LPA/1142/2008 1/21 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD LETTERS PATENT APPEAL No. 1142 of 2008 In SPECIAL CIVIL APPLICATION No. 12028 of 2008 With CIVIL APPLICATION No.11792 of 2008 For Approval and Signature: HONOURABLE MR. JUSTICE MOHIT S. SHAH AND HONOURABLE MS.JUSTICE H.N.DEVANI ================================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================= ATULBHAI PATEL - DIRECTOR BARODA DISTRICT CO OP MILK - Appellant(s) Versus STATE OF GUJARAT & 3 - Respondent(s) ================================================= Appearance : MR TUSHAR MEHTA, Senior Advocate for MR HARDIK B KALMEKH for Appellant(s) : 1, None for Respondent(s) : 1 - 2, 4, MR K.S.NANAVATI, Senior Advocate for NANAVATI ASSOCIATES for Respondent(s) : 3, ================================================= CORAM : HONOURABLE MR. JUSTICE MOHIT S. SHAH and HONOURABLE MS.JUSTICE H.N.DEVANI Date : 16/12/2008 CAV JUDGMENT (Per : HONOURABLE MR. JUSTICE MOHIT S. SHAH) This appeal under Clause 15 of the Letters Patent is directed against the judgment dated 26.9.2008 of the learned Single Judge, dismissing the Special Civil Application following the decision LPA/1142/2008 2/21 JUDGMENT dated 4/6.09.2008 of another learned Single Judge in Special Civil Application No.1870 of 2006 and allied matters. Since the LPA filed against the said decision dated 4/6.09.2008 filed earlier has already been withdrawn, this appeal is essentially directed against the reasoning of the learned Single Judge in the decision dated 4/6.09.2008, as adopted in the order dated 26.9.2008 under appeal. 2. All the above petitions were filed to challenge certain Bye- laws of respondent No.3 – Gujarat State Co-operative Milk Marketing Federation Ltd. In the decision dated 4/6.09.2008, the learned Single Judge held the said Bye-laws to be valid and legal. The appellant is therefore, reiterating his challenge to the said Bye- laws in this appeal. 3. The broad facts of the case are not in dispute. Respondent No.3 – Gujarat State Co-operative Milk Marketing Federation Ltd. (hereinafter referred to as "the Federation" or "the respondent Federation") has its registered office at Anand Dairy, Anand, The Federation, credited with the white revolution in the State of Gujarat, is a State Level Federation, registered as a Co-operative Society under the Gujarat Co-operative Societies Act, 1961 (hereinafter referred to as 'the Act'). The Federation is the State Level Apex Body for the dairies in the co-operative sector in the State. The District level dairies, which are also registered as Co- operative Societies under the Act are known as District Level Milk Producers' Unions, affiliated to the Federation. All dairy products and other milk products viz.milk, chocolate, ice-cream, curd, butter-milk etc. under the brand name of AMUL are manufactured by the District level unions i.e. the Federating unions and are also marketed as per the directives of and under the control of respondent No.3 – Federation. [The respondent Federation as well as all the Federating dairies i.e. all the District level unions are specified Societies i.e. Co-operative Societies specified in Section 74C(1) of the Act, reference to which shall be made hereinafter]. LPA/1142/2008 3/21 JUDGMENT 4. The Federation framed its Bye-laws in the year 1973, which were registered by the Registrar of Co-operative Societies on 19th July 1973. The objects of the Federation, as specified in Bye-law No.5, are as under:- “5.1 The main object of the Federation is to carry out activities for the economic development of agriculturists by efficiently organizing marketing of milk and dairy produce, veterinary medicines, vaccines and other animal health products, agricultural produce in raw and/or processed form and other allied produce. 5.2 To achieve the aforesaid objective, the Federation may - 5.2.1 arrange for the sale of dairy and allied produce of the members to the best advantage all over the country and/or abroad; 5.2.2 deal with non-members for marketing dairy and allied produce subject to such conditions as may be decided by the Board from time to time. 5.2.3 prescribe and enforce standards of quality of dairy and allied produce to be marketed by the Federation....” Bye-law No. 7 provides for three type of members: (1)Ordinary Members. (2)Nominal Members, and (3)Associated Members. In this appeal, we are not concerned with nominal and associated members as they do not have voting right or right to contest an election or right in the shares in the assets or profits of the Federation. Ordinary members are those registered District Co-operative Milk Producers Union (i.e. District Dairies), which fulfill any one of the following three conditions as specified in Bye- law No.7:- “(a) In the immediately preceding two consecutive accounting years of the Federation it has dealings with LPA/1142/2008 4/21 JUDGMENT Federation of 3 lac units in a regular manner during the course of each year. (b) In the immediately preceding 3 consecutive accounting years of the Federation it has dealings with the Federation of an aggregate of 8 lac units. (c) In the immediately preceding 3 consecutive accounting years of the Federation it has procured milk from the are of operation anaverage quantity of 30,000 liters per day. “ Bye-law No.10, inter-alia, provides that failure to fulfill the above obligations will result in cessation of membership of ordinary member. 