TaxTMI 
TaxTMI 
2003 (10) TMI 388
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....e to start an Apex Bank for Maharashtra and Goa. The RBI by its letter dated 25th April, 1994 inter alia stated as follows : "2. As you are aware, the proposed bank requires to be got registered under the Multi State Co-operative Societies Act, 1984 since its area of operation extends beyond the boundaries of a State and as such it would not be a co-operative Bank as defined in the Banking Regulation Act, 1949 (as applicable to Co-operative Societies), at present. Hence an amendment to the Banking Regulation Act, 1949 is considered necessary. The Government of India has already been apprised of the amendments needed in the context of establishment of National Co-operative Bank of India (NCBI) registered under the Multi-State Co-operative Societies Act, 1984 and other similar banks. 3. In view of the foregoing, you may please approach the Reserve Bank only after the needed legislative amendments are carried out by Government of India to bring the NCBI as also other Banks similar to those proposed by you within the definition of Co-operative bank's under the Banking Regulation Act, 1949 (as applicable to Co-operative Societies)." 4. The Appellants then got themselves registe....
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....stay of the operation of impugned judgment. We may record that the directions of the High Court in relation to the Notifications dated 25th January, 1996 and 14th May, 1996 are not questioned before us by the learned counsel for the petitioners." Thus, in these Appeals there is now no challenge to quashing of the directions/orders dated 25th January, 1996 and 14th May, 1996. 7. The questions which arise for considerations are : (a) whether a co-operative society registered under the Multi-State Act can be granted a license by the RBI to commence and carry on banking business, (b) whether a co-operative society registered under the Multi-State Act can be recognized and notified by the State Government as a State Co-operative Bank and (c) whether a co-operative society registered under the Multi-State Act, which has been recognized and notified by one State Government as a State Co-operative Bank for that State, can be granted a License by the RBI to commence and carry on banking activities in other States in which it has not been recognized as a State Co-operative Bank. Question (a) : Whether a Co-operative Society registered under the Multi-State Act can be granted a Li....
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....y carrying on business as a co-operative bank or the amalgamation of two or more co-operative societies carrying on banking business shall, before the expiry of three months from its so coming into existence, every primary credit society which becomes a primary co-operative bank after such commencement shall before the expiry of three months from the date on which it so becomes a primary co-operative bank and every co-operative society other than a primary credit society shall before commencing banking business in India, apply in writing to the Reserve Bank for a License under this section : Provided that nothing in clause (b ) of sub-section (1) shall be deemed to prohibit- (i )a co-operative society carrying on business as a co-operative bank at the commencement of the Banking Laws (Application to Co-operative Societies) Act, 1965; or (ii)a co-operative bank which has come into existence as a result of the division of any other co-operative society carrying on business as a co-operative bank, or the amalgamation of two or more co-operative societies carrying on banking business at the commencement of the Banking Laws (Application to Co-operative Societies) Act, 1965, or ....
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....t to carry on banking business, Reserve Bank of India [hereinafter referred to as RBI] has to grant a license; (ii)In order to get an RBI license, according to BR Act, the Appellant has to be a co-operative bank i.e., in this case a State Co-operative Bank; (iii)For the Appellant to be a State Co-operative Bank, it has to be notified as such under section 2(u) of the NABARD Act;" Written submissions on behalf of the Appellants given by Mr. Andhyarujina also need to be noted. The relevant portion reads as follows : "According to the scheme of the BR Act, for the grant of a license to the Appellant, it has to be first come within the meaning of a "co-operative bank" i.e., either a state co-operative bank, central co-operative bank or a primary co-operative bank. It is only after a notification under section 2(u) of NABARD is issued the co-operative society becomes a co-operative bank within the meaning of section 5(cci) of the BR Act as amended by section 56(c) of the BR Act and thus became eligible to for license from the RBI under section 22 of the BR Act read with section 56(o) of the BR Act. Thus a notification under section 2(u) in these circumstances necessarily pre....
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....g of section 13D read with section 2(gg) of the Deposit Insurance Act indicates that RBI can exercise power in respect of matters mentioned therein. It is pointed out that section 48(7) of the Multi-State Act, empowers, RBI to supersede a co-operative bank. It is submitted that all the above mentioned provisions show that RBI has got the power, to regulate the functioning of a co-operative bank, supersede, order moratorium, amalgamation or winding up, as the case may be. We are unable to accept this submission. The power to regulate, supersede, order moratorium, amalgamation or winding are exercisable only be in respect of a co-operative bank. Such power cannot be exercised in respect of any co-operative society which is not a co-operative bank. Far from supporting the case now sought to be made out, this shows that it is only a co-operative bank which can be licensed and then controlled by RBI. 11. It is next submitted that section 22(1)(b) of the Banking Regulation Act, lays down that "save as hereinafter provided, no co-operative society shall carry on banking business in India unless it is a co-operative bank and holds a license issued in that behalf by the Reserve Bank subj....
