Module-3 -Types of Accounts

• Deposit accounts- Accounts opened with a deposit of money by the customer are
called as deposit accounts.
• Different accounts can be opened with different facilities & privileges.
• Generally, 3 categories
-Fixed deposit accounts
-Savings deposit accounts &
-Current accounts
• Demand Deposits- withdrawable without notice but on demand.
e.g. current deposits, savings deposits.
• Time Deposits-any deposit which is not repayable on demand is a time deposit.
• It is repayable at a fixed date or after a period of notice.
e.g. Fixed deposits, short-term deposits or notice deposits.
Fixed Deposit Accounts-accounts opened for a fixed period (longer duration- more than an
year)
• On the expiry of the specified period chosen by the depositor he can get back money
as and when he needs it.
• Anumati v. PNB- SC held that an FD in joint names of two persons is nothing but a
joint account which is repayable on the expiration of the agreed period.
• Short term deposits- deposits usually received for a period of less than 12 months.
• Notice deposits-deposits withdrawable at a certain notice, normally given 15 days or
more in advance before the amount can be withdrawn.
Deposits requiring longer notice bear a higher rate of interest than those requiring
shorter notice. (enables liquidity)
• Payment of interest-
 interest is payed quarterly or half yearly.(quarterly rests, half yearly rests)
 Usually will be credited to the savings account of the customer.
 Interest on overdue fixed deposits
 Payment before due date.
 Advance against FD.
 FD non-negotiable.
 FD in Joint names
 Pre mature repayment -if one of the joint depositors request the banker for repayment
of the FD before its date of maturity, the banker should do so only after obtaining the
consent of the other joint depositor.
 The mandate payable to ‘either or survivor’ is applicable only at the time of maturity
of the deposit. Till then it’s a joint debt.
Banking service of NRI’s in India ( Refer the FAQ link given for Asynchronous
assignment)
 - NRO A/c
 - NRE A/c
 - FCNR A/c

Types of Customers
• Minor
• Lunatics
• Drunkards
• Married woman
• Trustees
• Accounts of companies
• Partnership firms
• HUF
Minor
 Position of a minor as per the Indian Contract Act 1872- only rights , no liability can
be imposed on the minor
 Banker may open a savings account, FD & not a current account in the name of the
minor.
 (1) A/c can be in the name of the minor himself (2) joint name of minor or
guardian.(3) in the name of the guardian in this style-“ ABC, natural guardian of
XYZ”
 In the case of (1) & (2) it is essential that the minor must have attained the age of 14
years & can read or write English, Hindi or a regional language.
 Bank records the DOB of the minor as given by the minor or the guardian attaining
majority the account of the minor in the name of the guardian should be closed & the
balance paid to the minor (then major) or be transferred to anew account in his own
name. In case of a joint account minor is also permitted to operate the account & his
signature is taken on the account opening form.
 If the guardian dies before minor attains majority, then the balance should be paid to
the minor on him attaining majority or to a person appointed by a competent court as
the guardian of the property of the minor. In case the minor dies, the balance is
permitted to be withdrawn by the guardian & in case of a joint account the balance
will be held at the absolute disposal of the guardian.
 If an Overdraft or advance is granted to a minor by mistake the banker will have no
legal remedy to recover the amount from the minor.
 If an advance is granted to a minor on the guarantee of a third party such advance
cannot be recovered from the guarantor also because the contract of guarantee is
invalid on the ground that the contract between creditor & the principal debtor
(minor) itself is a void contract.
 Acc to S 128 of Indian Contract Act, the liability of a surety is co-extensive with that
of the principal debtor unless it is otherwise provided by the contract. Surety therefore
cannot be held liable on a guarantee given for default by a minor. According to law a
minor cannot undertake a liability upon himself. Thus he cannot default & surety’s
liability is secondary & does not arise if the liability of the primary debtor does not
arise-Edavan Nambiar v. Moolakai Raman (unless expressly stated in the Contract
of Guarantee).
 Minor cannot be held liable on a cheque- He cannot be sued in respect of a bill
accepted by him during his minority. Such bill or cheque will be a valid instrument &
all other parties will be liable in their respective capacities u/s 26 of the Negotiable
Instruments Act. The banker should be very careful in dealing with a N.I to which
minor is a party. No cheque book should be issued to the minor.
 A minor can be admitted to the benefits of the partnership with the consent of all the
partners but will not be liable for the losses or debts of the firm. Within 6 months after
he attains majority he should express his willingness to continue or terminate the
partnership.
Kids Banking Account
 Kids banking account- Covers Newly born kids up to the age of 14.
 Parents, natural guardians can with their KYC open saving account in the name of
kids.
 Savings account, monthly deposit scheme, recurring deposit can be opened with the
name & photo of the minor as well as natural guardian.
 SBI allows opening & operating of bank accounts to children of 10-12 age to
encourage savings with some conditions- in self accounts balance shall not exceed 2
lakhs, in case of fixed account with guardian maximum amount will be 20 lakhs for
10 years.
Lunatic
 Contracts with lunatics, when they are of unsound mind is void.
 No banker should knowingly open an account in the name of a lunatic.
 However a banker who discounts duly drawn bill endorsed by a lunatic can realize the
money due from him, unless it is proved that he knew of the lunacy of the party at the
time of discounting the bill.
 Account should be suspended as soon as he comes to know about the lunacy of a
customer.
Drunkard
• According to Indian Contract Act provisions.
• Voidable option for him.
• But if the instrument has passed into the hands of a holder, who takes it in good faith
& value, it will be valid against the drunkard.
Married Woman
 Competent to enter into a contract
 In case of a debt taken by her husband shall not be liable except in certain cases- (a) if
the loan is taken with the consent or authority of the husband (b) if the debt is taken
for the supply of necessaries of life to the wife & in case the husband defaults in
supplying the same to her.
 Husband will not be liable for the debts taken by the his wife in any other
circumstance.
 Creditor may recover his debt out of the personal assets of the married woman,
therefore the banker before granting a loan to her should examine her own assets &
ensure that the same are sufficient to cover the amount of the loan.
Trustees
A Trust is an obligation annexed to the ownership of property and arising out of a
confidence reposed in & accepted by the owner, or declared or accepted by him for
the benefit of another and the owner ( S.3 of the Indian Trusts Act).The person who
reposes the confidence is called the author of the trust. Trustee is the person to whom
the confidence is reposed. The person in whose benefit the trust is formed is called the
beneficiary.
 Banker should thoroughly examine the trust deed to ascertain the powers & functions
of trustees.

