http://www.andavancollege.ac.in/depts/commerce/comnotes/banking.pdf
TYPES OF CUSTOMERS
PRIMARY FUNCTIONS OF A BANKING SYSTEM
1. Attracts deposits of money from the public
2. For this purpose, the bank can open accounts for the public
3. An account can be opened by a person,
4. He is legally capable of entering into a valid contract.
Follows the procedure and accepts the terms and conditions under the Indian
contract act,1872.
SPECIAL TYPES OF CUSTOMERS
I. MINOR
1. Section 3 of the Indian Majority Act, 1875 A person under the age of
18 years is called a Minor.
2. If a guardian is appointed by the court the age of majority is 21 years. Here
the name of minor is wards.
3. Natural Guardianship of minor
Savings bank account can be opened by minor, represented by his natural
guardian, Here ,natural guardian is father
4. Guardianship summary
MINOR GUARDIANSHIP
1.Boy or unmarried girl 1.Father
2. Father is not alive, mother is a guardian.
2. Illegitimate boy or
illegitimate unmarried girl
1. Mother
2. Mother is not alive, father is alive
3. Minor married girl 1.Husband only
4. Parsis/Christians 1.Father
2.Father is not alive, mother
3.Both are not alive
4.Persons appointed by court
(step father, step mother not included)
5. Muslim 1.Father
2.On death of a father
3.Executor appointed by father’s will4. Father’s father
Executor appointed by the will of father’s father.
6. Mother as a guardian for
opening of accounts
if father is alive
As per RBI guidelines, no overdraft or
loan against such person
without father’s consent
7. Testamentary guardian
for Hindu minor
A Hindu father by will can appoint a guardian in
respect of minor or property. So the testamentary
guardian will act as a guardian ,only after the death
of father and mother
PRECAUTIONARY MEASURES –MINOR
1. Savings bank account only
2. Bank records date of birth of minor
3. Death of Hindu father
4. No overdraft
5. No advance granted to a minor
6. No right to draw, endorse or negotiate a cheque or bill
7. Minor as an agent
8. Minor as a partner.
9. Death of minor
II. MARRIED WOMEN
1. A married woman can enter into the contract in her own name.
2. She has the right to acquire and sell the property, to lend and borrow
money.
3. Current account can be opened in her name
4. If the death of husband, the wife become widow, the banker should not be
liable to pay any amount standing in the joint
Account.
5. Husband may be liable for debts of a married women if the loan is taken by
his consent of authority and
6. Debt is taken for supply of necessaries and households to her.PRECAUTIONARY MEASURES –MARRIED WOMEN
1. Husband is not liable for the debts other than necessaries and households
2. No overdraft for sufficient property
3. Nature of the right to that property
4. No undue influence about providing loan
5. Joint account is safe
6. Hindu married women
a. Hindu succession act, 1956
7. Other religions married women
a. Indian succession act, 1925
8. Married women’s property
a. Married women’s property act, 1874
III. ILLITERATE PERSONS
1. Open only savings account or fixed deposit account
2. He cannot sign so the banker takes his thumb impression instead of his
signature
3. Banker should also get his recent photograph and which should be attested
by the first class magistrate, the reason for identification
4. When he withdraw the amount from his account, he personally comes to
the bank and puts his thumb impression, in the presence of some responsible
officer of the banker
IV. TRUSTEE
1. Section 3, of the Indian Trustees Act, 1882 defines trust as it is a
relationship which arises where a person holds a property for the benefit of
certain other persons or for some objects allowed by law.
2. Trustee is a person, responsibility of managing estate for the benefit of a
person or person s according to will.
3. The person with whom the property is vested with is the trustee. He is
called trust or confidence respond by him.4. Trust deed is a document which is created by trust.
5. Settler is the persons who has settled the property, is the authority of the
trust.
PRECAUTIONARY MEASURES
1. Banker should examine trust deed appointing the person as a trustee
2. Inspect official probate or letter of administration
3. Name of trustees, their powers, functions and the property vested by the
trustee.
