GREATER BOMBAY CO-OP. BANK LTD. versus M/S UNITED YARN TEX. PVT. LTD. & ORS.

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GREATER BOMBAY C()..()P. BANK L lD. v. MIS UNITED YARN TEX. PVT. L lD. & ORS.

APRIL 4, 2007

[B. N. AGRAWAL, P.P. NAOLEKARAND LOKESHWAR SINGH PANT A, JJ.}

Constitution of India, 1950:

Seventh Schedule, List /!-Entry 32-List /-Entries 43 and 45-He/d, Co-operative Banks are not covered by Entry 45 of List /, dealing with 'banking'-Entry 43, List I dealing with banking, financial corporation etc., expressly excludes co-operative societies from its ambit-Subject of Co-operative Societies is covered under Entry 32 of List II-Co-operative forms specie of genus 'corporation', and as such co-operative societies, with objects. not confined to one State read in with the Union as provided in Entry 44 of List I, MSCS Act, 2002 governs such multi state co-operatives-Maharashtra Co-operative Societies Act, 1960-Andhra Pradesh Co-operative Societies Act, 1 964-Mu/ti State Co-operative Societies Act, 2002-Recovery of Debts Due to Banks and Financial Institutions Act, 1993- Banking Regulation Act, 1949.

Doctrine of occupied field-Held, co-operative Societies cannot be said to have been .. vered by centra/legislation by reference of Entry 45, List 1

Doctrine of pith and substance-Held, co-operative bank is not 'banking company' under s.5(c) of B.R. Act- Even if the co-operatives are involved in activity of banking which involves lending and borrowing, this is purely incidental to their main co-operative activity which is function in public domairr-Banking Regulation Act, 1949-s.5(c).

Co-operative Societies:

Co-operative Banks-Recovery of dues of-Applicability of RDB Act-Held, dues of co-operative societies and recovery proceedings in connection therewith are covered by specific Acts, namely, MCS Act, 1960, APCS Act,

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GREA TEll BOMBAY C~P. BANK L TI>. v. VNJTED Y AAN TEX. PVT. L m.

recovery of their dues. Similarly, the Full Bench of the Andhra Pradesh High Court held that the Tribunal constituted under the RDB Act had exclusive jurisdiction, powers and authority.to entertain and decide application from Co-operative Bank for recovery of debts due to such bank, subject to the pecuniary jurisdiction specified under the said Act. The Andbra Pradesh High Court further declared sections 61 and 71 of the APCS Act, 1964 being beyond legislative competence of the State Legislature and also in direct and clear conflict with the provisions of the RDB Act. Both these decisions were challenged in appeals before the Supreme Court. The Division Bench before which the appeals came to be listed, felt that the matter required to be considered by Larger Bench and, thus, the appeals were heard by the present three-Judge Bench.

On the questions: (a) whether the RDB Act applies to debts due to co-operative banks constituted under the MCS Act, 1960; the MSCS Act, 2002 and the APCS Act, 1964, and (b) whether the State Legislature is competent to enact legislation in respect of co-operative societies incidentally transacting business of banking in the light of Entry 32, List II of Seventh Schedule of the Constitution.

Answering the reference, the Court

HELD: 1.1. The dues of co-operatives and recovery proceedings in connection therewith are covered by specific Acts, such as the MCS Act, 1960 and the APCS Act, 1964, which are comprehensive and self-contained legislations. Similarly, for Multi-State Co-operatives there is specific enactment in the form of the MSCS Act, 2002 comprehensively providing the legal framework in respect to issues pertaining to such co-operatives. Therefore, when there is an admittedly existing legal framework specifically dealing with issues pertaining to co-operatives and especially when the co-operative banks are, in any case, not covered by the provisions of the RDB Act specifically, there is no justification of covering the co-operative banks under the provisions of the RDB Act by invoking the Doctrine of Incorporation. (Para 55} rss7-G-H; 858-AJ

Surana Steels Pvt. Ltd etc. v. Deputy Commissioner of Income Tax & Ors. etc., (1999) 4 SCC 306, relied on.

Mls Fatehchand Himmatlal & Ors. v. State of Maharashtra, (1977) 2 SCC 670; Mls Hoechst Pharmaceutical Ltd & Ors. v. State of Bihar & Ors., {1983}4 sec 45, cited;

on. Thakur Jugal Kishore v. Sitamarhilt, [1967] 3 SCR 163, held inapplicable.

1.5. The RDB Act was passed in 1993 when Parliament had before it the provisions of the BR Act as amended by Act No. 23 of 1965 by addition of some more clauses in Section 56 of the Act. The Parliament was fully aware that the provisions of the BRAct apply to C(H)perative societies as they apply to banking companies. The Parliament was also aware that the definition of 'banking company' in Section 5 (c) had not been altered by Act No. 23 of 1965 and it was kept intact, and in fact additional definitions were added by Section 56( c). "C()o(lperative bank" was separately defined by the newly inserted clause (cci) and "primary co-operative bank" was similarly separately defined by clause (ccv). The Parliament was simply assigning meaning to words; it was not incorporating or even referring to the substantive provisions of the BRAct. The meaning of 'banking company' must, therefore, necessarily be strictly confined to the words used in Section S(c) of the BRAct. There was conscious exclusion and deliberate omission of co-operatic banks from the purview of the RDB Act. It could not be said that Amendments in Chapter V, Section 56 of the RDB Act by Act No. 23 of 1965 inserting "co-operative bank" in Clause (cci) and "primary co-operative bank" in Clause (ccv) either expressly or by necessary intentment apply to the co-operative banks transacting business of banking. (Paras 70] [858-E-G; 862-C)

1.6. "Co-operative banks" established under the Maharashtra Co-operative Societies Act, 1960 [MCS Act, 1960]; the Andhra Pradesh Co-operative Societies Act, 1964 (APCS Act, 1964]; and the Multi-State Co-operative Societies Act, 2002 [MSCS Act, 2002) transacting the business of banking, do not fall within the meaning of "bimking company" as defined in Section 5 (c) of the Banking Regulation Act, 1949(BR Act]. Therefore, the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDB Act] by invoking the Doctrine of Incorporation are not applicable to the recovery of dues by the co-operatives from their members.

[Para 89) [869-G-H; 870-A)

2.1. The constitutional validity of an Act can be challenged only on two grounds, viz. (i) lack of legislative competence; and (ii) violation of any of the Fundamental Rights guaranteed in Part m of the Constitution or ofany other constitlltional provision. [Para 71] [862-D]

State of A.P & Ors. v. McDowell & Co. & Ors., (1996) 3 SCC 709, relied on. 2.2. Power to enact law is derived by the State Assemb'y from List II of the Seventh Schedule to the Constitution of India. Entry 32 ofList n confers upon State Legislature the power to constitute co-operative societies. The State of Maharashtra and the State of Andhr:~ Pradesh both have enacted the MCS Act, 1960 and the APCS Act, 1964 in exercise of the power vested in them by Entry 32 of List II of the Seventh Schedule to the Constitution.

Subramanyan Chettiar v. Muttuswami Goundan, AIR (1941) FC 47; A. S. Krishna v. State of Madras, [1957) SCR 399 and State of Rajasthan v. Chawala, [1959) (Suppl. 1) SCR 904, relied on.

State of Bihar & Ors. v. Bihar Distillery Ltd. C?rs., [1997) .2 SCC 453, referred to.

2.3. Entry 43 List of I speaks of banking, insurance and financial corporations etc. but expressly exclud~ co-operative societies from its ambit the constitution! intendment seems to be that the co-operative movement was to be left to the States to promote and leg.islate upon and the banking activities of co-operative societies were also not to be touchtd unless Parliament [considered it imperative. The BRAct deals with the regulation ][of ][the bimking ]business. There is no provision whatsoever relating to proceedings for recovery by any bank of its dues. Recovery was initially governed by the Code or Civil Procedure by way of civil suits and after the RDB Act came into force, the recovery of the dues of the banks and financial institutions was by filing of applications to the Tribunal. The Tribunal has been establishW. with the sole object to provide speedy remedy for recovery of debts of the banks and financial institutions since there has been considerable difficulties experienced therefore from normal remedy of Civil Court. [Para 79] (86>E-G)

2.4. Therefore, the express exclusion of co-operative societies in Entry 43 of List I and the express inclusion of co-operative societies in Entry 32 of List II separately and apart from but along with corporations other than those specified in List I and universities, clearly indicated that the constitutional scheme was designed to treat co-operative societies as institutions distinct from corporations. Co-operative Societies, incorporation, regulation and [winding up ][are ][State subjects in ][the ][ambit ][of ][Entry ][32 ][of ][List ][II ][of ][Seventh ]

Schedule to the Constitution of India. Co-operatives form specie of genus 'corporation' and as such co-operative societies with objects not confined to one State read in with the Union as provided in Entry 44 of List I of the Seventh Schedule of the Constitution, MSCS Act, 2002 governs such multi-state co-operatives. [Para 80)(865-H; 866-A-BJ

R. C. Cooper, etc. v. Union of India, (197011 sec 248, referred to.

2.5. The field of co-operative societies cannot be said to have been covered by the Central Legislation by reference to Entry 45, List I of the Seventh Schedule to the Constitution. The co-operative banks performing functions for the public with limited commercial function as opposed to corporate banks cannot be covered by Entry 45 of List I dealing with "banking". Co-operative Banks constituted under the Co-operative Societies Acts enacted by the respective States would be covered by co-operative societies by Entry 32 of List II of Seventh Schedule to the Constitution. [Paras 90 and 811

Associated Timber Industries & Ors. v. Central Bank of India & Anr., [2000}7 SCC 93; State of Maharashtra v. Laljit Rajshi Shah and Ors., [2000) 2 SCC 699 and Union of India v. Delhi High Court Bar Association, [2002) 4 sec 275, held inapplicable.

