Under Section 36AE of the Banking Regulation Act, 1949, the Central Government may, on a report from the Reserve Bank, acquire the undertaking of a banking company if it finds the company has failed to comply with certain directions or is being managed detrimentally to depositors’ interests, and certain other conditions are met. Before issuing the notified order of acquisition, what procedural requirement must the Central Government observe?

The proviso to Section 36AE(1) expressly states that no undertaking of any banking company shall be so acquired unless such banking company has been given a reasonable opportunity of showing cause against the proposed action. This proviso embeds principles of natural justice into the statutory acquisition power of the Central Government, ensuring that the bank has a hearing before being compulsorily taken over. Upon the appointed day specified in the notified order, the undertaking, assets and liabilities of the acquired bank stand transferred to and vest in the Central Government under sub-section (2). If the Central Government so directs under sub-section (4), the vesting may instead be in a transferee bank established under a scheme made under Section 36AF.