http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 9

PETITIONER:

S. M. MAHENDRU AND COMPANY ETC.

Vs.

RESPONDENT:

STATE OF TAMIL NADU AND ANR.

DATE OF JUDGMENT12/12/1984

BENCH:

TULZAPURKAR, V.D.

BENCH:

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had been withdrawn and since the petitioners were facing the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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 9

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 thereunder 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 9

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

JUDGMENT:

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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 9

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, selfhelp 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 9

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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 9

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 thereunder 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 linkened 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 thereunder 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 9

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 Govern

425

ment that it duly took note of the fact that all types of

Co-operative Societies functioning in Madras City and at

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 9

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 therefrom 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 9

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.

H.S.K. Petitlons dismissed

428