Pawar meets PM Modi, red flags change in law to regulate cooperative banks

NCP chief Sharad Pawar, who held an hour-long meeting with Prime Minister Narendra Modi on Saturday, raised serious questions on the constitutional validity of Banking Regulation Act amendments, especially on encroaching into a state subject and violating directive principles of state policy.

Pawar’s concerns with granting greater authority to Reserve Bank of India to regulate the cooperative sector are in line with growing opposition discomfort on the issue, especially after the creation of a ministry of cooperation under home minister Amit Shah in the just-concluded Cabinet expansion.

In a six-page letter to the PM released after Saturday’s meeting, Pawar has claimed that the amendments in the Act infringe on the state’s powers to legislate on the cooperative sector. The NCP chief said that “the terms incorporation, regulation, and winding up of cooperative societies were preserved as state subjects under Entry 32 list of II of the VII schedule of the Constitution of India”.


Further, he has cited relevant provisions of the Directive Principles of State Policy, which mention that state should promote "voluntary formation, autonomous functioning, democratic control and professional management of cooperative societies". These, according to Pawar, stand violated as the new amendments give RBI powers to directly intervene in the affairs of co-operative Banks, terming it “unconstitutional and ultra vires”.

Congress has already raised similar points of concerns.

Pawar’s Second Letter
Its influential Kerala MLA Ramesh Chennithala, as reported by ET, was among the first to connect this with the formation of the ministry of cooperation, saying it was "encroachment on the rights of states as cooperatives is a state subject". He also termed the move "unconstitutional". States like Maharashtra, Kerala and West Bengal have a strong cooperative system with non-BJP parties having a hold on them.

Pawar, however, has not maligned the objectives behind improving oversight but said certain provisions convey "over-zealous legislation" and go against Constitutional principles. In his letter, Pawar has cited the judgment of the Constitution bench of the Supreme court in the Pandurang Ganpati Chaugule versus Vishwasrao Patil Murgud Sahakari Bank Ltd to say that the powers to legislate on cooperative banks is the "exclusive domain" of the state government. The NCP chief has argued that the "impugned sections that have been introduced to amend section 56 of the B.R. Acts are beyond the legislative competence of the Parliament and therefore void under Article 123 (3) of the Constitution of India".

This is the second letter written by Pawar to Modi on the issue. In August 2020, he wrote a letter on the Banking Regulation Act Ordinance and how it was passed into a bill without discussion. Most of the NCP and Congress leaders control a sizeable number of the cooperatives in Maharashtra. The party believes that the Banking Regulation Act will be used to supersede the board controlled by political representatives. Formation of the new ministry, headed by Amit Shah, and issues related to the cooperative sector are likely to be raised by the Opposition in the monsoon session of Parliament starting on July 19.

The NCP chief had an issue with the RBI given powers under the Act to deal with matters pertaining to issuance and refund of share capital, appointment and disqualification of directors, constitution of Board of Management, appointment of CEO, audit of obligations, among others, which according to him was "excessive legislation".

In the detailed letter, the NCP leader has drawn the PM’s attention to how the RBI’s powers are in direct conflict with the state’s powers to regulate the cooperative sector. "The 97th constitutional amendment which is over and above all Acts, has given power to the general body to appoint statutory auditors, while under the amended B.R Act, RBI’s approval is required for appointment of statutory auditors."