Cooperative Banks

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Supreme Court exempts Co-Operative Banks from claiming under Recovery of Debts Due to Banks and Financial Institutions Act

The case of Greater Bombay Co-Op Bank Ltd. v. United Yarn Tex. Pvt. Ltd. and Ors., decided by a three judge bench of the Supreme Court finally settles the long-ranging debate about the interplay between Debt Recovery Tribunals and Co-operative Banks that had brought about a series of conflicting High Court decisions. The question in this case was whether the mechanism for the recovery of debt by Co-operative banks was to be in accordance with the provisions of their respective Co-operative Societies Acts, or with the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDB Act). The matter had assumed much commercial significance as large sums of public money had been locked up in litigation due to this unresolved question.

Section 5 (c) of the Banking Regulation Act, 1949 (BR Act) defines a banking company as any company which carries out the transaction of banking in India. It is pertinent to note here that the definition of Banking Company does not include Co-operative Banks per se. However, Section 56 of the Act states that the provisions of the BR Act would apply to Co-operative Banks, unless it has been provided otherwise. The RDB Act, 1993 which provides for setting up of special Tribunals for the speedy recovery of loans by banks and other financial institutions borrows the definition of banks from Section 5(c) BR Act. Therefore, if this definition were to be construed narrowly, since it does not specifically include Co-operative Banks, the latter would not come under its ambit. However, if a broad scope is given to the definition, then Co-operative Banks would be included.

Strong legal and pragmatic arguments were addressed by both the sides. Principal contentions for excluding Co-operative Banks from the ambit of RDB Act are as follows. First, that Cooperative Banks set up under various state legislations...
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