Section 20A of the Banking Regulation Act, 1949 restricts the power of a banking company to remit debts. Under this section, a banking company shall not, except with the prior approval of the Reserve Bank, remit in whole or in part any debt due to it by its directors or connected persons. What is the legal consequence of a remission made in contravention of this provision?

Section 20A(2), inserted by the Banking Laws (Miscellaneous Provisions) Act, 1963 (Act 55 of 1963) with effect from 1 February 1964, provides that any remission made in contravention of sub-section (1) shall be void and of no effect. Sub-section (1) bars a banking company from remitting, without the Reserve Bank’s prior approval, any debt owed to it by any of its directors, any firm or company in which a director is interested as director, partner, managing agent or guarantor, or any individual for whom a director is a partner or guarantor. The provision complements Section 20, which prohibits loans secured on the bank’s own shares and restricts loans to directors. Together, Sections 20 and 20A form a comprehensive framework preventing a bank from channelling benefits to its insider directors.