Rajendra N. Shah Case: Constitutional Validity of 97th Amendment

Introduction

The International Labour Organization (ILO) defined Cooperative as “an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly owned and democratically controlled enterprise”.[1] The International Year of Cooperatives was declared by the United Nations General Assembly in 2012, and the 97th Amendment Act of 2011, enacted in response to UN mandates, took effect on February 15, 2012.

Factual Background

On December 7, 2004, a conference of ministers from various states dealing with cooperatives resolved to amend the Constitution to ensure democratic, autonomous, and professional functioning of cooperatives; to address key issues of cooperative empowerment through voluntary formation, autonomous functioning, democratic control, and professional management; and to ensure regular and timely election conduct. The Constitution (97th Amendment) Act, 2011, was passed after the Central Government held numerous talks with state governments. A new part Part IX-B was inserted consisting of the Articles 243-ZH to 243-ZT.

A writ petition was afterward filed in the Gujarat High Court for quashing the 97th amendment since it was in ultra vires to the Constitution of India.

Issues

1. Whether the 97^th Amendment Act, 2011 is ultra vires to the Constitution of India. 
2. Whether Part IX-B is non-est for want of ratification by half of the states under the proviso to Article 368(2).

High Court Judgment

The High Court of Gujarat has ruled that the constitutional amendment inserting Part IXB is unconstitutional because it lacks the required ratification under Article 368(2) proviso. However, the amendments to Article 19(1)(c) and inserting Article 43B in the Constitution of India will not be affected.

Arguments Made by Appellants

1. Attorney General K.K. Venugopal argued that the 97th Amendment Act has been essential in attaining crucial social and economic progress in India’s cooperative societies, a sector that has contributed significantly to the country’s economy. He further said that part IX-B provides provisions for both co-operative societies and multi-state co-operative societies, which are split into two parts. The entire Part IXB was ruled down by the High Court, “throwing out the baby with the bathwater,” despite the fact that multi-State co-operative societies were not challenged.
2. He further argued that 17 of the 28 states have passed legislation that is in compliance with the amendment. So yet, no state government has objected because the amendment was subjected to thorough consultation prior to its introduction.
3. In fact, a reading of part IX B reveals that the Union has no new legislative authority over cooperative societies and that it is entirely under the jurisdiction of the states.
4. He further argued that If the doctrine of severability is applied, and this Court finds that State co-operative societies cannot be impacted without ratification, multi-State co-operative societies with ramifications beyond one state, as well as Union territories, can be held to be covered by Part IXB, and that, on applying the aforementioned doctrine, Part IXB should be upheld.[2]
5. Shri Prakash Jani, a senior counsel who appeared, supported the learned Attorney General’s arguments. Furthermore, he stated that it should never be forgotten that by inserting Part IXB into the Indian Constitution, Parliament used its “constituent” instead of “legislative” power. He contended that Parliament, in its constituent function, can deal with state matters, citing the Constitution (Eighty-sixth Amendment) Act of 2002’s insertion of Article 21A.[3]

Arguments Made by Respondents

1. Shri Masoom K. Shah contended that With regard to the Parliament “ donee of a limited amending power cannot do indirectly what it is not permitted to do directly.” He kept that Part IX-B of the Constitution would show that the “unfettered power” of state legislatures prior to the 97th amendment has now been “fettered by the provisions of Part IXB” in several areas, including the maximum number of directors of cooperative societies, the reservation policy contained in Article 243ZJ, and the duration of the term of elected members.[4]
2. They contend that even if 17 states amend their laws in furtherance of the Constitutional Amendment, the constitutional position will remain unchanged if the required ratification under Article 368(2) proviso is not achieved. The constitutional amendment validity does not depend upon whether a state government accepts it or whether the state government challenges it or not.
3. The respondents counter-argued that the first given to the tests of severability, multi-State co-operative societies are “inextricably entangled with co-operative societies,” and the goal of the 97th Constitution Amendment while passing it for multi-State co-operative societies alone would not have been on the table.
4. He further argued that if this Constitutional Amendment passes constitutional muster without ratification, there will be no end to subsequent modifications that will rob states of their legislative rights, effectively turning a quasi-federal state into a unitary state.
5. The Intervenor’s learned counsel, Smt.Ritika Sinha emphasized the text of Articles 243ZI and 243ZT. According to her, these Articles have made it clear that the States’ legislative competence is subject to the provisions of Part IX B, with the exception of Entry 32 of List II, and that the clause in Article 243ZT overrides any legal provisions to the contrary, requiring State legislatures to enact Part IX-B provisions in place of earlier State legislations.[5]

