IN THE HIGH COURT OF JUDICATURE, ANDHRA PRADESH AT HYDERABAD (Special Original Jurisdiction) TUESDAY, THE SECOND DAY OF DECEMBER TWO THOUSAND AND EIGHT PRESENT THE HON'BLE MR JUSTICE GODA RAGHURAM and THE HON'BLE MR JUSTICE SANJAY KUMAR WRIT PETITION NO : 28433 of 2007 AND BATCH Between: 1 R.Ramalingeswara Rao S/o.Subba Rao 2 B.Samudram S/o.Mutyalaiah 3 G.Ramu Naidu S/o.Peddinaidu 4 G.Ramana S/o.Chinnamanaidu 5 Ch.Chelli Babu S/o.Simhachalam 6 Gandi Appala Naidu S/o.Simhachalam 7 T.Sriramulu S/o.Tatayyalu (All are working in Sabbavaram PACS Sabbavaram, Visakhapatnam District.) ..... PETITIONER(S) AND 1 The Government of A.P., rep. by its Secretary, Agriculture and Coop. Department, Secretariat, Hyderabad. 2 The Commissioner for Cooperation/Registrar of Cooperative Societies, Government of A.P., Hyderabad. 3 The District Cooperative Officer, Visakhapatnam District at Visakhapatnam. 4 The Divisional Cooperative Officer, Visakhapatnam District at Visakhapatnam. 5 The Sabbavaram PACS, Sabbavaram, Visakhapatnam District. .....RESPONDENT(S) Petition under Article 226 of the constitution of India praying that in the circumstances stated in the Affidavit filed herein the High Court will be pleased to to issue a Writ, order or direction more particularly one in the nature of Writ of Mandamus declaring the amendment to clause (o) of Rule 2 of the Andhra Pradesh Cooperative Societies Rules, 1964 issued through G.O.Rt.No.1083, Agriculture and Cooperation Department, dated 1.12.2003 by the 1st respondent as illegal, arbitrary and unconstitutional apart from being violative of principles of natural justice and against the very purpose and object of Section 116C of A.P. Cooperative Societies Act, beyond the rule making power, and virtually depriving the right to livelihood of the employees working in the cooperative societies and set aside the same, consequently direct the respondents to pay our salaries from out of 2% of working capital without reference to the amendment issued to clause (o) of Rule 2 of Andhra Pradesh Cooperative Societies Rules issued in G.O.Ms.No.1083, Agriculture and Cooperation, dated 1- 12-2003 and pass such other order or orders. Counsel for the Petitioner:MR.EATHAKOTA VENKATA RAO Counsel for the Respondent No.: GP FOR COOPERATION The Court made the following : THE HON’BLE SRI JUSTICE GODA RAGHURAM AND THE HON’BLE SRI JUSTICE P.V.SANJAY KUMAR WRIT PETITION No.28433 OF 2007 AND BATCH COMMON ORDER (Per PVSK,J) The petitioners in this batch of cases are all employees of Primary Agricultural Co-operative Societies, Farmers Service Co-operative Societies, Co-operative Urban Banks and the like. They challenge the amendment to Rule 2(o) of the Andhra Pradesh Co-operative Societies Rules, 1964 (for brevity, ‘the Rules of 1964’) through G.O.Rt.No.1083, Agriculture and Co-operation (Co-op.IV) Department, dated 01.12.2003. Under Section 116-C(1) of the Andhra Pradesh Co-operative Societies Act, 1964 (for brevity, ‘the Act of 1964’) as amended by Act 22 of 2001 with effect from 25.04.2001, a restriction is placed upon the expenditure that can be incurred by a Society towards the pay and allowances of its employees. Section 116-C(1) of the Act of 1964 reads as follows: “116-C. Staffing pattern of societies:–– (1) A society shall have power to fix the staffing pattern, qualifications, pay scales and other allowances of its employees with the prior approval of the Registrar of Co-operative Societies subject to the condition that expenditure towards pay and allowances of the employees shall not exceed two percent of the working capital or thirty percent of the Gross profit, in terms of actuals in a year whichever is less.” The legality of this provision was considered by two Division Benches in A.P. STATE CO-OPERATIVE SOCIETIES SECRETARIES AND EMPLOYEES ASSOCIATION, NIZAMABAD V/s. STATE OF ANDHRA PRADESH[1] and A.P. STATE CO-OPERATIVE SOCIETIES SECRETARIES AND EMPLOYEES UNION V/s. GOVERNMENT OF ANDHRA PRADESH[2]. The constitutional validity of this provision was upheld. The Act of 1964 does not define ‘working capital’ which is one of the alternative substrata for computing the restriction introduced by way of Section 116-C(1) upon the expenditure which can be incurred by a Society towards its employees’ salaries. Under Section 130 of the Act of 1964 the Government is authorized by way of notification published in the Andhra Pradesh Gazette to make Rules for carrying out all or any of the purposes of the Act of 1964. Section 130(2) provides that every Rule made under the said Section shall be laid before the State Legislature in the manner prescribed therein. It would be apposite to extract hereunder the provisions of Section 130 of the Act of 1964: “130. Power to make rules:–– (1) The Government, may, by notification published in the Andhra Pradesh Gazette, make rules for carrying out all or any of the purposes of this Act