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BANKING REGULATION ACT

Ministry of Law and Justice

Act nº 10 of 1949


  • Part 1
  • Part 2
  • Part 2A. Control Over Management
  • Part 2B. Prohibition of Certain Activities in Relation to Banking Companies
  • Part 2C
  • Part 3
  • Part 3A. Special Provisions for Speedy Disposal of Winding Up Proceedings
  • Part 3B. Provisions Relating to Certain Operations of Banking Companies
  • Part 4
  • Part 5
  • Schedules
  • Amending Acts
  • Act nº 10 of 1949

Preamble

THE BANKING REGULATION ACT, 19491

[Act No. 10 of 1949]

[10th March, 1949]

PREAMBLE

An Act to consolidate and amend the law relating to banking 2[***].

WHEREAS it is expedient to consolidate and amend the law relating to banking 2 [***].

It is hereby enacted as follows.-

1. For Statement of Objects and Reasons, see Gazette of India, 1948, Pt. V, pp. 311 and 312, for Report of Select Committee, see Gazette of India, 1949, Pt. V, pp. 45 to 48.

Extended to Dadra and Nagar Haveli by Reg. 6 of 1963 Section 2 and Schedule I w.e.f. 1-7-1965 and to Goa, Daman and Diu by Reg. 11 of 1963, Section 3 and Schedule Nothing in this Acts (except section 34A) shall apply to the Industrial Development Bank of India vide Act 18 of 1964, Section 34.

2. The word "Companies" omitted by Act 23 of 1965, Section 10 w.e.f. 1-3-1966.


Part 1

Section 1. Short title, extent and commencement

(1) This Act may be called the Banking 1 [Regulation] Act, 1949.

2 [(2)It extends to the whole of India 3 [* * *].]

(3) It shall comeinto force on such date4 as the Central Government may, by notification in the Official Gazette, appoint inthis behalf.

1. Substituted by Act 23 of 1965, Section 11, for "Companies" w.e.f.1-3-1966.

2. Substituted by Act 20 of 1950,Section 2, for sub-section (2).

3. The words "except the State ofJammu and Kashmir" omitted by Act 62 of 1956, Section 2 and Schedule.

4. Came into force on 16th March, 1949; see Notification NO.F.4(46)-FI/49, dated 10th March, 1949, published in the Gazette of India, 1949,Pt. I, P. 326.


Section 2. Application of other laws not barred

The provisions of this Act shall be in addition to, and not, save as hereunder expressly provided, in derogation of the 1[Companies Act, 1956 (1 of 1956 )], and any other law for the time being in force.

1. Substituted by Act 95 of 1956, Section 14 and Schedule, for "Indian Companies Act, 1913 (7 of 1913)" w.e.f. 14-1- 1957.


Section 3. Act to apply to co-operative societies in certain cases

1[3. Act to apply to co-operative societies in certain cases.-

Nothing in this Act shall apply to.-

(a) a primary agricultural credit society;

(b) a co-operative land mortgage bank; and

(c) any other co-operative society, except in the manner and to the extent specified in Part V.]

1. Substituted by Act 23 of 1956, Section 12, for the former Section 12, for the former section w.e.f. 1-3-1966.


Section 4. Power to suspend operation of Act

(1) The Central Government, if on a representation made by the Reserve Bank in this behalf it is satisfied that it is expedient so to do, may by notification in the Official Gazette suspend for such period, not exceeding sixty days, as may be specified in the notification, the operation of all or any of the provisions of this Act, either generally or in relation to any specified banking company.

(2) In a case of special emergency, the Governor of the Reserve Bank, or in his absence a Deputy Governor of the Reserve Bank nominated by him in this behalf may, by order in writing, exercise the powers of the Central Government under sub-section (1) so however that the period of suspension shall not exceed thirty days, and where the Governor or the Deputy Governor, as the case may be, does so, he shall report the matter to the Central Government forthwith, and the order shall, as soon as may be, be published in the Gazette of India.

