Rajendra N. Shah case

Also called: Union of India v. Rajendra N. Shah (2021), Rajendra Shah case · Topic: Civil Society, Pressure Groups, NGOs and Self-help Groups · NCERT: Beyond NCERT

Meaning

Union of India v. Rajendra N. Shah (20 July 2021) is the Supreme Court judgment that held Part IXB of the Constitution (Arts. 243ZH–243ZT, added by the 97th Amendment, 2011) invalid for cooperative societies inside a single state. The reason was that it changed a State List subject without being ratified by at least half the states. The Court kept Part IXB alive only for multi-state cooperative societies.

It matters because the case shows a firm limit on Parliament. Parliament cannot rewrite a subject that belongs only to the states unless the states agree. This protects federalism (the sharing of power between the Union and the states).

Explanation

Background: what the 97th Amendment did

• The Constitution (Ninety-seventh Amendment) Act, 2011 came into force on 15 February 2012. Its aim was cooperatives that are autonomous and democratic and whose managers answer to members [1].
• It made three changes:
• Art. 19(1)(c): "or co-operative societies" was added, so forming a cooperative became a fundamental right (a right the courts can enforce).
• Art. 43B: a new DPSP (Directive Principle of State Policy, a guideline for government that no court can enforce) on voluntary formation, autonomous functioning, democratic control and professional management of cooperatives.

• Part IXB (Arts. 243ZH–243ZT): detailed rules on running cooperatives, such as board size, elections, audit and supersession.

• The problem: cooperative societies are a state subject under Entry 32 of the State List (Seventh Schedule). Part IXB laid down detailed rules on that subject for every state.

The procedure the Court applied (Art. 368(2) proviso)

An amendment that changes a matter listed in the proviso, such as the Seventh Schedule lists or the distribution of legislative powers, must pass all four steps:

Step	What is needed
1. Bill introduced in either House of Parliament	No prior permission from the President
2. Passed by each House	Special majority: a majority of the total membership and two-thirds of members present and voting
3. Ratification by the states	Legislatures of at least half the states, each by a simple majority
4. Presidential assent	The President must give assent (24th Amendment, 1971)

• The 97th Amendment skipped step 3. It was never ratified by half the states.

The holding

• Bench: Justices R.F. Nariman and B.R. Gavai were in the majority. Justice K.M. Joseph dissented in part.
• Majority view:
• Part IXB cut into an exclusive State List subject (Entry 32).

• So it needed state ratification. Without ratification it was invalid for state cooperatives.

• Severability (the court cuts out the invalid part and keeps the rest) was then used:

• Multi-state cooperatives fall under Union List Entry 44 (corporations whose objects are not confined to one state).

• Parliament can make rules on that subject without the states, so Part IXB was saved for multi-state cooperatives.

• Dissent: Justice K.M. Joseph would have struck down the whole of Part IXB.

What survives and what does not

• Survives in full: Art. 19(1)(c) and Art. 43B. They did not touch the Seventh Schedule, so they did not need state ratification.
• Survives in part: Part IXB now works only for multi-state co-operative societies, both in the states and in the UTs [2].
• Does not apply: to cooperatives that work inside one state. These are governed only by that state's own cooperative law.

In the Constitution and practice

• Where it sits:
• Art. 368(2) proviso: the state-ratification rule the Court enforced.
• Seventh Schedule: State List Entry 32 (cooperative societies) and Union List Entry 44 (multi-state corporations).

• Part IXB, Arts. 243ZH–243ZT, added by the 97th Amendment, 2011.

• Part IXB rules that now bind only multi-state societies:

• 243ZJ: a board of at most 21 directors, with one seat for SCs or STs and two for women, and a five-year term.
• 243ZK: elections must be held before the term ends.
• 243ZL: supersession (the government removes the elected board and puts in an administrator) is capped at six months, or one year for a society doing banking business.
• 243ZM / 243ZN: audit and the general body meeting must both happen within six months of the end of the financial year.

• 243ZR: applies Part IXB to multi-state societies. This is the article that kept the Part alive after the judgment.

• What followed in practice:

• Ministry of Cooperation: a separate Union ministry was created on 6 July 2021, a few weeks before the judgment, under the slogan "Sahkar se Samriddhi" [3].
• Multi-State Cooperative Societies (Amendment) Act, 2023: it amended the MSCS Act, 2002 and put the 97th Amendment's rules into ordinary law for multi-state societies [4]:
  • two women and one SC/ST seat on each board [4];
  • a Cooperative Election Authority for timely, regular and transparent elections [4].

• State cooperatives now follow only state laws, with no uniform constitutional rules on elections, audit or supersession.

• The 97th Amendment as an amendment, and the basic-structure angle, are covered in amendment-basic-structure.

Don't confuse with

• Part IXB vs Part IX / Part IXA: Part IX covers Panchayats (73rd Amendment) and Part IXA covers Municipalities (74th Amendment). Only Part IXB (cooperatives) was cut down in Rajendra N. Shah.
• Art. 43B vs Art. 43: Art. 43B (added in 2011) is about the autonomy and democratic control of cooperatives. Art. 43 (original DPSP) asks the State to promote cottage industries on an individual or cooperative basis in rural areas.
• State ratification vs special majority: a special majority is needed in Parliament for every such amendment. Ratification by half the states is an extra step needed only when the amendment touches federal matters in the Art. 368(2) proviso. The 97th Amendment passed the first step but skipped the second.
• Partly struck down vs fully struck down: the majority saved Part IXB for multi-state cooperatives through severability. Only the dissent (K.M. Joseph) would have struck down the whole of Part IXB.

Prelims Hooks

• Rajendra N. Shah (20 July 2021): Part IXB is invalid for state cooperatives because it lacked ratification by half the states under the Art. 368(2) proviso.
• After the judgment, Part IXB applies only to multi-state co-operative societies, in the states and in the UTs [2]. It was saved through the doctrine of severability.
• Entry 32, State List covers cooperative societies. Entry 44, Union List covers corporations working in more than one state (multi-state cooperatives).
• Survive unaffected: Art. 19(1)(c) (a Fundamental Right) and Art. 43B (a DPSP). Trap: the 97th Amendment was not struck down as a whole.
• Bench: Nariman and Gavai in the majority; K.M. Joseph dissented in part and would have struck down the whole of Part IXB.
• State ratification needs only a simple majority in each state legislature, but at least half the states must ratify.

Mains Points

• Federalism vs uniform standards:
• The judgment protects cooperative federalism: Parliament cannot rewrite a State List subject through Art. 368 without the states agreeing.
• But state cooperatives now have no uniform constitutional rules on elections, audit and supersession, so old problems such as politicisation and postponed elections stay unchecked.

• Possible fix: a fresh amendment ratified by half the states, or model state laws that copy Part IXB's rules.

• Growing Union role after the judgment:

• The Union has strengthened control over the area left to it: the Ministry of Cooperation (2021) [3] and the MSCS (Amendment) Act, 2023 with its Cooperative Election Authority [4].

• Supporters say this brings professional, clean management. Critics fear it weakens democratic member control (ICA principle 4, Art. 43B) and shrinks the states' role in a subject the Constitution gives to them.

• Lesson on constitutional process: the case shows that good aims (democratic, autonomous cooperatives) cannot excuse skipping a required federal step. Use it in GS-II answers on the amendment procedure, Centre–state relations and judicial review (the courts' power to strike down laws or amendments that break the Constitution).

Related concepts

• Cooperative society
• Multi-State Cooperative Societies Act 2002

Read more

• Cooperatives: history, principles and constitutional status