Introduction
Can the Reserve Bank of India (RBI) continue the supersession of the Board of Directors of a multi-State co-operative bank beyond the six-month period mentioned in Article 243ZL of the Constitution?
And can that supersession continue even after the original elected Board’s statutory term has expired?
The Supreme Court of India has answered both questions in favour of the RBI in Sandeep S. Ghandat & Ors. v. Reserve Bank of India & Ors., 2026 INSC 955.
The Court held that the RBI’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 restricted by the six-month ceiling contained in Article 243ZL(1). It further held that a supersession order made while the Board’s tenure was still subsisting may subsequently be extended beyond the original tenure of that Board, provided the statutory five-year aggregate limit is respected.
The judgment is significant because it clarifies the relationship between the constitutional framework governing co-operative societies and the RBI’s specialised regulatory powers over co-operative banks.
Case Details
| Particular | Details |
|---|---|
| Case Name | Sandeep S. Ghandat & Ors. v. Reserve Bank of India & Ors. |
| Citation | 2026 INSC 955 |
| Court | Supreme Court of India |
| Jurisdiction | Civil Appellate Jurisdiction |
| Case Number | Civil Appeal Nos. 5351–5352 of 2025 |
| Judgment Date | 3 September 2026 |
| Bench | Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe |
| Principal Provisions | Section 36AAA and Section 56, Banking Regulation Act, 1949; Articles 243ZL and 243ZT, Constitution |
| Bank Involved | Abhyudaya Co-operative Bank Ltd. |
| Result | Appeals dismissed |
The judgment arose from challenges to RBI’s supersession of the Board of Directors of Abhyudaya Co-operative Bank and appointment of an Administrator.
Background and Facts of the Case
Abhyudaya Co-operative Bank was initially incorporated as a co-operative society under the Maharashtra Co-operative Societies Act, 1960. It subsequently became a bank in 1965 with the permission of the RBI and Commissioner of Co-operation.
In 1988, RBI declared it a Scheduled Bank under Section 42(6)(a) of the Reserve Bank of India Act, 1934.
The bank was subsequently amalgamated with two banks in Gujarat and one bank in Karnataka pursuant to directions issued under Section 45 of the Banking Regulation Act. As a result, it became a multi-State co-operative society carrying on banking business, falling within the category of a multi-State co-operative bank under the BR Act.
In May 2019, the appellants were elected to the Board of Directors for a statutory term of five years.
On 24 November 2023, the RBI superseded the Board under Section 36AAA(1) and (2), read with Section 56 of the BR Act, for one year and appointed an Administrator.
The RBI’s order was based principally on:
- deterioration in the financial health of the bank;
- the need to protect depositors and prevent the bank from collapsing; and
- the need for expert professional management to restore the bank’s financial health.
The appellants challenged the supersession before the Bombay High Court.
During the proceedings, their five-year statutory tenure expired on 24 May 2024. Thereafter, the RBI extended the supersession for another year. A further extension was subsequently made in November 2025.
The Bombay High Court upheld the RBI’s position and dismissed the writ petitions.
The matter therefore reached the Supreme Court.
What Were the Main Issues Before the Supreme Court?
The Supreme Court identified two principal questions:
- Whether RBI’s power under Section 36AAA(1) of the BR Act to supersede the Board of a multi-State co-operative bank is subject to the six-month limit prescribed by Article 243ZL(1) of the Constitution.
- Whether a supersession order under Section 36AAA(1) can be extended beyond the original tenure of the elected Board.
Arguments of the Appellants
The appellants argued that the RBI’s supersession power could not continue beyond the tenure of the elected Board.
According to them, once the Board’s five-year statutory tenure had expired, there was no Board remaining to be superseded. They also argued that successive supersession orders were contrary to the constitutional mandate contained in Articles 243ZL and 243ZT.
Another important argument concerned the proviso to Section 36AAA(1). The appellants contended that the provision required consultation with the Central Government in the case of the multi-State co-operative bank and that such consultation had not occurred.
