Banker’s Customers - Special Types

8/13/2019 Bankers Customers - Special Types

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Bankers Customers -Special Types


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Minor

A Person who has not completed 18years of age is a minor.

According to Sec .3 of the IndianMajority Act 1875, a minor is a personwho has not attained the age of


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1. The Privileges of a Minor Guaranteed

by law.a. As per Sce. 11 of the Indian Contract

Act, a contract entered into by a minor

is void. Hence minors contract is not atall enforceable.

b. In case, when he borrow money.

c. A minor can never be appointed as atrustee.


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d. A minor can enjoy the benefits of apartnership firm.e. A minor can be appointed as anexecutor, but, he can commence hiswork only after his coming of age.f. Even a guarantee given by a minor isnot valid.

g. A minor has the right to get back thesecurities pledged for the purpose ofsecuring a loan.


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Bankers Duty

1. He Can allow a minor to open aSavings Bank Account and currentAccount.

2. It is advisable to open the account inthe name of guardian.

3. If the minor dies, the amount of hiscredit is to be paid to his next of the kin.

4. In case a banker is compelled to grant aloan


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Types of Guardian

A. Testamentary GuardianB. Legal GuardianC. Natural Guardian


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Marriage of woman does not affect any right of her separateproperty (Streedhan). Section 14 of the Hindu Succession Act,1956 provides that property of a Hindu female shall be herabsolute property.

A Married woman has a legal entity of her own, which is separatefrom her husband. According to the Hindu Marriage Act1956,Hindu married women can have separate property in herown name.

A married woman can open accounts in her own name, operatefreely and enjoy overdraft limit as long as the liabilities are metout from her own property. At the time of opening the account inthe name of a married woman the name and occupation of herhusband, details of his employer is obtained and recorded. Somebanks also obtain the maiden name of the married women.

Married Women


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A married woman can make her husband liablefor the overdraft enjoyed by her

If she borrows money for the necessities of herlife,

If she borrows for the necessaries of her household,

If she acts as agent of he husband.

The status of the married women is governed by

the following Acts:-(a) Hindu Succession Act, 1956

(b) Married Women's Property Act, 1874

(c) Indian Succession Act, 1925


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A lunatic is a person of unsound mind.(Irresponsible person)

As per Contract Act, a person of unsound mind is not capable of enteringinto a valid contract. Banks therefore, do not knowingly open an accountin the name of a person of an unsound mind.

In case of an existing account, as soon as the information about insanity ofthe accountholders is received, banks suspend / stop operations in theaccount and do not pass cheques. When the proof of customer's sanity isreceived, operations in the account are resumed.

An account in the name of a lunatic person can be opened or operated onlyby a guardian appointed by a competent Court and the balance of suchaccounts is paid to the person appointed by the competent court.

The Position of Lunatic Under Law.

- A lunatic is a person of unsound mindBankers Duty.

LUNATIC


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Intoxicated person cannot take a rational judgment about hisinterest. State of intoxication renders a person incapable of

understanding the nature of his action. Therefore, the lawprovides that all the contracts made by a person in a drunkenstate are void.

When a drunkard approaches the branch of a bank for openingan account, the branch if satisfied that the person is incapable

of entering into a contract refuses to open the account as aprecautionary measure. In case of an existing account, paymentof a cheque to a drunkard is done after taking proper witness.

The Position of Lunatic Under Law.

Bankers Duty.

DRUNKARD


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A Partnership firm is an association of two or more persons calledpartners who undertake a venture for a mutual benefit.

According to Section 4 of the Indian Partnership Act, a partnershipis the relationship between persons who have agreed to share the

profits of a business carried on by all or any of them acting for all. The Supreme Court has held that the word "persons" in Section-4

contemplates only natural or artificial persons i.e., legal persons.Since a firm is not a person, is not entitled to enter into partnershipwith another firm or Hindu undivided family or individual.

Therefore, banks do not open account where a firm is a partner inanother firm. As Joint stock companies and statutory bodiesconstitute "artificial or legal persons" therefore, they can bepartners in a partnership firm.

As per the Indian Partnership Act, minimum number of partnerscan be two and maximum twenty. The number of partners is

restricted to 10, if the partnership firm carries out business ofbanking. Minors can be admitted as partner only to the benefits ofthe partnership.

PARTNERSHIP FIRM


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Consent of All Partners

Partnership Deed

Mandate The Name of the person who is authorised to operate the account.

The extent of authority given to such persons.

Personal account and firms account

The retirement of a partner

The death of a partner The insolvency/insanity of a partner.

