Partnership Accounts

A Partnership firm is an association of

2 or more persons called partners who
undertake a venture for mutual
benefit.
The Indian Partnership Act, 1932 defines
partnership as the relation between the
persons who have agreed to share the
profits of a business carried on by all or
any of them acting for all of them .

Bankers Duty Partnership A/c

Precautions to be taken by a banker :

Opening of an Account The banker can open an account in the name

of the firm only on the receipt of written
application from anyone or more partners
The banker should obtain a letter called
partnership letter duly signed by all the
partners stating the :
name and address of all the partners
nature of the firms business, etc.
He should take a copy of duly stamped
Partnership Deed and study its objectives,
capital, borrowing powers etc.
2

Bankers Duty Partnership A/c

Precautions to be taken by a banker :

Personal Account and a Firms Account Usually a banker has a personal account of a
partner side by side with the partnership
account.
Banker should not mix one account with
another and has no right of set-off and lien
against each other
Cheque payable to partnership firm must not
be accepted for collection to the private a/c of
the partner w.o. enquiry or consent of all
The bank can transfer the funds from the
personal a/c of the partner to the partnership
a/c by his consent but not reverse.
3

Bankers Duty Partnership A/c

Precautions to be taken by a banker :

Mandate:
Banker should ask for a Mandate duly
signed by all the partners.
Mandate contains information as to:
The name of one or (advisably) two
partners who are authorized to operate
firms account
The extent of authority given such as the:
powers to draw, endorse and accept bills
mortgage and sell properties of the firm

(Deed of Mortgage must be signed by all the

partners, only then all would be liable)

right to overdraw etc.

Bankers Duty Partnership A/c

Precautions to be taken by a banker :

Mandate:
The authority to operate the account can be
withdrawn by any of the partners by giving a
notice to the banker.
A partner authorized to operate the account
cannot delegate his authority to another
person without the consent of all the other
partners in writing.

Bankers Duty Partnership A/c

Precautions to be taken by a banker :

Retirement of a Partner:
When the banker receives a notice of
retirement from the retiring partner, he
should examine the position of the firms
account & the nature of securities.
If no notice is served, the retiring partner will
continue to be liable for the advances made
after his retirement.
If the partnership a/c shows a debit balance
and if the retiring partner is to be made
liable, the banker should immediately close
the a/c and open a new a/c.
6

Bankers Duty Partnership A/c

Precautions to be taken by a banker :

The Death of a Partner:

The death of a partner may or may not
dissolve the partnership firm.
If the a/c shows a credit balance, the existing
partners may continue to operate the a/c.
If the a/c shows a debit balance, the banker
should immediately close the a/c and open a
new a/c to make the deceased partner liable
for his share.

Bankers Duty Partnership A/c

Precautions to be taken by a banker :

1. It is advisable for the banker to get a written

consent of all the partners of the firm before
granting any loan to the firm.
2. No partner can bind his co-partners by giving
a guarantee on behalf of the firm.

Joint Stock Companies

Definition:
A joint stock company has been defined
as an artificial person ,invisible,
intangible & created by law.
It is recognized as separate entity
different from the members who
constitute it.
It has a common seal.
It can sue others and can be sued.
As it is an artificial creation, it cannot
act by itself. It has to act through
human agents.

Bankers Duty

Joint Stock Company A/c

Precautions to be taken by a banker :

Opening of an Account The first step is taken by the Board of

directors. They pass a resolution authorising
the secretary to open an account.
The banker asks the secretary to fill up the
prescribed application form and submit it
along with the certified copy of the resolution
duly
signed
by
the
Chairman
and
countersigned by the secretary.

