Holding

Co‑operative banks established under the Maharashtra, Andhra Pradesh and Multi‑State Co‑operative Societies Acts are not "banking companies" under Section 5(c) of the Banking Regulation Act and thus the RDB Act does not apply to their debt recovery, while the State legislatures have valid competence to regulate such banks under Entry 32 of List II.

Summary

The Greater Bombay Co‑operative Bank Ltd. advanced loans to its member company United Yarn Tex Pvt. Ltd. and sought recovery of the dues under the Maharashtra Co‑operative Societies Act, 1960. The High Courts held that, after the establishment of the Debt Recovery Tribunal under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDB Act), the state co‑operative authorities lost jurisdiction to entertain such applications. The matter was appealed to the Supreme Court, which examined whether the RDB Act applies to co‑operative banks created under the Maharashtra, Andhra Pradesh and Multi‑State Co‑operative Societies Acts, and whether the State legislatures have competence to enact banking‑related provisions under Entry 32 of List II. The Court held that co‑operative banks are not "banking companies" under Section 5(c) of the Banking Regulation Act and therefore fall outside the RDB Act; the specific state co‑operative statutes provide a comprehensive framework for recovery. Consequently, the RDB Act cannot be invoked by doctrine of incorporation, and the State legislatures are constitutionally competent to regulate co‑operative banks. The Supreme Court affirmed the High Courts' view that the RDB Act does not apply to co‑operative banks and that the state mechanisms retain jurisdiction.

Issues considered

Whether the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 applies to debts due to co‑operative banks constituted under the Maharashtra Co‑operative Societies Act, 1960, the Andhra Pradesh Co‑operative Societies Act, 1964, and the Multi‑State Co‑operative Societies Act, 2002.
Whether the State legislatures are competent to enact legislation concerning co‑operative societies that incidentally engage in banking activities, in light of Entry 32 of List II of the Seventh Schedule of the Constitution.

Legislation cited

Andhra Pradesh Co-operative Societies Act, 1964s. Section 61, s. Section 71
Banking Regulation Act, 1949s. Section 56, s. Section 5(c)
Constitution of Indias. Entry 43 (List I), s. Entry 44 (List I), s. Entry 45 (List I), s. Seventh Schedule – Entry 32 (List II)
Maharashtra Co-operative Societies Act, 1960s. Section 101, s. Section 108, s. Section 156, s. Section 2(10), s. Section 61, s. Section 62, s. Section 70, s. Section 71, s. Section 91
Multi-State Co-operative Societies Act, 2002
Recovery of Debts Due to Banks and Financial Institutions Act, 1993s. Section 17, s. Section 18, s. Section 2(d), s. Section 31
Reserve Bank of India Act, 1934s. Section 2(i)
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002s. Section 2(d)

Subjects

co‑operative banksRecovery of Debts Actbanking regulationlegislative competenceconstitutional lawpith and substance doctrinedoctrine of incorporationseventh schedulestate vs union legislationdebt recovery tribunal

Judgment

•
I

.r_
.... '>
GREATER BOMBAY C()..()P. BANK LlD. A
v.
MIS UNITED YARN TEX. PVT. LlD. & ORS.

APRIL 4, 2007

[B. N. AGRAWAL, P.P. NAOLEKARAND B
LOKESHWAR SINGH PANTA, JJ.}
'?-

~.

Constitution of India, 1950:

Seventh Schedule, List /!-Entry 32-List /-Entries 43 and 45-He/d, c
Co-operative Banks are not covered by Entry 45 of List /, dealing with
'banking'-Entry 43, List I dealing with banking, financial corporation etc.,
expressly excludes co-operative societies from its ambit-Subject of Co-
operative Societies is covered under Entry 32 of List II-Co-operative forms
a specie of genus 'corporation', and as such co-operative societies, with D
objects. not confined to one State read in with the Union as provided in Entry
.;
; I 44 of List I, MSCS Act, 2002 governs such multi state co-operatives-
Maharashtra Co-operative Societies Act, 1960-Andhra Pradesh Co-operative
Societies Act, 1964-Mu/ti State Co-operative Societies Act, 2002-Recovery
of Debts Due to Banks and Financial Institutions Act, 1993- Banking
Regulation Act, 1949. E
Doctrine of occupied field-Held, co-operative Societies cannot be
said to have been c .. vered by centra/legislation by reference of Entry 45, List
1

Doctrine of pith and substance-Held, a co-operative bank is not a F
l'· 'banking company' under s.5(c) of B.R. Act- Even if the co-operatives are
involved in activity of banking which involves lending and borrowing, this
is purely incidental to their main co-operative activity which is a function
in public domairr-Banking Regulation Act, 1949-s.5(c).

Co-operative Societies: G

Co-operative Banks-Recovery of dues of-Applicability of RDB Act-
'I Held, dues of co-operative societies and recovery proceedings in connection
therewith are covered by specific Acts, namely, MCS Act, 1960, APCS Act,
823 H

'-
~
i

824 SUPREME COURT REPORTS [2007) 4 S.C.R.
....
A 1964 and MCSC Act, 2002, which are comprehensive and self-contained
•• t . • • I •
legislations-Even if co-operative banks are involved in certain banking
·-
....
~·

activities of lending and borrowing, this is purely incidental to their main
, '
co-operative activity which is a function in public domain-Therefore,
provisions of RDB Act, by invoking doctrine of incorporation are not
applicable to recovery of dues by co-operatives from their members-
B Maharashtra Co-operative Societie~ Act, 1960-Andhra Pradesh Co-operative
Societies Act, 1964- Mu/ti State Co-operativ_e Socif!ties Act, 2002 Recovery
of Debts Due to Banks and Financial Institutions Act, 1993- Banking "':
Regulation Act, 1949-/nterpretation of Statutes- Doctrine of incorporation.
""'
c operative
Maharashtra Co-operative Societies Act, /960/Andhra Pradesh Co-
Societies Act, 1964:

S.91/ss. 61, 62, 70 and 71-Registrar or an officer designated by him
or an arbitrator not 'civil courts'. .· .
'Banking Regulat~on Act, 1949:
D
S. 5(c)-"Banking Company"-Held, "Co-operative banks" established

""
under MCS Act, 1960; APCS Act, 1964 and MSCS Act, 2002, transacting the
business of banking do not fall within' the meaning of 'banking company' as
defined fn s.5(c) of the B.R. Act.
..•
E
Words and Phrases:

'Court '-Connotation of in the context. of RDB Act, 1993.

