legal aspects of banking oprations

7/23/2019 Legal Aspects of Banking Oprations

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LEGAL ASPECTS OF

BANKING OPRATIONS

Manjunath Babu

Chief Manager,

State Bank f M!"re#

$ea% Offi&e#

For JAIIB EXAMINATIONS


2/37

La'" that Cntr( BankingLa'" that Cntr( Banking

Companies Act 1956Companies Act 1956

Banking Regulations Act 1949Banking Regulations Act 1949

RBI Act 1934RBI Act 1934 RRB Act 1976RRB Act 1976

Banking companies Act 1970Banking companies Act 1970

State Bank of India Act 1955State Bank of India Act 1955 SBI Su!sidia"#$s Act 1959SBI Su!sidia"#$s Act 1959


3/37

La'" that inf(uen&e BankingLa'" that inf(uen&e Banking

Indian Cont"act Act 1%7&Indian Cont"act Act 1%7& 'egotia!le Inst"uments Act 1%%1'egotia!le Inst"uments Act 1%%1

Sale of (oods Act 1930Sale of (oods Act 1930 )"ansfe" of *"ope"t# Act 1%%&)"ansfe" of *"ope"t# Act 1%%& Banke"s !ook +,idence Act 1%91Banke"s !ook +,idence Act 1%91

-+.A 1999 /"eplacing -+RA 1973-+.A 1999 /"eplacing -+RA 1973 Indian imitation Act 1963Indian imitation Act 1963


4/37

La'" that inf(uen&e BankingLa'" that inf(uen&e Banking

Companies ActCompanies Act

Indian *a"tne"s2ip Act 193&Indian *a"tne"s2ip Act 193& Indian )"usts ActIndian )"usts Act

Indian Stamp ActIndian Stamp Act

Regist"ation ActRegist"ation Act Religious and C2a"ita!le +ndoments ActReligious and C2a"ita!le +ndoments Act Coope"ati,e Societies ActCoope"ati,e Societies Act


5/37

La'" that affe&t BankingLa'" that affe&t Banking

Consume" *"otection ActConsume" *"otection Act

Banking m!udsman Sc2eme &00&Banking m!udsman Sc2eme &00&

La'" that a""i"t BankingLa'" that a""i"t Banking

Reco,e"# of e!ts due to Banks and -I 1993/R)Reco,e"# of e!ts due to Banks and -I 1993/R) SAR-ASI Act &00&SAR-ASI Act &00&


6/37

A C)*an!A C)*an!*u!lic *"i,ate Re(e+ent A&t

"e&tin

.em!e"s min8ma 7 & 8 50 Se-.

i"ecto"s.in

.a

3 & Se./.

As pe" a"ticles of Association Se./0

:p to 1& di"ecto"s it2out seeking (o,t app"o,al Se./1

Ce"tificate of Inco"po"ation Ce"tif#ing t2at all t2e "e;ui"ements unde" t2e la2as !een complied it2

Se 2/

Ce"tificate ofCommencement of !usiness

*"oof of sta"ting !usiness

/fo" pu!lic companies onl#

Se-31

.emo"andum of

Association

Constitution of t2e compan#

*u"pose < !=ecti,e < *lace

Se -2

A"ticles of Assn Rules of (o,e"nance /Subr%inate tMe)ran%u) 4

Se

*oe" to !o""o As specified in A A Se.1..12

:lt"a >i"es Const"ucti,e notice

Indoo" .anagement

Be#ond poe"s 8 Assumed to 2a,e "ead t2e .A 8

*"otect against inte"nal a""angement


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T $ E B A N KT $ E B A N K

A compan# unde" companies act An association of minimum of & o" 7 .aimum of 10 mem!e"s i"ecto"s 3 and ma as pe" a"ticles

Banking defined as pe" Sec 5 of BR Act *aid up capital 8 Rese",es < Sec11 BR act /onl# o"dina"# S2a"es ? Sec

1&/1 i"ecto"s knoledga!le pe"sons f"om all alks of life < Sec10A >oting Rig2ts )#pes of Bank

