Professional Documents
Culture Documents
CUSTOMER
DEFINITION OF BANKING
1
such, the manufacturer or trader shall not be deemed to transact
the business of banking.
(ii) The phrase ‘deposits of money from public’ is significant. The banker
accepts deposits of money and not of anything else. The word ‘public
implies that a banker accepts deposits from anyone who offers his/her
money for such purpose. The banker, however, can refuse to open an
account in the name of the person who is considered as an undesirable
person. E.g. a thief, robber, etc.
2
that any of these words cannot be used by any such company even “In
connection with its business.”
(a) The following functions form the bulk of a bank’s activities and are
called its main functions:
3
• the purchasing and selling of bonds, scrip’s and other forms of
securities on behalf of constituents or other
• the negotiations of loans and advances
• the receiving of al kinds of bonds, scrip’s or valuable on deposit or
for safe custody or otherwise
• the providing of safe deposit vaults, and
• the collection and transmitting of money and securities
4
Banks and Insurance Business
5
General insurance Service
6
the prior approval of the Reserve Bank of India. Banks are precluded
from undertaking directly, i.e., departmentally, the business of equipment
leasing.
While a number of banks have been permitted by the Reserve Bank
to make portfolio investment in equipment leasing companies the State
bank of India has entered into this business in a significant way by
establishing a subsidiary company, named SBI Capital Markets Ltd., on
1st August, 1986. SBICAP, as it is called, has taked over the business of
Merchant banking Division of the State bank of India. It provides a range
of new services including project advisory services and equipment
leasing.
8
DEFINITION OF A CUSTOMER
Thus a person who has a bank account in his name and for whom
the banker undertakes to provide the facilities as a banker, is considered
to be a customer. It is not essential that the account must have been
operated upon for some time, even a single deposit in the account will be
sufficient to designate a person as customer of the banker. Though
emphasis is not being laid on the habit of dealing with the banker in the
past but such habit may be expected to be developed and continued in
future. In other words, a customer is expected to have regular dealings
with his banker in future.
9
banker, is not called a customer of the banker. For example, any person
without a bank account in his name may remit money through a bank
draft, encase a cheque received by him from others of deposit his
valuables in the Safe Deposit Vaults in the bank or deposit cash in the
bank to be credited to the account of the Life Insurance Corporation or
any joint stock company issuing new shares. But he will not be called a
customer of the banker as his dealings with the banker are not in regard to
the essential functions of the banker. Such dealings are considered as
casual dealings and are not in the nature of banking business.
10
GENERAL RELATIONSHIP BETWEEN BANKER
AND CUSTOMER
12
(iii) Demand must be made in proper manner. According to the
statutory definition of banking deposits are withdraw able by cheque
draft, order or otherwise. It means that the demand for the refund of
money deposited must be made through a cheque or an order as per
the common usage amongst the bankers. In other words, the demand
should not be made verbally or through a telephonic message or in
any such manner.
13
withdrawn from or debited to is account to carry out his specific
instruction.
(3)Banker as Agent:-
15
OBLIGATIONS OF A BANKER
Through the primary relationship between a banker and his
customer is that of a debtor and creditor or vice versa, the special features
of this relationship, as noted above impose the following additional
obligations on the banker:
(i) There must be sufficient funds of the drawer in the hands of the
drawee. By sufficient funds is meant funds at least equal to the
amount of the cheque presented. The funds must be sufficient in the
hands of the banker. Generally, the cheques sent for collection by the
customer are not treated as cash in the hands of the banker until the
same are realized. The Banker credit the amount of such cheques to
the account of the customer on their realization. A banker should,
therefore, be given sufficient time to realise the amount of the cheques
sent for collection before the said amount is drawn upon by the
customer. If the customer draws a cheque on such unrealized
amounts, the banker will be justified in dishonoring the cheque with
the remark ‘Effects not cleared’.
16
(ii) The fund must be properly applicable to the payment of the
cheque. A customer might be having several bank accounts in his
various capacities. But it is essential that the account on which a
cheque is drawn must have sufficient funds. If some funds are
earmarked by the customer for some specific purposes, the said funds
are not available for honoring his cheques. Similarly, a depositor
having a debit balance in his current account cannot draw a cheque on
the basis of his fixed deposit with the banker as the latter is a deposit
under a separate agreement for a specific period and can be withdrawn
in the prescribed manner and not through a cheque.
17
(iii)The banker must be duly required to pay. The banker is bound to
honour the cheques only when the cheques only when he is duly
required to pay. This means that the cheque, complete and in order,
must be presented before the banker at the proper time. Ordinarily a
period of six months is considered sufficient within which a cheque
must be presented for payment. On the expiry of this period the
cheque is treated as stale and the banker dishonored by the banker
because the order of the drawer becomes effective only on the date
given in the cheque.
Banker’s Liability:-
18
and apologize to the payees of such dishonoured cheques affect the
liability of the bank t pay damages for their wrongful act”
In the above case, the clerk of the bank forgot to credit the
customer’s account with the money deposited by him and as a result a
number of cheques issued by him were dishonoured by the bank.
Obligation to maintain secrecy of Account:-
The account of the customer in the books of the banker records all
of his financial dealings with the latter and depicts the true state of his
financial position. If any of these facts is made known to others the
customer’s reputation may suffer and he may incur losses also. The
banker is, therefore, under an obligation to take utmost care in keeping
secrecy about the accounts of his customers. By keeping secrecy is
meant that the account books of the bank will not be thrown open to the
public or Government officials and the banker will take all necessary
precautions to ensure that the state of affairs of a customer’s account is
not made known to others by any means. The banker is thus under an
obligation not to disclose deliberately or intentionally any information
regarding his customer’s accounts to the third party and also to take all
necessary precaution and care to ensure that no such information leaks
out of the account books.
The nationalized banks in India are also required to fulfill this
obligation. Section 13 lf the banking companies Act. 1970. Specifically
requires them to observe except as otherwise required by law the
practices and usages customary amongst bankers and in particular not to
divulging information relating to the affairs of the constituents except in
circumstances in which they are in accordance with law or practices and
usages customary among bankers, necessary or appropriate for them to
divulge such information.”
19
Risks of unwarranted and Unjustifiable Disclosure:
Such third party may require the banker to compensate him for the losses
suffered by him for relying on such information. But the banker shall be
liable only if it is proved that he furnished the wrong or exaggerated
information deliberately and intentionally. Thus he will be liable to the
third party on the charge of fraud but not for innocent misrepresentation.
Mere negligence on his part will not make him liable to a third party.
20
BANKER’S RIGHTS
21
2. Right of set-off:
(i) The accounts must be in the same name and in the same right
The first and the most important condition for the application of the
right of set-off is that the accounts with the banker must not only be in
the same name but also in the same right. By the words ‘the same
right’ is meant that the capacity of the account holder in both or all the
accounts must be the same, i.e., the funds available in one account are
held by him in the same right or capacity in which a debit balance
stands in another account. The underlying principle involved in this
rule is that funds belonging to someone else, but standing in the name
of the account-holder, should not be made available to satisfy his
personal debts.
