Full Judgment Text
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 17
CASE NO.:
Appeal (civil) 439 of 1997
Appeal (civil) 8478 of 2003
PETITIONER:
The Apex Co-operative Bank of Urban
Bank of Maharashtra and Goa Ltd.
RESPONDENT:
The Maharashtra State Co-operative
Bank Ltd. & Others
Maharashtra State Co-operative
Bank Ltd. & Anr.
Vs.
State of Maharashtra & Ors.
DATE OF JUDGMENT: 29/10/2003
BENCH:
S. N. VARIAVA & H. K. SEMA
JUDGMENT:
J U D G M E N T
Arising out of S.L.P. (C) No. 4877 of 1997)
S. N. Variava, J.
Leave granted.
Both these Appeals are being disposed of by this common
Judgment as they arise out of the Judgment of the Bombay High Court
dated 19th December, 1996. In this judgment the parties are being
referred to in their capacity in Civil Appeal No. 439 of 1997.
Briefly stated the facts are as follows:
On 28th of August, 1993, the Appellants appear to have made an
application to the Reserve Bank of India (hereinafter referred to as
RBI) for a license to start an Apex Bank for Maharashtra and Goa. The
RBI by its letter dated 25th April, 1994 inter alia stated as follows:
"2. As you are aware, the proposed bank requires to
be got registered under the Multi State Co-operative
Societies Act, 1984 since its area of operation
extends beyond the boundaries of a State and as
such it would not be a co-operative Bank as defined
in the Banking Regulation Act, 1949 (as applicable to
Co-operative Societies), at present. Hence an
amendment to the Banking Regulation Act, 1949 is
considered necessary. The Government of India has
already been apprised of the amendments needed in
the context of establishment of National Co-operative
Bank of India (NCBI) registered under the Multi-State
Co-operative Societies Act, 1984 and other similar
banks.
3. In view of the foregoing, you may please
approach the Reserve Bank only after the needed
legislative amendments are carried out by
government of India to bring the NCBI as also other
Banks similar to those proposed by you within the
definition of Co-operative bank’s under the Banking
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 17
Regulation Act, 1949 (as applicable to Co-operative
Societies)."
The Appellants then got themselves registered as a Multi State
Co-operative Society under the Multi State Co-operative Societies Act
1984 (hereinafter referred to as the Multi State Act) on 10th October,
1994. After the Appellants got themselves registered they accepted
some entrance fees and some shares subscription from members.
This was the only activity carried on by the Appellants. By a
Notification dated 30th December, 1995, issued by the State of
Maharashtra the Appellants were declared as a State Co-operative
Bank within the meaning of Section 2(u) of the National Bank for
Agriculture and Rural Development Act, 1981 (hereinafter referred to
as the NABARD Act). Thereafter, two directions/orders dated 25th
January, 1996 and 14th May, 1996 were issued by the Commissioner
for Co-operation and Registrar of Co-operative Societies, Maharashtra
State advising/directing deploying of funds by all Urban Co-operative
Banks to the Appellants. These directions were issued under Section
70 of the Maharashtra Co-operative Societies Act, 1960 (hereinafter
referred to as the MCS Act). On 22nd March, 1996 the RBI gave a
banking license to the Appellants under Section 22(1) read with 56(o)
of the Banking Regulation Act, 1949. This was for the States of
Maharashtra and Goa.
The 1st Respondent filed a Writ Petition challenging the
Notification dated 30th December, 1995; two directions/orders dated
25th January, 1996 and 14th May, 1996 and the grant of License by
the RBI on 22nd March, 1996. By the impugned Judgment the Writ
Petition has been partly allowed inasmuch as the Notification dated
30th December, 1995, as well as Orders/directions dated 25th January,
1996 and 14th May, 1996, are quashed and set aside. The RBI was
directed to review its decision of granting License to the Appellants in
the light of the fact that the Notification dated 30th December, 1995
had been quashed. In the impugned Judgment it is clarified that till
RBI takes a fresh decision the license granted on 22nd March, 1996
was to remain operative.
Civil Appeal No. 439 of 1997 has been filed by the Appellants
challenging the impugned Judgment. Civil Appeal No.__________of
2003 arising out of SLP (C) No. 4877 of 1997 has been filed by the 1st
Respondent against that portion whereby the license granted by the
RBI has not been quashed.
On 27th January, 1997 this Court passed the following Order:
"There will be ad-interim stay of the operation of
impugned judgment.
We may record that the directions of the High Court
in relation to the Notifications dated 25th January, 1996
and 14th May, 1996 are not questioned before us by the
learned counsel for the petitioners."
Thus, in these Appeals there is now no challenge to quashing of the
directions/orders dated 25th January, 1996 and 14th May, 1996.
The questions which arise for considerations are: (a) whether a
co-operative society registered under the Multi State Act can be
granted a license by the RBI to commence and carry on banking
business, (b) whether a co-operative society registered under the Multi
State Act can be recognized and notified by the State Government as a
State Co-operative Bank and (c) whether a co-operative society
registered under the Multi State Act, which has been recognized and
notified by one State Government as a State Co-operative Bank for
that State, can be granted a License by the RBI to commence and
carry on banking activities in other States in which it has not been
recognized as a State Co-operative Bank.
Question (a): whether a Co-operative Society registered
under the Multi State Act can be granted a License by the RBI
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 17
to commence and carry on banking business.
As set out hereinabove the RBI in its letter dated 25th April, 1994
had taken the stand that a co-operative society registered under the
Multi State Act would not be a co-operative bank as defined in the
Banking Regulation Act. The same stand had been reiterated by the
RBI in its affidavit before the High Court. However, surprisingly in its
submission before this Court a contrary stand has been taken by RBI.
