Source: http://www.rishabhdara.com/sc/view.php?case=8052
Timestamp: 2020-07-05 06:25:49
Document Index: 782302972

Matched Legal Cases: ['Art 14', 'Art.\t14', 'Art. 14', 'Art. 32', 'Art. 14', 'Art. 14', 'Art.\t14', 'Art. 14', 'Art. 14', 'Art. 43']

S. M. MAHENDRU AND COMPANY versus STATE OF TAMIL NADU & ANR
1985 AIR 270	1985 SCR (2) 416 1985 SCC (1) 395	1984 SCALE (2)961
S. M. MAHENDRU AND COMPANY V. STATE OF TAMIL NADU & ANR [1984] RD-SC 234 (12 December 1984)
CITATION: 1985 AIR 270	1985 SCR (2) 416 1985 SCC (1) 395	1984 SCALE (2)961
Tamil Nadu Buildings (Lease and Rent Control) Act, 1960 (Tamil Nadu Act 18 of 1960)-S. 29-Scope of-Government of Tamil Nadu issued Notification	No. 11(2) O 6060/76 dated 21st November,	1976 exempting buildings owned inter alia by co-operative societies from all the provisions of the Act 18 of 1960-Validity of	notification held valid and	not violative of Art 14 of the Constitution
In exorcise of the powers conferred by section 29 of the Tamil Nadu Buildings (Lease and Rent Control) Act, 1960 (Tamil Nadu Act 18 of 1960), the Government of Tamil Nadu by a Notification No. II (2) H. O. 6060/76 dated 21-t November, 1976 exempted the- Buildings owned, inter alia by all the co-operative societies	from all the provisions of the said Act. Since the protection available to the petitioners, who wore tenants in a building belonging to respondent No. 2, an Apex Society registered under the Tamil Nadu Co-operative Societies Act,	1961 and covered by the said notification.
had been withdrawn and since the petitioners were facing the imminent prospect of suffering eviction decrees against them, they filed the present writ petitions challenging the constitutional validity	of the impugned notification on the ground that the same was violative of Art.	14 of	the Constitution. The petitioners contended that treating the buildings owned by all the co-operative societies in the State of Tamil Nadu	as falling into one	group while exercising the	power under sec. 29 of the Act will have to be regarded as a rational classification based on an intelligible differentia but the differentia on which this classification was based had no excuse with the object of curbing the two evils	of rack-renting and	unreasonable eviction for which the power to grant exemption had been conferred upon the State Government under sec. 29 of the Act and since the impugned notification did not satisfy be test of nexus the exemption	granted to all such buildings could not be	sustained and Will	have	to be regarded as discriminatory and violative of Art. 14. In	other words Counsel urged that there was and is	up warrant OF	any presumption that co-operative societies qua landlords will not indulge in rack-renting or will not unreasonably evict tenants; in fact they	would not be different	from other private landlords so far as the two evils sought to be curbed by the Act are concerned and therefore Counsel urged that the exemption granted could not	be said to be in conformity with	the guidance afforded by the scheme and the previsions of the Act.
417 Dismissing the petitions, ^
HELD: It is true that under sec. 4 of the Tamil Nadu Co-operative Societies	Act the	very object of every	co- operative society registered thereunder is the promotion of economic interests of its members and	sec. 62 of the Act provides for payment of dividends on shares to its members as also	for payment of bonus	to its members and	paid employees. But	these aspects of a co-operative society do not mean that	it could be likened	to any	other	body undertaking similar activities on commercial lines and to do so would be to miss the very basis on which the co-operative movement was launched and propagated and has been making progress in the country during the last several decades.
