IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE K.BALAKRISHNAN NAIR & THE HONOURABLE MR. JUSTICE P.N.RAVINDRAN FRIDAY, THE 18TH APRIL 2008 / 29TH CHAITHRA 1930 WP(C).No. 37452 of 2007(H) -------------------------- PETITIONER: ------------ K.J.PHILIP,KUZHIKULAM HOUSE VALAVOOR-PO, PALA, KOTTAYAM DISTRICT PRESIDENT, BOARD OF DIRECTORS KOTTAYAM DISTRICT CO-OPERATIVE BANK LTD, KOTTAYAM. BY ADV. SRI.GEORGE POONTHOTTAM RESPONDENTS: ------------- 1. STATE OF KERALA REPRESENTED BY THE CHIEF SECRETARY, GOVERNMENT SECRETARIAT THIRUVANANTHAPURAM. 2. THE REGISTRAR OF CO-OPERATIVE SOCIETIES THIRUVANANTHAPURAM. 3. THE PART TIME ADMINISTRATOR (THE JOINT REGISTRAR OF CO-OPERATIVE SOCIETIES KOTTAYAM), KOTTAYAM DISTRICT CO-OPERATIVE BANK LTD KOTTAYAM. BY SRI.K.K.RAVINDRANATH, SPL.G.P & L.O.. THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 08/04/2008 ALONG WITH WPC NO. 37728 OF 2007 & CONNECTED CASES, THE COURT ON 18/04/2008 DELIVERED THE FOLLOWING: WPC 37452/2007 APPENDIX PETITIONER'S EXTS. EXT.P1 - TRUE COPY OF THE ORDER NO.C,B.(3) 59238/2007 DATED 13.12.2007. EXT.P2 - TRUE COPY OF THE ORDINANCE NO.62 OF 2007 THROUGH NOTIFICATION DATED 11TH DECEMBER, 2007. EXT.P3 - TRUE COPY OF THE BUSINESS TRANSACTION OF THE KOTTAYAM DISTRICT CO- OPERATIVE BANK FROM 1996-97 TILL 2006-07. RESPONDENTS' EXTS. EXT.R1(a) – TRUE COPY OF THE COMPARATIVE TABULATED CHART SHOWING THE DETAILS OF THE MEMBERSHIP OF THE PRIMARY AGRICULTURAL CREDIT SOCIETIES AND OTHER PRIMARY SOCIETIES OF THE 14 DISTRICTS IN THE STATE WITH THEIR RESPECTIVE DISTRICT CO-OPERATIVE BANKS. /TRUE COPY/ K.BALAKRISHNAN NAIR & P.N.RAVINDRAN, JJ. ----------------------------------------- W.P.(C) NOS. 37452, 37728, 37806, 38292 & 38293/2007 AND 1449, 1459, 1484, 2307, 2308, 2584 2733/2008 ----------------------------------------- Dated 18th April, 2008. JUDGMENT Balakrishnan Nair, J. In all these cases, the constitutional validity of Ordinance No.62/2007, promulgated by the Governor of Kerala, is mainly challenged by the petitioners. Therefore, they are heard and disposed of by this common judgment. W.P.(C) No.37452/2007: 2. This writ petition is treated as the main case for the purpose of referring to the exhibits. 3. The brief facts of the case are the following: The writ petitioner is the President of the Kottayam District Co-operative Bank Ltd., which is a Central Society as defined under Section 2(d) of the Kerala Co-operative Societies Act (hereinafter referred as the “KCS Act”). The District Co- operative Banks, including the petitioner's Bank are hereinafter mentioned WPC 37452/07 ETC. 2 for convenience as DCB. The petitioner is the delegate of Valavoor Service Co-operative Bank Ltd., to the general body of the DCB. The election to the Managing Committee of the DCB was held about five years back and the present Committee assumed office on 4.5.2003. The members of the Board of Directors of the DCB were elected for a period of five years. While so, the Registrar of Co-operative Societies by Ext.P1 proceedings dated 13.12.2007, appointed the Joint Registrar of Co-operative Societies (General), Kottayam as the Part-time Administrator of the DCB, under Section 33(1) of the KCS Act. The said order was passed based on the finding that in view of Ordinance No.62/2007, some of the members of the Board of Directors ceased to be its members and the remaining members cannot constitute the quorum for the Board. The Ordinance relied on by the Registrar in Ext.P1 is Ext.P2 dated 11.12.2007. According to the petitioner, the provisions of Ext.P2 amendment are ultra vires and unconstitutional and therefore, unenforceable. As a result of the Ordinance, majority of the members of the DCB other than Primary Agricultural Credit Societies and Urban Co-operative Banks became nominal or associate members of the DCB, having no right to vote or participate in the administration of the Bank. The exclusion of societies belonging to categories other than the two categories mentioned above, is arbitrary and discriminatory. So, the WPC 37452/07 ETC. 3 Ordinance is hit by the violation of Article 14 of the Constitution of India. The petitioner also relied on the decision of this Court in Alapuzha Dt. Co- op. Bank Ltd. v. State of Kerala [2003(1) KLT 297] in support of his submissions. As per the said decision, the provisions similar to those contained in Ext.P2 Ordinance in an earlier amending Act were held to be arbitrary and unconstitutional. Therefore, the petitioner prays for declaring that Ext.P2 is unconstitutional and also for quashing Ext.P1. 