BUSINESS OF BANKING COMPANIES

Section 5(c) defines "Banking Company", clause (b) of Section 5 defines "banking" and
section 6 provides for the form of business in which banking companies may engage. The
relevant provisions of the Banking Regulation Act, 1949 read as under:
(b) "banking" means the accepting, for the purpose of lending or investment, of deposits
of money from the public, repayable on demand or otherwise, and withdrawable by
cheque, draft, order or otherwise.
(c) "Banking Company" means any company which transacts the business of banking in
India;
Explanation.--Any company which is engaged in the manufacture of goods or carries on
any trade and which accepts deposits of money from the public merely for the purpose of
financing its business as such manufacturer or trader shall not be deemed to transact the
business of banking within the meaning of this clause;
6. Forms of Business in which Banking Companies may Engage.--(l) In addition to
the business ofbanking, a Banking Company may engage in any one or more of the
following forms of business, namely:
(a) borrowing, raising, or taking up of money; lending or advancing of money either upon
or without security; drawing, making, accepting, discounting, buying, selling, collecting
and dealing in bills of exchange, hundis, promissory notes, coupons, drafts, bills of
lading, railway receipts warrants, debentures, certificates, scrips and other instruments,
and securities whether transferable or negotiable or not; granting and issuing of letters of
credit, traveller's cheques and circular notes; buying, selling and dealing in bullion and
species the buying and selling of foreign exchange including foreign bank notes;
acquiring, holding, issuing on commission, underwriting and dealing in stock, funds,
shares, debentures, debenture stock, bonds, obligations, securities and investments of all
kinds; purchasing and selling of bonds, scrips or other forms of securities on behalf of
constituents or others; negotiating of loans and advances; receiving of all kinds of bonds,
scrips or valuables on deposit or for safe custody or otherwise; providing of safe deposit
vaults; collecting and transmitting of money and securities;
(b) acting as agents for any Government or local authority or any other person or persons;
carrying on of agency business of any description including clearing and forwarding of

goods, giving of receipts and discharges and otherwise acting as an attorney on behalf of
customers, but
excluding the business of a managing agent or secretary and treasurer of a company;
(c) contracting for public and private loans and negotiating and issuing the same;
(d) effecting, insuring, guaranteeing, underwriting, participating in managing and
carrying out of
any issue, public or private, of state, municipal or other loans or of shares, stock,
debentures or
debenture stock of any company, corporation or association and lending of money for the
purpose of any such issue;
(e) carrying on and transacting every kind of guarantee and indemnity business;
(f) managing, selling and realising any property which may come into the possession of
the company in satisfaction or part satisfaction of any of its claims;
(g) acquiring and holding and generally dealing with any property or any right, title or
interest in
any such property which may form the security or part of the security for any loans or
advances
or which may be connected with any such security;
(h) undertaking and executing trusts;
(i) undertaking the administration estates as executor, trustee or otherwise;
(j) establishing and supporting or aiding in the establishment and support of associations,
institutions, funds, trusts and conveniences calculated to benefit employees or
exemployees of the company or the dependents or connections of such persons; granting
pensions and allowances and making payments towards insurance; subscribing to or
guaranteeing money for charitable or benevolent objects or for any exhibition or for any
public, general or useful object;
(k) acquisition, construction, maintenance and alteration of any building or works
necessary or
convenient for the purposes of the company;
(l) selling, improving, managing, developing, exchanging, leasing, mortgaging, disposing
of or turning into account or otherwise dealing with all or any part of the property and

rights of the company;

(m) acquiring and undertaking the whole or any part of the business of any person or
company,
when such business is of a nature enumerated or described in this sub-section;
(n) doing all such other things as are incidental or conducive to the promotion or
advancement of the business of the company;
(o) any other form of business which the Central Government may, by notification in the
official Gazette, specify as a form of business in which it is lawful for a Banking
Company to engage.
(2) No Banking Company shall engage in any form of business other than those referred
to in sub-section (1).
3. "Banking" and "Banking Company"
It has been held in Rustam Cowasji Cooper v. Union of India Rustam Cowasji Cooper v.
Union of India ,2 that expression "Banking" does not include other commercial activities
of a banking institution. The essential characteristic being its ability to receive money as
deposits from customers and its ability to honour their cheques and without this mere
power to grant loans would not of itself render an institution a Banking Company.
A company carrying on the business of banking is a "Banking Company" and it does not
make any difference if the same was not carried on for some time.
The court followed the ruling in.5 It was held in this case under the erstwhile Banking
Companies Act, 1949 that a banking company does not mean that the company must be
able to accept deposits of money from the public repayable on demand or otherwise.
Banking should be the primary business of the banking company even if by reason of
certain supervening events, the company is not able to receive deposits. A banking
company does not cease to be a banking company merely by reason of an order of the
Central Government prohibiting it from receiving fresh deposits. The order was
issued under Section 5 of the Banking Companies (Inspection) Ordinance, 1946. A
banking company which
has stopped all fresh business and attends only to recovery of loans and advances and to
the realisation of
its other assets does not cease to be a banking company as defined in Section 5(c) of the

erstwhile Banking
Companies Act, 1949. The High Court, therefore, had an exclusive jurisdiction to
entertain and decide any
questions relating to the winding up of the company.6 Despite the fact that liquidation
proceedings have been
started against a "Banking Company", it would continue to be a "Banking Company" in
its original form until
the Court orders its liquidation under Section 194 of the Companies Act.7
Any company which transacts the business of banking in India is a Banking Company.8
4. Essential Characteristic
Though banks have been allowed under Section 6 of the Banking Regulation Act [Section
5 of the Banking
Company Act], but if the essential characteristic of banking that is, the power to receive
deposits from the
public which are refundable in the manner indicated in Section 5(1)(b) of the Banking
Companies Act, is
absent and merely the power of granting loans is retained, that does not make the
company a banking
company.9