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Partnership Accounts

• A Partnership firm is an association of
 2 or more persons called partners who
undertake a venture for mutual
benefit.
• The Indian Partnership Act, 1932 defines
partnership as the “relation between the
persons who have agreed to share the
profits of a business carried on by all or
any of them acting for all of them” .

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Banker’s Duty – Partnership A/c
Precautions to be taken by a banker :

Opening of an Account The banker can open an account in the name
of the firm only on the receipt of written
application from anyone or more partners
 The banker should obtain a letter called
“partnership letter” duly signed by all the
partners stating the :
 name and address of all the partners
 nature of the firm’s business, etc.
 He should take a copy of duly stamped
Partnership Deed and study its objectives,
capital, borrowing powers etc.
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Banker’s Duty – Partnership A/c
Precautions to be taken by a banker :

Personal Account and a Firm’s Account Usually a banker has a personal account of a
partner side by side with the partnership
account.
 Banker should not mix one account with
another and has no right of set-off and lien
against each other
 Cheque payable to partnership firm must not
be accepted for collection to the private a/c of
the partner w.o. enquiry or consent of all
 The bank can transfer the funds from the
personal a/c of the partner to the partnership
a/c by his consent but not reverse.
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Banker’s Duty – Partnership A/c
Precautions to be taken by a banker :

Mandate:
 Banker should ask for a Mandate duly
signed by all the partners.
 Mandate contains information as to:
 The name of one or (advisably) two
partners who are authorized to operate
firm’s account
 The extent of authority given such as the:
 powers to draw, endorse and accept bills
 mortgage and sell properties of the firm

(Deed of Mortgage must be signed by all the
partners, only then all would be liable)

 right to overdraw etc.

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Banker’s Duty – Partnership A/c
Precautions to be taken by a banker :

Mandate:
 The authority to operate the account can be
withdrawn by any of the partners by giving a
notice to the banker.
 A partner authorized to operate the account
cannot delegate his authority to another
person without the consent of all the other
partners in writing.

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he should examine the position of the firms account & the nature of securities. the banker should immediately close the a/c and open a new a/c. the retiring partner will continue to be liable for the advances made after his retirement.  If the partnership a/c shows a debit balance and if the retiring partner is to be made liable.Banker’s Duty – Partnership A/c Precautions to be taken by a banker : Retirement of a Partner:  When the banker receives a notice of retirement from the retiring partner.  If no notice is served. 6 .

the banker should immediately close the a/c and open a new a/c to make the deceased partner liable for his share. 7 .  If the a/c shows a debit balance.Banker’s Duty – Partnership A/c Precautions to be taken by a banker : The Death of a Partner:  The death of a partner may or may not dissolve the partnership firm.  If the a/c shows a credit balance. the existing partners may continue to operate the a/c.

2. No partner can bind his co-partners by giving a guarantee on behalf of the firm.Banker’s Duty – Partnership A/c Precautions to be taken by a banker : 1. It is advisable for the banker to get a written consent of all the partners of the firm before granting any loan to the firm. 8 .

It is recognized as separate entity different from the members who constitute it. It has to act through human agents.invisible. It has a common seal. it cannot act by itself. It can sue others and can be sued.Joint Stock Companies      Definition: A joint stock company has been defined as an artificial person . As it is an artificial creation. 9 . intangible & created by law.

10 .  The banker asks the secretary to fill up the prescribed application form and submit it along with the certified copy of the resolution duly signed by the Chairman and countersigned by the secretary. They pass a resolution authorising the secretary to open an account.Banker’s Duty – Joint Stock Company A/c Precautions to be taken by a banker : Opening of an Account The first step is taken by the Board of directors.

