In this post we are going to discuss about Special types of customers (Banking)
📌 Individual including Minor
📌 Joint account holder
📌 Partnership firms
📌 Joint stock companies
📌 Executor and Trustee
📌 Clubs and Associations
When a banker opens an account in the name of a customer, there is an agreement between the two parties. This contract will be a valid contract when both parties are eligible to enter into contracts. The ability of a particular class to make a valid agreement is subject to certain legal restrictions, such as minors, lunatics, alcoholics, married women, insolvents, trustees, Executors and administrators.
The banker also needs extra care when dealing with consumers such as public officials, societies, joint stock companies and partner firms. Since the banker has to deal with different types of people with different legal status, he should be very careful about the competency of the customers. Any kind of negligence on the part of the banker can get him into trouble. Therefore, different types of customers need different treatment at the hands of the banker.
A minor is a person who has not attained the age of 18. If a guardian is appointed by a court before an individual has attained the age of 18 years, he remains minor until he attains the age of 21 years. A minor is ineligible to enter into an agreement under Section 11 of the Contract Act but Section 26 of the Negotiable Instruments Act allows a minor to draw, endorse, deliver and negotiate a negotiable instrument.
A minor can refuse a promise or consent. Therefore, a banker should be very careful in dealing with a minor.
Risks in a contract with minor
- If a contract has been made or any money has been offered to the minor, the other party runs the following risks :
- Any money offered to a minor cannot be recovered by force because the contract with the minor is void. This also happens in the case of a minor who falsely presents himself as an adult.
- Since the contract with a minor is null and void from the outset, any amount o lend to him when he was a minor cannot be recovered after he attains majority.
- Even if a guarantee is given for the money obtained by a minor, this guarantee cannot be sued in court if the principal debtor, who is a minor, refuses to repay the loan.
- Even a minor cannot pledge or mortgage the property. Therefore, securities held in the form of a pledge or mortgage by a creditor will not give the original title and cannot be availed in case a minor debtor refuses to repay the loan.
- Even a third party security that is a minor, offered by the minor against the loan on its own capacity, cannot be enforced.
A banker should be very careful in dealing with a minor and take the following precautions.
The banker can open a savings bank account in the name of a minor in any of the following ways.
1. In the name of the minor, it should be operated by the minor’s natural guardian or guardian appointed by the court. An account can also be opened in the joint names of two or more minors, which are operated by the guardian.
2. In the name of the minor, if he himself has reached the age of 12, he should perform the operation himself. Two such minors can jointly open such an account, to be operated upon by them jointly.
3. The date of birth of the minor is recorded in the banks as given by the minor or his guardian . On attaining majority, the minor’s account should be closed in the name of the guardian and the balance paid to the minor (then major) Or be transferred to a new account in his/her name.
4.In case of death of minor ,the balance in the account is allowed to be withdrawn by the guardian.
5.If an advance is given to a minor on a third party guarantee, such advance cannot be recovered from the guarantor as the contract of guarantee is invalid on the ground that the creditor and the principal debtor (minor) itself is a void contract.
6.A minor may draw, endorse or negotiate a cheque or bill but cannot be held responsible for such a cheque or bill. He cannot be sued in connection with a bill passed by him during his minority. The banker must be very careful when dealing with a negotiable instrument, to which a minor is a party.
Lunatics And illiterate persons
Lunatics:– A person with an unsound mind cannot make a reasonable deal. Therefore, the bank should not open an account in the name of an unsound person. But after opening an account with the bank, a customer may become lunatic.
Illiterate Persons : A person who cannot sign his name. When it is necessary to open an account for such a person, the banker should obtain:
(1) Left thumb impression on the account opening form and specimen signature card in the presence of an authorized bank official.
(2) Details of identification must be noted on the account opening form and specimen signature card.
(3) At least two copies of the photographs attested by any account holder or authorized bank official.
A banker can open an account in the name of a married woman. Like any other user, she has the power to run her own account and the bonafide dealing with the account cannot be questioned .She can acquire, keep or dispose off any property in her name. If she takes an overdraft from the bank or raises some loan, her own property will be available to the bank and not her husband’s property.
Precautions to be taken by bank :
- As far as possible, the bank should refrain from increasing overdrafts or granting loans to married women.
- If a loan is to be granted, the bank must secure a substantial amount of its assets, which can be liquidated freely.
- The husband can avoid liability for his wife’s debt, so when a loan is granted to a married woman, the bank should ascertain whether she possesses and liquidable property.
