Banking Regulation Act, 1949

14. What do you understand by Statutory Liquidity Ratio (SLR)?

• As per Section 24 of the Banking Regulation Act, every banking company in India is required to maintain in India, Cash or Gold valued at a price not exceeding the current market price, or unencumbered approved securities not less than the percentage prescribed by RBI, of the total of its demand and time liabilities in India. This is known as “Statutory Liquidity Ratio”. 
• Presently, SLR is 18.00%.
• If a banking company, fails to maintain the required amount of SLR, it should be liable to pay to RBI in respect of that default.

15. What do you mean by Bank Rate?

• The Bank rate has been defined in Section 49 of RBI Act as the standard rate at which RBI is prepared to buy or rediscount bills of exchange or other commercial paper eligible to purchase under this Act. 
• Bank rate is the lending rate at which commercial banks can borrow from the R B I without providing any security. 
• Presently, the Bank Rate is, 6.75%.

16. What is “Reserve Requirements”?

The Reserve Bank of India is vested with the powers to vary the CRR and SLR as explained above. By varying reserve requirements. the RBI restricts or frees the flow of funds by way of credit to different sectors of the economy. When SLR or CRR is increased by RBI, it reduces commercial banks’ capacity to create credit and thus helps to check inflationary pressures.

17. What is “Repo”? 

• When banking systems experiences liquidity shortages and the rate of interest is increasing, the RBI will purchase Government securities from Banks, payment is made to banks and it improves liquidity and expands credit. This is Repo. 
• Repo rate is the rate at which banks borrow from RBI for short periods up to 7 or 14 days. 
• Repo rate is the rate at which, RBI lend to commercial banks by purchasing securities. 
• Presently, the Repo Rate or Policy Repo Rate is 6.50%.

18. What is “Reverse Repo”?

• Since November 1996, RBI introduced Reverse Repos to sell Govt. securities through auction at fixed cut-off rates of interest. 
• It provides short term avenues to banks to park their surplus funds. 
• Reverse repo rate is the rate at which banks can park their money with the RBI. 
• Presently, the Reverse Repo rate is 3.35%.

19.What is Banking Ombudsman Scheme?

• Introduced under Section 35 A of the Banking Regulation Act, 1949. 
• The Banking Ombudsman is a senior official appointed by the Reserve Bank of India to redress customer complaints against deficiency in certain banking services. 
• 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, on the grounds of mental agony and harassment.
• 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. 20 lakh, whichever is lower.

 Reserve Bank of India Act, 1934

• Reserve Bank of India  was formed by the legislative act of  Reserve Bank of India Act, 1934
• Meant to provide a framework for the supervision of banking firms in India.
• The Act contains the definition of “Scheduled Banks” mentioned in the 2nd  Schedule of the Act. 
• Schedule banks are banks  with paid up capital and reserves above Rs. 5 Lakh.

 Various Sections of RBI Act

  1. Functioning of RBI:

Section 7 - Central government can legislate the functioning of the RBI through the RBI board, and the RBI is not an autonomous body.

2. R B I as Lender of the Last Resort:

The facilities which are provided by R B I for the financial needs of banks are, laid down in, Section 17 of RBI Act. The facility is, generally provided, in the form of - rediscount of eligible bills, and, loans & advances, against eligible securities. 

Section 17 of the Act defines the manner in which the RBI can conduct business:

• • • Accept deposits from the central and state governments without interest. 
    • Purchase and  discount bills of exchange from commercial banks. 
    • Purchase foreign exchange from banks and sell it to them. 
    • Provide loans to banks and state financial corporations. 
    • Provide advances to the central government and state governments. 
    • Buy or sell Government Securities. 
    • Deal in derivative Repo and Reverse Repo. 

3. Emergency Loans to Banks:

• • • Section 18 - Emergency loans to banks. 
    • Section 18(1)(3) - short term loans against any other securities which the RBI may consider sufficient.

