Home » Bare Acts » The Banking Regulation Act, 1949

Bare Act

THE BANKING REGULATION ACT, 1949 

[Act No. 10 of 1949]  

[As modified up to January 7, 2013]  

CONTENTS 

THE BANKING REGULATION ACT, 1949  

PART I  

PRELIMINARY  

Section 1 – Short title, extent and commencement  

Section 2 – Application of other laws not barred  

Section 3 – Act to apply to co-operative societies in certain cases  

Section 4 – Power to suspend operation of Act  

Section 5 – Interpretation  

Section 5A – Act to override memorandum, articles, etc  

PART II  

BUSINESS OF BANKING COMPANIES  

Section 6 – Form and business in which banking companies may engage  Section 7 – Use of words “bank”, “banker”, “banking” or “banking company”  Section 8 – Prohibition of trading  

Section 9 – Disposal of non-banking assets  

Section 10 – Prohibition of employment of Managing agents and restrictions on certain  forms of employment  

Section 10A – Board of Directors to include persons with professional or other  experience  

Section 10B – Banking company to be managed by whole time Chairman  Section 10BB – Power of Reserve Bank to appoint Chairman of the Board of Directors  appointed on a whole-time basis or a Managing Director of a banking company  Section 10C – Chairman and certain Directors not to be required to hold qualification  shares  

Section 10D – Provisions of sections 10A and 10B to override all other laws, contracts,  etc  

Section 11 – Requirement as to minimum paid-up capital and reserves  Section 12 – Regulation of paid-up capital, subscribed capital and authorised capital and  voting rights of shareholders  

Section 12A – Election of new Directors  

Section 12B – Regulation of acquisition of shares or voting rights  

Section 13 – Restriction on commission, brokerage, discount, etc. on sale of shares  Section 14 – Prohibition of charge on unpaid capital  

Section 14A – Prohibition of floating charge on assets  

2

Section 15 – Restrictions as to payment of dividend  

Section 16 – Prohibition of common Directors  

Section 17 – Reserve Fund  

Section 18 – Cash reserve  

Section 19 – Restriction on nature of subsidiary companies  

Section 20 – Restrictions on loans and advances  

Section 20A – Restrictions on power to remit debts  

Section 21 – Power of Reserve Bank to control advances by banking companies  Section 21A – Rates of interest charged by banking companies not to be subject to  scrutiny by courts  

Section 22 – Licensing of banking companies  

Section 23 – Restrictions on opening of new, and transfer of existing, places of business  Section 24 – Maintenance of a percentage of assets  

 Section 25 – Assets in India  

Section 26 – Return of unclaimed deposits  

Section 26A – Establishment of Depositor Education and Awareness Fund  Section 27 – Monthly returns and power to call for other returns and information  Section 28 – Power to publish information  

Section 29 – Accounts and balance-sheet  

Section 29A – Power in respect of associate enterprises  

Section 30 – Audit  

Section 31 – Submission of returns  

Section 32 – Copies of balance-sheets and accounts to be sent to registrar  Section 33 – Display of audited balance-sheet by companies incorporated outside India  Section 34 – Accounting provisions of this Act not retrospective  

Section 34A – Production of documents of confidential nature  

Section 35 – Inspection  

Section 35A – Power of the Reserve Bank to give directions  

Section 35B – Amendments of provisions relating to appointments of Managing  Directors, etc., to be subject to previous approval of the Reserve Bank  Section 36 – Further powers and functions of Reserve Bank  

Section 36A – Certain provisions of the Act not to apply to certain banking companies  

PART IIA  

CONTROL OVER MANAGEMENT  

Section 36AA – Power of Reserve Bank to remove managerial and other persons from  office  

Section 36AB – Power of Reserve Bank to appoint additional Directors  Section 36AC – Part IIA to override other laws  

PART IIAB  

SUPERSESSION OF BOARD OF DIRECTORS OF BANKING COMPANY  Section 36ACA – Supersession of Board of Directors in certain cases  

3

PART IIB  

PROHIBITION OF CERTAIN ACTIVITIES IN RELATION TO BANKING  COMPANIES  

Section 36AD – Punishments for certain activities in relation to banking companies  

PART IIC  

ACQUISITION OF THE UNDERTAKINGS OF BANKING COMPANIES IN CERTAIN  CASES  

Section 36AE – Power of Central Government to acquire undertakings of banking  companies in certain cases  

Section 36AF – Power of the Central Government to make scheme  

Section 36AG – Compensation to be given to shareholders of the acquired bank  Section 36AH – Constitution of the Tribunal  

Section 36AI – Tribunal to have powers of a civil court  

Section 36AJ – Procedure of the Tribunal  

PART III  

SUSPENSION OF BUSINESS AND WINDING-UP OF BANKING COMPANIES  Section 36B – High Court defined  

Section 37 – Suspension of business  

Section 38 – Winding up by High Court  

Section 38A – Court liquidator  

Section 39 – Reserve Bank to be official liquidator  

Section 39A – Application of Companies Act to liquidators  

Section 40 – Stay of proceedings  

Section 41- Preliminary report by official liquidator  

Section 41A – Notice to preferential claimants and secured and unsecured creditors  Section 42 – Power to dispense with meetings of creditors, etc  

Section 43 – Booked depositors’ credits to be deemed proved  

Section 43A – Preferential payments to depositors  

Section 44 – Powers of High Court in voluntary winding up  

Section 44A – Procedure for amalgamation of banking companies  

Section 44B – Restriction on compromise or arrangement between banking company  and creditors  

Section 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  

PART IIIA  

SPECIAL PROVISIONS FOR SPEEDY DISPOSAL OF WINDING UP PROCEEDINGS  Section 45A – Part III A to override other laws  

Section 45B – Power of High Court to decide all claims in respect of banking companies  4

Section 45C – Transfer of pending proceedings  

Section 45D – Settlement of list of debtors  

Section 45E – Special provisions to make calls on contributories  

Section 45F – Documents of banking company to be evidence  

Section 45G – Public examination of Directors and auditors  

Section 45H – Special provisions for assessing damages against delinquent Directors, etc  Section 45I – Duty of Directors and officers of banking company to assist in the  realisation of property  

Section 45J – Special provisions for punishing offences in relation to banking companies  being wound up  

Section 45K – Power of High court to enforce schemes of arrangements, etc  Section 45L – Public examination of Directors and auditors, etc., in respect of a banking  company under schemes of arrangement  

Section 45M – Special provisions for banking companies working under schemes of  arrangement at the commencement of the Amendment Act  

Section 45N – Appeals  

Section 45O – Special period of limitation  

Section 45P – Reserve Bank to tender advice in winding up proceedings  Section 45Q – Power to Inspect  

Section 45R – Power to call for returns and information  

Section 45S – Chief Presidency Magistrate and District Magistrate to assist official  liquidator in taking charge of property of banking company being wound up  Section 45T – Enforcement of orders and decisions of High Court  

Section 45U – Power of High Court to make rules  

Section 45V – References to Directors, etc., shall be construed as including references to  past Directors, etc  

Section 45W – Part II not to apply to banking companies being wound up  Section 45X – Validation of certain proceedings  

PART IIIB  

PROVISIONS RELATING TO CERTAIN OPERATIONS OF BANKING COMPANIES  Section 45Y – Power of Central Government to make rules for the preservation of  records  

Section 45Z – Return of paid instruments to customers  

Section 45ZA – Nomination for payment of depositors’ money  

Section 45ZB – Notice of claims of other persons regarding deposits not receivable  Section 45ZC – Nomination for return of articles kept in safe custody with banking  company  

Section 45ZD – Notice of claims of other persons regarding articles not receivable  Section 45ZE – Release of contents of safety lockers  

Section 45ZF – Notice of claims of other persons regarding safety lockers not receivable  5

PART IV  

MISCELLANEOUS  

Section 46 – Penalties  

Section 46A – Chairman, Director, etc., to be public servants for the purposes of Chapter  IX of the Indian Penal Code  

Section 47 – Cognizance of offences  

Section 47A – Power of Reserve Bank to impose penalty  

 Section 48 – Application of fines  

Section 49 – Special provisions for private banking companies  

Section 49A – Restriction on acceptance of deposits withdrawable by cheque  Section 49B – Change of name by a banking company  

Section 49C – Alteration of memorandum of a banking company  

Section 50 – Certain claims for compensation barred  

Section 51 – Application of certain provisions to the State Bank of India and other  notified banks  

Section 52 – Power of Central Government to make rules  

Section 53 – Power to exempt in certain cases  

Section 54 – Protection of action taken under the Act  

Section 55 – Amendment of Act 2 of 1934  

Section 55A – Power to remove difficulties  

PART V  

APPLICATION OF THE ACT TO CO-OPERATIVE BANKS  

Section 56 – Act to apply to co-operative societies subject to modifications  

Schedule I – FIRST SCHEDULE 

Schedule II – SECOND SCHEDULE 

Schedule III – THIRD SCHEDULE 

Schedule IV – FOURTH SCHEDULE  

Schedule V – FIFTH SCHEDULE 

6

List of Abbreviations Used  

A. O. 1950  Adaptation of Laws Order, 1950. 
Cl.  Clause. 
Pt.  Part. 
Reg.  Regulation. 
Rep.  Repealed. 
S.  Section. 
Sch.  Schedule. 
Subs.  Substituted. 
W. e. f.  With effect from. 

7

THE BANKING REGULATION ACT, 1949 

[Act No. 10 of 1949]  

 [10th March, 1949]  

An Act to consolidate and amend the law relating to banking 1[***]  

WHEREAS it is expedient to consolidate and amend the law relating to banking 2 [***];  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.  

4[(2)It extends to the whole of India 5[* * *].]  

(3) It shall come into force on such date6 as the Central Government may, by notification in  the Official Gazette, appoint in this behalf.  

  1. Application of other laws not barred 

The provisions of this Act shall be in addition to, and not, save as hereunder expressly  PROVIDED, in derogation of the 7 [Companies Act, 1956 (1 of 1956 )], and any other law  for the time being in force.  

8[3. Act to apply to co-operative societies in certain cases.- 

Nothing in this Act shall apply to.- 

                                                            

1 The word “Companies” omitted by Act 23 of 1965, w.e.f. 1-3-1966.  

2 Ibid  

3 Substituted by Act 23 of 1965 for “Companies” w.e.f. 1-3-1966.  

4 Substituted by Act 20 of 1950 for sub-section (2).  

5 The words “except the State of Jammu and Kashmir” omitted by Act 62 of 1956.  

6 Notification No.F.4(46)-FI/49, dated 10th March, 1949, published in the Gazette of India, 1949,Pt. I, P.  326.Came into force on 16th March, 1949;  

7 Substituted by Act 95 of 1956, for “Indian Companies Act, 1913 (7 of 1913)” w.e.f. 14-1- 1957.  8 Substituted by Act 23 of 1956, w.e.f. 1-3-1966.  

8

(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. Power to suspend operation of Act 

(1) The Central Government, if on a representation made by the Reserve Bank in  this behalf it 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  subsection (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 (3) shall be laid on the  table of 1[Parliament] as soon as may be after it is issued.  

  1. Interpretation 

2[In this Act], unless there is anything repugnant in the subject or context, –  

3 [(a) “approved securities” means the securities issued by the Central  Government or any State Government or such other securities as may be  specified by the Reserve Bank from time to time;]  

                                                            

1 Substituted by the A. O. 1950, for “the Dominion Legislature”.  

2 Substituted by Act 55 of 1963, w.e.f. 1-2-1964  

3 Substituted by the Banking Laws (Amendment) Act, 2012 (Act No. 4 of 2013) w.e.f. 18.01.2013 for the  following:  

“[(a) “approved securities” means–  

(i) securities in which a trustee may invest money under clause (a), clause (b), clause (bb), clause (c) or  clause (d) of section 20 of the Indian Trusts Act, 1882 (2 of 1882);  

9

(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, order or other wise;  

(c) “banking company” means any company which transacts the business  of banking1 [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 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;  

2[(ca) “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;]  

3[(cc) “branch” or “branch office” , in relation to a banking company,  means any branch or branch office, whether called a pay office or sub-pay  office or by any other name, at which deposits are received, cheques  cashed or moneys lent, and for the purposes of section 35 includes  anyplace of business where any other form of business referred to in sub 

section(1) of section 6 is transacted;]  

4[(d) “company” means any company as defined in section 3 of the  Companies Act, 1956 (1 of 1956); and includes a foreign company within  the meaning of section 591 of that Act;)  

5[(da) “corresponding new bank” means a corresponding new bank  constituted under section 3 of the Banking Companies (Acquisition and  Transfer of Undertakings) Act, 1970 (5 of 1970); or under section 3 of the  Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980  (40 of 1980);]  

                                                                                                                                                                                                (ii) such of the securities authorised by the Central Government under clause (f) of section 20 of the  Indian Trusts Act, 1882 (2 of 1882),as may be prescribed;]”  

1 Substituted by Act 20 of 1950, for “in any State”.  

2 Inserted By Act 58of 1958, w.e.f. 1-2-1969.  

3 Inserted By Act 58 of 1959, w.e.f. 1-10-1959.  

4 Substituted by Act 58 of 1959, w.e.f.1-10-1959.  

5 Inserted By Act 1 of 1984, w.e.f. 15-2-1984.  

10

1(e)[***]  

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

2[(ff) “Deposit Insurance Corporation” means the Deposit Insurance  Corporation established under section 3 of the Deposit Insurance  Corporation Act, 1961 (47 of 1961);]  

3(ffa)[* * *]  

4[(ffb) “Exim Bank” means the Export-Import Bank of India established  under section 3 of the Export-Import India Act, 1981 (28of 1981);]  

5[(ffc) “Reconstruction Bank” means the Industrial Reconstruction Bank of  India established under section 3 of the Industrial Reconstruction Bank of  India Act, 1984 (62 of 1984);]  

6[(ffd) “National Housing Bank” means the National Housing Bank  established under section 3 of the National Housing Bank Act, 1987;]  

(g) “gold” includes gold in the form of coin, whether legal tender or not, or  in the form of bullion or ingot, whether refined or not;  

7[(gg) “managing agent” includes. – 

(i) Secretaries and Treasurers;  

(ii) Where the managing agent is a company, and Director of such  company, and any member thereof who holds substantial interest  in such company;  

(iii) Where the managing agent is a firm, any partner of such firm;]  

8[(h) “managing Director”, in relation to a banking company, means a  Director who, by virtue of an agreement with the banking company or of a  resolution passed by the banking company in general meeting or by its  

                                                            

1 Clause (e) omitted by Act 52 of 1953.  

2 Inserted By Act 47 of 1961, w.e.f.1-1-1962.  

3 Omitted by the Industrial Development Bank (Transfer of Undertaking and Repeal) Act, 2003. Prior to  omission it read as:  

“[(ffa) “Development Bank” means the Industrial Development Bank of India established under section 3 of the  Industrial Development Bank ofIndia Act, 1964 (18 of 1964);”  

4 Inserted By Act 1 of 1984, w.e.f. 15-2-1984.  

5 Inserted by Act 62 of 1984, w.e.f.20-3-1985.  

6 Inserted by Act 53 of 1987, w.e.f.9-7-1988.  

7 Inserted by Act 58 of 1968, w.e.f. 1-2-1969.  

8 Substituted by Act 33 of 1959, w.e.f.1-10-1959  

11

Board of Directors or, by virtue of its memorandum or articles of  association, is entrusted with the management of the whole, or  substantially the whole of the affairs of the company, and includes a  Director occupying the position of a Managing Director, by whatever  name called:]  

1[PROVIDED that the Managing Director shall exercise his powers  subject to the superintendence, control and direction of the Board  of Directors;]  

2[(ha) “National Bank” means the National Bank for Agriculture and Rural  Development established under section 3 of the National Bank for  Agriculture and Rural Development Act, 1981;]  

3[***]  

(j) “prescribed” means prescribed by rules made under this Act;  

4[(ja) “regional rural bank” means a regional rural bank established under  section 3 of the Regional Rural Banks Act, 1976 (21 of 1976);]  

(k) 5[***]  

6[(1) “Reserve Bank” means the Reserve Bank of India constituted under  section 3 of the Reserve Bank of India Act, 1934 (2 of 1934);]  

(m) 7[***]  

(n) “secured loan or advance” means a loan or advance made on the  security of assets the market value of which is not at anytime less than the  amount of such loan or advance; and “unsecured loan or advance” means  a loan or advance not so secured;  

8[(ni) “Small Industries Bank” means the Small Industries Development  Bank of India established under section 3 of the Small Industries  Development Bank of India, 1989;]  

1[(na) “small-scale industrial concern” means an industrial concern in  which the investment in plant and machinery is not in excess of seven and  

                                                            

1 Inserted by Act 58 of 1968, w.e.f. 1-2-1969.  

2 Inserted by Act 61 of 1981, w.e.f. 1-5-1982.  

3 Clause (i) omitted by Act 33 of 1959, w.e.f.1-10-1959  

4 Inserted by Act 61 of 1981, w.e.f. 1-5-1982.  

5 Clause (k) omitted by Act 33 of 1959, w.e.f. 1-10-1959  

6 Inserted by Act 1 of 1984, w.e.f. 15-2-1984  

7 Clause (m) omitted by Act 33 of 1959, w.e.f. 1-10-1959  

8 Inserted by Act 39 of 1989, w.e.f. 25-10-1989  

12

a half lakhs of rupees or such higher amount, not exceeding twenty lakhs  of rupees, as the Central Government may, by notification in the Official  Gazette, specify in this behalf, having regard to the trends in industrial  development and other relevant factors;]  

2[(nb) “Sponsor Bank” has the meaning assigned to it in the Regional Rural  Banks Act, 1976 (21 of 1976);  

(nc) “State Bank of India” means the State Bank of India constituted under  section 3 of the State Bank of India Act, 1955 (23of 1955);]  

3[(nd)] “subsidiary bank” has the meaning assigned to it in the State Bank  of India (Subsidiary Banks) Act, 1959;  

4[(ne)] “substantial interest”. – 

(i) in relation to a company, means the holding of a beneficial  interest by an individual or his spouse or minor child, whether  singly or taken together, in the shares thereof, the amount paid up  on which exceeds five lakhs of rupees or ten percent of the paid-up  capital of the company, whichever is less;  

(ii) in relation to a firm, means the beneficial interest held therein  by an individual or his spouse or minor child, whether singly or  taken together, which represents more than ten per cent of the total  capital subscribed by all the partners of the said firm;  

5[(o) all other words and expressions used herein but not defined and  defined in the Companies Act, 1956 (1 of 1956), shall have the meanings  respectively assigned to them in that Act.]  

