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B.A. LL.B. (Five Years) Sem 8 Banking Law 2022 Apr Question Paper with Solutions

KSLU Solved Question Papers

Banking Law

Previous Year Question Paper with Solution

B.A. LL.B. (Five Years) · Sem 8

2022 Apr 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.

Passages from this volume may be quoted, in print, online or by an AI system, with credit: name munotes.in and link to this volume's page. The volume may not be reproduced as a whole. Full terms at munotes.in/content-license.

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 2022 Apr examination.

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Contents

The questions below are the paper as Karnataka State Law University set it at the 2022 Apr 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 2022 Apr 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  ·  13 questions answered

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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Q1Explain the main features of Banking Regulation Act, 1949.[16]

Answer

For full marks, cover: why the Act was passed (the bank failures of the 1940s) and its scheme of Parts; the main features with their sections, grouped as entry, business, ownership and capital, management, safety of funds, supervision, rescue and exit, depositor protection and enforcement; the constitutional basis of control (Joseph Kuruvilla Vellukunnel v. Reserve Bank of India); rescue at speed (Ganesh Bank of Kurundwad); bank officers as public servants (Central Bureau of Investigation v. Ramesh Gelli); co-operative banks (Pandurang Ganpati Chaugule); nominees (Ram Chander Talwar); the 2020 and 2025 amendments; an assessment.

Why the Act was needed

In the years after independence banks failed in large numbers. The Supreme Court later recorded 123 failures between 1947 and 1949, with outside liabilities of about Rs 82 crore. The Companies Act, which then governed banks, could not stop this. Parliament therefore passed the Banking Companies Act, 1949, in force from 16 March 1949. An Act of 1965 renamed it the Banking Regulation Act, with effect from 1 March 1966. It is the main law on how a bank is formed, run, supervised and closed.

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Its scheme

The Act is arranged in Parts. Part I has the definitions, and Part II deals with the business of banking companies. Part IIA gives control over management, Part IIB prohibits certain activities, and Part IIC allows acquisition of a bank's undertaking. Part III covers suspension and winding up, and Part IIIA speedy winding up. Part IIIB covers nomination and lockers, Part IV miscellaneous matters, and Part V co-operative banks.

Feature 1: a closed door to banking

  1. Definition. "Banking" is accepting public deposits for lending or investment, repayable on demand or otherwise and withdrawable by cheque, draft or order (section 5(b)). A "banking company" is a company that transacts banking (section 5(c)).
  2. Licence. No company may carry on banking business in India without a Reserve Bank licence (section 22).
  3. Name. Only a banking company may use "bank", "banker" or "banking" in its name (section 7).
  4. Cheque deposits. No one else may take public deposits withdrawable by cheque (section 49A), except a Government savings bank scheme.
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Feature 2: a fenced field of business

A bank may carry on only the business listed in section 6(1), and nothing else (section 6(2)). It may not trade in goods (section 8). It must sell any immovable property it does not need for its own use within seven years (section 9). Its subsidiaries are limited to permitted purposes (section 19).

Feature 3: ownership and capital

  1. Minimum capital and reserves (section 11), and a capital made of equity and preference shares only (section 12(1)).
  2. Voting ceiling. No shareholder may vote more than ten per cent of total voting rights. The Reserve Bank may raise the ceiling in phases to twenty-six per cent (section 12(2)).
  3. Approval for large stakes. Anyone acquiring five per cent or more of a bank's shares or votes needs the Reserve Bank's prior approval (section 12B).
  4. Reserve fund. At least twenty per cent of each year's profit goes to reserve before any dividend (section 17).

Feature 4: management by fit persons

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  1. Professional board. At least fifty-one per cent of directors must have special knowledge of accountancy, agriculture, banking, economics, finance, law or small industry (section 10A).
  2. No managing agents, and no staff paid by commission or profit share (section 10).
  3. Approval of top posts. The chairman, managing director and whole-time directors need Reserve Bank approval (section 35B).
  4. Removal and supersession. The Reserve Bank may remove a manager or director (section 36AA). It may also supersede the whole board for up to twelve months in all and appoint an administrator (section 36ACA).

Feature 5: safety of depositors' money

  1. Liquidity. A bank keeps liquid assets, the statutory liquidity ratio, of up to forty per cent of its demand and time liabilities (section 24). It also keeps a cash reserve with the Reserve Bank (section 18, or section 42 of the Reserve Bank of India Act).
  2. Assets in India. At least seventy-five per cent of its liabilities in India must be matched by assets in India (section 25).
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  1. Lending controls. No loans to its own directors or their firms (section 20). The Reserve Bank fixes lending policy (section 21).
  2. No reopening of interest. A court cannot reopen a bank loan on the ground that the interest is excessive (section 21A).