Indisputably, co-operative societies which carry on their activities in various fields do so for the	purpose of attaining the social and economic welfare of a large section of the	people belonging to the middle-class and the rural class by encouraging thrift,	self-help and	mutual	aid amongst them, especially by eliminating the middle-man. But the object of promoting the economic	interrupts of	the members	has to be achieved	by following	co-operative principles where the profit motive will be restricted to a reasonable level unlike other commercial bodies where sky is the limit so far as	their desire to earn	profits is concerned. Sections 4 and 62 of the Act and Rule 46 of the Rules make it clear that in the matter of distribution of profits by way of payment of dividend to members and payment of bonus to members as well as paid employees restrictions have been placed by law and the same	is maintained	at a reasonable level and considerable portion of the net profits is apportioned	and required to be carried to various kinds of funds, like co-operative development fund, co-operative education fund,	reserve fund	etc. In fact	it is	such statutory appropriations and restrictions on	payment of dividends and	bonus	which	differentiates	co-operative societies from	other bodies undertaking similar activities on commercial lines and therefore, the buildings belonging to such co-operative societies	are substantially different from the buildings owned by private landlords. Further it has to	be appreciated that these statutory provisions are applicable to all types of co-operative societies specified in Rule 14 whatever be their nature or functions. The profit element being maintained at a reasonable level by provisions of law in all types of co-operative societies there is every justification for the assumption that no	co-operative society	will	indulge	in rack-renting or	unreasonable eviction. In this view of the matter if the State Government came to	the conclusion	that in the case of	co-operative societies there being	no apprehension that	they would indulge in either of these two evils exemption from	the provisions of the Tamil Nadu Act No. 18 of 1960 should be granted	in favour of	buildings belonging to such	co- operative societies it	will have to	be regarded is a legitimate exercise of the power conferred on it under sec.
29 of the Act the same being in conformity with the guidance afforded by the preamble and provisions of the Act in that behalf. [422D-5; 424C-G] Besides,	on the	factual side of the issue the facts and circumstances put forward by the State Government in its counter affidavit which have gone unchallenged clearly show that the differentia	on the basis of	which	the classification was made had a clear nexus with the object with which the power to grant exemption has been conferred upon the State and therefore the impugned notification will have to be regarded as valid.
[425E-F] 418
ORIGINAL JURISDICTION: W. P. NO. 893 and 967 of 1979 and W. P. No, 295 of 1980 Under Article 32 of the Constitution of India Dr. Y.	S. Chitale,	and Vineet Kumar for	the petitioners m W. P. NOS. 823 & 967 of 1979.
A	. T. M. Sampat and P. N. Ramnalingam for	the Petitioners in W. P. No. 295/80.
Anil Devan, K. S. Ramamurthy, V. M. Tarkunde, M. K.
Namboodry and S. BalaKrishnan for the respondents in W. P.
Nos. 893 & 967 of 1979 and W. P. No 295 of 1980.
The Judgment of the Court was delivered by TULZAPURKAR, J. By these three writ petitions filed under Art. 32 of the Constitution the petitioners, who are tenants in a building belonging to respondent No. 2 Society, have challenged the validity of the exemption granted to all buildings owned	by all	Co-operative Societies in the State of Tamil Nadu from all the provisions of the T. N. Act 18 of 1960 under sec. 29 thereof.
The facts giving rise to the aforesid challenge lie in a narrow compass. The	petitioners are tenants in different portions on the ground	floor of the building bearing Door No. 188, Mount Road, Madras belonging to second respondent which is an Apex Society registered under the Tamil Nadu Co- operative Societies Act, 1961. It appears that the property was purchased in 1961	by the	second respondent from	its previous owners	M/s. Mohammed Ibrahim and Company, and soon thereafter the	second	respondent applied to the State Government under sec. 29 of the Act and sought exemption for it from	all the provisions of	the Act But on hearing the objections raised by the petitioners and other tenants the application was	rejected. Respondent No- 2 thereupon made two attempts to evict the petitioners from their respective premises. The first was on the ground that the premises are required by it for its own occupation but at the end of a long drawn out litigation respondent No. 2 failed to obtain possession; the second was on the ground that it required the premises for demolition and new construction and it was during the tendency of this	litigation that the State Government issued its Notification No. II (2) H.O. 6060/76 dated 21.11 1976 under sec. 29 419 of the	Act whereby the State Government exempted	the buildings A belonging to all Co-operative Societies in the State of Tamil Nadu from all the provisions of the Act. On the issuance of this Notification respondent No. 2 Withdrew its eviction petitions preferred on the ground of demolition and new construction and served notices upon the petitioners under sec. 106 of the Transfer of Property Act terminating their tenancies	and filed civil suits	against them in the City Civil Court, Madras for recovery of vacant possession of the	premises in	their	respective occupation.	The petitioners have filed their written statements and suits are awaiting trial. But since the protection available to them has been withdrawn the petitioners arc	facing	the imminent prospect of suffering eviction decrees against them and therefore,	have approached this Court by means of these writ petitions	challenging the	constitutional validity of the Notification in question of the ground that the same is violative of Art. 14 of the Constitution and have obtained stay of further proceedings in the suits.
