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CASE NO.:

Appeal (civil) 1551 of 2000

PETITIONER:

Zoroastrian Co-operative Housing Society Limited and Another

RESPONDENT:

District Registrar Co-operative Societies (Urban) and Others

DATE OF JUDGMENT: 15/04/2005

BENCH:

B.N. AGRAWAL & P.K. BALASUBRAMANYAN

JUDGMENT:

J U D G M E N T

P.K. BALASUBRAMANYAN, J.

1. The Zoroastrian Co-operative Housing Society is a society

registered on 19.5.1926, under the Bombay Co-operative Societies Act,

1925. The Society applied to the Government of Bombay for acquisition

of certain lands in Ahmedabad District, then in the State of Bombay,

under the Land Acquisition Act, 1894 for the purpose of erecting houses

for residential use of its members and to further the aims and objects of

the Society. On the Government of Bombay agreeing to the proposal,

the Society entered into an agreement on 17.2.1928 with the

Government under Section 41 of the Land Acquisition Act. Certain

lands were acquired. From the lands thus acquired at its cost and given

to it, the Society allotted plots of land to the various members of the

Society in furtherance of the objects of the Society. On the re-

organization of States, the Society became functional in the State of

Gujarat and came within the purview of the Gujarat Co-operative

Societies Act, 1961. Section 169 of that Act, repealed the Bombay Co-

operative Societies Act, 1925 and in sub-section (2) provided that all

societies registered or deemed to be registered under the Bombay Act,

the registration of which was in force immediately before the

commencement of the Gujarat Act, were to be deemed to be registered

under the Gujarat Act. The Gujarat Act came into force on 1.5.1962.

Thus, the Society came to be regulated by the Gujarat Co-operative

Societies Act, 1961 (hereinafter referred to as 'the Act').

2. On the scheme of the Bombay Co-operative Societies Act

(hereinafter referred to as 'the Bombay Act'), the Society had applied for

registration in terms of Section 9 of that Act. The application was

accompanied by the proposed bye-laws of the Society. The Registrar of

Co-operative Societies, on being satisfied that the Society had complied

with the provisions of the Act and the Rules and that the proposed bye-

laws were not contrary to the Act and the Rules, granted registration to

the Society and its bye-laws and issued a certificate of registration in

terms of Section 11 of that Act. As per the bye-laws, the objects of the

Society were to carry on the trade of building, and of buying, selling,

hiring, letting and developing land in accordance with Co-operative

principles and to establish and carry on social, re-creative and

educational work in connection with its tenets and the Society was to

have full power to do all things it deemed necessary or expedient, for the

accomplishment of all objects specified in its bye-laws, including the

power to purchase, hold, sell, exchange, mortgage, rent, lease, sub-lease,

surrender, accept surrenders of and deal with lands of any tenure and to

sell by installments and subject to any terms or conditions and to make

and guarantee advances to members for building or purchasing property

and to erect, pull down, repair, alter or otherwise deal with any building

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thereon. All persons who had signed the application for registration, are

original members by virtue of bye-law No.7. The said bye-law further

provided that other members shall be elected by the Committee of the

Society, provided that all members shall belong to the Parsi Community

subject to satisfying other conditions in that bye-law. Bye-law No. 21

provided for sale of a share held by a member but with previous sanction

of the Committee which had full discretion in granting or withholding

such sanction. It was also provided that until the transfer of a share is

registered, no right was acquired against the Society by the transferee,

and no claim against the transferor by the Society was also to be

affected. In short, the qualification for becoming a member in the

Society was that the person should be a Parsi and that the transfer of a

share to him had to have the previous sanction of the Committee of the

Society.

3. Some of the relevant provisions of the Bombay Act may

now be noticed. Under Section 3, the Registrar had the right to classify

all societies under one or other of the heads referred to in that Section.

Under Section 5 of that Act, a society which had as its object, the

promotion of economic interests of its members in accordance with

economic principles, may be registered under the Act with or without

limited liability. Section 6 placed restrictions on the interests of the

members of the society with limited liability. Section 6A enacted that

no person shall be admitted as a member of a society unless he was a

person competent to contract under Section 11 of the Indian Contract

Act. Section 7 stipulated the conditions for registration and provided

that no society could be registered under the Act which did not consist of

at least 10 persons who were qualified to be members of the society

under Section 6A and where the object of the society was the creation of

funds to be lent to its members, unless all persons forming the society

resided in the same town or village or in the group of villages or they

belonged to the same tribe, class or occupation, unless the Registrar

ordered otherwise and no person could be admitted to membership of

any such society after its registration unless the persons fulfilled the two

requirements as mentioned above. If the Registrar was satisfied that a

society has complied with the provisions of the Act and the Rules and

that its proposed bye-laws are not contrary to the Act or to the Rules,

under Section 10 he was to register the society and its bye-laws.

According to the Society, it had submitted its duly filled in application

under Section 9 of the Act accompanied by its bye-laws and the said

bye-laws have been approved and registered by the Registrar on being

satisfied that the proposed bye-laws were not contrary to the Act or to

the Rules.

4. After the Society was formed and registered as indicated

earlier, the Society got lands acquired by the State by invoking the Land

Acquisition Act, 1894. The Society entered into an agreement in that

behalf with the Government under Section 41 of the Act on 17.2.1928.

The said agreement recited that the Government of Bombay was

satisfied that the land should be acquired under the Land Acquisition Act

"for the purpose of erecting houses thereon". It was also stated that the

Government was satisfied that the acquisition of the land was needed for

the furtherance of the objects of the Society and was likely to prove

useful to the public and it consented to put in operation the provisions of

the Land Acquisition Act. An extent of 6 acres 12 guntas was thus

acquired and handed over to the Society, on the Society bearing the cost

of that acquisition. The Society in its turn allotted portions of the land to

its members for the purpose of putting up residential houses in the

concerned plots.

5. One of the members of the Society sold the plot in which he

had constructed a residential building, to the father of Respondent No.2

with the previous consent of the Committee of the Society. The father of

Respondent No.2 was also admitted to membership of the Society, he

being qualified for such admission in terms of the bye-laws of the

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Society. After the rights devolved on Respondent No.2, consequent on

the death of his father, he became a member of the Society of his

volition. Thereafter, he applied to the Society for permission to demolish

the bungalow that had been put up and to construct a commercial

building in its place. The Society refused him permission stating that the

bye-laws of the Society did not permit commercial use of the land.

Thereafter, Respondent No.2 applied to the Society for permission to

demolish the bungalow and to construct residential flats to be sold to

Parsis. The Society acceded to the request of Respondent No.2, making

it clear that the flats constructed could only be sold to Parsis. It appears

that, earlier, the Society had written to the Registrar that it was

apprehending that certain members of the Society were proposing to sell

their bungalows to persons outside the Parsi community only with

commercial motive and in violation of clause 7 of the bye-laws. The

Registrar replied that any transaction of sale should be in accordance

with the bye-laws of the Society and any sale in violation of the bye-laws

would not be permitted, thus, stressing the sanctity of the bye-laws. On

20.7.1982, the Government of Gujarat had also issued a notification

declaring that persons or firms dealing with the sale and purchase of

lands and buildings, contractors, architects and engineers were

disqualified from being members of Co-operative Housing Societies.

