chapter-3 types of customers new

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presented by sindu akilesh lecturer in commerce,new horizon college

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Types of customers:

Types of customers Presented by Sindu Akilesh

Chapter- 3 Types of customers:

Chapter- 3 Types of customers The banker has certain legal restrictions for having business relations with certain type of people; like minors,lunatics,drunkards,married women,undischarged bankrupts,agents of all kinds,trustees,executors etc.

1. Accounts of minors:

1. Accounts of minors Definition A minor is a person who has not completed eighteen years of age. Any contract entered with minor is void and is not enforceable by law. This prevents minor to acquire property,dispose property or enter into ant type of agreement.

Minor & bank accounts:

Minor & bank accounts The negotiable instruments acts provides that a minor can draw,endorse,deliver & negotiate a negotiable instrument. A minor can open and operate the bank account without a guardian. The overdraft facility is not provided as the account should be in credit and the banker has the risk to recover the dues. On attaining majority the account can be continued where the banker obtains a confirmation letter and the balance is credited. The banker should close the account when the minor attains majority & open a new account. A minor cannot be sued in the court of law. A loan can be granted for purchasing the necessities of life against his properties. A minor can act as an agent & partner.

Joint account:

Joint account A joint account is an account which is opened by two or more persons jointly,it is simply a joint debt.such an account is opened by them for the sake of convenience of operation of the account as well as for the withdrawal of money after the death of any one of them.

2.Joint account holders:

2.Joint account holders Withdrawals The person who authorizes to operate the account has the power to withdraw the authority also. The banker should obtain clear instruction from the account holders regarding withdrawal. The authority given to one or more to operate the account automatically ceases when the authoriser dies or becomes insane.

2.Joint account holders:

2.Joint account holders Insolvency of joint account holder. Nomination Overdrawing the accounts. Survivorship Joint accounts of husband and wife. Any joint account holder including the one not authorized to operate can stop the payment of a cheque issued on a joint account. If any alterations have been made in the cheques drawn & signed by the person authorized to operate the account,such alterations should be attested by these authorized person and no other joint account holder.

2.Joint account holders:

2.Joint account holders When any joint account holders becomes insane & a notice have been received by the banker ,he should immediately suspend the operations of joint account. The banker should get clear instructions in writing from all the joint account holders regarding the withdrawal of the securities in the joint account. If the banker provides any advance or loan or overdraft to the joint account,the banker should establish separate individual liability in addition to their joint liability.

3.Partnership accounts:

3.Partnership accounts 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 .

Precautions to be taken by a banker in opening & conduct of account:

Precautions to be taken by a banker in opening & conduct of account The banker should carefully examine the partnership deed to acquaint himself with the constitution & business of the firm. The banker should examine the rights & powers & liabilities of the partners;and also see that the maximum number of partners is two & maximum is ten in banking business & twenty in other businesses.

Precautions to be taken by a banker in opening & conduct of account(contd..):

Precautions to be taken by a banker in opening & conduct of account(contd..) 3.The banker should obtain a letter called “ partnership letter” duly signed by all the partners stating the name of the firm,nature of the business, etc. 4.The banker can open an account in the name of the firm only on the receipt of the application from the partners & the application form must be signed by all the partners.

Precautions to be taken by a banker in opening & conduct of account(contd..):

Precautions to be taken by a banker in opening & conduct of account(contd..) 5.A partner has no implied authority to open the partnership firm’s account in his own personal name. 6. Generally one or two partners are authorized to operate the account of the firm,for which a mandate is signed by all the partners. 7.The authority given to particular partner to operate the account can be withdrawn by any of the partners by giving a notice to the banker. 8. A partner authorized to operate the account cannot delegate his authority to another person without the consent of all the other partners in writing.

Precautions to be taken by a banker in opening & conduct of account:

Precautions to be taken by a banker in opening & conduct of account 9.The banker should see that the funds belonging to the firm are not utilized by any partner for his personal purpose. 10. A partner of a firm acts as an agent of the firm as well as the agent of all the other partners for the purpose of carrying business of the firm. 11. 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.

