SC in Sandeep Ghandat vs RBI (2026 INSC 955): RBI's Power to Supersede Multi-State Co-operative Bank Boards Not Capped at Six Months

Why in News

On September 3, 2026, a two-judge bench of the Supreme Court of India comprising Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe pronounced judgment in Sandeep S. Ghandat & Ors. vs Reserve Bank of India & Ors. (2026 INSC 955). The case arose from the Reserve Bank of India's (RBI) supersession of the Board of Directors of Abhyudaya Co-operative Bank Ltd., a multi-State co-operative bank. The Supreme Court held that the RBI's power to supersede the Board of a multi-State co-operative bank under Section 36AAA(1) of the Banking Regulation Act, 1949 is not circumscribed by the six-month limit prescribed under Article 243ZL(1) of the Constitution. The court fixed the outer aggregate limit for such supersession at five years, and ruled that consultation with the state government is not required for multi-State co-operative banks.

Background

Co-operative Banks in India — Dual Regulation

Co-operative banks in India occupy a unique intersection of two regulatory regimes. Unlike commercial banks (which are governed exclusively by the Banking Regulation Act, 1949 and the RBI Act, 1934), co-operative banks are dually regulated:

• Banking regulation: By the Reserve Bank of India (RBI) under the Banking Regulation Act, 1949 — for prudential norms, capital adequacy, lending limits, statutory liquidity ratio (SLR), cash reserve ratio (CRR), and related banking parameters
• Registration, management and administrative matters: By the Registrar of Co-operative Societies — under state co-operative societies laws (for uni-State banks) or under the Multi-State Co-operative Societies Act, 2002 (for multi-State banks) administered by the Central Government

This dual structure historically created regulatory gaps. Co-operative banks in financial distress sometimes fell between the two systems — the Registrar lacking banking expertise, and RBI lacking administrative authority over the society's management. The PMC Bank crisis (2019) starkly highlighted this gap, when fraud and mismanagement at Punjab and Maharashtra Co-operative Bank led to depositor losses and regulatory paralysis.

Banking Regulation (Amendment) Act, 2020

In response to co-operative banking sector crises, Parliament passed the Banking Regulation (Amendment) Act, 2020, which significantly strengthened RBI's supervisory and intervention powers over urban co-operative banks (UCBs) and multi-State co-operative banks. Key insertions included:

• Section 36AAA: Empowers RBI to supersede the Board of Directors of a co-operative bank if it determines it is in the interests of banking policy, public interest, or protection of depositors. RBI may appoint an Administrator to run the bank during supersession.
• Section 36AAB: Empowers RBI to order the preparation of a scheme of amalgamation, reconstruction, or winding up of a co-operative bank in distress
• Section 36AAC: Allows the Central Government to issue directions to a co-operative bank in public interest

97th Constitutional Amendment (2011) and Part IX-B

The 97th Constitutional Amendment Act, 2011 inserted Part IX-B (Articles 243ZH to 243ZT) into the Constitution — creating a comprehensive constitutional framework for co-operative societies. Among its provisions, Article 243ZL deals with the supersession and suspension of the boards of co-operative societies. The first proviso to Article 243ZL(1) limits supersession to six months, with a requirement of holding elections within that period. However, a third proviso to Article 243ZL carves out co-operative societies engaged in banking — making the Banking Regulation Act applicable to them instead of the general six-month cap.

Current Developments — The Judgment

The Specific Dispute

The Abhyudaya Co-operative Bank Ltd., a multi-State co-operative bank headquartered in Maharashtra, came under RBI scrutiny for governance failures and financial irregularities. RBI invoked Section 36AAA(1) of the Banking Regulation Act and superseded the Bank's elected Board, appointing an Administrator. The supersession was extended beyond the original six-month period — and also beyond the original election term of the superseded Board. The petitioners (former Board members) challenged this, arguing that Article 243ZL(1) of the Constitution caps any such supersession at six months.

Key Questions Before the Court

1. Does the six-month limit in Article 243ZL(1) apply to the RBI's supersession of a multi-State co-operative bank's Board under Section 36AAA(1) of the Banking Regulation Act?
2. Can RBI extend the supersession beyond the original term of office for which the superseded Board had been elected?
3. What is the maximum permissible period for supersession under Section 36AAA?
4. Is consultation with the State Government required before superseding the Board of a multi-State co-operative bank?

