Case: Zoroastrian Co-operative Housing Society Limited and Anr Vs. District Registrar Co-operative Societies and Ors

1. The Zoroastrian Co-operative Housing Society is a society registered on 19.5.1926, under the Bombay Co-operative Societies Act, 1925. The Society applied to the Government of Bombay for acquisition of certain lands in Ahmedabad District, then in the State of Bombay, under the Land Acquisition Act, 1894 for the purpose of erecting houses for residential use of its members and to further the aims and objects of the Society. On the Government of Bombay agreeing to the proposal, the Society entered into an agreement on 17.2.1928 with the Government under Section 41 of the Land Acquisition Act. Certain lands were acquired. From the lands thus acquired at its cost and given to it, the Society allotted plots of land to the various members of the Society in furtherance of the objects of the Society. On the reorganization of States, the Society became functional in the State of Gujarat and came within the purview of the Gujarat Co-operative Societies Act, 1961. Section 169 of that Act, repealed the Bombay Co-operative Societies Act, 1925 and in sub-section (2) provided that all societies registered or deemed to be registered under the Bombay Act, the Registration of which was in force immediately before the commencement of the Gujarat Act, were to be deemed to be registered under the Gujarat Act. The Gujarat Act came into force on 1.5.1962. Thus, the Society came to be regulated by the Gujarat Co-operative Societies Act, 1961 (hereinafter referred to as the Act).2. On the scheme of the Bombay Co-operative Societies Act (hereinafter referred to as the Bombay Act), the Society had applied for registration in terms of Section 9 of that Act. The application was accompanied by the proposed bye-laws of the Society. The Registrar of Co-operative Societies, on being satisfied that the Society had complied with the provisions of the Act and the Rules and that the proposed bye-laws were not contrary to the Act and the Rules, granted registration to the Society and its bye-laws and issued a certificate of registration in terms of Section 11 of that Act. As per the bye-laws, the objects of the Society were to carry on the trade of building, and of buying, selling, hiring, letting and developing land in accordance with Co-operative principles and to establish and carry on social, re-creative and educational work in connection with its tenets and the Society was to have full power to do all things it deemed necessary or expedient, for the accomplishment of all objects specified in its bye-laws, including the power to purchase, hold, sell, exchange, mortgage, rent, lease, sub-lease, surrender, accept surrenders of and deal with lands of any tenure and to sell by installments and subject to any terms or conditions and to make and guarantee advances to members for building or purchasing property and to erect, pull down, repair, alter or otherwise deal with any building thereon. All persons who had signed the application for registration, are original members of virtue of bye-law No. 7. The said bye-law further provided that other members shall be elected by the Committee of the Society, provided that all members shall belong to the Parsi Community subject to satisfying other conditions in that bye-law. Bye-law No. 21 provided for sale of a share held by a member but with previous sanction of the Committee which had full discretion in granting or withholding such sanction. It was also provided that until the transfer of a share is registered, no right was acquired against the Society by the transferee, and no claim against the transferor by the Society was also to be affected. In short, the qualification for becoming a member in the Society was that the person should be a Parsi and that the transfer of a share to him had to have the previous sanction of the Committee of the Society.3. Some of the relevant provisions of the Bombay Act may now be noticed. Under Section 3, the Registrar had the right to classify all societies under one or other of the heads referred to in that Section. Under Section 5 of that Act, a society which had as its object, the promotion of economic interests of its members in accordance with economic principles, may be registered under the Act with or without limited liability. Section 6 placed restrictions on the interests of the members of the society with limited liability. Section 6A enacted that no person shall be admitted as a member of a society unless he was a person competent to contract under Section 11 of the Indian Contract Act. Section 7 stipulated the conditions for registration and provided that no society could be registered under the Act which did not consist of at least 10 persons who were qualified to be members of the society under Section 6A and where the object of the society was the creation of funds to be lent to its members, unless all persons forming the society resided in the same town or village or in the group of villages or they belonged to the same tribe, class or occupation, unless the Registrar ordered otherwise and no person could be admitted to membership of any such society after its registration unless the persons fulfilled the two requirements as mentioned above. If the Registrar was satisfied that a society has complied with the provisions of the Act and the Rules and that its proposed bye-laws are not contrary to the Act or to the Rules, under Section 10 he was to register the society and its bye-laws. According to the Society, it had submitted its duly filled in application under Section 9 of the Act accompanied by its bye-laws and the said bye-laws have been approved and registered by the Registrar on being satisfied that the proposed bye-laws were not contrary to the Act or to the Rules.4. After the Society was formed and registered as indicated earlier, the Society got lands acquired by the State by invoking the Land Acquisition Act, 1894. The Society entered into an agreement in that behalf with the Government under Section 41 of the Act on 17.2.1928. The said agreement recited that the Government of Bombay was satisfied that