(ii) The right can be exercised in respect of debts due and not in respect
of future debts or contingent debts. For example, a banker can set off
a credit balancer in the account of a customer towards the payment of
a bill which is already due but not in respect of a bill which will
mature in future. If a loan given to a customer is repayable on demand
or at a future date, the debt becomes due only when the banker makes
a demand or on the specified date and not earlier.
22
(iii) The amount of debts must be certain. It is essential that
the amount of debts due from both the parties to each other must be
certain. If liability of any one of their is not determined exactly, the
right of set-off cannot be exercised. For example, if A stands as
guarantor for a loan of Rs. 50,000 given by a Bank to B, his liability
as guarantor will arise only after B defaults in making payment. The
banker cannot set6 off the credit balance in his account till his liability
as a guarantor is determined. For this purpose it is essential that the
banker must first demand payment from his debtor. If the latter
defaults in making payment of his debt, only then the liability of the
guarantor arises and the banker can exercise his right of set-off against
the credit balance in the account of the guarantor. The banker cannot
exercise this right as and when he realizes that the amount of debt has
becomes sticky, i.e., irrecoverable.
(v) The banker may exercise this right at his discretion. For
the purpose of exercising this right of all the branches of a bank
constitute one entity one entity and the bank can combine two or more
accounts in the name of the same customer, however, cannot compel
or pursue the banker to exercise the right and to pay the credit balance
at any other branch.
(vi) The banker has right to exercise this right before the
garnishee order in respect of the funds belonging to his customer, he
has the right first to exercise his right of set-off and thereafter to
surrender only the remainder amount to the judgment-creditor.
23
3. Banker’s Right of Appropriation (Rule in
Clayton’s Case).
24
In case a customer has a single account and he deposits and
withdraws money from it frequently, the order in which the credit entry
will set off the debit entry is the chronological order, as decided in the
famous Clayton’s Case, discussed below.
25
5. Period of Limitation
26
PART-II
CUSTOMERS ACCOUNTS WITH
THE BANKER
The relationship between a banker and his customer begins with
the opening of an account by the former in the name of the latter.
Initially all the accounts are opened with a deposit of money by the
customer and hence these accounts are called deposit accounts are called
deposit accounts. The bulk of the resource of a bank are mobilised by
accepting deposits from the public. Accepting of deposits of money from
the public, as already noted, in one of the essential functions of a banker,
according to the definition of banking given in the Banking Regulation
Act, 1949.
The banker solicits deposits from the members of the public
belonging to different walks of life, engaged in numerous economic
activities and having different financial status. The nature of banking
facilities sought by them, there fore varies widely. The banks have ,
therefore introduced different types of accounts with various facilities and
privileges. Customarily, the bank accounts are classified into three
categories: (i) the savings deposits accounts (ii) the fixed deposit
accounts, and (iii) the current accounts, In recent years a few new types
of accounts have also been introduced by banks, e.g. Recurring deposits
accounts, students deposits accounts, multi purpose deposit scheme, super
savings scheme, Janta Deposit Scheme, reinvestment Plan, pigmy
deposits scheme, etc. Some bankers also issue cash certificates to solicit
deposits for a fixed period . The present chapter discusses banker’s
practice in relation to the opening and operation of different types of
customers’ accounts. Before we do so let us discuss the measures
adopted to regulate competition among the banks in India in the field of
deposit mobilizing
27
REGULATION OF COMPETITION IN BANKING
28
TYPES OF DEPOSITS ACCOUNTS
In this category are included the deposits with the bank for a fixed
period which is specified at the time of making the deposit. Such
deposits are, therefore called fixed Deposits or Term Deposits. A fixed
deposit is repayable on the expiry of a specified period, chosen by the
depositor to suit his purpose and to enable him to get back the money as
and when he needs it. For example, if a person intends to utilise his
money for any purpose after a few years. He may deposit it for 3, 5 or 6
years, whereas if purpose is to meet some urgent need in the near future,
the fixed deposit may be made for 3, 6 or 9 months. As the date of
repayment of a fixed deposit is determined in advance, the banker need
not keep more cash reserves against it and can utilise such amount more
profitably. The banker, therefore, offers higher rate of interest on such
deposits because the depositor parts with liquidity for a definite period.
Fixed deposits have grown in importance and popularity in India during
recent years.
The rates of interest and other terms and conditions on which the
banks accepted fixed deposits were regulated buy the Reserve bank of
India in exercise of the powers conferred upon it by sections 21 and 35A
of the banking Regulation Act, 1949. Till April 21, 1992 fixed deposits
were classified into four categories with varying periods of maturity
starting from 46 days. The creation of various categories of fixed deposit
with higher rates of i9nterst for each successive categories of fixed
deposit with h8gher rates of interest for each successive category was
intended to induce the depositors to take advantage of higher rates on
interest. By parting with liquidly for longer periods. The Reserve Bank
29
of India revised the rates of interest on fixed deposits several times.
During 1991 reserve bank made upward revision in the interest rates on
deposits twice, along with rise in the Bank rate. The main object of the
step was to make bank deposits more attractive as compared to other
savings instruments, these steps were undertaken as anti-inflationary
measures when the inflationary pressure was mounting up.
Since 1992 Reserve Bank of India commenced the policy of
gradual de-regulation over deposit interest rates. Reserve Bank of India
permitted the banks to prescribe their own rates of interest on fixed
deposits of different maturities, but the maximum rate of interest was
fixed by it. This ceiling rate was revised several times.
In October 1997, the ceiling rate itself was also withdrawn and
thus the deposits of different maturities. Further, on April 29, 1998, the
minimum period of maturity of term deposits was reduced from 30 days
to 15 days. Hitherto a restriction was imposed on the banks that they nest
offer the same rate on deposits of the same maturity irrespective of the
size of such deposits. This restriction has also been removed since April
29, 1998. Banks are now free to allow different rates of interest varying
with the size of the amount of the deposits for the same maturity.
According to Reserve Bank’s instructions permission to offer varying
rates of interest for deposits of the same maturity will apply to domestic
deposits of Rs. 15 lakh &above. Banks are required to disclose in
advance the schedule of interest rates payable n deposits. Interest shoud
be paid as per the schedule and shoud not be negotiated between the
banker and the depositor.
Consequently, banks have prescribed their own rates of interest
have also permitted higher rates on deposits above the specified amount
viz. Rs. 15 lakh. On April 19, 2001, Reserve Bank of India permitted the
banks to reduce the minimum maturity period for term deposits to 7 days
(instead of 15 days) at the discretion of individual banks. This applied to
wholesale deposits of Rs. 15 lakh and above, on which banks. This
applied to wholesale deposits of Rs. 15 lakh and above, on which banks
may offer higher rates of interest.
30
These schemes will also incorporate simple procedure for
auto0matic transfer of deposits to nominees of such depositors in the
event of death.
31
the period for which deposit is to be made. Hw also gives his specimen
signature. A Fixed Deposit Receipt is thereafter issued to the depositor,
acknowledging the receipt of the sum of money specified therein, to be
repaid at the expiry of the period mentioned therein along with interest at
the specified rate. Reserve bank of India has made it absolutely
necessary to indicate on the fixed Deposit Receipt the date of receipt,.