*u!lic Secto" @ *"i,ate Secto"@ -o"eign Banks@ Coope"ati,e Banks /unde" state Coopt Act Regional Ru"al Bank /RRB Act 1976


8/37

$' 6e" RBI Cntr( Bank" 7$' 6e" RBI Cntr( Bank" 7 icense to ope"ate < Sec&& of BR act icense to open B"anc2es < Sec&3 2at !usiness to do sec6/1 2at not to do Sec%

RBI Can appoint di"ecto"s@ C2ai"man Sec 10BB RBI can "emo,e c2ai"man@ C+@ di"ecto" o" an#

office" Sec36AA Rest"ict a Bank to accept eposits Sec35/4 BR Act

and 4& of RBI Act inding up Sec3783% BR Act Sc2eduled Banks


9/37

$' 6e" RBI Cntr( Bank" 7$' 6e" RBI Cntr( Bank" 7 Rest"iction on Ad,ances Sec&0

Regulate Rate of Int Sec&1 835 i"ected ending Sec&1 Cont"ol of A,aila!ilit# of -unds

CRR < Sec1% / 3 to &0 Sc2Banks Sec4& RBI Act

SR < Sec &4 / &0 to 40 Accounts and BalS2eet Sec&9 &0 of p"ofit to Rese",e -und Sec 17/1 su!mit B8S to RBI RC Sec3&

Su!mit "egula" "etu"ns to RBI Sec &7 Inspection of Banks < Sec35 Banking m!udsman < Sec35A Allos Banks to "etu"n paid inst"uments Sec45/

*enalt# p"o,isions Sec46847847A


10/37

F E M AF E M AFreign E8&hange Manage)ent A&t4Freign E8&hange Manage)ent A&t4

-+RA as mo"e "ules and "egulations-+RA as mo"e "ules and "egulations -+.A aimed at o"de"l# de,elopment of fo"e ma"ket-+.A aimed at o"de"l# de,elopment of fo"e ma"ket

Capital A8c < c2ange in assets and lia!ilitiesCapital A8c < c2ange in assets and lia!ilities Residents 8 'onResidentsResidents 8 'onResidents

Cu""ent A8c < t"ansactions "elating to fo"eign t"ade@ se",ices@ inte"est pa#ments@Cu""ent A8c < t"ansactions "elating to fo"eign t"ade@ se",ices@ inte"est pa#ments@

fo"eign t"a,el?etcfo"eign t"a,el?etc

Aut2o"ised eale"Aut2o"ised eale"

-o"eign Cu""enc#-o"eign Cu""enc#

-o"eign +c2ange-o"eign +c2ange

Resident 8 'onResident 8 -o"eign national /1%& da#s sta# p"eceding financialResident 8 'onResident 8 -o"eign national /1%& da#s sta# p"eceding financial#ea"#ea"


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C O N T R A C T SC O N T R A C T S

2at is a Cont"act D Sec& *"omise 8 *"omiso" 8 *"omisee Sec& In,itation @ ffe" and Acceptance Sec 3 Consiode"ation Sec& Communication of offe" acceptance

Capacit# to ente" into Cont"act >oida!le Cont"acts


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9i%ab(e Cntra&t"9i%ab(e Cntra&t"

.ino" Sec10 Cont"act Act an# cont"act ,oid a!initio Eto !e t"eated as in,alid f"om t2e outsetE

a mino" can !ind all ot2e"s ecept 2imself

:nsound .ind Sec1& Cont"act Act "unkenness

-o"eign 'ationals

:lt"a >i"es cont"acts /!e#ond poe"s


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Agen&!Agen&! Sec1%& &3% of Indian Cont"act ActSec1%& &3% of Indian Cont"act Act

Agent is a pe"son emplo#ed to an# act fo" anot2e"Agent is a pe"son emplo#ed to an# act fo" anot2e"pe"son o" "ep"esent a pe"son in dealing it2 t2i"dpe"son o" "ep"esent a pe"son in dealing it2 t2i"dpe"sonpe"son

*"incipal is t2e pe"son 2o aut2o"ies t2e agent to act*"incipal is t2e pe"son 2o aut2o"ies t2e agent to act

on 2is !e2alfon 2is !e2alf An agent can$t delegateAn agent can$t delegate A mino" can act as an agent and !ind t2e p"incipal !utA mino" can act as an agent and !ind t2e p"incipal !ut

2e cannot !e !ound2e cannot !e !ound

*"incipal is not !ound 2en agent eceeds aut2o"it#*"incipal is not !ound 2en agent eceeds aut2o"it# *"incipal "esponsi!le fo" all laful acts of t2e agent in*"incipal "esponsi!le fo" all laful acts of t2e agent in

due cou"se of !usinessdue cou"se of !usiness


14/37

In%e)nit!In%e)nit!

Sec1&4 < 1&5 of Cont"act ActSec1&4 < 1&5 of Cont"act Act nl# to pa"ties to t2e cont"actnl# to pa"ties to t2e cont"act

Indemnifie" and t2e IndemnifiedIndemnifie" and t2e Indemnified

Indemnif# a t2i"d pa"t# fo" t2e commissionsIndemnif# a t2i"d pa"t# fo" t2e commissionso" omissions of t2e custome"o" omissions of t2e custome"


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G:ARANTEEG:ARANTEE Su"et#@ C"edito"@ *"incipal e!to" < Sec1&6Su"et#@ C"edito"@ *"incipal e!to" < Sec1&6

S2ould !e a ,alid cont"act@S2ould !e a ,alid cont"act@

:nde"l#ing conside"ation necessa"#:nde"l#ing conside"ation necessa"#

ia!ilit# coetensi,e it2 de!to"ia!ilit# coetensi,e it2 de!to"

a of Su!"ogationa of Su!"ogation

Release of su"et# Sec 133 139Release of su"et# Sec 133 139


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BAILMENTBAILMENT

Sec 14% < 16%Sec 14% < 16%

eli,e"# of goods !# one pe"son to anot2e" it2eli,e"# of goods !# one pe"son to anot2e" it2

inst"uctions to deli,e" as pe" di"ections afte" t2e pu"poseinst"uctions to deli,e" as pe" di"ections afte" t2e pu"pose

is accomplis2edis accomplis2ed

Bailo" 8 BaileeBailo" 8 Bailee Bailee to take "easona!le ca"e/151Bailee to take "easona!le ca"e/151

Bailee lia!le to !ailo" fo" unaut2o"ised usage of !ailedBailee lia!le to !ailo" fo" unaut2o"ised usage of !ailed

p"ope"t#/154p"ope"t#/154 Bailee 2as *a"ticula" lien toa"ds c2a"ges /170Bailee 2as *a"ticula" lien toa"ds c2a"ges /170


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Banker Cu"t)er Re(atin"hi*Banker Cu"t)er Re(atin"hi*

Banke"Banke" Custome"Custome" )"ansaction)"ansaction

11 e!to"e!to" C"edito"C"edito" epositseposits

&& C"edito"C"edito" e!to"e!to" oansoans

33 esso"esso" esseeessee ocke"socke"s

44 BaileeBailee Bailo"Bailo" Safe custod# 8 *ledgeSafe custod# 8 *ledge

55 )"ustee)"ustee Beneficia"#Beneficia"# )"ust)"ust

66 AgentAgent *"incipal*"incipal A(( Agen&! fun&tin"

77


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Banker" Bk E+i%en&e A&tBanker" Bk E+i%en&e A&t

Int"oducedInt"oduced


19/37

T!*e" f Cu"t)er"T!*e" f Cu"t)er"

Indi,idualsIndi,iduals ("oups("oups F:- < Ga"ta and copa"cne"sF:- < Ga"ta and copa"cne"s

Ga"ta eac2 mem!e" 2as "ig2t fo" a s2a"e )"usts)"usts

In%ian Tru"t A&t -00. , Tru"t %ee% Pur*"e f Tru"t

Tru"tee %utie" an% re"*n"ibi(itie" *a"tne"s2ips /*a"tne"s2ips /In%ian *artner"hi* A&t -12. CompaniesCompanies