(2) 6[***]  

7[5A. Act to override memorandum, articles, etc 

Save as otherwise expressly provided in this Act. – 

                                                                                                                                                                                                1 Inserted by Act 58 of 1968, w.e.f. 1-2-1969.  

2 Inserted by Act 1 of 1984, w.e.f. 15-2-1984  

3 Clause (nb) re-lettered as Clause (nd) by Act 1 of 1984, w.e.f. 15-2-1984  

4 Clause (nc) re-lettered as Clause (ne) by Act 1 of 1984, w.e.f. 15-2-1984  

5 Inserted by Act 33 of 1959, w.e.f. 1-10-1959.  

6 Sub-section (2) omitted by the A.O. 1950  

7 Inserted by Act 33 of 1959, w.e.f. 1-10-1959.  

13

(a) the provisions of this Act shall have effect notwithstanding anything to the  contrary contained in the memorandum or articles of a banking company, or  in any agreement executed by it, or in any resolution passed by the banking  company in general meeting or by its Board of Directors, whether the same be  registered, executed or passed, as the case maybe, before or after the  commencement of the Banking Companies (Amendment) Act, 1959 (33 of  1959); and  

(b) any provision contained in the memorandum, articles, agreement or  resolution aforesaid shall, to the extent to which it is repugnant to the  provisions of this Act, become or be void, as the case may be.]  

PART II  

BUSINESS OF BANKING COMPANIES  

  1. Forms of business in which banking companies may engage 

(1) In addition to the business of banking, a banking company may engage in any  one or more of the following forms of business, namely:-  

(a) the borrowing, raising, or taking up of money; the lending or advancing of  money either upon or without security; the drawing, making, accepting,  discounting, buying, selling, collecting and dealing in bills of exchange,  hundies, promissory notes, coupons, drafts, bills of lading, railway receipts,  warrants, debentures, certificates, scrips and other instruments and securities  whether transferable or negotiable or not; the granting and issuing of letters  of credit, traveller’s cheques and circular notes; the buying, selling and  dealing in bullion and specie; the buying and selling of foreign exchange  including foreign bank notes; the acquiring, holding, issuing on commission,  underwriting and dealing in stock, funds, shares, debentures, debenture  stock, bonds, obligations, securities and investments of all kinds; the  purchasing and selling of bonds, scrips or other forms of securities on behalf  of constituents or others, the negotiating of loans and advances; the receiving  of all kinds of bonds, scrips or valuables on deposit or for safe custody or  otherwise; the providing of safe deposit vaults; the collecting and  transmitting of money and securities;  

(b) acting as agents for any Government or local authority or any other  person or persons; the carrying on of agency business of any description  

14

including the clearing and forwarding of goods, giving of receipts and  discharges and otherwise acting as an attorney on behalf of customers, but  excluding the business of a 1[Managing Agent or Secretary and Treasurer] of  a company;  

(c) contracting for public and private loans and negotiating and issuing the  same;  

(d) the effecting, insuring, guaranteeing, underwriting, participating in  Managing and carrying out of any issue, public or private, of State, municipal  or other loans or of shares, stock, debentures, or debenture stock of any  company, corporation or association and the lending of money for the  purpose of any such issue;  

(e) carrying on and transacting every kind of guarantee and indemnity  business;  

(f) Managing, selling and realising any property which may come into the  possession of the company in satisfaction or part satisfaction of any of its  claims;  

(g) acquiring and holding and generally dealing with any property or any  right, title or interest in any such property which may form the security or  part of the security for any loans or advances or which may be connected  with any such security;  

(h) undertaking and executing trusts;  

(i) undertaking the administration of estates as executor, trustee or otherwise;  

(j) establishing and supporting or aiding in the establishment and support of  associations, institutions, funds, trusts and conveniences calculated to benefit  employees or ex-employees of the company or the dependents or connections  of such persons; granting pensions and allowances and making payments  towards insurance; subscribing to or guaranteeing moneys for charitable or  benevolent objects or for any exhibition or for any public, general or useful  object;  

                                                            

1 Substituted by Act 33 of 1959, Section 4, for “Managing Agent “w.e.f. 1-10-1959  15

(k) the acquisition, construction, maintenance and alteration of any building  or works necessary or convenient for the purposes of the company;  

(l) selling, improving, managing, developing, exchanging, leasing,  mortgaging, disposing of or turning into account or otherwise dealing with  all or any part of the property and rights of the company;  

(m) acquiring and undertaking the whole or any part of the business of any  person or company, when such business is of a nature enumerated or  described in this sub- section;  

(n) doing all such other things as are incidental or conducive to the promotion  or advancement of the business of the company;  

(o) any other form of business which the Central Government may, by  notification in the Official Gazette, specify as a form of business in which it is  lawful for a banking company to engage.  

(2) No banking company shall engage in any form of business other than those  referred to in sub-section (1).  

1[7. Use of words “bank”, “banker”, “banking” or “banking company” 

(1) No company other than a banking company shall use as part of its name 2[or  in connection with its business] any of the words “bank”, “banker” or “banking”  and no company shall carry on the business of banking in India unless it uses as  part of its name at least one of such words.  

(2) No firm, individual or group of individuals shall, for the purpose of carrying  on any business, use as part of its or his name any of the words “bank”, “banking”  or “banking company”.  

(3)Nothing in this section shall apply to  

(a) a subsidiary of a banking company formed for one or more of the  purposes mentioned in sub-section (1) of section 19, whose name indicates  that it is a subsidiary of that banking company;  

                                                            

1 Substituted by Act 55 of 1963, w.e.f. 1-2-1964.  

2 Inserted by Act 1 of 1984, Section 14 w.e.f. 15-2-1984  

16

(b) any association of banks formed for the protection of their mutual  interests and registered under section 25 of the Companies  Act, 1956 (1 of 1956).]  

8 – Prohibition of trading 

Notwithstanding anything contained in section 6 or in any contract, no banking  company shall directly or indirectly deal in the buying or selling or bartering of  goods, except in connection with the realisation of security given to or held by it,  or engage in any trade, or buy, sell or barter goods for others otherwise than in  connection with bills of exchange received for collection or negotiation or with  such of its business as is referred to in clause (i) of sub-section (1) of section 6:  

1[PROVIDED that this section shall not apply to any such business as is  specified in pursuance of clause (o) of sub-section (1) of section 6.]  

Explanation.–For the purposes of this section, “goods” means every kind of  movable property, other than actionable claims, stocks, shares, money, bullion  and specie, and all instruments referred to in clause (a) of sub-section (1) of  section 6.  

9 – Disposal of non-banking assets 

Notwithstanding anything contained in section 6, no banking company shall  hold any immovable property howsoever acquired, except such as is required for  its own use, for any period exceeding seven years from the acquisition thereof or  from the commencement of this Act, whichever is later or any extension of such  period as in this section provided, and such properly shall be disposed of within  such period or extended period, as the case may be:  

PROVIDED that the banking company may, within the period of seven years  as aforesaid deal or trade in any such property for the purpose of facilitating  the disposal thereof:  

PROVIDED FURTHER that the Reserve Bank may in any particular case  extend the aforesaid period of seven years by such period not exceeding five  years where it is satisfied that such extension would be in the interests of the  depositors of the banking company.  

1[10. Prohibition of employment of Managing Agents and restrictions on certain  forms of employment 

                                                            

1 Substituted by Act 1 of 1984, w.e.f.15-2-1984  

17

(1) No banking company– 

(a) shall employ or be managed by a Managing agent; or  

(b) shall employ or continue the employment of any person-  

(i) who is, or at any time has been, adjudicated insolvent, or has  suspended payment or has compounded with his creditors, or who is, or  has been, convicted by a criminal court of an offence involving moral  turpitude; or  

(ii) whose remuneration or part of whose remuneration takes the form of  commission or of a share in the profits of the company:  

2[PROVIDED that nothing contained in this sub-clause shall apply to  the payment by a banking company of-  

(a) any bonus in pursuance of a settlement or award arrived at or  made under any law relating to industrial disputes or in accord ance with any scheme framed by such banking company or in  accordance with the usual practice prevailing in banking business;  

(b) any commission to any broker(including guarantee broker),  cashier-contractor, clearing and forwarding agent, auctioneer or  any other person, employed by the banking company under a  contract otherwise than as a regular member of the staff of the  company; or]  

(iii) whose remuneration is, in the opinion of the Reserve Bank, excessive;  or  

(c) shall be managed by any person 

3[(i) who is a Director of any other company not being-  

(a) a subsidiary of the banking company, or  

                                                                                                                                                                                                1 Substituted by Act 95 of 1956, w.e.f.14-1-1957  

2 Substituted by Act 33 of 1959, w.e.f.1-10-1959.  

3 Substituted by Act 33 of 1959, w.e.f.1-10-1959  

18

(b) a company registered under section 25 of the Companies  Act, 1956 (1 of 1956):  

PROVIDED that the prohibition in this sub-clause shall not apply  in respect of any such Director for a temporary period not  exceeding three months or such further period not exceeding nine  months as the Reserve Bank may allow; or]  

(ii) who is engaged in any other business or vocation; or  

(iii) 1[whose term of office as a person Managing the company is]for  period exceeding five years at any one time:  

2[PROVIDED that the term of office of any such person may be  renewed or extended by further periods not exceeding five years on  each occasion subject to the condition that such renewal/extension  shall not be sanctioned earlier than two years from the date on which it  is to come into force:  

PROVIDED ALSO that where the term of office of such person is for  an indefinite period, such term, unless it otherwise comes to an end  earlier, shall come to an end immediately on the expiry of five years  from the date of his appointment or on the expiry of three months  from the date of commencement of section 8 of the Banking Laws  (Miscellaneous Provisions) Act, 1963(55 of 1963), whichever is later:]  

PROVIDED FURTHER that nothing in this clause shall apply to a  Director, other than the Managing Director, of a banking company by  reason only of his being such Director.  

Explanation.–For the purpose of sub-clause (iii) of clause (b), the  expression “remuneration”, in relation to person employed or  continued in employment, shall include salary, fees and perquisites  but shall not include any allowances or other amounts paid to him for  the purpose of reimbursing him in respect of the expense actually  incurred by him in the performance of his duties.  

                                                            

1 Substituted by Act 55 of 1963, w.e.f.1-2-1964  

2 Substituted by Act 55 of 1963, w.e.f. 1-2-1964  

19

(2) In forming its opinion under sub-clause (iii) of clause (b) of sub-section (1),  the Reserve Bank may have regard among other matters to the following:-  

(i) the financial condition and history of the banking company, its size and  area of operation, its resources, the volume of its business, and the trend of its  earning capacity;  

(ii) the number of its branches or offices;  

(iii) the qualifications, age and experience of the person concerned;  

(iv) the remuneration paid to other persons employed by the banking  company or to any person occupying a similar position in any other banking  company similarly situated; and  

(v) the interests of its depositors.  

1[***].  

(6) Any decision or order of the Reserve Bank made under this section shall be  final for all purposes.]  

2[10A. Board of Directors to include persons with professional or other experience 

(1)Notwithstanding anything contained in any other law for the time being in  force, every banking company,-  

(a) in existence on the commencement of section 3 of the Banking Laws  (Amendment)Act, 1968 (58 of 1968), or  

(b) which comes into existence thereafter,  

shall comply with the requirements of this section:  

PROVIDED that nothing contained in this sub-section shall apply to a  banking company referred to in clause (a) for a period of three months  from such commencement.  

                                                            

1 Sub-sections (3), (4) and (5) omitted by Act 55 of 1963, w.e.f. 1-2-1964.  

2 Section 10A to 10D Inserted by Act 58 of 1968, w.e.f.1-2-1969.  

20

(2) Not less than fifty-one per cent, of the total number of members of the Board  of Directors of a banking company shall consist of persons, who-  

(a) shall have special knowledge or practical experience in respect of one or  more of the following matters, namely:-  

(i) accountancy,  

(ii) agriculture and rural economy,  

(iii) banking,  

(iv) co-operation,  

(v) economics,  

(vi) finance,  

(vii) law,  

(viii) small-scale industry,  

(ix) any other matter the special knowledge of, and practical experience in,  which would, in the opinion of the Reserve Bank, be useful to the banking  company:  

PROVIDED that out of the aforesaid number of Directors, not less than  two shall be persons having special knowledge or practical experience  in respect of agriculture and rural economy, co-operation or small scale industry; and  

(b) shall not-  

(1) have substantial interest in, or be connected with, whether as  employee, manager or Managing agent,-  

(i) any company, not being a company registered under section 25 of  the Companies Act, 1956 (1 of 1956), or  

(ii) any firm,  

which carries on any trade, commerce or industry and which, in either  case, is not a small-scale industrial concern, or  

(2) be proprietors of any trading, commercial or industrial concern, not  being a small-scale industrial concern.  

21

1[(2A) Notwithstanding anything to the contrary contained in the  Companies Act, 1956 (1 of 1956), or in any other law for the time being in  force,-  

(i) no Director of a banking company, other than its Chairman or  whole-time Director, by whatever name called, shall hold office  continuously for a period exceeding eight years;  

(ii) a Chairman or other whole-time Director of a banking company  who has been removed from office as such Chairman, or whole-time  Director, as the case may be, under the provisions of this Act shall also  cease to be a Director of the banking company and shall also not be  eligible to be appointed as a Director of such banking company,  whether by election or co-option or otherwise, for a period of four  years from the date of his ceasing to be the -Chairman or whole-time  Director as the case may be.]  

(3) If, in respect of any banking company the requirements, as laid down  in subsection (2), are not fulfilled at any time, the Board of Directors of  such banking company shall re-constitute such Board so as to ensure that  the said requirements are fulfilled.  

(4) If, for the purpose of re-constituting the Board under sub-section (3), it  is necessary to retire any Director or Directors, the Board may, by lots  drawn in such manner as may be prescribed, decide which Director or  Directors shall cease to hold office and such decision shall be binding on  every Director of the Board.  

(5) Where the Reserve Bank is of opinion that the composition of the  Board of Directors of a banking company is such that it does not fulfil the  requirements of subsection (2), it may, after giving to such banking  company a reasonable opportunity of being heard, by an order in writing,  direct the banking company to so re-constitute its Board of Directors as to  ensure that the said requirements are fulfilled and, if within two months  from the date of receipt of that order, the banking company does not  comply with the directions made by the Reserve Bank, that Bank may,  after determining, by lots drawn in such manner as may be prescribed, the  

                                                            

1 Inserted by Act 1 of 1984, w.e.f. 15-2-1984.  

22

person who ought to be removed from the membership of the Board of  Directors, remove such person from the office of the Director of banking  company and with a view to complying with the provision of sub-section  (2) appoint a suitable person as a member of the Board of Directors in the  place of the person so removed whereupon the person so appointed shall  be deemed to have been duly elected by the banking company as its  Director.  

(6) Every appointment, removal or reconstitution duly made, and every  election duly held, under this section shall be final and shall not be called  into question in any court.  

(7) Every Director elected or, as the case may be, appointed under this  section shall hold office until the date up to which his predecessor would  have held office, if the election had not been held, or, as the case may be,  the appointment had not been made.  

(8) No act or proceeding of the Board of Directors of a banking company  shall be invalid by reason only of any defect in the composition thereof or  on the ground that it is subsequently discovered that any of its members  did not fulfil the requirements of this section.  

10B. Banking company to be managed by whole time Chairman 

1[(1) Notwithstanding anything contained in any law for the time being in force  or in any contract to the contrary, every banking company in existence on the  commencement of the Banking Regulation (Amendment) Act,1994 (20 of 1944),  or which comes into existence thereafter shall have one of its Directors, who may  be appointed on a whole-time or a part-time basis, as Chairman of its board of  Directors, and where he is appointed on a whole-time basis, as Chairman of its  board of Directors, he shall be entrusted with the management of the whole of  the affairs of the banking company :  

PROVIDED that the Chairman shall exercise his powers subject to the  superintendence, control and direction of the board of Directors.  

(1A) Where a Chairman is appointed on a part-time basis,-  

                                                            

1 Substituted by Act 20 of 1994, w.e.f. 31-1-1994.  

23

(i) such appointment shall be with the previous approval of the Reserve Bank  and be subject to such conditions as the Reserve Bank may specify while  giving such approval;  

(ii) the management of the whole of the affairs of such banking company shall  be entrusted to a Managing Director who shall exercise his powers subject to  the superintendence, control and direction of the board of Directors.]  

(2) 1[Every Chairman of the board of Directors who is appointed on a whole-time  basis and every Managing Director] of a banking company shall be in the whole time employment of such company and shall hold office for such period, not  exceeding five years, as the board of Directors may fix, but shall, subject to the  provisions of this section, be eligible for re-election of reappointment:  

PROVIDED that nothing in this sub-section shall be construed as prohibiting a  Chairman from being a Director of a subsidiary of the banking company or a Director of  a company registered under section 25 of the Companies Act, 1956 (1 of 1956).  

(3) Every person holding office on the commencement of section 3 of the Banking  Laws (Amendment) Act, 1968 (58of 1968), as Managing Director of a banking  company shall-  

(a) if there is a Chairman of its board of Directors, vacate office on such  commencement, or  

(b) if there is no Chairman of its board of Directors, vacate office on the date  on which the Chairman of its board of Directors is elected or appointed in  accordance with the provisions of this section.  

(4) 2[Every Chairman who is appointed on a whole-time basis and every  Managing Director of a banking company appointed under sub-section  (1A)]shall be person who has special knowledge and practical experience of-  

(a) the working of a banking company, or of the State Bank of India or any  subsidiary bank or a financial institution, or  

(b) financial, economic or business administration :  

                                                            

1 Substituted by Act 20 of 1994, w.e.f.31-1-1994.  

2 Substituted by Act 20 of 1994, w.e.f. 31-1-1994.  

24

PROVIDED that a person shall be disqualified for being a 1[Chairman  who is appointed on a whole time basis or a Managing Director], if be-  

(a) is a Director of any company other than a company referred to in  the proviso to sub-section (2), or  

(b) is a partner of any firm which carries on any trade, business or  industry, or  

(c) has substantial interest in any other company or firm, or  

(d) is a Director, manager, Managing agent, partner or proprietor of  any trading, commercial or industrial concern, or  

(e) is engaged in any other business or vocation.  

(5) 2[A Chairman of the board of Directors appointed on a whole-time basis or a  Managing Director] of a banking company may, by writing, under his hand  addressed to the company, resign his office, 3[* * *].  

4[(5A) 5[A Chairman of the board of Directors appointed on a whole-time basis  or a Managing Director] whose term of office has come to an end, either by  reason of his resignation or by reason of expiry of the period of his office, shall,  subject to the approval of the Reserve Bank, continue in office until his successor  assumes office.  

(6) Without prejudice to the provisions of section 36AA where the Reserve Bank  is of opinion that any person who, is, or has been elected to be, the 6[Chairman of  the board of Directors who is appointed on a whole-time basis or the Managing  Director]of a banking company is not a fit and proper person to hold such office,  it may, after giving to such person and to the banking company a reasonable  opportunity of being heard by order in writing, require the banking company to  elect or appoint any other person as the 7[Chairman of the board of Directors  who is appointed on a whole-time basis or the Managing Director]and if, within  

                                                            

1 Substituted by Act 20 of 1994, w.e.f. 31-1-1994.  

2 Substituted by Act 20 of 1994, w.e.f. 31-1-1994.  

3 Certain words omitted by Act 1 of 1984, w.e.f. 15-2-1984.  

4 Inserted by Act 1 of 1984, w.e.f. 15-2-1984.  

5 Substituted by Act 20 of 1994, w.e.f. 31-1-1994.  

6 Substituted by Act 20 of 1994, w.e.f. 31-1-1994.  

7 Substituted by Act 20 of 1994, w.e.f. 31-1-1994.  

25

a period of two months from the date of receipt of such order, the banking  company fails to elect or appoint a suitable person as the 1[Chairman of the  board of Directors who is appointed on a whole-time basis or the Managing  Director], the Reserve Bank may, by order, remove the first-mentioned person  from the office of the 2[Chairman of the board of Directors who is appointed on a  whole-time basis or the Managing Director]of the banking company and appoint  a suitable person in his place whereupon the person so appointed shall be  deemed to have been duly elected or appointed, as the case may be, as  the 3[Chairman of the board of Directors who is appointed on a whole-time basis  or the Managing Director] of such banking company and any person elected  or 4[appointed as Chairman on a whole-time basis or Managing Director] under  this sub-section shall hold office for the residue of the period of office of the  person in whose place he has been so elected or appointed.  

(7) The banking company and any person against whom an order of removal is  made under sub-section (6) may, within thirty days from the date of  communication to it or to him of the order, prefer an appeal to the Central  Government and the decision of the Central Government thereon, and subject  thereto, the order made by the Reserve Bank under sub-section (6), shall be final  and shall not be called into question inany court.  

(8) Notwithstanding anything contained in this section, the Reserve Bank may, if  in its opinion it is necessary in the public interest so to do, permit 5[the Chairman  of the board of Directors who is appointed on a whole-time basis or the  Managing Director] to undertake such part-time honorary work as is not likely to  interfere with his duties as 6[such Chairman or Managing Director].  

(9) Notwithstanding anything contained in this section, where a person  6[appointed on a whole-time basis, as Chairman of the board of Directors or the  Managing Director]dies or resigns or is by infirmity or otherwise rendered  incapable of carrying out his duties or is absent on leave or otherwise in  circumstances not involving the vacation of his office, the banking company  may, with the approval of the Reserve Bank, make suitable arrangements for  

                                                            

1 Substituted by Act 20 of 1994, w.e.f. 31-1-1994.  

2 Substituted by Act 20 of 1994, w.e.f. 31-1-1994.  

3 Substituted by Act 20 of 1994, w.e.f. 31-1-1994.  

4 Substituted by Act 20 of 1994, w.e.f. 31-1-1994.  

5 Substituted by Act 20 of 1994, w.e.f. 31-1-1994.  

6 Substituted by Act 20 of 1994, w.e.f. 31-1-1994.  

26

carrying out the 1[duties of Chairman or Managing Director] for a total period  not exceeding four months.]  

2[10BB. Power of Reserve Bank to appoint 3[Chairman of the Board of Directors  appointed on a whole-time basis or a Managing Director] of a banking company 

(1) Where the office, of the 4[Chairman of the board of Directors appointed on a  whole-time basis or a Managing Director] of a banking company is vacant, the  Reserve Bank may, if it is of opinion that the continuation of such vacancy is  likely to adversely affect the interests of the banking company, appoint a person  eligible under sub-section (4) of section 10B to be so appointed, to be  the 5[Chairman of the board of Directors appointed on a whole-time basis or a  Managing Director]of the banking company and where the person so appointed  is not a Director of such banking company, he shall, so long as he holds the office  of the 6[Chairman of the board of Directors appointed on a whole-time basis or a  Managing Director], be deemed to be Director of the banking company.  

(2) The 7[Chairman of the board of Directors appointed on a whole-lime basis or  a Managing Director] so appointed by the Reserve Bank shall be in the whole time employment of the banking company and shall hold office for such period  not exceeding three years, as the Reserve Bank may specify, but shall, subject to  other provisions of this Act, be eligible for reappointment.  

(3) The 8[Chairman of the board of Directors appointed on a whole-time basis or  a Managing Director] so appointed by the Reserve Bank shall draw from the  banking company such pay and allowances as the Reserve Bank may determine  and may be removed from office only by the Reserve Bank.  

(4) Save as otherwise provided in this section, the provisions of section 10B shall,  as far as may be, apply to the 9[Chairman of the board of Directors appointed on  a whole-time basis or a Managing Director] appointed by the Reserve Bank  

                                                            

1 Substituted by Act 20 of 1994, w.e.f. 31-1-1994.  

2 Inserted by Act 1 of 1984, w.e.f. 15-2-1984.  

3 Substituted for “Chairman” by Act 20 of 1994, w.e.f. 31-1-1994  

4 Substituted by Act 20 of 1994, w.e.f. 31-1-1994.  

5 Substituted by Act 20 of 1994, w.e.f. 31-1-1994.  

6 Substituted by Act 20 of 1994, w.e.f. 31-1-1994.  

7 Substituted by Act 20 of 1994, w.e.f. 31-1-1994.  

8 Substituted by Act 20 of 1994, w.e.f. 31-1-1994.  

9 Substituted by Act 20 of 1994, w.e.f. 31-1-1994.  

27

under subsection (1) as they apply to a 1[Chairman of the board of Directors  appointed on a whole-time basis or a Managing Director] appointed by the  banking company.]  

2[10C. Chairman and certain Directors not to be required to hold qualification shares 

3[Chairman of the board of Directors who is appointed on a whole-lime basis or  a Managing Director] of a banking company (by whomsoever appointed) and a  Director of a banking company(appointed by the Reserve Bank under section  10A) shall not be required to hold qualification shares in the banking company.]  

10D. Provisions of sections 10A and 10B to override all other laws, contracts, etc 

Any appointment or removal of a 4[Director, Chairman of the board of Directors  who is appointed on a whole-time basis or a Managing Director] in pursuance of  section IOA or section 10B 5[or section 10BB] shall have effect and any such  person shall not be entitled to claim any compensation for the loss or termination  of office, notwithstanding anything contained in any law or in any contract,  memorandum or articles of association.]  

  1. Requirement as to minimum paid-up capital and reserves 

(1) Notwithstanding anything contained in 6[section 149 of the Companies Act,  1956 (1 of 1956)], no banking company in existence on the commencement of this  Act, shall, after the expiry of three years from such commencement or of such  further period not exceeding one year as the Reserve Bank, having regard to the  interests of the depositors of the company, may think fit in any particular case to  allow, carry on business 7[in India], and no other banking company shall after  the commencement of this Act, commence or carry on business 8[in  

                                                            

1 Substituted by Act 20 of 1994, w.e.f. 31-1-1994.  

2 Substituted by Act 1 of 1984, w.e.f. 15-2-1984.  

3 Substituted by Act 20 of 1994, w.e.f. 31-1-1994.  

4 Substituted by Act 20 of 1994, w.e.f. 31-1-1994.  

5 Inserted by Act 1 of 1984, w.e.f. 31-1-1984  

6 Substituted by Act 95 of 1956 for “section 103 of the Indian Companies Act, 1913 (7 of 1913)” w.e.f. 14-1- 1957.  

7 Substituted by Act 20 of 1950 for “in any state”, w.e.f. 18-3-1950  

8 Substituted by Act 20 of 1950, for “in any state”, w.e.f. 18-3-1950  

28

India] 1[unless it complies with such of the requirements of this section as are  applicable to it].  

2[(2) In the case of a banking company incorporated outside India-  

(a) the aggregate value of its paid-up capital and reserves shall not be less  than fifteen lakhs of rupees and if it has a place or places of business in the  city of Bombay or Calcutta or both, twenty lakhs of rupees; and  

(b) 3[the banking company shall deposit and keep deposited with the  Reserve Bank either in cash or in the form of unencumbered approved  securities, or partly in cash and partly in the form of such securities-  

(i) an amount which shall not be less than the minimum required by  clause (a); and  

(ii) as soon as may be after the expiration of each 4[* * *] year, an amount  calculated at twenty percent of its profit for that year in respect of all  business transacted through its branches in India, as disclosed in the profit  and loss account prepared with reference to that year under section 29:]  

PROVIDED that any such banking company may at anytime replace-  

(i) any securities so deposited by cash or by any other  unencumbered approved securities or partly by cash and partly by  other such securities, so however, that the total amount deposited  is not affected;  

(ii) any cash so deposited by unencumbered approved securities of  an equal value.]  

5[(2A) Notwithstanding anything contained in sub-section(2), the Central  Government may, on the recommendation of the Reserve Bank, and having  regard to the adequacy of the amounts already deposited and kept deposited by  a banking company under sub-section (2), in relation to its deposit liabilities in  

                                                            

1 Substituted by Act 33 of 1959, w.e.f.1-10-1959.  

2 Substituted by Act 33 of 1959, w.e.f. 1-10-1959.  

3 Substituted by Act 36 of 1962, w.e.f. 16-9-1962  

4 The word “calendar” omitted by Act 66 of 1988, w.e.f.30-12-1988.  

5 Inserted by Act 36 of 1962, w.e.f. 16-9-1962  

29

India, declare by order in writing that the provisions of sub-clause (ii) of clause  (b) of sub-section (2) shall not apply to such banking company for such period as  may be specified in the order.]  

(3) In the case of any banking company to which the provisions of sub-section (2)  do not apply, the aggregate value of its paid-up capital and reserves shall not be  less than-  

(i) if it has places of business in more than one State, five lakhs of rupees, and  if any such place or places of business is or are situated in the city of Bombay  or Calcutta or both, ten lakhs of rupees;  

(ii) if it has all its places of business in one State none of which is situated in  the city of Bombay or Calcutta, one lakh of rupees in respect of its principal  place of business, plus ten thousand rupees in respect of each of its other  places of business situated in the same district in which it has its principal  place of business, plus twenty-five thousand rupees in respect of each place  of business situated elsewhere in the State otherwise than in the same district:  

PROVIDED that no banking company to which this clause applies shall be  required to have paid-up capital and reserves exceeding an aggregate  value of five lakhs of rupees:  

PROVIDED FURTHER that no banking company to which this clause  applies and which has only one place of business, shall be required to  have paid-up capital and reserves exceeding an aggregate value of fifty  thousand rupees:  

1[PROVIDED FURTHER that in the case of every banking company to  which this clause applies and which commences banking business for the  first time after the commencement of the Banking Companies  (Amendment) Act, 1962 (36of 1962), the value of its paid-up capital shall  not be less than five lakhs of rupees;]  

(iii) if it has all its places of business in one State, one or more of which is or  are situated in the city of Bombay or Calcutta, five lakhs of rupees, plus  twenty-five thousand rupees in respect of each place of business situated  outside the city of Bombay or Calcutta, as the case may be:  

                                                            

1 Inserted by Act 36 of 1962, w.e.f. 16-9-1962  

30

PROVIDED that no banking company to which this clause applies shall be  required to have paid-up capital and reserves exceeding an aggregate  value of ten lakhs of rupees.  

Explanation.–For the purposes of this sub-section, a place of business  situated 1[in a State] other than that in which the principal place of  business of the banking company is situated shall, if it is not more than  twenty-five miles distant from such principal place of business, be  deemed to be situated within the same State as such principal place of  business.  

(4) Any amount deposited and kept deposited with the Reserve Bank under 2[* *  *] sub-section (2) by any banking company incorporated 3[outside India] shall, in  the event of the company ceasing for any reason to carry on banking  business 4[in India], be an asset of the company on which the claims of all the  creditors of the company 5[in India] shall be a first charge.  

6[(5) For the purposes of this section,-  

(a) “place of business” means any office, sub-office, sub-pay office and any  place of business at which deposits are received, cheques cashed, or moneys  lent;  

(b) “value” means the real or exchangeable value, and not the nominal value  which may be shown in the books of the banking company concerned.]  

(6) If any dispute arises in computing the aggregate value of the paid-up capital  and reserves of any banking company, a determination thereof by the Reserve  Bank shall be final for the purposes of this section.  

7[12. Regulation of paid-up capital, subscribed capital and authorised capital and  voting rights of shareholders.– 

(1) No banking company shall carry on business in India, unless it satisfies the  following conditions, namely:-  

                                                            

1 Substituted by Act 62 of 1956, for “in India”, w.e.f. 1-11-1956  

2 The words “the proviso to” omitted by Act 33 of 1959, w.e.f. 1-10-1959  

3 Substituted by Act 20 of 1950, w.e.f. 18-3-1950  

4 Substituted by Act 20 of 1950, w.e.f. 18-3-1950  

5 Substituted by Act 20 of 1950, w.e.f. 18-3-1950  

6 Substituted by Act 33 of 1959, w.e.f. 1-10-1959  

7 Substituted by Act 95 of 1956, w.e.f.14-1-1957  

31

(i) that the subscribed capital of the company is not less than one-half of  the authorised capital, and the paid-up capital is not less than one-half of  the subscribed capital and that, if the capital is increased, it complies with  the conditions prescribed in this clause within such period not exceeding  two years as the Reserve Bank may allow;  

1[(ii) that, notwithstanding anything contained in the Companies Act,  1956(1 of 1956), the capital of such banking company consists of–  

(a) equity shares only; or  

(b) equity shares and preference shares:  

PROVIDED that the issue of preference share shall be in  

accordance with the guidelines framed by the Reserve Bank  

specifying the class of preference shares, the extent of issue  

of each class of such preference shares (whether perpetual or  

irredeemable or redeemable), and the terms and conditions  

subject to which each class of preference shares may be  

issued:  

PROVIDED further that no holder of the preference share,  

issued by the company, shall be entitled to exercise the  

voting right specified in clause (b) of sub-section (2) of  

section 87 of the Companies Act, 1956(1 of 1956);]  

2[***]  

(2) No person holding shares in a banking company shall, in respect of any  shares held by him, exercise voting rights 3[on poll] 4[in excess of 5(ten per cent)]  of the total voting rights of all the shareholders of the banking company.  

6[PROVIDED that the Reserve Bank may increase, in a phased manner,  such ceiling on voting rights from ten per cent. to twenty-six per cent.]  

                                                            

1 Substituted by the Banking Laws (Amendment) Act, 2012 (Act No. 4 of 2013) w.e.f. 18.01.2013 for the  following:  

“(ii) that the capital of the company consists of ordinary shares only or of ordinary shares or equity shares  and such preferential shares as may have been issued prior to the 1st day of July, 1944:”  2 Omitted by the Banking Laws (Amendment) Act, 2012 (Act No. 4 of 2013) w.e.f. 18.01.2013 for the  following : –  

“Provided that nothing contained in this sub-section shall apply to any banking company incorporated  before the 15thday of January, 1937.”  

3 Inserted by Act 33 of 1959 w.e.f. 1-10-1959  

4 Substituted by Act 55 of 1963 for “in excess of five percent” w.e.f. 1-2-1964  

5 Substituted by Act 20 of 1994, w.e.f. 31-1-1994  

6 Inserted by the Banking Laws (Amendment) Act, 2012 (Act No. 4 of 2013) w.e.f. 18.01.2013  32

(3) Notwithstanding anything contained in any law for the time being in force or  in any contract or instrument no suit or other proceeding shall be maintained  against any person registered as the holder of a share in a banking company on  the ground that the title to the said share vests in a person other than the  registered holder :  

PROVIDED that nothing contained in this sub-section shall bar a suit or  other proceeding-  

(a) by a transferee of the share on the ground that he has obtained  from the registered holder a transfer of the share in accordance  with any law relating to such transfer; or  

(b) on behalf of a minor or a lunatic on the ground that the  registered holder holds the share on behalf of the minor or lunatic.  

(4) Every Chairman, Managing Director or chief executive officer by whatever  name called of a banking company shall furnish to the Reserve Bank through  that banking company returns containing full particulars of the extent and value  of his holding of shares, whether directly or indirectly, in the banking company  and of any change in the extent of such holding or any variation in the rights  attaching thereto and such other information relating to those shares as the  Reserve Bank may, by order, require and in such form and at such time as may  be specified in the order.]  

1[12A. Election of new Directors 

(1) The Reserve Bank may, by order, require any banking company to call a  general meeting of the shareholders of the company within such time, not less  than two months from the date of the order, as may be specified in the order or  within such further time as the Reserve Bank may allow in this behalf, to elect in  accordance with the voting rights permissible under this Act fresh Directors, and  the banking company shall be bound to comply with the order.  