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....is submitted that a contrary interpretation would render, the Multi-State Act, so for as it relates to Co-operative Banks redundant. 12. We are unable to accept these submissions also. The portion extracted above does not detract from what is provided in section 22(1). Under section 22(1) a primary credit society can carry on banking business. However if a co-operative society is not a primary credit society then to carry on banking business it must be a co-operative bank and hold a license issued by the RBI. The above extracted portion of section 22(2) merely emphasises that a co-operative society, other than a primary credit society, has to apply to the RBI for license before it can commence banking business. However, this does not mean that RBI can give to any or all co-operative societies, a banking license. RBI can only give a license as provided in section 22(1) i.e., to a co-operative bank. The term "Co- operative Bank" has been defined in the Banking Regulation Act and only includes a state co-operative bank or a central co-operative bank or a primary co-operative bank. Reference to the term "co-operative bank" in the Multi-State Act is of no assistance. When a term is s....
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....society of which the object is the creation of funds to be lent to its members, and of which the majority of the members are agriculturists, and of which no members is a registered society, shall be unlimited." "6. Conditions of registration.-(1) No society, other than a society of which a member is a registered society, shall be registered under this Act which does not consist of at least ten persons above the age of eighteen years and where the object of the society is the creation of funds to be lent to its members, unless such persons- (a )reside in the same town or village or in the same group of villages; or (b)save where the Registrar otherwise directs, are members of the same tribe, caste or occupation. (3) The word "limited" shall be the last word in the name of every society with limited liability registered under this Act." Thus the Act was essentially dealing with Societies whose members were residing in the same town or village or group of villages or whose members were from the same tribe, class, caste or occupation. The object of the Society had to be promotion of interests of its members. This shows that the Co-operative Societies Act, 1912 was enacte....
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....ies of the province in which a branch or place of business such as is referred to in sub-section (2) is situated may exercise in respect of that branch or place of business any powers of audit and of inspection which he might exercise in respect of a co-operative society actually registered in the province." 14. Thus now Co-operative Societies whose objects were not confined to one province were deemed to be registered also in the other province. However, for purposes of registration, control and dissolution, they continued to be subject to the "law relating to co-operative societies in force for the time being in the province in which it was actually registered. Thus the term "under any Act relating to co-operative societies in force in any province" clearly applied to the local laws relating to co-operative societies in force in a province i.e., local law prevailing in that province. 15. Another aspect which must be noticed is that in the Constitution of India, the subject pertaining to Co-operative Societies is in the State list i.e., Entry 32 of List II of Schedule VII. The Union list has Entry 44 of List I of Schedule VII which deals with Corporations. In this case we ar....
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....membered that the Multi-Unit Act applied to co-operative societies registered under any Act relating to co-operative societies in force in any province. As seen above the Multi-Unit Act was clearly referring to Acts in force in the Province. Now instead of the word "province" the word "State" has been used. Admittedly, the Appellants are not registered under the Co-operative Societies Act, 1912. The question thus is whether they could be said to be a society registered under any other law relating to co-operative societies for the time being in force in any State. At first blush it would appear that the term "any other law relating to co-operative societies for the time being in force in any State" would include all laws relating to co-operative societies which are in force in any State. However, in that case, there would be no need to provide separately in respect of a society registered under the Co-operative Societies Act, 1912. The Co-operative Societies Act, 1912 is also a law relating to co-operative societies and it is in force in all States. Also why use the words "in any State". Mere use of the term "any other law relating to co-operative societies for the time being in fo....
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....cieties Act, 1912 can operate in more than one State. It was submitted that this showed that laws dealing with Co-operative Societies, which operate in more than one State, were meant to be covered. We are unable to accept this submission. As seen above under the provisions of the Co-operative Societies Act, 1912 the registration could only be in one State. The Co-operative Societies Act, 1912 dealt with local societies. As it was found, that even though the registration could only be in one State, the Societies also operated in other States, the Legislature enacted the Multi-Unit Co-operative Societies Act, 1942 (hereinafter referred to as the Multi-Unit Act). Under the Multi-unit Act if a society had objects not confined to one State then such a society was deemed to be registered even in other States, but for purposes of registration, control and dissolution it was the State law where it was first registered which continued to operate. Thus, after the enactment of the Multi-unit Act it became clear that even though a society may be deemed registered under the Multi-unit Act, but for purposes of registration, control and dissolution it continued to be bound by the law relating to....
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....ed or deemed to be registered under any law relating to Co-operative Societies for the time being in force in any State; ****** (k)'Multi-State Co-operative Society' means a society registered or deemed to be registered under this Act and includes a national Co-operative Society;" 20. A reading of the provisions of the Multi-State Act makes it clear that the words "under any other law relating to co-operative societies in force in any State" as used in the Multi-State Act, applies to societies registered under the State laws relating to Co-operative Societies. Mr. Andhyarujina fairly admitted this position. Of course, the definition as used in 1984 Act cannot be used for the purposes of interpreting the 1981 Act. The definition in the 1981 Act is being interpreted on its own provisions but the use of the same term in the 1984 Act with the same meaning reinforces the interpretation given to the 1981 Act. 21. Further under the NABARD Act a state co-operative bank has to be the principal co-operative society in the State, the primary object of which must be financing other Co-operative Societies in that State. The proviso to section 2(u) cannot and does not derogate from t....