Though, permission was given to Respondent No.2 as early as on

17.5.1988 for construction of residential flats in the land, to be sold only

to members of the Parsi community, he did not act on the permission for

a period of seven years. Apprehending that Respondent No.2 intended

to violate the bye-laws of the Society, the Society passed a resolution

reminding its members that in accordance with bye-law No.7, no person

other than a Parsi could become a new member of the Society and

informing the existing members of the Society that they could not sell

their plots or bungalows to any person not belonging to the Parsi

community. Respondent No.2 appears to have started negotiations with

Respondent No.3, a Builder's association, in violation of the restriction

on sale of shares or property to a non-Parsi. The Society, in that context,

filed a case before the Board of Nominees under the Act for an

injunction restraining Respondent No.2 from putting up any construction

in plot no.7 and from transferring the same to outsiders in violation of

bye-law No.7 without valid prior permission from the Society. Though,

initially an interim order of injunction was granted, the Board informed

the Society that the Society could not restrict its membership only to the

Parsi community and that membership should remain open for every

person. A clarification was also sought for from the Society as to why it

had refused permission to Respondent No.2 to transfer plot no.7

belonging to him. Subsequently, the Board of Nominees vacated the

interim order of injunction granted, inter alia, on the ground that the

construction of a block of residential flats would not create disturbance

and nuisance to the original members of the Society. Thereafter,

Respondent No.2 applied to the Society for permission to transfer his

share to Respondent No.3. The said application was rejected by the

Society, since according to it, the application was contrary to the Act,

Rules and the bye-laws of the Society. While the Society challenged the

order of the Board of Nominees before the Gujarat State Co-operative

Societies Tribunal, Respondents 2 and 3 challenged the rejection of the

request of Respondent No.2 to sell his plot to Respondent No.3, by way

of an appeal before the Registrar of Co-operative Societies under Section

24 of the Act. The Tribunal, in the revision filed by the Society, took the

view in an interim order that the bye-law restricting membership to

Parsis was a restriction on the right to property and the right to alienate

property and, therefore, was invalid in terms of Article 300A of the

Constitution of India. This order was challenged by the Society and its

Chairman before the High Court of Gujarat in Special Civil Application

No. 6226 of 1996. By judgment dated 16.1.1997, a learned Single Judge

of the Gujarat High Court dismissed the writ petition essentially holding

that the restriction in a bye-law to the effect that membership would be

limited only to persons belonging to the Parsi community, would be an

unfair restriction which can be validly dealt with by the appropriate

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authorities under Section 24 of the Act and Rule 12(2) of the Rules. It

was also held that such a bye-law would amount to a restraint on

alienation and hence would be hit by Section 10 of the Transfer of

Property Act. The Society and its Chairman, challenged the said

decision before a Division Bench, in Letters Patent Appeal No. 129 of

1997. By judgment dated 23.7.1999, the said appeal was dismissed,

more or less, concurring with the reasoning and conclusion of the

learned Single Judge. The decision of the Division Bench of the Gujarat

High Court thus rendered, is challenged in this appeal by Special Leave.

6. Mr. Soli J. Sorabjee, learned Senior Counsel appearing for the

appellants contended that under Article 19(1)(c) of the Constitution of

India, Parsis had a fundament right of forming an association and that

fundamental right cannot be infringed by thrusting upon the association,

members whom it does not want to admit or against the terms of its bye-

laws. He submitted that the content of the right of association

guaranteed by Article 19(1)(c) of the Constitution of India has been

misunderstood by the High Court and the Authorities under the Act. He

also contended that there was nothing in the Act or the Rules which

precluded a society from restricting its membership to persons of a

particular persuasion, belief or tenet and the High Court was in error in

holding that membership could not be restricted to members of the parsi

community for whose benefit the very society was got registered.

Though, grounds based on Article 26 of the Constitution of India raised,

were not pursued, it was pointed out that under Article 29, the parsis had

the right to conserve their culture. It was submitted that bye-law No.7

was perfectly valid and so long as it did not violate anything contained in

the Act or the Rules, it could not be held to be invalid or unenforceable

and the society cannot be compelled to act against the terms of its bye-

laws. He also submitted that there was no absolute restraint on

alienation to attract Section 10 of the Transfer of Property Act and the

restraint, if any, was only a partial restraint, valid in law. There was

nothing illegal in certain persons coming together to form a society in

agreeing to restrict membership in it or to exclude the general public at

its discretion with a view to carry on its objects smoothly. Mr. Bobde,

learned Senior Counsel appearing for the contesting respondents,

Respondents 2 and 3, contended that Section 4 of the Act clearly

indicated that no bye-law could be recognized which was opposed to

public policy or which was in contravention of public policy in the

context of the relevant provisions in the Constitution of India and the

rights of an individual under the laws of the Country. A bye-law

restricting membership in a co-operative society, to a particular

denomination, community, caste or creed was opposed to public policy

and consequently, the Authorities under the Act and the High Court were

fully justified in rejecting the claim of the Society. Learned Senior

Counsel also contended that the High Court was right in holding that the

concerned bye-law operated as a restraint on alienation and such a

restraint was clearly invalid in terms of Section 10 of the Transfer of

Property Act. He submitted that a co-operative society stood on a

different footing from a purely voluntary association or a society

registered under the Societies Registration Act and in the context of

Sections 4 and 24 of the Act, the validity of the bye-laws of a society

had to be tested, notwithstanding the fact that the bye-laws had been

earlier approved by the Registrar of Co-operative Societies. Learned

Senior Counsel also contended that under Section 14 of the Act, the

Registrar had the power to call upon the Society to amend its bye-laws

and in that context, the Registrar could direct the Society to delete the

restriction placed on admission to membership by bye-law No.7 of the

bye-laws of the Society. In reply, Mr. Sorabjee pointed out that the

rights under Part III of the Constitution of India pertained to State action

and an individual could always join a voluntary association or a

cooperative society which placed certain restrictions on the right, he

might have otherwise enjoyed. There was also no substance in the

contention that public policy was being violated.

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7. Before proceeding further, some of the relevant provisions of the

Gujarat Act may be noticed in a little detail. The Society though

originally registered under the Bombay Co-operative Societies Act, 1925

has to be deemed to be registered under the Gujarat Act by virtue of

Section 169 of the Gujarat Cooperative Societies Act, 1961. Section 2(2)

of the Act defines bye-laws as meaning, bye-laws registered under the

Act. Section 2(13) defines a member as meaning a person joining in an

application for the registration of a co-operative society which is

subsequently registered, or a person, duly admitted to membership of the

society after its registration. Section 4 of the Act, based on which

considerable arguments were raised before us, reads as follows:-

"4. Societies which may be registered.- A

society, which has as its object the promotion of

the economic interests or general welfare of its

members or of the public, in accordance with co-

operative principles, or a society established with

the object of facilitating the operations of any such

society, may be registered under this Act:

Provided that it shall not be registered if, in

the opinion of the Registrar, it is economically

unsound, or its registration may have an adverse

effect upon any other society, or it is opposed to,

or its working is likely to be in contravention of

pubic policy."

Section 6 insists that a society shall not be registered under the

Act unless it consists of at least ten persons not belonging to the same

family, who are qualified to be members under the Act and who reside

within the area of operation of the society. This shows that the members

of a family could not by themselves form into a society. There was no

such embargo on persons belonging to a community or sex forming

themselves into a cooperative society. Section 8 speaks of application

for registration and Section 9 speaks of registration. As noticed, the

Society was originally registered under the Bombay Act. Under Section

11 of the Act, the Registrar is given the power to decide certain

questions. The said Section reads:

"11. Power of Registrar to decide certain

questions.- When, any question arises whether for

the purpose of the formation, or registration or

continuance of a society or the admission of a

person as a member of a society under this Act a

person is an agriculturist or a non-agriculturist, or

whether any person is a resident in a town or

village or group of villages, or whether two or

more villages shall be considered to form a group,

or whether any person belongs to any particular

tribe, class or occupation, the question shall be

decided by the Registrar."

