All you need to know about #Demonetisation and District Co-op Banks in the Supreme Court

One significant fall-out of the de-monetisation move by the Centre is the fate of district co-operative banks. In certain States in south and west India, these banks play a major role in rural areas, particularly amongst the agricultural community..Since the de-monetisation of Rs. 500 and Rs. 1000 notes on November 8, the position as regards co-operative banks has been far from clear..On November 8, the same day that the demonetisation notification [pdf] was published by the Ministry of Finance under S.26 of the Reserve Bank of India Act, 1934, the RBI issued a circular [pdf] laying down the manner in which the demonetisation process would take place..Under the RBI’s circular, the banks that could exchange old notes as well as accept deposits in old notes included Urban Cooperative Banks and State Cooperative Banks. However, District Cooperative Banks did not find any mention in this list..However, the very next day, the Union of India (via the Ministry of Finance) published a corrigendum [pdf], adding these banks to the fold..Then, a fresh circular was issued by the RBI..On November 14, for reasons that are not quite clear, the RBI issued a circular prohibiting district co-op banks [pdf] from either exchanging old notes, or from accepting deposits made in the old notes. Besides these, various co-operative societies have refused to transact based on what they claim to be oral instructions..It has now led to a series of petitions in High Courts and Supreme Court. Some of the important cases filed in this regard are given below..Supreme Court.From Tamil Nadu.One of the first petitions was filed by NK Kumar from Tamil Nadu, a farmer having a savings account in a co-operative society. The District Central Co-operative Bank (DCCB), Villupuram is the controlling authority of the co-operative society..Kumar’s grievance is that he was not allowed to withdraw money from his account since the DCCB gave oral instructions to the society not to disburse or receive any amount from the members until further orders..In a petition drawn by advocate MP Parthiban and filed by advocate TRB Sivakumar, the petitioner has stated the following:.“The petitioner herein approached the 5th respondent on 11.11.2016 to withdraw a sum of Rs. 4000/- through withdrawal slip.. But the 5th respondent refused to issue the withdrawal slip or refused to pay the amount under the guise that the 4th respondent issued oral instructions not to disburse or receive any amount from the members until further orders. .When the petitioner demanded the 5th respondent to given it in writing he refused to do so. Subsequently, the petitioner is suffering and wandering for money to meet out day to day basic expenditures to purchase rice and vegetables but he could not do so and also to conduct day to day agricultural activities.”.Kumar has further submitted that the Registrar of Co-operative Societies sent a letter to all DCCBs on November 12 directing that all transactions by co-operative societies be restricted..Kumar has then referred to the November 14 circular by RBI. His contention is that it has only barred exchange of demonetised note and not transactions like withdrawal of money..“The Respondent No.2 sent another communication dated 14.11.2016 to all the Banks stating that DCCB,s are allowed to transact and allow their customer to withdraw the amount from their respective account but they cannot exchange the demonitised notes..”.He has, therefore, sought a direction to be issued to the respondents to allow the co-operative societies to do banking transactions to the extent of allowing its customers to withdraw money from their saving accounts..From Kerala.This petition, filed by seven District Co-operative banks in the State, has assumed a big political colour in Kerala..The petitioners in this case are aggrieved by the alleged discrimination meted out to DCCB’s vis-à-vis other similarly situated Banks and Financial Institutions..In a petition filed through advocate MT George, the petitioners have contended that,.“The impugned notifications, which seek to ex facie discriminate the Petitioner Banks without their being any reasonable and intelligible classification is violative of the mandate of Article 14 of the Constitution of India”..The petitioners have also contended violation of Article 19(1)(g) on the ground that the impugned notifications pose grave threat to the continuance of their business..“..the impugned notifications severely cripple and hamper the business / banking activities being carried out by the Petitioner Banks thereby posing a grave threat to the very continuance and sustainability of these decades-old Institutions. …. In addition thereto, the policy decision as emanated in the impugned notifications is anti-competitive; violative of the spirit of the Constitution and unfairly seeks to promote the interests of certain Banks and Financial Institutions to the detriment of the Petitioner Banks.”.Regarding the November 8 notification, the petitioner has stated that it was, initially, not made applicable to DCCB’s. However, on a clarification sought by them, the RBI clarified that DCCB’s would be allowed to accept the Rs. 500 and Rs. 1000 notes from their customers for credit into their respective accounts, which were KYC compliant. However, they were still not permitted to offer any exchange facility in respect of those notes..Subsequently, by a letter dated November 14, RBI informed all the Banks that the DCCB’s could permit their customers to withdraw money from their accounts upto Rs. 24,000/- per week upto November, 2016. However, neither any exchange facility of the Specified Bank Notes nor any deposit of such notes was to be entertained by them..The petitioners have, therefore prayed for quashing the notification of November 8 and the letter of November 14,.“in so far as it does not permit the Petitioner District Co-operative Banks from being permitted to carry out those functions as permitted in Paragraph 2 of the Notification dated 08.11.2016 to other license holders in banking”.Bombay High Court.Two co-operative banks moved the Bombay High Court challenging the restrictions placed on co-operative banks by way of the November 14 circular..The Mumbai Co-operative Bank’s petition reads,.“[The RBI] does not have the authority to impose any fetters upon a notification issued under section 26; nor can it restrict or enlarge the scope of any such notification.”.The petition also states that the circular is violative of Article 14 of the Constitution as it,.“[S]ingles out district central co-operative banks and disallows them from doing any of the acts set out in paragraph 2 of the primary notification.”.Moreover, the petition highlights the fact that many hospitals, petrol pumps, medical stores, schools, etc. maintain accounts with the petitioner. Due to the impugned circular, they will not be able to deposit any of the discontinued currency notes in their possession..When the petition was heard on November 24, the hearing revolved around the Centre’s transfer petition in Supreme Court. The Supreme Court had issued notice in the matter but had refused to grant any stay. However, the refusal to grant stay was an oral observation and there was no express refusal to that effect in the Supreme Court order..Taking note of the Supreme Court order, the High Court repeatedly said that “propriety” demanded the matter be deferred unless a clarification was issued. Interestingly, the Central government flew in additional Solicitor General Maninder Singh to Bombay for the matter..Centre’s stand on co-operative banks.Besides the above petitions, notices from the Supreme Court have also gone to various other petitioners in different High Courts. This was a result of the transfer petition filed by Centre in Supreme Court seeking transfer of all cases relating to de-monetisation to one court..When the matter came up for hearing yesterday, Senior Advocate CU Singh made his submissions for some co-operative banks from Maharashtra. Attorney General Mukul Rohatgi responded by saying that the co-operative banks have been classified separately because they do not have the necessary infrastructure or technological facilities at par with scheduled banks..The Court remarked that the issue is genuine and needs to be considered..All these cases would now be taken up on December 5 i.e. coming Monday at 2 pm.