Cooperative Societies

Case BriefsSupreme Court (Constitution Benches)

Supreme Court: The 5-judge bench of Arun Mishra, Indira Banerjee, Vineet Saran, MR Shah and Aniruddha Bose, JJ has held that

“’banking’ relating to co­operatives can be included within the purview of Entry 45 of List I, and it cannot be said to be over inclusion to cover provisions of recovery by co­operative banks in the SARFAESI Act.”

The judgment of the Court came in a reference made in view of conflicting decisions in Greater Bombay Coop. Bank Ltd. v. United Yarn Tex (P) Ltd., (2007) 6 SCC 236, Delhi Cloth & General Mills Co. Ltd. v. Union of India, (1983) 4 SCC 166, T. Velayudhan Achari v. Union of India, (1993) 2 SCC 582 and Union of India v. Delhi High Court Bar Association, (2002) 4 SCC 275.

Holding that Co­operative bank’s entire operation and activity of banking are governed by a law enacted under Entry 45 of List I, i.e., the BR Act, 1949, and the RBI Act under Entry 38 of List I, the bench said,

“recovery of dues would be an essential function of any banking institution and the Parliament can enact a law under Entry 45 of List I as the activity of banking done by co­operative banks is within the purview of Entry 45 of List I. Obviously, it is open to the Parliament to provide the remedy for recovery under Section 13 of the SARFAESI Act.”

The Court further explained that the main aspect of the activity of the cooperative bank relating to banking was covered by the BR Act, 1949, and the Reserve Bank of India Act, which legislations are related to Entries 45 and 38 of List I of the Seventh Schedule. The aspects of ‘incorporation, regulation and winding up’ are covered under Entry 32 of List II of the Seventh Schedule.

“In our opinion, the activity of banking by such bankers is covered by Entry 45 of List I considering the Doctrine of Pith and Substance, and also considering the incidental encroachment on the field reserved for State is permissible.”

It further said that by enacting the SARFAESI Act, Parliament does not intend to regulate the incorporation, regulation, or winding up of a corporation, company, or co­operative   bank/cooperative society. It provides for recovery of dues to banks, including co­operative banks, which is an essential part of banking activity. The Act, hence,  in no way trenches on the field reserved under Entry 32 of List II and is a piece of legislation traceable to Entry 45 of List I.

In a 159-pages long verdict, the 5-judge concluded,

  • The co­operative banks registered under the State legislation and multi­State level co­operative societies registered under the Multi­State Co­operative Societies Act, 2002 (MSCS Act, 2002) with respect to ‘banking’ are governed by the legislation relatable to Entry 45 of List I of the Seventh Schedule of the Constitution of India.
  • The co­operative banks run by the co­operative societies registered under the State legislation with respect to the aspects of ‘incorporation, regulation and winding up’, in particular, with respect to the matters which are outside the purview of Entry 45 of List I of the Seventh Schedule of the Constitution of India, are governed by the said legislation relatable to Entry 32 of List II of the Seventh Schedule of the Constitution of India.
  • The co­operative banks involved in the activities related to banking are covered within the meaning of ‘Banking Company’ defined under Section 5(c) read with Section 56(a) of the Banking Regulation Act, 1949, which is a legislation relatable to Entry 45 of List I. It governs the aspect of ‘banking’ of co­operative banks run by the co­operative societies. The co­operative banks cannot carry on any activity without compliance of the provisions of the Banking Regulation Act, 1949 and any other legislation applicable to such banks relatable to ‘Banking’ in Entry 45 of List I and the RBI Act relatable to Entry 38 of List I of the Seventh Schedule of the Constitution of India.
  • The co­operative banks under the State legislation and multi­State co­operative banks are ‘banks’ under section 2(1)(c) of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. The recovery is an essential part of banking; as such, the recovery procedure prescribed under section 13 of the SARFAESI Act, a legislation relatable to Entry 45 List I of the Seventh Schedule to the Constitution of India, is applicable.
  • The Parliament has legislative competence under Entry 45 of List I of the Seventh Schedule of the Constitution of India to provide additional procedures for recovery under section 13 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 with respect to cooperative banks. The provisions of Section 2(1)(c)(iva), of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, adding “ex abundanti cautela”, ‘a multi­State co­operative bank’ is not ultra vires as well as the notification dated 28.1.2003 issued with respect to the cooperative banks registered under the State legislation.

