DAY TO DAY PROBLEMS - ON LEGAL ISSUES
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Problem – 1
Mr. Sharma is maintaining a current account with your branch. The account is operated by Mr. Verma in whose favour Mr. Sharma had executed a power of attorney. A notice about death of Mr. Verma is received. Subsequently, a cheque signed by Mr. Verma is presented through clearing. Will you pay the cheque?
Problem – 2
Mr. Roy, a current account holder of your bank, has granted a power of attorney to Mr. Banerjee. Mr. Banerjee presents the power of attorney to the bank with a request to allow him to operate on Mr. Roy’s current account. Perusal of the power of attorney reveals that it contains several clauses conferring various specific powers on the attorney, but a specific power to draw cheques on the donor’s banking account is not among them. However, the final clause empowers the attorney generally to act in relation to Mr. Roy’s estate and affairs as fully and effectual in all respects as Mr. Roy himself.
Would you allow Mr. Banerjee to operate on Mr. Roy’s current account relying on the final clause of the power of attorney?
Problem – 3
Your bank had opened a current account for Mr. Kumar. The account is operated by his wife Mrs. Padmini under an authority given by Mr. Kumar. Subsequently, he executes a power of attorney to another person conferring, inter alia, power to operate on his banking account.
Does the power of attorney cancels the authority of Mrs. Padmini to operate on the current account?
Problem – 4
Shri Shiv Kumar Dinanath Mehta, who is a valued customer of your branch wants to place Rs. 10000in fixed deposit for 12 years for the benefit of his grandson Sunil aged 6 years. You received a request to open a fixed deposit account as under:
“Master Sunil Amrish Mehta (Minor) by his grandfather Shiv Kumar Dinanath Mehta and Shri Shiv Kumar Dinanath Mehta- payable to either or survivor.”
(Sri Shiv Kumar informs you that the amount is exclusively for the benefit of the minor and he does not desire to add the name of the minor’s father).
Please state whether you would open the above account.
FAST TRACK PRIMER: day to day PROBLEMS
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Problem - 5
Shri Vadilal Shah is maintaining a good current account with you. A cheque for Rs. 1000 is presented for cash payment by his minor son. The clerk at the counter expresses doubt whether payment of Rs. 1000 can be made to the minor. Discuss the position.
Problem - 6
Mr. Yadav deposited money in the joint names of himself and his son Gaurav, a boy of fifteen, on the terms that the signature of either was to be accepted as withdrawal authority, and the balance was to go the survivor. At Mr. Yadav’s death Gaurav has not yet attained his majority. To whom should the bank pay the money?
Problem - 7
There is a savings account at your branch in the name and style “Master Ambrish Puri (minor)under guardianship of his father Mr. G. S Puri and Mr. G. S. Puri”. It is operated by Mr. G. S. Puri alone.
Master Ambrish Puri, after attaining majority, serves a legal notice on the bank claiming a sum of Rs. 22,500 on the ground that his money had been misused by the major party to the account (his father) and thus the bank has not safeguarded his interests. He asserts that this amount was withdrawn from the account over a period of time and was used for purposes other than his benefits.
Discuss the bank’s position.
Problem - 8
Mr. Sandeep Arora, aged 14 years, had deposited a sum of Rs. 7500 in a term deposit account for a period of 5 years. He approaches for premature payment of the fixed deposit receipt. Will you accede to his request?
Problem - 9
Mr. Juta Wala, a shoemaker, had obtained a loan for Rs. 2500 from your bank under differential rate of interest scheme to augment his income. While signing the loan documents, he had declared that he was over 18 years of age.
When the notice for repayment of due installment is sent to him, he declines to pay on the ground that he was only 17 years of age at the time of borrowing money. In fact, he had fraudulently misrepresented to the bank about his age when he obtained loan. Discuss the bank’s position.
FAST TRACK PRIMER: day to day PROBLEMS
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Problem - 10
Mr. Raju Saxena, aged 16 years, maintains savings account at your branch. By mistake, the account is over drawn for Rs. 1500. Despite repeated requests, Mr. Saxena has not repaid the overdraft. Later on, he calls at the branch for obtaining payment of a fixed deposit receipt, which is also in his single name.
Can bank set off the balance in the fixed deposit account against the debit balance in savings account?
Problem - 11
During the deposit mobilisation week, you had opened a current account for Mrs. Kamini Sharma, a social worker and wife of the mayor of the city. Her husband has already got handsome deposits at your branch. Looking to her background and keeping in mind the deposits of her husband you had passed a cheque which resulted in an overdraft for Rs. 2000 in Mrs. Kamini’s account. However, various letters and requests for repayment of the overdraft could evoke no response from her. Enquiries reveal that Mrs. Kamini has no separate property of her own and she is entirely dependent upon her husband’s income for her livelihood. When her husband was requested to repay the overdraft, he flatly refused to oblige the bank.
Discuss the bank’s position.
Problem - 12
Miss Deepa Bansal maintains a savings account at your bank. She approaches the branch with a request for change of the title of the account as Mrs. Deepa Goyal. This change is necessitated on account of her marriage with one Dr. Rajesh Goyal. What course of action would you follow in the above case?
Problem - 13
An insolvency petition has been presented by the creditors of Mr. Kumar who maintains a current account which is in credit. Upon receipt of notice, the bank stops payment in the account and notifies Mr. Kumar about this. However, during pendency of insolvency proceedings Mr. Kumar dies. The legal heirs of A serve a notice on the bank claiming the amount lying to the credit of the account. Will the legal heirs succeed in their claim?
Problem - 14
A bank receives notice that one of the two persons having a joint account with the bank is involved in insolvency proceedings where the account shows a credit balance of Rs. 50000. Can
FAST TRACK PRIMER: day to day PROBLEMS
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the bank safely honour cheques drawn by the other party if it holds an authority to honour cheques of either party of the account?
PROBLEM-15
Brijmohan Singh & Sons is a proprietorship firm with Shri Brijmohan as sole proprietor. They have started contracting business and have been maintaining a current account with your branch with average balance of Rs. 1 lakh. They also maintain another well-conducted current account with your Baroda Branch. One day a cheque for Rs. 15000 drawn on Baroda account was presented through mistake to your branch through clearing and your branch returned the cheque and gave reason ‘Refer to drawer’.
The customer threatened to sue the bank for damages and sent solicitor’s notice. While replying to them, it came to your notice that the proprietor was an undischarged bankrupt.
Please discuss whether the customer will succeed in the suit for damages.
Problem - 16
Mr. Arun Jain has been dealing with your bank for quite a long time. You receive a notice that he has been adjudicated insolvent.
How will you act in the following circumstances?
(i) Mr. Jain presented an order cheque for Rs. 2500 across the counter for cash payment drawn in his favour by another customer of the bank.
(ii) There is a joint account in the names of Mr. Arun Jain and Mr. Satish Gupta enjoying clean overdraft facility with joint and several liabilities. Either of them can sign cheques. The debit balance in the account is Rs. 7500.
(iii) Messrs. Goodluck Paints are enjoying cash credit (hypothecation) limit of Rs. 1 lakh, which is also covered by personal guarantee of Mr. Arun Jain. At present, the account is showing a debit balance of Rs. 45000.
Problem - 17
The name of your customer Mr. Prabhakar appears in the following accounts at your branch:
Account
Balance Rs.
(i)
Overdraft account in the joint names of Mr. Prabhakar and Mrs. Prabhakar (his wife) – security: shares valuing Rs. 8000 in the name of Mr. Prabhakar
Dr.
5000
(ii)
Current account: “Mr. Prabhakar, Mr. Amar and Mr. Anthony – Trustees of the estate of Mr. Kishan (deceased)”
Cr
5000
(iii)
Current account: Messrs. Prabhakar & co. (Partners: Mr. Prabhakar and Mr. Ajai Mathur)
Cr.
100
(iv)
Cash credit account: Messers. Indian Pipes Ltd. (Directors: Mr. Prabhakar, Mr. Mohan Kumar, Mr. Amit Kumar and Mr. Krishna Kumar) security pledge of goods worth Rs. 2 lakh.
Dr.
150000
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You receive notice that Messrs. Prabhakar & Co. has been adjudged insolvent. Discuss the effect of the insolvency on each account.
Problem - 18
You receive from another branch a sum of Rs. 5000 for credit of savings bank account of Dilip Mukherjee. On search of the ledgers you find that there is a joint savings bank account of Dilip Mukherjee and Nikhil Banerjee, payable to ‘Either or Survivor’. Would you credit the above remittance of Rs. 5000 to the joint account?
Problem - 19
Mr. Handa and Mr. Arora open a joint account which is overdrawn. Mr. Handa has been adjudged insolvent. Is Mr. Arora liable for the whole debt.
Problem -20
You have opened a current account jointly in the names of Mr. and Mrs. Patil with instructions to pay to either or survivor. The account shows a credit balance of Rs. 3500 on 1st March. On 2nd March, you receive a letter from Me. Patil to say that you should not allow Mrs. Patil to operate on the account as the court has passed a decree of divorce. He further instructs you to pay every month Rs. 10000 to the court for payment to be made to Mrs. Patil for her maintenance.
Problem - 21
A and B have fixed deposit repayable jointly with interest payable every quarter. Later A approaches the bank to pay him interest. Can the bank pay him interests relying on an assumption that while principal amount is payable jointly interest can be paid to either party in absence of specific instructions?
Problem - 22
As a branch manager, how ill you deal with the following?
A man approaches you for opening a joint savings bank account in the name of his two minor sons aged 7 years and 5 years to be operated by him as father and guardian.
Problem - 23
Mr. K. M. Srivastava and Mr. K. S. Mathur are maintaining a savings account. The instructions are – “To be operated by both of us jointly”. A notice is received about the death of Mr. K. M. Srivastava. It is also informed that he died intestate i.e without leaving a will. He has left behind his wife, two sons and a married daughter.
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Whom would you pay the balance of the above account?
Problem - 24
There is current account at your branch in the joint names of Mr. Diwan and Mr. Sethia with instructions to be operated by either or survivor. Mr. Diwan dies and a legal notice is served on the bank by his heirs claiming the balance in the account. At the same time, a cheque for Rs. 7200 signed by Mr. Sethia is received in clearing. The account shows a credit balance of Rs. 20,800.
Will you pay the cheque?
Problem - 25
Mr. Bhawani Singh maintains a savings account jointly with Major Ram Singh payable to ‘either or survivor’. Major Ram Singh dies leavaing behind his wife, Mrs. Anuradha, as the only surviving heir. After the notice of death of Major Ram Singh is served on the bank, a cheque for Rs. 500 signed by him is received in clearing. There is a credit balance of Rs. 9225/- in the account.
What course of action would you follow in this case?
Problem - 26
Mr. Balbir Singh maintains a savings account jointly with Mr. Ranbir singh. It is operated by Mr. Sukhbir Singh who has been duly authorised by the account holders. You have received a notice of death of Mr. Ranbir Singh. Subsequently, a cheque signed by Mr. Sukhbir Singh is presented for payment. Credit balance in the account is sufficient to meet the cheque.
As a Branch manager, how will you deal with the cheque?
Problem 27
Your branch had issued a fixed deposit receipt for Rs. 10000 on 1st January, for a period of 5 years in the joint names of Mr. Joseph and Mr. Mathew payable to ‘either or survivor’. After the maturity of the fixed deposit receipt Mrs. Leena Joseph, widow of Late Mr. Joseph, called at the branch and informed about the death of her husband. She claims the amount of the fixed deposit receipt and produces succession certificate in support of her claim. Mr. Mathew has not turned up so far. He is reported to have proceeded abroad on a business trip.
How will you act in the above situation?
FAST TRACK PRIMER: day to day PROBLEMS
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Problem - 28
Mr. Chauhan and Mr. Rajput maintain a savings account in their joint names which is operated by either of them singly. Mr. Chauhan serves a notice asking the bank not to honour any cheque drawn by Mr. Rajput. Subsequently, a cheque signed by Mr. Chauhan is presented for payment.
Will you pay the cheque?
