Masters in business law Feb 2006

1. Banking Regulation Act on the RBI’s power on the composition of the board

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

(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,--
1. Subs. by Act 33 of 1959, s. 6, for the former sub- section (3) (w. e. f. 1- 10-
1959 ). 2. Sub- sections (3), (4) and (5) omitted by Act 55 of 1963, s. 8 (w. e.
f. 1- 2- 1964 ). 3. Ins. by Act 58 of 1968, s. 3 (w. e. f. 1- 2- 1969 ).
(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.

(2A) 1[ 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 sub-
section(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 sub- section (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 person who ought to be removed from the membership
of the Board of directors, remove such person from the office of the director of such
banking company and with a view to complying with the provisions 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

Power to appoint additional directors:

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
1. Subs. by Act 58 of 1968, s. 13, for" director or chief executive officer" (w. e. f. 1- 2-
1969 ). 2. Subs. by s. 14, ibid., for" opinion that" (w. e. f. 1- 2- 1969 ). 3. The provision
omitted by Act 1 of 1984, s. 31 (w. e. f. 15- 2- 1984 ).
(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.

2. Accounts:
a. This would depend on the deed of partnership. By default, death or insolvency
of a partner automatically dissolves a partnership unless stated otherwise in the
deed. If there is a provision made in the agreement the I as a manager woudnt
hesitate in paying
b. Nomination favouring the minor is permitted on the condition that the account
holder, while making the nomination, appoints another individual not being a
minor, to receive the amount of the deposit on behalf of the nominee in the
event of the death of the depositor during the minority of the nominee.

c. In case the locker was hired jointly with survivorship clause and the hirers
instructed that the access of the locker should be given over to "either or
survivor", "anyone or survivor" or "former or survivor" or according to any other
survivorship clause, bank will follow the mandate in the event of the death of
one or more of the locker-hirers.

In case the locker was hired jointly with the instructions to operate it under joint
signatures, and the locker hirer(s) nominates person(s), in the event of death of
any of the locker hirers, the bank may give access of the locker and the liberty
to remove the contents jointly to the survivor(s) and the nominee(s).

d. Savings account of 2 types:

i. Checkings/cheque book account
1. Min 250
2. Not more than 50 withdrawals a year
3. Interest will be paid on the minimum balance between 10 th and
39th
4. A reference will be needed by an exisiting customer or staff of
more than 5 years of service
5. Pass book is issued after specimen signature
6. Can be open for individual, joint, minor etc
ii. Ordinaly Savings Bank Acccount
1. All the above except
a. Min Rs 20 balance
b. 3rd party cheques are not entertained
c. No chequebook issues
d. Ony passbook
 e. Targeted for low income group
iii. Yes. Such accounts can be open for college students
e. FIGURE OUT
3. Set off
a. Yes. Can be done. Same accout holder
b. Yes. Can be done. Same account holder
c. No. cannot be done. Different a/c holders
d. No. cannot be done. Different a/c holders
e. No. cannot be done. Different a/c holders
4. FIGURE OUT
5. ARF and Special tribunals
6. FIGURE OUT
7. DON’T KNOW
8. Notes:
a. Do
b. Done
c. Done
d. Do
e. Done
9. SARFESI ACT

SARFAESI Act
The Securitisation and Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002 (SARFAESI) empowers Banks / Financial Institutions to recover their non-
performing assets without the intervention of the Court. The Act provides three alternative
methods for recovery of non-performing assets, namely: -

Securitisation

Asset Reconstruction

Enforcement of Security without the intervention of the Court

The provisions of this Act are applicable only for NPA loans with outstanding above Rs. 1.00
lac. NPA loan accounts where the amount is less than 20% of the principal and interest are
not eligible to be dealt with under this Act.

Non-performing assets should be backed by securities charged to the Bank by way of

hypothecation or mortgage or assignment. Security Interest by way of Lien, pledge, hire
purchase and lease not liable for attachment under sec.60 of CPC, are not covered under this
Act

The Act empowers the Bank:

To issue demand notice to the defaulting borrower and guarantor, calling upon them to
discharge their dues in full within 60 days from the date of the notice.

To give notice to any person who has acquired any of the secured assets from the borrower
to surrender the same to the Bank.

To ask any debtor of the borrower to pay any sum due or becoming due to the borrower.

Any Security Interest created over Agricultural Land cannot be proceeded with.
If on receipt of demand notice, the borrower makes any representation or raises any
objection, Authorised Officer shall consider such representation or objection carefully and if
he comes to the conclusion that such representation or objection is not acceptable or
tenable, he shall communicate the reasons for non acceptance WITHIN ONE WEEK of receipt
of such representation or objection.

A borrower / guarantor aggrieved by the action of the Bank can file an appeal with DRT and
then with DRAT, but not with any civil court. The borrower / guarantor has to deposit 50% of
the dues before an appeal with DRAT.

If the borrower fails to comply with the notice, the Bank may take recourse to one or more
of the following measures:

Take possession of the security

Sale or lease or assign the right over the security
Manage the same or appoint any person to manage the same