Banking

BankingLaw
Lawand
and
Regulations
Regulations
An
Overview
An Overview

Presenter:

Prof. Vighneswar

In
Inthis
this
session
sessionwe
we
shall
shallfocus
focus
our
our
discussion
discussion
on:
on:

BR
BRAct
Act
RBI
RBIAct
Act
NI
NIAct
Act
Contract
Act
Contract Act
Companies
Companies
Act
Act
TP
TPAct
Act
Limitation
Limitation
Act
Act
Stamps
StampsAct
Act
Sale
of
Goods
Sale of Goods
Act
Act
Consumer
Consumer
Protection Act
Protection
Act
Prevention
of Money

PreventionAct
of Money
Laundering
Laundering Act

BR
BR Act
Act 1949
1949
The Banking Regulations Act, 1949
The Banking Regulations Act, 1949
deals
mainly
with
the
deals
mainly
with
the
administrative
and
functional
administrative
and
functional
aspects of governance of banks.
aspects of governance of banks.
The Banking Regulation Act also
The Banking Regulation Act also
confers
RBI
with
powers
of
confers
RBI
with
powers
of
supervision
over
commercial
supervision
over
commercial
banks. In addition, the Act also
banks. In addition, the Act also
refers
to
some
banking
refers
to
some
banking
transactions
like
nomination
transactions
like
nomination
facility for customers, restrictions
facility for customers, restrictions
on
loans
and
advances
and
on
loans
and
advances
and

RBI
RBI Act
Act 1934
1934
The
The RBI
RBI Act,
Act,
1934
1934 envisages
envisages
major
major functions
functions
for
RBI
as
a
for RBI as a
central
central banker,
banker, aa
promoter
promoter and
and aa
regulator.
regulator.

Reserve
Reserve Bank
Bank of
of
India
India
CENTRAL BANK
RBI

REGULATOR

SUPERVISOR

FACILITATOR

CHAPTER I
CHAPTER I
PRELIMINARY
PRELIMINARY

SECTIONS
1.SECTIONS
Short title, extent and commencement
1.
Short title, extent and commencement
2. Definitions
2. Definitions
CHAPTER II
CHAPTER
II
INCORPORATION, CAPITAL,
MANAGEMENT
AND BUSINESS

INCORPORATION,
CAPITAL, MANAGEMENT
AND BUSINESS
3. Establishment
and incorporation
of Reserve Bank
Establishment
and incorporation of Reserve Bank
4.3.Capital
of the Bank
Capital of the Bank
5.4.[Repealed.]
[Repealed.]
6.5.Offices,
branches and agencies
Offices, branches and agencies
7.6.Management
Management
8.7.Composition
of the Central Board and term of office of Directors
8.
Composition
of the
Central Board
term of office of Directors
9. Local Boards, their
constitution
andand
functions
9. Disqualifications
Local Boards, their
and
functions
10.
of constitution
Directors and
members
of Local Boards
10.
Disqualifications
of
Directors
and
members
of Local Boards
11. Removal from and vacation of office
11.Casual
Removal
from and
vacation
of office
12.
vacancies
and
absences
12.Meetings
Casual vacancies
and absences
13.
of the Central
Board
13.
Meetings
of
the
Central
Board
14. To 16. [repealed.]
14.Business
To 16. [repealed.]
17.
which the Bank may transact
17.
Business
whichdiscount
the Bank may transact
18. Power of direct
18. Validity
Power ofofdirect
discount
18A.
loan or
advance not to be questioned
18A.
Validity
of
loan
or
advance
be questioned
19. Business which the Bank
may not
not to
transact
19. Business which the Bank may not transact

CHAPTER III
CHAPTER III

CENTRAL BANKING FUNCTIONS

CENTRAL BANKING FUNCTIONS
20. Obligation of the Bank to transact Government
20. Obligation of the Bank to transact Government
business
business
21. Bank to have the right to transact Government
21. Bank to have the right to transact Government
business in India
business in India
21A. Bank to transact Government business of States on
21A. Bank to transact Government business of States on
agreement
agreement
21B. Effect of agreements made between the Bank and
21B. Effect of agreements made between the Bank and
certain
certain
States before the 1st November, 1956
States before the 1st November, 1956
22. Right to issue bank notes
22. Right to issue bank notes
23. Issue Department
23. Issue Department
24. Denominations of notes
24. Denominations of notes
25. Form of bank notes
25. Form of bank notes
26. Legal tender character of notes
26. Legal tender character of notes
26A. Certain bank notes to cease to be legal tender
26A. Certain bank notes to cease to be legal tender
27. Re-issue of notes
27. Re-issue of notes
28. Recovery of notes lost, stolen, mutilated or imperfect

