9911796707
TMI Blog2002 (11) TMI 686X X X X Extracts X X X X X X X X Extracts X X X X ..... Co-operative Society' and various types of such societies and 'banking' as appear in the Kerala Co-operative Societies Act, 1969 (Act 21 of 1969), Banking Regulation Act, 1949, (Act 10 of 1949), Reserve Bank of India Act, 1934 (Act 2 of 1934), National Bank for Agricultural and Rural Development Act, 1981 generally known as NABARD Act (Act 61 of 1989) and The Deposit Insurance and Credit Guarantee Corporation Act, 1961 (Act 47 of 1961) also requires to be examined. 3. Banking is Entry 45 in List I of the Seventh Schedule of the Constitution of India. Entry 43 in List I - Union List - provides for "incorporation, regulation and winding up of trading corporations, including banking, insurance and financial corporations but not including co-operative societies." Entry 32 in List II State List - provides for "incorporation, regulation and winding up of corporations, other than those specified in List 1 and universities; unincorporated trading, literary, scientific and religious and other societies and associations; co-operative societies. Co-operative societies is a State subject and banking a Central subject. But what about the banking by co-operative societies? An attempt is made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f dues is an essential function of any banking institution. . . . As none of the items in the lists are to be read in a narrow or restricted sense, the term 'Banking' in Entry 45 would mean legislation regarding all aspects of Banking including ancillary or subsidiary matters relating to Banking. Setting up of an adjudicatory body like the Banking Tribunal relating to transactions in which banks and financial institutions are concerned would clearly fall under Entry 45 of List I giving the Parliament specific power to legislate in relation thereto." [P. 1479] Therefore, it is for the Parliament alone to make laws regulating banking business whether it be by a co-operative society or a company or any person. 4. Reserve Bank of India Act, 1934 (Act 2 of 1934) intends to regulate the issue of bank notes and keeping of the reserves with a view to securing monetary stability in India and to operate the currency and credit system of the country to its advantage. Reserve Bank of India is constituted under section 3 of the Act for the purpose of carrying on the business of banking in accordance with the provisions of the said Act. 5. The Banking Regulation Act, 1949 (Act 10 of 1949) was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of such co-operative society out of funds provided by the State Government for the purpose." It may be noted that the primary agricultural credit society which is excluded by the Banking Regulation Act, 1949 is a co-operative society. A co-operative society under section 56(c)[(5)( ccvii)] of the Banking Regulation Act as applicable to co-operative societies bears the meaning assigned to it under the NABARD Act, 1981. Under section 2(f) of the NABARD Act, 1981 co-operative society means a society registered under the Co-operative Societies Act, 1912 (Central Act) or any law relating to co-operative societies for the time being in force in any State. Therefore, a primary agricultural credit society to which the Banking Regulation Act, 1949 itself does not apply is only a co-operative society registered under the provisions of the Kerala Co-operative Societies Act, 1969, as far as the State is concerned. But the activity of a primary agricultural credit society which is outside the purview of the Banking Regulation Act, 1949 is confined to providing of financial accommodation to the members of such a society for agricultural purposes or for purposes connected with agricultural acti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s sub-clause shall not apply to the admission of a co-operative bank as a member by reason of such co-operative bank subscribing to the share capital of such co-operative society out of funds provided by the State Government for the purpose." Primary credit society is defined under section 56(c)(5)(ccvi ) as follows :-- "(ccvi) "primary credit society", means a co-operative society, other than a primary agricultural credit society,-- (1) the primary object or principal business of which is the transaction of banking business; (2) the paid-up share capital and reserves of which are less than one lakh of rupees; and (3) the bye-laws of which do not permit admission of any other co-operative society as a member: Provided that this sub-clause shall not apply to the admission of a co-operative bank as a member by reason of such co-operative bank subscribing to the share capital of such co-operative society out of funds provided by the State Government for the purpose. Explanation.--If any dispute arises as to the primary object or principal business of any co-operative society referred to in clauses (cciv), (ccv) and (ccvi), a determination thereof by the Reserve Bank shall be fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t behalf by the Reserve Bank, subject to such conditions, if any, as the Reserve Bank may deem fit to impose: Provided that nothing in this sub-section shall apply to a co-operative society, not being a primary credit society or a co-operative bank carrying on banking business at the commencement of the Banking Laws (Application to Co-operative Societies) Act, 1965, for a period of one year from such commencement." It can be seen that no licence is required for banking business in the case of a co-operative society which is a primary credit society whereas for other co-operative societies to carry on banking business they should be co-operative banks and they should hold licence issued in that behalf by the Reserve Bank of India. 