• Ms Arushi Singh

Pandurang Ganpati Chaugule Vs Vishwasrao Patil Murgud Sahakari Bank Limited (C.A. No. 5674/2009)

CASE

Pandurang Ganpati Chaugule Vs Vishwasrao Patil Murgud Sahakari Bank Limited


CITATION

Civil Appeal No. 5674 Of 2009


CORAM

Supreme Court of India (Civil Appellate Jurisdiction)

Constitution Bench - Hon’ble Justice Arun Mishra (author), Hon’ble Justice M.R. Shah, Hon’ble Justice Aniruddha Bose, Hon’ble Justice Indira Banerjee, Hon’ble Justice Vineet Saran


ALSO KNOWN AS

Cooperative Banks - SARFAESI Case


POINT OF CONSIDERATION

Whether the SARFAESI Act was applicable to cooperative banks or not?


FACTS

  1. The matters (various petitions on the subject were clubbed together) were referred to the constitutional bench of the Hon’ble Supreme Court in light of several conflicting decisions of the Supreme Court.

  2. The question referred was related to the scope of the legislative field covered by Entry 45 of List I viz. ‘Banking’ and Entry 32 of List II (i.e., w.r.t. regulation of co-operative societies) of the Seventh Schedule of the Constitution of India.

  3. The question was w.r.t. applicability of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, ‘the SARFAESI Act’) to the cooperative banks.

  4. Similarly, the issue arose whether the definition of ‘banking company’ contained in Section 5(c) of the Banking Regulation Act, 1949 (for short, ‘the BR Act, 1949’) covered cooperative banks registered under the law or not.


ISSUES RAISED & RATIO

  • Whether cooperative banks involved in the activities related to banking were covered within the meaning of Banking company u/ Banking Regulating Act, 1949 or not?

The Court held that the cooperative banks involved in the activities related to banking were covered within the meaning of ‘Banking Company’ defined under Section 5(c) read with Section 56(a) of the Banking Regulation Act, 1949, which was a legislation relatable to Entry 45 of List I. It governed the aspect of ‘banking’ of cooperative banks run by the cooperative societies.


The Court explained that the cooperative banks, which were governed by the BR Act, 1949, were involved in banking activities within the meaning of Section 5(b) thereof. They accepted money from the public, repayable on demand or otherwise and withdrawal by cheque, draft, order or otherwise. Merely by the fact that lending of money was limited to members, they could not be said to be out of the purview of banking as they performed commercial functions.

The Court further declared that the cooperative banks could not carry on any activity without compliance of the provisions of the Banking Regulation Act, 1949 and any other legislation applicable to such banks relatable to ‘Banking’ in Entry 45 of List I and the RBI Act relatable to Entry 38 of List I of the Seventh Schedule of the Constitution of India.


  • Whether cooperative banks were considered as banks u/ SARFAESI Act, 2002 or not?

The court held that the cooperative banks under the State legislation and multi-State cooperative banks were ‘banks’ under section 2(1)(c) of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. The court explained that the recovery was an essential part of banking; as such, the recovery procedure prescribed under section 13 of the SARFAESI Act, a legislation relatable to Entry 45 List I of the Seventh Schedule to the Constitution of India, was applicable.


IMPORTANT CASES REFERRED

  1. Greater Bombay Coop. Bank Ltd. v. United Yarn Tex (P) Ltd. and Ors. ,

  2. Delhi Cloth & General Mills Co. Ltd. v. Union of India and Ors.,

  3. T. Velayudhan Achari and Anr. v. Union of India and Ors.,

  4. Union of India and Anr. v. Delhi High Court Bar Association and Ors.



The author is a LL.B Graduate of University School of Law and Legal Studies, GGSIPU, New Delhi



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