0%(1)0% fanden dieses Dokument nützlich (1 Abstimmung)
171 Ansichten56 Seiten
This document provides an overview of commercial banking and transnational banking in India. It discusses key topics like the forms of business banking companies can engage in, regulation of capital and voting rights, the Banking Ombudsman scheme, bank-customer relationships, debt recovery laws, and trade finance. It also examines relevant cases and articles. The document outlines the key provisions of the Banking Regulation Act 1949 regarding what constitutes banking, restrictions on certain business activities, capital requirements, and other regulatory aspects. It discusses the application of this Act to cooperative banks and societies in India.
This document provides an overview of commercial banking and transnational banking in India. It discusses key topics like the forms of business banking companies can engage in, regulation of capital and voting rights, the Banking Ombudsman scheme, bank-customer relationships, debt recovery laws, and trade finance. It also examines relevant cases and articles. The document outlines the key provisions of the Banking Regulation Act 1949 regarding what constitutes banking, restrictions on certain business activities, capital requirements, and other regulatory aspects. It discusses the application of this Act to cooperative banks and societies in India.
This document provides an overview of commercial banking and transnational banking in India. It discusses key topics like the forms of business banking companies can engage in, regulation of capital and voting rights, the Banking Ombudsman scheme, bank-customer relationships, debt recovery laws, and trade finance. It also examines relevant cases and articles. The document outlines the key provisions of the Banking Regulation Act 1949 regarding what constitutes banking, restrictions on certain business activities, capital requirements, and other regulatory aspects. It discusses the application of this Act to cooperative banks and societies in India.
TRADE FINANCE UNIT 3 2012 UNIT 3: COMMERCIAL BANKING IN INDIA, INTRODUCTION TO TRANSNATIONAL BANKING 3.1 Form and Business in which banking company may engage 3.2 Chairman/ Managing Director, Board and Management of Banks 3.3 Regulation of Capital and voting rights 3.4 The Banking Ombudsman Scheme, 2006 3.5 Bank-Customer relationship 3.6 Recovery of Debts Due to Banks: SARFAESI Act, 2002, Need for reform 3.7 Trade Finance and Transnational Banking 3.8 Letter of Credit, Uniform Customs & Practice for Documentary Credits Cases: 1) UCO Bank v. Hema Chandra Sarkar, AIR 1990 SC 1329. 2) SBI v. Shyama Devi, AIR 1978 SC 1263 3) Mardia Chemicals v Union of India, AIR 2004 SC 2371 4) ICICI Bank Vs Shanti Devi Sharma 2008 7SCC 532 5) Manager ICICI Bank Ltd Vs Prakash Kaur AIR 2007 SC 1349 6) Federal Bank Ltd v VM Jog Engineering Ltd AIR 2000 SC 3166
Articles: Whither the distinction between equitable and legal mortgages: Indian Supreme Court allows lenders to enforce security interests without court recourse- Aparna Viswanathan; J.I.B.L.R. 2004, 19( 8), 307- 310 Journal of International Banking Law and Regulation 2004 UN Convention on Independent Guarantees and Stand-by Letters of Credit (1995). In The law and practice of documentary letters of credit. Ellinger, E.P. and D. Neo, eds. Oxford; Portland, Hart Publishing, 2010. Ch. 13, vi, D, p. 349-351. UNCITRAL Model Law on International Credit Transfer 1992
Bank, Banking, Commercial Activities of a Banking Institution R.C. Cooper v UoI AIR 1970 SC 564 Mahalaxmi Bank Ltd. V RoC W.B.,A.I.R. 1961 Cal.666 S. 5(b): "banking" means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawal by cheque, draft, or otherwise; S. 5(c): "banking company" means any company which transacts the business of banking in India. Explanation.Any company which is engaged in the manufacture of goods or carries on any trade and which accepts deposits of money from the public merely for the purpose of financing its business as such manufacturer or trader shall not be deemed to transact the business of banking within the meaning of this clause; (ca) "banking policy" means any policy which is specified from time to time by the Reserve Bank in the interest of the banking system or in the interest of monetary stability or sound economic growth, having due regard to the interests of the depositors, the volume of deposits and other resources of the bank and the need for equitable allocation and the efficient use of these deposits and resources;
BANKING REGULATION ACT 1949 Overview Banking means accepting for the purpose of lending or investment of deposits of money from public repayable on demand or otherwise and withdrawable by cheque, drafts order or otherwise (5 (i) (b)). Banking company means any company which transacts the business of banking (5(i)(c) Transact banking business in India (5 (i) (e). Demand liabilities are the liabilities which must be met on demand and time liabilities means liabilities which are not demand liabilities (5(i)(f) Secured loan or advances means a loan or advance made on the security of asset the market value of which is not at any time less than the amount of such loan or advances and unsecured loan or advances means a loan or advance not secured (5(i)(h). Defines business a banking company may be engaged in like borrowing, lockers, letter of credit, traveller cheques, mortgages etc (6(1). States that no company shall engage in any form of business other than those referred in Section 6(1) (6(2). For banking companies carrying on banking business in India to use at least one word bank, banking, banking company in its name (7). Restrictions on business of certain kinds such as trading of goods etc. (8)