Co-operative banks established und~r the Maharashtra Co-operative
Societies Ad, 1960 (MCS Act, 1960), the Andhra Pradesh Co-operative
F
Societies Act, 1964 (APCS Act, 1964) and the Multi-State Co-operative
Societies Act, 2002 (MSCS Act, 2002), advanced loans to the respondent ·'f
Companies which were the members of the respective Co-operative Societies.
When the Co-operative Banks sought to recover their dues, writ petitions
were filed before tbe High Courts cllallenging the jurisdiction of he authorities
G under the respective Co-operative Societies Act to recover the dues. The Full
Bench or the Bombay High Court held that on and·from the date the Debts
Recovery Tribunal was constituted un~er the Recovery or Debts Due to Banks
and Financial Iristitutions Act, 1993 (RJ>B Act, 1993), the Courts and
),:'.
authorities under the Co-operative Societies Acts would cease to have
jurisdiction to entertain ;:pplications submitted by Co-operative Banks for
H
\
GREATEll BOMBAY C~P. BANK LTI>. v. VNJTED YAAN TEX. PVT. Lm. 825

;>•
recovery of their dues. Similarly, the Full Bench of the Andhra Pradesh High A
Court held that the Tribunal constituted under the RDB Act had exclusive
jurisdiction, powers and authority.to entertain and decide application from a
Co-operative Bank for recovery of debts due to such bank, subject to the
pecuniary jurisdiction specified under the said Act. The Andbra Pradesh High
Court further declared sections 61 and 71 of the APCS Act, 1964 being
beyond legislative competence of the State Legislature and also in direct and B
clear conflict with the provisions of the RDB Act. Both these decisions were
,. challenged in appeals before the Supreme Court. The Division Bench before
~
which the appeals came to be listed, felt that the matter required to be
considered by a Larger Bench and, thus, the appeals were heard by the present
,. three-Judge Bench. c
On the questions: (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, and (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 D
the Constitution.
. f
Answering the reference, the Court

HELD: 1.1. The dues of co-operatives and recovery proceedings in
connection therewith are covered by specific Acts, such as the MCS Act, 1960 E
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-
F
..., 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
-l
under the provisions of the RDB Act by invoking the Doctrine of
Incorporation. (Para 55} rss7-G-H; 858-AJ
G
Surana Steels Pvt. Ltd etc. v. Deputy Commissioner of Income Tax &
Ors. etc., (1999) 4 SCC 306, relied on.

Mls Fatehchand Himmatlal & Ors. v. State of Maharashtra, (1977) 2
~
SCC 670; Mls Hoechst Pharmaceutical Ltd & Ors. v. State of Bihar & Ors.,
{1983}4 sec 45, cited; H
826 SUPREME COURT REPORTS (2007] 4 S.C.R.

A The Shamrao Vithal Co-operative Bank Limited v. Mls Star Glass Works ...:·
.... ' .
& Ors., (2003) 1 MLJ 1, overruled.

1.2. The distinction between peoples' co-operative banks serving their
members and corporate banks doing commercial transactions is fundamental
to the constitutional dispensation and understa nding co-operative banking
B generally and in the context of cooperative banking not coming under the
ambit of the BRAct. 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.
(Para 57) [858-C-D) "
c Zoroastrian Co-operative Housing Society Ltd. v. District Registrar, Co-
~
operative Societies (~Jrban), (2005) 5 SCC 632, referred to.

1.3. The RDB Act was designed to deal with other banks and fmancial
institutions which had to have recourse to the tim~onsoming process ofthe
Civil Courts. The Co-operative Societies Ads on the one hand and RDB Act
D
on the other hand, cannot be regarded as supplemental to each other viz., the
provisions of the said ActSs.c annot be sajd to be pari-materia. The RDB Act is
consistent with the general banks and their creditorslloanees while the MCS
~
..
Act, 1960; the APCS Act, 1964 and the MSCS Act, 2002 are concerned with
the regulation of Co-operative societies only. The language of the sections in
E 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. [Paras 59, 60 and 69] (859-B, E ; 861-H; 862-A]

Virendra Pal Singh v. District Assistant Registrar, (1980) 4 SCC 109,
relied on. .....
i
F
1.4. Section 31 ofRDB Act clearly refers to transfer of ' every suit or
other proceedicg pending before any court'. The word ' court', in the context '(

of the RDB Act, signifies 'civil court'. It is clear that the Registra r , or an
officer designated by him or an arbitrator under Sections 61 , 62, 70 and 71
ofthe APCS Act, 1964 and under Section 91 and other provisions of Chapter
G IX of the MCS Act, 1960 are not ' civil courts' . (Pa ra 621 [860-G-H)

Harinagar Sugar Mills v. Shyam, (1962)2 SCR 339; Ram Rao & Anr.
v. Narayan & Anr., AIR [1969) SC 724; Kihoto Hol/ohan v. Zachillhu & Ors.,
~
[1992) Supp. 2 SCC 651 Para 98 and Supreme Court Legal Aid Committee
H representing undertrial prisoners v. Union ofIndia, (1994] 6 SCC 731, relied
GREATER BOMBAY CQ.OP. BANK LTO. v. UNITED YAA.N TEX. PVT. LTD 827
on. A
Thakur Jugal Kishore v. Sitamarhilt, [1967] 3 SCR 163, held
inapplicable.

1.5. 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 B
some more clauses in Section 56 of the Act. The Parliament was fully aware
that the provisions of the BRAct apply to C(H)perative 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 C
56(c). "C()o(lperative 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
BRAct. The meaning of ' banking company' must, therefore, necessarily be
strictly confined to the words used in Section S(c) of the BRAct. There was D
a conscious exclusion and deliberate omission of co-operatic banks from the
purview of the RDB Act. 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. (Paras 70] [858-E-G; 862-C) E
1.6. "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 "bimking company" as defined in F
~· 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.
[Para 89) [869-G-H; 870-A) G

2.1. 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 m of the Constitution or ofany other
constitlltional provision. [Para 71] [862-D]
H
828 SUPREME COURT REPORTS [2007] 4 S.C.R.

A State ofA.P & Ors. v. McDowell & Co. & Ors., (1996) 3 SCC 709, relied
on.

2.2. Power to enact a law is derived by the State Assemb'y from List II
of the Seventh Schedule to the Constitution of India. Entry 32 ofList n confers
upon a State Legislature the power to constitute co-operative societies. The
B State of Maharashtra and the State of Andhr:~ Pradesh both have 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 to the Constitution.
,.
[Para 72] [862-F)
.....
Subramanyan Chettiar v. Muttuswami Goundan, AIR (1941) FC 47; A.
c S. Krishna v. State of Madras, [1957) SCR 399 and State of Rajasthan v.
Chawala, [1959) (Suppl. 1) SCR 904, relied on.

State of Bihar & Ors. v. Bihar Distillery Ltd. C?rs., [1997) .2 SCC 453,
referred to.
D 2.3. Entry 43 List of I speaks of banking, insurance and financial
corporations etc. but expressly exclud~ co-operative societies from its ambit
the constitution! intendment seems to be that the co-operative movement was
to be left to the States to promote and leg.islate upon and the banking activities
~

-
of co-operative societies were also not to be touchtd unless Parliament
E considered it imperative. The BRAct deals with the regulation of the bimking
business. There is no provision whatsoever relating to proceedings for
recovery by any bank of its dues. Recovery was initially governed by the Code
or 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
of applications to the Tribunal. The Tribunal has been establishW. with the
F 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.
[Para 79] (86>E-G)

2.4. Therefore, the express exclusion of co-operative societies in Entry
G 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
H winding up are State subjects in the ambit of Entry 32 of List II of Seventh
\,
GREATER BOMBAY CO.OP. BANK LTI>. v. UNITED YARN TEX. PVT. l TO. 829
Schedule to the Constitution of India. Co-operatives form a specie of genus A
'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. [Para 80)(865-H; 866-A-BJ

R. C. Cooper, etc. v. Union ofIndia, (197011 sec 248, referred to. B
.,.
2.5. 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 to the Constitution. The co-operative banks performing functions
for the public with a limited commercial function as opposed to corporate C
banks cannot be covered by Entry 45 of List I dealing with "banking". 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 to the Constitution. [Paras 90 and 811

Associated Timber Industries & Ors. v. Central Bank of India & Anr., D
[2000}7 SCC 93; State of Maharashtra v. Laljit Rajshi Shah and Ors., [2000)
2 SCC 699 and Union of India v. Delhi High Court Bar Association, [2002)
4 sec 275, held inapplicable.

