nfrom a number of State Governments.   In the Executive Summary
\nprovided in the report dated 4.2.2005, the Task Force observed as
\nunder :-\n<\/p>\n
“5.\tThe
\nCo-operative Credit Structure (CCS) is today impaired in governance,
\nmanagerial and financial fronts.  Examples of impairment on
\ngovernance include non-conduct of elections for a long time, frequent
\nsupersession of Boards, delay in audit, States intrusion in
\nadministrative and financial management.  The impairment of
\nmanagement includes deputation of government officials to top
\npositions in many banks, setting up the common cadre system for PACS,
\ndetermination of staffing patten by States, interference in the
\noperational decision making of co-operatives, an ageing staff
\nprofile, poor housekeeping and weak MIS.  Apart from the above, even
\nthe supervision and the prudential regulation of co-operative banks
\nis not as stringent as it is for commercial banks.\n<\/p>\n
6.\tThe
\nfinancial position of the system is weak and deteriorating.  The
\naccumulated losses of PACS are estimated roughly on the basis of
\navailable incomplete data at Rs.4,595 crore as on 31 March 2003.  The
\nposition of DCCBS is also equally unsatisfactory; with accumulated
\nlosses aggregating Rs,4,401 crore and erosion in deposits being
\nRs.3,100 crore.  Due to such financial impairment, cooperatives have
\nbeen steadily losing their capacity to meet the rapidly growing
\ncredit needs of agriculture.  In the early 1990s, they accounted for
\nover 60 percent of the total institutional credit to agriculture,
\nwhile currently their share has fallen to about one-third.  This
\nsituation gives cause for serious concern.\n<\/p>\n
38.\tOnce
\na State Government accepts to participate in the scheme and share its
\nfinancial liability, the concerned committees and dedicated teams
\nwould be put in place.  They will be responsible to get the required
\nMemorandum of Understanding (MoUs) signed between the various
\nparties, get the special audits conducted, assess the financial
\nsupport required, ensure issuance of the executive orders and
\nresultant amendments to byelwas of the co-operatives, recommend and
\nensure flow of financial assistance.  It is expected that the entire
\nscheme take about three years to implement in each State.”\n<\/p>\n
\tThe Task Force
\nalso recommended the enactment of Model Co-operative Law by
\nobserving, inter alia, as under :-\n<\/p>\n
“5.25\tWhile
\nsome of the necessary changes can be implemented through Executive
\nOfficer, under the existing State laws, formal legislation to repeal
\nor modify existing laws will be necessary.  The Model Coop law,
\nsuggested by the Brahm Prekash Committee, and endorsed by all recent
\ncommittees which have gone into this issue, is consistent with the
\nkind of regime, which we think is necessary for healthy functioning
\nof cooperatives as democratic, member-driver and self reliant
\norganizations.\n<\/p>\n
5.25\tEven
\nthough several States have enacted new laws on this pattern, they
\nhave not made much of an impact.  In all these States, most societies
\ncontinue to operate under the regime of the extant CSAs, with hardly
\nany effort to enable or encourage existing societies to come under
\nthe new law.  Part of the reason is the absence of provisions in the
\npre-existing law to permit and enable existing societies to come
\nunder the new law.  A stronger reason is, perhaps, the
\nnon-availability of refinance to such cooperatives, registered under
\nthe new Acts.”\n<\/p>\n
\tA
\ncopy of “Institutional, Legal and Regulatory Reforms”,
\nwhich is at Chapter V of the report of the Task Force has been
\nenclosed as Annexure – I to the reply affidavit.\n<\/p>\n
\tThe
\nTask Force suggested various options which were responded to by the
\nRBI by offering its comments which is at Annexure – II to the
\nreply affidavit field by the State.  Thereafter, the MoU between the
\nCentral Government, State Government and NABARD was arrived at on
\n26.6.2006 for implementation of the package for revival of rural
\nCo-operative Credit Structure (CCS), comprising the State
\nCo-operative Banks, Central Co-operative Banks and primary
\nagricultural credit societies and thereafter consensus arrived at
\nbetween the parties and the recommendations  made by Vaidyanathan
\nCommittee on revival and reform of CCS were noticed before singing
