Class 11 Finance Chapter 6 Different Types of Customer

By Parimol / Class 11 Banking

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Class 11 Finance Chapter 6 Different Types of Customer

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Different Types of Customer

Chapter : 6

VERY SHORT TYPE QUESTIONS & ANSWERS

1. Banker has a right of general lien in respect of the amount due to it by the customers. (True/ False)

Ans: True.

2. A banker may open a current account in the name of a minor. (True/ False)

Ans: False.

3. Bankers usually refuse to open accounts of “Pardanasheen Women”. (True/ False)

Ans: True.

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4. An illiterate person can open an account with the bank. (True/ False)

Ans: True.

5. A partner has an implied authority to open a bank account on behalf of the firm in his own name. (True/ False)

Ans: False.

6. All companies have an implied power to borrow. (True/ False)

Ans: False.

7. The liability of a partner in a partnership concern is limited to the extent of his stake in the firm (True/ False)

Ans: False.

8. A minor can act as agent for another person competent to contract provided the former is duly authorised by the latter. (True/ False)

Ans: True.

9. Under Indian Majority Act, the age of attaining majority is 18 years. (True/ False)

Ans: True.

10. A minor can open and operate an account in his own name if he has attcast attained the age of –

(a) 12 years.

(b) 16 years.

(c) 15 years.

Ans: (a) 12 years.

11. In which year and who introduced the scheme of Banking Ombudsman?

Ans: In June, 1995, the Reserve Bank of India.

12. The Banking Ombudsman Scheme was introduced under the provision of —— (Fill in the blank)

Ans: the Banking Regulation Act, 1949.

13. A minor cannot –

(a) accept a bill.

(b) draw a bill.

(c) endorse a cheque.

Ans: (a) accept a bill.

14. What is the meaning of trustee?

Ans: A trustee is a person in whom confidence is reposed. He is given control of an estate, usually of the deceased, for the benefit of a certain person.

15. What is a joint account?

Ans: When an account is opened by two or more than two personalities in their names, it is called a joint account.

SHORT & LONG TYPE QUESTIONS & ANSWERS

1. Explain who is a minor?

Ans: According to sec. 3 of the Indian Majority Act, 1875, a ‘minor’ is a person who has not completed the age of 18 years, unless before the completion of his 18 years of age, a guardian of his person or property is appointed by court, Majority is attained at the age of 21 years. 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. But a minor can open an account with the Bank.

2. Who is the Executor?

Ans: The person who is appointed to settle the accounts of a person after his death is called Executor. The executor is appointed by the deceased himself, before his death. The person appointing him is called ‘testator.”

3. State the different types of Bank accounts that a customer can open with a bank?

Ans: A banker provides various types of accounts to the customer to be opened in a bank. These accounts are:

Demand Deposit Accounts: The demand deposit accounts are those accounts in which the customer can deposit money many times and the amount is repayable on demand by means of cheque.

These accounts are of two types:

(i) Savings Deposit A/c and

(ii) Current Deposit A/c.

Time Deposit Accounts: The time deposits accounts are those deposit accounts where the amount of deposit is repayable only after the expiry of the period. The depositors cannot withdraw the deposits by means of cheque.

These accounts are of two types:

(i) Fixed deposit A/c and

(ii) Recurring Deposit A/c.

4. What do you mean by a Customer? What are the two conditions for a person to become a customer of a Bank?

Ans: A person or an institution or corporate body that opens an account in a Bank and undertakes banking is called a Customer.

The conditions for a person to become a customer of a Bank are:

(a) The person must be legally capable of entering into a valid contract.

(b) The person must apply to the banker in a prescribed manner.

5. Name the different types of customers.

Ans: (i) Individual Customer, (ii) Minor, (iii) Married Women, (iv) Lunatics, (v) Joint Account, (vi) Partnership form.

6. Explain who is a minor?

7. Who is the executor?

8. Explain who is an individual customer.

Ans: All competent major persons, irrespective of caste, creed, religion etc. by opening an account with the Bank become a customer of the Bank. At the time of opening an account with the bank they make a contract in between Banker and Customer. So the prospective customer must be competent enough to perform the contract. But Bank may not allow to open Bank account of thief, robber, fraudulent persons etc.