The Life Insurance Corporation of India v. D. J. Bahadur & Ors., AIR
{19801 SC 2181; ITC Ltd. v. Agricultural Produce Market Committee & Ors., E
[2002) 9 sec 232, referred to.

CIVIL APPEALLATE JURISDICTION: Civil Appeal No. 432 of2004.

From the Final Judgment and Order dated 06.10.2005 of the High Court
of Judicature of Kamataka at Bangalore in Writ Appeal Nos. 5271 & 5724 of F
2002.

WITH

Civil Appeal No.433t2004, Civil Appeal No.434t2004, Civil Appeal No.436/
2004, SLP (C) Nos.l5651-15652t2005, SLP (C) No.5592t2004, SLP (C) No.5598/ G
2004, SLP (C) No.5890t2004, Civil Appeal No.36t2006, Civil Appeal No.37t2006,
Civil Appeal No.38/2006, Civil Appeal No.916/2006, Civil Appeal No.2819/
'=1< 2006, Civil Appeal No.2820/2006, Civil Appeal No.282l/2006, Civil Appeal
No.282212006 and SLP (C) Nos.25246-25247t2005].

[Civil Appeal No.6069/2005, Civil Appeal No.6077/2005 and SLP (Crl.) H
t

830 SUPREME COURT REPORTS [2007] 4 S.C.R.

A No. 2071/2006- Not on board]
S. Ganesh, Bhim Rao Naik, T.R. Andhyarujina, Shek.har Naphade, S.B.
Sanyal, V.A. Bobde, Dr. N.M. Ghatate, U.U. Lalit, J.V. Suryananrayana, Dr.
Rajeev Dhawan, A.V. Sawant, Raju Ramachandran and K.N. Bhatt, Siddhartha
Chowdhury, Samrat Nigam, Satyajit Ghone, Y.R. Naik, Rakesh K. Sharma,
B Shivaji M. Jadhav, Himanshu Gupta, Brij Kishor Sah, T.V. Ratnam, K. Subba
Rao, A.H. Ramakrishna Rao, Ashish Chugh, Raghavendra S. Srivatsa, Balraj
Dewan, Shweta Gupta, Abhijit P. Medh, Pramit Saxena, Anuradha Rustogi, ""
S.V. Deshpande, T. Raja, Vinay Navare, Jay Savla, Meenakshi Ogra, Reena "
Bagga, D. Bharathi Reddy, P. Vinay Kumar, Sneha Bhaskaran, Sanjiv Sen,
Praveen Swarup, Manik Karanawala, K. Maruthi Rao, K. Radha, Anjani
c Aiyagari, K. Shivraj Chou@uri, P.S. Narasimha, P. Sridhar, Avijeet Kr. Lala
Sriram P. Mu~y, John Mathew, Venkatarangadas Kanur, T. Lakshminarayana,
Venkateswara Rao Anumolu, I Amar Dave, E.C. Agrawala, S. Ashokanand
Kumar. S. Udaya Kumar Sagar, Bina Madhavan (for M/s. Lawyer's Knit & Co.)
Sanjay V. Kharde, Chandan Ramamurthi, Aniruddha P. Mayee, Sanjeev Kumar
D Chaudhary, Sanjay Visen, Amit Yadav, Satyajit A. Desai, Sunil Kumar Verma,
":
Anagha S Desai, S.S. Shinde, Mukti Chowdhary, V.N. Raghupathy, Ravindra ......
Keshavrao Adsure, S. Nanda Kumar, Brij Kishore Shah, Santha Kumar, Ananda
Selvam, Naresh Kumar, S.A. Desai, Kavin Gulati, Mahesh Agrawal, Rishi
Agrawal, Dr. P.B. Vijaya Kumar, I Madhavi, Saravbh Suman Sinha, B.V. Desai,
Nupur Kanungo, Rahul Gupta, D. Mahesh Babu, Balraj Dewan, M.J. Paul, H.S.
E Parihar, Kuldeep Parihar, Amar Dave, Mehul Vakharia and Ravinder Shah for
the appearing parties.

The Judgment of the Court was delivered by

WKESHWAR SINGH PANTA, J. 1. Civil Appeal No.6069/2005, Civil
F Appeal No.6077/2005 and SLP (Crl.) No.2071/2006 are taken on board. .,....
2. 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
G
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
H under the Co-operative Societies Acts of the States· of Maharashtra
G.REATERBOMBAYCO-<lP. BANX LTD. •· UNJTf.I)YAANTVC PVT LTO. (LOKESKWAASINGH PANTA. J. ) 8)1
~,.

and Andhra Pradesh. The issue has arisen in the context of enactment A
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 B
~
Acts or they will have to proceed under the 1993 Act. These aspects
I' 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 Andhra Pradesh at Hyderabad. Both the High Courts
have pronounced judgments on the issues and th~se judgments are
c .,

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 D
.....
... 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 E
of these cases.

We are informed that so far as the batch of appeals/SLPs arising
from the judgment of the Born bay 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 F
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.
G
SLP (C) Nos....CC 9992-9993(2005, SLP (C) Nos.21685-2170lf2005 and
SLP(C) No. 22621/ 2005
'-!
Delay condoned.

Issue notice. H
832 SUPREME COURT REPORTS [2007] 4 S.C.R.

A Dasti service, in addition to usual mode of service, is also pennitted."

3. 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
B 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"].

4. The background of facts, which led to the filing of these cases, are
C noted from Civil Appeal No. 432 of 2004 titled The Greater Bombay Co-
operative Bank Limited v. Mls United Yarn Tex Private Limited and Ors.,
filed against the judgments and orders of the Full Bench of the High Court
of Judicature at Bombay and Civil Appeal No. 36 of2006 titled A.P. State Co-
operative Bank v. Samudra Shrimp Ltd. & Ors., decided by the Full Bench
D of the High Court of Judicature of Andhra Pradesh at Hyderabad.

5. A batch of writ petitions had been placed before Full Bench of the
High Court of Judicature at Bombay in which the principai question of law
that arose for consideration was:

"Do the courts and authorities constituted under the Maharashtra Co-
E
operative Societies Act, 1960 (the 1960 Act) and the Multi-State Co-
operative Societies Act, 2002 (the 2002 Act) continue to have
jurisdiction to entertain appiications/ 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
F establishment of a Tribunal under the Recovery of Debts Due to
Banks and Financial Institutions Act, 1993 (the 1993 Act)?"

6. The appellant-bank advanced amounts by way of tenn loans to the
respondent-Company, which is a member of the appellant-society. The appellant-
bank fLied recovery application against the respondent-Company under Section
G I 0 I 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 respon.dent-Company by the ....;
Special Recovery and Sales Officer calling upon the respondent-Company to
H pay the dues of the appellant-bank, failing which the Authority would visit
GREATERBOMBAYCO.OP.BANKLTO. >•. UNITED YARN TEX. PVT. LTD. [lOKESHWARSINGH PANTA, J.J8JJ

the premises of the r~spondent-Company on I st February, 2003 for effecting A
recovery by way of attachment and sale of property specified in the Schedule
attached thereto.

