Reserve Bank of India Act, 1934 | Chapter IIIB

Section 45-IE: Supersession of Board of Directors of an NBFC

Section 45-IE of the Reserve Bank of India Act, 1934 empowers the Reserve Bank of India (RBI), in specified circumstances, to supersede the board of directors of a non-banking financial company (NBFC) other than a Government company. The provision sets out the grounds, maximum duration, appointment and powers of an Administrator, reconstitution of the board, and the consequences for directors.

Meaning of supersession under Section 45-IE

Supersession means that the existing board of directors is displaced by a written RBI order and its powers are exercised by an RBI-appointed Administrator until the board is reconstituted. This is a supervisory intervention concerning the management of an NBFC; it does not, by itself, mean that the company is wound up or that all its business ceases.

A non-banking financial company is governed by the definition in Section 45-I and the applicable RBI framework. Section 45-IE expressly excludes a Government company from this supersession power. The expression Government company is generally defined in Section 2(45) of the Companies Act, 2013.

Grounds for RBI intervention - subsection (1)

The RBI must be satisfied that supersession is necessary in the public interest, to prevent management detrimental to the interests of depositors, creditors or the NBFC, to secure proper management, or for financial stability. The RBI must record its reasons in writing and issue an order specifying the period. The aggregate duration, including extensions, cannot exceed five years.

Administrator and advisory committee - subsections (2), (3), (5) and (6)

Following supersession, the RBI may appoint a suitable person as Administrator for the period it determines and issue binding directions. It may also constitute a committee of at least three members experienced in law, finance, banking, administration or accountancy to assist the Administrator. The RBI determines the committee's procedures and the remuneration of the Administrator and committee members; the concerned NBFC pays that remuneration.

Effect of supersession and restoration - subsections (4), (7), (8) and (9)

Vacating office: The chairman, managing director and other directors vacate their offices on the date of supersession.
Transfer of authority: The Administrator exercises the relevant board and general-meeting powers specified by subsection (4) until reconstitution.
Reconstitution: On or before expiry of the supersession period, the Administrator must facilitate reconstitution of the board and vacates office immediately after reconstitution.
Compensation: Section 45-IE(8) excludes compensation claims for loss or termination of office notwithstanding other law or contract.

Section 45-IE concerns supersession of the whole board. The separate power to remove an individual director is provided in Section 45-ID.

Section 45-IE - statutory provisions

The following text retains the operative provisions supplied in the original webpage, arranged subsection by subsection.

(1) Where the Bank is satisfied that in the public interest or to prevent the affairs of a non-banking financial company being conducted in a manner detrimental to the interest of the depositors or creditors, or of the non-banking financial company (other than Government Company), or for securing the proper management of such company or for financial stability, it is necessary so to do, the Bank may, for reasons to be recorded in writing, by order, supersede the Board of Directors of such company for a period not exceeding five years as may be specified in the order, which may be extended from time to time, so, however, that the total period shall not exceed five years.

(2) The Bank may, on supersession of the Board of Directors of the non-banking financial company under sub-section (1), appoint a suitable person as the Administrator for such period as it may determine.

(3) The 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 nonbanking financial company,-

(a) the chairman, managing director and other directors shall from the date of supersession of the Board of Directors vacate their offices;

(b) all the powers, functions and duties, which may, by or under the provisions of 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 non-banking financial company or by a resolution passed in general meeting of such non-banking financial company, shall, until the Board of Directors of such company is reconstituted, be exercised and discharged by the Administrator referred to in sub-section (2).

(5) (a) The Bank may constitute a committee consisting of three or more members who have experience in law, finance, banking, administration or accountancy to assist the Administrator in discharge of his duties.

(b) The committee shall meet at such times and places and observe such rules of procedure as may be specified by the Bank.

(6) The salary and allowances payable to the Administrator and the members of the committee constituted by the Bank shall be such as may be specified by the Bank and be paid by the concerned non-banking financial company.

(7) On or before the expiration of the period of supersession of the Board of Directors as specified in the order issued under sub-section (1), the Administrator of the non-banking financial company shall facilitate reconstitution of the Board of Directors of the non-banking financial company.

(8) Notwithstanding anything contained in any other law for the time being in force or in any contract, no person shall be entitled to claim any compensation for the loss or termination of his office.

(9) The Administrator referred to in sub-section (2) shall vacate office immediately after the Board of Directors of the non-banking financial company has been reconstituted.

Official legal and regulatory resources

Read Section 45-IE together with current RBI notifications, directions and applicable amendments for any particular NBFC or regulatory action.