9. Who is the trustee?

Ans: According to sec 3 of the Indian Trust Act 1882, “Trust is an obligation annexed to the ownership of property and arising out of a confidence reposed in and accepted by the owner or declared and accepted by him for the benefit of another and the owner.” A trustee is a person in whom a confidence is reposed.

The Banker should take the following precaution in opening the account of a trustee.

(a) Before opening an account in the name of trust, a banker should examine carefully the ‘trust deed’.

(b) In case of more than one trustee, all trustees must act jointly or the delegation of powers to some of the trustees.

(d) In case of granting loans to trustees, the banker should thoroughly examine their borrowing powers as per the ‘trust deed.’

(e) In the event of death or retirement of all the trustees, the new may be appointed by the court etc.

10. What is a joint account?

Ans: When an account is opened by two or more persons jointly in their names, it is called a joint account. A banker should not open a joint account, except upon the receipt of an application by persons interested in the account. The joint account holders enter into contract with the bank jointly and individually, so that each of them has a right against the bank, and the banker has right to honour all the cheques or transactions as are signed by all those in whose names the joint account has been opened.

11. What conditions should be fulfilled to constitute a customer?

Ans: To constitute a customer of the bank —

(i) One should have an account with the bank.

(ii) One should deal with the bank in its nature of regular banking business; and

(iii) One should be dealing with the bank with an intention to continue such dealings frequently even though a single transaction with the bank satisfies the test for being a customer of the bank.

12. Explain in brief what a Partnership Firm?

Ans: Sec 4 of the Indian Partnership Act defines partnership as “the relations between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.” The term ‘firm’ is merely a commercial notion. A firm can not become a member of another partnership firm though its partners can join any other firm as partners can join any other firm as partners. A banker should take the following precautions while opening an account in the name of a partnership firm.

(a) Number of partners.

(b) Title of the firm’s account.

(d) The partnership letter or mandate.

(e) Revocation of authority to operate the account.

13. Write in brief the meaning of Liquidator.

Ans: Bankers should be very careful while dealing with persons appointed to wind up the affairs of companies. A liquidators business is to realise the company’s assets and to collect such amounts as may be due to the company from its shareholders and debtors. He has to apply the funds thus collected in payment of the company’s debt and distribute the balance, if any, among its shareholders. He has the power to borrow money against the security of the company’s assets and to draw, accept, make and endorse bills and notes, in the name and on behalf of the company.

14. Explain in brief about Lunatic Person and the precautions the banker should take before opening the account.

Ans: Under the Indian Act 1872 lunatic is a person of an unsound mind and is incompetent to enter into a valid contract. Any person who is unable to make any judgement about what is good or bad may have an unsound mind and any contract entered into by him is void. In case a lunatic person applies to the bank for opening an account, the bank must refuse to open an account with him.

15. Explain the meaning of Ombudsman.

Ans: Bankers should be very careful while dealing with persons appointed to wind up the affairs of companies. A liquidators business is to realise the company’s assets and to collect such amounts as may be due to the company from its shareholders and debtors. He has to apply the funds thus collected in payment of the company’s debt and distribute the balance, if any among its shareholders. He has the power to borrow money against the security of the company’s assets and to draw, accept, make and endorse bills and notes, in the name and on behalf of the company.

16. State how a company can be a customer of a bank.

Ans: A company means a company formed and registered under the Company Act 1956. It is an artificial person created by law to achieve certain objectives. A company is considered as a separate legal entity. According to Lord Justice Lindley “a company is an association of many persons who contribute money or money ‘s worth to a common stock and employ it for a common purpose.” A company can open an account with the Bank. But before opening an account in the name of the company, a banker should examine the following precautions carefully.

(a) Memorandum of Association.

(b) Articles of association.

(d) Copies of annual account etc.

17. What are the two categories of a Customer? Who are the special customers of a Bank?

Ans: The two categories of a Customer are:

(a) Ordinary Customers.

