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Bankning Regulation act 1949:

The Banking Regulation Act, 1949 is a legislation in Indiathat regulates all banking firms in India.
Passed as the Banking Companies Act 1949, it came into force from 16 March 1949 and changed to Banking Regulation Act 1949 from 1 March 1966.
It is applicable in Jammu and Kashmir from 1956.
Initially, the law was applicable only to banking companies. But, 1965 it was amended to make it applicable to cooperative banks and to introduce other changes.
In 2020 it was amended to bring the cooperative banks under the supervision of the Reserve Bank of India.

Overview

The Act provides a framework under which commercial banking in India is supervised and regulated. The Act supplements the Companies Act, 1956. Primary Agricultural Credit Society and cooperative land mortgage banks are excluded from the Act.
The Act gives the Reserve Bank of India (RBI) the power to license banks, have regulation over shareholding and voting rights of shareholders; supervise the appointment of the boards and management; regulate the operations of banks; lay down instructions for audits; control moratorium, mergers and liquidation; issue directives in the interests of public good and on banking policy, and impose penalties.
In 1965, the Act was amended to include cooperative banks under its purview by adding the Section 56.
Cooperative banks, which operate only in one state, are formed and run by the state government. But, RBI controls the licensing and regulates the business operations.
The Banking Act was a supplement to the previous acts related to banking.

Amendments

In 2020, Finance Minister NirmalaSitaraman introduced a bill to amend the Act.
The bill sought to bring all cooperative banks under the Reserve Bank of India.
It brought 1,482 urban and 58 multi-state cooperative banks under the supervision of the RBI. The bill granted the RBI ability to reconstruct or merge banks without moratoriums.
The bill was passed by the parliament.

There are total 55 Sections in the Banking Regulation Act, 1949. Some important sections are listed below:

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 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 21: Power of Reserve Bank to control advances by banking companies
Section 21A: Rates of interest charged by banking companies
Section 22(1): Licensing of banking companies
Section 23: Restrictions on opening of new, and transfer of existing, places of business
Section 29: Accounts and balance-sheet
Section 36AE : Power of Central Government to acquire undertakings of banking companies in certain cases
Section 44A: Procedure for amalgamation of banking companies.
Section 47A: Power of Reserve Bank to impose penalty
Section 49A: Restriction on acceptance of deposits withdrawable by cheque.

Objectives

It was becoming difficult to regulate the functioning of the banking sector in India due to the insufficient and inadequate provisions of the Indian Companies Act 1913.
Hence, there was an urgent need for a proper legislation to regulate the same and therefore this was one of the main objectives behind passing the Act.
Due to inadequacy of capital many banks failed and hence prescribing a minimum capital requirement was felt necessary. The banking regulation act brought in certain minimum capital requirements for banks.
In order to avoid cut-throat competition in the banking sector.
Certain provisions were incorporated so as to ensure the protection of shareholders and the public at large.
In order to ensure smooth functioning, the Act was introduced which conferred power on Reserve Bank of India (RBI) to appoint, re-appoint and removal of chairman, director and officers of the banks.
The Act introduced licensing which helped in regulating the indiscriminate opening of new branches and at the same time promoting a balanced development in the said sector.
Provide quick and easy liquidation of banks when they are unable to continue further or amalgamate with other banks.
In order to restrict investments outside India by Indian investors, certain specific regulations were introduced.
Provide necessary and mandatory merger of weaker banks with established ones thereby strengthening the banking system in India.

Penalties Provided

Penalties provided under Section 46 of the Banking Regulation Act, 1949 for any irregularity are as follows:
A person who willfully misrepresents facts or omits material facts in the balance sheet or while filing any return or while furnishing any other document, or presents such facts which is known to be false by the concerned person, is liable for imprisonment of up to three years along with fine.
If a person fails to furnish documents, books, accounts or any statement which he is liable to produce under Section 35 or if he fails to answer any question which he was asked to by any inspection officer, he shall be punished with fine extending up to Rs. 2000 per offence and if he refuses to follow the procedure fine may extend to Rs. 100 per day during which the offence continues.
If a banking company receives any deposit which is in contravention of any order under Section 35(4)(a), all officers and directors will be deemed guilty and shall be punishable with a fine which may extend to twice the amount of the deposits so received unless the person proves that he was unaware of the contravention or that he exercised all due diligence to prevent the occurrence of the contravention. Further, a person will be punishable with fine which may extend to Rs. 50,000 or double the amount of default or contravention along with an additional charge of Rs. 2500 per day will continue until the contravention or default ends, if
the person does not comply with the orders, direction or any rule made or imposed
any default has been made in carrying out the terms or obligations given under Section 45(7).
Where a company has defaulted any terms or order, every person employed by the company or responsible to the company or was in charge of the company at the time of occurrence of the contravention shall be punished.
Notwithstanding anything mentioned under sub-section 5 of Section 46, where a company has committed a default or contravention and if it is proved that the default took place with the consent of or due to any gross negligence on part of any director, secretary or another officer, such officers or directors shall be punishable.

