Institute for the Works of Religion (IOR)-Vatican Bank

A Bank that helps the customer in money laundering, corruption, tax-evasion and embezzlement….

Location: Tower of Niccolo V at the Vatican

“The Istituto per le Opere di Religione (henceforth, the Institute or IOR) is an institution of the Holy See, founded by Chirograph of His Holiness Pius XII on 27 June 1942. Its origins date back to the “Commissione ad pias causas ” established by the Supreme Pontiff Leo XIII in 1887”.

“The Vatican Bank is different from many other ordinary banks. The bank does not lend money, and it does not make direct investments. The bank receives money as deposits and then invests it in government bonds, some corporate bonds and in the inter-banking market where it deposit with other banks for a slightly higher interest rate than it receives. The bank contributes 55 million euros to the Vatican budget, making it one of its most crucial economic pillars”[Vatican Web]

LAWS, REGULATIONS AND INSTRUCTIONS OF THE FINANCIAL INFORMATION AUTHORITY

STATUTES

  1. Motu Proprio (15 novembre 2013)
  2. Statutes (15 novembre 2013)
  3. Motu Proprio (30 dicembre 2010)
  4. Statutes (30 dicembre 2010)

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RBI Statement on Developmental and Regulatory Policies-6/2/2020

Date: Feb 06, 2020

This Statement sets out various developmental and regulatory policy measures for improving credit flows to certain sectors; reinforcing monetary transmission; strengthening regulation and supervision; broadening and deepening financial markets; and improving payment and settlement systems.

I. Liquidity Management, Monetary Transmission and Credit Flows

1. Revised Liquidity Management Framework

As announced in the Statement on Developmental and Regulatory Policies of June 6, 2019, an Internal Working Group was set up to review the liquidity management framework with a view to simplifying it and to suggest measures to clearly communicate the objectives and the toolkit for liquidity management. The Group’s report was placed on the RBI’s website on September 26, 2019 for comments from stakeholders and members of the public. Based on the feedback received, it has been decided to fine-tune the existing liquidity management framework. The key elements of the revised framework are set out below:

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PAYMENT SERVICES ACT 2019 – SINGAPORE

PAYMENT SERVICES ACT 2019
(No. 2 of 2019)

I assent.

HALIMAH YACOB,
President.

11 February 2019.

Date of Commencement: 28 January 2020 Parts 1 to 8, sections 109, 110, 112, 115 to 120, Part 10, the First and Second Schedules

An Act to provide for the licensing and regulation of payment service providers, the oversight of payment systems, and connected matters, to repeal the Money‑changing and Remittance Businesses Act (Chapter 187 of the 2008 Revised Edition) and the Payment Systems (Oversight) Act (Chapter 222A of the 2007 Revised Edition), and to make consequential and related amendments to certain other Acts.

Be it enacted by the President with the advice and consent of the Parliament of Singapore, as follows:

PART 1
PRELIMINARY
Short title and commencement
1. This Act is the Payment Services Act 2019 and comes into operation on a date that the Minister appoints by notification in the Gazette.

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Guidelines for ‘on tap’ Licensing of Small Finance Banks in the Private Sector

Licensing of Small Finance Banks in the Private Sector

Guidelines for ‘on tap’ Licensing of Small Finance Banks in the Private Sector

I. Introduction

The Reserve Bank had issued the Guidelines for Licensing of “Small Finance Banks” in the Private Sector on November 27, 2014. The process of licensing culminated in granting in-principle approval to ten applicants and they have since established the banks. It was notified in these Guidelines that after gaining experience in dealing with these banks, the Reserve Bank will consider ‘on tap’ licensing of these banks. After a review of the performance of the existing small finance banks and to encourage competition, it was announced in the Second Bi-monthly Monetary Policy Statement, 2019-20 dated June 06, 2019 that the Reserve Bank would put out draft guidelines for ‘on tap’ licensing of such banks. Accordingly, the draft guidelines were published on the RBI website on September 13, 2019 inviting comments from the stakeholders and members of the public. The final Guidelines, taking into consideration the responses received, are given below.

II. Guidelines

1. Registration, licensing and regulations

The small finance bank shall be registered as a public limited company under the Companies Act, 2013. It will be licensed under Section 22 of the Banking Regulation Act, 1949 and governed by the provisions of the Banking Regulation Act, 1949; Reserve Bank of India Act, 1934; Foreign Exchange Management Act, 1999; Payment and Settlement Systems Act, 2007; Credit Information Companies (Regulation) Act, 2005; Deposit Insurance and Credit Guarantee Corporation Act, 1961; other relevant Statutes and the Directives, Prudential Regulations and other Guidelines/ Instructions issued by Reserve Bank of India (RBI) and other regulators from time to time. The small finance banks will be given scheduled bank status once they commence their operations.

2. Objectives

The objectives of setting up of small finance banks will be for furthering financial inclusion by (i) provision of savings vehicles primarily to unserved and underserved sections of the population, and (ii) supply of credit to small business units; small and marginal farmers; micro and small industries; and other unorganised sector entities, through high technology-low cost operations.

3. Eligible promoters

(a) Eligibility Criteria:

Resident individuals/professionals (Indian citizens), singly or jointly, each having at least 10 years of experience in banking and finance at a senior level; and Companies and Societies in the private sector, that are owned and controlled by residents (as defined in FEMA Regulations, as amended from time to time), and having successful track record of running their businesses for at least a period of five years, will be eligible as promoters to set up small finance banks. Existing Non-Banking Finance Companies (NBFCs), Micro Finance Institutions (MFIs), and Local Area Banks (LABs) in the private sector, that are controlled by residents (as defined in FEMA Regulations, as amended from time to time), and having successful track record of running their businesses for at least a period of five years, can also opt for conversion into small finance banks after complying with all legal and regulatory requirements of various authorities and if they conform to these guidelines. Further, existing Payments Banks (PBs) which are controlled by residents and have completed five years of operations are also eligible for conversion into small finance banks after complying with all legal and regulatory requirements of various authorities and if they conform to these guidelines. However, joint ventures by different promoter groups for the purpose of setting up small finance banks would not be permitted. As local focus and the ability to serve smaller customers will be the key criteria in licensing such banks, this may be a more appropriate vehicle for local players or players who are focused on lending to unserved / underserved sections of the society. Accordingly, proposals from Government owned / public sector entities and large industrial house / business groups, including from NBFCs and PBs promoted by them, autonomous boards / bodies set up under enactment of a state legislature, state financial corporations, subsidiaries of development financial institutions, will not be entertained. For the purpose of these guidelines, a group with assets of ₹ 5,000 crore or more with the non-financial business of the group accounting for 40 per cent or more in terms of total assets / gross income, will be treated as a large industrial house / business groups. (In taking a view on whether the companies, either as promoters or investors, belong to a large industrial house or to a company connected to a large industrial house, the decision of the RBI will be final). Further, proposals from Alternative Investment Funds (AIFs) will also not be entertained.

Primary (Urban) Co-operative Banks (UCBs), which are desirous of voluntarily transiting into small finance bank, may refer to Scheme on voluntary transition of Urban Co-operative Bank into a Small Finance Bank (Circular reference no. DCBR.CO.LS.PCB. Cir.No.5/07.01.000/2018-19 dated September 27, 2018). UCBs applying for transiting to small finance bank or obtaining in-principle approval for such transition (under the above referred scheme), will be required to ensure compliance with these ‘on tap’ licensing guidelines from the date of commencement of business as small finance bank except the guideline on minimum capital. The minimum net worth of such small finance banks shall be ₹ 100 crore from the date of commencement of business. However they will have to increase their minimum net worth to ₹ 200 crore within five years from the date of commencement of business.

(b) ‘Fit and Proper’ criteria

Promoters / Promoter Groups1 should be ‘fit and proper’ in order to be eligible to promote small finance banks. RBI would assess the ‘fit and proper’ status of the applicants on the basis of their past record of sound credentials and integrity; financial soundness and successful track record of professional experience or of running their businesses, etc. for at least a period of five years.

(c) Corporate Structure:

The promoters / promoter group may choose to set up the small finance bank either as a standalone entity or under a holding company, which shall act as the promoting entity of the bank. However, if there is an intermediate company between the small finance bank and its promoting entity, it should be a Non-Operative Financial Holding Company (NOFHC). If the promoters desire to set up the small finance bank under a holding company structure, without an NOFHC, the holding company / the promoting entity shall be registered as an NBFC – CIC with the Reserve Bank. In case the small finance bank is set up under an NOFHC, the NOFHC would be required to conform to all requirements relating to NOFHC stipulated under paragraph 2 (C) II of the Guidelines for ‘on tap’ Licensing of Universal Banks in the Private Sector dated August 1, 2016. The general principle for reorganisation of the activities in the group is that all activities permitted to a bank under Section 6 (a) to (o) of Banking Regulation Act, 1949 shall be carried out from the bank. However, if the Promoters desire to continue existing specialized activities from a separate entity proposed to be held under the NOFHC, prior approval from RBI would be required and it should be ensured that similar activities are not conducted through the bank. Further, the activities not permitted to the bank would also not be permitted to the group i.e. entities under the NOFHC would not be permitted to engage in activities that the bank is not permitted to engage in. However, small finance banks will not be allowed to set up any subsidiaries.

4. Scope of activities

The small finance bank, in furtherance of the objectives for which it is set up, shall primarily undertake basic banking activities of acceptance of deposits and lending to unserved and underserved sections including small business units, small and marginal farmers, micro and small industries and unorganised sector entities.

It can also undertake other non-risk sharing simple financial services activities, not requiring any commitment of own fund, such as distribution of mutual fund units, insurance products, pension products, etc. with the prior approval of the RBI and after complying with the requirements of the sectoral regulator for such products. After three years from the date of commencement of operations of the bank, requirement for prior approval from the Reserve Bank will no longer apply and the bank will be governed by the extant norms as applicable to scheduled commercial banks.

The small finance bank can also become a Category II Authorised Dealer in foreign exchange business for its clients’ requirements.

Small finance banks will have general permission to open banking outlets from the date of commencement of business as per RBI circular on “Rationalisation of Branch Authorisation Policy- Revision of Guidelines” dated May 18, 2017, as amended from time to time subject to the condition that the requirement of opening at least 25 per cent of its banking outlets in unbanked rural centers (population upto 9,999 as per the latest census). Where the small finance bank has been formed by conversion of an existing NBFC – MFI, the transition of existing branches to banking outlets will be governed by the provisions of paragraph 7 of the RBI circular on “Rationalisation of Branch Authorisation Policy- Revision of Guidelines” dated May 18, 2017, as amended from time to time.

There will not be any restriction in the area of operations of small finance banks; however, preference will be given to those applicants who, in the initial phase, set up the bank in a cluster of under-banked States / districts, such as in the North-East, East and Central regions of the country. These applicants will not have any hindrance to expand to other regions in due course. It is expected that the small finance bank should primarily be responsive to local needs. After the initial stabilization period of five years, and after a review, RBI may liberalize the scope of activities of the small finance banks.

The other financial and non-financial services activities of the promoters, if any, should be kept distinctly ring-fenced and not comingled with the banking business.

The small finance bank will be required to use the words “Small Finance Bank” in its name in order to differentiate it from other banks.

5. Capital requirement

The minimum paid-up voting equity capital for small finance banks shall be ₹ 200 crore, except for such small finance banks which are:

a. transited from UCBs for which the capital requirement will be as prescribed in paragraph 3 (a) above.

b. converted from NBFC/MFI/LAB/PB for which the capital requirement will be as prescribed in paragraph 10 below.

In view of the inherent risk of a small finance bank, it shall be required to maintain a minimum capital adequacy ratio of 15 per cent of its risk weighted assets (RWA) on a continuous basis, subject to any higher percentage as may be prescribed by RBI from time to time. Tier I capital should be at least 7.5 per cent of RWAs. Tier II capital should be limited to a maximum of 100 per cent of total Tier I capital. Basel II norms will be generally applicable to the small finance banks, unless stipulated otherwise.

6. Promoters’ contribution

The promoters shall hold a minimum of 40 per cent of the paid-up voting equity capital of the bank at all times during the first five years from the date of commencement of business of the bank. If the initial shareholding by promoters in the bank is in excess of 40 per cent of paid-up voting equity capital, it should be brought down to 40 per cent within a period of five years. Whether a promoter ceases to be a promoter or could exit from the bank, after completing the lock-in period of five years, would depend on the RBI’s regulatory and supervisory comfort / discomfort and SEBI regulations in this regard. Further, the promoters’ stake should be brought down to a maximum of 30 per cent of the paid-up voting equity capital of the bank within a period of 10 years, and to a maximum of 15 per cent within 15 years from the date of commencement of business of the bank.

Further, in the case of such small finance banks which are transited from UCBs the promoters shall hold a minimum of 26 per cent of paid-up voting equity capital at all times during the first five years from commencement of business of the bank. Promoters’ holding may be brought down to 15 per cent over a period of 15 years from the date of reaching net worth of ₹ 200 crore by such UCBs.

Proposals having diversified shareholding, subject to the initial minimum shareholding of promoters, and a time frame for listing of the bank will be preferred. However, listing will be mandatory within three years after the small finance bank reaches the net worth of ₹ 500 crore for the first time. Small finance banks having net worth of below ₹ 500 crore could also get their shares listed voluntarily, subject to fulfillment of the requirements of the capital markets regulator. Any proposed material change2 in the shareholding pattern in the promoter entity at the time of application and during the period between the application and grant of license should be brought to the prior notice of RBI. Thereafter, such a change would require prior approval of RBI.

7. Foreign shareholding

The foreign shareholding in the small finance bank would be as per the extant Foreign Direct Investment (FDI) policy for private sector banks, subject to paragraph 6 above.

8. Voting rights and transfer / acquisition of shares

As per Section 12 (2) of the Banking Regulation Act, 1949, read with RBI notification dated July 21, 2016, published in the Gazette of India dated September 17, 2016, any shareholder’s voting rights in private sector banks are currently capped at 26 per cent of the total voting rights of all the shareholders of the banking company. Further, as per Section 12 (B) of the Act ibid, any acquisition of 5 per cent or more of paid-up share capital in a private sector bank or voting rights therein will require prior approval of RBI. These provisions will apply to the small finance banks also. However, shareholding limits of promoters / promoter group will be guided by paragraph 6 of these guidelines.

9. Prudential norms

The newly set up small finance banks should ensure that they put in place a robust risk management framework. The small finance bank will be subject to all prudential norms and regulations of RBI as applicable to existing commercial banks including requirement of maintenance of Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR). No forbearance would be provided for complying with the statutory provisions.

In view of the objectives for which small finance banks are set up, the bank will be required to extend 75 per cent of its Adjusted Net Bank Credit (ANBC) to the sectors eligible for classification as priority sector lending (PSL) by RBI. While 40 per cent of its ANBC should be allocated to different sub-sectors under PSL as per the extant PSL prescriptions, the bank can allocate the balance 35 per cent to any one or more sub-sectors under the PSL where it has competitive advantage. The first audited balance sheet as on March 31st, post commencement of operations of the small finance bank, would form the basis for the first PSL target for the bank (for the subsequent financial year). During the ‘intervening period’ i.e. the period between date of commencement of business and the date of first audited balance sheet (i.e. March 31st), the small finance banks are not allowed to sell Priority Sector Lending Certificates.

The maximum loan size and investment limit exposure to a single and group obligor would be restricted to 10 per cent and 15 per cent of its capital funds, respectively. Further, in order to ensure that the bank extends loans primarily to small borrowers, at least 50 per cent of its loan portfolio should constitute loans and advances of up to ₹ 25 lakh on an ongoing basis. For assessing compliance with this requirement, the entire loan portfolio of the bank, as on the date of commencement of operations, would be considered and not just the fresh loans disbursed after the commencement of operations. Further, the criteria of upper limit of ₹ 25 lakh shall be borrower wise.

After the initial stabilization period of five years, and after a review, RBI may relax the above exposure limits.

In addition to the restrictions placed on banks’ loans and advances to its directors and the companies in which its directors are interested under Section 20 of the Banking Regulation Act, 1949, the small finance bank is precluded from having any exposure to its promoters, major shareholders (who have shareholding of 10 per cent or more of paid-up voting equity shares in the bank), the relatives [as defined in Section 2 (77) of the Companies Act, 2013 and Rules made there under] of the promoters as also the entities in which they have significant influence or control (as defined under Accounting Standards Ind AS 28 and Ind AS 110).

10. Additional conditions for NBFCs/MFIs/LABs/PBs converting into a bank

An existing NBFC/MFI/LAB/PB, if it meets the conditions under these guidelines, could apply to convert itself into a small finance bank, after complying with all legal and approval requirements from various authorities. In such a case, the entity shall have a minimum net worth of ₹ 200 crore or it shall infuse additional paid-up voting equity capital to achieve net worth of ₹ 200 crore within eighteen months from the date of in-principle approval or as on the date of commencement of operations, whichever is earlier. It may be noted that on conversion into a small finance bank, the NBFC / MFI / PB will cease to exist and all its business which a bank can undertake should fold into the bank and the activities which a bank cannot statutorily undertake be divested / disposed of. Further, the branches of the NBFC / MFI / PB should either be converted into bank branches within a period of three years from the date of commencement of operations or be merged / closed. The small finance bank and the NBFC / MFI cannot co-exist.

Banks are precluded from creating floating charge on their assets. For such NBFCs / MFIs, which succeed in obtaining licenses to convert into small finance banks, if they have created floating charges on their assets for secured borrowings which stand in their balance sheets on the day of conversion into a small finance bank, RBI will permit grandfathering of such borrowings till their maturity. An additional risk weight of 25 per cent will be imposed on the assets on which charge / lien has been created by the converting entity, in favour of the existing lenders / debenture holders, until such time these liabilities are extinguished in order to protect the interest of the depositors.

If the existing NBFCs/MFIs/LABs have diluted the promoters’ shareholding to below 40 per cent, but above 26 per cent, due to regulatory requirements or otherwise, RBI may not insist on the promoters’ minimum initial contribution as indicated in paragraph 6 of the guidelines. In such cases, the promoters’ have to ensure that their holding does not fall below 26% of paid-up voting equity capital during the first five years from commencement of business of the bank, even if fresh equity is infused.

11. Business plan

The applicants for small finance bank licenses will be required to furnish their business plans along with project reports with their applications. The business plan will have to address how the bank proposes to achieve the objectives behind setting up of small finance banks and in the case of an NBFC / MFI applicant, how the existing business of NBFC / MFI will fold into the bank or divested / disposed of. The business plan submitted by the applicant should be realistic and viable. In case of deviation from the stated business plan after issue of license, RBI may consider restricting the bank’s expansion, effecting change in management and imposing other penal / regulatory measures as may be necessary.

12. Corporate governance

  1. The Board of the small finance bank should have a majority of independent Directors3.
  2. The bank should comply with the corporate governance guidelines including ‘fit and proper’ criteria for Directors as issued by RBI from time to time.

13. Other conditions

  1. A promoter will not be granted licenses for both universal bank and small finance bank even if the proposal is to set them up under the NOFHC structure.
  2. If a promoter of a payments bank desires to set up a small finance bank, both the banks should be under NOFHC structure.
  3. Individuals (including relatives) and entities other than the promoters will not be permitted to have shareholding in excess of 10 per cent of the paid-up voting equity capital of the bank. In case of existing NBFCs/MFIs/LABs converting into small finance bank, where there is shareholding in excess of 10 per cent of the paid-up voting equity capital by entities other than the promoters (including private equity funds), RBI may consider providing time up to 3 years from the date of the ‘in principle’ approval for the shareholding to be brought down to a maximum of 10 per cent.
  4. The small finance bank cannot be a Business Correspondent (BC) for another bank. However, it can have its own BC network.
  5. The operations of the bank should be technology driven from the beginning, conforming to generally accepted standards and norms; while new approaches (such as for data storage, security and real time data updation) are encouraged, a detailed technology plan for the same should be furnished to RBI.
  6. The bank should have a high powered Customer Grievances Cell to handle customer complaints. The small finance banks will come under the purview of RBI’s Banking Ombudsman Scheme, 2006, as amended from time to time.
  7. The compliance of terms and conditions laid down by RBI is an essential condition of grant of license. Any non-compliance will attract penal measures or regulatory actions including cancellation of license of the bank.