The period for which the deposit has been accepted and due date, as also
the applicable rate of interest. The specimen of a fixed Deposit receipt is given
Payment of Interest:
32
Interest on overdue Deposits :
33
the bank, claiming to be the owner of the amount of deposit with interest.
A filed a suit against J and the bank claming to be the owner of the
amount. The Court issued temporary injunction restraining the bank from
making payment to J.
During the tendency of the suit the Court had, on the application of
J. ordered the bank either to agree to pay interest or deposit the amount in
Court for being invested in securities. The Bank paid the principal and
interest for 1 year to J. Thereafter J filed a suit for the recovery of interest
for the subsequent period during which the amount remained with the
Bank.
The Bank contested the case on the plea that after the expiry of the
period of deposit, the fixed deposit became a demand deposit and ceased
to carry any interest and that the clains oif J by way of damages was
totally incorrect as there was no implied agreement between the parties to
pay the overdue interest or to pay any amount as damages.
The High Court held that the question whether a fixed deposit
remains as deposit or becomes a loan after the expiry of the period of
deposit, depends upon the intention of the parties and the implied
agreement. The Court held that deposits in banks are normally treated by
the banks as payable on demand after the expiry of the period of the
deposit. Thus it remains a deposit and not a loan .
The Court further held that J suffered a loss of interest because the
Bank did not deposit the money in the court for investment in securities.
The Bank having retained the amount was liable to pay interest.
34
immediate reinvestment with it in another term deposit of a longer
maturity than the remaining period of the original contract.
In April, 1998, Reserve bank has permitted the banks to determine
their own penal interest rates for premature withdrawal of domestic term
deposits. Banks are required to inform the panel rate to the depositors at
the time of accepting deposits.
The Reserve bank has permitted that if a term deposit is repaid
prematurely on the death of a depositor to the heirs or legal pre
representatives, this penalty is not to be imposed by banks. In such cases
the interest payable will be at the same rate as is applicable for the period
for which the deposit has actually remained with the bank, i.e. from the
date of deposit to the date of payment.
Realizing that pre-mature withdrawals of large sums may have
impact on the Asset-Liability Management function in the Banks,
Reserve bank of India decided in April 2001 to grant freedom to the
banks to exercise their discretion to disallow pre-mature withdrawals of
large deposits held by entities other than individuals and Hindu
Undivided families. But banks shall have to inform such depositors their
policy of disallowing pre-mature withdrawals at the time of accepting
deposits.
35
deputed by the owner to collect the money on its due date. The debt
r5epresented by the receipt may be assigned like any anther debt, but a
notice of assignment is to be served on the banker for this purpose.
Change in Names
A fixed deposit receipt is issued in the name/names of the
depositor/depositors who apply for the opening of a Fixed Deposit A/C.
Sometimes the banker receives a request for changing the name in the
receipt or making an addition thereto or deleting a name therein. Such
requests should be complied with very carefully after examining the legal
position in each case.
If a receipt is issued in the name of an unmarried lady, who
requests after her marriage, to change her surname in the receipt, the
banker should comply with such request.
Similarly, if a receipt is issued in the name of a person and he
wants to add the name of any other person as a joint account-holder, the
banker should have no objection to the compliance of the mandate of the
customer. But if the receipt is payable to two or more persons and only
one of them wants to add a new name thereto, such request should not be
accepted unless the consent of the other depositors is also secured. Banks
may allow addition or deletion of name or names of joint account-holders
at the request of all the joint account-holders. According to the Reserve
Bank directive. In allowing this facility, there should not be any change
in the amount or duration of the original term deposit.
If the depositor dies, allows the name or names of one or more
legal heirs or legal representatives to be added jointly or individually.
Such deposit can be split equally person’s name.
36
Deduction of Tax at Source
Section 194A of the Income Tax Act provide for deduction of tax
at source from interest on time deposits, payable by a bank or co-
operative society. Where it exceeds Rs. 5,000 in a financial year. This
limit applies to interest paid/credited by each branch of a bank. For this
purpose, time deposit means a deposit repayable after the expiry of a
fixed period and excludes recurring deposits. Moreover, interest on time
deposits with a primary agricultural credit society, primary credit society,
a cooperative land development bank will not be subject to tax deduction
at source. Deduction of tax will not be made in case of depositors who
furnish an affidavit or statement that their income is below taxable limit
or that the tax on their estimated income would be nil.
Tax is to be deducted at sources at the prescribed rates. At present
these rates are :10%for a resident other than a company and 20% for a
domestic company.
Term Deposit
We have schemes for auto renewal of term deposits placed with us
upto 90 days. Fixed deposit have added feature of interest
up to Ten Times. Payment on monthly, quarterly or half yearly basis.
Under Kalyan Thev Yojana, the interest is calculated on
quarterly compounded basis and paid on maturity along with the
principal amount of deposit.
Competitive Rates of interest.
Monthly / Quarterly modes of interest payments. Cumulative deposit
option also available.
37
Additional Rate of interest to Senior Citizens’ / High Net Worth
deposits.
Feature
All deposits up to Rs. 1.00 lac covered under DICGS insurance.
Auto Renewal up to 10 Times.
Monthly Interest
Quarterly Interest
Cumulative – Kalyan Thev Yojana
High Net Worth Deposits
Eligibility
Nationality Indian
Open an Account
Local Residential proof
PAN Card
Ration Card
Secondary School Leaving Certificate indicating date of Birth
Voters Identity Card
Birth Certificate issued by the competent authority
Interest Rate
normally 8.25%(its depends upon the depositors amount
and time)
38
II. SAVING BANK ACCOUNTS
A saving bank account is meant for the people of the lower and
middle classes who wish to save a part of their current incomes to meet
their future needs and also intend to earn an income form their savings.
The banks, therefore, impose certain restrictions on the saving bank
account and also offer a reasonable rate of interest. The need of keeping
cash reserves against such deposits is comparatively larger vis-à-vis the
fixed deposits but smaller as against the current deposits, because of the
restrictions on the number of withdrawals. With the extension of banking
facilities during the last decade and the growth of banking habit amongst
the people, the savings deposits of all scheduled commercial banks have
gone up substantially.
39
Payment of Interest: The rate of interest payable by the banks on
deposits maintained in savings accounts is prescribed by the Reserve
Bank. Effective April 1, 2003 the rate of interest on savings deposits has
been reduced from 4.0% to 3.5% per annum. The above rate of interest is
payable irrespective of whether cheque facility is extended or not.
Interest is calculated at quarterly or longer a rests on the minimum
balance to the credit of the account during the period from the tenth day
to the last day of each calendar month on every complete sum of Rs. 10
and is credited to the account. Banks credit interest twice in a year.
The Reserve Bank of India has prohibited the banks to open a
saving account in the name of any trading or business concern company
or an association. The banks should also not open a savings account in
the name of:
1. government departments.