Problem - 29
Messrs. A. B. Patel and Co. are maintaining a partnership account with you. There are two partners viz., Shri A.B.Patel and Shri C. D. Shah. You are informed that the minor son of Mr. A.B. Patel has been admitted as a partner to the benefits of partnership. If you are requested by Shri Patel to allow the minor son to operate the account, would you allow the same? Would your answer be different if the account had an overdraft limit?
Problem - 30
A firm with five partners approaches a bank for opening a current account. The firm represents that two of the five partners are working partners as such only the three partners who have contributed the capital will operate the current account. What additional procedure or precaution may be necessary for such account with restrictive operations?
Problem - 31
Messrs. Saurashtra Ginning & Pressing Co. having twenty two partners request you to open a current account to be operated by any two of the partners jointly. Will you open the account?
Problem - 32
Mr. Bankey Lal, in partnershp with his minor son Raju aged 15 years, trades as ‘Bankey Lal & Son’. Mr. Bankey Lal approaches you for opening a current account of his partnership firm.
Will you accede to his request?
Problem - 33
Messrs. Jupiter Trading Co. consisting of Mr. Amar and Mr. Akbar as partners maintain current account at your bank with mandate “Account will be operated by Mr. Amar alone as a
FAST TRACK PRIMER: day to day PROBLEMS
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partner of the firm”. Mr. Akbar serves a notice on the bank advising that Mr. Amar should not be allowed to operate on the account.
How will you deal with the above situation?
Problem - 34
Messrs. Sahitya Bhawan consists of three partners-Mr. Bansal, Mr. Jain and Mr. Singhal. The firm maintains a current account which is operated by Mr. Bansal and Mr. Jain jointly.
Mr. Singhal countermands payment of a cheque issued by Mr. Bansal and Mr. Jain.
Will you accept the stop payment instructions given by Mr. Singhal?
Problem - 35
Messrs. Acme Trading Co. consisting of Mr. Ghose, Mr. Ramanathan and Mr. Chaturvedi as partners maintains a current account at your bank. The account is operated by any of the partners singly. Bank is informed about the death of Mr. Chaturvedi. Subsequently, a cheque signed by Mr. Chaturvedi is presented for payment. There is sufficient credit balance in the account to meet the cheque.
(a) Will you pay the cheque?
(b) Mr. Chaturvedi happens to be a partner in another firm, Messrs. Cement Sales Corporation, which is also dealing with your bank. The firm enjoys cash credit (hypothecation) and a overdraft facilities. The present debit balance in both the accounts is Rs. 1,75,000. What action would you take in this case.
Problem – 36
Your bank had opened a current account for Messrs. Durex Pen Co., a partnership firm having Mr. Suresh Agarwal, Mr. Satish Agarwal and Mr. Ramesh Agarwal as partners. According to the mandate, any partner can sign cheques singly. The balance in the account is Rs. 45,000, credit.
Mr. Satish Agarwal has been adjudicated insolvent. A cheque for Rs. 10,000 signed by him bearing date prior to the date of the order of adjudication is presented through clearing.
How will you deal with the above situation?
Problem - 37
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The articles of association of a company provide that the borrowing powers of the directors, including loans from the company'’ bankers, are limited so that the amount outstanding at any one time shall not exceed Rs. 50 lakh without the consent of the company in general meeting. What is the best course for a banker to adopt if he wishes to lend to the company in excess of this figure?
Problem - 38
Impex Electronics Ltd. has an account at your bank. The board of directors, by a resolution, has authorised Mr. Ashish Rajpal, Secretary, and Mr. Sanjay Chary, director to sign cheques jointly, a cheque is presented for payment signed in the following manner:
Ashish Rajpal Sanjay Chary
(Secretary) (Director)
of Impex Electronics Ltd.
Will you pay the cheque?
Problem – 39
You had opened an account for Himalaya Engineering Co. Ltd. about three years back. The company has four directors, viz., Mr. P. Dwivedi, Mr. K. S Trivedi, Mr. S. Chaturvedi and Mr. S. N. Mishra. Mr. Chaturvedi is also holding the post of secretary of the company. The board’s resolution obtained at the time of opening the account states :”The account shall be operated by the secretary jointly with two directors”. A cheque signed in the following manner is presented for payment:
For Himalaya Engineering Co. Ltd.
S. Chaturvedi S. Dwivedi S. Chaturvedi
Secretary Director Director
Will you pay the cheque?
Problem - 40
Cuticura Cosmetics Ltd., maintain a current account at your bank. The company has three directors viz., Miss Zeenat, Mr. Khan and Mr. Daroowala. The account is operated by any of the directors singly. It is informed that Mr. Daroowala has been adjudged insolvent. The balance in the account is Rs. 3 lakh, credit.
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How will you deal with the above situation?
Problem - 41
How will you as a banker, deal with the following situation?
You had opened a savings bank account jointly in the names of Mrs. Bharati M. Desai and her minor son Ajay Desai aged Years. The account shows a credit balance of Rs. 5000 on 1st January. You are informed of the death of Mrs. Desai on 3rd Janyary . Her minor son who is the only child of the family approaches you on 10th January asking you to pay him the balance of Rs. 5000 lying in the joint account as he wants to go out of India with his uncle.
Problem - 42
A customer, who has given written instructions to the bank to buy or sell stocks, shares and other securities dies before settlement day. Can the bank, notwithstanding the customer’s death, debit his account with the cost of credit it with proceeds as the case may be?
Problem - 43
There is a dormant savings bank account at your branch in the names of Mr. J. B. Mahajan and Mrs. Ansuya J. Mahajan payable to either or survivor, with a balance of Rs. 7500/- since. The account was opened in .
In January 2003, one Mr. Vasudev (aged 21 Years), claiming to be the only son of Mr. J. B. Mahajan approaches you and informs as under:
(1) He holds the pass book of this account.
(2) His mother Ansuya died in 2001.
(3) His father has left the house since 1980 and his whereabouts are not known.
(4) He has information that a safe deposit locker was also in their names. The key of the locker is not traceable.
He requests you, as branch manager, to make payment of the balance in the account to him and also to deliver the articles lying in the locker to him.
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How will you deal with the matter?
Problem - 44
Shri M.P. Shah, Shri O. M. Chokshy and Shri R. N. Dutta mainain a joint current account with you. Instructions for operations of the account are :”PAYABLE TO ANY ONE OF THEM.”. please discuss what would be the position of the bank in the following event?
(1) You receive notice that Shri R. N. Dutta is dead. Will you allow the account to be operated by the remaining survivors jointly or singly?
(2) A few cheques drawn by Shri R. N. Dutta are presented for payment after you have received notice of death. The cheques were signed before the death.
(3) In case there is an overdraft arrangement in the account and the balance in the account is debit Rs. 5000; what would be the position in case the account is allowed to be operated by the surviving parties?
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FAST TRACK PRIMERSUGGESTED SOLUTIONS 2 DAY TO DAY PROBLEMS
BY Binod K Rath binod.rath@sbi.co.in
________________________________________________________________________________________
For Internal Circulation Only
Solution - 1
The death of the agent does not prevent payment of cheques drawn by him in such capacity before death. Accordingly, the cheque drawn by Mr. Verma may be paid because he is not the customer of the bank and, in effect, Mr. Sharma is then the drawer of the cheque.
Solution-2
Any act by the attorney must be undoubtedly covered by the terms of the power. If the power contains authority to do specific acts and also authority to do acts of a general kind, the general words cannot be relied on to confer a general authority, unless their generality is expressly stated not to be limited to the specific powers already conferred. In fact, the general clause gives only such powers as may be necessary for carrying into effect the purposes of the specific powers laid down in the previous clauses.
Since there is no specific clause in the power authorising Mr. Banerjee to operate on Mr. Roy’s banking account, he cannot be allowed to do so merely on the strength of the general clause.
Solution -3
The existence of a power of attorney does not cancel the mandate already given to the bank unless it specifically states that earlier authorities are cancelled. However, if the power of attorney is silent as to existing mandates, customer’s express instructions should be obtained so as to avoid any misunderstanding.
Solution - 4
It is only the lawful guardian who has authority to deal with the minor’s money, enter into certain contracts and give valid discharge or receipt for money, on behalf of the minor. Discharge given by him cannot be challenged by the minor either during his minority or after attaining majority. This is so because a person dealing with the minor’s guardian is under no obligation to satisfy himself that the guardian in fact acts for the benefit of the minor.
Therefore, a bank should not ordinarily allow any one except the lawful guardian to open savings or time deposit account when the minor’s name is involved. In case a minor’s account is opened jointly with a person other than the lawful guardian of the minor, the lawful guardian may subsequently intervene and claim that he is the only person who has authority to deal with
FAST TRACK PRIMERSUGGESTED SOLUTIONS 2 DAY TO DAY PROBLEMS
BY Binod K Rath binod.rath@sbi.co.in
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For Internal Circulation Only
the property of the minor. Naturally, this will put the bank in an extremely awkward position, as the contract of deposit will be with a person other than the lawful guardian whereas the lawful guardian will demand to deal with the funds or to operate on the account. The best way to avoid this situation is not to open a minor account jointly with a person other than the lawful guardian.
The banker’s limitation in opening the account in the desired form should be properly explained to Mr. Shiv Kumar Dinanath Mehta. He may be advised to involve atleast the mother of the minor, if not the father. Further, as per the guidelines issued by Indian Banks’ Association, fixed deposit receipts cannot be issued for a period exceeding ten years.
Solution - 5
If the minor is old enough to comprehend the transaction, payment may be made to him. The paying banker runs no risk in such cases.
Solution - 6
When only a relatively modest sum is involved, the minor may be allowed payment applying the normal rules of survivorship, but, where more substantial amounts arise it should be seen that the minor is capable of fully appreciating the transaction and is accompanied by the surviving natural guardian, if any (i.e the mother in the given case). Alternatively legal advise should be taken.
Solution -7
Under all systems of personal law, father of a minor is his natural guardian. It is usual for bankers to open minors’ joint accounts with their lawful guardian. A lawful guardian has authority to deal with the minor’s property and he can give a valid discharge for the payments received on behalf of the minor discharge given by the guardian cannot be challenged by the minor either during his minority or after attaining majority. A minor cannot raise a dispute with the bank on the ground that the funds were misused by the guardian for purposes other than the minor’s benefit. This is so because a person dealing with the minor’s guardian is under no obligation to satisfy himself that the guardian in fact acts for the benefit of the minor.
Therefore, the claim of the minor in the given case is not tenable.
Solution -8
FAST TRACK PRIMERSUGGESTED SOLUTIONS 2 DAY TO DAY PROBLEMS
BY Binod K Rath binod.rath@sbi.co.in
________________________________________________________________________________________
For Internal Circulation Only
If a fixed deposit receipt is in single name of a minor, repayment thereof before maturity would not ordinarily involve any risk provided the discharge of the minor is properly obtained and can be proved. Therefore, the request of the minor in the given case may be acceded to.
Note
When a fixed deposit receipt is held in the joint names of a minor and his guardian, the banker must strictly follow the terms of the contract (the rules governing such accounts). The minor, may either during his minority,or thereafter sue the bank for violation of the terms of contract in case the guardian has misused the funds for purposes other than the minor’s benefit. Therefore, the bank should not ordinarily make premature payment of the deposit receipts, which are in the joint names of minor and his guardian.
Solution - 9
A minor, who has deceived the other party to the agreement by representing that he was of full age, is not prevented from later asserting that he was a minor at the time he entered into agreement. While delivering judgement in a case before the Bombay High Court Beaumont C.J. reviewed the earlier authorities on the point and concluded by saying:
“The court is of the opinion that where an infant represents fraudulently or otherwise that he is of age and thereby induces another to enter into a contract with him then in an action founded on the contract the infant is not esteemed from setting up infancy.”
Therefore, the bank will not succeed in a suit against Mr. Juta Wala for the recovery of the advance. Likewise, the money cannot be recovered from his estate, if any. Nor can the bank recover money from his guardian.
Solution - 10
Before the right of set off is invoked, the first and foremost requirement is that the debt in respect of which the right is exercised, should be a valid debt. Since a loan to the minor is void ab initio, it is an invalid debt. Therefore, from the legal standpoint, the bank cannot exercise right of set-off in the given case.
