1

8ANkING LAW AND kAC1ICL

UNI1II


I 8ANkING kLGULA1ICN AC1 1949
8anks are publlc servlce lnsLlLuLlons deallng wlLh Lhe funds of Lhe publlc unllke [olnL sLock companles
whlch obLaln Lhe requlred caplLal from Lhe shareholders banks obLaln a very large proporLlon of Lhelr
worklng caplLal from Lhe publlc ln Lhe form of deposlLs Pence ln Lhe naLlonal lnLeresL Lhere ls a need
Lo regulaLe Lhe worklng of banks by a separaLe AcL
unforLunaLely ln lndla Lhere was no separaLe leglslaLlon for banklng Llll 1949 and so banks were
broughL under Lhe conLrol of Lhe lndlan Companles AcL 1hough Lhe CenLral 8anklng Lnqulry
CommlLLee recommended Lhe need for a separaLe leglslaLlon lL was noL glven due conslderaLlon Lhen
Powever subsequenL developmenLs llke mushroom growLh of banks wlLh adequaLe caplLal dlshonesL
managemenL speculaLlve lnvesLmenL appolnLmenL of lncompeLenL dlrecLors for long perlods wlLh
hlgh salarles poor llquldlLy of funds eLc necesslLaLed Lhe passlng of a separaLe AcL for banklng
companles Accordlngly a blll was lnLroduced ln March 1948 and was passed ln Lhe arllamenL ln
lebruary 1949 lL came lnLo force from 16
th
March 1949 1hls AcL was orlglnally called Lhe 8anklng
Companles AcL 1949 an now lL ls renamed as Lhe 8ank|ng kegu|at|on Act 1949
1he lmporLanL provlslons of Lhe AcL have been dlscussed under Lhe followlng heads
1) Def|n|t|on of 8ank|ng
2) 8us|ness of 8ank|ng Company and roh|b|ted 8us|ness
3) Cap|ta| kequ|rements
4) Management
S) Ma|ntenance of L|qu|d Assets
6) L|cens|ng of 8anks
7) Cpen|ng of New 8ranches
8) rov|s|ons regard|ng Loans and Advances
9) Inspect|on of 8anks
10)owers of the keserve 8ank of Ind|a
11)keturns to be subm|tted
12)Acqu|s|t|on of 8us|ness
13)W|nd|ng up of 8ank|ng Compan|es
14)Ama|gamat|on of 8ank|ng Compan|es
1S)ena|t|es
I 8ANkING kLGULA1ICN AC1 1949
II NLGC1IA8LL INS1kUMLN1S AC1 1860


1 DLIINI1ICN CI 8ANkING
1he bus|ness of 8ank|ng has been deflned ln Sect|on S(b) of Lhe AcL as follow
"4cceptinq for the purpose of /endinq or investment of deposit of money from the pub/ic repoyob/e
on demond or otherwise ond withdrowob/e by cheque droft order or otherwise"
1hls deflnlLlon ls very comprehenslve ln Lhe sense LhaL lL has clearly menLloned Lhe purpose for whlch
deposlLs can be accepLed and LhaL such deposlLs musL be wlLhdrawable by cheque drafL order or
oLherwlse Pence money lenders lndlgenous bankers eLc do noL come wlLhln Lhe scope of Lhls
deflnlLlon slnce Lhey do noL deal ln cheque drafL order or oLherwlse
Sect|on S(c) def|nes "8ank|ng Company" as ony compony which tronsocts the business of bonkinq in
lndio" olnL SLock Companles whlch aL presenL accepL huge deposlLs from publlc for Lhe purpose of
flnanclng Lhelr buslness do noL come under Lhe purvlew of Lhls deflnlLlon slnce Lhey do noL follow
wlLhdrawal by cheque drafL order eLc
2 8USINLSS CI 8ANkING CCMAN




kINDS CI 8USINLSS 1nA1 CAN 8L DCNL AparL from Lhe maln buslness LhaL ls llsLed ln SecLlon
3(b) of Lhe AcL 8anklng Companles are allowed Lo carry on oLher forms of buslnesses LhaL are sLaLed ln
SecLlon 6 of Lhe AcL 1hey are as follows









