Holding

The RBI cannot grant a banking licence to a co‑operative society unless it has first been declared a State Co‑operative Bank under the NABARD Act, and a society registered under the Multi‑State Co‑operative Societies Act cannot be so declared.

Summary

The Apex Co‑operative Bank of Urban Bank of Maharashtra and Goa Ltd. applied to the RBI for a licence to operate an apex bank covering Maharashtra and Goa. The RBI required the bank to be registered under the Multi‑State Co‑operative Societies Act, 1984, which the bank did, and the Maharashtra Government subsequently declared it a ‘state co‑operative bank’ under Section 2(u) of the NABARD Act. The High Court set aside that declaration and the directions to other co‑operative banks, but allowed the RBI licence to remain pending. On appeal, the Supreme Court examined whether a society registered under the Multi‑State Act could be treated as a state co‑operative bank and whether the RBI could grant it a banking licence, especially for a state where it had not been so declared. The Court held that the term ‘co‑operative bank’ in the Banking Regulation Act has a statutory meaning limited to state, central or primary co‑operative banks as defined in the NABARD Act, and a society registered under the Multi‑State Act cannot be so declared. Consequently, the RBI licence for Maharashtra and Goa was invalid and was ordered to be revoked. The Court dismissed the earlier appeal and allowed the SLP, directing revocation of the licence.

Issues considered

Whether a co‑operative society registered under the Multi‑State Co‑operative Societies Act can be granted a licence by the RBI to commence and carry on banking business.
Whether such a society can be recognized and notified by a State Government as a State Co‑operative Bank under the NABARD Act.
Whether a society declared a State Co‑operative Bank in one State can obtain an RBI licence to operate banking activities in other States where it has not been so declared.

Legislation cited

Banking Laws (Application to Co‑operative Societies) Act, 1965
Banking Regulation Act, 1949s. 22(1), s. 22(2), s. 56, s. 5(cci)
Co-operative Societies Act, 1912
Deposit Insurance and Credit Guarantee Corporation Act, 1961s. 13D
Income Tax Act, 1961s. 80P(2)(i)
Maharashtra Co-operative Societies Act, 1960s. 70
Multi-State Co-operative Societies Act, 1984s. 2, s. 3(e), s. 3(g), s. 3(k)
National Bank for Agriculture and Rural Development Act, 1981s. 2(f), s. 2(u)

Subjects

co‑operative bankBanking Regulation ActNABARD ActMulti‑State Co‑operative Societies Actlicensingstate co‑operative bankstatutory interpretationReserve Bank of Indiabanking licenceinter‑state operation

Judgment

THE APEX CO-OPERATIVE BANK OF URBAN BANK A
OF MAHARASHTRA AND GOA LTD.
v.
THE MAHARASHTRA ST A TE CO-OPERATIVE
BANK LTD. AND ORS.

OCTOBER 29, 2003
B

(S.N. VARIA VA AND H.K. SEMA, JJ.]

National Bank for Agriculture and Rural Development Act, 1981-
Section 2(4)-Banking Regulation Act, 1949-Multi State Co-operative C
Societies Act, 1984-Co-operative Societies Act, 1912-Cooperative Bank
Registered under Multi State Act-Grant ofbanking licence by RBI to carry
on activity in other States as well, where the same is not recognized as State
Co-operative Bank-Its declaration as State Cooperative Bank under
NA BARD Act-Propriety ofgrant oflicence and the declaration by State- D
Held : RBI cannot give license to a co-operative Bank unless the same is
declared as State Co-operative Bank under NABARD Act~tate could not
have declared the Bank as State Co-operative Bank under NABARD Ad
as the same was neither registered under Co-operative Societies Ad, 1912
nor under local or State laws relating to Co-operative societies~ociety
registered under Multi-State Act cannot be declared as State Cooperative E
Bank as the same is not local law-As the definition of Co-operative
Societies is restricted to Co-operative Societies under State Laws, RBI can
give licence only in respect of the State where it is declared as State Co-
operative Bank and not for operation in other States-Multi-unit Co-
operative Societies Act, 1942. F
Interpretation of Statute :

Meaning of a term-Interpretation of~When a term is specifically
defined in a statute, for the purposes of that statute that term cannot !Jear G

- a meaning assigned to it in another statute-Where the legislature intends
to restrict the scope ofa provision, the same cannot be expanded by process
of interpretation.

Appellant Bank made application to RBI to start Apex Bank. RBI
by its letter stated that it required registration under Multi State Co- H
1071
1072 SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.

A operative Societies Act, 1984. Pursuant to letter of R.B.I. they got
registered as Multi State Co-operative Society under Multi State Act.
However, they were not registered under Banking Regulation Act,
1949. State by Notification declared them as State Co-operative Bank
within the meaning of Section 2(u) of National Bank for Agriculture
B and Rural Development Act, 1981 (NABARD Act). By two orders,
Commissioner for Co-operation and Registrar of Co-operative Societies
directed deployment of funds by all Urban Co-operative Banks to the
appellant. RBI gave banking licence to appellants u/ss. 22(1) r/w. 56(o)
of Banking Regulation Act for the State of Maharashtra and Goa.

C Respondent No. 1 challenged the Notification, the two directions
and grant of licence by RBI by filing Writ Petition in High Court
wherein the Notification and the two orders were quashed and set-
aside and the licence was permitted to remain operative till fresh
decision was taken by RBI. High Court also concluded that "carrying
D on business" must mean carrying on banking business.

In appeal to this Court, the questions for consideratfon were : (a)
whether a co-operative society registered under the Multi State Act can
be granted a licence by the RBI to commence and carry on banking
E business, (b) whether a co-operative society registered under the Multi -
State Ad can be recognized and notified by the State Government as
a State Co-operative Bank and (c) whether a co-operative society
registered under the Multi State Act, which has been recognized, and
notified by one State Government as a State Co-operative Bank for
that State, can be granted a licence by the RBI to commence and carry
F on banking activities in other States in which it has not been recognized
as a State Co-operative Bank.

Disposing of the appeals, the Court

G HELD : 1. RBI by virtue of its power under Section 22 of the
Banking Regulation Act, 1949 cannot grant a licence to any .co-
operative bank unless it is a state co-operative bank or a central'co-
operative bank or a primary co-operative bank. It would be necessary
that a declaration under the National Bank for Agriculture and Rural
H Development Act, 1981 (NABARD) be first obtained. RBI can only give
APEX CO-OP. BANK OF URBAN BANK OF MAHARASHTRA AND GOA LTD.,. MAHARASHTRA ~TATE j 073
OPERATIVE BANK.

a licence as provided in Section 22(1) i.e. to a co-operative bank. The A
term "co-operative bank" has been defined in the Banking Regulation
Act and includes a state co-operative bank or a central co-operative
bank or a primary co-operative bank. Reference to the term "Co-
operative bank" in the Multi State Cooperative Societies Act, 1984 is
of no assistance. When a term is specifically defined in a statute then B
for purposes of that statute that term cannot bear a meaning assigned
to it in another statute. One cannot ignore the specific definition given
in the Banking Regulation Act and apply some other definition set out
in some other statute. Thus, so far as the Banking Regulation Act is
concerned the term "co-operative bank" must have the meaning
assigned to it i11 Section S(cci). RBI cannot go by any other meaning C
given to the term "co-operative bank" for purposes of Jicencing under
the Banking Regulation Act. The RBI has to go by the meaning given
to this term in the Banking Regulation Act. (1087-B-C, 1086-F-H]

2.1. State Government could not have declared the Appellants as D
a State co-operative bank under NABARD Act. Under NABARD Act,
a co-operative society is a society which is registered or deemed to be
registered under the Co-operative Societies Act, 1912 or under any
other law relating to co-operative societies for the time being in force
in any State. Admittedly appellants were not registered under co- E
operative Societies Act. Appellants also could not be said to be a society
registered under any other law relating to co-operative societies for the
time being in force in any State. (1091-C-E]