 In case of 2 or more trustees the banker should ask for clear instructions regarding the
persons who operate the account. In the absence of such instructions, all trustees must
sign the cheques as the estate is placed under their joint charge.

 If one or more of the trustees dies or retires, authority vested in the remaining trustees
depends upon the provisions of the trust deed.
 Banker should take all precautions to protect the interests of the beneficiaries of the
trust, failing which banker will be liable to compensate the beneficiary for any fraud
on the part of the trustee.
 If the banker permits the transfer of trust money to the personal account of the trustee,
already overdrawn with clear knowledge and understanding the banker shall be liable
to refund the money to the trust account.
 Banker shall be liable for the misuse of the trust money if the same is within his
knowledge.
Hindu Undivided Family

 Karta has the implied authority under The Hindu succession Act ,1956, to take a loan,
execute necessary documents & pledge the securities on behalf of the family for the
purpose of business of the family. However, to be on safer side, the banker can insist
that the loan documents should be executed by all the adult male members or with
their consent by the head of the family in his capacity as Karta or manager.
 The power of the Karta to borrow money on the security of family property is subject
to the condition that the loan is taken for the purpose necessary for or beneficial to the
family. He can take a loan & pledge the property of the family for meeting the needs
of the usual business of the family & not for any speculative business or for starting a
new business. Other coparceners will not be liable for a loan contracted for a purpose
other than in the interest of the family business- Ram Dayal & Others v. Bhanwarlal
& others.
 The Coparceners liability in case of loans granted to a HUF is limited to the extent of
their interest in the joint property. But if the adult coparceners themselves ratify the
contract entered into by Karta, then they become personally liable for the loan.
 If a suit is brought in a representative capacity as manager of the joint family & a
decree is granted, other members are held to be substantial parties to the suit through
Karta & that they are not co nominee parties to the suit will not render the decree in
suit any less binding on undivided coparceners & the entire joint family properties can
be taken in execution of such a decree.-Shankarlingam v. T.N Mani
Partnership Firm
• Banker should carefully examine the partnership deed. The maximum number of
partners in a firm should not exceed the statutory limit, or if so it should be registered
under the Co Act else it will be illegal & contracts would not be valid.
• A firm’s account should always be opened in the name of the firm & not in the name
of individual partners. The banker should confirm the right of the applicant to open an
account in the name of the firm from the partnership deed or from any other available
document.
• Alliance Bank v. Kearsley- the mere existence of a trade partnership is no warranty
that a partner has authority to bind the firm by opening a bank account on its behalf,
in his own name.
• The authority given in favor of a particular partner to operate the firm’s account may
be withdrawn by any of them by giving a notice to the banker. In such cases the
banker should pay the cheques which are signed by all the partners. A partner can also
stop payment of a cheque issued by any other partner on the firm’s account.
• Banker should honor cheques signed by all partners or by those partners who are
authorized to operate the account.
• If a cheque payable to the firm is endorsed by a partner in his own favor & is
deposited by him to be credited to his personal account, the banker should make an
enquiry about it from other partners.
• Surjit Singh & Ors v. Ram Ratan Sharma- H.C observed that from the very definition
of partnership itself it follows that there is an implied mutual agency to each of the
partners of a registered partnership firm. When an amount was borrowed by a partner
on behalf of the firm, that act of him was binding on the firm as well as the members
of the firm.
• While one of the partner can bind the firm for the debts incurred by him on behalf of
the firm, it is not necessary that documents for the debt are signed by all the partners.
Signature of one partner also will be sufficient. However, as a precautionary measure
banks can take signatures of all the partners on loan agreements.
• The joint & several liability of partners continue until all debts of the firm are
discharged or the constitution of the firm changes due to death, retirement or
insolvency of a partner & the banker is informed of it.
Company
• Along with the application to open an account in the Co’s name a certified copy of the
resolution passed by the BOD of the Co should also be given-The resolution must
contain the following particulars-appointing the bank as the banker of the Co, naming
the persons who are authorized to operate the bank account on behalf of the Co.
• Borrowing power of the Co-should be authorized by the MOA or AOA.
• Specimen signature of persons authorized to operate
• Before a Company can be bound by a cheque or a negotiable instrument one of the
essential condition is that the instrument on its face must show that it has been drawn,
made, accepted or endorsed by the Co; this can be done by showing the name of the
Co itself on the instrument or by the statement of the person making the instrument
that he is doing so on behalf of the Co. If not complied, it would not bind the Co &
cannot be enforced against it- Oriol Industries Ltd v. Bombay Mercantile Bank
Ltd.
• If Directors borrow money without authorization from the Co’, Co will be liable if the
money has been used for the benefit of the Co- Kumar Krishna Rohtagi v. State
Bank of India.
Closing of Account
• By Notice
• Inoperative account
• Undesirability of the Customer
• Death of the Customer
• Insanity
• Insolvency
• Garnishee Order
• Assignment
• Winding up of the Company
• Dissolution of the Partnership Firm