Section 44B of BRA : Section 44B: Restriction On Compromise Or Arrangement Between Banking Company And Creditors

Explanation using Example

Imagine a scenario where a medium-sized banking company, "SafeBank," is facing financial difficulties and is considering a restructuring of its debt to stay afloat. The management proposes a compromise with its creditors where they agree to accept a reduced payment on the debt owed by SafeBank. Before proceeding, they draft a plan and present it to the High Court for approval.

Under Section 44B of the Banking Regulation Act, 1949, the High Court cannot sanction this proposed compromise without the written certification from the Reserve Bank of India (RBI). The RBI must confirm that the compromise plan is feasible and not harmful to the interests of SafeBank's depositors.

The High Court instructs SafeBank to seek the RBI's certification. The RBI reviews the plan, considers the impact on depositors, and eventually certifies that the compromise is workable and not detrimental to the depositors. With this certification, the High Court goes ahead and sanctions the compromise, allowing SafeBank to implement the debt restructuring and continue its banking operations.