4. Incase of 2 or more trustees, the banker should get the clear instructions in
writing of the persons or persons authorized to operate the account
5. Banker should get specimen signature from authorized persons who is
operated by such accounts
6. Trust is an official confidence
7. Trustees cannot delegate their power, they must act personally. Banker
should insist on all the trustees signing cheque in the absence of such
instructions
8. Banker should see that trust funds are not misapplied
9. Banker should not lend to trustee as he does not have general powers to
borrow
V. DRUNKEN PERSONS
1. If a person has sound mind ,he may enter into a valid contract
2. He is capable of understanding
3. But ,if a person alleges that as a result of intoxication, he is incapable of
understanding the nature and terms of contract.
4. Is known to the other party invoke the protection of court of law ,in setting
aside the contract
5. Negotiable instrument transferred to a person who take it in good faith
6. But drunkard cannot deprive the holder in due course and right of the
instrument
7. Bankers have to be careful in getting documents executed by persons,
while he is in a state of intoxication8. Drunkard under the influence of alcoholic drinks ,drugs on the same fosting
as a lunatic
9. Agreement during drunkard is avoided
10. Banker should not honour cheques ,who has written and issued under the
influence of liquor
11.He is not capable of understanding the applications of issuing cheques
12. Customer presents his own cheques ,when he is drunk ,the bank should
not make immediate payment
13. Bank should insist upon a customer ,getting a witness to countersign
,before making any payment against the cheque
VI. LUNATICS
1. He is a person of unsound mind ,incompetent to enter into a valid contract
,because he does not know what is right and what is wrong .Indian Contract
Act,1872
2. Banker refuse to open an account
3. Getting doctor’s certificate or court notice
4. The lunatic person avoid debt, the legal representative should prove at the
time of borrowing
5. Top stop all the operations of the account ,await a court order appointing a
receiver
6. Temporary disorder, obtain a certificate from two reliable medical officers .
VII. EXECUTORS AND ADMINISTRATORS
TESTATOR:
Persons making a will
EXECUTOR:
He is appointed by the testator his will after his death.
ADMINISTRATOR:
1. Who are appointed by the courts, their powers, duties and responsibilities
will be defined by the letter of administration by courts.2. Executors powers and duties mentioned in the will, the will should be
probated, certified by competent court as a bona fide document.
3. On death of a customer , his accounts is automatically stopped and the
banker should not allow further operations
4. When two or more persons are appointed as executors or administrators
,then they should open a joint account with the bank
5. One or more executors may draw cheques on the account ,but a letter of
authority signed by all the executors stating the name/name of persons
6. Banker should prevent the misappropriation of funds of the deceased
7. Banker should not transfer funds from the personal account of the
executors
8. On death, insolvency, insanity or resignation of any of the executor
/administrators, the banker can honour the cheques issued by him and can
continue to operate the account
9. The executor /administrator may pledge the property of the testator, obtain
an overdraft from the banker
VIII. CUSTOMERS ATTORNEY
1. A customer may appoint an attorney to deal with his bank account
2. Power attorney may be either special or general
SPECIAL POWER OF ATTORNEY
The persons so authorized gets power only for some limited purpose
mentioned
GENERAL POWER OF ATTORNEY
The grantor of power authorizes the other person to act on his behalf in all
matters concerning the business.
PRECUTIONARY MEASURES
1. Banker gets a copy of the registered document attested by a notary public
and keep it for his own record.
2. If specific period is mentioned , it must be noted on the top of the accounts ,
so that the account does not continue beyond such period.
3. The banker should take note of all the terms of power of attorney .4. Specific power is granted for opening and operating a bank account by
attorney himself .
5. The banker should note down the name and address of the attorney.
6. Signature to be taken from both principal and attorney by the banker.
7. The banker should not accept conditional power of attorney .
8. Attorney as the agent of the principal.
9. If the principal defects insolvency , death or insanity ,the authority is vested
with the agent.
IX. CLUBS ,SOCIETIES AND CHARITABLE INSTITUTIONS
1. Render service to the public
2. These are registered under societies registration act or the Indian
companies act or the cooperative societies act or Indian trust act
PRECAUTIONARY MEASURES
1. INCORPORATION:
a. A society gets legal recognition
b. It is a property incorporated body
c. Not registered ;have no legal existence no rights to contract with outside
parties
2. CONSTITUTION:
a. Registered societies may have its own constitution , charter or
memorandum of association ,rules and bye laws to carry on its activities
b. These documents enables the banker to know exactly the rights and
powers of the organization
3. RESOLUTION:
a. For opening an account ,resolution must be passed, by the managing
committee
b. Mentioning the names and address of persons who are authorized to
operate the account
c. Copy of resolution obtained by the banker for his own records4. DEATH OR RESIGNATION:
If an authorized person dies or resigns ,the banker should stop the operations
of the account till the society nominates another person to operate his account
5. GRANTING LOANS:
Here also resolution must be passed .while granting loans the banker should
examine the borrowing powers found in the constitution of the club
6. TRANSFER OF FUNDS:
The funds of the society are not being credited to the personal account of the
person or office bearer.