(2) Every Director elected under sub-section (1) shall hold office until the date up  to which his predecessor would have held office, if the election had not been  held.  

(3)Any election duly held under this section shall not be called in question in any  court.]  

1[12B. Regulation of acquisition of shares or voting rights 

                                                            

1 Inserted by Act 95 of 1956, Section 4 w.e.f. 14-1-1957.  

33

 (1) No person (hereinafter referred to as “the applicant”) shall, except with the  previous approval of the Reserve Bank, on an application being made, acquire or  agree to acquire, directly or indirectly, by himself or acting in concert with any  other person, shares of a banking company or voting rights therein, which  acquisition taken together with shares and voting rights, if any, held by him or  his relative or associate enterprise or person acting in concert with him, makes  the applicant to hold five per cent. or more of the paid-up share capital of such  banking company or entitles him to exercise five per cent. or more of the voting  rights in such banking company.  

Explanation 1.–For the purposes of this sub-section,–  

(a) “associate enterprise” means a company, whether incorporated  or not, which,–  

(i) is a holding company or a subsidiary company of the  

applicant; or  

(ii) is a joint venture of the applicant; or  

(iii) controls the composition of the Board of Directors or  

other body governing the applicant; or  

(iv) exercises, in the opinion of the Reserve Bank, significant  

influence on the applicant in taking financial or policy  

decisions; or  

(v) is able to obtain economic benefits from the activities of  

the applicant;  

(b) “relative” shall have the meaning assigned to it in section 6 of  the Companies Act, 1956(1 of 1956);  

(c) persons shall be deemed to be “acting in concert” who, for a  common objective or purpose of acquisition of shares or voting  rights in excess of the percentage mentioned in this sub-section,  pursuant to an agreement or understanding (formal or informal),  directly or indirectly cooperate by acquiring or agreeing to acquire  shares or voting rights in the banking company.  

Explanation 2.–For the purposes of this Act, joint venture means a legal  entity in the nature of a partnership engaged in the joint undertaking of a  particular transaction for mutual profit or an association of persons or  

                                                                                                                                                                                                1 Inserted by the Banking Laws (Amendment) Act, 2012 (Act No. 4 of 2013) w.e.f. 18.01.2013.  

34

companies jointly undertaking some commercial enterprise wherein all  contribute assets and share risks.  

(2) An approval under sub-section (1) may be granted by the Reserve Bank if it is  satisfied that–  

(a) in the public interest; or  

(b) in the interest of banking policy; or  

(c) to prevent the affairs of any banking company being conducted in a  manner detrimental or prejudicial to the interests of the banking company;  or  

(d) in view of the emerging trends in banking and international best  practices; or  

(e) in the interest of the banking and financial system in India, the  applicant is a fit and proper person to acquire shares or voting rights:  

PROVIDED that the Reserve Bank may call for such information  from the applicant as it may deem necessary for considering the  application referred to in sub-section (1):  

PROVIDED FURTHER that the Reserve Bank may specify different  criteria for acquisition of shares or voting rights in different  percentages.  

(3) Where the acquisition is by way of transfer of shares of a banking company  and the Reserve Bank is satisfied that such transfer should not be permitted, it  may, by order, direct that no such share shall be transferred to the proposed  transferee and may further direct the banking company not to give effect to the  transfer of shares and in case the transfer has been registered, the transferee shall  not be entitled to exercise voting rights on poll in any of the meetings of the  banking company.  

(4) The approval for acquisition of shares may be subject to such conditions as  the Reserve Bank may deem fit to impose, including a condition that any further  acquisition of shares shall require prior approval of the Reserve Bank and that  the applicant continues to be a fit and proper person to hold the shares or voting  rights.  

(5) Before issuing or allotting any share to any person or registering the transfer  of shares in the name of any person, the banking company shall ensure that the  requirements of sub-section (1) are complied with by that person and where the  acquisition is with the approval of the Reserve Bank, the banking company shall  

35

further ensure that the conditions imposed under sub-section (4), if any, of such  approval are fulfilled.  

(6) The decision of the Reserve Bank on the application made under sub-section  (1) shall be taken within a period of ninety days from the date of receipt of the  application by the Reserve Bank:  

PROVIDED that in computing the period of ninety days, the period taken  by the applicant for furnishing the information called for by the Reserve  Bank shall be excluded.  

(7) The Reserve Bank may specify the minimum percentage of shares to be  acquired in a banking company if it considers that the purpose for which the  shares are proposed to be acquired by the applicant warrants such minimum  shareholding.  

(8) The Reserve Bank may, if it is satisfied that any person or persons acting in  concert with him holding shares or voting rights in excess of five per cent. of the  total voting rights of all the shareholders of the banking company, are not fit and  proper to hold such shares or voting rights, pass an order directing that such  person or persons acting in concert with him shall not, in the aggregate, exercise  voting rights on poll in excess of five per cent. of the total voting rights of all the  shareholders of the banking company:  

PROVIDED that the Reserve Bank shall not pass any such order without  giving an opportunity of being heard to such person or persons acting in  concert with him.]  

  1. Restriction on commission, brokerage, discount, etc. on sale of shares 

Notwithstanding anything to the contrary contained in 1[sections 76 and 79 of  the Companies Act, 1956 (1 of 1956)], no banking company shall pay out directly  or indirectly by way of commission, brokerage, discount or remuneration in any  form in respect of any shares issued by it, any amount exceeding in the aggregate  two and one-half per cent of the 2[price at which the said shares are issued.]  

3[Explanation,–For the removal of doubts, it is hereby declared that the  expression “price at which the said shares are issued” shall include  amount or value of premium on such shares.]  

  1. Prohibition of charge on unpaid capital 

                                                            

1 Substituted by Act 95 of 1956, for “section 105 and 105A of the Indian Companies Act, 1913 (7 of 1913)”  w.e.f.14-1-1957.  

2 Substituted by the Banking Laws (Amendment) Act, 2012 (Act No. 4 of 2013) w.e.f. 18.01.2013 for the  following : – “paid-up value of the said shares”  

3 Inserted by the Banking Laws (Amendment) Act, 2012 (Act No. 4 of 2013) w.e.f. 18.01.2013  36

No banking company shall create any charge upon any unpaid capital of the  company, and any such charge shall be invalid.  

1[14A. Prohibition of floating charge on assets 

(1) Notwithstanding anything contained in section 6, no banking company shall  create a floating charge on the undertaking or any property of the company or  any part thereof, unless the creation of such floating charge is certified in writing  by the Reserve Bank as not being detrimental to the interests of the depositors of  such company.  

(2) Any such charge created without obtaining the certificate of the Reserve Bank  shall be invalid.  

(3) Any banking company aggrieved by the refusal of a certificate under sub section (1) may, within ninety days from the date on which such refusal is  communicated to it, appeal to the Central Government.  

(4)The decision of the Central Government where an appeal has been preferred to it  under sub-section (3) or of the Reserve Bank where no such appeal has been preferred  shall be final.]  

  1. Restrictions as to payment of dividend 

2[ (1)] No banking company shall pay any dividend on its shares until all its  capitalised expenses (including preliminary expenses, organisation expenses,  share-selling commission, brokerage, amounts of losses incurred and any other  item of expenditure not represented by tangible assets) have been completely  written off.  

3[(2)] Notwithstanding anything to the contrary contained in sub-section (1) or in  the Companies Act, 1956(1 of 1956), a banking company may pay dividends on  its shares without writing off-  

(i) the depreciation, if any, in the value of its investments in approved  securities in any case where such depreciation has not actually been  capitalised or otherwise accounted for as a loss;  

(ii) the depreciation, if any, in the value of its investments in shares,  debentures or bonds (other than approved securities) in any case where  

                                                            

1 Inserted by Act 33 of 1959, w.e.f. 1-10-1959.  

2 Section 15 renumbered as sub-section (1) of that section by Act 33 of 1959, w.e.f. 1-10-1959  3 Inserted by Act 33 of 1959, w.e.f. 1-10-1959  

37

adequate provision for such depreciation has been made to the satisfaction of  the auditor of the banking company;  

(iii) the bad debts, if any, in any case where adequate provision for such debts  has been made to the satisfaction of the auditor of the banking company. ]  

1[16. Prohibition of common Directors 

2[(1) No banking company incorporated in India shall have as a Director in its  Board of Directors any person who is a Director of any other banking company.  

(1A) No banking company referred to in sub-section (1) shall have in its Board of  Directors, more than three Directors who are Directors of companies which  among themselves are entitled to exercise voting rights in excess of twenty per  cent of the total voting rights of all the shareholders to that banking company.]  

(2) If immediately before the commencement of the Banking Companies  (Amendment) Act, 1956 (95 of 1956),any person holding office as a director of a  banking company is also a Director of companies which among themselves are  entitled to exercise voting rights in excess of twenty percent of the total voting  rights of all the shareholders of the banking company, he shall, within such  period from such commencement as the Reserve Bank may specify in this behalf-  

(a) either resign his office as a Director of the banking company; or  

(b) choose such number of companies as among themselves are not entitled to  exercise voting rights in excess of twenty per cent, of the total voting rights of  all the shareholders of the banking company as companies in which he  wishes to continue to hold the office of a Director and resign his office as a  Director in the other companies.]  

3[(3) Nothing in sub-section (1) shall apply to, or in relation to, any Director  appointed by the Reserve Bank.]  

4[17. Reserve Fund 

                                                            

1 Substituted by Act 95 of 1956, w.e.f.14-1-1957  

2 Substituted by Act 20 of 1994, Section 7 w.e.f. 31-1-1994  

3 Inserted by Act 58 of 1968, w.e.f. 1-2-1969  

4 Substituted by Act 33 of 1959, w.e.f. 1-10-1959  

38

(1) Every banking company incorporated in India shall create a reserve fund and 1[* * *]shall, out of the balance of profit of each year as disclosed in the profit and  loss account prepared under section 29 and before any dividend is declared,  transfer to the reserve fund a sum equivalent to not less than twenty per cent of  such profit.  

2[(1A) Notwithstanding anything contained in sub-section (1), the Central  Government may, on the recommendation of the Reserve Bank and having  regard to the adequacy of the paid-up capital and reserves of a banking company  in relation to its deposit liabilities, declare by order in writing that the provisions  of sub-section (1) shall not apply to the banking company for such period as may  be specified in the order:  

PROVIDED that no such order shall be made unless, at the time it is made,  the amount in the reserve fund under sub-section (1), together with the  amount in the share premium account is not less than the paid-up capital of  the banking company.]  

(2) Where a banking company appropriates any sum or sums from the reserve fund or  the share premium account, it shall, within twenty-one days from the date of such  appropriation, report the fact to the Reserve Bank, explaining the circumstances relating  to such appropriation:  

PROVIDED that the Reserve Bank may, in any particular case, extend the said  period of twenty-one days by such period as it thinks fit or condone any delay in  the making of such report.  

3[18. Cash reserve.– 

(1) Every banking company, not being a scheduled bank, 4[shall maintain in  India on a daily basis] by way of cash reserve with itself or by way of balance in a  current account with the Reserve Bank, or byway of net balance in current  accounts or in one or more of the aforesaid ways, a sum equivalent to 5[such per  cent.] of the total of its demand and time liabilities in India as on the last Friday  

                                                            

1 Certain words omitted by Act 36 of 1962, w.e.f. 16-9-1962  

2 Inserted by Act 36 of 1962, w.e.f. 16-9-1962  

3 Substituted by Act 1 of 1984, w.e.f. 29-3-1985  

4 Substituted by the Banking Laws (Amendment) Act, 2012 (Act No. 4 of 2013) w.e.f. 18.01.2013 for the  following : – “shall maintain in India”  

5 Substituted by the Banking Laws (Amendment) Act, 2012 (Act No. 4 of 2013) w.e.f. 18.01.2013 for the  following : – “at least three per cent”  

39

of the second preceding fortnight 1[as the Reserve Bank may specify, by  notification in the Official Gazette, from time to time, having regard to the needs  of securing the monetary stability in the country] and shall submit to the Reserve  Bank before the twentieth day of every month are turn showing the amount so  held on alternate Fridays during a month with particulars of its demand and  time liabilities in India on such Fridays or if any such Friday is a public holiday  under the Negotiable Instruments Act, 1881(26 of 1881), at the close of business  on the preceding working day.  

Explanation.–In this section, and in section 24,-  

(a) “liabilities in India” shall not include-  

(i) the paid-up capital or the reserves or any credit  

balance in the profit and loss account of the banking  

company;  

(ii) any advance taken from the Reserve Bank 2[or  

from the Development Bank] or from the Exam  

Bank 3[or from the Reconstruction Bank] 4[or from the  

National Housing Bank] or from the National Bank 

5[or from the Small Industries Bank] by the banking  

company;  

(iii) in the case of a Regional Rural Bank, also any loan  

taken by such bank from its Sponsor Bank;  

(b) “fortnight” shall mean the period from Saturday to the  

second following Friday, both days inclusive;  

(c) “net balance in current accounts” shall, in relation to a  

banking company, mean the excess, if any, of the aggregate  

of the credit balances in current account maintained by that  

banking company with State Bank of India or a subsidiary  

bank or a corresponding new bank over the aggregate of the  

credit balances in current account held by the said banks  

with such banking company;  

(d) for the purposes of computation of liabilities, the  

aggregate of the liabilities of a banking company to the State  

                                                            

1 Inserted by the Banking Laws (Amendment) Act, 2012 (Act No. 4 of 2013) w.e.f. 18.01.2013  2 Omitted by the Banking Laws (Amendment) Act, 2012 (Act No. 4 of 2013) w.e.f. 18.01.2013 for the  following : – “or from the Development Bank”  

3 Inserted by Act 62 of 1984, w.e.f. 20-3-1985  

4 Inserted by Act 53 of 1987, w.e.f.9-7-1988  

5 Inserted by Act 39 of 1989, w.e.f. 07-3-1990  

40

Bank of India, a subsidiary bank, a corresponding new bank,  

a regional rural bank, another banking company, a co 

operative bank or any other financial institution notified by  

the Central Government in this behalf, shall be reduced by  

the aggregate of the liabilities of all such banks and  

institutions to the banking company;  

(e) the expression “co-operative bank” shall have the  

meaning assigned to it in clause (cci) of section 56.  

1[(1A) If the balance held by such banking company at the close of business on  any day is below the minimum specified under sub-section (1), such banking  company shall, without prejudice to the provisions of any other law for the time  being in force, be liable to pay to the Reserve Bank, in respect of that day, penal  interest at a rate of three per cent. above the bank rate on the amount by which  such balance falls short of the specified minimum, and if the shortfall continues  further, the penal interest so charged shall be increased to a rate of five per cent.  above the bank rate in respect of each subsequent day during which the default  continues.  

(1B) Notwithstanding anything contained in this section, if the Reserve Bank is  satisfied, on an application in writing by the defaulting banking company, that  such defaulting banking company had sufficient cause for its failure to comply  with the provisions of sub-section (1), it may not demand the payment of the  penal interest.  

(1C) The Reserve Bank may, for such period and subject to such conditions as  may be specified, grant to any banking company such exemptions from the  provisions of this section as it thinks fit with reference to all or any of its offices  or with reference to the whole or any part of its assets and liabilities.]  

(2 ) The Reserve Bank may, for the purposes of this section and section 24,  specify from time to time, with reference to any transaction or class of  transactions, that such transaction or transactions shall be regarded as liability in  India of a banking company and, if any question arises as to whether any  transaction or class of transactions shall be regarded for the purposes of this  section and section 24 as liability in India of a banking company, the decision of  the Reserve Bank thereon shall be final.]  

  1. Restriction on nature of subsidiary companies 

                                                            

1 Inserted by the Banking Laws (Amendment) Act, 2012 (Act No. 4 of 2013) w.e.f. 18.01.2013  41

1[(1) A banking company shall not form any subsidiary company except a  subsidiary company formed for one or more of the following purposes, namely: –  

(a) the undertaking of any business which, under clauses (a) to (o) of sub section (3) of section 6, is permissible for a banking company to undertake, or  

(b) with the previous permission in writing of the Reserve Bank, the carrying  on of the business of banking exclusively outside India, or  

(c) the undertaking of such other business, which the Reserve Bank may, with  the prior approval of the Central Government, consider to be conducive to  the spread of banking in India or to be otherwise useful or necessary in the  public interest.  

Explanation. -For the purposes of section 8, a banking company shall not be  deemed, by reason of its forming or having a subsidiary company, to be  engaged indirectly in the business carried on by such subsidiary company.]  

(2) Save as provided in sub-section (1), no banking company shall hold shares in  any company, whether as pledgee, mortgagee or absolute owner, of an amount  exceeding thirty per cent of the paid-up share capital of that company or thirty  per cent of its own paid-up share capital and reserves, whichever is less:  

PROVIDED that any banking company which is on the date of the  commencement of this Act holding any shares in contravention of the  provisions of this sub-section shall not be liable to any penalty therefor if it  reports the matter without delay to the Reserve Bank and if it brings its  holding of shares into conformity with the said provisions within such  period, not exceeding two years, as the Reserve Bank may think fit to allow.  

(3) Save as provided in sub-section (1) and notwithstanding anything contained  in sub-section (2), a banking company shall not, after the expiry of one year from  the date of the commencement of this Act, hold shares, whether as pledgee,  mortagagee or absolute owner, in any company in the management of which any  Managing Director or manager of the banking company is in any manner  concerned or interested.  

2(4) Save as provided in clause (c) of sub-section (1), a banking company may  form a subsidiary company to carry on the business of credit information in  accordance with the Credit Information Companies (Regulation) Act, 2005.”  

