Section 20A of the Banking Regulation Act, 1949: Restrictions on Power to Remit Debts
Section 20A of the Banking Regulation Act, 1949 places a statutory restriction on a banking company remitting, in whole or in part, certain debts connected with its directors. In the cases specified by the section, prior approval of the Reserve Bank of India is required. A remission made in violation of the section is void and has no legal effect.
Text of Section 20A
20A. Restrictions on power to remit debts.
(1) Notwithstanding anything to the contrary contained in section 293 of the Companies Act, 1956 (1 of 1956), a banking company shall not, except with the prior approval of the Reserve Bank, remit in whole or in part any debt due to it by-
(a) any of its directors, or
(b) any firm or company in which any of its directors is interested as director, partner, managing agent or guarantor, or
(c) any individual if any of its directors is his partner or guarantor.
(2) Any remission made in contravention of the provisions of sub-section (1) shall be void and of no effect.
Legislative history: Section 20A was inserted by the Banking Laws (Miscellaneous Provisions) Act, 1963 (Act 55 of 1963), section 12, with effect from 1 February 1964.
What Section 20A Means
The provision is designed to prevent a banking company from using its power to waive or reduce recoverable debts in a manner that benefits directors or persons and entities closely connected with directors without regulatory scrutiny.
1. Prior RBI approval is mandatory
If a debt falls within any of the categories listed in sub-section (1), the banking company must obtain the prior approval of the Reserve Bank of India before remitting the debt, whether wholly or partly.
2. The restriction covers director-connected debts
The restriction applies to debts due from:
- a director of the banking company;
- a firm or company in which a director has the relationship specified in clause (b), including as director, partner, managing agent or guarantor; and
- an individual where a director of the banking company is that individual's partner or guarantor.
3. An unauthorised remission is void
Sub-section (2) expressly provides that a remission made contrary to sub-section (1) is void and of no effect. This makes the statutory consequence direct: the prohibited remission cannot be treated as legally effective merely because the bank purported to grant it.
Legacy Companies Act Reference
The enacted text of Section 20A continues to contain a reference to section 293 of the Companies Act, 1956. The Companies Act, 1956 has since been repealed and the Companies Act, 2013 is now the principal companies legislation. Section 180 of the Companies Act, 2013 deals with restrictions on the powers of the Board in areas corresponding broadly to the former section 293 framework.
For accuracy, the statutory text above has not been silently rewritten. Users should read the Banking Regulation Act together with the currently applicable companies law and RBI directions.
Application to Co-operative Banks
The Banking Regulation Act applies to co-operative societies with statutory modifications. In the co-operative bank context, the current RBI framework states that Section 20A applies to debts due from past or present directors, as well as the director-connected firms, companies and individuals described in the provision. RBI approval is required before such debts are remitted.
Section 20 and Section 20A: Difference
Section 20 of the Banking Regulation Act primarily restricts specified loans and advances involving directors and connected interests. Section 20A addresses a different stage: the remission or waiver of debts already due to the banking company. Both provisions are intended to control conflicts of interest and protect banking discipline.
Official Sources and Further Reading
For the latest statutory text and regulatory directions, refer to the official sources below:
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