Feature 6: supervision

  1. Accounts, audit and returns (sections 27, 29 and 30), with auditors approved by the Reserve Bank.
  2. Inspection of any bank at any time (section 35).
  3. Directions binding on banks in the public interest or in the interest of depositors (section 35A).
  4. Insolvency cases. With Central Government authority, the Reserve Bank may direct banks to start insolvency cases against specific defaulters (section 35AA).

Feature 7: rescue and exit

Moratorium and scheme. On the Reserve Bank's application, the Central Government may stay all proceedings against a bank for up to six months. During that time, the Reserve Bank may prepare a scheme of reconstruction or amalgamation (section 45).

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In Ganesh Bank of Kurundwad Ltd. v. Union of India, (2006) 10 SCC 645, a bank with 32 branches and about 1,75,000 depositors had a negative net worth. A moratorium was imposed on 7 January 2006, and the Federal Bank offered to pay every depositor in full. The amalgamation was sanctioned on 24 January 2006. The Supreme Court rejected the charge of haste. It said speed was a duty, because depositors' confidence had to be saved.

Winding up. On the Reserve Bank's application, the High Court must wind up a bank in the cases listed in section 38. In Joseph Kuruvilla Vellukunnel v. Reserve Bank of India, AIR 1962 SC 1371, the Palai Central Bank in Kerala had large bad loans. After a run in June 1960, the Reserve Bank applied for its winding up, which was ordered in December 1960. A director said section 38 was unconstitutional because it acted on the Reserve Bank's opinion alone. By a majority of three to two, the Supreme Court upheld it. Banks hold the public's money and form a class apart, and an expert body may be trusted with the decision.

Feature 8: depositor protection

  1. Unclaimed money. An account not operated for ten years moves to the Depositor Education and Awareness Fund. The depositor can still claim it later (section 26A).
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  1. Nomination. Since 1 November 2025, up to four nominees may be named for a deposit, successively or together (sections 45ZA to 45ZG).

A nominee is not an heir. In Ram Chander Talwar v. Devender Kumar Talwar, (2010) 10 SCC 671, a son who was nominee on his mother's account claimed all the money against his brother. The Supreme Court held that section 45ZA only lets the nominee receive the money and give the bank a discharge. The money still passes to the heirs under the law of succession.

Feature 9: enforcement

  1. Offences and penalties. Section 46 creates offences, and section 47A lets the Reserve Bank impose money penalties.
  2. Public servants. Section 46A treats a bank's chairman, directors, auditors and employees as public servants for the anti-corruption law.
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In Central Bureau of Investigation v. Ramesh Gelli, decided on 23 February 2016, the chairman and an executive director of Global Trust Bank, a private bank, were charged with corruption over loans. The lower courts held they were not public servants. The Supreme Court allowed the CBI's appeals. Section 46A deems such officers public servants, and the failure to update its reference to the 1988 Act could not defeat its purpose.

Feature 10: reach beyond companies

Section 51 applies most of the Act to the State Bank of India, the nationalised banks and the regional rural banks. Section 56 applies it, with changes, to co-operative banks. The 2020 amendment tightened that control, from 29 June 2020 for urban co-operative banks.

In Pandurang Ganpati Chaugule v. Vishwasrao Patil Murgud Sahakari Bank Ltd., (2020) 9 SCC 215, borrowers of co-operative banks said these banks were not "banks" and could not use SARFAESI recovery. A Constitution Bench held that co-operative banks doing banking are governed by Parliament's banking power. They are banking companies under section 5(c) read with section 56, and banks for SARFAESI.

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Recent amendments

The Banking Laws (Amendment) Act, 2025 came into force in three stages. From 1 August 2025, "substantial interest" became Rs 2 crore and co-operative bank directors may serve ten years. From 1 November 2025, up to four nominees may be named. From 15 December 2025, cash reserve reporting moved to fortnights.

An assessment

The Act has kept Indian depositors largely safe since 1949, and failures like those of the 1940s have not returned. Its weakness has been dual control of co-operative banks, which let failures such as Punjab and Maharashtra Co-operative Bank in 2019 happen. The 2020 amendment was the answer. A second criticism is that the Reserve Bank's powers are very wide. The courts accept this because, as Joseph Kuruvilla held, depositors need an expert guardian.

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Conclusion. The Banking Regulation Act closes the door to banking without a licence and fences what a bank may do. It controls ownership, capital and management, and protects depositors' money through liquidity, asset and lending rules. It gives the Reserve Bank inspection, directions, rescue and winding up, upheld in Joseph Kuruvilla and Ganesh Bank. It treats bank officers as public servants (Ramesh Gelli), reaches co-operative banks (Pandurang) and keeps nomination distinct from succession (Ram Chander Talwar). The 2025 amendments show it is still being updated.

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