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Home > SC > Civil Law > Co-operative Societies Act > Greater Bombay Co-op. Bank Ltd Vs. M/s United Yarn Tex. Pvt. Ltd. & Ors



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Greater Bombay Co-op. Bank Ltd Vs. M/s United Yarn Tex. Pvt. Ltd. & Ors

Posted on 14 May 2009 by jyoti

Title

Greater Bombay Co-op. Bank Ltd Vs. M/s United Yarn Tex. Pvt. Ltd. & Ors



Coram

B. N. AGRAWAL, P. P. NAOLEKAR, LOKESHWAR SINGH PANTA



Act

Co-operative Societies Act



Subject

Constitution of India, 1950:

Seventh Schedule, List II-Entry 32-List I-Entries 43 and 45-Held, Co-operative Banks are not covered by Entry 45 of List I, dealing with `banking'-Entry 43, List I dealing with banking, financial corporation etc., expressly excludes co-operative societies from its ambit-Subject of Co-operative Societies is covered under Entry 32 of List II-Co-operative forms a specie of genus `corporation', and as such co-operative societies, with objects not confined to one State read in with the Union as provided in Entry 44 of List I, MSCS Act, 2002 governs such multi state co-operatives-Maharashtra Co-operative Societies Act, 1960-Andhra Pradesh Co-operative Societies Act, 1964-Multi State Co-operative Societies Act, 2002-Recovery of Debts Due to Banks and Financial Institutions Act, 1993-Banking Regulation Act, 1949.

Doctrine of occupied field-Held, co-operative Societies cannot be said to have been covered by central legislation by reference of Entry 45, List I.

Doctrine of pith and substance-Held, a co-operative bank is not a `banking company' under s.5(c) of B.R. Act-Even if the co-operatives are involved in activity of banking which involves lending and borrowing, this is purely incidental to their main co-operative activity which is a function in public domain-Banking Regulation Act, 1949-s.5(c).

Co-operative Societies:

Co-operative Banks-Recovery of dues of-Applicability of RDB Act-Held, dues of co-operative societies and recovery proceedings in connection therewith are covered by specific Acts, namely, MCS Act, 1960, APCS Act, 1964 and MCSC Act, 2002, which are comprehensive and self-contained legislations-Even if co-operative banks are involved in certain banking activities of lending and borrowing, this is purely incidental to their main co-operative activity which is a function in public domain-Therefore, provisions of RDB Act, by invoking doctrine of incorporation are not applicable to recovery of dues by co-operatives from their members-Maharashtra Co-operative Societies Act, 1960-Andhra Pradesh Co-operative Societies Act, 1964-Multi State Co-operative Societies Act, 2002 Recovery of Debts Due to Banks and Financial Institutions Act, 1993-Banking Regulation Act, 1949-Interpretation of Statutes-Doctrine of incorporation.

Maharashtra Co-operative Societies Act, 1960/Andhra Pradesh Co-operative Societies Act, 1964:

S.91/ss. 61, 62, 70 and 71-Registrar or an officer designated by him or an arbitrator not `civil courts'.

Banking Regulation Act, 1949:

S. 5(c)-"Banking Company"-Held, "Co-operative banks" established under MCS Act, 1960; APCS Act, 1964 and MSCS Act, 2002, transacting the business of banking do not fall within the meaning of `banking company' as defined in s.5(c) of the B.R. Act.

Words and Phrases:

`Court'-Connotation of in the context of RDB Act, 1993.

Co-operative banks established under the Maharashtra Co-operative Societies Act, 1960 (MCS Act, 1960), the Andhra Pradesh Co-operative Societies Act, 1964 (APCS Act, 1964) and the Multi-State Co-operative Societies Act, 2002 (MSCS Act, 2002), advanced loans to the respondent Companies which were the members of the respective Co-operative Societies. When the Co-operative Banks sought to recover their dues, writ petitions were filed before the High Courts challenging the jurisdiction of he authorities under the respective Co-operative Societies Act to recover the dues. The Full Bench of the Bombay High Court held that on and from the date the Debts Recovery Tribunal was constituted under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDB Act, 1993), the Courts and authorities under the Co-operative Societies Acts would cease to have jurisdiction to entertain applications submitted by Co-operative Banks for recovery of their dues. Similarly, the Full Bench of the Andhra Pradesh High Court held that the Tribunal constituted under the RDB Act had exclusive jurisdiction, powers and authority to entertain and decide application from a Co-operative Bank for recovery of debts due to such bank, subject to the pecuniary jurisdiction specified under the said Act. The Andhra Pradesh High Court further declared sections 61 and 71 of the APCS Act, 1964 being beyond legislative competence of the State Legislature and also in direct and clear conflict with the provisions of the RDB Act. Both these decisions were challenged in appeals before the Supreme Court. The Division Bench before which the appeals came to be listed, felt that the matter required to be considered by a Larger Bench and, thus, the appeals were heard by the present three-Judge Bench.

On the questions: (a) whether the RDB Act applies to debts due to co-operative banks constituted under the MCS Act, 1960; the MSCS Act, 2002 and the APCS Act, 1964, and (b) whether the State Legislature is competent to enact legislation in respect of co-operative societies incidentally transacting business of banking in the light of Entry 32, List II of Seventh Schedule of the Constitution.



Citation

2007 AIR 1584, 2007(4 )SCR823 , 2007(6 )SCC236 , 2007(5 )SCALE366 , 2007(5 )JT201



Head Notes

Answering the reference, the Court

HELD: 1.1. The dues of co-operatives and recovery proceedings in connection therewith are covered by specific Acts, such as the MCS Act, 1960 and the APCS Act, 1964, which are comprehensive and self-contained legislations. Similarly, for Multi-State Co-operatives there is a specific enactment in the form of the MSCS Act, 2002 comprehensively providing the legal framework in respect to issues pertaining to such co-operatives. Therefore, when there is an admittedly existing legal framework specifically dealing with issues pertaining to co-operatives and especially when the co-operative banks are, in any case, not covered by the provisions of the RDB Act specifically, there is no justification of covering the co-operative banks under the provisions of the RDB Act by invoking the Doctrine of Incorporation. [Para 55] [857-G-H; 858-A]

Surana Steels Pvt. Ltd. etc. v. Deputy Commissioner of Income Tax & Ors. etc., [1999] 4 SCC 306, relied on.

M/s Fatehchand Himmatlal & Ors. v. State of Maharashtra, [1977] 2 SCC 670; M/s Hoechst Pharmaceutical Ltd. & Ors. v. State of Bihar & Ors., [1983] 4 SCC 45, cited.

The Shamrao Vithal Co-operative Bank Limited v. M/s Star Glass Works & Ors., (2003) 1 MLJ 1, overruled.

1.2. The distinction between peoples' co-operative banks serving their members and corporate banks doing commercial transactions is fundamental to the constitutional dispensation and understanding co-operative banking generally and in the context of cooperative banking not coming under the ambit of the BR Act. Thus, even if the co-operatives are involved in the activity of banking which involves lending and borrowing, this is purely incidental to their main co-operative activity which is a function in public domain.
[Para 57] [858-C-D]

Zoroastrian Co-operative Housing Society Ltd. v. District Registrar, Co-operative Societies (Urban), [2005] 5 SCC 632, referred to.

1.3. The RDB Act was designed to deal with other banks and financial institutions which had to have recourse to the time-consuming process of the Civil Courts. The Co-operative Societies Acts on the one hand and RDB Act on the other hand, cannot be regarded as supplemental to each other viz., the provisions of the said Acts cannot be said to be pari-materia. The RDB Act is consistent with the general banks and their creditors/loanees while the MCS Act, 1960; the APCS Act, 1964 and the MSCS Act, 2002 are concerned with the regulation of Co-operative societies only. The language of the sections in these enactments defining `banking company' is plain, clear and explicit. It does not admit any doubtful interpretation as the intention of the legislature is clear. [Paras 59, 60 and 69] [859-B, E; 861-H; 862-A]

Virendra Pal Singh v. District Assistant Registrar, [1980] 4 SCC 109, relied on.

1.4. Section 31 of RDB Act clearly refers to transfer of `every suit or other proceeding pending before any court'. The word `court', in the context of the RDB Act, signifies `civil court'. It is clear that the Registrar, or an officer designated by him or an arbitrator under Sections 61, 62, 70 and 71 of the APCS Act, 1964 and under Section 91 and other provisions of Chapter IX of the MCS Act, 1960 are not `civil courts'. [Para 62] [860-G-H]

Harinagar Sugar Mills v. Shyam, [1962] 2 SCR 339; Ram Rao & Anr. v. Narayan & Anr., AIR [1969] SC 724; Kihoto Hollohan v. Zachillhu & Ors., [1992] Supp. 2 SCC 651 Para 98 and Supreme Court Legal Aid Committee representing undertrial prisoners v. Union of India, [1994] 6 SCC 731, relied on.

Thakur Jugal Kishore v. Sitamarhilt, [1967] 3 SCR 163, held inapplicable.

1.5. The RDB Act was passed in 1993 when Parliament had before it the provisions of the BR Act as amended by Act No. 23 of 1965 by addition of some more clauses in Section 56 of the Act. The Parliament was fully aware that the provisions of the BR Act apply to co-operative societies as they apply to banking companies. The Parliament was also aware that the definition of `banking company' in Section 5 (c) had not been altered by Act No. 23 of 1965 and it was kept intact, and in fact additional definitions were added by Section 56(c). "Co-operative bank" was separately defined by the newly inserted clause (cci) and "primary co-operative bank" was similarly separately defined by clause (ccv). The Parliament was simply assigning a meaning to words; it was not incorporating or even referring to the substantive provisions of the BR Act. The meaning of `banking company' must, therefore, necessarily be strictly confined to the words used in Section 5(c) of the BR Act. There was a conscious exclusion and deliberate omission of co-operatie banks from the purview of the RDB Act. It could not be said that Amendments in Chapter V, Section 56 of the RDB Act by Act No. 23 of 1965 inserting "co-operative bank" in Clause (cci) and "primary co-operative bank" in Clause (ccv) either expressly or by necessary intentment apply to the co-operative banks transacting business of banking. [Paras 70] [858-E-G; 862-C]

1.6. "Co-operative banks" established under the Maharashtra Co-operative Societies Act, 1960 [MCS Act, 1960]; the Andhra Pradesh Co-operative Societies Act, 1964 [APCS Act, 1964]; and the Multi-State Co-operative Societies Act, 2002 [MSCS Act, 2002] transacting the business of banking, do not fall within the meaning of "banking company" as defined in Section 5 (c ) of the Banking Regulation Act, 1949 [BR Act]. Therefore, the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 [RDB Act] by invoking the Doctrine of Incorporation are not applicable to the recovery of dues by the co-operatives from their members.
[Para 89] [869-G-H; 870-A]

2.1. The constitutional validity of an Act can be challenged only on two grounds, viz. (i) lack of legislative competence; and (ii) violation of any of the Fundamental Rights guaranteed in Part III of the Constitution or of any other constitutional provision. [Para 71] [862-D]

State of A.P & Ors. v. McDowell & Co. & Ors., [1996] 3 SCC 709, relied on.

2.2. Power to enact a law is derived by the State Assembly from List II of the Seventh Schedule to the Constitution of India. Entry 32 of List II confers upon a State Legislature the power to constitute co-operative societies. The State of Maharashtra and the State of Andhra Pradesh both have enacted the MCS Act, 1960 and the APCS Act, 1964 in exercise of the power vested in them by Entry 32 of List II of the Seventh Schedule to the Constitution.
[Para 72] [862-F]

Subramanyan Chettiar v. Muttuswami Goundan, AIR (1941) FC 47; A. S. Krishna v. State of Madras, [1957] SCR 399 and State of Rajasthan v. Chawala, [1959] (Suppl. 1) SCR 904, relied on.

State of Bihar & Ors. v. Bihar Distillery Ltd. Ors., [1997] 2 SCC 453, referred to.

2.3. Entry 43 List of I speaks of banking, insurance and financial corporations etc. but expressly excludes co-operative societies from its ambit. the constitutionl intendment seems to be that the co-operative movement was to be left to the States to promote and legislate upon and the banking activities of co-operative societies were also not to be touched unless Parliament considered it imperative. The BR Act deals with the regulation of the banking business. There is no provision whatsoever relating to proceedings for recovery by any bank of its dues. Recovery was initially governed by the Code of Civil Procedure by way of civil suits and after the RDB Act came into force, the recovery of the dues of the banks and financial institutions was by filing of applications to the Tribunal. The Tribunal has been established with the sole object to provide speedy remedy for recovery of debts of the banks and financial institutions since there has been considerable difficulties experienced therefore from normal remedy of Civil Court.
[Para 79] [865-E-G]

2.4. Therefore, the express exclusion of co-operative societies in Entry 43 of List I and the express inclusion of co-operative societies in Entry 32 of List II separately and apart from but along with corporations other than those specified in List I and universities, clearly indicated that the constitutional scheme was designed to treat co-operative societies as institutions distinct from corporations. Co-operative Societies, incorporation, regulation and winding up are State subjects in the ambit of Entry 32 of List II of Seventh Schedule to the Constitution of India. Co-operatives form a specie of genus `corporation' and as such co-operative societies with objects not confined to one State read in with the Union as provided in Entry 44 of List I of the Seventh Schedule of the Constitution, MSCS Act, 2002 governs such multi-state co-operatives. [Para 80] [865-H; 866-A-B]

R. C. Cooper, etc. v. Union of India, [1970] 1 SCC 248, referred to.

2.5. The field of co-operative societies cannot be said to have been covered by the Central Legislation by reference to Entry 45, List I of the Seventh Schedule to the Constitution. The co-operative banks performing functions for the public with a limited commercial function as opposed to corporate banks cannot be covered by Entry 45 of List I dealing with "banking". Co-operative Banks constituted under the Co-operative Societies Acts enacted by the respective States would be covered by co-operative societies by Entry 32 of List II of Seventh Schedule to the Constitution. [Paras 90 and 81]

Associated Timber Industries & Ors. v. Central Bank of India & Anr., [2000] 7 SCC 93; State of Maharashtra v. Laljit Rajshi Shah and Ors., [2000] 2 SCC 699 and Union of India v. Delhi High Court Bar Association, [2002] 4 SCC 275, held inapplicable.

