Greater Bombay Co-Op. Bank Ltd Vs. M/S United Yarn Tex. Pvt. Ltd. & Ors [2007] Insc 356 (4 April 2007)
B. N. Agrawal, P. P. Naolekar & Lokeshwar Singh Panta
WITH [Civil Appeal Nos.433/2004, Civil Appeal No.434/2004, Civil Appeal No.436/2004, SLP (C) Nos.15651- 15652/2005, SLP (C) No.5592/2004, SLP (C) No.5598/2004, SLP (C) No.5890/2004, Civil Appeal No.36/2006, Civil Appeal No.37/2006, Civil Appeal No.38/2006, Civil Appeal No.916/2006, Civil Appeal No.2819/2006, Civil Appeal No.2820/2006, Civil Appeal No.2821/2006, Civil Appeal No.2822/2006 and SLP (C) Nos.25246-25247/2005] [Civil Appeal No.6069/2005, Civil Appeal No.6077/2005 and SLP (Crl.) No.2071/2006 - Not on board] Lokeshwar Singh Panta, J.
Civil Appeal No.6069/2005, Civil Appeal No.6077/2005 and SLP (Crl.) No.2071/2006 are taken on board.
A Bench of two judges before which this batch of twelve civil appeals and five special leave petitions came up for consideration was of the view that looking to the issues involved and the far-reaching consequences which such a decision will leave, these matters require consideration by a larger Bench. This is what the Bench observed in the order dated 1st December, 2005.
"This batch of appeals/SLPs involved an important issue regarding right of recovery of debts by the co-operative banks constituted under the Co-operative Societies Acts of the States of Maharashtra and Andhra Pradesh. The issue has arisen in the context of enactment of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. Under the Co- operative Societies Acts, there is a mechanism for recovery of debts by the Banks constituted under those Acts, which are also called Co-operative Banks. After the enactment of the 1993 Act, question arose as to whether such Co-operative Banks would have right of recovery under the respective Co-operatives Societies Acts or they will have to proceed under the 1993 Act. These aspects and some other issues, including the issue of legislative competence of the States to enact the provisions relating to Co-operative Banks, came up for consideration before the Bombay High Court and the High Court of Andhra Pradesh at Hyderabad. Both the High Courts have pronounced judgments on the issues and these judgments are under appeal in these cases. Looking to the issues involved and the far- reaching consequences which such a decision will leave, we are of the view that these matters be decided by a larger Bench.
This has also been brought to our notice that as a consequence of the impugned judgments of the two High Courts, recoveries worth thousands of crores of rupees are held up and for that reason these matters need to be decided as early as possible.
Let these matters be placed before Hon'ble the Chief Justice of India for constitution of an appropriate larger Bench for early disposal of these cases.
We are informed that so far as the batch of appeals/SLPs arising from the judgment of the Bombay High Court is concerned, the stay applications have already been disposed of. The stay applications in the appeals/SLPs arising from the judgment of the Andhra Pradesh High Court are yet to be finally disposed of. Let the stay applications in the matters arising from the judgment of the Andhra Pradesh High Court be placed before this Court on Wednesday the 7th December, 2005. If any party is desirous of filing any reply, the same be filed by Monday the 5th December, 2005.
SLP (C) Nos. ...CC 9992-9993/2005, SLP (C) Nos.21685-21701/2005 and SLP(C) No. 22621/ 2005 Delay condoned.
Issue notice.
Dasti service, in addition to usual mode of service, is also permitted."
Hon'ble the Chief Justice of India, accordingly, has assigned these matters for hearing by a Bench of three Judges dealing with the subject matters of applicability of the Recovery of Debts due to Banks and Financial Institutions Act, 1993 [ for short "'the RDB Act'"] to the co-operative banks established under the Maharashtra Co-operative Societies Act, 1960 [for short "the MCS Act, 1960"]; The Multi-State Co- operative Societies Act, 2002 [for short "'the MSCS Act, 2002'"]; and the Andhra Pradesh Co-operative Societies Act, 1964 [for short "the APCS Act, 1964"].
The background of facts, which led to the filing of these cases, are noted from Civil Appeal No. 432 of 2004 titled The Greater Bombay Co-operative Bank Limited v. M/s United Yarn Tex Private Limited and Others filed against the judgments and orders of the Full Bench of the High Court of Judicature at Bombay and Civil Appeal No. 36 of 2006 titled A.P. State Co-operative Bank v. Samudra Shrimp Ltd. &
Ors. decided by the Full Bench of the High Court of Judicature of Andhra Pradesh at Hyderabad.
A batch of writ petitions had been placed before Full Bench of the High Court of Judicature at Bombay in which the principal question of law that arose for consideration was:
"Do the courts and authorities constituted under the Maharashtra Co-operative Societies Act, 1960 (the 1960 Act) and the Multi-State Co-operative Societies Act, 2002 (the 2002 Act) continue to have jurisdiction to entertain applications/ disputes submitted before them by the Co- operative Banks incorporated under the 1960 Act and the 2002 Act for an order for recovery of debts due to them, after establishment of a Tribunal under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (the 1993 Act)?"
The appellant-bank advanced amounts by way of term loans to the respondent-Company, which is a member of the appellant-society. The appellant-bank filed recovery application against the respondent-Company under Section 101 of the MCS Act, 1960 before the Registrar (Co-operative Societies) for recovery of its dues. The Assistant Registrar issued recovery certificate on 03.12.2002 in favour of the appellant-bank. Pursuant to the issuance of recovery certificate, a demand notice was issued to the respondent- Company by the Special Recovery and Sales Officer calling upon the respondent-Company to pay the dues of the appellant-bank, failing which the Authority would visit the premises of the respondent-Company on 1st February, 2003 for effecting recovery by way of attachment and sale of property specified in the Schedule attached thereto.
