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1 Quick Success Series Remittance & Collection

QUICK SUCCESS
SERIES


LEGAL ASPECTS
OF BANKING
Updated By
Rakesh Roshan
Manager Training,
SBLC Deoghar
Mobile-9162370185
Email-r.roshan@sbi.co.in
Updated as on
31
th
January 2014
QUICK SUCCESS SERIES was envisioned by Sri
Shailesh Kumar & Sri Rajeev Shankar (who
were Faculty at SBLC Deoghar) and they
converted their dream into reality, they did
not really knew that time that QSS will become
so popular and SBLC Deoghar will receive
overwhelming demand for its updated version
year after year from various parts of the
country. A special thanks to both of them for
conceiving QSS.

One of the hall marks of excellence is that any
product remains constantly in demand and
over years, the demand grows. Team Deoghar
is humbled by the response and recognition; it
has received from various users of QSS. Our
sincere thanks to our readers. Your
expectations will keep us live and kicking.

I take pride in representing a Team comprising
of Sri Shiv Prakash Jha, Chief Manager
(Training), Sri Champak Das, Manager
(Training) Sri Rakesh Roshan, Manager
(Training) & Sri Abhay Kumar, Manager
(Training), who have owned up QSS like their
own baby and are constantly contributing
towards value addition and keeping it relevant
and up to date for the users.

We hope that this edition too will be equally
useful for various readers. We request our
readers to point out any lapses at the earliest,
though we have taken adequate care to be as
correct as possible. This book is however not a
substitute for circular instructions issued by
the Bank from time to time. Soft copy of this
edition is available on our SBLC Deoghar site at
SBI TIMES.

Our Team wishes you grand success in all your
endeavours.
S P Singh
Assistant General Manager,
State Bank Learning Centre,
Deoghar- 814112
Phone- 06432-232895
Fax - 06432-231810
E-mail: agmstc.deoghar@sbi.co.in

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RIGHT TO INFORMATION ACT (2005)
The CPIO has to provide information or reject the same within 30 days. If not provided within
30 days, the request is considered to have been rejected. If delayed it should be provided free of charge.
If there are concerns of life and liberty of a person, it should be provided within 48 hours. A fee of Rs
10/- (draft, Bankers cheque, cash receipt) should be submitted along with the application form. People
below poverty line need not pay the fee.
An appeal can be filed with an officer who is senior in rank of CPIO. A second appeal can be filed
with CIC (Central Information Commission) within 90 days, if not satisfied with the decision of the
appellate authority. Appeal to be disposed of within 90 days; and in any case within 45 days.
The CIC can impose penalty of Rs 250/- for each day till the information is provided subject to a
maximum of Rs 25000/- on the CPIO/ACPIO.

RTI structure at the circles (e-cir no- 813 dt. 14/12/2011)


NEGOTIABLE INSTRUMENT ACT, 1881
Sec 4 - Defines a promissory note
Sec 5 - Defines bill of exchange
Sec 6 - Cheque
Sec 8 - Holder
Sec 9 - Holder in due course
Sec 10 - Payment in due course
Sec 15 - Endorsement
Sec 18 - If the amount undertaken or ordered to be paid is stated differently in words and
figures, the amount in words shall be the amount undertaken or ordered to be paid.
Sec 20- An inchoate instrument is one which is signed and stamped as required by law, but
which has not been completely filled by the maker.
Sec 26- A minor may draw, indorse, deliver and negotiate such instruments so as to bind all
parties except himself.
Sec 87- Material alteration of negotiable instrument renders the same void.
Sec 99 - Noting
Sec 100 - Protest
Sec 131 - Protection to the collecting banker
Sec 138 to 142 - New Secs 138-142 added in 1988, detailing penalties for bouncing of cheques
due to insufficiency of funds.
# If a cheque in discharge of a liability is returned by the bank unpaid, due to insufficient funds,
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such person shall be deemed to have committed an offence and shall, be punished with
imprisonment for a term which may extend to two years, or with fine which may extend to twice
the amount of the cheque, or with both.

INDIAN CONTRACT ACT 1872
Sec 11 Minor cannot enter into a contract
Sec 59 to 61 - Claytons Rule (Appropriation of payments when several debts are owed)
Sec 124 - Indemnity
Sec 126 - Guarantee
Sec 148 to 176 Bailment/ Pledge
Sec 171 - Lien
Sec 172 Pledge
Sec 182 Agent and Principal

LIMITATION ACT 1963
Sec 4 If prescribe period expires when the court is closed, suit may be filed on the next day
when the court reopens
Sec 18 - Revival/acknowledgement of debt
Sec 19 Payment/deposit of any amount by the borrower himself by a signed voucher extends
limitation period further by 3 years

SBI ACT 1955
Sec 32 Act as agent of RBI
Sec 34 1 (b) Cannot lend against its own share
Sec 39 Balance Sheet to be prepared as at 31
st
March

TRANSFER OF PROPERTY ACT
Sec 58( a to f ) Mortgage (EM) defined
Sec 100 Registration of charge ( in case of companies) (not defined in companies act)
Sec 105 - Lease