\nthe MoU.  The relevant extracts  of the preamble of the MoU are
\nreproduced hereunder :-\n<\/p>\n
“1.\tWhereas
\nit is considered necessary as a national priority to affirm the
\nfollowing objectives for revival and restructuring of the rural
\nco-operative credit structure (CCS), comprising the State
\nCo-operative Banks (SICBs), Central Co-operative Banks (CCBs) and
\nPrimary Agricultural Credit Societies (PACS) including LAMPS, MPCS
\nand FSS affiliated to CCBs on a sustainable basis :-\n<\/p>\n
a.\tEfficient
\ndelivery of financial services, including savings and loan products
\nas grassroots level in rural areas through the CCS with minimum
\nregulatory burden.\n<\/p>\n
b.\tEnsuring
\nsafety of public deposits accepted by the co-operative banking
\nsystem.\n<\/p>\n
2.\tWhereas
\nit is considered necessary for achievement of the objectives that the
\ninstitutions comprising CCS :\n<\/p>\n
i.\tare
\ndemocratic, well governed, professionally managed and audited.\n<\/p>\n
ii.\thave
\nrequisite autonomy in raising resources and deploying funds as also
\nin other operational matters connected therewith;\n<\/p>\n
iii.\tundertake
\nfinancial activities as principal business and separately account for
\nand fund other activities, if undertaken, and that<\/p>\n
iv.\tthe
\nSICBs and CCBs are effectively regulated on par with other entities
\naccepting public deposits.”\n<\/p>\n
20.\tSome
\nof the provisions of the MoU with regard to the obligations of the
\n1st respondent – State were set out at para 9 series
\nonwards, which are relevant for the present purpose and quoted
\nhereunder :-\n<\/p>\n
‘9.\tThe
\nState undertakes to bring in amendments to or incorporate a special
\nchapter in the Gujarat State Co-operative Societies Act, 1961 to give
\neffect to the reforms envisaged under the Package in respect of all
\nentities which are part of the CCS.  Pending such amendments, the
\nState undertakes to issue an Ordinance under the powers conferred on
\nit under Article 213<\/a> of the Constitution of India to provide for the
\nfollowing in respect of all entities which are part of the CCS :\n<\/p>\n
9.1\tensuring
\nfull voting membership rights to all depositors\/borrowers in
\ncooperatives other than co-operative banks.\n<\/p>\n
9.4\tallowing
\ntransition of any cooperative registered under the Gujarat State
\nCo-operative Societies Act, 1961, to the parallel Self Reliant
\nCooperative Societies Act, when enacted and permitting cooperatives
\nunder the Self Reliant Cooperative Societies Act to be members of
\nfederal structures registered under the Gujarat Cooperative Societies
\nAct, 1961 and vice versa,<\/p>\n
9.5\tallowing
\nfreedom to any cooperative in the CCS to affiliate or disaffiliate
\nwith a federal structure of its choice.\n<\/p>\n
9.6\tallowing
\nfreedom of entry and exit for any unit of CCS at any level with no
\nmandated restrictions of geographical boundaries for its operations.\n<\/p>\n
9.7\twithdrawing
\nany restrictive orders on financial matters like investments to be
\nmade to cooperatives and permitting them to invest funds, subject to
\nthe guidelines as may be prescribed by RBI,<\/p>\n
9.14\tSupersession
\nof the Board of the GSCB or a CCB by the RCS under any other clause
\nof the Gujarat State Co-operative Societies Act, 1961, shall be done
\nonly in consultation with RBI.  The Board of a PACS shall be
\nsuperseded by the RCS only under the following conditions :\n<\/p>\n
9.14.1\t\tif
\na society incurs looses for three consecutive years, or<\/p>\n
9.14.2\t\tif
\nserious financial irregularities or frauds have been identified, or<\/p>\n
9.14.3\t\tif
\nthere are judicial directives to this effect or there is perpetual
\nlack of quorum.\n<\/p>\n
9.15\tensuring
\ntimely elections before the expiry of the term of the existing Board
\nof any cooperative and within two months from the date of
\nsupersession of any Board.  Also ensuring that members of the Board
\nof PACS which has been superseded due to a reasons as in 9.14.1 and
\n9.14.2 above would not be entitled to contest again for a period of
\nat least three years after supersession.\n<\/p>\n
9.18\tremoving
\nat the request of NABARD\/RBI, director(s)\/CEO(s) who do not fulfill
\nthe fit and proper criteria stipulated by RBI in the case of GSCB and
\nCCBs.”\n<\/p>\n
21.\tTaking
\ninto consideration the aforesaid report and the MoU, the Amending
