RBI strengthens Section 47 with Section 46 of the Banking Regulation Act, 1949.

The Reserve Bank of India in the process of consolidating Supervisory Evaluation (ISE 2023) have delved into several contingency actions including strengthening Section 47 with Section 46 of the Banking Regulation Act, 1949. The Apex Banking Institution has reiterated on its core objectives.

Regulatory compliance is an organisation’s adherence to laws, regulations, guidelines and specifications relevant to its business processes. Violations of regulatory compliance often result in legal punishment.

Consequences of Non-Compliance:

Businesses that don’t comply with regulations are at serious risk. They could face security breaches, loss of productivity, and reputational damage. Non-compliance might also lead to financial penalties, loss of clientele, disruptions in operations, and even regional lockouts

Regulatory compliance risk is the risk of potential non-conformance with laws, rules, regulations and prescribed practices in any jurisdiction in which we operate.

Section 46 in The Banking Regulation Act, 1949 –

• Whoever in any return, balance-sheet or other document [or in any information required or furnished] [Substituted by Act 95 of 1956, for ” required” (w.e.f. 14.1.1957).] by or under or for the purposes of any provision of this Act, wilfully makes a statement which is false in any material particular, knowing it to be false, or wilfully omits to make a material statement, shall be punishable with imprisonment for a term which may extend to three years [or with fine, which may extend to one crore rupees or with both] [Substituted for the words “and shall also be liable to fine” by Act No. 4 OF 2013].

• If any person fails to produce any book, account or other document or to furnish any statement or information which under sub-section (2) of section 35 it is his duty to produce or furnish, or to answer any question relating to the business of a banking company which he is asked by [an officer making an inspection or scrutiny under that section] [Substituted by Act 1 of 1984, Section 38, for ” an officer making an inspection under that section” (w.e.f. 15.2.1984).], he shall be punishable with a fine which may extend to [twenty lakh rupees] [Substituted for the words “two thousand rupees” by Act No. 4 OF 2013] in respect of each offence, and if he persists in such refusal, to a further fine which may extend to [fifty thousand rupees] [Substituted for the words “one hundred rupees” by Act No. 4 OF 2013] for every day during which the offence continues.

• If any deposits are received by a banking company in contravention of an order under clause (a) of sub-section (4) of section 35, every director or other officer of the banking company, unless he proves that the contravention took place without his knowledge or that he exercised all due diligence to prevent it shall be deemed to be guilty of such contravention and shall be punishable with a fine which may extend to twice the amount of the deposits so received.

• [If any other provision of this Act is contravened or if any default is made in –

(i) complying with any requirement of this Act or of any order, rule or direction made or condition imposed thereunder, or

(ii) carrying out the terms of, or the obligations under, a scheme sanctioned under sub-section (7) of section 45, by any person, such person shall be punishable with fine which may extend to [one crore rupees] [or twice the amount involved in such contravention or default where such amount is quantifiable, whichever is more, and where a contravention or default is a continuing one, with a further fine which may extend to] [Substituted by Act 20 of 1994, Section 8, for certain words (w.e.f. 31.01.1994).] [one lakh rupees] [Substituted for the words “two thousand and five hundred rupees” by Act No. 4 OF 2013] for every day, during which the contravention or default continues].

• Where a contravention or default has been committed by a company, every person who, at the time the contravention or default was committed, was in charge of, and was responsible to, the company, for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the contravention or default and shall be liable to be proceeded against and punished accordingly:

Provided that nothing contained in this sub-section shall render any such person liable to any punishment provided in this Act if he proves that the contravention or default was committed without his knowledge or that he exercised all due diligence to prevent the contravention or default.

• Notwithstanding anything contained in sub-section (5), where a contravention or default has been committed by a company, and it is proved that the same was committed with the consent or connivance of, or is attributable to any gross negligence on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that contravention or default and shall be liable to be proceeded against and punished accordingly.

[Explanation. – For the purposes of this section: (a) “company” means any-body corporate and includes a firm or other association of individuals; and (b) “director”, in relation to a firm, means a partner in the firm].

