Various Types of Account

Minor

Minor means a person who is below 18 years of age

According to the Indian Contract Act, a minor is under a legal incapacity to enter into a contract and therefore any contract with minor is void. Thus minor has to have a guardian of his person and property.

·         Whether a minor can draw a valid cheque – Section 26 of the NI Act provides that minor may draw, endorse, deliver and negotiate a negotiable instrument and so minor can draw a cheque. Ordinarily balances in such accounts are subject to a maximum specified amount and that the age of the minor is above 13 years. The account can be continued when the minor attains the majority. It is advisable to take a confirmation of balance in the account signed by him immediately on attaining majority

·         Whether he would, on attaining majority be bound by the withdrawals made by him when he was a minor – yes.

·         No Loan /Overdraft can be given to minor. This is because, a minor can make others liable on the Negotiable Instrument, but he himself cannot be made liable.

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·         Even though a minor is not competent to contract, he can be appointed and act as agent for another person competent to contract. That is he can be agent of his father, but he will not be personally liable for what he does on behalf of the major.

·         A minor below age of 7 can not open an account independently

·         Under Section 30 the Indian Partnership Act, a minor can be admitted to the benefits of the partnership. But the minor is not liable personally for the debts of the firm.

Lunatics

Joint Hindu Family

Joint Account Holders (207)

A joint account is an account opened by two or more persons Insanity of a joint account holder Insolvency of the Joint account Holder

Death of a Joint account Holder As the mandate taken for the operation of the account also deals with survivorship, on the death of one of the joint account holders, the survivors are entitled to the whole amount both under the law of devolution applicable to joint owners and by the customer of bankers. Where the mandate is operation by joint signatures and if one of them dies, the balance is payable (or recoverable from if debit balance) to the survivor and the legal heirs of deceased (or recoverable from estate of deceased in case of debit balance).

Accounts in the Name of Joint Hindu Families (JHF) The members of the family are called coparceners and the eldest male member is the manager or the Karta. When an account in the name of the JHF is opened all the adult coparceners are to sign the Account opening form, even though the Karta would operate on the account.

Accounts in the Name of Partnership Firms (106)

A partner has no authority to give a guarantee on behalf of the firm and if such guarantee is to be given, it should be signed by all partners.

Retirement of Partner

Death of Partner: The death of partner has the legal effect of dissolving the firm, as his legal heirs cannot step into his shoes. The surviving partners have the right to carry on the business for the purpose of winding up.

Any cheque presented for payment should be paid only with the consent of the surviving partners

When the account is in debit balance, the operations should be stopped to fix the liability of the deceased partner.

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Insolvency of partner: Insolvency of any partner will result will result in the dissolution of the firm. A cheque signed by such a partner should not be honored without the confirmation from other partners, who may continue to operate the account for winding up the business.

Partnership account and the partner’s private account

Position of a Minor: under Section 30 the Indian Partnership act, a minor can be admitted to the benefits of the membership. He can therefore become a partner and act as a agent on behalf of the other partners of the firm. But the minor is not liable personally for the debits of the firm.

Collecting Banker – Duties and Responsibilities (84)

1.    Protection available to Collecting Banker

Holder For Value – banker parted with funds before collecting the proceeds of the cheque.

2.    Non-liability of a Banker Receiving Payment of a Cheque Requirements of Section 131

Crossed Cheques – No Statutory protection is extended to cheques which are forged.

Collection on behalf of Customers –The collection should be done on behalf of its Customer.

Receive Payment in good faith and without negligence

Where the endorsement on the cheque or the drafts is fictitious and the collecting bank failed to check it, the collecting bank was not protected under section 131.

If Collecting Bank does not confirm the endorsement on the reverse of the cheque the drawee bank would not be entitled to any protection.

Negotiable Instruments

Bankers’ Duties and Responsibilities (76)

The duties of Paying Banker as regards crossed cheques – Section 126 to 129.





126       Where a cheque is crossed generally/specially



127       Crossed specially to more than one banker except when crossed to an agent for the purpose of collection, the banker on whom it is drawn shall refuse payment thereof.



128       Protection to Paying Banker



129       Crossed generally/specially otherwise to the banker shall be liable to true owner of the cheque for any loss he may sustain.





Section 128: Protection to Paying Banker

Section 131: Protection to Collecting Banker

Paying Banker – Duties and Responsibilities

·         Payment Of Cheques

·         Precautions to be taken

1.    Open or Crossed Cheques

2.    Payment at the branch where account stands

3.    Mutilated Cheques

4.    Cheque must be drawn in proper form

5.    Post-dated/Stale

6.    Stale Cheque – A cheque in circulation for an unreasonably long period is said to be stale.

7.    Amount in words and figures should tally: - if it is stated differently in figures and in words, the amount stated in words shall be the amount ordered to be paid.

8.    Payment within banking hours: Section 65 of N.I. Act: Payment of cheques after banking hours are not ‘Payment in Due Course’ and not eligible for protection under section 10 of the N.I. Act.

9.    Alternation :

10. Material Alternation : Section 87 of NI Act

11. Computational Balance : ‘Effects not cleared, Please present again’

12. Endorsements

13. Forged Signature

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Payment of Cheques and Protection to the Paying Banker Section 10, 31, 85,85A, 87, 89, 126 to 130 of N.I. Act

Section
10	Payment In Due Course	Means  payment  in	accordance  with  the
		apparent  tenor of  the  instrument  in  good
		faith and without negligence to any person in
		possession  thereof	under  circumstances
		which do not afford reasonable ground for
		believing  that  he  is  entitled  to  receive
		payment of the amount mentioned.

