SUBJECT: LAW OF BANKING AND FINANCE

PROJECT TOPIC
“VOLUNTARY AMALGAMATION OF BANKS”

Submitted By

SAPNA PANDEY
Roll no. 1370
th th
4 Year, 8 Semester, B.A.LL.B(Hons.)

Submitted to

Dr. Ajay Kumar

Faculty of Banking and Finance

CHANAKYA NATIONAL LAW UNIVERSITY, PATNA

APRIL, 2019
 ACKNOWLEDGEMENT

I take this opportunity to express my profound gratitude and deep regards to my guide Dr.
Ajay Kumar for his exemplary guidance, monitoring and constant encouragement throughout
the course of this project. The blessing, help and guidance given by him time to time shall
carry me a long way in the journey of life on which I am about to embark.

I also take this opportunity to express a deep sense of gratitude to my seniors, the library staff
and my friends for their valuable information and guidance, which helped me in completing
this task through various stages.

I would also thank my institution and my faculty members without whom this project would
have been a distant reality. I also extend my heartfelt thanks to my family and well wishers.

-SAPNA
PANDEY
 AIMS AND OBJECTIVES

No stone has been left unturned to make this project a worthy task. To let it not go a
futile exercise every possible step has been taken. It is being believed by the researcher that
it will open a door of success in making many such academic researches and even better
than it, when needed.

It would quench the thirst for academic excellence and dealing with such wrong in
real life, if continued. Besides this it will also fulfill the desire of the researcher to
contribute services to the society.

The objective of the researcher can be enumerated as under:

1. To analyse all the aspects related to the merger of banking companies in light of
judicial dicta given by the apex court.

2. To understand the ,acquisition of the banking companies‟ as given by the central

government which was the result of the introduction of social control measures.

Economy like society is an ever evolving and dynamic concept, and therefore all the
institutions in an economy in order to sustain the market forces have to adapt themselves to
the changing circumstances. Such a change may be required by a retail shopkeeper or even
giant business corporations. One of the various modes of adapting to the change in the
economy is the process of reconstruction which includes process like merger, amalgamation,
takeovers, demergers etc. Therefore banking companies like other companies may require a
reconstruction to sustain in the market. However, since the business of banking involves a
considerably high degree of public interest therefore, the same has to be done under the vigil
and sanction of the apex banking institution of the country i.e. Reserve Bank of India. The
process of amalgamation/merger of the banking companies is regulated by the Banking
Regulation Act 1949 and a very significant role has to be played by the Reserve Bank of
India as well as the Central Government.
 SOURCES OF DATA

The following secondary sources of data have been used in the project-

1. Articles/Journals

2. Books

3. Websites

METHOD OF WRITING AND MODE OF CITATION SOURCES

The method adopted in making this project is the Doctrinal Method of research. The method
of writing followed in the course of this research paper is primarily analytical. The researcher
has followed a uniform mode of citation throughout the course of this research paper.

4
 TABLE OF CONTENTS

Introduction................................................................................................................................6

Merger And Amalgamation Of Banking Companies.................................................................7

Voluntary Amalgamation of Banking Companies:.................................................................... 8

Compulsory Amalgamation of Banking Companies............................................................... 12

Case Study: Merger of IDBI and IDBI Ltd............................................................................. 18

Conclusion............................................................................................................................... 19

Bibliography............................................................................................................................ 20

5
 INTRODUCTION
The economy of any country significantly depends on how strong its financial institutions
are, especially the banks. Banking although not in the form as it exists today but has existed
since the inception of human civilization in manner and form much similar to present
banking system, which is the consequence of development of the human race over a period of
time. The law related to banking in India is consolidated by the Banking Regulation Act,
1949. This statute is a complete code in itself regulating all the aspects of the business of
banking. Banking has been defined as accepting, for the purpose of lending or investment, of
deposits of money from the public, repayable on demand or otherwise, and withdrawable by
1
cheque, draft, order or otherwise. Accordingly any company which transacts the business of
2
banking in India is considered as a banking company. However, the companies which accept
the deposits from the public merely for the purpose of financing its business are not deemed
3
to be transacting the business of banking.

