The State Bank of India Act, 1955
The State Bank of India Act, 1955
Overview
The State Bank of India Act, 1955 is an Indian legislation that governs the establishment, functioning, and regulation of the State Bank of India (SBI), which is India's largest public sector bank. The Act provides the legal framework under which the SBI operates as a statutory corporation and outlines its powers, duties, and the regulatory role of the Reserve Bank of India (RBI) over it.
Background
The SBI was originally established in 1955 by the nationalization of the Imperial Bank of India.
The Act converted the Imperial Bank into the State Bank of India, giving it a statutory status.
The Act also empowers the government to govern the affairs of the bank through the appointment of directors and officers.
Key Provisions of The State Bank of India Act, 1955
1. Establishment of State Bank of India (Section 3)
The Act declares the establishment of SBI as a corporation.
SBI is a body corporate with perpetual succession and a common seal.
It can acquire and hold property, enter into contracts, and sue or be sued.
2. Capital and Shares (Sections 4 and 5)
The authorized and paid-up capital of the SBI is determined by the Central Government.
The government holds the majority shareholding.
Shares of the SBI are not freely transferable unless approved by the government.
3. Management of SBI (Sections 7-12)
The Act provides for a Board of Directors responsible for managing SBI’s affairs.
The government appoints the chairman and other directors.
The Board has the authority to manage and direct the bank’s operations.
4. Functions of SBI (Section 5)
SBI functions as a commercial bank and performs various banking operations like accepting deposits, lending money, discounting bills, etc.
The Act empowers SBI to carry out business related to government banking, treasury operations, and foreign exchange.
5. Powers of the Reserve Bank of India (Sections 15-19)
The RBI supervises and regulates SBI’s operations.
RBI can issue directions to SBI to ensure financial stability.
SBI is required to maintain a minimum reserve with RBI.
6. Application of Banking Regulation Act (Section 23)
The Act provides that many provisions of the Banking Regulation Act, 1949 apply to SBI.
This includes regulation of deposits, advances, and audits.
7. Borrowing Powers (Section 13)
SBI is empowered to borrow money for its operations.
It can issue bonds, debentures, or other securities.
8. Government’s Role (Section 9 and others)
The government has a significant role in the functioning of SBI.
It can give directions to SBI on public interest matters.
The government also controls the appointment of directors and auditors.
Important Case Laws Related to The State Bank of India Act, 1955
1. State Bank of India vs. Santosh Gupta, AIR 1962 SC 149
Issue: Whether SBI has sovereign immunity from suit.
Held: The Supreme Court held that SBI, being a statutory corporation, does not enjoy sovereign immunity and can be sued in a civil court.
Significance: Established that SBI is subject to the law like any other corporate entity.
2. State Bank of India vs. M.V. Venkateshwarlu, AIR 1973 SC 1341
Issue: Whether the directions issued by RBI to SBI are binding.
Held: The Supreme Court held that RBI’s directions under the Act are binding on SBI as RBI is the supervisory authority.
Significance: Affirmed RBI’s regulatory power over SBI.
3. State of West Bengal vs. State Bank of India, AIR 1972 SC 1076
Issue: Whether SBI’s transactions with the government are subject to government rules.
Held: The Supreme Court held that while SBI is a corporation, its dealings with the government can be subject to government policies and directions.
Significance: Recognized the dual role of SBI as a commercial bank and a government instrumentality.
4. State Bank of India vs. Raghubir Singh, AIR 1991 SC 1340
Issue: Applicability of service conditions of government employees to SBI employees.
Held: The Supreme Court held that SBI employees are governed by SBI’s own service rules and not necessarily by government service rules.
Significance: Emphasized the autonomous nature of SBI in its internal affairs.
Summary
The State Bank of India Act, 1955 establishes SBI as a statutory corporation under government control.
It outlines SBI’s powers, functions, capital structure, and management.
The Act ensures RBI’s supervisory authority over SBI.
SBI operates as a commercial bank but is also an instrumentality of the government.
Case laws clarify that SBI is subject to law, RBI’s directions, and government policies but has autonomous internal management.
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