The Bombay High Court assessed the legality of the Reserve Bank of India's (RBI) supersession of the Board of Directors of Abhyudaya Co-operative Bank under Section 36AAA of the Banking Regulation Act, 1949, in light of constitutional provisions under Article 243ZL and Part IXB. The court primarily evaluated whether the provisions of Section 36AAA were consistent with the constitutional limits set for supersession of boards of co-operative societies and addressed procedural compliance by the RBI.

Background of the Case

1. Petitioners' Contention:
   Petitioners challenged the RBI's order dated November 24, 2023, superseding the board of Abhyudaya Co-operative Bank for one year. They argued that Section 36AAA of the Banking Regulation Act, 1949, ceased to operate after the introduction of Article 243ZT under Part IXB of the Constitution. They claimed this violated constitutional limits of six months for supersession under Article 243ZL.

2. RBI's Authority:
   RBI justified the order under Section 36AAA, asserting it acted to safeguard public and depositor interests, citing banking risks and mismanagement within the bank.

Main Issues

1. Issue 1: Constitutionality of Section 36AAA Post-97th Amendment:
   Petitioners argued that the enactment of Part IXB of the Constitution (Articles 243ZH-ZT) rendered Section 36AAA of the Banking Regulation Act inconsistent, as the constitutional framework limits supersession to six months.

2. Issue 2: Procedural Violation:
   Petitioners alleged denial of natural justice, claiming the RBI did not provide them with a proper hearing before issuing the order.

3. Issue 3: Legislative and Jurisdictional Overlap:
   Whether the powers of RBI under the Banking Regulation Act conflict with constitutional provisions or require harmonious construction.

Key Findings

1. Constitutional Provisions vs. Banking Regulation Act:

   • Article 243ZL prohibits supersession of boards for more than six months but allows exceptions for banking co-operatives via the Banking Regulation Act.
   • The court upheld RBI’s jurisdiction under Section 36AAA, as the third proviso to Article 243ZL explicitly applies the Banking Regulation Act to co-operative banks.

2. Role of Article 243ZT:
   The court noted that Article 243ZT provides a one-year window for amending conflicting laws but held that Section 36AAA is not inconsistent with Part IXB due to its specific reference in Article 243ZL.

3. Procedural Compliance:
   RBI’s actions were found to be procedurally sound, with the petitioners failing to demonstrate any lack of consultation or opportunity to respond.

Acts and Sections Discussed:

1. Banking Regulation Act, 1949:
   • Section 36AAA: Powers of RBI to supersede boards of co-operative banks for up to five years.
2. Constitution of India:
   • Article 243ZL: Limits board supersession to six months, with exceptions for banking co-operatives.
   • Article 243ZT: Transition clause for laws inconsistent with Part IXB.

Ratio Decidendi:

The court determined that the special provisions for banking co-operatives under the Banking Regulation Act harmoniously coexist with the constitutional provisions. Section 36AAA remains operative for multi-state co-operative banks like Abhyudaya due to explicit recognition in Article 243ZL.

Subjects:

Banking Regulations, Constitutional Law, Co-operative Societies
RBI Supersession, Article 243ZL, Banking Regulation Act, Co-operative Banks, Constitutional Law