RBI can supersede multi-State cooperative bank boards for up to five years; six-month constitutional cap does not apply, rules Supreme Court

Abhyudaya Co-operative Bank Ltd. was originally registered under the Maharashtra Co-operative Societies Act, 1960 and subsequently became a multi-State co-operative bank after amalgamation with banks in Gujarat and Karnataka.

The appellants were elected to the Bank’s Board of Directors (“BoD”) in May 2019 for a five-year term. On 24.11.2023, the Reserve Bank of India (“RBI”), exercising powers under Section 36AAA(1) and (2), read with Section 56 of the Banking Regulation Act, 1949 (“BR Act”), superseded the BoD for one year and appointed an Administrator, citing the Bank’s deteriorating financial condition, the need to protect depositors, and the need for professional management. During the pendency of the appellants’ writ petitions, their elected term expired on 24.05.2024. The RBI subsequently extended the supersession for another year on 18.11.2024 and again on 07.11.2025. The Bombay High Court upheld the RBI’s action, holding that Section 36AAA continued to operate notwithstanding Articles 243ZL and 243ZT of the Constitution, that consultation with the State Government was not required for a multi-State co-operative bank, and that natural justice did not apply to the supersession power.

1. Whether the RBI’s power to supersede the BoD of a multi-State co-operative bank under Section 36AAA(1) of the BR Act is subject to the six-month limit prescribed under Article 243ZL(1) of the Constitution.

2. Whether an order of supersession under Section 36AAA(1) of the BR Act may be extended beyond the original elected term of the BoD of a multi-State co-operative bank.

Article 243ZL(1) of the Constitution generally prohibits supersession or suspension of the board of a co-operative society beyond six months, but its third proviso provides that the BR Act shall also apply to a co-operative society carrying on the business of banking; its fourth proviso expressly extends the period to one year only for co-operative societies other than multi-State co-operative societies.

Section 36AAA(1) of the BR Act empowers the RBI, for recorded reasons and in the public interest, to supersede the board of a co-operative bank for a specified period, extendable from time to time, subject to an aggregate maximum of five years.

Section 36AAA(7) requires the Administrator to convene a general meeting for election of new directors on or before expiry of the period of supersession specified by the RBI.

Section 56 of the BR Act gives the Act overriding effect over inconsistent laws.

Applying the doctrine of incorporation, provisions referred to by the expression “shall also apply” are treated as incorporated into the constitutional scheme.

The Court relied particularly on Pandurang Ganpati Chaugule v. Vishwasrao Patil Murgud Sahakari Bank Ltd., which affirmed the applicability of the BR Act to multi-State co-operative societies carrying on banking business.

The Court held that the third proviso to Article 243ZL(1) was an independent and substantive provision incorporating the BR Act into the constitutional framework for multi-State co-operative banks, rather than merely qualifying the six-month ceiling in the main clause.

The express exclusion of multi-State co-operative societies from the one-year extension in the fourth proviso demonstrated that such societies were otherwise within the scope of Article 243ZL and that their regulation was specifically preserved under the BR Act.

Given the distinct public interest involved in banking and the RBI’s responsibility to protect depositors and maintain financial stability, Section 36AAA was permitted to operate with its own five-year aggregate ceiling.

Since the initial supersession order was validly made while the appellants’ BoD was still within its elected term, subsequent extensions were legally permissible even after that term expired. Section 36AAA(7) showed that elections were to be held upon expiry of the RBI-specified supersession period, not upon expiry of the former BoD’s original tenure.

The consultation proviso to Section 36AAA(1) applied only to a co-operative bank registered with the Registrar of Co-operative Societies of a State; it therefore did not apply to the Bank, which was a multi-State co-operative bank.

It answered the second issue in the affirmative, holding that a valid supersession order may be extended beyond the original elected term of the BoD, provided the total period does not exceed the five-year statutory limit under Section 36AAA(1).

The RBI was not required to consult the State Government in the present case, and the High Court’s judgment upholding the supersession orders was affirmed, with no order as to costs.