\nAct<\/a>, 2008 was enacted. Before the Act<\/a>, the statement of object for
\nmaking important amendments were notified in the Extraordinary
\nGujarat Government Gazette dated 8.10.2007 which reads as follows :-\n<\/p>\n
“The
\nGovernment of India, based on Vaidyanathan Committee’s Report, has
\nannounced revival package for co-operative societies to be
\nimplemented through NABARD.  As per the package, agricultural credit
\nsector i.e. Primary Agricultural Credit Co-operative Societies,
\nDistrict Central Co-operative Banks and State Co-operative Banks and
\nState Co-operative Bank will get the benefit of the package for
\ncompensating the losses in their balance sheet as on 31.3.2004
\nsubject to certain conditions of Memorandum of Understanding (in
\nshort “MoU”) signed by the Government of Gujarat with the
\nCentral Government and NABARD.  As per one of the conditions of the
\nsaid MoU, the State Government is required to amend the various
\nprovisions of the Gujarat Co-operative Societies Act, 1961.  An
\nundertaking has been given by the State Government to the Government
\nof India and NABARD in the said MoU that pending such amendments
\n(through Legislative Assembly) an Ordinance under Article 213<\/a> of
\nConstitution shall be issued to give effect to the reforms.\n<\/p>\n
\tIn
\nthe Gujarat State, there are 7768 Primary Agricultural Credit
\nCo-operative Societies, 18 District Central Co-operative Bank and the
\napex body namely, the Gujarat State Co-operative Bank in the three
\ntier agricultural credit sector which are likely to be benefited by
\nthe revival package declared by the Government of India to be
\nimplemented through the NABARD.\n<\/p>\n
\tIn
\nview of fact that the stage of special audit for the purpose is
\nalmost completed so far and the State Government is likely to get the
\nshare of the revival package of Rs.1106.58 crores from the Central
\nGovernment as per the sharing pattern, and as initial payment, the
\nNABARD will release seventy-five per cent of the entitled amount i.e.
\naround Rs.800 crores  in the current financial year, if the condition
\nof legal reforms as per MoU as stated above is complied with.  It is,
\ntherefore, considered necessary to amend the Gujarat Co-operative
\nSocieties Act, 1961.\n<\/p>\n
\tThe
\nfollowing are some of important amendments considered necessary to be
\nmade in the said Act as per the MoU signed by the Government of
\nGujarat with the Central Government and NABARD :\n<\/p>\n
(1)\tensuring
\nfull voting membership rights to all depositors\/borrowers in
\nco-operatives other than co-operative banks,<\/p>\n
(2)\tproviding
\nautonomy to Co-operative Credit Structure in all financial and
\ninternal administrative matters.\n<\/p>\n
(3)\tRestricting
\nthe State Government’s equity to a maximum of twenty-five per cent in
\nany co-operative at any level and limiting State participation in the
\n Committee of a co-operative bank to only one nominee and not to have
\nany State nominee on the Committee of any Primary Agricultural Credit
\nCo-operative Society.  The State Government or a co-operative society
\nat any level wishing to reduce the State equity further would be free
\nto do so,<\/p>\n
(4)\tallowing
\nfreedom of any co-operative society in the co-operative credit
\nstructure to affiliate or disaffiliate with a federal structure of
\nits choice and there would not be any restrictions of geographical
\nboundaries for its operations, <\/p>\n
(5)\tallowing
\nfreedom for investments to be made by co-operative societies and
\npermitting them to invest funds, subject to the guidelines as may be
\nprescribed by the Reserve Bank of India;\n<\/p>\n
(6)\tpermitting
\nany co-operative in all the three tiers freedom to take loans from
\nany RBI regulated financial institution, and refinance from NABARD or
\nany other refinancing agency directly and not necessarily with only
\nthe federal tier to which it is affiliated;\n<\/p>\n
(7)\tpowers
\ntaken from laying down guidelines for the purpose of payment of
\ndividend by Primary Agricultural Credit Co-operative Societies in
\nconsultation with NABARD.\n<\/p>\n
\tIn
\naddition to above, the provisions are also made for exclusion of
\ndefaulters from the voters list, provisions for maintaining Bad Deb
\nReserve Fund and provisions for periodical inspection by the
\nRegistrar of Co-operative Societies, financing bank and federal
\nsocieties.  The provisions are also made for availing loan facility