The Life Insurance Corporation of India v. D. J. Bahadur & Ors., AIR {19801 SC 2181; ITC Ltd. v. Agricultural Produce Market Committee & Ors., [2002) 9 sec 232, referred to.

CIVIL APPEALLATE JURISDICTION: Civil Appeal No. 432 of2004.

From the Final Judgment and Order dated 06.10.2005 of the High Court of Judicature of Kamataka at Ban galore in Writ Appeal Nos. 5271 & 5724 of 2002.

WITH

Civil Appeal No.433t2004, Civil Appeal No.434t2004, Civil Appeal No.436/ 2004, SLP (C) Nos.l5651-15652t2005, SLP (C) No.5592t2004, SLP (C) No.5598/ 2004, SLP (C) No.5890t2004, Civil Appeal No.36t2006, Civil Appeal No.37t2006, Civil Appeal No.38/2006, Civil Appeal No.916/2006, Civil Appeal No.2819/ 2006, Civil Appeal No.2820/2006, Civil Appeal No.282l/2006, Civil Appeal No.282212006 and SLP (C) Nos.25246-25247t2005].

[Civil Appeal No.6069/2005, Civil Appeal No.6077/2005 and SLP (Crl.)

[2007] 4 S.C.R.

No. 2071/2006- Not on board]

S. Ganesh, Bhim Rao Naik, T.R. Andhyarujina, Shek.har Naphade, S.B. Sanyal, V.A. Bobde, Dr. N.M. Ghatate, U.U. Lalit, J.V. Suryananrayana, Dr. Rajeev Dhawan, A.V. Sawant, Raju Ramachandran and K.N. Bhatt, Siddhartha Chowdhury, Samrat Nigam, Satyajit Ghone, Y.R. Naik, Rakesh K. Sharma, Shivaji M. Jadhav, Himanshu Gupta, Brij Kishor Sah, T.V. Ratnam, K. Subba Rao, A.H. Ramakrishna Rao, Ashish Chugh, Raghavendra S. Srivatsa, Balraj Dewan, Shweta Gupta, Abhijit P. Medh, Pramit Saxena, Anuradha Rustogi, "" S.V. Deshpande, T. Raja, Vinay Navare, Jay Savla, Meenakshi Ogra, Reena " Bagga, D. Bharathi Reddy, P. Vinay Kumar, Sneha Bhaskaran, Sanjiv Sen, [Praveen ][Swarup, ][Manik ][Karanawala, ][K. ][Maruthi ][Rao, ][K. ][Radha, ][Anjani ]Aiyagari, K. Shivraj Chou@uri, P.S. Narasimha, P. Sridhar, Avijeet Kr. Lala Sriram P. Mu~y, John Mathew, Venkatarangadas Kanur, T. Lakshminarayana, Venkateswara Rao Anumolu, I Amar Dave, E.C. Agrawala, S. Ashokanand Kumar. S. Udaya Kumar Sagar, Bina Madhavan (for M/s. Lawyer's Knit & Co.) San jay V. Kharde, Chandan Ramamurthi, Aniruddha P. Mayee, Sanjeev Kumar Chaudhary, Sanjay Visen, Amit Yadav, Satyajit A. Desai, Sunil Kumar Verma, Anagha S Desai, S.S. Shinde, Mukti Chowdhary, V.N. Raghupathy, Ravindra ": ...... Keshavrao Adsure, S. Nanda Kumar, Brij Kishore Shah, Santha Kumar, Ananda Selvam, Naresh Kumar, S.A. Desai, Kavin Gulati, Mahesh Agrawal, Rishi Agrawal, Dr. P.B. Vijaya Kumar, I Madhavi, Saravbh Suman Sinha, B.V. Desai, [Nupur ][Kanungo, ][Rahul ][Gupta, ][D. ][Mahesh ][Babu, ][Balraj ][Dewan, ][M.J. ][Paul, ][H.S. ]Parihar, Kuldeep Parihar, Amar Dave, Mehul Vakharia and Ravinder Shah for the appearing parties.

The Judgment of the Court was delivered by

WKESHW AR SINGH PANT A, J. 1. Civil Appeal No.6069/2005, Civil Appeal No.6077/2005 and SLP (Crl.) No.2071/2006 are taken on board.

2. Bench of two judges before which this batch of twelve civil appeals and five special leave petitions came up for consideration was of the view that looking to the issues involved and the far-reaching consequences [which ][such ][a decision will ][leave, ][these matters require consideration ][by ][a ]larger Bench. This is what the Bench observed in the order dated 1st December, 2005. '? "This batch of appeals/SLPs involved an important issue regarding right of recovery of debts by the co-operative banks constituted under the Co-operative Societies Acts of the States· of Maharashtra

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G.REATERBOMBAYCO-<lP. BANX LTD. •· UNJTf.I)YAANTVC PVT LTO. (LOKESKWAASINGH PANT A. J. ) 8)1

and Andhra Pradesh. The issue has arisen in the context of enactment of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. Under the Co-operative Societies Acts, there is mechanism for recovery of debts by the Banks constituted under those Acts, which are also called Co-operative Banks. After the enactment of the 1993 Act, question arose as to whether such Co-operative Banks would have right of recovery under the respective Co-operatives Societies Acts or they will have to proceed under the 1993 Act. These aspects and some other issues, including the issue of legislative competence of the States to enact the provisions relating to Co-operative Banks, came up for consideration before the Bombay High Court and the High Court of Andhra Pradesh at Hyderabad. Both the High Courts have pronounced judgments on the issues and th~se judgments are under appeal in these cases. Looking to the issues involved and the far-reaching consequences which such decision will leave, we are of the view that these matters be decided by larger Bench.

This has also been brought to our notice that as consequence of the impugned judgments of the two High Courts, recoveries worth thousands of crores of rupees are held up and for that reason these matters need to be decided as early as possible.

Let these matters be placed before Hon'ble the Chief Justice of India for constitution of an appropriate larger Bench for early disposal of these cases.

We are informed that so far as the batch of appeals/SLPs arising from the judgment of the Born bay High Court is concerned, the stay applications have already been disposed of. The stay applications in the appeals/SLPs arising from the judgment of the Andhra Pradesh High Court are yet to be finally disposed of. Let the stay applications in the matters arising from the judgment of the Andhra Pradesh High Court be placed before this Court on Wednesday the 7th December, 2005. If any party is desirous of filing any reply, the same be filed by Monday the 5th December, 2005.

SLP (C) Nos .... CC 9992-9993(2005, SLP (C) Nos.21685-2170lf2005 and SLP(C) No. 22621/ 2005

Delay condoned.

Issue notice.

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GREATERBOMBAYCO.OP.BANKLTO. >•. UNITED YARN TEX. PVT. LTD. [lOKESHWARSINGH PANT A, J.J8JJ

the premises of the r~spondent-Company on I st February, 2003 for effecting recovery by way of attachment and sale of property specified in the Schedule attached thereto.

7. In January 2003, the respondent-Company filed Writ Petition No. 727/2003 before the High Court of Bombay impugning the recovery certificate dated 3rc! December, 2002. Learned Single Judge of the High Court vide order dated 31st January, 2003 passed an ad-interim ex parte order restraining the Special Recovery and Sales Officer, in any manner, from proceeding with or in pursuant to recovery certificate dated 3rd December, 2002. It appears from the order of the High Court that the Division Bench of the High Court in The Shamrao Vithal Co-operative Bank Limited v. Mls Star Glass Works & Ors., (2003) 1 MLJ 1 held that the Debts Recovery Tribunal constituted under the RDB Act has the jurisdiction to entertain an application submitted by co-operative bank for recovery of its debts. The Division Bench on consideration of the provisions of Section 56 of the Banking Regulation Act, 1949 [ for short "the BR Act"] came to the conclusion that 'Co-operative Bank' falls within the meaning of Section 2(d) of the RDB Act and, therefore, the only remedy available in tenns of the provisions of the RDB Act to co-operative bank after the constitution of the Tribunal under the RDB Act for recovery of debts due to it, is to apply to such tribunal for an order.8. The order of the High Court reveals that one Narendra Kanti Lal filed Writ Petition No. 6079/2002 in the High Court praying for setting aside the recovery certificate dated 6th September, 2000 issued by the Assistant Registrar (Co-operative Societies) in exercise of his powers under Section 101 of the MCS Act, 1960 and the warrant of attachment issued pursuant thereto on the application made by Jan Kalyan Sahakari Bank Limited, one of the respondents in the said petition. When that petition came up for admission before the learned Single iudge of the Bombay High Court, the petitioner therein brought to the notice of the learned Single Judge the earlier judgment of the Division Bench in Shamrao Vithalrao Co-operative Banks' case (supra). The learned Single Judge, however, was of the opinion that the Division Bench in its judgment did not consider that the MCS Act, 1960 has been enacted by the State Legislation under Entry 32, List II of the Seventh Schedule of the Constitution of India. The learned Single Judge having considered the importance of the question involved in the matter directed to place the matter before Hon'ble the Chief Justice of the High Court for Reference before the Full Bench. It appears that in the meantime, some more Writ petitions came up before the Division Bench raising the same question. Hon'ble Chief Justice

direct that the amounts deposed shall be retained by the concerned banks and adjusted against the liabilities, if any, that remain to be determined pursuant to proceedings initiated by the respective banks in accordance with this judgment.

