Supreme Court Upholds Cooperative Society’s Right to Redevelop Property: Bengal Secretariat Cooperative Land Mortgage Bank vs. Aloke Kumar (2022)

Introduction

Date of the Judgment: October 13, 2022

Citation: (2022) INSC 904

Judges: Uday Umesh Lalit, CJI., S. Ravindra Bhat, J., J.B. Pardiwala, J.

Can a member of a cooperative society obstruct the collective decision of the general body regarding property redevelopment? The Supreme Court of India recently addressed this question, clarifying the extent of a cooperative society’s autonomy in managing its assets. This judgment emphasizes the democratic nature of cooperative societies and their right to make decisions for the benefit of the collective, even if it involves engaging third-party developers. The bench comprised of Chief Justice Uday Umesh Lalit, Justice S. Ravindra Bhat, and Justice J.B. Pardiwala, with the majority opinion authored by Justice J.B. Pardiwala.

Case Background

The Bengal Secretariat Cooperative Land Mortgage Bank and Housing Society Ltd. (the Appellant Society) was registered in 1945 under the West Bengal Co-operative Societies Act, 1940. The society aimed to provide housing to employees of the West Bengal Secretariat and others. In 1947, the Appellant Society purchased a plot of land with two buildings. One building served as the society’s administrative office, and the other was used as a girls’ school.

In 1960, the ground floor of the administrative building was leased to the Indian Postal Department, which established the Jodhpur Park Post Office. By 2001, the administrative building was in a dilapidated state, prompting the society to explore redevelopment options. The Appellant Society invited tenders for a joint venture to develop the building.

Hi-Rise Apartment Makers Private Limited (Hi-Rise) was selected as the successful bidder. The general body of the Appellant Society approved the project in a meeting on May 5, 2002. However, Aloke Kumar (Respondent No. 1), a member of the society, began creating obstacles. The society eventually terminated his membership, a decision later overturned.

On January 14, 2003, Aloke Kumar filed a dispute case challenging the society’s decision to engage Hi-Rise. An arbitrator ruled in favor of Aloke Kumar, directing the society to refrain from demolishing the building and to hold a special general meeting. The society, in an Annual General Meeting on January 15, 2006, terminated the contract with Hi-Rise. Aloke Kumar filed another dispute case, arguing that the meeting should have been a “special” general meeting and not an “annual” general meeting. Hi-Rise also filed a dispute case, which was referred to the Calcutta High Court, which remanded the matter back to the Arbitrator. In an Annual General Meeting on May 27, 2007, the society resolved to re-engage Hi-Rise. The Joint Registrar, Co-operative Societies (Housing), granted permission for the redevelopment on June 16, 2011. Aloke Kumar then filed an execution case in 2009, seeking to enforce the original arbitrator’s award. The Civil Judge declared the execution case maintainable on April 17, 2014, which was upheld by the Calcutta High Court. This led to the Appellant Society filing an appeal before the Supreme Court.

Timeline:

Course of Proceedings

The dispute began when Aloke Kumar challenged the society’s decision to engage Hi-Rise for redevelopment. The arbitrator initially ruled in favor of Aloke Kumar, restraining the society from demolishing the building and directing a special general meeting. Although the society terminated the contract with Hi-Rise in an Annual General Meeting, Aloke Kumar again challenged the decision, arguing that the meeting should have been a “special” general meeting. The Calcutta High Court remanded the Hi-Rise dispute case back to the Arbitrator. The society then resolved to re-engage Hi-Rise in an Annual General Meeting on May 27, 2007. The Joint Registrar, Co-operative Societies (Housing), granted permission for the redevelopment on June 16, 2011. Aloke Kumar filed an execution case to enforce the original arbitrator’s award. The Civil Judge declared the execution case maintainable, which was upheld by the Calcutta High Court. The Appellant Society then appealed to the Supreme Court.

Legal Framework

The Supreme Court considered the following legal provisions:

• Section 28 of the West Bengal Co-operative Societies Act, 2006: This section states that, “Subject to the provisions of this Act, the final and ultimate authority of a Co-operative society shall vest in the general body of its members or its delegates or representatives elected under Section 29 of this Act and assembled in a general meeting.” This section establishes that the ultimate authority in a cooperative society lies with its general body of members.
• Rule 21 of the West Bengal Co-operative Societies Rules, 2011: This rule stipulates that, “(1) The rules pertaining to Annual General Meeting shall apply, mutatis mutandis to a Special General Meeting called under Section 31. (2) At a Special General Meeting, no business other than that specified in the relevant notice shall be considered.” This rule clarifies that the procedures for an Annual General Meeting also apply to a Special General Meeting, with the caveat that only specific business can be discussed.

Arguments

Appellant Society’s Arguments:

• The final authority of a cooperative society rests with its General Body, as per Section 28 of the West Bengal Co-operative Societies Act, 2006.
• The High Court failed to recognize the autonomous nature of cooperative societies.
• There is no practical difference between an Annual General Meeting and a Special General Meeting, except for the name, as per Rule 21 of the West Bengal Co-operative Societies Rules, 2011.
• The Act and Rules do not prevent a society from engaging a developer for the benefit of its members.
• The resolution dated 15.01.2006 was transparent, and the High Court should not have dismissed the Joint Registrar’s order dated 16.06.2011.
• The Respondent No. 1 has been obstructing the society’s efforts for two decades.

