Beruflich Dokumente
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CHAPTER - 2
GENERAL BANKING
BANKING LAWS
Banking Regulation Act
Reserve Bank of India Act
Negotiable Instrument Act
Statutory Ratios
Banker Customer Relation
Different Types of Customers
Garnishee & Income Tax Attachment Order
KYC and AML
Nomination
Customer Service
Banking Ombudsman Scheme,
The consumer Protection Act
Cheque Collection Policy
Compensation Policy
Grievance Red ressal Policy
Code of Banks Commitment to Customers by BCSBI
Right of Information Act
Latest Changes
THE BANKING REGULATION ACT, 1949
An act to consolidate and amend the laws relating to banking
Came in to force w.e.f.16.03.1949. The act was passed as
Negotiability
. Negotiability refer
to following two features in an Instrument:
(i) The instrument is freely transferable by delivery (if it is payable to bearer) and by
endorsement and delivery if it is payable to order; and
(ii) A person (i.e., transferee) taking the instrument bonafide for value (known as a holder in due
course) gets an absolute title to the instrument notwithstanding any defect in the title of the
transferor or any other prior party.
Railway Receipt, Bill of Lading, Ware House Receipts, cannot be called negotiable instruments
because they satisfy the first feature of negotiability but not the second. Such instruments are called
Quasi Negotiable Instruments.
Some of the instruments which cannot be called negotiable instrument because they do not satisfy
the very first feature of negotiability are: (I) Motor Transport Receipt, (ii) Mate
holder of a promissory note, bill of exchange or cheque means any person entitled in his own
name to the possession thereof and to receive or recover the amount due thereon from the parties
thereto.
In order to become a holder:
1. He should have acquired title to the instrument lawfully and in a proper manner i.e. not through
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fraud, coercion, undue influence or by any such illegal method.
2. He should not have stolen or found the instrument, which is lost.
3. He should be the payee or endorsee (if it is an order instrument) and bearer (if it is a bearer
instrument).
Actual possession is not essential legal right to possess is enough
RIGHTS OF A HOLDER
1. A holder is entitled to receive or recover the amount of a cheque/bill/promissory note and give
a good discharge to the person making the payment.
2. He can negotiate the instrument.
3. He can file a suit in his own name against parties liable to pay.
4. He can complete an inchoate stamped instrument.
5. He can claim a duplicate copy of a lost cheque.
HOLDER IN DIFFERENT SITUATIONS:
Order Cheque The payee, or the last endorsee (if any) is the holder
Bearer Cheque Any person to whom the cheque is validly negotiated is the holder
Damaged / lost /
stolen Cheques
Payee or last endorsee who was the holder continues to be its
holder (A thief cannot acquire title to the cheque).
if the thief / finder of a bearer instrument transfers it to a person
who becomes its holder in due course, the latter gets a good
title to the instrument. All subsequent parties deriving title
through him also get good title.
If the finder of an order cheque, forges the signature of the
holder (true owner) and transfers it to another person, the latter
cannot become a holder in due course and accordingly cannot
get a good title to the cheque
The holder of a lost instrument is entitled to get a duplicate of the
instrument from the drawer. In case the drawer does not comply
to his request he can be compelled to give the duplicate (Sec 45-A)
Death of a holder
(payee / endorsee),
his legal heirs
Forged Cheque No holder. The instrument is itself a nullity; There cannot be a
holder-in-due course of such an instrument
If signature of the endorser is forged; the endorsee cannot claim
a good title to the instrument even if he is a holder for value.
The Drawee/acceptor of a bill or the maker of a note continues to
be liable to the true owner even if they make payment to a
wrong person under forged endorsement
However, a paying banker gets statutory protection in case of
payment of cheques having forged endorsement (Sec.85 N.I.
Act)
Who else (other than a holder) can sue?
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An assignee of the instrument
Unregistered firm can only sue as endorsee but not as payee.
HOLDER IN DUE COURSE (Section 9 of N.I. Act)
Holder in due course is a person (payee or endorsee or bearer) who must have the instrument in his
possession after satisfying the following three conditions:
Consideration: He should have got the instrument for adequate and lawful consideration.
(Not by way of gift or no consideration.)
Before maturity: He should have become holder of the instrument before its maturity.
This condition is applicable to usance bills and promissory notes and not a cheque which is
always payable on demand. (A person taking an instrument after it is due has right only
against his immediate transferor (Sec.59).
Good faith: He should have become holder of the instrument without having sufficient
cause to believe that any defect existed in the title of the person from whom he derived his
title.
A Holder-in-due course gets a good title over the instrument notwithstanding any defective title of the
transferor.
Where a cheque is marked
not negotiable
s signature are
in same handwriting (Sec. 42)
A person liable on an NI is not relieved from his liability towards the holder in due course
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on the ground that the bill was lost or obtained by fraud or for unlawful consideration (Sec.
58)
Every prior party to an NI is liable thereon to a holder in due course until the instrument is
duly satisfied (Sec. 36)
HOLDER & HOLDER IN DUE COURSE
Aspect Holder Holder in due course
Consideration Not essential Essential
Good Faith Not essential NI Should have been obtained in
good faith
Title Same as that of
transferor
Transferee
s a/c.
Cheque dated on Sunday/ Holiday: - is paid on the following business day.
Cheques Bearing non-existing (impossible dates) :- cheques dated 31
st
Sept , 30
th
Feb will be
paid on last day of that month i.e. 30
th
Sept , 28/29 Feb etc.
Validity period of cheques: - Normally valid for a period of 3 months. Drawer may restrict
the period shorter than . months, but he cannot extend the period beyond 3 months,
Cheque in favor of Non-existent persons: - Bearer cheque issued in favour of non- existent
/impossible person, like Lord Krishna, can be paid across the counter. However if this cheque
is order one, it should not be paid except to the drawer.
Amount of cheque:- Banker pays the forged amount as alteration was not apparent even with
exercise of reasonable care, Banker would be justified in debiting the account of Customer (Sec-
89).
As per sec 18, if amount in words and figures differs, amount stated in words be paid.
However if customer has written instructions on the cheque restricting the amount like Not over
Rs. 5000/-, the cheques drawn for an amount exceeding Rs. 5000/- should be returned.
Cheque issued in foreign currency is a valid instrument and payment should be made at the rate
of exchange prevailing at the time of presentation.
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Inchoate (incomplete) cheque: (sec-20)
o Holder gets the authority to complete the cheque for any amount (upto the value of stamp,
in case of Bills of exchange).
o The drawer of such instrument, shall be liable even for the excess amount, to the holder in
due course.
o The above provision also applies to cheques. However blank cheque is not a negotiable
instrument, until it is completed, and is handed over to holder in due course.
o The authority to complete such inchoate instrument is only with holder i.e. a person
having stolen blank cheque cannot bind the drawer.
Bearer or order cheque: If nothing is mentioned, a cheque is to be treated as order cheque.
Any further conversion of an order cheque into bearer, requires full signatures of drawer.
Cheque payable jointly: Cheque can be made payable to two or more persons jointly
Forged Signatures:
o When signatures are forged, paying banker has no right to debit the account of a
customer even if the forged signatures exactly match with the original signatures.
o The onus of proving signatures forged lies with the customer.
o Collecting banker is protected u/s 131 of NI act.
o In case of joint accounts (operated jointly) all signatures must be genuine.
Cheque with no date/Incomplete date: A cheque presented for payment without date or
incomplete date is to be returned. The holder of the cheque has the authority to fill/complete
the date, hence when presented again with complete/full date, be paid.
MATERIAL ALTERATION (SEC. 87)
o Alterations which may affect the rights, liabilities, or legal position of the prior parties,
then as originally expressed.
o Example : Alteration to date, payee, amount and the word order to bearer, or in the
endorsement,
o Sec 89 protects a banker if the material alteration is not apparent i.e. it is done in such a
way that it cannot be detected with reasonable care, prudence and scrutiny.
SPECIAL CIRCUMSTANCES / SITUATIONS IN REGARD TO PAYMENT OF
CHEQUES:
DEATH OF DRAWER (in case of
individual, Joint individual, HUF,
Partnership firm, Proprietorship firm)
Relationship is terminated and cheque should not
be paid.
INSOLVENCY of a customer or
liquidation of a company
Payment be made as per direction of official
assignee/receiver
INSANITY of a customer
Payment should be made as per the direction of
court.
DRAWER IS ARRESTED/
CONVICTED
cheque is to be paid
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ACCOUNTS IN REPRESENTATIVE
CAPACITY (a company, a trust, a society
etc) & the authorized representative who
has signed the cheque has expired:,
the cheques signed by representatives such as
director, trustee, secretary etc, who have expired and
cheques bearing date prior to the date of date of
death of such representatives, can be paid.
STOP PAYMENT In PARTNERSHIP FIRM any partner, whether
authorized to operate a/c or not, may issue stop
payment instruction. In case of JOINT
ACCOUNTS OPERATING JOINTLY OR
WITH E/S OPTIONS, any of the Joint account
holders may give instructions for stop payment.
Stopping the payment of a post dated cheque issued
to debt of liability. It is also a criminal offence
under SECTION 138 of the NI act.
NEGOTIATION: (Sec. 14) is the transfer of any instrument from one person to another to convey
title and to constitute the transferee the holder thereof.
Negotiation of order instrument completes by endorsement & delivery (Sec. 48) whereas
negotiation of bearer instruments completes by mere delivery (Sec. 47)
ENDORSEMENTS
Endorsement is defined in Sec. 15 of NI Act as
.
According to (Sec.6 of the Indian Securities Act, 1886) an endorsement made on a
document, elsewhere than the back itself is not valid.
The endorser of a negotiable instrument, by act of endorsing, signifies the following to his endorsee
and any subsequent holder, that, when the instrument left his hand -
1) He had a good title to it.
2) It was genuine in all its particulars at the time of his endorsement.
3) All the previous endorsements were genuine. Thus Sec 122 of the NI Act provides that no
endorser of a negotiable instrument shall, in a suit thereon by a subsequent holder, be
permitted to deny signature or capacity to contract of any prior party to instrument.
4) Further the endorser, by his act of endorsing, promises to indemnify the endorsee or any
subsequent holder for any loss suffered by them on the dishonor of the instrument, provided;
the procedure necessary on dishonor has been duly followed.
5) An endorsement carries with it a right of further negotiation to the endorsee, along with the
right of ownership.
Sec 85 (2) of NI Act states Where a cheque is originally expressed to be payable to bearer,
the drawee is discharged by payment in due course to the bearer thereof, notwithstanding any
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endorsement, whether in full or in blank appearing thereon, and not withstanding that any such
endorsement purports to restrict or exclude further negotiation. This section implies once a
bearer al ways a bearer.
Cheques payable to an illiterate person should be endorsed with his left hand thumb
impression, which should be witnessed by an individual well known to both the parties.
A cheque in the name of the deceased person must be endorsed by his legal representative.
Endorsement in the case of firms can be either in the name of the firm itself, or, it may be by
an authorized agent or by a legally authorized person on behalf of the firm. But the name of the
firm must be mentioned in full. The omission of the word
company
in the endorsement
amounts to an irregular endorsement.
A cheque payable to impersonal payees, e.g. income tax, must be endorsed by the authority in
relation to the impersonal payee.
All endorsement must be done in ink only. Even though, endorsement in pencil is not
prohibited by law, the possibility of alteration/obliteration cannot be avoided in case of
endorsement in pencil.
Who can endorse?: A Holder of an instrument, payee of a cheque or Promissory Note & drawer of
an accepted bill.
Types of endorsement:
Blank endorsement (16-1): endorser signs his name without adding any words or direction.
An order cheque or bill becomes payable to bearer, with the blank endorsement (Sec. 54)
Endorsement in full: Endorsement adds a direction to pay the amount to the order of
specified persons & signs the Negotiable Instrument.
Restrictive Endorsement: (Sec. 50): Further negotiability is restricted eg. Pay Ram
Kumar only.
o Partial endorsement (Sec. 56) Only a part time of Negotiable Instrument is
transferred (not valid for the negotiations)
o Sans recourse (Sec. 52) endorser does not incur any liability
Conditional Endorsement conditions are stipulated. Paying bank is not bound to verify
fulfillment of such conditions. Conditions are binding between endorser & endorsee only.
Facultative Endorsement - Endorser reduces rights or increases his liability by express
word.
Forged Endorsement
o By a person other than the holder by signing the name of holder.
o Endorsee (including a holder in due course) or holder for value, subsequent to forged
instrument do not derive any title.
o Paying bank gets protection (Sec. 85(1), if endorsement is regular
Endorsement by minor - Minors can endorse, but not liable.
CROSSING (SECTION 123 TO 131 OF NI ACT)
1. Crossing is a direction by the drawer to his banker to make payment of a cheque drawn by him.
In general crossing, payment can be made through any bank, while in special crossing; it can
be made only through a specified banker. However in any case, payment can be made through
a bank account only.
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General Crossing: (Sec 123): Important aspect in a crossing is two parallel lines, with
or without the words & CO., Not negotiable etc
Special crossing: (Sec 124): Where a cheque bears across its face, an additional name
of banker with or without transverse lines, cheque is deemed to be crossed specially to
that bank. Such cheques should be paid to that banker or to his agent for collection (sec.
126).
As per section 127, if cheque is crossed specially to more than one bank,(unless one bank is acting
as collecting agent to another)the payment shall be refused.
Not-Negotiable crossing (U/s 130):- This crossing does not restrict transferability; however, the
endorsees do not get a better title than the endorsers.
It is a direction to collecting banker that when the collection is for account of an endorsee instead
of a payee. Failure to ensure genuineness of the endorsement may amount to conversion. The
cheque bearing the
s
a/c is not sufficient to pay all cheques received , Bank has discretion to pay any cheque and
efforts be made to pay cheque of smaller amount first. Cheques representing revenue deptt.,
electricity boards, Insurance Companies etc be paid first..
b) No cheque should be dishonored on account of stipulations for maintaining minimum balance
in an account. Banks may impose separate penalty for the same.
c) Wherever customer has been granted credit limits, any reduction or cancellation thereto, should
be intimated with a notice in writing, giving him a reasonable time to make alternate
arrangements.
d) As per section 45Z(1) of BR Act, bank can return used cheques to drawer, at drawers cost, after
keeping Xerox copies in record. Then the drawer is responsible for its preservation as per
Central Govt Rules.
e) Cheques drawn in favour of a company should not be paid in cash (including a bearer cheque)
and should be credited in Companys account.
f) Cheques drawn in favour of a company and endorsed in favour of 3rd parties and directors and
employees should also not be paid to third person (endorsee). Cheques in favour of the Govt.
Deptt or Corporations are also to be treated similarly.
COLLECTION OF CHEQUES & DUTIES OF COLLECTING BANKER:
Statutory protection against conversion( illegal interference in the property of another person /
collecting a cheque in customer
s another branch.
As per sec 31 of RBI act, demand draft payable to bearer can be issued only by RBI.
Banks relationship with the purchaser of a demand draft is that of a debtor and creditor and
when the draft reaches the payee, its relationship with the payee is that of a trustee and
beneficiary.
IMPORTANT GUIDELINES:
DDs/MTs/TTs Rs. 50000 & above should not be issued/paid against cash.
