Case: A.P. Dairy Development Corporation Federation Vs. B. Narasimha Reddy and Ors

A. The Government of Andhra Pradesh introduced an integrated milk project in the State with the assistance of the UNICEF, according to which, the rural surplus milk produced in the villages was transported to chilling centres and supplied to consumers of Hyderabad. A milk conservation plant/milk products factory was established at Vijayawada in 1969 as a part of the project. In the meanwhile, the Act 1964 came into force w.e.f. 1.8.1964.B. In years 1970-71, the Government of Andhra Pradesh set up an independent Dairy Development Department (hereinafter called the `Department) and intensive efforts were made by the Government to give a boost to the Department taking various measures.C. In year 1974, Andhra Pradesh Dairy Development Corporation Ltd. (hereinafter called the `Corporation), a company under the Indian Companies Act, 1956, fully owned by the State Government was constituted and the entire dairy infrastructure and assets of the Department of the State stood transferred to the said Corporation vide order dated 15.4.1974. The employees of the Department were absorbed in the Corporation. A huge amount has been contributed by the Government from year 1974 onwards to develop the dairy products.D. The Andhra Pradesh Dairy Development Cooperative Federation Ltd. (hereinafter called `the Federation) was registered as a Cooperative Society and all the assets and dairy infrastructure were transferred to the Federation. The State Government vide order dated 10.12.1980 permitted the Federation to hand over the management of the respective units set up at the State expenses to the Societies subject to conditions stipulated in the agreement. Mainly the terms incorporated therein provided for transfer of assets on lease basis, and the State to stand as a guarantor for the payment of loan component and financial assistance etc.E. The Government further permitted the Federation to hand over the management of respective units and operation hitherto to various societies with the right of procurement and further dairy development activities such as manufacturing, processing, feed mixing plants alongwith the concerned employees to the District Milk Producers Co- operative Unions with effect from a mutually agreeable date.F. During the years of 1991 and 1995, the benefits of financial assistance rendered to the units by the State and the Central Governments had been very huge i.e. Rs.159.45 lakhs and Rs.729.97 lakhs.G. On commencement of the Act 1995 into force, the existing co- operative societies registered under the Act 1964 could opt to be covered by the Act 1995 with certain conditions, namely, the share capital from the Government, if any, had to be returned and the societies should not accept any Government assistance, and further the societies had to enter into the Memorandum of Understanding (hereinafter called the MoU) for outstanding loans and guarantees or return of the government assistance. These had been conditions precedent for registration of a society under the Act 1995. A very large number of new societies came into existence and were registered under the Act 1995. Many societies already registered under the Act 1964 also got themselves registered under the Act 1995.H. There had been some irregularities in getting the registration under the Act 1995 by certain societies registered under the Act 1964 and some of them did not execute the MoU. Thus, the Statutory Authority issued show cause notices to such societies under Section 4(3) of the Act 1995 on 29.11.2004 to show cause as to why their registration under the Act 1995 be not cancelled.I. Eight writ petitions were filed by 8 District Milk Unions challenging the said show cause notices before the High Court. The Federation filed original petition in various Co-operative Tribunals seeking dissolution of its societies under Section 40 of the Act 1995 as the statutory requirements had not been complied with.J. The Co-operative Tribunal vide its judgment and order dated 9.12.2004 dismissed the original petition against Visakha District Union on the premises that the Act 1995 had not mentioned about returns of assets and the Managing Director had no power to further delegate the power to some one to file the petition.K. The Legislative Assembly of the Andhra Pradesh vide Resolution dated 8.2.2005 constituted a House Committee consisting of its members belonging to different political parties to investigate into irregularities committed by two of the eight District Unions, namely, Visakha and Ongole (Prakasham) Unions, who also got registered under the Act 1995. The Committee submitted its report pointing out certain irregularities by the said Unions. The Committee also opined that the Act 1995 had adverse consequences on the dairy co-operatives, as it had broken down 3-tier structure, reduced the brand value of Vijaya Brand, created conflict in marketing structures, weakened the financial position of some District Milk Unions etc. and had broken down the common cadre of employees.L. After considering the said report, the State Government constituted a Committee consisting of Ministers to consider the recommendations of