7. In January 2003, the respondent-Company filed a Writ Petition No.
727/2003 before the High Court of Bombay impugning the recovery certificate
dated 3rc! December, 2002. Learned Single Judge of the High Court vide order B
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. Mls Star Glass Works & Ors. , C
(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 D
the meaning of Section 2(d) of the RDB Act and, therefore, the only remedy
,. available in tenns of the provisions of the RDB Act to a co-operative bank
~- -1 .
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.

8. The order of the High Court reveals that one Narendra Kanti Lal filed E
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 F
learned Single iudge 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 G
State Legislation under Entry 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 H
up before the Division Bench raising the same question. Hon'ble Chief Justice
834 SUPREME COURT REPORTS [2007] 4 S.C.R.

A of the High Court decided to refer the matters to the Fall Bench. This is how
all the petitions were placed before the Full Bench for deciding the referred
questions.

9. The Full Bench, after hearing the learned counsel for the parties and
having gone through the various provisions of the Statutes and Entries 43,
B 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
c 2002 Act would cease to have jurisdiction to entertain the applications
submitted by the Co-operative Banks for recovery of their dues."

10. However, the High Court held that the State Legislature was
competent to enact the MCS Act, 1960.
D II . 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.
E 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-1 of the
F Seventh Schedule of the Co11stitution.
(b) The above subject matter is therefore excluded from the State '(''
legislative field in Entr)r-32, List-ll of the Seventh Schedule.
(c) Recovery of monies due to a Co-operative Bank is not a matter
G that falls within the incidental' and ancillary areas of the State
legislative field in Entry-32, List-ll of the Seventh Schedule.
(d) A Co-operative Sank 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) &
H (e) of the Recovery of Debts Due to Banks and Financial
\
GREATER BOMBAYC().()P. BM'K LTD. •· UNITED YARN TEX PVT LTD. (LOKESKWAR SINGH PANTA. J. 1835
-~,.

Institutions Act, 1993. A
(e) A Tribunal constituted under the provisions 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 B
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. c
(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 Sections 61 and 7 J {after striking down ofthe D
.A ·r 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 dW' 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
E
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
F
-., 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.
G
(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
H
836 SUPREME COURT REPORTS [2007] 4 S.C.R.

A 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.

(k) In view of the declaration in this judgment, the respondent-banks
B 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.
(I) As the proceedings initiated before the Registrar or any other
authority under the 1964 Act were bona fide and as considerable
c 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/cla!Jns before the appropriate authorityffribunal."

D 12. The Full Bench of the Andhra Pradesh High Court declared Sections
61 and 71 ofthe APCS Act, 1964 invalid being beyond legislative competence ..>.;
1-. .

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 '.

E 13. 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.

F THE MAHARASHTRA CO-OPERATIVE SOCIETIES ACT. I960 [the ..,:
MCS ACT. 1960]

14. 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
G 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
BRAct'] and allied provisions of the Reserve Bank of India Act, 1934 ['the
H
I

\I
GREATER BOMBAY CO-OP. BANK l.TD. •· UNITED YARI'J TEX. P\'T.l.TD. [LOKESHWAJl SINGH PANTA. J. ) 837
RBI Act'] to the co-operative banks in public interest. A
15. 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 B
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
1
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 C
society etc. to the Co-operative Court. Section I01 provides for recovery of
arrears due to certain societies as arrears of land revenue in pursuance of the
certificate granted by the Registrar. Under Section l8A of the Act, the Registrar
is competent to amalgamate one or more co-operative banks in public interest
or in _?rder ·to secure their proper management.
D
16. 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, E
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 F
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 tenns 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. G
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 H
838 SUPREME COURT REPORTS [2007) 4 S.C.R.
....
A the Registrar shall audit, or cause to be audited at least once in each co-

'
a
operative year, by 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
B Disputes. A dispute touching the constitution, ele~tions 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 (I) of Section 91 ofthe MCS Act, 1960. "'
The settlement of disputes including the recovery of loan by a society from
c 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
D 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
E 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 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
F 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
y::
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
G be accompanied by a certificate signed by the Registrar and shall be made
within twelve years from the date fixed in the order an~ if no such date is ftxed
from the date of the order. Recovery Certifica~e is issued by the Registrar
under sub-section (I) of Section I 0 l 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
H interim order of winding up of the society. An appeal against the winding up
GREATER BOMBAY CO-OP. BANK LTD. v. UNITED YARN TEX. PVT. LTD. [LOKESHWAR SINGH PANTA, l.J 839

."'.:c.. , . of the society shall be made by the aggrieved party to the State Government A
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] B
17. 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) C
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].

18. The APCS Act, 1964 was enacted with Statement of Objects and D
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 defmitions clause. Clause (f) defmes
'fmancing 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 E
any scheduled bank as defined in the RBI Act and such other body corporate
or fmancial 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 F
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 G
council to ensure that the affairs of the society.are conducted in accordance
with the principles of Co-operation, provisions of 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
-t entrust the management of the affairs of the society to such Committee
H
840 SUPREME COURT REPORTS [2007} 4 S.C.R.

A (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 o~ other amount due to a society.
B 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
C general or special sanction is obtained from the Registrar, tlie 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-
D 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 fmancial condition
E 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 Bopks etc. of the
societies are to be maintained and kept by the ChiefExe~utive Officer of every
F society and the President of the society jointly and severally. .

19. 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
G 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 N other ~mount due to it from a
member, past member, the nominee, heir or legal representative of a deceased
member, whet~er such debt .o r other amount be admitted or not and a claim
by surety against the principal debtor where the society has recovered from
H the surety any amount in respect of any debt or other amount due to it from 1·
GR£ATER80MBAYCO.OP. BANK LID •· UNITEDY.uJIITEX. PVT LID (LOK£SHWARSDIGH PANTA. J. l84}

I the principal debtor as a result of the default of the principal debtor whether A
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 B
bank to proceed against members of a society for recovery of moneys due
to it from such society. 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 C
may after giving tfle 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 tha• 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 D
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 E
made to him within twelve years from the date ftXed 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 cr in any other law for the time F
.......( 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 fmancing 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 G
such inquiry as he deems fit issue a certificate f{lr 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 himsel~ may on his own motion issue a certificate for the recovel)'
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 H
842 SUPREME COURT REPORTS [2007] 4 S.C.R.

A concerned [sub-section (2)). A certificate issued by the Registrar under sub·
section (I) or sub-section (2) shall be final and conclusive proof of the arrears ~ -'
stated to be due there.in 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
B 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·
C 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.

20. Chapter XI deals with Appeal, Revision and Review. Under Section
75, the Government, for the purpose of this Act, is competent to constitute
D 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 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
E has held a post not below the rank of Additional Registrar or" 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
F aggrieved party.

THE MULTI-STATE CO-OPERATIVE SOCIETIES ACT. 2002 {'THE -r--·
MSCS ACT. 2002 ']

21. The Multi-State Co-operative Societies Act, 1984 was enacted by
G 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").

