DEPARTMENT OF TECHNICAL EDUCATION

ANDHRA PRADESH
Name : G.Rajeswari
Designation : Senior Lecturer
Branch :Commercial and Computer Practice
Institute : Government Polytechnic, Srikakulam
Year/Semester : V semester
Subject : Banking
Subject code : CCP 504(B)
Topic : Customer services in Banks
Duration : 50mts
Sub topic : Banker's duty in case of joint stock
companies
Teaching Aids : PPT, Animation
CCP-504(B).44 1
Banker’s duty in case of Joint Stock
Companies

Objectives:-
On completion of this Topic, you would be able to:
 Understand the duties of banker in case of Joint
stock companies, while opening account.

CCP-504(B).44 2
Recap

In the previous class, you have learnt some of banker’s

duties in case of Joint Stock Companies. They are:
Preliminary Steps:-
 Before opening an account, the banker should find out
whether the company has a legal existence or not.
 For this purpose he has to refer to the Certificate of
Registration.

CCP-504(B).44 3
Recap

 Then, the banker should obtain the latest copies of the

Memorandum of Association and Articles of Association.
 These documents reveal the objects of the company, its
capital, its name, its registered office, its directors, and
their addresses, its borrowing powers, duties and
liabilities of officers and so on.
 So, the banker must carefully inspect them and gather
necessary particulars

CCP-504(B).44 4
Recap

 In addition to the above, the banker must get a

copy of the prospectus of the company.
 The banker should also verify the Certificate of
Commencement of Business in case of public
limited companies.
 In case, the banker has any doubt with regard to
any of the documents mentioned above, he can
refer the matter to the Registrar of Joint Stock
Companies and get it clarified.

CCP-504(B).44 5
Recap
 In case, the company is a new one, the banker should
carefully note whether the names of the first directors
have been mentioned in the document or not.
 In case of an existing company, the banker should ask
copies of the recent balance sheet and profit and loss
account, to know the financial soundness of the
company.
 After having satisfied himself with these preliminary
steps, the banker can safely open an account.

CCP-504(B).44 6
Copy of the Board’s Resolution:-

Along with the application to open an account in the

company’s name, the banker should obtain a certified
copy of the resolution passed by the Board of Directors of
the company containing the following in regard to the
opening of a bank account:
b) Appointing the bank concerned as the banker of the
company.
c) Naming the person or persons who are authorized to
operate the bank account on behalf of the company.

CCP-504(B).44 7
Copy of the Board’s Resolution:-

a) Stating the names of the persons who are authorized

to execute the documents on behalf of the company,
or in whose presence the seal of the company will be
affixed on the documents.
b) Authorizing the advance and stating all details of such
advance, e.g. Limit, security, rate of interest etc.
c) Stating the names of the persons who are authorized
to deposit the title deeds in case of equitable
mortgage.

CCP-504(B).44 8
 The borrowing powers of the Company:-

a) A prudent banker will look into the borrowing powers of

a company before lending money.
b) Every trading company has an implied power to borrow
and mortgage its property.
c) This power is exercised by the Board of Directors.

CCP-504(B).44 9
The borrowing powers of the Company:-

a) Generally, the Articles of Association of the company

puts a limit on the borrowing powers of the directors as
well as the company.
b) If the Directors borrow money over and above their
borrowing powers, it is ‘ultra-vires’ the directors.

CCP-504(B).44 10
The borrowing powers of the Company:-

b) It may or may not be ratified later.

c) If it is not ratified by the company, and also when
the borrowings is ultra-vires the company, then the
company will not be liable.

CCP-504(B).44 11
The borrowing powers of the Company:-

b) Hence, the banker should carefully note the

borrowing powers of the company.
c) To be on safe side, the banker should obtain a
certificate from the Chairman of the company to the
effect that the proposed advances are within the
scope of the unutilized powers of the directors.

CCP-504(B).44 12
 Now In this class, You will know the
remaining duties of banker while opening
accounts for Joint Stock Companies:

CCP-504(B).44 13
 The purpose of Loan:-

• If the money borrowed for the purpose of the company’s

business is misappropriated for a different purpose
unauthorized by the Memorandum of Association, and if
it is not known to the bank, the bank is not liable for it.
• But, if the banker has knowledge of it, he must immediately
stop the operation of the account.

CCP-504(B).44 14
 The purpose of Loan:-

• It is so because, such a borrowing is ultra-vires the

Memorandum (loan for purposes other than those
mentioned in it).
• In such a situation, the company will not be liable.
 The banker should therefore, see that the borrowing is
not ultra-vires the memorandum.