the House Committee vide order dated 23.8.2005. It was this Committee which recommended that dairy co-operatives be excluded from the purview of the Act 1995 and so far as the dairy co- operatives are concerned, it should be restored to 3-tier structure. Meanwhile, the order passed by the Co-operative Tribunal was challenged in the Writ Petition No. 1420 of 2006 in pursuance to the policy decision of the Government to exclude the dairy societies from the purview of the Act 1995 and to bring them back under the Act 1964.M. The State promulgated the Ordinance No.2/2006 excluding the milk dairy co-operative societies from the societies covered by the Act 1995 and imported the fiction that such dairies would be deemed to have been registered under the Act 1964, with effect from the date of registration under the Act 1995.N. Government Order dated 4.2.2006 was issued to give effect to such amendments and also to take care of transitional position, particularly providing that District Collector would appoint the person in-charge under Section 32(7) of the Act 1964 to manage the affairs of all primary milk producers co-operative societies till further elections or until further orders, so that affairs of those societies would be managed properly.O. Writ Petitions were filed before the High Court by various District Milk Producers Co-operative Unions challenging Ordinance No.2/2006 and consequential Government Order dated 4.2.2006. The High Court vide interim order dated 8.2.2006 stayed the operation of the Government Order dated 4.2.2006. Meanwhile, the Ordinance was converted into the Act. By the impugned judgment dated 1.5.2007, the High Court allowed the writ

Court's reasoning:
It is well settled law that Article 14 forbids class legislation, however, it does not forbid reasonable classification for the purpose of legislation. Therefore, it is permissible in law to have class legislation provided the classification is founded on an intelligible differentia which distinguishes persons or things that are grouped together from others left out of the group and that differentia must have a rational relation to the object sought to be achieved by the statute in question. Law also permits a classification even if it relates to a single individual, if, on account of some special circumstances or reasons applicable to him, and not applicable to others, that single individual may be treated as a class by himself. It should be presumed that legislature has correctly appreciated the need of its people and that its laws are directed to problems made manifest by experience and that its discriminations are based on adequate grounds. There is further presumption in favour of the legislature that legislation had been brought with the knowledge of existing conditions. The good faith on the legislature is to be presumed, but if there is nothing on the face of the law or the surrounding circumstances brought to the notice of the court on which the classification may reasonably be regarded as based, the presumption of constitutionality cannot be carried to the extent of always holding that there must be some undisclosed and unknown reasons for subjecting certain individuals or corporations to hostile or discriminating legislation. The law should not be irrational, arbitrary and unreasonable in as much as there must be nexus to the object sought to be achieved byright of the citizens to form the association are different from running the business by that association. Therefore, right of individuals to form a society has to be understood in a completely different context. Once a co- operative society is formed and registered, for the reason that co- operative society itself is a creature of the statute, the rights of the society and that of its members stand abridged by the provisions of the Act. The activities of the society are controlled by the statute. Therefore, there cannot be any objection to statutory interference with their composition or functioning merely on the ground of contravention of individuals right of freedom of association by statutory functionaries.17. It is a settled legal proposition that Article 14 of the Constitution strikes at arbitrariness because an action that is arbitrary, must necessarily involve negation of equality. This doctrine of arbitrariness is not restricted only to executive actions, but also applies to legislature. Thus, a party has to satisfy that the action was reasonable, not done in unreasonable manner or capriciously or at pleasure without adequate determining principle, rational, and has been done according to reason or judgment, and certainly does not depend on the will alone. However, the action of legislature, violative of Article 14 of the Constitution, should ordinarily be manifestly arbitrary. There must be a case of substantive unreasonableness in the statute itself for declaring the act ultra vires of Article 14 of thethe matter of Government of a State, the succeeding Government is duty bound to continue and carry on the unfinished job of the previous Government, for the reason that the action is that of thewithin the meaning of Article 12 of the Constitution, which continues to subsist and therefore, it is not required that the