10

Bankers Duty

Joint Stock Company A/c

Precautions to be taken by a banker :

Opening of an Account- Scrutiny by banker

Certificate of Incorporation which is a

proof of the legal existence of company
Obtain latest copy of MoA and AoA that has:
Name of the company and address of the
registered office
Name of the Directors and their addresses
Nature of the firms business, its objectives,
capital, borrowing powers etc.
Obtain the copy of the Prospectus of the
company , certificate of Commencement of
Business, recent balance sheet , P&L account.
11

Bankers Duty

Joint Stock Company A/c

Precautions to be taken by a banker :

Mandate:
Banker should ask for a Mandate from the
company.
Mandate contains information as to:
The name of persons who are authorized to
operate the account and their specimen
signatures
The extent of authority given such as the:
powers to draw, endorse and accept bills
Securities and Safe Custodies etc.
Any change in the operation should be done
12
by a fresh resolution and fresh mandate

Bankers Duty

Joint Stock Company A/c

Precautions to be taken by a banker :

Mandate:
The authority to operate the account can be
withdrawn by any of the partners by giving a
notice to the banker.
A partner authorized to operate the account
cannot delegate his authority to another
person without the consent of all the other
partners in writing.

13

Bankers Duty

Joint Stock Company A/c

Precautions to be taken by a banker :

Directors Personal A/c and Company A/c

If a banker has a personal account of the
authorized director side by side with the
companys account :
Banker should not mix one account with
another and has no right of set-off and lien
against each other
Cheque payable to the company must not
be accepted for collection to the private a/c
of the director w.o. proper enquiry
14

Bankers Duty

Joint Stock Company A/c

Precautions to be taken by a banker :

Borrowing Powers:
Every company has an implied power to
borrow and mortgage its property. As per the
Companies Act-1956, the borrowings should
not exceed the aggregate paid-up capital and
free reserves. The AoA also puts a limit on
the borrowing powers.
The banker should obtain a certificate from
the Chairman of the BoD that the advances
are within the prescribed limit.
If the borrowing is ultra-vires and not
ratified, the company will not be liable.
15

Bankers Duty

Joint Stock Company A/c

Precautions to be taken by a banker :

Registration of charges:
Banker must find out the whether there is any
prior charge over the assets on which he
wants to create a charge. He needs to inspect
the Register of Mortgages and Charges at the
office of Registrar of Joint Stock companies.
When the banker creates a charge, he should
immediately register it.
Non-registration will affect the security of the
bank in the event of liquidation and/ or claim
by another creditor whose charge is registered
on the same property.
16

Bankers Duty

Joint Stock Company A/c

Precautions to be taken by a banker :

Winding up of the Company:

Once a resolution is passed w.r.t. winding up
i.e. liquidation, the borrowing powers of the
directors and the officers cease.
The Banker is advised to stop the operation of
the accounts and wait for the information on
presentation of petition by the liquidator.
Thereafter, he must act according to the
instructions of the liquidator.

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Executors, Administrators or Trustees

Executor: Is a person to whom the execution
of a will is entrusted by the maker of the will.
The certified copy of the final will is called
Probate and is granted only to an executor.
Administrator: If the person named in the will
refuses to act (executor) or if a person dies
without any will, then the court will appoint a
person called Administrator and issue an order
called Letter of Administration.
Trustee: Is a person in whose care the control
of an estate/ property is placed under an
instrument of trust called Trust Deed.
18

Bankers Duty
Executors, Administrators or Trustees
Precautions to be taken by a banker :

Opening of an Account The banker must take a certified copy and go

through the Probate, Letter of Administration
or the Trust Deed.
Operating of an Account In case there are 2 or more Executors/
Trustees, the banker should seek clear
instructions about the powers of each of them.
The Executors and Trustees cannot delegate
their powers to an outsider. Executors can
delegate their powers to another executor but
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Trustees cannot do so.

Bankers Duty
Executors, Administrators or Trustees
Precautions to be taken by a banker :

Operating of an Account In the case of Joint Executors, any one can

deal with the funds but in case of Joint
Trustees, all must sign the documents,
cheques etc.
In the case of insolvency, insanity or death of
any one of the of Joint executors, there is no
change in the operation of account.
In the case of Joint Trustees, the banker
should not assume that the continuing
trustees possess full powers to deal with the
20
trust property.