1[20. Restrictions on loans and advances 

                                                            

1 Substituted Act 1 of 1984, w.e.f. 15-2-1984  

2 Inserted vide Credit Information Companies (Regulation) Act, 2005 (Act 30 of 2005)  42

(1) Notwithstanding anything to the contrary contained in section 77 of the  Companies Act, 1956 (1 of 1956), no banking company shall,-  

(a) grant any loans or advances on the security of its own shares, or-  

(b) enter into any commitment for granting any loan or advance to or on  behalf of-  

(i) any of its Directors,  

(ii) any firm in which any of its Directors is interested as partner, manager,  employee or guarantor, or  

(iii) any company [not being a subsidiary of the banking company or a  company registered under section 25 of the Companies Act, 1956 (1 of  1956), or a Government company] of which 2[or the subsidiary or the  holding company of which] any of the Directors of the banking company  is a Director, Managing agent, manager, employee or guarantor or in  which he holds substantial interest, or  

(iv) any individual in respect of whom any of its Directors is a partner or  guarantor.  

(2) Where any loan or advance granted by a banking company is such that a  commitment for granting it could not have been made if clause (b) of sub-section  (1) had been in force on the date on which the loan or advance was made, or is  granted by a banking company after the commencement of section 5 of the  Banking Laws (Amendment) Act, 1968(58 of 1968), but in pursuance of a  commitment entered into before such commencement, steps shall be taken to  recover the amounts due to the banking company on account of the loan, or  advance together with interest, if any, due thereon within the period stipulated  at the time of the grant of the loan or advance, or where no such period has been  stipulated, before the expiry of one year from the commencement of the said  section 5:  

PROVIDED that the Reserve Bank may, in any case, on an application in  writing made to it by the banking company in this behalf, extend the period  for the recovery of the loan or advance until such date, not being a date  

                                                                                                                                                                                                1 Substituted by Act 58 of 1968, Section 5, for section 20 w.e.f. 1-2-1969  

2 Inserted by Act 1 of 1984, w.e.f. 15-2-1984  

43

beyond the period of three years from the commencement of the said section  5, and subject to such terms and conditions, as the Reserve Bank may deem  fit:  

PROVIDED FURTHER that this sub-section shall not apply if and when the  Director concerned vacates the office of the Director of the banking company,  whether by death, retirement, resignation or otherwise.  

(3) No loan or advance, referred to in sub-section (2), or any part thereof shall be  remitted without the previous approval of the Reserve Bank, and any remission  without such approval shall be void and of no effect.  

(4) Where any loan or advance referred to in sub-section (2), payable by any  person, has not been repaid to the banking company within the period specified  in that subsection, then, such person shall, if he is a Director of such banking  company on the date of the expiry of the said period, be deemed to have vacated  his office as such on the said date.  

Explanation.–In this section-  

(a) “loans or advance” shall not include any transaction which the Reserve  Bank may, having regard to the nature of the transaction, the period within  which, and the manner and circumstances in which, any amount due on  account of the transaction is likely to be realised, the interest of the depositors  and other relevant considerations, specify by general or special order as not  being a loan or advance for the purpose of this section;  

(b) “Director” include a member of any board or committee in India  constituted by a banking company for the purpose of Managing, or for the  purpose of advising it in regard to the management of, all or any of its affairs.  

(5) If any question arises whether any transaction is a loan or advance for the  purposes of this section, it shall be referred to the Reserve Bank, whose decision  thereon shall be final.]  

1[20A. Restrictions on power to remit debts 

(1) Notwithstanding anything to the contrary contained in section 293 of the  Companies Act, 1956 (1 of 1956), a banking company shall not, except with the                                                              

1 Inserted by Act 55 of 1963, w.e.f. 1-2-1964  

44

prior approval of the Reserve Bank, remit in whole or in part any debt due to it  by-  

(a) any of its Directors, or  

(b) any firm or company in which any of its Directors is interested as Director,  partner, Managing agent or guarantor, or  

(c) any individual if any of its Directors is his partner or guarantor.  

(2) Any remission made in contravention of the provisions of sub-section (1) shall  be void and of no effect.]  

  1. Power of Reserve Bank to control advances by banking companies 

(1) Where the Reserve Bank is satisfied that it is necessary or expedient in the  public interest 1[or in the interests of depositors] 2[ or banking policy] so to do, it  may determine the policy in relation to advances to be followed by banking  companies generally or by any banking company in particular, and when the  policy has been so determined, all banking companies or the banking company  concerned, as the case may be, shall be bound to follow the policy as so  determined.  

(2) Without prejudice to the generality of the power vested in the Reserve Bank  under sub-section (1) the Reserve Bank may give directions to banking  companies, either generally or to any banking company or group of banking  companies in particular, 3[as to-  

(a) the purposes for which advances may or may not be made,  

(b) the margins to be maintained in respect of secured advances,  

(c) the maximum amount of advances or other financial accommodation  which, having regard to the paid-up capital, reserves and deposits of a  banking company and other relevant considerations, may be made by that  banking company to any one company, firm, association of persons or  individual,  

                                                            

1 Inserted by Act 55 of 1963, w.e.f. 1-2-1964  

2 Inserted by Act 58 of 1968, w.e.f. 1-2-1969  

3 Substituted by Act 55 of 1963, w.e.f.1-2-1964.  

45

(d) the maximum amount up to which, having regard to the considerations  referred to in clause (c),guarantees may be given by a banking company on  behalf of any one company, firm, association of persons or individual, and  

(e) the rate of interest and other terms and conditions on which advances or  other financial accommodation may be made or guarantees may be given.]  

1[(3) Every banking company shall be bound to comply with any directions given  to it under this section.]  

2[21A. Rates of interest charged by banking companies not to be subject to scrutiny  by courts 

Notwithstanding anything contained in the Usurious Loans Act, 1918 (10 of  1918), or any other law relating to indebtedness in force in any State, a  transaction between a banking company and its debtor shall not be re-opened by  any court on the ground that the rate of interest charged by the banking  company in respect of such transaction is excessive.]  

  1. Licensing of banking companies 

3[(1) Save as hereinafter PROVIDED, no company shall carryon banking business  in India unless it holds a licence issued in that behalf by the Reserve Bank and  any such licence may be issued subject of such conditions as the Reserve Bank  may think fit to impose.]  

(2) Every banking company inexistence on the commencement of this Act, before  the expiry of six months from such commencement, and every other company  before commencing banking business 4[in India], shall apply in writing to the  Reserve Bank for a licence under this section:  

PROVIDED that in the case of a banking company in existence on the  commencement of this Act, nothing in sub-section (1) shall be deemed to  prohibit the company from carrying on banking business until it is granted a  

                                                            

1 Inserted by Act 55 of 1963, w.e.f. 1-2-1964.  

2 Inserted by Act 1 of 1984, w.e.f. 15-2-1984.  

3 Substituted by Act 33 of 1959, for sub-section (1)w.e.f. 1-10-1959.  

4 Substituted by Act 20 of 1950, for “in any state”  

46

licence in pursuance of 1[this section] or is by notice in writing informed by  the Reserve Bank that a licence cannot be granted to it:  

PROVIDED FURTHER that the Reserve Bank shall not give a notice as  aforesaid to a banking company in existence on the commencement of this  Act before the expiry of the three years referred to in sub-section (1) of  section 11 or of such further period as the Reserve Bank may under that sub 

section think fit to allow.  

(3) Before granting any licence under this section, the Reserve Banking may  require to be satisfied by an inspection of the books of the company or  otherwise that 2[***] the following conditions are fulfilled, namely:-  

3[(a) that the company is or will be in a position to pay its present or future  depositors in full as their claims accrue;  

(b) that the affairs of the company are not being, or are not likely to be,  conducted in a manner detrimental to the interests of its present or future  depositors;]  

4[(c) that the general character of the proposed management of the company  will not be prejudicial to the public interest or the interest of its depositors;  

(d) that the company has adequate capital structure and earning prospects;  

(e) that the public interest will be served by the grant of a licence to the  company to carry on banking business in India;  

(f) that having regard to the banking facilities available in the proposed  principal area of operations of the company, the potential scope for expansion  of banks already in existence in the area and other relevant factors the grant  of the licence would not be prejudicial to the operation and consolidation of  the banking system consistent with monetary stability and economic growth;  

(g) any other condition, the fulfilment of which would, in the opinion of the  Reserve Bank, be necessary to ensure that the carrying on of banking business  

                                                            

1 Substituted by Act 33 of 1959, for “sub-section” (2)”w.e.f. 1-10-1959  

2 The words “all or any of” omitted by Act 1 of1984, w.e.f. 15-2-1984.  

3 Substituted by Act 33 of 1959, for clauses (a) and (b) w.e.f. 1-10-1959.  

4 Substituted by Act 1 of 1984, for clause ( c) w.e.f. 15-2-1984.  

47

in India by the company will not be prejudicial to the public interest or the  interests of the depositors.]  

1[(3A) Before granting any licence under this section to a company incorporated  outside India, the Reserve Bank may require to be satisfied by an inspection of  the books of the company or otherwise that the conditions specified in sub section (3) are fulfilled and that the carrying on of banking business by such  company in India will be in the public interest and that the Government or law of  the country in which it is incorporated does not discriminate in any way against  banking companies registered in India and that the company complies with all  the provisions of this Act applicable to banking companies incorporated outside  India.]  

2[(4) The Reserve Bank may cancel a licence granted to a banking company under  this section-  

(i) if the company ceases to carry on banking business in India; or  

(ii) if the company at any time fails to comply with any of the conditions  imposed upon it under sub-section (1); or  

(iii) if at any time, any of the conditions referred to in sub-section (3) 3[and  sub-section (3A)] is not fulfilled:  

PROVIDED that before cancelling a licence under clause (ii) or clause (iii)  of this sub-section on the ground that the banking company has failed to  comply with or has failed to fulfil any of the conditions referred to therein,  the Reserve Bank, unless it is of opinion that the delay will be prejudicial  to the interests of the company’s depositors or the public, shall grant to the  company on such terms as it may specify, an opportunity of taking the  necessary steps for complying with or fulfilling such condition.  

(5) Any banking company aggrieved by the decision of the Reserve Bank  cancelling a licence under this section may, within thirty days from the date on  which such decision is communicated to it, appeal to the Central Government.  

                                                            

1 Inserted by Act 1 of 1984, w.e.f. 15-2-1984.  

2 Substituted by Act 33 of 1959, w.e.f. 1-10-1959.  

3 Inserted by Act 1 of 1984, w.e.f. 15-2-1984.  

48

(6) The decision of the Central Government where an appeal has been preferred  to it under sub-section (5) or of the Reserve Bank where no such appeal has been  preferred shall be final.]  

1[23. Restrictions on opening of new, and transfer of existing, places of business (1) Without obtaining the prior permission of the Reserve Bank-  

(a) no banking company shall open a new place of business in India or change  otherwise than within the same city, town or village, the location of an  existing place of business situated in India; and  

(b) no banking company incorporated in India shall open a new place of  business outside India or change, otherwise than within the same city, town  or village in any country or area outside India, the location of an existing  place of business situated in that country or area:  

PROVIDED that nothing in this sub-section shall apply to the opening for  a period not exceeding one month of a temporary place of business within  a city, town or village or the environs thereof within which the banking  company already has a place of business, for the purpose of affording  banking facilities to the public on the occasion of an exhibition, a  conference or a mela or any other like occasion.  

(2) Before granting any permission under this section, the Reserve Bank may  require to be satisfied by an inspection under section 35 or otherwise as to the  financial condition and history of the company, the general character of its  management, the adequacy of its capital structure and earning prospects and  that public interest will be served by the opening or, as the case may be, change  of location, of the place of business.  

(3) The Reserve Bank may grant permission under sub-section (1) subject to such  conditions as it may think fit to impose either generally or with reference to any  particular case.  

(4) Where, in the opinion of the Reserve Bank, a banking company has, at any  time, failed to comply with any of the conditions imposed on it under this  section, the Reserve Bank may, by order in writing and after affording reasonable  

                                                            

1 Substituted by Act 33 of 1959, w.e.f.1-10-1959.  

49

opportunity to the banking company for showing cause against the action  proposed to be taken against it, revoke any permission granted under this  section.  

1[(4A) Any regional rural bank requiring the permission of the Reserve Bank  under this section shall forward its application to the Reserve Bank through the  National Bank which shall give its comments on the merits of the application and  send it to the Reserve Bank:  

PROVIDED that the regional rural bank shall also send an advance copy of  the application directly to the Reserve Bank.]  

(5) For the purpose of this section “place of business” includes any sub-office, pay  office, sub pay office and any place of business at which deposits are received,  cheques cashed or moneys lent.]  

  1. Maintenance of a percentage of assets 

(1) 2[***]  

(2) 3[***]  

4[(2A) A scheduled bank, in addition to the average daily balance which it is, or  may be, required to maintain under section 42 of the Reserve Bank of India Act,  1934 (2 of 1934) and every other banking company, in addition to the cash  reserve which it is required to maintain under section 18, shall maintain in India,  assets, the value of which shall not be less than such percentage not exceeding  forty per cent, of the total of its demand and time liabilities in India is on the last  Friday of the second preceding fortnight as the Reserve Bank may, by  notification in the Official Gazette, specify from time to time and such assets shall  to maintained, in such form and manner, as may be specified in such  notification.]  

(2B) 5[***]  

6[(3) For the purpose of ensuring compliance with the provisions of this section,  every banking company shall, not later than twenty days after the end of the  month to which it relates, furnish to the Reserve Bank in the prescribed form and                                                              

1 Inserted by Act 61 of 1981, w.e.f. 1-5-1982  

2 Omitted by the Banking Regulation (Amendment) Act, 2007 (Act 17 of 2007), w.e.f. 23-1-2007.  3 Omitted by the Banking Regulation (Amendment) Act, 2007, (Act 17 of 2007), w.e.f. 23-1-2007.  4 Substituted by the Banking Regulation (Amendment) Act, 2007, (Act 17 of 2007), w.e.f. 23-1-2007. 5 Omitted by the Banking Regulation (Amendment) Act, 2007, (Act 17 of 2007), w.e.f. 23-1-2007.  6 Substituted by Act 1 of 1984, w.e.f. 29-3-1985.  

50

manner a monthly return showing particulars of its assets maintained in  accordance with this section, and its demand and time liabilities in India at the  close of business on each alternate Friday during the month, or if any such  Friday is a public holiday, at the close of business on the preceding working day:  

PROVIDED that every Regional Rural Bank shall also furnish a copy of  the said return to the National Bank.]  

(4)(a) If on any alternate Friday or, if such Friday is a public holiday, on the  preceding working day, the amount maintained by a banking company at the  close of business on that day falls below the minimum prescribed by or  under 1[***] sub-section (2A) such banking company shall be liable to pay to the  Reserve Bank in respect of that day’s default, penal interest for that day at the  rate of three per cent per annum above the bank rate on the amount by which the  amount actually maintained falls short of the prescribed minimum on that day;  and  

(b) If the default occurs again on the next succeeding alternate Friday, or, if such  Friday is a public holiday, on the preceding working day, and continues on  succeeding alternate Fridays or preceding working days, as the case may be, the  rate of penal interest shall be increased to a rate of five per cent per annum above  the bank rate on each such shortfall in respect of that alternate Friday and each  succeeding alternate Friday or preceding working day, if such Friday is a public  holiday, in which the default continues.  

(5)(a)Without prejudice to the provisions of sub-section (3), the Reserve Bank  may require a banking company to furnish to it are turn in the form and manner  specified by it showing particulars of its assets maintained in accordance with  this section and its demand and time liabilities in India, as at the close of business  on each day of a month; and  

(b) Without prejudice to the provisions of sub-section (4), on the failure of a  banking company to maintain as on any day, the amount so required to be  maintained by or under 2[***] sub-section (2A) the Reserve Bank may, in respect  of such default, require the banking company to pay penal interest for that day  as PROVIDED in clause (a) of sub-section (4) and if the default continues on the  next succeeding working day, the penal interest may be increased as PROVIDED  in clause (b) of sub-section (4) for the concerned days.  

(6)(a) The penalty payable under sub-section (4) and sub-section (5) shall be paid  within a period of fourteen days from the date on which a notice issued by the                                                              

1 Omitted by the Banking Laws (Amendment) Act, 2012 (Act No. 4 of 2013) w.e.f. 18.01.2013 for the  following : – “clause (a) of”  

2 Omitted by the Banking Laws (Amendment) Act, 2012 (Act No. 4 of 2013) w.e.f. 18.01.2013 for the  following : – “clause (a) of”  

51

Reserve Bank demanding payment of the same is served on the banking  company and in the event of failure of the banking company to pay the same  within such period, the penalty may be levied by a direction of the principal civil  court having jurisdiction in the area where an office of the defaulting banking  company is situated, such direction to be made only upon an application made  by the Reserve Bank in this behalf to the court; and  

(b) When the court makes a direction under clause (a), it shall issue a certificate  specifying the sum payable by the banking company and every such certificate  shall be enforceable in the same manner as if it were a decree made by the court  in a suit.  

(7) When under the provisions of clause (b) of sub-section (4), penal interest at  the increased rate of five per cent, above the bank rate has become payable by a  banking company, if thereafter the amount required to be maintained on the next  succeeding alternate Friday, or if such Friday is a public holiday, the next  preceding working day, is still below the prescribed minimum, every Director,  manager or secretary of the banking company, who is knowingly and willfully a  party to the default, shall be punishable with fine which may extend to five  hundred rupees and with a further fine which may extend to five hundred  rupees for each subsequent alternate Friday or the preceding working day, as the  case may be, on which the default continues.  

(8) Notwithstanding anything contained in this section, if the Reserve Bank is  satisfied, on an application in writing by the defaulting banking company, that  the banking company had sufficient cause for its failure to comply with the  provisions of 1[***] sub-section (2A), the Reserve Bank may not demand the  payment of the penal interest.  

Explanation.–In this section, the expression “public holiday” means a day  which is a public holiday under the Negotiable Instruments Act, 1881 (26  of 1881)].  

  1. Assets in India 

2[(1) The assets in India of every banking company at the close of business on the  last Friday of every quarter or, if that Friday is a public holiday under the  Negotiable Instruments Act, 1881 (26 of 1881), at the close of the business on the  preceding working day, shall not be less than seventy-five percent of its demand  and time liabilities in India.  