20/37

*a"tne"s2ip fi"ms

/Indian *a"tne"s2ip Act 193&

Regi"tratin i)*rtant 'hi(e Bank" %ea( 'ith the)#

Se/5;/0 regi"tratin#

Se3 < Nn;regi"tratin &n"e=uen&e"#

Fir) &annt "ue an! thir% *art!#

A(( *artner" jint(! an% "e+era((! re"*n"ib(e#

A )inr &an be a *artner fr *rfit" n(!#

Partner"hi* at 'i(( fr a fi8e% *eri% *arti&u(ar

*ur*"e#


21/37

Companies

/go,e"ned !# Companies Act 1956

N# f )e)ber" -> fr banking &)*anie" .> fr ther" un(e"" it i"regi"tere% a" a &)*an! un%er thi" A&t, r i" fr)e% in *ur"uan&e f

")e ther In%ian La'# ?"e--@# In&r*ratin Se-. < gi+e" (ega( "tatu"# Me)ran%u) f a""&iatin ; na)e , *(a&e, bje&ti+e", %ire&tr"# Arti&(e" f a""&iatin < internatina( )anage)ent, brr'ing

*'er"# P+t# Lt%# C)*an! < n f )e)ber" /> ?&("e(! he(%@ < n *ub(i

tra%ing r (i"ting f "hare" ? %ire&tr" )a8 -. )in .@ Pub(i& Lt%# C)*an! < n re"tri&tin f )e)ber", "hare" free(!

tra%ab(e ? )in 2 %ire&tr" < Ma8 -.@# Regi"tratin f Charge" < 'ithin 2> %a!" Se-./?-@ f I#C# A&t# Nn &reatin f &harge" < Se-./ nt +a(i% again"t the (i=ui%atr"

an% 'i(( nt an! *ririt! ?*# .00@# :(tra 9ire"


22/37

Negtiab(e In"tru)ent" A&t -00-Negtiab(e In"tru)ent" A&t -00- efinitionsefinitions

*"omisso"# 'ote < Sec4 Bill of +c2ange Sec5 C2e;ue Sec6 "ae" 8 "aee 8 pa#ee 82olde" Sec7

*a#ment in due cou"se < Sec10*a#ment in due cou"se < Sec10 'egotiation !# endo"sement 8 deli,e"#'egotiation !# endo"sement 8 deli,e"# ut# to 2onou" c2e;ues < Sec31ut# to 2onou" c2e;ues < Sec31 *a#ment in due cou"se < Sec%5*a#ment in due cou"se < Sec%5 Accepted fo" 2onou" Sec10%116Accepted fo" 2onou" Sec10%116

*"esumed conside"ation Sec11%*"esumed conside"ation Sec11% C"ossing < Sec1&3 < 130C"ossing < Sec1&3 < 130 Collecting Banke" < Sec131Collecting Banke" < Sec131 is2onou" of C2e;ues < Sec13%is2onou" of C2e;ues < Sec13%


23/37

TPE OF BORROAL ACCO:NTSTPE OF BORROAL ACCO:NTS

-und Based ,e"d"aft@ Cas2 C"edit,e"d"aft@ Cas2 C"edit

emand oans@ )e"m oanemand oans@ )e"m oan

Bills and Recei,a!lesBills and Recei,a!les

'on -undBased ette" of C"editette" of C"edit

Bank (ua"anteeBank (ua"antee

efe""ed *a#ment (ua"anteeefe""ed *a#ment (ua"antee


24/37

Nature f A&&unt"Nature f A&&unt"

pe"ati,e Accountspe"ati,e Accounts Cas2 C"edit 8 ,e"d"aftCas2 C"edit 8 ,e"d"aft -o" o"king capital "e;ui"ements-o" o"king capital "e;ui"ements Secu"ed on Cu""ent AssetsSecu"ed on Cu""ent Assets pe"ates !ased on imit 8 "aing *oe"pe"ates !ased on imit 8 "aing *oe" 'eeds "eneal at pe"iodical inte",als'eeds "eneal at pe"iodical inte",als

