Case: Apex Coop Bank Of Urban Bank Of Mah.&amp;Goa Vs. Maharashtra State Coop Bank

On 28th of August, 1993, the Appellants appear to have made an application to the Reserve Bank of India (hereinafter referred to as RBI) for a licence to start an Apex Court for Maharashtra and Goa. The RBI by its letter dated 25th April, 1994 inter alia stated asAs you are aware, the proposed bank requires to be got registered under the Multi State Co-operative Societies Act, 1984 since its area of operation extends beyond the boundaries of a State and as such it would not be a co-operative Bank as defined in the Banking Regulation Act, 1949 (as applicable to Co-operative Societies), at present. Hence an amendment to the Banking Regulation Act, 1949 is considered necessary. The Government of India has already been apprised of the amendments needed in the context of establishment of National Co-operative Bank of India (NCBI) registered under the Multi-State Co-operative Societies Act, 1984 and other similar banks.3. In view of the foregoing, you may please approach the Reserve Bank only after the needed legislative amendments are carried out by government of India to bring the NCBI as also other Banks similar to those proposed by you within the definition of Co-operative banks under the Banking Regulation Act, 1949 (as applicable to Co-operative Societies).The Appellants then got themselves registered as a Multi State Co-operative Society under the Multi State Co-operative Societies Act 1984 (hereinafter to as the Multi State Act) on 10th October, 1994. After the Appellants got themselves registered they accepted some entrance fees and some shares subscription from members. This was the only activity carried on by the Appellants. By a Notification dated 30th December, 1995, issued by the State of Maharashtra the Appellants were declared as a State Co-operative Bank within the meaning of Section 2(u) of the National Bank for Agriculture and Rural Development Act, 1981 (hereinafter referred to as the NABARD Act). Thereafter, two directions/orders dated 25th January, 1996 and 14th May, 1996 were issued by the Commissioner for Co-operation and Register of Co-operative Societies, Maharashtra State advising/directing deploying of funds by all Urban Co-operative Banks to the Appellants. These directions were issued under Section 70 of the Maharashtra Co-operative Societies Act, 1960 (hereinafter referred to as the MCS Act). On 22nd March, 1996 and the RBI gave a banking license to the Appellants under Section 22(1) read with 56 (o) of the Banking Regulation Act, 1949. This was for the States of Maharashtra and Goa.5. The 1st Respondent filed a Writ Petition challenging the Notification dated 30th December, 1995; two directions/orders dated 25th January, 1996 and 14th May, 1996 and the grant of License by the RBI on 22nd March, 1996. By the impugned judgment the Writ Petition has been partly allowed inamsuch as the Notification dated 30th December, 1995, as well as Orders/directions dated 25th January, 1996 and 14th May, 1996, are quashed and set aside. The RBI was directed to review its decision of granting license to the Appellants in the light of the fact that the Notification dated 30th December, 1995 had been quashed. In the impugned judgment it is clarified that till RBI takes a fresh decision the license granted on 22nd March, 1996 was to remain operative.6. Civil Appeal No. 439 of 1997 has been filed by the Appellants challenging the impugned judgment. Civil Appeal No. ___________ of 2003 arising out of SLP(c) No. 4877 of 1997 has been filed by the 1st Respondent against that portion whereby the license granted by the RBI has not been quashed.7. On 27th January, 1997 this Court passed the followingwill be ad-interim stay of the operation of impugned judgment.We may record that the directions of the High Court in relation to the Notifications dated 25th January 1996 and 14th May, 1996 are not questioned before us by the learned counsel for thein these Appeals there is now no challenge to quashing of the directions/orders dated 25th January, 1996 and 14th May, 1996.