(b) Special Customers.

The special customers of a Bank are: Minor, Married Woman, Pardanasheen Woman, Lunatic, Drunkard, Insolvent, Joint-Account holder, Illiterate persons, and Partnership firm, Trustee, Executor and Administrator, Liquidator, Non trading institutions (Club, Charitable Trust, etc.), Individuals, Joint Stock Company, Ombudsman.

18. What is partnership? State the position of partnership firm as a customer of a bank.

Ans: According to Sec.4 of the Indian Partnership Act, 1932, partnership is the relation between persons who have agreed to share the profits of the business, carried on by all or any of them acting for all. A banker should take the following precautions while opening an account in the name of a partnership firm:

(a) The account must be opened in the name of the partnership firm and not in the name of the partners.

(b) The banker should ask for a copy of the partnership deed and should thoroughly examine it before opening the account.

(d) The partner who is authorised to operate the firm’s account cannot delegate his authority to another partner without the consent of other partners.

(e) In case a new partner is admitted to the firm, then the banker should obtain a new mandate signed by all partners including the new partner.

(f) In case of retirement, death or insolvency of a partner, the banker may allow the other partner to carry on the account if it shows a credit balance.

19. What is a banking ombudsman? What types of complaints are to be looked at by Banking Ombudsman relating to banking services?

Ans: Banking Ombudsman: Ombudsman in a bank is a person appointed to receive, investigate and report on complaints by customers against banking officials. It is a quasi-judicial authority which is formed to resolve the complaints of the customers of the bank.

Types of complaints which can be filed with banking ombudsman:

(a) Non-payment or unreasonable delay in payments of cheque, bills etc.

(b) Non-adherence to prescribed working hours.

(d) Refusal to accept or delay in accepting payment.

(e) Refusal to close or delay in closing accounts.

20. Explain how a partnership firm can open an account in a Bank.

Precaution: Before opening the account, the banker should take the following precautions.

(a) If a person who has an account with the bank and has become lunatic or insane, the bank can suspend the operation of his account on receiving notice of customer’s insanity.

(b) The bank is entitled to debit the account of the lunatic person against.

(c) all the cheques honoured by the former before getting the notice. If the bank receives sufficient proof of the lunacy of the person, it can stop the operation of the account of any customer on the ground of Lunacy.

(d) On receiving the information of the customer’s lunacy, the banker has the right to return all cheques on the customer’s account with the words ‘refer to drawer’ and not by remark ‘customer insane’.

21. Write the meaning of liquidator.

22. State how a company can be a customer of a bank.

(a) Memorandum of Association.

(b) Articles of association.

(d) Copies of annual account etc.

23. Describe how a married woman becomes the customer of a bank.

Ans: A married woman can open a current as well as savings account with the Bank. She can enter into a contract in her own name. A married woman enjoys the same power and capacity as a man or a single lady. According to the Indian Contract Act, “a married woman can enter into contracts, acquire and sell property and lend or borrow money.”

A married woman has power to draw cheques and give a sufficient discharge. But in the case of an overdraft, granted to a married woman, the banker will have no remedy against her, if she has no separate estate. The husband will not be responsible for any transaction or debit account of his wife in case.

(a) She acts as the agent of the husband and.

(b) The debt has been taken by the wife for purchasing certain articles of her necessities.

24. Explain the meaning of ombudsman.

Ans: Generally the efficient persons in respect of law, banking, financial services, administration etc. are appointed as banking ombudsman. In India, the Reserve Bank appoints Banking ombudsman under the Banking Ombudsman Scheme, 1995. The ombudsman accepts written complaints which may arise between customers and banks. The ombudsman may settle any grievances of bankers and customers; of course the customers have to try to settle the problem with the bank before lodging any complaint against the bank. The ombudsman has no judicial power.

The Reserve Bank appoints ombudsman under sec 13 (A) of Banking Regulation Act 1949 for the three years and may reappoint also.

25. What precaution should be taken by a bank while opening an account in the name of a minor?

Ans: Accounts in the name of Minors: No account should be opened in the name of or on behalf of a minor without reference to the Head Office unless a guardian of the property of the minor has been appointed under the Guardian and Wards Act. In such cases accounts should be opened in the style: X a minor by his Guardian Z.

