Madhya Pradesh High Court stays RBI circular on appointment of MD/CEOs of Primary (Urban) Co-operative Banks

The Madhya Pradesh High Court on Friday stayed the operation of a Reserve Bank of India (RBI) circular directing primary (urban) co-operative banks to appoint Managing Directors/Chief Executive Officers as per the eligibility criteria prescribed by RBI (Mahanagar Nagrik Sahakari Bank Maryadit v. Union of India)..Notice was issued by the Bench of Chief Justice Mohammad Rafiq and Justice Vijay Kumar Shukla in a writ petition challenging the constitutionality of the Banking Regulation (Amendment) Act, 2020, as well as the said RBI circular..The circular dated June 25, 2021 had also called for the banks to remove/terminate all such MDs and CEOs who are not fit and proper as per the said circular..The present petition was filed on the ground that Section 4 of Banking Regulation (Amendment) Act, 2020, which amends Section 56 of the Banking Regulation Act, 1949 (banking laws for co-operative societies), is ultra vires the Constitution. The amendment is to the effect that provisions of the Banking Regulation Act, 1949, which touch upon the management, control, regulation and working of banking companies, are also made applicable to co-operative societies doing the business of banking.It is also alleged that the RBI circular relating to appointment of MDs/CEOs in primary (urban) co-operative banks is also ultra vires the Constitution..Counsel for the petitioner contended that incorporation, regulation and winding up of co-operative societies is a State subject under Entry 32 of the State List, and there is a specific exclusion of the same from the Union List at Entry 43..It was also contended that Parliament has competence only to legislate in relation to ‘Banking’ as provided in Entry 45 of List I of the Constitution, and that previously in 1966, the provisions of Banking Regulation Act, 1949 were made applicable to co-operative banks which related to banking activity and the provisions which touched ‘incorporation, regulation and winding up’ of the Constitution of India were kept in omission..Further, when Part IX-B (Co-operative Societies) was inserted in Constitution, all the provisions of Banking Regulation Act, 1949 were made applicable to all such co-operative societies doing the business of banking.In this background, Parliament passed the Banking Regulation (Amendment) Act, 2020, by which all provisions touching upon ‘incorporation, regulation and winding up’ were also made applicable to co-operative banks. It was contended that Parliament did not have competence to legislate on the same, as it was a State subject under Entry 32 of List II..The counsel also directed the attention of the Court to the Supreme Court's judgment in Union of India v. Rajendra N Shah, which struck down Article 243ZL along with Part IXB of the Constitution, by which basis promulgating the Banking Regulation (Amendment) Act, 2020 was also struck down..After hearing the arguments, the Court issued notice and stayed the effect and operation of the RBI's June 25 circular..Advocates Ajay Gupta Ravikant Patidar and Milind Sharma appeared for the petitioner. Assistant Solicitor General JK Jain, appeared for the Central government and RBI. Additional Advocate General Pushpendra Yadav appeared for the State of Madhya Pradesh..[Read Order]