14. Transition path

The small finance bank may choose to continue as a differentiated bank. If it aspires to transit into a universal bank, such transition will not be automatic, but would be subject to it applying to RBI for such conversion and fulfilling minimum paid-up voting equity capital / net worth requirement as applicable to universal banks; its satisfactory track record of performance as a small finance bank for a minimum period of five years and the outcome of RBI’s due diligence exercise. On transition into a universal bank, it will be subjected to all the norms including NOFHC structure as applicable under the Guidelines for ‘on tap’ Licensing of Universal Banks in the Private Sector dated August 1, 2016.

15. Procedure for application

In terms of Rule 11 of the Banking Regulation (Companies) Rules, 1949, applications shall be submitted in the prescribed form (Form III). In addition, the applicants should furnish the business plan as per paragraph 11 and other requisite information as per the Annex II. Applications for setting up of small finance banks in the private sector, along with other details as mentioned above, contained in an envelope superscripted “Application for Small Finance Bank” should be addressed to:

The Chief General Manager,
Department of Regulation,
Reserve Bank of India,
Central Office, 13th Floor,
Central Office Building,
Shahid Bhagat Singh Road,
Mumbai – 400001

The licensing window will be open on-tap. As such, applications in the prescribed form along with requisite information could be submitted to RBI at any point of time, as desired by the applicant.

16. Procedure for RBI decisions

  1. At the first stage, the applications will be screened by RBI to assess the eligibility of the applicants, vis-à-vis the criteria laid down in these guidelines. RBI may apply additional criteria to determine the suitability of applications, in addition to the ‘fit and proper’ criteria prescribed at paragraph 3 above. Thereafter, the applications will be referred to a Standing External Advisory Committee (SEAC) to be set up by RBI.
  2. The SEAC will comprise of eminent persons with experience in banking, financial sector and other relevant areas. The tenure of the SEAC will be for three years.
  3. The SEAC will set up its own procedures for screening the applications. The SEAC will meet periodically, as and when required. The Committee will reserve the right to call for more information as well as have discussions with any applicant/s and seek clarification on any issue as may be required by it. The Committee will submit its recommendations to RBI for consideration.
  4. The Internal Screening Committee (ISC), consisting of the Governor and the Deputy Governors will examine all the applications. The ISC will also deliberate on the rationale of the recommendations made by the SEAC and then submit its recommendations to the Committee of the Central Board (CCB) of RBI for the final decision to issue ‘in-principle approval’.
  5. The validity of the ‘in-principle approval’ issued by RBI will be 18 months from the date of granting ‘in-principle approval’ and would thereafter lapse automatically. Therefore, the -applicant will have to obtain the license within a period of 18 months of granting the ‘in-principle approval’.
  6. After issue of the ‘in-principle approval’ for setting up of a small finance bank, if any adverse features are noticed regarding the Promoters or the companies / entities with which the Promoters are associated and the group in which they have interest, the RBI may impose additional conditions and if warranted, may withdraw the ‘in-principle approval’.
  7. The names of applicants that are found suitable for grant of in-principle approval will also be placed on the RBI website.
  8. An applicant who has not been found suitable for issue of license will be advised of the Reserve Bank’s decision. Such applicants will not be eligible to make an application for a banking license for a period of three years from the date of that decision.
  9. Applicants aggrieved by the decision of the Committee of the Central Board can prefer an appeal against the decision to the Central Board of Directors, within one month from the date of receipt of communication from RBI relating to the application not being considered as at paragraph 16 (h) above.

Annex I

Definitions

I. Promoter

Promoter means, the person who together with his relatives [as defined in Section 2 (77) of the Companies Act, 2013 and Rules made there under], by virtue of his ownership of voting equity shares, is in effective control of the bank / NOFHC, and includes, wherever applicable, all entities which form part of the Promoter Group.

II. Promoting entity

Promoting entity means the entity that promotes the bank.

III. Promoter Group

“Promoter Group” includes:

(i) the promoter;

(ii) relatives of the promoter [as defined in Section 2 (77) of the Companies Act, 2013 and Rules made there under]; and

(iii) in case promoter is a body corporate:

(A) a subsidiary or holding company of such body corporate;

(B) any body corporate in which the promoter holds ten per cent or more of the equity share capital or which holds ten per cent or more of the equity share capital of the promoter;

(C) any body corporate in which a group of individuals or companies or combinations thereof which hold twenty per cent or more of the equity share capital in that body corporate also holds twenty per cent or more of the equity share capital of the promoter;

(D) Joint venture/Associate (as defined in terms of InD AS 28) with the promoter;

(E) Related party (as defined in terms of InD AS 24) of the promoter; and

(iv) in case the promoter is an individual:

(A) any body corporate in which ten per cent or more of the equity share capital is held by the promoter or a relative of the promoter or a firm or Hindu Undivided Family in which the promoter or any one or more of his immediate relative is a member;

(B) any body corporate in which a body corporate as provided in (A) above holds ten per cent or more, of the equity share capital;

(C) any Hindu Undivided Family or firm in which the aggregate shareholding of the promoter and his immediate relatives is equal to or more than ten per cent of the total; and

(v) all persons who are declared as promoters in the Articles of Association of the bank/ group companies.

(vi) all persons whose shareholding is aggregated for the purpose of disclosing in the prospectus4 under the heading “shareholding of the promoter group”;

(vii) Entities sharing a common brand name with entities discussed in A, B, C, D, E, where the promoter is a body corporate and A, B, C where the promoter is an individual;

Provided that a financial institution, scheduled commercial bank, foreign institutional investor or mutual fund shall not be deemed to be promoter group merely by virtue of the act that ten per cent or more of the equity share capital of the promoter is held by such institution unless such investment is strategic in nature.


Annex II

Additional Information to be furnished by promoters along with relevant supporting documents

I. Existing Structure

1. Information on the individual promoter :

  1. Self-declaration by the individual promoters as per Appendix I.
  2. Detailed profiles on the background and experience of the individual promoters, his/their expertise, track record of business.

2. Information on the individuals and entities in the promoter group :

  1. Names and details of other entities in the promoter group as per Appendix II (if not covered in Appendix I).
  2. Shareholding pattern of all the entities in the promoter group.
  3. A pictorial organogram indicating the corporate structure of all the entities in the group indicating the shareholding and total assets of the entities.
  4. Annual reports of the past five years of all the group entities.

3. Information on the entity converting/promoting the bank :

  1. Declaration by the promoting / converting entity as per Appendix III.
  2. Shareholding pattern of the promoting / converting entity.
  3. Memorandum and Articles of Association and financial statements of the promoter entity for the past five years (including a tabulation of important financial indicators for the said years), board composition and representation of the Directors over a period of ten years, income tax returns for last three years, C.A certificate indicating source of funds for promoting / converting entity.

II. Proposed Structure

  1. The applicants should furnish detailed information about the persons/entities, who would subscribe to 5 per cent or more of the paid-up voting equity capital (shareholding pattern) of the proposed bank, including foreign equity participation, in the proposed bank and the sources of capital of the proposed investors.
  2. The proposed promoter shareholding and plan for dilution of promoter shareholding in compliance with the guidelines.
  3. Proposed management of the bank, if finalised.

III. Project Report

A project report covering business potential and viability of the proposed bank, the proposed area of operation, the business plan5, any other financial services proposed to be offered, plan for compliance with prudential norms on CRR/SLR6, composition of loan portfolio, priority sector, etc. as per the guidelines, and any other information that is considered relevant. The project report should give as much concrete details as feasible, based on adequate ground level information and avoid unrealistic or unduly ambitious projections. The business plan should address how the bank proposes to achieve financial inclusion7 and in the case of an NBFC / MFI applicant, how the existing business of NBFC / MFI will fold into the bank or divested / disposed of.

IV. Any other information

The promoters may furnish any other relevant information and documents supporting the applications. Further, the RBI may call for any other additional information, as may be required, in due course.


1 The definitions of ‘promoter’ and ‘promoter group’ are provided in Annex I.

2 Material Change means any change of 10% or above of shareholding.

3 Independent Directors: As defined in Companies Act, 2013

4 As per SEBI (Issue of Capital & Disclosure Requirements) Regulations, 2018

5 Business plan should, inter alia, include (but not limited to), the underlying assumptions, the existing infrastructure/ network/ branches, and the proposed product lines, target clientele, target locations, usage of technology, risk management, plans relating to human resources, branch network, alternative points of presence, opening of branches in unbanked rural areas, priority sector compliance, financial projections for five years, etc.

6 In case of NBFC applicants, information on existing CRR / SLR requirement, projected CRR / SLR requirement and plan for compliance with statutory norms on CRR / SLR may be given.

7 Financial Inclusion Plan should include (but not limited to), details of joint venture or partnership for offering financial inclusion products, promoting financial literacy, achieving the objective of small finance banks, etc.

 

Bank for International Settlements (BIS)

Bank for International Settlements is the oldest international financial institution. It serves central banks in their pursuit of monetary and financial stability, fosters international cooperation in those areas and acts as a bank for central banks.  BIS Established in 1930, and owned by 60 central banks hold 95% of world GDP.

In outline, the BIS pursues this mission by:

• facilitating dialogue and collaboration among central banks and other authorities
that are responsible for promoting financial stability;
• conducting research on policy issues confronting central banks and financial
supervisory authorities;
• acting as a prime counterparty for central banks in their financial transactions; and
• serving as an agent or trustee in connection with international financial operations.

The Basel III framework is a central element of the Basel Committee’s response to the global financial crisis developed  by Basel Committee on Banking Supervision in response to the financial crisis of 2007-09.


Sixty central banks and monetary authorities are currently members of the BIS :

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The BIS has its head office in Basel, Switzerland, and representative offices in
the Hong Kong Special Administrative Region of the People’s Republic of China
(Hong Kong SAR) and in Mexico City.

Competency of CJM to proceed for secured creditor u/s 14 of SRFAESI ACT

SUPREME COURT OF INDIA JUDGMENTS

The Authorised Officer, Indian Bank Vs. D. Visalakshi and ANR- 23/09/2019

Whether the Chief Judicial Magistrate is competent to process the request of the secured creditor to take possession of the secured asset under Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ?

SUPREME COURT OF INDIA

[Civil Appeal Nos. 6295 of 2015] with see below

A.M. Khanwilkar, J.

Delay condoned. Leave granted in Special Leave Petitions.

2. The seminal question involved in these appeals is: whether the Chief Judicial Magistrate (for short, “CJM”) is competent to process the request of the secured creditor to take possession of the secured asset under Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, “2002 Act”)? There are conflicting views of different High Courts on this question. The High Courts of Bombay, Calcutta, Madras, Madhya Pradesh and Uttarakhand have interpreted the said provision to mean that only the Chief Metropolitan Magistrate (for short, “CMM”) in metropolitan areas and the District Magistrate (for short, “DM”) in nonmetropolitan areas are competent to deal with such request. On the other hand, the High Courts of Kerala, Karnataka, Allahabad and Andhra Pradesh have taken a contrary view of the same provision, to mean that it does not debar or preclude the CJM in the nonmetropolitan areas to exercise power under Section 14 of the 2002 Act.

3. The earliest decision is of the Division Bench of the High Court of Kerala at Ernakulam in Muhammed Ashraf and Anr. Vs. Union of India (UOI) and Others1. The Court noted that Section 14 of the 2002 Act expressly refers to CMM in relation to metropolitan areas and DM for nonmetropolitan areas. It then went on to observe that as the powers and functions of CJM in nonmetropolitan areas and CMM in metropolitan areas are one and the same (with only difference that CMM exercises powers in metropolitan areas and CJM in nonmetropolitan areas); and the expression CJM and CMM are interchangeably used namely, one is synonymous for the other depending on the area under its jurisdiction, by interpretative process, it concluded that in nonmetropolitan areas, apart from DM, the CJM is also competent to exercise powers under Section 14 of the 2002 Act. This decision was carried in appeal before this Court being SLP (C) No.1671 of 2009 which, however, came to be dismissed on 2nd February, 2009 as no ground to interfere with the impugned judgment was made out.

4. Soon thereafter, another Division Bench of the High of Kerala in Radhakrishnan, V.N. Vs. State of Kerala and Anr.2, reiterated the view taken in Muhammed Ashraf(supra) and declined to refer the matter to a full bench for reconsideration.

5. However, around the same time, the High Court of Bombay (Aurangabad Bench) in IndusInd Bank Ltd., (formerly known as Ashok Leyland Finance Ltd.) through its Legal Executive, Ravindrakumar Prakash Bhargodev Vs. The State of Maharashtra through Police Station3, had taken a diametrically opposite view. It had held that it is not open to substitute the word, “CMM” for “CJM”. For, there is no indication in the 2002 Act that the legislature had intended to empower the CJM outside the metropolitan areas, although the judicial officer (CMM) was entrusted with the power to deal with such request in the metropolitan areas. Again in Arjun Urban Cooperative Bank Ltd., Solapur Vs. Chief Judicial Magistrate, Solapur and Ors.4, another Division Bench of the High Court of Bombay opined that Section 14 of the 2002 Act, in no univocal terms, constricts the exercise of powers only by the CMM or DM, as the case may be.

6. However, in 2013, the High Court of Karnataka in Kaveri Marketing Vs. The Saraswathi Coop. Bank Ltd.5 took the same view as taken by the High Court of Kerala that the CJM can also exercise powers under Section 14 of the 2002 Act. But the Single Judge of the High Court of Calcutta in Dinesh Kumar Agarwal Vs. State of West Bengal6 and the full bench of Madras High Court in K. Arockiyaraj Vs. The Chief Judicial Magistrate, Srivilliputhur Virudhunagar District and The Housing Development Finance Corporation Limited7 took a different view as taken by the High Court of Bombay and held that the CMM or DM, as the case may be, alone can exercise powers under Section 14 of the 2002 Act. Later, the High Court of Madras in T.C. Ramadoss and Ors. Vs. The Chief Manager & Authorised Officer State Bank of India and Ors.8, the High Court of Madhya Pradesh in Shyam Sunder Rohra Vs. IndusInd Bank9, the High Court of Uttarakhand at Nainital in Deepak Aggarwal Vs. State of Uttarakhand and Others10 and the Division Bench of the High Court of Calcutta in Andhra Bank and Ors. Vs. Sri Dinesh Kumar Agarwal and Ors.11 also held that CMM or DM, as the case may be, alone can exercise power under Section 14 of the 2002 Act.

7. Whereas, the High Court of Judicature at Hyderabad for the State of Telangana and the State of Andhra Pradesh in M/s T.R. Jewellery and Another Vs. State Bank of India and Another12 and the High Court of Allahabad in Abhishek Mishra Vs. State of U.P. and Others.13, by interpretative process opined that even the CJM was competent to exercise powers under Section 14 of the 2002 Act.

8. The borrowers or the persons claiming through borrowers, would contend that literal interpretation of Section 14 of the 2002 Act must be preferred. In which case, the secured creditor can seek assistance “only” of CMM in metropolitan areas and DM in nonmetropolitan areas, for the purpose of taking over possession of the secured asset or property (instead of resorting to recovery of property by other means). As the provision is univocal, it cannot be interpreted in any other manner. To do so would entail in doing violence to the legislative intent. There is presumption that Parliament had complete knowledge of the existing laws and was conscious of the distinction or similarity between the scope of powers to be exercised by the CMM, DM and CJM, as the case may be, in terms of the provision of Cr.P.C. and other laws. Despite such awareness, the parliament consciously chose to identify clearly, the authority which can entertain the application(s) of the secured creditor under Section 14 of the 2002 Act. In that sense, the provision is in the nature of defining the authority persona designata, namely CMM and DM for the concerned area.

9. If so, contends the learned counsel, it is not open for the Court to take recourse of interpretative process to include another authority such as CJM merely because the functions discharged by the CJM and CMM under the Cr.P.C. and other laws are similar. There is no room for invoking the doctrine of 9 Casus Omissus in light of the unambiguous provision in the form of Section 14 of the 2002 Act. Thus, the similarity of functions discharged by the CMM and CJM under the Cr.P.C. would be of no avail. Rather, the Court must follow the maxim “cum inverbis nulla ambiguitas est, non debet admitti voluntatis quaestio” and prefer the plain language of the statute. To demonstrate the distinction between the hierarchy of the judicial officers, reliance has been placed on a chart which clearly distinguishes them on the basis of their functions as nonJudicial Magistrate and Judicial Magistrate in the concerned area. The office of DM essentially discharges executive functions and comes within the nonJudicial Magistrate category. On the other hand, the office of CMM or CJM would involve both executive and judicial functions. This distinction is crucial and it must be presumed that the Parliament was conscious about this distinction. It is also urged that the Parliament in various Acts, including the Sick Industrial Companies (Special Provision) Act, 1985 – Section 29, Banking Regulation Act, 1949 – Section 45S, Industrial Reconstruction Bank of India, 1984 – Section 51, National Housing Bank Act, 1987 – Section 36H, Companies Act, 1956 – Section 10FP, 10 Companies Act, 2013 – Section 429 and Small Industries Development Bank of India Act, 1989 Section 39, have enacted similar provisions empowering CMM/DM, for seeking assistance to take possession of the property sold or leased.

10. It is urged that taking any other view would require rewriting of Section 14 of the 2002 Act and in the process doing violence to the legislative intent. That must be eschewed. It is urged that in contradistinction to the expression used in Section 14 “CMM” and “DM”, Section 30 of the same Act (2002 Act) refers to the authority as “Metropolitan Magistrate” or a “Judicial Magistrate”, as the case may be for taking cognizance of offences punishable under the Act.

11. To buttress the above submissions, reliance is placed on Shankarlal Aggarwal and Ors. Vs. Shankarlal Poddar and Ors.14, Municipal Corporation of Delhi Vs. Shiv Shanker15, Ratan Lal Adukia Vs. Union of India16, Kishorebhai Khamanchand Goyal Vs. State of Gujarat and Another17, M/s. Unique Butyle Tube Industries Pvt. Ltd. Vs. U.P. Financial Corporation and Ors.18, Delhi Financial Corpn. and Another Vs. Rajiv Anand and Others19, A.N. Roy, Commissioner of Police and Another Vs. Suresh Sham Singh20, Standard Chartered Bank Vs. V. Noble Kumar and Others21, Harshad Govardhan Sondagar Vs. International Assets Reconstruction Company Limited and Others22, Shree Bhagwati Steel Rolling Mills Vs. Commissioner of Central Excise and Another.23, Authorized Officer, State Bank of Travancore and Others. Vs. Mathew K.C.24, Commissioner of Customs (Import), Mumbai Vs. Dilip Kumar and Company and Others25.

12. Per contra, the secured creditors (Banks) and auction purchasers would commend us with the view taken by the High Courts of Kerala, Andhra Pradesh, Allahabad and Karnataka. According to them, the process under Section 14 of the 2002 Act can be invoked by the secured creditor only for taking possession of the secured assets. The application is required to be filed by the secured creditor supported by an affidavit stating due compliances of the stipulations provided therefor. The inquiry envisaged under Section 14 of the 2002 Act, to be undertaken by the CMM or DM, is minimal and basic in nature. It is only to satisfy itself about the factual position stated by the secured creditor in the concerned application including the appended affidavit filed therewith. It is not an adjudicatory process muchless to decide about the rights and liabilities of the contesting parties. The nature of inquiry is essentially one of exercise of administrative or executive powers. SubSection (1A) enables the DM or CMM to authorise any officer subordinate to him to take possession.