2.2. Under NABARD Act Legislature has provided separately in
respect of the Co-operative Societies Act, 1912 and used the words "in F
any State" in order to indicate its intention that the term "any other
law relating to co-operative societies for the time being in force in any
State" did not include all laws relating to co-operative societies. If the
intention was to rope in all societies registered under all laws relating
to co-operative societies in force, then there was no necessity to use the G
additional words "in any State" or ,to separately provide for Co-
operative Societies Act, 1912. Mere use of the words "any other law
relating to co-operative societies for the time being in force" would
have been sufficient. The legislature was clearly emphasizing that it is
only co-operative societies registered under local or state laws relating H
1074 SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.
A to co-operative societies which would be covered. This interpretation
is supported by the fact that the provision pertaining to a state co-
operative bank provides for a declaration only by the State Government.
If a declaration is by the State Government it must be in respect of
a society which. is registered in that State and which can be regulated
B by the Registrar of that State. A society which is registered under an
Act, like the Multi State Act, would not be under the regulation of the
Registrar of the State. The words "in any State" indicate that the co-
operative society must be registered under the law in force in any State
in which it wants to operate. [1091-F-H, 1092-A-C, 1092-E]

c 2.3. Under the provisions of the Co-operative Societies Act, 1912 ...
the registration could only be in one State and the co-operative Society
registered under it cannot operate in more than one State. The Co-
operative Societies Act, 1912 dealt with local societies. As it was found
that even though the registration could only be in one State, the
D societies also operated in other States, the Legislature enacted the
Multi-Unit Co-operative Societies Act, 1942. After the enactment of the
Multi-Unit Act, the Co-operative Societies Act, 1912 only dealt with co-
operative societies confined to one province. Societies with objects not
confined to one province were deemed registered under the Multi-Unit
E Act. Thus the use of the words "Co-operative societies Act, 1912" in
the NABARD Act also indicates that the definition is restricted to
societies registered under the law relating to co-operative societies .in
the State in which they want to operate. This is clear because
significantly the Legislature has not provided that Societies registered
F under the Multi-Unit Act would be included. [1092-F-H, 1093-A-D)

2.4. It cannot be said that a purposive interpretation should be
given so that the definition takes into consideration even new laws.
Where the intention of the Legislature is clearly to restrict the
provisions of the NABARD Act to co-operative Societies Act, 1912 or
G to societies which were registered under the State laws relating to co-
operative societies, one cannot by process of interpretation expand the
scope. (1093-D-F]

2.5. The term "any other law relating to co-operative societies for
H the time being in force in any State" necessarily means only a State
APEX CO-OP. BANK OF URBAN BANK OF MAHARASHTRA AND GOA LTD. v. MAHARASHTRA STATE } 075
OPERATIVE BANK.

law is further reinforced by the use of this term in the Multi State Act. A
A reading of the previsions of the Multi State Act makes it clear.that
the words "under any other law relating to co-operatives societies in
· force in any State" as used in the Multi State Act, applies to societies
registered under the State laws relating to co-operative societies.
NABARD Act is of 1981 whereas the Multi-State Act is of 1984. The B
definition as used in 1984 Act cannot be used for the purposes of
interpreting the 1981 Act. The definition in the 1981 Act is being
interpreted on its own provisions but the use of the same term in the
1984 Act with the same meaning reinforces the interpretation given to
the 1981 Act. (1093-F-G, 1094-E-F]
c
2.6. Under the NA BARD Act a state co-operative bank has to be the
principal co-operative society in the State, the primary object of which
must be financing other co-operative societies in that State. The proviso
to Section 2(u) of NABARD Act cannot and does not derogate from the
main definition; The proviso merely enables the State to declare, in addition D
to an existing principal society in the State or where there is no principal
society in the State, any one or more co-operative bank as the state co-
operative banks. However, this does not mean that the State Government,
can at their whim and fancy, declare any co-operative society to be a
"state co-operative bank". Before such a declaration can be made the E
State Government must necessarily be satisfied (a) that it is a principal
co-operative society in the State; (b) that it is carrying on business in the
State, and (c) the business must beoffinancing other co-operative societies
in that State. (1094-G-H, 1095-Al

2. 7. High Court is not right in concluding that the words "carrying F
on business" must mean carrying on banking business. If the Legislature
had so intended they would have so specifically provided as they have
done in Section 3(e) of the Multi State Act and Section 80P(2)(i) of the
Income Tax Act, 1961. However, a reading of the provision make it
clear that what is necessary is that co-operative society must be G
carrying on the business of financing other co-operative societies. If
read in the light of the main provision it is clear that even though
banking business, as understood in the strict sense, may not be carried
on, yet the business of financing other co-operative societies in the State
must be carried on. (1096-E-Gl H
1076 SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.

A 2.8. A new society intending to c&rry on business in further having
merely accepted entrance fee and share subscription could not be declared
as State co-operative Bank. Mere intention to carry on such a business in
the future would not be sufficient. Carrying on of the business must be
prior to the State Government declaring a society as & State co-operative
B bank otherwise there would be no criteria on the basis of which the State
Government could judge whether the society proposed to be so declared
will or will not perform its task truly and efficiently. The test for the
Government has to be past performance. 11097-A-D]

C R.C. Cooper v. Union of India, 11970) SCC 248; Sajjan Bank v.
Reserve Bank of India, AIR (1961) Madras 14; Vanguard Fire and
General Insurance Co. Ltd. Madras v. Mis. Frazer and Ross andAnr., AIR
(1960) SC 971, referred to.

Sarjlax Ltd. (1979) 1 Ch.D. 592, referred to.
D
3.1. RBI can only give a license to a state co-operative bank which
has been so declared by a particular State. As the definition of co-
operative societies in the NABARD Act is restricted to co-operative
societies registered under State Acts and as the provision is for a State
E to declare a co-operative society as a "state co-operative bank", the
license, which can be issued by the RBI, can only be in respect of that
State. Merely because one State declares a co-operative society as a
"state co-operative bank" would not enable the RBI to issue that
society a license to carry on banking business in other States or in the
F rest of the country, In the present case, RBI was wrong in issuing a
license to the Appellants for the States of Maharashtra and Goa when,
admittedly, the Appellants had not been declared a state co-operative
bank in the State of Goa. Thus, banking license could not have been
issued for the State of Goa. 11102-E-GI
G
3.2. In view of the contrary stand taken by RBI, it cannot now
be left to discretion of RBI to cancel the license granted by it. High
Court was in error in not striking down the issuance of the license by
RBI to the Appellants. RBI is directed to forthwith revoke the banking
H license granted to the Appellants. [1102-B-C)
APEX CO-OP. BANK OF URBAN BANK OF MAHARASHTRA AND GOALTD. v. MAHARASHTRA STATE 1077
OPERATIVE BANK. (VARJAVA. I.I

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 439 of A
1997.

From the Judgment and Order dated 19.12.96 of the Bombay High
Court,in
.. ,.
. ,~
W.P. No 2120 of 1996 .

B
WITH

C.A. No. 8478 of 2003.

R.N. Trivedi, Additional Solicitor General, T.R. Andhyarujina, G.L.
Sanghi, K. Rajendra Chowdhary, Harish N. Salve, Bhimrao Naik, K. C
Parasaran, R.K. Sanghi, N.M. Sharma, Rajesh Prasad Singh, Rakesh K.
Sharma, Prashant Naik, R.K. Sharma, H.S. Parihar, Kuldeep Parihar, S.V.
Deshpande and Mukesh K. Giri for the appearing parties.

The Judgment of the Court was delivered by D
'
S.N. VARIA VA, J. : Leave granted.

Both these Appeals are being disposed of by this common Judgment
as they arise out of the Judgment of the Bombay High Court dated 19th E
December, 1996. In this judgment the parties are being referred to in their
capacity in Civil Appeal No. 439 of 1997.

Briefly stated the facts are as follows:

On 28th of August, 1993, the Appellants appear to have made an F
application to the Reserve Bank of India (hereinafter referred to as RBI)
for a license to s~art an Apex Bank for Maharashtra and Goa. The RBI
by its letter dated 25th April, 1994 inter alia stated as follows:

"2. As you are aware, the proposed bank requires to be got G
registered under the Multi State Co-operative Societies Act, 1984
since its area of operation extends beyond the boundaries of a
State and as such it would not be a co-operative Bank as defined
. in the Banking Regulation Act, 1949 (as applicable to Co-
operative Societies), at present. Hence an amendment to the H
1078 SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.

