Supreme Court: RBI Supersession of Multi-State Co-operative Bank Board Not Capped at Six Months
A division bench held that Section 36AAA of the Banking Regulation Act, not the six-month ceiling in Article 243ZL, governs RBI supersession of multi-State co-operative bank boards.
The Supreme Court has held that the Reserve Bank of India’s power to supersede the board of a multi-State co-operative bank under Section 36AAA of the Banking Regulation Act, 1949 is not confined to the six-month limit set by Article 243ZL(1) of the Constitution. A division bench of Justices Pamidighantam Sri Narasimha and Alok Aradhe dismissed appeals by Sandeep S. Ghandat and others, upholding a Bombay High Court judgment that had sustained the RBI’s supersession of the Board of Directors of Abhyudaya Co-operative Bank Limited.
The Court also held that supersession, once ordered, can be extended beyond the tenure for which the original board was elected, subject to the five-year outer limit in Section 36AAA(1). The ruling turned on the construction of the third proviso to Article 243ZL(1), which the Court read as incorporating the Banking Regulation Act into the constitutional scheme for co-operative banks.
How the dispute reached the Court
Abhyudaya Co-operative Bank was originally registered under the Maharashtra Co-operative Societies Act, 1960 and became a bank in 1965. It was declared a Scheduled Bank by the RBI in 1988 under Section 42(6)(a) of the RBI Act, 1934. Following a direction under Section 45 of the Banking Regulation Act, it was amalgamated with two banks in Gujarat and one in Karnataka, making it a multi-State co-operative bank.
In May 2019, the appellants were elected as board members for a five-year term. By order dated November 24, 2023, the RBI superseded the board for one year and appointed an Administrator, citing deteriorated financial health, the need to protect depositors, and the requirement of expert management. This was the First Supersession Order.
The appellants challenged that order before the Bombay High Court. While the writ petitions were pending, their five-year term expired on May 24, 2024. On November 18, 2024, the RBI extended supersession for a further year with effect from November 24, 2024 (the Second Supersession Order). The same day, the High Court dismissed the petitions, holding that Section 36AAA continued to operate and was not rendered otiose by Articles 243ZL and 243ZT, that the consultation proviso did not apply to multi-State co-operative banks, and that natural justice could not be read into Section 36AAA.
The appellants approached the Supreme Court by special leave, which was granted. During the appeals, on November 7, 2025, the RBI passed a Third Supersession Order extending supersession from November 24, 2025.
What the Court held on the six-month question
The first issue was whether the RBI’s power under Section 36AAA(1) is circumscribed by the six-month limit in Article 243ZL(1). The Court answered in the negative.
Article 243ZL(1) opens with a non obstante clause and states that no board shall be superseded for a period exceeding six months, subject to four provisos. The third proviso states that in the case of a co-operative society carrying on the business of banking, the provisions of the Banking Regulation Act “shall also apply”. The Court treated this expression as additive and non-restrictive.
Applying the doctrine of incorporation, the Court found that the Banking Regulation Act is written into Part IXB in relation to multi-State co-operative banks. It cited Justice G.P. Singh’s Principles of Statutory Interpretation for the proposition that incorporated provisions become part and parcel of the later Act, operating on their own force.
Ordinarily a proviso restricts rather than enlarges, the Court noted, but here the third proviso enlarges the scope of Article 243ZL(1) by making the Banking Regulation Act applicable. It was therefore not a true proviso but an independent substantive provision.
The internal-architecture argument
The Court found the most conclusive proof in the fourth proviso to Article 243ZL(1), which extends supersession from six months to one year for a co-operative bank “other than a multi-State co-operative society”. By expressly excluding multi-State co-operative societies from that extension, Parliament assumed such societies would otherwise fall within the sweep of Article 243ZL.
“An exclusion, by its very nature, presupposes a prior inclusion,” the Court observed. Parliament does not exclude from a proviso what could never have fallen within it. This confirmed that the third proviso was intended to comprehend multi-State co-operative banks.
The Court read the text alongside purpose. Banking is impressed with a public interest of a distinct order, holding the savings of depositors of modest means. Section 36AAA arms the RBI to supersede a failing board where necessary to protect depositors or secure proper management. Confining the RBI to a rigid six-month period would subordinate depositor protection to an overly technical reading of a constitutional proviso and expose banks to a supervisory vacuum.
The Court relied on the Constitution Bench decision in Pandurang Ganpati Chaugule v. Vishwasrao Patil Murgud Sahakari Bank Ltd., which, though concerned with the SARFAESI Act, held at paragraph 94 that the Banking Regulation Act applies to multi-State co-operative societies carrying on banking. The appellants’ argument that this reliance was misplaced was rejected.
Extension beyond the elected term and consultation
On the second issue, the Court held that a supersession order can be extended beyond the term for which the board was originally elected. Section 36AAA(1) expressly contemplates that supersession, once ordered, may be extended from time to time, subject to an aggregate outer limit of five years. Once superseded, the board ceases to exist and its powers vest in the Administrator.
Under Section 36AAA(7), the Administrator must call a general meeting to elect new directors only on and before expiration of the specified period of supersession. The Court held that the tenure of the erstwhile board is of no consequence to the exercise of that power, while the five-year outer limit safeguards against indefinite deferral of elections. In this case, the First Supersession Order was passed while the statutory term subsisted, and later orders only extended it within the permissible limit.
The Court rejected the appellants’ contention that supersession was invalid for want of prior consultation. The consultation requirement in the proviso to Section 36AAA(1) applies only to a co-operative bank registered with the Registrar of Co-operative Societies of a State. Abhyudaya Co-operative Bank, being admittedly a multi-State co-operative bank, did not fall within that category.
Order
The Court found no infirmity in the impugned judgment. The appeals were dismissed, with no order as to costs. The judgment was delivered by Justice Alok Aradhe on September 3, 2026.