Bombay High Court
Maharashtra State Co-Operative Bank ... vs The State Of Maharashtra And Ors. on 19 December, 1996
Equivalent citations: 1997(3)BOMCR4
Author: S.S. Nijjar
Bench: S.S. Nijjar
JUDGMENT N.D. Vyas, J.
1. By the present writ petition under Article 226 of the Constitution of India, the petitioners have challenged the legality and validity of the Notification dated 30th December 1995 issued by the State of Maharashtra purportedly under section 2(u) of the National Bank for Agricultural and Rural Development Act, 1981 (NABARD Act for short) declaring Respondent Nos. 5 i.e. Apex Co-operative Bank of Urban Banks of Maharashtra and Goa Ltd. also as the State Co-operative Bank within the meaning of the said provision viz., Section 2(u) of the NABARD Act; two directions/orders dated 25th January 1996 and 14th May 1996 issued by the 2nd Respondent i.e. Commissioner for Co-operation and Registrar, Co-operative Societies, Maharashtra State, advising/directing deploying of funds by all Urban Co-operative Banks under section 70 of the Maharashtra Co-operative Societies Act, 1960, (State Co-operative Act for short) and the licence given by the Reserve Bank of India (R.B.I. for short) on 22nd March 1996 to the 5th Respondent under section 22(1) read with section 56(o) of the Banking Regulation Act, 1949 (Bk.Reg. Act for short) to commence and carry on Banking business in the State of Maharashtra and Goa.
2. The short question that arises for consideration is : Whether a Co-operative Society registered under The Multi-State Co-operative Societies Act, 1984 (Multi-State Act for short) can be recognised and notified by the State Government as State Co-operative Bank, and whether such a Co-operative Society can be granted a licence by R.B.I. to commence and carry on Banking activities.
3. Briefly stated the facts giving rise to the present petition are as follows :
The 1st petitioner-Bank was registered under the then Co-operative Societies Act on 11th October 1991. It is one of the largest Co-operative Banks in the State and is a State Co-operative Bank. Petitioner No. 1 is also a Scheduled Bank under the Reserve Bank of India Act. Petitioner No. 2 is an elected Director on the board of the 1st petitioner. Respondent No. 5 intending to be registered as a separate Apex Co-operative Bank for the Urban Co-operative Banks of Maharashtra and Goa, approached the R.B.I. for being granted necessary licence under the Bk. Reg. Act for carrying on Banking business. R.B.I. however by its letter dated 13th April 1994 informed the Chief Promoter of the 5th Respondent that as the 5th Respondent proposed to register itself as a separate Apex Co-operative Bank for the Urban Co-operative Banks of Maharashtra as well as Goa, it could be registered under the Multi State Act since its area of operation extended to two States and as such it would not be "Co-operative Bank" as defined in the Bk. Reg. Act. The said letter further stated that amendments to Bk. Reg. Act were being considered necessary and the Government of India had already been apprised of the amendments needed. Therefore, the Promoter of the 5th Respondent was informed that he may approach R.B.I. only after necessary legislative amendments were carried out by Government of India. A further letter was addressed by R.B.I. being letter dated 20th May 1994 to the Promoter of the 5th Respondent again reiterating that the amendments to the Bk. Reg. Act were necessary and in the meanwhile in principle the R.B.I. was agreeable for registration of the 5th Respondent Bank provided that it would not be an eligible institution for the purpose of keeping Cash Reserve Ratio and Statutory Liquidity Ratio Deposits under section 18 and 24 of Bk. Reg. Act and further, that it not being a State Co-operative Bank would not be an eligible institution for availing refinance facilities from RBI/SIDBI, etc. on behalf of the Primary Co-operative Banks. On 7th October 1994 the 5th Respondent was registered under the Multi-State Act as an Apex Co-operative Bank of Urban Co-operative Banks in the States of Maharashtra and Goa. Respondent No. 6 with the consent of petitioner No. 1 was registered on 10th November 1994 as an Apex Co-operative Bank for Urban Co-operative Banks in the State of Maharashtra. On 30th December 1995 the State Government by issuing a Notification designated the 5th respondent as an additional State Co-operative Bank for the State of Maharashtra under section 2(u) of the NABARD Act at which point of time for want of necessary licence from RBI, the 5th respondent was not carrying on banking business. On 25th January 1996, the 2nd respondent identified the 5th respondent as a State Co-operative Bank for the purpose of investment under section 70(a) of the State Co-operative Act. Even at this point of time, the 5th respondent was not carrying on any banking business. On 20th February 1996, the Deputy Registrar, Co-operative Societies, Goa wrote to one of Urban Co-operative Banks informing that it was not possible to declare the 5th respondent as an Apex Bank for Urban Bank for Goa. On 28th February 1996, the present writ petition was filed essentially challenging the Notification dated 30th December 1995 issued by the State Government designating the 5th respondent as an additional State Co-operative Bank and also challenging the direction dated 25th January 1996 issued by the Registrar identifying the 5th respondent as a State Co-operative Bank for the purposes of investment under section 70(a) of the State Co-operative Act. On 22nd March 1996 the R.B.I. granted licence to the 5th respondent to carry on banking business under the provisions of the Bk. Reg. Act. On 14th May 1996, the 2nd respondent again issued a general circular to all Urban Co-operative Banks to the effect that the deposits should be made with the 5th respondent under section 70(a) of the State Co-operative Act on "priority basis." By amendments subsequently moved and allowed by this Court whereby subsequent events were brought on record, the licence dated 22nd March 1996 granted by the R.B.I. and the General circular issued by the 2nd respondent on 14th May 1996 under section 70(a) of the State Co-operative Act have also been challenged.
