The Madhya Pradesh High Court suspended a circular issued by the Reserve Bank of India (RBI) on June 25 that set out several conditions related to urban cooperative banks. A division bench comprising Chief Justice Mohammad Rafiq and Judge Vijay Kumar Shukla adopted the interim order on September 3, issuing an opinion on a motion for writ filed by Mahanagar Nagrik Sahkari Bank Ltd ….
The Madhya Pradesh High Court suspended a circular issued by the Reserve Bank of India (RBI) on June 25 that set out several conditions related to urban cooperative banks.
A divisional bench comprising Chief Justice Mohammad Rafiq and Judge Vijay Kumar Shukla adopted the interim order on September 3 while issuing an opinion on a motion for a brief filed by Mahanagar Nagrik Sahkari Bank Ltd. Bhopal challenging the Banking Regulation (Amendment) Act, 2020 and the said circular of June 25, 2021, on the grounds that the same are ultra vires the Constitution.
Applicant’s arguments
He was supported by the lawyers of the petitioner, Shri Ajay Gupta assisted by Shri Ravi Kant Patidar and Shri Milind Sharma Advocates, that “Incorporation, regulation and liquidation of cooperative societies” is a state subject to entry 32 of list II of the seventh annex of the Constitution, and that there is a specific exclusion of “Incorporation, regulation and liquidation of cooperatives Companies ”from the Union list at entry 43 of list I of the seventh annex to the Constitution. It has also been argued that Parliament has jurisdiction only to legislate in matters of “banking” as provided for in entry 45 of List I of the Constitution, thus, in 1966, such provisions of the 1949 Law on banking regulations were made applicable to cooperative banks. which concerned the banking activity and were based all the provisions which touched on “the incorporation, the regulation and the liquidation of the cooperative societies” were outside the domain of the Parliament. .
Subsequently, Part IXB was incorporated into the Constitution, by the 97th Constitutional Amendment of 2011, by which the 2nd reservation of Article 243ZL made all the provisions of the Banking Regulation Act of 1949 applicable to all such cooperative companies carrying out banking activities. On the basis of this provision of the Constitution of India, Parliament adopted the Banking Regulation (Amendment) Act 2020, under which all provisions relating to “incorporation, regulation and liquidation” were also made applicable to cooperative banks, although Parliament did not have the power to legislate in much the same way, as this was a state subject covered by entry 32 of List II .
Once the omitted provisions were made applicable, Reserve Bank India issued a circular dated June 25, 2021 directing primary (urban) cooperative banks across the country to appoint managing directors / managing directors of these banks, in accordance with the eligibility criteria prescribed by RBI, and remove / terminate all such managing directors / managing directors of banks who are not fit and appropriate in accordance with said circular. Section 243ZL, as well as Part IXB of the Constitution of India were struck down by the Supreme Court of India in its judgment of July 20, 2021 in Union of India Vs. Rajendra N. Shah. Thus, the basis for the enactment of the Banking Regulation (Amendment) Act, 2020 was overturned by the Supreme Court of India.
The petitioner therefore challenged the constitutionality of the amended article 4 of the law amending banking regulations. The argument is therefore that the contested ordinance of 25.06.2021 issued by the Reserve Bank of India is absolutely incompetent and lacks authority.
The High Court, after hearing the applicant bank’s arguments, issued notices to the respondents and suspended the circular. The case will be listed after 8 weeks.
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