 bill no 60 of 2010 the banking laws (amendment) bill, 2010 byshri asaduddin owaisi, mp a billfurther to amend the banking regulation act, 1949, the reserve bank of india act, 1934 and the government securities act, 2006whereas, the committee constituted by the reserve bank of india to examine the carrying on of non-interest banking business in india, has opined that the extant provisions of the banking regulation act, 1949 (10 of 1949) do not allow such an activity as such, certain amendments in the banking regulation act, 1949 and other related laws have become imperative and, therefore, the present bill proposes to incorporate necessary modifications in the laws so as to allow the banking companies to carry on non-interest banking business in indiabe it enacted by parliament in the sixty-first  year of the republic of  india  as follows:—1  (1) this act may be called the banking laws (amendment) act, 201010 of 19492 in the banking regulation act, 1949, after part v, the following part shall be added, namely:— "part vi application  of  the  act  to  companies  carrying  on  non-interest banking5amendment of banking regulation act, 194957 the provisions of this act, as in force for the time being, shall apply to, or in relation to banking companies and branches of banking companies carrying on non-interest banking business as they apply to, or in relation to, banking companies subject to the following modifications, namely:—10(a) throughout this act, unless the context otherwise requires,—(i) references to "bank" or "a banking company" or "the company" or"such company", except in part v, shall be construed as reference to a banking company carrying on non-interest banking businessact to apply to banking companies carrying on non-interest banking subject to modifications(ii) reference to "commencement of this act" shall be construed as reference to commencement of banking laws (amendment) act, 2010;"15(b) in section 5,—(i) in clause (a), after sub-clause (ii), the following proviso and sub-clauses shall be inserted, namely:—20'provided that the securities mentioned in clauses (i) and (ii) above, are certified by the shariah of the bank as not involving any element of riba;(iii) mudaraba savings bond or any other profit linked bond, issued by the government;252 of 1882(iv) such of the securities, fund certificates and sukuk certificates, which have been structured in accordance with the principles of shariah and which have been authorized by the central government under clause (f) of section 20 of the indian trusts act, 1882, as may be prescribed;'; (ii) after the clause (ca), the following clause shall be inserted, namely:—30'(cb) "borrower" means a person on whose request the bank has opened a loan/investment account in his favour and/or extended to him any credit facility and the liability thus arising has not been fully repaid and includes the surety/guarantor of such a borrower;'; (iii) (a) after the clause (d), the following clause shall be inserted, namely:—35'(da) "compensation" means such financial penalty as is imposed on a borrower over and above the instalment amount agreed to, when such a borrower fails to repay to a banking company the amount due, in accordance with the contract;';(b) the existing clause (da) shall be re-numbered as clause (db);(iv) after the clause (db), as so re-numbered, the following clause shall be inserted, namely:—40'(dc) "customer" means a person who has under any arrangement availed or agreed to avail the services provided by a bank and includes a person having any deposit or loan account;';(v) after the clause (f), the following clauses shall be inserted, namely:—5'(fa) "deposit" means the placement of money with bank either on al-wadiah basis or for the purpose of investment, which is structured in accordance with the principles of shariah, bearing risk in the investment, with an entitlement to a share in the profit thereto (if any), and which represents an undivided ownership interest in the underlying assets of the investment;10(fb) "deposit account liability" means the deposit liabilities of a bank in respect of funds placed by a depositor with that bank on al-wadeeah or mudaraba principle and forming part of the permitted deposit transactions;'; (vi) after clause (ff) the following clause shall be inserted, namely:—15'(ffa) "depositor" means any person from whom deposit has been received by a banking company whether the account is a current account on al-wadiah principle or a savings account or short notice deposit account or a long term deposit account on mudaraba principle;';(vii) after the clause (ffb) the following clauses shall be inserted, namely:—'(ffba) "lending or financing" in relation to a banking company carrying on non-interest banking business means extending credit facility to its customers and includes:20 25(i) an accommodation or facility provided on the basis of participation in profit and loss, mark-up or mark-down in price, hirepurchase, equity support, lease rent sharing, licensing charge or fee of any kind, purchase and sale of any property including commodities, patents designs, trademarks and copy rights, bills of exchange, promissory notes or other instruments with or without buy-back arrangements, participation term certificate, musharika, morabaha, musawama, istisnah or modaraba certificate and term finance certificate; and30(ii) any other dealings or transactions or facilities specified by the reserve bank as permitted mode of financing a banking company carrying on non-interest banking business;35(ffbb) "loans or advances" in relation to a banking company carrying on non-interest banking business means the amount invested in the business or industry of a customer at the request of such customer under one of the permitted investment transactions;(ffbc) "mudaraba certificate" means a certificate issued on the basis of mudaraba;(ffbd) 