Sandeep S. Ghandat vs Reserve Bank Of India
- Court
- Supreme Court
REPORTABLE
IN THE SUPREME COURT OF INDIA
2026 INSC 955
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS. 5351 – 5352 OF 2025
SANDEEP S. GHANDAT & ORS. … APPELLANTS
VERSUS
RESERVE BANK OF INDIA & ORS. … RESPONDENTS
J U D G M E N T
ALOK ARADHE, J.
1. The present appeals concern the extent to which the
constitutional mandate of democratic governance of co-operative
societies limits the power of the Reserve Bank of India (RBI) to
supersede the Board of a multi-State co-operative bank and
continue such supersession under the Banking Regulation Act,
1949 (the ‘BR Act’).
2. The appeals assail the judgment and order dated 18.11.2024
1 2
rendered by the High Court in two Writ Petitions whereby the
order dated 24.11.2023 passed by the RBI superseding the
Board of Directors (‘BoD’) of Abhyudaya Co-operative Bank
Limited (the ‘Bank’) and appointing an Administrator in its place,
was upheld and the said writ petitions came to be dismissed.
1
High Court of Judicature at Bombay
2
Writ Petition (L) Nos. 34124-34125 of 2023
1
FACTS
3. At the outset, the material facts, shorn of unnecessary details,
may be noticed. The Bank was originally incorporated as a co-
operative society registered under the Maharashtra Co-operative
Societies Act, 1960 which later was converted into a bank in the
year 1965 with the permission of RBI and the Commissioner of
Co-operation. In the year 1988, the Bank was declared as a
Scheduled Bank by RBI under Section 42(6)(a) of the Reserve
Bank of India Act, 1934 (the ‘RBI Act’). Pursuant to a direction
issued by RBI under Section 45 of the Banking Regulation Act,
1949 (the ‘BR Act’), the Bank was amalgamated with two banks
in Gujarat and one bank in Karnataka, in consequence whereof
it became a multi-State co-operative society carrying on the
business of banking, and is thus a ‘Multi-State Co-operative
Bank’ within the meaning of the BR Act.
4. In May 2019, the appellants were elected as members of the BoD
by the shareholders of the Bank for a statutory term of five years.
By an order dated 24.11.2023, the RBI, in exercise of power
conferred by Section 36AAA (1) and (2) read with Section 56 of
BR Act, superseded the BoD of the Bank for a period of one year
(the ‘First Supersession Order’) and appointed Mr. Satya Prakash
2
Pathak as the Administrator. The First Supersession Order
proceeded on the following three grounds, namely, (i) the
financial health of the Bank had deteriorated to a dangerous
level; (ii) supersession was necessary to protect the interest of the
depositors and to save the Bank from collapse; and (iii) the affairs
of the Bank were required to be managed through expert
professionals so as to restore it to sound financial health.
5. Aggrieved, the appellants instituted writ petitions before the High
Court seeking to quash the First Supersession Order. During the
pendency of those proceedings, the appellants’ statutory term of
five years expired on 24.05.2024.
6. On 18.11.2024, the RBI extended the period of supersession for
a further period of one year with effect from 24.11.2024 (the
‘Second Supersession Order’). By the impugned judgment dated
18.11.2024, the High Court held, inter alia , that Section 36AAA
of BR Act continues to operate and is not rendered otiose by
Articles 243ZL and 243ZT of the Constitution of India (‘the
Constitution’); that the proviso to Section 36AAA of the BR Act
requiring consultation with the State Government has no
application to a multi-State co-operative bank; and that the
principles of natural justice cannot be read into Section 36AAA
of BR Act. The writ petitions were accordingly dismissed.
3
7. Being aggrieved, the appellants approached this Court by way of
Special Leave Petitions, in which leave was granted. During the
pendency of these appeals, on 07.11.2025, the RBI passed
another order extending supersession with effect from
24.11.2025 (‘the Third Supersession Order’).