It may be noted that the power does not include the power

to decide whether the refusal to admit a particular member on the basis

that he is not qualified under the bye-laws is correct or not and the power

is conferred only to decide the eligibility of a person to be a member,

apparently in terms of the Act, the Rules and the bye-laws. Section 12

enables the Registrar to classify the societies. Section 13 provides that

an amendment of the bye-laws of a society had to be approved by the

Registrar before it could come into force. Section 14 of the Act confers

a power on the Registrar to direct an amendment of the bye-laws of a

society. The said Section reads as under:-

"14. Power to direct amendment of bye-

laws .- (1) If it appears to the Registrar that an

amendment of the bye-laws except in respect of

the name or objects of a society is necessary or

desirable in the interest of such society, he may

call upon the society, in the prescribed manner, to

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make the amendment within such time as he may

specify.

(2) If the society fails to make the

amendment within the time so specified, the

Registrar after giving the society an opportunity of

being heard and with the prior approval of the

State Co-operative Council, may register the

amendment, and shall thereupon issue to the

society a copy thereof certified by him. With effect

from the date of the registration of the amendment

in the manner aforesaid, the bye-laws shall be

deemed to have been duly amended accordingly ;

and the bye-laws as amended shall be binding on

the society and its members."

Section 22 provides that subject to the provisions of Section 25,

no person shall be admitted as a member of a society unless he is an

individual, who is competent to contract, a firm, company, or any other

body corporate or a society registered under the Societies Registration

Act, 1860, a society registered, or deemed to be registered, under the

Act, the State Government, a local authority, or a public trust registered

under Bombay Public Trusts Act, 1950.

Section 23 deals with removal of a member in certain

circumstances. Section 24 speaks of open membership. Sub-Section (1)

thereof, which is of immediate relevance, reads as follows:-

"24. Open membership. (1) No society

shall, without sufficient cause, refuse admission to

membership to any person duly qualified therefor

under the provisions of this Act, the rules and bye-

laws of such society."

Be it noted that admission to membership could not be refused only to a

person who was duly qualified therefor under the Act, the Rules and the

bye-laws of such Society. In other words, the bye-laws are not given the

go-by in spite of the introduction of the concept of open membership as

indicated by the heading of the Section. Section 29 of the Act restricted

the right of a member other than the State Government or a society to

hold more than one fifth of the total share capital of the society. Section

30 places restriction on transfer of share or interest. It reads

"30. Restrictions on transfer of share or interest.-

(1) Subject to the provisions of section 29 and sub-

section (2) a transfer of, or charge on, the share or

interest of a member in the capital of a society shall be

subject to such conditions as may be prescribed.

(2) A member shall not transfer any share held by

him, or his interest in the capital or property of any

society, or any part thereof, unless.-

(a) he has held such share or interest for not

less than one year;

(b) the transfer or charge is made to the

Society, or to a member of the Society,

or to a person whose application for

membership has been accepted by the

Society; and

(c) the committee has approved such

transfer."

It can be seen that a restriction is placed on the right of a member to

transfer his share by sub-section (2) of Section 30 and the transfer could

be only in favour of the society or to a member of the society or to a

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person whose application for membership has been accepted by the

society and the committee has approved such transfer. Section 31

provides for transfer of interest on death of a member. Even an heir or a

legal representative, had to seek and obtain a membership in the society,

before the rights could be transferred to him. The section also leaves a

right to the heir or legal representative to require the society to pay him

the value of the share or interest of the deceased member, ascertained as

prescribed. Section 32 of the Act provides that the share or interest of a

member in the capital of a Cooperative Society is not liable to

attachment. Under Section 36 of the Act, the society even has the power

to expel a member and unless otherwise ordered in special

circumstances by the Registrar, such expelled member does not have a

right of re-admission to membership. Sections 44 to 46 place

restrictions on transactions with non-members and the said transactions

were to be subject to such restrictions as may be prescribed. Under

Chapter V of the Act, any society duly registered under the Act would be

entitled to State aid. Under Section 73 of the Act, the final authority of

the society is to vest in the general body of the society, subject to it

being delegated in terms of the bye-laws of the society. The powers and

functions of the Committee in which the management of every society

vested, are dealt with in Section 74 of the Act.

8. The Gujarat Co-operative Societies Rules, 1965 was framed in

terms of the Act. Rule 12(2) provides that no Co-operative Housing

Society shall, without sufficient cause, refuse admission to its

membership, to any person duly qualified therefor under the provisions

of the Act and its bye-laws, to whom an existing member of such society

wants to sell or transfer his land or house and no such society shall,

without sufficient cause, refuse to give permission to any existing

member to sell or transfer his plot of land or house to another person

who is duly qualified to become a member of that society.

9. A peep into the history of the legislation brought in to govern the

co-operative movement in the country seems justified. The real first

legislation touching the co-operative movement was the Co-operative

Credit Societies Act, 1904. When that act came into being, there was no

other act in force under which an association or a society could be

formed for the purpose of promoting the economic interests of its

members in accordance with the well recognized co-operative principles,

though a co-operative society could be organized under the Indian

Companies Act, 1882. Lacuna was found in the working of that Act

especially in the development of rural credit. To remove the same, the

Cooperative Societies Act, 1912 was enacted. Under Section 4 of that

Act, a society which had as its object, the promotion of economic

interests of its members in accordance with economic principles, could

be registered under the Act. Under Section 6, no society could be

registered which did not consist of at least 10 persons above the age of

18 years and where the object of the society was the creation of funds to

be lent to its members unless such persons either resided in the same

town or village or in the same group of villages or they were members of

the same tribe, class, caste or occupation unless otherwise directed by

the Registrar of Co-operative societies. Section 14 placed restrictions on

the transfer of share or interest by a member and the transfer could be

made only to the society or to a member of the society. What is relevant

for our purpose is to notice that normally, the membership in a society

created with the object of creation of funds to be lent to its members,

was to be confined to members of the same tribe, class, caste or

occupation. The Co-operative Societies Act, 1912 continued in force

until the concerned States enacted laws for themselves. It was, thus,

that the Bombay Co-operative Societies Act, 1925 was enacted. We

have earlier noticed some of the relevant provisions of the Act and it is

not necessary to repeat them here. Under Section 72 of the Act, a

society registered either under the Co-operative Credit Societies Act,

1904 or the Co-operative Societies Act, 1912 was to be deemed to be

registered under the Act. What is required to be noticed is that in this

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Act also, when the object of the society was the creation of funds to be

lent to its members, the membership had to be confined to persons

belonging to the same town or village or same group of villages or they

had to be members of the same tribe, class (originally it was caste) or

occupation unless the Registrar ordered otherwise. It was this Act,

under which the present appellant Society got itself registered, though it

later came to be governed by the Gujarat Co-operative Societies Act

which was subsequently enacted. We have already adverted to the

general provisions thereof but it may be relevant to notice here that

under Section 6, no society other than a federal society, could be

registered unless it consisted of at least 10 persons belonging to different

families and who resided in the area of operation of the society and no

society with unlimited liability could be registered unless all persons

forming the society, resided in the same town or village or in the group

of villages. Section 24 of the Act put restrictions in respect of

membership. Section 30 restricted the right of transfer and Section 31

the right of inheritance. Thus, running right through the relevant

enactments, is the concept of restricted membership in a co-operative

society. The concept of open membership referred to in Section 24 of

the Act has therefore to be understood in this background, especially

when we bear in mind that it only placed an embargo on refusal of

admission to membership to any person duly qualified therefor under the

provisions of the Act, the Rules and the bye-laws of the society.

10. It could be seen from the leaflet which is a part of Annexure

P-1 containing the bye-laws of the Society filed with the rejoinder, that

suggestions were made regarding the formation of co-operative housing

societies. The appellant is a housing society. It was stated that the

essential feature of every housing society was at least that its houses

formed one settlement in one compact area and the regulation of the

settlement rested in the hands of the managing committee of the society.