. Prohibits banks from holding any immovable property howsoever acquired except as acquired for its own use for a period exceeding 7 years from acquisition of the property. RBI may extend this period by five years (9) Prohibitions on employments like Chairman, Directors etc (10) Paid up capital, reserves and rules relating to these (11 & 12) Banks not to pay any commission, brokerage, discount etc. more than 2.5% of paid up value of one share (13) Prohibits a banking company from creating a charge upon any unpaid capital of the company. (14) Section 14(A) prohibits a banking company from creating a floating charge on the undertaking or any property of the company without the RBI permission. Prohibits payment of dividend by any bank until all of its capitalised expenses have been completely written off (15) To create reserve fund and 20% of the profits should be transferred to this fund before any dividend is declared (17 (1)) Cash reserve - Non-scheduled banks to maintain 3% of the demand and time liabilities by way of cash reserves with itself or by way of balance in a current account with RBI (18) Permits banks to form subsidiary company for certain purposes (19) No banking company shall hold shares in any company, whether as pledgee, mortgagee or absolute owners of any amount exceeding 30% of its own paid up share capital + reserves or 30% of the paid up share capital of that company whichever is less. (19(2). Restrictions on banks to grant loan to person interested in management of the bank (20) Power to Reserve Bank to issue directive to banks to determine policy for advances (21)
. Every bank to maintain a percentage of its demand and time liabilities by way of cash, gold, unencumbered securities 25%- 40% as on last Friday of 2nd preceding fortnight (24). Return of unclaimed deposits (10 years and above) (26) Every bank has to publish its balance sheet as on March 31st (29). Balance sheet is to be got audited from qualified auditors (30 (i)) Publish balance sheet and auditors report within 3 months from the end of period to which they refer. RBI may extend the period by further three month (31) Prevents banks from producing any confidential information to any authority under Indl Disputes Act. (34A) RBI authorised to undertake inspection of banks (35). Amendment carried in the Act during 1983 empowers Central Govt to frame rules specifying the period for which a bank shall preserve its books (45-y), nomination facilities (45ZA to ZF) and return a paid instrument to a customer by keeping a true copy (45Z). Certain returns are also required to be sent to RBI by banks such as monthly return of liquid assets and liabilities (24-3), quarterly return of assets and liabilities in India (25), return of unclaimed deposits i.e. 10 years and above (26) and monthly return of assets and liabilities (27-1).
S.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.] PART V APPLICATION OF THE ACT TO CO-OPERATIVE BANKS 56. Act to apply to co-operative societies subject to modifications.The provisions of this Act, as in force for the time being, shall apply to, or in relation to, co-operative societies as they apply to, or in relation to, banking companies to the following modifications, namely (a) Throughout this Act, unless the context otherwise requires, (i) references to a "banking company" or "the company" or "such company" shall be construed as reference to a Co-operative Bank, (ii) references to "commencement of this Act" shall be construed as references to commencement of the Banking Laws (Application to Co-operative Societies) Act, 1965 (23 of 1965);
. G. Gopinathan Nair v. State of Kerala, AIR. 1977 Ker. 36 Applicability to Co-operative Societies.Amongst the provisions in the Banking Regulation Act which have been made applicable to Co-operative Societies under Part V of the said Act there is no section which deals with any of the following matters, namely (a) the classification of such institutions on the basis of their financial position, (b) the staff-pattern by the said institution or (c) conditions of service of the employees in such institutions. Such being the position, the contention that co-operative societies carrying on the business of banking are governed in respect of such matters, only by the provisions contained in the Banking Regulation Act, 1949, is devoid of any substance. Application to societies.Part V makes substantial departure from the Banking Regulation Act as far as Co-operative Banks are concerned. Sec. 35-B under which amendments of provision relating to appointments of managing directors, etc. are subject to the previous approval of the Reserve Bank, do not apply to a Co-operative Bank
. Apex Coop Bank v Maharshtra St Coop Bank 2003 11SCC66 (2-Judge Bnch) Coop regd u MultiState Act be granted licence by RBI Greater Bombay Coop Bank v United Yarn 2007 6SCC236 (3-Judge Bnch) Coop Banks not under BR Act
Disqualification for continuing in service. 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 Criminal Court of an offence involving moral turpitude; or It is relevant to notice that under Sec. 10 (1) (b) of the Banking Regulation Act, any and every conviction by a Criminal Court does not operate as a disqualification for continuing in service, only the conviction by a Criminal Court of an offence involving moral turpitude operates as such disqualification. Once it is found that an employee has been convicted of an offence involving moral turpitude, the employer has no option but to terminate his service. That is the command of Sec. 10 (1) (b).