(i) The guardian must not be allowed to draw on the account after the minor has become of age nor after his death.

(ii) A minor will attain majority at the age of 21 (twenty one) when (a) a guardian has been appointed by the court. (b) his property is under the superintendence of a Court of Wards. In other cases minority ceases at the age of 18 (eighteen).

(iii) A minor should not be allowed an overdraft without proper approval of Head Office which may be subject to sanction of the Court.

(iv) The heading of Minor Account: Mr. (Guardian) and (Minor). Payable to either or survivor.

(v) The date of birth and the date of attaining majority to be recorded in the Form.

(vi) In case of death of the guardian, the money will automatically become payable to the minor but precaution must be exercised prior payment and witness should be obtained.

(vii) In case the guardian is appointed by the court, on the death of the guardian, the minor will again have to apply to the court for payment of the money.

(viii) Certified copy of Court’s order should be filed along with the account opening form.

26. What types of complaints are to be looked at by the Banking Ombudsman relating to banking services?

Ans: The following type of the complaints are:

(a) Non payment or delay in the payment of inward remittances or collection of cheques, drafts, bills etc.

(b) Failure to issue or delay in issue of draffspay orders or banker’s cheques.

(d) Refusal to close or delay in closing the accounts.

(e) Financial loss incurred to customers due to wrong information given by bank officials.

27. Describe the procedure of opening a bank account in the name of a minor.

Ans: A person who has not attained or completed the age of 18 years is known as Minor. A Minor is not capable of entering into a valid contract and a contract entered into by a minor is void. The Bank can open a savings, fixed or recurring deposit account in the name of a minor.

Following are the main steps in opening a bank account:

(a) Age of opening account: The banker should allow the minor to open a savings bank account in his own name only if he/she has an age between 10-14 years and could be able to read and write English, Hindi or any other language. If the minor does have such quality, then the banker must open his account in the joint names of the minor and his guardian.

(b) Selection of type of account: The first step is to select the type of account to be opened. An account may have several types such as current, saving fixed account. An account can be opened jointly or singly. The banker may open a savings bank account in the name of a minor. The banker. should not open a current account in the name of a minor.

(c) Selection of bank and branch: The prospective account holder should now select the bank.

(d) Obtaining the account opening form: An account opening form is obtained from the bank. It should be read carefully and filled in with utmost care.

(e) Obtaining the reference: One or two references are obtained by the prospective account holder. The people who give references sign the form and give their account no. and name and address.

(f) Submission of the form: Now the form should be submitted along with the required documents. These documents vary from account to account.

(g) Giving specimen signature: Now, the account holder signs on a card called specimen signature card. These signatures are matched with the cheques of the account holder.

(h) Making initial deposit: The applicant is allotted an account and asked to make an initial deposit in his account through a deposit slip.

(i) Account is opened: As soon as the initial deposit is made, the account is opened.

(j) Receiving of cheque book/term deposit certificate: Finally, a cheque book is issued which bears the applicant’s account no. The money can be withdrawn with the help of these cheques.

28. How can an illiterate person open an account with a bank?

Ans: An illiterate person may open an account with a bank. The banker should take the following steps.

(a) Thumb impression: The left hand thumb impression of the depositor should be obtained on the account opening form and the specimen signature sheet in the presence of an authorised supervising official.

(b) Identification mark: Brief details of one or two identification marks of the depositor should be noted at the time of opening the account.

(c) Photograph: Two copies of the passport photograph of the depositor should be obtained and get renewed every three years.

(d) General: Implications and conditions for operation of the account should be explained to the depositor by an authorized official. The Deposit can be made through any person but at the time of withdrawal from the account should generally be allowed only when the person comes. physically and produces his or her pass book.

29. Discuss the different types of customers of a Bank.

Ans : The different types of customers of a Bank are:

(i) Individual customer: All competent major persons, irrespective of caste, creed, religion etc. by opening an account with the Bank become a customer of the Bank. At the time of opening an account with the bank they make a contract in between Banker and Customer. So the prospective customer must be competent enough to perform the contract. But Bank may not allow to open Bank account of thief, robber, fraudulent persons etc.