They further relied upon the six-month ceiling contained in Article 243ZL(1), arguing that the constitutional limitation continued to apply even to co-operative societies carrying on banking business.
Arguments of the RBI
The RBI took the opposite position.
It argued that Section 36AAA expressly permits the period of supersession to be extended from time to time, subject to a maximum aggregate period of five years.
According to RBI, the tenure of the original Board therefore had no bearing on its statutory power to continue the supersession.
The RBI also argued that the third proviso to Article 243ZL(1) specifically makes the Banking Regulation Act applicable to co-operative societies carrying on banking business.
Since the BR Act is a Central enactment regulating banking, RBI argued that Section 36AAA governed the supersession of the Board of a multi-State co-operative bank.
Supreme Court’s Analysis and Reasoning
1. The Constitution itself preserves the application of the Banking Regulation Act
Article 243ZL generally provides that a Board of a co-operative society cannot be superseded or kept under suspension for more than six months.
However, the same provision contains several provisos.
The third proviso states that where a co-operative society carries on the business of banking, the provisions of the Banking Regulation Act, 1949 shall also apply.
The Supreme Court attached considerable importance to these words.
The Court held that the expression “shall also apply” operates in an additive and non-restrictive manner. It therefore incorporates the BR Act into the constitutional scheme insofar as multi-State co-operative banks are concerned.
2. The third proviso is an independent substantive provision
The Court explained that a proviso ordinarily qualifies or restricts the main provision, but that is not an absolute rule.
In some circumstances, a proviso can itself contain a substantive legislative provision.
Applying this principle, the Court concluded that the third proviso to Article 243ZL(1) does not merely create a limited exception. Instead, it makes the BR Act applicable to multi-State co-operative banks.
The Court therefore rejected an interpretation under which the RBI would remain restricted to a six-month period despite the specific incorporation of the BR Act.
3. The fourth proviso provided an important textual clue
The Supreme Court also relied on the structure of Article 243ZL itself.
The fourth proviso extends the supersession period from six months to one year for a co-operative society carrying on banking business, but expressly excludes a multi-State co-operative society carrying on banking business from that extension.
According to the Court, this wording is significant.
If multi-State co-operative societies carrying on banking business were completely outside Article 243ZL, there would have been no need to expressly exclude them from the fourth proviso.
The express exclusion therefore demonstrates that Parliament contemplated multi-State co-operative banks within the constitutional provision while simultaneously preserving the application of the BR Act to them.
4. Protection of depositors is central to RBI regulation
The Court also adopted a purposive approach.
Banking involves public interest because banks hold and deploy the savings of depositors. The BR Act therefore equips the RBI with regulatory powers intended to protect depositors and preserve the stability of banking institutions.
Section 36AAA is one such power. It enables RBI to supersede a co-operative bank’s Board where necessary in the public interest, to prevent conduct detrimental to depositors or the bank, or to secure proper management.
The Court considered that restricting this power through an overly technical six-month interpretation could undermine the protection of depositors and effective regulatory supervision.
5. RBI’s supersession power is subject to a five-year aggregate ceiling
The Court did not hold that RBI has unlimited power to keep a Board superseded.
Section 36AAA(1) permits supersession for a period that may be extended from time to time, but the total period cannot exceed five years.
Thus, the judgment establishes an important distinction:
The six-month constitutional ceiling does not govern the supersession of the Board of a multi-State co-operative bank under Section 36AAA, but the statutory five-year aggregate ceiling under Section 36AAA continues to apply.
Can RBI Extend Supersession Beyond the Board’s Original Tenure?
Yes.
The Supreme Court held that the original tenure of the Board does not determine the duration of an already valid supersession under Section 36AAA.
In this case, the first supersession order was passed on 24 November 2023, when the Board’s five-year tenure was still continuing. The Board’s tenure subsequently expired on 24 May 2024.
The later extensions did not therefore create a new supersession of a non-existent Board. They continued the supersession that had originally been validly ordered while the Board was in office.
