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B.A. LL.B. (Five Years) Sem 8 Banking Law 2013 Jun Question Paper with Solutions

KSLU Solved Question Papers

Banking Law

Previous Year Question Paper with Solution

B.A. LL.B. (Five Years) · Sem 8

2013 Jun Examination

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Mumbai

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First published on munotes.in on 21 October 2026.

Published by munotes.in, Mumbai.

Model answers written and edited by the munotes.in editorial desk.

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munotes.in is an independent study resource for students of Karnataka State Law University. It is not affiliated with Karnataka State Law University, and is not endorsed by it.

The University does not publish an official answer key for this paper. The answers in this volume are model answers, written to show how a full-mark answer is built. They are a study aid, not an authority on what an examiner marked.

The question paper reproduced here is the paper as set by Karnataka State Law University at the 2013 Jun examination.

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Contents

The questions below are the paper as Karnataka State Law University set it at the 2013 Jun examination, in the order it was set.

MarksPage

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MarksPage

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The Paper as Set

The questions in this volume are the questions asked at the 2013 Jun examination, reproduced as Karnataka State Law University set them, in the order it set them. Long reading passages are shortened to their first and last lines and our summary; the original paper prints them in full. Only the answers are ours. See the original question paper.

Duration 3 hours  ·  Total marks 100  ·  20 questions answered

Instructions printed on the paper

  • N.B. (1) Answer all 5 Questions. (2) Figures to the right indicate marks. (3) Answers should be written either in English or Kannada completely.

How to use this volume

Solve the paper first, under exam conditions and against the clock. Then read the answers here and mark your own. Reading a solution before attempting the question feels productive and teaches very little, because recognising an answer is not the same as being able to write one.

Read the original question paper

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Q1

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(a)Discuss the powers of Reserve Bank of India under the Banking Regulation Act 1949.[15]

Answer

For full marks, cover: why Parliament gave the Reserve Bank powers over banks in the Banking Regulation Act, 1949 rather than leaving them to company law; the powers in the order of the Act: licensing and branches (sections 22, 23); capital and shareholding (sections 12, 12B); business and lending (sections 21, 21A, 24, 25); returns, accounts, audit and inspection (sections 27, 29, 30, 35); directions (sections 35A, 35AA, 35AB); management (sections 35B, 36AA, 36AB, 36ACA); amalgamation, moratorium and reconstruction (sections 44A, 45); winding up (sections 38, 39); penalties (section 47A); co-operative banks (section 56); the courts on these powers (Joseph Kuruvilla Vellukunnel, Ganesh Bank of Kurundwad, Axis Trustee Services); a table.

Why the powers sit in the Banking Regulation Act

Before 1949, banks were governed mainly by company law, which protects shareholders, not depositors. Hundreds of banks failed in the 1940s. The Banking Regulation Act, 1949 therefore made the Reserve Bank the regulator of banks, with powers that reach from a bank's birth to its death. Each power is tied to a section, and each must be used within its section.

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1. Licensing and branches

  1. Licence (section 22). No company may carry on banking in India without a Reserve Bank licence. Before granting one, the Reserve Bank considers the applicant's capital, earning prospects, management and the public interest. It may cancel a licence if the bank stops banking, fails to comply with conditions, or acts against depositors' interests.
  2. Branches (section 23). A bank needs the Reserve Bank's permission to open a new place of business, or to change the location of one.

2. Capital and shareholding

  1. Voting rights (section 12(2)). No shareholder may vote more than ten per cent of the total votes. The Reserve Bank may raise this in phases to twenty-six per cent.
  2. Acquisitions (section 12B). Anyone acquiring five per cent or more of a bank's shares or voting rights needs the Reserve Bank's prior approval. It may set conditions and, if the acquirer is not fit and proper, refuse.

3. Business and lending

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  1. Lending policy (section 21). The Reserve Bank may decide policy on advances, generally or for a bank. It may fix the purposes of loans, margins on secured loans, limits per borrower and interest rates.
  2. Interest (section 21A). Courts may not reopen bank loans on the ground that interest is excessive. This protects the interest terms the Reserve Bank's framework permits.
  3. Liquidity (section 24). It fixes the statutory liquidity ratio, up to forty per cent of liabilities, now 18 per cent.
  4. Assets in India (section 25). Every bank must keep assets in India of at least seventy-five per cent of its liabilities in India.

4. Returns, accounts, audit and inspection

  1. Returns (section 27). Banks file monthly and other returns, and any information the Reserve Bank calls for.
  2. Accounts (section 29). Banks prepare accounts in the prescribed forms.
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  1. Audit (section 30). Auditors need the Reserve Bank's prior approval. It may order a special audit.
  2. Inspection (section 35). The Reserve Bank may inspect any bank and its books at any time, on its own or at the Central Government's direction. It may then report to the Government, which may prohibit the bank from taking fresh deposits or direct it to be wound up.

