Section 36AG of the Banking Regulation Act, 1949: Compensation to Shareholders of an Acquired Bank

Section 36AG is part of Part IIC of the Banking Regulation Act, 1949, which deals with the acquisition of the undertakings of banking companies in certain cases. The provision sets out who is entitled to compensation, how the amount is initially determined, and when a dispute over compensation may be referred to the Tribunal constituted under Section 36AH.

In simple terms: when the undertaking of a banking company is acquired under the Act, eligible shareholders are entitled to compensation calculated under the principles contained in the Fifth Schedule. The initial amount is determined by the Central Government or the transferee bank, as applicable, in consultation with the Reserve Bank of India.

Key expressions used in Section 36AG

These expressions are understood from the connected provisions in Part IIC:

Acquired bank: under Section 36AE, when the Central Government acquires the undertaking of a banking company by notified order, that banking company is referred to as the acquired bank.
Appointed day: the date specified by the Central Government from which the acquisition of the undertaking takes effect.
Transferee bank: the company or corporation in which the acquired undertaking, assets and liabilities may vest under Section 36AE.
Fifth Schedule: the Schedule that lays down the principles for computing compensation payable under Section 36AG.
Tribunal: the Tribunal constituted under Section 36AH for matters including determination of compensation where the statutory conditions for reference are met.

Text and effect of Section 36AG

Sub-section (1): Entitlement to compensation.
Every person who, immediately before the appointed day, is registered as a holder of shares in the acquired bank, or, where the acquired bank is a banking company incorporated outside India, the acquired bank itself, is to be given compensation by the Central Government or the transferee bank, as the case may be. The compensation is determined in accordance with the principles contained in the Fifth Schedule.
Sub-section (2): Rights between the shareholder and other interested persons.
The compensation provision does not affect rights between a registered shareholder and another person having an interest in the shares. Such other person may enforce that interest against the compensation awarded to the shareholder, but not against the Central Government or the transferee bank.
Sub-section (3): Initial determination of compensation.
The amount of compensation is determined in the first instance by the Central Government or the transferee bank, as the case may be, in consultation with the Reserve Bank. The amount is then offered to those entitled to compensation in full satisfaction of the statutory compensation claim.

Sub-section (4): Request for reference to the Tribunal.
If the compensation offered under sub-section (3) is not acceptable, an eligible person may, before the date notified by the Central Government in the Official Gazette, make a written request to the Central Government for reference of the matter to the Tribunal constituted under Section 36AH.
Sub-section (5): Threshold for mandatory reference.
A reference is required where, before the notified date, the Central Government receives requests from not less than one-fourth in number of the shareholders who together hold not less than one-fourth in value of the paid-up share capital of the acquired bank. In the case of a banking company incorporated outside India, the request may come from the acquired bank.
Sub-section (6): Finality of compensation.
If the required requests are not received before the notified date, the compensation offered under sub-section (3) becomes payable. Where a reference has been made to the Tribunal, the amount determined by the Tribunal is the compensation payable. The resulting amount is final and binding on the parties concerned.

How compensation is calculated under the Fifth Schedule

The Fifth Schedule provides the valuation framework for compensation under Section 36AG. Broadly, it requires the value of the acquired bank's assets as on the day immediately before the appointed day to be computed in accordance with Part I of the Schedule, and the liabilities to be computed in accordance with Part II. The compensation is based on the resulting statutory valuation.

Relationship with Sections 36AE, 36AF and 36AH

Section 36AE deals with the Central Government's power to acquire the undertaking of a banking company in specified circumstances.
Section 36AF empowers the Central Government, after consultation with the Reserve Bank, to make a scheme for carrying out the purposes of Part IIC in relation to an acquired bank.
Section 36AH provides for constitution of the Tribunal to which a compensation dispute may be referred under Section 36AG.

Practical legal points

The right to compensation arises in the statutory acquisition framework under Part IIC.
The Fifth Schedule, not ordinary market negotiation, supplies the statutory valuation principles.
A dissatisfied claimant must act within the date notified by the Central Government for seeking a reference.
The statutory shareholder threshold in sub-section (5) is important for a reference to the Tribunal.
Once the statutory process is complete, the amount payable becomes final and binding as provided by sub-section (6).

Official source

For the current official text of the Banking Regulation Act, 1949, including Section 36AG and the Fifth Schedule, refer to India Code - Banking Regulation Act, 1949. The Reserve Bank of India may also be consulted for regulatory material concerning banking companies: Reserve Bank of India.

Updated: 13 September 2026. This article is for general legal information and should be read with the latest official text, notifications and applicable judicial decisions.