A Banking Regulation Act, 1949 is considered necessary. The
Government oflndia has already been apprised of the amendments
needed in the context of establishment of National Co-operative
Bank of India (NCBI) registered under the Multi-State Co-
operative Societies Act, 1984 and other similar banks.
B
3. In view of the foregoing, you may please approach the Reserve
Bank only after the needed legislative amendments are carried out
by government of India to bring the NCBI as also other Banks
similar to those proposed by you within the definition of Co-
operative bank's under the Banking Regulation Act, 1949 (as
c applicable to Co-operative Societies)."

The Appellants then got themselves registered as a Multi State Co-
operative Society under the Multi State Co-operative Societies Act, 1984
(hereinafter referred to as the Multi State Act) on 10th October, 1994. After
D the Appellants got themselves registered they accepted some entrance fees
and some shares subscription from members. This was the only activity
carried on by the Appellants. By a Notification dated 30th December, 1995,
issued by the State of Maharashtra the Appellants were declared as a State
Co-operative Bank within the meaning of Section 2(u) of the National
E Bank for Agriculture and Rural Development Act, 1981 (hereinafter
referred to as the NABARD Act). Thereafter, two directions/orders dated
25th January, 1996 and 14th May, 1996 were issued by the Commissioner
for Co-operation and Registrar of Co-operative Societies, Maharashtra
State advising/directing deploying of funds by all Urban Co-operative
Banks to the Appellants. These directions were issued under Section 70
F of the Maharashtra Co-operative Societies Act, 1960 (hereinafter referred
to as the MCS Act). On 22nd March, 1996 the RBI gave a banking licen.se
to the Appellants under Section 22(1) read. wit~ 56(o) of the
Banking Regulation Act, 1949. This was for the States of Maharashtra and
Goa.
G
The lst Respondent filed a Writ Petition challenging the Notification
dated 30th December, 1995; two directions/orders dated 25th January,
1996 and 14th May, 1996 and the grant of License by the RBI on 22nd
March, 1996. By the impugned Judgment the Writ Petition has been partly
H allowed inasmuch as the Notification dated 30th December, 1995, as well
APEX CO-OP. BANK OF URBAN BANK OF MAHARASHTRA AND GOALTD. v. MAHARASHTRA STATE l 079
OPERATIVE BANK. [VARJAVA, !.] '

as Orders/directions dated 25th January, 1996 and 14th May, 1996, are A
quashed and set aside. The RBI was directed to review its decision of
granting License to the Appellants in the light of the fact that the
Notification dated 30th December, 1995 had been quashed. In the
impugned Judgment it is clarified that till RBI takes a fresh decision the
license granted on 22nd March, 1996 was to remain operative. B
Civil Appeal No. 439 of 1997 has been filed by the Appellants
challenging the impugned Judgment. Civil Appeal No. of2003
arising out of SLP (C) No. 4877 of 1997 has been filed by the lst
Respondent against that portion whereby the license granted by the RBI
has not been quashed. C
On 27th January, 1997 this Court passed the following Order:

"There will be ad-interim stay of the operation of impugned
judgment. D
We may record that the directions of the High Court in
relation to the Notifications dated 25th January, 1996 and 14th
May, 1996 are not questioned before us by the learned counsel
for the petitioners."
E
Thus, in these Appeals there is now no challenge to quashing of the
directions/orders dated 25th January, 1996 and 14th May, 1996.

The questions which arise for considerations are: (a) whether a co-
operative society registered under the Multi_ State Act can be granted a F
license by the RBI to commence and carry on banking business, (b)
whether a co-operative society registered under the Multi State Act can be
recognized and notified by the State Government as a State Co-operative
Bank and (c) whether a co-operative society registered under the Multi
State Act, which has been recognized and notified by one State Government G
as a State Co-operative Bank for that State, can be granted a License by
the RBI to commence and carry on banking activities in other St:.:-.tes in
which it has not been recognized as a State Co-operative Bank.

Question (a): whether a Co-operative Society registered under the
Multi State Act can be granted a License by the RBI to commence and carry H
1080 SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.
A on banking business.
As set out hereinabove the RBI in its letter dated 25th April, 1994
had taken the stand that a co-operative society registered under the Multi
State Act would not be a co-operative bank as defined in the Banking
B Regulation Act. The same stand had been reiterated by the RBI in its
affidavit before the High Court. However, surprisingly in its submission
before this Court a contrary stand has been taken by RBI.

For a consideration of this question the relevant provisions of the
Banking Regulation Act need to be .looked at. Section 5(b) and Section
C 22 of the Banking Regulation Act, 1949 read as follows:

"5. lntetjJretation: In this Act, unless there is anything repugnant
in the subject or context, -

D (a) xxxxxx

(b) "banbng" means the accepting for the purpose of lending
or investment, of deposits of money from the· public, repayable
on demand or otherwise, and withdrawal by cheque, draft,
order or otherwise;
E
(c) xxxx

(cci) "co-operative bank" means a state co-operative bank, a
central co-operative bank and a primary co-operative bank;
F
(ccvii) "central co-operative bank", "co-operative society", 'primary
rural credit society' and "state co-operative bank" shall have the
meanings respectively assigned to them in the National Bank for
Agriculture an~ Rural Development Act, 1981 ;"

G "22. Licensing of co-operative banks :-

(1) Save as hereinafter provided, no co-operative society shall
carry on banking business in India unless -

H (a) it is a primary credit society, or
APEX CO-OP. BANK OF URBAN BANK OF MAHARASHTRA AND GOA LTD. v. MAHARASHTRA STATE 1081
OPERATIVE BANK IV ARIA VA. J.I

(b) it is co-operative bank and holds a License issued in A
that behalf by the Reserve Bank, subject to such
conditions, if any, as the Reserve Bank may deem fit
to impose :

Provided that nothing in this sub-section shall apply to a co- B
operative society, not being a primary credit society or a co-
operative bank carrying on banking business at the commencement
of the Banking Laws (Application to Co-operative Societies) Act,
1965, for a period of one year from such commencement.

(2) Every co-operative society carrying on business as co- C
operative bank at the commencement of the Banking Laws
(Application to Co-operative Societies) Act, 1965, shall
before the expiry of three months from such commencement,
every co-operative bank which comes into existence as a
result of the division of any other co-operative society D
carrying on business as a co-operative bank or the
amalgamation of two or more co-operative societies carrying
on banking business·shall, before the expiry of three months
from its so coming into existence, every primary credit
society which becomes a primary co-operative bank after E
such commencement shall before the expiry of three months
from the date on which it so becomes a primary co-operative
bank and every co-operative society other than a primary
credit society shall before commencing banking business in
India, apply in writing to the Reserve Bank for a License
under this section : F
Provided that nothing in clause (b) of sub-section (I) shall be
deemed to prohibit -

(i) a co-operative society carrying on business as a co- G
operative bank at the commencement of the Banking
Laws (Application to Co-operative Societies) Act, 1965;
or

(ii) a co-operative bank which has come into existence as
a result of the division of any other co-operative society H
1082 SUPREM~ COURT REPORTS [2003] SUPP. 4 S.C.R.