(3) The Central Government may, by notification in the Official Gazette, extend from time to time the period of any suspension ordered under sub-section (1) or subsection (2) for such period, not exceeding sixty days at any one time, as it thinks fit so however that the total period does not exceed one year.

(4) A copy of any notification issued under sub-section (3) shall be laid on the table of 1[Parliament] as soon as may be after it is issued.

1. Substituted by the A. O. 1950, for "the Dominion Legislature".


Section 5. Interpretation

1 [In this Act], unless there is anything repugnant in the subject orcontext, -

2 [(a) "approved securities" means--

(i) securities in which a trustee may invest money underclause (a), clause (b), clause (bb), clause (c) or clause (d) of section 20 ofthe Indian Trusts Act, 1882 (2 of 1882);

(ii) such of the securities authorised by the CentralGovernment under clause (f) of section 20 of the Indian Trusts Act, 1882 (2 of 1882),as may be prescribed;]

(b) "banking" means the accepting, for thepurpose of lending or investment, of deposits of money from the public,repayable on demand or otherwise, and withdrawal by cheque, draft, order orotherwise;

(c) "banking company" means any company whichtransacts the business of banking 3 [in India];

Explanation.--Any company which is engaged in themanufacture of goods or carries on any trade and which accepts deposits ofmoney from the public merely for the purpose of financing its business as suchmanufacturer or trader shall not be deemed to transact the business of bankingwithin the meaning of this clause;

4 [(ca) "banking policy" means any policy which is specifiedfrom time to time by the Reserve Bank in the interest of the banking system orin the interest of monetary stability or sound economic growth, having dueregard to the interests of the depositors, the volume of deposits and otherresources of the bank and the need for equitable allocation and the efficientuse of these deposits and resources;]

5 [(cc) "branch" or "branch office", in relation toa banking company, means any branch or branch office, whether called a payoffice or sub-pay office or by any other name, at which deposits are received,cheques cashed or moneys lent, and for the purposes of section 35 includes anyplace of business where any other form of business referred to in sub-section(1) of section 6 is transacted;]

6 [(d) "company" means any company as defined in section 3 ofthe Companies Act, 1956 (1 of 1956); and includes a foreign company within themeaning of section 591 of that Act;)

7 [(da) "corresponding new bank" means a corresponding newbank constituted under section 3 of the Banking Companies (Acquisition andTransfer of Undertakings) Act, 1970 (5 of 1970); or under section 3 of theBanking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of1980);]

8 [* * * * *]

(f) "demand liabilities" means liabilities whichmust be met on demand, and "time liabilities" means liabilities whichare not demand liabilities;

9 [(ff) "Deposit Insurance Corporation" means the DepositInsurance Corporation established under section 3 of the Deposit InsuranceCorporation Act, 1961 (47 of 1961);]

26[* * *]

(ffb) "Exim Bank" means the Export-Import Bankof India established under section 3 of the Export-Import India Act, 1981 (28of 1981);]

11 [(ffc) "Reconstruction Bank" means the IndustrialReconstruction Bank of India established under section 3 of the IndustrialReconstruction Bank of India Act, 1984 (62 of 1984);]

12 [(ffd) "National Housing Bank" means the National Housing Bankestablished under section 3 of the National Housing Bank Act, 1987;]

(g) "gold" includes gold in the form of coin,whether legal tender or not, or in the form of bullion or ingot, whetherrefined or not;

13 [(gg) "managing agent" includes. -

(i) Secretaries and Treasurers;

(ii) Where the managing agent is a company, and director ofsuch company, and any member thereof who holds substantial interest in suchcompany;

(iii) Where the managing agent is a firm, any partner ofsuch firm;]

14 [(h) "managing director", in relation to a banking company,means a director who, by virtue of an agreement with the banking company or ofa resolution passed by the banking company in general meeting or by its Boardof directors or, by virtue of its memorandum or articles of association, isentrusted with the management of the whole, or substantially the whole of theaffairs of the company, and includes a director occupying the position of amanaging director, by whatever name called:]

15 [Provided that the managing director shall exercise his powers subjectto the superintendence, control and direction of the Board of Directors;]