Cancellation:- May be got cancelled by the purchaser before its delivery to the payee (draft
should not have any sign of negotiation.
Stop payment:-Payment cannot be countermanded by the purchaser.
Validity:
o All Drafts are valid uniformly for a period of 3 months.
o Validity can be extended further by the issuing branch on the request of the purchaser or
the payee.
Dupli cate Draft : -
Issued after getting indemnity from purchaser.
Drafts up to Rs. 5000/-, may be issued without waiting for non- payment advice
from drawee branch.
To be issued to a customer within a maximum period of 15 days; else the banks
should pay interest as applicable to FDR of corresponding maturity for the period of
delay beyond this stipulated period. (This period of fortnight is applicable only if the
request comes from either purchaser or beneficiary and not the 3rd party endorsee)
In case original and duplicate drafts are presented for payment, duplicate be paid and
original be returned with remarks about loss of draft /payment on collecting bank
s
Guarantee.
If draft was handed over to payee and lost thereafter, before making payment to
purchaser by issuing duplicate draft, consent of payee is required, as payee gets legal right
of payment once the draft has been handed over to him (including his agent i.e. post office
etc). The payee also can ask for duplicate draft in terms of section 45 of NI Act.
BILLS OF EXCHANGE AND PROMISSORY NOTES IMPORTANT SECTIONS/
PROVISIONS OF NI ACT:
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Acceptance of Bills:-
Acceptance means signing of a bill and delivery thereof, or giving notice of signing to the drawer.
As per Sec-7, In case of several drawees, each one has to accept for himself, one can accept for
others only if authorized by others to do so.
When bills are drawn on partnership firms, if any one of partners, in his official
capacity/partnership capacity (including sleeping, excluding minor) accepts it, it is binding on the
firm.
In case bill is drawn on two or more persons (not partners), it should be accepted by all. If one of
them refuses, holder may treat it as dishonored
Acceptance for honor (Sec 108) :- When original drawee refuses to accept and bill has been noted
or protested for non acceptance or for better security, a 3rd party, which is no way concerned with
the bill, accepts the bill with the consent of the holder, it is called acceptance for honor. It is
necessary that bill be forwarded for presentment or presented to acceptor for honor, not later than
the day next after day of its maturity (Sec-111). Its maturity is calculated from the date of
acceptance for honor.
Time for acceptance (Sec 63):- 48 hours time (excluding Public holidays) is given to the drawee
for acceptance of a bill, after presentation for acceptance.
As per Sec 83, if holder allows time for more than 48 hours, all the prior parties to the bill are
discharged.
1) Drawee In case of need (Sec 115): The drawer or endorser of a bill may insert, the name of a
person to whom holder can resort to, in case of dishonor of bill. Drawee in case of need is liable
only if he had accepted the bill. The bill is said to be dishonored when it is dishonored by
drawee and drawee in case of need i.e. by both.
Presentment for Acceptance: A Bill Of Exchange, payable after sight, be presented to the drawee
within a reasonable time (if no time is specified) after it is drawn during business hours and on
business day (Sec-61), and,
A Promissory Note payable at a certain period after sight be presented to the maker within a
reasonable time, for sight (Sec-62), by a person entitled to demand payment. If default occurs, no
party shall be liable to the person making such default.
Time period for acceptance: Section 83 allows 48 hours time (exclusive of Public holidays) to the
drawee to accept or reject a bill. If acceptance is not conveyed during this period, bill is treated as
dishonoured for non-acceptance.
Days of Grace: (Section 22): Every promissory note or bill of exchange which is not expressed to be
payable on demand, at sight or on presentment is at maturity on the 3rd day after the day on which
it is expressed to be payable.
When day of maturity is a public holiday, the instruments shall be payable on the next preceding
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business day ( i.e. the previous business day.)
Interest rate: when interest rate is specified in the Bill of Exchange (BOE)/or Promissory Note
(PN), it will be charged accordingly. If no interest is mentioned, Interest will be calculated @
18% p.a. , as per section 80.
Due date calculation:-
a) If a bill is payable
certain number of days after date, usance will commence from the date
following the date of bill, for example a bill dated 2 Feb 1988, payable 30 days after date, it
will be due for payment on 6 March 1988.( 27 Feb (leap year) + 3 March + 3 days of grace.)
Sec 24
b) If a bill is payable
certain number of months after date, maturity will be the on the day of
the month which corresponds with the date of bill. For example due date of bill 2 Feb 1988,
after
after date
or
after sight
insufficient funds
. or
ii) The amount of cheque exceeds the amount arranged to be paid from the account
by an agreement with the bank.
d) The payee or the holder in due course of the cheque makes a demand for payment of
the said amount by giving a notice in writing to the drawer of the cheque within 30
days of the receipt of information by him from the bank regarding the return of
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the cheque as unpaid (earlier 15 days). and
(e) The drawer of such cheque fails to make payment of the said amount to the payee or to
the holder in due course, as the case may be, within 15 days of the receipt of the
notice.
ISSUANCE OF STATUTORY NOTICE AND FILING OF COMPLAINT
3. In terms of Section 142 of the N.I. Act, the complaint can be filed before the Metropolitan
Magistrate or a Judicial Magistrate within one month, after lapse of 15 days from the
date of service of the Demand Notice as mentioned in (e) above.
In terms of Proviso to Section 142 (b) of N.I. Act, the court can condone the delay in
filing the complaint within the prescribed period if complainant satisfies the court that
he had sufficient cause for not making complaint within such period. Sufficient cause
depend upon fact of each case.
4. Service of Demand Notice Honble Supreme Court in the matter of K. Bhaskaran Vs
Sankaran Vaidhyan (2005) (iii) BC 158 (SC) followed by Supreme Court in the matter
of V. Rajakumari Vs P. Subbarama Naidu & Another 2004(8) SCC 774, while
discussing service of demand notice held that the Act provides for giving a notice
making a demand. It is, therefore, clear that giving notice in the context is not the same
as receipt of notice. Once notice has been sent by Registered Post and under Certificate
of Posting to correct address, presumption of service to be raised unless the noticee
proves that it was not really served.
As such, while issuing the notice, the correct addresses of the noticees should be
mentioned and notice should be sent by Registered AD Post and UPC. The demand
notice can be issued through Advocate or as per the draft enclosed (Annexure-I, II & III)
making suitable amendments therein, as per the facts.
5. Jurisdiction for filing Complaints - Honble Supreme Court in the matter of Smt.
Shamshad Begum Vs. B. Mohammed Decided on 3.11.08 analyze the ingredients for
commission of offence and place of filing complaint. The offence under Section 138 of
the Act can be completed only with the concatenation of a number of acts and
concatenation of all the below five is sine qua non for the completion of the offence
under Section 138 of the Act. The acts which are components are as follows:
(i) Drawing of the cheque;
(ii) Presentation of the cheque to the bank;
(iii) Returning the cheque unpaid by the drawee bank;
(iv) Giving notice in writing to the drawer of the cheque demanding
payment of the cheque amount;
(v) Failure of the drawer to make payment within 15 days of receipt of
notice.
5.1 It was held that for the purpose of ascertaining jurisdiction, it is not necessary that the above five
acts should have been perpetrated at the same place. It is possible that each of those five acts could
be done at five different localities. The Complaint can be filed at any place where one of the 5 acts is
done.
6. Representation in complaint by any employee on behalf of company or corporation
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It has been held by the court that the complainant has to be a corporeal person who is
capable of making a physical appearance in the court. It has been held that if a complaint is
made in the name of a incorporeal person (like a company or corporation) it is necessary
that a natural person represents such juristic person in the court. It is held that the court
looks upon the natural person to be the complainant for all practical purpose. It is held that
when the complainant is a body corporate, it is the de jure complainant and it must
necessarily associate a human being as de facto complainant to represent the former in court
proceedings. It has further been held that no magistrate shall insist that the particular person,
whose statement was taken on oath at the first instance, alone can continue to represent the
company till the end of the proceedings. It has been held that there may be occasions when
different persons can represent the company. It has been held that it is open to the de jure
complainant company to seek permission of the court for sending any other person to
represent the company in the court.
(M.M.T.C. LTD. VS. MEDCHL CHEMICALS AND PHARMA (P) LTD. DECIDED ON
19.11.01, AIR 2002 (SC) 182, 2002 (1) SCC 234, 2002 (108) COMPANIES CASES 48)
In view of the above judgment, our bank being a body corporate and acts through its
representative. An application can be moved informing court that the incumbent/other
officials who has filed the complaint has been transferred and in his place name of new
authorized representative is taken on record. Thereafter, new authorized representative can
represent the bank in the complaint. The procedure can be adopted in consultation with
dealing counsel.
In view of above, for prosecution u/s 138 of NI Act the facts required to be proved can be
proved by bank officials by way of affidavit and on the basis of bank record by the present
incumbent/authorized representative. This will obviate need for calling the officials who
have been transferred after filing complaint on behalf of the bank.
7. Punishment Under the Act, Court has power to try cases summarily. In case of any
conviction in a summary trial under this Act, it shall be lawful for the Magistrate to pass a
sentence of imprisonment for a term not exceeding one year and an amount of fine
exceeding five thousand rupees.
Provided further that when in the course of summary trial, it appears to the Magistrate that
the nature of the case is such that a sentence of imprisonment for a term exceeding one year
may have to be passed or that it is, for any other reason, undesirable to try the case
summarily, the Magistrate shall after hearing the parties, record an order to that effect and
thereafter recall any witness who may have been examined and proceed to hear or rehear the
case. In the above circumstances, the Act provides for a punishment with imprisonment for
a term which may extend to two years or with fine which may extend to twice the amount of
cheque or with both.
As per the provision of the NI Act for the offence of dishonor of cheque, the court besides
awarding punishment of imprisonment can also award compensation equivalent to twice the
amount of the cheque. As such, while filing complaint it should be ensured that prayer
should also be made for awarding compensation along with punishment of imprisonment. If
such a prayer is not made, court may not allow compensation.
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8. Offences by Companies (Section 141) - If the person committing an offence is a
company, every person, who at the time the offence was committed, was In charge and was
responsible for the conduct of the business of the company as well as the company, shall be
deemed to be guilty of the offence provided such person shall be permitted to prove that the
offence was committed without his knowledge or that he exercise all due diligence to
prevent the commission of such offence.
8.1 Section 141(2) explains that any Director, Manager Secretary or other officer of the
company can be proceeded against for commission of offence, if it is proved that the
offence was committed with the consent, connivance or is attributable to any neglect
on the part of such persons. Therefore, if complaint is filed against such person also,
in the complaint specific allegation needs to be made against these persons to hold
them liable.
8.2 For the purpose of this Section, company means any body corporate and includes a
firm or other association of individuals and director in relation to a firm means a
partner in the firm. Therefore, the provisions are applicable against incorporated
bodies and association of persons, partners of firms and Director, Manager,
Secretary etc of the Company.
9. Nominee Director - By amendment w.e.f. 6.2.2003, a proviso was inserted in Section 141
of the N.I. Act that where a person is nominated as a Director of a company by virtue of his
holding any office or employment in the Central Government or State Government or
Financial Corporation, owned or controlled by Central or State Government, he shall not be liable
for prosecution.
Therefore, while getting issued a notice under Section 138 to the company and its Directors, it
should be ensured that this notice is not issued to the nominee Director(s).
10. Section 145 - Evidence on Affidavit The evidence of the complainant may be given by him
on Affidavit. The Court shall, if thinks fit, on the application of the prosecution or accused
summons and examine any person giving evidence on affidavit.
11. Section 146 - The Court shall, in respect of every proceeding under this Chapter, on
production of bank's slip or memo having thereon the official mark denoting that the cheque
has been dishonoured, presume the fact of dishonour of such cheque, unless and until such
fact is disproved.
Section 147 Every offence punishable under this Act shall be compoundable.
Limited Liability Partnership Act 2008 (LLP)
LLP is viewed as an alternative corporate business vehicle that provides the benefits of limited
liability but allows its members the flexibility of organising their internal structure as a partnership
based on a mutually arrived agreement.
Government passed the Limited Liability Partnership Act, 2008, which came into force w.e.f. 9th
January, 2009
LEGAL STATUS OF LLP
General Banking Laws: Page 32 of 116
LLP is a body corporate formed and incorporated under the LLP Act which is a distinct legal entity
separate from that of its partners. It has perpetual succession. Any change in the partners will not
affect the existence, rights or liabilities of the LLP.
On Registration, a LLP would be capable of suing and being sued, acquiring, owning, holding and
developing or disposing of property moveable or immoveable. The Act provides for entry of new
partners in accordance with LLP agreement and exit of existing partners both with due notice to the
Registrar of Companies.
MINIMUM NUMBER OF PARTNERS
LLP shall have at least two partners but there is no prescribed limit on the maximum number of
partners in an LLP. Any individual or body corporate may be a partner in LLP. There is no specific
provision to admit minor as a partner in firm. If at any time the number of partners of a LLP is
reduced below two and the LLP carries on business for more than 6 months while the number is so
reduced, the person who is the only partner of the LLP during the time that it so carries on business
after those 6 months and has the knowledge of the fact that it is carrying on business with him alone,
shall be liable personally for the obligation of the LLP incurred during that period.
DESIGNATED PARTNERS AND THEIR OBLIGATIONS
There is a concept of
Designated
Partners
s right of general lien is available only over goods and securities received during normal
course of business but not over those received for specific purpose as an agent or as a trustee
etc. I
Right of Lien is lost when possession is lost. It is available on goods & securities and not on
money or any other thing except goods & securities
A reasonable notice is must before selling the goods/ securities under lien of a bank. Banker
s
right of lien is not barred by law of limitation.
There may be particular lien over particular goods as per specific contract or even a negative lien
i.e. an undertaking not to alienate a security without specific consent of the Bank.
Right of Set Off:
Banker has a right to combine two or more accounts, of a customer in the same name and
same right, if one of them is showing debit balance
This is a statutory right arising on account of contractual obligations between the Bank and its
customers.
Different branches of the bank are treated as one unit for exercising this right. This right is not
available if there is an agreement (express or implied) for not exercising this right.
This right can only be exercised, when debit balance is certain, determined and due ( & not
a future or contingent debt) , after sending notice to the customer and satisfying the
condition that the account must be in the same name and in the same capacity / right.
(ii) An account in the individual capacity of the Customer showing debit balance cannot be
combined with one in fiduciary capacity (i.e. trustee etc.) showing credit balance.
(iii)Accounts really belonging to same persons, but in different names can be combined.
Thus an account of a sole proprietorship concern may be combined with that in his
personal name.
(iv) Two a/cs, of a solicitor, one in his personal name and other marked clients a/ c cannot be
combined.
(v) Two A/cs, one belonging to an individual and other jointly with someone, cant be
combined. The right cant be exercised if the deposit is in the firms name and debt due
is in partner
s name, and also when deposit is in the dividend account of company and
borrowing is in the Co
Order Absolute
.
It is not only debts due and payable (as is the case with a garnishee order), but also any money
held on account of assessee is attached by an Income Tax Attachment Order.