5. Directions

  1. General power (section 35A). It may issue directions to banks generally or to a particular bank. It does so in the public interest, in the interest of banking policy, to protect depositors or to secure proper management.
  2. Insolvency directions (section 35AA). Authorised by the Central Government, it may direct banks to start insolvency cases against specific defaulters.
  3. Stressed assets (section 35AB). It may issue directions on resolving stressed assets and appoint authorities to advise banks.

6. Management

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  1. Approval of top posts (section 35B). The appointment, reappointment, termination and pay of the chairman, managing director and whole-time directors need its approval.
  2. Removal (section 36AA). It may remove a chairman, director or officer whose conduct harms the bank or its depositors, after hearing him.
  3. Additional directors (section 36AB). It may appoint one or more additional directors to a bank's board, in the interest of banking policy, the public, the bank or its depositors.
  4. Supersession (section 36ACA). In consultation with the Central Government, it may supersede the whole board for up to twelve months in all. It then appoints an administrator.

7. Amalgamation, moratorium and reconstruction

  1. Voluntary amalgamation (section 44A). Two banking companies may merge only with the Reserve Bank's sanction.
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  1. Moratorium (section 45(1) and (2)). On the Reserve Bank's application, the Central Government may stay proceedings against a bank for up to six months.
  2. Scheme (section 45(4)). The Reserve Bank may prepare a scheme of reconstruction or amalgamation. It may do so in the public interest, in depositors' interest, for proper management or in the interest of the banking system. The Central Government sanctions it.

Speed in rescue. In Ganesh Bank of Kurundwad Ltd. v. Union of India, (2006) 10 SCC 645, a bank with about 1,75,000 depositors and a negative net worth was put under moratorium on 7 January 2006. Its amalgamation with the Federal Bank was sanctioned on 24 January. The bank alleged haste and bad faith. The Supreme Court rejected the charge. Once a moratorium is imposed, the Reserve Bank must move quickly to preserve depositors' confidence.

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A scheme's limits bind the administrator. In Axis Trustee Services Ltd. v. Union of India, decided by the Bombay High Court on 20 January 2023, Yes Bank had been reconstructed under section 45. A scheme came into force on 13 March 2020, without the bond write-off clause that the Reserve Bank had dropped from its draft. The next day the administrator wrote off Rs 8,415 crore of Additional Tier 1 bonds anyway. The High Court quashed the write-off. Neither the Reserve Bank nor the sanctioned scheme had authorised it.

8. Winding up

  1. Application (section 38). The Reserve Bank may apply to the High Court to wind up a bank. Examples are where the bank cannot pay its debts, has lost its licence, or is conducted against depositors' interests.
  2. Official liquidator (section 39). The Reserve Bank may ask that it, the State Bank or another bank be appointed official liquidator.
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The power upheld. In Joseph Kuruvilla Vellukunnel v. Reserve Bank of India, AIR 1962 SC 1371, inspections had found heavy irrecoverable advances at the Palai Central Bank. After a run in 1960, the Reserve Bank applied under section 38, and the Kerala High Court ordered winding up. A director argued that the section allowed the bank to be closed on the Reserve Bank's opinion alone. By three to two, the Supreme Court upheld the section. Banks form a class apart, and Parliament may trust an expert body with such decisions.

9. Penalties

The Reserve Bank may impose money penalties on banks for contraventions (section 47A), after notice and a hearing.

10. Co-operative banks

Section 56 applies most of these powers to co-operative banks, with changes. The 2020 amendment added powers over their boards, capital and reconstruction.

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How the powers work together

The powers are graded. Most of the time the Reserve Bank relies on returns, inspection and directions. If a bank's management is at fault, it removes officers or supersedes the board. Only when a bank cannot be saved does it move to a moratorium, a scheme or winding up. This ladder lets it act in proportion to the danger, which is also what the courts expect.

The powers at a glance

AreaSections
Licence and branches22, 23
Ownership12, 12B
Lending and liquidity21, 21A, 24, 25
Returns, audit, inspection27, 29, 30, 35
Directions35A, 35AA, 35AB
Management35B, 36AA, 36AB, 36ACA
Rescue44A, 45
Winding up38, 39
Penalties47A
Co-operative banks56
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Conclusion. Under the Banking Regulation Act, the Reserve Bank controls a bank's entry (sections 22, 23) and its ownership (sections 12, 12B). It shapes its lending and liquidity (sections 21, 24, 25), sees its books (sections 27 to 35) and directs it (sections 35A to 35AB). It also controls its management (sections 35B to 36ACA), rescues it (sections 44A, 45), winds it up (sections 38, 39) and penalises it (section 47A). The courts have upheld these powers (Joseph Kuruvilla, Ganesh Bank) but insist that each act stay within the authority given (Axis Trustee Services).

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