Kerala High Court on RBI’s power to supersede Urban Co‑operative Bank boards under Section 36AAA

The Kerala High Court in M P Jackson Vs Reserve Bank of India examined the legality of the Reserve Bank of India’s decision to supersede the Board of Directors of an Urban Co‑operative Bank by invoking Section 36AAA read with Section 56 of the Banking Regulation Act, 1949. The petitioner, former President of the concerned Co‑operative Bank, sought to invalidate the supersession order and restore the elected Managing Committee.

The judgment is significant for three core questions:

  1. Whether an opportunity of hearing is implicit before supersession under Section 36AAA.
  2. Whether consultation with the Registrar of Co‑operative Societies is sufficient compliance with the statutory mandate to consult the “State Government” under the proviso to Section 36AAA(1).
  3. Whether RBI can lawfully replace a democratically elected Managing Committee under the Kerala Co‑operative Societies Act, 1969, by appointing an Administrator under the Banking Regulation Act.

While the Court held that no personal hearing is mandated under Section 36AAA and that RBI does possess statutory power to supersede the elected Board, it found that mandatory consultation with the State Government had not been complied with. Nonetheless, the Court declined to grant relief in exercise of its discretionary jurisdiction under Article 226 of the Constitution, having regard to the passage of time, public interest, and the tenure of the Administrator.

Background facts and regulatory actions

RBI inspection and regulatory directions

  • RBI, Respondent No.1, carried out an inspection of the Urban Co‑operative Bank (Respondent No.4) and prepared an inspection report (Ext.P1) based on its financial position as on 31.03.2022.
  • The inspection revealed several operational and financial irregularities.
  • Acting under Section 35A of the Banking Regulation Act, 1949, RBI issued All‑Inclusive Directions (AID) as Ext.P3 on 29.07.2025, effective from 30.07.2025, placing the Bank under regulatory restrictions for six months.

Request to sell non‑banking assets and subsequent supersession

  • The Bank submitted a representation dated 08.09.2025 requesting RBI’s permission to sell Non‑Banking Assets (NBAs) to improve its financial situation and exit the AID regime.
  • RBI clarified via Ext.P4 dated 24.09.2025 that AID did not bar sale of NBAs.
  • While the Bank was allegedly proceeding with NBA sale to stabilise its finances, RBI issued Ext.P5 order on 07.10.2025, invoking Section 36AAA r/w Section 56, superseding the Board of Directors and appointing an Administrator for a one‑year period from **07.10.2025 to 06.10.2026`.

Writ petition and pleadings

  • The petitioner (former President of the Bank) challenged Ext.P5 and also sought a declaration that principles of natural justice must be read into Section 36AAA, and a direction to RBI to restore the elected Managing Committee.
  • RBI filed a Counter Affidavit on 27.02.2026 and an Additional Counter Affidavit on 29.05.2026. The petitioner filed a Reply Affidavit on 10.03.2026.

Petitioner’s submissions

1. Violation of principles of natural justice

The petitioner argued that:

  • Supersession of the Board leads to civil consequences, including loss of office and reputational harm, thereby attracting the doctrine of audi alteram partem.
  • Even though Section 36AAA is silent, natural justice must be read into the provision unless expressly excluded.
  • An order with such adverse consequences cannot be issued without prior notice and an opportunity to be heard.

To support this contention, reliance was placed on:

  • Reserve Bank of India v. M. Hanumaiah and Others, (2008) 1 SCC 770
  • Sahara India (Firm), Lucknow v. Commissioner of Income Tax, Central-I and Another, (2008) 14 SCC 151
  • Brigadier Nalin Kumar Bhatia v. Union of India and Others, (2020) 4 SCC 78
  • State Bank of India and Others v. Rajesh Agarwal and Others, (2023) 6 SCC 1
  • Manoharan K. v. District Collector, Kannur, 2024 (4) KHC 606

The thrust of the argument was that where an administrative decision results in serious civil consequences, the Courts should generally imply a right of hearing consistent with Article 14, unless there is a clear statutory exclusion.

2. Non‑compliance with mandatory State Government consultation

The petitioner’s second limb of challenge was founded on the proviso to Section 36AAA(1), which requires RBI to consult the concerned State Government before issuing a supersession order against a Co‑operative Bank registered with the State Registrar.

Key points:

  • RBI had consulted only the Registrar of Co‑operative Societies (Respondent No.3), not the State Government (Respondent No.2).
  • The Registrar, though a senior departmental officer, cannot be equated with the “State Government” as envisaged in the proviso.
  • Under the Kerala Co-operative Societies Act, 1969, the Government is hierarchically superior to the Registrar (for instance, Section 87 provides for revision of Registrar’s orders by the Government).
  • When a statute prescribes a specific mode of action, that procedure must be strictly adhered to.

For this proposition, the petitioner cited:

  • Babu Verghese and Others v. Bar Council of Kerala and Others, (1999) 3 SCC 422
  • Rohitash Kumar and Others v. Om Prakash Sharma and Others, (2013) 11 SCC 451
  • OPTO Circuit India Limited v. Axis Bank and Others, (2021) 6 SCC 707

Additionally, the petitioner invoked Kerala High Court decisions on supersession under Section 32 of the Kerala Co-operative Societies Act: