: October 17, 2012 |
: Akash Shah
: Company Law
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Winding Up of Banking Company
Introduction and Research Methodology
Banking company is playing major role in the society for their day to day work. Now a days people has are so much depended on the banking sector and most of the time they require their help in the business or other thing.
Many people keep their money in the bank for the purpose of saving also. So their money are kept safely.
But sometime it happens that some of the bank close down due to non recovery of loan or such other issues. In such condition many people have to suffer as their money are with that bank then.
For this reason there are provision for winding up of the banking company under The Banking (Regulation) Act, 1949. The provision from sec. 38 to 44 deals with the winding up procedure for banking company.
There are certain procedures after following that, bank can wind up, this are almost similar to the Companies Act only. But the power of winding up of bank lies in the hand of Reserve bank of India. At the same time RBI can also apply for the winding up of bank if thinks feet for the bank.
As it is a banking sector speedy winding up procedure can also take place under few provisions also. As in normal procedure it takes a long time. Voluntary winding up procedure can also started at the same time by the bank also.
1.2 Statement Of Problem
The main issue in the winding up of the bank is the many people have suffered from great loss. Sometime it also happen that some made a big fraud with the bank and due to which the bank has to wind up and at the same time bank may be helping the accuse for this purpose also. In such condition intervention of court and RBI seems to be good for the people at large and interest of public is saved.
The objectives of this project are:
# To know the procedural aspect of winding up of banking company
# To understand the role of court and RBI for winding up
The researcher has made certain assumption in the beginning of the research project which are going to be tested during the project, they are the following.
The winding up of bank cause loss to the people at large
1.5 Scope Of The Study
The research is a doctrinal research. The researcher here would like to study the different method of winding up of banking company. The researcher has tried to analysis the topic by studying various authors, experts, cases of The Indian Apex Court and High courts, articles, etc. The researcher has strictly followed the boundary and has studied only with reference to Indian authors, experts, cases, etc.
The present research study is mainly a doctrinal and analytical. Keeping this in view, the researcher has gone through different books, journals, Web references, E-journal, reports etc.
The relevant material is collected from the secondary sources. Materials and information are collected both legal sources like books.
Procedure of winding up
For the process of winding up in banking company, Companies Act is not to be followed and power for the same is with the high court only.
2.1 Winding up by High Court
For the process of winding up S. 391, S.392, S.433 and S.583 is not applicable for banking company. As per S. 37 (1) of the Banking Regulation Act the High court can order for winding up of a banking company on basis of following conditions
1. If the banking company is unable to pay its debts; or
2. If an application for its winding up has been made by the Reserve Bank under section 37 or this section.
The Reserve Bank can also make an application under section 38 for the winding up of a banking company if it is directed so to do by an order under clause(b) of sub-section (4) of section 35.
The Reserve Bank may make an application under this section for the winding up of a banking company-
If the banking company has failed to comply with the requirements specified in section 11; or has by reason of the provisions of section 22become disentitled to carry on banking business in India; or has been prohibited from receiving fresh deposits by an order under clause (a) of sub-section (4) of section 35 or under clause (b) of sub-section (3A) or section 42 of the Reserve Bank of India, Act, 1934.
If the company has failed to comply with any requirement of the Act other than the requirements laid down in section 11, has continued such failure, after notice in writing of such failure or contravention has been conveyed to the banking company.
When high court order for winding up a liquidator is appointed by the court under S.38A which is as follow
(1) There shall be attached to every High Court a court liquidator to be appointed by the Central Government for the purpose of conducting all proceedings for the winding up of banking companies and performing such other duties in reference thereto as the High Court may impose.
(2) Where having regard to the number of banking companies wound up and other circumstances of the case, the Central Government is of opinion that it is not necessary or expedient to attach for the time being a court liquidator to a High Court, it may, from time to time, by notification in the Official Gazette, direct that this section shall not have effect in relation to that High Court.]
