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August 2013
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SPECIAL TYPES OF CUSTOMERS

SPECIAL TYPES OF CUSTOMERS

Opening of an account binds the banker and customer into a contractual relationship. Every person who is competent to contract can open an account with a bank. The capacity of certain classes of person, to make valid agreement is subject to certain legal restrictions, as is the case with minors, lunatics, drunkards, married women, undischarged insolvents, trustees, executors, administrators etc. Extra care is also needed for the banker while he deals with customers like public authorities, societies, joint stock companies, partnership firms etc.

 

  1. 1.   Minors

A minor is a person who has not completed 18 years of age. In case a guardian of his person or property is appointed by a court of law before he completes his 18 years, the period of minority is extended to the completion of 21 years. As per section 11 of the contract act a minor is incompetent to contract but section 26 of the Negotiable Instrument Act allows a minor to draw, endorse, deliver and negotiate a negotiable instrument. So, a banker can open an account in a minor’s name and the banker will be safe if the account runs with credit balance. So, it is suggested to open a savings bank account in the minor’s name and not to open a current account as because an overdraft may be created at any time in a 2 current account and money lent to a minor cannot be recovered from him as he is free from personal liability. The minor’s savings bank account may be opened in any of the following ways:

(i)           In the name of minor himself:- This account will be operated by the minor alone. In his personal presence (in the bank) he can withdraw the money from his account.

(ii)          In the joint names of the minor and his/her guardian:- This account will be operated jointly by minor and his/her guardian.

(iii)        In the name of guardian:- This account will be operated by the guardian on behalf of the minor. In case of (i) and (ii) stated above the minor must have at least attained the age of 10 years or above and able to sign his name uniformly. Like savings bank account, a fixed deposit account or a recurring deposit account in the name of a minor (along a with guardian) may also be opened. It should be noted that in the event of death of a minor the money will be payable to his guardian. In case the guardian dies before the minor attains majority and the account is a joint account or operated by the guardian only, the money should be paid by the banker to the minor on attaining majority or to some one else who has appointed as guardian of the minor by the court. While opening a minor’s account the banker should record the date of birth of the minor as disclosed by his/her guardian. The account in the name of minor can be continued on minor’s attaining the age of majority and at that time the banker will have to obtain a confirmation regarding the balance standing in his account.

2.       Lunatics

A person of unsound mind can not make a valid contract. So, the bankers should not open an account in the name of a person of unsound mind. But a customer may become lunatic after opening an account with the bank. However, a banker will not be liable if it honours the cheques or bill of an account holder unless it comes to know of his lunacy at the time of honouring cheque/bill. Where a customer becomes insane and the banker comes to know of it, he must stop all the operations on the account immediately. However, the banker should carefully verify the information about customers lunacy. Sometimes, the court may issue a “lunacy order” and the banker must follow this order. Before resuming operations on the account, the banker must obtain a certificate from two medical officers certifying his mental soundness or get an order of the court to that effect.

 

3.       Illiterate persons

An illiterate person means a person who can’t sign his name. While opening of an account of such a person is unavoidable, the banker should obtain ( 1) Left thumb impression on the account opening form and specimen signature card in the presence of an authorized bank official (2) Details of identification marks should be noted on the account opening form and specimen signature card (3) At least two copies of photograph duly attested by any account holder/authorized bank official.

Except his physical presence (in the bank) any withdrawals from the account of an illiterate person will not be allowed.

 

4.       Married women

A married woman can enter into contract and bind her personal (separate) estate. A banker may, therefore, open an account in the name of a married woman.  The bank should observe extra precautions regarding sanction of overdraft/loan to a married women because it will have no remedy against her if she does not have any personal estate. It should be noted that the husband will not be liable for any debt of his wife except the following cases:

(I)           where the loan is taken with his consent or where she acts as the agent of her husband.

(2)          where the loan has taken for the purchase of necessities which the husband has failed to provide.

 

5.       Executors and administrators:

Executors and Administrators are allowed to open bank account. Following formalities are to be observed while opening the account in the name of executor/administrator:

(I)       An executor should submit a probate, and an administrator should submit the “letter of administrator” to the bank as a proof of their authority to operate the account of a deceased person.

(2)          The banker should thoroughly examine the probate/letter of administration to acquaint himself with the power and functions of executors/ administrators.

(3)      An account may be opened in the name of executor/administrator in the following style: ABC executors (or Administrators) of the estate of X, the deceased.

(4)          In case of joint executor/administrator a mandate signed by all of them should be obtained regarding the operation of the account.

(5)          The insolvency of the executor/administrator will terminate his authority to operate the account (unless it has been overdrawn) but the lunacy of the executor/administrator will not terminate his authority to) operate the account.

 

7.       Trustees

A banker must be cautions in opening/operating a trust account as the trustees are responsible for public money.

(1)          While opening the trust account a banker should thoroughly study the “trust deed” as it contains the name of trustees, their powers, details of the trust properties and other terms.

