Thursday, September 10, 2009

Different Types of Bank Customers

Accounts of Minors:

Who is a Minor?

As per sec.4 of “The Guardian and Wards Act, 1890, “ ‘Minor’ means a person who, under the provisions of Indian Majority Act, 1875(9 of 1875) is to be deemed not to have attained his majority”.
As per Sec3 of “Indian Majority Act, 1875,” every other person domiciled in India shall be deemed to have attained his majority when he shall have completed his age of eighteen years and not before”. Thus 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 twenty-one years of age and not before (Sec3 of Indian Majority Act, 1875). According to the Indian Contract Act, 1872, a minor is not capable of entering into a valid contract and a contract entered into by a minor is void. A minor after attaining majority cannot ratify the contract made by him during his minority since agreement made by him as a minor is void.
However, section 26 of NI Act provides that a Minor may draw, endorse, deliver and negotiate a cheque so as to bind all parties except himself. Of Course the minor is not bound by the terms and conditions of Bank Account. A question may obviously arise that in spite of above-mentioned disabilities, why banks are allowing opening an account in the name of Minor. The main reason for this is that in this age of cutthroat competition for deposit mobilization
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 three types:
(i) Natural guardian,
(ii) Testamentary Guardian: -Guardian appointed by the will of the minor's father or
(iii) Guardian appointed by a court under the Guardians and Wards Act, 1890.
Natural Guardians in Different Religions:
a) Hindu
According to Sec.6 of Guardians and Wards Act, 1890,the natural guardian of a Hindu minor, in respect of the minor’s person as well as in respect of the minor’s property (excluding his or her undivided interest in joint family property), are-
(a) In the case of a boy or unmarried girl- the father, and after him, the mother,
provided that the custody of a minor who has not completed the age of five
years shall ordinarily be with the mother;
(b) In the case of illegitimate boy or an illegitimate unmarried girl- the mother,
and after her, the father;
(c) In the case of married girl -the husband:
(Note: The expression “father” and “mother” do not include a step- father and a
b) Muslim: Under the Mohammedan Law, father is the natural
guardian of the property of a minor. A mother of a Muslim minor is not a natural
guardian of her child.
A Muslim minors natural guardian in the order of preference is as under:
oExecutor appointed by father’s will
oExecutor appointed by grandfather’s will
oIf there is no guardian from any of the four categories mentioned above,
then guardian will have to be appointed by the court.
c)Christians & Parsis:
The natural guardian of a minor child is father during his lifetime and after him, the mother. In respect of child born out of wedlock registered under “The Special Marriage Act, 1954” the Guardian and Wards Act, 1890, govern guardianship.
Opening of Minor’s Account:
Generally, banks are reluctant to open deposit account in the name of minor, with mother as a guardian. Probably it may be due to the provisions of Sec. 6 of the Hindu Minority and Guardianship Act, 1956. According to which mother is not a guardian when the father is alive. During his lifetime, father alone is the natural guardian of a Hindu minor.
After examining the legal and practical aspects of problem, the Reserve Bank of India has permitted banks to open fixed, recurring deposit and savings banks accounts, mother as a guardian. Although there is no legal protection provided to the accounts opened in the name of minor with mother as guardian banks have been permitted to open accounts in the names of minors with mother as guardian.
RBI has advised banks to take adequate safeguards in allowing operations in the accounts by ensuring that minors' account opened with mothers as guardians are not allowed to be overdrawn and that they always remain in credit. By not allowing the account to be overdrawn the minor's capacity to enter into contract would not be a subject matter of dispute.
RBI has also advised banks that in cases where the amount involved are large, and if the minor is old enough to understand the nature of the transaction, the banks could take his acceptance also for paying out money from such account.
The account of minor can be opened in any one of the following modes.
i) By a natural guardian, i.e., father or mother on behalf of the minor:
ii) By a natural guardian, i.e., father or mother in the joint names of
himself/herself and the minor, payable to either or survivor;
iii) By a person in the name of any minor of whom he or she is the guardian
appointed by a competent Court under any enactment for the time being in force;
iv) By a minor of age 10 and above in his/her single name to be operated upon by
himself/herself, provided he/she can put uniform signatures.
