Prabhakaran v. Registrar of Co-op. Societies — 1990 DIGILAW 134 (KER)

Judgment :- Petitioner is a dealer in Pump sets, Sprayers and other agro machineries. 2nd respondent, Regional Agro Industrial Co-operative Limited (RAIDCO) is also dealing in agricultural machineries like the petitioner. First respondent, the Registrar of Cooperative Societies, by Ext.P2 Circular No.18/89 dated 30-2-1989, directed all Land Development Banks, District Co-operative Banks and Service Co-operative Banks in the State to patronise RAIDCO in preference to private dealers. By this circular, according to the petitioner, agriculturists who are granted agricultural loans as per the Scheme evolved by NABARD (National Bank for Agriculture and Rural Development) are required to purchase agro machineries manufactured and marketed through 2nd respondent. It is thus interfering with his fundamental rights to carry on business guaranteed under Article 19(1)(g) of the Constitution. It is also contended that first respondent by Ext.P2 illegally preferred 2nd respondent to private dealers in agro machineries outside co-operative sector and consequently violates the provisions contained in Article 14 of the Constitution. Yet another argument advanced by the learned counsel representing the petitioner is that the Registrar of Co-operative Societies has no power to issue a circular likeExt.P2 interfering with the rights of loanee of agricultural loans from co-operative banks and societies to purchase pump sets of their own choice. 2. On behalf of first respondent, Joint Registrar of Co-operative Societies (Marketing and Processing) has filed a very detailed counter affidavit. The contentions raised therein are to the following effect. Amount made available by the NABARD is distributed through primary co-operative societies at the grass root level. Funds provided by NABARD for agricultural purposes is in the nature of a re-financing process. Co-operative institutions raise funds and issue the same to primary cooperative societies or to primary Land Development Banks initially and then avail re-financing from NABARD. In accordance with the exigencies of situations, reimbursement by NABARD may be complete or partial. In that sense when farmers are financed by co-operative institutions, they have stake in the matter. Co-operative institutions are getting substantial State aid in the process of raising funds and in that sense the State has also stake in the matter. So, the State has to safeguard the interest of the funds made available to co-operative institutions. Over-all supervision of this process is left with co-operative department and therefore, first respondent is duty bound to oversee the process of distribution of Joans and its reimbursement by NABARD. So, the State has to safeguard the interest of the funds made available to co-operative institutions. Over-all supervision of this process is left with co-operative department and therefore, first respondent is duty bound to oversee the process of distribution of Joans and its reimbursement by NABARD. It is in this context that first respondent has issued Ext.P2 circular. Ext.P2 was issued under authority from S.66 of the Co-operative Societies Act (hereinafter referred to as 'the Act') read with Rules 56 and 67 of the Rules framed thereunder. Even in the absence of Governmental involvement, co-operative societies are entitled to preferential treatment at the hands of the Government in accordance with the provisions contained in Chapters V and VI of the Act. First respondent is a functionary under the Kerala State Co-operative Agricultural Development Banks Act, 1984, as well. Under S.9 of that Act, loans are to be distributed on the basis of the principles of evaluation approved by the Registrar. The amount disbursed to the farmers by primary societies are advanced by the State Agricultural Development Bank or State Co-operative Bank. These banks are supervised by first respondent. First respondent has to safeguard the interest of the Government as well. Ext.P2 has not violated the petitioner's rights either under Article 14 or Article 19(1)(g) of the Constitution. Petitioner is not entitled to any of the relief's asked for. 3. 2nd respondent in its turn has filed another counter affidavit reiterating the stand taken by first respondent. 2nd respondent has tried to highlight the method adopted by private distributors of agro machineries to exploit the agriculturists. 4. From the pleadings it is abundantly clear that agricultural loans are given to genuine agriculturists. They are to make use of the loan for purchase of agro machinery for augmenting the agricultural production. According to the petitioner, the loans availed of by 'the agriculturists have to be utilised by them in purchasing she agro machinery according to their volition. The loanee must have the freedom to select the dealer from whom the machineries are to be purchased. By Ext.P2 circular first respondent has imposed a restriction on that freedom of choice. As per that circular, the primary societies which advances loans should take steps to get agro machineries manufactured or supplied by 2nd respondent alone purchased. Consequently, it is urged that Ext.P2 interferes with the freedom of the petitioner under Article 19(1)(g) of the. By Ext.P2 circular first respondent has imposed a restriction on that freedom of choice. As per that