Supreme Court's Holdings

Reasoning — The Third Proviso to Article 243ZL

The court's pivotal interpretive move was to give effect to the third proviso to Article 243ZL. This proviso reads (in substance): "Provided also that nothing in this Part shall apply to the co-operative societies carrying on the business of banking" as far as the Banking Regulation Act applies. The court held that this proviso is a deliberate constitutional carve-out — it brings multi-State co-operative banks engaged in banking squarely under the Banking Regulation Act for purposes of board supersession, thereby removing them from the Article 243ZL(1) six-month cap. Since the Banking Regulation Act (Section 36AAA) does not itself prescribe a specific maximum period beyond the five-year outer limit read from its provisions, RBI may sustain a supersession for longer periods as warranted by the banking situation, subject to that five-year aggregate ceiling.

Key Facts

• Case: Sandeep S. Ghandat & Ors. vs Reserve Bank of India & Ors.
• Citation: 2026 INSC 955
• Date: September 3, 2026
• Bench: Justice Pamidighantam Sri Narasimha & Justice Alok Aradhe (Division Bench)
• Subject bank: Abhyudaya Co-operative Bank Ltd. (multi-State co-operative bank, Maharashtra)
• Statutory provision: Section 36AAA(1), Banking Regulation Act, 1949
• Constitutional provision: Article 243ZL, Part IX-B (97th Constitutional Amendment, 2011)
• Key ratio: Third proviso to Art. 243ZL carves banking co-operatives out of the general 6-month supersession cap; Section 36AAA governs instead, with 5-year aggregate outer limit
• On state consultation: Required only for uni-State co-operative banks, not multi-State banks

Constitutional Provisions

• Article 243ZL(1): Provides for supersession and suspension of Boards of co-operative societies; the first proviso limits supersession to six months with mandatory elections thereafter. However, the third proviso carves out banking societies — the Banking Regulation Act applies to them instead.
• Part IX-B (Articles 243ZH–243ZT): Comprehensive constitutional framework for co-operative societies, inserted by the 97th Constitutional Amendment, 2011. Covers incorporation (243ZI), voting rights (243ZJ), elections (243ZK), audit (243ZM), convening of general body meetings (243ZN), right to information (243ZO), return of elected members of board (243ZP), offences and penalties (243ZQ), application to multi-State co-operatives (243ZR), application to Union territories (243ZS), exemptions (243ZT).
• Article 246 + Entry 45, List I (Union List): "Banking" is a Union subject — Parliament has exclusive legislative competence over banking regulation, including co-operative banks engaged in banking business.
• Article 19(1)(c): Freedom to form associations, including co-operative societies (added by the 97th Amendment, which also added co-operative societies to Art. 19(1)(c) specifically — though this provision was partially struck down by the SC in Union of India vs Rajendra N. Shah (2021) for states, the core banking regulatory framework was unaffected).

Legal Framework

• Banking Regulation Act, 1949 — Section 36AAA: Inserted by the Banking Regulation (Amendment) Act, 2020. Empowers RBI to supersede the Board of a co-operative bank "if it is satisfied that it is in the interests of the banking policy or in the public interest or in the interests of the co-operative bank or its depositors so to do." RBI appoints an Administrator. The section allows extension of the supersession period.
• Multi-State Co-operative Societies Act, 2002: The primary statute for multi-State co-operative societies (including multi-State co-operative banks) for non-banking matters — registration, elections, audit, dissolution. The Central Registrar of Co-operative Societies administers it.
• Reserve Bank of India Act, 1934: Basis of RBI's broader regulatory authority. Read with the Banking Regulation Act, it forms the complete regulatory framework.
• Union of India vs Rajendra N. Shah (2021): SC had partially struck down the 97th Constitutional Amendment as it applied to states — because it was not ratified by the requisite number of state legislatures (required under Article 368(2) proviso for amendments affecting state legislative lists). However, the court upheld Part IX-B as it applies to multi-State co-operative societies (Entry 44, List I) — so the constitutional provisions in this judgment were validly applicable.

