S. M. Mahendru and Company Vs. State of
Tamil Nadu & ANR [1984] INSC 234 (12 December 1984)
TULZAPURKAR, V.D.
TULZAPURKAR, V.D.
PATHAK, R.S.
MUKHARJI, SABYASACHI (J)
CITATION: 1985 AIR 270 1985 SCR (2) 416 1985
SCC (1) 395 1984 SCALE (2)961
ACT:
Tamil Nadu Buildings (Lease and Rent Control)
Act, 1960 (Tamil Nadu Act 18 of 1960)-S. 29-Scope of-Government of Tamil Nadu
issued Notification No. 11(2) O 6060/76 dated 21st November, 1976 exempting
buildings owned inter alia by co-operative societies from all the provisions of
the Act 18 of 1960-Validity of notification held valid and not violative of Art
14 of the Constitution
HEADNOTE:
In exorcise of the powers conferred by
section 29 of the Tamil Nadu Buildings (Lease and Rent Control) Act, 1960
(Tamil Nadu Act 18 of 1960), the Government of Tamil Nadu by a Notification No.
II (2) H. O. 6060/76 dated 21-t November, 1976 exempted the- Buildings owned,
inter alia by all the co-operative societies from all the provisions of the
said Act. Since the protection available to the petitioners, who wore tenants
in a building belonging to respondent No. 2, an Apex Society registered under
the Tamil Nadu Co-operative Societies Act, 1961 and covered by the said
notification.
had been withdrawn and since the petitioners
were facing the imminent prospect of suffering eviction decrees against them,
they filed the present writ petitions challenging the constitutional validity
of the impugned notification on the ground that the same was violative of Art.
14 of the Constitution. The petitioners contended that treating the buildings
owned by all the co-operative societies in the State of Tamil Nadu as falling
into one group while exercising the power under sec. 29 of the Act will have to
be regarded as a rational classification based on an intelligible differentia
but the differentia on which this classification was based had no excuse with
the object of curbing the two evils of rack-renting and unreasonable eviction
for which the power to grant exemption had been conferred upon the State
Government under sec. 29 of the Act and since the impugned notification did not
satisfy be test of nexus the exemption granted to all such buildings could not
be sustained and Will have to be regarded as discriminatory and violative of
Art. 14. In other words Counsel urged that there was and is up warrant OF any
presumption that co-operative societies qua landlords will not indulge in
rack-renting or will not unreasonably evict tenants; in fact they would not be
different from other private landlords so far as the two evils sought to be
curbed by the Act are concerned and therefore Counsel urged that the exemption
granted could not be said to be in conformity with the guidance afforded by the
scheme and the previsions of the Act.
417 Dismissing the petitions,
HELD: It is true that under sec. 4 of the
Tamil Nadu Co-operative Societies Act the very object of every co- operative
society registered there under is the promotion of economic interests of its
members and sec. 62 of the Act provides for payment of dividends on shares to
its members as also for payment of bonus to its members and paid employees. But
these aspects of a co-operative society do not mean that it could be likened to
any other body undertaking similar activities on commercial lines and to do so
would be to miss the very basis on which the co-operative movement was launched
and propagated and has been making progress in the country during the last
several decades.
