Section 36ACA of The Banking Regulation Act, 1949
Supersession of Board of Directors in certain cases.
1[36ACA. Supersession of Board of Directors in certain cases.--(1) Where the Reserve Bank is satisfied, in consultation with the Central Government, that in the public interest or for preventing the affairs of any banking company being conducted in a manner detrimental to the interest of the depositors or any banking company or for securing the proper management of any banking company, it is necessary so to do, the Reserve Bank may, for reasons to be recorded in writing, by order, supersede the Board of Directors of such banking company for a period not exceeding six months as may be specified in the order: Provided that the period of supersession of the Board of Directors may be extended from time to time, so, however, that the total period shall not exceed twelve months.
- (2)The Reserve Bank may, on supersession of the Board of Directors of the banking company under sub-section (1) appoint in consultation with the Central Government for such period as it may determine, an Administrator (not being an officer of the Central Government or a State Government) who has experience in law, finance, banking, economics or accountancy.
- (3)The Reserve Bank may issue such directions to the Administrator as it may deem appropriate and the Administrator shall be bound to follow such directions.
- (4)Upon making the order of supersession of the Board of Directors of a banking company, notwithstanding anything contained in the Companies Act, 1956 (1 of 1956),--
- (a)the chairman, managing director and other directors shall, as from the date of supersession, vacate their offices as such;
- (b)all the powers, functions and duties which may, by or under the provisions of the Companies Act, 1956 (1 of 1956) or this Act, or any other law for the time being in force, be exercised and discharged by or on behalf of the Board of Directors of such banking company, or by a resolution passed in general meeting of such banking company, shall, until the Board of Directors of such banking company is reconstituted, be exercised and discharged by the Administrator appointed by the Reserve Bank under sub-section (2): Provided that the power exercised by the Administrator shall be valid notwithstanding that such power is exercisable by a resolution passed in the general meeting of such banking company.
- (5)The Reserve Bank may constitute, in consultation with the Central Government, a committee of three or more persons who have experience in law, finance, banking, economics or accountancy to assist the Administrator in the discharge of his duties.
- (6)The committee shall meet at such times and places and observe such rules of procedure as may be specified by the Reserve Bank.
- (7)The salary and allowances to the Administrator and the members of the committee constituted under sub-section (5) by the Reserve Bank shall be such as may be specified by the Reserve Bank and be payable by the concerned banking company.
- (8)On and before the expiration of two months before the expiry of the period of supersession of the Board of Directors as specified in the order issued under sub-section (1), the Administrator of the banking company, shall call the general meeting of the company to elect new directors and reconstitute its Board of Directors.
- (9)Notwithstanding anything contained in any other law or in any contract, the memorandum or articles of association, no person shall be entitled to claim any compensation for the loss or termination of his office.
- (10)The Administrator appointed under sub-section (2) shall vacate office immediately after the Board of Directors of such banking company has been reconstituted.]
Summary
- The Reserve Bank of India can replace a bank's entire board of directors if they are running the business in a way that hurts depositors.
- This takeover, known as supersession, is done after consulting with the Central Government and must be justified in writing.
- The initial period of the takeover cannot exceed six months, though it can be extended up to a total of twelve months.
- An Administrator is appointed to run the bank, but this person cannot be a current government officer.
- All previous directors, including the chairman and managing director, must immediately vacate their offices once the order is made.
- Before the takeover period ends, the Administrator must call a meeting to elect a new board and hand back control.
Practical examples
FAQ
1. Can a bank director get paid for being fired under Section 36ACA of The Banking Regulation Act, 1949?
No, under Section 36ACA, no person is entitled to claim any compensation for the loss or termination of their office when the board is superseded.
2. Who chooses the person to run the bank during a takeover under Section 36ACA of the banking law?
The Reserve Bank of India appoints the Administrator after consulting with the Central Government.
3. What qualifications must the person running the bank have under Section 36ACA of The Banking Regulation Act, 1949?
The Administrator must have professional experience in fields like law, finance, banking, economics, or accountancy.
Test yourself
1.Under Section 36ACA of The Banking Regulation Act, 1949, what is the maximum total time a bank board can remain superseded?
2.Which authority must the Reserve Bank consult before superseding a board under Section 36ACA of the banking law?
3.According to Section 36ACA of The Banking Regulation Act, 1949, who is ineligible to be an Administrator?
4.Under Section 36ACA of the banking rules, what happens to the powers of the shareholders during the period the board is replaced?