Respondent No. 1’s Arguments:

• The High Court did not commit any error in its order under Article 227 of the Constitution of India.
• The High Court correctly observed that the Act and Rules do not allow delegation of construction work to third-party developers with commercial interests.
• The society should have undertaken the redevelopment themselves to maintain the cooperative spirit.

The innovativeness of the argument by the Appellant Society was that it emphasized the practical aspects of redevelopment, highlighting that it is not feasible for members to contribute the huge amount required for the project. It also emphasized the democratic nature of the cooperative movement, where a single member should not be allowed to hold the entire society at ransom.

Issues Framed by the Supreme Court

The Supreme Court framed the following issue for consideration:

1. Whether the High Court committed any error in passing the impugned judgment and order?

Treatment of the Issue by the Court

The following table demonstrates how the Court decided the issues:

Authorities

The Court considered the following authorities:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• Vipulbhai M. Chaudhary v. Gujarat Cooperative Milk Marketing Federation Limited [CITATION]: The Court referred to this case for the history of the cooperative movement and the seven cooperative principles but clarified that the judgment was not based on this decision.
• Daman Singh v. State of Punjab [CITATION]: The Court followed this case to reiterate that a member of a cooperative society loses their individuality and must act through the society.
• State of U.P v. Chheoki Employees Co-operative Society Ltd. [CITATION]: The Court followed this case to emphasize that a member has no independent right qua the society and that the society represents the collective.
• Section 28 of the West Bengal Co-operative Societies Act, 2006: The Court interpreted this section to mean that the final authority of a cooperative society rests with its general body.
• Rule 21 of the West Bengal Co-operative Societies Rules, 2011: The Court interpreted this rule to mean that the procedures for an Annual General Meeting also apply to a Special General Meeting.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following:

• The democratic nature of cooperative societies and the importance of respecting the decisions of the General Body.
• The practical impossibility of members contributing the large sum of money required for redevelopment.
• The need to interpret laws in a way that promotes their objectives and the constitutional mandate for cooperative societies.
• The fact that the building was in a dilapidated state and required urgent redevelopment.

Sentiment Analysis of Reasons Given by the Supreme Court:

Fact:Law Ratio:

Logical Reasoning:

The Supreme Court rejected the High Court’s view that the society could not engage a third-party developer. The Court reasoned that it is not feasible for all members to contribute the large sums required for redevelopment. The Court emphasized that the General Body’s decision should be respected and that the society is an autonomous body. The Court also noted that the building was in a dilapidated state and required urgent redevelopment.

The Court considered the arguments that the society should have undertaken the development themselves, but rejected this idea as impractical. It also considered the argument that the resolution of the general body was not transparent, but rejected this argument. The Court held that the decision of the General Body was binding on all members, and that the Respondent No. 1 could not obstruct the decision of the majority.

The majority opinion was delivered by Justice J.B. Pardiwala, with Chief Justice Uday Umesh Lalit and Justice S. Ravindra Bhat concurring.

The Court quoted Lord Denning in Seaford Court Estates v. Asher, stating, “… A judge must not alter the material of which the Act is woven, but he can and should iron out the creases.”

The Court also quoted Rattan Chand Hira Chand v. Askar Nawaz Jung (Dead) by Lrs., stating, “When courts perform this function undoubtedly they legislate judicially. But that is a kind of legislation which stands implicitly delegated to them to further the object of the legislation and to promote the goals of the society.”

Further, the Court observed that, “By now it is well established position that once a person becomes a member of the Co-operative Society, he loses his individuality with the Society and he has no independent rights except those given to him by the statute and bye-laws.”

Key Takeaways

• Cooperative societies have the autonomy to make decisions regarding property redevelopment, including engaging third-party developers.
• The decisions of the General Body of a cooperative society are binding on all members, and individual members cannot obstruct collective decisions.
• Courts should interpret laws in a way that promotes their objectives and the constitutional mandate for cooperative societies.
• The practical realities of redevelopment, including financial constraints, should be considered.
• This judgment reinforces the democratic nature of cooperative societies and their right to manage their assets for the collective benefit.

Directions

The Supreme Court directed that the Appellant Society could proceed with its project of redevelopment in accordance with the resolutions passed by the General Body. The Court also clarified that the first priority should be given to demolishing the entire building as it is in a dilapidated condition.

Development of Law

The ratio decidendi of this case is that a cooperative society has the autonomy to engage third-party developers for the redevelopment of its property, and that the decisions of the General Body are binding on all members. This judgment clarifies the scope of a cooperative society’s autonomy and reinforces the democratic nature of the cooperative movement. There is no change in the previous positions of law, but this judgment clarifies the interpretation of cooperative laws and the autonomy of cooperative societies.

Conclusion

The Supreme Court’s decision in The Bengal Secretariat Cooperative Land Mortgage Bank and Housing Society Ltd. vs. Sri Aloke Kumar & Anr. upholds the autonomy of cooperative societies, allowing them to engage third-party developers for property redevelopment. The Court emphasized that the decisions of the General Body are binding on all members, and that individual members cannot obstruct collective decisions. This judgment reinforces the democratic nature of cooperative societies and their right to manage their assets for the collective benefit.