SUBMISSIONS
8. Mr. Devadatt Kamat, learned senior counsel for the appellants,
submitted that supersession contemplated under Section
36AAA(1) of BR Act cannot extend beyond the tenure of the BoD
and that the Second and Third Supersession Orders, having been
passed after expiry of the appellants’ term, when in effect, no
Board remained in existence to be superseded, are
unsustainable in law. It was contended that successive orders of
supersession are ultra vires the constitutional mandate
embodied in Articles 243ZL and 243ZT. It was urged that the
proviso to Section 36AAA(1) of the BR Act is plain and
unambiguous and must be read to mean consultation with the
Central Government. It was pointed out that aforesaid
mandatory requirement of consultation was admittedly not
undertaken in the present case.
9. It was urged that the third proviso to Article 243ZL(1) merely
imports BR Act into the constitutional scheme, without
4
displacing the six-month ceiling on supersession prescribed by
the substantive part of Article 243ZL(1). It was contended that
the third proviso cannot be read as ousting the application of
Part IXB of the Constitution to co-operative societies carrying on
the business of banking. It was contended that in view of Article
243ZL(2), elections were to be held immediately after the
statutory term of the appellants came to an end. In support of
the aforesaid submissions, reliance has been placed on the
3
decisions of this Court . It was also contended that reliance
4
placed on the judgment of the Constitution Bench of this Court
is misplaced, as the said decision was concerned with the
applicability of the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act, 2002
(‘SARFAESI Act’) to co-operative societies, and not the question
presently in issue.
10. On the other hand, Mr. Jaideep Gupta, learned senior counsel
for RBI, submitted that Section 36AAA(7) of BR Act contemplates
the calling of a general meeting by the Administrator only ‘on and
before expiration’ of the period of supersession of BoD as
3
Kishansing Tomar v. Municipal Corporation of the City of Ahmedabad & Ors., (2006)
8 SCC 352; Union of India v. Rajendra N. Shah and Anr., (2022) 19 SCC 520 and
Durgabai Deshmukh Memorial Senior Secondary School and Anr. v. J.A.J. Vasu Sena
& Anr., (2019) 17 SCC 157
4
Pandurang Ganapati Chaugule v. Vishwasrao Patil Murgud Sahakari Bank Ltd.,
(2020) 9 SCC 215
5
specified in the order of RBI, thereby making it evident that the
tenure of the erstwhile BoD has no bearing whatsoever upon
RBI’s power of supersession. It was submitted that RBI may, for
reasons to be recorded in writing, supersede the BoD for a period
not exceeding five years in the aggregate.
11. It was further submitted that the third proviso to Article 243ZL(1)
carves out, from the operation of the substantive clause, an
entire class of co-operative societies, namely those carrying on
the business of banking, to which the substantive clause does
not apply at all. Article 243ZT of the Constitution, it was
submitted, governs only “any provision of any law relating to co-
operative societies in force in a State”, and the BR Act, being a
Central enactment traceable to Entry 45 List I of the Seventh
Schedule of the Constitution and having nothing to do with co-
operative societies as such, falls wholly outside its purview. It
was, therefore, contended that Article 243ZT has no application
vis-à-vis Section 36AAA of BR Act.
12. It was contended that the Bank, being a multi-State co-operative
bank, is governed by provisions of BR Act. It was contended that
Section 123 of the Multi-State Co-operative Societies Act, 2002
(‘MSCS Act’) has no bearing on supersession of the BoD of multi-
State co-operative bank, by RBI. It was argued that the
6
requirement of consultation under the proviso to Section
36AAA(1) is confined to uni-State co-operative banks and does
not extend to multi-State co-operative banks such as the Bank.
It was emphasised that RBI is the statutory regulator of the
banking system and that Courts ought to be circumspect in
interfering with matters of economic and regulatory policy. In
support of the aforesaid submissions, reliance has been placed
5
on the decisions of this Court as well as a decision of the High
6
Court of Bombay .
13. Mr. Ninad Laud, learned counsel for respondent no. 5, submitted
that the plain language of the third proviso to Article 243ZL(1)
makes BR Act applicable to all co-operative banks, and that the
Constitution (Ninety-Seventh Amendment) Act, 2011, even while
conferring constitutional status upon co-operative societies,
itself expressly preserved the application of the BR Act to those
societies engaged in the business of banking.
