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 CIVIL APPEAL NO. 2188 OF 2008

A.P. Dairy Development Corporation ... Appellant



B. Narasimha Reddy & Ors. ...Respondents


 CIVIL APPEAL NOS. 2189-2212 OF 2008


 CIVIL APPEAL NO. 4588 OF 2008

 J U D G M E N T


1. All these appeals have been preferred against the impugned 

judgment and order dated 1st May, 2007 of the High Court of 

Judicature, Andhra Pradesh at Hyderabad in Writ Petition No. 2214 of 

2006, by which the High Court has struck down the provisions of 

Andhra Pradesh Mutually Aided Co-operative Societies (Amendment) 

Act, 2006 (hereinafter called as `Act 2006') as unconstitutional and 

further declared that even if the Act 2006 is to be considered 

constitutional, provisions providing that the Boards of Directors 

appointed under the Andhra Pradesh Mutually Aided Co-operative 

Societies Act, 1995 (hereinafter called `Act 1995') shall be deemed to 

have been continued under the provisions of A.P. Co-operative 

Societies Act, 1964 (hereinafter called `Act 1964'), and further G.O.Ms. 

No.10 Animal Husbandry, Dairy Development & Fisheries (Dairy-II) 

Department, dated 4.2.2006 and the consequential proceedings/orders 

of the Milk Commissioner and Registrar of Milk Co-operatives and the 

District Collectors concerned in these regards, are quashed. 

2. Facts: 

A. The Government of Andhra Pradesh introduced an integrated 

milk project in the State with the assistance of the UNICEF, according 

to which, the rural surplus milk produced in the villages was 

transported to chilling centres and supplied to consumers of Hyderabad. 

A milk conservation plant/milk products factory was established at 

Vijayawada in 1969 as a part of the project. In the meanwhile, the Act 

1964 came into force w.e.f. 1.8.1964. 


B. In years 1970-71, the Government of Andhra Pradesh set up an 

independent Dairy Development Department (hereinafter called the 

`Department') and intensive efforts were made by the Government to 

give a boost to the Department taking various measures. 

C. In year 1974, Andhra Pradesh Dairy Development Corporation 

Ltd. (hereinafter called the `Corporation'), a company under the Indian 

Companies Act, 1956, fully owned by the State Government was 

constituted and the entire dairy infrastructure and assets of the 

Department of the State stood transferred to the said Corporation vide 

order dated 15.4.1974. The employees of the Department were 

absorbed in the Corporation. A huge amount has been contributed by 

the Government from year 1974 onwards to develop the dairy products.

D. The Andhra Pradesh Dairy Development Cooperative Federation 

Ltd. (hereinafter called `the Federation') was registered as a 

Cooperative Society and all the assets and dairy infrastructure were 

transferred to the Federation. The State Government vide order dated 

10.12.1980 permitted the Federation to hand over the management of 

the respective units set up at the State expenses to the Societies subject 

to conditions stipulated in the agreement. Mainly the terms incorporated 

therein provided for transfer of assets on lease basis, and the State to 


stand as a guarantor for the payment of loan component and financial 

assistance etc.

E. The Government further permitted the Federation to hand over 

the management of respective units and operation hitherto to various 

societies with the right of procurement and further dairy development 

activities such as manufacturing, processing, feed mixing plants 

alongwith the concerned employees to the District Milk Producers Co-

operative Unions with effect from a mutually agreeable date. 

F. During the years of 1991 and 1995, the benefits of financial 

assistance rendered to the units by the State and the Central 

Governments had been very huge i.e. Rs.159.45 lakhs and Rs.729.97 


G. On commencement of the Act 1995 into force, the existing co-

operative societies registered under the Act 1964 could opt to be 

covered by the Act 1995 with certain conditions, namely, the share 

capital from the Government, if any, had to be returned and the 

societies should not accept any Government assistance, and further the 

societies had to enter into the Memorandum of Understanding 

(hereinafter called the MoU) for outstanding loans and guarantees or 

return of the government assistance. These had been conditions 


precedent for registration of a society under the Act 1995. A very large 

number of new societies came into existence and were registered under 

the Act 1995. Many societies already registered under the Act 1964 also 

got themselves registered under the Act 1995. 

H. There had been some irregularities in getting the registration 

under the Act 1995 by certain societies registered under the Act 1964 

and some of them did not execute the MoU. Thus, the Statutory 

Authority issued show cause notices to such societies under Section 

4(3) of the Act 1995 on 29.11.2004 to show cause as to why their 

registration under the Act 1995 be not cancelled.

I. Eight writ petitions were filed by 8 District Milk Unions 

challenging the said show cause notices before the High Court. The 

Federation filed original petition in various Co-operative Tribunals 

seeking dissolution of its societies under Section 40 of the Act 1995 as 

the statutory requirements had not been complied with. 

J. The Co-operative Tribunal vide its judgment and order dated 

9.12.2004 dismissed the original petition against Visakha District 

Union on the premises that the Act 1995 had not mentioned about 

returns of assets and the Managing Director had no power to further 

delegate the power to some one to file the petition. 


K. The Legislative Assembly of the Andhra Pradesh vide 

Resolution dated 8.2.2005 constituted a House Committee consisting of 

its members belonging to different political parties to investigate into 

irregularities committed by two of the eight District Unions, namely, 

Visakha and Ongole (Prakasham) Unions, who also got registered under 

the Act 1995. The Committee submitted its report pointing out certain 

irregularities by the said Unions. The Committee also opined that the 

Act 1995 had adverse consequences on the dairy co-operatives, as it had 

broken down 3-tier structure, reduced the brand value of Vijaya Brand, 

created conflict in marketing structures, weakened the financial position 

of some District Milk Unions etc. and had broken down the common 

cadre of employees. 

L. After considering the said report, the State Government 

constituted a Committee consisting of Ministers to consider the 

recommendations of the House Committee vide order dated 23.8.2005. 

It was this Committee which recommended that dairy co-operatives be 

excluded from the purview of the Act 1995 and so far as the dairy co-

operatives are concerned, it should be restored to 3-tier structure. 

Meanwhile, the order passed by the Co-operative Tribunal was 

challenged in the Writ Petition No. 1420 of 2006 in pursuance to the 


policy decision of the Government to exclude the dairy societies from 

the purview of the Act 1995 and to bring them back under the Act 1964. 

