Cooperative banks are on a par with other lenders: SC

NEW DELHI: The Supreme Court has upheld a law passed by the Centre in 2013 that made the SARFAESI Act applicable to cooperative banks.

The SARFAESI Act or Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, allowed cooperative banks to auction or lease out the secured assets of a defaulter/ guarantor to recover money without intervention from courts.

A five-judge bench of the apex court resolved unanimously that since banking falls under Entry 45 of List I (Union List), any central law relating to this power will hold good for cooperative banks too.

By extension, the judges held that the inclusion of cooperative banks under the SARFAESI Act of 2002 was constitutionally valid. The bench of Justices Arun Mishra, Indira Banerjee, Vineet Saran, MR Shah and Aniruddha Bose said, “The cooperative banks are ‘banks’ under Section 2(1)(c) of SARFAESI Act. The recovery (of dues) is an essential part of banking; as such, the recovery procedure prescribed under Section 13 of the SARFAESI Act, legislation relatable to Entry 45 of List I of the Seventh Schedule to the Constitution of India, is applicable.”

So far, there was a difference of opinion among various High Courts on this issue. The Supreme Court too had in 2007 directed that cooperative banks cannot be included under the Recovery of Debt and Bankruptcy Act, 1993 as they are governed by the Multi-State Cooperative Society Act.

Most of the cooperative banks are formed by cooperative societies under state laws.The petitioners argued that Entry 45 of List I under the subject “Banking” cannot apply to cooperative banks. Instead, they will be covered under Entry 32 of List II (State List) which squarely covers the subject “Cooperative Societies”.