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2009 DIGILAW 1485 (BOM)

New Hariyana Dal Mill v. Union of India

2009-11-09

A.H.JOSHI, A.R.JOSHI

body2009
Judgment : Oral Judgment: [A.H. Joshi, J.] 1. Rule. Rule is made returnable forthwith. Heard by consent. 2. Petitioner is challenging the Notification issued by Central Government under Section 2 (1) (c) (v) of the Securitisation & Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 [for short, “Secu.R.F.A & E.S.I.Act”], copy whereof is at Annex.E. 3. Ground of challenge is that such a notification is impermissible in view of the Judgment of the Hon’ble Apex Court and the observations contained in the Judgment in case of Greater Bombay Co-operative Bank Ltd. Vs. M/s. United Yarn Tex. Pvt. Ltd. & ors. [ AIR 2007 SC 1584 ]. 4. It is then urged that:- [a] What is held judicially as impermissible cannot be done by a Legislative act, or an Executive fiat. [b] The Notification is in the nature of a delegated legislation through an Executive action, and it results in encroachment upon Legislative powers of the State, in view that as per the List-II of Schedule-VII of the Constitution, Entry No.32 pertains to Cooperative Societies and, thus, the said subordinate legislation is hit due to the bar under Article 246 of the Constitution of India. [c] The Notification has a purport of law within the compass of Article 13 of the Constitution of India, and no law can be enacted, except within the legislative competence of the legislature of the Legislature concerned. 5. To substantiate the contention as to Legislative and Executive competence, reliance has been placed on two judgments of Hon’ble Supreme Court in cases of [a] K.C. Gajapati Narayan Deo & ors. Vs. State of Orissa [ AIR 1953 SC 375 (Vol.40, O.N. 85)], and [b] Madhubhai Amathalal Gandhi Vs. Union of India [ AIR 1961 SC 21 (V 48 C 5]. 6. This Court has scrutinized the grounds of challenge. 7. What was attempted, and held impermissible in case of Greater Bombay Cooperative Bank Ltd. [supra] needs to be seen. 8. The said Co-operative Bank on its own and by a a suo moto action tried to plunge within the compass and gamut of a “Banking Company”, as understood by Section 2 (1) (c) (i) of the Secu. R.F.A & E.S.I.Act, and took recourse to the mechanism under the Secu. R.F.A & E.S.I. Act. 8. The said Co-operative Bank on its own and by a a suo moto action tried to plunge within the compass and gamut of a “Banking Company”, as understood by Section 2 (1) (c) (i) of the Secu. R.F.A & E.S.I.Act, and took recourse to the mechanism under the Secu. R.F.A & E.S.I. Act. Hon’ble Apex Court held that the Co-operative Bank did not fall in the category of the “Banking Company” within the scheme of the Banking Regulation Act, 1949, and the Secu. R.F.A & E.S.I. Act. 9. The Lordships of Apex Court had to exert to identify that a Co-operative Bank did not per se fall in the category of a Banking Company as connoted and defined in Section 5 (c) of the Banking Regulation Act, 1949, and hence did not fall within said term which followed under Section 2 (1) (c) (i) of the Secu. R.F.A & E.S.I. Act, 2002. 10. This Court has to, and has kept in view the law and a fact that the Management and Organization of a Co-operative Society, even a Co-operative Bank, is a matter within exclusive legislative and Executive power of the State, governed by Entry No.32 of List- II. Nevertheless afore noted constitutional position of legislative power, the “Banking” is unquestionably a matter of legislative powers of the Parliament. 11. Thereby “a Bank”, as contemplated by Chapter- V of the Banking Regulation Act, 1949, comprehends and covers the Bank which is a Co-operative Society, as governed by the said chapter. 12. Being a Co-operative Society which has banking activity exclusively, qua - its business of banking, it comes within the purview of legislative competence of the Parliament, as the State Legislature is devoid of legislative competence as regards “Banking Business” as done even by a Co-operative Society. 13. The matters as regards its incorporation, existence and dissolution, liquidation, merger, amalgamation etc., of a Co-operative Society are matters of legislative powers of State Legislature. 14. Thus, the Banking business, however, cannot be done by such a Co-operative Society, save and except in the manner and as regulated by laws made by the Parliament as regards Banking business. 15. Lending and recovery are integral parts of the concept of Banking. Without recovery of loans and advances once made, further lending would be impossible. 14. Thus, the Banking business, however, cannot be done by such a Co-operative Society, save and except in the manner and as regulated by laws made by the Parliament as regards Banking business. 