For a consideration of this question the relevant provisions of the
Banking Regulation Act need to be looked at. Section 5(b) and Section
22 of the Banking Regulation Act, 1949 read as follows:
"5. Interpretation: In this Act, unless there is anything
repugnant in the subject or context, -
(a) xxxxxx
(b) "banking" means the accepting for the purpose of
lending or investment, of deposits of money from the
public, repayable on demand or otherwise, and
withdrawal by cheque, draft, order or otherwise;
(c) xxxx
(cci) "co-operative bank" means a state co-operative
bank, a central co-operative bank and a primary co-
operative bank;
(ccvii) "central co-operative bank", "co-operative society",
’primary rural credit society’ and "state co-operative bank"
shall have the meanings respectively assigned to them in
the National Bank for Agriculture and Rural Development
Act, 1981;"
"22. Licensing of co-operative banks :-
(1) Save as hereinafter provided, no co-operative
society shall carry on banking business in India
unless -
(a) it is a primary credit society, or
(b) it is co-operative bank and holds a License
issued in that behalf by the Reserve Bank,
subject to such conditions, if any, as the
Reserve Bank may deem fit to impose :
Provided that nothing in this sub-section shall apply to
a co-operative society, not being a primary credit
society or a co-operative bank carrying on banking
business at the commencement of the Banking Laws
(Application to Co-operative Societies) Act, 1965, for a
period of one year from such commencement.
(2) Every co-operative society carrying on business
as co-operative bank at the commencement of
the Banking Laws (Application to Co-operative
Societies) Act, 1965, shall before the expiry of
three months from such commencement, every
co-operative bank which comes into existence as
a result of the division of any other co-operative
society carrying on business as a co-operative
bank or the amalgamation of two or more co-
operative societies carrying on banking business
shall, before the expiry of three months from its
so coming into existence, every primary credit
society which becomes a primary co-operative
bank after such commencement shall before the
expiry of three months from the date on which it
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 17
so becomes a primary co-operative bank and
every co-operative society other than a primary
credit society shall before commencing banking
business in India, apply in writing to the Reserve
Bank for a License under this section :
Provided that nothing in clause (b) of sub-section (1)
shall be deemed to prohibit -
(i) a co-operative society carrying on
business as a co-operative bank at the
commencement of the Banking Laws
(Application to Co-operative Societies)
Act, 1965; or
(ii) a co-operative bank which has come
into existence as a result of the division
of any other co-operative society
carrying on business as a co-operative
bank, or the amalgamation of two or
more co-operative societies carrying on
banking business at the commencement
of the Banking Laws (Application to Co-
operative Societies) Act, 1965, or at any
time thereafter; or
(iii) a primary credit society which becomes
a primary co-operative bank after such
commencement, from carrying on
banking business until it is granted a
License in pursuance of this section or
is, by a notice in writing notified by the
Reserve Bank that the License cannot be
granted to it.
xxx xxx xxx
xxx xxx xxx
Under Section 22, as it stood prior to the amendment brought
about by the Amendment Act of 68 wherein Section 56 was inserted,
the RBI had right to issue license to companies to carry out banking
business and no company could carry on a banking business unless it
held a license issued by the RBI. After the amendment certain types
of co-operative societies, as were brought within the purview of the
Banking Regulation Act, could be issued a license by the RBI. Section
22 as amended prohibits co-operative societies from carrying on
banking business. The term "co-operative society", as used in Section
22, would include all types of co-operative societies. In other words no
co-operative society can carry on banking business unless it falls
within the permitted categories set out in Section 22. The term "co-
operative bank" has been defined under Section 5(cci) as a state co-
operative bank, a central co-operative bank and a primary co-
operative bank. Thus the term "co-operative bank" does not include
all co-operative societies. It only includes the above mentioned three
types of societies. By virtue of Section 5(ccvii) the term "state co-
operative bank" is to be understood as a state co-operative bank as
defined in the NABARD Act. Thus unless a co-operative society is a
state co-operative bank or a central co-operative bank or a primary
co-operative bank (as defined under the NABARD Act), no license can
be issued by the RBI. In view of these clear provisions it will have to
be held that the stand taken by the RBI in its letter dated 25th April,
1994 was and is the correct stand.
It must be mentioned that the Appellants accept this to be the
correct provision. They only contest 1st Respondent’s claim that the
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 17
Appellants could not be declared a state co-operative bank under
Section 2(u) of NABARD Act. In this behalf the relevant portions of the
written submissions given by the learned Attorney General read as
follows:
"10. It is submitted that a perusal of the BR Act and the
NABARD Act would reveal the following scheme:
(i) for the Appellant to carry on banking business,
Reserve Bank of India [hereinafter referred to as
RBI] has to grant a license;
(ii) In order to get an RBI license, according to BR
Act, the Appellant has to be a co-operative bank
i.e. in this case a State Co-operative Bank;
(iii) For the Appellant to be a State Co-operative
Bank, it has to be notified as such under Section
2(u) of the NABARD Act;"
Written submissions on behalf of the Appellants given by Mr.
Andhyarujina also need to be noted. The relevant portion reads as
follows:
"According to the scheme of the BR Act, for the grant of a
license to the Appellant, it has to first come within the
meaning of a "cooperative bank" i.e. either a state
cooperative bank, central cooperative bank or a primary
cooperative bank. It is only after a notification under
section 2(u) of NABARD is issued the cooperative society
becomes a cooperative bank within the meaning of section
5(cci) of the BR Act as amended by section 56(c) of the BR
Act and thus became eligible to for license from the RBI
under section 22 of the BR Act read with section 56(o) of
the BR Act. Thus a notification under section 2(u) in these
circumstances necessarily precedes the grant of a license
by the RBI."
We hold that this is the correct position.
On behalf of the RBI it is however submitted that RBI is
competent to license a co-operative bank under the Multi State Act.
