Professional Documents
Culture Documents
Legal Aspects of Opening & Operation of Different Types of AC
Legal Aspects of Opening & Operation of Different Types of AC
Legal Aspects of Opening & Operation of Different Types of AC
Mandates:
A bank account holder has a primary right to operate upon his account maintained with the
particular bank. No person other than the account holder can order the bank to debit his account
(except a competent court).
A mandate is an authority given by the account holder in favor of a third person to do certain acts
on his behalf. This is issued by an account holder with a direction to his banker authorizing the
person to operate the account on his behalf.
In case a customer wants his account to be operated by another person, a mandate in writing to
that effect together with the specimen signature of the agent who is to operate the account should
be obtained by the banker.
Power to draw and endorse cheques does not include the power to overdraw the account. So, if a
customer wishes to allow his agent to overdraw the account , the mandate should clearly state
this.
It is unstamped letter signed by the account holder addressed / submitted to the bank.
The signature of the person so authorized should be appended in the letter of mandate and the
same should be verified by the customer/account holder.
A letter of mandate is generally issued for a short and temporary period.
In case of joint account holders all the parties concerned must sign the letter of mandate
irrespective of operational instructions.
A mandate comes to an end, on death, insanity, insolvency and bankruptcy of the account holder.
A mandate can be withdrawn at any time by the account holder.
The instructions should be carefully noted in the ledger account of the account holder and also in
the specimen signature card/sheet.
The mandate letter should be properly filed and securely kept. There should be an updated index.
Those who can open an Account
Every person who is competent to contract
Who is of sound mind
Who is not disqualified from contracting by any law.
Capable of understanding the contract and of forming a rational judgment as to its effects upon
his interest.
Provided the bank is satisfied regarding the genuineness and is willing to establish banking
relations.
What is Contract?
As per Section 2(h) of the Contract Act. 1872 ‘An agreement enforceable by law is contract.
Section 2(e) of the said act provides- ‘Every promise and every set of promises, forming the
consideration for each other, is an agreement.
Combining two sections as mentioned earlier, we can safely opine that contract is an agreement
between two or more parties which is supported by consideration and enforceable by law.
Essentials of Contract:
Lawful offer and acceptance
Intention to create legal relationship
Legal consideration
Capacity to contract
Free consent
Legality of object
Certainty ( no vagueness)
Possibility of performance
Oral/ written/ written and registered.
Majority Act-1875 provides:
Section 3(I) of the said Act provides-Every person domiciled in Bangladesh shall be deemed to
have attained majority when he shall have completed the age of 18 years.
Section 3(ii) Majority Act-1875 provides:
If in case of a minor, domiciled in Bangladesh, before he has completed the age of 18 years, a
guardian of his person or property or both , has been appointed by a court , or the
superintendence of his property is assumed by a court of wards then he shall be deemed to have
attained majority when he shall have completed the age of 21 years.
Section 12 contract-1872 provides:
A person is said to be of sound mind for the purpose of making a contract if, at the time when he
makes it he is capable of understanding it and of forming a rational judgment as to its effect upon
his interests.
A person who is usually of unsound mind, but occasionally of sound mind, may make a contract
when he is of sound mind.
A person who is usually of sound mind, but occasionally of unsound mind, may not make a
contract when he is of unsound mind.
In this connection it is noted that minor, idiot, drunkard, lunatic, senile person, insolvent, delirious
person etc. are not capable to contract and as such they can not open bank account.
Operation:
A special feature of banking business is that each and every transaction of money with the
customer is supported by a separate slip or document.
A customer is, therefore, required to make use of
a) Pay-in-slip for depositing money, and
b) cheques for withdrawing money from the bank.
The Second obligation of the banker is to maintain the secrecy of his customers accounts. This
obligation is also not absolute. The banks are permitted to disclose the status of the account of
the customers in certain circumstances.
In those circumstances, where banks are required to disclose the financial status, banks should take
utmost care while submitting such reports. Undue or irrelevant information should not be given.
The opinion should be brief and factual and should indicate that the information is given in
confidence and should be kept so by the recipient.