39. Reserve Bank to be official liquidator
(1) Notwithstanding anything contained in section 38A of this Act or in section 448 or section 449 of the Companies Act, 1956 (1 of 1956), where in any proceeding for the winding up by the High Court of a banking company, an application is made by the Reserve Bank in this behalf, the Reserve Bank, the State Bank of India or any other bank notified by the Central Government in this behalf or any individual as stated in such application shall be appointed as the official liquidator of the banking company in such proceeding and the liquidator, if any, functioning in such proceeding shall vacate office upon such appointment.
(2) Subject to such directions as may be made by the High Court, the remuneration of the official liquidator appointed under this section, the cost and expenses of his establishment and the cost and expenses of the winding up shall be met out of the assets of the banking company which is being wound up, and notwithstanding anything to the contrary contained in any other law for the time being in force, no fees shall be payable to the Central Government, out of the assets of the banking company.]
When high court appoint a court liquidator, the Companies Act is application to liquidators who is appointed under Section 38A and 39. The liquidator appointed in such condition will have the same power position that of the official liquidator for the purpose of winding up process of a banking company.
2.2 Stay of proceedings
Notwithstanding anything to the contrary contained in 202[section 466 of the Companies Act, 1956 (1 of 1956)1, the 203[High Court] shall not make any order staying the proceedings in relation to the winding up of a banking company, unless the 203[High Court] is satisfied that an arrangement has been made whereby the company can pay its depositors in full as their claims accrue.
In simple word if court find that it is not beneficial to the people at large court can put a stay then only on winding up process.
For the same purpose the liquidator have to submit the preliminary report within 2 months from the date of winding up order by the court for the same giving the information required by that section so far as it is available to him and also stating the amount of assets of the banking company in cash which are in his custody or under his control on the date of the report and the amount of its assets which are likely to be collected in cash before the expiry of that period of two month s in order that such assets may be applied speedily towards the making of preferential payments, under section 530 of the companies Act, 1956, and in the discharge, as far as possible, of the liabilities and obligations of the banking company to its depositors and other creditors in accordance with the provisions hereinafter contained; and the official liquidator shall make for the purposes aforesaid every endeavor to collect in cash as much of the assets of the banking company as practicable.
Then after notice to preferential claimants and secured and unsecured creditors should be served Within fifteen days from the date of the winding up order of a banking company or where the winding up order has been made before the commencement of the Banking Companies, within one month from such commencement, the official liquidator shall, for the purpose of making an estimate of the debts and liabilities of the banking company, by notice served in such manner as the Reserve Bank may direct, call upon-
1. As entitled to preferential payment
2. Every secured and every unsecured creditor
3. If claim is not asked in a fix time limit then it will not be considered as preferential claims
2.3 Booked depositors' credits to be deemed proved
In any proceeding for the winding up of a banking company, every depositor of the banking company shall be deemed to have filed his claim for the amount shown in the books of the banking company as standing to his credit and, notwithstanding anything to the contrary contained in 208[section 474 of the Companies Act, 1956 (1 of 1956)1, the High Court shall presume such claims to have been proved, unless the official liquidator shows that there is reason for doubting its correctness.
2.4 Preferential payments to depositors
(1) In every proceeding for the winding up of a banking company where a winding up order has been made, whether before or after the commencement of the Banking Companies (Second Amendment) Act, 1960 (37 of 1960), within three months from the date of the winding up order or where the winding up order has been made before such commencement, within three months there from, the preferential payments referred to in section 530 of the Companies Act, 1956 (1 of 1956), in respect of which statements of claims have been sent within one month from the date of the service of the notice referred to in section 41A, shall be made by the official liquidator or adequate provision for such payments shall be made by him.
(2) After the preferential payments as aforesaid have been made or adequate provisions has been made in respect thereof, there shall be paid within the aforesaid period of three months;
(a) in the first place, to every depositor in the savings bank account of the banking company a sum of two hundred and fifty rupees or the balance at his credit, whichever is less; and thereafter
(b) in the next place, to every other depositor of the banking company a sum of two hundred and fifty rupees or the balance at his credit, whichever is less, in priority to all other debts from out of the remaining assets of the banking company available for payment to general creditors:
PROVIDED that the sum total of the amounts paid under clause (a) and clause (b) to any one person who in his own name (and not jointly with any other person) is a depositor in the savings bank account of the banking company and also a depositor in any other account, shall not exceed the sum of two hundred and fifty rupees.