The Life Insurance Corporation of India v. D. J. Bahadur & Ors., AIR [1980] SC 2181; ITC Ltd. v. Agricultural Produce Market Committee & Ors., [2002] 9 SCC 232, referred to.

S. Ganesh, Bhim Rao Naik, T.R. Andhyarujina, Shekhar Naphade, S.B. Sanyal, V.A. Bobde, Dr. N.M. Ghatate, U.U. Lalit, J.V. Suryananrayana, Dr. Rajeev Dhawan, A.V. Sawant, Raju Ramachandran and K.N. Bhatt, Siddhartha Chowdhury, Samrat Nigam, Satyajit Ghone, Y.R. Naik, Rakesh K. Sharma, Shivaji M. Jadhav, Himanshu Gupta, Brij Kishor Sah, T.V. Ratnam, K. Subba Rao, A.H. Ramakrishna Rao, Ashish Chugh, Raghavendra S. Srivatsa, Balraj Dewan, Shweta Gupta, Abhijit P. Medh, Pramit Saxena, Anuradha Rustogi, S.V. Deshpande, T. Raja, Vinay Navare, Jay Savla, Meenakshi Ogra, Reena Bagga, D. Bharathi Reddy, P. Vinay Kumar, Sneha Bhaskaran, Sanjiv Sen, Praveen Swarup, Manik Karanawala, K. Maruthi Rao, K. Radha, Anjani Aiyagari, K. Shivraj Choudhuri, P.S. Narasimha, P. Sridhar, Avijeet Kr. Lala Sriram P. Murthy, John Mathew, Venkatarangadas Kanur, T. Lakshminarayana, Venkateswara Rao Anumolu, I Amar Dave, E.C. Agrawala, S. Ashokanand Kumar. S. Udaya Kumar Sagar, Bina Madhavan (for M/s. Lawyer's Knit & Co.) Sanjay V. Kharde, Chandan Ramamurthi, Aniruddha P. Mayee, Sanjeev Kumar Choudhary, Sanjay Visen, Amit Yadav, Satyajit A. Desai, Sunil Kumar Verma, Anagha S Desai, S.S. Shinde, Mukti Chowdhary, V.N. Raghupathy, Ravindra Keshavrao Adsure, S. Nanda Kumar, Brij Kishore Shah, Santha Kumar, Ananda Selvam, Naresh Kumar, S.A. Desai, Kavin Gulati, Mahesh Agrawal, Rishi Agrawal, Dr. P.B. Vijaya Kumar, I Madhavi, Saravbh Suman Sinha, B.V. Desai, Nupur Kanungo, Rahul Gupta, D. Mahesh Babu, Balraj Dewan, M.J. Paul, H.S. Parihar, Kuldeep Parihar, Amar Dave, Mehul Vakharia and Ravinder Shah for the appearing parties.



Judgment Made On

04/04/2007

CASE NO.:
Appeal (civil) 432 of 2004

JUDGMENT:
J U D G M E N T

WITH
[Civil Appeal Nos.433/2004, Civil Appeal No.434/2004,
Civil Appeal No.436/2004, SLP (C) Nos.15651-
15652/2005, SLP (C) No.5592/2004, SLP (C)
No.5598/2004, SLP (C) No.5890/2004, Civil Appeal
No.36/2006, Civil Appeal No.37/2006, Civil Appeal
No.38/2006, Civil Appeal No.916/2006, Civil Appeal
No.2819/2006, Civil Appeal No.2820/2006, Civil Appeal
No.2821/2006, Civil Appeal No.2822/2006 and SLP (C)
Nos.25246-25247/2005]

[Civil Appeal No.6069/2005, Civil Appeal No.6077/2005
and SLP (Crl.) No.2071/2006 - Not on board]

Lokeshwar Singh Panta, J.

Civil Appeal No.6069/2005, Civil Appeal No.6077/2005
and SLP (Crl.) No.2071/2006 are taken on board.
A Bench of two judges before which this batch of twelve
civil appeals and five special leave petitions came up for
consideration was of the view that looking to the issues
involved and the far-reaching consequences which such a
decision will leave, these matters require consideration by a
larger Bench. This is what the Bench observed in the order
dated 1st December, 2005.

"This batch of appeals/SLPs involved an
important issue regarding right of recovery of
debts by the co-operative banks constituted
under the Co-operative Societies Acts of the
States of Maharashtra and Andhra Pradesh. The
issue has arisen in the context of enactment of
the Recovery of Debts Due to Banks and
Financial Institutions Act, 1993. Under the Co-
operative Societies Acts, there is a mechanism for
recovery of debts by the Banks constituted under
those Acts, which are also called Co-operative
Banks. After the enactment of the 1993 Act,
question arose as to whether such Co-operative
Banks would have right of recovery under the
respective Co-operatives Societies Acts or they
will have to proceed under the 1993 Act. These
aspects and some other issues, including the
issue of legislative competence of the States to
enact the provisions relating to Co-operative
Banks, came up for consideration before the
Bombay High Court and the High Court of
Andhra Pradesh at Hyderabad. Both the High
Courts have pronounced judgments on the issues
and these judgments are under appeal in these
cases. Looking to the issues involved and the far-
reaching consequences which such a decision
will leave, we are of the view that these matters
be decided by a larger Bench.
This has also been brought to our notice
that as a consequence of the impugned
judgments of the two High Courts, recoveries
worth thousands of crores of rupees are held up
and for that reason these matters need to be
decided as early as possible.
Let these matters be placed before Hon'ble
the Chief Justice of India for constitution of an
appropriate larger Bench for early disposal of
these cases.
We are informed that so far as the batch of
appeals/SLPs arising from the judgment of the
Bombay High Court is concerned, the stay
applications have already been disposed of. The
stay applications in the appeals/SLPs arising
from the judgment of the Andhra Pradesh High
Court are yet to be finally disposed of. Let the
stay applications in the matters arising from the
judgment of the Andhra Pradesh High Court be
placed before this Court on Wednesday the 7th
December, 2005. If any party is desirous of filing
any reply, the same be filed by Monday the 5th
December, 2005.

SLP (C) Nos. ...CC 9992-9993/2005, SLP (C)
Nos.21685-21701/2005 and SLP(C) No. 22621/
2005
Delay condoned.
Issue notice.
Dasti service, in addition to usual mode of
service, is also permitted."

Hon'ble the Chief Justice of India, accordingly, has
assigned these matters for hearing by a Bench of three Judges
dealing with the subject matters of applicability of the
Recovery of Debts due to Banks and Financial Institutions Act,
1993 [ for short "'the RDB Act'"] to the co-operative banks
established under the Maharashtra Co-operative Societies Act,
1960 [for short "the MCS Act, 1960"]; The Multi-State Co-
operative Societies Act, 2002 [for short "'the MSCS Act,
2002'"]; and the Andhra Pradesh Co-operative Societies Act,
1964 [for short "the APCS Act, 1964"].

The background of facts, which led to the filing of these
cases, are noted from Civil Appeal No. 432 of 2004 titled The
Greater Bombay Co-operative Bank Limited v. M/s United
Yarn Tex Private Limited and Others filed against the
judgments and orders of the Full Bench of the High Court of
Judicature at Bombay and Civil Appeal No. 36 of 2006 titled
A.P. State Co-operative Bank v. Samudra Shrimp Ltd. &
Ors. decided by the Full Bench of the High Court of
Judicature of Andhra Pradesh at Hyderabad.

A batch of writ petitions had been placed before Full
Bench of the High Court of Judicature at Bombay in which the
principal question of law that arose for consideration was:
"Do the courts and authorities constituted under
the Maharashtra Co-operative Societies Act, 1960
(the 1960 Act) and the Multi-State Co-operative
Societies Act, 2002 (the 2002 Act) continue to
have jurisdiction to entertain applications/
disputes submitted before them by the Co-
operative Banks incorporated under the 1960 Act
and the 2002 Act for an order for recovery of
debts due to them, after establishment of a
Tribunal under the Recovery of Debts Due to
Banks and Financial Institutions Act, 1993 (the
1993 Act)?"

The appellant-bank advanced amounts by way of term
loans to the respondent-Company, which is a member of the
appellant-society. The appellant-bank filed recovery
application against the respondent-Company under Section
101 of the MCS Act, 1960 before the Registrar (Co-operative
Societies) for recovery of its dues. The Assistant Registrar
issued recovery certificate on 03.12.2002 in favour of the
appellant-bank. Pursuant to the issuance of recovery
certificate, a demand notice was issued to the respondent-
Company by the Special Recovery and Sales Officer calling
upon the respondent-Company to pay the dues of the
appellant-bank, failing which the Authority would visit the
premises of the respondent-Company on 1st February, 2003
for effecting recovery by way of attachment and sale of
property specified in the Schedule attached thereto.

In January 2003, the respondent-Company filed a Writ
Petition No. 727/2003 before the High Court of Bombay
impugning the recovery certificate dated 3rd December, 2002.
Learned Single Judge of the High Court vide order dated 31st
January, 2003 passed an ad-interim ex parte order restraining
the Special Recovery and Sales Officer, in any manner, from
proceeding with or in pursuant to recovery certificate dated 3rd
December, 2002. It appears from the order of the High Court
that the Division Bench of the High Court in The Shamrao
Vithal Co-operative Bank Limited v. M/s Star Glass Works
& Ors. [2003] 1 MLJ 1] held that the Debts Recovery Tribunal
constituted under the RDB Act has the jurisdiction to
entertain an application submitted by a co-operative bank for
recovery of its debts. The Division Bench on consideration of
the provisions of Section 56 of the Banking Regulation Act,
1949 [ for short "the BR Act"] came to the conclusion that 'Co-
operative Bank' falls within the meaning of Section 2(d) of the
RDB Act and, therefore, the only remedy available in terms of
the provisions of the RDB Act to a co-operative bank after the
constitution of the Tribunal under the RDB Act for recovery of
debts due to it, is to apply to such a tribunal for an order.

The order of the High Court reveals that one Narendra
Kanti Lal filed Writ Petition No. 6079/2002 in the High Court
praying for setting aside the recovery certificate dated 6th
September, 2000 issued by the Assistant Registrar (Co-
operative Societies) in exercise of his powers under Section
101 of the MCS Act, 1960 and the warrant of attachment
issued pursuant thereto on the application made by Jan
Kalyan Sahakari Bank Limited, one of the respondents in the
said petition. When that petition came up for admission
before the learned Single Judge of the Bombay High Court, the
petitioner therein brought to the notice of the learned Single
Judge the earlier judgment of the Division Bench in Shamrao
Vithalrao Co-operative Banks' case (supra). The learned
Single Judge, however, was of the opinion that the Division
Bench in its judgment did not consider that the MCS Act,
1960 has been enacted by the State Legislation under Entry
32, List II of the Seventh Schedule of the Constitution of India.
The learned Single Judge having considered the importance of
the question involved in the matter directed to place the
matter before Hon'ble the Chief Justice of the High Court for
Reference before the Full Bench. It appears that in the
meantime, some more writ petitions came up before the
Division Bench raising the same question. Hon'ble Chief
Justice of the High Court decided to refer the matters to the
Full Bench. This is how all the petitions were placed before
the Full Bench for deciding the referred questions.

The Full Bench, after hearing the learned counsel for the
parties and having gone through the various provisions of the
Statutes and Entries 43, 44 and 45, List I of Seventh
Schedule of the Constitution of India, answered the reference
as under:-
"For all these reasons, therefore, we hold
that on and from the date on which the
Debts Recovery Tribunal was constituted
under the 1993 Act, the courts and
authorities under the 1960 Act as also
the 2002 Act would cease to have
jurisdiction to entertain the applications
submitted by the Co-operative Banks for
recovery of their dues."


However, the High Court held that the State Legislature
was competent to enact the MCS Act, 1960.

In Civil Appeal No. 36/2006 titled A. P. State Co-
operative Bank Limited v. Samudra Shrimp (P) Ltd. &
Ors., after detailed examination of the various submissions
before it, Full Bench of the Andhra Pradesh High Court in a
batch of writ petitions, writ appeals and civil revision petitions
struck down the constitutional validity of Sections 61 and 71
of the APCS Act, 1964. In the concluding portions, the High
Court culled out as follows:-
"(a) That recovery of monies (whether called a
debt, arrears or by any other name) due to a
banking institution including a Co-operative
Bank is a matter that integrally falls within
the core and substantive area of the
legislative field Banking in Entry-45, List-I
of the Seventh Schedule of the Constitution.

