New Delhi — The Supreme Court of India on Thursday clarified the scope of participation by multi-state co-operative societies in insolvency proceedings, ruling that such entities can submit resolution plans under the Insolvency and Bankruptcy Code (IBC) only if their bye-laws expressly permit the investment and the target entity operates in the “same line of business.”
A Bench comprising Justices J.B. Pardiwala and K.V. Viswanathan held that Section 64(d) of the Multi-State Co-operative Societies Act, 2002 restricts multi-state co-operative societies (MSCS) from deploying funds outside their core domain. Investments, the Court said, are permissible only in subsidiary institutions or entities engaged in a substantially similar line of business, as defined by the society’s own bye-laws.
Bye-laws central to determining eligibility
Emphasizing the primacy of a society’s governing documents, the Court observed that bye-laws constitute the “decisive charter” for assessing whether a proposed investment falls within permissible limits. It noted that every MSCS is required to frame its bye-laws in accordance with statutory provisions, including an object clause outlining its core activities, and may amend them through prescribed procedures.
Referring to the deliberations of the Joint Parliamentary Committee on the 2023 amendment to the Act, the Bench said the restrictions were introduced to prevent misuse of funds and ensure that investments remain aligned with the co-operative’s foundational objectives.
The Court also clarified that the phrase “same line of business” must be interpreted narrowly, requiring a “substantial, predominant, or closely related sameness” in core activities. It rejected broader interpretations that could include remote or incidental overlaps.
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Case background: Morarji Textiles insolvency
The ruling came in an appeal filed by Nirmal Ujjwal Credit Co-operative Society Ltd., which had sought to participate in the corporate insolvency resolution process (CIRP) of Morarji Textiles Ltd..
The CIRP against Morarji Textiles commenced in February 2024, with the Resolution Professional inviting expressions of interest in May that year. The appellant submitted its bid later that month, initially offering ₹120 crore, which was subsequently revised to ₹169 crore.
However, the Resolution Professional, in February 2025, declared the society ineligible on the ground that the proposed investment was inconsistent with its bye-laws and the governing statute. The decision was upheld by the National Company Law Tribunal in April 2025 and later by the National Company Law Appellate Tribunal in August 2025.
Court finds no business overlap
A detailed examination of the appellant’s bye-laws led the Supreme Court to conclude that its primary activities were financial and member-centric—such as accepting deposits, extending loans, and providing welfare services. Its involvement in agro-based processing was found to be limited and incidental.
By contrast, Morarji Textiles operates in the manufacturing of man-made fibre textiles, a sector the Court found to be fundamentally different from the appellant’s core operations.
“Such divergence,” the Bench noted, “does not satisfy the requirement of substantial or predominant sameness in business activities.”
The Court further cautioned that merely amending investment clauses in bye-laws to mirror statutory language would not suffice. For eligibility under Section 64(d), the core object clauses themselves must reflect engagement in the relevant line of business.
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Appeal withdrawn, cost issue left open
During the hearing, the appellant sought permission to withdraw its appeal, which the Court allowed. It also recorded that out of ₹2 crore earlier directed towards CIRP-related costs, ₹1.63 crore had already been deposited, leaving a balance of ₹36.57 lakh.
The Court granted liberty to the Resolution Professional to pursue recovery of the remaining amount before the appropriate adjudicating authority.
Wider implications
The judgment is expected to have significant implications for co-operative societies seeking to participate in insolvency resolution processes. By underscoring strict adherence to statutory limits and internal governance frameworks, the ruling reinforces the principle that co-operative funds must be deployed in alignment with their intended purposes.
Legal experts say the decision could lead to closer scrutiny of resolution applicants’ constitutional documents in future CIRP proceedings, particularly where eligibility hinges on the nature and scope of their business activities.
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