Corporate and Economic Laws · Laws and Regulations related to Banking Sector

Penalties, Offences and Omitted Provisions under Banking Laws

Updated 11 October 2026 · Fact-checked

This topic covers how banking laws punish defaults, who is liable when a company offends, and which penalty provisions no longer operate. Read the section, check whether it is in force or omitted, identify the person liable, and then state the consequence. Omitted sections such as RBI Act 45G and SARFAESI section 28 carry no penalty today.

Understand Penalties, Offences and Omitted Provisions

Banking laws work through three tools: regulatory powers, penalties for default, and protection for action taken in good faith. In an exam you must know which tool a section belongs to, and whether the section is still alive.

The RBI Act, 1934 deals with offences by companies in section 58C. If the contravention or default is by a company, every person in charge of, and responsible to, the company for its business, as well as the company, is deemed guilty. That person escapes only by proving the default happened without his knowledge, or that he exercised all due diligence to prevent it. Section 58C(2) goes further. If the offence is proved to have been committed with the consent or connivance of, or is attributable to neglect by, any director, manager, secretary, or other officer or employee, that person is also deemed guilty. For this section, "company" means any body corporate and includes a corporation, a non-banking institution, a firm, a co-operative society or other association of individuals. For a firm, "director" means a partner. An offence is deemed committed where the registered office or principal place of business in India is situated.

Some provisions are omitted. Section 45G of the RBI Act (Penalties) was omitted by the 1974 Amendment Act with effect from 13-12-1974. Section 28 of the SARFAESI Act, 2002 (penalties for non-compliance of direction of Reserve Bank) was omitted by the 2016 Amendment Act with effect from 1-9-2016. Also, the proviso to SARFAESI section 27 says that section is deemed omitted from the date the amended Chapter and section 23 came into force. Section 27 had fined defaults in filing particulars (sections 23, 24, 25) up to ₹5,000 per day of default. That fine is now deemed omitted.

The Banking Regulation Act, 1949 has its own scheme. Section 45J lets the High Court try, in a summary way, offences by promoters, directors, managers or officers of a banking company that is being wound up, if the offence is punishable under that Act or the Companies Act, 1956. Other such offences are tried by a High Court Judge other than the one handling the winding up. Section 45U lets the High Court make rules, including on which offences may be tried summarily.

The official text supplied to you does not contain RBI Act section 44 or Banking Regulation Act section 36 as omitted provisions. Banking Regulation Act section 36 is in force. It gives RBI further powers, such as cautioning banks and appointing observers. Do not call it omitted. If a question says a section is omitted, check the text.

Key rules to remember

Company offence (RBI Act s.58C(1)): Liable = company + every person in charge of and responsible for business at the time of default; Defence: default without his knowledge, or all due diligence exercised. The burden is on the person to prove it.
Consent, connivance or neglect (RBI Act s.58C(2)): Offence by company + consent / connivance / neglect of director, manager, secretary, officer or employee = that person also guilty; Applies notwithstanding sub-section (1). The due-diligence proviso is in sub-section (1).
Meaning of company for s.58C: Company = any body corporate, including corporation, non-banking institution, firm, co-operative society, association of individuals; Director of a firm means a partner.
Place of offence: Deemed place = registered office or principal place of business in India; From Explanation 1 to s.58C.
Omitted provisions: RBI Act s.45G omitted w.e.f. 13-12-1974; SARFAESI s.28 omitted w.e.f. 1-9-2016; SARFAESI s.27 deemed omitted; Do not quote penalties from these as current law.
SARFAESI s.27 old fine: Fine up to ₹5,000 per day of continuing default; Historical because of the proviso on deemed omission.
Good faith protection (SARFAESI s.32): No suit, prosecution or legal proceedings against the Reserve Bank, Central Registry, secured creditor or its officers for acts done or omitted in good faith under the Act; Protection depends on good faith.
BR Act s.45J: High Court may try summarily offences by promoters, directors, managers or officers of a banking company being wound up; Offence must be punishable under the BR Act or the Companies Act, 1956.

How to solve Penalties, Offences and Omitted Provisions questions

Use this sequence for any question on penalties, offences or omitted provisions in banking laws.

1Identify the Act and the exact section or the type of default described.
2Check whether the provision is in force or omitted, and note the date of omission if omitted.
3If the offender is a company, apply section 58C of the RBI Act: company plus persons in charge and responsible.
4Test the defence: lack of knowledge or due diligence for persons under s.58C(1).
5Separately test s.58C(2): consent, connivance or neglect by any director, manager, secretary, officer or employee.
6For winding-up offences of a banking company, apply BR Act s.45J on High Court trial.
7For acts of RBI or secured creditors, check good faith protection under SARFAESI s.32.
8Write a conclusion naming the liable persons or stating that no penalty applies because the provision is omitted.

