THE NATIONAL BANK FOR AGRICULTURE AND RURAL DEVELOPMENT ACT, 1981

ROLE AND FUNCTIONS

National Bank for Agriculture and Rural Development (NABARD) was established on July 12, 1982
with the paid up capital of Rs. 100 cr. by 50: 50 contribution of government of India and Reserve
bank of India.

It is the apex banking institution to provide finance for Agriculture and rural development. It is an
apex institution in rural credit structure for providing credit for promotion of agriculture, small scale
industries, cottage and village industries, handicrafts etc.

Functions of NABARD:

NABARD was established as a development bank to perform the following functions:

1. To serve as an apex financing agency for the institutions providing investment and production
credit for promoting various developmental activities in rural areas;

2. To take measures towards institution building for improving absorptive capacity of the credit
delivery system, including monitoring, formulation of rehabilitation schemes, restructuring of credit
institutions and training of personnel;

3. To coordinate the rural financing activities of all institutions engaged in developmental work at
the field level and liaison with the Government of India, the State Governments, the Reserve Bank
and other national level institutions concerned with policy formulation; and

4. To undertake monitoring and evaluation of projects refinanced by it.

5. NABARD gives high priority to projects formed under Integrated Rural Development Programme
(IRDP).

6. It arranges refinance for IRDP accounts in order to give highest share for the support for poverty
alleviation programs run by Integrated Rural Development Programme.

7. NABARD also gives guidelines for promotion of group activities under its programs and provides
100% refinance support for them.

8. It is setting linkages between Self-help Group (SHG) which are organized by voluntary agencies for
poor and needy in rural areas.

9. It refinances to the complete extent for those projects which are operated under the ‘National
Watershed Development Programme and the ‘National Mission of Wasteland Development‘.

10. It also has a system of District Oriented Monitoring Studies, under which, study is conducted for
a cross section of schemes that are sanctioned in a district to various banks, to ascertain their
performance and to identify the constraints in their implementation, it also initiates appropriate
action to correct them.

11. It also supports “Vikas Vahini” volunteer programs which offer credit and development activities
to poor farmers.

12. It also inspects and supervises the cooperative banks and RRBs to periodically ensure the
development of the rural financing and farmers’ welfare.

13. NABARAD also recommends about licensing for RRBs and Cooperative banks to RBI.

14. NABARD gives assistance for the training and development of the staff of various other credit
institutions which are engaged in credit distributions.

15. It also runs programs for agriculture and rural development in the whole country.

16. It is engaged in regulations of the cooperative banks and the RRB’s, and manages their talent
acquisition through IBPS CWE conducted across the country.

Role of NABARD:

1. It is an apex institution which has power to deal with all matters concerning policy, planning as
well as operations in giving credit for agriculture and other economic activities in the rural areas.

2. It is a refinancing agency for those institutions that provide investment and production credit for
promoting the several developmental programs for rural development.

3. It is improving the absorptive capacity of the credit delivery system in India, including monitoring,
formulation of rehabilitation schemes, restructuring of credit institutions, and training of personnel.

4. It co-ordinates the rural credit financing activities of all sorts of institutions engaged in
developmental work at the field level while maintaining liaison with Government of India, and State
Governments, and also RBI and other national level institutions that are concerned with policy
formulation.

5. It prepares rural credit plans, annually, for all districts in the country.

6. It also promotes research in rural banking, and the field of agriculture and rural development.

Some of the milestones in NABARD's activities are:

Business Operations:

1. Production Credit: NABARD sanctioned aggregating of 66,418 crore short term loans to
Cooperative Banks and Regional Rural Banks (RRBs) during 2012-13, against which, the maximum
outstanding was 65,176 crore.
2. Investment Credit: Investment Credit for capital formation in agriculture & allied sectors, non-
farm sector activities and services sector to commercial banks, RRBs and co-operative banks reached
a level of 17,674.29 crore as on 31 March 2013 registering an increase of 14.6 per cent, over the
previous year.

