Customers and Account Holders

Types of bank accounts

1. Savings bank account: It is an account which can be opened by any person. Generally by low
income group and middle income group of people. Bank provides interest on these deposits
and these are repayable on demand, but bank places certain restrictions on the number of
withdrawals. Withdrawals can be done through the help of cheque or withdrawal slip.

2. Current account: This account is usually opened by businessman, industrial undertakings,

and commercial enterprises. These deposits are repayable on demand. It can be operated any
number of times during working days. It enjoys special facility called as overdraft.

3. Fixed deposit account / Time Deposit Account: This account can be opened by any person.
These are the deposits which are repayable after the expiry of the fixed or specified period,
and is not supposed to be withdrawn before the expiry of the pre-decided period. The fixed
deposit account is opened from 15 days to five years. The rate of interest is paid on this
account relatively high than any other types of accounts.

4. Recurring deposit account: A predetermined amount is deposited into account every month
in a recurring deposit account. The rate of interest is normally equal to the rate of interest
payable on a term deposit account of the same period.

5. Miscellaneous Types of Deposits: Banks have introduced variety of new saving schemes to
enable the customers to deposit money in the bank according to their needs and requirements

i. Pigmy / Janta Deposits:- Pigmy / Janta deposits is meant for small savings collection
facility provided by bank on daily basis. The authorised agents of the bank collect the
amount at depositor’s door and provide them a receipt. The customer may withdraw
the total amount deposited by him in case the customer needs money before the
stipulated period.

ii. Insurance Linked Deposits:- Banks also offered a few schemes to promote the savings
habit amount eh public in collaboration with Life Insurance corporation of India and
other insurance companies. This account can be opened by any person in the age
group of 18-49 years.

iii. People’s Savings Plan:- A customer is to deposit rs 500 per month for the period of
one year in people’s saving plan. The customer may withdraw 1/10 of the balance
 once in a month after having deposited for 3 months. The bank provides interest
applicable at fixed rate of interest.

iv. Minor’s Savings: under minor’s savings account scheme young children of 12 years
and above are allowed to open this account in their own name and operate this
account. The main aim of minor’s savings scheme is to inculcate the banking sand
saving habits in the children.

v. Annuity/Retiring Scheme: The person should have to depoist a certain sum every
month for a predetermined period, which is repay by bank at the end of stipulated
period.

vi. Farmer’s deposit Scheme: Farmers in India are able to deposit in the bank only after
the harvesting of their crops. Farmers have to deposit a lump sum of money once or
twice in a year which enable them to get regular return throughout the year.

vii. Monthly Income plans: this scheme is specially menat for pensioners. Under his
scheme they have to deposit a lump sum amount in the bank for a specified number
of years. Fixed rate of interest is paid to them on monthly basis while their deposit is
repayable on maturity.

viii. Cash Certificte Scheme: Many commercial bank in India issue cash certificate to the
public. It is a long-term deposit. At the maturity of period the principal and interest
will be paid to depositor.

Procedure to open a bank account:-

i. Obtaining duly filled in account opening form: The banker must ask the prospected
customer to fill in the account opening form. In this form the customer should stale his
name, address, occupation and mention the type of account he wishes to open.
ii. Photographs: The customer has to submit 4 photographs to the bank all the time opening
a new account.
iii. Obtaining introduction or reference: The banker should obtain proper introduction if the
customer wishes to open the savings bank account and current account. The customer has
to be introduced to the banker by a respectable person by affixing signature on the account
opening form.
iv. Obtaining specimen signature: The banker should obtain 2 or 3 specimen signature of the
customer on a specimen signature card. These signatures are taken for the purpose of
comparison when the customer issues cheques for withdrawing money from the bank.
v. Obtaining mandate: If the customer wishes to operate his account through an agent the
banker should obtain mandate from the customer authorizing the agent to operate his
account.
 vi. Receiving initial deposit: After all the above formalities are over the banker should
receive the initial deposit from the customer.
vii. Opening customer account in the ledger: After accepting the deposit on the account will
be opened in the name of the customer in the ledger of the bank.
viii. Supply of pay-in-slip book, cheque book and pass book: In order to facilitate the customer
to operate the account the banker will the pay-in-slip book, cheque book and pass book.

Operation of bank accounts

a) Pay-in-slip: A pay-in-slip book contains a number of printed slips. This slip is to be filled in
by the depositor or by his agent at the time of depositing cash or cheque etc. The pay-in-slip
contains information relating to the date of deposit, the name of depositer, the amount to be
deposited, the name and account number to be credited, the details of currency notes in case
of cash, cheque number and name of the drawee in case of cheques. After filling the pay-in-
slip, the depositor hands over the same to the counter alongwith cash or cheque to be
deposited.

