UNIT THREE
TYPES OF ACCOUNT
HOLDERS
DIFFERENT TYPES OF ACCOUNTS
MINORS:
A minor is an individual under
the age of 18 years. Minors have no contractual liabilities but there are two
categories of contract that are valid when entered into by a minor:
a) A minor is liable to pay a reasonable
price for necessaries actually delivered to him
under the contract which he has made.
b) An agreement by which a minor obtains
training or carries on a vocation, e.g. Student
Loans’ Scheme for tertiary education,
is binding on him if the contract is generally
beneficial to him.
However, contract of a continuing nature are
voidable, e.g. partnership, membership of a company he obtains benefits and
assumes corresponding liabilities.
Minors as Bank Customers:
Banks do not open current
account for minors, since the general principle is that a minor cannot assume
liability by signing a Bill of Exchange in any capacity. If a minor needs a
bank account e.g. under the student loans’ scheme, a savings account may be
opened.
It is unsafe for a bank to have
direct dealings with a minor, since it may be that he was too young to
understand the effect of the transactions, and so the bank would not obtain a
valid discharge for the money paid to him or on his behalf. A lot would depend
on the circumstances. There is no inherent legal difficulty in the acceptance
of a minor’s instructions by cheque. It is expressly provided by the Bill of
Exchange Act 1961 Section 20(2) that the holder of a bill or a cheque drawn by
a minor is entitle to receive payment.
Nonetheless, a bank in its own
interest must recognize that a minor is a special type of customer and, in
particular, avoid lending money to him since a loan to a minor is
unenforceable. There is the possibility that, to avoid this restriction, the
minor may overstate his age. If he does so and thereby obtains a loan, he
commits the tort of deceit (Leslie vs. Sheil 1914). Any security given by a
minor for a loan is also unenforceable. If a minor uses borrowed money to pay
for necessaries, the lender is subrogated in equity to the rights of the supplier
who has been paid with the lender’s money, and the lender may recover so much
of his loan as corresponding with a reasonable price for the necessaries. For a
bank, this remedy is not particularly useful, since it would involve very
difficult and expensive litigation.
Other important points
concerning minors are as follows:
a)
Provided
an account holder has full contractual capacity, a minor can act as that
person’s agent on that account.
b)
A
minor can be a director of a limited company, provided that the article allows
this.
c)
A
minor cannot act as an executor or trustee.
d)
A
minor cannot make a valid will unless he is on active service with the armed
forces (in case of an emergency).
e) A minor cannot give guarantee, although
he could ratify such a guarantee upon attaining the age of maturity.
Joint
Accounts:
When two or more people wish to
open a bank account together in their names then it is known as a joint
account.
There are 2 types of
transactions which the bankers come across or handle in joint account
instructions. One is the operation instruction and the other is the settlement
instruction.
The operation instruction
applies to savings and current accounts. The settlement instruction, generally
applies when one of the joint account holders or all the joint account holders
are no more. Alternatively, if they are alive, the decision to whom balance
payment has to be made is based on the conditions agreed upon at the time of
opening the account or subsequently during the existence of the deposit.
Death of a Joint Account
Holder: The mandate held for joint accounts normally gives the bank a
satisfactory discharge from the survivor on the death of a joint account holder
as the bank’s printed form takes care of this problem:
a)
If
a joint account is in credit, it can continue to be operated by the survivor.
This means that in the case of an
account for a husband and wife, the surviving spouse will be able to continue
to use the balance of the account without having to wait for probate to be obtained.
b)
If
cheques are presented, drawn on a joint account, signed by the deceased, they
should be returned marked “Drawer deceased” unless the surviving account holder
is willing to authorize payment.
c)
If
a joint account is over drawn when notice of death of a party to a joint
account is received, then that account should be stopped if the bank wishes to
retain its claim against the deceased’s
estate. Otherwise, the rule in Clayton’s case (Devaynes vs. Noble 1816) would
mean that fresh credits would repay the earliest debits, thus reducing the
bank’s claim.
d) If an overdrawn joint account is stopped
to preserve the bank’s claim, arrangements
Married Woman:
A
married woman may be permitted to open and have a bank account in her individual
capacity. The general formalities for opening an account have to be followed
without any exception. However, a woman who has an account opened before her
marriage desires that the name be changed, then the name (after marriage) may
be recorded based, on documentary proof like marriage invitation / card /
certification / official gazette publication. She has to make a request in
writing and the bank has to obtain her new specimen signature. The change will
not impact cheques sent for collection in her maiden name which may be credited
after realization and the cheques issued by her using her maiden name also can
be paid.
