Banking on cooperatives is better business | Business Line

Banking on cooperatives is better business | Business Line



Cooperatives are considered as the best model for grass root economic development....

Wills and Codicils - Register Your Will - Valid WILL

Wills and Codicils - Register Your Will - Valid WILL



A Will is defined as "the legal declaration of the intention of the testator, with respect to his property, which he desires to be carried into effect after his death." In other words, a Will or a Testament means a document made by person whereby he disposes of his property, but such disposal comes into effect only after the death of the testator.

Succession Act, 1925 - Secs. 57, 213 - Compulsory Requirement of Probate

Succession Act, 1925 - Secs. 57, 213 - Compulsory Requirement of Probate

Judgement

Citations: 2006-LAWS (GJH)-10-27 , 2007-GLR-1-277 , 2007-GCD-1-392

Appellants: Minaxiben Shashikantbhai Patel

Respondents: Dist. Collector

Court: High Court of Gujarat

Judges: Jayant Patel

Advocates: B.S.Brahmbhatt

Acts and Rules Cited: Succession Act, 1925, S.213,S.57,

Bombay Land Revenue Code, 1879, S.135D,

SUCCESSION ACT, 1925 - SECS. 57, 213 - COMPULSORY REQUIREMENT OF PROBATE - PETITIONER IS A HOUSE WIFE AND HER FATHER IN LAW PURCHASED THE PROPERTY IN GANDHINAGAR - EXECUTION OF WILL BY THE FATHER IN LAW OF THE PETITIONER - AS PER THE WILL, THE PROPERTY IS BEQUEATHED TO THE PETITIONER - CASE OF CLARENCE PAIS & ORS. (SUPRA) REFERRED - EVEN WITHOUT PROBATE, THE RIGHTS ACQUIRED BY THE EXECUTOR OR LEGATEE OF THE WILL CAN BE ESTABLISHED BEFORE THE COURT OR BEFORE ANY OTHER AUTHORITY WHICH IN THE PRESENT CASE IS THE REVENUE AUTHORITY - HELD - IMPUGNED COMMUNICATION MADE BY DISTRICT COLLECTOR SET ASIDE – PETITION ALLOWED

Arbitration Clause & Consumer Forum-2000(5) SCC 294.

Existence of Arbitration clause is not a bar to reference to consumer forum. This was held by the Supreme Court in The Skypack Courier Ltd v. Tata Chemicals Ltd 2000(5) SCC 294.

Due service of Legal Notice is presumed -1992(1)SCC 647 / 1996 (7) SCC523

A notice is sent by registered post and is returned by postal endorsement " refused" or not available / home locked / shop closed / addressee not in station e.t.c is presumed to be duly SERVED.

The following are the case laws:-

1) Jagdish Singh V. Nathu Singh ( 1992) 1 SCC 647 .

2)State of M.P V. Hiralal and Others ( 1996) 7 SCC 523.

3)Alavi Haji V. Palapetty Muhammed 115 SCC

4.Thakunal & Others V. Charadas Rao 2009(1) MPHT 17 CG.

The validity of unilateral “hybrid jurisdiction” clauses has become less certain under French law | Norton Rose Fulbright

The validity of unilateral “hybrid jurisdiction” clauses has become less certain under French law | Norton Rose Fulbright



Unilateral hybrid jurisdiction clauses, or option clauses, are dispute resolution clauses granting to one contracting party the ability to choose between several jurisdictions before which an action may be brought to resolve disputes arising under the contract; while granting the other contracting party only the ability to bring an action before a single jurisdiction.

How to file a complaint against your bank

How to file a complaint against your bank--The role and functions of Banking Ombudsman

Indian Company Law: The difficulties in the process of company liquidation and needed reforms?

Indian Company Law: The difficulties in the process of company liquidation and needed reforms?

Effect of not Duly Stamped Instrument

Effect of not Duly Stamped Instrument



Adjudication of proper stamping as per the Indian Stamp Act , and the power to impound the documents by District Collector, wherever it is no done so....

Further Comments on the NCLT judgment

Further Comments on the NCLT judgment



National Company Law Tribunal----A single window institution for corporate justice....

Deccan Chronicle: BIFR rejects appeal for declaring as sick unit - Moneylife

Deccan Chronicle: BIFR rejects appeal for declaring as sick unit - Moneylife



Deccan Chronicle APPEAL for sick unit rejected by BIFR .



DCHL made its reference (to BIFR) after action under Section 5(1) of the SARFAESI Act has been taken by JM Financial Asset Reconstruction Co Pvt Ltd and Pegasus Assets Reconstruction Pvt Ltd. This reference was, therefore filed in violation of Section 15(1) of the SICA, which states that, 'no reference shall be made to the BIFR after the commencement of the SARFAESI Act, where financial assets have been acquired by any securitization company or reconstruction company under sub-section (1) of the Section 5 of the Act'," the BIFR said in its order.

SARFAESI Act and woes of the ‘abated' | Business Line

SARFAESI Act and woes of the ‘abated' | Business Line



In India, as SARFAESI Act was passed, a primacy was given to the proceedings. That is, even if sickness revival proceedings were going on, a secured creditor could still seize and sell assets without the intervention of any judicial authority, not to speak of the BIFR. This itself, in principle, is highly strange.

The Big, Bad World Of Corporate Litigation

The Big, Bad World Of Corporate Litigation

Mushrooming Corporate Litigation in India , and the monopolistic practices with delaying tactics is the worrying aspect in Indian Corporate Law.

Conciliation & Settlement Agreement in India

Principles & Procedure of conciliation under Arbitration & Conciliation Act 1996

A settlement agreement u/ sec 73 , as per the Arbitration and Conciliation Act, 1996, arrived during conciliation signed by both parties and authenticated by the CONCILIATOR is enforceable as per sec 74, in the same manner as of an Arbitration Award u/s 30 and u/s 35 of the Act.Important case law in this subject is Mysore Cements Ltd V/s Suedla Barmae Ltd (2003) 43 SCL433 (SC).

Rural Non Farm Employment in Assam: Trends and Issues

Rural Non Farm Employment in Assam: Trends and Issues--by Dr.Chandrama Goswami and M.Battacharya.

RBI tightens norms for gold NBFCs | Business Standard News

RBI tightens norms for gold NBFCs | Business Standard News

RBI norms as to GOLD LOAN Lending business by NBFCs...and as to opening of branches over and above 1000.

Distressed assets in NBFCs & SARFAESI Act

Distressed assets in banks - Moneylife

The Reserve Bank of India  has decided to make recommendations to the government for allowing designated large NBFCs to assign stressed assets to ARCs under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests Act, 2002 (SARFAESI Act)

Female Agricultural Workers in Assam: A Case Study of Darrang District | IJSRP February 2013 Publication

Female Agricultural Workers in Assam: A Case Study of Darrang District | IJSRP February 2013 Publication



A study of Female Workers in Assam by Dr. Chandrama Goswami.

Transmission in Arbitration Award -Required or not?

 Arbitration and Conciliation Act, 1996, Sec 31 states that the arbitral award shall be made by the members of the Arbitral Tribunal. Copy of signed award will be given to the parties and under Section 32 arbitral proceedings will be deemed to have ended once final award is given or Arbitrator passes specific order terminating the arbitration proceedings. Errors may be corrected within 30 days. Section 34 of the Act provides forum to challenge the award in court of law which challenge can be made after three months from the date the party has received the copy of award or any order, if any, passed under Section 33 of the Act making corrections in the award. This period of three months is extendable by a further period of 30 days.