13. The CMM and CJM are clothed with powers as per the scheme of Cr.P.C.. The office of CMM and CJM are interchangeable and they discharge similar functions in their respective jurisdictions namely, metropolitan and nonmetropolitan areas, as the case may be. The recent enunciation of this Court expounds that the inquiry requires judicious 13 approach. Therefore, it could be effectively exercised by CJM in a nonmetropolitan area. There is no express provision in the 2002 Act, so as to disregard the dispensation under the Cr.P.C., concerning the exercise of powers by the CMM and CJM respectively. On the other hand, Section 37 of the 2002 Act makes it amply clear that the application of provisions of Cr.P.C. is not completely ruled out. Section 37 of the 2002 Act postulates that the application of other laws in force would continue to apply and the provisions of 2002 Act or the Rules made thereunder shall be in addition thereto and not in derogation thereof.

14. It is urged that the 2002 Act does not define the term “CMM” or “DM”. Reliance is then placed on Section 2(k) of Cr.P.C. which defines the expression “metropolitan area” and Section 3 of Cr.P.C. which defines the expression “CMM” or “DM”. The adjudicatory process like sifting of evidence, trial etc. is required to be undertaken only by a Judicial Magistrate. The Executive Magistrate can exercise only executive powers. Indisputably, the powers of CJM in nonmetropolitan area and CMM in metropolitan area are equal and those terms are used as 14 synonymous. Additionally, reliance is placed on Section 12 of Cr.P.C. concerning the Judicial Magistrate and Additional Judicial Magistrate, Section 14 concerning local jurisdiction, Section 16 and 17 concerning courts of Metropolitan Magistrate, CMM and Additional Chief Metropolitan Magistrate respectively. Section 20 of Cr.P.C. deals with the office of Executive Magistrates. Relying on the exposition of this Court in All India Judges’ Association and Others Vs. Union of India and Others26, it is urged that incontrovertibly the post of CJM and CMM must be equated and they have to be placed in the same cadre of Civil Judge (Senior Division). Reliance is also placed on Standard Chartered Bank (supra), to contend that there is no difference in the jurisdiction or powers exercisable by the CJM and CMM, except operating in different territorial area. It is thus urged that expressions “CMM/DM” in Section 14 be construed as also including “CJM” in a nonmetropolitan area.

15. Reliance is then placed on Sindhi Education Society and Another Vs. Chief Secretary, Government of NCT of Delhi and Others27, Rani Kusum (Smt.) Vs. Kanchan Devi (Smt.) and Others28 and Vinay Tyagi Vs. Irshad Ali Alias Deepak and Others29, to buttress the submission that Section 14 of the 2002 Act must receive a construction which would advance the cause of justice and legislative object sought to be achieved. A purposive interpretation of Section 14 as including the office of CJM in a nonmetropolitan area would further the legislative intent as it would enable the secured creditor to approach the CJM to take possession of the secured assets thereat.

16. It is urged that the borrowers or the persons claiming through borrowers, cannot be heard to make any grievance, if the application filed under Section 14 is dealt with by a judicial mind; and moreso because the nature of inquiry to be undertaken is circumscribed. In that, it is merely verification of compliances by the secured creditor. In any case, the aggrieved borrower has a statutory remedy of appeal against the order passed by the CJM as would be available against the order passed by CMM/DM. Similarly, all contentious issues available to the borrowers or the persons claiming through them could be raised by them even before the CJM, who would be equally competent to deal with the same as would be done by the CMM/DM, as per law. Considering the fact that the CMM and CJM both discharge similar functions and are treated equivalent for all purposes in the respective territorial jurisdictions, it is not a case of application being processed by someone who is inferior and not competent or qualified to do so.

17. To buttress the above submissions reliance is placed on Vishal N. Kalsaria Vs. Bank of India and Others30, State of A.P. Vs. Polamala Raju Alias Rajarao31, Sri Nasiruddin Vs. State Transport Appellate Tribunal32, Bhudan Singh and Another Vs. Nabi Bux and Another33, K.P. Varghese Vs. Income Tax Officer, Ernakulam and Another34, Atma Ram Mittal Vs. Ishwar Singh Punia35 and M/s. Girdhari Lal and Sons Vs. Balbir Nath Mathur and Others36.

18. It is also urged that in certain States, the functions of the DM are discharged by the Deputy Commissioner of the State such as in the State of Jharkhand. Therefore, the interpretation put forth by the High Courts that application under Section 14 of the 2002 Act can also be moved before the CJM in a nonmetropolitan area, would subserve the interests of all concerned and also effectuate the legislative intent of expeditious resolution of matters under the 2002 Act without intervention of the Court. Lastly, it is urged that if this Court upholds the view taken by the concerned High Courts that CJM is not competent to deal with the action under Section 14 of the 2002 Act, this Court may invoke the doctrine of prospective overruling and save all the orders passed by the CJM’s to this end.

19. We have heard Mr. Dhruv Mehta, Mr. Sudhivasudevan, Mr. Jaideep Gupta and Mr. Jayanth Muthraj, Senior Advocates, Mr. Kuriakose Varghese, Mr. A. Karthik, Mr. E. Easwaran, Mr. Sajith P. Warrier Mr. Govind Manoharan, Ms. Nina Gupta, Mr. Roy Abraham, Mr. Philip K. Varghse, Mr. Rakesh K. Sharma, Mr. Radha Shyam Jena, Mr. Himanshu Munshi, Mr. Ram Swarup Sharma, and Mr. Mudit Sharma, Advocates. 18

20. We deem it apposite to reproduce Section 14 of the 2002 Act. The same reads thus: “14. Chief Metropolitan Magistrate or District Magistrate to assist secured creditor in taking possession of secured asset.

(1) Where the possession of any secured asset is required to be taken by the secured creditor or if any of the secured asset is required to be sold or transferred by the secured creditor under the provisions of this Act, the secured creditor may, for the purpose of taking possession or control of any such secured asset, request, in writing, the Chief Metropolitan Magistrate or the District Magistrate within whose jurisdiction any such secured asset or other documents relating thereto may be situated or found, to take possession thereof, and the Chief Metropolitan Magistrate or, as the case may be, the District Magistrate shall, on such request being made to him(a) take possession of such asset and documents relating thereto; and

(b) forward such assets and documents to the secured creditor: 1[Provided that any application by the secured creditor shall be accompanied by an affidavit duly affirmed by the authorised officer of the secured creditor, declaring that(i) the aggregate amount of financial assistance granted and the total claim of the Bank as on the date of filing the application;

(ii) the borrower has created security interest over various properties and that the Bank or Financial Institution is holding a valid and subsisting security interest over such properties and the claim of the Bank or Financial Institution is within the limitation period;

(iii) the borrower has created security interest over various properties giving the details of properties referred to in subclause (ii) above;

(iv) the borrower has committed default in repayment of the financial assistance granted aggregating the specified amount;

(v) consequent upon such default in repayment of the financial assistance the account of the borrower has been classified as a nonperforming asset;

(vi) affirming that the period of sixty days notice as required by the provisions of subsection (2) of section 13, demanding payment of the defaulted financial assistance has been served on the borrower;

(vii) the objection or representation in reply to the notice received from the borrower has been considered by the secured creditor and reasons for nonacceptance of such objection or representation had been communicated to the borrower;

(viii) the borrower has not made any repayment of the financial assistance in spite of the above notice and the Authorised Officer is, therefore, entitled to take possession of the secured assets under the provisions of subsection (4) of section 13 read with section 14 of the principal Act;

(ix) that the provisions of this Act and the rules made thereunder had been complied with: Provided further that on receipt of the affidavit from the Authorised Officer, the District Magistrate or the Chief Metropolitan Magistrate, as the case may be, shall after satisfying the contents of the affidavit pass suitable orders for the purpose of taking possession of 20 the secured assets 2[within a period of thirty days from the date of application]: 3[Provided 4[also] that if no order is passed by the Chief Metropolitan Magistrate or District Magistrate within the said period of thirty days for reasons beyond his control, he may, after recording reasons in writing for the same, pass the order within such further period but not exceeding in aggregate sixty days.] Provided also that the requirement of filing affidavit stated in the first proviso shall not apply to proceeding pending before any District Magistrate or the Chief Metropolitan Magistrate, as the case may be, on the date of commencement of this Act.]

5[(1A) The District Magistrate or the Chief Metropolitan Magistrate may authorise any officer subordinate to him,(i) to take possession of such assets and documents relating thereto; and (ii) to forward such assets and documents to the secured creditor.]

(2) For the purpose of securing compliance with the provisions of subsection (1), the Chief Metropolitan Magistrate of the District Magistrate may take or cause to be taken such steps and use, or cause to be used, such force, as may, in his opinion, be necessary. (3) No act of the Chief Metropolitan Magistrate or the District Magistrate 6[any officer authorised by the Chief Metropolitan Magistrate or District Magistrate] done in pursuance of this section shall be called in question in any court or before any authority.

1. Ins. By Act 1 of 2013, sec. 6(a w.e.f. 1512013, vide S.O. 171 (E), dated 1512013).

2. Subs. By Act 44 of 2016, sec. 12(i w.e.f. 192016, vide S.O. 2831(E), dated 1st September, 2016).

3. Ins. By Act 44 of 2016, sec. 12(ii w.e.f. 192016, vide S.O. 2831(E), dated 1st September, 2016).

4. Corrected by Corrigendum Notification, published in the Gazette of India, Extra., Pt.II, Sec. 1, No.56, dated 8th September, 2016.

5. Ins. By Act 1 of 2013, sec. 6(b w.e.f. 1512013, vide S.O. 171(E), dated 1512013).

6. Ins. By Act 1 of 2013, sec. 6(c w.e.f. 1512013, vide S.O. 171(E), dated 1512013).”

The unamended provision as applicable at the relevant time when the decision was rendered by the High Court of Kerala in Muhammed Ashraf (supra), was somewhat different. Subsection (1A) was not in vogue. That has come by way of an amendment in 2013. The provision was amended in 2013 and further amended in 2016, as is reproduced in the extracted portion hitherto.

21. The Division Bench of the High Court of Kerala in Muhammed Ashraf (supra), after adverting to the unamended Section 14 of the 2002 Act had opined that the said provision is a procedural measure whereby the CMM or DM, as the case may be, is obligated to render assistance to the secured creditor to take possession of the secured assets or documents. The said authority is empowered to take such steps and use such force, as may be necessary for taking possession of the secured assets and documents relating thereto. Strikingly, the act of the authority is protected and its action cannot be questioned in any Court or 22 before any authority in terms of Section 34 of the 2002 Act. It also noted that a trial or adjudication of dispute by the authority is not contemplated under this Section.

However, the limited inquiry to be undertaken is whether secured property is identifiable and whether 60 days’ notice was issued under Section 13(2) enabling the secured creditor to resort to Section 13(4) and take possession of the secured assets. The Court unerringly opined that Section 14 of the 2002 Act is only for the purpose of executing the power and assisting the secured creditor to take possession of the secured assets. The borrower or person affected by such action has a right of judicial review before the Writ Court as ordained by this Court in Mardia Chemicals Ltd. and Others v. Union of India and Others37. The Division Bench then noted that the 2002 Act is a selfcontained code, including the powers of the Tribunal to declare any of the measures taken by the secured creditor invalid and consequential restoration of possession to persons from whom the possession was taken. The Court reiterated that in absence of any adjudicatory power vested in the authority referred to in Section 14 of the 2002 Act, it had no powers to exercise the powers vested in the Tribunal.

Whereas, it can only facilitate the secured creditor in taking possession of the secured assets after verification of the basic facts regarding the entitlement of the secured creditor to get such possession. The Court then adverted to the exposition of this Court in Transcore Vs. Union of India and Another38, which had analysed the provisions of the 2002 Act. It then adverted to the Gujarat High Court decision in Bank of India Vs. Pankaj Dilipbhai Hemnani and Others39 and agreed with the dictum therein that the authority referred to under Section 14 of the 2002 Act can only verify whether 60 days’ notice as prescribed under Section 13(2) was issued or not and whether secured asset is identifiable. It then noted that after such inquiry the authority before taking action is obliged to satisfy itself in that regard. At the same time, it cannot enter upon adjudication or trial of a dispute while exercising power under Section 14 of the 2002 Act. The Parliament has invested power under Section 14 of the 2002 Act, in a senior functionary so as to avoid an arbitrary and highhanded action at the instance of secured creditor. The Court then adverted to the decision in Solaris Systems Pvt. Ltd. and Another Vs. Oriental Bank of Commerce and Another40, of a Single Judge of the same High Court, which for the first time had held that CJM for nonmetropolitan areas was competent to deal with the application under Section 14 of the 2002 Act. The Court then noticed the definition of metropolitan area in Section 2(k) of Cr.P.C., Section 3 regarding construction of references which equates the CJM to that of the CMM whilst exercising jurisdiction in the concerned areas. Considering the legislative scheme in that regard, the Court concluded that the powers of the CJM in nonmetropolitan areas and CMM in metropolitan areas, are one and the same with only difference being that the CMM exercises powers in metropolitan areas.

The Court then analysed the decision of this Court in Unique Butyle Tube Industries Pvt. Ltd. (supra) and distinguished the same by holding that in the present case, the question was whether the term CMM in metropolitan areas will include CJM in nonmetropolitan areas. The Court went on to observe that the legislation must be understood in a reasonable manner. For that, it took support from the dictum in Holmes Vs. Bradfield Rural District Council41 and also in Sri Nasiruddin (supra) wherein this Court adopted “just reasonable and sensible” interpretation of the provision.

The Court then noted the dictum of Denning, L.J. in Seaford Court Estates Ltd. Vs. Asher42 which was quoted with approval by this Court in M. Pentiah Vs. Muddala Veeramallapa43, Bangalore Water Supply and Sewerage Board Vs. A. Rajappa and Others44 and NEPC Micon Ltd. Vs. Magna Leasing Ltd.45 etc.. The Court also adverted to the enunciation of House of Lords in Inco Europe Ltd. and Ors. Vs. First Choice Distribution (a firm) and Ors.46 wherein it is observed that Court can add words in its interpretative process in suitable cases to give effect to the purpose of legislature. The Court then noted that in Padmasundara Rao and Others Vs. State of Tamil Nadu and Others47, a Constitution Bench of this Court had held that “a casus omissus cannot be supplied by the Court except in the case of clear necessity and when reason for it is found in the four corners of the statute itself…”.

Lastly, the Court adverted to the decision in National Insurance Co. Ltd. Vs. Laxmi Narain Dhut48 which had considered the dictum in Reserve Bank of India and Others Vs. Peerless General Finance and Investment Company Ltd. and Another49; and Kehar Singh and Others Vs. State (Delhi Admn.)50 to hold that if the statutory provision is open to more than one interpretation, then the Court must adopt the one which represents the true intent of the legislature. However, the function of the Court is only to expound and not to legislate. At the same time, the process of construction combines both literal and purposive approaches.

Finally, the Court went on to observe that in the present case there was no casus omissus. In that, CJM in metropolitan areas are designated as CMM and vice versa mutatismutandis by implication and reference by the areas of jurisdiction both stand on the same footing to denote the authority depending upon where he is situated. On that basis, it concluded that in nonmetropolitan areas, apart from the DM, the powers can be exercised by the CJM also to render assistance to the secured creditor in taking possession of the secured assets; and in doing so, the Magistrate can appoint a Commissioner for identification of the secured assets and taking possession thereof and if there is any resistance, ask for police assistance and take any effective steps to have possession of the secured assets taken over.

22. The full Bench of the High Court of Judicature at Hyderabad for the State of Telangana and the State of Andhra Pradesh in M/s T.R. Jewellery (supra) also analysed the provisions of the 2002 Act and noted that the object of the Act is to achieve speedier recovery of the dues declared as NonPerforming Assets (NPAs), without the intervention of the Tribunals or the Courts and for quick resolution of disputes arising out of the action taken for recovery of such dues apart from making better availability of capital liquidity and resources to help in the growth of economy and welfare of the people. As regards to Section 14 of the Act, it noted that the purpose 28 underlying is to assist the secured creditor for taking possession or control of the secured assets by requesting the authority referred to therein.

The Court then went on to analyse the scheme of the Cr.P.C. and noted that the executive powers are to be exercised by the Executive Magistrate, whereas sifting of evidence shall be exercisable only by a Judicial Magistrate. Further, from the scheme of the Cr.P.C., it is clear that the CJM, CMM and the DM are separately referred to in the Code and High Court has been empowered to appoint CJM and CMM while the State Government appoints one of the Executive Magistrate as DM in every District. The Court then adverted to the decisions of different High Courts which have had the occasion to deal with the question under consideration in reference to Section 14 of the 2002 Act, as to whether the CJM in nonmetropolitan areas, is equally competent to entertain or deal with the application moved by the secured creditor.

It then adverted to Sections 35 and 37 of the 2002 Act and noted the decision of this Court in Mathew Varghese Vs. M. Amritha Kumar and Others51 to conclude that the application of the provisions of the Cr.P.C., would be in addition to and not in derogation of the provisions of 2002 Act and the provisions of the Code cannot be excluded from consideration while dealing with the 2002 Act. It disagreed with the Full Bench of the Madras High Court that Section 35 of the 2002 Act would override the provisions of Cr.P.C.. After analysing the other decisions, it went on to hold that in terms of Section 14 of the 2002 Act, the CJM can authorise any officer subordinate to him to take possession of such assets after examining the correctness of the assertion made in the affidavit. Thus, it is only a procedural step without any adjudication of any dispute whatsoever.

The action is therefore, only an administrative order made for taking possession of the secured assets, if all other conditions are fulfilled. Having already noted that the powers exercised by the CMM and DM in terms of Section 14 of the 2002 Act are synonymous to each other and that they are not adjudicatory in nature, it answered the question under consideration in the affirmative. The Court then noted that there was no casus omissus nor it was reading something into the provision which the legislature never intended nor trying to interpret the provision so as to defeat the intention of the 30 legislature.

Whereas, the Court was only resorting to a purposive interpretation to effectuate the intention of the legislature for which the enactment was made. Thus, it concluded that exercise of power by the CJM in nonmetropolitan areas, who exercises the same powers as that of CMM in metropolitan areas, would not in any way abrogate or contradict the dispensation predicated in Section 14 of the 2002 Act. Moreso, it would not cause even a tittle of prejudice to any of the parties. Whereas, it would ensure a just process under the aegis of a judicial mind (CJM) in rendering assistance to the secured creditors to recover possession of their assets thereby achieving the object for which the 2002 Act has been enacted.

23. Similarly, the Karnataka High Court at Bangalore in Kaveri Marketing (supra), opined that the expression CMM be construed as inclusive of CJM for nonmetropolitan areas, as the powers of CJM and CMM are identical. Thus, the High Court of Karnataka also opined that the CJM in nonmetropolitan areas would be competent to entertain and deal with application under Section 14 of the 2002 Act. 31

24. Similar view has been taken by the Division Bench of the High Court of Allahabad in Abhishek Mishra (supra). It is held that Section 14 of the 2002 Act is a procedural measure enabling the secured creditor to take possession of the secured assets by making application to the authority specified therein. Even the Allahabad High Court adverted to the scheme of the provisions in the Cr.P.C. bestowing executive and judicial power in the concerned authority. Besides, it made reference to the same decisions as noticed by the High Court of Kerala in Muhammed Ashraf (supra) and concluded as under:

“34. Applying the above well settled principles of interpretation of Statute, the answer to the issue is nomenclature ‘Chief Metropolitan Magistrate’ used by legislature is Section 14 of the Act includes Chief Judicial Magistrate functioning in nonmetropolitan area and shall have jurisdiction to entertain an application made under Section 14 of the SARFAESI Act, 2002. In our considered opinion, there is no casus omissus. The interpretation given by us does not amount to reading anything in the provision, which the legislature never intended to, nor the interpretation given by us, in any way, defeats the intention of the Legislature.

