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Penalties Prescribed Under The Banking Regulation Act 1949 Research Team | Posted On Monday, March 11,2019, 06:36 PM

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Penalties Prescribed Under The Banking Regulation Act 1949



Penalties Prescribed Under The Banking Regulation Act, 1949

The Banking Regulations Act 1949 is a legislation that was enacted to regulate the banks and supervise and monitor functioning. It is a legislation that facilitates smooth functioning of the banking system; controls activities of the banks, devise policies for effective regulation of bank credit and safeguarding the interest of depositors.

Objectives behind the passing of this Act:

  • The Indian companies’ act 1913 was not a competent and satisfactory legislation to regulate and supervise the functions of banking in India. To control the banking system, the country requires more specific legislations containing comprehensive provisions and guidelines.
  • The act was also enacted to make sure the banks did not fail in their endeavours. Through the act a minimum capital requirement was established for all banks.
  • The banking regulations act was also passed to avoid unnecessary competition in the banking sector. There are guidelines that restrict banks activities and their powers.
  • One of the main aims of the act is to safeguard the interest of shareholders and customers of the banks by including provisions like cash reserve ratio and liquidity ratios.
  • The act also encompasses provisions of licensing new banks that helps in regulating the opening of new branches and promoting balanced growth of banks
  • The act includes provisions for merging of weaker banks with established ones, so that the customers suffer no loss and the banking system is strengthened.
  •  The act has other provisions like foreign banks cannot use the Indian depositor’s funds to invest in projects outside India.
  • The RBI has been given powers to approve the appointment, reappointment, and removal of the chairman, directors, and officers of the banks. This will ensure the efficient and smooth working of banks in India.

See Also: The Regulations That Govern Banking in India

Penalties Provided:

The penalties imposed under banking regulations act 1949 are as follows:

  • A person who intentionally or unintentionally omits facts or income sources in the balance sheets while filing income tax returns or while furnishing income statements is liable for imprisonment of maximum of three years along with a monetary penalty.
  • If an individual fails to produce documents or account statements or income reports that he is liable to furnish under Section 35 of the act, or if he fails to give proper explanation of his assets to the inspection officer, he is liable to be punished along with a fine extending up to Rs 2,000 per offence. In case the individual does not comply with the procedures, the fine may extend up to Rs. 100 per day along with continuation of the offence.
  • In case the bank receives deposits by violating of orders stated under Section 35(4)(A), then the directors and the officers are liable to be punished, which can be twice the amount received as deposits by the bank until he/she proves that they were not aware of the rules. A person will be punishable with a fine which may extend to Rs 50,000 or double the amount of the default or contravention along with an additional charge of Rs 2,500 a day to continue until the contravention or default ends, if
  1. The person does not comply with the orders, direction or any rule made or imposed.
  2. Any default has been made in carrying out the terms or obligations given under Section 45(7).
  • Penalty is also imposed by the RBI, if an individual or company has defaulted on terms or orders by the bank. In such a case, each person employed/ associated with the company, is deemed to be responsible at the time of occurrence of the events and is liable to be punished.
  • Notwithstanding anything mentioned under sub-section 5 of Section 46, where a company has committed a default or contravention and if it is proved that the default took place with the consent of or due to any gross negligence on part of any director, secretary or another officer, such officers or directors shall be punished.

See Also: Understanding The Indian Banking Sector

Power of RBI to impose penalties:

The RBI is authorized with the responsibility to manage and regulate the functioning of the banking system in India. The Banking regulation act 1949, gives certain powers to the RBI to impose penalties in case of any default or contravention. Summarized below are the powers of RBI to impose a penalty:

  • If there are any defaults or violation of rules stated under section 46(3) and section 46(4) by the banking institution, then the RBI has the authority to penalize the bank, not exceeding twice the amount of deposits in respect of which the default or the contravention is made.
  • Any individual or company cannot file complaints or a case in court, against any bank based on default or contravention on which the RBI has imposed a penalty.
  • The bank against which the RBI has imposed penalty is liable to make the payment within 14 days from the issuing of a notice by RBI. In case the institution fails to make the payments, the court will have jurisdiction over the area where the bank is situated.
  • There can be no proceedings initiated against the imposing of penalty on the bank for any complaint filed against any contravention.

The banking regulation act helps in strengthening and the smooth functioning of the banking facilities in the country and also safeguards the rights of the depositors and shareholders and imposes penalties and punishments to any violation or defaults.

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