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THE BANKING REGULATION ACT, 1949

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THE BANKING REGULATION ACT, 1949

    THE BANKING REGULATION ACT, 1949

    CONTENTS

Introduction ... i

    PART I

    Preliminary

Section Pages

    1. Short title, extent and commencement ... 1

     2. Application of other laws not barred 1

    3. Act to apply co-operative societies in certain cases ... 2

     4. Power to suspend operation of Act 4

     5. Interpretation 4

    5A. Act to override memorandum, articles, etc 9

    PART II

    Business of Banking Companies

    6. Forms of business, in which banking companies may, engage ... 9

     7. Use of words "bank", "banker", "banking" or "banking company" ... 14

     8. Prohibition of trading ... 15

     9. Disposal of non-banking assets ... 16

    10. Prohibition of employment of managing agents and restrictions on

     certain forms of employment ... 16

     10-A. Board of Directors to include persons with professional or other

     experiences ... 21

     10-B. Banking Company to be managed by whole-time Chairman ... 24

     10-BB. Power of Reserve Bank to appoint Chairman of a banking

     company ... 26

     10-C. Chairman and certain directors not to be required o hold

    qualification shares ... 27

     10-D. Provisions of Secs. 10-A and 10-B to override all other laws,

     contracts, etc. ... 27

     11. Requirement as to minimum paid-up capital and reserves ... 27

     12. Regulation of paid-up capital, subscribed capital

     and authorised capital and voting rights of share holders ... 30

     12-A. Election of new directors- ... 32

     13. Restriction on commission, brokerage, discount,

     etc. on sale of shares ... 32

     14. Prohibition of charge on unpaid capital ... 32

     14-A. Prohibition of floating charge on assets ... 32

     15. Restrictions as to payment of dividend ... 32

     16. Prohibition of common directors ... 33

     17. Reserve fund ... 33

    (1)

ii BANKING REGULATION ACT, 1949

     18. Cash reserve .... 34

     19. Restriction on nature of subsidiary companies ... 35

     20. Restriction on loans and advances ... 36

     20-A. Restriction on power to remit debts ... 38

     21. Power of Reserve Bank to control advances by banking companies ... 38

     21-A. Rates of interest charged by banking companies not to be subject to

    scrutiny by courts ... 40

     22. Licensing of banking companies ... 44

    23. Restrictions on opening of new, and transfer of

    24. existing places of business ... 47

     24. Maintenance of a percentage of assets ... 48

     25. Assets in India ... 51

     26. Return of unclaimed deposits ... 52

    27. Monthly returns and power to call for other

    28. returns and information ... 52

     28. Power to publish information ... 53

     29. Accounts and balance-sheet ... 53

     30. Audit ... 54

     31. Submission of returns ... 55

     32. Copies of balance-sheet and accounts to be sent to Registrar ... 56

    33. Display of audited balance-sheet by companies

    34. incorporated outside India ... 56

     34. Accounting provisions of this Act not retrospective ... 56

     34-A. Production of documents of confidential nature ... 56

     35. Inspection ... 57

     35-A. Power of the Reserve Bank to give directions ... 59

     35-B. Amendments of provisions relating to appointments of managing

    directors, etc., to be subject to previous approval of the Reserve Bank... 60

     36. Further powers and functions of Reserve Bank ... 61

     36-A. Certain provisions of the Act not to apply to

    certain banking companies ... 63

    PART II-A

    CONTROL OVER MANAGEMENT

    36-AA. Power of Reserve Bank to remove managerial and

     other persons from office ... 64

     36-AB. Power of Reserve Bank to appoint additional directors ... 65

     36-AC. Part-II-A to override other laws ... 66

    PART II-B

    Prohibition of certain activities in relation to

    banking companies.

