From The Editorial Desk
Journal Section
*	Current Legal Reforms Initiative by Reserve Bank of India
*	Enforcement of Arbitral Awards Problems and Perspective
*	Is Bank Account ‘Property’ An examination of the Powers of the Police to seize Bank Accounts
*	Effect of Repealing and Amending Acts
Judgements Section
	Recent Judgements Relevant to Bankers
*	Judgements of the Madras High Court Relevant to Bankers
Legislation Section
*	The Prevention of Terrorism Act, 2002
Bibliography & Book Review
*	Select Bibliography
Book Review
*	Bank Frauds Including Computer Crimes and Credit Cards Crimes Prevention and Detection
L.D. NEWS
MAIL BAG

From the Editorial Desk

Alvin Toffler, in his book "Third Wave" has referred to three waves which have swapped the World - agricultural wave, industrial wave and electronic wave - the last one is still sweeping the World. In India, initiatives for payment system legislative measures have already begun considering its importance and complexity in right earnest. The Reserve Bank of India, as the monetary authority and Central Bank of the country has taken the lead. It is said that payment system is an integral part of the financial system which no Central Bank can afford to ignore and the RBI is no exception to the rule. A well functioning payment system is sine qua non for overall economic growth of the country. In contrast, an inefficient payment system threatens the stability of financial system and the economy. Hence it has to be ensured that payment system must be reliable, secure, open, coherent, participative, transparent, accountable, rule-based, flexible, self-sustaining, cost effective and above all, players friendly in which public confidence should become the order of the day. There is a marked shift in payment system over a period of years from paper-based manual processing to electronic-transfer-based computer processing. Payment system to be real and successful must be free from systemic risk which are generally due to improper disclosure, fraud , computer errors, customers dissatisfaction and so forth. Dispute resolution mechanism has to be put in proper place for vibrant and robust payment system in any country. Experiences of several countries in payment system mechanism is contributing a lot in improving payment system and its adoption in developing countries including India. In a fast moving financial world, now time is for "real time" and as such in India also, the move is towards Real Time Gross Settlement mechanism and to make it as an integral part of payment system legislative measures. History of progress of mankind has shown that sometimes it is law which precedes development but more often, law needs to evolve for dedicated development. Time is ripe in India for payment system legislative measures to be taken as an integral part of financial sector reforms.

The present issue begins with an article on the initiatives taken by the Reserve Bank in the current legal reforms in the banking and financial sector. It is followed by an article dealing with the problems and perspective of enforcement of arbitral awards under the Arbitration and Conciliation Act, 1996. Yet another article examines the issue whether bank account is `property' and whether the police have powers to seize bank accounts. Further, there is also a write up on repealing of amending Acts in the context of the recent large scale repeal of Acts.

In the Judgements Section, we have covered the recent judgements of the High Courts and the Supreme Court relevant to banker. In the Legislation Section, we have included the Prevention of Terrorism Act, 2002. In the Book Review and Bibliography Section, we have reviewed a book on bank frauds including computer crimes and credit card crimes by Dr. B.R. Sharma. In the Bibliography Section, we have as usual covered articles on law of interest to the bankers. Apart from the above, we have all our usual features including LD News and Mail Bag. From the next issue, we propose to begin two new features, FAQ (frequently asked questions) and a guest column.

M A Batki

Legal Adviser

For the Attention of Readers

From this ussue, the RBI Legal News & Views is coming in a new format with four different sections numbered separately so that a the end of the year, the four issues of the year can be dismantled and compiled according to running numbers of each section and bound into a separate volume of the year for future reference.

Readers may, therefore, preserve the present issue and all subsequent issues till the year end as these issues will not be available latter.

JOURNAL SECTION

Current Legal Reforms - Initiatives by Reserve Bank of India*

N.V. Deshpande**
Pr. Legal Adviser

CHAPTER – I

1. INTRODUCTION

A good legal system implies both relevant and appropriate laws and a judicial delivery system with settling issues speedily, efficiently and impartially. Law is dynamic and changes according to the needs and requirements of the society. The face of the law of any polity reflects the legal system to which the country is committed. The year 1991 is an important landmark in the economic history of post independent India. The country went through the severe economic crises triggered by a serious balance of payment situation. In view of this legislative changes became imperative in the context of the changes in the economic environment. A whole host of legislation has already undergone a big change partly to give effect to certain institutional changes, such as the participation of private capital in nationalised banks and partly to be in tune with the new economic philosophy in the backdrop of the Narasimham Committee Report. Thus, it is relevant to remember Earl Warran, who said, "our system faces no theoretical dilemma but a single continuous problem; how to apply to ever-changing conditions the never-changing principles of freedom.

1.1 FINANCIAL REFORMS - NARASIMHAM COMMITTEE

The Financial system in India has built up a vast network of financial institutions and markets over time, and sector is dominated by the banking sector, which accounts for about two-thirds of the assets of the organised financial sector. The problems in south-east Asian economies, the recessionary trends in the Japanese economy, the financial sector problems encountered. In Latin American economies and more recently, in some central European economies have provided graphic evidence of how a weak banking sector can undermine confidence in macroeconomic policies. It is, therefore, no longer possible for developing countries to delay the introduction of structural reforms, stricter prudential and supervisory norms, greater transparency and increased accountability not only to ensure the stability of the financial system, but also to enhance competitiveness. Since the initiation of reform process in India, considerable attention has been devoted to improve the efficiency and health of the banking sector.

The Financial sector of an economy is important because it helps in mobilising the savings of the people and allocating them to the most productive uses. Considering the strategic importance of the financial sector, the Government set up a Committee on financial system in 1991 under the Chairmanship of Mr. M. Narasimham. It was asked to examine all aspects relating to the structure, organization, functions and procedures of the financial system. The Committee submitted its report in November 1991. It was presented to parliament in December 1991.

The first phase of current reforms of financial sector was initiated in 1992, based on the recommendations of the Committee on financial system (CFS or the Narasimham Committee). While reform of the financial sector are under way following the recommendations of the Committee on Financial System (CFS), 1991, the second Committee under Mr. M. Narasimham, who chaired the CFS was constituted to advise the Government on banking sector reforms necessary in future to make India's banking system stronger and better equipped to meet the global competition.

The report of the Committee (April 1998) provides a framework current phase of reforms. The RBI has already acted on many of the recommendations as per announcement made in October 1998 Monetary and Credit Policy Review statement.

The major important recommendations, among other, are given as follows :

a)	The Committee has made a radical recommendations to dilute Government equity in nationalised banks to 33%. It has also suggested that the RBI nominees on bank boards step down.
b)	Non performing assets have been the bane of the industry. The panel has identified poor credit decisions by managements, cyclical changes in the economic environment directed credit and crude forms of behest-lending as the factors responsible for the poor asset quality. The Narsimham Committee has recommended for creation of an Asset Re-construction Fund (ARF), which will take over the bad debts of banks from their balancesheets to enable them to start on a clear slate.
c)	The Committee felt recaptilisation through budgetary infusion is not a sustainable option.
d)	The Committee has recommended that net NPAs brought down to less than 5% by the year 2000 and 3% by the year 2002.
e)	The Committee has recommended that bank should not lend to defaulters.
f)	The Committee has recommended increasing capital adequacy under tightening provisioning norms. It targets 9% capital adequacy by the year 2000 and 10% by the year 2002.
g)	The Committee suggest foreign bank seeking to set up business in India should have a minimum start up a capital of $ 25 million as against the current requirement of $10 million. Further it suggest that foreign banks can be allowed to set up subsidiaries and joint ventures that should be treated on a par with private banks.
h)	The Committee recommends that there should be separation of the regulatory and supervisory functions of the Reserve Bank of India.

A major part of the reform measures recommended by the Committee were primarily aimed at strengthening the banking sector, which can be broadly grouped as under: Strengthening of capital adequacy including explicit capital for market risk

• Tightening of the prudential and disclosure standards in line with international best practices

• Consolidation of banking system

• Restructuring of weak public sector banks

• Dilution of government equity in public sector banks to 33 per cent and providing functional autonomy to government banks

• Technology improvements to modernize Indian banking

• Adoption of scientific tools for management of risks

• Legal reforms to expedite recovery of banks' dues

In the direction of bringing suitable legislative reforms to combat the deficiencies to effectively implement the recommendations of the Committee, the Reserve Bank of India has initiated number of measures including preparation of draft legislations and suggesting amendments to the respective legislations.

CHAPTER – II

GLANCE AT LEGISLATIVE REFORMS

The progress in regard to various initiatives for legal reforms are given below :

• The Working Group constituted by the Government for suggesting changes in the provisions of Negotiable Instruments Act, 1881, to bring it in conformity with the Information Technology Act, 2000 and also to examine the incorporation of electronic cheque, securitised certificates and other evolving products within the ambit of Negotiable Instruments Act has since submitted its recommendations to the Government in June 2001. The Group, inter alia, recommended the introduction of truncation of cheques and electronic cheques and suggested appropriate legal amendments.

• The Working Group on Asset Securitisation has drafted a Bill on Asset Securitisation which is under consideration of the Government.

• The draft legislation prepared by another Working Group constituted by the Government to examine the vesting of powers with banks and financial institutions for taking possession and sale of securities without intervention of the courts has been put on the RBI Website in August 2001 seeking comments from the public. The draft Bill is under the consideration of the Government.

• Proposals regarding amendments to the Reserve Bank of India Act, 1934, Banking Regulation Act, 1949, Government Securities Bill in replacement of the Public Debt Act, 1944, are currently under consideration of the Government.

• To improve the legal system relating to payments in India, the Legal Task Force of the National Payments Council submitted a set of recommendations for preparing a new legislation for regulating the payment systems in India. For drafting a legislation on Payment Systems in India, an international consultant and an eminent Indian draftsman have been appointed by RBI in consultation with the National Payments Council.

• An Expert Committee on Bank Frauds (Chairman : Dr.N.L.Mitra) submitted its Report to RBI in September 2001 which has been put on the RBI website. The Committee examined and suggested both the preventive and curative aspects of bank frauds. The important recommendations of the Committee include : a need for including financial fraud as a criminal offence and amendments to the Indian Penal Code by including a new chapter on financial fraud; amendments to the Indian Evidence Act to shift the burden of proof on the accused person and special provision in the Code of Criminal Procedure for transferring the properties involved in the financial fraud and confiscating unlawful gains; and preventive measures including the development of Best Code Procedures by banks and financial institutions. The Report is being examined by the Reserve Bank.

• Proposal to repeal the existing DICGC Act and replace it with a new Act is under consideration.

• Financial Companies Regulation Bill providing for a separate enactment in place of Chapter III and Chapter III C of the Reserve Bank of India Act and amendments to Banking Companies (Acquisition and Transfer of Undertaking) Acts, 1970 & 1980 bringing down the equity holding of the Government in the nationalised banks and also for enabling financial restructuring of weak banks have been introduced in the Lok Sabha.

CHAPTER – III

CURRENT LEGAL REFORMS – INITIATIVES BY RBI

3.1 INTERNATIONAL FINANCIAL STANDARDS AND CODES

The annual policy statement of April 2001 mentioned about the significant progress made by the Advisory Group on International Financial Standards and Codes. All the Advisory Groups constituted by the Standing Committee on International Financial Standards and Codes have submitted their Reports to the Chairman of the Standing Committee and these reports are placed on RBI website /en/web/rbi for wider dissemination. Copies of the Reports are being sent to various experts, economists, professionals, academicians, banks and institutions for their comments. The Chairmen of individual Advisory Groups have been requested to explore the possibility of organising seminars on the themes. The Standing Committee will also prepare its own report indicating, inter alia, the course of follow-up/reforms required and the regulatory agencies involved in such follow-up actions.

