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CASE NO.:

Appeal (civil) 432 of 2004

PETITIONER:

Greater Bombay Co-op. Bank Ltd

RESPONDENT:

M/s United Yarn Tex. Pvt. Ltd. & Ors

DATE OF JUDGMENT: 04/04/2007

BENCH:

B. N. Agrawal, P. P. Naolekar & Lokeshwar Singh Panta

JUDGMENT:

J U D G M E N T

WITH

[Civil Appeal Nos.433/2004, Civil Appeal No.434/2004,

Civil Appeal No.436/2004, SLP (C) Nos.15651-

15652/2005, SLP (C) No.5592/2004, SLP (C)

No.5598/2004, SLP (C) No.5890/2004, Civil Appeal

No.36/2006, Civil Appeal No.37/2006, Civil Appeal

No.38/2006, Civil Appeal No.916/2006, Civil Appeal

No.2819/2006, Civil Appeal No.2820/2006, Civil Appeal

No.2821/2006, Civil Appeal No.2822/2006 and SLP (C)

Nos.25246-25247/2005]

[Civil Appeal No.6069/2005, Civil Appeal No.6077/2005

and SLP (Crl.) No.2071/2006 - Not on board]

Lokeshwar Singh Panta, J.

Civil Appeal No.6069/2005, Civil Appeal No.6077/2005

and SLP (Crl.) No.2071/2006 are taken on board.

A Bench of two judges before which this batch of twelve

civil appeals and five special leave petitions came up for

consideration was of the view that looking to the issues

involved and the far-reaching consequences which such a

decision will leave, these matters require consideration by a

larger Bench. This is what the Bench observed in the order

dated 1st December, 2005.

"This batch of appeals/SLPs involved an

important issue regarding right of recovery of

debts by the co-operative banks constituted

under the Co-operative Societies Acts of the

States of Maharashtra and Andhra Pradesh. The

issue has arisen in the context of enactment of

the Recovery of Debts Due to Banks and

Financial Institutions Act, 1993. Under the Co-

operative Societies Acts, there is a mechanism for

recovery of debts by the Banks constituted under

those Acts, which are also called Co-operative

Banks. After the enactment of the 1993 Act,

question arose as to whether such Co-operative

Banks would have right of recovery under the

respective Co-operatives Societies Acts or they

will have to proceed under the 1993 Act. These

aspects and some other issues, including the

issue of legislative competence of the States to

enact the provisions relating to Co-operative

Banks, came up for consideration before the

Bombay High Court and the High Court of

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Andhra Pradesh at Hyderabad. Both the High

Courts have pronounced judgments on the issues

and these judgments are under appeal in these

cases. Looking to the issues involved and the far-

reaching consequences which such a decision

will leave, we are of the view that these matters

be decided by a larger Bench.

This has also been brought to our notice

that as a consequence of the impugned

judgments of the two High Courts, recoveries

worth thousands of crores of rupees are held up

and for that reason these matters need to be

decided as early as possible.

Let these matters be placed before Hon'ble

the Chief Justice of India for constitution of an

appropriate larger Bench for early disposal of

these cases.

We are informed that so far as the batch of

appeals/SLPs arising from the judgment of the

Bombay High Court is concerned, the stay

applications have already been disposed of. The

stay applications in the appeals/SLPs arising

from the judgment of the Andhra Pradesh High

Court are yet to be finally disposed of. Let the

stay applications in the matters arising from the

judgment of the Andhra Pradesh High Court be

placed before this Court on Wednesday the 7th

December, 2005. If any party is desirous of filing

any reply, the same be filed by Monday the 5th

December, 2005.

SLP (C) Nos. ...CC 9992-9993/2005, SLP (C)

Nos.21685-21701/2005 and SLP(C) No. 22621/

2005

Delay condoned.

Issue notice.

Dasti service, in addition to usual mode of

service, is also permitted."

Hon'ble the Chief Justice of India, accordingly, has

assigned these matters for hearing by a Bench of three Judges

dealing with the subject matters of applicability of the

Recovery of Debts due to Banks and Financial Institutions Act,

1993 [ for short "'the RDB Act'"] to the co-operative banks

established under the Maharashtra Co-operative Societies Act,

1960 [for short "the MCS Act, 1960"]; The Multi-State Co-

operative Societies Act, 2002 [for short "'the MSCS Act,

2002'"]; and the Andhra Pradesh Co-operative Societies Act,

1964 [for short "the APCS Act, 1964"].

The background of facts, which led to the filing of these

cases, are noted from Civil Appeal No. 432 of 2004 titled The

Greater Bombay Co-operative Bank Limited v. M/s United

Yarn Tex Private Limited and Others filed against the

judgments and orders of the Full Bench of the High Court of

Judicature at Bombay and Civil Appeal No. 36 of 2006 titled

A.P. State Co-operative Bank v. Samudra Shrimp Ltd. &

Ors. decided by the Full Bench of the High Court of

Judicature of Andhra Pradesh at Hyderabad.

A batch of writ petitions had been placed before Full

Bench of the High Court of Judicature at Bombay in which the

principal question of law that arose for consideration was:

"Do the courts and authorities constituted under

the Maharashtra Co-operative Societies Act, 1960

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(the 1960 Act) and the Multi-State Co-operative

Societies Act, 2002 (the 2002 Act) continue to

have jurisdiction to entertain applications/

disputes submitted before them by the Co-

operative Banks incorporated under the 1960 Act

and the 2002 Act for an order for recovery of

debts due to them, after establishment of a

Tribunal under the Recovery of Debts Due to

Banks and Financial Institutions Act, 1993 (the

1993 Act)?"

The appellant-bank advanced amounts by way of term

loans to the respondent-Company, which is a member of the

appellant-society. The appellant-bank filed recovery

application against the respondent-Company under Section

101 of the MCS Act, 1960 before the Registrar (Co-operative

Societies) for recovery of its dues. The Assistant Registrar

issued recovery certificate on 03.12.2002 in favour of the

appellant-bank. Pursuant to the issuance of recovery

certificate, a demand notice was issued to the respondent-

Company by the Special Recovery and Sales Officer calling

upon the respondent-Company to pay the dues of the

appellant-bank, failing which the Authority would visit the

premises of the respondent-Company on 1st February, 2003

for effecting recovery by way of attachment and sale of

property specified in the Schedule attached thereto.

In January 2003, the respondent-Company filed a Writ

Petition No. 727/2003 before the High Court of Bombay

impugning the recovery certificate dated 3rd December, 2002.

Learned Single Judge of the High Court vide order dated 31st

January, 2003 passed an ad-interim ex parte order restraining

the Special Recovery and Sales Officer, in any manner, from

proceeding with or in pursuant to recovery certificate dated 3rd

December, 2002. It appears from the order of the High Court

that the Division Bench of the High Court in The Shamrao

Vithal Co-operative Bank Limited v. M/s Star Glass Works

& Ors. [2003] 1 MLJ 1] held that the Debts Recovery Tribunal

constituted under the RDB Act has the jurisdiction to

entertain an application submitted by a co-operative bank for

recovery of its debts. The Division Bench on consideration of

the provisions of Section 56 of the Banking Regulation Act,

1949 [ for short "the BR Act"] came to the conclusion that 'Co-

operative Bank' falls within the meaning of Section 2(d) of the

RDB Act and, therefore, the only remedy available in terms of

the provisions of the RDB Act to a co-operative bank after the

constitution of the Tribunal under the RDB Act for recovery of

debts due to it, is to apply to such a tribunal for an order.

The order of the High Court reveals that one Narendra

Kanti Lal filed Writ Petition No. 6079/2002 in the High Court

praying for setting aside the recovery certificate dated 6th

September, 2000 issued by the Assistant Registrar (Co-

operative Societies) in exercise of his powers under Section

101 of the MCS Act, 1960 and the warrant of attachment

issued pursuant thereto on the application made by Jan

Kalyan Sahakari Bank Limited, one of the respondents in the

said petition. When that petition came up for admission

before the learned Single Judge of the Bombay High Court, the

petitioner therein brought to the notice of the learned Single

Judge the earlier judgment of the Division Bench in Shamrao

Vithalrao Co-operative Banks' case (supra). The learned

Single Judge, however, was of the opinion that the Division

Bench in its judgment did not consider that the MCS Act,

1960 has been enacted by the State Legislation under Entry

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32, List II of the Seventh Schedule of the Constitution of India.

The learned Single Judge having considered the importance of

the question involved in the matter directed to place the

matter before Hon'ble the Chief Justice of the High Court for

Reference before the Full Bench. It appears that in the

meantime, some more writ petitions came up before the

Division Bench raising the same question. Hon'ble Chief

Justice of the High Court decided to refer the matters to the

Full Bench. This is how all the petitions were placed before

the Full Bench for deciding the referred questions.

The Full Bench, after hearing the learned counsel for the

parties and having gone through the various provisions of the

Statutes and Entries 43, 44 and 45, List I of Seventh

Schedule of the Constitution of India, answered the reference

as under:-

"For all these reasons, therefore, we hold

that on and from the date on which the

Debts Recovery Tribunal was constituted

under the 1993 Act, the courts and

authorities under the 1960 Act as also

the 2002 Act would cease to have

jurisdiction to entertain the applications

submitted by the Co-operative Banks for

recovery of their dues."

However, the High Court held that the State Legislature

was competent to enact the MCS Act, 1960.

In Civil Appeal No. 36/2006 titled A. P. State Co-

operative Bank Limited v. Samudra Shrimp (P) Ltd. &

Ors., after detailed examination of the various submissions

before it, Full Bench of the Andhra Pradesh High Court in a

batch of writ petitions, writ appeals and civil revision petitions

struck down the constitutional validity of Sections 61 and 71

of the APCS Act, 1964. In the concluding portions, the High

Court culled out as follows:-

"(a) That recovery of monies (whether called a

debt, arrears or by any other name) due to a

banking institution including a Co-operative

Bank is a matter that integrally falls within

the core and substantive area of the

legislative field Banking in Entry-45, List-I

of the Seventh Schedule of the Constitution.

(b) The above subject matter is therefore

excluded from the State legislative field in

Entry-32, List-II of the Seventh Schedule.

(c) Recovery of monies due to a Co-operative

Bank is not a matter that falls within the

incidental and ancillary areas of the State

legislative field in Entry-32, List-II of the

Seventh Schedule.

(d) A Co-operative Bank as defined in Section

5(cci) of the Banking Regulation Act, 1949

(as amended by Act 23 of 1965) is a Bank

and a Banking Company within the

meaning of Section 2(d) & (e) of the Recovery

of Debts due to Banks and Financial

Institutions Act, 1993.

(e) A Tribunal constituted under the provisions

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of the Recovery of Debts due to Banks and

Financial Institutions Act, 1993 has

exclusive jurisdiction, powers and authority

to entertain and decide applications from a

Co-operative Bank for recovery of debts due

to such bank, subject to the pecuniary

limits of jurisdiction specified by or under

the said Act.

(f) Section 71(1) of the 1964 Act in so far as it

expressly confers power on the Registrar to

issue a certificate for recovery of arrears of

any sum advanced by a financing bank to

its members, is beyond the legislative

competence of the State.

