unit -1 vvn degree college
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UNIT -1
(A)Banker and customer relationship
(B) Customers and Account holders
Meaning of Banker :
An institution which trades in money, establishment for the deposit, custody and
issue of money as also for making loans and discount and facilitating the
transmission of remittance from one place to another
As per sec 3 of the Indian Negotiable Instruments Act 1881, the work
“ banker includes any person acting as banker and any post office saving bank”
Sec 5 ( c) of Banking Regulation Act defines “ banking company” as a company
that transacts the business of banking in India. Since a banker or a banking
company undertakes banking related activities we can derive the meaning of
banker or a banking company from Sec 5(b)as a body corporate that :
Accept deposits from public
Lends or
Invests the money so collected by way of deposits
Allows withdrawals of deposits on demand or by any other means.
Meaning of customer:
A customer is one who has an account with a banker or for whom a banker
habitually undertakes to act as such “
In order to constitute a customer, a person should satisfy the following
conditions :
person should have a bank account in his own name
The dealing between banker and the customer should be related to banking
business
A human being, firm, joint stock company, society or any separate legal
entity may be a customer of a banker
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Features of bank
Bank should deals with money : Bank is a financial institution and which deals
with money which belongs to public and its own . Here bank utilizes public
deposit in maximum extent to gain profit
Acceptance of deposit : Acceptance of deposit is another main features of the
bank, it should accept the deposit from the public through various schemes
Lending loan: Lending loan is another feature of the bank. It has to properly
allocate the available resources i,e. Money, in order to gain profit and ensure
returns to its customers, bank must lend loans to needy people for the return
called interest
Name identity : Bank should add the word “ Bank” to its name to enable it as
bank
Banking business: Banking business should be the main activity of the bank, it
should accept money and lends to needy people along with that it should
perform certain agency functions to its customer. These are the main banking
business activities
Bridge between savers and borrowers :Bank creates bridge between savers and
borrowers. It pools money from the public and lends it to needy group. Hence
bank connects link between savers and borrowers
Profit motives through services : Banking is a profit motive institution which
earns profit through various financial services.
Functions of Bank:
Primary functions : Are the basic or fundamental functions executing by a
commercial bank which give birth to all other additional or modern functions.
These are primarily dealt with accepting the public deposits, advancing loans
and cash credits.
Accepting deposits : Commercial bank accepts various types of deposits from
public especially from its clients. These deposits are payable after a certain time
period.
Public deposits are classified into two-
Time / Term deposits : These are repayable after a certain fixed period .
The deposits cannot be withdrawn by the customer by cheque, draft or by
other means. The Time deposits are- Fixed deposits, Recurring deposits ,
Cash certificates
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Demand deposits : These are the deposits which can be withdrawn by the
customer at any time by means of cheques, draft or any other specified
mode. Demand deposits are- Savings bank deposits , current account
deposits
Advancing of loans : The commercial banks provide loans and advances of
various forms. These are sanctioned to the approached customers on certain
conditions and provisions. The loans offered by commercial banks are:
Overdraft : This is one of cash credit facility offered to current account
holders. It is an arrangement with the bankers thereby the customer is
allowed to draw money over and above the balance in his/ her account. It
is a short term temporary fund facility with interest charge over the
amount overdrawn.
Cash credit: Cash credit is a form of working capital credit given to the
business firms. Under this arrangement, the customer opens an account
and the sanctioned amount is credited with that account . It is made
against security of goods, personal security etc. The advantage of this
mode is that bank charges interest only on the amount utilized and not on
total amount sanctioned or credited to the account.
Discounting bills: It is one of the primary operation of a bank where the
bank purchases inland and foreign bills before these are due for payment
by the drawer debtors, at discounted values i.e, values a little lower than
the face values
Loans and advances: It includes both demand and term loan, direct loans
and advances given to all types of customer mainly to businessmen and
investors against personal security or goods of movable or immovable in
nature. The loan amount is paid in cash or by credit to customer account
which the customer can draw at any time. The interest is charged against
full amount whether the customer utilizes the amount sanctioned or not.
Credit creation : Credit creation is also one of primary function. It appears when
a bank sanctions a loan to a customer, it does not give cash to him, but, a
deposit account is opened in his name and the amount is credited to his account.
He can withdraw the money whenever he needs. Thus, whenever the bank
sanctions a loan it creates a deposit. In this way the bank increases the money
supply of the economy. Such functions are known as “ Credit creation “.
Secondary functions: Along with the primary functions, each commercial bank
has to perform several secondary functions too. It includes many agency
functions or general utility functions. They are :
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Agency functions . These are the functions served by a commercial bank on
behalf of its customers for a consideration. The various agency services are:
To collect and clear cheque, dividends and interest warrant
To make payment of rent, insurance premium etc
To deal in foreign exchange transactions
To purchase and sell securities
To act as trust , attorney, executor
To accept tax proceeds and tax returns.
General/ public utility functions : These are the functions met by the
commercial bank which are generally utilized by bank customers or general
public for some amount of fee. These are
To provide safety locker facility to customers
To provide money transfer facility
To issue traveler’s cheque
To accept various bills for payment ( phone bill, water bill)
To provide various cards such as credit, debit cards
Relationship between a Banker and Customer:
The general relationship between banker and customer includes :
Debtor and creditor relationship : The real relationship between banker and
customer is that of a debtor and creditor. When a person deposits some money
to open an account, the banker assumes the positions of a debtor and customer
becomes a creditor. But on other hand, when a customer avails the facility of
overdraft and loan , the relationship of debtor creditor is reversed , banker takes
the position of a creditor and customer becomes a debtor
Special features of debtor and creditor relationship :
Demand for payment is necessary : In case of a deposit in a bank, banker
the debtor is not needed to repay the amount of his own. Customer the
creditor must make a demand for the repayment of deposit in proper
manner. But in commercial debts, debtors is liable to pay the amount due
on a specified date or earlier and demand for payment is not needed. In
other words, the customer must demand from the banker to pay his
money. Demand for payment is essential in case of debt due from a
banker.
Demand must be made only at proper place: Demand to repay the amount
made by customer must be at proper place at the branch of the bank
where the customer has the account. The credit balance of customers
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account is payable only at a branch where the account is kept. Customer
has only option to make a demand on specified branch of a bank. In an
ordinary commercial debt, debtor can pay the money to creditor at any
place.
Demand must be made only at proper time: The demand to repay the
amount must be made by customer only within banking hours. Bankers
undertake to pay amount in banking hours. Section 65 of the Negotiable
Instruments Act , 1881 specified that presentation for repayment must be
made within banking hours on a working day at bank. A banker is not
liable to pay a cheque if not presented in banking hours on a working day
of bank.
Demand should be made in proper manner: The demand to repay the
amount must be made in proper manner by the customer by a way of
cheque or an order, drafts or otherwise. The oral instructions or a
telephonic demand is not sufficient to withdraw money from a bank.
Trustee and Beneficiary : When the banker accepts securities and other
valuables for safe custody, he acts as a trustee for his customer. Banker as a
trustee retains money or other assets and performs for the benefit of his
customer called beneficiary. Customer continues to be the owner of his assets
deposited with banker. As a trustee, it is the duty of banker to take care of the
lockers and their contents.
Principal and Agents : Banker also acts as an agent of his customer. It performs
a number of agency functions like buying and selling of securities on behalf of
customers, collection of cheques and makes payment of various dues on behalf
of his customer. There are large number of agency functions performed by
banker in the recent time. Hence , a banker performs as agent of his customer
who becomes principal while rendering an agency function.
