TaxTMI 
TaxTMI 
2026 (9) TMI 646
X X X X Extracts X X X X
X X X X Extracts X X X X
....co-operative bank and continue such supersession under the Banking Regulation Act, 1949 (the 'BR Act'). 2. The appeals assail the judgment and order dated 18.11.2024 rendered by the High Court (High Court of Judicature at Bombay) in two Writ Petitions (Writ Petition (L) Nos. 34124-34125 of 2023) whereby the order dated 24.11.2023 passed by the RBI superseding the Board of Directors ('BoD') of Abhyudaya Co-operative Bank Limited (the 'Bank') and appointing an Administrator in its place, was upheld and the said writ petitions came to be dismissed. FACTS 3. At the outset, the material facts, shorn of unnecessary details, may be noticed. The Bank was originally incorporated as a co-operative society registered under the Maharashtra Co-operative Societies Act, 1960 which later was converted into a bank in the year 1965 with the permission of RBI and the Commissioner of Co-operation. In the year 1988, the Bank was declared as a Scheduled Bank by RBI under Section 42(6)(a) of the Reserve Bank of India Act, 1934 (the 'RBI Act'). Pursuant to a direction issued by RBI under Section 45 of the Banking Regulation Act, 1949 (the 'BR Act'), the Bank was amalgamated with two banks in Guja....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t cannot extend beyond the tenure of the BoD and that the Second and Third Supersession Orders, having been passed after expiry of the appellants' term, when in effect, no Board remained in existence to be superseded, are unsustainable in law. It was contended that successive orders of supersession are ultra vires the constitutional mandate embodied in Articles 243ZL and 243ZT. It was urged that the proviso to Section 36AAA(1) of the BR Act is plain and unambiguous and must be read to mean consultation with the Central Government. It was pointed out that aforesaid mandatory requirement of consultation was admittedly not undertaken in the present case. 9. It was urged that the third proviso to Article 243ZL(1) merely imports BR Act into the constitutional scheme, without displacing the six-month ceiling on supersession prescribed by the substantive part of Article 243ZL(1). It was contended that the third proviso cannot be read as ousting the application of Part IXB of the Constitution to co-operative societies carrying on the business of banking. It was contended that in view of Article 243ZL(2), elections were to be held immediately after the statutory term of the appellants ca....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of multi-State co-operative bank, by RBI. It was argued that the requirement of consultation under the proviso to Section 36AAA(1) is confined to uni-State co-operative banks and does not extend to multi-State co-operative banks such as the Bank. It was emphasised that RBI is the statutory regulator of the banking system and that Courts ought to be circumspect in interfering with matters of economic and regulatory policy. In support of the aforesaid submissions, reliance has been placed on the decisions of this Court (Rajendra N. Shah & Anr. (supra); Pandurang Ganpati Chaugule (supra); Commissioner of Commercial Taxes & Ors. v. Ramkishan Shrikishan Jhaver & Ors., 1967 SCC OnLine SC 31; State of M.P. v. Kedia Leather & Liquor Ltd. & Ors., (2003) 7 SCC 389; Union of India v. Col. J.N. Sinha & Anr., (1970) 2 SCC 458; Joseph Kuruvilla Vellukunnel v. The Reserve Bank of India & Ors., 1962 SCC OnLine SC 3; Peerless General Finance and Investment Co. Ltd. & Anr. v. Reserve Bank of India, (1992) 2 SCC 343; Bhavesh D. Parish & Ors. v. Union of India & Anr., (2000) 5 SCC 471 and Internet and Mobile Association of India v. Reserve Bank of India, (2020) 10 SCC 274) as well as a decision of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....also a parliamentary legislation, is traceable to Entry 44 of List-I of Seventh Schedule of the Constitution, and was enacted to remedy the deficiencies of the erstwhile legislation that is the Multi-State Co-Operative Societies Act, 1984 and to strengthen the governance of the multi-State co-operative societies, consistently with the recognized co-operative principles, which are, (i) voluntary and open membership, (ii) democratic member control, (iii) member's economic participation, (iv) autonomy and independence, (v) education, training and information, (vi) co-operation among co-operatives, and (vii) concern for community. The MSCS Act was also intended to address specific instances of mismanagement that had come to light in certain multi-State co-operative societies. 18. By the Constitution (Ninety-Seventh Amendment) Act, 2011 Part IXB, comprising Articles 243ZH to 243ZT, was inserted into the Constitution, conferring constitutional status upon co-operative societies with the object of ensuring that such societies function in a democratic, professional, autonomous and economically sound manner. This Court (G Rajendra N. Shah s Anr. (supra)) upheld the constitutional validit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....under suspension for a period exceeding six months. The said general rule stands qualified by four provisos. The first proviso specifies the grounds on which supersession may be ordered. The second withdraws the power of supersession altogether where the co-operative society concerned carries no element of Government shareholding or loan or financial assistance or any guarantee by the Government. The third proviso stipulates that, in the case of a co-operative society carrying on the business of banking, the provisions of BR Act "shall also apply". The fourth proviso extends the period of supersession from six months to one year for a co-operative society, but, significantly, in terms, expressly excludes from that extension a co-operative society other than a multi-State co-operative society carrying on the business of banking. 21. The relevant extract of Section 36AAA of the BR Act reads as under: "36AAA.-Supersession of Board of directors of a [co-operative bank]. - (1) Where the Reserve Bank is satisfied that in the public interest or for preventing the affairs of a [co-operative bank] being conducted in a manner detrimental to the interest of the depositors....