(g) The words "or financing bank" in Section

71(1) of the Andhra Pradesh Co-operative

Societies Act, 1964 expressly result in the

provisions of the Section transgressing the

State's legislative limits. These words being

severable are therefore declared invalid.

(h) The provisions of Section 61 and 71 {after

striking down of the words in Section 71(1)}

are restrictively construed as excluding any

jurisdiction, powers or authority in the

Registrar in respect of recovery of debts or

arrears due to a Co-operative Bank, its

members or others which are advanced lent

or otherwise made over to such member or

person, during the course of the banking

business of such Co-operative Bank

(i) (a)No claim, application or other proceedings

lodged or instituted before the Registrar,

by a Co-operative Bank for recovery of the

amount/debt due from a member or

other person pursuant to advances made

in the course of its banking business

could be entertained or determined by the

Registrar

(b) Any award or order passed, certificate

issued or an order in execution

proceedings, by the Registrar on any

claim or application of a Co-operative

Bank, is patently and inherently without

jurisdiction, null, void and inoperative.

(j) During the pendency of these writ petitions,

by virtue of various court orders certain

amounts have been deposited by some of

the writ petitioners. At no point of time

these writ petitioners have disputed the

liability or the amount already deposited

with the banks in pursuance of the orders of

the Court. Therefore, we direct that the

amounts deposed shall be retained by the

concerned banks and adjusted against the

liabilities, if any, that remain to be

determined pursuant to proceedings

initiated by the respective banks in

accordance with this judgment.

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(k) In view of the declaration in this judgment,

the respondent-banks are at liberty to

proceed with the recovery of debts due to

them, before the appropriate forum and

under the appropriate law, in accordance

with this judgment.

(l) As the proceedings initiated before the

Registrar or any other authority under the

1964 Act were bona fide and as considerable

time had been consumed in the litigation in

this case also, the respondent-banks shall

be entitled to set off the period spent in

pursuing their claims before the Registrar or

other fora and before this Court, in

computing the period for filing appropriate

applications/claims before the appropriate

authority/Tribunal."

The Full Bench of the Andhra Pradesh High Court

declared Sections 61 and 71 of the APCS Act, 1964 invalid

being beyond legislative competence of the State and also in

clear and direct conflict with the provisions of 'the RDB Act'.

In interpreting the provisions of the two enactments, the

Bench has employed the 'Doctrine of Reading Down'.

We have carefully perused the judgments of the Full

Benches of the High Courts of Bombay and Andhra Pradesh

impugned before this Court by the aggrieved parties. Before

proceeding further to consider the legal question referred to

the larger Bench, the provisions of the various Statutes

relevant for our purpose may be first noticed.

THE MAHARASHTRA CO-OPERATIVE SOCIETIES ACT, 1960

[the MCS ACT, 1960]

The MCS Act, 1960 was promulgated and came into force

on 26th day of January, 1962 relating to co-operative societies

with a view to providing for the systematic development of the

co-operative movement in the State of Maharashtra in

accordance with the Directive Principles of State Policy

enunciated in the Constitution of India. The object and the

working of the co-operative banks had become so large that it

was found necessary to extract more important provisions of

the Banking Regulation Act, 1949 ['the BR Act'] and allied

provisions of the Reserve Bank of India Act, 1934 ['the RBI

Act'] to the co-operative banks in public interest.

Section 2 (10) of the MCS Act, 1960 defines "co-operative

bank" to mean a society which is doing the business of

banking as defined in clause (b) of sub-section (1) of Section 5

of the Banking Companies Act, 1949 and includes any society

which is functioning or is to function as a Co-operative

Agriculture and Rural Multi-purpose Development Bank under

Chapter XI. In Section 2(6) of the MCS Act, 1960 - "Central

Bank" means a co-operative bank, the objects of which include

the creation of funds to be loaned to other societies; but does

not include the urban co-operative bank. Section 91 of the

MCS Act, 1960 in Chapter IX deals with settlement of any

dispute touching the constitution, conduct of general

meetings, management or business of a society etc. to the Co-

operative Court. Section 101 provides for recovery of arrears

due to certain societies as arrears of land revenue in

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pursuance of the certificate granted by the Registrar. Under

Section 18A of the Act, the Registrar is competent to

amalgamate one or more co-operative banks in public interest

or in order to secure their proper management.

Section 36 under Chapter IV makes every registered

society as a corporate body having perpetual succession and

common seal which acts through a Committee for

management with rest of its authority being in General Body

of members in meetings as provided in Sections 55, 72 and 73.

Section 43 provides that a society shall receive deposits and

loans from members and other persons, only to such extent,

and under such conditions, as may be prescribed or specified

by bye-laws of the society. Section 44 regulates the loan

making policy of a society. This Section provides that the

society shall not make a loan to any person other than a

member, or on the security of its own shares, or on the

security of any person who is not a member. It empowers the

Government to prohibit, restrict or regulate the lending of

money by any society or class of societies on the security of

any property. Section 50 under Chapter V provides for direct

subscription by the State Government to the share capital of a

society with limited liability upon such terms and conditions

as may be agreed upon. Section 64 provides that no part of

the funds other than the net profits of a society shall be paid

by way of bonus or dividend, or otherwise distributed among

its members. Chapter VII deals with Management of Societies.

Section 72 provides that the final authority of every society

shall, subject to the provisions of this Act and the Rules vests

in the general body of members in general meeting. Section

73 empowers Committee to manage the society. Chapter VIII

deals with Audit, Inquiry, Inspection and Supervision of the

societies. Section 81 provides that the Registrar shall audit, or

cause to be audited at least once in each co-operative year, by

a person authorized by him by general or special order in

writing in this behalf the account of every society which has

been given financial assistance including guarantee by the

State Government. Section 83 empowers the Registrar to

conduct an inquiry into the constitution, working and

financial conditions of a society. Chapter IX deals with

Settlement of Disputes. A dispute touching the constitution,

elections of the Committee or its officers other than election of

committees of the specified societies including its officer,

conduct of general meetings, management or business of a

society is covered under sub-section (1) of Section 91 of the

MCS Act, 1960. The settlement of disputes including the

recovery of loan by a society from its members or sureties lies

with the Co-operative Court. The Civil Court has no

jurisdiction to try and entertain the suit in regard to the

dispute which fall both in the purview of sub-section (1) of

Section 91 of the Act. Section 92 regulates the period of

limitation for different types of disputes mentioned in it and

the disputes of the nature as provided in Section 91 has to be

tried as a suit by the Co-operative Court as a Civil Court.

Section 94 lays down the procedure for settlement of disputes

and power of Co-operative Court. The Co-operative Court or

the Registrar or the authorized person, as the case may be, if

satisfied on inquiry or otherwise that a party to such dispute

or the person against whom proceedings are pending under

Section 88, with intent to defeat, delay or obstruct the

execution of any award or the carrying out of any order that

may be made is empowered to direct additional attachment of

the property under Section 95. Any party aggrieved by any

decision of the Co-operative Court or order passed by the Co-

operative Court or the Registrar or the authorized person

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under Section 95 is at liberty to file appeal before the Co-

operative Appellate Court under Section 97. Section 98

provides that orders mentioned therein if not carried out on a

certificate signed by the Registrar or the Co-operative Court or

a liquidator shall be executed in the same manner as a decree

of civil court and shall be executed in the same manner as a

decree of such court or be executed according to law and

under the Rules for the time being in force for the recovery of

arrears of land revenue. An application for such a recovery to

be made to the Collector shall be accompanied by a certificate

signed by the Registrar and shall be made within twelve years

from the date fixed in the order and if no such date is fixed

from the date of the order. Recovery Certificate is issued by

the Registrar under sub-section (1) of Section 101 of the MCS

Act, 1960 and the mode for recovery of the amount is under

Section 156 of the Act. Chapter X deals with liquidation of the

societies. Section 102 empowers the Registrar to issue an

interim order of winding up of the society. An appeal against

the winding up of the society shall be made by the aggrieved

party to the State Government under Section 104. Section

105 lays down the powers of the liquidator. Cognizance by the

Civil Court of any matter connected with the winding up or

dissolution of a society under this Act is barred under Section

107.

THE ANDHRA PRADESH CO-OPERATIVE SOCIETIES ACT,

1964 [THE APCS ACT, 1964]

The Andhra Pradesh State Co-operative Bank Limited

was formed by the amalgamation of the previous Andhra

Pradesh State Co-operative Bank Limited, Vijayawada No.

2120 and Hyderabad Co-operative Apex Bank Limited,

Hyderabad, under the Andhra Pradesh Co-operative Bank

(Formation) Act, 1963 and by the merger of the Andhra

Pradesh Central Agricultural Development Bank Limited,

Hyderabad, under Act 14 of 1994 and was deemed to be

registered as a Co-operative Society under the Andhra Pradesh

Co-operative Societies Act of 1964 [ the APCS Act, 1964].

The APCS Act, 1964 was enacted with Statement of

Objects and Reasons to consolidate and amend the law

relating to Co-operative Societies in the State of Andhra

Pradesh in order to facilitate and strengthen the functioning of

Co-operative Societies based on Co-operative principles and

Co-operative identity. Section 2 deals with definitions clause.

Clause (f) defines 'financing bank' to mean 'a society, the main

object of which is to assist any affiliated or other society by

giving loans or advancing moneys; and includes any scheduled

bank as defined in the RBI Act and such other body corporate

or financial institution as may be notified by the Government

from time to time, which gives financial or other aid to a

society'. Chapter II of the Act deals with Registration of

Societies. A society which has, its main object, the promotion

of the economic interests of its members in accordance with

the Co-operative principles....., the registration of a society

shall render it a body corporate by the name under which it is

registered having perpetual succession and a common seal in

terms of Section 9. In Chapter III, Section 19 prescribes the

eligibility for membership of the Society. Under Chapter IV,

the Management of Societies ultimately shall vest in the

General Body, whereas Section 30-A empowers the General

Body of every society to constitute a supervisory council to

ensure that the affairs of the society are conducted in

accordance with the principles of Co-operation, provisions of

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the Act, Rules, bye-laws and resolutions of the General Body.

The General Body of a society is also empowered to constitute

a Committee in accordance with the bye-laws and entrust the

management of the affairs of the society to such Committee

(Section 31 of the Act). Powers and functions of the

Committee are provided under Section 31-A. Chapter V deals

with the Rights and Privileges of the Societies. Under Section

35, the society has preferential charge upon the crop or other

agricultural produce, cattle fodder for cattle, agricultural or

industrial implements etc. owned by a member including a

past or deceased member who is in default of payment of any

debt or other amount due to a society. Such charge shall be

available even as against any amount recoverable by the

Government as if it were an arrear of land revenue. Section 47

empowers a society to receive deposits and raise loans only to

such extent and under such conditions as may be specified in

the bye-laws. Sub-section (2) prohibits the society from

granting a loan to any person other than a member, but if

general or special sanction is obtained from the Registrar, the

society may grant loans to another society or its employees on

such terms as may be specified in the bye-laws. Chapter VII

deals with Audit, Inquiry, Inspection and Surcharge. Section

50 lays down that there shall be a separate wing for audit in

the Co-operative Department headed by the Chief Auditor who

will work under the general superintendence and control of

the Registrar of Co-operative Societies. The Chief Auditor

shall audit or cause to be audited by a person authorized by

him by a general or special order in this behalf, the accounts

of a society at least once in every year and shall issue or cause

to be issued an audit certificate. The Registrar is also

authorized under Section 51 to hold an inquiry into the

constitution, working and financial condition of the society,

either suo motu or on the application of the society to which

the society concerned is affiliated. Under Section 52, the

Registrar may, on his own motion or on the application of a

creditor of a society, inspect or direct any person authorized

by him by a general or special order in this behalf to inspect

the books of the society. Accounts and Books etc. of the

societies are to be maintained and kept by the Chief Executive

Officer of every society and the President of the society jointly

and severally.