5
Rajendra N. Shah & Anr. (supra); Pandurang Ganpati Chaugule (supra);
Commissioner of Commercial Taxes & Ors. v. Ramkishan Shrikishan Jhaver & Ors.,
1967 SCC OnLine SC 31; State of M.P. v. Kedia Leather & Liquor Ltd. & Ors., (2003)
7 SCC 389; Union of India v. Col. J.N. Sinha & Anr., (1970) 2 SCC 458; Joseph
Kuruvilla Vellukunnel v. The Reserve Bank of India & Ors., 1962 SCC OnLine SC 3;
Peerless General Finance and Investment Co. Ltd. & Anr. v. Reserve Bank of India,
(1992) 2 SCC 343; Bhavesh D. Parish & Ors. v. Union of India & Anr., (2000) 5 SCC
471 and Internet and Mobile Association of India v. Reserve Bank of India, (2020) 10
SCC 274
6
Adisri Commercial P. Ltd. & Anr. v. Reserve Bank of India & Ors., (2021) SCC OnLine
Bombay 12438
7
14. It was pointed out that Section 120B, inserted in the MSCS Act
with effect from 03.08.2023, likewise provides that BR Act shall
apply to a society carrying on the business of banking, and that
the question of construction of the third proviso to Article
243ZL(1), stands concluded by the decision of the Constitution
7
Bench of this Court . It was argued that Section 123 of the MSCS
Act is limited in its application to “specified” multi-State co-
operative societies where the Government has economic interest
just as the second proviso to Article 243ZL(1) restricts its
application to societies with “Government shareholding, or loan
or financial assistance or any guarantee by the Government”. In
support of the aforesaid submissions, reliance was placed on the
8
decisions of this Court . It was accordingly prayed that the
appeals be dismissed.
ISSUES
15. The following issues arise for consideration in these appeals:
(i) Whether the power of the RBI to supersede the BoD of
a multi-State co-operative bank under Section
36AAA(1) of BR Act is circumscribed by the 6 month-
7
Pandurang Ganpati Chaugule (supra)
8
Dwarka Prasad v. Dwarka Das Saraf, (1976) 1 SCC 128; and Rajendra N. Shah & Anr. (supra)
8
limit prescribed under Article 243ZL(1) of the
Constitution?
(ii) Whether an order of supersession passed under
Section 36AAA(1) of BR Act can be extended beyond
the term of office for which the BoD of a multi-State
co-operative bank had originally been elected?
ANALYSIS
16. Having heard learned counsel for the respective parties at length
and upon a perusal of the record, we proceed to answer the
issues.
17. The BR Act is a parliamentary enactment traceable to Entry 45
of List-I of Seventh Schedule of the Constitution, enacted to
consolidate and amend the law relating to banking. The MSCS
Act, also a parliamentary legislation, is traceable to Entry 44 of
List-I of Seventh Schedule of the Constitution, and was enacted
to remedy the deficiencies of the erstwhile legislation that is the
Multi-State Co-Operative Societies Act, 1984 and to strengthen
the governance of the multi-State co-operative societies,
consistently with the recognized co-operative principles, which
are, (i) voluntary and open membership, (ii) democratic member
control, (iii) member’s economic participation, (iv) autonomy and
independence, (v) education, training and information, (vi) co-
9
operation among co-operatives, and (vii) concern for community.
The MSCS Act was also intended to address specific instances of
mismanagement that had come to light in certain multi-State co-
operative societies.
18. By the Constitution (Ninety-Seventh Amendment) Act, 2011 Part
IXB, comprising Articles 243ZH to 243ZT, was inserted into the
Constitution, conferring constitutional status upon co-operative
societies with the object of ensuring that such societies function
in a democratic, professional, autonomous and economically
9
sound manner. This Court upheld the constitutional validity of
Part IXB of the Constitution only in relation to multi-State co-
operative societies. It follows that Part IXB applies exclusively to
multi-State co-operative societies.
