Few cooperative banking disputes in Bengal have run as long as this one. The Registrar of Cooperative Societies ordered Pranabananda Cooperative Bank wound up on 6 August 2002. Twenty-four years, a tribunal order and a single judge's dismissal later, a Division Bench of the Calcutta High Court has set the whole chain aside, sending the society back to where it stood before the Registrar ever acted against it.
The bank's troubles started when it sought a banking licence under Section 22 of the Banking Regulation Act, 1949, having already been included in the Reserve Bank's list of primary cooperative banks in 1996. The RBI inspected its books, found serious financial and regulatory shortcomings, and refused the licence on 25 January 2001. It then asked the Registrar to act. The Registrar, invoking the West Bengal Cooperative Societies Act, 1983, ordered the society wound up the following year and appointed a liquidator to take charge of its affairs.
Appellants fought the order through every available forum, and lost at each stage before this appeal. A tribunal confirmed the winding-up on 4 October 2016. A single judge of the High Court dismissed their writ petition on 4 June 2018, treating the RBI's own inspection findings as sufficient basis for the Registrar's order. On the face of that history, the Division Bench had little reason to disturb a decision that three separate authorities had already endorsed.
It disturbed it anyway, on a ground that goes to the root of fair procedure rather than to the merits of the bank's financial health. Section 92 of the 1983 Act contemplates an inspection before coercive action of this kind is taken against a cooperative society, and an inspection had indeed been carried out. What had not happened, on the record before the Bench, was service of that inspection report on the society or its office-bearers before the winding-up order followed. An order with civil consequences as severe as the extinction of a banking entity cannot be passed on the back of a report the affected party was never shown, whatever the report said and however compelling RBI's own findings might independently have been.
The Bench went further than faulting the paperwork. It held that the RBI's recommendation to wind up the society did not relieve the Registrar of following the procedure the cooperative societies law itself lays down. A regulator's request for action, however well founded, is not a substitute for the statutory process that protects the regulated entity's right to be heard before that action is taken. That is a point with some bite in Indian banking regulation, where state-level cooperative registrars often act on RBI's prompting without independently working through the procedural safeguards built into their own cooperative legislation.
There was a second, more pointed finding on the liquidator himself. Once appointed, the liquidator had effectively become the forum before which the society's challenge to his own appointment would have had to be mounted, since he controlled the wound-up entity's affairs going forward. The Bench was unwilling to accept an arrangement that made the liquidator a judge in his own cause, a problem it summed up as an appeal running from Caesar to Caesar's wife rather than to anyone genuinely independent of the dispute.
The relief granted is narrower than a simple reversal of fortune for the bank's erstwhile management. The winding-up order, the 2016 tribunal order and the 2018 single judge judgment are all set aside, and the society may be revived, but only as a cooperative credit society. It cannot resume business as a cooperative bank, since the licence refusal that triggered the entire chain of events was never itself under challenge in this appeal. The ruling corrects the process by which the society was wound up without rehabilitating it as a banking entity.
For registrars and liquidators handling distressed cooperative banks elsewhere, the case is a reminder that speed in protecting depositors cannot come at the cost of the hearing rights built into cooperative societies legislation. An inspection conducted but never disclosed to the party it concerns will not support an order as drastic as winding-up, no matter how many years pass before anyone notices the gap, and twenty-four years evidently was not too long for this one to be noticed.