Supreme Court: RBI Can Supersede Multi-State Co-op Bank Board Beyond Six-Month Limit

The Supreme Court of India has affirmed the Reserve Bank of India's (RBI) authority to supersede the board of a multi-state co-operative bank for a period extending beyond the six-month ceiling prescribed under Article 243ZL(1) of the Constitution. A bench comprising Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe dismissed appeals challenging the Bombay High Court's judgment, which had upheld the RBI's decision to supersede and continue the supersession of the board of Abhyudaya Co-operative Bank Limited.

Background of the Dispute

Abhyudaya Co-operative Bank, originally a state-level society, became a multi-state co-operative bank after amalgamating with banks in Gujarat and Karnataka. In May 2019, the appellants were elected to its board of directors for a five-year statutory term. Citing a dangerous deterioration in the bank's financial health and the need to protect depositors, the RBI passed an order on November 24, 2023, superseding the board for one year and appointing an administrator.

While the appellants' writ petitions challenging this order were pending before the Bombay High Court, their term expired on May 24, 2024. The RBI subsequently extended the supersession for another year on November 18, 2024, and again on November 7, 2025. The High Court dismissed the petitions in November 2024, holding that Section 36AAA of the Banking Regulation Act, 1949 (BR Act) continues to operate despite the constitutional provisions. Aggrieved, the appellants approached the Supreme Court.

Arguments Before the Court

Senior counsel for the appellants, Mr. Devadatt Kamat, argued that the supersession could not continue beyond the six-month limit under Article 243ZL(1) and that successive orders of supersession were ultra vires the constitutional mandate of democratic governance in co-operative societies. He also contended that the proviso to Section 36AAA(1) requiring consultation with the state government was mandatory and had been violated.

The RBI, represented by senior counsel Mr. Jaideep Gupta, countered that the third proviso to Article 243ZL(1) expressly makes the BR Act applicable to co-operative societies carrying on the business of banking, allowing supersession for up to five years. He submitted that the consultation requirement under Section 36AAA applies only to state-level co-operative banks, not to multi-state banks.

Supreme Court's Legal Analysis

The Court began by examining the interplay between Article 243ZL of the Constitution and Section 36AAA of the BR Act. It noted that the third proviso to Article 243ZL(1) employs the words "shall also apply," which, applying the doctrine of incorporation, brings the BR Act into the constitutional framework for multi-state co-operative banks. The Court observed that this proviso is not a mere exception but an independent substantive provision that enlarges the scope of the main article.

The bench relied on the Constitution Bench decision in Pandurang Ganapati Chaugule v. Vishwasrao Patil Murgud Sahakari Bank Ltd. , which held that the BR Act applies to multi-state co-operative societies engaged in banking. It also pointed to the fourth proviso of Article 243ZL, which explicitly excludes multi-state co-operative societies from the extension of the supersession period from six months to one year, confirming that the third proviso was intended to cover such entities.

Rejecting the appellants' argument that the six-month ceiling applies, the Court held that subjecting the RBI's regulatory power to such a rigid period would undermine the object of protecting depositors and maintaining financial stability. "To read the third proviso to Article 243ZL (1) as excluding multi-State co-operative banks from the reach of the BR Act and thereby confining the RBI's regulatory hand to a rigid six-month period… would be to subordinate the protection of depositors and the discipline of the banking system," the Court stated.

On the question of extending supersession beyond the original board's tenure, the Court noted that once the board is superseded, it ceases to exist and all powers vest in the administrator. Section 36AAA(7) obliges the administrator to call a general meeting only upon expiration of the supersession period as specified by the RBI, and the outer limit of five years ensures that elections are not indefinitely deferred.

Key Observations

• "The power of RBI to supersede BoD of a multi-State co-operative bank under Section 36AAA(1) of BR Act is not circumscribed by the 6-month limit prescribed in Article 243ZL (1) of the Constitution ."
• "The third proviso by making the provisions of BR Act also applicable, in case of a multi-State co-operative bank enlarges the scope of main Article that is Article 243ZL (1), instead of restricting its scope, therefore, the same is not a proviso but is an independent provision."
• "The order of supersession passed under Section 36AAA(1) of BR Act can be extended beyond the term of office for which the BoD of a multi-State co-operative bank had originally been elected."
• "The requirement of consultation applies only to a co-operative bank registered with Registrar of Co-operative Societies of a State . The Bank, being admittedly a multi-State co-operative bank, does not fall within that category."

The Verdict and Its Implications

The Supreme Court dismissed the appeals with no order as to costs, upholding the RBI's actions. The judgment clarifies that the RBI's power to supersede the board of a multi-state co-operative bank is not constrained by the six-month constitutional limit but is subject to a maximum of five years under the BR Act. It also confirms that the RBI need not consult the state government before superseding a multi-state bank. This decision reinforces the primacy of the RBI's regulatory oversight over co-operative banks in the interest of depositor protection and financial system stability.