Chapter VIII of the APCS Act, 1964 deals with Settlement

of Disputes touching the constitution, management or the

business of a society, other than a dispute regarding

disciplinary action taken by the society or its committee

against a paid employee of the society. Explanation to Section

61 prescribes the nature of the dispute for the purposes of

sub-section (1) to include a claim by a society for any debt or

other amount due to it from a member, past member, the

nominee, heir or legal representative of a deceased member,

whether such debt or other amount be admitted or not and a

claim by surety against the principal debtor where the society

has recovered from the surety any amount in respect of any

debt or other amount due to it from the principal debtor as a

result of the default of the principal debtor whether such debt

or other amount due to be admitted or not. All such disputes,

which are enumerated under Section 61 of the Act, shall be

referred to the Registrar for decision. The Registrar is

empowered to decide the dispute himself or transfer it for

disposal to any person who has been invested by the

Government with powers in that behalf or refer it for disposal

to an arbitrator under Section 62 of the Act. Section 63

empowers the financing bank to proceed against members of a

society for recovery of moneys due to it from such society.

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Under Section 64 contained in Chapter IX, if the Registrar,

after an inquiry held under Section 51 or an inspection made

under Section 52 or on receipt of an application made by not

less than two-thirds of the members, is of the opinion that the

society ought to be wound up, he may after giving the society

an opportunity of making its representation, by order direct it

to be wound up. Where the order of winding up is made under

Section 64, the Registrar may appoint a Liquidator for that

purpose under Section 65. Chapter X deals with Execution of

Decisions, Decrees and Orders. The Registrar or any person

authorized by him in this behalf is authorized to recover

certain amount due under a decision or an order of the

Registrar, or any person authorized by him, or an arbitrator by

attachment and sale of property and execution of the orders.

The recovery of any amount may be executed by the Civil

Court having local jurisdiction on a certificate signed by the

Registrar or any person authorized by him in this behalf as if

the order or decision were a decree of that Court; or by the

Collector, on an application made to him within twelve years

from the date fixed for payment in the order or decision and if

no such date fixed from the date of the order or decision, along

with a certificate signed by the Registrar or by any person

authorized by him in this behalf, as if the amount due under

the order or decision were an arrear of land revenue. Section

71 provides for recovery of debts. It reads: "(1)

Notwithstanding anything in this Act or in any other law for

the time being in force and without prejudice to any other

mode of recovery which is being taken or may be taken, the

Registrar may, on the application made by a society or

financing bank or federal society as the case may be, for the

recovery of arrears of any sum advanced to any of its members

and on furnishing a statement of accounts in respect of the

arrears and after making such inquiry as he deems fit issue a

certificate for the recovery of the amount stated therein to be

due as arrears." If a society has failed to take action under

sub-section (1) in respect of any amount due as arrears, the

Registrar, after satisfying himself, may on his own motion

issue a certificate for the recovery of the amount stated therein

to be due as arrears and such a certificate shall be deemed to

have been issued on an application made by the society

concerned [sub-section (2)]. A certificate issued by the

Registrar under sub-section (1) or sub-section (2) shall be final

and conclusive proof of the arrears stated to be due therein

and the certificate shall be executed in the manner specified in

sub-section (2) of Section 70. The Registrar or any person

authorized by him in this behalf shall be deemed, when

exercising any power under this Act for the recovery of any

amount by the attachment and sale or by sale without

attachment of any property, or when passing any orders on

any application made to him for such recovery, or to take

steps in aid of such property to be a Civil Court for the

purpose of Article 182 of the First Schedule to the Indian

Limitation Act, 1908 in terms of Section 72. Under Section

73, the Registrar is also empowered to make attachment of

property before decision or order unless adequate security is

furnished by a person, who is found to be defaulter of the loan

of the society to direct the attachment of the said property

before decision or the order.

Chapter XI deals with Appeal, Revision and Review.

Under Section 75, the Government, for the purpose of this Act,

is competent to constitute as many tribunals as may be

necessary for such area or areas as may be specified in the

Notification. The Tribunal shall consist of a Chairman and not

more than two other members to be appointed by the

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Government. The Chairman shall be a person who is or has

been a judicial officer not below the rank of a District Judge

and a member shall be a person, who holds or has held a post

not below the rank of Additional Registrar of Co-operative

Societies. Any person or society aggrieved by any decision

passed or order made by the Registrar or any other person

authorized under the various provisions of the Act enumerated

in Section 76 is free to file an appeal to the Tribunal. The

Registrar under Section 77 is empowered to exercise the

powers of revision either on his own motion or an application

made to him by the aggrieved party.

THE MULTI-STATE CO-OPERATIVE SOCIETIES ACT,

2002 ['THE MSCS ACT, 2002']

The Multi-State Co-operative Societies Act, 1984 was

enacted by the Parliament and Section 74 thereof deals with

various disputes including recovery of debts due to the co-

operative banks. Parliament repealed the Multi-State Co-

operative Societies Act, 1984 by the Multi-State Co-operative

Societies Act, 2002 [''the MSCS Act, 2002'').

The object of the MSCS Act, 2002 was to consolidate and

amend the law relating to co-operative societies, with objects

not confined to one State and serving the interests of members

in more than one State, to facilitate the voluntary formation

and democratic functioning of co-operatives as people's

institutions based on self-help and mutual aid and to enable

them to promote their economic and social betterment and to

provide functional autonomy and for matters connected

therewith or incidental thereto.

In Section 3(f) of the MSCS Act, 2002, a 'co-operative

bank' means a multi-State co-operative society, which

undertakes 'banking business'. Section 3(h) defines a 'co-

operative society' to mean 'a society registered or deemed to be

registered under any law relating to co-operative societies for

the time being in force in any State'. In terms of Section 3(p),

a 'multi-State co-operative society' means 'a society registered

or deemed to be registered under this Act and includes a

national co-operative society and a federal co-operative'.

Chapter IV of the Act deals with members of multi-State co-

operative societies and their duties, rights and liabilities.

Settlement of disputes touching the constitution, management

or business of a multi-State co-operative society are to be

referred to an arbitration under Section 84 of Chapter IX of the

Act. The order or decision recorded by the Authority under

Section 39 or Section 40 or Section 83 or Section 99 or Section

101 can be executed in the manner provided in Chapter XI of

the Act. Section 99 and Section 101 under Chapter XII

provide for appeals to the Appellate Authority and review of its

orders. Section 22 of the MSCS Act, 2002 provides for

conversion of a Co-operative Society into a Multi-State Co-

operative Society by an amendment in its bye-laws with the

approval of the Central Registrar who shall consult the

Registrars of co-operative societies of the State concerned.

The Act provides for its own machinery for registering multi-

State societies and for federal co-operatives thereunder as also

the rights of the members, directors and managements and

other matters like privileges, properties and funds and matters

connected therewith as well as machinery for settlement of

disputes and winding up thereof as set out in about 38

Sections of the said Act beginning from Chapter VII to Chapter

XIV.

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THE RESERVE BANK OF INDIA ACT, 1934 [the RBI ACT]

In Section 2 (i) of the RBI Act, "co-operative bank", "co-

operative credit society", "director", "primary agricultural

credit society", "primary co-operative bank" and "primary

credit society" shall have the meanings respectively assigned

to them in Part V of the Banking Regulation Act, 1949.

Chapter III-A of RBI Act deals with Collection and

Furnishing of Credit Information. In Section 45A (a) "banking

company" means a banking company as defined in Section 5

of the Banking Regulation Act, 1949 (10 of 1949) and includes

the State Bank of India, [any subsidiary bank as defined in the

State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959),

any corresponding new bank constituted by section 3 of the

Banking Companies (Acquisition and Transfer of

Undertakings) Act, 1970 (5 of 1970), and any other financial

institution notified by the Central Government in this behalf]".

THE BANKING REGULATION ACT, 1949 (the BR ACT):

This Act was brought into force on 16th March 1949. Section 3

of the BR Act clearly provides that the Act would apply to Co-

operative Societies in certain cases, subject to the provisions

of Part V of the Act. The BR Act defines "banking company"

under Section 5 (c) as follows:-

(c) "banking company" means any

company which transacts the business

[in India]."

In Section 5(d) "company" means any company as

defined in section 3 of the Companies Act, 1956 (1 of 1956);

and includes a foreign company within the meaning of section

591 of that Act.

Chapter V of the BR Act was inserted by Act 23 of 1965

w.e.f. 1.3.1966. Section 56 of the Act provides that the

provisions of this Act, as in force for the time being, shall

apply to, or in relation to, banking companies subject to the

following modifications namely :-

"Throughout this Act, unless the context otherwise

requires:--

(i) references to a "banking company" or "the

company" or "such company" shall be construed as

references to a co-operative bank;

(ii) ..............................................................................."

The purpose and object of modifications were to regulate

the functioning of the co-operative banks in the matter of their

business in banking. The provisions of Section 56 itself starts

with the usual phrase "unless the context otherwise requires"

is to make the regulatory machinery provided by the BR Act to

apply to co-operative banks also. The object was not to define

a co-operative bank to mean a banking company, in terms of

Section 5 (c) of the BR Act. This is apparent from the fact that

instead of amending the original clause (c) of Section 5

separate clause (cci) was added to cover the 'co-operative bank'

to mean 'a state co-operative bank, a central co-operative

bank and a primary co-operative bank'. In clause (ccv)

'primary co-operative bank' means 'a co-operative society,

other than a primary agricultural credit society. The primary

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object or principal business of the 'Co-operative Bank' should

be the transaction of banking business. The modifications

given in clause (a) of Section 56 are apparently suitable to

make the regulatory machinery provided by the BR Act to

apply to co-operative banks also in the process of bringing the

co-operative banks under the discipline of Reserve Bank of

India and other authorities. A co-operative bank shall be

construed as a banking company in terms of Section 56 of the

Act. This is because the various provisions for regulating the

banking companies were to be made applicable to co-operative

banks also. Accordingly, Section 56 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). On a plain reading of every clause of Section 56 of the BR

Act, it becomes clear that what is contained therein is only for

the purpose of application of provisions that regulate banking

companies to co-operative societies. According to the

expression "co-operative societies" used in Section 56 means a

"co-operative society", the primary object or principal business

of which is the transaction of banking business. In other

words, first it is a co-operative society, but carrying on

banking business having the specified paid up share capital.

Other definitions also make it clear that the entities are

basically co-operative societies.

