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CASE NO.:

Appeal (civil) 439 of 1997

Appeal (civil) 8478 of 2003

PETITIONER:

The Apex Co-operative Bank of Urban

Bank of Maharashtra and Goa Ltd.

RESPONDENT:

The Maharashtra State Co-operative

Bank Ltd. & Others

Maharashtra State Co-operative

Bank Ltd. & Anr.

Vs.

State of Maharashtra & Ors.

DATE OF JUDGMENT: 29/10/2003

BENCH:

S. N. VARIAVA & H. K. SEMA

JUDGMENT:

J U D G M E N T

Arising out of S.L.P. (C) No. 4877 of 1997)

S. N. Variava, J.

Leave granted.

Both these Appeals are being disposed of by this common

Judgment as they arise out of the Judgment of the Bombay High Court

dated 19th December, 1996. In this judgment the parties are being

referred to in their capacity in Civil Appeal No. 439 of 1997.

Briefly stated the facts are as follows:

On 28th of August, 1993, the Appellants appear to have made an

application to the Reserve Bank of India (hereinafter referred to as

RBI) for a license to start an Apex Bank for Maharashtra and Goa. The

RBI by its letter dated 25th April, 1994 inter alia stated as follows:

"2. As you are aware, the proposed bank requires to

be got registered under the Multi State Co-operative

Societies Act, 1984 since its area of operation

extends beyond the boundaries of a State and as

such it would not be a co-operative Bank as defined

in the Banking Regulation Act, 1949 (as applicable to

Co-operative Societies), at present. Hence an

amendment to the Banking Regulation Act, 1949 is

considered necessary. The Government of India has

already been apprised of the amendments needed in

the context of establishment of National Co-operative

Bank of India (NCBI) registered under the Multi-State

Co-operative Societies Act, 1984 and other similar

banks.

3. In view of the foregoing, you may please

approach the Reserve Bank only after the needed

legislative amendments are carried out by

government of India to bring the NCBI as also other

Banks similar to those proposed by you within the

definition of Co-operative bank's under the Banking

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Regulation Act, 1949 (as applicable to Co-operative

Societies)."

The Appellants then got themselves registered as a Multi State

Co-operative Society under the Multi State Co-operative Societies Act

1984 (hereinafter referred to as the Multi State Act) on 10th October,

1994. After the Appellants got themselves registered they accepted

some entrance fees and some shares subscription from members.

This was the only activity carried on by the Appellants. By a

Notification dated 30th December, 1995, issued by the State of

Maharashtra the Appellants were declared as a State Co-operative

Bank within the meaning of Section 2(u) of the National Bank for

Agriculture and Rural Development Act, 1981 (hereinafter referred to

as the NABARD Act). Thereafter, two directions/orders dated 25th

January, 1996 and 14th May, 1996 were issued by the Commissioner

for Co-operation and Registrar of Co-operative Societies, Maharashtra

State advising/directing deploying of funds by all Urban Co-operative

Banks to the Appellants. These directions were issued under Section

70 of the Maharashtra Co-operative Societies Act, 1960 (hereinafter

referred to as the MCS Act). On 22nd March, 1996 the RBI gave a

banking license to the Appellants under Section 22(1) read with 56(o)

of the Banking Regulation Act, 1949. This was for the States of

Maharashtra and Goa.

The 1st Respondent filed a Writ Petition challenging the

Notification dated 30th December, 1995; two directions/orders dated

25th January, 1996 and 14th May, 1996 and the grant of License by

the RBI on 22nd March, 1996. By the impugned Judgment the Writ

Petition has been partly allowed inasmuch as the Notification dated

30th December, 1995, as well as Orders/directions dated 25th January,

1996 and 14th May, 1996, are quashed and set aside. The RBI was

directed to review its decision of granting License to the Appellants in

the light of the fact that the Notification dated 30th December, 1995

had been quashed. In the impugned Judgment it is clarified that till

RBI takes a fresh decision the license granted on 22nd March, 1996

was to remain operative.

Civil Appeal No. 439 of 1997 has been filed by the Appellants

challenging the impugned Judgment. Civil Appeal No.__________of

2003 arising out of SLP (C) No. 4877 of 1997 has been filed by the 1st

Respondent against that portion whereby the license granted by the

RBI has not been quashed.

On 27th January, 1997 this Court passed the following Order:

"There will be ad-interim stay of the operation of

impugned judgment.

We may record that the directions of the High Court

in relation to the Notifications dated 25th January, 1996

and 14th May, 1996 are not questioned before us by the

learned counsel for the petitioners."

Thus, in these Appeals there is now no challenge to quashing of the

directions/orders dated 25th January, 1996 and 14th May, 1996.

The questions which arise for considerations are: (a) whether a

co-operative society registered under the Multi State Act can be

granted a license by the RBI to commence and carry on banking

business, (b) whether a co-operative society registered under the Multi

State Act can be recognized and notified by the State Government as a

State Co-operative Bank and (c) whether a co-operative society

registered under the Multi State Act, which has been recognized and

notified by one State Government as a State Co-operative Bank for

that State, can be granted a License by the RBI to commence and

carry on banking activities in other States in which it has not been

recognized as a State Co-operative Bank.

Question (a): whether a Co-operative Society registered

under the Multi State Act can be granted a License by the RBI

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to commence and carry on banking business.

As set out hereinabove the RBI in its letter dated 25th April, 1994

had taken the stand that a co-operative society registered under the

Multi State Act would not be a co-operative bank as defined in the

Banking Regulation Act. The same stand had been reiterated by the

RBI in its affidavit before the High Court. However, surprisingly in its

submission before this Court a contrary stand has been taken by RBI.