Mortgagee and Mortgager: When the customer effects a mortgage deed of his
immovable property in favour of bank or deposits the title deed of his property
with banker as security for a loan, the mortgage and mortgager relationship is
established between customer and banker. Banker become mortgagee and
customer becomes mortgager.
Bailee and Bailor relationship : When customer takes safe locker facility of gold
jewellery or any other ornament with bank bailee and bailor relationship lies
between banker and customer. Here banker becomes bailee and get the
possession of customer ornament and not the ownership. Here bank should
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safeguard the customer belongings but should not use it. Bank has right to
charge certain fee for this service.
Banker has no right to close the accounts: A banker as debtor has no right to
close the accounts of his creditor at any time without prior permission from
customer
A banker as a creditor: If a banker disburses loan and overdraft, it assumes the
role of a creditor and the customer assumes the role of a debtor.
Special relationship between Banks and Customer :
The special features of banker customer relationship are grouped into obligations
and rights
Obligations of a banker :
Obligation to honour customer’s cheques : The bank has an obligation to honour
customer’s cheque as and when they are presented as long as sufficient funds
are available at credit in customer’s account . According to the bank primary
contract is to repay the money received for his customer’s account usually by
honouring his cheques.
This obligation arises out of two implied situations between the parties:
The banker should repay the borrowed fund whenever the customer demands it
in writing at the branch where he holds the current account
The customer’s credit should not be damaged by the banker by dishonouring the
cheques except on reasonable grounds.
Section 31 of the Negotiable Instruments Act,1881 , states that , “ the drawee of
a cheque having sufficient funds of the drawer in his hands, properly applicable
to the payment of such cheque , must pay the cheque when duly required to do
so, in default of such payment, must compensate the drawer for any loss or
damage caused by such a default.”
Thus , a banker must honour the customer’s cheques drawn on him provided:
Sufficient funds of the customer in his hand: The obligation of a bank to
honour customers’ cheque arises only when it has sufficient fund in
customer’s account at least equal to or more than the amount of cheque.
A bank’s obligation to pay a cheque is subject to the amount available in
the deposit account. If there is no sufficient balance , the bank is justified
in overriding his obligation.
Correctness of the cheque: The obligation to pay a cheque depends upon
the correctness of the cheque. All the required particulars like date, name
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of the payee , amount in words and figures and the signature of the
drawer ought to have been correctly filled in .
Proper drawing of the cheque: The cheque will be honoured only when it
is drawn according to the requirement of the law. It must be drawn on a
printed form supplied by the bank and it should not contain any ‘ request’
to pay the amount.
Proper application of the fund: The fund must be available for the cheque
drawn. In case a customer has drawn a cheque one account, having
insufficient funds, the banker cannot debit it to his other account where
he has sufficient funds unless the customer asks for it. For instance , a
customer having insufficient funds in his current account cannot presume
that the cheque drawn by him will be honoured by the banker because he
has fixed deposit with the bank.
Proper presentation : The bank will undertake to honour cheques
provided they are presented at the branch where the account is kept and
during the banking hours. If the cheques are presented after six months
from the date of issue, they will be regarded as stale cheques and they
will not be honoured.
Reasonable time for collection : A customer cannot impose on the bank a
condition that the bank should pay his cheques blindly even when they
are drawn against cheques sent for collection before they are collected
Existence of legal bar: A bank is relieved from his statutory duty of
honouring his customer’s cheques if there is any legal bar like Garnishee
order attaching the customer’s account.
Wrongful dishonour of cheque : Wrongful dishonour of cheque means a
dishonour committed by mistake or by negligence on the part of the bank or any
of its employees. If a bank, without any justification , dishonours his customers’
cheque, it makes bank liable to compensate the customer for injury to his credit.
According to section 31 of the Negotiable Instrument Act, 1881, the words “
loss or damage” do not mean only pecuniary loss but also loss of credit or injury
to reputation. The loss can be of two types:
Nominal loss
Special or substantial loss
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Banker’s obligation to maintain secrecy of accounts: A bank is under
obligation to maintain strict secrecy as regard the state of his customer’s
accounts even after the account are closed. The banker has an implied
obligation to maintain secrecy of the customer’s account. He should not disclose
matters relating to the customer’s financial positions since it may adversely
affect the customer’s credit and business. This obligation continues even after
the account of the customer is closed.
Under the following circumstances a banker may disclose the relevant
information about the customer as a banking practice :
Disclosure of information under compulsion of law: Banker has to obey the law
and it has to disclose the customer’s account information when law compelled
to furnish and it is bank’s obligation to disclose information to the extent of
asked by the law and not more than that .
Disclosure of information under banking practice : The banker can disclose the
account information of the customer in his own interest. Suppose if the
customer fails to repay the debt amount, usually the bank ask the guarantor and
the bank disclose the accounting information of the customer to guarantor with
his own interest.
Disclosure by the instruction of customer : Banker must disclose the customer
accounting information with the prior permission and will of the customer. The
customer may himself direct the banker to disclose the state of his accounts to
his employer or messenger or any person acting as his agent. In such a case the
consent is said to be expressed. Where, the customer furnishes the bankers name
to the third person for reference or where the customer takes loans from the
banker on the basis of a guarantee given, it is implied that the customer has
authorized the banker to furnish the necessary information to such third party on
his request.
Disclosure as common courtesy : Banker can share a piece of accounting
information of customer with the fellow banker as common courtesy. Fellow
banker asks details of customer under few circumstances like issuing letter of
credit, discounting bills etc by these circumstances banker will disclose the
information .
Disclose for the interest of the nation : If the customer is dealing with any
illegal activity it is dangerous for the nation and to safeguard the public and
nation, it is banker duty to disclose the customer information to concerned
authority
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Consequence of wrongful disclosure :
If the banker wrongfully discloses information and financial data of the
customer, banker is liable to the third parties and also to the customer. If it is
proved that due to false information provided by the bankers, third party
suffered loss, the banker is liable for damages. Thus banker should be very
careful in providing facts about the customers. Even by mistake or by
negligence he should not reveal facts about customers state of account
unnecessarily .
Rights of a Banker:
Bank’s Right to General Lien: Lien is a term used to identify the right to
retain a property belonging to a debtor till such time he discharges the debt due
to the retainer of the property. Lien is simply a right to possess a property. Lien
will be lost when the possession of the property is lost.
Types of Lien:
Particular lien : This lien refers to the particular property which is retained by
the lender or creditor against the specific or particular loan. The particular
property will be retained until the particular debt is cleared by the debtor.
Particular lien is one under which the creditor can retain the goods of debtor
relating to particular amount due only.
General lien : General lien states creditor’s right to retain all the goods and
assets against general amount due that is all amount due by the debtor. Under
general lien creditor can retain all the goods of debtor against total amount .
Banker can enjoy the lien on all the goods pledged by the customer against all
the amount irrespective of agreement. There are some implied situation under
that bank can exercise general lien with the absent of agreement. It confers the
right to retain goods not only in respect of debt incurred in connection with a
particular transaction but also in respect of any general balance arising out of the
general dealing between the two parties.
The banker should satisfy certain conditions to exercise lien:
The assets should be under possession of bank
The assets which is there with the banker as security should belongs to
customer( debtor only)
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When bank holds possession of property the banker must acts his
capacity as banker only
The deposit of property should not be for specific purpose and there must
be expressed or implied agreement between banker and customer to exercise
lien right
The possession of goods must be lawful
There should be amount due by the customer to the banker to get the right
of lien.
