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CASE NO.: Appeal (civil)  432 of 2004

PETITIONER: Greater Bombay Co-op. Bank Ltd

RESPONDENT: M/s United Yarn Tex. Pvt. Ltd. & Ors

DATE OF JUDGMENT: 04/04/2007

BENCH: B. N. Agrawal, P. P. Naolekar & Lokeshwar Singh Panta

JUDGMENT: J U D G M E N T

WITH [Civil Appeal Nos.433/2004, Civil Appeal No.434/2004,  Civil Appeal No.436/2004, SLP (C) Nos.15651- 15652/2005, SLP (C) No.5592/2004, SLP (C)  No.5598/2004, SLP (C) No.5890/2004, Civil Appeal  No.36/2006, Civil Appeal No.37/2006, Civil Appeal  No.38/2006, Civil Appeal No.916/2006, Civil Appeal  No.2819/2006, Civil Appeal No.2820/2006, Civil Appeal  No.2821/2006, Civil Appeal No.2822/2006 and SLP (C)  Nos.25246-25247/2005]                        

[Civil Appeal No.6069/2005, Civil Appeal No.6077/2005  and SLP (Crl.) No.2071/2006 - Not on board]

Lokeshwar Singh Panta, J.

Civil Appeal No.6069/2005, Civil Appeal No.6077/2005  and SLP (Crl.) No.2071/2006 are taken on board.          A Bench of two judges  before which this batch of twelve  civil appeals and five special leave petitions came up for  consideration was of the view that looking to the issues  involved and the far-reaching consequences which such a  decision will leave, these matters require consideration by a  larger Bench.  This is what the Bench observed in the order  dated 1st December, 2005.

"This batch of appeals/SLPs involved an  important issue regarding right of recovery of  debts by the co-operative banks constituted  under the Co-operative Societies Acts of the  States of Maharashtra and Andhra Pradesh.  The  issue has arisen in the context of enactment of  the Recovery of Debts Due to Banks and  Financial Institutions Act, 1993.  Under the Co- operative Societies Acts, there is a mechanism for  recovery of debts by the Banks constituted under  those Acts, which are also called Co-operative  Banks.  After the enactment of the 1993 Act,  question arose as to whether such Co-operative  Banks would have right of recovery under the  respective Co-operatives Societies Acts or they  will have to proceed under the 1993 Act.  These  aspects and some other issues, including the  issue of legislative competence of the States to  enact the provisions relating to Co-operative  Banks, came up for consideration before the  Bombay High Court and the High Court of

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Andhra Pradesh at Hyderabad.  Both the High  Courts have pronounced judgments on the issues  and these judgments are under appeal in these  cases.  Looking to the issues involved and the far- reaching consequences which such a decision  will leave, we are of the view that these matters  be decided by a larger Bench.         This has also been brought to our notice  that as a consequence of the impugned  judgments of the two High Courts, recoveries  worth thousands of crores of rupees are held up  and for that reason these matters need to be  decided as early as possible.         Let these matters be placed before Hon’ble  the Chief Justice of India for constitution of an  appropriate larger Bench for early disposal of  these cases.         We are informed that so far as the batch of  appeals/SLPs arising from the judgment of the  Bombay High Court is concerned, the stay  applications have already been disposed of.  The  stay applications in the appeals/SLPs arising  from the judgment of the Andhra Pradesh High  Court are yet to be finally disposed of.  Let the  stay applications in the matters arising from the  judgment of the Andhra Pradesh High Court be  placed before this Court on Wednesday the 7th  December, 2005.  If any party is desirous of filing  any reply, the same be filed by Monday the 5th  December, 2005.

SLP (C) Nos. ...CC 9992-9993/2005, SLP (C)  Nos.21685-21701/2005 and SLP(C) No. 22621/  2005 Delay condoned. Issue notice. Dasti service, in addition to usual mode of  service, is also permitted."

       Hon’ble the Chief Justice of India, accordingly, has  assigned these matters for hearing by a Bench of three Judges  dealing with the subject matters of applicability of the  Recovery of Debts due to Banks and Financial Institutions Act,  1993 [ for short "’the RDB Act’"] to the co-operative banks  established under the Maharashtra Co-operative Societies Act,  1960 [for short "the MCS Act, 1960"];  The Multi-State Co- operative Societies Act, 2002 [for short "’the MSCS Act,  2002’"]; and the Andhra Pradesh Co-operative Societies Act,  1964 [for short "the APCS Act, 1964"].

       The background of facts, which led to the filing of these  cases, are noted from Civil Appeal No. 432 of 2004 titled The  Greater Bombay Co-operative Bank Limited v. M/s United  Yarn Tex Private Limited and Others filed against the  judgments and orders of the Full Bench of the High Court of  Judicature at Bombay and Civil Appeal No. 36 of 2006 titled  A.P. State Co-operative Bank v. Samudra Shrimp Ltd. &  Ors.  decided by the Full Bench of the High Court of  Judicature of Andhra Pradesh at Hyderabad.

       A batch of writ petitions had been placed before Full  Bench of the High Court of Judicature at Bombay in which the  principal question of law that arose for consideration was:  "Do the courts and authorities constituted under  the Maharashtra Co-operative Societies Act, 1960

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(the 1960 Act) and the Multi-State Co-operative  Societies Act, 2002 (the 2002 Act) continue to  have jurisdiction to entertain applications/  disputes submitted before them by the Co- operative Banks incorporated under the 1960 Act  and the 2002 Act for an order for recovery of  debts due to them, after establishment of a  Tribunal under the Recovery of Debts Due to  Banks and Financial Institutions Act, 1993 (the  1993 Act)?"  

       The appellant-bank advanced amounts by way of term  loans to the respondent-Company, which is a member of the  appellant-society. The appellant-bank filed recovery  application against the respondent-Company under Section  101 of the MCS Act, 1960 before the Registrar (Co-operative  Societies) for recovery of its dues.  The Assistant Registrar  issued recovery certificate on 03.12.2002 in favour of the  appellant-bank. Pursuant to the issuance of recovery  certificate, a demand notice was issued to the respondent- Company by the Special Recovery and Sales Officer calling  upon the respondent-Company to pay the dues of the  appellant-bank, failing which the Authority would visit the  premises of the respondent-Company on 1st February, 2003  for effecting recovery by way of attachment and sale of  property specified in the Schedule attached thereto.

       In January 2003, the respondent-Company filed a Writ  Petition No. 727/2003 before the High Court of Bombay  impugning the recovery certificate dated 3rd December, 2002.   Learned Single Judge of the High Court vide order  dated 31st  January, 2003 passed an ad-interim ex parte order restraining  the Special Recovery and Sales Officer, in any manner, from  proceeding with or in pursuant to recovery certificate dated 3rd  December, 2002.  It appears from the order of the High Court  that the Division Bench of the High Court in The Shamrao  Vithal Co-operative Bank Limited v. M/s Star Glass Works  & Ors. [2003] 1 MLJ 1] held that the Debts Recovery Tribunal  constituted under the RDB Act has the jurisdiction  to  entertain an application submitted by a co-operative bank for  recovery of its debts.   The Division Bench on consideration of  the provisions of Section 56 of the Banking Regulation Act,  1949 [ for short  "the BR Act"] came to the conclusion that ’Co- operative Bank’ falls within the meaning of Section 2(d) of the  RDB Act and, therefore, the only remedy available in terms of  the provisions of the RDB Act to a co-operative bank after the  constitution of the Tribunal under the RDB Act for recovery of  debts due to it, is to apply to such a tribunal for an order.

       The order of the High Court reveals that one Narendra  Kanti Lal filed Writ Petition No. 6079/2002 in the High Court  praying for setting aside the recovery certificate dated 6th  September, 2000 issued by the Assistant Registrar (Co- operative Societies) in exercise of his powers under Section  101 of the MCS Act, 1960 and the warrant of attachment  issued pursuant thereto on the application made by Jan  Kalyan Sahakari Bank Limited, one of the respondents in the  said petition.  When that petition came up for admission  before the learned Single Judge of the Bombay High Court, the  petitioner therein brought to the notice of the learned Single  Judge the earlier judgment of the Division Bench in Shamrao  Vithalrao Co-operative Banks’ case (supra).  The learned  Single Judge, however, was of the opinion that the Division  Bench in its judgment did not consider that the MCS Act,  1960 has been enacted by the State Legislation under Entry

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32, List II of the Seventh Schedule of the Constitution of India.   The learned Single Judge having considered the importance of  the question involved in the matter directed to place the  matter before Hon’ble the Chief Justice of the High Court for  Reference before the Full Bench.  It appears that in the  meantime, some more writ petitions came up before the  Division Bench raising the same question. Hon’ble Chief  Justice of the High Court decided to refer the matters to the  Full Bench.  This is how all the petitions were placed before  the Full Bench for deciding the referred questions.

       The Full Bench, after hearing the learned counsel for the  parties and having gone through the various provisions of the  Statutes and Entries 43, 44 and 45,  List I of Seventh  Schedule of the Constitution of India, answered the reference  as under:- "For all these reasons, therefore, we hold  that on and from the date on which the  Debts Recovery Tribunal was constituted  under the 1993 Act, the courts and  authorities under the 1960 Act as also  the 2002 Act would cease to have  jurisdiction to entertain the applications  submitted by the Co-operative Banks for  recovery of their dues."

       However, the High Court held that the State Legislature  was competent to enact the MCS Act, 1960.

       In Civil Appeal No. 36/2006 titled A. P. State Co- operative Bank Limited v. Samudra Shrimp (P) Ltd. &  Ors., after detailed examination of the various submissions  before it,  Full Bench of the Andhra Pradesh High Court in a  batch of writ petitions, writ appeals and civil revision petitions  struck down  the constitutional validity of Sections 61 and 71  of the APCS Act, 1964.  In the concluding portions, the High  Court culled out as follows:-  "(a)    That recovery of monies (whether called a  debt, arrears or by any other name) due to a  banking institution including a Co-operative  Bank is a matter that integrally falls within  the core and substantive area of the  legislative field Banking in Entry-45, List-I  of the Seventh Schedule of the Constitution.

(b)     The above subject matter is therefore  excluded from the State legislative field in  Entry-32, List-II of the Seventh Schedule.

(c)     Recovery of monies due to a Co-operative  Bank is not a matter that falls within the  incidental and ancillary areas of the State  legislative field in Entry-32, List-II of the  Seventh Schedule.

(d)     A Co-operative Bank as defined in Section  5(cci) of the Banking Regulation Act, 1949  (as amended by Act 23 of 1965) is  a Bank  and a Banking Company within the  meaning of Section 2(d) & (e) of the Recovery  of Debts due to Banks and Financial  Institutions Act, 1993.

(e)     A Tribunal constituted under the provisions

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of the Recovery of Debts due to Banks and  Financial Institutions Act, 1993 has  exclusive jurisdiction, powers and authority  to entertain and decide applications from a  Co-operative Bank for recovery of debts due  to such bank, subject to the pecuniary  limits of jurisdiction specified by or under  the said Act.

(f)     Section 71(1) of the 1964 Act in so far as it  expressly confers power on the Registrar to  issue a certificate for recovery of arrears of  any sum advanced by a financing bank to  its members, is beyond the legislative  competence of the State.