kINDS CI 8USINLSS 1nA1 CAN
8L DCNL 8 8ANkS
kINDS CI 8USINLSS 1nA1
CANNC1 8L DCNL 8 8ANkS
MAIN IUNC1ICNS
1) 1he borrowlng ralslng or Laklng up of
money
) 1he lendlng of money wlLh or wlLhouL
securlLy
3) 1he granLlng and lssulng of leLLers of
credlL of varlous klnds Lraveller's cheque
eLc
4) 1he buylng selllng and deallng ln bulllon
3) 1he buylng and selllng of forelgn
exchange lncludlng forelgn currencles
SU8SIDIAk IUNC1ICNS
1) AcLlng as an agenL for lndlvlduals
governmenL eLc
) Carrylng on agency buslness of any
descrlpLlon
3) ConLracLlng negoLlaLlng and lssulng
publlc and prlvaLe loans
4) LffecLlng lnsurlng guaranLeelng
underwrlLlng and parLlclpaLlng ln
managlng and carrylng ouL of any lssue
publlc or prlvaLe

3











kINDS CI 8USINLSS 1nA1 CANNC1 8L DCNL lL was found LhaL a comblnaLlon of Lradlng
wlLh banklng buslness was one of Lhe ma[or causes for bank fallures 1aklng lnLo conslderaLlon Lhe
above facL Lhe presenL AcL by SecLlon 8 prohlblLs a bank from carrylng on Lradlng acLlvlLles whlch
are noL lncldenLal Lo banklng buslness Powever lL can deal ln Lhose buslnesses LhaL are permlLLed
under SecLlon 6 of Lhls AcL

Ior Lxamp|e lL can buy or sell securlLles for Lhe purpose of reallzlng Lhem lL can deal wlLh sLocks
shares money eLc and lL can acL as LrusLees execuLor admlnlsLraLor eLc

Agaln SecLlon 19 of Lhe AcL prohlblLs a banklng company from enLerlng lnLo Lradlng acLlvlLles by
acqulrlng a conLrol ln nonbanklng companles by

1) 1he formaLlon of subsldlary companles
) 1he holdlng of shares ln oLher companles beyond a cerLaln llmlL
3) 1he holdlng of shares ln any company ln Lhe managemenL of whlch any managerlal personnel of Lhe
bank ls lnLeresLed Powever a banklng company ls permlLLed Lo form subsldlarles for Lhe purposes
of
a) underLaklng and execuLlng LrusLs
b) underLaklng Lhe admlnlsLraLlon of esLaLes as execuLor
c) rovldlng safe deposlLs
d) Carrylng on Lhe buslness of banklng excluslvely ouLslde lndla wlLh Lhe prlor permlsslon of Lhe
8eserve 8ank of lndla


SU8SIDIAk IUNC1ICNS
3) Carrylng on and LransacLlng every klnd of
guaranLee and lndemnlLy buslness
6) Managlng Selllng and reallzlng any
properLy whlch may come lnLo lLs
possesslon ln saLlsfacLlon of any clalms
7) AcLlng as LrusLees for cusLomers
8) underLaklng of Lhe admlnlsLraLlon of
esLaLes
9) uolng any oLher buslness noLlfled by Lhe
CenLral CovernmenL as lawful for a
banklng company
MAIN IUNC1ICNS
6) 1he acqulrlng holdlng lssulng on
commlsslon underwrlLlng and deallng ln sLock
funds shares debenLures bonds securlLles
and lnvesLmenLs of all klnds
7) 1he purchaslng and selllng of bonds scrlpLs
eLc on behalf of cusLomers or recelvlng such
securlLles for safe cusLody
8) 1he provldlng of safe deposlLs
9) 1he collecLlon and Lransmlsslon of money
and securlLles
4

3 CAI1AL kLUIkLMLN1S
revlous Lo Lhe passlng of Lhls AcL banks were sLarLed wlLh meager caplLal Moreover Lhe relaLlonshlp
beLween AuLhorlzed Subscrlbed and aldup caplLal was an exaggeraLed one lL led Lo Lhe sLarLlng of
more bogus companles whlch falled subsequenLly wlLhln a very shorL perlod of Lhelr esLabllshmenL
Agaln Lhe Companles AcL permlLLed Lhe 8anklng companles Lo creaLe a charge over lLs uncalled caplLal
and lL also allowed lssue of ordlnary and preference shares whlch were noL aL all sulLable Lo banklng
buslness 1he presenL AcL removes Lhe above sald defecLs Sect|on 11 of Lhe AcL lays down Lhe
mlnlmum caplLal requlremenL lL classlfles banks lnLo lorelgn 8anks and lndlan 8anks for LhaL purpose
Accord|ng to the Sect|on 12 Lhe subscrlbed caplLal of Lhe banklng company should noL be less Lhan
onehalf of Lhe auLhorlzed caplLal and Lhe paldup caplLal should noL be less Lhan onehalf of Lhe
subscrlbed caplLal lf Lhe caplLal has Lo be lncreased Lhe above rules musL be complled wlLh wlLhln a
maxlmum perlod of years Agaln lL has been provlded LhaL no banklng company wlll creaLe any
charge upon lLs uncalled caplLal new bank llcenslng norms announced by Lhe 88l on 3
rd
anuary 1
sLlpulaLes lnlLlal pald up caplLal of 8s1 crore lL has Lo be ralsed Lo 8s 3 crores wlLhln 3 years of
commencemenL of buslness
AlLhough SecLlon 11 prescrlbes a mlnlmum caplLal of 8s3 lakh only 88l currenLly prescrlbed a
mlnlmum pald up caplLal of 8s 1 crore for seLLlng up of a new banklng company A forelgn bank
seLLlng up of buslness ln lndla ls requlred Lo brlng ln a mlnlmum of $1 mllllon Lo lndla as caplLal

