2002 (11) TMI 686 - HC - Companies Law

Summary

Issues Involved:
1. Whether banking by Co-operative Societies requires a license under the Banking Regulation Act.
2. The registration and functioning of unlicensed urban banks.
3. The supervisory and regulatory powers of the Reserve Bank of India (RBI) over co-operative banks.

Summary:

1. Banking by Co-operative Societies and Licensing Requirements:
Co-operative Societies is a State subject and Banking a Central subject. The judgment examines whether banking by Co-operative Societies requires a license under the Banking Regulation Act. It is established that the Parliament alone has the exclusive legislative domain to make laws regulating banking business, including banking by co-operative societies. The Reserve Bank of India Act, 1934, and the Banking Regulation Act, 1949, govern the banking activities of co-operative societies. The Banking Regulation Act, 1949, was extended to co-operative societies through the Banking Laws (Application to Co-operative Societies) Act, 1965. Section 22 of the Banking Regulation Act mandates that no co-operative society shall carry on banking business unless it is a primary credit society or a co-operative bank holding a license issued by the Reserve Bank of India.

2. Registration and Functioning of Unlicensed Urban Banks:
The term "unlicensed urban banks" is introduced under Rule 15 of the Kerala Co-operative Societies Rules, 1969. The judgment clarifies that a co-operative society registered under the Kerala Co-operative Societies Act, 1969, can only carry on banking business if it is a co-operative bank with a license from the Reserve Bank of India. Primary agricultural credit societies are excluded from the Banking Regulation Act and are only permitted to provide financial accommodation to their members for agricultural purposes. The judgment also discusses the classification of societies according to their principal object and the types of credit societies under the Kerala Co-operative Societies Rules.

3. Supervisory and Regulatory Powers of the Reserve Bank of India:
The Reserve Bank of India has extensive supervisory and regulatory powers over co-operative banks as provided under sections 35A and 36 of the Banking Regulation Act. These powers include issuing directions in the public interest, ensuring proper management of banking business, and preventing detrimental conduct. The Reserve Bank of India is the guardian of banking business in India and has the authority to regulate and supervise co-operative banks. The judgment emphasizes the necessity for close coordination between the registering authority and the Reserve Bank of India to ensure compliance with banking regulations.

Conclusion:
The judgment concludes that it is the duty of the Reserve Bank of India to take prompt steps under the Banking Regulation Act to safeguard public interest, protect banking policy, and ensure proper management of banking business in co-operative banks. The Registrar of Co-operative Societies and the State Government, along with the Reserve Bank of India, are directed to take appropriate steps to address violations of statutory provisions within two months. The Original Petitions are disposed of accordingly.