the land should be acquired under the Land Acquisition Act "for the purpose of erecting houses thereon". It was also stated that the Government was satisfied that the acquisition of the land was needed for the furtherance of the objects of the Society and was likely to prove useful to the public and it consented to put in operation the provisions of the Land Acquisition Act. An extent of 6 acres 12 guntas was thus acquired and handed over to the Society, on the Society bearing the cost of that acquisition. The Society in its turn allotted portions of the land to its members for the purpose of putting up residential houses in the concerned plots.5. One of the members of the Society sold that the plot in which he had constructed a residential building, to the father of Respondent No.2 with the previous consent of the Committee of the Society. The father of Respondent No.2 was also admitted to membership of the Society, he being qualified for such admission in terms of the bye-laws of the Society. After the rights devolved on Respondent No.2, consequent on the death of his father, he became a member of the Society of his volition. Thereafter, he applied to the Society for permission to demolish the bungalow that had been put up and to construct a commercial building in its place. The Society refused him permission stating that the bye-laws of the Society did not permit commercial use of the land. Thereafter, Respondent No.2 applied to the Society for permission to demolish the bungalow and to construct residential flats to be sold to Paris. The Society acceded to the request of Respondent No.2, making it clear that the flats constructed could only be sold to Parsis. It appears that, earlier, the Society had written to the Registrar that it was apprehending that certain members of the Society were proposing to sell their bungalows to persons outside the Parsi community only with commercial motive and in violation of clause 7 of the bye-laws. The Registrar replied that any transaction of sale should be in accordance with the bye-laws of the Society and any sale in violation of the bye-laws would not be permitted, thus, stressing the sanctity of the bye-laws. On 20.7.1982, the Government of Gujarat had also issued a notification declaring that persons or firms dealing with the sale and purchase of lands and buildings, contractors architects and engineers were disqualified from being members of Co-operative Housing Societies. Though, permission was given to Respondent No.2 as early as on 17.5.1988 for construction of residential flats in the land, to be sold only to members of the Parsi community, he did not act on the permission for a period of seven years. Apprehending that Respondent No.2 intended to violate the bye-laws of the Society, the Society passed a resolution reminding its members that in accordance with bye-laws No. 7, no person other than a Parsi could become a new member of the Society and informing the existing members of the Society that they could not sell their plots or bungalows to any person not belonging to the Parsi community. Respondent No.2 appears to have started negotiations with Respondent No.3, a Builders association, in violation of the the restriction on sale of shares or property to a non-Parsi. The Society, in that context, filed a case before the Board of Nominees under the Act for an injunction restraining Respondent No.2 from putting up any construction in plot no. 7 and from transferring the same to outsiders in violation of bye-law No. 7 without valid prior permission from the Society. Though, initially an interim order of injunction was granted, the Board informed the Society that the Society could not restrict its membership only to the Parsi community and that membership should remain open for every person. A clarification was also sought for from the Society as to why it had refused permission to Respondent No.2 to transfer plot no. 7 belonging to him. Subsequently, the Board of Nominees vacated the interim order of injunction granted, inter alia, on the ground that the construction of a block of residential flats would not create disturbance and nuisance to the original members of the Society. Thereafter, Respondent No.2 applied to the Society for permission to transfer his share to Respondent No.3. The said application was rejected by the Society, since according to it, the application was contrary to the Act, Rules and the bye-laws of the Society. While the Society challenged the order of the the Board of Nominees before the Gujarat State Co-operative Societies Tribunal, Respondents 2 and 3 challenged the rejection of the request of Respondent No.2 to sell his plot to Respondent No.3, by way of an appeal before the Registrar of Co-operative Societies under Section 24 of the Act. The Tribunal, in the revision filed by the Society, took the view in an interim order that the bye-law restricting membership to Parsis was a restriction on the right to property and the right to alienate property and, therefore, was invalid in terms of the Article 300A of the Constitution of India. This order was challenged by the Society and its Chairman before the High Court of Gujarat in Special Civil Application No. 6226 of 1996. By judgment dated 16.1.1997, a learned Single Judge of the Gujarat High Court dismissed the writ petition essentially holding that the restriction in a bye-law to the effect that membership would be limited only to persons belonging to the Parsi community, would be an unfair restriction which can be validly dealt with by the appropriate authorities under Section 24 of the Act and Rules 12(2) of the Rules. It was also held that such a bye-law would amount to a restraint on alienation and hence would be hit by Section 10 of the Transfer of Property Act. The Society and its Chairman, challenged the said decision before a Division Bench, in Letters Patent Appeal No. 129 of 1997. By Judgment dated 23.7.1999, the said appeal was dismissed, more or less, concurring with the reasoning and conclusion of the learned Single Judge. The decision of the Division Bench of the Gujarat High Court thus rendered, is challenged in this appeal by Special Leave.

