Madras High Court says REPCO Bank is not a "Bank"

The Madras High Court bench said that there is no doubt that the respondent is a multi-state co-operative society, but a multi-state co-operative society need not be a multi-state co-operative bank despite being given an exemption to use a bank in its name

In an interesting case, the Madras High Court (HC) recently ruled that a bank is not actually a bank.

After hearing arguments from all sides in the SP Ganesh v. The Authorised Officer, REPCO case, the HC concluded that the Repatriates Cooperative Finance and Development Bank Limited (REPCO) is not a "bank" or a "secured creditor" and hence is ineligible to invoke the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest (SARFAESI) Act, 2002.

A bench of Chief Justice Sanjib Banerjee and Justice Senthilkumar Ramamoorthy passed the ruling on a writ petition filed by a borrower who had failed to repay his dues to REPCO, because of which REPCO had issued notices for taking possession of his secured assets under Section 13 of the SARFAESI Act.

The borrower, in his writ petition, contended that REPCO could not have invoked the SARFAESI Act since it is neither a bank not a secured creditor.

"Whatever the business of the respondent (REPCO) may have blossomed to, it cannot be regarded as a bank. No banking business is undertaken in this country without obtaining a license from the Reserve Bank," the Court held while finding merit in the petitioner's contention.

The Reserve Bank of India (RBI) affidavit came in handy for the Court while disposing of the case at hand. RBI had submitted that the REPCO Bank is not a bank within the meaning of the Banking Regulation Act, 1949. The RBI further submitted that:

⦁ The RBI has not issued any banking license to REPCO Bank;

⦁ The REPCO was originally registered under the Madras Cooperative Societies Act, 1961 as a co-operative society;

⦁ REPCO is deemed to be registered under the Multi-State Co-operative Societies Act, 2002 as a multi-state cooperative society;

⦁ REPCO has not been issued a banking license by the RBI and does not come under the regulatory purview of Reserve Bank of India;

⦁ REPCO comes under the administrative control of the Ministry of Home Affairs, Government of India and was regulated by the Central Registrar of Co-operative Societies;

⦁ On March 26, 2014, the RBI issued an order by which the Central Registrar instructed all multi-state co-operative societies to discontinue accepting deposits from nominal members "as this is construed as acceptance of deposits from public and carrying out banking activities."

The REPCO through its lawyers - Senior counsel Om Prakash and Advocate A Ilangovan - contended that it had been conferred the status of a bank around 1969. REPCO recounted that it was established initially to look into the rehabilitation of repatriates from then Ceylon, Burma and Vietnam. At that point, it was involved in carrying out welfare schemes to help these repatriates.

REPCO further stated that it entered into full-fledged financial activities to cater to the needs and rehabilitation of repatriates in 1982 and ventured into accepting deposits and lending loads in terms of the provisions of the Multi-State Co-operative Societies Act, 2002.

REPCO informed the HC that it has made an application for a regular banking licence before the RBI, which is under consideration. The bench noted that it showed that REPCO did not have a banking licence currently.

"Implicit in such reference is the admission that the license has not yet been granted," the Court said and added that there is no doubt that the respondent is a multi-state co-operative society, but a multi-state co-operative society need not be a multi-state co-operative bank.

The HC further noted that a 1972 notification issued by the Centre which had allowed REPCO to continue using the word "Bank" in its name also did not play in favour of its claim to being a "bank." It opined that the 1972 notification recognised that REPCO was not a bank, but granted an exemption.

The HC pointed out that the same notification had prohibited REPCO from accepting deposits of money from the public.

"The respondent cannot be regarded as a bank or a secured creditor within the meaning of the relevant word and expression in the Act of 2002. As a consequence, the respondent cannot resort to any of the measures indicated in the said Act, whether under Section 13 thereof or otherwise," the Court ruled and quashed the notices issued by REPCO under the SARFAESI Act.

The HC said that REPCO may move the civil court for recovering the dues stated to be payable to it by the petitioner.

Advocate V Raghavachari appeared for the petitioner while Advocate C Mohan represented the RBI.