- In case of having a joint account with her husband, the banker should find out who will operate the account and to whom the amount should be paid out on the death of any one of them.
- In the case of purdha women, the bank should be on the safe side, at the time of opening the account and also at the time of withdrawal, her signature should be verified by a responsible person.
Joint account holders
When an account is opened in the name of two or more persons, it is known as a joint account. The process of setting up a joint account is difficult for a banker unless he gets clear instructions from the bank or gets the signature of all the persons associated with the account on the account opening form while opening a joint account in several names.The bank should seek specific written instructions on how to operate the account. Any balance in the joint account can be recovered from any of them through the bank. In the case death of any joint account holder, the balance can be withdrawn by the survivor.
Precautions to be taken by bank:
- A bank should observe the following precautions in maintaining a joint account.
- The application to open a joint account must be signed by all the persons wishing to open a joint account.
- The banker should get clear instructions on how to operate the account. The name of the person or persons who will sign withdrawals or Cheques should be mentioned . In the absence of such instructions, the banker should honour only those cheques signed by all the joint account holders.
- Close the account in case of insolvency or death. Solvent or surviving account holders should be advised to transfer the balance to a fresh account by issuing a cheque.
- If the bank allows overdraft from this account, then concurrence should be sought from the joint account holders. The bank should hold all parties jointly and multiplely responsible for all amount due to the bank. This can be done by including this clause in the agreement.
- In case of notice of cancellation of authority in the account of any party, the bank should suspend the operation of that account.
- Any joint account holder, even if he does not have the authority to operate the account, can stop the payment of the cheque issued on the joint account. The bank should follow these instructions and stop the work.
Partnership firms may also have a joint bank account with the names of all the partners. A banker should study the precautions when opening an account in the name of a firm. The banker should carefully study the partnership deed as it is the firm’s charter.
Precautions to be taken while opening an account in the name of partnership firm:
1. Number of partners : The bank should pay close attention to checking the number of partners. The number of partners does not exceed the legal limit. A firm must have at least two partners. The maximum number of partners is 10 members for carrying on banking and 20 members for the purpose of running other business.
2. Name of the firm : The bank account should be opened in the name of the firm, not in the individual name of the partner / partners. The banker should ensure that all the partners of the firm have signed the account opening application form, the application for opening the account has been made by one of the partners.
3. No delegation of authority: No authorized partner may delegate authority to operate the firm’s account to another person without the written consent of all partners.
4. New account at the time of reconstruction: The banker should close the firm’s account and start a new account in case the firm is restructured due to the entry, death, retirement or insolvency of a partner.
Joint Stock company
A company is a voluntary association of business persons with a common capital that is divided into transferable shares of a fixed value , with limited liability, common seal and permanent succession features.
Banker must take following precautions while opening an account in the name of company:
1. Study the documents: The banker should study important documents properly and carefully such as certificate of incorporation and business commencement certificate, MOA , AOA and prospectus. The banker should also get printed and certified copies of all these important documents for his record.
2. Borrowing power of company: companies have to take money to carry out their business activities. The borrowing capacity of a company is limited by MOA.
Clubs, societies, charities and religious institutions, libraries, schools, colleges, etc., which are not involved in commercial activities, maintain their bank accounts.
The banks should observe the following precautions in dealing with them:
1.Society must be incorporated: Under the Societies Registration Act, 1860, registration of societies is provided for the promotion of literature, science, fine arts or for welfare purposes.Such institutions may also be included under the Companies Act, 2013, or Cooperative Societies acts. A society gets the legal recognition as an entity separate from its members only after its incorporation under any of these Acts. After that, it is empowered to enter into valid agreements and to sue or be used. Therefore, the banker must ensure that the applicant society is a properly incorporated body. An unregistered society cannot be prosecuted under the law.
2. Rules and by-laws of the society: A registered society operates under the provisions of the Act under which it is registered. It may have its own constitution, charter or MOA and rules and regulations to continue its activities. A copy should be provided to the banker by the society so that the latter may be made aware of the powers and functions of the persons handling their affairs. The banker should make sure that these rules are observed by the persons responsible for managing the society.
3. Death or resignation: If a person authorized to run an account on behalf of a society dies or resigns, the banker should suspend the accounting process of the society account unless the society nominates another person to operate its account.
4. Care to be exercised in case of personal accounts: If the person authorized to operate the Society’s account also has his personal account with the same branch of the bank, then the banker has the responsibility to ensure that the society’s funds are not deposited in the said person’s personal account.