Economy like society is an ever evolving and dynamic concept, and therefore all the
institutions in an economy in order to sustain the market forces have to adapt themselves to
the changing circumstances. Such a change may be required by a retail shopkeeper or even
giant business corporations. One of the various modes of adapting to the change in the
economy is the process of reconstruction which includes process like merger, amalgamation,
takeovers, demergers etc. Therefore banking companies like other companies may require a
reconstruction to sustain in the market. However, since the business of banking involves a
considerably high degree of public interest therefore, the same has to be done under the vigil
and sanction of the apex banking institution of the country i.e. Reserve Bank of India. The
process of amalgamation/merger of the banking companies is regulated by the Banking
Regulation Act 1949 and a very significant role has to be played by the Reserve Bank of
India as well as the Central Government.

In the present project we shall analyse all the aspects related to the merger of banking companies
in light of judicial dicta given by the apex court. At the same time we shall also focus on the
„acquisition of the banking companies‟ by the central government which was the

1 Section 5(b) of the Banking Regulation Act 1949.

2 Section 5(c) of the Banking Regulation Act 1949.
3 Explanation to S. 5(c), Ibid.

6
result of the introduction of social control measures vide Act 58 of 1968 which led to the
4
nationalization of 14 banks in 1969 and further 6 in 1980.

MERGER AND AMALGAMATION OF BANKING COMPANIES

There is a reconstruction of a company when that company’s business and undertakings are
transferred to other company formed for that purpose, so that as regards the new company
substantially the same business is carried on and the same persons are interested in it as in the
5
case of old company. Reconstruction may be necessary either to incorporate radical change
in the objects of a business, or may be effected in order to cause material alterations of the
rights of the shareholders or creditors. Amalgamation is merely a mode of effecting
reconstruction or reorganization in a company and is synonymously used with the word
merger. So far as the change in object of business is concerned through reconstruction, it does
not, it is submitted that, has much relevance with the banking companies for the reason that
basic object of all the banking companies is the business of banking and altering the same
will result into disqualification of that company as a banking company. Therefore the basic
purpose of behind reconstruction by a banking company is probably the object of keeping the
business of the company is good health that it earns more profit.

Amalgamation is said to occur when two or more companies are joined together to form a
6
third entity or one is absorbed into or blended with another. From the aforesaid definition
two circumstances can be inferred, firstly where two entities lose their identities to form a
third one and this referred to as amalgamation, and secondly where one entity merges into
another whereby the other retains its identity, it is referred to as merger. Therefore merger and
amalgamation as can be seen are interchangeably used. The new company that comes into
existence as a result of the merger or amalgamation has all the rights and powers of the
blended companies subject to the duties and liabilities thereof. In case of companies other
than banking companies the law relating to the merger and amalgamation is dealt with it the
Companies Act 1956 under the provisions s. 391-396. The law relating to merger of banking

4
R.C. Cooper v. Union of India, AIR 1970 SC 564 (also known as Bank Nationalization case) where the
constitutional validity of the Act 58 of 1968 was challenged on the ground of Article 19(1)(g), but was upheld
by the Supreme Court.
5 J.A. Hornby, An Introduction to Company Law, p. 174 (1957). [as cited in, Singh, Avatar, Company Law,
Eastern Book Company, 15th Edn. 2009, p.622)].
6 PMP Auto Industries Ltd, Re, (1994) 80 Comp Case 289 Bom.

7
companies is provided u/s. 44A-45 of the Banking Regulation Act, 1949 and shall be taken
up in the following section.

VOLUNTARY AMALGAMATION OF BANKING COMPANIES:

PROCEDURE UNDER BANKING REGULATION ACT 1949

The provision of the Companies Act 1956 contained u/s. 391-395 do not apply to the
amalgamation of the banking companies. Section 44A of the Banking Regulation Act 1949 is
in itself a complete code providing for the procedure of amalgamation in the case of banking
companies. It becomes very clear that section 44A applies to the banking companies to the
7
exclusion of all other laws for the time being, as it is a non-obstante clause. Another
important aspect of the section 44A is that the regulatory authority in this case for sanctioning
the scheme of amalgamation is the Reserve Bank of India in distinction to the National
Company Law Tribunal in case of Companies Act 1956. The Reserve Bank of India being the
central bank of the country has been empowered to exercise in this matter in consultation
with the Central Government.

