Power of the Reserve Bank to give directions
Section 35A of the Banking Regulation Act, 1949 deals with power of the Reserve Bank to give directions. Where the Reserve Bank is satisfied that-- (a) in the [public interest]; The Act came into force on 16 Mar 1949.
1[35A. Power of the Reserve Bank to give directions.--(1) Where the Reserve Bank is satisfied that--
(a) in the 2[public interest]; or
3[(aa) in the interest of banking policy; or]
(b) to prevent the affairs of any banking company being conducted in a manner detrimental to the interests of the depositors or in a manner prejudicial to the interests of the banking company; or
(c) to secure the proper management of any banking company generally,
it is necessary to issue directions to banking companies generally or to any banking company in particular, it may, from time to time, issue such directions as it deems fit, and the banking companies or the banking company, as the case may be, shall be bound to comply with such directions.
(2) The Reserve Bank may, on representation made to it or on its own motion, modify or cancel any direction issued under sub-section (1), and in so modifying or cancelling any direction may impose such conditions as it thinks fit, subject to which the modification or cancellation shall have effect.]
Section 35A, The Banking Regulation Act, 1949 (Act 10 of 1949).
Cross-references
Extracted from the operative text of the enactments themselves. Every destination below exists in our corpus.
Related judgements & precedents
These are some judgments that construed this section, and hold precedence value. They hold authority on how to read, interpret and use this section.
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Internet and Mobile Association of India v. Reserve Bank of India
Court's Decision & Legal Precedent
Judgement of Main Case order-16.pdf 2020-03-04 (not same-date ROP order-17). WP(C) 528/2018. Banking Regulation Act s.35A directions must satisfy proportionality. RBI's circular cutting regulated entities off from cryptocurrency trade was ultra vires that standard (a complete banking ban when less restrictive means existed). Map banking-regulation-act-1949 35A.
On this section: s.35A RBI directions to banking companies must satisfy proportionality. The circular cutting regulated entities off from cryptocurrency trade was a complete banking ban when less restrictive means existed, and failed that test (IAMAI).
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State Bank of India vs Rajesh Agarwal
Court's Decision & Legal Precedent
The principles of natural justice, particularly the rule of audi alteram partem (right to be heard), must be read into the provisions of the RBI Master Directions on Frauds (Clauses 8.9.4 and 8.9.5) notwithstanding the statutory silence on this requirement, because: (1) classification of a borrower's account as fraudulent constitutes an administrative action entailing serious civil consequences (five-year debarment from institutional finance, prohibition on restructuring, criminal prosecution) which directly impact the fundamental right to carry on business under Article 19(1)(g); (2) debarment is analogous to blacklisting, and established jurisprudence requires opportunity of hearing before blacklisting; (3) the civil consequences are grave and no full review or appeal mechanism is available to challenge the fraud classification decision; (4) the six-month time frame in the Master Directions provides sufficient time and practical scope for giving notice, receiving borrower's response, and conducting joint lender forum meetings without paralyzing the administrative process; (5) reading in audi alteram partem is necessary to save the directions from the vice of arbitrariness and ensure compliance with Article 14 of the Constitution which requires fair procedure when administrative action affects substantial rights; (6) statutory silence on a procedural requirement should be interpreted to include such requirement where substantial rights of parties are substantially affected. Therefore, before classifying a borrower's account as fraudulent, lender banks must: furnish a copy of the forensic audit report to the borrower, provide a reasonable opportunity for the borrower to submit written representations and arguments against the audit findings, hold personal hearing if requested, and issue a reasoned order explaining the basis for the fraud classification decision.
On this section: Establishes statutory power of RBI to issue directions to banking companies in public interest or banking policy; master directions are statutory in nature and binding on banks
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State Bank Of India vs Rajesh Agarwal
Court's Decision & Legal Precedent
The principles of natural justice, particularly the rule of audi alteram partem, must be read into Clauses 8.9.4 and 8.9.5 of the RBI Master Directions on Frauds (2016) to save them from the vice of arbitrariness and constitutional invalidity under Article 14 of the Constitution. Since classification of a borrower's account as fraud entails serious civil consequences—including five-year debarment from institutional finance, prohibition on restructuring, and reporting to criminal investigation agencies—which affect the fundamental right to carry on business, lender banks must furnish a copy of the forensic audit report to the borrower, provide a reasonable opportunity to submit a written representation, and issue a reasoned order addressing the borrower's objections before classifying the account as fraudulent. The statutory silence in the Master Directions regarding a hearing opportunity does not imply exclusion of natural justice, and the six-month timeline for completing fraud classification procedures provides adequate scope for incorporating fair hearing procedures without obstructing the legitimate objective of prompt fraud detection and reporting.