Holder For Value – where a banker has parted with funds before collecting the proceeds of the cheque from another banker, the banker is holder for value.

Dishonor of Cheques (92)

The cheque is considered to have bounced and the drawer is considered to have committed offence. But when the drawer has intimated the payee that he shall not present the said cheque without his prior consent in that event such cases will not fall within the frame of Sections 138 to 147.

Banking Operations – Negotiable Instruments

Banking Operations – Negotiable Instruments

Where a bill of exchange, promissory note or cheque is transferred to any person, the instrument is said to be negotiated.

	Cheque	Bill Of Exchange
Drawee	Always drawn on a banker	Not necessarily be drawn
		on a banker
Pay ability	Payable on Demand	May   be   payable   on
		demand  or  may  be  on
		future date
Maturity	Grace Period is not allowed	Three days grace period
		given usuance bill.
Crossing	It can be crossed	Cannot be crossed
Notice Of Dishonor	No notice of dishonor given	Notice of dishonor to be
		given to the drawer.and
		other parties entitled to
		receive the notice.,

Crossing Of Cheques

General Crossing (123)

Not Negotiable Crossing (130)

Special Crossing (124) where a cheque bears across its face in addition of the name of the banker either with or without the words ‘Not Negotiable’

Holder

Holder in Due Course

Endorsement Of Cheques

1.    Endorsement in Blank

2.    Endorsement in Full

3.    Conditional Endorsement – In normal circumstances endorser binds himself to pay upon no other condition than on dishonor of the instrument on due notice of dishonor to him.

4.    Restrictive Endorsement – right of negotiation restricted or excluded by the endorsement. If the instrument is Pay to Mr.M.M. Lal only, then Mr.Lal’s right to negotiate is restricted.

5.    ‘Sans Recourse’ Endorsement – Without recourse/liability to me

Rights of Set-Off

  Rights of Set-Off

The right to combine two accounts is known as set-off.

The right of Set-off is Banker’s discretion.

Right Of Set-Off

1.    The Same name and the same right

2.    Debts due but not future or contingent debts

3.    The debts must be a sum certain absolute before exercising the right of Set-Off

4.    No agreement to the contrary

5.    Banker’s discretion

6.    Right of Set-Off and Garnishee Order

Right of Appropriation

While paying in monies a customer has a right to direct his banker that such payment may be appropriated against a particular debt. If it is not made clear by the Customer, in such cases the banker may exercise his right for appropriation and may apply same in payment of any debt.

Rule in Claytons’ Case

The first item on the debit side of the account is discharges or reduced by the first item on the credit side. The credit entries in the account adjust or set-off the debit entries the debit entries in the chronological order.

Rights of Banker

Lien means right of the creditor to retain possession of goods / securities owned by the debtor till the debt is paid. Lien is of two kinds

Special Lien – Where the rights conferred on the creditor confines to particular

goods, it is called Special Lien.

General Lien – When the right applies to all goods it is called general Lien.

Banker’s General Lien is not applicable in following Safe Custody Articles

Documents / Money Deposited for specific purpose Securities/Valuables left through oversight at the bank’s premises

Immature Debts

Stolen goods

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Mandates

  Mandates

A Mandate is an authority given by the account holder in favour of a third person to do certain acts on his behalf. This is issued by the account holder to his bank. Salient Features

It is unstamped letter signed by the customer

The signature of the person so authorized should be appended in the letter of mandate.

It is for short and temporary period.

In case of joint account holders – all the partner must signed the mandate.

Power of Attorney  is a stamped Document.

There are two types of Power of Attorney

·         Special Power of Attorney – It is for a single transaction

·         General Power of Attorney – empowers an agent to act in more than one transaction.

·         Power of attorney is a stamped document and generally executed in the presence of Notary Public/ Magistrate of a Court of government officials

·         The bank should obtain the original power of attorney for perusal and copy of the same is retained for record purposes.

·         The power of attorney holder must sign as Per Pro-

Attachment Orders

Those issued by the court, called Garnishee orders and

Those issued by Revenue Authorities.

Garnishee Orders

They are issued by a court in favor of judgment of creditors. A garnishee order is issued by two stages

Order Nisi – Freeze or stop all the txns in the debtor account.

Order absolute -

What is Attachable And What is Not?

Amount Specified and Unspecified

Debts due and accruing

Payment of Cheques and Garnishee Order

Right of Set-off and Garnishee Order

Unclear effects, Subsequent Credits and Undrawn overdrafts – Credit into account subsequent to the receipt of the Garnishee Order are not attachable, because the order can attach only debts due or accruing at the time of the

receipt of the order by the banker.

Joint Accounts - If the order is issued for the attachment of A’s deposits, the deposits held jointly by A and B cannot be attached, if the account is operated

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by either or survivor.But if    it is former or survivor (and A is the former) and

money belongs to clearly to the former alone, then it can be attached even if the attachment order mentions only the ‘A’ s name only..

Liquidator if the company is in liquidation, the accounts of the liquidator cannot be attached by a fresh garnishee order because money held by the bank was not debts due to the company, but to the liquidator.

Procedure to be followed by the Bank on Receipt of the GARNISHEE ORDER

Banker must freeze the account and advise the court the full details.

All submission to the court should be done through the bank’s counsel.

If the order is specific, the amount, in excess can be permitted to be withdrawn.

For handling subsequent credits, it may be preferable to open a new account.