4 MANAGLMLN1
oord of uirectors Sect|on 10(A) provldes LhaL aL leasL 31 of Lhe 8oard of ulrecLors of a banklng
company musL conslsL of persons who have speclal knowledge ln (l) AccounLlng (ll) AgrlculLural and
rural economy (lll) 8anklng (lv) Lconomlcs (v) Law eLc 8uL Lhey should noL be proprleLors of any
Lradlng commerclal or lndusLrlal concern
Jho/e time choirmon Lvery banklng company shall have a chalrman who wlll be a professlonal
banker Pe shall be enLrusLed wlLh Lhe managemenL of Lhe whole affalrs of Lhe banklng company
sub[ecL Lo Lhe superlnLendence conLrol and guldance of Lhe 8oard of ulrecLors Pls appolnLmenL shall
be made by Lhe banklng company sub[ecL Lo Lhe approval of Lhe 8eserve 8ank of lndla
Sect|on 10 of the Act lays down LhaL a banklng company should noL be managed by persons who have
been ad[udlcaLed lnsolvenL or who have been convlcLed for crlmlnal offence or by a managlng agenL or
by any person whose remuneraLlon Lakes Lhe form of commlsslon or of a share ln Lhe proflLs of Lhe
company or whose remuneraLlon ls excesslve ln Lhe oplnlon of Lhe 8eserve 8ank of lndla


3

S MAIN1LNANCL CI LIUID ASSL1S
oor llquldlLy of funds was one of Lhe oLher ma[or cases for bank fallures ln lndla MalnLenance of a
sound llquld poslLlon ls Lhe basls for Lhe success of any banklng venLure unforLunaLely lL was
consplcuously absenL ln Lhose days Conslderlng Lhls facL very sLrlcL provlslons have been made ln Lhe
presenL AcL for each banklng company Lo achleve and malnLaln llquldlLy 1hey can be summarlzed as
follows
(1) SecLlon 18 of Lhe AcL lays down LhaL every banklng company should malnLaln 3 of Lhe LoLal of lLs
Llme and demand llablllLles ln Lhe form of cash reserve wlLh Lhe 8eserve 8ank of lndla or SLaLe 8ank
of lndla or any oLher bank noLlfled by Lhe CovernmenL 1he 8eserve 8ank of lndla has power Lo
lncrease Lhls reserve upLo 13

() SecLlon 19 requlres banklng company noL Lo hold shares ln oLher companles more Lhan 3 of Lhe
paldup caplLal of Lhe company or 3 of lLs own paldup caplLal whlchever ls less

(3) Accordlng Lo SecLlon every banklng company ls prohlblLed from maklng any loans or advances
on Lhe securlLy of lLs own shares lL ls obvlous LhaL Lhese securlLles wlll be worLh less ln Lhe evenL of
wlndlng up of Lhe company

(4) lurLher banks are prohlblLed from granLlng unsecured loans and advances Lo any dlrecLors or Lo
any lnsLlLuLlon ln whlch any such dlrecLor ls lnLeresLed Powever lf such loans are granLed Lhe
banklng company concerned should submlL a monLhly reLurn showlng all such unsecured loans Lo
Lhe 8eserve 8ank of lndla

(3) under SecLlon 14 A a banklng company ls prohlblLed from creaLlng a floaLlng charge Lo any of lLs
properLy wlLhouL obLalnlng a cerLlflcaLe from Lhe 8eserve 8ank of lndla

