18. Power of direct discount When, in the opinion of the Bank a special occasion has arisen making it necessary or expedient that action should be taken under this section for the purpose of regulating credit in the interests of Indian trade, commerce, industry and agricultural, the Bank may, notwithstanding any limitation contained in section 17,
(1) purchase, sell or discount any bill of exchange or promissory note though such bill or promissory note is not eligible for purchase or discount by the Bank under that section; or
(3) make loans or advances to
(a) a State co operative bank, or
(b) on the recommendation of a State co operative bank, to a cooperative society registered within the area in which the State cooperative bank operates, or
(c) any other persons,
repayable on demand or on the expiry of the fixed periods, not exceeding ninety days, on such terms and conditions as the Bank may consider to be sufficient.
18A. Validity of loan or advance not to be questioned Notwithstanding anything to the contrary contained in any other law for the time being in force—
(a) the validity of any loan or advance granted by the Bank in pursuance of the provisions of this Act shall not be called in question merely on the ground of non compliance with the requirements of such other law as aforesaid or of any resolution, contract, memorandum, articles of association or other instrument.
Provided that nothing in this clause shall render valid any loan or advance obtained by any company or co operative society where such company or co operative society is not empowered by its memorandum to obtain loans or advances:
(b) where a loan or advance has been granted under clause (3A) or under clause (3B) of section 17 or a loan or advance granted under clause (3) of section 18 by the Bank to any person has been applied by such person, wholly or in part, in making a loan or advance to any borrower, any sum received
(i) by the borrowing bank on account of bills of exchange in respect of which the declaration under clause (i) of the proviso to clause (3A) of section 17 has been furnished or in repayment or
I Clause (2) omitted by Act 24 of 1978
The Reserve Bank of India Act, 1934 17
realisation of the outstanding loans and advances referred to in clause (ii) of the said proviso or in the proviso to clause (3B) of the said section, or
(ii) by the borrowing bank or any other person in repayment or
realisation of loans and advances granted to a borrower out of
funds obtained by it or by him from the Bank under section 18,
shall be utilised only for the repayment by the borrowing bank or other person, as the
case may be, of the amounts due to be repaid by it or by him to the Bank, and shall be
held by it or by him in trust for the Bank, until such time as the amounts are so repaid.
19.Business which the Bank may not transact Save as otherwise provided in section 17, 18, 42 and 45, the Bank may not—
(1) engage in trade or otherwise have a direct interest in any commercial, industrial, or other undertaking except such interest as it may in any way acquire in the course of the satisfaction of any of its claims: provided that all such interests shall be disposed of at the earliest possible moment;
(2) purchase the shares of any banking company or of any other company, or grant loans upon the security of any such shares;
(3) advance money on mortgage of, or otherwise on the security of, immovable property or documents of title relating thereto, or become the owner of immovable property, except so far as is necessary for its own business premises and residences for its officers and servants;
(4) make loans or advances;
(5) draw or accept bills payable otherwise than on demand;
(6) allow interest on deposits or current accounts.
CENTRAL BANKING FUNCTIONS
20. Obligation of the Bank to transact Government business The Bank shall undertake to accept monies for account of the Central Government and to make payments up to the amount standing to the credit of its account, and to carry out its exchange, remittance and other banking operations, including the management of the public debt of the Union.
21. Bank to have the right to transact Government business in India—
(1) The Central Government shall entrust the Bank, on such conditions as may be agreed upon, with all its money, remittance, exchange and banking transactions in India, and, in particular, shall deposit free of interest all its cash balances with the Bank.
Provided that nothing in this sub section shall prevent the Central Government from carrying on money transactions at places where the Bank has no branches or agencies, and the Central Government may hold at such places such balances as it may require.
18 The Reserve Bank of India Act. 1934
(2) The Central Government shall entrust the Bank, on such conditions as may be agreed upon, with the management of the public debt and with the issue of any new loans.
(3) In the event of any failure to reach agreement on the conditions referred to in this section the Central Government shall decide what the conditions shall be.
(4) Any agreement made under this section shall be laid, as soon as may be after it is made before Parliament.
21A. Bank to transact Government business of States on agreement (1) The Bank may by agreement with the Government of any state undertake—
(a) all its money, remittance, exchange and banking transactions in India, including in particular, the deposit, free of interest, of all its cash balances with the bank; and
(b) the management of the public debt of, and the issue of any new loans by, that State.
(2) Any agreement made under this section shall be laid, as soon as may be after it is made, before Parliament.