4. Before we consider the various contentions raised by the petitioners in support of their challenge to the legality and validity of the above mentioned impugned Notification, directions and licence, it would be advisable first to deal with the contention raised by the 5th respondent as to the maintainability of, the present petition. It was the contention of Mr. M.S. Sanghavi, the learned Counsel appearing for the 5th respondent, that the petitioners did not have any locus standi in the matter and were therefore, not entitled to any equitable or discretionary reliefs under Article 226 of the Constitution of India. It was the submission of Mr. M.S. Sanghavi that the 1st petitioner has been enjoying the status of monopoly Co-operative Bank and cannot possibly be allowed to object to other Co-operative Banks having identical activities and the reason why the present petition has been filed is obvious as the 1st petitioner wished to continue its monopoly. It was also submitted that the 1st petitioner had no objection for the 6th respondent functioning also as an Apex Co-operative Bank, in fact it helped the 6th respondent to come into existence, but had, because of political reasons objected to the 5th respondent also functioning as State Co-operative Bank. Thus according to Mr. Sanghavi, the petition is motivated and should be dismissed. On the other hand, Mr. K.K. Singhvi the learned Counsel appearing for the petitioners submitted that the declaration of a Multi-State Co-operative Society as a State Co-operative Bank covering the area of operation of the 1st petitioner, the grant of licence by R.B.I. to such a Society without proper application of mind and under total misconception of law and the issuance of directions by the Commissioner for Co-operation and Registrar, Co-operative Societies, Maharashtra State i.e. the 2nd respondent directing Urban Banks to deposit funds in the 5th respondent on priority basis, adversely affected the interests of the petitioners and thus in law they were entitled to approach this Court under Article 226 of the Constitution of India for appropriate reliefs. It was his submission that writ of certiorari or writ of mandamus can be issued even at the instance of a stranger, leave aside a party likely to be adversely affected by the impugned orders/licence, and that law relating to locus can be taken as well settled and an act of State which is in the teeth of law or not in the public interest can be challenged even by a public spirited citizen much less by an institution which is going to be directly affected by such an act.
5. Mr. K.K. Singhvi in support of his submission that in fact the petitioners had locus cited several authorities. He cited passages from Administrative Law (6th Edition of H.W.R. Wade) reproduced below :
"Consequently the Court is prepared to act at the instance of a mere stranger, though it retains discretion to refuse to do so if it considers that no good would be done to the public. Every citizen has standing to invite the Court to prevent some abuse of power, and in doing so he may claim to be regarded not as a meddlesome busybody but as a public benefactor. Parker, L.J., thus stated the law as to certiorari :
Anybody can apply for it a member of the public who has been inconvenienced, or a particular party or a particular grievance of his own. If the application is made by what for convenience one may call a stranger, the remedy is purely discretionary. Where, however, it is made by a person who has a particular grievance of his own, whether as a party or otherwise, then the remedy lies exdebito justitiae---
This was a case where a newsvendor obtained certiorari to quash the allocation of a street trader's pitch to a vendor of jellied eels, the Magistrates having assigned the pitch without jurisdiction. Although the newsvendor was a mere rival for the pitch, and had not been a party to the proceedings before the Magistrates, it was held that he was a person with a particular grievance and not a mere stranger. The same was held in the case of a local inhabitant who obtained the quashing of a highway order made without proper notice. A ratepayer, likewise, has a particular grievance if the rating list is invalidly made, even though the defects will make no difference to him financially. In licensing cases a mere commercial rival who objects to the granting of the licence to another person has a particular grievance. So also has a neighbour who objects to a grant of planning permission.
The extreme case, perhaps, is that of newspapers who are held to be persons aggrieved by Magistrates' orders affecting the rights of the press to report criminal proceedings".
He next cited decision of the Supreme Court in the matter of Akhil Bharatiya Soshit Karamchari Sangh (Railway) v. Union of India and others, wherein the Supreme Court inter alia observed as follows :
"We have no hesitation in holding that the narrow concept of ' cause of action' and 'person aggrieved' and individual litigation is becoming obsolescent in some jurisdictions. It must fairly be stated that the learned Attorney General has taken no objection to a non-recognised association maintaining the writ petitions".
He next cited one more decision of the Supreme Court in the matter of People's Union for Democratic Rights and others v. Union of India and others, , where in the Supreme Court inter alia observed :
"The first preliminary objection raises the question of locus standi of the petitioners to maintain the writ petition. It is true that the complaint of the petitioners in the writ petition is in regard to the violations of the provisions of various labour law designed for the welfare of workmen and therefore from a strictly traditional point of view, it would be only the workmen whose legal rights are violated who would be entitled to approach the Court for judicial redress. But the traditional rule of standing which confines access to the judicial process only to those to whom legal injury is caused or legal wrong is done has now been jettisoned by this Court and the narrow confines within which the rule of standing was imprisoned for long years as a result of inheritance of the Anglo Saxon system of jurisprudence have been broken and a new dimension has been given to the doctrine of locus standi which has revolutionised the whole concept of access to justice in a way not known before to the western system of jurisprudence".