Funds for opening Account:
oGuardian can open accounts from own funds. If guardian’s intention is to
utilize the money for the benefit of the minor and to eventually make the money
lying to the credit of the account available to minor or his/her attaining
majority, in that case from the date of the minor attaining majority the account
is to converted as a joint account (either or survivor) and can be operated upon
by the minor.
oIn a case where the funds with which the account in the name of the minor is to
be opened devolve upon him/her by gift, inheritance etc., or where the bank, at
its discretion, to consider it necessary, the account in the name of the minor
will be permitted to be opened only by a guardian appointed by a Court and the
guardianship certificate must embody an express authority to open and operate an
account with the Bank.
oOn attaining majority, the erstwhile minor has to confirm the balance in his/her
account and if the account is operated by the natural guardian / guardian, fresh
specimen signature of erstwhile minor duly verified by the natural guardian
are obtained and kept on record for all operational purposes.
According to age accounts of minor can be classified in to three categories.
o Below 10 years of age.
o Between 10 to 14 years of age
o 14 years of age and above
A legal guardian appointed by a Court to deal with the property of a minor can open an account in the name of the minor. Legal guardian cannot join as an accountholder in his individual capacity with the minor. All operations in such an account have to be for and on behalf of the minor in the capacity of a legal guardian.
Banks do not open accounts in the names of two or more minors either jointly between themselves or with the natural guardian/s or with any other person/s.
Third party cheques are not collected for the credit of any type of account in the name of a minor either solely in his/her name or jointly with his/her guardian/s or other person/s.
Essential requirements for opening Minor’s Account:
For opening the account of a minor bank requires:
o Minor’s date of birth. The birth date of is ascertained and verified from
the Municipal Birth Certificate or Birth Certificate issued by the School
Authority where the minor is studying.
o Recording the date of birth and date of maturity in the
o Account opening form, specimen signature card and the ledger folio. Since
banks have computerized their operations the date of birth should be
recorded in the records maintained on computer.
o Date of birth to be recorded in the passbook and in all types of account
such as Current, Savings Bank, Term Deposit Receipt in case of Term Deposit
Accounts or Recurring Deposit maintained by the minor.
On the minor attaining majority necessary steps are taken to ensure that the account is properly reconstituted if the account of a minor is held jointly with guardian/s or other person/s.
(1) Minors below 10 years of age:
Savings bank account can be opened in the name of a minor below 10 years of age in his own name, but the minor cannot operate the account. The account is to be operated by father as natural guardian or mother as guardian or by both of them. For all practical purposes, such accounts are treated as a single account. The date of birth of minor is recorded on the application form. Signatures of the guardian obtained even though he/she is not a joint accountholder.
In such cases, the account is styled as:
"Master ABC (Minor) through his Father and Natural Guardian Mr.XYZ." The mode of signatures in such account is as under:
For Master ABC
Father and Natural Guardian and/or Mother and Natural Guardian
Signatures of the natural guardian are obtained even though he/she is not a joint accountholder.
oOn attaining majority, the erstwhile minor is required to confirm the balance
in his/her account and if the account is operated by the natural guardian /
guardian, fresh specimen signature of erstwhile minor duly verified by the
natural guardian/ guardian is obtained and kept on record for all operational
(2) Minor between the age of 10 to 14 years:
A minor of the age of 10 years and above can open Savings Bank and all types of term deposit accounts in his sole name and can also operate the account. Many banks have fixed a limit of maximum balance in accounts of minors, between the ages of 10-14 years.
3) Minor of 14 years of age and above:
There is no limit to maximum balance for savings bank accounts of minors’ above-14-years. A minor of 14 years of age and above can also open current account in his sole name, subject to following terms and conditions:
o The minor should be able to read and write and in the opinion of the bank
officials is capable of understanding what he/she does.
o The account opening form, the application form, specimen signature card
etc., to be signed by the minor in the presence of a branch official and the
minor should be properly introduced by the guardian.
Joint Accounts of Minors:
Joint account in the names of two or more minors either jointly between themselves or with the natural guardian/s or with any other person/s is not opened.