15. Lending and recovery are integral parts of the concept of Banking. Without recovery of loans and advances once made, further lending would be impossible. As regards lending and recovery, there cannot be any distinction between said activity when done by a “Banking Company” and by a “Co-operative Bank.” Therefore, if a Co-operative Bank is included in Clause (v) of Section 2 (1) (c) (v), such inclusion should be permissible. 16. Therefore, by inclusion of a Co-operative Bank by exercising power under Item (v) of Clause (c) of Section 2 (1) of the Secu. R.F.A & E.S.I. Act, security interest of a Cooperative Bank becomes enforceable under the Secu. R.F.A & E.S.I. Act. 17. All other Co-operative Societies, who do not run the banking activity, are, in no way, touched by the Notification, subject-matter. 18. Moreover, the existence of a legal entity doing “Banking” is legislatively noticed to exist by virtue of sub-clause (v) of Clause (c) of Sub-Section (1) of Secu. R.F.A & E.S.I. Act, and this class of bank is certainly a co-operative Bank under Chapter-V of the Banking Regulation Act, 1949. 19. The aim and object of the Securitisation & Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 needs to be considered in such a manner that any Bank, whenever included expressly or notified under the said Act, should be entitled to avail power under Secu. R.F.A & E.S.I. Act. The scheme of the Act creates an enabling provision, and it is the Bank concerned to decide to take recourse to Secu. R.F.A & E.S.I. Act, or proceed under general law. 20. It is a sheer choice and prerogative of a Bank to take recourse to the mechanism newly carved out and created under Secu. R.F.A & E.S.I. Act rendered available to it. 21. Necessary fallout of notification is that judicial scrutiny of action by the Bank under Section 17 of Secu. R.F.A & E.S.I. Act is also available at two stages at the behest of the borrower. 22. R.F.A & E.S.I. Act rendered available to it. 21. Necessary fallout of notification is that judicial scrutiny of action by the Bank under Section 17 of Secu. R.F.A & E.S.I. Act is also available at two stages at the behest of the borrower. 22. The entire scrutiny as focused in Greater Bombay Co-operative Bank Ltd.’s case was in view of attempt of a Bank to fall within the definition of the “Banking Company”, though the status of these Cooperative Banks is under Clause (cci), a multi-State Cooperative Bank as contemplated by Clause (cciii-a) and a Primary Co-operative Bank as contemplated by Clause (ccv), all clauses of Section 5 of the Banking Regulation Act, 1949, as amended by Section 56 of the said B.R. Act, 1949. 23. The said attempt of recourse by Co-operative Banks was disapproved in the case decided by Hon’ble Supreme Court. Nevertheless, the power to include “such other Bank”, which the Central Govt. may, by notification, specify for the purpose of this Act, was not, in any manner, deprecated, or rendered impossible either expressly or by implication, by Hon’ble Supreme Court. 24. Vires of Secu. R.F.A & E.S.I. Act was challenged in Mardia Chemicals Ltd., vs. Union of India [ AIR 2004 SC 2371 ], and the Act has been held intra vires, except Subsection (2) of Section 17. The power to notify other Banks under Section 2 (1) (c) (v), therefore, will have to be held to be intra vires and hence available for exercise. 25. One more fact and legal position requires to be considered is that a Co-operative “Bank” is no t known to exist, or cannot exist, save and except the Co-operative Banks as contemplated by Chapter-V of the Banking Regulation Act. The classes of Banks as could be, rather were within the contemplation of Section 2 (1) (c) (v) of Secu. R.F.A & E.S.I. Act in the mind of legislators. 26. In this background, the enabling provision and power vested in the Central Govt. under Section 2 (1) (c) (i) (v) of the Secu. R.F.A & E.S.I. Act is seen saved and unaffected even in the light of the Judgment of Hon’ble Supreme Court in Greater Bombay Co-operative Bank Ltd.’s case. 27. 26. In this background, the enabling provision and power vested in the Central Govt. under Section 2 (1) (c) (i) (v) of the Secu. R.F.A & E.S.I. Act is seen saved and unaffected even in the light of the Judgment of Hon’ble Supreme Court in Greater Bombay Co-operative Bank Ltd.’s case. 27. Argument to the contrary which is the foundation of challenge, very vehemently argued, however, lacks advertance to power invested with the Central Govt., by the same Act, by virtue of Clause (v) of Section 2 (1) (c) under which impugned notification has been issued. 28. In the result, the petition does not merit any indulgence. Rule is discharged. In the circumstances, parties are directed to bear own costs.