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RESERVE BANK OF INDIA ACT, 1934
1934
An Act to constitute a Reserve Bank of India WHEREAS it is expedient to constitute a Reserve Bank for India to regulate the issue of Bank notes and the keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage ; AND WHEREAS in the present disorganisation of the monetary systems of the world it is not possible to determine what will be suitable as a permanent basis for the Indian monetary system ; BUT WHEREAS it is expedient to make temporary provision on the basis of the existing monetary system, and to leave the question of the monetary standard best suited to India to be considered when the international monetary position has become sufficiently clear and stable to make it possible to frame permanent measures; It is hereby enacted as follows :-
SECTION 01: SHORT TITLE, EXTENT AND COMMENCEMENT
(1) This Act may be called the Reserve Bank of India Act, 1934.
(2) It extends to the whole of India.
(3) This section shall come into force at once, and the remaining provisions of this Act shall come into force on such date or dates as the Central Government may, by notification in the Gazette of India, appoint.
SECTION 02: DEFINITIONS
In this Act, unless there is anything repugnant in the subject or context,-
(a) to [***]
(ai)
(aii) "the Bank" means the Reserve Bank of India constituted by this Act ;
(aiii) "Bank for International Settlement" means by body corporate estab- lished with the said name under the law of Switzerland in pursuance of an agreement dated the 20th January, 1930, signed at the Hague;
(b) "the Central Board" means the Central Board of Directors of the Bank;
(bi) to [***]
(bv)
(bvi) "Deposit Insurance Corporation" means the Deposit Insurance Cor poration established undersection 3 of the Deposit Insurance Corporation Act, 1961 (47 of 1961)-;
(bvii) "Development Bank" means the Industrial Development Bank of India established under the Industrial Development Bank of India Act, 1964 (18 of 1964)-;
(bvia) [***]
(bviiia) "Exim Bank" means the Export-Import Bank of India establishe under theExport-Import Bank of India Act, 1981-;
( bix) "foreign currency" and "foreign exchange" have the meanings respec lively assigned to them in the Foreign Exchange Regulation Act, 1973 (46 of 1973)-;
(c) "Industrial Finance Corporation" means the Industrial Finance Corporation of India established under the Industrial Finance Corporation Act, 1948 (15 of 1948);
(ca) "International Development Association" means the "Association" referred to in the International Development Association (Status, Immunities and Privileges) Act, 1960 (32 of 1960)-;
(cb) "International Finance Corporation" means the "Corporation referred to in the International Finance Corporation (Status, Immunities and Privileges) Act, 1958 (42 of 1958)-;
(cc) "International Monetary Fund" and "International Bank for Reconstruction and Development" means respectively the "International Fund" and the "International Bank", referred to in the International Monetary Fund and Bank Act, 1945-;
(ccc) "National Bank" means the National Bank for Agriculture and Rural Development established under section 3 of the National Bank for Agriculture and Rural Development Act, 1981 (61 of 1981)-;
(cccc) "National Housing Bank" means the National Housing Bank established under section 3 of the National Housing Bank Act,
SECTION 03: ESTABLISHMENT AND INCORPORATION OF RESERVE BANK
(1) A bank to be called the Reserve Bank of India shall be constituted for the purposes of taking over the management of the currency from the Central Government and of carrying on the business of banking in accordance with the provisions of this Act.
(2) The Bank shall be a body corporate by the name of the Reserve Bank of India, having perpetual succession and a common seal, and shall by the said name sue and be sued.
SECTION 04: CAPITAL OF THE BANK
The capital of the Bank shall be five crores of rupees.
SECTION 05: INCREASE AND REDUCTION OF SHARE CAPITAL
[***]
SECTION 06: OFFICES, BRANCHES AND AGENCIES
The Bank shall as soon as may be, establish offices in Bombay, Calcutta, Delhi and Madras and may establish branches or agencies in any other place in India or, with the previous sanction of the Central Government elsewhere.