Account of Minor by legal guardian:
A legal guardian authorized by an order from the Court to specifically deal with the property of a minor, can open an account in the name of the minor. All operations on such an account by the legal guardian has necessarily to be for and on behalf of the minor in the capacity of a legal guardian. A legal guardian cannot open account jointly with the minor in his personal capacity.
Accounts of Hindu minors where persons other than the guardians place deposits:
Deposits in the name of a Hindu minor placed by any person other than the natural guardian, as guardian, is accepted only on the condition that the deposit would be payable to the minor on attaining majority. Bank exercises proper care in such accounts.
.On minor’s attaining the age of majority i.e. 18 years:
.On attaining the majority the old Savings Bank account is closed and a new
account is opened wherein the name of the person who has attained majority is
included as one of the joint Account Holders and fresh operational instructions,
specimen signatures etc., are obtained.
2. Accounts of Married Women:
Marriage of woman does not affect any right of her separate property (Streedhan). Section 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 his 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
o If she borrows money for the necessities of her life,
o If she borrows for the necessaries of her house hold,
o If she acts as agent of he husband.
The status of the married women is governed by the following Acts:-
(a) Hindu Succession Act, 1956
(b) Married Women's Property Act, 1874
(c) Indian Succession Act, 1925
3. Account of Pardanasheen Women:
A pardanasheen women is a women who puts a veil and does not show her face to people /outsiders and observes complete seclusion. Even they do not pose for photographs. Contract entered into by a Pardanasheen Woman is not a contract free from all defects. Banks generally refuse to open accounts in the name of Pardanasheen Women, because identity of Pardanasheen Women cannot be ascertained as she observes complete seclusion.
However, if under special circumstances, such an account is opened, two respectable persons known to the branch invariably attest the signatures on the account opening form and on the withdrawals by withdrawal slips.
4.Accounts of the disabled persons with autism, cerebral palsy, mental retardation and multiple disabilities:Banks can open account by the legal guardian and permit them to operate the account as long as he remains the legal guardian appointed by the Local Level Committees set up under the “Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities Act, 1999”.
Vide circular No. RBI /2009-10/142 DBOD.No.Leg.BC. 37 /09.07.005/2009-10 dated September 2, 2009 Reserve Bank has advised banks to rely upon the Guardianship Certificate issued either by the District Court under Mental Health Act or by the Local Level Committees under the above Act for the purposes of opening / operating bank accounts. Banks have also been advised to give proper guidance so that the parents / relatives of the disabled persons do not face any difficulty in this regard.
Appointment of guardian:
As per the Act, “a parent or relative of a person with disability may apply to the Local Level Committee for appointment of a guardian/or a person with disability. A registered organisation can also make such an application with consent of the natural guardian of the disabled person. The Local Level Committee will examine whether the person with disability needs a guardian and for what purpose and also lay down the duties of the guardian. The guardian will be responsible for the maintenance of the person with disability.”
5. Accounts opened by Illiterates:
Those who are unable to sign but use thumb impression are illiterates for banks. Illiteracy does not make a person incompetent to contract. Therefore an illiterate person can open and operate a bank account. However, banks do not open current account of illiterate person. For opening an account the person has to come to bank personally along with a witness who is known both to the depositor and to the bank. While opening an account banks obtain left hand thumb impression of illiterate men and right hand thumb impression of illiterate female. The thumb impression is obtained in the presence of a person known to the bank and the depositor.
The thumb impression is to be witnessed by a customer of the bank and noting to this effect is done (left/right thumb impression of Mr./Ms. affixed in my presence). Photograph of the account holder is obtained which is affixed on the ledger folio, account opening form and pass book.
Normally, no chequebook is issued to the account holder. The account holder has to come to the bank for operating the account. After proper identification banks pay the amount to the account holder. All other terms and conditions applicable for opening an account also apply in this case. Banks are required to explain the terms and conditions governing the account to the illiterate.
6.Opening of accounts by a person who can not sign due to loss of both hands:
A handicapped person is not barred from opening an account. Bank branches entertain the requests from handicapped persons for opening their accounts. After observing all account opening norms and obtaining the photograph of the handicapped person, bank opens account.
