TYPES OF CUSTOMERS

MINOR

A person who has not completed 18 years of age is a minor. If the Court appoints a guardian of this person or property before he completes 18^th year, he remains minor till he completes 21^st year. According to the Indian Contract Act, 1872, a minor is not capable of entering into a valid contract and a contract entered into by a minor is void. A contract for the supply of necessaries of life to a minor is however, a valid contract. In case of all other contracts, a minor may repudiate his promise or consent. A banker should, therefore, be very careful in dealing with a minor and take following precautions:

1. The banker may open a saving bank account (and not a current account) in the name of a minor, in any of the following ways:

a)    In the name of the minor, to be operated upon by the natural guardian of the minor or the guardian appointed by a Court. Such account can also be opened in the joint names of two or more minors, to be operated by the guardian.

b)    In the name of the minor, to be operated upon by himself, if he has attained the age of 18 years. Two such minors can jointly open a Bank account, to be operated upon by them jointly.

2. The bank records the date of birth of the minor as given by the minor or his/ her guardian. On attainment of majority, the account of the minor in the name of the guardian should be closed and the balance paid to the minor (then major) or be transferred to a new account in his/ her own name. In case of a joint account the minor is also permitted to operate the account and his signature is obtained on the account opening form.
3. If the father dies, his mother becomes his natural guardian. After the death of   mother, during minority of the minor there is either the testamentary guardian or the guardian appointed by the Court. The banker may return the money to such a guardian.
4. In case the minor dies, the balance in the account is permitted to be withdrawn by the guardian and in case of joint account the balance will be held at the absolute disposal of the guardian.
5. No risk is involved if an account is opened in the name of a minor so long as the minor does not overdraw the account. But 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. By attaching the assets of a minor pledged with the banker as security, for the advance taken by the minor, he cannot exercise his right of sale in case of default by the minor.
6. A minor may draw, endorse or negotiate a cheque or a bill but he cannot be held liable on such cheque or bill. He cannot be sued in respect of a bill accepted by him during his minority.
7. A minor can be admitted to the benefit of partnership with the consent of all the partners but he will not be liable for losses or debts of the firm. Within six months of minor attaining majority, he should repudiate his liability as partner otherwise will be held liable as a partner of the firm from the date he was admitted to the benefit of the partnership [Section 30(7)(a) of the Indian Partnership Act, 1932].
8. A minor may be appointed as an agent to act on behalf of his principal. According to Section 184 of the Indian Contract Act, 1872, “as between the principal and third person, any person may become an agent; but no person who is not of the age of majority and of sound mind can be appointed as an agent, so as to be responsible to his principal.” Thus a minor agent cannot be held responsible to his principal. The principal may be held responsible to the third parties in respect of the acts of his minor agent. Therefore, all of his dealings with the banker will be valid and binding on his principal specifying the power and the extent of authority entrusted to the agent in this regard and should see that the minor – agent does not deal beyond such delegated powers.

Legal Provisions Regarding Guardianship of a Minor:

The guardian of a minor, may be either –

(i)    A natural guardian, or

(ii)   A testamentary guardian, or

(iii)  A guardian appointed by the Court

The first two types of guardians are governed by the provisions of the Hindu Minority and Guardianship Act, 1956, whereas a guardian is appointed by the Court under Guardians and Wards Act, 1890.

(i)        Natural guardian: According to Section 6 of the Hindu Minority and Guardianship Act, 1956, in case of a Minor boy or an unmarried girl, his/ her father and after him, the mother shall be the natural guardian. The terms father or mother does not include stepfather of stepmother. If the father becomes a sanyasi or does not remain a Hindu, he shall not be entitled to remain as a guardian. If the father is alive and is removed from the guardianship, the mother does not become a natural guardian of her minor child.

(ii)       Testamentary guardian: A Hindu father, who is entitled to act as the natural guardian of his minor legitimate children may, by will, appoint a guardian for any of them in respect of the minor’s person or property. Such guardian acts after the death of the father or the mother.

(iii)      Guardian appointed by the Court: A guardian may be appointed by the Court under the Guardians and Wards Act, 1890, but the Court shall not be authorised to appoint or declare a guardian of the person of a minor, if his father is alive and is not, in the opinion of the Court, unfit to be guardian of the person of a minor. Similar is the case with the minor girl, whose husband is not, in the opinion of the Court, unfit to be guardian of her person. Thus the father (or the husband in case of married girl) is exclusively entitled to be the guardian. The welfare of the minor shall be a paramount consideration of the court while appointing a guardian.

Reserve Bank’s Directive

Reserve Bank has advised the banks to allow opening of minor’s accounts (fixed, saving and recurring deposit accounts) with mother as guardian. Thus banks are now permitted to open account of minors in the guardianship of the mother, even if the father of the minor is alive.

MARRIED WOMAN

A married woman is competent to enter into a valid contract. The banker may, therefore, open an account in the name of a married woman. In case of a debt taken by a married woman, her husband shall not be liable except in the following circumstances:

(i)    if loan is taken with his consent or authority; and

(ii)   if debt is taken for the supply of necessaries of life to the wife, in case the husband defaults in supplying the same to her.

The husband shall not be liable for the debts taken by his wife in any other circumstance. The creditor may in that case recover his debt or of the personal assets of the married woman. While granting a loan to married woman, the banker should, therefore examine her own assets and ensure that the same are sufficient to cover the amount of loan.

