http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 17  

CASE NO.: Appeal (civil)  439 of 1997 Appeal (civil)  8478 of 2003

PETITIONER: The Apex Co-operative Bank of Urban              Bank of Maharashtra and Goa Ltd.                         

RESPONDENT: The Maharashtra State Co-operative  Bank Ltd. & Others                                                        Maharashtra State Co-operative  Bank Ltd. & Anr.                                                         Vs.              State of Maharashtra & Ors.

DATE OF JUDGMENT: 29/10/2003

BENCH: S. N. VARIAVA & H. K. SEMA

JUDGMENT: J U D G M E N T Arising out of  S.L.P. (C) No. 4877 of 1997)

S. N. Variava, J.

       Leave granted.

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.

       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, 1984 since its area of operation  extends beyond the boundaries of a State and as  such it would not be a co-operative Bank as defined  in the Banking Regulation Act, 1949 (as applicable to  Co-operative Societies), at present.  Hence an  amendment to the Banking Regulation Act, 1949 is  considered necessary.  The Government of India has  already been apprised of the amendments needed in  the context of establishment of National Co-operative  Bank of India (NCBI) registered under the Multi-State  Co-operative Societies Act, 1984 and other similar  banks.

3.      In view of the foregoing, you may please  approach the Reserve Bank only after the needed  legislative amendments are carried out by  government of India to bring the NCBI as also other  Banks similar to those proposed by you within the  definition of Co-operative bank’s under the Banking

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 17  

Regulation Act, 1949 (as applicable to Co-operative  Societies)."  

        The Appellants then got themselves registered as a Multi State  Co-operative Society under the Multi State Co-operative Societies Act  1984 (hereinafter referred to as the Multi State Act) on 10th October,  1994.   After the Appellants got themselves registered they accepted  some entrance fees and some shares subscription from members.     This was the only activity carried on by the Appellants.   By a  Notification dated 30th December, 1995, issued by the State of  Maharashtra the Appellants were declared as a State Co-operative  Bank within the meaning of Section 2(u) of the National Bank for  Agriculture and Rural Development Act, 1981 (hereinafter referred to  as the NABARD Act).  Thereafter, two directions/orders dated 25th  January, 1996 and 14th May, 1996 were issued by the Commissioner  for Co-operation and Registrar of Co-operative Societies, Maharashtra  State advising/directing deploying of funds by all Urban Co-operative  Banks to the Appellants.    These directions were issued under Section  70 of the Maharashtra Co-operative Societies Act, 1960 (hereinafter  referred to as the MCS Act).  On 22nd March, 1996 the RBI gave a  banking license to the Appellants under Section 22(1) read with 56(o)  of the Banking Regulation Act, 1949.  This was for the States of  Maharashtra and Goa. The 1st Respondent filed a Writ Petition challenging the  Notification dated 30th December, 1995; two directions/orders dated  25th January, 1996 and 14th May, 1996  and the grant of License by  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.    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 petitioners."

Thus, in these Appeals there is now no challenge to quashing of the  directions/orders dated 25th January, 1996 and 14th May, 1996.           The questions which arise for considerations are: (a) whether a  co-operative society registered under the Multi State Act can be  granted a license by the RBI to commence and carry on banking  business, (b) whether a co-operative society registered under the Multi  State Act can be recognized and notified by the State Government as a  State Co-operative Bank and (c) whether a co-operative society  registered under the Multi State Act, which has been recognized and  notified by one State Government as a State Co-operative Bank for  that State, can be granted a License by the RBI to commence and  carry on banking activities in other States in which it has not been  recognized as a State Co-operative Bank.           Question (a):  whether a Co-operative Society registered  under the Multi State Act can be granted a License by the RBI

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 17  

to commence and carry on banking business.         As set out hereinabove the RBI in its letter dated 25th April, 1994  had taken the stand that a co-operative society registered under the  Multi State Act would not be a co-operative bank as defined in the  Banking Regulation Act.  The same stand had been reiterated by the  RBI in its affidavit before the High Court.  However, surprisingly in its  submission before this Court a contrary stand has been taken by RBI.             For a consideration of this question the relevant provisions of the  Banking Regulation Act need to be looked at.  Section 5(b) and Section  22 of the Banking Regulation Act, 1949 read as follows:

"5. Interpretation: In this Act, unless there is anything  repugnant in the subject or context, -

(a)     xxxxxx (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; (c)     xxxx

(cci)   "co-operative bank" means a state co-operative  bank, a central co-operative bank and a primary co- operative bank;

(ccvii) "central co-operative bank", "co-operative society",  ’primary rural credit society’ and "state co-operative bank"  shall have the meanings respectively assigned to them in  the National Bank for Agriculture and Rural Development  Act, 1981;"   

"22. Licensing of co-operative banks :- (1)     Save 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  society which becomes a primary co-operative  bank after such commencement shall before the  expiry of three months from the date on which it

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 17  

so becomes a primary co-operative bank and  every co-operative society other than a primary  credit society shall before commencing banking  business in India, apply in writing to the Reserve  Bank for a License under this section :

Provided that nothing in clause (b) of sub-section (1)  shall be deemed to prohibit -

(i)     a co-operative society carrying on  business as a co-operative bank at the  commencement of the Banking Laws  (Application to Co-operative Societies)  Act, 1965; or  

(ii)    a co-operative bank which has come  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 at the commencement  of the Banking Laws (Application to Co- operative Societies) Act, 1965, or at any  time thereafter; or

(iii)   a primary credit society which becomes  a primary co-operative bank after such  commencement, from carrying on  banking business until it is granted a  License in pursuance of this section or  is, by a notice in writing notified by the  Reserve Bank that the License cannot be  granted to it.

xxx                     xxx                     xxx xxx                     xxx                     xxx

       Under Section 22, as it stood prior to the amendment brought  about by the Amendment Act of 68 wherein Section 56 was inserted,  the RBI had right to issue license to companies to carry out banking  business and no company could carry on a banking business unless it  held a license issued by the RBI.  After the amendment certain types  of co-operative societies, as were brought within the purview of the  Banking Regulation Act, could be issued a license by the RBI.  Section  22 as amended prohibits co-operative societies from carrying on  banking business. The term "co-operative society", as used in Section  22, would include all types of co-operative societies. In other words no  co-operative society can carry on banking business unless it falls  within the permitted categories set out in Section 22.  The term "co- operative bank" has been defined under Section 5(cci) as a state co- operative bank, a central co-operative bank and a primary co- operative bank.  Thus the term "co-operative bank" does not include  all co-operative societies.  It only includes the above mentioned three  types of societies.  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 the 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 Respondent’s claim that the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 17  

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. in this case a State Co-operative Bank; (iii)   For the Appellant to  be a State Co-operative  Bank, it has to be notified as such under Section  2(u) of the NABARD Act;"   

Written submissions on behalf of the Appellants given by Mr.  Andhyarujina also need to be noted.  The relevant portion reads as  follows: "According to the scheme of the BR Act, for the grant of a  license to the Appellant, it has to first come within the  meaning of a "cooperative bank" i.e. either a state  cooperative bank, central cooperative bank or a primary  cooperative bank.  It is only after a notification under  section 2(u) of NABARD is issued the cooperative society  becomes a cooperative bank within the meaning of section  5(cci) of the BR Act as amended by section 56(c) of the BR  Act and thus became eligible to for license from the RBI  under section 22 of the BR Act  read with section 56(o) of  the BR Act.  Thus a notification under section 2(u) in these  circumstances necessarily precedes the grant of a license  by the RBI."

We hold that this is the correct position.          On behalf of the RBI it is however submitted that RBI is  competent to license a co-operative bank under the Multi State Act.   It is submitted that Section 2 of the Banking Regulation Act, 1949  lays down that, "the provisions of this Act shall be in addition to and  not, save as hereinafter expressly provided, in derogation of, any  other law for the time being in force".  It is submitted that the phrase  "any other law for the time being in force," would cover subsequent  legislation.  In support of this reliance is placed on the case of Sir  Dinshaw Manekji Petit vs. G B Badkas reported in  AIR 1969 Bombay  151 (paragraph 8).  It is submitted that Section 2(b) of the Multi  State Act lays down that the Act shall apply to all multi state co- operative societies and Section 3(e) defines co-operative bank to  mean a multi state co-operative society which undertakes banking  business.  It is submitted that Section 3(g) defines co-operative  society, and Section 3(k) defines multi-state co-operative society to  mean a society registered or deemed to be registered under that Act.  It is submitted that the word "undertakes" means making an attempt.  In support of this reliance is placed on :  (a) Words and Phrases  Permanent Edition Volume 43 page 198 and 206; (b) The Law Lexicon  by P Ramanatha Aiyar, page 1931; and (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 licencing  power of the RBI. 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 17  

