THE BANKING REGULATION ACT, 1949 ACT NO. 10 OF 1949 *1 [10th March, 1949.] W An Act to consolida e and amend the law rel ting to banking 2***. PART PRELIMINARY PART I PRELIMINARY 1. Short title, extent and commencement. 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 date*6 as the Central Government may, by notification in the Official Gazette, appoint in this behalf. 2. Application of other laws not barred. 2. Application of other laws not barred.-The provisions of this Act shall be in addition to, and not, save as hereinafter expressly provided, in derogation of the 7*[Companies Act, 1956 (1 of 1956)], and any other law for the time being in force. 3. Act to apply to co-operative socities in certain cases. 8*[3. Act to apply to co-operative societies in certain cases.- Nothing in this Act shall apply to-- (a) a primary agricultural credit society; (b) a co- operative land mortgage bank; and ----------------------------------------------------------------- ----- 1. This Act has been extended to Goa, Daman and Diu by Reg. 11 of 1963 s. 3 and Sch. and to Dadra and Nagar Haveli (w.e.f. 1-7-1965) by Reg. 6 of 1963 s. 2 and Sch. I. Nothing contained in this Act, except section 34A, shall apply to the Development Bank; vide Act 18 of 1964, s. 34. 2. The word "companies" omitted by Act 23 of 1965, s. 10 (w.e.f. 1- 3-1966). 3. Subs. by s. 11, ibid., for "Companies" (w.e.f. 1-3-1966). 4. Subs. by Act 20 of 1950, s. 2, for the former sub-section. 5. The words "except the States of Jammu and Kashmir" omitted by Act 62 of 1956, s. 2 and Sch. (w.e.f. 1-11-1956). 6. 16th March, 1949, see Notification No. F. 4 (46)-F-1/49, dated the 10th March, 1949, Gazette of India, 1949, Pt. I, p. 326. 7. Subs. by Act 95 of 1956, s. 14 and Sch., for "Indian Companies Act, 1913 (7 of 1913)" (w.e.f. 14-1-1957). 8. Subs. by Act 23 of 1965, s. 12, for s. 3 (w.e.f. 1-3-1966). 50 (c) any other co-operative society, except in the manner and to the extent specified in Part V.] 4. Power to suspend operation of Act. 4. 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 sub- section (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. 5. Interpretation. 5. Interpretation.- 2*[In this Act], unless there is anything repugnant in the subject or context,-- 3*[(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); (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;] (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 withdrawable by cheque, draft, order or otherwise; --------------------------------------------------------------------- 1. Subs. by the A. O. 1950, for "the Dominion Legislature". 2. Subs. by Act 55 of 1963, s. 6, for "(1) in this act" (w.e.f. 1-2- 1964). 3. Subs by Act 1 of 1984, s. 13, for sub-clause (a) (w.e.f. 15-2- 1984). 50A-51 (c) "banking company" means any company which transacts the business of banking 1*[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 any place 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 (5 of 1990);] 6* * * * * * (f) "demand liabilities" means liabilities which must be met on demand and "time liabilities" means liabilities which are not demand liabilities; 7*[(ff) "Deposit Insurance Corporation" means the Deposit Insurance Corporation established under section 3 of the Deposit Insurance Corporation Act, 1961 (47 of 1961);] 5*[(ffa) "Development Bank" means the Industrial Development Bank of India established under section 3 of the Industrial Development Bank of India Act, 1964 (18 of 1964); (ffb) "Exim Bank" means the Export-Import Bank of India established under section 3 of the Export-Import Bank of India Act, 1981 (28 of 1981);] 8*[(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;] 9*[(ffd) "National Housing Bank" means the National Housing Bank established under section 3 of the National Housing Bank Act, 1987 ( 53 of 1987);] (g) "gold" includes gold in the form of coin, whether legal tender of ---------------------------------------------------------------------- 1. Subs. by Act 20 of 1950, s. 3, for "in any state". 2. Ins. by Act 58 of 1968 . s. 2 (w.e.f. 1-2-1969). 3. Ins. by Act 33 of 1959. s. 2 (w.e.f. 1-10-1959). 4. Subs. by s. 2, ibid., for cl. (d) (w.e.f. 1-101959). 5. Ins. by Act 1 of 1984, s. 13 (w.e.f. 15-2-1984). 6. Cl (e) omitted by Act 52 of 1953, s. 2. 7. Ins. by Act 47 of 1961, s. 51 and Sch. II (w.e.f. 1-1-1962). 8. Ins by Act 62 of 1984, s. 71 and Sch. III (w.e.f. 20-3-1985). 9. Ins. by Act 53 of 1987, s. 56 and Sch. II (w.e.f. 9-7- 1988). 52 not or in the form of bullion or ingot, whether refined or not; 1*[(gg) "managing agent" includes,-- (i) secretaries and treasurers, (ii) where the managing agent is a company, any director of such company, and any member thereof who holds sub- stantial interest in such company, (iii) where the managing agent is a firm, any partner of such firm;] 2*[(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 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:] 3*[Provided that the managing director shall exercise his powers subject to the superintendence, control and direction of the Board of directors.] 