Narsimham, C.J:— This is an application under Articles 226 and 227 of the Constitution by a member of the Working Committee of Raipura Multipurpose Co-operative Society Limited (Petitioner No. 1) and also by the said Society (Petitioner No. 2) for quashing an order dated the 28th June, 1966, (Annexure D) passed by Shri S.K Sahai, Assistant Registrar, Co-operative Societies, compulsorily amalgamating the said Co-operative Society with Budhuchak Multipurpose Co-operative Society in purported exercise of the powers conferred by rule 39 of the Bihar Co-operative Societies Rules, 1959.

2. As is well known, the Co-operative movement in Bihar is regulated and guided by the Bihar and Orissa Co-operative Societies Act, 1935 (hereinafter referred to as the Act), whose preamble is worth quoting:

“Whereas it is expedient to facilitate the formation, working and consolidation of Co-operative Societies for the promotion of thrift, self-help and mutual aid among agriculturists and other persons with common needs and for that purpose to consolidate and amend the law relating to Co-operative Societies - - - - - -”

3. The Registrar of Co-operative Societies and his subordinate officials have been conferred extensive powers by the Act to supervise the working of the Societies find to take appropriate action even to the extent of superseding the managing committees of the Societies (section 41) for liquidating or dissolving the Societies (section 44) in extreme cases. The Societies, after incorporation, are conferred duties and privileges which are set out in Chapter III of the Act. The rights and liabilities of the members of the registered Societies also are dealt with in Chapter IV. Section 66 of the Act confers power on the State Government to make rules “to carry out all or any of the purposes of the Act”. Clause (ix) of sub-rule (2) of that section specifies the following matters as being included in the rule-making power, namely, “prescribe the procedure to be followed when societies change the form or extent of their liability, and provide for the amalgamation and division of societies and prescribes the conditions of such amalgamation and division” The Bihar Co-operative Societies Rules, 1959, (hereinafter referred to as the Rules), were made in exercise of this rulemaking power. Rule 37 deals with division of Co-operative Societies. The provisions of this rule seem to indicate that a division of a registered Society can be made only if the members of the Society resolve to divide themselves into two or more registered Societies. Rule 38 deals with voluntary amalgamation of Societies. This rule also envisages such amalgamation only when two or more registered Societies resolve to amalgamate themselves into a new Society. R. 39, however, confers power on the Registrar to compulsorily amalgamate registered Societies. As the validity of this rule is under challenge, I shall quote it in full:—

“39.(1) If the Registrar is satisfied, after taking into consideration the financial position of two or more societies and such other matters relating to the societies as may be proper, that it is in the interest of those societies to be amalgamated into a new society, he may, by order in writing, require the managing committees of the societies concerned to convene general meetings of the share-holders and creditors there if within six weeks from the date of the order, for the purpose of considering a proposal to amalgamate the societies into a new society.

(2) If the managing committees fail to call any such meeting for the purpose, or if the decision in any such meeting is against the proposed amalgamation or no decision is taken at any such meeting the Registrar may, on the expiry of six weeks from the date of his order and after satisfying himself that the interest of the creditors has been adequately safe-guarded, direct that the said societies shall be amalgamated into a new society with effect from a date to be specified in the direction.

(3) The Registrar shall, with effect from the said date register the new society and on such registration the assets and liabilities of the amalgamated societies shall vest in the new society.

(4) An appeal against an order passed under sub-rule (1) shall lie within one month from the date of such order—

(i) if the order has been passed by any officer exercising the powers of Registrar, to the Registrar:

(ii) if the order has been passed by the Registrar, to the State Government.

(5) No action under sub-rule (2) shall be taken until the disposal of the appeal under sub-rule (4).”

4. The impugned order of the Assistant Registrar (Annexure D) may also be quoted here:—

“(Order for compulsory amalgamation under section 39(2) and (3) of the Bihar Co-operative Societies Rules, 1959, and Registration of the new amalgamated society cancelling the registration of the old ones) — District Patna, C.D Block Fatwah, Circle Barh.

Name of the societies to be amalgamated:

1. Raipura M.P.C.S Registration No. 31P dated 1949.

2. Budhuchak M.P.C.S Registration No. 3B dated 1950.

Whereas the managing committees of the above noted societies (Serial Nos. 1 and 2) have not called meeting in compliance to my order no. 1233 dated 27-4-66, under rule 39(1) of the Bihar Co-operative Societies Rules, 1959, and have not taken a decision which is in the interest of these societies.

