TYPES OF ACCOUNTS IN BANKS
The banker has certain legal restrictions for having business relations with certain type of people; like minors, lunatics, drunkards, married women, undischarged bankrupts, agents of all kinds, trustees, executors etc. KYC norms as prescribed by RBI for different types of Customers are to be complied and required documents are to be obtained from the customers.
1. Accounts of minors:
A minor is a person who has not completed eighteen years of age. Any contract entered with minor is void and is not enforceable by law. This prevents minor to acquire property, dispose property or enter into any type of agreement.
The Negotiable Instruments Act 1881 provides that a minor can draw, endorse, deliver & negotiate a negotiable instrument. A minor of any age can open a savings/fixed/recurring bank deposit account through his/her natural or legally appointed guardian. The overdraft facility is not provided as the account should be in credit and the banker has the risk to recover the dues. Minors above the age of 10 years may be allowed to open and operate savings bank accounts independently. On attaining majority the account can be continued where the banker obtains a confirmation letter and the balance is credited. The banker should close the account when the minor attains majority & open a new account. A minor cannot be sued in the court of law. A loan can be granted for purchasing the necessities of life against his properties. A minor can act as an agent & partner.
Banks are free to offer additional banking facilities, such as, Internet Banking, ATM/Debit Card, Cheque Book facility etc., subject to the safeguards that minor accounts are not allowed to be overdrawn and that these always remain in credit.
2. Joint account:
A joint account is an account which is opened by two or more persons jointly, it is simply a joint debt. Such an account is opened by them for the sake of convenience of operation of the account as well as for the withdrawal of money after the death of any one of them.
The person who authorizes to operate the account has the power to withdraw the authority also. The banker should obtain clear instruction from the account holders regarding withdrawal. The authority given to one or more to operate the account automatically ceases when the authoriser dies or becomes insane. Any joint account holder including the one not authorized to operate can stop the payment of a cheque issued on a joint account. If any alterations have been made in the cheques drawn & signed by the person authorized to operate the account, such alterations should be attested by these authorized person and no other joint account holder.
When any joint account holders become insane & a notice have been received by the banker, the bank should immediately suspend the operations of joint account. The banker should get clear instructions in writing from all the joint account holders regarding the withdrawal of the securities in the joint account. If the banker provides any advance or loan or overdraft to the joint account, the banker should establish separate individual liability in addition to their joint liability.
3. Partnership accounts:
The Indian Partnership Act, 1932 defines partnership as the relation between the persons who have agreed to share the profits of a business carried on by all or any of them acting for all of them.
1. The banker should carefully examine the partnership deed to acquaint himself with the constitution & business of the firm.
2. The banker should examine the rights & powers & liabilities of the partners; and also see that the maximum number of partners is two & maximum is ten in banking business & twenty in other businesses.
3. The banker should obtain a letter called “ partnership letter” duly signed by all the partners stating the name of the firm, nature of the business, etc.
4. The banker can open an account in the name of the firm only on the receipt of the application from the partners & all the partners must sign the application form.
5. A partner has no implied authority to open the partnership firm’s account in his own personal name.
6. Generally one or two partners are authorized to operate the account of the firm, for which a mandate is signed by all the partners.
7. The authority given to particular partner to operate the account can be withdrawn by any of the partners by giving a notice to the banker.
8. A partner authorized to operate the account cannot delegate his authority to another person without the consent of all the other partners in writing.
9. The banker should see that any partner does not utilize the funds belonging to the firm for his personal purpose.
10. A partner of a firm acts as an agent of the firm as well as the agent of all the other partners for the purpose of carrying business of the firm.
11. It is advisable for the banker to get a written consent of all the partners of the firm before granting any loan to the firm.
12. The implied authority of a partner does not include the right to transfer immovable property of the firm by mortgage.
13. No partner can bind his co-partners by giving a guarantee on behalf of the firm.
14. The banker should obtain a written consent while granting an overdraft.
15. When the banker receives a notice of retirement from the retiring partner, he should examine the position of the firm’s account & the nature of securities.
4. Trustees Or trust accounts:
The Indian trust act ,1882 defines ‘trust’ as an obligation to the ownership of property & arising out of confidence reposed in & accepted by him for the benefit of another and the owner. The trustee is a person in whom the confidence is reposed and entrusts the management of his property for benefit of a person or an organization called ‘beneficiary’.
1. The banker should thoroughly examine the original trust deed & ascertain the names of the trustees, the powers vested in them, the details of the trust property, etc.
2. The banker should obtain a duly certified copy of the trust deed for his future reference.
3. If the trust is a charitable trust the banker should obtain a certified copy of the registration certificate to know the legality of the trust.
4. The banker should get the account opening form duly signed by the trustee authorized to open & operate the trust account.
5. The banker should get a certified copy of the resolution passed by the trustees regarding the opening of an account with his bank & the names of the trustee who are authorized to operate the account.
6. The banker should also obtain a declaration from all the trustees that they are all willing to act as trustees as per the terms & conditions in trust deed.
7. The trustees are required to act jointly in conducting the affairs of the trust; which they are not to delegate to a third person.
8. If the trust deed provides for delegation then the banker should deal with the trustees authorized to operate the account.
9. The banker should open an account in the name of the trust & obtain the specimen signatures of the trustees authorized to open & operate the account.
10. The powers of the trustees to borrow & to pledge or mortgage any property of the trust depends upon the express provisions of the trust deed.
11. In the case of death or retirement of all the trustees, the new trustees may be appointed by the court.
12. The insolvency of one or more trustees does not effect trust property since it cannot be utilized for payment of the personal debt of the trustee.
13. The banker should not knowingly permit the misuse of trust funds, otherwise the beneficiaries will be held liable.
14. In case of the charitable trust, the banker should examine the registration certificate issued by the charity commissioner as may be prescribed by the state government.
