Case Review of Zoroastrian Cooperative Housing Society vs.

District Registrar Co-

operative Societies (Urban) and others.

4.2 Property Laws

SUBMITTED BY-

Naman Dadhich
UID UG19-119
B.A.LL.B.(Hons.) Academic Year: 2021-22
Semester: IV

SUBMITTED TO-

Dr. Shuvro Prosun Sarker

(Assistant Professor of
Law)

February 2021
MAHARASHTRA NATIONAL LAW UNIVERSITY,
NAGPUR
TABLE OF CONTENTS

INTRODUCTION...............................................................................................................III

AIM AND OBJECTIVES....................................................................................................IV

RESEARCH METHODOLOGY..........................................................................................IV

FACTS OF THE CASE.........................................................................................................V

ISSUES AND REASONING.............................................................................................VII

ANALYSIS.........................................................................................................................IX

CONCLUSION.................................................................................................................XIII
 “

INTRODUCTION

There can be no question that access to housing remains unequal. Despite long-standing laws
guarding against discrimination, members of disadvantaged groups have a harder time finding a
high-quality place to live in a high-opportunity neighborhood. It’s far less obvious, however,
whether or how much these disparities result from discrimination, because disadvantaged groups
often differ systematically in employment, caste, religion, color, income, assets, and debts.

The Supreme Court, in 2005, in Zoroastrian Cooperative Housing Society vs. District Registrar
Co-operative Societies (Urban) and Others, endorsed one such restrictive bond, when it ruled in
favour of a bye-law of a Parsi housing society that prohibited the sale of property to non-Parsis.
This right to forbid such a sale, the Court ruled, was intrinsic in the Parsis’ fundamental right to
associate with each other irrespective of the Section 10 of Transfer of Property Act 1882.

In this case at hand we will review and analyze the decision of the Apex court in the case of
Zoroastrian Cooperative Housing Society vs District Registrar Co-operative Societies (Urban)
and others.

AIM

The aim of the researcher is to critically analyze the case of Zoroastrian Cooperative Housing
Society vs District Registrar Co-operative Societies (Urban) and others.

RESEARCH METHODOLOGY

The researcher in the project has used primary sources for getting the desired information by way
of referring to various books. The secondary source, on the other way is too employed into when
any assistance from the papers published in various journals are used to.
The doctrinal methodology of research work is employed into in order to use the already
available information and data on the conciliation proceedings under the Transfer of Property
Act 1882 and Constitution of India.
FACTS OF THE CASE

The Zoroastrian Cooperative Housing Society was a registered society with its own bye-laws,
under its parent legislation, The Gujarat Co-operative Societies Act, 1961. According to bye-law
7 r/w 21, only Parsis were eligible to become members of the Society. The effect of this was that
since housing shares could be transferred only to members, effectively, only Parsis could buy
plots under the aegis of the Cooperative Society. Despite these by-laws, Respondent No. 2 (a
member) entered into negotiations with Respondent No. 3, a (non-Parsi) builders’ association, to
sell them its property. 1

The main object of the appellant Society is the construction of houses meant for residential
purpose and the allotment of the same to its members. The second respondent herein, who is a
Member of the Society, was allotted a house, and in 1985, he made an application for converting
his residential house into a commercial building. That application was rejected on the ground
that the commercial use was prohibited under the byelaws. In 1988, second respondent made an
application for development by constructing a nine-storeyed building with 56 residential flats
and the appellant-Society gave permission on condition that the flat should be allotted only to
persons belonging to Parsi community. According to the appellants, no construction was started
by the 2nd respondent. However, the appellants, apprehending that the 2nd respondent would
transfer the building to non-Parsis, filed a suit before the Board of Nominees for staying the
construction. The Board of Nominees directed to maintain status quo, but after hearing the
parties, the order was vacated and the matter was taken up in revision before the Gujarat State
Cooperative Tribunal. The order passed by the Board of Nominees was confirmed. In the
meantime, on 2.5.1995, the Registrar of Cooperative Societies issued a direction to the appellant-
Society that the condition prohibiting the transfer of property to non-Parsis be deleted. The 2nd
respondent had filed an application for transfer of membership in respect of his plots. The

1
Zoroastrian Cooperative Housing Society vs District Registrar Co-operative Societies (Urban) and others AIR
1997 GUJ 136
appellant Society rejected this application and an appeal was filed by the 2nd respondent against
this rejection.

