Anand Byrareddy, J.The petitioners in WP 109194-213/2014 are cooperatives registered under Section 5 of the Karnataka Souharda Sahakari Act, 1997 (Hereinafter referred to as the KSS Act, for Brevity). The petitioners are said to be carrying on business in accordance with the provisions of the KSS Act.

2. The KSS Act was said to have been amended by the Karnataka Souharda Co-operative (Amendment) Act. 2013, (Act No. 4 of 2013). As some of the provisions, namely, Section 21A, disabling the Co-operatives registered under the KSS Act in admitting nominal and associate members; Section 24, providing reservation for two persons on the Board from amongst the members of backward classes; Section 25, providing disqualification of Directors under certain circumstances and also part of Section 33 relating to audit, are ultra vires the Constitution of India and opposed to the very object of the KSS Act, some of the petitioners had filed writ petitions in WP 77847-77858/2013 (CS-RES) and WP 80210-217/2013 (CS-RES) questioning the vires of amendment to Section 21A, part of Sections 24, 25, and 33 of the KSS Act.

Even as the above said petitions were pending before this court, the KSS Act was further amended by the Karnataka Souharda Co-operative (Amendment) Act, 2014 (Act No. 34 of 2014). By virtue of the amendment, some of the amendments effected by Act No. 4 of 2013 were omitted while introducing fresh amendments. This had resulted in the petitioners withdrawing the above said writ petitions, with liberty to file fresh petitions, questioning the constitutional validity of the provisions introduced both under Act No. 4 of 2013 and Act No. 34 of 2014.

3. The connected petitions in WP 112106-108/2014, are also filed in identical circumstances as in WP 109194-213/2014 and the relief sought for is also identical.

4. The learned counsel for the petitioners, Shri Anant Hegde, would contend that the restrictions sought to be imposed by virtue of the aforesaid amendments are ultra vires and violative of Articles 14 and 19 of the Constitution of India. The text of the amended provisions are as hereunder. The amendments incorporated are highlighted in square brackets.

"Section 20A

["20A. Acceptance or refusal of membership -Whenever any person seeking membership of a Cooperative applies for the membership with requisite fee and share amount as prescribed in the bye-law of that Co-operative, the board of that Cooperative shall either grant membership for that person or refuse with reasons within sixty days from the date of receipt of application for membership. If no communication of admission as a member is received by the applicant before the expiry of the said period, his application for admission shall be deemed to have been accepted by the cooperative on the last day of the said period. If the applicant is refused membership, he can appeal to the Registrar against such refusal within thirty days from the date of refusal. The Registrar shall decide on such appeal and issue orders which the Co-operative has to implement within fifteen days from the date of order."]

Proviso to Section 21B(1)

["21B. Associate membership - (1) A Cooperative may admit, -

(a) any individual; or

(b) any firm, company, Co-operative society or any body or corporation constituted by or under any law for the time being in force.

- as an associate member for a specified purpose as specified in its bye-laws;

Provided that no Co-operative shall have as its associate members more than ten percent of total members. In case if a Co-operative already has associate members more than ten percent of its total membership, the excess associate members shall be either converted as an ordinary member of Cooperative or removed from associate membership of Co-operative within six months from the date of coming in to force of the Karnataka Souharda Sahakari (Amendment) Act, 2014.

(2) An associate member can have shares of Cooperative but is not eligible to be an office-bearer of Cooperative. An associate member cannot take part in the management of Co-operative and cannot vote in any meetings or election of the Co-operative.]

(3) Save as provided in this section an associate member shall have all the rights and duties of a member as specified in the byelaws of a Co-operative.]

Section 22

["Restriction on collection of deposits from non-members - No cooperative except those have obtained license from Reserve Bank of India to do banking business, can collect deposits either from any non-members or nominal members"]

Section 24

"24. Constitution of the Board - The Board of every cooperative shall consist of not less than eleven but not exceeding the number of [elected] members specified below excluding the chief executive namely,-

(1) in case of a primary cooperative and a secondary cooperative whose area of operation extends to,-

(a) a part of taluk, eleven members;

(b) whole of taluk, thirteen members;

(c) beyond a taluk but not beyond a district, fifteen members;

Provided that in case of an urban cooperative bank having an area of operation not beyond a district, the maximum number shall not exceed seventeen members.

