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LAWS – BANKING
Various Laws Affecting Bankers 1. RBI Act 1934 2. Banking Regulation Act 1949 3. Negotiable Instrument Act 1881 4. Indian Contract Act 1872 5. Indian Partnership Act 1932 6. The Companies Act 1956 7. Consumer Protection Act 1986 8. Banking Ombudsman Act 2006 9. Transfer of property Act 1882 10. Foreign Exchange Management Act 1999 11. Indian Stamp Act 1899 12. Code of Civil Procedure 1908 13. Banker’s book Evidence Act 1891 14. Information Technology Act 2000 15. Right to Information Act 2005 16. Recovery of Debt Due to Banks And Financial Institutions Act 1993 (DRT Act)
17. Securitisation & Reconstruction of Financial Assets and Enforcement of Security
interest Act 2002 (SARFAESI Act 2002)
According to Sec 26 of N. . Where a guardian has been appointed by court (for minor’s person or property or both) . a minor can draw.A minor may be appointed as an agent to act on behalf of his principal but legally he cannot be held responsible. Bill will be valid and other parties will be liable in their respective capacities. A minor may appoint an agent.2 Indian Contract Act 1872 Who is competent to contract – Sec 11 Every person is competent to contract who is of the age of majority according to the law to which he is subject and who is of sound mind and is not disqualified from contracting by any law to which he is a Subject A minor is a person who has not attained majority. A contract with a minor is void ab-initio (Right from inception) Contract with a minor is void but minor’s discharge on cheque having received money by him is valid. a minor is a person who has not completed 18 years of age.I. According to Sec 3 of Indian Majority Act 1875. the minor attains majority on completion of 21 years. Act. Minor & Agency: . endorse or negotiate a cheque or bill of exchange binding all parties except himself. Hence. Banks open deposit accounts in the name of the minor in his/ her single name provided he can read & write and is capable of understanding as to what he/she is doing.
Right of creditor to retain the possession of goods & securities owned by the debtor until the debt has been repaid. Within six months of minor attaining majority or his knowledge about admittance to the benefit of partnership whichever is later. When a minor falsely representing himself to be a major gets an advance from bank. . If he/she chooses to be a partner or fails to repudiate within six months of his/her attaining majority or knowledge. the said advance cannot be recovered by bank. Lien: . Minor has option to repudiate his liability as a partner.3 Minor & Partnership A minor cannot be a partner as per Sec 4 of Indian Partnership Act but can be admitted to the benefits of partnership as per Sec 30 of the Act.(Sec 170) Creditor’s right to retain goods/ securities for which dues have arisen & not for other dues. No right of sale of goods & securities.Sec 170 & Sec 171 of Indian Contract Act. This will enable banker to recover advance given to partnership firm from person or property of the then minor. he/she has to decide whether he/she wishes to be a partner. he/she is deemed to be a partner and his/her liabilities will be from the date he/she was admitted to the benefits of partnership. Advance given to minor with a guarantee by a major cannot be recovered legally either from the minor or from major guarantor as the contract with minor is void ab-initio. Particular Lien: . Minor is not liable for losses but only for sharing profits. The banker should therefore have partnership deed on record while granting an advance to a partnership firm wherein minor is admitted to the benefits of partnership & a banker should address a letter to minor on his attaining majority as to that he mentioning his having been admitted to the benefits off partnership & whether he would like to be a partner.
Shares for selling. Bankers. d) Given for safe custody e) Left in bank’s possession by mistake f) Given to bank to secure a loan but has not been granted loan.Right of creditor to retain possession of any goods/securities for general balance of payment. Guarantee: Defined in Sec 126 of Indian Contract Act 1872. fraud or concealment of material circumstances.g. “ A contract to perform the promise or discharge the liabilityof a third person in case of his default. Banker has right to lien against time-barred debts also a) In capacity of Banker b) Goods & services standing in the names of borrower c) Securities remaining in the possession of banker even after another loan has been repaid. Wharfingers. It should be for lawful consideration & should not be obtained by misrepresentation. . Attorneys of High Court & Policy Brokers have right of general lien. Implied Pledge: . Property must be obtained lawfully in the capacity of banker.4 General Lien: Sec 171:. Where Banker’s Right of general Lien cannot be exercised? a) Contract to contrary b) When borrower is Trustee or Agent c) Goods/Services entrusted for specific purpose e. Factors.” Guarantee can be specific or continuing.(Banker’s Lien) Right to sell after giving reasonable notice.