It is submitted that Section 2 of the Banking Regulation Act, 1949
lays down that, "the provisions of this Act shall be in addition to and
not, save as hereinafter expressly provided, in derogation of, any
other law for the time being in force". It is submitted that the phrase
"any other law for the time being in force," would cover subsequent
legislation. In support of this reliance is placed on the case of Sir
Dinshaw Manekji Petit vs. G B Badkas reported in AIR 1969 Bombay
151 (paragraph 8). It is submitted that Section 2(b) of the Multi
State Act lays down that the Act shall apply to all multi state co-
operative societies and Section 3(e) defines co-operative bank to
mean a multi state co-operative society which undertakes banking
business. It is submitted that Section 3(g) defines co-operative
society, and Section 3(k) defines multi-state co-operative society to
mean a society registered or deemed to be registered under that Act.
It is submitted that the word "undertakes" means making an attempt.
In support of this reliance is placed on : (a) Words and Phrases
Permanent Edition Volume 43 page 198 and 206; (b) The Law Lexicon
by P Ramanatha Aiyar, page 1931; and (c) Black’s Law Dictionary,
page 1526. It is pointed out that Section 110 of the Multi State Act
repeals the Multi Unit Co-operative Societies Act, 1942. On this basis
it is submitted that multi state co-operative society which is a co-
operative bank under the Multi State Act is subject to the licencing
power of the RBI.
It is further submitted that this position becomes clear when
one notes that Section 15 of the Multi State Act provides that the RBI
can require the central registrar to order moratorium, amalgamation
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 17
and reorganization of a co-operative bank under the Multi State Act
and Section 78 of the Multi State Act empowers the RBI to require the
Central Registrar to wind up a co-operative bank if circumstances
mentioned in Section 13D of the Deposit Insurance and Credit
Guarantee Corporation Act, 1961 exist. Reference is also made to
Section 13D of the Deposit Insurance Act which provides for
circumstances in which winding up can be ordered. It is submitted
that a conjoint reading of Section 13D read with 2(gg) of the Deposit
Insurance Act indicates that RBI can exercise power in respect of
matters mentioned therein. It is pointed out that Section 48(7) of the
Multi State Act, empowers, RBI to supersede a co-operative bank. It
is submitted that all the above mentioned provisions show that RBI
has got the power, to regulate the functioning of a co-operative bank,
supersede, order moratorium, amalgamation or winding up, as the
case may be. We are unable to accept this submission. The power to
regulate, supersede, order moratorium, amalgamation or winding are
exercisable only be in respect of a co-operative bank. Such power
cannot be exercised in respect of any co-operative society which is
not a co-operative bank. Far from supporting the case now sought to
be made out, this shows that it is only a co-operative bank which can
be licensed and then controlled by RBI.
It is next submitted that Section 22(1)(b) of the Banking
Regulation Act, lays down that "save as hereinafter provided, no co-
operative society shall carry on banking business in India unless it is a
co-operative bank and holds a license issued in that behalf by the
Reserve Bank subject to such conditions, if any, as the Reserve Bank
may deem fit to impose. It is submitted that sub-section 2 of Section
22 lays down the requirement of obtaining of license by various co-
operative societies. It is submitted that the last category was
relevant. Reliance was placed on the portion which reads as follows:
"â\200¦â\200¦â\200¦ any every co-operative society other than
primary credit society shall before commencing banking
business in India, apply in writing to the RBI for a license
under this Section."
It is submitted that this makes it clear that whereas under sub-section
1 of Section 22 every co-operative society which is a co-operative
bank cannot carry on banking business without a license; under sub-
section 2 of Section 22 every co-operative society other than a
primary credit society has to obtain a license before commencing
banking business in India. It is submitted that a wider meaning should
be given to the word ’co-operative bank’ to include other co-operative
banks (including one which is registered under the Multi State Act) so
that no co-operative society (including a co-operative society under
the Multi State Act) can commence banking business without a license.
It is submitted that this would be in consonance with the principle of
purposive interpretation and harmonious construction of statutes. It is
submitted that although Section 5(cci) defines a co-operative bank to
mean a state co-operative bank, a central co-operative bank and a
primary co-operative bank in view of the scheme of the Multi State Act
read with Section 22(1) & (2) of the BR Act, the phrase ’co-operative
bank’ has to be construed in a broad sense especially in view of the
fact that Section 5 starts with the following words "in this Act, unless
there is anything repugnant in this subject or context". It is submitted
that in the object and context of contemporaneous legislation viz. Multi
State Act, 1984, the term "co-operative bank" must be held to include
a bank registered under the Multi State Act. It is submitted that if
the RBI did not have such power, the consequence would be, that a
Co-operative Bank under the Multi State Act would not require a
license for conducting banking business. It is submitted that such an
interpretation should be eschewed. It is submitted that a purposive
interpretation of Banking Regulatgion Act and Multi State Act must be
given. It is submitted that a contrary interpretation would render, the
Multi State Act, so far as it relates to Co-operative Banks redundant.
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 17
We are unable to accept these submissions also. The portion
extracted above does not detract from what is provided in Section
22(1). Under Section 22(1) a primary credit society can carry on
banking business. However if a co-operative society is not a primary
credit society then to carry on banking business it must be a co-
operative bank and hold a license issued by the RBI. The above
extracted portion of Section 22(2) merely exphasis that a co-operative
society, other than a primary credit society, has to apply to the RBI for
license before it can commence banking business. However, this does
not mean that RBI can give to any or all co-operative societies, a
banking license. RBI can only give a license as provided in Section
22(1) i.e. to a co-operative bank. The term "Co-operative Bank" has
been defined in the Banking Regulation Act and only includes a state
co-operative bank or a central co-operative bank or a primary co-
operative bank. Reference to the term "co-operative bank" in the
Multi State Act is of no assistance. When a term is specifically defined
in a statute then for purposes of that statute that term cannot bear a
meaning assigned to it in another statute. One cannot ignore the
specific definition given in the Banking Regulation Act and apply some
other definition set out in some other statute. Thus, so far as the
Banking Regulation Act is concerned the term "co-operative bank"
must have the meaning assigned to it in Section 5(cci). RBI cannot go
by any other meaning given to the term "co-operative bank" for
purposes of licencing under the Banking Regulation Act. The RBI has
to go by the meaning given to this term in the Banking Regulation Act.