(b) The above subject matter is therefore
excluded from the State legislative field in
Entry-32, List-II of the Seventh Schedule.

(c) Recovery of monies due to a Co-operative
Bank is not a matter that falls within the
incidental and ancillary areas of the State
legislative field in Entry-32, List-II of the
Seventh Schedule.

(d) A Co-operative Bank as defined in Section
5(cci) of the Banking Regulation Act, 1949
(as amended by Act 23 of 1965) is a Bank
and a Banking Company within the
meaning of Section 2(d) & (e) of the Recovery
of Debts due to Banks and Financial
Institutions Act, 1993.

(e) A Tribunal constituted under the provisions
of the Recovery of Debts due to Banks and
Financial Institutions Act, 1993 has
exclusive jurisdiction, powers and authority
to entertain and decide applications from a
Co-operative Bank for recovery of debts due
to such bank, subject to the pecuniary
limits of jurisdiction specified by or under
the said Act.

(f) Section 71(1) of the 1964 Act in so far as it
expressly confers power on the Registrar to
issue a certificate for recovery of arrears of
any sum advanced by a financing bank to
its members, is beyond the legislative
competence of the State.

(g) The words "or financing bank" in Section
71(1) of the Andhra Pradesh Co-operative
Societies Act, 1964 expressly result in the
provisions of the Section transgressing the
State's legislative limits. These words being
severable are therefore declared invalid.

(h) The provisions of Section 61 and 71 {after
striking down of the words in Section 71(1)}
are restrictively construed as excluding any
jurisdiction, powers or authority in the
Registrar in respect of recovery of debts or
arrears due to a Co-operative Bank, its
members or others which are advanced lent
or otherwise made over to such member or
person, during the course of the banking
business of such Co-operative Bank

(i) (a)No claim, application or other proceedings
lodged or instituted before the Registrar,
by a Co-operative Bank for recovery of the
amount/debt due from a member or
other person pursuant to advances made
in the course of its banking business
could be entertained or determined by the
Registrar

(b) Any award or order passed, certificate
issued or an order in execution
proceedings, by the Registrar on any
claim or application of a Co-operative
Bank, is patently and inherently without
jurisdiction, null, void and inoperative.

(j) During the pendency of these writ petitions,
by virtue of various court orders certain
amounts have been deposited by some of
the writ petitioners. At no point of time
these writ petitioners have disputed the
liability or the amount already deposited
with the banks in pursuance of the orders of
the Court. Therefore, we direct that the
amounts deposed shall be retained by the
concerned banks and adjusted against the
liabilities, if any, that remain to be
determined pursuant to proceedings
initiated by the respective banks in
accordance with this judgment.

(k) In view of the declaration in this judgment,
the respondent-banks are at liberty to
proceed with the recovery of debts due to
them, before the appropriate forum and
under the appropriate law, in accordance
with this judgment.

(l) As the proceedings initiated before the
Registrar or any other authority under the
1964 Act were bona fide and as considerable
time had been consumed in the litigation in
this case also, the respondent-banks shall
be entitled to set off the period spent in
pursuing their claims before the Registrar or
other fora and before this Court, in
computing the period for filing appropriate
applications/claims before the appropriate
authority/Tribunal."

The Full Bench of the Andhra Pradesh High Court
declared Sections 61 and 71 of the APCS Act, 1964 invalid
being beyond legislative competence of the State and also in
clear and direct conflict with the provisions of 'the RDB Act'.
In interpreting the provisions of the two enactments, the
Bench has employed the 'Doctrine of Reading Down'.

We have carefully perused the judgments of the Full
Benches of the High Courts of Bombay and Andhra Pradesh
impugned before this Court by the aggrieved parties. Before
proceeding further to consider the legal question referred to
the larger Bench, the provisions of the various Statutes
relevant for our purpose may be first noticed.


THE MAHARASHTRA CO-OPERATIVE SOCIETIES ACT, 1960
[the MCS ACT, 1960]


The MCS Act, 1960 was promulgated and came into force
on 26th day of January, 1962 relating to co-operative societies
with a view to providing for the systematic development of the
co-operative movement in the State of Maharashtra in
accordance with the Directive Principles of State Policy
enunciated in the Constitution of India. The object and the
working of the co-operative banks had become so large that it
was found necessary to extract more important provisions of
the Banking Regulation Act, 1949 ['the BR Act'] and allied
provisions of the Reserve Bank of India Act, 1934 ['the RBI
Act'] to the co-operative banks in public interest.

Section 2 (10) of the MCS Act, 1960 defines "co-operative
bank" to mean a society which is doing the business of
banking as defined in clause (b) of sub-section (1) of Section 5
of the Banking Companies Act, 1949 and includes any society
which is functioning or is to function as a Co-operative
Agriculture and Rural Multi-purpose Development Bank under
Chapter XI. In Section 2(6) of the MCS Act, 1960 - "Central
Bank" means a co-operative bank, the objects of which include
the creation of funds to be loaned to other societies; but does
not include the urban co-operative bank. Section 91 of the
MCS Act, 1960 in Chapter IX deals with settlement of any
dispute touching the constitution, conduct of general
meetings, management or business of a society etc. to the Co-
operative Court. Section 101 provides for recovery of arrears
due to certain societies as arrears of land revenue in
pursuance of the certificate granted by the Registrar. Under
Section 18A of the Act, the Registrar is competent to
amalgamate one or more co-operative banks in public interest
or in order to secure their proper management.

Section 36 under Chapter IV makes every registered
society as a corporate body having perpetual succession and
common seal which acts through a Committee for
management with rest of its authority being in General Body
of members in meetings as provided in Sections 55, 72 and 73.
Section 43 provides that a society shall receive deposits and
loans from members and other persons, only to such extent,
and under such conditions, as may be prescribed or specified
by bye-laws of the society. Section 44 regulates the loan
making policy of a society. This Section provides that the
society shall not make a loan to any person other than a
member, or on the security of its own shares, or on the
security of any person who is not a member. It empowers the
Government to prohibit, restrict or regulate the lending of
money by any society or class of societies on the security of
any property. Section 50 under Chapter V provides for direct
subscription by the State Government to the share capital of a
society with limited liability upon such terms and conditions
as may be agreed upon. Section 64 provides that no part of
the funds other than the net profits of a society shall be paid
by way of bonus or dividend, or otherwise distributed among
its members. Chapter VII deals with Management of Societies.
Section 72 provides that the final authority of every society
shall, subject to the provisions of this Act and the Rules vests
in the general body of members in general meeting. Section
73 empowers Committee to manage the society. Chapter VIII
deals with Audit, Inquiry, Inspection and Supervision of the
societies. Section 81 provides that the Registrar shall audit, or
cause to be audited at least once in each co-operative year, by
a person authorized by him by general or special order in
writing in this behalf the account of every society which has
been given financial assistance including guarantee by the
State Government. Section 83 empowers the Registrar to
conduct an inquiry into the constitution, working and
financial conditions of a society. Chapter IX deals with
Settlement of Disputes. A dispute touching the constitution,
elections of the Committee or its officers other than election of
committees of the specified societies including its officer,
conduct of general meetings, management or business of a
society is covered under sub-section (1) of Section 91 of the
MCS Act, 1960. The settlement of disputes including the
recovery of loan by a society from its members or sureties lies
with the Co-operative Court. The Civil Court has no
jurisdiction to try and entertain the suit in regard to the
dispute which fall both in the purview of sub-section (1) of
Section 91 of the Act. Section 92 regulates the period of
limitation for different types of disputes mentioned in it and
the disputes of the nature as provided in Section 91 has to be
tried as a suit by the Co-operative Court as a Civil Court.
Section 94 lays down the procedure for settlement of disputes
and power of Co-operative Court. The Co-operative Court or
the Registrar or the authorized person, as the case may be, if
satisfied on inquiry or otherwise that a party to such dispute
or the person against whom proceedings are pending under
Section 88, with intent to defeat, delay or obstruct the
execution of any award or the carrying out of any order that
may be made is empowered to direct additional attachment of
the property under Section 95. Any party aggrieved by any
decision of the Co-operative Court or order passed by the Co-
operative Court or the Registrar or the authorized person
under Section 95 is at liberty to file appeal before the Co-
operative Appellate Court under Section 97. Section 98
provides that orders mentioned therein if not carried out on a
certificate signed by the Registrar or the Co-operative Court or
a liquidator shall be executed in the same manner as a decree
of civil court and shall be executed in the same manner as a
decree of such court or be executed according to law and
under the Rules for the time being in force for the recovery of
arrears of land revenue. An application for such a recovery to
be made to the Collector shall be accompanied by a certificate
signed by the Registrar and shall be made within twelve years
from the date fixed in the order and if no such date is fixed
from the date of the order. Recovery Certificate is issued by
the Registrar under sub-section (1) of Section 101 of the MCS
Act, 1960 and the mode for recovery of the amount is under
Section 156 of the Act. Chapter X deals with liquidation of the
societies. Section 102 empowers the Registrar to issue an
interim order of winding up of the society. An appeal against
the winding up of the society shall be made by the aggrieved
party to the State Government under Section 104. Section
105 lays down the powers of the liquidator. Cognizance by the
Civil Court of any matter connected with the winding up or
dissolution of a society under this Act is barred under Section
107.

THE ANDHRA PRADESH CO-OPERATIVE SOCIETIES ACT,
1964 [THE APCS ACT, 1964]

The Andhra Pradesh State Co-operative Bank Limited
was formed by the amalgamation of the previous Andhra
Pradesh State Co-operative Bank Limited, Vijayawada No.
2120 and Hyderabad Co-operative Apex Bank Limited,
Hyderabad, under the Andhra Pradesh Co-operative Bank
(Formation) Act, 1963 and by the merger of the Andhra
Pradesh Central Agricultural Development Bank Limited,
Hyderabad, under Act 14 of 1994 and was deemed to be
registered as a Co-operative Society under the Andhra Pradesh
Co-operative Societies Act of 1964 [ the APCS Act, 1964].


The APCS Act, 1964 was enacted with Statement of
Objects and Reasons to consolidate and amend the law
relating to Co-operative Societies in the State of Andhra
Pradesh in order to facilitate and strengthen the functioning of
Co-operative Societies based on Co-operative principles and
Co-operative identity. Section 2 deals with definitions clause.
Clause (f) defines 'financing bank' to mean 'a society, the main
object of which is to assist any affiliated or other society by
giving loans or advancing moneys; and includes any scheduled
bank as defined in the RBI Act and such other body corporate
or financial institution as may be notified by the Government
from time to time, which gives financial or other aid to a
society'. Chapter II of the Act deals with Registration of
Societies. A society which has, its main object, the promotion
of the economic interests of its members in accordance with
the Co-operative principles....., the registration of a society
shall render it a body corporate by the name under which it is
registered having perpetual succession and a common seal in
terms of Section 9. In Chapter III, Section 19 prescribes the
eligibility for membership of the Society. Under Chapter IV,
the Management of Societies ultimately shall vest in the
General Body, whereas Section 30-A empowers the General
Body of every society to constitute a supervisory council to
ensure that the affairs of the society are conducted in
accordance with the principles of Co-operation, provisions of
the Act, Rules, bye-laws and resolutions of the General Body.
The General Body of a society is also empowered to constitute
a Committee in accordance with the bye-laws and entrust the
management of the affairs of the society to such Committee
(Section 31 of the Act). Powers and functions of the
Committee are provided under Section 31-A. Chapter V deals
with the Rights and Privileges of the Societies. Under Section
35, the society has preferential charge upon the crop or other
agricultural produce, cattle fodder for cattle, agricultural or
industrial implements etc. owned by a member including a
past or deceased member who is in default of payment of any
debt or other amount due to a society. Such charge shall be
available even as against any amount recoverable by the
Government as if it were an arrear of land revenue. Section 47
empowers a society to receive deposits and raise loans only to
such extent and under such conditions as may be specified in
the bye-laws. Sub-section (2) prohibits the society from
granting a loan to any person other than a member, but if
general or special sanction is obtained from the Registrar, the
society may grant loans to another society or its employees on
such terms as may be specified in the bye-laws. Chapter VII
deals with Audit, Inquiry, Inspection and Surcharge. Section
50 lays down that there shall be a separate wing for audit in
the Co-operative Department headed by the Chief Auditor who
will work under the general superintendence and control of
the Registrar of Co-operative Societies. The Chief Auditor
shall audit or cause to be audited by a person authorized by
him by a general or special order in this behalf, the accounts
of a society at least once in every year and shall issue or cause
to be issued an audit certificate. The Registrar is also
authorized under Section 51 to hold an inquiry into the
constitution, working and financial condition of the society,
either suo motu or on the application of the society to which
the society concerned is affiliated. Under Section 52, the
Registrar may, on his own motion or on the application of a
creditor of a society, inspect or direct any person authorized
by him by a general or special order in this behalf to inspect
the books of the society. Accounts and Books etc. of the
societies are to be maintained and kept by the Chief Executive
Officer of every society and the President of the society jointly
and severally.