(a) beyond a district, seventeen members

(b) in the case of a union cooperative, nineteen members

(c) in the case of an apex cooperative including the federal cooperative, twenty one members.

Provided that one seat shall be reserved in favour of members belonging to scheduled castes be reserved in favour of members belonging to backward classes, [in such manner] on the board of every co-operative consisting of individuals as members and having members from such class or category of persons.

Provided further that every cooperative shall co-opt persons having experience in the field of banking, management, finance or specialization in any other field relating to the objects and activities undertaken by the cooperative, as members of the board of such cooperative and such co-opted members shall not have the right to vote in any election of the cooperative in their capacity as such member or to be eligible to be elected as office bearers of the board. Provided also that the number of such co-opted members shall not exceed two in addition to twenty one directors specified in sub-section (1).

Provided also that not more than three functional directors,[if necessary] of a cooperative shall also be the members of the board and such members shall be excluded for the purpose of counting the total number of directors specified in the sub-section (1).

(2) [Save as otherwise in the Act, the term of the directors will be five years from the date of election.

Provided, the term of the directors of Souharda Federal will ends with the Co-terminus of the representative co-operative.]"

(3) The chief executive shall be an ex-officio member of the board and shall not have a right to vote in the election of the office bearers."

Section 33(19)

["(19). The remuneration of the auditor or auditing firms of a Co-operative shall be borne by the Co-operative and shall be at such rates as may be fixed by general body of the cooperative."]

It is contended that Section 20A has been introduced. Section 20A provides for acceptance or rejection of an application seeking membership of a co-operative. The provision provides 60 days time to either accept the application seeking membership or to reject the same. The Section also provides that if no decision on the application is communicated within 60 days to the applicant, it shall be deemed that the application seeking membership is granted. This provision relating to deemed membership is ultra vires the constitution and also the provisions of the Act.

Section 20 of the KSS Act stipulates certain qualification to be eligible to apply for membership and also contemplates certain situations where a person becomes ineligible to be a member. Thus, the provision relating to deemed admission is contrary to Section 20 of the KSS Act, in as much as the said provision grants admission to membership of a co-operative though a person seeking admission may be ineligible to be a member in terms of Section 20 of the KSS Act.

The provision relating to deemed admission under Section 20 does not even specify the category of membership to which a person is deemed to have been admitted. The provision is, therefore, vague and thus leads to confusion.

Section 21A, before the amendment Act No. 4 of 2013, enabled co-operatives registered under the KSS Act to admit any individual, any firm, company, co-operative society, cooperative or any body or corporation constituted by or under any law for the time being in force as an associate member and associate members were entitled to hold shares by constituting to the share capital of the co-operative. Section 21-B, which is now introduced by way of amending Act No. 34 of 2014 in so far as admission of associate members introduces a ceiling limit of a maximum of 10% of the total members to a Co-operative. Article 45-B of the Constitution of India provides that the State shall endeavour to promote voluntary formation, autonomous functioning, democratic control and professional management of co-operative societies. Thus, Article 45-B ensures a certain degree of freedom for co-operatives in its management as well as functioning. Thus, a co-operative registered under the KSS Act certainly enjoys the freedom in admitting members. Before amendment under Act No. 4 of 2013, there was no restriction on the number of associate members, who could be admitted to the membership of the co-operative. This provision enabled the co-operative to raise funds required for running a cooperative by admitting associate members. The amended Section 21-B takes away the right to admit associate members in excess of 10% of total membership and as such, the cooperative is restrained from carrying on its business with any firm, company, co-operative society, co-operative or any body or corporation constituted by or under any law for the time being in force, in excess of 10% of the prescribed limit. The right to carry on business with the members is sought to be curtailed by imposing the ceiling limit on number of associate members. Thus, the amended provisions violate Article 19(1)(c)(g) of the Constitution of India and is liable to be struck down as ultra vires of constitution. The amended Section 21B does not achieve any of the objects set out in the statement of objects and reasons of the KSS Act.

The legislation was enacted with the following object and reasons.

