Reserve Bank of India Act, 1934 – Part-VI – Section 45K to 45QB

The Reserve Bank of India Act, 1934 provides the statutory basis of the functioning of the Reserve Bank of India (RBI). In a series of articles, we will briefly go through the provisions of RBI Act, 1934. This is the sixth article in the series.

Section 45K – Power of Bank to collect information from non-banking institutions as to deposits and to give directions

• RBI may direct non-banking institution, to furnish to RBI, statements of deposits received by the non-banking institution.
• The statements furnished by non-banking institution may relate to the amount of the deposits, the purposes and periods for which, and the rates of interest and other terms and conditions on which, they are received.
• RBI may give directions to non-banking institutions in respect of the receipt of deposits, the rate of interest payable on such deposits and the periods for which deposits may be received.
• If any non-banking institution fails to comply with the directions, RBI may prohibit the acceptance of deposits by that non-banking institution.
• If so required by RBI, every non-banking institution receiving deposits shall send (at the cost of non-banking institution) a copy of its annual balance sheet and profit and loss account or other annual accounts to every person from whom the non-banking institution holds (as on last day of the year to which accounts relate) deposits higher than the sum specified by RBI.

Section 45L – Power of Bank to call for information from financial institutions and to give directions

• RBI may –
• Require financial institutions, to furnish to RBI, statements relating to the business of financial institution.
• Give directions to financial institution relating to the conduct of business by them.
• The statements furnished by financial institution may relate to the paid-up capital, reserves or other liabilities, investments, advances (purpose, borrower, period, rate of interest), etc.

Section 45M – Duty of non-banking institutions to furnish statements, etc., required by Bank

It shall be the duty of every non-banking institution to furnish the statements called for and to comply with any direction given to it under the provisions of Chapter IIIB.

Section 45MA – Powers and duties of auditors

• Auditor of a non-banking institution shall inquire whether the non-banking institution has furnished to RBI statements relating to deposits received by it. If the auditor is not satisfied on such inquiry, he shall report to RBI aggregate amount of such deposits held by the non-banking institution.
• RBI may issue directions to any NBFCs / its auditors relating to balance-sheet, profit and loss account, disclosure of liabilities in the books of account, etc.
• The auditor shall include the contents of his report to RBI, in his report under Section 227(2) of the Companies Act, 1956.
• RBI may conduct a special audit of the accounts of the NBFC. The remuneration of the auditors may be fixed by RBI and the expenses of the audit shall be borne by the NBFC so audited.

Section 45MAA – Power to take action against auditors

Where any auditor fails to comply with any direction / order made by RBI under Section 45MA, RBI may remove / debar the auditor from exercising the duties as auditor of any of the RBI regulated entities for up to 3 years at a time.

Section 45MB – Power of Bank to prohibit acceptance of deposit and alienation of assets

• If any NBFC violates the provision of any section or fails to comply with any direction / order given by RBI, RBI may prohibit the NBFC from accepting any deposit.
• RBI may direct the NBFC against which an order prohibiting from accepting deposit has been issued, not to sell / transfer / create charge / mortgage its property and assets without prior written permission of RBI for up to 6 months from the date of the order (prohibiting acceptance of deposits).

Section 45MBA – Resolution of non-banking financial company

• If satisfied upon an inspection of an NBFC, RBI may frame schemes for –
• amalgamation with other non-banking institution.
• reconstruction of the NBFC.
• splitting the NBFC into different units / institutions and vesting viable and non-viable businesses in separate units / institutions and establish institutions called “Bridge Institutions”.
• “Bridge Institutions” mean temporary institutional arrangement made under the scheme referred above, to preserve the continuity of the activities of an NBFC that are critical to the functioning of the financial system.
• The scheme may provide for –
• reduction of the pay and allowances of the chief executive officer, managing director, chairman or any officer in the senior management of the NBFC.
• cancellation of all / some of the shares of the NBFC held by the chief executive officer, managing director, chairman or any officer in the senior management of the NBFC or their relatives.
• sale of any of the assets of the NBFC.
• The chief executive officer, managing director, chairman or any officer in the senior management of the NBFC whose pay and allowances are reduced or the shareholders whose shares are cancelled, shall not be entitled to any compensation.

Section 45MC – Power of Bank to file winding up petition

• When necessary, RBI may apply for winding up of NBFC.
• An NBFC shall be deemed to be unable to pay its debt if it has refused or has failed to meet any lawful demand within 5 working days and RBI certifies that such NBFC is unable to pay its debt.
• A copy of every application made by RBI shall be sent to the Registrar of Companies.
• All the provisions of the Companies Act, 1956 relating to winding up of a company shall apply to winding up initiated on the application by RBI.

Section 45N – Inspection

• RBI may inspect any non-banking institution, including a financial institution, for verifying the information furnished to RBI, or for obtaining any information not furnished when called for, or if RBI considers it necessary to inspect that institution.
• NBFC shall produce the necessary information during the inspection.

Section 45NA – Deposits not to be solicited by unauthorised person

A person shall not solicit on behalf of any non-banking institution, by publishing any prospectus / advertisement, deposits from the public unless –

• he has been authorised by the said non-banking institution to do so.
• the prospectus / advertisement complies with any order made by RBI under Section 45J and other applicable laws.

45NAA – Power in respect of group companies

• RBI may direct an NBFC to annex to its financial statements or furnish separately, the statements and information relating to the business / affairs of any group company of the NBFC.
• RBI may cause an inspection / audit of any group company of an NBFC.
• Group company shall mean an arrangement involving two / more entities related to each other through any of the following relationships –

1. subsidiary-parent 
2. joint venture
3. associate
4. promoter-promotee
5. related party
6. common brand name
7. investment in equity shares of 20% and above in the entity

Section 45NB – Disclosure of information

• Any information relating to an NBFC given in any statement / return submitted by the NBFC or obtained through audit / inspection / otherwise by RBI, shall be treated as confidential.
• If necessary, RBI may publish any information collected by it in a consolidated form without disclosing the name of any NBFC / its borrowers.
• If necessary, RBI may on its own motion or on being requested, furnish any information relating to the conduct of business by any NBFC to any authority under any law.
• Any court / tribunal / other authority shall not compel RBI to produce any information obtained by RBI under any provisions of Chapter IIIB.

Section 45NC – Power of Bank to exempt

RBI may exempt any non-banking institutions or non-banking financial companies, from the provisions of Chapter IIIB.

Section 45Q – Chapter IIIB to override other laws

The provisions of Chapter IIIB shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.

Section 45QA – Power of Company Law Board to offer repayment of deposit

• Every deposit accepted by an NBFC, unless renewed, shall be repaid.
• Where an NBFC has failed to repay, the Company Law Board may, on its own motion or on an application of the depositor, direct the NBFC to make repayment of such deposit.

Section 45QB – Nomination by depositors

• The depositor / depositors may nominate one person to whom in the event of the death of the sole depositor or the death of all the depositors, the amount of deposit may be returned by the non-banking financial institution.
• Where the nominee is a minor, the depositor shall appoint any person to receive the amount of deposit in the event of his death during the minority of the nominee.

References

Reserve Bank of India. (2022, August 29). 'The Reserve Bank of India Act, 1934'. Retrieved from https://rbi.org.in/Scripts/OccasionalPublications.aspx?head=Reserve%20Bank%20of%20India%20Act

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