'onope"ati,e Accounts'onope"ati,e Accounts )e"m oan 8 emand oans)e"m oan 8 emand oans

-o" Ac;ui"ing fied assets-o" Ac;ui"ing fied assets Secu"ed !# -ied assetsSecu"ed !# -ied assets Single o" multiple dis!"usement and "epa#ment o,e" a fiedSingle o" multiple dis!"usement and "epa#ment o,e" a fied

pe"iodpe"iod


25/37

BILLS B:SINESS

Inland 8 -o"eign

emand 8 :sance

Clean 8 ocomenta"#

Collection 8 'egotiation ocuments to title of goods

Folde" in due cou"se 8 Folde" fo" ,alue Sec % 89

'oting and *"otest Sec99104 Set of Bills < Sec13&


26/37

LETTERS OF CRE6ITLETTERS OF CRE6ITPURCHASER

(Opener)

SELLER

(Beneficiary)

BANK (OpeningBank)

BANK

'egotiating Bank

Ad,ising Bank

Confirming Bank

Send

st2e

1C

Sale 8*u"c2ase Cont"act

A

p

p

l

ie

s

fo"

C

Sends t2e me"c2andise

ocumentsAs *e" C

Sends t2e documents

Reim!u"sement of mone#

*a#ment


27/37

Bank Guarantee"Bank Guarantee" Issued on !e2alf of a custome"Issued on !e2alf of a custome"

Issued fa,o"ing a t2i"d pa"t# /!eneficia"#Issued fa,o"ing a t2i"d pa"t# /!eneficia"# -o" a ce"tain sum@ co,e"ing a ce"tain pe"iod-o" a ce"tain sum@ co,e"ing a ce"tain pe"iod

:nde"l#ing cont"act !eteen custome" and !eneficia"#:nde"l#ing cont"act !eteen custome" and !eneficia"#

Indemnif#ing against an# acts /omissions 8Indemnif#ing against an# acts /omissions 8commissions of its custome"commissions of its custome"

An# claim is !inding on t2e !ank i""especti,e of t2eAn# claim is !inding on t2e !ank i""especti,e of t2e

position !eteen t2e custome" and !eneficia"#position !eteen t2e custome" and !eneficia"#

All claims s2ould !e 2ono"ed if t2e claimed it2in t2eAll claims s2ould !e 2ono"ed if t2e claimed it2in t2e

"elati,e gua"antee pe"iod"elati,e gua"antee pe"iod


28/37

TPES OF SEC:RITIESTPES OF SEC:RITIESS+C:RI)I+S CFAR(+ Rele,ant la

11 +*SI)S (ene"al ien 171 < Cont"act Act

Specific ien 170 < Cont"act Act

&& (old 8 'SC 8 S2a"es *ledge 17& < 179

Cont"act Act

33 IC *olic# Assignment 130 < )* Act

44 Book e!ts Assignment 130 < )* Act

55 Stocks 8 goods F#pot2ecation

66 Stocks 8 goods *ledge 17&179 ContAct

77 .o,ea!le assets F#pot2ecation

%% Immo,ea!le asset .o"tgage 5% /a to 5%/g )*Act


29/37

Tran"fer f Pr*ert! A&t -00.Tran"fer f Pr*ert! A&t -00.

eals it2 Sale@ mo"tgage@ lease and actiona!le claimseals it2 Sale@ mo"tgage@ lease and actiona!le claims

.o"tgage is of impo"tance to Banke".o"tgage is of impo"tance to Banke" .o"tgage is t"ansfe" of inte"est of a specific p"ope"t# as.o"tgage is t"ansfe" of inte"est of a specific p"ope"t# as

secu"it# to a moneta"# lia!ilit# o" o!ligation /Sec5%asecu"it# to a moneta"# lia!ilit# o" o!ligation /Sec5%a )#pes of .o"tgage)#pes of .o"tgage