In view of the above, we hold that the RBI by virtue of its power
under Section 22 cannot grant a license to any co-operative bank
unless it is a state co-operative bank or a central co-operative bank or
a primary co-operative bank. It would be necessary that a
declaration under the NABARD Act be first obtained.
Question (b) - Whether a Co-operative Society registered
under the Multi State Act can be recognized and notified by the
State Government as a State Co-operative Bank
To answer this question, apart from the provisions of the
NABARD Act, one would also need to look at the various laws relating
to Co-operative Societies.
The earliest Act pertaining to co-operative appears to be the Co-
operative Credit Societies Act, 1904. However, that appears to be not
relevant for our purposes and it has not been shown to us by any
party.
In order to give societies a corporate existence, without resort
to the Companies Act, the Co-operative Societies Act, 1912 was
enacted. This Act did not define a co-operative society. It however
provided that State Governments would appoint, for the State, a
Registrar of Co-operative Societies. Sections 4 & 6 provide as
follows:
"4. Societies which may be registered - Subject to the
provisions contained, a society which has its object the
promotion of the economic interests of its members in
accordance with co-operative principles, or a society
established with the object of facilitating the operation of
such a society, may be registered under this Act or
without limited liability :
Provided that unless the [State Government] by
general or special order otherwise directs-
(1) the liability of a society of which a member is a
registered society shall be limited;
(2) the liability of a society of which the object is the
creation of funds to be lent to its members, and of
which the majority of the members are
agriculturists, and of which no member is a
registered society, shall be unlimited."
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 17
"6. Conditions of registration - (1) No society, other
than a society of which a member is a registered society,
shall be registered under this Act which does not consist
of at least ten persons above the age of eighteen years
and where the object of the society is the creation of
funds to be lent to its members, unless such persons -
(a) reside in the same town or village or in the
same group of villages; or
(b) save where the Registrar otherwise directs,
are members of the same tribe, caste or
occupation.
(3) The word "limited" shall be the last word in the
name of every society with limited liability
registered under this Act."
Thus the Act was essentially dealing with Societies whose members
were residing in the same town or village or group or village or whose
members were from the same tribe, class, caste or occupation. The
object of the Society had to be promotion of interests of its members.
This shows that the Co-operative Societies Act, 1912 was enacted for
local societies.
Apart from the Co-operative Societies Act, 1912 different
provinces had enacted their own laws governing co-operative societies
in that province. It was however found that some societies operated
in more than one State, even though they were registered in only one
State. Thus the Multi-Unit Co-operative Societies Act, 1942 was
enacted. This Act applied to "all co-operative societies with objects
not confined to one province incorporated, before the commencement
of the Act, under the Co-operative Societies Act, or under any law
relating to Co-operative Societies Act, in force in any province." To be
noted that on this date, apart from the Co-operative Societies Act,
1912, there was no other law relating to Co-operative Societies which
was in force in the whole of India. All other enactments were local
laws relating to Co-operative Societies in the provinces.
Section 2 of the Multi-Unit Act provided as follows:
"2(1) A co-operative society to which this Act applies which
has been registered in any province under the law relating
to co-operative societies in force in that province shall be
deemed in any other province to which its objects extend
to be duly registered in that other province under the law
there in force relating to co-operative societies but shall,
save as provided in sub-sections (2) and (3), be subject
for all the purposes of registration, control and dissolution
to the law relating to co-operative societies in force for the
time being in the province in which it is actually registered.
(2) Where any such co-operative society has
established before the commencement of this Act or
establishes after the commencement of this Act a branch
or place of business in a province other than that in which
it is actually registered, it shall, within six months from the
commencement of this Act or the date of establishment of
the branch or place of business, as the case may be,
furnish to the Registrar of Co-operative Societies of the
province in which such branch or place of business is
situated a copy of its registered by-laws, and shall at any
time it is required to do so by the said Registrar submit
any returns and supply any information which the said
Registrar might require to be submitted or supplied to him
by a co-operative society actually registered in that
province.
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 17
(3) The Registrar of Co-operative Societies of the
province in which a branch or place of business such as is
referred to in sub-section (2) is situated may exercise in
respect of that branch or place of business any powers of
audit and of inspection which he might exercise in respect
of a co-operative society actually registered in the
province."
Thus now Co-operative Societies whose objects were not
confined to one province were deemed to be registered also in the
other province. However, for purposes of registration, control and
dissolution, they continued to be subject to the "law relating to co-
operative societies in force for the time being in the province in which
it was actually registered. Thus the term "under any Act relating to
co-operative societies in force in any province" clearly applied to the
local laws relating to co-operative societies in force in a province i.e.
local law prevailing in that province.
Another aspect which must be noticed is that in the Constitution
of India, the subject pertaining to Co-operative Societies is in the
State list i.e. Entry 32 of List II of Schedule VII. The Union list has
Entry 44 of List I of Schedule VII which deals with Corporations. In
this case we are not concerned with the validity of a Central
Legislation and thus do not deal with that aspect. For purpose of the
Judgment we will take it that a co-operative society with objects not
confined to one State would fall within the term Corporation, and thus
a Central Legislation may be saved. However, from the Constitutional
provisions it is clear that matters pertaining to co-operative societies
are in the State list. Thus many States have enacted laws relating to
co-operative societies. We have not seen other Acts. However, as this
case concerns a society in Maharashtra, the Maharashtra Co-operative
Societies Act was shown to us. Significantly this law does not define a
co-operative society. It did not need to, as a Society registered under
it would be automatically covered. The need to define a co-operative
society arises only in a Central Legislation which does not cover all co-
operative societies and thus needs to indicate to which Society it
applies.