'musharika certificate' means a certificate issued on the basis of musharika;40(ffbe) "non-interest banking" means the business of banking carried on in conformity with the principles of islamic shariah both in forms and substance and avoiding riba in all its transactions;45(ffbf) 'permitted deposit transactions' means such deposit transactions as have the sanction of shariah council and is not in conflict with any provision of this act as applicable to a banking company carrying on non-interest banking business and includes deposits:(i) under the al-wadeeah principle, in terms of which, the depositor places the fund at the disposal of a banking company5with a clear understanding that the fund is available to the bank at its own responsibility and the depositor is not entitled to share any profit earned or for any loss suffered by such use and that the bank has to pay back the deposit on demand made by the depositor and it includes (a) current account deposits (b) saving account deposits;10(ii) under the mudaraba principle, in terms of which, the depositor places the fund at the disposal of a banking company to be used at the discretion of the bank and the profit earned by the bank is shared at a predetermined ratio and the loss if any is borne by the depositor in proportion to his amount and it includes;(a) mudaraba savings deposit (msd);(b) mudaraba short notice deposit (msnd); (c) mudaraba term deposit (mtd); and (d) any variations of the above deposits;15(ffbg) 'permitted mode of financing' in relation to a banking company carrying on non-interest banking business, means such mode as is based on islamic shariah and hence permitted for such companies to carry on and includes grant of loan at the request of the customer for any one of the following transactions;20(i) "bai-muajjal" means a contract of sale whereby the seller delivers the goods to the purchaser on the spot, ie, at the time of signing of the sale contract and the purchaser is obliged to pay the ascertained purchase price on deferred payment basis;25(ii) "bai-salam" means a contract for the purchase or sale of commodities or equipments with prompt payment of the price for delivery of the commodity or equipment on a specified future date as per the agreed quality and quantity;30(iii) "ijara" or "lease" in terms of which a banking company agrees to place the assets owned by it on rent to be paid at a predetermined rate by the user thereof and such user binds himself to return the assets at the end of the contract period;35(iv) "ijara muntahia bittamleak" or a "hire purchase agreement" in terms of which a banking company agrees to place the assets owned by it at the disposal of the customer who agrees to pay the price in installments and after all the installments have been paid, the customer acquires the title/ownership over the assets under the contract;40(v) "ijara musharaka mutanaqasa" or "ownership-cum-hirepurchase agreement" in terms of which the banking company agrees to part finance the purchase of any asset and acquires joint ownership with the customer where the customer uses the assets partly owned by the bank on rental basis and acquires full ownership over the same by paying such amount as agreed;45(vi) "istisna" means a contract  of sale of a described asset or item to be manufactured or constructed on spot or deferred payment basis;(vii) "mudaraba" means a contract between two parties where sahib-al-maal, ie banking company as the owner of the finance, provides capital and the other party provides labour, efforts or expertise and agree to share profits  in accordance with the agreed ratios, and losses, if any, are borne by the party providing the funds;(viii) "murabaha" means sale of goods by a seller to the purchaser at the price which is an aggregate of the actual cost price of the goods  and a determined quantum of profit;510(ix) "murabaha to the order of the purchaser" means a sale contract in which a purchaser identifies goods and provides an irrevocable and legally enforceable promise to purchase the identified goods from the seller on a murabaha basis once the seller purchases the identified goods from a third party supplier relying on purchaser's promise;(x) "musharaka" means a partnership between two or more partners and is classified into the following:15(a) "sherkat al aqd or contractual partnership" meansan agreement between two or more parties to combine their assets (in kind or in cash) or to merge their services with the aim of making profit in accordance with the principles of shariah;20 25(b) "sherkat al melk  or partnership of ownership"means a partnership, which is constituted by virtue of co-ownership of assets by two or more persons thereby resulting in entitlement of each partner to the profits or revenues from the joint asset or appreciation in value thereof in proportion to the ownership of each partner  and in bearing the loss accordingly in the same proportion, if any;30(xi) "parallel istisna" means a contract of istisna except that it is entered into between the seller under the istisna contract and a third party whereby the described asset or item to be manufactured or constructed is procured by the seller under the istisna contract from the third party;(xii) "parallel salam" means a contract of salam except that it is entered into by the seller under the salam contract and a third party whereby the described goods are procured by the seller under the salam contract from the third party;35(xiii) "financing of work contract" means a transaction where bank pays a specified amount of money to a person with a view to facilitate rendering of a specified service by such person and share the profit at an agreed rate;40(xiv) "mossat" means contract between the owner of a field, orchard or garden on the one hand and the bank on the other, for providing agricutural advances with an agreement to divide