Zoroastrian Co-operative Housing Society Limited v. District Registrar Co-operative Societies (Urban)

IRAC Case Analysis

CASE: Zoroastrian Co-operative Housing Society Limited v. District Registrar Co-operative Societies (Urban)

CITATION: (2005) 5 SCC 632

Facts

The Zoroastrian Cooperative Housing Society registered under the Bombay Co-operative Societies Act, 1925[1] (now repealed by Gujrat Cooperatives Society, 1961[2]), aimed to provide housing facilities exclusively for Parsis in furtherance of the community’s benefit. They acquired lands for the same purpose under the Land Acquisition Act, 1894.[3] The Respondent inherited the Parsi membership after his father’s demise. He sought permission to build residential flats for Parsi members after society rejected his proposal for a commercial building. However, he engaged in property dealings with a third-party builder, violating the bylaws of membership restrictions on selling property to non-Parsis.

Procedural History

The Zoroastrian Cooperative Housing Society challenged the rejection of the commercial building, and the Board of Nominees ruled against the membership restriction put up by the society.[4] This decision was appealed by the Society. The tribunal court deemed the restriction unconstitutional, violating the right to property under Article 300A. Later, a writ petition was filed before the High Court, which was dismissed, and hence, the matte was then taken to the Supreme Court to decide the following issues.

Issues

1. Whether the Cooperative society’s bylaw restricting property sales exclusively to Parsi members is considered a partial or absolute restraint under Section 10 of the Transfer of Property Act, 1882?
2. Whether the Cooperative Society has the absolute right to admit people as members as per their discretion or does the right to form associations under Article 19(1)(c) of an individual under the Indian Constitution be violated?
3. Whether a contract between the parties that is opposed to public policy makes the contract void under section 23 of the Indian Contract Act, 1872?
4. Whether the membership restrictions of the Zoroastrian Cooperative Housing Society to only Parsi members violate the fundamental rights of the respondent? Does it affect the respondent’s right to deal with the sale of property?
5. Whether not upholding the society’s restrictions would invalidate Fundamental Rights under Article 26 of the Constitution?

Rules

The Supreme Court set aside the ruling by the lower courts. It reversed the same, emphasizing that members’ voluntary acceptance of bylaws includes reasonable property transfer restrictions. Such restrictions are not considered absolute restraints on alienation under section 10 of the Transfer of Property Act.[5] It also decided that the respondent, being a member of the society, is subject to its bylaws; hence, such a restriction does not violate his fundamental rights.[6]

Analysis

This case revolves around various facets of the law, from the provisions under the Indian Constitution, Indian Contract Act, and Transfer of Property Act to Land Acquisition Act, Cooperative Societies Act, and other legislations mentioned in the fact matrix of the case.

The restriction made by society’s bylaws is a partial restraint on alienation at best. Such a restraint does not fulfill the requirements to be an absolute restraint under section 10 of the Transfer of Property Act, 1882. The Zoroastrian Housing Cooperative Society’s membership is limited to only the Parsi community under by-law 7, which is not unconstitutional, as the court referred to the case of Damyanti Naranga v. Union of India & Others, which stated that a cooperative society has all the rights to decide the criteria upon which a member is admitted. It is their discretion to accept or reject members upon determining their eligibility. Hence, the Supreme Court’s decision to declare the restriction as partial stands on valid grounds.

Also, when a person willingly joins a cooperative society, he voluntarily surrenders certain rights as an individual upon joining. This was also observed in the case of Gummanna Shetty v. Nagaveniamma.[7] Only those rights provided by the statute to which he is bound as a member are available to him.[8] The respondent entered into a contract by accepting the rules and bylaws of the Society in consideration of becoming a member and enjoying the benefits provided to him as a member.[9] Hence, society cannot be questioned about the choices of the members, as they have all rights to do so, and this does not violate Article 19(1)(c).

There are multiple cooperative societies in India that are governed by cooperative societies’ acts, which are dedicated to regulating and governing their entire functioning, as stated in Daman Singh v. State of Punjab.[10] When such a dedicated statute is present to look after these societies, no other authority can interfere with such legislation statutes on the pretext of an individual’s right to freedom of association, as fundamental rights are not absolute; they are subject to certain reasonable restrictions.[11] The society is registered, which proves that it has the power to regulate its working without intervention from any other authority. By-law 2 states the society’s objective, i.e., relating to the sale, development, and acquisition of property for residential purposes, and they have the complete authority to adhere to their by-laws to achieve the objectives outlined by taking appropriate actions. Hence, these by-laws can bind its members to adhere to their rules or face strict actions.