ISSUE NO. (i)
19. Before entering upon this issue, it would be apposite to extract
Article 243ZL of the Constitution, which reads thus:
“243ZL. Supersession and suspension of
board and interim management.—
(1) Notwithstanding anything contained in
any law for the time being in force, no board
shall be superseded or kept under
suspension for a period exceeding six
months:
Provided that the board may be superseded
or kept under suspension in a case—
9
Rajendra N. Shah & Anr. (supra)
10
(i) of its persistent default; or
(ii) of negligence in the performance of its
duties; or
(iii) the board has committed any act
prejudicial to the interests of the co-
operative society or its members; or
(iv) there is stalemate in the constitution
or functions of the board; or
(v) the authority or body as provided by the
Legislature of a State, by law, under clause
(2) of article 243ZK, has failed to conduct
elections in accordance with the provisions
of the State Act:
Provided further that the board of any such
co-operative society shall not be superseded
or kept under suspension where there is no
Government shareholding or loan or
financial assistance or any guarantee by the
Government:
Provided also that in case of a co-operative
society carrying on the business of banking,
the provisions of the Banking Regulation Act,
1949 (10 of 1949) shall also apply;
Provided also that in case of a co-operative
society, other than a multi-State co-operative
society, carrying on the business of banking,
the provisions of this clause shall have the
effect as if for the words “six months”, the
words “one year” had been substituted.
(2) In case of supersession of a board, the
administrator appointed to manage the
affairs of such co-operative society shall
arrange for conduct of elections within the
period specified in clause (1) and handover
the management to the elected board.
(3) The Legislature of a State may, by law,
make provisions for the conditions of service
of the administrator.”
20. The provision opens with a non obstante clause and enacts, as a
general rule, that no BoD of a co-operative society shall be
superseded or kept under suspension for a period exceeding six
11
months. The said general rule stands qualified by four provisos.
The first proviso specifies the grounds on which supersession
may be ordered. The second withdraws the power of
supersession altogether where the co-operative society
concerned carries no element of Government shareholding or
loan or financial assistance or any guarantee by the Government.
The third proviso stipulates that, in the case of a co-operative
society carrying on the business of banking, the provisions of BR
Act “shall also apply”. The fourth proviso extends the period of
supersession from six months to one year for a co-operative
society, but, significantly, in terms, expressly excludes from that
extension a co-operative society other than a multi-State co-
operative society carrying on the business of banking.
21. The relevant extract of Section 36AAA of the BR Act reads as
under:
“ 36AAA.—Supersession of Board of directors
of a [co-operative bank] . —
(1) Where the Reserve Bank is satisfied that in
the public interest or for preventing the affairs
of a [co-operative bank] being conducted in a
manner detrimental to the interest of the
depositors or of the [co-operative bank] or for
securing the proper management of the [co-
operative bank], it is necessary so to do, the
Reserve Bank may, for reasons to be recorded in
writing, by order, supersede the Board of
directors of such [co-operative bank] for a period
not exceeding five years as may be specified in
12
the order, which may be extended from time to
time, so, however, that total period shall not
exceed five years;
[Provided that in the case of a co-operative bank
registered with the Registrar of Co-operative
Societies of a State, the Reserve Bank shall
issue such order in consultation with the
concerned State Government seeking its
comments, if any, within such period as the
Reserve Bank may specify.]
(2) The Reserve Bank may, on supersession of
the Board of directors of the [co-operative bank]
under sub-section (1) appoint an Administrator
for such period as it may determine.
(3) The Reserve Bank may issue such directions
to the Administrator as it may deem appropriate
and the Administrator shall be bound to follow
such directions.
(4) Upon making the order of supersession of the
Board of directors of a [co-operative bank],—
(a) the chairman, managing director and
other directors as from the date of
supersession of the Board shall vacate
their offices as such;
(b) all the powers, functions and duties
which may, by or under the provisions of
the Multi-State Co-operative Societies Act,
2002 (39 of 2002) or this Act or any other
law for the time being in force, be exercised
and discharged by or on behalf of the
Board of directors of such a [co-operative
bank] or by a resolution passed in general
meeting of such co-operative bank, shall,
until the Board of directors of such co-
operative bank is reconstituted, be
exercised and discharged by the
Administrator appointed by the Reserve
Bank under sub-section (2):
Provided that the power exercised by the
Administrator shall be valid notwithstanding
13
that such power is exercisable by a resolution
passed in the general meeting of such multi-
State co-operative bank.
(5) (a) The Reserve Bank may constitute a
committee of three or more persons who have
experience in law, finance, banking,
administration or accountancy to assist the
Administrator in discharge of his duties.