Simple .o"tgage /Sec5%!Simple .o"tgage /Sec5%! .o"tgage !# conditional sale /Sec5%c.o"tgage !# conditional sale /Sec5%c :suf"uctua"# mo"tgage /Sec5%d:suf"uctua"# mo"tgage /Sec5%d +nglis2 .o"tgage /Sec5%e+nglis2 .o"tgage /Sec5%e .o"tgage !# eposit of )itle deeds/Sec5%f HH.o"tgage !# eposit of )itle deeds/Sec5%f HH

Anomalous .o"tgage /Sec5%gAnomalous .o"tgage /Sec5%g

HHHH


30/37

RECO9ER OF BANKSRECO9ER OF BANKS

LOANSLOANS


31/37

$' t re&+er$' t re&+er

B# filing Ci,il SuitB# filing Ci,il Suit it2 "ela,ent documentsit2 "ela,ent documents

it2in t2e limitation pe"iod /3 #ea"sit2in t2e limitation pe"iod /3 #ea"s

Against t2e !o""oe" 8 (ua"anto"Against t2e !o""oe" 8 (ua"anto" !tention of dec"ee!tention of dec"ee

-ile +ecution *etition-ile +ecution *etition

Attac2ment of AssetsAttac2ment of Assets .o,ea!le o" immo,ea!le.o,ea!le o" immo,ea!le

+nfo"ce sale of attac2ed p"ope"ties+nfo"ce sale of attac2ed p"ope"ties


32/37

Banker" Bk E+i%en&eBanker" Bk E+i%en&e

A ce"tified cop# of an# ent"# in a Banke"$sA ce"tified cop# of an# ent"# in a Banke"$s

!ook is sufficient e,idence of eistence of!ook is sufficient e,idence of eistence of

suc2 ent"#suc2 ent"#

ata sto"ed elect"onicall# a p"intout is alsoata sto"ed elect"onicall# a p"intout is also

accepta!leaccepta!le


33/37

S A R F A S I A&t .>>.S A R F A S I A&t .>>.

Secu"itisation of financial assetsSecu"itisation of financial assets

Reconst"uction of financial assetsReconst"uction of financial assets

+nfo"cement of secu"it# inte"est+nfo"cement of secu"it# inte"est )o 2elp c"edito"s "ealise secu"it# it2out inte",ention of)o 2elp c"edito"s "ealise secu"it# it2out inte",ention of

cou"tscou"ts

)2is "emed# is in addition to ot2e" t#pes a,aila!le /R) 8)2is "emed# is in addition to ot2e" t#pes a,aila!le /R) 8

Cou"tsCou"ts

Applica!le to all Banks ecept RRBApplica!le to all Banks ecept RRB

Applies to all immo,ea!le p"ope"ties ecept ag"icultu"alApplies to all immo,ea!le p"ope"ties ecept ag"icultu"al

landslands

SARFASI E fSARFASI E f t


34/37

SARFASI ; Enfr&e)entSARFASI ; Enfr&e)ent

)2e loan must !e identified as '*A

It must !e a secu"ed loan

'otice to !e gi,en !# t2e Bank indicating Bank$s inte"est in enfo"cing t2esecu"it# /taking o,e"

ait pe"iod 60 da#s

Bo""oe" can file o!=ections

Bank to "epl# to o!=ections it2in one eek of "eceipt

Afte" t2e epi"# date !ank to take possession of t2e Asset 8 .anagementCont"ol

)ake all no"mal ca"e to keep t2e Asset 8 !usiness in t2e same condition

ispose off t2e Asset and app"op"iate t2e p"oceeds in t2e o"de" < costs ofeecution of t2e Act@ outstandings in t2e account it2 inte"est and an#"esidue to t2e "ig2tful one"s of t2e asset8!usiness

An# s2o"tfall Bank to app"oac2 t2e Cou"t 8 R)

Bo""oe" 8 ne" of t2e Asset can app"oac2 t2e Cou"t 8 R) againstSAR-A+SI @ !ut must deposit 50 of t2e Bank$s claim !efo"e application

legal aspects of banking oprations

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