Cooperative banks are equal to other lenders: BGH


A five-judge chamber of the Supreme Court ruled unanimously that since banking falls under Listing 45 of List I (Union List), any central statute relating to that power applies to credit unions.

Hindustan Times, New Delhi | ThroughAbraham Thomas

The Supreme Court upheld a law passed by the Center in 2013 that made the SARFAESI law applicable to credit unions.

The SARFAESI Act, or Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, allowed credit unions to auction or lease a debtor/guarantor’s secured assets to recover money without court intervention.

A five-judge chamber of the Supreme Court ruled unanimously that since banking falls under Listing 45 of List I (Union List), any central statute relating to that power applies to credit unions.

Furthermore, the judges considered the inclusion of the cooperative banks in the SARFAESI law of 2002 to be constitutionally valid. Judges Arun Mishra, Indira Banerjee, Vineet Saran, MR Shah and Aniruddha Bose said: “Cooperative banks are ‘banks’ under Section 2(1)(c) of the SARFAESI Act. Collection (of fees) is an essential part of banking; as such, the recovery procedure prescribed by Section 13 of the SARFAESI Act, legislation which refers to Entry 45 of Schedule I of the Seventh Schedule of the Constitution of India, applies.”

So far there have been differences of opinion between different High Courts on this issue. The Supreme Court also ruled in 2007 that co-operative banks are exempt from the Collections and Bankruptcy Act of 1993 because they are governed by the Multi-State Cooperative Society Act.

Most cooperative banks are founded by cooperatives under state law. The petitioners argued that List I entry 45 under the subject “Banking” could not apply to credit unions. Instead, they are recorded under entry 32 of List II (state list), which directly covers the topic of “cooperatives”.

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