Section 36AD of the Banking Regulation Act, 1949: Statutory Purpose, Jurisprudential Evolution, and Contemporary Relevance

Section 36AD of the Banking Regulation Act, 1949: Statutory Purpose, Jurisprudential Evolution, and Contemporary Relevance

1. Introduction

Enacted through the Banking Regulation (Amendment) Act 33 of 1969, Section 36AD of the Banking Regulation Act, 1949 (“BR Act”) criminalises specific disruptive activities in relation to banking companies. The provision—rare in Indian financial legislation for its direct penal focus—seeks to secure unobstructed banking operations and to preserve depositor confidence. More than five decades after its insertion, Section 36AD continues to surface in litigation, especially where trade-union activity intersects with banking business. This article undertakes a doctrinal and jurisprudential analysis of the provision, situating it within the broader supervisory architecture of the Reserve Bank of India (“RBI”) and critically evaluating its contemporary utility in light of constitutional guarantees of speech and assembly.

2. Legislative Genesis and Textual Analysis

Section 36AD was introduced amidst industrial unrest that threatened everyday banking transactions. Parliament perceived that sit-ins and forcible “gheraos” within bank premises undermined public confidence and jeopardised systemic stability. The section reads, in material part:

No person shall (a) obstruct any person from lawfully entering or leaving any office or place of business of a banking company… (b) hold, within the office or place of business… any demonstration which is violent or which prevents, or is calculated to prevent, the transaction of normal business… or (c) act in any manner calculated to undermine the confidence of the depositors in the banking company. Contravention without reasonable excuse is punishable with imprisonment up to three years or fine, or both.[1]

Three statutory elements are notable: locus (the “office or place of business”), actus (obstruction, violent demonstration, or depositor-confidence-eroding conduct), and mens rea (absence of “reasonable excuse”). The emphasis on in situ disruption distinguishes the provision from general public-order offences under the Indian Penal Code.

3. Interface with the RBI’s Supervisory Scheme

Although Section 36AD is penal, it operates symbiotically with the RBI’s supervisory powers under Sections 35A and 36 of the BR Act. Section 35A authorises binding directions “in the public interest” or “to prevent the affairs of any banking company being conducted in a manner detrimental to the interests of the depositors,” while Section 36 empowers the RBI to caution, prohibit, or mandate managerial changes.[2] The Supreme Court has repeatedly acknowledged the breadth of these supervisory powers—Reserve Bank of India v. Peerless General Finance underscored that legislative and regulatory tools must protect vulnerable investors and sustain systemic stability.[3] Section 36AD complements this supervisory toolkit by criminalising physical acts that imperil banking continuity, thereby reinforcing regulatory directions with a deterrent threat of prosecution.

4. Jurisprudential Treatment

4.1 Foundational Supreme Court Guidance

The earliest authoritative construction emanated from S. Guin v. Grindlays Bank Ltd., where the Supreme Court, although ultimately declining a retrial due to inordinate delay, recognised Section 36AD’s core objective: safeguarding uninterrupted banking operations.[4] The Court implicitly endorsed a purposive interpretation, emphasising depositor interest and public confidence.

4.2 High Court Applications: Labour Agitation and Public Order

  • Ing Vysya Bank Ltd. v. State of Kerala (2007): The Kerala High Court refused a blanket writ of police protection predicated solely on Section 36AD, holding that the provision does not per se impose a 100-metre exclusion zone around banks.[5] Nevertheless, the Court acknowledged that violent or obstructive demonstrations within premises would attract penal liability.
  • Bank of Maharashtra v. Bank of Maharashtra Employees’ Union (2009): The Calcutta High Court granted interim injunctive relief restraining demonstrations during banking hours, citing Section 36AD as reflective of legislative policy against “peaceful hindrance” inside bank premises.[6]
  • Corporation Bank v. Mahabir Bhattacharjee (2009) and Union Bank of India Employees’ Federation v. Union Bank of India (2018): Both decisions reiterate that the statutory prohibition extends to non-violent but disruptive conduct that impairs ingress, egress, or normal business.[7]
  • Colour Merchants Co-operative Bank Ltd. v. RBI (2024): While primarily addressing RBI’s inspection powers, the Gujarat High Court observed that Section 36AD exemplifies Parliament’s concern for depositor protection, supporting the RBI’s expansive supervisory remit.[8]

4.3 Section 36AD and Special Statutory Entities

Section 34 of the Industrial Development Bank of India Act, 1964 exempts IDBI from most of the BR Act “except Sections 34A and 36AD.” The Bombay High Court in Krishna Filaments Ltd. v. IDBI stressed that Parliament intentionally preserved Section 36AD to extend depositor-confidence safeguards even to development-finance institutions.[9]

4.4 Mens Rea and the “Reasonable Excuse” Defence

Judicial discourse remains sparse on the contours of “reasonable excuse.” However, High Courts have implied that legitimate trade-union activity conducted outside bank premises, without obstructive intent, may constitute such excuse. Conversely, demonstrable disruption of cash-management functions (e.g., obstruction of currency chests) defeats the defence, as seen in Bank of Maharashtra and Corporation Bank.