10. Section 7[56(f )] of the Banking Regulation Act provides that no co-operative society other than a co-operative bank shall use as part of its name or in connection with its business any of the words "bank, banker or banking". It is also provided that no co-operative society shall carry on the business of banking in India unless a society uses as part of its name any one of the above mentioned three words. Section 7 reads as follows : "7. Use of wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rative banks are to be registered with the Corporation and it is specifically provided that if only a co-operative bank is licensed under the Banking Regulation Act, 1949 or is otherwise permitted to carry on banking business by the Reserve Bank of India, the registration is permissible. If only there is registration, the benefit of insurance of deposits under the Act will be available. 12. A conspectus of the above provisions would show that (1) a State Co-operative Bank and a Central Co-operative Bank, (2) co-operative socie-ties which are primary co-operative banks and whose paid-up share capital and reserves are not less than one lakh rupees, (3) co-operative societies which are primary credit societies whose primary object or principal business in the transaction of banking business are the three types of co-operative societies entitled to do banking business, the former two with licence issued by the Reserve Bank of India. Under section 5(ccvi) Central Co-operative Bank and State Co-operative Bank have the meanings respectively assigned to them under the NABARD Act, 1981. Section 2(d) of the NABARD Act defines Central Co-operative Bank as the principal co-operative society i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mples are provided against each type. The examples of type 1A(3) primary credit societies are two categories: Category (a) - primary agricultural credit societies, regional banks, rural banks, farmers service co-operative banks, urban co-operative banks and Category (b) - employees credit societies/unlicensed urban co-operative banks, agricultural improvement societies. Thus unlicensed urban co-operative bank under the Kerala Co-operative Societies Rules is a primary credit society. Primary credit society is defined under section 2(ob) of the Act as a society not being an Apex or Central Society which has its principal object of raising of funds to be lent to its members. It may be noted that a primary credit society under the provisions of the Kerala Co-operative Societies Act also is entitled to have the financial accommodation of lending money only to its members Urban co-operative bank is defined at Section 2(ta) meaning a society registered under the provisions of the Societies Act having its area of operation in the urban areas and which undertakes banking business. In order to undertake banking business, a co-operative society should be a co-operative bank and it should have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he commencement of the Banking Laws (Application to Co-operative Societies) Act, 1965, or at any time thereafter; or (iii)a primary credit society which becomes a primary co-operative bank after such commencement from carrying on banking business until it is granted a licence in pursuance of this section or is, by a notice in writing notified by the Reserve Bank that the licence cannot be granted to it." Thus as of now every co-operative bank which comes into existence as a result of division of any other co-operative society carrying on banking business as a co-operative bank or the amalgamation of two or more co-operative societies carrying on banking business need apply for licence only within three months of its so coming into existence and every primary credit society which becomes a primary co-operative bank (when the share capital and reserves is one lakh or more rupees) also gets a period of three months for making an application for licence from the date it so becomes a primary co-operative bank. In the case of the above mentioned categories namely (1) a co-operative society carrying on business as a co-operative bank as on 1-3-1966; (2) a co-operative bank which has com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inue to be a primary co-operative bank within the meaning of this Act, and may, with the approval of the Reserve Bank and subject to such terms and conditions as the Reserve Bank may specify in that behalf, continue to carry on the business of banking." Section 11 referred to in section 36A deals with the requirement of the minimum paid-up capital and reserves, section 18 deals with cash reserve and section 24 deals with maintenance of percentage of assets. It is provided under sub-section (3) of section 36A that subject to the provisions of sub-sections (1) and (2) a co-operative society carrying on banking business as a primary co-operative bank on 1-3-1966 or a co-operative society which becomes a primary co-operative bank after 1-3-1966, notwithstanding the fact that such a society does not satisfy the requirements of a primary co-operative bank, continues to be a primary co-operative bank under the provisions of the Banking Regulation Act, 1949 and carry on the business of banking with the approval of the Reserve Bank of India and subject to the conditions of the Reserve Bank of India may specify in that behalf. In that situation also it may be seen that there is no licence f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the depositors or in a manner prejudicial to the interests of the co-operative bank; or (c)to secure the proper management of the banking business of any co-operative bank generally; it is necessary to issue directions to co-operative banks generally or to any co-operative bank in particular, it may, from time to time, issue such directions as it deems fit, and the co-operative banks or the co-operative bank, as the case may be, shall be bound to comply with such directions. (2) The Reserve Bank may on representation made to it or on its own motion, modify or cancel any direction issued under sub-section (1), and in so modifying or cancelling any direction may impose such conditions as it thinks fit, subject to which the modification or cancellation shall have effect." Section 36[56(a) and (2)] provides for further powers and functions of the Reserve Bank. It reads as follows :-- "36. Further powers and functions of Reserve Bank.