Section 287 in The Banking Companies (Acquisition And Transfer Of Undertakings) Act, 1970
287.
Statement of Objects and Reasons.-The Supreme Court by a majority judgment, delivered on the 10th February, 1970 declared the Banking Companies (Acquisition and Transfer of Undertaking) Act, 1969 void. The effect of the judgment is that the undertaking of the 14 major Indian Scheduled Banks which were acquired by the Central Government under the authority of the Act, reverted in the said banks. With a view to resuming control over these banks, the President promulgated, on the 14th February, 1970, the Banking Companies (Acquisition and Transfer of Undertakings) Ordinance, 1970. The provisions of the earlier Act, which were struck down by the majority of the Supreme Court, have been duly amended or deleted while promulgating the said Ordinance. The Ordinance provides for the acquisition of the Undertakings of the said banks with effect from the 19th July, 1969, i.e., the date on which these undertakings were initially acquired having regard to their size, resources, coverage and organisation. As contemplated by article 31(2) of the Constitution, the Ordinance now fixes the amount of compensation payable to each of the said Banks. The Bill seeks to replace the Ordinance.The provisions of the Bill are explained in detail in the Notes on Clauses.Amendment Act 36 of 1992-Statement of Objects and Reasons.-The Committee on Banking Regulations and Supervisory Practices appointed by the Bank of International Settlements (BIS) has prescribed certain capital adequacy standards to be followed by commercial banks. The BIS standards seek to measure capital adequacy in terms of the ratio of capital to risk weighted assets. This ratio is arrived at by dividing the capital of the bank comprising of paid-up capital, reserves, etc., by the amount of risk weighted assets and expressing the result in percentage terms. The risk weighted assets are calculated by assigning different weightages to the different categories of assets on the basis of the risk element involved therein. The recommended BIS norm is that all internationally operating banks must acquire a capital to risk weighted assets ratio of 8 per cent by March, 1992. These standards have been accepted for implementation by several countries.2. The Committee on Financial System under the Chairmanship of Shri M. Narasimham has also inter alia recommended in its report that the banks in India should reach the BIS norms for capital adequacy in a phased manner. The Committee has recommended that norms should be achieved as early as possible and in any event by March 1994 in the case of banks with an international presence. The other banks are advised to achieve the capital adequacy norm of 4 per cent by March, 1993 and 8 per cent by March, 1996.3. At present the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 provide that the paid-up capital of every corresponding new bank under the Acts may be increased by the Central Government from time to time provided that the paid-up capital of any such bank shall in no case be in excess of rupees five hundred crores. The above ceiling of rupees five hundred crores was provided through the amendments made to the Acts in 1988. As a result of contribution of the Government to the paid-up capital of the banks in the last few years, the above ceiling has already been reached by one bank and some more banks are likely to reach the maximum limit in the near future. Further contribution in respect of these banks would be possible only if the present limit is revised upwards.4. The Bill therefore provides for enhancement of the ceiling on the paid-up capital from the present level of rupees five hundred crores to rupees one thousand five hundred crores.Amendment Act 8 of 1995-Statement of Objects and Reasons.-The Reserve Bank of India had introduced certain prudential accounting norms in respect of income recognition, asset classification and provisioning of banks based on record of recovery. Besides, the Reserve Bank of India had also introduced certain norms for capital adequacy based on the system risk weighted assets in terms of which commercial banks have to achieve unimpaired capital to the extent of 8 per cent of their risk weighted assets by the 31st March, 1996. The prescription of capital adequacy norms necessitated the Central Government as owners to provide capital to the nationalised banks. Government of India contributed a sum of Rs. 5,700 crores during 1993-94 and Rs. 3,889.21 crores during 1994-95 so far.2. Banks in the private sector are governed by the Companies Act, 1956 in relation to their incorporation and have to function within the ambit of the regulatory enactments such as the Banking Regulation Act, 1949, etc., in accordance with the Companies Act, 1950 after following a prescribed procedure, the capital structure of a company can be varied through addition of capital, reduction of capital and conversion of debt to equity. No specific provision is at present available in the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 for reduction of the paid-up capital of the corresponding new banks. The erstwhile New Bank of India which had been amalgamated with Punjab National Bank with effect from the 4th September, 1993 had accumulated losses. Punjab National Bank has not been able to finalise its balance sheet for the year ending March 1994 on account of the losses of erstwhile New Bank of India.3. In order to enable the corresponding new banks constituted under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 to structure their balance sheet, certain amendments in the said Acts were considered necessary to provide for-(i) reducing or cancelling the paid-up share capital to the extent it is lost on account of losses or is unrepresented by available assets;(ii) paying off by a bank to the Central Government any amount of share capital which is in excess of its wants;(iii) reducing or cancelling paid-up share capital by banks which have assessed the capital market, by a resolution passed at the Annual General Meeting by the shareholders; and(iv) a provision to the effect that paid-up capital of a corresponding new bank shall not be reduced at any time so as to render it below 25 per cent of its paid-up capital on the date of commencement of the Banking Companies (Acquisition and Transfer of Undertakings) Amendment Ordinance, 1995.4. As Parliament was not in session and the abovementioned amendments were required to be carried out immediately, the President promulgated the Banking Companies (Acquisition and Transfer of Undertakings) Amendment Ordinance, 1995 (Ordinance 4 of 1995) on the 21st January, 1995.5. The Bill seeks to replace the aforesaid Ordinance.AmendmentAct 45 of 2006-Statement of Objects and Reasons.