3. Rural Infrastructure Development Fund (RIDF)

Through the Rural Infrastructure Development Fund (RIDF) 16,292.26 crore was disbursed during
2012-13. A cumulative amount of 1,62,083 crore has been sanctioned for 5.08 lakh projects as on 31
March 2013 covering irrigation, rural roads and bridges, health and education, soil conservation,
drinking water schemes, flood protection, forest management etc.

New Business Initiatives:

1. NABARD Infrastructure Development Assistance (NIDA):

NABARD has set up NIDA, a new line of credit support for funding of rural infrastructure projects.
The sanctions under NIDA during the year 2012-13 was 2,818.46 crore and disbursement was 859.70
crore.

2. Direct refinance assistance to CCBs for short term multipurpose credit:

Direct refinance assistance to CCBs was conceived and additional line of finance for CCBs in the light
of recommendations of the “Task Force on Revival of Short Term Rural Cooperative Credit Structure,
which enables the latter to raise financial resources other than from StCBs. During 2012-13,
refinance assistance aggregating 3,385 crore was sanctioned to 42 CCBs and disbursement stood at
2,363.45 crore.

Now it can be conclude that the Agricultural & rural development is totally dependent on the
efficiency of the NABARD, which is doing its job as per the requirements of the economy.

Role

NABARD has been instrumental in grounding rural, social innovations and social enterprises in the
rural hinterlands. As of May 2020, NABARD operates at 32 Regional Offices in the country. It has in
the process partnered with about 4000 partner organisations in grounding many of the interventions
be it, SHG-Bank Linkage programme, tree-based tribal communities’ livelihoods initiative, watershed
approach in soil and water conservation, increasing crop productivity initiatives through lead crop
initiative or dissemination of information flow to agrarian communities through Farmer clubs.
Despite all this, it pays huge taxes too, to the exchequer – figuring in the top 50 tax payers
consistently. NABARD virtually ploughs back all the profits for development spending, in their
unending search for solutions and answers. Thus the organisation had developed a huge amount of
trust capital in its 3 decades of work with rural communities.

1.NABARD is the most important institution in the country which looks after the development of the
cottage industry, small scale industry and village industry, and other rural industries.
2.NABARD also reaches out to allied economies and supports and promotes integrated
development.

3.NABARD discharge its duty by undertaking the following roles:

1. Serves as an apex financing agency for the institutions providing investment and
production credit for promoting the various developmental activities in rural areas
2. Takes measures towards institution building for improving absorptive capacity of
the credit delivery system, including monitoring, formulation of rehabilitation
schemes, restructuring of credit institutions, training of personnel, etc.
3. Co-ordinates the rural financing activities of all institutions engaged in
developmental work at the field level and maintains liaison with Government of
India, state governments, Reserve Bank of India (RBI) and other national level
institutions concerned with policy formulation
4. Undertakes monitoring and evaluation of projects refinanced by it.
5. NABARD refinances the financial institutions which finances the rural sector.
6. NABARD partakes in development of institutions which help the rural economy.
7. NABARD also keeps a check on its client institutes.
8. It regulates the institutions which provide financial help to the rural economy.
9. It provides training facilities to the institutions working in the field of rural
upliftment.
10. It regulates and supervise the cooperative banks and the RRB's, throughout entire
India.
NABARD has its head office at Mumbai, India and regional offices in all states and one special cell
at Srinagar J&K. The Regional Office[RO] is headed by a Chief General Manager [CGMs] as Officer
Incharge, and the Head office has several top executives viz the Directors, Deputy Managing
Directors[DMD], and the Chairperson. The Board of Directors are appointed by the Government of
India in consonance with NABARD Act. It has 336 District Offices across the country which are staffed
by District Development Managers (DDMs). It also has six training establishments.

NABARD is also known for its 'SHG Bank Linkage Programme' which encourages India's banks to lend
to self-help groups (SHGs). Largely because SHGs are composed mainly of poor women, this has
evolved into an important Indian tool for microfinance. By March 2006, 22 lakh SHGs representing
3.3 crore members had to be linked to credit through this programme.