For a consideration of this question the relevant provisions of the

Banking Regulation Act need to be looked at. Section 5(b) and Section

22 of the Banking Regulation Act, 1949 read as follows:

"5. Interpretation: In this Act, unless there is anything

repugnant in the subject or context, -

(a) xxxxxx

(b) "banking" means the accepting for the purpose of

lending or investment, of deposits of money from the

public, repayable on demand or otherwise, and

withdrawal by cheque, draft, order or otherwise;

(c) xxxx

(cci) "co-operative bank" means a state co-operative

bank, a central co-operative bank and a primary co-

operative bank;

(ccvii) "central co-operative bank", "co-operative society",

'primary rural credit society' and "state co-operative bank"

shall have the meanings respectively assigned to them in

the National Bank for Agriculture and Rural Development

Act, 1981;"

"22. Licensing of co-operative banks :-

(1) Save as hereinafter provided, no co-operative

society shall carry on banking business in India

unless -

(a) it is a primary credit society, or

(b) it is co-operative bank and holds a License

issued in that behalf by the Reserve Bank,

subject to such conditions, if any, as the

Reserve Bank may deem fit to impose :

Provided that nothing in this sub-section shall apply to

a co-operative society, not being a primary credit

society or a co-operative bank carrying on banking

business at the commencement of the Banking Laws

(Application to Co-operative Societies) Act, 1965, for a

period of one year from such commencement.

(2) Every co-operative society carrying on business

as co-operative bank at the commencement of

the Banking Laws (Application to Co-operative

Societies) Act, 1965, shall before the expiry of

three months from such commencement, every

co-operative bank which comes into existence as

a result of the division of any other co-operative

society carrying on business as a co-operative

bank or the amalgamation of two or more co-

operative societies carrying on banking business

shall, before the expiry of three months from its

so coming into existence, every primary credit

society which becomes a primary co-operative

bank after such commencement shall before the

expiry of three months from the date on which it

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so becomes a primary co-operative bank and

every co-operative society other than a primary

credit society shall before commencing banking

business in India, apply in writing to the Reserve

Bank for a License under this section :

Provided that nothing in clause (b) of sub-section (1)

shall be deemed to prohibit -

(i) a co-operative society carrying on

business as a co-operative bank at the

commencement of the Banking Laws

(Application to Co-operative Societies)

Act, 1965; or

(ii) a co-operative bank which has come

into existence as a result of the division

of any other co-operative society

carrying on business as a co-operative

bank, or the amalgamation of two or

more co-operative societies carrying on

banking business at the commencement

of the Banking Laws (Application to Co-

operative Societies) Act, 1965, or at any

time thereafter; or

(iii) a primary credit society which becomes

a primary co-operative bank after such

commencement, from carrying on

banking business until it is granted a

License in pursuance of this section or

is, by a notice in writing notified by the

Reserve Bank that the License cannot be

granted to it.

xxx xxx xxx

xxx xxx xxx

Under Section 22, as it stood prior to the amendment brought

about by the Amendment Act of 68 wherein Section 56 was inserted,

the RBI had right to issue license to companies to carry out banking

business and no company could carry on a banking business unless it

held a license issued by the RBI. After the amendment certain types

of co-operative societies, as were brought within the purview of the

Banking Regulation Act, could be issued a license by the RBI. Section

22 as amended prohibits co-operative societies from carrying on

banking business. The term "co-operative society", as used in Section

22, would include all types of co-operative societies. In other words no

co-operative society can carry on banking business unless it falls

within the permitted categories set out in Section 22. The term "co-

operative bank" has been defined under Section 5(cci) as a state co-

operative bank, a central co-operative bank and a primary co-

operative bank. Thus the term "co-operative bank" does not include

all co-operative societies. It only includes the above mentioned three

types of societies. By virtue of Section 5(ccvii) the term "state co-

operative bank" is to be understood as a state co-operative bank as

defined in the NABARD Act. Thus unless a co-operative society is a

state co-operative bank or a central co-operative bank or a primary

co-operative bank (as defined under the NABARD Act), no license can

be issued by the RBI. In view of these clear provisions it will have to

be held that the stand taken by the RBI in its letter dated 25th April,

1994 was and is the correct stand.

It must be mentioned that the Appellants accept this to be the

correct provision. They only contest 1st Respondent's claim that the

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Appellants could not be declared a state co-operative bank under

Section 2(u) of NABARD Act. In this behalf the relevant portions of the

written submissions given by the learned Attorney General read as

follows:

"10. It is submitted that a perusal of the BR Act and the

NABARD Act would reveal the following scheme:

(i) for the Appellant to carry on banking business,

Reserve Bank of India [hereinafter referred to as

RBI] has to grant a license;

(ii) In order to get an RBI license, according to BR

Act, the Appellant has to be a co-operative bank

i.e. in this case a State Co-operative Bank;

(iii) For the Appellant to be a State Co-operative

Bank, it has to be notified as such under Section

2(u) of the NABARD Act;"

Written submissions on behalf of the Appellants given by Mr.

Andhyarujina also need to be noted. The relevant portion reads as

follows:

"According to the scheme of the BR Act, for the grant of a

license to the Appellant, it has to first come within the

meaning of a "cooperative bank" i.e. either a state

cooperative bank, central cooperative bank or a primary

cooperative bank. It is only after a notification under

section 2(u) of NABARD is issued the cooperative society

becomes a cooperative bank within the meaning of section

5(cci) of the BR Act as amended by section 56(c) of the BR

Act and thus became eligible to for license from the RBI

under section 22 of the BR Act read with section 56(o) of

the BR Act. Thus a notification under section 2(u) in these

circumstances necessarily precedes the grant of a license

by the RBI."

We hold that this is the correct position.

On behalf of the RBI it is however submitted that RBI is

competent to license a co-operative bank under the Multi State Act.