Now let us look at the provisions of NABARD Act. The relevant
portions of the NABARD Act namely Sections 2(f) & 2(u) read as
follows:
"2(f) - "co-operative society" means a society registered,
or deemed to be registered, under the Co-operative
Societies Act, 1912 (2 of 1912), or any other law relating
to co-operative societies for the time being in force in any
State;
2(u) - "state co-operative bank" means the principal co-
operative society in a State, the primary object of which is
the financing of other co-operative societies in the State.
Provided that in addition to such principal society in a
State, or where there is no such principal society in a
State, the State Government may declare any one or more
cooperative societies carrying on business in that State to
be also or to be a State cooperative bank or State
cooperative banks within the meaning of this definition;"
It is to be noted that the NABARD Act is of 1981 whereas the
Multi-State Act is of 1984. Therefore, at the time the NABARD Act was
enacted obviously the legislature could never have intended a society
proposed to be registered under some future Act to be covered
Under the NABARD Act, a co-operative society is a society which
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 10 of 17
is registered or deemed to be registered under the Co-operative
Societies Act, 1912 or under any other law relating to co-operative
societies for the time being in force in any State. It must be
remembered that the Multi Unit Act applied to co-operative societies
registered under any Act relating to co-operative societies in force in
any province. As seen above the Multi Unit Act was clearly referring to
Acts in force in the Province. Now instead of the word "province" the
word "State" has been used. Admittedly, the Appellants are not
registered under the Co-operative Societies Act, 1912. The question
thus is whether they could be said to be a society registered under any
other law relating to co-operative societies for the time being in force
in any State. At first blush it would appear that the term "any other
law relating to co-operative societies for the time being in force in any
State" would include all laws relating to co-operative societies which
are in force in any State. However, in that case, there would be no
need to provide separately in respect of a society registered under the
Co-operative Societies Act, 1912. The Co-operative Societies Act,
1912 is also a law relating to co-operative societies and it is in force in
all States. Also why use the words "in any State". Mere use of the
term "any other law relating to co-operative societies for the time
being in force" would have been sufficient. It appears to us that the
Legislature has provided separately in respect of the Co-operative
Societies Act, 1912 and used the words "in any State" in order to
indicate its intention that the term "any other law relating to co-
operative societies for the time being in force in any State" did not
include all laws relating to co-operative societies. If the intention was
to rope in all societies registered under all laws relating to co-operative
societies in force, then there was no necessity to use the additional
words "in any State" or to separately provide for Co-operative
Societies Act, 1912. As stated above, mere use of the words "any
other law relating to co-operative societies for the time being in force"
would have been sufficient. The legislature was clearly emphasizing
that it is only co-operative societies registered under local or state
laws relating to co-operative societies which would be covered. This
interpretation is supported by the fact that the provision pertaining to
a state co-operative bank provides for a declaration only by the State
Government. If a declaration is by the State Government it must be in
respect of a society which is registered in that State and which can be
regulated by the Registrar of that State. A society which is registered
under an Act, like the Multi State Act, would not be under the
regulation of the Registrar of the State. It was submitted that if the
Legislature intended to restrict the application of NABARD Act to co-
operative societies registered under local laws it would have used the
words "of any State". It was submitted that the fact that the
Legislature has not used the words "of any State" indicates that the
co-operative society could be registered under any law in force in any
State. We are unable to accept this submission. The Legislature could
not have used the words "of any State". That would have meant that
a co-operative society registered under a law in force in State ’A’ could
be considered as a co-operative society in States ’B’, ’C’ or ’D’ also.
That was not what the Legislature intended. The words "in any State"
indicate that the co-operative society must be registered under the law
in force in any State in which it wants to operate.
It must be mentioned that it was submitted by Mr. Andhyarujina
that a co-operative society registered under the Co-operative Societies
Act, 1912 can operate in more than one State. It was submitted that
this showed that laws dealing with co-operative societies, which
operate in more than one State, were meant to be covered. We are
unable to accept this submission. As seen above under the provisions
of the Co-operative Societies Act, 1912 the registration could only be
in one State. The Co-operative Societies Act, 1912 dealt with local
societies. As it was found, that even though the registration could
only be in one State, the societies also operated in other States, the
Legislature enacted the Multi-Unit Co-operative Societies Act, 1942
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 11 of 17
(hereinafter referred to as the Multi-Unit Act). Under the Multi-unit
Act if a society had objects not confined to one State then such a
society was deemed to be registered even in other States, but for
purposes of registration, control and dissolution it was the State law
where it was first registered which continued to operate. Thus, after
the enactment of the Multi-unit Act it became clear that even though a
society may be deemed registered under the Multi-unit Act, but for
purposes of registration, control and dissolution it continued to be
bound by the law relating to co-operative societies for the time being
in force in the State in which it was first registered. More importantly
after the enactment of the Multi-Unit Act, the Co-operative Societies
Act, 1912 only dealt with co-operative societies confined to one
province. Societies with objects not confined to one province were
deemed registered under the Multi-Unit Act. Thus the use of the
words "Co-operative Societies Act, 1912" in the NABARD Act, also
indicates that the definition is restricted to Societies registered under
the law relating to co-operative societies in the State in which they
want to operate. This is clear because significantly the Legislature
has not provided that Societies registered under the Multi-unit Act
would be included.
The submission that a purposive interpretation should be given
so that the definition takes into consideration even new laws cannot be
accepted. Normally that is how one must interpret. However where
the intention of the Legislature is clearly to restrict the provisions of
the NABARD Act to co-operative societies which were registered either
under the Co-operative Societies Act, 1912 or to societies which were
registered under the State laws relating to co-operative societies, one
cannot by process of interpretation expand the scope.
