In a landmark ruling, the Allahabad High Court has upheld the Reserve Bank of India’s (RBI) authority to mandate prior permission for cooperative banks seeking to amend their by-laws. The court held that regulatory oversight by RBI is essential to maintain financial stability and protect depositors’ interests, reinforcing the central bank’s supremacy in banking regulations.
Background of the Case
The case arose when Mechanical Department Primary Cooperative Bank Limited, North Eastern Railway, Gorakhpur, sought registration under the Multi-State Cooperative Societies Act, 2002, claiming its operational area extended beyond Uttar Pradesh to Bihar and Uttarakhand. The bank’s application was denied by the Central Registrar of Cooperative Societies, citing its failure to secure RBI’s permission before amending its by-laws to reflect its multi-state presence.
The Mechanical Department Primary Cooperative Bank challenged the RBI directive dated August 9, 2017, which required the bank to obtain prior approval before making any amendments to its by-laws. The bank contended that such a requirement was not explicitly mentioned in the Multi-State Cooperative Societies Act, 2002, and, therefore, RBI’s mandate was beyond its legal authority.
Legal Issues Considered by the Court
The Division Bench of Justice Anjani Kumar Mishra and Justice Jayant Banerji examined the following key legal questions:
1. Whether RBI has the legal authority to mandate its prior approval for by-law amendments of cooperative banks?
2. Whether the petitioner bank had demonstrated that it was eligible to be registered as a multi-state cooperative society?
3. Whether the Central Registrar’s rejection of the bank’s application was legally justified?
Court’s Decision and Key Observations
The Allahabad High Court dismissed the petition, upholding RBI’s authority over cooperative banking regulations. The court ruled that cooperative banks fall under the purview of the Banking Regulation Act, 1949, and thus, RBI’s oversight extends to their operational framework, including by-law amendments.
In its judgment, the court made several key observations:
“The Reserve Bank of India, as the apex regulatory body, has the power to supervise and regulate the functioning of cooperative banks, including changes to their governing framework. Seeking prior permission before amending by-laws ensures that such changes comply with national banking policies and financial security norms.”
– “The petitioners have failed to produce conclusive evidence that their membership extends beyond Uttar Pradesh, a key requirement for registration as a multi-state cooperative society.”
– “The petitioner bank’s failure to obtain prior approval from the RBI for its by-law amendments was a substantial procedural lapse, justifying the Central Registrar’s rejection of its application.”
Representation in Court
– Petitioners (Mechanical Department Primary Cooperative Bank Limited): Represented by Senior Advocate Shashi Nandan, along with Satyawan Shahi and Shashi Ranjan Srivastava.
– Respondents (Union of India & Others): Represented by A.S.G.I. Adya Prasad Tewari, Gaurav Gautam, Ramesh Chandra Pandey, Sanjeev Kumar, and Sheo Shankar Tripathi.