Reserve Bank of India Act, 1934

Reserve Bank of India Act, 1934is the legislative act under which the Reserve Bank of India was formed.
This act along with the Companies Act, which was amended in 1936, were meant to provide a framework for the supervision of banking firms in India.

Establishment of the RBI

The Reserve Bank of India (RBI) was first established in 1935 according to the Reserve Bank of India Act of 1934.
Situated in Mumbai, the RBI is wholly owned and operated by the Indian Government.
The operations of the RBI are governed by the Central Board of Directors which comprises of 21 members appointed by the Government of India by the Act.
The Central Board of Directors consists of the Official Directors and the Non-Official Directors.
The Official Directors would include the Governors appointed for four years with an addition of 4 Deputy Governors.
The Non-Official Directors comprise of 10 Directors elected from multiple fields along with 2 Government Officials.

Important sections of the RBI Act, 1934

Here are some important sections of the RBI

Section 3 :Authorises the RBI to take over the management of the currency from the Central Government and carry on the business of banking in accordance with the provisions of this Act.
Section 7 :Central Government may from time to time give directions to the RBI if it is a matter of public interest after consulting with the RBI Governor.
Section 17:Mentions the functions of RBI
Section 18 :Mentions the emergency provisions that RBI can take for the purpose of regulating credit in the interests of Indian trade, commerce, industry, and agriculture.
Section 21 :It entrusts the RBI with the management of the public debt and with the issue of loans to the Central government.
Section 22 :It gives the RBI the sole right to issue bank notes in the country.
Section 24 :It mentions the denominations of the notes that can be in circulation. On the recommendation of the RBI, the Central Government can direct the discontinuance of the issue of any particular bank notes.
Section 28 :It empowers the RBI to form laws to deal with lost, stolen, mutilated, or imperfect currency notes of the Government of India.
Section 31 :Empowers RBI and the Central government to issue demand bills and promissory notes
Section 42 :This section mentions the cash reserves that the scheduled banks have to keep with the RBI.
Section 45 :Mentions the powers of RBI to collect credit information from financial institutions, determine policy and issue directions, constitute Monetary Policy Committee and target inflation
Section 46 :Mentions the Reserve funds that Central Government needs to maintain with the RBI
Section 58 :Gives the power to make regulations to the RBI board

Negotiable Instruments Act

Negotiable Instruments Act, 1881is an act in India dating from the British colonial rule, that is still in force largely unchanged.
Negotiable instruments recognized by Negotiable Instruments Act 1881are: (i) Promissory notes (ii) Bills of exchange (iii) Cheques.
Main Types of Negotiable Instruments are:

Inland Instruments
Foreign Instruments
Bank
Finance companies(listed) Draft^[

A negotiable instrument is a piece of paper which entitles a person to a sum of money and which is transferable from one person to another by mere delivery or by endorsement and delivery.
There were total 142 Sections in the Negotiable Instruments Act 1881 when came into force.
The act was amended and amendment Act inserts five new sections from 143 to 147 touching various limbs of the parent Act and Cheque truncation through digitally were also included and the amendment Act has been recently brought into force on Feb. 6, 2003.

Some important sections are listed below:

Section 4of the Negotiable Instruments Act 1881 defines the promissory note, “A promissory note is an instrument in
writing (note being a bank-note or a currency note) containing an unconditional undertaking, signed by the maker, to pay a certain sum of money to or to the order of a certain person, or to the bearer of the instruments.”
Section 5of the Act defines the bill of exchange, “A bill of exchange is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of a certain person or to the bearer of the instrument”.
Section 6of the Act defines the cheque “A cheque is a bill of exchange drawn on a specified banker, and not expressed to be payable otherwise than on demand”.
All chequeare bill of exchange, but all bills are not cheque.

