Several high courts (HCs) across the country have almost simultaneously admitted petitions challenging the constitutionality of the Banking Regulation Act 2020 and suspended enforcement of the Reserve Bank of India (RBI) circular issued June 25 2021. This circular notified several conditions related to urban cooperative banks (UCB), including the appointment of the general manager (MD) and the full-time director (WTD).
The high courts of Rajasthan, Punjab and Haryana and Madhya Pradesh (MP) have issued an order suspending the RBI circular during the hearing of a court application challenging the constitutionality of the law of 2020 on banking regulations (amendment) and the RBI circular.
They are: Chandigarh (CWP 165090/2021) and the latest one is the High Court of Madhya Pradesh (WP 16168 / 2-21).
A Madhya Pradesh HC division bench, comprising Chief Justice Mohammad Rafiq and Judge Vijay Kumar Shukla, adopted the interim order on September 3 and issued an opinion on a lawsuit filed by Mahanagar Nagrik Sahkari Bank Ltd , based in Bhopal. The Bank argued that the circular RBI is ultra vires of the Constitution of India. The HC has now filed the case after eight weeks.
The applicant’s lawyer, Ajay Gupta, as well as Ravi Kant Patidar and Milind Sharma, argued that “the incorporation, regulation and liquidation of cooperative societies” is a state subject to entry 32 of List II of the seventh annex of the Constitution. There is a specific exclusion of “the incorporation, regulation and liquidation of cooperative societies” from the Union list at entry 43 of list I of the seventh annex to the Constitution.
It has also been argued that Parliament only has competence to legislate on “banks” as provided for in entry 45 of List I of the Constitution. Earlier in 1966, such provisions of the Banking Regulation Act, 1949 were made applicable to cooperative banks, which concerned banking activity and the rest of all provisions which touched on “the incorporation, regulation and liquidation of cooperative societies ”have been left out.
Part IXB was inserted into the Constitution, see 97th Constitutional Amendment, 2011, by which the 2nd reservation of Article 243ZL made all the provisions of the Banking Regulation Act, 1949 applicable to all such cooperative societies engaged in banking activities.
On the basis of this provision of the Indian Constitution, Parliament enacted the Banking Regulation (Amendment) Act, 2020, under which all provisions relating to “incorporation, regulation and liquidation” were also made applicable. cooperative banks, although Parliament did not have the power to legislate on this matter, as it was a state subject covered by entry 32 of List II, the petitioner said.
Once the omitted provisions were made applicable, the RBI issued a circular on June 25, 2021 directing UCBs to appoint managing directors or managing directors (CEOs) of these banks, in accordance with the eligibility criteria prescribed by the bank. central office, and to remove or terminate all such general managers. and CEOs who are not fit and appropriate.
The Supreme Court struck down Article 243ZL, as well as Part IXB of the Indian Constitution, in its judgment of July 20, 2021 rendered in Indian Union Vs Question from Rajendra N Shah. Thus, the petitioner claimed that the basis for the enactment of the Banking Regulation (Amendment) Act 2020 had been overturned by the Supreme Court.
The Madhya Pradesh government even authorized the appointment of deputies and deputies to the post of chairmen and vice chairmen of cooperative banks by ordinance last year. The ordinance has since been transformed into law despite harsh criticism. Banking experts even pointed out that all cooperative banks are now mandated to follow the standards set by the RBI. The government of Madhya Pradesh would have no choice but to repeal the law promulgated under the name of Madhya Pradesh Cooperative Societies (Amendment) Ordinance 2020.
In the written request of Manish Gupta Vs Union of India and RBI, Rajasthan HC observed that “In the meantime, no action will be taken against the petitioner in accordance with clause (4) of the communication dated June 25, 2021, issued by the RBI.
In the case of Dr Karan Sharma vs RBI et al., The case was heard by videoconference, the case observed by HC is adjourned until October and status quo concerning the service is maintained until then.
Regarding Dharmendra vs RBI et al. Judge Dinesh Mehta observed that “(the) matter requires consideration. Issue an opinion. Also issue a notice of request for stay, returnable within six weeks. In the meantime, no action will be taken against the applicant under Article (4) of the Communication of June 25, 2021, issued by the RBI.
Meanwhile, Maharashtra’s Home Minister Dilip Walse Patil said the state government will amend the Cooperative Societies Act of 1960 during the winter session of the state legislature. . A task force was formed to draft the proposed amendment to the state law, and its report was due in three months and Cabinet will discuss the recommendations.
Previously, Sharad Pawar, chairman of the Nationalist Congress Party (NCP), wrote to Prime Minister Narendra Modi expressing reservations about the changes to the banking regulation law. Mr. Pawar met with the Prime Minister and the Union Home Minister, Amit Shah.
Let us recall that the Union government even recently created a ministry (headed by Mr. Shah) exclusively for cooperatives, considered to call into question the authority of the States in this matter.
State cooperative banks have long been the Achilles heel of India’s banking industry. Politicians ran them like pocket boroughs and many cooperative banks were buried due to unprofessionalism and fraud. Hundreds of them went bankrupt and only the failed cooperative banks failed to revive.
According to RBI data, as of May 31, 2021, there were 1,531 UCBs in the country – 53 scheduled and 1,478 unscheduled.