► Order:

Brief/Facts of the Case: The Central Government had issued a notification for the addition of Co-operative Banks in SARFAESI Act. Despite the Central Government as well as the Parliament extending the applicability of SARFAESI Act to co-operative banks, a plethora of writ petitions were filed challenging the constitutionality of the Amendment itself.

In an earlier judgment in Greater Bombay Co-op Bank Limited vs. United Yarn Textiles Private Limited (Greater Bombay Case) it was held that Co-operative banks fall under Entry 32 of List II (State List) of the Seventh Schedule (Entry 32 of List II) of the Constitution of India and therefore the Parliament is not competent to legislate with regard to co-operative banks under Entry 45 of List I (Union List) of Seventh Schedule. Hence, Co-operative Banks were not regarded as Banking Company. 

Overruling the decision in the Greater Bombay Case, the Supreme Court upheld the inclusion of co-operative banks under the purview of SARFAESI Act. The Apex Court took into consideration the following:

1. The doctrine of pith and substance - The doctrine places emphasis on the fact that it is the real subject matter which is to be challenged and not its incidental effects on another field. Pith denotes the 'essence of something' or the 'true nature', while substance states 'the most significant or essential part of something.

2. The Supreme Court placed reliance upon the constitutional bench judgment in Rustom Cavasjee Cooper vs. Union of India in which it held that 'banking' under Entry 45 of List I shall be given an expansive meaning, akin to a commercial activity, along with all miscellaneous services provided with the core business of banking.

3. Supreme Court also laid considerable emphasis on co-operative banks being regulated by central legislations such as the Banking Regulations Act, which are enacted under Entry 45 of List I itself.

Supreme Court Judgement: The 5-judge bench of Arun Mishra, Indira Banerjee, Vineet Saran, MR Shah and Aniruddha Bose, JJ has held that “’banking’ relating to co­operatives can be included within the purview of Entry 45 of List I, and it cannot be said to be over inclusion to cover provisions of recovery by co­operative banks in the SARFAESI Act.”