Solution - 11
A married woman cannot make her husband responsible for debts incurred by her unless it can be proved that she contracted them acting as his agent on his behalf or unless, of course, the husband expressly undertook to be responsible by guarantee or otherwise for certain debts. Therefore, no prudent banker would grant unsecured overdraft to a married woman unless she
FAST TRACK PRIMERSUGGESTED SOLUTIONS 2 DAY TO DAY PROBLEMS
BY Binod K Rath binod.rath@sbi.co.in
________________________________________________________________________________________
For Internal Circulation Only
is known to possess undoubted and adequate resources in her own right or unless the contract is specifically authorised by the husband.
Since, in the given case, the consent of husband was not obtained while allowing the overdraft, the bank cannot proceed against him for the recovery of the overdraft. As Mrs. Kamini has no estate of her own from which the overdraft can be realised, filling of a suit against her will be of no avail. Therefore, the bank has no recourse but to exercise moral pressure on Mr. Sharma for the adjustment of the overdraft allowed to his wife.
Solution - 12
The change can be effected on being satisfied that Miss Deepa Bansal is indeed married to Dr. Rajesh Goyal. Fresh account opening form, specimen signature card etc. should be got completed. It is usual for bankers, in such cases, to close the existing account and open a new one in the changed name of the lady.
Introduction should also be obtained a fresh. This is necessary because failure to obtain fresh introduction may disentitle the bank of statutory protection under section 131 of the Negotiable Instruments Act in the case of a charge of conversion against the bank at a later stage.
Solution - 13
In case a debtor by or against whom an insolvency petition has been presented dies, the proceedings in the matter shall, unless the court otherwise orders, be continued as if he were alive, so far as it may be necessary for the realisation and distribution of the property of the debtor. Thus, the death of the debtor does not interfere with the insolvency proceedings; and where the property has vested in the official assignee or the receiver after adjudication, the death of the insolvent does not divest the official assignee or the receiver of the property.
Therefore, the money held in the account shall be disposed of as per the orders of the court/official assignee/receiver.
Solution - 14
Upon the insolvency of a joint account holder, the mandate is immediately determined and the account has to be stopped because a portion of the balance may belong to the official assignee / receiver and the bank cannot itself apportion the moneys between the insolvent’s estate and
FAST TRACK PRIMERSUGGESTED SOLUTIONS 2 DAY TO DAY PROBLEMS
BY Binod K Rath binod.rath@sbi.co.in
________________________________________________________________________________________
For Internal Circulation Only
the solvent party. Before stopping the account, however, it must be ensured that a petition has been presented in the court or an adjudication order has been passed against the customer. All cheques presented thereafter drawn by the insolvent party can be returned unpaid marked ‘Refer to drawer’, but cheques drawn by the solvent party should be returned with a much more explicit answer which embodies that the dishonour has no reflection upon the credit of the drawer.
The balance in the account shall be allowed to be withdrawn under the joint authority of the official assignee/receiver and the solvent account holder. Alternatively, the official assignee/receiver may expressly authorise the release of the balance to the solvent party to the joint account. Likewise, any item held in safe custody in the joint names will be released only upon the joint authority of the official assignee/receiver and the solvent account holder.
The solvent party may, however, open a separate account exclusively for transactions unconnected with the insolvent’s estate.
Solution - 15
The answer ‘Refer to drawer’ is generally used by bankers when a cheque is dishonoured for want of funds. This is a milder form of refusal than ‘Inadequate funds’ or, ‘Not arranged for’ and does not necessarily reflect on the drawer’s financial position. The expression ‘Refer to drawer’ amounts to a statement of the bank: “We are not paying; go back to the drawer and ask him to pay”. Thus, ‘Refer to drawer’ would seem by itself not to be libelous and the customer would not succeed on this count in an action against the bank though the appropriate answer for returning the subject cheque would have been ‘Not drawn on us’.
Section 28(4) of the Provincial Insolvency Act provides that all property acquired by the insolvent after adjudication and before discharge shall forthwith vest in the receiver. In other words, all property, whether it is owned by the insolvent at the time of the order of adjudication or it is a acquired after such order but before discharge, vests in the receiver as soon as the adjudication order is made. It is for this reason that no account is opened in the name of an undischarged insolvent. When the banker has ascertained that a person having an account is an undischarged insolvent. Unless satisfied that the account is on behalf of some other person, he should inform the official assignee/receiver, and thereafter he should not make any payment out of the account except under order of the court or instructions from the official assignee/receiver. The customer being an undischarged insolvent. There is no question of his succeeding in a suit for damages against the bank.
Solution - 16
FAST TRACK PRIMERSUGGESTED SOLUTIONS 2 DAY TO DAY PROBLEMS
BY Binod K Rath binod.rath@sbi.co.in
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(i) One of the important consequences of an adjudication order is that the property of the insolvent becomes vested in the official assignee/receiver. Accordingly, the true owner of the cheque will be official assignee/receiver and the title of the payee (i.e Mr. Arun Jain) may, therefore, be defective. As such payment of the cheque should not be made unless proper enquiries are made from the official assignee / receiver and his discharge / endorsement obtained. If Mr. Jain does not leave the cheque with the bank for making requisite enquiry from the official assignee/receiver, it may be returned with the reason: “Title of the payee requires confirmation”.
However, if the bank is satisfied that the cheque was received by the payee in the capacity of a trustee, payment thereof can safely be made as the official assignee/receiver has no right to claim trust property held by the insolvent.
(ii) Transaction in the account should be immediately stopped. Failure to do so may reduce the amount of the bank’s claim against the insolvent’s estate as the rule in Clayton’s Case will operate against the bank and fresh withdrwals will be the responsibility of the solvent party whereas any credit to the account will reduce the liability of the insolvent’s estate. Unless the bank decides to rely entirely on the solvent party, i.e., Mr. Satish Gupta, proof of debt will be lodged with the official assignee/receiver. In the given case, since borrowers are jointly and severally liable, the bank can prove for the entire debt against the estate of the insolvent ignoring the solvent account holder.
(iii) If the bank decides to enforce its claim for the guarantee liability against the estate of Mr. Arun Jain, the account should be stopped to avoid operation of rule in Clayton’s Case, and a claim be judged with the official assignee/receiver. Alternatively, the bank can also ask the borrower to provide some other guarantee. In the latter case, no further action is required and the account may be allowed to continue without interruption.
Solution - 17
Insolvency of the firm involves insolvency of all partners. Insolvency of a partner, however, does not necessarily involve insolvency of the firm but it results in the dissolution of the firm. The problem is discussed in view of this position.
(i) Overdraft account- Mr. Prabhakar and Mrs. Prabhakar. Insolvency of one of the joint account holders determines the authority of other persons to operate upon the account. The credit balance in the account is disposed of according to the joint instructions of the official assignee/receiver and the solvent party. Therefore, transaction in the account must be stopped and the official assignee/receiver advised that the bank is a secured creditor. The bank will obviously fall back upon the security i.e. shares which
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will be disposed of for the realisation of debt. If there remains any surplus after adjustment of the bank’s dues. The same will be released as per the joint written instructions of Mrs. Prabhakar and official assignee/receiver.
(ii) Current Account: Mr. Prachakar, Mr. Amar and Mr. Anthony – Trustees of the estate of Kishan (Deceased). Subject to anything contrary contained in the trust deed, insolvency of a trustee does not necessarily involve resignation of his office. But, it is usually a good reason for his removal. An application may be made by the beneficiary or other trustees for the removal of an insolvent trustee and appointment of another one in his place, if necessary, under the Trust Act. it would, therefore, be advisable to hold early consultations with other trustees as to whether a new trustee is contemplated to be appointed. If need be, a new mandate should be obtained.
Property held by the insolvent in trust for another person (who is beneficiary) is not divisible among the creditors of the insolvent. Consequently, the official assignee/receiver cannot claim the amount held in trust account. Therefore, it is not necessary to stop the account and the operations may be allowed as usual.
(iii) Current Account: Messrs. Prabhakar & Co. In the event of partnership becoming insolvent, the power of the partners to act for the firm is automatically determined and they can no longer operate upon the banking account. Therefore, the account of the firm, whether in debit or in credit, must be stopped and the official assignee/receiver advised of the position. When a person becomes insolvent, his property is put under the control of the official assignee/receiver. Accordingly, the credit balance in the account shall be disposed of according to the instructions of the official assignee/receiver.
(iv) Cash Credit Account: Messrs. Indian Pipes Ltd. A joint stock company has a separate legal entity with perpetual succession. It is not affected by the death, insolvency or insanity etc. of its members. Therefore, the insolvency of Mr. Prabhakar will not affect this account at all, and no action is required to be taken in this case. Mr. Prabhakar will, of course, have to resign his directorship in view of section 274 of the companies Act, 1956 which lays down that an undischarged insolvent cannot act as a director of any company.
Solution - 18
No; since the remittance has been received for the credit of Dilip Mukherjee’s account whereas the account in the branch is in joint names. The position may be informed to the remitting branch and their instructions sought. The money may be held in suspense account pending receipt of their final instruction.
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Solution - 19
In an overdrawn account, the liability of the joint account holders is joint and several and each is liable for the whole debt.
Solution - 20
In a joint account, one party alone cannot unilaterally purport to alter or amend the contract. When, therefore, one party to a joint account instructs the bank not to allow operations on the account by the other, the previous mandate of ‘either to sign’ stands cancelled and no further operations on the account should be allowed. After such revocation of authority, further operations may be allowed only under the joint signatures of all the persons or as per the fresh mandate given by them jointly. In the instant case, therefore, while taking cognizance of revocation of authority by Mr. Patil, he should be informed that no further debits in the account may be allowed unless consented to by Mrs. Patil.
Solution - 21
The mandate obtained at the time of opening of account applies for payment of the principal sum as well as interest. Therefore, A’s request for payment of interest cannot be acceded to.
Solution - 22
The balance in minor’s account (either singly or jointly with guardian) denotes his property. The guardian (whether natural or legal) is the only person who can deal with the property of the minor. Discharge given by him cannot be challenged by the minor either during his minority or after attaining majority. In a joint account, one party acts as agent of another. Minor being incompetent to contract cannot appoint an agent. Therefore, minor’s joint account cannot be opened with a person other than his lawful guardian. When two minors join in opening an account with the guardian and one of them starts operating the account upon attaining majority, such debits would not bind the other minor. Therefore, joint accounts in the names of two or more minors are not opened. In the instant case, the father of the minors may be advised to open two separate accounts for both the sons.
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Solution - 23
Death of a joint account holder countermands any authority given in respect of opeations on the account. If an account is subject to joint operations and the mandate does not indicate balance to be paid to the survivor, the surviving party is not automatically entitled to the credit balance in case of death of a joint account holder. Instead, the balance will be payable jointly to the legal heirs of the deceased and the surviving party. Accordingly the balance in the given case shall be paid against the joint discharge of Mr. K. S. Mathur and the legal heirs of Late Mr. K. M. Srivastava.
Note :- The position would, however, have been different if the instructions were: “To be operated by both of us jointly or the survivor”. In that case, it will be in order for the bank to make payment of the credit balance to the survivor.
Solution - 24
The opening of a joint account to be operated by either or survivor ensures that on the death of one party, the survivor can receive that balance in the account, without the need of obtaining legal representation in respect of the estate of the deceased. When a joint account mandate contains an ‘either or survivor’ clause, on the death of one of the account holders, the balance becomes payable to the survivor by virtue of the mandate. This is an accepted view and based on the principle that the terms of operation form according to the mandate and pay the balance to the survivor unless restrained by an order of the court. The payment so made will give a valid and sufficient discharge to the bank. The bank is under no obligation to receive or to give cognizance to the legal notice given by the legal heirs of Mr. Diwan by virtue of section 45 ZB of the Banking Regulation Act, 1949, which provides as under:
“No notice of the claim of any person, other than the person or persons in whose name a deposit is held by a banking company shall be receivable by the banking company, nor shall the banking company be bound by any such notice even though expressly given to it:
“Provided that where any decree, order, certificate or other authority from a court of competent jurisdiction relating to such deposit is produced before a banking company, the banking company shall take due note of such decree, order, certificate or other authority”.
The legal heirs should be told that their remedy lies in an application to the competent court of law and unless an injunction is obtained, the survivor cannot be prevented from withdrawing
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the balance. However, the survivor has to account to the legal heirs of the deceased for any share he may have in the joint account balance but the banker has no duty to interface about the same.