The right of lien does not confer on the creditor, the right of sale but only
the right to retain the goods till the loan is repaid. In case of pledge , the creditor
enjoys the right of sale
The right of lien is conferred upon by Indian Contract Act: No separate
agreement or contract is therefore, necessary any for this purpose. However ,
the banker takes a letter of lien from customer, mentioning that the goods are
entrusted to the banker as security for a loan
The right of lien can be exercised on goods or other securities standing on
the name of the borrower. The right of lien can only be exercised on the goods
owned by borrower only not on the goods jointly owned by people along with
the borrower
Exception to the right of general lien:
The banker cannot exercise the right of lien on following circumstances :
Safe custody deposit : Banker cannot holds the right of lien on safe custody
deposits. Under these circumstances banker acts as a bailee to customer and not
as the capacity of banker, so as per law banker cannot exercise the lien on safe
custody deposits.
Bills or instruments deposited for collection or any other specific purpose:
When customer deposit any bills or instruments for collection purpose or any
other specific purpose like purchase of securities then bank cannot exercise the
right of lien because here it is implied agreement between banker and customer
that the fund must be utilized for specific purpose and banker acts as agent of
customer not in the capacity of banker.
Trust amount or property : Banker should not possess the right of lien on trust
amount which lays certain instructions for the banker to usage of fund regarding
specific manner and as per expressed consent banker must utilize the same for
mentioned purpose and moreover here bank never acts in the capacity of banker
but acts as trustee.
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Illegal possession of goods : Illegal possession of goods do not entrust banker’s
right of lien, if customer left the securities by mistake or properties come to the
banker without awareness of customer then banker cannot exercise the lien
because the banker must have legal possession of article.
Prior due date of loan : Bank can exercise lien after the completion of loan’s
due date that when bank lends it fixes the time period to return the loan. In this
circumstances banker can exercise the lien on customer goods only after the due
date of loan but not prior to the due date of loan.
Bonds and coupons : Lien is not applicable for bonds and coupons which are
received for collection. Here banker merely acts as an agent of customer but not
in the capacity of banker so as per law, if bank acts as an agent lien is not
applicable .
Stolen goods : If customer pledge any assets which is stolen and has been
granted loan by the bank, in such circumstances banker cannot has the right of
lien on those goods even though transactions have taken place in the ordinary
course of business. Since the customer is not the real owner of the assets and
lien is not exercised on those assets.
No simultaneous right to bank: When right of set off is available to bank then
bank cannot possess the right of lien. Generally at a time bank cannot possess
both the right.
Right of set off:
A banker possess the right of set off which enables him to combine two
accounts in the name of same customer and to adjust the debit balance in one
account with credit balance in the other. Banker’s right to set off is a statutory
right of banker to combine two or more accounts of customer which has debit
and credit balance and it is being done to know the net balance due from
customer or by banker .
The following conditions are essential to exercise right of set off:
The debt must be a sum certain and due immediately
The debt must be due by and to the same parties
The both the parties bank and customer are should be in the same
capacity of debtor and creditor
There should be no specific agreement relating account and fund
The accounts must be in the same name in the same right
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The right can be exercised in respects of debts due only not in respects of
future debts or contingent debts
Right to exercise before the garnishee order is effective
Under following situation banker can automatically set of customer’s
account :
When customer dies
When customer becomes mental incapacity
When customer declared as insolvent
On the receipt of garnishee order
At the time of winding up of company
Fraud by the customer by pledging asset with another bank which is
already kept with one bank
The right of set off cannot applicable for the following circumstance :
The right of set off is not applicable for trust account that is fund deposited for
specific purpose
The right of set off is not applicable for partnership account and account of one
partner that is it is not possible to combine debit and credit balance of
partnership account and debit or credit balance of one partner account
Right of set off is not applicable for dividend account of company and loan
account of the same company
Joint account and single account cannot be combined and right of set off is not
applicable
Account of guardian and minor account cannot be combined and set off is not
applicable because of different parties
Right of set off is not applicable for the same party’s account but acting as
different capacity
Distinction between Lien and Set off
Sl No Lien Set Off
1 Banker lien is recognized under
section 171 of the contract act
Set off is a right under customery law of
banker
2 Lien is related to goods and
security of customer
Set off is related to money claims
3 Lien is right of banker to retain
customer goods and security
Set of is right of banker to combine more
than one account of customer to ascertain
final balance due to him or due by him
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4 Notice is not required to
exercise lien
Notice is required in some of the cases of
set off
5 Lien precedes set off Set –off follows lien
Right of appropriation – Rule in Clayton’s case: The need of appropriation
arises in case a customer raises more than one loan account. The payment made
by the customer may not be sufficient to clear all debts due to the customer.
Similarly, when a customer holds more than one current account and regularly
operates these accounts by depositing funds and making withdrawals
simultaneously in all the accounts he holds, it creates a problem for the bank to
appropriate which fund to which account. In such circumstances , he has to
follow the rules of governing the appropriation . The general rule is that the
debtor ( customer) has the first choice and he can appropriate the funds
according to his desire. If the customer does not take any decision regarding
appropriation at the time of payment, then the creditor( bank) has the choice.
The right of appropriation is made should be informed to the customer. The
right of appropriation can be exercised at anytime. If the choice of appropriation
is not made by the customer as well as banker then Clayton’s law will come into
existence. Clayton’s law is applicable when there is no implied and expressed
instructions on discharge of debt by the customer and even no action by the
banker to discharge various debt of customer. Clayton’s law states on
apportionment of debt, as per law the apportionment of debt should be
chronological one that is first side of the debt should be cleared by the first side
of the credit amount.
Right to charge interest : The bank has the implied right to charge interest on
loans and advances , and also to charge commission for services rendered by the
bank. The bank can debit such charges to the customer’s account. It is implied
right of banker to charge interest on outstanding balances due by the customer
when customer is awarded loan from banker, it charges interest on loan amount
and if customer has not paid the previous loan instalment the banker has right to
charge compound interest that is interest on interest .
Right to charge commission : The banker has an implied right to charge
commission for the services provided to the customer . Bank not only functions
as acceptance of deposit and lends it to needy group besides it provides many
banking services to customer and others also. Nowadays banks provide many
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banking services to customer because of increased competition and to retain and
gain more customers. At the same time when bank provides any services it
possess right to charge commission on the services. The various service
provided by the banks are safe custody facility , purchase and sale of shares ,
debentures , factoring etc and it charges commission on these services.
Right to charge incidental charges : Incidental charge is a levy imposed by
the bank on unremunerative current accounts. Normally, it is not charged on the
current accounts whose balances can be profitably employed by the bank. These
charges need not be paid in cash but will be debited to the customer’s current
account.
Right to charge commitment charges : It is a charge made by the banker on
overdrafts and cash credit accounts. The commitment charge is charged on the
un used part of the sanctioned limit which does not earn any profit to the bank
besides charging interest on the used part of overdraft. Banker incorporates
‘commitment clause’ in overdraft and commitment charges agreements. This
protects the bank from the loss incurred on the un used part of the commitment
charges accounts and overdrafts.
Garnishee order
A garnishee order is an order issued by a court addressed to banker instructing
to stop or withhold payment of money belonging to a specified person who has
an account with the banker and who has committed a default in satisfying the
claim of his creditors .