Precautions to be taken by a banker in opening & conduct of account:

Precautions to be taken by a banker in opening & conduct of account 12.The implied authority of a partner does not include the right to transfer immovable property of the firm by mortgage. 13.No partner can bind his co-partners by giving a guarantee on behalf of the firm. 14. the banker should obtain a written consent while granting an overdraft.

Precautions to be taken by a banker in opening & conduct of account:

Precautions to be taken by a banker in opening & conduct of account 15. 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.

4.Trustees Or trust accounts:

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

Precautions to be taken by banker in opening & conduct of account.(trust):

Precautions to be taken by banker in opening & conduct of account.(trust) The banker should thoroughly examine the original trust deed & ascertain the names of the trustees,the powers vested in them,the details of the trust property,etc. The banker should obtain a duly certified copy of the trust deed for his future reference.

Precautions to be taken by banker(contd..trust):

Precautions to be taken by banker(contd..trust) 3. If the trust is a charitable trust the banker should obtain a certified copy of the registration certificate to know the legality of the trust. 4. The banker should get the account opening form duly signed by the trustee authorized to open & operate the trust account.

Precautions to be taken by banker(contd..trust):

Precautions to be taken by banker(contd..trust) 5. The banker should get a certified copy of the resolution passed by the trustees regarding the opening of an account with his bank & the names of the trustee who are authorized to operate the account. 6.the banker should also obtain a declaration from all the trustees that they are all willing to act as trustees as per the terms & conditions in trust deed.

Precautions to be taken by banker(contd..trust):

Precautions to be taken by banker(contd..trust) 7.The trustees are required to act jointly in conducting the affairs of the trust; which they are not to delegate to a third person. 8. If the trust deed provides for delegation then the banker should deal with the trustees authorized to operate the account.

Precautions to be taken by banker(contd..trust):

Precautions to be taken by banker(contd..trust) 9.The banker should open an account in the name of the trust & obtain the specimen signatures of the trustees authorized to open & operate the account. 10.The powers of the trustees to borrow & to pledge or mortgage any property of the trust depends upon the express provisions of the trust deed.

Precautions to be taken by banker(contd..trust):

Precautions to be taken by banker(contd..trust) 11.In the case of death or retirement of all the trustees,the new trustees may be appointed by the court. 12.The insolvency of one or more trustees does not effect trust property since it cannot be utilized for payment of the personal debt of the trustee. 13.The banker should not knowingly permit the misuse of trust funds,otherwise the beneficiaries will be held liable.

Precautions to be taken by banker:

Precautions to be taken by banker 14. In case of the charitable trust,the banker should examine the registration certificate issued by the charity commissioner as may be prescribed by the state government.

5.Executors & administrators:

5.Executors & administrators The executors & administrators are appointed to settle the accounts of person after his death. Instead of creating a trust to manage their property, they prepare a “WILL” & specify in it the name of the person to manage their property after their death, such person is called as “ executor” If any name is not specified or if the specified person refuses to act as an executor, the court will appoint a person to look after the properties of the deceased person who is called as the “administrator” The person making the will is called “ testator”

Precautions to be taken in opening & operating the a/c of executors &administrators:

Precautions to be taken in opening & operating the a/c of executors &administrators The banker should stop the operation of the testator’s account, when he receives the message of the death of testator. The banker should insist an official letter issued by the court called” Letter of Administration” to ascertain whether he is the person appointed to execute the property of the deceased. A copy of the letter of probate should be filed for future reference

Precautions to be taken in opening & operating the a/c of executors &administrators(contd):

Precautions to be taken in opening & operating the a/c of executors &administrators(contd) 4. The banker should close the account of the deceased & transfer the funds to the newly opened account of administrator or executor. 5. If two or more executors & administrators are appointed,they should follow the rules of the joint accounts;and mandate should be obtained for the operation of the account.

Precautions to be taken in opening & operating the a/c of executors &administrators(contd):

Precautions to be taken in opening & operating the a/c of executors &administrators(contd) 6. The banker should insist the signatures of all the executors to the cheque drawn on executors account. 7.Whenever the bank lends to the executors or administrators,it should ensure that such borrowing is authorized in the will & the fund so borrowed is utilized for the purpose for which it is borrowed.