The impugned Notification dated 21st November, 1976 runs thus:
"No. II (2) H.O. 6060176-In exercise of the powers conferred by Sec. 29 of the Tamil Nadu Buildings (Lease and Rent Control) Act 1960	(Tamil Nadu Act 18 of 1960),	the Government of Tamil Nadu hereby exempts the. buildings owned by all	Government Undertakings including	Government Companies registered under the	Indian Companies Act	1956 Central Act I of 1956) and by all the Co-operative Societies from all the provisions of the said Act." As was done in the earlier case dealing with the total exemption granted in favour of all buildings belonging to public religious trusts and public charities, here	also Counsel for the petitioners fairly stated that treating the buildings owned	by all	the Co-operative Societies in	the State of Tamil Nadu	as falling into one	group while exercising the	power under sec. 29 of the Act will have to be regarded as a rational classification based on an intelligible differentia inasmuch as Co-operative Societies while carrying	on their activities in	various fields do serve a	great public purpose of attaining the social and economic welfare of a large section of the people belonging to the	middle class and the rural class by	encouraging thrift,	selfhelp and	mutual	aid amongst them and by eliminating the middle 420 man and	as such do form a distinct group different	from other bodies undertaking similar activities on commercial lines and as	such buildings	belonging to	Co-operative Societies may need special or preferential treatment in some matters like registration of documents, payment of stamp duty, recovery	of their dues etc. at the hands of the State Government but according to Counsel the differentia on which this classification is based has no nexus with the object with which the powers to grant exemption has been conferred upon the State Government under sec. 29 of the Act and since the impugned Notification does not satisfy the test of nexus the exemption granted	to all	such buildings cannot be sustained and will have to be regarded as discriminatory and violative of Art. 14.
By way of elaborating the aforesaid contention Counsel for the	petitioners urged that the Act was	put on	the statute book for the purpose of curbing the	two evils of rack-renting and unreasonable	eviction and that the power to grant exemption could as per the guidance afforded by the scheme all the provisions of the Act be exercised by the State Government ill cases where the mischief sought to be remedied by the Act is neither prevalent nor apprehended are in cases where an inflexible application of	the law is likely to result in undue hardship or in cases where the beneficial provision of the Act is likely to be or is being abused by persons for	whom it is intended and according to Counsel the exemption in favour of the buildings belonging to all	Co-operative Societies	in the	State of Tamil Nadu does not conform to such guidance. Counsel pointed out that Rule 11	of the	Rules	made under the T.N.	Co-operative Societies Act 1961 specifies as many as 13 different classes of Co-operative	Societies, such as farming society, credit society, housing society, marketing society etc. and	the impugned Notification indiscriminately and unconditionally exempts all buildings belonging to all types of Co-operative Societies with	no regard to their nature or functions- Further, according to sec. 4	of the	T.N. Co operative Societies Act the very object of every Co-operative Society is the promotion of the economic interest of its Members and sec. 62	of that Act provides	not only for	payment of dividends o n shares to members but also for payment of bonus to members and paid-employees of the Society. Hence it is unrealistic to assume that Co-operative Societies are not or will not indulge in rack-renting or unreason	eviction or will be ideal landlords whose tenants will not be in need of any statutory protection. Tn other words Counsel urged that there was and is no warrant of any 421 presumption that Co-operative Societies qua landlords will not indulge in rack-renting or will not unreasonably evict tenants; in fact they	would not be different	from other private landlords so far as the two evils sought to be curbed by the Act are concerned and therefore Counsel urged that the exemption granted could not	be said to be in conformity with	the guidance afforded by the scheme and the provisions of the Act.
