SC Clarifies the Scope of RBI’s Powers Over Multi-State Co-operative Banks

On September 3, 2026, the Hon’ble Supreme Court in Sandeep S. Ghandat & Ors. v. Reserve Bank of India & Ors., [2026 INSC 955; Civil Appeal Nos. 5351–5352 of 2025], has clarified that the Reserve Bank of India’s power under Section 36AAA of the Banking Regulation Act, 1949 (BR Act) to supersede the Board of a multi-state co-operative bank is not subject to the six-month limit under Article 243ZL (1) of the Constitution.

The Court further held that such supersession may continue beyond the original tenure of the elected Board, subject to the five-year aggregate limit prescribed under Section 36AAA.

Background

The dispute arose from RBI’s decision to supersede the Board of Abhyudaya Co-operative Bank Ltd. on November 24, 2023. The Board had been elected in May 2019 for a five-year term ending on May 24, 2024. RBI cited deterioration in the bank’s financial position, the need to protect depositors and the need for professional management while appointing an administrator.

Even after the Board’s tenure expired, RBI continued the supersession and subsequently extended it. The former directors challenged the supersession before the High Court of Judicature at Bombay, which dismissed their petitions on November 18, 2024. They then appealed to the Supreme Court, raising questions about the interaction between the constitutional framework governing co-operative societies and RBI’s statutory powers under the BR Act.

Six-Month Constitutional Cap Does Not Restrict RBI’s Powers

Article 243ZL (1) of the Constitution provides that a co-operative society’s Board cannot be superseded or kept under suspension for more than six months. Its third proviso, however, provides that the BR Act shall also apply to a co-operative society carrying on banking business. The fourth proviso permits the six-month period to be extended to one year for a co-operative society carrying on banking business but expressly excludes multi-state co-operative societies from this extension.

The Court held that this six-month limit under Article 243ZL (1) does not restrict the RBI’s separate power under Section 36AAA of the BR Act to supersede the Board of a multi-state co-operative bank. Section 36AAA permits such supersession where necessary in the public interest, to protect depositors or the bank, or to secure its proper management, for a period that may extend up to five years in aggregate. Section 56 further gives the BR Act overriding effect where it applies to co-operative banks.

Relying on the Constitution Bench judgement in Pandurang Ganpati Chaugule v. Vishwasrao Patil Murgud Sahakari Bank Ltd., [(2020) 9 SCC 215], the Court reaffirmed that the BR Act applies to multi-state co-operative societies carrying on banking business.

Board’s Tenure Does Not Curtail RBI’s Supersession Power

The Court also rejected the argument that RBI’s power to continue supersession ends when the elected Board’s original tenure expires. Section 36AAA (7) of the BR Act requires the Administrator to call a general meeting for electing a new Board before the expiry of the period of supersession specified in the RBI’s order. This shows that the period of supersession is distinct from the tenure of the earlier elected Board.

Accordingly, where supersession was validly ordered while the elected Board was in office, it may continue beyond that Board’s original term, provided the statutory five-year aggregate limit is not exceeded. The Court also clarified that the consultation requirement in the proviso to Section 36AAA (1) applies to a co-operative bank registered with the Registrar of Co-operative Societies of a State and not to a multi-State co-operative bank.

The appeals were accordingly dismissed, with no order as to costs, and the judgement of the High Court of Judicature at Bombay dated November 18, 2024, was upheld. The Supreme Court thus affirmed both the RBI’s power to supersede the Bank’s Board under Section 36AAA of the BR Act and its power to continue that supersession beyond the elected Board’s original term, within the five-year aggregate limit.