(b) The committee shall meet at such times and
places and observe such rules of procedure as
may be specified by the Reserve Bank…”
“..(9) The Administrator appointed under sub-
section (2) shall vacate office immediately after
the Board of directors of the multi-State co-
operative society has been constituted.
[(10) The provisions of section 36ACA shall not
apply to a co-operative bank.]”
22. Thus, for reasons to be recorded, the power of supersession of a
multi-State co-operative bank, can be exercised by RBI, in public
interest or for preventing the affairs of a co-operative bank being
conducted in a manner detrimental to the interest of the
depositors or of the co-operative bank or for securing the proper
management of such bank, from time to time, for a period not
exceeding five years.
th
23. Justice G.P. Singh in Principles of Statutory Interpretation (15
Edition, page no. 248) has explained the doctrine of incorporation
of an earlier Act into later one in the following terms:
“Incorporation of an earlier Act into a later Act is
a legislative device adopted for the sake of
convenience in order to avoid verbatim
14
reproduction of the provisions of the earlier Act
10
into the later . When an earlier Act or certain of
its provisions or certain of its provisions are
incorporated by reference into a later Act, the
provisions so incorporated become part and parcel
of the later Act as if they had been ‘bodily
11
transposed into it’ . The effect of incorporation is
admirably stated by Lord Esher MR:
“If a subsequent Act brings into itself by reference
some of the clauses of a former Act, the legal effect
of that, as has often been held, is to write those
sections into the new Act as if they had been
actually written in it with the pen, or printed in
12
it.”
24. Thus, in case of incorporation, the provisions to which reference
is made are bodily lifted in the enactment in which they are
referred to and become part of it. The incorporated provisions
operate on their own force. Tested on the analogy of the aforesaid
well-settled legal principles, it is evident that the third proviso to
Article 243ZL(1) employs the expression “shall also apply”. The
said expression has been used in an additive and non-restrictive
sense. Therefore, it is evident that the same incorporates BR Act
into Part IXB of the Constitution insofar as it pertains to multi-
State co-operative bank.
25. It is well-settled that, ordinarily, a proviso restricts rather than
enlarges the meaning of the provision to which it is appended.
However, at times, the legislature embodies a substantive
10
Mary Roy v. State of Kerala, AIR 1986 SC 1011
11
Ram Sarup v. Munshi, AIR 1963 SC 553
12
Re, Wood’s Estate, Ex parte, Works and Buildings Commrs, (1886) 31 Ch D 607, p 615.
15
provision in a proviso. The question whether a proviso is by way
of an exception or a condition to the substantive provision, or
whether it is in itself a substantive provision, must be
13
determined on the substance of the proviso and not its form . A
14
proviso can also be an independent legislative provision . A
Constitution Bench of this Court has also held that generally
speaking, it is true that the proviso is an exception to the main
part of the section; but it is recognised that in exceptional cases
15
a proviso may be the substantive provision itself . A two-Judge
16 17
Bench of this Court took note of previous decisions , summed
up the purposes which a proviso may seek to serve, (i) qualifying
or excepting certain provisions from the main enactment; (ii) it
may entirely change the very concept of the intendment of the
enactment by insisting on certain mandatory conditions to be
fulfilled in order to make the enactment workable; (iii) it may be
so embedded in the Act itself as to become an integral part of the
enactment and thus acquire the tenor and colour of the
substantive enactment itself; and (iv) it may be used merely to
13
Rhondda Urban District Council v. Taff Vale Railway Co., [1909] A.C. 253, 258.
14
State of Rajasthan v. Leela Jain & Ors.. 1964 SCC OnLine SC 15
15
Commissioner of Commercial Taxes and Ors. (supra)
16
DMRC v. Tarun Pal Singh, (2018) 14 SCC 161
17
S. Sundaram Pillai v. V.R. Pattabiraman, (1985) 1 SCC 591; and Hiralal Rattanlal v. State of U.P.,
(1973) 1 SCC 216.
16
act as an optional addenda to the enactment with the sole object
of explaining the real intendment of the statutory provision.