It is a purposive interpretation to advance the true intention of the legislature for enacting the Act, viz. speedy recovery of bad debts of the banks and financial institutions declared as NPAs. On the contrary, adopting the principles of literal construction in interpretation of 32 the word ‘Chief Metropolitan Magistrate’ would not only defeat the object and purpose of legislation but would lead to manifestly anomalous result which could not have been intended by the legislature. As per Lord Reid in the case of Luke Vs. IRC, 1966 AC 557, where to apply words would literally defeat the obvious intention of the legislation and produce a wholly unreasonable result, we must do some violence to the words and so achieve that obvious intention and produce a rational construction.

35. The view taken by us finds support from the Full Bench decision of Andhra Pradesh High Court in the case of T.R. Jewellery & Ors. Vs. State Bank of India & Ors. (supra) and a Division Bench of High Court of Kerala in the case of Muhammed Ashraf, C. Arifa Vs. Union of India, we are unable to agree with contrary view taken by Bombay High Court in the case of Indusind Bank Ltd. Vs. State of Maharashtra and High Court of Madras in K. Arockiyaraj Vs. The Chief Judicial Magistrate, Srivilliputhur & Anr., MANU/TN/1796/2013 : 2013 (4) L.W. 485. The Full Bench of Madras High Court in the case of K. Arockiyaraj (supra) was of the view that phraseology used in Section 14 of the Act, 2002 should be given its true meaning without taking any assistance from Code of Criminal Procedure in view of Section 35 of Act, 2002, which provides that provisions of the Act will override all other laws which includes Code of Criminal Procedure. It was also held that when SARFAESI Act is a complete code, there is no need to take resort to Section 3 of Cr.P.C.

36. With respect to the learned Judges, we have been unable to persuade ourselves to agree to the view taken. The Full Bench failed to take notice of Section 37 of the Act, 2002 which provides that application of other laws is not barred. The said section reads as under.

“37. Application of other laws not barred.The provisions of this Act or the rules made thereunder shall be in addition to, and not in derogation of, the Companies Act, 1956 (1 of 1956), the Securities Contracts (Regulation) Act, 1956 (42 of 33 1956), the Securities and Exchange Board of India Act 1992 (15 of 1992), the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) or any other law for the time being in force.”

37. There can be no manner of doubt that words “any other law for time being in force” used in Section 37 would also include Code of Criminal Procedure within its ambit and the application of provisions of Cr.P.C. cannot be excluded from consideration while dealing with the provisions of Act, 2002. Hence, the view taken by Full Bench of Madras High Court that in view of Section 35 of Act, 2002, the provisions of said Act would override the provisions of Cr.P.C. and the words ‘Chief Metropolitan Magistrate’ used in Section 14 should be given literal interpretation without taking any aid or assistance of Cr.P.C. does not, to us, appear to be correct.

38. Fort the aforesaid facts and discussions, we are of the considered view that nomenclature ‘Chief Metropolitan Magistrate’ used in Section 14 of Act, 2002 is inclusive of ‘Chief Judicial Magistrate’ functioning in a nonmetropolitan area and shall have jurisdiction to entertain an application made by a secured creditor under Section 14 of Act, 2002.”

25. We shall now turn to the other decisions taking the view that only DM in a nonmetropolitan area is competent to deal with the application filed by the secured creditor under Section 14 of the 2002 Act. The Division Bench of the High Court of Bombay in IndusInd Bank Ltd. (supra) after adverting to the statement of objects and reasons of the 2002 Act, opined that the secured creditor is not required to obtain a decree from a 34 competent Court/DRT before being entitled to take steps for the purpose of enforcement of recovery in relation to the secured assets. While dealing with the specific issue as to whether, the CJM is competent to deal with the application filed by the secured creditor under Section 14 of the 2002 Act, the Court went by the plain text of Section 14 of the 2002 Act to hold that the CJM was not competent to do so; and that only the CMM in metropolitan areas and DM in nonmetropolitan areas is competent to assist the secured creditor in taking possession of the secured assets, in terms of the 2002 Act.

It noted that the reference to expression CJM is conspicuously absent in Section 14 of the 2002 Act and, therefore, the legislature did not intend to entrust the stated function to CJM in a nonmetropolitan area, although the same is entrusted to CMM, a judicial officer, in metropolitan area. Yet again, in Arjun Urban Cooperative Bank Ltd.(supra), another Division Bench of the High Court of Bombay reiterated the exposition in IndusInd Bank Ltd. (supra) after adverting to the dictum in Trade Well and Another Vs. Indian Bank and Another52, Transcore (supra) and Unique Butyle Tube Industries Pvt. Ltd. (supra). It noticed the Kerala High Court decision in Muhammed Ashraf(supra) and agreed therewith only to the extent that there was no casus omissus in Section 14 of the 2002 Act as it refers to two distinct authorities. However, it went on to disagree with the view taken therein that CJM is also competent to deal with such applications; because, in its view, when literal construction of Section 14 of the 2002 Act was explicit then there was no need to supplement any word(s) thereto.

For, the interpretation of Section 14 of the 2002, as it stands, does not lead to any absurd results. It did notice that the authority referred to in Section 14 of the 2002 Act has no power to adjudicate upon any rights of the parties but can only render assistance to the secured creditor to recover possession. It opined that nothing prevented the legislature from adding the words CJM in Section 14 of the 2002 Act. It then went on to advert to the dictum of Lord Denning in Seaford Court Estates Ltd. (supra) and House of Lords in Inco Europe Ltd. (supra) wherein, it was held that a Court can add words in its interpretative process in suitable cases, if omission or inadvertence of drafting is noticed to give effect to the purpose 36 of the legislation, but not otherwise. It held that there was no inadvertence in drafting of Section 14 of the 2002 Act, when it referred to two distinct authorities, namely, CMM and DM. The High Court of Bombay thus, adopted the route of literal interpretation of the provision as it stands.

26. The next decision is of the High Court of Uttarakhand at Nainital in Deepak Aggarwal (supra), which adopted the view taken by the High Court of Bombay in IndusInd Bank Ltd. (supra) and concluded that only CMM in metropolitan areas and DM in nonmetropolitan areas would be competent to deal with the application moved by the secured creditor under Section 14 of the 2002 Act for taking possession of the secured assets.

27. The Single Judge of High Court of Calcutta in Dinesh Kumar Agarwal (supra), while dealing with the question under consideration relied on his previous decision in Ronit Nirman Pvt. Ltd. Vs. State Bank of India and Others53, wherein he had agreed with the principle expounded by the High Court of Bombay in IndusInd Bank Ltd. (supra). The Court opined that once an authority has been named for the purpose of rendering assistance, the Court cannot confer jurisdiction on any other authority, who has not been named in the statutory provision for exercising such powers. That would amount to usurping legislative function. It, thus, disagreed with the view taken by the High Court of Kerala, which had held to the contrary that the CJM is equally competent to entertain application filed by the secured creditor under Section 14 of the 2002 Act. This decision of the Single Judge was carried in appeal before the Division Bench in Andhra Bank (supra), which in turn upheld the view taken by the Single Judge that only CMM in metropolitan areas and DM in nonmetropolitan areas were competent to deal with the application filed by the secured creditor under Section 14 of the 2002 Act. The Division Bench disagreed with the view taken by the High Court of Kerala on the ground that the language of Section 14 of the 2002 Act was unambiguous and did not warrant construction to empower the CJM in nonmetropolitan areas.

28. The Full Bench of the High Court of Madras in K. Arockiyaraj (supra) adverted to the exposition in Mardia Chemicals Ltd. (supra), K. R. Chandrasekaran Vs. Union of India54, which had considered the objects of enactment in question. It noted that the 2002 Act is a selfcontained code and after adverting to the relevant provisions observed in paragraph Nos.15 and 16 of its judgment as under:

“15. On perusal of Sections 13(2), 13(4), 14(1) & 14(2), it is evident that the Secured Creditor can proceed against the Secured Assets, if the borrower makes any default in repayment of secured debts or any installment thereof. Any person aggrieved against the order passed under Section 13(4) of the Act is given a right of Appeal under Section 17 of the Act. The adjudication of the rights of parties will come only if the action of the Secured Creditor is challenged in an Appeal filed under Section 17. A further appeal to the Appellate Tribunal (DRAT) is also provided under Section 18 of the Act. 16. Section 14, inserted through the Amendment Act No. 1 of 2013, contemplates delegation of power to assist, by the District Magistrate/Chief Metropolitan Magistrate, to any officer subordinate to him, amplifies the intention of the Parliament to treat the power of assistance as an executive function and not as a judicial function. If the power is a judicial function, adjudicatory in nature, there may not be such delegation to any subordinate officer.

It is well settled in law that the adjudicating authority cannot delegate his power as it will run contrary to the Principle ‘Delegata potestas non potest deligari’.” It then adverted to the dictionary clause of the 2002 Act and noted that subsection 2(2) saved in the Indian Contract Act 1872; Transfer of Property Act, 1882; the Companies Act, 1956; the Securities and Exchange Board of India Act, 1992; and which are not inconsistent with the definition given in the 2002 Act. It also noted that the authority referred to in Section 14 is not expected to undertake adjudication of rights of the concerned parties. It then noted Section 34 and 35 of the 2002 Act and went on to observe as follows:

“20. From the perusal of the above Section 35, it is evident that the provisions of SARFAESI Act, 2002, shall have the effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force. Thus, the SARFAESI Act will override other laws including the provisions of Crl. P.C. Section 36 of the Act deals with limitation. The limitation question can be raised after passing an order under Section 13(4), if the claim in respect of the financial asset is not made within the period of limitation prescribed under the Limitation Act. Thus, the applicability of Limitation Act, 1963, is permitted under Section 36, however, as per Section 35, the application of Crl. P.C. is not permitted.” 40 In this backdrop the Full Bench examined the decision of the Division Bench of the same High Court in Indian Overseas Bank Vs. Sree Aravindh Steels Ltd.55, which had relied on Sections 3, 5 and 8 of the Cr.P.C. concerning the jurisdictions of CJM, CMM and Additional Chief Metropolitan Magistrate. It then noticed Section 20 of the Cr.P.C. relating to the Executive Magistrates and their local jurisdictions as specified therein. After analysing these provisions, it went on to observe thus:

“25. On a perusal of the above referred provisions of the Code of Criminal Procedure, Chief Metropolitan Magistrate, Chief Judicial Magistrate and District Magistrate are separately dealt with and only for the purpose of convenience, the High Court is empowered to appoint the Chief Judicial Magistrate to perform the functions akin to Chief Metropolitan Magistrate in Metropolitan areas, which includes judicial functions and administrative functions. When Crl. P.C. itself is dealing with District Magistrates and their jurisdiction, the phraseology used in Section 14(1) should be given its true meaning without any assistance from the Criminal Procedure Code, particularly in the light of Section 35 read with Section 2(2) of the SARFAESI Act, 2002.

26. Section 14 of the Act is very clear and unambiguous. It states that the Chief Metropolitan Magistrate or the District Magistrate can assist the Secured Creditors in taking possession of the Secured Assets. It means, in Metropolitan areas, the Secured Creditors can approach either the Chief Metropolitan Magistrate or the District Magistrate and in NonMetropolitan areas, where there is no Chief Metropolitan Magistrate, the Secured Creditors can seek the assistance of the District Magistrate alone, as no power is vested on the Chief Judicial Magistrate to give assistance to the Secured Creditors in NonMetropolitan areas.

There is no omission in the said section as contended by the learned Senior Counsel for the respondents. If there is no authority mentioned to assist the Secured Creditor in NonMetropolitan areas, the Secured Creditors may be justified in contending that in case of omission, the meaning given in Crl. P.C. can be imported for the effective implementation of the SARFAESI Act. The said situation being not there, the learned Senior Counsel for the Respondent is not justified in contending that wherever there is no Chief Metropolitan Magistrate, the Chief Judicial Magistrate will automatically get the powers to assist the Secured Creditors. If such an interpretation is accepted, the phraseology used in Section 14 that Chief Metropolitan Magistrate or District Magistrate will have no meaning.”

29. To buttress the above view, the Full Bench agreed with the decisions of the High Court of Bombay in IndusInd Bank Ltd. (supra), Arjun Urban Cooperative Bank Ltd.(supra). It also relied on the decision of the High Court of Calcutta, which took similar view as commended to the Full Bench. The Full Bench then noted the decisions of this Court in Official Liquidator Uttar Pradesh and Uttarakhand Vs. Allahabad Bank and Others56, Sri Nasiruddin (supra), Bhudan Singh and Another (supra), K.P. Varghese (supra), Atma Ram Mittal (supra), Indian Administrative Service (S.C.S.) Association, U.P. and Others Vs. Union of India57, Nasiruddin and Others Vs. Sita Ram Agarwal58, High Court of Gujarat and Another Vs. Gujarat Kishan Mazdoor Panchayat and Others59, Prakash Kumar Alias Prakash Bhutto Vs. State of Gujarat60 and New India Assurance Company Ltd. Vs. Nusli Neville Wadia and Another61 and also the dictum in Seaford Court Estates Ltd. (supra), to conclude as follows:

“35. From the perusal of the above judgments as well as the statutory provisions contained in Section 14 of the SARFAESI Act, 2002, in its independent existence, we are of the firm view that Section 14 does not contemplate the Secured Creditors to approach the Chief Judicial Magistrates for assistance to secure their assets and the Secured Creditors can approach the Chief Metropolitan Magistrate in Metropolitan areas and in NonMetropolitan areas, the Secured Creditors has to approach the District Magistrate, and not the Chief Judicial Magistrate.” The Full Bench decision has been followed by the Division Bench of the same High Court in T.C. Ramadoss (supra). In this decision, the Court, additionally, considered the submission regarding prospective overruling and went on to observe as follows:

“15. The doctrine of prospective overruling was recognised for the first time in the American jurisprudence in Great Northern Railway Co. Vs Sunburst Oil & Refining Co. 287 U.S. 358 (1932) The said doctrine was for the first time applied in Golak Nath Vs State of Punjab MANU/SC/0029/1967 : AIR 1967 SC 1643 in India and thereafter referred and relied on in various decisions, and as such, the doctrine of prospective overruling is now an integral part of the Indian Legal System. It is well settled that the overruling decision is a new decision, because it has overruled the settled precedent and it has decided an issue of first impression, where at least one earlier case has not foreshadowed the overruling decision. In the case on hand, the Full Bench in K. Arokiyaraj MANU/TN/1796/2013 : 2013 (6) MLJ 641: 2013 (4) LW 485 (supra) has not unsettled the settled position of law. The settled position of law has been interpreted on plain reading of the provisions. Thus, the contention of the learned counsel for the respondent that the decision of the Full Bench would be applicable prospectively does not merit acceptance and it is accordingly rejected. The language of the relevant provision is plain and clear admitting no confusion, which has been interpreted by the Full Bench in its decision.

16. It is a well settled principle of law that any order passed by an authority without jurisdiction is void and non est and as such, any consequential action taken on the basis of the said order falls to the ground. (See Chief Justice of A.P. Vs L.V.A. Dixitulu MANU/SC/0416/1978 : (1979) 2 SCC 34, A. Jithendernath Vs Jubilee Hills Cooperative House Building Society MANU/SC/8138/2006 : (2006) 10 SCC 96, Ashok Leyland Ltd. Vs State of Tamil Nadu MANU/SC/0020/2004 : (2004) 3 SCC 1, Union of India Vs Pramod Gupta MANU/SC/0549/2005 : (2005) 12 SCC 1, National Institute of Technology Vs Niraj Kumar Singh MANU/SC/0687/2007 : (2007) 2 SCC 481, Hasham Abbas Sayyad Vs Usman Abbas 44 Sayyad MANU/SC/5541/2006 : (2007) 2 SCC 355, Deepak Agro Foods Vs State of Rajasthan MANU/SC/7812/2008 : (2008) 7 SCC 748, Chandrabhai K. Bhoir Vs Krishna Arjun Bhoir MANU/SC/8230/2008 : (2009) 2 SCC 315 and Union of India Vs Association of Unified Telecom Service Providers of India MANU/SC/1252/2011 : (2011) 10 SCC 543 17. Resultantly, we set aside the impugned order dated 23.07.2012 passed by the CJM, reserving liberty to the respondent bank to take recourse to the appropriate jurisdictional forum under the provisions of law.”

30. The Single Judge of the Madras High Court in Shyam Sunder Rohra (supra), adopted the view taken by the Full Bench of High Court of Madras in K. Arockiyaraj (supra) and concluded that Section 14 of the 2002 Act does not permit secured creditors to approach the CJM for assistance to secure their assets but they must approach only CMM in Metropolitan area and DM in nonmetropolitan area.

31. Going by the literal interpretation of Section 14 of the 2002 Act, it does appear that CMM or the DM within whose jurisdiction the secured asset is situated in, is bestowed with the authority to entertain the request of the secured creditor for possession of such secured asset. It also appears that remedy is 45 provided before the designated authority, persona designata. That is the view taken by the High Courts of Bombay, Calcutta, Madras, Madhya Pradesh and Uttarakhand. At the same time, the High Courts of Kerala, Karnataka, Allahabad and Andhra Pradesh have taken a liberal approach and were persuaded to invoke purposive interpretation and give expansive meaning to the expression “CMM”, to include CJM for the nonmetropolitan areas. That has been done in the context of the nature of inquiry required to be conducted by the concerned authority.

32. Indisputably, the expressions “CMM” and “DM” have not been defined in the 2002 Act. That definition can thus, be traced to the provisions of Cr.P.C.. It is also well established by now that the 2002 Act, is a selfcontained code. Concededly, the nature of inquiry to be conducted by the designated authorities under the 2002 Act, is spelt out in Section 14 of the 2002 Act. The same is circumscribed and is limited to matters specified in Clauses (i) to (ix) of the first proviso in subsection (1) of Section 14 of the 2002 Act, inserted in 2013. Prior to the insertion of that proviso, it was always understood that in such inquiry, it is not open to adjudicate upon contentious pleas regarding the rights of the 46 parties in any manner. The stated authorities could only do verification of the genuineness of the plea and upon being satisfied that it is genuine, the adjudication thereof could then be left to the Court of competent jurisdiction.

33. Suffice to observe that an inquiry conducted by the stated authority under Section 14 of the 2002 Act, is a sui generis inquiry. In that, majorly it is an administrative or executive function regarding verification of the affidavit and the relied upon documents filed by the parties. That inquiry is required to be concluded within the stipulated time frame. While undertaking such an inquiry, as is observed by this Court, the authority must display judicious approach, in considering the relevant factual position asserted by the parties. That presupposes that it is a quasijudicial inquiry though, a nonjudicial process. The inquiry does not result in adjudication of inter se rights of the parties in respect of the subject property or of the fact that the transaction is a fraudulent one or otherwise.

34. Notably, the powers and functions of the CMM and the CJM are equivalent and similar, in relation to matters specified in the 47 Cr.P.C.. These expressions (CMM and CJM) are interchangeable and synonymous to each other. Moreover, Section 14 of the 2002 Act does not explicitly exclude the CJM from dealing with the request of the secured creditor made thereunder. The power to be exercised under Section 14 of the 2002 Act by the concerned authority is, by its very nature, nonjudicial or State’s coercive power. Furthermore, the borrower or the persons claiming through borrower or for that matter likely to be affected by the proposed action being in possession of the subject property, have statutory remedy under Section 17 of the 2002 Act and/or judicial review under Article 226 of the Constitution of India.

