Supreme Court rules judgment that the “Cooperative Banks come under SARFAESI Act”

It aims to boost the cooperative banks that play a vital role in financial inclusion

• The Supreme Court has held that cooperative banks established under a State law
  or multi-State level societies come within the ambit of the SARFAESI Act of 2002
• SC ruled that the Parliament has legislative competence to provide additional
  procedures for recovery under Section 13 of the Act with respect to cooperative banks
• The 159 page judgment was ruled by a Constitution Bench led by Justice Arun
  Mishra in Supreme Court

Key findings of the Judgment

• The move by the apex court aims to boost the cooperative banks that play a vital
  role in financial inclusion across large swathes of India. The cooperative banks come under the category of banks as defined under Section
  2(1)(c) of the SARFAESI Act
• Hence, the recovery procedures mentioned under the law will be applied to the
  cooperative banks as well
• Under SARFAESI Act, the secured creditors can take possession of the assets of a
  borrower who fails to pay dues within 60 days of demanding repayment
• The judgment stated that cooperative banks were bound by the provisions of the
  Banking Regulation Act, 1949, and all the other legislation applicable to banks under
  the RBI Act
• Now, the cooperative banks will have to comply with these rules
• Cooperative banks will now be involved in banking activities that are covered u/s
  5(c) & 56(a) of the Banking Regulation Act
• As per the Reserve Bank of India (RBI) report, as of 31 March 2018, there are 1,551
  urban cooperative banks (UCBs), and 96,612 rural cooperative banks (as on 31 March
  2017)
• The rural cooperative banks account for 65.8% of the total asset size of all
  cooperative banks

Aim of SC on its ruling

• Prior to this, cooperative banks had to approach civil court or tribunals for recovery
  of dues. The SARFAESI Act brought a procedure through which recoveries could be
  made by banks without the intervention of the court or tribunal
• The apex court’s judgment notes that the aim behind this move was to remove the
  delays caused by going through the civil court or summary procedure under the
  Cooperative Societies Act
• It’s permissible for the Parliament to enact the law to provide recovery procedures
  for bank dues that have been done by providing speedy recovery of secured interest
  without intervention of the court or tribunal

What is “Securitization and Reconstruction of Financial Assets
and Enforcement of Securities Interest Act, 2002 (SARFAESI)”?

• It allows banks and other financial institution to auction residential or commercial
  properties (of Defaulter) to recover loans
• The first asset reconstruction company (ARC) of India, ARCIL, was set up under
  this act
• Under this act secured creditors (banks or financial institutions) have many rights
  for enforcement of security interest under section 13 of SARFAESI Act, 2002
• If borrower of financial assistance makes any default in repayment of loan or any
  installment and his account is classified as Non-performing Asset by secured creditor,
  then secured creditor may require before expiry of period of limitation by written
  notice

Pic courtesy : thehindu.com