Legal Aspects of Banking

The Banking Regulation Act 1949 Sec 5 Sec 6 Sec 19 Sec 20 Sec 23 Sec 24 Sec 45 Z Sec 45 ZA to ZF Defines Banking Various forms of Business which a Bank can transact Restrictions regarding advances against shares No advance can be granted by a Bank against its own shares as it will amount to a reduction in its capital RBI,s permission needed for opening new branches Maintenance of SLR maximum 40% minimum percentage abolished Return of paid cheques to customer Nomination facility - deposit accounts, safe deposit articles and lockers

Sec 11

The Compainies Act 1956 No partnership/association can be formed with more than 20 partners , in case of banking firms the number shall not exceed 10 The Indian Contract Act 1872

Sec 11 Sec 42 Sec 43 Sec 59 to 61 Sec 72 Sec 124 Sec 126 Sec 131 Sec 133 Sec 134

Minor cannot enter into a contract In a joint promise, all the promissors are liable both jointly and severely Any or more joint promissors may be compelled to perform the whole of the promise Appropriation of payments when several debts are owned (Clayton's rule) Payment made by mistake or under coercion must be returned Indemnity defined Guarantee defined Death of a surety revokes the continuing guarantee for future transaction Any charge in the contract , without surety's consent, discharges the surety Surety is not liable if principal debtor is released from liability, by any act or omission of the creditor Bailment/pledge Bailment defined Bailee to take reasonable care of goods bailed to him Bailee is not liable for loss, destruction/deterioration of things bailed, if he has excercised the standard of care as defined in Sec 151 Pledge defined Pledgee can retain the goods till he receives the payment of his dues. Agency Agent and principal defined Death /insolvency/insanity of the debtor terminates agency Agency coupled with interest The Negotiable Instruments Act 1881

Sec 148 Sec 151 Sec 152 Sec 172 Sec 173 Sec 182 Sec 201 Sec 202

Sec 3 Sec 6 Sec 10 Ssec 15

The act is valid throughout India including Jammu and Kashmir and Sikkim Defines a cheque Payment in due course: Paying banker's protection available only if payment is made in due course Endorsement should be in free running handwriting and not block letters, also it should tally, letter to letter with the name of the payee in the cheque Compiled by: Mr. Kumar Vikram, Assistant, RCPC, Bhagalpur
(Page 1)

Sec 18 Sec 26 Sec 85 A Sec 87 Sec 123 Sec 124 Sec 126 Sec 127 Sec 128 Sec 129

When there is a difference in amount between the words and figures, the amount in words is to be treated as the amount ordered by the drawer to pay A minor can draw, endorse and accept a negotiable instrument so as to bind all parties except himself Protection to paying banker in case of Bank drafts Material alteration of N.I. renders it void. General Crossing Special crossing Crossed cheques to be paid through a bank only A cheque specially crossed to a bank should be paid only to that bank Payment in due course of crossed cheque The paying banker is liable to the true owner for any loss if the payment is not made in due course The Reserve Bank of India Act

Sec 31 Sec 42 Sec 42(1) Sec 45

No demand draft payable to bearer can be issued Scheduled/non-scheduled banks defined CRR to be maintained by scheduled bank with RBI only SBI/Associate banks of SBI/Nationalised banks can conduct govt business as agent of RBI The Income Tax Act

Sec 194

Tax deducted at source The Partnership Act 1932 A partner is an agent of the firm for the purposes of the business of the firm, Each partner is an agent of other partners Death, insolvency etc of a partner dissolves the partnership Registration of partnership is optional The State Bank of India Act 1955

Sec 18 Sec 42 Sec 58

Sec 32 Sec 33 Sec 34 b) Sec 44

SBI to conduct Government-Business as agent of RBI SBI can transact/carry on all banking business detailed in Sec 6 Br Act The bank shall not lend against its own shares Every employee shall execute an undertaking of fidelity and secrecy The Transfer of Property Act

Sec 3 Sec 58 (a) Sec 58 (f) Sec 100 Sec 105

Actionable claim defined Mortgage defined Equitable mortgage Charge on immovable property Lease defined

Compiled by: Mr. Kumar Vikram, Assistant, RCPC, Bhagalpur

(Page 2)