Mr. K.K. Singhvi next cited a decision of the Gujarat High Court in the matter of B.B. Shroff and another v. Sardar Bhilandwala Pardi People's Co-operative Bank Ltd., reported in 22 Gujarat Law Reporter at page 805, wherein it was held as follows :
" In the instant case, the petitioner society is a banking Co-operative society and so is the first respondent society. The grievance of the petitioner - society is that by registering the amendment of the bye-laws, which extends the area of operation of the first respondent society to the area in which the petitioner society is already operating, there will be unhealthy competition,. This is a relevant aspect to be considered if true. The attention of the authority registering the amendment was required to be focussed upon this aspect of the matter and the decision with regard to registration of the amendment of the by-laws could have been arrived at after it was found, upon investigation of all the relevant facts and circumstances, that the registration of the amendment of the by-laws extending the area of operation is not likely to have an adverse effect upon the petitioner-society and to undermine the co-operative principles in general. The order of the original authority being not before me, it is not possible to ascertain whether this perspective was kept in mind. The order of the appellate authority does not disclose that this perspective was present to its mind. Under the circumstances, the conclusion is inevitable that the power with regard to registration of the amendment of the bye-laws is exercised without applying mind to the most relevant aspect and to the fundamental questions which were required to be taken into account".
Lastly Mr. Singhvi cited several decisions of this Court in the matter of Co-operative Societies inter alia viz., the decision dated 13th August 1985 in Writ Petition No. 2824 of 1985 and Writ Petition No. 2861 of 1985 wherein it was held that the impugned order passed by the Government without giving an opportunity of being heard to an existing society was contrary to the well established principles of natural justice and since the interest of the existing society would be affected, it was entitled to place before the competent authority all the material on record. It is not necessary to refer in detail to these decisions in view of the clear dicta of the Supreme Court in the cases cited above.
6. In view of the above decisions cited by Mr. K.K. Singhvi and in view of what is laid down therein, we have no doubt in our mind that the 1st petitioner, Co-operative Society, which is a State Co-operative Bank, has a locus and the present writ petition is maintainable. We see no force in the submission of Mr. M.S. Sanghavi. Thus having cleared the decks as to maintainability of the present petition, Court shall now proceed to deal with the contentions raised by the petitioners which to our mind require serious consideration.
7. Mr. Singhvi first attacked the Notification dated 30th December 1995 issued by the State Government purportedly under section 2(u) of NABARD Act. It was his submission that the same was illegal and invalid in as mush as that at the time of the said declaration respondent No. 5 was admittedly not carrying on any banking business i.e. the business of financing to other Co-operative Societies in the State, and that it was only registered as a Multi State Co-operative Society under the Multi State Act and was endeavouring to obtain the licence from R.B.I. under the provisions of Bk. Reg. Act for carrying on banking business. He further submitted that in fact the 5th respondent being a Multi-State Co-operative Society and having been registered as such under the Multi-State Act as having its area of operation in two States viz., Maharashtra and Goa in fact cannot be said to be "carrying on business" in the State of Maharashtra on the day of the impugned Notification dated 30th December 1995. It was further submitted that a Multi-State Co-operative Society is under the supervision and control of the Central Government and thus the State Government has no control or power of supervision on such a Society and therefore, it was inconceivable that the State Government would declare such a society as a State Co-operative Bank as over such a Bank, the State Government would have no control whatsoever. In order to buttress his submissions, it was submitted by Mr. Singhavi that the declaration by the State Government would be effective only in respect of the area of the State and that the other State to which the area of activities extended would not be bound by such a declaration and that, moreover, the provisions of the Bk. Reg. Act, especially section 18 read with section 56(j), and section 24 read with section 56(q)(2)(c), specifically refer to "State Co-operative Bank of the State concerned". Thus according to him, the combined reading of the said provision i.e. section 2(u) along with the provisions of the State Co-operative Act, Multi-State Act, NABARD Act, and the Bk. Reg. Act, unmistakably show that the Multi State Co-operative Society like the 5th respondent could have been notified as a State Co-operative Bank.
8. On the other hand Mr. Advocate General supported by Mr. M.S. Sanghavi appearing for the 5th respondent and Dr. Chandrachud appearing for R.B.I. joined issues with Mr. Singhvi and contended that the Notification dated 30th December 1995 issued by the State Government was legal and valid and that the directions issued by the Registrar under section 70 of the State Co-operative Act were also legal and valid.
9. In order to appreciate the rival contentions it would be advantageous to refer to certain provisions of law. The Maharashtra Co-operative Societies Act, 1960 (in this judgment referred to as the State Co-operative Act) is an Act to consolidate and amend the law relating to Co-operative Societies in the State of Maharashtra. It defines "apex society" in section 2(2) which reads as follows :
"(2) "apex society" means a society,-
(a) the area of operation of which extends to the whole of the State of Maharashtra.
(b) the main object of which is to promote the principal object of the societies affiliated to it as members and to provide for the facilities and services to them, and
(c) which has been classified as an apex society by Registrar."
"Co-operative Bank" is defined in section 2(10) which reads as follows :
"(10) "Co-operative Bank" means a society which is doing the business of banking as defined in clause (b) of sub-section (5) of the Banking Companies Act, 1919 and includes any society which is functioning or is to function as an Agriculture and Rural Development Bank under Chapter XI."
Section 70 reads as follows :
"70. Investment of funds:--- A society shall invest or deposit its funds in one or more of the following:
(a) in a Central Bank or the State Co-operative Bank,
(b) in any of the securities specified in section 20 of the Indian Trusts Act, 1882:
(c) in the shares, or security bonds, or debentures, issued by any other society with limited liability and having the same classification to which it belongs :
Provided that, no society shall invest more than such proportion of its paid up share capital as may be prescribed:
Provided further that, the provisions of this clause shall not apply to any investment made by any agricultural credit society in any processing society based on agricultural produce.
(d) in any Co-operative Bank other than those referred to in clause (a) of this section or banking company approved for this purpose by the Registrar, and on such conditions as the Registrar may from time to time impose;
(e) in any other mode permitted by the rules, or by general or special order of the State Government."
