Banking Laws

ADDRESSED BY

MS. JANAKI MISRA

ASST. PROFESSOR
S.N.D.T. WOMEN’S UNIVERSITY LAW SCHOOL
JUHU CAMPUS
MUMBAI
Banking Law
Collection
of Legal
Principles

Impacts the
Banking
Transactions
Regulates
the Banker-
Customer
Relationship
Objectives of Banking Law
Protect the interest
of depositors

Avoid Misuse of
Banks

Maintain
Confidentiality

Credit allocation to
the favoured sectors
 Financial
Institution

Licensed Bank

Receive
deposits
and make
loans
 Pre-Independence Pre-Nationalization
Period (1786-1947) Period (1947-1969)
History of Banking
Law In India
Post-Independence
Post-Nationalization
Period (1947- Till
Period (1969-1991)
Date)

Liberalization
Period (1991-Till
Date)
Features of Bank
Dealing
in
Name Money
Indi/Firm/
Identity Company

Banking Acceptance
Business of Deposits

Granting
Connecting Advances
Link

Payment
Ever- and
Increasing Withdrawal
Function
Profit and
Service Utility
Orientation Services
Approach
 Types of Bank
Central

Commercial

Development

Co-operative

Land
Mortgage

Regional
Rural

NABARD

Exchange

EXIM
 Debtor-
Creditor

Mortgagor
Creditor-
and
Debtor
Mortgagee
Relationship
between
Banker and
Customer
Pledger
Principal
and
and Agent
Pledgee

Bailor and
Bailee
 Electronic
Payment
Services
Electronic Real Time
Data Gross
Interchange Settlement

Recent
trends in
Banking Electronic
Tele
Banking Sector Clearing
Services

Point of
Internet
Sale
Banking
Terminal
 Case Laws
➢B. Dhanraj v. Central Bank of India.

➢Standard Chartered Bank v. Raj Mohan

➢Bobcard Ltd v. Surjit Singh Sood.

 Suspension of Banking Business
➢Suspending of business by the banking company for short period as per the
provisions of the Act.

➢By High Court.

➢By Central Government.

➢Duration of Moratorium: Maximum 06 Months

 Winding up
➢End to the life of a company.

➢Inspection.

➢Modes of Winding up
By High Court
Voluntary Winding Up
Winding up under the supervision of the Court.
 Reconstruction and Amalgamation

➢Reconstruction: Transfer of company’s business to another company.

➢Amalgamation: Merge of two companies.

➢Forms of reconstruction and amalgamation:

By sale of shares.
By sale of undertakings.
By sale and dissolution.
By scheme of arrangement.
 Accounts and Types of Accounts
➢Financial Account maintained by the financial institution for the customer.

➢Types of accounts:
Current account
Savings Account
Recurring Deposit Account
Fixed Deposits
Joint Account
Student Account
 Audit

➢Official inspection of an organization’s account.

➢Duties of bank auditor:

Protection against fraud

Ensuring sound behaviour
Develop a comprehensive internal audit programme for banks
Review bank practices and records
Conduct investigation
Report audit findings and lay down recommendations.
 Bank Frauds

➢Electronic Fraud

➢Identity Theft

➢Credit/Debit Card Fraud

➢Cheque Fraud
 Banking Ombudsman

➢ Senior official

➢Appointed by the Reserve Bank of India

➢Redress customer complaints against deficiency in

certain banking services
 Reserve Bank of India Act, 1934

➢It was commenced from 01st April, 1935 and enacted

on 06th March, 1934.

➢Provides framework for supervision of banks in India.

 Reserve Bank of India
➢Management of currency and carrying banking business as per the provisions of
the Act.

➢Body corporate.

➢Perpetual succession and common seal.

➢Can sue and be sued.

Powers and functions of RBI
 Case Laws

➢RBI v. Jayarajan.

➢Velluknand v. RBI.
 Non Banking Financial Companies
➢Company registered under the Companies Act.

➢Receive deposits.

➢Scheme or arrangement in one lumpsum or in instalments.

➢Compulsory registration.

➢Power of RBI to file winding up petition against NBFC.

➢United Western Bank Ltd. v. Company Law Board.

 Negotiable Instruments Act

As per Section 13 of the Act, “A Negotiable

Instruments means a promissory note, bills
of exchange or cheque payable either to
order or to the bearer.”
 Characteristics
✓Written and signed by the parties. ✓Acquisition of property.

✓Payable by money. ✓Acquisition of good title.

✓Unconditional. ✓Popular.

✓Negotiability. ✓Presumptions.
 Presumptions

Section 119
Section 118 (Presumption
as to protest)

Time of
Consideration Date
acceptance

Time of Order of
Stamp
Transfer indorsement
 Case Laws

➢Fulchand v. Laxmi Narayan

➢Kedar Singh v. Bhagwan Singh.

 Promissory Note
➢Section 4 of the Negotiable Instruments Act, 1881.

➢ “Apromissory note is an instrument in writing containing

an unconditional undertaking, signed by the maker, to pay a
certain sum of money to or to the order of a certain person,
or to the bearer of the instruments.”

➢Parties: Maker and Payee.

