Supreme Court Declares Part IXB of Constitution Ultra Vires for State Co-operative Societies: Union of India vs. Rajendra N Shah (2021)

Introduction

Date of the Judgment: 20 July 2021

Citation: (2021) INSC 447

Judges: R.F. Nariman J. (Majority Opinion), B.R. Gavai J. (Concurring), K.M. Joseph J. (Dissenting)

Can a constitutional amendment that significantly alters the legislative powers of states be valid without ratification by those states? The Supreme Court of India addressed this crucial question in a recent judgment concerning the validity of Part IXB of the Constitution, which deals with co-operative societies. This judgment is significant because it examines the balance of power between the Union and the States in India’s quasi-federal structure. The core issue was whether the Constitution (Ninety-Seventh Amendment) Act, 2011, which introduced Part IXB, required ratification by at least half of the state legislatures. The Supreme Court delivered a split verdict, with the majority holding that Part IXB is unconstitutional for state co-operative societies due to lack of ratification, while upholding it for multi-state co-operative societies.

Case Background

The case originated from a challenge to the Constitution (Ninety-Seventh Amendment) Act, 2011, which inserted Part IXB into the Constitution. This amendment aimed to bring uniformity and order to the co-operative movement in India, but it was challenged for not adhering to the ratification process required for amendments that affect the legislative powers of states. The Gujarat High Court had declared Part IXB ultra vires for want of ratification by the State Legislatures under Article 368(2) proviso, which however will not impact amendments that have been made in Article 19(1)(c) and in inserting Article 43B in the Constitution of India. The Union of India appealed this decision to the Supreme Court.

The co-operative movement in India has a long history, with legislative roots in the British era. The subject of co-operative societies was initially under the Provincial List and later became part of the State List in the Constitution of India. The 97th Amendment was preceded by a conference of ministers dealing with co-operatives in the various states, which resolved to amend the Constitution to ensure democratic, autonomous and professional functioning of co-operatives. The Central Government, after consultations with State Governments, introduced the amendment.

The main contention was that Part IXB curtailed the legislative powers of the states by imposing restrictions on how they could legislate on co-operative societies. This included aspects like the number of directors, reservations, and the term of office of elected members. The respondents argued that these restrictions amounted to a change in the legislative lists, requiring ratification by at least half of the state legislatures under Article 368(2) of the Constitution.

Timeline

Legal Framework

The judgment revolves around the interpretation of several key articles of the Constitution of India:

• Article 19(1)(c): Guarantees the right to form associations or unions or co-operative societies.
• Article 43B: Directs the State to promote voluntary formation, autonomous functioning, democratic control, and professional management of co-operative societies.
• Article 246: Outlines the distribution of legislative powers between the Union and the States, with List I (Union List), List II (State List), and List III (Concurrent List). Specifically:
  • Article 246(1): Grants Parliament exclusive power to make laws on matters in List I.
  • Article 246(3): Grants State Legislatures exclusive power to make laws on matters in List II, subject to clauses (1) and (2).
• Entry 32, List II, Seventh Schedule: Empowers State legislatures to make laws regarding “cooperative societies”.
• Entry 44, List I, Seventh Schedule: Empowers Parliament to make laws regarding corporations with objects not confined to one state, but not including universities.
• Article 368: Provides the procedure for amending the Constitution. The proviso to Article 368(2) mandates ratification by at least half of the state legislatures for amendments that seek to make changes in specific articles, including those related to the distribution of legislative powers and the legislative lists.
• Part IXB: The newly inserted part of the Constitution, which lays down various provisions regarding the functioning of co-operative societies.
• Article 243ZI: States that the legislature of a State may make laws with respect to the incorporation, regulation and winding up of co-operative societies based on the principles of voluntary formation, democratic member-control, member-economic participation and autonomous functioning.
• Article 243ZT: States that any provision of any law relating to co-operative societies in force in a State immediately before the commencement of the Constitution (Ninety-seventh Amendment) Act, 2011, which is inconsistent with the provisions of this Part, shall continue to be in force until amended or repealed by a competent Legislature.

The core of the dispute was whether the insertion of Part IXB amounted to a change in the legislative lists (specifically Entry 32 of List II) and in the legislative relations between the Union and the States under Article 246, thus requiring ratification by the States under Article 368(2) proviso.