The Multi-State Co-operative Societies Act, 1984 (in this judgment referred to as Multi-State Act) under which the 5th Respondent is registered, was enacted to consolidate and amend the law relating to co-operative societies with objects not confined to one State and serving the interests of members in more than one State.
Section 3(e) defines "Co-operative Bank" as follows :
"(e) "Co-operative Bank" means a Multi-State Co-operative Society which undertakes banking business."
Section 3(g) defines "Co-operative Society" as follows :
"(g) "Co-operative society" means a society registered or deemed to be registered under any law relating to co-operative societies for the time being in force in any State."
Section 3(k) defines "Multi-State Co-operative Society" as follows :
"(k) "Multi-State Co-operative Society" means a society registered or deemed to be registered under this Act and includes a national Co-operative society."
Section 5 reads as follows :
"5. (1) No Multi-State Co-operative Society shall be registered under this Act, unless the main objects of the society are to serve the interests of members in more than one State.
(2) Subject to the provisions of sub-section (1), a multi-state co-operative society, which has as its objects the promotion of the economic and social betterment of its members through mutual aid in accordance with the co-operative principles or a Multi-State Co-operative Society established with the object of facilitating the operations of other such societies or of co-operative societies or of both may be registered under this Act.
(3) The word "Limited" or its equivalent in any Indian language shall be suffixed to the name of every Multi-State Co-operative Society registered under this Act with limited liability."
10. From the above provisions of the two statutes. It is apparent that a society which is having its area of operation within the State of Maharashtra only would be registered under and governed by the State Co-operative Act and would be within the overall control of the Registrar of Co-operative Societies. As far as the Co-operative Societies which has its area of activities extending to more than one state is concerned, the same can be registered under the Multi-State Co-operative Societies Act and would be governed by the provisions thereof, and thus would be within the control of the Central Registrar appointed thereunder. None of the two Acts define "State Co-operative Bank". The Multi-State Act does not have a provision for an Apex Society. Therefore, the concept of a 'Apex Society' is alien to the said Act.
11. This brings us to the provisions of the NABARD Act under the provisions of which the impugned notification dated 30th December 1995 has been issued by the State Government. The preamble of the said Act is as follows :
"An Act to establish a Bank to be known as the National Bank for Agriculture and Rural Development for providing credit for the promotion of agriculture, small scale industries, cottage and village industries, handicrafts and other rural crafts and other allied economic activities in rural areas with a view to promoting integrated rural development and securing prosperity of rural areas, and for matters connected therewith or incidental thereto."
Section 2 thereof gives definitions and states that in the said Act, unless the context otherwise requires, certain words would have the meanings given to them under the said section.
Sub-section (d) defines "Central Co-operative Bank" as follows :
"Central Co-operative Bank" means the principal co-operative society in a district in a State, the primary object of which is the financing of other co-operative societies in that district:
Provided that in addition to such principal society in a district, or where there is no such principal society in a district, the State Government may declare any one or more co-operative societies carrying on the business of financing other co-operative societies in that district to be also or to be a Central Co-operative Bank or Central Co-operative Banks within the meaning of this definition."
Sub-section (f) defines "Co-operative Society" as follows :
"Co-operative society" means a society registered, or deemed to be registered, under the Co-operative Societies Act, 1912 (2 of 1912) or any other law relating to co-operative societies for the time being in force in any State."
Sub-section (u) defines "State Co-operative Bank" as follows :
"State Co-operative Bank" means the principal co-operative society in a State, the primary object of which is the financing of other co-operative societies in the State;
Provided that in addition to such principal society in a State, or where there is no such principal society in a State, the State Government may declare any one or more co-operative societies carrying on business in that State to be also or to be a State Co-operative Bank or State Co-operative Banks within the meaning of this definition."
Thus from the above it would appear that the NABARD Act refers to "State Co-operative Bank", and the same is defined as above. Lastly, we shall reproduce the relevant provisions of the Banking Regulation Act (referred all throughout in the Judgment as the Bk. Reg. Act). The said Act was enacted in 1949 and when enacted did not have any Co-operative Societies carrying on or intending to carry on banking business. However, extensive amendments were carried out by inter alia introduction of Part V to the said Act providing for application of the Bk. Reg. Act to Co-operative Banks. This was done by the Amending Act 23 of 1965. Consequential amendments have also been carried out to the said Act Section 56 in Part V provides that the provisions of the Act shall apply to, or in relation to, co-operative societies as they apply to, or in relation to, banking companies subject to the modifications contained therein. Thus in section 5 by sub-section (c) to section 56 the following is added :
"(i) after clause (cc), the following clauses shall be inserted, namely:-
"(cci) 'Co-operative Bank' means a State Co-operative Bank, a Central Co-operative Bank and a primary Co-operative Bank;
(ccii) "co-operative credit society" means a co-operative society the primary object of which is to provide financial accommodation to its members and includes a co-operative land mortgage Bank;"
Similarly "Primary Co-operative Bank" and "Primary Credit Society" have also been defined and are thus added. Further "Central Co-operative Bank", 'Co-operative Society', 'Primary Rural Credit Society' and 'State Co-operative Bank' are defined so as to have the same meaning respectively assigned to them in the NABARD Act. Section 56(o) amends section 22 of the Bk.Reg.Act which deals with grant of licence and inter alia provides for substitution of sub-sections (1) and (2) of section 22 and further provides that no Co-operative Society shall carry on banking business in India unless it is a Primary Credit Society or it is a Co-operative Bank and holds a licence issued in that behalf by the R.B.I. Thus in order to be able to do banking business, a Co-operative Society has to be either a Primary Credit Society, which the 5th respondent does not claim to be, or a Co-operative Bank which according to section 5(cci) (as added by Sec. 56(c) of Bk.Reg.Act) would mean a State Co-operative Bank, a Central Co-operative Bank or a Primary Co-operative Bank. As mentioned above Bk.Reg.Act itself does not define the word State Co-operative Bank. From the above provisions, it would be apparent that a co-operative society is defined to mean a society registered or deemed to be registered under the Co-operative Societies Act, 1912 or any other law relating to Co-operative Societies for the time being in force in other States. Moreover, although Bk.Reg.Act as amended in 1965 speaks of State Co-operative Bank, it does not provide for a separate definition but in fact adopts the definition from the NABARD Act.
