Not Barred, But Bound: SC Decodes Statutory Constraints on Co-operative Societies as Resolution Applicants Under IBC

The Supreme Court’s judgment in Nirmal Ujjwal Credit Co-operative Society v. Ravi Sethia clarifies the eligibility of co-operative societies to participate as Resolution Applicants (RAs) under the Insolvency and Bankruptcy Code (IBC). The Court held that while the IBC does not explicitly prohibit co-operative societies from bidding for stressed assets, their participation is governed by the statutory constraints of the Multi-State Co-operative Societies Act, 2002 (MSCS Act).

The core restriction lies in Section 64(d) of the MSCS Act, which mandates that societies may only invest funds in subsidiary institutions or entities engaged in the "same line of business." The Bench emphasized that this restriction, reinforced by a 2023 amendment, prevents speculative investments and protects member funds. A society's "line of business" is strictly defined by its own bye-laws, meaning that a resolution plan must not only be commercially viable but also legally permissible under the society’s governing charter.

Consequently, any resolution plan submitted by a co-operative society must pass the test of Section 30(2)(e) of the IBC, which requires that a plan must not contravene any law in force. This ruling ensures that the IBC’s mandate for value maximization does not override the financial discipline and prudential safeguards essential to the cooperative sector.