                                                            

1 The words “clause (a) of” omitted by the Banking Laws (Amendment) Act, 2012 (Act No. 4 of 2013) w.e.f.  18.01.2013  

2 Substituted by Act 33 of 1959, w.e.f. 1-10-1959  

52

(2) Every banking company shall, within one month from the end of every  quarter, submit to the Reserve Bank a return in the prescribed form and manner  of the assets and liabilities referred to in sub-section (1) as at the close of business  on the last Friday of the previous quarter, or, if that Friday is a public holiday  under the Negotiable Instruments Act, 1881 (26 of 1881) at the close of business  on the preceding working day:]  

1[PROVIDED that every regional rural bank shall also furnish a copy of the  said return to the National Bank.]  

(3) For the purposes of this section,-  

2[(a) “assets in India” shall be deemed to include export bills drawn in, and  import bills drawn on and payable in India and expressed in such currencies  as the Reserve Bank may from time to time approve in this behalf and also  such securities as the Reserve Bank may approve in this behalf  notwithstanding that all or any of the said bills or securities are held outside  India;]  

3[(b) “liabilities in India” shall not include the paid-up capital or the reserves  or any credit balance in the profit and loss account of the banking company;]  

4[(c)] “quarter” means the period of three months ending on the last day of  March, June, September or December.  

  1. Return of unclaimed deposits 

Every banking company shall, within thirty days after the close of each calendar  year, submit a return in the prescribed form and manner to the Reserve Bank as  at the end of such calendar year of all accounts 5[in India] which have not been  operated upon for ten years 6[* * *]:  

PROVIDED that in the case of money deposited for a fixed period the said  term of ten years shall be reckoned from the date of the expiry of such fixed  period:  

                                                            

1 Inserted by Act 61 of 1981, w.e.f. 1-5-1982  

2 Substituted by Act 20 of 1950.  

3 Inserted by Act 33 of 1959, w.e.f. 1-10-1959  

4 Clause (b) relettered as clause (c) by Act 33 of 1959, w.e.f. 1-10-1959.  

5 Substituted by Act 20 of 1950, Section 3, for “in a States”.  

6 Certain words omitted by Act 55 of 1963, w.e.f.1-2-1964.  

53

1[PROVIDED FURTHER that every regional rural bank shall also furnish  a copy of the said return to the National Bank.]  

2[26A. Establishment of Depositor Education and Awareness Fund 

 (1) The Reserve Bank shall establish a Fund to be called the “Depositor  Education and Awareness Fund” (hereafter in this section referred to as the  “Fund”).  

(2) There shall be credited to the Fund the amount to the credit of any account in  India with a banking company which has not been operated upon for a period of  ten years or any deposit or any amount remaining unclaimed for more than ten  years, within a period of three months from the expiry of the said period of ten  years:  

PROVIDED that nothing contained in this sub-section shall prevent a  depositor or any other claimant to claim his deposit or unclaimed amount  or operate his account or deposit account from or with the banking  company after the expiry of said period of ten years and such banking  company shall be liable to repay such deposit or amount at such rate of  interest as may be specified by the Reserve Bank in this behalf.  

(3) Where the banking company has paid outstanding amount referred to in  subsection (2) or allowed operation of such account or deposit, such banking  company may apply for refund of such amount in such manner as may be  specified by the authority or committee referred to in sub-section (5).  

(4) The Fund shall be utilised for promotion of depositors’ interests and for such  other purposes which may be necessary for the promotion of depositors’ interests  as may be specified by the Reserve Bank from time to time.  

(5) The Reserve Bank shall, by notification in the Official Gazette, specify an  authority or committee, with such members as the Reserve Bank may appoint, to  administer the Fund, and to maintain separate accounts and other relevant  records in relation to the Fund in such forms as may be specified by the Reserve  Bank.  

(6) It shall be competent for the authority or committee appointed under  subsection (5) to spend moneys out of the Fund for carrying out the objects for  which the Fund has been established.]  

  1. Monthly returns and power to call for other returns and information 

                                                            

1 Inserted by Act 61 of 1981, w.e.f. 1-5-1982.  

2 Inserted by the Banking Laws (Amendment) Act, 2012 (Act No. 4 of 2013) w.e.f. 18.01.2013.  54

(1) Every banking company shall, before me close of the month succeeding that  to which it relates, submit to the Reserve Bank a return in the prescribed form  and manner showing its assets and liabilities in India as at the close of business  on the last Friday of every month or if that Friday is a public holiday under the  Negotiable Instruments Act, 1881 (26 of 1881), at the close of business on the  preceding working day.  

1[(2) The Reserve Bank may at any time direct a banking company to furnish it  within such time as may be specified by the Reserve Bank, with such statements  and information relating to the business or affairs of the banking company  (including any business or affairs with which such banking company is  concerned) as the Reserve Bank may consider necessary or expedient to obtain  for the purposes of this Act, and without prejudice to the generality of the  foregoing power may call for information every half-year regarding 2[the  investments of a banking company and the classification of its advances in  respect of industry, commerce and agriculture].]  

3[(3). Every regional rural bank shall submit a copy of the return which it  submits to the Reserve Bank under sub-section (1) also to the National Bank and  the powers exercisable by the Reserve Bank under sub-section (2) may also be  exercised by the National Bank in relation to regional rural banks.]  

4[28. Power to publish information  

The Reserve Bank or the National Bank, or both, if they consider it in the public  interest so to do, may 5[publish –  

(a) any information obtained by them under this Act in such consolidated form  as they think fit;  

 (b) in such manner as they may consider proper, any credit information  disclosed under the Credit Information Companies (Regulation) Act, 2005.]  

  1. Accounts and balance-sheet 

                                                            

1 Substituted by Act 95 of 1956 for sub-section (2), w.e.f. 14-1-1957.  

2 Substituted by Act 33 of 1959, for certain words, w.e.f.1-10-1959.  

3 Inserted by Act 61 of 1981, w.e.f. 1-5-1982.  

4 Substituted by Act 61 of 1981, w.e.f. 1-5-1982.  

5 Substituted by Act 30 of 2005, dt. 23-6-2005  

55

(1) At the expiration of each calendar year 1[or at the expiration of a period of  twelve month sending with such date2 as the Central Government may, by  notification in the Official Gazette, specify in this behalf,] every banking  company incorporated 3[in India], in respect of all business transacted by it, and  every banking company incorporated 4[outside India], in respect of all business  transacted through its branches 5[in India], shall prepare with reference to 6[that  year or period, as the case may be,] a balance-sheet and profit and loss account as  on the last working day of 7[that year or the period, as the case may be] in the  Forms set out in the Third Schedule or as near thereto as circumstances admit:  

8[PROVIDED that with a view to facilitating the transition from one period,  of accounting to another period of-accounting under this sub-section, the  Central Government may, by order published in the Official Gazette, make  such provisions as it considers necessary or expedient for the preparation of,  or for other matters relating to, the balance sheet or profit and loss account in  respect of the concerned year or period, as the case maybe.]  

(2) The balance-sheet and profit and loss account shall be signed 

(a) in the case of a banking company incorporated 9[in India], by the manager  or the principal officer of the company and where there are more than three  

Directors of the company, by at least three of those Directo are not more than three Directors, by all the Directors, and  

rs, or where there  

(b) in the case of a banking company incorporated 10[outside Indi manager or agent of the principal office of the company 11[in India].  

                                                            

1 Inserted by Act 66 of 1988, Section 8 w.e.f. 30-12-1988.  

a] by the  

2 31st day of March (specified by Central Government Vide S.O. 86(E), dated 29th January, 1992),  published in the Gazette of India, Extra., Pt.II, Section 3(ii) NO. 77, dated 29th January, 1992.  3 Substituted by Act 20 of 1950, Section 3  

4 Substituted by Act 20 of 1950, Section 3, for “outside the States”  

5 Substituted by Act 20 of 1950, Section 3,  

6 Substituted by Act 66 of 1988, for “that year” w.e.f. 30-12-1988  

7 Substituted by Act 66 of 1988, for “the year” w.e.f. 30-12-1988  

8 Substituted by Act 66 of 1988, w.e.f. 30-12-1988  

9 Substituted by Act 20 of 1950, Section 3,  

10 Substituted by Act 20 of 1950, Section 3, for “outside the States”.  

11 Substituted by Act 20 of 1950, Section 3,  

56

(3) Notwithstanding that the balance-sheet of a banking company is under sub section (I) required to be prepared in a form other than the form 1[set out in Part  I -of Schedule VI to the Companies Act, 1956 (1 of 1956)], the requirements of that  relating to the balance-sheet and profit and loss account of a company shall, in so  far as they are not inconsistent with this Act, apply to the balance-sheet or profit  and loss account, as the case may be, of a banking company.  

2[(3A) Notwithstanding anything to the contrary contained in sub-section (3) of  section 210 of the Companies Act, 1956 (1 of 1956), the period to which the profit  

and loss account relates shall, in the case o 

f a banking company, be the period  

ending with the last working day of the year immediately preceding the year in  which the annual general meeting is held.]  

3[Explanation.–In sub-section (3A), “year” means the year or, as the case may be,  the period referred to in sub-section (1).]  

(4) The Central Government, after giving not less than three month 

s’ notice of its  

mention so to do by a notification in the Official Gazette, may from time to time  

t in the Third Schedule.  

4[29A. 

by alike notification amend the Form set ou  Power in respect of associate enterprises 

(1) The Reserve Bank may, at any time, direct a banking company to annex to its  financial statements or furnish to it separately, within such time and at such  intervals as may be specified by the Reserve Bank, such statements and  

information relating to the busine 

ss or affairs of any associate enterprise of the  

banking company as the Reserve Bank may consider necessary or expedient to  obtain for the purpose of this Act.  

(2) Notwithstanding anything to the contrary contained in the Companies Act,  1956(1 of 1956), the Reserve Bank may, at any time, cause an inspection to be  

made of any associate enterprise of a banking company 

 and its books of account  

jointly by one or more of its officers or employees or other persons along with the  Board or authority regulating such associate enterprise.  

(3) Th 

e provisions of sub-sections (2) and (3) of section 35 shall apply mutatis  

mutan 

dis to the inspection under this section.  

                                                            

1 Substituted by Act 95 of 1956, Section 14 and Schedule, for “marked F in the Third Schedule to the  Indian Companies Act, 1913(7 of 1913)” w.e.f. 14-1-1957.  

2 Inserted by Act 1 of 1984, w.e.f. 15-2-1984  

3 Inserted by Act 66 of 1988, w.e.f. 30-12-1988  

4 Inserted by the Banking Laws (Amendment) Act, 2012 (Act No. 4 of 2013) w.e.f. 18.01.2013.  57

Explan 

ation.–“associate enterprise” in relation to a banking company  

includes an enterprise which–  

(i) is a holding company or a subsidiary compa company; or  

ny of the banking  

(ii) is a joint venture of the banking com 

pany; or  

(iii) is a subsidiary company or a joint venture of the holding  company of the banking company; or  

(iv) controls the composition of the Board of Directors or other  body governing the banking company; or  

 the Reserve Bank, significant  

(v) exercises, in the opinion of 

influence on the banking company in taking financial or policy  decisions; or  

(vi) is able to obtain economic benefits from the activities of the  banking company.]  

  1. Au 

dit 

1[(1) The balance-sheet and profit and loss acc 

ount prepared in accordance with  

section 29 shall be audited by a person duly qualified under any law for the time  being in force to be an auditor of companies.]  

2[(1A) Notwithstanding anything contained in any law for the time being in force  

or in any contract 

 to the contrary, every banking shall, before appointing re- 

appointing or removing any auditor or auditors, obtain the previous approval of  the Reserve Bank.  

(1B)Without prejudice to anything contained in the Companies  Act, 1956 (1 of 1956), or any other law for the time being in force, where the  Reserve Bank is of opinion that it is necessary in the public interest or in the  interest of the banking company or its depositors so to do, 3[it may at any time  by order direct that a special audit of the banking company’s accounts, for any  such transaction or class of transactions or for such period or periods as may be  specified in the order, shall be conducted and may by the same or a different  order either appoint a person duly qualified under any law for the time being in  

                                                            

1 Substituted by Act 58 of 1968, for sub-section (1)w.e.f. 1-2-1969.  

2 Inserted by Act 58 of 1968, w.e.f. 1-2-1969.  

3 Substituted by Act 66 of 1988, for certain words w.e.f.30-12-1988.  

58

force to be an auditor of companies or direct the auditor of the banking  company himself to conduct such special audit] and the auditor shall comply  with such directions and make a report of such audit to the Reserve Bank and  forward a copy thereof to the company.  

(1C) The expenses of, or incidental to 1[the special audit] specified in the order  made by the Reserve Bank shall be borne by the banking company.]  

(2) The auditor shall have the powers of, exercise the functions vested in, and  discharge the duties and be subject to the liabilities and penalties imposed on,  

auditors of companies by 2[section 227 of  

the Companies  

Act, 1956 (1 of 1956), 3[,and auditors, if any, appointed by the law establishing,  constituting or forming the banking company concerned.]  

(3) In addition to the matters which unde 

r the aforesaid Act the auditor is  

required to state in his report, he shall, in the case of a banking company  

orporated 4[in India], state in his report,-  

inc 

(a) whether or not the information and explanation required by him have  been found to be satisfactory;  

(b) whether or not the transactions of the company which have come to his  notice have been within the powers of the company;  

(c) whether or not the returns received from branch offices of the company  have been found adequate for the purposes of his audit;  

(d) whether the profit and loss account shows a true balance 5[of profit or  loss]for the period covered by such account;  

(e) any other matter which he considers should be brought to the notice of the  

e company.  

  1. Sub 

shareholders of th mission of returns 

                                                            

1 Substituted by Act 66 of 1988, for certain words w.e.f.30-12-1988.  

2 Substituted by Act 95 of 1956, for “section 145 of the Indian Companies Act, 1913 (7 of 1913)” w.e.f. 14-1- 1957  

3 Inserted by Act 66 of 1988, for certain words w.e.f.30-12-1988.  

4 Substituted by Act 20 of 1950, for “in a State.”  

5 Substituted by Act 55 of 1963, for “of profit and loss”  

59

The accounts and balance-sheet referred to in section 29 together with the  auditor’s report shall be published in the prescribed manner and three copies  thereof shall be furnished as returns to the Reserve Bank within three months  

fro 

m the end of the period to which they refer:  

PROVIDED that the Rese 

rve Bank may in any case extend the said period of  

  1. Cop 

three months for the furnishing of such returns by a further period not  exceeding three months:  

1[PROVIDED FURTHER that a regional rural bank shall furnish such returns  also to the National Bank.]  

ies of balance-sheets and accounts to be sent to registrar 

2[(1) Where a banking company in any year furnishes its accounts and balance sheet in accordance with the provisions of section 31, its hall at the same time  send to the registrar three copies of such accounts and balance-sheet and of the  auditor’s report, and where such copies are so sent, it shall not be necessary to  file with the registrar, in the case of a public company, copies of the accounts and  balance-sheet and of the auditor’s report, and, in the case of a private company,  copies of the balance-sheet and of the auditor’s report as required by sub-section  

(1) of section 220 of the Companies Act, 1956 (1 

 of 1956); and the copies so sent  

shall be chargeable with the same fee and shall be dealt with in all respects as if  they were filed in accordance with that section.]  

(2) When in pursuance of sub-section (2) of section 27 the Reserve Bank requires  

eet  

any additional statement or information in connection with the balance-sh 

and accounts furnished under section 31, the banking company shall, 

 when  

supplying such statement or information, send a copy thereof to the registr 

  1. Dis 

play of audited balance-sheet by companies incorporated outside India 

Every banking company incorporated 3[outside India] shall, not later than the  first Monday in August of any year in which it carries on business, display in a  conspicuous place in its principal office and in every branch office 4[in India] a  copy of its last audited balance-sheet and profit and loss account prepared under  

                                                            

1 Inserted by Act 61 of 1981, w.e.f. 1-5-1982  

2 Substituted by Act 33 of 1959, w.e.f. 1-10-1959.  

3 Substituted by Act 20 of 1950, Section 3, for “outside the States”.  

4 Substituted by Act 20 of 1950, Section 3, for “in a State”.  

60

section 29, and shall keep the copy so displayed until replaced by a copy of the  subsequent balance-sheet and profit and loss account so prepared, and every  such banking company shall display in like manner copies of its complete  audited balance-sheet and profit and loss account relating to its banking business  as soon as they are available, and shall keep the copies so displayed until copies  of such subsequent accounts are available.  

  1. Acc 

ounting provisions of this Act not retrospective 

Nothing in this Act shall apply to the preparation of accounts by a banking  company and the audit and submission thereof in respect of any accounting year  which has expired prior to the commencement of this Act, and notwithstanding  

the other provisions of this 

 Act, such accounts shall be prepared, audited and  

rce immediately before the  

1[34A. 

submitted in accordance with the law in fo commencement of this Act.  

 Production of documents of confidential nature 

(1) Notwithstanding anything contained in section 11 of the Industrial Disputes  Act, 1947 (14 of 1947), or any other law for the time being in force, no banking  company shall, in any proceeding under the said Act or in any appeal or other  proceeding arising there from or connected therewith, be compelled by any  authority before which such proceeding is pending to produce, or give  inspection of, any of its books of account or other document or furnish or  disclose any statement or information, when the banking company claims that  such document, statement or information is of a confidential nature and that the  

prod 

uction or inspection of such document or the furnishing or disclosure of  

such statement or information would involve disclosure of information relating  to-  

(a) any reserves not shown as such in its published balance-sheet; or  

(b) any particulars not shown therein in respect of provisions made for bad  and doubtful debts and other usual or necessary provisions.  

(2) If, in any such proceeding in relation to any banking company other than the  Reserve Bank of India, any question arises as to whether any amount out of the  reserves or provisions referred to in sub-section (1) should be taken into account  by the authority before which such proceeding is pending, the authority may, if  

                                                            

1 Inserted by Act 23 of 1960, Section 2.  

61

it so thinks fit, refer the question to the Reserve Bank and the Reserve Bank shall,  after taking into account principles of sound banking and all relevant  circumstances concerning the banking company, furnish to the authority a  certificate stating that the authority shall not take into account any amount as  such reserves and provisions of the banking company or may take them into  account only to the extent of the amount specified by it in the certificate, and the  certificate of the Reserve Bank on such question shall be final and shall not be  called in question in any such proceeding.  