Further, Section 36 of the Act, after the expiry of the time provided under Section 34 and if any order has been passed under Section 34, award became capable of enforcement as a decree of civil court. Section 36 of the Act is being reproduced below:- 

"Where the time for making an application to set aside the arbitral award under Section 34 has expired, or such application having been made, it has been refused, the award shall be enforced under the Code of Civil Procedure, 1908(V of 1908) in the same manner as if it were a decree of the Court." 

Section 37 of the CPC defines the Court which passed the decree and will be deemed to include,- 

"(a) where the decree to be executed has been passed in the exercise of appellate jurisdiction, the Court of first instance, and 
(b) where the Court of first instance has ceased to exist or to have jurisdiction to execute it, the Court which, if the suit wherein the decree was passed was instituted at the time of making the application for the execution of the decree, would have jurisdiction to try such suit." 

It is thus apparent that Section 37 makes a reference to the Court.

Section 38 CPC relevant for the purpose of controversy involved in this Court is being reproduced below:- 
"A decree may be executed either by the Court which passed it, or by the Court to which it is sent for execution." 

Section 39 of the CPC enables the Court which passed a decree on the application of the decree-holder to send it for execution to another court where either judgment-debtor resides or carries on business or his property exits within the jurisdiction of such court etc.

Similar provision for transfer of decree has been made under Section 40 if decree is to be executed in another State.

Under the Arbitration Act, 1996 Act, award will be treated as a decree of court but arbitrator has not been treated to be a court. Court has been defined under Section 2(e) of the Act which definition is reproduced below:- 

"Court" means the Principal Civil Court of Original Jurisdiction in a district, and includes the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit, but does not include any civil court of a grade inferior to such Principal Civil Court, or any Court of Small Causes; 

Moreover, Section 19 of the Act provides that The arbitral tribunal shall not be bound by the Code of Civil Procedure, 1908 (V of 1908) or the Indian Evidence Act, 1872 (1 of 1872) and the parties are free to agree on the procedure. 

In these circumstances, arbitrator cannot be treated to be a court although award made by him will be executed as decree of the Court. As Arbitrator is not a court, hence Sections 38 and 39 of the CPC would have no application. Since Arbitrator is not a court, it cannot entertain any application for execution. Therefore, it cannot transfer the application for execution under Section 39 of the CPC. The question of transfer would arise only when award still remains unsatisfied even on execution by the court where it is filed for execution. Position thus emerges is that an award can be filed in any court for execution as a decree of civil court where judgment-debtor resides or carries on business or has property within the jurisdiction of the said court. Execution court cannot refuse to entertain the application on the ground that decree holder should first file the application for execution at a place where arbitration award was given and then seek transfer from the said court to any other court. 

Decision by Madhya Pradesh High Court in the case of Computer Sciences Corporation India Pvt. Ltd. v. Harishchandra Lodwal & another reported in AIR 2006 Madhya Pradesh 34 is not correct in the above context. With reference to Section 39 of CPC, Madhya Pradesh High Court took the view that since award is passed at Indore therefore unless and until the Court at Indore transfers the decree to the Court at Delhi, it cannot be executed. Madhya Pradesh High Court proceeded on the basis that the award having been given at Indore, execution application should first be filed at Indore. There is no basis to support this view. 

Above position was considered in the case of Daelim Industrial Co. Ltd. v. Numaligarh Refinery Ltd. (MANU/DE/1316/2009) by Delhi High Court. Justice Rajiv Sahai Endlaw drew the analogy from Section 635(4) of Companies Act which enabled order of Company Law Board to be executed as a decree holding that Sections 38 and 39 of CPC would have no application. Relying upon the decision given by Apex Court that mere production of certified copy is sufficient to confer jurisdiction for execution, in para 20 of the judgment, learned Judge observes that- 
"I find that certain orders of the company law board are also enforceable by a court. Section 635(4) of the Companies Act, 1956 provides that where any order of the company law board is required to be enforced by a court, a certified copy of the order shall be produced to the court required to enforce the order which shall then be enforced in the same manner and to the same extent as applicable to an order made by a court. 
....... The agreement between the parties restricting jurisdiction of one, amongst many courts also does not extend to execution and is applicable to the court which will adjudicate the lis. I do not see any reason, why where an award has been made executable as a decree, the execution cannot lie at a place where the property against which the decree is sought to be enforced is situated. 
........ Without the fetter of Section 38 the courts of the place where the property/money against which the decree is sought to be enforced is situated would have inherent jurisdiction to entertain the execution." 

Disagreeing with the view taken by Madhya Pradesh High Court (supra), Court holds as under:- 
"A money award, as in the present case, can be enforced through courts of the place wheresoever the money or any property of the party liable to pay is situated." 

This decision was followed by Madras High Court earlier in Kotak Mahindra Bank Ltd. v. Sivakama Sundari S. Narayana S.B.Murthy (MANU/TN/3588/2011). The Court examined in detail the matter and came to the conclusion that order of District Judge directing return of execution application was to be set aside. 

High Court of Punjab and Haryana in Indusind Bank Ltd. v. M/s Bhullar Transport Company and another (MANU/PH/2896/2012) also agreed with the view of Delhi High Court (supra). In paragraph 11 of the judgment, High Court observes as under:- 

"............. There is no provision in the Act stipulating that the arbitration award, which is treated as decree for the purpose of enforcement under section 36 of the Act, shall be deemed to be decree of the court of the place where the award was passed. In the absence of any such provision, in the instant case, it cannot be said that since the award was passed at Chennai, it shall be deemed to be decree to have been passed by the court at Chennai. 
............ Since respondents/judgment debtors are residing and are holding property within territorial jurisdiction of the court at Amritsar, the court at Amritsar certainly has territorial jurisdiction to enforce the arbitration award. It does not require transmission by the court at Chennai for its enforcement by the court at Amritsar because it cannot be said that the award is deemed to be decree passed by the court at Chennai. Even otherwise, the execution proceedings have to take place in court at Amritsar within whose territorial jurisdiction, judgment debtors are holding property and are residing. On the analogy of section 20 CPC also, court at Amritsar has territorial jurisdiction to execute the award because the judgment debtors/respondents are residing within its territorial jurisdiction." 
Madras High Court in the case of Kotak Mahindra v. Sivakama Sundari S. Narayana S.B.Murthy has considered the scheme of entire Act in detail and in para 15 of the judgment takes the view that an Arbitral Tribunal is not a Court. Hence it follows that the Arbitration and Conciliation Act, 1996 elevates an award to the level of a decree, for the purpose of execution. But, it does not elevate the Arbitral Tribunal to the status of a civil court. 

 Therefore, it is clear that no Court to which an application for execution of an award is presented, can insist on the filing of the execution petition first before some other Court and to have it transmitted to it later. It appears that the High Court of Bombay has also adopted the same view, though not by a very elaborate order. 

Para 25 of the judgment is quoted herein below:- 

In the absence of any provision in the 1996 Act, requiring a Court to pass a decree in terms of the award (except in terms of Section 34) and in the absence of any provision in the 1996 Act making the Arbitral Tribunal a Court which passed the decree and in the absence of any provision anywhere making the court within whose jurisdiction an award was passed as the court which passed the decree, it is not open for any executing Court (I) either to demand transmission from any other Court; (II) or to order transmission to any other Court. 

Justice S.Muralildhar of Delhi High Court in the case of M/s Religare Finvest Limited v. Ranjit Singh Chouhan and another has agreed with the view taken by Madras High Court in Kotak Mahindra (supra). No decision of this Court has been cited by either party. 

