Legal Aspects of Opening & Operation of different types of A/C

Legal Aspects of Opening & Operation of different types of A/C

A bank opens accounts for various types of customers. While opening the accounts, the banker has to keep in mind the various legal aspects involved in opening and operation of these accounts, as also the practices followed in conducting these accounts. Normally the banks have to deal with the following types of deposit customers:

§  Individuals

§  Proprietorship Firms

§  Partnership Firms

§  Limited Companies

§  Clubs and Associations

§  Trusts

§  Executors and Administrators

§  Cooperative Societies

§  Government ,Local Bodies & Corporations Account etc.

Opening of Accounts:

As the banker-customer relationship is a contractual relationship, all the essential features of a valid contract must be present when a banker opens an account. The actual formalities will differ depending on the type of the customer. Certain formalities are common to all. These are:

1.      The banker must ensure that the customer is competent to contract.

2.      The banker should obtain an account opening form, which should be filled in all respects by the account holder.

3.      The banker should also obtain his specimen signature for verification in        future of his signature in cheques, etc., signed by him.

4.      After the formalities are over, the banker should issue a cheque book to the customer, indicating his account number. Customers can be supplied with Pay-in Slip books for making deposits.

5.      Recent KYC guidelines require the banker to obtain the photographs of the depositors/account holders, proof of identity like copy of passport / driving license / voter’s ID card / employment ID card / ward commissioner’s certificate / U.P chairman’s certificate and proof of residence like electricity / Telephone /  Municipal bills etc., and also transaction profile of the account holder.

Introduction:

The depositor should be properly introduced to the bank. At present, all accounts, whether current or savings have to be introduced. The purpose of the introduction is to identify the person for whom the account is being opened. Introduction also serves the purpose of obtaining legal protection under Section 131 of the N.I. Act, so that the banker is not liable for negligence while opening the account.

Usually banks accept introductions from the following categories of people:

§  An account holder with a satisfactory account;

§  A confirmed Officer/employee of the bank;

§  A locally well-known person;

§  Another bank – in this case the opening bank may again write directly to the introducing bank to confirm the introduction.   

Bankers may specifically ask for and obtain the period for which the customer is known to the introducer and also for the confirmation of the address of the customer. The clause generally may be worded as follows:

‘I know Mr./ Mrs.….. ………for…………years…. ……months. I confirm his/her identity and that he/she is engaged in the …. and is residing at the address given above.

However, in the case of respectable persons or persons who can identify themselves through ID cards, passports, etc., the manager can himself introduce the account.

The point to be noted here is that there is no legal responsibility on the part of the introducer if something goes wrong with the account in future.

Procedure for Introduction:

Normally, the introducer is expected to come to the bank to sign the account form. In case this is not possible and the introducer either sends a letter or the Account Opening Form signed by him, the bank, after verifying introducer’s signature also sends a letter of thanks to him for introducing the new customer. This serves to verify whether the introducer actually introduced the account. A letter of thanks is also sent to the depositor by post /courier service to verify his address.

Why Introduction / Identification?

Ø  Protection against fraud

Ø  Protection against inadvertent overdraft

Ø  Protection against undercharged  Bankrupt

Ø  Protection against negligence under sec. 131 of the N.I Act.

Ø  Protection against giving incorrect information to fellow bankers.

Every customer, when he opens the account and signs the AOF, is deemed to have read the rules of business and confirm in writing his willingness to comply with rules and be bound by them.

Accounts in the Name of Individuals:

The banker should ensure that the account is opened with cash and not with a cheque, draft payable by some other bank or branch. This is to ensure against the possibility of the very first cheque deposited being a stolen or forged cheque. If the bank collects such cheque or draft, it will not have the protection of Sec. 131 if the first deposit was not by way of cash, because the banker-customer relationship was not established.

Mandates:

A bank account holder has a primary right to operate upon his account maintained with the particular bank. No person other than the account holder can order the bank to debit his account (except a competent court).