The counter clerk check up the particulars of the slip and signs and stamps the cuonter
foil. The counterfoil is then returned to the depositer which is proof of the deposit. The main
slip which is retained by the bank for crediting the account of the customer.

b) Cheque book: A cheque book contains blank forms of cheque. Cheques are used to withdraw
money from bank. The blank forms of cheques and their counterfoils are serially numbered.
The cheque book generally contains from 10 to 100 such forms. When a customer wants to
withdraw money or to make payments to others, he has to fill in the cheque and sign it.

c) Pass book: This is a book issued by the banks to the customer in which all transactions
between them are recorded. It is a copy of customer’s account in the books of bank. The
transaction in the pass book are recorded by the bank. This book contains the details to the
amount withdrawn with date of withdrawal, and the balance of account on a particular date.
The main aim of issuing a pass book to the customer is to acquaint him periodically with the
state of affairs of his account with the bank.

d) Withdrawal slip: A withdrawal slip is typically a pre-printed form which must be filled out
by the person who wishes to withdraw money from a bank.

Advantages of bank account:

1. Safety of money: The money with the bank remains in safe custody. There is always a
risk in keeping cash with one’s own self. It may be lost or stolen
 2. Cultivate habit of savings: Banks cultivate the habit of savings in the public. Savings in
the bank on the one hand are safe and on the other earn interest ofr its depositors who are
prompted to save and deposit some money in their bank accounts

3. Avail loans facilities: Banks allow loans and overdraft facilities to their customers. This
provides financial help to the customers.

4. Collection of cheques etc: The bank collects on behalf on the customers the amount of
cheques, drafts, bill of exchange etc. deposited in the bank

5. Facility of making payments: It is always easy to make payment through bank accounts.
Payments are greatly facilitated by means of cheques. The cheques serve as proof of
payment in case of disputes

6. Safe custody of valuables Articles: Valuable articles, deeds securiteis etc, can also be
deposited in the bank for safe custody. Safe vaults are provided by banks for storing these
valuables.

7. Providing credit information: Banks provide information relating to the credit

worthiness of the customer. Banks also issue letter of credit for their customers which are
very useful in foreign trade.

Different types of Bank Customer / Account holders

INTRODUCTION
 Every commercial bank is anxious to increase its customers. However, every one
cannot be accepted as its customers. Only those persons who are competent in law to enter
into a contract can be considered as customer. The bank is and should be very cautious in
the selection of customers as it is to have a continued relationship with them. The
customers of a bank can mainly be divided into two categories:-

(1) Ordinary Customers:- Ordinary Customers are an individual, a body corporate; a

firm can open an account with the bank.

(2) Special customers: - Special types of customer are those who are distinguished from
other types of ordinary customers by some special features. They are to be dealt with
carefully while operating and opening the accounts. The following are some of the special
types of customers.

1. Minor
2. Partnership Firms
3. Hindu Undivided Families (HUF)
4. Accounts of Joint Stock Companies
5. Joint Account Holders
6. Married women
7. Pardanasheen Women
8. Lunatics
9. Insolvents
10. Executors and Administrators
11. Trusts
12. Clubs and Associations

1. MINOR
 A Minor is a person who has not completed the age of eighteen years. Where a legal
guardian is appointed by a court of law the person attains majority on completion 21 years
of age and not before (Sec 3 of Indian Majority Act, 1875).

Who is a Guardian?
As per Sec.4 of “The Guardians and Wards Act, 1890” “Guardian” means a
person having the care of the person of a minor or of his property or of both his person
and property.

Guardians may be categorized into following 3 types:

i. Natural guardian (parents)
ii. Testamentary Guardian: - Guardian appointed by the will of the minor’s father or
mother
iii. Guardian appointed by a court under the Guardians and Wards Act, 1890.

Precautions to be taken by banker while dealing with minor accounts: -A bankers

should be very careful in dealing with a minor and take the following precautions:

1. The baker may open a Savings Bank account but not a current account as it incurs no
liability to the minor. The account can be opened in any of the following ways:
i. In the name of the minor. To be operated upon by the natural guardian of the minor
or the guardian appointed by the Court. Such accounts can also be opened in the joint
names of two or more minors, to be operated upon by the guardian.
ii. In the name of the minor. To be operated upon by himself, if he has attained the age
of 12 years. Two such minors can jointly open such an account. To be operated upon
by them jointly

2. If the father of a Hindu minor dies, his mother becomes his natural guardian. After
the death of the mother, during the minority of the boy there is either the testamentary
guardian or the guardian appointed by the court. The banker may return the money to
such guardian.