Accordingly, it can attach: (I) Saving Fund and Current Account, (ii) Term Deposit (however,
amount is payable on maturity), (iii) Proceeds of Collection item not credited to account
Joint Account
Even though the order is received in a single name, it attaches balance (pro-rata) in any joint
account maintained by such person. Unless it is proved otherwise, the share of the joint account
holders is considered to be equal (Section 226(3)(iii)).
Procedure before attaching joint account
Account in joint name can be attached only where there is a mention in the order that a copy of the
same is sent to the other joint account holders. In case no such remark is made, the Income Tax
Department should be advised.
.
General Banking Laws: Page 42 of 116
The joint account holders should be asked to establish their claim, if any, to the entire balance to the
exclusion of the person named; in the order. In case they fail to produce Court order/stay order,
within a reasonable time, the bank should act on the presumption made by the Act and pay
proportionate amount to Income Tax Authority.
Account in the name of a deceased or insolvent person
An I.T. attachment order attaches the funds held on account of a deceased or insolvent depositor.
(Garnishee Order does not attach the same).
Attachment of joint account towards the dues payable by a deceased depositor
Where the attachment order relates to the arrears of tax dues on the estate of the deceased depositor,
the balance in the joint account in his name need not be attached.
Accounts in other capacities
If the order is individual name, it does not attach accounts in the name of partnership firms (where he
is a partner) or in the name of a trust (where he is a trustee).
Money held subsequent to receipt of order
As per the Act, the order attaches the money held or that may be subsequently held. Accordingly if
an order is received at 10 AM and an amount is deposited at 11 AM, this amount should also be
attached by the order.
Right of Set Off
The bank is entitled to first exercise its right of set off before acting on the order.
Penalty
Where a bank fails to attach the amount it would be deemed to be an assessee in default.
GBR-2 Page 38 of 98
Action to be taken on receipt of the order
1. On receipt of the order, the customer must be given notice.
2. The account holder must be informed about the payment to I.T.O.
3. Like Income Tax Attachment Order, attachment orders can also be issued under Wealth Tax
Act, The Recovery of Debts due to Banks & Financial Institutions Act, 1993 and also Sales
Tax Acts of different States.
Garnishee vis--vis I T attachment order
Parti cul ars Garni shee I T attachment order
Authority Court Revenue/Tax authority
Amount May be specific Must be specific, else it is a not valid order.
Applicable amount At the time of receipt At the time of receipt and all credits after
receipt
Joint Accounts
Order Single name
Order Joint Names
Not applicable
Applicable
Applicable pro-rata
Applicable
Order in name of Partner,
Trustee, executor, director
etc
Not applicable Not applicable
General Banking Laws: Page 43 of 116
Deceased accounts Applicable Applicable
Insolvents Not applicable Applicable
Undrawn CC or OD
balances
Not applicable Not applicable
Proceeds of cheques/Bills
on collection
Not attached Attached
Future Credits Not attached Attached
Right to set off Available Available
Both received
simultaneously or pending
for payment
Preference to
attachment being State
dues.
Preference to attachment being State dues
Limitation 12 Years being
execution of decree
30 years being Govt dues.
DIFFERENT TYPE OF CUSTOMERS
MINORS
Minor is defined in Section 3 of Indian Majority Act, 1875
A minor (of Indian domicile) is a person who has not completed 18 years of age.
Even when a guardian is appointed by the Court (for the person, or property or both) or a
Court of ward is appointed as guardian a person attains majority on completion of 18 years of
age.
MINOR
S AGREEMENT
A minor is not competent to enter into a contract. All agreements with a minor are void ab-
initio (i.e. invalid from the very beginning) [Ref. Sec 11 of Indian Contract Act, 1872]. [Note:
A contract for the supply of necessaries suitable to the life of a minor is, however, valid].
In case a bank sanctions a loan, or opens deposit account in the name of a minor, it cannot
legally compel him to perform his part of the contract (since there cannot be a contract with a
minor). For this reason, banks never sanction loans/overdraft to minors. However, they open
deposit accounts in the name of minors, after taking necessary precautions. As long as the
account is in credit, the banks run no risk in such accounts.
A person upon attaining majority cannot ratify a contract entered during his
minority. Since a minor is incapable to contract, he can be represented by his
lawful guardian. A lawful guardian, like a trustee, has the power to represent the
minor in dealing with his property. He has got a fiduciary relationship and can
lawfully deal with this property only for the
s father
(iii) the executor appointed by the will made by the fathers father.
Where none of these persons is alive, the minor can be represented only by a legal guardian.
In case of Christians and Persons of other Religions
The father, and on his death, mother acts as natural guardian.
Where both are dead, a person appointed by Court can alone act as guardian.
OTHER IMPORTANT POINTS ON GUARDIANSHIP
Even after conviction, the natural guardian continues to be the natural guardian.
A guardianship can be for the person, or for the property or for both. A legal guardian
appointed for person (and not for the property) is not entitled to open, operate and receive
deposit on behalf of the minor.
In case of Muslims, the natural guardian is guardian only for the property and not the person
of the minor.
TYPE OF DEPOSIT ACCOUNT FOR MINORS
Account can be opened in the name of a minor are broadly the following: (I) Minor
s Account
to be operated by guardian (ii) Minors Account to be operated by mother. (iii) Minors
Account to be operated by himself/herself.
Minors Account Opened and Operated by
General Banking Laws: Page 45 of 116
Guardian Single or Joint A/c.
The guardian can open a deposit account in sole name of the minor to be operated by him on
behalf of the minor. Alternatively he can open a joint account in the name of the minor and
himself.
Guardian
s Power
He can operate the account on behalf of the minor.
He can foreclose the term deposit or avail loan against the same for the benefit of the minor.
His power to operate account/foreclose deposit/borrow against deposit ceases as soon as the
minor attains majority.
When Minor Attains Majority
From the date the minor becomes a major, he has the sole right to operate the account (not the
guardian).
For term deposits maturing for payment on or after a date on which the minor attains
majority, the guardian has no power to foreclose the same. The amount should be paid to the
minor upon his attaining majority.
Advance against Minors Deposit
Should be sanctioned only for the benefit of the
minor. Death of Minor
Balance is payable as a claim case.
Death of Guardian
The balance is treated as a Trust and is paid to the minor upon his attaining majority. During
his minority it can be paid only to his guardian appointed by Court.
Self Operated Minor Account
Minors who have completed 10 years of age, who are literates and can sign uniformly are
permitted to open S.F. or F.D./RD account (not Current Account) in their own name and
operate the same.
- No Cheque book should be issued to the minor customer. (IAD Cir 61/07 dtd. 23.11.07)
Term Deposits
Opening of Term deposits including R.D. can be allowed for any amount.
No advance can be given against such deposits.
IMPORTANT
Mental Health Act, 1987. The Act deals with persons who are mentally ill (persons in need of
treatment by reason of any mental disorder other than mental retardation). Under the Act,
where the Mentally ill person is incapable of taking care of himself, the Distt. Court or where a
direction has been issued under the Act, the Collector of the Distt may appoint any suitable person to
General Banking Laws: Page 46 of 116
be his guardian.
National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and
Multiple Disabilities Act, 1999. (Act deals with persons suffering from disabilities like Autism,
Cerebral Palsy, Mental Retardation and Multiple Disabilities). Under the Act, a parent of a
person with disability or his relative, defined under the Act, may make an application to the local
level committee for appointment of any person of his choice to act as a guardian of persons with
disability. Under the Act, Local Level Committees can be constituted and they are also empowered
to appoint guardian under the Act.
Where guardian of a minor or major person, (suffering from Mental illness And persons,
suffering from disabilities like Autism, Cerebral Palsy, Mental Retardation and Multiple
Disabilities or any existing account holder subsequently acquiring these disabilities), duly
appointed by the competent authority /court under Mental Health Act, 1987 or under The National
Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Mental
Disability Act, 1999 approaches the branch for opening/continuing to operate the account of such
person, such accounts (savings/term deposits and recurring deposit accounts only) may be
opened/allowed to be operated by the guardian appointed under the aforesaid Acts. The
operational guidelines in such cases will be same like existing guidelines, as are applicable for
accounts opened in the name of minor under guardianship.
The guardianship will continue (even after attaining the age of 18 years, in case of minor) as
long as the disability continues.
The guardian, appointed under any of the above Acts, will be asked to furnish once in a year, a
certificate from the appointing Authority that he/she continues to be guardian of such person/s
and has not been removed from the guardianship. Guardian so appointed will be asked to give
affidavit to the Bank that in case his appointment as guardian has been cancelled / elapsed /
withdrawn by the Competent Authority, he will immediately bring this fact to the notice of Bank
and also shall indemnify the Bank in case of any loss to the Ward on account of his not bringing
this fact to the notice of Bank.
No current account will be opened in the name or on behalf of such persons and in no case such
person will be allowed an overdraft.
In case the ward, whose guardian has been appointed under the above two Acts, is minor,
nominee in the account can be appointed by such guardian in terms of the nomination rules.
However, where the ward is major, Guardian will not be permitted to make nomination in
the account. Nomination made during minority of the ward will cease to be operative after the
attainment of age of majority by the ward.
On the death of the guardian, no operation in the account will be allowed unless the new
guardian is appointed by the Competent Authority under the Act.
On the death of the ward, the matter will be dealt as a claim case.
Locker facility will not be allowed to the guardian appointed under the above
General Banking Laws: Page 47 of 116
Acts. ILLITERATE PERSONS
i) Capacity to Contract
Persons who cannot read and write are called illiterates.
Like others, illiterate persons are fully competent to enter into contracts.
However, they can avoid the contract if they can prove that their consent was obtained by
misrepresenting the facts due to their incapability to read. Banks, therefore, must create
sufficient evidence to prove that the illiterate understood the terms and conditions beyond
doubt.
ii) Type of Account
No Current Account should be normally opened in the name of illiterate persons as it would be
difficult to identify his LTI in cheque issued by him.
- SF and Term Deposit Accounts can be opened with condition that withdrawals will be allowed
only in person.
iii) Joint Account
Joint Accounts in the name of two illiterates can be opened after observing usual safeguards.
iv) Operation
No cheque book is to be issued. Withdrawal should be allowed only in person after proper
identification. The passing official will verify in the withdrawal form under his signature to the
effect that the left hand thumb impressions affixed in his presence and the amount withdrawn is
orally confirmed, by the (illiterate) depositor.
Where the illiterate person gives a power of attorney in his account, the mandate should be
attested by a Notary public.
BLIND PERSONS
i) Risks in Opening Account in the Name of Blind Persons
Blind persons are fully competent to enter into contract and there is no legal bar in opening
accounts in their name or getting loan documents executed by them.
- However, in case of dispute they can always argue that the terms and conditions of the account and
the amount paid were misrepresented to them. They may dispute their signature at a later date.
The courts may also believe this on account of their blindness. For this reason banks should be
extra careful while opening and allowing operations in the accounts of blind persons.
ii) Type of Accounts
Current A/c.: Current account should not be opened in the name of a blind person.
Joint Accounts
- Joint Account in the name of two blind persons must not be opened.
iii) Opening and Operation of Account
A respectable person, who should certify that the contents are explained to the blind person in
General Banking Laws: Page 48 of 116
his presence, must witness the signature in the account opening form.
Photographs should be obtained and be used in the same way as is done in case of illiterates.
The visually impaired customer may be allowed to use cheque book provided the Incumbent
Incharge is satisfied that the account holder is capable of conducting his / her account
satisfactorily. Where cheque book / cheque leaves is / are issued, the same should be marked
with ordinary crossing and the word bearer substituted with order so that the payees could
be traced.
Even cheque book / cheque leaves can be issued to the blind customers who put thumb
impression or cannot sign consistently, for certain specified purposes, such as payment of loan
instalments, utility bill payment. In such cases at the time of issuance of cheques, the customer
will also affix his / her left / right thumb impression, as the case may be, on each cheque leaf
and the same should be verified by the Bank
Blind Person
Trust is an obligation, annexed to the ownership of property and arising out of a confidence
reposed in and accepted by the owner or declared and accepted by him for the benefit of
another or of another and the owner.
In simple words, a trust is said to be created when the ownership of a property is transferred
to, somebody with an obligation to hold and manage the same for the benefit of another.
Usually there are three parties to a trust viz.
The person who transfers the property and reposes confidence is called the Author of the trust
or Creator of the trust or Donor or Settler.
The transferee of the property on whom confidence or trust is reposed is called the trustee.
The person for whose benefit the trust is formed, is called beneficiary or donee.
Trust Deed is the document through which a trust is formed. It records the right and
obligations of the trustees. A trust deed should be registered.
APPOINTMENT OF TRUSTEES
The trust deed generally mentions the names of the trustees. Alternatively it may name a
person who will appoint trustees.
It may provide that new trustees can be appointed by the surviving trustees/legal
representative of surviving trustee. In this case, the appointment is done by executing a
deed of appointment
s
responsibility is as good as that of trustee. In case there is misuse of money within his
knowledge, he will be liable for
Doctrine of ownership
by birth
. The HUF consists of one common living ancestor and his male descendents upto three
generations next to him. The HUF is also known as
.
Revocation of Authority : The mandate/authority given for operation of the account can be
revoked by any one of the joint account holders irrespective of whether he is allowed to
operate the account or not.
iv) Signature on the cheque: cheque should be signed by person(s) authorised to operate the
account. Cheques signed by other depositors should be returned unpaid.
v) Alteration in the cheque : Alteration, if any, in a cheques is to be authenticated by the same
person who has signed the cheque, and or by others who are permitted to operate the
account severally.
vi) Stop payment order : Like revocation of the mandate for operation, a stop payment order for
cheques can be validly given by any one of the depositors, even if he is not permitted to
operate the account. Restoration of operation is possible only when all of them sign.)
DEATH, INSOLVENCY OR LUNACY
After the receipt of the confirmend news of death, or insolvency or lunacy of any one of the
joint depositors, the bank must stop operation in the account. Cheques signed by such
depositor should be returned unpaid.
Accounts operated jointly by all depositors
In the case of a joint account unless there is a contract to the contrary the balance is payable to
jointly to the surviving depositors along with the legal heirs of the deceased depositor.
As such unless there is a contract to pay the balance to
either or survivor
or
former or
survivor or
any one or survivor the bank should pay the balance in a joint account to the
surviving depositors and the legal heirs of the deceased depositor.
Either or Survivor Accounts
If the balance is payable to either or survivor, the bank gets a good discharge by paying the
amount to the survivor.
However, if there is a counter claim from the legal heirs of the deceased, the bank should ask
for a court order/legal representation for the disposal of the balance.
In case of S.F. Account, the name of the deceased should be deleted and account should be
General Banking Laws: Page 56 of 116
treated as belonging to the survivor.
DEATH OF A DEPOSITOR, WHEN THE ACCOUNT IS OVERDRAWN
The operatiion of the account should be stopped.
Any credit given to this account will reduce the liability of the deceased person due to
operation of Clayton
s rule.
No fresh debit should be allowed, as the legal heirs of the deceased depositor can not be made
liable for the same.
INSOLVENCY OF A DEPOSITOR
- The operation of the account should be stopped.
- The payment from the account can be made as per the instruction jointly signed by the solvent
depositors and official receiver of the insolvent. In case of a former or survivor account, the
insolvency of the 2nd party does not affect the operation of the account.