PARTNERSHIP ACT 1932
Sec 25 Joint and several liability of partners
Sec 30 A minor can be admitted to the benefits of a partnership but cannot become a partner.
Sec 42 - Death, insolvency of a partner dissolves the partnership
Sec 69 A registered firm can file a suit against others to enforce rights arising from a contract
but an unregistered firm cannot. The creditors of an unregistered firm can file a suit against the
firm

RBI ACT 1934
Sec 28 - Note refund rules
Sec 42 Schedule/Non-Schedule banks defined.
Sec 42(1&6) CRR to be maintained with RBI and it is fixed on market situations
Sec 45 Nationalised banks can conduct Govt. business as agent of RBI
Sec 49 Bank rate
[ A bearer draft cannot be issued ( sec 31). A fine up to the amount of the bearer draft issued
may be imposed on the bank ( sec 58 B ) ]
Sec 24- RBI issues all currency notes for denomination 2,5,10,20,50,100,500,1000,5000,10000.
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It has the power to direct discontinuation or non-issue of currency notes of any denomination.

BANKING REGULATION ACT 1949
Sec 6 Forms of business a bank can transact
Sec 11 Min paid up capital and reserves
Sec 19 Restrictions regarding advances against shares
Sec 20 Bank cannot grant loan against its own shares as it will amount to a reduction in its
capital
Sec 24 SLR maintenance
Sec 29 Publication of balance sheet every year
Sec 35 Inspection of branches by RBI
Sec 35A Ombudsman appointed
Sec 45ZA to ZF Nomination facility

THE COMPANIES ACT 1956
Sec 11 Max partners would be 20 in a partnership firm, in the case of banking firms, the
number shall not exceed 10
Sec 125 Charges to be filed with the Registrar of companies within 30 days from the date of
creation.
Sec 292 A resolution must be passed at a meeting by the board of directors for borrowing from
banks

CONSUMER PROTECTION ACT (COPRA) 1986
District Forum
3 members
Term is 5 years
Claims up to Rs 20 lac
Appeal against it can be filed within 30 days
State Commission
3 members
Claims > Rs 20 lac up to Rs 100 lac
Appeal will be allowed if deposit is made 50% amount ordered by district forum or
Rs Rs 25000/- whichever is less
National Commission
5 members
Claims > Rs 100 lac
Appeal will be allowed if deposit is made 50% amount ordered by State Commission
or Rs Rs 35000/- whichever is less

INCOME TAX ACT
Sec 194 TDS (Tax Deducted at Source)
Sec 269 - If the aggregate of principal of a term deposit and interest is Rs 20000/- or more then
payment should not be made in cash.
Sec 271 If violated Sec 269, the official responsible has to pay the penalty up to the amount of
Term Deposit



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IMPORTANT POINTS RELATED TO LEGAL ASPECTS

Bankers Books Evidence Act came into existence in year 1891.
Bankers books include ledgers, day books, cash books, micro films, magnetic tapes etc.
Certified copy means a copy of any entry in the books of a bank together with a certificate that it is
true copy of the original entry.
Banking Regulation Act came into existence in year 1949
A bank should transfer not less than 25% of its profit to the reserve fund before declaring dividend.
No advance can be granted by a bank against its own shares, as it will amount to a reduction of its
capital.
Maintenance of SLR: max 40%
A bank has to maintain at least 75% of banks DTL in India.
Annual return to be sent to RBI in respect of unclaimed deposits outstanding for 10 years.
Every scheduled commercial banks has to publish its B/S & P&L A/c as on 31.03 latest by June 30
th

