Case BriefsHigh Courts

Bombay High Court: The Division Bench of R.D. Dhanuka and V.G. Bisht, JJ., while addressing the instant matter, expressed that:

The Registrar, Co-operative Societies has not acted as a rubber stamp of the RBI.

Petitioners sought writ of certiorari or any other appropriate writ with the objective of quashing and setting aside the order passed by the Commissioner for Co-operation and Registrar of Co-operative Societies under Section 110A (1)(iii) of the Maharashtra Co-operative Societies Act, 1960 (MCS Act).

Petitioners claimed to be the Board of Directors of Nashik District Central Co-operative Bank Limited (respondent 4) registered under the MCS Act.

NABARD | Financial Health of Nashik District Central Co-operative Bank Limited

Further, the respondents submitted that NABARD had examined the affairs of respondent 4 and submitted a detailed report along with issues of supervisory concerns. It was NABARD’s opinion that the Board of Directors of respondent 4 had affected the financial health of respondent 4.

29-04-2017 Co-operative Societies, Divisional Joint Registrar’s Officer pointed out the following with regard to the bank:

·      the financial irregularities and loss suffered by respondent 4 bank

·      that the said Bank was left with no liquidity.

·      Not in a position to clear daily transaction

·      For the larger interest of members particularly farmer, existing inefficient Board of Directors were to be removed.

·      Divisional Joint Registrar, Co-operative Societies requested to submit proposal to RBI for the removal.

6-07-2017 ·      NABARD prepared report seeking opinion of G.M. of Additional Chief Secy., Corpn., Government of Maharashtra requesting Government to advice the respondent 4 bank to augment capital funds to improve the financial position.

 

12-07-2017 ·      Office of the Commissioner for Co- operation and Registrar of Co-operative Societies, Maharashtra State by NABARD, stated that in order to secure proper management of respondent 4 and to protect the interest of depositors as well as that of the Bank, prevention of further deterioration was necessary.
11-10-2017 ·      NABARD pointed out financial irregularities and recommended RBI to consider recommending Government of Maharashtra for supersession of Board of Directors.
19-12-2017 ·      RBI passed an order wherein it held that the Commissioner for Corporation and Registrar, Co-operative Societies, Maharashtra State to make an order for supersession of the Board of Directors of the respondent no.4 and for appointing ‘Board of Administrators’, in terms of the provisions of sub-section (1)(iii) of Section 110A of the MCS Act.
27-12-2017 ·      RBI passed an order.
29-12-2017 ·      Commissioner for Co-operation and Registrar, Co-operative Societies, Maharashtra State, Pune passed an order as per the directives issued by RBI under Section 110A(1)(iii) of the MCS Act thereby superseding the then Board of Directors of the respondent 4.

·      Milind Bhalerao, Divisional Joint Registrar, Co-operative Societies, Nashik as Administrator in place of the Board of Directors to manage the affairs of the bank

Senior Counsel, Anturkar submitted that Registrar (respondent 2) could not have superseded the Board of Directors of respondent 4 without applying his mind and without coming to a conclusion whether supersession was necessary or whether suspension of the Board of Directors would be sufficient.

Questions for consideration:

  • Whether respondent 2, Commissioner for Cooperation & Registrar of Cooperative Societies was required to issue any show cause notice and grant personal hearing to the petitioners before passing the impugned order of suppression of the Board of Directors and appointment of an administrator?
  • Whether the Commissioner for Cooperation & Registrar of Cooperative Societies has any discretionary power not to follow the directives issued by the RBI or in case of any directives to supersede or suspend the Board of Directors of the Co-operative Bank, the Registrar could only suspend the Board of Directors of the co-operative bank ?
  • Whether the amendment to Section 110A(1)(iii) of the Maharashtra Co-operative Societies Act, 1960 substituting the period of 5 years by one year was in conformity and compliance with the Article 243ZL of the Constitution of India ?
  • If the amendment to Section 110A(1)(iii) of the MCS Act is not in conformity with or in compliance with the amendment to Article 243 ZL, whether the Registrar Co-operative Societies was bound to issue show cause notice followed by the personal hearing to the petitioners ?
  • Whether there is repugnancy in the provisions of Article 243ZL and Section 110(1)(iii) of the MCS Act and if so, whether Article 243ZL of the Constitution of India would prevail ?
  • Whether order passed by the Commissioner for Cooperation & Registrar of Cooperative Societies appointing the sole administrator of the respondent 4 bank is quasi-judicial order or the executive/administrative order and thus does not contemplate any show cause notice or personal hearing before passing the order of supersession of Board of Directors and appointment of an administrator?
  • Whether RBI is empowered to issue directives to the Registrar of Cooperative Societies to superseded the Board of Directors of the Co-operative Bank and to appoint Board of Administrators under the provisions of the Banking Regulation Act, 1949 read with Section 110A of the MCS Act or not?
  • Whether the Registrar, Co-operative Societies is required to follow the procedure prescribed under Section 102 of the MCS Act while complying with the directives issued by the RBI Section 110A(1) (iii) of the MCS Act and superseding the Board of Directors of the Co-operative Bank or while appointing board of administrators/sole administrator of a co-operative bank or not ?