Precautions to be taken in opening & operating the a/c of executors &administrators(contd):

Precautions to be taken in opening & operating the a/c of executors &administrators(contd) 8. The property of the deceased cannot be givenas surety for the personal borrowings of the executor. 9.The banker should not make any transfer of funds to the personal accounts of the executors. 10.The borrowings made by the executor to meet the expenses of the deceased estate for clearing the debts will be in his own personal capacity.

Precautions to be taken in opening & operating the a/c of executors &administrators(contd:

Precautions to be taken in opening & operating the a/c of executors &administrators(contd 11.In case of the death or resignation of the executor, the banker need not close the account & allow other executors to operate the account. 12. In case of lunacy of the executor, the banker cannot allow the executor to operate the account, but other executors can operate the account.

Precautions to be taken in opening & operating the a/c of executors &administrators(contd:

Precautions to be taken in opening & operating the a/c of executors &administrators(contd 13. The account of the deceased cannot be continued beyond a reasonable time, if the banker allows to operate the account,he becomes a party to breach of trust.

6.Clubs & associations:

6.Clubs & associations These are social institutions which are run to render service to the people at large. These institutions are registered organizations & have their own rules & regulations.

Legal aspects or precautions to be taken by the banker in opening & operation of these accounts.:

Legal aspects or precautions to be taken by the banker in opening & operation of these accounts . The banker should obtain a copy of the by-law of the organization or club & examine the provisions relating to the bank accounts. He has to obtain a resolution appointing him as the banker & also another resolution stating the name & designation of those who operate the account.

Precautions to be taken by the banker in opening & operation of these accounts.:

Precautions to be taken by the banker in opening & operation of these accounts. 3. Any advances made or overdraft granted to such clubs,asociations,the banker should ensure that proper security is given. 4.The banker can also obtain the personal security of one or more persons of the organization.

Precautions to be taken by the banker in opening & operation of these accounts.:

Precautions to be taken by the banker in opening & operation of these accounts. 5. The banker should be careful while granting advances to unregistered clubs; and if so granted the management of the clubs should be held responsible. 6.Account operation has to be stopped when the authorized person dies & can be continued only after a new person is authorized.

7.Joint Hindu family:

7.Joint Hindu family It is an undivided family which comprises of all male members, descended from a common ancestor. A “JHF” is a family which consists of more than one member, possesses ancestral property & carries on family business

Joint Hindu family(contd):

Joint Hindu family(contd ) The senior male member is called “ Karta ” & other male members as “ coparceners ”. Karta manages the whole business of the family & the liability is unlimited; whereas coparceners have limited liability. Coparceners can be appointed as managers. The Karta has the power to mortgage & pledge the property of JHF for raising loan.

Precautions to be taken by banker in dealing with JHF a/c:

Precautions to be taken by banker in dealing with JHF a/c 1.The banker must get complete information about the JHF including the names of major & minor coparceners. 2.The banker should get a declaration from the Karta along with the specimen signatures of all coparceners. 3.The name in which JHF a/c is to be opened has to be ascertained & banker should know who will operate the a/c.

Precautions to be taken by banker in dealing with JHF a/c:

Precautions to be taken by banker in dealing with JHF a/c 4. While making advance ,the banker should ascertain the purpose of the loan & whether it is required by the JHF for business. 5.If the advance is made for the personal use of Karta or for speculative purposes,JHF & the coparceners are not held responsible for such debts.

Precautions to be taken by banker in dealing with JHF a/c:

Precautions to be taken by banker in dealing with JHF a/c 6. If anew business is started by the father in a JHF ,then coparceners are liable for such debts, to the extent of their share as the new business is deemed to be JHF business. 7.The Karta has got unlimited liability & the coparceners liability is limited to the extent of share in JHF.

8. MARRIED WOMEN:

8. MARRIED WOMEN The married women is treated like any other man or unmarried lady & can enter into contract & bind her property.

. MARRIED WOMEN:

. MARRIED WOMEN As per the law of contract she can enter into contract with the banker & open an account ,draw & endorse cheques. The banker extends overdraft facilities in current accounts ,if they are prompt in their dealings & have sufficient property.

Points to be noted by the banker in opening a/c of married women :

Points to be noted by the banker in opening a/c of married women The banker should avoid extending overdraft or granting loan to married women. If the loan is granted, the banker should secure sufficient property of hers, which can be freely liquidated. The banker cannot judge her as insolvent & imprison her; but should see that he can collect the loan amount.

