TRANSFER AND VESTING OF THE UNDERTAKING OF RECONSTRUCTION BANK IN COMPANYCentral
Section 4 of The Industrial Reconstruction Bank (Transfer of Undertakings and Repeal) Act, 1997
- (1)The Central Government, being the shareholder of the Reconstruction Bank immediately before the appointed day, shall be deemed to be registered, on and from the appointed day, as a shareholder of the Company.
- (2)The undertakings of the Reconstruction Bank which are transferred to, and which vest in, the Company under section 3 shall be deemed to include all business, assets, rights, powers, authorities and privileges and all properties, movable and immovable, real and personal, corporeal and incorporeal, in possession or reservation, present or contingent of whatever nature and wheresoever situate including lands, buildings, vehicles, cash balances, deposits, foreign currencies, disclosed and undisclosed reserves, reserve fund, special reserve fund, benevolent reserve fund, any other fund, stocks, investments, shares, bonds, debentures, security, management of any industrial concern, loans, advances and guarantees given to industrial concerns, tenancies, leases and book debts and all other rights and interests arising out of such property as were immediately before the appointed day in the ownership, possession or power of the Reconstruction Bank in relation to its undertakings, within or without India, all books of account, registers, records and documents relating thereto and shall also be deemed to include all borrowings, liabilities and obligations of whatever kind within or without India then subsisting of the Reconstruction Bank in relation to its undertakings.
- (3)All contracts, deeds, bonds, guarantees, powers of attorney, other instruments and working arrangements subsisting immediately before the appointed day and affecting the Reconstruction Bank shall cease to have effect or to be enforceable against the Reconstruction Bank and shall be of as full force and effect against or in favour of the Company in which the undertakings of the Reconstruction Bank have vested by virtue of this Act and enforceable as fully and effectually as if instead of the Reconstruction Bank, the Company had been named therein or had been a party thereto.
- (4)Any proceeding or cause of action pending or existing immediately before the appointed day by or against the Reconstruction Bank in relation to its undertakings may, as from the appointed day, be continued and enforced by or against the Company in which the undertakings of the Reconstruction Bank have vested by virtue of this Act as it might have been enforced by or against the Reconstruction Bank if this Act had not been enacted and shall cease to be enforceable by or against the Reconstruction Bank
Summary
- The Central Government, being the shareholder of the Reconstruction Bank immediately before the appointed day, is deemed to be registered as a shareholder of the Company.
- Transferred undertakings include all business, assets, rights, powers, properties, cash balances, deposits, foreign currencies, reserves, stocks, investments, loans, advances, guarantees, leases, and books of account within or without India.
- Transferred undertakings also include all borrowings, liabilities, and obligations of the Reconstruction Bank.
- Existing contracts, deeds, bonds, guarantees, powers of attorney, and working arrangements cease to have effect against the Reconstruction Bank and become fully enforceable against or in favor of the Company.
- Pending legal proceedings or causes of action by or against the Reconstruction Bank can be continued and enforced by or against the Company, and cease to be enforceable by or against the Reconstruction Bank.
Practical examples
1Before 27th March, 1997, the Reconstruction Bank had a pending lawsuit against a defaulting company, Zenith Industries, for a recovery of 10 lakh rupees. Under Section 4, on the appointed day, the lawsuit did not expire, and instead, the Company took over the legal case to continue court proceedings against Zenith Industries.
2A corporate client named Rohan had a written contract with the Reconstruction Bank signed on 1st January, 1997. On the appointed day, Rohan's contract automatically switched, and the original agreement became legally binding on the Company as if the Company had been a party to it from the start.
FAQ
1. What happens to the Central Government's shares on the appointed day?
The Central Government, which was the shareholder of the Reconstruction Bank, is deemed to be registered as a shareholder of the Company.
2. Are both assets and liabilities of the Reconstruction Bank transferred to the Company?
Yes, Section 4 specifies that the undertakings include both all properties, assets, and reserves as well as all borrowings, liabilities, and obligations.
3. What happens to active contracts that were signed with the Reconstruction Bank?
They cease to be enforceable against the Reconstruction Bank and become fully enforceable by or against the Company.
4. What happens to pending legal cases involving the Reconstruction Bank?
They can be continued and enforced by or against the Company, and they can no longer be enforced by or against the Reconstruction Bank.
5. Does the transfer cover assets located outside India?
Yes, Section 4 covers all properties, assets, borrowings, and liabilities within or without India.
Test yourself
Q1.Who is deemed to be registered as a shareholder of the Company on the appointed day?
Q2.Under Section 4(2), which of the following is NOT listed as part of the transferred assets?
Q3.What happens to contracts subsisting immediately before the appointed day according to Section 4(3)?
Q4.How are pending court cases handled under Section 4(4)?
Q5.Does the vesting of assets and liabilities apply to items outside of India?