Banking law and operations

1. CHAPTER 4
CUSTOMERS AND ACCOUNT HOLDERS
PREPARED & PRESENTED BY
HIMANI R.

2. LAYOUT
 Types of customers and account holders
 Procedure and practice in opening and conducting of
account of different customers including minors
 Meaning and operation of joint account holders
 Partnership firms
 Joint stock companies
 Executors and trustees
 Clubs and associations and joint Hindu family 2PREPARED BY: MS. HIMANI R.

3. TYPES OF CUSTOMERS
 Customer: Only those persons who are
competent in law to enter into a contract.
 An individual, a corporate body, a firm can
open account with the bank.
 There are 2 types of customers of the banks
 Ordinary Customers: Who are competent to
enter into a contract under the laws of land.
 Special Customers: they have some special
features than ordinary customers. They are to
be dealt with carefully while opening and
3PREPARED BY: MS. HIMANI R.

4. SOME SPECIAL TYPES OF CUSTOMERS ARE:
 Minor
 Partnership firms
 HUF
 Joint Stock
Companies
 Joint account
holders
 Married women
 Pardanasheen
women
 Lunatics
 Insolvents
 Executors and
Administrators
 Trusts
 Clubs and
Associations
4PREPARED BY: MS. HIMANI R.

5. MINOR
 A person who has not completed the
age of 18 years where a legal guardian
is appointed by the court of law.
 According to the Indian Contract Act
1872, a minor is not capable of entering
into a valid contract and a contract
entered into by a minor is void (invalid).
 A contract for the supply of necessities
of life to a minor is however a valid
contract.
5PREPARED BY: MS. HIMANI R.

6. CONTINUED
 As per Sec.4 of “The Guardians And Wards Act,
1890” "guardian" means a person having the
care of the person of a minor or of his property
or of both his person and property.
Guardians is categorized into following three
types:
(i) Natural guardian,
(ii) Testamentary Guardian: -Guardian
appointed by the will of the minor's father
or mother,
(iii) Guardian appointed by a court under the
Guardians and Wards Act, 1890.
6PREPARED BY: MS. HIMANI R.

7. PRECAUTIONS TO BE TAKEN BY BANKER WHILE
DEALING WITH MINOR ACCOUNTS
 Banker may open savings account and not a
current account
 In the name of minor, to be operated upon by the
guardian or even a joint account can be opened with 2 or
more minors
 In the name of minor to be operated by him if he has
attained 12 years of age.
 If the father of a Hindu minor dies his mother
becomes a natural guardian
 The bank should record date of birth of the minor
and keep some school record. On majority the
7PREPARED BY: MS. HIMANI R.

8. CONTINUED
 Banks should be cautious to issue cheque
books to minors of say 16 or 17 years of age
 Accounts for illiterate minors are not opened in
their single name
 Banks adopt a general rule not to accept
deposit exceeding a particular sum
 In case the minor dies the balance can be
withdrawn by the guardian
 A minor’s account should never be allowed to
be overdrawn
8PREPARED BY: MS. HIMANI R.

9. CONTINUED
 If an advance is granted to a minor on a 3rd
Party guarantee such advance cannot be
recovered from the guarantor also
 A minor may draw, endorse or negotiate a
cheque or a bill but he cannot be held liable on
such cheque or bill.
 A minor may be appointed as an agent to act on
behalf of his principal but he cannot be held
responsible to his principal. 9PREPARED BY: MS. HIMANI R.

10. PARTNERSHIP FIRMS
 Indian Partnership Act: 02 to 20
 For banking: Restricted to 10
 Registration not compulsory but advisable
 Can open accounts except savings bank
account
 Account in the name of the firm and not
partners’
 Who can operate the account?
 On retirement of a partner the bank closes the
account
10PREPARED BY: MS. HIMANI R.

11. HINDU UNDIVIDED FAMILY
 The Hindu Succession Act 1956 governs HUF
 HUF carries out ancestral business and possesses
ancestral properties
 As per Hindu Law two schools of thought, Dayabhaga and
Mitakshara govern Hindu undivided family.
 In west Bengal Dayabhaga is followed and in the rest of
the country Mitakshara is followed.
 In Dayabhaga the father acquires absolute right and sons
do not acquire any right by birth in Mitakshara a male
member acquires the right by birth.
 Female members are not co-parceners except in Tamil
Nadu and Andhra Pradesh.
11PREPARED BY: MS. HIMANI R.

12. CONTINUED
 The eldest male member is called as a Karta and all
other male members are called as co-parceners.
 The right to manage HUF property vests in the 'Karta' of
the family.
 Karta is either the father or the senior most male member
of the family.
 All other male members are called coparceners.
 In the interest of the family and family business, only the
Karta can create a charge over the ancestral property.
 However, he cannot make a contract, which binds the
other member personally.
12PREPARED BY: MS. HIMANI R.

13. CONTINUED
 Other members are responsible to the extent of their share in
the ancestral property.
 HUF is not dissolved In the event of death of one of the
members of the joint Hindu family.
 On the death of karta the senior most co-parcener becomes
karta.
 A coparcener continues to be a member of HUF, even after his
migration outside India and acquiring status of NRI or taking
citizenship of another country.
 If the Karta himself migrates, an alternative Karta of the HUF
is appointed by the HUF with consent from all coparceners.
13PREPARED BY: MS. HIMANI R.

14. JOINT STOCK COMPANIES
 A joint stock company is constituted under Company Act
1956.
 It is a voluntary association of persons formed for some
common purpose with capital divisible into parts known as
share.
 It has separate legal entity and corporate personality.
 Documents required for opening an account:
1. Account opening form
2. Certified copies of memo of association and articles of association
3. Copy of certificate of incorporation
4. Certificate of commencement of Business
5. Up-to-date list of directors with name and address
6. Certificated copy of a resolution of the Board of directors for
opening and conducting the account.
14PREPARED BY: MS. HIMANI R.