(k) In view of the declaration in this judgment, the respondent-banks are at liberty to proceed with the recovery of debts due to them, before the appropriate forum and under the appropriate law, in accordance with this judgment.

(I) As the proceedings initiated before the Registrar or any other authority under the 1964 Act were bona fide and as considerable time had been consumed in the litigation in this case also, the respondent-banks shall be entitled to set off the period spent in pursuing their claims before the Registrar or other fora and before this Court, in computing the period for filing appropriate applications/cla!Jns before the appropriate authorityffribunal."

12. The Full Bench of the Andhra Pradesh High Court declared Sections 61 and 71 ofthe APCS Act, 1964 invalid being beyond legislative competence of the State and also in clear and direct conflict with the provisions of 'the RDB Act'. In interpreting the provisions of the two enactments, the Bench has employed the 'Doctrine of Reading Down '.

13. We have carefully perused the judgments of the Full Benches of the . High Courts of Bombay and Andhra Pradesh impugned before this Court by the aggrieved parties. Before proceeding further to consider the legal question referred to the larger Bench, the provisions of the various Statutes relevant for our purpose may be first noticed.

THE MAHARASHTRA CO-OPERATIVE SOCIETIES ACT. I960 [the MCS ACT. 1960]

14. The MCS Act, 1960 was promulgated and came into force on 26th day of January, 1962 relating to co-operative societies with view to providing for the systematic development of the co-operative movement in the State of Maharashtra in accordance with the Directive Principles of State Policy enunciated in the Constitution of India. The object and the working of the co-operative banks had become so large that it was found necessary to extract more important provisions of the Banking Regulation Act, 1949 ['the BRAct'] and allied provisions of the Reserve Bank of India Act, 1934 ['the

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GREATER BOMBAY CO-OP. BANK l.TD. •· UNITED YARI'J TEX. P\'T.l.TD. [LOKESHWAJl SINGH PANT A. J. ) 837

RBI Act'] to the co-operative banks in public interest.

15. Section 2 (10) of the MCS Act, 1960 defines "co-operative bank" to mean society which is doing the business of banking as defined in clause (b) of sub-section ( 1) of Section 5 of the Banking Companies Act, 1949 and includes any society which is functioning or is to function as Co-operative Agriculture and Rural Multi-purpose Development Bank under Chapter XI. In Section 2(6) of the MCS Act, 1960- "Central Bank" means co-operative bank, the objects of which include the creation of funds to be loaned to other societies; but does not include the urban co-operative bank. Section 91 of the MCS Act, 1960 in Chapter IX deals with settlement of any dispute touching the constitution, conduct of general meetings, management or business of society etc. to the Co-operative Court. Section I 01 provides for recovery of arrears due to certain societies as arrears of land revenue in pursuance of the certificate granted by the Registrar. Under Section l8A of the Act, the Registrar is competent to amalgamate one or more co-operative banks in public interest or in _?rder ·to secure their proper management.

16. Section 36 under Chapter IV makes every registered society as corporate body having perpetual succession and common seal which acts through Committee for management with rest of its authority being in General Body of members in meetings as provided in Sections 55, 72 and 73. Section 43 provides that society shall receive deposits and loans from · members and other persons, only to such extent, and under such conditions, as may be prescribed or specified by bye-laws of the society. Section 44 regulates the loan making policy of society. This Section provides that the society shall not make loan to any person other than member, or on the security of its own shares, or on the security of any person who is not member. It empowers the Government to prohibit, restrict or regulate the lending of money by any society or class of societies on the security of any property. Section 50 under Chapter V provides for direct subscription by the State Government to the share capital of society with limited liability upon such tenns and conditions as may be agreed upon. Section 64 provides that no part of the funds other than the net profits of society shall be paid by way of bonus or dividend, or otherwise distributed among its members. Chapter VII deals with Management of Societies. Section 72 provides that the final authority of every society shall, subject to the provisions of this Act and the Rules vests in the general body of members in general meeting. Section 73 empowers Committee to manage the society. Chapter VIII deals with Audit, Inquiry, Inspection and Supervision of the societies. Section 81 provides that

[the Registrar shall audit, or cause ][to ][be ][audited ][at ][least once ][in ][each co-].... operative year, by person authorized by him by general or special order in writing in this behalf the account of every society which has been given financial assistance including guarantee by the State Government. Section 83 ' empowers the Registrar to conduct an inquiry into the constitution, working and financial conditions of society. Chapter IX 'deals with Settlement of Disputes. dispute touching the constitution, ele~tions of the Committee or its officers other than election of committees of the specified societies including its officer, conduct of general meetings, management or business of "' society is covered under sub-section (I) of Section 91 ofthe MCS Act, 1960. The settlement of disputes including the recovery of loan by society from [its members or sureties lies ][with ][the Co-operative Court. The Civil Court ][has ]no jurisdiction to try and entertain the suit in regard to the dispute which fall both in the purview of sub-section (1) of Section 91 of the Act. Section 92 regulates the period of limitation for different types of disputes mentioned in it and the disputes of the nature as provided in Section 91 has to be tried as suit by the Co-operative Court as Civil Court.- Section 94 lays down the procedure for settlement of disputes and power of Co-operative Court. The Co-operative Court or the Registrar or the authorized person, as the case may be, if satisfied on inquiry or otherwise that party to such dispute or ~ \-the person against whom proceedings are pending under Section 88, with intent to defeat, delay or obstruct the execution of any award or the carrying [out ][of ][any ][order that ][may ][be ][made ][is ][empowered ][to ][direct additional attachment ]of the property under Section 95. Any party aggrieved by any decision of the Co-operative Court or order passed by the Co-operative Court or the Registrar or the authorized person under Section 95 is at liberty to file appeal before the Co-operative Appellate Court under Section 97. Section 98 provides that orders mentioned therein if not carried out on certificate signed by the Registrar or the Co-operative Court or liquidator shall be executed in the same manner as decree of civil court and shall be executed in the same y:: manner as decree of such court or be executed according to law and under the Rules for the time being in force for the recovery of arrears of land revenue. An application for such recovery to be made to the Collector shall [be ][accompanied by certificate ][signed ][by the Registrar and shall be made ]within twelve years from the date fixed in the order an~ if no such date is ftxed from the date of the order. Recovery Certifica~e is issued by the Registrar under sub-section (I) of Section I 0 l of the MCS Act, 1960 and the mode for recovery of the amount is under Section 156 of the Act. Chapter X deals with .-_.: liquidation of the societies. Section 102 empowers the Registrar to issue an interim order of winding up of the society. An appeal against the winding up

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GREATER BOMBAY CO-OP. BANK LTD. v. UNITED YARN TEX. PVT.LTD. [LOKESHWAR SINGH PANT A, l.J 839

of the society shall be made by the aggrieved party to the State Government under Section 104. Section 105 lays down the powers of the liquidator. Cognizance by the Civil Court of any matter connected with the winding up or dissolution of society under this Act is barred under Section 107.

THE ANDHRA PRADESH CO-OPERATIVE SOCIETIES ACT, 1964 [THE APCS ACT, 1964]

17. The Andhra Pradesh State Co-operative Bank Limited was formed by the ·amalgamation of the previous Andhra Pradesh State Co-operative Bank Limited, Vijayawada No. 2120 and Hyderabad Co-operative Apex Bank Limited, Hyderabad, under the Andhra Pradesh Co-operative Bank (Formation) Act, 1963 and by the merger of the Andhra Pradesh Central Agricultural Development Bank Limited, Hyderabad, under Act 14 of 1994 and was deemed to be registered as Co-operative Society under the Andhra Pradesh Co-operative Societies Act of 1964 [the APCS Act, 1964].