Moral turpitudeTest. The test which can be applied for judging whether an offence does or does not involve `moral turpitude can be summarised as follows: (1) Whether the act leading to a conviction was such as could shock the moral conscience of society in general; (2) Whether the motive which led to the act was a base one, and (3) Whether on account of the act having been committed the perpetrator could be considered to be of a depraved character or a person who was to be looked down upon by the society." Bank of Maharashtra v. Om Prakash Malviya, 1997 Lab.1.C. 1932 (Delhi). K. Ganapathy Sastry v. Deputy General Manager, (Staff) Andhra Bank, 1996 (2) Bank. L.J . 311 314, 315 (A. P.). 10-A. Board of Directors to include persons with professional or other experience (2) Not less than fifty-one per cent of the total number of members of the Board of Directors of a banking company shall consist of persons, who shall have special knowledge or practical experience in respect of one or more of the following matters, namely: (5) Where the Reserve Bank is of opinion that the composition of the Board of Directors of a banking company is such that it does not fulfil the requirements of sub-section (2), it may, after giving to such banking company reasonable opportunity of being heard, by an order in writing, direct the banking company to so reconstitute its Board of Directors as to ensure that the said requirements are fulfilled (6) Every appointment, removal or reconstitution duly made and every election duly held, under this section shall be final and shall not be called into question in any Court.
. Issue of direction to fill up vacancy of Director by workman bad: In so far as the Scheduled Banks are concerned, there is no such provision enabling the employees to represent in the Board of Directors of the Banking Company.
Company law is a self-contained Code.The Company Law is a self-contained Code in so far as the appointment of the Director is concerned, the provisions of the Act shall prevail. Sec. 256 (3) of the Companies Act provides that at the annual general meeting at which a Director retires the Company may fill up the vacancy by appointing the retiring director or some other person thereto. However, in view of the fact that the provisions of the Banking Regulation Act are also applicable, such appointment of directors shall be consistent with the provision contained under Sec. 10-A of the Act. Section 10-A of the Act further provides that where the Reserve Bank of India is of opinion that the composition of the Board of Directors of a banking company is such that it does not fulfil the requirements of sub-section (2) it may direct the banking company to so reconstitute the Board of Directors as to ensure that the said requirements are fulfilled T.S. Arumugain v. V. Laxmi Vitas Bank Ltd., 1992 (2) L.L.J . 270 at p. 218 (Mad.): 1993 Bank J . 435 at p. 445 (Mad.).
. 10-B. Banking company to be managed by whole-time Chairman (4) Every Chairman who is appointed on a whole-time basis and every Managing Director of a banking company appointed under sub-section (1-A) shall be a person who has special knowledge and practical experience of (a) the working of a banking company, or of the State Bank of India or any subsidiary bank or financial institution; or (b) financial, economic or business administration: Provided that a person shall be disqualified for being Chairman who is appointed on a whole-time basis as a Managing Director, if he (a) is a director of any company other, than a company referred to in the proviso to sub-section (2); or (b) is a partner of any firm which carries on any trade, business or industry; or (c) has substantial interest in any other company or firm; or (d) is a director, manager, managing agent, partner or proprietor of any trading, commercial or industrial concern; or (e) is engaged in any other business or vocation. 10-BB. Power of Reserve Bank to appoint Chairman of a banking company. 10-C. Chairman and certain directors not to be required to hold qualification shares. 10-D. Provisions of Secs.10-A and 10-B to override all other lazes, contracts, etc
RBI Master Circular- Loans and Advances Statutory and Other Restrictions- 02-July-2012 .
UCO BANK V HEM CHANDRA SARKAR 1990 3SCC389 Bank and Customer Relationship Indian Contract Act, 1872: Bailment-Agency--Distinguishing features What is Duty of Banker-bailee- Bank entrusted with charge of goods/documents by customer- Whether an agent or bailee--Whether any fiduciary relationship exists between parties. Banking Law--Bank and Customer--Existence of fiduciary relationship--Whether could be inferred from entries in current account.
. The Resp, Hem Chandra, who was indenting and lifting goods from textile mills situated in different places, and was maintaining a current account with the appellant-UCO Bank for this purpose, filed a suit against the Bank for accounts, damages, compensation and delivery of goods or their equivalent in money, for non-delivery of goods despite receiving payment thereof, contending that there was an oral agreement with the Bank, regarding receipt and payment of bills, etc. and receipt and storage of goods on his behalf, and delivery of goods to him as and when required. That under the said terms and conditions. the Banker constituted himself and acted as an express trustee and/or agent of the respondent in relation to the said goods and documents and thus stood in fiduciary relationship with the respondent.
. The trial court decreed the suit holding that from the evidence and entries in the current account, it could be inferred that there was agreement or arrangement between the parties, and the Bank acted as agent/trustee of Hem Chandra and that there was fiduciary relationship between the parties. The High Court, affirming the decree of the trial court held that if the respondent had paid the value of the goods and the appellant Bank neither delivered the goods nor rendered accounts, a fiduciary relationship could exist between Hem Chandra and the Bank in respect of the goods for which value was paid by the respondent.
. In the appeal, by special leave, on behalf of the appellant Bank it was contended that the Bank was only a collecting agent for the supply of goods, and not an agent or trustee for the respondent. Adjustment of bills by debiting to the current account without cheques from the respondent would not change the ordinary relationship of bank and customer. No special relationship was created either by opening the current account or storing the goods meant for delivery to the respondent and there was nothing to take the parties outside the usual course of banking business; and the bank received and took charge of the goods only as bailee and any inference of fiduciary relationship between parties was unwarranted and unjustified.