The fact that the term "any other law relating to co-operative
societies for the time being in force in any State" necessarily means
only a State law is further reinforced by the use of this term in the
Multi State Act. Under the Multi State Co-operative Societies Act,
1984, the relevant provisions i.e. Section 2, 3(e), 3(g) and 3(k) read
as follows:
"2. This Act shall apply to -
(a) all co-operative societies, with objects not confined
to one State, which were incorporated before the
commencement of this Act,
(i) under the Co-operative Societies Act, 1912 (2 of
1912), or
(ii) under any other law relating to co-operative societies
in force in any State or in pursuance of the Multi-unit Co-
operative Societies Act, 1942 (6 of 1942), and the
registration of which has not been cancelled before such
commencement; and
(b) all multi-state co-operative societies.
3(e) "co-operative bank" means a multi-State co-operative
society which undertakes banking business;
3(g) "co-operative society" means 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;
3(k) "Multi-State co-operative society" means a society
registered or deemed to be registered under this Act and
includes a national co-operative society;"
A reading of the provisions of the Multi State Act makes it clear
that the words "under any other law relating to co-operative societies
in force in any State" as used in the Multi State Act, applies to
societies registered under the State laws relating to co-operative
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 12 of 17
societies. Mr. Andhyarujina fairly admitted this position. Of course,
the definition as used in 1984 Act cannot be used for the purposes of
interpreting the 1981 Act. The definition in the 1981 Act is being
interpreted on its own provisions but the use of the same term in the
1984 Act with the same meaning reinforces the interpretation given to
the 1981 Act.
Further under the NABARD Act a state co-operative bank has to
be the principal co-operative society in the State, the primary object
of which must be financing other co-operative societies in that State.
The proviso to Section 2(u) cannot and does not derogate from the
main definition. The proviso merely enables the State to declare, in
addition to an existing principal society in the State or where there is
no principal society in the State, any one or more co-operative bank
as the state co-operative banks. However, this does not mean that
the State Government can, at their whim and fancy, declare any co-
operative society to be a "state co-operative bank". Before such a
declaration can be made the State Government must necessarily be
satisfied (a) that it is a principal co-operative society in the State; (b)
that it is carrying on business in the State; and (c) the business must
be of financing other co-operative societies in that State.
At this stage, it must be mentioned that in the impugned
Judgment, the High Court has inter alia held that the term "carrying
on business: necessarily means banking business. On behalf of the
Appellants this finding was assailed and it was submitted that in
order to be declared a "state co-operative bank", within the meaning
Section 2(u) of NABARD Act, a co-operative society does not need to
be carrying on business of "banking" in that State. It was submitted
that "banking business" is a specific type of business as defined in
Section 5 (b) of the Banking Regulation Act, 1949. It was submitted
that this business was different from "other forms of business" in
which Banking Companies [or co-operative banks as per amendment
in Section 56] may engage in and which are specifically stated in
Section 6 of the Banking Regulation Act, 1949. It was submitted that
the banking business, as defined in Section 5(b) of the Banking
Regulation Act cannot be carried on unless the banking company or
the co-operative bank secures a banking license under Section 22 of
the Banking Regulation Act. It was submitted that the well known
distinction between banking business and non-banking business
carried out by banking companies had been noticed by the Supreme
Court in R.C. Cooper Vs. Union of India reported in 1970) SCC 248 at
page 279-280. In this behalf reliance was also placed on the case of
Sajjan Bank Vs. Reserve Bank of India reported in AIR 1961 Madras
Page 14. It was submitted that the High Court was wrong in holding
that the business referred to in Section 2(u) of the NABARD Act is the
business of banking. It was further submitted that wherever
references are made to banking business in statutes, it has been
expressly so stated. In support of this Section 3(e) of the Multi-State
Act which defines "Co-operative Bank" as a Multi- State Co-operative
Society which undertakes "banking business", and Section 80 P
(2)(a)(i) of the Income Tax Act, 1961 which refers to a co-operative
society engaged in carrying on the business of banking were pointed
out. It was submitted that a co-operative society which is engaged in
carrying on business of financing other co-operative societies could
finance itself without "banking business". It was submitted that it
could finance itself from its own resources e.g. from shareholders
equity and/or by borrowings. It was also submitted that the activity
of accepting entrance fee and subscription share from its members
show that the Appellants were carrying on business and that this was
sufficient for the purposes of enabling the State Government to
declare the Appellants as a state co-operative bank.
On behalf of the Respondents, it was submitted that looking to
the nature and purpose of the Act and the fact that the ultimate
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 13 of 17
purpose was to accept deposits from other co-operative societies, it
was necessary that the business which is carried on should be
banking business. It was also submitted that in any event the
business must be of financing other Co-operative Societies in the
State. It was submitted that the society must be carrying on business
in presenti. It was submitted that looking to the nature and purpose
of the Act a new society which intended to carry on, in future, the
business of financing other co-operative societies or which had merely
accepted entrance fee and share subscription from its members could
not be declared as a state co-operative bank. It was submitted that
Appellants had not carried on any business and in any event had not
carried on banking business or business of financing other co-
operative societies.
In our view the High Court does not appear to be right in
concluding that the words "carrying on business" must mean carrying
on banking business. If the Legislature had so intended they would
have so specifically provided as they have done in Section 3(e) of the
Multi State Act and Sections 80P(2)(a)(i) of the Income Tax Act,
1961. However, a reading of the provisions make it clear that what is
necessary is that co-operative society must be carrying on the
business of financing other co-operative societies. The proviso has to
be read in the light of the main provision. If read in the light of the
main provision it is clear that even though banking business, as
understood in the strict sense, may not be carried on, yet the
business of financing other co-operative societies in the State must be
carried on.
