The Supreme Court has upheld the Reserve Bank of India's continued supersession of the board of the Abhyudaya Co-operative Bank, rejecting the argument that RBI's supersession power under Section 36AAA of the Banking Regulation Act, 1949 is constrained by the six-month outer limit that Article 243ZL(1) of the Constitution places on the supersession of elected co-operative bodies.
The petitioners, former board members of the multi-State co-operative bank, argued that once RBI superseded the elected board and appointed an administrator, the constitutional cap on supersession of co-operative societies' elected bodies under Article 243ZL(1) should apply with equal force, capping the intervention at six months absent fresh justification. The Supreme Court disagreed, holding that Section 36AAA operates as a distinct statutory power targeted specifically at banking regulation and depositor protection, and is not read down or displaced by the constitutional provision governing the general run of co-operative societies. The Court held the relevant outer limit is instead the statutory ceiling of five years built into the banking regulation framework itself.
The Bench further rejected the contention that RBI was required to consult the concerned State government before superseding or continuing to supersede the board, holding that no such consultation is a precondition to the exercise of RBI's power under Section 36AAA. The ruling leaves RBI with what the Court characterised as a wide, largely unfettered supervisory hand to keep a troubled multi-State co-operative bank's management under central administration for as long as the resolution process reasonably requires, subject only to the five-year statutory ceiling.
The decision arose against the backdrop of Abhyudaya Co-operative Bank's prolonged financial resolution process, during which RBI had kept the bank's elected board superseded well beyond the initial period the petitioners argued should have triggered a fresh election or restoration of elected governance.