3.2 BANK FRAUDS (DR.MITRA'S REPORT)

In the last decade, the instances of 'scam' have gone up. People, banks and financial institutions have suffered losses of thousands of crores. Financial fraud is a very sensitive issue. It affects the structure of the system. The whole banking system is predominantly based on public faith.

Repeated market failure, undetected fraud in financial institutions and collusion of employees in financial frauds cause frustration in the public, which is a challenge to any good governance. In the background of this, the Board of Financial Supervision of the Reserve Bank of India has constituted an Expert Committee on "Legal Aspects of Bank Frauds" under the chairmanship of Dr.N.L.Mitra, Vice Chancellor, National Law University, Jodhpur. The Committee was asked to :-

a)	Examine how the financial fraud can be defined and brought into an effective criminal justice jurisprudence.
b)	What investigating agencies shall be necessary for effective investigation, tracing, attachment and restoration of the property and prosecution.
c)	What type of justice delivery mechanism should be adopted to have quick and effective justice to investing public.
d)	What effective regulations could be made effective to see that officials taking decisions based on business prudence and bona fide can be protected from unnecessary harassment in cases of investigation and prosecution on account of financial and banking fraud.
e)	How cross-boarder financial frauds are required to be handled specifically in view of the questions of (i) foreign judgement; (ii) foreign proceedings; (iii) Indian proceedings having foreign players outside the country; (iv) help of foreign courts; (v) status of foreign and Indian legal representative; (vi) foreign investigation by Indian investigator; (vii) cooperation by Indian investigator in foreign investigation and (viii) enforcement of court decision.

On exhaustive study of the legal systems of various countries, the Committee had recommended, inter alia, a Bill for establishing a Bureau for investigating serious financial frauds - and has also suggested a fast-track special court with sitting or retired High Court judges to preside over. The Committee has divided its recommendations into two parts. The Part-I deals with the preventive aspects of management of financial fraud. To keep it happen only in rare cases. This part suggests steps to contain a clean in-house financial management. The Part-II deals with prohibition of financial fraud and introduction of a deterrent jurisprudence so that financial fraud, being a serious offence to derail a system as a whole, is adequately and firmly dealt with. The Committee has suggested a few measures in respect of in-house preventive management as a part of good governance. They are :(a) development of best practice code; (b) system of internalisation of best practice code; (c) internal check and internal control; (d) legal compliance certificate; (e) legal compliance audit; (f) data building on the exercise of discretionary power and monitoring the same; (g) appropriate incentive system; (h) liability of the accounting and auditing profession and (i) responsibility of Reserve Bank of India in frauds reported by banks. In the Part-II of the recommendations, the Committee has dealt with prohibitive aspects of financial fraud and administration of criminal justice, it suggested for separate legislation to deal with financial fraud. The draft legislation emphatically focused on criminalisation of financial fraud and division of offence of financial fraud into financial fraud and serious financial fraud. The Committee has recommended a separate statute to deal with financial fraud under the title "Financial Fraud (Investigation, Prosecution, Recovery and Restoration of Property) Act, 2001".

3.3 THE WORKING GROUP ON NI ACT -(DESHPANDE COMMITTEE)

In order to meet the challenges posed by the technological developments across the globe and to make the existing regional laws to the standards of the technological developments, the Government of India has constituted Working Group on Negotiable Instruments Act, 1881 under the chairmanship of Shri N.V.Deshpande, Principal Legal Adviser, RBI. The Committee was constituted with an object to examine the modalities for bringing about conformity with the Information Technology Act, 2000 and Negotiable Instruments Act, 1881. The IT Act has provided legal recognition for transactions carried out by means of electronic data interchange and other means of electronic communication. However, the IT Act has specifically excluded from its application the instruments covered under the NI Act. The negotiable instruments or paper-base instruments used for making the payments and settling the liabilities. Therefore, it has become difficult for the mercantile community to make payments electronically as there is no legal back-up for the negotiable instruments under the IT Act. In order to promote electronic transaction in the banking and financial sector, it is essential to provide an appropriate legal structure for safeguarding the use of such instrument, enhancing their credibility, promoting their extensive use and improving their efficiency. The Committee has recommended, inter alia, for amendment of relevant provisions of NI Act to grant legal sanction for presenting the electronic image of a truncated cheque and making the payment as per the apparent tenor of the image of the paper cheque. A new provision may be incorporated in the NI Act, defining the word "electronic cheque".

The Standing Committee recently appointed to review the recommendations of the Working Group while carrying out the amendments to the NI Act have approved the recommendations made by the Deshpande Committee to amend the relevant provisions of the NI Act suitably, to incorporate electronic based cheque and the process of cheque truncation. This will meet the requirements of the mercantile community to strengthen the e-commerce by effectively providing legal framework for electronic cheque under the NI Act.

3.4 URBAN CO-OPERATIVE BANKS (MADHAV RAO COMMITTEE)

The urban co-operative banks have contributed significantly for the upliftment of lower income group of the urban and semi-urban population.

The deposit resources of UCBs rose from a meager some of Rs.153 crores at the end of financial year 1966-67 (UCBs were brought under purview of BR Act w.e.f. 1 March 1966) to Rs.50,544 crores at the end of 31 March 1999. Notwithstanding the phenomenal progress registered by UCBs, today they, are facing five major problems :

(i)	dual control
(ii)	inadequate legal framework to regulate UCBs compared to the powers RBI has been vested with to regulate commercial banks.
(iii)	Increasing incidence of weakness
(iv)	low level of professionalism
(v)	apprehension above the credentials of promoters of some new UCBs.

The Reserve Bank of India has appointed a high power committee on "Urban Co-operative Banks under the chairmanship of Shri K.Madhav Rao, Ex-Chief Secretary, Govt. of Andhra Pradesh in the mid 1999. The Committee was assigned a task to review the performance of UCBs and suggest necessary measures to strengthen this sector. In respect of the issue of dual control the Committee recommended that the RBI should be the sole regulator for banking related functions. Accordingly, the Committee has made an attempt to list the banking related functions and cooperative functions.

Banking related functions which should be under the domain of RBI :

(a)	issues relating to interest rates, loan policies, investments, prudential exposure norms, forms of financial statements, reserve requirements, appropriation of profit, etc.
(b)	branch licencing area of operation
(c)	Acquisition of assets incidental to carrying on banking functions
(d)	policy regarding remission of debts
(e)	Audit
(f)	change of management and appointment of CEO
(g)	Appointment of administrator.

Co-operative functions, which should be under the domain of Registrar of Co-operative Societies for concerned States -

(a)	registration of co-operative societies
(b)	approval and amendment to bye-laws
(c)	election to Managing Committee
(d)	protection of members’ rights
(e)	supersession of Managing Committee for violation on items (a) to (d) above.

The Committee further made necessary recommendations for amendments in State Cooperative Societies Act/Multi-State Co-operative Societies Act -

(a)	RBI should not issue any new licence for establishment of urban co-operative bank, unless it is registered under a co-operative societies Act or Multi-State Co-operative Societies Act, 1984 which has incorporated the amendments on the above lines.
(b)	RBI should not sanction licence for opening a branch to existing branch unless the bank is incorporated under a Co-operative Societies Act or Multi-State Co-operative Societies Act, 1984 which has been amended on the lines suggested above.

Action Taken

On the lines of the recommendations made by the Committee, the RBI has prepared a draft legislation titled "Urban Co-operative Banks Regulation Act, 2000" and forwarded the same to the Government for consideration. The main focus of the draft legislation is to establish a separate supervisory body for the regulation and supervision of the Urban Co-operative Banks.

The RBI has recently issued directions imposing norms for grant of licences to conduct banking business to the primary credit societies.

3.5 DEPOSIT INSURANCE CORPORATION BILL

The Narasimham Committee Report on the Banking Sector Reforms (1998), while focusing on the structural issues, observed:

"Deposit insurance has increased public confidence in the banking system, promoted savings in bank deposits and has enabled banks to perform the intermediation function more effectively… Deposit insurance and the aversion to bank failures could create a moral hazard that distorts the incentives for banks and create competitive distortions…. The Committee is of the view that there is need for a reform of the deposit insurance scheme. In India, deposits are insured up to Rs. 1 lakh. There is no need to increase the amount further. There is, however, need to shift from the ‘flat’ rate premiums to ‘risk based’ or ‘variable rate’ premiums…." (paras 5.30 to 5.42).

In the background of the recommendations made by the Narasimham Committee the Reserve Bank of India has constituted on April 9, 1999, an Advisory Group and a Working Group on "Reforms in Deposit Insurance in India" under Shri Jagdish Capoor, Deputy Governor, to look into the issues raised by the Narasimham Committee. Shri Jagdish Capoor, Deputy Governor, has been appointed as Chairman of the Advisory Group and Dr.D.Ajit, Director, DEAP, RBI, was the convenor for the Working Group. The Working Group was given task to review the role of deposit insurance in financial sector and economic developments, including a review of the international experience with regard to deposit insurance and to propose changes in the existing system in regard to deposit coverage, institutions to be brought within the ambit of deposit insurance, regulatory system to be put in place in the case of each category of institutions accepting deposits from public as a prerequisite for extension of the deposit insurance, risk based premium and the parameters relevant to the assessment of the risk in regard to each category of institution and the ownership and capital of the existing deposit insurance agency.

The major recommendations of the Committee are :

a)	The Group recommended exclusion of CDs from the deposit insurance coverage.
b)	Risk-based pricing of the deposit insurance premium is recommended in lie of the present flat rate system. The risk-based pricing of deposit insurance should be set high enough to cover the expected reimbursement that would be needed in the event of one or more bank failures and vary with the riskiness of the individual bank - with weak or poorly capitalised banks being forced to pay more. It would be desirable to base pricing of risk-based premium on the latest available CAMELS ratings. In the case of entities which do not have a reliable CAMELS ratings (like RRBs and the co-operative banks), one may have to opt for flat rate deposit insurance till the CAMELS data base becomes available.
c)	The function of credit guarantee on loans may be withdrawn from the Corporation and DICGC renamed as "Deposit Insurance Corporation".

Action Taken

Pursuant to acceptance of some of the important recommendations made by Advisory Group and the Working Group, an outline of the Deposit Insurance Corporation Bill, 2000 (as prepared by the Legal Department, Reserve Bank of India) has been prepared and the same was forwarded on September 13, 2000 to the Ministry of Finance (Banking Division), Government of India, for their consideration and approval. Amongst others, the proposed Bill is to replace the existing DICGC Act, 1961 and includes enabling provisions to; levy risk based premium, increase the capital of the Corporation, reconstitution of the Board of Directors of the Corporation, exclude the function of Credit Guarantee by the Corporation, facility of a "Line of Credit" to the Corporation from the Reserve Bank and to provide for cancellation of registration of an insured bank in the event of deterioration in the financial health of the bank and also for cancellation of the licence to a deregistered bank.

3.6 DRAFT OF CREDIT INFORMATION BUREAUS REGULATION BILL, 2001

Availability of adequate and reliable information on the prospective borrower is vital for taking decisions in relation to sanctioning of credit. The Banking Commission (1972) under the chairmanship of Shri R.G.Saraiya, recommended setting up of a Credit Information Bureau as a statutory body, which would furnish adequate and reliable credit information to banks and other financial institutions. Considering the growth of financial sector and need for effective mechanism for mitigating credit risk by enhancing the quality of credit decisions, the Reserve Bank of India has constituted a Working Group on 30^th October 1999, to explore the possibilities of setting up a Credit Information Bureau under the chairmanship of Shri N.H.Siddiqui.