NABARD also has a portfolio of Natural Resource Management Programmes involving diverse fields
like Watershed Development, Tribal Development and Farm Innovation through dedicated funds set
up for the purpose.

56. Penalties.-

1. Whoever in any return, balance-sheet, or other document or in any information required or

furnished by or under or for the purposes of any provision of this Act, wilfully makes a statement
which is false in any material particular, knowing it to be false, or wilfully omits to make a material
statement, shall be punishable with imprisonment for a term which may extend to three years and
shall also be liable to fine.

2. If any person fails to produce any book, account or other document, or to furnish any
statement or information which, under the provisions of this Act, it is his duty to produce or furnish,
he shall be punishable with a fine which may extend to two thousand rupees in respect of each
offence and in the case of a continuing failure, with an additional fine which may extend to one
hundred rupees for every day during which the failure continues after conviction for the first such
failure.

Q Incorporation and share capital of State Bank under the State Bank of India Act, 1955.

Incorporation of State Bank

Section 3 of the Act provides that a Bank to be called the State Bank of India shall be constituted to
carry on the business of banking and other business in accordance with the provisions of this Act and
for the purpose of taking over the undertaking of the Imperial Bank. It also allows the Central
Government, together with such other persons as may, to become shareholders in the State Bank
and so long as they are shareholders in the State Bank, they'll constitute a body corporate with
perpetual succession and a common seal under the name of the State Bank of India, and shall sue
and be sued in the name.

The State Bank shall have power to acquire and hold property, whether movable or immovable, for
the purposes for which it is constituted and to dispose of the same.

Share Capital

Share Capital refers to the capital which a company raises by issuing shares at the given face value. It
is the amount contributed by the shareholders by subscribing to the company's shares towards the
face value. It represents the total nominal value of shares issued by the company.

Authorized Capital is the maximum amount of capital that the company, through its MoA takes
power to issue during its lifetime. According to Section 4, the State Bank of India has an authorized
capital of Rs. 5000 crores which has been divided into five hundred crores of fully paid-up shares of
ten rupees each. The Central Board may reduce the nominal or face value of the shares with the
approval of the Reserve Bank and the Central Government may in consultation with the Reserve
Bank, increase or reduce the authorized capital.

Generally, a company does not issue its entire authorized share capital to the general public, i.e. only
a part of it is offered for subscription and allotment to investors. Therefore, that portion of the
company's authorized capital which is actually issued, to the general public for subscription is called
Issued Capital.

It represents the nominal value of share capital issued to member. According to Section 5, the issued
capital of the State Bank is Rs. 56250000 divided into 562500 shares (five crores, sixty two lakhs and
fifty thousand rupees divided into five lakhs, sixty two thousand and five hundred shares) all of
which stand allotted to the Central Government in lieu of the shares of the Imperial Bank transferred
to and vested in it under section 6.

The Central Board may from time to time increase, with the previous approval of the Reserve Bank
and the Central Government, the issued capital by the issue of equity or preference shares but a
minimum of 51% of the issued capital shall be held by the Central Government at all times.

THE BANKING COMPANIES (ACQUISITION AND TRANSFER OF UNDERTAKINGS)

ACT, 1970

CHAPTER III

PAYMENT OF COMPENSATION

Section 6. Payment of compensation — (1) Every existing bank shall be given by the Central
Government

such compensation in respect of the transfer, under section 4, to the corresponding new bank of the

undertaking of the existing bank as is specified against each such bank in the Second Schedule.

(2) The amount of compensation referred to in sub-section (1) shall be given to every existing bank,

at its option —

(a) in case (to be paid by cheque drawn on the Reserve Bank) in three equal annual instalments,

the amount of each instalment carrying interest at the rate of four per cent. per annum from the

commencement of this Act, or

(b) in saleable or otherwise transferable promissory notes or stock certificates of the Central

Government issued and repayable at par, and maturing at the end of—

(i) ten years from the commencement of this Act and carrying interest from such

commencement at the rate of four and a half per cent. per annum, or

(ii) thirty years from the commencement of this Act and carrying interest from such
commencement at the rate of five and a half per cent. per annum, or

(c) partly in cash (to be paid by cheque drawn on the Reserve Bank) and partly in such number of

securities specified in sub-clause (i) or sub-clause (ii), or both, of clause (b), as may be required by

the existing bank, or

(d) partly in such number of securities specified in sub-clause (i) of clause (b) and partly in such

number of securities specified in sub-clause (ii) of that clause, as may be required by the existing

bank.