(6) 1o prevenL speculaLlve deallngs SecLlon 1 empowers Lhe 8eserve 8ank of lndla Lo deLermlne ln Lhe
publlc lnLeresL Lhe credlL pollcy Lo be followed by banks and Lo lssue dlrecLlons Lo LhaL effecL

(7) 1o prevenL banks from overLradlng aL Lhe expense of llquldlLy every banklng company ls expecLed
Lo malnLaln aL leasL of lLs LoLal deposlL llablllLles ln lndla ln Lhe form of cash gold or securlLles
aL Lhe close of Lhe day of lLs buslness

(8) 1o prevenL Lhe forelgn bank from Laklng funds from lndla Lo Lhelr counLrles lL has been provlded
under SecLlon 3 LhaL every banklng company should keep asseLs ln lndla aL leasL Lo Lhe exLenL of
73 of lLs LoLal llablllLles aL Lhe end of every quarLer

(9) As per SecLlon 9 of Lhe AcL every banklng company ls noL allowed Lo hold as Lhe owner or Lhe
pledge lmmovable properLles for a perlod exceedlng 7 years Powever lL can hold such properLy
for lLs own offlclal use

6

6LICLNSING CI 8ANkS
SecLlon of Lhe AcL requlres every banklng company Lo obLaln a llcense from Lhe 8eserve 8ank of lndla before
commenclng buslness ln granLlng Lhe llcense Lhe 8eserve 8ank of lndla wlll conslder Lhe followlng facLs afLer
lnspecLlng Lhe banklng company concerned
(l) WheLher Lhe bank ls or wlll be ln poslLlon Lo pay lLs presenL or fuLure deposlLors ln full as Lhelr clalms accrue

(ll)WheLher Lhe affalrs of Lhe company are noL belng conducLed Lo Lhe deLrlmenL of Lhe lnLeresL of Lhe
deposlLors

(lll) ln Lhe case of forelgn banks ln addlLlon Lo Lhe above requlremenLs Lhe followlng musL be complled wlLh

(a) 1he law of Lhe CovernmenL of Lhelr orlgln does noL dlscrlmlnaLe ln any way agalnsL lndlan banks
(b) 1helr buslness ln lndla wlll be ln Lhe publlc lnLeresL
(c) 1hey comply wlLh all Lhe provlslons of Lhe AcL of Lhe counLry of Lhelr orlgln
lf any defecLs are found ouL durlng lnspecLlon Lhe bank concerned wlll be lnformed of Lhem and wlll be asked Lo
recLlfy Lhem 1he 8eserve 8ank of lndla wlll call for perlodlcal reporLs Lo waLch Lhe progress of Lhe bank lf
defecLs are lmmaLerlal and Lhe progress ls saLlsfacLory llcense wlll be lssued CLherwlse lL wlll be cancelled or
refused Powever sufflclenL opporLunlLy wlll be glven Lo Lhe bank Lo show progress before refuslng or cancelllng
Lhe llcense lf dlssaLlsfled Lhe aggrleved bank may apply Lo Lhe CenLral CovernmenL for flnal declslon
7CLNING CI NLW 8kANCnLS
lf Lhere ls no conLrol on openlng of branches Lhere wlll be keen compeLlLlon among banks and all of
Lhem wlll Lend Lo open branches only ln blg clLles and Lowns Pence SecLlon 3 of Lhe AcL lays down
LhaL
(l) Lvery banklng company should obLaln prlor permlsslon from Lhe 8eserve 8ank of lndla for
openlng new place of buslness elLher ln lndla or abroad and also for changlng Lhe locaLlon of lLs
exlsLlng offlces

(ll) 1he consenL of Lhe 8eserve 8ank of lndla ls noL necessary when Lhe banklng company changes
Lhe place of buslness wlLhln Lhe same clLy or when an offlce ls opened for a Lemporary perlod noL
exceedlng 6 monLhs

(lll) 1he 8eserve 8ank of lndla wlll granL permlsslon only when lL ls saLlsfled LhaL
(a) 1he flnanclal condlLlon and managemenL of Lhe bank concerned ls sound
(b) lLs caplLal sLrucLure ls adequaLe
(c) 1he earnlngs prospecLs of Lhe proposed branch are good and
(d) 1he openlng of new branch or changlng Lhe locaLlon ls ln Lhe lnLeresL of Lhe publlc

(lv) 1he reserve 8ank of lndla may also granL condlLlonal llcense ln whlch case Lhe permlsslon wlll be
revoked lf Lhe bank falls Lo comply wlLh any such condlLlon
7