The major recommendations of the Working Group are as under :

a)	Pending legislative amendments, a beginning may be made for setting up a Credit Information Bureau which can operate initially by pulling the information related to suit filed account and information on the transactions on which the constituent has given consent to the banks to disclose. Eventually, the Bureau can become a full-fledged world class bureau when the proposed legal framework is put in place to provide adequate protection to the Credit Information Bureau and credit institution as well.
b)	As the legal provisions on disclosure of information enshrined in the various banking Acts would not permit sharing of information with the Bureau, amendments would be required in the following enactments :
	i)	Section 44 of the SBI Act, 1955
	ii)	Section 52 of the SBI (Subsidiary Banks) Act, 1959
	iii)	Section 13 of the Banking Companies(Acquisition and Transfer of Undertaking) Acts, 1970 & 1980

Action taken

Pursuant to acceptance of recommendations of the Working Group, a draft of the proposed legislation titled "The Credit Information Bureaus Regulation Act, 2001" had been prepared by the Reserve Bank of India and the same has been forwarded to the Ministry of Finance (Banking Division), Government of India. Thereafter clarifications sought by the Banking Division have been discussed and explained by the officers of the Legal Department, DBOD and the Credit Information Bureau of India Ltd. (CIBIL), set up by the State Bank of India in association with the HDFC and Dun & Brad Street of USA in the meeting held in the Banking Division on 4 April 2001 and on 14 September 2001. The Banking Division is to take up the matter for enactment of proposed legislation.

The proposed legislation, inter alia, includes provisions relating to; incorporation, management, registration, functions and powers of a credit information bureaus, information privacy principles and reporting of credit information and stipulates provisions relating to the powers of the Government and the Reserve Bank of India in relation to grant of registration certificate, supervision and regulation of Credit Information Bureaus. The proposed legislation also includes provisions for; constituting "Dispute Resolution Committees" for resolution of dispute between Credit Information Bureaus or between Credit Information Bureau and Credit Institution or a dispute between an individual and a Credit Information Bureau or a Credit Institution, etc.

3.7 REVIEW OF REGULATORY AND SUPERVISORY ARRANGEMENTS

Technical advances have resulted in accelerated pace and complexities in financial products besides the manifold increase in volume and turnover. The Indian financial system is catching up fast with these developments in post-reform period. The regulatory regimes and supervisory systems in the changing environments faced new challenges in safeguarding the integrity, efficiency, soundness and stability of the financial system.

In the background of this, an informal group was constituted within the Reserve Bank by the Deputy Governor Dr.Y.V.Reddy to examine the current regulatory and supervisory arrangements with a view to determining the existing gaps and overlaps. The Committee has submitted its report during October 2001. The observations of the Group amongst others, are as follows :

i)	Within the RBI, the regulation and supervision of any segment of the financial sector should be integrated within one department. Such a purpose would be best served by having licensing, regulation, supervision and enforcement as the four broad divisional areas in each such department. Both regulation and supervision essentially use the same resources, have the same client group, data needs and provide essential feedback to each other. In other words, regulation yields direct influence on behaviour, whereas supervision provides information. The authorities can address this issue by developing, implementing and sanctioning non-compliance with norms of behaviour (regulation), by monitoring the norms (supervision) and by providing insurance (emergency liquidity support, depositor protection). Given the increasingly high levels of scarce skills required to carry out these tasks, it seems imperative to integrate both regulation and supervision under one broad umbrella.
ii)	In the Monetary and Credit Policy of April 2001, it has been proposed that the supervision of the UCBs be entrusted to a separate apex body. This is largely in view of the large numbers of such cooperative banks with a large geographical spread, which makes high frequency and high quality supervision of this segment difficult.

3.8 PROPOSED AMENDMENTS TO RESERVE BANK OF INDIA ACT, 1934

While presenting the Budget for the year 2000-01, the Finance Minister noted that in the fast changing world of modern finance it has become necessary to accord greater operational flexibility to the Reserve Bank for conduct of monetary policy and regulation of the financial system and expressed his intention to bring to the proposals for amending the relevant legislation. As a follow up, the Reserve Bank, after a review of the existing legal framework supporting the formulation and implementation of monetary policy and Reserve Bank's operations in the financial markets, has proposed to Government certain amendments to the RBI Act.

As central banks need greater operational autonomy and independence in matters relating to monetary policy and use of various instruments to respond quickly to the rapid changes in the financial markets in the wake of the ever evolving financial innovations, the Bank has proposed to empower it with sufficient flexibility which cover various aspects, inter alia, provisions pertaining to CRR prescriptions in the reserve requirements viz., CRR under Section 42 of the RBI Act and SLR under Section 24 of the BR Act. The proposal is to remove statutorily prescribed limits to accord operational flexibility to Reserve Bank.

Further, in order to bring the wilful defaulter to the notice of the general public, the Reserve Bank has also proposed to amend Section 45E of the Act to enable it to publish the names of those borrowers who, in spite of their ability and capacity to repay the loans, refuse to honour their obligation to repay such loans or siphon away the funds borrowed from the banks and financial institutions or divert the funds for the purposes other than for which such loans are granted by the banks to such borrowers.

The statutory provisions regarding the authorised business of the Reserve Bank are being nationalised to enable it to conduct business and operations in the light of the emerging financial scenario, more particularly to deal with the financial institutions that have emerged in the recent past and also which may emerge in future. The changes proposed also include the freedom to the Union Government to appoint Reserve Bank or any other person for management of its public debts.

3.9 PROPOSED AMENDMENTS TO BANKING REGULATION ACT, 1949

The Narasimham Committee, in Banking Sector Reform in para 8.17 of its Report criticised the provisions of the Banking Regulation Act by saying that the Act is structured somewhat on the premises that the banking supervision is essentially a Government function and that the Bank's supervision is somewhat on the lines of the agent of the Central Government. The Committee had, therefore, recommended the review of the provisions contained in the Banking Regulation Act. A detailed exercise is undertaken by the Bank to review the provisions of the Banking Regulation Act and the proposals for amendment of the Act were made to the Central Government in October 2000. While reviewing the existing provisions of the Act, the rapid changes taken place in the financial sector were also taken into account and the appropriate changes have been suggested in the Act for the consideration of the Central Government. The main provisions included for amendment are revised capital requirement of the banking companies, provision for consolidated supervision of the foreign banks; as a part of prompt corrective action, introduction of a new provision for supercession of the Board of Directors of the banking company and of course, vesting of certain powers in the Reserve Bank which are presently exercisable by the Central Government. The proposals are pending with the Government.

3.10 New Legislation on Payment Systems

Legal Task Force of the National Payments Council made a presentation before the National Payments Council and made their recommendation for preparing new legislations for the payment systems regulation in India. The National Payments Council had given "in principle" approval to the proposal of the Working Group of the Legal Task Force and recommended to the Reserve Bank to proceed for its implementation. On the basis of the instructions of the National Payments Council and with the approval of the Committee of the Central Board of Director in its meeting held on 3 May 2001, M/s.Herbert Smith, London has been identified and appointed as International Consultant and Shri P.M.Bakshi has been identified and appointed as Indian draftsman for preparation of new draft Legislation on Payment Systems in India. The work on drafting the new legislation is in progress.

Technology Upgradation

To bring improvements in the payment and settlement system, some important measures taken by the Reserve Bank were announced in the annual policy statement of April 2001. To facilitate banks to effectively participate in the payment and settlement systems and to provide a road map of the various payment system projects, a draft Payment System Vision Document was prepared; based on the feedback received from banks and comments of the members of apex bodies such as the National Payments Council, the Vision Document is being finalised. The other steps being taken up include the use of "imaging" of cheques as a precursor for cheque truncation, which would be facilitated by the recommendations of the Working Group on amendments to the Negotiable Instruments Act, 1881 and the introduction of internet banking service.

With a view to further improve the technology based infrastructure of banks and also enable them to effectively use the facilities offered by the Reserve Bank in the payment and settlement system, the following further measures are proposed

• The Indian Financial Network (INFINET) is already available for use by all banks and common inter-bank applications are being implemented on this network. Banks have to take necessary steps to further strengthen their infrastructure base in respect of standardisation, high levels of security and communication and networking to make full use of these resources.

• If the benefits of the common inter-bank applications have to be fully realised, it is essential that connectivity of computers located at different branches of banks is achieved early. To begin with, it should be the endeavor of banks to achieve the goal of connectivity of commercially important centres. This will facilitate connectivity to the INFINET for achieving inter-city, inter-bank message transfer in a network environment on a real time basis.

One of the systems provided by the Reserve Bank for quick, safe and secure movement of funds in an electronic mode is the Electronic Funds Transfer (FET). At present, the scheme is available for transfer of funds across about 8,500 branches of banks located at major commercial centres. It is essential that concerted efforts are taken by banks to popularise the usage of this scheme which would result in quick funds transfer for clients, lesser reconciliation problems at banks and improve systemic efficiency.

3.11 Proposed Government Securities Act,

The Public Debt Act was enacted in 1944 to consolidate the law relating to Government Securities and to provide for the management of the Public Debt of the Central Government as well as the State Governments by the Reserve Bank of India. The Act covers the securities created and issued by the Central and State Governments and provide for the issue, servicing and repayment of Government Securities. In the 56 years that have elapsed since the passing of the Public Debt Act, 1944, a number of developments, notably the deepening and broadening of the Government Securities market, have taken place. The volume of public debt has gone up, the character and composition of the Public Debt has undergone a perceptible change and new instruments of Public Debt to cater to specific target groups have been fashioned out. Concurrently, new techniques of issues and management are being tried out. The existing Act as remained insulated against these changes/development in the field. The customer service has tended to become a casualty in view of the archaic legal provisions and rigid practices flowing from it.

In view of the above, it has become necessary to introduce a new legislation with provisions enabling the Bank and Government to develop the Government Securities market, while eliminating the rigidities, which have crept into system. The proposed Government Securities Act has been drafted taking into consideration the recommendations of a High Powered Committee appointed by the Bank with representatives from Finance Ministry, Law Ministry, State Governments and the Bank.

The proposed Act provides mainly for –

• Change of the name of the Act (from Public Debt Act to Government Securities Act) as the Act deals with only marketable Government Securities and not other public debt like PPF, NSS, etc.

• Making liabilities of transferors of Government Securities on par with that of transferors of negotiable instruments under Section 36 of the NI Act.

• Permitting trusts to hold Government Securities in the form of G.P. Notes (in addition to Government Securities in the form of stocks).

• Opening and maintenance of SGL Accounts (including Constituent SGL Account and Bond Ledger Account)

• Dematerialised holding of Government Securities in Bond Ledger Account

• Cognizance of offences relating to SGL Accounts

• Simplifying the provisions for dealing with claims of legal representatives of the deceased holders by making documents other than probate, succession certificate and letters of administration also acceptable.

• Raising the monetary limit for passing vesting orders by the Bank in respect of security held by or on behalf of minors and insane persons.

• Pledge, hypothecation and lien on Government securities without transfer of the securities

• Use of data in machine readable form, fax, computer prints, etc.

• Empowering the Bank to issue directions for the purpose of Act.

The Bill for the proposed new legislation is pending with the Government of India, Ministry of Finance, Deptt. of Economic Affairs, for initiating necessary action to introduce the Bill to the Parliament for its passing.

