Section 45L: Public Examination of Directors and Auditors under Banking Company Schemes
Section 45L deals with public examination and related consequences for promoters, directors and auditors of a banking company when a compromise, arrangement, reconstruction or amalgamation scheme is involved.
Meaning and purpose of Section 45L
Section 45L is part of the special provisions dealing with banking companies. Its object is to ensure that persons connected with the promotion, formation, management or audit of a banking company can be publicly examined, and that specified remedial provisions can operate, even where the banking company is proceeding under a compromise, arrangement, reconstruction or amalgamation scheme rather than an ordinary winding-up process.
For a reconstruction or amalgamation sanctioned by the Central Government under Section 45, sub-sections (3) and (4) contain additional powers concerning examination and restrictions on acting as a director or auditor.
Text of Section 45L of the Banking Regulation Act, 1949
45L. Public examination of directors and auditors, etc., in respect of a banking company under schemes of arrangement.
(1) Where an application for sanctioning a compromise or arrangement in respect of a banking company is made under section 391 of the Companies Act, 1956 (1 of 1956) or where such sanction has been given and the High Court is of opinion, whether on a report of the Reserve Bank or otherwise, that any person who has taken part in the promotion or formation of the banking company or has been a director or auditor of the banking company should be publicly examined, it may direct such examination of such person and the provisions of section 45G shall, as far as may be, apply to the banking company as they apply to a banking company which is being wound up.
(2) Where a compromise or arrangement is sanctioned under section 391 of the Companies Act, 1956 (1 of 1956) in respect of a banking company, the provisions of section 543 of the said Act and of section 45H of this Act shall, as far as may be, apply to the banking company as they apply to a banking company which is being wound up as if the order sanctioning the compromise or arrangement were an order for the winding up of the banking company.
(3) Where a scheme of reconstruction or amalgamation of a banking company has been sanctioned by the Central Government under section 45 and the Central Government is of opinion that any person who has taken part in the promotion or formation of the banking company or has been a director or auditor of the banking company should be publicly examined, that Government may apply to the High Court for the examination of such person and if on such examination the High Court finds (whether a fraud has been committed or not) that person is not fit to be a director of a company or to act as an auditor of a company or to be a partner of a firm acting as such auditors, the Central Government shall make an order that that person shall not, without the leave of the Central Government, be a director of, or in any way, whether directly or indirectly, be concerned or take part in the management of any company or, as the case may be, act as an auditor of, or be a partner of a firm acting as auditors of, any company for such period not exceeding five years as may be specified in the order.
(4) Where a scheme of reconstruction or amalgamation of a banking company has been sanctioned by the Central Government under section 45, the provisions of section 543 of the Companies Act, 1956 (1 of 1956), and of section 45H of this Act shall, as far as may be, apply to the banking company as they apply to a banking company which is being wound up as if the order sanctioning the scheme of reconstruction or amalgamation, as the case may be, were an order for the winding up of the banking company; and any reference in the said section 543 to the application of the official liquidator shall be construed as a reference to the application of the Central Government.
Legislative notes: Sub-sections (3) and (4) were inserted by Act 37 of 1960 with effect from 19 September 1960. The expression concerning a scheme of reconstruction or amalgamation was substituted by Act 7 of 1961 with effect from 24 March 1961. The references to sections 391 and 543 of the Companies Act, 1956 arose from substitutions made by Act 95 of 1956.
Current Companies Act context
The official text of Section 45L presently continues to contain express references to sections 391 and 543 of the Companies Act, 1956. The Companies Act, 2013 now contains the general statutory framework for compromises, arrangements and amalgamations, including section 230 and connected provisions, while section 340 deals with assessment of damages against delinquent directors and other specified persons in winding up.
Because Section 45L itself has not been textually rewritten in the official bare Act to substitute those legacy section numbers, the wording above is reproduced as enacted and currently published. For a live proceeding, the Banking Regulation Act, the Companies Act, 2013, applicable repeal and saving provisions, and relevant judicial or tribunal orders should be read together.
Practical legal effect of Section 45L
1. Public examination can extend beyond winding up
Sub-section (1) imports the public-examination mechanism of Section 45G into a banking-company compromise or arrangement situation where the statutory conditions are met.
2. Misfeasance and damages provisions may be applied
Sub-sections (2) and (4) apply the specified misfeasance and damages provisions, as far as may be, as though the relevant sanctioning order were a winding-up order. Section 45H remains an important related provision within the Banking Regulation Act.
3. Central Government role under Section 45 schemes
Where the Central Government has sanctioned a reconstruction or amalgamation under Section 45, it may seek public examination of a promoter, director or auditor. If the statutory finding described in sub-section (3) is made, the Central Government can impose a restriction for a period not exceeding five years, subject to the terms of that provision.
4. Relationship with RBI supervision
Section 45L expressly contemplates the Reserve Bank's report in the compromise or arrangement context. More broadly, the Banking Regulation Act, 1949 remains a core part of the legislative framework governing banks in India.
Related reading: Banking Regulation Act, 1949 overview, Section 45, Section 45G, Section 45H and Section 45N.