State Reorganization Does Not Automatically Convert Cooperative Societies into Multi-State Entities: Supreme Court Rejects Blanket Interpretation of Section 103

“Merely Extending Area of Operation Beyond One State Is Irrelevant — It Is the Objects That Determine Multi-State Character”, In a latest Judgement  Supreme Court of India, in a landmark pronouncement in The State of Uttar Pradesh & Ors. vs. Milkiyat Singh & Ors., emphatically held that “Section 103 of the Multi-State Cooperative Societies Act, 2002, does not create automatic multi-State status simply because a State has undergone reorganization”. The Court decisively overruled the Allahabad High Court's 2008 judgment which had wrongly applied the deemed conversion clause to a cooperative sugar mill registered in Uttar Pradesh.

Rejecting the High Court’s simplistic reading, Justice Vikram Nath, speaking for the Bench, clarified that “conversion by operation of law under Section 103 requires that the objects of the society, as reflected in its bye-laws, must extend to more than one State. Not the residence of members. Not the geographical operation. Not procurement. Only the objects.”

“Statutory Fiction Must Be Tied to Clear Legislative Intent, Not Factual Coincidence”

The ruling squarely addressed the misapplication of statutory interpretation by the High Court and the respondents. The Supreme Court observed that “not every cooperative society functioning in an erstwhile undivided State would automatically become a multi-State cooperative society post-reorganisation. To hold so would violate both statutory text and constitutional principles of legislative competence.”

The cooperative sugar mill in question — Kisan Cooperative Sugar Factory Ltd., Majhola — was registered under the Uttar Pradesh Cooperative Societies Act, 1965. Following State bifurcation under the U.P. State Reorganisation Act, 2000, the shareholders argued that the society had, by legal fiction under Section 103, become a multi-State cooperative society. The Allahabad High Court accepted this plea and restrained the State from initiating privatization or restructuring under the State Act.

This, the Supreme Court held, was legally unsustainable.

“Object Means Object — Not Area of Operation”: Supreme Court Warns Against Interpretative Substitution

In a critical exposition of the statutory language, the Court held:

“The provision [Section 103] does not advert to the ‘area of operation’. Significantly, Section 10(2) of the Central Act draws a clear distinction between the ‘objects’ and ‘area of operation’... When Section 103 specifically employs the expression ‘object of the society’, the plain and natural meaning of that expression must be given effect to.”

It warned against any interpretative manoeuvre that reads “area of operation” into “objects” — a move the High Court had undertaken without examining the society’s bye-laws. In fact, the Court noted that the private respondents had “completely failed to establish that the objects of the society extended beyond the territorial limits of Uttar Pradesh”, and had not even addressed this issue in their counter-affidavit.

“Since the High Court has also not dealt with this issue, we proceed on the footing that the appellant-State’s position — that the objects were limited to one State — stands admitted.”

"Mere Procurement From Another State Cannot Confer Multi-State Status”

Respondents had argued that nearly half of the sugarcane during the 2005–06 crushing season was procured from cultivators in Uttarakhand. The Court brushed this aside as immaterial:

“The geographical location or residence of the members is wholly irrelevant for determining whether a cooperative society attains the status of a multi-State cooperative society.”

This clarification now shuts the door on attempts to dilute the statutory criteria for registration or deemed status under the 2002 Central Act.

Supreme Court Restores State’s Legislative Competence and Policy Autonomy

The apex court held that the Uttar Pradesh Government had full authority to regulate and restructure the cooperative sugar mills within its territory. Since the objects of the society remained confined to a single State, “the society remained squarely governed by the State Act under which it was registered”, and the Allahabad High Court’s ruling had wrongly stripped the State of its jurisdiction.

The Court concluded:

“Section 103 is attracted only where the objects of the society extend to more than one State. Consequently, we are unable to accept the submission of the private respondents that merely because the area of operation of the society spans across two States, the same would render it a multi-State cooperative society.”

In the absence of any amendment to the society’s bye-laws under Section 22, and in light of the fact that the Central Registrar never initiated any process for registration under the Central Act, the deemed conversion claim was held to be wholly untenable.

Judgment Reversed, Writ Petitions Dismissed — Landmark Precedent on Federal Legislative Boundaries

In a strong restatement of federal principles, the Court ultimately allowed the appeals:

“The judgment dated 26th September, 2008… is hereby set aside. Consequently, the present appeals stand allowed, and both the writ petitions are dismissed.”

This decision will likely serve as a precedent in disputes arising out of cooperative governance following state reorganizations, reaffirming that legislative competence must not be eroded by sweeping and vague interpretations of central statutes.

Date of Decision: December 15, 2025