In discharge of primary function, banker invites the public to open an account with the bank. Opening of an account with a bank, is creation of a special contract so that the principles of contract viz. capacity to contract, free consent etc. are strictly adhered to. Therefore, a banker must be very careful, while opening an account in the name of a customer particularly at the time of opening/accepting accounts in the name of special category of customers viz. minors, partnership firm, joint stock company, club etc. This lecture deals with the precautions to be taken by the Banker, while opening as account in the name of the “Special Types of Customers” as follows:
A minor is a person, who has not completed 18 years of age. The minority extends to 21 years, if a guardian of his person or property is appointed by the Court (See 3 of Indian Majority Act, (1875). Before 1969, in England the age of minority was 21 years. The age of minority is reduced to 18 years after passing of the Family Law Reforms Act, 1969. In other words, in England also, a person who has not completed the age of 18 years is a minor.
According to Sec. 11 of the Indian Contract Act, 1872, a minor is not competent to contract. A contract entered into by a minor is void ab initio i.e. invalid from the very beginning (as laid down by the Privy Council in Mohori Bibee v/s Dharmodas Ghose1). However, a contract with a minor for supplying of necessaries to minor or his dependants is valid and enforceable (Section. 68, Indian Contract Act, under the Principle of Equity).
According to Section. 26 of the Negotiable Instruments Act, a minor may draw, endorse, deliver and negotiate such instruments so as to bind all the parties, except himself. He need not incur any liability under the negotiable instrument, but he can acquire rights over the instruments. However, the minor is bound by the withdrawals made by him and the bank can legally debit his account.
Therefore, a Banker may open an account in the name of a minor in the following ways:
In the first case an account can be operated by the minor himself and there is nothing unlawful, since, Sec. 26 of the Act allows the minor to do so. In the second case, an amount can be operated jointly by the minor and his guardian. In the third case, when the account is operated on behalf of the minor, the Minor should have completed 14 years and he must be capable of reading and writing.
As the minor is immune from liability under the contract, the Banker must be very careful and should take the following precautions while dealing with the Minor.
Illiterate persons cannot sign their names and hence the banker take their thumb impression as a substitute for signature, and also a copy of their recent photograph. The application form and the photograph should be attested by an approved witness. For withdrawing money, he must attend personally and affix his thumb impression in the presence of an official of the bank, for the purpose of identifications.
According to Sec. 12 of the Indian Contract Act, 1872, a person of unsound mind is not competent to enter into a valid contract. A person is said to be of sound mind for the purpose of making a contract if he is capable of understanding it and of forming a rational judgement as to its effect upon his interests2). It is important that he should be of sound mind at the time he enters into a contract. If a person is usually of unsound mind but occasionally of sound mind, he may make a contract when he is of sound mind. Similarly, if a person is usually of sound mind but occasionally of unsound mind, he cannot enter into a valid contract when he is of unsound mind. A contract entered into by a person of unsound mind is a void contract according to the Indian Contract Act, 1872.
The banker should therefore, not open an account in the name of a person who is of unsound mind. But if a banker has discounted a bill duly written, accepted or endorsed by a lunatic he can realize the money due on the same from such person except in the circumstances where it is proved that the banker was aware of the lunacy of the person concerned at the time he discounted the bill. The banker should suspend all operations on the account of a customer as soon as he receives the news of his lunacy till he gets the proof of his sanity or is served with an order of the court.
A married woman (Hindu) has the contractual capacity (if about 18 years of age) and has the right to acquire or dispose of her personal property called “Stridhana” in Hindu Law. The manager should make the usual essential enquiries in opening the account of a married woman. In the application (account opening form), she should fill up in addition to her name, address etc., the name of her husband,, his address (and the address of the employer of the husband). Proper introduction is necessary. As a competent person, she can draw and endorse cheques and other documents and these can be debited to her account. As long as credit balance is there in her account, there will be no risks, but, if loan or overdraft is to be given the Bank should ascertain her credit worthiness, her personal properties (Stridhana) the nature of the properties held by her etc. The Husband is not liable for her debts, except for those loans incurred for “necessaries of life” for her and her family.
Precautions in granting loans or overdraft are necessary as:
She is one who wears a veil (Purdah), as per her customs, and is secluded except the members of her family. Some Muslim women observe this as custom in their community. The Manager should of course follow the preliminary enquiries as usual and may allow such a woman to open an account. Her identity and that she is opening the account out of her freewill are essential. To be on the safer side the manager may require a responsible person known to the bank attest her signature. Better if he insists such attestation in respect of her withdrawals also.
While opening the joint account, all the concerned persons should sign the application form. The necessary forms are filled up and signed to specify how the account is to be operated and also who is authorised on all matters including cheques, bills, securities, advances etc. Operation of the account may be by one or more persons but clear instructions are essential to draw cheques etc. Instructions regarding survivorship are also a part of the process of opening of accounts. Generally the account is made payable to either or survivor and the survivor is entitled to the amounts standing to the credit. The joint holders may nominate a person, if they so desire. Example of Joint Account is Husband and Wife. In a case of an account with instructions payable to either or survivor it is held that on the demise of the husband, the wife would be entitled to the amount if the husband had such an intention to benefit her, but, if there is no intention, it becomes part of the estate of the husband and hence heirs will be entitled as per law. Death of the husband, will not constitute a gift to the wife. The burden of proving the intention is on the wife.3)
When two or more persons (subject to a maximum of 100) carry on business to share profits and losses equally or in proportion of capitals, it is called ‘Partnership business’. The Indian Partnership Act, 1932 defines partnership as “The relation between the persons who have agreed to share the profits of the business carried on by all, or by any one of them acting for all”. The persons are called ‘Partners and the business is called ‘Partnership Firm’. In partnership, the liability of partners is unlimited.
A banker should take the following precautions, while opening an account in the name of a partnership firm:
A company is an artificial person, created by law with perpetual existence and common seal. To acquire legal personally (to sue and be sued) it must be incorporated/registered under the Indian Companies Act, 1956. A Banker has to take the following precautions while opening an account in the name of a Joint Stock Company.