     36-AD. Punishment for certain activities in relation to

     banking compensation in certain cases 66

    CONTENTS

     iii

     PART II-C

    Acquisition of the Undertakings of Banking Companies

     36-AE Power of Central Government to acquire undertakings of banking

     companies in certain cases 67

     36-AF. Power of the Central Government to make scheme ... 69

     36-AG. Compensation to lie given to shareholders of the acquired bank ... 70

     36-AH. Constitution of the Tribunal ... 71

     36-AI. Tribunal to have powers of a civil court 71

     36-AJ. Procedure of the Tribunals ... 71

    PART III

    Suspension of Business and Winding up of Banking Companies

     36-B. High Court defined ... 72

     37. Suspension of business ... 72

     38. Winding up by High Court ... 73

     38-A. Court liquidator ... 75

     39. Reserve Bank to be official liquidator ... 75

     39-A. Application of Companies Act to liquidators ... 76

     40. Stay of Proceedings ... 76

     41. Preliminary report by official liquidator ... 76

     41-A. Notice to preferential claimants and secured and

    unsecured creditors ... 76

     42. Power to dispense with meetings of creditors, etc. ... 77

     43. Booked depositor's credits to be deemed proved 77

     43-A. Preferential payments to depositors ... 78

     44. Powers of 1-sigh Court in voluntary winding up ... 79

     44-A. Procedure for amalgamation of banking companies ... 80

     44-B. Restriction on compromise arrangement between

     banking company and creditors ... 81

    45. Power of Reserve Bank to apply to Central Government for

    suspension of business by a banking company and to prepare

    scheme of reconstitution or amalgamation 82

    PART-III-A

    Special Provisions for Speedy Disposal of Winding-up Proceedings

    45-A. Part III-A to override other laws ... 91

     45-B. Power of High Court to Decide all claims in respect of

    banking companies ... 92

     45-C. Transfer of pending proceedings ... 93

     45-D. Settlement of list of debtors ... 94

     45-E. Special provisions to make calls on contributories ... 97

     45-F. Documents of banking company to be evidence ... 97

iv BANKING REGULATION ACT, 1949

     45-G. Public examination of directors and auditors ... 97

     45-H. Special provisions for assessing damages against delinquent

    directors, etc . ... 98

     45-I. Duty of directors and officers of banking company to assist in the

    realization of property ... 99

     45-J. Special provisions for punishing offences in relation to banking

    companies being wound up ... 99

     45-K. Repealed. ... 100

     45-L. Public examination of directors and auditors, etc. in respect

     of a banking company under schemes of arrangement ... 100

     45-M. Special Provisions for banking companies working under

    schemes of arrangements at the commencement of the

    Amendments Act 101

     45-N. Appeals ... 101

     45-0. Special period of limitation ... 101

     45-P. Reserve Bank to tender advice in winding-up proceedings ... 102

     45-Q. Power to inspect ... 102

     45-R. power to call for returns and information ... 102

     45-S. Chief Presidency Magistrate and District Magistrate to assist

    official liquidator in taking charge of property of banking

    company being wound up ... 103

     45-T. Enforcement of orders and decisions of High Court ... 103

     45-U. Power of High Court to make rules ... 104

     45-V. References to directors, etc. shall be construed as including

    references to past directors, etc . ... 104

     45-W. Part II not to apply to banking companies being wound up ... 104

     45-X. Validation of certain proceedings ... 104

    PART III-B

    Provisions Relating to Certain Operations of

    Banking Companies

     45-Y. Power of Central Government to make rules for the preservation

    of records ... 105

     45-Z. Return of paid instruments to customers ... 105

     45-ZA. Nomination for payment of depositor's money ... 105

     45-ZB. Notice of claims of other persons regarding deposits not

     receivable ... 106

     45-ZC. Nomination for return of articles kept in safe custody with

     banking company ... 107

     45-ZD. Notice of claims of other persons regarding articles

     not receivable ... 109

     45-ZE. Release of contents of safety lockers ... 109