(3) The first of the three equal annual instalments referred to in clause (a) of sub-section (2) shall be

paid, and the securities referred to in clause (b) of that sub-section shall be issued, within sixty days
from

the date of receipt by the Central Government of the option referred to in that sub-section, or
where no

such option has been exercised, from the latest date before which such option ought to have been

exercised.

(4) The option referred to in sub-section (2) shall be exercised by every existing bank before the

expiry of a period of three months from the appointed day (or within such further time, not
exceeding

three months, as the Central Government may, on the application of the existing bank, allow) and
the

option so exercised shall be final and shall not be altered or rescinded after it has been exercised.

(5) Any existing bank which omits or fails to exercise the option referred to in sub-section (2), within

the time specified in sub-section (4), shall be deemed to have opted for payment in securities
specified in

sub-clause (i) of clause (b) of sub-section (2).

(6) Notwithstanding anything contained in this section, any existing bank may, before the expiry of

three months from the appointed day (or within such further time, not exceeding three months, as
the
Central Government may, on the application of the existing bank, allow) make an application in
writing to

the Central Government for an interim payment of an amount equal to seventy-five per cent. of the

amount of the paid-up capital of such bank, as on the commencement of this Act, indicating therein

whether the payment is desired in cash or in securities specified in sub-section (2), or in both.

(7) The Central Government shall, within sixty days from the receipt of the application referred to in

sub-section (6), make the interim payment to the existing bank in accordance with the option
indicated in

such application.

(8) The interim payment made to an existing bank under sub-section (7) shall be set off against the

total amount of compensation payable to such existing bank under this Act and the balance of the

compensation remaining outstanding after such payment shall be given to the existing bank in
accordance

with the option exercised, or deemed to have been exercised, under sub-section (4) or sub-section
(5), as

the case may be:

Provided that where any part of the interim payment is obtained by an existing bank in cash, the

payment so obtained shall be set off, in the first instance, against the first instalment of the cash
payment

referred in sub-section (2), and in case the payment so obtained exceeds the amount of the first

instalment, the excess amount shall be adjusted against the second instalment and the balance of
such

excess amount, if any, against the third instalment of the cash payment.

(9) Any payment purported to have been made to an existing bank under sub-section (3) of section
15

of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1969 (22 of 1969), shall be

deducted by the Central Government from the amount of the interim payment made to such
existing bank
under sub-section (7), or where no such interim payment has been made, from the total amount of
the

compensation due to such existing bank, and the amount so deducted shall be paid by the Central

Government to the corresponding new bank.

CHAPTER II

TRANSFER OF THE UNDERTAKINGS OF EXISTING BANKS

Section 4. Undertaking of existing banks to vest in corresponding new banks. — On the

commencement of

this Act, the undertaking of every existing bank shall be transferred to, and shall vest in, the

corresponding new bank.

Section 5. General effect of vesting. — (1) The undertaking of each existing bank shall be deemed to
include

all assets, rights, powers, authorities and privileges and all property, movable and immovable, cash

balances, reserve funds, investments and all other rights and interests in, or arising out of, such
property

as were immediately before the commencement of this Act in the ownership, possession, power or
control

of the existing bank in relation to the undertaking, whether within or without India, and all books of

account, registers, records and all other documents of whatever nature relating thereto and shall
also be

deemed to include all borrowings, liabilities and obligations of whatever kind then subsisting of the

existing bank in relation to the undertaking.

(2) If, according to the laws of any country outside India, the provisions of this Act by themselves are

not effective to transfer or vest any asset or liability situated in that country which forms part of the

undertaking of an existing bank to, or in, the corresponding new bank, the affairs of the existing
bank in

relation to such asset or liability shall, on and from the commencement of this Act, stand entrusted
to the
chief executive officer for the time being of the corresponding new bank and the chief executive
officer

may exercise all powers and do all such acts and things as may be exercised or done by the existing
bank

for the purpose of effectively transferring such assets and discharging such liabilities.