Indisputably, co-operative societies which
carry on their activities in various fields do so for the purpose of attaining
the social and economic welfare of a large section of the people belonging to
the middle-class and the rural class by encouraging thrift, self-help and
mutual aid amongst them, especially by eliminating the middle-man. But the
object of promoting the economic interrupts of the members has to be achieved
by following co-operative principles where the profit motive will be restricted
to a reasonable level unlike other commercial bodies where sky is the limit so
far as their desire to earn profits is concerned. Sections 4 and 62 of the Act
and Rule 46 of the Rules make it clear that in the matter of distribution of
profits by way of payment of dividend to members and payment of bonus to
members as well as paid employees restrictions have been placed by law and the
same is maintained at a reasonable level and considerable portion of the net
profits is apportioned and required to be carried to various kinds of funds,
like co-operative development fund, co-operative education fund, reserve fund
etc. In fact it is such statutory appropriations and restrictions on payment of
dividends and bonus which differentiates co-operative societies from other
bodies undertaking similar activities on commercial lines and therefore, the
buildings belonging to such co-operative societies are substantially different
from the buildings owned by private landlords. Further it has to be appreciated
that these statutory provisions are applicable to all types of co-operative
societies specified in Rule 14 whatever be their nature or functions. The
profit element being maintained at a reasonable level by provisions of law in
all types of co-operative societies there is every justification for the
assumption that no co-operative society will indulge in rack-renting or
unreasonable eviction. In this view of the matter if the State Government came
to the conclusion that in the case of co-operative societies there being no
apprehension that they would indulge in either of these two evils exemption
from the provisions of the Tamil Nadu Act No. 18 of 1960 should be granted in
favour of buildings belonging to such co- operative societies it will have to
be regarded is a legitimate exercise of the power conferred on it under sec.
29 of the Act the same being in conformity
with the guidance afforded by the preamble and provisions of the Act in that
behalf. [422D-5; 424C-G] Besides, on the factual side of the issue the facts
and circumstances put forward by the State Government in its counter affidavit
which have gone unchallenged clearly show that the differentia on the basis of
which the classification was made had a clear nexus with the object with which
the power to grant exemption has been conferred upon the State and therefore
the impugned notification will have to be regarded as valid.
[425E-F] 418
ORIGINAL JURISDICTION: W. P. NO. 893 and 967
of 1979 and W. P. No, 295 of 1980 Under Article 32 of the Constitution of India
Dr. Y. S. Chitale, and Vineet Kumar for the petitioners m W. P. NOS. 823 &
967 of 1979.
A . T. M. Sampat and P. N. Ramnalingam for
the Petitioners in W. P. No. 295/80.
Anil Devan, K. S. Ramamurthy, V. M. Tarkunde,
M. K. D.
Namboodry and S. BalaKrishnan for the
respondents in W. P.
Nos. 893 & 967 of 1979 and W. P. No 295
of 1980.
The Judgment of the Court was delivered by
TULZAPURKAR, J. By these three writ petitions filed under Art. 32 of the
Constitution the petitioners, who are tenants in a building belonging to
respondent No. 2 Society, have challenged the validity of the exemption granted
to all buildings owned by all Co-operative Societies in the State of Tamil Nadu
from all the provisions of the T. N. Act 18 of 1960 under sec. 29 thereof.
The facts giving rise to the aforesid
challenge lie in a narrow compass. The petitioners are tenants in different
portions on the ground floor of the building bearing Door No. 188, Mount Road,
Madras belonging to second respondent which is an Apex Society registered under
the Tamil Nadu Co- operative Societies Act, 1961. It appears that the property
was purchased in 1961 by the second respondent from its previous owners M/s.
Mohammed Ibrahim and Company, and soon thereafter the second respondent applied
to the State Government under sec. 29 of the Act and sought exemption for it from
all the provisions of the Act But on hearing the objections raised by the
petitioners and other tenants the application was rejected. Respondent No- 2
thereupon made two attempts to evict the petitioners from their respective
premises. The first was on the ground that the premises are required by it for
its own occupation but at the end of a long drawn out litigation respondent No.
2 failed to obtain possession; the second was on the ground that it required
the premises for demolition and new construction and it was during the tendency
of this litigation that the State Government issued its Notification No. II (2)
H.O. 6060/76 dated 21.11 1976 under sec. 29 419 of the Act whereby the State
Government exempted the buildings A belonging to all Co-operative Societies in
the State of Tamil Nadu from all the provisions of the Act. On the issuance of
this Notification respondent No. 2 Withdrew its eviction petitions preferred on
the ground of demolition and new construction and served notices upon the
petitioners under sec. 106 of the Transfer of Property Act terminating their
tenancies and filed civil suits against them in the City Civil Court, Madras
for recovery of vacant possession of the premises in their respective
occupation. The petitioners have filed their written statements and suits are
awaiting trial. But since the protection available to them has been withdrawn
the petitioners arc facing the imminent prospect of suffering eviction decrees
against them and therefore, have approached this Court by means of these writ
petitions challenging the constitutional validity of the Notification in
question of the ground that the same is violative of Art. 14 of the
Constitution and have obtained stay of further proceedings in the suits.
