Tanushri Sharma
Proofreading Executive,Legal WIND
Date of judgment: 5th May 2020
Bench: Arun Mishra, Indira Banerjee, Vineet Saran, M.R Shah
Court: Supreme Court of India
Citation: [(2020) 3 CTC 558]
INTRODUCTION
The securitization and reconstruction of financial assets and enforcement of security interest SARFAESI Act, 2002 was passed as supportive legislation for the Debt Recovery laws .This gave Banks and Financial Institutions (secured creditors) more freedom while undergoing bad debts, It can be said that Banks to proceed with Section 13 of the Act relating to the enforcement of a Secured Credit Lender after giving notice to credit unions within 60 days, otherwise banks and organizations are empowered to hold Auction Residential or commercial properties promised to Banks as collateral to lenders.
CASE HISTORY
The Central Government enacted the Deposit and Debt Retention (Amendment Act, which replaced the “Bank” amendment to the Banking Regulation Act, 1949, of the SARFAES Act. Pandurang filed the complaint, questioning Vishwasrao Patil Murugud Sahakari Bank Limited's action under the SARFAESI Act 2002, and while the matter was pending in a court of law, the Central Government enacted the Deposit and Debt Enforcement (Amendment) Act 2012, which changed the definition of Bank in the Banking Regulation Act, 1949of SARFAESI Act 2002, Also, amendments were made in SARFAESI Act 2002 for incorporating multi-state cooperative bank in SARFAESI Act 2002.[1]
CONTENTIONS
The Supreme Court established four issues of translation namely:
1. Entry 45 of the Union List or Entry 32 of the State List of the Seventh Constitution regulates the cooperative banks.
2. Whether the “Banking Company” defined in the Banking Regulation comprises Co-operatives registered in the Co-operative By-laws of the State and co-operative societies with a majority of employees.
3. Does section 5 (c) of the BR Act, 1949, include banks and multinational corporations?
4. Can cooperative banks at the national, and international levels apply SARFAESI law?
ARGUMENTS
It was argued that, since the central bank falls under the Union's jurisdiction and the Cooperative communities are subordinate to the State, the actions taken by the Central Legislature are colored law and the Union has no power to issue a notice. Also, because the very essence of the bank includes not only the transaction process, and there is a difference between co-operative societies and co-operative banks, the Delhi High Court ruled that mere financial involvement does not give organizations the title of banking. The term “Banking”, which was used in the Entry 45 list of the Union, was already examined before the High Court and it was found that ‘Banking’ has never had a definite definition and the only definition would be a consensus among the public on established banking practice.[2]
The Supreme Court also ruled that, since the receipt of funds is an essential function of any banking institution, parliament may legislate under Entry 45 of the Union's list. In addition, a distinction was also made by the Court, applying the Harmonious Construction doctrine, stating that the inclusion, control, and closure of co-operatives are under the Entry 32 list and that the banking activities of that co-operative community will fall under the Entry 45 Union List.
The Court is of the view that since the banks are jointly owned by corporations, banks cannot operate without complying with the Banking Regulation Act, 1949 and any other law applicable to those banks related to "Banking" in Entry 45 of Union list and the RBI Act. list I of Schedule Seven of the Constitution of India.
EXPLANATION
The Supreme Court has ruled that SARFAESI law applies to banks and civil society, at the levels of government and in many countries, to recover their debts. The Act defines a 'Banking Company' as any company operating primarily a banking business or any new related bank or sub-bank or multinational bank or other banks incorporated under the Act and the Court has ruled that co-operatives come under the scope of the Act because these banks operate commercially like other banks. And also deposit and receive money from the public issued by checks, drafts, and orders or refunds and because loans are only available to members, they cannot be withdrawn from the banking sector. However, the Court could not apply the same provisions because it did not work in partner banks like it, so they found a central location and read section 56 (a) as a 'banking company' rather than a 'company' or 'such company' to operate in co-operative banks. In Greater Bombay Bank Ltd v. United Yarn Tex (P) Ltd[3], the Court ruled that the BR Act, 1949, applies to co-operative banks and therefore the Act will apply in cases relating to co-operative banks to obtain loans.
A law enacted under Act 45 of Schedule I govern the role of cooperative banks so the court found that the purpose of the SARFAESI Act was achieved and found no reason why Parliament was incapable of enacting legislation., it was concluded that the SARFAESI Act also deals with the activities of co-operative banks and is not unconstitutional. The Court upheld the decision in KC Gajapati Narayan Deo v. the State of Orissa[4]where it is held that the essence of the SARFAESI Act is important and if an important issue is beyond the power of the legislature, it will be dismissed as a violation of the constitution.
CONCLUSION
The Supreme Court in this landmark decision sought to uphold the notion that banks and co-operatives fall within the scope and scope of the SARFAESI Reimbursement Act. The Court also sought to establish its jurisdiction by pointing out the fact that although some functions of the federal bank fall within Entry 32 in Schedule VII, the Government eventually has the power to prosecute co-operative banking and banking organizations, under Entry 45. The five-judge constitutional bench also stated that the RBI has a ‘'deep and pervasive power over the major credit unions involved in banks and this regulation is more than just regulatory and administrative, so the Court changed some definitions under the existing category Which are not included in the Act. Therefore, co-operatives performing major banking activities may seek assistance under the SARFAESI Act to obtain loans from the borrower was held as a last resort.
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