     45-ZF. Notice of claims of other persons regarding safety lockers

    not receivable ... 110

    CONTENTS

    v

    PART IV

    Miscellaneous

     46. Penalties 110

    46-A. Chairman, directors, etc., to be public servants, for the purpose

    of Chapter IX of the Indian penal Code 112

     47. Cognizance of offences ... 112

     47-A. Power of Reserve Bank to impose penalty ... 113

     48. Application of fines ... 114

     49. Special provisions for private banking companies ... 114

    49-A. Restriction on acceptance of deposits withdrawable by cheque ... 114

     49-B. Change of name by a banking company ... 114

     49-C. Alteration of memorandum of a banking company ... 114

     50. Certain claims for compensation barred ... 114

    51. Application of certain provisions to the State bank of India

    and other notified banks 114

     52. Power of Central Government to make rules ... 115

     53. Powers to exempt in certain cases ... 117

     54. Protection of action taken under the Act ... 118

     55. Amendment of Act 2 of 1934 ... 118

     55-A. Power to remove difficulties ... 118

    PART V

    Application of the Act to Co-operative Banks

    56. Act to apply to co-operative societies subject to modifications ... 118

     Schedule I ... 139

     Schedule II [repealed] ... 141

     Schedule III ... 141

     Schedule IV ... 150

     Schedule V ... 151

    THE BANKING REGULATION

    ACT., 1949

     1 (X of 1949)

    [10th March, 1949]

    AN ACT TO CONSOLIDATE AND AMEND THE LAW RELATING

    TO BANKING 2[* * *];

     2Whereas it is expedient to consolidate and amend the law relating to banking [* * *]; It is hereby enacted as follows:

    PART I

    PRELIMINARY

    1. Short title, extent and commencement.(1) This Act may be called the Banking 3[Regulation] Act, 1949. 45[(2) It extends to the whole of India (* * *]. 6(3) It shall come into force on such date as the Central Government may, by notification

    in the Official Gazette, appoint in this behalf.

    2. Application of other laws riot barred.The provisions of this Act shall be in addition 7to, and not, save as hereinafter expressly provided, in derogation of the [Companies Act, 1956

    (1 of 1956)] and any other law for the time being in force.

    COMMENTS

    Scope of Section.-Section 2 states that the provisions of the Act shall be in addition to,

    and not, except as expressly provided under the Act, in derogation of any other law for the time 8being in force.

    "Shall ".It is well-known principle that in interpretation of statutes where the situation

    and the context warrants it, the word "shall" used in a section of a statute has to be construed as 9"may".

     1For Statement of Objects and Reasons, see Gazette of India, 1948, Pt. V, pp. 311 and 312; for Report of Select Committee, see ibid., 1949, Pt. V, pp. 45 to 48. Extended to Dadra and Nagar Haveli by Reg. 6 of 1963, Sec. 2 and Sch. 1 (w.e.f. 1st July, 1965) and to Goa, Daman and Diu by Reg. 11 of 1963, Sec. 3 and Schedule (w.e.f. 1st June 1964); Lakshadweep Islands by Reg. 8 of 1965 (w.e.f. 1st October, 1967). Enforcement in Sikkim w.e.f. 15th December, 1987 vide S.O. 1008 (E), dated 11th December, 1987. Nothing in this Act (except Sec. 34-A) shall apply to the Industrial Development Bank of India, vide Act 18 of 1964, Sec. 34. 2 The word ‗companies‘ omitted by Act 23 of 1965, Sec. 10 (w.e.f. 1st March, 1966) 3 Subs. By ibid., Sec. 11, for ―Companies‖ (w.e.f. 1st March 1966). 4 Subs. By Act 20 of 1950, Sec. 2, for sub-section (2). 5 The words ―except the State of Jammu and Kashmir‖ omitted by Act 62 of 1956, Sec. 2 and Schedule 6 16th March, 1949; see Notification No. F.4 (46)-F1.49, dated 10th March, 1949, Gazette of India, 1949, Pt. 1, p.326 7 Subs. By Act 95 of 1956, Sec. 14 and Schedule, for ―Indian Companies Act, 1913 (7 of 1913)‖ (w.e.f. 14th January, 1957). 8 State of Kerala v. M.T. Devessia, A.I.R. 1977 S.C. 331 at p. 333; Hemangini Finance and Leasing (P.) Ltd. V. Tamilnadu Mercantile Bank Ltd., (1996) 3 Comp. L.J. 238 (C.L. B.). 9 Amal Chandra Dutt v. Second Additional District Judge, (1989) 1 S.C.C. 1 at p. 7; State of H.P. v. Sudershan Kumar (1990) 1 E.F.R. 15 at p. 18 (H.P.P; Agya Ram v. State of U.P., 1990 (27) A.C.C. 29 at p.31; Proposed Dharwood Distt. Ex. Servicemen‘s Co-op. Society Ltd. V. State, A.I.R. 1993 Knt. 117 at p. 119.