12. Now dealing with the contentions of Mr. Singhavi in respect of notification dated 30th December 1995 and having the benefit of the relevant provisions reproduced above, we shall first see whether the impugned notification dated 30th December 1995 issued under the provisions of section 2(u) of the NABARD Act declaring the 5th respondent as the State Co-operative Bank is legal and valid or not. It is obvious that section 2 of the NABARD Act deals with definitions and it starts with "In this Act, unless the context otherwise requires....." and then sub-section (u) states that the State Co-operative Bank means the Principal Co-operative Society in the State the primary object of which is financing all other Co-operative Societies in the State. The proviso however provides that in addition to such principal society in a State, or where there is no such principal society in a State, the State Government may declare any one or more Co-operative Societies carrying on business in that State to be also or to be a State Co-operative Bank or State Co-operative Banks within the meaning of this definition. In short, according to this definition read as a whole it is clear that there can be one or more State Co-operative Banks. The questions is : What are the requirements, or to be more precise, what are the qualifications required to qualify as a State Co-operative Bank or an additional State Co-operative Bank. Mr. Singhavi submitted that as per the definition of "State Co-operative Bank" given in the said section 2(u), such a Bank could only be the principal co-operative society in a State, the primary object of which would be the financing of other Co-operative Societies in the State, and that by the proviso it is in effect provided that the State Government may declare a Co-operative Society in addition to such principal society but such additional society must be carrying on banking business and that too in the State i.e. State of Maharashtra. According to him, admittedly the 5th Respondent, for want of necessary licence, was not carrying on any banking business as on the date of the impugned declaration, and that the 5th respondent being a Multi-State Co-operative Society could not be said to be a society carrying on such banking business in the State. In short, the submission was that the proviso cannot enlarge the scope of the main enactment and that the 5th respondent thus not satisfying the twin-requirements, could not have been declared as a State Co-operative Bank. Mr. Advocate General, Mr. Sanghavi and Dr. Chandrachud on the other hand submitted that the proviso empowered the State Government to declare also a Multi-State Co-operative Society whose area of operation also extended to the entire State of Maharashtra besides extending to other State/States. Moreover, according to them the term "carrying on business" enabled any co-operative society not necessarily a Banking Co-operative Society to be recognised as a 'State Co-operative Bank'. Thus according to them the proviso in effect expanded the substantive enactment. Mr. Sanghavi submitted that the word or expression defined in the statute must be given its grammatical meaning and there was no warrant to add any words. It was his contention that the expression "carrying on business" should be given its grammatical meaning and there was no scope for reading into the expression that the business should be that of banking. He next cited the decision of the Supreme Court in the matter of R.C. Cooper v. Union of India, in support of his submission that the expression 'banking' did not mean only one type of business. He lastly relied on another decision of the Supreme Court in the matter of The Vanguard Fire and General Insurance Co. Ltd. Madras v. M/s. Fraser and Ross and another, wherein the Supreme Court inter alia held that it is well-settled that all statutory definitions or abbreviations must be read subject to the qualification variously expressed in the definition clause which created them and it may be that even where the definition is exhaustive inasmuch as the word defined is said to mean a certain thing, it is possible for the word to have a somewhat different meaning in different section of the Act depending upon the subject or the context. The Supreme Court therein held that the word 'insurer' as defined in the Insurance Act, 1938, ordinarily meant a person or body corporate carrying on the business of insurance, however, in the context of certain provisions of the said statute would also mean intending insurer or quondam insurer, Mr. Sanghavi relied on this authority in support of his submission that assuming that the expression 'carrying on business' is taken to mean "carrying on banking business" in fact not carrying on 'banking' business was not fatal as that business was intended to be carried on. Dr. Chandrachud relied on the decision of the Supreme Court in the matter of S. Sundaram Pillai v. V.R. Pattabiraman, wherein the Apex Court after referring to its various earlier decisions held that a proviso may serve four different purposes :
"(1) qualifying or excepting certain provisions from the main enactment :
(2) it may entirely change the concept of the intendment of the enactment by insisting on certain mandatory conditions to be fulfilled in order to make the enactment workable :
(3) it may be so embeded in the Act itself as to become an integral part of the enactment and thus acquire the tenor and colour of the substantive enactment itself : and (4) it may be used merely to act as an optional addenda to the enactment with the sole object of explaining the real intendment of the statutory provision."
Dr. Chandrachud next relied on the decision of the Supreme Court in the matter of Dattatraya Govind Mahajan and others v. The State of Maharashtra and another, in support of his submission that in a given case a proviso can be the source of power. It was his submission based on the above decisions that the proviso contained in the said section 2(u) was an integral part of the enactment and thus had acquired the tenor and colour of the substantive enactment itself.