the harvest in a specified ratio between the two parties;45| (                                                                      ||------------------------------------------------------------------------|| specified plot of land for a specified period of time to another party || for the purpose of cultivating the land and sharing the harvest;       |(xvi)"salam" means a contract of sale of goods which are described with precise and agreed specifications on the basis that the sale price should be paid by the purchaser in lump sum on the date of signing of the salam contract with delivery of the described goods on an agreed future date; and5(xvii) "other modes of investments" which includes investments where it is permissible for islamic banks to adopt any other mode of investment not covered in clauses (i) to (xvii) above or any variations thereof, provided that the underlying contract is considered by the shariah council of the bank as  confirming to islamic jurisprudence;';(viii) (a) after the clause (j), the following clauses shall be inserted, namely:—10 15'(ja) "principles of shariah or shariah" in relation to banking business means such principles of commercial and business transaction as have their origin in holy quran and the sunnah of the prophet (pbuh); along with what has been supported by ijma'a or unanimity or proved by qiyas or analogy and also includes the rulings of renowned scholars based on the aforementioned sources of shariah;(jb) "profit" and "loss" means income or erosion or shortfall, as the case may be, from the investment made in the business, manufacturing or service sector, or industries run by the customers of the banking company;20(jc) "profit linked bond" means an investment bond issued by the central or the state governments or any other authority, as the case may be, where the yield is linked to the profit or loss of the investement;",25(jd) "qurd hassan" means a contract of benevolent loan entered into between a lender and a borrower free of any interest or charge or an access for the benefit of lender and repayable either on agreed future date(s) or on demand of the lender, if agreed so;30 35(je) "riba" in the context of deposits, means any predetermined positive return on the original amount for the use of money by the bank as acceptor of deposit and includes an amount in excess of the principal sum payable on the money lent by the bank, as a condition attached to the grant of loan or any other credit facility, without reference to the operational result of the activity undertaken with the help of such loan or credit facility;'; (b) the existing clause (ja) shall re-numbered as clause (jf);(ix) after clause (l), the following clause shall be inserted, namely:—40'(m) "savings accounts liabilities" in relation to a banking company carrying on interest free banking means the total deposit at that bank which normally require the presentation of passbook or such other document as approved by reserve bank for the deposit and withdrawal of moneys;';45(x) (a) after clause (n), the following clause shall be inserted, namely:—50'(na) "sight liabilities" in relation to a banking company means the total deposit at the bank which are repayable on demand but does not include savings account liabilities or the deposit of any other bank or any financial institutions;';(b) the existing clauses (na), (nb), (nc), (nd), (ne), (ni) shall be re-numbered as clauses (nb), (nc), (nd), (ne), (nf) and (ng), respectively;5(xi) after clause (ng), as so re-numbered, the following clause shall be inserted, namely:—10'(nh) "sukuk or sukuk certificate" means certificates, which are structured in accordance with the principles of shariah, representing investment, bearing risk in the investment, with an entitlement to a share in the profit thereto, if any, and which represents an undivided ownership interest in the underlying assets;15(ni) "time liabilities" in relation to a banking company carrying on non-interest banking, means the total deposit at that bank which are repayable otherwise than on demand and does not include savings account liabilities or the deposit of any other bank;(nj) "transaction" in relation to banking companies, means such business activity as are in accordance wtih the principles of shariah as approved by the shariah council;20(nk) "wakala" means a contract whereby a principal or muwakkil appoints the agent or wakeel as its nominee or representative to perform a defined shariah compliant activity on behalf of the principle for a fixed fee or without the consideration of a fee;';25(c) in section 6, after caluse (o), the following clause shall be inserted, namely:—'(p) carrying on non-interest banking business, by adopting any of the permitted modes of financing, subject to the condition that all transactions stipulated in clauses (a) to (o) is carried out in a manner that does not involve any element of riba and is so certified by the shariah council of the bank';30(d) after section 6, the following sections shall be inserted, namely:—'6a an islamic banking company may accept deposits under each of the following heads, namely:mobilization of monetary resources(i) qarz al hasna,35(ii) savings deposits both an al-wadeeah principles and on term investment deposit,(iii) term deposit to be used in joint ventures, investment based on modarabah principle, installment transaction, forward dealing and joalah transaction406b in order to mobilize deposit on al-wadeeah principle, the bank may give following reward to its depositors, namely:—award for mobilization of loan(a) non-fixed bonus in cash or in kind to depositors in current accounts;(b) grant discount in payment of commission and/or fee for servicesrendered to the customer; and45(c) accord priority in the use of banking facilities;(e) in section 8, after the existing proviso, the following provisos shall be inserted, namely:—'provided