IBA has advised banks “In terms of the General Clauses Act, the term “Sign” with its grammatical variations and cognate expressions, shall with reference to a person who is unable to write his name, include “mark” with its grammatical variations and cognate expressions. The Supreme Court has held in AIR 1950 – Supreme Court, 265 that there must be physical contact between the person who is to sign and the signature can be by means of a mark. This mark can be placed by the person in any manner. It could be the toe impression, as suggested. It can be by means of mark which anybody can put on behalf of the person who has to sign, the mark being put by an instrument which has had a physical contact with the person who has to sign”.
In case the person has lost both hands bank obtains his/her toe impression (either right or left) on the relevant forms in presence of bank officials and a witness. As an alternative, the person is also advised to give a suitable power of attorney to a person of his/her confidence.
7. Opening of Accounts by visually impaired (blind) person:
A blind person is legally competent to enter into a contract or to open and operate an account. The risks in case of such an account arises due to the physical inability of the person to see. For opening an account, the person has to personally come to the bank along with a witness known to both the depositor and the bank.
While there is no legal provision for the appointment of a guardian of a blind person, banks prefer a properly constituted attorney to operate the account on behalf of the accountholder. Attested copies of the photograph of the blind person are obtained (attested by someone well known to the branch) and a copy of each is affixed on the account opening form/specimen signature card, ledger folio and pass book. Both the signature and thumb impression of the blind person are obtained on the specimen signature card along with the signatures of witnesses known to the bank. A rubber stamp indicating that the accountholder is a blind customer, is affixed on the account opening form, specimen signature card, ledger folio, pass book, paying- in-slip, withdrawal form, chequebook etc. This enables bank officials in exercising caution in the transactions with the blind customers. Bank is required to explain the terms and conditions governing the account to the blind person. In general the blind customers are given special attention whenever they come to the bank.
o While opening an account the blind person has personally to come to bank.
o He can open all types of accounts either singly or jointly with any other
person, which he considers to be reliable.
o While opening the account, rules, regulations, terms and conditions are read
out and explained to him in the presence of a witness and the signature of
the witness of having done this is obtained on the account opening form.
Operations in accounts by blind persons:
o Banks allow the next of kin of a blind customer to operate his account as a
guardian or a representative of the blind person.
o Generally no chequebook is issued. Where chequebooks are issued, the blind
person is advised to issue only crossed and order cheques and not to issue
bearer cheques so that payees could always be traced.
o Cash payments to blind person are made in person in the presence of a
witness (preferably an account holder) who signs the cheque/withdrawal
form/voucher etc., as witness. Branch official, other than paying cashier,
also signs as a witness.
o Cash deposited by the blind customer is accepted in the presence of a
witness (an account holder or an officer of the branch other than the
receiving cashier) and the amount deposited is informed orally to him. This
fact is noted on the pay- in -slip/voucher and under signature of a witness.
o The blind account holder is required to bring passbook for withdrawal and
the entries and balance are read out to him in confidence
RBI guidelines for providing banking facilities to Visually Impaired Persons:
RBI has advised banks to offer banking facilities including cheque book facility / operation of ATM, Net banking facility, locker facility, retail loans, credit cards etc. to the visually challenged without any discrimination as they are legally competent to contract.
In the Case No. 2791/2003, the Honourable Court of Chief Commissioner for Persons with Disabilities had passed Orders dated 05.09.2005 that banks should offer all the banking facilities including cheque book facility, ATM facility and locker facility to the visually challenged and also assist them in withdrawal of cash. In the above Order, the Honorable Court has observed that visually impaired persons cannot be denied the facility of cheque book, locker and ATM on the possibility of risk in operating / using the said facility, as the element of risk is involved in case of other customers as well.
8.Accounts by Old & Incapacitated Persons:
It is possible that with aging or due to sickness or a person becoming is incapacitated he /she is unable to operate account and is not willing to open and operate joint accounts. RBI has advised banks to extend the facility offered to sick/old/incapacitated pension account holders to non-pension account holders also.