Institutional Framework

• Reserve Bank of India (RBI): Banking regulator under the Banking Regulation Act, 1949 and RBI Act, 1934; has power to supersede co-operative bank boards under Section 36AAA (upheld by this judgment)
• Central Registrar of Co-operative Societies (CRCS): Under Ministry of Co-operation; administers the Multi-State Co-operative Societies Act; handles non-banking matters of multi-State co-operative societies
• Ministry of Co-operation: Created in July 2021 under Cabinet Minister Amit Shah; dedicated ministry for co-operative sector development — separate from the earlier role within the Ministry of Agriculture
• Deposit Insurance and Credit Guarantee Corporation (DICGC): Provides deposit insurance (up to ₹5 lakh per depositor per bank) to co-operative bank depositors — protection that becomes critical when RBI supersedes a troubled bank
• National Co-operative Union of India (NCUI): Apex organisation of the co-operative movement in India; not a regulator but important stakeholder in co-operative governance
• NABARD (National Bank for Agriculture and Rural Development): Regulates and supervises State Co-operative Banks (StCBs) and District Central Co-operative Banks (DCCBs) — note: this is distinct from urban/multi-State co-operative banks under RBI

Economic Dimensions

India has approximately 1,500+ urban co-operative banks (UCBs) and several multi-State co-operative banks with an estimated ₹5–6 lakh crore in deposits collectively. These banks serve as critical financial access points for the lower-middle class, small traders, artisans, and housing societies — particularly in Maharashtra, Gujarat, Karnataka, and Andhra Pradesh.

The RBI's strengthened supervisory authority (upheld in this judgment) has direct economic implications: depositor confidence in co-operative banks rests on the assurance that RBI can intervene swiftly and for as long as necessary to protect deposits. Without this authority, the risk of systemic bank runs in the co-operative sector would be significantly higher.

Banking and Financial awareness angle (IBPS/SBI/RBI Grade B): The Deposit Insurance and Credit Guarantee Corporation (DICGC) covers deposits up to ₹5 lakh per depositor per bank — this ceiling was enhanced from ₹1 lakh to ₹5 lakh in 2021. RBI's Administrator appointment during supersession ensures bank operations continue and DICGC-covered depositors are protected even if the bank eventually winds up.

The judgment also has implications for credit flows: RBI-appointed Administrators typically operate conservatively, reducing loan disbursements during supersession. This can temporarily constrain credit to small borrowers who depend on co-operative banks — a social cost of regulatory intervention that must be managed with timelines in mind (hence the five-year outer cap).

Social Dimensions

Co-operative banks have historically served as instruments of financial inclusion — reaching communities, professions, and geographies that commercial banks do not adequately serve: weavers' co-operatives, teachers' credit societies, dairy farmers, transport workers. The Abhyudaya Co-operative Bank, for instance, primarily served middle-class and lower-middle-class depositors in the Mumbai metropolitan region. Board supersession — while disruptive — ultimately protects these depositors from losing savings in a system they trusted.

The creation of the Ministry of Co-operation (2021) signals a broader governmental commitment to strengthening the co-operative movement. The Sahakar se Samriddhi (Prosperity through Co-operation) vision of the government aims to make India's co-operative sector globally competitive — which requires both stronger governance (enabled by this judgment) and support for well-managed co-operatives.

Challenges

• Governance deficit in co-operative banks: Many UCBs suffer from political interference in board composition, connected lending, and weak internal controls — systemic issues that Section 36AAA addresses after the fact but cannot prevent upfront
• Dual regulation complexity: Even with this judgment, the boundary between RBI authority (banking) and state/CRCS authority (management/membership) remains complex — e.g., elections to the restored Board must still comply with state co-operative law
• Five-year horizon uncertainty: If a bank's problems are deep enough that five years of Administrator management does not resolve them, the only exits are amalgamation or winding up — both painful for depositors and the community
• Limited regulatory capacity: RBI regulates over 1,500 UCBs with limited specialised staff; supervisory coverage is inevitably uneven
• Community resistance: Co-operative bank boards often have strong local political backing; supersession frequently faces legal challenges (like this case) that consume judicial and regulatory resources

Government Initiatives

• Banking Regulation (Amendment) Act, 2020: Strengthened RBI's oversight by inserting Sections 36AAA–36AAC; this judgment validates the amendment's constitutionality and scope
• Ministry of Co-operation (2021): New dedicated ministry to develop the co-operative sector; works with NABARD, RBI, and CRCS on co-operative bank health
• DICGC Insurance Enhancement (2021): Deposit insurance cover raised from ₹1 lakh to ₹5 lakh; for banks under moratorium/Administrator, interim insurance payouts can be made to depositors within 90 days
• Co-operative Banking Regulatory Framework (RBI Circular 2022): RBI issued a comprehensive circular laying out governance norms, fit-and-proper criteria for directors, and audit requirements for urban co-operative banks
• NABARD's Supervision of Rural Co-operative Banks: For State Co-operative Banks (StCBs) and DCCBs, NABARD acts as supervisor under RBI delegation — a separate but parallel supervisory framework