"STATEMENT OF OBJECTS AND REASONS Act 17 OF 2000 - The Karnataka Souharda Saharakari Bill, 1997 among other things provide for;-

(1) the recognition, encouragement and voluntary formation of co-operatives based on self help, mutual aid, wholly owned, managed and controlled by members as accountable, competitive, self-reliant and economic enterprises guided by co-operative principles specified therein;

(2) removing all kind of restrictions that have come to clog the free functioning of the co-operatives and the controls and interference by the Government except registration and cancellation;

(3) promotion of subsidiary organization, partnership between co-operatives and also collaboration between co-operatives and other institutions;

(4) registration of co-operatives, union cooperatives and Federal co-operative in furtherance of the objectives specified above.

(5) Conversion of co-operative societies registered under the Karnataka Co-operative Societies Act, 1959 as a co-operative under the proposed legislation.

The objects and reasons culled out above leave no doubt that the intention of Legislature is to remove all kinds of restrictions that have come to clog the smooth functioning of co-operatives and also to ensure partnership between cooperatives and other institutions. It also provides for a management, wholly owned by the members. In that view of the matter, proviso to Section 21-B not allowing more than 10% of the total membership of the co-operative to be associate members, runs contrary to the very object behind the enactment. The restrictions imposed are impermissible under Article 19(4) of the Constitution of India, as the restrictions on the number of associate members does not achieve the object of situations and circumstances set out in Article 19(4) of the Constitution. There is no nexus between the object and amendment introduced by way of Section 21B of the KSS Act. On this count alone, a part of Section 21-B restricting total number of associate members to 10% of the total membership of a co-operative is liable to be struck down.

Section 22 of the KSS Act prohibits a co-operative, except the co-operative banks licensed by the Reserve Bank of India, from collecting deposits from nominal members. The definition of a member as provided in Section 2(r) includes a nominal member. The restrictions imposed in Section 22 does not pass the test of reasonable restrictions found in Article 19(4) of the Constitution of India. The restrictions imposed in Section 22 of the KSS Act is not applicable to co-operative banks licensed by the Reserve Bank of India and treating such co-operatives banks as holding license from the Reserve Bank of India and co-operatives not being so is violative of Article 14 of the Constitution of India.

It is further contended that the nominal members form a major section of the co-operatives. If co-operatives are prevented from accepting deposits from such members, the cooperatives will lose a major portion of their working capital, which would have flown to the co-operative. Thus, the restriction imposed in Section 22 does not achieve the object of the KSS Act and its constitutional goal.

Article 243ZJ provides for representation of persons belonging to Scheduled Castes and Scheduled Tribes on the Board of a Co-operative. The Constitution does not mandate any other reservation. However, Section 24 mandates reservation of persons belonging to Backward Classes on the Board of the Cooperative. Thus, reservation to the Board mandated in Section 24 is contrary to the Constitutional mandate.

In view of the fact that Part IXB of the Constitution is struck down, there is no mandate to provide for reservation in respect of a scheduled caste, a scheduled tribe and women on the Board of Co-operative. Section 24 providing for reservation on the Board does not in any way help to achieve the object of the KSS Act. Thus, there is no nexus between the object sought to be achieved and the amendment. Section 24 also violates Article 19(c) of the Constitution of India, as restrictions imposed are not permitted under Article 19(4) of the Constitution.

Section 33(19) of the KSS Act before amendment empowered the General Body to fix the fees of the auditor. The amended Section 33(19) empowers the Director of Cooperative Audit to frame guidelines to fix the auditors fees. This amendment again is impermissible under Article 19(4) of the Constitution of India.

The learned Counsel has placed reliance on the following authorities in support of his contentions.

"i) Society for Un-aided Private Schools of Rajasthan Vs. Union of India (UOI) and Another,

ii) State of Maharashtra and Another Vs. Indian Hotel and Restaurants Assn. and Others, ,

iii) Papnasam Labour Union v. Madura Coats Ltd. on 8 December, 1994"

5. The learned Additional Advocate General, Shri A.G. Shivanna, contends as follows :

"It is contended that the Constitution of India has been amended by the 97th amendment and this has come into force with effect from 13.1.2012 and the same has been published in the Gazette of India (Extraordinary Part-2) as per annexure-I. Under this amendment, Article 43-B and Articles 243ZH to 243ZT have been inserted. Accordingly, the Souharda Sahakari (Amendment)Act 2012 has been passed by the Karnataka Legislature and it is published in the Karnataka Gazette Extraordinary dated 11.2.2013 and has been given effect with effect from 11.2.2013.