18. The APCS Act, 1964 was enacted with Statement of Objects and Reasons to consolidate and amend the law relating to Co-operative Societies in the State of Andhra Pradesh in order to facilitate and strengthen the · functioning of Co-operative Societies based on Co-operative principles and · Co-operative identity. Section 2 deals with defmitions clause. Clause (f) defmes 'fmancing bank' to mean 'a society, the main object of which is to assist any affiliated or other society by giving loans or advancing moneys; and includes any scheduled bank as defined in the RBI Act and such other body corporate or fmancial institution as may be notified by the Government from time to time, which gives financial or other aid to society'. Chapter II of the Act deals with Registration of Societies. society which has, its main object, the promotion of the economic interests of its members in accordance with the Co-operative principles ..... , the registration of society shall render it body corporate by the name under which it is registered having perpetual succession and common seal in terms of Section 9. In Chapter III, Section 19 prescribes the eligibility for membership of the Society. Under Chapter IV, the Management of Societies ultimately shall vest in the General Body, whereas Section 30-A empowers the General Body of every society to constitute supervisory council to ensure that the affairs of the society. are conducted in accordance with the principles of Co-operation, provisions of the Act, Rules, bye-laws and resolutions of the General Body. The General Body of society is also empowered to constitute Committee 'in accordance with the bye-laws and entrust the management of the affairs of the society to such Committee

19. Chapter VIII of the APCS Act, 1964 deals with Settlement of Disputes touching the constitution, management or the business of society, other than dispute regarding disciplinary action taken by the society or its committee against paid employee of the society. Explanation to Section 61 prescribes the nature of the dispute for the purposes of sub-section (1) to include claim by society for any debt N other ~mount due to it from member, past member, the nominee, heir or legal representative of deceased member, whet~er such debt .or other amount be admitted or not and claim by surety against the principal debtor where the society has recovered from the surety any amount in respect of any debt or other amount due to it from

....... (

GR£ATER80MBAYCO.OP. BANK LID •· UNITEDY.uJIITEX. PVT LID (LOK£SHWARSDIGH PANTA. J. l84}

the principal debtor as result of the default of the principal debtor whether such debt or other amount due to be admitted or not. All such disputes, which are enumerated under Section 61 of the Act, shall be referred to the Registrar for decision. The Registrar is empowered to decide the dispute himself or transfer. it for disposal to any person who has been invested by the Government with powers in that behalf or refer it for disposal to an arbitrator under Section. 62 of the Act. Section 63 empowers the financing bank to proceed against members of society for recovery of moneys due to it from such society. Under Section 64 contained in Chapter IX, if the Registrar, after an inquiry held under Section 51 or an inspection made under Section 52 or on receipt of an application made by not less than two-thirds of the members, is of the opinion that the society ought to be wound up, he may after giving tfle society an opportunity of making its representation, by order direct it to be wound up. Where the order of winding up is made under Section 64, the Registrar may appoint Liquidator for tha• purpose under Section 65. Chapter X deals with Execution of Decisions, Decrees and Orders. The Registrar or any person authorized by him in this behalf is authorized to recover certain amount due under decision or an order of the Registrar, or any person authorized by him, or an arbitrator by attachment and sale of property and execution of the orders. The recovery of any amount may be executed by the Civil Court having local jurisdiction on certificate signed by the Registrar or any person authorized by him in this behalf as if the order or decision were decree of that Court; or by the Collector, on an application made to him within twelve years from the date ftXed for payment in the order or decision and if no such date fixed from the date of the order or decision, along with certificate signed by the Registrar or by any person authorized by him in this behalf, as if the amount due under the order or decision were an arrear of land revenue. Section 71 provides for recovery of debts. It reads: "( 1) Notwithstanding anything in this Act cr in any other law for the time being in force and without prejudice to any other mode of recovery which is being taken or may be taken, the Registrar may, on the application made by society or fmancing bank or federal society as the case may be, for the recovery of arrears of any sum advanced to any of its members and on furnishing statement of accounts in respect of the arrears and after making such inquiry as he deems fit issue certificate f{lr the recovery of the amount stated therein to be due as arrears." If society has failed to take action under sub-section (1) in respect of any amount due as arrears, the Registrar, after satisfying himsel~ may on his own motion issue certificate for the recovel)' of the amount stated therein to be due as arrears and such certificate shall be deemed to have been issued on an application made by the society

20. Chapter XI deals with Appeal, Revision and Review. Under Section 75, the Government, for the purpose of this Act, is competent to constitute as many tribunals as may be necessary for such area or areas as may be specified in the Notification. The Tribunal shall consist of Chairman and not more than two other members to be appointed by the Government. The Chairman shall be person who is or has been judicial officer not below the rank of District Judge and member shall be person, who holds or has held post not below the rank of Additional Registrar or" Co-operative Societies. Any person or society aggrieved by any decision passed or order made by the Registrar or any other person authorized under the various provisions of the Act enumerated in Section 76 is free to file an appeal to the Tribunal. The Registrar under Section 77 is empowered to exercise the powers of revision either on his own motion or an application made to him by the aggrieved party. THE MULTI-STATE CO-OPERATIVE SOCIETIES ACT. 2002 {'THE -r--·

THE MULTI-STATE CO-OPERATIVE SOCIETIES ACT. 2002 {'THE MSCS ACT. 2002 '] 21. The Multi-State Co-operative Societies Act, 1984 was enacted by the Parliament and Section 74 thereof deals with various disputes including recovery of debts due to the co-operative banks. Parliament repealed the Multi-State Co-operative Societies Act, 1984 by the Multi-State Co-operative Societies Act, 2002 ["the MSCS Act, 2002").

22. The object of the MSCS Act, 2002 was to consolidate and amend the law relating to co-operative societies, with objects not confmed to one

GREATER BOMBAY CO-OP. BANK lTD. v. UNITEOYAANTEX. PVT. lTD. (lOKESHW.U SINGH PANT A, J. 1843

State and serving the interests of members in more than one State, to facilitate the voluntary formation and democratic functioning of co-operatives as people's institutions based on self-help and mutual aid and to enable them to promote their economic and social betterment and to provide functional autonomy and for matters connected therewith or incidental thereto.

23. In Section 3(t) of the MSCS Act, 2002, 'co-operative bank' means multi-State co-operative society, which undertakes 'banking business'. Section 3(h) defines 'co-operative society' to mean 'a society registered or deemed to be registered under any law relating to co-operative societies for the time being in force in any State'. In terms of Section 3(p), 'multi-State co-operative society' means 'a society registered or deemed to be registered . under this Act and includes national co-operative society and federal co-operative'. Chapter IV of the Act deals with members of multi-State co-operative societies and their duties, rights and liabilities. Settlement of disputes touching the constitution, management or business of multi-State co-operative society are to be referred to an arbitration under Section 84 of Chapter IX of the Act. The order or decision recorded by the Authority under Section 39 or Section 40 or Section 83 or Section 99 or Section l 0 l can be executed in the manner provided in Chapter XI of the Act. Section 99 and Section I 0 l under Chapter XII provide for appeals to the Appellate Authority and review of its orderS. Section 22 of the MSCS Act, 2002 provides for conversion of Co-operative Society into Multi-State Co-operative Society by an amendment in its bye-taws with the approval of the Central Registrar who shall consult the Registrars of co-operative societies of the State concerned. The Act provides for its own machinery for registering multi-State societies · and for federal co-operatives thereunder as also the rights of the members, directors and managements and other matters like privileges, properties and funds and matters connected therewith as well as machinery for settlement of disputes and winding up thereof as set out in about 38 Sections of the said Act beginning from Chapter VII to Chapter XIV.

THE RESERVE BANK OF INDIA ACT, I934 {the RBI ACT]

24. In Section 2 (i) of the RBI Act, "co-operative bank", "co-operative credit society", "director", "primary agricultural credit society", "primary co-operative bank" and "primary credit society" shall have the meanings respectively assigned to them in Part V of the Banking Regulation Act, 1949.

25. Chapter. III-A of RBI Act deals with Collection and Furnishing of

[Credit Information. In Section 45A (a) "banking company" means banking ]company as defmed in Section 5 of the Banking Regulation Act, 1949 (10 of 1949) and includes the State Bank of India, [any subsidiary bank as defmed in the State Bank of India (Subsidiary Banks) Act, I 959 (38 of 1959), any corresponding new bank constituted by section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), and any other financial institution notified by the Central Govenunent in this behalf]".

THE BANKING REGULATION ACT. 1949 (the BRACT):

26. This Act was brought into force on 16th March 1949. Section 3 of the BRAct clearly provides that the Act would apply to Co-operative Societies in certain cases, subject to the provisions of Part V of the Act. The BR Act defines "banking company" under Section 5(c) as follows:-

(c) "banking company" means any company which transacts the business [in India]."

