BANKING LAWS

DOCUMENTATION
Banking Laws- RBI Act 1934
Banking Laws- Banking Regulation Act 1949
• Banking Companies Act, 1949 w.e.f. March 16, 1949
• It was amended and renamed as Banking Regulation Act, 1949 (BR Act)
w.e.f. March 1, 1956
Banking Regulation (Amendment)
Applicable to Banks in Not Applicable to Act, 2020 brought all urban
cooperative banks and multi- state
cooperative banks under the
• Private sector • Primary Agricultural supervision of the RBI in order to
protect the interest of depositors.
• Public sector Credit Societies (PACS) It is not necessary to place a Bank
• Co-operative sector • Co-operative land under moratorium before it can
mortgage bank be taken over by other Banks.
• Any other co-operative
society except as
provided for Section 56
Banking Laws- RBI Act, Banking Regulation Act-1949
Section Defines Definition
Accepting, for the purpose of lending or investment, of deposits of money from the
5 (b) Banking public, repayable on demand or otherwise, and withdrawable by cheque, draft,
order or otherwise
Demand liabilities - liabilities which are met on demand (e.g. Current account
Demand and deposits, savings account deposits, Demand Drafts issued but not paid, Tax
5(f) Time Liabilities deducted on interest paid on fixed deposits but not remitted to Government etc.)
(DTL) Time liabilities - liabilities which are not demand liabilities (e.g. fixed deposits,
recurring deposits, bonds etc.)
Secured loan or advance - a loan or advance made on the security of assets, the
Secured and
market value of which is not at any time less than the amount of such loan or
5(n) Unsecured Loan
advance
or Advance
Unsecured loan or advance - a loan or advance not so secured
• Accept deposits, Borrow/lend money, Bill business, Letter of credit, Bank
guarantee, indemnity
Banking • Foreign exchange, Provide safe custody/safe deposit lockers, Collect and
6 (1)
Business transmit money
• Third party products like insurance, mutual funds, gold etc. Any Government
business, advisory services
Banking Laws-Banking Regulation Act 1949
Section Defines Definition
To create reserve fund and transfer not less than 25% of net profit
17 Reserve Fund
(before appropriations) wef 31.03.2001
Non scheduled banks to maintain 3% of DTL with RBI in current
18 Cash Reserve
account

Advance Against
20 (1) Cannot grant loan against security of its own shares
Its Own Shares

Every bank to maintain a percentage of DTL by way of cash, gold,

Statutory Liquidity
24 unencumbered securities as on reporting Friday; maximum 40% and
Ratio
minimum as per RBI’s discretion
Unclaimed
Return to be submitted to RBI within 30 days of close of each
26 Deposits (10 years
calendar year
and above)

45 (za- Nomination facilities on bank deposits, safe deposit lockers

Nomination
zf) and safe custody of articles
Banking Laws-NI Act 1881-Important Sections
 The negotiable instrument act was passed during 1881 and came into force wef March 01, 1882.
 It has 148 sections and 17 chapters
 Sec 143 A and Sec 148 were added in the year 2018. The amendments came into force with effect from
September 1, 2018 vide the Negotiable Instruments (Amendment) Act, 2018 ("NI Amendment Act").
 As per new section 143A, the trial court may direct the drawer of the cheque to pay an interim compensation
to the payee/complainant, which shall not exceed 20% of the cheque amount in dispute.
 As per section 148, the appellate court may direct the drawer who has filed an appeal against conviction
under section 138 to deposit before the appellate court minimum of 20% of the fine or compensation, within
60 days from the date of the order passed by the appellate court.
 As per section 13, an NI means and include promissory note, bill of exchange and cheque payable either to
order or bearer
 Sec 4 deals with Promissory Note, Sec 5 deals with Bill of Exchange and Sec 6 deals with Cheques
 Sec 7 mentions the various parties to a Bill of Exchange
 Sec 8 defines who is a holder of a NI
 Sec 9 deals with Holder in Due course; Sec 10- Payment in due course
Banking Laws-NI Act 1881 –Important Sections
 Truncated Cheques - A Truncated cheque is one the physical movement of which is stopped. In its place its electronic
image (confirmed by electronic signatures of the collecting bank) is used for collection and payment purpose.
 Sec 15 deals with Endorsement and its meaning
 Sect 16 - Endorsement in blank and in full endorsee
 Sec 18- Where amount is stated differently in figures and words
 Sec 20- Inchoate instrument- A negotiable instrument in which not all the particulars are given. The drawer of an
inchoate instrument can authorize a third party to fill in a specified missing particular/s.
 Sec 31- Liability of a drawee of cheque- To honour if sufficient balance is available in the account applicable to the
cheque.
 Sec 85 (1)- Cheque payable to order and Sec 85(2) Cheque payable to Bearer
 Sec 87- deals with material alteration of a cheque- cheque is rendered void
 Sec 123 – General Crossing; Sec 124- Special crossing
 Section 128 - Payment in due course of crossed cheque,
 Section 129 - Payment of crossed cheque out of due course,
 Section 130 - Cheque bearing not negotiable crossing
 Sec 131- "Non-liability of banker receiving payment of cheque“; Sec 131 A applicable to DDs
 Sec 132- deals with Bills of exchange being drawn in sets
 Sec 138- deals with dishonor of cheque for insufficiency of funds in the account of the drawer
 Sec 148 empowers appellant courts to order the drawer convicted under sec 138 to deposit a minimum of 25% of
the fine or compensation awarded before the appeal can be filed
Banking Laws-Contract Act 1872