X. JOINT STOCK COMPANIES
1. Capital of the legal company divided into shares
2. Separate legal entity
3. Some shareholder may die or bankrupt ,the company is dissolved
4. Liability of the shareholders is limited
5. Shareholder of a company can sell his shares to others without the
approval of the company or other shareholders
6. Management is entrusted to directors elected by the shareholders from
among themselves
7. Number of shareholders is very large , it is not possible to give the right of
management to all shareholders
8. Certain persons are elected as directors democratically by the shareholders
9. Establishment of the company according to the company law
10.The law generally prescribes what should be done and penalties are levied
for the infringement of law, but the law of the company prescribes what
should be done.
PRECAUTIONARY MEASURES
1. The company has to be incorporated
2. 7 persons must sign the memorandum of association and articles of
association and submit them to the registrar of joint stock companies 3. Memorandum of association mentioned the name of the company ,place of
the registered office , objects , capital, liability of the shareholders willingness
to accept 7 members
4. Articles of association is not submitted by the company , the provisions of
table-A ,apply here.
5. The banker must examine the certificate of incorporation before opening an
account
6. Banker ask the resolution of the board of directors appointing him the
banker of the company
7. He should be an authorized person to conduct bank transactions ,to sign
cheques ,to accept bill of exchange , to entrust valuables for safe custody
8. Banker must also examine the certificate of commencement of business.
After getting this certificate the company can issue the prospectus
9. After the minimum subscription is collected and the directors have paid
their full dues , the registrar issues the certificate of commencement of
business .A company cannot begin without getting this certificate .
10. The banker must also examine the balance sheets, profits and loss
accounts of the company for the last two or three years
TYPES OF CUSTOMERS
PRIMARY FUNCTIONS OF A BANKING SYSTEM
1. Attracts deposits of money from the public
2. For this purpose, the bank can open accounts for the public
3. An account can be opened by a person,
4. He is legally capable of entering into a valid contract.
Follows the procedure and accepts the terms and conditions under the Indian
contract act,1872.
SPECIAL TYPES OF CUSTOMERS
I. MINOR
1. Section 3 of the Indian Majority Act, 1875 A person under the age of
18 years is called a Minor.
2. If a guardian is appointed by the court the age of majority is 21 years. Here
the name of minor is wards.
3. Natural Guardianship of minor
Savings bank account can be opened by minor, represented by his natural
guardian, Here ,natural guardian is father
4. Guardianship summary
MINOR GUARDIANSHIP
1.Boy or unmarried girl 1.Father
2. Father is not alive, mother is a guardian.
2. Illegitimate boy or
illegitimate unmarried girl
1. Mother
2. Mother is not alive, father is alive
3. Minor married girl 1.Husband only
4. Parsis/Christians 1.Father
2.Father is not alive, mother
3.Both are not alive
4.Persons appointed by court
(step father, step mother not included)
5. Muslim 1.Father
2.On death of a father
3.Executor appointed by father’s will4. Father’s father
Executor appointed by the will of father’s father.
6. Mother as a guardian for
opening of accounts
if father is alive
As per RBI guidelines, no overdraft or
loan against such person
without father’s consent
7. Testamentary guardian
for Hindu minor
A Hindu father by will can appoint a guardian in
respect of minor or property. So the testamentary
guardian will act as a guardian ,only after the death
of father and mother
PRECAUTIONARY MEASURES –MINOR
1. Savings bank account only
2. Bank records date of birth of minor
3. Death of Hindu father
4. No overdraft
5. No advance granted to a minor
6. No right to draw, endorse or negotiate a cheque or bill
7. Minor as an agent
8. Minor as a partner.
9. Death of minor
II. MARRIED WOMEN
1. A married woman can enter into the contract in her own name.
2. She has the right to acquire and sell the property, to lend and borrow
money.
