{"id":229124,"date":"2020-05-05T20:00:19","date_gmt":"2020-05-05T14:30:19","guid":{"rendered":"https:\/\/www.scconline.com\/blog\/?p=229124"},"modified":"2020-12-23T12:01:09","modified_gmt":"2020-12-23T06:31:09","slug":"sarfaesi-act-applicable-to-cooperative-banks-constitution-bench","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2020\/05\/05\/sarfaesi-act-applicable-to-cooperative-banks-constitution-bench\/","title":{"rendered":"SARFAESI Act applicable to Co\u00adoperative Banks: Constitution Bench"},"content":{"rendered":"

Supreme Court<\/strong>: The 5-judge bench of Arun Mishra, Indira Banerjee, Vineet Saran, MR Shah and Aniruddha Bose, JJ has held that<\/p>\n

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\u201c’banking’ relating to co\u00adoperatives 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 co\u00adoperative banks in the SARFAESI Act.\u201d<\/p>\n<\/blockquote>\n

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)\u00a06\u00a0SCC\u00a0236<\/a>, Delhi Cloth & General Mills Co. Ltd. v. Union of India, (1983)\u00a04\u00a0SCC\u00a0166<\/a>, T. Velayudhan Achari v. Union of India, (1993)\u00a02\u00a0SCC\u00a0582<\/a> and Union of India v. Delhi High Court Bar Association, (2002)\u00a04\u00a0SCC\u00a0275<\/a>. <\/strong><\/p>\n

Holding that Co\u00adoperative 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,<\/p>\n

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\u201crecovery 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 co\u00adoperative 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.\u201d<\/p>\n<\/blockquote>\n

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.<\/p>\n

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\u201cIn 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.\u201d<\/p>\n<\/blockquote>\n

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 co\u00adoperative\u00a0 \u00a0bank\/cooperative society. It provides for recovery of dues to banks, including co\u00adoperative banks, which is an essential part of banking activity<\/strong>.<\/span> The Act, hence, \u00a0in 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.<\/p>\n

In a 159-pages long verdict, the 5-judge concluded,<\/p>\n