A mandate is an authority given by the account holder in favor of a third person to do certain acts on his behalf. This is issued by an account holder with a direction to his banker authorizing the person to operate the account on his behalf.

ü  In case a customer wants his account to be operated by another person, a mandate in writing to that effect together with the specimen signature of the agent who is to operate the account should be obtained by the banker.

ü  Power to draw and endorse cheques does not include the power to overdraw the account. So, if a customer wishes to allow his agent to overdraw the account , the mandate should clearly state this.

ü  It is unstamped letter signed by the account holder addressed / submitted to the bank.

ü  The signature of the person so authorized should be appended in the letter of mandate and the same should be verified by the customer/account holder.

ü  A letter of mandate is generally issued for a short and temporary period.

ü  In case of joint account holders all the parties concerned must sign the letter of mandate irrespective of operational instructions.

ü  A mandate comes to an end, on death, insanity, insolvency and bankruptcy of the account holder.

ü  A mandate can be withdrawn at any time by the account holder.

ü  The instructions should be carefully noted in the ledger account of the account holder and also in the specimen signature card/sheet.

ü  The mandate letter should be properly filed and securely kept. There should be an updated index. 

Those who can open an Account

·         Every person who is competent to contract

·         Who is of sound mind

·         Who is not disqualified from contracting by any law.

·         Capable of understanding the contract and of forming a rational judgment as to its effects upon his interest.

·         Provided the bank is satisfied regarding the genuineness and is willing to establish banking relations.

What is Contract?

As per Section 2(h) of the Contract Act. 1872 ‘An agreement enforceable by law is contract.
Section 2(e) of the said act provides- ‘Every promise and every set of promises, forming the consideration for each other, is an agreement.

Combining two sections as mentioned earlier, we can safely opine that contract is an agreement between two or more parties which is supported by consideration and enforceable by law.

Essentials of Contract:

§  Lawful offer and acceptance

§  Intention to create legal relationship

§  Legal consideration

§  Capacity to contract

§  Free consent

§  Legality of object

§  Certainty ( no vagueness)

§  Possibility of performance

§  Oral/ written/ written and registered.

Majority Act-1875 provides:

Section 3(I) of the said Act provides-Every person domiciled in Bangladesh shall be deemed to have attained majority when he shall have completed the age of 18 years.

Section 3(ii) Majority Act-1875 provides:

If in case of a minor, domiciled in Bangladesh, before he has completed the age of 18 years, a guardian of his person or property or both , has been appointed by a court , or the superintendence of his property is assumed by a court of wards then he shall be deemed to have attained majority when he shall have completed the age of 21 years.

Section 12 contract-1872 provides:

§  A person is said to be of sound mind for the purpose of making a contract if, at the time when he makes it he is capable of understanding it and of forming a rational judgment as to its effect upon his interests.

§  A person who is usually of unsound mind, but occasionally of sound mind, may make a contract when he is of sound mind.

§  A person who is usually of sound mind, but occasionally of unsound mind, may not make a contract when he is of unsound mind.

§  In this connection it is noted that  minor, idiot, drunkard, lunatic, senile person, insolvent, delirious person etc. are not capable to contract and as such they can not open bank account.

Operation:

§  A special feature of banking business is that each and every transaction of money with the customer is supported by a separate slip or document.

§  A customer is, therefore, required to make use of

a)      Pay-in-slip for depositing money, and

b)      cheques for withdrawing money from the bank.

§  The Second obligation of the banker is to maintain the secrecy of his customers accounts. This obligation is also not absolute. The banks are permitted to disclose the status of the account of the customers in certain circumstances.

§  In those circumstances, where banks are required to disclose the financial status, banks should take utmost care while submitting such reports. Undue or irrelevant information should not be given. The opinion should be brief and factual and should indicate that the information is given in confidence and should be kept so by the recipient.