(g)     The words "or financing bank" in Section  71(1) of the Andhra Pradesh Co-operative  Societies Act, 1964 expressly result in the  provisions of the Section transgressing the  State’s legislative limits.  These words being  severable are therefore declared invalid.

(h)     The provisions of Section 61 and 71 {after  striking down of the words in Section 71(1)}  are restrictively construed as excluding any  jurisdiction, powers or authority in the  Registrar in respect of recovery of debts or  arrears due to a Co-operative Bank, its  members or others which are advanced lent  or otherwise made over to such member or  person, during the course of the banking  business of such Co-operative Bank

(i)     (a)No claim, application or other proceedings  lodged or instituted before the Registrar,  by a Co-operative Bank for recovery of the  amount/debt due from a member or  other person pursuant to advances made  in the course of its banking business  could be entertained or determined by the  Registrar

(b)     Any award or order passed, certificate  issued or an order in execution  proceedings, by the Registrar on any  claim or application of a Co-operative  Bank, is patently and inherently without  jurisdiction, null, void and inoperative.

(j)      During the pendency of these writ petitions,  by virtue of various court orders certain  amounts have been deposited by some of  the writ petitioners.  At no point of time  these writ petitioners have disputed the  liability or the amount already deposited  with the banks in pursuance of the orders of  the Court.  Therefore, we direct that the  amounts deposed shall be retained by the  concerned banks and adjusted against the  liabilities, if any, that remain to be  determined pursuant to proceedings  initiated by the respective banks in  accordance with this judgment.

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(k)     In view of the declaration in this judgment,  the respondent-banks are at liberty to  proceed with the recovery of debts due to  them, before the appropriate forum and  under the appropriate law, in accordance  with this judgment.

(l)     As the proceedings initiated before the  Registrar or any other authority under the  1964 Act were bona fide and as considerable  time had been consumed in the litigation in  this case also, the respondent-banks shall  be entitled to set off the period spent in  pursuing their claims before the Registrar or  other fora and before this Court, in  computing the period for filing appropriate  applications/claims before the appropriate  authority/Tribunal."

       The Full Bench of the Andhra Pradesh High Court  declared Sections 61 and 71 of the APCS Act, 1964 invalid  being beyond legislative competence of the State and also in  clear and direct conflict with the provisions of ’the RDB Act’.   In interpreting the provisions of the two enactments, the  Bench has employed the ’Doctrine of Reading Down’.

       We have carefully perused the judgments of the Full  Benches of the High Courts of Bombay and Andhra Pradesh  impugned before this Court by the aggrieved parties.  Before  proceeding further to consider the legal question referred to  the larger Bench, the provisions of the various Statutes  relevant for our purpose may be first noticed.  

        THE MAHARASHTRA CO-OPERATIVE SOCIETIES ACT, 1960  [the MCS ACT, 1960]

       The MCS Act, 1960 was promulgated and came into force  on 26th day of January, 1962 relating to co-operative societies  with a view to providing for the systematic development of the  co-operative movement in the State of Maharashtra in  accordance with the Directive Principles of State Policy  enunciated in the Constitution of India.  The object and the  working of the co-operative banks had become so large that it  was found necessary to extract more important provisions of  the Banking Regulation Act, 1949 [’the BR Act’] and allied  provisions of the Reserve Bank of India Act, 1934 [’the RBI  Act’] to the co-operative banks in public interest.     

       Section 2 (10) of the MCS Act, 1960 defines "co-operative  bank" to mean a society which is doing the business of  banking as defined in clause (b) of sub-section (1) of Section 5  of the Banking Companies Act, 1949 and includes any society  which is functioning or is to function as a Co-operative  Agriculture and Rural Multi-purpose Development Bank under  Chapter XI.   In Section 2(6) of the MCS Act, 1960 - "Central  Bank" means a co-operative bank, the objects of which include  the creation of funds to be loaned to other societies; but does  not include the urban co-operative bank.  Section 91 of the  MCS Act, 1960 in Chapter IX deals with settlement of any  dispute touching the constitution, conduct of general  meetings, management or business of a society etc. to the Co- operative Court.  Section 101 provides for recovery of arrears  due to certain societies as arrears of land revenue in

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pursuance of the certificate granted by the Registrar.  Under  Section 18A of the Act, the Registrar is competent to  amalgamate one or more co-operative banks in public interest  or in order to secure their proper management.

       Section 36 under Chapter IV makes every registered  society as a corporate body having perpetual succession and  common seal which acts through a Committee for  management with rest of its authority being in General Body  of members in meetings as provided in Sections 55, 72 and 73.   Section 43 provides that a society shall receive deposits and  loans from members and other persons, only to such extent,  and under such conditions, as may be prescribed or specified  by bye-laws of the society.  Section 44 regulates the loan  making policy of a society.  This Section provides that the  society shall not make a loan to any person other than a  member, or on the security of its own shares, or on the  security of any person who is not a member.  It empowers the  Government to prohibit, restrict or regulate the lending of  money by any society or class of societies on the security of  any property.  Section 50 under Chapter V provides for direct  subscription by the State Government to the share capital of a  society with limited liability upon such terms and conditions  as may be agreed upon.  Section 64 provides that no part of  the funds other than the net profits of a society shall be paid  by way of bonus or dividend, or otherwise distributed among  its members.  Chapter VII deals with Management of Societies.   Section 72 provides that the final authority of every society  shall, subject to the provisions of this Act and the Rules vests  in the general body of members in general meeting.  Section  73 empowers Committee to manage the society.  Chapter VIII  deals with Audit, Inquiry, Inspection and Supervision of the  societies.  Section 81 provides that the Registrar shall audit, or  cause to be audited at least once in each co-operative year, by  a person authorized by him by general or special order in  writing in this behalf the account of every society which has  been given financial assistance including guarantee by the  State Government.  Section 83 empowers the Registrar to  conduct an inquiry into the constitution, working and  financial conditions of a society.  Chapter IX deals with  Settlement of Disputes.  A dispute touching the constitution,  elections of the Committee or its officers other than election of  committees of the specified societies including its officer,  conduct of general meetings, management or business of a  society is covered under sub-section (1) of Section 91 of the  MCS Act, 1960.  The settlement of disputes including the  recovery of loan by a society from its members or sureties lies  with the Co-operative Court.  The Civil Court has no  jurisdiction to try and entertain the suit in regard to the  dispute which fall both in the purview of sub-section (1) of  Section 91 of the Act.  Section 92 regulates the period of  limitation for different types of disputes mentioned in it and  the disputes of the nature as provided in Section 91 has to be  tried as a suit by the Co-operative Court as a Civil Court.   Section 94 lays down the procedure for settlement of disputes  and power of Co-operative Court.  The Co-operative Court or  the Registrar or the authorized person, as the case may be, if  satisfied on inquiry or otherwise that a party to such dispute  or the person against whom proceedings are pending under  Section 88, with intent to defeat, delay or obstruct the  execution of any award or the carrying out of any order that  may be made is empowered to direct additional attachment of  the property under Section 95.  Any party aggrieved by any  decision of the Co-operative Court or order passed by the Co- operative Court or the Registrar or the authorized person

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under Section 95 is at liberty to file appeal before the Co- operative Appellate Court under Section 97.  Section 98  provides that orders mentioned therein if not carried out on a  certificate signed by the Registrar or the Co-operative Court or  a liquidator shall be executed in the same manner as a decree  of civil court and shall be executed in the same manner as a  decree of such court or be executed according to law and  under the Rules for the time being in force for the recovery of  arrears of land revenue.  An application for such a recovery to  be made to the Collector shall be accompanied by a certificate  signed by the Registrar and shall be made within twelve years  from the date fixed in the order and if no such date is fixed  from the date of the order.  Recovery Certificate is issued by  the Registrar under sub-section (1) of Section 101 of the MCS  Act, 1960 and the mode for recovery of the amount is under  Section 156 of the Act.  Chapter X deals with liquidation of the  societies.  Section 102 empowers the Registrar to issue an  interim order of winding up of the society.  An appeal against  the winding up of the society shall be made by the aggrieved  party to the State Government under Section 104.  Section  105 lays down the powers of the liquidator.  Cognizance by the  Civil Court of any matter connected with the winding up or  dissolution of a society under this Act is barred under Section  107.   

THE ANDHRA PRADESH CO-OPERATIVE SOCIETIES ACT,  1964 [THE APCS ACT, 1964]

       The Andhra Pradesh State Co-operative Bank Limited  was formed by the amalgamation of the previous Andhra  Pradesh State Co-operative Bank Limited, Vijayawada No.  2120 and Hyderabad Co-operative Apex Bank Limited,  Hyderabad, under the Andhra Pradesh Co-operative Bank  (Formation) Act, 1963 and by the merger of the Andhra  Pradesh Central Agricultural Development Bank Limited,  Hyderabad, under Act 14 of 1994 and was deemed to be  registered as a Co-operative Society under the Andhra Pradesh  Co-operative Societies Act of 1964 [ the APCS Act, 1964].   

       The APCS Act, 1964 was enacted with Statement of  Objects and Reasons to consolidate and amend the law  relating to Co-operative Societies in the State of Andhra  Pradesh in order to facilitate and strengthen the functioning of  Co-operative Societies based on Co-operative principles and  Co-operative identity.   Section 2 deals with definitions clause.   Clause (f) defines ’financing bank’ to mean ’a society, the main  object of which is to assist any affiliated or other society by  giving loans or advancing moneys; and includes any scheduled  bank as defined in the RBI Act and such other body corporate  or financial institution as may be notified by the Government  from time to time, which gives financial or other aid to a  society’.  Chapter II of the Act deals with Registration of  Societies.  A society which has, its main object, the promotion  of the economic interests of its members in accordance with  the Co-operative principles....., the registration of a society  shall render it a body corporate by the name under which it is  registered having perpetual succession and a common seal in  terms of Section 9.  In Chapter III, Section 19 prescribes the  eligibility for membership of the Society.   Under Chapter IV,  the Management of Societies ultimately  shall  vest in the  General Body, whereas Section 30-A empowers the General  Body of every society to constitute a supervisory council to  ensure that the affairs of the society are conducted in  accordance with the principles of Co-operation, provisions of

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the Act, Rules, bye-laws and resolutions of the General Body.   The General Body of a society is also empowered to constitute  a Committee in accordance with the bye-laws and entrust the  management of the affairs of the society to such Committee  (Section 31 of the Act).  Powers and functions of the  Committee are provided under Section 31-A.  Chapter V deals  with the Rights and Privileges of the Societies.  Under Section  35, the society has preferential charge upon the crop or other  agricultural produce, cattle fodder for cattle, agricultural or  industrial implements etc. owned by a member including a  past or deceased member who is in default of payment of any  debt or other amount due to a society.   Such charge shall be  available even as against any amount recoverable by the  Government as if it were an arrear of land revenue.  Section 47  empowers a society to receive deposits and raise loans only to  such extent and under such conditions as may be specified in  the bye-laws.  Sub-section (2) prohibits the society from  granting a loan to any person other than a member, but if  general or special sanction is obtained from the Registrar, the  society may grant loans to another society or its employees on  such terms as may be specified in the bye-laws.  Chapter VII  deals with Audit, Inquiry, Inspection and Surcharge.  Section  50 lays down that there shall be a separate wing for audit in  the Co-operative Department headed by the Chief Auditor who  will work under the general superintendence and control of  the Registrar of Co-operative Societies.  The Chief Auditor  shall audit or cause to be audited by a person authorized by  him by a general or special order in this behalf, the accounts  of a society at least once in every year and shall issue or cause  to be issued an audit certificate.  The Registrar is also  authorized under Section 51 to hold an inquiry into the  constitution, working and financial condition of the society,  either suo motu or on the application of the society to which  the society concerned is affiliated.  Under Section 52, the  Registrar may, on his own motion or on the application of a  creditor of a society, inspect or direct any person authorized  by him by a general or special order in this behalf to inspect  the books of the society.  Accounts and Books etc. of the  societies are to be maintained and kept by the Chief Executive  Officer of every society and the President of the society jointly  and severally.   