\nto group of persons (self help groups) and for availing memberships
\nto such group also in the Society.\n<\/p>\n
\tAs
\nthe Legislative Assembly of the State of Gujarat is not in session,
\nthis Ordinance is promulgated to amend the said Act to achieve the
\naforesaid objects.<\/p>\n
\n \n\n\n \n\n\n \n\n\nGandhinagar\t\t\tNAWAL\nKISHORE SHARMA\n \n\n\nDated\nthe 7th October, 2007\t       Governor of Gujarat\n \n\n\n \n\n\n \n\n\nBy\n<\/pre>\n
order and in the name of the Governor of Gujarat,<\/p>\n
DR.\n<\/p>\n
AVINASH KUMAR,<\/p>\n
Additional
\nChief Secretary to Government”\n<\/p>\n
\tFrom
\nthe aforesaid statement of objects, it will be evident that taking
\ninto consideration the fact that there are 7768 Primary Agricultural
\nCredit Co-operative Societies, 18 District Central Co-operative Banks
\nand the apex body, namely, the Gujarat State Co-operative Bank in the
\nthree tier agricultural credit sector and to benefit them, the State
\nGovernment was likely to get share of the revival package of
\nRs.1106.58 crores from the Central Government and as initial payment,
\nthe NABARD will release 75% of the entitled amount i.e. around Rs.800
\ncrores.  Such amount could not have been received by the State
\nGovernment for the benefit of the three tier agricultural credit
\nsector, including 7768 Primary Agricultural Credit Co-operative
\nSocieties apart from 19 District Central Co-operative
\nBanks and its apex body namely the Gujarat State Co-operative Bank,
\nif the Memorandum of Understanding signed between the Central
\nGovernment, the Government of Gujarat and the NABARD is not acted
\nupon and, therefore, the public in general were informed to derive
\nsuch benefit.  As per the MoU, freedom was allowed to any
\nco-operative society in the co-operative credit structure to
\naffiliate or disaffiliate with a federal structure of their choice
\nand there would not be any restriction of geographical boundaries for
\nits operations.  It additionally permitted any co-operative society
\nin all the three tiers freedom to take loan from any RBI regulated
\nfinancial institution and refinance from NABARD or any other
\nrefinancing agency directly and not necessarily with only the federal
\ntier to which it is affiliated.  Such decision was for the benefit of
\nall the co-operative societies in the co-operative credit structure
\nin all three tiers.  The fund was generated from the Central
\nGovernment for distribution amongst the co-operative societies.
\nTherefor, much more advantages were given to the co-operative
\nsocieties including the petitioner – banks.\n<\/p>\n
22.\tIt
\nhas been rightly pointed out by the learned Advocate General for the
\nState that prior to the enactment of the provisions of
\nSection 73A<\/a>, Primary Agricultural Credit Co-operative Society had no
\nchoice in the matter of availment of finance, more particularly in
\nthe area of rate of interest, availability of finance, etc.
\nas it was to be affiliated with only one District Co-operative Bank.
\nIn view of the fact that now the restriction has been lifted, under
\nSection 73A<\/a> the financial freedom of a grater degree has been allowed
\nin favour of the co-operative societies  including the  petitioner –
\nbanks.\n<\/p>\n
23.\tAny
\nco-operative bank in three tier have freedom to take loan from any
\nRBI regulated financial institutions and refinance from NABAARD or
\nany other financial agency directly and not necessarily with only
\nfederal tier to which it is affiliated.  This happened only because
\nof the restriction lifted on the recommendations of the expert body
\nincluding the Task Force and the recommendations of the Vaidyanathan
\nCommittee.\n<\/p>\n
24.\tIn view of
\nSection 73A<\/a>, the monopoly of the federal society, namely the Gujarat
\nState Co-operative Bank now stands curtailed and the member –
\ncooperative societies have wides choice to avail benefit without any
\nrestriction like payment of higher interest for taking loan and will
\nnow not be deprived of loan on the ground that the federal society
\nhave no money to grant loan.\n<\/p>\n
25.\tThe
\nCourt normally does not interfere with the decisions of the expert
\nbodies, particularly if it involves regulation of economic activities
\nby different constituents.   This will be evident from the decision
\nof the Supreme Court in the case of  Bhavesh D. Parish vs.