It is a legal procedure by which creditor can receive the debts owed by the
debtor through the debtor bankers. In the relationship between debtor and
creditor, in case a debtor fails to pay the money due to his creditor, the creditor
may apply to the court to issue a Garnishee order, on the debtor banker. As a
result of this order the debtor account with the bank is frozen and the bank
cannot make any payment out of the account
On receiving the order, the account of customer becomes suspended. Banker is
under an obligation not to make any payment from the account attached to
Garnishee order
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The creditor who seeks for attachment of Garnishee order is called a
Judgment creditor
The debtor whose money is frozen is called judgment debtor
The banker with whom the debtor has his account is called Garnishee
There are two stages of Garnishee order:
Order – Nisi : It is an order issued by competent court of law addressed to a
banker not to make any payment from the account of garnishee debtor until
further orders are issued
Order- Absolute : In this order , court specifies how much amount from the
account is to be kept separate
Cases where Garnishee order is not Applicable:
The garnishee order served on the banks does not apply when:
Debt is not actually due to customer
Account is in the joint names of customer and other persons whereas
order is in the name of the customer only
Banker is entitled to set-off the balance against debt due to it from the
judgement debtor ( customer )
Money in account is held by customer as a trustee or is impressed with
trust
Name of customer as appearing on garnishee order is wrong or inaccurate
Account is overdrawn.
Garnishee order is applicable :
Where there is a credit balance
Attaches the amount drawn by a cheque but payment not yet effected
All bank branches of a bank are treated as one entity
Attaches future maturing term deposits also
Attaches joint account if issued so
Attaches personal account of partners if an order is served on a partnership
account
Types of Bank Account
Savings bank account: The saving accounts are one of the most popular
deposits for individual accounts. Savings account meant for savings purposes.
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Any individual either single or jointly can open a savings account. Most of the
salaried persons, pensioners and students use savings account. The advantage
of having savings account is banks pay interest for the savings. The saving
account holder is allowed to withdraw money from the account as and when
required
Features of savings bank account :
Savings bank account are meant for promoting saving habit among people
These accounts can be opened by individuals singly, two or more individuals
jointly, certain organisations as permitted by RBI. Minors’ accounts can be
opened by their guardians
Business organisations engaged in profit generating activities are generally not
permitted to open SB accounts
Minor above the age of 10 are also allowed to open
Self –operated SB accounts under certain conditions as per SBI directions. This
is basically to inculcate savings habit in them
Government departments, municipal authorities, political parties,
trade/professional / business entities or associations are not allowed to open
these accounts
Cheque book facility is offered in these accounts. Due to electronic banking
ATM/Debit card also offered. Internet banking facility is also offered to
customers subject to conditions stipulated by banks in this regard. Upon request,
credit card facility is also offered
Cheques can be used for withdrawals or for making any payments. Since the
advent of electronic banking there are several online payment options available
for transfer of money which can be made use of
The number of withdrawals in these accounts is restricted as per RBI directions/
banks discretion as these accounts are not meant for business or trading.
However there is no restriction on the number of deposit transactions
Current account : Current account are basically meant for businessmen and are
never used for the purpose of investment or savings. These deposits are the most
liquid deposits and there are no limit for number of transactions or the amount
of transactions in a day. Most of the current account are opened in the names of
firm/company accounts. Cheque book facility is provided and the account
holder can deposit all types of the cheques and drafts in their name of endorsed
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in their favour by third parties. No interest is paid by banks on these accounts.
Bank charges certain service charges, on such accounts
Features of current account :
The main objective of current account holders in opening these account is to
enable them ( mostly businessmen) to conduct their business transactions
smoothly.
There are no restrictions on the number of times deposit in cash/ cheque can be
made or the amount of such deposits
Usually banks do not pay any interest on such current account
The current accounts do not have any fixed maturity as these are on continuous
basis accounts
Cheque book facility is provided and the account holder can deposit all types of
the cheques and drafts in their names or endorsed in their favour by third parties
These accounts are meant for customers who have large number of transactions
of credit and debit everyday basis
Current accounts can be opened by individuals , proprietary concerns,
partnership concerns, public and private limited companies, trusts, associations ,
societies and other institutions
Customers are expected to maintain the minimum balances in their accounts as
per the rules of business of the bank concerned
There are no restrictions on the number of withdrawals or deposit transactions
that can be routed through a current account
Withdrawals from these account normally are to be done through cheque leaves
issued to the customer
ATM cards / Debit cards, internet banking facility are also provided to the
account holders
If any overdraft arrangements are made this will be as per rules stipulated by the
bank including period, interest rate, quantum and validity of such facility
Nomination facility is available only in the account of proprietary concerns
among current accounts
Fixed accounts: The account which is opened for a particular fixed period (
time) by depositing particular amount is known as Fixed ( Term) deposit
account. The term ‘ fixed deposit ‘ means that the deposits is fixed and is
repayable only after a specific period is over. Under fixed deposit account
money is deposited for a fixed period say six months , one year , five year or
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even ten years. The money deposited in this account can not be withdrawn
before the expiry of period.
Features of fixed deposit account:
The main purpose of fixed deposit account is to enable the individuals to earn a
higher rate of interest on their surplus funds
The amount can be deposited only once. For further such deposits, separate
accounts need to be opened
Fixed deposit account may be opened for a minimum period of 7 days and
maximum period of 10 years. Accordingly , bank offer interest rate for different
periods. These rates can change periodically in tune with RBI’s Monetary
policy
The minimum amount required to open o fixed deposit is Rs 1000
As per RBI directive interest is paid on fixed deposits on a quarterly basis or
half yearly basis. However monthly interest can be paid at a discounted rate as
per RBI directives
Deposit holders can avail loan against pledge of fixed deposits receipts, banks
offer up to 90% of the principal as loan amount at 1 or 2 % higher interest rate
than the rate of interest offered on the deposit.
Tax deducted at source ( TDS) is applicable on the interest paid by banks as per
prevailing Income Tax rules . Exemption from TDS is also granted to General
public/ senior citizens against submission of Form 15G or 15H.
Recurring deposit account : Recurring deposit is a special kind of Term
deposit offered by banks in India popularly known as RD accounts which help
people with regular incomes to deposit a fixed amount every month into their
recurring deposit account and earn interest at the rate applicable to fixed deposit
Features of Recurring deposit accounts :
Recurring deposit accounts are normally allowed for maturities ranging from 6
months to 12 months
These accounts can be opened in single or joint names. Nomination facility is
also available
Rate of interest offered is similar to that in Fixed deposits
Interest is compounded on quarterly basis in recurring deposits
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Non – Resident External ( NRE) Account : The Indian government has
created specific banking guidelines for non-residents Indians living around the
world. As per the Income Tax Act, person is considered a Non Resident Indian
( NRI) if they are an Indian citizen but are physically in India for 182 days or
less a year
The Reserve Bank of India (RBI) has created two primary instruments that fall
under the term NRI accounts –
Non –Resident External ( NRE)
Non-Resident Ordinary ( NRO)
Both options were created to provide Indians who primarily reside outside of
the country with ways to send and house money back to India. This can include
money to support their families, manage properties , make investment , deposit
earned income in India or a combination of these activities
NRI accounts differ from Indian resident bank accounts as they are able to
accept foreign currency deposits. For both NRO and NRE accounts, we can
open a current , savings or fixed deposit account , with specific interest rates
determined by the banks
A Non – Resident External ( N RE) account is a specific account with banks,
cooperative banks, and authorised dealers by the RBI that can be opened and
maintained by NRIs using foreign funds. The accounts can be held as a savings
account, current , recurring or fixed deposits. The account is held in India and is
maintained in rupees.