--(1) The Reserve Bank may-- (a )Caution or prohibit banking companies generally or any banking company in particular against entering into any particular transaction or class of transactions, and generally give advice to any banking company; (b)on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of banking business throughout the country. (3) The Reserve Bank may appoint such staff at such places as it considers necessary for the scrutiny of the returns, statements and information furnished by banking companies under this Act, and generally to ensure the efficient performance of its functions under this Act." It needs no further discussion that the Act provides for vast supervisory powers under sections 35A and 36 of the Banking Regulation Act. In fact section 21 onwards deal with the supervisory powers including the power of inspection, licensing, cancellation of licence, restrictions on opening of new branches, shifting of place of business, conduct of business of banking, accounting etc. Part III deals with suspension of business and Part IV penal provisions. Section 47 provides that Court shall take cognizance of any offence punishable under section 46 only on complaint in writing by an officer of the Reserve Bank or the National Bank as the case may be. Section 47A empowers the Reserve Bank to impose penalty. These provisions would clearly indicate that the Reserve Bank of India is the guardian guarding the banking business in general and banking business by the co- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d under the provisions of the Banking Regulation Act. The Reserve Bank of India being the authority vested with supervisory powers over the banking institutions and the regulatory authority in banking business, it is for the Reserve Bank of India to prescribe norms. 20. Section 5A[56(d)] of the Banking Regulation Act provides that :-- "5A. Act to override bye-laws etc. (1) The provisions of this Act shall have effect, notwithstanding anything to the contrary contained in the bye-laws of a co-operative society, or in any agreement executed by it, or in any resolution passed by it in general meeting, or by its Board of Directors or other body entrusted with the management of its affairs, whether the same be registered, executed or passed, as the case may be, before or after the commencement of the Banking Laws (Application to Co-operative Societies) Act, 1965. (2) Any provision contained in the bye-laws, agreement or resolution aforesaid shall, to the extent to which it is repugnant to the provisions of this Act, become or be void, as the case may be." Therefore, in order to avoid difficulties to co-operators intending to transact banking by co-operative societies, it is necessa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of the Circulars. Circular No. 54/1987 issued by the Registrar of Co-operative Societies provides for instructions in the matter of registration of societies. Paragraph 5(a) of the said circular reads as follows :-- "For registration of co-operative societies at the primary level, prior permission of Registrar is not necessary. However, in cases where prior concurrence of other agencies like NABARD, Reserve Bank of India etc. (for example, registration of the Primary Co-operative Agricultural Development Banks, Urban Banks etc.) is required, such proposals should be referred to this office. Similarly proposals of those societies, the area of operation of which extent to or exceeds one district shall be referred to Registrar for concurrence before registration." The said circular is still in force. 22. Ext. R5(e) circular dated 25-5-1993 provides for a norm regarding the area of operation also. But since the registering authority is bound to see that the area of operation of a proposed society does not overlap another society of similar type under section 7 of the Kerala Co-operative Societies Act, the registering authority is bound to take into consideration that aspect also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect the gullible public in public interest. Therefore, the steps taken by them including the press release cautioning the general public regarding the unlicensed and unauthorised activities of certain co-operative societies are perfectly in order and in exercise of their duties and powers under the Banking Regulation Act. The Reserve Bank of India can be faulted only if they do not take such steps in public interest, being the statutory authority to act in such circumstances to protect public interest. 25. The factual and legal position being what is stated above, it is not necessary for the court to go into the various details of individual original petitions. It is for the Registrar of Co-operative Societies and the State Government under the Kerala Co-operative Societies Act, and the Reserve Bank of India under the Banking Regulation Act to take appropriate steps in the light of what is stated above. In cases where the Registrar, the Government or the Reserve Bank of India, as the case may be, has already been moved regarding the violation of statutory provisions, action in the light of the judgment shall be taken to set things in order, within two months and in other cases wit ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