2. bodies depending upon budgetary allocations for
performance of their functions (i.e. which receive grants,
loans, subsides, or subscription to its share capital from
Government).
3. Municipal Corporation/Committees.
4. Panchayat Samitis.
5. State housing boards.
6. Water and sewerage boards/drainage boards.
7. State text book publishing corporation/societies.
8. Metropolitan development authority.
9. State/district level housing co-operative societies.
Saving Account
Features
Free Any Branch Banking facility at all the 26 branches.
Free Utility Bills Payment.
Free ATM facility.
Quarterly interest for Saving Bank Accounts.
Standing Instruction.
Nomination Facility.
Passbook
Eligibility
Nationality Indian
40
Open an Account
Local Residential proof
Affidavit-cum-indemnity
PAN Card
Ration Card
Secondary School Leaving Certificate indicating date
of Birth
Voters Identity Card
Birth Certificate issued by the competent authority
Passport
Interest Rate
Earn Interest @3.5% p.a. every quarter.
41
up to 4% for deposits made up 12 months and 1% below the rate
applicable to a recurring deposit of the period for which the deposit has
actually run in case of deposits are held for over year. The accounts are
transferable from one branch to another without charge.
The recurring deposit account can be opened by any person, more
than one person jointly or severally, by a guardian in the name of a minor
and even by a minor. While opening the account, the depositor is given a
Pass Book which is to be presented to the bank at the time of monthly
deposits and repayment of amount. Instalments for each month should be
paid before the last working day of that month. Accumulated amount
with interest will be payable after a month of the payment of the last
instalment.
Recurring Deposit
Feature
All deposits up to Rs. 1.00 lac covered under DICGS insurance.
Additional 1% Benefits*
LAKHPATI Recurring Deposit
Conventional RD Scheme Available
No TDS on RD Schemes.
Eligibility
Nationality Indian
Open an Account
Local Residential proof
PAN Card
Ration Card
Secondary School Leaving Certificate indicating date of Birth
Voters Identity Card
Birth Certificate issued by the competent authority
Interest Rate
normally 8.25%(its depends upon the depositors amount and time)
42
IV.CURRENT ACCOUNTS.
A current account is a running and active account which may be
operated upon any number of times during a working day. The no
restriction on the number and the amount of withdrawals from the current
account. As the banker is under an obligation to repay these deposits on
demand, they are called demand liabilities of a banker. To meet such
liability the banker keeps sufficient cash reserves against such deposits
vis-à-vis the savings and the fixed deposits. Current accounts suit the
requirement of big businessmen, joint stock companies, institutions,
public authorities and public corporation, etc. whose banking transactions
happen to be numerous on every working day. Special characteristics of
the current account are as follows:
1. A current account is meant for the convenience of his customers,
who are relieved of the task of handling cash themselves and
account differs from the object of other deposit accounts which are
meant to solicit the savings of the people.
2. As the banker undertakes to make payments and to collect the bills,
drafts, cheque, etc. any number of times daily, the operating cost,
i.e, the cost of bank personnel, involved in current account is
considerable. It is, therefore, customary for the banks not to pay
any interest on the credit balance in the current account. The
Reserve Bank directive prohibits the payment of interest on current
account. No countervailing interest is payable on any current
account maintained by a borrower with any bank. Banks may pay
interest on current account of Regional Rural Banks at half per cent
below the borrowing rate fixed for the RRB by the sponsor bank.
Since May 1983, banks have been permitted to pay interest on
balances lying in current accounts in the name of a deceased
depositor from the date of death of the depositor till payment to the
legal heirs. Interest on such amount shall be payable at savings
bank deposit rate.
3. The state bank makes no charge for keeping an account provided
the balance maintained is sufficient to compensate the bank for the
work involved. In case of unremunerative accounts involving lot of
work but without the maintenance of sufficient balance, the banker
charges incidental expense from the customer. The public sector
banks now impose a uniform Ledger folio charge of Rs. 20 per
folio (I.e. one side of the ledger page) on accounts having average
balance below Rs. 25000.
4. A current account carries certain privileges which are not given to
a saving banks account-holder. E.g.
43
(i) Third party cheque and cheque with endorsements
may be deposited in the current account for collection and
credit.
(ii) Overdraft facilities are given in case of current
accounts only.
(iii) The loans and advances granted by the banks to their
customers are not given in the form of cash but through the
current accounts. Current accounts thus earn interest on all
types of advances granted by the banker.
1. Current Account
Features
Free Any Branch Banking facility at all the
26 branches.
Free Utility Bills Payment.
Free ATM facility.
Standing Instruction.
Statement on Demand
Eligibility
Nationality Indian
Open an Account
Local Residential proof
PAN Card
Ration Card
Secondary School Leaving Certificate indicating
date of Birth
Voters Identity Card
Birth Certificate issued by the competent authority
Passport
44
2. Special Current Account
Features
Free Any Branch Banking facility at all the 26 branches.
Free Insurance Cover of Rs. 1.00 lac.
Free Personalized Cheque Books.
Commission free Demand Drafts / Pay Orders.
Free Utility Bills Payment.
Free ATM facility.
Quarterly interest for Saving Bank Accounts.
Standing Instruction.
Statement on demand
Eligibility
Nationality Indian
Open an Account
Local Residential proof
Affidavit-cum-indemnity
PAN Card
Ration Card
Secondary School Leaving Certificate indicating date of Birth
Voters Identity Card
Birth Certificate issued by the competent authority
Passport
Interest Rate
45
are available at
select branches.
Free ABB
Any Branch Banking facility is available absolutely free, across
our 26 branches.
RTGS facility
Remit/ Receive funds through RTGS, instantly at a nominal fee.
You may Open Current Account (after adhering to KYC norms)
with / without
depositing cash / Cheque.
You are entitled to all facilities available to our regular current
account holders.
Interest Rate
46
(2) Introduction of the Applicant: Before opening a savings
or current account in the name of an intending customer, the
banker must get true identity of the former in order to ensure
that he is a respectable person. The banker, thus, reserves the
right not to open an account in the name of a person whose true
identity has not been established or who is considered to be an
undesirable person, e.g., a thief, robber, etc. the application may
be introduced to the banker in any of the three ways:
(i) A respectable person – either a customer of the same branch
of the bank or who is known to the staff of the branch –
introduces him by singing on the application form itself
along with his full address.
(ii) The applicant may give the name of any respectable person
or that of another bank as referee. The banker enquires from
the said referee amount the integrity,, honesty, respectability
and financial standing or the applicant and his past
experience in dealing with the applicant. If the referee sends
no reply, the banker should not open the account unless
satisfactory introduction is given otherwise.
(iii) The reserve bank has advised the banks that pay books or
postal identification cards or identity cards of armed
forces/police/government departments or passports may be
considered sufficient for establishing the identity of persons
desiring to open deposit accounts without cheque facility.