16 [(ha) "National Bank" means the National Bank forAgriculture and Rural Development established under section 3 of the NationalBank for Agriculture and Rural Development Act, 1981;]

17 [* * * * *]

(j) "prescribed" means prescribed by rules madeunder this Act;

16 [(ja) "regional rural bank" means a regional rural bankestablished under section 3 of the Regional Rural Banks Act, 1976 (21 of 1976);]

17 [* * * * *]

18 [(1) "Reserve Bank" means the Reserve Bank of India constitutedunder section 3 of the Reserve Bank of India Act, 1934 (2 of 1934);]

17 [* * * * *]

(n) "secured loan or advance" means a loan oradvance made on the security of assets the market value of which is not at anytime less than the amountof such loan or advance; and "unsecured loan oradvance" means a loan or advance not so secured;

19 [(ni) "Small Industries Bank" means the Small IndustriesDevelopment Bank of India established under section 3 of the Small IndustriesDevelopment Bank of India, 1989;]

20 [(na) "small-scale industrial concern" means an industrialconcern in which the investment in plant and machinery is not in excess ofseven and a half lakhs of rupees or such higher amount, not exceeding twentylakhs of rupees, as the Central Government may, by notification in the OfficialGazette, specify in this behalf, having regard to the trends in industrialdevelopment and other relevant factors;]

21 [(nb) "Sponsor Bank" has the meaning assigned to it in theRegional Rural Banks Act, 1976 (21 of 1976);

(nc) "State Bank of India" means the State Bankof India constituted under section 3 of the State Bank of India Act, 1955 (23of 1955);]

22 [(nd)] "subsidiary bank" has the meaning assigned to it inthe State Bank of India (Subsidiary Banks) Act, 1959;

23 [(ne)] " substantial interest". -

(i) in relation to a company, means the holding of abeneficial interest by an individual or his spouse or minor child, whethersingly or taken together, in the shares thereof, the amount paid up on whichexceeds five lakhs of rupees or ten percent of the paid-up capital of thecompany, whichever is less;

(ii) in relation to a firm, means the beneficial interestheld therein by an individual or his spouse or minor child, whether singly ortaken together, which represents more than ten per cent of the total capitalsubscribed by all the partners of the said firm;]]

24 [(o) all other words and expressions used herein but not defined anddefined in the Companies Act, 1956 (1 of 1956), shall have the meaningsrespectively assigned to them in that Act.]

25 [* * * * *]

1. Substituted by Act 55 of 1963, Section 6, for "(1) In this Act,"w.e.f. 1-2-1964

2. Clause (a) Substituted by Act 1 of 1984, Section 13 w.e.f. 15-2-1984.

3. Substituted by Act 20 of 1950, Section 3, for "in any State".

4.Inserted By Act 58of 1958, Section 2 w.e.f. 1-2-1969.

5. Inserted By Act 58 of 1959, Section 2 w.e.f. 1-10-1959.

6. Substituted by Act 58 of 1959 Section 2, for clause (d) w.e.f.1-10-1959.

7. Inserted By Act 1 of 1984, Section 13 w.e.f. 15-2-1984.

8. Clause (e) omitted by Act 52 of 1953, Section 2.

9. Inserted By Act 47 of 1961, Section 51 and Schedule II, Pt. II w.e.f.1-1-1962.

10. Inserted By Act 1 of 1984, Section 13 w.e.f. 15-2-1984.

11. Inserted by Act 62 of 1984, Section 71 and Third Schedule w.e.f.20-3-1985.

12. Inserted by Act 53 of 1987, Section 56 and Second Schedule w.e.f.9-7-1988.

13. Inserted by Act 58 of 1968, Section 2 w.e.f. 1-2-1969.

14. Substituted by Act 33 of 1959, Section 2, for clause (h) w.e.f.1-10-1959.23Added by Act 58 of 1968, Section 2 w.e.f. 1-2-1969.