       Chapter VIII of the APCS Act, 1964 deals with Settlement  of Disputes touching the constitution, management or the  business of a society, other than a dispute regarding  disciplinary action taken by the society or its committee  against a paid employee of the society.  Explanation to Section  61 prescribes the nature of the dispute for the purposes of  sub-section (1) to  include a claim by a society for any debt or  other amount due to it from a member, past member, the  nominee, heir or legal representative of a deceased member,  whether such debt or other amount be admitted or not and a  claim by surety against the principal debtor where the society  has recovered from the surety any amount in respect of any  debt or other amount due to it from the principal debtor as a  result of the default of the principal debtor whether such debt  or other amount due to be admitted or not.  All such disputes,  which are enumerated under Section 61 of the Act, shall be  referred to the Registrar for decision.  The Registrar is  empowered to decide the dispute himself or transfer it for  disposal to any person who has been invested by the  Government with powers in that behalf or refer it for disposal  to an arbitrator under Section 62 of the Act.  Section 63  empowers the financing bank to proceed against members of a  society for recovery of moneys due to it from such society.  

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Under Section 64 contained in Chapter IX, if the Registrar,  after an inquiry held under Section 51 or an inspection made  under Section 52 or on receipt of an application made by not  less than two-thirds of the members, is of the opinion that the  society ought to be wound up, he may after giving the society  an opportunity of making its representation, by order direct it  to be wound up.  Where the order of winding up is made under  Section 64, the Registrar may appoint a Liquidator for that  purpose under Section 65.  Chapter X deals with Execution of  Decisions, Decrees and Orders.  The Registrar or any person  authorized by him in this behalf is authorized to recover  certain amount due under a decision or an order of the  Registrar, or any person authorized by him, or an arbitrator by  attachment and sale of property and execution of the orders.   The recovery of any amount may be executed by the Civil  Court having local jurisdiction on a certificate signed by the  Registrar or any person authorized by him in this behalf as if  the order or decision were a decree of that Court; or by the  Collector, on an application made to him within twelve years  from the date fixed for payment in the order or decision and if  no such date fixed from the date of the order or decision, along  with a certificate signed by the Registrar or by any person  authorized by him in this behalf, as if the amount due under  the order or decision were an arrear of land revenue.  Section  71 provides for recovery of debts.  It reads:  "(1)  Notwithstanding anything in this Act or in any other law for  the time being in force and without prejudice to any other  mode of recovery which is being taken or may be taken, the  Registrar may, on the application made by a society or  financing bank or federal society as the case may be, for the  recovery of arrears of any sum advanced to any of its members  and on furnishing a statement of accounts in respect of the  arrears and after making such inquiry as he deems fit issue a  certificate for the recovery of the amount stated therein to be  due as arrears."  If a society has failed to take action under  sub-section (1) in respect of any amount due as arrears, the  Registrar, after satisfying himself, may on his own motion  issue a certificate for the recovery of the amount stated therein  to be due as arrears and such a certificate shall be deemed to  have been issued on an application made by the society  concerned [sub-section (2)].  A certificate issued by the  Registrar under sub-section (1) or sub-section (2) shall be final  and conclusive proof of the arrears stated to be due therein  and the certificate shall be executed in the manner specified in  sub-section (2) of Section 70.  The Registrar or any person  authorized by him in this behalf shall be deemed, when  exercising any power under this Act for the recovery of any  amount by the attachment and sale or by sale without  attachment of any property, or when passing any orders on  any application made to him for such recovery, or to take  steps in aid of such property to be a Civil Court for the  purpose of Article 182 of the First Schedule to the Indian  Limitation Act, 1908 in terms of Section 72.  Under Section  73, the Registrar is also empowered to make attachment of  property before decision or order unless adequate security is  furnished by a person, who is found to be defaulter of the loan  of the society to direct the attachment of the said property  before decision or the order.   

       Chapter XI deals with Appeal, Revision and Review.   Under Section 75, the Government, for the purpose of this Act,  is competent to constitute as many tribunals as may be  necessary for such area or areas as may be specified in the  Notification.  The Tribunal shall consist of a Chairman and not  more than two other members to be appointed by the

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Government.  The Chairman shall be a person who is or has  been a judicial officer not below the rank of a District Judge  and a member shall be a person, who holds or has held a post  not below the rank of Additional Registrar of Co-operative  Societies.  Any person or society aggrieved by any decision  passed or order made by the Registrar or any other person  authorized under the various provisions of the Act enumerated  in Section 76 is free to file an appeal to the Tribunal.  The  Registrar under Section 77 is empowered to exercise the  powers of revision either on his own motion or an application  made to him by the aggrieved party.   

THE MULTI-STATE CO-OPERATIVE SOCIETIES ACT,  2002  [’THE MSCS ACT, 2002’]  

       The Multi-State Co-operative Societies Act, 1984 was  enacted by the Parliament and Section 74 thereof deals with  various disputes including recovery of debts due to the co- operative banks.  Parliament repealed the Multi-State Co- operative Societies Act, 1984 by the Multi-State Co-operative  Societies Act, 2002 [’’the MSCS Act, 2002’’).    

       The object of the MSCS Act, 2002 was to consolidate and  amend the law relating to co-operative societies, with objects  not confined to one State and serving the interests of members  in more than one State, to facilitate the voluntary formation  and democratic functioning of co-operatives as people’s  institutions based on self-help and mutual aid and to enable  them to promote their economic and social betterment and to  provide functional autonomy and for matters connected  therewith or incidental thereto.

       In Section 3(f) of the MSCS Act, 2002, a ’co-operative  bank’ means a multi-State co-operative society, which  undertakes ’banking business’.  Section 3(h) defines a ’co- operative society’ to mean ’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’.  In terms of Section 3(p),  a ’multi-State co-operative society’ means ’a society registered  or deemed to be registered under this Act and includes a  national co-operative society and a federal co-operative’.   Chapter IV of the Act deals with members of multi-State co- operative societies and their duties, rights and liabilities.   Settlement of disputes touching the constitution, management  or business of a multi-State co-operative society are to be  referred to an arbitration under Section 84 of Chapter IX of the  Act.  The order or decision recorded by the Authority under  Section 39 or Section 40 or Section 83 or Section 99 or Section  101 can be executed in the manner provided in Chapter XI of  the Act.  Section 99 and Section 101 under Chapter XII  provide for appeals to the Appellate Authority and review of its  orders. Section 22 of the MSCS Act, 2002 provides for  conversion of a Co-operative Society into a Multi-State Co- operative Society by an amendment in its bye-laws with the  approval of the Central Registrar who shall consult the  Registrars of co-operative societies of the State concerned.   The Act provides for its own machinery for registering multi- State societies and for federal co-operatives thereunder as also  the rights of the members, directors and managements and  other matters like privileges, properties and funds and matters  connected therewith as well as machinery for settlement of  disputes and winding up thereof as set out in about 38  Sections of the said Act beginning from Chapter VII to Chapter  XIV.   

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THE RESERVE BANK OF INDIA ACT, 1934 [the RBI ACT]         In Section 2 (i) of the RBI Act, "co-operative bank", "co- operative credit society", "director", "primary agricultural  credit society", "primary co-operative bank" and "primary  credit society" shall have the meanings respectively assigned  to them in Part V of the Banking Regulation Act, 1949.

       Chapter III-A of RBI Act deals with Collection and  Furnishing of Credit Information.  In Section 45A (a) "banking  company" means a banking company as defined in Section 5  of the Banking Regulation Act, 1949 (10 of 1949) and includes  the State Bank of India, [any subsidiary bank as defined in the  State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959),  any corresponding new bank constituted by section 3 of the  Banking Companies (Acquisition and Transfer of  Undertakings) Act, 1970 (5 of 1970), and any other financial  institution notified by the Central Government in this behalf]".

THE BANKING REGULATION ACT, 1949 (the BR ACT):   

This Act was brought into force on 16th March 1949.  Section 3  of the BR Act clearly provides that the Act would apply to Co- operative Societies in certain cases, subject to the provisions  of Part V of the Act.  The BR Act defines "banking company"  under Section 5 (c) as follows:-  (c) "banking company" means any  company which  transacts the business  [in India]."   

       In Section 5(d) "company" means any company as  defined in section 3 of the Companies Act, 1956 (1 of 1956);  and includes a foreign company within the meaning of section  591 of that Act.   

       Chapter V of the BR Act was inserted by Act 23 of 1965  w.e.f. 1.3.1966.  Section 56 of the Act provides that the  provisions of this Act, as in force for the time being, shall  apply to, or in relation to,  banking  companies subject to the  following modifications namely :-            "Throughout this Act, unless the context otherwise          requires:--

(i)     references to a "banking company" or "the  company" or "such company" shall be construed as  references to a co-operative bank;

(ii)    ..............................................................................."                  The purpose and object of modifications were to regulate  the functioning of the co-operative banks in the matter of their  business in banking.  The provisions of Section 56 itself starts  with the usual phrase "unless the context otherwise requires"  is to make the regulatory machinery provided by the BR Act to  apply to co-operative banks also.  The object was not to define  a co-operative bank to mean a banking company, in terms of  Section 5 (c) of the BR Act.  This is apparent from the fact that  instead of amending the original clause (c) of Section 5   separate clause (cci) was added to cover the ’co-operative bank’  to mean ’a state co-operative bank, a  central co-operative  bank and a primary co-operative bank’.  In clause (ccv)  ’primary co-operative bank’ means ’a co-operative society,  other than a primary agricultural credit society.  The primary

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object or principal business of the ’Co-operative Bank’ should  be the transaction of banking business.  The modifications  given in clause (a) of Section 56 are apparently suitable to  make the regulatory machinery provided by the BR Act to  apply to co-operative banks also in the process of bringing the  co-operative banks under the discipline of Reserve Bank of  India and other authorities.  A co-operative bank shall be  construed as a banking company in terms of Section 56 of the  Act.  This is because the various provisions for regulating the  banking companies were to be made applicable to co-operative  banks also.  Accordingly, Section 56 brought co-operative  banks within the machinery of the BR Act but did not amend  or expand the meaning of "banking company" under Section  5(c). On a plain reading of every clause of Section 56 of the BR  Act, it becomes clear that what is contained therein is only for  the purpose of application of provisions that regulate banking  companies to co-operative societies.  According to the  expression "co-operative societies" used in Section 56 means a  "co-operative society", the primary object or principal business  of which is the transaction of banking business.  In other  words, first it is a co-operative society, but carrying on  banking business having the specified paid up share capital.   Other definitions also make it clear that the entities are  basically co-operative societies.   

THE SECURITISATION AND RECONSTRUCTION OF  FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY  INTEREST ACT, 2002  [SECURITISATION ACT].

