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2007 Supreme(SC) 451
SUPREME COURT OF INDIA
B. N. Agrawal, P. P. Naolekar & Lokeshwar Singh Panta
Greater Bombay Co-op. Bank Ltd-PETITIONER
VERSUS
M/s United Yarn Tex. Pvt. Ltd. & Ors-RESPONDENT
Appeal (civil) 432 of 2004
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]
DATE OF JUDGMENT: 04/04/2007
Co-operative banks are not "banking companies" under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. State legislatures are competent under Entry 32, List II of the Constitution to legislate on co-operative societies, even if they incidentally transact banking business.
Headnote:(A) Recovery of Debts Due to Banks and Financial Institutions Act, 1993 - Section 2(d) - Banking Regulation Act, 1949 - Section 5(c) and 56 - Constitution of India - Seventh Schedule, List I Entries 43, 44, 45 and List II Entry 32 - Applicability of central recovery legislation to co-operative banks - The term "banking company" in the central recovery act refers to the definition in the Banking Regulation Act. Modifications under Section 56 of the Banking Regulation Act are intended to apply regulatory machinery to co-operative banks but do not expand the definition of "banking company" to include them for the purpose of other statutes. There was a conscious exclusion of co-operative banks from the recovery act, as they possess self-contained and efficient recovery mechanisms under state legislations. (Paras concluding Question No. 1)
(B) Legislative Competence - Entry 32, List II vs Entry 45, List I - Power to legislate on co-operative societies is vested in the State Legislature. If a legislation deals in pith and substance with co-operative societies, the fact that it incidentally trenches upon banking does not take it beyond the competence of the State Legislature. Co-operative banks are distinct from corporate banking companies, and their activities are primarily functions in the public domain serving their members. (Paras concluding Question No. 2)
Facts of the case:
Recovery certificates issued by registrars under state co-operative laws were challenged on the ground that after the establishment of tribunals under the central recovery act, state authorities ceased to have jurisdiction. High Courts had held that co-operative banks fall within the meaning of "banking company" and thus their recovery proceedings must be initiated before the central tribunal, with some courts striking down state law provisions as unconstitutional.
Findings of Court:
Co-operative banks established under state or multi-state co-operative acts do not fall within the definition of "banking company" as assigned in the Banking Regulation Act. Consequently, the central recovery act is not applicable to the recovery of dues by co-operatives from their members. The State Legislature is competent to enact legislation regarding co-operative societies that incidentally transact banking business.
Issues: (i) Whether the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 applies to debts due to co-operative banks constituted under state or multi-state co-operative acts? (ii) Whether the State Legislature is competent to enact legislation in respect of co-operative societies incidentally transacting banking business in light of Entry 32, List II of the Seventh Schedule of the Constitution?
Ratio Decidendi: The court reasoned that the central recovery act was designed to alleviate the burden on civil courts for corporate banks, whereas co-operative banks already had accessible recovery mechanisms. The "Doctrine of Incorporation" cannot be used to include entities specifically excluded by the legislative framework. Under the doctrine of pith and substance, the true nature of the state acts is the regulation of co-operative societies, making them valid exercises of power under Entry 32, List II.
Result: Reference answered in the negative regarding the applicability of the recovery act and in the affirmative regarding state legislative competence.
Legal Category Hierarchy
-
constitutional law
-
legislative competence
-
union list
- entry 45 - banking
- entry 43 - incorporation of corporations
-
state list
- entry 32 - co-operative societies
-
union list
- parliamentary supremacy and article 246
-
legislative competence
-
banking and finance
-
recovery of debts
- debt recovery tribunals under rdb act
-
co-operative banks
- definition under banking regulation act
-
recovery of debts
-
co-operative societies
-
regulation and management
- state cooperative societies acts
-
dispute resolution and recovery
- proceedings before registrar and cooperative courts
-
regulation and management
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 Honble 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."
Honble 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 Hyder
