BANKING COMPANY

What is a Bank?
A bank is a financial institution licensed to receive deposits and make loans.
Banks may also provide financial services such as wealth management,
currency exchange, and safe deposit boxes. There are several different kinds of
banks including retail banks, commercial or corporate banks, and investment
banks. In most countries, banks are regulated by the national government or
central bank.
Banking Company
According to Sec. 5 of the Banking Regulation Act, 1949, a banking company
means the accepting, for the purpose of lending or investment, of deposits of
money from the public, repayable on demand or otherwise and withdrawn by
Cheque, Draft, Order, or otherwise.
In short, a banking company means and includes any company which carries on
the business or which transacts the business of banking in India. Therefore, any
company which is engaged in trade or manufacture, which accepts deposits of
money from the public for the purpose of financing its business only, shall not
be deemed to carry on the business of banking.
Business of banking
Section 6 of the Act provides for the activities that constitutes the business of
banking. 
1. Borrowing, raising or taking up of money;
2. Advancing of money;
3. Making, accepting, discounting of bill of exchange, pro notes, bill of
lading, railway receipts, etc;
4. Acting as an agent of the government to carry the work of clearing and
forwarding of goods;
5. Contracting, negotiation, and issuing public and private loans;
6. Insuring, guaranteeing, underwriting, participating of shares, stocks,
debentures, of any company;
7. Managing, selling, realizing any property which comes into possession
of company;
 8. Undertaking and executing trusts;
9. Administration of estates;
10.Selling, managing, exchanging, leasing, mortgaging or dealing of any
part of company’s property, etc;
11.Other tasks incidental to the above-mentioned functions;
12.Any other function as notified by the central government. 

STEPS FOR COMMENCING OF BANKING COMPANY

Registration of a company under the provisions of the Companies Act
The first and the foremost requirement for the formation of a banking company
in India is that the applicant needs to be a ‘Company’ formed under the
provisions of The Companies Act, 1956. Any person who wishes to start a
banking business in India needs to set up a separate legal entity distinct from is
owner. The procedure for the formation of a company is given under Section
7 of the Act. Every company needs to register itself with the registrar of the
company, by filing an application and submitting the relevant documents like
MoA and AoA. If the registrar is satisfied with all documents, then he will issue
a certificate of registration under Section 7(1). 
Major documents required for the formation of a company are:
Memorandum of Association (MoA): Framing of the MoA is the first step
towards the formation of a company. It is the most important document of a
company often known as the Constitution of the Company. As per Section 4 of
the MoA is five parts in a MoA which can be found in Table A to Table E
in Schedule 1 of the Act. It contains various clauses like the name clause,
capital clause, liability clause, object clause etc. This document mainly deals
with the external matters of a company. It must be noted that the MoA of every
company is available as a public document on the portal of the Ministry of
Corporate Affairs
Article of Association (AoA): The next most important document in addition
to MoA is the AoA. This document deals with the internal matters of a company
and is commonly known as the by-laws of a company. Section 5 of the act deals
with the provisions relating to AoA, it states that the AoA of a company shall
consist of details relating to the Regulation and management of a company and
all the other matters which are considered necessary for its functioning. The
AoA of a company, as similar to MoA contains five parts which can be found in
Table F to Table J in Schedule 1.
Capital requirements
Section 11 of The Banking Regulation Act prescribes the minimum capital
requirement for every banking company and no banking company is allowed to
carry on its banking business unless the statutory requirements as discussed
below are maintained.
Capital requirements according to the guidelines issued by the Reserve Bank of
India
The minimum paid-up voting equity capital for a bank shall be 500 Crore
Rupees for universal banks and 200 Crore Rupees for small finance
banks. And any addition to this capital will be based upon the plan presented by
the promoters of the bank to the RBI.
Licensing of banking companies
Section 22 of the Act provides that no banking company is permitted to carry on
the banking business in India unless it holds a license issued on behalf of the
Reserve Bank. Such a license is issued only when the RBI is satisfied that all
the conditions are satisfied. Since the banking is the backbone of the Indian
Economy, so for the smooth conduct of the banking business in India is it
important that no unscrupulous element is added to this banking industry. So the
licensing system makes sure that no undesirable element is taking part in the
Indian banking system.
Procedure: Every company desiring to start a banking company shall before
commencing the banking business in India, shall apply in writing to the Reserve
Bank of India.
Condition: Section 22(3) states that the Reserve Bank is required to be satisfied
with the following conditions before granting license:
1. That the company will be in a stance to pay its present and future
depositors;
2. That the affairs of the company are not conducted in a manner which is
detrimental to the banking business;
3. That the management structure of the company is not prejudice to
public interest;
 4. That the company has adequate capital as prescribed under the statute
and prescribed by RBI;
5. That the public interest will be served if the license is granted;
6. That adequate facilities are available in the proposed business area of
the firm.
Cancellation of License: Section 22(4) states the situations where the RBI is
entitled to cancel a banking business:
1. If the company ceases to carry on the business of banking;
2. If the company fails to comply with the conditions mentioned under
the Act.