In the given case, so far as the bank is concerned, the survivor can withdraw the balance. Therefore, the cheque in question should be paid if otherwise in order.
Solution - 25
The duty and authority of a banker to pay a cheque drawn on him by his customer are terminated by notice of customer’s death. Therefore, the cheque signed by the deceased party should not be paid.
Since the balance is payable to the survivor as per the mandate, the cheque should be paid only after obtaining confirmation of the surviving party.
Solution - 26
On the death of an account holder all mandates and authorities given by him are cancelled as the notice of death operates as revocation of agency. In the given case, Mr. Sukhbir singh has been operating on the account in the capacity of an agent of Mr. Balbir Singh and Mr. Ranbir Singh. Therefore, the authority given to him will automatically stand cancelled on the death of Mr. Ranbir Singh. After the bank has received notice of death, no cheque should be paid even if it is issued before the death of the account holder. Accordingly, the cheque in question will not be honoured.
Since it is a joint account without ‘either or survivor’ clause, the balance is payable to the survivors jointly with the legal representatives of the deceased. In the event of any dispute between them, money will be paid as per the directions of the court.
Solution - 27
From the circumstances given above, it appears that Mrs. Leena Joseph probably did not place full facts before the court while obtaining the succession certificate. Therefore, the court should be apprised of the correct title of the fixed deposit receipt and the mandate and requested for reviewing the case. It would be in order for the bank to act as per the directions given by the court after hearing its application.
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Solution - 28
When one of the parties to a joint account revokes the authority of the other person to draw cheques, the original mandate obtained at the time of opening the account is automatically cancelled. After such revocation, no cheque should be paid without the signatures of both the parties or unless they give fresh mandate under their joint signatures. Therefore, the cheque in question should not be paid.
Solution - 29
There is no objection to opening of an account for a firm in which a minor has been admitted to the benefits of partnership. A minor may be appointed as an agent, but an express authority signed by the other partners for the minor to sign cheques, bills and notes on behalf of the firm, must be obtained, if they wish him to do so.
The minor will not be personally liable on such cheques, bills or notes or for any overdraft or other indebtedness of the firm, and if the firm should become insolvent, the receiving order will be made against the partners, other than the minors as a minor being absolutely incompetent to contract is not a ‘debtor’ and is never personally liable even for debts created for necessaries supplied to him.
Therefore, Shri Patel’s son cannot be allowed to operate the account unless so authorised by the other partner viz., Shri C. D. Shah. The position remains the same even if it is a debit account.
Solution - 30
Where a person by virtue of his special qualification or technical experience etc. has been inducted into the partnership to work the business and have control over it, he is known as working partner. However, the mere fact that the other partners do not take part in the management of the business does not absolve them of liability to third parties.
The partnership deed must be carefully perused to ascertain as to what are the restrictive clauses in so far as operations on the account are concerned. The operations on the account should be allowed strictly as per the partnership deed.
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The account opening form must be signed by all the partners including the mandate for operations on the account. However, signatures on the specimen signature card must be obtained only for those partners who are authorised to draw cheques. The ‘Letter of Partnership’ should be obtained duly signed by all the partners (excluding minors, if any). The usual ‘Letter of Partnership’ obtained by banks contains provisions relating to mode o operation on the account, continuance or dissolution of the firm, etc. it also contains an undertaking to inform the bank whenever the constitution of the firm undergoes any change.
Solution -,31
A partnership consisting of more than ten persons in banking business or more than twenty persons in case of any other business, is an illegal partnership in terms of section 11 of the Companies Act, 1956.
Since Saurashtra Ginning and Pressing Co. has twenty two persons, it is an illegal partnership. The account of such a partnership cannot be opened. The firm must be registered as a company under the Companies Act, 1956 or it should reduce the number of its partners so as to bring it within the maximum permissible number of twenty. Only then, the account can be opened.
Even if the partners are less than twenty, the request to open the account to be operated by any two partners jointly is cumbersome and impracticable. Therefore, the two partners having the power to operate the account must be specified.
Solution -32
Partnership arises out of contract. A minor is incompetent to contract. Therefore, a contract of partnership can not be entered into with a minor. There cannot be a partnership consisting of all minors or of one adult and all other minors. There must be at least two adults to form a partnership. The only concession given to a minor is that he can be admitted to the benefits of an existing firm.
In the given case, Messrs. Bankey Lal & Son cannot be treated as a partnership concern and therefore the account can not be opened as such.
The firm, in fact, is a sole proprietorship concern. The account can be opened only as a sole proprietorship firm.
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Solution - 33
Every partner is an accredited agent of partnership and he may bind all other partners by his acts. Since the account is that of the firm and was opened at the instance of both the partners, any instructions given by one of the partners is binding on the other. So, when Mr. Akbar revokes the authority given to the bank to honour the cheques drawn by Mr. Amar, the same is binding on the other partner and on the bank. Therefore, the operations in the account must be stopped after receipt of the notice. Any further withdrawal will be allowed only under joint signatures of both partners or as per the fresh mandate given by them jointly.
Solution -34
Any partner has an implied authority to countermand payment of any cheque drawn on firm’s account, and the banker is bound to comply with the instructions issued by that partner. It is immaterial whether the partner who has given stop payment instructions is authorised to operate on the account or not. Cancellation of the stop payment instructions would, however, require authority from all the partners.
Solution -35
(a) On the death of a partner, the original mandate is determined, but it can be presumed that the surviving partner are continuing the business for the purpose of winding it up and a fresh mandate can be taken from them to confirm their wishes concerning future transactions on the account. If the partnership deed provided that on the death of a partner, the business will be continued by the surviving partners, then also fresh mandate will be required. If the account is in credit, it can be continued unbroken in both the case and operations allowed as per the instructions of the survivors. Cheques drawn by the deceased partner before his death but presented for payment afterwards should not be paid without the approval of the surviving partners. In practice, when a fresh mandate is given by the surviving partners, specific instructions are also obtained as for the payment of the cheques drawn by the deceased partner, if any. If there are no such instructions, a prudent banker always tries to contact the surviving partners, if possible, before returning the cheque signed by the deceased.
In the given, the cheque drawn by Mr. Chaturvedi but presented after his death should, therefore, be returned with the remark ‘Partner deceased’.
(b) Where the firm’s account is overdrawn, the action a banker will take on the death of a partner, depends upon the security he holds and the reliance he wishes to place on the
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deceased partner’s private estate.if the banker decided to preserve his rights against the estate of the deceased partner, the account must be broken. This is necessary to avoid application of the rule in Clayton’s Case whereby subsequent payments into the account would reduce the liability of the deceased partner’s estate and fresh withdrawals will create a new debt for which surviving partners alone will be liable.
In case the banker is relying solely upon surviving partners or the partnership property as security, the account may be allowed to continue unbroken. If the surviving partners continue the business, new mandate should be obtained and loan documents got executed by the partners of the new firm. If the old accounts were secured by the third party guarantee, fresh letter of guarantee in favour of the new firm should be got signed by the guarantors because a guarantee is terminated on the change in the constitution of the firm, unless otherwise provided for in the guarantee form.
Solution -36
The firm is automatically dissolved on the insolvency of a partner unless there is an agreement to the contrary. Although the mandate is determined by the insolvency, the solvent partners may continue to draw cheques and use the account for the purpose of winding up the business where the firm is dissolved as a consequence of insolvency. In case the firm is not dissolved, then also the account may be continued unbroken. But in both the cases fresh mandate should be obtained as for further operations on the account. Cheques drawn by the insolvent partner should not be paid without the confirmation of solvent partner after the notice of insolvency is received by the bank.
The share of the insolvent partner will vest in the official assignee/Receiver who has a right to obtain in an account from the solvent partners. But the official Assignee/Receiver cannot interfere in the management of the business of the firm.
Note: If the account is overdrawn at the time of partner’s insolvency and the bank wishes to preserve its right against the insolvent partner, it must be broken to determine the liability and to avoid operation of the rule in Clayton’s Case. A new account should be opened for further transactions.
Solution - 37
The company should be asked to pass an ordinary resolution in the general meeting authorising borrowing by directors from the bank up to a specified figure and ratifying any previous borrowings in excess of the limit provided by the articles viz., Rs. 50 lakh. This procedure is
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not only simpler and quicker than an alteration of the articles, for which special resolution is required, but also protects the banker against ultra vires excesses over the limit which might have been taken unknown to him due to borrowing from other sources.
Solution - 38
In order to make a company liable on a cheque, bill or note it must appear on the face of such instrument that it was drawn accepted or made on behalf of the company. Where a person signs a cheque on behalf of a company, he may be held personally liable to third parties on the cheque if there is no indication that he has signed it on behalf of the company. Section 47 of the Companies Act, 1956 specifically lays down that:
“A bill of exchange, hundi or promissory note shall be deemed to have been made, accepted, drawn or endorsed on behalf of a company if drawn accepted or endorsed in the name of, or on behalf or on account of, the company by any person acting under its authority, express or implied.”
In terms of the above provision of the Companies Act, mere writing the name of the company by the authorised official would constitute valid signature fully binding on the company. However, this form of signature is not encouraged by the bankers. The usual form of signature in the case of company account is as under:
For Impex Electronics Ltd.,
Ashish Rajpal Sanjay Chary
Secretary Director
In the given case, the form of signature does not indicate that it has been signed by two officials in the representative capacity i.e, on behalf of the company. Therefore, the cheque should not be paid unless, of course, such a form signature is specifically authorised by the board’s resolution obtained at the time of opening the account.
Solution – 39
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The mandate implies that the cheques will be signed by three different individuals. Since Mr. Chaturvedi has signed the cheque in dual capacity, it should not be paid. The cheques must be drawn by Mr. Chaturvedi as secretary and two other directors.
Note: A director who possesses the prescribed qualifications may be appointed as secretary of the company. However, where a company has only two directors, neither of them can be a secretary of that company.
Solution - 40
The office of a director is vacated on his becoming an insolvent. Therefore, Mr. Daroowala should not be allowed to operate on the account any more. The cheques already drawn by Mr. Daroowala may, however, be paid if otherwise in order. There is no need to stop the account.
Since the number of directors in the company has come down to two on account of the vacancy in place of Mr. Daroowala, a new director should be appointed in his place in accordance with the procedure prescribed by the articles, so as to bring the minimum number of directors to three as required under the Companies Act. if the articles are silent for filling up such a casual vacancy, power is given to the board of directors in the case of a public company, to fill the vacancy at a board meeting. Alternatively, the appointment of the director can also be made by the shareholders by holding a general meeting.
Solution - 41
The balance held in a minor’s account with his guardian is deemed to be the property of the minor. Upon death of Mrs. Desai the balance would naturally be payable to the minor. No difficulty is likely to arise in allowing the money to be withdrawn before the minor comes of age; he could not claim the money over again on attaining his majority. The balance in the given case may, therefore, be paid to the minor upon proper identification and production of death certificate of Mrs. Bharati M. Desai provided he is capable of handling the transaction independently.
Solution - 42
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Yes, it would be in order for the bank to debit the cost or crediting the proceeds of the securities to the customer’s account since in doing so it is merely completing the contract already entered into by the customer.
Solution - 43
This seems to be rather an unusual case. The mother of the claimant expired nine years back but he did not give any notice of death to the bank. His father is missing for the last 19 years but still no information was given to the bank. He does not know he number of the locker. Nor is he in possession of its key. Under these circumstances it would not be safe to pay the balance to Mr. Vasudev without obtaining legal representation from a court of competent jurisdiction. He should be advised to obtain succession certificate for claiming the balance in savings account and letter of administration for taking delivery of the contents of the locker, if any.
Solution - 44
(1) Though the account is operated under single signature of any one of the parties to the joint account, it does not contain survivorship clause. Therefore, the account will be stopped no sooner the bank is informed of death of Mr. R. N. Dutta and the balance shall be payable jointly to the survivors and the legal heirs of Mr. Dutta. Survivors alone cannot be allowed to operate the account.
(2) Death of a customer operates as revocation of the mandate. Therefore, cheques drawn by Mr. Dutta and presented after notice of his death should be returned marked ‘Drawer deceased’.