In that sense, no prejudice is likely to be caused to the borrower/lessee; nor is it possible to suggest that they are rendered remediless in law. At the same time, the secured creditor who invokes the process under Section 14 of the 2002 Act does not get any advantage muchless added advantage. Taking totality of all these aspects, there is nothing wrong in giving expansive meaning to the expression “CMM”, as inclusive of CJM concerning nonmetropolitan area, who is otherwise competent to discharge administrative as well as judicial 48 functions as delineated in the Cr.P.C. on the same terms as CMM. That interpretation would make the provision more meaningful. Such interpretation does not militate against the legislative intent nor it would be a case of allowing an unworthy person or authority to undertake inquiry which is limited to matters specified in Section 14 of the 2002 Act.

35. Such a view has been taken by the High Court of Kerala as early as in 2006 and on the same lines, are the decisions of the other High Courts (Karnataka, Allahabad and Andhra Pradesh). Be it noted, the challenge to the decision of the High Court of Kerala was unsuccessful before this Court in SLP (C) No.1671 of 2009, which came to be dismissed on 2nd February, 2009.

36. Now we may turn to the decision in Standard Chartered Bank (supra). The Court was called upon to consider the argument that secured creditor before invoking the remedy under Section 14 of the 2002 Act, must necessarily make an attempt to take possession of the secured assets and can take recourse thereto only if he fails in that effort and encounters resistance to such an attempt. While considering that argument, the Court analysed Sections 13, 14 and 15 of the 2002 Act and opined that 49 Section 14 of the 2002 Act enables the secured creditor who desires to seek the assistance of “State’s coercive power” for obtaining possession of the secured assets to make a request in writing to the authority designated therein, within whose jurisdiction the secured asset is located.

It also noted that the authority after receiving such request under Section 14 of the 2002 Act, was not expected to do any further scrutiny of the matter except to verify from the secured creditor whether notice under Section 13(2) of the Act has already been given or not and whether the secured asset is located within his jurisdiction. There is no adjudication of any kind at this stage. The Court also noticed in paragraph 23 of the reported judgment that after amendment of Section 14 of the 2002 Act, by inserting first proviso therein, the designated authority has to satisfy itself only with regard to the matters mentioned in clauses (i) to (ix). In paragraph 25 of this decision, the Court noted as follows:

“25. The satisfaction of the Magistrate contemplated under the second proviso to Section 14(1) necessarily requires the Magistrate to examine the factual correctness of the assertions made in such an affidavit but not the legal niceties of the transaction. It is only after recording of his satisfaction the Magistrate can 50 pass appropriate orders regarding taking of possession of the secured asset.” The Court then went on to observe in paragraph Nos.33 and 36 of the reported judgment as follows:

“33. We are of the opinion that the High Court clearly erred in recording such a conclusion. The language of Rule 8 does not demand such a construction. On the other hand, a Magistrate whose functioning is structured by the Code of Criminal Procedure is required to act in accordance with the provisions of the said Code unless expressly ordained otherwise by any other law. It is not a case that Cr.P.C. never prescribed for the procedure to be followed by the Magistrate in a case where the Magistrate is required to take possession of property. For example, under Section 83 of the Code, a criminal court is authorised to attach the movable or immovable property or both belonging to a proclaimed offender. Subsections (3) and (4) to Section 83 specifically provide that once an order of attachment under subsection (1) is made by the criminal court, the property which is the subjectmatter of such attachment shall either be seized or taken possession of as the case may be depending upon the fact whether the property is movable or immovable. Both the subsections contemplate the appointment of Receiver. It is declared under subsection (6) that the powers, duties and liabilities of a Receiver appointed under Section 83 are the same as those of a Receiver appointed under the Code of Civil Procedure, 1908.

XXX XXX XXX

36. Thus, there will be three methods for the secured creditor to take possession of the secured assets: 36.1. (i) The first method would be where the secured creditor gives the requisite notice under Rule 8(1) and where he does not meet with any resistance. In that case, the authorised officer will proceed to take steps as stipulated under Rule 8(2) onwards to take 51 possession and thereafter for sale of the secured assets to realise the amounts that are claimed by the secured creditor.

36.2. (ii) The second situation will arise where the secured creditor meets with resistance from the borrower after the notice under Rule 8(1) is given. In that case he will take recourse to the mechanism provided under Section 14 of the Act viz. making application to the Magistrate. The Magistrate will scrutinise the application as provided in Section 14, and then if satisfied, appoint an officer subordinate to him as provided under Section 14(1A) to take possession of the assets and documents. For that purpose the Magistrate may authorise the officer concerned to use such force as may be necessary. After the possession is taken the assets and documents will be forwarded to the secured creditor.

36.3. (iii) The third situation will be one where the secured creditor approaches the Magistrate concerned directly under Section 14 of the Act. The Magistrate will thereafter scrutinise the application as provided in Section 14, and then if satisfied, authorise a subordinate officer to take possession of the assets and documents and forward them to the secured creditor as under clause 36.2.(ii) above.

36.4. In any of the three situations above, after the possession is handed over to the secured creditor, the subsequent specified provisions of Rule 8 concerning the preservation, valuation and sale of the secured assets, and other subsequent rules from the Security Interest (Enforcement) Rules, 2002, shall apply.”

37. Concededly, the Court was not called upon to consider the specific issue that arises for our consideration, in this batch of cases. To wit, whether the CJM is competent to deal with the request made by the secured creditor under Section 14 of the 52 2002 Act in the same manner as can be done by the CMM in metropolitan areas and DM in nonmetropolitan areas. Nevertheless, what is significant to note is that this decision clearly delineates the nature of inquiry required to be conducted by the authority referred to in the Section 14 of the 2002 Act. By its very nature the inquiry, is an administrative or executive measure and to borrow the phrase used in the said judgment, “State’s coercive power” for obtaining possession of the secured assets. It is possible to suggest that as the authority is required to make inquiry and pass an order, it would partake the colour of being a quasijudicial inquiry. In any case, the stated authority is not empowered to adjudicate on any issue(s) that may be raised regarding the rights of the concerned parties.

38. Reliance was also placed on the exposition in Harshad Govardhan Sondagar (supra), wherein the appellants claimed to be tenants of a mortgaged premises (secured asset); and as borrowers (landlord/owner thereof) had committed default, the secured creditor had invoked provisions of 2002 Act to enforce the secured asset. In that backdrop, application was moved before the CMM, Mumbai under Section 14 of the 2002 Act to 53 take possession of the premises and handover the possession thereof to the secured creditor. While dealing with the challenge to this action of the secured creditor, the Court noticing Section 14 of the 2002 Act concluded that for the purpose of transferring the secured asset and for realising the secured asset, the secured creditor will require the assistance of the CMM or the DM for taking of possession of a secured asset from the lessee, where the lease stands determined by any of the modes mentioned in Section 111 of the Transfer of Property Act. The Court then went on to examine the question about the remedies available to the lessee where he is threatened to be dispossessed by any action taken by the secured creditor under Section 13 of the 2002 Act. In that context, the Court noted that Section 34 of the 2002 Act makes it amply clear that no injunction can be granted by any Court or other authority in respect of any action taken or to be take in pursuance of any power conferred by or under the 2002 Act. Even this decision, if we may say so, deals with entirely different issue then the question under consideration in the present cases.

39. It is no more res integra that the CJM is equated with the CMM for the purposes referred to in the Cr.P.C.; and those expressions are used interchangeably being synonymous of each other. This Court in All India Judges’ Association (supra), in paragraph 31, opined as under:

“31. As we have already mentioned, the Shetty Commission had recommended that the Chief Metropolitan Magistrates should be in the cadre of District Judges. In our opinion, this is neither proper nor practical. The appeals from orders passed by the Chief Metropolitan Magistrates under the provisions of the Code of Criminal Procedure are required to be heard by the Additional Sessions Judge or the Sessions Judge. If both the Additional Sessions Judge and the Chief Metropolitan Magistrate belong to the same cadre, it will be paradoxical that any appeal from one officer in the cadre should go to another officer in the same cadre. If they belong to the same cadre, as recommended by the Shetty Commission, then it would be possible that the junior officer would be acting as an Additional Sessions Judge while a senior may be holding the post of the Chief Metropolitan Magistrate. It cannot be that against the orders passed by the senior officer it is the junior officer who hears the appeal.

There is no reason given by the Shetty Commission as to why the post of the Chief Metropolitan Magistrate be manned by the District Judge, especially when as far as the posts of the Chief Judicial Magistrates are concerned, whose duties are on a par with those of the Chief Metropolitan Magistrate, the Shetty Commission has recommended, and in our opinion rightly, that they should be filled from amongst Civil Judges (Senior Division). Considering the nature and duties of the Chief Judicial Magistrates and the Chief Metropolitan Magistrates, the only difference being their location, the posts of Chief Judicial Magistrate and Chief Metropolitan Magistrate have to be equated and they 55 have to be placed in the cadre of Civil Judge (Senior Division). We order, accordingly.”

40. Be it noted that Section 14 of the 2002 Act is not a provision dealing with the jurisdiction of the Court as such. It is a remedial measure available to the secured creditor, who intends to take assistance of the authorised officer for taking possession of the secured asset in furtherance of enforcement of security furnished by the borrower. The authorised officer essentially exercises administrative or executive functions, to provide assistance to the secured creditor in terms of State’s coercive power to effectuate the underlying legislative intent of speeding the recovery of the outstanding dues receivable by the secured creditor. At best, the exercise of power by the authorised officer may partake the colour of quasijudicial function, which can be discharged even by the Executive Magistrate. The authorised officer is not expected to adjudicate the contentious issues raised by the concerned parties but only verify the compliances referred to in the first proviso of Section 14; and being satisfied in that behalf, proceed to pass an order to facilitate taking over possession of the secured assets.

41. It is well established that no Civil Court can interdict the action initiated in respect of any matter, which a Debt Recovery Tribunal or Debt Recovery Appellate Tribunal is empowered by or under the 2002 Act, to determine and in particular, in respect of any action taken or to be taken in pursuance of any power conferred by or under the 2002 Act or under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. That has been ordained by Section 34 of the 2002 Act.

42. The borrowers or the persons claiming through borrowers had placed emphasis on Section 35 of the 2002 Act. The same reads thus:

35. The provisions of this Act to override other laws.The provisions of this Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.”

43. The construction of this provision plainly indicates that the provisions of the Act will override any other law for the time being in force. The question is: does the provisions of 2002 Act override the provisions of the Cr. P.C., whereunder the functions to be discharged by the CMM are similar to that of the CJM. Further, 57 the expressions “CMM and CJM” are used interchangeably in Cr.P.C. and are considered as synonymous to each other. Section 14, even if read literally, in no manner denotes that allocation of jurisdictions and powers to CMM and CJM under the Code of Criminal Procedure are modified by the 2002 Act. Thus understood, Section 14 of the 2002 Act, stricto sensu, cannot be construed as being inconsistent with the provisions of the Code of Criminal Procedure or viceversa in that regard. If so, the stipulation in Section 35 of the 2002 Act will have no impact on the expansive construction of Section 14 of the 2002 Act. Whereas, there is force in the submission canvassed by the secured creditors (Banks), that Section 37 of the 2002 Act answers the issue under consideration. The same reads thus:

“37 Application of other laws not barred.The provisions of this Act or the rules made thereunder shall be in addition to, and not in derogation of, the Companies Act, 1956 (1 of 1956), the Securities Contracts (Regulation) Act, 1956 (42 of 1956), the Securities and Exchange Board of India Act 1992 (15 of 1992), the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) or any other law for the time being in force.” The bare text of this provision predicates that the provisions of the 2002 Act or the Rules made thereunder shall be in addition to the stated enactments or “any other law for the time being in 58 force”. Having said that the provisions of the Section 14 of the 2002 Act are in no way inconsistent with the provisions of Code of Criminal Procedure, it must then follow that the provisions of the 2002 Act are in addition to, and not in derogation of the Code.

44. Suffice it to observe that keeping in mind the subject and object of the 2002 Act and the legislative intent and purpose underlying Section 14 of the 2002 Act, contextual and purposive construction of the said provision would further the legislative intent. In that, the power conferred on the authorised officer in Section 14 of the 2002 Act is circumscribed and is only in the nature of exercise of State’s coercive power to facilitate taking over possession of the secured assets.

45. It would be apposite to now advert to Section 17 of the General Clauses Act, 1897. The same reads thus:

“17 Substitution of functionaries.

(1) In any [Central Act] or Regulation made after the commencement of this Act, it shall be sufficient, for the purpose of indicating the application of a law to every person or number of persons for the time being executing the functions of an office, to mention the official title of the officer at present executing the functions, or that of the officer by whom the functions are commonly executed.

(2) This section applies also to all [Central Acts] made after the third day of January, 1868, and to all Regulations made on or after the fourteenth day of January, 1887.” This Court in Janardhan Vs. State of Maharashtra62 was called upon to examine somewhat similar challenge. In that case, the challenge was to the search warrant issued by the Assistant Commissioner of Police in respect of offences punishable under Section 6 of the Bombay Prevention of Gambling Act, 1887. The Court repelled that challenge by relying on Section 17 of the Bombay General Clauses Act, 1886, which is pari materia to Section 17 of the General Clauses Act, 1897. The Court opined that though Section 6 of the Gambling Act specified the office of Commissioner of Police as the authorised officer, however, considering the sweep of Section 2(6) of the Bombay Police Act, 1951, which mentions that the term “Commissioner of Police” would include an Assistant Commissioner, went on to hold that the search warrant issued by the Assistant Commissioner was valid. The Court, while dealing with the said challenge observed as follows:

“8. Analysing this definition it would appear that any official title of the officer mentioned in any Act made after the General Clauses Act would deem by fiction of law to include any such official title referred to in any Act passed after the General Clauses Act. 9. Furthermore, not only the official title but even the functions executed by the said officer would also be deemed to have been exercised by the officer designated in the subsequent Act. The combined effect, therefore, of Section 6 of the Gambling Act and Section 17(1) of the General Clauses Act would be that the term “Commissioner of Police” would include all officers who are executing or performing the functions of the Commissioner of Police as defined or authorised under the latter Act, namely, the Police Act. It would thus be seen that subsection (6) of Section 2 of the Police Act clearly mentions that the term “Commissioner of Police” would include an Assistant Commissioner. Thus subsection (6) runs thus:

“2. In this Act, unless there is anything repugnant in the subject or context: * * * (6) … A Commissioner of Police including an Additional Commissioner of Police, a Deputy Inspector General of Police (including the Director of Police Wireless and Deputy Inspector General of Police appointed under Section 8A), a Deputy Commissioner of Police and Assistant Commissioner of Police…”

Section 11 of the Police Act runs thus:

“11. (1) The State Government may appoint for any area for which a Commissioner of Police has been appointed under Section 7 such number of Assistant Commissioners of Police as it may think expedient.

(2) An Assistant Commissioner appointed under subsection (1) shall exercise such powers and perform such duties and functions as can be exercised or performed under the provisions of this Act or any other law for the time being in force or as are assigned to him by the Commissioner under the general or special orders of the State Government.” A perusal of Section 11 of the Police Act leads to the inescapable conclusion that an Assistant Commissioner appointed under subsection (1) is to perform such duties and functions as can be exercised under the Act or any other law for the time being in force, which undoubtedly includes the Gambling Act which was a law in force at the time when the Police Act was passed. Apart from this the Assistant Commissioner could also perform those functions which could be assigned to him by the Commissioner under the general or special orders of the State Government. The provision for assignment of powers by the Government to the Commissioner are contained in Section 10(2) of the Police Act which runs thus:

“10. (2) Every such Deputy Commissioner shall, under the orders of the Commissioner, exercise and perform any of the powers, functions and duties of the Commissioner to be exercised or performed by him under the provisions of this Act or any other law for the time being in force in accordance with the general or special orders of the State Government made in this behalf.”

10. The High Court has found as a fact that there was a notification by the State Government dated March 10, 1967 by which all the Assistant Commissioners of Police including that of Nagpur were conferred powers and functions of the Commissioner of Police. Thus, in the instant case at the time when the offence was committed two things had happened:

(1) that in Nagpur where the offence had taken place there was a 62 Commissioner of Police, and

(2) that the Commissioner of Police had been conferred the power by the Government notification to assign his functions, powers and duties to the Assistant Commissioner. In these circumstances, therefore, we do not find any difficulty in accepting the contention of the respondent that having regard to the combined reading of the provisions of Section 17 of the General Clauses Act and the Police Act the term “Commissioner of Police” appearing in Section 6 of the Gambling Act would include even an Assistant Commissioner who was legally and validly assigned the powers, functions and duties of the Commissioner of Police by the State Government under Section 10(2) of the Police Act. As the General Clauses Act was a statute which was passed before the Gambling Act came into force, Section 17 of the General Clauses Act could be called into aid to interpret the scope and ambit of the term “Commissioner of Police” as used in Section 6 of the Gambling Act.

11. Learned counsel for the appellant, however, submitted that the power of assignment of functions by the Government given to the Commissioner of police or the Assistant Commissioner could be exercised only in respect of matters covered by the Police Act and not beyond that. I am however unable to agree with this contention which completely overlooks the avowed object of Section 17 of the General Clauses Act which has been passed to resolve such anomalies and it is not possible to construe the provisions of the Police Act in complete isolation by ignoring the provisions of the General Clauses Act which undoubtedly apply to the facts and circumstances of the present case. For these reasons, therefore, the second contention put forward by the appellant also fails.”

(emphasis supplied)

In the concurring judgment, additionally, the Court observed thus:

“19. It remains for consideration whether the Assistant Commissioner of Police could be said to be executing the functions of the Commissioner of Police under Section 6(1) of the Act at the time when he issued the special warrant. Reference in this connection may be made to Section 11(2) of the Bombay Police Act, 1951, which provides as follows:

“11. (2) An Assistant Commissioner appointed under subsection (1) shall exercise such powers and perform such duties and functions as can be exercised or performed under the provisions of this Act or any other law for the time being in force or as are assigned to him by the Commissioner under the general or special orders of the State Government.” It was therefore permissible for the Assistant Commissioner of Police not only to exercise such powers and perform such duties and functions as he could, in terms, exercise or perform under the provisions of the Bombay Police Act, or any other law for the time being in force, but also the duties and functions assigned to him by the Commissioner of Police under the general or special orders of the State Government.

The High Court has taken note in this connection of the State Government Order APO3463C2896( III)( E)V, dated March 10, 1967, which empowered all Commissioners of Police to assign to the Assistant Commissioners of Police working under them any of their powers, duties and functions not only under the provisions of the Bombay Police Act, 1951, but also under any other law for the time being in force. The existence of such an order has not in fact been challenged before us. The Assistant Commissioner of Police was therefore the functionary who could, by virtue of Section 17 of the Bombay General Clauses Act, discharge the functions of the Commissioner of Police under Section 6(1) of the Act in the matter of issuing a special warrant like the one issued in the present case. It is also not disputed that the Commissioner of Police issued Order 2036, dated September 19, 1967, authorising all Assistant Commissioners of Police working under him to issue search warrants under Section 6 of the Act to any 64 Police Officer working under them not below the rank of a SubInspector of Police. As has been shown, this was legally permissible, and it is futile to contend that the High Court erred in rejecting the appellant’s contention to the contrary.

46. Applying the principle underlying this decision, it must follow that substitution of functionaries (CMM as CJM) qua the administrative and executive or so to say nonjudicial functions discharged by them in light of the provisions of Cr.P.C., would not be inconsistent with Section 14 of the 2002 Act; nay, it would be a permissible approach in the matter of interpretation thereof and would further the legislative intent having regard to the subject and object of the enactment. That would be a meaningful, purposive and contextual construction of Section 14 of the 2002 Act, to include CJM as being competent to assist the secured creditor to take possession of the secured asset.