Types of sick / old / incapacitated account holders:
Sick / old / incapacitated account holders fall into following categories:
(a) An account holder who is too ill to sign a cheque / cannot be physically present
in the bank to withdraw money from his bank account but can put his/her thumb
impression on the cheque/withdrawal form
(b) An account holder who is not only unable to be physically present in the bank
but is also not even able to put his/her thumb impression on the
cheque/withdrawal form due to certain physical incapacity.
Operational Procedure:
With a view to enabling the old / sick account holders operate their bank accounts, banks may follow the procedure as under: -
(a)Wherever thumb or toe impression of the sick/old/incapacitated account holder is
obtained, it should be identified by two independent witnesses known to the bank,
one of whom should be a responsible bank official.
(b)Where the customer cannot even put his / her thumb impression and also would not
be able to be physically present in the bank, a mark can be obtained on the
cheque / withdrawal form which should be identified by two independent witnesses,
one of whom should be a responsible bank official.
(c)The customer may also be asked to indicate to the bank as to who would withdraw
the amount from the bank on the basis of cheque / withdrawal form as obtained
above and that person should be identified by two independent witnesses. The
person who would be actually drawing the money from the bank should be asked to
furnish his signature to the bank.
9.Accounts of Lunatics:
As per Contract Act, a person of unsound mind 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.
10.Accounts of Insolvents:
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 balance of such accounts are disposed as per the instructions of the Official Receiver. Insolvency of an accountholder revokes the bank's authority to pay the cheques drawn by him and the 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 or 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
11. Accounts of Drunkards:
Intoxicated person cannot take a rational judgment about his interest. State of intoxication renders a person incapable of understanding the nature of his action. Therefore, the law provides that all the contracts made by a person in a drunken state are void.
When a drunkard approaches the branch of a bank for opening an account, the branch if satisfied that the person is incapable of entering into a contract refuses to open the account as a precautionary measure. In case of an existing account, payment of a cheque to a drunkard is done after taking proper witness.
12. Accounts of Hindu Undivided 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 thought, 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 or the senior most male member of the family. All other male members are called coparceners.
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. On the death of karta the senior most co-parcener becomes karta.
A coparcener 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 coparceners.
Opening of Account of HUF:
The account is opened in the name of the Karta and family business. The Karta and all the adult members of the HUF are required to sign the account opening form. Banks do not open Savings Bank account of HUF engaged in trading and business activities
Operations in account:
The operations in the account are normally restricted to Karta of the family. The Karta can appoint any of the adult coparceners to operate the bank account as 'Manager' if HUF carries out business at various places through its branches.
HUF accounts can also be operated by coparcener and /or other adult members of HUF also, against a letter of authority and against a stamped letter of indemnity cum undertaking give by the Karta. Since female members in an HUF are not coparceners, they cannot be authorised to operate bank account. If there is no adult coparcener, a mother is allowed to manage the property of HUF and operate the account.
13. Account of Sole Proprietary Concerns:
Banks do not open savings bank account in the name of a proprietorship firm but open current account in the name of the sole proprietary concerns. Accounts in the name of a sole proprietary concern are treated like individual accounts. The account can be operated either by the proprietor himself or by a person duly authorised to operate the account on his behalf. Banks exercise caution while accepting cheques drawn in favour of the sole proprietary concern and deposited in personal account of the proprietor.
When the sole proprietor of the firm deposits cheque payable to the firm for credit of his personal account bank obtains a declaration from him to the effect that he is the sole proprietor of the firm.
14.Accounts of Unincorporated Associations:
Banks open accounts of unincorporated associations and clubs started for purposes of sports, recreation, promotion of fine arts, education etc. Accounts are opened for reliable ad reputed parties. These unincorporated associations have no legal entity. While opening the account in the name of the association, bank makes detailed inquiry into the existing rules, regulations and byelaws governing such associations. All usual formalities for opening the account are adhered by the bank viz. obtaining account-opening form, specimen signature card etc.
Bank also obtains certified copy of the resolution passed by the Governing Body or the Managing Committee of the club/ association for opening of the account in the bank and names of the office bearers authorised to open and to operate the account on behalf of the club/ association duly certified by the Chairman are obtained.