further that this section shall, in the case of a banking company carrying on non-interest banking, apply subject to such exceptions as is allowed, under a general or special permission granted by the reserve bank:5provided also that in order to meet the requirement of working capital, the bank may, at the request of an unit on its providing an undertaking to purchase and utilize the raw material as requested may purchase and resell the same to the unit on installment or otherwise or provide finance upon an agreement to purchase on a forward basis products of the said unit'; (f) after section 8, the following section shall be inserted, namely:—10'8a no banking company shall involve itself either directly or indirectly in the buying or selling of real estate, ie land and building:no banking company to involve itself in real estate business15provided that a banking company carrying on interest free banking may acquire land for construction of residential units for lower and medium income group subject to such conditions as may be imposed by the reserve bank and subject also to the compliance of relevant laws'; (g) after section 9, the following section shall be inserted, namely:—`9a a banking company may acquire, hold or dispose of any movable or immovable property subject to the condition that the same as acquired under the permitted mode of financing', acquisition, holding and disposal of banking assets20(h) after section 10d, the following sections shall be inserted, namely:—shariah council`10e (1) every banking company carrying on non-interest banking business shall constitute a shariah council and the members of the shariah council shall be nominated by the board of directors of the concerned bank25(2) the salary and allowances payable to, and other terms and conditions for the appointment of the members of shariah council, their qualifications and their number shall be as laid down in section 10f:30provided that a banking company carrying on non-interest banking business through its branch or an extension counter may appoint a shariah advisor in place of constituting a shariah council and the person so appointed shall meet such criteria as may be fixed for being a member of the council2 of 193435(3) it shall be open to a shariah council to refer to the shariah committee as constituted under section 11a of the reserve bank of india act, 1934, to seek their advice on any matter relating to the operation of the banking business on shariah principle and the shariah committee of the reserve bank shall dispose of the matter as early as possible'members of shariah council10f except as may otherwise be authorized the reasons for which may be recorded in writing by the reserve bank, every person who is or is to be appointed as a member of the shariah council or as a shariah advisor of a bank shall fulfil the following conditions:—40(a) an alim or fazil or mufti from recognized islamic educationalinstitutions with a minimum of second class bachelor degree in economics from any recognized university or 3 years of experience of research and development in islamic banking and finance; or45(i) is a law graduate from any recognized indian universitywith at least three years experience in any bank or financial institution at a senior position and believes in shariah or(ii) is a post-graduate in muslim personal law from anyrecognized indian university and believes in shariah; and(b) has a reasonable knowledge of arabic and english languages; (c) has not been debarred for giving religious rulings by any religious body;5(d) does not hold any office of profit under the central government or the state government or any local body; and(e) is not a shariah advisor of any other bankresponsibilities of shariah council1010g the shariah council shall function as a body responsible to decide whether or not, the business being carried on or proposed to be carried on by the islamic banking company conforms to the principles of shariah and the view taken by the shariah council shall be binding on the banking company10h in addition to the responsibilities assigned to it under the articles of association, the board of a banking company shall in consultation with the shariah council:—responsibilities of the board of the bankingcompany(a) lay down broad features of various permissible transactions;15(b) lay down, the duties and responsibilities of the banking companyin relation to a particular transaction;(c) provide draft model document proposed to be used by such banking company for various transactions;20(d) specify any other conditions as deemed appropriate for giving full effect to the principles of shariah in relation to a particular transaction or arrangement;(e) develop new products and services which are shariah compliant;25(f) list out prohibited transactions/arrangement which it considers not complying with the principle of shariah and shall ensure that no such transactions are carried out; and(g) report to the reserve bank every quarter or as frequently as directed by the reserve bank, whether or not the business of such a banking company including its branches, is being carried on in accordance with the principles of shariah ';30(i) after section 17, the following section shall be inserted, namely:—reserve fund and other funds`17a (1) without prejudice to the provisions of section 17, the reserve bank may lay down the extend and the manner in which a banking company carrying on non-interest banking business shall create a "capital and loss offsetting reserve"3540(2) if the reserve bank is satisfied that in any particular year, the aggregate reserve fund of a banking company carrying on non-interest banking is adequate for its business, it may by order, grant exemption to such a banking company from allocating any amount to the "capital and loss off-setting reserve'' for a specified period or may require the