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2015 (6) TMI 150 - RAJASTHAN HIGH COURT

2015 (6) TMI 150 - RAJASTHAN HIGH COURT - TMI - Financial and banking activities undertaken by Credit Cooperative Societies - No licence as per provisions of the Banking Regulation Act, 1949 - Held that:- We are of the view that activities carried out by the respondents Nos.9 to 12 as Cooperative Societies may be within the purview of legitimate business under the Rajasthan Cooperative Societies Acdt, 2001 and the Multi-State Cooperative Societies Act, 2002 and the registered bye-laws, these act .....

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are accepted without any restriction from such members who may be enrolled as members on the same day at the time of accepting deposits. Even the person enrolled as nominal member, does not fall outside the purview of the word “public” and that any deposits from the members on interest and for which amount is to be repayable on demand or otherwise, is an activity which amounts to banking activity.

The activities of the Cooperative Societies in the State of Rajasthan have clearly demon .....

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es can be advanced as loans without sufficient security. If such a restriction was sufficient, the entire banking activity could be carried out without obtaining licence under the Act of 1949. The Reserve Bank of India circulars and directives are binding on all the banks which are licensed under the Act of 1949. This protection must apply to all kind of banking activities which is defined under Section 5(b) of the Act of 1949. We do not agree with the submission of learned counsel appearing for .....

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devoid of any substance.

So far as the allegation against the petitioner is concerned, this Court has already directed the Superintendent of Police of the concerned district to enquire about the complaints of the investors. In case the petitioner has committed any misconduct under the Regulation of Bar Council of India, a complaint can be made against him to the Bar Council of Rajasthan. These allegations against the petitioner was not detain us to decide the writ petition in the larg .....

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ng for the parties. 2. By this writ petition, the petitioner has prayed for the following reliefs:- It is, therefore, most respectfully prayed by the humble petitioners, before your kind Lordships that; this writ petition filed by the petitioners, may kindly be allowed with cost and; (i) By an appropriate writ, order or direction, the respondent State Government and so also respondent Union of India, may very kindly be directed to immediately issue guidelines to stop and put a bank on the financ .....

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to 12 societies and other such credit cooperative societies which are either registered under Rajasthan Cooperative Societies Act, 2001 or under The Multi-State Cooperative Societies Act, 2002, could be stopped and necessary directions, may kindly be issued for refund of money of public, with interest, who have invested money with these societies or a committee may kindly be directed to be appointed under supervision of Reserve Bank of India, to find out the ways for solution of the problem. (i .....

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14, this Court passed following order:- 1. In this writ petition filed in public interest, the petitioner, an Advocate, has brought to the notice of the Court large scale banking business done by various Cooperative Societies registered under the Multi-State Cooperative Societies Act, 2002 and the Cooperative Societies registered under the Rajasthan Cooperative Societies Act,2001 without taking out licence under Section 22, of the Banking Regulation Act, 1949 2. It is alleged that Sanjivani Cred .....

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r of documents have been filed including FIRs which clearly demonstrate and establish on record that respondents Nos.9 to 12 are actively engaged in the banking business. They are accepting deposits by enrolling the persons as members and giving interest on such deposits. They are giving pass-books and also offering ATM cards. The petitioner has also annexed a large number of documents to show that amount is collected from the general public by way of deposit on the false promise of getting high .....

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itioner who is an Advocate and was himself engaged in the business of banking under the name of Mateshwari Credit Cooperative Society. It is alleged that several FIRs have been lodged against the petitioner and thus, he is not the person who is competent under the Rules of the Court to file Public Interest Litigation. 5. In response to the preliminary objection raised by learned counsel appearing for the respondents Nos.9 to 12, the petitioner submits that he was the Chairman of one of such soci .....

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mself, he wishes to bring notice of the Court the ill-deeds of the other cooperative societies who are carrying on banking business. He wants to save general public from the losses which they may suffer in the hands of unscrupulous persons. 6. We do not find that the petitioner has approached the Court with any ulterior motive or ill will and, accordingly, the objections are over-ruled. 7. Learned counsel appearing for the respondents Nos.9 to 12 have contested the averments made in the petition .....