4. Opening the Account: After the above formalities are over the banker
opens and account in the name of the applicant. It is essential that the
applicant deposits some amount at the time or opening an account. The
minimum amount to be initially deposited is Rs. 500 in case of a savings
bank account with cheque book facility . and Rs. 250 without cheque
47
book facility. According to a decision of the Indian banks association,
the minimum initial deposits for opening a current account would be Rs
600 for urban metropolitan branches and Rs 300 for semi urban and rural
branches. This amount will also be the minimum balances to be
maintained by the account holders. The banker, thereafter, provides the
customer with (i) a pay-in-sleep Book (ii) a cheque Book and (iii) a Pass
Book and he is thus authorized to operate the account.
After filling in the all such details on the foil and the counterfoil,
the customer hands over the same together with cashier (in case of cash)
or cheques, etc., to any other responsible officer (in case of cheques) who
acknowledges receipt of the same by signing the counterfoil along with
the stamp of the bank and returns it to the customer. The slip retained by
the bank is passed on to the clerk concerned for making necessary credit
entries in the account of the customer.
(ii) The cheque Book; contains blank forms of cheques which are
uses as an instrument to withdraw money forms the bank. In case of
48
savings bank account a cheque book is provided to only those customers
who undertake to maintain a minimum balance to their credit. Other
customer may withdraw from their saving bank account through a
withdrawal form available from the bank but in the latter case it is
essential that the Pass Book must accompany the withdrawal form every
time. The blank forms of cheques and their counterfoils are serially
numbered. The cheque book also contains a requisition Slip which, dully
filled in, is presented by the customer for obtaining another cheque book
from the bank.
49
(iv) In case of savings bank account, the pass book must
accompany the withdrawal form every time when money is
withdrawn through a withdrawal through a withdrawal form.
Though the pass book contains true and authenticated record of the
customer’s account with the banker, no unanimous view prevails
regarding the validity of the entries in the pass book. The banker may err
in recording the entries in the Pass Book. The question, therefore arises
whether the Pass Book constitutes a conclusive proof of the accuracy of
the entries made therein.
50
Effect of Entries to the Advantage of the customer: The account of a
customer may sometimes wrongly show a credit balance. Which is larger
than he correct balance be ause of duplication of credit entries or
incorrectly entering higher amounts for such entries or due to omission of
any debit entry. The legal position of the banker and his customer shall
be as follows :
(i) The Pass Book is written by the banker and hence the entries therein
may form an evidence against the banker. The customer is rightly
entitled to believe them as correct and to act on the basis of such
entries. If the Pass Book shows a higher balance and the customer
withdraws such balance treating it as his own and sub sequent spends
it away, the banker shall not be entitled to recover such amount
wrongly paid to the customer. But the customer shall have to prove
the (a) he acted in such manner relying on the correctness of the
balance shown in the Pass Book and had no knowledge of the
mistakes there, and (b) he altered his position by sending the same.
This benefit has been given to the customer in various judgments
because of the presumption that normally a person spends what he
presumes to belong to him and if the banker permits him to withdraw
excess money on the above presumption, it would be a great
prejudice to him, if he is called to pay them back.
A lady opened a savings bank account in state bank of India with the
introduction by an employee of the bank, who was a close neighbor and
fast friend of her husband. The customer entrusted to the said employee
moneys and cheques, duty endorsed, for being credited to her account.
The employee misappropriated the same and to cover up his fraud made
false entries in the pass book. It was argued on behalf of the customer
in the savings bank account t had admittedly been made by the
employee of the bank. It was further pointed out that this employee had
manipulated the accounts of three other depositors also and the bank
had reimbursed those customers for the loss. It was urged that the
entries in the Pass Book were prima facie sufficient to establish of the
customers claim.
The bank argued that the customer had entrusted the employee
situation the employee could not be said to have been acting in due
course of his employment or as an agent of the bank. He was only
agent of the customer. If he did not deposit those amounts as directed
by the customer and misappropriated the same and to cover up his fraud
made false entries in the pass book, the bank could not be held liable for
the loss.
52
course of the bank’s business, i.e., whether the employee acted as an
agent of the customer or of the bank in the course of employment.
It was established that the said employee was not, at the relevant
times, in charge of the savings bank counter at which the savings
account of the customer was dealt with. In such a situation he acted as
an agent of the customer or of the bank in the course of employment.
It was established that the said employee was not at the relevant
times, in charge of the savings bank counter at which the savings
accoun6t of the customer was dealt with. In such a situation he acted as
an agent of the customer. His act of misappropriation could not be said
to have been committed in the course of his employment with the bank,
Similar, it cannot be said that false and fictitious entries made by the
employee to cover up his fraud made the embezzlement an act
committed by the employee in the course of his employment with the
bank. The bank was, therefore, not held liable to make good the loss
caused to the customer.
3. The customer must tally the entries, otherwise the either the account
books or the counterfoils of pay-in-slips and cheques, etc. If any
inaccuracy is found, the customer must inform the bank immediately
rectified.
53
4. While sending the pass book to the customer, the banker should take
steps to ensure the secrecy of its contents. The Pass Book must be
sent in a closed cover.
(2) Cash Certificates: These certificates are issued with different face
values payable after specified maturity period. The issue prices for
different maturity period are specified in advanced; fir example one
can get a cash certificate with face value of Rs. 100 after 12
months by paying its discounted value. Thus interest is payable on
maturity.
(3) Multi Option Deposit scheme. State bank of India has introduced
this scheme to provide liquidity to term deposits are accepted in
conjunction with savings bank/current a/c or both. The facility
withdrawal is permissible in units o rs 1000 through savings bank
a/c without attracting any penal rate of interest. Remaining amount
continues to earn interest at contracted rate
(4) Savings accounts linked with fixed deposits. Under this scheme
the depositor specifies the maximum amount in his savings bank
account. Beyond which the balanced is to be automatically
54
transferred to a fixed deposit account the maturity of which is
decide by him.
(5) Super savings account. Bank of Baroda has launched this scheme
wherein range of benefits are given to depositors.
Feature
Free Any Branch Banking facility at all the 26 branches.
Free Insurance Cover of Rs. 1.00 lac.
Free Personalized Cheque Books.
Commission free Demand Drafts / Pay Orders.
Free Utility Bills Payment.
Free ATM facility.
Quarterly interest for Saving Bank Accounts.
Standing Instruction.
Nomination Facility.
Passbook
Eligibility
Nationality Indian
Open an Account
Local Residential proof
Affidavit-cum-indemnity
PAN Card
Ration Card
Secondary School Leaving Certificate indicating date of Birth
Voters Identity Card
Birth Certificate issued by the competent authority
Passport
55
Interest Rate
Earn Interest @3.5% p.a. every quarter.
Feature
Free Any Branch Banking facility at all the 26 branches.
Relaxation in Minimum balance requirement.
Overdraft facility up to 4 times of Net Monthly Salary.
Free ATM facility.
Quarterly interest for Saving Bank Accounts.
Standing Instruction.
Nomination Facility.