The impugned Notification dated 21st
November, 1976 runs thus:
"No. II (2) H.O. 6060176-In exercise of
the powers conferred by Sec. 29 of the Tamil Nadu Buildings (Lease and Rent
Control) Act 1960 (Tamil Nadu Act 18 of 1960), the Government of Tamil Nadu
hereby exempts the. buildings owned by all Government Undertakings including
Government Companies registered under the Indian Companies Act 1956 Central Act
I of 1956) and by all the Co-operative Societies from all the provisions of the
said Act." As was done in the earlier case dealing with the total
exemption granted in favour of all buildings belonging to public religious
trusts and public charities, here also Counsel for the petitioners fairly
stated that treating the buildings owned by all the Co-operative Societies in
the State of Tamil Nadu as falling into one group while exercising the power
under sec. 29 of the Act will have to be regarded as a rational classification
based on an intelligible differentia inasmuch as Co-operative Societies while
carrying on their activities in various fields do serve a great public purpose
of attaining the social and economic welfare of a large section of the people
belonging to the middle class and the rural class by encouraging thrift, self help
and mutual aid amongst them and by eliminating the middle 420 man and as such
do form a distinct group different from other bodies undertaking similar
activities on commercial lines and as such buildings belonging to Co-operative
Societies may need special or preferential treatment in some matters like
registration of documents, payment of stamp duty, recovery of their dues etc.
at the hands of the State Government but according to Counsel the differentia
on which this classification is based has no nexus with the object with which
the powers to grant exemption has been conferred upon the State Government
under sec. 29 of the Act and since the impugned Notification does not satisfy
the test of nexus the exemption granted to all such buildings cannot be
sustained and will have to be regarded as discriminatory and violative of Art.
14.
By way of elaborating the aforesaid
contention Counsel for the petitioners urged that the Act was put on the
statute book for the purpose of curbing the two evils of rack-renting and
unreasonable eviction and that the power to grant exemption could as per the
guidance afforded by the scheme all the provisions of the Act be exercised by
the State Government ill cases where the mischief sought to be remedied by the
Act is neither prevalent nor apprehended are in cases where an inflexible
application of the law is likely to result in undue hardship or in cases where
the beneficial provision of the Act is likely to be or is being abused by
persons for whom it is intended and according to Counsel the exemption in
favour of the buildings belonging to all Co-operative Societies in the State of
Tamil Nadu does not conform to such guidance. Counsel pointed out that Rule 11
of the Rules made under the T.N. Co-operative Societies Act 1961 specifies as
many as 13 different classes of Co-operative Societies, such as farming
society, credit society, housing society, marketing society etc. and the
impugned Notification indiscriminately and unconditionally exempts all buildings
belonging to all types of Co-operative Societies with no regard to their nature
or functions- Further, according to sec. 4 of the T.N. Co operative Societies
Act the very object of every Co-operative Society is the promotion of the
economic interest of its Members and sec. 62 of that Act provides not only for
payment of dividends o n shares to members but also for payment of bonus to
members and paid-employees of the Society. Hence it is unrealistic to assume
that Co-operative Societies are not or will not indulge in rack-renting or
unreason eviction or will be ideal landlords whose tenants will not be in need
of any statutory protection. Tn other words Counsel urged that there was and is
no warrant of any 421 presumption that Co-operative Societies qua landlords
will not indulge in rack-renting or will not unreasonably evict tenants; in
fact they would not be different from other private landlords so far as the two
evils sought to be curbed by the Act are concerned and therefore Counsel urged
that the exemption granted could not be said to be in conformity with the
guidance afforded by the scheme and the provisions of the Act.
