U.A. LATHIF MLA Vs. STATE OF KERALA

JUDGEMENT

(1.) W.P.(C) N0s.28650/2021, 173/2023 and 4215/2023 have been filed by the former President and Vice President of the erstwhile Malappuram District Co-operative Bank while W.P.(C)No.12/2023 has been filed by 93 individuals stated to be Presidents of Primary Agricultural Credit Societies and Urban Cooperative Banks which were members of the Malappuram District Cooperative Bank. They challenge the constitutional validity of Sec. 14A of the Kerala Co-operative Societies Act, 1969 (hereinafter referred to as the 1969 Act), which was incorporated by the Kerala Co-operative Societies Amendment Act, 2019 (Act 1 of 2019) as also the provisions of Sec. 74H of the 1969 Act as amended by the Kerala Co-operative Societies (Amendment) Act, 2021. Consequently, there is also a challenge to the order passed by the Registrar of Co-operative Societies in terms of the provisions contained in Sec. 74H of the 1969 Act amalgamating the Malappuram District Cooperative Bank with the Kerala State Co-operative Bank. The grounds taken and the reliefs sought in all these writ petitions are almost identical, and they can be conveniently disposed of by common judgment. It is submitted at the Bar that W.P.(C)No.4215/2023 can be taken as the lead case. The exhibits referred to in this judgment are as they are marked in W.P.(C)No.4215/2023 unless indicated otherwise.

(2.) The petitioners contend that the impugned provisions are unconstitutional and beyond the legislative competence of the State Legislature. It is submitted that the provisions of the Banking Regulation Act, 1949, which apply in entirety to Co-operative Banks, after the amendment of the Banking Regulation Act, 1949, with effect from 26/6/2020, have brought Co-operative Banks under the umbrella of the Reserve Bank of India and the provisions of the Banking Regulation Act, 1949. Therefore, it is submitted that any provision providing for the amalgamation of a Co-operative Bank with another Co-operative Bank should be in tune with the provisions for amalgamation of banking companies under the provisions of the Banking Regulation Act, 1949. In other words, it is the case of the petitioners that 'banking' is exclusively a subject in List-1 of the Seventh Schedule of the Constitution of India, and therefore, the State Legislature was denuded of the power to make any provision for amalgamation of a Co-operative Bank with another Co-operative Bank by providing for a procedure distinct from the procedure contemplated by the Banking Regulation Act, 1949.

(3.) Mr. George Poonthottam, the learned senior counsel appearing for the petitioners in all these cases on the instructions of Smt.Nisha George would, with reference to the provisions of the 1969 Act and the Kerala Cooperative Societies Rules, 1969 (hereinafter referred to as the 1969 Rules), submit that the provision for merger/amalgamation of a Co-operative Society registered under the provisions of the 1969 Act was provided for under Sec. 14 of the 1969 Act and Rule 13 of the 1969 Rules. It is submitted that to overcome the procedure contemplated by Sec. 14 of the 1969 Act and Rule 13 of the 1969 Rules, the 1969 Act was amended in 2019 by incorporating Sec. 14A, which provided for a procedure distinct from the procedure contemplated by Sec. 14 in as much as Sec. 14A only required a simple majority of the concerned District Co-operative Bank which would take forward its process of amalgamation with the Kerala State Cooperative Bank. It is pointed out that the provisions of Sec. 14 contemplated a two-thirds majority. It is submitted that in the case of the Malappuram District Co-operative Bank, two general body meetings were held after the incorporation of Sec. 14A of the 1969 Act, as above. However, the proposal for amalgamation was defeated by a two-thirds majority, and therefore, even a simple majority contemplated by the provisions of Sec. 14A could not be achieved. It is submitted that Chapter XC was also incorporated in the 1969 Act by the very same amendment Act, and Sec. 74H (which is the only provision in Chapter XC) provided for a different procedure for the merger of District Co-operative Banks with the Kerala State Co-operative Bank. It is submitted that Sec. 74H, as originally incorporated, contemplated that the merger of a District Cooperative Bank with the Kerala State Co-operative Bank will take place after resolution is passed as provided for in Sec. 14A. It is submitted that the Malappuram District Co-operative Bank is covered under the provisions of the Deposit Insurance and Credit Guarantee Corporation Act, 1961 (hereinafter referred to as the DICGC Act) and thus guaranteed to its depositors protection as contemplated by the provisions of the said Act in respect of deposits maintained by customers. It is submitted that the DICGC Act contains a specific provision that protection under the provisions of the Act will extend to a bank only if the incorporating law includes a provision where the merger/amalgamation of a bank to which such protection is extended will be made only with the sanction in writing of the Reserve Bank of India. It is submitted that to extend the benefit of the provisions of the DICGC Act to Co-operative Banks incorporated under the 1969 Act, Sec. 74A was incorporated in the 1969 Act with effect from 13/3/1974 making it clear that notwithstanding any other provision contained in the 1969 Act, an order for merger/amalgamation, winding up or re-construction or order sanctioning scheme of compromise or arrangement of an insured Cooperative Bank shall be made only with the previous sanction in writing of the Reserve Bank of India. It is submitted that, after the incorporation of Sec. 74H, the provisions of Sec. 74A have been given go bye and sub-sec. 18 of Sec. 74H provides that in the case of the merger of District Co-operative Banks with the Kerala State Co-operative Bank, the provisions of Sec. 74H will apply as the said provision will have overriding effect on all other provisions of the 1969 Act. It is submitted that 13 District Co-operative Banks passed resolutions while under administratorship for the merger of the District Co-operative Banks with the Kerala State Co-operative Bank, and following this, all other District Co-operative Banks except the Malappuram District Co-operative Bank were merged with the Kerala State Co-operative Bank. It is submitted that since a resolution as contemplated by Sec. 14A of the 1969 Act could not be passed in respect of the Malappuram District Cooperative Bank, Sec. 74H was again amended by the Kerala Co-operative Societies (Amendment) Act, 2021 by incorporating the following provisions in Sec. 74H:-