On considering relevant provisions of the Act and CPC, the judgment of Delhi High Court given in Daelim Industrial Co. Ltd., the judgment of Madras High Court in the case of Kotak Mahindra Bank Ltd. is more reasonable and convincing. 

In view of the above position, the Allahabad High Court , in Ge Money Financial Services Ltd.,New Delhi  V/s  Mohd. Azaz & Anr (CIVIL REVISION No. - 86 of 2012 ) agreed with the view taken by Delhi, Punjab and Haryana and Madras High Court. 

Practical Academic: Transmission of Arbitral Awards for Enforcement: M...

Practical Academic: Transmission of Arbitral Awards for Enforcement: M...: Kotak Mahindra Bank Ltd. v Sivakama Sundari S Narayana S B Murthy Case : C.R.P.(NPD) No.574 of 2011 Bench : Justice V. Ramasubramanian Dat...



Transmission of Arbitration Awards and Execution Petition always a matter of concern ; and the reading of sec 36 of the Arbitration Act makes it confusing for many. Here is a positive ruling states NO NEED TO TRANSMIT..

Family Arrangement - By CA A. K. Jain

Family Arrangement - By CA A. K. Jain



Family Property to be divided equitably and harmoniously by Family Arrangement / Settlement Deed. The essentials / fundamentals are discussed in length.

Backdated Mortgage Assignment Comes Back To Haunt Foreclosure Lender in Juarez v. Select Portfolio

Backdated Mortgage Assignment Comes Back To Haunt Foreclosure Lender in Juarez v. Select Portfolio



 Problem of back-dated mortgage assignments are discussed.

Res Judicata - Civil Procedure Code 1908, Administrative Law

Res Judicata - Civil Procedure Code 1908, Administrative Law



Res Judicata , the Latin Maxim , which stands for 'the thing has been judged'.

Mortgage assignments - stamp duty and registration challenges | Business Standard News

Mortgage assignments - stamp duty and registration challenges | Business Standard News





Mortgage assignments in India have not been very prevalent because of the long term nature of the underlying loans, complexities in stamp duty and registration and resultant uncertainty in enforceability of the underlying loans.

To buy agricultural land...

To buy agricultural land...

 Caution needed for purchase of Agricultural Lands in Karnataka, and in compliance with Karnataka Land Reforms Act, 1961.

Bring NBFCs under SARFAESI Act: study | Business Standard News

Bring NBFCs under SARFAESI Act: study | Business Standard News



Non-banking finance companies should be brought under the ambit of the SARFAESI Act to enhance investor confidence and ensure robust growth of the financial services sector, a study has said.

LAW FOR ALL-M.MURALI MOHAN: Deposit of Title Deeds - Registration when require...

LAW FOR ALL-M.MURALI MOHAN: Deposit of Title Deeds - Registration when require...: Mutation of entry of deposit of title deeds in revenue records when not covered by State Govt. Notification , can not be changed;

FAQ on Stamp Duty - Indian Stamp Act, 1899 & Bombay Stamp Act, 1958

FAQ on Stamp Duty - Indian Stamp Act, 1899 & Bombay Stamp Act, 1958

Mortgage assignments - stamp duty and registration challenges | Business Standard

Mortgage assignments - stamp duty and registration challenges | Business Standard

SC rules that mortgage suits are non-arbitrable

SC rules that mortgage suits are non-arbitrable

RBI asks NBFCs to register mortgages with Central Registry

RBI asks NBFCs to register mortgages with Central Registry

Attachment of Immovable Properties in India

Attachment of immovable property is a legal process of taking, apprehending, or seizing the property, by virtue of any forms of judicial order to the satisfaction of judgement or during the pendency of litigation. Immovable properties are defined in Sec 3(26) of the General Clauses Act, 1897, and shall include land, and things attached to earth, or permanently fastened to anything attached to earth. The transfer of Properties Act, 1882, Sec 3 defines -“attached to the earth” means:-

(1)    rooted in the earth, as in the case of trees and shrubs;

(2)    imbedded in the earth, as in the case of walls or buildings; or

(3)    attached to what is so imbedded for the permanent beneficial enjoyment of that to which it is attached.

Attachment of Immovable Properties as per Rule 54 of Order 21 of the Code of Civil Procedure 1908, states:-

(1) Where the property is immovable, the attachment shall be made by an Order prohibiting the judgment debtor from transferring or charging the property in any way, and all persons from taking any benefit from such transfer or charge.

(1) The Order shall also require the judgment debtor to attend court on a specified date to take notice of the date to be fixed for settling the terms of the proclamation of sale.

(2) The Order shall be proclaimed at some place on or adjacent to such property by beat of drum or other customary mode, and a copy of the Order shall be affixed on a conspicuous part of the property and then upon a conspicuous part of the court house, and also, where the property is land paying revenue to the government, in the office of the Collector of the District in which the land is situate and, where the property is land situate in village, also in the office of the Gram Panchayat, if any, having jurisdiction over that village.)

This, however, is subjected to various High Court Amendments.

The Categories of Properties which are exempted from attachment is provided under Civil Procedure Code Section  60, with concerned State Amendments.

Sec :-60. Property liable to attachment and sale in execution of decree.--

(1) The following properly is liable to attachment and sale in execution of a decree, namely, lands, houses or other buildings, goods, money, bank notes, cheques, bills of exchange, hundis, promissory notes, Government securities, bonds or other securities for money, debts, shares in a corporation and, save as hereinafter mentioned, all other saleable property, movable or immovable, belonging to the judgment-debtor, or over which, or the profits of which, he has a disposing power which he may exercise for his own benefit, whether the same be held in the name of the judgment-debtor or by another person in trust for him or on his behalf:

Provided that the following particulars shall not be liable to such attachment or sale, namely:-- 

(a) the necessary wearing-apparel, cooking vessels, beds and bedding of the judgment-debtor, his wife and children, and such personal ornaments as, in accordance with religious usage, cannot be parted with by any woman;

(b) tools of artisans, and, where the judgment-debtor is an agriculturist, his implements of husbandry and such cattle and seed-grain as may, in the opinion of the Court, be necessary to enable him to earn his livelihood as such, and such portion of agricultural produce or of any class of agricultural produce as may have been' declared to be free from liability under the provisions of the next following section;

(c) houses and other buildings (with the materials and the sites thereof and the land immediately appurtenant thereto and necessary for their enjoyment) belong­ing to ²[an agriculturist or a labourer or a domestic servant] and occupied by him;

(d) books of account;

(e) a mere right to sue for damages;

(f) any right of personal service;

(g) stipends and gratuities allowed to pensioners of the Government  [or of a local authority or of any other employer], or payable out of any service family pension fund  notified in the Official Gazette by  [the Central Government or the State Government] in this behalf, and political pension;

 [(h)] the wages of labourers and domestic servants, whether payable in money or in kind  [***];

 [(i) salary to the extent of  [the first  [ [one thousand rupees]] and two-thirds of the remainder]  [in execution of any decree other than a decree for maintenance]:

 [Provided that where any part of such portion of the salary as is liable to attachment has been under attachment, whether continuously or intermittently, for a total period of twenty-four months, such portion shall be exempt from attachment until the expiry of a further period of twelve months, and, where such attachment has been made in execution of one and the same decree, shall, after the attachment has continued for a total period of twenty-four months, be finally exempt from attachment in execution of that decree;]]

 [(ia) one-third of the salary in execution of any decree for maintenance;]

