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Sant Sadhu Singh And Others, Petitioners. v. The State Of Punjab And Another,
Factual and Procedural Background
These proceedings arise from Civil Writ Petitions Nos. 2820, 2858, 3090 and 3091 of 1969, filed under Articles 226 and 227 of the Constitution of India by directors of Co-operative Banks challenging the vires of the Punjab Co-operative Societies (Amendment) Ordinance, 1969 (Ordinance No. 10 of 1969) and the subsequent Punjab Co-operative Societies (Amendment) Act, 1969 (Punjab Act 25 of 1969). Sections of the Ordinance and the Act (specified in the petitions) were impugned, principally Sections 4, 7, 10 and 11 of the Ordinance and the corresponding Sections 4, 6, 9 and 10 of the Act.
The petitions list three principal grounds of challenge: (1) that the Punjab Legislature lacked competence to legislate concerning Co-operative Societies engaged in banking business because those matters fall within the exclusive legislative domain of Parliament; (2) that the legislation was a colourable exercise of power by the State; and (3) that the Ordinance and the Act violated Articles 14 and 19 of the Constitution. Only the first ground (legislative competence) was actively pressed; the court treated the other grounds as rejected or answered by Article 31A and declined to address them in depth.
Civil Writ Petition No. 2820 of 1969 (used for factual exposition) concerned Directors of the Central Co-operative Bank Ltd., Ropar (the Bank), registered under the Punjab Co-operative Societies Act, 1961. The petitioners included directors elected in 1968 and 1969; the Bank had substantial working capital (over two crores), state subscription to share capital (about 20 lakhs) and three government‑nominated directors under Section 26 of the 1961 Act. Petitioners alleged that the Ordinance and the Act curtailed shareholder rights and vested control in the Registrar of Co-operative Societies.
The court noted that a single decision on petition No. 2820 would determine the remaining petitions and therefore confined factual analysis to that petition. The judgment was delivered by S.S. Sandhawalia, J., with a concurrence (briefly indicated) by another judge.
Legal Issues Presented
- Whether the Punjab Legislature is competent to legislate with respect to Co-operative Societies that carry on banking business (i.e., whether such legislation intrudes upon entries in List I of Schedule VII that are within the exclusive legislative domain of Parliament).
- Whether the exercise of power by the State Legislature in enacting the Amending Act and the promulgation of the Ordinance by the Governor constituted a colourable exercise of power (allegation of colourable legislation relating to Banking Co-operative Societies).
- Whether the Ordinance and the Amending Act violated Articles 14 and 19 of the Constitution of India.
Note: The court stated that only the first issue was really pressed and that Article 31A furnished a complete answer to the challenge under Articles 14 and 19.
Arguments of the Parties
Petitioners' Arguments
- The petitioners contended that Co-operative Societies that conduct banking business are effectively "Banking Corporations" and therefore fall within the entries in List I (Schedule VII) that pertain to incorporation, regulation and banking (notably Entries 43 and 45 in List I). On this basis they argued that only Parliament (the Central Legislature) had competence to legislate on matters affecting such bodies, rendering the State Ordinance and Act ultra vires insofar as Banking Co-operative Societies were concerned.
- They relied on the textual placement of entries in Schedule VII (Entries 43, 44 in List I and Entry 32 in List II) to argue that co-operative societies were excluded from List I regulation and that banking legislation generally fell within List I (Entry 45), leading to an exclusive parliamentary domain over banking corporations.
- They alleged that the Ordinance and Act curtailed shareholders' rights in managing co-operative banks and transferred effective control to the Registrar; in addition they asserted a political motive for the legislation (to transfer control from one political party to another), although the court observed the colourable‑exercise point was not pressed strongly.
State Counsel's Arguments
- The State counsel argued that co-operative societies, regardless of whether they conduct banking business, were expressly placed in Entry 32 of List II (Schedule VII). Consequently, the State Legislature retained full power to legislate concerning co-operative societies, including those doing banking business.
