Madras HC Directs Centre, RBI to File Counter to Pleas Challenging Ordinance on Cooperative Banks

The Madras High Court on Monday directed the Centre and RBI to file their counter affidavits to the petitions by two cooperative banks in Tamil Nadu challenging the constitutional validity of some sections of the Banking Regulation (Amendment) Ordinance of 2020, within four weeks.

The First Bench of Chief Justice AP Sahi and Justice Senthil Kumar Ramamoorthy refused to grant any interim relief to the Big Kanchipuram Cooperative Town Bank Ltd and the Velur Cooperative Urban Bank Ltd which challenged provisions of the ordinance promulgated on June 26.

"...unless there is an imminent tangible cause or evidence indicating actual invasion of the rights of the petitioner banks in running the affairs of the Society, it would not be appropriate to consider the issue of interim relief at this stage...," the bench said.

The cooperative banks had sought stay on operations of the provisions of the ordinance which empowers the Reserve Bank of India todeal with incorporation, regulation and winding up of cooperative banks too.

Citing a Supreme Court judgment by a constitutional bench, additional advocate general PH Arvind Pandiyan, who appeared for the cooperative banks, submitted that the subject matter falls exclusively within the competence of the State Legislature.

"... hence, any law, including the impugned Ordinance, trenching upon Entry 32 of List II of the Constitution of India is liable to be struck down, as it is totally beyond the competence of the Parliament and, therefore, also beyond the ordinance making power of the Centre," he said.

Opposing the arguments, senior counsel for the RBI, A L Somayaji 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 lakh crore 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 First Bench posted the matter for further hearing to September 1 after directing the RBI and Centre to file their counter affidavits within four weeks.