Summary
Co-operative banks registered under State legislation and multi-State co-operative banks fall within SARFAESI. Banking includes recovery of bank dues, enabling Parliament to provide the additional enforcement procedure under Section 13. State power over incorporation, regulation and winding up of co-operative societies continues for matters outside the banking field. Section 5(c) of the Banking Regulation Act must be read with Section 56(a). The 2003 notification and the express inclusion of multi-State co-operative banks were upheld.
Issues
- How legislative powers over co-operative societies and banking are reconciled.
- Whether co-operative banks are banking companies under Section 5(c) read with Section 56(a).
- Whether SARFAESI applies to State and multi-State co-operative banks.
- Whether the 2003 notification and statutory inclusion of multi-State co-operative banks are valid.
Provisions considered
- Seventh Schedule, List I Entries 43, 44 and 45; List II Entry 32, Constitution of IndiaDistinguished regulation of the society as an entity from regulation of its banking business; banking includes recovery of dues. (¶¶ 20, 39, 41, 45, 48, 58, 59, 68, 69, 70, 103)
- Sections 5(b), 5(c), 6 and 56(a)(i), Banking Regulation Act, 1949Read the banking-company definition with the statutory substitution for co-operative banks; the separate location of the modification does not defeat its effect. (¶¶ 21, 22, 23, 27, 44, 71, 72, 79, 82, 83, 84, 103)
- Sections 2(1)(c), 2(1)(d) and 13, Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002Held State and multi-State co-operative banks covered and Parliament competent to provide additional recovery machinery; upheld clause (iva) and the notification under clause (v). (¶¶ 29, 30, 31, 48, 79, 85, 86, 87, 100, 101, 102, 103)
Held
- Banking by State and multi-State co-operative banks falls within List I Entry 45. State legislation under List II Entry 32 governs incorporation, regulation and winding up of State co-operative societies in matters outside that banking field. The exclusion of co-operative societies from Entry 43 does not exclude their banking business from Entry 45. (¶¶ 39, 41, 45, 58, 59, 69, 70, 103)
- Recovery of bank dues is an essential banking function. Parliament may provide the additional Section 13 recovery procedure notwithstanding existing remedies under co-operative legislation. The legislation is in pith and substance concerned with banking; incidental trenching on the State field does not invalidate it. The Court rejected its characterisation as legislation under List III Entry 6. (¶¶ 47, 48, 50, 58, 68, 70, 79, 85, 87, 103)
- Section 56(a) requires references to banking companies to be construed as references to co-operative banks when the Banking Regulation Act applies to them. The modification is integral to Section 5(c), despite appearing in a separate Part, and operates in the definition incorporated into SARFAESI. The Court rejected the contrary reasoning in Greater Bombay Co-operative Bank. (¶¶ 44, 71, 72, 79, 80, 81, 82, 83, 84, 86, 103)
- State and multi-State co-operative banks are banks within Section 2(1)(c) of SARFAESI. The notification dated 28 January 2003 and clause (iva) expressly adding multi-State co-operative banks were within legislative competence; their abundant-caution inclusion was neither colourable nor impermissibly over-inclusive. (¶¶ 85, 86, 100, 101, 102, 103)
Result
Reference answered affirming SARFAESI’s applicability to State and multi-State co-operative banks and upholding the challenged notification and statutory provision. Civil appeals, writ petitions and pending applications disposed of accordingly, without costs.