22. The object of the MSCS Act, 2002 was to consolidate and amend
H the law relating to co-operative societies, with objects not confmed to one
GREATER BOMBAY CO-OP. BANK lTD. v. UNITEOYAANTEX. PVT. lTD. (lOKESHW.U SINGH PANTA, J. 1
843

State and serving the interests of members in more than one State, to facilitate A
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.

23. In Section 3(t) of the MSCS Act, 2002, a 'co-operative bank' means B
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 C .
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 D
or Section 40 or Section 83 or Section 99 or Section l 0 l can be executed in
the manner provided in Chapter XI of the Act. Section 99 and Section I0 l
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 E
amendment in its bye-taws 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 F
of disputes and winding up thereof as set out in about 38 Sections of the said
Act beginning from Chapter VII to Chapter XIV.

THE RESERVE BANK OF INDIA ACT, I934 {the RBI ACT]

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

25. Chapter. III-A of RBI Act deals with Collection and Furnishing of
H
.l
844 SUPREME COURT REPORTS [2007] 4 S.C.R.

A Credit Information. In Section 45A (a) " banking company" means a banking ~
j

company as defmed in Section 5 of the Banking Regulation Act, 1949 (10 of
1949) and includes the State Bank of India, [any subsidiary bank as defmed
in the State Bank of India (Subsidiary Banks) Act, I 959 (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
B other financial institution notified by the Central Govenunent in this behalf]".

THE BANKING REGULATION ACT. 1949 (the BRACT):
"\-"

26. This Act was brought into force on 16th March 1949. Section 3 of
the BRAct clearly provides that the Act would apply to Co-operative Societies
c 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]."

D 27. In Section 5(d) "company" means any company as defmed in section
3 of the Companies Act, 1956 (I of 1956); and includes a foreign company
within the meaning of section 591 of that Act: \
1-

28. Chapter V of the BRAct 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
E 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
F company" shall be construed as references to a co-operative
bank;
(ii) ..............................................................................."

29. The purpose and object of modifications were to regulate the
G 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 defme a co-operative bank to mean a banking company, in terms of )(
Section 5 (c) of the BRAct. This is apparent from the fact that instead of
H amending the original clause (c) of Section 5 separatt: clause (cci) was added
---
"
GR£,1.TEll BOMBAY C().()P. BANI< LTD. •. Uh'tnl> YAAN TEX. PVT lTD (I.OKESHW AR SIN<iH PANTA. J.

to cover the 'co-operative bank' to mean 'a state Cl")-operative bank, a central A
co-operative bank and a primary co-operative bank'. In clause (ccv) 'primary
J845

co-operative bank' means 'a co-operative society, other than a primary
agricultural credit society. The primary 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 B
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 C
56 brought to-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. D
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. ln other words, frrst 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. E
THE SECURITISATION AND RECONSTRUCTION OF FINANCIAL
ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT. 2002
[SECURITISAT/ON ACT].

30. The Parliament had enacted the Securitistion and Reconstruction of F
·~-f 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 BRAct. Again the defmition of 'banking company' was lifted G
from the BRAct 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 (cXv) of the Act to specify any other
bank for the purpose of the Act. In exercise of this power, the Central
Goverrunc:nt by Notification dated 28.01.2003, has specified "co-operative
bank" as defmed in Section 5 (cci) of the BRAct as a "bank" by lifting the H
846 SUPREME COURT REPORTS [2007) 4 S.C.R.

A 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 BRAct, it did not
B change the defmition in Section 5 (c) or even in 5(d) to include co-operative
hanks; on the other hand, it added a separate definition of'co-operativ~ bank'
in Section 5 (cci) and 'primary co-operative bank' in Section 5 (ccv) ofSe.ction
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'
C 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 defmition in Section 5 (c) would result in an absurdity
D because then Section 5 (c) would read thus: "co-operative bank" means any
company, which transacts tlie business of banking in India; thirdly, Section
56 (c) does defme "co-operative bank" separately by expressly deleting/
inserting clause (cci) in Section 5. The Parliament in its wisdom had not
altered or modified the defmition of'banking company' in Section 5 (c) ofthe

E
BRAct by Act No.23 of 1965.
.
31. As noticed above, "Co-operative bank" was separately defined by
the newly inserted clause (cci) and "primary co-operative bank" was similarly
separately defmed 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 defme the 'co-
F 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.
G
THE RECOVERY OF DEBTS DUE TO BANKS AND FINANCIAL
INSTJTUTIONS ACT, 1993 ("the RDB Act").

32. The Recovery of Debts Due to Banks and Financial Institutions Act, ~
1993 ["the RDB Act"] was enacted by the Parliament with the objects and
H reasons for the recovery of the debts due to the banks. Before the coming
GREI.TU BOMBAY c().(w. BAtiK LTO. •·. UNTl£0 YARN TEX. PVT. LTO. (LOKESHWAJl SINGH PANTA. J. !847

into force of the RDB Act, the banks were approaching Civil Courts for A
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 Centrd
Government after considering the increasing workload of the Civil Courts and B
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 C
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 D
. ~
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 E
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 ofNarasimham 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 ·f
Banks and about Rs.39l 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.

33. The provisions of the RDB Act, which are relevant, are referred to G
in the following paragraphs.

Section 2(d) defmes "banks" to mean (i) a banking company; (ii) a
. ':J 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. H
848 SUPREME COURT REPORTS (2007] 4 S.C.R.

A 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 ofTribunals. Section 18 bars
the jurisdiction of a Civil Court in relation to the matters specified in Section
B 17.

34. 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
C 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

'
35. The legislative field in constitutional terms bas to be determined in
D 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 . fncorporation, regulation an~ winding up of trading corporations,
including banking, insurance and financial corporations, but not
E including co-operative societies."

EJ1try 44 is as follows:-

"Incorporation, regulation and winding up of corporations, whether
trading or not, with objects not confmed to one State, but not including
F universities."

Entry 45 is as follows:-

"Banking."

Entry 32 of List II is as foiJows :-
G
"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."

H
GR£ATERB0!>18AYCO-OP. BANK LTD''· UNITEDYARNTEX. PVT LTD. (LOKESHWAA SJNGH PANTA.I. J849

36. In the light of the factual situation and having gone through the A
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.

37. Mr. S. Ganesh, learned Senior Advocate appearing on behalf of the B
•appellant in Civil Appeal Nos. 432 to 434 of2004, vehemently contended that
r. the High Court of Bombay completely failed to appreciate the meaning of
"banking company" as defined in Section S{c) of the BRAct 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 C
56 of the BRAct did not amend the definition of 'banking company' in tenns
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 S(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 D
applicable. It was urged that the reason why co-operative banks were excluded
from the ambit of the operation of 'the RDB Act by confming the said Act
only to a " banking company" as defined in Section 5(c) of the BRAct 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 E
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 F
,. I
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.
G
38. Mr. Amar Dave, Advocate appearing in lA Nos.l0-11 of2006 in Civil
Appeal No.432 of 2004, submitted that as per the Scheme of the BRAct, 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 H
850 SUPREME COURT REPORTS [2007] 4 S.C.R.

A 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 ROB Act also more or less did not cover
the co-operative banks for the purpo~es of the recommendations in general
B 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
A.
co-o~ratives, there is a specific enactment in the form of the MSCS Act, 2002
comprehensively. providing the legal framework in respect to issues pertaining
C to such co-operatives. Therefore, co-operative banks are, in any case, not
covered by the provisions of the ROB Act by invoking the 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.