4. The respondents 1 and 2 have filed a counter affidavit, supporting the impugned legislation. According to them, the DCB is mainly engaged in banking business. The Primary Agricultural Credit Societies and Urban Co-operative Banks, which are also mainly engaged in agricultural credit and banking business should, alone, be permitted to have a say in the management of the DCB. A DCB should be a central society for the co- operative societies, mainly engaged in agricultural credit and banking business. Other categories of societies have their own respective apex bodies. The Milk Societies have Regional Milk Producers Union as their central society as also Milma as the apex society at the State level. For Consumer Co-operative Societies, there is a central society called District Whole-sale Consumer Store and the apex body is Consumerfed. There are WPC 37452/07 ETC. 4 other apex societies like Housing Federation, Serifed, Matsyafed, etc. The Government appointed a Committee called E.V.Kumaran Committee, which, after making extensive studies, recommended that the DCB should be the central society for Primary Agricultural Credit Societies and Urban Co-operative Banks. In other categories of central and apex societies, the societies belonging to different categories are not admitted as members. Only in the case of DCB, societies belonging to different categories are admitted as members and they are practically controlling the Bank. The membership of other societies drown the membership of Primary Agricultural Credit Societies and Urban Co-operative Banks. So, the legislature in its wisdom decided to amend the law, providing that the DCB shall be the central society for Primary Agricultural Credit Societies and Urban Co-operative Banks functioning in a district. It is a valid legislative exercise. In view of the amended provisions, the present Committee can no longer continue to function validly and therefore, the Administrator was appointed as per Ext.P1, it is submitted. 5. The petitioner has filed a reply affidavit, dealing with the averments in the counter affidavit. It is reiterated that the discrimination shown to societies other than Primary Agricultural Credit Societies and Urban Co-operative Banks, is arbitrary and discriminatory. All the WPC 37452/07 ETC. 5 members of the DCB should have a say in its management. Various subsidies and subsidised loan facilities are routed through the DCB. So, all types of societies should have a say in the management of the DCB also. The present Ordinance Ext.P2 runs counter to the democratic principles, underlying the organization and functioning of co-operative societies. So, the petitioner prays for allowing the writ petition, disregarding the contentions in the counter affidavit. 6. Heard the learned counsel on both sides. Sri.George Poonthottam, learned counsel for the writ petitioner and Sri.B.S.Swathikumar, learned counsel appearing for the petitioners in some of the connected writ petitions led the arguments on behalf of the writ petitioners. They reiterated the contention of hostile discrimination meted out to various other types of co- operative societies other than Primary Agricultural Credit Societies and Urban Co-operative Banks and prayed for striking down the Ordinance. Sri.K.K.Ravindranath, learned Senior Government Pleader supported the Ordinance, relying on the contentions raised in the counter affidavit filed on behalf of respondents 1 and 2. 7. The petitioner mainly attacked the amendment to the definition of District Co-operative Bank in Section 2(ia) in Ext.P2 and also the newly introduced second proviso to Section 18 of the KCS Act. WPC 37452/07 ETC. 6 8. The salient features of the amendments introduced to the KCS Act by Ext.P2 are the following: Section 2(ia) of the KCS Act defines District Co-operative Bank. Before the amendment, the definition of District Co- operative Bank was as follows: “(ia) 'District Co-operative Bank' means a Central Society the principal object of which is to raise funds to be lent to its members, with jurisdiction over one revenue district and having as its members any type of primary societies and Federal and Central Societies having headquarters in such district.” Now, after the amendment of the Act by Ext.P2 Ordinance, the definition of District Co-operative Bank reads as follows: “(ia) 'District Co-operative Bank' means a Central Society having jurisdiction over one revenue district and having as its members Primary Agricultural Credit Societies and Urban Co- operative Banks and the principal object of which is to raise funds to be lent to its members, including nominal or associate members.” In Section 2, a new clause (od) defining Primary Co-operative Society has been added. The said clause reads as follows: “(od) 'Primary Co-operative Society' means a society having jurisdiction over a revenue district as a whole or over any specified area within such revenue district and having individual or individuals and other Co-operative Societies as its members.” Another clause (ta) defining Urban Co-operative Bank was also introduced, which reads as follows: WPC 37452/07 ETC. 7 “(ta) 'Urban Co-operative Bank' means a society registered under this Act having its area of operation in the Urban areas and which undertakes banking business with the licence obtained from Reserve Bank of India.” Under sub-section (1) of Section 18, before the existing proviso, two new provisos were added, which read as follows: “Provided that a District Co-operative Bank may