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 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(7) of the  Multi State Act, empowers, RBI to supersede a co-operative bank. It  is submitted that all the above mentioned provisions show that RBI  has got the power, to regulate the functioning of a co-operative bank,  supersede, order moratorium, amalgamation or winding up, as the  case may be.  We are unable to accept this submission.  The power to  regulate, supersede, order moratorium, amalgamation or winding are  exercisable only be in respect of a co-operative bank.  Such power  cannot be exercised in respect of any co-operative society which is  not a co-operative bank.  Far from supporting the case now sought to  be made out, this shows that it is only a co-operative bank which can  be licensed and then controlled by RBI.   It is next submitted that Section 22(1)(b) of the Banking  Regulation Act, lays down that "save as hereinafter provided, no co- operative society shall carry on banking business in India unless it is a  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. It is submitted that sub-section 2 of Section  22 lays down the requirement of obtaining of license by various co- operative societies.  It is submitted that the last category was  relevant. Reliance was placed on the portion which reads as follows: "â\200¦â\200¦â\200¦ any every co-operative society other than  primary credit society shall before commencing banking  business in India, apply in writing to the RBI for a license  under this Section."

It is submitted that this makes it clear that whereas under sub-section  1 of Section 22 every co-operative society which is a co-operative  bank cannot carry on banking business without a license; under sub- section 2 of Section 22 every co-operative society other than a  primary credit society has to obtain a license before commencing  banking business in India. It is submitted that a wider meaning should  be given to the word ’co-operative bank’ to include other co-operative  banks (including one which is registered under the Multi State Act) so  that no co-operative society (including a co-operative society under  the Multi State Act) can commence banking business without a license.   It is submitted that this would be in consonance with the principle of  purposive interpretation and harmonious construction of statutes.  It is  submitted that although Section 5(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  Regulatgion Act and Multi State Act must be  given.  It is submitted that a contrary interpretation would render, the  Multi State Act, so far as it relates to Co-operative Banks redundant.  

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 17  

We are unable to accept these submissions also.  The portion  extracted above does not detract from what is provided in Section  22(1).  Under Section 22(1) a primary credit society can carry on  banking business.  However if a co-operative society is not a primary  credit society then to carry on banking business it must be a co- operative bank and hold a license issued by the RBI.  The above  extracted portion of Section 22(2) merely exphasis that a co-operative  society, other than a primary credit society, has to apply to the RBI for  license before it can commence banking business.  However, this does  not mean that RBI can give to any or all co-operative societies, a  banking license.  RBI can only give a license as provided in Section  22(1) i.e. to a co-operative bank.  The term "Co-operative Bank" has  been defined in the Banking Regulation Act and only includes a state  co-operative bank or a central co-operative bank or a primary co- operative bank.  Reference to the term "co-operative bank" in the  Multi State Act is of no assistance.  When a term is specifically defined  in a statute then for purposes of that statute that term cannot bear a  meaning assigned to it in another statute.  One cannot ignore the  specific definition given in the Banking Regulation Act and apply some  other definition set out in some other statute.  Thus, so far as the  Banking Regulation Act is concerned the term "co-operative bank"  must have the meaning assigned to it in Section 5(cci).  RBI cannot go  by any other meaning given to the term "co-operative bank" for  purposes of licencing under the Banking Regulation Act.  The RBI has  to go by the meaning given to this term in the Banking Regulation Act.

       In view of the above, we hold that the RBI by virtue of its power  under Section 22 cannot grant a license to any co-operative 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.