for the whole or any part of the State and for any class of societies. (2) Every rule made under this Section shall immediately after it is made, be laid before each House of the State Legislature if it is in session and if it is not in session, in the session immediately following for a total period of fourteen days which may be comprised in one session or in two successive sessions, and if, before the expiration of the session in which it is so laid or the session immediately following, both Houses agree, in making any modification in the rule or in the annulment of the rule, the rule shall thereafter have effect only in such modified form or shall be annulled, as the case may be so however that any such modification or annulment shall be without prejudice to the validity of anything previously done under that rule.” In exercise of the powers conferred by Section 130 of the Act of 1964 the Government of Andhra Pradesh amended Rule 2(o) of the Rules of 1964 by way of G.O.Rt.No.1083 of 01.12.2003 published in the extra- ordinary issue of the A.P. Gazette dated 01.12.2003. By way of the said G.O., clause (o) of Rule 2 was substituted and presently reads as hereunder: ‘Working capital’ includes such portion of the reserve fund, other reserves appropriated out of profits, paid up share capital, loan, and deposits received by a Society and debentures issued by a Society, as have not been locked up in buildings, other fixed assets, outstanding over dues and accumulated losses.” It is pertinent to note that the substitution of the above Rule introduced the words ‘outstanding over dues and accumulated losses’ which did not figure in the Rule as it stood prior to the amendment. The petitioners are aggrieved by the exclusion of the above two concepts from the connotation of ‘working capital’. According to them, this virtually deprives them of the right to livelihood as it narrows the scope of Section 116-C(1) of the Act of 1964. They contend that if outstanding over dues and accumulated losses are to be deducted from the computation of ‘working capital’, the Societies would not be in a position to pay salaries to their employees from out of the reduced ambit of ‘working capital’. This, according to the petitioners, indirectly affects the right of the employees to receive their legitimate wages. The petitioners also seek to raise various grounds on facts in support of their challenge to the validity of the Rule. However, this Court is mindful of the fact that the validity of a Statute or a Statutory Rule can only be tested on grounds of lack of legislative competence, violation of the fundamental rights or other constitutional provisions; and in the case of subordinate legislation (including a statutory rule), on the ground that it is in transgression of the statute. As held by the Supreme Court in KULDIP NAYAR v. UNION OF INDIA[3] a challenge to such a legislative amendment cannot be on the ground that a different or better view is possible. The Supreme Court held that all matters within the legislative competence of the Legislature have to be left to the discretion and wisdom of the latter so long as it does not infringe any constitutional provision or violate the fundamental rights. The examination of the vires of Rule 2(o) of the Rules of 1964 must therefore be limited to these grounds and cannot be enlarged, as is sought to be done by the learned counsel appearing for the petitioners in these various cases. Sri Nandigama Krishna Rao, learned counsel for the petitioners in Writ Petition No.12929 of 2006, leading the batch, submitted that the amendment to the Rule was not laid before the Houses of the Legislature as required under Section 130(2) of the Act of 1964 and accordingly, the amended Rule 2(o) of the Rules of 1964 should be struck down on the ground of this procedural irregularity. A provision in the statute with regard to laying the Rule before the Houses of the Legislature is made so as to enable the Legislature to have an opportunity to modify the Rules, be it by way of amending it or repealing it altogether. In this regard, reference may be made to ‘Craies on Statute Law’. While dealing with the aspect of ‘Laying before Parliament’, the learned Author states that whether the direction to lay the Rules before the Legislature is mandatory or merely directory must depend upon the wording of the statute under which the Rule is made. Reference may also be made to the observations made by Sir Carleton Kemp Allen in ‘Law and Orders’ – An Inquiry into the Nature and Scope of Delegated Legislation and Executive Powers in English Law: “… Of course, if the statute expressly indicates what the effect of non-compliance is to be, the matter is plain; but in many cases it merely gives its command and says nothing about the consequences of disobedience. The Courts then have to look at the general intendment of the section, and