3.12 Nationalisation (Amendment) Bill, 2000

A Bill was introduced in the Parliament in December 2000 to amend the statutory provisions applicable to the nationalised banks. To implement the recommendations made by M.S. Verma Committee appointed by the Reserve Bank, the Bill provides, inter alia, for supercession of the Board of Directors of the weak nationalised banks and constitution of Financial Restructuring Authority for putting back the weak nationalised banks and constitution of Financial Restructuring Authority for putting back the weak banks in good health. The authority so constituted can function for a maximum period of five years. Further, in accordance with the international practice of incorporation and consolidation of accounts of the subsidiaries, the Bill provides for incorporation of the accounts of its subsidiaries in the annual accounts of the nationalised banks. Further, while the mandatory provision for appointment of Reserve Bank nominee director on the Board of the nationalised banks is being withdrawn, the Reserve Bank will have the power to appoint additional directors on the Board of the nationalised banks. This will be similar to the powers available to the Reserve Bank over the banking companies under the BR Act. The Bill is likely to be passed by the Parliament in its next session.

3.13 FINANCIAL COMPANIES REGULATION BILL, 2000

The Financial Companies Regulation Bill, 2000 (pending before the Parliament) provides for a separate enactment in the place of Chapter III B and Chapter III C of the Reserve Bank of India Act, 1934 (as amended by the Reserve Bank of India (Amendment) Act, 1997) for consolidating and amending the law for regulation of financial companies and to prohibit acceptance of deposits by unincorporated bodies.

The Bill provides for the constitution of an Advisory Counsel by the Bank with a Deputy Governor as the Chairman and not exceeding three other members to advice the Bank on any matter under the Act. Further, there are provisions for registration of financial companies and the conditions thereof and the requirements for financial companies to be eligible to accept public deposits. Financial companies receiving public deposits will be required to maintain liquid assets not exceeding 25% as may be specified by the Bank and also to create a reserve fund of not less than 20% of the net profit every year. There shall be a first charge on these assets in favour of the depositors in the case of default in repayment of public deposits. The Bill also provides for nomination in the case of public deposits with financial companies. The Bank would have powers to call for information from financial institutions; to determine policy and give directions; to prohibit acceptance of deposits and alienation of assets in certain cases and also to appoint Special Officer to ensure compliance with the Bank’s directions. The Bill further authorises the Bank to file petition for winding up of financial companies in certain cases.

Under the Bill, the Company Law Board and Recovery Officer appointed by the Board would redress the grievances of depositors in the case of default by the companies. The jurisdiction of Civil Courts for the purpose is barred.

The Bill prohibits acceptance of public deposits by unincorporated bodies and also provides for penalties for violation of its provisions. The Bill also repeals Chapters III B and III C of the Reserve Bank of India Act and also the provisions for penalties for violation thereof.

3.14 DIVESTMENT/TRANSFER OF OWNERSHIP OF SBI,NABARD AND NHB FROM RBI TO CENTRAL GOVERNMENT

The Committee on Banking Sector Reforms (Narasimham Committee II) in their report released in April 1998 has inter alia, recommended that the Reserve Bank of India as a regulator should divest its holdings in banks and financial institutions. The Advisory Group on Banking Supervision under the Chairmanship of Shri M.S.Verma, former Chairman of SBI has also emphasised to do away with overlapping of the role of RBI as owner and as regulator/supervisor. In the discussion paper prepared by RBI on "Hamonising the Role and Operations of Development Financial Institutions and Bank" (January 1999), it is desired that the RBI should concentrate on its regulatory and supervisory functions and the ownership of financial institutions could be de-linked from RBI through transfer of such ownership to the Government.

RBI in its Monetary and Credit Policy for the year 2001-2002 announced its acceptance of recommendations of the Narasimham Committee II that the owner should not be a regulator and its intention to transfer the shares in SBI, NABARD and NHB to the Central Government. Consequently, a Working Group under the Chairmanship of Shri P.B.Mathur, Executive Director, has been constituted by Memorandum dated 28 May 2001 of Dy. Governor, Shri Y.V. Reddy to decide among others, the modalities of transfer of shares held by RBI in these institutions to the Central Government as well as legislative measures required consequent to transfer of such holdings. The Working Group has had several meetings and is in the process of finalising its report and submitting to the Bank. On the acceptance of the recommendation, various amendments would be promoted to the respective Acts (SBI Act, NABARD Act and NHB Act) governing these institutions (SBI, NABARD and NHB).

3.15 FOLLOW UP ACTION ON ANDYARUJINA COMMITTEE

In order to implement the recommendations of the Narasimham Committee on Banking Sector Reforms (April 1998), the Government of India had constituted an Expert Committee under the Chairmanship of Shri T.R. Andhyarujina. The Committee in its report submitted in February2000, inter alia, proposed a draft Securitisation Bill and changes in legal provisions relating to enforcement of security interest without the intervention of the court. In order to examine the report of the Andhyarujina Committee, the Central Government had constituted two Working Groups to consider the recommendations.

The First Working Group examined the recommendations made by the Andhyarujina Committee for draft legislation for facilitating securitisation transaction for banks and financial institutions. The Committee recommended to Central Government for enacting a law to facilitate securitisation of financial assets and regulating special purpose vehicle by a bank or financial institution. The securitisation transactions will be regulated by SEBI. All securitisation transactions will be required to be registered with the statutory Registrar and will constitute public notice of securitisation. The proposals are under consideration of the Central Government.

The other Group was entrusted with responsibility of suggesting legal framework for creation and enforcement of security interest by the banks and financial institutions. The Working Group submitted its proposal for enacting statutory provision for creation, registration and enforcement of security interest by the banks. The draft legislation was also put up to Reserve Bank of India’s website on 3 August 2001. With this, while the Debt Recovery Tribunals will be the usual mechanism for recovery of the debts for unsecured loans, for secured loans, the proposed draft Bill confers the power on the banks and financial institutions to take over the securities from the borrowers and sell the same without the intervention of the court. The powers proposed are some what similar to the one enjoyed by the State Financial Corporations for recovery of their dues under the State Financial Corporation Act, 1951.

3.16 SETTLEMENT Of NPAs

The Reserve Bank guideline is to ensure transparency and credibility of financial positions of banks. The Reserve Bank of India has advised all commercial banks that the broad framework for compromise or negotiated settlement of Non-performing Assets (NPAs) outlined July 1995 will continue to be in place.

The Reserve Bank had, in July 2000 circulated simplified, non-discretionary and non-discriminatory guidelines to provide a one-time impetus to reduction of the stock of chronic NPAs by recovery of dues relating to public sector banks. The guidelines covered accounts upto Rs.5 crore in all sectors including the small scale sector, but excluded cases of willful default, fraud or malfeasance. The settlement scheme laid out by these guidelines was operative till June 2001 and all applications received upto this date were to be processed by September 2001. Some representations had been received for further extension of the scheme.

3.17 COMPROMISE THROUGH LOK ADALATS

The Reserve Bank has advised all scheduled commercial banks and all India financial institutions that they can take up matters where outstandings are Rs.10 lakh and above with Lok Adalats organised by the Debt Recovery Tribunals/Debut Recovery Appellate Tribunals. The advice was issued to clarify the doubt raised by banks whether, in view of the limitation of ceiling of Rs.5 lakh for disposal by Lok Adalats, they should participate in the Lok Adalats convened by various DRTs/ DRATs for resolving cases involving Rs.10 lakh and above.

CHAPTER - IV

CONCLUSION

The laws of the land cover a wide spectrum. But the laws relating to economic activities are a critical part of the legal system. Economic policies have undergone changes all the time and laws must necessarily reflect them. Sometimes, policy changes are sharp and that is what happened in 1991. Laws must facilitate implementation of policy. The Indian experience with economic laws shows that draconian laws do not necessarily achieve their objective. They only drive the activities underground. The strength of a legal system depends on how quickly one responds to changing situations. As philosopher Whitehead said, 'the art of progress is to preserve order amid change and to promote change amid order' and in this task the legal system has a vital role to play.

The Indian Banking system has stood the tests of time and it has the inherent strength to adopt itself to the changing environment. What is needed is the proper direction coupled with motivation. The leadership must instill confidence in the ranks and they will then find their tasks much easier. Taking note of the reforms undertaken by India in recent times, it may be reiterated that the financial sector, in particular banking industry, would emerge as strong in the times to come.

*	This paper was presented at the 43rd programme on"Central Banking" at the RBI Staff College, Chennai (11th February to 1st March 2002).
**	Author expresses his sincere thanks to Shri V. Raghavendra Prasad, Legal Officer, Reserve Bank of India for his efficient and prompt assistance rendered in preparation of this paper.

 

Men of few words are the best men.
— SHAKESPEARE, William, Henry, V, III, ii (40)
The violation of law is not in the moral and philosophic sense, a privilege that lies offered for sale with a given price tag, like an object in a supermarket, available to anyone who has the price and is willing to pay for it. It is not like the privilege of breaking crockery in a tent at the county fair for a quarter a shot. Respect for the law is not an obligation which is exhaused or obliterated by willingness to accept the penalty for breaking it.
— KENNAN, George F., "Rebels Without a Program,
	" The New York Times Magazine, January 21, 1968, p. 71
The very conception of a set of principles, invested with a higher sacredness than those of the original law and demanding application independently of the consent of any external body, belongs to a much more advanced stage of thought than that to which legal fictions originally suggested themselves.
— MAINE, Henry Summer, Ancient Law
	(New York : Hency Holt and Company, 1888), pp. 27-28
I care not how hard the case is — it may bristle with difficulties — if I feel I am on the right side;that cause I win.
— CHOATE, Rufus, Reminiscences of Rufus Choate
(New York : Mason Bros., 1869), p. 116

Enforcement of Arbitral Awards - Problems and Perspective*

N.V. Deshpande	and	R.K. Gupta
Pr. Legal Adviser		Dy. Legal Adviser

Arbitration Award

Under the provisions of Arbitration and Conciliation Act, 1996, the Arbitral Tribunal shall make the Arbitral Award in writing, which shall be signed by the members of the Arbitral Tribunal. In arbitral proceedings, with more than one arbitrator, the signatures of the majority of all the members of the Arbitral Tribunal shall be sufficient so long as the reason for any omitted signature is stated. The arbitral award shall state the reasons upon which it is based, unless

(a)	the parties have agreed that no reasons are to be given, or
(b)	the award is an arbitral award on agreed terms under Section 30.

After the award is made, the arbitral award is required to be delivered to each party. The making of an arbitration award is a judicial act.¹ While making an award, the Arbitrator/s must make up his / their mind upon the matter referred to him/them and if there is more than one arbitrator, they should or the majority of them, where the decision is to be by the majority, act together and finally make up their minds by arriving at the decision which must be express in writing and signed.²

Challenge of the Arbitral Award

The new Act limits the number of occasions on which Courts could review arbitral proceedings and incorporated all judicial safeguards in Section 34 which empowers Courts to review the entire arbitral process. Section 34 enumerates the grounds on which the arbitration award can be set aside by the Court. Section 34 (2) Arbitration and Conciliation Act 1996 provides that an Arbitral Award may be set aside by the Court only if :

(a)	the party making the application furnishes proof that -
(i)	a party was under some incapacity or,
(ii)	the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon under the law for the time being in force; or
(iii)	the party making the application was not given proper notice of the appointment of the arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(iv)	the arbitral award deals with the dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to the arbitration

Provided that if the decision on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to the arbitration may be set aside; or

(v)	the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or
(b)	the Court finds that -
(i)	the subject matter of the dispute is not capable of settlement under the law for the time being in force, or
(ii)	the arbitral award is in conflict with the public policy of India

Explanation

Without prejudice to the generality of Sub-Clause (ii) it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India, if the making of the award was induced or affected by fraud or corruption or was in violation of Section 75³ or Section 81.⁴

From the above it is observed that the jurisdiction of the Courts to set side an arbitral award has been taken away tremendously. The award cannot be set aside except on one or more of the one ground specified in the section. The Court has no jurisdiction to set aside an award on any other ground. The award is not vitiated by any act of the arbitrator not amounting to corruption or misconduct. The onus to prove the ground for setting aside the award is on the party asserting it.