3. At the time of opening of account of minor, the bank should record the genuine date of
birth of the minor. Banker should insist on to give some record of date of birth as entered
in Birth and Deaths Register. On the attainment of majority, the account of the minor in
the name of the guardian should be closed and the balance paid to the minor (then major)
or be transferred to new account in his/her own name. In case of a joint account, the
minor is also permitted to operate the account and his signature is taken on the account
opening form.

4. Banks should prudent to issue cheque books only to minors of, say 16 or 17 years of age.

5. Accounts for illiterate minors are not opened in their single name.

6. As a measure of precautions, banks adopt a general rule not to accept deposit exceeding
a particular sum.

7. In case the minor dies, the balance in the account is permitted to be withdrawn by the
guardian and in case of joint account the balance will be held at the absolute disposal of the
guardian.

8. No risk is involved if an account is opened in the name of a minor as long as the

account is not overdrawn by the minor. But if an overdraft or advance is granted to a
minor, even by mistake or unintentionally, the banker has no legal remedy to recover the
amount from the minor. The assets of a minor pledged with the banker as security for the
advance taken by the minor are not legally available to the banker because such pledge itself
is invalid. As such a minor’s account should never be allowed to be overdrawn.

9. If an advance is granted to a minor on the guarantee of a 3rd party, such advance cannot
be recovered from the guarantor also because the contract of guarantee is invalid on the
ground that the contract between the creditor and the principal debtor (minor) itself is a
void contract. According to Sec128 of Indian Contract Act, 1872, the liability of the surety
is consistence with that of the principal debtor, unless it is otherwise provided by the
contract. The surety, therefore, cannot be held liable on a guarantee given for default by a
minor. However, if the contract of guarantee specially provides contrary to the above, the
guarantor may be held liable for the debts of a minor. As such banker must be careful while
granting loans to minors.

10. A minor may draw, endorse or negotiate a cheque or a bill but he cannot be held liable
on such cheque or bill. He cannot be sued in respect of a bill accepted by him during his
minority. Such bill or cheque, nevertheless, will be valid instrument and all other parties
will be liable in their respective capacities (Sec 26 of the Negotiable Instrument Act, 1881).
The banker should, therefore, be very cautious in dealing with a negotiable instrument, to
which a minor is a party.
 11. A minor may be appointed as an agent to act on behalf of his principal. A minor agent
cannot be held responsible to his principal. The principal may be held responsible to the 3rd
parties in respects of the acts of his minor agent. Therefore, all of his dealings with the
banker will be valid and binding on his principal. The banker should obtain written
authority of the principal specifying the power and the extent of authority entrusted to the
agent in this regard and should see that the minor-agent does not deal beyond such
delegated powers.

2. PARTNERSHIP FIRMS
According to sec 4 of the Indian Partnership Act, a partnership is the relationship
between persons who have agreed to share the profits of a business carried on by all or any
of them acting for all.

As per the Indian partnership Act, minimum number of partners can be 2 and
maximum 20. The number of partners is restricted to 10, if the partnership firm carries
out business of banking. Minors can be admitted as partner only to the benefits of the
partnership.

Registration of partnership firm: -

A partnership firm can be registered with Registrar of Firms. However, as per
law, it is not compulsory to register a partnership firm. Non-registered partnership firm
have certain disabilities. Such firms cannot sue others to enforce a right arising out of a
contract. A suit filed by an unregistered partnership firm is not maintainable, even after
its subsequent registration. Even partners of an unregistered firm cannot sue other
partners of his firm, for their rights.

Opening of Account:-
A partnership firm can open all types of accounts except savings bank account.
Bank opens account of a partnership firm in the name of the firm and not in the names of
partners individually or jointly. The account opening form is signed by all the partners in
their individual capacity as well as in the capacity of a partner to ensure joint and several
liabilities. While opening the account banks verify the partnership deed to examine whether
any clause of the deed is detrimental to the interest of bank. Since bank would not like to
be bound by the terms of the partnership deed, banks do not accept the partnership deed
even if offered.

In case of registered firm, banks obtain registration certificate. The account is

opened in the name of the firm and all the partners are required to sign account opening
form.

Operations in accounts:-
Bank obtains operational instructions i.e. who will operate the account and how it
is to be operated. In case a minor is also a partner in the firm his birth certificate is obtained
to ascertain the date of birth, which is recorded in the account opening form.

Who can operate?

