Supreme Court Issues Notice On RBI's Plea Against Merger Of Malappuram District Cooperative Bank With Kerala Bank, Orders Status Quo

The Supreme Court on Friday (May 17) issued notice on a petition filed by the Reserve Bank of India challenging the amalgamation of the Malappuram District Cooperative Bank in Kerala with the Kerala State Cooperative Bank.

While issuing notice, the Court also directed to maintain status quo in all aspects in respect of the Malappuram District Cooperative Bank.

" Issue notice,returnable in July, in the meantime the status quo shall be maintained in all aspects in respect of the Malappuram District Co-operative Bank (Respondent no. 97)," ordered the bench comprising Chief Justice of India DY Chandrachud, Justices JB Pardiwala and Manoj Misra.

RBI has approached the Supreme Court against the judgement of the Kerala High Court which affirmed the constitutional validity of Section 14A of Kerala Co-operative Societies Act, 1969 ( Act of1969'), Section 74H(1)(a) of the 1969 Act and order passed by the Registrar, Co-operative Societies dated January 12, 2023, ordering amalgamation of Malappuram District Co-operative Bank with Kerala State Co-operative Bank.

In the impugned judgement, the main point of the petitioners was that the State Government can't give the Registrar the power to merge a District Co-operative Society into a State Co-operative without a proper resolution, either by simple majority or by 3/4th majority, as was required before the Section 14A was inserted.  

The merger of MDCB with the State Cooperative Bank took place on January 12, 2023.

"On paper, it has merged but on ground level, it hasn't that's the problem ....the bank is not under operation, because the state bank doesn't have a license and I am under a merger, because of the merger there has been a standstill"  submitted the Counsel for MDCB. 

Solicitor General (SG) Mr Tushar Mehta appearing for  RBI raised that the banking license has not been surrendered by the MDCB and also the deposit insurance will be affected in case the amalgamation is allowed. 

" Because if the amalgamation goes through contrary to the Banking Regulation Act, then they lose the deposit insurance, so all the depositors thereafter become susceptible." 

The Deposit Insurance and Credit Guarantee Corporation Act, 196  extended protection and guarantee to the depositors. The main contention of the MDCB before the High Court was that the merger/amalgamation of an insured co-operative could only be made by the previous sanction in writing of the Reserve Bank of India.

The SG informed that every district-level bank is insured under the Deposit Insurance and Credit Guarantee Corporation and those banks are required to pay an insurance premium which the state bank is not required to pay.  He suggested that the State Bank may be directed to pay the premium of the DICGC, in order to protect the depositors by way of the insurance. 

CJI directed that a status quo shall be maintained with respect to all aspects of the MDCB including its banking license. 

Case Details: RESERVE BANK OF INDIA VS. STATE OF KERALA SLP(C) No. 011542 - 011546 / 2024