M/S. NIRMAL UJJWAL CREDIT CO-OPERATIVE SOCIETY LTD. v. RAVI SETHIA
Interpretation of "Same Line of Business" under MSCS Act for Resolution Applicants: Determining Eligibility Based on Primary Objects in Bye-laws.
Court: Supreme Court of India
Citation: 2026 INSC 338
Decision Date: 09-04-2026
List of Laws
Multi-State Cooperative Societies Act, 2002; Insolvency and Bankruptcy Code, 2016; Multi-State Cooperative Societies (Amendment) Act, 2023; Code of Civil Procedure, 1908; IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016
- Facts: The appellant is a multi-state co-operative society primarily engaged in providing financial services and member welfare activities. During the Corporate Insolvency Resolution Process (CIRP) of Morarji Textiles Ltd. (the Corporate Debtor), the appellant submitted a resolution plan. However, the Resolution Professional and the Committee of Creditors (CoC) declared the appellant ineligible, asserting that the investment would violate Section 64(d) of the Multi-State Cooperative Societies Act, 2002. This provision restricts a society's investment to subsidiary institutions or entities in the "same line of business". While the appellant operated a small textile unit ("Nirmal Textile"), the Corporate Debtor was engaged in industrial manufacturing of synthetic man-made fibres. The appellant argued that its textile vertical and amended bye-laws qualified it as being in the "same line of business".
- Procedural Posture: The NCLT Mumbai upheld the appellant's ineligibility. On appeal, the NCLAT affirmed the NCLT's decision, finding that the appellant's predominant business was finance and its agro-based textile activity differed significantly from the Corporate Debtor's industrial synthetic textile business. The appellant subsequently moved the Supreme Court. During the pendency of the appeal, the appellant sought to withdraw the case; however, the Court decided to examine the legal issues due to their systemic importance.
- Issue: What is the meaning and scope of the expression "any other institution in the same line of business" under Section 64(d) of the Multi-State Cooperative Societies Act, 2002, and how is it determined?
- Holding: The expression requires a substantial, predominant, or closely related sameness in core business activities, which must be determined solely with reference to the "objects and functions" clause in the society's bye-laws.
- Reasoning: The Court reasoned that the 2023 amendment to Section 64(d) was a restrictive measure intended to prevent the misuse of members' funds for dubious or unrelated investments. Determination of the "line of business" cannot be based on remote or incidental activities, nor on financial performance (revenue/profits). Instead, the bye-laws serve as the decisive charter. In this case, the appellant’s bye-laws primarily established it as a financial credit society. Its limited "agro-product" processing activity did not align with the Corporate Debtor’s industrial manufacturing of synthetic fibres. Furthermore, merely amending the investment clause of the bye-laws to mirror the statute, without expanding the "object clause", was insufficient to change the society's legal line of business.
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