 4.RBI as Banker to the Government:

RBI has the obligation in terms of Section 20 and 21 of RBI Act to transact the banking business of the Central Government.

5.Cash / Currency Management:

Section 22 of  RBI Act -  Reserve Bank has the sole right to issue and management of currency in India: 

• • • Issue notes of different denominations as decided by the Central Government.
    • The issue department ensures that the aggregate value of the currency notes and bank notes in circulation from time to time should be equivalent to the eligible assets such as gold coins, bullion and foreign securities held by RBI.
    • Printing of currency notes, are handled by the Security Printing and Minting Corporation of India Limited, (SPMCIL) and The Bharatiya Reserve Bank Note Mudran Private Limited (BRBNMPL) in their different printing presses setup at Nasik, Devas and Mysore.
    • SPMCIL has mints for coin production, at, Mumbai, Noida and Hyderabad. 
    • The Reserve Bank acts as, agent for the Central Government, for issue, distribution and withdrawing of the coins.

6.Maximum Denomination of Indian rupee:

Section 24 - Maximum denomination of a currency note can be ₹10,000.

7.Legal Tender:

Section 26 - Legal tender character of Indian bank notes.

8.Exchange of damaged and imperfect notes:

 Section 28 - Rules regarding the exchange of damaged and imperfect notes. 

9.Issue and accept promissory notes:

Section 31 - Issue and accept promissory notes that are payable on demand. However, Cheques that are payable on demand, can be issued by anyone. 

10.Cash Reserve Ratio (CRR):

• • • Section 42 - Every scheduled Bank is required to keep, certain percentage of their demand, and, time liabilities, as cash balances, with the Reserve Bank of India, from time to time, known as Cash Reserve Ratio (CRR).
    • Presently CRR is 4.50 %.  
    • The non-scheduled banks are required to maintain the cash reserve as per Section 18 of the Banking Regulation Act.

 Negotiable Instruments (NI) Act

 Introduction

• The NI Act states in its preamble that it seeks to define the law relating to promissory note, bill of exchange and cheques. 
• NI Act came into force w.e.f March 01,1882. 
• This act is applicable to entire India. 
• The term negotiable instrument is not defined in the Act. 
• Section 13 says that Promissory Notes, Bills of Exchange and Cheques are negotiable instruments.

 Common Features

• A negotiable instrument can be transferred by delivery or by endorsement and delivery, depending on whether it is payable to the bearer or order. Transferability of the instrument may be restricted by the issuer or holder by crossing it as ‘Account Payee.’
• A negotiable instrument confers an absolute and valid title on the transferee who takes it in good faith, for value, and without notice of the defect in the title of the transferor.
• The holder of negotiable instrument can sue in his own name and can recover the amount of the instrument from the party liable to pay thereon as there is a right of action attached to the instrument itself. 

 Promissory Notes

• Promissory Note as defined under section 4 of the act is an instrument in writing (not being a bank note or a currency note) containing an unconditional undertaking, signed by the maker, to pay a certain sum of money only to, or to the order of, a certain person, or to the bearer of the instrument.
• A promissory note that is dependent on contingency would tantamount to being an uncertain undertaking and hence cannot be treated as a promissory note.

 Essential elements of a promissory note are:

• It must be in writing;
• There must be express promise to pay;
• The promise must be unconditional;
• It must be signed by the maker of the note;
• The payee must be certain;
• The amount payable must be certain;
• The promise should be to pay money only and not anything other than money;
• The amount may be payable on demand or after a certain time;
• The promissory note cannot be made payable to bearer on demand. Section 31 of the RBI Act prohibits issue of such a Promissory note except by the RBI or Central Government.
  

Bills of Exchange

• Bill of Exchange is defined under section 5.
• A Bill of Exchange is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument.

 Essential elements of a bill of exchange are:

• It must be in writing;
• It must contain an order to pay;
• The order must be unconditional;
• The parties must be certain;
• The sum payable must be certain;
• It must contain an order to pay money.