In January 2003, the respondent-Company filed a Writ Petition No. 727/2003 before the High Court of Bombay impugning the recovery certificate dated 3rd December, 2002.
Learned Single Judge of the High Court vide order dated 31st January, 2003 passed an ad-interim ex parte order restraining the Special Recovery and Sales Officer, in any manner, from proceeding with or in pursuant to recovery certificate dated 3rd December, 2002. It appears from the order of the High Court that the Division Bench of the High Court in The Shamrao Vithal Co-operative Bank Limited v. M/s Star Glass Works & Ors. [2003] 1 MLJ 1] held that the Debts Recovery Tribunal constituted under the RDB Act has the jurisdiction to entertain an application submitted by a co-operative bank for recovery of its debts. The Division Bench on consideration of the provisions of Section 56 of the Banking Regulation Act, 1949 [ for short "the BR Act"] came to the conclusion that 'Co- operative Bank' falls within the meaning of Section 2(d) of the RDB Act and, therefore, the only remedy available in terms of the provisions of the RDB Act to a co-operative bank after the constitution of the Tribunal under the RDB Act for recovery of debts due to it, is to apply to such a tribunal for an order.
The order of the High Court reveals that one Narendra Kanti Lal filed Writ Petition No. 6079/2002 in the High Court praying for setting aside the recovery certificate dated 6th September, 2000 issued by the Assistant Registrar (Co- operative Societies) in exercise of his powers under Section 101 of the MCS Act, 1960 and the warrant of attachment issued pursuant thereto on the application made by Jan Kalyan Sahakari Bank Limited, one of the respondents in the said petition. When that petition came up for admission before the learned Single Judge of the Bombay High Court, the petitioner therein brought to the notice of the learned Single Judge the earlier judgment of the Division Bench in Shamrao Vithalrao Co-operative Banks' case (supra). The learned Single Judge, however, was of the opinion that the Division Bench in its judgment did not consider that the MCS Act, 1960 has been enacted by the State Legislation under Entry 32, List II of the Seventh Schedule of the Constitution of India.
The learned Single Judge having considered the importance of the question involved in the matter directed to place the matter before Hon'ble the Chief Justice of the High Court for Reference before the Full Bench. It appears that in the meantime, some more writ petitions came up before the Division Bench raising the same question. Hon'ble Chief Justice of the High Court decided to refer the matters to the Full Bench. This is how all the petitions were placed before the Full Bench for deciding the referred questions.
The Full Bench, after hearing the learned counsel for the parties and having gone through the various provisions of the Statutes and Entries 43, 44 and 45, List I of Seventh Schedule of the Constitution of India, answered the reference as under:- "For all these reasons, therefore, we hold that on and from the date on which the Debts Recovery Tribunal was constituted under the 1993 Act, the courts and authorities under the 1960 Act as also the 2002 Act would cease to have jurisdiction to entertain the applications submitted by the Co-operative Banks for recovery of their dues."
However, the High Court held that the State Legislature was competent to enact the MCS Act, 1960.
In Civil Appeal No. 36/2006 titled A. P. State Co- operative Bank Limited v. Samudra Shrimp (P) Ltd. &
Ors., after detailed examination of the various submissions before it, Full Bench of the Andhra Pradesh High Court in a batch of writ petitions, writ appeals and civil revision petitions struck down the constitutional validity of Sections 61 and 71 of the APCS Act, 1964. In the concluding portions, the High Court culled out as follows:- "(a) That recovery of monies (whether called a debt, arrears or by any other name) due to a banking institution including a Co-operative Bank is a matter that integrally falls within the core and substantive area of the legislative field Banking in Entry-45, List-I of the Seventh Schedule of the Constitution.
(b) The above subject matter is therefore excluded from the State legislative field in Entry-32, List-II of the Seventh Schedule.
(c) Recovery of monies due to a Co-operative Bank is not a matter that falls within the incidental and ancillary areas of the State legislative field in Entry-32, List-II of the Seventh Schedule.
(d) A Co-operative Bank as defined in Section 5(cci) of the Banking Regulation Act, 1949 (as amended by Act 23 of 1965) is a Bank and a Banking Company within the meaning of Section 2(d) & (e) of the Recovery of Debts due to Banks and Financial Institutions Act, 1993.
(e) A Tribunal constituted under the provisions of the Recovery of Debts due to Banks and Financial Institutions Act, 1993 has exclusive jurisdiction, powers and authority to entertain and decide applications from a Co-operative Bank for recovery of debts due to such bank, subject to the pecuniary limits of jurisdiction specified by or under the said Act.
(f) Section 71(1) of the 1964 Act in so far as it expressly confers power on the Registrar to issue a certificate for recovery of arrears of any sum advanced by a financing bank to its members, is beyond the legislative competence of the State.
(g) The words "or financing bank" in Section 71(1) of the Andhra Pradesh Co-operative Societies Act, 1964 expressly result in the provisions of the Section transgressing the State's legislative limits. These words being severable are therefore declared invalid.
(h) The provisions of Section 61 and 71 {after striking down of the words in Section 71(1)} are restrictively construed as excluding any jurisdiction, powers or authority in the Registrar in respect of recovery of debts or arrears due to a Co-operative Bank, its members or others which are advanced lent or otherwise made over to such member or person, during the course of the banking business of such Co-operative Bank (i) (a)No claim, application or other proceedings lodged or instituted before the Registrar, by a Co-operative Bank for recovery of the amount/debt due from a member or other person pursuant to advances made in the course of its banking business could be entertained or determined by the Registrar (b) Any award or order passed, certificate issued or an order in execution proceedings, by the Registrar on any claim or application of a Co-operative Bank, is patently and inherently without jurisdiction, null, void and inoperative.