Section 47 in The Banking Regulation Act, 1949 –

No Court shall take cognizance of any offence punishable under [sub-section (5) of section 36-AA or] [Inserted by Act 55 of 1963, Section 26 (w.e.f. 1.2.1964).] section 46 except upon complaint in writing made by an officer of [the Reserve Bank or, as the case may be, the National Bank] [Substituted by Act 61 of 1981, Section 61 and Sch. II, for ” the Reserve Bank”] generally or specially authorised in writing in this behalf by [the Reserve Bank or, as the case may be, the National Bank] [Substituted by Act 61 of 1981, Section 61 and Sch. II, for ” the Reserve Bank” (w.e.f. 1.5.1982).] and [no Court other than that of a Metropolitan Magistrate or a Judicial Magistrate of the First Class or any Court superior thereto] [Substituted by Act 1 of 1984, Section 39, for certain words (w.e.f. 15.2.1984).] shall try any such offence.

[47/A. Power of Reserve Bank to impose penalty. [Inserted by Act 58 of 1968, Section 17 (w.e.f. 1.2.1969).]

(1) Notwithstanding anything contained in section 46, if a contravention or default of the nature referred to in [sub-section (2) or sub-section (3) or sub-section (4)] of section 46, as the case may be, is made by a banking company, then, the Reserve Bank may impose on such banking company –

• [where the contravention or default is of the nature referred to in sub-section (2) of section 46, a penalty not exceeding twenty lakh rupees in respect of each offence and if the contravention or default persists, a further penalty not exceeding fifty thousand rupees per day, after the first day, during which the contravention or default continues; [Substituted by Act No.4 OF 2013]

(b) where the contravention is of the nature referred to in sub-section (3) of section 46, a penalty not exceeding twice the amount of the deposits in respect of which such contravention was made;

• where the contravention or default is of the nature referred to in sub-section (4) of section 46, a penalty not exceeding one crore rupees or twice the amount involved in such contravention or default where such amount is quantifiable, whichever is more, and where such contravention or default is a continuing one, a further penalty which may extend to one lakh rupees per day, after the first day, during which the contravention or default continues.]

(2) [For the purpose of adjudging the penalty under sub-section (1), the Reserve Bank shall serve notice on the banking company requiring it to show cause why the amount specified in the notice should not be imposed and a reasonable opportunity of being heard shall also be given to such banking company.] [Substituted by Act 20 of 1994, Section 10, for sub-Ss. (2) and (3) (w.e.f. 31.1.1994)].

[* * *] [Sub-Section (3) omitted by Act 20 of 1994, Section 10 (w.e.f. 31.1.1994).]

(3) No complaint shall be filed against any banking company in any Court of law in respect of any contravention or default in respect of which any penalty has been imposed by the Reserve Bank under this section.

(4) Any penalty imposed by the Reserve Bank under this section shall be payable within a period of fourteen days from the date on which notice issued by the Reserve Bank demanding payment of the sum is served on the banking company and in the event of failure of the banking company to pay the sum within such period, may be levied on a direction made by the principal Civil Court having jurisdiction in the area where the registered office of the banking company is situated; or, in the case of a banking company incorporated outside India, where its principal place of business in India is situated: Provided that no such direction shall be made except on an application made to the Court by the Reserve Bank or any officer authorised by that Bank in this behalf.

(5) The Court which makes a direction under sub-section (5) shall issue a certificate specifying the sum payable by the banking company and every such certificate shall be enforceable in the same manner as if it were a decree made by the Court in a civil suit.

(6) Where any complaint has been filed against any banking company in any Court in respect of the contravention or default of the nature referred to in sub-section (3) or, as the case may be, sub-section (4) of section 46, then, no proceedings for the imposition of any penalty on the banking company shall be taken under this section.]

While consolidating the above 02 (Two) Sections, Reserve Bank of India has taken punitive actions, against some banks for the non-adherence to the guidelines, in the form of imposing monetary penalties. The action is based on deficiencies in regulatory compliance and is not intended to pronounce upon the validity of any transactions or agreement entered into by the bank with its customers. Further, imposition of monetary penalty is without prejudice to any other action that may be initiated by RBI against the bank.

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