WINDING UP OF BANKING COMPANIES

Introduction- Banking companies are formed basically for the purpose of
providing safe deposit of money to the people and to lend money on interest to
people who are in need. But due to certain contingencies banking companies
have to be closed down which is called winding up.
Winding up procedure for banking companies is almost similar to those made
under Companies Act for the winding up of companies in general, but when it is
done in case of banking companies, it is to be done under the supervision of
Reserve Bank of India.
Provisions relating to winding up of banking companies have been enumerated
under Ss. 38 to 44 of Banking Regulation Act, 1949 
Meaning
Winding up of a company basically means closing down of its business. After
the winding up procedure, the company is dissolved. Winding up can happen
because of many reasons, the most common of which is non-recovery of loans
thereby increased liabilities over assets of the Company.
During the process of winding up of a banking company, all its assets are sold
out so as to repay the debts of that bank.
Winding up of banking companies is generally a very long procedure but it can
even be done in a short span of time under specific provisions of the Act.
Reserve Bank of India supervises the winding up procedure for banking
companies.
A liquidator is appointed during the procedure so as to ensure security of
interests of the customers and other creditors of the banking company.
Classification
The situations in which winding up of banking companies may happen have
been classified under two heads:
1. winding up by order of High Court u/s 38 of the Act
2. Voluntary winding up
1.Winding up by the high court: 
Part III Section 38 to 43 exclusively deal with the winding up of banking
companies by the High Court (hereafter referred to as “The Court”). The High
Court mentioned under these sections denote the High Court exercising
jurisdiction in the place where the registered office of the banking company in
concern is situated; if it is a banking company incorporated outside India, then
the High Court exercising jurisdiction in the place where the principal office of
such company is located would be the mentioned High Court. 
Section 38(1) of the Act provides the grounds based on which the Court shall
order a banking company to wound up. The grounds are: 
 1. The banking company is unable to pay its debts, or
2. RBI applies for the winding up of such s company under s.37 of the Act.  The
grounds of such application are as follows:
 Non-compliance of requirements of S.11 of the Act by the banking
company; or
 If the banking company has become disentitled to carry on its business in
India u/s 22 of the Act; or
 If it has violated any of the provisions under Ss. 35(4)(a) or 42(3A)(b) of
RBI Act, 1934; or
 Contravenes any other provision of RBI Act, 1934; or
 In the opinion of RBI the banking company is unable to pay its debts; or
 If in opinion of RBI any compromise sanctioned by court cannot be
complied as it is by the banking company; or
 If RBI thinks had letting the banking company continue its business
would be prejudicial to the interests of its depositors.
Court Liquidator/ Official Liquidator
 A Court Liquidator is appointed by the Central Government and attached to
every High Court under Section 38A of the Act. 
However, under Section 39, if the RBI applies to the Court, the RBI, the State
Bank of India, or any other bank as notified by the Central Government shall be
appointed as the Official Liquidator. If such a Liquidator is appointed, then the
Court Liquidator must vacate the office. 
The main functions of the Official Liquidator are to:
1. Collect and take into his custody the assets of the banking company, 
2. Submit a preliminary report to the Court, and 
3. Conduct the winding-up proceedings.
2. Voluntary winding up:
Section 44 of the Act deals with the voluntary winding up of banking
companies. It states that a banking company can voluntarily wind up only if
RBI furnishes a written certification stating the company can pay off all its
debts. Meaning, a written certificate by RBI must accompany any application
filed by a banking company to the Court for its voluntary winding up. Further,
Court has the power to order the voluntary wind up to continue on its
supervision.
While the voluntary winding up is in process, the Court, on its own motion or
the application of RBI, can order winding up by the Court itself (that is, as
under Section 38 of the Act) on the following grounds:
1. The banking company is unable to pay off its debts during the
voluntary winding-up process; or
2. When the banking company is undergoing the voluntary winding up
under the supervision of the Court, the Court finds that the winding-up
cannot take place without having any detrimental effect on the
depositors.