CASE: M/S NIRMAL UJJWAL CREDIT CO-OPERATIVE SOCIETY LTD. v. RAVI SETHIA & ORS.
PETITION NUMBER: CIVIL APPEAL NO. 11193 OF 2025
CITATION: 2026 INSC 338
DATE OF JUDGEMENT: 09.04.2026
HON’BLE JUDGE/ CORUM: HON’BLE JUSTICE J.B. PARDIWALA AND HON’BLE JUSTICE K.V. VISWANATHAN
INTRODUCTION
Justice J.B. Pardiwala and Justice K.V. Viswanathan, on April 9, 2026, addressed a pivotal question regarding the investment eligibility of Multi-State Co-operative Societies (MSCS) under the Insolvency and Bankruptcy Code 2016 (IBC). Although the appellant sought to withdraw the appeal due to subsequent developments, the Court exercised its discretion to clarify the legal position concerning Section 64(d) of the MSCS Act, 2002. The Court focused on whether a co-operative society can act as a Resolution Applicant for a Corporate Debtor whose business activities do not strictly align with the society’s own charter and bye-laws.
FACTUAL MATRIX
The appellant is a co-operative society that operates a textile unit named ‘Nirmal Textile’ in Nagpur, registered under the provisions of the MSCS, 2002 (2002 Act). In 2023, the Government brought an amendment to Section 64 of the 2002 Act to insert certain qualifying terms in Clause (d) that an MSCS may invest or deposit its funds, among other things, in the shares, securities, or assets of a subsidiary institution or any other institution ‘in the same line of business as the MSCS’. The appellant brought an amendment to its bye-laws to include the verbatim provision of the amendment. Subsequently, the Central Registrar issued a certificate of registration and approved the amendment to the bye-laws of the appellant.
Concurrently, the Corporate Insolvency Resolution Process (CIRP) proceedings of Morarji Textiles Ltd (Corporate Debtor) had commenced, and the NCLT appointed an Interim Resolution Professional (IRP/RP)- respondent no. 1, who issued an invitation seeking expression of interests (EOI) under Section 25(2)(h) of the IBC. The appellant, after receiving the resolution to bid, submitted its EOI and was accepted to the Committee of Creditors (COC).
Subsequently, the RP sought the documents of the appellant in accordance with Regulation 36A(9) of the IBBI (CIRP) Regulations, 2016. The appellant complied and further clarified the reason for investing in the corporate debtor, specifically mentioning the details of its cotton ginning, pressing, and spinning mill. However, upon perusal, the RP vide its email declared the appellant to be ineligible on the ground of the resolution plan being against the provisions of the bye-laws of the appellant, hence in contravention of Section 30(2)(e) of the IBC.
PROCEDURAL HISTORY
Aggrieved by the declaration of its ineligibility, the appellant filed before the NCLT, which held that the appellant was ineligible to submit the resolution plan in the CIRP as the bye-laws of the appellant do not allow it to invest and also found that the appellant is neither a subsidiary institution nor in the same line of business as the corporate debtor. Correspondingly, the NCLAT dismissed the appellant’s appeal on similar grounds, i.e. the limited objective of the appellant’s production in ‘agro-product’; and the bye-laws were not amended on the date of submission of the resolution plan.
The appellant before the Hon’ble Supreme Court humbly requested to withdraw the present appeal in the wake of some developments, which was allowed, and the Court clarified that, having regard to the importance of the issue involved in the present litigation, it would adjudicate only with a view to explain the position of law or rather, the principles governing the pivotal issue in question without returning any findings on the merits of the appeal.
ANALYSIS
- Meaning and scope of the expression “any other institution in the same line of business”.
- Applicability of the standard of “same line of business” to the facts of the present case.