(ii) Minor (2016): According to sec. 3 of the Indian Majority Act, 1875, a ‘minor’ is a person who has not completed the age of 18 years, unless before the completion of his 18 years of age, a guardian of his person or property is appointed by court, Majority is attained at the age of 21 years. 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. But a minor can open an account with the Bank.

(iii) Married woman (2016): A married woman can open a current as well as savings account with the Bank. She can enter into a contract in her own name. A married woman enjoys the same power and capacity as a man or a single lady. According to the Indian Contract Act, “a married woman can enter into contracts, acquire and sell property and lend or borrow money.”

(a) She acts as the agent of the husband. and

(b) The debt has been taken by the wife for purchasing certain articles of her necessities.

(iv) Lunatics: Under the Indian Act 1872 lunatic is a person of an unsound mind and is incompetent to enter into a valid contract. Any person who is unable to make any judgement about what is good or bad may have an unsound mind and any contract entered into by him is void. In case a lunatic person applies to the bank for opening an account, the bank must refuse to open an account with him.

Precaution: Before opening the account, the banker should take the following precautions.

(a) If a person who has an account with the bank and has become lunatic or insane, the bank can suspend the operation of his account on receiving notice of customer’s insanity.

(b) The bank is entitled to debit the account of the lunatic person against all the cheques honoured by the former before getting the notice.

(c) If the bank receives sufficient proof of the lunacy of the person, it can stop the operation of the account of any customer on the ground of Lunacy.

(v) Joint account (2009): When an account is opened by two or more persons jointly in their names, it is called a joint account. A banker should not open a joint account, except upon the receipt of an application by persons interested in the account. The joint account holders enter into contract with the bank jointly and individually, so that each of them has a right against the bank, and the banker has right to honour all the cheques or transactions as are signed by all those in whose names the joint account has been opened.

(vi) Partnership firm: Sec 4 of the Indian Partnership Act defines partnership as “the relations between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.” The term ‘firm’ is merely a commercial notion. A firm can not become a member of another partnership firm though its partners can join any other firm as partners can join any other firm as partners. A banker should take the following precautions while opening an account in the name of a partnership firm.

(a) Number of partners.

(b) Title of the firm’s account.

(d) The partnership letter or mandate.

(e) Revocation of authority to operate the account.

(vii) Company: A company means a company formed and registered under the Company Act 1956. It is an artificial person created by law to achieve certain objectives. A company is considered as a separate legal entity. According to Lord Justice Lindley “a company is an association of many persons who contribute money or money ‘s worth to a common stock and employ it for a common purpose.” A company can open account

with the Bank. But before opening an account in the name of the company, a banker should examine the following precautions carefully.

(a) Memorandum of Association.

(b) Articles of association.

(d) Copies of annual account etc.

(viii) Clubs, schools and colleges: Non trading institutions like clubs, schools, colleges, charitable institutions etc. maintain their accounts with some bank. At the time of opening such accounts the bank should take the following precautions.

(a) The society must be incorporated.

(b) Copies of memorandum, articles of association and other necessary documents must be produced.

(d) Power to borrow.

(e) No mixing of personal accounts with the society.

(f) Death or resignation, etc.

(ix) Executors and Administrators: Executors and Administrators, both are persons appointed to settle the accounts of a person after his death. The Executor is appointed by the deceased himself, before his death. The person appointing him is called ‘testator’. The executor has to act. according to the directions given in the ‘will’. He must get the official confirmation of the will, technically called a ‘probate’ from the court.

The administrator is appointed by court in those cases where the deceased has not given the name of executor in his ‘will’ or person named as executor has died or refuses to act. He disposes of the assets and makes payment of the liabilities of the deceased as per the directions given in the will or in its absence in the letter of administration issued by the court appointing him as administrator.

The Bank should take the following precautions:

(a) The bank should examine the ‘Letter of probate’ in case of executor and letter of administration in case of administrator.

