Banking and Insurance - Laws and Practice · Overview of Indian Banking System

Regulation of Management and Public Servant Status of Banking Companies

Updated 11 October 2026 · Fact-checked

Section 46A of the Banking Regulation Act, 1949 deems a whole-time chairman, managing director, director, auditor, liquidator, manager and any other employee of a banking company to be a public servant for Chapter IX of the Indian Penal Code. Section 10B regulates the chairman and managing director, and RBI can require their replacement.

Understand Regulation of Management and Public Servant Status

A bank holds public money. So the law does not leave its management entirely to the shareholders. The Banking Regulation Act, 1949 puts conditions on who runs a banking company and lets the RBI step in when a person is unfit.

Start with section 10B. Every banking company must have a chairman of its Board. The chairman may be appointed whole-time or part-time. A whole-time chairman is entrusted with the management of the whole affairs of the bank, but subject to the superintendence, control and direction of the Board. If the chairman is part-time, the appointment needs the previous approval of the RBI, and a managing director manages the whole affairs of the bank, again under the Board's control.

The law also controls the person. A whole-time chairman or managing director must be in the whole-time employment of the bank and holds office for a period fixed by the Board, not exceeding five years. He may be re-elected or re-appointed. He must have special knowledge and practical experience of the working of a banking company, the State Bank of India, a subsidiary bank or a financial institution, or of financial, economic or business administration. He is disqualified if he is a director of another company (with a limited exception), a partner in a trading firm, holds a substantial interest in another company or firm, is connected with a trading, commercial or industrial concern, or is engaged in any other business or vocation.

The RBI's power is in section 10B(6). If the RBI thinks such a person is not fit and proper, it must first give the person and the bank a reasonable opportunity of being heard. It then orders the bank to appoint someone else. If the bank does not appoint a suitable person within two months of receiving the order, the RBI may remove the person and appoint a suitable replacement. The bank or the person may appeal to the Central Government within thirty days of communication of the order.

Section 46A deals with a different point: accountability. The listed persons are deemed public servants for Chapter IX of the Indian Penal Code, which covers offences by or relating to public servants. The deeming is only for that purpose. The related section 45-ID of the RBI Act, 1934 gives the RBI a similar removal power over directors of non-banking financial companies, which is a useful contrast.

Key rules to remember

Section 46A: public servant status: Whole-time chairman, MD, director, auditor, liquidator, manager and any other employee of a banking company = public servant for Chapter IX of the IPC; The word 'whole-time' qualifies the chairman only. A part-time chairman is not within the opening words of the section as it stands.
Section 10B(1) and (1A): chairman: Chairman: whole-time or part-time. Whole-time: manages whole affairs. Part-time: prior RBI approval, and an MD manages whole affairs; The chairman or MD acts subject to the superintendence, control and direction of the Board.
Section 10B(2): tenure: Whole-time chairman or MD: whole-time employment, term fixed by Board, not more than 5 years, eligible for re-election or re-appointment; The Board fixes the period. The Act sets only the ceiling.
Section 10B(4): qualification and disqualification: Special knowledge and practical experience of banking or financial, economic or business administration; disqualified if in other business or vocation, with listed exceptions; A chairman may be a director of a subsidiary of the bank or of a section 25 company of the 1956 Act.
Section 10B(6) and (7): RBI removal: Hearing, then order to replace; if not replaced within 2 months, RBI removes and appoints; appeal to Central Government within 30 days; The RBI order is otherwise final and cannot be questioned in any court.
Section 10B(5A) and (9): continuity: Outgoing chairman or MD continues until successor assumes office, with RBI approval; stop-gap arrangements for total period not exceeding 4 months, with RBI approval; Section 10B(9) applies on death, resignation, incapacity or leave not involving vacation of office.
Section 45-ID, RBI Act (NBFC contrast): RBI may remove an NBFC director by reasoned written order after reasonable opportunity; bar up to 5 years at a time; replacement director up to 3 years at a time; no compensation; This applies to NBFCs other than Government owned ones. It is not part of the banking company provisions.

How to solve Regulation of Management and Public Servant Status questions

Case questions on this topic ask whether a person is validly appointed, whether the RBI can act, or whether a person is a public servant. Use the same sequence each time.

1Identify the entity. Is it a banking company (Banking Regulation Act) or an NBFC (RBI Act, section 45-ID)?
2Identify the office held: whole-time chairman, part-time chairman, managing director, director, auditor, liquidator, manager or other employee.
3State the relevant provision in plain words: section 10B for appointment, qualification and removal, or section 46A for public servant status.
4Apply the facts: tenure, experience, other business interests, RBI approval, and any hearing given.
5For removal questions, check the process in order: fit and proper opinion, hearing, order to replace, two months, RBI removal, appeal in thirty days.
6For public servant questions, name the Chapter IX of the IPC link and note that the status is deemed, for that purpose only.
7Conclude clearly in one or two lines, and add a practical compliance point such as seeking RBI approval or recording the Board's fixing of tenure.

Quickest way: Office-and-process check

When to use it: Use this when a short case gives you a person, an office and a problem, and time is tight.