With an NRE account, people can easily deposit foreign earnings into this
account. The amount that is deposited from the foreign currency is converted
into Indian Rupees as per the prevailing exchange rate.
With a savings or current the account holder can utilize the account to pay bills
or issue cheque for payments in India. Account holder can appoint an Indian
resident as a Power Of Attorney ( POA). With an NRE deposit , we can park
foreign earnings in a fixed term deposit of 1-3 years that is held in Indian
Rupees.
In all cases , the account holder earn Indian Interest rates on the converted rupee
amounts that they send over, and both the principal and interest are tax-free in
India. The rates of interest on the accounts will be as per the guidelines issued
by the Department of Banking Regulations
Overall , NRE account provide a tax-free space for remittances, ample liquidity,
an easy way to pay for expenses in Indian , and a medium to invest in India as
well.
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Non Resident Ordinary ( NRO) Account :
A NRO account can be in the form of a savings account, current, recurring or
fixed deposits. The account accepts foreign currency as well as Indian Rupees
to open an account, with the balance being held in Indian rupees. It can be held
jointly by two NRI’s or can be held jointly with an Indian resident
The account can also be used for local payments, so for example to pay water,
electricity or phone bill. The NRO account can take remittances from outside
India, certain cash amounts and transfers from other NRO accounts
The NRO account is subject to all applicable taxes in India. Due to the taxable
event that would occur under repatriation, an NRO account is considered a
convenient way for NRIs to deposit both their earned income in India while also
accepting foreign deposits
Due to its restricted repatriation and tax implications, the NRO account is best
suited if we are not intending to send balances out of India. It can be seen as a
vehicle to deposit our income in India such as rent or dividends. It is also more
conducive if we want to open an account jointly with a person resident in India.
Difference between Fixed deposit account , savings deposit account and
current account :
Basis of
difference
Fixed Deposit Account Savings Deposit
Account
Current Deposit
Account
Object The object of fixed
deposit account is to
earn interest
The main aim of
savings deposit
account is to
cultivate the habit of
savings among the
public
The main aim of
current deposit
account is to assist
the business
Period of
deposit
Deposits are made for a
pre decided and
predetermined period of
time
No predetermined
period for deposits
in saving deposit
account
There is no fixed
period of deposits
as it is an open and
running account
Frequency
of deposits
Deposit is made once in
time
Deposit can be made
large number of
times
No restriction on
depository money
Restrictions
on
The deposit amount can
be withdrawn at
50 withdrawals are
permitted in half
There is no
restriction on
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withdrawals maturity year by banks withdrawals
Interest Higher rate of interest is
allowed
Lower rate of
interest is provided
as compare to fixed
deposits
No interest is paid
Cheque
facility
No cheque facility is
provided
Cheque facility is
provided
Cheques are
commonly used
Difference between NRE Account and NRO Account
Basis NRE Account NRO Account
Open with This account can be
opened with foreign
currency
This account can be
opened with Indian or
Foreign currency
Taxation This account is tax- free This account is taxable
Repatriability Freely repatriable Repatriable, post taxes
and under certain
conditions
Joint account of two or
more NRIs
It is allowed It is allowed
Joint account with an
Indian resident
Not allowed in this
account
It is allowed
Interest rate It is low in this account Comparatively high in
this account
Deposits and
withdrawals
Deposits in Foreign
currency and withdrawals
in INR
Deposits in both Foreign
currency and INR and
withdrawals only in INR
Procedure to open a current account or saving bank account :
Selection of types of account : When customer decides to open an account with
bank, he has to decide what kind of account he requires and for what purpose he
has to open. There are several types of account which is meant for different
purpose based on his objects he has to open an account.
Selection of bank : After deciding types of account one should select the bank
in which he desires to open account. He can select the bank on his convenient
and service criteria.
Filling up application form: Customer desires must be convey to the banker
through application form where he should furnish all the necessary information
required by the banker like name, address, occupation , nomination , specimen
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signature etc., account can be opened in his name or by jointly , if he wants to
open current account he can open in the name of his business.
Introducer to open an account : While opening bank account he has to provide
any person’s reference who is customer of the bank and having more than six
month or long relationship with the bank. Introducer has to make sure about
familiarity of the person and has to sign in the application form .
Specimen signatures : When the bank is satisfied with the introductory
reference it proceeds with the opening of the account. The applicant is asked to
give his two or three specimen signature on a prescribed form , generally card,
for the purpose of bank’s record.
Photographs : Banks require four copies of photographs of the account holders.
These photographs are required for all types of account opening. If a customer
has a savings account or current with a bank’s branch , he may open fixed
deposit account without photographs. When a customer comes to a branch he
can be easily identified. The identity of the customers is very clearly established
with the help of photographs .
Submission of application form : After filling of application it has to be
submitted to concerned person along with required documents for legal purpose.
While opening an account one has to submit various documents like address
proof, identity proof incase of individual and article and memorandum , board
resolution in case of joint stock company
Verification of the application by officer : Officer will verify the filled
information and documents which is submitted by the person and confirms the
correctness of the details and allow prospective customers to go ahead.
Initial deposit : When everything set right he has to deposit initial nominal
amount with bank. He should fill the slip and submit the slip along with cash to
cashier, later the transactions, account number will be issued to that person and
he will become customer of the bank.
Advantages of a Bank account :
The following are the advantages of opening an account with bank:
Safety of money: The money with the bank remains in safe custody. There is
always a risk in keeping cash with one’s own self. It may be lost or stolen
Cultivate habit of savings : Banks cultivate the habit of savings in the public.
Savings in the bank on the one hand are safe and on the other earn interest for
its depositors who are promoted to save and deposit some money in their bank
account .
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Avail loans facilities : Banks allow loans and overdraft facilities to their
customers. This provides financial help to the customers
Collection of cheques etc: The bank collects on behalf of the customers the
amount of cheques, drafts, bills of exchange etc, deposited in the bank.
Facility in making payments: It is always easy to make payment through bank
accounts. Payments are greatly facilitated by means of cheques. The cheques
serve as proof of payment in case of disputes
Safe custody of valuable articles : Valuable articles, deeds, securities etc. can
also be deposited in the bank for safe custody . safe vaults are provided by
banks for storing these valuables.
Providing credit information : Banks provide information relating to the credit
worthiness of the customer. Banks also issue letter of credit for their customers
which are very useful in foreign trade.
Types of customer And account holders
Minor :
A minor is not capable of entering into a valid contract and a contract entered
into by a minor is void – Indian contract act , 1872
A minor is a person who has not completed 18 years of age. If a guardian is
appointed by a court before a person completes 18 years, he remain minor till he
completes his 21 years.
Guardians are classified into three types
Natural guardian : Father is natural guardian after him mother will be the
natural guardian of minor and after marriage husband is considered as guardian.