In support of the above contention Counsel relied upon a decision of this Court in Baburao Shantaram More v. The Bombay Housing	Board and Anr.(1) where the validity of sec.
3-A of	the Bombay Housing Board Act, 1951 was challenged as infringing Art.	14. It was urged in that case that sec. 3-A exempted lands and buildings belonging to the Bombay Housing Board from the operation of the Bombay Rent Act, 1947 while lands and buildings belonging to numerous	Co-operative Housing Societies, which were	similarly situated and whose object was also to solve housing problems, were not given any exemption from the	operation of the Rent	Act and the result was that while	tenants of the Co-operative Housing Societies were fully protected against unreasonable eviction and enhancement	of rent, the tenants	of the Housing Board were denied such protection and therefore sec. 3-A	was violative of Art. 14.	The contention	was negatived on the ground that the Housing Board and the Cooperative Housing Societies incorporated	under the Cooperative Societies Act were not similarly situated and in that behalf this Court observed thus:
"Further,	though	these Co-operative Housing Societies	are no doubt	incorporated bodies,	they nevertheless may earn profits which may be distributed amongst their members. The Board, on the other hand, is incorporated body	brought into	existence for	the purpose of framing housing schemes to solve the problem of acute shortage of housing in	Bombay. There are no share-holders interested in the distribution of	any profits. It is under the control of the Government and acts under	the orders of the Government. In effect, it is a Government sponsored	body not having any profits making motive. No material has been placed before us which may remotely be regarded as suggesting, much less proving, that Co-operative Housing (1) [1954] S.C.R. 572 422 Societies or their members stand	similarly situated vis-a-vis the Board and its tenants." Relying upon	the above observations Counsel for	the petitioners submitted that this Court had recognised the position that	various activities are undertaken	by Cooperative Societies with the	motive	of earning profits and as	such there was and is no warrant for treating them differently from other private	landlords in the context of two evils sought to be remedied by the Act and in this sense the exemption granted does not satisfy the test or nexus and therefore the same infringes Art. 14.
The above	contention so presented, though seemingly plausible, will, on deeper scrutiny, be found to be without substance and we shall	presently indicate our reasons for saying so. It is true that under sec. 4 of the Tamil Nadu Co-operative Societies Act the	very object of every	Co- operative Society registered thereunder is the promotion of economic interests of its members and	s. 62	of the	Act provides for payment of dividends on shares to its members as also	for payment of bonus	to its members and	paid employees. But	these aspects of a Co-operative Society do not mean that it could be linkened	to any	other	body undertaking similar activities on commercial lines and to do so would be to miss the very basis on which the cooperative movement was launched and propagated and has been making progress in the country during the last several decades.
Indisputably, Co-operative Societies which carry on their activities in various fields do 50 for the	purpose of attaining the social and economic welfare of a large section of the	people belonging to the middle-class and the rural class by encouraging thrift,	self-help and	mutual	aid amongst them, especially by eliminating the middle-man. But the object of	promoting the	economic interests of	the members	has to be	achieved by following	cooperative principles where the profit motive will be restricted to a reasonable level unlike other	commercial bodies where sky` is the	limit so far as their desire	to earn	profits is concerned. Sections 4	and 62	of the T.N.	Co-operative Societies Act and Rule	46 of the Rules made under that Act bring out this aspect of the matter very eloquently. Section 4 itself states that a society, which has as its object the promotion of economic interest of its members in accordance With cooperatives principle, may, subject to the provisions of the	Act be	registered thereunder In other words	the promotion of economic interests of the members has to be achieved in accordance with co-operative principles and the realisation thereof has been made subject to the provisions of the 423 Act. Section 62 which	deals with disposal of	net profits puts A	restrictions on the disbursement of such profits and it runs as follows:
"62.	Disposal of net profits (	1 ) (a) A registered society	shall out of its net	profits as declared by the Registrar for the purposes of this Act in respect	of any	co-operative year contribute	such amount not exceeding,- (i) five percent	of the net profits	to the	co- operative development fund; and (ii) two per cent of the net profits	to the	co- operative education fund, as may be specified in the Rules.