And whereas six weeks have expired from the date of my above noted order 1, after satisfying myself that the interests of the creditors have been adequately safeguarded, direct under rule 39(2) and (3) of the said rules that the old societies shall be amalgamated into a new society, namely, Raipura Budhuchak Multipurpose Co-operative Society, bearing registration No. 76 B.A dated 28-6-66 (Whereupon the registration of the old societies shall be deemed to have been cancelled) in Fatwah C.D Block with Raipura Budhuchak Nasibuchhak Karbigahia and Barispur revenue villages in its area of operation with thana Nos. 23, 24 respectively.

The assets and liabilities of these old societies shall vest in the new society with effect from 1-7-65.

Sd/- S.K Sahai.

28-6-66

Assistant Registrar,

Co-operative Societies. Barh Circle, Barh.”

5. It will be noticed that though there is no power in the rules for compulsory division of Societies by the Registrar, rule 39 expressly confers power of compulsory amalgamation. But certain safeguards are provided. Firstly, the Registrar is required to take into consideration the financial position of two or more Societies and such other matters relating to the Societies as may be proper. Secondly, he must be satisfied that it is in the interest of those Societies to be amalgamated into a new Society. Thirdly, even after such satisfaction he is required to cell upon the Societies concerned to convene a general meeting of the shareholders and creditors for the purpose of considering the proposal of amalgamating the Societies. This order of the Registrar is made appealable by sub-rule (4) of rule 39, and so long as an appeal under that sub-rule is pending he cannot take further action. sub-rule (2) of rule 39, however, confers on him power to direct amalgamation if the managing committees fail to call such meeting, or if the decision in such meeting is against the proposed amalgamation, or no decision is taken in any such meeting. But a further safeguard is provided in sub-rule (2) of rule 39 to the effect that before directing compulsory amalgamation, the Registrar must be satisfied that the interests of the creditors have been adequately safeguarded.

6. The Assistant Registrar, Shri S.K Sahai, claiming to be the duly delegated authority, has passed the impugned order of amalgamation (Annexure D). He has stated that the two Societies concerned, namely, Raipura M.P.C.S and Budhuchak M.P.C.S, did not convene any meeting to consider the proposal of amalgamation as directed by him. This statement of fact is, however, challenged by the petitioners who have alleged that Raipura M.P.C.S did convene a meeting, and in that meeting it was unanimously resolved that there should be no amalgamation with Budhuchak M.P.C.S On behalf of the Assistant Registrar, however, in the counter affidavit filed by his Co-operative Inspector, this statement of fact is challenged. It is, however, unnecessary to decide this disputed question of fact because even if the statement of the petitioner is taken as correct, sub-rule (2) of rule 39 confers power on the Registrar to direct compulsory amalgamation even if the decision of the Society in the meeting is against the proposed amalgamation.

7. The validity of the impugned order of amalgamation has been challenged on the following grounds—

(1) Rule 39 providing for compulsory amalgamation is in excess of the rule making power conferred by section 66(2)(ix) of the Act.

(2) If it be held that section 66(2)(ix) confers powers for compulsory amalgamation also, such a provision in the statute should be held to be invalid as being wholly outside the scope of the Act, which contemplates only voluntary amalgamation and division.

(3) Rule 39 confers unfettered arbitrary power on the Registrar to discriminate between Societies and is hence violative of Article 14 of the Constitution.

(4) Rule 39 also offends Article 19(1)(c) of the Constitution and is not saved by Article 19(4) of the Constitution. Such a provision is wholly opposed to the fundamental right to form associations or unions.

(5) The power of compulsory amalgamation under rule 39 can be exercised only by the Registrar and not by the Assistant Registrar, Shri S.K Sahai, because the State Government have not expressly delegated that power to the Assistant Registrar as authorised by sub-section (2) of section 6 of the Act.

8. Grounds Nos. (1) and (2). Clause (ix) of section 66(2) has already been quoted. It authorises the making of rule “to provide for the amalgamation”. It does not say that the amalgamation should be on a voluntary basis. In the absence of any restrictive words like “voluntary” before the word “amalgamation” in the rule-making power, it cannot be held as a matter of strict interpretation that the rule can provide only for voluntary amalgamation and not for compulsory amalgamation. Hence rule 39 cannot be said to be in excess of the power conferred by section 66(2)(ix) of the Act.