The problem involved in devising of model bye-laws which had to

combine rather opposite requirements is also seen explained. In the

suggestions for the promotion of a housing society the first essential is

said to be that there should be a bond of common habits and common

usage among the members which should strengthen their neighbourly

feelings, their loyal adherence to the will of the society expressed by the

committee's orders and their unselfish and harmonious working

together. In India, this bond was most frequently found in a community

or caste or groups like cultivators of a village. It is seen that the

appellant Society, more or less, adopted the model bye-laws prepared in

that behalf and by bye-law 7, the housing society confined its

membership to those of the Parsi community.

11. The cooperative movement, by its very nature, is a form of

voluntary association where individuals unite for mutual benefit in the

production and distribution of wealth upon principles of equity, reason

and common good. No doubt, when it gets registered under the

Cooperative Societies Act, it is governed by the provisions of the

Cooperative Societies Act and the Rules framed thereunder. In

Damyanti Naranga v. Union of India & Others (AIR 1971 SC 966),

this Court, discussing the scope of the right to form an association

guaranteed by Article 19(1)(c) of the Constitution of India, stated that

the right to form an association necessarily implies that the persons

forming the association have also the right to continue to be associated

with only those whom they voluntarily admit in the association. Any

law, by which members are introduced in the voluntary Association

without any option being given to the members to keep them out, or any

law which takes away the membership of those who have voluntarily

joined it, will be a law violating the right to form an association. Based

on this decision, it is contended on behalf of the Society that its members

have the right to be associated only with those whom they consider

eligible to be admitted and the right to deny admission to those with

whom they do not want to associate, cannot be interfered with by the

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Registrar by imposing on them a member who according to them was

not eligible to be admitted. The argument on this basis is sought to be

met on behalf of the respondents by reference to another decision of this

Court in Daman Singh and others, etc. v. State of Punjab and others,

etc. (AIR 1985 SC 973). Therein, their Lordships, after referring to

Damyanti (supra), held that that decision had no application to the

situation before them. The position was explained in the following

words:-

"That case has no application whatever to

the situation before us. It was a case where an

unregistered society was by statute converted into

a registered society which bore no resemblance

whatever to the original society. New members

could be admitted in large numbers so as to reduce

the original members to an insignificant minority.

The composition of the society itself was

transformed by the Act and the voluntary nature of

the association of the members who formed the

original society was totally destroyed. The Act

was, therefore, struck down by the Court as

contravening the fundamental right guaranteed by

Art. 19(1)(f). In the cases before us we are

concerned with co-operative societies which from

the inception are governed by statute. They are

created by statute, they are controlled by statute

and so, there can be no objection to statutory

interference with their composition on the ground

of contravention of the individual right of freedom

of association."

It is emphasized that the principle recognized in the Damyanti's

case (supra) was not applicable to a co-operative society since it is a

creature of a statute, the Cooperative Societies Act and that the rights of

its members could be abridged by a provision in the Act. Regarding the

rights of an individual member, their Lordships have stated:

"Once a person becomes a member of a

cooperative society, he loses his individuality qua the

Society and he has no independent rights except those

given to him by the statute and the bye-laws."

12. 'Daman Singh's case (supra), in our view, is not an

answer to the claim of the Society that it had the right to decide with

whom it wants to associate or to deny membership to a person who was

not qualified to be one in terms of the bye-laws of the Society. The

effect of the observations in Daman Singh's case (supra), is only that

cooperative societies, from their very inception are governed by the

statute, the Cooperative Societies Act, that they are created by statute,

they are controlled by the statute and so, there can be no objection to

statutory interference with their composition or functioning and no merit

in a challenge to statutory interference based on contravention of the

individual right of freedom of association. As we understand the

statement of the law by this Court in Daman Singh's case, it only means

that the action of the Society in refusing membership to a person has to

be tested in the anvil of the provisions of the Act, the Rules and its bye-

laws. Be it noted that the bye-laws had already been approved on the

basis that it is consistent with the Act and the Rules. Even then, it may

be possible in a given case to point out that a particular bye-law was

against the terms of the Act or the Rules. Daman Singh does not

indicate that the Act, the Rules and the bye-laws for that matter, have to

be given the go-by, merely because the particular bye-law or action of

the Society may not accord with our concept of fairness or propriety in

terms of the rights available to an ordinary citizen. Therefore, in the

light of the observations in Daman Singh, what one has to search for, is

a provision in the Act or the Rules which prevails over bye-law No.7 of

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the Society, confining membership in it, to only a person who is a Parsi.

Section 24 of the Act, no doubt, speaks of open membership, but Section

24(1) makes it clear that, that open membership is the membership of a

person duly qualified therefor under the provisions of the Act, the Rules

and the bye-laws of the Society. In other words, Section 24(1) does not

contemplate an open membership de hors the bye-laws of the Society.

Nor do we find anything in the Act which precludes a society from

prescribing a qualification for membership based on a belief, a

persuasion or a religion for that matter. Section 30(2) of the Act even

places restrictions on the right of a member to transfer his right. In fact,

the individual right of the member, respondent No.2, has got submerged

in the collective right of the Society. In State of U.P. and another v.

C.O.D. Chheoki Employees' Cooperative Society Ltd. and others,

(1997) 3 SCC 681, this Court after referring to Daman Singh's case

(supra) held in paragraph 16 that :

"Thus, it is settled law that no citizen has a

fundamental right under Article 19(1)(c) to become a

member of a Cooperative Society. His right is

governed by the provisions of the statute. So, the

right to become or to continue being a member of the

society is a statutory right. On fulfillment of the

qualifications prescribed to become a member and for

being a member of the society and on admission, he

becomes a member. His being a member of the

society is subject to the operation of the Act, rules and

bye-laws applicable from time to time. A member of

the society has no independent right qua the society

and it is the society that is entitled to represent as the

corporate aggregate. No individual member is

entitled to assail the constitutionality of the provisions

of the Act, rules and the bye-laws as he has his right

under the Act, rules and the bye-laws and is subject to

its operation. The stream cannot rise higher than the

source."

13. Section 4, on which reliance is placed, with particular

reference to its proviso, only speaks of denial of registration if, in the

opinion of the Registrar, the Society to be formed was economically

unsound, or its registration may have an adverse effect upon any other

Society, or it is opposed to, or its working is likely to be in contravention

of public policy. Prima facie, it may have to be said that public policy,

in the context of Section 4 of the Act, is the policy that is adopted by the

concerned Act and the Rules framed thereunder. The concept of public

policy in the context of the Cooperative Societies Act has to be looked

for under the four corners of that Act and in the absence of any

prohibition contained therein against the forming of a society for persons

of Parsi origin, it could not be held that the confining of membership as

was done by bye-law No.7, was opposed to public policy. When a

statute is enacted, creating entities introduced thereunder on fulfillment

of the conditions laid down therein, the public policy in relation to that

statute has to be searched for within the four corners of that statute and

when so searched for, one does not find anything in the Act which

prevents the Society from refusing membership to a person who does not

qualify in terms of bye-law No.7 of the Society.

14. Reliance was placed on Rule 12 of the Gujarat Cooperative

Societies Rules, 1965. Rule 12 deals with open membership and

provides in Rule 12(2) as follows:

"12. Open membership.-(1) \005\005..

(2) No co-operative housing society shall

without sufficient cause, refuse admission to its

membership to any person, duly qualified therefor,

under the provisions of the Act, and its bye-laws to

whom an existing member of such society wants to

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sell or transfer his plot of land or house and no

such society shall without sufficient cause, refuse

to give permission to any existing member thereof

to sell or transfer his plot of land or house to

another person who is duly qualified as aforesaid

to become its member."