A carrying on business as a co·operative bank, or the
. amalgamation of two or mor~ co-operative societies :
carrying on banking business at the commencement of·
the Banking Laws (Application to Co-_operative
Societies) Act, 1965, or at any time thereafter; or
B
(iii) a ·primary credit society which becomes a primary co-
operative bank after such commencement, from carrying
on ·banking business until it is granted a License in ·
pursllance of this section or is, by a notice in writing
notified by the Reserve Bank that the License cannot
c be granted to it. .

xxx xxx xxx

xxx xxx ·-xxx
D
Und_er Section 22, as it stood prior to the amendment brought about
by the Amendment Act of 68 wherein Section 56 was! inserted, the RBI
had right to issue license to companies io carry out banking business and
no company could carry on a banking business unless it held a license
· E issued by the RBI. . After the amendment certain types of co-operative
· societies, as were brought within the purview of the Banking Regulation
Act, could be issued a license by the RBI. Section 22 as amended prohibits
co-operative societies from carrying on banking business. The term "co-
operative society", as used in Section 22, would include all types of co-
F operative societies. _In other words no co-operative society can carry on
banking business unless it falls within the permitted categories set out in
Section 22. The term "co-operative bank" has been defined under Section
5(cci) as a state co-operative bank, a central co-operative bank and a
primary co-operative bank. Thus the term "co-operative bank" does not
include all co-operative societies. It only includes the above mentioned
G three types of societies. By virtue of Section 5(ccvii) the term "state co-
operative bank" is to be understood as a state co-operative bank as defined
in the NABARD Act Thus unless a co-operative society is a state co-
operative bank or a ce_ntral co-<>perative bank or a primary co-operative
bank (as defined under the NABARD Act), no license can be issued by
H the RBI. In view of these clear provisions it will have to be.held that the
APEX CO-OP. BANK OF URBAN BANK OF MAHARASHTRA AND GOA LTD. v. MAHARASHTRA STATE } 083
OPERATIVE BANK [VARJAVA,J.I

stand taken by the RBI in its letter dated 25th April, 1994 was and is the A
correct stand.

It must be mentioned that the Appellants accept this to be the correct
provision. They only contest 1st Respondent's claim that the Appellants
could not be declared a state co-operative bank under Section 2(u) of B
NABARD Act. In this behalf the relevant portions of the written
submissions given by the learned Attorney General read as follows:

"10. It is submitted that a perusal of the BRAct and the NABARD
Act would reveal the followin.i~cheme:
c
(i) for the Appellant to carry on banking business, Reserve
Bank of India [hereinafter referred to as RBI] has to grant
a license;

(ii) · In order to get an RBI license, according to BR Act, the D
Appellant has to .be a co-operative.bank i.e. in this case a
State Co-operative Bani<; i
(iii) For the Appellant to be a State Co-operative Bank, it has
to be notified as such under Section 2(u) of the NABARD E
Act;'".

Written submissions on behalf of the Appellants given. by Mr.
Andhyarujina also need to be noted. The relevant portion reads as follows: .

"According to the scheme of the BR Act, fo~ the grant of a license F
to the Appellant, it has to first come within the meaning of a
"cooperative bank" i.e. either a state cooperative bank, central
cooperative bank or a primary cooperative bank. It is only after
a notification under section 2(u) of NABARD is issued the
cooperative society becomes a cooperative bank within the meaning G
of section 5(cci) of the BR Act as amended by section 56(c) of
the BR Act and thus became eligible to for license from the RBI ·-··
under section 22 of the BR Act read with section 56(0). of the
BR Act. Thus a notification under section 2(u) in these
circumstances necessarily precedes the gran!_of a license by the H

'• I
1084 SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.
A RBI."
'
We hold that this is the correct position.

On behalf of the RBI it is h9.wever submitted that RBI is competent
B to license a co-operative bank under the Multi State Act. It is submitted
that Section 2 of the Banking Regulation Act, I 949 lays down that, "the
provisions of this Act shall be in addition to and not, save as hereinafter
expressly provided, in derogation of, any other law for the time being in
force". It is submitted that the phrase "any other law for the time being
in force," would cover subsequent legislation. In support of this reliance
C is placed on the case of Sir Dinshaw Manekji Petit v. GB Badkas reported
in AIR 1969 Bombay 151(paragraph8). It is submitted that Section 2(b)
of the Multi State Act lays down that the Act shall apply to all multi state·
co-operative societies and Section 3(e) defines co-operative bank to mean
a multi state co-operative society which undertakes banking business. It
D is submitted that Section 3(g) defines co-operative society, and Section 3(k)
defines multi-state co-operative society to mean a so'ciety registered or
deemed to be registered under that Act. It is submitted ' that the word
"undertakes" means making an attempt. Jn support of this reliance is placed
on : (a) Words and Phrases Permanent Edition Volume 43 page 198 and
E 206; (b) The Law Lexicon by P Ramanatha Aiyar, page 1931; and (c)
Black's Law Dictionary, page I 526. It is pointed out that Section I I 0 of
the Multi State Act repeals the Multi Unit Co-operative Societies Act, I 942.
On this basis it is submitted that multi state co-operative society which is
a co-operative bank under the Multi State Act is subject to the Iicendng
F power of the RBI.

It is further submitted that this position becomes clear when one notes
that Section 15 of the Multi State Act provides that the RBI can require
the central registrar to order moratorium, amalgamation and reorganization
of a co-operative bank under the Multi State Act and Section 78 of the
G Multi State Act empowers the RBI to require the Central Registrar to wind ·
up a co-operative bank if circumstances mentioned in Section 13D of the
Deposit Insurance and Credit Guarantee Corporation Act, I 96 I exist.
Reference is also made to Section 13D of the Deposit Insurance Act which
· provides for circumstances in which winding up can be ordered. It is
H submitted that a conjoint reading of Section !3D read with.2(gg) of the
APEX CO-OP. BANK OF URBAN BANKOfMAHARA.SHTRAANDOOA LTD."- MAHARASHTRA STATE
·- OPERATIVE BANK. (VARJAVA, J J
I085
Deposit Insurance Act indicates that RBI can exercise power in respect of A
matters mentioned therein. It is pointed out that Section 48(7) of the Multi
State Act, empowers, RBI to supersede a co-operative bank. It is submitted
that all the above mentioned provisions show that RBI has got the power,
to. regulate the functioning of·a co-operative bank, supersede, order
moratorium, amalgamation or winding up, as the case may be. We are B
unable to accepi this submission. The power to regulate, supersede, order
moratorium, amalgamation or winding are exercisable only be in respect
of a co-operative bank. Such power cannot be exercised in respect of any
co-operative society which is not a co-operative bank. Far from supporting
the case now sought to be made out, this shows that it is only~ ·co-operative
bank which can be licensed and then controlled by RBI. C

It is next submitted that Section 22(1 )(b) of the Banking Regulation
·Act, lays dow;, that "save as hereinafter provided, no co-operative society
shall carry on banking business in India unless it is a co-operative bank
and holds a license issued in that behalf by_the Reserve Bank subject to D,
such conditions, if any, as the .Reserve Bank may deem fit to impose. It
is submitted that sub-section 2 of Section 22 lays· down the requirement
of obtaining of license by vario~s co-operative so~eties. It is· submitted
that ihe last category was relevant.. Reliance was pl~ced on the portion
which reads as follows: E
" ......... any every co-operative societ}- other than primary
credit society shall before commencing banking business in India,
. apply in writing to the RBI for a license under this Section."

It is submitted that this makes it clear that whereas under sub-section I of F
Section 22 every co-operative society which is a co-operative bank cannot
carry on banking business without a license; under sub-section 2 of Section
22 every co-operative society other than a primary credit society has to
obtain a license before commencing banking business in India. It is
submitted that a wider meaning should be given to the word 'co-operative G
bank' to include other co-operative banks (including on~ which is registered
under the Multi State Act) so that no co-operative society (including a co-
operative society under the Multi State Act) can commence banking
business without a license. It is submitted that this would be in consonance
with the principle of purposive interpretation and harmonious construction H .

.·
1086 SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.
A of statutes. It is submitted that although Section 5(cci) defines a co-
operative bank to mean a state co-?perative bank, a central co-operative
bank and a primary co-operative bank in view of the scheme of the Multi
State Act read with Section 22(1) & (2) of the BR Act, the phrase 'co-
operative bank' has to be construed in a broad sense especially in view of
B the fact that Section 5 starts with the following words "in this Act, unless
there is anything repugnant in this subject or context". It is submitted that
in the object and context of contemporaneous legislation viz. Multi State
Act, 1984, the term "co-operative bank" must be held to include a bank
registered under the Multi State Act. It is submitted that if the RBI did
C not have such power, the consequence would be, that a C~perative Bank
under the Multi State Act would not require a license for conducting
banking business. It is submitted that such an interpretation should be
eschewed. It is submitted that a purposive inteqiretation of Banking
Regulatgtion Act and Multi State Act must be given. It is submitted that
D a contrary interpretation would render, the Multi State Act, so far as it
relates to Co-operative Banks redundant.