Disclosures permitted by Law and practice

1.      Under Law: A banker is justified to disclose any information about the customer’s account when he is statutorily required to do so under

a)      Income Tax Act

b)      Companies Act.

c)       Banker’s books of evidence Act.

d)       Foreign Exchange Regulations Act.

e)       Money Laundering Prevention Act.

f)       Bangladesh Bank Act

2.      Under express or implied consent of the customer: When an account is opened with the bank, there is an implied contract between the customer and the bank that the later will not disclose information relating to his account without his consent. If however, a customer permits, this information can be disclosed.

3.      Disclosure in the Bank’s interest: A banker can disclose information when it is essential to protect his own interest, legally. For instance, if there is any dispute between the customer and a banker, regarding balance standing in the account of the customer or if there is a loan default, then the bank will be justified in revealing the information to the guarantor or to a solicitor for initiating legal proceedings in the court of law.

4.      Disclosure in Public/National interest: A banker is justified in disclosing the state of his customer’s account in the interest of the public. The following grounds generally fall under this category:

a.       Disclosure of the account where money is kept for extreme political purposes.

b.      Disclosure of the account of an unlawful association.

c.       Disclosure of the account of a revolutionary         body to avert danger to the state.

d.      Disclosure of the account of an enemy in times of war.

5.      Common courtesy among bankers: Under the practices/usages in the banking system (business) it is customary among the bankers, that whenever a bank makes inquiries with another bank, such as, about proposed sureties or acceptors, such information is shared. An implied consent of the customer is presumed to exist therefore. However, such information is kept confidential at both the ends and adequate precautions should be taken while furnishing such information.

Opening & Operation of a Minor’s Account:

The banker can open a savings account. It will not be advisable to open a current account of a minor since in case of an overdraft the minor does not have any liability. The savings account may be opened in any of the following ways:

a.      In the name of minor himself, if he has attained at the age of 10 years and can sign uniformly.

b.      In the joint names of minor & his/her guardian.

c.       In the name of guardian like as ‘X natural guardian of Y’.

Precautions to be taken:

§  The banker should record the date of birth of the minor properly.

§  The guardian should not be allowed to operate the account after  attaining a majority or after the minor’s death.

§  In case the  guardian dies before the minor attains having a joint account or to be operated by the guardian only, the money should be paid by the bank to the minor on attaining majority or to some person appointed by the court as his guardian.

§  If the minor dies, the amount of his/her credit balance is to be paid to his/her next kin on the production of a succession letter or a letter  of administration.

§  In case a banker is compelled to grant a loan to a minor he must  see that

a)      it is granted either for the necessaries for his/her life against sufficient securities, or

b)      against a joint promissory note in which one of the parties is an adult or

c)      against an indemnity bond given by the adult.

Some privileges of a Minor guaranteed by Law:

§  A contract entered into by a minor is void and that is not enforceable.

§  Even if he borrows money by falsely representing himself as an adult, he cannot be compelled to repay the loan since the contract is a void one.

§  An adult, who gives a bill of exchange for the debt contracted during the period of his infancy, can not be sued.

§  A minor has the right to get back the securities pledged for the purpose of securing a loan even without repaying the loan.

§  A minor can never be appointed as a trustee.

§  A minor can enjoy the benefits of a partnership firm, but he is not liable for the debts of the partnership firm.

§  A minor can act as an agent of an adult who has given the necessary authority to him.

§  Section 26 of the Negotiable Instrument Act.1881 permits a minor to draw and endorse any Cheque, bill or promissory note. It will be valid against all  parties excepting a minor.

§  A minor can be appointed as an executor, but he can commence his work only after his coming of age.

§  A guarantee given by a minor is not valid.

§  A minor cannot be adjudged as an insolvent either on his own petition or of others.

Law protects the minor because he is not matured enough to form a rational
judgment to things and some unscrupulous persons may take advantage of
his immaturity.