       The Parliament had enacted the Securitistion and  Reconstruction of Financial Assets and Enforcement of  Security Interest Act, 2002 [’the Securitisation Act’] which  shall be deemed to have come into force on 21st day of June  2002.  In Section 2(d) of the Securitisation Act same meaning  is given to the word ’banking company’ as is assigned to it in  clause (e) of Section 5 of the BR Act.  Again the definition of  ’banking company’ was lifted from the BR Act but while  defining ’bank’, Parliament gave five meanings to it under  Section 2(c) and one of which is ’banking company’.  The  Central Government is authorized by Section 2 (c)(v) of the Act  to specify any other bank for the purpose of the Act.  In  exercise of this power, the Central Government by Notification  dated 28.01.2003, has specified "co-operative bank" as defined  in Section 5 (cci) of the BR Act as a "bank" by lifting the  definition of ’co-operative bank’ and ‘primary co-operative  bank’ respectively from Section 56 Clauses 5(cci) and (ccv) of  Part V.  The Parliament has thus consistently made the  meaning of ’banking company’ clear beyond doubt to mean ’a  company engaged in banking, and not a co-operative society  engaged in banking’ and in  Act No. 23 of 1965, while  amending the BR Act, it did not change the definition in  Section 5 (c) or even in 5(d) to include co-operative banks; on  the other hand, it added a separate definition of ’co-operative  bank’ in Section 5 (cci) and ’primary co-operative bank’ in  Section 5 (ccv) of Section  56 of Part V of the BR Act.   Parliament while enacting the Securitisation Act created a  residuary power in Section 2(c)(v) to specify any other bank as  a bank for the purpose of that Act and in fact did specify ’co- operative banks’ by Notification dated 28.01.2003.  The  context of the interpretation clause plainly excludes the effect  of a reference to banking company being construed as  reference to a co-operative bank for three reasons: firstly,  Section 5 is an interpretation clause; secondly, substitution of  ’co-operative bank’ for ’banking company’ in the definition in  Section 5 (c) would result in an absurdity because then

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Section 5 (c) would read thus: "co-operative bank" means any  company, which transacts the business of banking in India;  thirdly, Section 56 (c) does define "co-operative bank"  separately by expressly deleting/inserting clause (cci) in  Section 5.  The Parliament in its wisdom had not altered or  modified the definition of ’banking company’ in Section 5 (c) of  the BR Act by Act No.23 of 1965.   

       As noticed above, "Co-operative bank" was separately  defined by the newly inserted clause (cci) and "primary co- operative bank" was similarly separately defined by clause  (ccv).  The meaning of ’banking company’ must, therefore,  necessarily be strictly confined to the words used in Section  5(c) of the BR Act.  If the intention of the Parliament was to  define the ’co-operative bank’ as ’banking company, it would  have been the easiest way for the Parliament to say that  ’banking company’ shall mean ’banking company’ as defined  in Section 5(c) and shall include ’co-operative bank’ and  ’primary co-operative bank’ as inserted in clauses (cci) and  (ccv) in Section 5 of Act 23 of 1965.

THE RECOVERY OF DEBTS DUE TO BANKS AND  FINANCIAL INSTITUTIONS ACT, 1993 (’’the RDB Act’’).                   The Recovery of Debts Due to Banks and Financial  Institutions Act, 1993[’the RDB Act’] was enacted by the  Parliament with the objects and reasons for the recovery of the  debts due to the banks.  Before the coming into force of the  RDB Act, the banks were approaching Civil Courts for recovery  of their debts from the defaulters by filing civil suits before the  Civil Courts of competent jurisdiction.  After the coming into  force of the RDB Act on the 25th day of June 1993, the  jurisdiction of the Civil Courts was taken away.  The decision  to have separate Bank Tribunals was taken by the Central  Government after considering the increasing workload of the  Civil Courts and delay in disposal of the bank suits.  The  Statement of Objects and Reasons for the enactment of the  RDB Act are that the banks and financial institutions at  present experience considerable difficulties in recovering loans  and enforcement of securities charged with them.  The existing  procedure for recovery of debts due to the banks and financial  institutions has blocked a significant portion of their funds in  unproductive assets, the value of which deteriorates with the  passage of time.  The Committee on the financial system  headed by Shri M. Narasimham has considered the setting up  of the Special Tribunals with special powers for adjudication of  such matters and speedy recovery as critical to the successful  implementation of the financial sector reforms.  An urgent  need was, therefore, felt to work out a suitable mechanism  through which the dues to the banks and financial institutions  could be realized without delay.  In 1981, a Committee under  the Chairmanship of Shri T. Tiwari had examined the legal  and other difficulties faced by banks and financial institutions  and suggested remedial measures including changes in law.   The Tiwari Committee had also suggested setting up of Special  Tribunals for recovery of dues of the banks and financial  institutions by following a summary procedure.  The setting  up of Special Tribunals will not only fulfill a long-felt need, but  also will be an important step in the implementation of the  Report of Narasimham Committee.  Whereas on 30th  September, 1990 more than fifteen lakhs of cases filed by the  public sector banks and about 304 cases filed by the financial  institutions were pending in various Courts, recovery of debts  involved more than Rs.5622 crores in dues of Public Sector

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Banks and about Rs.391 crores of dues of the financial  institutions.  The locking up of such huge amount of public  money in litigation prevents proper utilization and re-cycling of  the funds for the development of the country.   

       The provisions of the RDB Act, which are relevant, are  referred to in the following paragraphs.

         Section 2(d) defines "banks" to mean (i) a banking  company; (ii) a corresponding new bank; (iii) State Bank of  India; (iv) a subsidiary bank; or (v) a Regional Rural Bank.  In  terms of clause (e) "banking company" shall have the meaning  assigned to it in clause (c) of Section 5 of the BR Act.  Chapter  II of ’the RDB Act’ provides for establishment of Tribunal(s)  and Appellate Tribunal(s) and the qualifications of person(s)  for appointment as Presiding Officer of the Tribunal and a  Chairperson of the Appellate Tribunal, their term of office and  other service conditions.  Section 17 in Chapter III provides for  Jurisdiction, Powers and Authority of Tribunals.  Section 18  bars the jurisdiction of a Civil Court in relation to the matters  specified in Section 17.

       Chapter IV prescribes procedure, powers and jurisdiction  of the Tribunals and Appellate Tribunals and application of  the provisions of the Limitation Act, 1963.  Chapter V of the  RDB Act emphasizes mode of recovery of debts/loans by the  Tribunal/Recovery Officer.

ENTRIES 43, 44 & 45 OF LIST I AND ENTRY 32 OF LIST II  OF THE SEVENTH SCHEDULE OF THE CONSTITUTION OF  INDIA

       The legislative field in constitutional terms has to be  determined in terms of Articles 245 and 246 and Entries 43,  44 and 45 of List I and Entry 32 of List II of Seventh Schedule  of the Constitution of India.

       Entry 43 of List I of the Seventh Schedule is as follows:         "43. Incorporation, regulation and  winding up of trading corporations,  including banking, insurance and  financial corporations, but not including  co-operative societies."

       Entry 44 is as follows:-

"Incorporation, regulation and winding  up of corporations, whether trading or  not, with objects not confined to one  State, but not including universities."           Entry 45 is as follows:-                 "Banking."

       Entry 32 of List II is as follows:-  "32. Incorporation, regulation and  winding up of corporations, other than  those specified in List I, and  universities; unincorporated trading,  literacy, scientific, religious and other  societies and associations; co-operative  societies."

       In the light of the factual situation and having gone

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through the above-said relevant provisions of different  Statutes and relevant Entries of Lists I and II of the Seventh  Schedule of the Constitution, we have heard the learned  counsel for all the parties and with their assistance we have  gone through the decisions brought before us by them.

       Mr. S. Ganesh, learned Senior Advocate appearing on  behalf of the appellant in Civil Appeal Nos.432 to 434 of 2004,  vehemently contended that the High Court of Bombay  completely failed to appreciate the meaning of "banking  company" as defined in Section 5(c) of the BR Act which  clearly and indisputably does not cover or include a ’co- operative bank’ registered under the MCS Act, 1960 or the  MSCS Act, 2002.  He submitted that Section 56 of the BR Act   did not amend the definition of ’banking company’ in terms of  Section 5 (c), but for all intents and purposes Act No.23 of  1965 merely extends the application of the provisions of the  BR Act to ’a co-operative bank’ even though it is not a ’banking  company’ as defined in Section 5(c).  He contended that the  Parliament in its wisdom did not make the RDB Act applicable  to all banks to which the provisions of the BR Act were made  applicable.  It was urged that the reason why co-operative  banks were excluded from the ambit of the operation of ’the  RDB Act by confining the said Act only to a "banking  company" as defined in Section 5(c) of the BR Act  was that  under the MCS Act, 1960 Act and the MSCS Act, 2002 co- operative banks established under the Societies Act had an  effective and speedy machinery for recovery of their dues and,  therefore, it was neither necessary nor beneficial to make the  RDB Act applicable to co-operative banks for the recovery of  dues from their members under the respective State Co- operative Legislations.  He next contended that the co- operative banks established under the MCS Act, 1960 and the  MSCS Act, 2002 and transacting the business of banking shall  advance loan to their members only as per the provisions  contained in both these Statutes and not to any other person.   Therefore, under these enactments "co-operative banks" can  only recover their dues from their members, whereas the RDB  Act will be applicable to all other banks, which have advanced  loan to any person/society/corporation/industry, etc. etc.  without any stipulation of membership of the Banks.   

       Mr. Amar Dave, Advocate appearing in IA Nos.10-11 of  2006 in Civil Appeal No.432 of 2004, submitted that as per the  Scheme of the BR Act, the legislative intention is to classify co- operative banks as completely a separate category and the  same cannot be included in "Banking Company" in terms of  Section 5 (c) of the Act.  He contended that it has been well  demonstrated from the Statement of Reasons and Objects  behind the passing of the RDB Act itself, that the same was  enacted merely for expeditious adjudication and recovery of  debts due to Banks and Financial Institutions.  The  Committees formed prior to the enactment of the RDB Act also  more or less did not cover the co-operative banks for the  purposes of the recommendations in general for improving the  recovery system.  He next contended that the recovery of debts  by the co-operatives from their members are covered by  specific Acts such as the Co-operative Societies Acts of the  States, which are comprehensive and self-contained  legislations.  Further submission was that for multi-state co- operatives, there is a specific enactment in the form of the  MSCS Act, 2002 comprehensively providing the legal  framework in respect to issues pertaining to such co- operatives.  Therefore, co-operative banks are, in any case, not  covered by the provisions of the RDB Act by invoking the

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doctrine of incorporation.  He next submitted that the State’s  power under List II, Entry 32 of Seventh Schedule of the  Constitution is not subject to or subordinate to the power of  the Union List I, Entry 45.   