It is submitted that Section 2 of the Banking Regulation Act, 1949

lays down that, "the provisions of this Act shall be in addition to and

not, save as hereinafter expressly provided, in derogation of, any

other law for the time being in force". It is submitted that the phrase

"any other law for the time being in force," would cover subsequent

legislation. In support of this reliance is placed on the case of Sir

Dinshaw Manekji Petit vs. G B Badkas reported in AIR 1969 Bombay

151 (paragraph 8). It is submitted that Section 2(b) of the Multi

State Act lays down that the Act shall apply to all multi state co-

operative societies and Section 3(e) defines co-operative bank to

mean a multi state co-operative society which undertakes banking

business. It is submitted that Section 3(g) defines co-operative

society, and Section 3(k) defines multi-state co-operative society to

mean a society registered or deemed to be registered under that Act.

It is submitted that the word "undertakes" means making an attempt.

In support of this reliance is placed on : (a) Words and Phrases

Permanent Edition Volume 43 page 198 and 206; (b) The Law Lexicon

by P Ramanatha Aiyar, page 1931; and (c) Black's Law Dictionary,

page 1526. It is pointed out that Section 110 of the Multi State Act

repeals the Multi Unit Co-operative Societies Act, 1942. On this basis

it is submitted that multi state co-operative society which is a co-

operative bank under the Multi State Act is subject to the licencing

power of the RBI.

It is further submitted that this position becomes clear when

one notes that Section 15 of the Multi State Act provides that the RBI

can require the central registrar to order moratorium, amalgamation

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and reorganization of a co-operative bank under the Multi State Act

and Section 78 of the Multi State Act empowers the RBI to require the

Central Registrar to wind up a co-operative bank if circumstances

mentioned in Section 13D of the Deposit Insurance and Credit

Guarantee Corporation Act, 1961 exist. Reference is also made to

Section 13D of the Deposit Insurance Act which provides for

circumstances in which winding up can be ordered. It is submitted

that a conjoint reading of Section 13D read with 2(gg) of the Deposit

Insurance Act indicates that RBI can exercise power in respect of

matters mentioned therein. It is pointed out that Section 48(7) of the

Multi State Act, empowers, RBI to supersede a co-operative bank. It

is submitted that all the above mentioned provisions show that RBI

has got the power, to regulate the functioning of a co-operative bank,

supersede, order moratorium, amalgamation or winding up, as the

case may be. We are unable to accept this submission. The power to

regulate, supersede, order moratorium, amalgamation or winding are

exercisable only be in respect of a co-operative bank. Such power

cannot be exercised in respect of any co-operative society which is

not a co-operative bank. Far from supporting the case now sought to

be made out, this shows that it is only a co-operative bank which can

be licensed and then controlled by RBI.

It is next submitted that Section 22(1)(b) of the Banking

Regulation Act, lays down that "save as hereinafter provided, no co-

operative society shall carry on banking business in India unless it is a

co-operative bank and holds a license issued in that behalf by the

Reserve Bank subject to such conditions, if any, as the Reserve Bank

may deem fit to impose. It is submitted that sub-section 2 of Section

22 lays down the requirement of obtaining of license by various co-

operative societies. It is submitted that the last category was

relevant. Reliance was placed on the portion which reads as follows:

"â\200¦â\200¦â\200¦ any every co-operative society other than

primary credit society shall before commencing banking

business in India, apply in writing to the RBI for a license

under this Section."

It is submitted that this makes it clear that whereas under sub-section

1 of Section 22 every co-operative society which is a co-operative

bank cannot carry on banking business without a license; under sub-

section 2 of Section 22 every co-operative society other than a

primary credit society has to obtain a license before commencing

banking business in India. It is submitted that a wider meaning should

be given to the word 'co-operative bank' to include other co-operative

banks (including one which is registered under the Multi State Act) so

that no co-operative society (including a co-operative society under

the Multi State Act) can commence banking business without a license.

It is submitted that this would be in consonance with the principle of

purposive interpretation and harmonious construction of statutes. It is

submitted that although Section 5(cci) defines a co-operative bank to

mean a state co-operative bank, a central co-operative bank and a

primary co-operative bank in view of the scheme of the Multi State Act

read with Section 22(1) & (2) of the BR Act, the phrase 'co-operative

bank' has to be construed in a broad sense especially in view of the

fact that Section 5 starts with the following words "in this Act, unless

there is anything repugnant in this subject or context". It is submitted

that in the object and context of contemporaneous legislation viz. Multi

State Act, 1984, the term "co-operative bank" must be held to include

a bank registered under the Multi State Act. It is submitted that if

the RBI did not have such power, the consequence would be, that a

Co-operative Bank under the Multi State Act would not require a

license for conducting banking business. It is submitted that such an

interpretation should be eschewed. It is submitted that a purposive

interpretation of Banking Regulatgion Act and Multi State Act must be

given. It is submitted that a contrary interpretation would render, the

Multi State Act, so far as it relates to Co-operative Banks redundant.

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We are unable to accept these submissions also. The portion

extracted above does not detract from what is provided in Section

22(1). Under Section 22(1) a primary credit society can carry on

banking business. However if a co-operative society is not a primary

credit society then to carry on banking business it must be a co-

operative bank and hold a license issued by the RBI. The above

extracted portion of Section 22(2) merely exphasis that a co-operative

society, other than a primary credit society, has to apply to the RBI for

license before it can commence banking business. However, this does

not mean that RBI can give to any or all co-operative societies, a

banking license. RBI can only give a license as provided in Section

22(1) i.e. to a co-operative bank. The term "Co-operative Bank" has

been defined in the Banking Regulation Act and only includes a state

co-operative bank or a central co-operative bank or a primary co-

operative bank. Reference to the term "co-operative bank" in the

Multi State Act is of no assistance. When a term is specifically defined

in a statute then for purposes of that statute that term cannot bear a

meaning assigned to it in another statute. One cannot ignore the

specific definition given in the Banking Regulation Act and apply some

other definition set out in some other statute. Thus, so far as the

Banking Regulation Act is concerned the term "co-operative bank"

must have the meaning assigned to it in Section 5(cci). RBI cannot go

by any other meaning given to the term "co-operative bank" for

purposes of licencing under the Banking Regulation Act. The RBI has

to go by the meaning given to this term in the Banking Regulation Act.