Lunatic Person:

 As per Section-12 of the Contract Act 1872, persons of unsound mind are disqualified from entering into a valid contract. Although he can enter into valid contracts during lucid intervals.

However, no banker knowingly opens an account in a lunatic’s name. But if an existing customer becomes insane, banker must immediately stop the operation of the account till it receives a proof of his/her sanity or gets an order of the court to the effect.

However, the banker will not be responsible if it honors a cheque or bill duly drawn, accepted or endorsed by the lunatic unless it is proved that the bank knew his/her lunacy at the time of honoring or discounting. Usually the court appoints a receiver when a customer becomes insane and the banker can safely deal with that receiver.

Illiterate Person:

An illiterate person can open an account with the bank subject to following conditions:

§  Thumb impression should be obtained on the AOF & SS card in presence of an authorized official.

§  Two attested copies of recent photographs should be obtained & attached with AOF & SS card.

§  One or two identification marks should be noted on the AOF & SS card with the proper authentication, and

§  Finally a letter of undertaking shall be obtained from him to the effect that he will not operate on the account unless he personally comes to the bank & put his thumb impression on the cheque in presence of the bank manager/ officer in charge.

Married Women:

§  There is no bar and a banker may open even a current account in the name of a married woman.

§  But in case of allowing any overdraft in such account, banker must ensure whether she has any separate estate or property in her own name.

§   Woman’s  husband cannot he made liable for any debt incurred by her unless:

Ø  She acts as agent of her husband.

Ø  Personal guarantee is given by her husband.

Ø  The debt has been incurred for purchasing some articles of her necessities which the husband has not provided to her.

Pardansheen Women:

Since the identity of a pardansheen lady is not possible, bank may open such account after being sure about her identity and observing certain formalities. But it is always advisable not to entertain such request to open a/c in the name of a pardansheen lady. A contract with pardanasheen lady is presumed to have been induced by undue influence and therefore, a banker has to be extra cautious while dealing with her.

Joint Accounts:

Ø  A joint account is an account opened by two or more persons.

Ø  The account opening form should be signed by all the joint account holders.

Ø  The names, addresses and other details of all of them should also be obtained on the account opening form.

Ø  The account holders should also indicate how the account is to be operated – the banker should obtain specific directions as to one or more of them will operate on the account.

Ø  When a joint account is in the name of two persons, the operations may be by:

•          both jointly or by the survivor

•          both jointly

•          either or survivor

•          former or survivor

A joint account in the name of more than two persons may be operated upon by:

•          all of them jointly or by survivors of them jointly or by the last survivor

•          any one of them or by more than one of them jointly or by one or more of the survivors of them or by the last survivor.

Sole Proprietorship Firm:

•          Account should be opened in the name of the proprietorship firm and to be operated by the proprietor concerned or by any other person as per mandate in absence of the proprietor.

•          In case of the death  of the proprietor the balance of the account be  payable to the nominee and in the absence of the nominee, to the successor(s) on production of the succession certificate from the court.

•          While opening of the account the owner of the sole proprietorship concern is required to produce the following documents:

Ø  Valid trade license

Ø  Tax Identification Number (TIN)

Ø  Mandate, if necessary

Ø  Photograph

Ø  Transaction profile

Partnership Account:

•          Partnership firm’s account cannot be opened in the name of an individual partner.

•          A banker should get a written request from all the partners for jointly opening an account.

•           Banker should go through the partnership deed and carefully study the objects, capital, borrowing power etc. The banker should see that the firm is a registered one and business, names and addresses of all the partners.

•          The partners should give clear instruction as to the operation of the accounts of the firm.

•          Any partner has the right to stop payment of a cheque issued by any of the partners.

•          If there is any dispute among the partners regarding the operation of the account, the operations should be stopped and fresh instructions obtained.

•          A partner has no authority to give a guarantee on behalf of the firm.

