India’s cooperative banking sector has spent the years since the 2019 PMC Bank scam trying to answer one question: who is actually in charge when a cooperative bank starts to fail? On September 3, 2026, the Supreme Court gave banking regulators a considerably freer hand in answering it. In Sandeep S. Ghandat & Ors. v. Reserve Bank of India & Ors. (2026 INSC 955), a bench of Justices Pamidighantam Sri Narasimha and Alok Aradhe dismissed a challenge by the ousted directors of Mumbai’s Abhyudaya Co-operative Bank, holding that the Reserve Bank of India’s power to supersede the board of a multi-State co-operative bank is not bound by the six-month ceiling that Article 243ZL of the Constitution otherwise places on such takeovers.

The ruling matters well beyond one bank in Mumbai. It settles a long-running ambiguity about how far RBI’s regulatory writ runs over the roughly 1,500 urban and multi-State cooperative banks operating in India, many of which sit under a patchwork of state cooperative law and central banking law at once. For depositors, bank employees, and the lawyers who advise cooperative institutions, the judgment is now the leading word on how long an RBI-appointed administrator can run a bank, and how much say — if any — state governments retain once RBI decides to step in.

How the Case Reached the Supreme Court

A Board Superseded, Then Superseded Again

Abhyudaya Co-operative Bank Limited began life as a cooperative society under the Maharashtra Co-operative Societies Act, 1960, and later became a multi-State cooperative bank following RBI-directed amalgamations with cooperative banks in Gujarat and Karnataka. The appellants were elected to its board in May 2019 for a statutory five-year term.

That term never ran its full course. On November 24, 2023, RBI superseded the board for one year and appointed an Administrator, citing what the regulator called deterioration in the bank’s financial health “to a dangerous level,” the need to protect depositors, and the need for professional management to restore stability. RBI extended that supersession twice more — in November 2024 and again in November 2025 — while the ousted directors’ legal challenge was still pending. In the meantime, the board’s original five-year elected term quietly expired on May 24, 2024, adding a second layer to the dispute: could a supersession order outlive the very term of office it had suspended?

The Constitutional Argument

The former directors challenged the takeover before the Bombay High Court, arguing that Article 243ZL(1) of the Constitution — inserted by the 97th Constitutional Amendment to protect the democratic character of cooperative societies — caps any supersession of a cooperative society’s management committee at six months, extendable only in narrow circumstances. Since RBI’s orders under Section 36AAA of the Banking Regulation Act, 1949 had run far longer than six months, they argued, the takeover was unconstitutional. They also argued RBI was obliged to consult the Maharashtra state government before acting, since Abhyudaya had originated as a state-registered society. The Bombay High Court rejected both arguments and upheld the supersession; the directors then appealed to the Supreme Court.

What the Supreme Court Held

RBI’s Power Is Not Capped at Six Months

The Court’s central holding is that Section 36AAA’s supersession power “is not circumscribed by the 6-month limit prescribed in Article 243ZL(1).” The reasoning turns on the third proviso to Article 243ZL(1), which expressly states that the Banking Regulation Act “shall also apply” to cooperative societies that carry on banking business. The Court read that language as doing something additive, not restrictive — bringing the entire regulatory scheme of the Banking Regulation Act to bear on banking cooperatives, rather than merely tucking RBI’s powers inside the six-month cap designed for ordinary, non-banking cooperative societies.

The bench’s own formulation of the interpretive principle is worth quoting directly: “An exclusion, by its very nature, presupposes a prior inclusion; Parliament does not exclude from a proviso what could never have fallen within it.” In plain terms, since Article 243ZL(1) was never drafted with banking regulation in mind, its six-month ceiling cannot be read to silently override a specialised banking statute that operates on its own constitutional footing via the third proviso.

Supersession Can Outlast the Board’s Elected Term — Up to Five Years

The Court also rejected the argument that a supersession order dies once the superseded board’s own term of office expires. Because “once the BoD stands superseded, the Board ceases to exist and all its powers vest in the Administrator,” there is no board term left to run out — the Administrator’s mandate flows from RBI’s order, not from the electoral calendar of the body it replaced. That said, the power is not open-ended: Section 36AAA(1) itself caps the total period of supersession, including any extensions, at five years, and Section 36AAA(7) then requires the Administrator to call a general meeting to elect new directors once that period runs out. RBI’s three successive orders against Abhyudaya’s board — running from November 2023 through the extensions granted in 2024 and 2025 — fell within that outer limit.