Passbook
Eligibility
Nationality Indian
Open an Account
Local Residential proof
PAN Card
Ration Card
Secondary School Leaving Certificate indicating date of Birth
Voters Identity Card
Birth Certificate issued by the competent authority
Passport
56
CLASSIFICATION OF DEPOSITS :DEMAND AND
TIME DEPSITS
The reserve bank of India publishes the classification of deposits with the
commercial banks under two broad heads, namely (i) Time deposits, (ii)
demand deposits. The various types of deposits included in these heads
are as follows:
The deposits include (i) current deposits, (ii0 dement liabilities
portion of savings bank deposits, (iii) margins held against letter of
credit/guarantees 9if payable on demand). (iv) balances in overdue fixed
deposits, cash certificates and recurring deposits, (v) outstanding
telegraphic and mail transfers, demand drafts, (vi) unclaimed deposits,
(vii0 credit balances in cash credit accounts and (viii) deposits held as
security for advances which are repayable on demand.
Time deposits include (i) fixed deposits, (ii) cash certificates
recurring deposits, (iii) time liabilities portion of savings bank deposits,
(iv) staff security deposits (v) margins held against letter of credit if not
payable on demand and (vi) fixed deposits held as security for advances.
It is to be noted that the savings deposits are apportioned in both of
the above categories. The portion which can be withdrawn without
notice is treated as demand deposits and the rest as time deposits.
FACILITY OF NOMINATION
The banking laws (Amendment) Act, 1983 inserted a new section 45 ZA
in the banking regulation Act, 1949 to provide for the facility of
nomination by depositors in banks.. The above section and the rules
framed there under provide as follows:
(1) A single depositor may nominate, in the prescribed manner, a
person to whom, in the event of the death of the depositor, the
amount to his credit may be paid by the banking company
(2) In case of a joint account, all the depositors together may nominate
a person to whom, in the event of death of all the joint depositors,
the amount to their credit may be paid by the banking company.
Thus the nominees’ right to receive deposit money arises only after
the death of all the depositors. There cannot be more than one
nominee in respect of a joint account.
57
(4) Nomination facility is available to all types of deposit accounts,
including the accounts opened for credit of pension.
(5) Such nomination confers upon the nominee the right to receive the
amount of deposit from the banking company. On the death of the
depositor/all the joint depositor, the nominee shall become entitled
to all the right of the letter to such deposit, to the exclusion of all
other person.
(9) The right or claim of any other person against the nominee, to
whom any payment is made under this section, shall not be
affected by such payment.
58
company be bound by such notice even through expressly given to
it.
The above provision in the act have been made to facilities expeditious
settlement of claims in the accounts of decreased depositors and to
minimize the hardship caused to the family members on the death of the
depositors.
59
SPECIAL TYPES OF BANKER’S
CUSTOMERS
A banking institution solicits deposits of money from the members
of the public. An account in a bank for this purposes may be opened by
any person who (i) it is legally capable of entering into a valid contract,
(ii) applies t the banker in the proper manner, i. e., he follows the
procedure laid down by the banker, and (iii) accepts the terms and
conditions stipulated by the latter. The banker however possesses the
right to reject an application for opening an account, if h is not satisfied
with the identity of the applicants, i.e., if the latter is deemed to be an
undesirable person. Some persons like the minor’s lunatics and
drunkards are not competent to enter into valid contracts. Some persons
who act on behalf of others have limited powers t contract e.g., the agents
trustees, executors etc, Institutions like schools, colleges, clubs, societies,
and corporate bodies are the impersonal customers of a banker. The
authority, powers and functions of the persons managing these
institutions are embodied in their respective constitution. The banker
should therefore take special care and precautions to ensure that the
accounts of these institutions are being conducted in accordance with the
provisions of their respective charters. The present chapter discusses the
legal position f the special cases of a bank’s customers and the necessary
precautions that a prudent banker should take while dealing with them.
MINOR
Person who has not completed 18 years of age is a minor. If a
guardian of his person or property is appointed by the court before he
completes 18th year, he remains minor till he completes his 21st year.
According to the Indian contract act 1872, a minor is not capable of
entering into a valid contact and a contract entered into by a minor is void
A contract fir the supply of necessaries of lire to a minor is however, a
minor is however a valid contract. In case of all other contracts In case of
all other contracts, a minor ism repudiate his promise or consent. A
banker should, therefore be very careful in dealing with a minor and take
the following precaution
60
1. The banker may open a saving bank account (and not a current
account) in the name of a minor, in any of the following ways:
(i) In the name of the minor, t be operated upon by the
national guardian of the minor or the guardian appointed by the
court. Such account can also be opened in the joint names of two
or more minor, to be operate upon by the guardian.
(ii) In the name of the minor, to be operated upon by himself
if he has attained the age of 12 years. Two such minors can jointly
open such an account, to be operated upon by them jointly.
2. The bank records the date of birth of the minor as given by the
minor or his her guardian. On the attainment of majority, the account
of the moor in the name of the guardian should be closed and the
balance paid to the minor (then major) or be transferred to a new
account in his/her own name. In case of joint account the minor is
also permitted to operate the account and his signature is taken on the
account opening form.
3. The legal provisions regarding guardianship are discussed later. If
the father of a Hindu minor dies his mother becomes his natural
guardian. After the death of the mother, during the minority of the
boy there is either the testamentary guardian or the guardian appointed
by the court. The banker may return the money to such guardian.
4. In case the minor dies, the balance in the account is permitted to be
withdrawn by the guardian and in case of joint account the balance
will be held at the absolute disposal of the guardian.
5. No risk is involved if an account is opened in the name of a minor
so long as the account is not overdrawn by the member, But if an
overdraft or advance is granted to a minor, even by mistake or
unintentionally, the banker has no legal remedy to recover the amount
from the minor, the assets of a minor pledged with the banker as
security for the advance taken by the minor are note legally available
to the banker because such pledge itself is invalid. The banker shall
have to return these securities to the minor and he cannot exercise his
right of sale in case of default by the minor.
6. If an advance is granted to a minor on the guarantee of a third
party, such advance cannot be recovered from the guarantor also
because the contract of guarantee is invalid on the ground that the
contract between the creditor and the principal debtor (minor) itself is
a void contract. According to section 128 lf the Indian contract act,
1872 the liability of the surety is co-extensive with that of the
principal debtor, unless it is otherwise provided by the contract. The
surety, therefore, cannot be held liable on a guarantee given for default
61
by a minor. According to the law a minor cannot enter into a valid
contract and he cannot undertake a liability upon himself. Thus he
cannot default. Surety’s liability is a secondary one and does not
arise, if the liability of the primary debtor does not arise. In Edavan
Nambiar vs. Moolakai Raman (A.I.R. 1956 Madras 164) the Madras
High Court also upheld the above viewpoint. The liability of a surety
is ancillary. It materializes if there is a valid obligation on the part of
the debtor whose debt or obligation is guaranteed. However, if the
contract of guarantee specially provides contrary to the above, the
guarantor may be held liable for the debts of a minor.
But if a minor enters into an agreement by representing himself as
major and later on claims such a contract as void on account of his
minority at the time of entering into contract, the minor must restore the
benefit derived by him under the agreement. In M/S Thiry Ariiram Sugars
Ltd. Vs State bank of India, the high court observed as above on the bases
of section 65 of the Indian contract act which states the “when an
agreement or contract is bounded to restore it or to make compensation
for it to the person from whom he recovered it”.