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owever, have not given the source of the capital from the amount is advanced to its members. They have also failed to specify the purpose for which the amounts are advanced as loans. 8. The respondent No.2 - Union of India has filed a counter affidavit stating that respondent No.9 and 10 are Multi-State Cooperative Societies and respondents Nos.11 and 12 are State Level Cooperative Societies. It is admitted that no cooperative society can start banking business unless it is registered as a Coope .....

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money is being collected from unwary and innocent people by the respondents-societies in the name of attractive banking offering prizes by lottery. Most of the deposits are of poor people. By issuing attractive advertisements for deposits, the respondents Nos.9 to 12 are engaged in the activities in accepting the deposits by issuing pass-book, opening branches and ATM counters. These activities are nothing but banking activities, which cannot be said to be valid activities of a cooperative soci .....

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license to any cooperative bank unless it is a state co-operative bank or a central co-operative bank or a primary co-operative bank. It would be necessary that a declaration under the NABARD Act be first obtained....... 46.It is to be seen that the RBI can only give a license to a state co- operative bank which has been so declared by a particular State. As the definition of co-operative societies in the NABARD Act is restricted to co-operative societies registered under State Acts and as the .....

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of Maharashtra and Goa when, admittedly, the Appellants had not been declared a state co-operative bank in the State of Goa. Thus, it is held that the banking license could not have been issued for the State of Goa. 12. Let a reply be filed by the Reserve Bank of India, Central Registrar of Multi-Cooperative Society as well as Registrar, Rajasthan Cooperative Society within four weeks. 13. As an interim measure, until further orders, the Central Registrar, Multi-State Cooperative Society, New D .....

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e deposits, opening branches for its banking activities, installation and running of ATMs and distributing loans to the depositors. The respondents will not allow any banking business by the Multi-State Cooperative Society and the District Cooperative Society unless they have licence from the Reserve Bank of India under the Banking Regulation Act, 1949. 14. The petitioner is also directed to file audited balance-sheet of Mateshwari Credit Cooperative Society and the latest income-tax returns fil .....

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ary guidelines to ban financial and banking activities carried out by various Credit Cooperative Societies including the respondents Nos.9 to 13. On 19.11.2014, noticing the facts averred in the petition for writ, this Court by relying upon the judgment of Hon'ble Supreme Court in Apex Co-operative Bank of Urban Bank of Maharashtra and Goa Ltd. v. Maharashtra State Co-operative Bank Ltd. & Ors., reported in AIR 2004 SC 141, passed an interim order in following terms :- As an interim meas .....

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e cooperative societies will not be allowed to carry on banking business namely, to take deposits, opening branches for its banking activities, installation and running of ATMs and distributing loans to the depositors. The respondents will not allow any banking business by the Multi-State Cooperative Society and the District Cooperative Society unless they have licence from the Reserve Bank of India under the Banking Regulation Act, 1949. As desired under the order aforesaid, a reply to the writ .....

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n regarding the business carried on by respondent Nos.9 to 12. Today the matter came up before us on the applications preferred by some of the cooperative societies seeking modification of the directions given on 19.11.2014. At the threshold Shri M.S.Singhvi, learned counsel appearing on behalf of respondent Sanjivani Credit Cooperative Society Ltd., states that conduct of the petitioner disentitles him to approach this Court by claiming this petition for writ in public interest. We are not incl .....

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dent No.11 to ensure that the societies may not undertake banking activities or any activity i.e. not in consonance with the applicable by-laws and the provisions of Multi State Cooperative Societies Act, 2002. Learned counsels appearing on behalf of the respondents Nos.9 to 13 states that the cooperative societies are neither involved in banking activities nor intend to do so. According to them the activities of the societies are confined to the projects necessary for achieving aims and objects .....

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and the Rajasthan Cooperative Societies Act, 2001, as the case may be. We have considered the arguments advanced. The petitioner has approached this Court to stop banking activities by the respondent cooperative societies who are not having requisite licence as per provisions of the Banking Regulation Act, 1949. Some of the advertisements published in different news papers on behalf of respondents Sanjivani Credit Cooperative Society Ltd. and Navjivan Credit Cooperative Society Ltd. indicate abo .....

