The Kerala High Court on Thursday issued notices to the Centre and the Reserve Bank of India on a writ petition challenging the Banking Regulation Act amendments which have brought urban cooperative banks under the direct supervision of the RBI and made applicable to them governance norms of commercial banks.

The petition was filed by the Tiruvalla East Co-operative Bank and Guruvayur Cooperative Urban Bank. The petitioner said that, under the Banking Regulation Act amendments, urban cooperative banks were now forced to constitute a Board of Management and appoint a CEO/Managing Director which would function as a parallel power centre along with the Board of Directors elected by the General Body of the Co-operative Societies.

RBI sanction for by-laws

The petitioners pointed out that the RBI had also issued a circular in accordance with the amendments containing the procedure of appointment/termination of the MD/CEO, BoM and their qualifications. As per the Banking Regulation Act amendments, cooperative societies could not now amend their by-laws without the sanction of the Reserve Bank of India.

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The amendments brought in 2020 had nullified the provisions of the Kerala Cooperative Societies (KCS) Act and Rules and the power granted to the general body of the societies as per the KCS Act.

Unconstitutional amendments

The Banking Regulation Act amendments were brought on the strength of the 97th Constitutional Amendment, 2011, whereby 2nd Proviso to Article 243ZL made all the provisions of Banking Regulation Act, 1949, applicable to all co-operative societies in banking. As a result, the power to fix the maximum number of directors of cooperative societies and the duration of term of office of elected members of the Board of co-operative societies etc were now put in the hands of the Central Government.

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The petitioners contended that the amendments had transgressed into the provisions of the KCS Act framed under item 32 in List II. Therefore, the Banking Regulation Act amendments were unconstitutional.