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Cooperative Banks, must be in compliance with the Banking Regulation Act
The Supreme Court, has held that the cooperative banks without any compliance with the Banking Regulation Act, or any other provisions of the banking, no activities cannot be carried out. One of the issues that were in consideration, were in the case of Pandurang Ganpati Chaugule & Ors v. Vishwarao Patil Murgud Sahakari Bank Limited, was whether the ‘banking company’, which defined in the section 5 of the Banking Regulation Act, in 1949, covers cooperative banks that are registered under the State Cooperative Laws, and also multi-State cooperative societies.
The constitution bench, comprising of Justice Arun Mishra, Indra Banerjee, Vineet Saran, MR Shah and Aniruddha Bose, in the case also has held, that the cooperative banks are included in the definition of bank, as well as ‘banking company’, under the section 2(1)©, and 2(1)(d) of the SARFAESI Act.
With reference to the scheme of the Banking Regulation Act, the bench has also observed that in such cases the co-operative banks are kept out of the purview of the BR Act, and other legislations under the entry 45 of the RBI Act, where no license can be granted, and therefore the banking cannot be done with following of the compliances of the provisions of the BR Act.
The bench has observed that, the co-operative banks, that are covered mostly by the BR Act, 1949, are usually involved in the banking activities that are well within the purview of the section 5(b). The money from the public is accepted, and is also repayable on demand, or otherwise and withdrawal of the cheque, draft, order or otherwise.
The mere fact that the institution was lending money to the family, it cannot be considered under the ambit of banking. The institution performs commercial functions as well, and also gives loans. Hence they fall under the definition of banking in the Entry 45 List I.
The Courts have hence overruled the Greater Bombay Coop Bank Ltd v. United Yarn Tex ltd, and to the extent has also observed that the co-operative banks that are established under the Maharashtra Co=operative Societies Act, and the Andhra Pradesh Co-operatives Act, transacting the business of banking, do not fall under the purview of Banking Company as defined under the section 5© of the BR Act.