All partners jointly
One of the named partners
2/3 of the named partners
A 3rd party under a mandate letter or a power of attorney signed by all the partners.

A partner authorised to operate the firm’s account cannot delegate his authority to
another person unless all other partners agree. The authority given to operate the account
can be withdrawn by and of the other partners including dormant or sleeping partner by
giving notice to the bank. Each partner, whether he/she is operating the account or not,
has powers to countermand payment of the cheques drawn by another partner or by an
attorney on behalf of the firm.

Partnership firms with illiterate partners: -

Current accounts of partnership firms, where a partner is illiterate and affixes
thumb impression, can be opened provided a Magistrate attests the thumb impression
affixed on the account opening form.

Implied authority: -
 A partner acts as an agent of the firm for the purpose of the business of the firm. He
binds the firm and also other partners by his acts. An authority to bind the firm by his acts
is called the implied authority of a partner.

Operations in the accounts: -

Without proper inquiry with the other partners, bank does not accept cheque drawn
in favour of the firm for credit to the personal account of a partner. Failure to make proper
inquiries would deprive the bank of the protection afforded under sec 131 of the Negotiable
Instruments Acts on grounds of negligence. Cheques payable to a partner are not be
credited to the firm’s account without proper inquiry being made with the other partners.

Retirement of a partner: -
On notice of retirement of a partner, the bank closes the existing account and opens
a new account of the firm with the remaining partners or along with the new partner if
admitted to the new firm.

A bank should take the following precautions while dealing with the firm: -

1. The banker should first know the provisions of the Partnership Act before he opens an
account of Partnership Firm.

2. The banker shall open an account in the name of a partnership firm only when an
application is submitted in writing by any one or more partners under sec 19(2)(b) of the
Act. Authority to open an account in the name of an individual partner is positively
denied.

3. To be on safer side, a banker should get a written request from all the partners jointly for
opening an account

4. The banker should go through the partnership deed and carefully study the objects, capital,
borrowing powers etc. He should get a copy of the duly stamped partnership deed. He
should enquire about the details of the firm, partners and their powers. If the firm is
registered the bankers should get a copy of the registration certificate. Dealings with
unregistered firms will involve risks.
5. The banker should take a letter signed by all the partners containing the following:
The name and address of all partners
The nature of the firms business
The names of the partners authorized to operate the account in the name of the firms

6. The banker should not mix the personal and private accounts of the partners. He has no
right to set off and lien over the accounts.

7. The banker should not credit a cheque in the firm’s name to the personal account of a
partner without enquiring from other partners.

8. No partner has an implied power to sell or mortgage the property of his firm. So in case of
mortgage of property, the deed of mortgage should be signed by all the partners. Hence while
advancing loans and advances to partnership firm the banks in practice get the loan documents
executed by the partners on behalf of the firm as also in their personal capacity.

9. Since a firm stands dissolved on insolvency or insanity of a partner, a cheque singed by an

insolvent partner before the date of adjudication should not be paid by the banker without
conformation from other partners.

3. HINDU UNDIVINDED FAMILIES (HUF)

The Hindu Succession Act 1956 governs HUF. The HUF carries out ancestral
business and possesses ancestral properties.

As per Hindu Law two schools of thoughts, Dayabhaga and Mitakshara govern
Hindu undivided family. In west Bengal Dayabhaga is followed and in the rest of the
country Mitakshara is followed. In Dayabhaga the father acquires absolute right and sons
do not acquire any right by birth in Mitakshara a male member acquires the right by birth.
Female members are not co-parceners except in Tamil Nadu and Andhra Pradesh.

The eldest male member is called as a Karta and all other male members are called
as co-parceners. The right to manage HUF property vests in the ‘Karta’ of the family.
Karta is either the father of the senior most male of the family. All other male members are
called co-parceners.
 In the interest of the family and family business, only the Karta can create a charge
over the ancestral property. However, he cannot make a contract, which binds the other
member personally. Other members are responsible to the extent of their share in the
ancestral property.

HUF is not dissolved in the event of death of one of the members of the joint Hindu
family. It differs from the partnership firm as on the death of one of the partners, the firm
is dissolved. In the death of Karta the senior most co-parcener becomes karat.

A co-parcener continues to be a member of HUF, even after his migration outside

India and acquiring status of NRI or taking citizenship of another country. If the Karta
himself migrates, an alternative Karta of the HUF is appointed by the HUF with consent
from all co-parceners.