P&L account. capital.Banker’s Duty – Joint Stock Company A/c Precautions to be taken by a banker : Opening of an Account.  Obtain the copy of the Prospectus of the company . certificate of Commencement of Business.Scrutiny by banker  Certificate of Incorporation which is a proof of the legal existence of company  Obtain latest copy of MoA and AoA that has:  Name of the company and address of the registered office  Name of the Directors and their addresses  Nature of the firm’s business. its objectives. 11 . recent balance sheet . borrowing powers etc.

Banker’s Duty – Joint Stock Company A/c Precautions to be taken by a banker : Mandate:  Banker should ask for a Mandate from the company.  Mandate contains information as to:  The name of persons who are authorized to operate the account and their specimen signatures  The extent of authority given such as the:  powers to draw.  Any change in the operation should be done 12 by a fresh resolution and fresh mandate . endorse and accept bills  Securities and Safe Custodies etc.

 A partner authorized to operate the account cannot delegate his authority to another person without the consent of all the other partners in writing.Banker’s Duty – Joint Stock Company A/c Precautions to be taken by a banker : Mandate:  The authority to operate the account can be withdrawn by any of the partners by giving a notice to the banker. 13 .

proper enquiry 14 .o.Banker’s Duty – Joint Stock Company A/c Precautions to be taken by a banker : Director’s Personal A/c and Company A/c  If a banker has a personal account of the authorized director side by side with the company’s account :  Banker should not mix one account with another and has no right of set-off and lien against each other  Cheque payable to the company must not be accepted for collection to the private a/c of the director w.

the company will not be liable. the borrowings should not exceed the aggregate paid-up capital and free reserves.Banker’s Duty – Joint Stock Company A/c Precautions to be taken by a banker : Borrowing Powers:  Every company has an implied power to borrow and mortgage its property.  If the borrowing is ultra-vires and not ratified.  The banker should obtain a certificate from the Chairman of the BoD that the advances are within the prescribed limit. 15 . The AoA also puts a limit on the borrowing powers. As per the Companies Act-1956.

16 .Banker’s Duty – Joint Stock Company A/c Precautions to be taken by a banker : Registration of charges:  Banker must find out the whether there is any prior charge over the assets on which he wants to create a charge. He needs to inspect the Register of Mortgages and Charges at the office of Registrar of Joint Stock companies.  Non-registration will affect the security of the bank in the event of liquidation and/ or claim by another creditor whose charge is registered on the same property. he should immediately register it.  When the banker creates a charge.

t.r.  The Banker is advised to stop the operation of the accounts and wait for the information on presentation of petition by the liquidator.Banker’s Duty – Joint Stock Company A/c Precautions to be taken by a banker : Winding up of the Company:  Once a resolution is passed w. he must act according to the instructions of the liquidator.e. liquidation. winding up i. the borrowing powers of the directors and the officers cease. Thereafter. 17 .

Administrators or Trustees Executor: Is a person to whom the execution of a will is entrusted by the maker of the will. Administrator: If the person named in the will refuses to act (executor) or if a person dies without any will. The certified copy of the final will is called Probate and is granted only to an executor. 18 .Executors. Trustee: Is a person in whose care the control of an estate/ property is placed under an instrument of trust called Trust Deed. then the court will appoint a person called Administrator and issue an order called Letter of Administration.

the banker should seek clear instructions about the powers of each of them.  The Executors and Trustees cannot delegate their powers to an outsider.Banker’s Duty Executors. Letter of Administration or the Trust Deed. Administrators or Trustees Precautions to be taken by a banker : Opening of an Account The banker must take a certified copy and go through the Probate. Operating of an Account In case there are 2 or more Executors/ Trustees. Executors can delegate their powers to another executor but 19 Trustees cannot do so. .

all must sign the documents. . Administrators or Trustees Precautions to be taken by a banker : Operating of an Account In the case of Joint Executors.  In the case of Joint Trustees.Banker’s Duty Executors. there is no change in the operation of account.  In the case of insolvency. any one can deal with the funds but in case of Joint Trustees. the banker should not assume that the continuing trustees possess full powers to deal with the 20 trust property. cheques etc. insanity or death of any one of the of Joint executors.