banking company to put the whole amount as "capital and loss off-setting reserve"'; (j) in section 20, in sub-section (2), for the words "loan or advance together with interest, if any'', the words "loan or advance together with interest or profit as agreed to including compensation, if any'' shall be substituted;(k) in section 21, in sub-section (2), in clause (e), after the words "the rate of interest and'' the word "/or'' shall be inserted;(l) in section 21, in sub-section (2), after clause (e), the following clause and proviso thereunder shall be inserted, namely:—5`(f) without prejudice to the provision of section 21, submission to the reserve bank after the last day of each month the particulars of all investment facilities granted by a banking company carrying on non-interest banking:10 15provided that on examination of the particulars supplied by the banking company carrying on non-interest banking, it appears to reserve bank that any investment facility is being granted, to the detriment of the interests of the depositors of that bank, the reserve bank may by order to be recorded in writing, prohibit that bank from granting any further investment or credit facility or impose such restrictions on the grant thereof as reserve bank thinks fit and may further direct that bank to secure repayment of any such investment facility within such time and to such extent as may be specified in the order'; (m) for section 21a, the following section shall be substituted:—10 of 191820rates of profit or return charged by a banking company not to be subject to scrutiny by courts'21a notwithstanding anything contained in the usurious loan act, 1918, or any other law relating to indebtedness in force in any state, a transaction based on written contract, between a banking company and its debtor with whatever name called, shall not be reopened by any court only on the ground that the rate of profit or return or compensation as fixed by the bank in respect of such transaction, was excessive or unreasonable'; (n) after section 22, the following sections shall be inserted, namely:—25'22a (1) without prejudice to the provisions of section 22 of this act, while granting license to a company to carry on non-interest banking business, the reserve bank shall further satisfy itself that—licensing of interest free banking companies(a) the aims as also the operations of the banking business which the said company proposes to carry on, is in conformity with the principles of islamic shariah both in form and substance;30 35(b) in the article of association of the said company, there is a provision for the establishment of a shariah advisory council, to advise the bank on the operation of its banking business and ensure that none of the transactions carried out by the bank involves any element which has not been approved by the shariah; and(c) the members of the proposed shariah council are persons who meet the fit and proper criteria, possess knowledge and understanding of islamic fiqh or jurisprudence and are conversant with financial dealings or commercial contracts4022b (1) subject to prior approval by the reserve bank, a banking company may undertake non-interest banking business in the following manner:—(a) through the establishment of a branch; or(b) through the establishment of a subsidiary; or45(c) by carrying on its entire business and operations conforming to the principles of shariah(2) the banking company or a subsidiary or a branch of a banking company carrying on business in terms of sub-section (1) shall comply with all shariah regulatory standards and requirements as directed by the reserve bankcancellation of the license522c (1) without prejudice to the provisions of section 22 of this act, the reserve bank has any reason to believe that a banking company is pursuing such aims, or carrying on such operations, as is not in conformity with shariah, it may, in the manner to be prescribed, cancel the license of such banking company or its branch for carrying on non-interest banking'; (o) for section 24, the following section shall be substituted, namely:—10maintenance of percentage of assets'24 (1) every banking company carrying on non-interest banking business, shall maintain either in cash, gold or in any other unencumbered approved security, the value of which shall not at the end of business on any day, be less than such percentage of the total time and demand liabilities in india as may be prescribed by reserve bank from time to time15(2) the manner of determining assets and liabilities and the proportion of class wise maintainable assets shall be fixed by the reserve bank and the reserve bank may, in its discretion, provide ratios and the method of computing the amount for a banking company carrying on non-interest banking, at a rate different from the one applicable to banking companies carrying on interest based banking business20 25(3) for the purpose of ensuring compliance with the provisions of this section, every banking company shall, not later than twenty days after the end of the month to which it relates, furnish to the reserve bank in the prescribed form and manner a monthly return showing particulars of its assets maintained in accordance with this section and its demand and time liabilities in india at the close of business on each alternate friday during the month or if any such friday is a public holiday on the close of business on the preceding working day30(4) the minimum amount or amounts of the assets to be held shall be expressed in the form of a percentage or percentages which such assets bear to the savings account, time and other deposit liabilities of each bank and such other liabilities thereof as may be decided by reserve bank and the same may be varied by reserve bank from time to time by notice in writing to the bank35(5) whenever reserve bank issues a notice, under sub-section (2), varying the amount of liquid assets to be maintained by a banking company carrying on non-interest banking business or under sub-section (3), varying the components of the liabilities, it shall allow a period of grace, in which to comply with the provisions thereof as may be specified by the reserve bank40(6) a banking company shall not, during any period of grace, in which it has failed to comply with any, notice under sub-section (1) without the approval of the reserve bank, lend to or invest any money with any person45(7) without prejudice to the provisions of sub-section (2), the reserve bank may require a banking company to furnish to it a return in the form and manner prescribed by it showing particular of its assets maintained in accordance with this section and its demand and time liabilities in india, at the close of business on each day of a month50(8) where a banking company fails to comply with the requirement of sub-section (1), it shall become liable to pay penalty at such rate as may be fixed by the reserve bank and thereafter if the amount required to be maintained on the next succeeding alternate friday is still below the prescribed minimum, every director, manager or secretary of the banking company who is knowingly and willingly a party to the default shall be punishable with a fine and if such default continues, with further fine for each subsequent alternate friday on which the default continues(9) notwithstanding anything contained in sub-section (7), if the reserve bank is satisfied on an application made by a defaulting banking company, that it had sufficient cause for its failure to comply with the provisions of sub-section (1), the reserve bank may waive off fine from the officials of the bank'; (p) for section 27, the following section shall be substituted, namely:—'27 (1) every banking company carrying on non-interest banking business shall, before the close of the month succeeding to which it relates, submit to the reserve bank such returns and in such forms as the reserve bank may prescribe for such companymonthly returns and power to call for other returns and information(2) without prejudice to the generality of sub-section (1) such returns may relate to maintenance of cash reserve ratio/statutory liquidity ratio, capital adequacy, asset quality, management of investment account, balance sheet, profit & loss account, quality of earning and liquidity of the banking company(3) the reserve  bank may call upon banking companies carrying on non-interest banking business to prepare their financial statement, balance sheet and profit and loss account, in such form as may be notified for this purpose'; (q) after section 28, the following section shall be inserted, namely:—'28a every banking company carrying on non-interest banking business shall exhibit in a conspicuous position in its every office or place of business in india—certain information to be available to constituents(i) the full names of all its directors;(ii) the full names of the members of its shariah  council; and(iii) the names and addresses of all the subsidiaries, for the time being, of the bank';(r) in section 29, for sub-section (4), the following sub-sections shall be substituted, namely:—'(4) the central government, by a notification in the official gazette, may prescribe the form suitable for a banking company carrying on noninterest banking business to enable it to submit its balance sheet and profit and loss account as required under sub-section (2) of this section(5) a banking company carrying on non-interest banking business shall follow the accounting standard as laid down by the reserve bank from time to time'; (s) for section 31, the following section shall be substituted, namely:—'31 (1) every banking company carrying on non-interest banking business shall,—be published(a) within fourteen days of the laying of its accounts in its annual general meeting, a copy each of its latest audited annual balance sheet and profit and loss account together with any note thereon and the report of the auditor, publish in at least two daily newspapers in india;510 15 20 25 30 35 40 45 505(b) forward to the reserve bank within three months of the closure of accounts of each financial year or such further period as the reserve bank may specify, three copies each of its latest audited annual balance sheet, profit and loss account, together with any note thereon and the reports of the auditor and the directors;(c) in the case of a banking company having branches outside india, forward to the reserve bank, three copies of its latest audited annual balance sheet and profit and loss account in respect of its operations in each country outside india; and10 15(d) the reserve bank may require a banking company carryingon non-interest banking business to submit further or additional information as it may deem necessary either by way of explanation or otherwise with regard to the balance sheet and profit and loss accounts forwarded by the said banking company and such information shall be submitted within such period and in such manner as the reserve bank may specify';(t) after section 35a, the following section shall be inserted, namely:—20'35aa (1) without prejudice to the powers vested in the reserve bank in terms of section 35a of this act, the reserve bank may, for banking company carrying on non-interest banking, issue such directions as it deems necessary in relation to,—additional power of the reserve bank in relation to companies carrying on non-interest banking business(a) duties and responsibilites of the banking company in relation to each of the permissible transactions or class of transactions;25(b) preparation of model document for the use by a banking company; and(c) prohibited transaction/arrangement30(2) where the reserve bank is of the opinion that any income earned by a banking company is not in conformity