5. Bye-law No.13 provides for constitution of the General Body of the Federation and Bye-law No. 18 provides for the constitution of the Board of Directors of the Federation. The provisions of Bye- laws Nos. 2.2, 2.7, 13, 15, 18 and 19, having a bearing on the controversy in this appeal read as under:- 2.2 “Board” means the Board of Directors of the Federation. 2.7 “Milk Union” means Registered District Co-operative Milk Producers Union.” GENERAL MEETING: 13.1 The General Meeting shall consist of the following:- (1) The Chairman of each of the affiliated Milk Unions enrolled as Ordinary Members. (2) The Registrar. (3) Dairy Management Expert co-opted by the Board. (4) Managing Director of the Federation. (5) A nominee of the National Dairy Development Board as long as the loan/interest of the National Dairy Development Board have not been fully repaid by the Federation. The Chairman of the Board of Directors shall preside over the General Meeting. In case of his absence, the meeting shall elect a Chairman from among the members present. LPA/1142/2008 5/21 JUDGMENT 13.2 The General Meeting shall be the supreme body of the Federation. It shall be called once in every year within the quarter ending this 30th June. This shall be called Annual General Meeting. VOTING RIGHTS: 15.1 Each member shall have one vote by virtue of its ordinary membership. Besides this, the ordinary member shall have one additional vote for every 5 lakh units transacted through the Federation in the previous financial year. The voting rights shall be determined along with annual accounts on the above basis and will be effective for the year till next Annual General Meeting. Notwithstanding anything mentioned above, a person co- opted by the Board as Dairy Management Expert, the Registrar of Cooperative Societies, the nominee of NDDB and the Managing Director of the Federation shall each have votes equal to the average of the institutional members total votes ignoring fractions. 15.2 Nominal and/or Associate Members shall not have voting rights. BOARD OF DIRECTORS: 18.1 The Board will consist of the following: (i) Chairmen of the affiliated milk unions enrolled as ordinary members. (ii) Registrar or his representative not below the rank of Joint Registrar (C.S.) (iii) One Dairy Management Expert to be co-opted by the Board. (iv) Managing Director of the Federation (ex-officio) (v) A nominee of the National dairy Development Board as long as the loan/interest of the National Dairy Development Board have not been fully repaid by the Federation. 18.2 The Chairperson of the Federation will be elected by the Board for the term of three years and he/she shall continue to hold his/her office till the new Chairperson is elected and takes over. He/She shall be honorary Chairperson. In case the elected Chairperson vacates his/her office before expiry of his/her term or due to any other reason the post of Chairperson falls vacant, the Board shall elect the LPA/1142/2008 6/21 JUDGMENT new Chairperson for the remaining term. The election of the Chairperson take place in the first Board meeting of the Federation after the expiry of the term of the elected Chairperson or when the Chairperson's post falls vacant. In his/her absence, the meeting shall elect its own Chairperson for that meeting from amongst the eligible members present. The Chairperson in such event shall exercise such power as may be delegated to his by the Board of Directors. The Managing Director of the Federation shall not be entitled to vote and contest the election for the post of Chairperson. 18.3 Each member of the Board shall have voting rights as fixed under Bye-law No.15.1. The new Board will, however, exercise these voting rights only after the Annual General Meeting. DURATION OF MEMBERSHIP OF BOARD 19. When a person becomes a Member of the Board of Directors by reason of the office or post he holds in his milk union, his membership of the Board shall terminate when he ceases to hold that office or post and his successor shall automatically replace him on the Board.” (emphasis supplied) 6. The appellant is a Director in the Baroda District Co- operative Milk Producers Union Ltd., which is one of the 13 District Milk Unions - ordinary members of the respondent Federation. In the petition before the learned Single Judge, the appellant had challenged Bye-law Nos. 13.1, 15.1 and 18.1 of the respondent – Federation, on the ground that the said Bye-laws are contrary to the provisions of Section 74C, 145D, 145Z inserted by Gujarat Act No.6 of 1981 and Rule 95 of the Gujarat Specified Co- operative Societies Elections of Committees Rules, 1982. 