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SARFAESI Act applicable to Co-operative Banks

A five- judge bench of the Supreme Court held on 5th May, 2020 in Pandurang Ganpatii Chaugule v. Vishwasrao Patil Murgud Sahakari Bank Ltd. that co-operative banks come under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Act, 2002 (SARFAESI Act, 2002). The bench held that co-operative banks are “banks” for the purposes of Section 2(1)(c ) of the SARFAESI Act, and that the recovery procedure under Section 13 of the Act is also applicable to such banks. The judgement also states that co-operative banks registered under state-specific acts and multi- state level cooperative societies registered under the Multi State Co-operative Societies Act, 2002 concerning ‘banking’ are governed by the legislation/law relatable to Entry 45 of List 1 of the 7th Schedule. The argument that the 2013 amendment to the SARFAESI Act adding multi-state co-operative banks to Section 2(1)(c )(iva) was a “colourable exercise of power” was dismissed by the Bench. The bench also unanimously held that co-operative banks involved in banking activities are covered under Section 5(c ) & 56(a) of the Banking Regulation Act, 1949 which is a legislation relatable to Entry 45 of List 1. Thus, the Apex Court has held that co-operative banks cannot perform any activity without compliance of the provisions of the 1949 Act and any other legislation applicable to such banks and the RBI Act. The Court in effect also upheld the 2003 notification issued under the Banking Regulation Act, by which co-operative banks were brought within the class of banks entitled to seek recourse to the provisions of the SARFAESI Act.  The verdict delivered through Justice Arun Mishra also held that the Parliament has the legislative competence to bring co-operative banks under the ambit of SARFAESI Act.

 

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