 [(j) the pay and allowances of persons to whom the Air Force Act, 1950 (45 of 1950), or the Army Act, 1950 (46 of1950), or the Navy Act, 1957 (62 of 1957), applies;]

(k) all compulsory deposits and other sums in or derived from any fund to which the Provident Funds Act,  [1925] (19 of1925), for the time being applies in so far as they are declared by the said Act not to be liable to attachment;

 [(ka) all deposits and other sums in or derived from any fund to which the Public Provident Fund Act, 1968 (23 of 1968), for the time being applies, in so far as they are declared by the said Act as not to be liable to attachment;

(kb) all moneys payable under a policy of insurance on the life of the judgment-debtor;

(kc) the interest of lessee of a residential building to which the provisions of law for the time being in force relating to control of rents and accommodation apply;]

  [(l) any allowance forming part of the emoluments of any  [servant of the Government] or of any servant of a railway company or local authority which the  [appropriate Government] may by notification in the Official Gazette declare to be exempt from attachment, and any subsistence grant for allowance made to  [any such servant] while under suspension;]

(m) an expectancy of succession by survivorship or other merely contingent or possible right or interest;

(n) a right to future maintenance;

(o) any allowance declared by  [any Indian law] to be exempt from liability to attachment or sale in execution of a decree; and

(p) where the judgment-debtor is a person liable for the payment of land-revenue ; any movable property which, under any law for the time being applicable to him, is exempt from sale for the recovery of an arrears of such revenue.

 Immovable Property Attachments under Criminal Procedural Code 1973.

Criminal Procedural Code Sec 87 and 88 provide for the attachment and sale of the property of any accused person or witness whose presence is required by a criminal court as a last remedy for compelling his attendance. The procedure laid down must be adhered; else, sale will be liable to be set aside. Schedule 5 of Cr. P.C prescribes the form for proclamation, attachment e.t.c.

However, Police can attach only the movable property as per Sec 102 Cr.PC.  In this regard, a bench of the Bombay High Court on Monday gave a split judgment on attachment of property of the accused in criminal cases, with the majority observing that police cannot attach immovable property under Section 102 of the CrPC. The term property, which police can attach, is only is 'movable'.

The Customs (Attachment of property of defaulters for recovery of Government dues) Rules, 1995.

The rules as to:-

Private alienation to be void in certain cases.

(a)    Where a notice has been served on a defaulter under rule 4 , the defaulter or his representative in interest shall not be competent to mortgage, charge, lease or otherwise deal with any property belonging to him except with the written permission of the Proper Officer.

(b)    Where an attachment has been made under these rules, any private transfer or delivery of       the property attached or any debt, divided or other moneys contrary to such attachment, shall be void as against all claims enforceable under the attachment.

(c) Where the property to be attached consists of the share or interest of the defaulter in property belonging to him and another as co-owners, the attachment shall be made by a notice to the defaulter prohibiting him from transferring the share or interest or charging it in any way.

Similarly, the concerned State rules as to civil rules of practice provides the rules applicable to alienation after service of attachment notice, in cases of Attachment of Immovable Properties as per Rule 54 of Order 21 of the Code of Civil Procedure 1908.

Financial and Livelihood Counselling

Financial and Livelihood Counselling is also called as Credit Counselling or Debt Counselling. In India, RBI as well as many Banks and NGOs are working for the well-being of the distressed customers in the formal and informal financial sector.

Debt Counselling can be called as'counselling that explores the possibility of repaying debts outside bankruptcy and educates the debtor about credit, budgeting, and financial management'.

Debt Counselling primarily focuses on the immediate financial problems and thereafter as to the awareness as to the cost of funds and utilization of credit optimization of the available source of funds, and finally to encourage the distressed people to access the formal financial system once again.

Financial and Livelihood Counselling further focuses on the financial education programs.Organisation for Economic Co-operation and Development ( OECD) has defined financial education as" the process by which financial consumers / investors improve their understanding of financial products, concepts and risks, and through information , instruction and / or objectives to develop the skill and confidence to become more aware of financial planning as a consumer or investor to improve their understanding of financial products , concepts , risks and opportunities, to make informed choices, to know where to go for help, and to take other effective actions to improve their financial well-being. 

Financial Literacy enables an individual to enhance the ability to know, monitor , and effectively use financial resources to augment the well-being and economic security of oneself , one's family and business ; and finally towards the economy.

The challenges of the household cash management system herein is to balance the available resources and to make a proper choice between various financial intermediaries like Banks, NBFCs, Chit Companies, MFIs, Co-operative Banks and Societies, and individual Money Lenders with available set of skills or information.

Debt Counselors can help their clients to find realistic solutions to their problems and agree on re-payments that are probable and possible ; and counselling is kept confidential.

Debt Counseling services are generally offered free by Banking Institutions sponsored formal agencies and other agencies for a very nominal charge , so that no undue additional burden is put on the already indebted customer.Debt Counseling can be either preventive or curative. In case of preventive counseling , awareness regarding cost of credit, availability of schemes, and method of operations e.t.c is informed or shared. In the case of curative counseling , the clients may approach the counseling centers to work out individual debt management plans for resolving their unmanageable debt portfolio.

Institution sponsored credit counseling center like ABHAY Counseling Center ( sponsored by Bank of India) ; Disha Trust ( sponsored by ICICI Bank), and Grameen Parmarsh Kendra ( sponsored by Bank of Baroda) are functioning as per RBI norms in India, and as per RBI circular as to Financial Literacy and Credit Counseling Centers. These centers would work out effective options for re-scheduling / re-agreement debt, and take over possibilities and debt re-structuring plans that could include flexible mode of re-payment. The role as to NGOs and professional counselors are expected for a genuine difference in Financial and Livelihood Counseling for making the livelihood of distressed customers HAPPY.

Crime Investigation and Court Directives in India

1.0 Investigation of cases by Police Officer-in-Charge

Any Police Officer-in-Charge may, without the order of a Magistrate, investigate any cognizable case which a Court having jurisdiction over the local area within the limits of cognizable case which a Court having jurisdiction over the local area within the limits of such station would have power to inquire into or try under the provisions of the Criminal Procedure Code, 1973. A Magistrate of Court of Law is empowered under Sec 190 Cr. P.C to order such investigation, and the word ‘investigation’ has been defined in Sec 2 (h) of The Criminal Procedure Code, 1973, and it includes all the proceedings under the Code for collection of the evidence conducted by a Police officer or by any person other than a Magistrate who is authorized by a Magistrate in this behalf.  An investigation officer or agency cannot refrain from conducting investigation on ground that it had no territorial jurisdiction to investigate offence, when directed by a Magistrate , as reported in Rasiklal v. State of Gujarat AIR 2010 SC 715.

2.0 Final Report or Challan or Charge-Sheet

The Criminal Procedure Code, 1973, Sec173 (2) refers to the Final Report ( Challan)  or Charge- Sheet of Police Officer on completion of Investigation.The Report forwarded by the Investigation Officer is either a Final Report ( Challan), where no case has been made out or is a Charge-Sheet where a prima facie case has been made out. In Sec 173(2) (e), Criminal Procedural Code (Cr.P C) the only requirement is to furnish information to the Court concerned by the officer –in-charge of the Police station whether the accused had been arrested or not. It does not mean that it is necessary to arrest the accused before submission of charge-sheet in every case. Arrest of the accused is justified or necessary only if a prima facie case is made out, according to the Supreme Court in Lalji Yadav V. State of UP, 1998 Cri. L J 2366.