- The State therefore contended the Ordinance and the Act were within the State's legislative competence under Entry 32, and that the petitioners' reliance on List I entries (43 and 45) did not oust the State's authority over co-operative societies.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Board of Trustees, Ayurvedic and Unani Tibia College, Delhi v. State of Delhi (New Delhi Administration), AIR 1962 SC 458 | Authority accepting that a Co-operative Society is a "Corporation" (used as basis for proceeding on that premise). | The court proceeded on the common ground (accepted by counsel) that co-operative societies are corporations and therefore treated them within the relevant entries of Schedule VII for purposes of legislative competence analysis. |
| Bank of Commerce Ltd., Khulna v. Nripendra Nath Datta, AIR 1945 FC 7 | Construction of the Government of India Act entry corresponding to Entry 45: entry must be limited to laws affecting the conduct of banking business "qua banks". | The court cited the observation that Entry 45 should be read as limited to laws affecting the conduct of banking business as banks, supporting the view that "business of banking as such" falls within Entry 45 rather than all matters touching institutions that do banking. |
| Gujarat University, Ahmedabad v. Krishna Rangnath Mudholkar, 1963 Supp (1) SCR 112 = AIR 1963 SC 703 | When interpreting entries in Schedule VII, a wide interpretation should be given; ancillary matters fairly and reasonably comprehended should be included. | The court applied the principle that entries should not be narrowly construed and that legislative power should extend to ancillary matters reasonably included within an entry, guiding interpretation of Entries 43, 45 and 32. |
| Banarasi Dass v. The Wealth Tax Officer, Special Circle, Meerut, AIR 1965 SC 1387 | Entries of the Seventh Schedule must receive the widest interpretation; avoid narrowing an entry by contrasting with other entries; interpret words naturally and widely. | The court relied on this principle to support a broad reading of entries while still recognizing the need to harmonize overlapping entries rather than nullify any entry's content. |
| United Provinces v. Mst. Atiqa Begum, AIR 1941 FC 16 | Authority relied upon in Banarasi Dass for the proposition that entries should be widely interpreted. | Used as supporting precedent in the chain of authorities urging wide construction of legislative entries; the court noted this supporting role in the jurisprudential foundation for interpretation. |
| Calcutta Gas Co. (Proprietary) Ltd. v. State of West Bengal, AIR 1962 SC 1044 | Where entries overlap or conflict, the court must reconcile them so as to give effect to each; a general power should not be construed to make a particular power nugatory. | The court applied this harmonization principle to reconcile Entries 43, 45 (List I) and Entry 32 (List II), seeking an interpretation that gives content to both central and state legislative powers without rendering any entry meaningless. |
Court's Reasoning and Analysis
The court undertook a stepwise analysis focused primarily on the first (competence) ground:
- Identification of scope: The court examined Schedule VII (List I Entries 43, 44, 45 and List II Entry 32) and acknowledged both parties' concession that co-operative societies are corporations (citing the Board of Trustees decision) and thus relevant to the entries dealing with corporations and banking.
- Characterization of entries: The court distinguished between Entry 45 (banking — i.e., the conduct of banking business) and Entry 43 (incorporation, regulation and winding up of trading corporations, including banking corporations). It observed that Entry 45 pertains to the business of banking as such while Entry 43 pertains to regulation of corporations generally.
- Textual placement of co-operative societies: The court emphasized that co-operative societies were specifically excluded from Entry 43 and deliberately placed in Entry 32 of List II, meaning matters concerning co-operative societies fall under State legislative competence (Entry 32), irrespective of whether they conduct banking business.
- Principles of construction: Drawing on Supreme Court authority (Gujarat University; Banarasi Dass) the court accepted that entries must be interpreted broadly, but it also applied the harmonization principle from Calcutta Gas Co. to avoid interpretations that would render any entry nugatory where overlaps occur.
- Reconciliation of overlaps: The court reconciled Entries 43 and 45 by holding that Entry 45 should be confined to laws affecting the conduct of banking business "qua banks" (as in Bank of Commerce) and Entry 43 generally covers incorporation and matters relating to corporations; however, because co-operative societies were excluded from Entry 43 and placed in Entry 32 (List II), the State retains the power to legislate concerning such societies.
- Application to impugned legislation: The court found that although some provisions of the Ordinance and Act affect the management and functioning of co-operative banks and thus touch on matters that may concern banking, such regulation of co-operative societies falls within the State's competence under Entry 32. Consequently, the petitioners' challenge that the State lacked legislative competence failed.
The court expressly limited its consideration to the competence question (first ground), declined to entertain in detail the allegation of colourable exercise (second ground) and treated Article 31A as a complete answer to the Article 14 and 19 challenge (third ground).
