ORDER
Puranik, J.
1. Rule. Rule heard forthwith by consent of parties. Dr. Naik appears for the petitioners — petitioner No. 1 being a Co-operative Bank and petitioner No. 2 being its Chairman — while Dr. Chandrachud
appears for Reserve Bank of India, respondent No. 3 and Shri Kerkar, Asstt. Government Pleader appears for respondents Nos. 1
and 2.
2. By a Circular dated 3rd August, 1992 issued by the Reserve Bank of India addressed to the Registrars of Co-operative Societies of all States and Union Territories in India, the Reserve Bank of India communicated that in so far as normal donations by Co-operative Banks from out of their net profits are concerned, such donations may not exceed one per cent of the published profits of the previous year and such normal donations together with those that may be made to
National Funds and other Funds recognised or sponsored by the State or Central Government may not exceed two per cent of the published profits of the previous year. The said Circular also communicated that individual donations from out of the profits by such Co-operative Banks may not exceed Rs. 10,000/-. In pursuance of the said Circular, the Commissioner for Co-operation and Registrar, Co-operative Societies, Maharashtra State issued a Circular dated 27th August, 1992 in turn addressed to all the Co-operative Banks. The said Circular of the Reserve Bank of India is at Ex. ‘F’ to the petition and the Circular of the Registrar, Co-operative Societies is at Ex.’C’ to the petition.
3. Petitioner No. 1, a Co-operative Bank, registered under the Co-operative Societies Act, feeling aggrieved by the said Circulars, has preferred this writ petition.
4. Dr. Naik for the petitioners challenged the said Circulars mainly on the ground that petitioner No. 1 Co-operative Bank being a Society registered under the Maharashtra Co-operative Societies Act was governed as such by the said Maharashtra Co-operative Societies Act and the Reserve Bank of India exercising its powers under the Banking Regulation Act, 1949 could not have issued a Circular giving directions and putting restrictions on the disbursement of profits for charitable and public purposes superseding those as prescribed under S. 69 of the Maharashtra Co-operative Societies Act. He
pointed out that S. 69 of the Maharashtra Co-operative Societies Act permits a Co-operative Society to disburse donations for charitable purposes to the extent of twenty per cent of its net profits of the previous year. Not only this, but the scheme of the Maharashtra Co-operative Societies Act has put in several checks and cross-checks on such disbursement which are that the donation should be for a public charitable purpose, that it should be not exceeding twenty per cent of the net profits of the previous year, that it should be in consultation with the Federal Co-operative Society and lastly that it should be approved by the General Body of the Co-operative Society. Thus, the Maharashtra Co-operative Societies Act has bestowed a power on the Co-operative Society for disbursement of its profits of the previous year for a public purpose by way of donations up to twenty per cent of its net profits. This power, according to Dr. Naik, is sought to be curtailed by the Circulars impugned in this petition.
5. He also contended that ‘Co-operative Societies’ fall in Entry No. 32 of the State List in the Seventh Schedule of the Constitution and is the State subject. It includes incorporation, regulation and winding up of a Co-operative Society. On the other hand, ‘Banking’ is found in Entry No. 45 of the Union List of the Seventh Schedule of the Constitution of. India and is the Central subject. According to him, therefore, the Circulars issued by the Reserve Bank of India and the Registrar, Co-operative Societies are not binding on the Co-operative Banking Societies.
