Is Bank a Company?


I received an interesting query on Quora earlier this month. Another day, another reader asked on WhatsApp why Registrar of Companies or Serious Fraud Investigation Office is not taking action against “PMC Bank Limited”. The reader was ignorant of the word “co-operative” in the name of scam-hit banks. Last year, one member/shareholder of the State Bank of India queried about compliance by the bank under the Companies Act, 2013.

This clearly indicates the ignorance about organisation structures of banks in India. It is a flexible structure and to me, it is very innovative too.

Indian Banks have various structures from cooperative to departmental undertaking of the government to just a small cooperative society. Additionally, there are non-banking finance companies, nidhi companies and other microfinance companies and even self-help groups doing somewhat banking operations in a limited manner.

Central Bank – a Statutory Corporation

First thing first: the Reserve Bank of India is a bank – more precisely a Central Bank the banker of the Sovereign of India. This is a statutory corporation. A statutory corporation is a business organisation established by an Act of Parliament or state legislature. Life Insurance Corporation of India and State Bank of India is also Statutory Corporation. The important feature of the Reserve Bank of India is its regulatory powers provided by the incorporating and governing statute.

Statutory Banking Corporation

State Bank of India is a statutory corporation like Reserve Bank of India, Life Insurance Corporation of India etc. It is predecessor Imperial Bank of India was incorporated under the Imperial Bank of India Act, 1920 (47 of 1920). Later the State Bank of India Act, 1955 established the State Bank of India. The Imperial Bank had its roots in the Bank of Culcutta founded on 2nd June 1806 and renamed as Bank of Bengal on 2nd January 1809. Presently its authorised capital is five hundred crores of fully paid-up shares of ten rupees each. Itis not governed by the Companies Act, 2013 or any earlier companies law unless any provision of the companies law is specifically adopted by its governing statute.

Corresponding New Banks

Another structure is Government of India Undertakings – technically called corresponding new banks. There are two sets of corresponding new banks in India One set of corresponding new bank are defined in sub-section (d) of section 2 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970). Another set of the corresponding new bank is defined in clause (b) of section 2 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980).

CORRESPONDING NEW BANK UNDER BANK NATIONALIZATION 1969

Sub-section (d) of section 2 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 defines corresponding new bank for the Bank Nationalization 1969. Accordingly “corresponding new bank”, in relation to an existing bank, means the body corporate specified against such bank in column 2 of the First Schedule of that Act.

These are:

EXISTING BANK ON 19th day of July, 1969 CORRESPONDING NEW BANK
The Central Bank of India Limited Central Bank of India
The Bank of India Limited Bank of India
The Punjab National Bank Limited Punjab National Bank
The Bank of Baroda Limited Bank of Baroda.
The United Commercial Bank Limited UCO Bank
Canara Bank Limited Canara Bank
United Bank of India Limited United Bank of India
Dena Bank Limited Dena Bank
Syndicate Bank Limited Syndicate Bank
The Union Bank of India Limited Union Bank of India
Allahabad Bank Limited Allahabad Bank
The Indian Bank Limited Indian Bank
The Bank of Maharashtra Limited Bank of Maharashtra
The Indian Overseas Bank Limited Indian Overseas Bank

CORRESPONDING NEW BANK UNDER BANK NATIONALIZATION 1980

Clause (b) of section 2 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 defines corresponding new bank for the Bank Nationalization 1980. Accordingly “corresponding new bank”, in relation to an existing bank, means the body corporate specified against such bank in column 2 of the First Schedule.

These are:

EXISTING BANK ON 15th April 1980 CORRESPONDING NEW BANK
The Corporation Bank Limited Corporation Bank
The New Bank of India Limited New Bank of India
The Oriental Bank of Commerce Limited Oriental Bank of Commerce
The Punjab and Sind Bank Limited Punjab and Sind Bank
Vijaya Bank Limited Vijaya Bank

Subsidiary Bank

Subsidiary Bank is defined in clause (k) of section 2 of the State Bank of India (Subsidiary Bank) Act, 1959 (38 of 1959). Accordingly, “subsidiary bank” means any new bank and includes the Hyderabad Bank. According to Section 2(f) of that Act, “new bank” means any of the banks constituted under section 3. Accordingly to Section 3 of that Act, there shall be constituted the following new banks, namely:―

  • the State Bank of Bikaner;
  • the State Bank of Mysore;
  • the State Bank of Patiala; and
  • the State Bank of Travancore;

Private Banks Surviving Nationalisation

This is an interesting but significant group of Private Banks. Jammu and Kashmir Bank Ltd and Karnataka Bank Limited fall in this group but both are significantly different legal status.