(j) During the pendency of these writ petitions, by virtue of various court orders certain amounts have been deposited by some of the writ petitioners. At no point of time these writ petitioners have disputed the liability or the amount already deposited with the banks in pursuance of the orders of the Court. Therefore, we direct that the amounts deposed shall be retained by the concerned banks and adjusted against the liabilities, if any, that remain to be determined pursuant to proceedings initiated by the respective banks in accordance with this judgment.
(k) In view of the declaration in this judgment, the respondent-banks are at liberty to proceed with the recovery of debts due to them, before the appropriate forum and under the appropriate law, in accordance with this judgment.
(l) As the proceedings initiated before the Registrar or any other authority under the 1964 Act were bona fide and as considerable time had been consumed in the litigation in this case also, the respondent-banks shall be entitled to set off the period spent in pursuing their claims before the Registrar or other fora and before this Court, in computing the period for filing appropriate applications/claims before the appropriate authority/Tribunal."
The Full Bench of the Andhra Pradesh High Court declared Sections 61 and 71 of the APCS Act, 1964 invalid being beyond legislative competence of the State and also in clear and direct conflict with the provisions of 'the RDB Act'.
In interpreting the provisions of the two enactments, the Bench has employed the 'Doctrine of Reading Down'.
We have carefully perused the judgments of the Full Benches of the High Courts of Bombay and Andhra Pradesh impugned before this Court by the aggrieved parties. Before proceeding further to consider the legal question referred to the larger Bench, the provisions of the various Statutes relevant for our purpose may be first noticed.
THE MAHARASHTRA CO-OPERATIVE SOCIETIES ACT, 1960
[the MCS ACT, 1960]
The MCS Act, 1960 was promulgated and came into force on 26th day of January, 1962 relating to co-operative societies with a view to providing for the systematic development of the co-operative movement in the State of Maharashtra in accordance with the Directive Principles of State Policy enunciated in the Constitution of India. The object and the working of the co-operative banks had become so large that it was found necessary to extract more important provisions of the Banking Regulation Act, 1949 ['the BR Act'] and allied provisions of the Reserve Bank of India Act, 1934 ['the RBI Act'] to the co-operative banks in public interest.
Section 2 (10) of the MCS Act, 1960 defines "co-operative bank" to mean a society which is doing the business of banking as defined in clause (b) of sub-section (1) of Section 5 of the Banking Companies Act, 1949 and includes any society which is functioning or is to function as a Co-operative Agriculture and Rural Multi-purpose Development Bank under Chapter XI. In Section 2(6) of the MCS Act, 1960 - "Central Bank" means a co-operative bank, the objects of which include the creation of funds to be loaned to other societies; but does not include the urban co-operative bank. Section 91 of the MCS Act, 1960 in Chapter IX deals with settlement of any dispute touching the constitution, conduct of general meetings, management or business of a society etc. to the Co- operative Court. Section 101 provides for recovery of arrears due to certain societies as arrears of land revenue in pursuance of the certificate granted by the Registrar. Under Section 18A of the Act, the Registrar is competent to amalgamate one or more co-operative banks in public interest or in order to secure their proper management.
Section 36 under Chapter IV makes every registered society as a corporate body having perpetual succession and common seal which acts through a Committee for management with rest of its authority being in General Body of members in meetings as provided in Sections 55, 72 and 73.
Section 43 provides that a society shall receive deposits and loans from members and other persons, only to such extent, and under such conditions, as may be prescribed or specified by bye-laws of the society. Section 44 regulates the loan making policy of a society. This Section provides that the society shall not make a loan to any person other than a member, or on the security of its own shares, or on the security of any person who is not a member. It empowers the Government to prohibit, restrict or regulate the lending of money by any society or class of societies on the security of any property. Section 50 under Chapter V provides for direct subscription by the State Government to the share capital of a society with limited liability upon such terms and conditions as may be agreed upon. Section 64 provides that no part of the funds other than the net profits of a society shall be paid by way of bonus or dividend, or otherwise distributed among its members. Chapter VII deals with Management of Societies.
Section 72 provides that the final authority of every society shall, subject to the provisions of this Act and the Rules vests in the general body of members in general meeting. Section 73 empowers Committee to manage the society. Chapter VIII deals with Audit, Inquiry, Inspection and Supervision of the societies. Section 81 provides that the Registrar shall audit, or cause to be audited at least once in each co-operative year, by a person authorized by him by general or special order in writing in this behalf the account of every society which has been given financial assistance including guarantee by the State Government. Section 83 empowers the Registrar to conduct an inquiry into the constitution, working and financial conditions of a society. Chapter IX deals with Settlement of Disputes. A dispute touching the constitution, elections of the Committee or its officers other than election of committees of the specified societies including its officer, conduct of general meetings, management or business of a society is covered under sub-section (1) of Section 91 of the MCS Act, 1960. The settlement of disputes including the recovery of loan by a society from its members or sureties lies with the Co-operative Court. The Civil Court has no jurisdiction to try and entertain the suit in regard to the dispute which fall both in the purview of sub-section (1) of Section 91 of the Act. Section 92 regulates the period of limitation for different types of disputes mentioned in it and the disputes of the nature as provided in Section 91 has to be tried as a suit by the Co-operative Court as a Civil Court.