5.Executors & administrators:
The executors & administrators are appointed to settle the accounts of person after his death. Instead of creating a trust to manage their property, they prepare a “WILL” & specify in it the name of the person to manage their property after their death, such person is called as “ executor” If any name is not specified or if the specified person refuses to act as an executor, the court will appoint a person to look after the properties of the deceased person who is called as the “administrator” The person making the will is called “ testator”
1. The banker should stop the operation of the testator’s account, when he receives the message of the death of testator.
2. The banker should insist an official letter issued by the court called” Letter of Administration” to ascertain whether he is the person appointed to execute the property of the deceased.
3. A copy of the letter of probate should be filed for future reference.
4. The banker should close the account of the deceased & transfer the funds to the newly opened account of administrator or executor.
5. If two or more executors & administrators are appointed, they should follow the rules of the joint accounts; and mandate should be obtained for the operation of the account.
6. The banker should insist the signatures of all the executors to the cheque drawn on executors account.
7. Whenever the bank lends to the executors or administrators, it should ensure that such borrowing is authorized in the will & the fund so borrowed is utilized for the purpose for which it is borrowed.
8. The property of the deceased cannot be given as surety for the personal borrowings of the executor.
9. The banker should not make any transfer of funds to the personal accounts of the executors.
10. The borrowings made by the executor to meet the expenses of the deceased estate for clearing the debts will be in his own personal capacity
11. In case of the death or resignation of the executor, the banker need not close the account & allow other executors to operate the account.
12. In case of lunacy of the executor, the banker cannot allow the executor to operate the account, but other executors can operate the account.
13. The account of the deceased cannot be continued beyond a reasonable time, if the banker allows to operate the account, he becomes a party to breach of trust.
6.Clubs & associations:
These are social institutions, which are run to render service to the people at large. These institutions are registered organizations & have their own rules & regulations.
1. The banker should obtain a copy of the by-law of the organization or club & examine the provisions relating to the bank accounts.
2. The banker has to obtain a resolution appointing him as the banker & also another resolution stating the name & designation of those who operate the account.
3. Any advances made or overdraft granted to such clubs, associations, the banker should ensure that proper security is given.
4. The banker can also obtain the personal security of one or more persons of the organization.
5. The banker should be careful while granting advances to unregistered clubs; and if so granted the management of the clubs should be held responsible.
6. Account operation has to be stopped when the authorized person dies & can be continued only after a new person is authorized.
7.Joint Hindu family:
Joint Hindu family is an undivided family which comprises of all male members, descended from a common ancestor. A “JHF” is a family which consists of more than one member, possesses ancestral property & carries on family business
The senior male member is called “ Karta ” & other male members as “ coparceners ”. Karta manages the whole business of the family & the liability is unlimited; whereas coparceners have limited liability. Coparceners can be appointed as managers. The Karta has the power to mortgage & pledge the property of JHF for raising loan.
1. The banker must get complete information about the JHF including the names of major & minor coparceners.
2. The banker should get a declaration from the Karta along with the specimen signatures of all coparceners.
3. The name in which JHF a/c is to be opened has to be ascertained & banker should know who will operate the a/c.
4. While making advance ,the banker should ascertain the purpose of the loan & whether it is required by the JHF for business.
5. If the advance is made for the personal use of Karta or for speculative purposes, JHF & the coparceners are not held responsible for such debts.
6. If a new business is started by the father in a JHF ,then coparceners are liable for such debts, to the extent of their share as the new business is deemed to be JHF business.
7. The Karta has got unlimited liability & the coparceners liability is limited to the extent of share in JHF.
8. MARRIED WOMEN:
The married women is treated like any other man or unmarried lady & can enter into contract & bind her property. As per the law of contract she can enter into contract with the banker & open an account ,draw & endorse cheques. The banker extends overdraft facilities in current accounts, if they are prompt in their dealings & have sufficient property.
9. Joint stock companies:
Definition: A joint stock company has been defined as an artificial person ,invisible, intangible & existing only in the contemplation of law. It is recognized as separate entity as distinct from its members & enjoys perpetual succession.
1. The banker asks for the copies of : Certificate of incorporation, Memorandum ,& Articles of Association, copies of annual a/c.
2. The banker must examine the provisions in memorandum & articles & find out the extent of power that director &other officials have.
3. The banker should keep the copies of memorandum & articles which are certified by company secretary; which is again verified with the registrar of joint stock companies.
4. The banker should also obtain the copy of “Certificate of commencement of business", which empowers the company to commence its business; issued by the registrar of co’s.
5. The banker should get the copies of balance sheets of previous years, to examine the financial status, credibility, turnover, rate of growth & its functioning with other banks.
6. If the company is a new company, the banker should obtain the copy of the prospectus or a statement in lieu of prospectus.
7. The copy of statement is taken to examine the extent of public issue, whether it was oversubscribed or not.
8. The banker should obtain a copy of the resolution appointing him as banker of the company.
9. The resolution specifies the names of persons who have been authorized to operate & execute the bank a/c.
10. The banker should obtain the specimen signature of the persons who operate the a/c.
11. The Indian companies act lays down that the directors or persons empowered to borrow are allowed to borrow only the amount equal to the paid up capital of the company & its free reserves.
12. The maximum borrowing limit mentioned above excludes the short-term loans and loans payable on demand are excluded.
13. The funds borrowed by the directors or any authorized agency should be utilized for the purpose for which it is borrowed.
14. When the company goes into liquidation the directors cannot borrow funds as the borrowing powers ceases on liquidation.
15. If any special powers are given by the liquidator or by the company, they can borrow with the permissible limit.
16. While granting loan against the security of the property, the bank should note that the proposed security does not have any prior charge.