21B. Effect of agreements made between the Bank and certain States before the 1st November, 1956 (1) Any agreement made under section 21 or section 21 A between the Bank and the Government of a State specified in the Explanation below and in force immediately before the 1st day of November, 1956, shall, as from that day have effect as if it were an agreement made on that day under section 21A between the Bank and the Government of the corresponding State subject to such modifications, if and being of a character not affecting the general operation of the agreement, as may be agreed upon between the Bank and the Government of the corresponding State, or in default of such agreement, as may be made therein by order of the Central Government.
Explanation In this sub section" corresponding State" means,
(a) in relation to the agreement between the Bank and the State of Andhra, the State of Andhra Pradesh;
(b) in relation to the agreement between the Bank and any other Part A State as it existed before the 1st day of November, 1956, the State with the same name; and
(c) in relation to the agreement between the Bank and the Part B State of Mysore or Travancore Cochin as it existed before the 1st day of November, 1956 the State of Mysore or Kerala respectively.
(2) Any agreement made under section 21A between the Bank and the Government of the Part B State of Hyderabad, Madhya Bharat or Saurashtra shall be deemed to have terminated on the 31st day of October, 1956.
1 Clause (5) omitted by Act 24 of 1978.
The Reserve Bank of India Act, 1934 19
22. Right to issue bank notes (1) The Bank shall have the sole right to issue bank notes in India, and may, for a period which shall be fixed by the Central Government on the recommendation of the Central Board, issue currency notes of the Government of India supplied to it by the Central Government, and the provisions of this Act applicable to bank notes shall, unless a contrary intention appears, apply to all currency notes of the Government of India issued either by the Central Government or by the Bank in like manner as if such currency notes were bank notes, and references in this Act to bank notes shall be construed accordingly.
(2) On and from the date on which this Chapter comes into force the Central Government shall not issue any currency notes.
23. Issue Department (1) The issue of bank notes shall be conducted by the Bank in an Issue Department which shall be separated and kept wholly distinct from the Banking Department, and the assets of the Issue department shall not be subject to any liability other than the liabilities of the Issue Department as hereinafter defined in section 34.
(2) The Issue department shall not issue bank notes to the Banking department or to any other person except in exchange for other bank notes or for such coin, bullion or securities as are permitted by this Act to form part of the Reserve.
24. Denomination of notes (1) Subject to the provisions of sub section (2) bank notes shall be of the denominational values of two rupees, five rupees, ten rupees, twenty rupees, fifty rupees, one hundred rupees, five hundred rupees, one thousand rupees, five thousand rupees and ten thousand rupees or of such other denominational values, not exceeding. ten thousand rupees, as the Central Government may, on the recommendation of the Central Board, specify in this behalf.
(2) The Central Government may, on the recommendation of the Central Board, direct the non issue or the discontinuance of issue of bank notes of such denominational values as it may specify in this behalf.
25. Form of bank notes The design, form and material of bank notes shall be such as may tie approved by the Central Government after consideration of the recommendations made by the Central Board.
26. Legal tender character of notes (1) Subject to the provisions of sub section (2), every bank notes shall be legal tender at any place in India in payment or on account for the amount expressed therein, and shall be guaranteed by the Central Government.
(2) On recommendation of the Central Board the Central Government may, by notification in the Gazette of India, declare that, with effect from such date as may be specified in the notification, any series of bank notes of any denomination shall cease to be legal tender save at such office or agency of the Bank and to such extent as may be specified in the notification.
I Clause (3) omitted by Act 24 of 1978.
20 The Reserve Bank of India Act, 1934
26A. Certain bank notes to cease to be legal tender Notwithstanding anything contained in section 26, no bank note of the denominational value of five hundred rupees, one thousand rupees or ten thousand rupees issued before the 13th day of January, 1946, shall be legal tender in payment or on account for the amount expressed therein.
27. Re issue of notes The Bank shall not re issue bank notes which are torn. defaced or excessively spoiled.
28. Recovery of notes lost, stolen, mutilated or imperfect Notwithstanding anything contained in any enactment or rule of law to the contrary, no person shall of right be entitled to recover from the Central Government or the Bank, the value of any lost, stolen, mutilated or imperfect currency note of the Government of India or bank note.
Provided that the Bank may, with the previous sanction of the Central Government, prescribe the circumstances in and the conditions and limitations subject to which the value of such currency notes or bank notes may be refunded as of grace and the rules made tinder this proviso shall be laid on the table of Parliament.
28A. Issue of special bank notes and special one rupee notes in certain cases (1) For the purpose of controlling the circulation of bank notes without India, the Bank may, notwithstanding anything contained in any other provision of this Act. issue bank notes of such design, form and material as may be approved under sub section (3) (hereinafter in this section referred to as special bank notes) of the denominational values of five rupees, ten rupees and one hundred rupees.
