Law Notes 16mrks

Part II-A: Control over Management

Applicable sections: S. 10A, S. 36-AA, 36-AB,36-AC

a) Control over composition of Board of Directors - S. 10-A

- Introduced to sub-serve the purpose of social control
- Prescribes the nature and composition of the BoD responsible for management of Banking Company
- Not applicable till 3 months after commencement
- Nature of Board: S 10-A(1)(b) At least 51% or more of the BoD shall have special knowledge/practical experience in: accountancy/agriculture and rural economy/banking/co-operation/economics/finance/law/small-scale industry/any other matter, the special knowledge of, and practical experience in, which would, in the opinion of the Reserve Bank be useful to the banking company
Out of the above at least 2 shall have special knowledge of agriculture and rural economy/small scale/cooperation and shall not hold substantial interest/be connected (as employee/manager/agent) to any company or any firm carrying on any trade, commerce or industry nor be a propreitor of any trading/commercial concern/industry - exceptions : 1. companies u/s 25 of Companies Act 1956 i.e. S.8 of CA 2013 2. small scale concerns
- Tenure: 10-A(2-A) No director (other than CHairman/Whole time Dir) will hold the post for more than 8 years

If Chairman/other Whole time director removed from office - not eligible to be a Dir. by election/otherwise for atleast 4 years from date of ceasing
- If above conditions not fulfiled - Board to be reconsituted
- If for fulfilment of conditions - Dir req to retire - BoD shall do so by drawing of lots
- Powers of RBI - if seen that conditions not fulfilled - after giving opp to be heard - direct to reconstitute - if order not complied in 2 months - draw lots and remove Dirs. - and appoint suitable person in stead

b) Control over appointment of Chairman -

S. 10-B
- Chairman (Appointed on whole time basis)/ Managing Director shall be in the whole time employment of the company tenure = 5 years - subject to re-election and re-appointment shall have practical experience of (i) working of a banking company/SBI/any subsidiary of a financial instution (ii) financial/economic/business administration
- shall be disqualified if: is a director of any other company/ partner of any firm carrying on trade, business, industry/ has substantial interest in any other company or firm/ is a director, manager, managing agent, partner or prop of any trading, commercial, industrial concern/ engaged in any other business or vocation
- if above conditions not fulfiled - after giving opp to be heard - direct to instate another person - if order not complied in 2 months - may remove person appointed and appoint another in his/her stead - tenure: remaining tenure of the person so removed
- may appeal above decision to the Central gov within 30 days
- RBI may also in public interest permit the Chairman/MD to undertake such part-time/honorory work as it may deem fit

S. 10-BB

- when office of chairman/MD is vacant
- RBI of the opinion that continuation of vacancy will adversely affect the interest of the banking company
- RBI shall appoint eligible person as per conditions of 10-B
- if this person is not a director when appointed -> deemed to be a director
- tenure = 3 years subject to re-appoinment and re-election

c) Power to remove managerial persons

S. 36-AA

When:

- in public interest, or
- for preventing affairs of banking company being conducted in a manner detrimental to the interests of the depositors, or
- for securing proper management of the banking company

How:

- record reasons in writing
- give opportunity of being heard
- remove said person by written order
- if removal is urgent - delay detrimental to interest of the company/depositors - direct that pending consideration - such person shall not act as Chairman/MD/CEO/other officer/employee and shall not be concerned with any management of the company

Appeal:

- appeal within 30 days to the Central Gov
- decision of Central Gov. = final and shall not be called into question in any court
- order may also direct such person not to take part in management of the Co. for a period not exceeding 5 years Contravention
- person against whom order is made - contravention of this section = fine of Rs. 250 per day for each day when offence continues

Other features
- RBI may appoint suitable person in stead of such removed person
- tenure of Chairman/Director/CEo - max three years and such further periods not exceeding 3 years as may be specified by the RBI
- shall not incur liability by reason only of being director or for anything done/omitted to be done in good faith in execution of duties
- removal of any person shall not entitle him/her to claim compensation/loss of office

d) Power to appoint additional directors

S.36-AB

When:

- in public interest, or
- in the interest of the banking co., or
- in the interest of the depositors

How:

- record reasons in writing
- appoint such persons by written order

Features:
- tenure of Additional director - max three years and such further periods not exceeding 3 years as may be specified by the RBI
- shall not incur liability by reason only of being director or for anything done/omitted to be done in good faith in execution of duties
- shall not be required to hold qualification shares
- shall not be counted towards reckoning any proportion of the total number of directors of the banking co.

e) S. 36-AC: Part-II A i.e. appointements and removals under 36-AA ad 36-AB shall have effect notwithstanding anything contrary in the Companies Act 1956 or any other law for the time being in force

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