Testamentary guardian : Testamentary guardian is a person who is
appointed by the will of minor’s father or mother by the will of natural guardian
Guardian appointed by a court under the Guardians and wards act ,1890
Opening of Minor’s Account
The account of minor can be opened in any one of the following modes:
By natural guardian , father or mother on behalf of the minor
By a natural guardian , father or mother in the joint names of
himself/herself and the minor , payable to either or survivor
By a person in the name of any minor of whom he or she is the guardian
appointed by a competent court under any enactment for the time being in force
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Essential requirements for opening Minor’s account:
For opening the account of a minor bank requires :
Minor’s date of birth . The birth date of is ascertained and verified from
the municipal birth certificate or birth certificated issued by the school authority
where the minor is studying
Recording the date of birth and date of maturity in the account opening
form
Specimen signature card
Date of birth to be recorded in the pass book and in all types of account
Relationship proof will be required as per bank’s recommendation in case
the guardian is not the parent
Name added in the ration card or any other address proof of the minor
PAN card for the parent or guardian who would operate the account on
behalf of the minor
Precautions to be taken at the time of Opening Minor account
Precaution while opening bank account:
Bank prefers to open saving account and fixed deposit account in the name of
the minor and should not allow minor to open current account
Bank can open account in the name of minor or joint name of minor and
guardian . Bank opens account in the name of minor only, he should be at least
14 years or more and should able to read and write regional languages
Precaution for date of birth : While opening bank account for a minor bank
should collect the proof for date of birth and should retain with the bank, when
minor attains his majority on that date bank should close the minor account and
opens new account where the minor ( who has become a major now) can
operate the account alone and at the time bank should get his specimen
signature and should not allow guardian to operate account.
Granting loans to minor: When bank grants any loans to minor, it cannot be
recovered because minor is not a competent party and if there is any agreement
between bank and minor pertaining to loan is not possible to recover amount
from the bank. Even bank cannot recover the loan after minor becomes major
and even if minor represents himself as major, if takes loan in that situation also
bank cannot recover the loan amount. If minor unintentionally overdraw money
from his account then also bank will not get any legal right and power to
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recover the same. Hence bank should be very careful while operating minor
account.
Guarantees : While accepting guarantee against loan bank should not accept the
guarantee of a minor and bank should not grant loan to minor against the
guarantee of others. Minor is not a principal and not accepted as guarantee. The
law does not permit minor to give guarantee for others and even not to get loan
against others guarantee.
Minor as an agent : Minor can be permitted to acts as an agent on behalf of the
principal , for that bank should get prior written consent from the original
principal. The written consent given by the principal should contain the powers
of agent and banker should allow agent that is minor to perform function upto
the limit of that power not beyond the power. Minor agent can draw amount
through cheque and sign the draft as per the power given by the principal and
any loss or damages occurs by the operation of agent, principal will become
liable for that loss and damages not the agent
Minor as a partner : As per Indian partnership Act Minor can enter into
partnership with the permission of all the other partner. He can enter into
contract and operates bank account and he will not liable for personal asset
against the loss or damages. He only gets benefits from the partnership. After
his majority he should inform whether continue in partnership or not , in the
absent of information it is implied that he will continue in that partnership as a
general partner and then he will become liable for damages and losses and his
personal assets also will become claim against the loss or damages
Risks in a contract with Minor
If any contract is entered into or by any money is advanced to the minor, the
other party runs the following risks:
Any money advanced to the minor cannot be recovered by compulsion as
the contract with the minor is void
As the contract entered with a minor is void right from the beginning,
any money given to him as loan when he was minor cannot be recovered after
he attains majority
Even if surety is given for the money obtained by the minor, the surety
cannot be sued in court, if the principal debtor, who is a minor, refuses to pay
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Minor cannot even pledge or mortgage the property and hence the
securities held by a creditor in the form of pledge or mortgage will not give a
real title and cannot be availed in case a minor debtor refuses to pay the loan.
Even the security belonging to a third party who is a minor is offered
against the loan by a minor in his own capacity, cannot be executed
Even the negotiable instruments drawn or endorsed by the minor are not
valid except in case when it is drawn for the supply of necessities of life.
Joint account
Joint account is a bank account shared by two or more persons, any one of the
individual who is a member of the account can withdraw from the account and
deposit to it. Normally family members or close relatives or business partners
prefers joint account for their convenient transactions
It is an bank account registered in the name of two or more person and any one
of the holder can operate it.
When an account is opened in the name of two or more persons it is known as a
joint account
Features of Joint account
When two or more persons jointly open an account, it is called a joint
account.
As far as possible a joint account should be opened only among close
relatives
Account opening form should be signed jointly by all
A clear operational mandate from the account holders should be obtained
, as to who could operated the account
Photographs , ID and address proof of all individuals as a part of KYC
process are to be obtained
All joint account holders should jointly nominate a nominee
Precautions to be taken at the time of opening joint account
The application for opening of a joint account must be signed by all the
persons desiring to open joint account
The banker should get clear –cut instruction about operation of the
account. The names of person or persons who will sign withdrawals or cheques
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should be specifically mentioned. In absence of such instructions, the banker
should honour only those cheques which are signed by all joint account holders
The bank should get clear directions about the balance amount to be paid
in the event of death of one or more account holders.
In case the bank allows overdraft from this account then a concurrence
from all the joint account holders should be obtained. The bank should make all
the parties liable jointly and severally for all the amounts due to the bank.
In the event of insolvency or death the operations of this account should
be stopped. The solvent or surviving account holders be advised to transfer the
balance to a fresh account by issuing a cheque
In the event of any party to the account giving a notice of revocation of
authority , the bank should suspend the operation of this account
Any joint account holder, even if he is not authorised to operate the
account, can stop payment of a cheque issued on the joint account. The bank
should follow these directions and stop the operations.
A joint account holder who is authorised to operate the account cannot
appoint an agent or attorney to operate the account on his behalf. Such an agent
or attorney can be appointed by the consent of all the joint account holders
Partnership Firms
Partnership is the relation between persons who have agreed to share the profit
of business carried on by all or any one of them acting for all”
Features of partnership firm
A partnership is a relation between persons who have agreed to share the
profit of a business carried on by all or any one of them acting for all. The
relationship is spelt out in a document called deed of partnership
The minimum number of partners in a partnership should be 2.
A partnership can be either registered or un-registered
A minor cannot be admitted to a partnership, but he can be admitted to
the benefits of a partnership , with the consent from other partners.
When a minor attains majority, he should within 6 months of attaining
majority, has the option to exit the partnership. If he fails to do so, he is deemed
as a partner from the date of his admission to the partnership and will be
responsible for any liabilities and loss too.
Every single partner can bind a partnership by his action
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If the partnership has applied for registration at the time of opening the
account obtain the provisional receipt from the partners as a proof.
Clear instruction regarding as to who will operate the account, should be
obtained at the time of opening an account
If a new partner is admitted, operations in the account can be allowed
subject to making changes in the account opening forms and banks data base
If a partner retires from a partnership, all other remaining partners have to
authenticate the transaction .
When a partnership is dissolved, the operations in the account are to be
stopped if the account is in debit balance
In a partnership account any one partner can stop the operations. The
bank needs to inform all the other partners about the stopping of operations in
the account through a specific letter
The bank will allow any further transactions only after all partners jointly
authorize the bank to do so, through a letter
Cheques drawn in favour of the firm should not be allowed to be
collected in the individual account of a partner.