No Duty to Consult the State Government

On the third point, the Court held that the consultation requirement written into the proviso to Section 36AAA(1) applies only where the cooperative bank in question is registered with a State Registrar of Cooperative Societies. A multi-State cooperative bank like Abhyudaya — registered under the Multi-State Co-operative Societies Act rather than any single state’s cooperative law — falls outside that requirement entirely. RBI, the Court held, needed no sign-off from Maharashtra before acting.

Why the Ruling Matters

Cooperative Banking’s Governance Problem, Again

The case lands against a backdrop the Court’s judgment does not itself dwell on but that gives the ruling its real-world weight: India’s cooperative banking sector has a documented history of governance failure. The 2019 collapse of Punjab and Maharashtra Co-operative (PMC) Bank — where a top-ten urban cooperative bank was found to have concealed more than ₹4,300 crore in loan exposure to a single insolvent builder, freezing the accounts of nearly 900,000 depositors — remains the reference point for why Parliament and RBI have pushed to tighten oversight of the sector. That episode is part of why Section 36AAA already permits supersessions of up to five years: cooperative banks can take far longer than six months to stabilise once their financials unravel, and RBI has argued for years that anything shorter invites regulatory arbitrage.

A Clearer Rulebook for a Sector Under Dual Regulation

Multi-State cooperative banks have long occupied an awkward middle ground — cooperative societies in form, banks in function, answerable in principle to both state registrars and RBI. This judgment draws a sharper line: once an entity qualifies as a multi-State cooperative bank, banking regulation under the Banking Regulation Act governs its supersession, full stop, with no residual state consultation requirement and no artificial six-month clock imported from cooperative society law. For RBI, that removes a significant procedural vulnerability in future interventions against troubled cooperative banks. For state cooperative departments, it confirms they have no formal veto once a cooperative bank crosses into multi-State, RBI-regulated territory.

What It Means for Practitioners and Depositors

For lawyers advising cooperative banks, boards, or depositor groups, the case is now the citation of first resort on three distinct points: the outer limit on supersession (five years, not six months), the survivability of a supersession order past the superseded board’s own term, and the narrow scope of the state-consultation requirement. For depositors and account holders at cooperative banks under RBI administration, the practical takeaway is that an Administrator’s tenure is likely to be measured in years rather than months whenever a bank’s finances are genuinely troubled — a trade-off the Court has now endorsed as consistent with, rather than in tension with, the Constitution’s protection of cooperative self-governance.

Frequently Asked Questions

Does this ruling apply to all cooperative banks, or only “multi-State” ones?

It applies specifically to multi-State cooperative banks — those registered under the Multi-State Co-operative Societies Act, 2002 and operating across more than one state. Single-state cooperative banks registered with a state Registrar of Cooperative Societies remain subject to the consultation requirement the Court found inapplicable here.

How long can RBI actually keep a cooperative bank’s board superseded?

Under Section 36AAA(1) of the Banking Regulation Act, 1949, the aggregate period of supersession — including any extensions — cannot exceed five years. Section 36AAA(7) then obliges the Administrator to call a general meeting to elect new directors once that period expires.

Why did the directors think Article 243ZL(1) should apply?

Article 243ZL(1), added by the 97th Constitutional Amendment, generally limits the supersession of a cooperative society’s elected management to six months to protect the democratic character of cooperatives. The directors argued this constitutional cap should override the longer supersession period allowed under the Banking Regulation Act.

Did the Supreme Court say RBI never has to consult anyone before superseding a bank’s board?

No — the Court’s holding is narrower: consultation is required only for cooperative banks registered with a state’s Registrar of Cooperative Societies. Multi-State cooperative banks, which fall outside single-state registration, are not covered by that consultation requirement.

What happened to the original board members?

Their five-year elected term (May 2019–May 2024) had already expired during the litigation. The Supreme Court’s dismissal of their appeal means the RBI-appointed Administrator continues to run Abhyudaya Co-operative Bank, subject to the five-year statutory outer limit.

Not directly — PMC Bank’s supersession was never the subject of this litigation. But PMC Bank’s collapse is widely cited as the reason Section 36AAA permits multi-year supersessions in the first place, and it forms the backdrop against which this judgment’s practical significance is best understood.

Sources