Rule 12(2), as can be seen, provides only that, no person shall be

refused admission provided he is duly qualified under the Act and the

bye-laws of the society to be a member or permission for transfer

refused, if the proposed transferee is qualified to be a member. Here

again, the primacy given to the bye-laws of the society is in no manner

sought to be whittled down by reference to any public policy going by

the larger concept of that term and outside the Act. The decisions of the

Bombay High Court, the Gujarat High Court and the Madhya Pradesh

High Court relied on by learned counsel proceeded on the basis that if

any provision is made against the constitutional scheme of things like

confining membership in a Society to a caste, religion or creed, the same

would be opposed to public policy and hence unenforceable. The

question is whether such an approach is warranted when a statute

enacted in that behalf outlines the contours of the policy sought to be

enforced by the creation of bodies thereunder, being essentially

associations which are voluntary in nature.

15. Membership in a co-operative society only brings about a

contractual relationship among the members forming it subject of course

to the Act and the Rules. One becomes a member in a co-operative

society either at the time of its formation or acquires membership in it on

possessing the requisite qualification under the bye-laws of the society

and on being accepted as a member. It is not as if one has a

fundamental right to become a member of a co-operative society. But

certainly, if the application of one for membership, who is otherwise

qualified to be a member under the Act, Rules and the bye-laws of the

society, is rejected unreasonably or for frivolous reasons, the person may

be entitled to enforce his claim to become a member in an appropriate

forum or court of law. This is the effect of the decision in Jain

Merchants Co-operative Housing Society vs. HUF of Manubhai

(1995 (1) Gujarat Law Reporter 19) relied on by the High Court. The

said decision does not lay down a proposition, nor can it lay down a

proposition, that even a person who does not qualify to be a member in

terms of the bye-laws of a society can enforce a right to become a

member of that society. It is one thing to say that it is not desirable to

restrict membership in a society based solely on religion or sex but it is

quite different thing to say that any such voluntary approved bye-law

containing such a restriction could be ignored or declared

unconstitutional by an authority or a tribunal created under the Act itself.

Normally, the bye-laws of a society do not have the status of a statute

and as held by this Court in Co-operative Central Credit Bank Ltd.

vs. Industrial Tribunal, Hyderabad (AIR 1970 SC 245) bye-laws are

only the rules which governs the internal management or administration

of a society and they are of the nature of articles of association of a

company incorporated under the Companies Act. They may be binding

between the persons affected by them but they do not have the force of a

statute.

16. The validity of a bye-law, that too an approved bye-law, has to be

tested in the light of the provisions of the Act and the rules governing

co-operative societies. In so testing, the search should be to see whether

a particular bye-law violates the mandate of any of the provisions of the

Act or runs counter to any of its provisions or to any of the rules.

Section 24(1) of the Act only provides for open membership subject to a

person, aspiring to be a member, possessing the qualification prescribed

by the bye-laws. It is not an open membership dehors the qualification

prescribed by the bye-laws. When in Daman Singh this Court held that

when a co-operative society is governed by the appropriate legislation it

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will be subject to the intervention made by the concerned legislation, it

only meant that a legislative provision in the Act can be introduced for

the purpose of eliminating a qualification for membership based on sex,

religion or a persuasion or mode of life. But so long as there is no

legislative intervention of that nature, it is not open to the court to coin a

theory that a particular bye-law is not desirable and would be opposed to

public policy as indicated by the Constitution. The Constitution no

doubt provides that in any State action there shall be no discrimination

based either on religion or on sex. But Part III of the Constitution has

not interfered with the right of a citizen to enter into a contract for his

own benefit and at the same time incurring a certain liability arising out

of the contract. As observed by the High Court of Bombay in

Karvanagar Sahakari Griha Rachana Sanstha Maryadit and others

vs. State (AIR 1989 Bombay 392) the members have joined the society

in accordance with the bye-laws and the members join a housing society

by ascertaining what would be the environment in which they will

reside. It is not permissible for the State Government to compel the

society to amend its bye-laws as it would defeat the object of formation

of the society. In that case, the society was constituted with the object

of providing peaceful accommodation to its members. Though there

may be circumstances justifying the State taking steps to meet shortage

of accommodation, it was not open to the State Government to issue a

direction to the Registrar of Co-operative Societies to direct a co-

operative society to make requisite amendments to their bye-laws and

grant permission to its members to raise multistoried constructions. In

appeal from that decision reported as State of Maharashtra and others

vs. Karvanagar Sahakari Griya Rachana Sanstha Maryadit and

others (2000 (9) SCC 295) this Court while dismissing the appeal

stated that it was clear that though a power was conferred on the

Registrar to direct amendment of the bye-laws of a society, yet the

paramount consideration is the interest of the society. So also, the

power of the State Government to issue directions in public interest,

could not be exercised so as to be prejudicial to the interest of the

society. In the view of this Court, what was in the interest of the society

was primarily for the society alone to decide and it was not for an

outside agency to say. Where, however, the government or the

Registrar exercised statutory powers to issue directions to amend the

bye-laws, such directions should satisfy the requirement of the interest of

the society. This makes it clear that the interest of the society is

paramount and that interest would prevail so long as there is nothing in

the Act or the Rules prohibiting the promotion of such interest. Going

by Chheoki Employees' Cooperative Society Ltd.,'s case, neither the

member, respondent No.2, nor the aspirant to membership, respondent

No.3 had the competence to challenge the validity of the bye-laws of the

Society or to claim a right to membership in the Society.

17. It appears to us that unless appropriate amendments are brought to

the various Cooperative Societies Acts incorporating a policy that no

society shall be formed or if formed, membership in no society shall be

confined to persons of a particular persuasion, religion, belief or region,

it could not be said that a society would be disentitled to refuse

membership to a person who is not duly qualified to be one in terms of

its bye-laws.

18. It can be seen from the bye-laws of the present Society that the

Society, more or less, adopted the model bye-laws made applicable to

the Bombay Presidency. The object of the Society as set out in bye-law

No.2 reads:

"2. The objects of the Society shall be to

carry on the trade of building, and of buying,

selling, hiring, letting and developing land in

accordance with Co-operative principles and to

establish and carry on social, re-creative and

educational work in connection with its tenets and

the Society was to have full power to do all things

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it deems necessary or expedient for the

accomplishment of all objects specified in its bye-

laws, including the power to purchase, hold, sell,

exchange, mortgage, rent, lease, sub-lease,

surrender, accept surrenders of and deal with lands

of any tenure and to sell by installments and

subject to any terms or conditions and to make and

guarantee advances to Members for building or

purchasing property and to erect, pull down, repair,

alter or otherwise deal with any building thereon."

Under bye-law No.7, it was provided that members shall be elected by

the Committee provided that all members shall belong to the Parsi

community and on the conditions referred to in bye-law No.7.

Provision has been made providing for the contingency arising out of the

death of a member. Under bye-law No.21, it is provided that any share

held by a member could be sold in terms of the other relevant bye-laws

only with previous sanction of the Committee. The Committee is given

full discretion in granting or withholding such sanction. Of course, in

terms of the Act and the Rules, the refusal may be appealable before the

Authority under the Act and the Society may not be in a position to

argue that its decision is final. But that does not mean that the Authority

under the Act is competent to ignore the bye-law relating to qualification

to membership and direct the Society by exercising appellate or other

power, to admit a person to membership who is not qualified to be a

member, on the basis of its notion of public policy or fairness in dealing.

These approved bye-laws, clearly, confer power on the Committee to

reject the application for membership of a person who is not qualified in

terms of the bye-law concerned and this cannot be interfered with on the

basis of anything contained in the Act or the Rules. We are, therefore,

satisfied that by introducing a theory of what the court considers to be

public policy, a society registered under the Cooperative Societies Act,

cannot be directed to admit a member who is not qualified to be a

member in terms of its duly registered bye-laws.

