Multi-State Co-Operative Societies Can Bid In CIRP Only If Bye-Laws Allow, Is In Same Line Of Business: Supreme Court
The Supreme Court on Thursday held that a multi-state co-operative society cannot submit a resolution plan under the Insolvency and Bankruptcy Code unless the investment is permitted by its bye-laws and falls either in a subsidiary institution or in the “same line of business”.
The court clarified that under Section 64(d) of the Multi-State Co-operative Societies Act, 2002, an MSCS can invest its funds only in a subsidiary institution or in an entity engaged in the same line of business, and such determination must be made with reference to the society's bye-laws.
Referring to the deliberations of the Joint Parliamentary Committee on the 2023 amendment to the Multi-State Co-operative Societies Act, the court said the restriction was introduced to prevent misuse of funds and ensure investments remain aligned with the society's core business.
A Bench of Justices J.B. Pardiwala and K.V. Viswanathan, while allowing Nirmal Ujjwal Credit Co-operative Society to withdraw its appeal against the National Company Law Appellate Tribunal's ruling that had upheld its ineligibility to submit a resolution plan in the corporate insolvency resolution process of Morarji Textiles, observed,
“In light of the deliberations of the JPC, it is clear that the determination of whether an institution operates in the same line of business as an MSCS must be made with reference to its byelaws, which constitute the decisive charter document in this regard. It is pertinent to note that every MSCS is required to frame its bye-laws in accordance with the provisions of the 2002 Act and the rules made thereunder, particularly Section 10(2), which, inter alia, provides for the inclusion of an object clause in the bye-laws. Further, the 2002 Act also empowers an MSCS under Section 11 to amend its bye-laws, including its objects, in accordance with the prescribed procedure therein.."
The court explained that the expression “same line of business” requires a substantial, predominant, or closely related sameness in core business activities, and cannot be interpreted broadly to include remote or incidental connections.
The appellant had amended its bye-laws following the 2023 amendment to Section 64 and obtained approval on January 24, 2024, though this approval was not placed before the tribunals at the relevant stage. The corporate insolvency resolution process against Morarji Textiles commenced on February 9, 2024, and the Resolution Professional invited expressions of interest on May 1, 2024. The appellant submitted its EOI on May 18, 2024 and a Rs. 120 crore resolution plan, which was later increased to Rs. 169 crore, to acquire the company.
On February 10, 2025, the Resolution Professional found the appellant ineligible, citing that the proposed investment ran contrary to its bye-laws and the Act governing it. The decision did not change at the next two levels. The National Company Law Tribunal upheld it on April 9, 2025, followed by the National Company Law Appellate Tribunal on August 21, 2025, both concluding that the appellant was neither a subsidiary of the corporate debtor nor operating in the same line of business.
A closer reading of the bye-laws led the Supreme Court to a similar conclusion. The society's core functions, the court noted, revolve around financial and member-focused activities, accepting deposits, advancing loans, and extending welfare services. Its involvement in agro-based processing, by contrast, remained limited.
Applying the statutory test, the court said:
"Thus, when the bye-laws are read in their entirety, the appellant's line of business is predominantly that of a financial and memberoriented co-operative, with limited engagement in agro-based processing activities. It cannot be said that the appellant is engaged in industrial manufacturing activities. This understanding assumes significance while examining whether the business of the corporate debtor bears a substantial or predominant sameness so as to fall within the expression “same line of business” under Section 64(d).”
The court contrasted this with the corporate debtor's business of manufacturing man-made fiber textiles, holding that the two did not share a substantial or predominant similarity in business activities.
It also clarified that merely amending the investment clause of the bye-laws to mirror statutory language would not suffice unless the core object clauses were also amended to reflect the relevant line of business.
The appeal was dismissed as withdrawn. The court noted that out of Rs. 2 crore earlier directed towards CIRP costs, Rs. 1.63 crore had been deposited, leaving a balance of Rs. 36.57 lakh, and left it open to the Resolution Professional to pursue the issue before the adjudicating authority.
For Appellants: Senior Advocates Mukul Rohatgi, Rajiv Shakdher, with Advocates Honey Satpal, R. Prashant Reddy, Pankhuri Bhardwaj, Aniruth G. Purushotthaman, Abhiyudaya Vats, Keshav Sehgal, Amit Pai, AOR
For Respondents: Senior Advocates Neeraj Kishan Kaul, Navin Pahwa, ASG Aishwarya Bhati, with Advocates Rajesh Kumar Gautam, AOR Anant Gautam, Deepanjal Choudhary, Vibhu Sharma, Likivi Jakhalu, Aman Gahlot, Rishi Chauhan, Azal Aekram, Himanshu Satija, Jatin Kumar, Adv. Ms. Neha Mehta Satija, AOR Harshit Khanduja, Rajesh J, Dhrupad Vaghani, Guruprasad Naik, Ajit Mk, Rishav Sethi, Md. Arsalan Ahmed, Yashwardhan Aggarwal, Gajendra Singh Negi, Dcosta Ivo Manuel Simon, Siddharth Dharmadhikari, Aastha Singh, Mayank Pandey, Rajat Nair, Santosh Ramdurg, Yogesh Vats, Shreekant Neelappa Terdal, AOR