Section 36AB of the Banking Regulation Act, 1949: RBI Power to Appoint Additional Directors
Section 36AB forms part of Part IIA of the Banking Regulation Act, 1949, which deals with control over the management of banking companies. It gives the Reserve Bank of India (RBI) a specific statutory power to appoint one or more additional directors to the board of a banking company when the conditions stated in the section are satisfied.
Section 36AB - Power of Reserve Bank to appoint additional directors
(1) If the Reserve Bank is of opinion that, in the interest of banking policy or in the public interest or in the interests of the banking company or its depositors, it is necessary so to do, it may, from time to time by order in writing, appoint, with effect from such date as may be specified in the order, one or more persons to hold office as additional directors of the banking company.
(2) A person appointed as an additional director under this section:
(a) holds office during the pleasure of the Reserve Bank and, subject to that, for a period not exceeding three years or for such further periods, each not exceeding three years at a time, as the Reserve Bank may specify;
(b) does not incur an obligation or liability merely because of being a director, or for anything done or omitted in good faith in the execution of the duties of the office or in relation to those duties; and
(c) is not required to hold qualification shares in the banking company.
(3) For calculating any proportion of the total number of directors of the banking company, an additional director appointed under this section is not taken into account.
Legislative history: the words extending the grounds to the interest of banking policy and the public interest were substituted by the Banking Laws (Amendment) Act, 1968 with effect from 1 February 1969. A former proviso was omitted by Act 1 of 1984 with effect from 15 February 1984.
When can RBI use Section 36AB?
RBI may exercise the power only when it forms the statutory opinion that appointment of additional director or directors is necessary on one or more of the grounds expressly recognised by Section 36AB. Those grounds concern banking policy, public interest, the interests of the banking company, and the interests of its depositors.
The appointment must be made by an order in writing, and the order may specify the date from which the appointment takes effect. The provision therefore creates a direct statutory route for RBI to place additional persons on the board without depending solely on an ordinary shareholder or board appointment process.
Tenure, protection and qualification shares
An additional director appointed under Section 36AB holds office during the pleasure of RBI. Subject to that overriding condition, the appointment may be for a period of up to three years. RBI may specify further periods, but each such period cannot exceed three years at a time.
The section also protects such a director from obligation or liability merely because of the directorship and for acts or omissions done in good faith while executing the duties of the office. Further, the director need not hold qualification shares in the banking company.
Effect on calculation of board composition
Section 36AB(3) provides that an additional director appointed by RBI is excluded when a proportion of the total number of directors is being calculated. This prevents the statutory appointment itself from distorting percentage-based board composition requirements.
Section 36AC - Part IIA to override other laws
Section 36AC provides that any appointment or removal of a director, chief executive officer or other officer or employee in pursuance of Section 36AA or Section 36AB has effect notwithstanding anything to the contrary contained in the Companies Act, 1956, any other law for the time being in force, or any contract or other instrument.
Practical legal effect of Sections 36AB and 36AC
- Board intervention: RBI can add directors where the statutory public, banking, company, or depositor interests justify intervention.
- Written statutory order: the appointment is founded on RBI's written order and takes effect from the date stated in it.
- RBI control over tenure: the appointee serves during RBI's pleasure, subject to the three-year period structure in the section.
- Good-faith protection: the section protects the appointee in relation to good-faith performance of official duties.
- Overriding effect: Section 36AC is intended to prevent contrary legal, contractual, or instrument-based provisions from frustrating action taken under Sections 36AA and 36AB.
Related Banking Regulation Act provisions
For the surrounding statutory scheme, see Section 36AA - RBI power to remove managerial and other persons from office, Section 36 - further powers and functions of RBI, and Section 36ACA - supersession of the board of directors in certain cases.
Frequently asked questions
Does RBI need to pass a written order under Section 36AB?
Yes. The section expressly provides for appointment by an order in writing and permits the order to specify the date from which the appointment takes effect.
Can an additional director be appointed for more than three years?
The initial or any specified period cannot exceed three years at a time. Further periods may be specified by RBI, but each further period is also subject to the three-year limit stated in the section and the director continues to hold office during RBI's pleasure.
Is an RBI-appointed additional director counted for board-proportion calculations?
No. Section 36AB(3) says that such an additional director is not taken into account when reckoning a proportion of the total number of directors.
This page is intended as a statutory reference and general legal information. For a transaction, regulatory proceeding, board action or litigation, verify the current official text, amendments, RBI directions and applicable judicial decisions.