Way Forward

The Parliamentary Standing Committee on Finance has previously recommended a Co-operative Banking Regulatory Authority as a dedicated regulator distinct from RBI, given the dual-regulation complexity. The 2nd Administrative Reforms Commission (2nd ARC) recommendations on banking governance also touched on the need for unified co-operative bank regulation. Based on these and established policy discussion:

• Professionalise co-operative bank boards: Mandatory fit-and-proper criteria (professional qualifications, cooling-off periods) for all UCB/multi-State co-operative bank directors, as recommended in RBI's 2022 governance circular
• Strengthen DICGC payout speed: Ensure that depositors in superseded/failed co-operative banks receive DICGC-insured amounts within 30 days (current standard: 90 days); this reduces social distress during bank crises
• Preventive supervision: RBI's Prompt Corrective Action (PCA) framework — already applicable to commercial banks — should be fully extended to all UCBs and multi-State co-operative banks, enabling early intervention before supersession becomes necessary
• Mandatory core banking solutions (CBS): All UCBs must migrate to CBS for real-time transaction monitoring; RBI has set deadlines, but compliance in smaller UCBs remains incomplete
• Clearer exit pathways: Streamlined merger/amalgamation procedures for weak UCBs into stronger ones or into small finance banks — reducing the need for prolonged Administrator management

Possible Mains Questions

1. "The Supreme Court's ruling in Sandeep Ghandat vs RBI (2026) resolves a critical ambiguity in the constitutional framework for co-operative banking regulation, but the underlying governance deficit in India's co-operative banks remains unaddressed." Critically examine the regulatory and governance challenges facing India's urban co-operative banks. (GS II + GS III, 250 words)
2. Discuss the significance of the 97th Constitutional Amendment in creating a framework for co-operative societies in India. What are the key constitutional provisions introduced by Part IX-B, and how do they interact with Parliamentary legislation on banking? (GS II, 250 words)

Possible Prelims MCQs

1. Q: Part IX-B of the Indian Constitution, dealing with co-operative societies, was inserted by which Constitutional Amendment?
   (a) 73rd Constitutional Amendment Act, 1992
   (b) 74th Constitutional Amendment Act, 1992
   (c) 97th Constitutional Amendment Act, 2011
   (d) 101st Constitutional Amendment Act, 2016
   Answer: (c) The 97th Constitutional Amendment Act, 2011 inserted Part IX-B (Articles 243ZH–243ZT) dealing with co-operative societies, including Article 243ZL on supersession of boards.
2. Q: Which Section of the Banking Regulation Act, 1949 empowers the RBI to supersede the Board of Directors of a co-operative bank?
   (a) Section 22   (b) Section 35   (c) Section 36AAA   (d) Section 45
   Answer: (c) Section 36AAA was inserted by the Banking Regulation (Amendment) Act, 2020, empowering RBI to supersede the Board of a co-operative bank in specified circumstances.
3. Q: In the context of India's co-operative banking regulation, which of the following statements is correct?
   (a) Both urban and rural co-operative banks are exclusively regulated by NABARD
   (b) Urban Co-operative Banks (UCBs) are supervised by RBI for banking functions and by the State Registrar for management functions
   (c) Multi-State Co-operative Banks are regulated solely by the Central Government without RBI oversight
   (d) District Central Co-operative Banks (DCCBs) are directly supervised by RBI
   Answer: (b) UCBs are dually regulated: RBI for banking aspects; State Registrar of Co-operative Societies for management/administrative aspects. DCCBs and StCBs are supervised by NABARD under RBI delegation.
4. Q: According to the Supreme Court judgment in Sandeep Ghandat vs RBI (2026 INSC 955), what is the outer aggregate limit for RBI's supersession of a multi-State co-operative bank's Board under Section 36AAA of the Banking Regulation Act?
   (a) 6 months   (b) 2 years   (c) 3 years   (d) 5 years
   Answer: (d) The Supreme Court held that the outer aggregate limit for supersession under Section 36AAA is 5 years, not the 6-month cap in Article 243ZL(1) (which is displaced by the third proviso to Art. 243ZL for banking co-operatives).
5. Q: The Deposit Insurance and Credit Guarantee Corporation (DICGC) currently provides insurance coverage to bank depositors up to:
   (a) ₹1 lakh per depositor per bank
   (b) ₹2 lakh per depositor per bank
   (c) ₹5 lakh per depositor per bank
   (d) ₹10 lakh per depositor per bank
   Answer: (c) The DICGC insurance ceiling was enhanced from ₹1 lakh to ₹5 lakh per depositor per bank in 2021, covering co-operative bank depositors as well.

