The 5-Judge Constitution bench of the Supreme Court was dealing with a batch of Writ petitions questioning vires of a notification pertaining to the provisions of the Secularization and Reconstruction of Financial Assets and Enforcement of Security Act, 2002 (SARFAESI Act).
Facts:
By the notification issued in 2003, the co-operative bank was brought within the class of banks entitled to seek recourse to the provisions of the SARFAESI Act. Section 2(1)(c) (iva) was inserted into the SARFAESI Act, w.e.f. 15.1.2013. Before that, the co-operative bank and the multi-State co-operative bank took recourse to the SARFAESI Act under the notification issued in 2003. Writ petitions were filed questioning vires of the notification dated 28.1.2003 issued under Section 2(1)(c)(v) of the SARFAESI Act and the insertion of Section 2(1)(c)(iva) to the SARFAESI Act in 2013.
Main issues involved:
- Whether cooperative banks at State and multi-State level are cooperative bank within the purview of the SARFAESI Act?
- Whether provisions of the SARFAESI Act apply to the cooperative banks registered under the MultiState Cooperative Societies Act, 2002 (MSCS Act)?
Supreme Court’s observations:
The Court rejected the argument that 2013 amendment to the SARFAESI Act adding 'mutli-state cooperative bank' in Section 2(1)(c)(iva) was a "colourable exercise of power".
The Constitution Bench comprising Justices Arun Mishra, Indira Banerjee, Vineet Saran, M R Shah and Aniruddha Bose observed that, “The co-operative banks registered under the State legislation and multi-State level co-operative societies registered under the 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 bench further stated that, “The co-operative banks run by the co-operative 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 Supreme Court expounded that the co-operative 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 co-operative banks run by the co-operative societies. The co-operative 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 bench further expounded that “the co-operative banks under the State legislation and multi-State co-operative 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 Apex Court further observed that,
“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 multi-State co-operative 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.”
Supreme Court held:
The Constitution Bench held that "the co-operative banks under the State legislation and multi-State co-operative banks are 'banks' under section 2(1)(c) of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002".
The Apex 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.
The bench stated "We find that 'banking' relating to co-operatives 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".
Case Title: Pandurang Ganpati Chaugule and others v. Vishwasrao Patil Murgud Sahakari Bank Limited
Bench: Justice Arun Mishra, Justice Indira Banerjee, Justice Vineet Saran, Justice M R Shah and Justice Aniruddha Bose
Case Details: CIVIL APPEAL NO. 5674 OF 2009
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