47. Having said this, we need not to dilate on other decisions pressed into service regarding the approach to be adopted in the matter of interpretation of statutes.

48. To sum up, we hold that the CJM is equally competent to deal with the application moved by the secured creditor under 65 Section 14 of the 2002 Act. We accordingly, uphold and approve the view taken by the High Courts of Kerala, Karnataka, Allahabad and Andhra Pradesh and reverse the decisions of the High Courts of Bombay, Calcutta, Madras, Madhya Pradesh and Uttarakhand in that regard. Resultantly, it is unnecessary to dilate on the argument of prospective overruling pressed into service by the secured creditors (Banks).

49. While parting we must note that Civil Appeal arising from SLP (C) No.7121 of 2019 is directed against an interlocutory order passed by the High Court in a pending appeal. This appeal is, therefore, disposed of with liberty to the parties therein to pursue the appeal pending before the High Court on any other issue(s), if available as per law. That be decided in accordance with law.

50. All these appeals are disposed of in the above terms with liberty to the parties to pursue such other remedies as may be permissible in law with regard to other issues, if any. The same shall be considered on its own merits, in accordance with law. No 66 order as to costs. Pending applications in the respective appeals are also disposed of in the above terms

J (A.M. Khanwilkar)

J (Dinesh Maheshwari)

New Delhi;

September 23, 2019.


FOOT NOTES

1. AIR (2009) Ker. 14

2 MANU/KE/0677/2008 (Cr. M.C. No.4369 of 2008 dated 20.11.2008)

3 2008 (110) BOM LR 2880 (decided on 22.04.2008)

4 2009 (5) Mh. L.J. 380

5 111 (2013) BC 582

6 2013 (1) CHN 671

7 AIR (2013) Mad. 206

8 AIR (2015) Mad. 67

9 AIR (2017) M.P. 36

10 MANU/UC/0012/2012

11 (2013) 4 CHN 95

12 AIR (2016) A.P. 125 (FB)

13 AIR (2016) All. 210

14 AIR (1965) SC 507

15 (1971) 1 SCC 442

16 (1989) 3 SCC 537

17 (2003) 12 SCC 274

18 AIR (2003) SC 2103

19 (2004) 11 SCC 625

20 (2006) 5 SCC 745

21 (2013) 9 SCC 620

22 (2014) 6 SCC 1

23 (2016) 3 SCC 643

24 (2018) 3 SCC 85

25 (2018) 9 SCC 1

26 (2002) 4 SCC 247

27 (2010) 8 SCC 49

28 (2005) 6 SCC 705

29 (2013) 5 SCC 762

30 (2016) 3 SCC 762

31 (2000) 7 SCC 75

32 (1975) 2 SCC 671

33 (1969) 2 SCC 481

34 (1981) 4 SCC 173

35 (1988) 4 SCC 284

36 (1986 2 SCC 237

37 (2004) 4 SCC 311 (paragraph Nos.80 and 81)

38 (2008) 1 SCC 125(paragraph No.74)

39 AIR 2007 Guj. 201

40 I.L.R. 2006 Ker 645

41 1949 (1) All ER 381 (Page 384)

42 (1949) 2 All ER 155, P. 164(CA)

43 (1961) 2 SCR 295

44 (1978) ILLJ 349 SC

45 1999 CriLJ 2883

46 2000 (2) All ER 109

47 (2002) 255ITR 147 (SC)

48 2007 (2) KLT 470 (SC paragraph Nos.34 and 35)

49 (1996) 1 SCC 642

50 (1988) 3 SCC 609

51 (2014) 5 SCC 610

52 (2007) Cri. LJ 2544

53 A.S.T. 1337 of 2011 (dated 18th October, 2011)

54 2012 (2) CWC 115

55 2009 (1) CTC 341

56 (2013) 4 SCC 381

57 (1993) Supp. 1 SCC 730

58 (2003) 2 SCC 577

59 (2003) 4 SCC 712

60 (2005) 2 SCC 409

61 (2008) 3 SCC 279

62 (1978) 2 SCC 465


[Civil Appeal Nos.7554-7555 of 2019 arising out of SLP (C) Nos. 12430-12431 of 2015]

[Criminal Appeal Nos.1463-1464 of 2019 arising out of SLP (CRL.) Nos. 393-394 of 2019]

[Civil Appeal Nos.7557 of 2019 arising out of SLP (C) Nos.23193 of 2019 arising out of Diary Nos. 47134 of 2018]

[Civil Appeal Nos.7558 of 2019 arising out of SLP (C) Nos. 7121 of 2019]

[Criminal Appeal Nos.1465 of 2019 arising out of SLP (CRL.) Nos. 3507 of 2019]

[Criminal Appeal Nos.1478 of 2019 arising out of SLP (CRL.) Nos. 3689 of 2019]

[Criminal Appeal Nos.1466 of 2019 arising out of SLP (CRL.) Nos. 4351 of 2019]

[Criminal Appeal Nos.1467 of 2019 arising out of SLP (CRL.) Nos. 4293 of 2019]

[Criminal Appeal Nos.1468 of 2019 arising out of SLP (CRL.) Nos. 4387 of 2019]

[Criminal Appeal Nos.1469 of 2019 arising out of SLP (CRL.) Nos.8870 of 2019 arising out of Diary Nos. 15461 of 2019]

[Criminal Appeal Nos.1470 of 2019 arising out of SLP (CRL.) Nos.8871 of 2019 arising out of Diary Nos. 15465 of 2019]

[Criminal Appeal Nos.1471 of 2019 arising out of SLP (CRL.) Nos.8872 of 2019 arising out of Diary Nos. 15467 of 2019]

[Criminal Appeal Nos. 900 of 2019]

[Criminal Appeal Nos. 1472 of 2019 arising out of SLP (CRL.) Nos. 5058 of 2019]

[Criminal Appeal Nos. 1473 of 2019 arising out of SLP (CRL.) Nos. 5368 of 2019]

[Criminal Appeal Nos. 1475 of 2019 arising out of SLP (CRL.) Nos. 5268 of 2019]

[Criminal Appeal Nos. 945 of 2019]

[Civil Appeal Nos. 7560-7561 of 2019 arising out of SLP (C) Nos. 13722-13723 of 2019]

[Criminal Appeal Nos. 1476 of 2019 arising out of SLP (CRL.) Nos. 5346 of 2019]

[Criminal Appeal Nos. 1477 of 2019 arising out of SLP (CRL.) Nos. 5351 of 2019]

RBI Central Board accepts Bimal Jalan Committee recommendations and approves surplus transfer to the Government-26/08/2019

1. The Central Board of the Reserve Bank of India (RBI) today decided to transfer a sum of ₹1,76,051 crore to the Government of India (Government) comprising of ₹1,23,414 crore of surplus for the year 2018-19 and ₹52,637 crore of excess provisions identified as per the revised Economic Capital Framework (ECF) adopted at the meeting of the Central Board today.

2. It may be recalled that the RBI, in consultation with the Government of India, had constituted an Expert Committee to Review the Extant Economic Capital Framework of the Reserve Bank of India (Chairman: Dr. Bimal Jalan). The Committee has since submitted its report to the Governor of the RBI. The Committee’s recommendations were based on the consideration of the role of central banks’ financial resilience, cross-country practices, statutory provisions and the impact of the RBI’s public policy mandate and operating environment on its balance sheet and the risks involved.

3. The Committee’s recommendations were guided by the fact that the RBI forms the primary bulwark for monetary, financial and external stability. Hence, the resilience of the RBI needs to be commensurate with its public policy objectives and must be maintained above the level of peer central banks as would be expected of a central bank of one of the fastest growing large economies of the world.

4. Major recommendations of the Committee with regard to risk provisioning and surplus distribution

(i) RBI’s economic capital: The Committee reviewed the status, need and justification of the various reserves, risk provisions and risk buffers maintained by the RBI and recommended their continuance. A clearer distinction between the two components of economic capital (realized equity and revaluation balances) was also recommended by the Committee as realized equity could be used for meeting all risks/ losses as they were primarily built up from retained earnings, while revaluation balances could be reckoned only as risk buffers against market risks as they represented unrealized valuation gains and hence were not distributable. Further, there was only a one-way fungibility between them which implies that while a shortfall, if any, in revaluation balances vis-à-vis market risk provisioning requirements could be met through increased risk provisioning from net income, the reverse, i.e., the use of surplus in revaluation balances over market risk provisioning requirements for covering shortfall in provisions for other risks is not permitted. The Committee recommended revising the presentation of the liabilities side of the RBI balance sheet to reflect this distinction.

(ii) Risk provisioning for market risk: The Committee has recommended the adoption of Expected Shortfall (ES) methodology under stressed conditions (in place of the extant Stressed-Value at Risk) for measuring the RBI’s market risk on which there was growing consensus among central banks as well as commercial banks over the recent years. While central banks are seen to be adopting ES at 99 per cent confidence level (CL), the Committee has recommended the adoption of a target of ES 99.5 per cent CL keeping in view the macroeconomic stability requirements. In view of the cyclical volatility of the RBI’s revaluation balances, a downward risk tolerance limit (RTL) of 97.5 per cent CL has also been articulated. Both levels were stress-tested for their adequacy by the Committee.

(iii) Size of Realized Equity: The Committee recognized that the RBI’s provisioning for monetary, financial and external stability risks is the country’s savings for a ‘rainy day’ (a monetary/ financial stability crisis) which has been consciously maintained with the RBI in view of its role as the Monetary Authority and the Lender of Last Resort. Realized equity is also required to cover credit risk and operational risk. This risk provisioning made primarily from retained earnings is cumulatively referred to as the Contingent Risk Buffer (CRB) and has been recommended to be maintained within a range of 6.5 per cent to 5.5 per cent of the RBI’s balance sheet, comprising 5.5 to 4.5 per cent for monetary and financial stability risks and 1.0 per cent for credit and operational risks. Further, any shortfall in revaluation balances vis-à-vis the market risk RTL would add to the requirement for realized equity. The Committee also recommended the development of methodologies for assessing the concentration risk of the forex portfolio as well as jointly assessing the RBI’s market-credit risk.

(iv) Surplus Distribution Policy: The Committee has recommended a surplus distribution policy which targets the level of realized equity to be maintained by the RBI, within the overall level of its economic capital vis-à-vis the earlier policy which targeted total economic capital level alone. Only if realized equity is above its requirement, will the entire net income be transferable to the Government. If it is below the lower bound of requirement, risk provisioning will be made to the extent necessary and only the residual net income (if any) transferred to the Government. Within the range of CRB, i.e., 6.5 to 5.5 percent of the balance sheet, the Central Board will decide on the level of risk provisioning.

5. Application of the Committee’s recommendations

The Central Board accepted all the recommendations of the Committee and finalized the RBI’s accounts for 2018-19 using the revised framework to determine risk provisioning and surplus transfer. The implications of this decision are given below:

(i) Realized Equity: Given that the available realized equity stood at 6.8 per cent of balance sheet, while the requirement recommended by the Committee was 6.5 per cent to 5.5 per cent of balance sheet, there was excess of risk provisioning to the extent of ₹11,608 crore at the upper bound of CRB and ₹52,637 crore at the lower bound of CRB. The Central Board decided to maintain the realized equity level at 5.5 per cent of balance sheet and the resultant excess risk provisions of ₹ 52,637 crore were written back.

(ii) Economic capital levels: While the revised framework technically would allow the RBI’s economic capital levels as on June 30, 2019 to lie within the range of 24.5 per cent to 20.0 per cent of balance sheet (depending on the level of realized equity maintained and availability of revaluation balances), the economic capital as on June 30, 2019 stood at 23.3 per cent of balance sheet. As financial resilience was within the desired range, the entire net income of ₹1,23,414 crore for the year 2018-19, of which an amount of ₹28,000 crore has already been paid as interim dividend, will be transferred to the Government of India. This is in addition to the ₹52,637 crore of excess risk provisions which has been written back and consequently will be transferred to the Government.

6. As on June 30, 2019, the RBI stands as a central bank with one of the highest levels of financial resilience globally.

7. The Board also reviewed the current economic situation, global and domestic challenges and various areas of operations of the Reserve Bank. The Board, further, approved the Annual Report of the Reserve Bank for the year 2018-19.

8. Shri Shaktikanta Das, Governor chaired the 578th meeting of the Central Board. Deputy Governors Shri N.S. Vishwanathan and Shri Mahesh Kumar Jain of the Reserve Bank of India, and other Directors of the Central Board of the Reserve Bank – Dr. Prasanna Kumar Mohanty, Shri Dilip S. Shanghvi, Shri Natarajan Chandrasekaran, Shri Bharat Doshi, Shri Sudhir Mankad, Shri Manish Sabharwal, Shri Swaminathan Gurumurthy, Ms. Revathy Iyer and Prof. Sachin Chaturvedi attended the meeting. The Government Directors Shri Rajiv Kumar, Finance Secretary and Secretary, Department of Financial Services and Shri Atanu Chakraborty, Secretary, Department of Economic Affairs, were also present.

Yogesh Dayal
Chief General Manager

Press Release: 2019-2020/531


 

RBI constitutes Expert Committee on Economic Capital Framework

Date : Dec 26, 2018

As decided by the Central Board of Reserve Bank of India (RBI) in its meeting held on November 19, 2018, the RBI, in consultation with the Government of India, has today constituted an Expert Committee to review the extant Economic Capital Framework of the RBI. The composition of the Committee is as under:

1) Dr. Bimal Jalan
Former Governor, Reserve Bank of India
Chairman
2) Dr. Rakesh Mohan
Former Deputy Governor, Reserve Bank of India and
former Secretary, Department of Economic Affairs,
Ministry of Finance, Government of India
Vice Chairman
3) Shri Bharat Doshi
Director, Central Board, Reserve Bank of India
Member
4) Shri Sudhir Mankad
Director, Central Board, Reserve Bank of India
Member
5) Shri Subhash Chandra Garg
Secretary, Department of Economic Affairs,
Ministry of Finance, Government of India
Member
6) Shri N.S. Vishwanathan
Deputy Governor, Reserve Bank of India
Member

2. The terms of reference of the Committee are given below:

2.1 Keeping in consideration (i) statutory mandate under section 47 of the RBI Act that the profits of the RBI shall be transferred to the Government, after making provisions ‘which are usually provided by the bankers’, and (ii) public policy mandate of the RBI, including financial stability considerations, the Expert Committee would:

review status, need and justification of various provisions, reserves and buffers presently provided for by the RBI; and

review global best practices followed by the central banks in making assessment and provisions for risks which central bank balance sheets are subject to;

2.2 To suggest an adequate level of risk provisioning that the RBI needs to maintain;

2.3 To determine whether the RBI is holding provisions, reserves and buffers in surplus / deficit of the required level of such provisions, reserves and buffers;

2.4 To propose a suitable profits distribution policy taking into account all the likely situations of the RBI, including the situations of holding more provisions than required and the RBI holding less provisions than required;

2.5 Any other related matter including treatment of surplus reserves, created out of realised gains, if determined to be held.

3. The Expert Committee will submit its report within a period of 90 days from the date of its first meeting.

Jose J. Kattoor
Chief General Manager

Press Release: 2018-2019/1468

Banning of Unregulated Deposit Schemes Act, 2019

Unregulated Deposit Scheme means a Scheme or an arrangement under which deposits are accepted or solicited by any deposit taker by way of business and which is not a Regulated Deposit Scheme, as specified under column (3) of the First Schedule.


 

(Act No. 21 of 2019)

Dated: 31.7.2019

The following Act of Parliament received the assent of the President on the 31st July, 2019, and is hereby published for general information: –

An Act to provide for a comprehensive mechanism to ban the unregulated deposit schemes, other than deposits taken in the ordinary course of business, and to protect the interest of depositors and for matters connected therewith or incidental thereto.

Be it enacted by Parliament in the Seventieth Year of the Republic of India as follows: –

CHAPTER I

Preliminary

1. Short title, extent and commencement. – (1) This Act may be called the Banning of Unregulated Deposit Schemes Act, 2019.
(2) It extends to the whole of India except the State of Jammu and Kashmir.
(3) It shall be deemed to have come into force on the 21st day of February, 2019.

2. Definitions. – In this Act, unless the context otherwise requires, –

(1) “appropriate Government” means in respect of matters relating to, –

(i) the Union territory without legislature, the Central Government;

(ii) the Union territory of Puducherry, the Government of that Union territory;

(iii) the Union territory of Delhi, the Government of that Union territory; and

(iv) the State, the State Government;

(2) “company” shall have the same meaning as assigned to it in clause (20) of section 2 of the Companies Act, 2013;

(3) “Competent Authority” means an Authority appointed by the appropriate Government under section 7;

(4) “deposit” means an amount of money received by way of an advance or loan or in any other form, by any deposit taker with a promise to return whether after a specified period or otherwise, either in cash or in kind or in the form of a specified service, with or without any benefit in the form of interest, bonus, profit or in any other form, but does not include –

(a) amounts received as loan from a scheduled bank or a co-operative bank or any other banking company as defined in section 5 of the Banking Regulation Act, 1949;

(b) amounts received as loan or financial assistance from the Public Financial Institutions notified by the Central Government in consultation with the Reserve Bank of India or any non-banking financial company as defined in clause (f) of section 45-I of the Reserve Bank of India Act, 1934 and is registered with the Reserve Bank of India or any Regional Financial Institutions or insurance companies;

(c) amounts received from the appropriate Government, or any amount received from any other source whose repayment is guaranteed by the appropriate Government, or any amount received from a statutory authority constituted under an Act of Parliament or a State Legislature;

(d) amounts received from foreign Governments, foreign or international banks, multilateral financial institutions, foreign Government owned development financial institutions, foreign export credit collaborators, foreign bodies corporate, foreign citizens, foreign authorities or person resident outside India subject to the provisions of the Foreign Exchange Management Act, 1999 and the rules and regulations made thereunder;

(e) amounts received by way of contributions towards the capital by partners of any partnership firm or a limited liability partnership;

(f) amounts received by an individual by way of loan from his relatives or amounts received by any firm by way of loan from the relatives of any of its partners;

(g) amounts received as credit by a buyer from a seller on the sale of any property (whether movable or immovable);

(h) amounts received by an asset re-construction company which is registered with the Reserve Bank of India under section 3 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;

(i) any deposit made under section 34 or an amount accepted by a political party under section 29B of the Representation of the People Act, 1951;

(j) any periodic payment made by the members of the self-help groups operating within such ceilings as may be prescribed by the State Government or Union territory Government;

(k) any other amount collected for such purpose and within such ceilings as may be prescribed by the State Government;

(l) an amount received in the course of, or for the purpose of, business and bearing a genuine connection to such business including –

(i) payment, advance or part payment for the supply or hire of goods or provision of services and is repayable in the event the goods or services are not in fact sold, hired or otherwise provided;

(ii) advance received in connection with consideration of an immovable property under an agreement or arrangement subject to the condition that such advance is adjusted against such immovable property as specified in terms of the agreement or arrangement;

(iii) security or dealership deposited for the performance of the contract for supply of goods or provision of services; or

(iv) an advance under the long-term projects for supply of capital goods except those specified in item (ii):

Provided that if the amounts received under items (i) to (iv) become refundable, such amounts shall be deemed to be deposits on the expiry of fifteen days from the date on which they become due for refund:

Provided further that where the said amounts become refundable, due to the deposit taker not obtaining necessary permission or approval under the law for the time being in force, wherever required, to deal in the goods or properties or services for which money is taken, such amounts shall be deemed to be deposits.