15. Added by Act 58 of 1968, Section 2 w.e.f. 1-2-1969.

16. Inserted by Act 61 of 1981, Section 61 and Second Schedule, Pt. IIw.e.f. 1-5-1982.

17. Clauses (i), (k) and (m) omitted by Act 33 of 1959, Section 2 w.e.f.1-5-1982.

18. Inserted by Act 1 of 1984, Section 13 w.e.f. 15-2-1984

19.Inserted by Act 39of 1989, Section 53 and Second Schedule, Pt. III w.e.f. 25-10-1989

20. Inserted by Act 58 of 1968, Section 2 w.e.f. 1-2-1969.

21. Inserted by Act 58 of 1968, Section 2 w.e.f. 1-2-1969

22. Clause (nb) re/lettered as Clause (nb) by Act 1 of 1984, Section 13w.e.f. 15-2-1984

23. Clause (nc) re/lettered as Clause (ne) by Act 1 of 1984, Section 13w.e.f. 15-2-1984

24. Inserted by Act 33 of 1959, Section 2 w.e.f. 1-10-1959.

25. Sub-section (2) omitted by the A.O. 1950

26. Omitted by the Industrial Development Bank (Transfer of Undertaking and Repeal) Act, 2003. Prior to omission it read as:

"10 [(ffa) "Development Bank" means the Industrial DevelopmentBank of India established under section 3 of the Industrial Development Bank ofIndia Act, 1964 (18 of 1964);"



Section 5A. Act to override memorandum, articles, etc

1 [5A. Act to override memorandum, articles, etc

Save as otherwise expressly provided in this Act. -

(a) the provisions of this Act shall have effectnotwithstanding anything to the contrary contained in the memorandum orarticles of a banking company, or in any agreement executed by it, or in anyresolution passed by the banking company in general meeting or by its Board ofDirectors, whether the same be registered, executed or passed, as the case maybe, before or after the commencement of the Banking Companies (Amendment) Act,1959 (33 of 1959); and

(b) any provision contained in the memorandum, articles,agreement or resolution aforesaid shall, to the extent to which it is repugnantto the provisions of this Act, become or be void, as the case may be.]

1. Inserted by Act 33 of 1959, Section 2 w.e.f. 1-10-1959.


Part 2

Section 6. Forms of business in which banking companies may engage

(1) Inaddition to the business of banking, a banking company may engage in any one ormore of the following forms of business, namely:-

(a) the borrowing, raising, ortaking up of money; the lending or advancing of money either upon or withoutsecurity; the drawing, making, accepting, discounting, buying, selling,collecting and dealing in bills of exchange, hoondees, promissory notes,coupons, drafts, bills of lading, railway receipts, warrants, debentures,certificates, scrips and other instruments and securities whether transferableor negotiable or not; the granting and issuing of letters of credit,traveller's cheques and circular notes; the buying, selling and dealing inbullion and specie; the buying and selling of foreign exchange includingforeign bank notes; the acquiring, holding, issuing on commission, underwritingand dealing in stock, funds, shares, debentures, debenture stock, bonds,obligations, securities and investments of all kinds; the purchasing andselling of bonds, scrips or other forms of securities on behalf of constituentsor others, the negotiating of loans and advances; the receiving of all kinds ofbonds, scrips or valuables on deposit or for safe custody or otherwise; theproviding of safe deposit vaults; the collecting and transmitting of money andsecurities;

(b) actingas agents for any Government or local authority or any other person or persons;the carrying on of agency business of any description including the clearingand forwarding of goods, giving of receipts and discharges and otherwise actingas an attorney on behalf of customers, but excluding the business of a 1 [managingagent or secretary and treasurer] of acompany;

(c) contracting for public andprivate loans and negotiating and issuing the same;

(d) the effecting, insuring,guaranteeing, underwriting, participating in managing and carrying out of anyissue, public or private, of State, municipal or other loans or of shares,stock, debentures, or debenture stock of any company, corporation orassociation and the lending of money for the purpose of any such issue;

(e) carrying on and transactingevery kind of guarantee and indemnity business;

(f) managing, selling andrealising any property which may come into the possession of the company insatisfaction or part satisfaction of any of its claims;

(g) acquiring and holding andgenerally dealing with any property or any right, title or interest in any suchproperty which may form the security or part of the security for any loans or advancesor which may be connected with any such security;