M. The State promulgated the Ordinance No.2/2006 excluding the 

milk dairy co-operative societies from the societies covered by the Act 

1995 and imported the fiction that such dairies would be deemed to 

have been registered under the Act 1964, with effect from the date of 

registration under the Act 1995. 

N. Government Order dated 4.2.2006 was issued to give effect to 

such amendments and also to take care of transitional position, 

particularly providing that District Collector would appoint the person 

in-charge under Section 32(7) of the Act 1964 to manage the affairs of 

all primary milk producers co-operative societies till further elections or 

until further orders, so that affairs of those societies would be managed 


O. Writ Petitions were filed before the High Court by various 

District Milk Producers Co-operative Unions challenging Ordinance 

No.2/2006 and consequential Government Order dated 4.2.2006. The 

High Court vide interim order dated 8.2.2006 stayed the operation of 

the Government Order dated 4.2.2006. Meanwhile, the Ordinance was 


converted into the Act. By the impugned judgment dated 1.5.2007, the 

High Court allowed the writ petitions. 

 Hence, these appeals. 

Rival Submissions:

3. Shri R. Venkataramani, Shri S.S. Prasad, learned senior counsel 

appearing for the appellants have submitted that the impugned 

judgment and order are untenable as the Legislature is competent to 

amend the Act and while doing so the Legislature in its wisdom had 

rightly decided to treat the milk dairy co-operatives distinctly from all 

other kinds of societies. Thus, no grievance of discrimination could be 

raised. More so, there is no discrimination among the milk dairies, as all 

such dairies have been treated as a separate class. The amendment had 

not taken away any vested or statutory right of the writ petitioners by 

the impugned Act. Both the Acts i.e. Act 1964 as well as Act 1995 are 

based on the same set of the co-operative principles and serve different 

sectors of the co-operatives in different ways. Both the Acts co-exist 

and are not mutually conflicting. Therefore, the question of doubting 

the validity of the Act 2006 merely on the ground of having 

retrospective application could not arise. The members of the 

management committee of the District Unions/writ petitioners could 


again contest the election for the posts in their respective society under 

the Act 1964. Appointment of persons in-charge was merely a 

temporary/transitional phase to facilitate such elections and, therefore, 

there was no violation of fundamental rights of any of the writ 

petitioners. The High Court erred in recording the finding that the Act 

2006 stood vitiated on the ground that it had breached promissory 

estoppel. The Government undoubtedly, had transferred the 

management of the assets to the District Unions and as the said District 

Unions would continue with such management of assets, there was no 

question of breach of any of the promises made by the State. Doctrine 

of promissory estoppel does not apply to legislature. There was a 

rational nexus to enact the Act 2006 as a large number of the milk 

dairy societies did not enter into the MoU as required under Section 

4(4) of the Act 1995. Such legislative action could not be termed as 

arbitrary and warranting attraction of the provisions of Article 14 of the 

Constitution of India. There were valid reasons for excluding the 

milk/dairy societies from the provisions of the Act 1995. Dairy industry 

being peculiar and having distinct characteristics required State's 

moderation and intervention. Having regard to the special and 

distinctive features of the Dairy industry and the existence of large 


number of financially weak and dependent primary milk Co-operative 

Societies, and the necessity of State funding of these societies, it has 

been found necessary to take dairy industry out of the purview of 1995 

Act. The High Court failed to make distinction of dairy milk societies 

from other co-operative societies as the dairy milk societies are having 

with them substantial government interest, assets and government 

investments. All the societies including the primary societies are 

dependent on the government and its assets. Such a financial assistance 

has been granted in view of the provisions of Section 43 of the Act 

1964 and the government control over such societies under the Act 

1964 is minimal. It was not that the Act 2006 had been brought to have 

government control over milk dairy societies as under the Act 1995 the 

government control was negligible. The societies under the Act 1995 

"have to be self reliant". Thus, the Act assured such societies a 

complete autonomy. The Act 2006 was enacted on the recommendation 

of the House Committee which suggested remedial measures for 

effective functioning of the dairies in the State. It was so necessary to 

reconfirm the 3-tier structure e.g. apex society, central society and 

primary society as such a classification was not available under the Act 

1995. The Statement of Objects and Reasons of the Act 2006 clearly 


provided for justification of amendment (impugned). Therefore, 

appeals deserve to be allowed and the impugned judgment and order of 

the High Court is liable to be set aside. 

4. On the contrary, Mr. P.P. Rao, learned senior counsel, Mr. P. 

Venkat Reddy, Mr. Niranjan Reddy and Mr. S. Udaya Kr. Sagar, 

learned counsel appearing for the respondents have submitted that the 

Act 2006 suffered from vice of arbitrariness, and has taken away the 

accrued rights of the milk dairy co-operative societies. Act 2006 has 

given a hostile discrimination to milk dairy co-operative societies as 

no other kind of society i.e. Societies of Agro Processing, Fisheries, 

Sheep Breeding etc. has been excluded from the operation of the Act 

1995. A large number of new societies had initially/directly been 

registered under the Act 1995. Therefore, the question of creating a 

fiction that the same shall also stand excluded from the operation of the 

Act 1995 and would be deemed to have been registered under the Act 

1964 cannot be justified for the reason that such societies had not 

initially been registered under the Act 1964. It was a political decision 

of the State Authorities to amend the statute merely because of the 

change of the Government and to have control on such societies. The 

reasons for enacting the Act 2006 have been spelled out in the 


Statement of Objects and Reasons of the said Act and none of them 

really existed in fact and in order to introduce the Act 2006, the State 

incorrectly construed the provisions of the Act 1995. A very few 

societies had the government benefits and the said societies had also 

ensured the compliance of the statutory provisions of the Act 1995. 

Almost all the societies have returned the assets of the Federation. 

Where it has not been returned, the matters are sub-judice, before the 

Co-operative Tribunal, between the Federation and the societies. More 

so, the character of the assets would not change upon conversion of a 

society into one under the Act 1995. The character of a 3-tier structure 

contemplated under the Act 1964 is different from one followed in the 

State of Gujarat under the "Anand Pattern" and such 3-tier structure is 

possible under the Act 1995 also. There can be no nexus in deeming 

fiction created for treating the societies as having been registered under 

the Act 1964 and it would definitely not bring back the 3-tier structure. 