SECTION 07: MANAGEMENT
(1) The Central Government may from time to time give such directions to the Bank as it may, after consultation with the Governor of the Bank, consider necessary in the public interest.
(2) Subject to any such directions, the general superintendence and direction of the affairs and business of the Bank shall be entrusted to a Central Board of Directors which may exercise all powers and do all acts and things which may be exercised or done by the Bank.
(3) Save as otherwise provided in regulations made by the Central Board, the Governor and in his absence the Deputy Governor nominated by him in his behalf, shall also have powers of general superintendence and direction of the affairs and the business of the Bank, and may exercise all powers and do all acts and things which may be exercised or done by the Bank.
SECTION 08: COMPOSITION OF THE CENTRAL BOARD, AND TERM OF OFFICE OF DIRECTORS
(1) The Central Board shall consist of the following Directors, namely:-
(a) a Governor and not more than four Deputy Governors to be appoint- ed by the Central Government;
(b) four Directors to be nominated by the Central Government, one from each of the four Local Boards as constituted by section 9 -;
(c) ten Directors to be nominated by the Central Government ; and
(d) one Government official to be nominated by the Central Government.
(2) The Governor and Deputy Governors shall devote their whole time to the affairs of the Bank, and shall receive such salaries and allowances as may be determined by the Central Board, with the approval of the Central Government : Provided that the
Central Board may, if in its opinion it is necessary in the public interest so to do, permit the Governor or a Deputy Governor to undertake, at the request of the Central Government or any State Government, such part-time honorary work, whether related to the purposes of this Act or not, as is not likely to interfere with his duties as Governor or Deputy Governor, as the case may be: Provided further that the Central Government may, in consultation with the Bank, appoint a Deputy Governor as the Chairman of the National Bank, on such terms and conditions as that Government may specify.
(3) A Deputy Governor and the Director nominated under clause (d) of sub- section (1) may attend any meeting of the Central Board and take part in its deliberations but shall not be entitled to vote : Provided that when the Governor is, for any reason, unable to attend any such meeting, a Deputy Governor authorised by him in this behalf in writing may vote for him at that meeting.
(4) The Governor and a Deputy Governor shall hold office for such term not exceeding five years as the Central Government may fix when appointing them, and shall be eligible for re -appointment. A Director nominated under clause (c) of sub-section (1) shall hold office for a period of four years and thereafter until his successor shall have been nominated. A Director nominated under clause (d) of sub-section (1) shall hold office during the pleasure of the Central Government.
(5) No act or proceeding of the Board shall be questioned on the ground merely of the existence of any vacancy in, or any defect in the constitution of, the Board.
(6) [***]
(7) A retiring Director shall be eligible for re-nomination.
SECTION 09: LOCAL BOARDS, THEIR CONSTITUTION AND FUNCTIONS
(1) A Local Board shall be constituted for each of the four areas specified in the First Schedule and shall consist of five members to be appointed by the Central Government to represent, as far as possible, territorial and economic interests and the interests of cooperative and indigenous banks.
(2) The members of the Local Board shall elect from amongst themselves one person to be the Chairman of the Board.
(3) Every member of a Local Board shall hold office for a term of four years and thereafter until his successor shall have been appointed and shall be eligible for re-appointment.
(4) A Local Board shall advise the Central Board on such matters as may be generally or specifically referred to it and shall perform such duties as the Central Board may delegate to it.
SECTION 10: DISQUALIFICATIONS OF DIRECTORS AND MEMBERS OF LOCAL BOARDS
(1) No person may be a Director or a member of a Local Board who-
(a) is a salaried Government official, or
(b) is, or at any time has been, adjudicated an insolvent, or has suspended payment or has compounded with his creditors, or
(c) is found lunatic or becomes of unsound mind, or
(d) is an officer or employee of any bank, or
(e) is a Director of banking company within the meaning of clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949)-, or of a cooperative bank.