circular, the primary societies which advances loans should take steps to get agro machineries manufactured or supplied by 2nd respondent alone purchased. Consequently, it is urged that Ext.P2 interferes with the freedom of the petitioner under Article 19(1)(g) of the. Constitution. Since the circular provides for an unreasonable preference to 2nd respondent, it is violative of the equality provisions contained in Article 14 of the Constitution as well. 5. First respondent has no ease that primary co-operative societies are supplying agro machinery to the members of the society. Primary societies are not distributing machinery to the loanees. Societies are advancing agricultural loans to its members as per the Scheme adopted by the NABARD. The Ioanee has to utilise the loan for the purpose for which it is advanced. Invariably the loan amount is intended for purchasing agro machinery which will go to augment the agricultural production. In utilising that loan can the Registrar impose a condition that the loanees should purchase the machinery through 2nd respondent alone? Will such a direction issued by the Registrar interfere with the fundamental right of the petitioner to carry on business in agro machinery guaranteed under article 19(1)(g) of the Constitution? 6. Agriculturists, as stated earlier, are getting loans as per the Scheme adopted by NABARD. The money so advanced is to be utilised for augmenting the agricultural produce. For that he has to purchase agro machinery. If the Ioanee has the freedom to select the machinery and purchase the same from dealers of his choice, he may approach the petitioner or dealers other than 2nd respondent. Depending upon his volition, he can purchase the machinery from any dealer including 2nd respondent. If the Ioanee chooses to purchase the machinery from 2nd respondent, petitioner cannot raise any complaint. But if first respondent interferes with the loanee's freedom of choice and directs him to purchase agro machinery from 2nd respondent only, that direction will interfere with the petitioner's right under Article 19(1)(g) of the Constitution. By Ext.P2 the Registrar has directed the Co-operative banks which advance loans to patronise 2nd respondent, meaning thereby to direct the loanee to purchase agro machineries from 2nd respondent only. This direction certainly interferes with the petitioner's freedom in carrying on business guaranteed under Article 19(1)(g) of the Constitution. 7. By Ext.P2 the Registrar has directed the Co-operative banks which advance loans to patronise 2nd respondent, meaning thereby to direct the loanee to purchase agro machineries from 2nd respondent only. This direction certainly interferes with the petitioner's freedom in carrying on business guaranteed under Article 19(1)(g) of the Constitution. 7. Learned counsel representing the respondents tried to sustain Ext.P2 order on the ground that it is a reasonable direction issued in public interest. It is contended that. private dealers engaged in the business of agro machineries are exploiting the agricultural loanees. To save the loanees from exploitation, first respondent thought it proper to issue Ext.P2 circular. In support of this contention reference was made to Exts.R2A and R2B invoices issued by one private agency and 2nd respondent respectively. It is argued that the quotation given by the private agency shows that the loanee will have to spend nearly one thousand rupees more than the amount quoted by 2nd respondent when the total investment comes to just over Rs.7,500/-. Exts.R2Aand-R2B cannot be taken as a touch stone to test the reasonableness of Ext.P2 when it is found that it is interfering with the fundamental rights of the petitioner under Article 19(1)(g) of the constitution. The first respondent can act within the four corners of the power conferred on him by the Act. He cannot traverse beyond those limits and try to sustain it on the ground that the exercise of power in that manner is highly essential for the protection of Co-operative. Societies. His actions must conform to the limits prescribed by the Act. The good intention or the honesty in passing the impugned order will not go to save the order in case it is not sanctioned by the Act. Validity of administrative action is open to question if it is ultra vires the Constitution or the governing Act or repugnant to the general principles of laws of land. When an action is challenged on the ground of violation of the fundamental right under Article 19(1)(g) of the Constitution, the burden is upon the State to show that the order is reasonable. The main thrust of the argument advanced by the first respondent in support ofExt.P2 is that the State is entitled to protect 2nd respondent, an establishment in the co-operative sector, and that Government-have great interest on it. The main thrust of the argument advanced by the first respondent in support ofExt.P2 is that the State is entitled to protect 2nd respondent, an establishment in the co-operative sector, and that Government-have great interest on it. This argument, to say the least, is not to be accepted for holding it to be reasonable. The Registrar is not entitled to issue Ext.P2 Circular affecting the freedom of trade guaranteed to petitioner by the Constitution. 