DEVOLUTION OF JOINT LIABILITIES (Sec. 46 of Indian Contract Act)
When two or more persons have incurred a debt in their joint names, they are liable to pay the
debt jointly. In case of death of one or more persons, the debt should be jointly paid by the
surviving persons along with the legal heirs of the deceased. Thus a bank can file a suit in joint
names alone.
Banks like to esatablish individual liability of the joint borrowers in addition to their joint
liability. This is done by obtaining promissory note and other documents with joint and several
liability clause.
Several (individual) liability of each joint depositor helps bank in : (I) filling suit in individual
name(s) for the entire liability, (ii) exercising right of set-off from the credit balance available
in the accounts in individual names.
Number of account holders
There are no restrictions but as per RBI directives, banks should examine purpose, nature of business
handled and other relevant aspects relating to business, finance and other aspects.
PARTNERSHIP FIRM
The law relating to partnership firms is codified in Indian Partnership Act.
U/s 4 of the Act, a partnership is a relationship between two or more persons who agree to
share the profits of business carried on by all or any of them acting for all.The contract
(agreement) may be written or oral. The document containing the written agreement is called
partnership deed.
Since partnership arises out of a contract, persons who are incapable of entering into contract
(i.e. minors, insolvents, alien enemy) can not enter into relationship arrangement with others.
Mutual Agency
The most important characteristic of a contract of partnership is that
.
It means each partner can act as an agent of all partners (firm) and can bind them by all his acts
General Banking Laws: Page 57 of 116
during the usual course of business.
Thus a partner has a two fold status. He is an agent of all other partners and also the principal to
all of them. ln other words they are mutually agents to each other.
Sec. 18 of the Act provides that, for purpose of the business of the firm, a partner can act as an
agent for all partners.
In fact law or partnership is an extension of law of
agency. Unlimited Liability (Sec.25)
The liability of partners is unlimited. Not only properties of the firm, but the individual
properties of partners are also liable for the satisfaction of the liabilities of the firm.
All partners are jointly and severally liable for all the debts of the firm. Therefore, for realising
its debts given to a partnership firm, a bank can sue a partner individualy or jointly with other
partners.
The principle of unlimited liability is however, subject to provision laid down in Sec.49 of the
Act. As per this Act, where a firm is dissolved the debts of the firm will be first met out of the
property of the firm and surplus, if any, will be utilised for payment of private debts of partners.
Similarly the personal debts of a partner will be paid first out of his personal assets and surplus, if
any, can be utilised in case of need towards the settlement of the debt of the firm.
Minimum and Maximum Number of Partners
The minimum number of partners can be two.
The partnership Act does not provide for any ceiling in the number of partners. However,
section 11 of Companies Act 1956, provides that the number of partners of a firm carrying on
banking business should not exceed 10 and that carrying any other business 20.
For computing this ceiling the following points may be noted:
i) Where one or more companies are partners of a firm, each company, irrespective of its
number of share holders, is treated as one person/partner.
ii) Firms can not become partners of another firm. Where a firm is said to be partner of
another firm, the number of partners in the former are taken into consideration for
computing this ceiling. A Minor admitted for the benefits is not to be counted towards
number of members.
Similarly a Hindu Undivided Family can not become partner of a firm. But the Karta
or any other co-parcener of the HUF can become a partner of any partnership firm in his
individual capacity.
LAW RELATING TO PARTNERSHIP 1) Registration of the Firm
a. It is not compulsory to register a firm. However unregistered firms suffer from certain
handicaps, and these handicaps indirectly compel firms to get themselevs registered.
Effects of Non-registration (Sec.69)
The partners of an unregistered firm can not sue the firm or any partners of the firm for
enforcing rights arising out of a contract or from the partnership Act.
An unregistered firm can not sue third parties to enforce its rights arising out of a contract.
General Banking Laws: Page 58 of 116
Though the rights of non-registered firm are affected,the right of third party to proceed
legally against the firm to enforce its rights arising out of a contract is not affected by the
fact that the firm is unregistered.
b. Procedure for Registration (Sec. 58 and 59)
A partnership firm can get itself registered at any time (even years after its formation) with
Registrar of Firms of the State where the head office of the firm is located.
For registration, the partners have to file an application giving details of the firm along with
fees. The Registrar records these particulars in the
Certificate of Registration
s case.
In case the bank recognizes the reconstitution it should ask for:
i) Consent letter from guarantor.
ii) Consent form mortgagors to the effect that the mortgage will continue to be available for
the drawings of the reconstituted firm.
iii) Confirmation of balance by all partners.
In case of reconstitution of a firm due to the admission of a partner, a letter from the new
partner should be taken to the effect that he undertakes the liability of the firm incurred
before his admission.
FORMATION OF A NEW FIRM BY THE REMAINING PARTNERS
Where the partnership deed does not provide for reconstitution, the firm cannot be
reconstituted. It stands dissolved on the death/ insolvency/retirement of a partner(s).
In such a case if the remaining partners decide to continue the business, it would be
considered as a new partnership.
All procedure applicable to advance given to a new partnership should be done afresh for this
account.
JOINT STOCK COMPANIES
The Companies Act, 1956 recognizes a stock company as a legal person. It is a separate legal entity.
TYPES OF COMPANIES
Companies limited by shares can be classified into three categories viz., (I) Private Ltd. Co.
(ii) Public Ltd. Co. and (iii) Government Company.
A Private Ltd. Co is a company which by its articles (I) restricts transfer of its shares (ii)
prohibits itself from inviting subscription of shares/debentures from public, (iii) limits the
number of its members to 50.
A Public Ltd. Co does not have such restrictions.
A Government Co. is a company where not less than 51% of the share capital is held by
government (central/state/both).
General Banking Laws: Page 61 of 116
Company Limited by the guarantee:
A company limited by guarantee is a registered company having the liability of its members limited
by its memorandum of association to such amount as the members may respectively undertake to
pay if necessary on liquidation of the company.
DIFFERENCE BETWEEN A PVT. LTD. CO. AND A PUBLIC LTD. CO.
Points of Difference Private Ltd. Co. Public Ltd. Co.
i) Minimum number of shareholders 2 7
ii) Maximum number of shareholders 50 No limit
iii) Transfer of share Restricted Freely
Transferable
iv) Invitation to public for shares & debentures
and fixed deposits
Prohibited Permitted
v) Certificate of commencement of Business Not required Required
vi) Minimum Directors 2 3
vii) Minimum paid up capital Rs. 1 lac Rs. 5 lac
DOCUMENTS RELATING TO COMPANY ACCOUNTS
i) Certificate of Incorporation is issued by Registrar of Companies. This gives the conclusive
proof that all formalities involved in formation of a company are duly complied with.
ii) Memorandum of Association (also known as charter of the company or document of
outdoor management)
Specifies relationship of the company with outside world.
The memorandum of association of every company contains the following six clauses (I) Name
clause (which gives the name of the company), (ii) Place clause (gives address of the registered
office of the company), (iii) Objects clause (gives the activities the company can pursue), (iv)
Liability clause (gives that the liability of shareholders is limited), (v) Capital clause (gives the
maximum capital the company can issue/authorized capital), (vi) Association clause (gives the
consent of the promoters under their signatures that they are desirous of forming a company).
- The object clause usually sets out the powers which the company can exercise for achieving its
objectives. A loan given for an activity which is not stated in objective clause is unauthorized
(ultravires) and cannot be recovered from the company. For this reason memorandum of
association is also called charter of the company.
iii) Articles of Association (Document of indoor management)
Like Memorandum of association it is also a public document.
It contains the rules and regulations for internal management of the company like the powers of
Board of Directors, Rules for conducting meetings, use of common seal, use of borrowing
power etc.
The Articles are subordinated to memorandum.
A public limited company may opt not to register article of association. In that case the rules
and regulations given in Table A in first schedule of the Companies Act will be taken as the
General Banking Laws: Page 62 of 116
article of association of the company.
iv) Certificate of Commencement of Business
Required only in case of public limited companies. Omnibus Resolution
A resolution (passed by Board) authorizing to open account in the name of the company with
any bank at any place is called Omnibus resolution.
An omnibus resolution can be accepted for opening current account. No credit/overdraft facility
is sanctioned in the account, based on such resolution.
OPERATION OF COMPANY ACCOUNT
Cheque signed by an authorized person can be paid even after his death or insolvency.
Cheques payable to a limited company should not be collected in personal account of any
director, employee/ official of the payee company.
Cheques issued by a company in favour of a third party and endorsed by the payee in favour of
a director/employee of the company should not be collected without proper enquiry.
Insolvency
A company cannot be declared insolvent. Where a company cannot pay its debts it can be
liquidated/wound up.
Where one of the directors becomes insolvent, it does not affect operation of account. Cheques
signed by him can be paid. However, after insolvency he cannot act as director.
If one of the two directors of a Private. Ltd. Co. is adjudged insolvent, the operation in the
company
Certificate of
Commencement of Business
.
No cheque book can be issued in such account.
No drawal can be allowed until the company obtains certificate to commence business.
However, bank can transfer the amount or part thereof for investing in short term
deposits. WINDING UP OF COMPANY
General Banking Laws: Page 63 of 116
Winding up or Liquidation is the process by which a company is dissolved.
Winding up can be (I) voluntary, either by shareholders or by creditors (ii) compulsory by
Court, or (iii) through Court supervision.,
On the appointment of a liquidator, all the powers of Board of Directors cease to operate except
when it is otherwise permitted in general body meeting resolution.
In case of death/ resignation of the liquidator the company in general body meeting appoints the
next liquidator.
Order of payment on debts
In case of winding up, the debts of the company are paid in the following order (I) Workmen
dues, (ii) Secured Creditors, (iii) Cost and charges of winding up, (iv) Preferential debts (taxes
etc.) (v) Floating charges, (vi) Unsecured Creditors.
The unsecured Creditors are paid pari passu their claim.
DIFFERENCE BETWEEN PARTNERSHIP AND A COMPANY
PARTNERSHIP COMPANY
A partnership firm is the sum total of persons
(minimum 2 and maximum 20) who have come
together to share the profits of the business carried
on by them or any of them. It does not have a
separate legal entity.
The company has a separate legal entity. It
needs to be incorporated. A public company may
have as many members as it desires subject to a
minimum of 7 members. A private company can
t
have more than 50 members and less than 2.
Liability of partners is unlimited.
Liability of shareholders of a limited company is
limited to the extent of unpaid shares or unpaid
amount guaranteed by the shareholders.
Property of the firm belongs to the partners and
they are collectively entitled to it.
In case of a company the property belongs to
the company and not to its shareholders.
A partner cannot transfer his shares in a
partnership firm without the consent of all other
partners.
Shares may be transferred without the
permission of the other members due to the
absence of provision to contrary in the articles of
associations of the company.
On the death of a partner, the partnership is
dissolved unless there is provision to the
contrary in the Deed of Partnership.
On the death of the shareholder the companys
existence is not affected.
KNOW YOUR CUSTOMER & PREVENTION OF MONEY LAUNDERING GUIDELINES
OBJECTIVE OF KYC/AML NORMS
The Policy has been framed to develop a strong mechanism for achieving the following objectives:
1. To prevent Bank from being used, intentionally or unintentionally, by criminal elements for
Money Laundering or Terrorist Financing activities. KYC procedures also enable the Bank to
know/understand their customers and their financial dealings better, which in turn helps them
to manage the associated risks prudently.
General Banking Laws: Page 64 of 116
2. To enable the Bank to comply with all the legal and regulatory obligations in respect of KYC
/ AML / CFT measures / Obligation of Bank under PMLA 2002 and to cooperate with
various government bodies dealing with related issues
DEFINITION OF CUSTOMER:-
For the purpose of KYC Policy, a Customer is defined as :
(a) a person or entity that maintains an account and/or has a business relationship with the Bank
and/or receives occasional / regular cross border inward remittances under Money Transfer
Service Scheme (MTSS) and/ or undertakes regular/occasional transaction with regard to
purchase/sale of foreign currency notes / traveller cheques;
(b) one on whose behalf the account is maintained, i.e. the beneficial owner. (Beneficial Owner
means the natural person who ultimately owns or controls a client and or the person on whose
behalf a transaction is being conducted,
and includes a person who exercises ultimate effective control over a juridical person);
(c) beneficiaries of transactions conducted by professional intermediaries, such as Stock Brokers,
Chartered Accountants, Solicitors etc. as permitted under the law; and
(d) any person or entity connected with a financial transaction which can pose significant
reputational or other risks to the bank, say, a wire transfer or issue of a high value demand
draft as a single transaction
KYC Policies as per RBI guidelines:
There will be four pillars of KYC policy, as under:
1. Customer Acceptance Policy;
2. Customer Identification Procedures;
3. Monitoring of Transactions; and
4. Risk Management
1. CUSTOMER ACCEPTANCE POLICY defines explicit criteria for acceptance or non-
acceptance of a customer and his / her relationship with the Bank. The broad aspects of the policy
are:
i. Bank will not accept any person / entity barred by law of the land to avail banking
facilities as its customer;
ii. No account should be opened in anonymous / fictitious or benami name (s).
iii. To ensure that new or existing customer
threshold
clean
or the profits of criminal activities are made to appear legitimate.
Money laundering refers to washing of the proceeds or profits generated from Drug
trafficking, People smuggling, Arms, antique, gold smuggling, Prostitution rings,
Financial Frauds, Corruption and Illegal sale of wild life products and other specified
predicate offences
MODUS OPERANDI OF MONEY LAUNDERING Money Laundering consists of three
stages:
1. The first stage involves the Placement of proceeds derived from illegal activities the
movement of proceeds, frequently currency, from the scene of the crime to a place, or
into a form, less suspicious and more convenient for the criminal.
2. The second stage is called Layering. It involves the separation of proceeds from illegal
source through the use of complex transactions designed to obscure the audit trail and
hide the proceeds. The criminals frequently use shell corporations, offshore banks or
countries with loose regulation and secrecy laws for this purpose.
3. The third stage is called Integration. It represents the conversion of illegal proceeds
into apparently legitimate business earnings through normal financial or commercial
operations. Integration creates the illusion of a legitimate source for criminally derived
funds and involves techniques as numerous and creative as those used by legitimate
businesses e.g false invoices for goods exported, domestic loan against a foreign deposit,
purchasing of property and co-mingling of money in bank accounts.
General Banking Laws: Page 71 of 116
LEGAL PROVISIONS
The Prevention of Money-laundering Act, 2002 was enacted to prevent money-laundering. The
enactment of this Act had become necessary to implement the political declaration adopted by the
Special Session of the United Nations General Assembly held in June, 1999 which called upon
Member-States to adopt national money-laundering legislation and programme.
Prevention of Money Laundering Act, 2002
The Prevention of Money Laundering Act, 2002 (PMLA 2002) forms the core of the legal
framewor put in place by India to combat money laundering. PMLA 2002 and the Rules notified
there unde came into force with effect from July 1, 2005 . PMLA 2002 defines money laundering
offence and provides for the freezing, seizure and confiscation of the proceeds of crime.