Chapter VIII of the APCS Act, 1964 deals with Settlement
of Disputes touching the constitution, management or the
business of a society, other than a dispute regarding
disciplinary action taken by the society or its committee
against a paid employee of the society. Explanation to Section
61 prescribes the nature of the dispute for the purposes of
sub-section (1) to include a claim by a society for any debt or
other amount due to it from a member, past member, the
nominee, heir or legal representative of a deceased member,
whether such debt or other amount be admitted or not and a
claim by surety against the principal debtor where the society
has recovered from the surety any amount in respect of any
debt or other amount due to it from the principal debtor as a
result of the default of the principal debtor whether such debt
or other amount due to be admitted or not. All such disputes,
which are enumerated under Section 61 of the Act, shall be
referred to the Registrar for decision. The Registrar is
empowered to decide the dispute himself or transfer it for
disposal to any person who has been invested by the
Government with powers in that behalf or refer it for disposal
to an arbitrator under Section 62 of the Act. Section 63
empowers the financing bank to proceed against members of a
society for recovery of moneys due to it from such society.
Under Section 64 contained in Chapter IX, if the Registrar,
after an inquiry held under Section 51 or an inspection made
under Section 52 or on receipt of an application made by not
less than two-thirds of the members, is of the opinion that the
society ought to be wound up, he may after giving the society
an opportunity of making its representation, by order direct it
to be wound up. Where the order of winding up is made under
Section 64, the Registrar may appoint a Liquidator for that
purpose under Section 65. Chapter X deals with Execution of
Decisions, Decrees and Orders. The Registrar or any person
authorized by him in this behalf is authorized to recover
certain amount due under a decision or an order of the
Registrar, or any person authorized by him, or an arbitrator by
attachment and sale of property and execution of the orders.
The recovery of any amount may be executed by the Civil
Court having local jurisdiction on a certificate signed by the
Registrar or any person authorized by him in this behalf as if
the order or decision were a decree of that Court; or by the
Collector, on an application made to him within twelve years
from the date fixed for payment in the order or decision and if
no such date fixed from the date of the order or decision, along
with a certificate signed by the Registrar or by any person
authorized by him in this behalf, as if the amount due under
the order or decision were an arrear of land revenue. Section
71 provides for recovery of debts. It reads: "(1)
Notwithstanding anything in this Act or in any other law for
the time being in force and without prejudice to any other
mode of recovery which is being taken or may be taken, the
Registrar may, on the application made by a society or
financing bank or federal society as the case may be, for the
recovery of arrears of any sum advanced to any of its members
and on furnishing a statement of accounts in respect of the
arrears and after making such inquiry as he deems fit issue a
certificate for the recovery of the amount stated therein to be
due as arrears." If a society has failed to take action under
sub-section (1) in respect of any amount due as arrears, the
Registrar, after satisfying himself, may on his own motion
issue a certificate for the recovery of the amount stated therein
to be due as arrears and such a certificate shall be deemed to
have been issued on an application made by the society
concerned [sub-section (2)]. A certificate issued by the
Registrar under sub-section (1) or sub-section (2) shall be final
and conclusive proof of the arrears stated to be due therein
and the certificate shall be executed in the manner specified in
sub-section (2) of Section 70. The Registrar or any person
authorized by him in this behalf shall be deemed, when
exercising any power under this Act for the recovery of any
amount by the attachment and sale or by sale without
attachment of any property, or when passing any orders on
any application made to him for such recovery, or to take
steps in aid of such property to be a Civil Court for the
purpose of Article 182 of the First Schedule to the Indian
Limitation Act, 1908 in terms of Section 72. Under Section
73, the Registrar is also empowered to make attachment of
property before decision or order unless adequate security is
furnished by a person, who is found to be defaulter of the loan
of the society to direct the attachment of the said property
before decision or the order.

Chapter XI deals with Appeal, Revision and Review.
Under Section 75, the Government, for the purpose of this Act,
is competent to constitute as many tribunals as may be
necessary for such area or areas as may be specified in the
Notification. The Tribunal shall consist of a Chairman and not
more than two other members to be appointed by the
Government. The Chairman shall be a person who is or has
been a judicial officer not below the rank of a District Judge
and a member shall be a person, who holds or has held a post
not below the rank of Additional Registrar of Co-operative
Societies. Any person or society aggrieved by any decision
passed or order made by the Registrar or any other person
authorized under the various provisions of the Act enumerated
in Section 76 is free to file an appeal to the Tribunal. The
Registrar under Section 77 is empowered to exercise the
powers of revision either on his own motion or an application
made to him by the aggrieved party.


THE MULTI-STATE CO-OPERATIVE SOCIETIES ACT,
2002 ['THE MSCS ACT, 2002']

The Multi-State Co-operative Societies Act, 1984 was
enacted by the Parliament and Section 74 thereof deals with
various disputes including recovery of debts due to the co-
operative banks. Parliament repealed the Multi-State Co-
operative Societies Act, 1984 by the Multi-State Co-operative
Societies Act, 2002 [''the MSCS Act, 2002'').

The object of the MSCS Act, 2002 was to consolidate and
amend the law relating to co-operative societies, with objects
not confined to one State and serving the interests of members
in more than one State, to facilitate the voluntary formation
and democratic functioning of co-operatives as people's
institutions based on self-help and mutual aid and to enable
them to promote their economic and social betterment and to
provide functional autonomy and for matters connected
therewith or incidental thereto.

In Section 3(f) of the MSCS Act, 2002, a 'co-operative
bank' means a multi-State co-operative society, which
undertakes 'banking business'. Section 3(h) defines a 'co-
operative society' to mean 'a society registered or deemed to be
registered under any law relating to co-operative societies for
the time being in force in any State'. In terms of Section 3(p),
a 'multi-State co-operative society' means 'a society registered
or deemed to be registered under this Act and includes a
national co-operative society and a federal co-operative'.
Chapter IV of the Act deals with members of multi-State co-
operative societies and their duties, rights and liabilities.
Settlement of disputes touching the constitution, management
or business of a multi-State co-operative society are to be
referred to an arbitration under Section 84 of Chapter IX of the
Act. The order or decision recorded by the Authority under
Section 39 or Section 40 or Section 83 or Section 99 or Section
101 can be executed in the manner provided in Chapter XI of
the Act. Section 99 and Section 101 under Chapter XII
provide for appeals to the Appellate Authority and review of its
orders. Section 22 of the MSCS Act, 2002 provides for
conversion of a Co-operative Society into a Multi-State Co-
operative Society by an amendment in its bye-laws with the
approval of the Central Registrar who shall consult the
Registrars of co-operative societies of the State concerned.
The Act provides for its own machinery for registering multi-
State societies and for federal co-operatives thereunder as also
the rights of the members, directors and managements and
other matters like privileges, properties and funds and matters
connected therewith as well as machinery for settlement of
disputes and winding up thereof as set out in about 38
Sections of the said Act beginning from Chapter VII to Chapter
XIV.


THE RESERVE BANK OF INDIA ACT, 1934 [the RBI ACT]
In Section 2 (i) of the RBI Act, "co-operative bank", "co-
operative credit society", "director", "primary agricultural
credit society", "primary co-operative bank" and "primary
credit society" shall have the meanings respectively assigned
to them in Part V of the Banking Regulation Act, 1949.

Chapter III-A of RBI Act deals with Collection and
Furnishing of Credit Information. In Section 45A (a) "banking
company" means a banking company as defined in Section 5
of the Banking Regulation Act, 1949 (10 of 1949) and includes
the State Bank of India, [any subsidiary bank as defined in the
State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959),
any corresponding new bank constituted by section 3 of the
Banking Companies (Acquisition and Transfer of
Undertakings) Act, 1970 (5 of 1970), and any other financial
institution notified by the Central Government in this behalf]".

THE BANKING REGULATION ACT, 1949 (the BR ACT):

This Act was brought into force on 16th March 1949. Section 3
of the BR Act clearly provides that the Act would apply to Co-
operative Societies in certain cases, subject to the provisions
of Part V of the Act. The BR Act defines "banking company"
under Section 5 (c) as follows:-
(c) "banking company" means any
company which transacts the business
[in India]."


In Section 5(d) "company" means any company as
defined in section 3 of the Companies Act, 1956 (1 of 1956);
and includes a foreign company within the meaning of section
591 of that Act.

Chapter V of the BR Act was inserted by Act 23 of 1965
w.e.f. 1.3.1966. Section 56 of the Act provides that the
provisions of this Act, as in force for the time being, shall
apply to, or in relation to, banking companies subject to the
following modifications namely :-
"Throughout this Act, unless the context otherwise
requires:--

(i) references to a "banking company" or "the
company" or "such company" shall be construed as
references to a co-operative bank;

(ii) ..............................................................................."

The purpose and object of modifications were to regulate
the functioning of the co-operative banks in the matter of their
business in banking. The provisions of Section 56 itself starts
with the usual phrase "unless the context otherwise requires"
is to make the regulatory machinery provided by the BR Act to
apply to co-operative banks also. The object was not to define
a co-operative bank to mean a banking company, in terms of
Section 5 (c) of the BR Act. This is apparent from the fact that
instead of amending the original clause (c) of Section 5
separate clause (cci) was added to cover the 'co-operative bank'
to mean 'a state co-operative bank, a central co-operative
bank and a primary co-operative bank'. In clause (ccv)
'primary co-operative bank' means 'a co-operative society,
other than a primary agricultural credit society. The primary
object or principal business of the 'Co-operative Bank' should
be the transaction of banking business. The modifications
given in clause (a) of Section 56 are apparently suitable to
make the regulatory machinery provided by the BR Act to
apply to co-operative banks also in the process of bringing the
co-operative banks under the discipline of Reserve Bank of
India and other authorities. A co-operative bank shall be
construed as a banking company in terms of Section 56 of the
Act. This is because the various provisions for regulating the
banking companies were to be made applicable to co-operative
banks also. Accordingly, Section 56 brought co-operative
banks within the machinery of the BR Act but did not amend
or expand the meaning of "banking company" under Section
5(c). On a plain reading of every clause of Section 56 of the BR
Act, it becomes clear that what is contained therein is only for
the purpose of application of provisions that regulate banking
companies to co-operative societies. According to the
expression "co-operative societies" used in Section 56 means a
"co-operative society", the primary object or principal business
of which is the transaction of banking business. In other
words, first it is a co-operative society, but carrying on
banking business having the specified paid up share capital.
Other definitions also make it clear that the entities are
basically co-operative societies.

THE SECURITISATION AND RECONSTRUCTION OF
FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY
INTEREST ACT, 2002 [SECURITISATION ACT].

The Parliament had enacted the Securitistion and
Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002 ['the Securitisation Act'] which
shall be deemed to have come into force on 21st day of June
2002. In Section 2(d) of the Securitisation Act same meaning
is given to the word 'banking company' as is assigned to it in
clause (e) of Section 5 of the BR Act. Again the definition of
'banking company' was lifted from the BR Act but while
defining 'bank', Parliament gave five meanings to it under
Section 2(c) and one of which is 'banking company'. The
Central Government is authorized by Section 2 (c)(v) of the Act
to specify any other bank for the purpose of the Act. In
exercise of this power, the Central Government by Notification
dated 28.01.2003, has specified "co-operative bank" as defined
in Section 5 (cci) of the BR Act as a "bank" by lifting the
definition of 'co-operative bank' and `primary co-operative
bank' respectively from Section 56 Clauses 5(cci) and (ccv) of
Part V. The Parliament has thus consistently made the
meaning of 'banking company' clear beyond doubt to mean 'a
company engaged in banking, and not a co-operative society
engaged in banking' and in Act No. 23 of 1965, while
amending the BR Act, it did not change the definition in
Section 5 (c) or even in 5(d) to include co-operative banks; on
the other hand, it added a separate definition of 'co-operative
bank' in Section 5 (cci) and 'primary co-operative bank' in
Section 5 (ccv) of Section 56 of Part V of the BR Act.
Parliament while enacting the Securitisation Act created a
residuary power in Section 2(c)(v) to specify any other bank as
a bank for the purpose of that Act and in fact did specify 'co-
operative banks' by Notification dated 28.01.2003. The
context of the interpretation clause plainly excludes the effect
of a reference to banking company being construed as
reference to a co-operative bank for three reasons: firstly,
Section 5 is an interpretation clause; secondly, substitution of
'co-operative bank' for 'banking company' in the definition in
Section 5 (c) would result in an absurdity because then
Section 5 (c) would read thus: "co-operative bank" means any
company, which transacts the business of banking in India;
thirdly, Section 56 (c) does define "co-operative bank"
separately by expressly deleting/inserting clause (cci) in
Section 5. The Parliament in its wisdom had not altered or
modified the definition of 'banking company' in Section 5 (c) of
the BR Act by Act No.23 of 1965.

As noticed above, "Co-operative bank" was separately
defined by the newly inserted clause (cci) and "primary co-
operative bank" was similarly separately defined by clause
(ccv). The meaning of 'banking company' must, therefore,
necessarily be strictly confined to the words used in Section
5(c) of the BR Act. If the intention of the Parliament was to
define the 'co-operative bank' as 'banking company, it would
have been the easiest way for the Parliament to say that
'banking company' shall mean 'banking company' as defined
in Section 5(c) and shall include 'co-operative bank' and
'primary co-operative bank' as inserted in clauses (cci) and
(ccv) in Section 5 of Act 23 of 1965.


