Lawgist20Restrictions on loans and advances
1[20. Restrictions on loans and advances.--(1) Notwithstanding anything to the contrary contained in section 77 of the Companies Act, 1956, (1 of 1956) no banking company shall,--
(a) grant any loans or advances on the security of its own shares, or
(b) enter into any commitment for granting any loan or advance to or on behalf of--
(i) any of its directors,
(ii) any firm in which any of its directors is interested as partner, manager, employee or guarantor, or
(iii) any company (not being a subsidiary of the banking company or a company registered under section 25 of the Companies Act, 1956 (1 of 1956), or a Government company) of which 2[, or the subsidiary or the holding company of which] any of the directors of the banking company is a director, managing agent, manager, employee or guarantor or in which he holds substantial interest, or
(iv) any individual in respect of whom any of its directors is a partner or guarantor.
(2) Where any loan or advance granted by a banking company is such that a commitment for granting it could not have been made if clause (b) of sub-section (1) had been in force on the date on which the loan or advance was made, or is granted by a banking company after the commencement of section 5 of the Banking Laws (Amendment) Act, 1968 (58 of 1968), but in pursuance of a commitment entered into before such commencement, steps shall be taken to recover the amounts due to the banking company on account of the loan or advance together with interest, if any, due thereon within the period stipulated at the time of the grant of the loan or advance, or where no such period has been stipulated, before the expiry of one year from the commencement of the said section 5:
Provided that the Reserve Bank may, in any case, on an application in writing made to it by the banking company in this behalf, extend the period for the recovery of the loan or advance until such date, not being a date beyond the period of three years from the commencement of the said section 5, and subject to such terms and conditions, as the Reserve Bank may deem fit:
Provided further that this sub-section shall not apply if and when the director concerned vacates the office of the director of the banking company, whether by death, retirement, resignation or otherwise.
(3) No loan or advance, referred to in sub-section (2), or any part thereof shall be remitted without the previous approval of the Reserve Bank, and any remission without such approval shall be void and of no effect.
(4) Where any loan or advance referred to in sub-section (2), payable by any person, has not been repaid to the banking company within the period specified in that sub-section, then, such person shall, if he is a director of such banking company on the date of the expiry of the said period, be deemed to have vacated his office as such on the said date.
Explanation.--In this section--
(a) "loans or advance" shall not include any transaction which the Reserve Bank may, having regard to the nature of the transaction, the period within which, and the manner and circumstances in which, any amount due on account of the transaction is likely to be realised, the interest of the depositors and other relevant considerations, specify by general or special order as not being a loan or advance for the purpose of this section;
(b) "director" includes a member of any board or committee in India constituted by a banking company for the purpose of managing, or for the purpose of advising it in regard to the management of, all or any of its affairs.
(5) If any question arises whether any transaction is a loan or advance for the purposes of this section, it shall be referred to the Reserve Bank, whose decision thereon shall be final.]
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1. Subs. by Act 58 of 1968, s. 5, for section 20 (w.e.f. 1-2-1969).
2. Ins. by Act 1 of 1984, s. 23 (w.e.f. 15-2-1984).
- 6 Form of business in which banking companies may engage
- 7 Use of words "bank", "banker", "banking" or "banking company"
- 8 Prohibition of trading
- 9 Disposal of non-banking assets
- 10 Prohibition of employment of managing agents and restrictions on certain forms of employment
- 10A Board of directors to include persons with professional or other experience
- 10B Banking company to be managed by whole time chairman
- 10BB Power of Reserve Bank to appoint chairman of the Board of directors appointed on a whole-time basis or a managing director of a banking company
- 10C Chairman and certain directors not to be required to hold qualification shares
- 10D Provisions of sections 10A and 10B to override all other laws, contracts, etc
- 11 Requirement as to minimum paid-up capital and reserves
- 12 Regulation of paid-up capital, subscribed capital and authorised capital and voting rights of shareholders
- 12A Election of new directors
- 12B Regulation of acquisition of shares or voting rights
- 13 Restriction on commission, brokerage, discount, etc., on sale of shares
- 14 Prohibition of charge on unpaid capital
- 14A Prohibition of floating charge on assets
- 15 Restrictions as to payment of dividend
- 16 Prohibition of common directors
- 17 Reserve Fund
- 18 Cash reserve
- 19 Restriction on nature of subsidiary companies
- 20 Restrictions on loans and advances
- 20A Restrictions on power to remit debts
- 21 Power of Reserve Bank to control advances by banking companies
- 21A Rates of interest charged by banking companies not to be subject to scrutiny by courts
- 22 Licensing of banking companies
- 23 Restrictions on opening of new, and transfer of existing, places of business
- 24 Maintenance of a percentage of assets
- 25 Assets in India
- 26 Return of unclaimed deposits
- 26A Establishment of Depositor Education and Awareness Fund
- 27 Monthly returns and power to call for other returns and information
- 28 Power to publish information
- 29 Accounts and balance-sheet
- 29A Power in respect of associate enterprises
- 30 Audit
- 31 Submission of returns
- 32 Copies of balance-sheets and accounts to be sent to registrar
- 33 Display of audited balance-sheet by companies incorporated outside India
- 34 Accounting provision of this Act not retrospective
- 34A Production of documents of confidential nature
- 35 Inspection
- 35A Power of the Reserve Bank to give directions
- 35AA Power of the Central Government to authorize Reserve Bank for issuing directions to banking companies to initiate insolvency resolution process
- 35AB Power of Reserve Bank to issue directions in respect of stressed assets
- 35B Amendments of provisions relating to appointments of managing directors, etc., to be subject to previous approval of the Reserve Bank
- 36 Further powers and functions of Reserve Bank
- 36A Certain provisions of the Act not to apply to certain banking companies