(3) Where within the aforesaid period of three months full payment cannot be made of the amounts required to be paid under clause (a) or clause (b) of sub-section (2) with the assets in cash, the official liquidator shall pay within that period to every depositor under clause (a) or, as the case may be, clause (b) of that sub-section on a pro rata basis so much of the amount due to the depositor under that clause as the official liquidator is able to pay with those assets; and shall pay the rest of that amount to every such depositor as and when sufficient assets are collected by the official liquidator in cash.
(4) After payments have been made first to depositors in the savings bank account and then to the other depositors in accordance with the foregoing provisions, the remaining assets of the banking company available for payment to general creditors shall be utilized for payment on a pro rata basis of the debts of the general creditors and of the further sums, in any, due to the depositors; and after making adequate provision for payment on a pro rata basis as aforesaid of the debts of the general creditors, the official liquidator shall, as and when the assets of the company are collected in cash, make payment on a pro rata basis as aforesaid, of the further sums, if any, which may remains due to the depositors referred to in clause (a) and clause (b) of sub-section (2).
(5) In order to enable the official liquidator to have in his custody or under his control in cash as much of the assets of the banking company as possible, the securities given to every secured creditor may be redeemed by the official liquidator:
(a) Where the amount due to the creditor is more than the value of the securities as assessed by him, or, as the case may be, as assessed by the official liquidator, on payment of such value; and
(b) where the amount due to the creditor is equal to or less than the value of the securities as so assessed, on payment of the amount due:
PROVIDED that where the official liquidator is not satisfied with the valuation made by the creditor, he may apply to the High Court for making a valuation.
(6) When any claimant, creditor or depositor to whom any payment is to be made in accordance with 210[the provisions of this section], cannot be found or is not readily traceable, adequate provision shall be made by the official liquidator for such payment.
(7) For the purposes of this section, the payments specified in each of the following clause shall be treated as payments of a different class, namely:-
(a) payments to preferential claimants under section 530 of the Companies Act, 1956 (1 of 1956);]
(b) payments under clause (a) of sub-section (2) of the depositors in the savings bank account;
(c) payments under clause (b) of sub-section (2) to the other depositors;
(d) payment to the general creditors and payments to the depositors in addition to those specified in clause (a) and clause (b) of sub-section (2).
(8) The payments of each different class specified in sub-section (7) shall rank equally among themselves and be paid in full unless the assets are insufficient to meet them, in which case they shall abate in equal proportion.]
211[(9) Nothing contained in sub-sections (2), (3), (4), (7) and (8) shall apply to a banking company in respect of the depositors of which the Deposit Insurance Corporation is liable under section'16 of the Deposit Insurance Corporation Act, 1961 (47 of 1961).
(10) After preferential payments referred to in sub-section (1) have been made or adequate provision has been made in respect thereof, the remaining assets of the banking company referred to in sub-section (9) available for payment to general creditors shall be utilized for payment on pro rata basis of the debts of the general creditors and of the sums due to the depositors:
PROVIDED that where any amount in respect of any deposit is to be paid by the liquidator to the Deposit Insurance Corporation under section 21 of the Deposit Insurance Corporation Act, 1961 (47 of 1961), only the balance, if any, left after making the said payment shall be payable to the depositor.]
Voluntary and speedy winding up
3.1 High Court has some power in process of voluntary winding up
For the purpose of voluntary winding up the banking company has to get a letter / certificate from the reserve bank, that the company is able to pay all their debts to its creditors and court can also keep supervision on such banking company if it think fit.