State-owned Private Bank

The Jammu and Kashmir Bank was founded on 1 October 1938 under letters patent issued by the Maharaja of Jammu and Kashmir. Later this bank becomes a state (not State) owned bank where a state government has controlling holding and it was and still is a government banker of the state. Organizationally, it still is a private bank and a company under the Companies Act.

Private Bank surviving Nationalisation

Karnataka Bank Limited may be an example. This was not so significant to be nationalised at the time of nationalisation and is a company under the Companies Act.

New Private Banking companies

These essentially are banking companies registered under the Companies Act. Axis Bank Limited or Kotak Mahindra Bank Limited are two examples. All Payments banks are also companies under the Companies Act.

Cooperative Banks

These are Cooperative societies either under the Multistate Cooperative Societies Act, central legislation or a bank under Cooperative Societies Acts of respective States.

Multi-State Cooperative Banks

These are Multi-State Cooperative Banks under the Multi-State Co-operative Societies Act. Ministry of Agriculture of Government of India is administrative ministry of this Act.

State Cooperative Banks

These Banks are cooperative Societies registered under state cooperative societies.

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Founder of a Company


The founder is not a legal term in relation to a company. General Public usually uses this term to refer to the original promoters of any company.

Interestingly, the definition of the term “promoter” also do not indicate directly to “founders” as the definition is drafted with the perspective of an existing company.

Now, I must subscribers to the Memorandum of Association (MoA), the founding or constituting documents of a company are first promoters. They satisfy two conditions of the definition of promoters also.

Subscribers of the MoA took initiatives to form a company and give a legal birth to it. Sometimes one of them actually leads and recognised by other subscribers as founder subscriber.

In short, the mind has a seed of the company in it may be called the founder of the company.

Notarised- Apostilled Documents


What docuemnts should I notarize or apostilled for the purpose of incorporation of a company in India? This is one common question asked by a person with citizenship or resident outside India.

Firstly, we should know, who needs notarized and apostilled documents. The reply depends upon the country where the person presently residing. This is not based on citizenship but the resident status on the day of requirement. We need not go through his ordinary residentship status for tax laws or foreign exchange laws. If British citizen ordinary resident in England is present somewhere in China today, he will notarise and apostilled documents there if the need arises today else he will wait till his return to England, Once he reached England, his signature and notarization will be enough.

Rule 13(5) of the Companies (Incorporation) Rules 2014 gives specific exemption for Indian citizens (resident anywhere in the world) and all person resident in India (irrespective of citizenship status).

For a resident of British Commonwealth countries, No documents required to be apostilled. In their case, notarised documents are enough.

For resident outside British Commonwealth and signatory countries of Hague convention, notarised and apostilled documents are required.

Rule 13(5) of the Companies (Incorporation) Rules 2014 cast the following requirement:

(a) where a subscriber to the memorandum is a foreign national residing outside India but in a country which is a part of (British) Commonwealth, his signature and address on the memorandum and articles of association and proof of identity shall be notarized by a notary public in the country of his residence.

(b) where a subscriber to the memorandum is a foreign national residing outside India (and  British Commonwealth) but in a country which is a party to the Hague Apostille Convention, 1961, his signatures and address on the memorandum and articles of association and proof of identity shall be notarized before the Notary (Public) of the country of his origin and be duly apostilled in accordance with the said Hague Convention.

(c) where a subscriber to the memorandum is a foreign national residing outside India and British Commonwealth and his country or residence is not party to the Hague Apostille Convention, 1961, his signatures and address on the memorandum and articles of association and proof of identity, shall be notarized before the Notary (Public) of such country and the certificate of the Notary (Public) shall be authenticated by a Diplomatic or Consular Officer empowered in this behalf under section 3 of the Diplomatic and Consular Officers (Oaths and Fees) Act, 1948 (40 of 1948) or, where there is no such officer by any of the officials mentioned in section 6 of the Commissioners of Oaths Act, 1889 (52 and 53 Vic.C.10), or in any Act amending the same.