Write the office and the section: 10B for chairman or MD, 46A for public servant.
Tick the conditions: whole-time employment, tenure up to five years, experience, no other business.
If the RBI acts, tick hearing, two months, appeal in thirty days.
Write the conclusion in one sentence and name the next compliance step.

Common mistakes in Regulation of Management and Public Servant Status

Saying every chairman is a public servant under section 46A.
Students remember the old wording, 'every chairman, director, auditor'.
Fix: Remember that the section now says every chairman appointed on a whole-time basis. A part-time chairman is not covered by those words.
Treating the public servant status as applying for all purposes.
The word 'deemed' is read loosely.
Fix: Write that the persons are deemed public servants for the purposes of Chapter IX of the Indian Penal Code only.
Saying the RBI can remove the chairman or MD straight away.
Students skip the procedure in section 10B(6).
Fix: First a hearing, then an order to the bank to appoint another person. Removal by the RBI comes only if the bank fails to do so within two months.
Forgetting the appeal against the RBI order.
The finality language in section 10B(7) is remembered, not the appeal.
Fix: Write that an appeal lies to the Central Government within thirty days of communication of the order. Subject to that, the order is final.
Mixing section 10B with section 45-ID of the RBI Act.
Both deal with RBI removal powers, so they blur together.
Fix: Section 10B covers banking companies and their whole-time chairman or MD. Section 45-ID covers NBFC directors, with a bar of up to five years and no compensation.
Stating that the chairman's term is fixed at five years.
The ceiling is read as the term.
Fix: The Board fixes the period, which cannot exceed five years. Re-appointment is allowed.

Worked examples

Example 1

Mr. Rao, the whole-time chairman of Sagar Bank Ltd., a banking company, is charged with taking a bribe. He argues that, as a private bank officer, he is not a public servant. Advise.

Show the solution

Entity and office: Sagar Bank is a banking company. Mr. Rao is a chairman appointed on a whole-time basis.
Rule: under section 46A of the Banking Regulation Act, 1949, a whole-time chairman, managing director, director, auditor, liquidator, manager and any other employee of a banking company are deemed public servants for Chapter IX of the Indian Penal Code.
Apply: Mr. Rao is a whole-time chairman, so he falls within the section whether the bank is private or public sector.
Limit: the deeming applies for the purposes of Chapter IX of the IPC, which deals with offences by or relating to public servants.

Answer: Mr. Rao's argument fails. Under section 46A he is deemed a public servant for the purposes of Chapter IX of the Indian Penal Code.

Example 2

The RBI forms the view that Mr. Iyer, managing director of Kaveri Bank Ltd., is not a fit and proper person. Explain the steps the RBI must follow and the remedies available.

Show the solution

Source of power: section 10B(6) of the Banking Regulation Act, 1949, which applies to a whole-time chairman and a managing director.
Hearing: the RBI must give Mr. Iyer and the bank a reasonable opportunity of being heard.
First order: by written order, the RBI requires the bank to elect or appoint another person.
Two months: if the bank fails to appoint a suitable person within two months from receipt of the order, the RBI may by order remove Mr. Iyer and appoint a suitable person.
Effect: the person so appointed is deemed duly appointed and holds office for the residue of the term of the person replaced.
Remedy: under section 10B(7), the bank and Mr. Iyer may appeal to the Central Government within thirty days of communication of the order. Subject to that, the RBI order is final and cannot be questioned in any court.

Answer: The RBI must give a hearing, order replacement, wait two months, and only then remove and appoint. The bank and Mr. Iyer can appeal to the Central Government within thirty days.

Exam tips

Learn section 10B in sub-section order: (1) chairman, (2) tenure, (4) qualifications, (6) removal, (7) appeal, (9) stop-gap. Case answers follow this order.
Use the words 'deemed public servant for Chapter IX of the Indian Penal Code' exactly when answering on section 46A.
Contrast section 10B with section 45-ID of the RBI Act in short answers on RBI control over directors.
In case questions, always give the provision, apply the facts, then conclude. End with a compliance point such as RBI approval.

Practice questions from Overview of Indian Banking System

Regulation of Management and Public Servant Status: frequently asked questions

Are bank directors public servants?

Yes, for a limited purpose. Under section 46A of the Banking Regulation Act, 1949, a director of a banking company is deemed a public servant for the purposes of Chapter IX of the Indian Penal Code. The same section covers the whole-time chairman, managing director, auditor, liquidator, manager and any other employee.

Does section 46A cover a part-time chairman?

The section refers to every chairman appointed on a whole-time basis. A part-time chairman is not within those words. He may still be a director, who is covered.

Can the RBI remove the chairman or managing director of a bank?

Yes, under section 10B(6), if the RBI considers the person not fit and proper. It must first give a hearing and order the bank to appoint someone else. It may remove the person itself only if the bank fails to do so within two months.

Is there an appeal against the RBI's order under section 10B(6)?

Yes. The bank and the person concerned may appeal to the Central Government within thirty days from the communication of the order. Subject to that decision, the RBI's order is final.

What is the maximum term of a whole-time chairman or managing director?

The Board fixes the term, and it cannot exceed five years. The person is eligible for re-election or re-appointment, subject to section 10B.