Interpretation of Applicability of SARFAESI Act to Co-operative Banks

The court’s thorough legal analysis in the case revolves around the interpretation of whether the provisions of the SARFAESI Act apply to co-operative banks registered under the MSCS Act. The complex issues surrounding the definitions, legislative competence, and the interplay between various Acts are scrutinized in detail. Stay tuned for a comprehensive understanding of this pivotal legal matter.


  • The issue is whether the definition of ‘banking company’ in Section 5(c) of the Banking Regulation Act, 1949 covers co-operative banks and multi-State co-operative societies under the Multi-State Co-operative Societies Act, 2002.
  • Writ petitions were filed challenging the validity of notifications issued under the SARFAESI Act and the insertion of Section 2(1)(c)(iva) to the SARFAESI Act.
  • Co-operative banks and multi-State co-operative banks utilized the SARFAESI Act provisions after being included through notifications in 2003, and an amendment was made in 2013.
  • The 2004 Banking Regulation Amendment Act amended provisions in the BR Act, 1949, retrospectively defining ‘co-operative bank’ as per State co-operative, central co-operative, and primary co-operative banks.
  • This Court ruled that co-operative banks under the Maharashtra and Andhra Pradesh Co-operative Societies Acts do not fall within the definition of ‘banking company’ as per the BR Act, 1949.
  • The Recovery of Debts and Bankruptcy Act, 1993 provisions do not apply to recovery by co-operative banks as per the doctrine of incorporation.
  • The legislative field for co-operative societies falls under Entry 32 of List II of the Seventh Schedule of the Constitution of India.
  • Challenges were made against amendments to the SARFAESI Act’s definition in 2013 through writ petitions.
  • The Bombay High Court’s opinion that a co-operative bank falls within the definition of ‘banking company’ was disputed in subsequent litigation.
  • Courts and authorities under co-operative societies acts would lose jurisdiction to entertain applications for recovery once Debts Recovery Tribunal under RDB Act, 1993 is constituted.
  • This Court overturned the decision of the Bombay High Court in a related case.
  • The Trial Court held that it did not have jurisdiction to decide the suit.
  • The Bombay High Court dismissed the Trial Court’s decision and upheld the recourse to proceedings under the SARFAESI Act.
  • The decision in Khaja Industries was followed in Rama Steel v. Union of India.

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  • The moot question is the applicability of the SARFAESI Act to co-operative banks.
  • Whether co-operative banks at State and multi-State level are within the purview of the SARFAESI Act is being considered.
  • The issue also involves determining if the provisions of the SARFAESI Act apply to co-operative banks registered under the MSCS Act.

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  • The petitioner argued that the banking business for a co-operative society is merely incidental.
  • The petitioner maintained that a co-operative society conducting banking activities still falls under Entry 32 of List II.
  • The petitioner claimed that borrowers have the right to challenge actions under Section 13 of the SARFAESI Act and the Maharashtra Co-operative Societies Act.
  • The petitioner emphasized that the enactment of the SARFAESI Act falls within the legislative competence of the Parliament.
  • The petitioner asserted that references to ‘banking company’ should be interpreted as including co-operative banks.
  • Shri Jaideep Gupta, senior counsel for RBI, argued that the matter falls under Entry 45 of List I of the Constitution of India.
  • The RBI counsel emphasized that the RDB Act, 1993, does not initially include cooperative banks, but this doesn’t prevent Parliament from enacting laws to provide additional remedies to cooperative banks.
  • The argument presented by the appellants’ counsel highlighted a distinction between entity and activity.

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  • Section 5 defines various terms related to co-operative banks based on the Reserve Bank of India Act, 1934.
  • Section 5A was modified to ensure that the provisions of Part V override any conflicting bye-laws or agreements of co-operative societies.
  • Section 56(a) of the BR Act, 1949, states that references to a ‘banking company’ shall be construed as references to a co-operative bank throughout the Act.
  • Section 2(10) of the Maharashtra Co-operative Societies Act, 1960, is related to the management and business of co-operative societies.
  • Section 6(1) and 6(2) specify additional business functions that can be performed by entities, including co-operative banks.
  • Various amendments were made to different sections of the Banking Regulation Act, 1949, to apply to co-operative banks.
  • Article 243ZI pertains to the incorporation of co-operative societies.
  • The SARFAESI Act and RDB Act were amended to include multi-State co-operative banks.
  • The restrictions and requirements imposed on co-operative banks under different sections were highlighted.
  • The powers of the Central Government and Reserve Bank concerning co-operative banks were emphasized.


Case Number: C.A. No.-005674-005674 / 2009

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