SARFAESI Act applies to cooperative banks: SC
- shrey singh
- May 11, 2020
- 3 min read
Pandurang Ganpati Chaugule Vs. Vishwasrao Patil Murgud Sahakari Bank Ltd.
[Civil Appeal No. 5674 of 2009] decided 07.05.2020
Bench: Arun Mishra, Indira Banerjee, Vineet Saran, M.R. Shah, Aniruddha Bose, JJ.
Main Question of Law
Whether the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, ‘the SARFAESI Act’) applies to the cooperative banks?
Held
The SARFAESI Act also covers the activities undertaken by the cooperative banks.
Sub Issues
Whether ‘cooperative banks’, which are cooperative societies also, are governed by Entry 45 of List I or by Entry 32 of List II of the Seventh Schedule of the Constitution of India, and to what extent?
Editors’ Notes
The Entries are reproduced hereunder:
45. Banking.
32. Incorporation, regulation and winding up of
corporation, other than those specified in List I, and
universities; unincorporated trading, literary,
scientific, religious and other societies and
associations; cooperative societies.
Held
The Court held that recovery of dues would be an essential function of any banking institution and the Parliament can enact a law under Entry 45 of List I as the activity of banking done by cooperative banks is within the purview of Entry 45 of List I. Furthermore, Cooperative bank’s entire operation and activity of banking are governed by a law enacted under Entry 45 of List I.
Sub Issue
Whether ‘banking company’ as defined in Section 5(c) of the Banking Regulation Act, 1949 covers cooperative banks registered under the State Cooperative Laws and also multiState cooperative societies?
Held
Editors’ Notes
Under Section 5(c) of the BR Act, 1949, the term ‘banking company’ has been defined thus:
“5. Interpretation.— In this Act, unless there isanything repugnant in the subject or context,—
(c) “banking company” means any company which
transacts the business of banking in India;
Explanation.— Any company which is engaged in
the manufacture of goods or carries on any trade
and which accepts deposits of money from the
public merely for the purpose of financing its
business as such manufacturer or trader shall not
be deemed to transact the business of banking
within the meaning of this clause;”
The Court held that cooperative banks are involved in banking activities within the meaning of Section 5(b) thereof. They accept money from the public, repayable on demand or otherwise and withdrawal by cheque, draft, order or otherwise. Merely by the fact that lending of money is limited to members, they cannot be said to be out of the purview of banking. They perform commercial functions. A society shall receive deposits and loans from members and other persons. They give loans also, and it is their primary function. Thus, they are covered under ‘banking’ in Entry 45 of List I.
Sub Issue
(a) Whether cooperative banks both at the State level and multiState level are ‘banks’ for applicability of the SARFAESI Act?
Held
(3)(a) The cooperative banks under the State legislation and multiState cooperative banks are ‘banks’ under section 2(1)(c) of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. The recovery is an essential part of banking; as such, the recovery procedure prescribed under section 13 of the SARFAESI Act, a legislation relatable to Entry 45 List I of the Seventh Schedule to the Constitution of India, is applicable.
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