Section 44A: Procedure for amalgamation of banking companies: (1) Notwithstanding

anything contained in any law for the time being in force, no banking company shall be
amalgamated in any other banking company, unless a scheme containing the terms of such
amalgamation has been placed in draft before the shareholders of each of the banking
companies concerned separately, and approved by a resolution passed by a majority in
number representing two thirds in value of shareholders of each of the said companies,
present either in person or by proxy at a meeting called for the purpose.

S.44A(1) requires specifically the draft scheme containing the terms of proposed
amalgamation to be approved and passed by majority being two third of shareholders present
and voting of each company separately in a meeting called for that purpose only. In any other
case, no amalgamation between banking companies shall be allowed.

7
“A non obstante clause is a legislative device which is usually employed to give overriding effect to certain
provisions that may be found either in the same enactment or some other enactment, that is to say to avoid the
operation and effect of all contrary provisions.” (Union of India v. G.M Kokil, 1984 Supp SCC 196).

8
Requirement of notice to shareholders

The notice of the meeting as required under ss.1 must be given to every shareholder of each
of the banking companies in accordance with the relevant articles of association thereof,
thereby indicating the time, date and place of such meeting. Such a notice must also be
published for three consecutive weeks at least once a week in not less than two newspapers in
circulation in the locality or the localities where the registered office of the concerned
banking companies are situated. One of the aforesaid newspapers should be one which is in
the language commonly understood in the locality or localities where the registered office is
8
situated.

Provision for the dissenting shareholders

There may be a situation where a shareholder may not agree with the scheme of
amalgamation proposed. In that case, if such a shareholder has voted against the scheme in
the meeting or gives in writing a notice, before or at the time of meeting of the concerned
company or to the presiding officer of that meeting of his dissent, then in case the scheme is
sanctioned by the Reserve Bank of India, he shall be entitled to claim from the banking
company, in respect of the shares held by him in that company, their value as determined by
the Reserve Bank while sanctioning the scheme. The valuation of shares made by the Reserve
9
Bank shall to be paid to dissenting shareholder shall be final for all purposes. Under this
scheme the Reserve Bank is empowered to determine the market value of shares of the
objecting shareholder who voted against the scheme as well as to direct payment of the value
10
of the shares to the dissenting shareholder.

Reserve Bank to sanction the scheme and Effect of the Sanction

When two third or more shareholders present in voting either in person or by proxy, of both
the banking companies approve the scheme by passing a resolution in that behalf in a meeting
called for that purpose, then the scheme is submitted to the Reserve Bank for the sanction and
if the Reserve Bank sanctions the same by an order in writing then the scheme becomes
11
binding on concerned banking companies and the shareholders thereof. On the sanctioning

8 Section 44A(2) of the Banking Regulation Act 1949.

9 Section 44A(3) of the Banking Regulation Act 1949.
10
Bank of Madura Shareholders Welfare Association v. Governor, Reserve Bank of India, (2001) 105 Comp Cas
633 Mad.
11 Section 44A(4) of the Banking Regulation Act 1949.

9
of a scheme of amalgamation by the Reserve Bank, the property of the amalgamated banking
company shall, by virtue of the order of sanction, be transferred to and vest in, and the
liabilities of the said company shall, by virtue of the said order be transferred to, and become
the liabilities of, the banking company which under the scheme of amalgamation is to acquire
the business of the amalgamated banking company, subject in all cases to the provisions of
12
the scheme as sanctioned. Where a scheme of amalgamation is sanctioned by the Reserve
Bank under the provisions of this section, the Reserve Bank may, by a further order in
writing, direct that on such date as may be specified in the order the amalgamated banking
company which by reason of the amalgamation will cease to function, shall stand dissolved
and any such direction shall be effective notwithstanding anything to the contrary contained
13
in any other law. As soon as the order of dissolution of the amalgamated company is made
by the Reserve Bank, the same shall be transmitted to the Registrar of Companies and on
14
receipt of such order the name of such company shall be struck off.

Order of Sanction u/ss. (4) to be Conclusive evidence in all legal proceedings

Notwithstanding the fact that the order of sanction under ss.4 has been before or after the
15
commencement of section 19 of the Banking Laws (Miscellaneous Provisions) Act 1963,
the aforesaid order shall be the conclusive evidence with regard to the fact that all the
requirements of section 44A for amalgamation have been complied with. A copy of the said
order certified in writing by an officer of the Reserve Bank to be a true copy of such order
and a copy of the scheme certified in the like manner to be a true copy thereof shall, in all
legal proceedings (whether in appeal or otherwise and whether instituted before or after the
commencement of the said section 19), be admitted as evidence to the same extent as the
16
original order and the original scheme.