D 39. 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
E . interpretation in their respective spheres. He submitted that although Article
246 (l) 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
F was really tht: 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:
G
"...... 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....".

H
GREATERBOMBAYCO-OP. BANKLTD. v. UNJTEOYARNTEX. PVT. LTD. [LOKESHWARSINGHPANTA.J. J85J

40. He then contended that on plain reading of definitions of 'ban~· A
[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 institution~
which were constituted under Lisf 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. B
41. Mr. K. N. Bhat, learned Senior Advocate appearing on behalf of th~
•• 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. · C
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 defmition
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 b~ing
business and no attempt is made by the Parliament to amend Section 5(c) of
the BRAct to include 'co-operative societies' doing the business of banking D
within the meaning of 'banking company' as defmed in Section 5 (c) of the ·
RDBAct.

42. Mr. Bhim Rao Naik, learned senior counsel appearing on behalf of
the Cosmos Co-operative Bank Ltd. in Civil Appeal No.436 of2004, submitted
that the defmition of'banking company' under Section 2(d)(i) of the RDB Act E
on its plain reading indicates that it does not refer to co-operative banks, but
to companies incorporated under the Companies Act. He 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 ROB Act in the absence
of any indication to that effect. He next contended that the State Legislature F
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 G.
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.

43. Mr. Vinod A. Bobde, learned senior counsel appearing on behalf of ·
H·
852 SUPREME COURT REPORTS [2007] 4 S.C.R.

A the State of Andhra Pradesh in SLP (C) Nos. 25246-25247 of2005, 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
regulatn the functioning of the co-operative banks in the matter of their
business as the banking companies were regulated (Part II), control over
· B 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:
C 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,
D 1999; and fourthly, while claims over Rs.IO 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.

44. Mr. T. R. Andhyarujina, learned Senior Advocate appearmg on
E behalf of Andhra Pradesh State Co-operative Bank Ltd. in Civil Appeal No.36
of 2006, yehemently contended that Co-operative Societies do a variety of
activities for their members a·ccording 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
F 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 bankfug 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-
G operative Societies as it had regulated banking by banking companies with
necessary modification. He submitted that recovery of Joan 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-operative Societies which fell under Entry 32, List II. He aJso
H suomitted that Entry 45, Lis~ I, is limited to laws which affect the essential
·~

GREATER BOMBAY CO.OP. BANK LTD. " UNIT£0 YAAN TEX. P"i . LTO. [I.OK£SHW All SINGH PANTA. J. J853

•.J business of a bank qua the bank viz. banking as defined in Section 2(b) of A
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 tl)e
BR Act. It was next contended that significantly the Co-operative Banks haye B
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 Ill
. .,.. of the Securitization Act is also recovery of banks' dues, but the RDB Act
I
employed no such device.

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

-
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 BRAct as amended on or from 01.03.1966. He submitted D
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 ROB Act will have an E
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
banku.g business including commercial banks and as per command of Section · ·
56( l Xa) of the said Act, business of banking company will include busin~ss
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 F
members of societies. He contended that in the matter of grant of loan etc.,
I
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 BRAct
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. G
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 representativ~s
of the deceased employees whereas the disputes between primary co-operative H
854 SUPREME COURT REPORTS [2007] 4 S.C.R.

A bank qua depositors, loanees, bolder of bills of exchange giving rise to debt . .
~

is beyond the scope of Section 6I. 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 defmition 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.
B Learned senior counsel lastly submitted that the ROB 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.

. C 46. Mr. J.V. Suryanarayana, learned senior counsel appearing on behalf
of the respondents in Civil Appeal No.9I6 of2006, submitted that in Section
56 of the BR Act, several sub-sections were incorporated by Amending Act
No.23 of I965 whereby the co-operative societies of three categories, viz., (I)
Primary Co-operative Societies; (2) State Co-operative Societies; and (3) Central
Co-operative Societies, which arc doing banking business are defmed as
D ' banking companies' within the meaninr of Section 2(d) of the ROB 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
BRAct by reason of Section 56{aXi) of Act No.23 of 1965, in the manner and
to the extent the amendments provided, therefore, it was the clear intention
E 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 ·
"I:ribunals, w~thout any reference to Entry II A of the Concurrent List. The
F 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 (I) 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
G 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 bariking.

47. Mr. Raju Ramachandran, learned senior counsel appearing in Civil
Appeal No. 432 of2004 for the intervenors assisted by Dr. P. B. Vijay Kumar,
H Advocate, submitted that even if the co-operative bank lends loans only to
GREATERBOMBAY CO.OP. BANK LTD. v, UNITED YARN TEX. PVT. LTD.{LOKESHWAR SINGHPANTA,l J855
~
_.. .~ its members, it will not alter characteristics of the banking company in the A
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 BRAct.

48. Mr. Raghavendra S. Srivatsa, learned counsel appearing on behalf
of the appellant-bank in Civil Appeal No. 916 of2006, submitted that the High B
Court of Andhra Pradesh has failed to appreciate the distinction between the
defmition 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(~) intact by adding new
definition of "co-operative bank" in clause (cci) and "primary co-operative C
bank" in clause (ccv) of the Act No. 23 of 1965.

49. Mr. T. Raja, learned counsel appearing on behalf of the petitioners
in SLP (C) No. 5598 of2004, 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 D
loans advanced by the co-operative banks whereas Co-operative Societies

-- Act shall become inoperative.

50. Mr. S. Nanda Kumar, Advocate appearing on behalf of respondent
No. 3 in SLP (C) No. 5598 of 2004, supported the contentions advanced by
r Mr. T. Raja, Advocate. E
51. Dr. N. M. Ghatate, learned senior counsel appearing on behalf of
respo!ldent Nos.l 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 F
;- . f 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 G
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 defmed in Section 2(d) of the RDB Act as Section S(c) of the BR Act
':.1 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
H
856 SUPREME COURT REPORTS [2007] 4 S.C.R.

A 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 plac~d
upon M/s Fatehchand Himmatlal & Ors. v. State of Maharashtra, [1977] 2
SCC 670 para 56. He contended that from th~ . 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
B 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
C 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]
I SCC 249 at para 36].

52. Mr. Shekhar Naphade, learned senior counsel appearing on behalf
D of the petitioners in SLP (C) Nos.l5621-15622 of 2005 and in Civil Appeal
Nos.2819-22 of 2006, contended that Article 246 (1) of the Constitution of
lndia is the source of the power vested in the Parliament to enact laws and
if the subject maf1er of the legislation in its substantive form or even in its
incidental manifestation is covered by List l and ifthe Parliament makes a Jaw
E covering that aspect of the matter then the law made by the Parliament will
override the law made by the State Legislature which othe~ise 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
F Hoechst Pharmaceutkal Ltd & Ors. v. State of Bihar & Ors., [ 1983] 4 SCC
4S. 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 essentiaJly
connected with the banking busiJtess as the subject matter of banking or the
legislative field of banking is covered by Entry 45, List I of the Seventh
G 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 incorporation, the management of the affairs of the co-
operative society, the powers of the Managing Committee, the powers of
H Generai .Body, the control of the Registrar or the State Government over the
GR£ATEUIOMBAYCO-OP. BANK LTD. " UNITEOYAANTEX PVT. LTD {LOKESHWARSI'NGH PANTA, J. J857
affairs of the society, admission of members, expulsion of members and disputes A
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 B
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"bani<ing company" under Section 5(c) of the C
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.

