CHS: Registrar’s power over Reserve Fund

By I C Naik

Delegating power to the Registrar to sanction use of Reserve Fund in the Business of the Society is a case of unwanted delegation. The Maharashtra State Government has been empowered to frame the M.C.S. Rules 1961 providing for the procedures to implement the provisions of the M C S Act 1960.

When the Act is amended corresponding rules are also amended. Amending the Act involves legislative process and is long drawn at times. Amending Rules is an executive action takes less time. Draft rules are published in the gazette and finalized after public notice period is over and tabled in Assembly when in session. It helps realizing the objects of legislative enactment faster.

Going through provisions of the Maharashtra Cooperative Societies (Amendment) Act 2013 more particularly the Maharashtra Co-operative Societies (1st Amendment) Rules, 2014 one gets a feeling that Maharashtra Government (the retired one) was moving exactly opposite to the Parliament’s vision for Cooperative Movement and taking risks of its action inviting the wrath of the Apex Court.

Cooperative society’s growth lies in Members having democratic control and autonomy over Society Funds, the Parliament has accepted finally. In the following paragraphs we look at just one area in which the control of the Registrar is being strengthened by the State Government of Maharashtra. The legislature empowers (Section 165) the State to frame Rules (transparency criterion and public participation). It is highly questionable when those Rules empower the Registrar to make arbitrary decisions with no guidance of the legislature (murder of a transparency criterion).

Section 70 of the M C S Act 1960 lays down law governing investment of Society Funds:  avenues specified in Sub-Clause (a).(b) and (c). One more Sub-Clause (d) has just been inserted by the Maharashtra Cooperative Societies (Amendment) Act 2013 namely “(d) in any other mode permitted by the rules, or by general or special order in that behalf by the State Government:”

Rule 54 of the M.C.S. Rules 1961 which govern investment of reserve fund of a society further tightens the bureaucratic control as brought out below.

Sub-Rule (iv) of this Rule 54 already empowers the Registrar to specify by a general or special order as to the immovable property in which Reserve Fund can be invested. There are no guide lines given to the Registrar as to how he should decide or if given it is not a matter of public knowledge.

The Maharashtra Co-operative Societies (1st Amendment) Rules, 2014 added the following proviso to this Sub-Rule (iv).

“ Provided that, in the case of a society whose reserve fund is equal to or more than its paid-up share capital, such society may invest that portion of the reserve fund which is in excess of its paid-up share capital, or a portion thereof, in its business decided by general body meeting with prior approval of the Registrar.]”

Exercising rule making power is an exercise of “delegated legislation” as legislature only is empowered under Constitution to make laws. On various occasions the Apex Court had ruled that rule making power need to be exercised strictly in conformity with the legislative act of delegation. Two such instances are quoted below.

1.In Indian Express Newspapers (Bombay) Pvt. Ltd. and Ors. v. Union of India and  Ors.  (1985)  1  SCC  641,  the  Supreme  Court held:

Delegated legislation takes a number of forms  and  a  number  of  terms  ­  rules,  regulations,  by­laws etc; however, instead  of  the  said labels what is of significance is the provisions in the primary legislation  which,  in  the   first  place,  confer   the  power  to   enact administrative  legislation.   Such   provisions   are   also called   as   “enabling provisions”.  They demarcate the extent of the  administrator’s  legislative power, the  decision making  power and the policy making power. However, any legislation   enacted   outside   the   terms   of   the   enabling   provision   will   be vulnerable to judicial review and ultra vires.”

2.Constitution   Bench   of   Hon’ble   Supreme   Court   of   India   in  Kishan   Prakash  Sharma and  Ors  v.  Union of India and Ors.   AIR  2001  SC  1493  observed that:

Thus the delegation is valid only when  the  legislative  policy and  guidelines  to implement  it are adequately laid  down  and  the  delegate  is only empowered  to  carry  out  the  policy within the  guidelines  laid  down   by  the legislature.

Rule making power is conferred on the State Government under Section 165 (2) of the M C S Act 1960 vide several clauses. Relevant clause (xxx) for application/investment of Society Funds is reproduced below:

QUOTE: “provide for the formation and maintenance of reserve fund and the objects to which such fund may be applied and for the investment and use of any fund including reserve fund under the control of a tion 165(2) UNQUOTE

Where does one read in the above legislative provision that instead of providing in the Rules, the State legislature intended to empower the Registrar to decide deployment of Reserve fund in the business of the cooperative society or in immovable property?  Whatever the State Government considers proper must be stated in black and white in the Rules after following due process of Rule making which meets with basic features of transparency and public participation.

Clause (i) of Section 3 of the Act does refer to delegation which could be misunderstood. It reads: [(i) subject to the provisions of section 3, prescribe the designation of officers who shall exercise powers vested in the Registrar” This refers to the delegation of powers vested in the Registrar under the Act as mentioned in that Section.

The conclusion of this paper is: the Proviso to Rule 54(iv) of the M.C.S. Rules 1961 inserted vide the Maharashtra Co-operative Societies (1st Amendment) Rules, 2014 is ultravires the Rule making power of the State conferred vide Clause (xxx) and is inoperative.