Section 38(4) of the Banking Regulation Act, 1949

Solution

Section 38(4) provides that a banking company shall be deemed unable to pay its debts if it has refused to meet any lawful demand within two working days if such demand is made at a place where there is an office, branch or agency of the Reserve Bank, or within five working days if such demand is made elsewhere, and if the Reserve Bank certifies in writing that the banking company is unable to pay its debts. The two-tier time limit reflects the proximity to the RBI’s monitoring infrastructure: where the RBI is present, its oversight is closer and the “failure window” is correspondingly shorter. This deemed insolvency standard supplements the general Companies Act provision under Section 434 and the Reserve Bank’s written certification is an additional condition for the deeming provision to apply.