Bankers Duty
Executors, Administrators or Trustees
Precautions to be taken by a banker :

Operating of an Account Breach of Trust: A banker is liable to protect

the interest of beneficiaries of Trust. He is
justified to dishonor a cheque drawn by a
trustee, if a breach of trust is intended.

21

Bankers Duty
Executors, Administrators or Trustees
Precautions to be taken by a banker :
Borrowing Power Trustees and Executors have no implied
power to borrow. They can borrow only in
their personal capacity against their personal
assets as security.
If they are authorized to borrow to discharge
the debts of a deceased, banker must lend it
against the assets of the deceased (however,
creditors of the deceased have prior rights).
Banker is advised to get the personal assets
of executors/ trustees as security.

22

Bankers Duty
Executors, Administrators or Trustees
Precautions to be taken by a banker :
Personal Account and Trust Account If a banker has a personal account of the
Trustee / Executor side by side with the
Trust account :
Banker should not mix one account with
another and has no right of set-off and
lien against each other
Cheque payable to the trust a/c must not
be accepted for collection to the private
a/c of the trustee.

23

Clubs, Societies & Associations

These are social institutions which are
run to render service to the people at
large. The banker should see if these
institutions are registered or not.
The society, a club/ school/ institution/
association, must be registered under
the Societies Registration Act or the Cooperative Societies Act.
In case of registered institutions, the
banker can open the account in the
name of the institution.

Bankers should take all the precautions as

24
applicable in case of Joint stock co.

Clubs, Societies & Associations

In the absence of registration, the
society will have no legal existence and
will have no contracting powers.
The banker will not be in a position to
sue either the society or the individual
members.
However, the banker may open the
account in the name of an individual and
designate it as a club account. For eg. Mr.
Arun Kumar, account Marathalli Sports Club.

Such an individual can be held

responsible for any loans or overdraft.
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Joint Hindu Family/

Hindu Undivided Family
It is an undivided family which comprises
of all male members, descended from a
common ancestor.
A JHF/ HUF is a family which consists of
more than one member, possesses
ancestral property & carries on family
business.
A business carried by HUF is governed by
the provisions of Hindu Law.
The senior male member is called Karta
& other male members as coparceners .
26

Joint Hindu Family/

Hindu Undivided Family
Karta manages the whole business of the
family & his liability is unlimited; whereas
coparceners have limited liability to the
extent of share in JHF.
A banker should know the laws and
customs relating to succession and
transfer of rights.

27

Bankers Duty
Joint Hindu Family / HUF
Precautions to be taken by banker in dealing
with JHF a/c :
Opening of A/c
The banker must get complete information
about the JHF including the names of major &
minor coparceners.
The banker should get a declaration from the
Karta along with the specimen signatures of
all coparceners.
The name in which JHF a/c is to be opened
has to be ascertained & banker should know
who will operate the a/c. In the absence of
this, only karta is allowed to operate the a/c.28

Bankers Duty
Joint Hindu Family / HUF
Precautions to be taken by banker in dealing with
JHF a/c :
Operating the A/c
The Karta has the implied power to mortgage &
pledge the property of JHF for raising loan or
discharge ancestral debts.
While making advance ,the banker should
ascertain the purpose of the loan & if it is
required by the JHF for business then banker
should take signatures of all coparceners.
If the advance is made for the personal use of
Karta or for speculative purposes, the JHF & the
coparceners are not held responsible.
29

Bankers Duty
Joint Hindu Family / HUF
Precautions to be taken by banker in dealing with
JHF a/c :
Operating the A/c
If a new business is started by the Karta in a
JHF ,then coparceners are liable for such debts,
as it is deemed to be JHF business.

30

JOINT ACCOUNT
Opened by
two or more
persons
jointly such
as husband &
wife, father
& son etc.