       Dr. Rajeev Dhavan, learned Senior Advocate, appearing  for respondents in Civil Appeal No. 6069/2005 was requested  to assist the Court in those matters which were listed on the  Board on the day when the matters were heard.  He contended  that both List I, Entries 43 and 45 as well as List II, Entry 32  of the Seventh Schedule must be given the widest possible  interpretation in their respective spheres.  He submitted that  although Article 246 (1) begins with a non-obstante clause,  easy recourse should not be made to the non-obstante clause  without  first making an effort of reconciliation between the  Union and the State Entries.  In other words, under a federal  set up, the States are not to be readily denuded of powers  which the Constitution makers gave to them as exclusively  reposted in them.  He contended that it was really the  intention of the Constitution makers to ensure that the  provision is made for Peoples’ co-operatives and the idea of co- operatives and people are necessarily interlinked associations  and organizations.  Learned senior counsel made a reference  to a decision of this Court in Zoroastrian Co-operative  Housing Society Ltd. v. District Registrar, Co-operative  Societies (Urban) [(2005) 5 SCC 632] at Para 15:  "...... The co-operative movement by its very  nature, is a form of voluntary association where  individuals unite for mutual benefit in the  production and distribution of wealth upon  principles of equity, reason and common  good....".    

       He then contended that on plain reading of definitions of   ’bank’ [Section 2(d)]; ’banking company’ [Section 2(e)], ’debt’  [Section 2(g)] and ’financial institution’ [Section 2(h)] of the  RDB Act, it becomes clear that the Act is concerned with debts  of corporate banks and financial institutions which were  constituted under List I, Entry 43 and the concept of ’banking’  under Section 5(b) of the BR Act is very different from the  activity of a ’financing bank’ under the APCS Act, 1964.   

       Mr. K. N. Bhat, learned Senior Advocate appearing on  behalf of the Reserve Bank of India in SLP (C) No.22621 of  2005 contended that the pith and substance of the Co- operative Societies Acts enacted by various States must be  taken into consideration and not a particular activity of the  society.  He next contended that the expression "co-operative  bank" in Section 56(cci) means a ’State Co-operative Bank’, a  ’Central Co-operative Bank’ and definition of ’Primary Co- operative Bank’ in clause (ccv) means a ’co-operative society’  the primary object or principal business of which is the  transaction of banking business and no attempt is made by  the Parliament to amend Section 5(c) of  the BR Act to include  ’co-operative societies’ doing the business of banking within  the meaning of ’banking company’ as defined in Section 5 (c) of  the RDB Act.    

       Mr. Bhim Rao Naik, learned senior counsel appearing on  behalf of the Cosmos Co-operative Bank Ltd. in Civil Appeal  No.436 of 2004, submitted that the definition of ’banking  company’ under Section 2(d)(i) of the RDB Act on its plain  reading indicates that it does not refer to co-operative banks,  but to companies incorporated under the Companies Act.  He

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contended that Section 56 of the BR Act creates a fiction only  for the purposes of the said Act and cannot be applied to  another Act, viz., the RDB Act in the absence of any indication  to that effect.  He next contended that the State Legislature by  virtue of Entry 32, List II of the Seventh Schedule has the  power to make law with respect to co-operative societies  including societies doing banking business.  Learned counsel  also contended that the MCS Act, 1960 and the MSCS Act,  2002 both deal with their members and as per regulation of  loan making policy, loan can be given to the members only of  the societies subject to certain exceptions and in any event  under Entry 43, List I, the Parliament cannot legislate on  incorporation of Co-operative Societies since Co-operative  Societies are excluded in Entry 43 of List I of the Seventh  Schedule to the Constitution.  

       Mr. Vinod A. Bobde, learned senior counsel appearing on  behalf of the State of Andhra Pradesh in SLP (C) Nos. 25246- 25247 of 2005, challenging the judgment and order of the  High Court of Andhra Pradesh, strenuously contended that  Section 56 was inserted in the BR Act to make that Act  applicable with modifications to co-operative banks with the   main object to regulate the functioning of the co-operative  banks in the matter of their business as the banking  companies were regulated (Part II), control over management  (Part IIA) and all other aspects contained in the BR Act.  The  modifications given in clause (a) of Section 56 are apparently  for suitably applying the substantive provisions of the Act to  co-operative banks and do not touch that part of the Act which  is in the interpretation clause.  He then contended that the  judgment of the High Court is erroneous on the grounds:  firstly, the co-operative societies have been deprived of the  right to engage in the business of banking altogether; second,  the co-operative societies have been deprived of speedy, easily  accessible and inexpensive remedies for recovery of their dues  from members; thirdly, persons depositing monies in co- operative banks have been deprived of their remedies under  the A. P. (Protection of Interests of Depositors and Financial  Establishments) Act, 1999; and fourthly, while claims over  Rs.10 lakhs by co-operative banks will have to go to the Debt  Recovery Tribunals and claims below that sum will remain  under  the APCS Act, 1960 as amended in 1964.

       Mr. T. R. Andhyarujina, learned Senior Advocate  appearing on behalf of Andhra Pradesh State Co-operative  Bank Ltd. in Civil Appeal No.36 of 2006, vehemently  contended that Co-operative Societies do a variety of activities  for their members according to co-operative principles of  voluntary and open membership controlled by their members.   The Co-operative Banks are distinguished from banking  companies who do not have to conform to such co-operative  principles and who can give loans to the public.  He submitted  that prior to the Banking Laws (Application to Co-operative  Societies) Act, 1965 (Act 23 of 1965), Co-operative Societies  doing banking were not subject to regulation of their business  of banking although deposits and working funds of Co- operative Banks were very large, but Act 23 of 1965  introduced a new Chapter V to the BR Act and regulated the  banking business of Co-operative Societies as it had regulated  banking by banking companies with necessary modification.   He submitted that recovery of loan by the Co-operative Banks  are ancillary and necessary for the banks and every bank  must have the power to refer disputes for adjudication and  recover loans, etc. as expressly conferred by special provisions  in the State Co-operative Societies Acts and Regulation of Co-

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operative Societies which fell under Entry 32, List II.  He also  submitted that Entry 45, List I, is limited to laws which affect  the essential business of a bank qua the bank viz. banking as  defined in Section 2(b) of the BR Act.  He then contended that  there was a conscious and deliberate omission to exclude "Co- operative Bank" in the definition of "Banking Company" in  Section 2(d) of RDB Act, whereas all other five categories of  Banks were included in the said definition and nothing  prevented the framers of the Statute to include "Co-operative  Bank" in the definition clause of the BR Act.  It was next  contended that significantly the Co-operative Banks have been  brought in by the Parliament in Section 2(c)(v) of the  Securitization Act by way of a Notification and enabling  provisions and the purpose of Part III of the Securitization Act  is also recovery of banks’ dues, but the RDB Act employed no  such device.   

       Per contra, Mr. S. B. Sanyal, learned senior counsel for  the respondents in Civil Appeal No.6077 of 2005, while  adopting the reasoning of the High Court in the order under  challenge submitted that throughout the BR Act wherein  banking company or company does occur, it would also  include co-operative bank on conjoint reading of Section 2(e) of  the RDB Act and Section 5(c) of the BR Act as amended on or  from 01.03.1966.   He submitted that the conclusion is  irresistible that the RDB Act will embrace debts due to co- operative bank which can only be recovered by the Tribunal  constituted under Section 17 which shall have the sole  jurisdiction under Section 18 and no authority or court is  entitled to exercise any jurisdiction to recover such debt, in  view of Section 34 which envisages that the RDB Act will have  an overriding effect, notwithstanding any other law for the  time being in force.  He next contended that Section 6 of the  BR Act applies to all banks doing banking business including  commercial banks and as per command of Section 56(1)(a) of  the said Act, business of banking company will include  business of co-operative banks  as the co-operative banks are  also advancing money either on security or without security to  third parties and not restricted to members of societies.  He  contended that in the matter of grant of loan etc., co-operative  bank has only one restraint that is to obtain approval from  Reserve Bank of India which is manifest from Section 20(2)(b)  of the BR Act and grant of unsecured loan and advances by  co-operative bank to any other person or on bills of exchange  of commercial transaction is permissible.  Learned senior  counsel further submitted that Section 47 of the APCS Act,  1964 is not the machinery through which the debt arising out  of banking transaction can be recovered from one and all.   Similarly, under Section 61 of the APCS Act, 1964 the dispute  which falls within the jurisdiction of Registrar are disputes  between members, past members, employees, legal  representatives of the deceased employees whereas the  disputes between primary co-operative bank qua depositors,  loanees, holder of bills of exchange giving rise to debt is  beyond the scope of Section 61.  He submitted that the  transaction of the banking business by co-operative bank is  patent, manifest  and direct and it can neither be incidental  nor ancillary as the definition of "primary co-operative bank"  incorporated in Section 56 of the BR Act in no uncertain terms  pronounces its primary object or principal business as  banking business.  Learned senior counsel lastly submitted  that the RDB Act enacted by the Parliament is later in point of  time than the APCS Act, 1964, both being special law for  recovery of dues, the law of Parliament will override the law  enacted by the State.

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       Mr. J.V. Suryanarayana, learned senior counsel  appearing on behalf of the respondents in Civil Appeal No.916  of 2006, submitted that in Section 56 of the BR Act, several  sub-sections were incorporated by Amending Act No.23 of  1965 whereby the co-operative societies of three categories,  viz., (1) Primary Co-operative Societies; (2) State Co-operative  Societies; and (3) Central Co-operative Societies, which are  doing banking business are defined as ’banking companies’  within the meaning of Section 2(d) of the RDB Act.  He  submitted that the appellant-bank (Vasavi Co-operative Urban  Bank Ltd.) is to be construed as a banking company as  mentioned in Section 5(c) of the BR Act by reason of Section  56(a)(i) of Act No.23 of 1965, in the manner and to the extent  the amendments provided, therefore, it was the clear intention  of the Parliament to apply all Banking Laws mutatis mutandis  to Co-operative Societies which have become co-operative  banks by undertaking banking business as defined in Section  5(b) of the BR Act.  He next submitted that recovery of debts is  an essential ingredient of banking and the Parliament was  empowered under Entry 45 of List I, relating to banking to  constitute such Tribunals, without any reference to Entry 11A  of the Concurrent List.  The enactment itself is clearly  indicative of the desire of Parliament to legislatively control,  under Entry 45 of List I, "Banking" by Co-operative Societies,  as it is the "Dominant Legislation" by virtue of Article 246 (1)  and the State legislation under Entry 32 of List II has to be  construed, accordingly and read down if necessary.  He  submitted that the scope of Entry 32 of List II of Seventh  Schedule is to enable the State Legislature to incorporate an  entity known as a co-operative society, but does not enable the  said entity to carry on banking.   

       Mr. Raju Ramachandran, learned senior counsel  appearing in Civil Appeal No.432 of 2004 for the intervenors  assisted by Dr. P. B. Vijay Kumar, Advocate, submitted that  even if the co-operative bank lends loans only to its members,  it will not alter characteristics of the banking company in the  light of the Amending Act No.23 of 1965.  He submitted that  co-operative banks and co-operative companies are covered by  the definition of Section 5 (c) of the BR Act.   

       Mr. Raghavendra S. Srivatsa, learned counsel appearing  on behalf of the appellant-bank in Civil Appeal No.916 of  2006, submitted that the High Court of Andhra Pradesh has  failed to appreciate the distinction between the definition of  "banking company" under Section 5(c) of the BR Act and  Section 2(c) of the RDB Act.  He submitted that the Parliament  had kept the definition of "banking company" under Section  5(c) intact by adding new definition of "co-operative bank" in  clause (cci) and "primary co-operative bank" in clause (ccv) of  the Act No. 23 of 1965.                                         Mr. T. Raja, learned counsel appearing on behalf of the  petitioners in SLP (C) No.5598 of 2004, submitted that the  RDB Act is a special Statute enacted by the Parliament and  the Co-operative Societies Act is a general Statute in nature.   Therefore, the RDB Act will apply for the recovery of the loans  advanced by the co-operative banks whereas Co-operative  Societies Act shall become inoperative.