Banks generally do not permit account to go into debit, even for temporary period. Bank does not collect cheques in the personal accounts of the office- bearers, payable to associations.
15.Accounts of registered societies, clubs and Associations:
A club or a society gets legal entity only when it is incorporation under Company’s Act, 1956 or under Cooperative Societies Act, 1860.Byelaws of the society, clubs, and association contain rules, regulations or conduct and activities of the association. While opening account banks obtain:
o Copy of the byelaws;
o Copy of resolution passed by the managing committee regarding opening and
conduct of account,
o Certificate of registration in original,
o A list of the Managing Committee members
o Copies of resolutions electing them as Committee members duly certified by
the Chairman
Bank keeps a copy of the above-mentioned document for its record.
16.Account of Partnership Firms:
According to Section 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.
The Supreme Court has held that the word "persons" in Section-4 contemplates only natural or artificial persons i.e., legal persons. Since a firm is not a person, is not entitled to enter into partnership with another firm or Hindu undivided family or individual. Therefore, banks do not open account where a firm is a partner in another firm. As Joint stock companies and statutory bodies constitute "artificial or legal persons" therefore, they can be partners in a partnership firm.
As per the Indian Partnership Act, minimum number of partners can be two and maximum twenty. 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 or 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 account:
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?
o All partners jointly
o One of the named partners
o Two / three of the named partners
o A third 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 any 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 Section-131 of the Negotiable Instruments Act 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.
Death of a partner:
o Death of a partner dissolves the partnership. However, for the purpose of
winding up of the firm, the bank may allow the surviving partner(s) to
operate the firm's account, if the account is in credit.
o Cheques drawn by a partner before his death and presented for payment are
honoured after obtaining confirmation of the surviving partners.
Dissolution of a partnership firm:
Dissolution of a firm amounts to the breaking up of relation of partnership between all the partners. In the event of dissolution banks do not permit operations in the account. A partnership firm may be dissolved by any of the following modes
(a) By mutual agreement between all the partners.
(b) By notice of dissolution in case of partnership at will.
(c) By operation of law or compulsory dissolution of the firm.
(d) By happening of certain contingencies such as death or insolvency of a partner.
(e) Dissolution by Court of Law in cases like insanity, permanent incapacity,
misconduct of a partner affecting business etc.
17.Accounts of Co-Operative Societies & Co-Operative Banks:
Co-operative institutions are authorised to open accounts under the Cooperative
Societies Act only with banks, which are recognised for the purpose. Our Bank has been recognised for accepting funds of co-operative societies. It is, however, for the co-operative society or the co-operative bank to obtain permission from the Registrar of Co-operative Societies in the State concerned to invest their funds in the Bank. The bank is not affected by the omission on the part of the society or the co-operative bank to obtain the Registrar's permission to open the account or even to observe the limits imposed on it by the Registrar on the amount and period of the deposit lodged with the Bank. These are matters of internal routine of the co-operative institution, whose compliance can be presumed by the Bank. While opening the account, the branch should call for the following documents:
(i) Certificate of registration of the society or the Bank;
(ii) Certified copy of the byelaws of the society or the Bank;
(iii) Resolution of the managing committee appointing the Bank as its banker and
stipulating the conditions for the conduct of the account.
(iv)List of members of the managing committee with the copy of the resolution
electing them to the committee.
In case of accounts of co-operative banks, bank obtains a copy of the licence issued by RBI.
18.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 a voluntary association of persons formed for some common purpose with capital divisible into parts known 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 sued in its own name. The property of the company is not the personal property of its shareholders nor the company's liability is the liability of its shareholders/directors, unless they consent to be personally liable for the company's debts.
Company can be classified into three categories:
1.Public Ltd. Co.:
It can issue shares to public.
Minimum number of shareholders required is 7.
There is no restriction in the maximum number of shareholders.
Shares can be freely transferred.
Minimum number of directors required is 3
Requires certificate of commencement of business.
2.Private Ltd.Co.:
It can not issues shares to public.