19. It is true that it is very tempting to accept an argument that

Articles 14 and 15 read in the light of the preamble to the Constitution of

India reflect the thinking of our Constitution makers and prevents any

discrimination based on religion or origin in the matter of equal

treatment or employment and to apply the same even in respect of a co-

operative society. But, while being thus tempted, the Court must also

consider what lies behind the formation of co-operative societies and

what their character is and how they are to be run as envisaged by the

various Cooperative Societies Acts prevalent in the various States of this

Country. Running through the Cooperative Societies Act, is the theory

of area of operation. That means that membership could be denied to a

citizen of this Country who is located outside the area of operation of a

society. Does he not have a fundamental right to settle down in any part

of the country or carry on a trade or business in any part of the country?

Does not that right carry with it, the right to apply for membership in any

cooperative society irrespective of the fact that he is a person hailing

from an area outside the area of operation of the society? In the name of

enforcing public policy, can a Registrar permit such a member to be

enrolled? Will it not then go against the very concept of limiting the

areas of operation of cooperative societies? It is, in this context that we

are inclined to the view that public policy in terms of a particular entity

must be as reflected by the statute that creates the entity or governs it

and on the Rules for the creation of such an entity. Tested from that

angle, so long as there is no amendment brought to the Cooperative

Societies Acts in the various States, it would not be permissible to direct

the societies to go against their bye-laws restricting membership based

on its own criteria.

20. What is relied on to invoke the plea that the restriction of

membership is opposed to public policy is the proviso to Section 4 of the

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Act. We have already quoted Section 4. For convenience, we extract

the proviso once again:-

"Provided that it shall not be registered if, in the

opinion of the Registrar, it is economically

unsound, or its registration may have an adverse

effect upon any other society, or it is opposed to,

or its working is likely to be in contravention of

pubic policy."

What is the public policy contemplated by the proviso, when the

formation and running of an association like a cooperative society is

governed by a law enacted for that purpose, the Cooperative Societies

Act, which recognizes the sanctity of the rights of the citizens coming

together, to impose restrictions on their own rights by making

appropriate provisions in the bye-laws of the society? Normally, that

policy has to be searched for within the confines of that statute. What

one has to bear in mind is that the statute reflects the policy of the

Legislature in respect of the subject matter dealt with thereunder. When

the Gujarat Cooperative Societies Act, 1961 was enacted, it could not be

taken that the Legislature was unaware of the fundamental rights of

citizens enshrined in Articles 19(1)(d) and (g) of the Constitution of

India. But the Legislation, in aid of the cooperative movement and in the

context of the rights available to citizens under Article 19(1)(c) of the

Constitution of India, imposes only certain restrictions as reflected by

the Act, the Rules and the Bye-laws of the particular society. The Acts

specifically gave sanctity to the bye-laws of a Society duly approved by

the authorities under the Act. The expression 'public policy' in the

context of Section 4 of the Act can be understood only as being opposed

to the policy reflected by the Cooperative Societies Act. As indicated in

Renusagar Power Co. Ltd. vs. General Electric Co. , 1994 Supp. (1)

SCC 644, the public policy underlying a statute has to be considered in

the context of the provisions of that statute. Therein, in the context of

the Foreign Exchange Regulation Act, 1973, it was held that any

violation of the provisions of that Act enacted in national economic

interest would be contrary to public policy and that would be the sense in

which it should be understood when used in Section 7(1)(b)(ii) of that

Act.

21. Under the Indian Contract Act, a person sui juris has the freedom

to enter into a contract. The bye-laws of a cooperative society setting

out the terms of membership to it, is a contract entered into by a person

when he seeks to become a member of that society. Even the formation

of the society is based on a contract. This freedom to contract available

to a citizen cannot be curtailed or curbed relying on the fundamental

rights enshrined in Part III of the Constitution of India against State

action. A right to enforce a fundamental right against State action,

cannot be extended to challenge a right to enter into a contract giving up

an absolute right in oneself in the interests of an association to be formed

or in the interests of the members in general of that association. This is

also in lieu of advantages derived by that person by accepting a

membership in the Society. The restriction imposed, is generally for

retaining the identity of the society and to carry forward the object for

which the society was originally formed. It is, therefore, a fallacy to

consider, in the context of cooperative societies, that the surrendering of

an absolute right by a citizen who becomes a member of that society,

could be challenged by the said member by taking up the position that

the restriction he had placed on himself by entering into the compact, is

in violation of his fundamental right of freedom of movement, trade or

right to settle in any part of the country. He exercises his right of

association when he becomes a member of a society by entering into a

contract with others regulating his conduct vis-`-vis the society, the

members constituting it, and submerging his rights in the common right

to be enjoyed by all and he is really exercising his right of association

guaranteed by Article 19(1)(c) of the Constitution of India in that

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process. His rights merge in the rights of the society and are controlled

by the Act and the bye-laws of the society.

22. Entering into an association with others for forming a co-operative

society and subscribing to its bye-laws are matters of contract

voluntarily undertaken by a citizen. While considering an argument

that a provision in the bye-laws thus subscribed to by a member is

opposed to public policy, the court cannot forget another important

public policy as stated by Jessel, M.R. in Printing and Numerical

Registering Company v.s Sampson ( 1874-75 (Vol. 19) L.R. Equity

Cases 462):

"it must not be forgotten that you are not to extend

arbitrarily those rules which say that a given contract is

void as being against public policy, because if there is

one thing which more than another public policy

requires, it is that men of full age and competent

understanding shall have the utmost liberty of

contracting, and that their contracts when entered into

freely and voluntarily shall be held sacred and shall be

enforced by Courts of justice. Therefore, you have this

paramount public policy to consider \026 that you are not

lightly to interfere with this freedom of contract. Now,

there is no doubt public policy may say that a contract to

commit a crime, or a contract to give a reward to another

to commit a crime, is necessarily void. The decisions

have gone further, and contracts to commit an immoral

offence, or to give money or reward to another to commit

an immoral offence, or to induce another to do something

aginst the general rules of morality, though far more

indefinite than the previous class, have always been held

to be void. I should be sorry to extend the doctrine

much further."

23. In the context of the freedom of contract available to a

person and in the context of the right to form an association guaranteed

by Article 19(1)(c) of the Constitution of India, and the law governing

such an association, courts have to be cautious in trying to ride the

unruly horse of public policy in acceding to a challenge to a qualification

for membership in the bye-laws, not taboo under the Act and the Rules

themselves.

24. It also appears to us, that a person after becoming a member of a

Cooperative Society cannot seek to get out of the obligation undertaken

by him while becoming a member of such a Society by resort to the

principle of public policy based on constitutional protections given to an

individual as against State action. As noticed in Rodriguez vs. Speyer

Bros. (1919) A.C. 59 and Fender vs. Mildmay (1938) A.C. 1, the

considerations of public policy are disabling and not enabling. Observed

Lord Sumner in Rodriguez (Supra)":

"Considerations of public policy are applied to private

contracts or dispositions in order to disable, not to

enable. I never heard of a legal disability from which

a party or a transaction could be relieved because it

would be good policy to do so."

By invoking considerations of public policy, there appears to be no

justification in relieving a member of a Cooperative Society of the

obligations undertaken by him while joining it. The argument, therefore,

that Respondent No.2, herein, a member, should be relieved of the

obligation undertaken by him while joining the Society or becoming its

member or while seeking permission to put up a multi-storeyed

construction, should be relieved of the restriction, he has agreed to, on

the ground that the same might affect his fundamental rights guaranteed

by Article 19(1)(d) or (g) of the Constitution of India or that it offends

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Article 300A of the Constitution.