Opening of account of HUF: -

Following are the precautions to be taken by the banker in opening and operating
accounts in the name of HUF:-

i. The account may be opened in the name of karat or in the name of family business and
should be duly introduced.
ii. The operations in the account are normally restricted to Karta of the family.
iii. The account opening form should be signed by all adult co-parceners, even though the
Karta would operate the account.
iv. The declaration signed by all the members as to who is the Karta and who are the other co-
parceners including minor co-parceners should be obtained.
v. It there are minor co-parceners, the other adult co-parceners should sign for self and as
guardians of minors.
vi. On attaining majority, the minor co-parceners should be asked to join with other co-
parceners in signing the existing account opening form in ratification of previous
transactions.
vii. The Karta can appoint any of the adult co-parceners to operate the bank account as
‘Manager’ if HUF carries out business at various places through its branches.
viii. HUF accounts can also be operated by co-parceners and/or other adult members of HUF
also, against a letter of authority and against a stamped letter of indemnity cum
undertaking given by the Karta.
ix. Since female members in an HUF are not coparceners, they cannot be authorised to operate
bank account. If there are no adult co-parceners, a mother is allowed to manage the
property of HUF and operate the account.

4. ACCOUNTS OF JOINT STOCK COMPANIES

A joint stock company is constituted under company Act 1956. Company is an
artificial person with perpetual succession. It is voluntary association of persons formed
for some common purpose with capital divisible into parts knows as share. It has separate
legal entity and corporate personality. It is separate from the shareholders constituting it.
The company can own assets; contract debts and can sue and be used in its own
name. The property of the company is not the personal property of its shareholders nor is
the company’s liability the liability of its shareholders/directors, unless they consent to be
personally liable for the company’s debts.

Documents required for opening an account: -

For opening an account or a joint stock company bank obtains following
documents:
i. Certificate of incorporation: the Registrar of Joint Stock Companies issue this certificate.
It is a conclusive proof that all the requirements under the Companies Act have been
complied with

ii. Certificate of commencement of business: This certificate is essential in the case of public
limited companies. A public limited company cannot borrow until the certificate is
obtained.

iii. Memorandum and Articles of Association: The bank obtains a certified copy of the
Memorandum and Articles of Association of the company to satisfy that the conduct of the
account is in conformity with the provisions. Certificates signed by the Chairman or one
of the authorised directors of the company starting that the Memorandum and Articles of
Association are true and up-to date.
iv. Board Resolution: A copy of the resolution of the Board of Directors of the company,
certified as true by the Chairman of the meeting, requesting the Bank to open an account
in its name and specifying the instructions regarding the conduct thereof, is obtained.
Instructions in the resolution regarding conduct of the account have to be in strict
conformity with the provisions of company’s Articles of Associations.
 The resolution is to be countersigned either by the company’s secretary or any of the other
directors. It must contain the following documents:
The name of authorized persons who will operate the account of the company.
The name of persons who will execute the documents on behalf of the company.
All types of conditions related to powers about borrowing lending, mortgaging delegated
by the company must be checked carefully by the banker.

v. List of present directors: A list of the present directors of the company is obtained under
the signature of the Chairman, accompanied by a certified copy of the resolution of the
general body of the shareholders appointing them as directors.

vi. Reference to the company’s previous bankers: Banks also ascertain the names and addresses
of the company’s previous bankers, if any, and get a report on the company and its directors
and keep it along with the account opening form.

Conversion of cheques payable to companies: -

Cheques payable to of endorsed by limited companies should not be collected for the
personal accounts of their directors, managers and other employees. Ordinarily, cheques
payable to limited companies are to be credited to company’s account.

Insolvency of a director:-
In case one of the directors becomes insolvent or an un-discharged bankrupt, he
cannot act as a director of a limited company. The bank does not permit operations in the
account by the insolvent director.

Winding up of a company:-
Winding up of a joint stock company is deemed to have commenced from the date
on which petition for such winding up is presented. Or in the case of voluntary winding
up from the date on which an extra ordinary resolution to this effect is passed. With
commencement of winding up of a joint stock company, the directors cease to have powers
to operate on the account and the authority stands vested with the liquidator appointed for
the purpose. Therefore banks do not pay cheques signed by the directors after the
commencement of the winding up proceedings. Liquidator should furnish evidence of his
appointment by sending a certified copy of the Court Order, or a certified copy of the
 resolution of the general body is case of a voluntary winding up. If required, he may be
furnished with details of the company’s accounts, securities etc., and should be allowed to
operate upon the accounts of the company only for the purpose of winding up of its affairs.

5. JOINT ACCOUNT HOLDERS

Joint account is a bank account shared by two or more individuals. Any individual
who is a member of the joint account can withdraw from the account and deposit to it.
Usually, joint accounts are shared between close relatives or business partners.