       Mr. S. Nanda Kumar, Advocate appearing on behalf of  respondent No. 3 in SLP (C) No.5598 of 2004, supported the  contentions advanced by Mr. T. Raja, Advocate.

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       Dr. N. M. Ghatate, learned senior counsel appearing on  behalf of respondent Nos.1 to 5 in Civil Appeal No.436 of 2004,  submitted that the subject of banking is covered in Entry 45,  List I of the Seventh Schedule of the Constitution and as the  recovery of debts/dues by the banks is an essential part of  banking business, the Parliament has legislative competence  to legislate on the subjects.  He submitted that as soon as the  Parliament legislates under Entry 45, List I and makes a law  relating to recovery of dues by the banks, the provisions  contained in the Co-operative Societies Acts relating to the  subject will cease to operate in relation to the co-operative  banks and the co-operative banks will follow the same  procedure for recovery of the dues as laid down in the RDB  Act.  He then submitted that the co-operative bank will have to  be included in the definition of the term "banking" as defined  in Section 2(d) of the RDB Act as Section 5(c) of the BR Act  cannot be read in isolation ignoring Section 56 of the Act.  He  submitted that the doctrine of occupied field because of  paramountcy, central legislation will operate over State Law  but to the extent the State Law is inconsistent or in conflict  with the Central Law.   In support of this submission, reliance  is placed upon M/s Fatehchand Himmatlal & Ors. v. State  of Maharashtra [(1977) 2 SCC 670 para 56].  He contended  that from the date on which the Debts Recovery Tribunal was  constituted under the RDB Act’, the courts and authorities  under the MCS Act, 1960 as also the MSCS Act, 2002 would  cease to have jurisdiction to entertain the applications  submitted by the co-operative banks for recovery of their dues.   He next submitted that pith and substance of co-operative  banks and other banks is the same as their primary function  is taking deposits from public, financial institutions etc. and  recovering the debt with interest.  He also submitted that  Entries in the Seventh Schedule should not be read narrowly  but with widest amplitude as they deal with legislative  competence of Parliament and the State Legislatures.  To  support this contention, reliance is placed on R. C. Cooper v.  Union of India [(1970) 1 SCC 249 at para 36].

       Mr. Shekhar Naphade, learned senior counsel appearing  on behalf of the petitioners in SLP (C) Nos.15621-15622 of  2005 and in Civil Appeal Nos.2819-22 of 2006, contended that  Article 246 (1) of the Constitution of India is the source of the  power vested in the Parliament to enact laws and if the subject  matter of the legislation in its substantive form or even in its  incidental manifestation is covered by List I and if the  Parliament makes a law covering that aspect of the matter  then the law made by the Parliament will override the law  made by the State Legislature which otherwise would have  been valid on the basis of doctrine of pith and substance.  He  contended that the RDB Act enacted by the Parliament being  paramount must supersede pro tanto the provisions of the  MCS Act 1960, which was enacted by the State Legislature.  In  support of this submission, reliance was placed upon M/s  Hoechst Pharmaceutical Ltd.  & Ors. v. State of Bihar &  Ors. [(1983) 4 SCC 45].  He also stated that the co-operative  banks carrying on banking business as defined in Section 5(b)  of the BR Act and the recovery of claims by the banks against  the borrowers and debtors is a matter integrally and  essentially connected with the banking business as the  subject matter of banking or the legislative field of banking is  covered by Entry 45, List I of the Seventh Schedule of the  Constitution of India and, therefore, it is open to the  Parliament to establish courts and tribunals or any other  machinery for recovery of banks’ claims.  He submitted that  the ambit and scope of Entry 32, List II is only relating to the

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incorporation, the management of the affairs of the co- operative society, the powers of the Managing Committee, the  powers of General Body, the control of the Registrar or the  State Government over the affairs of the society, admission of  members, expulsion of members and disputes amongst  members etc.  but the banking sector whether in public sector  or in private sector or in co-operative sector is one unified  banking industry.  He next submitted that the banking  regulation laws contained either in the BR Act or in the RBI  Act or other provisions will cover the whole spectrum of  banking sector and it is, therefore, in the fitness of things that  even for the recovery of the claims of the banks against the  borrowers there should be one unified machinery and unified  set of procedure and the same is to be found in the RDB Act.   In the last, the learned counsel supported the judgments and  orders of the High Court of Bombay and the High Court of  Andhra Pradesh holding that as the co-operative banks are  transacting banking business, they are covered by the  definition of "banking company" under Section 5(c) of the BR  Act, therefore, the Tribunal constituted under Section 3 of the  RDB Act has jurisdiction and power under Section 17 to  decide claims of  all banks including the co-operative banks.   

       Mr. U. U. Lalit, learned Senior Advocate appearing on  behalf of the respondent in Civil Appeal No.38 of 2006,  contended that it is the exclusive domain of Union of India  under Entry 45 List I of Seventh Schedule of the Constitution  to enact laws in regard to banking.  Co-operative banks  transacting the banking business are, therefore, covered by  the RDB Act in terms of the meaning of "banking company"  under Section 2(d) of the Act.

       In the light of the contentions of the learned counsel for  the parties appearing before us and on an analysis of the  various provisions of the relevant Statutes, two questions arise  for our consideration which are:-         INTERPRETATION CLAUSE:  [a]    Whether the RDB Act applies to debts due to  co- operative banks constituted under the MCS Act,  1960; the MSCS Act, 2002 and the APCS Act, 1964?

CONSTITUTIONAL CLAUSE:

[b]     Whether the State Legislature is competent to enact  legislation in respect of co-operative societies  incidentally transacting business of banking in the  light of Entry 32, List II of Seventh Schedule of the  Constitution? QUESTION NO. 1         The dues of co-operatives and recovery proceedings in  connection therewith are covered by specific Acts, such as the  MCS Act, 1960 and the APCS Act, 1964, which are  comprehensive and self-contained legislations.  Similarly, for  Multi-State Co-operatives there is a specific enactment in the  form of the MSCS Act, 2002 comprehensively providing the  legal framework in respect to issues pertaining to such co- operatives.  Therefore, when there is an admittedly existing  legal framework specifically dealing with issues pertaining to  co-operatives and especially when the co-operative banks are,  in any case, not covered by the provisions of the RDB Act   specifically, there is no justification of covering the co- operative banks under the provisions of the RDB Act                     by invoking the Doctrine of  Incorporation.            In Surana Steels Pvt. Ltd. etc. v. Deputy  Commissioner of Income Tax & Ors. etc. [(1999) 4 SCC

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306], this Court examined an incorporation by reference and  concluded that the part of the incorporated Act from which a  provision is taken can be looked at only to ascertain the  meaning of the incorporated provision, but the other  provisions cannot be deemed to be incorporated when they are  not actually incorporated.           The distinction between peoples’ co-operative banks  serving their members and corporate banks doing commercial  transactions is fundamental to the constitutional dispensation  and understanding co-operative banking generally and in the  context of cooperative banking not coming under the ambit of  the BR Act.  Thus, even if the co-operatives are involved in the  activity of banking which involves lending and borrowing, this  is purely incidental to their main co-operative activity which is  a function in public domain.

       The RDB Act was passed in 1993 when Parliament had  before it the provisions of the BR Act as amended by Act No.  23 of 1965 by addition of some more clauses in Section 56 of  the Act.  The Parliament was fully aware that the provisions of  the BR Act apply to co-operative societies as they apply to  banking companies.  The Parliament was also aware that the  definition of ’banking company’ in Section 5 (c) had not been  altered by Act No. 23 of 1965 and it was kept intact, and in  fact additional definitions were added by Section 56(c).  "Co- operative bank" was separately defined by the newly inserted  clause (cci) and "primary co-operative bank" was similarly  separately defined by clause (ccv).  The Parliament was simply  assigning a meaning to words; it was not incorporating or even  referring to the substantive provisions of the BR Act.  The  meaning of ’banking company’ must, therefore, necessarily be  strictly confined to the words used in Section 5(c) of the BR  Act.  It would have been the easiest thing for Parliament to say  that ’banking company’ shall mean ’banking company’ as  defined in Section 5 (c) and shall include ’co-operative bank’ as  defined in Section 5 (cci) and ’primary co-operative bank’ as  defined in Section 5 (ccv).  However, the Parliament did not do  so.  There was thus a conscious exclusion and deliberate  commission of co-operative banks from the purview of the  RDB Act.  The reason for excluding co-operative banks seems  to be that co-operative banks have comprehensive, self- contained and less expensive remedies available to them  under the State Co-operative Societies Acts of the States  concerned, while other banks and financial institutions did  not have such speedy remedies and they had to file suits in  civil courts.

       The RDB Act was, therefore, designed to deal with other  banks and financial institutions which had to have recourse to  the time-consuming process of the Civil Courts.  The  Statement of Objects and Reasons, stated hereinabove refers  to more than 15 lakh cases filed by public sector banks and  about 304 cases filed by the financial institutions pending in  various courts.  The Statement of Objects and Reasons also  refers to the Tiwari Committee which had expressly  commented on delays in ’civil courts’ and the Narsimhan  Committee which recommended setting up of Special  Tribunals.

       Accordingly, the burden of the Civil Courts in the matter  of suits by banks and financial institutions was shifted to the  Debt Recovery Tribunals.  The disputes  between co-operative  banks and their  members were being taken care of by the  State Co-operative Acts and they were to remain where they

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were.  If co-operative disputes are also to go to the Debt  Recovery Tribunals, then those Tribunals will be over- burdened and the whole object of speedy recovery of debts due  to banks and financial institutions would be defeated.   The  Co-operative Societies Acts on the one hand and RDB Act on  the other cannot be regarded as supplemental to each other  viz., the provisions of the said Acts cannot be said to be pari- materia.                  This Court in Virendra Pal Singh v. District Assistant  Registrar [(1980) 4 SCC 109] directly deals with the question  of the legislative competence relating to a co-operative society  doing banking business.  This decision in clear terms has laid  down in para 10 as under:- "10. We do not think it necessary to refer  to the abundance of authority on the  question as to how to determine whether  a legislation falls under an entry in one  list or another entry in another list.  Long  ago in Prafulla Kumar Mukherjee and  Ors. v. Bank of Commerce Ltd., the Privy  Council was confronted with the question  whether the Bengal Money-Landers Act  fell within entry 27 in List II of the  Seventh Schedule to the Government of  India Act, 1935, which was ’money  landing’, in respect of which the  Provincial Legislature was competent to  legislate, or whether it fell within entries  28 and 38 in the List I which were  ’promissory notes’ and ’banking’ which  were within the competence of the  Central Legislature.  The argument was  that the Bengal Money Lenders Act was  beyond the competence of the provincial  Legislature insofar as it dealt with  promissory notes and the business of  banking.  The Privy Council upheld the  vires of the whole of the Act because it  dealt in pith and substance, with money- lending.  They observed : Subjects must still overlap, and  where they do the question must be  asked what in pith and substance in the  effect of the enactment of which  complaint is made, and in what list is its  true nature and character to be found.  If  these questions could not be asked, such  beneficent legislation would be stifled at  birth, and many of the subjects entrusted  to provincial legislation could never  effectively be dealt with.