8 LCANS AND ADVANCLS
ln Lhe lnLeresL of Lhe publlc or deposlLors or Lhe banklng sysLem as a whole Lhe 8eserve 8ank of lndla
lf necessary can conLrol Lhe loan pollcy Lo be followed by banks ln general or by a parLlcular bank
When a pollcy ls so deLermlned by Lhe 8eserve 8ank of lndla Lhe banks are bound Lo follow Lhe pollcy
1he 8eserve 8ank of lndla may lssue dlrecLlves wlLh regard Lo Lhe followlng
(l) 1he purpose for whlch advances may or may noL be made

(ll) 1he marglns Lo be prescrlbed for secured advances

(lll) 1he maxlmum amounL of advances bank may glve Lo any company flrm or lndlvldual Laklng lnLo
accounL Lhe amounL of Lhe paldup caplLal reserves and oLher relaLed maLLers of Lhe bank

(lv) 1he maxlmum amounL upLo whlch guaranLees may be glven Laklng lnLo conslderaLlon Lhe facLs
menLloned above

(v) 1he raLlo of lnLeresL and oLher Lerms and condlLlons on whlch loans/guaranLees are glven

9 INSLC1ICN CI 8ANkS
1he presenL AcL permlLs Lhe 8eserve 8ank of lndla Lo conducL lnspecLlon of bank on lLs own lnlLlaLlve
wlLh a vlew Lo esLabllsh sound banklng LradlLlons by drawlng Lhe aLLenLlon of banks concerned Lo Lhelr
defecLs and unsaLlsfacLory worklng meLhods SecLlon 33 of Lhe AcL conLalns Lhe followlng provlslons for
lnspecLlon
(l) 1he 8eserve 8ank of lndla has been glven Lhe power Lo lnspecL Lhe books of accounLs of any
banklng company

(ll) uurlng lnspecLlon every dlrecLor/offlcer/employee of Lhe bank ls under an obllgaLlon Lo produce
all books of accounLs and documenLs ln hls cusLody and Lo furnlsh Lhe lnformaLlon requlred

(lll) Any offlcer of Lhe 8eserve 8ank of lndla who ls conducLlng lnspecLlon has a rlghL Lo examlne any
dlrecLor/offlcer/employee of Lhe bank under oaLh

(lv) 1he 8eserve 8ank of lndla may conducL such lnspecLlon elLher on lLs own lnlLlaLlve or under Lhe
dlrecLlon of Lhe CenLral CovernmenL

(v) ln any case afLer Lhe lnspecLlon ls over Lhe 8eserve 8ank of lndla sends a copy of lL Lo Lhe bank
concerned Lo Lhe CovernmenL

(vl) Cn seelng Lhe reporL lf Lhe CenLral CovernmenL oplnes LhaL Lhe affalrs of Lhe bank are conducLed
Lo Lhe lnLeresL of deposlLors lL may glve an opporLunlLy Lo Lhe bank concerned Lo make a
represenLaLlon
8