- Section 6(a) defines ‘a cheque in the electronic form’
- Section 6(b) defines ‘a truncated cheque’

Section 7 of the Act gives definition of ‘drawer’ and ‘drawee’. The maker of the bill of exchange or cheque is called
“drawer” and the person thereby directed to pay is called the “drawee”
Section 13of the Act states that a negotiable instrument is a promissory note, bill of exchange or a cheque payable either to order or to bearer.
Section 18. Where amount is stated differently in figures and words:If the amount undertaken or ordered to be paid is stated differently in figures and in words, the amount stated in words shall be the amount undertaken or ordered to be paid.
Section 19.Instruments payable on demand: A promissory note or bill of exchange, in which no time for payment is specified, and a cheque, are payable on demand.
Section 22. “Maturity”. The maturity of a promissory note or bill of exchange is the date at which it falls due. The section also defines days of grace.
Section 25. When day of maturity is a holiday:When the day on which a promissory note or bill of exchange is at maturity is a public holiday, the instrument shall be deemed to be due on the next preceding business day.
Section 45.Holder’s right to duplicate of lost bill.
Section 58.A promissory note, bill of exchange or cheque payable to bearer is negotiable by indorsement and delivery thereof.
Section 78.To whom payment should be made: Payment of the amount due on a promissory note, bill of exchange or cheque must, in order to discharge the maker or acceptor, be made to the holder of the instrument.

DISHONOUR OF A NEGOTIABLE INSTRUMENT

When a negotiable instrument is dishonoured, the holder must give a notice of dishonour to all the previous parties in order to make them liable.

A negotiable instrument can be dishonoured either by nonacceptance or by non-payment.

A cheque and a promissory note can only be dishonoured by non-payment but a bill of exchange can be dishohoured either by non-acceptance or by non-payment.

Section 91: Dishonour by non-acceptance

Section 92: Dishonour by non-payment

Section 138: Dishonour of cheque for insufficiency, etc., of funds in the account

REGIONAL RURAL BANKS ACT 1976

An Act to provide for the incorporation, regulation and winding up of Regional Rural Banks with a view to developing the rural economy by providing, for the purpose of development of agriculture, trade, commerce, industry and other productive activities in the rural areas, credit and other facilities, particularly to the small and marginal farmers, agricultural labourers, artisans and small entrepreneurs, and for matters connected therewith and incidental thereto.

Amendment:

Parliament has passed Regional Rural Banks (Amendment) Bill, 2014. It was first passed in LokSabha on December 22, 2014 and later inRajyaSabha on April 28, 2015.
This bill amends Regional Rural Banks Act, 1976 and aims to strengthen the Regional Rural Banks (RRBs) and deepen their financial inclusion.

Key facts about Regional Rural Banks (Amendment) Bill, 2014

Authorised capital: This amendment bill increases the authorised capital of each Regional Rural Bank (RRB) from Rs 5 crore to Rs 2000 crore divided into Rs 200 crore of fully paid share of Rs 10 each.
As per the parent Act the Rs 5 crore share capital of RRBs is split into 5 lakh shares of Rs 100 each.
Issued capital: It also provides that the authorised capital issued by any RRB’s shall not be reduced below Rs 1 crore and shares in all cases to be fully paid up shares of Rs 10 each.
Shareholding: The Bill allows RRBs to raise capital from sources other than the central and state governments, and sponsor banks.
Board of directors: The Bill adds provision that any person who is a director of an RRB is not eligible to be on the Board of Directors of another RRB.
It also mentions that directors will be elected by shareholders based on the total amount of equity share capital issued to such shareholders.
Tenure of directors: The bill raises the tenure of directors to 3 years from existing 2 years. The Bill also states that no director can hold office for a total period exceeding six years.
Closure and balancing of books: The parent Act had provision which mentioned that the balance books of RRBs should be closed and balanced by 31st December every year.
However this amendment bill changes this date to 31st March in order to bring RRB’s balancing of books in uniformity with the financial year.

It should be noted that the parent Act of 1976 mainly has provisions for the incorporation, regulation and winding up of RRBs.

SARFAESI ACT:

The Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002(also known as the SARFAESI Act) is an Indian law.
It allows banks and other financial institution to auction residential or commercial properties of defaulters to recover loans.
The first asset reconstruction company (ARC) of India, ARCIL, was set up under this act.
Under this act secured creditors (banks or financial institutions) have many rights for enforcement of security interest under section 13 of SARFAESI Act, 2002.
If borrower of financial assistance defaults on repayment of a loan and their account is classified as Non performing Asset by secured creditor, then secured creditor may repossess the security asset before expiry of period of limitation by written notice.