ILLITERATE PERESONS
Illiterate persons cannot sign their names and hence the bankers
take their thumb impressions as a substitute for signature, and also a copy
of their recent photograph. The application form and the photograph
should be attested by an approved witness. For withdrawing money, he
must attend personally and affix his thumb impression in the presence of
an official of the bank, for the purpose of identification.
LUNATICS
According to the Indian contract act. 1872, a person of unsound
mind is not competent to enter into a valid contract. A person is said to
be of sound mind for the purpose of making a contract if he is capable of
understanding it and of forming a rational judgment as to its effect upon
his interests (Section 12). It is important that he should be of sound mind
at the time he enters into a contract. If a person is usually of sound mind
but occasionally of unsound mind, he cannot enter into a valid contract
when he is of unsound mind. A contract entered into by a person of
unsound mind is a void contract according to the Indian Contract Act,
1872.
63
of his lunacy till he gets the proof of his sanity or is served with an order
of the court.
TRUSTEES
According to the Indian Trusts Act, 1882, a ‘trust’ is an obligation
annexed to the ownership of property, and arising out of a confidenc3e
reposed in and accepted by the owner, or declared and accepted by him,
for the benefit of another, or of another and the owner (section 3). The
person who reposes the confidence is called the author of the trust.
Trustee is the person in whom the confidence is reposed. The person for
whose benefit the trust is formed is called the beneficiary. A trust is
usually formed by means of a document called the ‘Trust Deed’. While
opening an account in the names of persons in their capacity as trustees
the banker should take the following precautions:
65
“ABC executor (or administrators) to the estate of XYZ deceased”
66
JOINT PERSONS ACCOUNT
When two or more persons open an account jointly, it is called a joint
account. Such an account may be opened by any two persons for the sake
of convenience of operation of account and also for withdrawal of money
after the death of any one of them. The banker should take the following
precautions in opening and dealing with a joint account
67
4. Any joint account holder (including the one who is not authorized
to operate the account) can stop payment of a cheque issued on a joint
account. Banker must honour such order even if an agent or attorney
has been appointed to operate the account-holder.
68
9. The persons opening a joint account are also required to give a
mandate, in the application form itself, specifying the person to whom
the balance in the account shall be payable. The balance in a joint
account may be a payable to:-
(i) both or all of them or the survivor or survivors of them; or
(ii)either or any one or more of them or the survivor or survivors
of the
The balance in the joint account shall be payable to all the joint
account-holders together, if the instruction is given in form (i) above
and to any one of them if it is in form (ii) in both the cases, if one of
the joint account holders dies, the balance is payable to the survivors.
The above instruction is given by all the joint account-holders.
Hence any one of them is competent to revoke it in writing,
Thereafter the banker will treat the account as one without such
instruction and the amount from the account will be payable on the
discharge of all the joint account holders.
69
amount. Thus in case of conflicting claims, the banks may ask for the
production of legal representation.
In Jrushanadas Nagindas Bhate vs. Bhagwandas Ranchhoddas and
others (A>I>R> 1976 Bom. 153). The Bombay high court uploading the
above, observed that-
“ In respect of a joint account opened in the bank, the lw seems to
be well settled that on the death of one, there is a resulting trust in favour
of his heirs and legal representatives, unless there are special facts and
circumstances to show contrary intention.” The High Court further held
that “if from the facts and circumstances of the case could be held that
the intention was to make the survivor the owner of the amount lying in
the account, them he and not the heirs would be entitled to recover the
amount. If the facts and circumstances of thecase do not establish any
such intention, although the holder of the joint account may be
authorized to withdraw the amount, he would be bound to restore that
amount to the heirs and legal representatives of the deceased joint
holder. The bank may be discharged by payment to the survivor. But the
survivor may in the absence of an intention to make him the owner, be
accountable to the heirs of the deceased joint holder”. The High Court
also rejected the rule of joint account of the state bank of India making
the survivor the absolute owner of the amount lying in credit of the
account.
In padmanabhan Bhawani and other vs Govindan Bhargava and
another (A.I.R. 1975 Kerala 83) the High court held that on the death of
the depositor the amounts deposited in the joint names, payable to either
or survivor, could not be treated as a gift to the survivor because the
depositor continues to be the owner of the amounts in question till his
death. In such cases without any declaration of tryst, there is a resulting
trust in favors of the depositor in the absence of any country intention or
unless it can be proved that an actual gift of the amount was intended.
The burden of proving a contrary intention of gift is on the person who
seeks to rebut the resulting trust in favour of the person who makes the
deposits.
Above the rule the rule of the banks that on the death of one, the
account would be converted into a single account to be operated by the
survivor, the high court observed that such provisions were designed only
to regulate easy operation of accounts and payment of money to the
survivor. The provisions did not touch the right inter se among the
depositors or the rights of inheritance.
70
JOINT HINDU FAMILY
PARTNERSHIP FIRM
A partner ship is not regarded as an entity separate from the
partners. The Indian partnership act 1932, defines partnership as the
relation between persons who have agreed to share the profits of the
business, carried on by all or any of them acting for all. A partnership
firm is thus established by an agreement among the partners. This
agreement may be oral or written. The object of constitutions a
partnership firm must be oral or written. The object of constitutions a
partnership firm must be to –
(i) carry on a business which may be conducted by all the partners
or any of them on behalf of the rest, and
(ii) to share the profit of such business amongst themselves. The
partnership deed contains the details of the agreement reached between
the partners. The Indian partnership act 1932 lays down the general
provisions which govern a partnership business. A banker should take the
following precautions while opening an account in the name of a
partnership firm.
71
1. Number of partners:- The banker should very care fully examine
the partnership deed, which is the charted of the firm, to acquaint himself
with the constitution and business so the firm. The banker should see
that the number of partners does not exceed the statutory limit.
According to section 11 of the companies ace 1956 a partnership firm
consisting of more than 10 persons for the purpose of carrying on
banking business and of more than 20 persons for the purpose of carrying
on any other business for the acquisition of gain or profit, shall be an
illegal association unless it is registered under the companies act 1956, or
is formed in pursuance of some other Indian law or is a joint Hindu
family carrying on such business. If the number of partners exceeds
these limit, the partnership becomes an illegal association of persons,
which cannot enter into any contract, and cannot sue or be sued. The
banker must refuse to open an account in the name of a firm in such
cases. The minimum number of partners in a firm must be two excluding
a minor partner who is not competent to enter into a contract. A minor
may be admitted into the partnership with the consent of all other
partners but he shall not be liable for the losses or debts of the firm. The
banker should note the date when the minor partner will attain majority
so that a fresh partnership letter signed by him and other partners is
obtained by the banker.
2. title of the firm’s account: A firm account should always be
opened in the name of the firm and not in the name or names of the
individual partner/partners.
3. Opening of an account: An account in the name of a firm may be
opened by a banker on receipt of an application from one or more of the
partners. Bankers, however, insist that all the partners should join to
open the firm’s account. If any partner has gone out of the country, the
rest of the partners can open a bank account in the mane of the firm.