2) The balance of the net profits so declared shall be appropriated- firstly, for being credited to a reserve fund, the amount so credited being not less than twenty per cent, but not exceeding thirty per cent, af the net profits;
secondly, towards contribution to such other funds and at such rates as may be specified in the Rules:
fourthly, towards payment of bonus to members and paid employees	of the	registered society at such rate and subject to such conditions as may be specified in the Rules;
sixthly, towards contribution to the common good fund at	such rate not exceeding ten per cent of the net profits as may be specified in the Rules; and 424 seventhly,	the remainder,	if any, of the net profits being credited to the reserve fund." Rule 46	prescribes the	limits on payment of	dividends on shares to its members	as also	on payment of bonus to its members and paid employees. Sub-Rule (3) of Rule 46 says that the payment of dividends on shares to members by a Society shall not exceed 6 percent per annum on the paid up value of each share; provided that the Government may by special or general order permit any Society or class of Societies to pay dividend at the rate exceeding 6 per cent.
Similarly under Sub-Rules (4) and (5) restrictions have been placed on payment of bonus to	members and to paid employees. In view of these provisions it will appear clear that in	the matter of distribution of profits by way of payment of dividend to	members and payment of` bonus to members as well as paid employees restrictions have	been placed by law and the same is maintained at a reasonable level and considerable portion of the net	profits is apportioned and	required to be carried to various kinds of funds,	like cooperative development	fund,	co-operative education fund,	reserve fund	etc. In fact	it is	such statutory appropriations and restrictions on	payment of dividends and	bonus	which	differentiates	Co-operative Societies from	other bodies undertaking similar activities on commercial lines and therefore, the buildings belonging to such	Co-operative Societies	are substantially different from the buildings owned by private landlords. Further, it has to	be appreciated	that these statutory provisions are applicable to all types of Co-operative Societies specified in Rule 14 whatever be their nature or functions. The profit element being maintained at a reasonable level by provisions of law in all types of Co-operative Societies there is every justification for the assumption that no cooperative society will indulge in rack-renting or unreasonable	eviction. In this view of the matter if the State Government came to the conclusion that	in the case of Co operative Societies there being no apprehension that they would indulge in either of these two evils exemption from the provisions of the T.N.
Act No.	18 of 1960 should be granted in favour of buildings belonging to such Co-operative Societies it will have to be regarded as a legitimate exercise of the power conferred on it under s. 29 of the Act the same being in conformity with the guidance afforded by the preamble and provisions of the Act in that behalf.
