bcom III

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BANKER & CUSTOMER Banker: According to ‘John Paget’ , -“No person or body corporate or otherwise can be a banker who does not (i) take deposit accounts, (ii) take current accounts, (iii) issue and pay cheques, and (iv) collect cheques crossed and uncrossed for his customers.”


Characteristics Acceptance of deposits of money from the public. Repayable of such deposits on demand or otherwise against cheques, drafts, orders or otherwise. Utilisation of such deposits for the purpose of lending and investing in securities. Using the term ‘bank’, ‘banker’, or ‘banking company’ compulsorily as a part of its name. Performance of banking business as a main business.


Functions/Services The functions of a bank/banker can be broadly classified into two categories: Primary functions & Subsidiary functions.

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Primary Functions: The borrowing, rising or accepting of deposits of money. The lending or advancing of money. The drawing, making, accepting, discounting, buying, selling, collecting, and dealing in bills of exchange, promissory notes, drafts, railway receipts & other instruments and securities. The granting and issuing of letters of credit, travellers’ cheques etc. The collecting and transmitting of money and securities. The providing of safe deposit vaults. The negotiating of loans and advances The purchasing and selling of bonds and other forms of securities on behalf of others.

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Subsidiary Functions: It may act as an agent of the government, local authority or person and can carry on agency business. Underwriting the payment subscriptions, insurance premium, rent etc. It may manage, sell and realise any property which may come into its possession in satisfaction of its claims. It may acquire and hold and deal with any property or any right, title or interest in any such property which may form the security for any loan or advance. It may undertake and execute trusts. It may undertake the administration of estates as executor, trustee or otherwise.

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CUSTOMER: There is no statutory definition of the term ‘customer’ of a bank, that means the term ‘customer’ of a bank is not defined by law. Ordinarily, a person who has an account in a bank is considered its customer. In other words, the term ‘customer of a bank’ means a person who has an account with the bank.

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To know the clear definition of a ‘customer’, we have to depend open the views of authorities on banking as well as on the judgements of the courts of law. In the case of Great Western Railway co. vs. London Country Banking co. ltd., it was held that “ a customer is a person who has some sort of account either deposit or current or some similar relation with the banker.”

Special Types of Customers:

Special Types of Customers Minors Married Women Illiterate Persons Drunkards Joint Account Holders Joint Hindu Family Partnership Firms Joint Stock Companies Co-operative Societies etc.


MINORS Who is a Minor: According to section 3 of the Indian Majority Act, 1875- “A minor is a person who has not completed the age of 18 years”. In case, guardian appointed to protect the property of a minor- court of wards- minority is extended up to age of 21 years.

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Nature of Minors Contract: “According to section 11 of the Indian Contract Act, 1872- a minor is not competent to enter into a valid contract and hence all contracts entered into by him (except those for the supply of necessaries of life to him and to his dependents) are void i.e. not enforceable by law”.

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Precautions by the Banker: 1) Not to open current account. 2) Opening of an account: Precautions- Age of discretion – 12 years. Read and write – English, Hindi and any regional language. Credit balance of the account. Loans and Advances to the minor. Banker should not discount cheques, bills drawn or endorsed by him or for him.

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No overdraw facility. Security by the minor – property. 3) Natural or Legal Guardian 4) Death of a minor or guardian 5) Minor as an agent 6) Minor as a partner

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Guardianship of a Minor: There are three types of Guardians- Natural Guardian- Father or Mother – section 6 of the HMG Act, 1956. Testamentary Guardian- Guardian appointed by parents. Guardian appointed by the Court- Guardians and Wards Act, 1890.


DRUNKARDS Intoxicated persons Is a person who is so intoxicated that he is incapable of understanding the nature and the effects of a contract upon his interests. According to section -12 of the ICA,1872- “A contract entered into by a drunkard is void”.

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Precautions: The banker should not open an account in the name of a person who is fully drunken. The banker should not deal with a fully drunken person in any way and should not get documents executed by such a person. It is advisable for the banker to take the signature os some witnesses when he is required to deal with him and executed some documents.


ILLITERATE PERSONS An illiterate person is a person who does not know to read and write. He can enter into a valid contract. But, banker’s point of view, he has to face certain difficulties while dealing with illiterate person.

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Precautions: He should take his/her thumb impression in the presence of two witnesses. He should obtain the recent photograph of illiterate customer duly attested. He should see that the illiterate customer should attend personally for withdrawals.