Lunatics:
Since a lunatic is not in a
proper frame of mind and cannot understand what he is doing, the account of a
lunatic person should not be opened. When the bank receives the notice of
lunacy of its customer from the court or from other genuine sources, it will
have to stop operations in the existing account. The same may be restored when
the bank receives an order from the competent court or a certificate from the
registered medical practitioner certifying that the said person is no more a
lunatic and has a sound mind to understand and react.
Illiterate
Persons:
A person who is not able to
read or write or subscribe his signature is called an illiterate person. There
is no bar in opening a savings or a term deposit account for an illiterate
person. Since she / he cannot read / write / sign, the thumb impression is
obtained on the relevant documents. Accounts are opened following other general
formalities required to do so. Since the illiterate person cannot understand
the contents of the application form and other rules the same are to be
explained to him in his language and to that effect a proper letter has to be
taken from the person who has explain to him or her.
Since the illiterate person
cannot understand the contents of the application form and other rules, the
same are to be explained to him in his language and to that effect a proper
letter has to be taken from the person who has explained it to him / her.
Usually, the LEFT hand thumb
(LTH) impression of an illiterate person is taken. However, there is no hard
and fast rule. Even the right hand thumb (RTH) impression will serve the
purpose.
What is important is that the
bank has to maintain a record of whether it is the right hand or the left hand
thumb impression that was taken. Whichever thumb impression was used, it has to
be properly recorded in this manner. “Left hand / right hand thumb impression
of Mr. / Mrs. / Ms……” has to be attested by the person known to the bank or the
manager of the branch. The thumb impression has to be affixed in the presence
of a responsible official of the bank. The bank must not open a current account
in the name of an illiterate person.
INSOLVENT
An insolvent is one who is not
able to pay (discharge) his liabilities either in full or in part. A creditor
or the person himself can move the court to declare him as an insolvent. Once
the person is declared as insolvent, the financial transactions that he
subsequently enters into become invalid. Also, the transactions already entered
into during the previous six months become invalid. The entire estate of the
said insolvent is vested in the official assignee (Presidency towns) and official
receiver (for Provisional Insolvency Act). Such persons are duly appointed by a
competent court.
If a person is declared an
insolvent, then the operations in the account are to be stopped immediately.
The official assignee or receiver as per the respective court orders is to be
allowed to operate such accounts. Credit balance, if any, is to be disposed of
as per the instructions of such officials.
Minors and lunatics cannot be
declared as insolvents.
LIQUIDATORS
In the event of the liquidation
of a company, a person is appointed to look after the winding up of the
company. Such a person is known as the liquidator. He may be appointed by the
creditors in the case of voluntary liquidation or by the court. The liquidator
cannot borrow unless otherwise specifically permitted by the court.
It is the duty of the
liquidator to account for all the moneys realized from the disposal of the
company’s assets. He has to distribute the same among the creditors. Surplus,
if any, will go to the owners (shareholders of the company).
Once the company is under
liquidation, the banker has to stop operations in the said company’s account.
Even cheques issued prior to the notice of liquidation should not be paid. The
usual credits, however, may be permitted. In case the company is a borrower and
owes money to the bank, the bank need not part with the balance money.
Before opening an account for a
company under liquidation, the court order should be carefully studied and as
per the contents of the order, the account has to be opened. The bank has to be
satisfied that the liquidator is authorized to open an account.
The bank has to ensure that the
instruments standing in the name of the liquidator representing the liquidated
company should not be credited to the personal account of the liquidator.
