RBI Can Extend Supersession of Multi-State Co-operative Bank Boards for Up to 5 Years in Public Interest: SC

New Delhi, Sep 9 (KNN) The Supreme Court has held that the Reserve Bank of India (RBI) can supersede the Board of Directors (BoD) of a multi-State co-operative bank and extend the period of supersession from time to time, subject to an overall limit of five years.

A Bench of Justices Pamidighantam Sri Narasimha and Alok Aradhe dismissed appeals challenging a November 18, 2024 judgment of the Bombay High Court, which had upheld the RBI’s decision to supersede the Board of Abhyudaya Co-operative Bank and appoint an Administrator.

The RBI had superseded the bank’s Board on November 24, 2023 for one year, citing deteriorating financial health and the need to protect depositors, prevent further deterioration and ensure professional management. The supersession was subsequently extended from November 24, 2024 and again from November 24, 2025.

Six-Month Limit Not Applicable

The former Board members argued that the Constitution generally limits supersession of co-operative society Boards to six months and that the RBI could not extend the period beyond that limit under the Banking Regulation Act.

The Supreme Court rejected the argument, holding that the Banking Regulation Act (BR Act) continues to apply to multi-State co-operative banks. 

It said the phrase ‘shall also apply’ in the third provision to Article 243ZL(1) has an additive and non-restrictive meaning and incorporates the BR Act into the constitutional framework governing such banks.

Under the BR Act, the RBI can supersede a co-operative bank’s Board in public interest, to protect depositors or the bank from detrimental management, or to secure proper management, with extensions permitted up to a maximum of five years.

The court said restricting the RBI’s regulatory powers to six months could undermine depositor protection and banking-system stability.

Board’s Original Tenure Not a Bar

The court also ruled that supersession can continue even after the elected Board’s original tenure expires, provided the overall five-year statutory limit is not breached.

Once a Board is superseded, its powers vest in the Administrator appointed by the RBI, who is required to facilitate elections within the prescribed period.

Since Abhyudaya Bank’s Board was first superseded while its elected term was still in force and the subsequent extensions remained within the five-year ceiling, the Supreme Court upheld the RBI’s action and dismissed the appeals.

(KNN Bureau)