On this section: Establishes RBI's authority over banking companies; Section 47(A) prescribes penal action for delay in fraud reporting; Court noted this demonstrates statutory framework for fraud reporting timeline
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State Bank Of India vs Reserve Bank Of India
Court's Decision & Legal Precedent
The principles of natural justice, particularly the rule of audi alteram partem, must be necessarily read into the Master Directions on Frauds (specifically Clauses 8.9.4 and 8.9.5) to save the directions from the vice of arbitrariness. Since classification of a borrower's account as fraudulent entails serious civil consequences including debarment from institutional finance for five years (a form of blacklisting), statutory silence in the directions does not imply exclusion of natural justice. Lender banks must furnish borrowers with a copy of forensic audit reports and provide a reasonable opportunity to submit representations before classifying accounts as fraudulent. The banks must issue reasoned orders addressing borrower objections. This requirement is constitutionally mandated under Article 14 of the Indian Constitution and does not obstruct the six-month timeline contemplated for fraud detection and reporting.
On this section: Empowers RBI to issue directions to banking companies in public interest or to prevent affairs prejudicial to depositors. Court held directions under this section must comply with natural justice
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State Bank Of India vs Rajesh Agarwal
Court's Decision & Legal Precedent
The principles of natural justice, particularly the rule of audi alteram partem, must be necessarily read into the provisions of Clauses 8.9.4 and 8.9.5 of the Master Directions on Frauds to save them from the vice of arbitrariness. Since the classification of a borrower's account as fraudulent entails serious civil consequences—including five-year debarment from institutional finance, criminal reporting, and reputational damage akin to blacklisting—which directly impair the borrower's fundamental right to carry on business under Article 19(1)(g), lender banks must provide borrowers with (i) prior notice of the allegations and forensic audit findings; (ii) reasonable opportunity to submit representations explaining the findings; and (iii) reasoned orders addressing the borrower's objections, before classifying the account as fraudulent. The procedural timeframes contemplated under the Master Directions on Frauds (six months for the entire process) provide sufficient scope for affording such a hearing without obstructing prompt action, and thus the necessity for speedy fraud detection and reporting cannot justify the exclusion of the audi alteram partem principle. The reading in of natural justice principles is mandated by the presumption that statutory authorities intend to act in accordance with the principles of natural justice unless expressly or by necessary implication excluded, and is essential to ensure the Master Directions do not violate the requirement of non-arbitrariness enshrined in Article 14 of the Constitution.
On this section: Empowers RBI to issue directions to banking companies in public interest or to protect depositors' interests; directions are statutory in nature and binding
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State Bank of India vs Reserve Bank of India
Court's Decision & Legal Precedent
The principles of natural justice, particularly the rule of audi alteram partem, must be read into the provisions of the Reserve Bank of India Master Directions on Frauds (specifically Clauses 8.9.4 and 8.9.5) despite the absence of express provision granting opportunity of hearing, because: (i) classification of a borrower's account as fraud entails serious civil consequences including debarment from institutional finance for five years which is akin to blacklisting; (ii) such debarment affects the fundamental right to carry on business under Article 19(1)(g) and the right to reputation under Article 21; (iii) the statutory silence in the Master Directions should be interpreted to include natural justice principles where substantial rights are affected; (iv) the six-month timeline contemplated provides sufficient scope for opportunity of hearing without paralyzing the administrative process; (v) mere participation in forensic audit process does not satisfy audi alteram partem requirements; (vi) borrowers must be served notice, provided copy of forensic audit reports, given opportunity to submit representations, and receive reasoned orders on their objections before classification as fraud to save the Master Directions from the vice of arbitrariness and violation of Article 14 of the Constitution.
On this section: Empowers RBI to issue directions to banking companies in public interest, banking policy, and proper management of banks; these directions are statutory in nature and binding on banks
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Essar Bulk Terminal (salaya) Limited vs Reserve Bank of India
Court's Decision & Legal Precedent
When a statute confers a specific power upon an authority and prescribes the method of its exercise, the authority can only exercise that power in the manner prescribed by the statute. If the statute specifies that directions may be issued regarding 'a default' (singular) only after Central Government authorization for specific cases, the authority cannot issue general directives applicable to all defaults above a particular amount without individual case-by-case consideration. Accordingly, the RBI Circular of February 12, 2018, which applies a blanket mandatory restructuring timeline followed by mandatory insolvency filing to all accounts above Rs 2000 crore, exceeds the scope of authorization granted under Section 35AA of the Banking Regulation Act, 1949, and is therefore ultra vires.
On this section: Grants RBI power to issue directions in public interest and banking policy; Court clarified that though broadly worded, it cannot be used for Insolvency Code matters where Section 35AA is the specific source of power
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Action Ispat and Power (p) LTD vs Reserve Bank of India
Court's Decision & Legal Precedent
The RBI circular dated 12.02.2018 mandating reference of all accounts with aggregate exposure of INR 20 billion and above that default for 180 days to insolvency proceedings is ultra vires Section 35AA of the Banking Regulation Act, 1949, as it issues general directions to a class of borrowers rather than specific directions regarding individual defaults as required by Section 35AA. Section 35AA requires prior Central Government authorization and applies only to specific defaults, not to debtors generally. The power to issue insolvency resolution directions under the Insolvency Code can only be exercised by the RBI under Section 35AA with such authorization - Sections 21 and 35A cannot serve as alternative sources without satisfying Section 35AA's conditions. When a statute prescribes a specific method and conditions for exercising power (requiring Central Government authorization and being specific to individual defaults), the statute by necessary implication prohibits exercise in any other manner (by issuing general circulars applicable to categories of defaults).