Precautions in opening joint Accounts:-

i. In the case of too many joint account holders, the banks should keep the following guidelines
in view, while opening joint accounts and permitting operations thereon:
a. While there are no restrictions on the number of account holders in a joint account, it is
incumbent upon the banks to examine, every request for openingjoint accounts very
carefully. In particular, the purpose, nature of business handled by the parties and other
relevant aspects relating to the business, and the financial position of the account holders,
need to be looked into before opening such accounts. Care has also to be exercised when the
number of account holders is large.
b. The account payee cheques payable to 3rd parties should not be collected.
c. Cheques that are “crossed generally” and payable to “order should be collected only on
proper endorsement by the payee.
d. Care should be exercised in collection of cheques for large amounts.
e. The transactions put through in joint accounts should be scrutinised by the banks
periodically and action taken as may be appropriate in the matter. Care should be exercised
to ensure that the joint accounts are not used for benami transactions.
ii. The internal control and vigilance machinery should be tightened to cover the above aspects
relating to the opening and operation of joint accounts.

Modes of Operations in Joint Accounts:-

i. If fixed/term deposit accounts are opened with operating instructions ‘either or Survivor,
the signature of both the depositors need not be obtained for payment of the amount of the
deposits on maturity. However, the signatures of both the depositors may have to be
obtained, in case the deposit is to be paid before maturity. It the operating instruction is
 ‘either or Survivor’ and one of the depositors expires before the maturity, no pre-payment
of the fixed/term deposit may be allowed without the concurrence of the legal heirs of the
deceased joint holder. This, however, would not stand in the way of making payment to
the survivor on maturity.
ii. In case the mandate is ‘Former or Survivor’, the, Former, alone can operate/withdraw the
matured amount of the fixed term deposit, when both the depositors are alive. However,
the signature of both the depositors may have to be obtained, in case the deposit is to be paid
before maturity. If the former expires before the maturity of the fixed/term deposit, the
‘Survivor’ can withdraw the deposit on maturity. Premature withdrawal would however
require the consent of both the parties, when both of them are alive, and that of the surviving
depositor and the legal heirs of the deceased in case of death of one of the depositor.
iii. If the joint depositors prefer to allow premature withdrawals of fixed/term deposits also in
accordance with the mandate of ‘Either or survivor’ or ‘Former or survivor’ as the case
may be, it would be open to banks to do so, provided they have taken a specific joint mandate
form the depositors for the said purpose.

6. MARRIED WOMEN
Sec 14 of the Hindu Succession Act, 1956 provides that property of a Hindu female
shall be her absolute property. A Married woman has a legal entity of her own, which is
separate from her husband. According to the Hindu Marriage Act 1956, Hindu married
women can have separate property in her own name.

A married woman can open accounts in her own name, operate freely and enjoy
overdraft limit as long as the liabilities are met out from her own property. At the time of
opening the account in the name of a married woman the name and occupation of her
husband, details of her employer is obtained and recorded. Some banks also obtain the
maiden name of the married women.

A married woman can make her husband liable for the overdraft enjoyed by her.

If she borrows money for the necessities of her life,

If she borrows for the necessaries of her house hold,
If she acts as agent of the husband.
 Banker should exercise caution while opening account in the name of Married
Woman:-

1. While opening an account of a married woman, the bank should enquire about her means
and circumstances, and if she is living with her husband, something about him and his
occupation and position in life, and if he is an employee, the name of the employer.

2. In case she applies for an overdraft, the banker should see that she owns separate property
in her own name and precaution should be kept in mind regarding her status and capacity
to pay and the purpose for which the borrowings are made. Also he should seek suitable
securities preferably on her, which can be attached by the Courts.

3. The banker should always observe that there is credit balance in her account.

4. Banks usually require that a married woman be independently advised by her own solicitor
when depositing security for the account of other person.

5. A married woman may enter into a contract of guarantee and it is enforceable only against
her separate estate.

6. In case of an illiterate married woman, her thumb impression should be obtained on the
account opening form on the identification card.

7. PRADANSHEEN WOMAN
A pradanasheen woman is a woman who puts a veil and does not show her face to
people/outsiders and observes complete seclusion. Even they do not pose for photographs.
Contact entered into by a pradanasheen woman is not a contract free from all defects.
Banks generally refuse to open accounts in the name of pardanasheen Women, because
identity of Pradanasheen Women cannot be ascertained as she observes complete seclusion.
 However, if under special circumstances, such an account is opened; two respectable people
known to the branch invariably attest the signatures on the account opening form and on
the withdrawals by withdrawal slips.