(3) In case there is an overdraft, the account should be stopped to avoid operation of rule in Clayton’s case. If the overdraft account is allowed to continue unbroken after the notice of death, all subsequent credits will reduce the liability of the deceased’s estate, while fresh advances are the sole responsibility of the surviving joint account holders.
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Problem – 1
Mr. Sharma is maintaining a current account with your branch. The account is operated by Mr. Verma in whose favour Mr. Sharma had executed a power of attorney. A notice about death of Mr. Verma is received. Subsequently, a cheque signed by Mr. Verma is presented through clearing. Will you pay the cheque?
Problem – 2
Mr. Roy, a current account holder of your bank, has granted a power of attorney to Mr. Banerjee. Mr. Banerjee presents the power of attorney to the bank with a request to allow him to operate on Mr. Roy’s current account. Perusal of the power of attorney reveals that it contains several clauses conferring various specific powers on the attorney, but a specific power to draw cheques on the donor’s banking account is not among them. However, the final clause empowers the attorney generally to act in relation to Mr. Roy’s estate and affairs as fully and effectual in all respects as Mr. Roy himself.
Would you allow Mr. Banerjee to operate on Mr. Roy’s current account relying on the final clause of the power of attorney?
Problem – 3
Your bank had opened a current account for Mr. Kumar. The account is operated by his wife Mrs. Padmini under an authority given by Mr. Kumar. Subsequently, he executes a power of attorney to another person conferring, inter alia, power to operate on his banking account.
Does the power of attorney cancels the authority of Mrs. Padmini to operate on the current account?
Problem – 4
Shri Shiv Kumar Dinanath Mehta, who is a valued customer of your branch wants to place Rs. 10000in fixed deposit for 12 years for the benefit of his grandson Sunil aged 6 years. You received a request to open a fixed deposit account as under:
“Master Sunil Amrish Mehta (Minor) by his grandfather Shiv Kumar Dinanath Mehta and Shri Shiv Kumar Dinanath Mehta- payable to either or survivor.”
(Sri Shiv Kumar informs you that the amount is exclusively for the benefit of the minor and he does not desire to add the name of the minor’s father).
Please state whether you would open the above account.
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Problem - 5
Shri Vadilal Shah is maintaining a good current account with you. A cheque for Rs. 1000 is presented for cash payment by his minor son. The clerk at the counter expresses doubt whether payment of Rs. 1000 can be made to the minor. Discuss the position.
Problem - 6
Mr. Yadav deposited money in the joint names of himself and his son Gaurav, a boy of fifteen, on the terms that the signature of either was to be accepted as withdrawal authority, and the balance was to go the survivor. At Mr. Yadav’s death Gaurav has not yet attained his majority. To whom should the bank pay the money?
Problem - 7
There is a savings account at your branch in the name and style “Master Ambrish Puri (minor)under guardianship of his father Mr. G. S Puri and Mr. G. S. Puri”. It is operated by Mr. G. S. Puri alone.
Master Ambrish Puri, after attaining majority, serves a legal notice on the bank claiming a sum of Rs. 22,500 on the ground that his money had been misused by the major party to the account (his father) and thus the bank has not safeguarded his interests. He asserts that this amount was withdrawn from the account over a period of time and was used for purposes other than his benefits.
Discuss the bank’s position.
Problem - 8
Mr. Sandeep Arora, aged 14 years, had deposited a sum of Rs. 7500 in a term deposit account for a period of 5 years. He approaches for premature payment of the fixed deposit receipt. Will you accede to his request?
Problem - 9
Mr. Juta Wala, a shoemaker, had obtained a loan for Rs. 2500 from your bank under differential rate of interest scheme to augment his income. While signing the loan documents, he had declared that he was over 18 years of age.
When the notice for repayment of due installment is sent to him, he declines to pay on the ground that he was only 17 years of age at the time of borrowing money. In fact, he had fraudulently misrepresented to the bank about his age when he obtained loan. Discuss the bank’s position.
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Problem - 10
Mr. Raju Saxena, aged 16 years, maintains savings account at your branch. By mistake, the account is over drawn for Rs. 1500. Despite repeated requests, Mr. Saxena has not repaid the overdraft. Later on, he calls at the branch for obtaining payment of a fixed deposit receipt, which is also in his single name.
Can bank set off the balance in the fixed deposit account against the debit balance in savings account?
Problem - 11
During the deposit mobilisation week, you had opened a current account for Mrs. Kamini Sharma, a social worker and wife of the mayor of the city. Her husband has already got handsome deposits at your branch. Looking to her background and keeping in mind the deposits of her husband you had passed a cheque which resulted in an overdraft for Rs. 2000 in Mrs. Kamini’s account. However, various letters and requests for repayment of the overdraft could evoke no response from her. Enquiries reveal that Mrs. Kamini has no separate property of her own and she is entirely dependent upon her husband’s income for her livelihood. When her husband was requested to repay the overdraft, he flatly refused to oblige the bank.
Discuss the bank’s position.
Problem - 12
Miss Deepa Bansal maintains a savings account at your bank. She approaches the branch with a request for change of the title of the account as Mrs. Deepa Goyal. This change is necessitated on account of her marriage with one Dr. Rajesh Goyal. What course of action would you follow in the above case?
Problem - 13
An insolvency petition has been presented by the creditors of Mr. Kumar who maintains a current account which is in credit. Upon receipt of notice, the bank stops payment in the account and notifies Mr. Kumar about this. However, during pendency of insolvency proceedings Mr. Kumar dies. The legal heirs of A serve a notice on the bank claiming the amount lying to the credit of the account. Will the legal heirs succeed in their claim?
Problem - 14
A bank receives notice that one of the two persons having a joint account with the bank is involved in insolvency proceedings where the account shows a credit balance of Rs. 50000. Can
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the bank safely honour cheques drawn by the other party if it holds an authority to honour cheques of either party of the account?
PROBLEM-15
Brijmohan Singh & Sons is a proprietorship firm with Shri Brijmohan as sole proprietor. They have started contracting business and have been maintaining a current account with your branch with average balance of Rs. 1 lakh. They also maintain another well-conducted current account with your Baroda Branch. One day a cheque for Rs. 15000 drawn on Baroda account was presented through mistake to your branch through clearing and your branch returned the cheque and gave reason ‘Refer to drawer’.
The customer threatened to sue the bank for damages and sent solicitor’s notice. While replying to them, it came to your notice that the proprietor was an undischarged bankrupt.
Please discuss whether the customer will succeed in the suit for damages.
Problem - 16
Mr. Arun Jain has been dealing with your bank for quite a long time. You receive a notice that he has been adjudicated insolvent.
How will you act in the following circumstances?
(i) Mr. Jain presented an order cheque for Rs. 2500 across the counter for cash payment drawn in his favour by another customer of the bank.
(ii) There is a joint account in the names of Mr. Arun Jain and Mr. Satish Gupta enjoying clean overdraft facility with joint and several liabilities. Either of them can sign cheques. The debit balance in the account is Rs. 7500.
(iii) Messrs. Goodluck Paints are enjoying cash credit (hypothecation) limit of Rs. 1 lakh, which is also covered by personal guarantee of Mr. Arun Jain. At present, the account is showing a debit balance of Rs. 45000.
Problem - 17
The name of your customer Mr. Prabhakar appears in the following accounts at your branch:
Account
Balance Rs.
(i)
Overdraft account in the joint names of Mr. Prabhakar and Mrs. Prabhakar (his wife) – security: shares valuing Rs. 8000 in the name of Mr. Prabhakar
Dr.
5000
(ii)
Current account: “Mr. Prabhakar, Mr. Amar and Mr. Anthony – Trustees of the estate of Mr. Kishan (deceased)”
Cr
5000
(iii)
Current account: Messrs. Prabhakar & co. (Partners: Mr. Prabhakar and Mr. Ajai Mathur)
Cr.
100
(iv)
Cash credit account: Messers. Indian Pipes Ltd. (Directors: Mr. Prabhakar, Mr. Mohan Kumar, Mr. Amit Kumar and Mr. Krishna Kumar) security pledge of goods worth Rs. 2 lakh.
Dr.
150000
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You receive notice that Messrs. Prabhakar & Co. has been adjudged insolvent. Discuss the effect of the insolvency on each account.
Problem - 18
You receive from another branch a sum of Rs. 5000 for credit of savings bank account of Dilip Mukherjee. On search of the ledgers you find that there is a joint savings bank account of Dilip Mukherjee and Nikhil Banerjee, payable to ‘Either or Survivor’. Would you credit the above remittance of Rs. 5000 to the joint account?
Problem - 19
Mr. Handa and Mr. Arora open a joint account which is overdrawn. Mr. Handa has been adjudged insolvent. Is Mr. Arora liable for the whole debt.
Problem -20
You have opened a current account jointly in the names of Mr. and Mrs. Patil with instructions to pay to either or survivor. The account shows a credit balance of Rs. 3500 on 1st March. On 2nd March, you receive a letter from Me. Patil to say that you should not allow Mrs. Patil to operate on the account as the court has passed a decree of divorce. He further instructs you to pay every month Rs. 10000 to the court for payment to be made to Mrs. Patil for her maintenance.
Problem - 21
A and B have fixed deposit repayable jointly with interest payable every quarter. Later A approaches the bank to pay him interest. Can the bank pay him interests relying on an assumption that while principal amount is payable jointly interest can be paid to either party in absence of specific instructions?
Problem - 22
As a branch manager, how ill you deal with the following?
A man approaches you for opening a joint savings bank account in the name of his two minor sons aged 7 years and 5 years to be operated by him as father and guardian.
Problem - 23
Mr. K. M. Srivastava and Mr. K. S. Mathur are maintaining a savings account. The instructions are – “To be operated by both of us jointly”. A notice is received about the death of Mr. K. M. Srivastava. It is also informed that he died intestate i.e without leaving a will. He has left behind his wife, two sons and a married daughter.
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Whom would you pay the balance of the above account?
Problem - 24
There is current account at your branch in the joint names of Mr. Diwan and Mr. Sethia with instructions to be operated by either or survivor. Mr. Diwan dies and a legal notice is served on the bank by his heirs claiming the balance in the account. At the same time, a cheque for Rs. 7200 signed by Mr. Sethia is received in clearing. The account shows a credit balance of Rs. 20,800.
Will you pay the cheque?
Problem - 25
Mr. Bhawani Singh maintains a savings account jointly with Major Ram Singh payable to ‘either or survivor’. Major Ram Singh dies leavaing behind his wife, Mrs. Anuradha, as the only surviving heir. After the notice of death of Major Ram Singh is served on the bank, a cheque for Rs. 500 signed by him is received in clearing. There is a credit balance of Rs. 9225/- in the account.
What course of action would you follow in this case?
Problem - 26
Mr. Balbir Singh maintains a savings account jointly with Mr. Ranbir singh. It is operated by Mr. Sukhbir Singh who has been duly authorised by the account holders. You have received a notice of death of Mr. Ranbir Singh. Subsequently, a cheque signed by Mr. Sukhbir Singh is presented for payment. Credit balance in the account is sufficient to meet the cheque.
As a Branch manager, how will you deal with the cheque?
Problem 27
Your branch had issued a fixed deposit receipt for Rs. 10000 on 1st January, for a period of 5 years in the joint names of Mr. Joseph and Mr. Mathew payable to ‘either or survivor’. After the maturity of the fixed deposit receipt Mrs. Leena Joseph, widow of Late Mr. Joseph, called at the branch and informed about the death of her husband. She claims the amount of the fixed deposit receipt and produces succession certificate in support of her claim. Mr. Mathew has not turned up so far. He is reported to have proceeded abroad on a business trip.
How will you act in the above situation?
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Problem - 28
Mr. Chauhan and Mr. Rajput maintain a savings account in their joint names which is operated by either of them singly. Mr. Chauhan serves a notice asking the bank not to honour any cheque drawn by Mr. Rajput. Subsequently, a cheque signed by Mr. Chauhan is presented for payment.
Will you pay the cheque?
Problem - 29
Messrs. A. B. Patel and Co. are maintaining a partnership account with you. There are two partners viz., Shri A.B.Patel and Shri C. D. Shah. You are informed that the minor son of Mr. A.B. Patel has been admitted as a partner to the benefits of partnership. If you are requested by Shri Patel to allow the minor son to operate the account, would you allow the same? Would your answer be different if the account had an overdraft limit?