31. Issue of demand bills and notes

31. Issue of demand bills and notes
32. [Repealed.]
32. [Repealed.]
33. Assets of the Issue Department
33. Assets of the Issue Department
34. Liabilities of the Issue Department
34. Liabilities of the Issue Department
35. [Repealed.]
35. [Repealed.]
36. [Repealed.]
36. [Repealed.]
37. Suspension of assets requirements as to foreign
37. Suspension of assets requirements as to foreign
securities
securities
38. Obligations of Government and the Bank in respect
38. Obligations of Government and the Bank in respect
of rupee coin
of rupee coin
39. Obligation to supply different forms of currency
39. Obligation to supply different forms of currency
40. Transactions in foreign exchange
40. Transactions in foreign exchange
41. [Repealed.]
41. [Repealed.]
41A. [Repealed.]
41A. [Repealed.]
42. Cash reserves of scheduled banks to be kept with
42. Cash reserves of scheduled banks to be kept with
the Bank
the Bank
43. Publication of consolidated statement by the Bank
43. Publication of consolidated statement by the Bank
43A. Protection of action taken in good faith
43A. Protection of action taken in good faith
44. [Repealed.]
44. [Repealed.]
45. Appointment of agents

CHAPTER
IIIA
CHAPTER IIIA
COLLECTION
COLLECTIONAND
ANDFURNISHING
FURNISHINGOF
OF
CREDIT
CREDITINFORMATION
INFORMATION
45A.
45A.Definitions
Definitions
45B.
Power
of
Bank
to
collect
credit
45B. Power of Bank to collect credit
information
information
45C.
45C.Power
Powerto
tocall
callfor
forreturns
returns
containing
containingcredit
creditinformation
information
45D.
45D.Procedure
Procedurefor
forfurnishing
furnishingcredit
credit
information
to
banking
companies
information to banking companies
45E.
45E.Disclosure
Disclosureof
ofinformation
information
prohibited
prohibited
45F.
45F.Certain
Certainclaims
claimsfor
forcompensation
compensation

CHAPTER IV
CHAPTER
IV
GENERAL
PROVISIONS
PROVISIONS
46. Contribution by Central GENERAL
Government
to the Reserve Fund
46.
Contribution
by
Central
Government
the Reserve
Fund
46A. Contribution to National Rural Credit to
(Long
Term Operations)
46A.and
Contribution
to National
Credit (Long
Fund
National Rural
Credit Rural
(Stabilisation)
FundTerm Operations)
Fund
and National Rural Credit (Stabilisation) Fund
46B.
[Repealed.]
46B.National
[Repealed.]
46C.
Industrial Credit (Long Term Operations) Fund
46C.
National
Industrial
Credit
(Long
Term
Operations)
Fund
46D. National Housing
Credit
(Long
Term
Operations)
Fund
46D.
NationalofHousing
47.
Allocation
surplus Credit
profits(Long Term Operations) Fund
47.Exemption
Allocationof
ofBank
surplus
profits
48.
from
income-tax and super-tax
48.
Exemption
of
Bank
from
49. Publication of bank rate income-tax and super-tax
49.Auditors
Publication of bank rate
50.
50.Appointment
Auditors
51.
of special auditors by Government
51.
Appointment
of special
auditors by Government
52. Powers and duties
of auditors
52.Returns
Powers and duties of auditors
53.
53.Rural
Returns
54.
Credit and Development
54.
Rural
Creditofand
Development
54A. Delegation
powers
54A. Power
Delegation
of powers
54AA.
of Bank
to depute its employees to other institutions
54AA.
Power
of
Bank
to depute its employees to other institutions
55. [Repealed.]
55.[Repealed.]
[Repealed.]
56.
56.Liquidation
[Repealed.]
57.
of the Bank
57.
Liquidation
the Bank
58. Power of the of
Central
Board to make regulations
58.
Power
of
the
Central
Boardintogood
make
regulations
58A. Protection of action taken
faith
58A. Protection of action taken in good faith

CHAPTER V
CHAPTER V

PENALTIES
PENALTIES
58B.
58B.Penalties
Penalties
58C.
58C.Offences
Offencesby
bycompanies
companies
58D.
Application
of
section
58B
barred
58D. Application of section 58B barred
58E.
58E.Cognizance
Cognizanceof
ofoffences
offences
58F.
58F.Application
Applicationof
offine
fine
58G.
58G.Power
Powerof
ofBank
Bankto
toimpose
imposefine
fine
59.
59., ,60.
60.And
And61.
61.[Repealed.]
[Repealed.]