THE RECOVERY OF DEBTS DUE TO BANKS AND
FINANCIAL INSTITUTIONS ACT, 1993 (''the RDB Act'').

The Recovery of Debts Due to Banks and Financial
Institutions Act, 1993['the RDB Act'] was enacted by the
Parliament with the objects and reasons for the recovery of the
debts due to the banks. Before the coming into force of the
RDB Act, the banks were approaching Civil Courts for recovery
of their debts from the defaulters by filing civil suits before the
Civil Courts of competent jurisdiction. After the coming into
force of the RDB Act on the 25th day of June 1993, the
jurisdiction of the Civil Courts was taken away. The decision
to have separate Bank Tribunals was taken by the Central
Government after considering the increasing workload of the
Civil Courts and delay in disposal of the bank suits. The
Statement of Objects and Reasons for the enactment of the
RDB Act are that the banks and financial institutions at
present experience considerable difficulties in recovering loans
and enforcement of securities charged with them. The existing
procedure for recovery of debts due to the banks and financial
institutions has blocked a significant portion of their funds in
unproductive assets, the value of which deteriorates with the
passage of time. The Committee on the financial system
headed by Shri M. Narasimham has considered the setting up
of the Special Tribunals with special powers for adjudication of
such matters and speedy recovery as critical to the successful
implementation of the financial sector reforms. An urgent
need was, therefore, felt to work out a suitable mechanism
through which the dues to the banks and financial institutions
could be realized without delay. In 1981, a Committee under
the Chairmanship of Shri T. Tiwari had examined the legal
and other difficulties faced by banks and financial institutions
and suggested remedial measures including changes in law.
The Tiwari Committee had also suggested setting up of Special
Tribunals for recovery of dues of the banks and financial
institutions by following a summary procedure. The setting
up of Special Tribunals will not only fulfill a long-felt need, but
also will be an important step in the implementation of the
Report of Narasimham Committee. Whereas on 30th
September, 1990 more than fifteen lakhs of cases filed by the
public sector banks and about 304 cases filed by the financial
institutions were pending in various Courts, recovery of debts
involved more than Rs.5622 crores in dues of Public Sector
Banks and about Rs.391 crores of dues of the financial
institutions. The locking up of such huge amount of public
money in litigation prevents proper utilization and re-cycling of
the funds for the development of the country.

The provisions of the RDB Act, which are relevant, are
referred to in the following paragraphs.

Section 2(d) defines "banks" to mean (i) a banking
company; (ii) a corresponding new bank; (iii) State Bank of
India; (iv) a subsidiary bank; or (v) a Regional Rural Bank. In
terms of clause (e) "banking company" shall have the meaning
assigned to it in clause (c) of Section 5 of the BR Act. Chapter
II of 'the RDB Act' provides for establishment of Tribunal(s)
and Appellate Tribunal(s) and the qualifications of person(s)
for appointment as Presiding Officer of the Tribunal and a
Chairperson of the Appellate Tribunal, their term of office and
other service conditions. Section 17 in Chapter III provides for
Jurisdiction, Powers and Authority of Tribunals. Section 18
bars the jurisdiction of a Civil Court in relation to the matters
specified in Section 17.

Chapter IV prescribes procedure, powers and jurisdiction
of the Tribunals and Appellate Tribunals and application of
the provisions of the Limitation Act, 1963. Chapter V of the
RDB Act emphasizes mode of recovery of debts/loans by the
Tribunal/Recovery Officer.

ENTRIES 43, 44 & 45 OF LIST I AND ENTRY 32 OF LIST II
OF THE SEVENTH SCHEDULE OF THE CONSTITUTION OF
INDIA

The legislative field in constitutional terms has to be
determined in terms of Articles 245 and 246 and Entries 43,
44 and 45 of List I and Entry 32 of List II of Seventh Schedule
of the Constitution of India.

Entry 43 of List I of the Seventh Schedule is as follows:
"43. Incorporation, regulation and
winding up of trading corporations,
including banking, insurance and
financial corporations, but not including
co-operative societies."

Entry 44 is as follows:-

"Incorporation, regulation and winding
up of corporations, whether trading or
not, with objects not confined to one
State, but not including universities."

Entry 45 is as follows:-
"Banking."


Entry 32 of List II is as follows:-
"32. Incorporation, regulation and
winding up of corporations, other than
those specified in List I, and
universities; unincorporated trading,
literacy, scientific, religious and other
societies and associations; co-operative
societies."

In the light of the factual situation and having gone
through the above-said relevant provisions of different
Statutes and relevant Entries of Lists I and II of the Seventh
Schedule of the Constitution, we have heard the learned
counsel for all the parties and with their assistance we have
gone through the decisions brought before us by them.

Mr. S. Ganesh, learned Senior Advocate appearing on
behalf of the appellant in Civil Appeal Nos.432 to 434 of 2004,
vehemently contended that the High Court of Bombay
completely failed to appreciate the meaning of "banking
company" as defined in Section 5(c) of the BR Act which
clearly and indisputably does not cover or include a 'co-
operative bank' registered under the MCS Act, 1960 or the
MSCS Act, 2002. He submitted that Section 56 of the BR Act
did not amend the definition of 'banking company' in terms of
Section 5 (c), but for all intents and purposes Act No.23 of
1965 merely extends the application of the provisions of the
BR Act to 'a co-operative bank' even though it is not a 'banking
company' as defined in Section 5(c). He contended that the
Parliament in its wisdom did not make the RDB Act applicable
to all banks to which the provisions of the BR Act were made
applicable. It was urged that the reason why co-operative
banks were excluded from the ambit of the operation of 'the
RDB Act by confining the said Act only to a "banking
company" as defined in Section 5(c) of the BR Act was that
under the MCS Act, 1960 Act and the MSCS Act, 2002 co-
operative banks established under the Societies Act had an
effective and speedy machinery for recovery of their dues and,
therefore, it was neither necessary nor beneficial to make the
RDB Act applicable to co-operative banks for the recovery of
dues from their members under the respective State Co-
operative Legislations. He next contended that the co-
operative banks established under the MCS Act, 1960 and the
MSCS Act, 2002 and transacting the business of banking shall
advance loan to their members only as per the provisions
contained in both these Statutes and not to any other person.
Therefore, under these enactments "co-operative banks" can
only recover their dues from their members, whereas the RDB
Act will be applicable to all other banks, which have advanced
loan to any person/society/corporation/industry, etc. etc.
without any stipulation of membership of the Banks.

Mr. Amar Dave, Advocate appearing in IA Nos.10-11 of
2006 in Civil Appeal No.432 of 2004, submitted that as per the
Scheme of the BR Act, the legislative intention is to classify co-
operative banks as completely a separate category and the
same cannot be included in "Banking Company" in terms of
Section 5 (c) of the Act. He contended that it has been well
demonstrated from the Statement of Reasons and Objects
behind the passing of the RDB Act itself, that the same was
enacted merely for expeditious adjudication and recovery of
debts due to Banks and Financial Institutions. The
Committees formed prior to the enactment of the RDB Act also
more or less did not cover the co-operative banks for the
purposes of the recommendations in general for improving the
recovery system. He next contended that the recovery of debts
by the co-operatives from their members are covered by
specific Acts such as the Co-operative Societies Acts of the
States, which are comprehensive and self-contained
legislations. Further submission was that for multi-state co-
operatives, there is a specific enactment in the form of the
MSCS Act, 2002 comprehensively providing the legal
framework in respect to issues pertaining to such co-
operatives. Therefore, co-operative banks are, in any case, not
covered by the provisions of the RDB Act by invoking the
doctrine of incorporation. He next submitted that the State's
power under List II, Entry 32 of Seventh Schedule of the
Constitution is not subject to or subordinate to the power of
the Union List I, Entry 45.

Dr. Rajeev Dhavan, learned Senior Advocate, appearing
for respondents in Civil Appeal No. 6069/2005 was requested
to assist the Court in those matters which were listed on the
Board on the day when the matters were heard. He contended
that both List I, Entries 43 and 45 as well as List II, Entry 32
of the Seventh Schedule must be given the widest possible
interpretation in their respective spheres. He submitted that
although Article 246 (1) begins with a non-obstante clause,
easy recourse should not be made to the non-obstante clause
without first making an effort of reconciliation between the
Union and the State Entries. In other words, under a federal
set up, the States are not to be readily denuded of powers
which the Constitution makers gave to them as exclusively
reposted in them. He contended that it was really the
intention of the Constitution makers to ensure that the
provision is made for Peoples' co-operatives and the idea of co-
operatives and people are necessarily interlinked associations
and organizations. Learned senior counsel made a reference
to a decision of this Court in Zoroastrian Co-operative
Housing Society Ltd. v. District Registrar, Co-operative
Societies (Urban) [(2005) 5 SCC 632] at Para 15:
"...... The co-operative movement by its very
nature, is a form of voluntary association where
individuals unite for mutual benefit in the
production and distribution of wealth upon
principles of equity, reason and common
good....".


He then contended that on plain reading of definitions of
'bank' [Section 2(d)]; 'banking company' [Section 2(e)], 'debt'
[Section 2(g)] and 'financial institution' [Section 2(h)] of the
RDB Act, it becomes clear that the Act is concerned with debts
of corporate banks and financial institutions which were
constituted under List I, Entry 43 and the concept of 'banking'
under Section 5(b) of the BR Act is very different from the
activity of a 'financing bank' under the APCS Act, 1964.

Mr. K. N. Bhat, learned Senior Advocate appearing on
behalf of the Reserve Bank of India in SLP (C) No.22621 of
2005 contended that the pith and substance of the Co-
operative Societies Acts enacted by various States must be
taken into consideration and not a particular activity of the
society. He next contended that the expression "co-operative
bank" in Section 56(cci) means a 'State Co-operative Bank', a
'Central Co-operative Bank' and definition of 'Primary Co-
operative Bank' in clause (ccv) means a 'co-operative society'
the primary object or principal business of which is the
transaction of banking business and no attempt is made by
the Parliament to amend Section 5(c) of the BR Act to include
'co-operative societies' doing the business of banking within
the meaning of 'banking company' as defined in Section 5 (c) of
the RDB Act.

Mr. Bhim Rao Naik, learned senior counsel appearing on
behalf of the Cosmos Co-operative Bank Ltd. in Civil Appeal
No.436 of 2004, submitted that the definition of 'banking
company' under Section 2(d)(i) of the RDB Act on its plain
reading indicates that it does not refer to co-operative banks,
but to companies incorporated under the Companies Act. He
contended that Section 56 of the BR Act creates a fiction only
for the purposes of the said Act and cannot be applied to
another Act, viz., the RDB Act in the absence of any indication
to that effect. He next contended that the State Legislature by
virtue of Entry 32, List II of the Seventh Schedule has the
power to make law with respect to co-operative societies
including societies doing banking business. Learned counsel
also contended that the MCS Act, 1960 and the MSCS Act,
2002 both deal with their members and as per regulation of
loan making policy, loan can be given to the members only of
the societies subject to certain exceptions and in any event
under Entry 43, List I, the Parliament cannot legislate on
incorporation of Co-operative Societies since Co-operative
Societies are excluded in Entry 43 of List I of the Seventh
Schedule to the Constitution.

Mr. Vinod A. Bobde, learned senior counsel appearing on
behalf of the State of Andhra Pradesh in SLP (C) Nos. 25246-
25247 of 2005, challenging the judgment and order of the
High Court of Andhra Pradesh, strenuously contended that
Section 56 was inserted in the BR Act to make that Act
applicable with modifications to co-operative banks with the
main object to regulate the functioning of the co-operative
banks in the matter of their business as the banking
companies were regulated (Part II), control over management
(Part IIA) and all other aspects contained in the BR Act. The
modifications given in clause (a) of Section 56 are apparently
for suitably applying the substantive provisions of the Act to
co-operative banks and do not touch that part of the Act which
is in the interpretation clause. He then contended that the
judgment of the High Court is erroneous on the grounds:
firstly, the co-operative societies have been deprived of the
right to engage in the business of banking altogether; second,
the co-operative societies have been deprived of speedy, easily
accessible and inexpensive remedies for recovery of their dues
from members; thirdly, persons depositing monies in co-
operative banks have been deprived of their remedies under
the A. P. (Protection of Interests of Depositors and Financial
Establishments) Act, 1999; and fourthly, while claims over
Rs.10 lakhs by co-operative banks will have to go to the Debt
Recovery Tribunals and claims below that sum will remain
under the APCS Act, 1960 as amended in 1964.