Specimen signatures of all the partners should also be taken for the
purpose of record. But if any of the partners is deprived of the right to
open an account in the firm’s name and this fact is within the knowledge
of the banker, he should not open the firm’s account at the request of
such partner. The banker should, therefore, conform the right of the
72
applicant/s to open an account6 in the name of the firm the partnership
deed or from any other available evidence
4. The partnership latter or mandate : the banker should take a latter
signed by all the partners starting
(i) the manes and addresses of the partners;
(ii) the nature of the business undertaken by the firm;
(iii) the name/s of the partner/s who will operate the account
on behalf of the firm and will have the authority to draw and accept bills
etc., and to sell and mortgage the property of the firm.
The banker should honour the cheques signed by all the partners or by
those partners who are authorized to operate the account.
Death of a partner:
If a partner dies, the firm stands dissolved automatically, if an
agreement to the contrary does not exist. It means that the firm is not
dissolved on the death of a partner if the partnership deed specifically
provides for this. The deceased partner’s heirs cannot succeed him as
partners. They can demand the share of the deceased in the firm from the
73
surviving partners, or they may be admitted as new partners by the
existing partners.
If the firm stands dissolved on the death of a partner, the banker must
close the firm’s account immediately on receipt of the intimation about
the partner’s death. This is important if the firm’s account shows a debit
balance at the time of a partners death because the latter’s estate would
be liable to pay the debts incurred by the firm before his death. Hence to
determine the liability of the deceased partner, the banker should close
the account of the firm soon after the death of a partner, if he defaults in
doing so, the rule in Clayton’s case will apply.
If the firm does not stand dissolved. It is reconstituted by the
surviving partners with or without the admission of a new partner. The
banker should open a new account in the name of the reconstituted firm
and obtain a fresh mandate and unde5rtaking from the partners in any
case the cheques drawn by the deceased partner should not be honoured b
the namely without confirmation from the surviving partners.
Retirement of a partner:
When a partner retires his liability towards the banker or any
other third party ceases in respect of all transitions undertaken subsequent
to the date of his retirement, the retiring partner continues to be liable for
the transactions of the firm even after the date of his retirement. The
retiring partner should give a public notice for this purpose to terminate
his liability to the third parties.
If the bank account of the firm at the time of retirement of a partner
shows a debit balance. The banker must close the account of the firm, in
order to retain his right to claim money from the retiring partner. If this
is not done, the rule in Clayton’s case will apply, If an account shows a
credit balance, the banker need not close it but the cheques drawn by the
retiring partner should be honoured after securing confirmation from
other partners,. On the opening of a new account or on the continuance
of the existing account after the retirement of a partner, a fresh mandate
should be taken from the partners of the new firm.
Insolvency of a partner:
In case of insolvency of a partner the partnership comes t an end, if an
agreement to the contrary does not exist. The insolvent partner ceases to
be a partner with effect from the date he is declared as insolvent and he
shall not be liable to the firm for any of its transactions thereafter. The
insolvent partner does not remain competent to operate the firm’s
account. The solvent partner can operate the account for winding up the
74
affairs of the firm. The banker should honour the cheques drawn by the
insolvent partner before his adjudication only after getting confirmation
from the solvent partners. Bankers usually close the account of the firm
and open a new account in the name of the reconstituted firm to
determine the liability of the insolvent partner. Otherwise the rule in
Clayton’s case will apply.
1. Examination of documents:
As company is an artificial person, its constitution, powers and
objectives, rules and regulations, etc, are contained in the following
important documents. The banker should thoroughly and carefully
examine these documents. The banker should thoroughly and carefully
examine these documents:
(i) Certificate of Incorporation certificate and
Commencement of Business: These certificates, issued by the
registrar of the companies, provide conclusive proof that the company
is a duly incorporated body and the necessary formalities regarding its
formation have been fulfilled by the promoters. A private limited
company is not required to obtain the certificate of commencement of
business. On its registration under the companies act a company is
given recognition as an entry separate from its members and acquires
all powers to enter into contracts and to commence its business. The
baker should ensure from these certificates that the company applying
for opening an account is a duly registered and incorporated body.
(ii) Memorandum of Association: The memorandum of
association is the main documents of a company, which embodies its
constitution and is called the charter of the company. It contains the
name of the company. It’s authorized capital the name of the state in
75
which the registered office of the company is to be situated, the objects
of the company and the liability of its members. This is generally
limited to the extent of their shareholdings. The banker should
examine the memorandum specially to note objective for which the
company is incorporated because any contract entered into by a
company which serves an object other than the objects mentioned in
the memorandum is unenforceable at law and ultra virus, such a
contract cannot be ratified by the members of the company at their
meeting even by a unanimous vote.
(iii) Articles of association: The articles of association
contain the rules and regulations of a company regarding its internal
management. It contains in detail all matters which are concerned with
the conduct of day-to-day business of the company.
76
All joint stock companies engaged in trade or industry have the
implied power to borrow money for the purpose of carrying on their
businesses. The borrowing power of the company may be restricted by
its memorandum of association. Section 293 (1) (d) of the companies
act 1956, provides that the board of directors of a public company or of
a private company which is a subsidiary of a public company shall not,
except with the consent of such public company or subsidiary in
general meeting, borrow money in excess of the aggregate of the paid-
up capital of the company and its free reserves, i.e., reserves not set
apart for any specific purpose, The temporary loans obtained from the
company’s bankers in the ordinary course of business are excluded in
computing total borrowing of the company for this purpose. The term
temporary loan’ means loans repayable on demand or within six
months from the date of the loan ; such as, short term cash credit
arrangement, the discounting of bills and other short term loans of
seasonal character, but des not include loans raised for the purpose of
financing expenditure of capital nature. Thus the limit imposed by
section 293 (10 (d) does not apply to the short term and seasonal loans.
Fir borrowings in excess of this limit, a resolution shall specify the
total amount up to which money may be borrowed by the board of
directors.
78
assets ranking above or at par with the charge in favour of the debenture
holders. A charge by the company subsequently will, therefore, not have
priority over the earlies charge. The banker should therefore. Be very
careful in finding out the existence of any prior charge over the assets of
the company by inspecting the register of charges. Which every
company is enquired to maintain at its registered office.
79
(c) giving any other directions for the operation of the
said account
A copy of the resolution must be obtained by the bank for its
own record.
80
CONCLUSION
The empirical evidence on various aspects of relationship banking
is rather mixed in most cases, a fact which may be attributable partly to
the difficulty of defining relationship banking in practice.
81
even though they may no longer rely on bank loans. A universal banking
system requires strengthened prudential regulation to deal with the
increasing scope for banks’ abuse of conflicts of interest. The challenge is
substantially larger if the banks are controlled by family-based
conglomerates.
82
ANNEXURE
• MINOR
83
• MARRIED WOMEN
• TRUSTEES
• JIONT PERSONS
BIBLOGRAPHY
BOOKS:-
BASICS OF BANKING
(TAXMANN)
84
WEBSIDES
www.ask.com
www.jksbl.com
www.indianfoline.net
www.tcs.com
85