In view of the above, we hold that the RBI by virtue of its power

under Section 22 cannot grant a license to any co-operative bank

unless it is a state co-operative bank or a central co-operative bank or

a primary co-operative bank. It would be necessary that a

declaration under the NABARD Act be first obtained.

Question (b) - Whether a Co-operative Society registered

under the Multi State Act can be recognized and notified by the

State Government as a State Co-operative Bank

To answer this question, apart from the provisions of the

NABARD Act, one would also need to look at the various laws relating

to Co-operative Societies.

The earliest Act pertaining to co-operative appears to be the Co-

operative Credit Societies Act, 1904. However, that appears to be not

relevant for our purposes and it has not been shown to us by any

party.

In order to give societies a corporate existence, without resort

to the Companies Act, the Co-operative Societies Act, 1912 was

enacted. This Act did not define a co-operative society. It however

provided that State Governments would appoint, for the State, a

Registrar of Co-operative Societies. Sections 4 & 6 provide as

follows:

"4. Societies which may be registered - Subject to the

provisions contained, a society which has its object the

promotion of the economic interests of its members in

accordance with co-operative principles, or a society

established with the object of facilitating the operation of

such a society, may be registered under this Act or

without limited liability :

Provided that unless the [State Government] by

general or special order otherwise directs-

(1) the liability of a society of which a member is a

registered society shall be limited;

(2) the liability of a society of which the object is the

creation of funds to be lent to its members, and of

which the majority of the members are

agriculturists, and of which no member is a

registered society, shall be unlimited."

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"6. Conditions of registration - (1) No society, other

than a society of which a member is a registered society,

shall be registered under this Act which does not consist

of at least ten persons above the age of eighteen years

and where the object of the society is the creation of

funds to be lent to its members, unless such persons -

(a) reside in the same town or village or in the

same group of villages; or

(b) save where the Registrar otherwise directs,

are members of the same tribe, caste or

occupation.

(3) The word "limited" shall be the last word in the

name of every society with limited liability

registered under this Act."

Thus the Act was essentially dealing with Societies whose members

were residing in the same town or village or group or village or whose

members were from the same tribe, class, caste or occupation. The

object of the Society had to be promotion of interests of its members.

This shows that the Co-operative Societies Act, 1912 was enacted for

local societies.

Apart from the Co-operative Societies Act, 1912 different

provinces had enacted their own laws governing co-operative societies

in that province. It was however found that some societies operated

in more than one State, even though they were registered in only one

State. Thus the Multi-Unit Co-operative Societies Act, 1942 was

enacted. This Act applied to "all co-operative societies with objects

not confined to one province incorporated, before the commencement

of the Act, under the Co-operative Societies Act, or under any law

relating to Co-operative Societies Act, in force in any province." To be

noted that on this date, apart from the Co-operative Societies Act,

1912, there was no other law relating to Co-operative Societies which

was in force in the whole of India. All other enactments were local

laws relating to Co-operative Societies in the provinces.

Section 2 of the Multi-Unit Act provided as follows:

"2(1) A co-operative society to which this Act applies which

has been registered in any province under the law relating

to co-operative societies in force in that province shall be

deemed in any other province to which its objects extend

to be duly registered in that other province under the law

there in force relating to co-operative societies but shall,

save as provided in sub-sections (2) and (3), be subject

for all the purposes of registration, control and dissolution

to the law relating to co-operative societies in force for the

time being in the province in which it is actually registered.

(2) Where any such co-operative society has

established before the commencement of this Act or

establishes after the commencement of this Act a branch

or place of business in a province other than that in which

it is actually registered, it shall, within six months from the

commencement of this Act or the date of establishment of

the branch or place of business, as the case may be,

furnish to the Registrar of Co-operative Societies of the

province in which such branch or place of business is

situated a copy of its registered by-laws, and shall at any

time it is required to do so by the said Registrar submit

any returns and supply any information which the said

Registrar might require to be submitted or supplied to him

by a co-operative society actually registered in that

province.

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(3) The Registrar of Co-operative Societies of the

province in which a branch or place of business such as is

referred to in sub-section (2) is situated may exercise in

respect of that branch or place of business any powers of

audit and of inspection which he might exercise in respect

of a co-operative society actually registered in the

province."

Thus now Co-operative Societies whose objects were not

confined to one province were deemed to be registered also in the

other province. However, for purposes of registration, control and

dissolution, they continued to be subject to the "law relating to co-

operative societies in force for the time being in the province in which

it was actually registered. Thus the term "under any Act relating to

co-operative societies in force in any province" clearly applied to the

local laws relating to co-operative societies in force in a province i.e.

local law prevailing in that province.

Another aspect which must be noticed is that in the Constitution

of India, the subject pertaining to Co-operative Societies is in the

State list i.e. Entry 32 of List II of Schedule VII. The Union list has

Entry 44 of List I of Schedule VII which deals with Corporations. In

this case we are not concerned with the validity of a Central

Legislation and thus do not deal with that aspect. For purpose of the

Judgment we will take it that a co-operative society with objects not

confined to one State would fall within the term Corporation, and thus

a Central Legislation may be saved. However, from the Constitutional

provisions it is clear that matters pertaining to co-operative societies

are in the State list. Thus many States have enacted laws relating to

co-operative societies. We have not seen other Acts. However, as this

case concerns a society in Maharashtra, the Maharashtra Co-operative

Societies Act was shown to us. Significantly this law does not define a

co-operative society. It did not need to, as a Society registered under

it would be automatically covered. The need to define a co-operative

society arises only in a Central Legislation which does not cover all co-

operative societies and thus needs to indicate to which Society it

applies.