Section 94 lays down the procedure for settlement of disputes and power of Co-operative Court. The Co-operative Court or the Registrar or the authorized person, as the case may be, if satisfied on inquiry or otherwise that a party to such dispute or the person against whom proceedings are pending under Section 88, with intent to defeat, delay or obstruct the execution of any award or the carrying out of any order that may be made is empowered to direct additional attachment of the property under Section 95. Any party aggrieved by any decision of the Co-operative Court or order passed by the Co- operative Court or the Registrar or the authorized person under Section 95 is at liberty to file appeal before the Co- operative Appellate Court under Section 97. Section 98 provides that orders mentioned therein if not carried out on a certificate signed by the Registrar or the Co-operative Court or a liquidator shall be executed in the same manner as a decree of civil court and shall be executed in the same manner as a decree of such court or be executed according to law and under the Rules for the time being in force for the recovery of arrears of land revenue. An application for such a recovery to be made to the Collector shall be accompanied by a certificate signed by the Registrar and shall be made within twelve years from the date fixed in the order and if no such date is fixed from the date of the order. Recovery Certificate is issued by the Registrar under sub-section (1) of Section 101 of the MCS Act, 1960 and the mode for recovery of the amount is under Section 156 of the Act. Chapter X deals with liquidation of the societies. Section 102 empowers the Registrar to issue an interim order of winding up of the society. An appeal against the winding up of the society shall be made by the aggrieved party to the State Government under Section 104. Section 105 lays down the powers of the liquidator. Cognizance by the Civil Court of any matter connected with the winding up or dissolution of a society under this Act is barred under Section 107.
THE ANDHRA PRADESH CO-OPERATIVE SOCIETIES ACT,
1964 [THE APCS ACT, 1964]
The Andhra Pradesh State Co-operative Bank Limited was formed by the amalgamation of the previous Andhra Pradesh State Co-operative Bank Limited, Vijayawada No.
2120 and Hyderabad Co-operative Apex Bank Limited, Hyderabad, under the Andhra Pradesh Co-operative Bank (Formation) Act, 1963 and by the merger of the Andhra Pradesh Central Agricultural Development Bank Limited, Hyderabad, under Act 14 of 1994 and was deemed to be registered as a Co-operative Society under the Andhra Pradesh Co-operative Societies Act of 1964 [ the APCS Act, 1964].
The APCS Act, 1964 was enacted with Statement of Objects and Reasons to consolidate and amend the law relating to Co-operative Societies in the State of Andhra Pradesh in order to facilitate and strengthen the functioning of Co-operative Societies based on Co-operative principles and Co-operative identity. Section 2 deals with definitions clause.
Clause (f) defines 'financing bank' to mean 'a society, the main object of which is to assist any affiliated or other society by giving loans or advancing moneys; and includes any scheduled bank as defined in the RBI Act and such other body corporate or financial institution as may be notified by the Government from time to time, which gives financial or other aid to a society'. Chapter II of the Act deals with Registration of Societies. A society which has, its main object, the promotion of the economic interests of its members in accordance with the Co-operative principles....., the registration of a society shall render it a body corporate by the name under which it is registered having perpetual succession and a common seal in terms of Section 9. In Chapter III, Section 19 prescribes the eligibility for membership of the Society. Under Chapter IV, the Management of Societies ultimately shall vest in the General Body, whereas Section 30-A empowers the General Body of every society to constitute a supervisory council to ensure that the affairs of the society are conducted in accordance with the principles of Co-operation, provisions of the Act, Rules, bye-laws and resolutions of the General Body.
The General Body of a society is also empowered to constitute a Committee in accordance with the bye-laws and entrust the management of the affairs of the society to such Committee (Section 31 of the Act). Powers and functions of the Committee are provided under Section 31-A. Chapter V deals with the Rights and Privileges of the Societies. Under Section 35, the society has preferential charge upon the crop or other agricultural produce, cattle fodder for cattle, agricultural or industrial implements etc. owned by a member including a past or deceased member who is in default of payment of any debt or other amount due to a society. Such charge shall be available even as against any amount recoverable by the Government as if it were an arrear of land revenue. Section 47 empowers a society to receive deposits and raise loans only to such extent and under such conditions as may be specified in the bye-laws. Sub-section (2) prohibits the society from granting a loan to any person other than a member, but if general or special sanction is obtained from the Registrar, the society may grant loans to another society or its employees on such terms as may be specified in the bye-laws. Chapter VII deals with Audit, Inquiry, Inspection and Surcharge. Section 50 lays down that there shall be a separate wing for audit in the Co-operative Department headed by the Chief Auditor who will work under the general superintendence and control of the Registrar of Co-operative Societies. The Chief Auditor shall audit or cause to be audited by a person authorized by him by a general or special order in this behalf, the accounts of a society at least once in every year and shall issue or cause to be issued an audit certificate. The Registrar is also authorized under Section 51 to hold an inquiry into the constitution, working and financial condition of the society, either suo motu or on the application of the society to which the society concerned is affiliated. Under Section 52, the Registrar may, on his own motion or on the application of a creditor of a society, inspect or direct any person authorized by him by a general or special order in this behalf to inspect the books of the society. Accounts and Books etc. of the societies are to be maintained and kept by the Chief Executive Officer of every society and the President of the society jointly and severally.
Chapter VIII of the APCS Act, 1964 deals with Settlement of Disputes touching the constitution, management or the business of a society, other than a dispute regarding disciplinary action taken by the society or its committee against a paid employee of the society. Explanation to Section 61 prescribes the nature of the dispute for the purposes of sub-section (1) to include a claim by a society for any debt or other amount due to it from a member, past member, the nominee, heir or legal representative of a deceased member, whether such debt or other amount be admitted or not and a claim by surety against the principal debtor where the society has recovered from the surety any amount in respect of any debt or other amount due to it from the principal debtor as a result of the default of the principal debtor whether such debt or other amount due to be admitted or not. All such disputes, which are enumerated under Section 61 of the Act, shall be referred to the Registrar for decision. The Registrar is empowered to decide the dispute himself or transfer it for disposal to any person who has been invested by the Government with powers in that behalf or refer it for disposal to an arbitrator under Section 62 of the Act. Section 63 empowers the financing bank to proceed against members of a society for recovery of moneys due to it from such society.
