Rajendra N. Shah, Noel Harper and Section 70 — Three Rulings Shaping Trust, Co-operative and NGO Governance in India

This article is for educational and legal awareness purposes only. It does not constitute legal advice or solicitation. Please consult a qualified advocate for advice on specific legal matters.

Overview

Trusts, societies, and co-operative societies in India sit at the intersection of several statutes — the Societies Registration Act, 1860, the Indian Trusts Act, 1882, State-specific co-operative societies legislation such as the Uttar Pradesh Co-operative Societies Act, 1965, and, where foreign funds are involved, the Foreign Contribution (Regulation) Act, 2010 (FCRA). Three rulings, taken together, map out much of the governance terrain that trustees, committee members, and office bearers of such bodies actually operate in: how far the Union can legislate on co-operative societies, what compliance the FCRA now demands of trusts and NGOs receiving foreign donations, and how ordinary disputes within a co-operative society in Uttar Pradesh must be resolved. This article summarises each ruling and draws out what it means in practice.

Union of India v. Rajendra N. Shah — Co-operative Societies as a State Subject

Case: Union of India v. Rajendra N. Shah (Civil Appeal Nos. 9108-9109 of 2014, with connected appeals)
Court: Supreme Court of India
Bench: Justices R.F. Nariman, K.M. Joseph and B.R. Gavai
Date: 20 July 2021

Background

The Constitution (Ninety-Seventh Amendment) Act, 2011 inserted Part IXB into the Constitution, titled “The Co-operative Societies,” along with a corresponding amendment to Article 19(1)(c) and the insertion of Article 43B. Part IXB laid down detailed constitutional norms for the incorporation, board composition, election, tenure, audit, and supersession of co-operative societies — matters that, until then, had been left entirely to State legislation, since “co-operative societies” is a subject listed under Entry 32 of the State List (List II, Seventh Schedule).

A writ petition before the Gujarat High Court challenged Part IXB on the ground that, because it altered the legislative field otherwise occupied by the States under Entry 32, the amendment required ratification by the legislatures of not less than one-half of the States, as mandated by the proviso to Article 368(2) of the Constitution for any amendment that seeks to change a matter listed in the Seventh Schedule. It was undisputed that the requisite ratification had not been obtained. The Gujarat High Court, by its judgment dated 22 April 2013, held Part IXB unconstitutional in its entirety for want of ratification. The Union of India appealed to the Supreme Court.

What the Court Held

The Supreme Court, by majority (Nariman and Gavai, JJ.; Joseph, J. dissenting in part on the question of severability), held:

Part IXB required ratification, and none was obtained. The Court agreed with the Gujarat High Court that, because Part IXB altered the field otherwise occupied by Entry 32 of the State List, its insertion attracted the proviso to Article 368(2) and needed ratification by half the States — which had not taken place.
The doctrine of severability applied. Rather than strike down Part IXB in its entirety, the majority held that it survives to the extent it governs multi-State co-operative societies, since multi-State co-operative societies fall under Entry 44 of the Union List (List I), a field already within Parliament’s competence and not “truncated” by the amendment in the same way as Entry 32.
The operative declaration: “The judgment of the High Court is upheld except to the extent that it strikes down the entirety of Part IXB of the Constitution of India… it is declared that Part IXB of the Constitution of India is operative only insofar as it concerns multi-State co-operative societies both within the various States and in the Union territories of India.”

Why It Matters

For a co-operative society registered and operating solely within Uttar Pradesh — the overwhelming majority of primary agricultural credit societies, dairy co-operatives, and housing co-operatives in the State — Part IXB’s constitutional provisions on board structure, elections, and supersession do not directly apply. Governance of such societies continues to be governed by the Uttar Pradesh Co-operative Societies Act, 1965, and rules made under it. The ruling is, in that sense, a reaffirmation that co-operative governance for State-level societies remains a matter of State statute, not constitutional mandate — which is precisely why the operative provisions of the 1965 Act, discussed below, continue to control disputes at the ground level.