 Cheque

• Cheque is defined under section 6. 
• A cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand and it includes the electronic image of a truncated cheque and a cheque in the electronic form.

 Essential elements of a cheque are

• A cheque is a kind of bill of exchange;
• It is always drawn on a specified banker, which means the drawee of a cheque can be a banker;
• It is always payable on demand; and
• It includes electronic image of a truncated cheque and a cheque in an electronic form.

 Parties to Negotiable Instruments

• The person who makes or draws a bill or cheque is called the Drawer.
• The person on whom the bill or cheque is drawn and who is directed to pay is called Drawee.
• The person named in a pronote, bill or cheque, to whom or to whose order, the money is to be paid, is called the Payee.
• In case of a bill, when the drawee accepts the bill, he will become the Acceptor.
• The person who can lawfully possess an instrument & receive or recover the amount from parties, is called Holder.
• The person who endorses the negotiable instrument to another person is called the Endorser.
• The person to whom the negotiable instrument is endorsed is called the Endorsee.
• When in a bill or any endorsement thereon, the name of any person is given in addition to the drawee, to be resorted to in case of need, such person is called Drawee in case of need.
• When a bill is dishonoured by non-acceptance, the holder may allow any person to accept it for the honour of the drawer or any of the endorsers. The person so accepting is called the Acceptor for honour.

 Bearer and Order Instruments

• A negotiable instrument can be either a ‘bearer’ or an ‘order’ instrument. 
• A bearer instrument is payable to the bearer of the instrument. 
• Generally no identification of the bearer is necessary. 
• An order instrument can be paid to the payee or endorsee, only on proper identification, which is satisfactory to the paying bank.

 Negotiation

• A negotiable instrument may be transferred by one person to another by means of negotiation.
• A bearer instrument can be negotiated by mere delivery of the instrument.
• An order instrument can be negotiated by endorsement and delivery.

 Bankers’ Books Evidence Act

 Bankers’ Book Evidence Act,1891

Applicability and Definition: Act extends to whole of India except J & K. Bank means:  

• Any Company or Corporation carrying on business of Banking.
• Any Post Office Savings Bank or Money Order or Office computer. 

Legal Proceedings mean:  

• Any proceeding or enquiry in which evidence to be given.
• An Arbitration.
• Any investigation under code of Criminal Procedure,1973.
• In all the cases Certificate copy / Prints will suffice. 

Condition of Prints out: (Not written report) 

• Certificate of Manager signifying True copy.
• Certificate briefing the description of computer system.
• Vouch for integrity and accuracy of the system.
• A certified copy of any entry in a banker’s book shall in all legal proceeding be received as prima facie evidence of existence of such entry. It shall be admissible as evidence in all matters.

If Bank is not a party:  

• No officer of Bank shall be compellable to produce any banker’s book.
• No officer shall be called as witness.
• The Court may order otherwise as special case. 
• On application by any party the court may order, but Bank is to be informed 3 working days prior to submission / appearance.

Inspection of Books by order of court:  

• Party on submission of application (application cost a per Court) to Court and after getting due order from Court, would be at liberty to inspect or to take copies.
• Bank to prepare and produce the docs within time frame.
• Certificate on non-existence of any other entry. But Bank is to be informed 3 working days prior to such inspection.

 Law of Limitation

• Documents obtained for advances are to be kept legally alive (enforceable / valid) at all times and necessary action has to be taken to get them renewed, to enforce the same in a court of law, if need arises for such a course.
• Time-barred debt is the money the consumer had borrowed and didn’t repay and which is no longer legally collectable because a certain number of years have passed.
• Limitation period is the time limit within which action can be taken in a court of law to enforce any legal right.
• A suit filed after limitation period is not be accepted by the court.
• The limitation period bars the remedy of filing a suit but it does not take away the right of recovering the debt.
• There is no limitation period for recovering the debt by exercising the right of lien, set-off or selling the goods pledged to bank which does not involve filing of suits.

