Expression “Same Line Of Business” U/S 64(d) MSCS Act Must Be Construed With Reference To Bye-Laws; Sameness In Core Activities Required: Supreme Court
The Apex Court held that a restriction introduced through the 2023 amendment to Section 64(d) of the MSCS Act, 2002, mandates that investments by an MSCS must align with its core business as defined in its bye-laws.
Justice J.B. Pardiwala, Justice K.V. Viswanathan, Supreme Court
The Supreme Court held that the expression “same line of business” under Section 64(d) of the Multi-State Co-operative Societies Act, 2002 must be interpreted with reference to the objects and functions contained in the bye-laws of the society, and requires a determination of substantial or predominant sameness in core business activities, rather than a broad or incidental overlap.
The Court was hearing a statutory appeal arising from insolvency proceedings, wherein the appellant-cooperative society was declared ineligible to submit a resolution plan on the ground that the proposed investment did not satisfy the requirement under Section 64(d) of the 2002 Act.
A Bench of Justice J.B. Pardiwala and Justice K.V. Viswanathan observed: “In view of the aforesaid legislative intent underlying the 2023 amendment, and the guidance available from the JPC deliberations, it becomes evident that the expression ‘any other institution in the same line of business’ under Section 64(d) is not to be construed in an expansive manner, … it requires that, before deploying its funds, an MSCS must satisfy a threshold condition that the proposed investment aligns with its own line of business as reflected in its bye-laws”.
Senior Advocates Mukul Rohatgi and Rajiv Shakdher appeared for the appellant, while Senior Advocates Neeraj Kishan Kaul and Navin Pahwa appeared for the respondents.
Background
The appellant, a Multi-State Co-operative Society, sought to participate as a resolution applicant in the Corporate Insolvency Resolution Process under the Insolvency and Bankruptcy Code, 2016. Its resolution plan, however, was rejected by the Resolution Professional because such an investment would contravene Section 64(d) of the 2002 Act, which governs deployment of funds by cooperative societies.
The National Company Law Tribunal held the appellant ineligible on the basis that its bye-laws did not permit such investment, and further found that the corporate debtor was neither a subsidiary institution nor in the same line of business as the appellant. This finding was affirmed by the National Company Law Appellate Tribunal.
Before the Supreme Court, the appellant contended that it had amended its bye-laws in line with the 2023 amendment and that its activities in the textile sector placed it within the “same line of business” as the corporate debtor. The respondents, however, argued that the appellant’s primary business remained financial services and that its limited agro-processing activities could not be equated with industrial manufacturing undertaken by the corporate debtor.
Court’s Observation
The Apex Court undertook an extensive analysis of Section 64(d) of the 2002 Act and its interplay with Section 30(2)(e) of the Insolvency and Bankruptcy Code, which requires that a resolution plan must not contravene any law in force.
It noted that while the statute permits investment in a subsidiary institution or an institution in the “same line of business”, the latter expression is not defined and must therefore be understood in light of legislative intent and contextual interpretation.
The Court referred to the deliberations of the Joint Parliamentary Committee (JPC), observing that the earlier phrase “any other institution” had been misused for making unsafe and unrelated investments. The insertion of the qualifying phrase “same line of business” was intended to introduce discipline and ensure protection of members’ funds.
The Court held that the expression ‘any other institution in the same line of business’ must not be construed expansively and must satisfy a threshold condition that the proposed investment aligns with its own line of business as reflected in its bye-laws.
This requirement, the Court explained, “keeps a check on the manner in which funds of members of MSCS are being utilised and is intended to prevent diversion into activities that are unrelated or only remotely connected to the core business that an MSCS is entitled to do as per its bye-laws.”
Elaborating on the test to be applied, the Court further observed, “the determination of eligibility under Section 64(d) must involve an examination of the objects and functions contained in the bye-laws of the MSCS and a comparison thereof with the business activities of the target institution, so as to ascertain whether there exists a predominant or substantial sameness between the two”.
Applying this standard, the Court analysed the bye-laws of the appellant in detail and found that its primary activities were centred around financial services, member welfare, and limited agro-based processing. The Court held that these activities could not be equated with the business of the corporate debtor, which involved industrial manufacturing of synthetic or semi-synthetic textiles.
The Court clarified that the mere existence of a textile unit within the appellant’s operations would not satisfy the statutory requirement, as the test is one of predominant and substantive sameness, not incidental overlap.
It further rejected the appellant’s reliance on an amendment to its bye-laws, holding that incorporation of statutory language in the investment clause does not alter the fundamental objects of the society unless the object clause itself is amended.
The Court also clarified that financial metrics such as revenue or profitability are irrelevant for determining “same line of business”, concluding that “the standard of the same line of business necessarily has to be determined through the bye-laws of the MSCS only”.
Conclusion
The Supreme Court held that the expression “same line of business” under Section 64(d) imposes a substantive restriction requiring close and predominant similarity in business activities, determined primarily through the bye-laws of the cooperative society.
In the facts of the case, the appellant was found not to be in the same line of business as the corporate debtor, and therefore ineligible to invest under Section 64(d). While permitting withdrawal of the appeal, the Court clarified the legal position governing such investments.
Cause Title: M/s Nirmal Ujjwal Credit Co-operative Society Ltd. v. Ravi Sethia & Ors. (Neutral Citation: 2026 INSC 338)
Appearances
Appellants: Senior Advocates Mukul Rohatgi, Rajiv Shakdher; Advocates Amit Pai (AOR), Honey Satpal, R. Prashant Reddy, Pankhuri Bhardwaj, Aniruth G. Purusothaman, Abhiyudaya Vats, Keshav Sehgal.
Respondents: Senior Advocates Neeraj Kishan Kaul, Navin Pahwa; Advocates Rajesh Kumar Gautam (AOR), Anant Gautam, Deepanjal Choudhary, Vibhu Sharma, Likivi Jakhalu, Aman Gahlot, Rishi Chauhan, Azal Aekram; Himanshu Satija, Jatin Kumar, Neha Mehta Satija (AOR), Harshit Khanduja; Rajesh J., Dhrupad Vaghani, Guruprasad Naik, Ajit Mk, Rishav Sethi, Md. Arsalan Ahmed, Yashwardhan Aggarwal, Gajendra Singh Negi, Dcosta Ivo Manuel Simon (AOR); Aishwarya Bhati (ASG), Siddharth Dharmadhikari, Aastha Singh, Mayank Pandey, Rajat Nair, Santosh Ramdurg, Yogesh Vats, Shreekant Neelappa Terdal (AOR).