Question (b) - Whether a Co-operative Society registered  under the Multi State Act can be recognized and notified by the  State Government as a State Co-operative Bank

       To answer this question, apart from the provisions of the  NABARD Act, one would also need to look at the various laws relating  to Co-operative Societies.          The earliest Act pertaining to co-operative appears to be the Co- operative Credit Societies Act, 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 define 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 member is a  registered society, shall be unlimited."

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 17  

"6. Conditions of registration - (1) No society, other  than a society of which a member is a registered society,  shall be registered under this Act which does not consist  of at least ten persons above the age of eighteen years  and where the object of the society is the creation of  funds to be lent to its members, unless such persons - (a)     reside in the same town or village or in the  same group of villages; or (b)     save where the Registrar otherwise directs,  are members of the same tribe, caste or  occupation.

(3)     The  word "limited" shall be the last word in the  name of every society with limited liability  registered under this Act."

Thus the Act was essentially dealing with Societies whose members  were residing in the same town or village or group or village or whose  members were from the same tribe, class, caste or occupation.  The  object of the Society had to be promotion of interests of its members.   This shows that the Co-operative Societies Act, 1912 was enacted for  local societies. Apart from the Co-operative Societies Act, 1912 different  provinces had enacted their own laws governing co-operative societies  in that province.       It was however found that some societies operated  in more than one State, even though they were registered in only one  State.  Thus the Multi-Unit Co-operative Societies Act, 1942 was  enacted.  This Act applied to "all co-operative societies with objects  not confined to one province incorporated, before the commencement  of the Act, under the Co-operative Societies Act, or under any law  relating to Co-operative Societies Act,  in force in any province."  To be  noted that on this date, apart from the Co-operative Societies Act,  1912, there was no other law relating to Co-operative   Societies which  was in force in the whole of India.  All other enactments were local  laws relating to Co-operative Societies  in the provinces.   

       Section 2 of the Multi-Unit Act provided as follows: "2(1) A co-operative society to which this Act applies which  has been registered in any province under the law relating  to co-operative societies in force in that province shall be  deemed in any other province to which its objects extend  to be duly registered in that other province under the law  there in force relating to co-operative societies but shall,  save as provided in sub-sections (2) and (3), be subject  for 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.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 17  

       (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 powers of  audit and of inspection which he might exercise in respect  of a co-operative society actually registered in the  province."

       Thus now Co-operative Societies whose objects were not  confined to one province were deemed to be registered also in the  other province.  However, for purposes of registration, control and  dissolution, they continued to be subject to the "law relating to co- operative societies in force for the time being in the province in which  it was actually registered.   Thus the term "under any Act relating to  co-operative societies in force in any province" clearly applied to the  local laws relating to co-operative societies in force in a province i.e.  local law prevailing in that province.

       Another aspect which must be noticed is that in the Constitution  of India, the subject pertaining to Co-operative Societies is in the  State list i.e. Entry 32 of List II of Schedule VII.  The Union list has  Entry 44 of List I of Schedule VII which deals with Corporations.  In  this case we are not concerned with the validity of a Central  Legislation and thus do not deal with that aspect.  For purpose of the  Judgment we will take it that a co-operative society with objects not  confined to one State would fall within the term Corporation, and thus  a Central Legislation may be saved.  However, from the Constitutional  provisions it is clear that matters pertaining to co-operative societies  are in the State list.  Thus many States have enacted laws relating to  co-operative societies.  We have not seen other Acts.  However, as this  case concerns a society in Maharashtra, the Maharashtra Co-operative  Societies Act was shown to us.  Significantly this law does not define a  co-operative society.  It did not need to, as a Society registered under  it would be automatically covered.  The need to define a co-operative  society arises only in a Central Legislation which does not cover all co- operative societies and thus needs to indicate to which Society it  applies.      Now let us look at the provisions of NABARD Act.  The relevant  portions of the NABARD Act namely Sections 2(f) & 2(u) read as  follows:

"2(f) - "co-operative society" means a society registered,  or deemed to be registered, under the Co-operative  Societies Act, 1912 (2 of 1912), or any other law relating  to co-operative societies for the time being in force in any  State;

2(u) - "state co-operative bank" means the principal 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  cooperative 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

