Applicable sections: S. 37 to 44
I. Suspension of business (S. 37)
a) Application for suspension of business:
Application to be made by the Banking Company temporarily unable to meet its obligations to the High COurt exercising jurisdiction where the reg. office of the co. is situated or, in case of a banking company incorporated outside India, where its principal place of business in India is situated. This shall be accompanied by a report by the RBI stating that in their opinion, the co. will be able to pay its debts if the application is granted. If for sufficient reasons, relief granted w/o report then HC shall call for a report from the RBI on the workings of the co. and may reconsider the earlier relief granted.
b) Nature of relief:
HC may stay the commencement or continuance of all actions and proceedings against the company for a fixed period of time on such terms and conditions as it shall think fit and proper. It may from time to time extend the period however the total period of moratorium shall not exceed six months.
c) Appointment of special officer:
HC may appoint special officer who will take into his custody or under his control all the assets, books,documents, effects and actionable claims of the banking company. The Special officer shall also exercise such other powers as the High Court may deem fit to confer on him having regard to the interests of the depositors of the banking company.
d) Further action:
If RBI satisfied that co. in respect of which order is made is carrying out activities in detriment to the interests of the depositors - may make an application to the HC for winding up. When such application is made, HC shall not extend stay on proceedings.
II. Winding up (S. 38)
a) High Court's powers of winding up:
Notwithstanding provisions of the CA 56 regarding winding up, HC has the powers to order winding up when: 1. Banking co. unable to pay its debts 2. if application made by RBI u/s. 37 of the BRA
b) Application for winding up by the RBI
1. the banking co. has -
i. failed to comply with requirements of minimum paid up capital and reserves (S. 11) or continued this failure to comply after notice in writing from the RBI even after period specified in the said notice
ii. has become disentitled to carry on business in India as per S. 22 - licensing of banking cos.
iii. has been prohibited from receiving fresh deposits u/s. 35(4) or u/s. 42(3-A) of the RBI Act
2. in the opinion of the RBI -
i. compromise/arrangment sanctioned by the Court cannot be worked out satisfactorily.
ii. as per the returns, statements and info furnished it is seen that the bank is unable to pay its debts.
iii. continuance of the banking co. is prejudicial to the interests of the depositors.
c) Appointment of Court Liquidator - S. 38-A
Every HC shall have a Court Liquidator attached who will be appointed by the Central Government for the purpose of conducting all proceedings for the winding up of banking companies and performing such other duties as instructed by the HC.
d) Official Liquidator - S. 39
When application for winding up made by the RBI/SBI/any other bank notified by the Central Gov, such bank will be appointed as the official liquidator notwithstanding provisions of S. 38-A of the BRA and S. 448, 449 of the CA 1956. Any earlier official liquidator shall vacate the said office. All provisions of CA 1956 relating to official liquidators shall apply to the functioning of official liquidators so appointed in so far as they are not inconsistent with the BRA.
e) Stay of proceedings - S. 40
Unless the HC is satisfied that an arrangement has been reached whereby the banking co. can pay its depositors in full as their claims accrue, it shall not stay the winding up proceedings once instituted.
f) Preliminary report by official liquidator - S. 41
The official liquidator shall submit a preliminary report to the HC within 2 months from the date of the winding-up order. Where winding up order made before commencement of the Banking Cos. Second Amendment Act, within 2 months from the commencement.
Report to have:
i. information as required u/s. 455 of the CA 56
ii. should state amount of assets of the banking company in cash which are in his custody or under his control on the date of the report
iii. amount of its assets which are likely to be collected in cash before the expiry of that period of two months
g) Notice to preferential claimants and creditors - S. 41-A
Within 15 days from the date of the winding-up order. Where the winding-up order has been made before the commencement of the Banking Cos. Second Amendment Act within 1 month from such commencement. Official Liquidator to send notice to all preferential claimants and secured and unsecured creditors to send the official liquidator a statement of the amount claimed by them within one month from the date of the service of the said notice. Secured creditors shall submit a valuation along with their claim - if not submitted, the official liquidator shall value the security and this value will be binding on the creditor. If claimant fails to comply with the notice, he/she shall not be entitled to payment u/s. 530 of the CA 56 in priority to other debts and the debt shall be treated as an ordinary debt.
f) Dispense meetings of creditors - S. 42
Where the HC is of the opinion that no object will be secured by holding a meeting of creditors, it may dispense off with this requirement.
g) Booked depositors' credits to be deemed proved - S. 43
All depositors of the banking co. shall be deemed to have filed his claim for the amount shown in the books of the banking company as standing to his credit and the HC shall presume such claims to be have been proved unless the official liq. shows there is reason for doubting the correctness.
h) Payment of dues
Within 3 months from the date of the winding-up order. Where the winding-up order has been made before the commencement of the Banking Cos. Second Amendment Act within 3 months from such commencement.
Payment of dues in the following order:
1. Preferential payment/ suitable allocation u/s. 530 of the CA, 56 as per the statements of claims made within one month of service of notice as per S. 41-A.
2. Depositor of savings accounts - Rs. 250/ balance at his credit - whichever is less
3. Other depositors - Rs. 250/ balance at his credit - whichever is less - If a person is a depositor of savings account as well as a depositor in any other account - max payment to be made is Rs. 250 (If full amount cannot be paid to depositors - payment to be made on pro-rata basis till sufficient funds can be liquidated)
4. General creditors - paid on pro-rata basis
5. If any funds remain - remaining amounts on pro-rata basis to be paid to depositors
Official liquidator may liquidate the assets given as security to the secured creditors for payment of dues if:
1. amount due> value of securities then on payment of the value
2. amount due=< value of securities then on payment of amount due If person to whom payment is to be made is not easily traceable, adequate provisions shall be made.
i) Powers of High Court for voluntary winding up of banking companies - S. 44 No banking co. shall be wound up voluntarily unless certified by the RBI about its ability to pay its debts in full. HC may order court supervision over continuation of voluntary winding up procedure.