The Supreme Court on Tuesday (May 05, 2020) held that cooperative banks come under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Act 2002 (SARFAESI Act). The SARFAESI Act law empowers lenders to seize and sell defaulters’ assets. A five members constitution bench of Justices Arun Mishra, Indira Banerjee, Vineet Saran, M.R. Shah and Aniruddha Bose said, “The provisions of Section 2(1)(c) of SARFAESI Act, 2002 is not ultra vires.” The Apex court observed that cooperative banks come under the category of banks as defined under Section 2(1)(c) of the Sarfaesi Act, and the recovery procedures mentioned under that law apply to cooperative banks as well.  The recovery is an essential part of banking; as per the recovery procedure prescribed under Section 13 of the SARFAESI Act, legislation relatable to Entry 45 of List I of the Seventh Schedule to the Constitution is applicable, the Court said. The Court also upheld the legislative power of the Parliament to bring cooperative banks under the ambit of Sarfaesi Act. The bench also effectively upheld a 28 January 2003 notification issued under the Banking Regulation Act, 1949, that brought cooperative banks within the class of “banks” under the Act. We find that the SARFAESI Act qualifies the test of legislative competence, as well as the definition, cannot be said to be a colourable piece or over inclusive or beyond the competence of the Parliament,” said the court.

The SARFAESI Act was introduced in 2002. The Act provides for Enforcement of Security Interest for the realization of the dues without the intervention of Courts or Tribunals which is treated as one of the most effective tools for recovery of NPAs under existing laws.   Through a notification issued by the Centre in 2003; cooperative banks were allowed to proceed under the SARFAESI Act. In the backdrop of several conflicting decisions of the courts on this issue in 2002 and 2007, a three-judge bench of the apex court headed by Justice Mishra had referred the matter to a larger bench.

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