10CWLkS CI 1nL kLSLkVL 8ANk CI INDIA
1he 8eserve 8ank of lndla exerclses conLrol over all commerclal banks from Lhelr blrLh Lo deaLh All
powers have been cenLrallzed ln Lhe hands of Lhe 8eserve 8ank of lndla wlLh a vlew Lo regulaLe Lhe
banklng sysLem ln Lhe naLlonal lnLeresL and Lo prevenL bank fallure Some of Lhe maln powers have
been summarlzed as follows
%i) 9ower to issue /icense for new bonks ond qront permission for stortinq new bronches
%ii) 9ower to determine the credit po/icy to be fo//owed by bonks
%iii) 9ower of inspection
(|v) 9ower to issue directions under SecLlon 33 of Lhe AcL Lhe 8eserve 8ank of lndla has Lhe power
Lo lssue dlrecLlons as lL deems flL Lo Lhe banklng companles ln general or Lo any bank ln parLlcular
and Lhe bank concerned shall be bound Lo comply wlLh such dlrecLlons
(v) 9ower to contro/ monoqement As per SecLlon 38(AA) of Lhe AcL 8eserve 8ank of lndla may ln
Lhe publlc lnLeresL or ln Lhe lnLeresL of deposlLors remove from offlce any
chalrman/dlrecLors/offlcer/employees afLer glvlng Lhem a reasonable opporLunlLy of belng heard
Such aggrleved persons can appeal Lo Lhe CenLral CovernmenL wlLhln 3 days of Lhe daLe of
communlcaLlon of such order 1he 8eserve 8ank of lndla may appolnL a sulLable person ln Lhe
place of Lhe removed one Agaln SecLlon 36(A8) glves power Lo appolnL addlLlonal dlrecLor ln Lhe
publlc lnLeresL of course noL exceedlng 3 or 1/3 of Lhe maxlmum sLrengLh whlchever ls less
(v|) 9ower to odvice bonks under SecLlon 36 of Lhe AcL Lhe 8eserve 8ank of lndla may cauLlon or
prohlblL or glve general advlce Lo a bank ln parLlcular or Lo all banks ln general agalnsL enLerlng
lnLo a parLlcular LransacLlon or class of LransacLlons lL also glves asslsLance Lo any banklng
company by means of granLlng loans and advances
(v||)9ower to ossist in proposo/s for omo/qomotion 1he 8eserve 8ank of lndla may asslsL a banklng
company ln proposals for Lhe amalgamaLlon on lLs requesL no courL shall sancLlon a scheme of
arrangemenL for amalgamaLlon unless Lhe scheme ls cerLlfled by Lhe 8eserve 8ank of lndla
(v|||)9ower to receive ond scrutinite the returns under Lhls AcL all banklng companles are requlred
Lo submlL a number of reLurns Lo Lhe 8eserve 8ank of lndla 1hese reLurns are carefully scruLlnlzed
wlLh a vlew Lo ensure LhaL Lhe provlslons of Lhls AcL and Lhe varlous lnsLrucLlons lssued by lL are
complled wlLh by Lhe banklng companles Any defecL ln Lhe worklng of any bank wlll be
lmmedlaLely broughL Lo lLs noLlce so LhaL correcLlve sLeps may be Laken
(|x) 9ower to oppoint /iquidotor ln regard Lo Lhe wlndlng up of a banklng company Lhe 8eserve
8ank of lndla has Lhe power Lo make an appllcaLlon Lo Lhe Plgh CourL for Lhe appolnLmenL of
8eserve 8ank of lndla SLaLe 8ank of lndla or any oLher bank noLlfled by Lhe CenLral CovernmenL
as Lhe offlclal llquldaLor of LhaL bank
(x) 4dditiono/ powers 1he 8eserve 8ank of lndla may requlre any banklng company Lo call a
meeLlng of lLs dlrecLors Lo dlscuss any maLLer relaLlng Lo Lhe affalrs of Lhe company lL may also
requlre an offlcer of Lhe bank Lo dlscuss any such maLLer wlLh an offlcer of Lhe 8eserve 8ank of
lndla lL may also depuLe one or more of lLs offlcers elLher Lo waLch Lhe proceedlngs of any board
9

meeLlng or observe Lhe manner ln whlch Lhe affalrs of Lhe banks are belng conducLed Cn seelng
Lhe reporL of such depuLed offlcers Lhe 8eserve 8ank of lndla may Lake sulLable acLlon

11kL1UkNS 1C 8L SU8MI11LD
All Lhe banklng companles are requlred Lo submlL Lhe followlng reLurns Lo Lhe 8eserve 8ank of lndla ln
Lhe prescrlbed form and manner as aL Lhe close of buslness on Lhe lasL lrlday of every monLh lf Lhe
lrlday ls a publlc hollday Lhen aL Lhe close of Lhe buslness on Lhe precedlng worklng day
%i) keturns of /iquid ossets ond /iobi/ities Lvery banklng company under SecLlon 3(3) ls requlred
Lo furnlsh Lo Lhe 8eserve 8ank a monLhly reLurn showlng parLlculars of lLs asseLs and Llme and
demand llablllLles ln lndla
%ii) keturn of unc/oimed deposits 4ccordinq Lo SecLlon 6 every banklng company ls under an
obllgaLlon Lo send a sLaLemenL showlng Lhe unclalmed deposlLs 1hls reLurn musL conLaln all
accounLs ln lndla whlch have noL been operaLed upon for 1 years
%iii) ,onth/y returns SecLlon 7 requlres every banklng company Lo submlL Lhe 8eserve 8ank of
lndla a monLhly reLurn showlng lLs asseLs and llablllLles ln lndla on Lhe lasL lrlday of every monLh
and lf lL ls a publlc hollday Lhen on Lhe precedlng worklng day
%iv) keturn of onnuo/ occounts As per SecLlon 31 every banklng company shall prepare Lhe flnal
accounL and Lhe balance sheeL and send lL Lo Lhe 8eserve 8ank of lndla LogeLher wlLh Lhe
AudlLor's 8eporL lurLher a copy of Lhe above musL be dlsplayed ln every place of buslness of Lhe
banks
%v) 4dditiono/ informotion 1he 8eserve 8ank of lndla has Lhe power Lo call for lnformaLlon
regardlng Lhe lnvesLmenL of a bank and also Lhe classlflcaLlon of lLs advance ln respecL of
lndusLry commerce and agrlculLure