It is contended that Section 21A of the Karnataka Souharda Sahakari Act, 1997, had provisions both for nominal and associate members, before amendment. After the amendment, only a nominal member has been retained in Section 21, as the Souharda Sahakari Co-operatives were admitting more associate members than the regular members, denying the rights that were available to regular members.

It is contended that the provision to admit associate members has been reintroduced in Section 21 vide Government Notification dated 06.09.2014 published in Karnataka Gazette (Karnataka Souhardha Sahakari (Amendment) Act 2014), making provisions for admission of associate members not exceeding 10% of the total membership. Further, as per this new section, if the number of associate members is more than 10% of the total membership, such members shall be enrolled as regular members or removed from membership within a period of six months from the date of introduction of this amendment.

It is contended that regarding provision for reservations in respect of Scheduled Castes, Scheduled Tribes, Women and back ward classes on the Boards of Souharda Co-operatives, the petitioners contention is that, by providing reservation under Section 24 of the KSS Act, the State Government has taken away the fundamental rights, guaranteed under the Constitution, of the Co-operatives and reservation is not relevant to the business of the Co-operatives. The contention of the petitioners is baseless as it is an established fact that the Co-operative sector has an important role in the economic growth of the needy and providing reservation in Co-operatives ensures the economic growth of Co-operatives as well as the weaker sections of society, such as the Scheduled Castes and Scheduled Tribes, Women and Backward classes. The Government policy, as envisaged in the directive principles of the Constitution, should be proactive in the promotion of Cooperatives and as substantial Government funds are being spent directly or indirectly for this purpose, it is the duty of the State Government to ensure justice while providing reservation to Scheduled Castes and Scheduled Tribes, Women and Backward classes. The 97th Amendment, keeping this in view, has mandated reservation to Scheduled Castes, Scheduled Tribes, Women and Back Ward classes.

It is contended that the main object of introducing Section 25(h) is to ensure strict compliance and implementation of the KSS Act and the principles of Co-operative Movement. The disqualification of the member of the committee of the Cooperative occurs only if such committee fails to coordinate with the Election Commission, to conduct election to the Committee of such Co-operative and fails to convene the Annual General Meeting within six months after closing of the Co-operative year and to submit statutory reports and the information required by the Registrar. These are all the fundamental duties of the Committee of every Co-operative. If the committee fails to perform its duties, it is only then that the question of disqualification occurs. If there is no provision for disqualification, it will allow the committee to escape its obligation.

It is contended that the 97th amendment to Article 243ZM of the Constitution of India, the Director of Co-operative Audit is empowered to prepare a panel of audit firms based on the prescribed qualification and experience and also under the provisions of the Chartered Accountants Act, 1949. The General Body of the Co-operative shall have the power to appoint auditors from the panel prepared by the Director of Cooperative Audit. The purpose of introducing this provision is to prescribe the qualification and experience of the auditor which is essential to complete the audit of all the Co-operatives, effectively. Hence, the contention of the petitioner that the proviso to Section 33 restricts the choice of the General Body is baseless.

It is contended that the 97th amendment to Article 243ZJ(1) of the Constitution of India empowers the state to amend the provisions of Karnataka Souharda Co-operative Societies Act, 1997. As such, the Government has amended relevant provisions based on the principles of Co-operative Movement. Therefore, the contention of the petitioners is that the legislation was intended to remove all kinds of restrictions that have come to clog the smooth functioning of the Cooperative is not substantial.

Reliance is placed on the following authorities :

i) The Deputy Commissioner, Kodagu District, Madikeri and Others Vs. Robert DSilva (Deceased) by L.Rs, ,

ii) K.P. Shenoy Vs. State of Karnataka, .

6. On a consideration of the above contentions and on an examination of the relevant provisions, it is seen that the following aspects emerge.

Section 20-A is introduced by the Amendment Act, Act No. 34 of 2014. It contemplates a deemed admission of a member to the Co-operative. In other words, a Co-operative, on receipt of a valid application, seeking membership, is required to either accept or refuse membership after assigning reasons, within 60 days from the date of receipt of the application. In the event that the Co-operative should fail to respond to the application, the applicant is deemed to be a member from the 60th day of the application having been received by the Co-operative.