Decision of the Supreme Court

A three-judge bench has ruled that the Constitution (97th Amendment) Act, 2011, which inserted Part IX-B among other things, is unconstitutional insofar as it pertains to cooperative societies since it lacks the required ratification under Article 368(2) proviso. The Court held that because ratification had not occurred in this case, the Amendment is non-est. Simultaneously, the Court adopted the law of severability in holding that Part IX-B is operational insofar as it involves Multi-State Cooperative Societies in various States and Union Territories, by a majority of 2:1(i.e., B.R. Nariman and JJ Gavai, constituted the majority). The Court’s decision was confined to the procedural aspect of the Article 368(2) proviso, with no substantive challenge to Part IX-B on the basis that it violated the basic structure doctrine.

The Court listed the restrictions in Part IX-B in chronological order:

1. Under Article 243-ZI, a State’s legislature may pass legislation affecting cooperative societies only if they are based on the principles of voluntary formation, democratic member control, member economic participation, and autonomous functioning.
2. A Cooperative Society’s maximum number of directors is limited to twenty-one under Article 243-ZJ(1). Furthermore, any Cooperative Society with individuals as members must have one seat reserved for scheduled castes or scheduled tribes and two seats reserved for women on the board of directors.
3. Under Article 243-ZJ(2), the term of office of Elected members are five years from the date of the election, 
4. The State Legislature is required by Article 243-ZJ(3) to provide for the co-option of members to the board of directors who have experience in the fields of banking, management, finance, or specialisation in any other field relating to the Cooperative Society’s objects and activities, with the number of such co-opted members limited to two, as well as the fact that such co-opted members are not eligibility to vote.
5. The non-obstante provision in Article 243-ZK(1) makes it plain that the State Legislature must stipulate that a board election must be held before the board’s term expires.
6. A State Legislature can only supersede a board for a term of not more than 6 months under Article 243-ZL if certain stated circumstances are fulfilled.
7. Under Article 243-ZM, a State Legislature must establish minimum qualifications and experience for auditors and auditing firms, and Cooperative Societies must be audited exclusively by such persons or firms.
8. Under Article 243-ZN, a State’s Legislature must stipulate that every Cooperative Society’s annual general body meeting be held within six months of the close of the financial year.
9. Every Cooperative Society is required to file returns under Article 243-ZP within six months of the end of each financial year, specifying the list of issues set out in the said provision.
10. Under Article 243-ZQ, the Legislature of a State may enact provisions for cooperative societies offences and penalties, provided that, under sub-clause (2), the Legislature of a State must include such subject-matters in respect of five separate subject-matters.

The Dissent

In a separate opinion, K.M. Joseph, J., agreed with the majority’s reasoning and conclusion that the provisions relating to Articles 240-ZI to 243-ZQ and Article 243-ZT are unconstitutional because they do not meet the requirements of the proviso to Article 368(2) of the Indian Constitution. He could not agree, however, that the doctrine of severability will apply to sustain Articles 243-ZR and 243-ZS to Multi-State Cooperative Societies operating in the Union Territories, and that it will not apply to cooperative societies confined to the Union Territories’ territories.

In his opinion:

“There can be application and modifications of something which exists. There cannot be either, when the elaborate provisions are to be treated as not born.”

He considered the Court would have to resurrect the dead provisions found in Articles 243-ZI through 243-ZQ, as well as Article 243-ZT, to sustain these provisions. Justice Joseph, stated that the doctrine of severability must be applied on more solid foundations and that Articles 243-ZR and 243-ZQ are clearly unworkable unless the provisions that have been declared unconstitutional are preserved.