Reserve Bank of India has

the
powers
to
issue
currency
notes
in
denominations of;
a.. Rs.2/b.. Rs.50/c.. Rs.10,000/d.. All the above

As per the provisions of the

Reserve Bank of India Act, the
Whole time Chairman or the
Managing Director of a
banking company to hold
qualification shares of
minimum 50.
a. It is not 50 but 100
b. They need not hold any
qualification shares
c. They need to have minimum
qualification shares of 10 as
per the provisions of Banking
Regulation act and not RBI act

Negotiable
Negotiable Instruments
Instruments
Act
1881
Act
1881
With the advent of British rule in India, commerce
Cheque
s
Bills of
Exchang
e
Promiss
ory
Notes

With
the advent
Britishstage
rule in
commerce
had
occupied
the of
center
ofIndia,
economy.
The
had
occupied
the
center
stage
of
economy.
The
increasing demand for money could not be met
increasing
demand
for money
could
not be met
with
the supply
of coins
and the
instruments
of
with
the
supply
of
coins
and
the
instruments
credit ultimately took over a part of moneyof
credit ultimately
over a
of money
functions.
Before thetook
legislation
of part
the Negotiable
functions. Before
legislation
of the Negotiable
Instruments
Act, the
1881,
the England
law was
Instruments
Act,
1881,
the
England
applied by the courts in India. The law
Act was
is
applied
by
the
courts
in
India.
The
Act
acclaimed as one of the most comprehensive andis
acclaimed
one of thethat
mosthave
comprehensive
and
well
draftedas
enactments
stood the test
drafted
enactments
that have
the test
ofwell
time
for more
than a century
withstood
only twenty
of time
forrevisions.
more than
a century
withInstruments
only twenty
five
minor
The
Negotiable
fivedefines
minor the
revisions.
Negotiable
Act
nature,The
functions
and Instruments
limitations
Act
defines
the
nature,
functions
and
limitations
of several negotiable instruments with
major
of
several
negotiable
instruments
with
major
coverage of cheques. It demarcates the rights
coverage
of cheques.
It demarcates
the rights
and
obligations
of various
parties to negotiable
and obligations
various
parties to clarity
negotiable
instruments
and of
offers
transactional
to
instruments
and
offers
transactional
clarity
minimize the areas of disputes between parties.to
minimize
the areas
disputes
between
The
Act lays
down of
the
procedure
for parties.
claims
The
Act
lays
down
the
procedure
for
claims
against dishonor of instruments and punishments

Indian
Indian Contracts
Contracts Act
Act
1872
1872
Banker-customer
Banker-customer
relationship
emanates
relationship
emanates
from the law of contract.
from the law of contract.
The Indian Contract Act,
The Indian Contract Act,
1872
is
of
much
1872
is
of
much
significance to bankers
significance to bankers
as the relationship is
as the relationship is
that of a debtor, a
that of a debtor, a
creditor, an agent or a
creditor, an agent or a
bailee.
The
Act
bailee.
The
Act
determines the capacity
determines the capacity
of
parties
to
the
of
parties
to
the
contracts and validity of
contracts and validity of
transactions arising out

Indian
IndianCompanies
CompaniesAct,
Act,1956
1956

Companies
Companies constitute
constitute aa
major
clientele
for
major
clientele
for
banks.
banks. The
The Companies
Companies
Act,
Act, 1956
1956 provides
provides aa
broad
legal
framework
broad legal framework
for
operations
of
for
operations
of
companies
registered
companies
registered
under
underthe
theAct.
Act.The
TheAct
Actisis
very
veryexhaustive
exhaustiveand
andhas
has
undergone
major
undergone
major
changes
changes in
in the
the areas
areas of
of
sick
sick companies,
companies, and
and
abolition
of
the
abolition
of
the

Transfer
Transfer of
of Property
Property Act
Act
1882
1882
It stipulates the rights and liabilities of
It stipulates the rights and liabilities of
the transferor and transferee in respect
the transferor and transferee in respect
of various transactions.
of various transactions.
Since the transfer of interests and
Since the transfer of interests and
rights involves registration and payment of
rights involves registration and payment of
stamp duty, this law should be read along
stamp duty, this law should be read along
with the Registration Act and the Indian
with the Registration Act and the Indian
Stamp Act.
Stamp Act.
Various provisions of the act guide the
Various provisions of the act guide the
bankers in obtaining security of the
bankers in obtaining security of the
immoveable property.
immoveable property.
Mortgage of immoveable property is
Mortgage of immoveable property is
one of the popular modes of obtaining
one of the popular modes of obtaining
security and hence bankers have to ensure