Explanation. – For the purposes of this clause, –

(i) in respect of a company, the expression “deposit” shall have the same meaning as assigned to it under the Companies Act, 2013;

(ii) in respect of a non-banking financial company registered under the Reserve Bank of India Act, 1934, the expression “deposit” shall have the same meaning as assigned to it in clause (bb) of section 45-I of the said Act;

(iii) the expressions “partner” and “firm” shall have the meanings respectively assigned to them under the Indian Partnership Act, 1932;

(iv) the expression “partner” in respect of a limited liability partnership shall have the same meaning as assigned to it in clause (q) of sub-section (1) of section 2 of the Limited Liability Partnership Act, 2008;

(v) the expression “relative” shall have the same meaning as assigned to it in the Companies Act, 2013;

(5) “depositor” means any person who makes a deposit under this Act;

(6) “deposit taker” means –

(i) any individual or group of individuals;

(ii) a proprietorship concern;

(iii) a partnership firm (whether registered or not);

(iv) a limited liability partnership registered under the Limited Liability Partnership Act, 2008;

(v) a company;

(vi) an association of persons;

(vii) a trust (being a private trust governed under the provisions of the Indian Trusts Act, 1882 or a public trust, whether registered or not);

(viii) a co-operative society or a multi-State co-operative society; or

(ix) any other arrangement of whatsoever nature, receiving or soliciting deposits, but does not include –

(i) a Corporation incorporated under an Act of Parliament or a State Legislature;

(ii) a banking company, a corresponding new bank, the State Bank of India, a subsidiary bank, a regional rural bank, a co-operative bank or a multi-State co-operative bank as defined in the Banking Regulation Act,1949;

(7) “Designated Court” means a Designated Court constituted by the appropriate Government under section 8;

(8) “insurer” shall have the same meaning as assigned to it in clause (9) of section 2 of the Insurance Act, 1938;

(9) “notification” means a notification published in the Official Gazette and the expression “notify” shall be construed accordingly;

(10) “person” includes –

(i) an individual;

(ii) a Hindu Undivided Family;

(iii) a company;

(iv) a trust;

(v) a partnership firm;

(vi) a limited liability partnership;

(vii) an association of persons;

(viii) a co-operative society registered under any law for the time being in force relating to co-operative societies; or

(ix) every artificial juridical person, not falling within any of the preceding sub-clauses;

(11) “prescribed” means prescribed by the rules made by the Central Government or, as the case may be, the State Government under this Act;

(12) “property” means any property or assets of every description, whether corporeal or incorporeal, movable or immovable, tangible or intangible, and includes deeds and instruments evidencing title to, or interest in, such property or assets, wherever located;

(13) “public financial institution” shall have the same meaning as assigned to it in clause (72) of section 2 of the Companies Act, 2013;

(14) “Regulated Deposit Scheme” means the Schemes specified under column (3) of the First Schedule;

(15) “Regulator” means the Regulator specified in column (2) of the First Schedule;

(16) “Schedule” means the Schedule appended to this Act;

(17) “Unregulated Deposit Scheme” means a Scheme or an arrangement under which deposits are accepted or solicited by any deposit taker by way of business and which is not a Regulated Deposit Scheme, as specified under column (3) of the First Schedule.

CHAPTER II

Banning of Unregulated Deposit Schemes

3. Banning of Unregulated Deposit Schemes. – On and from the date of commencement of this Act, –

(a) the Unregulated Deposit Schemes shall be banned; and

(b) no deposit taker shall, directly or indirectly, promote, operate, issue any advertisement soliciting participation or enrolment in or accept deposits in pursuance of an Unregulated Deposit Scheme.

4. Fraudulent default in Regulated Deposit Schemes. – No deposit taker, while accepting deposits pursuant to a Regulated Deposit Scheme, shall commit any fraudulent default in the repayment or return of deposit on maturity or in rendering any specified service promised against such deposit.

5. Wrongful inducement in relation to Unregulated Deposit Schemes. – No person by whatever name called shall knowingly make any statement, promise or forecast which is false, deceptive or misleading in material facts or deliberately conceal any material facts, to induce another person to invest in, or become a member or participant of any Unregulated Deposit Scheme.

6. Certain scheme to be Unregulated Deposit Scheme. – A prize chit or a money circulation scheme banned under the provisions of the Prize Chits and Money Circulation Scheme (Banning) Act, 1978 shall be deemed to be an Unregulated Deposit Scheme under this Act.

CHAPTER III

Authorities

7. Competent Authority. – (1) The appropriate Government shall, by notification, appoint one or more officers not below the rank of Secretary to that Government, as the Competent Authority for the purposes of this Act.
(2) The appropriate Government may, by notification, appoint such other officer or officers as it thinks fit, to assist the Competent Authority in discharging its functions under this Act.
(3) Where the Competent Authority or officers appointed under sub-section (2), for the purposes of this section, has reason to believe (the reason for such belief to be recorded in writing), on the basis of such information and particulars as may be prescribed, that any deposit taker is soliciting deposits in contravention of section 3, he may, by an order in writing, provisionally attach the deposits held by the deposit taker and the money or other property acquired either in the name of the deposit taker or in the name of any other person on behalf of the deposit taker from the date of the order, in such manner as may be prescribed.
(4) The Competent Authority shall, for the purposes of sub-section (3), have the same powers as vested in a civil court under the Code of Civil Procedure, 1908 while conducting investigation or inquiry in respect of the following matters, namely: –
(a) discovery and inspection;

(b) enforcing the attendance of any person, including any officer of a reporting entity and examining him on oath;

(c) compelling the production of records;

(d) receiving evidence on affidavits;

(e) issuing commissions for examination of witnesses and documents; and

(f) any other matter which may be prescribed.

(5) The Competent Authority shall have power to summon any person whose attendance he considers necessary whether to give evidence or to produce any records during the course of any investigation or proceeding under this section.
(6) All the persons so summoned shall be bound to attend in person or through authorised agents, as such officer may direct, and shall be bound to state the truth upon any subject respecting which they are examined or make statements, and produce such documents as may be required.
(7) Every proceeding under sub-sections (4) and (5) shall be deemed to be a judicial proceeding within the meaning of section 193 and section 228 of the Indian Penal Code.
(8) Subject to any rules made in this behalf by the Central Government, any officer referred to in sub-section (2) may impound and retain in his custody for such period, as he thinks fit, any records produced before him in any proceedings under this Act:
Provided that the officer or officers referred to in sub-section (2) shall not –
(a) impound any records without recording his reasons for so doing; or

(b) retain in his custody any such records for a period exceeding three months, without obtaining the previous approval of the Competent Authority.

8. Designated Court. – (1) The appropriate Government shall, with the concurrence of the Chief Justice of the concerned High Court, by notification, constitute one or more Courts known as the Designated Courts for such area or areas or such case or cases as may be specified in such notification, which shall be presided over by a Judge not below the rank of a District and Sessions Judge or Additional District and Sessions Judge.
(2) No Court other than the Designated Court shall have jurisdiction in respect of any matter to which the provisions of this Act apply.
(3) When trying an offence under this Act, the Designated Court may also try an offence, other than an offence under this Act, with which the accused may, under the Code of Criminal Procedure, 1973, be charged at the same trial.

CHAPTER IV

Information On Deposit Takers

9. Central database. – (1) The Central Government may designate an authority, whether existing or to be constituted, which shall create, maintain and operate an online database for information on deposit takers operating in India.
(2) The authority designated under sub-section (1) may require any Regulator or the Competent Authority to share such information on deposit takers, as may be prescribed.

10. Information of business by deposit taker. – (1) Every deposit taker which commences or carries on its business as such on or after the commencement of this Act shall intimate the authority referred to in sub-section (1) of section 9 about its business in such form and manner and within such time, as may be prescribed.
(2) The Competent Authority may, if it has reason to believe that the deposits are being solicited or accepted pursuant to an Unregulated Deposit Scheme, direct any deposit taker to furnish such statements, information or particulars, as it considers necessary, relating to or connected with the deposits received by such deposit taker.

Explanation. – For the removal of doubts, it is hereby clarified that –
(a) the requirement of intimation under sub-section (1) is applicable to deposit takers accepting or soliciting deposits as defined in clause (4) of section 2; and

(b) the requirement of intimation under sub-section (1) applies to a company, if the company accepts the deposits under Chapter V of the Companies Act, 2013.

11. Information to be shared. – (1) The Competent Authority shall share all information received under section 29 with the Central Bureau of Investigation and with the authority which may be designated by the Central Government under section 9.
(2) The appropriate Government, any Regulator, income-tax authorities or any other investigation agency, having any information or documents in respect of the offence investigated under this Act by the police or the Central Bureau of Investigation, shall share all such information or documents with the police or the Central Bureau of Investigation.
(3) Where the principal officer of any banking company, a corresponding new bank, the State Bank of India, a subsidiary bank, a regional rural bank, a co-operative bank or a multi-State co-operative bank has reason to believe that any client is a deposit taker and is acting in contravention to the provisions of this Act, he shall forthwith inform the same to the Competent Authority.

CHAPTER V

Restitution To Depositors

12. Priority of depositors’ claim. – Save as otherwise provided in the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 or the Insolvency and Bankruptcy Code, 2016, any amount due to depositors from a deposit taker shall be paid in priority over all other debts and all revenues, taxes, cesses and other rates payable to the appropriate Government or the local authority.

13. Precedence of attachment. – (1) Save as otherwise provided in the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 or the Insolvency and Bankruptcy Code, 2016, an order of provisional attachment passed by the Competent Authority, shall have precedence and priority, to the extent of the claims of the depositors, over any other attachment by any authority competent to attach property for repayment of any debts, revenues, taxes, cesses and other rates payable to the appropriate Government or the local authority.
(2) Where an order of provisional attachment has been passed by the Competent Authority –
(a) such attachment shall continue until an order is passed under sub-section (3) or sub-section (5) of section 15 by the Designated Court;

(b) all the attached money or property of the deposit taker and the persons mentioned therein shall vest in the Competent Authority and shall remain so vested till further order of the Designated Court.

(3) The Competent Authority shall open an account in a scheduled bank for the purpose of crediting and dealing with the money realised under this Act, which shall not be utilised except under the instructions of the Designated Court.
(4) The Competent Authority shall not dispose of or alienate the property or money attached, except in accordance with the order of the Designated Court under sub-section (3) or sub-section (5) of section 15.
(5) Notwithstanding anything contained in sub-section (4), the Competent Authority may, if it thinks it expedient, order the immediate sale of perishable items or assets, and the proceeds of the sale shall be utilised in the same manner as provided for other property.

14. Application for confirmation of attachment and sale of property. – (1) The Competent Authority shall, within a period of thirty days, which may extend up to sixty days, for reasons to be recorded in writing, from the date of the order of provisional attachment, file an application with such particulars as may be prescribed, before the Designated Court for making the provisional attachment absolute, and for permission to sell the property so attached by public auction or, if necessary, by private sale.
(2) In case where the money or property has been attached on the permission granted by a Designated Court in another State or Union territory, the application for confirmation of such attachment shall be filed in that Court.

15. Confirmation of attachment by Designated Court. – (1) Upon receipt of an application under section 14, the Designated Court shall issue notice to –

(a) the deposit taker; and

(b) any person whose property is attached under section 14, to show cause, within a period of thirty days from the date of issue of notice, as to why the order of attachment should not be made absolute and the properties so attached be sold.

(2) The Designated Court shall also issue notice to all other persons represented to it as having or being likely to claim any interest or title in the property, to appear on the same date as persons referred to in sub-section (1) to raise objections, if they so desire, to the attachment of the property.
(3) The Designated Court shall, after adopting such procedure as may be prescribed, pass an order –
(a) making the provisional order of attachment absolute; or

(b) varying it by releasing a portion of the property from attachment; or

(c) cancelling the provisional order of attachment, and in case of an order under clause (a) or clause (b), direct the Competent Authority to sell the property so attached by public auction or, if necessary, by private sale and realise the sale proceeds.

(4) The Designated Court shall not, in varying or cancelling the provisional order of attachment, release any property from attachment, unless it is satisfied that –
(a) the deposit taker or the person referred to in sub-section (1) has interest in such property; and

(b) there shall remain an amount or property sufficient for repayment to the depositors of such deposit taker.

(5) The Designated Court shall pass such order or issue such direction as may be necessary for the equitable distribution among the depositors of the money attached or realised out of the sale.
(6) The Designated Court shall endeavour to complete the proceedings under this section within a period of one hundred and eighty days from the date of receipt of the application referred to in sub-section (1).

16. Attachment of property of mala fide transferees. – (1) Where the Designated Court is satisfied that there is a reasonable cause for believing that the deposit taker has transferred any property otherwise than in good faith and not for commensurate consideration, it may, by notice, require any transferee of such property, whether or not he received the property directly from the said deposit taker, to appear on a date to be specified in the notice and show cause why so much of the transferee’s property as is equivalent to the proper value of the property transferred should not be attached.
(2) Where the said transferee does not appear and show cause on the specified date or where the Designated Court is satisfied that the transfer of the property to the said transferee was not a bona fide transfer and not for commensurate consideration, it shall order the attachment of so much of the said transferee’s property as in its opinion is equivalent to the proper value of the property transferred.

17. Payment in lieu of attachment. – (1) Any deposit taker or a person referred to in sub-section (1) of section 15, or transferee referred to in section 16 whose property is about to be attached or has been provisionally attached under this Act, may, at any time before the confirmation of attachment, apply to the Designated Court for permission to deposit the fair value of the property in lieu of attachment.
(2) While allowing the deposit taker or person or transferee referred to in sub-section (1) to make the deposit under sub-section (1), the Designated Court may order such deposit taker or person or transferee to pay any sum towards costs as may be applicable.

18. Powers of Designated Court. – (1) The Designated Court shall exercise the following powers, namely: –
(a) power to approve the statement of dues of the deposit taker due from various debtors;

(b) power to assess the value of the assets of the deposit taker and finalise the list of the depositors and their respective dues;

(c) power to direct the Competent Authority to take possession of any assets belonging to or in the control of the deposit taker and to sell, transfer or realise the attached assets, either by public auction or by private sale as it deems fit depending upon the nature of assets and credit the sale proceeds thereof to its bank account;

(d) power to approve the necessary expenditure to be incurred by the Competent Authority for taking possession and realisation of the assets of the deposit taker;

(e) power to pass an order for full payment to the depositors by the Competent Authority or an order for proportionate payment to the depositors in the event, the money so realised is not sufficient to meet the entire deposit liability;

(f) power to direct any person, who has made profit or averted loss by indulging in any transaction or activity in contravention of the provisions of this Act, to disgorge an amount equivalent to the wrongful gain made or loss averted by such contravention; and

(g) power to pass any other order which the Designated Court deems fit for realisation of assets of the deposit taker and for repayment of the same to the depositors of such deposit taker or on any other matter or issue incidental thereto.

(2) On the application of any person interested in any property attached and vested in the Competent Authority under this Act and after giving such Competent Authority an opportunity of being heard, make such order as the Designated Court considers just and reasonable for –
(a) providing from such of the property attached and vested in the Competent Authority as the applicant claims an interest in, such sums as may be reasonably necessary for the maintenance of the applicant and of his family, and for expenses connected with the defence of the applicant where criminal proceedings have been initiated against him in the Designated Court under this Act; or

(b) safeguarding, so far as may be practicable, the interest of any business affected by the attachment.

Explanation. – For the purposes of this section, the expression “deposit taker” includes the directors, promoters, managers or members of said establishment or any other person whose property or assets have been attached under this Act.

19. Appeal to High Court. – Any person including the Competent Authority, if aggrieved by any final order of the Designated Court under this Chapter, may appeal to the High Court, within a period of sixty days from the date of such order:

Provided that the High Court may entertain the appeal after the expiry of the said period of sixty days, if it is satisfied that the appellant was prevented by sufficient cause from preferring the appeal in time.

Explanation. – The expression “High Court” means the High Court of a State or Union territory where the Designated Court is situated.

20. Power of Supreme Court to transfer cases. – (1) Whenever it is made to appear to the Supreme Court that there is a default in any deposit scheme or deposit schemes of the nature referred to in section 30, the Supreme Court may, by an order, direct that any particular case be transferred from one Designated Court to another Designated Court.
(2) The Supreme Court may act under this section only on an application filed by the Competent Authority or any interested party, and every such application shall be supported by an affidavit.
(3) Where an application for the exercise of the powers conferred by this section is dismissed, the Supreme Court may, if it is of opinion that the application was frivolous or vexatious, order the applicant to pay by way of compensation to any person who has opposed the application such sum not exceeding fifty thousand rupees as it may consider appropriate in the circumstances of the case.

CHAPTER VI

Offences and Punishments

21. Punishment for contravention of section 3. – (1) Any deposit taker who solicits deposits in contravention of section 3 shall be punishable with imprisonment for a term which shall not be less than one year but which may extend to five years and with fine which shall not be less than two lakh rupees but which may extend to ten lakh rupees.
(2) Any deposit taker who accepts deposits in contravention of section 3 shall be punishable with imprisonment for a term which shall not be less than two years but which may extend to seven years and with fine which shall not be less than three lakh rupees but which may extend to ten lakh rupees.
(3) Any deposit taker who accepts deposits in contravention of section 3 and fraudulently defaults in repayment of such deposits or in rendering any specified service, shall be punishable with imprisonment for a term which shall not be less than three years but which may extend to ten years and with fine which shall not be less than five lakh rupees but which may extend to twice the amount of aggregate funds collected from the subscribers, members or participants in the Unregulated Deposit Scheme.

Explanation. – For the purposes of this Act, –
(i) the expression “fraudulently” shall have the same meaning as assigned to it in section 25 of the Indian Penal Code;

(ii) where the terms of the Deposit Scheme are entirely impracticable or unviable, the terms shall be relevant facts showing an intention to defraud.

22. Punishment for contravention of section 4. – Any deposit taker who contravenes the provisions of section 4 shall be punishable with imprisonment for a term which may extend to seven years, or with fine which shall not be less than five lakh rupees but which may extend to twenty-five crore rupees or three times the amount of profits made out of the fraudulent default referred to in said section, whichever is higher, or with both.

23. Punishment for contravention of section 5. – Any person who contravenes the provisions of section 5 shall be punishable with imprisonment for a term which shall not be less than one year but which may extend to five years and with fine which may extend to ten lakh rupees.

24. Punishment for repeat offenders. – Whoever having been previously convicted of an offence punishable under this Chapter, except the offence under section 26, is subsequently convicted of an offence shall be punishable with imprisonment for a term which shall not be less than five years but which may extend to ten years and with fine which shall not be less than ten lakh rupees but which may extend to fifty crore rupees.

25. Offences by deposit takers other than individuals. – (1) Where an offence under this Act has been committed by a deposit taker other than an individual, every person who, at the time the offence was committed, was in charge of, and was responsible to, the deposit taker for the conduct of its business, as well as the deposit taker, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly.
(2) Nothing contained in sub-section (1) shall render any such person liable to any punishment provided in this Act, if he proves that the offence was committed without his knowledge or that he exercised all due diligence to prevent the commission of such offence.
(3) Notwithstanding anything contained in sub-section (1), where an offence under this Act has been committed by a deposit taker other than an individual, and it is proved that the offence –
(a) has been committed with the consent or connivance of; or

(b) is attributable to any neglect on the part of any director, manager, secretary, promoter, partner, employee or other officer of the deposit taker,

such person shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.

26. Punishment for contravention of section 10. – Whoever fails to give the intimation required under sub-section (1) of section 10 or fails to furnish any such statements, information or particulars as required under sub-section (2) of that section, shall be punishable with fine which may extend to five lakh rupees.

27. Cognizance of offences. – Notwithstanding anything contained in section 4, no Designated Court shall take cognizance of an offence punishable under that section except upon a complaint made by the Regulator:
Provided that the provisions of section 4 and this section shall not apply in relation to a deposit taker which is a company.