. HELD: The courts below were not justified in holding that a fiduciary relationship could exist between the parties in respect of goods for which the suit claim was based. This inference was drawn primarily from the debit entries in the respondent's current account. Collection of bills, remittances to mills, meeting expenses of storing the goods and debiting the same to the current account even without cheques from the respondent could not lead to an inference that the Bank acted as agent of the respondent and that there was fiduciary relationship between parties. There is nothing in this method of operation to take the parties outside the ordinary relationship of banker and customer. This is the normal method of banking operation and the maintenance of the current account in the instant case is not outside this principle. Law of Banking by Lord Chorley 10th ed. at 167- 168 and Paget's Law of Banking, 9th ed. at8.2-83. referred to.
. 2.1 Banks take charge of goods, articles, securities as bailee and not as trustee or agent. Bailment is the delivery or transfer of possession of a chattel or other item of personal property with a specific mandate which required the identical res either to be returned to the bailor or to be dealt with in a particular way by the bailee as per directions of the bailor. One important' distinguishing feature between agency and bailment is that the bailee does not represent the bailor. He merely exercises. with the leave of the bailor under contract or otherwise, certain powers of the bailor in respect of his property. Fridman's Law of Agency 5th ed. p. 23, referred to. It cannot be held that the Bank acted as agent of Hem. Having regard to the finding of fact recorded by the courts below, it is immaterial whether the Bank acted as bailee or in any other capacity. On the evidence adduced by the parties it has been established that the respondent did pay the price of the goods in respect of which he based his claim in the suit. The Bank having received the price of the goods from the respondent has failed to deliver the same.
Some cases 1). UCO Bank v. Hema Chandra Sarkar, AIR 1990 SC 1329. 2). Foley v. Hill (1848) 9 ER 1002. 3). SBI v. Shyama Devi, AIR 1978 SC 1263 4). Hyderabad Commercials v. Indian Bank, AIR 1991 SC 247
Foley v. Hill (1848) 9 ER 1002 BankBanker and customerRelationshipDebtor and creditorNo fiduciary relation. The relation between a banker and his customer who pays money into the bank is that of debtor and creditor, the banker being liable to repay to the customer the money which he holds for him when required to do so by the customer. When a customer pays money into his account at a bank It ceases to be his money; it becomes the banker's money and he can deal it as his own. He is not vis--vis the customer in the fiduciary position of a trustee or quasi-trustee holding the money for the customer as for a cestui que trust. . In January, 1838, the appellant filed his bill against the respondents, praying that an account might be taken of the sum of 6,117 10s. and all other sums received by the respondents for the appellant on his private account since April, 1829, with interest on the same at the rate of 3 per cent. per annum; and also an account of all sums properly paid by them for or to the use of the appellant on his account since that day, and that they might be decreed to pay the appellant what, upon taking such accounts, should be found due to him. A schedule annexed to the defendants' answer set forth the separate account of the appellant from the bank book, containing the items and entries before mentioned. The chancellor, on the hearing of the cause, decreed for an account as prayed, being of opinion that the respondents were bound in duty to keep the account clear; that they were to be charged accordingly to their duty, the neglect of which could be no excuse, and that the agreement to allow the interest was in effect the same, in answer to the Statute of Limitations, as if the interest had been regularly entered or paid. LORD LYNDHURST, taking a different view of the case, upon appeal, held, first., that the Statute of Limitations was a sufficient defence; and, secondly, that the account consisting of only a few simple items, was not a proper subject for a bill fin equity, but a case for. an action at law for money had and received, and his Lordship reversed the decree, and dismissed the bill. . Trusts and ordinary bank accounts It is not always that case that when one person receives another persons property that there will be a trust. It is an established principle of banking law that when a bank receives money from a customer and pays it into that customers account, the bank receives an outright transfer of that money and so does not hold the deposited money on trust for the customer. In Foley v Hill (1848) 2 HL Cas 28 Lord Cottenham LC described the inter-action of banker and customer in the following terms: [M]oney placed in the custody of a banker is, to all intents and purposes, the money of the banker, to do with it as he pleases; he is guilty of no breach of trust in employing it; he is not answerable to the principal if he puts it into jeopardy, if he engages in a hazardous speculation; he is not bound to keep it or deal with it as the property of his principal; but he is, of course, answerable for the amount, because he has contracted, having received that money, to repay to the principal, when demanded, a sum equivalent to that paid into his hands. . A banker therefore owes only personal obligations to its customers (that is, its depositors) when it receives their deposits. In that sense, money transferred to a bank is an outright transfer of money to the bank. This conclusion was based on the courts analysis of the ordinary intentions of the parties to a banking contract. It would require an express agreement between the bank and the customer for the bank to be understood as acting as a trustee: banks often do act as trustees, but only through special subsidiaries and only in limited circumstances, but not in relation to ordinary bank accounts. Thus, the court will look at the circumstances and infer the existence or non-existence of an express trust from those circumstances. The customers remedy against the banker is a remedy based on ordinary contract law but not based on trusts law. Hirschhorn v Evans (Barclays Bank garnishees) [1938] 2 KB 801, 815, per Mackinnon LJ. So a bank operating an account on behalf of a Lloyds insurance syndicate would not hold those moneys on trust (without something more in the arrangement to require that analysis): Mann v Coutts & Co [2003] EWHC 2138, [2004] 1 CLC 301. Azam v Iqbal [2007] EWHC 2025, [2008] Bus LR 168.