It was submitted that the activities of accepting entrance fees
and share subscriptions was sufficient to show that the Appellants was
carrying on business. In our view this was not sufficient. What was
required was carrying on business of financing other co-operative
societies.
Faced with this situation it was submitted that the words
"carrying on business" did not mean that business must be actively
carried on. It was submitted that an intention to carry on business
would be sufficient and can be taken into consideration for purposes
of a declaration under Section 2(u) of NABARD Act. In support of this
reliance was placed on the case In Re. Sarflax Ltd. reported in
[(1979) 1 Ch. D. 592 (at pages 598-599)] and the case of Vanguard
Fire and General Insurance Co. Ltd., Madras vs. M/s. Frazer and Ross
and Anr. We are unable to accept the submission that mere intention
to carry on such a business in the future would be sufficient. A plain
reading indicates that the carrying on of the business must be prior to
the State Government declaring a society as a state co-operative
bank otherwise there would be no criteria on the basis of which the
State Government could judge whether the society proposed to be so
declared will or will not perform its task truly and efficiently. The test
for the Government has to be past performance. It is not as if the
State Government can at its whims and fancy declare any society as a
state co-operative bank. The State Government has to look into and
be satisfied that that society has faithfully and efficiently been
carrying on the business of financing other co-operative societies in
that State and that there have been no complaints against that
society. To allow the State Government to declare any society, even
a society which has done no business of financing other co-operative
societies, as a state co-operative bank would be to permit
arbitrariness. The authorities relied upon are of no assistance as
words to the effect "carrying on business" have necessarily to be
construed keeping in mind the purpose with which they are used and
to further the object of the Act. In Sarflax’s case the concerned party
had earlier carried on business, but had then closed their business.
The question was whether they were still covered by Section 332 of
the Companies Act, 1948, which reads as follows:-
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 14 of 17
"If in the course of the winding up of a company it appears
that any business of the company has been carried on with
intent to defraud creditors of the company or creditors of
any other person or for any fraudulent purpose, the court,
on the application of the official receiver, or the liquidator
or any creditor or contributory of the company, may, if it
thinks proper so to do, declare that any persons who were
knowingly parties to the carrying on of the business in
manner aforesaid shall be personally responsible, without
any limitation of liability, for all or any of the debts or
other liabilities of the company as the court may direct."
It is in this context it was held that the expression "carrying on any
business" in the Section was not synonymous with actively carrying
on trade. Such an interpretation was given to further the
intention of the statute and to cover a party who was trying to wriggle
out the provisions of law. Similarly in Vanguard Fire Insurance
Company’s case the question was whether the word "Insurer" in
Section 33 of the Insurance Act, 1938 included a company which had
closed insurance business. This Court held that the word "Insurer"
referred not only to a person who was actually carrying on business
but also to one who has subsequently closed. Thus here also the
party had actually carried on business. These are completely
different situations from one where no business, of the type
envisaged, has been carried on. If no business has been carried on,
then mere intention to carry on in future would not bring it within the
meaning of the term "carrying on business". Also as stated above to
give such an interpretation would be to permit arbitrariness.
In this case prior to the Notification dated 13th December, 1995,
the Appellants had not carried on any business of financing any co-
operative society. All that they had done was accepting entrance fees
and share subscription from members. As stated above this is not
business as contemplated by Section 2(u) of the NABARD Act. On
this ground also it will have to be held that the Notification dated 13th
December, 1995 cannot be sustained.
Faced with this situation Mr. Andhyarujina submitted that, in the
High Court, the Respondent did not challenge the fact that the
Appellant was carrying on business of financing other co-operative
societies, but only focused on its not carrying on "banking business".
He submitted that banking business has a specific meaning as defined
in Section 5 (b) of the Banking Regulation Act, 1949. He submitted
that in the Writ Petition it was ambiguously stated in paragraph 4 as
follows:
"The Petitioners further say that, in any event, under
clause [u] of section 2 of the NABARD Act, the State
Government could not have identified or designated
Respondent no. 5 as a State Co-operative Bank, firstly
because Respondent no. 5 is not registered under the
State Act, secondly, because Respondent no. 5 is
registered under the Central Act, thirdly, because the area
of operation of Respondent no. 5 also extends to the State
of Goa and, fourthly, because Respondent 5 is not carrying
on any business or banking business. Respondent no. 5
has been constituted to carry on banking business.
Respondent no. 5 cannot carry on banking business unless
License is issued by the Reserve Bank of India under the
BR Act 1949. Therefore, the State Government could not
have designated Respondent no. 5 as a State co-operative
bank under clause [u] of section 2 of the NABARD Act.
Therefore, the order of the State Government dated 30-
12-1995 is null and void and is liable to be quashed and
set aside." (emphasis supplied)
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 15 of 17
He submitted that there was no specific averment that the
Appellant was not carrying on business of financing other co-operative
societies. He submitted that no arguments were made by the
Respondent before the High Court that the Appellant was not carrying
on business of financing other co-operative societies. He submitted
that the only argument was it was not carrying on banking business.
He pointed out that the argument as noted by the High Court in the
impugned Judgment was as follows:
"Mr. Singhvi submitted that as per the definition of "State
Cooperative bank" given in the said section 2(u), such a
bank could only be the principal cooperative society in a
state, the primary object of which would be the financing
of other co-operative societies in the state, and that by the
proviso it is in effect provided that the State government
may declare a cooperative society in addition to such
principal society but such additional society must be
carrying on banking business and that too in the State i.e.
State of Maharashtra. According to him, admittedly the 5th
Respondent for want of necessary license, was not carrying
on any banking business as on the date of the impugned
declaration, and that the 5th Respondent being a multi
state co-operative society could not be said to be a society
carrying on such banking business in the State."
He pointed out that the High Court held as follows:
"The words "carrying on business" means that such
additional or such principal cooperative society must be
carrying on business, the business being naturally that of
banking. It is true that nowhere, neither in the first part
nor in the proviso, the word "banking" is even mentioned.