It is the claim of the petitioners that the said provision would result in several undesirable consequences, apart from running counter to other provisions of the Act. It is noticed that Section 20 of the KSS Act prescribes certain eligibility criteria to be a member of a Co-operative. Apart from this, the Co-operative itself is enabled under Section 20(1)(c), to prescribe other eligibility criteria in its bye-laws, in addition to what is prescribed by the statute. It is hence contended that if for some valid reason, the Co-operative is unable to process an application for membership within the prescribed period, by virtue of the deeming provision, it is quite possible that an ineligible applicant would acquire membership. Secondly, it is sought to be pointed out that there are three categories of members, namely, a member who is a share holder, a nominal member and an associate member. And that the Section is silent as to the category of membership to which such an applicant is deemed to be admitted.

It cannot be accepted that the above said provision results in any grave consequences. It does place a compulsion on the Board of Directors to deal with any application for membership - with expedition. Even in the event of an applicant being admitted by default, by virtue of the deeming provision aforesaid, should the applicant be found to be ineligible or if the application was, for any other reason - invalid, the Board of Directors are amply empowered under Sub-section (3) of Section 20 of the KSS Act, to remove such member on account of such ineligibility or invalidity of the membership on other grounds.

Further, in so far as the contention that when an applicant is deemed to be member, it would not be evident as to the category to which he is admitted and therefore would result in an anomalous situation, is also not acceptable. For one, the application itself would require the applicant to state the category to which membership is sought. The share amount, submitted along with the application, would be another indicator as to the category to which membership is sought. A share amount is contemplated only in respect of a regular member and an associate member. A nominal member is not entitled to hold any shares.

Therefore, it cannot be said that the said provision is arbitrary and unreasonable.

In so far as the insertion of Section 21-B and the embargo that there shall not be more than 10% of the total members as associate members and that such members should either be made regular members or should be removed after a period of six months, if they do not choose to become regular members, is reasonable and would ensure that there is a compulsion to either participate fully in the affairs of the cooperative or make way for such other interested persons who may usefully contribute to the functioning of the Co-operative and its growth. The contention that the management would be discriminating as between persons opting for such membership, when the 10% of such members are to be chosen periodically, is not a tenable ground of challenge to the constitutional validity of the said prescription. The said provision seeks to ensure that the regular membership is not surpassed by the strength of the associate members. And that the Associate members do not indefinitely continue as such. The complaint that the Co-operative would be forced to discriminate as between applicants seeking such membership may not be tenable. The Co-operative in such an eventuality follow a first come first served-rule.

The insertion of Section - 22, which prohibits collection of deposits from a non -member, in the event the Co-operative has not obtained a license from the Reserve Bank of India to do banking business, is not unreasonable. It obviously seeks to protect the interest of non-members whose interest would be better protected if their deposits are made with a Co-operative with a license from the RBI to do banking business. No cooperative is prohibited from obtaining a license to do banking business from the RBI.

Section 24 of the KSS Act is sought to be questioned on the ground that the mandate of the Constitution of India in terms of Article 243ZJ cannot be pressed into service by the State Government in justifying the reservation for two members of the backward classes to be elected to the Board of Directors of the Co-operative, is not enforceable, on the footing that the State has no power to make law providing reservation on the Board, in view of Part IXB of the Constitution of India having been struck down as unconstitutional by the Gujarat High court. However, no such judgment is produced. In any event, the State having imposed such a condition cannot be said to be unconstitutional, as the endeavour apparently is to advance social justice by providing access to the backward classes to participate in the management of Co-operatives. The State does have that prerogative, when in terms of the 97th Amendment to the Constitution of India, the State is empowered to amend the provisions of the KSS Act and especially when it provides aid and assistance in ample measure to the co-operatives.

In so far as the challenge to Sub-section (19) of Section 33 empowering the Director Co-operative Audit to frame guidelines to fix the auditors fees only ensures that a panel of well qualified auditors is in place and the fees payable is also fixed, thereby ensuring better accountability. The allegation that the engagement of auditors is strictly in the realm of contract and hence the imposition of a panel of auditors and the fixed fee being draconian, cannot be sustained. The provision is in the nature of a regulatory measure and does not result in oppression or the curtailment of a right warranting the interference of this court.

Hence, the petitions do not merit consideration and are dismissed.