Very important legal

  Sole Prop: 

Rationale: There is no difference between the sole proprietary account and individual account.  Hence RBI advised banks to extend the facility of nomination to proprietary concerns also for smooth settlement of accounts.  No legal existence separate from owner.

JOINT HINDU FAMILY (HINDU UNDIVIDED FAMILY) :

A JHF can be formed for ancestral business

A JHF is governed by Hindu Succession Act

Generations : 3

All male members of the family are called as Coparceners and after the amendment of Hindu Succession Act in 2005, even the daughter of a coparcener get the status of a coparcener 

In the Mitakshara school of Thought the son/daughter acquires the right over the JHF property by birth 

In Dayabhaga the son/daughter acquires the right only after the death of his father (West Bengal)

Karta is the eldest coparcener of the family

Karta can bind the share of all the coparceners in JHF property for payment of any loan taken by him for JHF activity

Karta’s liability is unlimited whereas the coparceners’ liability is limited to the extent of their share in the JHF property

Karta can give a mandate to other coparceners (senior) to operate the bank account but not to third parties

Every  6 months confirm / authorize transaction done

Loan  request / document to be signed by all coparceners 

When the Karta dies, the next senior most coparcener will take over as Karta

A JHF cannot be a partner in a partnership firm.

If Karta becomes insolvent, stop operations on the account and await the court order. 

In case of minor coparceners, a signature of guardian is obtained on his attaining majority, fresh HUF letter is obtained.

Bank has designed JHF letter COS 38

CLUBS / ASSOCIATIONS :

Society Registration Act 1860 

Clubs and Associations need not be registered but Banks does not open account for unregistered societies.

If to be registered, then they must be registered with Registrar of Societies

Resolution, Registration Certificate & Bye-Lawsare  important documents to be obtained at the time of opening the account

Any cheque issued by the Secretary can be paid by the banker if presented even after his death

No loans can be given as these are non-trading bodies          

Nonprofit making companies(sec 25 of companies act)

Generally for promotion of Art, Literature, Religion

Govt. approval is required

TRUSTS :

Indian Trust Act 1882 mainly deals with Private Trust

A- Creator/Author/Settler

B – Grand Son / Daughter (beneficiary)

C- Trustee (X/Y/Z)

The trustee is supposed to take care of the trust even after the death of the Creator

A trust can be a Private Trust or a Public Trust which is also known as Charitable Trust

Private Trust is governed by Indian Trust Act whereasPublic Trust is governed by Public Trust  Act of the State concerned

Private Trust can be registered with Registrar of Assurances whereas a Charitable Trust can be registered with Charity Commissioner

There is no ceiling regarding the number of trustees

Trustees are acting in fiduciary capacity

A cheque drawn by a trustee can be paid even after his deathwhereas in the case of a sole trustee it is not paid after his death

Rationale: Trustee of a Trust is acting in a fiduciary capacity.  His death will not affect the trust unless he is sole Trustee.  The Banker can pay the cheques drawn by the Trustee even after his death.  If sole Trustee dies, the cheque will not be paid.  Another Trustee to be appointed by Creator / Court/  Does not affect if there is more than one Trustee.

A trustee cannot delegate his authority to third parties

Sec 190 of Contract Act – A delegate cannot further delegate

All trustees should sign the account opening form

The bank has to go as per the provisions of the trust deed

The bank should not open an account in the name of a trust unless it is clearly indicated in the title of the account

Document to identify the Trustees,Trust deed, Regn Certificate of Charity Commissioner, Resolution to open account, Authorised persons, Power to borrow are to be verified.

Trust accounts are to be scrutinized by the Branch Manager at the time of takeover of the branch and thereafter annually.

An insolvent person can act as a trustee.

In the case of a public trust (chairtable trust), a resolution passed by board of trustees has to be obtained to know the names of the trustees who will be operating the bank account and the mode of operation. It should tally with the provision in the trust deed.

PARTNERSHIP FIRMS :

Partnership act 1932

There should be minimum two partners in a firm as per Sec.4 of Partnership Act and maximum 100 as per Sec.464 of Companies Act

A partner is an agent of firm and also agent of other partners (Sec.18)

A partner has no implied authority for opening a bank account of the firm in his personal name (Sec.19)

Sec 19(1) The partner can bind the firm only if he signs for and on behalf of the firm 

Implied authority of a partner can be curtailed or enlarged by all the partners (sec 20)

Partners’ liability is joint and several(Sec.25)

A minor can be admitted to the benefits of a partnership (sec 30)with the consent of all the partners within 6 months of attaining majority.

A partner cannot continue as a partner if he becomes an insolvent (Sec.34)

Death or insolvency of a partner dissolves the partnership firm unless otherwise stated in the  partnership deed (Sec.42)

When the assets of the firm are insufficient to liquidate its liabilities, then any surplus in the individual partners’ assets after paying off their personal liabilities is brought into the firm and firm’s liabilities are paid off (Sec.49)

Registration of partnership firm is optional (Sec.58) Banks will not give loan to unregistered firms.

But an unregistered firm cannot sue its debtors (Sec.69)

Sec 59 to 61 of act rule in Clayton’s case – 1st creditwill wipe out 1st debit in the Partnership account.

Two firmscannot form a third partnership firm

But two companies can form partnership provided their MOA allows it.

A partner cannot delegate his authority to third parties without the consent of  other partners

A JHF cannot be a partner in the firm

Partnership Deed, Letter, Address proof ,Tel Bill in Firm Name & Partners, Regr. Certificate

Partnership Letter – to inform the Bank any change.Undertaking by the partners that the liability is joint and several.

Identical Firms – where partners are same

Partnership at will – Anyone can retire by giving reasonable notice

The firm is compulsorily dissolved on the happening of any of the following events

       a)  All the partners become insolvent

 b) When the business of the firm becomes unlawful

 c) When a competent court passes an order for the dissolution of the firm

COMPANIES :

One Person Company: Single Man company is different entity / concept. No compulsion on AGM. Minimum Capital 1 lac. Paid up capital up to Rs.50 lacs Turnover upto Rs.2 crores. Convert to Pvt. / Pub Ltd. if crossed.

The minimum paid-up capital of a Private limited company should be NIL and that of Public limited company should be NIL(amended in 2015).

Minimum number of shareholders for a private limited company is 2 and maximum is 200.

Minimum number of shareholders for a public limited company is 7 and there is no restriction regarding the maximum number of shareholders 

The minimum number of directors for a Private limited company should be two and for that of Public limited company should be threemaximum 15 in both cases. Max directors can be increased with prior approval from the central government.

A person can be director of 20 companies; independent director of 7.

One woman director S149(1) Paid up capital 100 crore or more & TO 300 crore or more; one director should be resident Indian.

Directors are acting in fiduciary capacity

Rationale: A company is separate legal entity and the directors are acting in fiduciary capacity.  Therefore, the death of the director will not affect the company.  Hence, Banks do not stop operations on the account of the company.

An insolvent director cannot continue as a director of the company

Borrowing powers of the company is mentioned in the Memorandum of Association whereas the borrowing powers of the directors is mentioned in Articles of Association

A company cannot be declared as an insolvent but it can be wound up

Certificate of commencement of business is issued by the ROC only after 90% of shares of the company are subscribed by the public has been withdrawn now.

Escrow Account – A collection account to be opened for collection of application money (collection of cheque and drafts) No debits allowed only credits

When the entire share capital is held by the Government, the company is called Public Sector Undertaking

If the Government is holding majority share capital of not less than 51%, it is called a Government company

Memorandum of Association contains the objects of the company, its activities, borrowing powers etc.

Articles of Association contain what the Board of Directors can do on behalf of the company to carry on the activities of the company and their borrowing powers.

Directors’ liability is limited to the extent of shares held by them in the company. Hence while  sanctioning a loan to the company, personal guarantee of the directors is obtained to make them personally liable

Death of a director does not dissolve the company. Bank need not stop operations on the account as long as the minimum number of directors as stipulated is maintained

The official liquidator is appointed by the Court when a company goes for compulsory winding up.

If the company decides to wind up voluntarily, then the board of directors appoint a liquidator after taking the approval of the shareholders in the general body meeting

A cheque drawn by a director can be paid even after his death since the director acted in fiduciary capacity. A company is defined as a separate legal entity with perpetual succession.

No separate introduction is obtained while opening an account in the name of company – because the memorandum, articles of association and certificate of incorporation provides enough documentary evidence to prove that the company has come into existence.  These documents can be accessed by the banks online in the website of the ROC.  Therefore, banks do not insist for separate third party introduction.

Board resolution is obtained at the time of opening an account in the name of company – as the resolution authorizes the company to appoint a particular banker as the banker of the company.  Further it also furnishes the name of the officials of the company who are authorized to operate the bank account together with the mode of operation.

DRT MATTERS

1. The normal cut off limit to file an application in DRT shall be Rs.  20 Laksand above

2. Where the cases before Debt Recovery Tribunal are decided, Tribunal awards Certificate of

Recovery (RC – Recovery Certificate).

3. The appeal on a DRT judgment is to be filed at Appellate Tribunal at respective centres

4. Whether already decreed accounts in various courts can be transferred to DRT YES, Where E P

amount reaches Rs. 20 Lakhs & above

5. Cases before DRT are presented by- Empanelled Advcoate

6. An appeal against the decision of DRT can be filed by customers - Before appellate tribunal (DRAT)

7. Time limit for filing application with DRT for Recovery Certificate in respect of civil court decrees

passed for less than Rs.20 lakhs 3 years from the date when the decretal amount accrues to Rs. 20

lakhs

GENERAL ASPECTS

1. Garnishee order is issued by: Any competent court

2. An income tax attachment order has been received in the name of Mr. Mishra who has an FDR

with your branch. The FDR has already matured for payment. Before payment to IT authorities -The

bank need not insist on production of FDR

3. A banker owes to his customer certain duties as implied contract out of which the most important

duty is - Duty of secrecy

4. Under Bankers Book Evidence Act, 1891 certified copies of banks books are admissible as

evidence in the court.

5. Bank A requests the Bank B for opinion on one of its customers. Bank B Will give information in

general terms disclaiming any responsibility

6. The person attesting the thumb impression/furnishes the attestation in Form No.821 must know

the language in which the loan documents are executed

7. Following documents need not be witnessed Agreement, hypothecation, Pledge etc

8. Which of the following documents need attestation? Mortgage Deed, Sale Deed, Will, Indemnity

Bond etc

9. When an advance is made to a Joint Hindu Family, the Loan documents are to be Signed by Only

the Kartha. However it is advisable to get it signed by all major members including female members

and minors to be represented by respective natural guardians.

10. Registration of documents is compulsory under Section 17 of the Registration Act in the case of

Gift, Sale Deed, Simple Mortgage etc

11. Payment of a cheque is complete: When cash is parted with

12. The Registration of a Will is: Optional

 

13. Average Clause ― in the insurance policy restricts the amount of claim in proportion to amount

of insurance and value of security.

14. Following documents can be treated as legally valid only originally typed copy of loan agreement

(not on copy/ carbon copy)

15. Legally, Bank is in order if part of the blank columns in the loan papers are filled up subsequent

to execution, if The executants put their signature authorising such filling up, after filling up

16. Stop payment instructions can be issued by Drawer

17. When cheques or bills of exchange are collected by the bank on behalf of its customer, the

relationship between them is that of A principal and an agent

18. What is the alternative if presenter of a cheque refuses to sign on its reverse? Money can be paid

after obtaining receipt on separate paper

19. A corporate customer requests the bank for returning to them the cheques drawn by them and

already paid by the bank - The cheques can be returned periodically after retaining the true copies

on record. The cost to be borne by the customer

20. Can the original cheques be returned to the drawer after payment?

YES, the bank can return the paid cheques if requested within the period for which bank is required

to preserve them

21. The banker and purchaser of a demand draft have a relationship of Seller and purchaser

22. The Banker can disclose information about the customer - When the customer expressly or

impliedly permits disclosure/when the Banker is compelled by law/when the Banks own interest is to

be protected.

23. In case of telegraphic transfer (RTGS/NEFT) of funds the relationship between the banker and

the remitter is that of Principal and agent

24. Collection of supply bills is undertaken by banks on the strength of Power of Attorney given by

supplier in favour of bank

25. Presentment of the bills received for collection to the drawees is done at - The address

mentioned in the bill/hundi

26. Whether protection is available to the bank for collection of inward bills received by it Under N I

Act NO

27. Banks keep cash in currency chest as a bailee

28. Supply bills are Not accompanied by Document of Title to Goods, are actionable claims and not

governed by N I Act

29. A suit against a common carrier for loss of or injury to goods entrusted to him for carriage

cannot be filed - Unless a written notice of such a loss is given within 6 months from the date of

notice of loss before institution of suit

30. Whether partner‘ s interest in a firm can be attached before judgment YES

31. The time limit for impleading legal heirs in a pending suit is 90 days from the notice of the date

of death

32. The Stop-Payment Instruction given by one of the two joint account holders can be lifted by:

Both of them jointly

33. The periodical interest payable on such deposits should be credited... Credited to respective loan

account, if any loan is a sanctioned against it.

34. With in how many days the rectification and compliance report of shortcomings pointed by

Labour enforcement officials during their inspection under Payment of Gratuity Act, 1972, Equal

Remuneration Act, 1976 and Payment of Bonus Act, 1965 should be sent to Deputy Chief Labour

Commissioner/Regional Lab

our Commissioner and Labour Enforcement Officer -Within 2 days by

Regd Post

SARFEASI ACT

• The act has two parts, first part stands for securitization and reconstruction of financial assets and

other part is enforcement of security interest.

