Section 36AE: Power of Central Government to Acquire Undertakings of Banking Companies

Sub-section (1): When acquisition may be ordered

If, upon receipt of a report from the Reserve Bank, the Central Government is satisfied that a banking company:

(a) has, on more than one occasion, failed to comply with written directions given under Section 21 or Section 35A, in so far as those directions relate to banking policy; or

(b) is being managed in a manner detrimental to the interests of its depositors;

and the Central Government is also satisfied that acquisition is necessary:

(i) in the interests of the depositors of the banking company; or

(ii) in the interest of banking policy; or

(iii) for better provision of credit generally, to a particular section of the community, or in a particular area;

the Central Government may, after consultation with the Reserve Bank as it thinks fit, acquire the undertaking of the banking company by a notified order from the date specified in that order.

Safeguard: the undertaking cannot be acquired unless the banking company has been given a reasonable opportunity of showing cause against the proposed action.

Sub-section (2): Transfer and vesting in the Central Government

Subject to the other provisions of Part IIC, on the appointed day the undertaking of the acquired bank, together with all its assets and liabilities, stands transferred to and vests in the Central Government.

Sub-section (3): What is included in the undertaking

The undertaking includes the acquired bank's rights, powers, authorities, privileges and property, whether movable or immovable. It specifically extends to cash balances, reserve funds, investments, deposits, interests and rights in property, books, accounts and documents, as well as existing debts, liabilities and obligations.

Sub-section (4): Vesting in a transferee bank

Instead of the undertaking continuing to vest in the Central Government, the Central Government may direct that it vest in a company established under a scheme made under Part IIC or in a corporation referred to in the provision as the transferee bank. The vesting may take effect on publication of the notified order or on another date specified by the Central Government.

Sub-section (5): Effect of transfer to the transferee bank

From the date of vesting under sub-section (4), the transferee bank is treated as the transferee of the acquired bank. The rights and liabilities relating to the acquired bank become the rights and liabilities of the transferee bank.

Sub-section (6): Existing contracts and instruments continue

Unless Part IIC expressly provides otherwise, contracts, deeds, bonds, agreements, powers of attorney, grants of legal representation and other instruments in force immediately before the appointed day continue in full force. They may be enforced by or against the Central Government or the transferee bank as though it had replaced the acquired bank.

Sub-section (7): Pending legal proceedings do not abate

Any suit, appeal or other proceeding pending by or against the acquired bank on the appointed day does not abate or become prejudicially affected merely because the undertaking has been transferred. It may continue, be prosecuted and be enforced by or against the Central Government or the transferee bank, as applicable.