Bench noted that, under Article 243 ZL of the Constitution of India, it is provided that notwithstanding anything contained in any law for the time in force, no board shall be superseded or kept under suspension for a period exceeding six months subject to various provisos. In the fourth proviso of the said Article, it is provided that in case of a co-operative society, other than a multi-State co-operative society, carrying on the business of banking, the provisions of this clause shall have the effect as if for the words “six months”, the words “one year” had been substituted.

Further, the Court added that a conjoint reading of the unamended Section 110A(1)(iii) with the amended Section 110A(1)(iii) would clearly indicate that the period of 5 years originally prescribed under the said provision was substituted by a period of not exceeding 1 year in conformity with period of 1 year under Article 243ZL of the Constitution of India.

By referring to the decision in Arun T. Dhumale v. State of Maharashtra, WP (Stamp) No. 95405 of 2020, it was held that the Registrar, Co-operative Societies is bound by the directives issued by the RBI under Section 110(1)(ii) of the MCS Act and cannot refuse to abide such directives.

In Court’s opinion, the decision of Namdeo Natha Sanap v. State of Maharashtra, 2015(1) Mh.L.J. 838 which was delivered post to Section 110A(1)(iii) of the MCS Act also applies to the facts of the present matter

Order passed by the Registrar, Co-operative Societies is an executive and administrator order, which was passed so as to comply with the mandatory directives issued by the RBI and was thus not a quasi-judicial order.

Hence, Registrar Co-operative Societies was neither required to issue any show-cause notice nor to grant any personal hearing to the petitioners before passing the impugned order.

Section 110A(1)(iii) of the MCS Act clearly indicates that if it is required by the RBI in public interest or for preventing the affairs of the bank being conducted in a manner detrimental to the interest of the depositors or for securing the proper management of the bank, the discretion vests in the RBI to pass an order or directives against the Registrar, Co-operative Societies either for suspension or supersession of the Board of Directors, as the case may be. Such discretion under the said provision does not vest in the Registrar, Co-operative Societies either to suspend or supersede the Board of Directors upon receipt of such directives from the RBI under the said provision.

Since, High Court found that there was no repugnancy in the provisions of Article 243 ZL and Section 110A(1)(iii) of the MCS Act, Article 243 ZL of the Constitution of India does not prevail over the Section 110A(1)(iii) of the MCS Act.

Bench found no infirmity in the order passed by the Registrar, Co-operative Societies in appointing sole administrator.

“…appointment of a sole administrator made by the Registrar, Co-operative Societies cannot be set aside on the ground that the RBI had directed the Registrar, Co-operative Societies to appoint Board of Administrators.”

Under Section 110(A)(1)(iii) of the MCS Act, the Registrar, Co-operative Societies is bound to comply with the directives issued by the RBI under the said provisions and has no discretion.

The order passed by the Registrar, Co-operative Societies to supersede or suspend the Board of Directors in compliance with the directives issued by the RBI is an administrative or executive order.

Further, the Court also explained that Registrar, Co-operative Societies is empowered to pass an order of winding up of such co-operative bank.

Powers of the Registrar under Section 102 of the MCS Act cannot be equated with the duty of the Registrar, Co-operative Societies to comply with the directives issued by the RBI under Section 110A (1)(iii) of the MCS Act.

The Registrar, Co-operative Societies is thus not bound to follow the procedure prescribed under Section 102 of the MCS Act while complying with the duties under Section 110A(1)(iii) of the MCS.

In High Court’s opinion, Senior Counsel, Mr Dhond rightly placed reliance upon Section 56(zb) and 56(za) in support of submission that in case of Multi State Co-operative Bank, the RBI is empowered to exercise the powers under Section 110A (1)(iii) of the MCS Act in directing the Registrar, Co-operative Societies in superseding or suspending the Board of Directors of such Multi-State Co-operative Bank and in case of Single State Co-operative Society, RBI has no power under the provisions of the MCS Act to supersede the Board of Directors of such co-operative bank.

