Section 15 of The Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970
- (1)All acts done by the Custodian, acting in good faith, shall, notwithstanding any defect in his appointment or in the procedure, be valid.
- (2)No act or proceeding of any Board of Directors or a local board or committee of a corresponding new bank shall be invalid merely on the ground of the existence of any vacancy in, or defect in the constitution of, such board or committee, as the case may be.
- (3)All acts done by a person acting in good faith as a director or member of a local board or committee of a corresponding new bank shall be valid, notwithstanding that it may afterwards be discovered that his appointment was invalid by reason of any defect or disqualification or had terminated by virtue of any provision contained in any law for the time being in force: Provided that nothing in this section shall be deemed to give validity to any act by a director or member of a local board or committee of a corresponding new bank after his appointment has been shown to the corresponding new bank to be invalid or to have terminated.
Summary
- If the Custodian makes a decision in good faith, that decision is legally valid even if there was a defect in how the Custodian was appointed or a flaw in the procedure.
- A decision made by the Board of Directors or a committee is not invalid just because there is an empty seat or a defect in how the board was put together.
- If a director or committee member acts in good faith, their actions remain valid even if it is later discovered that they were not qualified, their appointment was flawed, or their term had already ended by law.
- However, once it has been officially shown to the bank that a director's appointment is invalid or has ended, any actions they take after that point are no longer protected and are invalid.
Practical examples
FAQ
1. What happens if the bank realizes they hired the Custodian using the wrong paperwork?
As long as the Custodian was doing their job honestly and in good faith, the decisions they made before the paperwork error was discovered remain legally binding.
2. Can a borrower cancel their loan if they find out the bank's board was missing a member when the loan was approved?
No, the law clearly states that vacancies on the board do not invalidate the proceedings or decisions of that board.
3. Is a director protected if they secretly know their term has ended but keep signing documents anyway?
No, the protection only covers actions done in good faith before the invalidity is formally shown to the bank.
Test yourself
Q1.Under Section 15 of The Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, what happens if the Board of Directors passes a resolution while there is an active vacancy on the board?
Q2.Under Section 15 of The Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, what is the crucial requirement for an act by the Custodian to remain valid despite a defect in their appointment?
Q3.Under Section 15 of The Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, when does a director lose the protection that validates their acts despite an invalid appointment?
Q4.Under Section 15 of The Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, which of the following scenarios would most likely invalidate a committee's decision?