Shares are not freely transferable.
Minimum number of shareholder required 2 and maximum number of share holders can
be 50.
Minimum number of directors required 2.
It does not require certificate of commencement of business.
3.Government Co.:
A company where not less 51% of the share capital is held by the government.

Depending upon the liability of shareholders the Company it may be limited or

Documents required for opening an account:
1. Account opening form
2. Certified copies of memo of association and articles of association
3. Copy of certificate of incorporation
4. Certificate of commencement of Business
5. Up-to-date list of directors with name and address
6. Certificated copy of a resolution of the Board of directors for opening and
conducting the account.
Documents obtained by bank:
For opening an account of 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 this 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 stating 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 Association.
The resolution is to be countersigned either by the company's secretary or any of
the other directors.
(v) List of the 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.
Memorandum of Association:
The memorandum of association contains name and address of the registered office of the company, name and addresses of the directors, objectives and powers of the company. Any act done or contract entered into by the company, which is outside the scope of these objectives becomes ultra vires (i.e. beyond the powers of the company) and, therefore, is not binding on it.
The Memorandum and Articles of Association of the company is studied to find out the extent of the powers of its directors, its powers to borrow and mortgage property or to give guarantees and the provisions relating to the conduct of its bank accounts
Articles of Association:
The Articles of Association contain the rules regulations regarding company's internal affairs.
Conversion of cheques payable to companies:
Cheques payable to or 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 in 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.
19.Accounts of Private Companies:
A private limited company is a company, which have a minimum 2 and maximum 50 shareholders. Shares of these companies are not sold in the public and cannot be transferred. Banks are cautious while opening accounts of Pvt. Ltd.Co. Bank obtains all documents as required while opening accounts of a joint stock company.
20. Accounts of Trusts:
As per Sec.3 of Indian Contract Act, 1882 “A trust is an obligation annexed to the ownership of property, and arising out of a confidence in and accepted by the owner, or declared and accepted by him, for the benefit of another, or of another and the owner.”
Bank opens trust accounts for good parties. A trust can be public or private. All public trusts are required to be registered with the Charity Commissioner under Public Trust Act of the respective state.
Before registering a public trust, the office of the Charity Commissioner makes necessary enquiries regarding the trust, its trustees, the mode of succession of trusteeship etc., and after proper enquiries makes entries in the register, which are final, conclusive and are binding on all concerned. Banks open trust accounts after taking all precautions.
While opening account of a trust bank obtains
o Copy of constitution of the trust
o Trust deed if available,
o Certificate of registration and/or a certified copy of the entry of the
public trusts register
o Public Trust Register No
o A list of the current trustees and the authority appointing them as trustees.
o The necessary resolution passed by the trustees for opening the account
with the bank.
o Certified copy of the resolution signed by all the trustees in regard to
the conduct of the account.
Trusts which have no constitution, instruments of trust or scheme:
While opening accounts of such trusts bank obtains following documents:
• A certificate of registration issued by the office of the Deputy/Assistant
Charity Commissioner (Where it is so possible, under the relative law).
• A certified copy of the latest entry in the public trusts register (Public
Trust Registration), which shows the name of the trust, the Public Trust
register No of the Trust, at which it is registered and name/s of the
• A declaration and an indemnity from are obtained all the trustees.
• A resolution passed by the trustees relating to the opening of the 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 property, 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 in his will specifically authorised such an appointment.
21. Accounts of Religious and Charitable Trusts:
To regulate public religious and charitable trusts some States have passed Acts. These charitable trusts are registered with the Charity Commissioner or the Assistant Charity Commissioner of the region concerned. A Certificate of registration is issued to these trust by the authorities. Mostly these trusts do not have a properly written trust deed. Bank opens account of religious and charitable trusts on merits and on being satisfied as to the integrity of the trustees and their status.
Opening and operations of account:
While opening account bank obtains following documents in addition to account opening form duly signed by the trustees.
• A resolution specifying the name of the bank passed in a proper meeting held
by all the trustees.
• Indemnity signed by all the trustees, indemnifying the bank for having
allowed operations on the trust account.
