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CS Professional · Banking and Insurance - Laws and Practice · Control over Organization of Banks

Ganga Bank Ltd has issued equity shares and a class of preference shares. Ramesh holds preference shares in the bank and claims the voting right under clause (b) of sub-section (2) of section 87 of the Companies Act, 1956 because dividend is unpaid. Which is correct under Section 12 of the Banking Regulation Act, 1949?

Ramesh cannot exercise that voting right. Section 12(1)(ii) provides that no holder of preference shares issued by a banking company is entitled to exercise the voting right under clause (b) of section 87(2) of the Companies Act, 1956, whatever the dividend position.

  1. AHe may vote, as the bank's preference shares are perpetual
  2. BHe may vote if the Reserve Bank permits in each case
  3. CHe may vote only if his holding exceeds ten per cent
  4. DHe cannot exercise that voting right, as preference shareholders of a bank are barred from itCorrect

Explanation

The second proviso to Section 12(1)(ii) states that no holder of preference shares issued by the banking company is entitled to exercise the voting right specified in clause (b) of section 87(2) of the Companies Act, 1956. The ten per cent ceiling in Section 12(2) is a different rule on voting by shareholders and does not grant this right.

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