8. LUNATICS
As per contract Act a person of unsound min is not capable of entering into a valid
contract. Banks therefore, do not knowingly open an account in the name of a person of an
unsound mind.

In case of an existing account, as soon as the information about insanity of the

accountholder’s is received, banks suspend/stop operations in the account and do not pass
cheques. When the proof of customer’s sanity is received, operations in the account are
resumed.

An account in the name of a lunatic person can be opened or operated only by a

guardian appointed by a competent Court and the balance of such accounts is paid to the
person appointed by the competent court.

Precautions to be taken by banker while opening and operation the accounts of

Lunatics:-

1. Since a lunatic has no capacity to contract, acc. to sec. 11 of the Indian Contract Act 1956,
no banker knowingly opens an account in the name of a lunatic.
2. If an existing customer becomes insane, the banker must immediately stop the operation of
the account. It is so because, the banker has no right to debit his account for payment made
out of this account from the moment, the banker knows the fact of lunacy of customer, the
contract between them is void.
3. A banker must not be carried away by hearsay information or rumours. He must get
definite information about the lunacy of the customer.

4. If a banker dishonours a cheque in a hurry, without having any proof of lunacy, he will be
liable for wrongful dishonour of cheque.

5. It should return all cheques of customer’s account with the word ‘refer to drawer’ and not
‘customer insane’. It should make careful note of lunacy order.
6. If a 3rd party is authorised to draw on customer’s account, that authority will cease when
the customer becomes insane since when a principal cannot act for himself his agent can
no longer act for him.

7. If one party to an account opened in joint names becomes mentally incapable of managing
his or her affairs, the banker should not allow either party to operate the account.

9. INSOLVENT
A person when fails to pay his debts is declared insolvent by the court. As soon as a
person is declared insolvent, operations in his existing account is stopped forthwith and
balances of such accounts are disposed as per theinstructions of the Official Receiver.
Insolvency of an accountholder revokes the bank’s authority to pay the cheques drawn by
him and balance at credit of the account and the entire estate of the insolvent vests in the
official receiver appointed by the court.

Declaration of insolvency renders invalid all the transactions entered into

subsequently and already entered into within six months. Banks do not open insolvent’s
account nor advance money to an un-discharged insolvent. During the pendency of
insolvency proceedings, no creditor can have any remedy against the property of the
insolvent in respect of his debts of commence any suit or legal proceedings against the
property without the leave of the Court. Insolvency of an agent does not affect the
relationship of the principal and agent.

10. EXECUTORS AND ADMINISTRATORS

Executors and administrators are persons appointed by a person through a will to
manage the affairs of his estate after his death. The person appointing an executor in his
will is known as testator. There can be more than one executors or administrators. If the
person has not appointed any one to manage the affairs of his estate after his death court
appoints administrator for the purpose. An administrator drives power to deal with the
estate of the deceased from the letters of administration issued by the Court. The estate of
the deceased vests in the executor from that date of letters of administration.
 Banks generally do not permit an executor to deal with the moneys or securities of
the deceased until he produces the probate as the evidence for his title. In law, executors
and administrators contrary, either or any one of the tow or more executors or
administrators can open and operate the account and deal with the estate of the deceased
without a written authority from the others.

Opening of account of executors and administrators:-

1. Bank obtains account opening form duly signed by all the executors or administrators and
obtains clear instructions as to the manner in which the account will be operated.

2. Bank also obtains copy of probate or letters of administration in original for scrutiny and
registration in their books.

3. Bank ascertains identity of executors or administrators for their satisfaction.

4. An executor or administrator has no right to delegate his authority to an outside party, not
being co-executor or administrator. Any one of the executor or administrators can
countermand the actions of the others.

5. Cheques drawn or payable to the executor or administrator’s account are not collected for
credit of their personal accounts without inquiry.

Precautions to be taken in opening and operating the account of executors and

administrators:-

The banker should stop the operation of the testator’s account, when he receives the message
of the death of testator.
The banker should insist an official letter issued by the court called “Letter of
Administration” to ascertain whether he is the person appointed to execute the property of
the deceased. A copy of the letter of probate should be filed for future reference.
The banker should close the account of the deceased and transfer the funds to the newly
opened account of administrator or executor.
Of two or more executors and administrators are appointed, they should follow the rules of
the joint accounts and mandate should be obtained for the operations of the account.
The banker should insist the signatures of all the executors to the cheque drawn on
executors account.
 Whenever the bank lends to the executors or administrators, it should ensure that such
borrowing is authorized in the will and the fund so borrowed is utilized for the purpose for
which it is borrowed.
The property of the deceased cannot be given as surety for the personal borrowings of the
executor.
The banker should not make any transfer of funds to the personal accounts of the executors.
The borrowings made by the executor, the personal accounts of the deceased estate for
clearing the debts will be in his own personal capacity.
In case of death or resignation of the executor, the banker needs not close the account and
allow other executors to operate the account.
In case of lunacy of the executor, the banker cannot allow the executor to operate the
account, but other executors can operate the account.
The account of the deceased cannot be continued beyond a reasonable time. If the banker
allows to operate the account, he becomes a party to breach of trust.