(b) An account in the following style may be opened in the name of executor or administrator.

‘ABC executors or Administrator of the estate of ‘X’, the deceased.

(c) In case of joint executors or administrators, the banker should get clear instruction regarding the operation of the account.

(x) Liquidators: Bankers should be very careful while dealing with persons appointed to wind up the affairs of companies. A liquidators business is to realise the company’s assets and to collect such amounts as may be due to the company from its shareholders and debtors. He has to apply the funds thus collected in payment of the company’s debt and distribute the balance, if any, among its shareholders. He has the power to borrow money against the security of the company’s assets and to draw, accept, make and endorse bills and notes, in the name and on behalf of the company.

(xi) Illiterate person: An illiterate person may open an account with a bank. The banker should take the following steps.

(b) Identification mark: Brief details of one or two identification marks of the depositor should be noted at the time of opening the account.

(c) Photograph: Two copies of the passport photograph of the depositor should be obtained and got renewed every three years.

(xii) Trustees: According to sec 3 of the Indian Trust Act 1882, “Trust is an obligation annexed to the ownership of property and arising out of a confidence reposed in and accepted by the owner or declared and accepted by him for the benefit of another and the owner.” A trustee is a person in whom a confidence is reposed. The Banker should take the following precaution in opening the account of a trustee.

(a) Before opening an account in the name of trust, a banker should examine carefully the ‘trust deed’.

(b) In case of more than one trustee, all trustees must act jointly or the delegation of powers to some of the trustees.

(d) In case of granting loans to trustees, the banker should thoroughly examine their borrowing powers as per the ‘trust deed.”

(e) In the event of death or retirement of all the trustees, the new trustees may be appointed by the court, etc.

30. What are the special provisions included the bank in its rules, while opening and operating an account with regards to —

(a) Minor.

(b) Married Women.

(c) Pardanashin Woman.

Ans: The special provisions included the bank in its rules are :

(a) Minor: According to the majority Act, a person who has not attained the age of 18 years is a minor. But a person for whom the court has appointed a guardian or whose property is being managed by the Court of Wards, such a person is minor till he attains the age of 21 years. Again 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 (except for the supply of necessaries of life). A banker should, therefore, be very careful in dealing with a minor and take the following precautions :

(i) Nature of account: The banker may open a saving bank account, not a current account, in the name of a minor, in any of the following ways: (a) In the name of the minor, to be operated upon by the natural guardian of the minor or the guardian appointed by the court. Such accounts can also be opened in the joint names of two or more minors, to be operated upon by the guardian. (b) In the name of the minor, to be operated upon by himself, if he has attained the age of 12 years. Two such minors can jointly open such an account to be operated upon by them jointly.

(ii) Date of Birth: The banker records the date of birth of the minor as given by the minor of his/her guardian. On the attainment of majority, the account of the minor in the name of the guardian should be closed and the balance be paid to the minor (the major) or be transferred to a new account in his/her own name.

(iii) Death of the minor: In case the minor dies, the balance in the account is permitted to be withdrawn by the guardian and in case of joint account the balance will be held at the absolute disposal of the guardian.

(iv) No security on overdraft: No risk is involved if an account is opened in the name of a minor, so long as the account is not overdrawn by the minor. But if an overdraft or advance is granted to a minor, even by mistake or unintentionally, the banker has no legal remedy to recover the amount from the minor.

(v) No liability of guarantor: If an advance is granted to a minor on the guarantee of a third party, such advance cannot be recovered from the guarantor because the contract of guarantee is invalid on the ground that the contract between the creditor, the banker and the principal debtor (minor) itself is a void contract.

(vi) Minor cannot be sued: A minor may draw, endorse or negotiate a cheque or a bill but he cannot be held liable on such cheque or bill. He cannot be sued in respect of a bill accepted by him during his minority.

(vii) Minor as a partner: A minor can be admitted to the benefit of partnership with the consent of all the partners but he will not be liable for the losses or debts of the firm. His liability is limited only to the extent of his share in profits and property of the partnership firm. However, within six months of attaining majority, he should discharge his liability as partner otherwise he will be held liable as a partner of the firm from the date he was admitted to the benefit of the partnership [Section 30 (7) (a) of the Indian Partnership Act. 1932].