7. The aforesaid statutory provisions read as under:- “74C. Provision for conduct of elections committees and officers of certain societies and term of office of members of committees, - (1) The election of members of the committees and of the officers by the committee, of the societies of the categories mentioned below shall be subject to the provisions of Chapter XI-A and shall be conducted in the manner laid down by or under that Chapter. LPA/1142/2008 7/21 JUDGMENT (i) Apex societies mentioned in the Schedule and such other apex societies as the State Government may, by general or special order, published in the Official Gazette, from time to time specify in this behalf, having regard to financial position and share capital of such societies; (ii) all District Central Co-operative Banks; (iii) all Primary Land Development Banks; (iv) all District Co-operative Sale and Purchase Organisations; (v) all Co-operative Sugar Factories; (vi) all Co-operative Spinning Mill; (a) all district co-operative milk unions; (b) all taluka co-operative processing societies; (vii) any other society or class of societies, which the State Government may, by general or special order published in the Official Gazette, from time to time specify in his behalf, regard being had to the financial position and share capital of such institutions. (2) When the election of all the members of the committee of any such societies held at the same time the members elected on the committee at such general election shall hold office for a period of three years from the date on which the first meeting is held and shall continue in office until immediately before the first meeting of the members of the members of the new committee. (3) Notwithstanding anything in the bye-laws of any such society, the committee of management shall be elected by a general body of members of the society and all other committees authorised by or under the bye-laws may be constituted by electing or appointing persons from among the persons who are members of the committee of management, and all such committees shall be sub-committee of the committee, of management, and shall be subordinate to it; Provided that it shall be lawful for the State Government:- (a) to nominate its representatives on a Committee of any such society under Section 80, or (b) to nominate the first Committee of Management of any such society where the bye-laws of such society so provide. Provided further that it shall be lawful for any body LPA/1142/2008 8/21 JUDGMENT or authority to nominate its representative on a Committee of such society where the bye-laws of such society so provide. 145D. Conduct of elections, - (1) Save as otherwise provided, every election shall be held on such date or dates as the Collector may fix, and shall be conducted under his control by such Returning Officer and other Officers, as may be appointed by the Collector in this behalf. (2) In all cases, where a society has to send a nominee as a member of the committee of the specified society, the election of such nominee shall be conducted under the control of the Collector of the District in which the registered office of the society sending the nominee is situated. (3) The voting at every election shall be by secret ballot. (4) No election shall be held in the case where under the bye-laws of a specified society the Government nominee or the nominee of a Financing Agency becomes a member of the committee of the society. 145Z. Special provision for election of officers of specified societies,- (1) This section shall apply only to election of Officers by members of committees of societies belonging to the categories specified in Section 74C. (2) After the election of the members of the committees or whenever such election is due, the election of the officer or officers of any such society shall be held as provided in its bye- laws, but any meeting of the committee for this purpose shall be presided over by the Collector or an officer nominated by him in this behalf. 2. Definitions.