The Supreme Court of India has elucidated the legal principles governing the investment of funds by Multi-State Co-operative Societies (MSCS), specifically interpreting the restrictive expression “any other institution in the same line of business” under Section 64(d) of the Multi-State Co-operative Societies Act, 2002.
A Bench comprising Justice J.B. Pardiwala and Justice K.V. Viswanathan clarified that for an MSCS to invest in another institution, there must be a “substantial or predominant, or closely related sameness in business activities,” as determined by the society’s bye-laws. While the Court permitted the appellant, M/s Nirmal Ujjwal Credit Co-operative Society Ltd., to withdraw its appeal following recent developments, it chose to explain the position of law due to the “importance of the issue involved.”
Background of the Case
The appellant is a co-operative society registered under the 2002 Act, which also operates a textile unit named “Nirmal Textile.” The dispute arose during the Corporate Insolvency Resolution Process (CIRP) of Morarji Textiles Ltd. (Corporate Debtor). The appellant submitted a resolution plan of ₹120 Crores (later increased to ₹169 Crores) to acquire the Corporate Debtor.
However, the Resolution Professional (RP) declared the appellant ineligible, citing Section 30(2)(e) of the Insolvency and Bankruptcy Code (IBC). The RP contended that the investment would contravene Section 64(d) of the 2002 Act because the appellant’s bye-laws did not permit such an investment and the appellant was not in the “same line of business” as the Corporate Debtor. The National Company Law Tribunal (NCLT) and subsequently the National Company Law Appellate Tribunal (NCLAT) upheld this ineligibility. The NCLAT noted that the appellant’s objective was related to “agro-products,” which differed from the Corporate Debtor’s business of man-made fibre and viscose.
Arguments of the Parties
For the Appellant: Senior Advocates Mr. Mukul Rohatgi and Mr. Rajiv Shakdher argued that the appellant’s bye-laws permitted the processing of “agro-products,” which encompasses the textile business. They highlighted an amendment to Clause 52 of the society’s bye-laws, intended to align with the 2023 amendment to Section 64(d) of the 2002 Act, allowing investments in institutions in the “same line of business.” They contended that the textile vertical “Nirmal Textile” established a sufficient nexus with the Corporate Debtor’s business.
For the Respondents: The RP and the Successful Resolution Applicant argued that the Corporate Debtor was neither a subsidiary of the appellant nor in the same line of business. They pointed out that the appellant is predominantly a credit co-operative society involved in financial services, while the Corporate Debtor is engaged in the industrial manufacturing of synthetic fibres. They relied on NIC Codes to demonstrate that the entities fall under different industrial classifications. The Committee of Creditors (CoC) further argued that the appellant, being a credit society, cannot involve itself in industrial manufacturing under the guise of agro-processing.
Court’s Analysis of Section 64(d)
The Court focused its analysis on the 2023 amendment to Section 64(d), which restricts MSCS investments to subsidiary institutions or institutions in the “same line of business.”
Referring to the Joint Parliamentary Committee (JPC) report dated March 15, 2023, the Court observed:
“The insertion of the phrase ‘in the same line of business’ was intended to address the… open-ended [nature of the earlier provision] which had been misused by some societies for making dubious investments… [and] preventing diversion of funds into unrelated investments.”
The Court established that the “line of business” must be determined solely with reference to the “objects and functions” clause of the society’s bye-laws. Regarding the interpretation of “same line of business,” the Court stated:
“This expression requires a substantial or predominant, or closely related sameness in business activities, and not a remote or incidental connection.”
Application to the Present Case
Upon examining the appellant’s bye-laws, the Court found that Clauses 5(a) to 5(r) primarily categorized the society as a financial service provider. While Clause 5(s) allowed for the processing of “agro-products,” the Court held this was distinct from the Corporate Debtor’s business.
The Court observed:
“The corporate debtor is engaged in the business of man-made fibre/viscose-based textiles, which involves synthetic or semi-synthetic raw materials. This is distinct from agro-based processing… Although both may broadly fall under the textile sector, yet the actual nature of their activities is different.”
The Bench also rejected the appellant’s reliance on the amendment to its investment clause (Clause 52), noting that simply adopting statutory language does not expand the actual “objects and functions” of the society.
Decision of the Court
The Supreme Court allowed the appellant to withdraw the appeal but affirmed the legal standard that ineligible investments by co-operative societies cannot be sanitized unless they meet the strict “same line of business” criteria.
The Court concluded:
“The determination of eligibility under Section 64(d) must involve an examination of the objects and functions contained in the bye-laws of the MSCS and a comparison thereof with the business activities of the target institution, so as to ascertain whether there exists a predominant or substantial sameness between the two.”
The appeal was dismissed as withdrawn, and the Court directed that the CIRP of the Corporate Debtor continue in accordance with the IBC.
Case Details:
- Case Title: M/s Nirmal Ujjwal Credit Co-operative Society Ltd. v. Ravi Sethia & Ors.
- Case No: Civil Appeal No. 11193 of 2025
- Judges: Justice J.B. Pardiwala and Justice K.V. Viswanathan
- Date: April 9, 2026