Holding and Implications
Holding: The petitions challenging the vires of the Punjab Co-operative Societies (Amendment) Ordinance, 1969 and the Punjab Co-operative Societies (Amendment) Act, 1969 on the primary ground that the State Legislature lacked competence to legislate with respect to Co-operative Societies doing banking business were dismissed. The court concluded that the State Legislature has power to legislate regarding co-operative societies (Entry 32, List II) and that Entry 45 (List I) is limited to the business of banking as such; Entry 43 (List I) relates to corporations generally but explicitly excludes co-operative societies, which were placed in List II.
Direct effect on the parties: The petitions "fail and are dismissed." The court ordered no costs ("There will be no order as to costs"). The decision in Civil Writ Petition No. 2820 was treated as concluding the remaining three petitions.
Implications: The opinion reconciles overlapping legislative entries by limiting Entry 45 to the conduct of banking business "qua banks" and by recognizing the specific allocation of co-operative societies to Entry 32 of List II. The court did not state that it was creating any new broad precedent beyond applying existing authorities and interpretive principles; the decision resolves the competence question as applied to these petitions and leaves intact the State's legislative power over co-operative societies under Entry 32.
Judgment delivered by: S.S. Sandhawalia, J. (with concurrence recorded).
1. This order will dispose of Civil Writ Petitions No. 2820. 2858, 3090 and 3091 of 1969. The petitioners are mainly Directors of the Cooperative Banks and have filed the present petitions under Articles 226 and 227 of the Constitution of India, to challenge the vires of Punjab Co-operative Societies (Amendment) Ordinance, 1969 (Ordinance No. 10 of 1969) which Ordinance has later on been made Law (Punjab Co-operative Societies (Amendment) Act, 1969) (Pun-Jab Act 25 of 1969). Sections Nos. 4, 7, 10 and 11 of the Ordinance and now Sections Nos. 4, 6, 9 and 10 of the Act, are being challenged in these petitions. The main grounds of attack which were argued before us are:--
(1) That the Punjab Legislature is not competent to make Law pertaining to Banking Corporations. Co-operative Societies doing banking business are Banking Corporations and, therefore, the Amending Ordinance and the Amending Act, which have replaced it are ultra vires the Constitution so far as the Banking Co-operative Societies are concerned.
(2) That the exercise of the power by the State Legislature in enacting the Amending Act and the promulgation of the Ordinance by the Governor are a colourable exercise of power so far as the Banking Cooperative Societies are concerned.
(3) That the Ordinance as well as the Amending Act are violative of Articles 14 and 19 of the Constitution of India.
2. It may be mentioned that only the first ground of attack was really pressed. The two grounds of attack have been merely stated to be rejected. We have been unable to see how the Act or the Ordinance are a colourable exercise of power, whereas the complete answer to the 3rd ground of attack is furnished by Article 31A of the Constitution of India. Therefore, we only propose to deal with the facts of Civil Writ Petition No. 2820 of 1969 in order to bring out the controversy pertaining to the first ground. It is conceded that whatever our decision is in this petition it will conclude the other three petitions. We have not thought it necessary to advert to the facts of the remaining three petitions.
3. In Civil Writ No. 2820 of 1969. the petitioners are the Directors of Central Co-operative Bank Ltd., Ropar -- hereinafter called the Bank. This Bank was registered under the Punjab Co-operative Societies Act, 1961. Petitioners Nos. 1, 2, 4 & 5, namely, Sant Sadhu Singh, S. Jagir Singh. S. Gurdev Singh & S. Sarwan Singh respectively, were elected Directors of the Bank in an election held on the 9th of May. 1969. They were elected unopposed. Petitioner No. 3, Dr. Roy Bikram Chand, was elected unopposed on the 13th of August, 1968, whereas petitioner No. 6, S. Karam Singh, was elected as a Director of the Bank on the 27th of September, 1968. According to the bye-laws of the Bank the Board of Directors is elected for a period of three years and l/3rd of the Directors retire annually in rotation. The Bank was established in the year 1927 with a nominal capital. Its present working capital is over two crores. The Punjab Government have also subscribed to the share capital of the Bank to the extent of about 20 lacs. It has also nominated three Directors as members of the Board of Directors under Section 26 of the Punjab Co-operative Societies Act, 1961. It is claimed that by reason of the Ordinance and the Amending Act, the rights and powers of the share-holders in managing the co-operative Banks have been considerably curtailed and the Registrar of the Co-operative Societies has taken over completely the control of the Societies. It is also averred that the reason for the Ordinance and the Amending Act is to deprive the control which was with the Congress Party and make it over to the Akali Party.