MARRIED WOMEN Married women is competent to enter into a valid contract. She enjoys all contractual rights according to law. She can acquire and sell her property, lend or borrow and enter into contracts and bind her own property called STRIDHAN.

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She is entitled to draw and endorse cheques and the banker can make payments for her cheques. The banker runs no risk as long as her account shows credit balance.

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However, the banker runs the risk when he grants an OD or loan or advances to a MW who – Has no personal property or Such personal property is settled upon her in such a way that she should use only the income from that property. She cannot, by her dealings, bind her husband.

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Precautions: He may permit her to operate her account as long as her account shows a credit balance. He should be cautious and judicious while granting loans or advances or OD facilities to MW. He cannot bind her husband liable for the debts of the MW, except under two situations:

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1) Such debts are raised with the consent of her husband and 2) Such debts are raised by her for the supply of necessaries of life for her or for her family in case her husband makes a default in supplying the same to her.


JOINT ACCOUNT It is an account which is opened by two or more persons jointly. For the sake of convenience.

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Precautions: JA must be signed by all the persons. Persons must be competent to enter into valid contract. Banker should obtain clear instructions in writing- who will operate the JA. JA holder (who operate the JA) cannot himself appoint an agent or attorney.

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Any member of a JA can countermand the payment. Banker should get a mandate duly signed by all the JA holders in case of loan or advances or OD facilities on the JA. Authorized person to operate the JA can be revoked by any JA-holder. Banker should get clear instructions from all the JA-holders regarding securities of JA.

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Alterations in the cheques must bear the signature/s of the drawer/s. Banker should get clear instructions in writing from all the JA-holders in case of – Death of any JA-holder Insolvency of any JA-holder Insane of any JA-holder.


NEGOTIABLE INSTRUMENTS CHEQUES The law relating to negotiable instruments is contained in the Negotiable Instruments Act, 1881. The word Negotiable means Transferable by delivery in return for consideration and the word Instrument means a written document by which a right is created in favor of some person.

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Meaning: NI is a written document which entitles a person to a sum of money and which is transferable by mere delivery or by endorsement and delivery. Definition: According to Sec.13 of the NI Act, 1881, “A NI means a promissory note, bill of exchange or cheques payable either to order or the bearer”.


CHEQUES Meaning: It is an instrument in writing, containing an unconditional order, signed by the customer, directing his banker, to pay on demand a certain sum of money only to or to the order of a certain specified person or to the bearer of the instrument.

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Definition: According to Sec. 6 of the NI Act, 1881, “A cheques is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand”. It is always drawn on a specified banker. It is always payable on demand.

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Features: It must be in writing. It must always be drawn on a specified banker. It must contain an order to pay. The order must be unconditional. The order must be to pay money and money only. Money paid by the banker must be certain. On demand. Signed by the drawer.

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Drawing of a Cheques: Date Payee’s name Amount Signature Payable to payee or order or bearer. Crossing Alterations

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Parties to a Cheques: Drawer Drawee Payee Holder Endorser Endorsee

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Kinds of Cheques: Bearer Cheques Order Cheques Stale or Out-of-date Cheques (Ante – Dated Cheques) Post Dated Cheques Lost Cheques Crossed Cheques Mutilated Cheques


CROSSING OF CHEQUES Crossing: It means drawing across the face of the cheques two transverse parallel lines with or with out words ‘& co.’ or ‘Not Negotiable’ or ‘A/c Payee’ between the parallel transverse lines. Crossing may be written or stamped or printed.

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Types: General Crossing Special Crossing. General Crossing According to sec. 123 – “Where a cheques bears across its face an addition of the words ‘and company’ or any abbreviation thereof between two parallel transverse lines, or two parallel transverse lines simply, either with or without the words ‘not negotiable’, that addition shall be deemed a crossing, and the cheques shall be deemed to be crossed generally”.

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Special Crossing According to sec. 124 – “Where a cheques bears across its face an addition of the name of a banker, either with or without the words ‘not negotiable’, that addition shall be deemed a crossing, and the cheque shall be deemed to be crossed specially, and to be crossed to that banker”.


MARKING OF A CHEQUE It means making of a remark by the paying banker on the cheque testifying to the adequacy of funds to the credit of the drawer to meet the cheque. The paying banker while marking a cheque, simply initials the cheque or writes the words “marked good for payment” on the face of the cheque and initials under the seal of the bank.

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Effects of Marking: It indicates that the cheque is drawn by the drawer in good faith and against adequate funds to his credit. It gives an enhanced status to the drawee’s cheque by adding to the credit of the drawer the credit of the banker marking the cheque.

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