In support of the above contention Counsel
relied upon a decision of this Court in Baburao Shantaram More v. The Bombay
Housing Board and Anr.(1) where the validity of sec.
3-A of the Bombay Housing Board Act, 1951 was
challenged as infringing Art. 14. It was urged in that case that sec. 3-A
exempted lands and buildings belonging to the Bombay Housing Board from the
operation of the Bombay Rent Act, 1947 while lands and buildings belonging to
numerous Co-operative Housing Societies, which were similarly situated and
whose object was also to solve housing problems, were not given any exemption
from the operation of the Rent Act and the result was that while tenants of the
Co-operative Housing Societies were fully protected against unreasonable
eviction and enhancement of rent, the tenants of the Housing Board were denied
such protection and therefore sec. 3-A was violative of Art. 14. The contention
was negatived on the ground that the Housing Board and the Cooperative Housing
Societies incorporated under the Cooperative Societies Act were not similarly
situated and in that behalf this Court observed thus:
"Further, though these Co-operative
Housing Societies are no doubt incorporated bodies, they nevertheless may earn
profits which may be distributed amongst their members. The Board, on the other
hand, is incorporated body brought into existence for the purpose of framing
housing schemes to solve the problem of acute shortage of housing in Bombay.
There are no share-holders interested in the distribution of any profits. It is
under the control of the Government and acts under the orders of the
Government. In effect, it is a Government sponsored body not having any profits
making motive. No material has been placed before us which may remotely be
regarded as suggesting, much less proving, that Co-operative Housing (1) [1954]
S.C.R. 572 422 Societies or their members stand similarly situated vis-a-vis
the Board and its tenants." Relying upon the above observations Counsel
for the petitioners submitted that this Court had recognised the position that
various activities are undertaken by Cooperative Societies with the motive of
earning profits and as such there was and is no warrant for treating them
differently from other private landlords in the context of two evils sought to
be remedied by the Act and in this sense the exemption granted does not satisfy
the test or nexus and therefore the same infringes Art. 14.
The above contention so presented, though
seemingly plausible, will, on deeper scrutiny, be found to be without substance
and we shall presently indicate our reasons for saying so. It is true that
under sec. 4 of the Tamil Nadu Co-operative Societies Act the very object of
every Co- operative Society registered there under is the promotion of economic
interests of its members and s. 62 of the Act provides for payment of dividends
on shares to its members as also for payment of bonus to its members and paid
employees. But these aspects of a Co-operative Society do not mean that it
could be likened to any other body undertaking similar activities on commercial
lines and to do so would be to miss the very basis on which the cooperative movement
was launched and propagated and has been making progress in the country during
the last several decades.
Indisputably, Co-operative Societies which
carry on their activities in various fields do 50 for the purpose of attaining
the social and economic welfare of a large section of the people belonging to
the middle-class and the rural class by encouraging thrift, self-help and
mutual aid amongst them, especially by eliminating the middle-man. But the
object of promoting the economic interests of the members has to be achieved by
following cooperative principles where the profit motive will be restricted to
a reasonable level unlike other commercial bodies where sky` is the limit so
far as their desire to earn profits is concerned. Sections 4 and 62 of the T.N.
Co-operative Societies Act and Rule 46 of the Rules made under that Act bring
out this aspect of the matter very eloquently. Section 4 itself states that a
society, which has as its object the promotion of economic interest of its
members in accordance With cooperatives principle, may, subject to the
provisions of the Act be registered there under In other words the promotion of
economic interests of the members has to be achieved in accordance with
co-operative principles and the realisation thereof has been made subject to
the provisions of the 423 Act. Section 62 which deals with disposal of net
profits puts A restrictions on the disbursement of such profits and it runs as
follows:
"62. Disposal of net profits ( 1 ) (a) A
registered society shall out of its net profits as declared by the Registrar
for the purposes of this Act in respect of any co-operative year contribute
such amount not exceeding,- (i) five percent of the net profits to the co-
operative development fund; and (ii) two per cent of the net profits to the co-
operative education fund, as may be specified in the Rules.