4. Reverting to the main ground of attack, namely, that the Punjab Legislature has no power to enact a Law pertaining to Co-operative Societies doing Banking business, it is not disputed that the Ordinance as well as the Amending Act are fully within the competence of the State Legislature so far as the other co-operative Societies (i.e. Societies not engaged in Banking business) are concerned. In order to appreciate the contentions that have been advanced by the learned counsel for the petitioners, it will be proper to refer to Schedule VII, List I, Entries Nos. 43, 44 and 45, List II, Entry No. 32. These entries are reproduced below for facility of reference.
"List I.
Entry No. 43. Incorporation, regulation and winding up of trading corporations, including banking, insurance and financial corporations but not including co-operative societies.
No. 44. Incorporation, regulation and winding up of corporations, whether trading or not, with objects not confined to one State, but not including universities.
No. 45. Banking.
"List II.
Entry No. 32. Incorporation, regulation and winding up of corporations, other than those specified in List I, and universities; unincorporated trading, literary, scientific, religious and other societies and associations; co-operative societies."
5. On the basis of these entries the argument of the learned counsel for the Petitioners is that entry No. 43 clearly confers the power of regulation of Corporations including Corporations doing banking business in the Central Parliament and only those Co-operative Societies are excluded from entry No. 43 which are not doing the business of banking. This fact, according to the learned counsel, finds further support if entry No. 32, List II is taken into consideration. That entry only brings those Corporations within the purview of the legislative power of the State Legislature which are not specified in List I. As Banking Corporations are specified in List I, Entry No. 43, any legislation pertaining to banking, necessarily falls within the ambit of List 1, regarding which only the Central Parliament can legislate. It is also urged that in view of entry No. 45. List I any legislation which affects banking would have to be undertaken by the Central Parliament and it will not be within the competence of State Legislature to legislate about matters pertaining to banking.
6. So far as the State counsel is concerned, his contention is that no matter what business the Co-operative Societies are doing including the banking business, they were specifically taken out from entry No. 43, List I and are put in List II, Entry No. 32. Therefore, the State Legislature has full powers to legislate about Co-operative Societies irrespective of the fact whether they are doing banking business or not.
7. It is common ground that Cooperative Societies are Corporations. This has been conceded by the learned counsel representing both the parties in view of Supreme Court decision in Board of Trustees, Ayurvedic and Unani Tibia College, Delhi v. State of Delhi (New Delhi Administration), AIR 1962 SC 458, that a Co-operative Society is a Corporation and we have, therefore, proceeded on that basis.
8. Before proceeding to deal with the respective contentions of the learned counsel for the parties, it may be mentioned that any legislation regarding the banking business as such can only be undertaken under entry No. 45, List I. whereas regulation of Corporations doing Business of Banking falls under entry No. 43. But Co-operative Societies are excluded from this entry and have been put in entry No. 32, List II, Schedule VII. This is also evident from the Banking Companies Act, as amended up to date, and the Reserve Bank of India Act. The Co-operative Societies doing banking business are put on par so far as entry No. 45. List I is concerned, with other banking institutions. While construing entry No. 45, the Federal Court of India in Bank of Commerce, Ltd.. Khulna v. Nripendra Nath Datta, AIR 1945 FC 7, observed as follows :--
"On a reasonable construction, the entry must be limited to laws which affect the conduct of the business of banks qua banks."
Their Lordships were considering entry No. 38. List I of the Government of India Act, 1935, which is in these terms: --
"Banking, that is to say, the conduct of banking business by corporations other than corporations owned or controlled by a Federated State and carrying on business only within that State."
9. This entry more or less corresponds to entry No. 45 in List I, Schedule VII of the Constitution of India. The entry corresponding to entries Nos. 43 and 44 in List I, Schedule VII of the Constitution of India is entry No. 33 in List I of the Government of India Act, 1935. Entry No. 33 is in the following terms:--
Corporations, that is to say, the incorporation, regulation and winding-up of trading corporations, including banking, insurance and financial corporations, but not including corporations owned or controlled by a Federated State and carrying on business only within that State or co-operative societies, and of corporations whether trading or not, with objects not confined to one unit.