12 ACUISI1ICN CI 8USINLSS
SecLlon 36 AL Lo 36 A provldes for Lhe acqulslLlon of banklng companles by Lhe CenLral CovernmenL
on Lhe recommendaLlon of Lhe 8eserve 8ank of lndla 1he 8eserve 8ank of lndla may recommends
under Lhe followlng clrcumsLances
(l) When Lhe banklng company falls Lo comply wlLh Lhe dlrecLlons glven Lo lL under SecLlon 1
or SecLlon 33(A)
(ll) When Lhe banklng buslness ls carrled on ln a manner whlch deLrlmenL of Lhe lnLeresL of Lhe
deposlLors
(lll) When Lhe 8eserve 8ank of lndla feels Lo provlde credlL ln a beLLer manner generally or any
parLlcular communlLy or Lo any parLlcular area
8efore acqulrlng Lhe underLaklng of any banklng company Lhe CenLral CovernmenL shall glve a
reasonable opporLunlLy Lo Lhe bank proposed Lo be acqulred of showlng cause agalnsL lLs proposed
acLlon
1

1he CenLral CovernmenL may afLer consulLaLlon wlLh Lhe 8eserve 8ank make a scheme for carrylng
ouL Lhe acqulslLlon of Lhe bank CompensaLlon shall be pald Lo Lhe reglsLered shareholders of Lhe
acqulred bank ln accordance wlLh Lhe prlnclples conLalned ln Lhe llfLh Schedule of Lhe 8anklng
8egulaLlon AcL 1949
13WINDING U CI 8ANkING CCMANILS
A banklng company can be wound up llke any oLher company le compulsorlly or volunLarlly or
sub[ecL Lo supervlslon of Lhe courL
1he Plgh CourL shall order Lhe wlndlng up of a banklng company
(a) lf Lhe banklng company ls unable Lo pay lLs debL or

(b)lf an appllcaLlon for lLs wlndlng up has been made by Lhe 8eserve 8ank of lndla
A banklng company ls deemed Lo be unable Lo pay lLs debLs ln Lhe followlng clrcumsLances
(l) lf lL has refused Lo meeL any lawful demands made aL any of lLs offlces wlLhln Lwo worklng days
such a demand ls made aL a place where Lhere ls an offlce or ln oLher cases wlLhln 3 days

(ll) lf Lhe 8eserve 8ank cerLlfles ln wrlLlng LhaL Lhe 8anklng Company ls unable Lo pay lLs debL
1he 88l wlll make an appllcaLlon under Lhe followlng clrcumsLances
(l) When Lhe banklng company falls Lo comply wlLh any of Lhe provlslons of Lhe AcL

(ll) When a banklng company falls Lo lmplemenL saLlsfacLorlly compromlse or arrangemenL
sancLloned by a courL

(lll) When Lhe reLurns sLaLemenLs eLc furnlshed Lo Lhe 88l dlsclose LhaL Lhe banklng company ls
unable Lo pay lLs debLs or

(lv) When Lhe conLlnuance of Lhe buslness ls pre[udlclal Lo Lhe lnLeresLs of lLs deposlLors

14AMALGAMA1ICN CI 8ANkING CCMANILS
ln order Lo sLrengLhen Lhe banklng sLrucLure of Lhe counLry Lhe 88l has been encouraglng
amalgamaLlon of small banks wlLh blg ones provlded such a merger ls ln Lhe lnLeresL of Lhe deposlLors
1he procedure for amalgamaLlon as glven ln SecLlon 44 (a) of Lhe AcL as follows
(l) A drafL scheme of amalgamaLlon conLalnlng all Lhe Lerms of such amalgamaLlon musL be placed
before Lhe shareholders of each of Lhe banklng companles concerned separaLely and approved by a
resoluLlon passed by LwoLhlrd ma[orlLy of Lhe shareholders of each bank

11

(ll) A noLlce of such meeLlng musL be glven Lo every shareholder of Lhe 8ank concerned lndlcaLlng Lhe
Llme place and ob[ecL of Lhe meeLlng Such a noLlce musL have been publlshed ln aL leasL Lwo
newspapers for Lhree consecuLlve weeks