Mr. T. R. Andhyarujina, learned Senior Advocate
appearing on behalf of Andhra Pradesh State Co-operative
Bank Ltd. in Civil Appeal No.36 of 2006, vehemently
contended that Co-operative Societies do a variety of activities
for their members according to co-operative principles of
voluntary and open membership controlled by their members.
The Co-operative Banks are distinguished from banking
companies who do not have to conform to such co-operative
principles and who can give loans to the public. He submitted
that prior to the Banking Laws (Application to Co-operative
Societies) Act, 1965 (Act 23 of 1965), Co-operative Societies
doing banking were not subject to regulation of their business
of banking although deposits and working funds of Co-
operative Banks were very large, but Act 23 of 1965
introduced a new Chapter V to the BR Act and regulated the
banking business of Co-operative Societies as it had regulated
banking by banking companies with necessary modification.
He submitted that recovery of loan by the Co-operative Banks
are ancillary and necessary for the banks and every bank
must have the power to refer disputes for adjudication and
recover loans, etc. as expressly conferred by special provisions
in the State Co-operative Societies Acts and Regulation of Co-
operative Societies which fell under Entry 32, List II. He also
submitted that Entry 45, List I, is limited to laws which affect
the essential business of a bank qua the bank viz. banking as
defined in Section 2(b) of the BR Act. He then contended that
there was a conscious and deliberate omission to exclude "Co-
operative Bank" in the definition of "Banking Company" in
Section 2(d) of RDB Act, whereas all other five categories of
Banks were included in the said definition and nothing
prevented the framers of the Statute to include "Co-operative
Bank" in the definition clause of the BR Act. It was next
contended that significantly the Co-operative Banks have been
brought in by the Parliament in Section 2(c)(v) of the
Securitization Act by way of a Notification and enabling
provisions and the purpose of Part III of the Securitization Act
is also recovery of banks' dues, but the RDB Act employed no
such device.

Per contra, Mr. S. B. Sanyal, learned senior counsel for
the respondents in Civil Appeal No.6077 of 2005, while
adopting the reasoning of the High Court in the order under
challenge submitted that throughout the BR Act wherein
banking company or company does occur, it would also
include co-operative bank on conjoint reading of Section 2(e) of
the RDB Act and Section 5(c) of the BR Act as amended on or
from 01.03.1966. He submitted that the conclusion is
irresistible that the RDB Act will embrace debts due to co-
operative bank which can only be recovered by the Tribunal
constituted under Section 17 which shall have the sole
jurisdiction under Section 18 and no authority or court is
entitled to exercise any jurisdiction to recover such debt, in
view of Section 34 which envisages that the RDB Act will have
an overriding effect, notwithstanding any other law for the
time being in force. He next contended that Section 6 of the
BR Act applies to all banks doing banking business including
commercial banks and as per command of Section 56(1)(a) of
the said Act, business of banking company will include
business of co-operative banks as the co-operative banks are
also advancing money either on security or without security to
third parties and not restricted to members of societies. He
contended that in the matter of grant of loan etc., co-operative
bank has only one restraint that is to obtain approval from
Reserve Bank of India which is manifest from Section 20(2)(b)
of the BR Act and grant of unsecured loan and advances by
co-operative bank to any other person or on bills of exchange
of commercial transaction is permissible. Learned senior
counsel further submitted that Section 47 of the APCS Act,
1964 is not the machinery through which the debt arising out
of banking transaction can be recovered from one and all.
Similarly, under Section 61 of the APCS Act, 1964 the dispute
which falls within the jurisdiction of Registrar are disputes
between members, past members, employees, legal
representatives of the deceased employees whereas the
disputes between primary co-operative bank qua depositors,
loanees, holder of bills of exchange giving rise to debt is
beyond the scope of Section 61. He submitted that the
transaction of the banking business by co-operative bank is
patent, manifest and direct and it can neither be incidental
nor ancillary as the definition of "primary co-operative bank"
incorporated in Section 56 of the BR Act in no uncertain terms
pronounces its primary object or principal business as
banking business. Learned senior counsel lastly submitted
that the RDB Act enacted by the Parliament is later in point of
time than the APCS Act, 1964, both being special law for
recovery of dues, the law of Parliament will override the law
enacted by the State.

Mr. J.V. Suryanarayana, learned senior counsel
appearing on behalf of the respondents in Civil Appeal No.916
of 2006, submitted that in Section 56 of the BR Act, several
sub-sections were incorporated by Amending Act No.23 of
1965 whereby the co-operative societies of three categories,
viz., (1) Primary Co-operative Societies; (2) State Co-operative
Societies; and (3) Central Co-operative Societies, which are
doing banking business are defined as 'banking companies'
within the meaning of Section 2(d) of the RDB Act. He
submitted that the appellant-bank (Vasavi Co-operative Urban
Bank Ltd.) is to be construed as a banking company as
mentioned in Section 5(c) of the BR Act by reason of Section
56(a)(i) of Act No.23 of 1965, in the manner and to the extent
the amendments provided, therefore, it was the clear intention
of the Parliament to apply all Banking Laws mutatis mutandis
to Co-operative Societies which have become co-operative
banks by undertaking banking business as defined in Section
5(b) of the BR Act. He next submitted that recovery of debts is
an essential ingredient of banking and the Parliament was
empowered under Entry 45 of List I, relating to banking to
constitute such Tribunals, without any reference to Entry 11A
of the Concurrent List. The enactment itself is clearly
indicative of the desire of Parliament to legislatively control,
under Entry 45 of List I, "Banking" by Co-operative Societies,
as it is the "Dominant Legislation" by virtue of Article 246 (1)
and the State legislation under Entry 32 of List II has to be
construed, accordingly and read down if necessary. He
submitted that the scope of Entry 32 of List II of Seventh
Schedule is to enable the State Legislature to incorporate an
entity known as a co-operative society, but does not enable the
said entity to carry on banking.

Mr. Raju Ramachandran, learned senior counsel
appearing in Civil Appeal No.432 of 2004 for the intervenors
assisted by Dr. P. B. Vijay Kumar, Advocate, submitted that
even if the co-operative bank lends loans only to its members,
it will not alter characteristics of the banking company in the
light of the Amending Act No.23 of 1965. He submitted that
co-operative banks and co-operative companies are covered by
the definition of Section 5 (c) of the BR Act.

Mr. Raghavendra S. Srivatsa, learned counsel appearing
on behalf of the appellant-bank in Civil Appeal No.916 of
2006, submitted that the High Court of Andhra Pradesh has
failed to appreciate the distinction between the definition of
"banking company" under Section 5(c) of the BR Act and
Section 2(c) of the RDB Act. He submitted that the Parliament
had kept the definition of "banking company" under Section
5(c) intact by adding new definition of "co-operative bank" in
clause (cci) and "primary co-operative bank" in clause (ccv) of
the Act No. 23 of 1965.

Mr. T. Raja, learned counsel appearing on behalf of the
petitioners in SLP (C) No.5598 of 2004, submitted that the
RDB Act is a special Statute enacted by the Parliament and
the Co-operative Societies Act is a general Statute in nature.
Therefore, the RDB Act will apply for the recovery of the loans
advanced by the co-operative banks whereas Co-operative
Societies Act shall become inoperative.

Mr. S. Nanda Kumar, Advocate appearing on behalf of
respondent No. 3 in SLP (C) No.5598 of 2004, supported the
contentions advanced by Mr. T. Raja, Advocate.

Dr. N. M. Ghatate, learned senior counsel appearing on
behalf of respondent Nos.1 to 5 in Civil Appeal No.436 of 2004,
submitted that the subject of banking is covered in Entry 45,
List I of the Seventh Schedule of the Constitution and as the
recovery of debts/dues by the banks is an essential part of
banking business, the Parliament has legislative competence
to legislate on the subjects. He submitted that as soon as the
Parliament legislates under Entry 45, List I and makes a law
relating to recovery of dues by the banks, the provisions
contained in the Co-operative Societies Acts relating to the
subject will cease to operate in relation to the co-operative
banks and the co-operative banks will follow the same
procedure for recovery of the dues as laid down in the RDB
Act. He then submitted that the co-operative bank will have to
be included in the definition of the term "banking" as defined
in Section 2(d) of the RDB Act as Section 5(c) of the BR Act
cannot be read in isolation ignoring Section 56 of the Act. He
submitted that the doctrine of occupied field because of
paramountcy, central legislation will operate over State Law
but to the extent the State Law is inconsistent or in conflict
with the Central Law. In support of this submission, reliance
is placed upon M/s Fatehchand Himmatlal & Ors. v. State
of Maharashtra [(1977) 2 SCC 670 para 56]. He contended
that from the date on which the Debts Recovery Tribunal was
constituted under the RDB Act', the courts and authorities
under the MCS Act, 1960 as also the MSCS Act, 2002 would
cease to have jurisdiction to entertain the applications
submitted by the co-operative banks for recovery of their dues.
He next submitted that pith and substance of co-operative
banks and other banks is the same as their primary function
is taking deposits from public, financial institutions etc. and
recovering the debt with interest. He also submitted that
Entries in the Seventh Schedule should not be read narrowly
but with widest amplitude as they deal with legislative
competence of Parliament and the State Legislatures. To
support this contention, reliance is placed on R. C. Cooper v.
Union of India [(1970) 1 SCC 249 at para 36].

Mr. Shekhar Naphade, learned senior counsel appearing
on behalf of the petitioners in SLP (C) Nos.15621-15622 of
2005 and in Civil Appeal Nos.2819-22 of 2006, contended that
Article 246 (1) of the Constitution of India is the source of the
power vested in the Parliament to enact laws and if the subject
matter of the legislation in its substantive form or even in its
incidental manifestation is covered by List I and if the
Parliament makes a law covering that aspect of the matter
then the law made by the Parliament will override the law
made by the State Legislature which otherwise would have
been valid on the basis of doctrine of pith and substance. He
contended that the RDB Act enacted by the Parliament being
paramount must supersede pro tanto the provisions of the
MCS Act 1960, which was enacted by the State Legislature. In
support of this submission, reliance was placed upon M/s
Hoechst Pharmaceutical Ltd. & Ors. v. State of Bihar &
Ors. [(1983) 4 SCC 45]. He also stated that the co-operative
banks carrying on banking business as defined in Section 5(b)
of the BR Act and the recovery of claims by the banks against
the borrowers and debtors is a matter integrally and
essentially connected with the banking business as the
subject matter of banking or the legislative field of banking is
covered by Entry 45, List I of the Seventh Schedule of the
Constitution of India and, therefore, it is open to the
Parliament to establish courts and tribunals or any other
machinery for recovery of banks' claims. He submitted that
the ambit and scope of Entry 32, List II is only relating to the
incorporation, the management of the affairs of the co-
operative society, the powers of the Managing Committee, the
powers of General Body, the control of the Registrar or the
State Government over the affairs of the society, admission of
members, expulsion of members and disputes amongst
members etc. but the banking sector whether in public sector
or in private sector or in co-operative sector is one unified
banking industry. He next submitted that the banking
regulation laws contained either in the BR Act or in the RBI
Act or other provisions will cover the whole spectrum of
banking sector and it is, therefore, in the fitness of things that
even for the recovery of the claims of the banks against the
borrowers there should be one unified machinery and unified
set of procedure and the same is to be found in the RDB Act.
In the last, the learned counsel supported the judgments and
orders of the High Court of Bombay and the High Court of
Andhra Pradesh holding that as the co-operative banks are
transacting banking business, they are covered by the
definition of "banking company" under Section 5(c) of the BR
Act, therefore, the Tribunal constituted under Section 3 of the
RDB Act has jurisdiction and power under Section 17 to
decide claims of all banks including the co-operative banks.

Mr. U. U. Lalit, learned Senior Advocate appearing on
behalf of the respondent in Civil Appeal No.38 of 2006,
contended that it is the exclusive domain of Union of India
under Entry 45 List I of Seventh Schedule of the Constitution
to enact laws in regard to banking. Co-operative banks
transacting the banking business are, therefore, covered by
the RDB Act in terms of the meaning of "banking company"
under Section 2(d) of the Act.

In the light of the contentions of the learned counsel for
the parties appearing before us and on an analysis of the
various provisions of the relevant Statutes, two questions arise
for our consideration which are:-
INTERPRETATION CLAUSE:
[a] Whether the RDB Act applies to debts due to co-
operative banks constituted under the MCS Act,
1960; the MSCS Act, 2002 and the APCS Act, 1964?

CONSTITUTIONAL CLAUSE:

[b] Whether the State Legislature is competent to enact
legislation in respect of co-operative societies
incidentally transacting business of banking in the
light of Entry 32, List II of Seventh Schedule of the
Constitution?
QUESTION NO. 1
The dues of co-operatives and recovery proceedings in
connection therewith are covered by specific Acts, such as the
MCS Act, 1960 and the APCS Act, 1964, which are
comprehensive and self-contained legislations. Similarly, for
Multi-State Co-operatives there is a specific enactment in the
form of the MSCS Act, 2002 comprehensively providing the
legal framework in respect to issues pertaining to such co-
operatives. Therefore, when there is an admittedly existing
legal framework specifically dealing with issues pertaining to
co-operatives and especially when the co-operative banks are,
in any case, not covered by the provisions of the RDB Act
specifically, there is no justification of covering the co-
operative banks under the provisions of the RDB Act
by invoking the Doctrine of Incorporation.
In Surana Steels Pvt. Ltd. etc. v. Deputy
Commissioner of Income Tax & Ors. etc. [(1999) 4 SCC
306], this Court examined an incorporation by reference and
concluded that the part of the incorporated Act from which a
provision is taken can be looked at only to ascertain the
meaning of the incorporated provision, but the other
provisions cannot be deemed to be incorporated when they are
not actually incorporated.