\nUnion of India<\/a>,
\nreported in AIR 2000 SC 2047, wherein the Supreme Court has observed
\nthus :\n<\/p>\n
“23.\tit
\nwas further submitted that the amendments were introduced after
\ntaking into account the recommendations of successive committees,
\nappointed by the Bank and Government of India, which had studied the
\nfunctioning of these bodies.  The question of restricting such
\nfinancial activity by unincorporated bodies, in a question of
\neconomic policy as it involves regulation of economic activities by
\ndifferent constituents.  In such matters of economic policy, this
\nHon’ble Court does not interfere with the decision of the expert
\nbodies which have examined the matter.  The following observations of
\nthis Hon’ble Court  made in RK
\nGarg vs. Union of India,
\n1982(1) SCR 947 at 969 L (AIR 1981 SC 2138 at p.2147) are appropriate
\n:\n<\/p>\n
“Another
\nrule of equal importance is that laws relating to economic activities
\nshould be viewed with greater latitude than laws touching civil
\nrights such as freedom of speech, religion etc.  It has been said by
\nno less a person that Holmes, J. that the Legislature should be
\nallowed some play in the joints, because it has to deal with complex
\nproblem which do not admit of solution through any doctrinaire or
\nstraight-jacket formula and this is particularly true in case of
\nLegislation dealing with economic matters, where, having regard to
\nthe nature of the problems required to be dealt with greater play in
\nthe joints has to be allowed to the Legislature.  The Court should
\nfeel more inclined to give judicial deference to legislative judgment
\nin the filed of economic regulation than in other areas where
\nfundamental human rights are involved.  Nowhere has this admonition
\nbeen more felicitously expressed than in Morey vs. Doud [1957]
\n354 US 458 where Frankfurter, J. said in his imitable style :\n<\/p>\n
“In
\nthe utilities, tax and economic regulation cases, there are good
\nreasons for judicial self-restraint if not judicial deference to
\nlegislative judgment.  The Legislature after all has the affirmative
\nresponsibility.  The Courts have only the power to destroy, not to
\nreconstruct.  When these are added to the complexity of economic
\nregulation, the uncertainty, the liability to error, the bewildering
\nconflict of the experts, and the number of times the Judges have been
\noverruled by events self-limitation can be seen to be the path to
\njudicial wisdom and institutional prestige and stability.”\n<\/p>\n
26.\tIn
\nthe case of RK Garg vs. Union of India,
\n(1981)4 SCC 675, the Supreme Court observed that :-\n<\/p>\n
“It
\nhas been said by no less a person that Holmes, J. that the
\nLegislature should be allowed some play in the joints, because it has
\nto deal with complex problem which do not admit of solution through
\nany doctrinaire or straight-jacket formula and this is particularly
\ntrue in case of Legislation dealing with economic matters, where,
\nhaving regard to the nature of the problems required to be dealt with
\ngreater play in the joints has to be allowed to the Legislature.  The
\nCourt should feel more inclined to give judicial deference to
\nlegislative judgment in the filed of economic regulation than in
\nother areas where fundamental human rights are involved.  Nowhere has
\nthis admonition been more felicitously expressed than in Morey vs.
\nDoud [1957] 354 US 458 where Frankfurter, J. said in his imitable
\nstyle :\n<\/p>\n
“In
\nthe utilities, tax and economic regulation cases, there are good
\nreasons for judicial self-restraint if not judicial deference to
\nlegislative judgment.  The Legislature after all has the affirmative
\nresponsibility.  The Courts have only the power to destroy, not to
\nreconstruct.  When these are added to the complexity of economic
\nregulation, the uncertainty, the liability to error, the bewildering
\nconflict of the experts, and the number of times the Judges have been
\noverruled by events self-limitation can be seen to be the path to
\njudicial wisdom and institutional prestige and stability.”\n<\/p>\n
\tIn
\nthe said case, the Supreme Court further observed that :-\n<\/p>\n
“The
\nCourt must always remember that ‘legislation is directed to practical
\nproblems, that the economic mechanism is highly sensitive and
\ncomplex, that many problems are singular and contingent, that laws
\nare not abstract propositions and do not relate to abstract units and
\nare not to be measured by abstract symmetry’; ‘that exact wisdom and
\nnice adaption of remedy are not always possible’ and that ‘judgment
\nis largely a prophecy based on meagre and interpreted experience’.
\nEvery legislation particularly in economic matters is essentially
\nempiric and it is based on experimentation or what one may call trial
\nand error method and therefore it cannot provide for all possible
\nsituations or anticipate all possible abuses.  There may be crudities
\nand inequities in complicated experimental economic legislation but
\non that account alone it cannot be struck down as invalid.  The
\ncourts cannot, as pointed out by the United States Supreme Court in
\nSecy. of Agriculture vs.