new Government can plead contrary from the State action taken by the previous Government in respect of a particular subject. The State, being a continuing body can be stopped from changing its stand in a given case, but where after holding enquiry it came to the conclusion that action was not in conformity with law, the doctrine of estoppel would not apply. Thus, unless the act done by the previous Government is found to be contrary to the statutory provisions, unreasonable or against policy, the State should not change its stand merely because the other political party has come into power.agenda of an individual or a political party should not be subversive of rule ofThe Government has to rise above the nexus of vested interest and nepotism etc. as the principles of governance have to be tested on the touchstone of justice, equity and fair play. The decision must be taken in good faith and must beof objects and reasons of the Act 1995 clearly stipulate that State participation in the financing and management of cooperatives in the past had led to an unfortunate situation and the cooperative societies were not governed/guided by the universally accepted principles of cooperation. Thus, the purpose to enact the Act 1995 was to provide more freedom to conduct the affairs of the cooperative societies by its members. Clause 7 thereof clearly described the salient features of the legislation, inter-alia, to enunciate the cooperative principles which primarily place an assent on voluntarily self-financing autonomous bodies for removal from State control; to accept the cooperative societies to regulate their functioning by framing bye-laws subject to the provisions of the Act and to change the form or extent to their liability, to transfer their assets and liabilities to provide for the constitution of board and functions of the board of directors.Principles of co-operation as incorporated in Section 3 and given effect to in the other provisions of the Act 1995 permit better democratic functioning of the society than under the Act 1964. Whereas the Act 1995 provides for State regulation to the barest minimum, the Act 1964 provides for extensive State control and regulation of cooperative societies which is inconsistent with the national policy with regard to cooperative societies evolved in consultation and collaboration with the States which stands accepted by the State of A.P. and reflected in the Scheme of the Act 1995 which is based on the model law recommended by the Planning Commission of India.Thus, reverting back to the cooperative societies under the Act 1964 is a retrograding process by which the government would enhance its control of these societies registered under the Act 1995. They would be deprived not only of benefits under the said Act, but rights accrued under the Act 1995 would also be taken away with retrospective effect.41. Cooperative law is based on voluntary action of its members. Once a society is formed and its members voluntarily take a decision to get it registered under the Act X, the registration authority may reject the registration application if conditions prescribed under Act X are not fulfilled or for any other permissible reason. The registration authority does not have a right to register the said society under Act Y or even a superior authority is not competent to pass an order that the society would be registered under the Act Y. Such an order, if passed, would be in violation of the first basic cooperative principle that every action shall be as desired by its members voluntarily. Introducing such a concept of compulsion would violate Article 19(1)(c) of the Constitution of India. It is not permissible in law to do something indirectly, if it is not permissible to be done directly. (See: Sant Lal Gupta & Ors v. Modern Co-operative Group Housing Society Ltd. & Ors., JT 2010 (11) SC 273 )42. Act 2006 had been enacted without taking note of the basic principles of co-operatives incorporated in Section 3 of the Act 1995 which provide that membership of a co-operative society would be voluntary and shall be available without any political restriction. The co-operative society under the Act would be a democratic organisation as its affairs would be administered by persons elected or appointed in a manner agreed by members and accountable tolegislature has a right to amend the Act 1995 or repeal the same. Even for the sake of the argument, if it is considered that legislature was competent to exclude the milk cooperative dairies from the operation of the Act 1995 and such an Act was valid i.e. not being violative of Article 14 of the Constitution etc., the question does arise as to whether legislature could force the society registered under the Act 1995 to work under the Act 1964. Importing the fiction to the extent that the societies registered under the Act 1995, could be deemed to have been registered under the Act 1964 tantamounts to forcing the members of the society to act under compulsion/direction of the State rather than on their free will. Such a provision is violative of the very first basic principles of cooperatives. More so, the Act is vitiated by non-application of mind and irrelevant and extraneous considerations.