Company's A/c:

While opening A/c’s of companies banker should obtain & examine the following documents:

•          Certificate of Incorporation

•          Certificate of Commencement of business (In case of Public Limited Co.)

•          Memorandum & Article of Association

•          List & address of all Directors

•          Board's Resolution to open the account & the names of the person authorized to operate the account. The chairman of the Board of Directors should sign the resolution.

•          Balance Sheet.

Mandate:

Along with resolution the banker must call for a mandate from the company which will contain the following points:

•          The names of persons authorized to operate the account and their specimen signature must be specifically given. It is essential that the signature on the Cheque must be expressed to be on behalf of the  company. Otherwise, the company may not be liable, only the directors  will be liable personally.

•          The nature and the extent of the powers delegated to the authorized persons must  
be laid down in the mandate. The banker should see weather the authority given is extended to the transaction, advances,  securities and safe custody as well.

•          Whenever the company wants to introduce any change in the operation in  the account, fresh resolution and mandate be given.

Trust Account:

•          According to the Trusts Act, 1882, a ‘Trust’ is an equitable 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.

•          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:

Ø  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 for administering the trust property and other terms and conditions.

Ø  The trustees are authorized to act jointly and are not competent to delegate their powers unless the Trust Deed authorizes them to do so.

Ø  The banker should examine the trust deed to ascertain the powers and functions of the trustees.

•          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.

•          If one or more of the trustees dies or retires, the authority vested in the remaining trustees depends upon the provisions of the Trust Deed.

•          When all the trustees are dead , new trustees may be appointed by the court.

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

•          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.

•          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 loans to the trustee after thorough examination of the borrowing powers as given  in the Trust Deed.

Papers to be required to open Trust Account:

v  Trust Deed copy for scrutiny of the rules regarding the opening and operation of deposit account.

v  Resolution for opening account by trustee Board stating Bank’s name.

v  List of Trustees & signed Mandate.

v  Resolution regarding operation of account.

v  Account opening  Form (AOF), Specimen signature card (SSC), Cheque Requisition Form properly filled in.

Special Features of Trust Account:

§  Trustee can open the account in the name of the trust or in the name of the Trustees.

§  Trust property to be controlled for the benefit of the beneficiary.

§  Violation of Trust Deed/Rules by the Trustees is called Breach of trust.

§  A/C will be operated as per delegation laid down in the trust Deed.

§  No Trustee can delegate his power to 3^rd party.

Breach of Trust:

ü  A banker should be very careful whenever an account of this type is opened.

ü  It is so because, whenever something goes wrong the banker will be held liable for not protecting the interest of the beneficiaries.

ü   If a banker comes to know that the funds are misapplied he can not escape from his liability.

ü  A banker will be justified in dishonoring a cheque drawn by a trustee, if a breach of trust is intended.

Operation:

1.      Account will be opened and operated jointly.

2.      Cash transactions should be done cautiously.

3.      Bankers should prefer open A/C in the name of Trust.

4.      In case of death, Lunacy, retirement, or change of trustee, new Trustee will be appointed in writing. Trustees should have financial soundness.

5.      Bankers should have vigilant eye on ‘Breach of trust’.

6.      No transfer from Trust A/C to personal account.

7.      Mark ‘Trust Account’ on Ledger boldly.

8.      No borrowing will be allowed without H.O approval.

9.      There should always be a clause in the mandate binding the trustees to be jointly and severally liable to the bank for any liability incurred by them in account.

Executors and Administrators Account:

Executors and administrators are persons who are appointed to conduct the affairs of a person after his death. When a person known as testator (person making the will) appoints another person to administer the estate of testator in the event of his death through a ‘Will’ is known as an executor.

·         Any alteration or addition in the original will might have been made in a separate instrument called ‘codicil’ which also forms a part of the will.

·         When an Executor is not named in the ‘will’ or if the person appointed as executor dies or refuses to act or is incapable of acting, the court appoints a person for the purpose. He is known as administrator.