2 ` BANKING REGULATION ACT, 1949 (S. 3

    Liability in chit frail transaction––Whether saved by the provisions of Sec. 3 (h) (B) of

    Tamil Nadu Indebted Persons (Temporary Relief) Act, 1976.The chit fund transaction is, in

    its essence a transaction of a kind which a banking company can legitimately undertake within the governing provisions of the Banking Regulation Act, 1949. In the instant case, the petitioner, cannot, therefore, seek to take his liability in the chit fund transaction out of the saving provision 1of Sec. 3 (h) (B) of the Tamil Nadu Indebted Persons (Temporary Relief) Act, 1976.

    Provisions of other enactment and their application are not, in any way excluded.In

    the instant case, the point for consideration is whether the rate of interest claimed by the respondent Bank can be a subject-matter of judicial scrutiny under the provisions of the Usurious Loans Act. This question has to be answered affirmatively, because there is no prohibition in the Banking Regulation Act, 1949, precluding the Court from scrutinising the rate of interest under the provisions of the Usurious Loans Act, since Sec. 2 of the Banking Regulation Act makes it clear that the provisions of any other enactment and their application are not, in any way, 2excluded by the provisions of the Banking Regulation Act, 1949.

    Employment for the legal heirs of an employee who died in harness.The provisions

    in the Banking Regulation Act, 1949, are not exhaustive. Section 2 of the said Act reads that the provisions of the Act shall be in addition to and not, in derogation of the Companies Act, and another law for the time being in force. Thus the provisions of the Banking Regulations Act will be in addition to the provisions of the other laws unless it is expressly provided otherwise in the Act itself.

    The petitioner is entitled to claim employment on compassionate grounds irrespective of the question of law raised by the appellant-Bank. Incidentally, it may be mentioned that the appellant-Bank has a scheme of its own for making appointment on compassionate grounds of legal heirs of its employees. but the said scheme is not applicable as such to the writ petitioner as in Clause 10 of the Scheme the employees of the transferor Bank will be governed by the same terms and conditions of service as are applicable to them on 15th August, 1989 for a period of three years. The writ petitioner has studied upto 5th standard and she has two minor daughters and one minor son. She has no other source of income. Hence she is entitled to be appointed on compassionate grounds. Even if her educational qualification is below the minimum required by the appellant-Bank the latter shall grant a relaxation of the conditions in her case having regard 3to the special facts and circumstances of the case.

     4[3.Act to apply to Co-operative Societies in certain cases.Nothing in this Act shall

    apply to

    (a) a primary agricultural credit society;

    (b) a co-operative land mortgage bank; and

    (c) any other co-operative society, except in the manner and to the extent

    specified in Part V.]

     1 Varmani David, C. v. Bank of Maduraii, AIR. 1983 Mad. 15 at pp. 16,17. 2 Muthai v. Syndicate Bank, Polladti, 7988 Bank J. 6 at p. 18. 3 Indian Batik v. K. Usha 1996 (3) Bank. L .J. 266 at p. 273 (Mad.). 4 Subs. by Act 23 of 7965, Sec. I2, for tire former section (w.e.f.. 1st March, 7966).

S. 31 BANKING REGULATION ACT, 1949 3

    COMMENTS

    Applicability to Co-operative Societies.Amongst the provisions in the Banking

    Regulation Act which have been made applicable to Co-operative Societies under Part V of the said Act there is no section which deals with any of the following matters, namely (a) the classification of such institutions on the basis of their financial position, (b) the staff-pattern by the said institution or (c) conditions of service of the employees in such institutions. Such being the position, the contention that co-operative societies carrying on the business of banking are governed in respect of such matters, only by the provisions contained in the Banking Regulation 1Act, 1949, is devoid of any substance.

