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Minors : Precautions to be taken by the Banker

According to Section 3 of the Indian Majority Act, 1875, every person domiciled in India shall attain majority

  1. in general cases, when he has completed the age of 18 years and not before; or
  2. in two special cases, where a guardian of minor's person and property has been appointed by the Court under the Guardian and Wards Act, 1890, or where a minor is under the guardianship of Court of wards (before the age of 18 years), a minor shall attain majority when he has completed the age of 21 years and not before.

Section 4(a) of the Hindu Minority and Guardianship Act, 1956 provides that a 'minor' means a person who has not completed the age of 18 years.

According to Section 11 of the Contract Act, 1872, a minor is not competent to contract. Since the decision made in the case of Mohori Bibee v/s Dharmodas Ghose(1903), it is an established rule in India that an agreement with a minor is void ab initio, namely, since its conception and inception. Since a minor is under a legal incapacity to enter into a contract, this in turn affects his capacity to hold, acquire or dispose of property in his own name. Because of this disability, it is necessary that for the protection of his interest and the management of his property, he should have a guardian of his person and property. In the light of Section 27 of the Guardian and Wards Act, 1890, and Section 8 of the , Hindu Minority and Guardianship Act, 1956, the general duty of his guardian consists in the doing of acts which are necessary or reasonable and proper for the benefit of the minor or for the realisation, protection or benefit of the minor's estate. In all the systems of personal law, the father is the natural guardian of a minor during his life-time. Sometimes, the Court appoints as a guardian of a minor, some person who is not a natural guardian. A banker should take the following precautions while dealing with a minor:

Opening an account

Recently, the bankers discussed and decided over the question whether an account can be opened and operated by a minor alone without the intervention of any guardian. Commercial banks now open deposit accounts in the name of a minor operated upon by himself. Ordinarily, the balance is confined to a particular maximum and the age of the minor is ordinarily 12 years or above. Two such minors can jointly open such an account, to be operated upon by them jointly. In another way, a deposit account can be opened in the name of the minor, to be operated upon by his natural guardian or the guardian appointed by the Court. Bankers frame some special regulations in relation to minor's accounts.

Facility of negotiable instruments

According to Section 26 of the Negotiable Instruments Act, 1881, a minor may draw, endorse, deliver and negotiate a promissory note, bill of exchange, or cheque so as to bind all parties except himself. Thus, a minor can validly draw a cheque. If he can validly draw a cheque, it follows that the bank would be bound to pay the same and be discharged by making the payment in due course. Thus, on attaining majority, he would be bound by the withdrawals made by him by cheques when he was a minor. As the minor does not bind himself by making, endorsing or negotiating bills or cheques, therefore the banker should not purchase bills accepted by him.


Banks do not and should not provide overdraft or advance facility to a minor. 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 because:

  1. By implication of Section 7 of the Transfer of Property, 1882, the property of the minor cannot be transferred. Hence the assets of the minor pledged with the banker as security for the advance taken by the minor, are not legally available to the banker, because such pledge is invalid in itself. The banker shall have to return these securities to the minor and he cannot exercise his right of sale of these securities if the minor defaults in repaying the advance;
  2. 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 the creditor and principal debtor (i.e., minor) itself is a void contract (as indicated earlier, an agreement with a minor is void ab initio). According to Section 128 of the Indian Contract Act, 1872, the liability of the surety is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract. There fore, the surety cannot be held liable on a guarantee given for default by a minor. Surety's liability is a secondary liability and does not arise, if the liability of the primary debtor does not arise.

In the case of Edavan Nambiar v Moolakal Raman (1957), the Madras High Court also upheld the above view point. The minor cannot undertake a liability upon himself. The liability of surety is ancillary; it materialises if there is a valid obligation on the part of the debtor whose debt or obligation is guaranteed. However, if the contract of guarantee especially provides contrary to the above, the guarantor may be held liable for the debts of a minor. Moreover, instead of guarantee contract, the banker may enter into indemnity contract with a third party who shall indemnify the bank in case the minor defaults in repayment of advances.

Loan to partnership firm

According to Section 30 of the Partnership Act, 1932, a minor cannot become a partner in a partnership firm. However he may be admitted to the benefits of partnership with the consent of all partners Within six months after attaining majority, he has to decide whether he shall remain a partner or shall leave the firm. If he decides to sever his connection with the firm (does not want to continue as partner), he has to give public notice in this regard. If he does not give such public notice it must be presumed that he has opted to become a partner in the firm, and then he shall be personally liable to third parties for all acts of the firm done from the date when he was admitted to the benefits of the firm. Banks can give loan to the firms in which minor is a partner.

Dealings as agent

Section 184 of the Contract Act, 1872, states, “As between the principal and third persons, any person may become agent, but no person who is not of the age of majority and sound mind can become an agent so as to be responsible to his principal” Thus, even a minor can become agent and the principal shall be responsible for his acts to the third parties. However, minor as agent shall not be liable to his principal. In this context, a minor can act with the banker as agent for his major principal, and all such dealings shall be valid. However, the banker should take a clear written authority letter from the major principal wherein the powers of the minor agent have been specified and defined.

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