9. It was, however, urged that voluntariness is the essence of co-operative movement, and any provision in the rule for compulsory amalgamation will be wholly outside the scope of any statute dealing with co-operative movement on the basis of this argument it was urged that notwithstanding the wide language used in section 66(2)(ix) of the Act, this Court should, as a matter of construction, hold that amalgamation can be made only on a voluntary basis I am however, unable to accept this extreme contention. The basic principles of the co-operative movement which has spread throughout the world, have been briefly stated in Encyclopaedia Britannica Volume 6, 1965 edition as follows:—

“Briefly, these principles call for democratic control, open membership, no religious or political discrimination, service at cost and education of the members Members have a dual relationship to their association. They contribute its capital and are also customers or patrons”

10. But whatever may be the principles of co-operation as known throughout the world, once the Legislature provides for the incorporation of such Societies and confers certain rights and privileges on such incorporated Societies, the Legislature may make adequate provision for proper supervision, control and guidance of the Societies along right lines. The preamble of the Act quoted-above shows clearly that the Act provides not only for the formation of Societies but also for “facilitating the working of the Societies with the ultimate aim of promoting thrift, self-help and mutual aid”. Hence, if, subject to certain safeguards, the Legislature thought that there should be adequate provision in the Act to amalgamate Societies, either compulsorily or voluntarily, or to supersede the managing committees of the Societies, or, in extreme cases, to dissolve the Societies altogether, it cannot be said that the spirit of the co-operative principle is violated. In any case, it is primarily the function of the Legislature to provide for the promotion of the co-operative spirit, and no provision of the statute can be struck down as invalid merely because it may not strictly conform to the basic principles of co-operative movement as understood in the West. Apart from the provisions mentioned above, section 61 of the Act provides for compulsory affiliation of a registered Society to a Co-operative Federation. This shows that in appropriate cases an element of compulsion may be introduced without in any way weakening the principles of co-operation. I am therefore, unable to agree that this Court, on a matter of mere construction, can unduly narrow down the wide scope of section 66(2)(ix) of the Act by restricting it to voluntary amalgamation only. It may be further noted in this connection that the preamble expressly says that the provisions of the Act are intended to facilitate “consolidation” of Co-operative Societies. In substance there is no difference between “consolidation” and “amalgamation” Hence if the Legislature thought that for the promotion of thrift, self-help and mutual and the appropriate authority must have power to consolidate Co-operative Societies, its action cannot be challenged as invalid because it is in conformity with the preamble the question is ultimately one of policy for the Legislature to decide, and the Court cannot by mere interpretation restrict amalgamation to voluntary amalgamation only.

11. The learned counsel for the Government relied on the following passage in Craies on Statute Law 6th edition, at page 157, and urged that in construing the word “amalgamation” occurring in section 66(2)(ix) of the Act aid may be taken from the provisions of rule 39 and when the two are construed together it may be held that amalgamation includes compulsory amalgamation also:—

“Where the language of an Act is ambiguous and difficult to construe the court may for assistance in its construction refer to rules made under the provisions of the Act especially where such rules are by the statute authorizing them directed to be read as part of the Act.”

12. The learned Standing Counsel invited our attention to the provisions of sub-section (4) of section 66 of the Act which are to the effect that the rules after due publication, “shall have effect as if enacted in this Act” According to him even if there is any ambiguity in construing the word “amalgamation” occurring in section 66(2)(ix), that ambiguity is cleared by the express provisions of rules 38 and 39 which make it clear that amalgamation may be either voluntary or compulsory I am not however, inclined to rely on the said passage in Craies in support of this contention, because, as pointed out by the learned author at page 158, this principle of construction may not apply where the validity of the rule itself is under challenge on the ground that it is in excess of the power conferred by the parent Act.

13. Ground No. 3. Article 14 of the Constitution cannot be invoked to strike down Rule 39. It is not correct to say that the rule confers unfettered arbitrary power on the Registrar which can be exercised by him to discriminate between two Societies which may be otherwise placed in an identical situation. Certain objective standards have been laid down for consideration by him. He has to take into consideration the financial position of the Societies and other matters. He must also be satisfied that it is in the interests of the Societies to be amalgamated and he is further required to ascertain the wishes of the managing committees of the Societies by calling upon them to convene a meeting of the share-holders and creditors. Then again, his tentative decision under sub-rule (1) of rule 39 is made appealable. It is true that sub-rule (2) confers on him overriding powers to ignore the decision of the managing committee, but a further safeguard is provided by requiring him to satisfy himself that the interests of the creditors have been adequately safeguarded. If this rule is read with the preamble of the Act quoted above, it will be clear that the power cannot be exercised arbitrarily or capriciously. The primary aim of the Registrar should be to promote thrift, self-help and mutual aid. If for that purpose he considers that consolidation of Societies is required, bearing in mind the financial position of the Societies and other factors, the statutory provision itself cannot be struck down as violative of Article 14.