Noel Harper v. Union of India — FCRA Amendments Upheld

Case: Noel Harper & Ors. v. Union of India & Anr. (Writ Petition (Civil) No. 566 of 2021, with connected petitions)
Court: Supreme Court of India
Bench: Justices A.M. Khanwilkar, Dinesh Maheshwari and C.T. Ravikumar
Date: 8 April 2022

Background

The petitioners — trustees and functionaries of charitable trusts and NGOs, including a trust engaged in child-welfare work registered with the FCRA authorities — filed writ petitions under Article 32 challenging the constitutional validity of amendments made to the FCRA by the Foreign Contribution (Regulation) Amendment Act, 2020. The specific provisions under challenge were Sections 7, 12(1A), 12A and 17(1) of the 2010 Act, as amended. Broadly, these provisions: prohibit transfer of foreign contribution from one FCRA-registered entity to another (Section 7); require Aadhaar-based identification of key functionaries for registration (Section 12A); and mandate that foreign contribution be received only in a designated FCRA account at a specified branch of the State Bank of India, New Delhi (Section 17(1)). The petitioners argued these provisions were manifestly arbitrary and violated Articles 14, 19 and 21.

What the Court Held

The Supreme Court dismissed the substantive challenge, holding:

Sections 7, 12(1A), 12A and 17 are intra vires. The Court held that restricting inter-NGO transfer of foreign contribution, tightening the identification of office bearers, and centralising receipt of foreign funds through a single designated bank branch are reasonable regulatory measures within Parliament’s competence, and do not violate Articles 14, 19 or 21.
Section 12A was read down, not struck down. On the specific objection that Section 12A mandated Aadhaar for all key functionaries — including those who may not otherwise be required to hold Aadhaar for other purposes — the Court held that the provision should be construed as also permitting an Indian passport as proof of identity for key functionaries who are Indian nationals. As the Court put it: “we hold that the provision needs to be construed as permitting furnishing of the Indian Passport of the key functionaries of the applicant who are Indian nationals, for the purpose of their identification.”
Conclusion: “We declare that the amended provisions vide the 2020 Act, namely, Sections 7, 12(1A), 12A and 17 of the 2010 Act are intra vires the Constitution and the Principal Act.” The writ petitions were disposed of in these terms, with no order as to costs.

Why It Matters

For trusts and societies in Uttar Pradesh that receive, or intend to apply for permission to receive, foreign contributions — for educational, religious, or charitable objects — this ruling settles that the tightened 2020-era FCRA compliance architecture (single designated bank account, restricted onward transfer, and functionary identification) is here to stay as a matter of constitutional validity. The one concession trustees should note is procedural: identification of key functionaries under Section 12A is not limited to Aadhaar; an Indian passport is an accepted alternative for functionaries who are Indian nationals.

Chandrika Prasad Chaurasia v. State of U.P. — The Section 70 Arbitration Bar

Case: Chandrika Prasad Chaurasia v. State of U.P. Thru. Prin. Secy. Cooperative Deptt., Lko. and 3 Others
Court: Allahabad High Court, Lucknow Bench
Coram: Justice Alok Mathur
Neutral Citation: 2024:AHC-LKO:56164
Date: 14 August 2024

Background

The petitioner had taken a home loan from a co-operative credit society and, on default, was served a recovery certificate issued by the Assistant Commissioner-cum-Assistant Registrar, Co-operative Societies, seeking recovery of the outstanding amount. He challenged the recovery certificate directly before the High Court by way of a writ petition. The State’s standing counsel pointed out that the petitioner had an “equally efficacious remedy” available under Section 70 of the Uttar Pradesh Co-operative Societies Act, 1965, which allows such a dispute to be referred to the Registrar, Co-operative Societies, for resolution by arbitration.

What the Court Held

The Court disposed of the writ petition with liberty to the petitioner to move an application before the Registrar, Co-operative Societies, so that the dispute could be referred for arbitration under Section 70, and directed that the petitioner would also be at liberty to seek interim relief before the arbitrator once appointed.

