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Rajasthan High Court has barred the credit co-operative societies from carrying out banking business without licence from the Reserve Bank of India.
The court has also prohibited these societies from carrying out banking activities like ATM and loaning.
A division bench headed by officiating chief justice Sunil Ambwani gave the order on a petition of Sajjan Singh Bhati.
The petitioner had objected to these societies "functioning parallel to banks in violation of co-operative laws, which permit them to accept limited deposits of members with an objective of financial independence."
Petitioner's counsel S P Sharma argued in the court that these societies have been accepting deposits from people by promising return on "disproportionately high rates", which was in violation of the cooperative laws and rules.
Sharma argued that for any banking business, license from the RBI is imperative and alleged that these societies, without any permission from the Central bank, have been carrying out all the functions of a bank like taking deposits, setting up ATMs and giving loans through advertisements.
Another counsel D S Rathore said there have been a number of incidents where these societies decamped with huge amount deposited by the people in the lure of impractically exorbitant returns.
Sharma told that the court has earlier issued notices to the Union government, state and RBI.
RBI is yet to file its reply but in principal, the RBI has also ascribed the functioning of these societies as "illegal and has demanded them to be closed".
"Same was the reply from the Union government, which also wanted them to prohibited from carrying out banking activities whereas the state government termed the issue out of their jurisdiction," said Sharma.
