Case Law Details

Case Name : Mahanagar Nagrik Sahakari Bank Maryadit Vs Union of India And Others (Madhya Pradesh)
Appeal Number : WP-16168-2021
Date of Judgement/Order : 03/09/2021
Related Assessment Year :

Mahanagar Nagrik Sahakari Bank Maryadit Vs Union of India And Others (Madhya Pradesh)

Reserve Bank of India Circular Dated 25th June 2021; related to RBI control over Urban Co-Operative Banks; Stayed by Hon’ble MP High Court Jabalpur.

While hearing a writ petition challenging constitutionality of Banking Regulation (Amendment) Act, 2020, and consequential Circular dated 25 June, 2021, a Division Bench of High Court of Madhya Pradesh, headed by Chief Justice, has stayed the effect and operation of Reserve Bank of India’s circular dated 25th June, 2021, vide order dated 03rd September, 2021.

Mahanagar Nagrik Sahkari Bank Ltd. Bhopal filed W.P. no. 16168/2021 challenging the Banking Regulation (Amendment) Act, 2020, and consequential Circular dated 25 June, 2021, on the ground that the same are ultra vires of the Constitution of India, 1951. It is argued by the Counsels for Petitioner, Shri Ajay Gupta assisted by Shri Ravi kant Patidar and Shri Milind Sharma Advocates, that ‘Incorporation, Regulation and Winding up of Co-operative Societies’ is a State subject under Entry 32 of List II of Seventh Schedule of the Constitution, and there is a specific exclusion of ‘Incorporation, Regulation and Winding up of Co-operative Societies’ from Union List at Entry 43 of List I of Seventh Schedule of the Constitution. It was also argued that Parliament has competence only to legislate in relation to ‘Banking’ as provided in Entry 45 of List I of the Constitution, thus previously in 1966 on such provisions of Banking Regulation Act, 1949 were made applicable to co-operative banks which related to banking activity and rest all provisions which touched ‘incorporation, regulation and winding up’ of the Constitution of India were kept in omission.

Thereafter, Part IXB was inserted in Constitution, vide 97th Constitutional Amendment, 2011, whereby 2nd Proviso to Article 243ZL made all the provisions of Banking Regulation Act, 1949 applicable to all such co-operative societies doing the business of banking. On the strength of this provision in the Constitution of India, Parliament made Banking Regulation (Amendment) Act, 2020, whereby all such provision which were touching upon ‘incorporation, regulation and winding up’ were also made applicable to co-operative banks, though Parliament did not have competence to legislate about the same, as it was a State subject covered by Entry 32 of List II. Once, the omitted provisions were made applicable, Reserve Bank India issued circular dated 25th June, 2021 directing Primary (Urban) Co-operative Banks of whole Country to appoint Managing Directors/ Chief Executive Officers of such banks, as per the eligibility criteria prescribed by RBI, and remove/terminate all such Managing Directors/ Chief Executive Officers of Banks who are not fit and proper as per said circular. Article 243ZL, alongwith Part IXB of the Constitution of India has been struck down by the Supreme Court of India in its judgment dated 20th July, 2021 passed in Union of India Vs. Rajendra N. Shah. Thus, the basis of promulgating Banking Regulation (Amendment) Act, 2020 has been struck down by the Supreme Court of India.

High Court after hearing the arguments of the Counsels for petitioner bank issued notices accepting the challenge to the constitutionality of the Banking Regulation (Amendment) act, 1949, and stayed the effect and operation of Reserve Bank of India’s circular dated 25th June 2021.

FULL TEXT OF THE JUDGMENT/ORDER OF MADHYA PRADESH HIGH COURT

Heard through Video Conferencing.

Shri Ajay Gupta, learned counsel with Shri Ravikant Patidar & Shri Milind Sharma, counsel for the petitioner.

Shri J.K. Jain, learned Assistant Solicitor General for respondent Nos.1 to 4/Union of India on advance notice.

Shri Pushpendra Yadav, learned Additional Advocate General for respondent Nos.5 & 6/State on advance notice.

The contention of learned counsel for the petitioner is that the service conditions of the Managing Director and/or the Chief Executive Officer of the Cooperative Banks are governed by the bye-laws framed under the M.P. State Cooperative Societies Act, 1960. The petitioner, which is one of the Urban Cooperative Bank, has been registered under the aforesaid Act. Service conditions and recruitment of its employees are governed by the bye-laws placed on record at Annexure P/6 which are duly approved by the Registrar of the Cooperative Societies of Madhya Pradesh vide order dated 14.09.1993. The Cooperative as a subject falls under Entry 32 in List-II – State list in the Seventh Schedule appended to the Constitution of India whereas the Banking falls under Entry 45 in List-I – Union list of the Seventh Schedule. It is therefore argued that the power to legislate in the field of Cooperative Societies falls exclusively with the State and does not lie within the domain of the Union, much less the Reserved Bank of India. The learned counsel argued that the Banking Regulation Act, 1949 was amended by the Amendment Act of 1965 w.e.f 01.03.1966, whereby in view of this conflict, Sections 10, 10A, 10B, 10BB, 10C, 10D and 35B were purposely omitted. However, the Parliament by Constitution (97th Amendment) 2011 while inserting Article 243ZL(1) provided that in case of cooperative society carrying on the business of banking, the provisions of the Banking Regulation

Act 1949 shall also apply. This provision was struck down by the Gujarat High Court vide judgment dated 22.04.2013, passed in W.P.No.166/2012, whereby Part IXB introduced by way of aforesaid amendment was declared ultra vires the constitution for want of rectification by the State Legislation under proviso (2) to Article 368 (2). The aforesaid judgment has been upheld by the Supreme Court recently in Civil Appeal No.9108-9109 of 2014 vide judgment dated 20.07.2021. The petitioner has therefore challenged the constitutional validity of amended Section 4 of the Banking Regulation Amendment Act, 1965. The argument therefore is that the impugned order dated 25.06.2021 issued by the Reserve Bank of India is absolutely incompetent and lacks in authority.

Issue notice to the respondents on payment of PF within seven days, returnable within eight weeks.

In the meanwhile, operation and effect of the impugned order order dated 25.06.2021 (Annexure P/5) qua the petitioner shall remain stayed.

List after eight weeks.

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Submitted and Compiled By : Pinaki Legal | Advocates & Solicitors

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