27. In Section 5(d) "company" means any company as defmed in section 3 of the Companies Act, 1956 (I of 1956); and includes foreign company within the meaning of section 591 of that Act:

28. Chapter V of the BRAct was inserted by Act 23 of 1965. w.e.f. 1.3.1966. Section 56 of the Act provides that the provisions of this Act, as in force for the time being, shall apply to, or in relation to, banking companies subject to the following modifications namely :-

"Throughout this Act, unless the context otherwise requires:-

(i) references to "banking company" or "the company" or "such company" shall be construed as references to co-operative bank;

(ii) ............................................................................... "

29. The purpose and object of modifications were to regulate the functioning of the co-operative banks in the matter of their business in banking. The provisions of Section 56 itself starts with the usual phrase "unless the context otherwise· requires" is to make the regulatory machinery provided by the BR Act to apply to co-operative banks also. The object was not to defme co-operative bank to mean banking company, in terms of Section 5 (c) of the BRAct. This is apparent from the fact that instead of

amending the original clause (c) of Section 5 separatt: clause ( cci) was added

GR£,1. TEll BOMBAY C().()P. BANI< LTD. •. Uh'tnl> Y AAN TEX. PVT lTD (I.OKESHW AR SIN<iH PANT A. J. J84 5

to cover the 'co-operative bank' to mean 'a state Cl")-operative bank, central co-operative bank and primary co-operative bank'. In clause (ccv) 'primary co-operative bank' means 'a co-operative society, other than primary agricultural credit society. The primary object or principal business of the 'Co-operative Bank' should be the transaction of banking business. The modifications given in clause (a) of Section 56 are apparently suitable to make the regulatory machinery provided by the BR Act to apply to co-operative banks also in the process of bringing the co-operative banks under the discipline of Reserve Bank of India and other authorities. co-operative bank shall be construed as banking company in terms of Section 56 of the Act. This is because the various provisions for regulating the banking companies were to be made applicable to co-operative banks also. Accordingly, Section 56 brought to-operative banks within the machinery of the BR Act but did not amend or expand the meaning of"banking company" under Section 5(c). On plain reading of every clause of Section 56 of the BR Act, it becomes clear that what is contained therein is only for the purpose of application of provisions that regulate banking companies to co-operative societies. According to the expression "co-operative societies" used in Section 56 means "co-operative society", the primary object or principal business of which is the transaction of banking business. ln other words, frrst it is co-operative society, but carrying on banking business having the specified paid up share capital. ·Other definitions also make it clear that the entities are basically co-operative societies.

THE SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT. 2002 [SECURITISAT/ON ACT].

30. The Parliament had enacted the Securitistion and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ['the Securitisation Act'] which shall be deemed to have come into force on 21st day of June 2002. In Section 2(d) of the Securitisation Act same meaning is given to the word 'banking company' as is assigned to it in clause (e) of Section 5 of the BRAct. Again the defmition of 'banking company' was lifted from the BRAct but while defining 'bank', Parliament gave five meanings to it under Section 2(c) and one of which is 'banking company'. The Central Government is authorized by Section 2 (cXv) of the Act to specify any other bank for the purpose of the Act. In exercise of this power, the Central Goverrunc:nt by Notification dated 28.01.2003, has specified "co-operative bank" as defmed in Section 5 (cci) of the BRAct as "bank" by lifting the

GREI.TU BOMBAY c().(w. BAtiK L TO. •·. UNTl£0 YARN TEX. PVT. L TO. (LOKESHWAJl SINGH PANT A. J. !84 7

into force of the RDB Act, the banks were approaching Civil Courts for recovery of their debts from the defaulters by filing civil suits before the Civil Courts of competent jurisdiction. After the coming into force of the RDB Act on the 25th day of June 1993, the jurisdiction of the Civil Courts was taken away. The decision to have separate Bank Tribunals was taken by the Centrd Government after considering the increasing workload of the Civil Courts and delay in disposal of the bank suits. The Statement of Objects and Reasons for the enactment of the RDB Act are that the banks and financial institutions at present experience considerable difficulties in recovering loans and enforcement of securities charged with them. The existing procedure for recovery of debts due to the banks and financial institutions has blocked . significant portion of their funds in unproductive assets, the value of which deteriorates with the passage of time. The Committee on the financial system headed by Shri M. Narasimham has considered the setting up of the Special Tribunals with special powers for adjudication of such matters and speedy recovery as critical to the successful implementation of the financial sector reforms. An urgent need was, therefore, felt to work out suitable mechanism through which the dues to the banks and financial institutions could be realized without delay. In 1981, Committee under the Chairmanship of Shri T. Tiwari had examined the legal and other difficulties faced by banks and financial institutions and suggested remedial measures including changes in law. The Tiwari Committee had also suggested setting up of Special Tribunals for recovery of dues of the banks and financial institutions by following summary procedure. The setting up of Special Tribunals will not only fulfill long-felt need,' but also will be an important step in the implementation of , the Report ofNarasimham Committee. Whereas on 30th September, 1990 more than fifteen lakhs of cases filed by the public sector banks and about 304 cases filed by the financial institutions were pending in various Courts, recovery of debts involved more than Rs.5622 crores in dues of Public Sector ·f Banks and about Rs.39l crores of dues of the financial institutions. The locking up of such huge amount of public money in litigation prevents proper utilization and re-cycling of the funds for the development of the country.

33. The provisions of the RDB Act, which are relevant, are referred to in the following paragraphs.

Section 2(d) defmes "banks" to mean (i) banking company; (ii) corresponding new bank; (iii) State Bank of India; (iv) subsidiary bank; or (v) Regional Rural Bank. In terms of clause (e) "banking company, shall have the meaning assigned to it in clause (c) of Section 5 of the BR Act.

GR£ATERB0!>18AYCO-OP. BANK LTD'· UNITEDYARNTEX. PVT LTD.(LOKESHWAA SJNGH PANTA.I. J849

36. In the light of the factual situation and having gone through the above-said relevant provisions of different Statutes and relevant Entries of Lists I and II of the Seventh Schedule of the Constitution, we have heard the learned counsel for all the parties and with their assistance we have gone through the decisions brought before us by them.

37. Mr. S. Ganesh, learned Senior Advocate appearing on behalf of the • appellant in Civil Appeal Nos. 432 to 434 of2004, vehemently contended that r . the High Court of Bombay completely failed to appreciate the meaning of "banking company" as defined in Section S{c) of the BRAct which clearly and indisputably does not cover or include 'co-operative bank' registered under the MCS Act, 1960 or the MSCS Act, 2002. He submitted that Section 56 of the BRAct did not amend the definition of 'banking company' in tenns of Section 5 (c), but for all intents and purposes Act No. 23 of 1965 merely extends the application of the provisions of the BR Act to 'a co-operative bank' even though it is not 'banking company' as defined in Section S(c). He contended that the Parliament in its wisdom did not make the RDB Act applicable to all banks to which the provisions of the BR Act were made applicable. It was urged that the reason why co-operative banks were excluded from the ambit of the operation of 'the RDB Act by confming the said Act only to "banking company" as defined in Section 5(c) of the BRAct was that under the MCS Act, 1960 Act and the MSCS Act, 2002 co-operative banks established under the Societies Act had an effective and speedy machinery for recovery of their dues and, therefore~ it was neither necessary nor beneficial to make the RDB Act applicable to co-operative banks for the recovery of dues from their members under the respective State Co-operative Legislations. He next contended that the co-operative banks established under the MCS Act, 1960 and the MSCS Act, 2002 and transacting the business of banking shall advance loan to their members only as per the ,. I provisions contained in both these Statutes and not to any other person. Therefore, under these enactments "co-operative banks" can only recover their dues from their members, whereas the RDB Act will be applicable to all other banks, which have advanced loan to any person/society/corporation/ industry, etc. etc. without any stipulation of membership of the Banks.

38. Mr. Amar Dave, Advocate appearing in lA Nos.l0-11 of2006 in Civil Appeal No.432 of 2004, submitted that as per the Scheme of the BRAct, the ·;; legislative intention is to classify co-operative banks as completely separate category and the same cannot be included in "Banking Company" in terms of Section 5 (c) of the Act. He contended that it has been well demonstrated

from the Statement of Reasons and Objects behind the passing of the RDB Act itself, that the same was enacted merely for expeditious adjudication and recovery of debts due to Banks and Financial Institutions. The Committees formed prior to the enactment of the ROB Act also more or less did not cover the co-operative banks for the purpo~es of the recommendations in general for improving the recovery system. He next contended that the recovery of debts by the co-operatives from their members are covered .by specific Acts such as the Co-operative Societies Acts of the States, which are comprehensive and self-contained legislations. Further submission was that for multi-state co-o~ratives, there is specific enactment in the form of the MSCS Act, 2002 comprehensively. providing the legal framework in respect to issues pertaining to such co-operatives. Therefore, co-operative banks are, in any case, not covered by the provisions of the ROB Act by invoking the doctrine of incorporation. He next submitted that the State's power under List II, Entry . 32 of Seventh Schedule of the Constitution is not subject to or subordinate to the power of the Union List I, Entry 45.