Grounds for setting aside an arbitration award

(i) Incapacity of the party :- An award can be set aside, if a party to an agreement was under some legal incapacity. An agreement with a party who is not capable of contracting like a person being minor is void and therefore such incapacitated person is neither bound by the agreement nor by the award. He can therefore make an application to the Court for setting aside an award on the ground of his incapacity.

(ii) Invalidity of agreement and award : An award can be set aside, if the arbitration agreement is not valid under the law, to which the parties are subjected to. The validity of the arbitration agreement should be tested in accordance with the law of contract for the time being in force. The arbitration clause is treated as an agreement independent of the other terms of contract and any decision on the validity of the agreement is not to affect the validity of the arbitration clause. Therefore an arbitration can go by virtue of the arbitration clause in spite of the fact that the contract containing the clause was null and void. An award delivered in such circumstance may be set asided under Section 34 (2)(a) of the Act. Further in addition to the requirement of law of contract, the arbitration agreement should also satisfy the requirement of the Act. In the first place the agreement between the parties should be about disputes in respect of defined legal relationship, whether contractual or not and secondly it should be in writing. The requirements of the Indian Contract Act have to be satisfied regarding the validity of the agreement viz. The agreement should be for consideration, between parties who are competent to contract with their free consent and for lawful object.

(iii) Absence of proper notice of appointment of Arbitrator or of Arbitral Proceedings or some other inability to present case

Absence of proper notice of appointment of Arbitrator : When the Arbitrator is appointed in terms of the agreement by one of the parties without the concurrence of the other or because of other’s default, or by some designated person or institution, the other party should be properly informed about the appointment of Arbitrator. If the other party remains unaware about the appointment of Arbitrator or of Arbitral proceedings, the award can be set aside on that ground.

Absence of proper hearing to the party : The Arbitral Tribunal should proceed according to the principles of natural justice and if any party is not given proper hearing, the aggrieved party can apply for setting aside the arbitral award. The procedure of arbitration proceedings is regulated by the Act or agreement and such procedure should not be contrary to the law. All the parties to the Arbitration proceedings are entitled to reasonable notice of the time and place of hearing and have an absolute right to be heard and present their evidence before the Tribunal. If any party is deprived of this right, the award may be set aside by the Court. Section 18 of the Arbitration and Conciliation Act,1996 provides that the party shall be treated with equality and each party should be given full opportunity to present his case. If the right of hearing is waived either expressly or impliedly, the arbitration proceedings and the award will be as valid and regular as though full opportunity has been given. Either the Arbitral Tribunal need not follow Court procedure or the Tribunal may adopt the procedure which may not result in unfairness between the parties. If a party fails to appear at an oral hearing without sufficient cause, the arbitrator may continue his proceedings and make the award on the evidence before him.⁵

The Arbitrator is also required to give notice for closing the proceedings and if he gives the award without giving notice to the parties to close the proceedings, the award may be set aside by the Court. The Court has set aside the award, where the arbitrator did not hear more witnesses and made award⁶ and where the arbitrator did not give notice that he intended to proceed ex parte.⁷

(iv) Exercise of excess of jurisdiction : If the arbitrator deals with a dispute not contemplated by the submission to arbitration or not falling within the terms of the submission, the award is likely to be set aside. However, if the award is such that the decision on matters submitted to arbitration can be separated from those not submitted , then only that part of the award will be set aside which contains decisions on matters outside the jurisdiction of the arbitration submission. In Sudarshan Trading Company Vs. Government of Kerala,⁸ the Supreme Court held that an award may be remitted or set aside on the ground that the Arbitrator in making it exceeded his jurisdiction and the evidence of matters not appearing on the face of it may be admitted to find out whether the jurisdiction has been exceeded. This is so because the nature of the challenge as to jurisdiction is such that it would have to be examined outside the award whatever might have been said about it by the Arbitrator in his award. Similarly, in Associated Engineering Vs. Government of Andhra Pradesh,⁹ the Supreme Court observed that if it is apparent by merely looking at the contract that the umpire travelled totally outside the permissible territory and thus exceeded his jurisdiction in making the award, the whole award is liable to be set aside, or if the excess portion is severable, it is liable to be modified to that extent.

(v) Composition of Arbitral Tribunal and its procedure : Where the composition of Arbitral Tribunal is not in accordance with the agreement of the parties, or the procedure agreed to by the parties was not followed, the award can be set aside. The composition of the arbitral tribunal has to be persons of qualifications agreed to by the parties and of persons who are impartial and independent. The issue can be raised before the Tribunal itself and even if the challenge is not successful, the award can be challenged for setting aside under this provision An award can also be challenged , if the mandatory procedure or the prescribed procedure or the agreed procedure was not followed by the Tribunal. Such a procedural lapse has been termed as misconduct of proceeding by the Arbitrator under the earlier Act. But now the word misconduct does not appear in the new Act either as a ground for setting aside or for challenging the Arbitrator. However, the word misconduct indirectly comes into picture through the provisions of Sections 12 and 13 relating to challenging the arbitrator for termination of his mandate. If the arbitrator is not removed, the award can be challenged by raising this grounds subsequently. The word misconduct included lack of independence and impartiality on the part of the Arbitral Tribunal. The word misconduct has also not been included in the English Arbitration Act 1996. But Russel¹⁰ has observed as follows :

"The word does not appear in the Arbitration Act, 1996, but it is appropriate to comment briefly on what was meant by "misconduct" under the earlier legislation. It was nowhere defined in the former legislation, but it covered a wide range of errors on the part of the arbitrator. It ranged from a fundamental abuse of his position to what was often referred as "a technical misconduct" i.e. where the arbitrator made errors but not in a culpable way or so as to impugn his integrity. Where the misconduct was more serious in the sense that the arbitrator's integrity was impugned or the parties lost confidence in him , his removal or the setting aside of his award, rather than remitting the award to him, was considered more appropriate.

Misconduct could arise in various circumstances. For example, the arbitrator may have failed to deal with all the issues in the award, or may have made an accidental error in the award, or failed to observe the principles of natural justice. He may also have misconducted himself by acting in excess of his jurisdiction by purporting to decide issues which were not within his terms of reference, or making an error of law in an award…"

Therefore, in view of the above it is clear that though misconduct has not been mentioned as the ground for challenging the award, the Court can set aside the award on this ground as Section 34(2) (v) of the Arbitration and Conciliation Act 1996 makes it a duty of the Arbitral Tribunal to follow either the agreed procedure or that prescribed by part I failing which the award may be set aside. The expression misconduct is of very wide import as on the one hand it does not necessarily bring or include misconduct of a fraudulent or improper character, it does include action on the part of the Arbitrator which is on the phase opposed to rational and reasonable principles that should govern the procedure.

(vi) Dispute not Arbitrable : If the subject matter is not capable of settlement by arbitration under the law for the time being in force, the award can be set aside. The matters falling under rent laws,¹¹ matter of seizure of machinery under a hire purchase agreement¹² and matters under Sections 24 and 52 of the Electricity Act 1910 have not been held to be arbitrable.

(vii) Arbitral Award in conflict with public policy of India : The principles of public policy is ex dolo malo non oritur actio . No Court of law will lend its aid to a man who founds his course of action upon an immoral or illegal act.¹³ Public Policy has not been defined in the Act. The explanation to the Clause provides that an award is to be regarded in conflict with the Public Policy of India, if it was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81.

Enforcement of arbitral award

Subject to Chapter VIII of the Act , an arbitral award shall be final and binding on the parties and persons claiming under them respectively. Where the time for making an application to set aside an arbitral award under Section 34 has expired, or such application having been made it has been refused, the award shall be enforced under the Code of Civil Procedure 1908 in the same manner as if it were the decree of a Court. The new Act provides that the award itself can be enforced like a Court decree. Under the old Act an award has to be filed in the Court for making it a rule of the Court. The objections from the parties were invited and where no objection was filed or was sustainable the Court was empowered to pass a judgement in terms of award and it was then converted into a decree for enforcement.

In terms of Section 9 of the Arbitration Conciliation Act, the Court is also empowered to take any interim measure for protection of the property in question for facilitating an effective enforcement of the award. In this connection, the Court has the power to take the following action on the application by a party before or during the arbitral proceeding or at any time after the making of the arbitral award.

(i)	Appointment of a Guardian for a minor or person of unsound mind for the purposes of arbitral proceedings; or
(ii)	for an interim measure, of protection in respect of any of the following matters viz.
	(a)	the preservation, interim custody or sale of any goods which are the subject-matter of the arbitration agreement;
	(b)	securing the amount in dispute in the arbitration;
	(c)	the detention, preservation or inspection of any property or thing which is the subject-matter of the dispute in arbitration, or as to which any question may arise therein and authorizing for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party, or authorizing any samples to be taken or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence;
	(d)	interim injunction or the appointment of a receiver;
	(e)	such other interim measure of protection as may appear to the Court to be just and convenient,

Court where the application for execution of the Arbitral Award has to be filed

Where with respect to an arbitration agreement, any application has been made in a Court, that Court alone shall have jurisdiction over the arbitral proceedings and all subsequent applications arising out of that agreement and the arbitral proceedings shall be made in that Court and in no other Court.¹⁴ Under the new Act the jurisdiction of the Court to decide questions of validity, effect or existence of arbitration agreement or of competence and jurisdiction of arbitral tribunal and of procedure to conduct arbitration proceedings has been taken away and such jurisdiction vests in arbitration tribunal. Section 2 (1) (e) of the Act defines Court , which has jurisdiction to entertain the application relating to the arbitration matter. Court has been defined as under :

"Court means the principal Civil Court of original jurisdiction in a District, and includes the High Court in exercise of its Ordinary Original Civil Jurisdiction, having jurisdiction to decide the questions forming the subject matter of the arbitration, if the same had been the subject matter of the suit but does not include any civil Court of a grade inferior to such principal Civil Court or any Court of Small Causes. The definition of the Court in Section 2 (1) ( e) of the Act determines the jurisdiction i.e. the test is which Court would have had jurisdiction, if it was a suit and not an application. That would be governed by the subject matter of the arbitration agreement of the award as the case may be i.e. by Sections 15 to 19 Civil Procedure Code (CPC). Therefore, the Court in which the arbitration award will be filed for execution will be decided by the provisions of Sections 15 to 19 of the CPC.

If the arbitration agreement provides that the Courts of any place alone shall have jurisdiction to decide any dispute arising out of the contract, the Court of that place only will have jurisdiction in the matter. However, the exclusive jurisdiction clause would be enforceable only when the underlying agreement is valid.¹⁵ In Sabson (India) (P) Ltd. Vs. Neyveli Lignite Corporation Ltd,¹⁶ the arbitration agreement provided that "the venue of arbitration shall be Madras". The arbitration was actually held at Madras and the award was also filed at Madras. But the notice inviting the tender provided that "the Civil Court having jurisdiction over Neyveli shall alone have exclusive jurisdiction in regard to all claims in respect of this contract of whatever nature ". When the award was filed in Madras, the party raised objection for filing award at Madras. The Court observed that "in view of the Arbitrator filing the award in this Court this original petition is ordered accordingly. However, the liberty is granted to Neyveli Lignite Corporation Ltd. to take appropriate action in contesting the award already filed in accordance with the Law" The Neyveli Lignite Corporation Ltd. filed an application before Cuddalore Civil Court agitating the jurisdiction of the Madras Court. The Madras High Court observed that the venue of arbitration depends on volition of the parties and their convenience. It is open to the parties to select a place far away from the place where the contract was executed because such a place would be easily accessible. If no cause of action has arisen in the place where the parties choose to hold arbitration proceedings, the Court within whose jurisdiction the arbitration proceedings are conducted will not be a competent Court for the purpose of the provisions of this Act. In view of the observations, the Court sustained the objections filed by the NLC and held that the Madras Court has no jurisdiction to entertain the award for making a rule of law.

