The Supreme Court has held that the reorganisation of a State does not automatically transform a cooperative society registered under a State Act into a multi-State cooperative society under Section 103 of the Multi-State Cooperative Societies Act, 2002. The Court clarified that the applicability of the deeming provision under Section 103 requires a factual enquiry into whether the “objects” of the society—not merely its “area of operation” or the residence of its members—extend to more than one State.
A Bench comprising Justice Vikram Nath and Justice Sandeep Mehta allowed the appeals filed by the State of Uttar Pradesh, setting aside a 2008 judgment of the Allahabad High Court which had divested the State of its authority over a cooperative sugar factory.
Legal Issue and Outcome
The core legal issue before the Apex Court was “Whether, by virtue of Section 103 of the Multi-State Cooperative Societies Act, 2002, the subject cooperative society, though originally registered under the statute enacted by the appellant-State, stands transformed into a multi-State cooperative society on account of the State reorganization.”
The Supreme Court answered in the negative, ruling that Section 103 is attracted only where the “objects” of the society extend to more than one State. Consequently, the Court set aside the High Court’s declaration that the steps taken by the State of Uttar Pradesh regarding the privatization of the sugar mill were without jurisdiction.
Background of the Case
The case involved the Kisan Cooperative Sugar Factory Limited, registered at Majhola, District Pilibhit, Uttar Pradesh, under the Uttar Pradesh Cooperative Societies Act, 1965 (originally under the 1912 Act).
Following the enactment of the U.P. State Reorganization Act, 2000, the erstwhile State of Uttar Pradesh was bifurcated into Uttar Pradesh and Uttarakhand. In 2007, the State of Uttar Pradesh undertook measures to privatize financially unviable cooperative sugar mills, including the subject society, through the U.P. Cooperative Societies (Amendment) Ordinance, 2007.
Shareholders of the society (Respondents herein) challenged these actions before the Allahabad High Court. They contended that post-reorganisation, the society had become a multi-State cooperative society by virtue of Section 103 of the Multi-State Cooperative Societies Act, 2002 (Central Act), as its members and operations extended to the new State of Uttarakhand. Therefore, they argued, the State of U.P. lacked legislative competence to regulate it.
The High Court accepted this plea, holding that Section 103, being a deeming provision, applied, and declared the State’s actions non est in law. The State of Uttar Pradesh appealed this decision.
Arguments of the Parties
The Appellant-State argued:
- The subject society and its sugar mill are situated exclusively within Uttar Pradesh.
- In a 2006 joint meeting between U.P. and Uttarakhand officials, it was settled that no financial claims remained between the two States regarding cooperative sugar mills. The State of U.P. holds 95% of the shares.
- Section 103 of the Central Act applies only if the “objects” of the society extend to more than one State. The High Court erred by conflating “area of operation” or member residence with “objects”.
- The society continues to be registered under the State Act, and no central authority has asserted control over it for decades.
The Respondents (Shareholders) contended:
- Post-reorganisation, some members resided in Uttarakhand, and sugarcane was procured from growers in that State.
- The society’s bye-laws included areas now in Uttarakhand (Tehsil Khatima) within its “area of operation.”
- Citing the Supreme Court’s decision in Naresh Shankar Srivastava v. State of Uttar Pradesh (2009), they argued that Section 103 is attracted when activities extend to more than one State, triggering the deeming clause.
Court’s Analysis
The Supreme Court undertook a detailed interpretation of the Multi-State Cooperative Societies Act, 2002.
Distinction between ‘Objects’ and ‘Area of Operation’ The Court emphasized that Section 103 specifically uses the term “object of the society” and does not refer to the “area of operation.” Referring to Section 10(2) of the Central Act, the Bench noted that the statute draws a clear distinction between the two.
Justice Vikram Nath, writing for the Bench, observed:
“Therefore, when Section 103 specifically employs the expression ‘object of the society’, the plain and natural meaning of that expression must be given effect to, and it would not be permissible, by interpretative process, to substitute or read into it the concept of ‘area of operation.'”
Relevance of Member Residence The Court rejected the High Court’s reliance on the residence of shareholders. Interpreting Section 5(1)(a) of the Central Act, the Court stated that the requirement for a multi-State society is that its “main objects are to serve the interests of members in more than one state.”
“The expression ‘more than one State’ does not qualify or relate to the residence or domicile of the members… In other words, the geographical location or residence of the members is wholly irrelevant for determining whether a cooperative society attains the status of a multi-State cooperative society.”
Applicability of Section 103 The Court held that Section 103 is not automatic. It requires a fact-specific inquiry into the bye-laws. If the “objects” are confined to one State after reorganisation, the Central Act does not apply.
In the present case, the Court noted that the Respondents relied on the “area of operation” extending to Uttarakhand but failed to show that the “objects” extended to more than one State. The State’s assertion that the objects were confined to Uttar Pradesh remained effectively admitted.
Decision
The Supreme Court concluded that the High Court committed an error by assuming automatic conversion based on Section 103 without examining the objects of the society.
Summarizing its findings, the Court held:
“It would be erroneous to undertake an enquiry into the area of operation of a society for the purposes of Section 103, when the provision itself mandates an examination only of the objects of the society… The residence or domicile of the members of the cooperative society has no bearing on determining whether the society is a multi-State cooperative society.”
The appeals were allowed, and the writ petitions filed before the High Court were dismissed.
Case Details:
- Case Title: The State of Uttar Pradesh Through Principal Secretary & Ors. v. Milkiyat Singh & Ors. Etc.
- Case No: Civil Appeal No(s). 7050-7051 of 2010
- Coram: Justice Vikram Nath and Justice Sandeep Mehta
- Cited Case: Naresh Shankar Srivastava v. State of Uttar Pradesh, (2009) 16 SCC 157
