In a landmark ruling, the Court says RBI’s statutory power under Section 36AAA of the Banking Regulation Act is not curtailed by the six-month limit under Article 243ZL
New Delhi: The Supreme Court has upheld the Reserve Bank of India’s (RBI) power to supersede the Board of Directors of a multi-State co-operative bank for up to five years in aggregate, ruling that the six-month constitutional limit under Article 243ZL does not restrict the RBI’s statutory authority under the Banking Regulation Act, 1949.
The judgment was delivered on September 3, 2026, in Sandeep S. Ghandat & Ors. v. Reserve Bank of India & Ors., Civil Appeal Nos. 5351–5352 of 2025, reported as 2026 INSC 955.
The ruling arose from a challenge by former directors of Abhyudaya Co-operative Bank Limited, who had questioned the RBI’s decision to supersede the bank’s Board and appoint an Administrator.
Abhyudaya Co-operative Bank Case
The RBI had superseded the Board of Abhyudaya Co-operative Bank on November 24, 2023, under Section 36AAA read with Section 56 of the Banking Regulation Act, 1949.
The action followed concerns relating to the bank’s financial condition and the need to protect depositors and ensure proper management.
The elected directors challenged the RBI’s decision before the Bombay High Court. The High Court upheld the RBI’s action in November 2024, following which the former directors approached the Supreme Court.
Supreme Court Rejects Six-Month Restriction Argument
A key issue before the Supreme Court was whether the RBI’s power to supersede the Board of a multi-State co-operative bank under Section 36AAA was restricted by the six-month ceiling contained in Article 243ZL(1) of the Constitution.
The Court answered the question in the negative.
It held that the third proviso to Article 243ZL(1), which provides that the Banking Regulation Act shall also apply to co-operative societies carrying on banking business, brings the specialised banking regulatory framework into the constitutional scheme.
Consequently, the six-month ceiling applicable under the general co-operative framework does not curtail the RBI’s statutory power over multi-State co-operative banks.
RBI Can Continue Supersession for Up to Five Years
The Supreme Court clarified that the RBI may supersede the Board of a multi-State co-operative bank for successive periods, provided the aggregate period does not exceed five years.
The Court also held that a valid supersession order made while the elected Board was still in office can continue even after the original tenure of that Board expires.
This means the expiry of the elected Board’s normal term does not automatically terminate an otherwise valid RBI supersession order.
State Government Consultation Not Mandatory for Multi-State Banks
The Court also addressed the requirement of consultation with the State Government under Section 36AAA.
It held that the consultation requirement applies to uni-State co-operative banks registered with a State Registrar, and does not extend to multi-State co-operative banks.
Therefore, the absence of prior consultation with the State Government did not invalidate the RBI’s action against Abhyudaya Co-operative Bank.
Depositor Protection at the Centre of Banking Regulation
The Supreme Court emphasised the distinctive nature of banking regulation and the importance of protecting depositors.
The judgment recognises that co-operative banks carrying on banking business are subject to a specialised regulatory framework designed to address risks to the banking system and the interests of depositors.
The Court therefore preserved the RBI’s statutory authority under the Banking Regulation Act while interpreting it alongside the constitutional provisions governing co-operative societies.
What the Judgment Means
The ruling establishes several important principles:
| Issue | Supreme Court’s Finding |
|---|---|
| RBI’s supersession power | Valid under Section 36AAA of the Banking Regulation Act |
| Six-month limit under Article 243ZL | Does not restrict RBI’s power over multi-State co-operative banks |
| Maximum supersession period | Up to five years in aggregate |
| Extension after Board tenure expires | Permitted where the original supersession was valid |
| State Government consultation | Not required for multi-State co-operative banks |
| Abhyudaya Co-operative Bank | RBI’s action upheld |
| Appeals | Dismissed |
Supreme Court Upholds Bombay High Court Judgment
After examining the constitutional and statutory framework, the Supreme Court dismissed the appeals filed by the former directors and upheld the Bombay High Court’s decision.
The Court also made no order as to costs.
Why the Ruling Matters
The judgment is significant for India’s co-operative banking sector because it clarifies the relationship between constitutional protections governing co-operative societies and RBI’s specialised banking-regulation powers.
For multi-State co-operative banks, the ruling confirms that the RBI can intervene and continue Board supersession when the statutory conditions are satisfied, subject to the overall five-year ceiling.
At the same time, the judgment does not give the RBI unlimited power to keep a Board superseded indefinitely. The statutory five-year aggregate limit remains the outer boundary of the supersession power.
Case Details
Case: Sandeep S. Ghandat & Ors. v. Reserve Bank of India & Ors.
Court: Supreme Court of India
Decision Date: September 3, 2026
Case Nos.: Civil Appeal Nos. 5351–5352 of 2025
Citation: 2026 INSC 955
Issue: RBI’s power to supersede the Board of a multi-State co-operative bank
Bank involved: Abhyudaya Co-operative Bank Limited
Outcome: Appeals dismissed; RBI’s action upheld.
Bottom Line
The Supreme Court’s latest ruling provides an important legal clarification: RBI’s power to supersede the Board of a multi-State co-operative bank under the Banking Regulation Act is not confined to the six-month constitutional ceiling applicable under the general co-operative framework.
The RBI can continue a valid supersession, including beyond the original elected Board’s tenure, but the total period cannot exceed five years. The judgment reinforces the regulator’s role in protecting depositors and maintaining sound management of co-operative banks.
Source: Supreme Court of India judgment dated September 3, 2026, Sandeep S. Ghandat & Ors. v. Reserve Bank of India & Ors., 2026 INSC 955.
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SUPREME COURT BIG RULING
RBI Can Supersede Bank Boards Up to 5 Years