(viii) Minor as an agent: A minor can be appointed as an agent to act on behalf of his principle as per the Indian Contract Act, but he will not be responsible to his principal for his actions. However, the principal is held responsible to third parties in respect of the acts of his minor agent. A banker in order to save himself from the latter’s responsibility, should obtain written authority of the principal specifying the powers and the extent of authority entrusted to the agent in this regard and should see that the minor agent does not deal beyond such powers.

(ix) RBI’s suggestion regarding guardianship of the minor: The RBI has advised banks to allow opening of minor accounts with the mother as a guardian. Thus, banks are now permitted to open accounts of a minor with the mother as a guardian, even if the father of the minor is alive, provided he gives a letter of no objection for the arrangement.

(b) Married woman: A married woman is competent to make a contract, enter into a partnership, be declared as insolvent. But a married woman cannot make her husband responsible for her debt nor any third party proceed in a law court against her husband for any act of her own. Because of this reason, the banker should take the following precautions while dealing with married woman as customers:

(i) The bank can open any type of account including a current account in the name of a married woman. In India, married women are allowed to operate their accounts as normal customers.

(ii) The banker may allow overdraft to a married woman. But precaution should be taken to the effect that there is some property in the name of the woman customer so that in case of need, the repayment may easily be recovered. Since Section 14 of the Hindu Succession Act provides that the property of a Hindu female shall be her absolute property.

(iii) Loans and advances to a married woman are paid to her and it is her sole responsibility. But if the loans and advances have been raised for supplementing the income of her husband or for any necessities of life or domestic needs, the husband is responsible for such a debt by the law.

However, if the husband is in a position to prove that neither the advances were for supplementing his income nor for fulfilling the domestic needs which were available in required quantum, then he will not be held responsible for the debt raised by his wife.

(c) Pardanashin Woman: A pardanashin woman observes complete seclusion in accordance with her own community. She does not deal with the people outside her family members. Therefore, the law presumes that any contract entered into, by her,-might not have been with her free will, with her full understanding of what the contract actually means because of her seclusion from the society. As such, the bank cannot treat them as normal customers and has to take the following precautions before accepting pardanashin woman as their customers :

(i) Clarifying the identity: The identity of a pardanashin woman is always a matter of doubt. Therefore, a thorough scrutiny about the identity | including the signature of the woman is a must. Also, an introducer well known to both the parties is a safe option at the time of opening the account.

(ii) Precautions regarding contract: In order that the lady may not set aside any contract on the ground of undue influence, the banker will have to prove that;

(a) the terms of the contract are fair and reasonable.

(b) the transaction is real and bonafide.

(d) the deed was explained to her. and

(e) she understood it and its effect on her interest in full.

(iii) Precautions in transactions: The banker has to be extra cautious while transactions are carried on with such a woman, as necessitated by the following circumstances:

(a) A cheque may be drawn, endorsed or a bill be accepted even under duress.

(b) Any kind of undue influence might also have been exercised. consent in the withdrawals.

(c) There may or may not be free Considering all these, most bakers generally refuse to open an account in the name of pardanashin woman.

31. What are the precautions to be taken by a banker in opening and operating an account in the name of a partnership firm?

Ans: The Indian Partnership Act, 1932, defines partnership as the “relation between persons who have agreed to share the profits of the business, carried on by all or any of them acting for all.” Persons who have entered into partnership with one another are individually called ‘partners’ and the name under which this business is carried on is called the ‘firm’s name’. The partnership firm is not a separate entity apart from its partners, except for the purposes of assessment of income tax.

A banker should take the following precautions in the course of having business dealings with the firm:

(i) Banks should verify the partnership deed: The bank should ask for a stamped copy of the partnership agreement and thoroughly acquaint itself with its clauses. It should also ensure that the number of partners of banking business firms are not more than 10 and for any other business not more than 20. It should also check if the firm is registered or not, because an unregistered firm cannot bring any suit to enforce a right arising out of contract against an outside firm.