often of the whole statute, and, although there can be no invariable rule, the general principle of interpretation is well stated by Maxwell (Interpretation of Statutes, 9th Ed., p.379) “Where the prescriptions of a statute relate to the performance of a public duty; and where the invalidation of acts done in neglect of them would work serious general inconvenience or injustice to persons who have no control over those entrusted with the duty, without promoting the essential aims of the Legislature, such prescriptions seem to be generally understood as mere instructions for the guidance and government of those on whom the duty is imposed, or, in other words, as directory only.” ” In O.Hood Phillips’ ‘Constitutional and Administrative Law’, the learned Authors while dealing with laying procedures observe that if the legislation was to be laid before the Parliament with immediate effect, but subject to annulment or modification following a resolution of either House, usually without prejudice to the validity of anything done thereunder before annulment, it was called a ‘negative resolution’ procedure. On the other hand, if the legislation was to be laid before the Parliament but was not to take effect until approved by the Parliament, it would be a procedure by way of affirmative resolution. The learned Authors, while dealing with the mandatory/directory nature of this requirement, stated that in so far as instruments subject to negative resolution and probably also those subject to affirmative resolution were concerned, the requirement is directory. In the present case, the Rule provides for a negative resolution procedure, the implication being that the requirement of laying was only directory in nature. A Division Bench of this Court had an occasion to deal with this issue in PIDIKITI MADHAVA RAO v. STATE OF ANDHRA PRADESH AND OTHERS[4]. The Learned Division Bench pointed out that where the Legislature prescribes the legal effect of non-compliance with the condition of laying, no difficulty arises. The difficulty arises only in cases where the Legislature directs the laying of the Rule before the Houses of Legislature without providing for the consequences of non-compliance. The Division Bench drew inspiration from the observations of Subba Rao, C.J. (as His Lordship then was) in D.KRISHNAN v. SECRETARY, REGIONAL TRANSPORT AUTHORITY[5] that in the case of statutes directing the Rule to be laid before the Legislature without any condition attached, the same is only directory, for a provision in a statute which is conceived in public interest should not be made to affect the members of the public governed by the Rules for the dereliction of the duty of a Minister or other officer concerned. We are in respectful agreement with the views expressed in the aforesaid two Judgments insofar as the issue of ‘Laying before the Legislature’ is concerned. Therefore, the contention urged by the learned counsel that Rule 2(o) as amended by G.O.Rt.No.1083 dated 01.12.2003 is unsustainable on the ground of procedural irregularity, in view of non- compliance with Section 130(2) of the Act of 1964, does not find favour with this Court. It is further contended by the learned counsel that Rule 2(o) of the Rules of 1964 has the effect of enlarging the scope of Section 116-C(1) of the Act of 1964 and therefore the same has to be struck down on the ground that a Rule cannot overreach the statute. However, it is not disputed that ‘working capital’ is not defined in the Act of 1964 and Section 130(1) authorizes the Government to make Rules for carrying out all or any of the purposes of the Act. The purpose of Section 116-C(1) is to introduce a measure of fiscal discipline in the functioning of Co-operative Societies. This was the obvious intention underlying the introduction of a restriction on the expenditure which could be incurred by the Societies towards the pay and allowances of their employees. The practice adopted by the Societies prior to the amendment of Rule 2(o), whereby ‘working capital’ was being computed in an abstract and illusory manner taking into account the accumulated losses and also outstanding over dues resulted in a hugely inflated figure while in reality, a major component of the actual working capital available with the Societies was being paid in the form of salaries to its employees. This practice contributed to a downward spiral whereby the Societies consumed their own vitals, ultimately becoming economically unviable. It was to remedy this situation that the amendment was brought about in Rule 2(o) of the Rules of 1964. The Rule is therefore in furtherance of achieving the objective laid down in Section 116-C(1) of the Act of 1964. The argument of the learned counsel in this regard must therefore fail. It is admitted that the constitutional validity of Section 116-C(1) has been upheld by this Court. Therefore, the