(3) The chief executive officer of the corresponding new bank shall, in exercise of the powers

conferred on him by sub-section (2), take all such steps as may be required by the laws of any such

country outside India for the purpose of effecting such transfer or vesting, and may either himself or

through any person authorised by him in this behalf realise any asset and discharge any liability of
the

existing bank.

(4) Unless otherwise expressly provided by this Act, all contracts, deeds, bonds, agreements, powers

of attorney, grants of legal representation and other instruments of whatever nature subsisting or
having

effect immediately before the commencement of this Act and to which the existing bank is a party or

which are in favour of the existing bank shall be of as full force and effect against or in favour of the

corresponding new bank, and may be enforced or acted upon as fully and effectually as if in the
place of

the existing bank the corresponding new bank had been a party thereto or as if they had been issued
in

favour of the corresponding new bank.

(5) If, on the appointed day, any suit, appeal or other proceeding of whatever nature in relation to
any

business of the undertaking which has been transferred under section 4, is pending by or against the

existing bank, the same shall not abate, be discontinued or be, in any way, prejudicially affected by
reason

of the transfer of the undertaking of the existing bank or of anything contained in this Act but the
suit,
appeal or other proceeding may be continued, prosecuted and enforced by or against the
corresponding

new bank.

(6) Nothing in this Act shall be construed as applying to the assets, rights, powers, authorities and

privileges and property, movable and immovable, cash balances and investments in any country
outside

India (and other rights and interests in, or arising out of, such property) and borrowings, liabilities
and

obligations of whatever kind subsisting at the commencement of this Act, of any existing bank
operating

in that country if, under the laws in force in that country, it is not permissible for a banking company,

owned or controlled by Government, to carry on the business of banking there.

Q) SPECIAL PROVISIONS FOR SPEEDY DISPOSAL OF WINDING UP PROCEEDINGS

Voluntary and speedy winding up

3.1 High Court has some power in process of voluntary winding up

For the purpose of voluntary winding up the banking company has to get a letter / certificate from
the reserve bank, that the company is able to pay all their debts to its creditors and court can also
keep supervision on such banking company if it thinks fit.

Speedy disposal of winding up for banking company

From Section 44A to 44X deal with this aspect

In case of Baidyanath Bayar v. Berhampore bank Ltd. it was held that High court has exclusive
jurisdiction for the winding up of banking company. The main object of this jurisdiction is speedy
realization of claims of the bank

In such condition of winding up the Summary proceedings take place and not the general
proceeding. [S. 45B - The High Court shall, save as otherwise expressly provided in section 45C, have
exclusive jurisdiction to entertain and decide any claim made by or against a banking company which
is being wound up (including claims by or against any of its branches in India) or any application
made under 236[section 391 of the Companies Act, 1956 (1 of 1956)] by or in respect of a banking
company or any question of priorities or any other question whatsoever, whether of law or fact,
which may relate to or arise in the course of the winding up of a banking company, whether such
claim or question has arisen or arises or such application has been made or is made before or after
the date of the order for the winding up of the banking company or before or after the
commencement of the Banking Companies (Amendment) Act, 1953 (52 of 1953)]

In some condition court can also order for sale of debtor’s property, under Section 45D(7) – [At the
time of settling the list of debtors or at any other time prior or subsequent thereto, the High Court
shall have power to pass any order in respect of a debtor on the application of the official liquidator
for the realization, management, protection, preservation or sale of any property given as security to
the banking company and to give such powers to the official liquidator to carry out the aforesaid
directions as the High Court thinks fit.] This was held in the case of Hanuman Bank Ltd v. P.T.Munia
Servai. This is only done when debtor is not paying debt during the process and this done after
serving him a valid notice.