. Fram 1829 to the end of the year 1834, when the joint account was closed, the appellants share of the profits of the collieries was from time to time paid by cheques, drawn by the colliery agents against the joint account. These cheques were, as the respondents alleged, paid in cash or by bills drawn by them an their London bankers in favor of the appellant, and none of them was entered in his separate acount. The only items found in that account mere the 26117 10s. on the credit side, and two sums of &1?00 and &2000 on the debit side, both being payments made to or on behalf of the appeliant in 1830. There were also entries, in a separate column, of interest calculated on the sum or balance in the Bank, up to the 1831, and not afterwards. The appellant filed h i s bill in January 1838, against the respondents, praying that account might be taken of the said sum of 6117 , and all other sums received by the respondents for the plaintiff on his private account since April l829 with interest on the same at, the rate of $3 per cent. per annum; md also an account of all sums properly paid by them for or to the use of the appeIlant not n his said account since that day, and that they might be decreed . The relation between a Banker and customer who pays money into the Bank, is the ordinary relation of debtor and creditor, with a superadded obtigation arising out of the custom of bankers to honour the customer's drafts ; and that relation is not altered by an agreement by the banker to allow the interest on the balances in the Bank. App. Edward Foley, owner of collieries; Resp., Thomas Hill, Banker Foley and Scott Joint owners of a colliery had a Joint account with Hill, Bank. Foley opened a separate a/c and cheq was paid from their joint a/c. Hill promised 3% interest on the amount in the new a/c of Foley.
Banker Customer Relationship The Contract When a customer pays money into his account the bank = a debtor customer = creditor. Foley v Hill (1848) 2 HL Cas 28 The money becomes the property of the bank; the bank has borrowed the money from the customer Balmoral Super market Ltd v Bank of New Zealand [1974] 2 NZLR 155 money stolen at the counter still the property of the customer; Chambers v Miller (1862) 13 CBNS 125 money drawn by a customer from overdrawn account belongs to the customer
Implied Terms The bank will receive the customers deposits and collect cheques The bank will comply with written orders (i.e. cheques) issued by its customers assuming there is sufficient credit tin the account; The bank will repay the entire balance on the customers demand at the account holding branch during banking hours - Libyan Arab Foreign Bank v Bankers Trust [1989] AC 80 PC The bank will give reasonable notice before closing a customers account if it is in credit Joachimson v Swiss Bank Corporation [1921] 3 KB 110 CA The bank must only act on its customers valid instructions and not on any forgery of those instructions Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank [1986] AC 80 PC
. Implied Terms A customer only has duties to: To exercise reasonable care when drawing cheques to prevent forgery and alteration; and To notify the bank if he actually knows of forgeries on his account, a customer who wilfully ignores the obvious is not considered to have actual knowledge London Joint Stock Bank v Macmillan and Arthur [1918] AC 777 HL and in Greenwoods v Martins Bank [1933] AC 51 HL
. Express Terms
Must be made clear to the customer e.g. Electronic Banking and Charges Termination of the Contract Termination by the Customer Termination by the Bank Prosperity Ltd v Lloyds Bank (1923) 39 TLR 372. Termination by Law a) Death of the customer; b) Mental incapacity of the customer c) Bankruptcy or insolvency of bank or customer.
. Duties of the Bank Duty to collect cheques Duty to honour cheques Duty not to pay a cheque without authority Duty to obey customer's countermands of cheques Duty to tell customer of forgeries Duty to inform customers of the state of the account Duty to act on notice of death
Liability of Bank in Advisory Role Mis-Selling Quistclose Trust Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567, [1968] 3 All ER 651 Azam v Iqbal [2007] EWHC 2025, [2008] Bus LR 168. Adrian Rubenstein v HSBC [2011] EWHC 2304 (QB) Rubenstein v HSBC [2012] EWCA Civ 1184
Bankers Lien and Right to Set-off Bankers Right of General Lien It is more than ordinary possessory lien. It is an implied (unwritten) pledge. It does not transfer the property or right of legal ownership. It is a statutory and defensive right and does not require any separate agreement. In case of pledge, a Banker can avail of the right to sell on default. A Banker has a general lien over all forms of securities or negotiable instruments deposited by or on behalf of the customer in the ordinary course of banking business and that the right of general lien of the Banker is judiciously recognised. Sec. 171, Indian Contract Act 1872 . Lien Subject to contract to contrary KK Kar v UCO Bank, AIR 1982 Cal 62
A Right to Combine or set-off accounts On security of third party Specific purpose Pledged goods
Right to Set-off In the form of cross claim Mutual demands between same parties When set-off not available Joint account
SBI v Shyama Devi AIR 1978 SC 1263 Banker and customer - Customer entrusting money or cheque by endorsement on its back to bank employee for crediting the same to his account - Employee misappropriating sums entrusted - Vicarious liability of bank - Onus of proof. On September 17, 1945, the Resp. opened a Saving Bank Account, with App. Bank. Was introduced to the Bank by one Kapil Deo Shukla, who was an employee of the Bank, and admittedly a close neighbour of the resp. and a friend of her husband. On November 30, 1948, the respondent made a petition for the recovery of Rs. 15,547/10/-, from the Imperial Bank. The plaintiff had, apart from Rs. 1,932/2/- admitted by the def. Bank, the under-noted amounts which were deposited by her from time to time with the Bank: Rs. 105 __ deposited on September 17, 1945. Rs. 4,000 __ deposited on September 17, 1945. Rs. 8,000 __ deposited on December 7, 1945. Rs. 100 __ deposited on June 20, 1946. Rs. 12,205 These amounts were entered in the respondent's Pass Book by the employees of the Bank, which had been confirming and ratifying those entries from time of time.