On this section: RBI's power to issue binding directions in public interest and banking policy; discussed whether it can be source of power for insolvency Code directions, concluded it can but only under the framework of Section 35AA
The holding above is the ratio decidendi as extracted from the judgment by eCourts India, reproduced unaltered — it is a rendering of the court's reasoning, not a substitute for its words. Read the order itself before relying on it.
Judgments citing this section
These may be obiter dicta or a precedent, for you to study. These are the judgments where this section is quoted.
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… Mr. Singh further argued that the Reserve Bank of India is an Indian Government Instrumentality. The Notifications referred to above, were issued by the Reserve Bank of India under Sections 21 and 35A of the Banking Regulation Act, 1949 and have the force of law. Thus, these Notifications are well within the definition of law provided in the Power Purchase Agreements. 26. Mr. Singh emphatically argued that the Reserve Bank of India Notifications dated 01.07.2010 and 03.03.2016, issued after execution of the …
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… It is also further prayed to extend the moratorium period on payment of instalments/interest by a further period of 18 months, in exercise of powers under Section 21 read with Section 35A of the Banking Regulation Act, 1949. 1o. Writ Petition (Civil) No. 785 of 2020 under Article 32 of the Constitution of India has been preferred by CREDAI Tamil Nadu praying for waiver of interest/penal interest for a period of one year or until such time as it takes for the pandemic to abate. It is also prayed …
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… an amalgam of the principal sum may be excluded on being shown to the satisfaction of the court that such debit entry was not brought to the notice of the borrower and/or he did not have the opportunity of making payment before capitalisation and thereby excluding its capitalisation. ( 5 ) The power conferred by Sections 21 and 35A of the Banking Regulation Act, 1949 is coupled with duty to act. The Reserve Bank of India is the prime banking institution of the country entrusted with a supervisory role over banking and conferred with the authority of issuing binding directions, having statutory force, in the interest of the public in general …
Made under this section, and citing it
1 instrument states that it was made under this provision — the power to make it comes from here, so a change to any of them changes what this section requires in practice. Newest first.
Another 1 instrument names this provision in its title or its text without being made under it.
Questions about Section 35A
What have the courts held on Section 35A of the Banking Regulation Act?
Internet and Mobile Association of India v. Reserve Bank of India (04 Mar 2020) is the leading judgment on this section among those set out below: s.35A RBI directions to banking companies must satisfy proportionality. The circular cutting regulated entities off from cryptocurrency trade was a complete banking ban when less restrictive means existed, and failed that test (IAMAI). Another 7 judgments on this section are set out below, all of them from the Supreme Court. They run from 2019 to 2023.
How do I find court cases under Section 35A of the Banking Regulation Act?
In judgments and charge sheets this section is written several ways, and each form finds a different set of orders. These search the full text of every order eCourtsIndia holds, best matches first: Banking Regulation Act 1949 35A, section 35A Banking Regulation Act 1949, section 35A of the Banking Regulation Act. Each opens the full list of orders on eCourtsIndia, where it can be narrowed by court, year and outcome. 8 reported judgments on this section are set out on this page, beginning with Internet and Mobile Association of India v. Reserve Bank of India (04 Mar 2020).
What should I read with Section 35A of the Banking Regulation Act, and has it changed?
3 other provisions in this corpus refer back to it. The rules and notifications made under it are where it actually bites, and there is one: most recently Banking Ombudsman Scheme 2006 (2005).
When did Section 35A of the Banking Regulation Act come into force?
Section 35A of the Banking Regulation Act, cited as Banking Regulation Act 1949 35A, came into force on 16 Mar 1949, having been enacted on 10 Mar 1949. It is in force as at the date shown on this page.
Other sections of this Act
- 56. Act to apply to co-operative societies subject to modifications5544 words
- 45. Power of Reserve Bank to apply to Central Government for suspension of business by a banking company and to prepare scheme of reconstitution or amalgamation2310 words
- 10B. Banking company to be managed by whole time chairman1171 words
- 5. Interpretation1164 words
- 43A. Preferential payments to depositors1031 words
- 11. Requirement as to minimum paid-up capital and reserves988 words
Source and method. Compiled from the enactments of Parliament and of the State legislatures as published on India Code, and republished together with commentary and other original matter under section 52(1)(q)(ii) of the Copyright Act, 1957. Structured, cross-referenced and maintained by eCourtsIndia. Text as in force on 15 Oct 2026. This page is not a substitute for legal advice.