In breif


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Registration of partnership firm:

A partnership firm can be registered with Registrar of Firms.However, as per law, it is not compulsory to register apartnership firm. Non-registered partnership firm have certaindisabilities. Such firms cannot sue others to enforce a rightarising out of a contract. A suit filed by an unregisteredpartnership firm is not maintainable, even after its subsequentregistration. Even partners of an unregistered firm cannot sueother partners or his firm, for their rights.


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Opening of Account:A partnership firm can open all types of accounts except savings bankaccount. Bank opens account of a partnership firm in the name of thefirm and not in the names of partners individually or jointly. The account

opening form is signed by all the partners in their individual capacity aswell as in the capacity of a partner to ensure joint and several liabilities.While opening the account banks verify the partnership deed to examinewhether any clause of the deed is detrimental to the interest of bank.Since bank would not like to be bound by the terms of the partnership

deed, banks do not accept the partnership deed even if offered.In case of registered firm, banks obtain registration certificate. Theaccount is opened in the name of the firm and all the partners arerequired to sign account opening form.

Operations in account:Bank obtains operational instructions i.e. who will operate the accountand how it is to be operated. In case a minor is also a partner in the firmhis birth certificate is obtained to ascertain the date of birth, which isrecorded in the account opening form.


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Who can operate?o All partners jointly

o One of the named partnerso Two / three of the named partnerso A third party under a mandate letter or a power of attorney signed by allthe partners.

A partner authorised to operate the firm's account cannot delegate his

authority to another person unless all other partners agree. The authoritygiven to operate the account can be withdrawn by any of the other partnersincluding dormant or sleeping partner by giving notice to the bank. Eachpartner, whether he/she is operating the account or not, has powers tocountermand payment of the cheques drawn by another partner or by anattorney on behalf of the firm.

Partnership firms with illiterate partners:Current accounts of partnership firms, where a partner is illiterate and affixesthumb impression, can be opened provided a Magistrate attests the thumbimpression affixed on the account opening form.


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Implied authority:

A partner acts as an agent of the firm for the purpose of the business of the firm.He binds the firm and also other partners by his acts. An authority to bind thefirm by his acts is called the implied authority of a partner.Operations in the accounts:Without proper inquiry with the other partners, bank does not accept chequedrawn in favour of the firm for credit to the personal account of a partner.Failure to make proper inquiries would deprive the bank of the protectionafforded under Section-131 of the Negotiable Instruments Act on grounds ofnegligence. Cheques payable to a partner are not be credited to the firmsaccount without proper inquiry being made with the other partners.

Retirement of a partner:

On notice of retirement of a partner, the bank closes the existing account andopens a new account of the firm with the remaining partners or along with thenew partner if admitted to the new firm.


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Death of a partner:

-Death of a partner dissolves the partnership. However, for the purpose ofwinding up of the firm, the bank may allow the surviving partner(s) tooperate the firm's account, if the account is in credit.-Cheques drawn by a partner before his death and presented for payment arehonoured after obtaining confirmation of the surviving partners.

Dissolution of a partnership firm:

Dissolution of a firm amounts to the breaking up of relation of partnership betweenall the partners. In the event of dissolution banks do not permit operations in theaccount. A partnership firm may be dissolved by any of the following modes(a) By mutual agreement between all the partners.(b) By notice of dissolution in case of partnership at will.(c) By operation of law or compulsory dissolution of the firm.(d) By happening of certain contingencies such as death or insolvency of a partner.(e) Dissolution by Court of Law in cases like insanity, permanent incapacity,misconduct of a partner affecting business etc.


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A joint stock company is constituted under company Act 1956.Company is an Artificial person with perpetual succession. It is a

voluntary association of persons formed for some commonpurpose with capital divisible into parts known as share. It hasseparate legal entity and corporate personality. It is separate fromthe shareholders constituting it.The company can own assets; contract debts and can sue and be

sued in its own name. The property of the company is not thepersonal property of its shareholders nor the company's liability isthe liability of its shareholders/directors, unless they consent to bepersonally liable for the company's debts.

Joint Stock Companies:


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Company can be classified into three categories:

1.Public Ltd. Co.:It can issue shares to public.Minimum number of shareholders required is 7.There is no restriction in the maximum number of shareholders.Shares can be freely transferred.Minimum number of directors required is 3Requires certificate of commencement of business.

2.Private Ltd.Co.:It can not issues shares to public.Shares are not freely transferable.Minimum number of shareholder required 2 and maximum number of share holderscan be 50.Minimum number of directors required 2.It does not require certificate of commencement of business.