3. Current account can be opened in her name
4. If the death of husband, the wife become widow, the banker should not be
liable to pay any amount standing in the joint
Account.
5. Husband may be liable for debts of a married women if the loan is taken by
his consent of authority and
6. Debt is taken for supply of necessaries and households to her.PRECAUTIONARY MEASURES –MARRIED WOMEN
1. Husband is not liable for the debts other than necessaries and households
2. No overdraft for sufficient property
3. Nature of the right to that property
4. No undue influence about providing loan
5. Joint account is safe
6. Hindu married women
a. Hindu succession act, 1956
7. Other religions married women
a. Indian succession act, 1925
8. Married women’s property
a. Married women’s property act, 1874
III. ILLITERATE PERSONS
1. Open only savings account or fixed deposit account
2. He cannot sign so the banker takes his thumb impression instead of his
signature
3. Banker should also get his recent photograph and which should be attested
by the first class magistrate, the reason for identification
4. When he withdraw the amount from his account, he personally comes to
the bank and puts his thumb impression, in the presence of some responsible
officer of the banker
IV. TRUSTEE
1. Section 3, of the Indian Trustees Act, 1882 defines trust as it is a
relationship which arises where a person holds a property for the benefit of
certain other persons or for some objects allowed by law.
2. Trustee is a person, responsibility of managing estate for the benefit of a
person or person s according to will.
3. The person with whom the property is vested with is the trustee. He is
called trust or confidence respond by him.4. Trust deed is a document which is created by trust.
5. Settler is the persons who has settled the property, is the authority of the
trust.
PRECAUTIONARY MEASURES
1. Banker should examine trust deed appointing the person as a trustee
2. Inspect official probate or letter of administration
3. Name of trustees, their powers, functions and the property vested by the
trustee.
4. Incase of 2 or more trustees, the banker should get the clear instructions in
writing of the persons or persons authorized to operate the account
5. Banker should get specimen signature from authorized persons who is
operated by such accounts
6. Trust is an official confidence
7. Trustees cannot delegate their power, they must act personally. Banker
should insist on all the trustees signing cheque in the absence of such
instructions
8. Banker should see that trust funds are not misapplied
9. Banker should not lend to trustee as he does not have general powers to
borrow
V. DRUNKEN PERSONS
1. If a person has sound mind ,he may enter into a valid contract
2. He is capable of understanding
3. But ,if a person alleges that as a result of intoxication, he is incapable of
understanding the nature and terms of contract.
4. Is known to the other party invoke the protection of court of law ,in setting
aside the contract
5. Negotiable instrument transferred to a person who take it in good faith
6. But drunkard cannot deprive the holder in due course and right of the
instrument
7. Bankers have to be careful in getting documents executed by persons,
while he is in a state of intoxication8. Drunkard under the influence of alcoholic drinks ,drugs on the same fosting
as a lunatic
9. Agreement during drunkard is avoided
10. Banker should not honour cheques ,who has written and issued under the
influence of liquor
11.He is not capable of understanding the applications of issuing cheques
12. Customer presents his own cheques ,when he is drunk ,the bank should
not make immediate payment
13. Bank should insist upon a customer ,getting a witness to countersign
,before making any payment against the cheque
VI. LUNATICS
1. He is a person of unsound mind ,incompetent to enter into a valid contract
,because he does not know what is right and what is wrong .Indian Contract
Act,1872
2. Banker refuse to open an account
3. Getting doctor’s certificate or court notice
4. The lunatic person avoid debt, the legal representative should prove at the
time of borrowing
5. Top stop all the operations of the account ,await a court order appointing a
receiver
6. Temporary disorder, obtain a certificate from two reliable medical officers .
VII. EXECUTORS AND ADMINISTRATORS
TESTATOR:
Persons making a will
EXECUTOR:
He is appointed by the testator his will after his death.
ADMINISTRATOR:
1. Who are appointed by the courts, their powers, duties and responsibilities
will be defined by the letter of administration by courts.2. Executors powers and duties mentioned in the will, the will should be
probated, certified by competent court as a bona fide document.