39. Dr. Rajeev Dhavan, learned Senior Advocate, appearing for respondents in Civil Appeal No. 6069/2005 was requested to assist the Court in those matters which were listed on the Board on the day when the matters were heard. He contended that both List I, Entries 43 and 45 as well as List II, Entry 32 of the Seventh Schedule must be given the widest possible . interpretation in their respective spheres. He submitted that although Article 246 (l) begins with non-obstante clause, easy recourse should not be made to the non-obstante clause without first making an effort of reconciliation between the Union and the State Entries. In other words, under federal set up, the States are not to be readily denuded of powers which the Constitution makers gave to them as exclusively reposted in them. He contended that it was really tht: intention of the Constitution makers to ensure that the provision is made for Peoples' co-operatives and the idea of co-operatives and people are necessarily interlinked associations and organizations. Learned senior counsel made reference to decision of this Court in Zoroastrian Co-operative Housing Society Ltd. v. District Registrar, Co-operative Societies (Urban) [2005] 5 SCC 632 at Para 15:

"...... The co-operative movement by its very nature, is form of voluntary association where individuals unite for mutual benefit in the production and distribution of wealth upon principles of equity, reason and common good .... ".

GREATERBOMBAYCO-OP.BANKLTD. v. UNJTEOYARNTEX. PVT. LTD. [LOKESHWARSINGHPANTA.J. J85J

40. He then contended that on plain reading of definitions of 'ban~· [Section 2(d)]; 'banking company' [Section 2(e)], 'debt' [Section 2(g)] and ·'financial institution' {Section 2(h)] of the RDB Act, it becomes clear that the Act is concerned with debts of corporate banks and financial institution~ which were constituted under Lisf I, Entry 43 and the concept of 'banking• under Section 5(b) of the BR Act is very different from the activity of 'financing bank' under the APCS Act, 1964.

41. Mr. K. N. Bhat, learned Senior Advocate appearing on behalf of th~ Reserve Bank of India in SLP (C) No.22621 of 2005 contended that the pith and substance of the Co-operative Societies Acts enacted by various States must be taken into consideration and not particular activity of the society.· He next contended that the expression "co-operative bank" in Section 56(cci) means 'State Co-operative Bank', 'Central Co-operative Bank' and defmition of'Primary Co-operative Bank' in clause (ccv) means 'co-operative society' the primary object or principal business of which is the transaction of b~ing business and no attempt is made by the Parliament to amend Section 5(c) of the BRAct to include 'co-operative societies' doing the business of banking within the meaning of 'banking company' as defmed in Section 5 (c) of the · RDBAct.

42. Mr. Bhim Rao Naik, learned senior counsel appearing on behalf of the Cosmos Co-operative Bank Ltd. in Civil Appeal No.436 of2004, submitted that the defmition of'banking company' under Section 2(d)(i) of the RDB Act on its plain reading indicates that it does not refer to co-operative banks, but to companies incorporated under the Companies Act. He contended that Section 56 of the BR Act creates fiction only for the' purposes of the said Act and cannot be applied to another Act, viz., the ROB Act in the absence of any indication to that effect. He next contended that the State Legislature by virtue of Entry 32, List II of the Seventh Schedule has the power to make law with respect to co-operative societies including societies doing banking business. Learned counsel also contended that the MCS Act, 1960 and the MSCS Act, 2002 both deal with their members and as per regulation of loan making policy, loan can be given to the members only of the societies subject to certain exceptions and in any event under Entry 43, List I, the Parliament G. cannot legislate on incorporation of Co-operative Societies since Co-operative Societies are excluded in Entry 43 of List I of the Seventh Schedule to the Constitution.

43. Mr. Vinod A. Bobde, learned senior counsel appearing on behalf of

[2007] 4 S.C.R.

the State of Andhra Pradesh in SLP (C) Nos. 25246-25247 of2005, challenging the judgment and order of the High Court of Andhra Pradesh, strenuously contended that Section 56 was inserted in the BR Act to make that Act applicable with modifications to co-operative banks with the main object to regulatn the functioning of the co-operative banks in the matter of their business as the banking companies were regulated (Part II), control over · management (Part IIA) and all other aspects contained in the BR Act. The modifications given in clause (a) of Section 56 are apparently for suitably applying the substantive provisions of the Act to co-operative banks and do not touch that part of the Act which is in the interpretation clause. He then contended that the judgment of the High Court is erroneous on the grounds: firstly, the co-operative societies have been deprived of the right to engage in the business of banking altogether; second, the co-operative societies have been·deprived of speedy, easily accessible and inexpensive remedies for recovery of their dues from members; thirdly, persons depositing monies in co-::operative banks have been deprived of their remedies under the A. P. (Protection of Interests of Depositors and Financial Establishments) Act, 1999; and fourthly, while claims over Rs.IO lakhs by co-operative banks will have to go to the Debt Recovery Tribunals and claims below that sum will remain under the APCS Act, 1960 as amended in 1964.

44. Mr. T. R. Andhyarujina, learned Senior Advocate appearmg on behalf of Andhra Pradesh State Co-operative Bank Ltd. in Civil Appeal No.36 of 2006, yehemently contended that Co-operative Societies do variety of activities for their members a·ccording to co-operative principles of voluntary and open membership controlled by their members. The Co-operative Banks are distinguished from banking companies who do not have to conform to such co-operative principles and who can give loans to the public. He submitted that prior to the Banking Laws (Application to Co-operative Societies) Act, 1965 (Act 23 of 1965), Co-operative Societies doing banking were not subject to regulation of their business of bankfug although deposits and working funds of Co-operative Banks were very large, but Act 23 of 1965 introduced new Chapter V to the BR Act and regulated the banking business of ·co-G operative Societies as it had regulated banking by banking companies with necessary modification. He submitted that recovery of Joan by the Co-operative Banks are ancillary and necessary for the banks and every bank must have the power to refer disputes for adjudication and recover loans, etc. as expressly conferred by special provisions in the State Co-operative Societies Acts and Regulation of Co-operative Societies which fell under Entry 32, List II. He aJso suomitted that Entry 45, Lis~ I, is limited to laws which affect the essential

. .,.. -

GREATER BOMBAY CO.OP. BANK LTD. " UNIT£0 Y AAN TEX. P"i . LTO. [I.OK£SHW All SINGH PANT A. J. J853

business of bank qua the bank viz. banking as defined in Section 2(b) of the BR Act. He then contended that there was conscious and deliberate omission to exclude "Co-operative Bank" in the definition of "Banking Company" in Section 2(d) of RDB Act, whereas all other five categories of Banks were included in the said definition and nothing prevented the framers of the Statute to include "Co-operative Bank" in the definition clause of tl)e BR Act. It was next contended that significantly the Co-operative Banks haye been brought in by the Parliament in Section 2( c)( v) of the Securitization Act by way of Notification and enabling provisions and the purpose of Part Ill of the Securitization Act is also recovery of banks' dues, but the RDB Act I employed no such device.

45. Per contra, Mr. S. B. Sanyal, learned senior counsel for the respondents in Civil Appeal No.6077 of 2005, while adopting the reasoning of the High Court in the order under challenge submitted that throughout the BR Act wherein banking company or company does occur, it would also include co-operative bank on conjoint reading of Section 2(e) of the RDB Act and Section 5(c) of the BRAct as amended on or from 01.03.1966. He submitted that the conclusion is irresistible that the RDB Act will embrace debts due to co-operative bank which can only be recovered by the Tribunal constituted under Section 17 which shall have the sole jurisdiction under Section 18 and no authority or court is entitled to exercise any jurisdiction to recover such debt, in view of Section 34 which envisages that the ROB Act will have an overriding effect, notwithstanding any other law for the time being in force. He next contended that Section 6 of the BR Act applies to all banks doing banku.g business including commercial banks and as per command of Section · · 56( l X a) of the said Act, business of banking company will include busin~ss of co-operative banks as the co-operative banks are also advancing money either on security or without security to third parties and not restricted to members of societies. He contended that in the matter of grant of loan etc., I co-operative bank has only one restraint that is to obtain approval from Reserve Bank of India which is manifest from Section 20(2)(b) of the BRAct and grant of unsecured loan and advances by co-operative bank to any other person or on bills of exchange of commercial transaction is permissible. Learned senior counsel further submitted that Section 47 of the APCS Act, 1964 is not the machinery through which the debt arising out of banking transaction can be recovered from one and all. Similarly, under Section 61 of the APCS Act, 1964 the dispute which falls within the jurisdiction of Registrar are disputes between members, past members, employees, legal representativ~s of the deceased employees whereas the disputes between primary co-operative

~ _.. .~

GREATERBOMBAYCO.OP. BANK LTD. v, UNITED YARN TEX. PVT. LTD.{LOKESHWAR SINGHPANTA,l J855

its members, it will not alter characteristics of the banking company in the light of the Amending Act No.23 of 1965. He submitted that co-operative banks and co-operative companies are covered by the definition of Section 5 (c) of the BRAct.

