In a ruling delivered on September 3, 2026, the Supreme Court tackled a question that strikes at the heart of democratic governance in India's co-operative banking sector: can the Reserve Bank of India (RBI) indefinitely suspend the board of a multi-state co-operative bank? The case, Sandeep S. Ghandat & Ors. vs. Reserve Bank of India & Ors., Civil Appeal Nos. 5351-5352 of 2025, examines the tension between the constitutional promise of democratic control of co-operative societies and the RBI's regulatory power under the Banking Regulation Act, 1949 (BR Act).
The appellants were directors of the Abhyudaya Co-operative Bank Limited, a multi-state co-operative bank headquartered in Mumbai. They were elected in May 2019 for a statutory term of five years, which expired in May 2024. But long before that, trouble began.
In November 2023, the RBI issued its first supersession order, removing the board and appointing an administrator, citing the bank's deteriorating financial health and the need to protect depositors. The board challenged that order in the Bombay High Court. Then things got bureaucratically surreal: the High Court did not decide the case before the directors' term expired. In November 2024, while the writ petition was still pending, the RBI issued a second supersession order extending the administrator's tenure for another year. The High Court dismissed the writ petition, and the directors appealed to the Supreme Court. While this appeal was pending, the RBI issued yet a third supersession order in November 2025.
At the heart of the dispute is whether the RBI can issue successive supersession orders, effectively extending its control indefinitely, or whether it is limited by the constitutional scheme for co-operative societies under Part IXB of the Constitution, which was inserted by the 97th Constitutional Amendment in 2011.
The Constitutional Framework
Article 243ZL of the Constitution provides that the board of a co-operative society 'shall be superseded or placed under suspension' by the government for a period not exceeding six months, 'provided that the board may be superseded or placed under suspension for a further period not exceeding six months' if the election is not completed for certain reasons. However, a third proviso states that the provisions of the BR Act shall apply to co-operative societies carrying on the business of banking 'in so far as they are inconsistent with the provisions of the Part, notwithstanding anything contained in this Part.'
The RBI argued that this third proviso takes co-operative banks entirely out of the constitutional framework, allowing the RBI to supersede boards for up to five years in aggregate under Section 36AAA of the BR Act. The directors argued that the proviso merely imports the BR Act into the constitutional scheme without displacing the six-month ceiling.
The Supreme Court, in a judgment by Justice Alok Aradhe, rejected the RBI's interpretation. The Court held that the third proviso to Article 243ZL(1) only removes the inconsistency between the BR Act and Part IXB, but does not override the substantive limitation of six months for supersession. The Court reasoned that the constitutional mandate of democratic governance of co-operative societies is a fundamental feature, and that the RBI's power to supersede a board must be read in consonance with this mandate, not in derogation of it.
What This Means for Ordinary Depositors and Members
For the millions of Indians who are members of co-operative banks, this ruling is a shot in the arm for democratic participation. Co-operative banks are not just financial institutions; they are democratic bodies where each member has an equal say in electing the board. The Supreme Court has now made it clear that the RBI cannot use its regulatory power to indefinitely suspend the elected representatives of these members, without following the constitutional discipline.
But does this expose co-operative banks to risky management? The RBI's primary concern is the safety of depositors' money. The Court recognized this concern but emphasized that the proper remedy is for the RBI to initiate the process of election of a new board within the six-month window. If elections cannot be held for valid reasons, the RBI can seek an extension from the government, but not on the automatic basis of successive orders.
The practical effect of the judgment is that orders like the Second and Third Supersession Orders — which were passed after the original board's term had expired, and which effectively create a perpetual administrator raj — are unsustainable in law.
Procedural Fairness Still Matters
The Court also addressed the petitioners' argument that they were not heard before the supersession orders were passed. While the High Court had held that principles of natural justice cannot be read into Section 36AAA of the BR Act, the Supreme Court did not categorically rule on that issue, instead focussing on the more fundamental question of the duration of supersession. However, the Court's reasoning implicitly suggests that because the RBI's power is limited, it must act transparently and with reason, not as a de facto nationalization of a private co-operative.
This is not just a legal technicality. When a board is superseded, members lose their voice in how their bank is run. The administrator, however experienced, is not answerable to the members. A long-drawn supersession without elections undermines the very concept of a co-operative.
The Way Forward
The Court set aside the impugned judgment of the Bombay High Court to the extent it upheld the successive orders, and directed that the RBI's orders of supersession, whether first, second, or third, are subject to the six-month limitation unless extended in accordance with Article 243ZL(1). The matter is likely to be remanded for fresh consideration in light of this interpretation.
In the meantime, the more than 1,500 co-operative banks in India (a huge portion of the banking sector) can avoid this kind of regulatory limbo by promptly holding elections when a board's term expires. The RBI, for its part, must act within the constitutional bounds, not outside them — even when it operates under the shadow of a bank collapse.
The ruling arrives at a critical time when the co-operative banking sector is emerging from the shadow of the Punjab and Maharashtra Co-operative (PMC) Bank crisis, which highlighted how mismanagement can hurt lakhs of depositors. However, the cure for mismanagement in a democracy is not indefinite suspension, but prompt electoral correction. This judgment ensures that the remedy of democratically electing a new board cannot be delayed excessively by the regulator.
In a one-line summary: the Supreme Court has told the RBI that it can remove a bank's board to protect depositors, but it cannot use that power to dismantle the democratic structure of co-operative banks that the Constitution protects.