of every year.
RBI can carry out inspection of any bank under Sec 35 of Banking Regulation Act.
Return of paid cheques to customers mentioned in Sec 45Z and Nomination facility in Deposit
accounts, Safe Deposit articles and Lockers are mentioned in Sec 45ZA to ZF of Banking Regulation
Act.
Garnishee order is issued under Civil Procedure code (1908) act
The Companies Act came into existence in 1956 year.
Max no. of partners in a partnership firm is 20 and in the case of banking firms, the number shall not
exceed 10.
Charges to be filed with the Registrar of companies within 30 days from the date of creation.
Ombudsman appointed under sec 35A of Banking Regulation Act.
A complaint under Consumer Protection Act can be filed within 2 years from the date on which the
cause of action has arisen.
Criminals Procedure Code came into existence in 1973 year.
Claytons Rule defines Appropriation of payments when several debts are owned. (under sec 59 to
61 of Indian Contract Act)
Quasi Contracts means Loans to minors to meet necessaries of life are binding on the minors
estate.
Indemnity / Guarantee are defined in Indian Contract Act
The Negotiable Instrument Act came in to existence in 1881.
When the same person is the drawer and the drawee of an instrument, the holder can treat the
instrument as Bill of exchange or Promissory note ( e.g. Bankers cheque)
Incohate instruments means incomplete instruments and some details would have been left
blank.
If no rate of interest is mentioned in the Promissory note intt @ 18% p.a is to be paid.
Dishonour of cheques are defined in sec 138 to 142 of NI Act.
On the dishonour of a cheque the payee must give a notice to the drawer within 30 days days of the
receipt of information from the bank.
Scheduled Banks defined as The names of banks with capital and reserves of Rs 5 lakhs and above
will be included in the II schedule to the Act ( S 42)
CRR defined in sec 42 and Bank Rate defined in sec 49 of RBI ACT.
If the aggregate of principal of a term deposit and interest is Rs 20000/- or more then payment
should not be made in cash.
Partnership Act came into existence in the year 1932..
A minor can be admitted to the benefits of a partnership. (But he cannot become a partner; also
documents will be signed by the guardian on minors behalf).
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A registered partnership firm can sue third parties to enforce rights arising from a contract. An
unregistered firm cannot; the creditors of an unregistered firm can sue the firm.
Mortgage and lease are defined in Transfer of Property Act
Letter of administration is required for settlement of deposit a/c if a person died without executing
a will?
Issue of probate of a will is governed by Indian Succession Act
Branch Manager or Principal Accountant has to attest the xerox copies of paid cheques /
instruments that are produced as evidence in the proceedings of a criminal case?
A Bankers lien is governed by Indian Contract Act.
Section 25 of the Payment and Settlement Systems Act, 2007 accords the same rights and remedies
to the payee (beneficiary) against dishonour of electronic funds transfer instructions under
insufficiency of funds as available under Section 138 of the Negotiable Instruments Act, 1881. It is
imperative for the banks to obtain a couple of CTS- 2010 compliant Cheques from Customers as
Security Cheques in addition to the ECS Mandate. Taking into account the operational concerns
expressed by IBA, RBI has now permitted banks to take a few additional cheques (in CTS-2010
standard format) as security.(e-cir:1114/2013-14 dt:09/01/2014)
Credit Information Companies (Regulations) Act, 2005(CIC Act) and the Rules and Regulations
framed there under have come into force with effect from December 14, 2006. Section 17 of the
CIC (Regulations)Act, 2005 provides for collection (from members) and furnishing (to specified users)
of credit information by Credit Information Companies . The CIC Act provides statutory backing for
sharing of credit information by Credit Institutions with Credit Information Companies subject to
conditions stipulated therein. Therefore with CIC Act coming into force, the consent clause has
become redundant and hence the consent of the borrower prescribed vide Annexure- I & II of
Circular No. CPP/CKG/CIR/40 dated 13.11.2002, need not be insisted upon now. (e-cir:461/2013-14
dt:03/08/2013)
Since the Govt. of India has directed the Bank to establish Facilitation centers to help less conversant
bidders, who intend to participate in e-auction under SARFAESI / DRT. The branches, which conduct
e-auction under SARFAESI / DRT, should make arrangements for Facilitation Center to provide all
information about the process of e-auction and facilitate the bidders to bid in the e -auction in a
transparent manner.(e-cir:544/2013-14 dt:24/08/2013)
Guidelines on KYC/AML/CFT measures are issued by Reserve Bank of India under Section 35A of the
Banking Regulation Act, 1949 and Rule 7 of Prevention of Money- Laundering (Maintenance of
Records) Rules, 2005.
As per Rule 114B it is compulsory to quote PAN in all documents pertaining to financial transactions
notified from time to time by CBDT.
Person who were not allotted the PAN are to make a declaration in form No. 60/61, giving therein
the particulars of such transactions. Person with agricultural income and those who are not in
receipt of any income chargeable to tax, have to make a declaration in Form No.61.
RBI has permitted Banks to formulate a scheme for providing services at the premises of a customer
(Doorstep banking) under section 23 of Banking Regulation act 1949.
SARFAESI-2002 Act came into force from 21
st
August 2002.Under the act a secured creditor shall
have the following powers:-(i) To take possession, sell or lease the secured assets (both movable and
immovable assets, (ii) To take over the management of the business of the borrower, (iii) To appoint
a manager, (iv) To recover any money payable by third parties to the borrower, (v) In case a joint
financing under consortium or multiple lending arrangement, if 75% of the secured creditors in value
agree to initiate recovery actions, the same shall be binding on all the secured creditors.
Minutes of the Board meetings and the memoranda are commercial confidence for the Bank and are
exempted from disclosure in terms of Section 8(1)(d) of the RTI Act, 2005. (e-cir:899/2013-14
dt:07/09/2013)
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The Mental Health Act, 1987 provides for a law relating to the treatment and care of mentally ill
persons and to make better provision with respect to their property and affairs.
According to the said Act, Mentally ill person means a person who is in need of treatment by
reason of any mental disorder other than mental retardation. Sections 53 and 54 of this Act provide
for the appointment of guardians for mentally ill persons and in certain cases, managers in respect
of their property. The prescribed appointing authorities are the district courts and collectors of
districts under the Mental Health Act, 1987. (e-cir:1188/2013-14 dt:23/01/2014)