1[(3) For the purposes of this section “banking company” includes the Reserve  

Bank, 2(***), the Exim Bank, 3[the Reconstruction Bank], 4[the National 

 Housing  

Bank], the National Bank, 5[the Small Industries Bank] the State Bank of India, a  

w bank, a regional rural bank and a subsidiary bank.]  

Sectio 

corresponding ne n 35 – Inspection 

(1) Notwithstanding anything to the contrary contained in 6[section 235 of the  Companies Act, 1956 (1 of 1956)], the Reserve Bank at any time may, and on  being directed so to do by the Central Government shall, cause an inspection to  

be made by one or more of its 

 officers of any banking company and its books and  

accounts; and the Reserve Bank shall supply to the banking company a copy of  its report on such inspection.  

7[(1A) (a) Notwithstanding anything to the contrary contained in any law for the  time being in force and without prejudice to the provisions of sub-section (1), the  

Reserve Bank,  

at any time, may also cause a scrutiny to be made by any one or  

more of its officers, of the affairs of any banking company and its books and  accounts; and  

(b) A copy of the report of the scrutiny shall be furnished to the banking  company if the banking company makes a request for the same or if any adverse  action is contemplated against the banking company on the basis of the scrutiny.]                                                              

1 Substituted by Act 1 of 1984, for sub-section (3)w.e.f. 15-2-1984.  

2 Omitted the words “the Development Bank” by the Industrial Development Bank (Transfer of  Undertaking and Repeal) Act, 2003.  

3 Inserted by Act 62 of 1984, w.e.f.20-3-1985.  

4 Inserted by Act 53 of 1987, w.e.f.9-7-1988.  

5 Inserted by Act 39 of 1989, w.e.f. 7-3-1990.  

6 Substituted by Act 95 of 1956, Section 14 and Schedule, for “section 138 of the Indian companies Act,  1913 (7 of 1913)” w.e.f. 14-1-1957.  

7 Inserted by Act 1 of 1984, w.e.f. 15-2-1984.  

62

(2) It shall be the duty of every Director or other officer 1[or employee] of the  banking company to produce to any officer making an inspection under sub section (1) 2[or a scrutiny under sub-section (1A)] all such books, accounts and  other documents in his custody or power and to furnish him with any statements  and information relating to the affairs of the banking company as the said officer  may require of him within such time as the said officer may specify.  

(3) Any person making an inspection under sub-section (1) 3[for a scrutiny under  sub-section (1A)] may examine on oath any Director or other officer 4[or  employee] of the banking company in relation to its business, and may  administer an oath accordingly.  

(4) The Reserve Bank shall, if it has been directed by the Central Government to  cause an inspection to be made, and may, in any other case, report to the Central  Government on any inspection 5[or scrutiny] made under this section, and the  Central Government, if it is of opinion after considering the report that the affairs  of the banking company are being conducted to the detriment of the interests of  its depositors, may, after giving such opportunity to the banking company to  make a representation in connection with the report as, in the opinion of the  Central Government, seems reasonable, by order in writing-  

(a) prohibit the banking company from receiving fresh deposits;  

(b) direct the Reserve Bank to apply under section 38 for the winding up of  the banking company:  

PROVIDED that the Central Government may defer, for such period as it  may think fit, the passing of an order under this sub-section, or cancel or  modify any such order, upon such terms and conditions as it may think fit  to impose.  

(5) The Central Government may, after giving reasonable notice to the banking  company, publish the report submitted by the Reserve Bank or such portion  thereof as may appear necessary.  

                                                            

1 Inserted by Act 55 of 1963, w.e.f. 1-2-1964.  

2 Inserted by Act 1 of 1984, w.e.f. 15-2-1984.  

3 Inserted by Act 1 of 1984, w.e.f. 15-2-1984.  

4 Inserted by Act 55 of 1963, w.e.f. 1-2-1964.  

5 Inserted by Act 1 of 1984, w.e.f. 15-2-1984.  

63

1[Explanation.–For the purpose of this section, the expression “banking  company” shall include-  

(i) in the case of a banking company incorporated outside India, all its  branches in India; and  

(ii) in the case of a banking company incorporated in India-  

(a) all its subsidiaries formed for the purpose of carrying on the business  of banking exclusively outside India; and  

(b) all its branches whether situated in India or outside India.]  

2[(6) The powers exercisable by the Reserve Bank under this section in relation to  regional rural banks may (without prejudice to the exercise of such powers by  the Reserve Bank in relation to any regional rural bank whenever it considers  necessary so to do) be exercised by the National Sank in relation to the regional  rural banks, and accordingly, sub-sections (1) to (5) shall apply in relation to  regional rural banks as if every reference therein to the Reserve Bank included  also a reference to the National Bank.]  

3[35A. Power of the Reserve Bank to give directions 

(1) Where the Reserve Bank is satisfied that-  

(a) in the 4[public interest]; or  

5[(aa) in the interest of banking policy; or]  

(b) to prevent the affairs of any banking company being conducted in a  manner detrimental to the interests of the depositors or in a manner  prejudicial to the interests of the banking company; or  

(c) to secure the proper management of any banking company generally, it is  necessary to issue directions to banking companies generally or to any  banking company in particular, it may, from time to time, issue such  

                                                            

1 Added by Act 33 of 1959 w.e.f. 1-10-1959.  

2 Inserted by Act 61 of 1981, w.e.f. 1-5-1982.  

3 Inserted by the Act 95 of 1956, w.e.f. 14-1-1957  

4 Substituted by Act 7 of 1961, for “national interest”.  

5 Inserted by Act 58 of 1968, w.e.f. 1-2-1969  

64

directions as it deems fit, and the banking companies or the banking  company, as the case may be, shall be bound to comply with such directions.  

(2) The Reserve Bank may, on representation made to it or on its own motion,  modify or cancel any direction issued under sub-section (1), and in so modifying  or cancelling any direction may impose such conditions as it thinks fit, subject to  which the modification or cancellation shall have effect.  

Section 35B – Amendments of provisions relating to appointments of Managing  Directors, etc., to be subject to previous approval of the Reserve Bank 

(1) In the case of a banking company-  

(a) no amendment of any provision relating to 1[the maximum permissible  number of Directors or] the 2[appointment or re-appointment or termination  of appointment or remuneration of a Chairman, a] 3[Managing Director or  any other Director, whole-time or otherwise]or of a manager or a chief  executive officer by whatever name called, whether that provision be  contained in the company’s memorandum or articles of association, or in an  agreement entered into by it, or in any resolution passed by the company in  general meeting or by its Board of Directors shall have effect unless approved  by the Reserve Bank;  

4[(b) no appointment or re-appointment or termination of appointment of a  Chairman, a Managing or whole-time Director, manager or chief executive  officer by whatever name called, shall have effect unless such appointment,  re-appointment or termination of appointment is made with the previous  approval of the Reserve Bank.]  

5[Explanation.–For the purpose of this sub-section, any provision  conferring any benefit or providing any amenity or perquisite, in  whatever form, whether during or after the termination of the term of  office 6[of the Chairman or the manager] or the chief executive officer by  

                                                            

1 Inserted by Act 1 of 1984, w.e.f. 15-2-1984.  

2 Substituted by Act 58 of 1968, w.e.f. 1-2-1969  

3 Substituted by Act 33 of 1959, for “Managing or whole-time Director or of a Director no liable to retire  by rotation” w.e.f.1-10-1959.  

4 Substituted by Act 58 of 1968, for clause (b) w.e.f.1-2-1969  

5 Added by Act 33 of 1959, w.e.f. 1-10-1959.  

6 Substituted by Act 58 of 1968, for “of the manager “w.e.f. 1-2-1969.  

65

whatever name called or the Managing Director, or any other Director,  whole-time or otherwise, shall be deemed to be a provision relating to his  remuneration.]  

(2) Nothing contained in sections 1[268 and 269, the proviso to sub-section (3) of  section 309, sections 310 and 311,the proviso to section 387, and section 388](in so  far as section 388 makes the 2[provisions of sections 269, 310] and 311 apply in  relation to the manager of a company) of the Companies Act, 1956 (1 of 1956),  shall 3[apply to any matter in respect of which the approval of the Reserve Bank  has to be obtained under sub-section (1)].  

4[(2A) Nothing contained in section 198 of the Companies Act, 1956 (1 of 1956)  shall apply to a banking company and the provisions of sub-section (1) of section  309 and of section 387 of that Act shall, in so far as they are applicable to a  banking company, have effect as if no reference had been made in the said  provisions to section 198 of that Act.]  

(3) No act done by a person 5[as Chairman or a Managing or whole-time  Director]or a Director not liable to retire by rotation or a manager or a chief  executive officer by whatever name called, shall be deemed to be invalid on the  ground that it is subsequently discovered that his 6[appointment or  reappointment] had not taken effect by reason of any of the provisions of this  Act; but nothing in this sub-section shall be construed as rendering valid any act  done by such person after his 7[appointment or reappointment] has been shown  to the banking company not to have had effect.]  

  1. Further powers and functions of Reserve Banks 

(1) The Reserve Bank may-  

(a) caution or prohibit banking companies or any banking company in  particular against entering into any particular transaction or class of  transactions, and generally give advice to any banking company;  

                                                            

1 Substituted by Act 36 of 1962, for “268, 269, 310, 311and 388”.  

2 Substituted by Act 1 of 1984, for “provisions of sections 310” w.e.f. 15-2-1984.  

3 Substituted by Act 33 of 1959, for certain words w.e.f.1-10-1959.  

4 Inserted by Act 1 of 1984, w.e.f. 15-2-1984.  

5 Substituted by Act 58 of 1968, for certain words  

6 Substituted by Act 58 of 1968, for certain words w.e.f.1-2-1969  

7 Substituted by Act 58 of 1968, for certain words w.e.f.1-2-1969  

66

(b) on a request by the companies concerned and subject to the provision of  section 1[44A], assist, as intermediary or otherwise, in proposals for the  amalgamation of such banking companies;  

(c) give assistance to any banking company by means of the grant of a loan or  advance to it under clause(3) of sub-section (1) of section 18 of the Reserve  Bank of India Act, 1934 (2of 1934);  

2[(d) 3[at any time, if it is satisfied that in the public interest or in me interest  of banking policy or for preventing the affairs of the banking company being  conducted in a manner detrimental to the interests of the banking company  or its depositors it is necessary so to do,] by order in writing and on such  terms and conditions as may be specified therein-  

(i) require the banking company to call a meeting of its Directors for the  purpose of considering any matter relating to or arising out of the affairs  of the banking company; or require an officer of the banking company to  discuss any such matter with an officer of the Reserve Bank;  

(ii) depute one or more of its officers to which the proceedings at any  meeting of the Board of Directors of the banking company or of any  committee or of any other body constituted by it; require the banking  company to give an opportunity to the officers so deputed to be heard at  such meetings and also require such officers to send a report of such  proceedings to the Reserve Bank;  

(iii) require the Board of Directors of the banking company or any  committee or any other body constituted by it to give in writing to any  officer specified by the Reserve Bank in this behalf at his usual address all  notices of, and other communications relating to, any meeting of the  Board, committee or other body constituted by it;  

(iv) appoint one or more of its officers to observe the manner in which the  affairs of the banking company or of its offices or branches are being  conducted and make a report thereon;  

                                                            

1 Substituted by Act 33 of 1959, for “45” w.e.f.1-10-1959.  

2 Substituted by Act 95 of 1956, for clause (d) w.e.f.14-1-1957.  

3 Substituted by Act 58 of 1968, for certain words w.e.f.1-2-1969.  

67

(v) require the banking company to make, within such time as may be  specified in the order, such changes in the management as the Reserve  Bank may consider necessary 1[***].]  

(2) The Reserve Bank shall make an annual report to the Central Government on  the trend and progress of banking in the country, with particular reference to its  activities under clause(2) of section 17 of the Reserve Bank of India Act, 1934 (2 of  1934), including in such report its suggestions, if any, for the strengthening of  banking business throughout the country.  

(3) The Reserve Bank may appoint such staff at such places as it considers  necessary for the scrutiny of the returns, statements and information furnished  by banking companies under this Act, and generally to ensure the efficient  performance of its functions under this Act.  

2[36A. Certain provisions of the Act not to apply to certain banking companies 

(1) The provisions of section 11, sub-section (1) of section 12, and sections 17, 18,  24 and 25 shall not apply to a banking company-  

(a) which, whether before or after the commencement of the Banking  Companies (Amendment) Act, 1959 (33 of 1959), has been refused a licence  under section 22, or prohibited from accepting fresh deposits by a  compromise, arrangement or scheme sanctioned by a court or by any order  made in any proceeding relating to such compromise, arrangement or  scheme, or prohibited from accepting deposits by virtue of any alteration  made in its memorandum; or  

(b) whose licence has been cancelled under section 22, whether before or after  the commencement of the Banking Companies (Amendment) Act, 1959 (33 of  1959).  

(2) Where the Reserve Bank is satisfied that any such banking company as is  referred to in sub-section (1) has repaid, or has made adequate provision for  repaying all deposits accepted by the banking company, either in full or to the  maximum extent possible, the Reserve Bank may, by notice published in the  Official Gazette, notify that the banking company has ceased to be a banking  company within the meaning of this Act, and thereupon all the provisions of this  

                                                            

1 Certain words omitted by Act 58 of 1968, w.e.f.1-2-1969.  

2 Inserted by Act 33 of 1959, w.e.f. 1-10-1969.  

68

Act applicable to such banking company shall cease to apply to it, except as  respects things done or omitted to be done before such notice.]  

1[PART IIA 

CONTROL OVER MANAGEMENT 

36AA. Power of Reserve Bank to remove managerial and other persons from office 

(1) Where the Reserve Bank is satisfied that in the public interest or for  preventing the affairs of a banking company being conducted in a manner  detrimental to the interests of the depositors or for securing the proper  management of any banking company it is necessary so to do, the Reserve Bank  may, for reasons to be recorded in writing, by order, remove from office, with  effect from such date as may be specified in the order, 2[any Chairman,  Director,] chief executive officer(by whatever name called) or other officer or  employee of the banking company.  

(2)No order under sub-section (1) shall be made 3[unless the Chairman,  Director] or chief executive officer or other officer or employee concerned has  been given a reasonable opportunity of making a representation to the Reserve  Bank against the proposed order:  

PROVIDED that if, in the opinion of the Reserve Bank, any delay would be  detrimental to the interests of the banking company or its depositors, the  Reserve Bank may, at the time of giving the opportunity aforesaid or at any  time thereafter, by order direct that, pending the consideration of the  representation aforesaid, if any, 4[the Chairman or, as the case may be,  Director or chief executive officer] or other officer or employee, shall not, with  effect from the date of such order–  

(a) 5[act as such Chairman or Director] or chief executive officer or other  officer or employee of the banking company;  

(b) in any way, whether directly or indirectly, be concerned with, or take  part in the management of, the banking company.  

                                                            

1 Inserted by Act 55 of 1963, w.e.f. 1-2-1964.  

2 Substituted by Act 58 of 1968, for”any Director” w.e.f. 1-2-1969.  

3 Substituted by Act 58 of 1968, for”unless the Director” w.e.f. 1-2-1969.  

4 Substituted by Act 58 of 1968, for certain words w.e.f. -2-1969.  

5 Substituted by Act 58 of 1968, for certain words w.e.f. 1-2-1969.  

69

(3)(a) Any person against whom an order of removal has been made under sub section (1) may, within thirty days from the date of communication to him of the  order, prefer an appeal to the Central Government.  

(b) The decision of the Central Government on such appeal, and subject  thereto, the order made by the Reserve Bank under sub-section (I),shall be  final and shall not be called into question in any court.  

(4) Where any order is made in respect of 1[a Chairman, Director] or chief  executive officer or other officer or employee of a banking company under sub section (1), he shall cease to be 2[a Chairman or, as the case may be, a  Director,]chief executive officer or other officer or employee of the banking  company and shall not, in any way, whether directly or indirectly, be concerned  with, or take part in the management of, any banking company for such period  not exceeding five years as may be specified in the order.  

(5) If any person in respect of whom an order is made by the Reserve Bank under  sub-section (1) or under the proviso to sub-section (2) contravenes the provisions  of this section, he shall be punishable with fine which may extend to two  hundred and fifty rupees for each day during which such contravention  continues.  

(6) Where an order under sub-section (1) has been made, the Reserve Bank may,  by order in writing, appoint a suitable person in place of 3[the Chairman or  Director], or chief executive officer or other officer or employee who has been  removed from his office under that sub-section, with effect from such date as  may be specified in the order.  

(7) Any person appointed as 4[Chairman, Director or chief executive officer] or  other officer or employee under this section shall, –  

(a) hold office during the pleasure of the Reserve Bank and subject thereto for  a period not exceeding three years or such further periods not exceeding  three years at a time as the Reserve Bank may specify;  

                                                            

1 Substituted by Act 58of 1968, for certain words, w.e.f. 1-2-1969.  

2 Substituted by Act 58 of 1968, for certain words, w.e.f. 1-2-1969.  

3 Substituted by Act 58 of 1968, for certain words, w.e.f. 1-2-1969.  

4 Substituted by Act 58 of 1968, for certain words, w.e.f. 1-2-1969.  

70

(b) not incur any obligation or liability by reason only of his being  a 1[Chairman, Director or chief executive officer] or other officer or employee  or for anything done or omitted to be done in good faith in the execution of  the duties of his office or in relation thereto.  

(8) Notwithstanding anything contained in any law or in any contract,  memorandum or articles of association, on the removal of a person from office  under this section, that person shall not be entitled to claim any compensation  for the loss or termination of office.  