Disclosures permitted by Law and practice
1. Under Law: A banker is justified to disclose any information about the customer’s account
when he is statutorily required to do so under
a) Income Tax Act
b) Companies Act.
c) Banker’s books of evidence Act.
d) Foreign Exchange Regulations Act.
e) Money Laundering Prevention Act.
f) Bangladesh Bank Act
2. Under express or implied consent of the customer: When an account is opened with the bank,
there is an implied contract between the customer and the bank that the later will not disclose
information relating to his account without his consent. If however, a customer permits, this
information can be disclosed.
3. Disclosure in the Bank’s interest: A banker can disclose information when it is essential to
protect his own interest, legally. For instance, if there is any dispute between the customer and a
banker, regarding balance standing in the account of the customer or if there is a loan default,
then the bank will be justified in revealing the information to the guarantor or to a solicitor for
initiating legal proceedings in the court of law.
4. Disclosure in Public/National interest: A banker is justified in disclosing the state of his
customer’s account in the interest of the public. The following grounds generally fall under this
category:
a. Disclosure of the account where money is kept for extreme political purposes.
b. Disclosure of the account of an unlawful association.
c. Disclosure of the account of a revolutionary body to avert danger to the state.
d. Disclosure of the account of an enemy in times of war.
5. Common courtesy among bankers: Under the practices/usages in the banking system
(business) it is customary among the bankers, that whenever a bank makes inquiries with another
bank, such as, about proposed sureties or acceptors, such information is shared. An implied
consent of the customer is presumed to exist therefore. However, such information is kept
confidential at both the ends and adequate precautions should be taken while furnishing such
information.
Trust Account:
• According to the Trusts Act, 1882, a ‘Trust’ is an equitable 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, or of another and the owner.
• The person who reposes the confidence is called the author of the trust. Trustee is the person in
whom the confidence is reposed. The person for whose benefit the trust is formed is called the
beneficiary.
• A trust is usually formed by means of a document called the ‘Trust Deed’.
• While opening an account in the names of persons in their capacity as trustees the banker should
take the following precautions:
The banker should thoroughly examine the Trust Deed appointing the applicants as the trustees.
The Trust Deed contains the names of the trustees, power vested in them for administering the
trust property and other terms and conditions.
The trustees are authorized to act jointly and are not competent to delegate their powers unless the
Trust Deed authorizes them to do so.
The banker should examine the trust deed to ascertain the powers and functions of the trustees.
• In case of two or more trustees, the banker should ask for clear instruction regarding the person
or persons who shall operate the account.
• In the absence of such instruction all the trustees must sign the cheques, etc., because the estate
is placed under their joint charge.
• If one or more of the trustees dies or retires, the authority vested in the remaining trustees
depends upon the provisions of the Trust Deed.
• When all the trustees are dead , new trustees may be appointed by the court.
• The insolvency of a trustee does not affect the Trust property and the creditor of the trustee
cannot recover their claims from such property.
• The banker should take all possible precautions to safeguard the interest of the beneficiaries of a
trust, failing which he shall be liable to compensate the latter for any fraud on the part of the
trustee.
• The trustees may borrow money from the banker and pledge or mortgage the Trust property
only if the Trust Deed specifically confers such power on them.
• The banker should, therefore, grant loans to the trustee after thorough examination of the
borrowing powers as given in the Trust Deed.
Papers to be required to open Trust Account:
Trust Deed copy for scrutiny of the rules regarding the opening and operation of deposit account.
Resolution for opening account by trustee Board stating Bank’s name.
List of Trustees & signed Mandate.
Resolution regarding operation of account.
Account opening Form (AOF), Specimen signature card (SSC), Cheque Requisition Form
properly filled in.
Special Features of Trust Account:
Trustee can open the account in the name of the trust or in the name of the Trustees.
Trust property to be controlled for the benefit of the beneficiary.
Violation of Trust Deed/Rules by the Trustees is called Breach of trust.
A/C will be operated as per delegation laid down in the trust Deed.
No Trustee can delegate his power to 3rd party.
Breach of Trust:
A banker should be very careful whenever an account of this type is opened.
It is so because, whenever something goes wrong the banker will be held liable for not protecting
the interest of the beneficiaries.
If a banker comes to know that the funds are misapplied he can not escape from his liability.
