Section 10A of the Banking Regulation Act, 1949: Board of Directors to Include Persons with Professional or Other Experience
Section 10A regulates the composition of the Board of Directors of a banking company. Its central requirement is that at least 51 per cent of the Board must consist of persons having specified professional knowledge or practical experience, subject to statutory restrictions intended to reduce conflicts of interest.
- At least 51 per cent of the Board must satisfy the professional knowledge or practical experience requirement.
- The listed fields include accountancy, agriculture and rural economy, banking, co-operation, economics, finance, law and small-scale industry.
- At least two of the qualifying directors must have knowledge or experience in agriculture and rural economy, co-operation or small-scale industry.
- Specified commercial interests and connections are restricted for the qualifying directors.
- A non-chairman, non-whole-time director cannot continuously hold office for more than eight years under sub-section (2A).
- The Reserve Bank of India may require reconstitution of a non-compliant Board after giving the banking company a reasonable opportunity of being heard.
Meaning and purpose of Section 10A
Section 10A is a statutory board-composition provision in Part II of the Banking Regulation Act, 1949. It requires a banking company to maintain a Board with a prescribed level of professional expertise and imposes restrictions on the business interests of the directors who make up the statutory majority.
The expression banking company is used in the sense assigned by the Banking Regulation Act. For the Act's definitions, see Section 5 - Interpretation.
Section 10A operates with an overriding clause. It begins with the words "Notwithstanding anything contained in any other law for the time being in force", so the statutory board-composition requirements apply notwithstanding inconsistent provisions elsewhere, subject to the scheme of the Act.
Section 10A - Statutory text
10A. Board of directors to include persons with professional or other experience.
(1) Notwithstanding anything contained in any other law for the time being in force, every banking company,-
(a) in existence on the commencement of section 3 of the Banking Laws (Amendment) Act, 1968 (58 of 1968), or
(b) which comes into existence thereafter,
shall comply with the requirements of this section:
Provided that nothing contained in this sub-section shall apply to a banking company referred to in clause (a) for a period of three months from such commencement.
(2) Not less than fifty-one per cent. of the total number of members of the Board of directors of a banking company shall consist of persons, who-
(a) shall have special knowledge or practical experience in respect of one or more of the following matters, namely:-
(i) accountancy,
(ii) agriculture and rural economy,
(iii) banking,
(iv) co-operation,
(v) economics,
(vi) finance,
(vii) law,
(viii) small-scale industry,
(ix) any other matter the special knowledge of, and practical experience in, which would, in the opinion of the Reserve Bank, be useful to the banking company:
Provided that out of the aforesaid number of directors, not less than two shall be persons having special knowledge or practical experience in respect of agriculture and rural economy, co-operation or small-scale industry; and
(b) shall not-
(1) have substantial interest in, or be connected with, whether as employee, manager or managing agent,-
(i) any company, not being a company registered under section 25 of the Companies Act, 1956 (1 of 1956), or
(ii) any firm, which carries on any trade, commerce or industry and which, in either case, is not a small-scale industrial concern, or
(2) be proprietors of any trading, commercial or industrial concern, not being a small-scale industrial concern.
(2A) Notwithstanding anything to the contrary contained in the Companies Act, 1956 (1 of 1956), or in any other law for the time being in force,-
(i) no director of a banking company, other than its chairman or whole-time director, by whatever name called, shall hold office continuously for a period exceeding eight years;
(ii) a chairman or other whole-time director of a banking company who has been removed from office as such chairman, or whole-time director, as the case may be, under the provisions of this Act shall also cease to be a director of the banking company and shall also not be eligible to be appointed as a director of such banking company, whether by election or co-option or otherwise, for a period of four years from the date of his ceasing to be the chairman or whole-time director, as the case may be.
(3) If, in respect of any banking company, the requirements, as laid down in sub-section (2), are not fulfilled at any time, the Board of directors of such banking company shall re-constitute such Board so as to ensure that the said requirements are fulfilled.
(4) If, for the purpose of re-constituting the Board under sub-section (3), it is necessary to retire any director or directors, the Board may, by lots drawn in such manner as may be prescribed, decide which director or directors shall cease to hold office and such decision shall be binding on every director of the Board.
(5) Where the Reserve Bank is of opinion that the composition of the Board of directors of a banking company is such that it does not fulfil the requirements of sub-section (2), it may, after giving to such banking company a reasonable opportunity of being heard, by an order in writing, direct the banking company to so re-constitute its Board of directors as to ensure that the said requirements are fulfilled and, if within two months from the date of receipt of that order, the banking company does not comply with the directions made by the Reserve Bank, that Bank may, after determining, by lots drawn in such manner as may be prescribed, the person who ought to be removed from the membership of the Board of directors, remove such person from the office of the director of such banking company and with a view to complying with the provisions of sub-section (2), appoint a suitable person as a member of the Board of directors in the place of the person so removed whereupon the person so appointed shall be deemed to have been duly elected by the banking company as its director.
(6) Every appointment, removal or reconstitution duly made, and every election duly held, under this section shall be final and shall not be called into question in any court.
(7) Every director elected or, as the case may be, appointed under this section shall hold office until the date up to which his predecessor would have held office, if the election had not been held, or, as the case may be, the appointment had not been made.
(8) No act or proceeding of the Board of directors of a banking company shall be invalid by reason only of any defect in the composition thereof or on the ground that it is subsequently discovered that any of its members did not fulfil the requirements of this section.
Legislative notes: Section 10A was inserted by Act 58 of 1968, section 3, with effect from February 1, 1969. Sub-section (2A) was inserted by Act 1 of 1984, section 16, with effect from February 15, 1984.
Key legal requirements explained
1. Minimum 51 per cent professional representation
Sub-section (2) requires not less than 51 per cent of the total number of Board members to have special knowledge or practical experience in one or more of the fields listed in the section. The statutory list is broad and allows the Reserve Bank to recognise another field where, in its opinion, that knowledge and experience would be useful to the banking company.
2. Minimum two directors in specified sectors
Within the qualifying group, at least two directors must have special knowledge or practical experience in agriculture and rural economy, co-operation or small-scale industry. This is a separate minimum requirement within the 51 per cent composition rule.
3. Restrictions on conflicting commercial interests
Clause (b) of sub-section (2) restricts specified substantial interests, employment or managerial connections and proprietorship interests for the directors forming the statutory majority. The wording should be read with the definitions and other applicable provisions of the Banking Regulation Act and with current corporate law requirements.
4. Eight-year continuous tenure rule
Under sub-section (2A)(i), a director other than the chairman or a whole-time director cannot hold office continuously for more than eight years. Separate RBI directions may impose additional governance or tenure requirements for particular classes of banks.
5. Reconstitution and RBI intervention
If the requirements of sub-section (2) cease to be fulfilled, the Board must reconstitute itself. Under sub-section (5), the Reserve Bank may direct reconstitution after giving the banking company a reasonable opportunity of being heard and may take the further statutory steps specified in the section if the direction is not complied with within two months.
Related provisions
| Provision | Subject |
|---|---|
| Section 10 | Prohibition of employment of managing agents and restrictions on certain forms of employment. |
| Section 10B | Banking company to be managed by whole-time chairman. |
| Sections 10C and 10D | Qualification shares and overriding effect of specified management provisions. |
| Section 11 | Minimum paid-up capital and reserves. |
| Section 12 | Paid-up and subscribed capital and voting rights. |
Official sources
For authoritative verification and later amendments, consult the Banking Regulation Act, 1949 on India Code and the Reserve Bank of India. RBI governance directions and circulars may supplement the Act for specific categories of banks.