Section 36ACA: Supersession of Board of Directors in Certain Cases
Section 36ACA empowers the Reserve Bank of India (RBI), after consultation with the Central Government, to supersede the Board of Directors of a banking company when specified public-interest, depositor-protection, or proper-management conditions are satisfied.
- RBI must be satisfied that supersession is necessary on one or more statutory grounds.
- Reasons for supersession must be recorded in writing.
- The initial period cannot exceed six months.
- Extensions are permitted, but the total period cannot exceed twelve months.
- RBI may appoint an experienced Administrator in consultation with the Central Government.
- The Administrator exercises the Board's powers until a new Board is constituted.
What Section 36ACA means
The provision is a statutory governance and resolution mechanism for a banking company. It allows RBI to intervene at Board level where the affairs of the bank are being conducted, or may be conducted, in a manner that threatens the public interest, the interests of depositors or another banking company, or the proper management of the bank.
The power is not automatic. RBI is required to consult the Central Government, form the statutory satisfaction, record reasons in writing, and issue an order specifying the period of supersession.
Text of Section 36ACA
PART IIAB - SUPERSESSION OF BOARD OF DIRECTORS OF BANKING COMPANY
36ACA. Supersession of Board of Directors in certain cases.
(1) Where the Reserve Bank is satisfied, in consultation with the Central Government, that in the public interest or for preventing the affairs of any banking company being conducted in a manner detrimental to the interest of the depositors or any banking company or for securing the proper management of any banking company, it is necessary so to do, the Reserve Bank may, for reasons to be recorded in writing, by order, supersede the Board of Directors of such banking company for a period not exceeding six months as may be specified in the order:
Provided that the period of supersession of the Board of Directors may be extended from time to time, so, however, that the total period shall not exceed twelve months.
(2) The Reserve Bank may, on supersession of the Board of Directors of the banking company under sub-section (1) appoint in consultation with the Central Government for such period as it may determine, an Administrator (not being an officer of the Central Government or a State Government) who has experience in law, finance, banking, economics or accountancy.
(3) The Reserve Bank may issue such directions to the Administrator as it may deem appropriate and the Administrator shall be bound to follow such directions.
(4) Upon making the order of supersession of the Board of Directors of a banking company, notwithstanding anything contained in the Companies Act, 1956 (1 of 1956),-
(a) the chairman, managing director and other directors shall, as from the date of supersession, vacate their offices as such;
(b) all the powers, functions and duties which may, by or under the provisions of the Companies Act, 1956 (1 of 1956) or this Act, or any other law for the time being in force, be exercised and discharged by or on behalf of the Board of Directors of such banking company, or by a resolution passed in general meeting of such banking company, shall, until the Board of Directors of such banking company is reconstituted, be exercised and discharged by the Administrator appointed by the Reserve Bank under sub-section (2):
Provided that the power exercised by the Administrator shall be valid notwithstanding that such power is exercisable by a resolution passed in the general meeting of such banking company.
(5) The Reserve Bank may constitute, in consultation with the Central Government, a committee of three or more persons who have experience in law, finance, banking, economics or accountancy to assist the Administrator in the discharge of his duties.
(6) The committee shall meet at such times and places and observe such rules of procedure as may be specified by the Reserve Bank.
(7) The salary and allowances to the Administrator and the members of the committee constituted under sub-section (5) by the Reserve Bank shall be such as may be specified by the Reserve Bank and be payable by the concerned banking company.
(8) On and before the expiration of two months before the expiry of the period of supersession of the Board of Directors as specified in the order issued under sub-section (1), the Administrator of the banking company shall call the general meeting of the company to elect new directors and reconstitute its Board of Directors.
(9) Notwithstanding anything contained in any other law or in any contract, the memorandum or articles of association, no person shall be entitled to claim any compensation for the loss or termination of his office.
(10) The Administrator appointed under sub-section (2) shall vacate office immediately after the Board of Directors of such banking company has been reconstituted.
Legislative history: Part IIAB and Section 36ACA were inserted by the Banking Laws (Amendment) Act, 2012 (Act 4 of 2013), Section 10, with effect from January 18, 2013.
Grounds on which RBI may supersede the Board
Section 36ACA(1) identifies three broad statutory grounds. RBI may act when supersession is necessary in the public interest, to prevent the affairs of the banking company from being conducted in a manner detrimental to depositors or any banking company, or to secure proper management of the banking company.
Effect of a supersession order
From the date of supersession, the chairman, managing director and other directors vacate office. Until a new Board is reconstituted, the Administrator appointed by RBI performs the powers, functions and duties that would otherwise be exercised by or on behalf of the Board, including powers that may ordinarily require a general meeting resolution.
Administrator and advisory committee
The Administrator must not be an officer of the Central Government or a State Government and must have experience in law, finance, banking, economics or accountancy. RBI may issue binding directions to the Administrator and may also constitute a committee of three or more suitably experienced persons to assist in the discharge of the Administrator's duties.
Reconstitution of the Board
Before the supersession period expires, the Administrator must arrange for a general meeting to elect new directors and reconstitute the Board. Once the Board is reconstituted, the Administrator vacates office immediately.
Relationship with other RBI supervisory powers
Section 36ACA is one of several governance and corrective powers available under the Banking Regulation Act, 1949. Related provisions include Section 36AA on removal of managerial and other persons and Section 36AB on appointment of additional directors. RBI's supervisory framework also recognizes Board supersession as a possible governance-related corrective action.
Official references
For the current statutory text, refer to the official India Code copy of the Banking Regulation Act, 1949. For RBI's current supervisory and resolution framework, refer to the RBI Handbook on Regulations at a Glance.
This article is intended as a general legal reference. For an actual regulatory, governance, litigation or compliance matter, the latest statutory text, RBI directions, notifications and case-specific facts should be examined.