THE SECURITISATION AND RECONSTRUCTION OF

FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY

INTEREST ACT, 2002 [SECURITISATION ACT].

The Parliament had enacted the Securitistion and

Reconstruction of Financial Assets and Enforcement of

Security Interest Act, 2002 ['the Securitisation Act'] which

shall be deemed to have come into force on 21st day of June

2002. In Section 2(d) of the Securitisation Act same meaning

is given to the word 'banking company' as is assigned to it in

clause (e) of Section 5 of the BR Act. Again the definition of

'banking company' was lifted from the BR Act but while

defining 'bank', Parliament gave five meanings to it under

Section 2(c) and one of which is 'banking company'. The

Central Government is authorized by Section 2 (c)(v) of the Act

to specify any other bank for the purpose of the Act. In

exercise of this power, the Central Government by Notification

dated 28.01.2003, has specified "co-operative bank" as defined

in Section 5 (cci) of the BR Act as a "bank" by lifting the

definition of 'co-operative bank' and `primary co-operative

bank' respectively from Section 56 Clauses 5(cci) and (ccv) of

Part V. The Parliament has thus consistently made the

meaning of 'banking company' clear beyond doubt to mean 'a

company engaged in banking, and not a co-operative society

engaged in banking' and in Act No. 23 of 1965, while

amending the BR Act, it did not change the definition in

Section 5 (c) or even in 5(d) to include co-operative banks; on

the other hand, it added a separate definition of 'co-operative

bank' in Section 5 (cci) and 'primary co-operative bank' in

Section 5 (ccv) of Section 56 of Part V of the BR Act.

Parliament while enacting the Securitisation Act created a

residuary power in Section 2(c)(v) to specify any other bank as

a bank for the purpose of that Act and in fact did specify 'co-

operative banks' by Notification dated 28.01.2003. The

context of the interpretation clause plainly excludes the effect

of a reference to banking company being construed as

reference to a co-operative bank for three reasons: firstly,

Section 5 is an interpretation clause; secondly, substitution of

'co-operative bank' for 'banking company' in the definition in

Section 5 (c) would result in an absurdity because then

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Section 5 (c) would read thus: "co-operative bank" means any

company, which transacts the business of banking in India;

thirdly, Section 56 (c) does define "co-operative bank"

separately by expressly deleting/inserting clause (cci) in

Section 5. The Parliament in its wisdom had not altered or

modified the definition of 'banking company' in Section 5 (c) of

the BR Act by Act No.23 of 1965.

As noticed above, "Co-operative bank" was separately

defined by the newly inserted clause (cci) and "primary co-

operative bank" was similarly separately defined by clause

(ccv). The meaning of 'banking company' must, therefore,

necessarily be strictly confined to the words used in Section

5(c) of the BR Act. If the intention of the Parliament was to

define the 'co-operative bank' as 'banking company, it would

have been the easiest way for the Parliament to say that

'banking company' shall mean 'banking company' as defined

in Section 5(c) and shall include 'co-operative bank' and

'primary co-operative bank' as inserted in clauses (cci) and

(ccv) in Section 5 of Act 23 of 1965.

THE RECOVERY OF DEBTS DUE TO BANKS AND

FINANCIAL INSTITUTIONS ACT, 1993 (''the RDB Act'').

The Recovery of Debts Due to Banks and Financial

Institutions Act, 1993['the RDB Act'] was enacted by the

Parliament with the objects and reasons for the recovery of the

debts due to the banks. Before the coming into force of the

RDB Act, the banks were approaching Civil Courts for recovery

of their debts from the defaulters by filing civil suits before the

Civil Courts of competent jurisdiction. After the coming into

force of the RDB Act on the 25th day of June 1993, the

jurisdiction of the Civil Courts was taken away. The decision

to have separate Bank Tribunals was taken by the Central

Government after considering the increasing workload of the

Civil Courts and delay in disposal of the bank suits. The

Statement of Objects and Reasons for the enactment of the

RDB Act are that the banks and financial institutions at

present experience considerable difficulties in recovering loans

and enforcement of securities charged with them. The existing

procedure for recovery of debts due to the banks and financial

institutions has blocked a significant portion of their funds in

unproductive assets, the value of which deteriorates with the

passage of time. The Committee on the financial system

headed by Shri M. Narasimham has considered the setting up

of the Special Tribunals with special powers for adjudication of

such matters and speedy recovery as critical to the successful

implementation of the financial sector reforms. An urgent

need was, therefore, felt to work out a suitable mechanism

through which the dues to the banks and financial institutions

could be realized without delay. In 1981, a Committee under

the Chairmanship of Shri T. Tiwari had examined the legal

and other difficulties faced by banks and financial institutions

and suggested remedial measures including changes in law.

The Tiwari Committee had also suggested setting up of Special

Tribunals for recovery of dues of the banks and financial

institutions by following a summary procedure. The setting

up of Special Tribunals will not only fulfill a long-felt need, but

also will be an important step in the implementation of the

Report of Narasimham Committee. Whereas on 30th

September, 1990 more than fifteen lakhs of cases filed by the

public sector banks and about 304 cases filed by the financial

institutions were pending in various Courts, recovery of debts

involved more than Rs.5622 crores in dues of Public Sector

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Banks and about Rs.391 crores of dues of the financial

institutions. The locking up of such huge amount of public

money in litigation prevents proper utilization and re-cycling of

the funds for the development of the country.

The provisions of the RDB Act, which are relevant, are

referred to in the following paragraphs.

Section 2(d) defines "banks" to mean (i) a banking

company; (ii) a corresponding new bank; (iii) State Bank of

India; (iv) a subsidiary bank; or (v) a Regional Rural Bank. In

terms of clause (e) "banking company" shall have the meaning

assigned to it in clause (c) of Section 5 of the BR Act. Chapter

II of 'the RDB Act' provides for establishment of Tribunal(s)

and Appellate Tribunal(s) and the qualifications of person(s)

for appointment as Presiding Officer of the Tribunal and a

Chairperson of the Appellate Tribunal, their term of office and

other service conditions. Section 17 in Chapter III provides for

Jurisdiction, Powers and Authority of Tribunals. Section 18

bars the jurisdiction of a Civil Court in relation to the matters

specified in Section 17.

Chapter IV prescribes procedure, powers and jurisdiction

of the Tribunals and Appellate Tribunals and application of

the provisions of the Limitation Act, 1963. Chapter V of the

RDB Act emphasizes mode of recovery of debts/loans by the

Tribunal/Recovery Officer.

ENTRIES 43, 44 & 45 OF LIST I AND ENTRY 32 OF LIST II

OF THE SEVENTH SCHEDULE OF THE CONSTITUTION OF

INDIA

The legislative field in constitutional terms has to be

determined in terms of Articles 245 and 246 and Entries 43,

44 and 45 of List I and Entry 32 of List II of Seventh Schedule

of the Constitution of India.

Entry 43 of List I of the Seventh Schedule is as follows:

"43. Incorporation, regulation and

winding up of trading corporations,

including banking, insurance and

financial corporations, but not including

co-operative societies."

Entry 44 is as follows:-

"Incorporation, regulation and winding

up of corporations, whether trading or

not, with objects not confined to one

State, but not including universities."

Entry 45 is as follows:-

"Banking."

Entry 32 of List II is as follows:-

"32. Incorporation, regulation and

winding up of corporations, other than

those specified in List I, and

universities; unincorporated trading,

literacy, scientific, religious and other

societies and associations; co-operative

societies."

In the light of the factual situation and having gone

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through the above-said relevant provisions of different

Statutes and relevant Entries of Lists I and II of the Seventh

Schedule of the Constitution, we have heard the learned

counsel for all the parties and with their assistance we have

gone through the decisions brought before us by them.

Mr. S. Ganesh, learned Senior Advocate appearing on

behalf of the appellant in Civil Appeal Nos.432 to 434 of 2004,

vehemently contended that the High Court of Bombay

completely failed to appreciate the meaning of "banking

company" as defined in Section 5(c) of the BR Act which

clearly and indisputably does not cover or include a 'co-

operative bank' registered under the MCS Act, 1960 or the

MSCS Act, 2002. He submitted that Section 56 of the BR Act

did not amend the definition of 'banking company' in terms of

Section 5 (c), but for all intents and purposes Act No.23 of

1965 merely extends the application of the provisions of the

BR Act to 'a co-operative bank' even though it is not a 'banking

company' as defined in Section 5(c). He contended that the

Parliament in its wisdom did not make the RDB Act applicable

to all banks to which the provisions of the BR Act were made

applicable. It was urged that the reason why co-operative

banks were excluded from the ambit of the operation of 'the

RDB Act by confining the said Act only to a "banking

company" as defined in Section 5(c) of the BR Act was that

under the MCS Act, 1960 Act and the MSCS Act, 2002 co-

operative banks established under the Societies Act had an

effective and speedy machinery for recovery of their dues and,

therefore, it was neither necessary nor beneficial to make the

RDB Act applicable to co-operative banks for the recovery of

dues from their members under the respective State Co-

operative Legislations. He next contended that the co-

operative banks established under the MCS Act, 1960 and the

MSCS Act, 2002 and transacting the business of banking shall

advance loan to their members only as per the provisions

contained in both these Statutes and not to any other person.

Therefore, under these enactments "co-operative banks" can

only recover their dues from their members, whereas the RDB

Act will be applicable to all other banks, which have advanced

loan to any person/society/corporation/industry, etc. etc.

without any stipulation of membership of the Banks.

Mr. Amar Dave, Advocate appearing in IA Nos.10-11 of

2006 in Civil Appeal No.432 of 2004, submitted that as per the

Scheme of the BR Act, the legislative intention is to classify co-

operative banks as completely a separate category and the

same cannot be included in "Banking Company" in terms of

Section 5 (c) of the Act. He contended that it has been well

demonstrated from the Statement of Reasons and Objects

behind the passing of the RDB Act itself, that the same was

enacted merely for expeditious adjudication and recovery of

debts due to Banks and Financial Institutions. The

Committees formed prior to the enactment of the RDB Act also

more or less did not cover the co-operative banks for the

purposes of the recommendations in general for improving the

recovery system. He next contended that the recovery of debts

by the co-operatives from their members are covered by

specific Acts such as the Co-operative Societies Acts of the

States, which are comprehensive and self-contained

legislations. Further submission was that for multi-state co-

operatives, there is a specific enactment in the form of the

MSCS Act, 2002 comprehensively providing the legal

framework in respect to issues pertaining to such co-

operatives. Therefore, co-operative banks are, in any case, not

covered by the provisions of the RDB Act by invoking the

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doctrine of incorporation. He next submitted that the State's

power under List II, Entry 32 of Seventh Schedule of the

Constitution is not subject to or subordinate to the power of

the Union List I, Entry 45.