Under the NABARD Act, a co-operative society is a society which

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 10 of 17  

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 the Multi Unit Act was clearly referring to  Acts in force in the Province.  Now instead of the word "province" the  word "State" has been used.  Admittedly, the Appellants are not  registered under the Co-operative Societies Act, 1912.  The question  thus is whether they could be said to be a society registered under any  other law relating to co-operative societies for the time being in force  in any State.  At first blush it would appear that the term "any other  law relating to co-operative societies for the time being in force in any  State" would include all laws relating to co-operative societies which  are in force in any State.  However, in that case, there would be no  need to provide separately in respect of a society registered under the  Co-operative Societies Act, 1912.  The Co-operative Societies Act,  1912 is also a law relating to co-operative societies and it is in force in  all States.  Also why use the words "in any State".  Mere use of the  term "any other law relating to co-operative societies for the time  being in force" would have been sufficient.     It appears to us that the  Legislature has provided separately in respect of the Co-operative  Societies Act, 1912 and used the words "in any State" in order to  indicate its intention that the term "any other law relating to co- operative societies for the time being in force in any State" did not  include all laws relating to co-operative societies.   If the intention was  to rope in all societies registered under all laws relating to co-operative  societies in force, then there was no necessity to use the additional  words "in any State" or to separately provide for Co-operative  Societies Act, 1912.  As stated above, mere use of the words "any  other law relating to co-operative societies for the time being in force"  would have been sufficient.  The legislature was clearly emphasizing  that it is only co-operative societies registered under local or state  laws relating to co-operative societies which would be covered.  This  interpretation is supported by the fact that the provision pertaining to  a state co-operative bank provides for a declaration only by the State  Government.  If a declaration is by the State Government it must be in  respect of a society which is registered in that State and which can be  regulated by the Registrar of that State.  A society which is registered  under an Act, like the Multi State Act, would not be under the  regulation of the Registrar of the State.   It was submitted that if the  Legislature intended to restrict the application of NABARD Act to 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 States ’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.   

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 State, were meant to be covered.   We are  unable to accept this submission.   As seen above under the provisions  of the Co-operative Societies Act, 1912 the registration could only be  in one State.  The Co-operative Societies Act, 1912 dealt with local  societies.    As it was found, that even though the registration could  only be in one State, the societies also operated in other States, the  Legislature enacted the Multi-Unit Co-operative Societies Act, 1942

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 11 of 17  

(hereinafter referred to as the Multi-Unit Act).   Under the Multi-unit  Act if a society had objects not confined to one State then such a  society was deemed to be registered even in other States, but for  purposes of registration, control and dissolution it was the State law  where it was first registered which continued to operate.   Thus, after  the enactment of the Multi-unit Act it became clear that even though a  society may be deemed registered under the Multi-unit Act, but for  purposes of registration, control and dissolution it continued to be  bound by the law relating to co-operative societies for the time being  in force in the State in which it was first registered.   More importantly  after the enactment of the Multi-Unit Act, the Co-operative Societies  Act, 1912 only dealt with co-operative societies confined to one  province.  Societies with objects not confined to one province were  deemed registered under the Multi-Unit Act.  Thus the use of the  words "Co-operative Societies Act, 1912" in the NABARD Act, also  indicates that the definition is restricted to Societies registered under  the law relating to co-operative societies in the State in which they  want to operate.    This is clear because significantly the Legislature  has not provided that Societies registered under the Multi-unit Act  would be included.  

The submission that a purposive interpretation should be given  so that the definition takes into consideration even new laws cannot be  accepted. Normally that is how one must interpret.  However where  the intention of the Legislature is clearly to restrict the provisions of  the NABARD Act to co-operative societies which were registered either  under the Co-operative Societies Act, 1912 or to societies which were  registered under the State laws relating to co-operative societies, one  cannot by process of interpretation expand the scope.          The fact that the term "any other law relating to co-operative  societies 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. Section 2, 3(e), 3(g) and 3(k) read  as follows:

"2.  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(e)    "co-operative bank" means a multi-State co-operative  society which undertakes banking business;

3(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;

3(k)    "Multi-State co-operative society" means a society  registered or deemed to be registered under this Act and  includes a national co-operative society;"

A reading of the provisions of the Multi State Act makes it clear  that the words "under any other law relating to co-operative societies  in force in any State" as used in the Multi State Act, applies to  societies registered under the State laws relating to co-operative

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 12 of 17  

societies.  Mr. Andhyarujina fairly admitted this position.  Of course,  the definition as used in 1984 Act cannot be used for the purposes of  interpreting the 1981 Act.   The definition in the 1981 Act is being  interpreted on its own provisions but the use of the same term in the  1984 Act with the same meaning reinforces the interpretation given to  the 1981 Act.    