Conclusion`

The recovery of the debts of Banks and Financial Institutions from the defaulters is a big task and the borrowers try to take advantage of procedural technicalities of the rules of the Court. As the recovery of the dues of the banks and financial institutions through the Courts was taking more time, the Debt Recovery Tribunals have been constituted under the special statute to overcome the problem of recovery of huge non-performing assets of the bank and financial institutions. Suggestions have also been made to empower the bank and financial institutions to take possession of securities and sell them for recovery of loan without the intervention of the court. For that purpose there is a need for drastic amendment in the Banking Companies (Acquisition and Transfer of Undertakings Act) 1970/1980, State Bank of India Act 1955, State Bank of India (Subsidiary Banks ) Act, 1959 , Banking Regulation Act, 1949 etc. on the lines of State Financial Corporations Act. The proposed abolition of the Sick Industrial Companies Act and formation of National Company Law Tribunal is a welcome measure for reducing the mounting NPAs of the Banks and Financial Institutions.

All these amendments will take some time. In the meantime, the DRTs are using the provisions of Legal Services Authorities Act for the purpose of Lok Adalats, holding of Lok Adalats, for the recovery of the banks and financial institutions may prove as an effective tool of arbitration for adjudication of the disputes between them and their borrowers through the medium of Lok Adalats. As observed earlier, the arbitration clause can also be incorporated in the loan document executed between the bank and the borrower. For the old and existing agreements, a supplementary agreement can be executed between the banks and the borrowers for referring the matter to arbitration for the existing debts. In this way the banks and financial institutions may be able to recover a portion of the huge backlog of NPAs through the arbitration proceedings. The experience of arbitration proceedings for the recovery of the dues of the banks and financial institutions needs to be watched with keen interest. The mode of arbitration has been very successful in adjudication of disputes relating to building and engineering contracts, where the dispute between the parties were of very technical nature. As the recovery of dues of the banks and financial institutions involve a number of technical and commercial actions, it is felt that the mode of arbitration proceedings will also be helpful to the banks and financial institutions in recovery of their dues from the defaulting borrowers.

*	This paper was read by Shri G.R. Reddy, Legal Officer at the Seminar on New Challenges in Financial Sector Reforms – Role of Alternate Dispute Resolution (ADR) Practices at Hyderabad conducted by Andhra Pradesh Legal Services Pvt. Ltd.
1.	Padmabati Paul vs. Pannalal Paul AIR 1959 Cal 156.
2.	Badaria Ramakrisnamma vs. Vattikonda Lakshimbayamma AIR 1958 AP 497.
3.	Section 75 relates to the confidentiality and provides that the conciliator and the parties shall keep confidential all matters relating to the conciliation proceedings. Confidentiality shall extend also to the settlement agreement, except where its disclose is necessary for purposes of implementation and enforcement.
4.	Section 81 relates to admissibility of evidence in other proceedings. Section 81 provides that the parties shall not rely on or introduce as evidence in arbitral proceedings, whether or not such proceedings relate to the dispute that is the subject of the conciliation proceedings –
	(a)	views expressed or suggestions made by the othe party in respect of possible settlement of dispute;
	(b)	admissions made by the other party in the course of the conciliation proceedings;
5.	Section 25(c) Arbitration and Conciliation Act 1996.
6.	Union of India vs. Sohan Singh Sethi (1996) 1 LR 504 (Delhi).
7.	Gladwin vs. Chilcote (1841) 9 Dowl 550.
8.	AIR 1989 Sc 890.
9.	AIR 1992 SC 232.
10.	Russel on arbitration 360, 21st edition (1997) by Sutton, Kendali and Gill.
11.	Vinayak Balkrishna Samant vs. MTNL (1996) 2 Arb LR402 (BOM).
12.	Escort Finance Ltd. vs. Solar Farmachem Ltd. (1996) 2 Arb. LR 414 (Delhi).
13.	Per Lord Mansfield CJ in Holmon vs. Johnson.
14.	Section 42 Arbitration and Conciliation Act 1996.
15.	Loyal Textiles Mills Ltd. vs. Allenberg Cotton Company (1993) 2 Arb LR 6 Madras.
16.	(1992) 2 Arb LR 508 Madras.

Is Bank Account ‘Property’ - an Analysis of The Powers of The Police to Seize Bank Accounts

V. Raghavendra Prasad
Legal Officer

Introduction

Property and law are born together, and die together.

Before laws were made there was no property; take away laws, and property ceases.

- Bentham

Every legal system develops rules governing possession and holding of property. It also evolves rules with regard to protection that has to be afforded to property. To achieve these purposes law requires property to be given a proper meaning. The legislature has defined the word ‘property’ expressly in a few enactments and includes movable and immovable properties. Whenever the legislation is silent, the judiciary has filled in the gaps keeping in view the objectives and scheme of the Act. The judiciary, in the process of filling the gaps, has expanded the meaning of ‘property’ according to the needs and the changing times. The meaning of property has travelled from ‘tangible’ to ‘intangible’ because of the liberal interpretation adopted by the Judiciary to suit the change of times and needs of the society. The changing needs and technology has posed new problems and challenges to the lawmakers as well as the Judiciary.

The issue that arises in this context is whether a bank, account is "property" within the purview of section 102 read with sections 451 and 457 of the Criminal Procedure Code, 1973 in the absence of express mention by the legislators. In other words, should the word "seize" appearing in section 102 can be construed to actual taking of possession of the property or would it be interpreted to be deemed possession of the monies lying in the bank account when the account was seized by the police officer? A majority of the High Courts have taken divergent views on this point. The point of deference has come as some of the High Courts have taken the view that "the police officer has no authority to seize the bank account as it is not a property under section 102 of the Code" and monies lying in the account cannot be actually taken possession of to effect the ‘seizure’ in terms of the section.

The word ‘property’ under section 102 of the Criminal Procedure Code, 1973 as interpreted by the various High Courts led to conflict of opinions and nearly for five decades the people of India were left with no option but to toss the coin in air till the Supreme Court delivered its judgement in State of Maharashtra vs. Tapas D. Neogy¹. In that case the apex court held that bank account of the accused or his relative is a ‘property’ within the meaning of section 102 of the Code and a police officer in the course of investigation can seize or prohibit the operation of the said account of such assets have direct links with the commission of the offence which the police office is investigating into. In this limited study an effort has been made to examine and analyse the ratio of the judgement in Tapas D. Neogy’s case expanding the meaning of ‘property’ in the context of the power of the police officer to seize bank account under section 102 of the Code.

Essentials of Section 102 of Criminal Procedure Code, 1973

Before examining the issue, it is appropriate and useful to quote the relevant legal provisions as under :

Section 102. Power of Police Officer to seize certain property :

(1)	Any police officer may seize any property which may be alleged or suspected to have been stolen, or which may be found under circumstances which create suspicion of the commission of any offence.
(2)	Such police officer, if subordinate to the officer in charge of a police station, shall forthwith report the seizure to that officer.
(3)	Every police officer acting under sub-section (1) shall forthwith report the seizure to the Magistrate having jurisdiction and where the property seized is such that it cannot be conveniently transported to the Court, he may give custody thereof to any person on his executing a bond undertaking to produce the property before the Court as and when required and to give effect to the further orders of the Court as to the disposal of the same.

Section 451. Order for custody and disposal of property pending trial in certain cases :

When any property is produced before any Criminal Court during any inquiry or trial, the court may make such order as it thinks fit for the proper custody of such property pending the conclusion of the inquiry or trial, and, if the property is subject to speedy and natural decay, or if it is otherwise expedient so to do, the Court may, after recording such evidence as it thinks necessary, order it to be sold or otherwise disposed of

Explanation :- For the purposes of this section, "property" includes –

(a)	property of ‘any kin’ or document which is produced before the Court or which is in its custody,
(b)	any property regarding which an offence appears to have been committed or which appears to have been used for the commission of any offence.

Section 457. Procedure by police upon seizure of property –

(1)	Whenever the seizure of property by an police officer is reported to a Magistrate under the provisions of this Code, and such property is not produced before a Criminal Court during an inquiry or trial, the Magistrate may make such order a he thinks fit respecting the disposal of such property or the delivery of such property to the person entitled to the possession thereof, or if such person cannot be ascertained, respecting the custody and production of such property.
(2)	Under section 102 of the Code, a police officer should satisfy before he passes an order for seizure that (i) there must be a property, and (ii) the property must have been found under the circumstances causing suspicion of the commission of any offence. The Police Officer has to report the seizure to the Magistrate concerned, and if the property seized cannot be conveniently transported to the Court, the police officer may give custody thereof to any person on his executing a bond undertaking to produce the properties before the Court as and when required. Section 451 provides for disposal and custody of the property produced before any criminal Court during enquiry or trial. Section 457 provides that, whenever seizure of property by any police officer is reported to a Magistrate under section 102 and such property is no produced before a criminal court during enquiry or trial, the Magistrate may make such order as he thinks fit respecting the disposal of such property or delivery of such property to the person entitled to possession thereof.

Apparently a bank account could be brought within the meaning of the term ‘property’ under section 102 of the Code. However, the difficulty is, as pointed out by the Delhi High Court in Ms. Swaran Sabharwal’s case² that " it is not quiet sure whether monies deposited in a bank account can be seized by means of a prohibitory order under the provisions of section 102 of the Code". On a careful reading of sections 102, 451 and 457, Criminal Procedure Code, 1973 together, it indicates that the word ‘seize’ used in S. 102, Criminal Procedure Code means "actual taking possession" in pursuance of a legal process. The word ‘seize’ is not defined in the Code. The ordinary dictionary and natural meaning of the work ‘seize’ is : ‘to lay hold of suddenly or forcibly; to take hold of; to reach and grasp; to clutch; to take possession of by the legal authority’. Looking to the use of the words ‘seize’ and ‘seizure’ under sections 102, 451 and 457 of the Code, it appears the word ‘seize’ denotes ‘taking of possession of any property’ falling within the scope of the said Section. As the monies lying in the bank account cannot be taken "actual" possession in strict sense of the "seizure" under section 102 of the Code, various High Courts have taken divergent views on this point. Therefore, the question that arises is whether the bank account can be treated as a ‘property’ within the meaning of section 102 of the Code. In the following paras, views and reasons of various High Courts on this point has been discussed for more clarity.

3. Divergent views of the various High Courts

The Allahabad, Bombay, Karnataka, and Gauhati High Courts have taken the view that the police officer cannot issue prohibitory order under section 102 of the Cr. P.C. seizing the bank account and stalling the operation of the account by the account holder. Whereas the Madras and Punjab and Haryana High Courts have taken the contrary view and held that "the expression "property" would include the money in the bank account of the accused and there cannot be any fetter on the powers of the Police Officer in issuing prohibitory orders from operating the bank account of the accused, particularly, when the Police Officer reaches the conclusion that the amount in the bank is the outcome of commission of an offence by the accused. Different High Courts in the country have divergent views in this regard.