(2) For the purpose of controlling the circulation of Government of India one rupee notes without India, the Central Government may, notwithstanding anything contained in any other provision of this Act or in the Currency Ordinance, 1940 (Ordinance 4 of 1940), issue Government of India notes of the denominational value of one rupee of such design, form and material as may be adopted under sub section (3) (hereinafter in this section referred to as special one rupee notes).
(3) The design, form and material of the special bank notes shall be such as may be approved by the Central Government after consideration of the recommendations made by the Governor and of the special one rupee notes shall be such as the Central Government may think fit to adopt.
(4) Neither the special bank notes nor the special one rupee notes shall be legal tender in India.
(5) The special one rupee note shall be deemed to be included in the expression "rupee coin" for all the purposes of this Act except section 39, but shall be deemed not to be a currency note for any of the purposes of this Act.
(6) Where a special bank note is on its face expressed to be payable at a specified office or branch of the Bank, the obligation imposed by section 39 shall be only on the
I Omitted by Act 24 of 1978.
The Reserve Bank of India Act. 1934 21
specified office or branch and, further, shall be subject to such regulations as may be made under this section.
(7) The Bank may, with the previous sanction of the Central Government make regulations to provide for all matters for which provision is necessary or convenient for the purpose of giving effect to the provisions of this section, and, in particular, the manner in which, and the conditions or limitations subject to which
(i) bank notes and one rupee notes in circulation in any country outside India may be replaced by special notes issued under this section;
(ii) any such special notes may be exchanged for any other bank notes or one rupee notes.
29. Bank exempt from stamp duty on bank notes The Bank shall not be liable to the payment of any stamp duty under the Indian Stamp Act, 1899 (2 of 1899), in respect of bank notes issued by it.
30. Powers of Central Government to supersede Central Board (1) If in the opinion of the Central Government the Bank fails to carry out any of the obligations imposed on it by or under this Act the Central Government may, by notification in the Gazette of India, declare the Central Board to be superseded, and thereafter the general superintendence and direction of the affairs of the Bank shall be entrusted to such agency as the Central Government may determine, and such agency may exercise the powers and do all acts and things which may be exercised or done by the Central Board under this Act.
(2) When action is taken under this section the Central Government shall cause a full report of the circumstances leading to such action and of the action taken to be laid before Parliament at the earliest possible opportunity and in any case within three months from the issue of the notification superseding the Board.
31.Issue of demand bills and notes (1) No person in India other than the Bank, or, as expressly authorised by this Act the Central Government shall draw, accept, make or issue any bill of exchange, hundi, promissory note or engagement for the payment of money payable to bearer on demand, or borrow, owe or take up any sum or sums of money on the bills, hundies or notes payable to bearer on demand of any such person.
Provided that cheques or drafts, including hundies, payable to bearer on demand or otherwise may be drawn on a person's account with a banker, shroff or agent.
(2) Notwithstanding anything contained in the Negotiable Instrument Act, 1881 (26 of 1881), no person in India other than the Bank or, as expressly authorised by this Act, the Central Government shall make or issue any promissory note expressed to be payable to the bearer of the instrument.
32.Penalty [Repealed by the Reserve Bank of India (Amendment) Act, 1974 (51 of 1974).
33. Assets of the Issue Department (I) The assets of the Issue Department shall consist of gold coin, gold bullion, foreign securities, rupee coin and rupee securities to
22 The Reserve Bank of India Act, 1934
such aggregate amount as is not less than the total of the liabilities of the Issue Department as hereinafter defined.
(2) The aggregate value of the gold coin, gold bullion and foreign securities held as assets and the aggregate value of the gold coin and gold bullion so held shall not at any time be less than two hundred crores of rupees and one hundred and fifteen crores of rupees, respectively.
'[(3) The remainder of the assets shall be held in rupee coin, Government of India rupee securities of any maturity, promissory notes drawn by the National Bank for any loans or advances under clause(4E) of section 17 and such bills of exchange and promissory notes payable in India as are eligible for purchase by the Bank under sub-clause (a) or sub clause (b) or sub clause (bb) of clause (2) of section 17 or under clause (1) of section 18.]
(4) For the purposes of this section, gold coin and gold bullion shall be valuated at '[a price not exceeding the international market price for the time being obtaining,] rupee coin shall be valued at its face value, and securities shall be valued at rates not exceeding the market rates for the time being obtaining.
(5) Of the gold coin and gold bullion held as assets, not less than seventeen-twentieths shall be held in India, and all gold coin and gold bullion held as assets shall be held in the custody of the Bank or its agencies.
Provided that gold belonging to the Bank which is in any other bank or in any mint or treasury or in transit may be reckoned as part of the assets.
