Industrial Development Bank Undertaking Transferred to New Company, IDBI Act Repealed

The Industrial Development Bank (Transfer of Undertaking and Repeal) Act, 2003, enacted as Act No. 53 of 2003, received presidential assent on December 30, 2003. This legislation facilitated the transformation of the Industrial Development Bank of India (IDBI) from a statutory corporation into a company registered under the Companies Act, 1956, enabling it to conduct banking business. The Act came into force on July 2, 2004, following a notification by the Central Government. The primary objective was to transfer the entire undertaking of the erstwhile Development Bank to a newly formed entity, the Industrial Development Bank of India Limited, referred to as "the Company" within the Act.

Under the provisions of the Act, the entire undertaking of the Development Bank, encompassing all its business, assets, rights, powers, privileges, properties (movable and immovable, corporeal and incorporeal), cash balances, investments, loans, liabilities, and obligations, was transferred to and vested in the Company on the appointed day. All existing contracts, deeds, bonds, guarantees, and legal proceedings involving the Development Bank were subsequently enforced by or against the Company. The Act stipulated that the Company would be deemed a banking company under the Banking Regulation Act, 1949, and would carry on banking business in accordance with its provisions. Initially, the Company was not required to obtain a licence under Section 22 of the Banking Regulation Act, 1949, and was exempted from maintaining the specified percentage of assets under Section 24 of the said Act for a period of five years from the appointed day. However, a subsequent amendment in 2021 clarified that the exemption from obtaining a licence ceased to be applicable, and the Company was deemed to have obtained such a licence.

The Act also addressed the continuity of employment, ensuring that officers and other employees of the Development Bank, excluding directors, were transferred to the Company on the same tenure, remuneration, terms, and conditions, including rights and privileges related to leave, provident fund, and retirement benefits. The legislation explicitly stated that such a transfer would not entitle employees to any compensation under the Industrial Disputes Act, 1947, or any other law. Furthermore, all fiscal and other concessions, licences, benefits, privileges, and exemptions previously granted to the Development Bank, including tax exemptions under the Income-tax Act, 1961, were deemed to have been granted to and continued for the Company. Guarantees given for or in favour of the Development Bank remained operative for the Company, and the shares, bonds, and debentures of the new Company were designated as approved securities for the purposes of the Indian Trusts Act, 1882, and the Insurance Act, 1938. The legislation provided: "An Act to provide for the transfer and vesting of the undertaking of the Industrial Development Bank of India to, and in, the Company to be formed and registered as a Company under the Companies Act, 1956 to carry on banking business and for matters connected therewith or incidental thereto and also to repeal the Industrial Development Bank of India Act, 1964."

The legislative intent behind this enactment was to facilitate the corporatisation of the Industrial Development Bank of India, transitioning it from a development financial institution established under a special statute to a commercial banking entity operating under general corporate and banking laws. The earlier legal position saw IDBI functioning as a statutory corporation, primarily focused on industrial finance and development. The Act addressed the statutory gaps and limitations inherent in its previous structure, which was not fully aligned with the evolving commercial banking landscape. By repealing the Industrial Development Bank of India Act, 1964, and transferring its functions to a company, the legislation aimed to provide IDBI with greater operational flexibility and enable it to compete effectively in the commercial banking sector. The Act also mandated consequential amendments to several other enactments, including the Reserve Bank of India Act, 1934, the Banking Regulation Act, 1949, the Industrial Disputes Act, 1947, and the Small Industries Development Bank of India Act, 1989, to reflect the changed status of IDBI and ensure legal consistency across the financial regulatory framework. These amendments involved the omission of references to the erstwhile Development Bank and the substitution of its name with the new Company where appropriate, thereby streamlining the legal and regulatory environment for the newly formed banking entity.

Keywords: Industrial Development Bank, IDBI, Transfer of Undertaking, Repeal Act, Banking Company, Corporatisation, Financial Legislation, India Geo Tags: India, Not Applicable District: Not Applicable