Exclusionary Covenants and the Constitution – II: The Zoroastrian Co-op Case

In the previous post, we discussed how the American, Canadian and South African courts have sought to reconcile respect for private transactions with preventing the social evil of racially/religiously/ethnically restrictive covenants. We now turn to the locus classicus in India, Zoroastrian Cooperative v. Destrict Registrar, a 2005, 2-Judge decision of the Supreme Court. Before we dive in, a word of caution: much like the South African case of Curators v. Univ. of Kwa-Zulu Natal, the precise ratio of Zoroastrian Cooperative is difficult to discern, because although the case arises out of a very narrow set of facts, the Court blithely moves between the particular and the general, without quite clarifying what the grounds for its decision are. This makes an accurate analysis somewhat difficult.

The Zoroastrian Cooperative Housing Society was a registered society with its own bye-laws, under its parent legislation, the Bombay Cooperative Societies Act. 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. After a series of decisions in the Tribunals, a High Court single bench and a High Court division bench, all essentially holding that the bye-laws were invalid as a restriction on alienation of property (an argument used, as we have seen, by the Canadian courts), the matter came before the Supreme Court.

At the outset, then, we may note 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, as we shall see, was unfortunate.

The Cooperative Society argued that under Article 19(1)(c), 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. 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 other non-discrimination clauses). [there were some arguments on the nature of the restriction on alienation, which we need not go into here].

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 occupation… running right through these enactments [is the] the concept of restricted membership in a co-operative society.” (Paragraph 9) 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)

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 some of the worst forms of 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, erred.

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 thereunder. 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 thereunder 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, in 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 Congress, 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.”

This, indeed, makes perfect sense, since the whole point of a public policy clause is to serve as an exception to the enforcement of statutory rules; to look for public policy, then, within the statute whose provisions are impugned is deeply circular (see, for example, this very brief summary of American law.) Thus, it is submitted that the Court was wrong in holding that “[the constitutional scheme] approach is [un]warranted when a statute enacted in that behalf outlines the contours of the policy sought to be enforced by the creation of bodies thereunder.” The Court was wrong because it equated statutory policy (the policy embodied in the statute) with public policy, and the two are entirely different concepts.

We now come to what – in my opinion – is the most defensible ground of the judgment. 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)

Of course, the problem now is obvious – it is an established common law rule, found as well in the Indian Contract Act, that contracts violating public policy are void – but, as we have seen, the Court dodged this question by equating statutory policy with public policy.

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 Act, 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? Does not that right carry with it, the right to apply for membership in any cooperative society irrespective of the fact that he is a person hailing from an area outside the area of operation of the society? In the name of enforcing public policy, can a Registrar permit such a member to be enrolled? Will it not then go against the very concept of limiting the areas of operation of cooperative societies? It is, 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.”

This, of course, in its own right, makes perfect sense, since limiting membership by area does not discriminate on any prohibited head, and is also, not coincidentally, perfectly in consonance with the point of housing societies. That logic, however, says nothing about racially – or, in this case, religiously – restrictive covenanting. This also explains why the Court’s numerous examples of other Cooperative societies – of agricultural workers, laborers, and even vegetarians (Paragraph 33) are irrelevant, because there again, there is no discrimination on the basis of a prohibited category.

The Court, however, buttressed this claim with a repetition of the 19(1)(c) freedom of association, and furthermore, stressed the importance of respecting contracts freely and voluntarily entered into by competent adult individuals. (Paragraphs 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)

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 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 – I submit – 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. That does not mean, however, that the outcome of the case was wrong. I believe that the strongest argument in favour of the covenant is one grounded in Article 29, and one that the Court incidentally alludes to at the very end of its judgment:

“…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.” (Paragraph 33)

In the next post, I shall examine the implications of this argument in the context of political liberalism’s philosophical commitment to tolerating – and even encouraging – pluralism in society. And I shall further consider whether, in light of the 2011 judgment in IMA v. UoI, there is now an Article 15(2) argument against exclusionary covenants that makes the Zoroastrian Cooperative judgment redundant.