Non-scheduled bank in India means a banking company as defined in clause (c) of Section 5 of the Banking Regulation Act, 1949 (10 of 1949), which is not a scheduled bank.

The scheduled commercial banks comprise State Bank of India, its subsidiaries and associates, nationalised banks, private sector banks, foreign banks, co-operative banks, and regional rural banks.

All these banks are under the control and supervision of RBI. No company shall carry on banking business in India unless it holds a licence issued by the Reserve Bank.

Several scheduled and non-scheduled banks are listed in stock exchanges and shares of such banks shares are freely tradable in the stock market. The protection of investors’ interest in such listed banks is very important and calls for more transparency in the matter of disclosure in the accounts of the banks.

Stockholders + depositors = stakeholders

Before the enactment of the Banking Regulation Act, the provisions relating to banking companies were administered through Part XA of the Indian Companies Act, 1913. The statement of objects and reasons for forming a separate Act, inter alia, provides that while the primary objective of the company law is to safeguard the interest of the stockholder, that of banking legislation should be the protection of the interest of the depositor.

At present, the shares of banks are listed and traded in the stock market. The S. S. Tarapore Committee on fuller capital account convertibility has recommended that all commercial banks should be subject to a single banking legislation and all banks, including public sector banks, should be incorporated under the Companies Act. Calling further abrogation of separate legislative frameworks for groups of private sector banks, the Committee said this would provide a level-playing field.

Establishment of IEPF

The Central Government has established the Investor Education and Protection Fund (IEPF) vide Notification No GSR 749 dated October 1, 2001, into which the following amounts shall be credited: a) amounts in the unpaid dividend accounts of companies; b) the application monies received by companies for allotment of any securities and due for refund; c) matured deposits with companies; d) matured debentures with companies; e) the interest accrued on the amounts referred to in clauses (a) to (d) above.

These amounts, which remained unclaimed and unpaid for a period of seven years from the date they became due for payment shall be credited to IEPF.

The amounts credited to IEPF shall be utilised for promotion of investor awareness and protection of the interests of investors in accordance with the rules formed thereunder. The amounts lying with private sector banks as unclaimed dividend or share application fall under Section 205C of the Companies Act and therefore, private sector banks are expected to comply with all the provisions and, more particularly, to transfer such funds to the IEPF.

The Government of India vide its Gazette Notification dated 26.09.2006 had amended certain provisions of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and a new Section 10B was introduced.

By virtue of the said amendment, all nationalised banks and SBI are treated on a par with private sector banks for complying with the provisions of transfer of unpaid/unclaimed dividend to IEPF established under Section 205C(1).

Positioning of unclaimed deposits

The unclaimed deposits lying in the banks is another serious issue. The acceptance of deposits from the public by banks do not fall within the definition of deposits as defined in Section 45-I(bb) of the RBI Act.

The explanation to the definition of “banking company” as defined in Section 5 of the Banking Regulation Act, clarifies the position, as follows: “Banking company” means any company which transacts the business of banking in India.

Explanation: Any company which is engaged in the manufacture of goods or carries on any trade and which accepts deposits of money from the public merely for the purpose of financing its business, such manufacturer or trader shall not be deemed to transact the business of banking within the meaning of this clause.

Therefore, banks enjoy the unclaimed deposits of deposit holders without transferring the same to IEPF