    Application to societies.In the first place all provisions of the Banking Regulation Act do not apply to Co-operative Banks. Section 3 (c) of the Banking Regulation Act, 1949 states that nothing in this Act shall apply to (a) a primary agriculture credit society, (b) a Co-operative Land Mortgage Bank, and (c) any other Co-operative society except in the manner and to the extent specified, in Part V. Part V makes substantial departure from the Banking Regulation Act as far as Co-operative Banks are concerned. Some of the sections of the Act on which the learned single Judge has relied, do not apply to Co-operative banks. Thus, for example, Sec. 35-B under which amendments of provision relating to appointments of managing directors, etc. are subject 2to the previous approval of the Reserve Bank, do not apply to a Co-operative Bank.

    Cheque drawn in favour of fictitious person.Whenever a cheque is drawn

    in favour of a fictitious person, a duty is cast on the collecting bank to prove that it 3had not acted negligently and that it had collected that amount in good faith.

    Post-dated cheque. Post-dated cheque is one containing a later date than that of the delivery. Therefore, it has an implied notice that there is no present deposit to the credit of the drawer and an implied guarantee that the funds would exist when it becomes due. Though the cheque is payable only on a future date it may be negotiable. There is no prohibition in the Act against post- dating a cheque. If a banker pays the amount before the due date of a cheque, he 4will lose the statutory protection arising from such payment

    Prosecution on dishonour of cheque.The offender as per Sec. 138, Negotiable

    Instruments Act, is the drawer of the cheque. One of the conditions to constitute the offence is that the cheque should have been presented to the bank within six months of its issue. Another condition is that the payee should have made a demand for payment by registered notice after the cheque is returned unpaid. Third condition is that the drawer should have failed to pay the amount within 15 days of receipt of notice. Unless the cheque is returned unpaid due to insufficiency of amount of money standing to the credit of the drawer or that it exceeds the

     1 G. Gopinathan Nair v. State of Kerala, AIR. 1977 Ker. 36 at p. 38. 2 Sharnirao Vithal Cooperative Commiserative Bank Ltd. v. Padubidri Pattabhira)n Bhat, 2993 (7) Bank L./. 353 at p. 360. 3Syndicate Bank v. United Commercial Bank, (1991) 70 Comp. Cos. 748 at pp. 754, 755 (Knt.). 4 Manoj K. Seth v. K.J. Fernandez, 1991 (2) Bank C.L.R. 385 at pp. 389, 390 (Ker.).

4 BANKING REGULATION ACT, 1949 [S. 4

amount arranged to be paid from the account by an agreement made with the bank. Section 138 1of the Act is not attracted.

     4. Power to suspend operation of Act. -(1) The Central Government, if on a

    representation made by the Reserve Bank in this behalf, is satisfied that it is expedient so to do, may by notification in the Official Gazette suspend for such period, not exceeding sixty days, as may be specified in the notification, the operation of all or any of the provisions of this Act, either generally or in relation to any specified banking company.

    (2) In a case of special emergency, the Governor of the Reserve Bank, or in his absence a Deputy Governor of the Reserve Bank nominated by him in this behalf may, by order in writing, exercise the powers of the Central Government under sub-section (1), so however that the period of suspension shall not exceed thirty days, and where the Governor or the Deputy Governor, as the case may be, does so, he shall report the matter to the Central Government forthwith, and the order shall, as soon as may be, be published in the Gazette of India.

    (3) The Central Government may, by notification in the Official Gazette, extend from time to time the period of any suspension ordered under sub-section (1) or sub-section (2) for such period, not exceeding sixty days at any one time, as it thinks fit, so however that the total period does not exceed one year.

    (4) A copy of any notification issued under sub-section (2) shall be laid on the table of 2[Parliament] as soon as may be after it is issued.

     35. Interpretation. [In this Act,] unless there is anything repugnant in the subject or context, 4[(a) "approved securities" means

    (i) securities in which a trustee may invest money, under Cl..(a),

    Cl.(b), Cl.(bb), Cl.(c) or Cl.(d) of Sec. 20 of the Indian Trusts Act, 1882 (2 of

    1882);

    (ii) such of the securities authorised by the Central Government

    under Cl.(f) of Sec. 20 of the Indian Trusts Act, 1882 (2 of 1882), as may be

    prescribed.]