Power of the Central Government u/s. 396 of the Companies Act 1956 not affected

Nothing provided in Section 44A shall affect the powers of the Central Government to
provide for the amalgamation of two or more banking companies u/s. 396 of the Companies
Act 1956. However, this power of the Central Government shall not be exercised without

12 Section 44A(6) of the Banking Regulation Act 1949.

13 Section 44A(6A) of the Banking Regulation Act 1949.
14 Section 44A(6B) of the Banking Regulation Act 1949.
15 Section 19 of the Banking Laws (Miscellaneous Provisions) Act [Act 55 of 1963, s.19(c) (w.e.f 1-2-
1964)] 1963 inserted ss. 6C in s.44A.
16 Section 44A(6C) of the Banking Regulation Act 1949.

10
 17
consultation to the Reserve Bank of India. Thus it can be observed after the perusal of all
the provisions of s. 44A that the Reserve Bank of India is in a way the controlling authority
regarding the affairs of reconstruction of Banking Companies.

Restriction on effecting a compromise or arrangement between

the Banking Company and Creditors/Members

Section 44B of the Banking Regulation Act 1949 imposes certain restriction on the effecting
any compromise or arrangement between the banking company and the creditors thereof. It
has been provided that notwithstanding anything contained in any law for the time being in
force, no High Court shall sanction a compromise or arrangement between a banking
company and its creditors or any class of them or between such company and its members or
any class of them or sanction any modification in any such compromise or arrangement
unless the compromise or arrangement or modification, as the case may be, is certified by the
Reserve Bank in writing as not being incapable of being worked and as not being detrimental
18
to the interests of the depositors of such banking company. It has to be emphasized that the
RBI being the central bank regulating all the affairs with relation to banking has been
authorized to check the scheme and determine that whether or not the scheme is contrary to
the interest of the depositors. This is basically done to secure the public interest and defeat
the ulterior motive, if any, behind the agreement or compromise.

Although s.44A at the outset rules out the applicability of s. 391-395 of the Companies Act
1956, but even then if any application is made under section 391 with relation to the Banking
Companies to a High Court in that case, the High Court may direct Reserve Bank to make an
inquiry in relation to the affairs of the banking company and the conduct of its directors and
when such direction is given, the Reserve Bank shall make such inquiry and submit its report
19
to the High Court.

17 Section 44A(7) of the Banking Regulation Act 1949.

18 Section 44B(1) of the Banking Regulation Act 1949.
19 Section 44B(2) of the Banking Regulation Act 1949.

11
 COMPULSORY AMALGAMATION OF BANKING COMPANIES

SUSPENSION OF BUSINESS BY BANKING COMPANY AND PREPARATION OF SCHEME OF

RECONSTITUTION AND AMALGAMATION

Section 45 of the Banking Regulation Act 1949 gives the power to the Reserve Bank to apply
to the Central Government to apply for suspension of business by a company in order to
prepare a scheme of reconstruction and amalgamation. The Reserve Bank may,
notwithstanding anything contained in the foregoing provisions being s.44A and s.44B or in
any other law or any agreement or other instrument, for the time being in force, where it
appears to it that there is good reason so to do, apply to the Central Government for an order
20
of moratorium in respect of a banking company. The Central Government, after considering
the application made by the Reserve Bank under section 45(1), may make an order of
moratorium staying the commencement or continuance of all actions and proceedings against
the company for a fixed period of time on such terms and conditions as it thinks fit and proper
and may from time to time extend the period. However the total period of moratorium shall
21
not exceed six months.

CIRCUMSTANCES ATTRACTING THE PREPARATION OF A SCHEME OF RECONSTRUCTION BY THE

RBI
Reserve Bank during the period of moratorium may prepare a scheme for:

i. the reconstruction of the banking company, or

ii. the amalgamation of the banking company with any other banking institution referred
to as "the transferee bank"

if it is satisfied that:

a. it is in the public interest; or

b. it is in the interest of the depositors; or
c. in order to secure the proper management of the banking company; or
d. in the interests of the banking system of the country as a whole.