26. The Parliament has enacted third proviso to the said Article
which is a special provision for Boards of Societies carrying on
the business of banking. In the instant case, the third proviso by
making the provisions of BR Act also applicable, in case of a
multi-State co-operative bank enlarges the scope of main Article
that is Article 243ZL(1), instead of restricting its scope, therefore,
the same is not a proviso but is an independent provision. The
words “shall also apply” employed in third proviso to the said
Article makes it abundantly clear that provisions of the BR Act
are applicable to the multi-State co-operative bank.
27. It is also of significance that the fourth proviso to Article
243ZL(1), while extending the period of supersession from six
months to one year for a co-operative society carrying on the
business of banking, expressly excludes a multi-State co-
operative society carrying on the business of banking from that
extension. Article 243ZL(1), which confers constitutional status
on co-operative societies, thus itself contemplates and preserved
the application of Section 36AAA of BR Act to a multi-State co-
operative bank. It bears mention that Section 56 of BR Act carries
a non-obstante clause and is given an overriding effect over all
17
18
other legislations. A Constitution Bench of this Court has
categorically held that, by virtue of the third proviso to Article
243ZL(1), the provisions of BR Act shall also apply to a multi-
State co-operative society carrying on the business of banking.
28. We may, in this regard, advert to a further textual indicator,
internal to Article 243ZL itself, which perhaps furnishes the most
conclusive proof of the construction we have adopted. The fourth
proviso applies in terms to “a co-operative society, other than a
multi-State co-operative society, carrying on the business of
banking”. By employing this qualifying phrase, Parliament has
proceeded upon the clear premise that the expression “co-
operative society carrying on the business of banking”, as it
occurs in Article 243ZL, would, but for such express exclusion,
take within its fold multi-State co-operative societies as well. Had
the definition of “co-operative society” in Article 243ZH(c) been
intended to remove multi-State co-operative societies from the
sweep of Article 243ZL altogether, there would have been no
occasion, and indeed no necessity, for Parliament to carve out
multi-State co-operative societies by name from the fourth
proviso.
18
Pandurang Ganpati Chaugule (supra)
18
29. An exclusion, by its very nature, presupposes a prior inclusion;
Parliament does not exclude from a proviso what could never
have fallen within it in the first place. This internal architecture
of Article 243ZL, read as an integral whole, therefore
corroborates, in the clearest possible terms, that the third
proviso, which extends BR Act to co-operative societies carrying
on the business of banking, was always intended to, and does,
comprehend multi-State co-operative banks such as the Bank in
the present case.
30. The textual conclusion is, in our view, rendered inevitable when
the provision is read in the light of the purpose it is designed to
serve. Banking, unlike ordinary commercial or co-operative
activity, is impressed with a public interest of a distinct order: it
is the medium through which the savings of depositors,
frequently persons of modest means, who repose in the banking
system both their trust and their life earnings, are held and
deployed. The BR Act was enacted precisely to arm RBI, as the
apex regulator of the banking system, with the tools necessary to
safeguard the interests of depositors and to maintain the
solvency, stability and discipline of banking institutions. Section
36AAA of BR Act is one such tool, enabling the RBI to supersede
an errant or failing board where this is necessary in the public
19
interest, or to prevent the affairs of a co-operative bank being
conducted in a manner detrimental to the interests of its
depositors, or to secure its proper management.
31. To read the third proviso to Article 243ZL(1) as excluding multi-
State co-operative banks from the reach of the BR Act and
thereby confining the RBI’s regulatory hand to a rigid six-month
period, ill-suited to the time genuinely required to nurse a
distressed bank back to health, would be to subordinate the
protection of depositors and the discipline of the banking system
to a truncated and overly technical reading of a constitutional
proviso. Such a construction would defeat the very object which
impelled the Parliament to enact a third proviso, namely, to
ensure that co-operative societies carrying on the business of
banking remain, notwithstanding their co-operative character,
subject to the specialised, continuous and expert regulatory
oversight of the RBI under the BR Act.
32. We are, therefore, of the considered view that the construction
which subserves the object of protecting depositors and
preserving financial discipline in the banking system must be
preferred over one which would fragment regulatory authority
and expose multi-State co-operative banks to a supervisory
vacuum upon the expiry of an artificially truncated period. It is
20
this need to preserve, rather than dilute, the RBI’s regulatory
reach over multi-State co-operative banks that lends both textual
and purposive coherence to the scheme of Article 243ZL.