Arguments

The arguments presented before the Supreme Court can be summarized as follows:

Appellant (Union of India):

• The Constitution 97th Amendment Act sought to achieve vital social and economic objectives in regard to the functioning of co-operative societies in India.
• Part IXB is in two separate parts – one dealing with multi-State co-operative societies, and co-operative societies which exist and operate within a particular state.
• Even though there was no challenge insofar as multi-State co-operative societies were concerned, the entirety of Part IXB has been struck down.
• 17 out of 28 States have already enacted legislative measures in conformity with Part IXB, indicating acceptance of its provisions.
• There is no change either directly or in effect to Article 246(3) or in Entry 32 of List II. No additional legislative power has been given to the Union.
• The examples given by Wanchoo, J. in Golak Nath v. State of Punjab, (1967) 2 SCR 762, are apposite.
• The doctrine of severability should be applied to uphold Part IXB, at least for multi-State co-operative societies.
• Parliament has exercised its ‘constituent’ power and not ‘legislative’ power while inserting Part IXB.
• The legislative power of the States in Article 246(3) is subject to the provisions of the Constitution of India, and the legislative head ‘co-operative societies’ contained in Entry 32, List II of the 7th Schedule is now being made subject to Part IXB.
• Part IXB read with Article 43B enhances the basic structure of the Constitution.

Respondent (Rajendra N. Shah):

• The donee of a limited amending power cannot do indirectly what it is not permitted to do directly.
• Part IXB curtails/restricts the State’s legislative powers contained in Entry 32 List 2, 7th Schedule.
• The unfettered power of the State legislatures prior to the amendment has now been fettered by the provisions of Part IXB in several material particulars.
• There is a direct assault on Entry 32, List II of the 7th Schedule.
• After one year, all State legislations that are contrary to the provisions of Part IXB are of no effect.
• An affirmative obligation is cast upon the States to enact legislation only in accordance with the restrictions contained in Part IXB.
• As a direct inroad is made into Article 246(3) and Entry 32 List 2, such amendment would have to be struck down for want of ratification.
• Even if no legislative power is transferred qua co-operative societies from the States to the Union, yet the curtailment (or expansion) of a legislative field which pertains exclusively to the States and which impacts federalism would certainly amount to a “change” both in Article 246(3) and in the legislative lists and would thus require ratification, as held in Builders’ Assn. of India v. Union of India, (1989) 2 SCC 645 and K. Damodarasamy Naidu & Bros. v. State of T.N., (2000) 1 SCC 521.
• Even if 17 States thereafter amend their laws in furtherance of the Constitutional Amendment, this would make no difference to the constitutional position if in fact the requisite ratification under Article 368(2) proviso is lacking, as held in Cellular Operators Assn. of India v. TRAI, (2016) 7 SCC 703.
• Multi-State co-operative societies are inextricably entwined with co-operative societies and the 97th Constitution Amendment would never have been enacted for multi-State co-operative societies alone.
• Even qua Multi-State Co-operative Societies, since a change has been made in Entry 44 List I, the width of the Entry is curtailed by Part IXB of the Constitution, which would, therefore, in any case require ratification by the States.

Intervenors:

• The States’ legislative competence has expressly been made subject to the provisions of Part IXB, thereby engrafting an exception, directly, to Entry 32 of List II.
• The non-obstante clause in Article 243ZT would make it clear that State legislation that has been enacted under a plenary power has now been edged out to make way for the provisions of Part IXB.
• What cannot be achieved directly cannot now be achieved indirectly by means of inserting Part IXB to the Constitution of India, as held in D.C. Wadhwa v. State of Bihar, (1987) 1 SCC 378.

Issues Framed by the Supreme Court

The Supreme Court framed the following key issues for consideration:

1. Whether Part IXB of the Constitution of India, which was inserted by the Constitution (Ninety-Seventh Amendment) Act, 2011, is ultra vires for want of ratification by the State Legislatures under Article 368(2) proviso?
2. Whether the doctrine of severability applies to sustain the provisions of Part IXB?
3. Whether the finding of the Division Bench that the Constitutional Amendment violated the basic structure of the Constitution was warranted?