48. Mr. Raghavendra S. Srivatsa, learned counsel appearing on behalf of the appellant-bank in Civil Appeal No. 916 of2006, submitted that the High Court of Andhra Pradesh has failed to appreciate the distinction between the defmition of "banking company" under Section 5(c) of the BR Act and Section 2(c) of the RDB Act. He submitted that the Parliament had kept the definition of "banking company" under Section 5(~) intact by adding new definition of "co-operative bank" in clause ( cci) and "primary co-operative bank" in clause (ccv) of the Act No. 23 of 1965.

49. Mr. T. Raja, learned counsel appearing on behalf of the petitioners in SLP (C) No. 5598 of2004, submitted that the RDB Act is special Statute enacted by the Parliament and the Co-operative Societies Act is general Statute in nature. Therefore, the RDB Act will apply for the recovery of the loans advanced by the co-operative banks whereas Co-operative Societies Act shall become inoperative.

50. Mr. S. Nanda Kumar, Advocate appearing on behalf of respondent No. 3 in SLP (C) No. 5598 of 2004, supported the contentions advanced by Mr. T. Raja, Advocate.

51. Dr. N. M. Ghatate, learned senior counsel appearing on behalf of respo!ldent Nos.l to 5 in Civil Appeal No. 436 of 2004, submitted that the subject of banking is covered in Entry 45, List I of the Seventh Schedule of the Constitution and as the recovery of debts/dues by the banks• is an essential part of banking business, the Parliament has legislative competence to legislate on the subjects. He submitted that as soon as the Parliament legislates under Entry 45, List I and makes law relating to recovery of dues by the banks, the provisions contained in the Co-operative Societies Acts relating to the subject will cease to operate in relation to the co-operative banks and the co-operative banks will follow the same procedure for recovery of the dues as laid down in the RDB Act. He then submitted that the co-operative bank will have to be included in the definition of the term "banking" as defmed in Section 2(d) of the RDB Act as Section S(c) of the BR Act cannot be read in isolation ignoring Section 56 of the Act. He submitted that the doctrine of occupied field because of paramountcy, central legislation will

GR£ATEUIOMBAYCO-OP. BANK LTD. " UNITEOYAANTEX PVT. LTD {LOKESHWARSI'NGH PANTA, J. J857

affairs of the society, admission of members, expulsion of members and disputes amongst members etc. but the banking sector whether in public sector or in private sector or in co-operative sector is one unified banking industry. He next submitted that the banking regulation laws contained either in the BR Act or in the RBI Act or other provisions will cover the whole spectrum of banking sector and it is, therefore, in the fitness of things that even for the recovery of the claims of the banks against the borrowers there should be one unified machinery and unified set of procedure and the same is to be found in the RDB Act. In the last, the learned counsel supported the judgments and orders of the High Court of Bombay and the High Court of Andhra Pradesh holding that as the co-operative banks are transacting banking business, they are covered by the definition of"bani<ing company" under Section 5(c) of the BR Act, therefore, the Tribunal constituted under Section '3 of the RDB Act has jurisdiction and power under Section 17 to decide claims of all banks including the co-operative banks.

53. Mr. U. U. Lalit, learned Senior Advocate appearing ~n behalf of the respondent in Civil Appeal No.38 of2006, contended that it is the exclusive domain of Union of India under Entry 45 List I of Seventh Schedule of the Constitution to enact laws in regard to banking. Co-operative banks transacting the banking business are, therefore, covered by the RDB Act in terms of the meaning of "banking company" under Section 2(d) of the Act.

54. In the light of the contentions of the learyted counsel for the parties appearing before us and on an analysis of the various provisions of the relevant Statutes, two questions arise for our consideration which are:-

INTERPRETATION CLAUSE:

[a] Whether the RDB Act applies to debts due to co-operative banks constituted under the MCS Act, 1960; the MSCS Act, 2002 and the APCS Act, 1964?

CONSTITUTIONAL CLAUSE:

[b] Whether the State Legislature is competent to enact legislation in respect of co-operative societies incidentally transacting business of banking in the light of Entry 32, List n of Seventh Schedule of the Constitution?

QUEsTiON NO. 1

GR.EA TER BOMBAY CO.OP. BANK l TO. v .. UNITED YARN TEX. PVT. l TO. [LOKESHW AR SINGH PANT A. J. J859

be strictly confined to the words used in Section 5(c) of the BRAct. It would have been t~e easiest thi~g for PaFiiament to say that 'banking company' shall mean 'banking company' as defined in Section 5 (c) and shall include 'co~operative bank' as defined in Section 5 (cci) and 'primary co-operative bank' as defmed in Section 5 (ccv). However, the Parliament did not do so. There was thus conscious exclusion and deliberate commission of co- operative banks from the purview of the ROB Act. The reason for excluding co-operative banks seems to be that co-operative banks have comprehensive, self-contained and less expensive remedies available to them under the State Co-operative Societies Acts of the States concerned, while other banks and financial institutions did not have such speedy remedies and they had to file suits in civil courts.

59. The ROB Act was, therefore, designed to deal with other banks and fmancial institutions which had to have recourse to the time-consuming process of the Civil Courts. The Statement of Objects and Reasons, stated hereinabove refers to more than 15 lakh cases filed by public sector banks and about 304 cases filed by the financial institutions pending in various courts. The Statement of Objects and Reasons also refers to the Ti~ari Committee which had expressly commented on delays in 'civil courts' and the Narsimhan Committee which recommended setting up of Special Tribunals.

60. Accordingly, the burden of the Civil Courts in the matter of suits by banks and fmancial institutions was shifted to the Debt Recovery Tribunals. The disputes between co-operative banks and their. members were being taken care of by the State Co-operative Acts and they were to remain where they were. If co-operative disputes are also to go to the Debt Recovery Tribunals, then those Tribunals will be over-burdened and the whole object of speedy recovery of debts due to banks and financial institutions would be defeated. The Co-operative Societies Acts on the one hand and ROB Act on the other cannot be regarded as supplemental to each other viz., the provisions of the said Acts cannot be said to be pari-materia.

61. This Court in Virendra Pal Singh v. District Assistant Registrar, [1980) 4.SCC 109 directly deals with the question ofthe legislative competence relating to co-operative society doing banking business. This decision in clear terms has laid down in para 10 as under:-

"10. We do not think it necessary to refer to the abundance of authority on the question as to how to determine whether legislation falls under an entry in one list or another entry in another list. Long

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GREATER BOMBA ·,• CO~P. BANK l TO. < UNITED YARN TEX. PVT. LTD. (LOKESHW AR SINGH PANT A. I. J86J

PLH 528."

62. Section 31 of the RDB Act clearly refers to transfer of' every suit or other proceeding pending before any court'. The word 'court', in the context of the RDB Act, signifies 'civil court' . It is clear that the Registrar, or an officer designated by him or an arbitrator under Sections 61, 62, 70 and 71 of the APCS Act, 1964 and under Section 91 and other provisions of Chapter IX of the MCS Act, 1960 are not 'civil courts' .

63. In Harinagar Sugar Mi/ls v. Shyam, [1962] 2 SCR 339, this Court held: ''By 'courts' is meant courts of civil judicature and by 'tribunals' those bodies of men who are appointed to decide. controversies arising under certain special laws. Among the power of the State is t~e power to decide such controversies. This is undoubtedly one of the attributes of the State, and is aptly called the judicial power of the State".

64. In Ram Rao & Anr. v. Narayan & Anr., AIR (1969) SC 724, it was held that the nominee of Registrar appointed under Section 95 of the Maharashtra Co-operative Societies Act, 1961 is not 'Court' within the meaning of Section 195, Cr.P.C ..

65. In Kihoto Hollohan v. Zachillhu & Ors., [ 1992] Supp.2 SCC 651 para 98, it was held that all tribunals are not courts, though all courts are tribunals. The word 'courts' is used to designate those tribunals which are set up in an organised State for the Administration of Justice ... ".

66. In Supreme Court Legal Aid Committee representing undertrial prisoners v. Union of India, [1994] 6 SCC 731 para 14, it was held: "it is common knowledge that 'court' is an agency created by the sovereign for the purpose of administrating justice. It is place where justice is judicially administered. It is legal entity".

67. The decision cited by the respondents in Thakur Jugal Kishore v. Sitamarhi/t, ( 1967] 3 SCR 163 does not refer to the earlier Constitution Bench decisions in ACC v. P. N. Sharma and Harinagar Sugar Mills v. Shyam (supra). At best, the Assistant Registrar could have been held to be 'tribunal' but not 'court' .