CHAPTER VII

Investigation, Search and Seizure

28. Offences to be cognizable and non-bailable. – Notwithstanding anything contained in the Code of Criminal Procedure, 1973 every offence punishable under this Act, except the offence under section 22 and section 26, shall be cognizable and non-bailable.

29. Competent Authority to be informed of offences. – The police officer shall, on recording information about the commission of an offence under this Act, inform the same to the Competent Authority.

30. Investigation of offences by Central Bureau of Investigation. – (1) On receipt of information under section 29 or otherwise, if the Competent Authority has reason to believe that the offence relates to a deposit scheme or deposit schemes in which –
(a) the depositors, deposit takers or properties involved are located in more than one State or Union territory in India or outside India; and

(b) the total value of the amount involved is of such magnitude as to significantly affect the public interest, the Competent Authority shall refer the matter to the Central Government for investigation by the Central Bureau of Investigation.

(2) The reference made by the Competent Authority under sub-section (1) shall be deemed to be with the consent of the State Government under section 6 of the Delhi Special Police Establishment Act, 1946.
(3) On the receipt of the reference under sub-section (1), the Central Government may transfer the investigation of the offence to the Central Bureau of Investigation under section 5 of the Delhi Special Police Establishment Act, 1946.

31. Power to enter, search and seize without warrant. – (1) Whenever any police officer, not below the rank of an officer in-charge of a police station, has reason to believe that anything necessary for the purpose of an investigation into any offence under this Act may be found in any place within the limits of the police station of which he is in-charge, or to which he is attached, such officer may, with the written authorisation of an officer not below the rank of Superintendent of Police, and after recording in writing so far as possible, the thing for which the search is to be made and subject to the rules made in this behalf, authorise any officer subordinate to him, –
(a) to enter and search any building, conveyance or place, between sunrise and sunset, which he has reason to suspect is being used for purposes connected with the promotion or conduct of any deposit taking scheme or arrangement in contravention of the provisions of this Act;

(b) in case of resistance, to break open any door and remove any obstacle to such entry, if necessary by force, with such assistance as he considers necessary, for exercising the powers conferred by clause (a);

(c) to seize any record or property found as a result of the search in the said building, conveyance or place, which are intended to be used, or reasonably suspected to have been used, in connection with any such deposit taking scheme or arrangement in contravention of the provisions of this Act; and

(d) to detain and search, and if he thinks proper, take into custody and produce before any Designated Court any such person whom he has reason to believe to have committed any offence punishable under this Act:

Provided that if such officer has reason to believe that the said written authorisation cannot be obtained without affording opportunity for the concealment of evidence or facility for the escape of an offender, he may, without the said written authorisation, enter and search such building, conveyance or place, at any time between sunset and sunrise after recording the grounds in writing.
(2) Where it is not practicable to seize the record or property, the officer authorised under sub-section (1), may make an order in writing to freeze such property, account, deposits or valuable securities maintained by any deposit taker about which a complaint has been made or credible information has been received or a reasonable suspicion exists of their having been connected with the promotion or conduct of any deposit taking scheme or arrangement in contravention of the provisions of this Act and it shall be binding on the concerned bank or financial or market establishment to comply with the said order:
Provided that no bank or financial or market establishment shall freeze such account, deposit or valuable securities, for a period beyond thirty days unless the same is authorised by the order of the Designated Court:
Provided further that, if at any time, it becomes practicable to seize the frozen property, the officer authorised under sub-section (1) may seize such property.

Explanation. – For the purposes of this section, the expressions, –
(i) “freezing of account” shall mean that no transaction, whether deposit or withdrawal shall be allowed in the said account; and

(ii) “freezing of property” shall mean that no transfer, conversion, disposition or movement of property shall be allowed.

(3) Where an officer takes down any information in writing or records grounds for his belief or makes an order in writing under sub-section (1) or sub-section (2), he shall, within a time of seventy-two hours send a copy thereof to the Designated Court in a sealed envelope and the owner or occupier of the building, conveyance or place shall, on application, be furnished, free of cost, with a copy of the same by the Designated Court.
(4) All searches, seizures and arrests under this section shall be made in accordance with the provisions of the Code of Criminal Procedure, 1973.

32. Application of Code of Criminal Procedure, 1973 to proceedings before Designated Court. – (1) The Designated Court may take cognizance of offences under this Act without the accused being committed to it for trial.
(2) Save as otherwise provided in section 31, the provisions of the Code of Criminal Procedure, 1973 shall apply –
(a) to all arrests, searches and seizures made under this Act;

(b) to the proceedings under this Act and for the purposes of the said provisions, the Designated Court shall be deemed to be a Court of Session and the persons conducting the prosecution before the Designated Court, shall be deemed to be Public Prosecutors.

CHAPTER VIII

Miscellaneous

33. Publication of advertisement of Unregulated Deposit Scheme. – Where any newspaper or other publication of any nature, contains any statement, information or advertisement promoting, soliciting deposits for, or inducing any person to become a member of any Unregulated Deposit Scheme, the appropriate Government may direct such newspaper or publication to publish a full and fair retraction, free of cost, in the same manner and in the same position in such newspaper or publication as may be prescribed.

34. Act to have overriding effect. – Save as otherwise expressly provided in this Act, the provisions of this Act shall have effect notwithstanding anything contained in any other law for the time being in force, including any law made by any State or Union territory.

35. Application of other laws not barred. – The provisions of this Act shall be in addition to, and not in derogation of, the provisions of any other law for the time being in force.

36. Protection of action taken in good faith. – No suit, prosecution or other legal proceedings shall lie against the appropriate Government or the Competent Authority or any officer of the appropriate Government for anything which is in good faith done or intended to be done under this Act or the rules made thereunder.

37. Power of Central Government to make rules. – (1) The Central Government may, by notification, make rules for carrying out the provisions of this Act.
(2) In particular and without prejudice to the generality of the foregoing power, such rules may provide for all or any of the following matters, namely: –
(a) the information and other particulars to be taken into consideration before issuing an order, and the manner of attachment, under sub-section (3) of section 7;

(b) the information to be shared under sub-section (2) of section 9;

(c) the form and manner in which and the time within which the intimation shall be given under sub-section (1) of section 10;

(d) the particulars contained in the application to be filed by the Competent Authority before the Designated Court under sub-section (1) of section 14;

(e) the procedure to be adopted by the Designated Court before issuing an order under sub-section (3) of section 15;

(f) rules under sub-section (1) of section 31;

(g) the manner of publication of advertisement under section 33; and

(h) any other matter which is required to be, or may be, prescribed.

38. Power of State Government, etc., to make rules. – (1) The State Government or Union territory Government, as the case may be, in consultation with the Central Government, by notification, make rules for carrying out the provisions of this Act.
(2) In particular and without prejudice to the generality of the foregoing power, such rules may provide for all or any of the following matters, namely: –
(a) ceiling for self-help groups under clause (j) of sub-section (4) of section 2;

(b) purpose and ceiling under clause (k) of sub-section (4) of section 2;

(c) the manner of provisional attachment of property by the Competent Authority under sub-section (3) of section 7;

(d) other matters under clause (f) of sub-section (4) of section 7;

(e) the rules relating to impounding and custody of records under sub-section (8) of section 7; and

(f) any other matter which is required to be, or may be, prescribed.

39. Laying of rules. – (1) Every rule made by the Central Government under this Act shall be laid, as soon as may be after it is made, before each House of Parliament, while it is in session, for a total period of thirty days which may be comprised in one session, or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in making any modification in the rule, or both Houses agree that the rule should not be made, the rule shall thereafter have effect only in such modified form or be of no effect, as the case may be; so, however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that rule.
(2) Every rule made by a State Government or the Union territory Government, as the case may be, shall be laid, as soon as may be after it is made, before each House of the State Legislature or the Union territory Legislature, as the case may be, where it consists of two Houses, or where such Legislature consists of one House, before that House.

40. Power to amend First Schedule. – (1) The Central Government may, having regard to the objects of this Act, and if it considers necessary or expedient so to do, by notification, add to, or as the case may be, omit from the First Schedule, any scheme or arrangement, and on such addition, or omission, such scheme or arrangement shall become, or cease to be, a Regulated Deposit Scheme, as the case may be.
(2) A copy of every notification issued under this section shall, as soon as may be after it has been issued, be laid before each House of Parliament.
41. Act not to apply certain deposits. – The provisions of this Act shall not apply to deposits taken in the ordinary course of business.
42. Amendment to certain enactments. – The enactments specified in the Second Schedule shall be amended in the manner specified therein.
43. Power to remove difficulties. – (1) If any difficulty arises in giving effect to the provisions of this Act, the Central Government may, by order published in the Official Gazette, make such provisions, not inconsistent with the provisions of this Act, as may appear to it to be necessary for removing the difficulty:
Provided that no such order shall be made under this section after the expiry of three years from the commencement of this Act.
(2) Every order made under this section shall be laid, as soon as may be after it is made, before each House of Parliament.

44. Repeal and saving. – (1) The Banning of Unregulated Deposit Schemes Ordinance, 2019, is hereby repealed.
(2) Notwithstanding such repeal, anything done or any action taken under the said Ordinance, shall be deemed to have been done or taken under this Act.

The First Schedule

[See section 2 (15)]

Regulated Deposit Schemes

(1) The Regulator and Regulated Deposit Scheme refers to the regulators and schemes and arrangements listed in the following Table, namely: –

Table

Sl. No.

Regulator

Regulated Deposit Scheme

(1)

(2)

(3)

1.

The Securities and Exchange Board of India

(i) Any scheme or an arrangement [as defined under section 11AA of the Securities and Exchange Board of India Act, 1992 (15 of 1992)] launched, sponsored or carried out by a Collective Investment Management Company registered with the Securities and Exchange Board of India under the Securities and Exchange Board of India (Collective Investment Scheme) Regulations, 1999.

(ii) Any scheme or an arrangement registered with the Securities and Exchange Board of India under the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012.

(iii) Any scheme or an arrangement, pursuant to which funds are managed by a portfolio manager, registered under the Securities and Exchange Board of India (Portfolio Managers) Regulations, 1993.

(iv) Any scheme or an arrangement regulated under the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 or providing for employee benefits as permitted under the Companies Act, 2013 (18 of 2013).

(v) Any other scheme or an arrangement registered under the Securities and Exchange Board of India Act, 1992 (15 of 1992), or the regulations made thereunder.

(vi) Any amount received as contributions in the nature of subscriptions to a mutual fund registered with Securities and Exchange Board of India under the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996.

2.

The Reserve Bank of India

(i) Any scheme under which deposits are accepted by Non-Banking Financial Companies as defined in clause (f) of section 45-I of the Reserve Bank of India Act, 1934 (2 of 1934) and registered with the Reserve Bank of India; or any other scheme or an arrangement registered under the Reserve Bank of India Act, 1934.

(ii) Any scheme or an arrangement under which funds are accepted by individuals or entities engaged as Business Correspondents and Facilitators by banks subject to the guidelines and circulars issued by the Reserve Bank of India from time to time.

(iii) Any scheme or an arrangement under which funds are received by a system provider operating as an authorised payment system under the Payment and Settlement Systems Act, 2007 (51 of 2007).

(iv) Any other scheme or an arrangement regulated under the Reserve Bank of India Act, 1934 (2 of 1934), or the guidelines or circulars of the Reserve Bank of India.

3.

The Insurance Regulatory and Development Authority of India

A contract of insurance pursuant to a certificate of registration obtained in accordance with the Insurance Act, 1938 (4 of 1938).

4.

The State Government or Union territory Government

(i) Any scheme or an arrangement made or offered by a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912) or a society being a society registered or deemed to be registered under any law relating to co-operative societies for the time being in force in any State or Union territory.

(ii) Any scheme or an arrangement commenced or conducted as a chit business with the previous sanction of the State Government in accordance with the provisions of the Chit Funds Act, 1982 (40 of 1982).

(iii) Any scheme or an arrangement regulated by any enactment relating to money lending which is for the time being in force in any State or Union territory.

(iv) Any scheme or an arrangement by a prize chit or money circulation scheme under section 11 of the Prize Chits and Money Circulation Schemes (Banning) Act, 1978 (43 of 1978).

5.

The National Housing Bank

Any scheme or an arrangement for acceptance of deposits registered under the National Housing Bank Act, 1987 (53 of 1987).

6.

The Pension Fund Regulatory and Development Authority

Any scheme or an arrangement under the Pension Fund Regulatory and Development Authority Act, 2013 (23 of 2013).

7.

The Employees’ Provident Fund Organisation

Any scheme, Pension Scheme or Insurance Scheme framed under the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 (19 of 1952).

8.

The Central Registrar, Multi-State Co-operative Societies

Any scheme or an arrangement for acceptance of deposits from voting members by a Multi-State Co-operative Society registered under the Multi-State Co-operative Societies Act, 2002 (39 of 2002).

9.

The Ministry of Corporate Affairs, Government of India

(i) Deposits accepted or permitted under the provisions of Chapter V of the Companies Act, 2013 (18 of 2013).

(ii) Any scheme or an arrangement under which deposits are accepted by a company declared as a Nidhi or a Mutual Benefit Society under section 406 of the Companies Act, 2013 (18 of 2013).

(2) The following shall also be treated as Regulated Deposit Schemes under this Act, namely: –

(a) deposits accepted under any scheme or an arrangement registered with any regulatory body in India constituted or established under a statute; and

(b) any other scheme as may be notified by the Central Government under this Act.

The Second Schedule

(See section 42)

Amendments To Certain Enactments

Part I

Amendment To The Reserve Bank of India Act, 1934

In the Reserve Bank of India Act, 1934, in section 45-I, in clause (bb), after Explanation II, the following Explanation shall be inserted, namely: –

“Explanation III. – The amounts accepted by a co-operative society from the members or shareholders, by whatever name called, but excluding the amounts received as share capital, shall be deemed to be deposits for the purposes of this clause, if such members or shareholders are nominal or associate members, by whatever name called, who do not have full voting rights in the meetings of such co-operative society.”.

Part II

Amendments To The Securities and Exchange Board of India Act, 1992

In the Securities and Exchange Board of India Act, 1992, –

(i) in section 11, in sub-section (4), for clause (e), the following clause shall be substituted, namely: –

“(e) attach, for a period not exceeding ninety days, bank accounts or other property of any intermediary or any person associated with the securities market in any manner involved in violation of any of the provisions of this Act, or the rules or the regulations made thereunder:

Provided that the Board shall, within ninety days of the said attachment, obtain confirmation of the said attachment from the Special Court, established under section 26A, having jurisdiction and on such confirmation, such attachment shall continue during the pendency of the aforesaid proceedings and on conclusion of the said proceedings, the provisions of section 28A shall apply:Provided further that only property, bank account or accounts or any transaction entered therein, so far as it relates to the proceeds actually involved in violation of any of the provisions of this Act, or the rules or the regulations made thereunder shall be allowed to be attached.”;

(ii) in section 28A, after Explanation 3, the following Explanation shall be inserted, namely: –

“Explanation 4. – The interest referred to in section 220 of the Income-tax Act, 1961 shall commence from the date the amount became payable by the person.”.

Part III

Amendment To The Multi-State Co-Operative Societies Act, 2002

In the Multi-State Co-operative Societies Act, 2002, in section 67, in sub-section (1), –

(a) after the words “receive deposits”, the words “from its voting members” shall be inserted;

(b) the following Explanation shall be inserted, namely: –

“Explanation. – For the removal of doubts, it is hereby clarified that a multi-State co-operative society shall not be entitled to receive deposits from persons other than voting members.”.

Shell bank

Shell bank means a bank that has no physical presence in the country in which it is incorporated and licensed, and which is unaffiliated with a regulated financial group that is subject to effective consolidated supervision.

Physical presence means meaningful mind and management located within a country. The existence simply of a local agent or low level staff does not constitute physical presence.


[Ref: FATF (2012-2019), International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation, FATF, Paris, France]

RBI asked Banks for seeding of Aadhaar numbers with existing or new accounts for Direct Benefit Transfer – 13/08/2019

RBI directed all Banks for implementation of Direct Benefit Transfer (DBT) Scheme

RBI/2019-20/40
FIDD.CO.LBS.BC.No.09/02.01.001/2019-20

August 13, 2019

The Chairmen / Managing Directors & CEOs
Scheduled Commercial Banks (including Regional Rural Banks),
Small Finance Banks and Payments Banks

Madam / Dear Sir,

Direct Benefit Transfer (DBT) Scheme – Implementation

Please refer to Circular RPCD.CO.LBS.BC.No.75/02.01.001/2012-13 dated May 10, 2013 and RPCD.CO.LBS.BC.No.11/02.01.001/2013-14 dated July 9, 2013 regarding the use of Aadhaar to facilitate delivery of social welfare benefits by direct credit to the bank accounts of beneficiaries.

  1. In this connection, banks are advised to ensure that opening of bank accounts and seeding of Aadhaar numbers with existing or new accounts of eligible beneficiaries opened for the purpose of Direct Benefit Transfer (DBT) under social welfare schemes, is in conformity with the provisions listed under Section 16 of the Master Direction – Know Your Customer (KYC) Direction, 2016 (updated as on May 29, 2019) and extant provisions of the Prevention of Money Laundering (PML) Rules.
  2. The above guidelines will be in supersession of Circular FIDD.CO.LBS.BC.No.17/02.01.001/2015-16 dated January 14, 2016 on “Direct Benefit Transfer (DBT) Scheme – Seeding of Aadhaar in Bank Accounts – Clarification”.

Yours faithfully,

(Gautam Prasad Borah)
Chief General Manager-in-Charge


RBI/2012-13/498
RPCD.CO. LBS.BC.No. 75/02.01.001/2012-13

May 10, 2013

To
CMDs of all SLBC Convenor banks and Lead banks

Dear Sir,

Direct Benefit Transfer (DBT) Scheme – Implementation

Please refer to the paragraph 67 of the Monetary Policy Statement for 2013-14 announced on May 3, 2013. DBT is being rolled out in a phased manner with 43 districts taken up in the first phase from January 1, 2013 and will be extended to 78 more districts from July 1, 2013. Eventually, all districts in the country would be covered under the DBT scheme.

  1. With a view to facilitating DBT for the delivery of social welfare benefits by direct credit to the bank accounts of beneficiaries, banks are advised to:

open accounts for all eligible individuals in camp mode with the support of local government authorities,

seed the existing accounts or the new accounts opened with Aadhaar numbers and

put in place an effective mechanism to monitor and review the progress in the implementation of DBT.

  1. As stated above, SLBC Convenor Banks and Lead Banks should institute a monitoring and review mechanism to periodically assess and evaluate the progress made in the implementation of DBT by banks. The review of progress in the implementation of DBT should be included as a regular agenda for discussion in SLBC and DCC meetings.
  2. The SLBC Convenor banks shall submit a monthly statement of district wise progress made in implementing DBT from the month ended April 30, 2013 as per the enclosed format in EXCEL by the 10th of the succeeding month to the respective Regional Office of Reserve Bank.

Yours faithfully,

(A. Udgata)
Principal Chief General Manager

Encl: Format


Date: May 03, 2013

Monetary Policy Statement 2013-14

Financial Inclusion

Direct Benefit Transfer

67. With a view to facilitating Direct Benefit Transfer (DBT) for the delivery of social welfare benefits by direct credit to the bank accounts of beneficiaries, it is proposed to advise banks to:

• open accounts for all eligible individuals in camp mode with the support of local government authorities;

• seed the existing accounts or the new accounts opened with Aadhaar numbers; and

• put in place an effective mechanism to monitor and review the progress in the implementation of DBT.

Guidelines are being issued separately.