The scheme so formulated may contain the provisions for all or nay of the following matters,
they being:

20 Section 45(1) of the Banking Regulation Act 1949.

21 Section 45(2) of the Banking Regulation Act 1949.

12
a. the constitution, name and registered office, the capital, assets, powers, rights,
interests, authorities and privileges, the liabilities, duties and obligations of the
banking company on its reconstruction or as the case may be, of the transferee bank;
b. in the case of amalgamation of the banking company, the transfer to the transferee
bank of the business, properties, assets and liabilities of the banking company on such
terms and conditions as may be specified in the scheme;
c. any change in the Board of directors, or the appointment of a new Board of directors,
of the banking company on its reconstruction or, as the case may be, of the transferee
bank and the authority by whom, the manner in which, and the other terms and
conditions on which, such change or appointment shall be made and in the case of
appointment of a new Board of directors or of any director the period for which such
appointment shall be made;
d. the alteration of the memorandum and articles of association of the banking company
on its reconstruction or, as the case may be, of the transferee bank for the purpose of
altering the capital thereof or for such other purposes as may be necessary to give
effect to the reconstruction or amalgamation;
e. subject to the provisions of the scheme, the continuation by or against the banking
company on its reconstruction or, as the case may be, the transferee bank, of any
actions or proceedings pending against the banking company immediately before the
date of the order of moratorium;
f. the reduction of the interest or rights which the members, depositors and other
creditors have in or against the banking company before its reconstruction or
amalgamation to such extent as the Reserve Bank considers necessary in the public
interest or in the interest of the members, depositors and other creditors or for the
maintenance of the business of the banking company;
g. the payment in cash or otherwise to depositors and other creditors in full satisfaction
of their claim:
a. in respect of their interest or rights in or against the banking company before its
reconstruction or amalgamation; or
b. where their interest or rights aforesaid in or against the banking company has or
have been reduced under clause (f), in respect of such interest or rights as so
reduced;

13
 h. the allotment to the members of the banking company for shares held by them therein
before its reconstruction or amalgamation [whether their interest in such shares has
been reduced under clause (f) or not], of shares in the banking company on its
reconstruction or, as the case may be, in the transferee bank and where any members
claim payment in cash and not allotment of shares, or where it is not possible to allot
shares to any members, the payment in cash to those members in full satisfaction of
their claim;
a. in respect of their interest in shares in the banking company before its
reconstruction or amalgamation; or
b. where such interest has been reduced under clause (f) in respect of their interest in
shares as so reduced

Further the clauses (i) and (j) deal with the matters related to the continuance of the service of
the employees and the remuneration in the new company arising out of amalgamation.

NATURE OF THE SCHEME MAKING POWER OF RBI

It is significant to note here that the framing of scheme of amalgamation and giving a
22
direction under the clause (f) of sub-section (5) cannot be treated as insolvency. In the case
23
of K.I Shephard and Ors v. Union of India and Ors the question arose as to what is the
nature of scheme making power of RBI conferred by s.45 of the Banking Regulation Act
1949. The Supreme Court observed:

“A scheme for the purposes contemplated has to be framed by RBI and placed
before the Central Government for sanction. Power has been vested in the Central
Government in terms of what is ordinarily known as a Henery-8 clause for
making orders for removal of difficulties. Section 45(11) requires that copies of
the schemes as also such orders made by the Central Government are to be placed
before both Houses of Parliament. We do not think this requirement makes the
exercise in regard to schemes a legislative process.”

22 Simon Thomas v. State Bank, 1976 KLT 554 (FB).

23 AIR 1988 SC 686.

14
So far as the matters in relation to which provisions can be made by the RBI in the scheme of
amalgamation under the sub-clause (4) is concerned, the Supreme Court in the case of The
24
Chairman, Canara Bank, Bangalore v. M.S. Jasra and others held that:

“It is clear that the scheme so framed under Sub-section (4) may contain
provisions for all or any of the matter specified in Sub-section (5) so that it
enables all or any of the specified matter to be provided in the scheme prepared
under Sub-section (4) and the matters specified in the several clauses in Sub-
section (5) do not automatically get incorporated in such scheme unless the
scheme specifically includes any such matter. In other words, it is not necessary
that every scheme of amalgamation framed under Sub-section (4) must provide
for continuance of services of all the employees of the banking company in the
transferee bank; but where such a provision is made, it must contain a provision
as required by the provisos in Clause (i). This is clear from the use of the word
'may' in the opening word of Sub-section (5) and the word 'shall' in the proviso.”