with the principles of shariah, it may after allowing such company to have its say, direct the banking company to credit such income into the prime minister's fund or any charity fund in such manner and under such terms as may be specified by the reserve bank'; (u) after section 53, the following section may be inserted, namely:—3543 of 196140'53a notwithstanding anything contained in the income tax act, 1961 or any other law relating to land revenue, the central government may, on the recommendation of the reserve bank, by notification in the official gazette, declare that certain transactions entered into or arrangements agreed to, between a banking company and its customers in terms of this part as may be specified in the notification, will not be subjected to levy of any tax including central sales tax, excise duty and the value added tax'tax neutrality of transactions or arrangements which conform to the principles and practice of non-interest banking business application of the reserve bank of india  act, 1934 to companies carrying on non-interest banking2 of 19343 the reserve bank of india act, 1934, shall apply to companies carrying on noninterest banking with the following modifications, namely:—amendment of the reserve bank of india act, 19345(a) in section 9, in sub-section (1), for the words "the interest of co-operative and indigenous banks", the words "the interests of non-interest banking companies and of co-operative and indigenous banks" shall be substituted;(b) after section 11, the following section shall be inserted, namely:—act to apply to banking companies carrying on non-interest banking subject to modifications shariah committee10 15 20 25 30 35 40'11a (1) the central board shall constitute a shariah committee consisting of the following:—(a) a chairman to be appointed in the prescribed manner by the central board;(b) a director to be appointed by the central board from amongst the directors nominated under clause (c) of sub-section (1) of section 8 having such qualification and/or experience as may be deemed relevant for the committee;(c) at least three additional members who shall be experts in the matter assigned to the committee subject to the condition that such a person is not subject to disqualification as specified in sub-section (1) sub-section (2) of section 10 and is not a member of the either house of parliament or the legislature of any state or of any local authority; and(d) a member-secretary who shall be nominated by the central board and who shall be an officer of the reserve bank, not below the rank of deputy general manager (2) the shariah committee shall  meet at least once in three months or as frequently as decided by the chairman(3) the shariah committee shall perform the following functions:—(a) assist the central board in formulating policies for such banking companies and financial institutions as are carrying on non-interest banking/financing based on the principle of islamic shariah;(b) monitor the products and services of non-interest banking companies and financial institutions operating on the principles of islamic jurisprudence and advise the central board, from time to time, whether such products and services are in conformity with the islamic commercial law or shariah and on matters related thereto;(c) advise the central board on the propriety or otherwise of the products and services of the banking companies and financial institutions carrying on non-interest business;(d) call for such information from the shariah councils of banking companies and financial institutions as it considers necessary for the purpose of carrying out its duties and each of the shariah councils shall be bound to provide the information called for;(e) give decision on the matters referred to it by the shariah council for decision;(f) without prejudice to the generality of the provisions of clause (a)and (e),  the shariah committee shall have such other functions as may be assigned to it by the central board(4) where on a complaint or otherwise, the shariah committee is of the opinion that any product or activity of a banking company or a financial institution is not in conformity with the islamic commercial law or shariah, the matter will be placed before the central board and the decision of the board shall be final and binding on the banking company or financial institution, as the case may be5(5) no member of the shariah committee shall be a member of the shariah council of any banking company or financial institution except when he is so nominated by reserve bank as a member of shariah council of any banking company or financial institution10(6) a person appointed in terms of clause (a) or (b) of sub-section (1), shall be liable to be removed by the central government(7) a person appointed in terms of clause (c) or (d) of sub-section (1), shall be liable to be removed by the central board'; (c) in section 42,—15(i) for sub-section (3), the following sub-section shall be substituted, namely:—20 25'(3) if the average daily balance held at the bank by a scheduled bank during any fortnight is below the minimum prescribed by or under sub-section (1) or sub-section 1a, such scheduled bank shall be liable to pay to the bank in respect of the fortnight a fine by way of penalty as may be decided by the bank and if during the next succeeding fortnight such average daily balance is still below the prescribed minimum, the amount of fine may further be enhanced in respect of that fortnight and each subsequent fortnight during which the default continues and such fine may be imposed as a percentage of the amount by which such balance at the bank falls short of the prescribed minimum'; (ii) in sub-section (3a), for the words "the penal interest at the increased rate of five per cent above the bank rate", the words "the fine" shall be substituted30(iii) in sub-section (5), in