SUBMISSIONS BY THE PARTIES
Mr Mukul Rohatgi and Mr Rajiv Shakdher, the ld. Senior counsel appearing for the appellant submitted that the appellant is not barred from submitting a resolution plan or from investing in the corporate debtor. The appellant had carried out certain amendments to its bye-laws, to bring it in consonance with the 2023 amendment and permit the appellant to invest in an entity ‘in the same line of business’. Thus, as per the object clause in the bye-laws, the appellant is entitled to purchase, produce, procure, and distribute the “agro-products” for the processing of the product and byproduct. Further, they submitted that the expression “in the same line of business” has not been defined in the Act, and so, resorting to the ordinary meaning it would mean to engage in a business which is the same or similar in nature and thus, in the present matter, the appellant has a textile vertical in the name and style of ‘Nirmal Textile’ which would be within the phrase of “in the same line of business” for investment/acquisition of the corporate debtor, which also is in the textile business, as a going concern.
Mr. Navin Pahwa, the learned senior counsel appearing for the RP, submitted that the resolution plan submitted by the appellant did not meet the requirement of Section 32(2)(e) of IBC since the investments made by an MSCS are governed by Section 64 of the 2002 Act, according to which an MSCS can only invest in share securities or assets of:
(i) a subsidiary institution, or
(ii) any other institution in the same line of business
He submitted that before investing its resources, the appellant must demonstrate that the institution it is investing in is either its subsidiary or that it is “in the same line of business”. Further, a 2 fold argument was made: (i) that the corporate debtor is not an existing subsidiary institution of the appellant, and (ii) that the corporate debtor is not in the same line of business as the appellant.
JUDGEMENT ANALYSIS
The Ministry of Cooperation, in its comments, specifically highlighted that the absence of any limiting standard had enabled certain societies to deploy funds in a manner that did not align with prudential considerations. The introduction of restrictions, including the phrase ‘same line of business’ in Section 64(d) of the MSCS Act, formed part of a larger legislative attempt to curb the misuse of society’s funds, prevent risky investments, and bring about overall financial discipline in the functioning of MSCSs.The phrase ‘any other institution’ in 64(d) is open-ended and has been misused by some societies for making dubious investments. Therefore, the restriction operates within the framework already chosen by the society.
This indicates that the expression ‘same line of business’ refers to a substantive sameness or close nexus in core business activities, and not a remote or incidental connection. 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. This requirement 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. Consequently, 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.
Further, the Court observed that Clauses 5(a) to 5(r) of the bye-laws show that the appellant is primarily a co-operative society engaged in accepting deposits, advancing loans, and providing various facilities to its members. These clauses indicate that the main business activity that the appellant is entitled to carry out as per the bye-laws is that of a financial service provider and member-oriented co-operative, and not a standalone industrial manufacturing entity. The permissible business activity under Clause 5(s) of the appellant’s bye-laws is centred around ‘agro-products’, i.e., products derived from agriculture. Thus, the clause does not envisage standalone industrial manufacturing across all categories, but confines the activity to agro-products and allied processing.
The Corporate Debtor is engaged in the business of man-made fibre/viscose-based textiles, which involves synthetic or semi-synthetic raw materials. This is distinct from agro-based processing, which the appellant is permitted to undertake under the bye-laws. Under the second limb of Section 64(d), the requirement is for predominantly or substantially the same or closely related business activities. Such sameness is not present in the present case. The Court clarified that the revenue earned or profit/loss incurred has no relevance in determining the standard of the same line of business, which necessarily has to be determined through the bye-laws of the MSCS only.
CONCLUSION
The Supreme Court concluded that Section 64(d) of the MSCS Act serves as a vital safeguard against the misuse of co-operative funds by restricting investments to subsidiaries or institutions with a predominant or substantial sameness in business activities. By affirming that the line of business must be determined strictly through the society’s object clause, the Court reinforced the principle that statutory compliance under Section 30(2)(e) of the IBC includes adherence to the specialised regulations governing the Resolution Applicant’s own entity type. Ultimately, the appeal was dismissed as withdrawn, leaving the CIRP to proceed under the established legal guidelines.
