Supreme Court of India · 2007
Greater Bombay Co-operative Bank Ltd v. United Yarn Tex Pvt Ltd
(2007) 6 SCC 236 · AIR 2007 SC 1584
Court
Supreme Court of India
Bench
B.N. Agrawal, P.P. Naolekar & L.S. Panta, JJ. (Panta J, author)
Decided
4 April 2007
Citation
(2007) 6 SCC 236 · AIR 2007 SC 1584
Background & Facts
Greater Bombay Co-operative Bank Ltd had advanced term loans to United Yarn Tex Pvt Ltd, a member of the bank. On default, the bank did not go to the Debts Recovery Tribunal: it applied to the Registrar under Section 101 of the Maharashtra Co-operative Societies Act, 1960, and the Assistant Registrar issued a recovery certificate on 3 December 2002. The borrower challenged that certificate in the Bombay High Court and obtained an interim restraint. A Division Bench of that Court had held, in Shamrao Vithal Co-operative Bank v. Star Glass Works, that a co-operative bank falls within Section 2(d) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (the RDDB Act), so that its only remedy after the constitution of the DRT was an application to the Tribunal.
A Full Bench of the Bombay High Court held that, from the date on which the DRT was constituted, the courts and authorities under the Maharashtra Act and the Multi-State Co-operative Societies Act, 2002 ceased to have jurisdiction over recovery applications by co-operative banks (while holding the State Act within legislative competence). A Full Bench of the Andhra Pradesh High Court went further, holding that a co-operative bank is a "bank" and a "banking company" under Section 2(d) and (e) of the RDDB Act and holding Sections 61 and 71 of the Andhra Pradesh Co-operative Societies Act, 1964 beyond the State's legislative competence to that extent (striking down the words "or financing bank" in Section 71(1) and reading the provisions down).
Appeals from both Full Benches came to the Supreme Court. A two-Judge Bench referred them to a larger Bench by its order of 1 December 2005, recording that recoveries worth thousands of crores of rupees were held up, and the reference was heard by a Bench of three Judges (B.N. Agrawal, P.P. Naolekar and Lokeshwar Singh Panta, JJ.; judgment by Panta, J.).
Questions Before the Court
Holdings of the Court
Holding 1 — Co-operative Banks Are Not "Banking Companies"
Co-operative banks established under the Maharashtra Act of 1960, the Andhra Pradesh Act of 1964 and the Multi-State Act of 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. Section 56 of that Act, inserted by Act 23 of 1965, "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)"; Parliament instead added separate definitions of "co-operative bank" and "primary co-operative bank" in clauses (cci) and (ccv).
Holding 2 — The RDDB Act Does Not Apply to Co-operatives' Recovery From Members
The provisions of the RDDB Act, by invoking the doctrine of incorporation, are not applicable to the recovery of dues by the co-operatives from their members. The Court treated the co-operative statutes as comprehensive and self-contained, described the omission of co-operative banks from the RDDB Act as a conscious exclusion, and held that the Registrar and officers acting under those statutes are not "courts" whose proceedings Section 31 of the RDDB Act transfers to the Tribunal.
Holding 3 — The Constitutional Question: Entry 32, List II
The field of co-operative societies was not covered by Central legislation by reference to Entry 45 of List I (banking); co-operative banks constituted under the Co-operative Societies Acts of the States fall within "co-operative societies" in Entry 32 of List II. The decision was therefore both a ruling on statutory interpretation and a ruling on legislative competence. Having answered the reference, the Court directed that the matters be placed before the Chief Justice for constitution of an appropriate Bench for their disposal.
Later Development — Constitution Bench, 5 May 2020
In Pandurang Ganpati Chaugule v. Vishwasrao Patil Murgud Sahakari Bank Ltd., a Constitution Bench of five Judges (Arun Mishra J for the Bench) said it was "unable to subscribe to the view taken in Greater Bombay Coop. Bank Ltd. (supra) as the provisions were not correctly appreciated" (para 81). It held (para 102) that co-operative banks, as to "banking", are governed by legislation relatable to Entry 45 of List I; that they are covered by "banking company" under Section 5(c) read with Section 56(a) of the Banking Regulation Act; and that co-operative banks under State legislation and multi-State co-operative banks are "banks" under Section 2(1)(c) of the SARFAESI Act, to which the Section 13 recovery procedure applies.
Practical Implications for Creditors
In 2007 the answer to the reference rejected the High Court Full Benches' view that the DRT had displaced the co-operative recovery machinery: a co-operative bank's recovery from its members lay under its own co-operative statute — in the lead case, a recovery certificate under Section 101 of the Maharashtra Co-operative Societies Act, 1960.
The reasoning on "banking company" can no longer be relied on without the 2020 Constitution Bench decision, which disagreed with it and brought co-operative banks within the SARFAESI Act. The Constitution Bench answered questions about the SARFAESI Act; it did not itself rule on the DRT's jurisdiction over a co-operative bank's claims. The forum for a co-operative bank's recovery — its co-operative statute, SARFAESI or the DRT — should therefore be settled on the current law before proceedings are filed, and a borrower facing such proceedings can test the forum on the same footing.
Relevant Statutory Provisions
Practical Application Note
This page is general legal information about a Supreme Court judgment and is not legal advice. For a co-operative bank, the threshold question is which forum is open for a recovery — its co-operative statute, SARFAESI or the DRT — read with the 2020 Constitution Bench decision; for a borrower, the same question can found a maintainability objection. Our partner-led team advises secured creditors and borrowers across India — banks, NBFCs, ARCs and co-operative banks — on forum selection and recovery strategy under the RDDB Act and the State co-operative recovery framework.
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