25. Dealing with the validity of a restriction which prohibits

assignments of contractual rights which have the effect of bringing the

assignee into direct contractual relations with the other party to the

contract, the House of Lords held in Linden Gardens Trust Ltd. v.

Lenesta Sludge Disposal Ltd. and others, [1993] 3 All E.R. 417, that

the prohibition on the assignment including that of accrued rights of

action was not void as being contrary to public policy; since, a party to a

building contract could have a genuine commercial interest in seeking to

ensure that he was in contractual relations only with a person whom he

had selected as the other party to the contract and there was no public

need for the law to support a market in choses in action. The principle in

our view supports the position that a contractual restriction on whom to

admit as a member or with whom to associate, cannot be said to be

opposed to public policy.

26. It is true that in secular India it may be somewhat retrograde to

conceive of co-operative societies confined to group of members or

followers of a particular religion, a particular mode of life, a particular

persuasion. But that is different from saying that you cannot have a

co-operative society confined to persons of a particular persuasion,

belief, trade, way of life or a religion. A co-operative society is not a

state unless the tests indicated in Ajay Hasia are satisfied. There is no

case here that the appellant society satisfies the tests laid down by Ajay

Hasia so as to be considered to be a state within the meaning of Article

12 of the Constitution. The fundamental rights in Part III of the

Constitution are normally enforced against State action or action by

other authorities who may come within the purview of Article 12 of the

Constitution. It is not possible to argue that a person has a fundamental

right to become a member of a voluntary association or of a co-operative

society governed by its own bye-laws. So long as this position holds,

we are of the view that it is not possible, especially for a Registrar who

is an authority under The Co-operative societies Act, to direct a co-

operative society to admit as a member, a person who does not qualify to

be a member as per the bye-laws registered under the Act. Nor can a

Registrar direct in terms of Section 14 of the Act to amend the bye-laws

since it could not be said that such an amendment, as directed in this

case is necessary or desirable in the interests of the appellant society.

What is relevant under Section 14 of the Act is the interests of the

society and the necessity in the context of that interest. It is not the

interest of an individual member or an aspirant to a membership.

27. It is true that in the activities of a society, as envisaged by the bye-

laws, the society may acquire rights or incur obligations which may be

enforced. But the incurring of such an obligation or the acquiring of

such a right, cannot stand in the way of the right to form an association

guaranteed by Article 19(1)(c) of the Constitution available to the

members of the society who formed themselves into the appellant

Society. The position under The Bombay Co-operative Societies Act

under which the Society was originally formed was also no different as

can be seen from the relevant provisions of the Act. It, therefore,

appears to us to be not open to the Registrar or any other authority under

The Co-operative Societies Act to direct the Society to go against its

own bye-laws and to admit a person to membership as has been sought

to be done in this case.

28. The argument that public policy is as reflected by the

constitutional guarantees, which govern rights and obligations has to be

approached with caution. It will be easy for State Legislatures to

provide in their respective Co-operative Societies Acts that no society

could be formed or registered under the Act as confined to a group, a

sex, a religion or members of a particular persuasion or way of life. But

that is different from saying that in the name of open membership,

subject to its bye-laws contemplated by the relevant provisions of the

Act, a direction could be issued to ignore the bye-laws and to admit a

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person who is not qualified to become a member. Moreover, what is

public policy in the context of a co-operative society got registered by

certain persons coming together and laying down a qualification for

membership in that society, is a question that has to be considered

essentially in the context of the availability of such a right in India to

form such associations and the absence of a prohibition in that behalf

contained in the Co-operative Societies Act and the Rules. In fact, the

Act and the Rules contemplate classification of a society and even there,

no prohibition has been indicated in respect of the confining of the

membership to a class of people. The decisions of the Bombay High

Court relied on by counsel for the respondent, in our view, have

proceeded on the basis of the concept of open membership without

giving adequate importance to the provision in the very section that the

open membership is subject to bye-laws of the society or the

qualification prescribed for membership in the society. In that context,

it is not possible to import one's inherent abhorrence to religious groups

or other groups coming together to form, what learned counsel for the

respondent called "ghettos". That is certainly an important aspect but

that is an aspect that has to be tackled by the legislature and not by the

authorities under the Act directing the co-operative society to go against

its own bye-laws or by the courts upholding such orders of the

authorities, based on presumed public policy when the Act itself does

not warrant it or sanction it.

29. Section 23 of the Contract Act provides that where consideration

and object are not lawful the contract would be void. But for Section 23

to apply it must be forbidden by law or it must of such a nature that it

would defeat the provision of any law or it is fraudulent or it involves or

implies injury to the person or property of another or the court regards it

as immoral or opposed to public policy. If we proceed on the basic

premise that public policy in relation to a co-operative society is to be

looked for within the four corners of the Act, the very enactment under

which the very society is formed, a bye-law that does not militate against

any of the provisions of the Act cannot be held to be opposed to public

policy unless it is immoral or offends public order. It cannot be said

that a person bargaining for membership in a Society or for coming

together with those of his ilk to form a society with the objects as set out

in the bye-laws subscribed to by him, can be considered to be doing

anything immoral or against public order. An aspirant to membership in

a co-operative society, is at arms length with the other members of the

society with whom he enters into the compact or in which he joins,

having expressed his willingness to subscribe to the aims and objects of

that society. In the context of Section 23 of the Contract Act, something

more than possible or plausible argument based on the constitutional

scheme is necessary to nullify an agreement voluntarily entered into by a

person. We have already quoted the relevant observations of Lord

Sumner in Rodriguez vs. Speyer Bros. (1919) A.C. 59). Here,

respondent No.2 became a member of the Society of his own volition

acquiring the rights and incurring the obligations imposed by the

approved bye-laws of the Society. It is not open to respondent No.2 to

approach the authorities for relieving him of his obligations attaching to

the acquisition of membership in the Society. It is also not open to the

authorities under the Act to relieve him of his obligations in the guise of

entering a finding that discrimination on the basis of the religion or sex

is taboo under the Constitution in the context of Part III thereof. As has

been held by this Court, he is precluded from challenging the validity of

the bye-laws relating to membership.

30. The above conclusion would lead us to the question whether there

is anything in The Gujarat Co-operative Societies Act and the Gujarat

Co-operative Societies Rules restricting the rights of the citizens to form

a voluntary association and get it registered under The Co-operative

Societies Act confining its membership to a particular set of people

recognized by their profession, their sex, their work or the position they

hold or with reference to their beliefs, either religious or otherwise. It is

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not contended that there is any provision in the Gujarat Co-operative

Societies Act prohibiting the registration of such a co-operative society.

We have already referred to the history of the legislation and the concept

of confinement of membership based on residence, belief or community.

The concept of open membership, as envisaged by Section 24 of the Act

is not absolute on the very wording of that Section. The availability of

membership is subject to the qualification prescribed under the

provisions of the Act, the Rules and the bye-laws of such society. In

other words, if the relevant bye-law of a society places any restriction on

a person getting admitted to a co-operative society, that bye-law would

be operative against him and no person, or aspiring member, can be

heard to say that he will not be bound by that law which prescribes a

qualification for his membership.

31. In our view, the High Court made a wrong approach to the

question of whether a bye-law like bye-law No.7 could be ignored by a

member and whether the Authorities under the Act and the court could

ignore the same on the basis that it is opposed to public policy being

against the constitutional scheme of equality or non-discrimination

relating to employment, vocation and such. So long as the approved

bye-law stands and the Act does not provide for invalidity of such a bye-

law or for interdicting the formation of co-operative societies confined to

persons of a particular vocation, a particular community, a particular

persuasion or a particular sex, it could not be held that the formation of

such a society under the Act would be opposed to public policy and

consequently liable to be declared void or the society directed to amend

its basic bye-law relating to qualification for membership.