The distinction between peoples' co-operative banks
serving their members and corporate banks doing commercial
transactions is fundamental to the constitutional dispensation
and understanding co-operative banking generally and in the
context of cooperative banking not coming under the ambit of
the BR Act. Thus, even if the co-operatives are involved in the
activity of banking which involves lending and borrowing, this
is purely incidental to their main co-operative activity which is
a function in public domain.

The RDB Act was passed in 1993 when Parliament had
before it the provisions of the BR Act as amended by Act No.
23 of 1965 by addition of some more clauses in Section 56 of
the Act. The Parliament was fully aware that the provisions of
the BR Act apply to co-operative societies as they apply to
banking companies. The Parliament was also aware that the
definition of 'banking company' in Section 5 (c) had not been
altered by Act No. 23 of 1965 and it was kept intact, and in
fact additional definitions were added by Section 56(c). "Co-
operative bank" was separately defined by the newly inserted
clause (cci) and "primary co-operative bank" was similarly
separately defined by clause (ccv). The Parliament was simply
assigning a meaning to words; it was not incorporating or even
referring to the substantive provisions of the BR Act. The
meaning of 'banking company' must, therefore, necessarily be
strictly confined to the words used in Section 5(c) of the BR
Act. It would have been the easiest thing for Parliament to say
that 'banking company' shall mean 'banking company' as
defined in Section 5 (c) and shall include 'co-operative bank' as
defined in Section 5 (cci) and 'primary co-operative bank' as
defined in Section 5 (ccv). However, the Parliament did not do
so. There was thus a conscious exclusion and deliberate
commission of co-operative banks from the purview of the
RDB Act. The reason for excluding co-operative banks seems
to be that co-operative banks have comprehensive, self-
contained and less expensive remedies available to them
under the State Co-operative Societies Acts of the States
concerned, while other banks and financial institutions did
not have such speedy remedies and they had to file suits in
civil courts.

The RDB Act was, therefore, designed to deal with other
banks and financial institutions which had to have recourse to
the time-consuming process of the Civil Courts. The
Statement of Objects and Reasons, stated hereinabove refers
to more than 15 lakh cases filed by public sector banks and
about 304 cases filed by the financial institutions pending in
various courts. The Statement of Objects and Reasons also
refers to the Tiwari Committee which had expressly
commented on delays in 'civil courts' and the Narsimhan
Committee which recommended setting up of Special
Tribunals.

Accordingly, the burden of the Civil Courts in the matter
of suits by banks and financial institutions was shifted to the
Debt Recovery Tribunals. The disputes between co-operative
banks and their members were being taken care of by the
State Co-operative Acts and they were to remain where they
were. If co-operative disputes are also to go to the Debt
Recovery Tribunals, then those Tribunals will be over-
burdened and the whole object of speedy recovery of debts due
to banks and financial institutions would be defeated. The
Co-operative Societies Acts on the one hand and RDB Act on
the other cannot be regarded as supplemental to each other
viz., the provisions of the said Acts cannot be said to be pari-
materia.

This Court in Virendra Pal Singh v. District Assistant
Registrar [(1980) 4 SCC 109] directly deals with the question
of the legislative competence relating to a co-operative society
doing banking business. This decision in clear terms has laid
down in para 10 as under:-
"10. We do not think it necessary to refer
to the abundance of authority on the
question as to how to determine whether
a legislation falls under an entry in one
list or another entry in another list. Long
ago in Prafulla Kumar Mukherjee and
Ors. v. Bank of Commerce Ltd., the Privy
Council was confronted with the question
whether the Bengal Money-Landers Act
fell within entry 27 in List II of the
Seventh Schedule to the Government of
India Act, 1935, which was 'money
landing', in respect of which the
Provincial Legislature was competent to
legislate, or whether it fell within entries
28 and 38 in the List I which were
'promissory notes' and 'banking' which
were within the competence of the
Central Legislature. The argument was
that the Bengal Money Lenders Act was
beyond the competence of the provincial
Legislature insofar as it dealt with
promissory notes and the business of
banking. The Privy Council upheld the
vires of the whole of the Act because it
dealt in pith and substance, with money-
lending. They observed :
Subjects must still overlap, and
where they do the question must be
asked what in pith and substance in the
effect of the enactment of which
complaint is made, and in what list is its
true nature and character to be found. If
these questions could not be asked, such
beneficent legislation would be stifled at
birth, and many of the subjects entrusted
to provincial legislation could never
effectively be dealt with.

Examining the provisions of the U.P. Co-
operative Societies Act in the light of the
observations of the Privy Council we do
not have the slightest doubt that in pith
and substance the Act deals with
"Cooperative Societies". That it trenches
upon banking incidentally does not take
it beyond the competence of the State
Legislature. It is obvious that for the
proper financing and effective functioning
of Cooperative Societies there must also
be Cooperative Societies which do
banking business to facilitate the working
of other Cooperative Societies, Merely
because they do banking business such
Cooperative Societies do not cease to be
Cooperative Societies, when otherwise
they are registered under the Cooperative
Societies Act and are subject to the
duties, liabilities and control of the
provisions of the Cooperative Societies
Act. We do not think that the question
deserves any more consideration and, we,
therefore, hold that the U.P. Cooperative
Societies Act was within the competence
of the State Legislature. This was also
the view taken in Nagpur District Central
Cooperative Bank Ltd. v. Divisional Joint
Registrar, Cooperative Societies, AIR 1971
SC 365 and Sant Sadhu Singh v. the State
of Punjab, AIR 1970 PLH 528."


Section 31 of the RDB Act clearly refers to transfer of
'every suit or other proceeding pending before any court'. The
word 'court', in the context of the RDB Act, signifies 'civil
court'. It is clear that the Registrar, or an officer designated by
him or an arbitrator under Sections 61, 62, 70 and 71 of the
APCS Act, 1964 and under Section 91 and other provisions of
Chapter IX of the MCS Act, 1960 are not 'civil courts'.

In Harinagar Sugar Mills v. Shyam [1962 (2) SCR
339], this Court held: "By 'courts' is meant courts of civil
judicature and by 'tribunals' those bodies of men who are
appointed to decide controversies arising under certain special
laws. Among the power of the State is the power to decide
such controversies. This is undoubtedly one of the attributes
of the State, and is aptly called the judicial power of the State".

In Ram Rao & Anr. v. Narayan & Anr. [AIR 1969 SC
724], it was held that the nominee of Registrar appointed
under Section 95 of the Maharashtra Co-operative Societies
Act, 1961 is not a 'Court' within the meaning of Section 195,
Cr.P.C..

In Kihoto Hollohan v. Zachillhu & Ors. [(1992)
Supp.(2) SCC 651 para 98], it was held that all tribunals are
not courts, though all courts are tribunals. The word 'courts'
is used to designate those tribunals which are set up in an
organised State for the Administration of Justice...".

In Supreme Court Legal Aid Committee representing
undertrial prisoners v. Union of India [(1994) 6 SCC 731
para 14], it was held: "it is common knowledge that a 'court' is
an agency created by the sovereign for the purpose of
administrating justice. It is a place where justice is judicially
administered. It is a legal entity".

The decision cited by the respondents in Thakur Jugal
Kishore v. Sitamarhilt [1967 (3) SCR 163] does not refer to
the earlier Constitution Bench decisions in ACC v. P. N.
Sharma and Harinagar Sugar Mills v. Shyam (supra). At
best, the Assistant Registrar could have been held to be a
'tribunal' but not a 'court'.

In a later decision in the case of Rama Rao & Anr. v.
Narayan & Anr. [(1969) 1 SCC 167], a two-Judge Bench has
taken a contrary view and held that under the MCS Act, 1960,
the nominee of the Registrar for deciding a dispute under
Section 91 (which is equivalent to Section 61 of the A. P. Act of
1964) is not a 'court'. Obviously, laws relating to co-operative
societies are special laws and the disputes entrusted to
Registrars are special disputes in respect of which the
jurisdiction of civil courts is ousted.

As already pointed out, the RDB Act is consistent with
the general banks and their creditors/loanees while the MCS
Act, 1960; the APCS Act, 1964 and the MSCS Act, 2002 are
concerned with the regulation of societies only. The language
of the Sections in these enactments defining 'banking
company' is plain, clear and explicit. It does not admit any
doubtful interpretation as the intention of the legislature is
clear as afore-said. It is well-settled that the language of the
Statutes is to be properly understood. The usual presumption
is that the Legislature does not waste its words and it does not
commit a mistake. It is presumed to know the law, judicial
decisions and general principles of law. The elementary rule of
interpretation of the Statute is that the words used in the
Section must be given their plain grammatical meaning.
Therefore, we cannot afford to add any words to read
something into the Section, which the Legislature had not
intended.
Finally, it could not be said that Amendments in Chapter
V, Section 56 of the RDB Act by Act No. 23 of 1965 inserting
"co-operative bank" in Clause (cci) and "primary co-operative
bank" in Clause (ccv) either expressly or by necessary
intentment apply to the co-operative banks transacting
business of banking.

QUESTION NO. 2
The constitutional validity of an Act can be challenged
only on two grounds, viz. (i) lack of legislative competence; and
(ii) violation of any of the Fundamental Rights guaranteed in
Part III of the Constitution or of any other constitutional
provision. In State of A. P. & Ors. v. McDowell & Co. &
Ors. [(1996) 3 SCC 709], this Court has opined that except the
above two grounds, there is no third ground on the basis of
which the law made by the competent legislature can be
invalidated and that the ground of invalidation must
necessarily fall within the four corners of the afore-mentioned
two grounds.

Power to enact a law is derived by the State Assembly
from List II of the Seventh Schedule of the Constitution. Entry
32 confers upon a State Legislature the power to constitute co-
operative societies. The State of Maharashtra and the State of
Andhra Pradesh both had enacted the MCS Act, 1960 and the
APCS Act, 1964 in exercise of the power vested in them by
Entry 32 of List II of the Seventh Schedule of the Constitution.
Power to enact would include the power to re-enact or validate
any provision of law in the State Legislature, provided the
same falls in an Entry of List II of the Seventh Schedule of the
Constitution with the restriction that such enactment should
not nullify a judgment of the competent court of law. In the
appeals/SLPs/petitions filed against the judgment of the
Andhra Pradesh High Court, the legislative competence of the
State is involved for consideration. Judicial system has an
important role to play in our body politic and has a solemn
obligation to fulfil. In such circumstances, it is imperative
upon the Courts while examining the scope of legislative
action to be conscious to start with the presumption regarding
the constitutional validity of the legislation. The burden of
proof is upon the shoulders of the incumbent who challenges
it. It is true that it is the duty of the constitutional courts
under our Constitution to declare a law enacted by the
Parliament or the State Legislature as unconstitutional when
Parliament or the State Legislature had assumed to enact a
law which is void, either for want of constitutional power to
enact it or because the constitutional forms or conditions have
not been observed or where the law infringes the Fundamental
Rights enshrined and guaranteed in Part III of the
Constitution.
As observed by this Court in CST v. Radhakrishnan in
considering the validity of a Statute the presumption is always
in favour of constitutionality and the burden is upon the
person who attacks it to show that there has been
transgression of constitutional principles. For sustaining the
constitutionality of an Act, a Court may take into
consideration matters of common knowledge, reports,
preamble, history of the times, objection of the legislation and
all other facts which are relevant. It must always be presumed
that the legislature understands and correctly appreciates the
need of its own people and that discrimination, if any, is based
on adequate grounds and considerations. It is also well-
settled that the courts will be justified in giving a liberal
interpretation in order to avoid constitutional invalidity. A
provision conferring very wide and expansive powers on
authority can be construed in conformity with legislative
intent of exercise of power within constitutional limitations.
Where a Statute is silent or is inarticulate, the Court would
attempt to transmutate the inarticulate and adopt a
construction which would lean towards constitutionality albeit
without departing from the material of which the law is woven.
These principles have given rise to rule of "reading down" the
provisions if it becomes necessary to uphold the validity of the
law.

In State of Bihar & Ors. v. Bihar Distillery Ltd. &
Ors. [(1997) 2 SCC 453], this Court indicated the approach
which the Court should adopt while examining the
validity/constitutionality of a legislation. It would be useful to
remind ourselves of the principles laid down, which read: (SCC
p.466, para 17):
"The approach of the court, while
examining the challenge to the
constitutionality of an enactment, is to
start with the presumption of
constitutionality. The court should try to
sustain its validity to the extent possible.
It should strike down the enactment only
when it is not possible to sustain it. The
court should not approach the enactment
with a view to pick holes or to search for
defects of drafting, much less
inexactitude of language employed.
Indeed, any such defects of drafting
should be ignored out as part of the
attempt to sustain the
validity/constitutionality of the
enactment. After all, an Act made by the
legislature represents the will of the
people and that cannot be lightly
interfered with. The unconstitutionality
must be plainly and clearly established
before an enactment is declared as void.
The same approach holds good while
ascertaining the intent and purpose of an
enactment or its scope and application."