(h) undertaking and executingtrusts;

(i) undertaking theadministration of estates as executor, trustee or otherwise;

(j) establishing and supportingor aiding in the establishment and support of associations, institutions,funds, trusts and conveniences calculated to benefit employees or ex-employeesof the company or the dependents or connections of such persons; grantingpensions and allowances and making payments towards insurance; subscribing toor guaranteeing moneys for charitable or benevolent objects or for anyexhibition or for any public, general or useful object;

(k) the acquisition,construction, maintenance and alteration of any building or works necessary orconvenient for the purposes of the company;

(l) selling, improving,managing, developing, exchanging, leasing, mortgaging, disposing of or turninginto account or otherwise dealing with all or any part of the property andrights of the company;

(m) acquiring and undertakingthe whole or any part of the business of any person or company, when suchbusiness is of a nature enumerated or described in this sub- section;

(n) doing all such other thingsas are incidental or conducive to the promotion or advancement of the businessof the company;

(o) any other form of businesswhich the Central Government may, by notification in the Official Gazette,specify as a form of business in which it is lawful for a banking company toengage.

(2) No banking company shall engage in any form ofbusiness other than those referred to in sub-section (1).

1. Substituted by Act 33 of 1959, Section 4, for "managing agent"w.e.f. 1-10-1959


Section 7. Use of words

1 [7. Use ofwords "bank", "banker", "banking" or"banking company"

(1) No companyother than a banking company shall use as part of its name 2 [or inconnection with its business] any of the words"bank", "banker" or "banking" and no companyshall carry on the business of banking in India unless it uses as part of itsname at least one of such words.

(2) Nofirm, individual or group of individuals shall, for the purpose of carrying onany business, use as part of its or his nameany of the words "bank", "banking" or "bankingcompany".

(3)Nothing in this section shall apply to

(a) a subsidiary of a bankingcompany formed for one or more of the purposes mentionedin sub-section (1) of section 19, whose name indicatesthat it is a subsidiary of that banking company;

(b) any association of banksformed for the protection of their mutual interests and registered undersection 25 of the Companies Act, 1956 (1 of 1956).]

1. Subsituted by Act 55 of 1963, Section 7, for the former section 7w.e.f. 1-2-1964.

2. Inserted by Act 1 of 1984, Section 14 w.e.f. 15-2-1984


Section 8. Prohibition of trading

Notwithstanding anythingcontained in section 6 or in any contract, no banking company shalldirectly 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 thanin connection with bills of exchange received for collection or negotiation orwith such of its business as is referred lo inclause (i) of sub-section (1) of section 6:

1 [Provided that this section shall not apply to any suchbusiness as is specified in pursuance of clause (o) of sub-section (1) ofsection 6.

Explanation.--For the purposes ofthis section, "goods" means every kind of movable property, other than actionableclaims, stocks, shares, money, bullion and specie, and all instruments referredto in clause (a) of sub-section (1) of section 6.

1. Subsituted by Act 1 of 1984, Section 15 w.e.f.15-2-194


Section 9. Disposal of non-banking assets

Notwithstanding anything contained in section 6, no banking company shall hold any immovable property howsoever acquired, except such as is required for its own use, for any period exceeding seven years from the acquisition thereof or from the commencement of this Act, whichever is later or any extension of such period as in this section provided, and such properly shall be disposed of within such period or extended period, as the case may be:

Provided that the banking company may, within the period of seven years as aforesaid deal or trade in any such property for the purpose of facilitating the disposal thereof:

Provided further that the Reserve Bank may in any particular case extend the aforesaid period of seven years by such period not exceeding five years where it is satisfied that such extension would be in the interests of the depositors of the banking company.