5. Constitutional and Labour-Law Dimensions

Section 36AD inevitably intersects Article 19(1)(a) and 19(1)(b) freedoms. The provision constitutes a “reasonable restriction” in the interests of “public order” and “general public”—categories expressly recognised under Article 19(2) and 19(3). Courts have balanced these equities by (i) permitting peaceful demonstrations outside bank premises and (ii) restraining in-premises obstruction during banking hours.[10] Importantly, the Industrial Disputes Act, 1947 does not displace the penal remedy; rather, the two regimes operate in parallel, the former addressing employer-employee disputes and the latter ensuring continuity of essential banking services.

6. Enforcement Mechanics and RBI’s Role

Under Section 47(1) of the BR Act, courts may take cognisance of Section 36AD offences only upon a written complaint by the RBI or an authorised officer. This prosecutorial gatekeeping underscores the central bank’s primacy in calibrating criminal enforcement with macro-prudential considerations. While critics argue that enforcement has been sporadic, the architecture ensures that prosecution occurs only when RBI assesses systemic risk rather than when individual banks seek to suppress dissent.

7. Critical Appraisal

  • Narrow Factual Trigger: The statutory focus on conduct “within” bank premises arguably leaves loopholes for disruptive activity immediately outside entrances. Legislative refinement could clarify perimeter parameters, aligning with contemporary security realities.
  • Mens Rea Ambiguity: The undefined phrase “reasonable excuse” has generated uneven judicial application. Explicit statutory illustrations—akin to the Indian Penal Code’s Explanations—would enhance predictability.
  • Prosecution Bottleneck: Dependence on RBI complaints may cause under-enforcement, particularly in localised disturbances lacking systemic impact. A calibrated delegation to designated police officials, subject to RBI concurrence, could improve responsiveness without diluting central oversight.
  • Technological Context: As banking increasingly migrates online, future disputes may centre less on physical obstruction and more on cyber-disruption. Parliament may consider extending Section 36AD-type protections to digital banking infrastructure.

8. Conclusion

Section 36AD represents a legislative commitment to safeguard the quotidian functioning of banking institutions and to protect depositor confidence—an imperative intertwined with economic stability. Judicial interpretation has generally upheld a purposive, protection-centric reading while permitting constitutionally protected protest in non-disruptive forms. Yet, evolving modes of industrial action and the digitisation of banking call for doctrinal clarity and possible legislative recalibration. Until then, Section 36AD, bolstered by the RBI’s supervisory apparatus under Sections 35A and 36, remains a vital—if occasionally under-utilised—bulwark against conduct that imperils the lifeblood of India’s financial system.

Footnotes

  1. Banking Regulation Act, 1949, s 36AD (inserted by Act 33 of 1969).
  2. State Bank of India v. Rajesh Agarwal, (2023) SCC (onLine) SC  — Section 35A declared directions “statutory in nature”; see also B.O.I. Finance Ltd. v. Custodian, (1997) 10 SCC 488 (powers under s 36(1)(a)).
  3. Reserve Bank of India v. Peerless General Finance & Investment Co., (1987) 1 SCC 424.
  4. S. Guin v. Grindlays Bank Ltd., (1986) 1 SCC 654.
  5. Ing Vysya Bank Ltd. v. State of Kerala, 2007 SCC OnLine Ker 108.
  6. In the Matter of: Bank of Maharashtra, 2009 SCC OnLine Cal 1434.
  7. Corporation Bank & Anr. v. Mahabir Bhattacharjee, 2009 SCC OnLine Cal 1846; Union Bank of India Employees’ Fedn. v. Union Bank of India, 2018 SCC OnLine Ker  — .
  8. Colour Merchants Co-op Bank Ltd. v. RBI, 2024 SCC OnLine Guj  — .
  9. Krishna Filaments Ltd. v. IDBI, 2004 SCC OnLine Bom 14.
  10. See, e.g., Bank of Maharashtra (supra n 6) (distinguishing peaceful protests outside premises).