(6) For the purposes of this section, the foreign securities which may be held as part of the assets shall be
(i) securities of the following kinds payable in the currency of any foreign country which is a member of the International Monetary Fund, namely:
(a) balances with the bank which is the principal currency authority of that foreign country and any other balances or securities in foreign currency maintained with or issued by the International Monetary Fund, the International Bank for Reconstruction and Development, the International Development Association or the International Finance Corporation or Asian Development Bank or the Bank for International Settlements or any banking or financial institution '[approved]by the Central Government in this behalf, provided that they are repayable within a period of ten years;
(b) bills of exchange bearing two or more good signatures and drawn on and payable at any place in that foreign country and having a maturity not exceeding ninety days;
(c) Government securities of that foreign country maturing within ten years;
1 Subs. by Act 61 of 1981, w.e.f.1 5 1982.
2 The Proviso omitted by Ordinance 3 of 1941, S.2.
3 Subs. Act 8 of 1991, S.2, for the figures and words "0,.118489 grammes of fine gold per rupee", w.e.f.15-10 1990.
4 Subs. by Act I of 1984, w.e.f.I5 2 1984.
The Reserve Bank of India Act, 1934 23
(ii) any drawing rights representing a liability of the International Monetary Fund.
34.LiabiIities of the issue department (1) The liabilities of the Issue Department shall be an amount equal to the total of the amount of the currency notes of the Government of India and bank notes for the time being in circulation.
35. Initial assets and liabilities 3[* * *J.
36. Method of dealing with fluctuations in rupee coin assets 4[* * *].
37. Suspension of assets requirements as to foreign securities Notwithstanding anything contained in the foregoing provisions, the Bank may, with the previous sanction of the Central Government, for periods not exceeding six months in the first instance, which may, with the like sanction, be extended from time to time by periods not exceeding three months at a time, hold as assets foreign security of less amount in value than that required by sub section (2) of section 33.
38. Obligations of Government and the Bank in respect of rupee coin The Central Government shall undertake not to put into circulation any rupees. except through the Bank, and Bank shall undertake not to be dispose of rupee coin otherwise than for the purposes of circulation.
39. Obligation to supply different forms of currency (1) The Bank shall issue rupee coin on demand in exchange for bank notes and currency notes of the Government in India, and shall issue Currency notes or Bank notes on demand in exchange for coin which is legal tender under the Indian Coinage Act 1906 (3 of 1906).
(2) The Bank shall, in exchange for currency notes or bank notes of two rupees or upwards, supply currency notes or bank notes of lower value or other coins which are legal tender under the Indian Coinage Act,1906 (3 of 1906), in such quantities as relay in the opinion of the Bank, be required for circulation; and the Central Government shall supply such coin to the Bank on demand. If the Central Government at any time fails to supply such coins, the Bank shall be released from its obligations to supply them to the public.
I Omitted by Act 55 of 1963, S.2, w.e.f.1.2.1964
2 Omitted by .Act 11 of 1947, S.19, sv.e.f.1.4.1947. previously Ins. by the M.O.1937
3 Repealed by Act 62 of 1948, S.7 and Sch.w.e.f1 1 1949
4 Repealed by Act 55 of 1963, S.3, w.e.f.I 2-1964
5 Proviso omitted by Act 48 of 1957, S.3, w.e.f.31.10.1957
24 The Reserve Bank of India Act, 1934
'(40. Transactions in foreign exchange The Bank shall sell to or buy from any authorised person who makes a demand in that behalf at its office in Bombay, Calcutta, Delhi of — Madras or at such of its branches as the Central Government may, by order, determine, foreign exchange at such rates of exchange and on such conditions as the Central Government may from time to time by general or special order determine, having regard so far as rates of exchange are concerned to its obligations to the International Monetary Fund.
Provided that no person shall be entitled to demand to buy or sell foreign exchange of a value less than two lakhs of rupees.
Explanation In this section "authorised person" means a person who is entitled by or under the Foreign Exchange Regulation Act, 2[ 1973(46 of 1973 )] to buy, or as the case may be, sell, the foreign exchange to which his demand relates.]
41A. Obligation to provide remittance between India and Burma 3[* * *].
42. Cash reserve of scheduled banks to be kept with the Bank—(1) Every bank included in second Schedule shall maintain with the Bank an average daily balance the amount of which shall not be less than three percent of the total of the demand and time liabilities in India of such bank as shown in the return referred to in sub section(2).
Provided that the Bank may, by notification in the Gazette of India, increase the said rate to such higher rate as may be specified in the notification so however, that the rate shall not be more than 4[twenty per cent] of the total of the demand and time liabilities.