3.0 Alternatives before Magistrate in a Final Report by Police Officer.

Wherever a Final Report is forwarded by investigating Police in a case, u/s 173(2) (i) of Cr. P. C,  and is placed before to a Magistrate, several situations may arise. The Report may conclude that an offence appears to have been committed by a particular person and persons, and in such a case Magistrate may either:-

1)    accept Report and take cognizance of offence and issue process,

2)    may disagree with the report and drop the proceeding  or to take cognizance on the basis of report / material submitted by the Investigation Officer,

3)    may direct further investigation under Sec 156(3) and require Police to make report as per Sec 173(8)-(AIR 1968 SC 117 ; AIR 1980 SC 1883 / AIR 1955 SC 196).

4)    may treat the Protest Complaint as a complaint , and proceed u/s 200 & 202 of Cr. P.C.

On completion of Investigation, Statement of Final Report u/s 173 (2) (ii) of Cr. P. C, is mandatorily to be given to the complainant, and the Magistrate must give notice to the informant and provide him an opportunity to be heard at the time of consideration of the report ( R. Rathinasabapathy V. State , 2004 Cri. L J 2735 (Mad).

4.0 Further Investigation Order U/s 173(8) Cr. P.C

Magistrate may direct further investigation under Sec 156(3) and require Police to make report as per Sec 173(8) where a Final Report is placed before him under Sec 173 (2) (AIR 1968 SC 117; AIR 1980 SC 1883 / AIR 1955 SC 196) .The right of Police , even after submission of a report u/s (173(2) Cr. P.C , is not exhausted , and the Police can exercise such right as often as necessary when fresh information comes into light.

5.0 To proceed against a person who is not charge-sheeted.

Sec. 319 of Criminal Procedural Code: - The discretion of the trail court to proceed against the person who is not an accused at the trail if it appears from the circumstances of the case, that such person, other than the accused, is involved in the crime is quintessence of Sec 319 Cr. P.C (Girish Yadav & Others, appellants, V. State of MP, respondent, AIR 1996 SC 3098). Thus, the trail court in India is vested with ample powers to proceed against an accused any time during the trail, if a person is not charge-sheeted by the investigating Police Officer.

6.0 Inherent Powers of High Court U/s 482 of Cr. P. C

The provision u/s 482 Criminal Procedure Code states that nothing in Cr. P.C shall be deemed to limit or affect the Inherent Powers of High Court to make such orders as necessary to effect of any order under Cr. P.C to prevent the abuse of the process of any of the Court or otherwise to secure the ends of justice.  Thus the High Court U/s 482 Cr. P.C is having ample powers to order for fresh investigation or re-investigation (State of Punjab V. Central Bureau of Investigation & Others (2011) 11 SCR 281).In cases like Center for PIL & Others V. Union of India & Others (CA No. 10660 / 2010), wherein the Writ Petition filed by the appellants before the Delhi High Court for ordering an investigation by the CBI / Special Investigation Team into-what was termed as ‘ 2G Spectrum Scam’ for unearthing the role of respondent No. 5 Shri A. Raja , then Union Minister and others was dismissed by the Delhi High Court. The appellants challenged the order under Article 136, and SC granted SLP and issued direction to CBI to conduct through investigation.

7.0 Powers of High Courts and Supreme Court of India.

Though there are fundamental differences as to “further investigation’ and “re-investigation”, it may be noted that, in a given situation, a Superior Court, High Court or Supreme Court, can exercise the constitutional powers under section 226 and 32 respectively of the Constitution of India, and could direct a “State” to get an offence investigated and / or further investigated by a different agency Mithabhai Pashbahi Patel  V. State of Gujarat ( 2009 6  SCC 332). In Vineet Narain & Others V. Union of India (1988) 1 SCC 266, Supreme Court entertained the petition filed under Art. 32 of the Constitution; and ordered investigation by CBI into what came to be known as ‘Hawala Case’.

8.0 Investigation by Special Agencies like CBI

Subject to the fact and situation of each case the superior courts, at any time; CBI can direct investigation by the superior agency of the country. In Uma Shankar Sitani v. Commissioner of Police, Delhi, 1995 Cri. L  J 3612 P. 3613 9 SC), the Supreme Court was of the opinion that the matter was to be investigated by an Independent Agency. Further, in Nirmal Singh Kahlon V. State of Pujab & Others ( 2009 1 SCC 441 ), the Supreme Court has sustained the order of High Court , directing investigation by the CBI even after the filing of charge –sheet by the State Police. In P&H High Court Bar Association v. State of Punjab, 1994 Cr. L.J 1368, A.I.R 1994 SC 1023 it was held that the facts and circumstances of the case on hand, and to do complete justice in the matter and further to instill confidence in the public mind it is necessary to have fresh investigation in the case through a specialized agency like the Central Bureau of Investigation (CBI).

In A. Nallasivam V. State of Tamil Nadu, 1995 Cri L J 2754.in a public interest litigation, the Madras High Court held that the Central Bureau of Investigation has to find out all those involved in the relevant crimes, and to submit a report to this court as to what it has done in the matter. The Supreme Court can also exercise its powers under Art. 142 to order a CBI enquiry without State government consent where such consent was required by the Statue.

9. Power to take suo moto cases by Superior Courts.

The facts of  State of Punjab V. Central Bureau of Investigation & Others, SLP Criminal No. 792 / 2008, (2011) 11 SCR 281 was :- On 13.11.2007, a news item was published in the Hindustan Times headlined ‘Moga Sex Scandal’ and two ladies, namely, respondent no.3 of Village Varsaal and her relative Manjeet Kaur of Village Badduwal had been arrested. This news was also published in the Tribune dated 12.11.2007:-- The High Court took suo motu notice of the news items and issued notices   to   the   State   of   Punjab,   Senior Superintendent of Police, Moga and Deputy Inspector General of   Police,   Ferozpur   Range   and   directed   the   Deputy Superintendent   of   Police, Bhupinder   Singh,   who   was investigating into the case, to file the status report of the investigation on the next date of hearing.  Matter was taken as a Special Leave, and finally the Supreme Court concluded that it is not a fit case in which Supreme Court should exercise its powers under Article 136 of the Constitution and grant leave to appeal. The Special Leave Petition therefore dismissed.

Shadow Banking to Banking in India: convergence into Banking and emerging inter-regulatory facet.

 Abstract: - Shadow Banking in Indian context is examined with its niche role to play and exploring the advantageous function of shadow banking to harness the synergies between them and the organized banking system; and India being the fastest growing among in shadow banking world, with increasing regulatory supervision , controls  along with legislations , and in the midst of NBFC-Banking Regulatory convergence, this study made an effort to know the current regulations and legislations in the financial architecture, as to regulatory gaps, overlaps, inconsistencies  and seek to find probable solutions which provides opportunity for regulatory arbitrage in the context of emerging Institutions like :- Financial Stability and Development Council (FSDC) and Unified Financial Authority (UFA) proposed under the Indian Financial Code Bill 2013.

Introduction

The “shadow banking system”, can broadly be described as “credit intermediation involving entities and activities outside the regular banking system”. Intermediating credit through non-bank channels can have advantages. Thus, the shadow banking system may provide market participants and corporate activities with an alternative source of funding and liquidity1
The term ’shadow banking system‘ was first used in 2007, and gained popularity during and after the recent financial crisis, as it highlighted the bank-like functions performed by entities outside the regular banking system. The more comprehensive definition, as adopted by the Financial Stability Board (FSB), i.e., ‘credit intermediation involving entities and activities (fully or partially) outside the regular banking system’ has been globally accepted. Thus, shadow banks comprise entities which conduct financial intermediation directly, such as finance companies or NBFCs, and entities which provide finance to such entities, such as mutual funds. Globally, shadow banking entities could be covered under the broad heads of (i) Money Market Funds, (ii) Credit investment Funds, Hedge Funds, etc, (iii) Finance Companies accepting deposits or deposit like funding, (iv) Securities brokers’ dependent on wholesale funding, (v) Credit insurers, financial guarantee providers and (vi) Securitisation vehicles.