Problem - 30
A firm with five partners approaches a bank for opening a current account. The firm represents that two of the five partners are working partners as such only the three partners who have contributed the capital will operate the current account. What additional procedure or precaution may be necessary for such account with restrictive operations?
Problem - 31
Messrs. Saurashtra Ginning & Pressing Co. having twenty two partners request you to open a current account to be operated by any two of the partners jointly. Will you open the account?
Problem - 32
Mr. Bankey Lal, in partnershp with his minor son Raju aged 15 years, trades as ‘Bankey Lal & Son’. Mr. Bankey Lal approaches you for opening a current account of his partnership firm.
Will you accede to his request?
Problem - 33
Messrs. Jupiter Trading Co. consisting of Mr. Amar and Mr. Akbar as partners maintain current account at your bank with mandate “Account will be operated by Mr. Amar alone as a
FAST TRACK PRIMER: day to day PROBLEMS
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partner of the firm”. Mr. Akbar serves a notice on the bank advising that Mr. Amar should not be allowed to operate on the account.
How will you deal with the above situation?
Problem - 34
Messrs. Sahitya Bhawan consists of three partners-Mr. Bansal, Mr. Jain and Mr. Singhal. The firm maintains a current account which is operated by Mr. Bansal and Mr. Jain jointly.
Mr. Singhal countermands payment of a cheque issued by Mr. Bansal and Mr. Jain.
Will you accept the stop payment instructions given by Mr. Singhal?
Problem - 35
Messrs. Acme Trading Co. consisting of Mr. Ghose, Mr. Ramanathan and Mr. Chaturvedi as partners maintains a current account at your bank. The account is operated by any of the partners singly. Bank is informed about the death of Mr. Chaturvedi. Subsequently, a cheque signed by Mr. Chaturvedi is presented for payment. There is sufficient credit balance in the account to meet the cheque.
(a) Will you pay the cheque?
(b) Mr. Chaturvedi happens to be a partner in another firm, Messrs. Cement Sales Corporation, which is also dealing with your bank. The firm enjoys cash credit (hypothecation) and a overdraft facilities. The present debit balance in both the accounts is Rs. 1,75,000. What action would you take in this case.
Problem – 36
Your bank had opened a current account for Messrs. Durex Pen Co., a partnership firm having Mr. Suresh Agarwal, Mr. Satish Agarwal and Mr. Ramesh Agarwal as partners. According to the mandate, any partner can sign cheques singly. The balance in the account is Rs. 45,000, credit.
Mr. Satish Agarwal has been adjudicated insolvent. A cheque for Rs. 10,000 signed by him bearing date prior to the date of the order of adjudication is presented through clearing.
How will you deal with the above situation?
Problem - 37
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The articles of association of a company provide that the borrowing powers of the directors, including loans from the company'’ bankers, are limited so that the amount outstanding at any one time shall not exceed Rs. 50 lakh without the consent of the company in general meeting. What is the best course for a banker to adopt if he wishes to lend to the company in excess of this figure?
Problem - 38
Impex Electronics Ltd. has an account at your bank. The board of directors, by a resolution, has authorised Mr. Ashish Rajpal, Secretary, and Mr. Sanjay Chary, director to sign cheques jointly, a cheque is presented for payment signed in the following manner:
Ashish Rajpal Sanjay Chary
(Secretary) (Director)
of Impex Electronics Ltd.
Will you pay the cheque?
Problem – 39
You had opened an account for Himalaya Engineering Co. Ltd. about three years back. The company has four directors, viz., Mr. P. Dwivedi, Mr. K. S Trivedi, Mr. S. Chaturvedi and Mr. S. N. Mishra. Mr. Chaturvedi is also holding the post of secretary of the company. The board’s resolution obtained at the time of opening the account states :”The account shall be operated by the secretary jointly with two directors”. A cheque signed in the following manner is presented for payment:
For Himalaya Engineering Co. Ltd.
S. Chaturvedi S. Dwivedi S. Chaturvedi
Secretary Director Director
Will you pay the cheque?
Problem - 40
Cuticura Cosmetics Ltd., maintain a current account at your bank. The company has three directors viz., Miss Zeenat, Mr. Khan and Mr. Daroowala. The account is operated by any of the directors singly. It is informed that Mr. Daroowala has been adjudged insolvent. The balance in the account is Rs. 3 lakh, credit.
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How will you deal with the above situation?
Problem - 41
How will you as a banker, deal with the following situation?
You had opened a savings bank account jointly in the names of Mrs. Bharati M. Desai and her minor son Ajay Desai aged Years. The account shows a credit balance of Rs. 5000 on 1st January. You are informed of the death of Mrs. Desai on 3rd Janyary . Her minor son who is the only child of the family approaches you on 10th January asking you to pay him the balance of Rs. 5000 lying in the joint account as he wants to go out of India with his uncle.
Problem - 42
A customer, who has given written instructions to the bank to buy or sell stocks, shares and other securities dies before settlement day. Can the bank, notwithstanding the customer’s death, debit his account with the cost of credit it with proceeds as the case may be?
Problem - 43
There is a dormant savings bank account at your branch in the names of Mr. J. B. Mahajan and Mrs. Ansuya J. Mahajan payable to either or survivor, with a balance of Rs. 7500/- since. The account was opened in .
In January 2003, one Mr. Vasudev (aged 21 Years), claiming to be the only son of Mr. J. B. Mahajan approaches you and informs as under:
(1) He holds the pass book of this account.
(2) His mother Ansuya died in 2001.
(3) His father has left the house since 1980 and his whereabouts are not known.
(4) He has information that a safe deposit locker was also in their names. The key of the locker is not traceable.
He requests you, as branch manager, to make payment of the balance in the account to him and also to deliver the articles lying in the locker to him.
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How will you deal with the matter?
Problem - 44
Shri M.P. Shah, Shri O. M. Chokshy and Shri R. N. Dutta mainain a joint current account with you. Instructions for operations of the account are :”PAYABLE TO ANY ONE OF THEM.”. please discuss what would be the position of the bank in the following event?
(1) You receive notice that Shri R. N. Dutta is dead. Will you allow the account to be operated by the remaining survivors jointly or singly?
(2) A few cheques drawn by Shri R. N. Dutta are presented for payment after you have received notice of death. The cheques were signed before the death.
(3) In case there is an overdraft arrangement in the account and the balance in the account is debit Rs. 5000; what would be the position in case the account is allowed to be operated by the surviving parties?
* * * * *
FAST TRACK PRIMERSUGGESTED SOLUTIONS 2 DAY TO DAY PROBLEMS
BY Binod K Rath binod.rath@sbi.co.in
________________________________________________________________________________________
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Solution - 1
The death of the agent does not prevent payment of cheques drawn by him in such capacity before death. Accordingly, the cheque drawn by Mr. Verma may be paid because he is not the customer of the bank and, in effect, Mr. Sharma is then the drawer of the cheque.
Solution-2
Any act by the attorney must be undoubtedly covered by the terms of the power. If the power contains authority to do specific acts and also authority to do acts of a general kind, the general words cannot be relied on to confer a general authority, unless their generality is expressly stated not to be limited to the specific powers already conferred. In fact, the general clause gives only such powers as may be necessary for carrying into effect the purposes of the specific powers laid down in the previous clauses.
Since there is no specific clause in the power authorising Mr. Banerjee to operate on Mr. Roy’s banking account, he cannot be allowed to do so merely on the strength of the general clause.
Solution -3
The existence of a power of attorney does not cancel the mandate already given to the bank unless it specifically states that earlier authorities are cancelled. However, if the power of attorney is silent as to existing mandates, customer’s express instructions should be obtained so as to avoid any misunderstanding.
Solution - 4
It is only the lawful guardian who has authority to deal with the minor’s money, enter into certain contracts and give valid discharge or receipt for money, on behalf of the minor. Discharge given by him cannot be challenged by the minor either during his minority or after attaining majority. This is so because a person dealing with the minor’s guardian is under no obligation to satisfy himself that the guardian in fact acts for the benefit of the minor.
Therefore, a bank should not ordinarily allow any one except the lawful guardian to open savings or time deposit account when the minor’s name is involved. In case a minor’s account is opened jointly with a person other than the lawful guardian of the minor, the lawful guardian may subsequently intervene and claim that he is the only person who has authority to deal with
FAST TRACK PRIMERSUGGESTED SOLUTIONS 2 DAY TO DAY PROBLEMS
BY Binod K Rath binod.rath@sbi.co.in
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the property of the minor. Naturally, this will put the bank in an extremely awkward position, as the contract of deposit will be with a person other than the lawful guardian whereas the lawful guardian will demand to deal with the funds or to operate on the account. The best way to avoid this situation is not to open a minor account jointly with a person other than the lawful guardian.
The banker’s limitation in opening the account in the desired form should be properly explained to Mr. Shiv Kumar Dinanath Mehta. He may be advised to involve atleast the mother of the minor, if not the father. Further, as per the guidelines issued by Indian Banks’ Association, fixed deposit receipts cannot be issued for a period exceeding ten years.
Solution - 5
If the minor is old enough to comprehend the transaction, payment may be made to him. The paying banker runs no risk in such cases.
Solution - 6
When only a relatively modest sum is involved, the minor may be allowed payment applying the normal rules of survivorship, but, where more substantial amounts arise it should be seen that the minor is capable of fully appreciating the transaction and is accompanied by the surviving natural guardian, if any (i.e the mother in the given case). Alternatively legal advise should be taken.
Solution -7
Under all systems of personal law, father of a minor is his natural guardian. It is usual for bankers to open minors’ joint accounts with their lawful guardian. A lawful guardian has authority to deal with the minor’s property and he can give a valid discharge for the payments received on behalf of the minor discharge given by the guardian cannot be challenged by the minor either during his minority or after attaining majority. A minor cannot raise a dispute with the bank on the ground that the funds were misused by the guardian for purposes other than the minor’s benefit. This is so because a person dealing with the minor’s guardian is under no obligation to satisfy himself that the guardian in fact acts for the benefit of the minor.
Therefore, the claim of the minor in the given case is not tenable.
Solution -8
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BY Binod K Rath binod.rath@sbi.co.in
________________________________________________________________________________________
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If a fixed deposit receipt is in single name of a minor, repayment thereof before maturity would not ordinarily involve any risk provided the discharge of the minor is properly obtained and can be proved. Therefore, the request of the minor in the given case may be acceded to.
Note
When a fixed deposit receipt is held in the joint names of a minor and his guardian, the banker must strictly follow the terms of the contract (the rules governing such accounts). The minor, may either during his minority,or thereafter sue the bank for violation of the terms of contract in case the guardian has misused the funds for purposes other than the minor’s benefit. Therefore, the bank should not ordinarily make premature payment of the deposit receipts, which are in the joint names of minor and his guardian.
Solution - 9
A minor, who has deceived the other party to the agreement by representing that he was of full age, is not prevented from later asserting that he was a minor at the time he entered into agreement. While delivering judgement in a case before the Bombay High Court Beaumont C.J. reviewed the earlier authorities on the point and concluded by saying:
“The court is of the opinion that where an infant represents fraudulently or otherwise that he is of age and thereby induces another to enter into a contract with him then in an action founded on the contract the infant is not esteemed from setting up infancy.”
Therefore, the bank will not succeed in a suit against Mr. Juta Wala for the recovery of the advance. Likewise, the money cannot be recovered from his estate, if any. Nor can the bank recover money from his guardian.
Solution - 10
Before the right of set off is invoked, the first and foremost requirement is that the debt in respect of which the right is exercised, should be a valid debt. Since a loan to the minor is void ab initio, it is an invalid debt. Therefore, from the legal standpoint, the bank cannot exercise right of set-off in the given case.
Solution - 11
A married woman cannot make her husband responsible for debts incurred by her unless it can be proved that she contracted them acting as his agent on his behalf or unless, of course, the husband expressly undertook to be responsible by guarantee or otherwise for certain debts. Therefore, no prudent banker would grant unsecured overdraft to a married woman unless she
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BY Binod K Rath binod.rath@sbi.co.in
________________________________________________________________________________________
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is known to possess undoubted and adequate resources in her own right or unless the contract is specifically authorised by the husband.
