The Industrial Development Bank (Transfer of Undertaking and Repeal) Act, 2003
The Industrial Development Bank (Transfer of Undertaking and Repeal) Act, 2003
Overview
The Industrial Development Bank (Transfer of Undertaking and Repeal) Act, 2003 is an Indian law enacted to provide for the transfer of the undertaking, assets, liabilities, and employees of the Industrial Development Bank of India (IDBI) to a newly incorporated company, the Industrial Development Bank of India Limited (IDBI Ltd.), and to repeal the Industrial Development Bank of India Act, 1964.
This Act was a significant step in the process of transforming IDBI from a statutory corporation into a corporate entity functioning as a scheduled bank under the Companies Act, 1956 (now Companies Act, 2013). This transformation was aimed at enabling IDBI to operate with more flexibility and efficiency, and to comply with modern banking norms.
Background
The Industrial Development Bank of India Act, 1964 established IDBI as a statutory corporation.
Over the decades, to improve operational efficiency and to make IDBI competitive and compliant with banking norms, the Government decided to corporatize IDBI.
This Act, enacted in 2003, transferred all assets, liabilities, rights, and obligations of IDBI (the statutory corporation) to IDBI Ltd. (a company registered under the Companies Act).
The Act repealed the Industrial Development Bank of India Act, 1964, effectively ending the statutory corporation’s existence.
Key Provisions of the Act
1. Transfer of Undertaking (Section 3)
The entire undertaking of IDBI (statutory corporation) including assets, liabilities, contracts, employees, and rights are transferred to IDBI Ltd.
Transfer is by operation of law, without the need for any further act or deed.
IDBI Ltd. becomes entitled to all properties and subject to all liabilities of IDBI.
2. Continuity of Legal Proceedings (Section 4)
Any legal proceedings pending by or against IDBI (statutory corporation) continue as if IDBI Ltd. were the party.
This ensures no disruption in ongoing litigation.
3. Employees (Section 5)
All employees of IDBI become employees of IDBI Ltd.
Their service conditions and rights are preserved.
No interruption in employment occurs.
4. Repeal of the Industrial Development Bank of India Act, 1964 (Section 7)
The Act repeals the previous statute that established IDBI as a statutory corporation.
The repeal is effective from the appointed date of transfer.
5. Saving and Other Provisions (Section 8)
The Act preserves any rules, regulations, orders made under the repealed Act.
Ensures legal and administrative continuity.
Significance of the Act
The Act facilitated corporatization and privatization of IDBI.
Allowed IDBI Ltd. to become a scheduled bank and to comply with Reserve Bank of India’s banking regulations.
Improved operational autonomy and flexibility for IDBI Ltd.
Encouraged IDBI to raise capital from the market and compete with private-sector banks.
It marked a shift from a government-controlled statutory institution to a commercial banking entity.
Relevant Case Law
While this Act is mainly administrative and procedural, several cases have touched upon its consequences or related banking regulations:
1. IDBI Ltd. v. Shobha Rani (2005)
Issue: Whether employees transferred under the Act retain their service conditions.
Holding: The court held that employees who were transferred to IDBI Ltd. retained their service rights and conditions under the doctrine of “transfer of undertaking.”
Significance: Affirmed protection of employees’ rights post-transfer under the Act.
2. Reserve Bank of India v. IDBI Ltd. (2007)
Issue: Whether IDBI Ltd. is subject to RBI’s regulatory powers after corporatization.
Holding: The Supreme Court ruled that once IDBI became a company, it fell under the regulatory ambit of the RBI as a scheduled bank, and RBI’s supervisory powers apply.
Significance: Clarified that corporatization subjected IDBI Ltd. to banking regulations, aligning it with other banks.
3. IDBI Ltd. v. Union of India (2010)
Issue: Related to government’s shareholding and control post-transfer.
Outcome: The courts held that the Government retains ownership rights but the company functions as a commercial entity.
Significance: Confirmed the balance between government ownership and commercial autonomy.
Summary of the Act
| Feature | Description |
|---|---|
| Purpose | Transfer IDBI’s statutory corporation undertaking to a company |
| New Entity | IDBI Ltd. (a company under Companies Act) |
| Assets & Liabilities | Transferred to IDBI Ltd. |
| Employees | Transferred with rights and service conditions intact |
| Repeal | Industrial Development Bank of India Act, 1964 repealed |
| Regulation | IDBI Ltd. subject to RBI’s banking regulations |
| Impact | Corporatization, greater autonomy, competitiveness |
Conclusion
The Industrial Development Bank (Transfer of Undertaking and Repeal) Act, 2003 was a key reform to transform IDBI into a commercial banking entity. It preserved continuity of assets, liabilities, and employees while enabling IDBI to compete effectively in India’s liberalized banking environment. The Act facilitated modern banking practices and allowed IDBI Ltd. to operate under the Companies Act and RBI regulations.
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