(2)          If there are several trustees and account is opened for two or more trustees the banker should obtain a mandate signed by all the trustees as to how cheques and bills are to be signed and endorsed. In the absence of such instructions all trustees must sign the instrument(s) on each occasion.

(3)      The bank must not knowingly permit the misuse of trust fund (e.g. fraudulent transfer of trust fund by the trustees to his personal account).

 

8.       Joint accounts

Joint account means account of two or more persons who are not partners. A banker should keep in view the following provisions while opening and operating joint accounts:

  •  The account should be opened only on receiving application signed by all persons interested in that account.
  • A mandate signed by all the parties containing clear instructions as to how the account is to be operated should be obtained. The mandate should mention the name(s) of the person (s) authorized to operate the account and clear instructions as to whom the balance in the account shall be payable must be obtained. In absence of such instructions banker will honour only those cheques signed by all the parties.
  • Instructions regarding the operation of account must be clearly written in the account opening form/specimen signature card.
  • In absence of “either or survivor” instruction the balance will be payable to all the joint account holders including legal representative/heirs of the deceased but in case of “either or survivor” instruction the balance will be payable to the survivor (s).
  • It is wise to stop the operation of a joint account after the death of anyone of the joint account holders and a new account be opened in the name of surviving account holder(s).

 

Joint Account in the name of Husband and Wife:

 

In case of joint account of husband and wife their position differs from those of other joint account holders. Where the account is opened by the husband for his convenience the balance can not be claimed by the widow but has to be brought to the estate of the deceased. But where the intention of the husband (by opening a joint account) was to make a provision for his wife in case of his untimely death, the widow would receive the money.

 

9.       Partnership firm:

A firms account should always be opened in the name of the firm and not in the name(s) of the individual partner (s) because a partner does not have (implied) authority to open a bank account on behalf of the firm in his own name. Before opening the account, a banker must obtain the “partnership agreement/deed” and thoroughly acquaint itself with the clauses. While opening an account of a partnership firm the banker should take a letter signed by all the partners containing the following particulars:

(a)      the name and address of all the partners

(b)      the nature of the firms business

(c )     the name of the partners authorized to operate the account.

 

It should be noted that any partner may by notice in writing to the banker, revoke the authority given to any other partner regarding operation of the firm’s account. Similarly any partner can stop the payment of a cheque already issued and the banker will be bound to honour such instructions. The banker should not credit a cheque in the firms name to the personal account of a partner without the consent of other partners. It fails to do so, the banker will be liable to other persons for wrongful conversion of funds.

 

10.     Joint stock companies

A joint stock company is an artificial person and it has a separate legal entity. So, a bank account may be opened on its own name. A joint stock company may either be a Private Limited Company or a Public Limited Company. Following documents are required while opening an account of a joint stock company:

 

(i)       Certificate of incorporation

(i)           Certificate of commencement of business (in case of Public Ltd. Co. only).

(iii)      Memorandum of association

(iv)      Articles of Association

(v)       Copies of annual accounts

(vi)      Certified copy of the Board’s resolution regarding appointing the bank concerned as the bank of the company. Which also specifies the persons authorized to operate the account on behalf of the company. The resolution should be signed by the chairman of the meeting and countersigned by the secretary of the company. As Memorandum of Association is the main document of the company the Banker must go through it very carefully because if a company done anything beyond it’s object is ultra vires and does not bind the company. The banker should also examine the Articles of Association as it contains the procedure and authority to draw and endorse cheques, bills etc. on behalf of the company. It is necessary to obtain printed copies of company’s Memorandum and the Articles with a confirmation from the company that they are up-to-date.

11.     Societies and other non- trading institutions

The society, be it a club, school, hospital or any institution must be registered as a corporate body. Societies, unless registered are not recognized by the law and have no contracting powers. While opening and operating an account of any society the following procedures be followed by a banker:

(a)                 Copies of Memorandum, Articles of Association of the society must be obtained to acquaint with its broad objectives, its rules & by-laws.

(b)                 The banker should call for a duly certified copy of resolution passed by the managing committee of the society authorizing the bank for opening the society’s account. The resolution should also state the name (s) of persons authorized to operate the account. In case of death or resignation of the person (s) entitled to operate the account, the banker should stop operations on the account till the nomination/appointment of other person(s).

(c)                 If the office bearer (i.e. the person authorized to operate the account) of the society has a personal account in the bank the banker should exercise precautionary measure so that the society money does not find its way into the personal account of the office bearer.

12.     Customer’s attorneys

A person may by a written and stamped document appoint a person as his attorney to deal on his behalf with third parties. This power may be general (to act in more than one transaction) or special (to act in a single transaction). The power of attorney can authorize a person to sign cheques (i.e. operate the account) on behalf of the customer. The banker, while dealing with customer’s attorney should carefully examine the document regarding power of attorney. It should be properly stamped and still in force. The banker should keep a copy of the document with it for reference. It should keep in view that power to operate an account does not automatically imply the power to overdraw. Such power should be specifically given. The customer may revoke the authority of the attorney and the authority of the attorney shall stand terminate in the event of death, insolvency and insanity of the principal.