Here we will see Section 12 of The Banking Regulation Act.
Regulation of paid–up capital, subscribed capital and authorised capital and voting rights of shareholders.—
(1) No banking company shall carry on business in India, unless it satisfies the following conditions, namely:—
(i) that the subscribed capital of the company is not less than one–half of the authorised capital, and the paid–up capital is not less than one–half of the subscribed capital and that, if the capital is increased, it complies with the conditions prescribed in this clause within such period not exceeding two years as the Reserve Bank may allow;
(ii) that, notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), the capital of such banking company consists of—
(a) equity shares only; or
(b) equity shares and preferences shares:
Provided that the issue of preference share shall be in accordance with the guidelines framed by the Reserve Bank specifying the class of preference shares, the extent of issue of each class of such preference shares (whether perpetual or irredeemable or redeemable), and the terms and conditions subject to which each class of preference shares may be issued:
Provided further that no holder of the preference share, issued by the company, shall be entitled to exercise the voting right specified in clause (b) of sub–section (2) of section 87 of the Companies Act, 1956 (1 of 1956);
***** The proviso omitted by s. 3, ibid.(w.e.f. 18–1–2013).
(2) No person holding shares in a banking company shall, in respect of any shares held by him, exercise voting rights on poll in excess of ten per cent of the total voting rights of all the share–holders of the banking company:
Provided that the Reserve Bank may increase, in a phased manner, such ceiling on voting rights from ten per cent. to twenty–six per cent.
(3) Notwithstanding anything contained in any law for the time being in force or in any contract or instrument no suit or other proceeding shall be maintained against any person registered as the holder of a share in a banking company on the ground that the title to the said share vests in a person other than the registered holder:
Provided that nothing contained in this sub–section shall bar a suit or other proceeding—
(a) by a transferee of the share on the ground that he has obtained from the registered holder a transfer of the share in accordance with any law relating to such transfer; or
(b) on behalf of a minor or a lunatic on the ground that the registered holder holds the share on behalf of the minor or lunatic.
(4) Every chairman, managing director or chief executive officer by whatever name called of a banking company shall furnish to the Reserve Bank through that banking company returns containing full particulars of the extent and value of his holding of shares, whether directly or indirectly, in the banking company and of any change in the extent of such holding or any variation in the rights attaching thereto and such other information relating to those shares as the Reserve Bank may, by order, require and in such form and at such time as may be specified in the order.
12A. Election of new directors.—
(1) The Reserve Bank may, by order, require any banking company to call a general meeting of the share holders of the company within such time, not less than two months from the date of the order, as may be specified in the order or within such further time as the Reserve Bank may allow in this behalf, to elect in accordance with the voting rights permissible under this Act fresh directors, and the banking company shall be bound to comply with the order.
(2) Every director elected under sub–section (1) shall hold office until the date up to which his predecessor would have held office, if the election had not been held.
(3) Any election duly held under this section shall not be called in question in any court.
12B. Regulation of acquisition of shares or voting rights.—
(1) No person (hereinafter referred to as “the applicant”) shall, except with the previous approval of the Reserve Bank, on an application being made, acquire or agree to acquire, directly or indirectly, by himself or acting in concert with any other person, shares of a banking company or voting rights therein, which acquisition taken together with shares and voting rights, if any, held by him or his relative or associate enterprise or person acting in concert with him, makes the applicant to hold five per cent. or more of the paid–up share capital of such banking company or entitles him to exercise five per cent. or more of the voting rights in such banking company.
Explanation 1.— For the purposes of this sub–section,—
(a) “associate enterprise” means a company, whether incorporated or not, which,—
(i) is a holding company or a subsidiary company of the applicant; or
(ii) is a joint venture of the applicant; or
(iii) controls the composition of the Board of Directors or other body governing the applicant; or
(iv) exercises, in the opinion of the Reserve Bank, significant influence on the applicant in taking financial or policy decisions; or
(v) is able to obtain economic benefits from the activities of the applicant;
(b) “relative” shall have the meaning assigned to it in section 6 of the Companies Act, 1956 (1 of 1956);
(c) persons shall be deemed to be “acting in concert” who, for a common objective or purpose of acquisition of shares or voting rights in excess of the percentage mentioned in this sub–section, pursuant to an agreement or understanding (formal or informal), directly or indirectly cooperate by acquiring or agreeing to acquire shares or voting rights in the banking company.
Explanation 2.— For the purposes of this Act, joint venture means a legal entity in the nature of a partnership engaged in the joint undertaking of a particular transaction for mutual profit or an association of persons or companies jointly undertaking some commercial enterprise wherein all contribute assets and share risks.
(2) An approval under sub–section (1) may be granted by the Reserve Bank if it is satisfied that—
(a) in the public interest; or
(b) in the interest of banking policy; or
(c) to prevent the affairs of any banking company being conducted in a manner detrimental or prejudicial to the interests of the banking company; or
(d) in view of the emerging trends in banking and international best practices; or
(e) in the interest of the banking and financial system in India,
the applicant is a fit and proper person to acquire shares or voting rights:
Provided that the Reserve Bank may call for such information from the applicant as it may deem necessary for considering the application referred to in sub–section (1):
Provided further that the Reserve Bank may specify different criteria for acquisition of shares or voting rights in different percentages.
(3) Where the acquisition is by way of transfer of shares of a banking company and the Reserve Bank is satisfied that such transfer should not be permitted, it may, by order, direct that no such share shall be transferred to the proposed transferee and may further direct the banking company not to give effect to the transfer of shares and in case the transfer has been registered, the transferee shall not be entitled to exercise voting rights on poll in any of the meetings of the banking company.
(4) The approval for acquisition of shares may be subject to such conditions as the Reserve Bank may deem fit to impose, including a condition that any further acquisition of shares shall require prior approval of the Reserve Bank and that the applicant continues to be a fit and proper person to hold the shares or voting rights.
(5) Before issuing or allotting any share to any person or registering the transfer of shares in the name of any person, the banking company shall ensure that the requirements of sub–section (1) are complied with by that person and where the acquisition is with the approval of the Reserve Bank, the banking company shall further ensure that the conditions imposed under sub–section (4), if any, of such approval are fulfilled.
(6) The decision of the Reserve Bank on the application made under sub–section (1) shall be taken within a period of ninety days from the date of receipt of the application by the Reserve Bank:
Provided that in computing the period of ninety days, the period taken by the applicant for furnishing the information called for by the Reserve Bank shall be excluded.
(7) The Reserve Bank may specify the minimum percentage of shares to be acquired in a banking company if it considers that the purpose for which the shares are proposed to be acquired by the applicant warrants such minimum shareholding.
(8) The Reserve Bank may, if it is satisfied that any person or persons acting in concert with him holding shares or voting rights in excess of five per cent. of the total voting rights of all the shareholders of the banking company, are not fit and proper to hold such shares or voting rights, pass an order directing that such person or persons acting in concert with him shall not, in the aggregate, exercise voting rights on poll in excess of five per cent. of the total voting rights of all the shareholders of the banking company:
Provided that the Reserve Bank shall not pass any such order without giving an opportunity of being heard to such person or persons acting in concert with him.