• Banks do not permit operations in the account by one person.
• Reasonable number of members is required for opening and operating the
• If the number of trustees is larger, then the number of person operating the
account has to be large.
• Bank periodically obtains confirmation of balance in the account, signed by
all the trustees.
• Wherever possible, order or direction from the Charity Commissioner is
obtained, permitting the bank to allow operations on the trust account in the
manner approved by the trustees.
22.Provident fund Accounts:
Provident fund accounts are treated as trust accounts. In case a provident fund is recognised by the income tax authorities, a certificate to that effect issued by the concerned Commissioner of Income Tax, should be obtained for registration with the Bank. It should be recorded in the Power of Attorney Register. This certificate is to be obtained in addition to all other credentials mentioned earlier.
23.Accounts of Executors and Administrators:
Executors and administrators are persons appointed by a person through a will to mange 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. Sec.311 of Indian Succession Act, 1925 deals with the powers of several executors or administrators exercisable by one.
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 constitute a single person. In the absence of any mandate to the contrary, either or any one of the two 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:• 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.
• Bank also obtains copy of probate or letters of administration in original
for scrutiny and registration in their books.
• Bank ascertains identity of executors or administrators for their
satisfaction. (KYC norms)
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 executors or administrators can countermand the actions of the others. Cheques drawn or payable to the executor or administrator's account are not collected for credit of their personal accounts without inquiry.
24.Accounts of Liquidators:
A company can go into liquidation either voluntary or by the orders of court. Incase a company goes in to liquidation by the orders of court, it appoints a liquidator Under Section 552 of the Companies Act, 1956. The liquidator so appointed by courts is known as official liquidator. When a company goes into voluntary liquidation, it appoints liquidators at its extraordinary general meeting convened for the purpose. Official liquidators have to deposit the moneys only into the public account of the Government of India with the Reserve Bank of India. Official liquidator cannot open accounts with scheduled banks. In case of voluntary winding up, authority to operate account by the liquidator is passed in the general meeting.
Opening of account:
While opening account of liquidators bank requires:
o True copy of the resolution passed in the extraordinary general meeting.
o The resolution has to be certified by the Chairman of the extraordinary
general meeting
o Signature of the liquidator is required to be verified by one of the
authorised officials of the company concerned.
o Liquidators cannot delegate their powers to third parties
o The account is styled as "The Liquidation Account of ........"(name of the
26. Accounts of local bodies:
Banks open accounts of local bodies include Municipal Corporation, Panchayat, Board etc., created by special act of the parliament or legislative Assembly.
a) Accounts of Village Panchayats:
Banks open accounts of village panchayats/district/taluka after getting a copy of the resolution passed by the Panchayat of the Village or Taluka of the District concerned.
In various states the village panchayat are governed by the Panchayat Raj Acts passed by the respective state governments.
While opening such accounts banks refer to the Act for ascertaining the nature of transactions permitted by the Act. The accounts of village panchayats are operated only bythe President or Sarpanch. The Vice-President (Vice Sarpanch) of thePanchayat can operate the account only in the absence of the President (Sarpanch) only after the written authority of the sarpanch.
Accounts of village panchayats/district/taluka are opened and styled as
"President (or Sarpanch).........Gram/Panchayat".
b) Accounts of Local Authorities/bodies:
Banks open accounts of local authorities like municipalities, district boards, port trust, state financial corporations and such bodies created by statute. These are considered as local bodies or quasi- government institutions. While opening accounts of such authorities banks go through the municipal enactments and regulations. Transactions in account are permitted strictly in accordance with the statutory provision.
Accounts with Similar Names:
Where there are two accounts either in the same name/s or with great similarity in their titles, caution should be noted on both the ledger headings with the word "CARE" : Similar account in the name ........ Page... " Giving cross-references. If it comes to the notice of the branch that the client is maintaining an account with another branch of the Bank, the fact should be noted in the ledger heading with a view to enable the branch or branches to exchange any useful information, which may come to its notice about the client.


vani said...

thank u this information is very useful

mallick bolakale said...

Thanks a lot u've helped. Me a great deal I must commend ur effort