32. It is true that our Constitution has set goals for ourselves and one

such goal is the doing away with discrimination based on religion or sex.

But that goal has to be achieved by legislative intervention and not by

the court coining a theory that whatever is not consistent with the

scheme or a provision of the Constitution, be it under Part III or Part IV

thereof, could be declared to be opposed to public policy by the court.

Normally, as stated by this Court in Gheru Lal Parakh vs.

Mahadeodas Maiya and others (1959 Suppl. (2) SCR 406, the

doctrine of public policy is governed by precedents, its principles have

been crystalised under the different heads and though it was permissible

to expound and apply them to different situations it could be applied

only to clear and undeniable cases of harm to the public. Although,

theoretically it was permissible to evolve a new head of public policy in

exceptional circumstances, such a course would be inadvisable in the

interest of stability of society.

33. The appellant Society was formed with the object of providing

housing to the members of the Parsi community, a community

admittedly a minority which apparently did not claim that status when

the Constituent Assembly was debating the Constitution. But even then,

it is open to that community to try to preserve its culture and way of life

and in that process, to work for the advancement of members of that

community by enabling them to acquire membership in a society and

allotment of lands or buildings in one's capacity as a member of that

society, to preserve its object of advancement of the community. It is

also open to the members of that community, who came together to form

the co-operative society, to prescribe that members of that community

for whose benefit the society was formed, alone could aspire to be

members of that society. There is nothing in the Bombay Act or the

Gujarat Act which precludes the formation of such a society. In fact,

the history of legislation referred to earlier, would indicate that such

coming together of groups was recognized by the Acts enacted in that

behalf concerning the co-operative movement. Even today, we have

Women's co-operative societies, we have co-operative societies of

handicapped persons, we have co-operative societies of labourers and

agricultural workers. We have co-operative societies of religious

groups who believe in vegetarianism and abhore non-vegetarian food.

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It will be impermissible, so long as the law stands as it is, to thrust upon

the society of those believing in say, vegetarianism, persons who are

regular consumers of non-vegetarian food. May be, in view of the

developments that have taken place in our society and in the context of

the constitutional scheme, it is time to legislate or bring about changes in

Co-operative Societies Acts regarding the formation of societies based

on such a thinking or concept. But that cannot make the formation of a

society like the appellant Society or the qualification fixed for

membership therein, opposed to public policy or enable the authorities

under the Act to intervene and dictate to the society to change its

fundamental character.

34. Another ground relied on by the Authorities under the Act and the

High Court to direct the acceptance of respondent No.3 as a member in

the Society is that the bye-law confining membership to a person

belonging to the Parsi community and the insistence on respondent No.2

selling the building or the flats therein only to members of the Parsi

community who alone are qualified to be members of the Society, would

amount to an absolute restraint on alienation within the meaning of

Section 10 of Transfer of Property Act. Section 10 of the Transfer of

Property Act cannot have any application to transfer of membership.

Transfer of membership is regulated by the bye-laws. The bye-laws in

that regard are not in challenge and cannot effectively be challenged in

view of what we have held above. Section 30 of the Act itself places

restriction in that regard. There is no plea of invalidity attached to that

provision. Hence, the restriction in that regard cannot be invalidated or

ignored by reference to Section 10 of the Transfer of Property Act.

35. Section 10 of the Transfer of Property Act relieves a transferee of

immoveable property from an absolute restraint placed on his right to

deal with the property in his capacity as an owner thereof. As per

Section 10, a condition restraining alienation would be void. The

Section applies to a case where property is transferred subject to a

condition or limitation absolutely restraining the transferee from parting

with his interest in the property. For making such a condition invalid,

the restraint must be an absolute restraint. It must be a restraint imposed

while the property is being transferred to the transferee. Here,

respondent No.2 became a member of the Society on the death of his

father. He subscribed to the bye-laws. He accepted Section 30 of the

Act and the other restrictions placed on a member. Respondent No.2

was qualified to be a member in terms of the bye-laws. His father was

also a member of the Society. The allotment of the property was made

to appellant in his capacity as a member. There was really no transfer of

property to respondent No.2. He inherited it with the limitations thereon

placed by Section 31 of the Act and the bye-laws. His right to become a

member depended on his possessing the qualification to become one as

per the bye-laws of the Society. He possessed that qualification. The

bye-laws provide that he should have the prior consent of the Society for

transferring the property or his membership to a person qualified to be a

member of the Society. These are restrictions in the interests of the

Society and its members and consistent with the object with which the

Society was formed. He cannot question that restriction. It is also not

possible to say that such a restriction amounts to an absolute restraint on

alienation within the meaning of Section 10 of the Transfer of Property

Act.

36. The restriction, if any, is a self-imposed restriction. It is a

restriction in a compact to which the father of respondent No.2 was a

party and to which respondent No.2 voluntarily became a party. It is

difficult to postulate that such a qualified freedom to transfer a property

accepted by a person voluntarily, would attract Section 10 of the Act.

Moreover, it is not as if it is an absolute restraint on alienation.

Respondent No.2 has the right to transfer the property to a person who is

qualified to be a member of the Society as per its bye-laws. At best, it is

a partial restraint on alienation. Such partial restraints are valid if

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imposed in a family settlement, partition or compromise of disputed

claims. This is clear from the decision of the Privy Council in

Mohammad Raza v. Mt. Abbas Bandi Bibi, ALR 59 I.A. 236 and also

from the decision of the Supreme Court in Gummanna Shetty and

others v. Nagaveniamma, AIR 1967 SC 1595. So, when a person

accepts membership in a cooperative society by submitting himself to its

bye-laws and secures an allotment of a plot of land or a building in terms

of the bye-laws and places on himself a qualified restriction in his right

to transfer the property by stipulating that the same would be transferred

back to the society or with the prior consent of the society to a person

qualified to be a member of the society, it cannot be held to be an

absolute restraint on alienation offending Section 10 of the Transfer of

Property Act. He has placed that restriction on himself in the interests of

the collective body, the society. He has voluntarily submerged his rights

in that of the society.

37. The fact that the rights of a member or an allottee over a building

or plot is attachable and saleable in enforcement of a decree or an

obligation against him cannot make a provision like the one found in the

bye-laws, an absolute restraint on alienation to attract Section 10 of the

Transfer of Property Act. Of course, it is property in the hands of the

member on the strength of the allotment. It may also be attachable and

saleable in spite of the volition of the allottee. But that does not enable

the Court to hold that the condition that an allotment to the member is

subject to his possessing the qualification to be a member of the

cooperative society or that a voluntary transfer by him could be made

only to the society itself or to another person qualified to be a member of

the society and with the consent of the society could straight away be

declared to be an absolute restraint on alienation and consequently an

interference with his right to property protected by Article 300A of the

Constitution of India. We are, therefore, satisfied that the finding that

the restriction placed on rights of a member of the Society to deal with

the property allotted to him must be deemed to be invalid as an absolute

restraint on alienation is erroneous. The said finding is reversed.

38. In view of what we have stated above, we allow this appeal, set

aside the judgments of the High Court and the orders of the Authorities

under the Act and uphold the right of the Society to insist that the

property has to be dealt by respondent No.2 only in terms of the bye-

laws of the Society and assigned either wholly or in parts only to persons

qualified to be members of the Society in terms of its bye-laws. The

direction given by the authority to the appellant to admit respondent

No.3 as a member is set aside. Respondent No.3 is restrained from

entering the property or putting up any construction therein on the basis

of any transfer by respondent No.2 in disregard of the bye-laws of the

Society and without the prior consent of the Society.

39. The Writ Petition filed by the appellant in the High Court is

allowed in the above manner. The appellant will be entitled to its costs

here and in the court below.