Allahabad HC: Cooperative Bank's Multi-State Status Denied for Failing to Prove Inter-State Objects and Lacking RBI's Prior NOC - 2025-02-10

Covering Law & Justice.

Allahabad High Court Upholds Rejection of Century-Old Co-operative Bank's Multi-State Status

Allahabad, UP – In a significant ruling with wide-ranging implications for co-operative banks, the Allahabad High Court has dismissed a writ petition filed by The Mechanical Department Primary Co-operative Bank, a century-old institution, upholding the Central Registrar's decision to deny it registration as a Multi-State Co-operative Society.

The division bench, comprising Hon'ble Mr. Justice Anjani Kumar Mishra and Hon'ble Mr. Justice Jayant Banerji , held that the bank failed to provide conclusive evidence that its "objects" historically extended beyond a single state. Crucially, the court also affirmed the Central Registrar's reliance on a Reserve Bank of India (RBI) circular that mandates prior permission for amending a co-operative bank's area of operation.

Case Background: A Tug-of-War Over Jurisdiction

The petitioner, The Mechanical Department Primary Co-operative Bank Limited, was first registered in 1919 under the Co-operative Societies Act, 1912. The bank argued that it had been operating across Uttar Pradesh, Bihar, and Uttarakhand for decades, catering to employees of the North Eastern Railway, and should therefore be "deemed registered" under the successive Multi-State Co-operative Societies Acts of 1942, 1984, and finally, 2002.

The dispute stemmed from an order dated December 26, 2018, by the Central Registrar of Co-operative Societies, which rejected the bank's application for multi-state status. This followed a series of litigations where the High Court had previously directed the Registrar to reconsider the bank's claim.

Key Arguments Presented

Petitioner's Stance: The bank contended that its long-standing operations in multiple states and previous actions by the Central Registrar—such as appointing returning officers for elections and corresponding with authorities in Bihar—implicitly recognized its multi-state character. They argued that under the savings clauses of various co-operative laws, their registration should have automatically transitioned to a multi-state status.

Respondents' Position: The Union of India and the Central Registrar countered that the bank's by-laws were registered under the Uttar Pradesh state act and had never been amended under any central multi-state legislation. More significantly, they pointed to an RBI circular requiring its prior approval (No Objection Certificate) for any bank to expand its area of operation, which the petitioner had not obtained. The RBI also submitted that the bank was not financially sound as per its criteria.

Legal Principles and Court's Reasoning

The High Court meticulously analyzed the legislative history of co-operative societies in India, from the 1912 Act to the current Multi-State Co-operative Societies Act, 2002. The judgment hinged on three primary questions:

1. Proof of Multi-State Objects: The court found that despite claims of having members in other states, the bank failed to produce conclusive evidence, such as certified by-laws, proving its 'objects' were not confined to one state. The court noted, " for want of any certified copy or admitted copy of the by-laws or of the amendments to the by-laws duly registered, no conclusion regarding the area of operation or objects of the petitioner-bank being not confined to one State, can be drawn. "

2. Demonstration of Registration: Consequently, the court held that the bank could not benefit from the "deeming" provisions of the central acts and had failed to demonstrate it was ever formally registered as a multi-state entity.

3. Supremacy of RBI Regulations in Banking: The most pivotal part of the judgment dealt with the RBI's regulatory power. Citing the Supreme Court's constitution bench judgment in Pandurang Ganpati Chaugule Vs. Vishwasrao Patil Murgud Sahakari Bank Limited , the High Court emphasized the "deep and pervasive control" of the RBI over co-operative banks. It ruled that banking activities fall under the Union List (Entry 45, List I) of the Constitution, giving parliamentary laws like the Banking Regulation Act, 1949, and RBI's statutory circulars overriding authority.

The Court observed:

"The circular of the Reserve Bank of India having statutory force and in view of the deep and pervasive control of the Reserve Bank of India on cooperative banks, given the provisions of the B.R. Act, even if the circular incidently trenches on the provisions of the Act, 2002... the same is permissible..."

The Final Verdict and Its Implications

The High Court dismissed the writ petition, thereby upholding the Central Registrar's order. The court affirmed the RBI's 2017 directive requiring the bank to close its payment counter in Samastipur, Bihar, and cancel memberships from other states.

The judgment clarifies that co-operative societies engaged in banking cannot claim multi-state status based on historical operations alone. They must meet the dual requirements of formal registration under the MSCS Act and adherence to the stringent regulatory framework of the RBI, including obtaining prior approval for any expansion of operations. The court directed the bank to deal with deposits from out-of-state members strictly as per RBI's future directions and left it open for the bank to apply for registration as a Uni-State Co-operative Bank, subject to RBI's prior approval.