Now let us look at the provisions of NABARD Act. The relevant

portions of the NABARD Act namely Sections 2(f) & 2(u) read as

follows:

"2(f) - "co-operative society" means a society registered,

or deemed to be registered, under the Co-operative

Societies Act, 1912 (2 of 1912), or any other law relating

to co-operative societies for the time being in force in any

State;

2(u) - "state co-operative bank" means the principal co-

operative society in a State, the primary object of which is

the financing of other co-operative societies in the State.

Provided that in addition to such principal society in a

State, or where there is no such principal society in a

State, the State Government may declare any one or more

cooperative societies carrying on business in that State to

be also or to be a State cooperative bank or State

cooperative banks within the meaning of this definition;"

It is to be noted that the NABARD Act is of 1981 whereas the

Multi-State Act is of 1984. Therefore, at the time the NABARD Act was

enacted obviously the legislature could never have intended a society

proposed to be registered under some future Act to be covered

Under the NABARD Act, a co-operative society is a society which

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is registered or deemed to be registered under the Co-operative

Societies Act, 1912 or under any other law relating to co-operative

societies for the time being in force in any State. It must be

remembered that the Multi Unit Act applied to co-operative societies

registered under any Act relating to co-operative societies in force in

any province. As seen above the Multi Unit Act was clearly referring to

Acts in force in the Province. Now instead of the word "province" the

word "State" has been used. Admittedly, the Appellants are not

registered under the Co-operative Societies Act, 1912. The question

thus is whether they could be said to be a society registered under any

other law relating to co-operative societies for the time being in force

in any State. At first blush it would appear that the term "any other

law relating to co-operative societies for the time being in force in any

State" would include all laws relating to co-operative societies which

are in force in any State. However, in that case, there would be no

need to provide separately in respect of a society registered under the

Co-operative Societies Act, 1912. The Co-operative Societies Act,

1912 is also a law relating to co-operative societies and it is in force in

all States. Also why use the words "in any State". Mere use of the

term "any other law relating to co-operative societies for the time

being in force" would have been sufficient. It appears to us that the

Legislature has provided separately in respect of the Co-operative

Societies Act, 1912 and used the words "in any State" in order to

indicate its intention that the term "any other law relating to co-

operative societies for the time being in force in any State" did not

include all laws relating to co-operative societies. If the intention was

to rope in all societies registered under all laws relating to co-operative

societies in force, then there was no necessity to use the additional

words "in any State" or to separately provide for Co-operative

Societies Act, 1912. As stated above, mere use of the words "any

other law relating to co-operative societies for the time being in force"

would have been sufficient. The legislature was clearly emphasizing

that it is only co-operative societies registered under local or state

laws relating to co-operative societies which would be covered. This

interpretation is supported by the fact that the provision pertaining to

a state co-operative bank provides for a declaration only by the State

Government. If a declaration is by the State Government it must be in

respect of a society which is registered in that State and which can be

regulated by the Registrar of that State. A society which is registered

under an Act, like the Multi State Act, would not be under the

regulation of the Registrar of the State. It was submitted that if the

Legislature intended to restrict the application of NABARD Act to co-

operative societies registered under local laws it would have used the

words "of any State". It was submitted that the fact that the

Legislature has not used the words "of any State" indicates that the

co-operative society could be registered under any law in force in any

State. We are unable to accept this submission. The Legislature could

not have used the words "of any State". That would have meant that

a co-operative society registered under a law in force in State 'A' could

be considered as a co-operative society in States 'B', 'C' or 'D' also.

That was not what the Legislature intended. The words "in any State"

indicate that the co-operative society must be registered under the law

in force in any State in which it wants to operate.

It must be mentioned that it was submitted by Mr. Andhyarujina

that a co-operative society registered under the Co-operative Societies

Act, 1912 can operate in more than one State. It was submitted that

this showed that laws dealing with co-operative societies, which

operate in more than one State, were meant to be covered. We are

unable to accept this submission. As seen above under the provisions

of the Co-operative Societies Act, 1912 the registration could only be

in one State. The Co-operative Societies Act, 1912 dealt with local

societies. As it was found, that even though the registration could

only be in one State, the societies also operated in other States, the

Legislature enacted the Multi-Unit Co-operative Societies Act, 1942

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(hereinafter referred to as the Multi-Unit Act). Under the Multi-unit

Act if a society had objects not confined to one State then such a

society was deemed to be registered even in other States, but for

purposes of registration, control and dissolution it was the State law

where it was first registered which continued to operate. Thus, after

the enactment of the Multi-unit Act it became clear that even though a

society may be deemed registered under the Multi-unit Act, but for

purposes of registration, control and dissolution it continued to be

bound by the law relating to co-operative societies for the time being

in force in the State in which it was first registered. More importantly

after the enactment of the Multi-Unit Act, the Co-operative Societies

Act, 1912 only dealt with co-operative societies confined to one

province. Societies with objects not confined to one province were

deemed registered under the Multi-Unit Act. Thus the use of the

words "Co-operative Societies Act, 1912" in the NABARD Act, also

indicates that the definition is restricted to Societies registered under

the law relating to co-operative societies in the State in which they

want to operate. This is clear because significantly the Legislature

has not provided that Societies registered under the Multi-unit Act

would be included.

The submission that a purposive interpretation should be given

so that the definition takes into consideration even new laws cannot be

accepted. Normally that is how one must interpret. However where

the intention of the Legislature is clearly to restrict the provisions of

the NABARD Act to co-operative societies which were registered either

under the Co-operative Societies Act, 1912 or to societies which were

registered under the State laws relating to co-operative societies, one

cannot by process of interpretation expand the scope.

