LB-6032-Banking, Insurance Law and Negotiable Instruments

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BANKING

Sajjan Bank (Private) Ltd. v. Reserve Bank of India

AIR 1961 Mad. 8

RAMACHANDRA IYER, J. – The Sajjan Bank (Private) Ltd., which is carrying on business at Alandur, originated from Sajjan and Co. Ltd., which was incorporated in November 1944 with the main object of carrying on money-lending business. In May 1946, the company was converted into a banking company and in November of that year its name was changed into Sajjan Bank (Private) Ltd. All its shares are held by its three directors who are said to be closely related. The Banking Companies Act, 1949, referred to hereafter as the Act, came into force on 16.3.1949.

Section 22 of the Act provided amongst other things that every banking company in existence at the commencement of this Act should before the expiry of six months from such commencement and, every other company before commencing banking business in India, apply in writing to the Reserve Bank for a licence under the section to carry on banking business. The section further provided that the Banking Companies in existence at the commencement of the Act could continue to carry on their banking business till final orders were passed on their application for licence.

3. On 14.9.1949, the petitioner bank applied under S. 22 of the Act, to the respondent for a licence to carry on banking business. The Officers of the Reserve Bank inspected the petitioner bank under S. 22 of the Act in July 1952. A report of that inspection was prepared on 11.10.1952. The inspection appears to have revealed the existence of certain defects in the working of the bank. The Reserve Bank therefore decided to keep in abeyance the consideration of the question of issuing a licence evidently with a view to watch the progress of the bank in eradicating the defects pointed out by the inspection report.