Case Title: PANDURANG GANPATI CHAUGULE V. VISHWASRAO PATIL MURGUD SAHAKARI BANK LIMITED
According to the Supreme Court, cooperative banks must comply with the Securitization and Reconstruction of Financial Assets and Enforcement of Security Act of 2002.
Under Section 2(1)(c) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act of 2002, "banks" include cooperative banks governed by State law and multi-State cooperative banks, according to the Constitution Bench.
The 2013 addition of "multi-state cooperative bank" to Section 2(1)(c)(iva) of the SARFAESI Act was argued to be a "colourable exercise of authority," but the Court rejected this claim. The Court also affirmed the 2003 notification made under the Banking Regulation Act of 1949, which included cooperative banks in the category of banks that may use the SARFAESI Act's provisions.
The five-judge panel unanimously decided that the Parliament has the authority to pass legislation bringing cooperative banks under the SARFAESI Act's purview. The court relied on Virendra Pal Singh and Ors. v. District Assistant Registrar, Cooperative Societies, Etah, and Anr, S.S. Dhanoa v. Municipal Corporation, Delhi and Ors., Daman Singh and Ors. v. State of Punjab and Ors., Dalco Engineering Private Limited v. Satish Prabhakar Padhye and Ors. and Greater Bombay Coop. Bank Ltd. v. United Yarn Tex (P) Ltd. and Ors to reach such conclusion in the present case.
The verdict in the abovementioned cases suggested that "banking connected to cooperatives can be included within the ambit of Entry 45 of List I, and it cannot be considered to be over-inclusion to incorporate provisions of recovery by cooperative banks under the SARFAESI Act."
In the present case, the Constitution Bench comprised of Justices Arun Mishra, Indira Banerjee, Vineet Saran, M. R. Shah, and Aniruddha Bose, came to the following conclusions:
“The Parliament has legislative competence under Entry 45 of List I of the Seventh Schedule of the Constitution of India to provide additional procedures for recovery under section 13 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 with respect to cooperative banks. The provisions of Section 2(1)(c)(iva), of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, adding "ex abundanti cautela", 'a multistate cooperative bank' is not ultra vires as well as the notification dated 28.1.2003 issued with respect to the cooperative banks registered under the State legislation.”