Safeguarding Parliamentary Supremacy: How We Challenged the Central Bank’s Restriction on Credit Institutions

One of the most persistent challenges in administrative law is the tendency of executive regulatory bodies to quietly narrow or alter legislative mandates through internal instructions and directives. Recently, in a lawsuit I brought against the Central Bank of the Islamic Republic of Iran before the General Board of the Administrative Court of Justice (Note for foreign readers: The Administrative Court of Justice is Iran's highest judicial authority tasked with reviewing administrative actions and striking down illegal government regulations), we confronted a clear instance of an executive body exceeding its regulatory authority.

The dispute centered on the Central Bank's newly enacted "Instruction on the Establishment, Activity, Management, and Supervision of Credit Institutions." Under Article 7 of this directive, the Central Bank restricted the permissible corporate structure for establishing banking and non-banking credit institutions exclusively to "Public Joint Stock Companies."

However, the Iranian Parliament, in Article 1 of the Law Amending the Implementation of Article 44 Policies of the Constitution (Note: Article 44 of the Iranian Constitution governs the national economic structure and mandates the expansion of non-state and cooperative sectors), had explicitly recognized two distinct legal entities for credit institutions: "Public Joint Stock Companies" and "Public Joint Stock Cooperatives" (Note: A "Public Joint Stock Cooperative" is a unique hybrid corporate structure under Iranian law designed to combine cooperative public participation with limits on concentrated ownership).

By unilaterally eliminating the cooperative framework from its directive, the Central Bank not only disregarded explicit parliamentary legislation and usurped legislative power, but also restricted the statutory right of citizens to participate in the financial sector through cooperative structures. In its defense before the court, the Central Bank argued that supervisory frameworks for cooperative banks were currently insufficient and claimed that specifying one format did not explicitly prohibit cooperatives in the distant future.

Nevertheless, on August 25, 2026 (3 Shahrivar 1405 in the Iranian calendar), the General Board of the Administrative Court of Justice fully accepted my legal arguments. The Court ruled that the Central Bank's restriction was illegal and beyond its statutory authority, issuing a binding verdict that annulled Article 7 of the directive. This ruling reinforces a crucial principle of administrative law: no regulatory agency or central bank has the authority to narrow, alter, or restrict the scope of parliamentary legislation through internal rulemaking.

The full text of the petition and the judicial verdict are attached to this post in both Persian and English.

Written by Reza Bastani Namaghi