The fact that the term "any other law relating to co-operative

societies for the time being in force in any State" necessarily means

only a State law is further reinforced by the use of this term in the

Multi State Act. Under the Multi State Co-operative Societies Act,

1984, the relevant provisions i.e. Section 2, 3(e), 3(g) and 3(k) read

as follows:

"2. This Act shall apply to -

(a) all co-operative societies, with objects not confined

to one State, which were incorporated before the

commencement of this Act,

(i) under the Co-operative Societies Act, 1912 (2 of

1912), or

(ii) under any other law relating to co-operative societies

in force in any State or in pursuance of the Multi-unit Co-

operative Societies Act, 1942 (6 of 1942), and the

registration of which has not been cancelled before such

commencement; and

(b) all multi-state co-operative societies.

3(e) "co-operative bank" means a multi-State co-operative

society which undertakes banking business;

3(g) "co-operative society" means 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;

3(k) "Multi-State co-operative society" means a society

registered or deemed to be registered under this Act and

includes a national co-operative society;"

A reading of the provisions of the Multi State Act makes it clear

that the words "under any other law relating to co-operative societies

in force in any State" as used in the Multi State Act, applies to

societies registered under the State laws relating to co-operative

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societies. Mr. Andhyarujina fairly admitted this position. Of course,

the definition as used in 1984 Act cannot be used for the purposes of

interpreting the 1981 Act. The definition in the 1981 Act is being

interpreted on its own provisions but the use of the same term in the

1984 Act with the same meaning reinforces the interpretation given to

the 1981 Act.

Further under the NABARD Act a state co-operative bank has to

be the principal co-operative society in the State, the primary object

of which must be financing other co-operative societies in that State.

The proviso to Section 2(u) cannot and does not derogate from the

main definition. The proviso merely enables the State to declare, in

addition to an existing principal society in the State or where there is

no principal society in the State, any one or more co-operative bank

as the state co-operative banks. However, this does not mean that

the State Government can, at their whim and fancy, declare any co-

operative society to be a "state co-operative bank". Before such a

declaration can be made the State Government must necessarily be

satisfied (a) that it is a principal co-operative society in the State; (b)

that it is carrying on business in the State; and (c) the business must

be of financing other co-operative societies in that State.

At this stage, it must be mentioned that in the impugned

Judgment, the High Court has inter alia held that the term "carrying

on business: necessarily means banking business. On behalf of the

Appellants this finding was assailed and it was submitted that in

order to be declared a "state co-operative bank", within the meaning

Section 2(u) of NABARD Act, a co-operative society does not need to

be carrying on business of "banking" in that State. It was submitted

that "banking business" is a specific type of business as defined in

Section 5 (b) of the Banking Regulation Act, 1949. It was submitted

that this business was different from "other forms of business" in

which Banking Companies [or co-operative banks as per amendment

in Section 56] may engage in and which are specifically stated in

Section 6 of the Banking Regulation Act, 1949. It was submitted that

the banking business, as defined in Section 5(b) of the Banking

Regulation Act cannot be carried on unless the banking company or

the co-operative bank secures a banking license under Section 22 of

the Banking Regulation Act. It was submitted that the well known

distinction between banking business and non-banking business

carried out by banking companies had been noticed by the Supreme

Court in R.C. Cooper Vs. Union of India reported in 1970) SCC 248 at

page 279-280. In this behalf reliance was also placed on the case of

Sajjan Bank Vs. Reserve Bank of India reported in AIR 1961 Madras

Page 14. It was submitted that the High Court was wrong in holding

that the business referred to in Section 2(u) of the NABARD Act is the

business of banking. It was further submitted that wherever

references are made to banking business in statutes, it has been

expressly so stated. In support of this Section 3(e) of the Multi-State

Act which defines "Co-operative Bank" as a Multi- State Co-operative

Society which undertakes "banking business", and Section 80 P

(2)(a)(i) of the Income Tax Act, 1961 which refers to a co-operative

society engaged in carrying on the business of banking were pointed

out. It was submitted that a co-operative society which is engaged in

carrying on business of financing other co-operative societies could

finance itself without "banking business". It was submitted that it

could finance itself from its own resources e.g. from shareholders

equity and/or by borrowings. It was also submitted that the activity

of accepting entrance fee and subscription share from its members

show that the Appellants were carrying on business and that this was

sufficient for the purposes of enabling the State Government to

declare the Appellants as a state co-operative bank.

On behalf of the Respondents, it was submitted that looking to

the nature and purpose of the Act and the fact that the ultimate

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purpose was to accept deposits from other co-operative societies, it

was necessary that the business which is carried on should be

banking business. It was also submitted that in any event the

business must be of financing other Co-operative Societies in the

State. It was submitted that the society must be carrying on business

in presenti. It was submitted that looking to the nature and purpose

of the Act a new society which intended to carry on, in future, the

business of financing other co-operative societies or which had merely

accepted entrance fee and share subscription from its members could

not be declared as a state co-operative bank. It was submitted that

Appellants had not carried on any business and in any event had not

carried on banking business or business of financing other co-

operative societies.

In our view the High Court does not appear to be right in

concluding that the words "carrying on business" must mean carrying

on banking business. If the Legislature had so intended they would

have so specifically provided as they have done in Section 3(e) of the

Multi State Act and Sections 80P(2)(a)(i) of the Income Tax Act,

1961. However, a reading of the provisions make it clear that what is

necessary is that co-operative society must be carrying on the

business of financing other co-operative societies. The proviso has to

be read in the light of the main provision. If read in the light of the

main provision it is clear that even though banking business, as

understood in the strict sense, may not be carried on, yet the

business of financing other co-operative societies in the State must be

carried on.

