The merger by and between banking companies are outside the ambit of the Companies Act,1956 and take place according to the Banking Regulation Act,1949. However, any scheme of amalgamation between a bank and a company within the meaning of the provisions of the Companies Act, 1956 not in banking business, is required to be approved in the first instance by the High Court of the State in which the registered office of such company is situated. Thereafter approval from the Reserve Bank of India (RBI) can only put the scheme into force or effect.
The merger of banking companies is governed by Section 44A of the Banking Regulation Act, 1949. As observed in the case of Bank of Madura Shareholders’ Welfare Association vs. Governor, Reserve Bank of India (2001) 3 Company Law Journal 212 Madras that the said Section 44A of the said Act is a complete code on the amalgamation of banking companies.
Under the provisions of Section 44A of the said Banking Regulation Act the scheme of amalgamation is required to be approved by a majority in number representing at least 2/3 in value of the shareholders of each of the amalgamating banks present either in person or proxy at the respective general meetings of the said banks convened separately for consideration of the scheme.
Not only notice of such general meeting shall be given separately to every member of each of the amalgamating banks but also such notice shall be published at least once a week for 3 consecutive weeks in at least 2 newspapers which circulate in the locality of the concerned banking company, out of which one such newspaper shall be in a local language.
RBI has set new guidelines for merger of private sector banks on 11th May, 2005 bearing reference number DBOD. No. PSBS.BC 89/16.13.100/2004-05
However, merger under the Companies Act and amalgamation of banking companies under Section 44A of the Banking Regulation Act, 1949 broadly differ in two respects: -
While the concerned High Court sanctions the scheme under the Companies Act, the RBI is the approving authority under the Banking Regulation Act for merger of banks.
The RBI is authorized to determine the market value of the shares of the dissenting shareholders who have either voted against the scheme or who have given written notice of objection before the meeting of the banking company to the Presiding Officer concerned. The aggrieved shareholders of the amalgamating banking companies are entitled to such value of the shares as evaluated by the RBI.
RBI has set new guidelines for merger of non-banking finance companies with banks by its circular no. DBOD. No. PSBS.BC 89/21/ 02.043/2003-04. Pursuant to the same banks shall have to obtain prior approval of the RBI before initiating steps for merger of a non-banking finance company with the bank.