Dr. Rajeev Dhavan, learned Senior Advocate, appearing

for respondents in Civil Appeal No. 6069/2005 was requested

to assist the Court in those matters which were listed on the

Board on the day when the matters were heard. He contended

that both List I, Entries 43 and 45 as well as List II, Entry 32

of the Seventh Schedule must be given the widest possible

interpretation in their respective spheres. He submitted that

although Article 246 (1) begins with a non-obstante clause,

easy recourse should not be made to the non-obstante clause

without first making an effort of reconciliation between the

Union and the State Entries. In other words, under a federal

set up, the States are not to be readily denuded of powers

which the Constitution makers gave to them as exclusively

reposted in them. He contended that it was really the

intention of the Constitution makers to ensure that the

provision is made for Peoples' co-operatives and the idea of co-

operatives and people are necessarily interlinked associations

and organizations. Learned senior counsel made a reference

to a decision of this Court in Zoroastrian Co-operative

Housing Society Ltd. v. District Registrar, Co-operative

Societies (Urban) [(2005) 5 SCC 632] at Para 15:

"...... The co-operative movement by its very

nature, is a form of voluntary association where

individuals unite for mutual benefit in the

production and distribution of wealth upon

principles of equity, reason and common

good....".

He then contended that on plain reading of definitions of

'bank' [Section 2(d)]; 'banking company' [Section 2(e)], 'debt'

[Section 2(g)] and 'financial institution' [Section 2(h)] of the

RDB Act, it becomes clear that the Act is concerned with debts

of corporate banks and financial institutions which were

constituted under List I, Entry 43 and the concept of 'banking'

under Section 5(b) of the BR Act is very different from the

activity of a 'financing bank' under the APCS Act, 1964.

Mr. K. N. Bhat, learned Senior Advocate appearing on

behalf of the Reserve Bank of India in SLP (C) No.22621 of

2005 contended that the pith and substance of the Co-

operative Societies Acts enacted by various States must be

taken into consideration and not a particular activity of the

society. He next contended that the expression "co-operative

bank" in Section 56(cci) means a 'State Co-operative Bank', a

'Central Co-operative Bank' and definition of 'Primary Co-

operative Bank' in clause (ccv) means a 'co-operative society'

the primary object or principal business of which is the

transaction of banking business and no attempt is made by

the Parliament to amend Section 5(c) of the BR Act to include

'co-operative societies' doing the business of banking within

the meaning of 'banking company' as defined in Section 5 (c) of

the RDB Act.

Mr. Bhim Rao Naik, learned senior counsel appearing on

behalf of the Cosmos Co-operative Bank Ltd. in Civil Appeal

No.436 of 2004, submitted that the definition of 'banking

company' under Section 2(d)(i) of the RDB Act on its plain

reading indicates that it does not refer to co-operative banks,

but to companies incorporated under the Companies Act. He

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contended that Section 56 of the BR Act creates a fiction only

for the purposes of the said Act and cannot be applied to

another Act, viz., the RDB Act in the absence of any indication

to that effect. He next contended that the State Legislature by

virtue of Entry 32, List II of the Seventh Schedule has the

power to make law with respect to co-operative societies

including societies doing banking business. Learned counsel

also contended that the MCS Act, 1960 and the MSCS Act,

2002 both deal with their members and as per regulation of

loan making policy, loan can be given to the members only of

the societies subject to certain exceptions and in any event

under Entry 43, List I, the Parliament cannot legislate on

incorporation of Co-operative Societies since Co-operative

Societies are excluded in Entry 43 of List I of the Seventh

Schedule to the Constitution.

Mr. Vinod A. Bobde, learned senior counsel appearing on

behalf of the State of Andhra Pradesh in SLP (C) Nos. 25246-

25247 of 2005, challenging the judgment and order of the

High Court of Andhra Pradesh, strenuously contended that

Section 56 was inserted in the BR Act to make that Act

applicable with modifications to co-operative banks with the

main object to regulate the functioning of the co-operative

banks in the matter of their business as the banking

companies were regulated (Part II), control over management

(Part IIA) and all other aspects contained in the BR Act. The

modifications given in clause (a) of Section 56 are apparently

for suitably applying the substantive provisions of the Act to

co-operative banks and do not touch that part of the Act which

is in the interpretation clause. He then contended that the

judgment of the High Court is erroneous on the grounds:

firstly, the co-operative societies have been deprived of the

right to engage in the business of banking altogether; second,

the co-operative societies have been deprived of speedy, easily

accessible and inexpensive remedies for recovery of their dues

from members; thirdly, persons depositing monies in co-

operative banks have been deprived of their remedies under

the A. P. (Protection of Interests of Depositors and Financial

Establishments) Act, 1999; and fourthly, while claims over

Rs.10 lakhs by co-operative banks will have to go to the Debt

Recovery Tribunals and claims below that sum will remain

under the APCS Act, 1960 as amended in 1964.

Mr. T. R. Andhyarujina, learned Senior Advocate

appearing on behalf of Andhra Pradesh State Co-operative

Bank Ltd. in Civil Appeal No.36 of 2006, vehemently

contended that Co-operative Societies do a variety of activities

for their members according to co-operative principles of

voluntary and open membership controlled by their members.

The Co-operative Banks are distinguished from banking

companies who do not have to conform to such co-operative

principles and who can give loans to the public. He submitted

that prior to the Banking Laws (Application to Co-operative

Societies) Act, 1965 (Act 23 of 1965), Co-operative Societies

doing banking were not subject to regulation of their business

of banking although deposits and working funds of Co-

operative Banks were very large, but Act 23 of 1965

introduced a new Chapter V to the BR Act and regulated the

banking business of Co-operative Societies as it had regulated

banking by banking companies with necessary modification.

He submitted that recovery of loan by the Co-operative Banks

are ancillary and necessary for the banks and every bank

must have the power to refer disputes for adjudication and

recover loans, etc. as expressly conferred by special provisions

in the State Co-operative Societies Acts and Regulation of Co-

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operative Societies which fell under Entry 32, List II. He also

submitted that Entry 45, List I, is limited to laws which affect

the essential business of a bank qua the bank viz. banking as

defined in Section 2(b) of the BR Act. He then contended that

there was a conscious and deliberate omission to exclude "Co-

operative Bank" in the definition of "Banking Company" in

Section 2(d) of RDB Act, whereas all other five categories of

Banks were included in the said definition and nothing

prevented the framers of the Statute to include "Co-operative

Bank" in the definition clause of the BR Act. It was next

contended that significantly the Co-operative Banks have been

brought in by the Parliament in Section 2(c)(v) of the

Securitization Act by way of a Notification and enabling

provisions and the purpose of Part III of the Securitization Act

is also recovery of banks' dues, but the RDB Act employed no

such device.

Per contra, Mr. S. B. Sanyal, learned senior counsel for

the respondents in Civil Appeal No.6077 of 2005, while

adopting the reasoning of the High Court in the order under

challenge submitted that throughout the BR Act wherein

banking company or company does occur, it would also

include co-operative bank on conjoint reading of Section 2(e) of

the RDB Act and Section 5(c) of the BR Act as amended on or

from 01.03.1966. He submitted that the conclusion is

irresistible that the RDB Act will embrace debts due to co-

operative bank which can only be recovered by the Tribunal

constituted under Section 17 which shall have the sole

jurisdiction under Section 18 and no authority or court is

entitled to exercise any jurisdiction to recover such debt, in

view of Section 34 which envisages that the RDB Act will have

an overriding effect, notwithstanding any other law for the

time being in force. He next contended that Section 6 of the

BR Act applies to all banks doing banking business including

commercial banks and as per command of Section 56(1)(a) of

the said Act, business of banking company will include

business of co-operative banks as the co-operative banks are

also advancing money either on security or without security to

third parties and not restricted to members of societies. He

contended that in the matter of grant of loan etc., co-operative

bank has only one restraint that is to obtain approval from

Reserve Bank of India which is manifest from Section 20(2)(b)

of the BR Act and grant of unsecured loan and advances by

co-operative bank to any other person or on bills of exchange

of commercial transaction is permissible. Learned senior

counsel further submitted that Section 47 of the APCS Act,

1964 is not the machinery through which the debt arising out

of banking transaction can be recovered from one and all.

Similarly, under Section 61 of the APCS Act, 1964 the dispute

which falls within the jurisdiction of Registrar are disputes

between members, past members, employees, legal

representatives of the deceased employees whereas the

disputes between primary co-operative bank qua depositors,

loanees, holder of bills of exchange giving rise to debt is

beyond the scope of Section 61. He submitted that the

transaction of the banking business by co-operative bank is

patent, manifest and direct and it can neither be incidental

nor ancillary as the definition of "primary co-operative bank"

incorporated in Section 56 of the BR Act in no uncertain terms

pronounces its primary object or principal business as

banking business. Learned senior counsel lastly submitted

that the RDB Act enacted by the Parliament is later in point of

time than the APCS Act, 1964, both being special law for

recovery of dues, the law of Parliament will override the law

enacted by the State.

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Mr. J.V. Suryanarayana, learned senior counsel

appearing on behalf of the respondents in Civil Appeal No.916

of 2006, submitted that in Section 56 of the BR Act, several

sub-sections were incorporated by Amending Act No.23 of

1965 whereby the co-operative societies of three categories,

viz., (1) Primary Co-operative Societies; (2) State Co-operative

Societies; and (3) Central Co-operative Societies, which are

doing banking business are defined as 'banking companies'

within the meaning of Section 2(d) of the RDB Act. He

submitted that the appellant-bank (Vasavi Co-operative Urban

Bank Ltd.) is to be construed as a banking company as

mentioned in Section 5(c) of the BR Act by reason of Section

56(a)(i) of Act No.23 of 1965, in the manner and to the extent

the amendments provided, therefore, it was the clear intention

of the Parliament to apply all Banking Laws mutatis mutandis

to Co-operative Societies which have become co-operative

banks by undertaking banking business as defined in Section

5(b) of the BR Act. He next submitted that recovery of debts is

an essential ingredient of banking and the Parliament was

empowered under Entry 45 of List I, relating to banking to

constitute such Tribunals, without any reference to Entry 11A

of the Concurrent List. The enactment itself is clearly

indicative of the desire of Parliament to legislatively control,

under Entry 45 of List I, "Banking" by Co-operative Societies,

as it is the "Dominant Legislation" by virtue of Article 246 (1)

and the State legislation under Entry 32 of List II has to be

construed, accordingly and read down if necessary. He

submitted that the scope of Entry 32 of List II of Seventh

Schedule is to enable the State Legislature to incorporate an

entity known as a co-operative society, but does not enable the

said entity to carry on banking.

Mr. Raju Ramachandran, learned senior counsel

appearing in Civil Appeal No.432 of 2004 for the intervenors

assisted by Dr. P. B. Vijay Kumar, Advocate, submitted that

even if the co-operative bank lends loans only to its members,

it will not alter characteristics of the banking company in the

light of the Amending Act No.23 of 1965. He submitted that

co-operative banks and co-operative companies are covered by

the definition of Section 5 (c) of the BR Act.

Mr. Raghavendra S. Srivatsa, learned counsel appearing

on behalf of the appellant-bank in Civil Appeal No.916 of

2006, submitted that the High Court of Andhra Pradesh has

failed to appreciate the distinction between the definition of

"banking company" under Section 5(c) of the BR Act and

Section 2(c) of the RDB Act. He submitted that the Parliament

had kept the definition of "banking company" under Section

5(c) intact by adding new definition of "co-operative bank" in

clause (cci) and "primary co-operative bank" in clause (ccv) of

the Act No. 23 of 1965.