Section 36AB – Power of Reserve Bank to appoint additional Directors 

(1) If the Reserve Bank is of 2[opinion that in the interest of banking policy or in  the public interest or] in the interests of the banking company or its depositors it  is necessary so to do, it may, from time to time by order in writing, appoint, with  effect from such date as may be specified in the order, one or more persons to  hold office as additional Directors of the banking company:  

3[***]  

(2) Any person appointed as additional Director in pursuance of this section-  

(a) shall hold office during the pleasure of the Reserve Bank and subject  thereto for a period not exceeding three years or such further periods not  exceeding three years at a time as the Reserve Bank may specify;  

(b) shall not incur any obligation or liability by reason only of his being a  Director or for anything done or omitted to be done in good faith in the  execution of the duties of his office or in relation thereto; and  

(c) shall not be required to hold qualification-shares in the banking company.  

(3) For the purpose of reckoning any proportion of the total number of Directors  of the banking company, any additional Director appointed under this section  shall not be taken into account.  

36AC. Part IIA to override other laws 

Any appointment or removal of a Director, chief executive officer or other officer  or employee in pursuance of section 36AA or section 36AB shall have effect  

                                                            

1 Substituted by Act 58 of 1968, for certain words, w.e.f. 1-2-1969.  

2 Substituted by Act 58 of 1968, for “opinion that” w.e.f. 1-2-1969.  

3 Proviso omitted by Act 1 of 1984, w.e.f. 15-2-1984.  

71

notwithstanding anything to the contrary contained in the Companies Act, 1956  (1 of 1956) or any other law for the time being in force or in any contract or any  other instrument.]  

1[PART IIAB  

SUPERSESSION OF BOARD OF DIRECTORS OF BANKING COMPANY  36ACA. Supersession of Board of Directors in certain cases 

(1) Where the Reserve Bank is satisfied, in consultation with the Central  Government, that in the public interest or for preventing the affairs of any  banking company being conducted in a manner detrimental to the interest of the  depositors or any banking company or for securing the proper management of  any banking company, it is necessary so to do, the Reserve Bank may, for reasons  to be recorded in writing, by order, supersede the Board of Directors of such  banking company for a period not exceeding six months as may be specified in  the order:  

PROVIDED that the period of supersession of the Board of Directors may  be extended from time to time, so, however, that the total period shall not  exceed twelve months.  

(2) The Reserve Bank may, on supersession of the Board of Directors of the  banking company under sub-section (1) appoint in consultation with the Central  Government for such period as it may determine, an Administrator (not being an  officer of the Central Government or a State Government) who has experience in  law, finance, banking, economics or accountancy.  

(3) The Reserve Bank may issue such directions to the Administrator as it may  deem appropriate and the Administrator shall be bound to follow such  directions.  

(4) Upon making the order of supersession of the Board of Directors of a banking  company, notwithstanding anything contained in the Companies Act, 1956(1 of  1956),–  

(a) the Chairman, Managing Director and other Directors shall, as from  the date of supersession, vacate their offices as such;  

(b) all the powers, functions and duties which may, by or under the  provisions of the Companies Act, 1956(1 of 1956) or this Act, or any other  law for the time being in force, be exercised and discharged by or on  behalf of the Board of Directors of such banking company, or by a  

                                                            

1 Inserted by Act 4 of 2013, w.e.f. 18-1-2013  

72

resolution passed in general meeting of such banking company, shall,  until the Board of Directors of such banking company is reconstituted, be  exercised and discharged by the Administrator appointed by the Reserve  Bank under sub-section (2):  

PROVIDED that the power exercised by the Administrator shall be  valid notwithstanding that such power is exercisable by a  

resolution passed in the general meeting of such banking company.  

(5) The Reserve Bank may constitute, in consultation with the Central  Government, a committee of three or more persons who have experience in law,  finance, banking, economics or accountancy to assist the Administrator in the  discharge of his duties.  

(6) The committee shall meet at such times and places and observe such rules of  procedure as may be specified by the Reserve Bank.  

(7) The salary and allowances to the Administrator and the members of the  committee constituted under sub-section (5) by the Reserve Bank shall be such as  may be specified by the Reserve Bank and be payable by the concerned banking  company.  

(8) On and before the expiration of two months before the expiry of the period of  supersession of the Board of Directors as specified in the order issued under sub section (1), the Administrator of the banking company, shall call the general  meeting of the company to elect new Directors and reconstitute its Board of  Directors.  

(9) Notwithstanding anything contained in any other law or in any contract, the  memorandum or articles of association, no person shall be entitled to claim any  compensation for the loss or termination of his office.  

(10) The Administrator appointed under sub-section (2) shall vacate office  immediately after the Board of Directors of such banking company has been  reconstituted.]  

1[PART IIB 

PROHIBITION OF CERTAIN ACTIVITIESIN RELATION TO BANKING  COMPANIES 

36AD. Punishments for certain activities in relation to banking companies 

(1) No person shall-  

                                                            

1 Parts IIB and IIC (sections 36 AD to 36 AJ) Inserted by Act 58 of 1968, w.e.f. 1-2-1969.  73

(a) obstruct any person from lawfully entering or leaving any office or place  of business of a banking company or from carrying on any business there, or  

(b) hold, within the office or place of business of any banking company, any  demonstration which is violent or which prevents, or is calculated to prevent,  the transaction of normal business by the banking company, or  

(c) act in any manner calculated to undermine the confidence of the  depositors in the banking company.  

(2) Whoever contravenes any provision of sub-section (1) without any reasonable  excuse shall be punishable with imprisonment for a term which may extend to six  months, or with fine which may extend to one thousand rupees, or with both.  

1[(3) For the purposes of this section “Banking Company” includes the Reserve  Bank, 2[***], the Exim Bank, 3[the Reconstruction Bank] 4[the National Housing Bank]  the National Bank, 5[the Small Industries Bank] the State Bank of India, a corresponding  new bank, a regional rural bank and a subsidiary bank.”]  

PART IIC  

ACQUISITION OF THE UNDERTAKINGS OF BANKING COMPANIES IN  CERTAIN CASES  

36AE. Power of Central Government to acquire undertakings of banking companies  in certain cases 

(1) If, upon receipt of a report from the Reserve Bank, the Central Government is  satisfied that a banking company—  

(a) has, no more than one occasion, failed to comply with the directions given  to it in writing under section 21 or section 35A, in so far as such directions  relate to banking policy, or  

(b) is being managed in a manner detrimental to the interests of its  depositors, and that—  

(i) in the interests of the depositors of such banking company, or  

(ii) in the interest of banking policy, or  

                                                            

1 Substituted by Act 1 of 1984 w.e.f 15-2-1984  

2 The words “the Development Bank” omitted by the Industrial Development Bank (Transfer of  Undertaking and Repeal) Act, 2003, w.e.f. 2-7-2004 

3 Inserted by Act No. 62, of 1984, w.e.f. 20-3-1985. 

4 Inserted by Act No. 53 of 1987, w.e.f. 9-7-1988. 

5 Inserted by Act No. 39 of 1989, w.e.f. 7-3-1990. 

74

(iii) for the better provision of credit generally or of credit to any  particular section of the community or in any particular area, it is  necessary to acquire the undertaking of such banking company, the  Central Government may, after such consultation with the Reserve Bank  as it thinks fit, by notified order, acquire the undertaking of such company  (hereinafter referred to as the acquired bank) with effect from such date as  may be specified in this behalf by the Central Government (hereinafter  referred to as the appointed day):  

PROVIDED that no undertaking of any banking company shall be so  acquired unless such banking company has been given a reasonable  opportunity of showing cause against the proposed action.  

Explanation.—In this Part, —  

(a) “notified order” means an order published in the Official Gazette;  

(b) “undertaking”, in relation to a banking company incorporated  outside India, means the undertaking of the company in India.  

(2) Subject to the other provisions contained in this Part, on the appointed day,  the undertaking of the acquired bank and all the assets and liabilities of the  acquired bank shall stand transferred to, and vest in, the Central Government.  

(3) The undertaking of the acquired bank and its assets and liabilities shall be  deemed to include all rights, powers, authorities and privileges and all property,  whether movable or immovable, including, in particular, cash balances, reserve  funds, investments, deposits and all other interests and rights in, or arising out  of, such property as may be in the possession of or held by, the acquired bank  immediately before the appointed day and all books, accounts and documents  relating thereto, and shall also be deemed to include all debts, liabilities and  obligations, of whatever kind, then existing of the acquired bank.  

(4) Notwithstanding anything contained in sub-section (2), the Central  Government may, if it is satisfied that the undertaking of the acquired bank and  its assets and liabilities should, instead of vesting in the Central Government, or  continuing to so vest, vest in a company established under any scheme made  under this Part or in any corporation (hereinafter in this Part and in the Fifth  Schedule referred to as the transferee bank) that Government may, by order,  direct that the said undertaking, including the assets and liabilities thereof, shall  vest in the transferee bank either on the publication of the notified order or on  such other date as may be specified in this behalf by the Central Government.  

(5) Where the undertaking of the acquired bank and the assets and liabilities  thereof vest in the transferee bank under sub-section (4), the transferee bank,  

75

shall, on and from the date of such vesting, be deemed to have become the  transferee of the acquired bank and all the rights and liabilities in relation to the  acquired bank shall, on and from the date of such vesting, be deemed to have  been the rights and liabilities of the transferee bank.  

(6) Unless otherwise expressly provided by or under this Part, all contracts,  deeds, bonds, agreements, powers of attorney, grants of legal representation and  other instruments of whatever nature subsisting or having effect immediately  before the appointed day and to which the acquired bank is a party or which are  in favour of the acquired bank shall be of as full force and effect against or in  favour of the Central Government, or as the case may be, of the transferee bank,  and may be enforced or acted upon as fully and effectually as if in the place of  the acquired bank the Central Government or the transferee bank had been a  party thereto or as if they had been issued in favour of the Central Government  or the transferee bank, as the case may be.  

(7) If, on the appointed day, any suit, appeal or other proceeding of whatever  nature is pending by or against the acquired bank, the same shall not abate, be  discontinued or be, in any way, prejudicially affected by reason of the transfer of  the undertaking of the acquired bank or of anything contained in this Part, but  the suit, appeal or other proceeding may be continued, prosecuted and enforced  by or against the Central Government or the transferee bank as the case may be.  

36AF. Power of the Central Government to make scheme 

(1) The Central Government may, after consultation with the Reserve Bank, make  a scheme for carrying out the purposes of this Part in relation to any acquired  bank.  

(2) In particular, and without prejudice to the generality of the foregoing power,  the said scheme may provide for all or any of the following matters, namely: –  

(a) the corporation, or the company incorporated for the purpose, to which  the undertaking including the property, assets and liabilities of the acquired  bank may be transferred, and the capital, constitution, name and office  thereof;  

(b) the constitution of the first Board of management (by whatever name  called) of the transferee bank, and all such matters in connection therewith or  incidental thereto as the Central Government may consider to be necessary or  expedient;  

(c) the continuance of the services of all the employees of the acquired bank  (excepting such of them as, not being workmen within the meaning of the  Industrial Disputes Act, 1947(14 of 1947), are specifically mentioned in the  

76

scheme] in the Central Government or in the transferee bank, as the case may  be, on the same terms and conditions so far as may be, as are specified in  clauses (i) and (j) of sub-section (5) of section 45;  

(d) the continuance of the right of any person who, on the appointed day, is  entitled to or is in receipt of, a pension or other superannuation or  compassionate allowance or benefit, from the acquired bank or any  provident, pension or other fund or any authority administering such fund,  to be paid by, and to receive from, the Central Government or the transferee  bank, as the case may be, or any provident, pension or other fund or any  authority administering such fund, the same pension, allowance or benefit so  long as he observes the conditions on which the pension, allowance or benefit  was granted, and if any question arises whether he has so observed such  conditions, the question shall be determined by the Central Government and  the decision of the Central Government thereon shall be final;  

(e) the manner of payment of the compensation payable in accordance with  the provisions of this Part to the shareholders of the acquired bank, or where  the acquired bank is a banking company incorporated outside India, to the  acquired bank in full satisfaction of their, or as the case maybe, its claims;  

(f) the provision, if any, for completing the effectual transfer to the Central  Government or the transferee bank of any asset or any liability which forms  part of the undertaking of the acquired bank in any country outside India;  

(g) such incidental, consequential and supplemental matters as may be  necessary to secure that the transfer of the business, property, assets and  liabilities of the acquired bank to the Central Government or transferee bank,  as the case may be, is effectual and complete.  

(3) The Central Government may, after consultation with the Reserve Bank, by  notification in the Official Gazette, add to, amend or vary any scheme made  under this section.  

(4) Every scheme made under this section shall be published in the Official  Gazette.  

(5) Copies of every scheme made under this section shall be laid before each  House of Parliament as soon as may be after it is made.  

(6) The provisions of this Part and of any scheme made there under shall have  effect notwithstanding anything to the contrary contained in any other  provisions of this Act or in any other law or any agreement, award or other  instrument for the time being in force.  

77

(7) Every scheme made under this section shall be binding on the Central  Government or, as the case may be, on the transferee bank and also on all  members, creditors, depositors and employees of the acquired bank and of the  transferee bank and on any other person having any right, liability, power or  function in relation to, or in connection with, the acquired bank or the transferee  bank, as the case may be.  

36AG. Compensation to be given to shareholders of the acquired bank 

(1) Every person who, immediately before the appointed day, is registered as a  holder of shares in the acquired bank or, when the acquired bank is a banking  company incorporated outside India, the acquired bank, shall be given by the  Central Government, or the transferee bank, as the case may be, such  compensation in respect of the transfer of the undertaking of the acquired bank  as it determined in accordance with the principles contained in the Fifth  Schedule.  

(2) Nothing contained in sub-section (1) shall affect the rights inter se between  the holder of any share in the acquired bank and any other person who may have  any interest in such shares and such other person shall be entitled to enforce his  interest against the compensation awarded to the holder of such share, but not  against the Central Government, or the transferee bank.  

(3) The amount of compensation to be given in accordance with the principles  contained in the Fifth Schedule shall be determined in the first instance by the  Central Government, or the transferee bank, as the case may be, in consultation  with the Reserve Bank, and shall be offered by it to all those to whom  compensation is payable under sub-section (1) in full satisfaction thereof.  

(4) If the amount of compensation offered in terms of sub-section (3) is not  acceptable to any person to whom the compensation is payable, such person  may, before such date as may be notified by the Central Government in the  Official Gazette, request the Central Government in writing, to have the matter  referred to the Tribunal constituted under section 36AH.  

(5) If, before the date notified under sub-section (4), the Central Government  receives requests, in terms of that sub-section, from not less than one-fourth in  number of the shareholders holding not less than one-fourth in value of the paid up share capital of the acquired bank, or, where the acquired bank is a banking  company incorporated outside India, from the acquired bank, the Central  Government shall have the matter referred to the Tribunal for decision.  

(6) If, before the date notified under sub-section (4), the Central Government  does not receive requests as provided in that sub-section, the amount of  

78

compensation offered under sub-section (3), and where a reference has been  made to the Tribunal, the amount determined by it, shall be the compensation  payable under sub-section (!) and shall be final and binding on all parties  concerned.  

36AH. Constitution of the Tribunal 

(1) The Central Government may, for the purpose of this Part, constitute a  Tribunal which shall consist of a Chairman and two other members.  

(2) The Chairman shall be a person who is, or has been, a Judge of a High Court  or of the Supreme Court, and, of the two other members, one shall be a person,  who, in the opinion of the Central Government, has had experience of  commercial banking and the other shall be a person who is a chartered  accountant within the meaning of the Chartered Accountants’ Act, 1949(38 of  1949).  

(3) If, for any reason, a vacancy occurs in the office of the Chairman or any other  member of the Tribunal, the Central Government may fill the vacancy by  appointing another person thereto in accordance with the provisions of sub section (2), and any proceeding may be continued before the Tribunal, so  constituted, from the stage at which the vacancy occurred.  

(4) The Tribunal may, for the purpose of determining any compensation payable  under this part, choose one or more persons having special knowledge or  experience of any relevant matter to assist it in the determination of such  compensation.  

36AI. Tribunal to have powers of a civil court 

(1) The Tribunal shall have the powers of a civil court, while trying a suit, under  the Code of Civil Procedure, 1908 (5 of 1908) in respect of the following matters,  namely :—  

(a) summoning and enforcing the attendance of any person and examining  him on oath;  

(b) requiring the discovery and production of documents;  

(c) receiving evidence on affidavits;  

(d) issuing commissions for the examination of witnesses or documents.  79

(2) Notwithstanding anything contained in sub-section (1), or in any other law  for the time being in force, the Tribunal shall not compel the Central Government  or the Reserve Bank, —  

(a) to produce any books of account or other documents which the Central  Government, or the Reserve Bank, claims to be of a confidential nature;  

(b) to make any such books or documents part of the record of the  proceedings before the Tribunal; or  

(c) to give inspection of any such books or documents to any party before it or  to any other person.  

36AJ. Procedure of the Tribunal 

(1) The Tribunal shall have power to regulate its own procedure.  

(2) The Tribunal may hold the whole or any part of its inquiry in camera. 

(3) Any clerical or arithmetical error in any order of the Tribunal or any error  arising therein from any accidental slip or omission may, at any time, be  corrected by the Tribunal either of its own motion or on the application of any of  the parties.]  

PART III  

SUSPENSION OF BUSINESS AND WINDING UP OF BANKING COMPANIES  1[2[36B. High Court defined.- 

In this Part and in Part IIIA “High Court”, in relation to a banking company,  means the High Court exercising jurisdiction in the place where the registered  office of the banking company is situated or, in the case of a banking company  incorporated outside India, where its principal place of business in India is  situated. ]]  

  1. Suspension of business 

(1) The 3[High Court] may on the application of a banking company which is  temporarily unable to meet its obligations make an order (a copy of which it shall  cause to be forwarded to the Reserve Bank) staying the commencement or  continuance of all actions and proceedings against the company for a fixed  

                                                            

1 Inserted by Act 52 of 1953, Section 3.  

2 Section 36A renumbered as section 36B by Act 33 of 1959, w.e.f. 1-10-1959.  

3 Substituted for “court” by Act 52 of 1953, w.e.f 30-12-1953  

80