Period of Limitation:

• In computing the period of limitation for any suit, the date from which such period is to be reckoned shall be excluded. In other words, the suit can be filed on the anniversary day.
• If a Pronote is dated 9.9.2015, 3 years will be completed on 8.9.2018. But since the first date is to be excluded, the suit can be filed upto 9.9.2018.

Extension of period of limitation: The period of limitation prescribed by the Limitation Act can be extended by -

• An acknowledgment of debt, or
• A part-payment, or
• A fresh promise to pay

How Acknowledgment of Debt helps:

• Limitation period can be extended by an acknowledgment of debt obtained in writing from the borrower(s). 
• Acknowledgment means a definite admission of liability or debt. It must be made with conscious intention of admitting the debt or liability.

 INDIAN PARTNERSHIP ACT, INDIAN CONTRACT ACT & COMPANIES ACT

 INDIAN PARTNERSHIP ACT 1932:

• Indian partnership Act,1932 extends to the whole of India except the State of Jammu and Kashmir
• Section 4 of the Act says that a partnership is the relation between persons who have agreed to share the profits of a business, carried on by all or any of them acting for all
• The relationship between partners is governed by partnership deed.Authority of the Partners:
• Section 19 of the Indian Partnership Act, 1932 deals with the implied authority of a partner as an agent of the firm .
• section 22 deals with the mode of doing acts to bind the firm.

Business of Partnership firm:

• rights and duties of the partners are determined by deed of partnership.
• there may be managing partner, who conducts business on behalf of other partners.Insolvency of the Firm:
• on receiving notice of insolvency of the firm must immediately stop further transactions .
• Insolvency of the Partner:
• If at the time of insolvency of the one of the partners the firm’s account is in credit then the same can be operated by other partners.
• but the banker should obtain a fresh mandate and all previous cheques issued by the insolvent partner .

INDIAN CONTRACT ACT:

• It came into effect on the 1st of September 1872 and is applicable to the whole of India with the exception of Jammu & Kashmir. It is divided into two parts.
• Part one describes the general principles of a contract .
• The second part deals with special types of contracts namely indemnities, guarantees etc.

MEANING OF CONTRACT:

• Contract means agreement enforceable by the law.
• It has two major constituents.
• Agreement between two persons or more.
• The agreement must be  enforceable by law(i.e the rights & obligations arising out of it)

 KEY COMPONENTS TO FORM A CONTRACT:

• A proposal becomes a promise when it is accepted.
• The person making the proposal is called the “promisor”.
• The person accepting the proposal is called “promisee”.

COMPANIES ACT 2013:

• Regulates the formation and functioning of corporations or companies in India.
• The first Companies Act after independence was passed in 1956 which governed business entities in the country.
• This Act was amended multiple times, and in 2013, major changes were introduced.

 Companies Act 2013 Highlights:

• The maximum number of shareholders for a private company is 200 (the previous cap was at 50).
• The concept of a one-person company
• Company Law Appellate Tribunal & Company Law Tribunal.
• CSR made mandatory.

 Salient features of Companies Act 2013: 

• It has introduced the concept of ‘Dormant Companies’.
• It introduced the National Company law Tribunal.
• Documents have to be maintained in electronic form.
• Official liquidators have adjudicatory powers for companies having net assets of up to Rs.1 crore.
• The procedure for mergers and amalgamations have been made faster and simpler.
• The Act mandates at least 7 days of notice for calling board meetings.

 Companies (Amendment) Act, 2019

• Companies will have to keep an unspent amount into a special account for the purpose of CSR
• This amount, if left unspent after a period of 3 years, will be moved into a fund specified in Schedule VII of the Act. This could even be the Prime Minister’s Relief Fund.
• Under this Act, the Registrar of Companies can initiate action for the removal of the company’s name from the Register of Companies .