However, a liquidator may be
permitted to have an account with the bank in his individual capacity subject
to the completion of the usual formalities for opening an account and as per
KYC norms. In such cases, the said bank has to handle the account of the
liquidated company and its transactions with great care.
Blind
Persons
Blind persons are entitled to
have bank accounts. While handling accounts of such people, the banker has to
carefully explain about the transaction that has taken place. Since the
signature may not be the same as the one lodged with the bank, to avoid
complications, bankers pay by obtaining the signature of an individual person
as witness.
Agents
An agent is a person who has
been appointed by another person (who is competent to contract). An agent can
be minor whereas a principal has to be a major. The banker opening an account
of an agent has to be careful. He has to understand the rights given by the
principal.
The banker has to ensure that
he (the agent) is a major because a minor cannot be an agent of another person.
An agent acting within the scope of authority given to him can bind his
principal. If he acts beyond the authority, the principal is not bound, unless
he ratifies (confirms) such acts later.
On receipt of information about
the death, insanity or insolvency of the principal, the banker has to stop or
suspend operations by the agent in the account of the principal.
RECEIVERS
A
receiver is a person who is appointed by the court to look after the properties
or estates pertaining to the civil suits. He may also be appointed to look
after the properties or assets of minors or persons of unsound mind.
While
opening an account in the name of the receiver, the bank has to ensure that the
said person has been appointed by a competent court. The branch of the bank has
to insist on the certified copy of the court order and a copy of the same has
to be kept by the bank. The account so opened has to clearly indicate that it
is for a receiver.
Eg.
“Mr. Debrah, receiver to the estate of Mr. Williams”.
The
banker has to see that the proceeds of the instruments pertaining to the
receiver should not be placed to the credit of the personal account of the
receiver. The operations in the account should be according to the contents of
the order, appointing him as a receiver.
EXECUTORS
AND ADMINISTRATORS
An
individual may write a will during his life time mentioning there about his
intention regarding the bequeathing of his property or assets after his death.
The will has to be in writing and the testator has to sign or affix his mark to
the will. However, the will has to be witnessed by at least two witnesses.
The
person who writes the will may specify a person who has to look after his
assets and give him certain rights. This person is called the Executor. On the
death of the person who wrote the will, the executor can approach the court and
get the will probated.
When
a person dies intestate, i.e. without leaving a will, the court may appoint a
third person to look after the estates of the deceased by issuing a letter of
administration. Such a person is known as an Administrator. Since the executor
or an administrator is regarded as a trustee to manage the estate of the
deceased, the bank has to follow all precautions pertaining to a trust account.
The bank has to obtain the copy of the probate and act as per the contents and
allow operations. It should be noted that in either cases the bank has to stop
operations in the account of the deceased person and open fresh account in the
name and style of the Executor of Administrator.
PROPRIETORSHIP
CONCERN
An
individual doing business is known as a proprietor and such business
enterprises are called a proprietorship concern. A bank can open an account in
the name of a proprietorship concern. While opening the account, the banker has
to obtain, besides the application for current account, a proprietorship
letter. Such a letter has to state that the signatory is the sole proprietor
and the person concerned is the sole owner of the concern and no one else has
any stake / interest in the business as an owner.
The
Cheques in favour of the proprietor may be routed through the proprietorship
concern’s account. Nomination facility is not available for proprietorship
concerns. Hence, on the death of the proprietor, the claim has to be settled in
favour of his / her legal heirs.
PARTNERSHIP
FIRMS
The
Indian Partnership Act, 1932, defines partnership as the “relationship between
persons who have agreed to share the profits of a business carried on by all or
any of them acting for all”.
The
partners’ liability is unlimited. The banker opening the account of a
partnership firm has to obtain a copy of the partnership deed and retain the
same after duly comparing it with the original.
He
should go through the contents of the deed with special attention to the bank
account(s) and operation conditions. The banker has to obtain separate and
specific operational instructions.
Example:
While
opening / handling a partnership firm’s account, the following are to be
considered:
1. A banker has to open a bank account in
the partnership firm’s name only.