admit any Co-operative Society registered under the provisions of this Act, other than Primary Agricultural Credit Societies and Urban Co-operative Banks functioning within its area of operation as nominal or associate member; Provided further that the members of a District Co- operative Bank other than Primary Agricultural Credit Societies and Urban Co-operative Banks as on the date of commencement of the Kerala Co-operative Societies (Amendment) Ordinance 2007 shall become nominal or associated members of such District Co-operative Banks at such commencement.” The effect of the above amendments is that only Primary Agricultural Credit Societies and Urban Co-operative Banks are eligible to be the members of the DCB. Other societies, which are members on the date of issuance of the Ordinance will become nominal or associate members. The petitioner condemns the above amendments as arbitrary, discriminatory and undemocratic. Earlier, by Act 15/1997, provisions similar to those contained in Ext.P2 were introduced in the Act. They were removed from the KCS Act by Act 3/2002. When the validity of Act 3/2002 was WPC 37452/07 ETC. 8 challenged before this Court, this Court upheld it. But, while giving the reasons for the said decision, this Court in Alapuzha Dt. Co-op. Bank Ltd. v. State of Kerala [2003(1) KLT 297], condemned the provisions of Act 15/1997 as undemocratic and hailed the introduction of Act 3/2002, repealing Act 15/1997. The petitioners mainly rely on the observations of the learned Judge in that decision to attack Ext.P2. The learned counsel took us through paragraphs 4 to 10 and 17 of the said decision. Special reference was made to paragraphs 9, 10 and 17. Relevant portions of them are quoted below for convenient reference: “9. Petitioners contend that classification is mandatory and absence of classification would render the purpose of the KCS Act otiose. There is also a contention that unequals are treated equally. It has to be seen that there is no case for anybody that a classification based on the nature of activity is impermissible. But, what is to be considered is whether such a classification based on the nature of the activity has any nexus to the object sought to be achieved. As already noted above, in the concept of District Co-operative Bank as the financing bank in the district, functioning as the central society under the Act and in the scheme of the functioning of the primary societies depending on the District Co-operative Bank, it cannot be said that non-credit and non-banking primary societies have to be treated as a separate class and treated differently, without permitting them to have full participation in the affairs of the central society. In such circumstances, classification for the purpose of keeping the non-credit and non-banking primary societies away from the main stream and attributing a different status of membership without participatory opportunities is impermissible. It is significant to WPC 37452/07 ETC. 9 note that both under the Amendment Act of 1997 and the impugned Act of 2002, District Co-operative Bank is defined as a Central Society with jurisdiction over one revenue district. A Central Society shall not treat its members differently since all the members in that society are other societies with similar privileges and obligations in relation to the Central Society. It will not also be out of context to note that the funds of the District Co-operative Banks take in not only the funds of primary agricultural credit societies and urban banks, but also other non-credit societies and individuals. 10. Co-operative societies are set up on democratic principles. A true and meaningful participation in the affairs of the society by the members is the basis of such a principle. In the counter affidavit filed by the State, a comparative chart is given indicating the impact of the Amendment Act of 1997, which is extracted below: xxxxx xxxxx xxxxx xxxxx A perusal of the above chart would show the glaring imbalance, rather the hostile discrimination meted out to the bulk of the members in each central society. Not only that, such a classification does not achieve the purpose of the Act – the orderly development of the primary co-operative societies – in the instant case in each district, but the same results in hostile discrimination to the majority of the primary societies. The facts and figures indicate that vast majority of primary societies in each district are non-credit societies who have their financial relationship with the District Co-operative Bank and who have share capital investment in the District Co-operative Bank. By the 1997 amendment, the non-credit and non-banking primary societies were treated as nominal members and as a consequence of which they were denied their dividend for their share capital contribution. They were denied opportunity for effective and meaningful participation. Negation of such democratic rights infracts rights under Art.14 of the Constitution of India. The Amendment Act of 2002 