Since, in the given case, the consent of husband was not obtained while allowing the overdraft, the bank cannot proceed against him for the recovery of the overdraft. As Mrs. Kamini has no estate of her own from which the overdraft can be realised, filling of a suit against her will be of no avail. Therefore, the bank has no recourse but to exercise moral pressure on Mr. Sharma for the adjustment of the overdraft allowed to his wife.
Solution - 12
The change can be effected on being satisfied that Miss Deepa Bansal is indeed married to Dr. Rajesh Goyal. Fresh account opening form, specimen signature card etc. should be got completed. It is usual for bankers, in such cases, to close the existing account and open a new one in the changed name of the lady.
Introduction should also be obtained a fresh. This is necessary because failure to obtain fresh introduction may disentitle the bank of statutory protection under section 131 of the Negotiable Instruments Act in the case of a charge of conversion against the bank at a later stage.
Solution - 13
In case a debtor by or against whom an insolvency petition has been presented dies, the proceedings in the matter shall, unless the court otherwise orders, be continued as if he were alive, so far as it may be necessary for the realisation and distribution of the property of the debtor. Thus, the death of the debtor does not interfere with the insolvency proceedings; and where the property has vested in the official assignee or the receiver after adjudication, the death of the insolvent does not divest the official assignee or the receiver of the property.
Therefore, the money held in the account shall be disposed of as per the orders of the court/official assignee/receiver.
Solution - 14
Upon the insolvency of a joint account holder, the mandate is immediately determined and the account has to be stopped because a portion of the balance may belong to the official assignee / receiver and the bank cannot itself apportion the moneys between the insolvent’s estate and
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the solvent party. Before stopping the account, however, it must be ensured that a petition has been presented in the court or an adjudication order has been passed against the customer. All cheques presented thereafter drawn by the insolvent party can be returned unpaid marked ‘Refer to drawer’, but cheques drawn by the solvent party should be returned with a much more explicit answer which embodies that the dishonour has no reflection upon the credit of the drawer.
The balance in the account shall be allowed to be withdrawn under the joint authority of the official assignee/receiver and the solvent account holder. Alternatively, the official assignee/receiver may expressly authorise the release of the balance to the solvent party to the joint account. Likewise, any item held in safe custody in the joint names will be released only upon the joint authority of the official assignee/receiver and the solvent account holder.
The solvent party may, however, open a separate account exclusively for transactions unconnected with the insolvent’s estate.
Solution - 15
The answer ‘Refer to drawer’ is generally used by bankers when a cheque is dishonoured for want of funds. This is a milder form of refusal than ‘Inadequate funds’ or, ‘Not arranged for’ and does not necessarily reflect on the drawer’s financial position. The expression ‘Refer to drawer’ amounts to a statement of the bank: “We are not paying; go back to the drawer and ask him to pay”. Thus, ‘Refer to drawer’ would seem by itself not to be libelous and the customer would not succeed on this count in an action against the bank though the appropriate answer for returning the subject cheque would have been ‘Not drawn on us’.
Section 28(4) of the Provincial Insolvency Act provides that all property acquired by the insolvent after adjudication and before discharge shall forthwith vest in the receiver. In other words, all property, whether it is owned by the insolvent at the time of the order of adjudication or it is a acquired after such order but before discharge, vests in the receiver as soon as the adjudication order is made. It is for this reason that no account is opened in the name of an undischarged insolvent. When the banker has ascertained that a person having an account is an undischarged insolvent. Unless satisfied that the account is on behalf of some other person, he should inform the official assignee/receiver, and thereafter he should not make any payment out of the account except under order of the court or instructions from the official assignee/receiver. The customer being an undischarged insolvent. There is no question of his succeeding in a suit for damages against the bank.
Solution - 16
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BY Binod K Rath binod.rath@sbi.co.in
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(i) One of the important consequences of an adjudication order is that the property of the insolvent becomes vested in the official assignee/receiver. Accordingly, the true owner of the cheque will be official assignee/receiver and the title of the payee (i.e Mr. Arun Jain) may, therefore, be defective. As such payment of the cheque should not be made unless proper enquiries are made from the official assignee / receiver and his discharge / endorsement obtained. If Mr. Jain does not leave the cheque with the bank for making requisite enquiry from the official assignee/receiver, it may be returned with the reason: “Title of the payee requires confirmation”.
However, if the bank is satisfied that the cheque was received by the payee in the capacity of a trustee, payment thereof can safely be made as the official assignee/receiver has no right to claim trust property held by the insolvent.
(ii) Transaction in the account should be immediately stopped. Failure to do so may reduce the amount of the bank’s claim against the insolvent’s estate as the rule in Clayton’s Case will operate against the bank and fresh withdrwals will be the responsibility of the solvent party whereas any credit to the account will reduce the liability of the insolvent’s estate. Unless the bank decides to rely entirely on the solvent party, i.e., Mr. Satish Gupta, proof of debt will be lodged with the official assignee/receiver. In the given case, since borrowers are jointly and severally liable, the bank can prove for the entire debt against the estate of the insolvent ignoring the solvent account holder.
(iii) If the bank decides to enforce its claim for the guarantee liability against the estate of Mr. Arun Jain, the account should be stopped to avoid operation of rule in Clayton’s Case, and a claim be judged with the official assignee/receiver. Alternatively, the bank can also ask the borrower to provide some other guarantee. In the latter case, no further action is required and the account may be allowed to continue without interruption.
Solution - 17
Insolvency of the firm involves insolvency of all partners. Insolvency of a partner, however, does not necessarily involve insolvency of the firm but it results in the dissolution of the firm. The problem is discussed in view of this position.
(i) Overdraft account- Mr. Prabhakar and Mrs. Prabhakar. Insolvency of one of the joint account holders determines the authority of other persons to operate upon the account. The credit balance in the account is disposed of according to the joint instructions of the official assignee/receiver and the solvent party. Therefore, transaction in the account must be stopped and the official assignee/receiver advised that the bank is a secured creditor. The bank will obviously fall back upon the security i.e. shares which
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will be disposed of for the realisation of debt. If there remains any surplus after adjustment of the bank’s dues. The same will be released as per the joint written instructions of Mrs. Prabhakar and official assignee/receiver.
(ii) Current Account: Mr. Prachakar, Mr. Amar and Mr. Anthony – Trustees of the estate of Kishan (Deceased). Subject to anything contrary contained in the trust deed, insolvency of a trustee does not necessarily involve resignation of his office. But, it is usually a good reason for his removal. An application may be made by the beneficiary or other trustees for the removal of an insolvent trustee and appointment of another one in his place, if necessary, under the Trust Act. it would, therefore, be advisable to hold early consultations with other trustees as to whether a new trustee is contemplated to be appointed. If need be, a new mandate should be obtained.
Property held by the insolvent in trust for another person (who is beneficiary) is not divisible among the creditors of the insolvent. Consequently, the official assignee/receiver cannot claim the amount held in trust account. Therefore, it is not necessary to stop the account and the operations may be allowed as usual.
(iii) Current Account: Messrs. Prabhakar & Co. In the event of partnership becoming insolvent, the power of the partners to act for the firm is automatically determined and they can no longer operate upon the banking account. Therefore, the account of the firm, whether in debit or in credit, must be stopped and the official assignee/receiver advised of the position. When a person becomes insolvent, his property is put under the control of the official assignee/receiver. Accordingly, the credit balance in the account shall be disposed of according to the instructions of the official assignee/receiver.
(iv) Cash Credit Account: Messrs. Indian Pipes Ltd. A joint stock company has a separate legal entity with perpetual succession. It is not affected by the death, insolvency or insanity etc. of its members. Therefore, the insolvency of Mr. Prabhakar will not affect this account at all, and no action is required to be taken in this case. Mr. Prabhakar will, of course, have to resign his directorship in view of section 274 of the companies Act, 1956 which lays down that an undischarged insolvent cannot act as a director of any company.
Solution - 18
No; since the remittance has been received for the credit of Dilip Mukherjee’s account whereas the account in the branch is in joint names. The position may be informed to the remitting branch and their instructions sought. The money may be held in suspense account pending receipt of their final instruction.
FAST TRACK PRIMERSUGGESTED SOLUTIONS 2 DAY TO DAY PROBLEMS
BY Binod K Rath binod.rath@sbi.co.in
________________________________________________________________________________________
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Solution - 19
In an overdrawn account, the liability of the joint account holders is joint and several and each is liable for the whole debt.
Solution - 20
In a joint account, one party alone cannot unilaterally purport to alter or amend the contract. When, therefore, one party to a joint account instructs the bank not to allow operations on the account by the other, the previous mandate of ‘either to sign’ stands cancelled and no further operations on the account should be allowed. After such revocation of authority, further operations may be allowed only under the joint signatures of all the persons or as per the fresh mandate given by them jointly. In the instant case, therefore, while taking cognizance of revocation of authority by Mr. Patil, he should be informed that no further debits in the account may be allowed unless consented to by Mrs. Patil.
Solution - 21
The mandate obtained at the time of opening of account applies for payment of the principal sum as well as interest. Therefore, A’s request for payment of interest cannot be acceded to.
Solution - 22
The balance in minor’s account (either singly or jointly with guardian) denotes his property. The guardian (whether natural or legal) is the only person who can deal with the property of the minor. Discharge given by him cannot be challenged by the minor either during his minority or after attaining majority. In a joint account, one party acts as agent of another. Minor being incompetent to contract cannot appoint an agent. Therefore, minor’s joint account cannot be opened with a person other than his lawful guardian. When two minors join in opening an account with the guardian and one of them starts operating the account upon attaining majority, such debits would not bind the other minor. Therefore, joint accounts in the names of two or more minors are not opened. In the instant case, the father of the minors may be advised to open two separate accounts for both the sons.
FAST TRACK PRIMERSUGGESTED SOLUTIONS 2 DAY TO DAY PROBLEMS
BY Binod K Rath binod.rath@sbi.co.in
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Solution - 23
Death of a joint account holder countermands any authority given in respect of opeations on the account. If an account is subject to joint operations and the mandate does not indicate balance to be paid to the survivor, the surviving party is not automatically entitled to the credit balance in case of death of a joint account holder. Instead, the balance will be payable jointly to the legal heirs of the deceased and the surviving party. Accordingly the balance in the given case shall be paid against the joint discharge of Mr. K. S. Mathur and the legal heirs of Late Mr. K. M. Srivastava.
Note :- The position would, however, have been different if the instructions were: “To be operated by both of us jointly or the survivor”. In that case, it will be in order for the bank to make payment of the credit balance to the survivor.
Solution - 24
The opening of a joint account to be operated by either or survivor ensures that on the death of one party, the survivor can receive that balance in the account, without the need of obtaining legal representation in respect of the estate of the deceased. When a joint account mandate contains an ‘either or survivor’ clause, on the death of one of the account holders, the balance becomes payable to the survivor by virtue of the mandate. This is an accepted view and based on the principle that the terms of operation form according to the mandate and pay the balance to the survivor unless restrained by an order of the court. The payment so made will give a valid and sufficient discharge to the bank. The bank is under no obligation to receive or to give cognizance to the legal notice given by the legal heirs of Mr. Diwan by virtue of section 45 ZB of the Banking Regulation Act, 1949, which provides as under:
“No notice of the claim of any person, other than the person or persons in whose name a deposit is held by a banking company shall be receivable by the banking company, nor shall the banking company be bound by any such notice even though expressly given to it:
“Provided that where any decree, order, certificate or other authority from a court of competent jurisdiction relating to such deposit is produced before a banking company, the banking company shall take due note of such decree, order, certificate or other authority”.
The legal heirs should be told that their remedy lies in an application to the competent court of law and unless an injunction is obtained, the survivor cannot be prevented from withdrawing
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the balance. However, the survivor has to account to the legal heirs of the deceased for any share he may have in the joint account balance but the banker has no duty to interface about the same.
In the given case, so far as the bank is concerned, the survivor can withdraw the balance. Therefore, the cheque in question should be paid if otherwise in order.