3.1 Bank account is not a ‘property’

In the case of M/s. Purhanchai Road Service, Gauhati vs. The State³, a learned single Judge of the Gauhati High Court examined the provisions of Section 102 of the Criminal Procedure Code and the validity of an order by a Police Officer, prohibiting the bank from paying amount to the accused from his account. The learned Judge came to the conclusion that the word ‘seize’ used in Section 102, Criminal Procedure Code means actual taking possession in pursuance of a legal process and, therefore, in exercise of the said power, a bank cannot be prohibited from paying amount out of the account of the accused to the accused nor can the accused be prohibited from taking away any property from the locker, as such an order would not be a ‘seizure’ within the meaning of Section 102 of the Criminal Procedure Code. The learned single Judge agreed with the view taken by Allahabad High Court in the case of Textile Traders Syndicate Ltd. Bulandshahr vs. The State of U.P.⁴ The Allahabad High Court in the case held that "once money passes on from the accused to some other person or to the bank, money itself becomes unidentifiable and, therefore, there cannot be any question of seizure of the same by the Police Officer".

Karnataka High Court (1994)

In the case of M/s. Malnad Construction Co., Shimoga vs. State of Karnataka,⁵ a learned single Judge of Karnataka High Court examined the provisions of Section 102 of the Criminal Procedure Code and relying upon the Gauhati High Court’s decision, came to hold that ‘seizure’ in Section 102 would mean taking actual physical possession of the property and a prohibitory order to the banker of the accused not to operate the account is not contemplated under the Code and consequently, the police has no power to issue such order.

Thus the High Courts of Karnataka, Allhabad and Gauhati have taken the view that the provisions of Section 102 of the Criminal Procedure Code cannot be invoked by the Police Officer in course of investigation to issue any prohibitory order to the banker or the accused from operating the bank account. On a careful examination of the above judgements, it may be submitted that all the Courts above have taken the view that seizure means ‘actual taking of possession’ and since monies deposited in the bank account cannot be identifiable there cannot be any seizure of the account and therefore, under section 102 of the Code police officer cannot issue prohibitory order stopping the operation of the account.

3.2 Delhi High Court-Divergent views

In the case of Ms. Swaran Sabharwal vs. Commissioner of Police⁶, reported in, a Division Bench of Delhi High Court examined the question whether bank account can be held to be ‘property’ within the meaning of Section 102 of the Cr. P.C. In the said case, proceeds realised by sale of official secrets were deposited by the accused in his wife’s account. The Court in that case came to hold that it is not quite sure whether monies deposited in a bank account can be seized by means of a prohibitory order under the provisions of Section 102 but even assuming that a bank account is a ‘property’ within the meaning of Section 102 but even assuming that a bank account is a ‘property’ within the meaning of Section 102 of the Code of Criminal Procedure, it must be further satisfied that the property has been found under circumstances which create the suspicion of the commission of an offence. But in that case it is not the discovery of the property that has created suspicion of commission of an offence but on the other hand the discovery of the bank account is a sequel to the discovery of commission of offence inasmuch as the police suspected that some of the proceeds realised by the sale of official secrets have been passed on to the bank account of the wife of the accused. Therefore, the Court was of the opinion provisions of Section 102 cannot be invoked.

However, the same Delhi High Court in P.K. Parmar vs. Union of India⁷, considered the power of police officer under Section 102 of the Criminal Procedure Code, in connection with the fraudulent acquisition of properties and opening of fictitious bank accounts and withdrawal of huge amounts as subsidy from Government by producing bogus documents by the accused. The learned Judge took note of the earlier decision of Delhi High Court in Ms. Swaran Sabharwal vs. Commissioner of Police,⁸ and analysed the provisions of Section 102 of the Criminal Procedure Code. During investigation in that case, the prosecution came to know that without actually manufacturing phosphate and fertilisers, the accused withdrew as much as Rs. 3.39 crores as subsidy from the Government of India by producing bogus documents. The Court ultimately came to the conclusion that the recovery of assets in the bank links prima facie with the commission of various offences with which they have been charged by the CBI and, therefore, the police officer could issue directions to various banks/financial institutions freezing the accounts of the accused. The learned Judge in the aforesaid case has really considered the amount of money which the accused is alleged to have swindled by producing bogus documents as property which prompted him to hold that the power under Section 102, Criminal Procedure Code can be exercised. It is submitted that the Hon’ble Delhi High Court has not gone into the concept of seizure in the present case but it had relief more on the second essential condition of section 102 of the Code that the property found must be linked to the commission of the offence.

3.3 Bank account is ‘Property’

Madras High Court (1988)

In Bharat Overseas Bank vs. Minu Publication,⁹ a learned single Judge of the Madras High Court considered the same question and came to the conclusion that the expression ‘property’ would include the money in the bank account of the accused and there cannot be any fetter on the powers of the police officer in issuing Prohibitory orders against operating the bank account of the accused when the police officer reaches the conclusion that the amount in the bank is the outcome of commission of an offence by the accused. The Court considered the fact as to how in modern days, commission of white collar crimes and bank frauds are very much on the increase and banking facilities have been extended to the remotest rural areas and, therefore the expression ‘property’ may not be interpreted in a manner so as to exclude the money in a bank which in turn would have the effect of placing legal hurdles, in the process of investigation into the crimes. According to the learned Judge, such literal interpretation of the expression ‘property’ could not have been the intent of the framers of the Criminal Procedure Code. The learned Judge elaborating the object behind investing the police with powers of seizure has observed¹⁰.

"It would now be useful to refer to the object behind investing the police with powers of seizure. Seizure and production in Court of any property, including those regarding which an offence appears to have been committed or which appears to have been used for the commission of any offence or any other property will have a two-fold effect. Production of the above property may be necessary as evidence of the commission of the crime. Seizure may also have to be necessary, in order to preserve the property, for the purpose of enabling the Court, to pass suitable orders under S. 452 of the Criminal Procedure Code at the conclusion of the trial. This order would include destruction of the property, confiscation of the property or delivery of the property to any person claiming to be entitled to possession thereto. It cannot be contended that the concept of restitution of property to the victim of a crime, is totally alien to the Criminal Procedure Code. No doubt, the primary object of prosecution is punitive. However, Criminal Procedure Code, does contain several provisions, which seek to re-imburse or compensate victims of crime, or bring about restoration of property or its restitution. As S. 452, Criminal Procedure Code, does contain several provisions, which seek to re-imburse or compensate victims of crime, or bring about restoration of property or its restitution. As S. 452, Criminal Procedure Code itself indicates, one of the modes of disposing of property at the conclusion of the trial, is ordering their return to the person entitled to possession thereto. Even interim custody of property under Ss. 451 and 457, Criminal Procedure Code, recognises the rights of the person entitled to the possession of the properties. An innocent purchaser for value is sought to be re-imbursed by S. 453, Criminal Procedure Code Restoration of immovable property under certain circumstances, is dealt with under S. 456, Criminal Procedure Code Even, monetary compensation to victims of crime or any bona fide purchaser of property, is provided for under S. 357, Criminal Procedure Code Wherein when a Court while convicting the accused imposes fine, the whole or any part of the fine, if recovered, may be ordered to be paid as compensation to any person, for any loss or injury, caused by the offence or to any bona fide purchaser of any property, after the property is restored to the possession of the person entitled thereto. This two fold object of investing the police with the powers of seizure, have to be borne in mind, while setting this legal issues.

This Judgement of the learned single Judge of the Madras High Court was followed in a later decision in the case of Bharat Overseas Bank vs. Mrs. Prema Ramalingam,¹¹ wherein the learned Judge agreeing with Padmini Jesudurai, J. in Bharat Overseas Bank’s case came to hold that money in a bank account is ‘property’ within the meaning of Section 102 of the Criminal Procedure Code, which could be seized by a prohibitory order.

In the case of Dr. Gurcharan Singh vs. The State of Punjab,¹² a Division Bench of the Punjab & Haryana Court differing with the view taken by the Allahabad High Court in Textile Traders Syndicate Ltd., vs. The State of U.P.¹³ came to hold that the bank account would be ‘property’ and as such would be capable of being seized under Section 102 of the Code of Criminal Procedure.

4. Supreme Court on Expanding the Meaning of ‘Property’ (1999)

The Hon’ble Supreme Court in State of Maharashtra vs. Tapas D. Neogy¹⁴ has settled the unselled position of law on this point in 1999 nearly after four decades. In the year 1969 the Allhabad High Court has held that bank account is not a property under section 102 of Criminal Procedure Code. The brief facts of the case are that the CBI, ACB, Mumbai registered FIR against the Tapas D. Neogy and others under sections 120B, 467, 468, 471 and 420 IPC and section 13(2) r/w section 13(1) (d) of the Prevention of Corruption Act, 1988. The accused was an Architect and Town Planner in the Deptt. of Town Planning of the Union Territory of Daman and Diu. He was charged with forgery of map and issuing false certificates indicating that the part of land in Diu fell within the industrial zone. On account of such act the land prices shot up by Rs. 100 to 110 per square meter to Rs. 800/- to Rs. 1600/- per square meter, and in the process, accused persons caused pecuniary advantage to be gained by the landowners. The investigating officer issued instructions to the Managers of different banks not to allow the accounts to be operated upon. The mother of the respondent then filed an application before the Additional Chief Metropolitan Magistrate under section 457 of Criminal Procedure Code to allow her to operate the bank account and for return of the documents and articles seized, claiming that they belonged to her. The Magistrate granted relief in respect of the locker in question but refused to allow the mother to operate the bank account. The matter was carried to the High Court which held that the bank account of an accused or any relation of the accused cannot be held to be "property" within the meaning of section 102 of Criminal Procedure Code and, therefore, the investigating officer had no powers either to seize the said bank account or to issue any order prohibiting the operation of the bank account. The State went in appeal to the Supreme Court.

The Hon’ble Supreme Court showing concern for the long and uncertain issue dragged on for decades by the various High Courts has observed

"having considered the divergent views taken by different High Courts with regard to the power of seizure under Section 102 of the Code of Criminal Procedure, and whether the bank account can be held to be ‘property’ within the meaning of said Section 102(1), we see no justification to give any narrow interpretation to the provisions of the Criminal Procedure Code".

The Division Bench comprising of Hon’ble Judge Pattanaik and N. Santosh Hegde, JJ stressed for the need to expand the meaning of the ‘property’ in the light of the rampant growth in the corruption levels in the government offices. His Lordship Pattanaik J. speaking for himself and on behalf of Justice N. Santosh Hegde, observed.

It is well known that corruption in public offices has become so rampant that it has become difficult to cope up with the same. Then again the time consumed by the Courts in concluding the trials is another factor which should be borne in mind in interpreting the provisions of Section 102 of the Criminal Procedure Code and the underlying object engrafted therein, inasmuch as if there can be no order of seizure of the bank account of the accused then the entire money deposited in a bank which is ultimately held in the trial to be the outcome of the illegal gratification, could be withdrawn by the accused and the Courts would be powerless to get the said money which has any direct link with the commission of the offence committed by the accused as a public officer. We are, therefore, persuaded to take the view that the bank account of the accused or any of this relation is ‘property’ within the meaning of Section 102 of the Criminal Procedure Code and a police officer in course of investigation can seize or prohibit the operation of the said account if such assets have direct links with the commission of the offence for which the police officer is investigation into.

