Name: Keerat Sidhu

Roll Number: IPL01056

Session 10
Understanding the Sections:
 Section 36AE empowers the Central Government to acquire the undertakings of
banking companies, as stipulated by the Reserve Bank of India (RBI) under certain
conditions, such as repeated non-compliance with directives or detrimental
management practices. Following an RBI report, the Central Government can issue a
notified order for acquisition if it deems it necessary in the interest of depositors,
banking policy, or the provision of credit. Post-acquisition, the Central Government
may transfer assets and liabilities to a designated entity, making it the transferee bank.
Importantly, the legal continuity of contracts, deeds, and ongoing legal proceedings
involving the acquired bank is maintained, allowing the Central Government or the
transferee bank to enforce them as if an original party. Ongoing legal actions can be
continued by or against the Central Government or the transferee bank without
adverse effects, ensuring a smooth transition and legal continuity in matters pertaining
to the acquired banking company.
 Section 36AG outlines the compensation process for shareholders of a banking
company subject to acquisition by the Central Government or a transferee bank.
Before the appointed day, eligible shareholders are entitled to compensation
determined by the Central Government or the transferee bank, in consultation with the
RBI, following principles outlined in the 5th Schedule. If a shareholder finds the
offered compensation unacceptable, they can request the matter be referred to the
Tribunal established under Section 36AH before a specified date. If such requests
meet the prescribed criteria, the Central Government must refer the matter to the
Tribunal; otherwise, the initially offered compensation becomes final and binding on
all parties, ensuring a structured process for shareholder compensation in the context
of a banking company acquisition.
 Section 37 empowers the High Court to impose a moratorium on legal actions and
proceedings against a banking company facing temporary financial distress and
unable to fulfill its obligations. Upon the company's application, supported by an RBI
report confirming the company's ability to settle debts if the moratorium is granted,
the High Court can issue an order staying legal actions for a specified period, not
exceeding six months, with the option to extend. The court may also grant relief
without the RBI's report in certain situations, later obtaining an RBI report on the
company's affairs. If the RBI deems the company's affairs prejudicial to depositors
during the moratorium, it can seek the High Court's approval for winding up.
Additionally, if an application is filed, the High Court may appoint a special officer to
safeguard the company's assets and exercise necessary powers for depositor interests.
This legal provision aims to offer temporary relief to a struggling banking company
while ensuring oversight and protection of depositor interests through the involvement
of both the High Court and the RBI.
 Section 38 delineates the circumstances compelling the High Court to issue a
winding-up order for a banking company, regardless of certain provisions in the
 Companies Act, 1956. Such an order becomes imperative if the banking company is
unable to discharge its debts or if the Reserve Bank applies for winding up under
Section 37 or Section 38. The Reserve Bank is obligated to seek winding up if
directed by an order under Section 35(4)(b) or if, in its opinion, the banking company
has failed to meet specific statutory requirements, violated provisions of the Banking
Regulation Act, or if its continued existence is detrimental to the interests of
depositors. The section outlines criteria, including non-compliance with Section 11 or
22, contravention of the Act, and an inability to meet financial obligations, upon
which the Reserve Bank may pursue winding up. The banking company is considered
unable to pay its debts if it fails to meet a lawful demand within specified timeframes,
as certified by the Reserve Bank. Furthermore, the Reserve Bank is mandated to
furnish a copy of the winding-up application to the registrar. This legal provision
establishes a regulatory framework for the orderly winding up of banking companies
under specific conditions, aiming to protect the interests of depositors and the overall
financial system.
Understanding of cases:
 The S.P. Sampath Kumar v. Union of India case focused on the constitutionality of
Section 28(1) of the Administrative Tribunals Act of 1985. This law established
tribunals to expedite service matters, but Section 28(1) raised concerns by limiting the
jurisdiction of High Courts. The Supreme Court found certain provisions, such as the
eligibility criteria for tribunal members, unconstitutional. However, this decision was
later overturned in L. Chandrakumar v. Union of India, ensuring a balance of power
and preventing unchecked authority of tribunals over judicial review by High Courts.
 In the case of L. Chandrakumar v. Union of India, the constitutional validity of
Articles 323A and 323B, introduced by the 42nd Amendment in 1976, was
challenged. These articles led to the creation of administrative tribunals under the
Administrative Tribunals Act, 1985. The key issues included the exclusion of High
Court and Supreme Court jurisdiction, and whether tribunals could test the
constitutionality of statutes. The court ruled that tribunals can handle cases
challenging statutory provisions but are not replacements for the higher courts. Their
decisions can be reviewed by a division bench of the High Court. This decision
overturned the earlier Sampat Kumar case and affirmed that the power of judicial
review is a fundamental aspect of the Constitution.
 In the case Union of India vs R. Gandhi, the Supreme Court mandated a minimum
tenure of five to seven years for members of tribunals to ensure continuity. The
decision emphasized the importance of independence for tribunal members and
prohibited post-retirement government employment, promoting judicial discipline and
stability in the tribunal system.
Why Banking Regulation act will prevail over the companies act?
The provision mentioned, Section 1(4)(c) of the Banking Regulation Act, 1949, essentially
states that in situations where there is a conflict or inconsistency between the rules outlined in
the Banking Regulation Act and those in the Companies Act, the regulations of the Banking
Regulation Act will take precedence. This ensures that the specific regulations governing
banking companies, as specified in the Banking Regulation Act, will have priority over the
more general laws applicable to all companies under the Companies Act.