Opening of account
A partnership firm can open all types of accounts except saving account. Bank
opens account of a partnership firm in the name of the firm and not in the names
of partners individually or jointly . The account opening form is signed by all
the partners in their individual capacity as well as in the capacity of a partner to
ensure joint and several liabilities. While opening the account banks verify the
partnership deed to examine whether 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 obtains registration certificate. The account is
opened in the name of the firm and all the partners are required to sign account
opening form
Documentation to be obtained while opening an account
Bank’s account opening form duly completed and signed by all partners
ID and address proof of the firm
Photographs and address proof of all the partners; partnership deed copy
Rubber stamp of the firm should be impressed on the application form
and partners signature should be affixed under it
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Mandate regarding operation of the account
Operations of account
Bank obtains operational instructions that who will operate the account and how
it is to be operated. In case a minor is also a partner in the firm his birth
certificate is obtained to ascertain the date of birth, which is recorded in the
account opening form
All partners jointly one of the named partner two/ three of the named
partners. A third party under a mandate letter or a power of attorney signed by
all the partners
A partner authorised to operate the firm’s account cannot delegate his
authority to another person unless all other partners agree
The authority given to operate the account can be withdrawn by any of
the other partners including dormant or sleeping partner by giving notice to the
bank
Each partner, whether he/she is operating the account or not , has powers
to countermand payment of the cheques
Precautions to be considered for partnership firm :
Number of partners: While opening partnership account bank must consider
partnership deed which is the article of partnership firm. Bank should make sure
whether the number of partners are according to legality or not. As per legal, in
case of banking firm there is maximum limit of partner 10 and any other firm
maximum is 20. Partnership firm need minimum two partner to open
partnership firm
Name of bank account : In case of partnership account bank should open
account in the name of firm but not in the name of any individual partner
Opening of an account : Bank can open the account in the name of partnership
firm and at the time of opening account banker should get specimen signature of
all the partners and all the partners should agree to open the account in the name
of firm if there is any objection to open account by any of the partner, bank
should not open the account until all the parties agree. Hence bank should
obtain the authority letter signed by all partners
Cancellation of authority to operate the accounts : When partnership account is
opened any one or more partner will gain the authority to operate the account
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that is who can withdraw and deposit amount from and to the account. In such
case when bank receives any notice regarding cancellation of the authority of
the partner, bank must stop the payment and operation of the account. Any
partner including sleeping partner can give notice to bank regarding to stop
payment or cancellation authority
Delegation of authority : Delegation of authority refers to transferring power
and right from one person to another person when he is not available or absent.
Partner cannot delegate his authority to any other person without written
consent of all the partners. If he has to appoint any person to work on behalf of
him he should take permission from all the partners and prepare power of
attorney to transfer powers from authorized partner to any other person by the
signature of all the partners
Admission of new partner : On admission of any new partner to the partnership
account bank must close the account , if there is any overdraft facility and
should open new account from the consent from all the partner including new
partner. In case if the bank account shows debit balance at the time of admission
of new partner, bank no need to close the account but written consent from all
the partner should be obtained
Retirement of partner : At the time of retirement of any partner , a notice is to be
served to banker. With the absent of notice, retired partner will becomes liable
for further transactions. When partner retires and bank balance show credit
amount, in such case no need to close bank account and when any debit balance
at the time of retirement, bank must close the account to avoid the applicability
of clayton’s rule and new account has to be opened by the consent of all the
existing partner
In case of death of partner : When partner dies the partnership firm may be
dissolved or may not be dissolved. If it is dissolved then bank must close the
account and if not bank can allow partners to operate account based on
conditions. When partnership is not dissolved and account balance shows credit
balance then banker no need to close the bank account and asks remaining
partner to settle deceased partner’s net balance to his executors. In case if bank
account shows any debit balance bank must close the account to avoid
applicability of clayton’s case
Insolvency of partner : In the event of insolvency of any partner , the remaining
partner can be allowed to operate the account. If there is any cheque which is
drawing by insolvent partner it must be stopped by the banker without paying
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the amount but if the cheque drawn prior to judgment of insolvent on that even
bank can honour the cheque with prior permission by the remaining partners
Joint Stock Company
A joint stock company is constituted under company act. Company is a artificial
person with perpetual succession. It is 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. It is separate from the
shareholders constituting it.
Features
Companies are artificial persons which have legal existence. Companies
which are incorporated under companies Act 2013 can open account with bank
Company can be broadly divided into private limited and public limited
companies
Private limited companies cannot issue shares to public and the minimum
number of shareholders is 2 and the maximum number of shareholders is
restricted to 200
Public limited company can issue shares to public. The minimum
numbers of shareholders are 7 and there is no ceiling of maximum number of
shareholders
Formalities relating to opening accounts of companies will include
obtaining the following documents namely
Memorandum Of Association and Articles Of Association
Certificate of incorporation issued by the Registrar of companies in
whose jurisdiction the company is registered
Certificate of commencement of business
Copy of Board resolution certified by the chairman to open an account
with the bank. Operating instruction regarding execution of documents, the
name/s of director/s other executive authorized to sign etc.
Copy of latest audited balance sheet and profit and loss account. List of
present directors duly certified by the chairman, address of the registered office
along with the KYC documents pertaining to the company should also be
obtained along with KYC documents in respect of authorised signatories
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All account opening forms should be signed by authorised signatories.
Photographs of authorised signatories as per KYC norms should be obtained
All documents should contain the company’s seal
In case of change of constitution, the company has to inform to the bank.
In case of death of director , as a company is a legal entity having perpetual
existence, its account should not be stopped
A fresh resolution by the board of directors, authorizing the new directors
and their specimen signatures should be submitted to the bank.
Precautions to be taken by the Banker for joint stock company account
Study of documents: Banker should properly and carefully study the
important documents like certificate of incorporation and certificate of
commencement of business, Memorandum of association , article of association
and prospectus . banker should also obtain the printed and certified copies of all
these important document for his own record
Copy of Board’s resolution: banker should get certified copy of resolution
passed by Board of directors along with the application to open the account. The
resolution should contain the information relating to:
Appointment of banker of company
Authorised persons to operate the bank account on behalf of company
Authorised persons to execute the documents on behalf of company
Authorised persons to deposit the title deeds in case of equitable
mortgage
Bank should observe while borrowing amount, whether the borrowing is
done under the delegation of power and is it done under the provision of article
and should examine the document produced during the borrowing
Bank should examine the purpose of borrowing and the purpose should
be under the provision of memorandum.
At the time of closing down of the company, powers of the director are
canceled except to the extent permitted by the company and director cannot
borrow funds without permission of liquidator and permissible limits given by
the liqudiator
At the time of providing any loan to company against the mortgage of the
property, bank should verify whether the security will come under the purview
of any charge if it is so, then bank should consider second charge applicability
Clubs and Associations
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Clubs , societies , charitable and religious institutions, libraries, schools ,
colleges etc not engaged in trading activities maintain their account with the
banks.
Features
Clubs, societies and associations are bodies of members, who come
together for a common cause. Generally , a non- trading clubs, societies and
associations approach banks to open account. Such bodies do not share profits
with members
Clubs can be registered or unregistered . Accounts of unregistered clubs,
societies and associations cannot be opened as individual members are not
liable for debts of the body, hence suits can’t be enforced
While opening of accounts of clubs and associations obtain the account
opening form along with photos of the office bearers, address proof of all the
office bearers, certified true copy of the original certificate of registration,
certified true copy of MOA , certified true copy of the rules, regulations, bye-
laws, resolution of managing committee appointing the authorized persons to
operate the account
Bank should take the following precautions in case of clubs and association
account :
Incorporated club and Non incorporated club: Normally there are two types of
clubs that is registered and unregistered club. While opening bank account for
clubs and society bank must see whether it is incorporated or not, if it is
incorporated , bank should obtain incorporation certificate and then allow club
to open account. If the club is not incorporated it is problem for bank to recover
amount due by the clubs because bank can not able sue on unregistered club. If
banks allows unregistered club, if it do so it is on own risk of the bank
Rules and laws of club: If the club is registered one, it must formulate rule and
regulation on its own. It will have its own constitution and own rules and laws.
