Bombay High Court Upholds Constitutionality of Section 73AAA of Maharashtra Cooperative Societies Act, 1960; Rejects Challenge to Restriction on Number of Directors in Tribal Development Corporation

Court’s Decision

The Bombay High Court dismissed the writ petition challenging the constitutionality of Section 73AAA of the Maharashtra Cooperative Societies Act, 1960 (MCS Act). The court upheld the Maharashtra State Legislature’s power to legislate on cooperative societies, even after the Supreme Court’s decision in Rajendra N. Shah v. Union of India, which struck down Part IXB of the Constitution.

The court ruled that:

1. The restriction on the number of directors to 21 (or 25 in exceptional cases) was a policy decision within the legislature’s purview.
2. The amendment did not violate any fundamental rights under Part III of the Constitution.
3. The challenge to the amendment was based on a flawed premise that the MCS Act provisions were automatically invalid after the Supreme Court’s decision in Rajendra N. Shah.
4. There was no arbitrary or unreasonable restriction imposed by the amendment.

The court dismissed the petition and vacated all interim orders. Additionally, it directed the State Cooperative Election Authority to conduct elections within six months.

Facts of the Case

1. Background of the Petitioners:
   • The petitioners were directors of the Maharashtra State Cooperative Tribal Development Corporation Limited, Nashik.
   • The corporation is a cooperative society registered under the MCS Act, tasked with tribal welfare.
2. Original Structure of the Corporation:
   • Earlier, the board of directors had 36 members to ensure fair representation of various districts with significant tribal populations.
3. Amendment to the MCS Act:
   • The State Legislature amended the MCS Act to limit the maximum number of directors to 21, with an exception allowing up to 25 in certain cases.
   • The amendment aligned the MCS Act with the now-invalid Constitution (97th Amendment) Act, 2011, which sought to regulate cooperative societies.
4. Supreme Court Ruling in Rajendra N. Shah Case:
   • The Supreme Court struck down Part IXB of the Constitution, ruling that States have exclusive authority over cooperative societies.
   • The petitioners argued that since the constitutional amendment was invalid, the corresponding amendment to the MCS Act should also be struck down.
5. Key Legal Challenge by the Petitioners:
   • The reduction in the number of directors was arbitrary, unconstitutional, and violated the principles of representation in the Corporation.
   • The amendment violated Article 14 (Right to Equality) and Article 19(1)(c) (Right to Form Associations/Cooperative Societies).
   • Reservations under the new law were unworkable because only tribals were permitted to be members.

Issues Considered by the Court

1. Was Section 73AAA of the MCS Act unconstitutional?
2. Did the Maharashtra State Legislature have the power to enact and retain Section 73AAA after the Supreme Court’s ruling in Rajendra N. Shah?
3. Did restricting the number of directors violate Article 14 and Article 19(1)(c) of the Constitution?
4. Did the amendment arbitrarily interfere with tribal representation in the Corporation?

Petitioners’ Arguments

1. Section 73AAA is Ultra Vires:
   • The MCS Act amendment was enacted to comply with Part IXB of the Constitution, which was declared unconstitutional in Rajendra N. Shah.
   • Since the constitutional amendment was struck down, the corresponding state law should also be invalid.
2. Violation of Article 14 (Equality Before Law):
   • Reducing the number of directors from 36 to 21 was arbitrary and deprived tribal representatives of their seats.
   • The corporation was specifically formed for tribal welfare, and restricting its board size disproportionately affected tribal participation.
3. Violation of Article 19(1)(c) (Right to Form Associations):
   • The MCS Act amendment interfered with the fundamental right to form and govern cooperative societies.
   • It restricted internal governance by imposing a state-mandated cap on board size.
4. Reservations Were Impractical:
   • The new law required reservations for Scheduled Castes, Other Backward Classes, and De-notified Tribes.
   • Since only tribals were allowed to be members, these reservations were impossible to implement.
   • This showed a lack of proper legislative thought and made the law unworkable.

Respondents’ Arguments (State of Maharashtra)

1. Legislative Competence of the State:
   • The Maharashtra Legislature had the exclusive power to legislate on cooperative societies under Entry 32 of List II (State List) of the Constitution.
   • Rajendra N. Shah only struck down the 97th Constitutional Amendment, but it did not take away the State’s legislative power.
2. Presumption of Constitutionality:
   • All laws enacted by the legislature are presumed valid unless proven unconstitutional.
   • The burden of proof was on the petitioners, and they failed to show any clear violation of fundamental rights.
3. Policy Decision:
   • Setting a cap on the number of directors was a policy matter that the legislature was entitled to decide.
   • The amendment was made after expert consultations and studies on cooperative governance.
4. Amendment Was Retained Consciously:
   • After Rajendra N. Shah, the Maharashtra Legislature chose to retain the amendment, showing that it was a deliberate policy decision, not a forced one.
   • The law was later modified in 2021 to allow up to 25 directors in special cases, proving legislative intent and flexibility.

Analysis of the Law

1. Legislative Competence:
   • The State Legislature has exclusive power over cooperative societies under Entry 32 of List II.
   • Rajendra N. Shah reaffirmed this authority, so the MCS Act amendment remains valid.
2. Reasonableness of Restriction:
   • The restriction on the number of directors is a policy decision and not unconstitutional.
   • There is no fundamental right to have a specific number of directors in a cooperative society.
3. Presumption of Constitutionality:
   • Courts do not interfere with legislation unless it is clearly unconstitutional.
   • The petitioners did not prove any fundamental rights violation.

Precedents Cited

1. Rajendra N. Shah v. Union of India (2021) – Struck down Part IXB of the Constitution but confirmed State power to legislate on cooperative societies.
2. State of M.P. v. Rakesh Kohli (2012) – Held that laws enjoy presumption of constitutionality.
3. Charanjit Lal Chowdhury v. Union of India (1950) – Courts should not interfere in policy decisions unless they are clearly unconstitutional.

Court’s Reasoning

1. The Number of Directors Is a Policy Decision:
   • The State Legislature had full authority to decide how many directors a cooperative society could have.
   • Courts should not interfere in such policy matters.
2. No Violation of Fundamental Rights:
   • The cap on directors does not violate Article 14 or 19(1)(c).
   • The law applies equally to all cooperative societies, so no unfair discrimination exists.
3. Petitioners’ Arguments Were Based on a Misconception:
   • The MCS Act amendment did not automatically become unconstitutional after Rajendra N. Shah.

Conclusion

• The Bombay High Court dismissed the petition.
• Section 73AAA of the MCS Act is constitutional.
• The State Cooperative Election Authority must conduct elections within six months.

Implications

• Confirms Maharashtra Legislature’s authority over cooperative societies.
• Reinforces judicial restraint in policy matters.
• Ensures continuity in cooperative governance under the MCS Act.

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