CHAPTER II

INCORPORATION AND CAPITAL OF REGIONAL RURAL BANKS

Section 3. Establishment and incorporation of Regional Rural Banks.—(1) The Central Government
may,

if requested so to do by a Sponsor Bank, by notification in the Official Gazette, establish in a State or

Union territory, one or more Regional Rural Banks with such name as may be specified in the
notification

and may, by the said or subsequent notification, specify the local limits within which each Regional
Rural

Bank shall operate.

(2) Every Regional Rural Bank shall be a body corporate with perpetual succession and a common

seal with power, subject to the provisions of this Act, to acquire, hold and dispose of property and to

contract and may sue and be sued in its name.

(3) It shall be the duty of the Sponsor Bank to aid and assist the Regional Rural Bank, sponsored by

it, by—

(a) subscribing to the share capital of such Regional Rural Bank;

(b) training personnel of such Regional Rural Bank; and

(c) providing such managerial and financial assistance to such Regional Rural Bank, as may

be mutually agreed upon between the Sponsor Bank and the Regional Rural Bank

Section 4. Offices and agencies.—(1) A Regional Rural Bank shall have its head office at such place in
the

notified area as the Central Government may, after consultation with the National Bank and the

Sponsor Bank, specify by notification in the Official Gazette.

(2) A Regional Rural Bank may, if it is of opinion that it is necessary so to do, establish its branches

or agencies at any place in the notified area.

Section 5. Authorised capital.—The authorised capital of each Regional Rural Bank shall be two
thousand

crore of rupees, divided into two hundred crore of fully paid-up shares of ten rupees each]:

Provided that the Central Government may, after consultation with the National Bank and the

Sponsor Bank, increase or reduce such authorised capital; so, however, that the authorised capital
shall

not be reduced below one crore of rupees, and the shares shall be, in all cases, fully paid-up shares
of

ten rupees each].

Section 6. Issued capital.— (1) The issued capital of each Regional Rural Bank shall, in the first
instance,

be such as may be fixed by the Central Government in this behalf, but it shall in no case be less than
one crore of rupees

(2) Of the capital issued by a Regional Rural Bank under sub-section (1), fifty per cent. shall

be subscribed by the Central Government; fifteen per cent. by the concerned State Government and

thirty-five per cent. by the Sponsor Bank.

Provided that in case the Regional Rural Bank raises its capital from sources other than the Central

Government or the State Government or the Sponsor Bank, the shareholding of the Central
Government
and the Sponsor Bank shall not be less than fifty-one per cent.:

Provided further that the Central Government shall consult the concerned State Government if the

level of shareholding in the Regional Rural Bank of such State Government is reduced below fifteen

per cent.

(2A) The Central Government may, in consultation with the Sponsor Bank and the State

Government, by notification, either raise or reduce the limit of shareholding of the Central
Government,

the State Government or the Sponsor Bank specified in sub-section (2):

Provided that the Central Government shall consult the concerned State Government before
reducing

the limit of shareholding of such State Government.]

(3) The Board may, after consultation with the National Bank, the concerned State Government

and the Sponsor Bank and with the prior approval of the Central Government, from time to time,
increase

the issued capital of the Regional Rural Bank; and, where additional capital is issued, such capital
shall

also be subscribed in the same proportion as is specified in sub-section (2) or, as the case may be,

notified by the Central Government under sub-section (2A).

Section 7. Shares to be approved securities.— Notwithstanding anything contained in the Acts

hereinafter

mentioned in this section, the shares of a Regional Rural Bank shall be deemed to be included
among the

securities enumerated in section 20 of the Indian Trusts Act, 1882 (2 of 1882), and shall also be
deemed

to be approved securities for the purposes of the Banking Regulation Act, 1949 (10 of 1949).

PROHIBITION OF CERTAIN ACTIVITIES

Section 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) sub-section (1) of section 6:

Provided that this section shall not apply to any such business as is 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 moveable 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.

Section 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 been, 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:

[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—

(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):

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) whose term of office as a person managing the company is for a period exceeding

five years at any one time:

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 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;

(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.

(6) Any decision or order of the Reserve Bank made under this section shall be final for all

purposes.]