10. Their Lordships of the Supreme Court in Gujarat University, Ahmedahad v. Krishna Rangnath Mudholkar, 1963 Supp (1) SCR 112 at page 141 = (AIR 1963 SC 703 at page 716). in the matter of construction of entries in Schedule VII observed :--
"Item No. 66 is a legislative head and in interpreting it, unless it is expressly or of necessity found conditional by the words used therein, a narrow or restricted interpretation will not he put upon the generality of the words. Power to legislate on a subject should normally be held to extend to all ancillary or subsidiary matters which can fairly and reasonably be said to be comprehended in that subject."
11. In Banarasi Dass v. The Wealth Tax Officer, Special Circle, Meerut, AIR 1965 SC 1387, their Lordships of the Supreme Court relying on United Provinces v. Mst. Atiqa Begum. AIR 1941 FC 16, observed that the relevant words used in the entries of the Seventh Schedule must receive the widest interpretation. It was also observed:--
"Another rule of construction which is also well established is that it may not be reasonable to import any limitation in interpreting a particular Entry in the List by comparing the said Entry or contrasting it with any other Entry in that very List. While the Court is determining the scope of the area covered by a particular Entry, the Court must interpret the relevant words in the Entry in a natural way and give the said words the widest interpretation. What the Entries purport to do is to describe the area of legislative competence of the different legislative bodies, and so, it would be unreasonable to approach the task of interpretation in a narrow or restrictive manner."
12. In Calcutta Gas Co. (Proprietary) Ltd. v. State of West Bengal, AIR 1962 SC 1044, their Lordships, while reiterating the earlier propositions, observed:--
But some of the entries in the different lists or in the same list may overlap and sometimes may also appear to be in direct conflict with each other. It is then the duty of the Court to reconcile the entries and bring about harmony between them. The underlying principle in such cases is that a general power ought not to be so construed as to make a nullity of a particular power conferred by the same Constitution and operating in the same field, when by reading the former In a more restricted sense effect can be given to the latter in its ordinary and natural meaning. Thus, every attempt should be made to harmonize the apparently conflicting entries not only of different Lists but also of the same List and to reject that construction which will rob one of the entries of its entire content and make it nugatory.
13. Keeping in view these principles, the meaning and scope of entry No. 43 has to be ascertained. The contention of the learned counsel for the petitioners is that the various provisions in the Ordinance, which has been replaced by the Amending Act, impinge on the business of banking inasmuch as the entire control of the management is more or loss vested with the Registrar and the right of the shareholders to elect their representatives has been taken away. This is so. It is evident that entry No. 43 and entry No. 45 relate to different heads of legislation. Whereas entry No. 45 gives the power to the Central Legislature to legislate qua banking business, entry No. 43, on the other hand, gives power to the Central Legislature to legislate regarding corporations. It is immaterial whether those Corporations were doing the banking business or not. In other words, Central Legislature is competent to legislate with regard to Corporations engaged in the business of banking, in view of entry No. 43. List I. But so far as the Co-operative Societies are concerned, they were taken out of the ambit of entry No. 43 and put in entry No. 32, List II. The word 'regulation' in entry No. 43 is of a wide import and would include how a Cooperative Society is to work. In other words, it will include the constitution of a Co-operative Society and any matter relating to its constitution would naturally be the subiect-matter of legislation by the State Legislature.
In a broad sense, the controlling of the working of a Society doing banking business will in some measure concern the business of banking and thus may bring it within the ambit of entry No. 45. List I. Thus there would be some overlapping. But in order to give a harmonious construction to both the entries, Nos. 43 and 44, it must be held that only business of banking as such falls within the ambit of entry No. 45; whereas the incorporation of the Corporations and other matters relating to them fall within the ambit of entry No. 43. Therefore, the constitution of the Societies and their working would have fallen within the ambit of entry No. 43 but for the fact that Co-operative Societies are excluded from its purview. The very fact that in entry No. 43, Corporations engaged in the business of banking are specifically mentioned, it clearly follows that Co-operative Societies doing that business were taken out of entry No. 43. List I, and deliberately put in entry No. 32, List II. In view of the clear wording of the two entries, I am unable to agree with the contention of the learned counsel for the petitioners, that the State Legislature has no jurisdiction to regulate the functioning of the Co-operative Societies engaged in the business of Banking.
14. For the reasons recorded above, these petitions fail and are dismissed. There will be no order as to costs.
S.S. Sandhawalia, J.
15. I agree.
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