Besides, on the factual sides of the issue it has been specifically averred in the counter	affidavit filed on behalf of the State Govern 425 ment that it duly took note of the fact that all types of Co-operative Societies	functioning in	Madras City and at several centers throughout the State as a class were engaged in various kinds of activities promoting social welfare, rural-development and economic good by providing employment to lacs	of people and were doing excellent work by way of implementing one of the Directive Principles of State Policy embodied in Art. 43 of the	Constitution, that several complaints were	received from	these Co operative Societies that they were facing	problems arising out of a literal application of	the T.N. Act 18 of 1960, particularly in the matter of securing accommodation in their own buildings for carrying on their activities and that they got involved in long drawn out litigations in that behalf and requesting for an exemption from the	provisions of the Act	so that they could be relieved of the hardships from which they	were suffering; it has been	further averred that the Government also took note of the fact that it was not	the business activity of any Co-operative Society including even a Co- operative Housing Society to purchase	buildings for	the purpose of letting them out and earning income therefrom and as such	there was no apprehension of	indulging in	rack renting on their behalf and that on a consideration of all the relevant factors the Government was satisfied that the protection given to the tenants of	such buildings, if withdrawn, would not result in rack renting or unreasonable eviction and that the	granting of exemption to them	was necessary to relieve them of great hardship lt may be stated that all these averments have gone unchallenged and in our view the facts and circumstances put	forward by the State Government clearly show that the differential on the basis of which the classification was made had a clear nexus with the object with which the power to grant exemption has been conferred upon	the State and therefore the impugned Notification will have to be regarded as valid In regard to respondent No. 2 being the Apex Society herein, the additional factors taken into consideration were that out of its total share capital of 13.78 crores	the State Government's contribution was to the tune of 12.81 crores, that	the Government	had guaranteed the loans borrowed by it for its working capital. that	as the apex body it	had membership of about 1488 primary societies (Handloom Weavers Co-operative Societies and that it had 34 branches and two godowns in Madras and was required to pay for its	rented premises rent at the rate of Rs. 2 50 per square foot while the	tenants of their own building were paying rent at the rate of 20 paisa per square feet;
respondent No. 2 society was also involved in a long 426 drawn	out litigation	under the provisions of the T.N. Act 18 of 1960 In other words, respondent No 2 society was a glaring instance of undue hardship being suffered by a Co- operative Society as a result of the literal application of the Act. We are sure	that a large	number	of similar instances must	have prompted the State Government to issue the impugned Notification which as we have said above will have to be regarded a legitimate exercise of power conferred on the State Government under sec 29 of the Act Counsel has of course placed strong reliance upon the observations made by this Court in Baburao Shantaram's case (supra) which have been quoted above	in support of	his contention but	in our view neither	the ratio nor	the observations are of any avail to the petitioners. It will be clear at once that the decision in question is no authority for the	proposition that exemption from the provisions of any rent-control enactment cannot be granted in favour of the buildings owned by Co-operative Societies. the case was con concerned with the constitutional validity of sec 3-A of the Bombay Housing Board Act, 1951 where-under exemption had been granted to lands and buildings belonging to the Bombay Housing Board from the	operation of the Bombay Rent Act, 1941 and its validity	was upheld by this Court. One of the contentions urged before the	Court	was that buildings belonging to Co-operative Housing Societies in Bombay were similarly situated as the buildings belonging to the Housing Board inasmuch	as the object served by Co-operative Housing Societies and the Housing Board was the same namely, solving the housing problems of the city of Bombay and even	so, though the tenants of	Co operative Housing Societies were fully	protected against unreasonable eviction	and enhancement of	rent, the tenants of	Housing	Board	were denied	such protection and	therefore sec. 3-A	was discriminatory and this contention was negatived by	the Court by observing that the Co-operative Housing Societies and their members were not similarly situated vis-a-vis the Board and its tenants and while pointing out the difference the Court stated that	while Cooperative Housing Societies may earn profits distributable	among its members there was no question of the Housing Board making any	profits. The Court was not concerned with the question as to whether a similar exemption if granted to buildings belonging to Co- operative Societies would be valid or	rot. The difference pointed by this Court was sufficient to refute the charge of discrimination levelled	against the particular piece of legislation (sec. 3-A of the Bombay Housing Boards Act 1951) but it 11 will be fallacious to rely upon this difference for the purpose of 427 striking down the exemption granted in favour of buildings of Cooperative	Societies under	another enactment if	such exemption is	otherwise justified on the	facts	and circumstances obtaining in regard to such buildings. In fact as explained earlier the Co-operative principles which govern the functioning of these Co-operative Societies put a curb on	their	profit	motive	and as	pointed there	are statutory provisions which maintain their profit element at reasonable level which	warrant the assumption that	Co- operative Societies would not	indulge in rack-renting or unreasonable eviction and it was in	the light of	this position as also after careful study of all relevant factors obtaining in their case the, State Government was satisfied that the grant of total exemption in favour of the buildings of all	Co-operative Societies	functioning in	the entire State was necessary. The observations relied	upon cannot therefore support the Petitioners' contention.
In the result the writ petitions are dismissed.
Interim orders, if any are vacted. There will be no order as to costs.