6. On the other hand, Dr. Chandrachud
for the Reserve Bank of India relied on S. 35A as also Ss. 5(c), 5(ca) and 36 of the Banking Regulation Act, 1949. Earlier, he pointed out that even though the Co-operative Societies and their management fell within the State subjects and are entirely governed by the Maharashtra Co-operative Societies Act, yet by virtue of Part V of the Banking Regulation Act, especially S. 56, a Banking Company shall be construed as having reference to a Co-operative Bank for the purposes of the
Banking Regulation Act. By insertion of Part V and S. 56 the entire Co-operative Banking activity was brought within the supervisory power of the Reserve Bank of India under the Banking Regulation Act, 1949. He also pointed out that by virtue of S. 56(zb) several parts of the Banking Regulation Act, 1949 have been excluded from their application to the Co-operative Banks. They are Part IIA relating to control over management, Part IIC relating to acquisition of the Undertakings of Banking Companies, Part III relating to suspension of business and winding up of Banking Companies and Part IIIA relating to procedure for speedy disposal of winding up proceedings. Thus he conceds that in so far as management, incorporation, regulation and winding up of a Co-operative Society is concerned, the State Government has the powers as per the Maharashtra Co-operative Societies Act. However, under S. 35A of the Banking Regulation Act where the Reserve Bank is satisfied that in the public interest or in the interest of banking policy or to prevent the affairs of any banking company being conducted in a manner detrimental to the interests of the depositors or in a manner prejudicial to the interests of the banking company or to secure the proper management of any banking company generally it is necessary to issue directions to banking companies generally or to any banking company in particular, it may from time to time issue such directions as it deems fit, and the banking companies or the banking company, as the case may be, shall be bound to comply with such directions. He further urged that in Ss. 5(c) and 5(ca) ‘banking company’ and ‘banking policy’ have been defined.
7. We have heard the submissions of the learned counsel for the parties and we find that there is no dispute over the fact that though the control over management of a Co-operative Society where it is a Co-operative Banking Society or otherwise is vested in the Registrar, Co-operative Societies under the Maharashtra Co-operative Societies Act, but in so far as banking is concerned, by virtue of S. 56 of the Banking Regulation Act read with S. 35A of the said
Act, it will be a subject with which the Reserve Bank of India has full power. According to Dr. Naik however since ‘banking’ is a Central subject under Entry No. 45 of the Union List the Reserve Bank of India could not have powers to either legislate or issue directions for a banking policy which is strictly within the managerial powers of the State Co-operative Banks and the central legislation cannot encroach on this field which is exclusively a State subject in respect of the management of the profits.
8. Considering S. 35A of the Banking Regulation Act, 1949 minutely we feel that the submission of Dr. Naik cannot be accepted. S. 35A(1)(aa) states that where the Reserve Bank is satisfied that “in the interest of banking policy” “it is necessary to issue directions….”. “Banking policy” as defined in S. 5(ca) clearly stipulates that it means a policy which is specified from time to time by the Reserve Bank of India in the interest of the banking system or in the interest of monetary stability or sound economic growth, having due regard to the interests of the depositors, the volume of deposits and other resources of the bank and the need for equitable allocation and the efficient use of these deposits and resources. Thus, an overall responsibility to find out the well being of a Banking Company, in improving monetary stability and economic growth as well as keeping in view the interests of depositors, the Reserve Bank of India has to formulate its policy vis-a-vis Banking Companies. ‘Banking’ as defined in S. 5(b) only gives a grammatical meaning of the transactions of a bank and nothing more. If any management or supervision is to be done over the banking activities of a bank, it will have to be governed by banking policy. Regard will have to be given to the fact that Co-operative Banks like any other Banking Companies are entrusted with the funds from the public. The amounts are in trust with them which are payable on demand to the public and hence deposits or the profits earned from the same or their capital have to be augmented rather than depleted and if excess amounts are likely to be depleted by way of donations for charitable and public purposes, the very stability of a Co-operative Bank may
come in danger. We feel that ‘banking policy’ and ‘banking’ are not independent but co-ordinating subjects and both are covered within the supervisory powers of the Reserve Bank of India within the meaning of S. 35A of the Banking Regulation Act. Even otherwise, we feel that the directions issued by the Reserve Bank of India are in the larger interest of the public and the Reserve Bank of India being a body of experts in banking, the directions given by it should not be lightly brushed aside.
In view of the above, we find that there is no merit in the writ petition challenging the directions of the Reserve Bank of India. Rule discharged. There shall be no order as to costs.
Rule discharged.