The Reserve Bank of India can keep the board of a multi-State co-operative bank under supersession for more than six months, the Supreme Court has ruled, holding that the constitutional time limit does not restrict the central bank’s powers under the Banking Regulation Act.
The Court also clarified that the RBI is not required to consult a State Government before superseding the board of a multi-State co-operative bank.
A Bench of Justices Pamidighantam Sri Narasimha and Alok Aradhe upheld a Bombay High Court ruling that had declined to interfere with the RBI’s decision to continue the supersession of the Board of Directors of Abhyudaya Co-operative Bank.
The dispute centred on whether Article 243ZL(1) of the Constitution, which provides for a six-month limit in certain cases involving supersession of co-operative societies, could restrict the RBI’s authority under Section 36AAA of the Banking Regulation Act.
The former board members argued that the RBI could not continue the supersession beyond six months. The Supreme Court, however, rejected that interpretation.
The Court pointed to the third proviso to Article 243ZL(1), which states that the provisions of the Banking Regulation Act also apply to multi-State co-operative societies engaged in banking.
According to the Court, this provision expands the legal framework governing multi-State co-operative banks rather than limiting it. The Banking Regulation Act, therefore, continues to operate alongside the constitutional provisions dealing with co-operative societies.
Depositor Protection Cannot Be Bound by a Six-Month Clock
The Court stressed that the RBI’s regulatory authority is closely tied to the protection of depositors and the stability of the banking system.
A rigid six-month restriction, it said, could undermine the RBI’s ability to deal with a financially distressed bank that requires sustained intervention and professional management.
The judgment observed that interpreting the Constitution in a manner that cuts off RBI supervision after six months could create a regulatory gap precisely when continued oversight may be necessary to restore a troubled bank.
The Court said the legal framework must be read in a manner that preserves the RBI’s specialised regulatory role over banking institutions, including multi-State co-operative banks.
Relying on the Constitution Bench ruling in Pandurang Ganapati Chaugule v. Vishwasrao Patil Murgud Sahakari Bank Ltd., the Court reaffirmed that the Banking Regulation Act applies to multi-State co-operative societies carrying on banking activities.
Supersession Can Continue Even After the Board’s Term Ends
The Court also rejected the argument that the RBI loses the power to continue a supersession once the original tenure of the elected board comes to an end.
Once a board is superseded, the Court explained, it effectively ceases to function and its powers are transferred to the Administrator appointed under the Banking Regulation Act.
As a result, the expiry of the elected members’ original term does not automatically bring an end to the RBI’s authority to extend the supersession.
The order passed under Section 36AAA can therefore continue beyond the period for which the original board members were elected.
No State Consultation Required for Multi-State Banks
Another challenge concerned the absence of consultation with the State Government before the RBI superseded the board.
The former directors argued that such consultation was mandatory under the proviso to Section 36AAA(1) of the Banking Regulation Act.
The Supreme Court disagreed.
It held that the consultation requirement applies to co-operative banks registered with the Registrar of Co-operative Societies of a State. A multi-State co-operative bank falls outside that category.
Since Abhyudaya Co-operative Bank is a multi-State co-operative bank, the Court found that the RBI was under no obligation to consult a State Government before taking action against its board.
How the Dispute Reached the Supreme Court
Abhyudaya Co-operative Bank was originally incorporated as a co-operative society under the Maharashtra Co-operative Societies Act. It later entered the banking sector with RBI approval and was subsequently recognised as a Scheduled Bank.
Following amalgamations involving banks in Gujarat and Karnataka, it became a multi-State co-operative bank.
The appellants were elected to the Board of Directors in May 2019 for a five-year term.
In November 2023, the RBI superseded the board for one year under the Banking Regulation Act and appointed an Administrator.
The central bank cited serious deterioration in the bank’s financial condition, concerns regarding depositor interests and the need for professional intervention to prevent further damage to the institution.
The directors challenged the decision before the Bombay High Court. While the proceedings were pending, their original term expired in May 2024.
The RBI later extended the supersession in November 2024 and again in November 2025.
The Bombay High Court refused to interfere, holding that the Banking Regulation Act continued to apply and that the constitutional provisions did not render the RBI’s statutory powers ineffective.
The Supreme Court has now affirmed that conclusion and dismissed the appeal.