11. TRUSTEES OR TRUST ACCOUNTS

The Indian trust act,1882 defines ‘trust’ as an obligation to the ownership of property and
arising out of confidence reposed in and accepted by him for the benefit of another and the
owner. The trustee is a person for benefit of a person or an organization called ‘beneficiary’.

The following are obtained by the bank while opening a trust account:

1. Copy of constitution of the trust.

2. Trust deed if available.
3. Certificate of registration and/or certified copy of the entry of the public trust register.
4. Public Trust Register Number.
5. A list of the current trustees and the authority appointing them as trustees.
6. The necessary resolution passed by the trustees for opening the account with the bank.
7. Certified copy of the resolution signed by all the trustees in regard to the conduct of the
account.

Precautions to be taken by banker in opening and conduct of trust account:-

1. The banker should thoroughly examine the original trust deed and ascertain the names of
the trustees, the powers vested in them , the details of the trust property, etc.
2. The banker should obtain a duly certified copy of the trust deed for his future reference.
3. If the trust is a charitable trust the banker should obtain a certified copy of the registration
certificate to know the legality of the trust.
4. The banker should get the account opening form duly signed by the trustee authorized to
open and operate the trust account.
5. The banker should get a certified copy of the resolution passed by the trustees regarding the
opening of an account with his bank and the names of the trustee who are authorized to
operate the account.
6. The banker should also obtain a declaration from all the trustees that they are all willing to
act as trustees as per the terms and conditions in trust deed.
7. The trustees are required to act jointly in conducting the affairs of the trust; which they are
not to delegate to a third party.
8. If the trust deed provides for delegation then the banker should deal with the trustees
authorised to operate the account.
9. The banker should open an account in the name of the trust and obtain the specimen
signatures of the trustees authorised to open and operate the account.
10. The power of the trustees to borrow and pledge or mortgage any property of the trust
depends upon the express provisions of the trust deed.
11. In the case of death or retirement of all the trustees, the new trustees may be appointed by
the court.
12. The insolvency of one or more trustees does not affect trust property since it cannot be
utilised for payment of the personal debt of the trustee.
13. The banker should not knowledge not knowingly permit the misuse of trust funds,
otherwise the beneficiaries will be held liable.
14. In the case of the charitable trust, the banker should examine the registration certificate
issued by the charity commissioner as may be prescribed by the state government.

Operation of Trust Account:

Trust accounts must be opened and conducted strictly in accordance with the terms
of the trust deed. All the trustees are required to act jointly by the persons so authorised by
the registered trust deed. Trustees have no powers to delegate their authority to one or more
unless the power of delegation is authorised by the trust deed or is in accordance with the
directions of the court on an application made by the trustees.
 Trustees have no implied authority to borrow or pledge trust, unless so provided for
in the trust deed.

Death of a Trustee:
On the death of one of the trustees, the trust property passes to the other trustees as
per the provisions of the trust deed. If the deceased is the sole trustee, his executor has no
right to recover the trust money. The executor, however, has the right to appoint a new
trustee, provided the deceased trustee has on his will specifically authorised such an
appointment.

12. CLUBS AND ASSOCIATIONS

These are social institutions which are run to render service to the people at large.
These institutions are registered organisations and have own rules and regulations.

Precautions to be taken by the banker in opening and operation of accounts of

clubs and associations:

1. The banker should obtain a copy of the by-law of the organisation or club and
examine the provisions relating to the bank accounts.
2. He has to obtain a resolution appointing him as the banker and also another
resolution stating the name and designation of those who operate the account.
3. Any advances made or overdraft granted to such clubs, associations, the banker
should ensure that the proper security is given.
4. The banker can also obtain the personal security of one or more persons of the
organisations.
5. The banker should be careful while granting advances to unregistered clubs; and if
so granted the management of the clubs should be held responsible.
6. Account operation has to be stopped when the authorised person dies and can be
continued only after a new person is authorised.