Credit co-operatives face crackdown, SC to regulate activitieshttps://indianexpress.com/article/business/business-others/credit-co-operatives-face-crackdown-sc-to-regulate-activities/

Credit co-operatives face crackdown, SC to regulate activities

The RBI also instructed the cooperatives to stop accepting such deposits, noted the court.

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The court issued these interim directions while agreeing to hear a batch of appeals by credit cooperative societies of Rajasthan.

Tightening the noose around credit co-operatives and multi-state co-operative societies, the Supreme Court has decide to regulate their activities and to further examine whether acceptance of deposits from public would come under the ambit of ‘banking activity’.

A bench of Justices A K Sikri and Uday U Lalit restrained co-operative societies in Rajasthan from carrying out any ‘banking activity,’ as defined under the Banking Regulations Act, and further imposed restrictions on accepting desposits from general public. The court noted that several such societies accepted deposits from nominal members as well as from public without obtaining a license for a banking business from the Reserve Bank of India.

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This practice continued though the government and Central Registrar of Cooperative Societies has last year written to the Registrar, Co-operative Societies of all states informing that RBI is of the view that acceptance of deposits from nominal members by credit co-operative societies may have to be construed as accepting deposits from public and carrying out banking activity. The RBI also instructed them to stop accepting such deposits, noted the court.

“We find that there is also a need to regulate the activities of the petitioners’ societies appropriately having regard to the manner in which these societies are functioning. It also needs to be considered as to whether the activities amount to ‘banking business’ and therefore these petitioners can undertake these activities at all or not and insofar as deposits from the members is concerned, in what manner they can be regulated to avoid any malpractices,” said the bench.

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It directed: “The petitioners shall not carry on ‘banking’ activity as defined under Section 5(b) of the Banking Regulation Act, 1949. No deposits shall be taken from the nominal members. No deposits shall be taken from the public, i.e. non-members.”

The court issued these interim directions while agreeing to hear a batch of appeals by credit cooperative societies of Rajasthan, which appealed against a High Court order of May 14. Deciding a PIL, the HC had barred them from accepting deposits without procuring a license from the RBI. It had noted investments by public were not covered under any protection and that a number of cooperative societies offering lucrative ‘Ponzi’ schemes had run away with their money.

The SC issued notices on appeals by the societies, which argued they would not come under the Banking Regulation Act and hence no question of obtaining licenses could arise.

The bench, in the meantime, stayed the HC directions on three-month deadline for obtaining licenses, saying it would examine whether their activities would fall within the definition of ‘banking’.