Cooperative Housing Societies and the Constitutional Mandates

By I C Naik

The very first formal cooperative society “Roshdale Equitable Pioneers”  was launched (on 21-12-1844) by 28 distressed wavers in a place called Roshdale, Lancashire District of United Kingdom. What they did was they acted upon the memorable advice of Sir Peel’s Robert [twice Prime Minister of UK in nineteenth century]; and “took their own affairs into their own hands; autonomous functioning from day one. How many of our housing cooperators feel that the affairs of cooperative societies are in their own hands, even after nearly two Centuries?

Enactment of any and every statute must necessarily be backed by the Constitutional authority and every provision thereof is bound to adhere to the Constitutional mandates. The High Court or the Supreme Court can declare an enactment as void and inoperative if either is convinced of a valid constitutional challenge argued before it. A constitutional challenge is a must, as no Court would go in to un-challenged proposition on its own.

“Rights of the citizens to form co-operative societies voluntarily, is now raised to the level of a fundamental right and State shall Endeavour to promote their autonomous functioning. The Parliament, with a view to enhance public faith in the co-operative institutions and to insulate them to avoidable political or bureaucratic interference brought in Constitutional (97th Amendment) Act, 2011…”[97AA in short ].

Thus ruled the Apex Court vide its Judgment dated 7 October, 2013 in the case of “Thalappalam Ser. Coop. Bank vs State Of Kerala [CA 9017 2013] in which the Hon. Court  upheld the challenge to the applicability of the “Right to Information Act 2005” to wholly self reliant cooperative societies. Two years later on 19 March 2015 another division bench taking cognizance of the new constitutional mandates inserted vide 97CAA carved out a cardinal principle in the matter of interpretation of statutes namely:

“In the background of the constitutional mandate, the question is not what the statute does say but what the statute must say”

In Paragraph 48 of the judgment the Hon. Court elucidates this principle:

“48. If the Act or the Rules or the Bye-laws do not say what they should say in terms of the Constitution, it is the duty of the court to read the constitutional spirit and concept into the Acts. … “In so far as in its Act Parliament does not convey its intention clearly, expressly and completely, it is taken to require the enforcement agencies who are charged with the duty of applying legislation to spell out the detail of its legal meaning. This may be done either- (a) by finding and declaring implications in the words used by the legislator, or (b) by regarding the breadth or other obscurity of the express language as conferring a delegated legislative power to elaborate its meaning in accordance with public policy (including legal policy) and the purpose of the legislation”.

It is therefore quite relevant to revisit the current provisions of the MCS Act 1960 [as applicable to housing societies] as amended (i) post 97CAA and then (ii) vide State Ordinance dated 29^th October 2018. An attempt will be made to analyze important provisions of law which prima facie appear to be in conflict with the constitutional mandates. If it is so, will think of an option?

The message of the Apex Court is crystal clear:“the constitutional aspirations of a Housing Society, operating strictly in accordance law should not compel the management to make any compromise because of the operation of the law compels such compromise.”

What is the prime aspiration of cooperative society under the Constitution? Article 43B inserted by 97CAA spells them out in unequivocal terms namely:

43B: “The State shall endeavor to promote voluntary formation, autonomous functioning, democratic control and professional management of co-operative societies”

The directive principles are not enforceable through Courts but Part IXB COOPERATIVE SOCIETIES vide Article 243ZI takes care of this limitation of directive principles.

“Article 243ZI: Subject to the provisions of this Part, the Legislature of a State may, by law, make provisions 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”

Constitutional guarantee to cooperative societies of “autonomous functioning” has been made abundantly clear in its landmark ruling by the Apex Court in the RTI case (supra) discerning the firm intent of 97CAA in this phrase namely “to insulate them to avoidable political or bureaucratic interference” defining the directive principle for the state’s responsibility of ensuring “cooperatives’ autonomous functioning and democratic control”

The Roshdale Equitable Pioneers established nearly 200 years ago by a handful of weavers in the U K had ‘such autonomy‘ since inception!!!.

It is worth recalling a few observations in (PART II) the Analysis of the Constitution (One Hundred and Eleventh Amendment) Bill, 2009 by the COMMITTEE ON AGRICULTURE (2009-2010 chaired by Shri Basudeb Acharia. It recommend to add new sub-clause (h) to sub-clause (2) of Clause (1) of Article 19 on fundamental rights, reading as follows:

“(h) to form and run co-operatives based on the principles of voluntary formation, democratic member control, member economic participation and autonomous functioning”

The Committee strongly felt that it was very essential to clearly define that,

“the co-operative societies are promoted, owned, controlled and managed only by their user members”.

The Committee, therefore, recommended that Article 243ZH(C) defining the cooperative society should read as:

“A co-operative society is an autonomous association of persons united voluntarily to meet their common needs and aspirations through a jointly-owned and democratically controlled enterprise and adhering to the co-operative principles and values, as recognized by the Indian Cooperative Law registered or deemed to be registered under any law relating to co-operative societies for the time being in force in any State.”

Let this proposition undergo a practical test about one extremely important issue which is confronted practically by every housing society registered in the State of Maharashtra. It is about the Transfer Premium payable to the Housing Society by the transferor of the flat.

Where a member makes a valid transfer of (his flat) his share in the interest of the capital and property of the Society he  is liable to a levy of what is called a transfer premium as fixed by the Society in the general body meeting. There is a mandatory requirement as per the State Government’s order issued in public interest under Section 79A of the MCS Act 1960. Circular Reference is : Government of Maharashtra No. SAGRUYO-2001 / PRA.KRA.188/14-SA Co-operation and Textile Department. Dt. 9th August, 2009. As per this order the premium amount shall not exceed Rs 25000 where the Society is registered in a metro having Municipal Corporation and Development Authorities. Imagine a case of a Housing Society in the general body meeting approving a particular formula for determining the premium on a case to case basis instead of an inflexible sum of Rs 25000/- fixed by the Cooperative Authorities on 17-11-1989 (Originally fixed by the Cooperative Commissioner). In a transfer as per formula the premium may exceed Rs 25000/-. As per the Government order Ceiling of Rs. 25000 was fixed by the Government under Section 79A, but the members of the Society reached a decision in democratic manner in the society’s interest and with autonomy of fixing the formula. In the light of the discussion on the Apex Court directions on interpretation of statutes the Society need not go by the order of the Government. But if the Chairman of the Society were to ask for premium in excess of Rs 25000 he may be disqualified from continuing  on the Management Committee of any Housing Society for 5 years as provided under Section 79A(3). As per the principle declared by the Apex Court democratic decision fixing the formula should prevail over the Government Order. But going by the experience this view will be accepted by the Government only if it is referred to the Apex Court and an affirmation of the Apex Court is obtained.

So what is the solution? Individual housing societies cannot afford litigation costs. The State Housing Federation should issue a clarification in the nature of immunity to the Society from disqualification with an appeal to the State Government to withdraw the order on transfer premium. In any case the Apex Court having held that the cooperative societies not receiving any financial support in the nature of capital contribution loan or financial guarantee is not a public authority under RTI Act which also means such societies are private bodies and have constitutional guarantee of making decisions in a democratic manner and with full autonomy.  An issue of public interest in the private enterprises where zero public stake/support is involved also needs to be revisited by the Constitutional Court especially in the context of what the Apex Court has already said on 7 October, 2013 in Thalappalam Ser. Coop. Bank case (supra).