(d) However, any foreign national visiting India on Business Visa, he will not required notary and apostilled documents as per clause (a), (b) and (c) above. Any person citizen of India, Overseas Citizen of India, Person of Indian Origin, or resident of Indian origin need not have any visa.

Recently a question posed before me that incorporation was denied because persons are here in India on employment visa and are directors of holding the company of the company to be incorporated but incorporation form was rejected. The simple representation that these people are in employment in India and more importantly presently are resident in India is enough. The business visa requirement is only for a foreign citizen who is not resident in India.

Following documents are to be notarized and apostilled:

  1. Copy of Passport – pages with name, address and issuing authority details;
  2. any one Address Proof – Telephone, Electricity or mobile Bill (bank statement is acceptable as proof but not advisable) pages where name and date of the bill are mentioned.
  3. a declaration called DIR-2 in case the person is going to be a director;
  4. a declaration of compliance in case the person is going to be a director; and
  5. Memorandum and articles of association signatory page.

A few documents may additionally be required if the proposed company is under a sector-specific regulator.

Recapitulation Cross-Border Insolvency


Guest Post Authour: Riya Gulati

Prologue

Cross-border insolvency modulates the treatment of financially distressed borrowers where such borrowers have creditors or assets in more than one nation. International insolvency chiefly accentuates on three modules: choice of law, jurisdiction and enforcement of dictum rules. Indeed, cross-border insolvency fetches with it a host of legal and ethical convolutions and ramifications. Nonetheless, in the matters pertaining to the international insolvency cases, the prime focus inclines on the recognition of foreign functionaries and their powers. The UNCITRAL Model Law on Cross-Border Insolvency and the EC Regulation on Insolvency Proceedings 2000 are the two fundamental contemporaneous regimes for the cross-border insolvencies that have been executed on something outspread than a territorial basis.

The Insolvency Law Committee (called ILC hereinafter) had recommended that India should embrace UNCITRAL Model Law of Cross Border Insolvency, 1997 for its international insolvency framework. The ILC discerned that the current provisions in the Insolvency and Bankruptcy Code, 2016 do not furnish comprehensive anatomy for international insolvency affairs. Hence, the ILC dogged to endeavour to proffer a comprehensive array for this purpose based on the UNCITRAL Model Law on Cross-Border Insolvency, 1997 that could be made a snippet of the IBC, 2016 by interposing a discrete segment for this purpose.

The adoption of the model law has proven to be the best international practice in dealing with cross border insolvency issues in the member states. The model law ensures that the supremacy is given to the national proceedings, greater credence generation amongst the foreign investors, protection of the public interest, a vigorous mechanism for international liaison and seamless unification with national insolvency law.

Benefits of espousing the UNCITRAL Model Law as recommended by the Committee:

  • Precedence to domestic insolvency proceedings: The UNCITRAL Model Law gives priority to the national proceedings in relation to foreign proceedings. The model legislation enables negation of acclamation of foreign provisions or proceedings of any other assistance if such activity contradicts the national public policy. Hence, it safeguards the domestic interest.
  • Pliability: The UNCITRAL Model Law has been delineated to be pliant and to regard the dissimilarities amongst domestic insolvency legislations. Hence, inevitable carve-outs may be made in connection to the Model Law to perpetuate equilibrium with national insolvency legislation whilst embracing ubiquitously accepted anatomy.
  • The mechanism for liaison: The model legislation assimilates a vigorous medium for coordination and cooperation between insolvency professionals and courts, in domestic and foreign jurisdictions. Thereby, it precipitates swift and constructive conduct of synchronous proceedings.
  • Inflating foreign investment: Although the foreign creditors have a remedy under the contemporary code, the espousal of the model legislation will provide added routes for the recognition of foreign insolvency proceedings and foster cooperation &communication between national and foreign courts and insolvency executives. The popularity of the UNCITRAL Model Law has scaled up in the current years and its espousal shall also entitle India to ally with the universal superlative applications in insolvency liquidation and resolution. Furthermore, there will be are markable affirmative signalling to international creditors, investors, multinational corporations, governments and international syndicates such as the World Bank with regards to the robustness of India’s economic sector reforms.