JOINT
ACCOUNT

31

Bankers Duty

Joint A/c

Precautions to be taken by a banker :

The application form should be signed by all

who wish to open an account.
Mandate:
Banker should ask for a clear Mandate in
writing with specific instructions on the
operations of Joint A/c.
Options given under Mode of Operation are:
Former or Survivor (A only, A then B)
Either or Survivor (A / B; A then B or B then A)
Any One or Survivor (A, A then B ; B, B then A)
Jointly (Both A and B)
Banker should get a clear Mandate as to:
The nature and extent of authority 32

JOINT ACCOUNT

Withdrawals :
The banker should obtain clear instruction
from the account holders regarding withdrawal
of money or drawing of cheque. The
application form usually give the option of
withdrawal clauses such as :
Either or Survivor / Former or Survivor
All to sign etc.

33

JOINT ACCOUNT

Borrowing Power:
All the joint account holders must make a joint
demand, signed by all. Banker should not
accommodate if a joint request signed by all is
not submitted.
Power to Overdraw: involves right to overdraw
and withdraw the articles under safe custody.
If the banker provides any advance or loan or
overdraft to the joint account, the banker
should establish joint and several liability i.e.
joint liability as well as separate individual
liability.
34

JOINT ACCOUNT
Insolvency / Insanity of a Joint account
holder:
The authority given to one or more to operate
the account automatically ceases when the
authoriser becomes insane/ insolvent.
Banker should stop the operation of the
account.
He should act according to the instructions of
the solvent person/ sane person along with
the Official receiver (court representative).
The rule of survivorship is not applicable in
the case of insolvency/ insanity.
35

JOINT ACCOUNT
Death of a Joint A/c Holder/ Rule of
Survivorship:
The authority obtained by the banker should
also contain the provision relating to the
payment of amount held in the joint a/c when
one of the joint a/c holder dies.
The options are:
Survivor shall have full control over the
joint a/c then and thereafter OR
A nominee may be appointed by the a/c
holders which may be entitled to the
amount in the event of the death of a joint
a/c holder.
36

JOINT ACCOUNT
Joint accounts of husband and wife:
The doctrine of Survivorship becomes difficult
to apply, in case of a Joint a/c of husband &
wife, if the banker do not have the clear
instruction of Former or Survivor, Either or
Survivor etc..
In the absence of any such instruction, the
banker can pay the amount to the widow.
However, if a legal representative of the
deceased interfere, then the court decides
the matter by understanding the intention of
the parties Protection of Wife or
Convenience of account holders.
37

JOINT ACCOUNT
Joint accounts of husband and wife:
If only husband operates the account, then
the intention is to provide for the protection
of wife. In this case, on the death of husband
the amount goes to wife.
If both husband and wife operate the
account, then the intention is convenience of
a/c holders. In this case, on the death of
husband, the doctrine of survivorship is not
applicable. The amount is transferred to the
estate of the deceased husband and not to
the widow.
38

Non Resident Account

Whenever a banker opens an account of
a prospective customer, he should find
out whether the customer is a resident
or a non resident.
Non Resident Indian is an Indian citizen
who stays abroad for employment or
business or vocation.
A Non-resident foreign citizen of Indian
origin are also treated on par with NRI
citizens except citizens of Nepal and
Bhutan.
39

Non Resident Account

NRIs are granted the following facilities:
Maintenance of Bank A/c in India
In rupees as well as foreign currency;
current, savings, term deposit a/cs

Investment in securities, shares and

deposits of Indian companies
Investment in immovable property in
India.

40

Non Resident Account

Only those Banks can open and maintain
accounts in the name of NRIs who
Are authorized to (has acquired a
license) to deal in foreign exchange
OR
Are specifically permitted by RBI to
maintain accounts of NRIs although
not an authorized dealers.