In the same para, this Court further observed as follows:
"The Court must recognize the
fundamental nature and importance of
legislative process and accord due regard
and deference to it, just as the legislature
and the executive are expected to show
due regard and deference to the judiciary.
It cannot also be forgotten that our
Constitution recognizes and gives effect to
the concept of equality between the three
wings of the State and the concept of
"checks and balances" inherent in such
scheme."

The principles of legislative competence were stated with
precision by the Federal Court in Subramanyan Chettiar v.
Muttuswami Goundan [AIR 1941 FC 47] as follows:-

"It must inevitably happen from time to
time that legislation though purporting to
deal with a subject in one list, touches
also upon a subject in another list, and
the different provisions of the enactment
may be so closely intertwined that blind
adherence to a strictly verbal
interpretation would result in a large
number of statutes being declared invalid
because the Legislature enacting them
may appear to have legislated in a
forbidden sphere. Hence the rule which
has been evolved by the Judicial
Committee, whereby the impugned
statute is examined to ascertain its pith
and substance or its true nature and
character for the purpose of determine
whether it is legislation with respect to
matters in this list or that."


In A. S. Krishna v. State of Madras [1957 SCR 399 at
page 410], this Court applied these principles.

In State of Rajasthan v. Chawala [1959 (Suppl.1) SCR
904 at 909] Hidayatullah J. aptly described the principles of
pith and substance as under:-
"The pith and substance of the impugned
Act is the control of the use of amplifiers
in the interests of health and also
tranquility, and thus falls substantially
(if not wholly) within the powers
conferred to preserve, regulate and
promote them and does not so fall
within the Entry in the Union List, even
though the amplifier, the use of which is
regulated and controlled is an apparatus
for broadcasting or communication. As
Latham, C. J., pointed out in Bank of
New South Wales v. The Commonwealth:

A power to make laws 'with respect to' a
subject matter is a power to make laws
which in reality and substance are laws
upon the subject-matter. It is not
enough that a law should refer to the
subject-matter or apply to the subject-
matter: for example, income tax laws
apply to clergymen and to hotel-keepers
as members of the public; but no
one would describe an income-tax
law as being, for that reason, a law
with respect to clergymen or hotel-
keepers. Building regulations apply to
buildings erected for or by banks; but
such regulations could not properly
be described as laws with respect to
banks or banking."
[Emphasis supplied)

Entry 43 List of I speaks of banking, insurance and
financial corporations etc. but expressly excludes co-operative
societies from its ambit. The constitutional intendment seems
to be that the co-operative movement was to be left to the
States to promote and legislate upon and the banking
activities of co-operative societies were also not to be touched
unless Parliament considered it imperative. The BR Act deals
with the regulation of the banking business. There is no
provision whatsoever relating to proceedings for recovery by
any bank of its dues. Recovery was initially governed by the
Code of Civil Procedure by way of civil suits and after the RDB
Act came into force, the recovery of the dues of the banks and
financial institutions was by filing applications to the Tribunal.
The Tribunal has been established with the sole object to
provide speedy remedy for recovery of debts of the banks and
financial institutions since there has been considerable
difficulties experienced therefore from normal remedy of Civil
Court.

In R. C. Cooper, etc. v. Union of India [(1970) 1 SCC
248], this Court observed that power to legislate for setting up
corporations to carry on banking and other business and to
acquire, hold and dispose of property and to provide for
administration of the corporations is conferred upon the
Parliament by Entries 43, 44 and 45 of the Constitution.
Therefore, the express exclusion of co-operative societies in
Entry 43 of List I and the express inclusion of co-operative
societies in Entry 32 of List II separately and apart from but
along with corporations other than those specified in List I and
universities, clearly indicated that the constitutional scheme
was designed to treat co-operative societies as institutions
distinct from corporations. Co-operative Societies,
incorporation, regulation and winding up are State subjects in
the ambit of Entry 32 of List II of Seventh Schedule to the
Constitution of India. Co-operatives form a specie of genus
'corporation' and as such co-operative societies with objects
not confined to one State read in with the Union as provided
in Entry 44 of List I of the Seventh Schedule of the
Constitution, MSCS Act, 2002 governs such multi-state co-
operatives.

Hence, the co-operative banks performing functions for
the public with a limited commercial function as opposed to
corporate banks cannot be covered by Entry 45 of List I
dealing with "banking". The subject of co-operative societies is
not included in the Union List rather it covers under Entry 32
of List II of Seventh Schedule appended to the Constitution.

We have gone through the decision of this Court in The
Life Insurance Corporation of India v. D. J. Bahadur &
Ors. [AIR 1980 SC 2181] cited at bar. This Court held that the
Industrial Disputes Act, 1947 is a special Statute devoted
wholly to investigation and settlement of industrial disputes.
Therefore, with reference to industrial disputes between
employers and workmen, the Industrial Disputes Act is a
special Statute and the Life Insurance Corporation Act (31 of
1956) does not speak at all with specific reference to workmen.
The industrial disputes between workmen and the employer as
such are beyond the orbit of and have no specific or special
place in the scheme of the Life Insurance Corporation Act.

In ITC Ltd. v. Agricultural Produce Market Committee
& Ors. [(2002) 9 SCC 232], this Court, as per majority
opinion, held that the legislative power of Parliament in certain
areas is paramount under the Constitution is not in dispute.
What is in dispute is the limits of those areas as judicially
defined. Broadly speaking Parliamentary paramountcy is
provided for under Articles 246 and 254 of the Constitution.
The first three clauses of Article 246 of the Constitution relate
to the demarcation of legislative powers between the
Parliament and the State Legislatures. Under clause (1),
notwithstanding anything contained in clauses (2) and (3),
Parliament has been given the exclusive power to make laws
with respect to any of the matters enumerated in List I or the
Union List in the Seventh Schedule. Clause (2) empowers the
Parliament and State Legislatures subject to the power of
Parliament under sub-clause (1), to make laws with respect to
any of the matters enumerated in List III in the Seventh
Schedule described in the Constitution as the 'Concurrent
List' notwithstanding anything contained in sub-clause (3).
Under clause (3) the State Legislatures have been given
exclusive powers to make laws in respect of matters
enumerated in List II in the Seventh Schedule described as the
'State List' but subject to clauses (1) and (2). The three lists
while enumerating in detail the legislative subjects carefully
distribute the areas of legislative authority between Parliament
(List I) and the State (List II). The supremacy of Parliament has
been provided for by the non-obstante clause in Article 246 (1)
and the words 'subject to' in Art.246 (2) and (3). Therefore,
under Article 246 (1) if any of the Entries in the three Lists
overlap, the Entry in List I will prevail. Additionally, some of
the Entries in the State List have been made expressly subject
to the power of Parliament to legislate either under List I or
under List III. Entries in the Lists of the Seventh Schedule
have been liberally interpreted, nevertheless Courts have been
wary of upsetting this balance by a process of interpretation so
as to deprive any Entry of its content and reduce it to 'useless
lumber'. The use of the word 'exclusive' in Clause (3) denotes
that within the legislative fields contained in List II, the State
Legislatures exercise authority as plenary and ample as
Parliament.

In Associated Timber Industries & Ors. v. Central
Bank of India & Anr. [(2000) 7 SCC 93], this Court observed:
"Banking" being included in Union List in Entry 45 List I of
Seventh Schedule cannot come within the purview of Assam
Money Lenders Act, while "money-lending and money-lenders;
relief of agricultural indebtedness" under the Assam Money
Lenders Act 1934 comes under Entry 30 of List II  State List
of the Seventh Schedule.

In State of Maharashtra v. Laljit Rajshi Shah & Ors.
[(2000) 2 SCC 699], the question before this Court was
whether a person defined as "officer" under Section 2(20) of
the MCS Act, 1960 was a "public servant" within the meaning
of Section 2 of the Prevention of Corruption Act, 1947 by
virtue of the provisions of Section 161 of the MCS Act, 1960
read with Section 21 IPC and as such, could be proceeded
against for offences under Section 5(1) read with Section 5(2)
of the Prevention of Corruption Act, 1947. On analysis of the
various provisions of the statutes and Articles 245, 246, 254(2)
and Schedule Seven List II Entry 32 and List III Entry I, this
Court held in para 6 as under:-

"................ The Maharashtra Co-
operative Societies Act 1960 has been
enacted by the State Legislature and their
powers to make such legislation is
derived from Entry 32 of List II of the
Seventh Schedule to the Constitution.
The legislature no doubt in Section 161
has referred to the provisions of Section
21 of the Indian Penal Code but such
reference would not make the officers
concerned 'public servants' within the
ambit of Section 21. The State Legislature
had the powers to amend Section 21 of
the Indian Penal Code, the same being
referable to a legislation under Entry 1 of
List III of the Seventh Schedule, subject
to Article 254(2) of the Constitution as,
otherwise, inclusion of the persons who
are 'public servants' under Section 161 of
the Co-operative Societies Act would be
repugnant to the definition of 'public
servant' under Section 21 of the Indian
Penal Code. That not having been done, it
is difficult to accept the contention of the
learned Counsel, appearing for the State
that by virtue of deeming definition in
Section 161 of the Co-operative Societies
Act by reference to Section 21 of the
Indian Penal Code, the persons
concerned could be prosecuted for the
offences under the Indian Penal Code.
The Indian Penal Code and the
Maharashtra Co-operative Societies Act
are not Statutes in pari materia. The Co-
operative Societies Act is a completely
self-contained Statute with its own
provisions and has created specific
offences quite different from the offences
in the Indian Penal Code. Both Statutes
have different objects and created
offences with separate ingredients. They
cannot thus be taken to be Statutes in
pari materia, so as to form one system.
This being the position, even though the
Legislatures had incorporated the
provisions of Section 21 of the Indian
Penal Code into the Co-operative
Societies Act, in order to define a 'public
servant' but those 'public servants'
cannot be prosecuted for having
committed the offence under the Indian
Penal Code. It is a well-known principle of
construction that in interpreting a
provision creating a legal fiction, the
Court is to ascertain for what purpose the
fiction is created, and after ascertaining
this, the Court is to assume all those
facts and consequences which are
incidental or inevitable corollaries to
giving effect to the fiction. But in so
construing the fiction, it is not to be
extended beyond the purpose for which it
is created, or beyond the language of the
Section by which it is created. A legal
fiction in terms enacted for the purposes
of one Act is normally restricted to that
Act and cannot be extended to cover
another Act. When the State Legislatures
make the Registrar, a person exercising
the power of the Registrar, a person
authorised to audit the accounts of a
society under Section 81 or a person to
hold an inquiry under Section 83 or to
make an inspection under Section 84 and
a person appointed as an Administrator
under Section 78 or as a Liquidator
under Section 103 shall be deemed to be
'public servants' within the meaning of
Section 21 of the Indian Penal Code.
Obviously, they would not otherwise
come within the ambit of Section 21, the
legislative intent is clear that a specific
category of officers while exercising
powers under specific sections have by
legal fiction become 'public servant' and it
Is only for the purposes of the Co-
operative Societies Act. That by itself does
not make those persons 'public servants'
under the Indian Penal Code, so as to be
prosecuted for having committed the
offence under the Penal Code. When a
person is "deemed to be" something, the
only meaning possible is that whereas he
is not in reality that something, the Act of
legislature requires him to be treated as if
obviously for the purposes of the said Act
and not otherwise."



The case reported in Union of India v. Delhi High Court
Bar Association [(2002) 4 SCC 275] relied upon on behalf of
the respondents in support of the judgments and orders of the
High Court of Bombay and High Court of Andhra Pradesh,
does not consider the issue of co-operative banks' adjudication
and recovery provisions under Entry 32 of List II. The Court
was only considering Entry 45 List I vis-a-vis Entry IIA List III
'administration of justice'. As such, the decision of this case is
of no assistance or of help to the proposition of law involved in
the present cases.

None of the contentions of the learned counsel for the
respondents supporting the judgments and orders of the High
Courts impugned before this Court on the question of
interpretation clause as well as the question of constitutional
clause formulated hereinabove can be sustained.
For the reasons stated above and adopting pervasive and
meaningful interpretation of the provisions of the relevant
Statutes and Entries 43, 44 and 45 of List I and Entry 32 of
List II of the Seventh Schedule of the Constitution, we answer
the Reference as under:-

"Co-operative banks" established under the Maharashtra
Co-operative Societies Act, 1960 [MCS Act, 1960]; the Andhra
Pradesh Co-operative Societies Act, 1964 [APCS Act, 1964];
and the Multi-State Co-operative Societies Act, 2002 [MSCS
Act, 2002] transacting the business of banking, do not fall
within the meaning of "banking company" as defined in
Section 5 (c) of the Banking Regulation Act, 1949 [BR Act].
Therefore, the provisions of the Recovery of Debts Due to
Banks and Financial Institutions Act, 1993 [RDB Act] by
invoking the Doctrine of Incorporation are not applicable to the
recovery of dues by the co-operatives from their members.
The field of co-operative societies cannot be said to have
been covered by the Central Legislation by reference to Entry
45, List I of the Seventh Schedule of the Constitution. Co-
operative Banks constituted under the Co-operative Societies
Acts enacted by the respective States would be covered by co-
operative societies by Entry 32 of List II of Seventh Schedule of
the Constitution of India.

The Registry of this Court shall place these matters
before Hon'ble the Chief Justice of India for constitution of an
appropriate Bench for early disposal of these cases.



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