Maintenance & Preservation of records:
In terms of Section 12 of PMLA Act Rule 3, Banks should maintain for at least 10 years from the
date of cessation of transaction between the bank and the customer, all necessary records of
transaction both domestic and international, in addition to cash transaction of Rs. 10 lac and above.
REPORTING UNDER PMLA
The Prevention of Money-laundering Act, 2002, and the rules there-under require every banking
company, financial institution and intermediary, to furnish to FIU-IND information relating to : -
Cash transactions of the value of more than rupees ten lacs or its equivalent in foreign currency;
- Series of cash transactions integrally connected to each other which have been valued below
rupees ten lacs or its equivalent in foreign currency where such series of transactions have taken
place within a month;
- Cash transactions where forged or counterfeit currency notes or bank notes have been used as
genuine or where any forgery of a valuable security or a document has taken place facilitating
the transactions;
- Suspicious transactions whether or not made in cash.
DEFINITION OF SUSPICIOUS TRANSACTION
WHAT CONSTITUTES A SUSPICIOUS TRANSACTION UNDER PMLA 2002?
Suspicions transaction means a transaction whether or not made in cash which, to a person acting
in good faith
a) gives rise to a reasonable ground of suspicion that it may involve the proceeds of crime; or
b) appears to be made in circumstances of unusual or unjustified complexity; or
c) appears to have no economic rationale or bona fide purpose; or
d) gives rise to a reasonable ground of suspicion that it may involve financing of the activities
relating to terrorism
Broad categories of reason for suspicion and examples of suspicious transactions for a bank/
intermediary are indicated as under:
Identity of Client
- False identification documents
- Identification documents which could not be verified within reasonable time
General Banking Laws: Page 72 of 116
- Non-face to face client
- Doubt over the real beneficiary of the account
- Accounts opened with names very close to other established business entities
Suspicious Background
- Suspicious background or links with known criminals
Multiple Accounts
- Large number of accounts having a common account holder, introducer or
authorized signatory with no rationale
- Unexplained transfers between multiple accounts with no rationale
Activity in Accounts
- Unusual activity compared to past transactions
- Use of different accounts by client alternatively
- Sudden activity in dormant accounts
- Activity inconsistent with what would be expected from declared business
- Account used for circular trading
Nature of Transactions
- Unusual or unjustified complexity
- No economic rationale or bona fide purpose
- Source of funds are doubtful
- Appears to be case of insider trading
- Investment proceeds transferred to a third party
- Transactions reflect likely market manipulations
- Suspicious off market transactions
Value of Transactions
- Value just under the reporting threshold amount in an apparent attempt to avoid
reporting
- Large sums being transferred from overseas for making payments
- Inconsistent with the clients apparent financial standing
- Inconsistency in the payment pattern by client
- Block deal which is not at market price or prices appear to be artificially inflated/deflated
COUNTERFEIT CURRENCY NOTES OR BANK NOTES
Cash transactions where forged or counterfeit currency notes or bank notes have been used
as genuine or where any forgery of a valuable security or a document has taken place
facilitating the transactions.
INDICATIVE LIST OF VARIOUS TYPES OF INDICATORS I.E. CUSTOMER
BEHAVIOUR AND RISK BASED TRANSACTION MONITORING, HIGH & MEDIUM
RISK: CUSTOMERS/ PRODUCTS & SERVICES/ GEOGRAPHIES/ LOCATIONS/ALERTS
FOR BRANCHES/ DEPARTMENTS
1. INDICATIVE LIST OF CUSTOMER BEHAVIOUR & RISK BASED TRANSACTION
MONITORING
General Banking Laws: Page 73 of 116
i. Customers who are reluctant in providing normal information while opening an account,
providing minimal or fictitious information or when applying to open an account,
providing information that is difficult or expensive for the institution to verify.
ii. Customer expressing unusual curiosity about secrecy of information involved in the
transaction.
iii. Customers who decline to provide information that in normal circumstances would make the
customer eligible for banking services.
iv. Customer giving confusing details about a transaction.
v. Customer reluctant or refuses to state a purpose of a particular large / complex transaction/
source of funds involved or provides a questionable purpose and / or source.
vi. Customers who use separate tellers to conduct cash transaction or foreign exchange
transactions.
vii. Customers who deposit cash / withdrawals by means of numerous deposit slips / cheques
leaves so that the total of each deposits is unremarkable, but the total of all credits / debits
is significant.
viii. Customers representatives avoiding contact with the branch.
ix. Customers who repay the problem loans unexpectedly.
x. Customers who appear to have accounts with several institutions within the same locality
without any apparent logical reason.
xi. Customers seeks to change or cancel a transaction after the customer is informed of currency
transaction reporting / information verification or record keeping requirements relevant to
the transaction.
xii. Customer regularly issues large value cheques without balance and then deposits cash.
xiii. Sudden transfer of funds from unrelated accounts through internet (or such other electronic
channels) and subsequent quick withdrawal through ATM.
A. Transactions Involving Large Amounts of Cash
i. Exchanging an unusually large amount of small denomination notes for those of higher
denomination;
ii. Purchasing or selling of foreign currencies in substantial amounts by cash settlement despite
the customer having an account with the bank;
iii. Frequent withdrawal of large amounts by means of cheques, including traveller's cheques;
iv. Frequent withdrawal of large cash amounts that do not appear to be justified by the
customer's business activity;
v. Large cash withdrawals from a previously dormant/inactive account, or from an account
which has just received an unexpected large credit from abroad;
vi. Company transactions, both deposits and withdrawals, that are denominated by unusually
large amounts of cash, rather than by way of debits and credits normally associated with
the normal commercial operations of the company, e.g. cheques, letters of credit, bills of
exchange etc.;
vii. Depositing cash by means of numerous credit slips by a customer such that the amount of
each deposit is not substantial, but the total of which is substantial.
B. Transactions that do not make Economic Sense
i. A customer having a large number of accounts with the same bank, with frequent transfers between
different accounts;
ii. Transactions in which assets are withdrawn immediately after being deposited, unless the
General Banking Laws: Page 74 of 116
customer's business activities furnish a plausible reason for immediate withdrawal.
C. Activities not consistent with the Customer's Business
i. Corporate accounts where deposits or withdrawals are primarily in cash rather than cheques.
ii. Corporate accounts where deposits & withdrawals by cheque/telegraphic transfers/foreign
inward remittances/any other means are received from/made to sources apparently
unconnected with the corporate business activity/dealings.
iii. Unusual applications for DD/TT/PO against cash.
iv. Accounts with large volume of credits through DD/TT/PO whereas the nature of business
does not justify such credits.
v. Retail deposit of many cheques but rare withdrawals for daily operations.
D. Attempts to avoid Reporting/Record-keeping Requirements
i. A customer who is reluctant to provide information needed for a mandatory report, to have the
report filed or to proceed with a transaction after being informed that the report must be filed.
ii. Any individual or group that coerces/induces or attempts to coerce/induce a bank employee not
to file any reports or any other forms.
iii. An account where there are several cash deposits/withdrawals below a specified threshold
level to a avoid filing of reports that may be necessary in case of transactions above the threshold
level, as the customer intentionally splits the transaction into smaller amounts for the purpose of
avoiding the threshold limit.
E. Unusual Activities
i. An account of a customer who does not reside/have office near the branch even though there
are bank branches near his residence/office.
ii. A customer who often visits the safe deposit area immediately before making cash deposits,
especially deposits just under the threshold level.
iii. Funds coming from the list of countries/centers, which are known for money laundering.
F. Customer who provides Insufficient or Suspicious Information
i. A customer/company who is reluctant to provide complete information regarding the purpose of
the business, prior banking relationships, officers or directors, or its locations.
ii. A customer/company who is reluctant to reveal details about its activities or to provide financial
statements.
iii. A customer who has no record of past or present employment but makes frequent large
transactions.
G. Certain Suspicious Funds Transfer Activities
i. Sending or receiving frequent or large volumes of remittances to/from countries outside India.
ii. Receiving large TT/DD remittances from various centers and remitting the consolidated amount to
a different account/center on the same day leaving minimum balance in the account.
iii. Maintaining multiple accounts, transferring money among the accounts and using one account as
a master account for wire/funds transfer.
H. Certain Bank Employees arousing Suspicion
i. An employee whose lavish lifestyle cannot be supported by his or her salary.
ii. Negligence of employees/willful blindness is reported repeatedly.
General Banking Laws: Page 75 of 116
I. Bank no longer knows the true identity
When a bank believes that it would no longer be satisfied that it knows the true identity of the
account holder.
J. Some examples of suspicious activities/transactions to be monitored by the operating staff-
i. Large Cash Transactions
ii. Multiple accounts under the same name
iii. Frequently converting large amounts of currency from small to large denomination notes
iv. Placing funds in term Deposits and using them as security for more loans
v. Large deposits immediately followed by wire transfers.
vi. Sudden surge in activity level.
vii. Same funds being moved repeatedly among several accounts.
viii. Multiple deposits of money orders, Banker's cheques, drafts of third
Parties
ix. Multiple deposits of Banker's cheques, demand drafts, cross/ bearer.
x. Cheques of third parties into the account followed by immediate cash
withdrawals.
xi. Transactions inconsistent with the purpose of the account.
xii. Maintaining a low or overdrawn balance with high activity
Check list for preventing money-laundering activities:
a. A customer maintains multiple accounts, transfer money among the accounts and uses one
account as a master account from which wire/funds transfer originates or into which
wire/funds transfer are received (a customer deposits funds in several accounts, usually in
amounts below a specified threshold and the funds are then consolidated into one master
account and wired outside the country).
b. A customer regularly depositing or withdrawing large amounts by a wire transfer to, from, or
through countries that are known sources of narcotics or where Bank secrecy laws facilitate
laundering money.
c. A customer sends and receives wire transfers (from financial haven countries) particularly if
there is no apparent business reason for such transfers and is not consistent with the
customer's business or history.
d. A customer receiving many small incoming wire transfer of funds or deposits of cheques and
money orders, then orders large outgoing wire transfers to another city or country.
e. A customer experiences increased wire activity when previously there has been no regular wire
activity.
f. Loan proceeds unexpectedly are wired or mailed to an offshore Bank or third party.
g. A business customer uses or evidences or sudden increase in wire transfer to send and receive
large amounts of money, internationally and/ or domestically and such transfers are not
consistent with the customer's history.
h. Deposits of currency or monetary instruments into the account of a domestic trade or business,
which in turn are quickly wire transferred abroad or moved among other accounts for no
particular business purpose.
i. Sending or receiving frequent or large volumes of wire transfers to and from offshore institutions.
j. Instructing the Bank to transfer funds abroad and to expect an equal incoming wire transfer from
other sources.
k. Wiring cash or proceeds of a cash deposit to another country without changing the form of the
General Banking Laws: Page 76 of 116
currency
l. Receiving wire transfers and immediately purchasing monetary instruments prepared for payment
to a third party.
m. Periodic wire transfers from a person's account/s to Bank haven countries.
n. A customer pays for a large (international or domestic) wire transfers using multiple monetary
instruments drawn on several financial institutions.
o. A customer or a non-customer receives incoming or makes outgoing wire transfers involving
currency amounts just below a specified threshold, or that involve numerous Bank or
travelers cheques
p. A customer or a non customer receives incoming wire transfers from the Bank to 'Pay upon
proper identification' or to convert the funds to bankers' cheques and mail them to the
customer or non-customer, when
q. The amount is very large (say over Rs.10 lakhs) o The amount is just under a specified threshold
. o The funds come from a foreign country or o Such transactions occur repeatedly.
r. A customer or a non-customer arranges large wire transfers out of the country which are paid for
by multiple Bankers' cheques (just under a specified threshold)
s. A Non-customer sends numerous wire transfers using currency amounts just below a specified
threshold limit.
2. INDICATIVE LIST OF HIGH RISK CUSTOMERS
i. Individuals and entities in various United Nations' Security Council Resolutions (UNSCRs) such as
UNSC 1267 & 1988 [2011] linked to Al Qaida & Taliban.
ii. Individuals or entities listed in the schedule to the order under section 51A of the Unlawful
Activities (Prevention) Act, 1967 relating to the purposes of prevention of, and for coping
with terrorist activities
iii. Individuals and entities in watch lists issued by Interpol and other similar international
organizations
iv. Customers with dubious reputation as per public information locally available or commercially
available.
v. Individuals and entities specifically identified by regulators, FIU and other competent authorities
as high-risk
vi. Customers conducting their business relationship or transactions in unusual circumstances, such
as significant and unexplained geographic distance between the institution and the location of
the customer, frequent and unexplained movement of accounts to different institutions,
frequent and unexplained movement of funds between institutions in various geographic
locations etc.
vii. Customers based in high risk countries/jurisdictions or locations as identified by FATF from time
to time.
viii. Politically exposed persons (PEPs) of foreign origin, customers who are close relatives of PEPs
and accounts of which a PEP is the ultimate beneficial owner;
ix. Non-resident customers and foreign nationals
x. Accounts of Embassies / Consulates;
xi. Off-shore (foreign) corporation/business
xii. Non face-to-face customers
xiii. High net worth individuals [HNIs]
xiv. Firms with 'sleeping partners'
xv. Companies having close family shareholding or beneficial ownership
General Banking Laws: Page 77 of 116
xvi. Complex business ownership structures, which can make it easier to conceal underlying
beneficiaries, where there is no legitimate commercial rationale
xvii. Shell companies which have no physical presence in the country in which it is incorporated. The
existence simply of a local agent or low level staff does not constitute physical presence
xviii. Investment Management / Money Management Company/Personal Investment Company
xix. Accounts for "gatekeepers" such as accountants, lawyers, or other professionals for their clients
where the identity of the underlying client is not disclosed to the financial institution.
xx. Client Accounts managed by professional service providers such as law firms, accountants,
agents, brokers, fund managers, trustees, custodians, etc
xxi. Trusts, charities, NGOs/NPOs (especially those operating on a cross-border basis) unregulated
clubs and organizations receiving donations (excluding NPOs/NGOs promoted by United
Nations or its agencies)
xxii. Money Service Business: including seller of: Money Orders / Travelers Checks / Money
Transmission / Check Cashing / Currency Dealing or Exchange
xxiii. Business accepting third party checks (except supermarkets or retail stores that accept payroll
checks/cash payroll checks)
xxiv. Gambling/gaming including Junket Operators arranging gambling tours
xxv. Dealers in high value or precious goods (e.g. jewel, gem and precious metals dealers, art and
antique dealers and auction houses, estate agents and real estate brokers).
xxvi. Customers engaged in a business which is associated with higher levels of corruption (e.g.,
arms manufacturers, dealers and intermediaries.
xxvii. Customers engaged in industries that might relate to nuclear proliferation activities or
explosives.
xxviii. Customers that may appear to be Multi level marketing companies etc.