The Court emphasised that Section 36AAA expressly contemplates extension “from time to time”, subject to the five-year aggregate limit.
Section 36AAA(7): When Must Elections Be Held?
Section 36AAA(7) provides that, on or before the expiration of the supersession period specified in the RBI’s order, the Administrator must call a general meeting of the society to elect new directors.
The Supreme Court considered this provision important because it demonstrates that the statutory scheme does not permit indefinite supersession.
The Administrator must ultimately facilitate the election of a new Board, while the five-year aggregate limit under Section 36AAA acts as an outer statutory safeguard.
What About Consultation With the State Government?
The appellants argued that the proviso to Section 36AAA(1) required consultation before supersession.
The Supreme Court rejected this argument.
The proviso applies where the co-operative bank is registered with the Registrar of Co-operative Societies of a State.
The Court held that Abhyudaya Co-operative Bank, being a multi-State co-operative bank, did not fall within that category.
Consequently, the consultation requirement contained in that proviso did not apply to the bank.
Ratio Decidendi
The core ratio of Sandeep S. Ghandat v. RBI is:
The RBI’s power under Section 36AAA(1) of the Banking Regulation Act, 1949, to supersede the Board of a multi-State co-operative bank is not restricted by the six-month limit under Article 243ZL(1) of the Constitution. A valid supersession order made during the Board’s tenure can also be extended beyond that tenure, subject to the statutory aggregate limit of five years.
The decision rests principally on the Court’s interpretation of the third proviso to Article 243ZL(1), the structure of Article 243ZL, and Section 36AAA of the BR Act.
Important Legal Provisions
Article 243ZL — Constitution of India
Article 243ZL deals with supersession and suspension of Boards of co-operative societies.
Its general rule contains a six-month ceiling, but the provision also contains specific provisos concerning banking co-operatives and the application of the Banking Regulation Act.
The Supreme Court held that the third proviso preserves the application of the BR Act to multi-State co-operative banks.
Section 36AAA — Banking Regulation Act, 1949
Section 36AAA empowers RBI to supersede the Board of a co-operative bank where this is necessary in the public interest, for protecting depositors or the bank, or for securing proper management.
The supersession may be extended from time to time, but the total period cannot exceed five years.
Section 56 — Banking Regulation Act, 1949
Section 56 applies provisions of the Banking Regulation Act to co-operative banks, and the Court noted its overriding effect in the statutory scheme under consideration.
Important Precedents
| Case | Principle / Relevance |
|---|---|
| Pandurang Ganpati Chaugule v. Vishwasrao Patil Murgud Sahakari Bank Ltd. | Relied upon concerning the application of the BR Act to co-operative societies carrying on banking business. |
| Rajendra N. Shah v. Union of India | Relevant to the constitutional framework concerning co-operative societies and Part IXB. |
| Kishansing Tomar v. Municipal Corporation of Ahmedabad | Relied upon by the appellants in support of their constitutional/electoral arguments. |
| Durgabai Deshmukh Memorial Senior Secondary School v. J.A.J. Vasu Sena | Cited by the appellants concerning the constitutional scheme. |
| DMRC v. Tarun Pal Singh | Considered in relation to the nature and function of a proviso. |
| S. Sundaram Pillai v. V.R. Pattabiraman | Relied upon for principles concerning the interpretation of provisos. |
The judgment specifically relied upon the Constitution Bench decision in Pandurang Ganpati Chaugule, rejecting the argument that its discussion of the BR Act was irrelevant to the present issue.
What Does This Judgment Mean?
For Co-operative Banks
The judgment confirms that multi-State co-operative banks remain subject to the specialised regulatory framework of the RBI under the Banking Regulation Act.
For Bank Directors
An elected Board does not necessarily regain control merely because its original electoral tenure expires while a valid supersession order remains operative.
For Depositors
The judgment strengthens the regulatory framework available to RBI to intervene where the financial health or management of a co-operative bank presents risks to depositors.