- In this Act, unless the context otherwise requires,- (14) "officer" means a person elected or appointed by a society to any office of such society according to its bye-laws; and includes a chairman, vice-chairman, president, vice- president, managing director, manager, secretary, treasurer, member of the committee, and any other person elected or appointed under this Act, the rules or the bye-laws, to give directions in regard to the business of such society; Rule 95. Election of nominee under section 145-D(2) - The Election of a nominee of a society as a member of the Committee of any Specified Society under sub-section (2) of section 145-D shall be held in accordance with the provisions of this rule. (2) Where a society has to send such a nominee and the Collector has published his order made under Rule 16 as LPA/1142/2008 9/21 JUDGMENT required by clause (b) of Rule 17, the Committee of the Society shall hold its meeting for the election of the nominee, within a period of 15 days from the date of publication of the election programme or within such extended period as the Collector may allow. (3) The election shall be conducted in accordance with the Provision of the bye-laws of the Society, under the control of the Collector or the Returning Officer appointed by him under Rule 9. “ (emphasis supplied by the appellant) 8. The thrust of the appellant's submission is that whatever may be the Bye-laws of the respondent – Federation prior to the amendment of the Co-operative Societies Act, once Section 74C, 145D and 145Z were inserted by Gujarat Act No.6 of 1981, the Bye- laws inconsistent with the said statutory provisions, cannot be permitted to operate. It is vehemently submitted by learned Senior Advocate Mr. Tushar Mehta for the appellant that the Federation is a specified Co-operative Society and therefore, its Directors have to be elected in accordance with provisions of Sub-section (3) of Section 74C of the Gujarat Specified Co-operative Societies Elections of Committees Rules, 1982 (hereinafter referred to as the 'Elections Rules') framed in exercise of the powers conferred by Section 168 read with Section 145G(2), 145U(4) and 145Y of the Gujarat Co-operative Societies Act, 1961 (hereinafter referred to as 'the Act”. It is submitted that after the aforesaid amendment to the Act, there cannot be any specified Society, in which the Managing Committee is formed, without each member of the Committee being elected as a member of the Managing Committee of such specified Society, in accordance with the provisions of the Chapter 11A and in accordance with the aforesaid Election Rules of 1982. It is also submitted by Mr. Mehta that since Section 74C(3) starts with a non-obstante clause “notwithstanding anything in the bye- law of any such society, the committee of management shall be elected ... ...”, a District Milk Producers Union cannot nominate without election its representative or delegate merely because that representative is the Chairman of the District Milk Producers LPA/1142/2008 10/21 JUDGMENT Union. In a given case, a District level union may nominate its Chairman to be a member of the respondent Federation, and therefore, as a Director of the Federation, but the choice has to be left to the District level union to decide, whether it would like to nominate its Chairman or any of its members other than the Chairman on the Board of Directors of the respondent Federation. 9. The learned counsel for the appellant further submits that it is only when outside agencies like financial institutions etc. make nominations, elections are not required, but otherwise all representatives or delegates of other Co-operative Societies must be elected by the respective Co-operative Societies. In the second proviso to Sub-section (3) of Section 74C, inserted by Gujarat Amendment Act No.14 of 1983, the term “body or other authority” was understood by the Legislature to be an outside body or authority, but the said proviso, does not in any manner dilute the mandate contained in Sub-section (1) of Section 74C. In other words, there can be nomination by outside agencies, who are rendering services to a specified Co-operative Society, but, so far as the Managing Committee of a specified Society to be formed from amongst the members is concerned, such formation shall have to be by way of an election. Sub-section (2) of Section 145D, therefore, specifically provides that in all cases where the Society has to send its nominee as member of the Committee of a specified society, the election of such nominee shall be conducted under the control of the Collector of the District in which the registered office of the Society sending the nominee is situated. Mr. Mehta submitted that the object of this provision is to ensure that no specified Co-operative Society, by making tactfully drafted Bye- laws, avoids election for formation of its Managing Committee in clear breach of statutory mandate contained in Section 74C of the Act. Hence after the amendments of 1981 and 1983, members of the Managing Committee of a specified Society cannot come by LPA/1142/2008 11/21 JUDGMENT way of nomination from their base-units at District or Taluka levels, merely by virtue of their respective offices in such base-units. 