We are unable to accept these submissions also. The portion
extracted above does not detract from what is provided in Section 22(1).
Under Section 22(1) a primary credit society can carry on banking
E business. However, if a co-operative society is not a primary credit society
then to carry on banking business it must be a co-operative bank and hold
a license issued by the RBI. The above extracted portion of Section 22(2)
merely exphasis that a co-operative society, other than a primary credit
society, has to apply to the RBI for license before it can commence banking
F business. However, this does not mean that RBI can give to any or all co-
operative societies, a banking license. RBI can only give a license as
provided in Section 22(1) i.e. to a co-operative bank. The tenn "Co-
operative Bank" has been defined in the Banking Regulation Act and only
includes a state co-operative bank or a central co-operative bank or a
G primary co-operative bank. Reference to the term "co-operative bank" in
the Multi State Act is of no assistance. When a term is specifically defined
in a statute then for purposes of that statute that term cannot bear a meaning
assigned to it in another statute. One cannot ignore the specific definition
given in the Banking Regulation Act and apply some other definition set
H out in some other statute. Thus, so far as .the Banking Regulation Act is
APEX CO-OP. BANK OF URBAN BANK OF MAHARASHTRA AND GOALTD. v. MAHARASHTRA STATE 108 7
OPERATIVE BANK. IVARJAVA. I.]

concerned the term "co-operative bank" must have the meaning assigned A
I to it in Section 5(cci). RBI cannot go by any other meaning given to the
term "co-operative bank" for purposes of licencing under the Banking
Regulation Act. The RBI has to go by the meaning given to this term in
the Banking Regulation Act.
B
In view of the above, we hold that the RBI by virtue of its power
under Section 22 cannot grant a license .to any co-operative bank unless
it is a state co-operative bank or a central co-operative bank or a primary
co-operative bank. It would be necessary that a declaration under the
NABARD Act be first obtained.
c
Question (b) - Whether a Co-operative Society registered under the
Multi State Act can be recognized and notified by the State Government
as a State Co-operative Bank

To answer this question, apart from the provisions of the NABARD D
Act, one would also need to look at the various laws relating to Co-
operative Societies.

The earliest Act pertaining to co-operative appears to be the Co-
operative Credit Societies Act, 1904. However, that appears to be not
relevant for our purposes and it has not been shown to us by any party. E

In order to give societies a corporate existence, without resort to the
Companies Act, the Co-operative Societies Act, 1912 was enacted. This
Act did not define a co-operative society. It however provided that State
Governments .would appoint, for the State, a Registrar of Co-operative p
Societies. Sections 4 & 6 provide as follows:

"4. Societies which may be registered - Subject to the provisions
contained, a society which has its object the promotion of the
economic interests of its members in accordance with co-operative
principles, or a society established with the object of facilitating G
the operation of such a society, may be registered under this Act
or without limited liability :

Provided that unless the [State Government] by general or
special erder Otherwise directs- H
1088 SUPREME COURT REPORTS (2003] SUPP. 4 S.C.R.

A (1) the liability of a society of which a member is a registered
society shall be limited;

(2) the liability of a society of which the object is the creation
of funds to be lent to its members, and of which the majority
of the members are agriculturists, and of which no member I
B is a registered society, shall be unlimited."

"6. Conditions ofregistration - (1) No society, other than a society
of which a member is a registen::d society, shall be registered
under this Act which does not consist of at least ten persons above
c the age of eighteen years and where the object of the society
is the creation of funds to be lent to its members, unless such
persons -

(a) reside in the same town or village or in the same group
of villages; or
D
(b) save where the Registrar otherwise directs, are members
of the same tribe, caste or occupation.

(3) The word "limited" shall be the last word in the name of
every society with limited liability registered under this
E Act."

rrus the Act was essentially dealing with Societies whose members were
residing in the same town or village or group or village or whose members
were from the same tribe, class, caste or occupation. The object of the
F Society had to be promotion of interests of its members. This shows that
the Co-operative Societies Act, 1912 was enacted for local societies.

Apart from the Co-operative Societies Act, 1912 different provinces
had enacted their own laws governing co-operative societies in that
G province. It was however found that some societies operated in more than
one State, even though they were registered in only one State. Thus the
Multi-Unit Co-operative Societies Act, 1942 was enacted. This Act applied
to "all co-operative societies with objects not confined to one province
incorporated, before the commencement of the Act, under the Co-operative
Societies Act, or under any law relating to Co-operative Societies Act, in
H force in any province." To be noted that on this date, apart from the Co-
APEX CO-OP. BANK OF URBAN BANK OF MAHARASHTRA AND GOA LTD v MAHARASHTRA STATE } 089
OPERATIVE BANK. [VARIAVA. J.I

operative Societies Act, 1912, there was no other law relating to Co- A
operative Societies which was in force in the whole of India. All other
enactments were local laws relating to Co-operative Societies in the
provinces.

Section 2 of the Multi-Unit Act provided as follows: B
"2(1) A co-operative society to which this Act applies which has
been registered in any province under the law relating to co-
operative societies in force in that province shall be deemed in any
other province to which its objects extend to be duly registered C
in that other province under the law there in force relating to co-
operative societies but shall, save as provided in sub-sections (2)
and (3), be subject for all the purposes of registration, control and
dissolution to the law relating to co-operative societies in force
for the time being in the province in which it is ac.;tually registered. D

(2) Where any such co-operative society has established
before the commencement of this Act or establishes after the
commencement of this Act a branch or place of business in a
province other than that :n which it is actually registered, it shall,
within six months from the commencement of this Act or the date E
of establishment of the branch or place of business, as the case
may be, furnish to the Regi~trar of Co-operative Societies of the
province in which such branch or place of business is situated a
copy of its registered by-laws, and shall at any time it is required
to do so by the said Registrar submit any returns and supply any F
information which the said Registrar might require to be submitted
or supplied to him by a co-operative society actually registered
in that province.

(3) The Registrar of Co-operative Societies of the province in G
which a branch or place of business such as is referred to in sub-
section (2) is situated may exercise in respect of that branch or
place of business any powers of audit and of inspection which he
might exercise in respect of a co-operative society actually
registered in the province."
H
1090 SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.
A Thus now Co-operative Societies whose objects were not confined to
one province were deemed to be registered also in the other province.
However, for purposes of registration, control and dissolution, they
continued to be subject to the "law relating to co-operative societies in
force for the time being in the province in which it was actually registered.
B Thus the tenn "under any Act relating to co-operative societies in force
in any province" clearly applied to the local laws relating to co-operative
societies in force in a province i.e. local law preva:Jing in that province.

Another aspect which must be noticed is that in the Constitution of
India, the subject pertaining to Co-operative Societies is ia the State list
C i.e. Entry 32 of List II of Schedule VII. The L!nion list has Entry 44 of
List l of Schedule VII which deals with Corporations. In this case we are
not concerned with the validiiy of a Central Legislation and thus do not
deal with that aspect. For purpose of the Judgment we will take it that a
co-operative society with objects not confined to one State would fall
D within the tenn Corporation, and thus a Central Legislation may be saved.
However, from the Constitutional provisions it is clear that matters
pertaining to co-operative societies are in the State list. Thus many States
have enacted laws relating to co-operative societies. We have not seen
other Acts. However, as this case concerns a society in Maharashtra, the
E Maharashtra Co-operative Societies Act was shown to us. Significantly
this law does not define a co-operative society. It did not need to, as a
Society registered under it would be automatically covered. The need to
define a co-operative society arises only in a Central Legislation which
does not cover all co-operative societies and thus needs to indicate to which
Society it applies.
F
Now let us look at the provisions of NABAl:tD Act. The relevant
portions of the NABARD Act namely Sections 2(f) & 2(u) read as follows:

"2(f) - "co-operative society" means a society registered, or
deemed to be registered, under the Co-operative Societies Act,
G 1912 (2 of 1912), or any other law relating to co-operative
societies for the time being in force in any State;