(b) Such contribution shall be made within
such time and in such manner as may be prescribed.
2) The balance of the net profits so declared
shall be appropriated- firstly, for being credited to a reserve fund, the
amount so credited being not less than twenty per cent, but not exceeding
thirty per cent, af the net profits;
secondly, towards contribution to such other
funds and at such rates as may be specified in the Rules:
thirdly, towards payment of dividends on
shares to members at such rate as may be specified in the Rules;
fourthly, towards payment of bonus to members
and paid employees of the registered society at such rate and subject to such
conditions as may be specified in the Rules;
fifthly, towards contribution to such other
funds and such rates as may be specified in the by-laws;
sixthly, towards contribution to the common
good fund at such rate not exceeding ten per cent of the net profits as may be
specified in the Rules; and 424 seventhly, the remainder, if any, of the net
profits being credited to the reserve fund." Rule 46 prescribes the limits
on payment of dividends on shares to its members as also on payment of bonus to
its members and paid employees. Sub-Rule (3) of Rule 46 says that the payment
of dividends on shares to members by a Society shall not exceed 6 percent per
annum on the paid up value of each share; provided that the Government may by
special or general order permit any Society or class of Societies to pay
dividend at the rate exceeding 6 per cent.
Similarly under Sub-Rules (4) and (5)
restrictions have been placed on payment of bonus to members and to paid
employees. In view of these provisions it will appear clear that in the matter
of distribution of profits by way of payment of dividend to members and payment
of` bonus to members as well as paid employees restrictions have been placed by
law and the same is maintained at a reasonable level and considerable portion
of the net profits is apportioned and required to be carried to various kinds
of funds, like cooperative development fund, co-operative education fund,
reserve fund etc. In fact it is such statutory appropriations and restrictions
on payment of dividends and bonus which differentiates Co-operative Societies
from other bodies undertaking similar activities on commercial lines and
therefore, the buildings belonging to such Co-operative Societies are
substantially different from the buildings owned by private landlords. Further,
it has to be appreciated that these statutory provisions are applicable to all
types of Co-operative Societies specified in Rule 14 whatever be their nature
or functions. The profit element being maintained at a reasonable level by
provisions of law in all types of Co-operative Societies there is every
justification for the assumption that no cooperative society will indulge in
rack-renting or unreasonable eviction. In this view of the matter if the State
Government came to the conclusion that in the case of Co operative Societies
there being no apprehension that they would indulge in either of these two
evils exemption from the provisions of the T.N. Act No. 18 of 1960 should be
granted in favour of buildings belonging to such Co-operative Societies it will
have to be regarded as a legitimate exercise of the power conferred on it under
s. 29 of the Act the same being in conformity with the guidance afforded by the
preamble and provisions of the Act in that behalf.
Besides, on the factual sides of the issue it
has been specifically averred in the counter affidavit filed on behalf of the
State Government that it duly took note of the fact that all types of
Co-operative Societies functioning in Madras City and at several centers
throughout the State as a class were engaged in various kinds of activities
promoting social welfare, rural-development and economic good by providing
employment to lacs of people and were doing excellent work by way of
implementing one of the Directive Principles of State Policy embodied in Art.