·         Both the executor and the administrator perform the same duties, i.e., to realise the assets of the deceased and to pay off his debts.

·         The executor is appointed by the will. His powers and authority are vested therein. He has to act according to the directions given in the will, but he is required to obtain a probate (official confirmation of the will) from the court.

·         The administrator is appointed by the court through a letter of administration and is directed, in the absence of the will, to settle the affairs according to the provision of the law.
The administrator derives his power from the letter of administration. This letter may give full/limited power to deal with the estate.

·         The banker should take the following precautions while dealing with the executors and administrators:

Ø  On the death of a customer, the banker must stop payments from his account. The executor should be permitted to operate the account of the deceased after he has obtained the probate from the court.

Ø  The administrator is authorised to do so after securing the letter of administration.

Ø  The banker should examine these documents before the appointed person is permitted to operate the account.

·         An account in the name of an executor / administrator is opened in the following style and the balance in the account of the deceased is transferred to such account:

‘ABC executors (or administrators) to the estate of XYZ deceased.’

·         In case two or more persons are appointed as executors or administrators, they shall have joint interest in the estate of the deceased. This is not divisible.

·         The banker should be very cautious in conducting the account of executors / administrators so as to prevent them from misappropriating the funds of the deceased.

Executors Account opening and operation:

a)      Account may be opened after H.O approval.

b)      Must produce grant of probate certified copy for scrutiny the name and address of executors.

c)      Identity of Executors to be ensured.

d)      List of executors name with signature and account will be opened in official capacity.

e)      Executor’s power to open & operation of Banks account.

f)       AOF/SSC/ Photo properly filled in.

g)      Not to mix with personal account.

h)      Mode of operation – jointly or all to sign.

i)        After death/ retirement /lunacy new executors will be appointed as per probate.

Administrators Account opening and operation:

·         Account may be opened after H.O approval.

·         Certified copy of letter of Administration will be obtained.

·         Request letter for opening bank account.

·         Account opening and operation as per letter of administration. Administrator can only operate upon account.

·         Mode of operation should be joint in case of several administrators.

·         AOF/SSC/ Photo properly filled in.

·         Not to mix with personal account.

·         Administrator can not delegate his power to third party.

When an administrator becomes insolvent or lunatic his appointment stands terminated. A new Administrator is appointed under fresh letter of Administration. On the death of administrator Court will appoint the new one.

Government ,Local Bodies & corporations Account:

Every wing of govt. authority and Local authority shall make arrangement  for the proper administration of their financial affairs and shall secure that one of their officers has responsibility for the administration of those affairs. Officers deal these financial affairs through the opening of a bank account.

Opening and Operation:

Ø  Before opening the account any Govt. or semi  Govt. or local body a certified copy of the STATUTE will be taken.

Ø  Or, certified copy of any other Law/Regulations by which the body is created and governed.

Ø  Request letter for opening bank account.

Ø  Copy of resolution is passed by the local authority authorizing an officer to open bank account with the bank name and branch.

Ø  Branch manager specially satisfies himself as regards the provision about the dealings with the fund, opening, operation of the bank account in the ‘Statute’.

Ø  Name, style, and nature of account must be stated in the statute or resolution.

Ø  Any Govt. account will be opened and operated as per official capacity, subject to the permission from the competent authority.

Ø  Account of Regimental fund (Army account) should be opened and operated as per the letter of authority from the ‘Controller of Military Account’.

Ø  Operation of account in contravention of ‘Statute’ will not be allowed.

Ø  Cash transaction should be done cautiously. Pre advice should be taken in case of cheque drawings.

Ø  In case of changing officer or office bearer new authorization  letter  will be taken issued by competent authority.

Ø  Monthly statement of account & quarterly balance confirmation to be served.

Club, Societies Etc. : Bye laws, Resolution of the managing Committee, Registration certificate, etc. and other usual formalities.