(b) Opening of partnership accounts: A banker should always open a firm’s account in the firm’s name and not in the names of the individual partner/partners. It does so after it receives an application preferably from all the partners or from one or more of the authorised partners.

The bank should also get a letter signed by all the partners, stating the nature of the firm’s business, the names and addresses of all the partners, their specimen signatures for record purpose and the names of those authorised to operate on the account. Authority given by the partners while opening the account should include powers to draw, endorse and accept bills, and mortgage and sell property belonging to the firm. When these precautions are taken, a dormant partner cannot deny his liability on the debts incurred by the firm.

(iii) Operation of accounts: The bank is justified in honouring the cheques drawn in the firm’s name signed by a partner, unless it has received special instruction to the contrary, or knows that the partner who has drawn the cheque is not authorised to do so. It is also to be remembered that any one of the partners has an implied authority to stop the payment of a cheque drawn on the partnership account by another partner.

Moreover, a banker should not accept a cheque payable to the firm for collection to the private account of the partner without proper enquiry or consent of all the partners. Otherwise, he may lose the statutory protection. A banker can, with the consent of the partner concerned, transfer funds from his account to the partnership accounts but the reverse is not permissible in any case.

(iv) Loans or advances: In case of any loan or advance, it is in the bank’s interest to get a declaration signed by all the partners to the effect that they will be responsible for the loans etc., jointly and severally. Such a declaration helps the bank in settling off the deposits of partners in their individual capacity against the loans of the partnership.

(v) Retirement of a partner: When a partner retires, after giving notice to the bank, his liability to the bank ceases so far as transactions after retirement are concerned. After the retirement of one or more partners, the firm is dissolved, unless provided otherwise in the partnership deed. If the firm continues, it is advisable for the bank to open a fresh account of the reconstituted partnership in order to determine the liabilities of these partners, who wish to continue after a change.

(vi) Death of a partner: On the death of a partner, a partnership firm ordinarily dissolves itself, unless provided otherwise. In order to fix the responsibility of the deceased partner, the banker breaks the account and after proper assessment and review, transfers the liability of the old to the new firm.

(vii) Insolvency of a partner: In the absence of any express provision in the partnership agreement, insolvency of any partner will result in the dissolution of the firm by the operation of law. The authority of the insolvent partner to act on behalf of the firm ceases and a cheque signed by such a partner, after he is declared insolvent, should not be honoured except upon confirmation by other partners, who continue to operate the account for winding up purposes.

32. What are the precautions to be taken by a banker opening and operating an account in the name of a joint stock company?

Ans: Meaning: A joint-stock has been defined as an artificial person, invisible, intangible and existing only in the eyes of law. It has a separate legal existence and it has perpetual succession.

Precautions to be taken:

(i) Memorandum of Association: This is the charter of the company and an important document. It gives details, especially regarding objects and capital of the company. A copy of this document should be insisted upon while opening an account.

(ii) Articles of Association: It enables the banker to know the details of the company’s borrowing-powers quantum, persons authorised to borrow etc. This will also enable the banker to understand whether the acts of the officers are within the orbit of the Company’s Memorandum and Articles.

(iii) Certificate of Incorporation: This document signifies that the company can commence its business activities as soon as it gets this certificate which is not the case with a public company.

(iv) Certificate to Commence Business: Only for public companies, the banker insists upon this document for verification. This document gives clearance to public companies to commence their business activities. A company can borrow funds provided it has obtained this certificate.

(v) Application form and copy of the board’s resolution: A copy of the prescribed application form duly completed in all respects has to be submitted in the beginning and that is duly signed by the company’s authorised officers. A Resolution copy should be signed by the company’s Chairman and Secretary: in addition, a copy of the specimen signatures of the officers empowered to operate the bank account has to be furnished.

(vi) A written mandate: This document is useful to the bank for opening as well as for operating the account of the company. It is an authority letter on the basis of which the banker is empowered to act.

Class 11 Finance Chapter 6 Different Types of Customer

Different Types of Customer

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