3. On death of a customer , his accounts is automatically stopped and the
banker should not allow further operations
4. When two or more persons are appointed as executors or administrators
,then they should open a joint account with the bank
5. One or more executors may draw cheques on the account ,but a letter of
authority signed by all the executors stating the name/name of persons
6. Banker should prevent the misappropriation of funds of the deceased
7. Banker should not transfer funds from the personal account of the
executors
8. On death, insolvency, insanity or resignation of any of the executor
/administrators, the banker can honour the cheques issued by him and can
continue to operate the account
9. The executor /administrator may pledge the property of the testator, obtain
an overdraft from the banker
VIII. CUSTOMERS ATTORNEY
1. A customer may appoint an attorney to deal with his bank account
2. Power attorney may be either special or general
SPECIAL POWER OF ATTORNEY
The persons so authorized gets power only for some limited purpose
mentioned
GENERAL POWER OF ATTORNEY
The grantor of power authorizes the other person to act on his behalf in all
matters concerning the business.
PRECUTIONARY MEASURES
1. Banker gets a copy of the registered document attested by a notary public
and keep it for his own record.
2. If specific period is mentioned , it must be noted on the top of the accounts ,
so that the account does not continue beyond such period.
3. The banker should take note of all the terms of power of attorney .4. Specific power is granted for opening and operating a bank account by
attorney himself .
5. The banker should note down the name and address of the attorney.
6. Signature to be taken from both principal and attorney by the banker.
7. The banker should not accept conditional power of attorney .
8. Attorney as the agent of the principal.
9. If the principal defects insolvency , death or insanity ,the authority is vested
with the agent.
IX. CLUBS ,SOCIETIES AND CHARITABLE INSTITUTIONS
1. Render service to the public
2. These are registered under societies registration act or the Indian
companies act or the cooperative societies act or Indian trust act
PRECAUTIONARY MEASURES
1. INCORPORATION:
a. A society gets legal recognition
b. It is a property incorporated body
c. Not registered ;have no legal existence no rights to contract with outside
parties
2. CONSTITUTION:
a. Registered societies may have its own constitution , charter or
memorandum of association ,rules and bye laws to carry on its activities
b. These documents enables the banker to know exactly the rights and
powers of the organization
3. RESOLUTION:
a. For opening an account ,resolution must be passed, by the managing
committee
b. Mentioning the names and address of persons who are authorized to
operate the account
c. Copy of resolution obtained by the banker for his own records4. DEATH OR RESIGNATION:
If an authorized person dies or resigns ,the banker should stop the operations
of the account till the society nominates another person to operate his account
5. GRANTING LOANS:
Here also resolution must be passed .while granting loans the banker should
examine the borrowing powers found in the constitution of the club
6. TRANSFER OF FUNDS:
The funds of the society are not being credited to the personal account of the
person or office bearer.
X. JOINT STOCK COMPANIES
1. Capital of the legal company divided into shares
2. Separate legal entity
3. Some shareholder may die or bankrupt ,the company is dissolved
4. Liability of the shareholders is limited
5. Shareholder of a company can sell his shares to others without the
approval of the company or other shareholders
6. Management is entrusted to directors elected by the shareholders from
among themselves
7. Number of shareholders is very large , it is not possible to give the right of
management to all shareholders
8. Certain persons are elected as directors democratically by the shareholders
9. Establishment of the company according to the company law
10.The law generally prescribes what should be done and penalties are levied
for the infringement of law, but the law of the company prescribes what
should be done.
PRECAUTIONARY MEASURES
1. The company has to be incorporated
2. 7 persons must sign the memorandum of association and articles of
association and submit them to the registrar of joint stock companies 3. Memorandum of association mentioned the name of the company ,place of
the registered office , objects , capital, liability of the shareholders willingness
to accept 7 members
4. Articles of association is not submitted by the company , the provisions of
table-A ,apply here.
5. The banker must examine the certificate of incorporation before opening an
account
6. Banker ask the resolution of the board of directors appointing him the
banker of the company
7. He should be an authorized person to conduct bank transactions ,to sign
cheques ,to accept bill of exchange , to entrust valuables for safe custody
8. Banker must also examine the certificate of commencement of business.
After getting this certificate the company can issue the prospectus
9. After the minimum subscription is collected and the directors have paid
their full dues , the registrar issues the certificate of commencement of
business .A company cannot begin without getting this certificate .
10. The banker must also examine the balance sheets, profits and loss
accounts of the company for the last two or three years
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