Points to be noted by the banker in opening a/c of married women (contd):

Points to be noted by the banker in opening a/c of married women (contd) 4.When she acts as an agent of her husband, the banker must see that she does not operate beyond the limit. 5.When loan is granted to a married women ,the banker ascertains her liquid able property; where the husband escapes wife’s liability.

Points to be noted by the banker in opening a/c of married women (contd):

Points to be noted by the banker in opening a/c of married women (contd) 6. The banker should incorporate a “ Free Will” clause in loan or overdraft agreements to avoid the hostile attitude of the lady that the contract was due to undue influence. 7.In case of joint a/c the banker should ascertain as to who would operate the account,& to whom the amount should be paid on the death of anyone of them.

Points to be noted by the banker in opening a/c of married women (contd):

Points to be noted by the banker in opening a/c of married women (contd) 8.If the “ survivor” clause is incorporated ,the amount should be paid to the survivor. 9.In case of pardanashin women ,the banker should get the signature attested by a responsible person at the time of opening the account.

9. Joint stock companies:

9. Joint stock companies Definition: A joint stock company has been defined as an artificial person ,invisible, intangible & existing only in the contemplation of law. It is recognized as separate entity as distinct from its members & enjoys perpetual succession.

Joint stock companies(cont..d),legal aspects while opening account of the company by the banker.:

Joint stock companies(cont..d),legal aspects while opening account of the company by the banker. Examination of documents . The banker asks for the copies of : Certificate of incorporation, Memorandum ,& Articles of Association, copies of annual a/c. 2.The banker must examine the provisions in memorandum & articles & find out the extent of power that director &other officials have. .

Joint stock companies(cont..d),legal aspects while opening account of the company by the banker.:

Joint stock companies(cont..d),legal aspects while opening account of the company by the banker. 3. The banker should keep the copies of memorandum & articles which are certified by company secretary; which is again verified with the registrar of joint stock companies. 4.The banker should also obtain the copy of “Certificate of commencement of business", which empowers the company to commence its business; issued by the registrar of co’s

Joint stock companies(cont..d),legal aspects while opening account of the company by the banker.:

Joint stock companies(cont..d),legal aspects while opening account of the company by the banker . 5.The banker should get the copies of balance sheets of previous years, to examine the financial status,credibility,turnover,rate of growth & its functioning with other banks. 6.If the company is a new company, the banker should obtain the copy of the prospectus or a statement in lieu of prospectus .

Joint stock companies(cont..d),legal aspects while opening account of the company by the banker.:

Joint stock companies(cont..d),legal aspects while opening account of the company by the banker. 7.The copy of statement is taken to examine the extent of public issue, whether it was oversubscribed or not. 8. The banker should obtain a copy of the resolution appointing him as banker of the company. 9.The resolution specifies the names of persons who have been authorized to operate& execute the bank a/c.

Joint stock companies(cont..d),legal aspects while opening account of the company by the banker:

Joint stock companies(cont..d),legal aspects while opening account of the company by the banker 10.The banker should obtain the specimen signature of the persons who operate the a/c. 11.The Indian companies act lays down that the directors or persons empowered to borrow are allowed to borrow only the amount equal to the paid up capital of the company & its free reserves.

Joint stock companies(cont..d),legal aspects while opening account of the company by the banker:

Joint stock companies(cont..d),legal aspects while opening account of the company by the banker 12. The maximum borrowing limit mentioned above excludes the short term loans and loans payable on demand are excluded. 13.The funds borrowed by the directors or any authorized agency should be utilized for the purpose for which it is borrowed.

Joint stock companies(cont..d),legal aspects while opening account of the company by the banker:

Joint stock companies(cont..d),legal aspects while opening account of the company by the banker 14.When the company goes into liquidation the directors cannot borrow funds as the borrowing powers ceases on liquidation. 15.If any special powers are given by the liquidator or by the company ,they can borrow with the permissible limit.

Joint stock companies(cont..d),legal aspects while opening account of the company by the banker:

Joint stock companies(cont..d),legal aspects while opening account of the company by the banker 16.While granting loan against the security of the property, the bank should note that the proposed security does not have any prior charge.

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