The farmers had not been facing any problem for redressal of which the 

amendment was necessary. Thus, the facts and circumstances of the 

case do not require any interference with the impugned judgment and 

appeals are liable to be dismissed. 


5. We have considered the rival submissions made by learned 

counsel for the parties and perused the record. 

6. Before we examine the merits of the arguments advanced by 

learned counsel for the parties, it may be necessary to make a reference 

to some of the relevant findings recorded by the High Court :

(i) The ordinance/Act suffers from vice of hostile discrimination 

 against dairy farms and milk producers without scientific or 

 rational basis for such distinction-merely because the National 

 Dairy Development Board distinctly deals with dairy activities, 

 cooperatives dealing with such activities cannot form a separate 

 and distinct class in so far as co-operative activity is concerned.

(ii) The irregularities noted by the House Committee with regard to 

 the Visakha Union, Prakasham Union are managerial lapses 

 which are possible both under the `Act 1964' and the `Act 1995'. 

(iii) Non-compliance with the terms and conditions of the transfer 

 agreements regarding business and service matters and 

 irregularities noted in the audit reports and House Committee is 

 possible both under the `Act 1995' and the `Act 1964'. 

(iv) The conclusion of the House Committee in respect of two of the 

 district unions out of eight districts converted into `Act 1995' 

 cannot be relevant material for any rational conclusion. 


 (v) Both Section 2(e) of the `Act 1964' and Section 2(k) of the `Act 

 1995' enable formation of Apex Societies, Central Societies and 

 Primary Societies. Exclusion of the Dairy/Milk Cooperative 

 Societies from `Act 1995' to achieve the object of a three-tier 

 structure is a non-existent cause. 

(vi) Both the `Act 1964' and `Act 1995' have procedure for 

 auditing, enquiry, inspection and surcharge etc., it is nowhere 

 stated as to how the `Act 1964' is more effective or 

 comprehensive in the matter of protecting any government assets 

 in possession of the societies or as to how the `Act 1995' is 

 inadequate for the purpose. 

(vii) Till June 2004, the Federation found everything positive and 

 nothing negative in the functioning of the District Union.

(viii) Adverse effects on the interest of dairy farms due to registration 

 or conversion of dairy/milk co-operative societies under `Act 

 1995' are not existing. 

(ix) Fundamental right under Section 19(1)(c) of the Constitution of 

 India to form association or union is infringed by the impugned 


(x) The retrospective legislation undoubtedly interferes with vested 

 rights and accrued rights and such interference is based on 

 classification not in tune with the parameters of equality under 


 Article 14 of the Constitution and not having any nexus with the 

 objects sought to be achieved. 

(xi) The agreement dated 8.1.1981 (between the State Government 

 and the Indian Dairy Corporation); the letter of understanding 

 dated 21.1.1988 (between the State Government and the National 

 Dairy Development Board) and acted upon by the State 

 Government and the concerned agencies estopped the State 

 Government from backing out on the assurance. 

(xii) Section 32(7) of the `Act 1964' does not confer power on the 

 government to appoint person-in-charge. In the absence of any 

 other provision, the government order (G.O.Ms No. 10 dated 

 4.2.2006) is not legal and enforceable. 

 7. Thus, the question does arise as to whether in view of the 

 submissions advanced by the learned counsel for the parties, it is 

 desirable to interfere with the aforesaid findings or any of them. 

 8. It is well settled law that Article 14 forbids class legislation, 

 however, it does not forbid reasonable classification for the purpose of 

 legislation. Therefore, it is permissible in law to have class legislation 

 provided the classification is founded on an intelligible differentia 

 which distinguishes persons or things that are grouped together from 

 others left out of the group and that differentia must have a rational 


relation to the object sought to be achieved by the statute in question. 

Law also permits a classification even if it relates to a single individual, 

if, on account of some special circumstances or reasons applicable to 

him, and not applicable to others, that single individual may be treated 

as a class by himself. It should be presumed that legislature has 

correctly appreciated the need of its people and that its laws are 

directed to problems made manifest by experience and that its 

discriminations are based on adequate grounds. There is further 

presumption in favour of the legislature that legislation had been 

brought with the knowledge of existing conditions. The good faith on 

the legislature is to be presumed, but if there is nothing on the face of 

the law or the surrounding circumstances brought to the notice of 

the court on which the classification may reasonably be regarded as 

based, the presumption of constitutionality cannot be carried to the 

extent of always holding that there must be some undisclosed and 

unknown reasons for subjecting certain individuals or corporations to 

hostile or discriminating legislation. The law should not be irrational, 

arbitrary and unreasonable in as much as there must be nexus to the 

object sought to be achieved by it. (Vide: Budhan Choudhry & Ors. 

v. State of Bihar, AIR 1955 SC 191 ; and Ram Krishna Dalmia v. 


Justice S.R. Tendolkar & Ors., AIR 1958 SC 538)

9. In Harbilas Rai Bansal v. State of Punjab & Anr., AIR 1996 

SC 857, this Court struck down the provisions of the East Punjab 

Urban Rent Restriction (Amendment) Act, 1956, on the ground that the 

amendment had taken away the right of landlord to evict his tenant 

from non-residential building even on the ground of bonafide 

requirement holding that such provisions of amendment were violative 

of Article 14 of the Constitution and the landlord was entitled to seek 

eviction on ground of requirement for his own use. The Court further 

held that it is obvious from the objects and reasons of introducing the 

said amended Act, that the primary purpose for enacting the Act was to 

protect the tenants against the malafide attempts by their landlords to 

evict them. Bona fide requirement of a landlord was, therefore, 

provided in the Act - as original enactment - a ground to evict tenant 

from the premises whether residential or non residential. 

 Thus, the issues require to be examined arise as to whether 

the Act 2006 is arbitrary, discriminatory or unreasonable or has taken 

away the accrued rights of the Milk Dairy Societies registered directly 

under the Act 1995 or got conversion of their respective registration 

under the Act 1964 to the Act 1995. 


10. Article 19(1)(c) guarantees to all citizens, the right to form 

associations or unions of their choice voluntarily, subject to reasonable 

restrictions imposed by law. Formation of the unions under Article 

19(1)(c) is a voluntary act, thus, unwarranted/impermissible statutory 

intervention is not desired. 