Mr. T. Raja, learned counsel appearing on behalf of the

petitioners in SLP (C) No.5598 of 2004, submitted that the

RDB Act is a special Statute enacted by the Parliament and

the Co-operative Societies Act is a general Statute in nature.

Therefore, the RDB Act will apply for the recovery of the loans

advanced by the co-operative banks whereas Co-operative

Societies Act shall become inoperative.

Mr. S. Nanda Kumar, Advocate appearing on behalf of

respondent No. 3 in SLP (C) No.5598 of 2004, supported the

contentions advanced by Mr. T. Raja, Advocate.

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Dr. N. M. Ghatate, learned senior counsel appearing on

behalf of respondent Nos.1 to 5 in Civil Appeal No.436 of 2004,

submitted that the subject of banking is covered in Entry 45,

List I of the Seventh Schedule of the Constitution and as the

recovery of debts/dues by the banks is an essential part of

banking business, the Parliament has legislative competence

to legislate on the subjects. He submitted that as soon as the

Parliament legislates under Entry 45, List I and makes a law

relating to recovery of dues by the banks, the provisions

contained in the Co-operative Societies Acts relating to the

subject will cease to operate in relation to the co-operative

banks and the co-operative banks will follow the same

procedure for recovery of the dues as laid down in the RDB

Act. He then submitted that the co-operative bank will have to

be included in the definition of the term "banking" as defined

in Section 2(d) of the RDB Act as Section 5(c) of the BR Act

cannot be read in isolation ignoring Section 56 of the Act. He

submitted that the doctrine of occupied field because of

paramountcy, central legislation will operate over State Law

but to the extent the State Law is inconsistent or in conflict

with the Central Law. In support of this submission, reliance

is placed upon M/s Fatehchand Himmatlal & Ors. v. State

of Maharashtra [(1977) 2 SCC 670 para 56]. He contended

that from the date on which the Debts Recovery Tribunal was

constituted under the RDB Act', the courts and authorities

under the MCS Act, 1960 as also the MSCS Act, 2002 would

cease to have jurisdiction to entertain the applications

submitted by the co-operative banks for recovery of their dues.

He next submitted that pith and substance of co-operative

banks and other banks is the same as their primary function

is taking deposits from public, financial institutions etc. and

recovering the debt with interest. He also submitted that

Entries in the Seventh Schedule should not be read narrowly

but with widest amplitude as they deal with legislative

competence of Parliament and the State Legislatures. To

support this contention, reliance is placed on R. C. Cooper v.

Union of India [(1970) 1 SCC 249 at para 36].

Mr. Shekhar Naphade, learned senior counsel appearing

on behalf of the petitioners in SLP (C) Nos.15621-15622 of

2005 and in Civil Appeal Nos.2819-22 of 2006, contended that

Article 246 (1) of the Constitution of India is the source of the

power vested in the Parliament to enact laws and if the subject

matter of the legislation in its substantive form or even in its

incidental manifestation is covered by List I and if the

Parliament makes a law covering that aspect of the matter

then the law made by the Parliament will override the law

made by the State Legislature which otherwise would have

been valid on the basis of doctrine of pith and substance. He

contended that the RDB Act enacted by the Parliament being

paramount must supersede pro tanto the provisions of the

MCS Act 1960, which was enacted by the State Legislature. In

support of this submission, reliance was placed upon M/s

Hoechst Pharmaceutical Ltd. & Ors. v. State of Bihar &

Ors. [(1983) 4 SCC 45]. He also stated that the co-operative

banks carrying on banking business as defined in Section 5(b)

of the BR Act and the recovery of claims by the banks against

the borrowers and debtors is a matter integrally and

essentially connected with the banking business as the

subject matter of banking or the legislative field of banking is

covered by Entry 45, List I of the Seventh Schedule of the

Constitution of India and, therefore, it is open to the

Parliament to establish courts and tribunals or any other

machinery for recovery of banks' claims. He submitted that

the ambit and scope of Entry 32, List II is only relating to the

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incorporation, the management of the affairs of the co-

operative society, the powers of the Managing Committee, the

powers of General Body, the control of the Registrar or the

State Government over the affairs of the society, admission of

members, expulsion of members and disputes amongst

members etc. but the banking sector whether in public sector

or in private sector or in co-operative sector is one unified

banking industry. He next submitted that the banking

regulation laws contained either in the BR Act or in the RBI

Act or other provisions will cover the whole spectrum of

banking sector and it is, therefore, in the fitness of things that

even for the recovery of the claims of the banks against the

borrowers there should be one unified machinery and unified

set of procedure and the same is to be found in the RDB Act.

In the last, the learned counsel supported the judgments and

orders of the High Court of Bombay and the High Court of

Andhra Pradesh holding that as the co-operative banks are

transacting banking business, they are covered by the

definition of "banking company" under Section 5(c) of the BR

Act, therefore, the Tribunal constituted under Section 3 of the

RDB Act has jurisdiction and power under Section 17 to

decide claims of all banks including the co-operative banks.

Mr. U. U. Lalit, learned Senior Advocate appearing on

behalf of the respondent in Civil Appeal No.38 of 2006,

contended that it is the exclusive domain of Union of India

under Entry 45 List I of Seventh Schedule of the Constitution

to enact laws in regard to banking. Co-operative banks

transacting the banking business are, therefore, covered by

the RDB Act in terms of the meaning of "banking company"

under Section 2(d) of the Act.

In the light of the contentions of the learned counsel for

the parties appearing before us and on an analysis of the

various provisions of the relevant Statutes, two questions arise

for our consideration which are:-

INTERPRETATION CLAUSE:

[a] Whether the RDB Act applies to debts due to co-

operative banks constituted under the MCS Act,

1960; the MSCS Act, 2002 and the APCS Act, 1964?

CONSTITUTIONAL CLAUSE:

[b] Whether the State Legislature is competent to enact

legislation in respect of co-operative societies

incidentally transacting business of banking in the

light of Entry 32, List II of Seventh Schedule of the

Constitution?

QUESTION NO. 1

The dues of co-operatives and recovery proceedings in

connection therewith are covered by specific Acts, such as the

MCS Act, 1960 and the APCS Act, 1964, which are

comprehensive and self-contained legislations. Similarly, for

Multi-State Co-operatives there is a specific enactment in the

form of the MSCS Act, 2002 comprehensively providing the

legal framework in respect to issues pertaining to such co-

operatives. Therefore, when there is an admittedly existing

legal framework specifically dealing with issues pertaining to

co-operatives and especially when the co-operative banks are,

in any case, not covered by the provisions of the RDB Act

specifically, there is no justification of covering the co-

operative banks under the provisions of the RDB Act

by invoking the Doctrine of Incorporation.

In Surana Steels Pvt. Ltd. etc. v. Deputy

Commissioner of Income Tax & Ors. etc. [(1999) 4 SCC

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306], this Court examined an incorporation by reference and

concluded that the part of the incorporated Act from which a

provision is taken can be looked at only to ascertain the

meaning of the incorporated provision, but the other

provisions cannot be deemed to be incorporated when they are

not actually incorporated.

The distinction between peoples' co-operative banks

serving their members and corporate banks doing commercial

transactions is fundamental to the constitutional dispensation

and understanding co-operative banking generally and in the

context of cooperative banking not coming under the ambit of

the BR Act. Thus, even if the co-operatives are involved in the

activity of banking which involves lending and borrowing, this

is purely incidental to their main co-operative activity which is

a function in public domain.

The RDB Act was passed in 1993 when Parliament had

before it the provisions of the BR Act as amended by Act No.

23 of 1965 by addition of some more clauses in Section 56 of

the Act. The Parliament was fully aware that the provisions of

the BR Act apply to co-operative societies as they apply to

banking companies. The Parliament was also aware that the

definition of 'banking company' in Section 5 (c) had not been

altered by Act No. 23 of 1965 and it was kept intact, and in

fact additional definitions were added by Section 56(c). "Co-

operative bank" was separately defined by the newly inserted

clause (cci) and "primary co-operative bank" was similarly

separately defined by clause (ccv). The Parliament was simply

assigning a meaning to words; it was not incorporating or even

referring to the substantive provisions of the BR Act. The

meaning of 'banking company' must, therefore, necessarily be

strictly confined to the words used in Section 5(c) of the BR

Act. It would have been the easiest thing for Parliament to say

that 'banking company' shall mean 'banking company' as

defined in Section 5 (c) and shall include 'co-operative bank' as

defined in Section 5 (cci) and 'primary co-operative bank' as

defined in Section 5 (ccv). However, the Parliament did not do

so. There was thus a conscious exclusion and deliberate

commission of co-operative banks from the purview of the

RDB Act. The reason for excluding co-operative banks seems

to be that co-operative banks have comprehensive, self-

contained and less expensive remedies available to them

under the State Co-operative Societies Acts of the States

concerned, while other banks and financial institutions did

not have such speedy remedies and they had to file suits in

civil courts.

The RDB Act was, therefore, designed to deal with other

banks and financial institutions which had to have recourse to

the time-consuming process of the Civil Courts. The

Statement of Objects and Reasons, stated hereinabove refers

to more than 15 lakh cases filed by public sector banks and

about 304 cases filed by the financial institutions pending in

various courts. The Statement of Objects and Reasons also

refers to the Tiwari Committee which had expressly

commented on delays in 'civil courts' and the Narsimhan

Committee which recommended setting up of Special

Tribunals.

Accordingly, the burden of the Civil Courts in the matter

of suits by banks and financial institutions was shifted to the

Debt Recovery Tribunals. The disputes between co-operative

banks and their members were being taken care of by the

State Co-operative Acts and they were to remain where they

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were. If co-operative disputes are also to go to the Debt

Recovery Tribunals, then those Tribunals will be over-

burdened and the whole object of speedy recovery of debts due

to banks and financial institutions would be defeated. The

Co-operative Societies Acts on the one hand and RDB Act on

the other cannot be regarded as supplemental to each other

viz., the provisions of the said Acts cannot be said to be pari-

materia.

This Court in Virendra Pal Singh v. District Assistant

Registrar [(1980) 4 SCC 109] directly deals with the question

of the legislative competence relating to a co-operative society

doing banking business. This decision in clear terms has laid

down in para 10 as under:-

"10. We do not think it necessary to refer

to the abundance of authority on the

question as to how to determine whether

a legislation falls under an entry in one

list or another entry in another list. Long

ago in Prafulla Kumar Mukherjee and

Ors. v. Bank of Commerce Ltd., the Privy

Council was confronted with the question

whether the Bengal Money-Landers Act

fell within entry 27 in List II of the

Seventh Schedule to the Government of

India Act, 1935, which was 'money

landing', in respect of which the

Provincial Legislature was competent to

legislate, or whether it fell within entries

28 and 38 in the List I which were

'promissory notes' and 'banking' which

were within the competence of the

Central Legislature. The argument was

that the Bengal Money Lenders Act was

beyond the competence of the provincial

Legislature insofar as it dealt with

promissory notes and the business of

banking. The Privy Council upheld the

vires of the whole of the Act because it

dealt in pith and substance, with money-

lending. They observed :

Subjects must still overlap, and

where they do the question must be

asked what in pith and substance in the

effect of the enactment of which

complaint is made, and in what list is its

true nature and character to be found. If

these questions could not be asked, such

beneficent legislation would be stifled at

birth, and many of the subjects entrusted

to provincial legislation could never

effectively be dealt with.

