Supreme Court clarifies scope of “same line of business” under section 64(d) of the multi-state co-operative societies act; affirms restriction on investments by co-operative societies under IBC

The Hon’ble Supreme Court, in its judgment dated April 9, 2026, in Nirmal Ujjwal Credit Co-Operative Society Ltd. v. Ravi Sethia and Others, addressed the critical issue of 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, and its applicability in determining the eligibility of an MSCS to submit a resolution plan under Section 30(2)(e) of the Insolvency and Bankruptcy Code, 2016 (IBC).

The appeal before the Hon’ble Supreme Court arose from the judgment dated August 21, 2025 passed by the Hon’ble NCLAT, which affirmed the order dated April 9, 2025 passed by the Ld. NCLT, Mumbai, declaring the Appellant ineligible to submit its resolution plan in the Corporate Insolvency Resolution Process (CIRP) of M/s Morarji Textiles Ltd. (Corporate Debtor). The Appellant, a Multi-State Co-operative Society registered under the 2002 Act operating a textile unit named ‘Nirmal Textile’, had submitted a resolution plan for a total sum of Rs. 169 Crores. The Resolution Professional (RP) declared the Appellant ineligible on the ground that its bye-laws did not permit investment in the Corporate Debtor, thereby contravening Section 30(2)(e) of the IBC read with Section 64(d) of the 2002 Act.

The Appellant contended that following the 2023 amendment to Section 64(d), it had amended Clause 52 of its bye-laws to incorporate the verbatim language of the amended provision. It further argued that its textile vertical, ‘Nirmal Textile’, placed it within the “same line of business” as the Corporate Debtor. The Respondents contended that the Appellant was predominantly a credit co-operative engaged in financial services, that its textile activity was merely incidental, and that the Corporate Debtor’s business of manufacturing man-made fibre/viscose textiles was fundamentally different from agro-based processing.

The Hon’ble Supreme Court, while permitting the withdrawal of the appeal but choosing to settle the underlying legal principle, held as follows:

1. Legislative Intent: The insertion of the phrase “in the same line of business” in Section 64(d) through the 2023 amendment was intended to address the misuse of the earlier open-ended provision permitting investment in “any other institution,” and to prevent diversion of co-operative funds into dubious or unrelated investments while securing the safety of members’ deposits.

2. Standard of Determination: The expression “same line of business” requires a substantial or predominant, or closely related sameness in business activities, which must be determined with reference to the objects and functions contained in the bye-laws of the MSCS.

3. Bye-Laws as Decisive Charter: The determination of whether an institution operates in the same line of business as an MSCS must be made with reference to its bye-laws, which constitute the decisive charter document. Every MSCS frames its bye-laws in accordance with the 2002 Act, including an object clause under Section 10(2).

4. Illustrative Reference to NIC Codes: The Court noted that guidance may be drawn from analogous regulatory frameworks such as the SEBI (Delisting of Equity Shares) Regulations, 2021, which assess whether entities are in the same line of business based on NIC Codes. However, such guidance is only illustrative, and the determination must ultimately be made with reference to the bye-laws of the MSCS.

5. Application to Facts: The Court observed that the Appellant’s bye-laws (Clause 5) indicated its predominant business was financial services and member welfare. Clause 5(s), which permitted processing of “agro-products,” did not extend to standalone industrial manufacturing. The Corporate Debtor’s business of man-made fibre/viscose textiles was distinct from agro-based processing and could not satisfy the requirement of substantial sameness.

6. Revenue Not Determinative: The Court clarified that revenue earned or profit/loss incurred has no relevance in determining the standard of “same line of business,” which must necessarily be determined through the bye-laws of the MSCS only. The NCLAT’s reliance on comparative revenue figures (Rs. 194.27 Cr. from financial services vs. loss of Rs. 3.37 Cr. from Nirmal Textiles) was incorrect as a methodological matter.

7. Amendment to Clause 52 Insufficient: Even assuming the amendment to Clause 52 (incorporating Section 64(d) language) were taken on record, it would not advance the Appellant’s case since it merely governs the manner in which funds may be invested and does not amend, alter, or expand the objects and functions under Clause 5 of the bye-laws.

Conclusion

This judgment has provided essential clarity on the restrictive standard governing investments by Multi-State Co-operative Societies under the IBC framework. The Court affirmed that a resolution plan which contravenes the investment restrictions under Section 64(d) of the 2002 Act — by proposing investment in an entity not in the “same line of business” as determined through the MSCS’s bye-laws — fails to satisfy the requirement of Section 30(2)(e) of the IBC. The judgment ensures that co-operative societies cannot circumvent statutory investment restrictions by relying on incidental or peripheral business activities to establish eligibility as resolution applicants.