Winding up of Banking Company

Banking companies are formed basically for the purpose of providing the provision of depositing money to the public & to lend loans to people who are in need.

But due to certain contingencies banking companies have to be closed down , which is known as winding up . In this process, the court collects all assets of company for paying company debts or giving contribution of its members, if necessary, & if any surplus still exists after setting off company debts, then it will be distributed among members according to their rights.

The Reserve Bank of India supervises the procedure of winding up of banking companies.

NEED OF WINDING UP OF BANKING COMPANY-

The Banking company may be required to wind up due to following reasons-

  1. Compulsory Winding up due to the order of High Court u/s 38 of the Act.
  2. Voluntary winding up.

COMPULSORY WINDING UP OF BANKING COMPANY

The High court can order the winding up of the company due to the following reasons-

  • If the Banking company is unable to pay its debts,
  • If an application for its winding up has been made by the Reserve Bank u/s 37 of the act , which is due to the following conditions-
  1. If the banking company has failed to comply the specified requirements in Section 11 of Banking Regulation Act, 1949.
  2. If banking company has failed to comply the requirements for the reasons of provisions of Section 22 of Banking Regulation Act, 1949.
  3. If the banking company is prohibited from receiving fresh deposits by an order.
  4. If banking company continues such failure and contravention with any provision of this act

In case of compulsory winding up of banking company, an official liquidator is appointed by the court for the purpose. RBI, State Bank of India or any other bank (which is notified by central government) or a person can become a liquidator of banking company and perform for vacating office of winding up company.

The expenses of such winding up will be borne from the assets of the bank being wound up

VOLUNTARY WINDING UP OF BANKING COMPANY-

As per section 44(1) a company can be voluntarily wound up in following situations-

  1. If the bank & creditor themselves settle their dues without going to the court.
  2. If the RBI certifies in writing that the banking company concerned is capable to pay its debts in full as and when they accrue.

In case of voluntary winding up, it should be done under the supervision of high court.

Further, the High Court can order voluntary winding up proceeding to be conducted by an order of high court, if it believes out of its own motion or on an application made by the RBI that :

  • The banking company is unable to pay its debts as they accrue, or,
  • When voluntary winding up under the supervision of court is detrimental to the interests of the depositors.

 

Thus, in simple words Winding up of a company basically means closing down of its business in which all its assets are sold out so as to repay the debts of that bank.

 

Accounting & Finance for Banking

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Accounting and Finance for Banking Module A Pdf

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Accounting and finance for bankers all ePDFs are available in our an app. Get them all at https://iibf.info/app

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