2. The usual formalities for the opening of current account,
including proper introduction, has to be obtained without fail. All
requirements of KYC norms have to be complied with.
3. All the partners have to sign the partnership application
representing the firm, besides signing the partnership letters in their
individual capacity.
4. Proper and clear instructions (signed by all partners) have to
be obtained with regard to operation conditions of the firm’s account.
5. If there is any dispute among the partners regarding operations
of the account, the operations are to be stopped and fresh instructions have to
be sought.
If
the partnership comes to an end (dissolved) on account of any reason, the
credit balance in the account can be paid to the remaining partners. Such a
payment will serve as vital payment. It is advisable to close the existing
account and open a new one even though the deed may provide for continuation.
If the bank receives any cheque signed by the deceased partner, then the same should
not be paid without the consent of the other partners.
If,
at the time of any of the above events, the balance is in debit, then the
operation in the firm’s account has to be stopped immediately, so as to protect
the bank’s right to proceed against the estate. If not stopped, the rule in
Clayton’s case will apply.
A
minor cannot be a partner. However, he may be admitted to receive the benefits
of partnership with the consent of all the existing partners. The banker has to
go through the contents of the partnership deed to understand the provisions of
the same.
Generally,
it is a current account that is opened for partnership firms. They can also
place their deposits in term deposits. While closing the account, all the
partners have to sign the request letter by surrendering unused cheque leaves.
JOINT STOCK
COMPANIES
A
company is considered as an artificial person backed by a legal status with a
common seal and having perpetual succession.A company may be private limited or
public limited one. The members of the company are called shareholders
(owners). For both companies (private or public limited), there are common
documents like the
Memorandum
of Association
Articles
of Association
Certificate
of Incorporation
.
For
a public limited company, in addition to these three, another document called
Certificate of Commencement of Business is a must. For a private company, this
certificate (Certificate of Commencement) is not required. In fact, a private
company can start operation on obtaining the Certificate of Incorporation. In
addition to these, one more important document is the RESOLUTION.
A
banker who wishes to open a company’s account has to obtain certified copies of
the Memorandum of Association, Articles of Association, Certificate of Incorporation
and Board Resolution for a private company. For a public one, in addition to
these, the certificate of commencement of business should also be obtained.
Further,
the list of the present directors as filed with the Registrar of companies has
to be obtained and kept on record with the bank.
The
copy of the Resolution should be certified by the chairman of the meeting at
which the resolution was passed and counter-signed by the company secretary.
If
there is any change in authorized signatories, a fresh resolution has to be
passed and a certified copy has to be given to the banker to allow operations.
The Memorandum of
Association
The
Memorandum of Association is one of the basic documents of the company. It
describes the various aspects of the particular company through its many
clauses. These clauses are Name, Place, Object, Liability, Capital and
Association. The banker must clearly know the main objective of the company. He
should also be familiar with the contents of the Memorandum of Association.
The Article of
Association
The
Article of Association deals with the rules and regulations for internal
management of the company. It discusses in detail the functioning of the
company. The articles discuss issues like the powers of the directors, rules
for conducting meetings, etc. Both documents are called public document.
A
board resolution authorizing the opening of the account is equally important.
Without a proper board resolution, a bank should not open a company’s account.
Anything done within the scope of the Memorandum, supported by a proper
resolution, either passed by the board of directors or by the members at the
general body meeting, binds the company. The resolution for opening an account
should be specific and not issued by way of circular. When resolution is given,
the banker has to verify details regarding: (a) the proper quorum at the
meeting,( b) the date and venue of the meeting mentioned,( c) the genuineness
of the extract of the minutes of the meeting. For the purpose of bank dealings
(such as opening of a/c, its operations, and seeking finance) generally the
board resolution contains three parts:
1. Name of the bank where
the account is to be opened.
2. Name of the persons who will
operate the a/c on behalf of the company
3. Borrowing powers, if
any, of authorized persons.