13. The petition proceeds on the basis that the 1st petitioner is the State Co-operative Bank. The assertion is not refuted by any of the respondents. The controversy is qua the 5th respondent being declared also as a State Co-operative Bank. The declaration to that effect is under section 2(u) of the NABARD Act of 1981. In fact that is the only statute which defines State Co-operative Bank and the same definition is adopted by Bk.Reg.Act, when it was further amended by Act 61 of 1981 and came into effect with the establishment of National Bank under the provisions of NABARD Act. There is no dispute that the 1st petitioners have been functioning as the only State Co-operative Bank till the 5th respondent arrived on the scene as a result of the impugned Notification. The said Notification says that it is under section 2(u) of the NABARD Act. The contesting respondents viz., the State Government, the RBI and the 5th respondents have proceeded on the basis that section 2(u) is the source of power which has been legitimately exercised. Although we feel that section 2(u) which only defines "State Co-operative Bank", cannot be the source of power and in effect provides that in a given case there can be more than one State Co-operative Bank, we have proceeded on the basis that section 2(u) is the source of power and on that basis we have closely examined the contentions raised. Section 2(u) provides that the State Co-operative Bank means the Principal Co-operative Society in a State, the primary object of which is the financing of other Co-operative societies in the State. Thus the above first part of section 2(u) lays emphasis on (i) the Co-operative society being the 'principal' Co-operative society and (ii) whose primary object is the financing of other co-operative societies in the State. We are fully conscious of the fact that we have to construe the definition as a whole by taking into consideration the proviso also, but in order to understand the legislative intent, we are splitting the provision in two parts. Now coming to the proviso, it provides that in addition to 'such' principal society in a State or where there is no such principal society in a State the State Government may declare any one or more co-operative societies. Meaning thereby that in addition to or in the absence of a principal society in a State whose primary object is the financing of other Co-operative societies in the State, there can be an additional or more such Co-operative societies. Thus in our opinion all that the proviso does is to provide that there can be one or more State Co-operative Banks. The words 'carrying on business' means that such additional or such principal Co-operative society must be carrying on business, the business being naturally that of banking. It is true that nowhere, neither in the first part nor in the proviso, the word 'banking' is even mentioned. In our opinion the underlying or the basic requirement is that the Principal Co-operative Society must be carrying on the business of banking and its primary object must be to finance other Co-operative Societies in the State. Otherwise how can a society be recognized as the State Co-operative Bank when it is not even functioning as such on the date of such recognition as a Bank nor has the primary object to finance other Co-operative Societies in the State. Coming now to the second requirement regarding functioning of such Co-operative society in the State, Mr. Singhavi drew our attention to the provisions of the Multi-State Act under which in order to become eligible for being registered as such, the main objects of a Co-operative society must be to serve the interest of members in more than one State. He submitted that the scheme of the said Act was such that when the operation of activities of such a society extended to two or more States, it could not be within the overall control of one State unlike a Co-operative society registered under the State Co-operative Act. Therefore, according to him it was inconceivable that a Multi-State Society would be declared as a State Co-operative Bank. Mr. Singhavi further drew our attention to the provisions of section 18 read with section 56(j), and section 24 read with section 56(a)(2)(c) of the Bk.Reg.Act, wherein State Co-operative Bank is referred to as the State Co-operative Bank of the State concerned. On the other hand Mr. Advocate General, Mr. Sanghavi and Dr. Chandrachud submitted that no legal bar existed prohibiting a Multi-State Co-operative Bank. According to them a Multi-State Co-operative Society like the 5th respondent operating also in the State of Maharashtra would amount to "carrying on business in that State". In our opinion, the Co-operative Bank which is recognised as the State Co-operative Bank is required to have as its primary object the object of financing of other Co-operative societies in the State. A Multi-State society cannot fulfill such a condition as it has to have similar objective qua other State or States. To expect it to concentrate only on the Co-operative societies in a State would be impossible. Moreover, the main advantage of being recognised as a State Co-operative Bank would be inter alia that as provided in section 70 of the State Co-operative Act, other societies are required to invest or deposit their funds inter alia with the State Co-operative Bank. It is inconceivable that the State Co-operative Act while referring to the State Co-operative Bank would have in its contemplation a Co-operative Society registered under the Multi-State Act and not under the State Co-operative Act. We, therefore, see considerable force in Mr. Singhavi's submission. The expression State Co-operative Bank appearing in section 2(u) of the NABARD Act, as well as in section 18 read with section 56(j) and section 24 read with section 56(a)(2)(c) of the Bk.Reg.Act. is used alongwith the words, 'in a State' or 'in that State'. Surely the 5th respondent having been registered as a Multi-State Society having its area of operation/activities in Maharashtra as well as Goa cannot be termed as 'a Co-operative Society of the State of Maharashtra'. After giving our anxious consideration to the contentions raised, we are of the view that the 5th respondent having failed to satisfy the twin requirements viz., that of carrying on banking business, and that of being a Co-operative society of the State of Maharashtra, could not have been recognised as the State Co-operative Bank. Interestingly neither the State of Maharashtra nor the 5th respondent brought to light the circumstances and reasons why the 5th respondent and not some other Co-operative Society in fact carrying on business as a Co-operative Bank was thought fit enough to be recognised when, we take it that, there was a compelling genuine need to have an additional State Co-operative Bank. In this view of the matter the impugned Notification dated 30th December 1995 cannot be sustained and requires to be quashed.