Analysis and Observations

1. Legislative relation between the state and union: The Supreme Court addressed Article 246 of the Constitution, which relates to laws relating to any of the matters included in the 7th Schedule’s three Lists. List 1 comprises subjects or topics for which Parliament has sole legislative authority; List 3 in the Concurrent List contains subjects or topics for which both legislatures have legislative authority. List 2, which the Court was directly concerned with, gives the states sole power to make laws for themselves or for a part of themselves on any of the topics covered in the list.
2. Co-operative societies in the field of legislation: The Court held that, in the case of cooperative societies, it is completely a matter for the states to legislate on, as it is the last subject matter listed in Entry 32 List 2. However, when it comes to Multi-State Cooperative Societies with objectives that aren’t limited to a single state, the Union of India’s legislative power, which is contained in Entry 44 List 1, comes into play.
3. Power to amend the constitution and Requirement for ratification: Article 368 of the Constitution grants the power to amend the constitution. The Court pointed out that Article 368(1) refers to Parliament, which has the “constituent power” to amend the Constitution by addition to, modifying, or repealing any provision. This must, however, be done in accordance with the mandatory procedure laid down in the Article. The court was concerned with the procedure for amending certain specified articles/provisions under the proviso of Article 368(2). If the subject matter of an amendment falls within the proviso of Article 368(2), an additional procedural requirement is that the amendment must be ratified by the legislatures of not less than one-half of the States by resolution passed by those legislatures before the Bill containing the amendment is presented to the President for assent. The 97th Amendment, which contains a chapter dealing with cooperative societies, had not been ratified, as per the court.
4. Applicability of proviso to Article 368(2): A constitutional amendment can be challenged on the procedural or substantive ground. The procedural ground set forth in Article 368(2) proviso was the subject of the current case. The Court stated that the “change” specified by Article 368(2) proviso in any provision of the Constitution does not have to be direct in the sense of adding, subtracting, or modifying the language of the particular Article or provision mentioned in the proviso. Any significant expansion or contraction of a field of legislation that is solely reserved to the States under an Entry in List 2 of the 7th Schedule of the Constitution would be considered a “change” that would trigger the proviso to Article 368(2) and hence require ratification.
5. Part IX B inserted by the constitution (97^th Amendment) Act, 2011: “It is clear that Part IX-B seeks to make a significant change in Article 246(3) as read with Entry 32, List 2 of the 7th Schedule, by reducing the width of Entry 32, List 2 of the 7th Schedule, insofar as the State’s exclusive power to make laws on the subject of cooperative societies is significantly reduced, directly affecting the quasi-federal principle contained therein. Part IX-B, insofar as it pertains to cooperative societies operating within a State, would certainly require ratification under both sub-clauses (b) and (c) of the proviso to Article 368(2) of the Indian Constitution.
6. Multistate Cooperative Societies and the doctrine of Severability: The Scheme relating to Multi-State Cooperative Societies is distinct from the Scheme relating to “other cooperative societies,” with Parliament having authority in the case of Multi-State Cooperative Societies and State legislatures having to make appropriate laws governing “other cooperative societies.” There can be no doubt, in the Court’s opinion, that neither Article 246(3) nor Entry 32 List 2 of the 7^th Schedule would be attracted in their application to Multi-State Cooperative Societies.

Conclusion

The Union of India vs. Rajendra N Shah case has laid down a landmark judgment, with a 2:1 majority, quashing the 97th Amendment Act’s remains (co-operative society). It was affirmed that the 97th amendment for cooperative societies (which are registered or presumed to be registered by any law pertaining to cooperative societies in any state) is ineffective since it did not receive the required ratification from half of the states as stipulated in Article 368. (2). However, the court held that multi-state co-operative societies (which are registered or deemed to be registered under any law related to cooperative societies and are not limited to any one state or union territory) can operate because parliament is empowered to make laws regarding multi-state co-operative societies, which is contained in Entry 44 List I, which is the union list and does not require any ratification that they are limited to any one state or union territory. This case also set a precedent that the Constitution of India is a national charter of governance affecting persons, citizens, and institutions alike, it is the duty of the court to assess such a challenge on its merits when a citizen of India challenges a Constitutional amendment as being procedurally infirm.

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References:

[1] https://www.ilo.org/global/topics/cooperatives/lang–en/index.htm

[2] Para 9 in Union of India vs. Rajendra N Shah, 2021 SCC Online SC 474.

[3] Para 10 in Union of India vs. Rajendra N Shah, 2021 SCC Online SC 474.

[4] Para 11 in Union of India vs. Rajendra N Shah, 2021 SCC Online SC 474.

[5] Para 13 in Union of India vs. Rajendra N Shah, 2021 SCC Online SC 474.

Other Sources:

Union of India v. Rajendra N shah case, 2021 SCC Online SC 474.