Pandurang Ganpati Chougule v. Vishwasrao Bank Ltd. (2020)
(Cooperative Banks come under the purview of Entry 45 of List I & SARFAESI Act)
(Entry 45 List of Constitution of India and Ss. 2(1)(c)(v) and 2(1)(c)(iva) of SARFAESI Act)
- JUDGMENT SUMMARY – Pandurang Ganpati Chougule v. Vishwasrao Bank Ltd.
- DATE OF THE JUDGMENT – May 05, 2020
- JUDGES – Arun Mishra, Indira Banerjee, Vineet Saran M.R. Shah, Aniruddha Bose
PARTIES –
- PANDURANG GANPATI CHAUGULE … APPELLANT VERSUS
- VISHWASRAO PATIL MURGUD SAHAKARI BANK LIMITED … RESPONDENT
ISSUES
The question relates to the scope of the legislative field covered by Entry 45 of List I viz. ‘Banking’ and Entry 32 of List II of the Seventh Schedule of the Constitution of India, consequentially power of the Parliament to legislate
SUBJECT
Writ petitions were filed questioning vires of the notification dated 28.1.2003 issued under Section 2(1)(c)(v) of the SARFAESI Act and the insertion of Section 2(1)(c)(iva) to the SARFAESI Act in 2013.
AN OVERVIEW
Co-operative banks established under the Maharashtra Co-operative Societies Act, 1960 and Andhra Pradesh Co-operative Societies Act, 1964, transacting the business of banking do not fall within the meaning of 'banking company' as defined in Section 5(c) of the BR Act, 1949. Therefore, the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, now renamed as The Recovery of Debts and Bankruptcy Act, 1993 (for short, 'the RDB Act, 1993'), by invoking the doctrine of incorporation do not apply to the recovery of dues by co-operative banks from their members
IMPORTANT PROVISIONS
Banking Regulation (Amendment) and Miscellaneous Provisions Act, 2004 - An Act further to amend the Banking Regulation Act, 1949 and the Deposit Insurance and Credit Guarantee Corporation Act, 1961.
SARFAESI Act - It allows banks and other financial institution to auction residential or commercial properties (of Defaulter) to recover loans.
ANALYSIS
1. Section 2(10) of the Maharashtra Co-operative Societies Act, 1960, is related to the management and business of co-operative societies. Under Section 91 of the Maharashtra Act, any dispute touching the constitution, management or business is required to be referred to a co-operative court.
2. The object of the SARFAESI Act is to regulate securitisation and reconstruction of financial assets and enforcement of security interests. The business of securitisation is not a banking business. Under Section 2(1)(l) of the SARFAESI Act, a 'financial asset' means debt or receivable and includes inter alia any financial asset. Section 2(1)(ha) defines 'debt' to mean the same as defined in clause (g) of Section 2 of the RDB Act, 1993.
3. Financial assistance to members is another form of business that is not a banking business. Therefore, an attempt to regulate the assets of a co-operative bank by bringing them within the purview of the SARFAESI Act is contrary to the original intent of the extending provisions of the BR Act, 1949 and that would amount to exercising control over the entities which are beyond the purview of competence of Parliament.
4. Entities doing banking are basically co-operative societies. Regarding the SARFAESI Act, it was observed in paragraph 41 of the decision quoted above that meaning of 'banking company' is a company engaged in banking and not a 'cooperative society' engaged in banking
CONCLUSION
The co-operative banks under the State legislation and multi-State co-operative banks are ‘banks’ under section 2(1)(c) of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. The Parliament has legislative competence under Entry 45 of List I of the Seventh Schedule of the Constitution of India to provide additional procedures for recovery under section 13 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 with respect to cooperative banks.
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