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Amending Act to Gujarat Co-operative Societies Act held to be valid 21.05.

2011 | 19:32

Tejas Mehta

The Gujarat High Court has rejected a challenge to hold certain provisions of Gujarat Cooperative Societies Act, 2008, as constitutionally invalid. A Bench comprising Chief Justice SJ Mukhopadhaya and Justice JB Pardiwala held the change in the Gujarat Co-operative Societies Act, 1961 by the Amending Act of 2008 are constitutional and valid. The court noted that the petitioners who have challenged the said provisions failed to show that there was any transgression of the constitutional principles. No arbitrariness has been shown to allege violation of Article 14 of the Constitution. The provisions also do not interfere with the freedom of the banks to form an association or to practice trade or business and thereby does not infringe its rights guaranteed under Article 19(1)(c) or Article 19(1) (g) of the Constitution. The court was hearing a case of Surat District Cooperative Bank Limited and others vs. State of Gujarat and others. By amendment in the existing Act in 2008, the cooperative societies were allowed to affiliate with any district bank within the state. The state government had also empowered Reserve Bank of India to determine qualifications and experience for appointment of chief executive officer and directors of the central cooperative banks and state cooperative banks. SN Shelat, senior counsel appearing for the Bank submitted that their challenge was limited to section 15 of the Amending Act of 2008 whereby section 73A was inserted. Section 73A provides for freedom of affiliation and disaffiliation with federal society of its choice. He had submitted that granting freedom of affiliation to primary agriculture co-operative society to affiliate with any district bank within the State was violative of Article 14 of the Constitution. To support his argument, he submitted that the provisions for liberty to the societies in the co-operative credit structure to affiliate or disaffiliate with any federal society destroy the very basis of the co-operative credit structure. The structure of the nationalized bank or private bank cannot be brought into the co-operative sector as the area of operation has to be at the village level and the object has to be the development of agriculture, it was further argued. Advocate General Kamal Trivedi, appearing for the state, however argued that earlier, many a times primary agricultural co-operative societies had to suffer because of inefficiency or weak financial position of the higher tiers above them and some times because of the partisan approach being adopted by the same. After the amendment in the Act, the higher tiers being otherwise supposed to be stronger in position, will be confronted with an element of competition, he stated. Under these circumstances, the liberty sought to be given to lower tiers of the co-operative credit structure will not destroy the same as being apprehended by the petitioners. It was further stated that there are 7768 primary agricultural credit co-operative societies, 18 district central cooperative banks and the apex body Gujarat State Co-operative Bank in the three tier agricultural credit sector. To benefit them, the state government was likely to get share of the revival package of Rs.1106.58 crores from the Central Government. As initial payment, the NABARD would release 75% of the entitled amount (i.e. around Rs.800 crores.) Such amount could not have been received by the State Government for the benefit of the three tier agricultural credit sector, including 7768 Primary Agricultural Credit Co-operative Societies apart from 19 District Central Cooperative Banks and its apex body if the Memorandum of Understanding signed between the Central Government, the Government of Gujarat and the NABARD is not acted upon. As per the MoU, freedom was allowed to any cooperative society in the co-operative credit structure to affiliate or disaffiliate with a federal structure of their choice and there would not be any restriction of geographical boundaries for its operations. It additionally permitted any cooperative society in all the three tiers freedom to take loan from any RBI regulated financial institution and refinance from NABARD or any other refinancing agency directly and not necessarily with only the federal tier to which it is affiliated.

In view of Section 73A, the monopoly of the federal society, namely the Gujarat State Co-operative Bank now stands curtailed and the member - cooperative societies - have wide choice to avail benefit without any restriction like payment of higher interest for taking loan and will now not be deprived of loan on the ground that the federal society have no money to grant loan, argued the AG. Agreeing with the submissions of the state, the court observed that such policy and law cannot be held to be bad on mere presumption that it may violate the right of the petitioner banks as guaranteed by the Constitution. The judges noted that the provisions neither take away the right of the Banks (the freedom to form an association or union as guaranteed under Article 19(1)(c)) nor infringes freedom of any of the bank to carry on trade or business (as guaranteed under Article 19(1)(g) of the Constitution). The court noted that on the contrary, the Amending Act, 2008 is in furtherance to such right to practice trade or business by any co-operative credit structures including primary agricultural credit co-operative societies, Central Co-operative Banks and the State Co-operative Bank.