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues:

Authorities

The Supreme Court considered the following authorities:

Cases:

Books:

• Seervai’s Constitutional Law of India
• Sutherland on Statutory Construction
• Cooley’s Constitutional Limitations
• Crawford on Statutory Construction
• Corpus Juris Secundum

Judgment

The Supreme Court delivered a split verdict:

Majority Opinion (R.F. Nariman J. and B.R. Gavai J.):

• Part IXB of the Constitution, as it applies to co-operative societies operating within a State, is declared ultra vires (invalid) for want of ratification by the State Legislatures as mandated by Article 368(2) proviso.
• The Court applied the doctrine of severability and held that Part IXB is operative insofar as it concerns multi-State co-operative societies.
• The Court clarified that its judgment was confined to the procedural aspect of Article 368(2) proviso, and did not address the substantive challenge based on the basic structure doctrine.

Dissenting Opinion (K.M. Joseph J.):

• Justice Joseph agreed with the majority on the unconstitutionality of Part IXB for state co-operative societies but dissented on the application of the doctrine of severability.
• He argued that Article 243ZR and Article 243ZS are entirely dependent on the provisions of Article 243ZI to 243ZQ, which were declared unconstitutional. Therefore, these provisions cannot be sustained independently.
• He concluded that the provisions of Article 243ZR and 243ZS would not have the crutches without which these provisions cease to be workable and are impossible to sustain.

How each authority was viewed by the Court?

• Sankari Prasad Singh Deo v. Union of India [CITATION] and Sajjan Singh v. State of Rajasthan [CITATION]: The Court explained that the tests laid down in these cases were that any impact on “an entrenched Article” would require ratification if such impact is not insignificant.
• Golak Nath v. State of Punjab [CITATION]: The Court noted that the minority opinions were not good law after the judgments in Kihoto Hollohan v. Zachillhu [CITATION].
• Kihoto Hollohan v. Zachillhu [CITATION]: The Court followed the majority judgment and applied the doctrine of severability.
• Builders’ Assn. of India v. Union of India [CITATION]: The Court used this judgment to establish that any significant addition or curtailment of a field of legislation would require ratification.
• Cellular Operators Assn. of India v. TRAI [CITATION]: The Court relied on this judgment to state that the validity of a constitutional amendment does not depend on whether a State government accepts it.
• Vipulbhai M. Chaudhary v. Gujarat Coop. Milk Mktg. Federation Ltd. [CITATION]: The Court referred to this judgment to demonstrate the effect of Article 243ZT.

What weighed in the mind of the Court?

The Supreme Court’s decision was influenced by several factors:

• Federalism: The Court emphasized the importance of the federal structure of the Constitution and the need to protect the legislative powers of the states.
• Article 368(2) proviso: The Court stressed the mandatory nature of the ratification process for amendments that affect the legislative powers of states.
• Substance over form: The Court looked at the substance of the amendment rather than just the form, holding that indirect curtailment of state legislative power is not permissible without ratification.
• Doctrine of Severability: The Court applied the doctrine of severability to uphold the amendment for multi-state co-operative societies, while acknowledging the limitations of its application.

Conclusion

The Supreme Court’s judgment in Union of India vs. Rajendra N Shah is a landmark decision that underscores the importance of the federal structure of the Indian Constitution and the need for strict adherence to the amendment procedures laid down in Article 368. The Court’s decision has significant implications for the co-operative sector in India.

Key Takeaways:

• Part IXB for State Co-operative Societies: The provisions of Part IXB of the Constitution are declared unconstitutional for state co-operative societies due to the lack of ratification by the State Legislatures.
• Part IXB for Multi-State Co-operative Societies: The provisions of Part IXB of the Constitution are held to be valid for multi-state co-operative societies.
• Importance of Ratification: The judgment reinforces the importance of the ratification process under Article 368(2) proviso when amendments affect the legislative powers of states.
• Federal Structure: The decision upholds the federal structure of the Indian Constitution by safeguarding the legislative powers of the states.

The judgment highlights the complexities involved in balancing the need for uniformity in the co-operative sector with the constitutional mandate of respecting the legislative autonomy of the states. The ruling necessitates a re-evaluation of the legislative framework for co-operative societies, ensuring that any future amendments comply with the constitutional requirements of ratification when they impact state legislative powers.