In a recent case, the Kerala High Court held that the cooperative banks engaged in banking activity are subject to the overall control of the Reserve Bank of India.  The writ petition was filed by M. Saidalavi Master and other 93 individuals stated to be Presidents of Primary Agricultural Credit Societies and Urban Co-operative Banks which were members of the Malappuram District Co-operative Bank and they challenge the constitutional validity of Section 14A of the Kerala Co-operative Societies Act, 1969 and also the provisions of Section 74H of this Act as amended by the Kerala Co-operative Societies (Amendment) Act, 2021.  The petition also challenge to the order passed by the Registrar of Co-operative Societies in terms of the provisions contained in Section 74H of the Kerala Co-operative Societies Act amalgamating the Malappuram District Co-operative Bank with the Kerala State Co-operative Bank.

George Poonthottam, the counsel for the petitioner contended that in the case of the Malappuram District Co-operative Bank, two general body meetings were held after the incorporation of Section 14A of the Kerala Co-operative Societies Act, and the proposal for amalgamation was defeated by two-thirds majority, and therefore, even a simple majority contemplated by the provisions of Section 14A of the Kerala Co-operative Societies Act could not be achieved.  Also submitted that Malappuram District Co-operative Bank is covered under the provisions of the Deposit Insurance and Credit Guarantee Corporation Act, 1961 ( DICGC Act) and thus guaranteed to its depositors protection as contemplated by the provisions of the said Act in respect of deposits maintained by customers.  Section 74A of the Kerala Co-operative Societies Act states that an order for merger/amalgamation, winding up or re-construction, or order sanctioning the scheme of compromise or arrangement of an insured Co-operative Bank shall be made only with the previous sanction in writing of the Reserve Bank of India.

K. Gopalakrishna Kurup, the counsel for the Co-operative department contended that no ground to contend that any provision of the Kerala Co-operative Societies Act providing for the amalgamation of a District Co-operative Bank with the Kerala State Co-operative Bank without the sanction in writing of the Reserve Bank of India would be unconstitutional.  Sumathi Dandapani, the counsel for the Reserve Bank of India contended that the provisions of the circular make it clear that the merger and amalgamation of a District Co-operative Bank with the State Co-operative Bank had to be sanctioned by the Reserve Bank of India in terms of the provisions contained in Section 44A of the Kerala Co-operative Societies Act.  The Bench observed that Co-operative Societies are engaged in the business of banking, they should be subjected to the control of the Reserve Bank of India under the Banking Regulation Act, 1949.

Also, Section 36 of the Banking Regulation Act in Part IIA and other enabling provisions of the Banking Regulation Act providing for control over management and all other powers of the Banking Regulation Act permitting the Reserve Bank to intervene in the affairs of a banking company would extend to Co-operative Banks and this was a sufficient safeguard to ensure that Co-operative Banks engaged in banking activity are subject to the overall control of the Reserve Bank of India.  A single-member bench Gopinath P held that Sections 14A and 74-H of the Kerala Co-operative Societies Act are not unconstitutional and beyond the legislative competence of the State Legislature cannot be granted.