Under Section 64 contained in Chapter IX, if the Registrar, after an inquiry held under Section 51 or an inspection made under Section 52 or on receipt of an application made by not less than two-thirds of the members, is of the opinion that the society ought to be wound up, he may after giving the society an opportunity of making its representation, by order direct it to be wound up. Where the order of winding up is made under Section 64, the Registrar may appoint a Liquidator for that purpose under Section 65. Chapter X deals with Execution of Decisions, Decrees and Orders. The Registrar or any person authorized by him in this behalf is authorized to recover certain amount due under a decision or an order of the Registrar, or any person authorized by him, or an arbitrator by attachment and sale of property and execution of the orders.
The recovery of any amount may be executed by the Civil Court having local jurisdiction on a certificate signed by the Registrar or any person authorized by him in this behalf as if the order or decision were a decree of that Court; or by the Collector, on an application made to him within twelve years from the date fixed for payment in the order or decision and if no such date fixed from the date of the order or decision, along with a certificate signed by the Registrar or by any person authorized by him in this behalf, as if the amount due under the order or decision were an arrear of land revenue. Section 71 provides for recovery of debts. It reads: "(1) Notwithstanding anything in this Act or in any other law for the time being in force and without prejudice to any other mode of recovery which is being taken or may be taken, the Registrar may, on the application made by a society or financing bank or federal society as the case may be, for the recovery of arrears of any sum advanced to any of its members and on furnishing a statement of accounts in respect of the arrears and after making such inquiry as he deems fit issue a certificate for the recovery of the amount stated therein to be due as arrears." If a society has failed to take action under sub-section (1) in respect of any amount due as arrears, the Registrar, after satisfying himself, may on his own motion issue a certificate for the recovery of the amount stated therein to be due as arrears and such a certificate shall be deemed to have been issued on an application made by the society concerned [sub-section (2)]. A certificate issued by the Registrar under sub-section (1) or sub-section (2) shall be final and conclusive proof of the arrears stated to be due therein and the certificate shall be executed in the manner specified in sub-section (2) of Section 70. The Registrar or any person authorized by him in this behalf shall be deemed, when exercising any power under this Act for the recovery of any amount by the attachment and sale or by sale without attachment of any property, or when passing any orders on any application made to him for such recovery, or to take steps in aid of such property to be a Civil Court for the purpose of Article 182 of the First Schedule to the Indian Limitation Act, 1908 in terms of Section 72. Under Section 73, the Registrar is also empowered to make attachment of property before decision or order unless adequate security is furnished by a person, who is found to be defaulter of the loan of the society to direct the attachment of the said property before decision or the order.
Chapter XI deals with Appeal, Revision and Review.
Under Section 75, the Government, for the purpose of this Act, is competent to constitute as many tribunals as may be necessary for such area or areas as may be specified in the Notification. The Tribunal shall consist of a Chairman and not more than two other members to be appointed by the Government. The Chairman shall be a person who is or has been a judicial officer not below the rank of a District Judge and a member shall be a person, who holds or has held a post not below the rank of Additional Registrar of Co-operative Societies. Any person or society aggrieved by any decision passed or order made by the Registrar or any other person authorized under the various provisions of the Act enumerated in Section 76 is free to file an appeal to the Tribunal. The Registrar under Section 77 is empowered to exercise the powers of revision either on his own motion or an application made to him by the aggrieved party.
THE MULTI-STATE CO-OPERATIVE SOCIETIES ACT,
2002 ['THE MSCS ACT, 2002']
The Multi-State Co-operative Societies Act, 1984 was enacted by the Parliament and Section 74 thereof deals with various disputes including recovery of debts due to the co- operative banks. Parliament repealed the Multi-State Co- operative Societies Act, 1984 by the Multi-State Co-operative Societies Act, 2002 [''the MSCS Act, 2002'').
The object of the MSCS Act, 2002 was to consolidate and amend the law relating to co-operative societies, with objects not confined to one State and serving the interests of members in more than one State, to facilitate the voluntary formation and democratic functioning of co-operatives as people's institutions based on self-help and mutual aid and to enable them to promote their economic and social betterment and to provide functional autonomy and for matters connected therewith or incidental thereto.
In Section 3(f) of the MSCS Act, 2002, a 'co-operative bank' means a multi-State co-operative society, which undertakes 'banking business'. Section 3(h) defines a 'co- operative society' to mean 'a society registered or deemed to be registered under any law relating to co-operative societies for the time being in force in any State'. In terms of Section 3(p), a 'multi-State co-operative society' means 'a society registered or deemed to be registered under this Act and includes a national co-operative society and a federal co-operative'.
Chapter IV of the Act deals with members of multi-State co- operative societies and their duties, rights and liabilities.
Settlement of disputes touching the constitution, management or business of a multi-State co-operative society are to be referred to an arbitration under Section 84 of Chapter IX of the Act. The order or decision recorded by the Authority under Section 39 or Section 40 or Section 83 or Section 99 or Section 101 can be executed in the manner provided in Chapter XI of the Act. Section 99 and Section 101 under Chapter XII provide for appeals to the Appellate Authority and review of its orders. Section 22 of the MSCS Act, 2002 provides for conversion of a Co-operative Society into a Multi-State Co- operative Society by an amendment in its bye-laws with the approval of the Central Registrar who shall consult the Registrars of co-operative societies of the State concerned.
The Act provides for its own machinery for registering multi- State societies and for federal co-operatives thereunder as also the rights of the members, directors and managements and other matters like privileges, properties and funds and matters connected therewith as well as machinery for settlement of disputes and winding up thereof as set out in about 38 Sections of the said Act beginning from Chapter VII to Chapter XIV.
