Section 12B of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
1[12B. Power of Reserve Bank to carry out audit and inspection.-- (1) The Reserve Bank may, for the purposes of this Act, carry out or caused to be carried out audit and inspection of an asset reconstruction company from time to time.
- (2)It shall be the duty of an asset reconstruction company and its officers to provide assistance and cooperation to the Reserve Bank to carry out audit or inspection under sub-section (1).
- (3)Where on audit or inspection or otherwise, the Reserve Bank is satisfied that business of an asset reconstruction company is being conducted in a manner detrimental to public interest or to the interests of investors in security receipts issued by such asset reconstruction company, the Reserve Bank may, for securing proper management of an asset reconstruction company, by an order--
- (a)remove the Chairman or any director or appoint additional directors on the board of directors of the asset reconstruction company; or
- (b)appoint any of its officers as an observer to observe the working of the board of directors of such asset reconstruction company: Provided that no order for removal of Chairman or director under clause (a) shall be made except after giving him an opportunity of being heard.
- (4)It shall be the duty of every director or other officer or employee of the asset reconstruction company to produce before the person, conducting an audit or inspection under sub-section (1), all such books, accounts and other documents in his custody or control and to provide him such statements and information relating to the affairs of the asset reconstruction company as may be required by such person within the stipulated time specified by him.]
Summary
- The Reserve Bank can perform audits and inspections of any asset reconstruction company at any time.
- Every officer and employee of the company is required by law to cooperate with the Reserve Bank during these checks.
- If a company's business is being run in a way that hurts the public or investors, the Reserve Bank can take strong action.
- The Reserve Bank has the power to fire the Chairman or any director of the company for bad conduct.
- The Bank can also appoint new directors or send its own officer as an observer to watch the company's board meetings.
- Before a Chairman or director is removed, the Reserve Bank must give that person a chance to be heard.
Practical examples
FAQ
1. Can the Reserve Bank appoint its own people to a reconstruction company's board under Section 12B of the Act?
Yes, Section 12B allows the Reserve Bank to appoint additional directors or an observer to watch the board's work.
2. Do employees have to hand over their personal computers for an RBI audit under Section 12B?
The law says they must produce all books, accounts, and other documents in their custody or control relating to the company's affairs.
3. Can a director be fired immediately if the Reserve Bank finds a problem under Section 12B?
No, Section 12B requires that the person be given an opportunity of being heard before an order for removal is made.
Test yourself
Q1.Under Section 12B of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, what is the duty of company officers during an RBI inspection?
Q2.According to Section 12B of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, what can the RBI do if a company is hurting the public interest?
Q3.Under Section 12B of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, what must happen before the RBI removes a director?
Q4.Under Section 12B of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, who can be appointed to observe board meetings?