(lll) 1he shareholders who have ob[ecLed Lo such a scheme of amalgamaLlon are enLlLled Lo clalm Lhe
value of Lhe shares held by Lhem 1he value of such shares wlll be deLermlned by Lhe 88l

(lv) 8esldes Lhe approval of Lhe shareholders Lhe scheme has Lo be sancLloned by Lhe 88l Cnce lL ls
sancLloned lL ls blndlng on Lhe companles

(v) Agaln once Lhe scheme ls sancLloned by Lhe 88l Lhe asseLs and llablllLles of Lhe amalgamaLed banks
are Lransferred Lo Lhe absorblng company

(vl) 1he amalgamaLed banklng wlll cease Lo funcLlon and shall sLand dlssolved by reason of such
amalgamaLlon on a speclfled daLe noLlfled by Lhe 88l A copy of Lhls order musL also be senL Lo Lhe
8eglsLrar of Companles

1SLNAL1ILS
SecLlon 46 of Lhe AcL lays down Lhe followlng penalLles ln case of vlolaLlon of any provlslon of Lhe AcL

(l) lor submlLLlng false or lnaccuraLe reLurn Lhe penalLy ls lmprlsonmenL upLo 3 years and flne

(ll) lor fallure Lo furnlsh documenLs accounL or lnformaLlon durlng lnspecLlon penalLy upLo 8s
lf Lhe offence conLlnues flne of 8s 1 per day durlng Lhe conLlnuance of Lhe defaulL

(lll)lor recelvlng deposlLs ln conLravenLlon of an order by Lhe 8eserve 8ank of lndla Lhe penalLy ls flne
upLo Lwlce of Lhe amounL recelved

(lv)lallure Lo comply wlLh Lhe provlslons of Lhe AcL Lhe penalLy ls a flne upLo 8s Where a defaulL
ls a conLlnulng one a furLher flne of 8s 1 for every day

(v) Where a defaulL has been commlLLed by a company every person who aL Lhe Llme of defaulL was
responslble Lo Lhe company shall be deemed gullLy of Lhe defaulL

&&&&&&&&&&&&&&&&&&&&&&&&&
1

The Negotiable Instruments Act, 1881
INTRODUCTION
In India, there is reason to believe that instrument to exchange were in use Irom early times and we Iind
that papers representing money were introducing into the country by one oI the Mohammedan
sovereigns oI Delhi in the early part oI the Iourtheenth century. The word 'hundi', a generic term used to
denote instruments oI exchange in vernacular is derived Irom the Sanskrit root 'hund' meaning 'to
collect' and well expresses the purpose to which instruments were utilised in their origin. With the
advent oI British rule in India commercial activities increased to a great extent. The growing
demands Ior money could not be met be mere supply oI coins; and the instrument oI credit took the
Iunction oI money which they represented.
BeIore the enactment oI the Negotiable Instrument Act, 1881, the law oI negotiable instruments as
prevalent in England was applied by the Courts in India when any question relating to such instruments
arose between Europeans. When then parties were Hindu or Mohammedans, their personal law was held
to apply. Though neither the law books oI Hindu nor those oI Mohammedans contain any reIerence to
negotiable instruments as such, the customs prevailing among the merchants oI the respective
community were recognised by the courts and applied to the transactions among them. During the
course oI time there had developed in the country a strong body oI usage relating to hundis, which even
the Legislature could not without hardship to Indian bankers and merchants ignore. In Iact,
the Legislature Ielt the strength oI such local usages and though Iit to exempt them Irom the operation oI
the Act with a proviso that such usage may be excluded altogether by appropriate words. In the absence
oI any such customary law, the principles derived Irom English law were applied to the Indians as rules
oI equity justice and good conscience.
The history oI the present Act is a long one. The Act was originally draIted in 1866 by the India Law
Commission and introduced in December, 1867 in the Council and it was reIerred to a Select
Committee. Objections were raised by the mercantile community to the numerous deviations Irom the
English Law which it contained. The Bill had to be redraIted in 1877. AIter the lapse oI a suIIicient
period Ior criticism by the Local Governments, the High Courts and the chambers oI commerce, the Bill
was revised by a Select Committee. In spite oI this Bill could not reach the Iinal stage. In 1880 by the
Order oI the Secretary oI State, the Bill had to be reIerred to a new Law Commission. On the
recommendation oI the new Law Commission the Bill was re-draIted and again it was sent to a Select
Committee which adopted most oI the additions recommended by the new Law Commission. The draIt
thus prepared Ior the Iourth time was introduced in the Council and was passed into law in 1881 being
the Negotiable Instruments Act, 1881 (26 oI 1881)