THE RESERVE BANK OF INDIA ACT, 1934 [the RBI ACT]
In Section 2 (i) of the RBI Act, "co-operative bank", "co- operative credit society", "director", "primary agricultural credit society", "primary co-operative bank" and "primary credit society" shall have the meanings respectively assigned to them in Part V of the Banking Regulation Act, 1949.
Chapter III-A of RBI Act deals with Collection and Furnishing of Credit Information. In Section 45A (a) "banking company" means a banking company as defined in Section 5 of the Banking Regulation Act, 1949 (10 of 1949) and includes the State Bank of India, [any subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), any corresponding new bank constituted by section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), and any other financial institution notified by the Central Government in this behalf]".
THE BANKING REGULATION ACT, 1949 (the BR ACT):
This Act was brought into force on 16th March 1949. Section 3 of the BR Act clearly provides that the Act would apply to Co- operative Societies in certain cases, subject to the provisions of Part V of the Act. The BR Act defines "banking company"
under Section 5 (c) as follows:- (c) "banking company" means any company which transacts the business [in India]."
In Section 5(d) "company" means any company as defined in section 3 of the Companies Act, 1956 (1 of 1956);
and includes a foreign company within the meaning of section 591 of that Act.
Chapter V of the BR Act was inserted by Act 23 of 1965 w.e.f. 1.3.1966. Section 56 of the Act provides that the provisions of this Act, as in force for the time being, shall apply to, or in relation to, banking companies subject to the following modifications namely :- "Throughout this Act, unless the context otherwise requires:-- (i) references to a "banking company" or "the company" or "such company" shall be construed as references to a co-operative bank;
(ii) ..............................................................................."
The purpose and object of modifications were to regulate the functioning of the co-operative banks in the matter of their business in banking. The provisions of Section 56 itself starts with the usual phrase "unless the context otherwise requires"
is to make the regulatory machinery provided by the BR Act to apply to co-operative banks also. The object was not to define a co-operative bank to mean a banking company, in terms of Section 5 (c) of the BR Act. This is apparent from the fact that instead of amending the original clause (c) of Section 5 separate clause (cci) was added to cover the 'co-operative bank' to mean 'a state co-operative bank, a central co-operative bank and a primary co-operative bank'. In clause (ccv) 'primary co-operative bank' means 'a co-operative society, other than a primary agricultural credit society. The primary object or principal business of the 'Co-operative Bank' should be the transaction of banking business. The modifications given in clause (a) of Section 56 are apparently suitable to make the regulatory machinery provided by the BR Act to apply to co-operative banks also in the process of bringing the co-operative banks under the discipline of Reserve Bank of India and other authorities. A co-operative bank shall be construed as a banking company in terms of Section 56 of the Act. This is because the various provisions for regulating the banking companies were to be made applicable to co-operative banks also. Accordingly, Section 56 brought co-operative banks within the machinery of the BR Act but did not amend or expand the meaning of "banking company" under Section 5(c). On a plain reading of every clause of Section 56 of the BR Act, it becomes clear that what is contained therein is only for the purpose of application of provisions that regulate banking companies to co-operative societies. According to the expression "co-operative societies" used in Section 56 means a "co-operative society", the primary object or principal business of which is the transaction of banking business. In other words, first it is a co-operative society, but carrying on banking business having the specified paid up share capital.
Other definitions also make it clear that the entities are basically co-operative societies.
THE SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY
INTEREST ACT, 2002 [SECURITISATION ACT].
The Parliament had enacted the Securitistion and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ['the Securitisation Act'] which shall be deemed to have come into force on 21st day of June 2002. In Section 2(d) of the Securitisation Act same meaning is given to the word 'banking company' as is assigned to it in clause (e) of Section 5 of the BR Act. Again the definition of 'banking company' was lifted from the BR Act but while defining 'bank', Parliament gave five meanings to it under Section 2(c) and one of which is 'banking company'. The Central Government is authorized by Section 2 (c)(v) of the Act to specify any other bank for the purpose of the Act. In exercise of this power, the Central Government by Notification dated 28.01.2003, has specified "co-operative bank" as defined in Section 5 (cci) of the BR Act as a "bank" by lifting the definition of 'co-operative bank' and `primary co-operative bank' respectively from Section 56 Clauses 5(cci) and (ccv) of Part V. The Parliament has thus consistently made the meaning of 'banking company' clear beyond doubt to mean 'a company engaged in banking, and not a co-operative society engaged in banking' and in Act No. 23 of 1965, while amending the BR Act, it did not change the definition in Section 5 (c) or even in 5(d) to include co-operative banks; on the other hand, it added a separate definition of 'co-operative bank' in Section 5 (cci) and 'primary co-operative bank' in Section 5 (ccv) of Section 56 of Part V of the BR Act.
Parliament while enacting the Securitisation Act created a residuary power in Section 2(c)(v) to specify any other bank as a bank for the purpose of that Act and in fact did specify 'co- operative banks' by Notification dated 28.01.2003. The context of the interpretation clause plainly excludes the effect of a reference to banking company being construed as reference to a co-operative bank for three reasons: firstly, Section 5 is an interpretation clause; secondly, substitution of 'co-operative bank' for 'banking company' in the definition in Section 5 (c) would result in an absurdity because then Section 5 (c) would read thus: "co-operative bank" means any company, which transacts the business of banking in India;
thirdly, Section 56 (c) does define "co-operative bank"
separately by expressly deleting/inserting clause (cci) in Section 5. The Parliament in its wisdom had not altered or modified the definition of 'banking company' in Section 5 (c) of the BR Act by Act No.23 of 1965.
As noticed above, "Co-operative bank" was separately defined by the newly inserted clause (cci) and "primary co- operative bank" was similarly separately defined by clause (ccv). The meaning of 'banking company' must, therefore, necessarily be strictly confined to the words used in Section 5(c) of the BR Act. If the intention of the Parliament was to define the 'co-operative bank' as 'banking company, it would have been the easiest way for the Parliament to say that 'banking company' shall mean 'banking company' as defined in Section 5(c) and shall include 'co-operative bank' and 'primary co-operative bank' as inserted in clauses (cci) and (ccv) in Section 5 of Act 23 of 1965.
