SARFEASI Act Applicable To Cooperative Banks : SC Constitution Bench

Case Name: Pandurang Ganpati Chaugule vs. Vishwasrao Murgud Sahakaribank Limited

Case Number: CIVIL APPEAL NO. 5674 OF 2009

The 5-judge bench comprising of comprising Justices Arun Mishra, Indira Banerjee, Vineet Saran, M R Shah and Aniruddha Bose unanimously held that the Parliament had the legislative competence to bring cooperative banks under the ambit of SARFAESI Act.

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 “colorable exercise of power”. The Court also upheld the 2003 notification issued under the Banking Regulation Act 1949 by which cooperative bank was brought within the class of banks entitled to seek recourse to the provisions of the SARFAESI Act.

The conclusions of the case were as follows:-

The cooperative banks registered under the State legislation and multi State level cooperative 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 cooperative banks run by the cooperative societies registered under the State legislation with respect to the aspects of ‘incorporation, regulation and winding up 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 readable to entry 32 of list II of 7th schedule of constitution of India.

The cooperative 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. It governs the aspect of ‘banking’ of cooperative banks run by the cooperative societies. The cooperative banks cannot carry on any activity without compliance of the provision of the banking regulation Act 1949 and other legislation applicable to such banks relatable to ‘banking’ in entry 45 of List I.

The cooperative banks under the State legislation and multi State cooperative banks are ‘banks’ under section 2(1)(c) of SARFESI,2002.

By Priyanka of SPPU