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The Mechanical Department primary and Anr. V. Union of India and Ors. (2025)

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Facts

 The petitioner, a cooperative bank registered under the U.P. Cooperative Societies Act of
1912, seeks relief against the Reserve Bank of India’s (RBI) order dated August 9, 2017,
which directed the petitioner to expedite its application for a banking license under the
Multi-State Cooperative Societies Act, 2002 (hereinafter referred to as ‘the Act, 2002’).
 The petitioner bank, which has been operational since May 1973, serves exclusively
railway employees and has a total deposit of Rs. 56,73,49,000.
 The petitioner claims that Its original registration certificate from May 3, 1973, has been
misplaced. The bank has opened a recovery counter in Samastipur, Bihar, and operates
branches across various locations including Bareilly, Lucknow, and Varanasi.
 The RBI had previously allowed the petitioner to open an office in Izzatnagar, Bareilly,
under the Banking Regulation Act (B.R. Act).

 The petitioner's application for registration under the Act, 2002 was rejected by the
Central Registrar of Cooperative Societies on April 20, 2018, and again on December 26,
2018.
 The petitioner contends that the rejection of its application violates its rights and seeks to
have the latter order set aside.
 The RBI identified that the bank was conducting banking activities without obtaining the
necessary license or No Objection Certificate (NOC). The RBI issued directives
restricting the bank’s operations due to non-compliance with regulatory requirements.
 The petitioners, including the bank and its Secretary, Mr. Balwant Kumar Shahi,
challenged these restrictions in the Allahabad High Court.

Issues:
 Whether the petitioner bank is entitled to registration under the Multi-State Cooperative
Societies Act, 2002.
 Whether the RBI’s directives regarding the licensing and operational jurisdiction of the
petitioner bank are valid.
 Whether the petitioner has demonstrated compliance with the necessary legal
requirements for registration and operation as a multi-state cooperative society.
 Whether the decision of the regulatory authorities, including the Central Registrar of Co-
operative Societies, to restrict the bank’s operations was legally valid.
 Whether the RBI had the authority to regulate the bank’s activities, given its status as a
co-operative bank primarily serving railway employees.
 Whether The Mechanical Department Primary Co-operative Bank Limited could conduct
banking activities without obtaining a license or No Objection Certificate (NOC) from
the Reserve Bank of India (RBI).
Arguments of both Parties (Appellant/ Respondent):-
Arguments of Petitioner:-
 The petitioner argues that it has been operating as a cooperative bank since its registration
and that its members are exclusively railway employees, thus justifying its operational
model.
 The petitioner claims that the RBI’s refusal to grant a license and the subsequent
rejections of its application for registration under the Act, 2002 are un-founded and
detrimental to its operations.
Arguments of Respondent:-
 The RBI contends that the petitioner has failed to demonstrate that it is registered as a
multi-state cooperative society and has not provided the necessary documentation to
justify its business operations outside Uttar Pradesh.

 Regulatory Compliance and Financial Health: The Reserve Bank of India (RBI)
emphasized that the petitioner bank did not meet the financial criteria required for a
Multi-State Co-operative Bank. The RBI highlighted that the bank’s financial condition
was inadequate and did not align with the standards set for such institutions.
 The RBI referred to its circular dated July 2, 2012, which mandates prior approval (No
Objection Certificate) from the RBI for any revision in the area of operation of co-
operative banks. The petitioner bank’s failure to obtain this approval was cited as a
significant non-compliance.
 Enforcement Actions: The RBI issued a directive on August 9, 2017, instructing the
petitioner bank to close its payment counter at Samastipur, Bihar, within fifteen days and
to cancel memberships granted in other states. This action was based on the bank’s non-
compliance with regulatory requirements and its unsatisfactory financial health.
 Legal Precedents and Legislative Competence: The respondents referenced the Supreme
Court’s judgment, which affirmed that co-operative banks are covered under the
Securitization and Reconstruction of Financial Assets and Enforcement of Security
Interest (SARFAESI) Act, 2002. This implies that co-operative banks are subject to
banking regulations enacted by Parliament under Entry 45 of List I of the Seventh
Schedule of the Constitution of India.
 Jurisdictional and Procedural Objections: The respondents contended that the petitioner
bank’s failure to adhere to mandatory statutory provisions, such as obtaining the
necessary approvals from the RBI, justified the enforcement actions taken against it.
They maintained that the actions of the regulatory authorities were within their legal
rights and obligations to ensure the stability and integrity of the banking system.
Held:-
The court upheld the RBI’s order dated August 9, 2017, and dismissed the writ petition. The
court emphasized that the financial condition of the petitioner bank was poor and that it had
repeatedly failed to comply with the registration requirements set forth by the RBI. The court
noted that the petitioner could seek registration amendments as a Uni-State Cooperative Bank,
provided it obtains prior approval from the RBI. The writ petition is dismissed, and the petitioner
is directed to comply with the RBI's guidelines regarding the registration and operation of its
banking activities. The court affirms the necessity for the petitioner to adhere strictly to the legal
frameworks governing co-operative banks and the regulatory authority of the RBI in this respect.

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Detail Information

Title

The Mechanical Department primary and Anr. V. Union of India and Ors.

Court

: ALLAHABAD HIGH COURT., 2025

Lenght/Sections/Order/Rules

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Language

English

Case Number/Citation

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Matter(s)

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Councels

For Petitioner  Satyawan Shahi  Shashi Ranjan Srivastava  Sri Shashi Nandan (Senior Advocate) For Respondent:-  A.S.G.I.  Adya Prasad Tewari  Gaurav Gautam  Ramesh Chandra Pandey  Sanjeev Kumar  Sheo Shankar Tripathi

Statement of Responsibility

Sophia khan, Apex University Jaipur

See Also

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