       Further under the NABARD Act a state co-operative bank has to  be the principal co-operative society in the State, the primary object  of which must be financing other co-operative societies in that State.   The proviso to Section 2(u) cannot and does not derogate from the  main definition. The proviso merely enables the State to declare, in  addition to an existing principal society in the State or where there is  no principal society in the State, any one or more co-operative bank  as the state co-operative banks.  However, this does not mean that  the State Government can, at their whim and fancy, declare any co- operative society to be a "state co-operative bank".  Before such a  declaration can be made the State Government must necessarily be  satisfied (a) that it is a principal co-operative society in the State; (b)  that it is carrying on business in the State; and (c) the business must  be of financing other co-operative societies in that State.   

At this stage, it must be mentioned that in the impugned  Judgment, the High Court has inter alia held that the term "carrying  on business: necessarily means banking business.  On behalf of the  Appellants this finding was assailed and it was submitted       that in  order to be declared a "state co-operative bank", within the meaning  Section 2(u) of NABARD Act, a co-operative society does not need to  be carrying on business of "banking" in that State.  It was submitted  that "banking business" is a specific type of business as defined in  Section 5 (b) of the Banking Regulation Act, 1949. It was submitted  that this business was different 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 R.C. Cooper Vs. Union of India reported in 1970) SCC 248 at  page 279-280.  In this behalf reliance was also placed on the case of  Sajjan Bank Vs. Reserve Bank of India reported in AIR 1961 Madras   Page 14.   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-operative Bank" as a Multi- State Co-operative  Society which undertakes "banking business", and Section 80 P  (2)(a)(i) of the Income Tax Act, 1961 which refers to a co-operative  society engaged in carrying on the business of banking were pointed  out.  It was submitted that a co-operative society which is engaged in  carrying on business of financing other co-operative societies could  finance itself without "banking business".  It was submitted that it  could finance itself from its own resources e.g. from shareholders  equity and/or by borrowings.  It was also submitted that the activity  of accepting entrance fee and subscription share from its members  show that the Appellants were carrying on business and that this was  sufficient for the purposes of enabling the State Government to  declare the Appellants as a state co-operative bank.

       On behalf of the Respondents, it was submitted that looking to  the nature and purpose of the Act and the fact that the ultimate

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 13 of 17  

purpose was to accept deposits from other co-operative societies, it  was necessary that the business which is carried on should be  banking business.  It was also submitted that in any event the  business must be of financing other Co-operative Societies in the  State.  It was submitted that the society must be carrying on business  in presenti.  It was submitted that looking to the nature and purpose  of the Act a new society which intended to carry on, in future, the  business of financing other co-operative societies or which had merely  accepted entrance fee and share subscription from its members could  not be declared as a state co-operative bank.  It was submitted that  Appellants had not carried on any business and in any event had not  carried on banking business or business of financing other co- operative societies.

       In our view the High Court does not appear to be right in  concluding that the words "carrying on business" must mean carrying  on banking business.  If the Legislature had so intended they would  have so specifically provided as they have done in Section 3(e) of the  Multi State Act and Sections 80P(2)(a)(i) of the Income Tax Act,  1961.  However, a reading of the provisions make it clear that what is  necessary is that co-operative society must be carrying on the  business of financing other co-operative societies.  The proviso has to  be read in the light of the main provision.  If read in 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.   

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.    

