MSCS Act | Co-operative Society Can't Acquire Corporate Debtor Under IBC If Not In 'Same Line Of Business' As Per Its Bye-Laws: Supreme Court

Supreme Court of India, in a significant ruling, held that a Multi-State Co-operative Society (MSCS) is ineligible to submit a resolution plan under the Insolvency and Bankruptcy Code (IBC) for a corporate debtor operating outside its core business domain. A bench of Justice J.B. Pardiwala and Justice K.V. Viswanathan observed that under Section 64(d) of the Multi-State Co-operative Societies Act, 2002, a society's investments are strictly restricted to entities showing a substantial sameness to the society's own object clauses.

M/S Nirmal Ujjwal Credit Co-Operative Society Ltd. sought to acquire Morarji Textiles Ltd., a corporate debtor undergoing the Corporate Insolvency Resolution Process, by submitting a resolution plan of Rs. 169 crore. The Resolution Professional rejected the society's plan under Section 30(2)(e) of the IBC, stating that the society's bye-laws did not permit such an investment under the MSCS Act. This declaration of ineligibility was upheld by both the National Company Law Tribunal and the National Company Law Appellate Tribunal, prompting the society to approach the Supreme Court.

The primary question before the court was the meaning and scope of the expression "any other institution in the same line of business" under Section 64(d) of the Multi-State Co-operative Societies Act, 2002. The court was also called upon to determine whether a credit co-operative society with an incidental agro-processing vertical could lawfully acquire a corporate debtor engaged in the industrial manufacturing of synthetic textiles.

Court Clarifies Law Despite Withdrawal

At the outset of the hearing, the appellant requested to withdraw the appeal. However, noting the broader legal significance of the intersection between the IBC and the MSCS Act, the Supreme Court exercised its discretion to deliver a detailed legal exposition. The bench clarified that while no findings were returned on the specific merits of the appeal, the principles governing the eligibility of an MSCS as a resolution applicant required definitive adjudication.

Bye-Laws Act As The Decisive Charter

Examining Section 30(2)(e) of the IBC, which mandates that a resolution plan must not contravene any prevailing law, the court analysed the restrictions under Section 64(d) of the MSCS Act. The bench noted that an MSCS can only invest in a subsidiary or an institution in the same line of business. The court held that this eligibility must be tested exclusively against the objects and functions outlined in the society's bye-laws.

Legislative Intent To Curb Dubious Investments

To interpret the undefined phrase "same line of business", the court referred to the 2023 Joint Parliamentary Committee report on the MSCS Amendment Act. The bench observed that the phrase was intentionally inserted to stop societies from making unregulated, risky investments. The legislature aimed to prevent the diversion of members' funds into unrelated activities while allowing societies the autonomy to democratically frame their own business lines.

Substantive Sameness In Core Activities Required

The court held that a mere remote or incidental connection between the two entities is insufficient to meet the statutory threshold. The bench explicitly clarified that financial metrics cannot be used to bypass the bye-laws, noting that "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."

"The requirement of being in the same line of business cannot be said to be satisfied merely by adopting the statutory language of Section 64(d)."

Mere Amendment To Investment Clause Insufficient

Addressing the appellant's argument that it had amended its investment clause to mirror the statutory language of Section 64(d), the court ruled this to be fundamentally inadequate. The bench observed that adopting the statutory language for investments does not alter the society's core object clause. Furthermore, the court rejected the society's late attempt to produce its registration certificate of amendment, noting it did not satisfy the requirements of Order XLI Rule 27 of the Code of Civil Procedure, 1908.

Financial Intermediation Distinct From Industrial Manufacturing

Applying these statutory principles, the court found that the appellant was primarily a financial and member-oriented co-operative, whereas the corporate debtor was engaged in the industrial manufacturing of man-made synthetic fibres. Even though the appellant possessed an incidental agro-processing unit, the court ruled that processing agricultural products is completely distinct from the chemically driven manufacturing of synthetic textiles.

The Supreme Court allowed the appellant's application for withdrawal and dismissed the appeal as withdrawn, having clarified the pivotal question of law. The court directed that the Corporate Insolvency Resolution Process of the corporate debtor shall proceed in accordance with the provisions of the IBC.

Date of Decision: 09 April 2026