• Essentials of a valid contract: Offer and acceptance; create legal obligation; lawful consideration; free
consent; lawful objective; capacity to contract;
• Void and voidable contract
• Indemnity:
Banking Laws-Partnership Act 1932
• Section 4: Definition, Not a separate legal entity; Only for lawful purposes
• Sec 18- Each partner is an Agent of the other partner/s
• Sec 25- Joint and several liability of partners for all acts done while he is a partner
• Sec 30- A minor can be admitted to the benefits of a partnership
• Sec 42- Death, insolvency etc. of a partner dissolves the partnership
• Sec 58-Registration of a partnership is optional
• Sec 69- A registered firm can sue third parties to enforce rights arising from a contract.
• An unregistered firm cannot; but the creditors of an unregistered firm can sue the firm
• Partnership Act does not fix the maximum number of partners.
• The new Companies Act 2013 has prescribed the maximum number of members in case
of a partnership firm should not be more than 100 in case of partnerships.
• The Central Government has prescribed maximum number of partners in a firm to be 50
vide Rule 10 of the Companies (Miscellaneous) Rules,2014.Thus, in effect, a partnership
firm cannot have more than 50 members".
Banking Laws-Companies Act 2013
The common differences between a private and public limited company are as follows:
Features Public limited company Private limited company
Minimum members 7 2
Minimum directors 3 2
Maximum members Unlimited 200
Minimum capital 500000 100000
Invitation to public Yes No
Issue of prospectus Yes No
Quorum at AGM 5 Members 2 Members
Certificate for commencement of
Yes Yes *
Business ( Mandatory)
Term used at the end of name Limited Private Limited
Can not exceed more than 11% of Net
Managerial remuneration No restriction
Profits
Statutory meeting (Mandatory) Yes No
• New Concepts introduced in 2013- One person company, Cap on number of persons in a private company
raised, Recognition of E- voting, Introduction of e-filing of charges
Banking Laws-Companies Act 2013

• A charge is defined as an interest or lien created on the property or assets of a company or any of its undertakings or both
as security and includes a mortgage
• Has to be filed for all types of lending with ROC
• Charge may be a fixed or floating charge depending upon its nature
• Charge can be filed by the Company or in its absence by the lender
 Creation of charges should be filed with the Registrar of Companies within 30 days of date of creation of charge.
 Registrar may allow such registration to be made within a period of three hundred days of such creation on payment of
additional fees.
 If registration is not made within a period of three hundred days of such creation, the company shall seek extension of
time in accordance with section 87
 Any subsequent registration of a charge shall not prejudice any right acquired in respect of any property before the
charge is actually registered [Sec 77 (1)]
 No charge created by a company shall be taken into account by the liquidator or any other creditor unless it is duly
registered and a certificate of such registration is issued by the ROC. [Sec 77(3)].
Banking Laws-Consumer Protection Act 2019
DISTRICT FORUM STATE NATIONAL
COMMISSION
COMMISSION
Appeal Can appeal to State Can appeal to Appeal to Supreme
Court within 30 days from
Commission within 30 National the date of order
days from the date of Commission
order within 30 days from
the date of order

Financial Complaints of value up Above Rs.100 lacs Above Rs. 10 Crores

Jurisdiction to Rs.100 Lacs up to Rs.10 crores

Limitation Two years from the date of cause of action

Period
Banking Laws-Companies Act 2013
DISTRICT FORUM STATE COMMISSION NATIONAL
COMMISSION

Constitution Three members – one of Three members – one of Five members – one of
whom shall be a woman whom shall be a woman whom shall be a woman

President To be qualified to be a To be qualified to be a To be qualified to be a

District Judge High Court Judge Supreme Court Judge

Time Frame for Disposal • Generally, within Shall decide within three Shall decide within three
of Complaints three months of the months of the receipt of months of the receipt of
receipt of notice by notice by opposite party notice by opposite party
opposite party
• Five months if the
complaint requires
analysis or testing of
commodities by a
laboratory
Banking Laws- Transfer of Property Act 1882