Thus this is to be emphasized that merely laying down the matters in sub-clause (5), in
relation to which the scheme may be framed, does not mean that the provisions with relation
to those are incorporated unless expressly included.

Notice of the scheme to the concerned banking companies

The Reserve Bank shall send a draft of the scheme so prepared to the banking company and
the transferee company and any other banking company concerned with the amalgamation
for suggestions and objections within such period as may be specified in that behalf by the
25
Reserve Bank. Having received suggestions and objections from the entities aforesaid or
from the members and creditors thereof, the Reserve Bank may make modifications in the
26
scheme as it may consider necessary.

Sanction of the Central Government

Thereafter the scheme shall be place before the central government for its sanction and the
same may granted by the Central Government without or with modifications as it may
consider necessary and shall come into force on the date as may be specified in the order. It is

24 AIR 1992 SC 1341; See also Bank of Baroda v. Rajinder Pal Soni AIR 1996 SC 3077.
25 Section 45(6)(a) of the Banking Regulation Act 1949.
26 Section 45(6)(b) of the Banking Regulation Act 1949.

15
to be emphasized that different dates may accorded for coming into force for different
27
provisions. The sanctioning order of the Central Government shall be the conclusive
evidence that the all the requirements of s. 45 either related to reconstitution or amalgamation
28
have been fulfilled

Effect of the sanction of the scheme

As soon as the scheme or the provisions comes into operation, on and from that date the
29
scheme becomes binding on:

Banking company

Transferee company

Other banking company or companies concerned with amalgamation

All the members, depositors, other creditors and employees of the aforesaid entities

Any person having any right or liability in respect of the aforesaid entities.

Trustees, persons managing or in any manner connected with
a. Provident fund; or
b. Any other fund maintained by the banking companies aforementioned or the
transferee company;

and, the properties and assets of the banking company shall, by virtue of and to the extent
provided in the scheme, stand transferred to, and vest in, and the liabilities of the banking
company shall, by virtue of and to the extent provided in the scheme, stand transferred to, and
30
become the liabilities of the transferee bank.

The copies of scheme as soon as they have been sanctioned by the Central Government shall
31
be laid before both the Houses of Parliament. Where the scheme is a scheme for
amalgamation of the banking company, any business acquired by the transferee bank under
the scheme or under any provision thereof shall, after the coming into operation of the
scheme or such provision, be carried on by the transferee bank in accordance with the law
governing the transferee bank, subject to such modifications in that law or such exemptions
of the transferee bank from the operation of any provisions thereof as the Central

27 Section 45(7) of the Banking Regulation Act 1949.

28 Section 45(7A) of the Banking Regulation Act 1949.
29 Section 45(8) of the Banking Regulation Act 1949.
30 Section 45(9) of the Banking Regulation Act 1949.
31 Section 45(11) of the Banking Regulation Act 1949.

16
Government on the recommendation of the Reserve Bank may, by notification in the Official
Gazette, make for the purpose of giving full effect to the scheme. Any such modification and
exemption shall not be operative for a period of more than 7 years from the date of
32
acquisition of the business.

Also the amalgamation of a banking institution with several banking companies against
which an order of moratorium has been made is permitted. Banking institutions means any
banking company and includes the State Bank of India or a subsidiary bank or a
33
corresponding new bank. This provision and any scheme made under provision have been
given the overriding effect with respect to any other law for the time being in force or
agreement or award.

MERGER OR AMALGAMATION OF BANKING COMPANIES WITH NBFCS

So far as the merger between two banking companies is concerned, it is regulated by the
Banking Regulation Act 1949. However where one banking company is to merge with a
NBFC, in that case also a prior permission from the Reserve Bank of India has to be
obtained. In order to ensure that the post-merger banks continue to be in compliance with the
legal provisions contained in the Banking Regulation Act, 1949 and other relevant statutes
and also the regulatory prescriptions of RBI, banks should obtain prior approval of Reserve
34
Bank of India before initiating steps for amalgamation/merger of a NBFC with the bank.

