Economic Viability Is A Pre-Requisite Or Basic Condition For Grant Of Registration To Co-Operative Society: Supreme Court

The Supreme Court emphasised that the economic viability of the Society is a pre-requisite or basic condition for grant of registration to the Society.

The Court was deciding a batch of Civil Appeals challenging the common Order of the Bombay High Court which set aside the Orders of the Maharashtra State, directing registration of certain societies.

The two-Judge Bench of Justice Vikram Nath and Justice Prasanna B. Varale observed, “A conjoint reading of Section 4 and condition No.1 of Section 6 of the 1960 Act makes it very clear that the economic viability of the society is a pre-requisite or basic condition for grant of registration to the society. … It may not be out of place to state that if a society is unable to comply with the pre-condition or pre requisite in regard to the economic viability of the society, allowing the registration of such a society which might not even be able to function, it may adversely affect the members of the society and, ultimately, it would be frustrating the very object of the establishment of the said society.”

The Bench noted that the constitution of the Committee and the examination of the proposal by the Committee is a vital part of the Policy Directives of the State Government which is required to be complied with conditions under Section 4 of the Maharashtra Co-operative Societies Act, 1960.

AOR Shashibhushan P. Adgaonkar represented the Appellant while AOR Aaditya Aniruddha Pande represented the Respondents.

Brief Facts

In 2023, the Appellant-society filed an Application to the Respondent-Assistant Registrar for getting permission for registration of proposed society as a new Primary Agricultural Credit Co-operative Society (PACCS) as well as for opening a bank account. A scrutiny was done by the Scrutiny Committee wherein the Application of the Appellant was rejected. Being aggrieved by the Committee’s Order, the Appellant filed an Appeal under Section 152 of the 1960 Act before the State. The Respondent No. 6 who was a member of Salashi Vividh Karyakari Sahakari (Vikas) Seva Saunstha Maryadit Salashi, a registered co-operative society, got himself impleaded as a Respondent-party in the appeal proceedings.

The Minister, Co-operatives, on behalf of the State allowed the said Appeal and set aside the Committee’s Order. It was also directed to the Respondent-Assistant Registrar to register the Appellant-society. The said Respondent No. 6 filed a Writ Petition before the High Court against the State’s Order. The High Court allowed the same and resultantly, the Appellant was before the Apex Court.

Reasoning

The Supreme Court in the above context of the case, said, “In our considered opinion, the State, while deciding the appeal, completely ignored the basic criteria or the pre-requisite for the registration of society i.e. the economic viability of the society. The said criteria and pre-requisites had been laid down by the State itself through its various Government Resolutions. As such, it could not have taken a decision contrary to its own guidelines.”

The Court remarked that the State was much impressed by the submissions advanced on behalf of the Appellant-society that any Cooperative Society can manage 152 kinds of businesses apart from giving loans.

“However, the appellant had made such submissions without placing any supporting material on record before the Scrutiny Committee to show as to what kind of other 152 businesses the appellant-society would undertake and how the appellant-society is economically viable. Yet, the State accepted the hypothetical claim of the appellant-society. In our opinion, in doing so, the State has essentially ignored the aspect of economic viability”, it added.

The Court further noted that there was merely a bald statement that the Kolhapur District Central Cooperative Bank is going to support the proposed Appellant-society but there was no letter of undertaking that was attached to that effect.

“Thus, it is apparent that there was absolutely no material on record before the Committee to show that the appellant-society was in a position to comply with the pre-requisites as referred to in the Government Resolution dated 14.02.2017. The Committee had, therefore, rightly rejected the application for registration”, it also said.

The Court observed that ignoring the findings of the Committee and allowing the registration of the society when the Appellants have been unable to point out any perversity in the said findings shall lead to an unjustifiable interference in the Committee’s Order.

“… the State Government may use its discretion for relaxation of conditions. However, such a discretion cannot be used to frustrate the very object of the Act. Such a power of relaxing the necessary pre-requisites could have been made only through the means of a Government Resolution and not at the whims of the State in an appeal which essentially led to by-passing the eligibility criteria set out by the Government through its multiple Resolutions”, it enunciated.

Moreover, the Court explained that once such an eligibility standard has been set out by the Government, the only proper route to introduce any alteration or relaxation of these conditions would have been through a subsequent Government Resolution.

“In the present case, by relaxing the pre-requisite condition relating to financial viability, the State allowed the registration of the society, which in our opinion, resulted in nothing but frustrating the very object of the Act”, it concluded.

Accordingly, the Apex Court dismissed the Appeals and upheld the High Court’s Order.

Cause Title- Shri. Masaidevi Vividh Karyakari Sahakari Seva Sanstha Maryadit Warewadi v. The State of Maharashtra & Ors. (Neutral Citation: 2025 INSC 436)

Appearance:

Appellant: AOR Shashibhushan P. Adgaonkar

Respondents: AORs Aaditya Aniruddha Pande, Rajiv Shankar Dvivedi, and Advocate Siddharth Dharmadhikari.

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