TMI Blog2003 (10) TMI 388X X X X Extracts X X X X X X X X Extracts X X X X ..... this submission. - CIVIL APPEAL NOS. 439 OF 1997 AND 8478 OF 2003 - - - Dated:- 29-10-2003 - S.N. VARIAVA AND H.K. SEMA, JJ. R.N. Trivedi, T.R. Andhyarujina, G.L. Sanghi, K. Rajendra Chowdhary, Harish N. Salve, Bhimrao Naik, K. Parasaran, R.K. Sanghi, N.M. Sharma, Rajesh Prasad Singh, Rakesh K. Sharma, Prashant Naik, R.K. Sharma, H.S. Parihar, Kuldeep Parihar, S.V. Deshpande and Mukesh K. Giri for the Appearing Party. JUDGMENT S.N. Variava, J. - Leave granted. 2. Both these Appeals are being disposed of by this common Judgment as they arise out of the Judgment of the Bombay High Court dated 19th December, 1996. In this judgment the parties are being referred to in their capacity in Civil Appeal No. 439 of 1997. 3. Briefly stated the facts are as follows : On 28th of August, 1993, the Appellants appear to have made an application to the Reserve Bank of India (hereinafter referred to as RBI) for a license to start an Apex Bank for Maharashtra and Goa. The RBI by its letter dated 25th April, 1994 inter alia stated as follows : "2. As you are aware, the proposed bank requires to be got registered under the Multi State Co-operative Societies Act, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the RBI on 22nd March, 1996. By the impugned Judgment the Writ Petition has been partly allowed inasmuch as the Notification dated 30th December, 1995, as well as Orders/directions dated 25th January, 1996 and 14th May, 1996, are quashed and set aside. The RBI was directed to review its decision of granting License to the Appellants in the light of the fact that the Notification dated 30th December, 1995 had been quashed. In the impugned judgment it is clarified that till RBI takes a fresh decision the license granted on 22nd March, 1996 was to remain operative. 6. Civil Appeal No. 439 of 1997 has been filed by the Appellants challenging the impugned Judgment. Civil Appeal No..... of 2003 arising out of SLP (C) No. 4877 of 1997 has been filed by the 1st Respondent against that portion whereby the license granted by the RBI has not been quashed. On 27th January, 1997 this Court passed the following Order : "There will be ad interim stay of the operation of impugned judgment. We may record that the directions of the High Court in relation to the Notifications dated 25th January, 1996 and 14th May, 1996 are not questioned before us by the learned counsel for the petitione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as hereinafter provided, no co-operative society shall carry on banking business in India unless - ( a )it is a primary credit society, or ( b )it is co-operative bank and holds a License issued in that behalf by the Reserve Bank, subject to such conditions, if any, as the Reserve Bank may deem fit to impose : Provided that nothing in this sub-section shall apply to a co-operative society, not being a primary credit society or a co-operative bank carrying on banking business at the commencement of the Banking Laws (Application to Co-operative Societies) Act, 1965, for a period of one year from such commencement. (2) Every co-operative society carrying on business as co-operative bank at the commencement of the Banking Laws (Application to Co-operative Societies) Act, 1965, shall before the expiry of three months from such commencement, every co-operative bank which comes into existence as a result of the division of any other co-operative society carrying on business as a co-operative bank or the amalgamation of two or more co-operative societies carrying on banking business shall, before the expiry of three months from its so coming into existence, every primary credit so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. By virtue of section 5( ccvii ) the term "state co-operative bank" is to be understood as a state co-operative bank as defined in NABARD Act. Thus unless a co-operative society is a state co-operative bank or a central co-operative bank or a primary co-operative bank (as defined under the NABARD Act), no license can be issued by the RBI. In view of these clear provisions it will have to be held that the stand taken by the RBI in its letter dated 25th April, 1994 was and is the correct stand. It must be mentioned that the Appellants accept this to be the correct provision. They only contest 1st Respondents claim that the Appellants could not be declared a state co-operative bank under section 2( u ) of NABARD Act. In this behalf the relevant portions of the written submissions given by the learned Attorney General read as follows : "10. It is submitted that a perusal of the BR Act and the NABARD Act would reveal the following scheme : ( i )for the Appellant to carry on banking business, Reserve Bank of India [hereinafter referred to as RBI] has to grant a license; ( ii )In order to get an RBI license, according to BR Act, the Appellant has to be a co-operative bank i.e., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( c ) Black s Law Dictionary , page 1526. It is pointed out that section 110 of the Multi-State Act repeals the Multi-Unit Co-operative Societies Act, 1942. On this basis it is submitted that multi-state co-operative society which is a co-operative bank under the Multi-State Act is subject to the licensing power of the RBI. 10. It is further submitted that this position becomes clear when one notes that section 15 of the Multi-State Act provides that the RBI can require the central registrar to order moratorium, amalgamation and reorganization of a co-operative bank under the Multi State Act and section 78 of the Multi-State Act empowers the RBI to require the Central Registrar to wind up a co-operative bank if circumstances mentioned in section 13D of the Deposit Insurance and Credit Guarantee Corporation Act, 1961 exist. Reference is also made to section 13D of the Deposit Insurance Act which provides for circumstances in which winding up can be ordered. It is submitted that a conjoint reading of section 13D read with section 2( gg ) of the Deposit Insurance Act indicates that RBI can exercise power in respect of matters mentioned therein. It is pointed out that section 48( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cci ) defines a co-operative bank to mean a state co-operative bank, a central co-operative bank and a primary co-operative bank in view of the scheme of the Multi-State Act read with section 22(1) (2) of the BR Act, the phrase co-operative bank has to be construed in a broad sense especially in view of the fact that section 5 starts with the following words "in this Act, unless there is anything repugnant in this subject or context". It is submitted that in the object and context of contemporaneous legislation viz., Multi-State Act, 1984, the term "co-operative bank" must be held to include a bank registered under the Multi-State Act. It is submitted that if the RBI did not have such power, the consequence would be, that a Co-operative Bank under the Multi-State Act would not require a license for conducting banking business. It is submitted that such an interpretation should be eschewed. It is submitted that a purposive interpretation of Banking Regulation Act and Multi-State Act must be given. It is submitted that a contrary interpretation would render, the Multi-State Act, so for as it relates to Co-operative Banks redundant. 