Kerala High Court upholds orders amalgamating district cooperative banks


The Kerala High Court on Wednesday upheld orders amending the Kerala Cooperative Society Act to merge the state’s district cooperative banks with the Kerala State Cooperative Bank.

Pronouncing a detailed judgment on the question, Justice Raja Vijayaraghavan tenuous,

“The challenge raised… of the constitutional validity of the amendment made… in accordance with Ordinance 6 of 2020 and promulgated… must necessarily fail on all grounds.

What led to the proceedings in the High Court

The Kerala Cooperative Society Rules provide three-tier systems, primary, district and state for mobilizing agricultural credit.

  1. Agricultural credit cooperative societies, cooperative service banks, regional cooperative banks, rural banks, cooperative banks providing services to farmers at the primary level,
  2. District cooperative bank for each district, and
  3. Kerala State Cooperative Bank at the top.

After consultations, the government of Kerala proposed changes to the existing structure, stating that the district level as well as the state increased the cost of interest without offering significant benefits to the lower level, Primary Agricultural Credit Societies (PACS ). An ordinance amending section 14 of the Kerala Cooperative Society Act, as it relates to district cooperative banks, was enacted to merge district and state banks.

Following an unsuccessful challenge to the ordinance, the Malappuram District Co-operative Bank opposed the proposal to merge its district co-operative bank with the State Co-operative Bank.

Another ordinance was enacted authorizing the Registrar of Cooperative Societies to order the merger of the district cooperative bank with the state-level bank.

In court, some petitioners opposed the orders, while sections of the Malappuram District Cooperative Bank have called for their bank’s expedited merger with Kerala State Cooperative Bank.

The questions the High Court faced

Does the act authorizing the merger other than by a voluntary act of the parties violate the fundamental right to associate under Article 19 (1) (c) of the Constitution?

The Court underlined that Article 19 (1) (c) protects the rights of citizens to associate. Relying on a decision of the High Court which declared that cooperative societies were not citizens within the meaning of Article 19 (1) (c), the Court pointed out,

“It is one thing to say that a citizen has the right to form a cooperative society and quite another to say that a member society has the right to form a central society.

The Court also stated,

“Firstly, a cooperative society is not a citizen who alone can have basic rights guaranteed under Part III of the Constitution of India and secondly, even a citizen does not have the basic right to be a member of a society The right of a citizen to be a member of a society is governed by law, rules and regulations Co-operative societies are governed by law. They are created by law, they are governed by law and, therefore, there can be no objection to the interference of the law in their composition for violation of the individual right to freedom of association.

On legislative competence and whether the promulgation of ordinances amounted to a disguised exercise of power

The Court drew attention to entry 32 of List II read with the ninth annex and declared that the State was empowered to legislate on the subject of cooperative societies.

Further, the Court returned the objects and grounds of the Kerala Cooperative Societies Act and ruled that the amendment aimed at speeding up the merger process was not outside legislative competence.

“We cannot therefore say that the legislature was incompetent to make the amendment to effect their political decision to delay the cooperative structure”, the judgment stands.

Has the amendment eroded cooperative principles

Ruling in the negative, the court ruled that the changes would effectively strengthen the spirit of the Cooperative Societies Act, as farmers and individuals at the primary level would now be able to express their views in the supreme body. rather than through an intermediary organization.

“By removing the middle level, the lowest level will play a direct role in the decision-making process within the Bank at the state level. In other words, the ultimate beneficiary would be the member, which constitutes the DNA of the cooperative structure. “ the court has ruled.

On the question whether the district cooperative banks were distinguished in violation of article 14 of the the Constitution

The Court held that the classification was based on reason and rested on a solid and intelligible basis.

It has been said,

“Having considered the basis on which the classification was made, the reasons for it, the purpose for which it was carried out, I have no doubt in my mind that the identification of DCB for the purposes of the merger cannot be considered arbitrary and discriminatory. The order under appeal therefore adopted a characterization founded on solid and intelligible grounds and can very clearly withstand the test established in the decisions of the Supreme Court as well as of this Court. Arbitrary and unreasonable acts do not seem to me, at first glance, to be one of them. “

Since the legislature was competent to legislate on the subject, the Court further stated that no allegation of bad faith could be made on the order.

If the re-promulgation of the order is an exercise of disguised power

The court ultimately upheld the enactment of the order by stating that the same had been done in light of the pandemic. Addressing the the pandemic is raging relentlessly even after the judgment has been handed down, the judge said,

“I am of the opinion that it is because of an extraordinary and unprecedented situation that the government has been unable to present and have the legislature adopt a bill containing the same provisions as in the ‘Ordinance and it is because of the said circumstance that the Governor has deemed it necessary to re-enact the Ordinance. The pandemic still rages relentlessly, even when this judgment is passed and the nation faces a crisis like never before. “

For these general reasons, the Court upheld the orders relating to the merger of the District Co-operative Banks and the Co-operative Bank of Kerala and ordered the expedited merger of the Co-operative Bank of Malappuram with the Bank of Kerala.

Click here to download the judgment


Comments are closed.