• Eligible assets under the act may be enforced without intervention of court or tribunal with the laid

down procedure under the act.

• If party failed to deposit the amount, possession of charged/ secured assets is obtained from the

bank under section 13(4) of the act. Publication of possession notice in the act within 07 days is

mandatory.

• No secured creditor shall exercise any right, unless exercise of such right is agreed upon by the

secured creditors representing not less than 3/4th in value of the amount outstanding.

• If borrower restricts the bank to take physical possession of secured assets, petition is filed under

section 14 of the act to the CMM/DM praying to get the physical possession of the assets.

• No action is taken before 45 days of taking possession, as 45 days time is given under the act to

appeal against the action of the bank.

• Appeal with DRT can be filed by the party only after taking possession of the assets under section

17 of the act. Thereafter appeal can also be filed with DRAT under section 18 of the act. Civil court

does not jurisdiction to entertain any suit under provision of the act.

• Secured assets can be disposed off / sold giving 30 days notice to the parties concerned followed

by 30 days publication of sale through auction/ tender notice of these assets in the vernacular

newspaper and national daily.

• 60 days notice is served under 13(2) of SARFEASI

• Action is taken for the dues exceed Rs.1 lakh

• Agriculture Land and lease hold property can not be enforced

• Appeal is made within 45 days of possession of secured asset 

• 30 days notice is served indicating there in the sale of asset

• 30 days publication is made for auction of secured assets

• Possession of property is obtained under 13(4) SARFEASI Act

• Publication of possession of property -within 7 days from the date of possession.

• SERFEASI ACT 2002 does not apply to the following assets –

A -lien on any goods, money or security.

B -A pledge of moveable.

C – Creation of any security in any aircraft or vessel.

D – Any property that can not be attached under any other law.

E – Any security interest for securing repayment any financial asset not exceeding Rs.1 lac.

F – Any case in which the amount due is less than 20% of the principal amt.

G – Any interest created in agriculture land.

SECURITISATION & RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF

SECURED ASSETS ORDINANCE 2002 - SARFAESI Act - 2002

1. Is it necessary to classify the account as NPA for initiating action under the Act? YES

2. The above Act is applicable in respect of debts due to Nationalised Banks only

3. The Provisions of the Act are applicable in respect of All NPA a/cs with liability above Rs. 1 lac

4. Enforcement is not possible under this Act in respect of Time barred debts, where the present

liability is less than 20% of principal + int. &where the secured asset is an Agricultural Land

5. Whether limitation is suspended or saved while proceeding under the act? No

6. Movables seized under this Act have to be got valued by Valuer in the panel approved by the

Board of the Bank

7. When there is more than one creditor in respect of a secured asset, action under this Ordinance

can be initiated only if 75% of creditors in value agree

8. Whether advocate can issue notice under the Act? No.

9. Under SARFAESI ACT 2002 whether demand notice is required to be issued to Guarantor also?

Only when the guarantor extends his property as a security apart from his Personal guarantee

10. Can appeal under SARFAESI ACT 2002 would be made to DRT even in cases for claims less than

10 lakhs Appeal can be made with DRT in all the cases

11. For an agricultural loan, if any security other than agricultural land is taken whether it can be

enforced under the act? The Act is not applicable only where the security is agricultural land and

hence, we can enforce the securities in the referred case.

12. Can the Bank entrust the work of taking possession of securities to seizure agent? Authorised

officer alone is entitled to take possession of the property

13. Who is the authority to fix the reserve price when the assets are auctioned? Authorized officer in

consultation with the appropriate authority

14. Who can issue the sale certificate under the act? Authorised officer (SMGS IV and above)

15. Whether Banks attach salary of the borrower/guarantor under the act? No, as these are not

secured assets

16. Provisions of SARFAESI Act 2002 enables the Bank to sell their financial assets to Asset

reconstruction company AND Securitisation company

17. When Mortgaged property is a tenanted property before the mortgage whether under SARFAESI

Act Tenant can be evicted NO Bank has to evict the tenant only through eviction proceedings as per

Law covered under Indian Tenancy Act.

18. Whether the Lease/tenancy created after the Mortgage will bind the Bank No it is not binding

on the Bank

19. Whether the Mortgagor has powers to lease the property As per Sec 65A of Transfer of Property

Act the Mortgagor can lease the property but not for more than 6 months and that too the lease is

subject to mortgage