\nCentral Roig Refining Co., 338 US 604 (1950),
\nbe converted into tribunals for relief from such crudities and
\ninequities.  There may even be possibilities of abuse, but that too
\ncannot of itself be a ground for invalidating the legislation,
\nbecause it is not possible for any legislature to anticipate as if by
\nsome divine prescience, distortions and abuses of its legislation
\nwhich may be made by those subject to tis provisions and to provide
\nagainst such distortions and abuses.  Indeed, howsoever great may be
\nthe care bestowed on its framing, it is difficult to conceive of a
\nlegislation which is not capable of being abused by perverted human
\ningenuity.  The Court must therefore adjudge the constitutionality of
\nsuch legislation by the
\ngenerality of its provisions and not by its crudities or inequities
\nor possibilities of abuse come to light, the legislature can always
\nstep in and enact suitable amendatory legislation.  That is the
\nessence of pragmatic approach which must guide and inspire the
\nlegislature in dealing with complex economic issues.”\n<\/p>\n
27.\tIn view of
\nthe aforesaid authoritative pronouncement of the Supreme Court, as we
\nfind that the Amending Act<\/a>, 2008, particularly Section 73A<\/a> is based
\non the recommendations of the Task Force constituted by the Central
\nGovernment which is based on the report of the Vaidyanathan Committee
\nand the MoU has been reached between the Government of Gujarat with
\nthe Central Government and NABARD for providing freedom from
\naffiliation or disaffiliation with a federal society of choice to
\navail the financial benefits out of the share of the revival package
\nof Rs.1106.58 crores received from the Central Government, such
\npolicy and law cannot be held to be bad on mere presumption that it
\nmay violate the right of the petitioner – banks as guaranteed
\nunder Article 19(1)(c)<\/a> or Article 19(1)(g)<\/a> of the Constitution.\n<\/p>\n
\tWe have
\nnoticed that the impugned provision is reasonable having nexus with
\nthe object sought to be achieved and is in consonance with Article 14<\/a>
\nof the Constitution.  The said provision  neither take away the right
\nof the petitioners, the freedom to form an association or union as
\nguaranteed under Article 19(1)(c)<\/a> nor infringes freedom of any of the
\npetitioner – bank to carry on trade or business as guaranteed
\nunder Article 19(1)(g)<\/a> of the Constitution.  On the contrary, the
\nAmending Act<\/a>, 2008 is in furtherance to such right to practice trade
\nor business by any co-operative credit structures including primary
\nagricultural credit co-operative societies, Central Co-operative
\nBanks and the State Co-operative Bank, as defined under Section 73A
\nof the Gujarat Co-operative Societies Act, 1961, inserted by the
\nGujarat Co-operative Societies (Amendment) Act, 2008.\n<\/p>\n
28.\tSo
\nfar as the new provisos added after the existing proviso to Section
\n76<\/a> relating to qualifications for appointment of the Chief Executive
\nOfficer and the Directors of the Central Co-operative Bank and the
\nState Co-operative Bank is concerned, under 2nd
\nproviso, the Reserve Bank of India has been empowered to determine
\nthe same.  Further, as per the 3rd
\nproviso, the Registrar of the Co-operative Societies or the Board of
\nthe Central Co-operative Banks or the State Co-operative Bank is
\nrequired to remove, at the request of the Reserve Bank, such
\nDirectors and Chief Executive Officers who do not fulfill the
\nqualification as may be prescribed by the Reserve Bank.  However, the
\nexisting elected Directors holding their post as such Directors on
\nthe date of the commencement of the Gujarat Co-operative Societies
\n(Amendment) Act, 2008 have been allowed to hold their offices till
\nthe expiry of their
\ncurrent remaining term.\n<\/p>\n
29.\tIn normal
\ncourse, under the Banking Regulations Act<\/a>, 1949, a banking Company is
\nrequired to include persons with professional or other experience
\nunder Section 10A<\/a> and is required to be managed by whole time
\nChairman under Section 10B<\/a> of the said Act.  The Reserve Bank of
\nIndia has the power to appoint Chairman of the Board of Directors
\nappointed on a whole-time basis or a Managing Director under Section
\n10BB<\/a>.  The provisions of Sections 10A<\/a> and 10B<\/a> override all other
\nlaws, contracts, etc. as per Section 10D<\/a> of the said Act.\n<\/p>\n