3.2 Speedy disposal of winding up for banking company
From S. 44A to 44X deal with this aspect
In case of Baidyanath Bayar v. Berhampore bank Ltd. it was held that High court has exclusive jurisdiction for the winding up of banking company. The main object of this jurisdiction is speedy realization of claims of the bank
In such condition of winding up the Summary proceedings take place and not the general proceeding. [S. 45B - The High Court shall, save as otherwise expressly provided in section 45C, have exclusive jurisdiction to entertain and decide any claim made by or against a banking company which is being wound up (including claims by or against any of its branches in India) or any application made under 236[section 391 of the Companies Act, 1956 (1 of 1956)] by or in respect of a banking company or any question of priorities or any other question whatsoever, whether of law or fact, which may relate to or arise in the course of the winding up of a banking company, whether such claim or question has arisen or arises or such application has been made or is made before or after the date of the order for the winding up of the banking company or before or after the commencement of the Banking Companies (Amendment) Act, 1953 (52 of 1953)]
In some condition court can also order for sale of debtor’s property, under Section 45D(7) – [At the time of settling the list of debtors or at any other time prior or subsequent thereto, the High Court shall have power to pass any order in respect of a debtor on the application of the official liquidator for the realization, management, protection, preservation or sale of any property given as security to the banking company and to give such powers to the official liquidator to carry out the aforesaid directions as the High Court thinks fit.] This was held in the case of Hanuman Bank Ltd v. P.T.Munia Servai. This is only done when debtor is not paying debt during the process and this done after serving him a valid notice.
3.3 Evidence of banking transactions
(1) Entries in the books of account or other documents of a banking company which is being wound up shall be admitted in evidence in all 239[legal proceedings] and all such entries may be proved either by the production of the books of account or other documents of the banking company containing such entries or by the production of a copy of the entries, certified by the official liquidator under his signature and stating that it is a true copy of the original entries and that such original entries are contained in the books of account or other documents of the banking company in his possession.
(2) Notwithstanding anything to the contrary contained in the Indian Evidence Act, 1872 (1 of 1872), all such entries in the books of account or other documents of a banking company shall, as against the Directors 216[officers and other employees] of the banking company in respect of which the winding up order has been made 240[* * *], be prima facie evidence of the truth of all matters purporting to be therein recorded.
From this all procedure now we can say that the winding up procedure of Banking Company is not the same as of the other company, but many provision’s image is found in the Banking Regulation Act for the winding up process.
Most of the time company applies for speedy winding up procedure. By this process time and money both are saved of banking company and its creditors or debtors. In such winding up procedure due care is taken by the High court so no mistake can be made and if any person found guilty then penalized for the same.
By the end of this project I didn’t find my hypothesis to be true as people doesn’t make any loss due to winding up of banking company as there are special rights to creditors and if delay is made in payment then they also get the interest. (This is only applicable to secured creditor at 4%.)
# Section 38A
# Section 40
# Section 42
# Section 43
# Section 43A.
# Section 44
# AIR 1976 Cal 372
# Thangavelu Onthiriyan v. Hanuman Bank Ltd AIR 1958 Mad 403
# AIR 1958 Mad 279
# Section 45 F
# Tannan M L banking law and Practice
# Bare Act of The Banking (regulation) Act, 1949
The author can be reached at: email@example.com
| Posted by Asaf Ameen on November 02, 2016
i need help to wind a p ltd co with lot of liabilities and have lost
more than its capital. Few share holders will not cooperte nor are they
willing to take over the management.The co has been in loss for last few
| Posted by Anubha on October 28, 2012
We have a Pvt Limited company with 2 partners having 50% shares each. Now e want to introduce a third partner with 40% stake in the company so that she can be active participant in all decisions made by the company. How this can be done and what changes should be made in the Articles of association to protect the interest of all directors while the company is in operations, is sold out to other company or is liquidated.
Victims means persons who, individually or collectively, have suffered harm, including physical or mental injury, emotional suffering, economic loss or substantial impairment of their fundamental rights, through acts or omissions that are in violation of criminal laws operative within Member States, including those laws proscribing criminal abuse of power...
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