Court's reasoning:
17. We are unable to accept these submissions also. The portion extracted above does not detract from what is provided in Section 22(1). Under Section 22(1) a primary credit society can carry on banking business. However if a co-operative society is not a primary credit society then to carry on banking business it must be a co-operative bank and hold a license issued by the RBI. The above extracted portion of Section 22(2) merely exphasis that a co-operative society, other than a primary credit society, has to apply to the RBI for license before it can commence banking business. However, this does not mean that RBI can give to any or all co-operative societies, a banking license. RBI can only give a license as provided in Section 22(1) i.e. to a co-operative bank. The term Co-operative Bank" has been defined in the Banking Regulation Act and only includes a State co-operative bank or a central co-operative bank or a primary co-operative bank. Reference to the term co-operative bank in the Multi State Act is of no assistance. When a term is specifically defined in a statute then for purposes of that statute that term cannot bear a meaning assigned to it in another statute. One cannot ignore the specific definition given in the Banking Regulation Act and apply some other definition set out in some other statute. Thus, so far as the Banking Regulation Act is concerned the term co-operative bank" must have the meaning assigned to it Section 5(cci). RBI cannot go by any other meaning given to the term co-operative bank for purposes of licencing under the Banking Regulation Act. The RBI has to go by the meaning given to this term in the Banking Regulation Act.18. In view of the above, we hold that the RBI by virtue of its power under Section 22 cannot grant a license to any co-operative bank unless it is a state co-operative bank or a central co-operative bank or a primary co-operative bank. It would be necessary that a declaration under the NABARD Act be first obtained.In our view the High Court does not appear to be right in concluding that the words carrying on business must mean carrying on banking business. If the Legislature had so intended they would have so specifically provided as they have done in Section 3(e) of the Multi State Act and Sections 80P(2)(a)(i) of the Income Tax Act, 1961. However, a reading to the provisions makes it clear that what is necessary is that co-operative society must be carrying on the business of financing other co-operative societies. The proviso has to be read in the light of the main provision. If read in the light of the main provision it is clear that even though banking business, as understood in the strict sense, may not be carried on, yet the business of financing other co-operative societies in the State must be carriedour view this was not sufficient. What was required was carrying on business of financing other co-operative societies.In this case prior to the Notification dated 13th December, 1995, the Appellants had not carried on any business of financing any co-operative society. All that they had done was accepting entrance fees and share subscription from members. As stated above this is not business as contemplated by Section 2(u) of the NABARD Act. On this ground also it will have to be held that the Notification dated 13th December, 1995 cannot be sustained.For all the above reasons it is held that the State Government could not have declared the Appellants as a state co-operative ban. As it could not be so declared the Orders dated 25th January, 1996 and 14th May, 1996 could not have been passed. The High Court was, therefore, right in striking down the Notification dated 30th December, 1995 and two orders/directions dated 25th January, 1996 and 14th May, 1996.38. As seen above, in answer to Question No. (a) it has been held that RBI could not have granted the licence unless the Appellants were first declared a state co-operative bank under the NABARD Act. As it is now being held that the Appellants could not have been declared as a State co-operative bank under the NABARD Act and it is held that as such declaration was correctly struck down it will have to be held that the RBI cannot issue it a license to carry on banking business. In view of the contrary stand taken by RBI, it cannot now be left to discretion of RBI to cancel the license granted by it. It is held that the High Court was in error in not striking down the issuance of the license by RBI to the Appellants.47. It is to be seen that the RBI can only give a license to a State co-operative bank which has been so declared by a particular State. As the definition of co-operative societies in the NABARD Act is restricted to co-operative societies registered under State Acts and as the provision is for a State to declare a co-operative society as a "State co-operative bank the license, which can be issued by the RBI, can only be in respect of that State. Merely because one State declares a co-operative society as a state co-operative bank would not enable to RBI to issue that society a license to carry on banking business in other States or in the rest of the country. In t his case, the RBI was wrong in issuing a license to the Appellants for the States of Maharashtra and Goa when, admittedly, the Appellants had not been declared a state co-operative bank in the State of Goa. Thus, it is held that the banking license could not have been issued for the State ofare unable to accept this submission. The 1st Respondent had challenged the Notification and the grant of license immediately. The Appellants have all along been aware that their status was under challenge in a Court of law. Thereafter, the High Court struck down the Notification. Now the Appellants knew full well that that was the law. Merely because on obtaining a stay from this Court they continued to operate would not be a circumstance which can be taken into consideration by this Court. The Appellants cannot be allowed to continue to operate as a state co-operative bank when in law they are not entitled to be one. We, therefore, do not accept this