It was submitted that the activities of accepting entrance fees

and share subscriptions was sufficient to show that the Appellants was

carrying on business. In our view this was not sufficient. What was

required was carrying on business of financing other co-operative

societies.

Faced with this situation it was submitted that the words

"carrying on business" did not mean that business must be actively

carried on. It was submitted that an intention to carry on business

would be sufficient and can be taken into consideration for purposes

of a declaration under Section 2(u) of NABARD Act. In support of this

reliance was placed on the case In Re. Sarflax Ltd. reported in

[(1979) 1 Ch. D. 592 (at pages 598-599)] and the case of Vanguard

Fire and General Insurance Co. Ltd., Madras vs. M/s. Frazer and Ross

and Anr. We are unable to accept the submission that mere intention

to carry on such a business in the future would be sufficient. A plain

reading indicates that the carrying on of the business must be prior to

the State Government declaring a society as a state co-operative

bank otherwise there would be no criteria on the basis of which the

State Government could judge whether the society proposed to be so

declared will or will not perform its task truly and efficiently. The test

for the Government has to be past performance. It is not as if the

State Government can at its whims and fancy declare any society as a

state co-operative bank. The State Government has to look into and

be satisfied that that society has faithfully and efficiently been

carrying on the business of financing other co-operative societies in

that State and that there have been no complaints against that

society. To allow the State Government to declare any society, even

a society which has done no business of financing other co-operative

societies, as a state co-operative bank would be to permit

arbitrariness. The authorities relied upon are of no assistance as

words to the effect "carrying on business" have necessarily to be

construed keeping in mind the purpose with which they are used and

to further the object of the Act. In Sarflax's case the concerned party

had earlier carried on business, but had then closed their business.

The question was whether they were still covered by Section 332 of

the Companies Act, 1948, which reads as follows:-

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"If in the course of the winding up of a company it appears

that any business of the company has been carried on with

intent to defraud creditors of the company or creditors of

any other person or for any fraudulent purpose, the court,

on the application of the official receiver, or the liquidator

or any creditor or contributory of the company, may, if it

thinks proper so to do, declare that any persons who were

knowingly parties to the carrying on of the business in

manner aforesaid shall be personally responsible, without

any limitation of liability, for all or any of the debts or

other liabilities of the company as the court may direct."

It is in this context it was held that the expression "carrying on any

business" in the Section was not synonymous with actively carrying

on trade. Such an interpretation was given to further the

intention of the statute and to cover a party who was trying to wriggle

out the provisions of law. Similarly in Vanguard Fire Insurance

Company's case the question was whether the word "Insurer" in

Section 33 of the Insurance Act, 1938 included a company which had

closed insurance business. This Court held that the word "Insurer"

referred not only to a person who was actually carrying on business

but also to one who has subsequently closed. Thus here also the

party had actually carried on business. These are completely

different situations from one where no business, of the type

envisaged, has been carried on. If no business has been carried on,

then mere intention to carry on in future would not bring it within the

meaning of the term "carrying on business". Also as stated above to

give such an interpretation would be to permit arbitrariness.

In this case prior to the Notification dated 13th December, 1995,

the Appellants had not carried on any business of financing any co-

operative society. All that they had done was accepting entrance fees

and share subscription from members. As stated above this is not

business as contemplated by Section 2(u) of the NABARD Act. On

this ground also it will have to be held that the Notification dated 13th

December, 1995 cannot be sustained.

Faced with this situation Mr. Andhyarujina submitted that, in the

High Court, the Respondent did not challenge the fact that the

Appellant was carrying on business of financing other co-operative

societies, but only focused on its not carrying on "banking business".

He submitted that banking business has a specific meaning as defined

in Section 5 (b) of the Banking Regulation Act, 1949. He submitted

that in the Writ Petition it was ambiguously stated in paragraph 4 as

follows:

"The Petitioners further say that, in any event, under

clause [u] of section 2 of the NABARD Act, the State

Government could not have identified or designated

Respondent no. 5 as a State Co-operative Bank, firstly

because Respondent no. 5 is not registered under the

State Act, secondly, because Respondent no. 5 is

registered under the Central Act, thirdly, because the area

of operation of Respondent no. 5 also extends to the State

of Goa and, fourthly, because Respondent 5 is not carrying

on any business or banking business. Respondent no. 5

has been constituted to carry on banking business.

Respondent no. 5 cannot carry on banking business unless

License is issued by the Reserve Bank of India under the

BR Act 1949. Therefore, the State Government could not

have designated Respondent no. 5 as a State co-operative

bank under clause [u] of section 2 of the NABARD Act.

Therefore, the order of the State Government dated 30-

12-1995 is null and void and is liable to be quashed and

set aside." (emphasis supplied)

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He submitted that there was no specific averment that the

Appellant was not carrying on business of financing other co-operative

societies. He submitted that no arguments were made by the

Respondent before the High Court that the Appellant was not carrying

on business of financing other co-operative societies. He submitted

that the only argument was it was not carrying on banking business.

He pointed out that the argument as noted by the High Court in the

impugned Judgment was as follows:

"Mr. Singhvi submitted that as per the definition of "State

Cooperative bank" given in the said section 2(u), such a

bank could only be the principal cooperative society in a

state, the primary object of which would be the financing

of other co-operative societies in the state, and that by the

proviso it is in effect provided that the State government

may declare a cooperative society in addition to such

principal society but such additional society must be

carrying on banking business and that too in the State i.e.

State of Maharashtra. According to him, admittedly the 5th

Respondent for want of necessary license, was not carrying

on any banking business as on the date of the impugned

declaration, and that the 5th Respondent being a multi

state co-operative society could not be said to be a society

carrying on such banking business in the State."

He pointed out that the High Court held as follows:

"The words "carrying on business" means that such

additional or such principal cooperative society must be

carrying on business, the business being naturally that of

banking. It is true that nowhere, neither in the first part

nor in the proviso, the word "banking" is even mentioned.