Therefore, the inevitable conclusion is that provisions of BR Act
apply to multi-State co-operative banks.
19
33. The decision of the Constitution Bench of this Court no doubt
deals with the issue of application of SARFAESI Act to co-
operative societies. However, in paragraph 94, in the aforesaid
decision, the Constitution Bench held in terms that the BR Act
is applicable to multi-State co-operative societies carrying on the
business of banking. Therefore, the submission that the reliance
placed by respondents on this decision is misplaced, does not,
therefore, merit acceptance. Similarly, the contention that the
third proviso to Article 243ZL(1) cannot be read as ousting the
applicability of provisions of Part IXB of the Constitution to
multi-State co-operative societies carrying on the business of
banking is misconceived.
34. For the aforementioned reasons, the first issue is answered in
the negative by stating that the power of RBI to supersede BoD
of a multi-State co-operative bank under Section 36AAA(1) of BR
19
Pandurang Ganpati Chaugule (supra)
21
Act is not circumscribed by the 6-month limit prescribed in
Article 243ZL(1) of the Constitution.
ISSUE NO. (ii)
35. We now turn to the second issue. The First Supersession Order
was passed on 24.11.2023, before the expiry of the statutory
term of the BoD, which expired on 24.05.2024. It was only
thereafter, on 18.11.2024, the Second Supersession Order
extending the period of supersession of BoD was passed and
thereafter still, on 07.11.2025, that the Third Supersession
Order further extended the period of supersession by one year.
36. Section 36AAA (1) of BR Act expressly contemplates that a period
of supersession, once ordered, may be extended from time to
time, subject to an outer limit of five years in the aggregate. Once
the BoD stands superseded, the Board ceases to exist and all its
powers vest in the Administrator. The object underlying Section
36AAA, which empowers the RBI, as the regulator of banking
system, to supersede the Board of a multi-State co-operative
bank, is to ensure that financial health of a co-operative bank
does not deteriorate to a dangerous level and interest of
depositors is duly protected. The power thereunder must
accordingly be exercised in the public interest to secure the
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proper management of a multi-State co-operative bank. Section
36AAA (7) of the BR Act may usefully be extracted:
“ (7) On and before expiration of period of
supersession of the Board of directors as
specified in the order issued under sub-section
(1), the Administrator of the [co-operative bank]
shall call the general meeting of the society to
elect new directors.”
37. The Administrator is thus obliged to convene a general meeting
for the election of new directors only upon expiration of the
period of supersession specified by the RBI. Bearing in mind the
object underlying the RBI’s power of supersession and the
mandate of Section 36AAA(7), we are of the view that the tenure
of the erstwhile BoD of a multi-State co-operative bank is of no
consequence to the exercise of that power. At the same time, the
provision safeguards the interests of the BoD of the multi-State
co-operative bank by fixing an outer limit of five years, so that
elections are not deferred indefinitely. In the instant case, the
power of supersession was exercised while the statutory term of
BoD subsisted, and the period of supersession has thereafter
only been extended, within the permissible outer limit of five
years.
38. For the aforementioned reasons, the second issue is answered in
the affirmative by stating that the order of supersession passed
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under Section 36AAA(1) of BR Act can be extended beyond the
term of office for which the BoD of a multi-State co-operative
bank had originally been elected.
39. Insofar as the submission made on behalf of the appellants that
there has been a violation of proviso to Section 36AAA(1) of the
BR Act on account of non-consultation prior to the order of
supersession is concerned, it suffices to note that the
requirement of consultation applies only to a co-operative bank
registered with Registrar of Co-operative Societies of a State. The
Bank, being admittedly a multi-State co-operative bank, does not
fall within that category. Therefore, the aforesaid submission
does not merit acceptance.
CONCLUSION
40. For the foregoing reasons, we find no infirmity in the impugned
judgment warranting interference in these appeals. The appeals
are, accordingly, dismissed, with no order as to costs.
……………..……………………………….J.
[PAMIDIGHANTAM SRI NARASIMHA]
………………………………………………J.
[ALOK ARADHE]
NEW DELHI;
SEPTEMBER 03, 2026.
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