India has a very complex credit system, and  it consists not only of formal networks of public and private commercial banks, regional rural banks, cooperative banks, public financial institutions such as National Bank for Agricultural and Rural Development (NABARD), National Housing Bank (NHB) and Small Industries Development Bank of India (SIDBI), and NBFCs, but also of quasi‐formal and informal (even illegal, but socially accepted) networks of  Nidhis, Chit Funds,  Badla Financiers ,Commodity Trade Financiers, Gold Saving Companies, Gold Loan Companies, Pawn Brokers, Plantation Companies, Money Lenders and many others3. It is estimated that India has 96 scheduled commercial banks (SCBs)—27 public sector banks 31 private banks and 38 foreign banks—having a combined network of over 53,000 branches. According to a report by ICRA, public sector banks hold over 75% of the total assets of the banking industry, with the private and foreign banks holding 18.2% and 6.5%, respectively.

Literature review

 Literature Review is the study of the various papers, articles, journals and websites. The data for this purpose has been collected from articles in the newspapers, papers, journals and websites on related of NBFCs and of RBI.

Krishnamurthy.S (2003) analysed that Kotak Mahindra getting of license to operate as a NBFC has led to an initiative in direction of NBFC’s conversion in to banks. Now, other large profitable NBFCs such as Sundaram Finance, Ashok Leyland Finance and Cholamandalam Finance should try to avail this option in future for competition sake. Though the initial cost would be high as there higher capital requirements.

 Sridhar.R (2006) reviewed that mostly NBFC’s target niches, as they are oriented towards customers and try to keep the cost low, so they can be targeted to tap unbanked areas also. He exemplified the growth story of Shriram finance Group. of being converted to top tycoon in NBFC world with a credit worth of 5000 cr. According to him these institutions have to maintain a higher CAR ratio compared to banks, as they are more risky.

Dubey.S (2007) analysed that Nbfc’s in India had a great revolution after 1991 liberalization which led to simple regulatory mechanisms and allowance to greedy investors to park their money with NBFC’s. With more customers base and unwise investments start rising to have large profitability. This in turn leads to weak not compatible with strong players and fading of golden era for NBFC’s.
Aggarwal. M (2010) reviewed that the private banks conversion in to banks is very risky decision for RBI. As per Official estimates only 30,000 of the total 6, 00,000 habitations in the country are exposed to banking services; therefore the RBI has mainly targeted this effort towards rural India.

Research methodology

Research is the systematized efforts to gain new knowledge. A Research Methodology defines the purpose of the research, how it proceeds, how to measure progress and what constitute success with respect to the objectives determined for carrying out the research study. The appropriate research design being formulated is detailed below.

The secondary data in this project has been collected from the ―The Indian banker‖ journal, ―The RBI bulletin‖, ―RBI Discussion papers‖, ―and journals of finance.

Research design

 The research design used for the study is descriptive research design as its main objective is to describe something. In this research design it is assumed that researchers are having prior knowledge of the field of study.


The Purpose of the Study

This study made an effort to know the current the regulatory gaps, overlaps, inconsistencies as to regulations in the shadow banking financial architecture are examined, and probable solutions which provides an opportunity for regulatory arbitrage is suggested.

Shadow Banking in India.

India is the world’s second-fastest-growing market, after Indonesia, for lending outside the banking system, or in the shadow banking, as such; it also poses risks for a country where 65 percent of the population and 92 percent of small businesses don’t have access to banks. Hence, Non-bank Finance Companies accounting for almost 40 percent of India’s financial system, and policy makers are struggling to tame inflation and to reverse slowing growth. The line between formal and informal banking is blurred, pointing to India’s huge dependence on shadow banking. Formal banking hasn’t reached rural places, and there’s latent demand for financial services, which the banking sector would take 30 years to meet. Without shadow banking, the stability of the Indian economy and its banks comes into question. The official figure for India’s shadow-banking industry counts only what non-bank financial companies register with the central bank. The Gold Loan NBFCs surge as people who once paid rates to money-lenders as high as 48 percent have turned to NBFCs. Approximately, 70 percent of outlets in Gold Loan Companies like Muthoot Fin Corp are in rural and semi-urban areas, and they cater to customers in ways banks can’t imagine by way of services to their doorstep, and for rural customer, lost time is lost money.

The true size of Shadow Banking is much larger, including private lending and money channelled into collective investment funds known as chit Funds. India’s chit-fund association estimates that the country has 15,000 kitty-party companies which together manage billions of dollars’ worth of funds. M/s Shriram Capital Ltd, one of the largest players, operates in four southern states and manages over $800m 7. Being indigenous financial institutions in India, it caters to the financial needs of the low-income households, which have been excluded from the formal financial system. Chit Funds address gaps left by the traditional banking sector. They mobilize huge amounts of small savings, and in return allow members to have access in the form of loans to lump sum amount of money that they would often not be able to get from traditional banks. Easy accessibility and flexibility are important aspects of this form of financing. Compared to banks, Chit Funds require less documentation, are more flexible about collateral, and allows to determine own interest rate (within the constraints of a given chit scheme). Furthermore, there is no need to determine upfront whether funds are used for saving or borrowing. This is a salient feature of chit funds as it not only puts in place a disciplined saving mechanism, but it also allows to access cash when needed.

The constraints faced by the formal financial system in reaching rural households in a flexible and
Hassle-free manner led, almost as a natural consequence, to emergence of various options like the Self Help Group bank linkage programme and the micro finance institutions (MFIs).

 MFIs range from fair-sized NBFCs to much smaller societies and trusts. The use of MFIs and other intermediaries as business facilitators and business correspondents was also allowed by the Reserve Bank in January 2006. And it has evolved into a vibrant industry exhibiting a variety of business models.

Microfinance Institutions (MFIs) in India exist as NGOs (registered as societies or trusts), Section 25 companies and Non-Banking Financial Companies (NBFCs). Many microfinance institutions have recently registered as NBFCs to take advantage of access to capital markets. Micro finance institutions operating as NBFCs account for the great majority of the microfinance market in India, with about 50 NBFCs responsible for 80 percent of all micro finance loans (by outstanding portfolio).

According to the Study Group on Indigenous Bankers (1971), a moneylender lends his own funds, while an indigenous banker acts as a financial intermediary by accepting deposits or making bank credit available. While moneylenders do mainly cash transactions, indigenous bankers deal in short-term credit instruments (hundis2) for financing the production and distribution of goods and services (SGIB 1971).

The profit of indigenous bankers is based on the quick turnover of capital. They prefer lending high amounts to a limited number of clients and to leave the financing of agriculture to moneylenders. The importance of informal finance has decreased during the post-colonial period. The SGIB (1971: 113) estimates for 1968 a total of almost 34,000 moneylenders and indigenous bankers, of which more than 19,000 are urban based.

 Of late, Money Lenders in India come under control of the Money Lenders Act, promulgated by each of the different states. Compliance with the Act is rare however, and majority of the money-lenders do not obtain such a license to operate.