THE RECOVERY OF DEBTS DUE TO BANKS AND
FINANCIAL INSTITUTIONS ACT, 1993 (''the RDB Act'').
The Recovery of Debts Due to Banks and Financial Institutions Act, 1993['the RDB Act'] was enacted by the Parliament with the objects and reasons for the recovery of the debts due to the banks. Before the coming into force of the RDB Act, the banks were approaching Civil Courts for recovery of their debts from the defaulters by filing civil suits before the Civil Courts of competent jurisdiction. After the coming into force of the RDB Act on the 25th day of June 1993, the jurisdiction of the Civil Courts was taken away. The decision to have separate Bank Tribunals was taken by the Central Government after considering the increasing workload of the Civil Courts and delay in disposal of the bank suits. The Statement of Objects and Reasons for the enactment of the RDB Act are that the banks and financial institutions at present experience considerable difficulties in recovering loans and enforcement of securities charged with them. The existing procedure for recovery of debts due to the banks and financial institutions has blocked a significant portion of their funds in unproductive assets, the value of which deteriorates with the passage of time. The Committee on the financial system headed by Shri M. Narasimham has considered the setting up of the Special Tribunals with special powers for adjudication of such matters and speedy recovery as critical to the successful implementation of the financial sector reforms. An urgent need was, therefore, felt to work out a suitable mechanism through which the dues to the banks and financial institutions could be realized without delay. In 1981, a Committee under the Chairmanship of Shri T. Tiwari had examined the legal and other difficulties faced by banks and financial institutions and suggested remedial measures including changes in law.
The Tiwari Committee had also suggested setting up of Special Tribunals for recovery of dues of the banks and financial institutions by following a summary procedure. The setting up of Special Tribunals will not only fulfill a long-felt need, but also will be an important step in the implementation of the Report of Narasimham Committee. Whereas on 30th September, 1990 more than fifteen lakhs of cases filed by the public sector banks and about 304 cases filed by the financial institutions were pending in various Courts, recovery of debts involved more than Rs.5622 crores in dues of Public Sector Banks and about Rs.391 crores of dues of the financial institutions. The locking up of such huge amount of public money in litigation prevents proper utilization and re-cycling of the funds for the development of the country.
The provisions of the RDB Act, which are relevant, are referred to in the following paragraphs.
Section 2(d) defines "banks" to mean (i) a banking company; (ii) a corresponding new bank; (iii) State Bank of India; (iv) a subsidiary bank; or (v) a Regional Rural Bank. In terms of clause (e) "banking company" shall have the meaning assigned to it in clause (c) of Section 5 of the BR Act. Chapter II of 'the RDB Act' provides for establishment of Tribunal(s) and Appellate Tribunal(s) and the qualifications of person(s) for appointment as Presiding Officer of the Tribunal and a Chairperson of the Appellate Tribunal, their term of office and other service conditions. Section 17 in Chapter III provides for Jurisdiction, Powers and Authority of Tribunals. Section 18 bars the jurisdiction of a Civil Court in relation to the matters specified in Section 17.
Chapter IV prescribes procedure, powers and jurisdiction of the Tribunals and Appellate Tribunals and application of the provisions of the Limitation Act, 1963. Chapter V of the RDB Act emphasizes mode of recovery of debts/loans by the Tribunal/Recovery Officer.
ENTRIES 43, 44 & 45 OF LIST I AND ENTRY 32 OF LIST II OF THE SEVENTH SCHEDULE OF THE CONSTITUTION OF INDIA The legislative field in constitutional terms has to be determined in terms of Articles 245 and 246 and Entries 43, 44 and 45 of List I and Entry 32 of List II of Seventh Schedule of the Constitution of India.
Entry 43 of List I of the Seventh Schedule is as follows:
"43. Incorporation, regulation and winding up of trading corporations, including banking, insurance and financial corporations, but not including co-operative societies."
Entry 44 is as follows:- "Incorporation, regulation and winding up of corporations, whether trading or not, with objects not confined to one State, but not including universities."
Entry 45 is as follows:- "Banking."
Entry 32 of List II is as follows:- "32. Incorporation, regulation and winding up of corporations, other than those specified in List I, and universities; unincorporated trading, literacy, scientific, religious and other societies and associations; co-operative societies."
In the light of the factual situation and having gone through the above-said relevant provisions of different Statutes and relevant Entries of Lists I and II of the Seventh Schedule of the Constitution, we have heard the learned counsel for all the parties and with their assistance we have gone through the decisions brought before us by them.
Mr. S. Ganesh, learned Senior Advocate appearing on behalf of the appellant in Civil Appeal Nos.432 to 434 of 2004, vehemently contended that the High Court of Bombay completely failed to appreciate the meaning of "banking company" as defined in Section 5(c) of the BR Act which clearly and indisputably does not cover or include a 'co- operative bank' registered under the MCS Act, 1960 or the MSCS Act, 2002. He submitted that Section 56 of the BR Act did not amend the definition of 'banking company' in terms of Section 5 (c), but for all intents and purposes Act No.23 of 1965 merely extends the application of the provisions of the BR Act to 'a co-operative bank' even though it is not a 'banking company' as defined in Section 5(c). He contended that the Parliament in its wisdom did not make the RDB Act applicable to all banks to which the provisions of the BR Act were made applicable. It was urged that the reason why co-operative banks were excluded from the ambit of the operation of 'the RDB Act by confining the said Act only to a "banking company" as defined in Section 5(c) of the BR Act was that under the MCS Act, 1960 Act and the MSCS Act, 2002 co- operative banks established under the Societies Act had an effective and speedy machinery for recovery of their dues and, therefore, it was neither necessary nor beneficial to make the RDB Act applicable to co-operative banks for the recovery of dues from their members under the respective State Co- operative Legislations. He next contended that the co- operative banks established under the MCS Act, 1960 and the MSCS Act, 2002 and transacting the business of banking shall advance loan to their members only as per the provisions contained in both these Statutes and not to any other person.