2(u) - "state co-operative bank" means the principal co-operative
society in a State, the primary object of which is the financing of
H other co-operative societies in the State.
APEX CO-OP BANK OF URBAN BANK OF MAHARASHTRA ANO GOA LTD. v. MAHARASHTRA STATE l 091
OPERATIVE BANK. fVARIA VA. J. f

Provided that in addition to such principal society in a State, or A
where there is no such principal society in a State. the State
Government may declare any one or more cooperative societies
carrying on business in that State to be also or to be a State
cooperative bank or State cooperative banks within the meaning
of this definition;"
B.
It is to be noted that the NABARD Act is of 1981 whereas the Multi-
State Act is of 1984. Therefore, at the time the NABARD Act was enacted
obviously the legislature could never have intended a society proposed to
be registered under some future Act to be covered
c
Under the NABARD Act, a co-operative society is a society which
is registered or deemed to be registered under the Co-operative Societies
Act, 1912 or under any other law relating to co-operative societies for the
time being in force in any State. It must be remembered that the Multi
Unit Act applied to co-operative societies registered under any Act relating D
to co-operative societies in force in any province. As seen above the Multi
Unit Act was clearly referring to Acts in force in the Province. Now instead
of the word "province" the word "State" has been used. Admittedly, the
Appellants are not registered under the Co-operative Societies Act, 1912.
The question thus is whether they could be said to be a society registered E
under any other law relating to co-operative societies for the time being
in force in any State. At first blush it would appear that the term "any other
law relating to co-operative societies for the time being in force in any
State" would include all laws relating to co-operative societies which are
in force in any State. However, in that case, there would be no need to F
provide separately in respect of a society registered under the Co-operative
Societies Act, 1912. The Co-operative Societies Act, 1912 is also a law
relating to co-operative societies and it is in force in all States. Also why
use the words "in any State"_ Mere use of the term "any other law relating
to co-operative societies for the time being in force" would have been
sufficient. It appears to us that the Legislature has provided separately in G
respect of the Co-operative Societies Act, 1912 and used the words "in any
State" in order to indicate its intention that the term "any other law relating
to co-operative societies for the time being in force in any State" did not
include all laws relating to co-operative societies. If the intention was to
rope in all societies registered under all laws relating to co-operative H
1092 SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.

A societies in force, then there was no necessity to use the additional words
"in any State" or to separately provide for Co-operative Societies Act,
1912. As stated above, mere use of the words "any other law relating to
co-operative societies for the time being in force" would have been
sufficient. The legislature was clearly emphasizing that it is only co-
B operative societies registered under local or state laws relating to co-
operative societies which would be covered. This interpretation is
supported by the fact that the provision pertaining to a state co-operative
bank provides for a declaration only by the State Government. If a
declaration is by the State Government it must be in respect of a society
C which is registered in that State and which can be regulated by the Registrar
of that State. A society which is registered under an Act, like the Multi
State Act, would not be under the regulation of the Registrar of the State.
It was submitted that if the Legislature intended to restrict the application
of NABARD Act to co-operative societies registered under local laws it
would have used the words "of any State". It was submitted that the fact
D that the Legislature has not used the words "of any State" indicates that
the co-operative society could be registered under any Jaw in force in any
State. We are unable to accept this submission. The Legislature could not
have used the words "of any State". That would have meant that a co-
operative society registered under a law in force in State 'A' could be
E considered as a co-operative society in States 'B', 'C' or 'D' also. That
was not what the Legislature intended. The words "in any State" indicate
that the co-operative society must be registered under the law in force in
any State in which it wants to operate.

F It must be mentioned that it was submitted by Mr. Andhyarujina that
a co-operative society registered under the Co-operative Societies Act,
1912 can operate in more than one State. It was submitted that this showed
that laws dealing with co-operative societies, which operate in more than
one State, were meant to be covered. We are unable to accept this
submission. As seen above under the provisions of the Co-operative
G Societies Act, 1912 the registration could only be in one State. The Co-
operative Societies Act, 1912 dealt with local societies. As it was found,
that even though the registration could only be in one State, the societies
also operated in other States, the Legislature enacted the Multi-Unit Co-
operative Societies Act, 1942 (hereinafter referred to as the Multi-Unit
H Act). Under the Multi-unit Act if a society had objects not confined to one
APEX CO-OP. BANK OF URBAN BANK OF MAHARASHTRA AND GOA LTD. v. MAHARASHTRA STATE l 093
OPERATIVE BANK. IVARJA VA. J .1

State then such a society was deemed to be registered even in other States, A
but for purposes of registration, control and dissolution it was the State law
where it was first registered which continued to operate. Thus, after the
enactment of the Multi-unit Act it became clear that even though a society
may be deemed registered under the Multi-unit Act, but for purposes of
registration, control and dissolution it continued to be bound by the law B
relating to co-operative societies for the time being in force in the State
in which it was first registered. More importantly after the enactment of
the Multi-Unit Act, the Co-operative Societies Act, 1912 only dealt with
co-operative societies confined to one province. Societies with objects not
,confined to one province were deemed registered under the Multi-Unit Act. C
Thus the use of the words "Co-operative Societies Act, 1912" in the
NABARD Act, also indicates that the definition is restricted to Societies
registered under the law relating to co-operative societies in the State in
which they want to operate. This is clear because significantly the
Legislature has not provided that Societies registered under the Multi-unit
Act would be included. D

The submission that a purposive interpretation should be given so that
the definition takes into consideration even new laws cannot be accepted.
Nonnally that is how one must interpret. However where the intention of
the Legislature is clearly to restrict the provisions of the NABARD Act to E
co-operative societies which were registered either under the Co-operative
Societies Act, 1912 or to societies which were registered under the State
laws relating to co-operative societies, one cannot by process of interpretation
expand the scope.

The fact that the tenn "any other law relating to co-operative societies
F
for the time being in force in any State" necessarily means only a State
law is further reinforced by the use of this tenn in the Multi State Act.
Under the Multi State Co-operacive Societies Act, 1984, the relevant
provisions i.e. Section 2, 3(e), 3(g) and 3(k) read as follows:
G
"2. This Act shall apply to -

(a) all co-operative societies, with objects not confined to one
State, which were incorporated before the commencement of
this Act, H
1094 SUPREME COURT REPORTS (2003] SUPP. 4 S.C.R.

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

(ii) under any other law relating to co-operative societies in
force in any State or in pursuance of the Multi-unit Co-
operative Societies Act, 1942 (6of1942), and the registration
of which has not been cancelled before such commencement;
B and

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

3(e) "co-operative bank" means a multi-State co-operative society
c which undertakes banking business;

3(g) "co-operative society" means a society registered or deemed
to be registered under any law relating to co-operative societies
for the time being in force in any State;

D 3(k) "Multi-State co-operative society" means a society registered
or deemed to be registered under this Act and includes a national
co-operative society;"

A reading of the provisions of the Multi State Act makes it clear that
E the words "under any other law relating to co-operative societies in force
in any State" as used in the Multi State Act, applies to societies registered ,_
under the State laws relating to co-operative societies. Mr. Andhyarujina
fairly admitted this position. Of course, the definition as used in 1984 Act
cannot be used for the purposes of interpreting the 1981 Act. The definition
F in the 1981 Act is being interpreted on its own provisions but the use of
the same term in the 1984 Act with the same meaning reinforces the
interpretation given to the 1981 Act.

Further under the NABARD Act a state co-operative bank has to be
the principal co-operative society in the State, the primary object of which
G must be financing other co-operative societies in that State. The proviso
to Section 2(u) cannot and does not derogate from the main definition. The
proviso merely enables the State to declare, in addition to an existing
principal society in the State or where there is no principal society in the
State, any one or more co-operative bank as the state co-operative banks.
H However, this does not mean that the State Government can, at their whim
APEX CO-OP. BANK OF URBAN BANK OF MAHARASHTRA Al':D GOA LTD. v. MAHARASHTRA STATE 1095
OPERATIVE BANK. \VARIAVA. l.!

and fancy, declare any co-operative society to be a "state co-operative A
bank". Before such a declaration can be made the State Government must
necessarily be satisfied (a) that it is a principal co-operative society in the
State; (b) that it is carrying on business in the State; and (c) the business
must be of financing other co-operative societies in that State.