Solution - 25
The duty and authority of a banker to pay a cheque drawn on him by his customer are terminated by notice of customer’s death. Therefore, the cheque signed by the deceased party should not be paid.
Since the balance is payable to the survivor as per the mandate, the cheque should be paid only after obtaining confirmation of the surviving party.
Solution - 26
On the death of an account holder all mandates and authorities given by him are cancelled as the notice of death operates as revocation of agency. In the given case, Mr. Sukhbir singh has been operating on the account in the capacity of an agent of Mr. Balbir Singh and Mr. Ranbir Singh. Therefore, the authority given to him will automatically stand cancelled on the death of Mr. Ranbir Singh. After the bank has received notice of death, no cheque should be paid even if it is issued before the death of the account holder. Accordingly, the cheque in question will not be honoured.
Since it is a joint account without ‘either or survivor’ clause, the balance is payable to the survivors jointly with the legal representatives of the deceased. In the event of any dispute between them, money will be paid as per the directions of the court.
Solution - 27
From the circumstances given above, it appears that Mrs. Leena Joseph probably did not place full facts before the court while obtaining the succession certificate. Therefore, the court should be apprised of the correct title of the fixed deposit receipt and the mandate and requested for reviewing the case. It would be in order for the bank to act as per the directions given by the court after hearing its application.
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Solution - 28
When one of the parties to a joint account revokes the authority of the other person to draw cheques, the original mandate obtained at the time of opening the account is automatically cancelled. After such revocation, no cheque should be paid without the signatures of both the parties or unless they give fresh mandate under their joint signatures. Therefore, the cheque in question should not be paid.
Solution - 29
There is no objection to opening of an account for a firm in which a minor has been admitted to the benefits of partnership. A minor may be appointed as an agent, but an express authority signed by the other partners for the minor to sign cheques, bills and notes on behalf of the firm, must be obtained, if they wish him to do so.
The minor will not be personally liable on such cheques, bills or notes or for any overdraft or other indebtedness of the firm, and if the firm should become insolvent, the receiving order will be made against the partners, other than the minors as a minor being absolutely incompetent to contract is not a ‘debtor’ and is never personally liable even for debts created for necessaries supplied to him.
Therefore, Shri Patel’s son cannot be allowed to operate the account unless so authorised by the other partner viz., Shri C. D. Shah. The position remains the same even if it is a debit account.
Solution - 30
Where a person by virtue of his special qualification or technical experience etc. has been inducted into the partnership to work the business and have control over it, he is known as working partner. However, the mere fact that the other partners do not take part in the management of the business does not absolve them of liability to third parties.
The partnership deed must be carefully perused to ascertain as to what are the restrictive clauses in so far as operations on the account are concerned. The operations on the account should be allowed strictly as per the partnership deed.
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The account opening form must be signed by all the partners including the mandate for operations on the account. However, signatures on the specimen signature card must be obtained only for those partners who are authorised to draw cheques. The ‘Letter of Partnership’ should be obtained duly signed by all the partners (excluding minors, if any). The usual ‘Letter of Partnership’ obtained by banks contains provisions relating to mode o operation on the account, continuance or dissolution of the firm, etc. it also contains an undertaking to inform the bank whenever the constitution of the firm undergoes any change.
Solution -,31
A partnership consisting of more than ten persons in banking business or more than twenty persons in case of any other business, is an illegal partnership in terms of section 11 of the Companies Act, 1956.
Since Saurashtra Ginning and Pressing Co. has twenty two persons, it is an illegal partnership. The account of such a partnership cannot be opened. The firm must be registered as a company under the Companies Act, 1956 or it should reduce the number of its partners so as to bring it within the maximum permissible number of twenty. Only then, the account can be opened.
Even if the partners are less than twenty, the request to open the account to be operated by any two partners jointly is cumbersome and impracticable. Therefore, the two partners having the power to operate the account must be specified.
Solution -32
Partnership arises out of contract. A minor is incompetent to contract. Therefore, a contract of partnership can not be entered into with a minor. There cannot be a partnership consisting of all minors or of one adult and all other minors. There must be at least two adults to form a partnership. The only concession given to a minor is that he can be admitted to the benefits of an existing firm.
In the given case, Messrs. Bankey Lal & Son cannot be treated as a partnership concern and therefore the account can not be opened as such.
The firm, in fact, is a sole proprietorship concern. The account can be opened only as a sole proprietorship firm.
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Solution - 33
Every partner is an accredited agent of partnership and he may bind all other partners by his acts. Since the account is that of the firm and was opened at the instance of both the partners, any instructions given by one of the partners is binding on the other. So, when Mr. Akbar revokes the authority given to the bank to honour the cheques drawn by Mr. Amar, the same is binding on the other partner and on the bank. Therefore, the operations in the account must be stopped after receipt of the notice. Any further withdrawal will be allowed only under joint signatures of both partners or as per the fresh mandate given by them jointly.
Solution -34
Any partner has an implied authority to countermand payment of any cheque drawn on firm’s account, and the banker is bound to comply with the instructions issued by that partner. It is immaterial whether the partner who has given stop payment instructions is authorised to operate on the account or not. Cancellation of the stop payment instructions would, however, require authority from all the partners.
Solution -35
(a) On the death of a partner, the original mandate is determined, but it can be presumed that the surviving partner are continuing the business for the purpose of winding it up and a fresh mandate can be taken from them to confirm their wishes concerning future transactions on the account. If the partnership deed provided that on the death of a partner, the business will be continued by the surviving partners, then also fresh mandate will be required. If the account is in credit, it can be continued unbroken in both the case and operations allowed as per the instructions of the survivors. Cheques drawn by the deceased partner before his death but presented for payment afterwards should not be paid without the approval of the surviving partners. In practice, when a fresh mandate is given by the surviving partners, specific instructions are also obtained as for the payment of the cheques drawn by the deceased partner, if any. If there are no such instructions, a prudent banker always tries to contact the surviving partners, if possible, before returning the cheque signed by the deceased.
In the given, the cheque drawn by Mr. Chaturvedi but presented after his death should, therefore, be returned with the remark ‘Partner deceased’.
(b) Where the firm’s account is overdrawn, the action a banker will take on the death of a partner, depends upon the security he holds and the reliance he wishes to place on the
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deceased partner’s private estate.if the banker decided to preserve his rights against the estate of the deceased partner, the account must be broken. This is necessary to avoid application of the rule in Clayton’s Case whereby subsequent payments into the account would reduce the liability of the deceased partner’s estate and fresh withdrawals will create a new debt for which surviving partners alone will be liable.
In case the banker is relying solely upon surviving partners or the partnership property as security, the account may be allowed to continue unbroken. If the surviving partners continue the business, new mandate should be obtained and loan documents got executed by the partners of the new firm. If the old accounts were secured by the third party guarantee, fresh letter of guarantee in favour of the new firm should be got signed by the guarantors because a guarantee is terminated on the change in the constitution of the firm, unless otherwise provided for in the guarantee form.
Solution -36
The firm is automatically dissolved on the insolvency of a partner unless there is an agreement to the contrary. Although the mandate is determined by the insolvency, the solvent partners may continue to draw cheques and use the account for the purpose of winding up the business where the firm is dissolved as a consequence of insolvency. In case the firm is not dissolved, then also the account may be continued unbroken. But in both the cases fresh mandate should be obtained as for further operations on the account. Cheques drawn by the insolvent partner should not be paid without the confirmation of solvent partner after the notice of insolvency is received by the bank.
The share of the insolvent partner will vest in the official assignee/Receiver who has a right to obtain in an account from the solvent partners. But the official Assignee/Receiver cannot interfere in the management of the business of the firm.
Note: If the account is overdrawn at the time of partner’s insolvency and the bank wishes to preserve its right against the insolvent partner, it must be broken to determine the liability and to avoid operation of the rule in Clayton’s Case. A new account should be opened for further transactions.
Solution - 37
The company should be asked to pass an ordinary resolution in the general meeting authorising borrowing by directors from the bank up to a specified figure and ratifying any previous borrowings in excess of the limit provided by the articles viz., Rs. 50 lakh. This procedure is
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not only simpler and quicker than an alteration of the articles, for which special resolution is required, but also protects the banker against ultra vires excesses over the limit which might have been taken unknown to him due to borrowing from other sources.
Solution - 38
In order to make a company liable on a cheque, bill or note it must appear on the face of such instrument that it was drawn accepted or made on behalf of the company. Where a person signs a cheque on behalf of a company, he may be held personally liable to third parties on the cheque if there is no indication that he has signed it on behalf of the company. Section 47 of the Companies Act, 1956 specifically lays down that:
“A bill of exchange, hundi or promissory note shall be deemed to have been made, accepted, drawn or endorsed on behalf of a company if drawn accepted or endorsed in the name of, or on behalf or on account of, the company by any person acting under its authority, express or implied.”
In terms of the above provision of the Companies Act, mere writing the name of the company by the authorised official would constitute valid signature fully binding on the company. However, this form of signature is not encouraged by the bankers. The usual form of signature in the case of company account is as under:
For Impex Electronics Ltd.,
Ashish Rajpal Sanjay Chary
Secretary Director
In the given case, the form of signature does not indicate that it has been signed by two officials in the representative capacity i.e, on behalf of the company. Therefore, the cheque should not be paid unless, of course, such a form signature is specifically authorised by the board’s resolution obtained at the time of opening the account.
Solution – 39
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The mandate implies that the cheques will be signed by three different individuals. Since Mr. Chaturvedi has signed the cheque in dual capacity, it should not be paid. The cheques must be drawn by Mr. Chaturvedi as secretary and two other directors.
Note: A director who possesses the prescribed qualifications may be appointed as secretary of the company. However, where a company has only two directors, neither of them can be a secretary of that company.
Solution - 40
The office of a director is vacated on his becoming an insolvent. Therefore, Mr. Daroowala should not be allowed to operate on the account any more. The cheques already drawn by Mr. Daroowala may, however, be paid if otherwise in order. There is no need to stop the account.
Since the number of directors in the company has come down to two on account of the vacancy in place of Mr. Daroowala, a new director should be appointed in his place in accordance with the procedure prescribed by the articles, so as to bring the minimum number of directors to three as required under the Companies Act. if the articles are silent for filling up such a casual vacancy, power is given to the board of directors in the case of a public company, to fill the vacancy at a board meeting. Alternatively, the appointment of the director can also be made by the shareholders by holding a general meeting.
Solution - 41
The balance held in a minor’s account with his guardian is deemed to be the property of the minor. Upon death of Mrs. Desai the balance would naturally be payable to the minor. No difficulty is likely to arise in allowing the money to be withdrawn before the minor comes of age; he could not claim the money over again on attaining his majority. The balance in the given case may, therefore, be paid to the minor upon proper identification and production of death certificate of Mrs. Bharati M. Desai provided he is capable of handling the transaction independently.
Solution - 42
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Yes, it would be in order for the bank to debit the cost or crediting the proceeds of the securities to the customer’s account since in doing so it is merely completing the contract already entered into by the customer.
Solution - 43
This seems to be rather an unusual case. The mother of the claimant expired nine years back but he did not give any notice of death to the bank. His father is missing for the last 19 years but still no information was given to the bank. He does not know he number of the locker. Nor is he in possession of its key. Under these circumstances it would not be safe to pay the balance to Mr. Vasudev without obtaining legal representation from a court of competent jurisdiction. He should be advised to obtain succession certificate for claiming the balance in savings account and letter of administration for taking delivery of the contents of the locker, if any.
Solution - 44
(1) Though the account is operated under single signature of any one of the parties to the joint account, it does not contain survivorship clause. Therefore, the account will be stopped no sooner the bank is informed of death of Mr. R. N. Dutta and the balance shall be payable jointly to the survivors and the legal heirs of Mr. Dutta. Survivors alone cannot be allowed to operate the account.
(2) Death of a customer operates as revocation of the mandate. Therefore, cheques drawn by Mr. Dutta and presented after notice of his death should be returned marked ‘Drawer deceased’.
(3) In case there is an overdraft, the account should be stopped to avoid operation of rule in Clayton’s case. If the overdraft account is allowed to continue unbroken after the notice of death, all subsequent credits will reduce the liability of the deceased’s estate, while fresh advances are the sole responsibility of the surviving joint account holders.
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