Section 14. Prohibition of charge on unpaid capital.—No banking company shall create any charge
upon

any unpaid capital of the company, and any such charge shall be invalid.

Section 14A. Prohibition of floating charge on assets.— (1) Notwithstanding anything contained in

section 6, no banking company shall create a floating charge on the undertaking or any property of
the

company or any part thereof, unless the creation of such floating charge is certified in writing by the

Reserve Bank as not being detrimental to the interests of the depositors of such company.
(2) Any such charge created without obtaining the certificate of the Reserve Bank shall be invalid.

(3) Any banking company aggrieved by the refusal of a certificate under sub-section (1) may,

within ninety days from the date on which such refusal is communicated to it, appeal to the Central

Government.

(4) The decision of the Central Government where an appeal has been perferred to it under
subsection (3) or of the Reserve Bank where no such appeal has been preferred shall be final.]

Section 15. Restrictions as to payment of dividend.—2

(1) No banking company shall pay any dividend

on its shares until all its capitalised expenses (including preliminary expenses, organisation expenses,

share-selling commission, brokerage, amounts of losses incurred and any other item of expenditure
not

represented by tangible assets) have been completely written off.

(2) Notwithstanding anything to the contrary contained in sub- section (1) or in the Companies

Act, 1956 (1 of 1956), a banking company may pay dividends on its shares without writing off—

(i) the depreciation, if any, in the value of its investments in approved securities in any case

where such depreciation has not actually been capitalised or otherwise accounted for as a loss;

(ii) the depreciation, if any, in the value of its investments in shares, debentures or bonds (other

than approved securities) in any case where adequate provision for such depreciation has been

made to the satisfaction of the auditor of the banking company;

(iii) the bad debts, if any, in any case where adequate provision for such debts has been made to

the satisfaction of the auditor of the banking company.]

Section 16. Prohibition of common directors.—

(1) No banking company incorporated in India shall

have as a director in its Board of directors any person who is a director of any other banking
company.
(1A) No banking company referred to in sub-section (1) shall have in its Board of directors, more

than three directors who are directors of companies which among themselves are entitled to
exercise

voting rights in excess of twenty per cent of the total voting rights of all the shareholders to that

banking company.]

(2) If immediately before the commencement of the Banking Companies (Amendment) Act, 1956

(95 of 1956), any person holding office as a director of a banking company is also a director of

companies which among themselves are entitled to exercise voting rights in excess of twenty per
cent.

of the total voting rights of all the share-holders of the banking company, he shall, within such
period

from such commencement as the Reserve Bank may specify in this behalf—

(a) either resign his office as a director of the banking company; or

(b) choose such number of companies as among themselves are not entitled to exercise voting

rights in excess of twenty per cent. of the total voting rights of all the share-holders of the banking

company as companies in which he wishes to continue to hold the office of a director and resign his

office as a director in the other companies.]

(3) Nothing in sub-section (1) shall apply to, or in relation to, any director appointed by the

Reserve Bank.]

PART IIB

PROHIBITION OF CERTAIN ACTIVITIES IN RELATION TO BANKING COMPANIES

Section 36AD. Punishments for certain activities in relation to banking companies.— (1) No person

shall—
(a) obstruct any person from lawfully entering or leaving any office or place of business of a

banking company or from carrying on any business there, or

(b) hold, within the office or place of business of any banking company, any demonstration

which is violent or which prevents, or is calculated to prevent, the transaction of normal business by

the banking company, or

(c) act in any manner calculated to undermine the confidence of the depositors in the banking

company.

(2) Whoever contravenes any provision of sub-section (1) without any reasonable excuse shall be

punishable with imprisonment for a term which may extend to six months, or with fine which may

extend to one thousand rupees, or with both.

(3) For the purposes of this section “banking company” includes the Reserve Bank, the Exim Bank
the Reconstruction Bank, the National Housing Bank, the National Bank, the Small Industries Bank,
the National Bank for Financing Infrastructure and Development or the other development financial
institution, the State Bank of India, a corresponding new bank, a regional rural bank and a subsidiary
bank.