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ications with following directions as interim measures :- 1. No Multi State Cooperative Society or any other cooperative society created and registered under the Multi State Cooperative Societies Act, 2002 or any other State legislation including the Rajasthan Cooperative Societies Act, 2001, as the case may be, shall carry on banking activity as defined under Section 5(b) of the Banking Regulation Act, 1949; 2. The respondents Nos.9 to 13 (except the respondent No.11) shall be at liberty to car .....

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rictions given therein; 4. The respondent cooperative societies shall confine their activities within the scope of applicable by-laws among their existing members only. If any cooperative society desires to provide its membership to any person, then that shall examine eligibility of such person as per applicable law and grant that by recording satisfaction of the competent authority to do so; 5. The respondent cooperative societies may publish or otherwise exhibit their activities by issuing adv .....

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operative societies shall furnish details of their identity, addresses and property (immovable as well as movable) to Deputy Registrar (Judicial) of this Court within a period of 15 days from today; and 7. The Registrar Multi State Cooperative Society, New Delhi and the Registrar, Cooperative Societies Rajasthan shall ensure compliance of the directions given by periodical inspection of the record of the respondent cooperative societies falling within their jurisdiction and also to report this C .....

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to accept the deposits from its members. Reference has been made to the provisions of Section 50 and 51 of the Rajasthan Cooperative Societies Act, 2001 and the provisions of Section 49(2)(h)(k) and (l) and Section 67 of the Multi-State Cooperative Societies Act, 2002 as well as the Byelaws of the Cooperative Societies registered under the Rajasthan Cooperative Societies Act, 2001 and with the Central Registrar under the Multi-State Cooperative Societies Act, 2002 to justify the deposits and bo .....

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Section 22(1) of the Act of 1949 are quoted as follows:- 5(b) banking means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawal by cheque, draft, order or otherwise; 22. Licensing of banking companies.- (1) Save as hereinafter provided, no company shall carry on banking business in India unless it holds a licence issued in that behalf by the Reserve Bank and any such licence may be issued subject to such .....

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licence, the Regulations of Reserve Bank of India would cease to have control over banking business and would give rise to an anamolous situation effecting the economy of the country. It is submitted that Sanjivani Credit Cooperative Society - respondent No.9 is a Multi-State Cooperative Society. It has transacted banking to the extent of more than 200 crores, which has been invested in the banks and for giving personal loans, mortgage and yearly loans, of which, details are not provided in the .....

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Sanjivani Pension Yojana etc., which are widely advertised in general public is attracted to deposit money on the attractive prizes of Cell Phone, Motor Cycle, Car etc. These deposits are not secured. There is no security in terms of RBI and SEBI guidelines for investors. The Regulations such as Cash Reserve Ratio and Statutory Liquidity Ratio are not applicable to Cooperative and Multi State Cooperative Socities leaving investors fund at risk. Although it is stated that nominal members are not .....

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the investigation. They hand over these complaints to the machinery of the State Government with no effective steps taken so far. 9. Learned counsel appearing for the Reserve Bank of India has categorically stated that no banking as defined under Section 5(b) of the Act of 1949 can be carried out without a licence under Section 22 of the Act of 1949. In paragraphs 2,4,5,6 & 7 of the reply filed on behalf of Reserve Bank of India, Shri Shekhar Choudhary, Assistant General Manager, Department .....

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es not have any information regarding the business carried on by respondent Nos.9 to 12. 4. That RBI had issued letters to the Registrar of Cooperative Societies, Rajasthan requesting him to furnish to RBI the names of co-operative Societies that were/are carrying on banking business without having a licence issued by RBI. Various reminders were also issued to the Registrar, Co-operative Societies, Rajasthan. Copies of all such communications as issued by RBI to the Registrar, Co-operative Socie .....

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.2014 to the Central Registrar, Office of Central Registrar Co-operative Societies, Government of India and requested the authority concerned to initiate desired inquiry in regard to the activities of respondents No.9 to 11. The RBI got a legal notice on behalf of the present petitioner and immediately thereafter, the RBI issued various communications to the Central Registrar as well as the Registrar, Co-operative Societies, Rajasthan. Copies of communications dated 08.03.2013 and 11.04.2014 are .....