53. Mr. U. U. Lalit, learned Senior Advocate appearing ~n behalf of the
respondent in Civil Appeal No.38 of2006, contended that it is the exclusive D
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.

54. In the light of the contentions of the learyted counsel for the parties E
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 F
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 G
in respect of co-operative societies incidentally transacting
business of banking in the light of Entry 32, List n of Seventh
Schedule of the Constitution?

QUEsTiON NO. 1
H

.'
858 SUPREME COURT REPORTS [2007] 4 S.C.R.

A 55. 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
B 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 ROB Act specifically, there
is no justification of covering the co-operative banks under the provisions of
the ROB Act by invoking the Doctrine of Incorporation.
c 56. In Surdna Steels Pvt. Ltd. etc. v. Deputy Commissioner of Income
Tax & Ors. etc., [ 1999] 4 SCC 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
D incorporated when they are not actually incorporated.
•
57. The distinction between peoples' co-operative banks serving. their -~
members and corporate banks doing commercial transactions is fundainental
to the constitutional dispensation and underStanding co-operative banking
E &enerally 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.

F 58. The ROB 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 defrnition
of 'banking company' in Section 5 (c) had not been altered by Act No. 23
G 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 Parli~ment was simply assigning a meaning to ·
words; it was not incorporating or even referring to the substantive provisions
H of the BRAct. The meaning of 'banking company' must, therefore, necessarily
GR.EATER BOMBAY CO.OP. BANK l TO. v. .UNITED YARN TEX. PVT. l TO. [LOKESHW AR SINGH PANTA. J. J859

• ~
be strictly confined to the words used in Section 5(c) of the BRAct. It would A
have been t~e easiest thi~g for PaFiiament 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 defmed 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 ROB Act. The reason for excluding B
co-operative banks seems to be that co-operative banks have comprehensive,
.r 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. c
59. The ROB Act was, therefore, designed to deal with other banks and
fmancial 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 D
courts. The Statement of Objects and Reasons also refers to the Ti~ari
)'
Committee which had expressly commented on delays in 'civil courts' and the
-'
Narsimhan Committee which recommended setting up of Special Tribunals.

60. Accordingly, the burden of the Civil Courts in the matter of suits by
banks and fmancial institutions was shifted to the Debt Recovery Tribunals. E
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 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 F
defeated. The Co-operative Societies Acts on the one hand and ROB 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.

61. This Court in Virendra Pal Singh v. District Assistant Registrar,
[1980) 4.SCC 109 directly deals with the question ofthe legislative competence G
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 H
860 SUPREME COURT REPORTS [2007] 4 S.C.R.

A ago iti Prafol/a Kumar Mukherjee and Ors. v. Bank ofCommerce 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 y•\lether it fell within entries 28 and 38 in the
B 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
c 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 enacunent
of which complaint is made, and in what list is its true nature and
D 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 legislatio~ could never effectively be
dealt with.
><.
·-
Examining the provisions of the U.P. Co-operative Societies Act in the
E 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
- docs 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
F do banking business to facilitate the working of other Cooperative
Societies, Merely because they do baqking 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
G Societies Act. We dCI 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 lfagpur District Central Cooperative
Bank Ltd v. Divisional Joint Registrar, Cooperative Societies, AIR
( 1971) SC 365 and Sant Sadhu Singh v. t.~e State ofPunjab, AIR 1970
H
·~

GREATER BOMBA ·,• CO~P. BANK l TO. < UNITED YARN TEX. PVT. LTD. (LOKESHWAR SINGH PANTA. I . J86J
~
.~

PLH 528." A
62. 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 B
Chapter IX of the MCS Act, 1960 are not 'civil courts' .
.....,
63. In Harinagar Sugar Mi/ls 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 t~e power to decide c
such controversies. This is undoubtedly one of the attributes of the State,
and is aptly called the judicial power of the State".

64. 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
D
;
-r meaning of Section 195, Cr.P.C ..

65. 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 E
an organised State for the Administration of Justice...".

66. 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 F
" · f administered. It is a legal entity".

67. The decision cited by the respondents in Thakur Jugal Kishore v.
Sitamarhi/t, ( 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 G
'tribunal' but not a 'court' .

..._.~.. 68. In a later decision in the case of Rama Rao & Anr. v. Narayan &
Anr., [1969] I SCC 167, a two-Judge Bench has taken a contrary view and held
that under the MCS Act, 1960, the nominee of the Registrar for deciding a; H
862 SUPREME COURT REPORTS [2007) 4 S.C.R.

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 civ·il courts is ousted.

69. As al'ready pointed out, the RDB Act is consistent with the general
B 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 defming 'banking
company' is plain, clear imd explicit. It does not admit any doiJotful
interpretation as the intention of the legislature is clear as afore-said. It is
C well-settled that the language of the Statutes· is to be properly under-Stood.
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 Iaw,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
D something into the Section, which the Legislature had not iritended.

70. 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 barik" in
Clause (cci) and "primary co-operative bailk" in Clause (ccv) either expressfy
or by necessary intentment apply to the co-operative bankS transacting.
E business of banking.

QUESTION NO. 2

71. 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
F Fundamental Rights guaranteed in Part III of the ConstitUtion or of any other
r ... .
constitutional provision. In State ofA. 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 mi.ist
G necessarily fall within the four comers of the afore-mentioned tWo grounds.

72. Power to enact a law is derived by the State Assembly froni List II ·
of the Seventh Schedule of the Constitution. Entry 32 ~orifers 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
H Act, 1960 and the APCS Act, 1964 in exercise of the power vested in them·
~Tal BOMBAY CO-OP. BANK LTD. v. UNITED YA»> T£X. PVT. LTD. {\.OKESiiWMSINGH PAWA, J. 1863

by Entry 32 of List II of the Seventh Schedule of the Constitution. Power to A
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 B
system has an important role to play in our body politit and has a solemn
,. obligation to fulfil. In s~ch circumstances, it is imperative upon the Courts
while examining the scope of legislative action to be conscious to start with
the presumption regarding the constitutional validity of the legislation. The
burden of proof is upon the shoulders of the incumbent who challenges it. C
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 D
Part III of the Constitution.

73 . 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 E
of an Act, a Court may take into consideration matters of common know ledge,
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 F
,. - ' is also well-settled that the courts will be justified in giving a liberal
interpretation in order to avoid constitutional invalidity. A provision conferrillg
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 G
constitutionality albeit without departing from the material of which the law
is woven. These principles have given rise to rule of " reading down" the
\.
I· provisions if it becomes necessary to uphold the validity of the law.

74. In State of Bihar & Ors. V. Bihar Distillery Ltd. & Ors., [1997] 2 sec H
864 SUPREME COURT REPORTS [2007] 4 S.C.R.

A 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<>fthe 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
B 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. TI1e 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
c 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 ascertaining the intent and purpose of an
D enactment or its scope and application."

75. 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
E 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."