3. INDICATIVE LIST OF MEDIUM RISK CUSTOMERS
i. Non-Bank Financial Institution
ii. Stock brokerage
iii. Import / Export
iv. Gas Station
v. Car / Boat / Plane Dealership
vi. Electronics (wholesale)
vii. Travel agency
viii. Used car sales
ix. Telemarketers
x. Providers of telecommunications service, internet caf, IDD call service, phone cards, phone
center
xi. Dot-com company or internet business
xii. Pawnshops
xiii. Auctioneers
xiv. Cash-Intensive Businesses such as restaurants, retail shops, parking garages, fast food stores,
movie theaters, etc.
xv. Sole Practitioners or Law Firms (small, little known)
xvi. Notaries (small, little known)
xvii. Secretarial Firms (small, little known)
xviii. Accountants (small, little known firms)
xix. Venture capital companies
General Banking Laws: Page 78 of 116
4. LIST OF HIGH / MEDIUM RISK PRODUCTS & SERVICES
i. Electronic funds payment services such as Electronic cash (e.g., stored value and payroll cards),
funds transfers (domestic and international), etc
ii. Electronic banking
iii. Private banking (domestic and international)
iv. Trust and asset management services
v. Monetary instruments such as Travelers Cheque
vi. Foreign correspondent accounts
vii. Trade finance (such as letters of credit)
viii. Special use or concentration accounts
ix. Lending activities, particularly loans secured by cash collateral and marketable securities
x. Non-deposit account services such as Non-deposit investment products and Insurance
xi. Transactions undertaken for non-account holders (occasional customers)
xii. Provision of safe custody and safety deposit boxes
xiii. Currency exchange transactions
xiv. Project financing of sensitive industries in high-risk jurisdictions
xv. Trade finance services and transactions involving high-risk jurisdictions
xvi. Services offering anonymity or involving third parties
xvii. Services involving banknote and precious metal trading and delivery
xviii. Services offering cash, monetary or bearer instruments; cross-border transactions, etc.
5. INDICATIVE LIST OF HIGH / MEDIUM RISK GEOGRAPHIES/ LOCATIONS/
COUNTRIES
Countries/Jurisdictions
i. Countries subject to sanctions, embargoes or similar measures in the United Nations Security
Council Resolutions (UNSCR).
ii. Jurisdictions identified in FATF public statement as having substantial money laundering and
terrorist financing (ML/FT) risks (www.fatf-gafi.org)
iii. Jurisdictions identified in FATF public statement with strategic AML/CFT deficiencies
(www.fatf-gafi.org)
iv. Tax havens or countries that are known for highly secretive banking and corporate law practices
v. Countries identified by credible sources1 as lacking appropriate AML/CFT laws, regulations and
other measures.
vi. Countries identified by credible sources as providing funding or support for terrorist activities that
have designated terrorist organisations operating within them.
vii. Countries identified by credible sources as having significant levels of criminal activity.
viii. Countries identified by the bank as high-risk because of its prior experiences, transaction history,
or other factors (e.g. legal considerations, or allegations of official corruption).
Locations
i. Locations within the country known as high risk for terrorist incidents or terrorist financing
activities (e.g. sensitive locations in Jammu and Kashmir, North east, Naxal affected districts)
ii. Locations identified by credible sources as having significant levels of criminal, terrorist, terrorist
financing activity.
iii. Locations identified by the bank as high-risk because of its prior experiences, transaction history,
or other factors.
6. Indicative List of High Risk Countries:
General Banking Laws: Page 79 of 116
The countries identified by Financial Action Task Force [FATF] as high risk countries which
continue to show deficiencies in their Anti Money Laundering and Combating of Financing of
Terrorism framework will be circulated from time to time.
OPENING OF NEW ACCOUNTS
The main points in opening of an account as per the compliance of policy guidelines are as
under:
INTRODUCTION: --
Introduction can be obtained from an existing account holder / respectable member of a local
community. If the prospective account holder is not in a position to offer the above for
ntroduction than passports / postal identification cards / pay books / Identity cards of armed
forces / police and Govt. departments may also be accepted for the purpose of introduction.
Criteria for proper introduction
It is necessary that the person introducing the prospective customer to the Bank must himself be a
respectable person of the local community who is known to the bank or he should be a customer of
the bank for minimum six months and conduct of his account must be satisfactory. Branch
Manager or any other official of the bank may also introduce an account provided he has sufficient
knowledge about the person introduced.
The introducer should know the prospective customer well.
The introducer should sign bank's prescribed form(s) in token of his having verified the identity,
address and occupation of the prospective customer.
Liabilities of the Introducer
While introduction is not a guarantee by the introducer for the prospective customer's
transactions with the Bank, he should be in a position to identify / trace the account holder in case
of need. Therefore, the intending introducers shall be advised that they should not introduce any
account unless they know the prospective account holder well.
PAN / GIR NUMBER:--
The customer is required to quote his / her permanent account holder / General index number for
opening an account. If he / she has neither of these numbers a declaration on form no. 60 or 61 is
to be obtained. However PAN /GIR no. or furnishing of declaration on form no. 60/61 is NOT
required for opening of time deposits of Rs. 50000/- or less.
While opening a joint account if both / all the account holders have PAN / GIR they may quote the
same or if they want to give form No. 60 / 61, they can give the same, but if for any reason both or all
do not want to give their number, the first named person has to give it necessarily. In case of FD it
should be obtained with each transaction exceeding Rs. 50000.
There is no need to send PAN / GIR no. quoted by the depositor to any designated authority the same
should be retained by the branch. Declaration on Form No. 60 /61, obtained in SF / CA accounts is
also to be retained by the branch along with the AOF.
Quoting of PAN/GIR or furnishing of declaration on form no.60 or 61 is not required where time
deposit account is opened for an amount of Rs. 50000/- or less. This is applicable even when a
depositor desires to put his deposit in different schemes for less then Rs. 50000/ in each scheme but
total amount exceeds Rs. 50000/. This is due to the fact that every deposit is treated as a separate
transaction.
In case of joint accounts at least the first named person has necessarily to quote his PAN/GIR number
General Banking Laws: Page 80 of 116
or submit form no.60/61. PAN/GIR /Declaration is to be obtained at the time of every transaction
exceeding Rs. 50000/. For issue of draft to the debit of accounts amounting to Rs. 50000/- or above
PAN/GIR Number will not be required if once obtained at the time of a/c opening.
It is applicable in all cases i.e. sole proprietorship/ Partnership firms/Ltd. companies/clubs etc.
Quoting of PAN/GIR or submission of Form 60/61 is not required if the amount is deposited by a
crossed cheque or bank credit card, but is required in case of bank drafts/bankers cheque.
As SF/CA is opened with cash, PAN/GIR or Form 60/61 is mandatory.
Declaration on form 60/61 obtained at the time of opening SF/CA is to be retained at the branch
along with AOF. However declaration on form60/61 obtained in case of term deposits is to be sent to
the concerned Director of Income tax (Investigation) in two instalments:-
Forms received up to 30 Sept. to be sent latest by 31
st
October.
Forms received up to 31st.Mar to be sent latest by 30
th
April.
PHOTOGRAPH
Two recent photographs of the account holder should be obtained for all categories of accounts. For
this purpose accounts of local bodies / Banks / Govt. departments (Excluding public sector
undertakings or quasi govt. bodies) are exempted. Separate Photographs for each category of
accounts need not be obtained. The cost of photograph shall be borne by the customer. This
stipulation is applicable to both resident and non-resident account.
Photograph of the person who is authorized to operate the account should always be obtained. In case
of joint accounts photographs of all depositors in whose names the deposit stands should be obtained
except in case of deposit s in the name of minors where guardian
New Account
.
All withdrawals in such new accounts above a certain specified limit (which at present is Rs.
25,000/-) shall be put through the account with the concurrence of the incumbent incharge in
case of Small and Medium branches and by Sr. Manager/Manager (Routine) in case of ELB /
General Banking Laws: Page 82 of 116
VLBs to guard against any fraudulent or doubtful transactions.
Branches should not establish a business relationship until all relevant parties to the relationship
have been identified and the nature of the business they expect to conduct has been established.
However, where it is not possible to verify the identity of the customer at the time of opening
the account, the branches should ensure that the identification of the customer is established
within 15 days of opening the account. During this period, no debit, except for payment of
utility bills, insurance premium, statutory liabilities through cheque, should be allowed.
In case of joint accounts, the applicants, who are not closely related to each other (as can be
inferred from the information given in the account opening form), should be subjected to
establishment of their independent identity and address.
ACCOUNTS OF NON-FACE-TO-FACE CUSTOMERS:
In case of non-face-to-face customers, in addition to the usual customer identification procedures,
enhanced due diligence will be ensured. The prospective customers will be required to submit
certified copies of all the documents presented for the purpose of identification to the satisfaction of
the Bank. [If necessary, additional documents may be called for]. As an additional precaution, in
such cases, the first payment is to be effected through the customers account with another bank
which, in turn, adheres to similar KYC standards.
In the case of cross-border customers, the Bank will ensure that the third party certifying the
supporting documents is regulated and supervised entity and has adequate KYC systems in place.
Introduction of telephone and electronic communication is playing a vital role in day-to-day banking.
At times, requests are received telephonically or electronically to open accounts of those persons who
are stationed at centres other than the branch locations. In case the branches are required to open the
accounts of non-face-to-face customers, i.e. of the customers with whom the branch officials have
not had direct interaction (with the prime holder of individual account or one of the signatories of
non-individual / joint account) at the time of opening the account, the following instructions should
be followed.
Apart from applying usual customer identification procedures, the branches should follow one of the
following methods of opening accounts in case meeting of the prospective customers (resident
Indians) with the authorized branch officials is not possible:
(i) The prospective customers, who are having accounts with our branches, be advised to get the
Account Opening Form attested from the branch concerned which should also complete
the required KYC norms. On receipt of such AOF, complete in all respects, directly from
the branch concerned in a sealed envelope, the accounts may be opened after observing usual
safeguards.
(ii) In other cases, i.e. where there is no branch of our Bank at the centres where the prospective
customers are stationed or they are not having accounts with our branches at that centre, they
should be advised to get themselves introduced on our prescribed AOF from their bankers.
The said AOF, containing full particulars of the prospective customer and signatures (duly
attested by the banker of the party) of the persons authorized to operate the account be got
dispatched through their bankers to the branches where accounts are to be opened.
Besides, an introductory letter from the banker of the party should also be obtained as an
additional safeguard. On receipt of such AOF, directly from the bank concerned in a sealed
envelope, duly complete in all respects, the branch shall get the signatures of the officials
General Banking Laws: Page 83 of 116
verified from the local branch of the banker which has attested the same. In case there is no
such branch of the said banker at the centre where account is to be opened, the branch
concerned shall send a letter by the quickest means of communication to the banker
concerned who has introduced the prospective customer seeking confirmation about the
introduction given in the AOF. On receipt of confirmation from the introducing bank and
being satisfied with the introduction, the accounts may be opened by the branch after
observing usual safeguards. In no case the letter seeking confirmation from the banker of the
party and the return letter containing confirmation of the banker be delivered / received from
the representative of the party.
In case requests for opening such accounts in the name of non-residents come from persons residing
outside the country, the branches should, besides being guided by the guidelines issued by the
International Banking Division with regard to information and documents to be obtained from such
persons, abide by the following instructions:
i) AOF and the required documents of such persons be duly certified by our correspondent
banks situated in the country in which such persons are residing.
ii) Photographs of the prospective customers and their signatures must be attested by the
correspondent banks.
iii) The correspondent banks, which are attesting the AOF and documents, should be fully
KYC compliant.
iv) Accounts of persons residing in High Risk and Medium Risk countries should not be
opened at all.
v) Accounts of individuals / entities, which are in the banned list of the Reserve Bank of
India / Government of India / Security Council Committee of the UNO, should not be
opened at all.
APPLICABILITY OF REDUCED KYC PROCEDURE:
Persons, who are not in a position to produce documents for the purpose of verification of their
identity and address but intend to keep balances not exceeding Rs. 50,000/- in all their accounts
taken together and total credit in all the accounts taken together not expecting to exceed Rs. 1
lac in a year, may be allowed to open accounts with the following conditions:
Introduction from another account holder who has been subjected to full KYC procedure. The
introducer
s account with the branch should be at least six months old and should show satisfactory
transactions. Photographs of the customer as well as his / her address, who proposes to open the
account, should be certified by the introducer. OR
Any other evidence as to the identity and address of the customer together with his / her photograph
to the satisfaction of the Incumbent Incharge.
While opening accounts of such persons, the customer should be made aware that if, at any point of
time, the balances in all his / her accounts with the Bank taken together exceed Rs. 50,000/- or total
credit in all the accounts exceeds Rs. 1 lac, no further transaction will be permitted until full KYC
procedure is completed. An undertaking to this effect be obtained from the customer at the time of
opening the account itself. But in order to avoid any inconvenience to the customers, the branches
should notify to the customer when the balances reach Rs. 40,000/- or the total credit in a year
reaches Rs. 80,000/- that appropriate documents for conducting the KYC must be submitted
otherwise operations in the account will be stopped when the total balances in all the accounts taken
together exceed Rs. 50,000/- or the total credit in all the accounts exceeds Rs. 1 lac in a year. The
General Banking Laws: Page 84 of 116
amount of one-time payments from government or other agencies on exceptional circumstances
(death claims, grant of relief, etc.) be excluded from the threshold limit of Rs. 50,000/- or Rs.
1,00,000/-, as the case may be.
SAFE DEPOSIT VAULTS - KYC GUIDELINES
In terms of the RBI Directives, locker hirers will be classified into two categories only, i.e. Medium
Risk Locker Hirers and High Risk Locker Hirers. Accordingly,
a) Due diligence for both new and existing locker hirers will be carried out at least to the levels
prescribed for customers classified as medium risk. In case of locker hirer classified as high risk,
customer due diligence as per KYC norms applicable to such high risk category will be carried out.
b) The person authorized to operate the locker by lessee(s) will also be subjected to full KYC
Norms. It will be mandatory for the locker-hirers to operate locker at least once in a year in case of
High Risk Lessee or once in 3 years for Medium Risk Lessee.
Non-operation of locker within the stipulated period may lead to breaking open of the locker,
irrespective of the fact that rent is paid by the locker-hirer, regularly.
In respect of all existing hired lockers, list of high risk locker hirers will be prepared and rest of the
locker hirers will be treated as medium risk locker hirers. The lockers not operated for the last one /
three years, as the case may be, will be segregated and following steps should be taken:
The lessee whether, residing locally or outside, will be contacted over telephone / mobile
by any other mode of communication (if such information is available on record). The
lessee will be informed of the last operation made in the locker and reasons for not operating
the locker during the intervening period will be ascertained. He will further be advised to
operate the locker within seven days. In case, the lessee could not be contacted on telephone
/ Mobile / by any other means of communication, he / she should be contacted personally
and informed of the consequences of non-operating the locker. In case, the lessee is not
available at the local address, person who introduced him/ her should be contacted in order
to ascertain his / her (lessees) where about. A record of the action taken shall be recorded in
the remarks column of the respective locker records.
In case efforts as per (i) above fail, a letter will be sent to the lessee(s) advising either to
operate the locker or submit the reasons for not operating or surrender the locker.
Letter as per (ii) above will be sent through Regd. AD, giving 15 days time to operate the
locker or surrender the same or submit reasons for non operation. It will also be made clear
that in case of lessee not operating the locker / not submitting satisfactory reply, the locker
can be broken open by the Bank at the lessees cost, irrespective of the fact that the rent is
being deposited regularly.