4*[(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 (61 of 1981);] 5* * * * * * (j) "prescribed" means prescribed by rules made under this Act; 6*[(ja) "regional rural bank" means a regional rural bank established under section 3 of the Regional Rural Banks Act, 1976 (21 of 1976);] 5* * * * * * 6*[(l) "Reserve Bank" means the Reserve Bank of India constituted under section 3 of the Reserve Bank of India Act, 1934 (2 of 1934);] 5* * * * * (n) "secured loan or advance" means a loan or advance made on the security of assets the market value of which is not at any time less than the amount of such loan or advance; and "unsecured loan or advance" means a loan or advance not so secured; 7*[(na) "small scale industrial concern" means an industrial concern in which the investment in plant and machinery is not in excess of seven and 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; 8*[(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 (23 of 1955);] 7*[(nd) "subsidiary bank" has the meaning assigned to it in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959); ---------------------------------------------------------------------- 1. Ins. by Act 58 of l968, s. 2., (w.e.f. 1-2-1969). Original cl. (gg) ins. by Act 20 of 1950, s. 5, was omitted by Act 62 of 1956, s. 2 and Sch. (w.e.f. 1-11-1956). 2. Subs. by Act 33 of 1959, s. 2, for cl. (h) (w.e.f. 1-10-1959). 3. Added by Act 58 of 1968, s. 2 (w.e.f. 1-2-1969). 4. Ins. by Act 61 of 1981, s. 61 and Sch. II (w.e.f. 12-7-1982). 5. Cls. (i), (k) and (m) omitted by Act 33 of 1959, s. 2, (w.e.f. 1- 10-1959). 6. Subs renumbered & ins. by Act 1 of 1984, s. 13 (w.e.f. 15-2-84). 7. Ins. by Act 58 of 1968, s. 2 (w.e.f. 1-2-1969). 8. Ins. by Act 1 of 1984, s. 13, (w.e.f. 15-2-1984). 9. cl (nb) renumbered as cl (nb) by s. 13, ibid, (w.e.f.15- 2-1984). 52A 1*[(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 per cent. 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;] 2*[(ni) "Small Industries Bank" means the Small Industries Development Bank of India established under section 3 of the Small Industries Development Bank of India Act, 1989 (39 of 1989);] 3*[(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.] 4* * * * * 5A. Act to override memorandum, articles, etc. 5*[5A. Act to override memorandum, articles, etc.- Save as otherwise expressly provided in this Act,-- (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 may be, before or after the commencement of the Banking Companies (Amendment) Act, 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 BUSINESS OF BANKING COMPANIES PART II BUSINESS OF BANKING COMPANIES 6. Forms of business in which banking Companies may engage. 6. 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, hoondees, promissory notes, coupons, drafts, bills. ---------------------------------------------------------------------- 1. Cl (nc) renumbered as cl (ne) by Act 1 of 1984, s. 13 (w.e.f. 15-2-1984). 2. Ins. by Act 39 of 1989, s. 53 and Sch. II (w.e.f. 7-3-1990). 3. Ins. by Act 33 of 1959, s. 2 (w.e.f. 1-10- 1959). 4. Sub-section (2) omitted by the A. O. 1950. 5. Ins. by Act 33 of 1959, s. 3 (w.e.f. 1-10-1959). 53 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 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; (g) acquiring and holding and generally dealing with any property or any right, title or interest in any such ---------------------------------------------------------------------- 1. Subs. by Act 33 of 1959, s. 4, for "managing agent" (w.e.f. 1-10- 1959). 54 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; (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). 7. Use of words "bank", "banker", "banking" or "banking company". 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" -------------- -------------------------------------------------------- 1. Subs. by Act 55 of 1963, s. 7, for s. 7 (w.e.f. 1-2-1964). 2. Ins. by Act 1 of 1984, s. 14 (w.e.f. 15-2-1984). 55 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; (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. 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 it 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. 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 property 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: ---------------------------------------------------------------------- 1. Subs. by Act 1 of 1984, s. 15, for the provision (w.e.f. 15-2-1984). 56 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. 10. Prohibition of employment of managing agents and restrictions oncertain forms of employment. 1*[10. Prohibition of employment of managing agents and restrictions on certain forms of employment.