2007 (12) TMI 545 - HC - Indian Laws

Summary

Issues Involved:
1. Entitlement of Kerala State Co-operative Bank, District Co-operative Banks, and Urban Co-operative Banks to invoke the provisions of the SARFAESI Act.
2. Legislative competence of the Union to apply the SARFAESI Act to co-operative societies.
3. Validity of the Central Government's notification dated 28-1-2003.

Summary:

Issue 1: Entitlement to Invoke SARFAESI Act

The primary issue is whether the Kerala State Co-operative Bank, District Co-operative Banks, and Urban Co-operative Banks are entitled to invoke the provisions of the SARFAESI Act. Section 13(1) of the SARFAESI Act authorizes a secured creditor to enforce a security interest without court intervention. The Central Government issued a notification on 28-1-2003, specifying "Co-operative Bank" as defined in Clause (cci) of Section 5 of the Banking Regulation Act, 1949 (BR Act), as a "bank" for the purposes of the SARFAESI Act. The Kerala State Co-operative Bank and District Co-operative Banks fall within this definition, making them eligible to invoke the SARFAESI Act. Urban Co-operative Banks also qualify as Primary Co-operative Banks under Clause (ccv) in Section 5 of the BR Act, thus falling within the notification.

Issue 2: Legislative Competence

The petitioners argued that the SARFAESI Act cannot apply to co-operative societies governed by the Kerala Co-operative Societies Act (KCS Act) and challenged the legislative competence of the Union, citing Entry 32 of List II (State List) in the Seventh Schedule to the Constitution. However, Section 35 of the SARFAESI Act provides that its provisions shall have effect notwithstanding any inconsistency with other laws. The court noted that the SARFAESI Act creates an interest in property, not merely a recovery mechanism, and falls within Entries 6 and 7 of the Concurrent List, which cover transfer of property and contracts, respectively. The court distinguished the SARFAESI Act from the Recovery of Debts Due to Banks and Financial Institutions Act (RDB Act), which provides an alternate forum for adjudication but does not create a security interest.

Issue 3: Validity of Notification

The petitioners challenged the Central Government's notification dated 28-1-2003, which specified co-operative banks as "banks" for the purposes of the SARFAESI Act. The court upheld the notification, noting that the SARFAESI Act provides a residuary power to the Central Government to notify any other bank as a "bank" for the purposes of the Act. The court found that the legislative competence regarding the SARFAESI Act falls within Entries 6 and 7 of List III, thus within the Union's competence, even concerning co-operative banks.

Conclusion:

The court concluded that the Kerala State Co-operative Bank, District Co-operative Banks, and Urban Co-operative Banks are entitled to invoke the provisions of the SARFAESI Act. The legislative competence of the Union to apply the SARFAESI Act to co-operative societies was upheld, and the Central Government's notification dated 28-1-2003 was deemed valid. The writ petitions were dismissed, preserving the petitioners' right to appropriate statutory remedies under the SARFAESI Act.