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The Gujarat High Court o
n Monday held that cooperative banks cannot use the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SRFAESIA), 2002 or Securitisation Act, for recovery of debts from its defaulters.
A division bench of Chief Justice Bhaskar Bhattacharya and Justice J B Pardiwala in a common judgement declared Central government notification dated January 28, 2003, bringing the cooperative societies within purview of Securitisation Act, as null and void.
They further held that Securitisation Act would not be applicable to cooperative banks under the union government notification of January 2003, as it would be in contradiction with provisions of the Banking Regulation Act,1949.
The bench was acting on a bunch of petitions seeking cancelation of Central government notification dated January 28, 2003, bringing the cooperative societies within purview of Securitisation Act.
Various petitioners (defaulters) had approached High Court through their lawyers Masoom Shah and Vishwas Shah, after the cooperative banks sent them notices under the Securitisation Act warning against property seizure as they had defaulted on loan payments.
The petitioners had further claimed that Securitisation Act was not applicable to the cooperative banks formed under the state acts as there is already a mechanism for recovery under those state Act, in this case it is Gujarat Cooperative Societies Act, 1961.
Also, the Act was applicable to “a company engaged in banking, and not a cooperative society engaged in banking”, they had said in their petitions, adding that there was a conscious exclusion and deliberate omission of cooperative banks from the purview of the Banking Regulation Act.
The petitioners has also relied on observations of the Supreme Court in the case of Greater Bombay Cooperative Bank Limited v/s United Yarn Tex (Pvt) Ltd of 2007.
In that case the applicability of the Central Acts to the Cooperative Societies was dealt with where the Apex Court overruled the full bench judgment of the Bombay High Court and held that the Central Act like Recovery of Debt Act was not applicable to the Cooperative Societies as it had mechanism for recovery under the state cooperative societies act.