Quickest way: Three-check shortcut

When to use it: Use for MCQs and short case questions where time is under two minutes.

Check one: is the section omitted? If yes, no penalty under it.
Check two: is the offender a company? If yes, think s.58C and the due-diligence defence.
Check three: is there a good faith or High Court angle? Think SARFAESI s.32 or BR Act s.45J.
Eliminate options that overstate liability, such as saying all directors are always guilty.

Common mistakes in Penalties, Offences and Omitted Provisions

Treating every director as automatically liable for a company's default.
Students remember deemed guilt but forget the defence.
Fix: Under s.58C(1), only persons in charge and responsible are covered, and they can prove lack of knowledge or due diligence.
Quoting penalties from RBI Act s.45G as current law.
Old notes still list the section.
Fix: Section 45G was omitted w.e.f. 13-12-1974. Answer that no penalty applies under it.
Applying SARFAESI s.28 or s.27 fines to present cases.
The fine of ₹5,000 per day is easy to memorise.
Fix: Section 28 is omitted and s.27 is deemed omitted by its proviso. Treat both as historical.
Calling Banking Regulation Act s.36 an omitted provision.
Confusion with other omitted sections in the chapter.
Fix: Section 36 is in force and lists RBI powers such as caution, deputing observers and requiring management changes.
Assuming s.58C covers only registered companies.
Students link the word company to the Companies Act.
Fix: For s.58C, company includes any body corporate, firm, co-operative society or association; a firm's director means a partner.
Thinking SARFAESI s.32 protects every act of a secured creditor.
Students ignore the words in good faith.
Fix: Protection covers only things done or omitted in good faith under the Act.

Worked examples

Example 1

Sunrise Finance Ltd, a company, defaults in a matter covered by RBI Act s.58B. Mr Rao, the managing director in charge of the business, proves the default occurred without his knowledge and that he had exercised all due diligence. Mr Iyer, the company secretary, is shown to have connived in the default. Who is liable?

Show the solution

Section 58C(1) makes the company and persons in charge and responsible deemed guilty.
Mr Rao is in charge, but the proviso exempts him if he proves lack of knowledge or due diligence. He has done so.
Section 58C(2) applies notwithstanding sub-section (1). A secretary whose consent or connivance is proved is deemed guilty.
Mr Iyer's connivance is proved, so he is liable.
The company itself remains liable.

Answer: The company and Mr Iyer are liable. Mr Rao is not liable because he proved lack of knowledge and due diligence.

Example 2

A student writes that a secured creditor defaulting in filing particulars under SARFAESI s.23 is fined up to ₹5,000 per day under s.27, and that RBI Act s.45G penalises the related offence. Comment.

Show the solution

Section 27 once provided a fine up to ₹5,000 for every day of default for failure under sections 23, 24 or 25.
Its proviso states it is deemed omitted from the date the amended Chapter and section 23 came into force after the 2016 Amendment Act.
So the fine cannot be applied now.
RBI Act s.45G was omitted by the 1974 Amendment Act w.e.f. 13-12-1974, so no penalty arises from it.
SARFAESI s.28, on penalties for non-compliance of RBI direction, was also omitted w.e.f. 1-9-2016.

Answer: Both statements are wrong as current law. SARFAESI s.27 is deemed omitted and RBI Act s.45G is omitted, so neither imposes a penalty.

Exam tips

For MCQs, first ask if the section is omitted. Examiners like omitted-provision traps.
Learn the two limbs of s.58C separately: (1) in charge and responsible with a defence, (2) consent, connivance or neglect.
Quote omission dates: 13-12-1974 for RBI Act s.45G and 1-9-2016 for SARFAESI s.28.
In case answers, name the specific person and test the defence before concluding.
Do not state section numbers you are unsure of. State the rule in plain words.

Practice questions from Laws and Regulations related to Banking Sector

Penalties, Offences and Omitted Provisions in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Penalties, Offences and Omitted Provisions: frequently asked questions

Is RBI Act section 45G still in force?

No. It was omitted by the Reserve Bank of India (Amendment) Act, 1974, with effect from 13-12-1974. It cannot be used to impose a penalty today.

Who is liable when a company commits an offence under the RBI Act?

Under section 58C, the company and every person in charge of and responsible for its business at the time are deemed guilty. A person can avoid liability by proving lack of knowledge or due diligence. Directors, managers, secretaries, officers or employees are also liable where consent, connivance or neglect is proved.

Is Banking Regulation Act section 36 omitted?

No. Section 36 is in force. It gives the Reserve Bank powers such as cautioning banking companies, assisting in amalgamations, giving loans, and issuing orders on meetings, observers and management changes.

How are offences of a banking company in winding up tried?

Under BR Act section 45J, the High Court may try certain offences in a summary way. Other winding-up offences are tried by a High Court Judge different from the one handling the winding up.