Cooperative banks come under SARFAESI Act: SC

Judgment ends the “malady of inordinate delay” in recovery of dues

The Supreme Court on Tuesday held that cooperative banks established under a State law or multi-State level societies come within the ambit of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act of 2002.

The Act prescribes a procedure for faster recovery of dues.

“Parliament has legislative competence to provide additional procedures for recovery under Section 13 of the Act with respect to cooperative banks,” the 159-page judgment by a Constitution Bench led by Justice Arun Mishra observed.

The reference to the question of law on the applicability of the 2002 Act in the co-operative banking sector was made to the Constitution Bench in 2016.

A court held that recovery was an essential part of banking. Co-operative banks come within the definition of “Banking Company” under the Banking Regulation Act, 1949.

“We are of the opinion that recovery of dues would be an essential function of any banking institution and Parliament can enact a law as the activity of banking done by cooperative banks is within the purview of Entry 45 of List I,” the judgment said.

The judgment has remedied the “malady of inordinate delay” in recovery of dues through civil courts and cooperative tribunals. By declaring that the banks would come under the purview of the SARFAESI Act, the apex court has put a judicial stamp on the quicker recovery of dues by these banks.

The court rejected the contention that Parliament cannot prescribe recovery procedures and that is within the domain of the States’ legislatures.

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Printable version | May 28, 2020 11:43:32 PM |

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