Context: In a big win for the states, the Supreme Court struck down Part IXB of the 97th amendment to the Constitution of India, which deals with the effective management of the co-operative societies in the country (Union of India v. Rajendra Shah).

  • A three-judge bench delivered the judgment on the Central government's plea challenging the Gujarat High Court's 2013 decision.
  • The Gujarat HC struck down certain provisions of the 97th constitutional amendment.
  • The High Court had ruled that Articles 243ZH to 243ZT are unconstitutional. 
  • The High Court held that Parliament cannot enact laws or issue notifications with regard to cooperative societies as it is a State subject.
  • During the hearing, the top court examined whether Part IXB denuded States of their exclusive power to enact laws to deal with management of cooperative societies.

97th constitutional amendment

  • The 97th constitutional amendment, which dealt with issues related to effective management of co-operative societies in the country, was passed by Parliament in December 2011 and had come into effect from February 15, 2012.
  • By virtue of the Act, Article 19(1)(c) of the Constitution was amended to give protection to the cooperatives and Article 43B (Promotion of cooperative societies) and Part IXB were inserted.
    • Article 19(1 )(c) of the Constitution of India guarantees to all its citizens the right "to form associations and unions or cooperative societies
    • Under clause (4) of Article 19, the state may by law impose reasonable restrictions on this right in the interest of public order or morality or the sovereignty of the state.
  • The Part IXB contained Articles 243ZH to Article 243ZT, which empowered Parliament (for multi-state cooperative societies) and state legislatures for other cooperative societies to make laws.
  • These laws could prescribe standards of incorporation, regulation, winding up, composition, tenure, audit, submission of periodic accounts and reports, provision for reservation and penalty clauses.

Union’s stand

  • The Centre justified they were injecting ‘professionalism’ and autonomy into the functioning of the societies. 
  • Lack of accountability by the members has led to poor services and low productivity. Even elections are not held on time. 
  • Co-operatives need to run on “well-established democratic principles”, the government argued in the apex court.

Key points of SC Judgment:

  • The court held that co-operative societies come under the “exclusive legislative power” of State legislatures. 
  • Part IX B has “significantly and substantially impacted” State legislatures’ “exclusive legislative power” over its co-operative sector under Entry 32 of the State List to over the co-operative sector. 
  • Article 243ZI makes it clear that a State may only make law on the incorporation, regulation and winding up of a society subject to the provisions of Part IXB of the 97th Constitutional Amendment.
  • Part IXB, insofar as it applies to co-operative societies which operate within a State, would therefore require ratification under Article 368(2) of the Constitution of India. In the present case, ratification has not having been effected.
    • Article 368 refers to the power of Parliament to amend the Constitution.
  • There can be no doubt that our Constitution has been described as quasi-federal in that, so far as legislative powers are concerned but the States have exclusive power to legislate on topics reserved exclusively to them.
  • The SC however said the Centre has power over Multi State Cooperative Societies which operative across States.
    • Multi State Co-operative Societies (MSCS) with objects not confined to one State, the legislative power would be that of the Union of India which is contained in Entry 44 List I (Union List).

Current law that governs cooperative societies:

  • Agriculture and cooperation are in the state list, which means state governments can govern them.
  • A majority of the cooperative societies are governed by laws in their respective states, with a Cooperation Commissioner and the Registrar of Societies as their governing office.
  • In 2002, the Centre passed a Multistate Cooperative Societies Act that allowed for the registration of societies with operations in more than one state. 
  • The Central Registrar of Societies is their controlling authority, but on the ground, the State Registrar takes action on his behalf.

Part IXB of the Indian Constitution – Article 243ZH to 243ZT

The Co-operative Societies

  • Article 243ZH – Definitions.
  • Article 243ZI – Incorporation of co-operative societies.
  • Article 243ZJ – Number and term of members of board and its office bearers.
  • Article 243ZK – Election of members of board.
  • Article 243ZL – Supersession and suspension of board and interim management.
  • Article 243ZM – Audit of accounts of co-operative societies.
  • Article 243ZN – Convening of general body meetings.
  • Article 243ZO – Right of a member to get information.
  • Article 243ZP – Returns.
  • Article 243ZQ – Offences and penalties.
  • Article 243ZR – Application to multi- State co-operative societies.
  • Article 243ZS – Application to Union territories.
  • Article 243ZT – Continuance of existing laws.