14. This brings us to the two impugned directions/orders dated 25th January 1996 and 14th May 1996. In view of our decision to quash the impugned Notification dated 30th December 1995, which is the genesis of these two orders/directions, they cannot survive independently of the Notification. Thus it is not necessary for us to go into the validity or otherwise of these two having come to the conclusion that the impugned Notification requires to be quashed. We may only mention that in fact Mr. Sanghavi for the 5th respondent submitted that these directions had not worked and, therefore, whether they are quashed or not would matter little.
15. We shall now deal with the challenge to the banking licence granted by R.B.I. to the 5th respondent. Mr. Singhavi for the petitioners submitted that the very basis of the grant of licence was the issuance of the impugned Notification by the State Government declaring 5th respondents as a State Co-operative Bank and therefore, when the said Notification was illegal and bad in law, the licence issued on that basis was also illegal and bad in law. He referred us to several statements made in the Affidavit dated 7th October 1996 of Mr. K.V. Subha Rao, especially para 11 and 12 thereof. It was further submitted, relying on para 12 of the said Affidavit, that the grant of licence was under the misconception of law that for a declaration under the proviso to section 2(u) of the NABARD Act it was not necessary that the concerned Co-operative Society should be carrying on business of banking. It was further submitted by him that the R.B.I. had not applied its mind at all to all the relevant circumstances, more particularly the factors mentioned in sub-section (3) of section 22 of the Bk.Reg.Act, and that was evident from the fact that all throughout R.B.I. had taken the decision not to have additional Apex/State Co-operative Bank but to improve the working of the existing Banks by adopting remedial measures. It was lastly submitted by Mr. Singhvi that R.B.I had in fact earlier by its letter dated 13th April 1994 rightly refused to grant licence to the 5th respondent and that only because of the 5th respondent had been recognised as State Co-operative Bank that the R.B.I. changed its stand and granted the licence. Dr. Chandrachud on the other hand submitted that in view of the designation of the 5th respondent as State Co-operative Bank by the State Government's impugned notification, the 5th respondent could have been and validly considered by R.B.I. as eligible for grant of licence under section 22 of the Bk.Reg.Act, and thus R.B.I. in the exercise of its statutory discretion and power under section 22 of the Bk.Reg.Act granted licence to the 5th respondent. It was further submitted that the Multi-State Co-operative Society can validly be regarded as State Co-operative Bank and that in any event the exercise of the licencing power under section 22 of the Bk.Reg.Act in the present case can be independently sustained irrespective of the legality or validity of the impugned Notification. It was lastly submitted by him that in any view of the matter R.B.I. had in exercise of its expert statutory discretion granted a licence to the 5th respondent and that in matters of economic and financial policy involving R.B.I. the Court would normally defer to the administrative decision of the R.B.I. In support of his last submission Dr. Chandrachud cited three decisions of the Supreme Court. The first was in the matter of Peerless General Financial and Investment Company v. R.B.I., . The second was in the matter of L.I.C. v. Escorts, and the last was in the matter of Joseph Velukunnel v. R.B.I., . It was also submitted by him that the conduct of the petitioners showed that what they opposed was not setting up of a State level Urban Co-operative Bank, as they supported registration of the 6th respondent, but setting up of the 5th respondent. This was thus an abuse of process and the writ Court proceeding under Article 226 of the Constitution of India should not be allowed to be used by a rival Co-operative institution in this manner. He lastly submitted that R.B.I. had expressly denied all allegations of mala fides in its said affidavit in reply and that as the learned Counsel for the petitioners had fairly not pressed the case of mala fides, in the absence of mala fides, the decision of the R.B.I. should be allowed to stand. In this regard Dr. Chandrachud relied on the decision of the Supreme Court in the matter of G.B. Mahajan v. Jalgaon Municipal Council, and the decision in the matter of Tata Cellular v. Union of India, , wherein the Supreme Court has followed the test of 'Vednesbury Unreasonableness' and had held that a decision of an administrative nature would be liable to be quashed only if it is one which no public authority acting reasonably could have reached and, therefore, according to Dr. Chandrachud, the challenge by the petitioners could not be sustained under this rule. Mr. Sanghavi appearing for the 5th respondent drew our attention to the subsequent events which have taken place after the grant of licence of .R.B.I. to them. He in fact drew our attention to the affidavit of the 5th respondent dated 7th October 1996 filed in this Court wherein inter alia the 5th respondent has stated the substantial business the 5th respondent has done on being granted licence and, therefore, he submitted that passing any order adverse to the interests of the 5th respondent would severely prejudice the 5th respondent.