Examining the provisions of the U.P. Co-

operative Societies Act in the light of the

observations of the Privy Council we do

not have the slightest doubt that in pith

and substance the Act deals with

"Cooperative Societies". That it trenches

upon banking incidentally does not take

it beyond the competence of the State

Legislature. It is obvious that for the

proper financing and effective functioning

of Cooperative Societies there must also

be Cooperative Societies which do

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banking business to facilitate the working

of other Cooperative Societies, Merely

because they do banking business such

Cooperative Societies do not cease to be

Cooperative Societies, when otherwise

they are registered under the Cooperative

Societies Act and are subject to the

duties, liabilities and control of the

provisions of the Cooperative Societies

Act. We do not think that the question

deserves any more consideration and, we,

therefore, hold that the U.P. Cooperative

Societies Act was within the competence

of the State Legislature. This was also

the view taken in Nagpur District Central

Cooperative Bank Ltd. v. Divisional Joint

Registrar, Cooperative Societies, AIR 1971

SC 365 and Sant Sadhu Singh v. the State

of Punjab, AIR 1970 PLH 528."

Section 31 of the RDB Act clearly refers to transfer of

'every suit or other proceeding pending before any court'. The

word 'court', in the context of the RDB Act, signifies 'civil

court'. It is clear that the Registrar, or an officer designated by

him or an arbitrator under Sections 61, 62, 70 and 71 of the

APCS Act, 1964 and under Section 91 and other provisions of

Chapter IX of the MCS Act, 1960 are not 'civil courts'.

In Harinagar Sugar Mills v. Shyam [1962 (2) SCR

339], this Court held: "By 'courts' is meant courts of civil

judicature and by 'tribunals' those bodies of men who are

appointed to decide controversies arising under certain special

laws. Among the power of the State is the power to decide

such controversies. This is undoubtedly one of the attributes

of the State, and is aptly called the judicial power of the State".

In Ram Rao & Anr. v. Narayan & Anr. [AIR 1969 SC

724], it was held that the nominee of Registrar appointed

under Section 95 of the Maharashtra Co-operative Societies

Act, 1961 is not a 'Court' within the meaning of Section 195,

Cr.P.C..

In Kihoto Hollohan v. Zachillhu & Ors. [(1992)

Supp.(2) SCC 651 para 98], it was held that all tribunals are

not courts, though all courts are tribunals. The word 'courts'

is used to designate those tribunals which are set up in an

organised State for the Administration of Justice...".

In Supreme Court Legal Aid Committee representing

undertrial prisoners v. Union of India [(1994) 6 SCC 731

para 14], it was held: "it is common knowledge that a 'court' is

an agency created by the sovereign for the purpose of

administrating justice. It is a place where justice is judicially

administered. It is a legal entity".

The decision cited by the respondents in Thakur Jugal

Kishore v. Sitamarhilt [1967 (3) SCR 163] does not refer to

the earlier Constitution Bench decisions in ACC v. P. N.

Sharma and Harinagar Sugar Mills v. Shyam (supra). At

best, the Assistant Registrar could have been held to be a

'tribunal' but not a 'court'.

In a later decision in the case of Rama Rao & Anr. v.

Narayan & Anr. [(1969) 1 SCC 167], a two-Judge Bench has

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taken a contrary view and held that under the MCS Act, 1960,

the nominee of the Registrar for deciding a dispute under

Section 91 (which is equivalent to Section 61 of the A. P. Act of

1964) is not a 'court'. Obviously, laws relating to co-operative

societies are special laws and the disputes entrusted to

Registrars are special disputes in respect of which the

jurisdiction of civil courts is ousted.

As already pointed out, the RDB Act is consistent with

the general banks and their creditors/loanees while the MCS

Act, 1960; the APCS Act, 1964 and the MSCS Act, 2002 are

concerned with the regulation of societies only. The language

of the Sections in these enactments defining 'banking

company' is plain, clear and explicit. It does not admit any

doubtful interpretation as the intention of the legislature is

clear as afore-said. It is well-settled that the language of the

Statutes is to be properly understood. The usual presumption

is that the Legislature does not waste its words and it does not

commit a mistake. It is presumed to know the law, judicial

decisions and general principles of law. The elementary rule of

interpretation of the Statute is that the words used in the

Section must be given their plain grammatical meaning.

Therefore, we cannot afford to add any words to read

something into the Section, which the Legislature had not

intended.

Finally, it could not be said that Amendments in Chapter

V, Section 56 of the RDB Act by Act No. 23 of 1965 inserting

"co-operative bank" in Clause (cci) and "primary co-operative

bank" in Clause (ccv) either expressly or by necessary

intentment apply to the co-operative banks transacting

business of banking.

QUESTION NO. 2

The constitutional validity of an Act can be challenged

only on two grounds, viz. (i) lack of legislative competence; and

(ii) violation of any of the Fundamental Rights guaranteed in

Part III of the Constitution or of any other constitutional

provision. In State of A. P. & Ors. v. McDowell & Co. &

Ors. [(1996) 3 SCC 709], this Court has opined that except the

above two grounds, there is no third ground on the basis of

which the law made by the competent legislature can be

invalidated and that the ground of invalidation must

necessarily fall within the four corners of the afore-mentioned

two grounds.

Power to enact a law is derived by the State Assembly

from List II of the Seventh Schedule of the Constitution. Entry

32 confers upon a State Legislature the power to constitute co-

operative societies. The State of Maharashtra and the State of

Andhra Pradesh both had enacted the MCS Act, 1960 and the

APCS Act, 1964 in exercise of the power vested in them by

Entry 32 of List II of the Seventh Schedule of the Constitution.

Power to enact would include the power to re-enact or validate

any provision of law in the State Legislature, provided the

same falls in an Entry of List II of the Seventh Schedule of the

Constitution with the restriction that such enactment should

not nullify a judgment of the competent court of law. In the

appeals/SLPs/petitions filed against the judgment of the

Andhra Pradesh High Court, the legislative competence of the

State is involved for consideration. Judicial system has an

important role to play in our body politic and has a solemn

obligation to fulfil. In such circumstances, it is imperative

upon the Courts while examining the scope of legislative

action to be conscious to start with the presumption regarding

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the constitutional validity of the legislation. The burden of

proof is upon the shoulders of the incumbent who challenges

it. It is true that it is the duty of the constitutional courts

under our Constitution to declare a law enacted by the

Parliament or the State Legislature as unconstitutional when

Parliament or the State Legislature had assumed to enact a

law which is void, either for want of constitutional power to

enact it or because the constitutional forms or conditions have

not been observed or where the law infringes the Fundamental

Rights enshrined and guaranteed in Part III of the

Constitution.

As observed by this Court in CST v. Radhakrishnan in

considering the validity of a Statute the presumption is always

in favour of constitutionality and the burden is upon the

person who attacks it to show that there has been

transgression of constitutional principles. For sustaining the

constitutionality of an Act, a Court may take into

consideration matters of common knowledge, reports,

preamble, history of the times, objection of the legislation and

all other facts which are relevant. It must always be presumed

that the legislature understands and correctly appreciates the

need of its own people and that discrimination, if any, is based

on adequate grounds and considerations. It is also well-

settled that the courts will be justified in giving a liberal

interpretation in order to avoid constitutional invalidity. A

provision conferring very wide and expansive powers on

authority can be construed in conformity with legislative

intent of exercise of power within constitutional limitations.

Where a Statute is silent or is inarticulate, the Court would

attempt to transmutate the inarticulate and adopt a

construction which would lean towards constitutionality albeit

without departing from the material of which the law is woven.

These principles have given rise to rule of "reading down" the

provisions if it becomes necessary to uphold the validity of the

law.

In State of Bihar & Ors. v. Bihar Distillery Ltd. &

Ors. [(1997) 2 SCC 453], this Court indicated the approach

which the Court should adopt while examining the

validity/constitutionality of a legislation. It would be useful to

remind ourselves of the principles laid down, which read: (SCC

p.466, para 17):

"The approach of the court, while

examining the challenge to the

constitutionality of an enactment, is to

start with the presumption of

constitutionality. The court should try to

sustain its validity to the extent possible.

It should strike down the enactment only

when it is not possible to sustain it. The

court should not approach the enactment

with a view to pick holes or to search for

defects of drafting, much less

inexactitude of language employed.

Indeed, any such defects of drafting

should be ignored out as part of the

attempt to sustain the

validity/constitutionality of the

enactment. After all, an Act made by the

legislature represents the will of the

people and that cannot be lightly

interfered with. The unconstitutionality

must be plainly and clearly established

before an enactment is declared as void.

The same approach holds good while

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ascertaining the intent and purpose of an

enactment or its scope and application."

In the same para, this Court further observed as follows:

"The Court must recognize the

fundamental nature and importance of

legislative process and accord due regard

and deference to it, just as the legislature

and the executive are expected to show

due regard and deference to the judiciary.

It cannot also be forgotten that our

Constitution recognizes and gives effect to

the concept of equality between the three

wings of the State and the concept of

"checks and balances" inherent in such

scheme."

The principles of legislative competence were stated with

precision by the Federal Court in Subramanyan Chettiar v.

Muttuswami Goundan [AIR 1941 FC 47] as follows:-

"It must inevitably happen from time to

time that legislation though purporting to

deal with a subject in one list, touches

also upon a subject in another list, and

the different provisions of the enactment

may be so closely intertwined that blind

adherence to a strictly verbal

interpretation would result in a large

number of statutes being declared invalid

because the Legislature enacting them

may appear to have legislated in a

forbidden sphere. Hence the rule which

has been evolved by the Judicial

Committee, whereby the impugned

statute is examined to ascertain its pith

and substance or its true nature and

character for the purpose of determine

whether it is legislation with respect to

matters in this list or that."

In A. S. Krishna v. State of Madras [1957 SCR 399 at

page 410], this Court applied these principles.

In State of Rajasthan v. Chawala [1959 (Suppl.1) SCR

904 at 909] Hidayatullah J. aptly described the principles of

pith and substance as under:-

"The pith and substance of the impugned

Act is the control of the use of amplifiers

in the interests of health and also

tranquility, and thus falls substantially

(if not wholly) within the powers

conferred to preserve, regulate and

promote them and does not so fall

within the Entry in the Union List, even

though the amplifier, the use of which is

regulated and controlled is an apparatus

for broadcasting or communication. As

Latham, C. J., pointed out in Bank of

New South Wales v. The Commonwealth:

A power to make laws 'with respect to' a

subject matter is a power to make laws

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which in reality and substance are laws

upon the subject-matter. It is not

enough that a law should refer to the

subject-matter or apply to the subject-

matter: for example, income tax laws

apply to clergymen and to hotel-keepers

as members of the public; but no

one would describe an income-tax

law as being, for that reason, a law

with respect to clergymen or hotel-

keepers. Building regulations apply to

buildings erected for or by banks; but

such regulations could not properly

be described as laws with respect to

banks or banking."