A banker will be justified in dishonoring a cheque drawn by a trustee, if a breach of trust is
intended.
Operation:
1. Account will be opened and operated jointly.
2. Cash transactions should be done cautiously.
3. Bankers should prefer open A/C in the name of Trust.
4. In case of death, Lunacy, retirement, or change of trustee, new Trustee will be appointed in
writing. Trustees should have financial soundness.
5. Bankers should have vigilant eye on ‘Breach of trust’.
6. No transfer from Trust A/C to personal account.
7. Mark ‘Trust Account’ on Ledger boldly.
8. No borrowing will be allowed without H.O approval.
9. There should always be a clause in the mandate binding the trustees to be jointly and severally
liable to the bank for any liability incurred by them in account.
Executors and Administrators Account:
Executors and administrators are persons who are appointed to conduct the affairs of a person
after his death. When a person known as testator (person making the will) appoints another
person to administer the estate of testator in the event of his death through a ‘Will’ is known as
an executor.
Any alteration or addition in the original will might have been made in a separate instrument
called ‘codicil’ which also forms a part of the will.
When an Executor is not named in the ‘will’ or if the person appointed as executor dies or
refuses to act or is incapable of acting, the court appoints a person for the purpose. He is known
as administrator.
Both the executor and the administrator perform the same duties, i.e., to realise the assets of the
deceased and to pay off his debts.
The executor is appointed by the will. His powers and authority are vested therein. He has to act
according to the directions given in the will, but he is required to obtain a probate (official
confirmation of the will) from the court.
The administrator is appointed by the court through a letter of administration and is directed, in
the absence of the will, to settle the affairs according to the provision of the law.
The administrator derives his power from the letter of administration. This letter may give
full/limited power to deal with the estate.
The banker should take the following precautions while dealing with the executors and
administrators:
On the death of a customer, the banker must stop payments from his account. The executor should
be permitted to operate the account of the deceased after he has obtained the probate from the
court.
The administrator is authorised to do so after securing the letter of administration.
The banker should examine these documents before the appointed person is permitted to operate
the account.
An account in the name of an executor / administrator is opened in the following style and the
balance in the account of the deceased is transferred to such account:
‘ABC executors (or administrators) to the estate of XYZ deceased.’
In case two or more persons are appointed as executors or administrators, they shall have joint
interest in the estate of the deceased. This is not divisible.
The banker should be very cautious in conducting the account of executors / administrators so as
to prevent them from misappropriating the funds of the deceased.
Executors Account opening and operation:
a) Account may be opened after H.O approval.
b) Must produce grant of probate certified copy for scrutiny the name and address of executors.
c) Identity of Executors to be ensured.
d) List of executors name with signature and account will be opened in official capacity.
e) Executor’s power to open & operation of Banks account.
f) AOF/SSC/ Photo properly filled in.
g) Not to mix with personal account.
h) Mode of operation – jointly or all to sign.
i) After death/ retirement /lunacy new executors will be appointed as per probate.
Administrators Account opening and operation:
Account may be opened after H.O approval.
Certified copy of letter of Administration will be obtained.
Request letter for opening bank account.
Account opening and operation as per letter of administration. Administrator can only operate
upon account.
Mode of operation should be joint in case of several administrators.
AOF/SSC/ Photo properly filled in.
Not to mix with personal account.
Administrator can not delegate his power to third party.
When an administrator becomes insolvent or lunatic his appointment stands terminated. A new
Administrator is appointed under fresh letter of Administration. On the death of administrator
Court will appoint the new one.
Government ,Local Bodies & corporations Account:
Every wing of govt. authority and Local authority shall make arrangement for the proper
administration of their financial affairs and shall secure that one of their officers has
responsibility for the administration of those affairs. Officers deal these financial affairs through
the opening of a bank account.
Opening and Operation:
Before opening the account any Govt. or semi Govt. or local body a certified copy of the
STATUTE will be taken.
Or, certified copy of any other Law/Regulations by which the body is created and governed.
Request letter for opening bank account.
Copy of resolution is passed by the local authority authorizing an officer to open bank account
with the bank name and branch.
Branch manager specially satisfies himself as regards the provision about the dealings with the
fund, opening, operation of the bank account in the ‘Statute’.