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.... it has been expressly so stated. In support of this section 3(e) of the Multi-State Act which defines "Co-operative Bank" as a Multi-State Co-operative Society which undertakes "banking business", and section 80P(2)(a)(i ) of the Income-tax Act, 1961 which refers to a co- operative society engaged in carrying on the business of banking were pointed out. It was submitted that a co-operative society which is engaged in carrying on business of financing other co-operative societies could finance itself without "banking business". It was submitted that it could finance itself from its own resources e.g. from shareholders equity and/or by borrowings. It was also submitted that the activity of accepting entrance fee and subscription share from its members show that the Appellants were carrying on business and that this was sufficient for the purposes of enabling the State Government to declare the Appellants as a state co-operative bank. 23. On behalf of the Respondents, it was submitted that looking to the nature and purpose of the Act and the fact that the ultimate purpose was to accept deposits from other co-operative societies, it was necessary that the business which is carried ....
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....ch a business in the future would be sufficient. A plain reading indicates that the carrying on of the business must be prior to the State Government declaring a society as a state co-operative bank otherwise there would be no criteria on the basis of which the State Government could judge whether the society proposed to be so declared will or will not perform its task truly and efficiently. The test for the Government has to be past performance. It is not as if the State Government can at its whims and fancy declare any society as a state Co-operative Bank. The State Government has to look into and be satisfied that that society has faithfully and efficiently been carrying on the business of financing other co-operative societies in that State and that there have been no complaints against that society. To allow the State Government to declare any society, even a society which has done no business of financing other co-operative societies, as a state co-operative bank would be to permit arbitrariness. The authorities relied upon are of no assistance as words to the effect "carrying on business" have necessarily to be construed keeping in mind the purpose with which they are used a....
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....95 cannot be sustained. 28. Faced with this situation Mr. Andhyarujina submitted that, in the High Court, the Respondent did not challenge the fact that the Appellant was carrying on business of financing other co-operative societies, but only focused on its not carrying on "banking business". He submitted that banking business has a specific meaning as defined in section 5(b) of the Banking Regulation Act, 1949. He submitted that in the Writ Petition it was ambiguously stated in paragraph 4 as follows : "The Petitioners further say that, in any event, under clause (u) of section 2 of the NABARD Act, the State Government could not have identified or designated Respondent No. 5 as a State Co-operative Bank, firstly because Respondent No. 5 is not registered under the State Act, secondly, because Respondent No. 5 is registered under the Central Act, thirdly, because the area of operation of Respondent No. 5 also extends to the State of Goa and, fourthly, because Respondent 5 is not carrying on any business or banking business. Respondent No. 5 has been constituted to carry on banking business. Respondent No. 5 cannot carry on banking business unless License is issued by the Res....
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....such recognition as a bank nor has the primary object to finance other co-operative societies in the state ?" [Emphasis supplied] He submitted that there is not a single word and a single finding by the High Court that the Appellant was not carrying on business except in the sense of banking business. He submitted that the reason for this is obvious i.e. there was no argument and no challenge that the Appellant was carrying on business other than banking business. He submitted that it is not open to the respondent to argue something that was not argued before the High Court and which is not investigated and found as fact by the High Court. 29. We are unable to accept this submission. In the Writ Petition it has been stated that the Appellant was not carrying on any business or banking business. This shows that in the petition itself this ground has been taken. Just because it is also mentioned that banking business was not being carried does not detract from fact that it is averred that no business was carried on. Once it is mentioned that no business was carried on it was not necessary to state that business of financing other co-operative societies was not carried on. In th....
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....less the Appellants were first declared a state co-operative bank under the NABARD Act. As it is now being held that the Appellants could not have been declared as a state co-operative bank under the NABARD Act and it is held that as such declaration was correctly struck down it will have to be held that the RBI cannot issue it a license to carry on banking business. In view of the contrary stand taken by RBI, it cannot now be left to discretion of RBI to cancel the license granted by it. It is held that the High Court was in error in not striking down the issuance of the license by RBI to the Appellants. In view of what we have held we direct the RBI to forthwith revoke the banking license granted to the Appellants. Question (c ) : Whether a Co-operative Society registered under the Multi State Act, which has been recognized and notified by one State Government as a State Co-operative Bank for that State can be granted a License by the RBI to commence and carry on banking activities in other States in which it has not been recognized as a State Co-operative Bank. 31. It is to be seen that the RBI can only give a license to a state co-operative bank which has been so declared....