[Emphasis supplied)

Entry 43 List of I speaks of banking, insurance and

financial corporations etc. but expressly excludes co-operative

societies from its ambit. The constitutional intendment seems

to be that the co-operative movement was to be left to the

States to promote and legislate upon and the banking

activities of co-operative societies were also not to be touched

unless Parliament considered it imperative. The BR Act deals

with the regulation of the banking business. There is no

provision whatsoever relating to proceedings for recovery by

any bank of its dues. Recovery was initially governed by the

Code of Civil Procedure by way of civil suits and after the RDB

Act came into force, the recovery of the dues of the banks and

financial institutions was by filing applications to the Tribunal.

The Tribunal has been established with the sole object to

provide speedy remedy for recovery of debts of the banks and

financial institutions since there has been considerable

difficulties experienced therefore from normal remedy of Civil

Court.

In R. C. Cooper, etc. v. Union of India [(1970) 1 SCC

248], this Court observed that power to legislate for setting up

corporations to carry on banking and other business and to

acquire, hold and dispose of property and to provide for

administration of the corporations is conferred upon the

Parliament by Entries 43, 44 and 45 of the Constitution.

Therefore, the express exclusion of co-operative societies in

Entry 43 of List I and the express inclusion of co-operative

societies in Entry 32 of List II separately and apart from but

along with corporations other than those specified in List I and

universities, clearly indicated that the constitutional scheme

was designed to treat co-operative societies as institutions

distinct from corporations. Co-operative Societies,

incorporation, regulation and winding up are State subjects in

the ambit of Entry 32 of List II of Seventh Schedule to the

Constitution of India. Co-operatives form a specie of genus

'corporation' and as such co-operative societies with objects

not confined to one State read in with the Union as provided

in Entry 44 of List I of the Seventh Schedule of the

Constitution, MSCS Act, 2002 governs such multi-state co-

operatives.

Hence, the co-operative banks performing functions for

the public with a limited commercial function as opposed to

corporate banks cannot be covered by Entry 45 of List I

dealing with "banking". The subject of co-operative societies is

not included in the Union List rather it covers under Entry 32

of List II of Seventh Schedule appended to the Constitution.

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We have gone through the decision of this Court in The

Life Insurance Corporation of India v. D. J. Bahadur &

Ors. [AIR 1980 SC 2181] cited at bar. This Court held that the

Industrial Disputes Act, 1947 is a special Statute devoted

wholly to investigation and settlement of industrial disputes.

Therefore, with reference to industrial disputes between

employers and workmen, the Industrial Disputes Act is a

special Statute and the Life Insurance Corporation Act (31 of

1956) does not speak at all with specific reference to workmen.

The industrial disputes between workmen and the employer as

such are beyond the orbit of and have no specific or special

place in the scheme of the Life Insurance Corporation Act.

In ITC Ltd. v. Agricultural Produce Market Committee

& Ors. [(2002) 9 SCC 232], this Court, as per majority

opinion, held that the legislative power of Parliament in certain

areas is paramount under the Constitution is not in dispute.

What is in dispute is the limits of those areas as judicially

defined. Broadly speaking Parliamentary paramountcy is

provided for under Articles 246 and 254 of the Constitution.

The first three clauses of Article 246 of the Constitution relate

to the demarcation of legislative powers between the

Parliament and the State Legislatures. Under clause (1),

notwithstanding anything contained in clauses (2) and (3),

Parliament has been given the exclusive power to make laws

with respect to any of the matters enumerated in List I or the

Union List in the Seventh Schedule. Clause (2) empowers the

Parliament and State Legislatures subject to the power of

Parliament under sub-clause (1), to make laws with respect to

any of the matters enumerated in List III in the Seventh

Schedule described in the Constitution as the 'Concurrent

List' notwithstanding anything contained in sub-clause (3).

Under clause (3) the State Legislatures have been given

exclusive powers to make laws in respect of matters

enumerated in List II in the Seventh Schedule described as the

'State List' but subject to clauses (1) and (2). The three lists

while enumerating in detail the legislative subjects carefully

distribute the areas of legislative authority between Parliament

(List I) and the State (List II). The supremacy of Parliament has

been provided for by the non-obstante clause in Article 246 (1)

and the words 'subject to' in Art.246 (2) and (3). Therefore,

under Article 246 (1) if any of the Entries in the three Lists

overlap, the Entry in List I will prevail. Additionally, some of

the Entries in the State List have been made expressly subject

to the power of Parliament to legislate either under List I or

under List III. Entries in the Lists of the Seventh Schedule

have been liberally interpreted, nevertheless Courts have been

wary of upsetting this balance by a process of interpretation so

as to deprive any Entry of its content and reduce it to 'useless

lumber'. The use of the word 'exclusive' in Clause (3) denotes

that within the legislative fields contained in List II, the State

Legislatures exercise authority as plenary and ample as

Parliament.

In Associated Timber Industries & Ors. v. Central

Bank of India & Anr. [(2000) 7 SCC 93], this Court observed:

"Banking" being included in Union List in Entry 45 List I of

Seventh Schedule cannot come within the purview of Assam

Money Lenders Act, while "money-lending and money-lenders;

relief of agricultural indebtedness" under the Assam Money

Lenders Act 1934 comes under Entry 30 of List II \026 State List

of the Seventh Schedule.

In State of Maharashtra v. Laljit Rajshi Shah & Ors.

[(2000) 2 SCC 699], the question before this Court was

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whether a person defined as "officer" under Section 2(20) of

the MCS Act, 1960 was a "public servant" within the meaning

of Section 2 of the Prevention of Corruption Act, 1947 by

virtue of the provisions of Section 161 of the MCS Act, 1960

read with Section 21 IPC and as such, could be proceeded

against for offences under Section 5(1) read with Section 5(2)

of the Prevention of Corruption Act, 1947. On analysis of the

various provisions of the statutes and Articles 245, 246, 254(2)

and Schedule Seven List II Entry 32 and List III Entry I, this

Court held in para 6 as under:-

"................ The Maharashtra Co-

operative Societies Act 1960 has been

enacted by the State Legislature and their

powers to make such legislation is

derived from Entry 32 of List II of the

Seventh Schedule to the Constitution.

The legislature no doubt in Section 161

has referred to the provisions of Section

21 of the Indian Penal Code but such

reference would not make the officers

concerned 'public servants' within the

ambit of Section 21. The State Legislature

had the powers to amend Section 21 of

the Indian Penal Code, the same being

referable to a legislation under Entry 1 of

List III of the Seventh Schedule, subject

to Article 254(2) of the Constitution as,

otherwise, inclusion of the persons who

are 'public servants' under Section 161 of

the Co-operative Societies Act would be

repugnant to the definition of 'public

servant' under Section 21 of the Indian

Penal Code. That not having been done, it

is difficult to accept the contention of the

learned Counsel, appearing for the State

that by virtue of deeming definition in

Section 161 of the Co-operative Societies

Act by reference to Section 21 of the

Indian Penal Code, the persons

concerned could be prosecuted for the

offences under the Indian Penal Code.

The Indian Penal Code and the

Maharashtra Co-operative Societies Act

are not Statutes in pari materia. The Co-

operative Societies Act is a completely

self-contained Statute with its own

provisions and has created specific

offences quite different from the offences

in the Indian Penal Code. Both Statutes

have different objects and created

offences with separate ingredients. They

cannot thus be taken to be Statutes in

pari materia, so as to form one system.

This being the position, even though the

Legislatures had incorporated the

provisions of Section 21 of the Indian

Penal Code into the Co-operative

Societies Act, in order to define a 'public

servant' but those 'public servants'

cannot be prosecuted for having

committed the offence under the Indian

Penal Code. It is a well-known principle of

construction that in interpreting a

provision creating a legal fiction, the

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Court is to ascertain for what purpose the

fiction is created, and after ascertaining

this, the Court is to assume all those

facts and consequences which are

incidental or inevitable corollaries to

giving effect to the fiction. But in so

construing the fiction, it is not to be

extended beyond the purpose for which it

is created, or beyond the language of the

Section by which it is created. A legal

fiction in terms enacted for the purposes

of one Act is normally restricted to that

Act and cannot be extended to cover

another Act. When the State Legislatures

make the Registrar, a person exercising

the power of the Registrar, a person

authorised to audit the accounts of a

society under Section 81 or a person to

hold an inquiry under Section 83 or to

make an inspection under Section 84 and

a person appointed as an Administrator

under Section 78 or as a Liquidator

under Section 103 shall be deemed to be

'public servants' within the meaning of

Section 21 of the Indian Penal Code.

Obviously, they would not otherwise

come within the ambit of Section 21, the

legislative intent is clear that a specific

category of officers while exercising

powers under specific sections have by

legal fiction become 'public servant' and it

Is only for the purposes of the Co-

operative Societies Act. That by itself does

not make those persons 'public servants'

under the Indian Penal Code, so as to be

prosecuted for having committed the

offence under the Penal Code. When a

person is "deemed to be" something, the

only meaning possible is that whereas he

is not in reality that something, the Act of

legislature requires him to be treated as if

obviously for the purposes of the said Act

and not otherwise."

The case reported in Union of India v. Delhi High Court

Bar Association [(2002) 4 SCC 275] relied upon on behalf of

the respondents in support of the judgments and orders of the

High Court of Bombay and High Court of Andhra Pradesh,

does not consider the issue of co-operative banks' adjudication

and recovery provisions under Entry 32 of List II. The Court

was only considering Entry 45 List I vis-a-vis Entry IIA List III

'administration of justice'. As such, the decision of this case is

of no assistance or of help to the proposition of law involved in

the present cases.

None of the contentions of the learned counsel for the

respondents supporting the judgments and orders of the High

Courts impugned before this Court on the question of

interpretation clause as well as the question of constitutional

clause formulated hereinabove can be sustained.

For the reasons stated above and adopting pervasive and

meaningful interpretation of the provisions of the relevant

Statutes and Entries 43, 44 and 45 of List I and Entry 32 of

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List II of the Seventh Schedule of the Constitution, we answer

the Reference as under:-

"Co-operative banks" established under the Maharashtra

Co-operative Societies Act, 1960 [MCS Act, 1960]; the Andhra

Pradesh Co-operative Societies Act, 1964 [APCS Act, 1964];

and the Multi-State Co-operative Societies Act, 2002 [MSCS

Act, 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 [BR Act].

Therefore, the provisions of the Recovery of Debts Due to

Banks and Financial Institutions Act, 1993 [RDB Act] by

invoking the Doctrine of Incorporation are not applicable to the

recovery of dues by the co-operatives from their members.

The field of co-operative societies cannot be said to have

been covered by the Central Legislation by reference to Entry

45, List I of the Seventh Schedule of the Constitution. Co-

operative Banks constituted under the Co-operative Societies

Acts enacted by the respective States would be covered by co-

operative societies by Entry 32 of List II of Seventh Schedule of

the Constitution of India.

The Registry of this Court shall place these matters

before Hon'ble the Chief Justice of India for constitution of an

appropriate Bench for early disposal of these cases.