F 76. The principJes of legislative competence were stated with precision
by the Federal Court in Subramanyan Chettiar v. Muttusw~mi 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
G 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 resul~ in a large number of statutes being declared
invalid because the Legislature enacting them may appear to have
legjslated in a forbidden sphere. Hence the rule which has been
evolved by the Judicial Committee, whereby the impugned statute is
H
-- GllEATEll BOMBAY~- BM'K LTD. •· liNI1m YARN TEX. PVT LTD (LOKESHWAA SINGH PANTA.l. J865
....
examined to ascertain its pith and substance or its true nature and A
character for the purpose of detennine whether it is legislation with
respect to matters in this list or that."

77. In A. S. Krishna v. State ofMadras, (1957] SCR 399 at page 4.10, this
Court applied these principles.
B
78. In State of Rajasthan v. Chawala, [ 1959] (Suppl.l) SCR 904 at 909

.. Hidayatullah J. aptly described the principles of pith and substance as under:-
1

"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 c
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:
D
f A power to make laws 'with respect to' a subject matter is a power
to make laws 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
E
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]
F
~
'
79. Entry 43 List of I speaks of banking, insurance and financial
corporat!ons 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 bankjng
activities of co-operative societies were also not to be touched unless G
...
Parliament considered it imperative. The BR Act deals with the regulation of
the banking business. There is no provision whatsoever relating to proceedings
~
r 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 fmancial institutions was by
H
866 SUPREME COURT· REPORTS . [2007] .4. S~C.R.

A filing applications to the Tribunal. The Tribunal has been established )with the
sole object to provide speedy remedy for recovery of debts of the bcmks and.
fmanciai institutions since there has been, considerable difficulties experienced
therefore from normal remedy of Civil Court.
. . -~ . . ..,· .. ..
&0. In R. C. Cooper, etc. v. Union ofIndia, [1970] 1 SCC 248, this Court
B observed that power to legislate for setting up corporations to cany on
banking and otherbusiness and to acquire, hold and dispose of property and
to provide for achninistration of the corporations is c~nferred upon the
Parliament by Entries 43, 44 and 45 of the Constitution. Therefore, the express j
· exclusion-of. cO.:.Operative sOcieties in E~try 43 of List I· and. the express
C , inclusion of ccroperative 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 c~erative societies . as institutions distinct from COrpOrations. Co-
tiPerative sOcieties~ inc~rp<)ration, regulation and w~ding up are State subjects
in the ambit of Entry 32 of List II of Seventh Schedule to the Constitution
:- D oflndia. Co-operatives form a specie of genus 'coq)oration' and as such ccr
. . operative societies with. objects not confined to one State r~ad in with the
· Union as provided ·in Entry 44 of List I . of the Seventh Sche~ule of the J-
. Constitution, MSCS Act, 2002 governs such. multi·state ccroperatives.
.. ~

. 81. H~ce, the cO:.Operativebanks perform~g functions for the public
E wi~·a limited comnierciat function as opposed to corporate-banks cannot be
covered by. Entry 45 of List I dealing with ~bailking". The subjeet of co-
OPerative societies· is not included in the Union List rather it. covers under
of
Entry 32 of List II Seventh Schedule appended. to the Constitution .

.F , ... 82. We . h_ave gone through the decision of this Court in The Life
' InsurQIICe Corporationoflndiav. D. J. Bahadur& Ors., AIR(l980) SC 2181
. cited at bar. This Court held that the Industrial Disputes Act, 1947 is a special
r · Statute devoted wholly to investigation ~d settlement of industrial disputes.
· Therefore, with_ reference_ to industrial disputes between . employers and
workmen. the Industrial DisputesAct is a special Statute. and the Life Insurance
G Corporation Act (31 of 1956) does not speak at all with specific reference to
workmen. Tite industrial disputes between workmen and the employer as such.
are beyond the orbit of and have ~0 specific or special place in the scheme .
. ~f the Life Insurance Corporation Act. . . .. , ... .

'. 83. In ITC~Ltd ~. ·.A.~rid'utrural Produce MarlceiConi"!ittee .& Ors.• · !
H
' .
... <JREATEil BOMBAY CO-OP. BANK lTD. v. UNlTEDYARN TCX PVT. LTD. [LOKESHWARSrNGH PANTA. J. J867
..j

[2002) 9 sec 232, this Court, as per majority opinion, held that the legislative A
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 B
the Parliament and the State Legislatures. Under clause (I), notwithstanding
1
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 (I), to make laws with respect to any of the matters enumerated C
in List HI 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 (I) and (2). The three lists
while enumerating in detail the legislative subjects carefully distribute the D
ar~as 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 E
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 F
in List II, the State Legislatures exercise authority as plenary and ample as
Parliament.

84. In Associated Timber Industries & Ors. v. Central Bank of India &
Anr., [2000] 7 sec 93, this Court observed: "Banking" being included in Union G
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;
_ reli~f of agricultural indebtedness" under the Assam Money Lenders Act
~ / J934 comes under Entry 30 of List II State List of the Seventh Schedule.

85. In State ofMaharashtra v. Laljit Rajshi Shah & Ors., [2000] 2 SCC H .
868 SUPREME COURT REPORTS [2007} 4 S.C.R.

A 699, the question before this Court was 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
th'e provisions of Section 161 ofthe'MCS Act, 1960 read with Section 21 IPC
and as' such, could be proceeded against for offences under Section 5(1) read
B . with Sectior_t 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 an4 List III Entry I, this Court held in para
6 as under:-

" ................ The M~arashtra Co-operative. Societies Act 1960 has been
enacted by the State Legislature and their powers. to make such
c 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 concemed.'public servants'
within the ambit of Section 21. The State Legislature had the powers
D . . to amend Section 21 of the Indian Penal Code, the same being referable
to.-a legislation under Entry l ofList III of the Seventh Schedule,
subject to Article 254(2) of the Constitution as, otherwise, inclusion
of the persons. who are ' public servants' un9er S~ction 161 of the Co-
operative Societies Act wo~ld be repugnant to the defmition of 'public
servant' under Section 21 .of the Indian Penal Code. That not having J:
E been done, it is difficult to accept the contention of the learned
Counsel, appearing for ~he State that by virtue of deeming defmition
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
F 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,
G 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
H Code. It is· a well-known principle of construction that in interpreting
GREATER BOMBAY
UTT1\AANCHAL COOP.
FOR.EST BANK LTD.v. UNITED
DEVELOPI\.{ENT CO....N ,.YARN TEX
lABAR (P) LTD.
SINGH (PANT A. J. I.
(LAKSHMANAN. ) ) 869

a provision creating a legal fiction , the Court is to ascertain for what A
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 . B
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 C
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 D
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 E
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."

86. The case reported in Union of India v. Delhi High Court Bar
Association, [2002] 4 sec 275 relied upon on behalf of the respondents in : F
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. G
87. None of the contentions of the learned counsel for the respondents
supporting the j udgments 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.
H
)
.I
870 SUPREME COURT REPORTS [2007] 4 S.C.R.

A 88. 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 List II of the Seventh Schedule of the Constitution,
we answer the Reference as under:-

89. i•co-operative banks" established under the Maharashtra Co-
B operative Societies Act, 1960 [MCS Act, 1%0]; 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 comp<\lly" as defined in
Section 5 (c) of the Banking Regulation Act, 1949 [BRAct]. Therefore, the
C 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.

90. 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
D 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.

91. The Registry of this Court shall place these matters before Hon'ble
E the Chief Justice of India for constitution of an appropriate Bench for early
disposal of these cases.

R.P. Reference answered.

" ....