He is justified to dishonor a cheque drawn by a trustee. Administrators or Trustees Precautions to be taken by a banker : Operating of an Account Breach of Trust: A banker is liable to protect the interest of beneficiaries of Trust. 21 . if a breach of trust is intended.Banker’s Duty Executors.

Banker is advised to get the personal assets of executors/ trustees as security. They can borrow only in their personal capacity against their personal assets as security. 22 .Banker’s Duty Executors. creditors of the deceased have prior rights). banker must lend it against the assets of the deceased (however.  If they are authorized to borrow to discharge the debts of a deceased. Administrators or Trustees Precautions to be taken by a banker : Borrowing Power Trustees and Executors have no implied power to borrow.

Administrators or Trustees Precautions to be taken by a banker : Personal Account and Trust Account If a banker has a personal account of the Trustee / Executor side by side with the Trust account :  Banker should not mix one account with another and has no right of set-off and lien against each other  Cheque payable to the trust a/c must not be accepted for collection to the private a/c of the trustee.Banker’s Duty Executors. 23 .

Clubs.  The society.  Bankers should take all the precautions as 24 applicable in case of Joint stock co. .  In case of registered institutions. a club/ school/ institution/ association. The banker should see if these institutions are registered or not. must be registered under the Societies Registration Act or the Cooperative Societies Act. Societies & Associations  These are social institutions which are run to render service to the people at large. the banker can open the account in the name of the institution.

25 . account Marathalli Sports Club. Arun Kumar.  However.  Such an individual can be held responsible for any loans or overdraft. For eg. the banker may open the account in the name of an individual and designate it as a club account. the society will have no legal existence and will have no contracting powers. Societies & Associations  In the absence of registration.Clubs.  The banker will not be in a position to sue either the society or the individual members. Mr.

Joint Hindu Family/ Hindu Undivided Family  It is an undivided family which comprises of all male members. 26 .  A business carried by HUF is governed by the provisions of Hindu Law. possesses ancestral property & carries on family business. descended from a common ancestor.  A “JHF/ HUF” is a family which consists of more than one member.  The senior male member is called “Karta” & other male members as “coparceners ”.

 A banker should know the laws and customs relating to succession and transfer of rights. whereas coparceners have limited liability to the extent of share in JHF.Joint Hindu Family/ Hindu Undivided Family  Karta manages the whole business of the family & his liability is unlimited. 27 .

 The name in which JHF a/c is to be opened has to be ascertained & banker should know who will operate the a/c.  The banker should get a declaration from the Karta along with the specimen signatures of all coparceners. only karta is allowed to operate the a/c.28 . In the absence of this.Banker’s Duty Joint Hindu Family / HUF Precautions to be taken by banker in dealing with JHF a/c : Opening of A/c  The banker must get complete information about the JHF including the names of major & minor coparceners.

 While making advance .Banker’s Duty Joint Hindu Family / HUF Precautions to be taken by banker in dealing with JHF a/c : Operating the A/c  The Karta has the implied power to mortgage & pledge the property of JHF for raising loan or discharge ancestral debts.the banker should ascertain the purpose of the loan & if it is required by the JHF for business then banker should take signatures of all coparceners. the JHF & the coparceners are not held responsible.  If the advance is made for the personal use of Karta or for speculative purposes. 29 .

Banker’s Duty Joint Hindu Family / HUF Precautions to be taken by banker in dealing with JHF a/c : Operating the A/c  If a new business is started by the Karta in a JHF . as it is deemed to be JHF business.then coparceners are liable for such debts. 30 .

JOINT ACCOUNT 31 . father & son etc.JOINT ACCOUNT • Opened by two or more persons jointly such as husband & wife.