Provisions of the Banking Regulation Act are preserved by virtue of the said third proviso to Article 243 ZL of the Constitution of India and does not affect the power of the RBI to take any action under the provisions of the Banking Regulation Act or under Section 110A(1)(iii) of the MCS Act.

Adding to the above analysis, Bench also stated that the word ‘shall’ in Section 110A(1)(iii) would clearly indicate that the Registrar, Co-operative Societies is bound to comply with the directives of the RBI and mandatorily.

“…amendment carried out by the State Government to Section 110A(1)(iii) of the MCS Act in the year 2013 is in conformity with the provisions of Article 243 ZL of the Constitution of India and is in tune with fourth proviso to Article 243 ZL of the Constitution of India.”

While parting with the decision, High Court stated that since the order passed by the Registrar, Co-operative Societies was in mandatory compliance with the directives issued by the RBI to supersede or suspend the Board of Directors of respondent 4 by Co-operative Societies, Court could not interfere with such order passed by the Registrar, Co-operative Societies.

Petition was found to be devoid of merit and the petitioners were directed to handover the charge of affairs and management of respondent 4 to the administrator appointed by respondent 2. [Keda Tanaji Aher v. State of Maharashtra, 2021 SCC OnLine Bom 413, decided on 19-03-2021]


Advocates before the Court:

Mr. Ashutosh A. Kumbhakoni, Advocate General a/w Mr. Akshay Shinde, ‘A’ Panel a/w Mr. Yuvraj D. Patil, AGP for the Applicants-State in CAW/271/2019 and for Respondent Nos.1 to 3 in WP/2301/2018. Mr. Anil V. Anturkar, Senior Advocate a/w Mr. Yatin Malvankar i/by

Mr. I. M. Khairdi for the Petitioners in WP/2301/2018.

Mr. Ritesh Wagh h/for Mr. Tejpal S. Ingale for the Applicants in CAW/ 1275/2018.

Mr. Shrinivas S. Patwardhan a/w Mr. Bhooshan R. Mandlik for Respondent No.4.

Mr. Venkatesh Dhond, Senior Advocate a/w Mr. Prasad Shenoy, Ms.Aditi Phatak and Ms. Kirti Ojha i/by Udwadia and Co. for the Respondent No.5-Reserve Bank of India.

Mr. Girish S. Godbole i/by Mr. Vishwajeet Mohite and Ms. Pooja Mankoji for the Respondent Nos. 6 and 7 in WP/2301/2018.

Mr. Girish S. Godbole i/by Mr. Ketan Joshi and Ms. Pooja Mankoji for the Respondent Nos. 8 and 9 in WP/2301/2018.

Legislation UpdatesStatutes/Bills/Ordinances

Banking Regulation (Amendment) Bill, 2020 received Presidential Assent on 29-09-2020.

The Banking Regulation (Amendment) Act, 2020

The Banking Regulation (Amendment) Act, 2020 will replace the Banking Regulation (Amendment) Ordinance, 2020.

Certain amendments were considered necessary in the said Act to provide for better management and proper regulation of co-operative banks and to ensure that the affairs of the co-operative banks are conducted in a manner that protects the interests of the depositors, by increasing professionalism, enabling access to capital, improving governance and ensuring sound banking through the Reserve Bank of India.

Further amendments were proposed to be made in Section 45 of the Act to enable the Reserve Bank of India to make a scheme to protect the interests of the public, the banking system, depositors or to secure the banking company’s proper management, without first making an order of moratorium so as to avoid disruptions in the financial system.

Following are the features:

(i) substitution of Section 3 to provide that the Act shall not apply to— (a) a primary agricultural credit society; or (b) a co-operative society whose primary object and principal business is providing of long term finance for agricultural development, if such society does not use as part of its name, or in connection with its business, the words “bank”, “banker” or “banking” and does not act as drawee of cheques;

(ii) amendment of Section 45 to address the potential disruptions in the financial system by providing for the Reserve Bank of India to prepare a scheme for the reconstruction or amalgamation of the banking company without the necessity of first making an order of moratorium;

(iii) amendment of Section 56 to provide that notwithstanding anything contained in any other law for the time being in force, the provisions of the Act shall apply to co-operative societies, subject to the modifications specified therein.

Read the Act, here: Banking Regulation (Amendment) Act, 2020


Ministry of Law and Justice