At this stage, it must be mentioned that in the impugned Judgment,
B
the High Court has inter alia held that the term "carrying on business:
necessarily means banking business. On behalf of the Appellants this
finding was assailed and it was submitted that in order to be declared a
"state co-operative bank", within the meaning Section 2(u) of NABARD
Act, a co-operative society does not need to be carrying on business of c
"banking" in that State. It was submitted that "banking business" is a
specific type of business as defined in Section 5 (b) of the Banking
Regulation Act, 1949. It was submitted that this business was different
from "other forms of business" in which Banking Companies [or co-
operative banks as per amendment in Section 56] may engage in and which D
are specifically stated in Section 6 of the Banking Regulation Act, 1949.
It was submitted that the banking business, as defined in Section 5(b) of
the Banking Regulation Act cannot be carried on unless the banking
1
company or the co-operative bank secures a banking licens: under Section
22 of the Banking Regulation Act. It was submitted that the well known E
distinction between banking business and non-banking business carried out
by banking companies had been noticed by the Supreme Court in R.C.
Cooper v. Union of India reported in [1970] SCC 248 at page 279-280.
In this behalf reliance was also placed on the case of Sajjan Bankv. Reserve
Bank of India reported in AIR (1961) Madras Page 14. It was st:'Jmitted
that the High Court was wrong in holding that the business referred to in F
Section 2(u) of the NABARD Act is the business of banking. It was further
submitted that wherever references are made to banking business in
statutes, it has been expressly so stated. In support of this Section 3(e) of
the Multi-State Act which defines "Co-operative Bank" as a Multi-State
Co-operative Society which undertakes "banking business", and Section 80 G
P (2)(a)(i) of the Income Tax Act, 1961 which refers to a co-operative
society engaged in carrying on the business of banking were pointed out.
It was submitted that a co-operative society which is engaged in carrying
on business of financing other co-operative societies could finance itself
without "banking business". It was submitted that it could finance itself H
1096 SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.

A from its own resources e.g. from shareholders equity and/or by borrowings.
It was also submitted that the activity of accepting entrance fee and
subscription share from its members show that the Appellants were
carrying on business and that this was sufficient for the purposes of
enabling the State Government to declare the Appellants as a state co-
B operative bank.

On behalf of the Respondents, it was submitted that looking to the
nature and purpose of the Act and the fact that the ultimate purpose was
to accept deposits from other co-operative societies, it was necessary that
C the business which is carried on should be banking business. It was also
submitted that in any event the business must be of financing other Co-
operative Societies in the State. It was submitted that the society must be
carrying on business in presenti. It was submitted that looking to the nature
and purpose of the Act a new society which intended to carry on, in future,
the business of financing other co-operative societies or which had merely
D accepted entrance fee and share subscription from its· members could not
be declared as a state co-operative bank. It was submitted that Appellants
had not carried on any business and in any event had not carried on banking
business or business of financing other co-operative societies.

E In our view the High Court does not appear to be right in concluding
that the words "carrying on business" must mean carrying on banking .
busine%. If the Legislature had so intended they would have so specifically
provided as they have done in Section 3(e) of the Multi State Act and
Sections 80P(2)(a)(i) of the Income Tax Act, 1961. However, a reading
F of the provisions make it clear that what is necessary is that co-operative
society must be carrying on the business of financing other co-operative
societies. The proviso has to be read in the light of the main provision.
If read in the light of the main provision it is clear that even though banking
business, as understood in the strict sense, may not be carried on, yet the
business of financing other co-operative societies in the Stat~ must be
G carried on.

It was submitted that the activities of accepting entrance fees and
sha:-e subscriptions was sufficient to show that the Appellants was carrying
on business. In our view this was not sufficient. What was required was
H carrying on business of financing other co-operative societies.
APEX CO-OP. BANK OF URBAN BANK OF MAHARASHTRA AND GOA LTD. v. MAHARASHTRA STATE 1097
OPERATIVE BANK. (VARJAVA J.(

Faced with this situation it was submitted that the words "carrying A
on business" did not mean that business must be actively carried on. It
was submitted that an intention to carry on business would be sufficient
and can be taken into consideration for purposes of a declaration under
Section 2(u) of NABARD Act. In support of this reliance was placed on
the case In Re. Sarjlax Ltd. reported in [(1979) I Ch. D. 592 (at pages 598- B
599)] and the case of Vanguard Fire and General lnsurancei Co. Ltd.,
Madras v. Mis. Frazer and Ross and Anr. We are unable to accept the
submission that mere intention to carry on such a business in the future
would be sufficient. A plain reading indicates that the carrying on of the
business must be prior to the State Government declaring a society as a C
state co-operative bank otherwise there would be no criteria on the basis
of which the State Government could judge whether the society proposed
to be so declared will or will not perform its task truly and efficiently. The
test for the Government has to be past performance. It is not as ifthe State
Government can at its whims and fancy declare any society as a state co-
operative bank. The State Goverr.ment has to look into and be satisfied D
that that society has faithfully and efficiently been carrying on the business
of financing other co-operative societies in that State and that there have
been no complaints against that society. To allow the State Government
to declare any society, even a society which. has done no business of
financing other co-operative societies, as a state co-operative bank would E
be to permit arbitrariness. The authorities relied upon are of no assistance
as words to the effect "carrying on business" have necessarily to be
construed keeping in mind the purpose with which they are used and to
further the object of the Act. In Sarjlax 's case the concerned party had
earlier carried on business, but had then closed their business. The question F
was whether they were still covered by Section 332 of the Companies Act,
1948, which reads as follows:-

"If in the course of the winding up of a company it appears that
any business of the company has been carried on with intent to G
defraud creditors of the company or creditors of any other person
or for any fraudulent purpose, the court, on the application of the
official receiver, or the liquidator or any creditor or contributory
of the company, may, ifit thinks proper so to do, declare that any
persons who were knowingly parties to the carrying on of the H
1098 SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.

A business in manner aforesaid shall be personally responsible,
without any limitation of liability, for all or any of the debts or
other liabilities of the company as the court may direct."

It is in this context it was held that the expression "carrying on any
B business" in the Section was not synonymous with .actively carrying on
trade. Such an interpretation was given to further the intention of the
statute and to cover a party who was trying to wriggle out the provisions
oflaw. Similarly in Vanguard Fire Insurance Company's case the question
was whether the word "Insurer" in Section 33 of the Insurance Act, 1938
C included a .company which had closed insurance business. This Court held
that the word "Insurer" referred not only to a person who was actually
carrying on business but also to one who has subsequently closed. Thus
here also the party had actually carried on business. These are completely
different situations from one where no business, of the type envisaged, has
been carried on. If no business has been carried on, then mere intention
D to carry on in future would not bring it within the meaning of the term
"carrying on business". Also as stated above to give such an interpretation
would be to permit arbitrariness.

In this case prior to the Notification dated 13th December, 1995, the
E Appellants had not carried on any business of financing any co-operative
society. All that they had done was accepting entrance fees and share
subscription from members. As stated above this is not business as
contemplated by Section 2(u) of the NABARD Act. On this ground also
it will have to be held that the Notification dated 13th December, 1995
F cannot be sustained.