8. When an act of the Executive is challenged on the ground that it is violative of the principles contained in Art.14 of the Constitution it has to satisfy the twin tests, viz., the classification is founded on an intelligible differentia which distinguishes persons or things that are grouped together from those that are left out of the group and that differentia must have a rational nexus to the object sought to be achieved by the action in question. Loanees are given loans for procuring the agricultural machineries. They are to get the best implements. Preferences, shown to 2nd respondent can by no stretch of imagination be considered as having any nexus to the purpose for which the loans are advanced. Ext.P2 circular has no nexus with the purpose for which the loans are granted. So, the circular, Ext.P2 is violative of Article 14 of the Constitution as well. At this juncture it is worthwhile to quote the following observations made by the Supreme Court in Ramana Dayaram Shetty v. The International Airport Authority of India (AIR 1979 SC 1628). "It must, therefore, be taken to I be the law that where the Government is dealing with the public, whether by way of giving jobs or entering into con tracts or issuing quotas or licenses or granting other forms of largess, the Government cannot act arbitrarily at its sweet will and, like a private individual, deal with any person it pleases, but its action must be in conformity with standard or norm which is not arbitrary, irrational or irrelevant. The power of discretion of the Government in the matter of grant of largess including award of jobs, contracts, quotas, licences etc., must be confined and structured by rational, relevant and non-discriminatory standard or norm and if the Government departs from such standard or norm in any particular case or cases, the action of the Government would be liable to be struck down, unless it can be shown by the Government that the departure was not arbitrary, but was based on some valid principle which in itself was not irrational, unreasonable or discriminatory." 9. The loans, as seen earlier, are granted to the agriculturists for purchasing machinery which will go to help them in their agricultural activities. While granting the same, the Registrar cannot impose any condition interfering with the loanee's freedom to purchase the best quality machines. Interference with that freedom is illegal. It has no connection with the purpose for which the loan is granted. 10. an attempt was made earlier to impose a condition on the grant of loan by NABARD as to the selection of pump sets. This did not succeed. NABARD did not consider it proper to give any direction to financing institutions for insisting on the loanees to purchase pump sets from second respondent only. NABARD took the stand that if second respondent can satisfy the normal technical efficiency it is open for them to popularise their sales by canvasing acceptance by the parties on the efficiency of the product. The circular Ext.P2 is aimed at achieving the above purpose which was not acceptable to NABARD. The undue preference shown to second respondent in marketing its' products is clearly against the equality provisions enshrined in the Constitution. 11.- Petitioner has challenged the authority of the Registrar to issue a circular in the nature of Ext.P2. According to him, the Co-operative Societies Act or the Kerala State Co-operative Agricultural Development Banks Act, 1984 do not empower the Registrar to issue such an order. I find much force in this submission. The Registrar is legally entitled to supervise the activities of Co-operative Societies. He can examine whether the elected board of a society is acting in accordance with the provisions of the Co-operative Societies Act and Rules framed thereunder. He can issue lawful orders and directions for controlling their activities. I find much force in this submission. The Registrar is legally entitled to supervise the activities of Co-operative Societies. He can examine whether the elected board of a society is acting in accordance with the provisions of the Co-operative Societies Act and Rules framed thereunder. He can issue lawful orders and directions for controlling their activities. The general or special order issued by him should be for controlling the working of the Society. So also the Kerala State Cooperative Agricultural Development Banks Act 1984 invests power on the Registrar to control the grant or disbursement of loans. Learned counsel representing the respondents has not brought to my notice any provision in the above enactments conferring power on the Registrar to control the loanees freedom in utilising the loan. Once the loan is sanctioned the loanee has the freedom to utilise the amount in the manner he wants. He has the option to choose the machinery. He can get it from any dealer he chooses. Registrar cannot interfere with this freedom of the loanees. Ext.P2 circular interferes with the rights of the loanees. It has no sanction from any of the Acts mentioned earlier. So Ext.P2 has to be held to be illegal. 12. From the above discussion it follows that Ext.P2 circular is violative of the equality provision of the Constitution and it infringes the fundamental right of the petitioner under Article 19(1)(g) of the Constitution, I also come to the conclusion that the circular was issued by the first respondent without authority of law. Result therefore is this original petition is allowed and Ext.P2 circular quashed. No costs.