(i) The Banking Regulation: This Act authorised the Reserve Bank of India to issue direction to bank under Sections 21 and 35A. While Section 21 gives the power to regulate advances by banking companies, Section 35A gives wide powers generally to regulate banking companies. The Reserve Bank of India has been issuing directions from time to time under section 21 regulating rates of interest and other term and conditions of acceptance of deposits and making of loans and advances.
(ii) Nature of Directions: The direction issued by RBI in exercise of powers under Section 21 and 35A of the BR Act, being statutory direction, are binding on banks, even if they do not specially refer to any statutory
provision. The directions are addressed to banks only and not to customers or the public.Any action of banks against the Reserve Bank's instructions would not invalidate the contract with third parties but would render the banks liable to prosecution. The effect of directions will be prospective and not retrospective in the absence of any statutory providing for retrospective operation of direction.
(iii) Bonafides: The power of Reserve Bank to issue directions have to be exercised with bonafide intentions, as held by the Gujarat High Court in RBI vs Harisidh Co-op. Bank Ltd. In that case the court considered the power of RBI to issue directions for superseding the board of a Co-operative bank for securing its proper management and upheld the action taken by the Reserve Bank on the finding that it was without mala fide.
(iv) Caution and Advice: Apart from giving directions, the RBI may also caution or give advice to banking companies. Section 36 of the Banking Regulation Act provides that the RBI may caution or prohibit banking companies generally or any banking company in particular against any transaction or class of transaction.
(ii) Nature of Directions: The direction issued by RBI in exercise of powers under Section 21 and 35A of the BR Act, being statutory direction, are binding on banks, even if they do not specially refer to any statutory
provision. The directions are addressed to banks only and not to customers or the public.Any action of banks against the Reserve Bank's instructions would not invalidate the contract with third parties but would render the banks liable to prosecution. The effect of directions will be prospective and not retrospective in the absence of any statutory providing for retrospective operation of direction.
(iii) Bonafides: The power of Reserve Bank to issue directions have to be exercised with bonafide intentions, as held by the Gujarat High Court in RBI vs Harisidh Co-op. Bank Ltd. In that case the court considered the power of RBI to issue directions for superseding the board of a Co-operative bank for securing its proper management and upheld the action taken by the Reserve Bank on the finding that it was without mala fide.
(iv) Caution and Advice: Apart from giving directions, the RBI may also caution or give advice to banking companies. Section 36 of the Banking Regulation Act provides that the RBI may caution or prohibit banking companies generally or any banking company in particular against any transaction or class of transaction.
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