12. We are unable to accept these submiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 1904. However, that appears to be not relevant for our purposes and it has not been shown to us by any party. In order to give societies a corporate existence, without resort to the Companies Act, the Co-operative Societies Act, 1912 was enacted. This Act did not definite a co-operative society. It however provided that State Governments would appoint, for the State, a Registrar of Co-operative Societies. Sections 4 6 provide as follows : "4. Societies which may be registered. Subject to the provisions contained, a society which has its object the promotion of the economic interests of its members in accordance with co-operative principles, or a society established with the object of facilitating the operation of such a society, may be registered under this Act or without limited liability : Provided that unless the [State Government] by general or special order otherwise directs (1)the liability of a society of which a member is a registered society shall be limited; (2)the liability of a society of which the object is the creation of funds to be lent to its members, and of which the majority of the members are agriculturists, and of which no members is a regist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r all the purposes of registration, control and dissolution to the law relating to co-operative societies in force for the time being in the province in which it is actually registered. (2) Where any such co-operative society has established before the commencement of this Act or establishes after the commencement of this Act a branch or place of business in a province other than that in which it is actually registered, it shall, within six months from the commencement of this Act or the date of establishment of the branch or place of business, as the case may be, furnish to the Registrar of Co-operative Societies of the province in which such branch or place of business is situated a copy of its registered by-laws, and shall at any time it is required to do so by the said Registrar submit any returns and supply any information which the said Registrar might require to be submitted or supplied to him by a co-operative society actually registered in that province. (3) The Registrar of Co-operative Societies of the province in which a branch or place of business such as is referred to in sub-section (2) is situated may exercise in respect of that branch or place of business any p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive bank means the principle co-operative society in a State, the primary object of which is the financing of other co-operative societies in the State : Provided that in addition to such principal society in a State, or where there is no such principal society in a State, the State Government may declare any one or more co-operative societies carrying on business in that State to be also or to be a State cooperative bank or State cooperative banks within the meaning of this definition;" It is to be noted that the NABARD Act is of 1981 whereas the Multi-State Act is of 1984. Therefore, at the time the NABARD Act was enacted obviously the Legislature could never have intended a society proposed to be registered under some future Act to be covered. 16. Under the NABARD Act, a Co-operative society is a society which is registered or deemed to be registered under the Co-operative Societies Act, 1912 or under any other law relating to co-operative societies for the time being in force in any State. It must be remembered that the Multi-Unit Act applied to co-operative societies registered under any Act relating to co-operative societies in force in any province. As seen above t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be under the regulation of the Register of the State. It was submitted that if the Legislature intended to restrict the application of NABARD Act co-operative societies registered under local laws it would have used the words "of any State". It was submitted that the fact that the Legislature has not used the words "of any State" indicates that the co-operative society could be registered under any law in force in any State. We are unable to accept this submission. The Legislature could not have used the words "of any State". That would have meant that a co-operative society registered under a law in force in State A could be considered as a co-operative society in State B , C or D also. That was not what the Legislature intended. The words "in any State" indicate that the co-operative society must be registered under the law in force in any State in which it wants to operate. 17. It must be mentioned that it was submitted by Mr. Andhyarujina that a Co-operative Society registered under the Co-operative Societies Act, 1912 can operate in more than one State. It was submitted that this showed that laws dealing with Co-operative Societies, which operate in more than one S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocieties for the time being in force in any State" necessarily means only a State law is further reinforced by the use of this term in the Multi-State Act. Under the Multi-State Co-operative Societies Act, 1984, the relevant provisions i.e., Sections 2, 3( e ), 3( g ) and 3( k ) read a follows : " Application . This Act shall apply to ( a )all Co-operative Societies, with objects not confined to one State, which were incorporated before the commencement of this Act, ( i ) under the Co-operative Societies Act, 1912 (2 of 1912), or ( ii )under any other law relating to Co-operative Societies in force in any State or in pursuance of the Multi-unit Co-operative Societies Act, 1942 (6 of 1942), and the registration of which has not been cancelled before such commencement; and ( b )all Multi-State Co-operative Societies. 