In our opinion the underlying or the basic requirement is
that the principal cooperative society must be carrying on
the business of banking and its primary object must be to
finance other cooperative societies in the state. Otherwise
how can a society be recognized as the State cooperative
bank when it is not even functioning as such on the date of
such recognition as a bank nor has the primary object to
finance other cooperative societies in the state?"
He submitted that there is not a single word and a single finding
by the High Court that the Appellant was not carrying on business
except in the sense of banking business. He submitted that the reason
for this is obvious i.e. there was no argument and no challenge that
the Appellant was carrying on business other than banking business.
He submitted that it is not open to the Respondent to argue something
that was not argued before the High Court and which is not
investigated and found as fact by the High Court.
We are unable to accept this submission. In the Writ Petition it
has been stated that the Appellant was not carrying on any business
or banking business. This shows that in the Petition itself this ground
has been taken. Just because it is also mentioned that banking
business was not being carried does not detract from fact that it is
averred that no business was carried on. Once it is mentioned that no
business was carried on it was not necessary to state that business of
financing other co-operative societies was not carried on. In the
impugned judgment, apart from the submissions highlighted by Mr.
Andhyarujina, the following submissions have also been noted:
"Mr. Singhvi first attacked the Notification dated 30th
December, 1995 issued by the State Government
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 16 of 17
purportedly under section 2(u) of NABARD Act. It was his
submission that the same was illegal and invalid inasmuch
as that at the time of the said declaration Respondent
No.5 was admittedly not carrying on any Banking business
i.e. the business of financing to other co-operative
societies in the State, and that it was only registered as a
Multi-State Co-operative Society under the Multi State Act
and was endeavouring to obtain the License from RBI
under the provisions of Banking Regulation Act for
carrying on banking business." (emphasis supplied)
This shows that the use of the term "banking business" was intended
to be the business of financing other co-operative societies in the
State. In the impugned Judgment the High Court has interalia held as
follows:
"â\200¦â\200¦â\200¦. In our opinion, the Co-operative Bank which is
recognized as the State Co-operative Bank is required to
have as its primary object the object of financing of other
Co-operative Societies in the State."
Of course the High Court has then gone on to hold that "banking
business" was required to be carried on. As set out above the High
Court was wrong in equating business of financing other co-operative
societies to banking business. But it is clear that it had been the case
of the 1st Respondent, not only in the Writ Petition, but also in the
submissions before the High Court that the Appellants were not
carrying on any business and that they were not carrying on the
business of financing other co-operative societies. We are, therefore,
unable to accept the submission that the 1st Respondent cannot now
be allowed to take this contention.
For all the above reasons it is held that the State Government
could not have declared the Appellants as a state co-operative bank.
As it could not be so declared the Orders dated 25th January, 1996 and
14th May, 1996 could not have been passed. The High Court was,
therefore, right in striking down the Notification dated 30th December,
1995 and two orders/directions dated 25th January, 1996 and 14th
May, 1996.
As seen above, in answer to Question No. (a) it has been held
that RBI could not have granted the license unless the Appellants were
first declared a state co-operative bank under the NABARD Act. As it
is now being held that the Appellants could not have been declared as
a state co-operative bank under the NABARD Act and it is held that as
such declaration was correctly struck down it will have to be held that
the RBI cannot issue it a license to carry on banking business. In view
of the contrary stand taken by RBI, it cannot now be left to discretion
of RBI to cancel the license granted by it. It is held that the High
Court was in error in not striking down the issuance of the license by
RBI to the Appellants. In view of what we have held we direct the RBI
to forthwith revoke the banking license granted to the Appellants.
Question (c): whether a Co-operative Society registered under
the Multi State Act, which has been recognized and notified by
one State Government as a State Co-operative Bank for that
State can be granted a License by the RBI to commence and
carry on banking activities in other States in which it has not
been recognized as a State Co-operative Bank.
It is to be seen that the RBI can only give a license to a state co-
operative bank which has been so declared by a particular State. As
the definition of co-operative societies in the NABARD Act is restricted
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 17 of 17
to co-operative societies registered under State Acts and as the
provision is for a State to declare a co-operative society as a "state co-
operative bank" the license, which can be issued by the RBI, can only
be in respect of that State. Merely because one State declares a co-
operative society as a "state co-operative bank" would not enable the
RBI to issue that society a license to carry on banking business in
other States or in the rest of the country. In this case, the RBI was
wrong in issuing a license to the Appellants for the States of
Maharashtra and Goa when, admittedly, the Appellants had not been
declared a state co-operative bank in the State of Goa. Thus, it is held
that the banking license could not have been issued for the State of
Goa.
In view of the above, Civil Appeal No. 439 of 1997 stands
dismissed, whereas Civil Appeal No. â\200¦â\200¦.. of 2003 (arising out of S.L.P.
(C) No. 4877 of 1997) stands allowed.
It was submitted by Mr. Andhyarujina that the Appellants have
in the meantime collected large deposits and carried on extensive
business in the State of Maharashtra. It was submitted that the
Appellant was willing to restrict its business to the State of
Maharashtra. It was submitted that at this stage this Court should
not strike down the Notification or the grant of license. We are unable
to accept this submission. The 1st Respondent had challenged the
Notification and the grant of license immediately. The Appellants have
all along been aware that their status was under challenge in a Court
of law. Thereafter, the High Court struck down the Notification. Now
the Appellants knew full well that that was the law. Merely because on
obtaining a stay from this Court they continued to operate would not
be a circumstance which can be taken into consideration by this Court.
The Appellants cannot be allowed to continue to operate as a state co-
operative bank when in law they are not entitled to be one. We,
therefore, do not accept this submission.
The Appeals stands disposed of accordingly. There will be no
order as to costs.