15. CONTINUED
Public Ltd. Co. Private Ltd. Co. Government Co.
It can issue shares to public It can not issues shares to
public.
A company where not less
51% of the share capital is
held by the government.
Minimum number of
shareholders required is 7
Minimum number of
shareholder required is 2
Depending upon the liability
of shareholders the
Company it may be limited
or unlimited.
There is no restriction in the
maximum number of
shareholders
Maximum number of share
holders can be 50.
Shares can be freely
transferred
Shares are not freely
transferable.
Minimum number of
directors required is 3
Minimum number of
directors required 2.
Requires certificate of
commencement of
It does not require
certificate of
15PREPARED BY: MS. HIMANI R.

16. JOINT ACCOUNT HOLDERS
 It is a bank account shared by 2 or more
individuals.
 Any individual is a member of joint account
can withdraw from the account and deposit
to it.
 Usually shared between close relatives or
business partners.
 Care to be taken when number of account
holders is large or when the amount is
16PREPARED BY: MS. HIMANI R.

17. MARRIED WOMEN
 Section 14 of the Hindu Succession Act, 1956 provides
that property of a Hindu female shall be her absolute
property.
 A Married woman has a legal entity of her own, which is
separate from her husband.
 At the time of opening the account in the name of a
married woman the name and occupation of her
husband, details of his employer is obtained and
recorded.
 A married woman can make her husband liable for the
overdraft enjoyed by her
o If she borrows money for the necessities of her life,
o If she borrows for the necessaries of her household,
17PREPARED BY: MS. HIMANI R.

18. PARDANASHEEN WOMEN
 A pardanasheen woman is one who puts a veil and does not
show her face to people /outsiders and observes complete
seclusion.
 Even they do not pose for photographs.
 Contract entered into by a Pardanasheen Woman is not a
contract free from all defects.
 Banks generally refuse to open accounts in the name of
Pardanasheen Women, because identity of Pardanasheen
Women cannot be ascertained as she observes complete
seclusion.
 However, if under special circumstances, such an account is
opened, two respectable persons known to the branch,
attest the signatures on the account opening form and on
18PREPARED BY: MS. HIMANI R.

19. LUNATICS
 As per Contract Act, a person of unsound mind is not
capable of entering into a valid contract.
 Banks therefore, do not knowingly open an account in the
name of a person of an unsound mind.
 In case of an existing account, as soon as the information
about insanity of the accountholder is received, banks
suspend / stop operations in the account and do not pass
cheques.
 When the proof of customer's sanity is received, operations
in the account are resumed.
 An account in the name of a lunatic person can be opened
or operated only by a guardian appointed by a Court.
19PREPARED BY: MS. HIMANI R.

20. INSOLVENTS
 A person when fails to pay his debts is declared insolvent
by the court.
 As soon as a person is declared insolvent, operations in
his existing account is stopped forthwith and balance of
such accounts are disposed as per the instructions of the
Official Receiver by the Court.
 Banks do not open insolvent’s account nor advance money
to an un-discharged insolvent.
 During the pendency of insolvency proceedings, no
creditor can have any remedy against the property of the
insolvent in respect of his debts or commence any suit or
legal proceedings against the property without the order of
20PREPARED BY: MS. HIMANI R.

21. EXECUTORS AND ADMINISTRATORS
 Executors and administrators are persons appointed by a
person through a will to manage the affairs of his estate after
his death.
 The person appointing an executor in his will is known as
testator.
 There can be more than one executor or administrator.
 If the person has not appointed any one to manage the affairs
of his estate after his death court appoints administrator for
the purpose.
 Banks generally do not permit an executor to deal with the
moneys or securities of the deceased until he produces the
probate as the evidence for his title.
 In law, executors and administrators constitute a single
21PREPARED BY: MS. HIMANI R.

22. TRUSTEES OR TRUST ACCOUNTS
 “A trust is an obligation annexed to the ownership of
property, and arising out of confidence in and
accepted by the owner, or declared and accepted by
him, for the benefit of another, or of another and the
owner.”
 Bank opens trust accounts for good parties. A trust
can be public or private.
 All public trusts are required to be registered with
the Charity Commissioner under Public Trust Act of
the respective state.
22PREPARED BY: MS. HIMANI R.

23. CONTINUED
 Banks open trust accounts after taking all precautions.
While opening account of a trust, bank obtains
o Copy of constitution of the trust
o Trust deed if available,
o Certificate of registration and/or a certified copy of the entry
of the public trusts register
o Public Trust Register No
o A list of the current trustees and the authority appointing
them as trustees.
o The necessary resolution passed by the trustees for opening
the account with the bank.
o Certified copy of the resolution signed by all the trustees in
regard to the conduct of the account.
23PREPARED BY: MS. HIMANI R.

24. CLUBS AND ASSOCIATIONS
 A club or a society gets legal entity only when it is
incorporation under Company’s Act, 1956 or under
Cooperative Societies Act, 1860.
 Byelaws of the clubs, and association contain rules,
regulations or conduct and activities of the association.
While opening account banks obtain:
o Copy of the byelaws;
o Copy of resolution passed by the managing committee
regarding opening and conduct of account,
o Certificate of registration in original,
o A list of the Managing Committee members
o Copies of resolutions electing them as Committee
members duly certified by the Chairman
24PREPARED BY: MS. HIMANI R.

25. 25PREPARED BY: MS. HIMANI R.