School, College, Madrasa etc.: Approved list of the managing committee, Resolution of the managing committee to open account in a bank etc.

Closing of a Bank Account:

The relation ship between banker and customer is a contractual relationship. Like any other contract, therefore, it may be terminated as and when the parties so desire. Moreover, the banker is under certain legislative provisions. The position of banker regarding closing of customer’s account may be summed-up as follows:

v  Customer’s Request

v  Unclaimed Deposit Account

v  Death of customer

v  Insanity of the customer

v  Insolvency of the customer

v  Undesirable customer

v  Attachment order issued by the income Tax authorities

v  On receipt of Garnishee Order

Garnishee Order:

§  Garnishee order refers to the order issued by a court attaching the funds of the judgment debtor (i.e., the customer) in the hands of  a third party (i.e., the banker.)

§  The term ‘garnishee’ refers to the person who has been served with the order.

§  this Garnishee proceedings comprise of two steps. As a first step ‘Garnishee Order Nisi’ will be issued.

§  ’Nisi’ means ‘unless’. In other words , this order gives an opportunity to the banker to prove that this order could not be enforced.

§  If the banker does not make any counterclaim, this order becomes an absolute.

§  This ‘Garnishee Order absolute’ actually attaches the account of the customer.

§  If it attaches the whole amount of a customer’s account, then, the banker must dishonor  the cheque drawn by that customer.

§  He can honor his cheques to the extent of the amount that is not garnished.

§  Hence, the banker should go through the terms of the order very carefully.

Dormant Account:

In course of business many savings and current accounts become inoperative for many reasons. Such inoperative accounts are marked as ‘Dormant accounts’ if there have been no deposits and/or withdrawals in accounts for a period of one year generally or for a period as may be fixed by the individual banks.

v  All dormant accounts (except proprietary, partnership concern, joint stock companies, other business organizations, local authorities, semi-government and government institutions) in the ledgers which have not been operated for such a long time that is treated as dormant accounts shall be transferred to a separate dormant account ledger.

v  All dormant account maintained in a separate portion of the deposit ledger, shall be affixed with the following stamps under authentication of an authorized officer:

‘DORMANT  ACCOUNT’
‘All operations as well as issue of cheques should be referred to manager’.

v  Similar noting shall be made on the account opening form and the Reference and other books under authorized signature.

v  To protect the dormant account from unauthorized operations, fraud and forgeries, it shall be necessary to mark clear ‘alert’ and ‘Caution’ signals on the relative specimen signature cards.

Death of Constituents:

Notice or knowledge of the death, insolvency or insanity of a constituent precludes the Bank from paying further cheques on his/her account even though these are dated prior to his/her death, insolvency or insanity. When information of death is reliable the fact should be noted on the top of the ledger folio with the date and the source of information and a line should immediately be drawn below the last entry in the account. In case of doubt, caution should be noted and immediate enquiries be made to ascertain the correct position. Upon the death of one of the holders of a joint account the balance of which is repayable to the survivors, the operation of account will, continue but the survivor or the survivors should be requested to transfer the balance into a new account in his/her or their own names and fresh account opening form etc. should be obtained. When the balance is not repayable to the survivor(s), the operation of the account must be stopped.
 

Unclaimed Deposit Account:

In case an account remaining non-operative for a very long period (10 years), the banker may request the customer to withdraw the money. If the customer could not traced after reasonable efforts, the banker usually transfer the balance to Bangladesh Bank as “Unclaimed Deposit Accounts,” and the account is closed. The balance is paid to the customer as and when he comes to claim it or to the legal successors under an order of the court (Sec. 35 of Bank Companies Act, 1991).  

Standing Instructions:

Ø  Banks render a useful service to their customers by complying with their standing instructions.

Ø  Standing instructions ar the instructions given by a customer to his banker  that relates to certain financial dealings (e.g., receipts, transfer or payments of money) and the customers intend his banker to carry out the instructions on a regular basis.