(2) No two persons who are partners of the same mercantile firm, or are Directors of the same private company, or one of whom is the general agent of or holds a power of procuration from the other, or from a mercantile firm of which the other is a partner, may be Directors or members of the same Local Board at the same time.
(3) Nothing in clause (a), clause (d) or clause (e) of sub-section (1) shall apply to the Governor, or to a Deputy Governor or to the Director nominated under clause (d) of sub-section (1) of section 8-.
SECTION 11: REMOVAL FROM AND VACATION OF OFFICE
(1) The Central Government may remove from office the Governor, or a Deputy Governor or any other Director or any member of Local Board.
(2) A Director nominated under clause (b) or clause (c) of sub-section (1) of section 8-shall cease to hold office if without leave from the Central Board he absents himself from three consecutive meetings of the Board convened under sub-section (1) of section 13-.
(3) The Central Government shall remove from office any Director, and the Central Board shall remove from office any member of a Local Board, if such Director or member becomes subject to any of the disqualifications specified in sub-section (1) or subsection (2) of section 10-.
(4) A Director or member of a Local Board removed or ceasing to hold office under the foregoing sub-sections shall not be eligible for re-appointment either as Director or as member of a Local Board until the expiry of the term for which his appointment was made.
(5) The nomination as Director or member of a Local Board of any person who is a member of Parliament or the Legislature of any State shall be void, unless within two months of the date of his nomination he ceases to be such member, and if any Director or member of a Local Board is elected or nominated as a member of Parliament or any such Legislature, he shall cease to be a Director or member of the Local Board as from the date of such election or nomination, as the case may be.
(6) A Director may resign his office to the Central Government, and a member of a Local Board may resign his office to the Central Board, and on the acceptance of the resignation the office shall become vacant.
SECTION 12: CASUAL VACANCIES AND ABSENCES
(1) If the Governor or a Deputy Governor by infirmity or otherwise is rendered incapable of executing his duties or is absent on leave or other- wise in circumstances not involving the vacation of his appointment, the Central Government may, after consideration of the recommendations made by the Central Board in this behalf, appoint another person to officiate for him, and such person may, notwithstanding anything contained in clause (d) of sub-section (1) of section 10-, be an officer of the Bank.
(2) [***]
(3) Where any casual vacancy in the office of any member of a Local Board occurs, the Central Board may nominate thereto any person recommended by the other members of the Local Board.
(4) Where any casual vacancy occurs in the office of a Director other than the vacancies provided for in sub-section (1), the vacancy shall be filled by the Central Government.
(5) A person nominated under this section to fill a casual vacancy shall hold office for the unexpired portion of the term of his predecessor.
SECTION 13: MEETINGS OF THE CENTRAL BOARD
(1) Meetings of the Central Board shall be convened by the Governor at least six times in each year and at least once in each quarter.
(2) Any four Directors may require the Governor to convene a meeting of the Central Board at any time and the Governor shall forthwith convene a meeting accordingly.
(3) The Governor, or if for any reason, he is unable to attend, the Deputy Governor authorised by the Governor under the proviso to sub-section (3) of section 8-to vote for him shall preside at meetings of the Central Board, and, in the event of an equality of votes, shall have a second or casting vote.