In our opinion the underlying or the basic requirement is

that the principal cooperative society must be carrying on

the business of banking and its primary object must be to

finance other cooperative societies in the state. Otherwise

how can a society be recognized as the State cooperative

bank when it is not even functioning as such on the date of

such recognition as a bank nor has the primary object to

finance other cooperative societies in the state?"

He submitted that there is not a single word and a single finding

by the High Court that the Appellant was not carrying on business

except in the sense of banking business. He submitted that the reason

for this is obvious i.e. there was no argument and no challenge that

the Appellant was carrying on business other than banking business.

He submitted that it is not open to the Respondent to argue something

that was not argued before the High Court and which is not

investigated and found as fact by the High Court.

We are unable to accept this submission. In the Writ Petition it

has been stated that the Appellant was not carrying on any business

or banking business. This shows that in the Petition itself this ground

has been taken. Just because it is also mentioned that banking

business was not being carried does not detract from fact that it is

averred that no business was carried on. Once it is mentioned that no

business was carried on it was not necessary to state that business of

financing other co-operative societies was not carried on. In the

impugned judgment, apart from the submissions highlighted by Mr.

Andhyarujina, the following submissions have also been noted:

"Mr. Singhvi first attacked the Notification dated 30th

December, 1995 issued by the State Government

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purportedly under section 2(u) of NABARD Act. It was his

submission that the same was illegal and invalid inasmuch

as that at the time of the said declaration Respondent

No.5 was admittedly not carrying on any Banking business

i.e. the business of financing to other co-operative

societies in the State, and that it was only registered as a

Multi-State Co-operative Society under the Multi State Act

and was endeavouring to obtain the License from RBI

under the provisions of Banking Regulation Act for

carrying on banking business." (emphasis supplied)

This shows that the use of the term "banking business" was intended

to be the business of financing other co-operative societies in the

State. In the impugned Judgment the High Court has interalia held as

follows:

"â\200¦â\200¦â\200¦. In our opinion, the Co-operative Bank which is

recognized as the State Co-operative Bank is required to

have as its primary object the object of financing of other

Co-operative Societies in the State."

Of course the High Court has then gone on to hold that "banking

business" was required to be carried on. As set out above the High

Court was wrong in equating business of financing other co-operative

societies to banking business. But it is clear that it had been the case

of the 1st Respondent, not only in the Writ Petition, but also in the

submissions before the High Court that the Appellants were not

carrying on any business and that they were not carrying on the

business of financing other co-operative societies. We are, therefore,

unable to accept the submission that the 1st Respondent cannot now

be allowed to take this contention.

For all the above reasons it is held that the State Government

could not have declared the Appellants as a state co-operative bank.

As it could not be so declared the Orders dated 25th January, 1996 and

14th May, 1996 could not have been passed. The High Court was,

therefore, right in striking down the Notification dated 30th December,

1995 and two orders/directions dated 25th January, 1996 and 14th

May, 1996.

As seen above, in answer to Question No. (a) it has been held

that RBI could not have granted the license unless the Appellants were

first declared a state co-operative bank under the NABARD Act. As it

is now being held that the Appellants could not have been declared as

a state co-operative bank under the NABARD Act and it is held that as

such declaration was correctly struck down it will have to be held that

the RBI cannot issue it a license to carry on banking business. In view

of the contrary stand taken by RBI, it cannot now be left to discretion

of RBI to cancel the license granted by it. It is held that the High

Court was in error in not striking down the issuance of the license by

RBI to the Appellants. In view of what we have held we direct the RBI

to forthwith revoke the banking license granted to the Appellants.

Question (c): whether a Co-operative Society registered under

the Multi State Act, which has been recognized and notified by

one State Government as a State Co-operative Bank for that

State can be granted a License by the RBI to commence and

carry on banking activities in other States in which it has not

been recognized as a State Co-operative Bank.

It is to be seen that the RBI can only give a license to a state co-

operative bank which has been so declared by a particular State. As

the definition of co-operative societies in the NABARD Act is restricted

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to co-operative societies registered under State Acts and as the

provision is for a State to declare a co-operative society as a "state co-

operative bank" the license, which can be issued by the RBI, can only

be in respect of that State. Merely because one State declares a co-

operative society as a "state co-operative bank" would not enable the

RBI to issue that society a license to carry on banking business in

other States or in the rest of the country. In this case, the RBI was

wrong in issuing a license to the Appellants for the States of

Maharashtra and Goa when, admittedly, the Appellants had not been

declared a state co-operative bank in the State of Goa. Thus, it is held

that the banking license could not have been issued for the State of

Goa.

In view of the above, Civil Appeal No. 439 of 1997 stands

dismissed, whereas Civil Appeal No. â\200¦â\200¦.. of 2003 (arising out of S.L.P.

(C) No. 4877 of 1997) stands allowed.

It was submitted by Mr. Andhyarujina that the Appellants have

in the meantime collected large deposits and carried on extensive

business in the State of Maharashtra. It was submitted that the

Appellant was willing to restrict its business to the State of

Maharashtra. It was submitted that at this stage this Court should

not strike down the Notification or the grant of license. We are unable

to accept this submission. The 1st Respondent had challenged the

Notification and the grant of license immediately. The Appellants have

all along been aware that their status was under challenge in a Court

of law. Thereafter, the High Court struck down the Notification. Now

the Appellants knew full well that that was the law. Merely because on

obtaining a stay from this Court they continued to operate would not

be a circumstance which can be taken into consideration by this Court.

The Appellants cannot be allowed to continue to operate as a state co-

operative bank when in law they are not entitled to be one. We,

therefore, do not accept this submission.

The Appeals stands disposed of accordingly. There will be no

order as to costs.