41

Types of Non Resident Acco

NRE
Non Resident External Rupee Accounts
NRO
Non
Resident
Ordinary
Rupee
Accounts
FCNR Foreign
Currency
Non
Resident
Accounts

42

Types of Non Resident Acco

NRO

NRE

FCNR

Authority to
Authorized dealers in foreign exchange. Banks
open account authorized to deal in foreign exchange or that has RBI
approval for opening such accounts.
Joint
Account

Currency
denomination
Type of A/c

Funds
Credited

Can be held
jointly with
residents
Indian Rupee

Cannot be held
jointly with
residents, only 2
or more NRIs

Cannot be held
jointly with
residents, only 2
or more NRIs

Indian Rupee

US $, Pound,
Yen, Euro

Savings, Current, Savings, Current,

RD, FD
RD, FD
Local funds
which cannot be
remitted abroad

Remitted from
abroad or local
funds to be
remitted abroad

Term deposits
(FD) only
Remitted from
abroad
43

Types of Non Resident Acco

NRO
Rate of
Interest

Same as in the
case of domestic
deposits

NRE

FCNR

Fixed by the
bank concerned

Prevailing interest
rates in
international
markets

Repatriable

Mostly Not
repatriable with
some exceptions

Yes

Yes

Currency
Conversion

Market Rate

Market Rate

Market Rate

Tax
Implications

No Tax
concessions

Interest Income
exempted. No
Gift tax

Interest Income
exempted. No
Gift tax
44

ers Duty Non Resident Ac

Bank should be authorized to deal in
foreign exchange or have got approval
from RBI for opening such accounts.
Banker should find out whether the
prospective customer is a resident or
non-resident.
Be careful in opening such accounts as
it
involves
foreign
exchange
regulations.
They are advised to go through the
Exchange Control Manual and follow its
45
guidelines.

nts of Government Departm

Government Department Accounts may
be opened in banks for transacting the
govt. business.
Govt. business transacted through
banks relate to collection of taxes,
payment of money on behalf of various
govt. depts.
Central Govt. transactions are governed
by the Treasury Rules and the Account
Codes Vol. I and Vol. II.
State Govt. transactions are governed
46
by the State Financial Handbook.

nts of Government Departm

The Central & State Govt. transactions
are handled by SBI, its associate Banks
or authorised public sector banks.
The banks send the statement of
transactions to the Government A/c
Link Cell maintained in Bombay. This
cell passes on the transaction to RBI,
the banker to the GOI.
At the district level, there is a District
Treasury headed by a Treasury Officer.
Treasury officer liases with the bank on
behalf of the Govt. and issues Cheques/47

nts of Government Departm

Bankers Duty
Be well conversant with the treasury rules,
Account Codes Vol. I and Vol. II and State
Financial Handbook, as the case be.
While receiving Govt. dues such as sales tax,
excise duty, customs duty etc. , banker
should pay attention to the head of account
to which the amount is to be credited.
Banker should sign the challans that is
returned to the depositor acknowledging the
receipt and put initials on the other copies.
Banker should not issue any duplicate copies
for the lost challan, instead give a certificate.

48

nts of Government Departm

Bankers Duty
For any payments by the govt. dept. (eg.
payment of salaries to govt. employees),
banker should see that the bill is in the
prescribed format and duly stamped and
signed by the concerned treasury.
The banker should pay special attention to
the drawing power of the officer concerned
and his specimen signature.

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Payment of Pensions

Government gives pension after retirement to

following categories of people:
1. Employees retired from Central and State
Govt. departments.
2. Railway pensioners retired from railways
3. Defence pensioners retiring from defence
services
4. Judges retired from Supreme Court and
High Court
5. MPs/ MLAs/ MLCs
6. Freedom Fighters
To receive pension, pensioners have to open
savings bank a/c in any public sector banks.

50

Payment of Pensions

Bankers Duty
Banker should open the account in the
name of the pensioner alone not a
joint account.
Bankers make payment against the
Pension Payment Order that contains
all the relevant information.
On the last day of month, the bank
credits the savings a/c of the pensioner
with the pension amount, after debiting
the relevant head of accounts of the
Govt.
51

Payment of Pensions

Bankers Duty
The banker should insist that the
pensioner collect the pension personally
at least once every year to confirm that
he is alive.
Banks also insist on documents like
Life Certificate from the pensioner
periodically.
Upon the death of the pensioner, the
pension due to him until the date of
death is calculated and credited to his
account. If the pension is credited for
52