Amendment :

The act was amended by “Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Bill, 2016”, passed by LokSabha on 2 August 2016. Act passed by RajyaSabha by voice vote on 10 August 2016.

Applicability of the Act

The provisions of this Act apply to outstanding loans (above Rs. 1 lakh), which are classified as Non-Performing Assets(NPA). NPA loan accounts amounting to less than 20% of the principal and interest are not covered under this Act.

The SARFAESI Act isn’t applicable for:

Money or security issued under the Indian Contract Act or the Sale of Goods Act, 1930.
Any conditional sale, hire-purchase, lease or any other contract in which no security interest has been created.
Any rights of the unpaid seller under Section 47 of the Sale of Goods Act, 1930.
Any properties are not liable to attachment or sale under Section 60 of the Code of Civil Procedure, 1908.

Rights of Borrowers

The following rights are endowed to the borrowers with respect to this provision:

The borrowers can at any time remit the dues and avoid losing the security before the sale is concluded.
Where any unhealthy or illegal act is done by the Authorised Officer, he/she will be subject to penal consequences.
The borrowers will be allowed to get compensation for the defaults of an Officer.
For rectifying the grievances, the borrowers can approach the DRT.

Methods of Recovery under the Act

The Act makes provisions for three methods of recovery of the NPAs, which includes:

Securitisation
Asset Reconstruction
Enforcement of security without the interruption of the court

Securitisation

Securitisation is the process of issue of marketable securities backed by a pool of existing assets such as auto or home loans. After an asset is converted into a marketable security, it is sold.
A securitisation company or reconstruction company can raise funds from only the QIB (Qualified Institutional Buyers) by forming schemes for acquiring financial assets.

Asset Reconstruction

Asset Reconstruction empowers the asset reconstruction companies in India.
It can be performed by means of managing the borrower’s business by acquiring it, by selling a partial or whole of the business or by the rescheduling of payments of debt payable by the borrower by the provisions of the Act.

Enforcement of security without the intervention of the court

It also empowers banks and financial institutions to:

Issue notices to any individual who has obtained any of the secured assets from the borrower to surrender the due amount to the bank.
Claim any debtor of the borrower to pay any sum due to the borrower.

Register of Transactions

A register (Central Register) is maintained both in electronic and non-electronic form at the head office of the Central Registry for holding the particulars of the transactions including the creation and payment of security interest relating to securitisation and reconstruction of financial assets.

The Companies Act 2013

The Companies Act 2013is an Act of the Parliament of India on Indian company law which regulates incorporation of a company, responsibilities of a company, directors, dissolution of a company.
The 2013 Act is divided into 29 chapters containing 470 sections as against 658 Sections in the Companies Act, 1956 and has 7 schedules.
However, currently there are only 438 (470-39+7) sections remains in this Act.
The Act has replaced The Companies Act, 1956 (in a partial manner) after receiving the assent of the Presidentof India on 29 August 2013.
The section 1 of the companies Act 2013 came into force on 30th August 2013 .
98 different sections of the companies Act came into force on 12th September 2013 with few changes like earlier private companies maximum number of members were 50 and now it will be 200.
A new term of “one-person company” is included in this act that will be a private company and with only 98 sections of the Act notified.
A total of another 183 sections came into force from 1 April 2014.
The Ministry of Corporate Affairs thereafter published a notification for exempting private companies from the ambit of various sections under the Companies Act.
The 2013 legislation has stipulations for increased responsibilities of corporate executives in the IT sector, increasing India’s safeguards against organised cyber crime by allowing CEO’s and CTO’s to be prosecuted in cases of IT failure.
Minister of Corporate Affairs, introduced The Companies (Amendment) Bill, 2020. It was passed by the parliament in 2020.

Major changes in Companies Act 2013

Companies (1st amendment) Act 2015
Companies (2nd amendment) Act 2017
Companies ( 3rd amendment) Act 2019
Companies (4th amendment) Bill 2020

About 4^th amendment :

The Companies (Amendment) Bill, 2020 was introduced in LokSabha by the Minister for Corporate Affairs, Ms. NirmalaSitharaman, on March 17, 2020.
The Bill seeks to amend the Companies Act, 2013.
The Bill removes these provisions and adds a new chapter in the Act with similar provisions on producer companies.

Important acts related to banking