For Lawyers
The case is particularly important when analysing the interaction between:
- Article 243ZL;
- Part IXB of the Constitution;
- Banking Regulation Act, 1949;
- Multi-State Co-operative Societies Act, 2002; and
- RBI’s regulatory powers.
For Law Students and Judiciary Aspirants
The judgment is useful for understanding:
- constitutional interpretation;
- interpretation of provisos;
- doctrine of incorporation;
- non-obstante clauses;
- RBI’s regulatory powers;
- co-operative banking regulation; and
- the relationship between constitutional provisions and parliamentary legislation.
Key Takeaways
- RBI can supersede the Board of a multi-State co-operative bank under Section 36AAA.
- The six-month limit in Article 243ZL does not restrict that RBI power.
- The BR Act continues to apply to multi-State co-operative banks.
- A valid supersession order can be extended beyond the original tenure of the elected Board.
- Section 36AAA permits extensions from time to time.
- The aggregate period of supersession cannot exceed five years.
- The Administrator must eventually facilitate elections under Section 36AAA(7).
- The State Government consultation requirement in the proviso to Section 36AAA(1) does not apply to a multi-State co-operative bank registered outside the specified State-registration category.
- The Court placed significant emphasis on depositor protection and banking stability.
- The appeals against the Bombay High Court judgment were dismissed without an order as to costs.
Frequently Asked Questions
What is the Sandeep S. Ghandat v. RBI judgment?
It is a Supreme Court decision concerning RBI’s authority to supersede the Board of a multi-State co-operative bank under Section 36AAA of the Banking Regulation Act, 1949.
What did the Supreme Court hold about the six-month limit?
The Court held that the RBI’s power under Section 36AAA to supersede the Board of a multi-State co-operative bank is not restricted by the six-month limit contained in Article 243ZL(1).
Can RBI extend supersession beyond the Board’s elected tenure?
Yes. The Court held that a supersession order validly made while the Board’s statutory tenure was subsisting can be extended beyond the original tenure, subject to the five-year aggregate limit under Section 36AAA.
What is the maximum period for RBI supersession?
Under Section 36AAA, the total period of supersession cannot exceed five years.
Does Article 243ZL apply to multi-State co-operative banks?
The Court held that the Banking Regulation Act applies to multi-State co-operative banks through the third proviso to Article 243ZL(1). The six-month constitutional ceiling, however, does not restrict the RBI’s Section 36AAA power.
Why is Section 36AAA important?
Section 36AAA gives RBI the power to supersede the Board of a co-operative bank when necessary in the public interest, to protect depositors or the bank, or to secure proper management.
What happens after a Board is superseded?
An Administrator manages the bank during supersession. Under Section 36AAA(7), the Administrator must call a general meeting for election of new directors before the expiry of the supersession period specified in the RBI order.
Did the Supreme Court invalidate RBI’s supersession orders?
No. The Court found no infirmity warranting interference and dismissed the appeals.
Did RBI have to consult the State Government?
The Court held 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. It did not apply to the multi-State co-operative bank involved in this case.
Why is this judgment important for co-operative banking law?
It clarifies the balance between the constitutional framework governing co-operative societies and RBI’s specialised statutory authority over banking institutions, particularly multi-State co-operative banks.
Practical Significance
The decision in Sandeep S. Ghandat v. RBI gives considerable clarity to an important regulatory question: whether constitutional restrictions applicable to ordinary co-operative societies can limit the specialised statutory powers of RBI over multi-State co-operative banks.
The Supreme Court’s answer preserves RBI’s ability to exercise continuous regulatory supervision where intervention is necessary to protect depositors and maintain financial stability, while retaining the five-year statutory ceiling and the requirement that elections ultimately be conducted.
The judgment therefore represents an important authority for understanding RBI’s supervisory powers over multi-State co-operative banks and the interaction between Article 243ZL and Section 36AAA of the Banking Regulation Act.