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 In Re. Sarflax Ltd. reported in  [(1979) 1 Ch. D. 592 (at pages 598-599)] and the case of Vanguard  Fire and General Insurance Co. Ltd., Madras vs. M/s. Frazer and Ross  and Anr.   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 carrying on of the business must be prior to  the State Government declaring a society as a state co-operative  bank otherwise there would be no criteria on the basis of which the  State Government could judge whether the society proposed to be so  declared will or will not perform its task truly and efficiently.  The test  for the Government has to be past performance.  It is not as if the  State Government can at its whims and fancy declare any society as a  state co-operative bank.  The State Government has to look into and  be satisfied that that society has faithfully and efficiently been  carrying on the business of financing other co-operative societies in  that State and that there have been no complaints against that  society.  To allow the State Government to declare any society, even  a society which has done no business of financing other co-operative  societies, as a state co-operative bank would be to permit  arbitrariness.   The authorities relied upon are of no assistance as  words to the effect "carrying on business" have necessarily to be  construed keeping in mind the purpose with which they are used and  to further the object of the Act.  In Sarflax’s case the concerned party  had earlier carried on business, but had then closed their business.   The question was whether they were still covered by Section 332 of  the Companies Act, 1948, which reads as follows:-

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 14 of 17  

"If in the course of the winding up of a company it appears  that any business of the company has been carried on with  intent to defraud creditors of the company or creditors of  any other person or for any fraudulent purpose, the court,  on the application of the official receiver, or the liquidator  or any creditor or contributory of the company, may, if it  thinks proper so to do, declare that any persons who were  knowingly parties to the carrying on of the business in  manner aforesaid shall be personally responsible, without  any limitation of liability, for all or any of the debts or  other liabilities of the company as the court may direct."

It is in this context it was held that the expression "carrying on any  business" in the Section was not synonymous with actively carrying  on trade.       Such an interpretation was given to further the  intention of the statute and to cover a party who was trying to wriggle  out the provisions of law.  Similarly in Vanguard Fire Insurance  Company’s case the question was 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.     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.

       Faced with this situation Mr. Andhyarujina submitted that, in the  High Court, the Respondent did not challenge the fact that the  Appellant was carrying on business of financing other co-operative  societies, but only focused on its not carrying on "banking business".   He submitted that banking business has a specific meaning as defined  in Section 5 (b) of the Banking Regulation Act, 1949.  He submitted  that in the Writ Petition it was ambiguously stated in paragraph 4 as  follows:

"The Petitioners further say that, in any event, under  clause [u] of section 2 of the NABARD Act, the State  Government could not have identified or designated  Respondent no. 5 as a State Co-operative Bank, firstly  because Respondent no. 5 is not registered under the  State Act, secondly, because Respondent no. 5 is  registered under the Central Act, thirdly, because the area  of operation of Respondent no. 5 also extends to the State  of Goa and, fourthly, because Respondent 5 is not carrying  on any business or banking business.  Respondent no. 5  has been constituted to carry on banking business.  Respondent no. 5 cannot carry on banking business unless  License is issued by the Reserve Bank of India under the  BR Act 1949.   Therefore, the State Government could not  have designated Respondent no. 5 as a State co-operative  bank under clause [u] of section 2 of the NABARD Act.   Therefore, the order of the State Government dated 30- 12-1995 is null and void and is liable to be quashed and  set aside."   (emphasis supplied)

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 15 of 17  

He submitted that there was no specific averment that the  Appellant was not carrying on business of financing other co-operative  societies.  He submitted that no arguments were made by the  Respondent before the High Court that the Appellant was not carrying  on business of financing other co-operative societies.  He submitted  that the only argument was it was not carrying on banking business.   He pointed out that the argument as noted by the High Court in the  impugned Judgment was as follows:  

"Mr. Singhvi submitted that as per the definition of "State  Cooperative bank" given in the said section 2(u), such a  bank could only be the principal cooperative society in a  state, the primary object of which would be the financing  of other co-operative societies in the state, and that by the  proviso it is in effect provided that the State government  may declare a cooperative society in addition to such  principal society but such 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 cooperative 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 cooperative society must be carrying on  the business of banking and its primary object must be to  finance other cooperative societies in the state.  Otherwise  how can a society be recognized as the State cooperative  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 cooperative societies in the state?"