11. Constitution Bench of this Court in M/s. Raghubar Dayal Jai 

Prakash v. The Union of India & Anr., AIR 1962 SC 263, while 

dealing with a similar issue held as under: 

 "An application for the recognition of the association for 

 the purpose of functioning under the enactment is a 

 voluntary act on the part of the association and if the 

 statute imposes conditions subject to which alone 

 recognition could be accorded or continued it is a little 

 difficult to see how the freedom to form the association is 

 affected unless, of course, that freedom implies or 

 involves a guaranteed right to recognition also." 

12. In Smt. Damyanti Naranga v. The Union of India & Ors., 

AIR 1971 SC 966, this Court examined question related to the Hindi 

Sahitya Sammelan, a Society registered under the Societies 

Registration Act, 1860. The Parliament enacted the Hindi Sahitya 

Sammelan Act under which outsiders were permitted to become 

members of the Sammelan without the volition of the original 


members. This court while examining its validity held that any law 

altering the composition of the Association compulsorily will be a 

breach of the right to form association because it violated the 

composite right of forming an association and the right to continue it as 

the original members desired. The Court held as follows :

 "It is true that it has been held by this Court that, 

 after an Association has been formed and the right 

 under Art.19(1)(c) has been exercised by the 

 members forming it, they have no right to claim that 

 its activities must also be permitted to be carried on 

 in the manner they desire. Those cases are, however, 

 inapplicable to the present case. The Act does not 

 merely regulate the administration of the affairs of 

 the Society, what it does is to alter the composition 

 of the Society itself as we have indicated above. The 

 result of this change in composition is that the 

 members, who voluntarily formed the Association, 

 are now compelled to act in that Association with 

 other members who have imposed as members by 

 the Act and in whose admission to membership they 

 had no say. Such alteration in the composition of 

 the Association itself clearly interferes with the right 

 to continue to function as members of the 

 Association which was voluntarily formed by the 

 original founders. The right to form an association, 

 in our opinion, necessarily implies that the persons 

 forming the Association have also the right to 

 continue to be associated with only those whom they 

 voluntarily admit in the Association. Any law, by 

 which members are introduced in the voluntary 

 Association without any opinion being given to the 

 members to keep them out, or any law which takes 

 away the membership of those who have voluntarily 

 joined it, will be a law violating the right to form an 

 association". (Emphasis supplied)


13. In Daman Singh & Ors. v. State of Punjab & Ors., AIR 1985 

SC 973, this Court examined a case where an unregistered society was 

by statute converted into a registered society which bore no 

resemblance whatever to the original society. New members could be 

admitted in large numbers so as to reduce the original members to an 

insignificant minority. The composition of the society itself was 

transformed by the Act and the voluntary nature of the association of 

the members who formed the original society was totally destroyed. 

The Act was struck down by the Court as contravening the 

fundamental right guaranteed by Art. 19(1)(f).

14. In Dharam Dutt & Ors. v. Union of India & Ors., (2004) 1 

SCC 712, this Court held that the first test is the test of reasonableness 

which is common to all the clauses under Article 19(1), and the second 

test, is to ask for the answer to the question, whether the restrictions 

sought to be imposed on the fundamental right, fall within clauses (2) 

to (6) respectively, qua sub-clauses (a) to (g) of Article 19(1) of the 

Constitution, and the Court further held that a right guaranteed by 

Article 19(1)(c), on the literal reading thereof, can be subjected to those 

restrictions which satisfy the test of clause (4) of Article 19. The rights 


not included in the literal meaning of Article 19(1)(c) but which are 

sought to be included therein as flowing therefrom i.e. every right 

which is necessary in order that the association brought into 

existence fulfils every object for which it is formed, the 

qualifications therefor, would not merely be those in clause (4) of 

Article 19, but would be more numerous and very different. 

Restrictions which bore upon and took into account the several fields in 

which the associations or unions of citizens might legitimately engage 

themselves, would also become relevant. Therefore, the freedom 

guaranteed under Article 19(1)(c) is not restricted merely to the 

formation of the association, but to the effective functioning of the 

association so as to enable it to achieve the lawful objectives. 

15. In The Tata Engineering and Locomotives Co.Ltd. v. The 

State of Bihar & Ors., AIR 1965 SC 40, Constitution Bench of this 

Court held, that a fundamental right to form the association cannot 

be coupled with the fundamental right to carry on any trade or 

business. As soon as citizens form a company, the right guaranteed to 

them by Article 19(1)(c) has been exercised, and no restrain has been 

placed on that right and no infringement of that right is made. Once a 

company or a corporation is formed, the business which is carried on 


by the said company or corporation is the business of the company or 

corporation, and is not the business of the citizens who get the 

company or corporation formed or incorporated, and the rights of the 

incorporated body must be judged on that footing alone and cannot be 

judged on the assumption that they are the rights attributable to the 

business of individual citizens. Thus, right under Article 19(1)(c) does 

not comprehend any concomitant right beyond the right to form an 

association and right relating to formation of an association. (See also: 

All India Bank Employees' Association v. National Industrial 

Tribunal (Bank Disputes) Bombay & Ors., AIR 1962 SC 171; S. 

Azeez Basha & Anr. v. The Union of India etc., AIR 1968 SC 662; 

and D.A.V. College, etc.etc. v. State of Punjab & Ors., (1971) 2 SCC 


16. In view of the above, it becomes evident that the right of the 

citizens to form the association are different from running the business 

by that association. Therefore, right of individuals to form a society 

has to be understood in a completely different context. Once a co-

operative society is formed and registered, for the reason that co-

operative society itself is a creature of the statute, the rights of the 

society and that of its members stand abridged by the provisions of the 


Act. The activities of the society are controlled by the statute. 