Section 10. Prohibition of employment of managing agents and restrictions on certain forms of employment

1 [10. Prohibition of employment ofmanaging agents and restrictions on certain forms of employment

(1) Nobanking company-

(a) shall employ or be managedby a managing agent; or

(b) shall employ or continue theemployment of any person-

(i) who is, or at any time hasbeen, adjudicated insolvent, or has suspended payment or has compounded with hiscreditors, or who is, or has been, convicted by a criminal court of an offenceinvolving moral turpitude; or

(ii) whose remuneration or partof whose remuneration takes the form of commission or of a share in the profitsof the company:

2 [Provided that nothing contained in this sub-clause shallapply to the payment by a banking company of-

(a) any bonus in pursuance of a settlementor award arrived at or made under any law relating to industrial disputes or inaccordance with any scheme framed by such banking company or in accordancewith the usual practice prevailing in banking business;

(b) any commission to any broker(including guarantee broker), cashier-contractor, clearing and forwardingagent, auctioneer or any other person, employed by the banking company under acontract otherwise than as a regular member ofthe staff of the company; or]

(iii) whose remuneration is, inthe opinion of the Reserve Bank, excessive; or

(c) shall be managed by anyperson-

3 [(i) who is a director of any other company not being-

(a) a subsidiary of the bankingcompany, or

(b) a company registered undersection 25 of the Companies Act, 1956 (1 of 1956):

Provided that the prohibition inthis sub-clause shall not apply in respect of any such director for a temporaryperiod not exceeding three months or such further period not exceeding ninemonths as the Reserve Bank may allow; or]

(ii) who is engaged in any otherbusiness or vocation; or

(iii)4 [whose termof office as a person managing the company is]for period exceeding five years at any one time:

5 [Provided that the term of office of any such person may berenewed or extended by further periods not exceeding five years on eachoccasion subject to the condition that such renewal/extension shall not besanctioned earlier than two years from the date on which it is to come intoforce:

Provided also that where theterm of office of such person is for an indefinite period, such term, unless itotherwise comes to an end earlier, shall come to an end immediately on theexpiry of five years from the date of hisappointment or on the expiry of three months from the date of commencement ofsection 8 of the Banking Laws(Miscellaneous Provisions) Act, 1963 (55 of 1963),whichever is later:]

Provided further that nothing inthis clause shall apply to a director, other than the managing director, of abanking company by reason only of his beingsuch director.

Explanation.--For the purpose ofsub-clause (iii) of clause (b), the expression "remuneration", inrelation to person employed or continued in employment, shall include salary,fees and perquisites but shall not include any allowances or other amounts paidto him for the purpose of reimbursing him inrespect of the expense actually incurted by him in theperformance of his duties.

(2) Informing its opinion under sub-clause (iii) of clause (b) of sub-section (1), theReserve Bank may have regard among other matters to thefollowing:-

(i) the financial condition and history ofthe banking company, its size and area of operation, its resources, the volumeof its business, and the trend of its earning capacity;

(ii) the number of its branchesor offices;

(iii) the qualifications, ageand experience of the person concerned;

(iv) the remuneration paid toother persons employed by the banking company or to any person occupying asimilar position in any other banking company similarly situated; and

(v) the interests of itsdepositors.

6 [7 [***].]

(6) Anydecision or order of the Reserve Bank made under thissection shall be final for all purposes.]

1. Subsituted by Act 33 of 1959, Section 6, for the proviso w.e.f.1-10-1959

2. Subsituted by Act 33 of 1959, Section 6 for sub-clause (i) w.e.f.1-10-1959.

3. Subsituted by Act 33 of 1959, Section 6 for sub-clause (i) w.e.f.1-10-1959.

4. Subsituted by Act 55 of 1963, Section 8, for certain words w.e.f.1-2-1964.

5. Subsituted by Act 55 of 1963, Section 8, for the first provisow.e.f. 1-2-1964.

6. Subsituted by Act 33 of 1959, Section 6, for sub-section (3)w.e.f. 1-10-1959.

7. Sub-sections (3), (4) and (5) omitted by Act 55 of 1963, Section 8w.e.f. 1-2-1964.


Section 10A. Board of directors to include persons with professional or other experience

1 [10A.Board ofdirectors to include persons with professional or other experience

(1)Notwithstanding anything contained in any other law for the time being inforce, every banking company,-

(a) in existence on thecommencement of section 3 of the Banking Laws (Amendment)Act, 1968 (58 of 1968), or

(b) which comes into existencethereafter,

shall comply with therequirements of this section:

Providedthat nothing contained in this sub-section shall apply to a banking companyreferred to in clause (a) for a period of three months from such commencement.