Faced with this situation Mr. Andhyarujina submitted that, in the High
Court, the Respondent did not challenge the fact that the AppeJlant was
carrying on business of financing other co-operative societies, but only
focused on its not carrying on "banking business". He submitted that
G banking business has a specific meanin~ as defined in Section 5 (b) of the
Banking Regulation Act, 1949. He submitted that in the Writ Petition it
was ambiguously stated in paragraph 4 as follows:

"The Petitioners further say that, in any event, under clause [u]
H of section 2 of the N~~ARD Act, the State Government could
APEX CO-OP. BANK OF llRBAN BANK OF MAHARASHTRA AND GOA LTD. v. MAHARASHTRA STATE l 099
OPERATIVE BANK. (VARIA VA. J.j

not have identified or designated Respondent no. 5 as a State Co- A
operative Bank, firstly because Respondent no. 5 is not registered
under the State Act, secondly, because Respondent no. 5 is
registered under the Central Act, thirdly, because the area of
operation of Respondent no. 5 also extends to the State of Goa
and, fourthly, because Respondent 5 is not carrying on any B
business or banking business. Respondent no. 5 has been
constituted to carry on banking business. Respondent no. 5 cannot
carry on banking business unless License is issued by the Reserve
Bank of India under the BR Act, 1949. Therefore, the State
..... Government could not have designated Respondent no. 5 as a C
State co-operative bank under clause [ u] of section 2 of the
NABARD Act. Therefore, the order of the State Government
dated 30-12-1995 is null and void and is liable to be quashed and
set aside."
(emphasis supplied) D

He submitted that there was no specific averment that the Appellant
was not carrying on business of financing other co-operative societies.
He submitted that no arguments were made by the Respondent before
the High Court that the Appellant was not carrying on business of
financing other co-operative societies. He submitted that the only argument E
was it was not carrying on banking business. He pointed out that the
argument as noted by the High Court in the impugned Judgment was as
follows:

"Mr. Singhvi submitted that as per the definition of "State F
Cooperative bank" given in the said section 2(u), such a bank
could only be the principal cooperative society in a state, the
primary object of which would be the financing of other co-
operative societies in the state, and that by the proviso it is in effect
provided that the State government may declare a cooperative G
society in addition to such principal society but such additional
society must be carrying on banking business and that too in the
State i.e. State of Maharashtra. According to him, admittedly the
5th Respondent for want of necessary license, was not carrying
on any banking business as on the date of the impugned declaration, H
1100 SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.

A and that the 5th Respondent being a multi state co-operative
society could not be said to be a society carrying on such banking
business in the State."

He pointed out that the High Court held as follows:
B
"The words "carrying on business" means that such additional or
such principal cooperative society must be carrying on business,
the business being naturally that of banking. It is true that
nowhere, neither in the first part nor in the proviso, the word
"banking" is even mentioned. In our opinion the underlying or
c the basic requirement is that the principal cooperative society
must be carrying on the business of banking and its primary object
must be to finance other cooperative societies in the state.
Otherwise how can a society be recognized as the State cooperative
bank when it is not even functioning as such on the date of such
D recognition as a bank nor has the primary object to finance other ~-

cooperative societies in the state?"

He submitted that there is not a single word and a single finding by
the High Court that the Appellant was not carrying on business except in
E the sense of banking business. He submitted that the reason for this is
obvious i.e. there was no argument and no challenge that the Appellant was
carrying on business other than banking business. He submitted that it is
not open to the Respondent to argue something that was not argued before
the High Court and which is not investigated and found as fact by the I Iigh
F Court.

We are unable to accept this submission. In the Writ Petition it has
been stated that the Appellant was not carrying on any business or banking
business. This shows that in the Petition itself this ground has been taken.
Just because it is also mentioned that banking business was not being
G carried does not detract from fact that it is averred that no business was
carried on. Once it is mentioned that no business was carried on it was
not necessary to state that business of financing other co-operative societies
was not carried on. In the impugned judgment, apart from the submissions
highlighted by Mr. Andhyarujina, the following submissions have also
H been noted:
APEX CO-OP. BAN~ OF URBAN BAN~ OF MAHARASHTRA AND GOA LTD. v. MAHARASHTRA STATE } ) Q)
OPERATIVE BANK IVARIAVA. l.I

"Mr. Singhvi first attacked the Notification dated 30th December, A
1995 issued by the State Government purportedly under section
2(u) ofNABARD Act It was his submission that the same was
illegal and invalid inasmuch as that at the time of the said
declaration Respondent No.5 was admittedly not carrying on any
· Banking business i.e. the busines3 of financing to other co- B
operative societies in the State, and that it was only registered as
a Multi-State Co-operative Society under the Multi State Act and
was endeavouring to obtain the License from RBI under the
provisions of Banking Regulation Act for carrying on banking
business."
(emphasis supplied) C

This shows that the use of the term "banking business" was intended to
be the business of financing other co-operative societies in the State. In
the impugr.ed Judgment the High Court has interalia held as follows:
D
In our opinion, the Co-operative Bank which is
recognized as the State Co-operative Bank is required to have as
its primary object the object of financing of other Co-operative
Societies in the State."
E
Of course the High Court has then gone on to hold that "banking business"
was required to be carried on. As set out above the High Court was wrong
in equating business of financing other co-operative societies to banking
business. But it is clear that it had been the case of the lst Respondent,
not only in the Writ Petition, but also in the submissions before the High F
Court that the Appellants were not carrying on any business and that they
were not carrying on the business of financing other co-operative societies.
We are, therefore, unable to accept the submission that the lst Respondent
cannot now be allowed to take this contention.

For all the above reasons it is held that the State Government could G
not have declared the Appellants as a state co-operative bank. As it could
not be so declared the Orders dated 25th January, 1996 and 14th May, 1996
could not have been passed. The High Court was, therefore, right in
striking dow!1 the Notification dated 30th December, 1995 and t'vo orders/
directions dated 25th January, 1996 and 14th May, 1996. H
1102 SUPREME COURT REPORTS [2003] SUPP. 4 S.C.R.

A As seen above, in answer to Question No. (a) it has been held that
RBI could not have granted the license unless the Appellants were first
declared a state co-operative bank under the NABARD Act. As it is now
being held that the Appellants could not have been declared as a state co-
operative bank under the NABARD Act and it is held that as such
B declaration was correctly struck down it will have to be held· that the RBI
cannot issue it a license to carry on banking business. In view of the
contrary stand taken by RBI, it cannot now be left to discretion of RBI to
cancel the license granted by it. It is held that the High Court was in error
in not striking down the issuance of the license by RBI to the Appellants. ,,.
C In view of what we have held we direct the RBI to forthwith revoke the
banking license granted to the Appellants.

Question (c): whether a Co-operative Society registered under the
Multi State Act, which has been recognized and notified by one State
D Government as a State Co-operative Bank for that State can be granted
a License by the RBI to commence and carry on banking activities in other
States in which it has not been recognized as a State Co-operative Bank.

It is to be seen that the RBI can only give a license to a state co-
operative bank which has been so declared by a particular State. As the
E definition of co-operative societies in the NABARD Act is restricted to co-
operative societies registered under State Acts and as the provision is for
a State to declare a co-operative society as a "state co-operative bank" the
license, which can be issued by the RBI, can only be in respect of that State.
Merely because one State declares a co-operative society as a "state co-
F operative bank" would not enable the RBI to issue that society a license
to carry on banking business in other States or in the rest of the country.
In this case, the RBI was wrong in issuing a license to the Appellants for
the States of Maharashtra and Goa when, admittedly, the Appellants had
not been declared a state co-operative bank in the State of Goa. Thus, it
G is held that the banking license could not have been issued for the State
of Goa.

In view of the above, Civil Appeal No. 439of1997 stands dismissed,
whereas Civil Appeal No. 8478 of2003 (arising out ofS.L.P. (C) No. 4877
H of 1997) stands allowed.
APEX CO-OP. BANK OF URBAN BANK OF MAHARASHTRA AND GOA LTD. v. MAHARASHTRA STATE J J03
OPERATIVE BANK. IVARIAVA. JI

If It was submitted by Mr. Andhyarujina that the Appellants have in the A
meantime collected large deposits and carried on extensive business in the
State of Maharashtra. It was submitted that the Appellant was willing to
rPstrict its business to the State of Maharashtra. It was submitted that at
'i< this stage this Court should not strike down the Notification or the grant
of license. We are unable to accept this submission. The !st Respondent B
·had challenged the Notification and the grant of license immediately. The
Appellants have all along been aware that their status was under challenge
in a Court oflaw. Thereafter, the High Court struck down the Notification.
Now the Appellants knew full well that that was the law. Merely because
on obtaining a stay from this Court they continued to operate would not
be a circumstance which can be taken into consideration by this Court. The C
Appellants cannot be allowed to continue to operate as a state co-operative
bank when in law they are not entitled to be one. We, therefore, do not
accept this submission.

The Appeals stands disposed of accordingly. There will be no order D
as to costs ..

K.K.T. Appeals disposed of.