Therefore, there cannot be any objection to statutory interference with 

their composition or functioning merely on the ground of contravention 

of individual's right of freedom of association by statutory 


17. It is a settled legal proposition that Article 14 of the Constitution 

strikes at arbitrariness because an action that is arbitrary, must 

necessarily involve negation of equality. This doctrine of 

arbitrariness is not restricted only to executive actions, but also 

applies to legislature. Thus, a party has to satisfy that the action was 

reasonable, not done in unreasonable manner or capriciously or at 

pleasure without adequate determining principle, rational, and has been 

done according to reason or judgment, and certainly does not depend 

on the will alone. However, the action of legislature, violative of 

Article 14 of the Constitution, should ordinarily be manifestly 

arbitrary. There must be a case of substantive unreasonableness in the 

statute itself for declaring the act ultra vires of Article 14 of the 

Constitution. (Vide: Ajay Hasia etc. v. Khalid Mujib Sehravardi & 

Ors. etc. AIR 1981 SC 487; Reliance Airport Developers (P) Ltd. v. 

Airports Authority of India & Ors., (2006) 10 SCC 1; Bidhannagar 


(Salt Lake) Welfare Assn. v. Central Valuation Board & Ors. AIR 

2007 SC 2276; Grand Kakatiya Sheraton Hotel and Towers 

Employees and Workers Union v. Srinivasa Resorts Limited & 

Ors. AIR 2009 SC 2337; and State of Tamil Nadu & Ors. v. K. 

Shyam Sunder & Ors. (2011) 8 SCALE 474). 

18. In State of Andhra Pradesh & Anr. v. P. Sagar, AIR 1968 SC 

1379, this Court examined the case as to whether the list of backward 

classes, for the purpose of Article 15(4) of the Constitution has been 

prepared properly, and after examining the material on record came to 

the conclusion that there was nothing on record to show that the 

Government had followed the criteria laid down by this Court while 

preparing the list of other backward classes. The Court observed as 


 "Honesty of purpose of those who prepared and 

 published the list was not and is not challenged, but the 

 validity of a law which apparently infringes the 

 fundamental rights of citizens cannot be upheld merely 

 because the law maker was satisfied that what he did 

 was right or that he believes that he acted in manner 

 consistent with the constitutional guarantees of the 

 citizen. The test of the validity of a law alleged to 

 infringe the fundamental rights of a citizen or any act 

 done in execution of that law lies not in the belief of the 

 maker of the law or of the person executing the law, but 

 in the demonstration by evidence and argument before 

 the Courts that the guaranteed right is not infringed."


19. In Indra Sawhney II v. Union of India, AIR 2000 SC 498, 

while considering a similar issue regarding preparing a list of creamy 

layer OBCs, this Court held that legislative declarations on facts are 

not beyond judicial scrutiny in the constitutional context of Articles 

14 and 16 of the Constitution, for the reason that a conclusive 

declaration could not be permissible so as to defeat a fundamental 


20. In Harman Singh & Ors. v. Regional Transport Authority, 

Calcutta Region & Ors., AIR 1954 SC 190, this Court held: 

 "....A law applying to a class is 

 constitutional if there is sufficient basis or reason for it. 

 In other words, a statutory discrimination cannot be set 

 aside as the denial of equal protection of the laws if any 

 state of facts may reasonably be conceived to justify it."

21. In D.C. Bhatia & Ors. v. Union of India & Anr., (1995) 1 SCC 

104, this Court held: 

 ".....This is a matter of legislative policy. The 

 legislature could have repealed the Rent Act 

 altogether. It can also repeal it step by step.......It is 

 well settled that the safeguard provided by Article 14 

 of the Constitution can only be invoked, if the 

 classification is made on the grounds which are 

 totally irrelevant to the object of the statute. But, if 

 there is some nexus between the objects sought to be 


 achieved and the classification, the legislature is 

 presumed to have acted in proper exercise of its 

 constitutional power. The classification in practice 

 may result in some hardship. But, a statutory 

 discrimination cannot be set aside, if there are facts 

 on the basis of which this statutory discrimination can 

 be justified....The court can only consider whether the 

 classification has been done on an understandable 

 basis having regard to the object of the statute. The 

 court will not question its validity on the ground of 

 lack of legislative wisdom.

 Moreover, the classification cannot be done 

 with mathematical precision. The legislature must 

 have considerable latitude for making the 

 classification having regard to the surrounding 

 circumstances and facts. The court cannot act as a 


22. In State of Gujarat & Anr. v. Raman Lal Keshav Lal Soni & 

Ors., AIR 1984 SC 161, this Court while dealing with a similar issue 

observed as under: 

 "......The legislature is undoubtedly competent to 

 legislate with retrospective effect to take away or 

 impair any vested right acquired under existing laws 

 but since the laws are made under a written' 

 Constitution, and have to conform to the do's and 

 don'ts of the Constitution neither prospective nor 

 retrospective laws can be made so as to contravene 

 Fundamental Rights. The law must satisfy the 

 requirements of the Constitution today taking into 

 account the accrued or acquired rights of the parties 

 today. The law cannot say twenty years ago the 

 parties had no rights therefore, the requirements of 

 the Constitution will be satisfied if the law is dated 

 back by twenty years. We are concerned with today's 


 rights and not yesterday's. A Legislature cannot 

 legislate today with reference to a situation that 

 obtained twenty years, ago and ignore the march of 

 events and the constitutional rights accrued in the 

 course of the twenty years. That would be most 

 arbitrary, unreasonable and a negation of history...

 ................... Today's equals cannot be made 

 unequal by saying that they were unequal twenty 

 years ago and we will restore that position by making 

 a law today and making it retrospective.........the 

 provisions are so intertwined with one another that it 

 is wellnigh impossible to consider any life saving 

 surgery. The whole of the Third Amendment Act must 


23. In B.S. Yadav & Ors. v. State of Haryana & Ors., AIR 1981 

SC 561, Constitution Bench of this Court similarly held that the date 

from which the rules are made to operate must be shown to have 

reasonable nexus with the provisions contained in the statutory rules 

specially when the retrospective effect extends over a long period. 

24. In Chairman, Railway Board & Ors. v. C. R. 

Rangadhamaiah & Ors., AIR 1997 SC 3828, this Court similarly held 

as under: 

 ".......an amendment having retrospective operation 

 which has the effect of taking away a benefit already 

 available to the employee under the existing rule is 

 arbitrary, discriminatory and violative of the rights 

 guaranteed under Articles 14 and 16 of the 



 Thus, wherever the amendment purports to restore the 

status quo ante for the past period taking away the benefits already 

available, accrued and acquired by them, the law may not be valid. 