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Divisions were sent to the RBI. It becomes apparent from this communication that information from certain units were still not received. The said communication was received at the Jaipur office of the RBI on 16.12.2014. Copy of communication dated 27.11.2014 is hereby produced and marked as ANNEXURE-R/3-5. 7. That after due examination entire information as provided the Registrar, Co-operative Societies, Rajasthan, it was found that five societies were accepting deposits from non-members. Detai .....

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3.01.2015 addressed to the Registrar, Co-operative Societies, Rajasthan, sought all the documents of the said five Credit Co-operative Societies related to banking business and RBI also inquired about the proceedings initiated by the Registrar against the said Co-operative Societies for violation of Section 22(1) of the BR Act. The said communication has been sent by E-mail to the concerned authority and a hard copy shall be sent/delivered on 15.01.2015. A copy of communication dated 13.01.2015 .....

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that banking business can only be carried out only in accordance with the licence under Section 22 of the Act of 1949. 11. The issue involved in this writ petition is whether a Cooperative Society registered under the Rajasthan Cooperative Societies Act, 2001 or a Multi-State Cooperative Society registered under the Multi-State Cooperative Societies Act, 2002 is entitled to carry on banking business without a licence under Section 22 of the Banking Regulation Act, 1949? 12. Learned counsel appe .....

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premises of the Society, and that no cheque books are issued. The facility of deposits and loans are given only to the regular members in accordance with the provisions of the bye-laws. He submits that activity of the respondent No.9 in accepting deposit and giving loans is not a banking activity as deposits are not accepted from public. He submits that Cooperative Society is formed for the benefits of members and that a Cooperative Society can carry on its business within the purview of the pr .....

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itioner has not filed balancesheet and the income tax returns despite direction issued by the Court and thus, he is not entitled to maintain the writ petition. 13. After hearing learned counsels for the parties, we are of the view that activities carried out by the respondents Nos.9 to 12 as Cooperative Societies may be within the purview of legitimate business under the Rajasthan Cooperative Societies Acdt, 2001 and the Multi-State Cooperative Societies Act, 2002 and the registered bye-laws, th .....

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re accepted without any restriction from such members who may be enrolled as members on the same day at the time of accepting deposits. Even the person enrolled as nominal member, does not fall outside the purview of the word public and that any deposits from the members on interest and for which amount is to be repayable on demand or otherwise, is an activity which amounts to banking activity. 14. We do not find any material or any assertion that there is any restriction for enrollment of membe .....

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will cover the activity of the societies as banking activities, for which, they are required to take out licence under Section 22 of the Act of 1949 and to be regulated by the Regulations of Reserve Bank of India for security of the investors. On 26.03.2014, the Joint Secretary to the Government of India and Central Registrar of Cooperative Societies has written a letter to the Registrar, Cooperative Societies of all States informing that Reserve Bank of India (RBI) is of the view that acceptanc .....

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issued for registration and extension of area of operation of Multi-State Cooperative Societies having objects and functioning relating to thrift and credit. 2. In order to protect the interest of members and public, it has been decided to extend the applicability of the instructions issued vide this Department's order of even number dated 29th May, 2013 to the multipurpose cooperative societies. 3. It has also been decided that, henceforth, the primary multi state cooperative societies sha .....

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ies may have to be construed as accepting deposit from Public and carrying out banking activity. In view of the observation of RBI, it is therefore instructed that Multi State Credit Societies shall, henceforth, discontinue accepting deposit from nominal members. Sd/- (Ashish Kumar Bhtani) Joint Secretary to the Government of India & Central Registrar of Cooperative Societies 16. We are concerned here with the protection of the general public which includes members, nominal members, ordinary .....

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trated that the deposits and investments of general public, who can become nominal members and ordinary members of the Cooperative Societies, and for them lucrative schemes are being floated by the Cooperative Societies are at risk. Their investments are not covered by any protection. The provisions under the Multi-State Cooperative Societies Act, 2002 restrict the deposits upto ten times the paid up capital and the reserve. This condition is not sufficient to protect the deposits if the reserve .....

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