If no reply is received or locker is not operated within 15 days, a reminder referring the
earlier letter will be sent by Regd. AD post, giving 15 days time to operate, surrender or
submit satisfactory reply for non-operation.
In case the locker hirer submits a reply expressing genuine reasons as in the case of NRIs or
persons who are out of town due to transferable job etc., the same shall be considered by the
Branch Manager.
General Banking Laws: Page 85 of 116
In case the reasons are found satisfactory, the locker hirer will be advised to indicate the
expected date by which the locker may be operated. In case of non-operation of locker
within time given, the lessee will be advised to surrender the locker failing which Bank will
be within its rights to cancel the allotment of the locker and break open the locker.
Where no response is received or locker hirer fails to operate the locker within the time
sought, final notice will be sent.
Where still no response is received nor the locker is operated, branch will act as per extant
guidelines applicable to breaking open the locker.
As mentioned above, the guidelines will be applicable for both existing as well as new
locker hirers.
The branches will prepare a list of all lockers not operated for one year and three years, for High
Risk and Medium Risk locker hirers respectively, as on 30th June and 31st December every year
Types of customers Description of Documents
Accounts of
Individuals
Individuals - Identity Document - Any of the following documents
with authenticated photograph thereon. [Copy verified from the
original will be kept on record with AOF]
1 Passport
2 PAN card
3 Voters Identity Card
4 Driving licence
5 Job card issued by NREGA duly signed by an officer of the State
Government
6 The letter issued by UIDAI containing details of name, address and
Aadhaar number
7 Identity card issued by following authorities (subject to the banks
satisfaction)
a. Government/Defence ID card
b. ID cards of reputed Public Sector employers
c. Pension Payment Orders issued to the retired employees by
Central/State Government Departments, Public Sector Undertakings
d. Photo ID cards issued by Post Offices
e. Photo identity cards issued to bonafide students by a University,
approved by the University Grants Commission (UGC) and/or an
Institute approved by All India Council for Technical Education
(AICTE).
f. Photo identity issued by any public authority having proper record of
issuance of identity proof which is verifiable from records
g. Ex-Servicemen Card with photograph
h. Bar Council/ Medical Association/ Institute of Chartered
Accountants of India/ Institute of Cost Accountants of India / Institute
General Banking Laws: Page 86 of 116
of Company Secretaries of India, Card with photograph
i. Student Identity Card with photo issued by reputed colleges with
validity during the course period.
j. Defense Dependents Card with photograph.
8 Letter from a recognized public authority or public servant verifying
the identity and residence of the customer to the satisfaction of bank.
9 Married woman identity proof with maiden name, if supported with a
verified true copy of marriage certificate
10 Credit card with photo together with statement of such card, not
more than three months old.
11 Registered Property document with photo identity
12 Arms License issued by State / Central Government of India.
13 Freedom fighters pass issued by Ministry of Home Affairs,
Government of India with photograph of applicant.
14 Employee State Insurance Card (ESIC) with photograph supported
by latest months pay slip..
15 Talati / Patwari (a local govt. official) attestation by way of putting
rubber stamp and signature. Gram Sarpanch / Mukhiya attestation by
way of putting rubber stamp and signature [For Small Accounts]
NOTE:
a) If the address on the document submitted for identity proof
by the prospective customer is same as that declared by
him/her in the Account Opening Form (AOF), the
document may be accepted as a valid proof of both identity
and address.
b) If the address indicated on the document submitted for
identity proof differs from the current address mentioned
in in the AOF, a separate proof of address should be
obtained.
Correct address Any of the following latest documents:
[Copy verified from the original will be kept on record with AOF]:
1 Ration Card
2 Electricity Bill #
3 Telephone Bill #
4 Bank account statement#
5 Letter from employer (to the satisfaction of the Bank)
6 Letter from any recognized public authority (to the satisfaction of the
Bank)
7 Credit Card Statement #
8 Income/Wealth Tax Assessment Order
9 Letter from Public Sector employer
10 Letter from any recognized public authority having proper and
verifiable record of issuance of such certificates.
11 Voter ID Card (only if it contains the current address)
12 Pension Payment Orders issued to retired employees by
General Banking Laws: Page 87 of 116
Government Departments/Public Sector Undertakings, if they contain
current address.
13 Copies of Registered Lease & License agreement/Sale Deed/Lease
Agreement.
14 Certificate and also proof of residence, incorporating local address
as well as permanent address, issued by the Hostel Warden of the
University/Institute, where the student resides, duly countersigned by
the Registrar/Principal/Dean of Student Welfare. Such accounts shall
however, be required to be closed on completion of education/leaving
the University/Institute provided the constituent does not give any
other acceptable proof of residence to the Bank.
15 For students residing with relatives, address proof of relatives, along
with their identity proof, can also be accepted provided declaration is
given by the relative that the student is related to him/her and is staying
with him/her.
16 In respect of officials of Central/State Governments and Public
Sector undertakings, who are low risk customers for Bank, Branch
Heads may verify the photo/identity and confirm residential address of
such officials from independently verifiable sources to their
satisfaction, and permit opening of accounts. This facility is extended
only to the Gazetted officers of Central/State Government and Senior
Management and above functionaries of Public Sector Undertaking.17
Latest telephone bills from any telephone service providers and mobile
service providers not more than 2 month old, postpaid.
18 Consumer gas connection card/book/Pipe gas bill
19 Certificate from ward/equivalent rank officer, maintaining election
roll certifying address of the applicant.
20 Post Office Savings Pass Book
21 Domicile Certificate with communication address and photograph
22 Certificate by Village Extension Officer (VEO) / Village Head or
equal or higher rank officer. Branch to confirm the authenticity of the
certificate and that it has been issued by the person who is holding the
said office.
23 Court divorce order Marriage annulment order issued by Court
24 A Rent Agreement indicating the address of the customer duly
registered with State Government or similar registration authority may
also be accepted as a proof of address.
25 The letter issued by UIDAI containing details of name, address and
Aadhaar number. In case the address provided by the account is the
same as that of Aadhaar letter, it may be accepted as a proof of both
General Banking Laws: Page 88 of 116
identity and address.
#Not more than 3 months old
In addition to KYC documents of the Proprietor, any two of the
following in the name of the firm:
rtificate/licence issued by the Municipal authorities under Shop &
Establishment Act;
the name of the sole proprietor where the firms income is reflected
duly authenticated/acknowledged by the Income Tax Authorities.
Trust/Club/Society/Association/Foundation
Any officially valid documents identifying the trustees, settlors,
beneficiaries and those persons holding the Power of Attorney,
founders/ managers/directors and their addresses and their addresses.
ustees/Managing Committee
Members/Authorised signatories
NOMINATION OBTAINED
.
RBI has advised that at the written request of a customer the bank may mention the name of the
nominee in SB pass book/term deposit receipt.
Cancellation and Variation of Nomination
An existing nomination can be cancelled by the sole depositor (or by all the depositors in a joint
account). The form to be used is DA 2(PNB-819 B)
The variation of nomination can be made by all depositors, by using form DA3 (PNB-819 C)
In case of the death of one of the joint depositors, the cancellation or variation can be made
under the signature of all surviving depositors/depositor.
Renewal of Deposit Account
No fresh nomination need be made when a deposit account is renewed. The existing nomination
does not cease to operate merely by reason of the renewal of the deposit.
Change in the style of the account
Where the style of the account is changed, or some addition/deletion in the name of depositors
is made, the nomination stands cancelled.
Payment to Nominee
Nominees right to receive payment arises only on the death of the sole depositor or on the
death of all depositors in a joint account.
Nominee has the only right to receive the deposit proceeds on the depositor
s) death. He has no
right to operate the account, to renew the same or to avail loan against it or to substitute his
name in place of depositor or to add his name in the deposit.
A term deposit can be paid (at the request of the nominee) before its maturity. No penalty (1%)
need be charged in case of such foreclosure.
Before paying the amount to the nominee the bank must ask for the Death Certificate and take
General Banking Laws: Page 92 of 116
identification of nominee on the prescribed form (PNB- 831).and must ensure that there is no
restraint order from court.(IAD cir 28/11 dated 8.6.11)
Legal position on Payment to Nominee
On the death of the depositor(s) the nominee is entitled to receive the balance. The bank need not
take into account any other notice or claim except the order of a competent Court.
The nominee does not become the owner of the proceeds by virtue of his right to receive the
payment. Any person having a right over the balance can claim it from the nominee.So, nominee
will receives the payment as trustee of legal heirs.
Miscellaneous
The formats for nominations; alteration of nominations, and variation of nomination are
prescribed in Banking Companies (Nomination) Rules 1985
A depositor can be allowed to split his deposit for the purpose of appointing different nominees.
This will not be considered as a premature closure.
In case of deposit accounts under Capital Gains Accounts Scheme 1988 a maximum of three
nominations under both schemes Account- A (Savings Fund), Account-B (Term Deposit) is
permitted.
In case of pension accounts there should be two types of nominations; one for payment of
pension arrears which is made under
s. All the
customers who enter the banking hall before the close of business hours should be attended
to.
Cleanliness & Upkeep of premises & provision of adequate facilities to make the
customer
'
s waiting time comfortable.
Sitting plan and uninterrupted service to the customers: Sitting plan of the office should
be functional and designed to facilitate smooth and speedy flow of work. Work allocation in
such a way that no counter is closed during the working hours and uninterrupted service is
rendered to the customers.
MAY I HELP YOU
'
counters/Display of indicator boards: display of indicator e
Boards at all the work counters, enabling the customers to be guided about the actual work
being transacted.
MAY I HELP YOU
'
counters, in the branches with a staff strength of 10 or above , to be
manned by suitable persons. At smaller branches, provision must exist for an enquiry
window for attending to the enquiries and help the customers.
Display of time norms and adherence thereto: The poster of norms for important services
must be conspicuously displayed in the banking hall for guidance of customers. Endeavour
must be made to provide services to clientele within the time norms prescribed given below.
The time norms prescribed for various important services may be taken as a guiding factor
and our endeavour should be to complete the transactions as speedily as possible and taking
the norms as a maximum limit. In this regard, particular care must be exercised in rendering
more common services like encashment of cheques and issuance of drafts etc.
Norms for important services at the branch: (1) For encashment of a cheque: (a) through
SWO/Teller -- 3 to 8 minutes; (b) through Cashier -- 8 to 15 minutes. (2) Receipt of cash
(depending upon the denomination --10 to 20 minutes (3) For issuance of demand draft/
remittances/traveller cheques/ term deposit receipt --- 15 to 25 minutes. (4) Payment of
demand drafts -- 10 to 20 minutes. (5) Payment of term deposit receipts -- 15 to 20 minutes.
General Banking Laws: Page 95 of 116
(6) Opening of an account -- 20 to 25 minutes (7) Retirement of bills --20 to 30 minutes (8)
Completion of pass books (for a few entries) -- 5 to 15 minutes. (9) Statement of accounts -
Within 7 days from due date. (10) Collection of Cheques (a) Local - 1 to 3 days (b)
Outstation -- 10 to 14 days. (11) Issuance of cheque book -- Within 15 minutes
Customer Service Committee
Customer Service Committee is to be set up at branches for reviewing the quality of customer
service on an ongoing basis; their constitution will be as under:
1. CM/Manager : Chairman
2. Sub Manager/AM/Officer : Member (Convener)
3. Other Officer(s) : Member
4. Clerical Cadre : Member
Members under 3 & 4 category will be rotated after an interval of 6
months. Minimum 2 required to hold meetings.
Periodicity at least monthly
Bank union representative may be included.
Customers to be invited once in quarter.
Minutes to be recorded & copies be sent to CO.
BANKING OMBUDSMAN SCHEME -2006
- Scheme has been framed and notified under Sec 35A of Banking Regulation Act 1949
- It is applicable to all banks (as defined in Part I of BR Act 1949) throughout India,
whether incorporated in or outside India.
OBJECTIVE :-To enable resolution of complaints relating to provision of Banking Services and to
resolve disputes between a bank and its constituent as well as between one bank and another.
APPOINTMENT:-RBI may appoint one or more persons to carry out the functions entrusted
under the scheme.
JURISDICTION:- As specified by RBI from time to time
QUALIFICATION:-A person of high-standing in legal/banking/financial services/ public
administration/ management sector. If such person is a civil servant he should be in the rank of
Joint Secretary or above in Govt. of India.
POWERS & DUTIES
To receive complaints relating to provision of banking services.
To facilitate satisfaction or settlement by agreement, through conciliation and mediation or
by passing award in accordance with this scheme.
To resolve by away of arbitration such disputes between banks or between bank and its
constituents as may be agreed upon by the contesting parties provided the value of the claim
General Banking Laws: Page 96 of 116
in such disputes is within Rs. 10 lacs.
PROCEDURE OF FILING THE COMPLAINT
The consumer should first give a written representation to the bank, in question. If the bank
rejects the claim or does not reply or the reply is unsatisfactory, the complainant is free to
write to the banking Ombudsman, but after 1 month and before one year since lodgement
of the complaint with the bank.
The complaint should not be in respect of the same subject matter which was settled or dealt
with on merits by the Banking Ombudsman in any previous proceedings whether or not
received from the same complainant or along with one or more complainants or one or more
of the parties concerned with the subject matter.
The complaint should not pertain to the same subject matter, for which any proceedings
before any court, tribunal or arbitrator or any other forum is pending or a decree or Award
or order has been passed by any such court, tribunal, arbitrator or forum.
The complaint is not frivolous or vexatious in nature.
The complaint can be made in electronic mode too.
DISPOSAL OF THE COMPLAINT
1. SETTLEMENT OF COMPLAINT BY AGREEMENT
After a complaint is received by the ombudsman he shall be referring it to the branch or office of
the bank and try to amicably settle the complaint through agreement/ conciliation/ mediation.
2. AWARD BY OMBUDSMAN
If not settled by agreement within a period of one month from the date of receipt of the complaint
the Ombudsman may pass an award after affording reasonable opportunity to present their case.
The award shall state the direction/s if any, to the bank for specific performance of its obligations in
addition to the amount to be paid by the bank to the complainant by way of compensation for the
loss suffered by him.
The Banking Ombudsman may pass an award directing payment of an amount not exceeding the
actual loss suffered by the complainant as a direct consequence of the act of omission or
commission of the bank, or ten lac rupees whichever is lower.
In the case of complaints arising out of credit card operations, the Banking Ombudsman shall, while
determining the amount of compensation payable, take into account the loss of the complainant
s
time, expenses incurred by the complainant, financial loss, harassment and mental anguish suffered
by the complainant. Maximum award Rs. 1 lac.
A copy of the Award shall be sent to the complainant and the bank. An Award shall not be binding on
a bank against which it is passed unless the complainant furnishes to it, within a period of 30 days
from the date of receipt of copy of the Award, a letter of acceptance of the Award in full and final
settlement of his claim in the matter. If the complainant does not accept the Award passed by the
Banking Ombudsman or fails to furnish his letter of acceptance within the said period of 30 days
the Award shall lapse and be of no effect.
The rejection of an award by the complainant does not affect any other recourse and/or remedies
available to him as per the law.