16. Taking the last submission of Dr. Chandrachud first viz., non-interference by the Court in the policy decisions of R.B.I. and the application of the test of' Vednesbury Unreasonableness' , we cannot possibly have any quarrel with the said proposition of law. However, in the instant case the grant of licence, viz., an administrative act of R.B.I. is challenged requiring us to scrutinize whether the same has been done as per law or not. The R.B.I. entered the picture when the promoter of the 5th respondent approached it with the proposal for a separate Apex Co-operative Bank for the Urban Co-operative Banks from Maharashtra and Goa. The R.B.I. by its letter dated 13th April 1994 put it on record that the proposed Bank was required to be got registered under the Multi-State Act since its area of operation extended beyond the boundaries of a State and as such it would not be Co-operative Bank as defined under the Bk. Reg. Act and as amendments to the Bk. Reg. Act were considered necessary, the Government of India had already been apprised of the amendments needed in the context of the establishment of National Co-operative Bank registered under the Multi-State Act. Therefore, the promoter of the 5th respondent was directed to approach R.B.I. only after needed legislative amendments were carried out by the Government of India. Further, by its letter dated 20th May 1994 the R.B.I. in the meanwhile expressed its agreement in principle for registration of the 5th respondent subject to the compliance with certain stipulations set out therein. Thus the R.B.I. expressed its inability to grant licence to the 5th respondent being Multi-State Society. R.B.I. has in its affidavit filed in this Court, although supporting the State Government and the 5th respondent that the Multi State Co-operative Society registered under the Multi State Act, i.e. the 5th respondent was validly declared as State Co-operative Bank under section 2(u) of the NABARD Act, has in fact stated in para 11 at page 10 as follows :
"After Apex Co-operative Bank of Urban banks of Maharashtra and Goa Ltd., (respondent No. 5) was thus registered as a Multi State Co-operative Society, it approached the Maharashtra State Government for being declared as a State Co-operative Bank under the NABARD Act, 1981. This request of respondent No. 5 was acceded to by the State Government of Maharashtra and accordingly, a notification dated 30th December 1995 was issued by the Government of Maharashtra in terms of section 2(u) of NABARD Act, 1981 declaring the "Apex Co-operative Bank for Urban Banks of Maharashtra and Goa Ltd., Bombay" as a State Co-operative Bank. With the issue of this notification, respondent No. 5 became a co-operative Bank as defined in section 56(o) of the Act (Bk. Reg. Act). "Accordingly, the Reserve Bank, on the basis of that notification issued by the State of Maharashtra, granted a licence to respondent No. 5 vide its order dated 22nd March 1996, for carrying on the business of banking in the State of Maharashtra and Goa."
Further in para 12(i) on page 11, it is stated :
"Once a Co-operative Society was declared as a State Co-operative Bank by the Maharashtra State Government, it also became eligible to be considered for grant of licence under section 22 of the B.R. Act, to carry on the business of banking as such Bank".
In para 12(v) at page 13, it has been stated :
"I say that R.B.I. did not commit any impropriety in granting licence to respondent No. 5 as in the considered opinion of R.B.I. after respondent No. 5 was declared as yet another State Co-operative Bank by Government of Maharashtra on 30th December 1995, no legal impediment remained in granting licence to it as a State Co-operative Bank".
At several other places also such statements are made to the effect that on being recognised as State Co-operative Bank, the 5th respondent became eligible to be considered. In fact an impression which is created is as if that was the only consideration which weighed with the R.B.I. Relying on the above statements made in R.B.I.'s affidavit Mr. Singhavi submitted that the declaration in respect of the 5th respondent under section 2(u) of the NABARD Act being illegal and bad in law, which Notification was the very foundation of grant of licence by R.B.I., the R.B.I. licence also would fall to the ground. Dr. Chandrachud on the other hand after taking us through the said affidavit wherein R.B.I. has set out the reasons for giving licence in favour of the 5th respondent, referred to us the statement made in the affidavit in reply, particularly in paragraphs 7, 8, 9 and 12(viii). Therein R.B.I. has set out the circumstances in which it considered, as a matter of financial and economic policy, necessary that the 5th respondent be licenced. It was submitted relying on the said Affidavit that problems faced by the Urban Banks had been closely gone into by the Standing Advisory Committee for Urban Co-operative Banks which Banks had a serious grievance. In, view of these circumstances, the licence in question was granted. He also drew our attention to a specific averment made in para 12(vii) of the said affidavit to the effect "I respectfully submit that the licence was issued to respondent No. 5 bona fide in the routine manner in exercise of power under section 22 of the B.R. Act, 1949....."
Thus it was his submission that this statement was made as in fact R.B.I. had scrutinised the application of the 5th respondent for licence as required in law by complying with the provisions of sub-section (3) of section 22 of the Bk. Reg. Act. In our opinion we agree with Dr. Chandrachud that as indicated above in respect of policy matters of R.B.I. this Court cannot go into and, therefore, it is for the R.B.I. to decide whether there is any need to give licence to any additional Co-operative Society to function as a Banking Co-operative Society or not. However, if the stand of R.B.I. is that only because the State Government declared the 5th respondent as additional State Co-operative Bank by the impugned notification that they have without going into the merits of the 5th respondent's application granted the licence, then such a licence cannot stand the scrutiny of this Court. However, the facts as disclosed on the affidavit also show that apart from this factor being considered, the R.B.I. had also gone into the merits of the 5th respondent's application and then only granted banking licence. In these circumstances, it would be wrong on our part to accede to the submission made by Mr. Singhavi and quash and set aside the said licence. It would be in fitness of things that since R.B.I. had taken issuance of impugned Notification also into consideration while granting licence, that the R.B.I. is required to review its decision under which the licence has been granted to the 5th respondent in the light of our holding that the Impugned Notification for the reasons and circumstances set out hereinabove is illegal and bad in law and is required to be quashed.
17. As a result of the above discussion, and for the reasons mentioned hereinabove the impugned Notification dated 30th December 1995 is quashed and set aside. The impugned order/directions dated 25th January 1996 and 14th May 1996 are also quashed and set aside. As far as the impugned banking licence dated 22nd March 1996 granted by R.B.I. in favour of the 5th respondent is concerned, we direct the R.B.I. to review its decision of granting licence in favour of the 5th respondent in the light of our order quashing and setting aside the impugned Notification dated 30th December 1995, Such review to be completed by 31st March 1997 and fresh decision to be taken after giving reasonable opportunity to the 5th respondent to be heard. Till then, the licence dated 22nd March 1996 to remain operative.
18. Petition thus made absolute in terms of prayers (a)(i), (a)(ii) and (aa) only to the extent of the General Circular dated 14th May 1996 issued by the 2nd respondent. Rule thus partly made absolute. No order as to costs.
The above order is stayed for a period of six weeks.
Petition partly allowed.