XIM UNIVERSITY

B Com 2021-24

BANK REGULATIONS,
REQUIREMENT &
COMPLIANCE
BR ACT , RBI ACT AND OTHER ACTS
HAVING BEARING ON BANKING
SESSIONS: 5-7

Sibu K Das
BANKING REGULATIONS

• Banking is governed and regulated by the two important Acts : BR Act & RBI Act
• There are some other Acts provisions of which are to be complied with : SEBI Act 1992,
Income Tax Act 1961, FEMA 1999
• There are some Acts which have direct bearing on Banking : NI Act 1881, Transfer of
Property Act 1882
BANKING REGULATION ACT 1949

• Sec.5(b) : Business of banking defined : “ Accepting, for the purpose of lending or

investment of deposit, of money from the public, repayable on demand or otherwise, and
withdrawable by cheque, draft. Order or otherwise.”
• Sec. 11 : It lays down the minimum capital requirement. It prescribes a minimum paid-up
capital of ₹5 lakh.
• Sec. 17 : To transfer a sum not less than 20% of net profit to a Reserve Fund until the RF
is equal to the paid-up capital.
• Sec. 21 : Empowers RBI to determine the policy in relation to advances.
BANKING REGULATION ACT 1949

• Sec. 22 : Mandates a banking company to obtain license from RBI before starting
business.
• Sec. 24 : Banks to maintain a minimum SLR on Demand & Time Liabilities.
• Sec. 35 : Empowers RBI to inspect the functioning of banks.
RESERVE BANK OF INDIA ACT 1934

• Sec. 22 : RBI is the sole authority to issue & manage currency in India.
• Sec. 49 : Defines the Bank Rate as “the standard rate at which it is prepared to buy or
discount bills of exchange or other commercial papers eligible for purchase under this
Act.”
RESERVE BANK OF INDIA
REGULATORY POWERS

• Monetary Authority
• Bankers’ Bank
• Controller of Credit
• Repository of Foreign Exchange
INCOME TAX ACT 1961

• Banks are required to deduct tax at source from interest paid/payable on term deposits under
Sec.194-A; from payments to contractors under Sec.194-C and from payment of rent
under Sec.194-I of the IT Act.
• A TDS certificate has to be issued to the depositor in terms of Sec.203 of IT Act.
• Banks are required to furnish such TDS information to the IT Department on quarterly basis
as per Sec.206 of IT Act.
• So also a submission is required for not deducting TDS as per Sec.206(c) of IT Act.
• Attachment Order : Under Sec.226(3) of the IT Act, the banks are bound to attach monies
held on customer’s accounts.
INCOME TAX ACT 1961
(CONTINUED)

• Banks are required to repay the term deposit proceeds through credit to the bank
account or through account payee cheque/draft for amount ₹20000 or more as per
Sec.269-T of the IT Act.
PML ACT 2002

• To curb money laundering.

• KYC guidelines and preservation of KYC documents for a period of 10 years from the
date of closure of account.
• Maintenance of Cash Transaction Index Book to record all cash transactions of ₹10 lakhs
and above.
• CTR to be files with FIU-IND on monthly basis.
NEGOTIABLE INSTRUMENTS ACT 1881

• Banks have to comply the provisions of the NI Act with regard to the instruments they
deal.
• Sec.13 defines a ‘negotiable instrument’: It ‘means a promissory note, bill of exchange or
cheque payable either to order or bearer.’
• Sec.14 defines negotiation: ‘When a promissory note, bill of exchange or cheque is
transferred to any person, so as to constitute the person the holder thereof, the
instrument is said to be negotiated.’
NEGOTIABLE INSTRUMENTS ACT 1881
(CONTINUED)

• Sec.4 defines a promissory note: ‘A promissory note is an instrument in writing containing

an unconditional undertaking signed by the maker, to pay a certain sum of money only to, or
to the order of, a certain person, or to the bearer of the instrument.’
• Sec.5 defines a bill of exchange: ‘A bill of exchange is an instrument in writing containing an
unconditional order, signed by the maker, directing a certain person to pay a certain sum of
money only to, or to the order of, a certain person or to the bearer of the instrument.’
• Sec.6 defines a cheque: ‘ A cheque is a bill of exchange drawn on a specified banker and not
expressed to be payable otherwise than on demand and it includes the electronic image of a
truncated cheque and a cheque in the electronic form.’
NEGOTIABLE INSTRUMENTS ACT 1881
(CONTINUED)

PARTIES TO A CHEQUE
• Drawer & Drawee : The maker of a cheque is called the ‘drawer’ and the person thereby
directed to pay is the ‘drawee’. (Sec.7)
• Payee : ‘The person named in the instrument, to whom or to whose order the money is
by the instrument directed to be paid, is called the ‘payee’. (Sec.7)
NEGOTIABLE INSTRUMENTS ACT 1881
(CONTINUED)

INDORSEMENT
• Indorsement : ‘When the maker or holder of a cheque signs the same, otherwise than as
such maker, for the purpose of negotiation, on the back or face thereof or on a slip of
paper annexed thereto, he is said to indorse the same, and is called the indorser.’
(Sec.15)
• Indorsement ‘ in blank’ and ‘in full’ : “ If the indorser signs his name only, the indorsement
is said to be ‘in blank’ and if he adds a direction to pay the amount mentioned in the
cheque to, or to the order of, a specified person, the indorsement is said to be ‘in full’.”
(Sec.16)
NEGOTIABLE INSTRUMENTS ACT 1881

NEGOTIATION
• Bearer instrument : A cheque payable to bearer is negotiable by the delivery thereof.
(Sec.46)
• Order instrument : A cheque payable to order is negotiable by the holder by
indorsement and delivery thereof. (Sec.46)
NEGOTIABLE INSTRUMENTS ACT 1881

HOLDER
• The holder of a cheque means any person entitled in his own name to the possession thereof
and to receive or recover the amount due thereon from the parties thereto. Where the
cheque is lost or destroyed, its ‘holder’ is the person so entitled at the time of such loss or
destruction. (Sec.8)
HOLDER IN DUE COURSE
• Any person who for consideration became the possessor of a cheque if payable to bearer, or
the payee or indorsee thereof, if payable to , or to the order of, a payee, before the amount
mentioned in it became payable, and without having sufficient cause to believe that any defect
existed in the title of the person from whom he derived his title. (Sec.9)
NEGOTIABLE INSTRUMENTS ACT 1881

PAYMENT IN DUE COURSE

• It means payment in accordance with the apparent tenor of the instrument in good faith
and without negligence to any person in possession thereof under circumstances which
do not afford a reasonable ground for believing that he is not entitled to receive payment
of the amount therein mentioned. (Sec.10)
NEGOTIABLE INSTRUMENTS ACT 1881

CROSSING
• Where a cheque bears across its face an addition of the words ‘and company’ or any
abbreviation thereof, between two parallel transverse lines, or of two parallel transverse
lines simply, that addition shall be deemed a crossing, and the cheque shall be deemed to
be crossed generally. (Sec.123)
• Where a cheque bears across its face an addition of the name of a banker, that addition
shall be deemed a crossing, and the cheque shall be deemed to be crossed specially, and
to be crossed to that banker. (Sec.124)
NEGOTIABLE INSTRUMENTS ACT 1881

CROSSING
NEGOTIABLE INSTRUMENTS ACT 1881

CROSSING
NEGOTIABLE INSTRUMENTS ACT 1881

CHEQUES