Examining the provisions of the U.P. Co- operative Societies Act in the light of the  observations of the Privy Council we do  not have the slightest doubt that in pith  and substance the Act deals with  "Cooperative Societies".  That it trenches  upon banking incidentally does not take  it beyond the competence of the State  Legislature.  It is obvious that for the  proper financing and effective functioning  of Cooperative Societies there must also  be Cooperative Societies which do

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banking business to facilitate the working  of other Cooperative Societies,  Merely  because they do banking business such  Cooperative Societies do not cease to be  Cooperative Societies, when otherwise  they are registered under the Cooperative  Societies Act and are subject to the  duties, liabilities and control of the  provisions of the Cooperative Societies  Act.  We do not think that the question  deserves any more consideration and, we,  therefore, hold that the U.P. Cooperative  Societies Act was within the competence  of the State Legislature.  This was also  the view taken in Nagpur District Central  Cooperative Bank Ltd. v. Divisional Joint  Registrar, Cooperative Societies, AIR 1971  SC 365 and Sant Sadhu Singh v. the State  of Punjab, AIR 1970 PLH 528."

       Section 31 of the RDB Act clearly refers to transfer of  ’every suit or other proceeding pending before any court’.  The  word ’court’, in the context of the RDB Act, signifies ’civil  court’.  It is clear that the Registrar, or an officer designated by  him or an arbitrator under Sections 61, 62, 70 and 71 of the  APCS Act, 1964 and under Section 91 and other provisions of  Chapter IX of the MCS Act, 1960 are not ’civil courts’.

       In Harinagar Sugar Mills v. Shyam [1962 (2) SCR  339], this Court held: "By ’courts’ is meant courts of civil  judicature and by ’tribunals’ those bodies of men who are  appointed to decide controversies arising under certain special  laws.  Among the power of the State is the power to decide  such controversies.  This is undoubtedly one of the attributes  of the State, and is aptly called the judicial power of the State".            In Ram Rao & Anr. v. Narayan & Anr. [AIR 1969 SC  724], it was held that the nominee of Registrar appointed  under Section 95 of the Maharashtra Co-operative Societies  Act, 1961 is not a ’Court’ within the meaning of Section 195,  Cr.P.C..   

       In Kihoto Hollohan v. Zachillhu & Ors. [(1992)  Supp.(2) SCC 651 para 98], it was held that all tribunals are  not courts, though all courts are tribunals.  The word ’courts’  is used to designate those tribunals which are set up in an  organised State for the Administration of Justice...".   

       In Supreme Court Legal Aid Committee representing  undertrial prisoners v. Union of India  [(1994) 6 SCC 731  para 14], it was held: "it is common knowledge that a ’court’ is  an agency created by the sovereign for the purpose of  administrating justice.  It is a place where justice is judicially  administered.  It is a legal entity".

       The decision cited by the respondents in Thakur Jugal  Kishore v. Sitamarhilt [1967 (3) SCR 163] does not refer to  the earlier Constitution Bench decisions in ACC v. P. N.  Sharma and Harinagar Sugar Mills v. Shyam (supra).  At  best, the Assistant Registrar could have been held to be a  ’tribunal’ but not a ’court’.

       In a later decision in the case of Rama Rao & Anr. v.  Narayan & Anr. [(1969) 1 SCC 167], a two-Judge Bench has

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taken a contrary view and held that under the MCS Act, 1960,  the nominee of the Registrar for deciding a dispute under  Section 91 (which is equivalent to Section 61 of the A. P. Act of  1964) is not a ’court’.  Obviously, laws relating to co-operative  societies are special laws and the disputes entrusted to  Registrars are special disputes in respect of which the  jurisdiction of civil courts is ousted.   

       As already pointed out, the RDB Act is consistent with  the general banks and their creditors/loanees while the MCS  Act, 1960; the APCS Act, 1964 and the MSCS Act, 2002 are  concerned with the regulation of societies only.  The language  of the Sections in these enactments defining ’banking  company’ is plain, clear and explicit.  It does not admit any  doubtful interpretation as the intention of the legislature is  clear as afore-said.  It is well-settled that the language of the  Statutes is to be properly understood.  The usual presumption  is that the Legislature does not waste its words and it does not  commit a mistake.  It is presumed to know the law, judicial  decisions and general principles of law.  The elementary rule of  interpretation of the Statute is that the words used in the  Section must be given their plain grammatical meaning.   Therefore, we cannot afford to add any words to read  something into the Section, which the Legislature had not  intended.            Finally, it could not be said that Amendments in Chapter  V, Section 56 of the RDB Act by Act No. 23 of 1965 inserting  "co-operative bank" in Clause (cci) and "primary co-operative  bank" in Clause (ccv) either expressly or by necessary  intentment  apply to the co-operative banks transacting  business of banking.                                                                                                                                                         QUESTION NO. 2         The constitutional validity of an Act can be challenged  only on two grounds, viz. (i) lack of legislative competence; and  (ii) violation of any of the Fundamental Rights guaranteed in  Part III of the Constitution or of any other constitutional  provision.  In State of A. P. & Ors. v. McDowell & Co. &  Ors. [(1996) 3 SCC 709], this Court has opined that except the  above two grounds, there is no third ground on the basis of  which the law made by the competent legislature can be  invalidated and that the ground of invalidation must  necessarily fall within the four corners of the afore-mentioned  two grounds.  

       Power to enact a law is derived by the State Assembly  from List II of the Seventh Schedule of the Constitution.  Entry  32 confers upon a State Legislature the power to constitute co- operative societies.  The State of Maharashtra and the State of  Andhra Pradesh both had enacted the MCS Act, 1960 and  the  APCS Act, 1964 in exercise of the power vested in them by  Entry 32 of List II of the Seventh Schedule of the Constitution.   Power to enact would include the power to re-enact or validate  any provision of law in the State Legislature, provided the  same falls in an Entry of List II of the Seventh Schedule of the  Constitution with the restriction that such enactment should  not nullify a judgment of the competent court of law.  In the  appeals/SLPs/petitions filed against the judgment of the  Andhra Pradesh High Court, the legislative competence of the  State is involved for consideration.  Judicial system has an  important role to play in our body politic and has a solemn  obligation to fulfil.  In such circumstances, it is imperative  upon the Courts while examining the scope of legislative  action to be conscious to start with the presumption regarding

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the constitutional validity of the legislation.  The burden of  proof is upon the shoulders of the incumbent who challenges  it.  It is true that it is the duty of the constitutional courts  under our Constitution to declare a law enacted by the  Parliament or the State Legislature as unconstitutional when  Parliament or the State Legislature had assumed to enact a  law which is void, either for want of constitutional power to  enact it or because the constitutional forms or conditions have  not been observed or where the law infringes the Fundamental  Rights enshrined and guaranteed in Part III of the  Constitution.         As observed by this Court in CST v. Radhakrishnan in  considering the validity of a Statute the presumption is always  in favour of constitutionality and the burden is upon the  person who attacks it to show that there has been  transgression of constitutional principles.  For sustaining the  constitutionality of an Act, a Court may take into  consideration matters of common knowledge, reports,  preamble, history of the times, objection of the legislation and  all other facts which are relevant.  It must always be presumed  that the legislature understands and correctly appreciates the  need of its own people and that discrimination, if any, is based  on adequate grounds and considerations.  It is also well- settled that the courts will be justified in giving a liberal  interpretation in order to avoid constitutional invalidity.  A  provision conferring very wide and expansive powers on  authority can be construed in conformity with legislative  intent of exercise of power within constitutional limitations.   Where a Statute is silent or is inarticulate, the Court would  attempt to transmutate the inarticulate and adopt a  construction which would lean towards constitutionality albeit  without departing from the material of which the law is woven.   These principles have given rise to rule of "reading down" the  provisions if it becomes necessary to uphold the validity of the  law.

       In State of Bihar & Ors. v. Bihar Distillery Ltd. &  Ors. [(1997) 2 SCC 453], this Court indicated the approach  which the Court should adopt while examining the  validity/constitutionality of a legislation.  It would be useful to  remind ourselves of the principles laid down, which read: (SCC  p.466, para 17): "The approach of the court, while  examining the challenge to the  constitutionality of an enactment, is to  start with the presumption of  constitutionality.  The court should try to  sustain its validity to the extent possible.   It should strike down the enactment only  when it is not possible to sustain it.  The  court should not approach the enactment  with a view to pick holes or to search for  defects of drafting, much less  inexactitude of language employed.   Indeed, any such defects of drafting  should be ignored out as part of the  attempt to sustain the  validity/constitutionality of the  enactment.  After all, an Act made by the  legislature represents the will of the  people and that cannot be lightly  interfered with.  The unconstitutionality  must be plainly and clearly established  before an enactment is declared as void.   The same approach holds good while

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ascertaining the intent and purpose of an  enactment or its scope and application."          

       In the same para, this Court further observed as follows: "The Court must recognize the  fundamental nature and importance of  legislative process and accord due regard  and deference to it, just as the legislature  and the executive are expected to show  due regard and deference to the judiciary.   It cannot also be forgotten that our  Constitution recognizes and gives effect to  the concept of equality between the three  wings of the State and the concept of  "checks and balances" inherent in such  scheme."                   The principles of legislative competence were stated with  precision by the Federal Court in Subramanyan Chettiar v.  Muttuswami Goundan [AIR 1941 FC 47] as follows:-

"It must inevitably happen from time to  time that legislation though purporting to  deal with a subject in one list, touches  also upon a subject in another list, and  the different provisions of the enactment  may be so closely intertwined that blind  adherence to a strictly verbal  interpretation would result in a large  number of statutes being declared invalid  because the Legislature enacting them  may appear to have legislated in a  forbidden sphere.  Hence the rule which  has been evolved by the Judicial  Committee, whereby the impugned  statute is examined to ascertain its pith  and substance or its true nature and  character for the purpose of determine  whether it is legislation with respect to  matters in this list or that."

       In A. S. Krishna v. State of Madras [1957 SCR 399 at  page 410], this Court applied these principles.

       In State of Rajasthan v. Chawala [1959 (Suppl.1) SCR  904 at 909] Hidayatullah J. aptly described the principles of  pith and substance as under:-    "The pith and substance of the impugned  Act is the control of the use of amplifiers  in the interests of health  and also  tranquility,  and thus falls substantially  (if not  wholly) within the powers   conferred       to  preserve,  regulate and  promote  them and does not so fall  within the Entry  in     the Union List, even  though the amplifier, the use of which  is  regulated and controlled is an apparatus  for broadcasting or communication.       As  Latham, C. J., pointed out in Bank of  New South Wales v. The Commonwealth:  

A power to make laws ’with respect to’ a  subject matter  is a power to make laws

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which in reality and substance are laws  upon the subject-matter.  It is not  enough  that a law should refer to the   subject-matter  or apply  to  the subject- matter: for example,  income tax        laws  apply  to clergymen and to hotel-keepers  as members  of   the public;    but no   one would describe an    income-tax   law  as being,  for that reason, a law  with respect to clergymen  or hotel- keepers.         Building  regulations apply  to   buildings erected       for  or by banks; but  such  regulations  could         not properly  be  described    as laws with respect  to   banks  or banking."                                                       [Emphasis supplied)

       Entry 43 List of I speaks of banking, insurance and  financial corporations etc. but expressly excludes co-operative  societies from its ambit.  The constitutional intendment seems  to be that the co-operative movement was to be left to the  States to promote and legislate upon and the banking  activities of co-operative societies were also not to be touched  unless Parliament considered it imperative.  The BR Act deals  with the regulation of the banking business.  There is no  provision whatsoever relating to proceedings for recovery by  any bank of its dues.  Recovery was initially governed by the  Code of Civil Procedure by way of civil suits and after the RDB  Act came into force, the recovery of the dues of the banks and  financial institutions was by filing applications to the Tribunal.   The Tribunal has been established with the sole object to  provide speedy remedy for recovery of debts of the banks and  financial institutions since there has been considerable  difficulties experienced therefore from normal remedy of Civil  Court.