General Banking Laws: Page 97 of 116
The bank shall within one month from the date of receipt by it, of the acceptance in writing of the
award by the complainant or within such time not exceeding a period of fifteen days that may be
granted by the Banking Ombudsman, comply with the award and intimate compliance to the
ombudsman.
APPEAL
Any person aggrieved by the Award or rejection of the complaint may, within 30 days of the date of
receipt of the Award / rejection of complaint, may prefer an appeal against the Award before the
Appellate Authority i.e. Dy. Governor of RBI. In case of appeal by the bank, the period of 30 days
for filing an appeal shall commence from the date of receipt of acceptance of the award by the
complainant.
The Appellate Authority may, if he is satisfied that the applicant had sufficient cause for not
making the appeal within time, allow a further period not exceeding 30 days.
The appeal may be filed by the bank only with the previous sanction of the Chairman or, in his
absence, the Managing Director or the Executive Director or the Chief Executive Officer or any
other officer of equal rank.
The Appellate Authority shall, after giving the parties a reasonable opportunity of being heard
(a) dismiss the appeal; or
(b) allow the appeal and set aside the Award; or
remand the matter to the Banking Ombudsman for fresh disposal in accordance with such
directions as the Appellate Authority may consider necessary or proper; or
modify the Award and pass such directions as may be necessary to give effect to the Award so
modified; or
pass any other order as it may deem fit.
The order of the Appellate Authority shall have the same effect as the Award passed by Banking
Ombudsman under clause 12 or the order rejecting the complaint under clause 13, as the case may
be.
TYPE OF COMPLAINTS TO OMBUDSMAN.
The Banking Ombudsman can receive and consider any complaint relating to the following
deficiency in banking services:
non-payment or inordinate delay in the payment or collection of cheques, drafts, bills, etc.;
non-acceptance, without sufficient cause, of small denomination notes tendered for any
purpose, and for charging of commission for this service;
non-acceptance, without sufficient cause, of coins tendered and for charging of commission
for this service;
non-payment or delay in payment of inward remittances ;
failure to issue or delay in issue, of drafts, pay orders or bankers cheques;
non-adherence to prescribed working hours;
failure to honour guarantee or letter of credit commitments ;
failure to provide or delay in providing a banking facility (other than loans and advances)
promised in writing by a bank or its direct selling agents;
General Banking Laws: Page 98 of 116
delays, non-credit of proceeds to parties' accounts, non-payment of deposit or non-
observance of the Reserve Bank directives, if any, applicable to rate of interest on deposits in
any savings, current or other account maintained with a bank ;
delays in receipt of export proceeds, handling of export bills, collection of bills etc., for
exporters provided the said complaints pertain to the bank's operations in India;
refusal to open deposit accounts without any valid reason for refusal;
levying of charges without adequate prior notice to the customer;
non-adherence by the bank or its subsidiaries to the instructions of Reserve Bank on
ATM/debit card operations or credit card operations;
non-disbursement or delay in disbursement of pension to the extent the grievance can be
attributed to the action on the part of the bank concerned, (but not with regard to its
employees);
refusal to accept or delay in accepting payment towards taxes, as required by Reserve
Bank/Government;
refusal to issue or delay in issuing, or failure to service or delay in servicing or redemption
of Government securities;
forced closure of deposit accounts without due notice or without sufficient reason;
refusal to close or delay in closing the accounts;
non-adherence to the fair practices code as adopted by the bank;
any other matter relating to the violation of the directives issued by the Reserve Bank in
relation to banking or other services;
non-observance of Reserve Bank Directives on interest rates;
delays in sanction, disbursement or non-observance of prescribed time schedule for disposal
of loan applications;
non-acceptance of application for loans without furnishing valid reasons to the applicant; and
non-observance of any other direction or instruction of the Reserve Bank as may be
specified by the Reserve Bank for this purpose from time to time.
The Banking Ombudsman will consider complaints even from Non-Resident Indians having accounts
in India in relation to their remittances from abroad, deposits and other bank-related matters. The
adjudication of pending complaints and execution of the awards (already passed before coming into
operation of the Banking Ombudsman Scheme 2006), will continue to be governed by the
provisions of the earlier Banking Ombudsman Schemes, 1995 and 2002.
CONSUMER PROTECTION ACT 1986
EXTENT/COVERAGE:
All goods & services including Banking, insurance, transport, processing, electricity, physicians
etc. All sector - private, public & cooperative. The act extends to whole of India except J&K. J&K
has a separate act on similar lines.
WHO CAN FILE A COMPLAINT?
A consumer, individually or jointly, representative or legal heir of the consumer.
Any voluntary consumer organization.
Central & State Government.
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WHO IS A CONSUMER?
A person who buys goods for a consideration, which has been paid or promised to be paid or partly
paid and partly promised to be paid or a person who buys under any system of deferred payment;
and includes any user of such goods who uses the goods with the approval of the purchaser.
Persons buying for resale or for any commercial purposes are not consumer.
One who hires services for consideration.
The Complaint means any allegation in writing made by a complainant alleging adoption of any
unfair trade practice or restrictive trade practice by any service provider or deficiency in service
hired or availed of or excess charging for any services with a view to obtaining any relief under the
Act.
WHAT IS THE LIMITATION PERIOD FOR FILING COMPLAINT?
Two years from the date of cause of action (Sec 24A). Cause of action arises on the date on which
the consumer comes to know of the deficiencies in service or the defect in goods or the thing
complained of.
WHAT IS THE JURISDICTION FOR COMPLAINT?
OFFICE VALUE/COMPENSATION
National Consumer Disputes Redressal Commission
(National Commission)
More than Rs. 100 Lac
State Consumer Disputes Redressal Commission
(State Commission)
More that Rs. 20 Lac & upto Rs. 100 Lac
District Consumer Disputes Red ressal Commission
(District Forum)
Upto Rs. 20 Lac
WHAT IS THE TIME LIMIT FOR DECIDING COMPLAINTS/APPEALS?
Without analysis/testing of commodities : 3 months
With analysis/testing of commodities : 5 months
National & State Commissions : 3 months
WHICH IS THE OFFICE FOR APPEAL?
DECISION OF WHOM TO APPEAL
District Forum State Commission
State Commission National Commission
National Commission Supreme Court
Appeals are to be made within 30 days of receipt of decree from lower forum/commission.
WHAT IS THE PROCEDURE FOR FILING COMPLAINTS?
Send written complaint, in duplicate, with the following:
a) Name & address of complainant and opposite party.
b) Facts of the complaint.
c) Copies of supporting documents.
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d) Relief Sought.
Complaint can be handed over personally or sent by post. At the time of hearing, case can be
explained by complainant personally or through authorized agent. No court fee is payable.
WHAT RELIEF IS AVAILABLE TO CONSUMERS UNDER THE ACT?
Removal of defect from goods.
Removal of deficiencies in services.
Replacement by new goods free from defect.
Refund of price/charges.
Award of compensation for loss or injury suffered.
Discontinuance/non-repetition of unfair/restrictive trade
practices. Prohibition of sale of goods of hazardous
nature.
Providing for adequate cost to parties.
IS THERE ANY PENALTY FOR NON-COMPLIANCE OF ORDERS OF THE
FORUM/COMMISSION OR FOR COMPLAINTS OF FRIVOLOUS NATURE?
Imprisonment for not less than one month and up to three years OR fine not less than Rs. 2000/-
and up to
Rs. 10000/-OR Both.
SETTLEMENT OF CLAIM CASES
To provide prompt and efficient customer service, early settlement of deceased claims in deposit
accounts is very much important. On receipt of information that a depositor has died, a note may be
made on the ledger sheet in writing/system with date and source of information, a line should be
drawn below the last debit entry and operation in the account be stopped. The information should
be noted under the initials of the official.
As part of efficient customer service, steps should be taken to ensure expeditious settlement of claim
cases in deceased accounts. As per the recommendations of Goiporia Committee on Customer
service in view of avoiding difficulties in disposal of claim cases, nomination should be
encouraged.
With the view of minimizing the hardship to the legal heirs of the deceased, as per the new
guidelines, bank should not insist upon the legal representation (succession certificate, letter of
administration etc.). No limit is prescribed below or beyond which legal heirs be asked to
produce succession certificate (refer Law Divn.Cir.3/2000 dated 28.4.2000).
Therefore, if Incumbent is satisfied that legal heirs are identifiable and there is no dispute in respect
of claim with bank, amongst legal heirs, there is no necessity of requiring production of legal
representation.
Chapter II: Settlement of claim in nominated accounts.
Chapter III: Whenever it comes to the notice of the branch that a depositor has died, caution should
be maked on the following documents:
- AOF
- Ledger sheet/Teller Card
- Specimen Signatures Slip
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The operation in the account should be stopped immediately. Nominee should be advised to
produce following documents:
1. Death Certificate (issued by competent authority)
2. Claim form PNB 831 Annex.E
3. Claim form should be verified by Magistrate or Notary Public or Gazetted Officer or
Bank Officer
4. Pass Book and/or FDR
5. Acknowledgement of nomination (if any)
After the identification of nominee balance in account may be paid. The Incumbents have
full powers to sanction of payment/delivery of articles in accounts where nomination is
available including lockers. ( For details refer the chapter of nomination)
Settlement of claim in Non-nominated Accounts
On receipt of the information that depositor has died the caution should be marked on AOF,
Ledger Sheet, Teller Card, Specimen Signatures lip/system. The operation in the account
should be stopped (if nothing contrary to it is there in case of partnership accounts).
List of documents
- Death certificate (issued by competent authority)
- PNB 46-47 claim form (claim form can be signed by one major legal heir)
- PNB 46-47 should be duly verified by Magistrate or Notary Public
- Power of Attorney in case of more than one claimants, duly verified by Magistrate or Notary
Public
- Indemnity bond by claimant (if required)
- Will/succession certificate (if required)
- Stamped full and final receipt
- Probate letter in case of will
Other guidelines
Value of claim not exceeding Rs. 5000/-: In far flung rural areas and where settlement of claim
cases involving small amount, claimant may find it difficult to get the claim form attested by a
Notary or Magistrate. In such cases where total amount does not exceed Rs. 5000/- and no legal
representation is produced, attestation of claim form need not be insisted upon. Instead claimant be
asked to obtain certificate from Sarpanch verifying the legal heirs.
Value of claim not exceeding Rs. 25000/-
In claim cases where the total amount does not exceed Rs. 25000/-, as per the present guidelines of
Govt. of India, succession certificate should not be insisted upon.
In such cases, payment may be made to legal heirs, relying on the declaration made in claim form
duly attested by Magistrate/Notary Public.
Payment can be made to the legal heirs on the execution of indemnity bond
Gold ornaments or other security held against advances may be released on adjustment of advances
No confidential enquiry is needed.
Value of claim exceeding Rs. 25000/-
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In claim cases involving amount exceeding Rs. 25000/-, confidential enquiry be made by the
Incumbent Incharge about the legal heirs of the deceased as disclosed in the form. Claim may be
settled and paid to the legal heirs of the deceased against indemnity bond and surety to the
satisfaction of the Incumbent.
Legal representation
No limit is prescribed below or beyond which legal heirs be asked to produce legal representation.
So, if the Incumbent is satisfied that legal heirs are identifiable and there is no dispute amongst the
legal heirs, there is no need of asking succession certificate. Claim may be settled on the basis of
indemnity bond and surety to the satisfaction of the bank. As a rule surety worth double the amount
of claim need not be insisted.
Death, Insolvency and Insanity of a customer : Notice or knowledge of death, insolvency or
insanity of a customer precludes the bank from paying further cheques on his account even though
these are dated prior to death, insolvency or insanity.
Joint Accounts
In case of joint accounts where operation is allowed by way of Either or survivor/Former or
survivor, the account will continue to run and payments can be made to survivors, unless at or
before the time of payment, order of court or other competent authority has been received prohibiting
the payment to the survivors. The survivor should be requested to transfer the balance into a new
account in his own name, singly or jointly.
When due to any reason if payment has been prohibited by competent authority, the balance in
account is not payable to survivor, the operation in the account must be stopped and treated as claim
case.
Partnership accounts:
Upon the death of a partner in a partnership, the operation in the account will be stopped. However, if
there is contract contrary to it (in the account opening form PNB-38 and/or partnership deed), the
account will continue to run. In case of termination of operations, the account will be treated as claim
case and legal heirs/partners will be asked to settle the claim.
Joint Hindu Family: In case of Joint Hindu Family account, when a death of a major co-parcener
occurs, the operation in the account will be stopped and dealt with as a claim case.
Power of Attorney
It happens many a time that all the legal heirs are not able to join in for execution of documents and
receiving payments. In such circumstances, those legal heirs who cannot join may execute power of
attorney in favour of one of the prescribed proforma for deposit accounts or locker accounts. The
Power of Attorney should be stamped as per the Stamp Act in force and duly notarized.
Power of Attorney if executed abroad, is required to be stamped in India within three months after
the same is received in India.
In case of Power of Attorney, the holder will sign execute the receipt and indemnity on behalf of self
and on behalf of the legal heirs who have authorized him. The name of executors should be
General Banking Laws: Page 103 of 116
specified.
Any modification in the Performa, if required, may be got done in consultation and
banks counsel/Law Officer at CO.
Settlement of Claim cases of the deceased customers of the Bank Further simplification of
the procedure
As per the extant guidelines the claims of the deceased customers may be settled in favour of one of
the legal heirs of the deceased if the other legal heirs execute a Power of Attorney (duly notarised) in
his favour on the basis of which such authorized legal heir can sign the Claim Application Form for
himself and for and on behalf of other legal heirs as also execute Indemnity Bond / Letter and give
valid discharge to the bank by signing the Receipt in token of having received the proceedis of the
claim / contents of the locker. This facilitates smooth settlement of the claims as all the legal heirs
need not to join the claim settlement process and visit the branch. The purpose of obtaining the
duly notarized Power of Attorney is that there is a presumption in law that such a Power of
Attorney has been duly executed and the chances of raising dispute in respect of its due
execution are minimized.
However, pursuant to the
Letter
of administration
s code of bank
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we
denotes the
bank.
General Banking Laws: Page 112 of 116
2.Commitments To act fairly and reasonably in all our dealings with the customers.
To help the customers understand how our financial products and services
work.
To help the customers use the accounts and services.
To deal quickly and sympathetically with things those go wrong.
To treat all personal information as private and confidential.
To publicize the code.
To adopt and practice a non-discriminatory policy.
3. Information The customer can get information on Notice Board, Telephone, Website or
from branch officials regarding:
Interest rates
Tariffs, fees and charges
Changes in fees and charges
Terms and conditions and changes therein.
The persons who intend to become customers are also welcome to get information
about our products and services.
For the existing customers, if bank has made any change without notice, the same
will be notified within 30 days. If such change is to the disadvantage of the
customer, he/she may close the account within 60 days without notice or switch it
without having to pay any extra charges or interest.
4.Advertising,
Marketing and
Sales
The bank will ensure that all the advertising material for promotion of business is
clear, understandable and not misleading. A separate code for Direct Selling
Agents (DSAs)
5. Privacy And
Confidentiality
The information relating to customers accounts will be treated as private and
confidential except in the cases where the disclosure is compulsory under law or
where bank