32 Section 45(12) of the Banking Regulation Act 1949

33 Section 45(15) of the Banking Regulation Act 1949
34 RBI Circular No: DBOD.BP.BC. 89/21.02.043/2003-04

17
 CASE STUDY: MERGER OF IDBI AND IDBI LTD


Industrial Development Bank of India

Industrial Development bank of India (IDBI) was constituted under Industrial Development
bank of India Act, 1964 as a Development Financial Institution and came into being as on
July 01, 1964 vide GoI notification dated June 22, 1964. It was regarded as a Public Financial
Institution in terms of the provisions of Section 4A of the Companies Act, 1956. It continued
35
to serve as a DFI for 40 years till the year 2004 when it was transformed into a Bank.

Industrial Development Bank of India Limited

In response to the felt need and on commercial prudence, it was decided to transform IDBI
into a Bank. For the purpose, Industrial Development bank (transfer of undertaking and
Repeal) Act, 2003 [Repeal Act] was passed repealing the Industrial Development Bank of
India Act, 1964. In terms of the provisions of the Repeal Act, a new company under the name
of Industrial Development Bank of India Limited (IDBI Ltd.) was incorporated as a Govt.
Company under the Companies Act, 1956 on September 27, 2004. Thereafter, the
undertaking of IDBI was transferred to and vested in IDBI Ltd. with effect from the effective
date of October 01, 2004. In terms of the provisions of the Repeal Act, IDBI Ltd. has been
36
functioning as a Bank in addition to its earlier role of a Financial Institution.

Merger of IDBI bank Ltd. with IDBI Ltd.

Towards achieving the faster inorganic growth of the Bank, IDBI Bank Ltd., a wholly owned
subsidiary of IDBI Ltd. was amalgamated with IDBI Ltd. in terms of the provisions of
Section 44A of the Banking Regulation Act, 1949 providing for voluntary amalgamation of
37
two banking companies. The merger became effective from April 02, 2005.

Merger of United Western bank with IDBI Ltd

The United Western bank Ltd. (UWB), a Satara based private sector bank was placed under
moratorium by RBI. Upon IDBI Ltd. showing interest to take over the said bank towards its
further inorganic growth, RBI and Govt. of India amalgamated UWB with IDBI Ltd. in terms

35 http://www.idbi.com/aboutus_history.asp, visited on 10-04-2018, at 1:27 am

36 Ibid
37 Ibid

18
of the provisions of Section 45 of the Banking Regulation Act, 1949. The merger came into
38
effect on October 03, 2006.

Change of name of IDBI Ltd. to IDBI Bank Ltd.

In order that the name of the Bank truly reflects the functions it is carrying on, the name of
the Bank was changed to IDBI Bank Limited and the new name became effective from May
07, 2008 upon issue of the Fresh Certificate of Incorporation by Registrar of Companies,
Maharashtra. The Bank has been accordingly functioning in its present name of IDBI Bank
39
Limited.

CONCLUSION
Growth is always essential for the existence of a business concern. A business is bound to die
if it does not try to expand its activities. The expansion of a business may be in the form of
enlargement of its activities or acquisition of ownership. Internal expansion results gradual
increase in the activities of the concern. External expansion refers to “business combination”
where two or more concerns combine and expand their business activities.

Looking at the global trend of consolidation and convergence, it is need of the hour to
restructure the banking structure in India through mergers and acquisition in order to make
them more capitalized, automated and technology oriented so as to provide environment
more competitive and customer friendly .Few more impediment for paving the way towards
mergers and acquisition on commercial consideration and mutual arrangement, such as
government shareholding of public sector banks, legal provisions related to banking and
industrial matter should immediately be resolved if at all the place of merger and acquisition
has to be accelerated in Indian banking sector.

38 Ibid.
39 Ibid.

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 BIBLIOGRAPHY
Books:

1. Gupta S.N., The Banking Law in Theory and Practice, Published by Universal Law
Publishing co. Pvt. Ltd., Edition III, 2004.
2. Tannan M.L., Banking Law and Practice in India, Wadhwa Nagpur, Edition XXI,
2007.

Statutes:

1. Banking Regulation Act 1949

2. Companies Act 1956

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