 Writing

Parties
must be Signed
certain
Characteristics
of Promissory
Note

Sum must Promise to

be certain Pay

Unconditional
Promise
 Case Laws

➢Laxmi Bai v. Raghunath.

➢Beardsley v. Baldwin.

➢Roberts v. Peake.
 Bills of Exchange
➢Section 5 in The Negotiable Instruments Act, 1881.

➢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.

➢Parties: Drawer, Drawee and Payee.

 Writing

Parties
must be Signed
Certain
Characteristics
of Bills of
Exchange
Sum must
Order to
be
Pay
Certain
Unconditional
Order
 PROMISSORY NOTE BILLS OF EXCHANGE
✓2 Parties. ✓3 Parties.

✓Unconditional Promise to pay. ✓Unconditional order to pay.

✓Single Liability.
✓Dual Liability.

✓Can be dishonoured by non-payment.

✓Can be dishonoured by non-payment as
✓It cannot be drawn in sets. well as non-acceptance.

✓Bills can be drawn in sets

 Cheque
➢Section 6 of Negotiable Instruments Act, 1881.

➢A cheque is defined as “a bill of exchange drawn on a

specified banker and not expressed to be payable otherwise
than on demand.”

➢Parties: Drawer, Drawee and Payee.

 CHEQUE PROMISSORY NOTE
✓3 Parties. ✓2 Parties.

✓Unconditional promise to pay.

✓Unconditional order to pay.

✓Not a Penal Offence.

✓Penal Offence.
✓No such validity period.

✓Validity Period.
✓No such provision.

✓Crossing of Cheque. ✓It can be made by any person.

✓It can be drawn only by the account holder of a bank.

 CHEQUE BILLS OF EXCHANGE

✓Penal Offence. ✓Not a Penal Offence.

✓Validity Period. ✓No such validity period.

✓Crossing of Cheque. ✓No such provision.

✓Drawee is always a bank. ✓Drawee can be a person or bank.

✓It cannot be drawn in sets. ✓Can be drawn in sets.

 Dishonour of Cheque
➢Section 138 of the Negotiable Instruments Act, 1881.

➢When the cheque is dishonored for insufficiency of funds or

for any of the prescribed reasons, the one who is at defaulter
can be punished.

➢Imprisonment for a term which may extend to two years, or

with fine which may extend to twice the amount of the cheque,
or both.
Grounds of Dishonour
 Case Laws
➢NEPC Mecon Ltd. v. Magma Leasing Ltd.

➢Rangappa v. Mohan.

➢Goa Plasts P. Ltd v. Chico Ursula D’souza.

➢Krishna Gupta v. State of West Bengal.

 Types of Cheque

Bearer Order Crossed Uncrossed

Anti- Post-
Stale
Dated Dated
 Endorsement
➢Section 15 of the Negotiable Instruments Act 1881.

➢When the maker or holder of negotiable instrument 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, or so signs for the same purpose a
stamped paper intended to be completed as a negotiable
instrument, he is said to have endorsed the same and is
called the endorser.
 Essential Features
➢Place of endorsement should be mentioned.

➢Purpose.

➢Signature.

➢In case of illiterate person, thumb impression needs to be

placed.
Types of Endorsement
Blank

Facultative Full

Sans
Conditional
Recourse

Restrictive
 Holder

➢In his own.

➢Recover the amount from the parties thereon.

 Conditions to become a Holder

➢Possession under Legal Title.

➢Person shall be entitled in his own name to the

possession of the instrument.

➢Enforce in their own name.

 Rights of the holder

➢Right to possession of the instrument.

➢Right to receive or recover amount thereon.

➢Right to endorse the instrument.

 Holder in Due Course

Holder in Due Course is a person having

possession of the instrument for
consideration without notice and in good
faith.
Conditions to become Holder in Due Course
Possession of
the
Instrument

Before
Consideration
Maturity

Good Without
Faith Notice
 Rights of the
Holder in Due Course

Better
Title More
Protection
 Difference Between Holder and Holder in Due
Course
➢Entitlement.

➢Consideration.

➢Title.

➢Right to recover the amount.

 Case Laws
➢Zacharia v. Joseph.

➢Suraj Bali v. Ramchandra.

➢Goddam Venkatrajee v. Andhra Bank.

➢Raphael v. Bank of England.

 Debt Recovery Tribunal

Constituted under Section 3

Receive Claim Application
of the Recovery of Debts
from Banks and Financial
due to the Banks and
Institution against their
Financial Instruments Act, Defaulting Borrowers
1993
 Case Laws
➢ICICI Bank v. Shanti Devi Sharma & Ors.

➢Kishan v. SBI

➢Rajasthan Financial Corporation v. Official Liquidator.

➢Bank of India v. Vijay Ramniklal Kapadia & Ors.

 Securities and Exchange Board of India,
1992
➢Regulatory body for the investment market in India.

➢Body Corporate.

➢Perpetual Succession.

➢Can sue and be sued in his own name.

➢Securities Appellate Tribunal (SAT)

 Protects the
interest of
the investor

Objectives
of SEBI

Provides for
competitive Fair
professional Trading
market
Functions of SEBI
56