is intended to remedy the situation and pursuant to the amendment, all primary co-operative societies and federal and central societies WPC 37452/07 ETC. 10 having head quarters in a district are roped in the definition of District Co-operative Bank. By virtue of their powers under item 32 in List II of the Seventh Schedule of the Constitution of India, the State is well within its powers to provide for such a legislation. Xxxxx xxxxx xxxxx xxxxx 17. ..................................................................................... By the impugned Amendment Act 3 of 2002, the concept of active member has been taken away and now subject to the restrictions under S.20, every member of a society has one vote. Right to vote is an essential concomitant of membership. The basic idea behind any co-operative movement being active co- operation among the members for their welfare and the welfare of the public, unless there is effective participation of the members, it cannot be said that there is a co-operative movement. It may not be altogether out of context to observe being a matter of common knowledge that in many co- operative societies, it is not the movement of the co-operators that is taking place now. It is sheer political movement now and the noble ideals of democracy and co-operation are only rarely reflected. Therefore, it is ideal that the participation in co-operative movement is limited to those who are actually interested in the movement. But the question is how to ensure such participation. The concept of active membership as introduced by Act 1 of 2000 lacks luster. As the explanation indicates, the legislature apparently intended to affect only the election general body meeting. But that was not the effect of amendment. It does not go with the scheme of the Act in the matter of rights and duties of members. For example, once a member is branded as non-active member for having not attended the general body meeting for five years preceding the date of the resolution of the committee before the conduct of election, he cannot, thereafter, participate in any general body meeting. S. 20 deals with all general body meetings and not limited to elected general body alone. The second limb of the explanation was also very vague as to what is the nature of involvement in a non-credit society. Therefore, though it is highly desirable to limit the scope of the co-operative WPC 37452/07 ETC. 11 movement among those who are actually interested in the movement, the amendment introduced as per Act 1 of 2000 was not capable of combating the situation and the amendment does not go with the scheme of the Act regarding membership. Hence the impugned amendment on active membership cannot also be said to be in any way unreasonable or ultra vires the Act.” Based on the above observations contained in the above quoted portion of the judgment, the learned counsel for the petitioner prayed for striking down the Ordinance. The learned counsel also referred to the relevant provisions in the Banking Regulation Act, in support of his submissions. On the other hand, the learned Senior Government Pleader submitted that the above decision, to the extent it concerns the amendment Act 15 of 1997, is obiter dicta and is rendered per incuriam. He relied on the decision of this Court in Secretary, Cannanore District Muslim Educational Association v. State of Kerala [ILR 2008(1) Ker. 319] and also the decisions of the Apex Court in Union of India v. Kannadapara Sanghatanegala Okkuta & Kannadigara [(2002)10 SCC 226] and Krishnan Kakkanth v. Govt. of Kerala [(1997)9 SCC 495], in support of his submissions. 9. Though several contentions were taken, the learned counsel for the petitioner fairly submitted that while considering the constitutional validity of a legislation, the only point to be considered is whether the provisions of WPC 37452/07 ETC. 12 the legislation violate any of the constitutional provisions. If the legislation does not infringe or impinge upon any of the constitutional limitations, the courts have no power to invalidate the same. Normally, the legislature should be conceded the freedom to decide, what should be the law on a subject, which it is authorised to legislate under List II of the Seventh Schedule of the Constitution of India, provided the provisions of the legislation do not violate any of the constitutional limitations like those contained in Part III. Both sides conceded that the only point that arises for decision concerning the validity of Ext.P2 Ordinance, is whether it is unconstitutional for being violative of Article 14 of the Constitution of India. 