The contrary view expressed by Karnataka, Gauhati and Allahabad High Courts, does not represent the correct law (emphasis is ours)

The meaning of the term property has been subjected to a sea change in the recent past. To encounter fraudulent activities many legislations have been brought into force by the legislature. For instance, Prevention of Corruption Act, 1988, prevention of Benami Transactions Act, 1988, FEMA etc. However, there is no much success for the legislators in prevention of while collar crimes. In this connection, it is submitted that the Supreme Court has focussed much on the objectives of the legislation rather than strict meanings of the phrases used in the Code while interpreting section 102. More so, the Supreme Court has relied on the objectives engrafted in Prevention of Corruption Act to interpret the ambiguous phrase under Section 102 of Criminal Procedure Code. It is submitted that Supreme Court could have clarified the meaning of "seizure" in the context of seizing monies lying in the bank account. Instead of theorizing the concept the Hon’ble Court placed reliance on objectives of the Prevention of Corruption Act to interpret meaning of property under section 102 of Criminal Procedure Code. This provides ample scope for the High Courts in future to distinguish the present case on the ground that the Police Officer cannot issue prohibitory orders under Section 102 of the Code, where the accused was not charged under Prevention of Corruption Act, therefore the Supreme Court’s decision is not applicable to the cases where the accused is not a public servant. It is not out of place to recall the observations of the Justice Pattaniak wherein his Lordship said in categorical terms that

The interpretation given by us in respect of the power of seizure under Section 102 of the Criminal Procedure Code is in accordance with the intention of the legislature engrafted in Section 16 of the Prevention of Corruption Act referred to above.

Further the Supreme Court has not dealt comprehensively on the issue raised by the Allahabad High Court, wherein the High Court has reached the opinion that the the word ‘seizure’ was used in section 550 in the sense above mentioned it is obvious that it could only mean the act of taking actual physical possession of the property capable of being so possessed." Explaining the reason why the bank amount cannot be seized the Court observed that the bank really became a debtor of the applicant to that extent. It was not necessary for it to keep any money always in hand in anticipation of any demand to be made by the applicant. When the applicant actually made a demand it could procure the necessary amount from anywhere and pay it to the applicant. In the circumstances it cannot be said that there was any ‘property’ with the bank of which actual physical possession could be taken. Section 550 does not appear to contemplate a police officer prohibiting the payment of a debt by a debtor to the accused person. It that can be done it may create unnecessary complications. For instance, if after stealing Rs. 1,000/- an accused person lends it on a mortgage or a bond to some one who borrows it for saving his property from being sold in execution of a decree. Can the police officer who is investigating the case of theft direct the debtor that he should not pay the money for the satisfaction of his decree and allow his property to be sold in execution of the decree? As long as the money is in the possession of the thief and capable of seizure it may be open to the police officer to seize it on the ground that it was or was suspected to be stolen property but once it passes into the hands of the debtor and the money becomes unidentifiable there can be no question of its being seized by the police officer.¹⁵

The Hon’ble Supreme Court could have clarified this point while deliver the decision instead of interpreting the phrases under section 102 of the Cr. P.C. in the backdrop of the Prevention of Corruption Act.¹⁶

In our view by applying the similar analogy where electric energy which is indefinite and unidentifiable in consumption but still controlled by a switch in a power station, monies deposited in a bank account of unidentifiable in specie of the accused but by seizing the bank account by actually taking into possession of the pass book the transaction of power of the holder to deal with the money can be stopped. Thus, by actually taking possession of holder to deal with the money can be stopped. Thus, by actually taking possession of pass book, without diluting the concept of ‘seizure’, bank account can be seized within the meaning of Section 102 of the Code.

5. Conclusion

Though there is a chapter in the Penal Code exclusively to deal with offences against property, the concept of property was left undefined probably in the hope that the judiciary would supply it with proper meaning and content in accordance with the needs of the time. In fact, an analysis of the case law produced by the judiciary would inevitably lead one to the conclusion that the judiciary has lived upto the expectations of the framers of the Code. Not only did courts give meaning to the concept but also by its flexible interpretation enclosed a large area of property interests within the fold of the concept of property.

1.	(1999) 7 SCC 685.
2.	1998 Cri LJ 241.
3.	1991 Cri LJ 2798.
4.	AIR 1960 All 405; 1960 Cri LJ 871.
5.	1994 Cri LJ 645.
6.	1998 Cri LJ 241.
7.	1992 Cri LJ 2499.
8.	1988 Cri LJ 241.
9.	1988 Mad LW (Cri) 106.
10.	Supra at para 11. 11. 1991 Mad LW (Cri) 358.
11.	1991 Mad LW (Cri) 358.
12	(1978) 80 Punj LR 514.
13.	AIR 1960 all 405; 1980 Cri LJ 871.
14.	1999 Cr. LJ 405.
15	AIR 1960 ALL 405 at para 13-16.
16	The Hon’s Supreme Court while deciding the issue whether electric energy which is intangible is a movable property and can be constituted as ’goods’ for the purpose of imposing sales tax. It was held that the term "movable property" when considered with reference to "goods" as defined for "the purpose of sales tax cannot be taken in a narrow sense and merely because electric energy is not tangible or cannot be moved or touched like, for instance, a piece of woos or a book, it cannot cease be moved or touched like, for instance, a piece of wood or a book, it cannot cease tothe movable property. It can be transmitted, transferred, delivered, stored, possessed etc. in the same way as another movable property."

In Holmes’s day, the churches as well as the courts attempted to control human conduct. The courts dealt with crimes that had been committed; the churches’ role was preventive : They sought to strengthen a man’s conscience so that he would not commit any. But with the decline of religion the law has moved to take over the preventive as well as the punishing function. A man must not only avoid the act that the crowd considers criminal; he must avoid the opportunity, or even the appearance of the opportunity; to commit such an act. Without a conscience it is only logical to assume that he will succumb to temptations. Society, therefore, now tries to legislate an end to temptation.

— AUCHINCLOSS, Louis S., "When Interests Conflict,

"The New York Times, May 22, 1978, p. A21, cols. 1 and 2

Effect of Repealing and Amending Acts

Babu Sanal V. Nair
Asst.Legal Adviser

1. The Repealing and Amending Act,2002 has repealed a large number of statutes including the Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1989, which had inserted, inter alia Chapter XVII¹ (Sections 138 to 142)in the Negotiable Instruments Act, 1881 dealing with penalty for bouncing of cheques. Section 4 of the Repealing and Amending Act has a saving clause² which provides that the repeal by this Act of any enactment shall not affect any other enactment. In this context, this article examines the effect of repealing statutes on the amendments carried out by the repealed Acts in other enactments.

2. Object of Repealing and Amending Acts

The Legislature enacts Repealing and Amending Acts from time to time in order to repeal enactments which have ceased to be in force or have become obsolete or the retention whereof as separate Acts is unnecessary. The principal object of such Acts is to "excise dead matter, prune off superfluities and reject clearly inconsistent enactments"³. Repealing and Amending Act may thus be regarded as a "legislative scavenger".

3. Effect of repeal

At common law, the effect of repealing a statute is to obliterate it as completely as if it had never been passed. However, transactions that have been completed, rights that have been acquired and penalties that have been imposed while a statute is in force, are not (in the absence of an express provision to the contrary) affected by the mere fact of the statute having ceased to be in force. The dicta in Surtes v. Ellison⁴ and Ray v. Goodwin⁵ is that where an Act of Parliament is repealed the effect of the repeal is that it is to be taken as if the statute had never been enacted, except as to transactions begun or prosecuted while it was an existing law. Repeal connotes abrogation or obliteration of a statute by another. Repeal is not a mere matter of form but one of substance, depending upon the intention of the Legislature. If the intention indicated expressly or by necessary implication in the subsequent statute was to abrogate or wipe off the former enactment wholly or in part, then it would be a case of total or protanto repeal. If the intention was merely to modify the former enactment by engrafting an exception or by superadding conditions, or by restricting, intercepting or suspending its operation, such modification would not amount to repeal⁶.

4. Application of General Clauses Act

Section 6 of the General Clauses Act, 1897 saves the rights and liabilities which have accrued under the repealed provisions. There may also be special savings in Special Acts dealing with the effect of repeal⁷. Section 6 does not save the provisions of the repealed Act as such. When an Act is repealed, it must be considered as if it had never existed, except with reference to such parts as are saved by the repealing statute⁸. The case of the repeal of the amending Act directly falls within the four corners of S.6A⁹ of the General Clauses Act.

5. Repeal of the amending Act

Section 6A of the General Clauses Act reads as under:

"6A. Repeal of Act making textual amendment in Act or Regulation - Where any Central Act or Regulation made after the commencement of this Act repeals any enactment by which the text of any Central Act or Regulation was amended by the express omission, insertion or substitution of any matter, then, unless a different intention appears, the repeal shall not affect the continuance of any such amendment made by the enactment so repealed and in operation at the time of such repeal".

In the class of cases contemplated by Section 6A, the function of the incorporating legislation is taken almost wholly as the function of effecting the incorporation and when that function is accomplished, the legislation dies as it were, a natural death which is formally effected by its repeal¹⁰ Textual amendments become a part of the amended Act, and the repeal of the amending Act does not affect the textual amendments which are so incorporated in the principal Act¹¹.

6. Impact of the 2001 Act

In conclusion, the repeal of a statute does not repeal such portions of the statute as have been already incorporated into another statute. The Act directing incorporation may be repealed, but the incorporated section or sections still operate in the former Act¹². Section 4 of the Repealing and Amending Act, 2001 read with Section 6A of the General Clauses Act makes it clear that the repealing of the Banking, Public Financial Institutions and Negotiable Instruments Laws (Amendment) Act, 1988 shall not affect the continuance of Chapter XVII of the Negotiable Instruments Act, 1881.

Referemces :
1.		This Chapter was inserted in the Negotiable Instruments Act to enhance the acceptability of cheques in settlement of liabilities by making the drawer liable for penalties in case of bouncing of cheques due to insufficiency of funds in the accounts or for the reason that it exceeds the arrangements made by the drawer.
2.		"Section 4. Savings - The repeal by this Act of any enactment shall not affect any other enactment in which the repealed enactment has been applied, incorporated or referred to; and this Act shall not affect the validity, invalidity, effect or consequences of anything already done or suffered, or any right, title, obligation or liability already acquired, accrued or incurred, or any remedy or proceeding in respect thereof, or an release or discharge of or from any debt, penalty, obligation, liability, claim or demand, or any indemnity already granted, or the proof of any past act or thing; nor shall this Act affect any principle or rule of law, or established jurisdiction, form or course of pleading, practice or procedure, or existing usage, custom, privilege, restriction, exemption, office or appointment, notwithstanding that the same respectively may have been in any manner affirmed or recognized or derived by, in or from any enactment hereby repealed;nor shall the repeal by this Act of any enactment revive or restore any jurisdiction, office, custom, liability, right, title, privilege, restriction, exemption, usage, practice, procedure or other matter or thing not now existing or in force".
3.		AIR 1975 SC 155 (158)
4.		Surtes v. Ellison (1829)9 B C 750, 752)
5.		Ray v. Goodwin (31 RR 500)
6.		ndia Tobacco Co., Ltd., v. Commercial Tax Officer, AIR 1975 SC 155.
7.		AIR 1958 Bom.507 (at p.509).
8.		AIR 1986 SC 1011.
9.		AIR 1960 SC 89 (91, 92).
10.		AIR 1962 SC 316 (334)
11.		AIR 1960 Punj 375 (376, 377)
12.		AIR 1951 Cal.97 (99)

I see neither bravery nor sacrifice in destroing life or property for offience or defence

— -Mahatma Gandhi