X X X X Extracts X X X X
X X X X Extracts X X X X
....serve such rules of procedure as may be specified by the Reserve Bank..." "..(9) The Administrator appointed under sub-section (2) shall vacate office immediately after the Board of directors of the multi-State co-operative society has been constituted. [(10) The provisions of section 36ACA shall not apply to a co-operative bank.]" 22. Thus, for reasons to be recorded, the power of supersession of a multi-State co-operative bank, can be exercised by RBI, in public interest or for preventing the affairs of a co-operative bank being conducted in a manner detrimental to the interest of the depositors or of the co-operative bank or for securing the proper management of such bank, from time to time, for a period not exceeding five years. 23. Justice G.P. Singh in Principles of Statutory Interpretation (15th Edition, page no. 248) has explained the doctrine of incorporation of an earlier Act into later one in the following terms: "Incorporation of an earlier Act into a later Act is a legislative device adopted for the sake of convenience in order to avoid verbatim reproduction of the provisions of the earlier Act into the later (Mary Roy v. State of Keral....
X X X X Extracts X X X X
X X X X Extracts X X X X
....decisions (S. Sundaram Pillai v. V.R. Pattabiraman, (1G85) 1 SCC 5G1; and Hiralal Rattanlal v. State of U.P., (1G73) 1 SCC 216.), summed up the purposes which a proviso may seek to serve, (i) qualifying or excepting certain provisions from the main enactment; (ii) it may entirely change the very concept of the intendment of the enactment by insisting on certain mandatory conditions to be fulfilled in order to make the enactment workable; (iii) it may be so embedded in the Act itself as to become an integral part of the enactment and thus acquire the tenor and colour of the substantive enactment itself; and (iv) it may be used merely to act as an optional addenda to the enactment with the sole object of explaining the real intendment of the statutory provision. 26. The Parliament has enacted third proviso to the said Article which is a special provision for Boards of Societies carrying on the business of banking. In the instant case, 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 i....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... terms, that the third proviso, which extends BR Act to co-operative societies carrying on the business of banking, was always intended to, and does, comprehend multi-State co-operative banks such as the Bank in the present case. 30. The textual conclusion is, in our view, rendered inevitable when the provision is read in the light of the purpose it is designed to serve. Banking, unlike ordinary commercial or co-operative activity, is impressed with a public interest of a distinct order: it is the medium through which the savings of depositors, frequently persons of modest means, who repose in the banking system both their trust and their life earnings, are held and deployed. The BR Act was enacted precisely to arm RBI, as the apex regulator of the banking system, with the tools necessary to safeguard the interests of depositors and to maintain the solvency, stability and discipline of banking institutions. Section 36AAA of BR Act is one such tool, enabling the RBI to supersede an errant or failing board where this is necessary in the public interest, or to prevent the affairs of a co-operative bank being conducted in a manner detrimental to the interests of its depositors, or t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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. ISSUE NO. (ii) 35. We now turn to the second issue. The First Supersession Order was passed on 24.11.2023, before the expiry of the statutory term of the BoD, which expired on 24.05.2024. It was only thereafter, on 18.11.2024, the Second Supersession Order extending the period of supersession of BoD was passed and thereafter still, on 07.11.2025, that the Third Supersession Order further extended the period of supersession by one year. 36. Section 36AAA (1) of BR Act expressly contemplates that a period of supersession, once ordered, may be extended from time to time, subject to an outer limit of five years in the aggregate. Once the BoD stands superseded, the Board ceases to exist and all its powers vest in the Administrator. The object underlying Section 36AAA, which empowers the RBI, as the regulator of banking system, to supersede the Board of a multi-State co-operative bank, is to ensure that financial health of a co-operative bank does not deteriorate to a dangerous level and interest of depositors is duly protec....