It is also to be noted that section 24 of the Bombay Co-operative Societies Act provides for ‘open membership.’[12] But it has an interpretation that the act intends to prove. ‘Open’ does not mean anyone can walk into the society as a member. It is open for persons who still qualify according to the eligibility criteria stated in section 24(1) of the same.[13] Hence, it is thus proved that the Society has the complete authority to regulate its operation without any external intervention or a member questioning their decisions.

A contract under section 23 of the Indian Contract Act, 1872, can be held void if it opposes a public policy.[14] However, to apply this section, there must be facts that imply reasons for a contract to be opposing public policy. In this case, the contract existing between the respondent and the Society is the membership offered to him along with the benefits. In return, he surrenders some of his rights as consideration, which he does so willingly. Thus, there is no scope for a public policy to be opposed in this case.

When such a law is created that acts in contravention of public policies or opposite to what is in the interest of the public at large, it is held to be against public policy. In Gherulal Parakh v. Mahadeodas Maiya, it was explained by the courts that public policy is only opposed in cases where there is a grave and clear possibility of causing harm to the public interest at large.[15] Here, a mere partial restraint in selling properties to a third party outside the community does not violate any public interests; hence, no public policy is being violated. The cooperative society acts in its members’ interests, which aligns with what a public policy aims to do. He cannot hold the Society liable for partially restraining him from performing his actions against the by-laws outlined by the society that act in furtherance of the objectives set. If the respondent does not want to abide by the rules of society, he can be set free from the obligations of the same. He inherited the property and the Parsi membership from him after his death. However, this was done voluntarily with his free consent; hence, he has agreed to be bound by society’s bylaws.

Throughout this case, many constitutional provisions envisaged under the Indian Constitution have been clashing with the rights of a cooperative society. The constitution contains provisions for preventing discrimination based on gender, race, or caste.[16] This case, however, deals with Cooperative societies. The respondent cannot claim that restriction of sale based on religion is unconstitutional. The Cooperative Societies Act came into effect for a reason. The legislature’s intention behind creating such an enactment has to be looked at to provide minorities the right to form associations or groups to protect their interests.[17]

The Parsi community, as a minority, has a right under Article 26 of the Indian constitution to safeguard their interests and create a smaller community to further the same.[18] If an outsider is denied entry or membership, in this case, it will not be violating Article 15, as the intent of such societies, to safeguard their member’s interests particularly, has to be emphasized. Similarly, articles 19(1)(d) or right to move freely,[19] and 19(1)(g) or suitable to practice trade or profession,[20] are subject to reasonable restrictions and cannot be said to be violated by the Society’s rules. Thus, the Supreme Court’s decision was correct, upholding Article 26 of the Constitution.

Conclusion

This particular case revolves around the concept of public policy as a ground not rendering a contract void, the right of an individual against discrimination based on caste and other grounds, the right to form associations, the right to freedom of managing religious affairs, and protection of interests of minorities, as well as rights that such societies have to create such bye-laws that are binding on their members.

In conclusion, even if community-based membership limits within cooperative societies are not expressly forbidden, it is still essential to give serious thought to the fundamental values of equality and non-discrimination. It is crucial to strike a balance between the right to freedom of association and the need to protect fundamental rights and goals of public policy. This case, thus, has a correct legal standing.

Reference(s):

[1] Bombay Co-operative Societies Act,1925

[2] Gujrat Cooperatives Society, 1961, (Act No. 10 of 1962)

[3] Land Acquisition Act, 1894 (Act No. 1 of 1894)

[4] (2005) 5 SCC 632

[5] Transfer of Property Act, 1882, §10, (Act No. 4 of 1882)

[6] SUPRA Note 4

[7] AIR 1967 SC 1595

[8] AIR 1971 SC 966

[9] Indian Contract Act, 1872, Act No. 9 of 1872

[10] AIR 1985 SC 973

[11] Constitution of India, 1950, Article 19(1)(c)

[12] Bombay Co-operative Societies Act, 1925, §24

[13] Bombay Co-operative Societies Act, 1925, §24(1)

[14] Indian Contract Act, 1872, §23, Act No. 9 of 1872

[15] Gherulal Parakh v. Mahadeodas Maiya, AIR 1959 SC 781

[16] Constitution of India, 1950, Article 15

[17] Constitution of India, 1950, Article 29

[18] Constitution of India, 1950, Article 26

[19] Constitution of India, 1950, Article 19(1)(d)

[20] Constitution of India, 1950, Article 19(1)(g)