Under pledge. debt is to be discharged in ‘order of time’. In case of partnership firm guarantee signed by a single partner cannot bind the firm or other partners. Must be applied by creditor accordingly. the purpose when accomplished goods have to be returned by pledgee to pledgor. The delivery can be actual or constructive e. handing over key of godown or documents of title to goods Appropriation of Payment (Clayton’s Rule) Sec 59 to 61 of Indian Contract Act When a debtor has more than one debt with a creditor Sec 59:. to be applied in discharge of each debt proportionately. If debts are of equal standing. . creditor can apply the payment by debtor at his discretion to any lawful debt whether barred by law of limitation or not. Pledge: . Sec 61:. Sec 60:. upon a contract that they shall when the purpose is accomplished be returned or otherwise disposed off according to the directions of person delivering it. the ownership continues to remain with pledger whereas the possession is with pledgee.Sec 148 of Indian Contract Act A bailment is the delivery of goods by one person to another for some purpose.Sec 172 of Indian Contract Act Pledge is bailment of goods as security for payment of a debt or performance of promise for some purpose under contract. Bailment: . Guarantor’s liability is co-extensive with that of the borrower.g.When neither the debtor or the creditor is making choice about appropriation of payment made by debtor. There should be delivery of goods by pledger to pledgee with intention of creating security. if the business of the partnership firm is not to give guarantee.If debtor does not make the choice.The debtor has the first right for deciding about payment by him to be applied to which debt by creditor.5 Persons other than minors insane or insolvent can give a valid guarantee.
Registration of partnership firm is not compulsory. Implied Powers of Partners Sec 19(1) Act of the partner binds the firm and other partners. Partner is an agent of the firm for the purpose of business of the firm. Non registered firm cannot sue & also cannot sue intense. Partner must sign for and on behalf of the .Partnership is relationship between two or more persons who agree to share profits of business carried on by all or any of them. Firm can sue others.(Sec 69) Not mandatory – Regd. Sec 11 of Companies Act – No. of partners Banking Business – 10 (Maximum) Other than Banking – 20 (Maximum) Registration of Firm: .6 Indian Partnership Act – 1932 Sec 4:.
b) Opening bank a/c in his own name for business of firm. g) Transfer immovable property belonging to firm. . When Implied Authority cannot be exercised? Sec 19(2) a) Submission of dispute to arbitration. For giving guarantee. f) Acquire immovable property on behalf of the firm. all partners should sign unless giving guarantee is the business of the firm. c) Compromise or relinquish any claim or portion of claim by the firm. d) Withdrawal of suit filed by firm e) Admit liability in a suit against firm.7 firm to bind the firm and other partners. Dissolution of Partnership Firm:a) By mutual consent b) Death. h) Enter into partnership on behalf of the firm. insolvency or retirement of a partner c) By operation of law – business becoming unlawful or by competent court d) Automatic dissolution – Partnership for specific time.
dock warrant.8 The Sale of Goods Act – 1930 Documents of Title to Goods Documents of title to goods include a bill of lading. warehouse – keeper’s certificate. in return for the delivery of goods named in the document. Wharfinger certificate. The definition uses the word ‘includes’ Hence. is merely illustrative or inclusive but not exhaustive.Document issued by the Railway Company which is to be handed over at the destination of goods. railway receipt. warrant or order for the delivery of goods & any other document used in the ordinary course of business as proof of the possession or control of goods or authorizing the possessor of the document to transfer or receive goods thereby represented. Railway Receipt: . .
signed by the person who contracts to carry them stating the terms on which the goods were delivered to and received by the ship.Document issued by a dock or Wharf owner setting out the detailed measurements (or weight) of a specific parcel of goods & declaring or certifying that goods are held to the order of the person named therein.Registration of Charges with Registrar of Companies 1) Movable property – Not being pledge 2) Immovable property 3) Charge on Book-debts 4) Uncalled share capital 5) Securing any issue of debenture 6) Calls made but not paid 7) On a ship or share in a ship 8) Floating charge including stock-in trade . Dock-Warrant:. The Companies Act 1956 Sec 125:.A receipt for goods shipped on board a ship.9 Bill of Lading:. A Wharfinger’s Certificate or a warehouse keeper’s Certificate:Document (in nature of warrant) stating that certain goods specified in certificate are in his warehouse.
co. short term credits. discounting of bills. No such restrictions for private Ltd. The modification or satisfaction of charge is also required to be registered within -30.No public limited Co. trademark.months.days of its creation. patent. copyright etc. unless it is subsidiary of public Ltd.days Borrowing Powers of the Company Sec 292:. co. The charge is required to be registered within -30.10 9) On goodwill.Resolution is required to be passed for borrowing Sec 293(1)(d):. can borrow in aggregate (money borrowed & proposed to be borrowed) in excess of its own paid-up capital + Capital Reserves (Reserves not set apart for any specific reserves) except under authority of a resolution passed by shareholders in a general meeting. Aggregate of borrowings excludes temporary advances (Repayable within -6. which is a subsidiary of a public limited Co. or private limited Co. .
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