10. It is well settled position in law that our Constitution permits classification. In this case, the main complaint of the writ petitioner, though not so stated, is, essentially, that the classification suffers from the vice of under-inclusiveness. Among similarly placed Societies, Primary Agricultural Credit Societies and Urban Co-operative Banks were chosen to be the members of the DCB. Several societies similarly placed were excluded. Therefore, the classification is vitiated, it is submitted. Regarding the vice of under-inclusiveness in classification, Mathew, J. in State of Gujarat v. Shri Ambica Mills Ltd., Ahmedabad [(1974)4 SCC WPC 37452/07 ETC. 13 656] held as follows: “The equal protection of the laws is a pledge of the protection of equal laws. But laws may classify..... . A reasonable classification is one which includes all who are similarly situated and none who are not. The question is what does the phrase 'similarly situated' mean? The answer to the question is that we must look beyond the classification to the purpose of the law. The purpose of a law may be either the elimination of a public mischief or the achievement of some positive public good. A classification is under-inclusive when all who are included in the class are tainted with the mischief but there are others also tainted whom the classification does not include. In other words, a classification is bad as under-inclusive when a State benefits or burdens persons in a manner that furthers a legitimate purpose but does not confer the same benefit or place the same burden on others who are similarly situated. A classification is over-inclusive when it includes not only those who are similarly situated with respect to the purpose but others who are not so situated as well.” How the reasonableness of a classification can be ascertained has been dealt with by the Apex Court in Mohammad Shujat Ali v. Union of India [(1975)3 SCC 76]. The relevant portion reads as follows: “This doctrine recognises that the Legislature may classify for the purpose of legislation but requires that the classification must be reasonable. It should ensure that persons or things similarly situated are all similarly treated. The measure of reasonableness of a classification is the degree of its success in treating similarly those similarly situated. But the question is: what does this ambiguous and crucial phrase 'similarly situated' mean? Where are we to look for the test of similarity of situation which determines the WPC 37452/07 ETC. 14 reasonableness of a classification? The inescapable answer is that we must look beyond the classification to the purpose of the law. A reasonable classification is one which includes all persons or things similarly situated with respect to the purpose of the law.” The Constitution Bench of the Hon'ble Supreme Court in R.K.Garg v. Union of India [(1981)4 SCC 675] summarised the law relating to classification under Article 14 of the Constitution of India, in the following manner: “6. That takes us to the principal question arising in the writ petitions namely, whether the provisions of the Act are violative of Article 14 of the Constitution. The true scope and ambit of Article 14 has been the subject-matter of discussion in numerous decisions of this Court and the propositions applicable to cases arising under that Article have been repeated so many times during the last thirty years that they now sound platitudinous. The latest and most complete exposition of the propositions relating to the applicability of Article 14 as emerging from 'the avalanche of cases which have flooded this Court' since the commencement of the Constitution is to be found in the judgment of one us (Chandrachud, J., as he then was) in In re The Special Courts Bill, 1978 (AIR 1979 SC 478). It not only contains a lucid statement of the propositions arising under Article 14, but being a decision given by a Bench of seven Judges of this Court, it is binding upon us. That decision sets out several propositions delineating the true scope and ambit of Article 14 but not all of them are relevant for our purpose and hence we shall refer only to those which have a direct bearing on the issue before us. They clearly recognise that classification can be made for the purpose of legislation but lay down that: 1. The classification must not be arbitrary but must be rational, that is to say, it must not only be based on some WPC 37452/07 ETC. 15 qualities or characteristics which are to be found in all the persons grouped together and not in others who are left out but those qualities or characteristics must have a reasonable relation to the object of the legislation. In order to pass the test, two conditions must be fulfilled, namely, (1) that the classification must be founded on an intelligible differentia which distinguishes those that are grouped together from others and (2) that differentia must have a rational relation to the object sought to be achieved by the Act. 2. The differentia which is the basis of the classification and the object of the Act are distinct things and what is necessary is that there must be a nexus between them. In short, while Article 14 forbids class discrimination by conferring privileges or imposing liabilities upon persons arbitrarily selected out of a large number of other persons similarly situated in relation to the privileges sought to be conferred or the liabilities