He submitted that there is not a single word and a single finding  by the High Court that the Appellant was not carrying on business  except in the sense of banking business.  He submitted that the reason  for this is obvious i.e. there was no argument and no challenge that  the Appellant was carrying on business other than banking business.   He submitted that it is not open to the Respondent to argue something  that was not argued before the High Court and which is not  investigated and found as fact by the High Court.

       We are unable to accept this submission.  In the Writ Petition it  has been stated that the Appellant was not carrying on any business  or banking business.   This shows that in the Petition itself this ground  has been taken.  Just because it is also mentioned that banking  business was not being carried does not detract from fact that it is  averred that no business was carried on.  Once it is mentioned that no  business was carried on it was not necessary to state that business of  financing other co-operative societies was not carried on.  In the  impugned judgment, apart from the submissions highlighted by Mr.  Andhyarujina, the following submissions have also been noted:

"Mr. Singhvi first attacked the Notification dated 30th  December, 1995 issued by the State Government

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 16 of 17  

purportedly under section 2(u) of NABARD Act.  It was his  submission that the same was illegal and invalid inasmuch  as that at the time of the said declaration Respondent  No.5 was admittedly not carrying on any Banking business  i.e. the business of financing to other co-operative  societies in the State, and that it was only registered as a  Multi-State Co-operative Society under the Multi State Act  and was endeavouring to obtain the License from RBI  under the provisions of Banking Regulation Act for  carrying on banking business."   (emphasis supplied)

This shows that the use of the term "banking business" was intended  to be the business of financing other co-operative societies in the  State.  In the impugned Judgment the High Court has interalia held as  follows:

"â\200¦â\200¦â\200¦.  In our opinion, the Co-operative Bank which is  recognized as the State Co-operative Bank is required to  have as its primary object the object of financing of other  Co-operative Societies in the State."              

Of course the High Court has then gone on to hold 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.

       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 under the NABARD Act.   As it  is now being held that the Appellants could not have been declared as  a state co-operative bank under the NABARD Act and it is held that as  such declaration was correctly struck down it will have to be held that  the RBI cannot issue it a license to carry on banking business.  In view  of the contrary stand taken by RBI, it cannot now be left to discretion  of RBI to cancel the license granted by it.   It is held that the High  Court was in error in not striking down the issuance of the license by  RBI to the Appellants.  In view of what we have held we direct the RBI  to forthwith revoke the banking license granted to the Appellants.     

Question (c): whether a Co-operative Society registered under  the Multi State Act, which has been recognized and notified by  one State Government as a State Co-operative Bank for that  State can be granted a License by the RBI to commence and  carry on banking activities in other States in which it has not  been recognized as a State Co-operative Bank.

       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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 17 of 17  

to co-operative societies registered under State Acts and as the  provision is for a State to declare a co-operative society as a "state co- operative bank" the license, which can be issued by the RBI, can only  be in respect of that State.   Merely because one State declares a co- operative society as a "state co-operative bank" would not enable the  RBI to issue that society a license to carry on banking business in  other States or in the rest of the country.  In this case, the RBI was  wrong in issuing a license to the Appellants for the States 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.

       In view of the above, Civil Appeal No. 439 of 1997 stands  dismissed, whereas Civil Appeal No. â\200¦â\200¦.. of 2003 (arising out of S.L.P.  (C) No. 4877 of 1997) stands allowed.    

It was submitted by Mr. Andhyarujina that the Appellants have  in the meantime collected large deposits and carried on extensive  business in the State of Maharashtra.  It was submitted that the  Appellant was willing to restrict its business to the State of  Maharashtra.    It was submitted that at this stage this Court should  not strike down the Notification or the grant of license.   We are unable  to accept this submission.  The 1st Respondent had challenged the  Notification and the grant of license immediately.  The Appellants have  all along been aware that their status was under challenge in a Court  of law.  Thereafter, the High Court struck down the Notification.  Now  the Appellants knew full well that that was the law.  Merely because on  obtaining a stay from this Court they continued to operate would not  be a circumstance which can be taken into consideration by this Court.    The Appellants cannot be allowed to continue to operate as a state co- operative bank when in law they are not entitled to be one.  We,  therefore, do not accept this submission.

       The Appeals stands disposed of accordingly.  There will be no  order as to costs.