. The parties went to trial on these issues: (1) Did the plaintiff deposit with the defendant the various sums of money mentioned in the plaint? (2) Are these amounts mentioned in the plaintiff's Pass Book? If so, is the defendant bound by the entries therein? (3) Did the plaintiff make any deposit in contravention of any rule of the Bank? If so, to what effect? The Bank averred that the plaintiff was introduced to the Bank by the said Kapil Deo Shukla, who was her close neighbour and a fast friend of her husband, Bhagwati Prasad, and that if the plaintiff-respondent selected him as her agent or instrument for depositing money in the Bank and he had defrauded her, or if Kapil Deo Shukla acting in collusion with her husband, showed wrong amounts in her Pass Book, the Bank was not liable for any loss that might have accrued to her.
. The trial court, on July 8, 1952, decreed the respondent's suit (in respect of two items) for Rupees 10,040/10/-. The High Court dismissed the Bank's appeal and allowed the plaintiff-respondent's cross-objections, decreeing the suit for Rs. 14,145/10/-. In Appeal to the Supreme Court; Appellant, contends that the respondent's case was that the plaintiff had entrusted K. D Shukla, who was their friend, with moneys from time to time for depositing in her Savings Bank account. In such a situation, K. D. Shukla could not be said to have been acting in due course of his employment or as an agent of the Bank but but only as an agent of the respondent, and if K. D. Shukla did not deposit those amounts as directed by the plaintiff, but misappropriated the same and to cover up his fraud made false entries in the Pass Book, the Bank was not liable. Stress has been laid on the fact that the disputed amounts were never delivered by cheque or otherwise at the Bank's counter. . As against the above, Resp. submits that the entries in the Pass Book showing the deposit of these amounts in the Savings Bank account of the plaintiff, had admittedly been made by K. D. Shukla, when he was an employee of the Bank. It is pointed out that there is evidence on the record to show that this K. D. Shukla had manipulated the accounts of three other depositors, also, and the Bank had reimbursed those constituents for the loss, and there is no reason why a discriminatory treatment should have been meted out to the plaintiff. With regard to all the disputed items, it is urged that the entries in the Pass Book showing these deposits in the plaintiff's accounts were, prima facie, sufficient to establish the plaintiff's claim and case liability on the appellant. . Principle is that the employer is not liable for the act of the servant if the cause of the loss or damages arose without his actual fault or privity and without the fault or neglect of his agents or servants in the course of their employment. This principle has been illustrated by the decision of the House of Lords in Leesh River Tea Co. Ltd. v. British India Steam Navigation Co. Ltd., (1966) 3 All ER 593. In view of all that has been said above, we allow the defendant's appeal and dismiss the plaintiff's claim with regard to Rs. 11,000/- (consisting of the items of Rs. 4000/- plus Rs. 7000/-) and interest thereon. BANKING LAWS (AMENDMENT) BILL, 2011 STATEMENT OF OBJECTS AND REASONS A BILL further to amend the Banking Regulation Act, 1949, the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 and to make consequential amendments in certain other enactments. The Banking Regulation Act, 1949 being the law relating to banking has been in force for more than six decades. It, inter alia, empowers the Reserve Bank to regulate and supervise the banking sector. The banking companies are now operating in a liberalised environment. In this scenario, it has become necessary that the banking companies in India are enabled to raise capital in accordance with the international best practices. Therefore, it is proposed to 1. (a) enable the nationalised banks to increase or decrease the authorised capital with approval from the Central Government and the Reserve Bank without being limited by the ceiling of a maximum of three thousand crores of rupees; (b) provide the nationalised banks to issue two additional instruments (bonus shares and rights issue) for accessing the capital market to raise capital required for expansion of banking business; (c) raise the ceiling on voting rights of shareholders of nationalised banks from one per cent. to ten per cent.; (d) make provisions to ensure that control of banking companies is in the hands of fit and proper persons, it should be mandatory for the persons to obtain prior approval from the Reserve Bank who propose to acquire five per cent. or more of the share capital of a banking company; (e) confer power upon the Reserve Bank to impose such conditions as it deems necessary while granting such approval for acquisitions of five per cent. or more share capital of a banking company (including specifying acquisition of a minimum percentage of shares in a banking company) if it considers necessary; and (f) remove the existing restriction on voting rights limited to ten per cent. of the total voting rights of all the shareholders of the banking company.
. 2. Taking advantage of the liberalised environment, banking companies are engaging in multifarious activities through the medium of associate enterprises. It has, therefore, become necessary for the Reserve Bank, as the regulator of the banking companies, to be aware of the financial impact of the business of such enterprises on the financial position of the banking companies. It is, therefore, proposed to confer power upon the Reserve Bank to call for information and returns from the associate enterprises of banking companies also and to inspect the same, if necessary.