\tIt is true
\nthat the said provisions are not directly applicable  to the
\nco-operative banks, but we have noticed the power of the Reserve Bank
\nof India binding on the banking Companies to run a bank by qualified
\nprofessionals having expertise in the field which can be managed by a
\nwhole-time Chairman.\n<\/p>\n
30.\tThe Banking
\nRegulation Act<\/a>, 1949 has been made applicable to the co-operative
\nbanks under Part V of the said Act, by Act 23 of 1965 with effect
\nfrom 1.3.1966; once it was repealed and subsequently substituted by
\nAct 61 of 1981 with effect from 1.5.1982.  Pursuant to Section 65<\/a>,
\nthe co-operative banks, co-operative credit societies, co-operative
\nsocieties,, primary agricultural credit societies, etc. dealing with
\nthe banking activities have been brought within the meaning of
\n“banking Companies”.  Since then, the Banking Regulation
\nAct<\/a>, 1949 is applicable and thereby the Reserve Bank of India has the
\npower to give direction under Section 35A<\/a> in certain matters in the
\npublic interest, in the interest of the banking policy, etc, as
\nquoted hereunder :-\n<\/p>\n
“35A.\tPower
\nof the Reserve Bank to give directions, –  (1) Where the
\nReserve Bank is satisfied that –\n<\/p>\n
(a)\tin
\nthe public interest; or<\/p>\n
(aa)\tin
\nthe interest of banking policy; or<\/p>\n
(b)\tto
\nprevent the affairs of any banking company being conducted in a
\nmanner detrimental to the interests of the depositors or in a manner
\nprejudicial to the interests of the banking company; or<\/p>\n
(c)\tto
\nsecure the proper management of any banking company generally,<\/p>\n
it
\nis necessary to issue directions to banking companies generally or to
\nany banking company in particular, it may, from time to time, issue
\nsuch directions as it deems fit, and the banking companies or the
\nbanking company, as the case may be, shall be bound to comply with
\nsuch directions.\n<\/p>\n
(2)\tThe
\nReserve Bank may, on representation made to it or on its own motion,
\nmodify or cancel any direction issued under sub-section (1), and in
\nso modifying or cancelling any direction may impose such conditions
\nas it thinks fit, subject to which the modification or cancellation
\nshall have effect.”\n<\/p>\n
31.\tUnder
\nthe aforesaid provisions, though the Reserve Bank of India has power
\nto issue certain directions in the public interest or in the interest
\nof the banking policy or to prevent the affairs of any banking
\ncompany being conducted in a manner detrimental to the interests of
\nthe depositors, etc. but under the aforesaid provisions, it has not
\nbeen empowered to issue directions to prescribe qualifications for
\nappointment to the post of Directors or Chief Executive Officers,
\netc.  Therefore, when initially the Reserve Bank of India issued
\nguidelines on 10.7.2007 and 29.4.2008, the challenge was made on the
\nground that the Reserve Bank of India has no jurisdiction to issue
\nsuch guidelines, as the power to frame law with regard to the
\nco-operative societies is vested in the State in view of Entry 32 in
\nList II of the 7th
\nSchedule of the Constitution.  It was in this background that the
\nReserve Bank of India recalled their earlier guidelines and for the
\nsaid reason, the challenge to the earlier guidelines dated 10.7.2007
\nand 29.4.2008 were not pressed.\n<\/p>\n
32.\tAs
\nthe State Government has the power to frame law with regard to the
\nco-operative societies in view of Entry 32 in List II of the
\n7th Schedule,
\ntaking into consideration the report of the Task Force based on the
\nrecommendations of the Vaidyanathan Committee and in light of the
\nMemorandum of Understanding reached by the State Government with the
\nCentral Government and NABARD, the State Government enacted the
\nGujarat Co-operative Societies (Amendment) Act, 2008 and inserted the
\n2nd and 3rd
\nproviso below the existing proviso to Section 76 of the Gujarat
\nCo-operative Societies Act, 1961.  By such amendment, the Reserve
\nBank of India, an expert body, having knowledge with regard to the
\nqualifications and other experience required for professionals to
\nmanage the business of the banking of a co-operative society, has
\nbeen empowered to determine such qualifications including experience
\nfor appointment of Chief Executive Officer and Directors of the
\nCentral Co-operative banks, State Co-operative Bank, etc.<\/p>\n
33.\tIt cannot
