Case Note & Summary
The appeals before the Supreme Court concerned the extent to which the constitutional mandate of democratic governance of co-operative societies limits the power of the Reserve Bank of India to supersede the Board of a multi-State co-operative bank and continue such supersession under the Banking Regulation Act, 1949. The appellants were elected as members of the Board of Directors of Abhyudaya Co-operative Bank Limited in May 2019 for a statutory term of five years. The Bank was originally incorporated as a co-operative society under the Maharashtra Co-operative Societies Act, 1960, converted into a bank in 1965, declared a Scheduled Bank in 1988, and after amalgamation with two banks in Gujarat and one in Karnataka, became a multi-State co-operative bank. On 24.11.2023, the Reserve Bank of India, exercising power under Section 36AAA(1) and (2) read with Section 56 of the Banking Regulation Act, 1949, superseded the Board of Directors for one year and appointed an Administrator, citing deterioration in financial health, need to protect depositors, and need for expert management. The appellants challenged this First Supersession Order before the Bombay High Court. During pendency of those writ petitions, the appellants' five-year term expired on 24.05.2024. On 18.11.2024, the Reserve Bank of India passed a Second Supersession Order extending supersession for one year from 24.11.2024, and on the same day the High Court dismissed the writ petitions, holding that Section 36AAA of the Banking Regulation Act continues to operate and is not rendered otiose by Articles 243ZL and 243ZT of the Constitution; that the consultation proviso has no application to a multi-State co-operative bank; and that natural justice cannot be read into Section 36AAA. The appellants then filed Special Leave Petitions, in which leave was granted, and during pendency of these appeals, a Third Supersession Order was passed on 07.11.2025 extending supersession from 24.11.2025. The Supreme Court framed two issues: first, whether RBI's power to supersede the Board is circumscribed by the six-month limit under Article 243ZL(1) of the Constitution; and second, whether an order of supersession can be extended beyond the term of office for which the Board was originally elected. The appellants argued that supersession cannot extend beyond the tenure of the Board, that successive supersession orders are ultra vires Articles 243ZL and 243ZT, that consultation with the Central Government was mandatory and not undertaken, and that elections must be held immediately after the expiry of the term. The Reserve Bank of India argued that Section 36AAA(7) of the Banking Regulation Act shows that tenure of the erstwhile Board has no bearing, that RBI can supersede for up to five years in aggregate, that the third proviso to Article 243ZL(1) carves out banking societies from the substantive clause, and that Article 243ZT only applies to State laws. Respondent no.5 submitted that the Banking Regulation Act applies to all co-operative banks, Section 120B of the Multi-State Co-operative Societies Act, 2002 similarly provides for applicability of the Banking Regulation Act, and Section 123 of the MSCS Act is limited to specified societies with government interest. The Supreme Court noted that the Banking Regulation Act is traceable to Entry 45 of List I, the Multi-State Co-operative Societies Act to Entry 44, and that Part IXB of the Constitution applies exclusively to multi-State co-operative societies. The Court then began examining Article 243ZL but the provided excerpt ends before the final reasoning and decision.
Headnote
A) Constitutional Law - Supersession of Co-operative Board - Article 243ZL(1) of Constitution of India - Whether RBI's power under Section 36AAA(1) of Banking Regulation Act, 1949 is circumscribed by six-month limit - Appellants argued that the third proviso to Article 243ZL(1) imports the Banking Regulation Act without displacing the six-month ceiling, while RBI and respondent no.5 argued that the proviso carves out an entire class of co-operative societies carrying on banking business from the substantive clause - Held: Not mentioned in available excerpt (Paras 15, 19). B) Banking Regulation - Extension of Supersession Beyond Elected Term - Section 36AAA of Banking Regulation Act, 1949 - Whether supersession order can be extended beyond the term of office for which the Board was originally elected - Appellants contended that supersession cannot extend beyond the tenure of the Board, while RBI relied on Section 36AAA(7) to argue that tenure of erstwhile Board has no bearing on RBI's power of supersession - Held: Not mentioned in available excerpt (Paras 8-11, 15).
Issue of Consideration
Whether the power of the RBI to supersede the Board of Directors of a multi-State co-operative bank under Section 36AAA(1) of Banking Regulation Act, 1949 is circumscribed by the six-month limit prescribed under Article 243ZL(1) of the Constitution; and whether an order of supersession passed under Section 36AAA(1) of Banking Regulation Act, 1949 can be extended beyond the term of office for which the Board of Directors had originally been elected.
Law Points
- Article 243ZL of Constitution imposes six-month ceiling on board supersession
- third proviso to Article 243ZL(1) preserves Banking Regulation Act for co-operative societies carrying on banking business
- Section 36AAA of Banking Regulation Act empowers RBI to supersede board for up to five years aggregate
- Section 36AAA(7) contemplates general meeting before expiration of supersession period
- consultation proviso under Section 36AAA(1) argued to apply only to uni-state co-operative banks
- Part IXB of Constitution applies exclusively to multi-state co-operative societies
- natural justice cannot be read into Section 36AAA of Banking Regulation Act
- 1949 as per High Court
