PANDURANG GANPATI CHAUGULE V. VISHWASRAO PATIL MURGUD SAHAKARI BANK LIMITED (2020)
FACTS:
The matter is in view of conflicting decisions in Greater Bombay Coop. Bank ltd. v. United Yarn Tex Ltd, where the Court restrictively conclude that the co-operative bank cannot approach the Debts Recovery Tribunal under the Recovery of Debts and Bankruptcy Act for recovery of their dues. The Court stated that Co-operative banks fall under Entry 32 of List II of the 7th schedule and therefore the parliament is not competent to legislate with regard to co-operative banks under Entry 45 of List I of 7th
Pandurang Ganpati (appellant), questioned the action of Viswasrao Patil Bank under the SARFAESI Act. Extending the provisions of the Act to co-operative banks also amend the definition of ‘Bank’ under SARFAESI Act by including ‘multi-state co-operative bank’ as a result of which plenty of writ petition was filed challenging the amendment.
ISSUE:
Whether ‘cooperative banks’, which are cooperative societies also, are governed by Entry 45 of List I or by Entry 32 of List II of the 7th schedule of the constitution of India and to what extent?
Whether ‘banking company’ as defined in sec. 5(c) of the BR Act, 1949 covers cooperative banks registered under the state Cooperative laws and also multistate Cooperative societies?
Whether cooperative banks both at the state level and multistate level are ‘banks’ for applicability of the SARFAESI Act?
Whether provisions of section 2(c)(iva) of the SARFAESI Act on account of inclusion of multi- state cooperative Banks and notification notifying cooperative banks in the state are ultra vires?
Whether there is a power misuse exercised by the Central Government to extend it to the matters in the state list against the constitutional mandate?
REFERRED CASE LAW:
Greater Bombay Co-op Bank ltd. vs United Yarn Tex. Pvt .Ltd. & Ors.
C. Cooper v. Union of India
OBSERVATION:
The expression “Banking” is not defined in any Indian statute except in the BR Act, 1949. It may be recalled that by sec. 5(b) of the Act “banking” means “the accepting for the purpose of lending or investment of deposits of money from the public repayable on demand or otherwise, and withdrawable by cheque, draft or otherwise”. The definition did not include other commercial activities which a banking institution may engage in.
The word ‘Banking’ has been incorporated in Entry 45 of List I. The decision in Rustom Cavasjee Cooper vividly leaves no room for doubt that banking done by the cooperative bank is covered within the ambit of Entry 45 of List I.
The definition of ‘banking’ and ‘banking company’ are contained in sec. 5(b) and 5(c) of the BR Act, 1949 respectively, and when reading with sec. 56(a), it means cooperative banks also.
In UCO Bank and Anr. v. B. Dipak Debbarma & Ors. This Court observed that provisions of the SARFAESI Act enable the bank to take possession of any property where a security interest has been created in its favour and sell such property to any person to realise dues.
DECISION:
The Doctrine of “pith and substance” wherein the essential part of any law or the true nature of law can be determined by seeing the subject matter of the entry. Thus Entry 45of List I is the widest possible amplitude comprising the activities of the co-operative bank within its purview. The amendment and the notification are not ultra vires and are correctly permissible by law.Co-operative banks regulated by the cooperative societies under the state legislation with respect to ‘incorporation, regulation and winding up’ of the cooperative societies are covered under Entry 32 of List II, whereas ‘banking’ is covered by Entry 45 of List I. Thus aspect of incorporation, regulation and winding up would be covered under Entry 32 of List II . However, banking activity shall be governed by Entry 45 of List I.
5(c) of the BR Act, defines ‘banking Company’ means any company which transacts the business of banking. By virtue of sec.56(a) ,a reference to a ‘banking company’ or the company shall be construed as reference to a cooperative bank for the application of the Act to the cooperative banks.
Under Entry 45 of List I, the parliament had the power to enact such a provision defining ‘bank’ to authorise and prescribe the recovery procedure for such a bank as provided in sec. 13 of the SARFAESI Act, thus cooperative societies/banks stand included by incorporation in sec.5(1)(c) of the BR Act and notification was issued ex abundanti cautela. It is permissible for the parliament to enact the law to provide recovery procedures for bank dues that have been done by providing speedy recovery of secured interest without intervention of the Court/tribunal.
As we see above parliament had legislative Competence under Entry 45 of List I of the 7th schedule to provide additional procedures for recovery under sec.13 of SARFAESI Act, 2002. The provision of sec. 2(1)(c), of SARFAESI Act, adding “ex abundanti cautela”, ‘a multistate co-operative bank’ is not ultra vires as well as notification with respect to co-operative banks registered under the state legislation.
The legislation and entries are to be considered in pith and substance is the settled principles of law, and incidental trenching is permissible.