Therefore, under these enactments "co-operative banks" can only recover their dues from their members, whereas the RDB Act will be applicable to all other banks, which have advanced loan to any person/society/corporation/industry, etc. etc.
without any stipulation of membership of the Banks.
Mr. Amar Dave, Advocate appearing in IA Nos.10-11 of 2006 in Civil Appeal No.432 of 2004, submitted that as per the Scheme of the BR Act, the legislative intention is to classify co- operative banks as completely a separate category and the same cannot be included in "Banking Company" in terms of Section 5 (c) of the Act. He contended that it has been well demonstrated from the Statement of Reasons and Objects behind the passing of the RDB Act itself, that the same was enacted merely for expeditious adjudication and recovery of debts due to Banks and Financial Institutions. The Committees formed prior to the enactment of the RDB Act also more or less did not cover the co-operative banks for the purposes of the recommendations in general for improving the recovery system. He next contended that the recovery of debts by the co-operatives from their members are covered by specific Acts such as the Co-operative Societies Acts of the States, which are comprehensive and self-contained legislations. Further submission was that for multi-state co- operatives, there is a specific enactment in the form of the MSCS Act, 2002 comprehensively providing the legal framework in respect to issues pertaining to such co- operatives. Therefore, co-operative banks are, in any case, not covered by the provisions of the RDB Act by invoking the doctrine of incorporation. He next submitted that the State's power under List II, Entry 32 of Seventh Schedule of the Constitution is not subject to or subordinate to the power of the Union List I, Entry 45.
Dr. Rajeev Dhavan, learned Senior Advocate, appearing for respondents in Civil Appeal No. 6069/2005 was requested to assist the Court in those matters which were listed on the Board on the day when the matters were heard. He contended that both List I, Entries 43 and 45 as well as List II, Entry 32 of the Seventh Schedule must be given the widest possible interpretation in their respective spheres. He submitted that although Article 246 (1) begins with a non-obstante clause, easy recourse should not be made to the non-obstante clause without first making an effort of reconciliation between the Union and the State Entries. In other words, under a federal set up, the States are not to be readily denuded of powers which the Constitution makers gave to them as exclusively reposted in them. He contended that it was really the intention of the Constitution makers to ensure that the provision is made for Peoples' co-operatives and the idea of co- operatives and people are necessarily interlinked associations and organizations. Learned senior counsel made a reference to a decision of this Court in Zoroastrian Co-operative Housing Society Ltd. v. District Registrar, Co-operative Societies (Urban) [(2005) 5 SCC 632] at Para 15:
"...... The co-operative movement by its very nature, is a form of voluntary association where individuals unite for mutual benefit in the production and distribution of wealth upon principles of equity, reason and common good....".
He then contended that on plain reading of definitions of 'bank' [Section 2(d)]; 'banking company' [Section 2(e)], 'debt' [Section 2(g)] and 'financial institution' [Section 2(h)] of the RDB Act, it becomes clear that the Act is concerned with debts of corporate banks and financial institutions which were constituted under List I, Entry 43 and the concept of 'banking' under Section 5(b) of the BR Act is very different from the activity of a 'financing bank' under the APCS Act, 1964.
Mr. K. N. Bhat, learned Senior Advocate appearing on behalf of the Reserve Bank of India in SLP (C) No.22621 of 2005 contended that the pith and substance of the Co- operative Societies Acts enacted by various States must be taken into consideration and not a particular activity of the society. He next contended that the expression "co-operative bank" in Section 56(cci) means a 'State Co-operative Bank', a 'Central Co-operative Bank' and definition of 'Primary Co- operative Bank' in clause (ccv) means a 'co-operative society' the primary object or principal business of which is the transaction of banking business and no attempt is made by the Parliament to amend Section 5(c) of the BR Act to include 'co-operative societies' doing the business of banking within the meaning of 'banking company' as defined in Section 5 (c) of the RDB Act.
Mr. Bhim Rao Naik, learned senior counsel appearing on behalf of the Cosmos Co-operative Bank Ltd. in Civil Appeal No.436 of 2004, submitted that the definition of 'banking company' under Section 2(d)(i) of the RDB Act on its plain reading indicates that it does not refer to co-operative banks, but to companies incorporated under the Companies Act. He contended that Section 56 of the BR Act creates a fiction only for the purposes of the said Act and cannot be applied to another Act, viz., the RDB Act in the absence of any indication to that effect. He next contended that the State Legislature by virtue of Entry 32, List II of the Seventh Schedule has the power to make law with respect to co-operative societies including societies doing banking business. Learned counsel also contended that the MCS Act, 1960 and the MSCS Act, 2002 both deal with their members and as per regulation of loan making policy, loan can be given to the members only of the societies subject to certain exceptions and in any event under Entry 43, List I, the Parliament cannot legislate on incorporation of Co-operative Societies since Co-operative Societies are excluded in Entry 43 of List I of the Seventh Schedule to the Constitution.
Mr. Vinod A. Bobde, learned senior counsel appearing on behalf of the State of Andhra Pradesh in SLP (C) Nos. 25246- 25247 of 2005, challenging the judgment and order of the High Court of Andhra Pradesh, strenuously contended that Section 56 was inserted in the BR Act to make that Act applicable with modifications to co-operative banks with the main object to regulate the functioning of the co-operative banks in the matter of their business as the banking