clause (c), for the words "the penal interest or the penalty, as the case may be", the words "the fine at the normal or enhanced rate, as the case may be" shall be substituted(iv) in sub-section (6), after clause (iii), the following clause shall be inserted, namely:—'(iv) is a banking company carrying on non-interest banking business in india'35 application of the government securities act, 2006, to companies carrying on non-interest banking38 of 20064 the government securities act, 2006, shall apply to companies carrying on noninterest banking with the modification—40that in section 2, for clause (f), the following clause shall be substituted, namely:—amendment of the government securities act, 2006'(f) "government security" means a security created and issued by the government for the purpose of raising a public loan or for any other purpose as may be notified by the government in the official gazette only having one of the forms mentioned in section 3 and shall include mudaraba savings bond or any other profit linked bond, issued by the government;'45act to apply to banking companies carrying on non-interest banking subject to modification statement of objects  and reasonsnon-interest banking has gained popularity all over the world some of the cities like london, singapore, tokyo and hong kong have emerged as hubs of non-interest banking it is expected that introduction of such a banking system in india, will expand the outreach of credit facility to a vast section of the population it is also likely to play an important role in expanding consumer choice and help in ensuring that all have access to competitively priced financial servicesthe nationalisation of banks was an important step towards achieving financial inclusion it has substantially increased credit access yet, a large section of the population is still left out of the ambit of banking services even after forty years since nationalisation about sixty percent of the population do not have access to formal banking and only 52% of villages have bank branches those who need finance most, like marginal farmers, landless labourers, oral lessees, self employed and un-organised sector enterprise, ethnic minority and women continue to form the financially excluded class the financial exclusion of a large segment of the population has far-reaching implications for the socio-economic and educational uplift of the masses these financially excluded class would not hesitate in sharing a "return" on their investment but they often find it difficult to meet the demand of a pre-determined return unrelated to the yield if finance is available without the burden caused by pre-determined interest rates, it will be a welcome development specially for sme sectorin the case of muslims, the financial exclusion is partly because of certain beliefs that needs to be addressed a large fund, earned as interest is lying in suspended accounts as depositors have not claimed the same this money, if invested in profit-sharing basis can have a major impact on the economy the raghuram rajan committee report on financial sector reforms, submitted to the government of india in 2006, observed that "certain faiths prohibit the use of financial instrument that pays interest the non-availability of interestfree banking products results in some indians, including those in the economically disadvantaged strata of society, not being able to access banking products and services due to reasons of faith" a larger section  of the population may feel inclined to avail credit facility if interest-free banking products are available if non-interest banking is introduced in india, it will also unleash the financial resources, which are at present lying dormant because of the non-availability of a suitable financial products india with its present economic scenario is an attractive investment destination introduction of islamic banking system may also open up opportunity of large shariah compliant investments in india in the infrastructure and other sectorsin the year 2006, rbi had constituted a committee to examine the issue of non-interest banking in india which came to the conclusion that in view of the current statutory and regulatory framework it would not be feasible for banks in india or for branches of indian banks abroad, to undertake non-interest banking activities the present bill is intended to promote certain modifications in the banking regulation act, 1949 (10 of 1949), the reserve bank of india act, 1934 (2 of 1934) and the government securities act, 2006 with a view to allow the banks in india and branches of indian banks located abroad, to undertake noninterest banking activitynew delhi;asaduddin owaisidecember 3, 2009 ———— president's recommendation under  articles 117 (1),  274(1) and 117(3) of the constitution[copy of do no 6/6/2010-bo ii, dated 16 april, 2010 from shri pranab mukherjee, minister of finance to the secretary-general, lok sabha]the president, having been informed of the subject matter of the banking laws(amendment) bill, 2010 by shri asaduddin owaisi, mp, recommends under clause (1) of article 117 and clause (1) of article 274 for introduction and clause (3) of article 117 of the constitution for consideration of the bill in lok sabha financial  memorandumclause 3 of the bill provides that the central board of the reserve bank of india shall constitute a shariah committee for the purposes of this act the bill, therefore, if enacted, would involve expenditure from the consolidated fund of indiait is likely to involve a recurring expenditure of rupees twenty crores per annuma non-recurring expenditure of about rupees ten crores is also likely to be involved———— a billfurther to amend the banking regulation act, 1949, the reserve bank of india act, 1934and the government securities act, 2006————(shri asaduddin owaisi, mp)gmgipmrnd—1840ls (s4)—05-07-2010