NBFC Sector in India

Chapter III B of the Reserve Bank of India Act, 1934 (RBI Act) was introduced in 1964 to regulate the deposit taking companies as the first step in formalising the  indigenous Indian Banking space, and further,  Non Banking Companies (Reserve Bank) Directions, 1977, was notified  to protect the interest of the depositors. Simultaneously, section 58A of the Companies Act was introduced empowering Central Government to regulate the acceptance and renewal of public deposits and the Companies (Acceptance of Deposits) Rules, 1975 were framed , and subsequent RBI Working Groups and Study Groups with recommendations and with RBI Notifications and regulations, thus a new sector is being crystallised as:-  NBFCs.

NBFCs (Non-Banking Financial Companies) are different from banks in that an NBFC cannot accept demand deposits, issue checks to customers, or insure deposits through the Deposit Insurance and Credit Guarantee Corporation (DICGC). In India, NBFCs comprises a multiplicity of institutions, which are defined under Section 45 I(a) of the Reserve Bank of India Act,1934. These are equipment-leasing companies (EL), hire purchase companies (HP), investment companies, loan companies (LCs), mutual benefit financial companies(MBFC), miscellaneous non-banking companies (MNBC), housing finance companies (HFC), insurance companies (IC), stock broking companies (SBC), and merchant banking companies (MBC). A non-banking company which conducts primarily financial business and belongs to none of these categories is called a Residuary Non-Banking Company (RNBC).

The regulatory responses on the part of RBI have also kept pace with the evolution of this sector- Non-Banking Financial Sector(NBFC). In particular, regulation has adequately addressed the issue of depositor protection, a major concern of RBI. There has been a gradual, regulation induced reduction in the number of deposit taking NBFCs, including Residuary Non-Banking Finance Companies (RNBCs), from 1,429 in March 1998, to 311 in March 2010. The deposits held by these companies (including RNBFCs) decreased from Rs. 23,770 crore, comprising 52.3 percent of their total assets, to Rs. 17,273 crore, comprising 15.7 percent of their total assets. There are 12,371 registered NBFCs as of November 2012, of which, 12,104 non-deposit taking NBFCs while 265 take deposits from retail investors.

RBI Report on 31st January 2012, states that the number of NBFCs has decreased from 13,014 in FY06 to 12,409 in FY11 however the sector has grown by 2.6 times between FY06 and FY11 at a CAGR of 21%. It accounted for10.8% in terms of outstanding advances and 13% in terms of assets of the banking system inFY06. This share has risen to 13.2% and 13.78% respectively in FY11. In terms of deposits the share of public deposits held by NBFCs as compared to deposit base of banks has decreased from 1.05% in FY06 to 0.22% in FY11.Public deposits held by NBFCs have shown a falling trend, decreasing by approximately 48% in the last 5 years, while owned funds (reserves & surplus and capital deployed) have gone up by 195%. The outstanding advances have grown approximately 3 times in the last 5 years to reach Rs.536,074 crores in FY11. Banks exposure to NBFCs has increased from Rs.62,308 crore in FY06 to Rs.183,839 crore in FY11, an increase of approximately 3 times growing at a CAGR of 24% during the period FY06-FY11 and a 37% increase over FY10.

Convergence of NBFC with Banks

RBI policy guidelines from time to time has led to a convergence of NBFCs to Banks;  and NBFCs that were earlier allowed to be converted into banks were M/s Kotak Mahindra Finance Ltd and M/s 20th Century Finance Ltd. While Kotak Mahindra Bank has diversified into various financial services, 20th Century became Centurion Bank; it was taken over by a bunch of private equity investors and eventually merged with HDFC Bank. Two of the other new licensees in the early 1990s—HDFC Bank and UTI Bank (renamed Axis Bank)—have become very successful private banks. M/s Ashok Lyland Finance Ltd merger with the Indusind Bank was the first Merger of an NBFC with a Bank.

The new RBI guidelines clearly eliminate chances of groups engaged in broking and real-estate activities as contenders - it offers adequate flexibility to RBI for 'choosing' the promoters of new banks. RBI has also kept subjectivity in lots of cases (like diversified ownership, professional management, feedback from regulators Tax, CBI, ED etc., coupled with assessment of business plan with regard to financial inclusion); these subjectivity will help RBI to keep final discretion in granting the licenses. Key highlights of the draft include a minimum capital requirement of Rs 500 crore, a 49 percent cap on foreign shareholding and the barring of corporate groups with 10 percent or more of their income or assets from/in the broking and real estate businesses from applying for a bank licence. The guidelines also state that a new bank has to be set up through a non-operative holding company, which will not only hold the bank but also all other financial services companies. If the promoter already has a non-banking finance company (NBFC), that NBFC can either be converted into a bank or pass on all banking-related activities to the new bank. However, NBFCs returns on assets (RoA) and equities (RoE) will slide, as the returns of banks are much lower than those of NBFCs. For instance, M&M Finance earns 4.5 percent on its assets and about 24 percent on equity. The best private bank, in contrast, earns just 1.6 percent on its assets and less than 20 percent on equity.

Implication of RBI working Group on Small NBFCs.

The RBI-constituted panel, headed by its former deputy governor Usha Thorat, to tighten rules for NBFCs has proposed that these companies should have minimum assets of Rs 25 crore. Thorat has also suggested that their minimum equity capital be raised to 10% of risk-weighted assets from 7.5%.More than two-thirds of NBFCs face closure if the Usha Thorat panel recommendation on minimum asset size is implemented by the Reserve Bank of India, shutting a vital source of funding in many parts of the country. Nearly 9,000 companies lending to borrowers in small towns and villages that lack banking facilities could be in danger of losing their licences as their asset size is less than Rs 25 crore. Thus, it is expected 70% of NBFCs could go out of business if the proposed requirement of Rs 25 crore of financial assets is accepted. The moment the RBI implements the minimum requirement clause; these companies may be covered by the various acts governing moneylenders that are inimical to the corporate way of functioning; and there are 23 different money lending Acts in India, the NBFCs to follow, eventually once it get deregistered from RBI.

The Present Regulatory Architecture in Indian Financial Services

India’s current regulatory architecture for the financial sector is a maze (Mobis Philipose 2013). There are over 60 Acts with myriad rules and regulations that govern the sector, some of which have been written decades ago. In addition, many ad hoc changes have been made over time to these regulations. As things stand, the Indian financial sector is suffering from regulatory gaps, overlaps, inconsistencies and also provides opportunity for regulatory arbitrage. Securities and Exchange Board of India’s (Sebi) extended litigation against the Sahara group, and the recent investigations on alleged money laundering by some banks using insurance products are good examples of both regulatory gaps as well as opportunities for arbitrage.

Money Lending Acts in India

The nature of the money lending laws is regulatory, with emphasis being on protecting the
Interests of the borrowers by providing definite upper limits on rates of interest and curbing coercive Recovery practices. An examination of the money lending legislations by RBI, in 22 States, shows that the provisions are generally similar. The object of legislation pertaining to money lending is to regulate and control the business of money lenders. The history and object of enacting the money lending legislations can be inferred from the observations made by some High Courts. Thus, in Sk. Abdul Sattar v. Sitaram Sah and Anr.31, AIR 1988 Pat 233; observations of Honourable Mr. Justice S.K. Jha ,the Bihar High Court, observed as under:

"Before embarking upon this question, it is relevant to state at the outset that the Act was brought on the Statute book to consolidate and amend the law relating to regulation of money-lending transactions and to grant relief to the debtors in the State of Bihar.