-Fourteen major Indian Scheduled Banks, each with deposits of Rupees fifty crores or more, were nationalised in July 1969 by Banking Companies (Acquisition and Transfer of Undertakings) Act, 1969. However, the Supreme Court by a majority judgment delivered on the 10th day of February, 1970 declared the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1969, void. With a view to resume control over these banks, the President promulgated, on the 14th day of February, 1970, the Banking Companies (Acquisition and Transfer of Undertakings) Ordinance, 1970. The said Ordinance was replaced by the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970. Subsequently, six Indian private banks, each having deposits of Rupees two hundred crores or more, were nationalised by the Banking Companies (Acquisition and Transfer of Undertakings) Ordinance, 1980, promulgated by the President, on the 15th day of April, 1980. The said Ordinance was also replaced by the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980. Following the merger of two of the nationalised banks there are presently 19 nationalised banks.2. The aforesaid two Acts of 1970 and 1980 originally envisaged that the paid-up capital of these banks may be raised either by transfer from the reserve fund or by contribution by the Central Government. In 1994, the said Acts were amended to provide that the paid-up capital of these banks may be increased by such amounts as the Board of Directors of the bank may, after consultation with the Reserve Bank of India and with the previous sanction of the Central Government, raise by public issue of shares in such manner as may be prescribed so that the Central Government shall, at all times, hold not less than 51% of the paid-up capital of each such bank. The shareholding pattern of the fifteen nationalised banks which had gone in for public issues varies from 51% to 77%. The Central Government holds the entire equity in four nationalised banks and has majority equity shareholding in fifteen nationalised banks.3. In addition to the changes in the patterns of shareholding in nationalised banks introduced in 1994, some other provisions of the Banking Companies (Acquisition and Transfer of Undertakings) Acts, 1970 and 1980 also require amendments so as to bring the operation of these banks in tune with the changed scenario and modem business practices.4. The Banking Companies (Acquisition and Transfer of Undertakings) and Financial Institutions Laws (Amendment) Bill, 2000 was introduced on 13th December, 2000 in the Lok Sabha and had lapsed due to dissolution of the 13th Lok Sabha. The proposed amendment mentioned in sub-paragraphs (b) to (h) of Paragraph 5 below are broadly the same which were incorporated in the earlier Bill. However, the amendment relating to reduction of prescribed minimum shareholding of the Central Government in nationalised banks from 51%. to 33% as mentioned in the earlier Bill has been omitted in the amendments proposed in the present Bill.5. It is proposed to amend the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980, inter alia, to-(a) allow one to three shareholder directors on the Board of the nationalised banks on the basis of issued capital of the bank instead of one to six directors as per existing provisions so as to provide for a more equitable representation on the Board of Directors of the nationalised banks on the basis of percentage of ownership in such banks;(b) omit the provisions relating to mandatory nomination of directors by the Reserve Bank of India and financial institutions on the Board of nationalised banks, etc.;(c) confer power upon the Reserve Bank to appoint one or more additional directors;(d) increase the number of whole-time directors from two to four to have more functional directors in view of expansion of activities of the nationalised banks;(e) empower the shareholders of nationalised banks to discuss, adopt and approve the Directors' report, the annual accounts and the balance sheet of the bank for the period covered by such accounts at their annual general meeting;(f) enable the banks to transfer the unclaimed dividends for more than seven years to Investor Education and Protection Fund established by the Central Government under section 205-C of the Companies Act, 1956;(g) prescribe annexing of the details of the subsidiary or subsidiaries such as balance sheet, profit and loss accounts and reports of auditors along with the annual report of the bank;(h) empower the Central Government to supersede, on the recommendation of the Reserve Bank of India, the Board of Directors of any nationalised bank and constitute the Financial Restructuring Authority and appoint a Chief Executive Officer of such bank.6. The State Bank of India Act, 1955, the State Bank of India (Subsidiary Banks) Act, 1959, the Deposit Insurance and Credit Guarantee Corporation Act, 1961, the Export-Import Bank of India Act, 1981, and the National Housing Bank Act, 1987, provide that the part-time non-official directors on the Boards of Directors of financial institutions under the said Acts shall hold office for a period of three years or until a successor is appointed subject to a maximum period of six years. Since a large number of part-time non-official directors in banks and financial institutions continued to hold office even after expiry of their term as their successor could not be appointed in time, it is proposed to amend the said Acts so as to provide that such non-official directors will vacate their office whether their successors are appointed or not. These amendments are on the lines of the provisions for part-time non-official directors in the nationalised banks. For the workmen and officer directors, the existing provisions are proposed to be continued.7. The Bill seeks to achieve the above objects.[31st March, 1970]An Act to provide for the acquisition and transfer of the undertakings of certain banking companies, having regard to their size, resources, coverage and organisation, in order to control the heights of the economy and to meet progressively and serve better, the needs of development of the economy in conformity with national policy and objectives and for matters connected therewith or incidental thereto.Be it enacted by Parliament in the Twenty-first Year of the Republic of India as follows:-