Regarding
the borrowing powers, the resolution must state the type and quantum of credit
facility required. It should also state the type of securities to be offered,
who will sign the loan documents and other related issues relating to the
credit facility sought. The resolution could be:
OTHER SERVICES
RENDERED BY BANKS
BANCASSURANCE
With
growing competition on account of many players in the field of banking, there
is a need to increase the income. Income out of banking business alone may not
be sufficient. With the Government decision to open up the scope in the field
of insurance – both Life and Non-life (General) – bankers have got an
opportunity to enter into insurance business. They can participate with
insurance companies on a “Referral” basis or on a “Corporate Agency” basis.
Since
these banks are already established and have their regular customers, the same
is considered as an opportunity (better platform) to offer other services as
well. Based on the Universal Banking principles, customers now get additional
services under a single roof.
Under
the “Referral” basis, banks collect information and pass on the same to the
insurance company with whom they have entered into an agreement. Then, the
insurance company representatives approach such customers and try to sell their
insurance products. Since the insurance company has got the contact through the
bank and this has resulted in business, such insurance companies pay a sort of
commission to the bank. This is additional income the bank earns for the
services rendered.
The
“Corporate Agency” basis means that the bank staff will sell the products of
insurance companies at their premises. Since the space, infrastructure, staff
members’ services are utilized, the return, by way of income, is more for the
bank.
The
customers are able to get additional service in a single place under both
bases. Since bank employees interact with a cross-section of customers, they
are better exposed to handle customers
PLASTIC MONEY
Innovative
products attract people and the banking field is not an exception. A number of
innovative steps are being taken on an ongoing basis. The introduction of
plastic money has helped the clients as this provides a value added service.
Credit
cards are issued by the banks after assessing the need of the person, his
capacity to utilize the credit limit fixed and returning the money utilized.
The advantage for the customer is that the plastic cards are easy to carry.
Both credit and debit cards are popular. With the help of these cards, the
carrying of hard cash is avoided. The usage of travelling, etc, has increased
its popularity. A card holder is able to get credit at short notice and can
also avail of the add-on facility. A debit card enables the customer to use
only the available balance in the account. This can bring a sort of discipline
in one’s savings and spending.
ATM
In
order to provide a round-the-clock service beyond the usual banking place and
hours, ATMs have been installed by almost all the banks. This system provides
customers easy accessibility and convenient withdrawals as well as deposit cash
and charges. The ATMs serve as banks and also extend the anytime banking
facility. It has become so popular that banks have started offering the ATM
service even away from the banking premises. ATMs are installed at strategic
locations, to enable the customers to avail of the services. From the angle of
cost saving, banks have adopted shared ATM machines, which help the customers
of different banks to use the same machines.
TELE
BANKING
In
this system, the computer at the bank-end is linked to a telephone connected to
a modem. Based on the voice processing facility and the available software, the
bank customer is served. This saves time as the customer need not visit the
bank premises.
INTERNET
BANKING
This
is one more service available to bank customers. Using the internet facility,
bank customers can interact with their bankers and the information /
clarifications are provided online with regard to their account or banking
schemes, etc. This service is very quick and works out cheaper and serves the
customer better. Banking through mobile phone is also available.
BANK
MARKETING SERVICES
Organizations
have to be in tune with changing times. At present, banks are showing a keen
interest in setting up exclusive departments to market their various products
along with other products. With the shift towards Care Banking Solutions the
excess staff members at the branch locations are trained to market the products
effectively. By moving out of their premises and visiting the places of the
customers, the bankers are able to save the customers’ time and explain to them
about various products along with the value added services extended by banks. A
bank, with a well-experienced / trained marketing set up can have an edge over
other competitors and corner the business for the bank. Since varied services
like banking coupled with insurance, mutual fund and other products will be
available at their doorstep, customers will be willing to welcome the move by
the bankers,
Reference
Anim-Addo SK- Principles of Banking Laws 3rd
ed (2007), Chartered Institute of Bankers, Accra
Lekshmy & KC Shekhar - Banking Theory and
Practice (19th ed.) 2007) VIKAS Publishing House, New Delhi
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