10. It is also submitted by Mr.Mehta for the appellant that a conjoint reading of Section 74C, 145D(1) and 145D(2) makes it clear that the Legislature has provided that all the members of the Managing Committee of a specified Society be elected simultaneously to ensure that the tenure of the Managing Committee of a specified Society starts on the same day on which all the members of the Managing Committee are “elected” and are “elected as the members of the Committee”. This interpretation is also borne-out by the provisions of Rule 95 of the Election Rules for specified co-operative societies. If the legislative intent was what the respondent – Federation is contending, the Legislature would have provided in Section 145D(2) that election would take place, if the nominee is other than the Chairman, who is already an elected person under Section 145Z. It is submitted that the election of Chairman under Section 145Z of the Act is only as the Chairman of the District level dairy and it is not an election for electing a Director in the Federal Society namely the Federation. It is also submitted that merely because the person is elected as Chairman of the District dairy, it cannot be said that he is elected also as a Director of the Federation. 11. Mr. Mehta for the appellant in his written submissions has given the following illustration to show that the operation of the present Bye-law may result into an anomaly:- “Suppose there are 15 affiliated milk unions enrolled as ordinary members, Chairman of all 15 affiliated unions would automatically become Directors in the Board of Directors of the Federation. It is not a fact in dispute and cannot be disputed that the term of the managing committee of each of such affiliated district unions starts at different dates and come to an end on different dates. If the election of Chairman of the Federation takes place in LPA/1142/2008 12/21 JUDGMENT January 2008, such Chairman is entitled to continue till January 2011 and would still continue in his office even thereafter till new Chairman of the Federation is elected. After 1st January 2008, there may be 3 District Unions where the tenure of their respective Managing Committees is coming to an end and the Collectors of their respective Districts would hold elections in such District Unions. Such new Chairmen of 3 district unions would automatically replace their predecessors in the Board of Directors of the Federation, but would automatically replace their predecessors in the Board of Directors of the Federation, but would never get a right to contest the election for being elected as the Chairman of the Federation though they might be enjoying the majority support in the Board of Directors of Federation. This situation is bound to arise since the tenure of the Chairman of the Federation elected on 1st January 2008 is fixed in the byelaws, which is at least till 1st January 2011. In the next year the elections of five other district unions may take place and new Chairmen are elected in five district unions. Such five new Chairmen would also replace their predecessors in the Board of Federation who have elected the Chairmen of the Federation but such new Chairmen of 5 district unions will never get a chance to contest for being elected as the Chairman of the Federation till earlier Chairman completes his tenure. In a given case, there is bound to be a possibility where new eight persons who have come as the Directors of the Federation in their capacity as Chairman of the District Level Unions may not have faith in the Chairman who is already elected. Such Chairman would still continue as Chairman of the Federation though he does not enjoy majority support” 12. It is submitted for the appellant that such an anomaly can be avoided only if all the Directors of the Federation are elected by the District level unions on a particular date, in elections to be conducted by the Collector of the district, in which the head-office of the Federation is situated i.e. Collector, District Anand. Once Collector, Anand fixes the date of election of Directors of the Federation, he would declare the election programme and all District level unions will have to follow the procedure contemplated under Section 145D(2) of the Act and elect their nominees, who will become elected members of the Board of Directors of the Federation. Such elected Directors will start their tenure on the date of the first meeting of the Board and would elect the LPA/1142/2008 13/21 JUDGMENT Chairman of the Board of Directors. In this manner, the tenure of the Board of Directors of the Federation would also be fixed as 3 years