Two co-op banks move HC against Centre's ordinance bringing them under RBI

Two Co-operative banks in Tamil Nadu, set up more than 100 years ago, on Tuesday moved the Madras High Court, challenging the recent ordinance promulgated by the union government, bringing all co-op banks under the supervision of the Reserve Bank of India (RBI).

The petitions were filed by Big Kanchipuram Cooperative Town Bank Ltd and the Velur Cooperative Urban Bank Ltd.

Senior counsel for the banks, P H Arvind Pandiyan submitted that they were started around 1904. The former was the first cooperative bank started in India by the then Madras Governor P Rajagopalachari and registered the society that year to organise the cooperative movement.

The first bench, comprising Chief Justice A P Sahi and Justice Senthilkumar Ramamoorthy, which admitted the pleas, posted the matter to July 20.

Pandiyan submitted that the ordinance deals with matters which are within the exclusive domain of the state list, List II of Schedule VII of the Constitution, over which Parliament has no legislative competence.

He said the legislations are without legislative competence and are also contrary to the principles of federalism, which is a basic feature of the Constitution as per the judgment of the Supreme Court in the S R Bommai case.

Opposing the arguments, senior counsel A L Somayaji, representing the Reserve Bank of India, contended that a cooperative society might be a state subject when it does other activities.

But when it involves in banking activities, then it falls under the purview of Parliament, he said.

"There are over 1,937 such banks which handle over Rs 7.27 trillion of loans, primarily provided to agriculturists and middle-class people.

The ordinance has been passed only to bring the banks under the banking regulations and protect the interest of the public," Somayaji said.

Concurring with his submissions, Additional Solicitor General of India R Sankaranarayanan also submitted that when such societies exclusively do banking activity, then they fall within the purview of Parliament.

The bench then wondered why the RBI was granting licenses to such societies all along to do banking activity if they believed public interests are not protected.

The court also sought to know from the ASG what would be the status of societies that involve themselves in other activities in addition to banking.