Reasoning: 17. It appears to us that unless appropriate amendments are brought to the various Cooperative Societies Acts incorporating a policy that no society shall be formed or if formed, membership in no society shall be confined to persons of a particular persuasion, religion, belief or region, it could not be said that a society would be disentitled to refuse membership to a person who is not duly qualified to be one in terms of its bye-laws.bye-laws.19. It is true that it is very tempting to accept an argument that Articles 14 and 15 read in the light of the preamble to the Constitution of India reflect the thinking of our Constitution makers and prevents any discrimination based on religion or origin in the matter of equal treatment or employment and to apply the same even in respect of a co-operative society. But, while being thus, tempted, the Court must also consider what lies behind the formation of co-operative societies and what their character is and how they are to be run as envisaged by the various Cooperative Societies Acts prevalent in the various States of this Country. Running through the Cooperative Societies Act, is the theory of area of operation. That means that membership could be denied to a citizen of this Country who is located outside the area of operation of a society. Does he not have a fundamental right to settle down in any part of the country or carry on a trade or business in any part of the country? Does not that right carry with it, the right to apply for membership in any cooperative society irrespective of the fact that he is a person hailing from an area outside the area of operation of the society? In the name of enforcing public policy, can a Registrar permit such a member to be enrolled? Will it not then go against the very concept of limiting the areas of operation of cooperative societies? It is, in this context that we are inclined to the view that public policy in terms of a particular entity must be as reflected by the statute that creates the entity or governs it and on the Rules for creation of such an entity. Tested from that angle, so long as there is no amendment brought to the Cooperative Societies Acts in the various States, it would not be permissible to direct the societies to go against their bye-laws restricting membership based on its own criteria.The argument that public policy is as reflected by the constitutional guarantees, which govern rights and obligations has to be approached with caution. It will be easy for State Legislatures to provide in their respective Co-operative Societies Acts that no society could be formed or registered under the Act as confined to a group, a sex, a religion or members of a particular persuasion or way of life. But that is different from saying that in the name of open membership, subject to its bye-laws contemplated by the relevant provisions of the Act, a direction could be issued to ignore the bye-laws and to admit a person who is not qualified to become a member. Moreover, what is public policy in the context of a co-operative society got registered by certain persons coming together and laying down a qualification for membership in that society, is a question that has to be considered essentially in the context of the availability of such a right in India to form such associations and the absence of a prohibition in that behalf contained in the Co-operative Societies Act and the Rules. In fact, the Act and the Rules contemplate classification of a society and even there, no prohibition has been indicated in respect of the confining of the membership to a class of people. The decisions of the Bombay High Court relied on by counsel for the respondent, in our view, have proceeded on the basis of the concept of open membership without giving adequate importance to the provision in the very section that the open membership is subject to bye-laws of the society or the qualification prescribed for membership in the society. In that context, it is not possible to import ones inherent abhorrence to religious groups or other groups coming together to form, what learned counsel for the respondent called ghettos. That is certainly an important aspect but that is an aspect that has to be tackled by the legislature and not by the authorities under the Act directing the co-operative society to go against its own bye-laws or by the courts upholding such orders of the authorities, based on presumed public policy when the Act itself does not warrant it or sanction it.It is true that in secular India it may be somewhat retrograde to conceive of co-operative societies confined to group of members or followers of a particular religion, a particular mode of life, a particular persuasion. But that is different from saying that you cannot have a co-operative society confined to persons of a particular persuasion, belief trade, way of life or a religion. A co-operative society is not a state unless the tests indicated in Ajay Hasia are satisfied. There is no case here that the appellant society satisfies the tests laid down by Ajay Hasia so as to be considered to be a state within the meaning of Article 12 of the Constitution. The fundamental rights in Part III of the Constitution