\nbe said that the legislatures have abdicated its power.  The
\nlegislatures may not have to take note of all the relevant facts and
\nexpertise to determine the qualifications as may be required and may
\nbe required to be enhanced from time to time including the experience
\nfor many professional posts of Chief Executive Officer and Directors
\nof a bank, namely, Central Co-operative Bank and the State
\nCo-operative Bank.  Therefore, it is always open to ask an expert
\nbody like Reserve Bank of India to determine such qualifications for
\nappointment of Chief Executive Officer and Directors of such
\nco-operative banks from time to time.  If it is to be determined
\ntaking into consideration the requirements of a co-operative bank, it
\nis always open to the legislatures to empower an expert body to
\ndetermine the same instead of fixing one time qualification by a
\nstatute.\n<\/p>\n
34.\tIn
\nthe case of Ram Krishna Dalmia vs. Justice Tendulkar<\/a>,
\n reported in AIR 1958 SC 538, the Supreme Court held as follows :-\n<\/p>\n
“(a)\t…\t…\t…\t…\t…\t…\t…\n<\/p>\n
(b)\tthat
\nthere is always a presumption in favour of the constitutionality of
\nan enactment and the burden is upon him who attacks it to show that
\nthere has been a clear transgression of the constitutional
\nprinciples;\n<\/p>\n
(c)\tthat
\nit must be presumed that the legislature understands and correctly
\nappreciates the needs of its own people, that its law are directed to
\nproblems made manifest by experience and that its discriminations are
\nbased on adequate grounds;\n<\/p>\n
(d)\tthat
\nthe legislature is free to recognize degrees of harm and may confine
\nits restrictions to those cases where the need is deemed to be the
\nclearest;\n<\/p>\n
(e)\tthat
\nin order to sustain the presumption of constitutionality the court
\nmay take into consideration matters of common knowledge, matters of
\ncommon report, the history of the times and may assume every state of
\nfacts which can be conceived existing at the time of legislation;”\n<\/p>\n
35.\tTherefore,
\nthe presumption goes in favour of the constitutionality of the
\nenactment in question i.e. Section 76 of the Gujarat Co-operative
\nSocieties Act, 1961 as made by Section 18<\/a> of the Amending Act, 2008
\ninserting provisos below the existing proviso to Section 76 of the
\nPrincipal Act.   The petitioners who have challenged the said
\nprovisions have failed to show that there has been any transgression
\nof the constitutional principles.  No arbitrariness has been shown to
\nallege violation of Article 14<\/a> of the Constitution.  The provisions
\nalso do not interfere with the freedom of the banks to form an
\nassociation or to practice trade or business and thereby does not
\ninfringe its rights guaranteed under Article 19(1)(c)<\/a> or Article
\n19(1)(g)<\/a> of the Constitution.  In absence of any merit, we uphold the
\nprovisions as made in these cases, particularly Section 15<\/a> of the
\nAmending Act, 2008 whereby Section 73A of the Gujarat Co-operative
\nSocieties Act, 1961 has been inserted and Section
\n18<\/a> of the Amending Act whereby two provisos below the existing
\nproviso to Section 76<\/a> has been inserted.   In absence of any merit,
\nthe writ petitions are dismissed, but there shall be no order as to
\ncosts.\n<\/p>\n
\t\t\t\t\t\t[S. J.\n<\/p>\n
MUKHOPADHAYA, CJ.]<\/p>\n
\t\t\t\t\t\t\t[ANANT
\nS. DAVE, J.]<\/p>\n
sundar\/-\n<\/p>\n
\t\t   \u00a0\u00a0\u00a0<\/p>\n
\t\t   Top<\/p>\n<\/blockquote>\n","protected":false},"excerpt":{"rendered":"
Gujarat High Court Surat vs State on 4 May, 2011 Author: Mr.S.J.Mukhopadhaya,&Nbsp;Honourable Mr.Justice Dave,&Nbsp; Gujarat High Court Case Information System Print SCA\/2943\/2008 31 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No. 2943 of 2008 With SPECIAL CIVIL APPLICATION No. 2890 of 2008 With SPECIAL CIVIL APPLICATION No. 2769 of 2008 […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[16,8],"tags":[],"class_list":["post-262045","post","type-post","status-publish","format-standard","hentry","category-gujarat-high-court","category-high-court"],"yoast_head":"\nSurat vs State on 4 May, 2011 - Free Judgements of Supreme Court & High Court | Legal India<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.legalindia.com\/judgments\/surat-vs-state-on-4-may-2011\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Surat vs State on 4 May, 2011 - 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