-(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 bee, 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 accordance 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 (b) a company registered under section 25 of the Companies Act, 1956 (1 of 1956.): ----------------------------------------------------------------- ----- 1. Subs. by Act 95 of 1956, s. 2, for the former section (w.e.f. 14- 1-1957). 2. Subs. by Act 33 of 1959, s. 6, for the former proviso (w.e.f. 1- 10-1959). 3. Subs. by s. 6, ibid., for sub-clause (i) (w.e.f. 1-10-1959). 57 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 a 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 or 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 a 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 expenses actually incurred by him in the performance of his duties. (2) In forming its opinion under sub- clause (iii) of clause (b) 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; ---------------------------------------------------------------------- 1. Subs. by Act 55 of 1963, s. 8, for certain words (w.e.f. 1-2- 1964). 2. Subs. by s. 8, ibid., for the first Proviso (w.e.f. 1-2-1964). 58 (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*[2* * * * * (6) Any decision or order of the Reserve Bank made under this section shall be final for all purposes. 10A. Board of directors to include persons with professional or otherexperience. 3*[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, 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. (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). 58A (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. 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 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. ----------------------------------------------------------- ----------- 1. Ins. by Act 1 of 1984, s. 16 (w.e.f. 15-2-1984). 58B (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. 2*[(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, 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,-- (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) 2*[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 or re-appointment: 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 (1 of 1956), 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 a 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. Subs. by Act 20 of 1994, s. 2, for sub-section (1) (w.e.f. 31-1-1994). 2. Subs. by s. 2, ibid., for certain words (w.e.f. 31-1-1984). 58C Provided that a person shall be disqualified for being a 1*[chairman who is appointed on a whole-time basis or managing director] if he-- (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) 1*[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 2* * * * * 3*[(5A) 1*[A chairman of the Board of directors appoint 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 1*[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 1*[chairman of the Board of directors who is appointed on a whole-time basis or the managing director] and if, within 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 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 1*[chairman of the Board of directors who is appointed on a whole-time basis or the managing director] of such banking company and any persons elected or 1*[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 is 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 in any 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 1*[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 1*[such chairman or managing director] ---------------------------------------------------------- ------------ 1. Subs. by Act, 20 of 1994, s. 2 (w.e.f. 31-1-1994). 2. Certain words omitted by Act 1 of 1984, s. 17 (w.e.f. 15-2-84). 3. Ins. by s. 17, ibid, (w.e.f. 15-1-1984). 58D (9) Notwithstanding anything contained in this section, where a person 1*[appointed on a whole-time basis, as chairman of the Board of directors or 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 carrying out the 1*[duties of chairman or managing director] for a total period not exceeding four months. 10BB Power of Reserve Bank to appoint chairman of a banking company. 2*[10BB. Power of Reserve Bank to appoint chairman of a banking company.- (1) Where the office of the 3*[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 3*[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 3*[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 3*[chairman of the Board of directors appointed on a whole- time or a managing director] so appointed by the Reserve Bank shall be in 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 3*[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 3*[chairman of the Board of directors appointed on a whole-time basis or a managing director] appointed by the Reserve Bank under sub-section (1) as they apply to a 3*[chairman of the Board of directors appointed on a whole- time basis or a managing director] appointed by the banking company.] 10C. Chairman and certain