3. Under the existing provision contained in section 36AA of the Banking Regulation Act, 1949, the Reserve Bank has, inter alia, power to remove any director or other officers of a banking company, but such power is not adequate if the entire Board of directors of a banking company is functioning in a manner detrimental to the interest of the depositors or the banking company itself. It is, therefore, proposed to confer power upon the Reserve Bank to supersede the Board of directors of a banking company for a total period not exceeding twelve months and appoint an administrator to manage the banking company during the said period.
. 7. In addition to the changes proposed in paras 1 to 5, it is also proposed to, (a) enable the banking companies to issue preference shares subject to regulatory guidelines of the Reserve Bank; (b) align the restriction on commission, etc., on sale of shares to issue price rather than to the paid-up value of shares; (c) establish a Depositor Education and Awareness Fund to take over inoperative deposit accounts which have not been claimed or operated for a period of ten years or more; (d) substantially increase the penalties and fine for some violations of the Banking Regulation Act, 1949; (e) confer power upon the Reserve Bank to levy penal interest in case of non maintenance of required cash reserve ratio; (f) confer power upon the Reserve Bank to order a special audit of co- operative banks in public interest for a more effective supervision. 8. The Banking Laws (Amendment) Bill, 2011 seeks to amend the Banking Regulation Act, 1949, the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 to make the regulatory powers of Reserve Bank more effective and to increase the access of the nationalised banks to capital market to raise capital required for expansion of banking business and also to make certain other consequential amendments in certain other enactments.
THE BANKING COMPANIES (ACQUISITION AND TRANSFER OF UNDERTAKINGS) AND FINANCIAL INSTITUTIONS LAWS (AMENDMENT) ACT, 2006 S. 2A: Subject to the provisions of this Act, the authorised capital of every corresponding new bank shall be one thousand five hundred crores of rupees divided into one hundred and fifty crores fully paid- up shares of ten rupees each: Provided that the Central Government may, after consultation with the Reserve Bank and by notification in the Official Gazette, increase or reduce the authorised capital as it thinks fit, so however that after such increase or reduction, the authorised capital shall not exceed three thousand crores or be less than one thousand five hundred crores, of rupees. S. 2E: No shareholder of the corresponding new bank, other than the Central Government, shall be entitled to exercise voting rights in respect of any shares held by him in excess of one per cent. of the total voting rights of all the shareholders of the corresponding new bank.
THE BANKING OMBUDSMAN SCHEME, 2006 The Scheme is introduced with the object of enabling resolution of complaints relating to certain services rendered by banks and to facilitate the satisfaction or settlement of such complaints. (w.e.f. 1995) In exercise of the powers conferred by Section 35A of the Banking Regulation Act, 1949 Reserve Bank of India amended the Banking Ombudsman Scheme 2006 w.e.f. February 3, 2009 The Reserve Bank hereby directs that all commercial banks, regional rural banks and scheduled primary co- operative banks shall comply with the Banking Ombudsman Scheme, 2006.
ESTABLISHMENT OF OFFICE OF BANKING OMBUDSMAN JURISDICTION, POWERS AND DUTIES OF BANKING OMBUDSMAN PROCEDURE FOR REDRESSAL OF GRIEVANCE Grounds of Complaint Procedure for Filing Complaint Power to Call for Information Settlement of Complaint by Agreement Award by the Banking Ombudsman Rejection of the Complaint Appeal Before the Appellate Authority Banks to Display Salient Features of the Scheme for Common Knowledge of Public . The Banking Ombudsman is a senior official appointed by the Reserve Bank of India to redress customer complaints against deficiency in certain banking services. 3. Definition; (4) Banking Ombudsman means any person appointed under Clause 4 of the Scheme. 4. APPOINTMENT & TENURE (1) The Reserve Bank may appoint one or more of its officers in the rank of Chief General Manager or General Manager to be known as Banking Ombudsmen to carry out the functions entrusted to them by or under the Scheme. (2) The appointment may be made for a period not exceeding three years at a time. Location of Banking Ombudsmen As on date, fifteen Banking Ombudsmen have been appointed with their offices located mostly in state capitals. The addresses and contact details of the Banking Ombudsman offices have been provided in Annex I.
. The Grounds of Complaints? The Banking Ombudsman can receive and consider any complaint relating to the following deficiency in banking services (including internet banking): non-payment or inordinate delay in the payment or collection of cheques, drafts, bills etc.; non-adherence to prescribed working hours ; refusal to open deposit accounts without any valid reason for refusal; levying of charges without adequate prior notice to the customer; non-adherence by the bank or its subsidiaries to the instructions of Reserve Bank on ATM/Debit card operations or credit card operations; non-disbursement or delay in disbursement of pension refusal to accept or delay in accepting payment towards taxes, as required by Reserve Bank/Government; servicing or redemption of Government securities; Refusal or forced closure of deposit accounts without due notice or without sufficient reason; non-adherence to the fair practices code as adopted by the bank non-observance of Reserve Bank guidelines on engagement of recovery agents by banks; and delays in sanction, disbursement or non-observance of prescribed time schedule for disposal of loan applications; non-adherence to the provisions of the fair practices code for lenders as adopted by the bank or Code of Banks Commitment to Customers, as the case may be; non-observance of any other direction or instruction of the Reserve Bank as may be specified by the Reserve Bank for this purpose from time to time. The Banking Ombudsman may also deal with such other matter as may be specified by the Reserve Bank from time to time.