The Cooperative Society argued that under Article 19(1)(c)2, Parsis had the fundamental right to
association, which right could not be infringed by imposing upon them members they did not
wish to accept. It also relied upon Article 29’s right of minorities to preserve their own culture.
Lastly, it argued that the bye-laws themselves violated no provision of the parent legislation, and
were therefore legally sound. 3

On the other hand, the Respondents raised a familiar argument that this kind of restrictive
covenant was invalid because it violated public policy, as drawn from various constitutional
provisions (in particular, the Article 15 and such a bye-law would amount to a restraint on
alienation also violates by Section 10 of the Transfer of Property Act.

ISSUES
The question that is to be considered is whether a housing Society, registered under the Co-
operative Societies Act and founded by members of a particular religious community, could
restrict the membership of the society exclusively to the members of that community?

Rule of Law
1. Transfer of Property Act 1882
2. Constitution of India
3. Gujarat Co-operative Societies Act, 1961

2
Article 19(1)(c), Constitution of India
3
Article 29, Constitution of India
REASONING BEHIND THE CASE AND JUDGMENT PROVIDED BY THE SUPREME
COURT

The Court first went into an exhaustive analysis of the Gujarat Cooperative Societies Act (the
successor legislation to the Bombay Act after the linguistic reorganization of states). It then went
into the history of cooperative legislation in India, finding that “normally, the membership in a
society created with the object of creation of funds to be lent to its members, was to be confined
to members of the same tribe, class, caste or occupations.
In these there is a concept of restricted membership in a co-operative society.” The reason for
this, the Court found, was that as far as a housing society is concerned, “there should be a bond
of common habits and common usage among the members which should strengthen their
neighbourly feelings, their loyal adherence to the will of the society expressed by the
committee’s orders and their unselfish and harmonious working together. In India, this bond was
most frequently found in a community or caste or groups like cultivators of a
village.” (Paragraph 10 of the Judgment)4

The Hon’ble Supreme Court has reversed this judgment holding that prohibition on registration
of Society whose working is likely to be in contravention of Public Policy in terms of a particular
entity must be as reflected by the statute that creates the entity or governs it. Concept of public
policy has to be looked for within the four corners of the Gujarat Co-operative Societies Act -
Since, the statute does not restrict bye-law confining membership to a particular community,
such bye-law cannot be said to be opposed to public policy.

The fact is that the right to property is not the fundamental right but merely a legal right. The
society is not the legal person or citizen to enforce the fundamental rights.

4
Zoroastrian Cooperative Housing Society vs District Registrar Co-operative Societies (Urban) and others AIR
1997 GUJ 136
The Apex Court allowed the appeal and held that when a person accepts the membership of co-
operative society by submitting himself to its bylaws and places on himself a qualified restriction
on his right to transfer property by stipulating that same would be transferred with the prior
consent of society to a person qualified to be a member of the society, it could not be held to be
an absolute restraint on alienation offending Section 10 of the Transfer of Property Act. Hence, it
set aside the finding of the High Court that the restriction placed on the rights of members of a
society not to sell the property allotted, to non-Parsis, was an absolute restraint on alienation as
unsustainable
ANALYSIS

At the outset, it can be observed that the set of facts in this case resemble Shelley v. Kramer: the
Court did not have to rule on the constitutional validity of the bye-laws, since in effect the
Cooperative Society was asking it to enforce the restrictive covenant against the respondent, who
wished to freely alienate his property. The distinction between judicial enforcement of a
restrictive covenant, and the validity of a restrictive covenant, however, seems to have been lost
upon the Court, since it treated the case (almost) exclusively as a question of validity.

This reasoning is problematic for many reasons, not least because one of the whole purposes of
the Constitution was to ensure (through provisions such as Article 15) that the invidious modes
of identification such as caste, responsible for discrimination in Indian history, were to be made
legally irrelevant as far as possible. In selectively referring to caste as a mode of creating
harmonious internal bonds, the Court, it is submitted.

Referring to precedent, the Court then held that since Cooperative Societies were essentially
creatures of statutes, the right to join a cooperative society would itself be one that was regulated
by statute. Thus, “no individual member is entitled to assail the constitutionality of the provisions
of the Act, rules and the bye-laws as he has his right under the Act, rules and the bye-laws and is
subject to its operation. The stream cannot rise higher than the source.” (Paragraph 12)

In an extremely obtuse paragraph, the last line is particularly inexplicable. What, precisely, is the
stream and what is the source? Surely, the source – the ultimate source of all legal validity – is
the Constitution. Under what principle of law or logic is someone barred from challenging the
constitutionality of a statute because the statute declares his rights? The Court then seemed to
justify this by responding to the public policy argument:

“Prima facie, it may have to be said that public policy, in the context of Section 4 of the Act, is
the policy that is adopted by the concerned Act and the Rules framed there under. The concept of
public policy in the context of the Cooperative Societies Act has to be looked for under the four
corners of that Act and in the absence of any prohibition contained therein against the forming of
a society for persons of Parsi origin, it could not be held that the confining of membership as was
done by bye-law No. 7, was opposed to public policy.