43 of the Constitution, that several complaints were received from these Co
operative Societies that they were facing problems arising out of a literal
application of the T.N. Act 18 of 1960, particularly in the matter of securing
accommodation in their own buildings for carrying on their activities and that
they got involved in long drawn out litigations in that behalf and requesting
for an exemption from the provisions of the Act so that they could be relieved
of the hardships from which they were suffering; it has been further averred
that the Government also took note of the fact that it was not the business
activity of any Co-operative Society including even a Co- operative Housing
Society to purchase buildings for the purpose of letting them out and earning
income there from and as such there was no apprehension of indulging in rack
renting on their behalf and that on a consideration of all the relevant factors
the Government was satisfied that the protection given to the tenants of such
buildings, if withdrawn, would not result in rack renting or unreasonable
eviction and that the granting of exemption to them was necessary to relieve
them of great hardship lt may be stated that all these averments have gone
unchallenged and in our view the facts and circumstances put forward by the
State Government clearly show that the differential on the basis of which the
classification was made had a clear nexus with the object with which the power
to grant exemption has been conferred upon the State and therefore the impugned
Notification will have to be regarded as valid In regard to respondent No. 2
being the Apex Society herein, the additional factors taken into consideration
were that out of its total share capital of 13.78 crores the State Government's
contribution was to the tune of 12.81 crores, that the Government had
guaranteed the loans borrowed by it for its working capital. that as the apex
body it had membership of about 1488 primary societies (Handloom Weavers
Co-operative Societies and that it had 34 branches and two godowns in Madras
and was required to pay for its rented premises rent at the rate of Rs. 2 50
per square foot while the tenants of their own building were paying rent at the
rate of 20 paisa per square feet;
respondent No. 2 society was also involved in
a long 426 drawn out litigation under the provisions of the T.N. Act 18 of 1960
In other words, respondent No 2 society was a glaring instance of undue
hardship being suffered by a Co- operative Society as a result of the literal
application of the Act. We are sure that a large number of similar instances
must have prompted the State Government to issue the impugned Notification
which as we have said above will have to be regarded a legitimate exercise of
power conferred on the State Government under sec 29 of the Act Counsel has of
course placed strong reliance upon the observations made by this Court in
Baburao Shantaram's case (supra) which have been quoted above in support of his
contention but in our view neither the ratio nor the observations are of any
avail to the petitioners. It will be clear at once that the decision in
question is no authority for the proposition that exemption from the provisions
of any rent-control enactment cannot be granted in favour of the buildings
owned by Co-operative Societies. the case was con concerned with the
constitutional validity of sec 3-A of the Bombay Housing Board Act, 1951
where-under exemption had been granted to lands and buildings belonging to the
Bombay Housing Board from the operation of the Bombay Rent Act, 1941 and its
validity was upheld by this Court. One of the contentions urged before the
Court was that buildings belonging to Co-operative Housing Societies in Bombay
were similarly situated as the buildings belonging to the Housing Board
inasmuch as the object served by Co-operative Housing Societies and the Housing
Board was the same namely, solving the housing problems of the city of Bombay
and even so, though the tenants of Co operative Housing Societies were fully
protected against unreasonable eviction and enhancement of rent, the tenants of
Housing Board were denied such protection and therefore sec. 3-A was
discriminatory and this contention was negatived by the Court by observing that
the Co-operative Housing Societies and their members were not similarly
situated vis-a-vis the Board and its tenants and while pointing out the
difference the Court stated that while Cooperative Housing Societies may earn
profits distributable among its members there was no question of the Housing
Board making any profits. The Court was not concerned with the question as to
whether a similar exemption if granted to buildings belonging to Co- operative
Societies would be valid or rot. The difference pointed by this Court was
sufficient to refute the charge of discrimination levelled against the
particular piece of legislation (sec. 3-A of the Bombay Housing Boards Act
1951) but it 11 will be fallacious to rely upon this difference for the purpose
of 427 striking down the exemption granted in favour of buildings of
Cooperative Societies under another enactment if such exemption is otherwise
justified on the facts and circumstances obtaining in regard to such buildings.
In fact as explained earlier the Co-operative principles which govern the
functioning of these Co-operative Societies put a curb on their profit motive
and as pointed there are statutory provisions which maintain their profit
element at reasonable level which warrant the assumption that Co- operative
Societies would not indulge in rack-renting or unreasonable eviction and it was
in the light of this position as also after careful study of all relevant
factors obtaining in their case the, State Government was satisfied that the
grant of total exemption in favour of the buildings of all Co-operative
Societies functioning in the entire State was necessary. The observations
relied upon cannot therefore support the Petitioners' contention.
In the result the writ petitions are
dismissed.
Interim orders, if any are vacted. There will
be no order as to costs.
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