PandurangGanpatiChaugule v. VishwasraoPatilMurgudSahakari Bank LTD

FACTS:A notification was issued in 2003 which brought the Co-operative bank within the class of banks entitled to seek recourse under the provisions of the SARFAESI Act. Section 2(1)(c)(iv) was inserted into the SARFAESI Act. Before that, the Co-operative bank and the Multi-StateCo-operative bank took recourse to the SARFAESI Act under the notification issued in 2003. Writ petitions were filed questioning vires of the notification issued under Section 2(1)(c)(v) of the SARFAESI Act and the insertion of Section 2(1)(c)(iv) to the SARFAESI Act in 2013. A Writ Petition was by the Appellant filed under Article 32 of the Constitution of India questioning the invocation of the SARFAESI Act by issuing notices under Section 13 by Co-operative banks and questioning the Respondent’s actions under SARFAESI.During the pendency of the matters, the Central Government brought into force the Enforcement of Security Deposit and Debts Law (Amendment) Act, 2012 amending the definition of Section 2(1)(c) of the SARFAESI Act, the amendment has also been questioned in the writ petition filed in this Court.

ISSUES IDENTIFIED: ● What is the scope of the power of the Parliament to legislate under Entry 45 of List I viz. ‘Banking’ and Entry 32 of List II of the Schedule VII of the Constitution of India?

● Whether the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) applies to the Co-operative banks?

● Whether the definition of ‘banking company’ contained in Section 5(c) of the Banking Regulation Act, 1949 (BR Act) covers co-operative banks registered under the State law and also Multi-StateCo-operative societies under the Multi-State Co-operative Societies Act, 2002 (MSCS Act)?

● Whether co-operative banks at State and Multi-State level are Co-operative banks within the purview of the SARFAESI Act?

JUDGEMENT & ANALYSIS:The Court held that “The provisions of The Recovery of Debts and Bankruptcy Act, 1993 (RDB Act), by invoking the doctrine of incorporation do not apply to the recovery of dues by Co-operative banks from their members. The field of Co-operative societies cannot be said to have been covered by the Central legislation by reference to Entry 45 of List I of the Seventh Schedule of the Constitution of India. 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 the Seventh Schedule of the Constitution of India. The basis on which the decisions have been reached related to the scope of the legislative fields covered by Entry 45 of List I and Entry 32 of List II of the Seventh Schedule which question undoubtedly touches upon the issue in hand. As the decisions conflict are of coordinate Benches the reference, in our considered view, ought to have been made to a larger Bench.

CONCLUSION:Finally, the Supreme Court of India directed the Bombay Registry to place the papers before the Hon’ble Chief Justice of India for being referred to a larger Bench.

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