. When can a complaint be filed? One can file a complaint before the Banking Ombudsman if the reply is not received from the bank within a period of one month after the bank concerned has received ones representation, or the bank rejects the complaint, or if the complainant is not satisfied with the reply given by the bank.
A Complaint will not be considered if: a. One has not approached his bank for redressal of his grievance first. b. One has not made the complaint within one year from the date one has received the reply of the bank or if no reply is received if it is more than one year and one month from the date of representation to the bank. c. The subject matter of the complaint is pending for disposal / has already been dealt with at any other forum like court of law, consumer court etc. d. Frivolous or vexatious. e. The institution complained against is not covered under the scheme. f. The subject matter of the complaint is not within the ambit of the Banking Ombudsman. g. If the complaint is for the same subject matter that was settled through the office of the Banking Ombudsman in any previous proceedings.
The procedure for filing the complaint before the Banking Ombudsman Simply by (1) writing on a plain paper, (2) Online or (3) sending an email to the Banking Ombudsman. There is a form along with details of the scheme in the website. However, it is not necessary to use this format. . Place of Complaint; Compensation; Conciliation; Award One may lodge his/ her complaint at the office of the Banking Ombudsman under whose jurisdiction, the bank branch complained against is situated. For complaints relating to credit cards and other types of services with centralized operations, complaints may be filed before the Banking Ombudsman within whose territorial jurisdiction the billing address of the customer is located. The complainant can be filed by the authorized representative (other than an advocate). The Banking Ombudsman does not charge any fee for filing and resolving customers complaints. The amount, if any, to be paid by the bank to the complainant by way of compensation for any loss suffered by the complainant is limited to the amount arising directly out of the act or omission of the bank or Rs 10 lakhs, whichever is lower. The Banking Ombudsman may award compensation not exceeding Rs 1 lakh to the complainant only in the case of complaints relating to credit card operations for mental agony and harassment. The Banking Ombudsman endeavours to promote, through conciliation or mediation, a settlement of the complaint by agreement between the complaint and the bank named in the complaint. If the terms of settlement (offered by the bank) are acceptable to one in full and final settlement of complaint, the Banking Ombudsman will pass an order as per the terms of settlement which becomes binding on the parties.
. Rejection of complaint; Appeals The Banking Ombudsman may reject a complaint at any stage if it appears to him that a complaint made to him is: (1) not on the grounds of complaint referred to above , (2) compensation sought from the Banking Ombudsman is beyond Rs 10 lakh; (3) requires consideration of elaborate documentary and oral evidence and the proceedings before the Banking Ombudsman are not appropriate for adjudication of such complaint without any sufficient cause (4) not pursued by the complainant with reasonable diligence; (5) in the opinion of the Banking Ombudsman there is no loss or damage or inconvenience caused to the complainant. If a complaint is not settled by an agreement within a period of one month, the Banking Ombudsman proceeds further to pass an award. Before passing an award, the Banking Ombudsman provides reasonable opportunity to the complainant and the bank, to present their case.
Approach the appellate authority against the Banking Ombudsmens decision - Deputy Governor of the RBI. Other remedies available as per the law.
Appeal within 30 days of the date of receipt of the award, also allow a further period not exceeding 30 days. The appellate authority may (i). dismiss the appeal; or ; (ii). allow the appeal and set aside the award; or ; (iii). send the matter to the Banking Ombudsman for fresh disposal in accordance with such directions as the appellate authority may consider necessary or proper; or ; (iv). modify the award and pass such directions as may be necessary to give effect to the modified award; or ; (v.) pass any other order as it may deem fit.
Nomination Facility Legal Provisions in the Banking Regulation Act, 1949 The Banking Regulation Act, 1949 was amended by Banking Laws (Amendment) Act, 1983 by introducing new Sections 45ZA to 45ZF, which provide, inter alia, for the following matters: a. To enable a banking company to make payment to the nominee of a deceased depositor, the amount standing to the credit of the depositor. b. To enable a banking company to return the articles left by a deceased person in its safe custody to his nominee, after making an inventory of the articles in the manner directed by the Reserve Bank. c. To enable a banking company to release the contents of a safety locker to the nominee of the hirer of such locker, in the event of the death of the hirer, after making an inventory of the contents of the safety locker in the manner directed by the Reserve Bank.
Customer No legal definition A customer means a person who opens account which bank accepts with proper introduction. RBI KYC Policy 2004: customer may be defined as- Person/entity that maintains account with bank and/or has business relationship with bank One on whose behalf the account is maintained Any person or entity connected with a financial transaction which may pose risk to the bank; wire transfer, demand drafts Bankers obligations To honour cheques of custom Maintain secrecy of accounts Know Your Customer (KYC) KYC principles issued by RBI u/s 35(A) of Banking Regulation Act Identification of customers To prevent banks from being used for money laundering activities Financial Intelligence Unit (FIU) Financial Action Task Force (FATF) Anti Money Laundering (AML) standards Combating Financing of Terrorism (CFT)