The Statutory Provision

Section 70(1) of the Uttar Pradesh Co-operative Societies Act, 1965 provides:

“Notwithstanding anything contained in any law for the time being in force, if any dispute relating to the constitution, management of the business of a co-operative society other than a dispute regarding disciplinary action taken against a paid servant of a society arises — (a) among members, past members and persons claiming through members, past members and deceased members; or (b) between a member, past member or any person claiming through, a member, past member or deceased member, and the society, its committee or management of any officer, agent or employee of the society, including any past officer, agent or employee; (c) between the society or its committee and any past committee, any officer, agent or employee or any past officer, past agent or past employee or the nominee, heir or legal representative of any deceased officer, deceased agent, or deceased employee of the society; or (d) between a co-operative society and any other co-operative society or societies: such dispute shall be referred to the Registrar for action in accordance with the provisions of this Act and the rules and no court shall have jurisdiction to entertain any suit or other proceeding in respect of any such dispute.”

A proviso, inserted by U.P. Act No. 17 of 1977, carves out disputes relating to an election, which cannot be referred to the Registrar until after the election result is declared.

Why It Matters

Section 70 is a bar on the ordinary jurisdiction of civil courts for the categories of dispute it lists — disputes touching the constitution, management, or business of a co-operative society, between members, office bearers, employees, or between societies. Members, committee members, and even the society itself who find themselves in such a dispute in Uttar Pradesh must generally first seek reference to arbitration before the Registrar, rather than filing a civil suit or (as this case shows) approaching the High Court directly under Article 226 without first exhausting that statutory route. Courts routinely relegate parties to Section 70 on the ground that it provides an efficacious alternative remedy — as happened here.

Reading the Three Rulings Together

Each ruling operates at a different layer of the same governance structure:

Rajendra N. Shah fixes the constitutional boundary — State co-operative societies remain governed by State law (the 1965 Act in Uttar Pradesh), not by the Part IXB constitutional code, which survives only for multi-State co-operative societies.
Noel Harper fixes the compliance floor for any trust or society that receives foreign contributions — the FCRA’s 2020 amendments, including the single-bank-account and functionary-identification requirements, apply and have been held constitutionally valid.
Chandrika Prasad Chaurasia fixes the forum — internal disputes within a co-operative society in Uttar Pradesh, whether about recovery, management, or employment (short of disciplinary action against a paid servant), ordinarily go to Section 70 arbitration before the Registrar, not to a civil court or a writ petition in the first instance.

Practical Points for Trustees and Committee Members

A co-operative society registered under the 1965 Act should look to the Uttar Pradesh Co-operative Societies Act, 1965 and its rules — not Part IXB of the Constitution — for the governing framework on its committee, elections, and supersession, unless it is a multi-State co-operative society.
A trust or society that receives, or wishes to receive, foreign contributions should ensure funds are routed only through the designated FCRA account at the specified branch, avoid onward transfer of foreign contribution to another FCRA entity except as the amended Act permits, and note that key functionaries who are Indian nationals may furnish an Indian passport, not necessarily Aadhaar, for identification under Section 12A.
Before filing a civil suit or a writ petition over a dispute involving a co-operative society’s constitution, management, business, or an employment matter that is not disciplinary action against a paid servant, check whether Section 70 applies — if it does, the Registrar’s arbitration route, not the court, is ordinarily the first port of call.
The Section 70 bar does not cover disciplinary action against a paid servant of the society or election disputes prior to the declaration of results — these follow their own separate routes.

Takeaway

None of these three rulings is, by itself, exotic doctrine — a federalism-and-ratification question, a fundamental-rights challenge to funding regulation, and a jurisdiction-bar provision. Read together, though, they describe the actual governance reality for a trust, society, or co-operative society operating in Uttar Pradesh: State law controls day-to-day governance for State co-operatives, FCRA compliance is now constitutionally settled and must be followed to the letter for foreign funds, and internal disputes are expected to travel through the Registrar’s arbitration mechanism before they reach a court.

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