B then A)  Jointly (Both A and B)  Banker should get a clear Mandate as to:  The nature and extent of authority 32 . B.Banker’s Duty – Joint A/c Precautions to be taken by a banker :  The application form should be signed by all who wish to open an account.  Options given under ‘Mode of Operation’ are:  Former or Survivor (A only. A then B)  Either or Survivor (A / B. Mandate:  Banker should ask for a clear Mandate in writing with specific instructions on the operations of Joint A/c. A then B or B then A)  Any One or Survivor (A. A then B .

33 .JOINT ACCOUNT Withdrawals : • The banker should obtain clear instruction from the account holders regarding withdrawal of money or drawing of cheque. The application form usually give the option of withdrawal clauses such as : • Either or Survivor / Former or Survivor • All to sign etc.

• If the banker provides any advance or loan or overdraft to the joint account. Banker should not accommodate if a joint request signed by all is not submitted. • Power to Overdraw: involves right to overdraw and withdraw the articles under safe custody.e. signed by all. joint liability as well as separate individual liability. 34 . the banker should establish ‘ joint and several liability’ i.JOINT ACCOUNT Borrowing Power: • All the joint account holders must make a joint demand.

 He should act according to the instructions of the solvent person/ sane person along with the Official receiver (court representative).JOINT ACCOUNT Insolvency / Insanity of a Joint account holder:  The authority given to one or more to operate the account automatically ceases when the authoriser becomes insane/ insolvent.  The rule of survivorship is not applicable in the case of insolvency/ insanity.  Banker should stop the operation of the account. 35 .

JOINT ACCOUNT Death of a Joint A/c Holder/ Rule of Survivorship:  The authority obtained by the banker should also contain the provision relating to the payment of amount held in the joint a/c when one of the joint a/c holder dies. 36 .  The options are:  Survivor shall have full control over the joint a/c then and thereafter OR  A nominee may be appointed by the a/c holders which may be entitled to the amount in the event of the death of a joint a/c holder.

37 . then the court decides the matter by understanding the intention of the parties – Protection of Wife or Convenience of account holders. • In the absence of any such instruction..JOINT ACCOUNT Joint accounts of husband and wife: • The doctrine of Survivorship becomes difficult to apply. Either or Survivor etc. • However. in case of a Joint a/c of husband & wife. if a legal representative of the deceased interfere. if the banker do not have the clear instruction of Former or Survivor. the banker can pay the amount to the widow.

then the intention is to provide for the protection of wife. on the death of husband. 38 . then the intention is convenience of a/c holders. the doctrine of survivorship is not applicable. • If both husband and wife operate the account. The amount is transferred to the estate of the deceased husband and not to the widow. In this case.JOINT ACCOUNT Joint accounts of husband and wife: • If only husband operates the account. In this case. on the death of husband the amount goes to wife.

he should find out whether the customer is a resident or a non resident.  A Non-resident foreign citizen of Indian origin are also treated on par with NRI citizens except citizens of Nepal and Bhutan.Non Resident Account  Whenever a banker opens an account of a prospective customer. 39 .  Non Resident Indian is an Indian citizen who stays abroad for employment or business or vocation.

savings. shares and deposits of Indian companies  Investment in immovable property in India. term deposit a/cs  Investment in securities. current. 40 .Non Resident Account  NRIs are granted the following facilities:  Maintenance of Bank A/c in India  In rupees as well as foreign currency.

Non Resident Account  Only those Banks can open and maintain accounts in the name of NRIs who  Are authorized to (has acquired a license) to deal in foreign exchange OR  Are specifically permitted by RBI to maintain accounts of NRIs although not an authorized dealers. 41 .