(Vide: P. Tulsi Das & Ors. v. Government of A.P. & Ors., AIR 2003 

SC 43)

25. In National Agricultural Cooperative Marketing Federation 

of India Ltd. & Anr. v. Union of India & Ors., (2003) 5 SCC 23, this 

Court held that the legislative power to amend the enacted law with 

retrospective effect, is also subject to several judicially recognized 

limitations, inter- alia, the retrospectivity must be reasonable and not 

excessive or harsh otherwise it runs the risk of being struck down as 


26. Vested right has been defined as fixed; vested; accrued; settled; 

absolute; and complete; not contingent; not subject to be defeated by a 

condition precedent. The word `vest' is generally used where an 

immediate fixed right in present or future enjoyment in respect of a 

property is created. It is a "legitimate" or "settled expectation" to 

obtain right to enjoy the property etc. (Vide: Mosammat Bibi Sayeeda 

& Ors., etc. v. State of Bihar & Ors., etc., AIR 1996 SC 1936; 


Howrah Municipal Corporation & Ors. v. Ganges Rope Co. Ltd. & 

Ors., (2004) 1 SCC 663; and J.S. Yadav v. State of Uttar Pradesh & 

Anr., (2011) 6 SCC 570).

27. In the matter of Government of a State, the succeeding 

Government is duty bound to continue and carry on the unfinished job 

of the previous Government, for the reason that the action is that of the 

"State", within the meaning of Article 12 of the Constitution, which 

continues to subsist and therefore, it is not required that the new 

Government can plead contrary from the State action taken by the 

previous Government in respect of a particular subject. The State, 

being a continuing body can be stopped from changing its stand in a 

given case, but where after holding enquiry it came to the conclusion 

that action was not in conformity with law, the doctrine of estoppel 

would not apply. Thus, unless the act done by the previous 

Government is found to be contrary to the statutory provisions, 

unreasonable or against policy, the State should not change its stand 

merely because the other political party has come into power. "Political 

agenda of an individual or a political party should not be subversive of 

rule of law". The Government has to rise above the nexus of vested 

interest and nepotism etc. as the principles of governance have to be 


tested on the touchstone of justice, equity and fair play. The decision 

must be taken in good faith and must be legitimate. [Vide: Onkar Lal 

Bajaj etc. etc. v. Union of India & Anr. etc. etc. AIR 2003 SC 2562; 

State of Karnataka & Anr. v. All India Manufacturers 

Organization & Ors. AIR 2006 SC 1846; and State of Tamil Nadu 

& Ors. v. K. Shyam Sunder & Ors. (Supra)]. 

28. In State of Tamil Nadu & Ors. v. K. Shyam Sunder & Ors. 

(supra), this Court while dealing with the issue held as under:

 "The Statement of Objects and Reasons appended to 

 the Bill is not admissible as an aid to the construction 

 of the Act to be passed, but it can be used for limited 

 purpose for ascertaining the conditions which 

 prevailed at that time which necessitated the making of 

 the law, and the extent and urgency of the evil, which it 

 sought to remedy. The Statement of Objects and 

 Reasons may be relevant to find out what is the 

 objective of any given statute passed by the legislature. 

 It may provide for the reasons which induced the 

 legislature to enact the statute. "For the purpose of 

 deciphering the objects and purport of the Act, the 

 court can look to the Statement of Objects and Reasons 

 thereof". (Vide: Kavalappara Kottarathil Kochuni @ 

 Moopil Nayar v. The States of Madras and Kerala & 

 Ors., AIR 1960 SC 1080; and Tata Power Company 

 Ltd. v. Reliance Energy Ltd. & Ors., (2009) 16 SCC 


 Similar view has been reiterated in A. Manjula Bhashini & 

Ors. v. Managing Director, Andhra Pradesh Women's Cooperative 


Finance Corporation Ltd. & Anr., (2009) 8 SCC 431 observing that 

for the purpose of construction of a provision, the wholesome reliance 

cannot be placed on objects and reasons contained in the Bill, however, 

the same can be referred to for understanding the background, the 

antecedent state of affairs and the mischief sought to be remedied by 

the statute. The Statement of Objects and Reasons can also be looked 

into as an external aid for appreciating the true intent of the 

legislature and/or the object sought to be achieved by enactment of 

the particular Act or for judging reasonableness of the classification 

made by such Act.

29. In M. Ramanathan Pillai v. State of Kerala & Anr., (1973) 2 

SCC 650, this Court relied upon American Jurisprudence, 2d. at page 

783 wherein it has been stated as under: 

 "Generally, a State is not subject to an estoppel to the 

 same extent as an individual or a private corporation. 

 Otherwise, it might be rendered helpless to assert its 

 powers in government. Therefore, as a general rule the 

 doctrine of estoppel will not be applied against the State 

 in its governmental, public or sovereign capacity."

30. In State of Kerala & Anr. v. The Gawalior Rayon Silk 

Manufacturing (Wvg.) Co. Ltd. etc., (1973) 2 SCC 713, a similar 

view has been re-iterated by this Court observing as under: 


 "We do not see how an agreement of the Government 

 can preclude legislation on the subject. The High Court 

 has rightly pointed out that the surrender by the 

 Government of its legislative powers to be used for 

 public good cannot avail the company or operate against 

 the Government as equitable estoppel."

 Therefore, it is evident that the Court will not pass any 

order binding the Government by its promises unless it is so necessary 

to prevent manifest injustice or fraud, particularly, when government 

acts in its governmental, public or sovereign capacity. Estoppel does 

not operate against the government or its assignee while acting in such 


31. The Government has inherent power to promote the general 

welfare of the people and in order to achieve the said goal, the State is 

free to exercise its sovereign powers of legislation to regulate the 

conduct of its citizens to the extent, that their rights shall not stand 


 The co-operative movement by its very nature, is a form 

of voluntary association where individuals unite for mutual benefit in 

the production and distribution of wealth upon principles of equity, 

reason and common good. So, the basic purpose of forming a co-

operative society remains to promote the economic interest of its 


members in accordance with the well recognised co-operative 

principles. Members of an association have the right to be associated 

only with those whom they consider eligible to be admitted and have 

right to deny admission to those with whom they do not want to 

associate. The right to form an association cannot be infringed by 

forced inclusion of unwarranted persons in a group. Right to associate 

is for the purpose of enjoying in expressive activities. The 

constitutional right to freely associate with others encompasses 

associational ties designed to further the social, legal and economic 

benefits of the members of the association. By statutory interventions, 

the State is not permitted to change the fundamental character of the 

association or alter the composition of the society itself. The 

significant encroachment upon associational freedom cannot be 

justified on the basis of any interest of the Government. However, 

when the association gets registered under the Co-operative Societies 

Act, it is governed by the provisions of the Act and rules framed 

thereunder. In case the association has an option/choice to get 

registered under a particular statute, if there are more than one statutes 

operating in the field, the State cannot force the society to get itself 

registered under a statute for which the society has not applied. 


