2005 Supreme(SC) 655

2005(3) Supreme 428
Supreme Court of India
(From Gujarat High Court)
B.N. Agrawal & P.K. Balasubramanyan, JJ.
Zoroastrian Co-operative Housing Society Limited and Another —Appellants
versus
District Registrar Co-operative Societies (Urban) and Others —Respondents
Civil Appeal No. 1551 of 2000
Decided on 15-4-2005
Counsel for the Parties :
For the Appellants : Soli J. Sorabjee, Sr. Advocate, Sanjeev Sen, Ms. Nandini Gore, Ms. Seema Sundd, Ms. Jasmine Damakewal, Ms. Kanika Agnihotri, Ashim Sood, Advocate for Mrs. Manik Karanjawala, Advocates.
For the Respondents : V.A. Bobde, Sr. Advocate, A.P. Mayee, N.S. Tambwekar, Sanjeev K. Choudhary, Vishwajit Singh, Arjun Bobde, Ms. Hemantika Wahi, Advocates.­

Important point
When a person accepts membership in a cooperative society by submitting himself to its bye-laws and places on himself a qualified restriction in his right to transfer the property, it cannot be held to be an absolute restraint on alienation offending Section 10 of the Transfer of Property Act.

Headnote:Bombay Cooperative Societies Act, 1925—Sections 3, 6, 7, 16A, 9 and 10—Gujarat Cooperative Societies Act, 1961—Sections 169, 2(2), 2(13), 4, 6, 11, 12, 13, 14, 22, 25, 29, 30, 31 and 74—Gujarat Co-operative Societies Rules, 1965—Rule 12(2)—Membership—Concept of restricted membership—Confining of membership for members of Parsi origin, not opposed to public policy—Appellant society was formed with the object of providing housing to members of the Parsi Community—Respondent 2 became a member of the society on the death of his father—He applied to the Society for permission to demolish the bungalow and to construct a commercial building in its place—Society refused him permission—Permission given to res­pondent 2 for construction of residential flats in the land, to be sold only to members of the Parsi Community—­Society passed a resolution reminding its members that no person other than a Parsi could become a new member of the Society—Respondent 2 started negotiations with respondent 3, a Builder’s association, in violation of restriction on sale of shares or property to a non Parsi—Rejection of request of res­pondent 2 to sell his plot to respondent 3—Whether bye-law restricting membership to Parsis was a restriction on the right to property and the right to alienate property—(No)—Respondent 3 is restrained from entering the property or putting up any construction therein—Constitution of India—­Articles 19(1)(d), (g).

       Held : 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. (Para 15)

       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-a-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 process. His rights merge in the rights of the society and are controlled by the Act and the bye-laws of the society. (Para 21)

       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. 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. (Para 33)

       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. 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. 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 imposed in a family settlement, partition or compromise of disputed claims. (Paras 34 to 36)

       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. 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 reserved. (Paras 36 & 37)