Professional Documents
Culture Documents
2022
PROJECT REPORT ON
SUBMITTED BY –
VISALAKSHY GUPTA
ID NO. – 018/2018/1798
SEMESTER – IX C
HISTORICAL BACKGROUND
As some historical context, on January 28, 2003, the Central Government had issued a notification
applying the SARFAESI Act to co-operative banks. Under response to a number of petitions
questioning the Notification's authority, Parliament revised the term of bank in the SARFAESI Act
to include multi state co-operative banks. A number of writ challenges challenged the legitimacy of
the Amendment itself, despite the fact that the Central Government and Parliament had extended
the application of the SARFAESI Act to co-operative banks.
Furthermore, a three-judge panel of the Supreme Court in Greater Bombay Co-op Bank Limited
vs. United Yarn Textiles Private Limited had previously held that co-operative banks may no
longer use the Debts Recovery Tribunal established under the Recovery of Debts and Bankruptcy
Act, 1993 to collect on outstanding debts. After considering the issue, the Court concluded that co-
operative banks belong in Entry 32 of List II (State List) of the Seventh Schedule, and thus,
Parliament lacks the authority to pass laws pertaining to co-operative banks in Entry 45 of List I of
the Seventh Schedule (Union List). The Court reasoned that a co-operative bank does not meet the
definition of a banking firm under the Banking Regulation Act, 1949, and is therefore precluded
from using the RDB Act's provisions to collect debts.
FACTS OF THE CASE
The appellant, Pandurang Ganpati Chaugule, filed a Special Leave Petition with the Civil Judge
on August 13, 2008, disputing the action of Vishwasrao Patil Murgud Sahakari Bank Limited
under the SARFAESI Act. In resolving the primary issue, the Trial Court decided that it lacked the
authority to hear the case. The initial appeal submitted was rejected. A challenge to it has been filed
in this Court. Additionally, cooperative banks have filed a writ petition under Article 32 of the
Indian Constitution, raising concerns about the constitutionality of the notifications they are
required to issue under Section 13 of the SARFAESI Act. The SARFAESI Act's legitimacy has
also been challenged in the writ petition filed in this Court, which was filed before the Central
Government's Enforcement of Security Deposit and Debts Law (Amendment) Act, 2012 took
effect and amended the definition of Section 2(1)(c) of the Act.
THE PRIMARY ISSUES WHICH NEEDED TO BE DECIDED UPON
• To what extent are co-operative banks are subject to the SARFAESI Act's requirements?
• Whether or not Entry 45 of List I's definition of banking includes co-operative banks.
It was however, argued by the Respondent that due to their status as a State subject under Entry 32
of List II, cooperative societies are explicitly outside of the Parliament's authority. He cited the
Statements and Objects of the BR Act, 1949, which explain that the BR Act of 1949 was intended
to govern only Entry 45-related banking activities and not cooperative banks. Respondent had
further argued that there was no comparison between the banking industry and the securitization
industry. Any financial asset is considered to be a financial asset under Section 2(1)(l) of the
SARFAESI Act. The term debt has the same meaning as in clause (g) of Section 2 of the RDB Act,
1993, as defined under Section 2(1) (ha) of the Act. Businesses that provide members with
financial aid are another type of enterprise apart from banks and cannot be regarded as a banking
business.
Because they engage in 'banking' activities that are covered by Entry 45 of List I (in 'pith and
substance'), and co-operative banks are registered and regulated under the BR Act, which is a piece
of legislation enacted under Entry 45 of List I itself, the court held that incidental encroachment
upon Entry 32 of List II would be permissible.
Co-operative banks are not included in the definition of banking corporation in Section 5 of the
BR Act, which the Supreme Court found to be an advantage. The Court reasoned that the legislature
likely did this on purpose so that the BR Act's requirements would apply similarly to co-operative
banks as they do to other banks and businesses. Certain provisions (such as incorporation,
regulation, and winding up) needed to be kept in their current form (as they applied to other banks
and companies) and so no specific amendment to the definition of 'banking company' was made, but
rather, separate provisions were provided that were applicable only to co-operative banks.
Therefore, the Supreme Court relied on the concept of incorporation by reference to rule that
Section 56(a) becomes a component of Section 5(c), and that the term of banking firm must be
interpreted to encompass a co-operative bank.”
Cooperative banks were also found to be engaged in banking activities within the meaning of
Section 5(b). They'll take deposits from customers and let them cash out through check, money
order, or other means of payment. They are not excluded from the banking system just because
lending is restricted to members. In addition, they serve a business purpose. Since cooperative
banks are included in the BR Act's definition of banking firm, the Court reasoned that the
SARFAESI Act should apply to them as if they were traditional banks.
However, the Pandurang Judgment appears to permit incidental encroachment of Central legislation
onto State legislation, which might lead to courts unjustly favoring Central legislation when
disputes arise about overlap between the two. It follows logically from the Pandurang Judgment that
a co-op bank can use the RDB Act's Debts Recovery Tribunal to recoup its losses. However, this
might lead to unintended duplication of remedies provided by the RDB Act, on the one hand, and
numerous state legislations and the Multi-State Co-operative Societies Act, on the other.