State Legislature Empowered to Regulate Co-operative Societies Engaged in Banking Business

Kheralu Nagarik Sahakari Bank Ltd. Versus State of Gujarat

Kheralu Nagarik Sahakari Bank Ltd. Versus State of Gujarat - 1998 (2) GLR 1517 Issues involved:
Constitutional validity of Section 71 of the Co-operative Societies Act, Gujarat Act 10 of 1962.

Analysis:
The judgment dealt with the Constitutional validity of Section 71 of the Co-operative Societies Act, Gujarat Act 10 of 1962. The main contention was that Section 71 could not control the affairs of a Society engaged in banking business, as after the amendment by the Banking Laws Act of 1965, such societies fell under Central legislation. It was argued that the State Legislature's powers were limited by Article 245 of the Constitution in this regard. The Court refrained from examining factual controversies and focused solely on the legal question of whether Section 71 remained valid post the Banking Regulation Act amendment in 1965. All parties agreed that the District Co-operative Banks were Co-operative Societies under the Act, registered and conducting banking business as per the Banking Regulation Act. The argument was that the Gujarat Act's provisions could not control these banks' activities due to the Central legislation's authority over banking matters.

The argument presented was that matters concerning the incorporation, regulation, and winding up of Banking Societies, even under the Co-operative Societies Act, fell under Entry 43 of List 1 of the Seventh Schedule. It was contended that Entry 45 also covered banking activities of Co-operative Societies. However, the State Legislature's power to legislate on Co-operative Societies dealing in banking business was questioned, stating that if a subject fell under List 1, the Parliament had exclusive legislative power. The Court emphasized the need for a harmonious interpretation of conflicting entries in the Seventh Schedule. It was concluded that Co-operative Banks could fall under Entry 43 and not Entry 45, as Entry 43 excluded Co-operative Societies. The State Legislature had the authority to legislate on Co-operative Societies under Entry 32 of List II, even if engaged in banking business.

Referring to a previous Supreme Court decision, the judgment highlighted that Co-operative Societies engaged in banking retained their status under the Co-operative Societies Act. The District Co-operative Banks, registered under the Act, primarily aimed to finance other Societies. The issue arose when the Bank invested funds in a Mutual Fund without State Government permission, leading to notices under Section 148 of the Act. The Court refrained from expressing views on the investment's justifiability to avoid prejudicing subsequent proceedings. Ultimately, the Court held that the Act's provisions controlled the petitioners' affairs, and actions taken under the Act were legal and sustainable. The petitioners' requests for relief were dismissed, and they were advised to face the proceedings in accordance with the law.