Supreme Court Upholds RBI's Decision To Supersede Abhyudaya Co-operative Bank Board, Appoint Administrator
The Supreme Court on Thursday refused to interfere with the Bombay High Court's November 18, 2024 judgment upholding the Reserve Bank of India's decision to supersede the Board of Directors of Abhyudaya Co-operative Bank Ltd. and appoint an Administrator for the bank.
The Bombay High Court had rejected the challenge to RBI's November 24, 2023 order superseding the bank's Board for one year under Section 36AAA read with Section 56 of the Banking Regulation Act, 1949.
The High Court held that the third proviso to Article 243ZL of the Constitution specifically permits the Banking Regulation Act to apply to co-operative banks, and, therefore, Section 36AAA, which permits supersession of a co-operative bank's Board for up to five years, continued to apply to a multi-State co-operative bank.
A bench of Justices P.S. Narasimha and Alok Aradhe, refusing to interfere with the order, said, “We find no infirmity in the impugned judgment. The appeals are accordingly dismissed. No order as to costs.”
Background
The case arose from a challenge by directors of Abhyudaya Co-operative Bank Ltd to the Reserve Bank of India's November 24, 2023 order superseding the bank's Board of Directors for one year under Section 36AAA read with Section 56 of the Banking Regulation Act, 1949, and appointing an Administrator.
The bank had become a multi State co-operative bank after amalgamations with banks in Gujarat and Karnataka.
The petitioners argued that Article 243ZL of the Constitution restricted supersession to six months and consequently Section 36AAA, which permits RBI to supersede a co-operative bank's board for up to five years, had ceased to operate.
The High Court rejected the contention, holding that the third proviso to Article 243ZL specifically permits the Banking Regulation Act to apply to co-operative banks and therefore Section 36AAA remained operative, permitting supersession of a multi-State co-operative bank for up to five years.
It further held that the provision did not require consultation with the Central Government and that natural justice could not be read into Section 36AAA, since prior notice and hearing could delay urgent regulatory intervention and prejudice depositors.