Supreme Court: RBI can supersede a multi-State co-operative bank's board beyond Article 243ZL's six months

The Supreme Court upheld the Reserve Bank of India's supersession of the board of directors of Abhyudaya Co-operative Bank Limited, a multi-State co-operative bank, and dismissed appeals by its elected directors against a Bombay High Court judgment. The RBI superseded the board on 24 November 2023 under Section 36AAA of the Banking Regulation Act, 1949, citing the bank's deteriorating financial health and the need to protect depositors, and later extended the supersession twice. The directors argued that Article 243ZL(1) of the Constitution caps supersession of a co-operative society's board at six months.

The Court held that the third proviso to Article 243ZL(1), which makes the Banking Regulation Act also apply to co-operative societies carrying on banking, is an independent provision, so the RBI's power under Section 36AAA is not limited by the six-month ceiling. Reading the proviso purposively, it said depositors' interests and financial discipline must prevail over a truncated reading that would leave such banks without regulatory oversight. It also held that a supersession order can be extended beyond the term for which the superseded board was elected, subject to the five-year aggregate limit in Section 36AAA(1), and that the requirement of prior consultation applies only to co-operative banks registered under a State's co-operative law, not to multi-State banks.