Pardanashin Woman

A pardanashin woman observes complete seclusion in accordance with the custom of her own community. She does not deal with the people, other than the members of her own family. As she remains completely secluded, a presumption in law exists that:

(i)    Any contract entered into by her might have been subject to undue influence; and

(ii)   The same might not have been made with her free will and with full understanding of the contract actually means.

Thus contract entered into by a Pardanashin Woman is not a contract free from all defects. The other party to the contract shall have to prove that the contract with her was free from the above-mentioned defects in order to enforce the same. The banker should, therefore, take due precaution in opening an account in the name of a Pardanashin Woman. As the identity of such a woman cannot be ascertained, the banker generally refuses to open an account in her name.

ILLETERATE PERSONS

Illiterate persons cannot sign their names and hence the bankers take their thumb impressions as a substitute for signature, and also a copy of their recent photograph. An approved witness should attest the application from and the photograph. 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 identification.

LUNATICS

According to Indian Contract Act, 1872, a person of unsound mind is not competent to enter into 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 forming a rational judgment as to its effect upon his interests (Section 12). It is important that he should be sound mind at the time he enters into a contract. 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 of who is of unsound mind. But if a banker has discounted a bill duly written, accepted or endorsed by a lunatic he can realise 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.

Accounts of Illiterates:        

The account is preferably opened as a joint account with a close literate blood relative. The thumb impression should be witnessed.

The deposits/withdrawals should be personally verified by an officer. Photographs are to be taken and kept on record; the photographs should be renewed once in 3 years.

Accounts in the names of deaf and dumb depositors and old persons who are unable to sign uniformly should be treated on par with ‘illiterate’ accounts.

Lunatics:

A person of unsound mind cannot enter into a contract. So no account can be opened in his name. When a customer is of unsound mind, operations should be stopped forthwith; the balance should be paid to the Guardian appointed under the Mental Health Act.

In Law, contracts entered into by an insane person during the periods of ‘lucid intervals’ are binding on him. He will be able to understand the implications of the contracts entered into by him while he is ‘at a lucid interval’.

Drunken Persons:

If the drunkenness is so severe that the person is unable to understand the implications of his transactions the contract is void.

Insolvents:

Insolvency of a person is civil death. I.e. he cannot bind his estate by entering into contracts; it is the Official Receiver who can bind the estate of an insolvent.

When a person is adjudged insolvent, the balance in his account should be paid to the Official Receiver by a crossed Banker’s cheque. If any cheque is received signed by the account holder subsequently, the same has to be returned for the reason  “payee’s title requires confirmation’. The account has to be conducted in terms of court order.

Official Liquidator:

On a winding –up order made in respect of a company, the official liquidator, becomes the liquidator of the company. He should maintain a personal ledger a/c with RBI/SBI/Associate Bank of SBI. All money received by him shall be deposited in the account. Only “order cheques” should be issued by him.

Joint Accounts:

Operations can be on E or S basis or B or S basis.

E or S Account:

If either of them stops operation of the account by the other, the account will be operated only under joint operation thereafter. The account can be closed/transferred under instructions from either of the account holders, subject to advice to the other. On the death of one, the balance is payable to the survivor. The survivor holds the balance in trust for the legal representatives of the deceased. The Banker is discharged by making payment to the survivor, in due course. However, if any order from a court has prohibited payment the balance should not be paid to the survivor. If a cheque is drawn by the solvent joint account holder it should be returned with the appropriate reason.

A credit in the single name of account holders should not be credited to the joint account except with his authority as the amount may be withdrawn by the other account holder; also, in case of attachment by Revenue Authorities, 50% of the balance will be attached.

  B or S (Both or Survivor) account:

The operations are done jointly; in the case of death of one of the account holders, the survivor is entitled to the balance.

Accounts operated by Agents and Attorneys:

An account may be operated by a mandate- holder or a power –of-attorney holder. A mandate letter is a letter addressed to the Bank authorizing the operation of a bank account by a named person. It need not be stamped or registered.

If a power of attorney is executed abroad, it has to be stamped within 3 months of its receipt into India.

An agent has to indicate clearly that he is signing on behalf of the principal. Agency is terminated on the death, insanity of principal or agent; also by the insolvency of the principal. Insolvency of the agent does not terminate the agency as an undischarged insolvent can act as an agent.

A cheque signed by an agent who has become insolvent, at the time of presentation of a cheque for payment, can be paid; similarly, it can be paid even after the death of the agent, as the principal is alive.

TRUSTEES

According to the Indian Trusts Act, 1882, a ‘trust’ is an 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 (Section 3). 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:

1.        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 and administering the Trust property and other terms and conditions. The Trustees are authorised to act jointly and are not competent to delegate their powers unless the Trust Deed authorises them to do so. The banker should thoroughly examine the Trust Deed to ascertain the powers and functions of the Trustees.

2.        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.

3.        If one or more of the trustees dies or retires, the authority vested in the remaining trustees depends the provisions of the Trust deed. When all the trustees are dead, the Court may appoint new trustees.

4.        The insolvency of a trustee does not affect the Trust property and the creditor of the trustee cannot recover their claims from such property.

5.        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. For example, 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. The banker is, thus, placed in the same position in which the trustee is, so far as the use of Trust money, if it is within his knowledge.

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 loan to the trustees after thorough examination of the burrowing powers as given in trust deed. To be on safer side, the banker should grant an advance for a Trust only when the trustees are respectable persons and give personal guarantee also, apart from creating a charge on the assets of the Trust.

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