Section 58 of Transfer of Property Act defines- "Mortgage", "mortgagor", "mortgagee", "mortgage -money"
and "mortgaged".
• A mortgage is the transfer of an interest in specific immoveable property for the purpose of securing the
payment of money advanced or to be advanced by way of loan, an existing or future debt, or the
performance of an engagement which may give rise to a pecuniary liability.
• The transferor is called a mortgagor, the transferee a mortgagee; the principal money and interest of
which payment is secured for the time being are called the mortgage-money, and the instrument (if any)
by which the transfer is effected is called a mortgage-deed.
• Equitable mortgage means, mortgage by deposit of title deeds.
• This mortgage is not required to be registered with sub-registrar.
• Original title deed is being made available by the borrower, which proves his ownership.
• Actual possession of property by the borrower may be verified by physical visit to the property.
• Since, in this type of mortgage, original title deed is deposited with the bank, borrower can not sell or
dispose off the property till the bank loan is repaid and original title deed is returned to him.
Banking Laws- Banker’s Book Evidence Act 1891

• The Bill was passed by the legislature on 1st October 1891.

• The objective of the Act was to make the certified copies of entries in bankers‟ books
applicable as evidence under certain conditions
• Certified Copy‟- means copy of records maintained in the written form or electronic form with
a certificate written at the foot of such copy. That it is a true copy of such entry, such entry
is contained in one of the ordinary books of the bank, entry was made in the ordinary
course of business, book is still in the custody of the bank
• BANK OFFICER ATTENDANCE NOT NECESSARY- In any proceeding where the bank is not a
party, no officer shall be compelled to produce any banker’s book contents of which can be
provided under this Act by production of certified copies.
• Similarly no officer of the bank shall be called as witness to prove the matters or the
transactions and accounts recorded in the certified copies.
• The court order to produce Bank’s books shall be served on the bank at least three clear
working days before the same is to be obeyed.
Banking Laws-RTI Act 2005
• Certain sections came into force w.e.f. June 15, 2005;Other sections w.e.f. October 12, 2005
• Only citizens of India can get information from public authorities; Information seeker:
• Has to declare his citizenship status while seeking information; Need not give any reason
• Ordinarily no proof of citizenship is required to be submitted along with the application nor is the PIO
expected to ask for a proof.
• However, in certain exceptional circumstances, a PIO may ask for the proof for example, if he has reason to
believe that the application has not been filed by a citizen or if there is a doubt whether the applicant is an
Indian citizen.
• Companies/corporate, not being citizens, are not eligible to get information
• NGOs come under the ambit of ‘public authorities’ if they are directly or indirectly funded by the
Government.
• Persons belonging to the Below Poverty Line category cannot be charged any fees / charges at all.
• The appeals against the orders of the PIO are filed with the FAA.(First Appellate Authority)
• Following information exempted under RTI Act 2002-National security, Contempt of court, Parliamentary
privilege, Trade secrecy, Fiduciary relationship etc.
• Information to besupplied within the stipulated time limit of 30 days
• Personal penalty of Rs. 250 per day with a maximum of Rs. 25000 for failure to give information
Documentation

• The Bank has standardised the set of documents to be executed

by a borrower/guarantor for various credit facilities.
• Follow the practice of scrutiny of security documents, by the Law
Officer/Advocate on panel
• In respect of the borrowal accounts with aggregate sanctioned
(funded and non-fund) credit facilities of Rs. 500.00 lakh and above
the security documents must be vetted by Law Officer / Advocate
on panel before disbursement.
• Any rectification suggested shall be carried out before
disbursement.
• In respect of the borrowal accounts with limits (funded and non-
fund) are of Rs. 50.00 lakh and above but less than Rs. 500.00
lakh, scrutiny is to be completed by the Advocate on Bank's panel
before disbursal
• In case the same cannot be ensured before disbursal, the
documents must be vetted within 30 days from date of
disbursement and any rectification suggested be carried out.
Documentation

• Documents must be complete, enforceable, adequately stamped

• Registration under CERSAI is mandatory for eligible cases.
• Take search of the charges in the Central Registry paying prescribed fees
before processing the proposal
• and also before creation of mortgage to ascertain any prior charges
subsisting to avoid creation of multiple charges
• Obtaining End-Use Certificate from borrowers - for all credit facilities of
Rs.10.00 lakh and above certifying that funds have been used for the
purpose for which the facilities have been sanctioned, (except staff
advances and advances against term deposit receipts of the Bank)
• Where the borrowers' accounts are subjected to audit, the end use
certificate should be obtained from the borrower's Auditor.