UNCITRAL Model Lawis based on the following principles of cross-border insolvency:

  • Access: The model legislation enables foreign creditor’s and foreign insolvency executives to have direct access to the national courts. It also confers on them the capacity to engage in and start off the national insolvency proceedings against a borrower. Albeit, with respect to foreign creditors direct admittance is envisioned under the Code currently. With regards to the access to Indian courts by the foreign insolvency officials, the ILC has commended that the Central Government be entitled to contrive a framework that is viable in the present Indian legal system.
  • Recognition: The UNCITRAL Model Law permits recognition of foreign lawsuits and provision of remedies by national courts based on such approbation. Relief can be granted if the foreign lawsuit is either a main or non-main proceeding. If the national courts ascertain that the borrower has its centre of main interests in the foreign country, then such a foreign insolvency lawsuit is regarded as the main proceeding. Whereas, if the national courts deduce that the borrower has an establishment (by exerting a test established on carrying on of non-transitory financial pursuit), then such a foreign insolvency lawsuit is contemplated as the non-main proceeding. Recognition as the main proceeding will upshoot in automatic relief, such as an embargo on the transfer of assets of the borrower and authorize the foreign representative substantial powers in administering the estate of the borrower. Whereas in the case of non-main proceedings, such relief depends on the volition of the national court.
  • Cooperation: The model legislation lays down the rudimentary anatomy for liaison between national and foreign insolvency executives and national and foreign courts. Provided that the framework of Adjudicating Authorities under the Code is still developing, the liaison between foreign courts and Adjudicating Authorities is propounded to be subject to recommendations to be apprised by the Central Government, and not intrinsically. Nevertheless, direct liaison between foreign insolvency executives and Adjudicating Authorities, national and foreign insolvency executives interse and between national insolvency executives and foreign courts have been perpetuated as is provided under the UNCITRALmodel legislation. Markedly, liaison may also be provided to foreign lawsuits that have not been recognised as either main or non-main.
  • Coordination: The UNCITRAL Model Law provides anatomy for the outset of national insolvency lawsuits when a foreign insolvency lawsuit has already begun or contrariwise. By invigorating liaison between the courts, it also provides coordination to two or more synchronous insolvency lawsuits in divergent nations.

Conclusion:

The desideratum for adopting the UNCITRAL Model Law of Cross Border Insolvency, 1997 framework under the Insolvency and Bankruptcy Code ensues from the fact that many Indian corporations have a global standing and many foreign business entities have their footmarks in multiple states in India. Even though the posited model legislation will permit the foreign nations to deal with Indian corporations having foreign assets and vice versa. Yet, it still does not proffer anatomy for dealing with enterprise groups- it is still work in progress with UNCITRAL and other international organizations. The incorporation of the Cross-Border Insolvency section in the IBC, 2016 will herald a cardinal step ahead and will bring our insolvency law on par with that of the foreign jurisdictions.

Riya Gulati
Paralegal at Law Offices of Caro Kinsella & Youth Ambassador for the ONE Campaign, Ireland.
LL.M (Intellectual Property & Information Technology) from University College Dublin & BA.LLB from Bharati Vidyapeeth Deemed University, Pune

COMPLIANCE BY INDEPENDENT DIRECTORS


In the last post PROFICIENT INDEPENDENT DIRECTORS, we discussed the introduction of “proficiency self – assessment test” by the Ministry of Corporate Affairs. The Companies (Appointment and Qualification of Directors) Fifth Amendment Rules, 2019 gives teeth to the Companies (Creation and Maintenance of database of Independent Directors) Rules, 2019. We, in this post, will discuss the Companies (Appointment and Qualification of Directors) Fifth Amendment Rules, 2019. More power is given by the Companies (Accounts) Amendment Rules, 2019.

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PROFICIENT INDEPENDENT DIRECTORS


What else may be the name of the youngest profession on the block of Corporate India? The new test is here to hit test-taking taste bud of Indian professionals. Rule 4(a) of the Companies (Creation and Maintenance of database of Independent Directors) Rules, 2019 introduces silently the “proficiency self – assessment test”. Ministry of Corporate Affairs by notification G.S.R. 805(E) dated 22nd October 2019 introduced these rules.

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FOLIO NUMBER


Folio number is one of the number a common shareholder of a company concerns. In this era of dematerialisation folio may not of much concern for a seasoned investor but it certainly have value for shareholders and entrepreneur having medium small and micro sector companies. Every shareholder found this number at his share certificate and read it distinctive numbers of shares. A folio number once allocated never changes until a person remains a shareholder in the company.

The folio number also puzzle young companies secretaries how to allocate a folio number to a shareholder. This post briefly touches the subject.

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