3. Definitions. ( a ) to ( d ) ****** ( e ) co-operative bank means a Multi-State Co-operative Society which undertakes banking business; ****** ( g ) Co-operative Society means a society registered or deemed to be registered under any law relating to Co-operative Societies for the time being in force in any State; ****** ( k ) Multi-St ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from "other forms of business" in which Banking Companies [or co-operative banks as per amendment in section 56] may engage in and which are specifically stated in section 6 of the Banking Regulation Act, 1949. It was submitted that the banking business, as defined in section 5( b ) of the Banking Regulation Act cannot be carried on unless the banking company or the co-operative bank secures a banking license under section 22 of the Banking Regulation Act. It was submitted that the well known distinction between banking business and non-banking business carried out by banking companies had been noticed by the Supreme Court in Rustam Covasjee Cooper v. Union of India [1970] 1 SCC 248 at pages 279-280. In this behalf of reliance was also placed on the case of Sajjan Bank (P.) Ltd. v. Reserve Bank of India AIR 1961 Mad. 8. It was submitted that the High Court was wrong in holding that the business referred to in section 2( u ) of the NABARD Act is the business of banking. It was further submitted that wherever references are made to banking business in statutes, it has been expressly so stated. In support of this section 3( e ) of the Multi-State Act which defines "Co-operativ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the light of the main provision it is clear that even though banking business, as understood in the strict sense, may not be carried on, yet the business of financing other Co-operative Societies in the State must be carried on. 25. It was submitted that the activities of accepting entrance fees and share subscriptions was sufficient to show that the Appellants was carrying on business. In our view this was not sufficient. What was required was carrying on business of financing other Co-operative Societies. 26. Faced with this situation it was submitted that the words "carrying on business" did not mean that business must be actively carried on. It was submitted that an intention to carry on business would be sufficient and can be taken into consideration for purposes of a declaration under section 2( u ) of NABARD Act. In support of this reliance was placed on the case Sarflax Ltd., In re [1979] 1 Ch. D. 592 (at pages 598-599) and the case of Vanguard Fire General Insurance Co. Ltd. v. Frazer and Ross . We are unable to accept the submission that mere intention to carry on such a business in the future would be sufficient. A plain reading indicates that the carryin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether the word "Insurer" in section 33 of the Insurance Act, 1938 included a company which had closed insurance business. This Court held that the word "Insurer" referred not only to a person who was actually carrying on business but also to one who has subsequently closed. Thus here also the party had actually carried on business. These are completely different situations from one where no business, of the type envisaged, has been carried on. If no business has been carried on, then mere intention to carry on in future would not bring it within the meaning of the term "carrying on business". Also as stated above to give such an interpretation would be to permit arbitrariness. 27. In this case prior to the Notification dated 13th December, 1995, the Appellants had not carried on any business of financing any co-operative society. All that they had done was accepting entrance fees and share subscription from members. As stated above this is not business as contemplated by section 2( u ) of the NABARD Act. On this ground also it will have to be held that the Notification dated 13th December, 1995 cannot be sustained. 28. Faced with this situation Mr. Andhyarujina submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... additional society must be carrying on banking business and that too in the State i.e. State of Maharashtra. According to him, admittedly the 5th Respondent for want of necessary license, was not carrying on any banking business as on the date of the impugned declaration, and that the 5th Respondent being a multi-state co-operative society could not be said to be a society carrying on such banking business in the State." He pointed out that the High Court held as follows : "The words "carrying on business" means that such additional or such principal co-operative society must be carrying on business, the business being naturally that of banking . It is true that nowhere, neither in the first part nor in the proviso, the word "banking" is even mentioned. In our opinion the underlying or the basic requirement is that the principal co-operative society must be carrying on the business of banking and its primary object must be to finance other co-operative societies in the state. Otherwise how can a society be recognized as the State co-operative bank when it is not even functioning as such on the date of such recognition as a bank nor has the primary object to finance other co- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that "banking business" was required to be carried on. As set out above the High Court was wrong in equating business of financing other co-operative societies to banking business. But it is clear that it had been the case of the 1st Respondent, not only in the Writ Petition, but also in the submissions before the High Court that the Appellants were not carrying on any business and that they were not carrying on the business of financing other co-operative societies. We are, therefore, unable to accept the submission that the 1st Respondent cannot now be allowed to take this contention. 30. For all the above reasons it is held that the State Government could not have declared the Appellants as a state co-operative bank. As it could not be so declared the Orders dated 25th January, 1996 and 14th May, 1996 could not have been passed. The High Court was, therefore, right in striking down the Notification dated 30th December, 1995 and two orders/directions dated 25th January, 1996 and 14th May, 1996. As seen above, in answer to question No. ( a ) it has been held that RBI could not have granted the license unless the Appellants were first declared a state co-operative bank un ..... X X X X Extracts X X X X X X X X Extracts X X X X
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