Legal and Regulatory Aspects of Banking

Various Acts relating to Banking

Name of Act Effective date Remarks Reserve Bank of India Act 1934 Last amendment to the Act in 2006.

6th March 1934 Reserve Bank of India came into existence on 1st

April 1935RBI was Nationalized on 1st January 1949. Act as Note issuing Authority Act as Banker’s Bank Banker to State and Central Government Function as a promoter of Agriculture and Industry to accelerate pace of economic developmentMonitory policy and Credit control measures are undertaken by RBI

Banking Regulation Act 1949 16th March 1949 The act extends to whole of India BR act was enacted to consolidate and amend law relating to banking and to provide for a suitable frame work for regulating the banking companies

In 1965 the Act was amended to Co Operative Banks as well with certain modification (Section 56)

State Bank of India Act 1955 Introduced for taking over Imperial Bank Banking Companies (acquisition and Transfer of Undertakings) Act 1970 and Banking Companies (acquisition and Transfer of Undertakings) 1980

Nationalisation of 14 and 6 Banks respectively.

Regional Rural Bank Act 1976 5 RRBs were formed on 2nd October 1975 Authorised capital of each RRB is Rs5 Crores.

National Housing Board Act 1987

9.7.1988 Authorized capital of NHB is Rs500 Lakhs

Multi State Co operative Societies Act 2002.

This act is applicable to Co Operative Banks operating in two state.

The Deposit Insurance and credit Guarantee Corporation Act 1961

Provides cover for default in respect of advances under Priority Sector against payment of guarantee premium. Also gives insurance cover for small depositors up to Rs1,00 ,000/ against payment of guarantee premium.

Negotiable Instruments Act 1881

1st March 1882 The act is applicable to whole of India including J&K and Sikkim . There are 147 Section in NI Act Important sections includes.

The following Sections of NI act gives protection to the paying Bank

Section --- 10 Payment in due courseSection --- 85 protection to a Bank

paying Order Cheque

Section --- 85A Protection to a Bank paying order DD

Section --- 89 Payment of altered cheques where alteration is not visible.

Section --- 128 Payment of crossed cheques

Section 31 Responsibility of Drawee Bank subject to satisfaction under Section 10

SARFAESI Act 2002 21st June 2002 Extends to whole of India including State of J&KRecovery of Debts due to Banks and Financial Institution Act 1993 (DRT 1993)

24th June 1993 This Act constituted the Special Debt Recovery Tribunals.)

The Banker’s Book Evidence Act 1891

To facilitate the production of book of evidence

Legal Services Authorities Act 1987 – Lok Adalats.

For compromise or settlement of disputes between parties.

Consumer Protection Act 1986 This Act is to protect the interest of consumers. Societies Registration Act 1860 Regarding registration of Societies. Limitation Act 1963 Regarding limitation period Income Tax Act 1961Contract Act 1872 The Act refers to the general Principles of

Contract and also special types of contracts like Guarantee and Indemnities

Sale of Goods Act 1930 Deals with the concept of sale, the rights of unpaid seller etc

Partnership Act 1932 Registration of a partnership deed has added advantage in that the firm can sue the debtors for recovery of money due from debtors One partner can sue the other partners in case one partner is forced to pay amount to outsiders through Court order under the Joint and Several responsibilityMaximum number of partners in a Banking

partnership firm ---- 10 Maximum partners in a firm doing business other than Banking ----- 20 Partnership with Professionals as partners ------------- 50No deed then fluctuating Capital No deed means sharing profit equal

Companies Act 1956 Private Ltd Company minimum 2 shareholders maximum 50, Public Ltd Co minimum 7 no maximum

Foreign Exchange Management Act 1999 (FEMA 1999)

To facilitate external trade and payment for promoting the orderly development

Transfer of Property Act 1882 Deals with sale/ Mortgage etc of Immovable properties.

Right to information Act 2005 Intent to provide for accessing top information The prevention of Money Laundering Act 2002.

To prevent money laundering Bank has to comply with KYC norms and to report CTR and STR transactions

Information Technology Act 2000

Prevention of Bad debts

SEBI Act 1992 The controller of Capital Markets. Arbitration and Conciliation Act 1996

When ever dispute arises between Banks or Financial Institution with the Securitization or Reconstruction Company the same is resolved under the provisions of Arbitration and Conciliation Act 1996.

Certain important provisions in Schedule to the limitation Act

Description of suit Period of Limitation Time from which period begins to

run.For money payable for money lent Three years When the loan is madeFor money lent under an agreement that it shall be payable on demand,

Three years When loan is made

On a bill of exchange payable at sight or after sight but not at a fixed time.

Three years When the bill is presented

On a bill of exchange or promissory note payable at a fixed time after sight or after demand

Three years When the fixed time expires.

On a promissory Note or a bond payable by instalments

Three years The expiration of the first term of payment as to the part then payable and for other parts the expiration of the respective terms of payment

For arrears of rent Three years When the arrears become due. For specific performance of a contract Three years The date fixed for the performance or

if no such date is fixed when the plaintiff has noticed the performance is refused.

To enforce payment of money secured by a mortgage or otherwise charged upon immovable property

Three years When the money sued become due.

By Mortgage a) For foreclosure

12 years When the money secured by the mortgage become due.

By Mortgage a) For possession of Immovable

property

30 years When the mortgage becomes entitled to possession.