32. The cases in hand require to be examined in the light of the 

aforesaid settled legal propositions. 

 The recommendations of the House Committee and the Group 

of Ministers, are not based on relevant material as there was no 

investigation of all the co-operative societies either converted to or 

registered under the Act 1995. The House Committee had primarily 

been assigned the task to look into the three District Milk Unions 

namely, Visakha, Ongole and Chittoor which had been running partly 

on the government aids. Out of the said three milk unions, Visakha and 

Ongole converted under the Act 1995, while Chittoor remained under 

the Act 1964 throughout and the material on record reveal that it was 

under liquidation even prior to the constitution of the House 

Committee. There is nothing on record to show that the House 

Committee had considered either the functioning of other more than 

3500 societies registered under the Act 1995, or consensus thereof 

arrived at by the Government, the Federation and the Unions at the 

meeting convened by the Chief Secretaries on 26.8.2003 alongwith 

other high officials of the co-operative section to solve the problems 

faced by the Government, the Federation and the Milk Unions within 

the framework of the Act 1995 and consistent with the statutory co-


operative principles. The House Committee also placed a very heavy 

unwarranted reliance on the views of the Federation communicated 

vide its letter dated 20.8.2005, without ascertaining the views of the 

District Unions.

33. Be that as it may, the House Committee did not recommend the 

amendment with retrospective effect, particularly, for the conversion of 

dairy co-operative societies registered under the Act 1995 into societies 

deemed to have been registered under the Act 1964. More so, the 

Committee did not consider at all as to whether it was permissible in 

law, to provide for such a course, so far as the societies initially 

registered under the Act 1995, were concerned. 

34. The restrictions so imposed by the Act 2006, with retrospective 

effect, extending over a decade and importing the fiction that the 

societies would be deemed to have been registered under the Act 1964, 

without giving any option to such societies suggest the violation of 

Article 19(1)(c) and are not saved by clause (4) of Article 19 of the 

Constitution. It is by no means conceivable, that the grounds on the 

basis of which reasonable restrictions could be invoked were available 

in the instant case.


35. It is evident from the record and elaborate discussion by the 

High Court that Mulkanoor Women Mutually Aided Milk Producers 

Co-operative Union Limited (W.P. No.3502 of 2006) increased its 

membership from 72 to 101 village dairy co-operative societies 

between 2000 and 2006, and increased milk procurement from 6000 

litres to 17,849 litres from the value of Rs.24.24 lakhs to Rs.53.00 

lakhs. The milk sales went up from Rs.9.30 lakhs to Rs.82.53 lakhs. 

The society declared bonus to the producers and substantially 

discharged its loans. It is encouraging thrift among the members by 

compulsorily organizing Vikasa Podupu scheme, which swelled from 

Rs.11.88 lakhs to Rs.1.13 crores. This society directly formed under 

the Act 1995 has to retain its character and there would be no 

justification to bring such a society with about 15,000 women members 

under a nominated agency. 

36. The impugned provisions have no nexus with the object of 

enforcing the 3-tier structure inasmuch as (a) the 1964 and the 1995 

Acts, both permit registration of Federations; (b) the Act 1964 does 

not contain any express provision providing for 3-tier structure; (c) the 

object of having a 3-tier structure could be achieved by the Federation 


registering itself under the Act 1995 as decided at the meeting of 

cooperative milk unions convened by the Chief Secretary on 

26.8.2003; and (d) even the Act 1964 does not treat Dairy Cooperatives 

as a separate class to be governed by a separate structure. As such from 

the stand point of structure and basic cooperative principles, all 

cooperative societies, are alike. The impugned provisions are arbitrary 

and violative of Article 14 as they deprived the Dairy Cooperative 

Societies of the benefit of the basic principles of cooperation. The 

amendments are contrary to the national policy on Cooperatives. They 

obstruct and frustrate the object of the development and growth of 

vibrant cooperative societies in the State. 

37. After conversion into Mutually - Aided Societies under the Act 

1995 with the permission of the Government as stipulated by Section 4 

(3)(a), the cooperative societies originally registered under the Act 

1964 cannot be treated as aided societies or societies holding the assets 

of the government or of the Federation. The Statement of Objects and 

Reasons itself shows that the government decided not to withdraw its 

own support suddenly. In fact, there was no aid given by the State after 

conversion. Chapter X of the Act 1964 which empowers the Registrar 

to recover dues by attachment and sale of property and execution of 


orders having been expressly incorporated in the Act 1995 by Section 

36, thereof there was no justification at all for the impugned 


38. After the incorporation of the cooperative principles in Section 4 

of the A.P. Cooperative Societies Act, 1964 read with Rule 2(a) of the 

A.P. Cooperative Societies Rules, 1964, by Amendment Act No. 22 of 

2001, the extensive control of cooperative societies by the Registrar 

under the Act 1964 has become incompatible and inconsistent with the 

said cooperative principles which mandate ensuring democratic 

member control and autonomy and independence in the manner of 

functioning of the cooperatives. These two, namely, extensive State 

control and ensuring operation of cooperative principles cannot be 

done at the same time. Therefore, the impugned Act 2006 which by a 

fiction in sub-section (1A) of Section 4 of the Act 1995 declares that all 

the dairy/milk cooperative societies shall be deemed to have been 

excluded from the provisions of the A.P. Cooperative Societies Act, 

1964 is arbitrary and violative of Article 14 of the Constitution. 