       In R. C. Cooper, etc. v. Union of India [(1970) 1 SCC  248], this Court observed that power to legislate for setting up  corporations to carry on banking and other business and to  acquire, hold and dispose of property and to provide for  administration of the corporations is conferred upon the  Parliament by Entries 43, 44 and 45 of the Constitution.   Therefore, the express exclusion of co-operative societies in  Entry 43 of List I and the express inclusion of co-operative  societies in Entry 32 of List II separately and apart from but  along with corporations other than those specified in List I and  universities, clearly indicated that the constitutional scheme  was designed to treat co-operative societies as institutions  distinct from corporations. Co-operative Societies,   incorporation, regulation and winding up are State subjects in  the ambit of Entry 32 of List II of Seventh Schedule to the  Constitution of India.  Co-operatives form a specie of genus  ’corporation’ and as such co-operative societies with objects  not confined to one State read in with the Union  as provided  in Entry 44 of List I of the Seventh Schedule of the  Constitution, MSCS Act, 2002 governs  such multi-state co- operatives.

       Hence, the co-operative banks performing functions for  the public with a limited commercial function as opposed to  corporate banks cannot be covered by Entry 45 of List I  dealing with "banking".  The subject of co-operative societies is  not included in the Union List rather it covers under Entry 32  of List II of Seventh Schedule appended to the Constitution.

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       We have gone through the decision of this Court in The  Life Insurance Corporation of India v. D. J. Bahadur &  Ors. [AIR 1980 SC 2181] cited at bar.  This Court held that the  Industrial Disputes Act, 1947 is a special Statute devoted  wholly to investigation and settlement of industrial disputes.   Therefore, with reference to industrial disputes between  employers and workmen, the Industrial Disputes Act is a  special Statute and the Life Insurance Corporation Act (31 of  1956) does not speak at all with specific reference to workmen.   The industrial disputes between workmen and the employer as  such are beyond the orbit of and have no specific or special  place in the scheme of the Life Insurance Corporation Act.   

       In ITC Ltd. v. Agricultural Produce Market Committee  & Ors. [(2002) 9 SCC 232], this Court, as per majority  opinion, held that the legislative power of Parliament in certain  areas is paramount under the Constitution is not in dispute.  What is in dispute is the limits of those areas as judicially  defined. Broadly speaking Parliamentary paramountcy is  provided for under Articles 246 and 254 of the Constitution.      The first three clauses of Article 246 of the Constitution relate  to the demarcation of legislative powers between the  Parliament and the State Legislatures.  Under clause (1),  notwithstanding anything contained in clauses (2) and (3),  Parliament has been given the exclusive power to make laws  with respect to any of the matters enumerated in List I or the  Union List in the Seventh Schedule.  Clause (2) empowers the  Parliament and State Legislatures subject to the power of  Parliament under sub-clause (1), to make laws with respect to  any of the matters enumerated in List III in the Seventh  Schedule described in the Constitution as the ’Concurrent  List’ notwithstanding anything contained in sub-clause (3).   Under clause (3) the State Legislatures have been given  exclusive powers to make laws in respect of matters  enumerated in List II in the Seventh Schedule described as the  ’State List’ but subject to clauses (1) and (2). The three lists  while enumerating in detail the legislative subjects carefully  distribute the areas of legislative authority between Parliament  (List I) and the State (List II). The supremacy of Parliament has  been provided for by the non-obstante clause in Article 246 (1)  and the words ’subject to’ in Art.246 (2) and (3). Therefore,  under Article 246 (1) if any of the Entries in the three Lists  overlap, the Entry in List I will prevail. Additionally, some of  the Entries in the State List have been made expressly subject  to the power of Parliament to legislate either under List I or  under List III.  Entries in the Lists of the Seventh Schedule  have been liberally interpreted, nevertheless Courts have been  wary of upsetting this balance by a process of interpretation so  as to deprive any Entry of its content and reduce it to ’useless  lumber’.   The use of the word ’exclusive’ in Clause (3) denotes  that within the legislative fields contained in List II, the State  Legislatures exercise authority as plenary and ample as  Parliament.

       In Associated Timber Industries & Ors. v. Central  Bank of India & Anr. [(2000) 7 SCC 93], this Court observed:  "Banking" being included in Union List in Entry 45 List I of  Seventh Schedule cannot come within the purview of Assam  Money Lenders Act, while "money-lending and money-lenders;  relief of agricultural indebtedness" under the Assam Money  Lenders Act 1934 comes under Entry 30 of List II \026 State List  of the Seventh Schedule.

       In State of Maharashtra v. Laljit Rajshi Shah & Ors.  [(2000) 2 SCC 699], the question before this Court was

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whether a person defined as "officer" under Section 2(20) of  the MCS Act, 1960 was a "public servant" within the meaning  of Section 2 of the Prevention of Corruption Act, 1947 by  virtue of the provisions of Section 161 of the MCS Act, 1960  read with Section 21 IPC and as such, could be proceeded  against for offences under Section 5(1) read with Section 5(2)  of the Prevention of Corruption Act, 1947.  On analysis of the  various provisions of the statutes and Articles 245, 246, 254(2)  and Schedule Seven List II Entry 32 and List III Entry I, this  Court held in para 6 as under:-

"................  The Maharashtra Co- operative Societies Act 1960 has been  enacted by the State Legislature and their  powers to make such legislation is  derived from Entry 32 of List II of the  Seventh Schedule to the Constitution.  The legislature no doubt in Section 161  has referred to the provisions of Section  21 of the Indian Penal Code but such  reference would not make the officers  concerned ’public servants’ within the  ambit of Section 21. The State Legislature  had the powers to amend Section 21 of  the Indian Penal Code, the same being  referable to a legislation under Entry 1 of  List III of the Seventh Schedule, subject  to Article 254(2) of the Constitution as,  otherwise, inclusion of the persons who  are ’public servants’ under Section 161 of  the Co-operative Societies Act would be  repugnant to the definition of ’public  servant’ under Section 21 of the Indian  Penal Code. That not having been done, it  is difficult to accept the contention of the  learned Counsel, appearing for the State  that by virtue of deeming definition in  Section 161 of the Co-operative Societies  Act by reference to Section 21 of the  Indian Penal Code, the persons  concerned could be prosecuted for the  offences under the Indian Penal Code.  The Indian Penal Code and the  Maharashtra Co-operative Societies Act  are not Statutes in pari materia. The Co- operative Societies Act is a completely  self-contained Statute with its own  provisions and has created specific  offences quite different from the offences  in the Indian Penal Code. Both Statutes  have different objects and created  offences with separate ingredients. They  cannot thus be taken to be Statutes in  pari materia, so as to form one system.  This being the position, even though the  Legislatures had incorporated the  provisions of Section 21 of the Indian  Penal Code into the Co-operative  Societies Act, in order to define a ’public  servant’ but those ’public servants’  cannot be prosecuted for having  committed the offence under the Indian  Penal Code. It is a well-known principle of  construction that in interpreting a  provision creating a legal fiction, the

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Court is to ascertain for what purpose the  fiction is created, and after ascertaining  this, the Court is to assume all those  facts and consequences which are  incidental or inevitable corollaries to  giving effect to the fiction. But in so  construing the fiction, it is not to be  extended beyond the purpose for which it  is created, or beyond the language of the  Section by which it is created. A legal  fiction in terms enacted for the purposes  of one Act is normally restricted to that  Act and cannot be extended to cover  another Act. When the State Legislatures  make the Registrar, a person exercising  the power of the Registrar, a person  authorised to audit the accounts of a  society under Section 81 or a person to  hold an inquiry under Section 83 or to  make an inspection under Section 84 and  a person appointed as an Administrator  under Section 78 or as a Liquidator  under Section 103 shall be deemed to be  ’public servants’ within the meaning of  Section 21 of the Indian Penal Code.  Obviously, they would not otherwise  come within the ambit of Section 21, the  legislative intent is clear that a specific  category of officers while exercising  powers under specific sections have by  legal fiction become ’public servant’ and it  Is only for the purposes of the Co- operative Societies Act. That by itself does  not make those persons ’public servants’  under the Indian Penal Code, so as to be  prosecuted for having committed the  offence under the Penal Code. When a  person is "deemed to be" something, the  only meaning possible is that whereas he  is not in reality that something, the Act of  legislature requires him to be treated as if  obviously for the purposes of the said Act  and not otherwise."

       The case reported in Union of India v. Delhi High Court  Bar Association [(2002) 4 SCC 275] relied upon on behalf of  the respondents in support of the judgments and orders of the  High Court of Bombay and High Court of Andhra Pradesh,  does not consider the issue of co-operative banks’ adjudication  and recovery provisions under Entry 32 of List II.  The Court  was only considering Entry 45 List I vis-a-vis Entry IIA List III  ’administration of justice’.  As such, the decision of this case is  of no assistance or of help to the proposition of law involved in  the present cases.

       None of the contentions of the learned counsel for the  respondents supporting the judgments and orders of the High  Courts impugned before this Court on the question of  interpretation clause as well as the question of constitutional  clause formulated hereinabove can be sustained.          For the reasons stated above and adopting pervasive and  meaningful interpretation of the provisions of the relevant  Statutes and Entries 43, 44 and 45 of List I and Entry 32 of

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List II of the Seventh Schedule of the Constitution, we answer  the Reference as under:-  

       "Co-operative banks" established under the Maharashtra  Co-operative Societies Act, 1960 [MCS Act, 1960]; the Andhra  Pradesh Co-operative Societies Act, 1964 [APCS Act, 1964];  and the Multi-State Co-operative Societies Act, 2002 [MSCS  Act, 2002] transacting the business of banking, do not fall  within the meaning of "banking company" as defined in  Section 5 (c) of the Banking Regulation Act, 1949 [BR Act].   Therefore, the provisions of the Recovery of Debts Due to  Banks and Financial Institutions Act, 1993 [RDB Act] by  invoking the Doctrine of Incorporation are not applicable to the  recovery of dues by the co-operatives from their members.         The field of co-operative societies cannot be said to have  been covered by the Central Legislation by reference to Entry  45, List I of the Seventh Schedule of the Constitution.  Co- operative Banks constituted under the Co-operative Societies  Acts enacted by the respective States would be covered by co- operative societies by Entry 32 of List II of Seventh Schedule of  the Constitution of India.

       The Registry of this Court shall place these matters  before Hon’ble the Chief Justice of India for constitution of an  appropriate Bench for early disposal of these cases.