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

Sagar Co-operative Commercial Bank Ltd., a banking company, is in distress. The Reserve Bank believes there is good reason to halt its operations temporarily. Under Section 45 of the Banking Regulation Act, 1949, what is the correct first step?

The Reserve Bank must apply to the Central Government for an order of moratorium. The Central Government, not the Reserve Bank, makes the order under Section 45, so the Reserve Bank cannot impose the moratorium on its own authority.

  1. AThe Reserve Bank itself orders a moratorium of any length it chooses
  2. BThe Reserve Bank applies to the Central Government for an order of moratoriumCorrect
  3. CThe bank's board applies to the High Court for a moratorium
  4. DThe Central Government directly prepares a scheme of amalgamation without any application

Explanation

Under Section 45(1), the Reserve Bank may apply to the Central Government for a moratorium order. Under Section 45(2), the Central Government makes the order. The Reserve Bank has no power to order the moratorium itself, so the first option is wrong.

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