14. It is open to a party to show that in a particular case this power has been exercised mala fide or for reasons not contemplated by the provisions of rule 39. But here there is absolutely no material for holding that the power under rule 39 has been misused. The counter-affidavit filed by the Co-operative Inspector shows that one of the main reasons for directing amalgamation was that the total population of Raipura M.P.C.S was only 2087 whereas under the rules of the Department the minimum population of 3000 was insisted upon for the purpose of such a Society in paragraph 4 of the counter-affidavit it is further stated that the Raipura M.P.C.S was not functioning satisfactorily that it did not enrol new members, that it was not regular in repayment of loans taken from the Central Co-operative Bank and that its affairs were so mismanaged that it was unable to obtain any loan from the Co-operative Bank from the year 1962. In paragraph 10 it is further stated that the amalgamation of these Societies was ordered under the revitalization scheme inasmuch as the existing Societies with limited share capital could not function as viable units without amalgamation. Though there is a faint challenge by the petitioner to the averments made in the counter-affidavit. I see no reason to disbelieve the statement of facts made by the Co-operative Inspector in his counter affidavit. I am therefore, satisfied that the order was not passed for reasons which are not germane to the provisions of rule 39.

15. Ground No. 4. As regards the fourth ground, namely that rule 39 offends Article 19(1)(c) of the Constitution, the obvious answer is that the fundamental rights guaranteed under Article 19 apply to citizens and not to incorporated bodies. This has been laid down by their Lordships of the Supreme Court in several decisions, the latest of which is the Tata Engineering and Locomotive Co. Ltd. v. State of Bihar, AIR 1965 SC 40 The power of individual members to form associations and unions as provided in Article 19(1)(c) is not taken away. No one is compelled to become a member of the Co-operative Society or to continue as a member of the amalgamated Society if he wishes to resign from such a new Society. Rule 39 deals with the power of the Registrar over the incorporated body, namely, the registered Co-operative Society, which has a separate legal existence from that of its members as provided in Chapter III of the Act. In paragraph 29 of the aforesaid judgment their Lordships, while repelling the contention of Mr. Palkhivala based on the distinction between Article 19(1)(c) and Article 19(1)(g), observed:

“As soon as citizens form a company (here an incorporated society), the right guaranteed to them by Article 19(1)(c) has been exercised and no restraint 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 and cannot be judged on the assumption that they are the rights attributable to the business of individual citizens.”

16. If a legal corporation is brought into existence by virtue of an Act any provision in the Act regulating the functions of the corporation, including the power conferred on appropriate authorities to supervise the functions of the corporation, cannot be said to invade the fundamental right of the members of the corporation. I may also refer in this connection to Bidhu Bhusan Bagchi v. State of West Bengal, AIR 1952 Cal 901 where the learned Judge, at paragraph 26 observed as follows:

“In the first place, Article 19(1)(c) which speaks of the right of a citizen to form as sociations or unions refers to the ordinary right which is enjoyed by all citizens. It has no reference to a right which is conferred by a particular statute to act as members of a body which is the creation of the statute itself.”

17. Thus, as the Co-operative Society is a corporate body created by the Act, any provision in the Act for the exercise of supervision and control over such a corporate body will be wholly outside the scope of Article 19 of the Constitution.

18. It was then urged that a constitutional right guaranteed by Article 19(1)(c) cannot be taken away even indirectly, and that, though a Co-operative Society may be corporate body to which Article 19 may not apply, nevertheless, if the impugned statutory provision affects, even indirectly, the fundamental rights of members under Article 19(1)(c), that provision should be struck down as invalid. This argument is based on the well known doctrine of “the lifting of the veil” which was not accepted by the Supreme Court in the aforesaid decision, which again is based on an earlier decision of the Supreme Court in State Trading Corporation of India, Ltd. v. Asst. Supdt. of Commercial Taxes, AIR 1963 S.C 1811. This is a complete answer to this argument. But even if it be held that this Court has jurisdiction to examine whether the fundamental rights of members of a Co-operative Society guaranteed by Article 19(1)(c) are even indirectly infringed by the impugned provision, in my opinion the decision of the Supreme Court in All India Bank Employees' Association v. The National Industrial Tribunal (Bank Deputies), Bombay, AIR 1962 S.C 171, is a complete answer. In that judgment the true scope of Articles 19(1)(c) and 19(1)(g), when construed with clauses (4) and (6) of that Article, was fully explained. To quote their Lordships (paragraph 19):

“The resulting position may be illustrated thus: If an association were formed for the purpose of carrying on business, the right to form it would be guaranteed by sub-clause (c) of clause (1) of Article 19, subject to any law restricting that right conforming to clause (4) of Article 19. As regards its business activities, however, and the achievement of the objects for which it was brought into existence, its rights would be those guaranteed by sub-clause (g) of clause (1) of Article 19 subject to any relevant law on the matter conforming to clause (6) of Article 19.”

