Every banking company has to obtain the previous approval of The Reserve Bank before appointing or Re-appointing and removing any auditors.

 Reserve Bank of India(RBI) is empowered to direct the auditor of a banking company to audit account of a banking company in relation to any transaction or class of transactions specified in the order. In the case of State Bank of India, the auditors are appointed by the Reserve Bank of India.

 By the amendment of 1968,  Section 1A and section 1B of Section 30 inserted in the Banking Regulation Act.

Audit (Section 30) -

     (1) The balance-sheet and profit and loss account prepared in accordance with section 29 shall be audited by a person duly qualified under any law for the time being in force to be an auditor of companies.

    (1A) Notwithstanding anything contained in any law for the time being in force or in any contract to the contrary, every banking shall, before appointing re-appointing or removing any auditor or auditors, obtain the previous approval of the Reserve Bank.

    (1B) Without prejudice to anything contained in the Companies Act, 1956 (1 of 1956), or any other law for the time being in force, where the Reserve Bank is of opinion that it is necessary in the public interest or in the interest of the banking company or its depositors so to do, it may at any time by order direct that a special audit of the banking company’s accounts, for any such transaction or class of transactions or for such period or periods as may be specified in the order, shall be conducted and may by the same or a different order either appoint a person duly qualified under any law for the time being in force to be an auditor of companies or direct the auditor of the banking company himself to conduct such special audit] and the auditor shall comply with such directions and make a report of such audit to the Reserve Bank and forward a copy thereof to the company.

(1C) The expenses of, or incidental to the special audit specified in the order made by the Reserve Bank shall be borne by the banking company.

(2) The auditor shall have the powers of, exercise the functions vested in, and discharge the duties and be subject to the liabilities and penalties imposed on, auditors of companies by section 227 of the Companies Act, 1956 (1 of 1956), and auditors, if any, appointed by the law establishing, constituting or forming the banking company concerned.

(3) In addition to the matters which under the aforesaid Act the auditor is required to state in his report, he shall, in the case of a banking company incorporated in India, state in his report,—

           (a) whether or not the information and explanation required by him have been found to be satisfactory;

           (b) whether or not the transactions of the company which have come to his notice have been within the powers of the company;

           (c) whether or not the returns received from branch offices of the company have been found adequate for the purposes of his audit;

           (d) whether the profit and loss account shows a true balance of profit or loss for the period covered by such account;

           (e) any other matter which he considers should be brought to the notice of the shareholders of the company.

Relevant Case Laws - 

M.Hanumaiah Vs. Reserve Bank of India (2008) 1SSC 770

 In this case, Supreme Court held that on receipt of a requisition in writing from the Reserve Bank of India(RBI), the Registrar co-operative societies is statutorily bound to issue the order of supersession of the committee of management of the Co-operative Bank. At that stage, the affected Bank / its managing committee has no right of hearing or to raise any objection.

See also...

1. Commercial Bank: Primary, Secondary and Modern Functions of Commercial Bank

2. Classification of Commercial Banks

3. What are Different types of a Cheque | Banking Law

4. Distinction/difference between Loan and Cash Credit | Banking Law

5. Difference between Co-operative Banks and Commercial Banks | Banking Law


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