The majority of legislations relating to money lending were passed by the various States of India
several decades ago. It is, therefore, pertinent to examine whether the legislations are still relevant.

The Group recommends that the term “bank” may include all banking companies, nationalised banks (corresponding new banks), State Bank of India, its subsidiary banks, Regional Rural Banks , Co-operative bank also being registered with and regulated by RBI. NBFCs should be exempt from the money lending legislation. Similarly, lending transactions by registered charitable societies and public trusts should also be exempted from the purview of the legislations. The Group also recommends that the State Government should be empowered to notify any other financial institution in consultation with the Reserve Bank for exemption from the provisions of the legislation ( rbi on money lending).

As of now, the NBFCs which is regulated by the RBI cannot face overlapping regulation from the State law-Money Lending Acts, the Supreme Court ruling Radhey Estate Developers vs Mehta Integrated Finance Co Ltd., a Division Bench of Gujarat High Court (ruling dated 26th April 2011) ruled that the Bombay Money Lenders Act, as applicable to the State of Gujarat, does not apply to non-banking financial companies which are regulated by the RBI  will operate only in respect of such NBFCs which are registered with the RBI. There are tens of thousands of companies that carry NBFC business, though without any registration. The Kerala High court has in Link Hire-Purchase And Leasing Co. (Pvt.) Ltd. And Premier Kuries And Loans (Private) Ltd. vs State Of Kerala And Ors. 103 Comp. Cas 941 (Ker) held that the money lending laws of the State are applicable to a company even if the company is a registered NBFC. However, the same was challenged by NBFCs in Supreme Court, and is pending as a Civil Appeal for final verdict.

Thus the Technical Group feels that the above measures would narrow down the scope of the legislation, allowing the administering authorities to concentrate on the regulation of pure money lending transactions by individuals and entities conducting business with a profit motive. ( rbi on money lending). The State Government in consultation with the State Level Bankers’ Committee (SLBC) could link the rate to a bench-mark with a maximum mark up permitted over the bench mark to factor in other costs, ease of access, doorstep delivery and reasonable margin.

NBFC Laws – Applicability of the Usurious Loans Act, 1918 & the Interest Act, 1978.

 The Usurious Loans Act, 1918 is also currently applicable to transactions relating to money
lending. The Usurious Loans Act, 1918 (ULA) was enacted with the object of preventing the Civil Courts being used for the purpose of enforcing harsh and unconscionable loans carrying interest at usurious rates. The State Government has been empowered to exempt, by way of notification in

Official Gazette, any area, class of transactions or class of persons from the applicability of ULA. ULA provides guidelines to the Court for examining whether a particular rate of interest can be considered to be excessive or not and also for considering whether a transaction is substantially unfair or not. The ULA is applicable to all suits as mentioned above irrespective of the parties involved in the disputes. Therefore, the Act is also applicable to suits in which a moneylender is a party. (Section 1(3) of the Usurious Loans Act, 1918). Even if there is no prohibition under ULA against charging of compound interest, the Courts have a duty of examining the transaction as a whole and ascertaining whether in a given case, the transaction is unfair or the rate of interest is usurious.( *AIR 1982 Mad 296 (303)). Though not a part of the overall body of laws relating to money lending, there is one more Act, viz ,the Interest Act, 1978 which can also be applied by Courts while granting interest in suits.

GOLD LOAN-NBFCs.

The RBI Working Group headed by KUB Rao also expressed concern on some gold loan NBFCs which have been raising public deposits surreptitiously through unincorporated bodies .There are interlink ages within the gold loan NBFC segment in the form of gold loan NBFCs floating unincorporated sister concerns to undertake financial activities, which are not permitted by the financial regulator. Such activities primarily involve raising public deposits and diverting these funds towards registered gold loan NBFC. Raising public deposits by such illegitimate means can have implications for public confidence in the concerned NBFCs and non-banking financial sector as a whole.

KUB Rao panel, finding large numbers of complaints are being received against the NBFCs, suggested a need for an ombudsman to hear the grievances.

The Chit Fund Business

In the Chit Fund Business too there is multiple rules and regulation , and different states with different enactments, and  'The Chit Funds Act 1982' by the Parliament of Union Government is the Central Act. Most of the provisions of the Central Act apply to the Chit funds run in different parts of India. However, the State Acts may override certain provisions as deemed necessary.For Eg:- Kerala Chitties Act, 1975, also imposes other stringent rules that have resulted in many companies registering themselves outside the state (primarily in Jammu and Kashmir where the Central Act does not apply). One should also note that in states which do not enact a State Chit Fund Act, the Central Act will automatically prevail.

Co-ordination among Financial Markets

Financial Stability and Development Council ,FSDC, the apex level regulatory body , was formed to bring greater coordination among financial market regulators. The council is headed by the finance minister and has the Reserve Bank of India (RBI) governor and chairpersons of the Securities and Exchange Board of India, Insurance Regulatory and Development Authority and Pension Fund Regulatory and Development Authority as other members along with finance ministry officials.

FSDC envisages to strengthen and institutionalise the mechanism of maintaining financial stability, financial sector development, inter-regulatory coordination along with monitoring macro-prudential regulation of economy, by maintaining the autonomy of Institutions like RBI , SEBI , IRDA & PFRDA e.t.c..

On tap RBI approvals for New Banks

RBI approval for IDFC and Bandhan Financial Services Private Ltd to set up banks, from a field of 25 aspirants for licenses opened the convergence model from Non- Banking to Banking. Incidentally, both IDFC and Bandhan are non-banking finance companies. While Mumbai-based IDFC is classified as an infrastructure finance company, Kolkata-based Bandhan is a microfinance institution. Going forward, the RBI intends to use the learning from this exercise to revise guidelines appropriately and give licences more regularly, that is, virtually “on tap”. It will also frame categories of differentiated bank licences, building on its prior discussion paper, and allowing for a wider pool of entrants into the banking sector, especially of Non-Banking players belonging to Shadow Banking.

The Bandhan Effect.

The Bengal-based microfinance institution has grown manifold since its inception in 2001. The Bandhan Micro Finance Institution roots lie in a society named Bandhan Konnagar, which began lending in 2002. In May 2006, Bandhan acquired a non-banking finance company, Ganga Niryat Pvt Ltd, which was incorporated in 1995, and rechristened it Bandhan Financial Services Private Limited. This was converted into a non-banking finance company (microfinance institution) in September 2013.

Regulations for Convergence

Similar to Banking Ombudsman, there has to be a separate Ombudsman type mechanism for multi-legislated Money Lending & Chit Funds / Sector Specific NBFCs like Gold Loan e.t.c., and a separate regulator for Chit Funds and NBFCs left out form the RBI Registrations and a clear legislations in line with RBI Study group as to the applicability of Money Lending legislations limited to Individuals , with clear rules and regulations for unregistered MFIs / SHGs so as to bring all unregistered entities or (Unincorporated bodies (UIBs) .

 In terms of provision of section 45S of the RBI Act, UIBs are prohibited from accepting any deposit. The state government has to play a proactive role in arresting the illegal activities of such entities to protect interests of depositors / investors. UIBs do not come under the regulatory domain of RBI. Whenever RBI receives any complaints against UIBs, it immediately forwards the same to the state government police agencies (Economic Offences Wing (EOW)).

The Bandhan Effect with RBI Model of “on tap” for new Banking Licences along with regulatory co-ordination by Regulators are expected to pave the way for convergence of the informal credit intermediaries to formal Banking Sector in Indian Financial Service Sector.