19. Reasonable restrictions “in the interests of public order or morality” mentioned in clause (4) of Article 19 are undoubtedly somewhat narrower than reasonable restrictions “in the interests of the general public” mentioned in clause (6) of Article 19. On the basis of this distinction it was urged that the fundamental right of the members of a Co-operative Society to form an association or union should be distinguished from the fundamental rights of those members, to carry on business or trade, and that rule 39 affects their fundamental right to form an association by compelling them to amalgamate with other Societies and that such a statutory provision is not a law imposing reasonable restrictions in the interests of public order or morality. This subtle distinction between the fundamental right of the members of a Co-operative Society to form an association and to carry on trade or business is unreal in the present context. It is difficult to regulate the carrying on of the business of the Co-operative Society without having the power to regulate the composition of its member. Hence, even for the limited purpose of regulating the business activities of a Co-operative Society a statutory provision may affect the composition of its members. There can be no doubt that rule 39 is a reasonable restriction in the interests of the general public. Co-operative Societies are primarily intended to carry, on business on co-operative lines and they are not merely charitable, cultural or political societies having no business objective. Hence, if Co-operative Societies in a particular region are found to be functioning very unsatisfactorily, thereby affecting the credit system in that area and also adversely affecting a large section of the people, the Legislature will be justified in making statutory provisions for the purpose of revitalizing such decadent societies with a view to make them viable units while at the same time safeguarding the interests of the creditors. Hence the validity of rule 39 should be examined with a view to see whether it conforms to clause (6) of Article 19 and not whether it conforms only to clause (4) of Article 19. When subjected to such a scrutiny, it must be held to be a reasonable restriction in the interests of the general public and hence constitutionally valid.

20. Ground No. 5. I now take up the last ground. The petitioners have filed before us a notification of the Government of Bihar, dated the 12th October, 1963, (Annexure F), which says that certain powers under the Act were delegated to Shri S.K Sahai who was appointed to act as Assistant Registrar. The power of the Registrar under rule 39 is not included in that notification. In the counter-affidavit filed by the Co-operative Inspector it is stated in paragraph 10 that the Registrar delegated his power under rule 39 to the Assistant Registrar but section 6(2) which deals with the power of delegation does not confer power on the Registrar delegate his power to the Assistant Registrar. That power of delegation is conferred only on the State Government. The learned Standing Counsel was unable to produce before us any order of the State Government delegating the power conferred upon the Registrar by rule 39 to the Assistant Registrar.

21. The learned Advocate-general, however, contended with considerable ingenuity that once two Societies are amalgamated into a new Society, that new Society is registered under sub-rule (3) of rule 39, and such registration should be deemed to be registration made under Section 11 of the Act. The power of registration under Section 11 of the Act has undoubtedly been delegated to the Assistant Registrar in the notification of the 12th October, 1963 (Annexure F), mentioned above. According to the Advocate-General, therefore, once the power to register a Co-operative Society conferred on the Registrar under Section 11 of the Act has been validly delegated to the Assistant Registrar, that order of ??? must be construed to mean that the power of compulsory amalgamation of Societies conferred by R. 39 was also impliedly delegated.

22. I am, however, not prepared to accept this extreme contention Section 11 in its context refers to the power of the Registrar to register a Society for the first time that power cannot by implication be construed to include the power to register a new amalgamated Society after compulsory amalgamation of two existing Societies. This power is specially conferred only Rule 39 (sic) and there must be an express order of delegation of that power by the State Government to the Assistant Registrar Rule 39 must be deemed to be part of the Act itself in view of sub-section (4) of Section 66 of the Act. Hence, the power conferred on the Registrar by rule 39 must be deemed to be a power conferred on him under the Act and, consequently, by virtue of clause (a) of sub-section (2) of section 6 of the Act, the State Government alone is authorised to confer that power on any subordinate authority as no such order has been produced before us, I must hold that Annexure D, is invalid as having been passed by an authority which had no jurisdiction to exercise power under rule 39.

23. For these reasons though the petitioners have failed in their main contentions dealing with constitutional questions they have succeeded in respect of the last point. The writ is allowed and the order of the Assistant Registrar directing amalgamation of the Raipura M.P.C.S and Budhuchak M.P.C.S is quashed there will be no order for costs.

24. K.B.N Singh, J.:— I agree.

VGW/D.V.C

25. Order accordingly.