    (b) "banking" means the accepting, for the purpose of lending or investment,

    of deposits of money from the public, repayable on demand or otherwise,

    and withdrawal by cheque, draft, or otherwise;

    (c) "banking company" means any company which transacts the business of 5banking [in India].

    Explanation.Any company which is engaged in the manufacture of

    goods or carries on any trade and which accepts deposits of money from the

     1 N.C. Kttmaraesan v. Ammeerappa, 1991 (2) Bank C.L.R. 341 at p. 344 (Ker.); Abdul Samad v.Satya Narain Mahawar, 1991 (1) A.L Cr. L. R. 402 at p. 404 (P.& H.), Rajiv Kumar v. State of U.P. 1992 All. L.J. 994 at p. 995; Oswal Ispat Udyog v. Salem Steel Suppliers, 1991 (1) A.I.Cr.L.R. 983 at p. 987 (Mad.). 2 Subs. by the A. 0. 1950, for "the Dominion Legislature". 3 Subs. by Act 55 of 2963, Sec. 6 for "(1) In this Act" (w.e.f. 1st February, I964). 4 Subs. by Act No. I of 7984, Sec. 13 (w.e.f. 15th February, 1984). 5 Subs. by Act 20 of 1950, Sec. 3, for "in any State".

    S. 5] BANKING REGULATION ACT, 1949 5

    public merely for the purpose of financing its business as such manufacturer or trader shall not be deemed to transact the business of banking within the meaning of this clause;

     1(c-a) "banking policy" means any policy which is specified from time to time by the Reserve Bank in the interest of the banking system or in the interest of monetary stability or sound economic growth, having due regard to the interests of the depositors, the volume of deposits and other resources of the bank and the need for equitable allocation and the efficient use of these deposits and resources;]

     2 [(cc) "branch" or "branch office", in relation to a banking company, means any branch or branch office, whether called pay office or sub-ay office or by any other name, at which deposits are received, cheques cashed, or moneys lent and for the purposes of Sec. 35 includes any place of business where any other form of business referred to in sub-section (1) of Sec. 6 is transacted;]

     3 [(d) "company" means any company as defined in Sec. 3 of the Companies Act, 1956 (1 of 1956), and includes a foreign company within the meaning of Sec. 591 of that Act;]

     4 [(da) "corresponding new bank" means a corresponding new bank constituted under Sec. 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), or under Sec. 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (4 of 1980)].

     5[(e) * * * * *]

    (f) "demand liabilities" means liabilities which must be met on demand, and "time liabilities" means liabilities which are not demand liabilities;

     6[(ff) "Deposit Insurance Corporation" means the Deposit Insurance Corporation established under Sec. 3 of the Deposit Insurance Corporation Act, 1961 (XLVII of 1961);]

     3[(ffa) "Development Bank" means the Industrial Development Bank of India established under Sec. 3 of the Industrial Development Bank of India Act, 1964 (18 of 1964);

    (ffb) "Exim Bank" means the Export-Import Bank of India established under Sec. 3 of Export-Import Bank of India Act, 1981 (28 of 1981);]

     7[(ffc) "Reconstruction Bank" means the Industrial Reconstruction Bank of India established under Sec. 3 of the Industrial Reconstruction Bank of India Act, 1984;]

     8[(ffd) "National Housing Bank" means the National Housing Bank established under Sec.

    3 of the National Housing Bank Act, 1987;]

     1 Ins. by Act 58 of 1968, Sec. 2 (w.e.f.. 1st February, 1969). 2st Ins. By Act 33 of 1959, Sec. 2 (w.e.f. 1 October, 1959). 3st Subs. By ibid., Sec. 2(ii), for Cl. (d), (w.e.f. 1 October, 1959). 4th Ins. By Act No. 1 of 1984, Sec. 13 (w.e.f. 15 February, 1984). 5 Clause (e), omitted by Act 52 of 1953, Sec. 2. 6 Ins. by Act 47 of 1961, Sec. 52 and Sch. II (w.e.f. Ist January, I962). 7 Ins. by Act No. 62 of 1984, Sec. 71 and Sch.. Ill (w.e.f. 20th March, I985). 8 Ins. by Act 53 of 1987, Sec. 56 and Sch. III (w.e..f. 9th July, 1988).

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