Name, style, and nature of account must be stated in the statute or resolution.
Any Govt. account will be opened and operated as per official capacity, subject to the permission
from the competent authority.
Account of Regimental fund (Army account) should be opened and operated as per the letter of
authority from the ‘Controller of Military Account’.
Operation of account in contravention of ‘Statute’ will not be allowed.
Cash transaction should be done cautiously. Pre advice should be taken in case of cheque
drawings.
In case of changing officer or office bearer new authorization letter will be taken issued by
competent authority.
Monthly statement of account & quarterly balance confirmation to be served.
Club, Societies Etc. : Bye laws, Resolution of the managing Committee, Registration certificate,
etc. and other usual formalities.
School, College, Madrasa etc.: Approved list of the managing committee, Resolution of the
managing committee to open account in a bank etc.
Closing of a Bank Account:
The relation ship between banker and customer is a contractual relationship. Like any other
contract, therefore, it may be terminated as and when the parties so desire. Moreover, the banker
is under certain legislative provisions. The position of banker regarding closing of customer’s
account may be summed-up as follows:
Customer’s Request
Unclaimed Deposit Account
Death of customer
Insanity of the customer
Insolvency of the customer
Undesirable customer
Attachment order issued by the income Tax authorities
On receipt of Garnishee Order
Garnishee Order:
Garnishee order refers to the order issued by a court attaching the funds of the judgment debtor
(i.e., the customer) in the hands of a third party (i.e., the banker.)
The term ‘garnishee’ refers to the person who has been served with the order.
this Garnishee proceedings comprise of two steps. As a first step ‘Garnishee Order Nisi’ will be
issued.
’Nisi’ means ‘unless’. In other words , this order gives an opportunity to the banker to prove that
this order could not be enforced.
If the banker does not make any counterclaim, this order becomes an absolute.
This ‘Garnishee Order absolute’ actually attaches the account of the customer.
If it attaches the whole amount of a customer’s account, then, the banker must dishonor the
cheque drawn by that customer.
He can honor his cheques to the extent of the amount that is not garnished.
Hence, the banker should go through the terms of the order very carefully.
Dormant Account:
In course of business many savings and current accounts become inoperative for many reasons.
Such inoperative accounts are marked as ‘Dormant accounts’ if there have been no deposits
and/or withdrawals in accounts for a period of one year generally or for a period as may be fixed
by the individual banks.
All dormant accounts (except proprietary, partnership concern, joint stock companies, other
business organizations, local authorities, semi-government and government institutions) in the
ledgers which have not been operated for such a long time that is treated as dormant accounts
shall be transferred to a separate dormant account ledger.
All dormant account maintained in a separate portion of the deposit ledger, shall be affixed with
the following stamps under authentication of an authorized officer:
‘DORMANT ACCOUNT’
‘All operations as well as issue of cheques should be referred to manager’.
Similar noting shall be made on the account opening form and the Reference and other books
under authorized signature.
To protect the dormant account from unauthorized operations, fraud and forgeries, it shall be
necessary to mark clear ‘alert’ and ‘Caution’ signals on the relative specimen signature cards.
Death of Constituents:
Notice or knowledge of the death, insolvency or insanity of a constituent precludes the Bank
from paying further cheques on his/her account even though these are dated prior to his/her
death, insolvency or insanity. When information of death is reliable the fact should be noted on
the top of the ledger folio with the date and the source of information and a line should
immediately be drawn below the last entry in the account. In case of doubt, caution should be
noted and immediate enquiries be made to ascertain the correct position. Upon the death of one
of the holders of a joint account the balance of which is repayable to the survivors, the operation
of account will, continue but the survivor or the survivors should be requested to transfer the
balance into a new account in his/her or their own names and fresh account opening form etc.
should be obtained. When the balance is not repayable to the survivor(s), the operation of the
account must be stopped.
Transfer of Accounts:
When an account is transferred from one branch to another in the absence of online banking, the
account opening form etc. signed at the time the account was opened and any forms or
documents signed subsequently which are necessary for its proper conduct must be forwarded to
the branch to which the account is transferred together with the relative mail transfer, specimen
signature cards and standing instructions, if any. No exchange should be charged on such
transfer.