You are on page 1of 3

EFFECT OF WINDING UP OF BANKING COMPANIES :

INTRODUCTION:
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.
A banking company may be amalgamated with another banking company as per BR Act.
The banking companies have to prepare a scheme of amalgamation, the draft copy of the
scheme of amalgamation covering terms and conditions needs to be placed separately by
the companies to their shareholders. Each shareholder needs to be given notice, The
scheme of amalgamation should be approved by a resolution passed by majority of
members representing two-thirds in value of the shareholders of each company present in
person or by proxy. A shareholder, who votes against the scheme of amalgamation and
gives necessary notice, may claim the value of his shares from the banking company, in
case the scheme is sanctioned by the Reserve Bank. Once the scheme is sanctioned by the
Reserve Bank then the assets and liabilities of the amalgamated company pass on to the
other company with which it is to be amalgamated. The order of the sanction of
amalgamation by Reserve Bank will be the conclusive proof of amalgamation. In case the
Central Government orders amalgamation of two companies, such amalgamation would

take place after consultation with the Reserve Bank Under Sec 45 of the Banking
Regulation Act the Reserve Bank can apply to the Central Government for an order of
moratorium in respect of any company, on account of certain valid reasons. After
considering various aspects, the Central Government may think it fit and proper to
+impose the moratorium. The period of moratorium can be extended from time to time
for a maximum period of six months. During the period of moratorium, the banking
company would not be allowed to make any payments to the depositors or discharge any
liabilities or obligations to any other creditors unless otherwise directed by the Central
Government in the order of moratorium or at any time thereafter.
WINDING UP BY THE HIGH COURT :
The High Court may order winding up of a banking company on account of (a) The
banking company is unable to pay its debts (b) An application of winding up had been
made by the Reserve Bank under the provisions of the Banking Regulation Act (Sec37
and 38)
The RBI is to make an application for winding up (under Sec 38 of BR Act) and under
Sec 35 (4) if directed by the Central Government. Central Government may give such
direction, based on the report of inspection or scrutiny made by the Reserve Bank, and on
account of the situation that the affairs of the bank are being conducted to the detriment
of the interests of the depositors. However before giving such direction, the banking
company would be given an opportunity to make a representation in connection with the
inspection/scrutiny report.
In the following circumstances, the Reserve Bank of India can apply for winding up of a
banking company. Non- compliance with the requirements of Sec 11 regarding
minimum paid up capital and reserves.
Prohibition to accept fresh deposits under Sec 35(4) of the Banking Regulation Act or
Sec 42 (3A)(b) of the Reserve Bank of India Act
Failure to comply with the requirements of the applicable provisions of the Banking
Regulation Act and the Reserve Bank of India Act
Official Liquidator: Sec 38A of the Banking Regulation Act provides for appointment of

an official liquidator attached to the High Court by the Central Government, to conduct
the winding up proceedings of a banking company.
Reserve Bank as Liquidator:
If Reserve Bank of India applies to the High Court, the Reserve Bank, State Bank or any
other bank as notified by the Central Government or an individual may also be appointed
as the official liquidator. Within the stipulated time, the liquidator is required to make a
preliminary report regarding the availability of the assets to make preferential payments
as per the provisions of the Companies Act and for discharging liabilities to depositors
and other creditors. Within the stipulated time, the liquidator is required to give notice
calling for claims for preferential payment and other claims from every secured and
unsecured creditors. However, depositors need not make claims. The claims of every
depositor of a banking company is deemed to have been filed for the amount as reflected
in the books of the banking standing in his/her credit.
Voluntary Winding Up: Voluntary winding up would be permitted only when the
Reserve Bank has certified that the banking company will not be able to pay in full all its
debts as they accrue.

You might also like