The Kerala High Court has delivered a significant judgment clarifying the scope of the Reserve Bank of India’s (RBI) powers over urban cooperative banks, holding that while the central bank can supersede the board of a cooperative bank without granting a prior hearing, it must strictly comply with the statutory requirement of consulting the State Government.
The case arose from a petition filed by M.P. Jackson, former President of the Irinjalakuda Town Co-operative Bank, challenging the RBI’s October 2025 order superseding the bank’s elected Board of Directors and appointing an Administrator under Section 36AAA of the Banking Regulation Act, 1949.
The RBI had taken the action after an inspection found several irregularities in the bank’s functioning and after placing the bank under All Inclusive Directions (AID).
Justice M.A. Abdul Hakhim ruled that Section 36AAA of the Banking Regulation Act does not require the RBI to issue a show-cause notice or provide a personal hearing before superseding the board.
The Court observed that Parliament had consciously included such a safeguard under Section 36AA but omitted it from Section 36AAA, making it clear that the principles of natural justice cannot be read into the latter provision.
At the same time, the Court held that the RBI had failed to comply with a mandatory procedural requirement by consulting only the Registrar of Co-operative Societies instead of the Government of Kerala.
Emphasising that the statute specifically requires consultation with the State Government, the Court held that consultation with the Registrar could not be treated as a legal substitute.
Ordinarily, the petitioner would have succeeded on this ground. However, the Court declined to set aside the RBI’s supersession order, noting that the Administrator had already been managing the bank for nearly nine months and that the one-year tenure was due to expire on October 6, 2026. Restoring the elected Board at this stage, the Court observed, would not be in the public interest or in the interest of the bank and its depositors.
Accordingly, the writ petition was dismissed. However, the High Court directed that if the RBI decides to continue the Administrator beyond October 6, 2026, it must first consult the Government of Kerala, as mandated under Section 36AAA of the Banking Regulation Act.