Types of Non Resident Acco  NRE –  Non Resident External Rupee Accounts  NRO –  Non Resident Ordinary Rupee Accounts  FCNR Foreign Currency Non Resident Accounts 42 .

only 2 or more NRIs Indian Rupee US $. only 2 or more NRIs Cannot be held jointly with residents. Yen. Current. Joint Account Currency denomination Type of A/c Funds Credited Can be held jointly with residents Indian Rupee Cannot be held jointly with residents. Current. Savings. RD. FD RD.Types of Non Resident Acco NRO NRE FCNR Authority to Authorized dealers in foreign exchange. Euro Savings. Banks open account authorized to deal in foreign exchange or that has RBI approval for opening such accounts. FD Local funds which cannot be remitted abroad Remitted from abroad or local funds to be remitted abroad Term deposits (FD) only Remitted from abroad 43 . Pound.

Types of Non Resident Acco NRO Rate of Interest Same as in the case of domestic deposits NRE FCNR Fixed by the bank concerned Prevailing interest rates in international markets Repatriable Mostly Not repatriable with some exceptions Yes Yes Currency Conversion Market Rate Market Rate Market Rate Tax Implications No Tax concessions Interest Income exempted. No Gift tax Interest Income exempted. No Gift tax 44 .

er’s Duty – Non Resident Ac  Bank should be authorized to deal in foreign exchange or have got approval from RBI for opening such accounts.  Banker should find out whether the prospective customer is a resident or non-resident.  Be careful in opening such accounts as it involves foreign exchange regulations.  They are advised to go through the Exchange Control Manual and follow its 45 guidelines. .

payment of money on behalf of various govt. business. I and Vol. . transactions are governed 46 by the State Financial Handbook.  Central Govt. transactions are governed by the Treasury Rules and the Account Codes Vol.  Govt. depts. business transacted through banks relate to collection of taxes.nts of Government Departm  Government Department Accounts may be opened in banks for transacting the govt.  State Govt. II.

 The banks send the statement of transactions to the Government A/c Link Cell maintained in Bombay. there is a District Treasury headed by a Treasury Officer. This cell passes on the transaction to RBI. Treasury officer liases with the bank on behalf of the Govt. its associate Banks or authorised public sector banks. transactions are handled by SBI.  At the district level. and issues Cheques/47 . the banker to the GOI.nts of Government Departm  The Central & State Govt.

 Banker should not issue any duplicate copies for the lost challan. I and Vol. customs duty etc. as the case be. dues such as sales tax. Account Codes Vol. 48 . instead give a certificate.nts of Government Departm Banker’s Duty  Be well conversant with the treasury rules. . excise duty. banker should pay attention to the head of account to which the amount is to be credited.  While receiving Govt.  Banker should sign the challans that is returned to the depositor acknowledging the receipt and put initials on the other copies. II and State Financial Handbook.

payment of salaries to govt. dept. 49 . employees).  The banker should pay special attention to the drawing power of the officer concerned and his specimen signature. (eg. banker should see that the bill is in the prescribed format and duly stamped and signed by the concerned treasury.nts of Government Departm Banker’s Duty  For any payments by the govt.

Judges retired from Supreme Court and High Court 5. MPs/ MLAs/ MLCs 6. departments. 2. Defence pensioners retiring from defence services 4. Railway pensioners retired from railways 3. Employees retired from Central and State Govt.Payment of Pensions  Government gives pension after retirement to following categories of people: 1. 50 . Freedom Fighters  To receive pension. pensioners have to open savings bank a/c in any public sector banks.

51 .  Bankers make payment against the ‘Pension Payment Order’ that contains all the relevant information. after debiting the relevant head of accounts of the Govt. the bank credits the savings a/c of the pensioner with the pension amount.Payment of Pensions Banker’s Duty  Banker should open the account in the name of the pensioner alone – not a joint account.  On the last day of month.

If the pension is credited for 52 .  Upon the death of the pensioner.Payment of Pensions Banker’s Duty  The banker should insist that the pensioner collect the pension personally at least once every year to confirm that he is alive. the pension due to him until the date of death is calculated and credited to his account.  Banks also insist on documents like ‘Life Certificate’ from the pensioner periodically.