[Pandurang Ganpati Chaugale v. Vishwasrao Patil Murgud Sahakari Bank Ltd,  2020 SCC OnLine SC 431 , decided on 05.05.2020]

Case BriefsHigh Courts

Bombay High Court: Jalgaon Jillha Urban Cooperative Banks Association Ltd., Credit Societies and other financial institutions registered under the Maharashtra Cooperative Societies Act 1960 filed a writ before the Bombay High Court contending that in view of the provisions of Section 2(h) and Section 8 of the Right to Information Act 2005, cooperative institutions registered under the Cooperative Societies Act cannot be treated as public authority and Section 34-A of the Banking Regulation Act, 1949 provides that such institutions are not bound to disclose certain information which, according to them, is confidential in nature.

It was also contended by the petitioners that these institutions are not receiving financial aid from the Government directly or indirectly and so the provisions of the Act cannot be made applicable to them. In spite of the provisions in existence, the authorities created under the Cooperative Societies Act are insisting the institutions to pass on information in respect of the conduct of business and other things of the societies to the members or even general public under the provisions of the RTI Act. They sought a writ of mandamus restraining the officers of the cooperative department and/or their subordinates from supplying any information to the members or general public, which, according to the said societies was confidential in the commercial interests of the said societies and for that purpose issue necessary orders.

Supporting the contentions, the petitioner cited Agricultural Produce Market Committee v. Meghraj Pundlikrao Dongre, 2010 SCC OnLine Bom 1705, wherein it was held that the provision of the Act cannot be used against cooperative institutions registered under the Maharashtra Cooperative Societies Act, 1960. In reply to this, RBI v. Jayantilal N. Mistry, (2016) 3 SCC 525 was cited in which the Supreme Court has discussed the effect of the provisions of the Banking Regulation Act, 1949, Reserve Bank of India Act, 1934, the Credit Information Companies Act, 2005, the State Bank of India Act, 1955 and the Official Secrets Act, 1923 on the provisions made under the RTI Act. The defence taken for such institutions of fiduciary relationship and possible adverse effect on economic interests of the States was considered by the Apex Court. The Apex Court held that the decision given by the Chief Information Officer directing these institutions to supply information cannot be set aside.

The Court in this case observed that the petitioners and its members, cooperative institutions, are registered under the Maharashtra Cooperative Societies Act, 1960 and are bodies created under statute and right from the registration till the liquidation there is control over these institutions of the authority created under the same Act and the authority steps in to take decision on the rights of the members. Therefore, such institutions cannot act independently and the apex bodies are created for such institutions. The Bench highlighted that even Articles 38, 39, 43 and 48 of the Directive Principles of State Policy show that to some extent such institutions are discharging duty of State.

The Court noted that the provisions of the Maharashtra Cooperative Societies Act show that the authority under the Act can do audit and inquiry into irregularities and there is power of suspension of managing committee and removal of members with the authority under the Act. For such purposes, the Court held that the cooperative institution is bound to supply the record to the authority.

The Court elucidated further by reading the provisions of the Maharashtra Cooperative Societies Act with definition of information given in Section 2(f) of the RTI Act that everything which is mentioned in the definition of information needs to be supplied by the cooperative institution to the authority above it. Further, it stated that the definition of ‘Public Authority’ given in Section 2(h) shows that such public authority can be created by any law made by the State Legislature. Accordingly, the petition was dismissed by the High Court. [Jalgaon Jillha Urban Cooperative Banks Association Ltd. v. State of Maharashtra, 2017 SCC OnLine Bom 151, decided on 13.02.2017]