3.Government Co.:A company where not less 51% of the share capital is held by the government.

Depending upon the liability of shareholders the Company it may be limited orunlimited.


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Documents required for opening an account:1. Account opening form2. Certified copies of memo of association and

articles of association3. Copy of certificate of incorporation4. Certificate of commencement of Business5. Up-to-date list of directors with name andaddress

6. Certificated copy of a resolution of the Boardof directors for opening andconducting the account.


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Documents obtained by bank:

For opening an account of a joint stock company bank obtains followingdocuments:(i) Certificate of incorporation:The Registrar of Joint Stock Companies issue this certificate. It is aconclusive proof that all the requirements under the Companies Act have

beencomplied with.(ii) Certificate of commencement of business:

This certificate is essential in the case of public limited companies. Apublic limited company cannot borrow until this certificate is obtained.(iii) Memorandum and Articles of Association:The bank obtains a certified copy of the Memorandum and Articles ofAssociationof the company to satisfy that the conduct of the account is in conformity

withthe provisions. Certificates signed by the Chairman or one of the authoriseddirectors of the company stating that the Memorandum and Articles ofAssociationare true and up-to date.


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(iv) Board Resolution:A copy of the resolution of the Board of Directors of the company, certified astrue by the Chairman of the meeting, requesting the Bank to open an account inits name and specifying the instructions regarding the conduct thereof, isobtained. Instructions in the resolution regarding conduct of the account have to

be in strict conformity with the provisions of companys Articles of Association.The resolution is to be countersigned either by the company's secretary or any of

the other directors.(v) List of the present directors:A list of the present directors of the company is obtained under the signature ofthe Chairman, accompanied by a certified copy of the resolution of the general

body of the shareholders appointing them as directors.(vi) Reference to the company's previous bankers:Banks also ascertain the names and addresses of the companys previous bankers,if any, and get a report on the company and its directors and keep it along withthe account opening form.


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Memorandum of Association:

The memorandum of association contains name and address of the registeredoffice of the company, name and addresses of the directors, objectives and powersof the company. Any act done or contract entered into by the company, which isoutside the scope of these objectives becomes ultra vires (i.e. beyond the powers ofthe company) and, therefore, is not binding on it.The Memorandum and Articles of Association of the company is studied to findout the extent of the powers of its directors, its powers to borrow and mortgage

property or to give guarantees and the provisions relating to the conduct of itsbank accountsArticles of Association:

The Articles of Association contain the rules regulations regarding company'sinternal affairs.

Conversion of cheques payable to companies:

Cheques payable to or endorsed by limited companies should not be collected forthe personal accounts of their directors, managers and other employees.Ordinarily, cheques payable to limited companies are to be credited to companysaccount.


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Insolvency of a director:

In case one of the directors becomes insolvent or an un-dischargedbankrupt, he cannot act as a director of a limited company. The bankdoes not permit operations in the account by the insolvent director.

Winding up of a company:

Winding up of a joint stock company is deemed to have commencedfrom the date on which petition for such winding up is presented, or in

the case of voluntary winding up from the date on which an extraordinary resolution to this effect is passed. With commencement ofwinding up of a joint stock company, the Directors cease to have powersto operate on the account and the authority stands vested with theliquidator appointed for the purpose. Therefore banks do not paycheques signed by the directors after the commencement of the windingup proceedings. Liquidator should furnish evidence of his appointment

by sending a certified copy of the Court Order, or a certified copy of theresolution of the general body in case of a voluntary winding up. Ifrequired, he may be furnished with details of the company's accounts,securities etc., and should be allowed to operate upon the accounts ofthe company only for the purpose of winding up of its affairs.


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The Board of Resolution

Mandate

Borrowing powers

Purpose of loan


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OPENING OF AN ACCOUNT

MANDATE AND RESOLUTION

BORROWINGS

A Club Account and a Personal Account

CLUBS, SOCIETIESAND NON-TRADING

ASSOCIATION


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Bankers Duty

Joint executors and trustees Breach of trust

Powers to borrow

Trust Account and Personal Account of atrustee

EXECUTORS,ADMINISTRATORS ANDTRUSTEES


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When two or more persons open anaccount jointly, it is called a joint account.

The Banker should take the following

Precautions in opening and dealing with ajoint account.

1. The application for opening a joint accountmust be signed by all the persons

intending to open a joint account.2. The banker should obtain clear instruction

in writing.

JOINT ACCOUNT

Banker’s Customers - Special Types

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