CCP-504(B).44 15
 Registration of Charges:-

i. A prudent banker should pay considerable attention to

sec. 125 of the companies Act, 1956 which gives a list
of charges to be registered within 30 days of signing
those charges.

CCP-504(B).44 16
 Registration of Charges:-

i. Therefore, when a banker creates a charge on the

assets of the company, he must register it
immediately.
ii. Otherwise, a charge created later, but registered
earlier will get a preference over the previous charge.

CCP-504(B).44 17
 Registration of Charges:-

i. Moreover, when it is registered, it serves as a notice of

creation of such charge to all persons dealing with
those properties from the date of registration.
ii. The banker is advised to inspect the register the
mortgages and charges kept at the office of the
Registrar of Joint Stock Companies and find out
whether there is any prior charge over the assets over
which the bank now wants to create a charge.

CCP-504(B).44 18
Registration of Charges:-

i. It may be possible that debentures might have

been issued by creating a floating charge over
the assets of the company.
ii. Therefore the banker must be very careful in
finding out the existence of prior charges, if any.

CCP-504(B).44 19
 Director’s personal account and
the company Account:-

ii. If a banker has the personal account of the

authorized director, side by side with the
company’s account, then, the banker must handle
the personal account very carefully.
iii. He should not combine both the accounts.

CCP-504(B).44 20
Director’s personal account and
the company Account:-

ii. A cheque payable to the company must not be

collected to the private account of the directors.
iii. If banker does so, it will constitute negligence on
the part of the banker and he will be liable to the
company.

CCP-504(B).44 21
Winding up of the company:-

i. A company may be wound up voluntarily by the

members or the creditors or compulsorily by the
court.
ii. So any cheque drawn by the directors must not
be honored.

CCP-504(B).44 22
Winding up of the company:-

i. When the banker has knowledge of the passing

of the resolution authorizing the winding up of
the company, he must stop the operation of the
account.

CCP-504(B).44 23
Winding up of the company:-

i. He must act according to the instructions of the

liquidator.
ii. In all these cases, the liquidator will have the
power to operate the account for the purpose of
winding up of the company.

CCP-504(B).44 24
Winding up of the company:-

• If it is a compulsory winding up and the banker has

no knowledge of the presentation of the petition, he
can go on honoring the cheques drawn by the
directors and the banker will not be liable, provided,
such transactions are bonafide.
• The court will exercise its discretion to find out
whether the transactions are bonafide or not.

CCP-504(B).44 25
Summary

 Before granting loans, the banker should ask for

which purpose the amount is borrowed.
 If the amount so borrowed is misappropriated by the
company for a different purpose, and the banker
knows it, then the banker will be liable for it.
 The banker should register the charges on assets
within 30 days of signing those charges.

CCP-504(B).44 26
Summary
 If the banker has the personal account of the
authorized director, side by side with the company’s
account, then, the should not combine both the
accounts.
 If the banker has any information regarding the
winding up of the company, he must immediately
stop the operation of the account.

CCP-504(B).44 27
Summary

 The bankers has to act according to the

instructions of the liquidator if a company is
winding up either voluntarily or compulsorily.

CCP-504(B).44 28
Quiz

1. By which of the following ways a joint stock company

can be created?
a) By constitution
b) By law
c) By agreement
d) None

CCP-504(B).44 29
Quiz

2. Before opening an account a banker must verify

which of the following documents?
a) Legal documents
b) Merit documents
c) Certificate of registration & certificate
of commencement of business
d) Awards.

CCP-504(B).44 30
Quiz
3. In case of a company, a charge created must
be registered within how many days?
a) 35 days
b) 30 days
c) 20 days
d) 100 days

CCP-504(B).44 31
Quiz
4. Bank has to obtain the following document along with
the account opening form?
a) Copy of board’s resolution
b) Photos of shareholders
c) Photos of registered office
d) Memorandum

CCP-504(B).44 32
Quiz

5. A prudent banker will look into the following

before lending money.
a) Borrowing powers of a company
b) Faces of directors
c) Language of directors
d) None

CCP-504(B).44 33
Quiz

6. Who is appointed to look after the winding up of the

company?
a) Liquidator
b) Chartered accountant
c) Secretary
d) Officer

CCP-504(B).44 34
Quiz

7. On intimation by the liquidator about the winding up

of the company, the banker has to do the following.
a) Stop the operation of account
b) Honor the cheques
c) Dishonor the cheques
d) Withdraw the amount

CCP-504(B).44 35
Assignment

1. A well established company of your area

approaches you for the purpose of opening an
account. What precautions will you take, as a
banker in such a case?

CCP-504(B).44 36