Previous Year Question

The Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 provided the statutory basis for acquiring the undertakings of the major banks nationalised in 1969 and transferring them to new government-owned banks. According to India Code, the purpose of the Act was the acquisition and transfer of the undertakings of certain banking companies so that banking resources could be used in accordance with national policy and the developmental needs of the economy. The Act was deemed effective from 19 July 1969.

Its historical background is also important. According to the official history of the RBI, 14 major Scheduled Commercial Banks were nationalised on 19 July 1969. Subsequently, on 10 February 1970, the Supreme Court held the then-existing law void, mainly on grounds relating to discrimination and compensation. A fresh Ordinance was issued on 14 February 1970 and was later replaced by the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970.

Under this Act, the undertakings of the existing banks were vested in corresponding new banks, and provisions were also made regarding their management and directions by the Central Government. Thus, while the Banking Regulation Act is an important law for regulating banking, the acquisition-and-transfer framework for the 1969 bank nationalisation was provided by the 1970 Acquisition and Transfer of Undertakings Act.