Kerala HC Dismisses Challenge To Kerala Co-operative Laws, Says Co-op Banks Not Outside Banking Regulation

The Kerala High Court has dismissed a plea seeking to strike down the Kerala Co-operative Societies Act, 1969 and the Kerala State Co-operative Agricultural Development Banks Act, 1984, rejecting a challenge to the legal framework governing co-operative banks and holding that they do not operate outside the banking regulatory regime.

The petitioner had argued that the Acts unlawfully exclude the jurisdiction of civil courts and vest adjudicatory powers in arbitrators, thereby depriving citizens of access to regular courts.

“The grant of specified powers conferred on the Civil Court under the CPC to adjudicating authorities is a common feature in many Statutes. For that reason also, it cannot be said that the Kerala Co-operative Societies Act and the Kerala State Cooperative Agricultural Development Banks Act, 1984 are illegal or ultra vires.”

A Division Bench of Justice N. Nagaresh and Justice Johnson John rejected the appeal filed by Thomas M.K., who had challenged the constitutional validity of the laws regulating co-operative societies and co-operative banks in the State.

Thomas had approached the court seeking a declaration that the two enactments are unconstitutional and void. He also challenged the validity of the Co-operative Arbitration Court and the statutory mechanism under the Acts, He alleged that they were being misused in the context of banking activities carried out by co-operative institutions.

Before the Single Judge, the petitioner argued that co-operative banks were functioning outside the regulatory framework of the Banking Regulation Act, 1949. He contended that “banking” falls within the exclusive domain of Parliament and that the State legislature lacked competence to enact laws enabling co-operative societies to undertake such functions.

He further relied on constitutional provisions to argue that any State law inconsistent with a Central law would be void, and that the enactments encroached upon the Union's legislative field.

The petitioner also alleged misuse of the statutory framework, claiming that co-operative institutions were engaging in coercive recovery processes and functioning in a manner that created debt traps for members, including farmers and small stakeholders.

In addition, he reiterated that the exclusion of civil court jurisdiction and the conferment of adjudicatory powers on arbitrators deprived citizens of their ordinary legal remedies.

The Single Judge rejected these contentions, holding that the issues raised were already settled by precedent and that co-operative banks do not function outside the regulatory framework. The court also held that exclusion of civil court jurisdiction does not render a statute unconstitutional.

Aggrieved by the judgment, the appellant carried the matter in appeal, contending that banking is a subject within the Union List and that any entity undertaking banking business must do so only under laws made by Parliament. It was argued that co-operative societies, which fall under a State List entry, cannot be permitted to carry on banking activities.

The Division Bench did not accept these submissions. It held that co-operative banks are subject to regulation under the Banking Regulation Act, 1949 and cannot be said to be functioning outside the statutory framework.

On legislative competence, the court rejected the contention of any inconsistency between the Union and the State. Referring to settled law, it held that co-operative societies, including those engaged in banking, fall within the State List, and no conflict arises with the Union's power over banking.

The Bench also noted that merely because a co-operative society carries on banking business, it does not cease to be a co-operative society and continues to be governed by the law applicable to such entities.

Turning to the nature of the challenge, the court observed that the relief sought was to declare statutory enactments unconstitutional, which is in the nature of a public interest litigation.

The court pointed out that the petition had not been filed in accordance with the procedure prescribed for such matters and that no specific relief had been sought in respect of the grievances referred to by the appellant.

Finding no illegality in the judgment under challenge, the court dismissed the writ appeal.

For Appellant: Party-in-Person

For Respondents: Advocates P.C Haridas, K Arjun Venugopal, CGC, Millu Dandapani, Imam Gregorios Karat, Special Government Pleader