Essay Dimensions

1. Co-operative banks: the promise of financial inclusion and the peril of governance failure — can India have both?
2. Between democracy and prudential regulation: the inherent tension in governing co-operative financial institutions
3. The 97th Constitutional Amendment and co-operative federalism: balancing centre-state power in India's co-operative sector
4. From PMC Bank to Abhyudaya: what India's co-operative banking crises teach us about regulatory design
5. Deposit insurance as a pillar of financial inclusion: adequacy, coverage, and the case for higher limits in India

Interview Questions

1. The 97th Constitutional Amendment was partially struck down by the Supreme Court in 2021 (Rajendra N. Shah case) because states were not consulted under Article 368(2). How did the Sandeep Ghandat judgment navigate this complexity for multi-State co-operative banks?
2. India has over 1,500 urban co-operative banks. Should RBI be given exclusive regulatory authority over all of them, eliminating the state Registrar's role — or does the dual structure serve a useful federal purpose?
3. The judgment caps supersession at five years. But what happens after five years if the bank's problems are unresolved? Walk us through RBI's options under the Banking Regulation Act.
4. How does India's DICGC framework compare with deposit insurance systems in the US (FDIC) and EU (DGSD) in terms of coverage limit, speed of payout, and systemic risk management?
5. The Ministry of Co-operation was created in 2021. Has it made co-operative banking governance better? What is its relationship with RBI's supervisory role?

FAQ

What is the significance of the third proviso to Article 243ZL?

The third proviso to Article 243ZL is the constitutional carve-out that makes the Banking Regulation Act, 1949 applicable to co-operative societies carrying on banking business. This displaces the six-month supersession cap in Article 243ZL(1), allowing RBI's broader Section 36AAA power (with a five-year outer limit) to operate instead. The Supreme Court in Sandeep Ghandat vs RBI (2026) identified this proviso as the key to resolving the apparent conflict between the constitutional cap and RBI's statutory power.

What is the difference between multi-State and uni-State co-operative banks for regulatory purposes?

Multi-State co-operative banks operate in more than one state and are registered under the Multi-State Co-operative Societies Act, 2002 (administered by the Central Registrar of Co-operative Societies). They are regulated for banking by RBI and for management by the Central Registrar. Uni-State (single-state) co-operative banks operate in one state, are registered under that state's co-operative societies law, and are dually regulated by RBI (banking) and the State Registrar (management). The Sandeep Ghandat judgment clarified that state government consultation under Section 36AAA is only required for uni-State banks.

What is Section 36AAA of the Banking Regulation Act?

Section 36AAA was inserted by the Banking Regulation (Amendment) Act, 2020. It empowers the RBI to supersede the Board of Directors of a co-operative bank (urban co-operative bank or multi-State co-operative bank) if it is satisfied that it is in the interests of banking policy, public interest, or depositor protection. RBI appoints an Administrator to run the bank during the supersession period. The section has been upheld and interpreted by the Supreme Court in the 2026 judgment to allow supersession for up to five years in aggregate.

What triggered the Abhyudaya Co-operative Bank crisis?

Abhyudaya Co-operative Bank Ltd., a multi-State co-operative bank headquartered in Mumbai, came under RBI scrutiny for governance deficiencies and financial irregularities. RBI invoked Section 36AAA(1) and superseded the Board, appointing an Administrator. The former Board members (petitioners in the Sandeep Ghandat case) challenged the supersession and its extension, leading to the Supreme Court's September 2026 judgment clarifying the outer limits of RBI's supersession power.

Further Reading

• Sandeep S. Ghandat vs RBI — Indian Kanoon
• RBI — Master Directions for Urban Co-operative Banks
• Deposit Insurance and Credit Guarantee Corporation (DICGC)
• PRS Legislative Research — Banking Regulation Amendment Act, 2020