Bank has to obtain the copy of the same and retain with bank for further
reference
A resolution from managing committee : Managing committee should pass a
resolution to open bank account and bank should receive a copy of the
resolution. The resolution should include the following information
Appointment of the bank concerned as a banker of the club
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Information regarding the name of authorised person who operate the
account and who can withdraw and deposit fund
Borrowings : While borrowing bank should confirm whether the club is eligible
to borrow or not and clearly note the borrowing limit. Bank should get a copy of
special resolution from the managing committee or board regarding borrowing
fund until and unless bank should not allow club to borrow
Special care to be taken in case of club account and personal account : If the
club account and personal account of the operator is maintained in same bank
banker should take certain care. Bank should not club personal account of
operator and club account in any reason and it is not applicable for right to set
off debit and credit balance of club account and personal account of operator
Death of operator : In case any notice or information on death of operator bank
must stop the activities of trust account and should not honour cheque until
board appoint new person as operator and bank should obtain clear written
consent from the board .
Non – Resident accounts
Non –Resident bank accounts are those, which are maintained by Indian
nationals and persons of Indian origin resident abroad, foreign nationals and
foreign companies in India. Bank branches can open ordinary non-resident
accounts in the name of private individuals provided initial deposits for opening
the account are received from abroad in an approved manner or the initial
amount is tendered in foreign currency while on a visit to India or transfer of
funds from the existing non-resident account of the same person.
Different types of accounts which can be maintained by an NRI in India
If a person is NRI , she/ he can, without the permission from the Reserve Bank,
open, hold and maintain the different types of accounts given below with an
Authorised dealer in India that is bank authorised to deal in foreign exchange.
NRO savings accounts can also be maintained with the post officies in India.
However , individuals/ entities of Bangladesh and pakistan require prior
approval of the Reserve Bank.
Non – Resident Ordinary ( NRO) account
Non- Resident External ( NRE) account
Foreign Currency Non- Resident ( FCNR) account
Non – Resident Ordinary Account ( NRO Account)
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NRO accounts are maintained in INR . This means that when we deposit
the money in the NRO account, the foreign currency is converted to Indian
rupees at the prevailing foreign exchange rates.
NRO accounts may be opened/ maintained in the form of current ,
savings, recurring or fixed deposit accounts
Savings account- Normally maintained for crediting legitimate dues/
earning/ income such as dividends, interest etc. Bank are free to determine the
interest rates
Term deposits – Banks are free to determine the interest rates. Interest
rates offered by banks on NRO deposits cannot be higher than those offered by
them on comparable domestic rupee deposits
Permissible credits to NRO account are transfers from rupee accounts of
non-resident banks, remittance received in permitted currency from outside
India through normal banking channels , permitted currency tendered by
account holder during his temporary visit to India.
Eligible debits such as all local payments in rupees including payments
for investments as specified by the Reserve Bank and remittance outside India
of current income like rent, dividend, pension, interest etc, net of applicable
taxes, of the account holders
NRI may remit from the balances held in NRO account an amount not
exceeding USD one million per financial year, subject to payment of applicable
taxes.
The limit of USD 1 million per financial year includes sale proceeds of
immovable properties held by NRIs
The accounts may be held jointly with residents and / or with non-
resident Indian
The NRO account holder may opt for nomination facility
NRO ( current / savings) account can also be opened by a foreign national
of non-Indian origin visiting India, with funds remitted from outside India
through banking channel or by sale of foreign exchange brought by him to India
Loans to non-resident account holders and to third parties may be granted
in Rupees by authorized dealer/ bank against the security fixed deposits subject
to certain terms and conditions
Non- Resident External Account ( NRE Account) VVN
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NRE account may be in the form of savings, current, recurring or fixed
deposit accounts. Such accounts can be opened only by the non-resident himself
and not through the holder of the power attorney
NRI may be permitted to open NRE account with their resident close
relatives . The resident close relative shall be eligible to operate the account as
power of attorney holder in accordance with the instructions . Accounts will be
maintained in Indian Rupees
Balance held in the NRE account are freely repatriable
Accrued interest income and balances held in NRE accounts are exempt
from Income tax and wealth tax , respectively
Authorised dealers/ authorised banks may at their discretion/ commercial
judgement allow for a period of not more than two weeks, over drawings in
NRE savings bank accounts up to a limit of Rs 50,000 subject to the conditions
that such over drawings together with the interest payable thereon are cleared/
repaid within a period of two weeks
Savings – Banks are free to determine the interest rates
Term deposits- Banks are free to determine the interest rates of term
deposits of maturity of one year and above. Interest rates offered by banks on
NRE deposits cannot be higher than those offered by them on comparable
domestic rupee deposits
Permissible credits to NRE account are inward remittance to India in
permitted currency proceeds of account payee cheques, demand drafts/ bankers’
cheques, issued against encashment of foreign currency.
Eligible debits are local disbursement, transfer to other NRE / FCNR
accounts of person eligible to open such accounts, remittance outside India,
investments in shares/ securities / commercial paper of an Indian company etc.
Loans up to Rs 100 lakh can be extended against security of funds held in
NRE account either to the depositors or third parties
Such account can be operated through power of attorney in favour of
residents for the limited purpose of withdrawal of local payments or remittances
through normal banking channels to account holder himself
Foreign Currency Non Resident ( Bank ) Account- FCNR( B) Account
FCNR(B) account are only in the form of term deposits of 1 to 5 years
All debits / credits permissible in respect of NRE accounts, including
credit of sale proceeds of FDI investments, are permissible in FCNR(B)
accounts also
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Account can be in any freely convertible currency
Loans up to Rs 100 lakh can be extended against security of funds held in
FCNR (B) deposit either to the depositors or third parties
The interest rates are stipulated by the department of banking operations
and development, RBI.
When an account holder, becomes a person resident in India, deposits
may be allowed to continue till maturity at the contracted rate of interest, if so
desired by him
Closing of a Bank Account/Termination of Banker-customer relationship :
The relationship between a bank and customer is terminated by closing on
account. Circumstances for closing an account
Intention of customer to close the account : A customer of a bank has a
right to close account at any time for any one of the following reasons:
If the customer does not agree to the terms and conditions of a bank like
interest rate, bank charges
If customer is not satisfied with services provided by bank as compared to
other bank
When the customer has no trust and confidence in the activities of banks.
The customer must provide an application in writing along with detail
information such as, amount, account number, date to close the account etc. the
unused cheque leaves and pass book must be sent with application to bank.
Generally, the bank allow to close the account provided that no amount in form
of loan, overdraft or cash credit is not unpaid by the customer
Intention of bank to close the account : The bank also has a right to
discontinue his dealings with the customer. The bank may close the account of a
customer, by giving a special notice, for any one of the following reasons:
In case , the account is not a remunerative
In case , the customer is not a desirable customer.
Death of customers: Bank should immediately close the account as soon
as it receives a notice of the death of a customer
Insanity of customer: The notice of unsound mindness of a customer
results in the immediate closing of his account. The bank should apply for an
official copy of the lunacy order. The bank should close the account of customer
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and give the balancing amount to the duly appointed representative of unsound
mind customer as per the Lunacy order if the sanity is permanent
Insolvency of customer: The bank must close the operation of account of
customer , if it has the knowledge of the presentations of the petition or the
commitment of an act of insolvency by a customer. In case of joint stock
company, the bank should close the account as soon as it receives the notice of
winding up
Garnishee order : After receiving a garnishee order from a court or
attachment order from income tax authority, the account can be closed as one of
the options after taking the required steps .
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