Pandurang Ganpati Chaugule vs Vishwasrao Patil Murgud Sahakari … on 5 May, 2020 – Case Summary

In the case of Pandurang Ganpati Chaugule vs Vishwasrao Patil Murgud Sahakari, the Supreme Court of India was faced with a significant legal question concerning the applicability of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) to co-operative banks. The case was heard by a bench consisting of Arun Mishra, Hon’Ble Ms. Banerjee, Vineet Saran, M.R. Shah, and Aniruddha Bose.

Facts of the Case

The case involved a series of appeals and writ petitions questioning the invocation of the SARFAESI Act by co-operative banks. The primary appellant, Pandurang Ganpati Chougule, had previously challenged the action of Vishwasrao Patil Murgud Sahakari Bank Limited under the SARFAESI Act before the Civil Judge in Spl. Civil Suit No.226 of 2007. The Trial Court held that it did not have the jurisdiction to decide the suit, a decision upheld on first appeal.

Issues Raised

The central issue was the scope of the legislative field covered by Entry 45 of List I, which pertains to ‘Banking’, and Entry 32 of List II of the Seventh Schedule of the Constitution of India, and consequently, the power of the Parliament to legislate. The question was whether the definition of ‘banking company’ contained in Section 5(c) of the Banking Regulation Act, 1949 (BR Act, 1949) covers co-operative banks registered under the State law and also multi-State co-operative societies under the Multi-State Co-operative Societies Act, 2002 (MSCS Act).

Court’s Observations

The court observed that the matters had been referred due to conflicting decisions in previous cases. The court noted that the Parliament’s competence to amend Section 2(c) of the SARFAESI Act by adding sub-clause ‘(iva) – a multi-State co-operative bank’ had also been questioned.

The court also considered the arguments of the appellant’s counsel, who contended that the scope of banking under Entry 45 of List I should be interpreted in light of the definition of the expression ‘banking’ in terms of Section 5(b) of the BR Act, 1949. The counsel argued that ‘banking’ in Entry 45 of List I is essentially meant to be confined to ‘core banking business’.

The court also noted the argument that there is a difference between ‘entity’ and ‘activity’. The performance of additional business/functions does not confer any status of a banking company upon such an entity.

Conclusion

The case presents a complex legal question concerning the applicability of the SARFAESI Act to co-operative banks. The court’s decision will have significant implications for the banking sector, particularly co-operative banks, and their ability to recover dues. The case is a clear example of the intricate interplay between constitutional law and banking regulation in India.