Madras HC Denies Interim Relief To Cooperative Banks Against 2020 Ordinance Subjecting Them To RBI Supervision [Read Order]

The Madras high court on Monday refused immediate interim relief to cooperative banks which have challenged the Centre's ordinance bringing them under the purview of the RBI.The two petitioners before Chief Justice A. P. Shah and Justice Senthilkumar Ramamoorthy are "some of the pioneers in Cooperative Banking in this country and their activities date back almost to a century". They have pitched up a challenge to the constitutional validity of certain Sections of the Banking Regulation Amendment Ordinance, 2020 promulgated on 26.06.2020 as being ultra vires the Constitution of India. It is alleged that, in addition to matters relating to "banking", the Ordinance has given the RBI extensive jurisdiction over the Cooperative Banks even in those pertaining to "incorporation, regulation and winding up", placing them at par with commercial banks: in aspects relating to share capital and access to funds, which is an essential facet of the very incorporation of the cooperative bank; in essential aspects of management of cooperative banks, which were previously governed by the concerned state legislations - voting rights, restrictions on persons who can be appointed as directors in the cooperative banks; audit obligations; etc.It is urged that the impugned Ordinance legislates on subject matters which are entirely beyond the legislative competence of the Union Parliament and cannot be presumed to be covered by Entries 43 and 45 of List I of the Seventh Schedule to the Constitution of India, in as much as the petitioners are Cooperative Societies. It is contended that, therefore, the impugned Ordinance amounts to impinging upon the rights of the Cooperative Societies to be governed exclusively by State framed law, which stands protected by virtue of Entry 32 of List II of the Seventh Schedule to the Constitution of India. The argument is that the incorporation, organization, regulation and functioning of the cooperative society by itself would not constitute the activity of Banking, which is managed as a business by the Cooperative Society and, therefore, the impugned Ordinance, which encroaches upon this field of legislation, is totally beyond the Ordinance making power of the Centre and parliamentary competence and hence, the Ordinance deserves to be struck down.Appreciating the ratio of the May 5 judgment of the SC 5-judge bench in the case of Pandurang Ganpati Chaugule, the division bench noted that prima facie the issue that has been raised is that the introduction of the impugned provisions of the Ordinance, whereby a substantial amendment has been made in Part V of the Banking Regulation Act, 1949, proceeds to bring about substantial changes that would affect the incorporation, regulation and winding up of Cooperative Societies, which in turn amounts to intruding upon the affairs of a Cooperative Society running a Cooperative Bank.The top court, on May 5, has held that the SARFAESI Act is applicable to cooperative banks. "The cooperative banks under the State legislation and multi State cooperative banks are 'banks' under section 2(1)(c) of the SARFAESI Act", held the Constitution Bench. The Court rejected the argument that the 2013 amendment to the SARFAESI Act adding 'multi-state cooperative bank' in Section 2(1)(c)(iva) was a "colourable exercise of power". The Court also upheld the 2003 notification issued under the Banking Regulation Act 1949 by which 'co-operative bank' was brought within the class of banks entitled to seek recourse to the provisions of the SARFAESI Act. The 5-judge bench unanimously held that the Parliament had the legislative competence to bring cooperative banks under the ambit of SARFAESI Act. "We find 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 co-operative banks in the SARFAESI Act", the judgment stated.Before the High Court, the cooperative banks argued that the aforesaid decision clearly saves the laws relating to incorporation, regulation and winding up of Cooperative Societies, the subject matter whereof falls exclusively within the competence of the State Legislature and hence, any law, including the impugned Ordinance, trenching upon Entry 32 of List II of the Constitution of India is liable to be struck down, as it is totally beyond the competence of the Parliament and, therefore, also beyond the Ordinance making power of the Centre. It is urged that the judgment categorically holds that the affairs of a Cooperative Society running a Bank, other than its banking affairs, would continue to be controlled by law made by the State Legislature exclusively under Entry 32 of List II of the Seventh Schedule to the Constitution of India.Observations of the High Court"The Banking Regulation Act, 1949 is there in place to control the banking affairs and to that extent the judgment in the case of Pandurang Ganpati Chaugule also indicates that banks...

Madras HC Denies Interim Relief To Cooperative Banks Against 2020 Ordinance Subjecting Them To RBI Supervision [Read Order]

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