When a statute is enacted, creating entities introduced there under on fulfillment of the
conditions laid down therein, the public policy in relation to that statute has to be searched for
within the four corners of that statute and when so searched for, one does not find anything in the
Act which prevents the Society from refusing membership to a person who does not qualify in
terms of bye-law No.7 of the Society.” (Paragraph 14)
This reasoning, however, is unconvincing. The Indian Contract Act, under S. 23, has a public
policy exception. Courts have utilized this to hold void, for example, marriage brokerage
contracts and letting a property for sex work – neither of which are found within the “four
corners” of the Contract Act. Indeed, in Delhi Transport Corporation v. DTC Mazdoor
Congress5, the Supreme Court observed:

“… in the absence of specific head of public policy which covers a case, then the court must in
consonance with public conscience and in keeping with public good and public interest…
declare such practice or rules that are derogatory to the constitution to be opposed to public
policy.”

Responding to the Part III challenge, the Court held that the Society’s bye-laws were in the
nature of the articles of association of a company – not, that is, like a statute, but only “binding
between the persons affected by them.” (Paragraph 15) In other words, the Court held correctly
that a private, contractual agreement is not subject to general Part III scrutiny, but only under the
parent legislation (if it was a contract, it would be the ICA; here, it would be the relevant
Cooperative Societies Act). The Court then made the contract analogy even clearer, holding that:
“Part III of the Constitution has not interfered with the right of a citizen to enter into a contract
for his own benefit and at the same time incurring a certain liability arising out of the
contract.” (Paragraph 16)

5
1991 AIR 101
Nonetheless, the Court did attempt to provide an analysis of this sort, although it did not frame it
as a public policy argument. Responding to the specific Article 15 discrimination argument on
merits, it observed:

“Running through the Cooperative Societies Act6, is the theory of area of operation. That means
that membership could be denied to a citizen of this Country who is located outside the area of
operation of a society. Does he not have a fundamental right to settle down in any part of the
country or carry on a trade or business in any part of the country?
In this context that we are inclined to the view that public policy in terms of a particular entity
must be as reflected by the statute that creates the entity or governs it and on the Rules for the
creation of such an entity.”

The Court, however, stressed this claim with a repetition of the 19(1)(c) freedom of association 7,
and furthermore, stressed the importance of respecting contracts freely and voluntarily entered
into by competent adult individuals (Paragraph 22, 23). In other words, it held that there was a
separate public policy interest in upholding agreements freely and voluntarily entered into.
Again, there is a logical problem here – public policy, e.g., in the ICA operates as an
exception to the rule of respecting voluntary, private transactions. That is, the right to
contract already has statutory force; we then consider whether there are reasons in public policy
to deny a particular contract that force. To use public policy to support the contract is – again –
circular reasoning.
On these grounds, then, the Court refused to find the agreement void; but then, it went even
further, holding that:

“It is also not open to the authorities under the Act to relieve him of his obligations in the guise
of entering a finding that discrimination on the basis of the religion or sex is taboo under the
Constitution in the context of Part III thereof.” (Paragraph 29)

6
Gujarat Co-operative Societies Act, 1961
7
Article 19(1)(c) of Constitution of India
Conclusion

Section 108 lays down that where property is transferred subject to a condition absolutely
restraining the transferee from parting with his interest in the property, the condition is void. The
principle underlying this section is that a right of transfer is incidental to, and inseparable from,
the ownership of the property. The rule that a condition of absolute restraint is void, is founded
also on the principle of public policy allowing free circulation and disposition of property. It is
only a condition which absolutely restrains the transferee from disposing of the interest that is
rendered void. A condition imposing partial restraint may be valid. The test is whether the
condition takes away the whole power of alienation substantially; it is a question of substance
and not of mere form.
In this, the Court without providing an reasons goes even beyond the weak Shelley v.
Kramer doctrine in not just refusing to invalidate the agreement, but even requiring
State enforcement of it and holds a Part III challenge to the contrary irrelevant. This is surely
incorrect, because even if it might be remotely possible to argue that the Court is not a State for
the purposes of Part III, statutory authorities most definitely are. In requiring the State, then, to
directly enforce a covenant that discriminates on the basis of a prohibited Article 15 category, the
Court is, compelling it to perform an unconstitutional action.
In sum, therefore, I suggest that the reasoning in Zoroastrian Cooperative is flawed on two
grounds: the Court is incorrect in conflating the validity of the restrictive covenant with its
enforcement; and it is incorrect in conflating public policy with statutory policy under the ambit
of Section 10 Transfer of Property Act, 1882. ”

8
Transfer of Property Act, 1882