Limitation
Limitation Act
Act
The purpose of law of limitation,
The purpose of law of limitation,
is to prevent unduly stale legal
is to prevent unduly stale legal
claims and reduce vexatious suits in
claims and reduce vexatious suits in
courts.
courts.
It is necessary for bankers to
It is necessary for bankers to
protect their documents from getting
protect their documents from getting
time barred, since legal remedy also
time barred, since legal remedy also
lapses with the expiry of the
lapses with the expiry of the
limitation period.
limitation period.
The Act also provides some
The Act also provides some
safeguards to protect the documents
safeguards to protect the documents
from getting time barred.

Indian
Indian Stamps
Stamps Act
Act 1899
1899
The
The main
main objective
objective of
of
the
the Indian
Indian Stamp
Stamp Act,
Act,
1899
is
to
raise
revenue
1899 is to raise revenue
by
by making
making payment
payment of
of
stamp
stamp duty
duty statutory,
statutory, to
to
establish
establish validity
validity of
of
certain
transactions.
certain
transactions.
Any
breach
of
rules
Any breach of rules
would
make
the
would
make
the

Sale
Sale of
of Goods
Goods Act,
Act, 1930
1930
The law relating to sale of goods is
The law relating to sale of goods is
contained in the Sale of Goods Act,
contained in the Sale of Goods Act,
1930.
1930.
The general provisions of the Indian
The general provisions of the Indian
Contract Act apply to agreements of sale
Contract Act apply to agreements of sale
also.
also.
However, this enactment specifically
However, this enactment specifically
deals with rights and obligations of
deals with rights and obligations of
sellers and buyers apart from conditions
sellers and buyers apart from conditions
and warranties covering the sale of
and warranties covering the sale of
goods.
goods.
A banker acts as an agent to collect bills
A banker acts as an agent to collect bills
accompanied by documents of title to
accompanied by documents of title to
goods and as holder for value while
goods and as holder for value while
discounting the bills.

Consumer
Consumer Protection
Protection
Act,
Act, 1986
1986

The Consumer Protection Act,

The Consumer Protection Act,
1986,
as
amended
in
1986,
as
amended
in
December, 2002, protects the
December, 2002, protects the
interests of the consumers and
interests of the consumers and
establishes dispute redressal
establishes dispute redressal
agencies at district level, state
agencies at district level, state
level and national level. A
level and national level. A
bank customer comes under
bank customer comes under
the definition of consumer
the definition of consumer
since the services of bank are
since the services of bank are
hired for consideration. With
hired for consideration. With
growing
awareness
among
growing
awareness
among
customers of their rights and
customers of their rights and
the responsibility fixed by the
the responsibility fixed by the

Prevention
of
Money
Laundering
Prevention of Money Laundering
Act,
Act,2002
2002
The
The Prevention
Prevention of
of Money
Money
Laundering
Laundering Act,
Act, 2002,
2002,
makes
makes itit obligatory
obligatory for
for
banks
banks to
to verify
verify and
and
maintain
records
of
maintain
records
of
identity
identity of
of all
all its
its clients
clients
for
for prescribed
prescribed value
value of
of
transactions.
transactions.
The
Act
lays
rigorous
The Act lays rigorous
punishments
punishments for
for aiding
aiding
and promoting domestic

Registration
Registration Act
Act
The Registration Act intends
The Registration Act intends
to preserve and protect the
to preserve and protect the
titles of property. It also
titles of property. It also
facilitates
information
to
facilitates
information
to
public
on
rights
and
public
on
rights
and
obligations of various parties
obligations of various parties
affecting the property. The
affecting the property. The
Act
imposes
serious
Act
imposes
serious
disqualifications
and
disqualifications
and
penalties for non-observance
penalties for non-observance
of
regulations.
It
also
of
regulations.
It
also
determines the priority of
determines the priority of
validity of transactions based
validity of transactions based
on their registration. Bankers
on their registration. Bankers
must refer to various aspects
must refer to various aspects
of the Registration Act for
of the Registration Act for

Thank
Thank You
You

SAVE ENVIRONMENT
SAVE EARTH