Ø  These instructions are meant either for a specific period mentioned by the customer, or are to be carried out until a notice to the contrary is given by the customers.

Ø  These instructions relate to dealings that are generally repetitive in nature.

Ø  Some of the instructions are as follows:

·         Payment of life insurance premium to LIC periodically.

·         Payment of periodic membership fee/subscription to clubs, libraries, professional association etc.

·         Payment of various bills of the customer.

·         Transfer of specific amount from one account of the customer to another account.

·         Collection of dividends on behalf of customers.

·         Collection of pensions from Govt. department.

·         Collection of interest on Govt. securities held in safe custody or otherwise.

Procedure Involved:

·         On receipt of any letter containing instructions for effecting periodical payments or remittances verify the signature of the account holders on the letter.

·         Record the instructions in the standing instructions register.

·         Note the instructions at the top of the relative ledger folio of the account.

·         File the letter in the standing instructions letter file.

·         Record the instructions in the computer (if any).

·         Execute the instructions regularly on their due date.

·         Due date diary is to be maintained.

·         In respect of payments, however , the banker bears no responsibility, if the customer’s account does not possess minimum amount required to carry out the instructions.

·         In carrying out such instructions the banker act as his customer’s agent and hence may held liable for the loss sustained by him due to his negligence by way of non compliance or delayed compliance of the standing instructions.

Safe Custody:

Ø  Banks render a valuable service to its valued customers only by accepting their valuables like share, securities, bonds, title deeds  etc. for safe custody.

Ø  Articles of safe custody are not subject to general lien.

Procedures Generally Followed by the Banker:

Ø  Along with a prescribed application form, the articles for safe custody may be handed over to the banker openly. The banker in this respect knows articles.

Ø  It should be noted down that whether the share, securities etc. are fully paid and whether interest and dividend (if any) will be collected by the banker.

Ø  Particulars and instructions are to be recorded in the safe custody register. Separate page is used for each customer.

Ø  All valuables must be kept in the fireproof almirah inside the strong room by mentioning respective account number on the packet or box of the valuables.

Ø  To issue a receipt for the valuables deposited with the bank for safe custody the banker deliver it to the customer after putting authorized signature. Office copy will remain with the bank.

Ø  At the time of the withdrawal of the valuables the receipt issued by the bank should be duly discharged by him acknowledging receipt of the valuables and surrendered to the banker.

Ø  In case of the receipt is lost, a letter of indemnity is to be obtained from the customer and discharge of the customer is to be obtained on a duplicate receipt.

Locker Facilities:

§  Banks provide locker facilities to the public at selected branches.

§  The banks for the purpose have strong rooms which are equipped with safe deposits lockers.

§  There are different size of lockers available in the selected branch of bank e.g. big, medium and small.

§  The charges vary for different sizes of lockers.

§  Any person can take or hire a locker from the bank. However, bank insists him/her to be a customer by opening an account.

§  The person taking a locker on rent has to fill in a proper lease document which contains the terms and conditions of hiring the locker.

§  The bank maintains a locker register in which all transactions relating to each of the rent out lockers are recorded on a separate page.

§  Two keys are used for opening the lockers, of which one kept by the hirer in his possession while the other i.e. the master key retained by the banker himself.

§  The contents of the locker are not known to the bank.

§  The master key should remain in the custody of the manager or any other authorized officer during the days.

§  Refundable caution fee is taken at the time of allowing locker facility.

§  Duplicate key can be issued after paying duplicate key charges.

Transfer of Accounts:

When an account is transferred from one branch to another in the absence of online banking, the account opening form etc. signed at the time the account was opened and any forms or documents signed subsequently which are necessary for its proper conduct must be forwarded to the branch to which the account is transferred together with the relative mail transfer, specimen signature cards and standing instructions, if any. No exchange should be charged on such transfer.