SECTION 14:-16 GENERAL MEETINGS
First constitution of the Central Board - First constitution of Local Boards
[***]
SECTION 17: BUSINESS WHICH THE BANK MAY TRANSACT
The Bank shall be authorised to carry on and transact the several kinds of business hereinafter specified, namely:-
(1) the accepting of money on deposit without interest from, and the collection of money for, the Central Government, the State Government, local authorities, banks and any other persons ;
(2)
(a) the purchase, sale and rediscount of bills of exchange and promissory notes, drawn on and payable in India and arising out of bona fide commercial or trade transactions bearing two or more good signatures, one of which shall be that of a scheduled bank or a State cooperative bank or any financial institution, which is predominantly engaged in the acceptance or discounting of bills of exchange and promissory notes and which is approved by the Bank in this behalf and maturing, -
(i) in the case of bills of exchange and promissory notes arising out of any such transaction relating to the export of goods from India, within one hundred and eighty days, and
(ii) in any other case, within ninety days, from the date of such purchase or rediscount exclusive of days of grace ;
(b) the purchase, sale and rediscount of bills of exchange and promissory notes, drawn and payable in India and bearing two or more good signatures, one of which shall be that of a schedule bank or a State co -operative bank or any financial institution, which is predominantly engaged in the acceptance or discounting of bills of exchange and promissory notes and which is approved by the Bank in this behalf and drawn or issued for the purpose of financing agricultural operations or the marketing of crops, and maturing within fifteen months from the date of such purchase or rediscount, exclusive of days of grace;
(bb) the purchase, sale and rediscount of bills of exchange and promissory notes drawn and payable in India and bearing two or more good signatures, one of which shall be that of a State co-operative bank or a State financial corporation or any financial institution, which is predominantly engaged in the acceptance or discounting of bills of exchange and promissory notes and which is approved by the Bank in this behalf, and drawn or issued for the purpose of financing the production or marketing activities of cottage and small scale industries approved by the Bank and maturing within twelve months from the date of such purchase or rediscount, exclusive of days of grace, provided that the payment of the principal and interest of such bills of exchange or promissory notes is fully guaranteed by the State Government ;
(c) the purchase, sale and rediscount of bills of exchange and promissory notes drawn and payable in India and bearing the signature of a schedule bank, and issued or drawn for the purpose of holding or trading in securities of the Central Government or a State Government and maturing within ninety days from the date of such purchase or rediscount, exclusive of days of grace;
(3)(a) the purchase from and sale to scheduled banks of foreign exchange ;
(b) the purchase, sale and rediscount of bills of exchange (including treasury bills) drawn in or on any place in any country outside India which is a member of the International Monetary Fund and maturing,-
(i) in the case of bills of exchange arising out of any bona fide transaction relating to the export of goods from India, within one hundred and eighty days, and (ii) in any other case, within ninety days, from the date of such purchase or rediscount : Provided that no such purchase, sale or rediscount shall be made in India except with a scheduled bank or a State co-operative bank ;
(3A) the making to any scheduled bank or State co -operative bank, of loans and advances, against promissory notes of such bank, repayable on demand or on the expiry of fixed periods not exceeding one hundred and eighty days : Provided that the borrowing bank furnishes a declaration in writing, to the effect that -
SECTION 18: POWER OF DIRECT DISCOUNT
When, in the opinion of the Bank a special occasion has arisen making it necessary or expedient that action should be taken under this section for the purpose of regulating credit in the interests of Indian trade, commerce, industry and agricultural, the Bank may, notwithstanding any limitation contained in section 17-,-
(1) purchase, sell or discount any bill of exchange or promissory note though such bill or promissory note is not eligible for purchase or discount by the Bank under that section ; or
(2) [* * *]
(3) make loans or advances to-
(a) a State co-operative bank, or
(b) on the recommendation of a State co-operative bank, to a co-operative society registered within the area in which the State cooperative bank operates, or
(c) any other person, repayable on demand or on the expiry of the fixed periods, not exceeding ninety days, on such terms and conditions as the Bank may consider to be sufficient.
SECTION 18A: VALIDITY OF LOAN OR ADVANCE NOT TO BE QUESTIONED
Notwithstanding anything to the contrary contained in any other law for the time being in force,-
(a) the validity of any loan or advance granted by the Bank in pursuance of the provisions of this Act shall not be called in question merely on the ground of non-compliance with the requirements of such other law as aforesaid or of any resolution, contract, memorandum, articles of association or other instrument : Provided that nothing in this clause shall render valid any loan or advance obtained by any company or co-operative society where such company or co-operative society is not empowered by its memorandum to obtain loans or advances;
(b) where a loan or advance has been granted under clause (3A)
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