RBI Can Keep a Co-operative Bank Board Superseded Beyond Its Term: Supreme Court on Section 36AAA and Article 243ZL

Case at a glance: The Supreme Court has held that RBI’s power to supersede the board of a multi-State co-operative bank under Section 36AAA of the Banking Regulation Act is not limited by the six-month cap in Article 243ZL(1), and that supersession can be extended beyond the term for which the board was elected, subject to the statute’s five-year aggregate cap.

The bank began as a Maharashtra co-operative society, became a bank in 1965 and, after amalgamations, a multi-State co-operative bank. The appellants were elected to its board in May 2019 for five years. On 24.11.2023 RBI superseded the board for one year under Section 36AAA, citing deteriorating financial health and depositor protection, and appointed an Administrator. The board’s term would have ended on 24.05.2024.

The Bombay High Court dismissed the directors’ challenge on 18.11.2024, the same day RBI extended the supersession. A third order of 07.11.2025 extended it again. Before the Supreme Court, the directors argued that supersession cannot outlast the board’s tenure and is ultra vires Articles 243ZL and 243ZT; RBI relied on Section 36AAA(7) and the Constitution Bench ruling in Pandurang Ganpati Chaugule, (2020) 05 SC CK 0002.

The Key Question Before the Court

Is RBI’s supersession power over a multi-State co-operative bank bound by the six-month limit in Article 243ZL(1), and can supersession continue beyond the elected board’s term?

Reading Part IXB With the Banking Regulation Act

The Court held that the third proviso to Article 243ZL(1), which says the BR Act “shall also apply”, operates as an independent provision bringing the BR Act into Part IXB, and that the fourth proviso’s exclusion of multi-State societies from its one-year extension presupposes that they are otherwise covered. A purposive reading supporting depositor protection led to the conclusion that the power “is not circumscribed by the 6-month limit prescribed in Article 243ZL(1)”.

On tenure, the Court reasoned that once a board is superseded it ceases to exist and its powers vest in the Administrator, so the original tenure is of no consequence. Section 36AAA(7) fixes when elections must be held and the five-year aggregate cap prevents indefinite deferral. The consultation proviso applies only to banks registered with a State, so it did not help a multi-State bank.

What the Court Actually Held

• RBI’s power under Section 36AAA(1) is not limited by the six-month cap in Article 243ZL(1).
• Supersession can be extended beyond the term for which the board was originally elected.
• The five-year aggregate cap in Section 36AAA limits the power.
• The appeals were dismissed and the Bombay High Court judgment upheld.

Why This Judgment Matters

• It clarifies the interplay between Part IXB of the Constitution and RBI’s banking powers.
• It confirms that depositor protection can justify prolonged supersession within statutory limits.
• It narrows the consultation requirement to State-registered co-operative banks.

What Should Advocates Take Away From the Judgment?

For Co-operative Bank Directors

• Challenges based only on expiry of the board’s term are unlikely to succeed.
• Focus on the statutory five-year cap and the grounds for supersession.

For Regulators and Depositors

• Supersession orders may be extended in tranches within Section 36AAA.
• Elections follow the timing in Section 36AAA(7).

Key Takeaways

Frequently Asked Questions

A multi-State co-operative bank originally registered in Maharashtra; the judgment refers to it as the Bank.

No. The Court relied on the five-year aggregate cap in Section 36AAA.

No. That proviso applies only to co-operative banks registered with a State.

Conclusion

Read the full judgment on CourtKutchehry: View judgment →