(2) Notless than fifty-one per cent, of the total number of members ofthe Board of directors of a banking company shall consist ofpersons, who-

(a) shall have special knowledgeor practical experience in respect of one or more of the following matters,namely:-

(i) accountancy,

(ii) agriculture and ruraleconomy,

(iii) banking,

(iv) co-operation,

(v) economics,

(vi) finance,

(vii) law,

(viii) small-scale industry,

(ix) any other matter thespecial knowledge of, and practical experience in, which would, in the opinionof the Reserve Bank, be useful to the banking company:

Providedthat out of the aforesaid number of directors, not less than two shall bepersons having special knowledge or practical experience in respect ofagriculture and rural economy, co-operation or small-scale industry; and

(b) shall not-

(1) havesubstantial interest in, or be connected with, whether as employee, manager ormanaging agent,-

(i) any company, not being acompany registered under section 25 of the Companies Act, 1956 (1 of 1956), or

(ii) any firm,

whichcarries on any trade, commerce or industry and which, in either case, is not asmall-scale industrial concern, or

(2) be proprietors of anytrading, commercial or industrial concern, not being a small-scale industrialconcern.

2 [(2A) Notwithstanding anything to the contrarycontained in the Companies Act, 1956 (1 of 1956), or inany other law for the time being in force,-

(i) no director of a bankingcompany, other than its chairman or whole-time director, by whatever namecalled, shall hold office continuously for a period exceeding eight years;

(ii) a chairman or otherwhole-time director of a banking company who has been removed from office assuch chairman, or whole-time director, as the case may be, under the provisionsof this Act shall also cease to be a director of the banking company and shallalso not be eligible to be appointed as a director of such banking company,whether by election or co-option or otherwise, for a period of four years fromthe date of his ceasing to be the -chairman or whole-timedirector as the case may be.]

(3) If, in respect of any banking company therequirements, as laid down in subsection (2), are not fulfilled at any time,the Board of directors of such banking company shall re-constitute such Boardso as to ensure that the said requirements are fulfilled.

(4) If, for the purpose ofre-constituting the Board under sub-section (3), it is necessary to retire anydirector or directors, the Board may, by lots drawn in such manner as may beprescribed, decide which director or directors shall cease to hold office andsuch decision shall be binding on every director of the Board.

(5) Where the Reserve Bank is ofopinion that the composition of the Board of directors of a banking company issuch that it does not fulfil the requirements of subsection (2), it may, aftergiving to such banking company a reasonable opportunity of being heard, by anorder in writing, direct the banking company to so re-constitute its Board ofdirectors as to ensure that the said requirements are fulfilled and, if withintwo months from the date of receipt of that order, the banking company does notcomply with the directions made by the Reserve Bank, that Bank may, afterdetermining, by lots drawn in such manner as may be prescribed, the person whoought to be removed from the membership of the Board of directors, remove suchperson from the office of the director of banking company and with a view tocomplying with the provision of sub-section (2) appoint a suitable person as amember of the Board of directors in the place of the person so removedwhereupon the person so appointed shall be deemed to have been duly elected bythe banking company as its director.

(6) Every appointment, removalor reconstitution duly made, and every election duly held, under this sectionshall be final and shall not be called into question in any court.

(7) Every director elected or,as the case may be, appointed under this section shall hold office until thedate up to which his predecessor would have held office, if the election hadnot been held, or, as the case may be, the appointment had not been made.

(8) No act or proceeding of theBoard of directors of a banking company shall be invalid by reason only of anydefect in the composition thereof or on the ground that it is subsequentlydiscovered that any of its members did not fulfil the requirements of thissection.

1. Section 10A to 10D Inserted by Act 58 of 1968, Section 3 w.e.f.1-2-1969.

2. Inserted by Act 1 of 1984, Section 16 w.e.f. 15-2-1984.