68. In later decision in the case of Rama Rao & Anr. v. Narayan & Anr., [1969] I SCC 167, two-Judge Bench has taken contrary view and held that under the MCS Act, 1960, the nominee of the Registrar for deciding a;

~Tal BOMBAY CO-OP. BANK LTD. v. UNITED YA»> T£X. PVT. LTD. {\.OKESiiWMSINGH PAW A, J. 1863

by Entry 32 of List II of the Seventh Schedule of the Constitution. Power to enact would include the power to re-enact or validate any provision of law in the State Legislature, provided the same falls in an Entry of List II of the Seventh Schedule of the Constitution with the restriction that such enactment should not nullify judgment of the competent court of law. In the appeals/ SLPs/petitions filed against the judgment of the Andhra Pradesh High Court, the legislative competence of the State is involved for consideration. Judicial system has an important role to play in our body politit and has solemn obligation to fulfil. In s~ch circumstances, it is imperative upon the Courts while examining the scope of legislative action to be conscious to start with the presumption regarding the constitutional validity of the legislation. The burden of proof is upon the shoulders of the incumbent who challenges it. It is true that it is the duty of the constitutional courts under our Constitution to declare law enacted by the Parliament or the State Legislature as unconstitutional when Parliament or the State Legislature had assumed to enact law which is void, either for want of constitutional power to enact it or because the constitutional forms or conditions have not been observed or where the law infringes the Fundamental Rights enshrined and guaranteed in Part III of the Constitution.73. As observed by this Court in CST v. Radhakrishnan in considering the validity of Statute the presumption is always in favour of constitutionality and the burden is upon the person who attacks it to show that there has been transgression of constitutional principles. For sustaining the constitutionality of an Act, Court may take into consideration matters of common know ledge, reports, preamble, history of the times, objection of the legislation and all other facts which are relevant It must always be presumed that the legislature understands and correctly appreciates the need of its own people and that discrimination, if any, is based on adequate grounds and considerations. It is also well-settled that the courts will be justified in giving liberal interpretation in order to avoid constitutional invalidity. provision conferrillg very wide and expansive powers on authority can be construed in conformity with legislative intent of exercise of power within constitutional limitations. Where Statute is silent or is inarticulate, the Court would attempt to transmutate the inarticulate and adopt construction which would lean towards constitutionality albeit without departing from the material of which the law is woven. These principles have given rise to rule of "reading down" the provisions if it becomes necessary to uphold the validity of the law.

74. In State of Bihar & Ors. V. Bihar Distillery Ltd. & Ors., [1997] 2 sec

GllEA TEll BOMBAY~- BM'K LTD. •· liNI1m YARN TEX. PVT LTD (LOKESHWAA SINGH PANTA.l. J865 .... examined to ascertain its pith and substance or its true nature and character for the purpose of detennine whether it is legislation with respect to matters in this list or that."

77. In A. S. Krishna v. State of Madras, (1957] SCR 399 at page 4.10, this Court applied these principles.

78. In State of Rajasthan v. Chawala, [ 1959] (Suppl.l) SCR 904 at 909 1 Hidayatullah J. aptly described the principles of pith and substance as under:-.. "The pith and substance of the impugned Act is the control of the use of amplifiers in the interests of health and also tranquility, and thus falls substantially (if not wholly) within the powers conferred to preserve, regulate and promote them and does not so fall within the Entry in the Union List, even though the amplifier, the use of which is regulated and controlled is an apparatus for broadcasting or communication As Latham, C. Latham, C. C. J., pointed out in in Bank of New South of New South New South Wales v. The Commonwealth: Commonwealth:

communication As Latham, C. Latham, C. C. J., pointed out in in Bank of New South of New South New South Wales v. The Commonwealth: Commonwealth: power to make laws 'with respect to' subject matter is power ... to make laws which in reality and substance are laws upon the subject-matter. It is not enough that law should refer. to the subject-matter or apply to the subject-matter: for example, income tax laws apply to clergymen and to hotel-keepers as members of the public; but no one would describe an income-tax law as being, for that reason, law with respect to clergymen or hotel-keepers. Building regulations apply to buildings erected for or by banks; but such regulations could not properly be described as laws with respect to banks or banking."

[Emphasis supplied]

79. Entry 43 List of I speaks of banking, insurance and financial corporat!ons etc. but expressly excludes co-operative societies from its ambit. The constitutional intendment seems to be that the co-operative movement was to be left to the States to promote and legislate upon and the bankjng activities of co-operative societies were also not to be touched unless Parliament considered it imperative. The BR Act deals with the regulation of the banking business. There is no provision whatsoever relating to proceedings for recovery by any bank of its dues. Recovery was initially governed by the Code of Civil Procedure by way of civil suits and after the RDB Act came into force, the recovery of the dues of the banks and fmancial institutions was by

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<JREATEil BOMBAY CO-OP. BANK lTD. v. UNlTEDYARN TCX PVT. LTD. [LOKESHWARSrNGH PANT A. J. J867

[2002) 9 sec 232, this Court, as per majority opinion, held that the legislative power of Parliament in certain areas is paramount under the Constitution is not in dispute. What is in dispute is the limits of those areas as judicially defined. Broadly speaking Parliamentary paramountcy is provided for under Articles 246 and 254 of the Constitution. The first three clauses of Article 246 of the Constitution relate to the demarcation of legislative powers between the Parliament and the State Legislatures. Under clause (I), notwithstanding anything contained in clauses (2) and (3), Parliament has been given the exclusive power to make laws with respect to any of the matters enumerated in List I or the Union List in the Seventh Schedule. Clause (2) empowers the Parliament and State Legislatures subject to the power of Parliament under sub-clause (I), to make laws with respect to any of the matters enumerated in List HI in the Seventh Schedule described in the Constitution as the 'Concurrent List' notwithstanding anything contained in sub-clause (3). Under clause (3) the State Legislatures have been given exclusive powers to make laws in respect of matters enumerated in List II in the Seventh Schedule described as the 'State List' but subject to clauses (I) and (2). The three lists while enumerating in detail the legislative subjects carefully distribute the ar~as of legislative authority between Parliament (List I) and the State (List II). The supremacy of Parliament has been provided for by the non-obstante clause in Article 246 (1) and the words· 'subject to' in Art. 246 (2) and (3).'·. Therefore, under Article 246 (1) if any of the Entries in the three Lists overlap, the Entry in List I will prevail. Additionally, some Of the Entries in the State List have been made expressly subject to the power of Parliament to legislate either under List I or under List III. Entries in the Lists of the Seventh Schedule have been liberally interpreted, nevertheless Courts have been wary of upsetting this balance by process of interpretation so as to deprive any Entry of its content and reduce it to 'useless lumber'. The use of the word 'exclusive' in Clause (3) denotes that within the legislative ·fields contained in List II, the State Legislatures exercise authority as plenary and ample as Parliament.

84. In Associated Timber Industries & Ors. v. Central Bank of India & Anr., [2000] 7 sec 93, this Court observed: "Banking" being included in Union List in Entry 45 List I of Seventh Schedule cannot come within the purview of Assam Money Lenders Act, while "money-lending and money-lenders; _ reli~f of agricultural indebtedness" under the Assam Money Lenders Act ~ / J 934 comes under Entry 30 of List II State List of the Seventh Schedule.

85. In State of Maharashtra v. Laljit Rajshi Shah & Ors., [2000] 2 SCC .

GREATER BOMBAY COOP. BANK LTD.v. UNITED YARN TEX (P) LTD. (PANT A. J. )UTT 1\AANCHAL FOR.EST DEVELOPI\.{ENT CO....N ,. lABAR SINGH (LAKSHMANAN. I. )

provision creating legal fiction, the Court is to ascertain for what purpose the fiction is created, and after ascertaining this, the Court is to assume all those facts and consequences which are incidental or inevitable corollaries to giving effect to the fiction. But in so construing the fiction, it is not to be extended beyond the purpose for which it is created, or beyond the language of the Section by which it is created. legal fiction in terms enacted for the purposes . of one Act is normally restricted to that Act and cannot be extended to cover another Act. When the State Legislatures make the Registrar, person exercising the power of the Registrar, person authorised to audit the accounts of society under Section 81 or person to hold an inquiry under Section 83 or to make an inspection under Section 84 and person appointed as an Administrator under Section 78 or as Liquidator under Section 103 shall be deemed to be 'public servants' within the meaning of Section 21 of the Indian Penal Code. Obviously, they would not otherwise come within the ambit of Section 21, the legislative intent is clear that specific category of officers · while exercising powers under specific sections have by legal fiction become 'public servant' and it Is only for the purposes of the Co-operative Societies Act. That by itself does not make those persons 'public servants' under the Indian Penal Code, so as to be prosecuted for having committed the offence under the Penal Code. When person is "deemed to be" something, the only meaning possible is that whereas he is not in reality that something, the Act of legislature requires him to be treated as if obviously for the purposes of the said Act and not otherwise."

86. The case reported in Union of India v. Delhi High Court Bar Association, [2002] 4 sec 275 relied upon on behalf of the respondents in : support of the judgments and orders of the High Court of Bombay and High Court of Andhra.Pradesh, does not consider the issue of co-operative banks' adjudication and recovery provisions under Entry 32 of List II. The Court was only considering Entry 45 List I vis-a-vis Entry IIA List III 'administration of justice'. As such, the decision of this case is of no assistance or of help to the proposition of law involved in the present cases.

87. None of the contentions of the learned counsel for the respondents supporting the judgments and orders of the High Courts impugned before this Court on the question of interpretation clause as well as the question of constitutional clause formulated hereinabove can be sustained.