petitioners before us can have no grievance with regard to the restriction placed upon the maximum expenditure which could be incurred by the Co-operative Societies towards their employees’ salaries, be it on the basis of ‘working capital’ or on the basis of ‘gross profit’. What remains for consideration is whether Rule 2(o) which provides for computation of such working capital is constitutionally valid? The petitioners are unable to make out any ground, be it lack of legislative competence or violation of fundamental or constitutional rights, warranting interference with the amended Rule. It is also apposite to mention that one of us (Goda Raghuram,J) had occasion to deal with the validity of Rule 2(o) of the Rules of 1964 in an unreported Judgment in THE A.P.URBAN AND TOWN CO-OPERATIVE BANK EMPLOYEES’ ASSOCIATION, BOBBILI UNIT, VIZIANAGARAM DISTRICT v. GOVERNMENT OF ANDHRA PRADESH, CO- OPERATION DEPARTMENT, HYDERABAD AND OTHERS[6] wherein His Lordship stated as hereunder: “Section 116(c) of the Act enjoins a fiscal discipline on the establishment expenditure of a Co-operative Society, whereby a Society is consecrated a discretion to fix staff pattern, pay scale and other allowances of its employees with the prior approval of the Registrar of Co-operative Societies subject to the condition that the expenditure towards pay and allowances of the employees not exceed 2% of the working capital or 30% of the gross profit, in terms of actuals in a year, whichever is less. Petitioner does not assail the provisions of Section 116(c) of the Act. To guide the accounting practices and to provide clarity to the process of identification of what constitutes ‘working capital’, the expression ‘working capital’ has been redefined by the impugned amendment to include the components of outstanding over dues and accumulated losses also. The practice of Co-operative Societies computing working capital without taking into consideration the outstanding over dues payable to the Society or what could be called non-performing assets or the accumulated losses was leading to a situation whereby an artificial process of computation and contrary to healthy accounting practices, Societies were showing a higher component of working capital which was a situation at variance with the fiscal reality of a Co- operative Society’s health. To remedy this mischief, the amendment was brought about. The amendment per se does not and is not demonstrated to be in transgression of either Articles 14, 16 or 21 of the Constitution of India. The claim of the petitioners that the impugned amendment to Rule 2(o) of the Rules is unconstitutional and violative of Articles 14 and 21 of the Constitution of India must, therefore, fail.” The learned counsel failed to make out any ground for us to take a different view. Sri Polisetty Radha Krishna, learned counsel for the petitioners in Writ Petition Nos.8864 of 2006, 7884 of 2006 and 4542 of 2006 and Sri Dadi Radha Krishna, learned counsel for the petitioners in Writ Petition Nos.18333 of 2006 and 25075 of 2007 submitted that the petitioners had been paid salaries in pursuance of the interim orders passed by this Court in these writ petitions, permitting salaries to be paid as per the amended provisions of Rule 2(o) of the Rules of 1964. They urged that the Societies may be interdicted from attempting recoveries of salaries so paid. It is also urged that the actual calculations of the working capital even in term of the amended provisions of Rule 2(o) were not correct and that this Court should interfere on that ground. Having given our consideration to this argument, we are not inclined to agree. In these writ petitions, this Court is only concerned with the vires of Rule 2(o) of the Rules of 1964. The interim direction granted by this Court was to the effect that the salaries should be paid in terms of the amended Rule 2(o). In such a situation it is not clear as to why and how the Societies would attempt recoveries of the salaries already paid, if the same was done in accordance with the amended Rule. In any event, the consequences which flow from this adjudication are not of concern to this Court while deciding the validity of the impugned Rule. The actual computation of working capital basing on the amended Rule is not the subject matter in these writ petitions. No other contentions have been urged before us. On a conspectus of the discussion on facts and law aforestated, we are of view that the impugned Rule does not suffer from any illegality and is accordingly upheld. The writ petitions are consequently dismissed. There shall be no order as to costs. _______________________ GODA RAGHURAM, J. _________________________ P.V.SANJAY KUMAR, J. ________ November, 2008. VGSR [1] 2002(1) ALD 271 [2] 2002(4) ALD 527 [3] (2006) 7 SCC 1 [4] (1967) 1 An.W.R. 366 [5] AIR 1956 A.P. 129 [6] W.P.No.13564 of 2004 dated 30.08.2005.