are normally enforced against State action or action by other authorities who may come within the purview of Article 12 of the Constitution. It is not possible to argue that a person has a fundamental right to become a member of a voluntary association or of a co-operative society governed by its own bye-laws. So long as this position holds, we are of the view that it is not possible, especially for a Registrar who is an authority under The Co-operative societies Act, to direct a co-operative society to admit as a member, a person who does not qualify to be a member as per the bye-laws registered under the Act. Nor can a Registrar direct in terms of Section 14 of the Act to amend the bye-laws since it could not be said that such an amendment, as directed in this case is necessary or desirable in the interests of the appellant society. What is relevant under Section 14 of the Act is the interests of the society and the necessity in the context of that interest. It is not the interest of an individual member or an aspirant to a membership.27. It is true that in the activities of a society, as envisaged by the bye-laws, the society may acquire rights or incur obligations which may be enforced. But the incurring of such an obligation or the acquiring of such a right, cannot stand in the way of the right to form an association guaranteed by Article 19(1)(c) of the Constitution available to the members of the society who formed themselves into the appellant Society. The position under the Bombay Co-operative Societies Act under which the Society was originally formed was also no different as can be seen from the relevant provisions of the Act. It, therefore, appears to us to be not open to the Registrar or any other authority under The Co-operative Societies Act to direct the Society to go against its own bye-laws and to admit a person to membership as has been sought to be done in this case.The above conclusion would lead us to the question whether there is anything in The Gujarat Co-operative Societies Act and the Gujarat Co-operative Societies Rules restricting the rights of the citizens to form a voluntary association and get it registered under the Co-operative Societies Act confining its membership to a particular set of people recognized by their profession, their sex, their work or the position they hold or with reference to their beliefs, either religious or otherwise. It is not contended that there is any provision in the Gujarat Co-operative Societies Act prohibiting the registration of such a co-operative society. We have already referred to the history of the legislation and the concept of confinement of membership based on residence, belief or community. The concept of open membership, as envisaged by Section 24 of the Act is not absolute on the very wording of that Section. The availability of membership is subject to the qualification prescribed under the provisions of the Act, the Rules and the bye-laws of such society. In other words, if the relevant bye-law of society places any restriction on a person getting admitted to a co-operative society, that bye-law would be operative against him and no person, or aspiring member, can be heard to say that he will not be bound by that law which prescribes a qualification for his membership.31. In our view, the High Court made a wrong approach to the question of whether a bye-law like bye-law No. 7 could be ignored by a member and whether the Authorities under the Act and the court could ignore the same on the basis that it is opposed to public policy being against the constitutional scheme of equality or non-discrimination relating to employment, vocation and such. So long as the approved bye-law stands and the Act does not provide for invalidity of such a bye-law or for interdicting the formation of co-operative societies confined to persons of a particular vocation, a particular community, a particular persuasion or a particular sex, it could not be held that the formation of such a society under the Act would be opposed to public policy and consequently liable to be declared void or the society directed to amend its basic bye-law relating to qualification for membership.Another ground relied on by the Authorities under the Act and the High Court to direct the acceptance of respondent No.3 as a member in the Society is that the bye-law confining membership to a person belonging to the Parsi community and the insistence on respondent No.2 selling the building or the flats therein only to members of the Parsi community who alone are qualified to be members of the Society, would amount to an absolute restraint on alienation within the meaning of Section 10 of Transfer of Property Act. Section 10 of the Transfer of Property Act cannot have any application to transfer of membership. Transfer of membership is regulated by the bye-laws. The bye-laws in that regard are not in challenge and cannot effectively be challenged in view of what was have held above. Section 30 of the Act itself places restriction in that regard. There is no plea of invalidity attached to that provision. Hence, the restriction in that regard cannot be invalidated or ignored by reference to Section 10 of the Transfer of Property Act.