39. Comparative study of the statutory provisions of the Act 1964 

with that of Act 1995 makes it crystal clear that Government has much 

more control over the co-operative societies registered under the Act 


1964 and minimal under the Act 1995. The principles of co-operation 

adopted at international level have been incorporated in the Act 1995 

itself, while no reference of any co-operative principle has been made 

in the Act 1964. The Government is empowered to make rules on 

every subject covered by the Act 1964, while no such power has been 

conferred on the Government to make rules under the Act 1995. The 

affairs of the co-operatives are to be regulated by the provisions of the 

Act 1995 and by the bye-laws made by the individual co-operative 

society. The Act 1995 provide for multiplicity of organisations and the 

statutory authorities have no right to classify the co-operative societies, 

while under the Act 1964 the Registrar can refuse because of non-

viability, conflict of area of jurisdiction or for some class of co-

operative. Under the Act 1964, it is the Registrar who has to approve 

the staffing pattern, service conditions, salaries etc. and his approval is 

required for taking some one from the Government on deputation, 

while under the Act 1995 the staff is accountable only to the society. 

Deputation etc. is possible only if a co-operative so desires. The size, 

term and composition of board fixed under the Act 1964 and the 

Registrar is the ultimate authority for elections etc. and he can also 

provide for reservations in the board. Under the Act 1995, the size, 


term and composition of the board depend upon bye-laws of the 

particular society. For admission and expulsion of a member, Registrar 

is the final authority under the Act 1964, while all such matters fall 

within the exclusive prerogative of the co-operative society under the 

Act 1995. The Government and other non-members may contribute 

share capital in the societies registered under the Act 1964, wherein 

members alone can contribute share capital in a society registered 

under the Act 1995. Mobilisation of funds of co-operative society is 

permissible only within the limits fixed by the Registrar under the Act 

1964, while such mobilisation is permissible within the limits fixed by 

the bye-laws in a co-operative society under the Act 1995. Subsidiary 

organisations may be up by a co-operative under the Act 1995, while it 

is not no permissible under the Act 1964. In resolving of disputes, 

Registrar or his nominee is the sole arbitrator under the Act 1964, 

while the subject is exclusively governed by the bye-laws under the 

Act 1995. Role of the Government and Registrar under the Act 1964 is 

much more than under the Act 1995 as under the Act 1964, the 

Registrar can postpone the elections; nominate directors to Board; can 

appoint persons in-charge for State level federations; frame rules; and 

handle appeals/revisions/reviews; can give directions to co-operatives 


regarding reservations on staff and set up Special Courts and Tribunals, 

while so much control is not under the Act 1995. Similarly, Registrar 

has more say under the Act 1964 in respect of registering of bye-laws; 

approval of transfer of assets and liabilities or division or 

amalgamation or in respect of transfer of all members or 

disqualification of members etc. 

40. Statement of objects and reasons of the Act 1995 clearly 

stipulate that State participation in the financing and management of 

cooperatives in the past had led to an unfortunate situation and the 

cooperative societies were not governed/guided by the universally 

accepted principles of cooperation. Thus, the purpose to enact the Act 

1995 was to provide more freedom to conduct the affairs of the 

cooperative societies by its members. Clause 7 thereof clearly 

described the salient features of the legislation, inter-alia, to enunciate 

the cooperative principles which primarily place an assent on 

voluntarily self-financing autonomous bodies for removal from State 

control; to accept the cooperative societies to regulate their functioning 

by framing bye-laws subject to the provisions of the Act and to change 

the form or extent to their liability, to transfer their assets and liabilities 


to provide for the constitution of board and functions of the board of 


 Principles of co-operation as incorporated in Section 3 and given 

effect to in the other provisions of the Act 1995 permit better 

democratic functioning of the society than under the Act 1964. 

Whereas the Act 1995 provides for State regulation to the barest 

minimum, the Act 1964 provides for extensive State control and 

regulation of cooperative societies which is inconsistent with the 

national policy with regard to cooperative societies evolved in 

consultation and collaboration with the States which stands accepted by 

the State of A.P. and reflected in the Scheme of the Act 1995 which is 

based on the model law recommended by the Planning Commission of 


 Thus, reverting back to the cooperative societies under the Act 

1964 is a retrograding process by which the government would 

enhance its control of these societies registered under the Act 1995. 

They would be deprived not only of benefits under the said Act, but 

rights accrued under the Act 1995 would also be taken away with 

retrospective effect. 


41. Cooperative law is based on voluntary action of its members. 

Once a society is formed and its members voluntarily take a decision to 

get it registered under the Act X, the registration authority may reject 

the registration application if conditions prescribed under Act X are not 

fulfilled or for any other permissible reason. The registration authority 

does not have a right to register the said society under Act Y or even a 

superior authority is not competent to pass an order that the society 

would be registered under the Act Y. Such an order, if passed, would 

be in violation of the first basic cooperative principle that every action 

shall be as desired by its members voluntarily. Introducing such a 

concept of compulsion would violate Article 19(1)(c) of the 

Constitution of India. It is not permissible in law to do something 

indirectly, if it is not permissible to be done directly. (See: Sant Lal 

Gupta & Ors v. Modern Co-operative Group Housing Society Ltd. 

& Ors., JT 2010 (11) SC 273)

42. Act 2006 had been enacted without taking note of the basic 

principles of co-operatives incorporated in Section 3 of the Act 1995 

which provide that membership of a co-operative society would be 

voluntary and shall be available without any political restriction. The 

co-operative society under the Act would be a democratic organisation 


as its affairs would be administered by persons elected or appointed in 

a manner agreed by members and accountable to them. 

43. The legislature has a right to amend the Act 1995 or repeal the 

same. Even for the sake of the argument, if it is considered that 

legislature was competent to exclude the milk cooperative dairies from 

the operation of the Act 1995 and such an Act was valid i.e. not being 

violative of Article 14 of the Constitution etc., the question does arise 

as to whether legislature could force the society registered under the 

Act 1995 to work under the Act 1964. Importing the fiction to the 

extent that the societies registered under the Act 1995, could be 

deemed to have been registered under the Act 1964 tantamounts to 

forcing the members of the society to act under compulsion/direction of 

the State rather than on their free will. Such a provision is violative of 

the very first basic principles of cooperatives. More so, the Act is 

vitiated by non-application of mind and irrelevant and extraneous 


44. In view of the above, we do not see any cogent reason to 

interfere with the impugned judgment and order. The appeals lack 

merit and are accordingly dismissed. No costs.






New Delhi,

September 2, 2011


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