“A customer is someone who has an account with a banker or who is regularly committed to behaving as such with the banker.
A “Customer” is defined as someone who has a current or savings account, or, in the lack of one, some relationship with the bank that can be viewed as conducting banking business.
Paying Banker
The payment and processing of checks is still a key and essential component of modern banking, despite the fact that it has many facets and that clearing institutions today engage in a wide variety of operations.The term “paying banker” refers to the banker who retains the drawer’s cheques and is required to make payment if the customer’s finances are sufficient to meet the amount of the cheque that was drawn.
Who can open an account?
As the banker- customer relationship is a contractual relationship, all the essential features of a valid contract must be present when a banker opens an account. Even though the actual formalities will differ depending on the type of the customer, certain formalities are common to all. The common formalities are:
The banker must ensure that the customer is competent to contract. For entering into a valid contract, a person needs to fulfil the basic requirements of being a Major (18 years of age or above) and possessing sound mental health (ie., not being a lunatic). A person who fulfils these basic requirements, as also other requirements of the banks as mentioned below can open
an account.
Introduction not Mandatory for opening accounts:
Introduction was obtained primarily by banks to get protection under Section 131 of the Negotiable Instruments Act, 1881. The legal protection given to bankers in respect of cheques collected “in good faith and without negligence” was available only if the account was opened with proper introduction.
However, even though there was no legal responsibility on the part of the introducer, the introducer is deemed to have connived with the account holder, for conversion (Collection of instruments not legitimately owned by the customer).
Now RBI has informed that introduction is not necessary for opening of accounts. Hence banks should not insist on introduction of existing customer while opening a new account. But the branches should clearly verify the identity of the customers through any one or more of the various KYC identification documents.
Types of Customers:
1) Individuals
The banker should ensure that the initial credit in the account is made by cash. Only in such a case the bank gets protection as a collecting banker for subsequent credits by way of cheque / drafts collection.
Special Types of Individual Customers:
Certain persons lack the legal capacity to make valid agreement – Minors, Drunkards, etc.
The position of the banker in regard to these persons and the precautions to be taken in dealing with this category of persons is given below:
- Minors:
According to Section 3 of Indian Majority Act, a person attains majority at the age of 18, except in cases where a guardian is appointed by a Court where the age of majority is 21.
According to the Indian Contract Act, a minor is not under a legal capacity to enter into a contract and therefore any contract with a minor is void. Thus, the minor has a guardian to maintain his / her property. Section 6(a) of Hindu Minority and Guardianship Act, 1956 recognizes that either of the parents, father or mother, can be the natural guardian. Normally, bankers do not open accounts in the name of the minor individually, but open accounts in the joint name of the minor and the natural guardian.
Sometimes, the Court may appoint someone who is not a natural guardian as minor’s guardian. In such cases the account should be in the name of the minor and the Court – appointed guardian. Usually, the account should be operated by the guardian on behalf of the minor. - Illiterate Persons
A person who cannot read or write is considered as an illiterate person. The banker while opening an account in favour of an illiterate person, should adopt the following procedures:
a) The illiterate person will have to be introduced by an existing literate account holder of the branch.
b) The left hand thumb impression has to be attested by a judicial officer or by any witness who is also the account holder of the bank.c) The illiterate person should not be given cheque book. d)Three passport size photographs should be obtained. One will be affixed in the passbook, the other in the ledger and the third in the account opening form. e) While withdrawing money from the account, the withdrawal slip should be accompanied by the pass book. f) The left hand thumb impression affixed in the withdrawal slip should carry the sign of a witness.g) While endorsing any cheque, the thumb impression should carry the signature of witness.h) No bank employee should fill up the withdrawal slip for the illiterate customer and he can be assisted by any other customer of the bank.i) In the account opening form the banker should obtain two identification marks from the illiterate person.j) If the illiterate person is unable to come to the bank in person for withdrawal of cash, he can send a messenger with an authorization letter which should contain the signature of two witnesses authorizing his left hand thumb impression. - Married Woman:
An account can be opened in the name of a married woman. She has the power to draw cheques and give discharge. But if a loan is given to a married woman, the banker will have no remedy against her if she has no separate means. Bank must insist for the guarantee of her husband, because the married woman can plead for and get validated that her debts to the bank are void if the explicit written consent of the husband is not recorded by the lending bank. This is possible by virtue of provisions in Married Women’s Property Act. - Lunatics:
Under Section 1 of the Indian Contract Act, persons of unsound mind are disqualified from contracting. But the disqualification does not apply to contracts entered into during the periods of sanity. However, no banker would knowingly open an account in the name of a person of unsound mind because he then would have to face the difficulty of choosing whether cheque was made during a period of sanity and pay it or it was made during a period when it was not and
so dishonour it. - Drunkards
Generally, drunkenness does not affect a person’s capacity to contract. However, no one should take advantage of a person who is drunk. The drunkard may evade responsibility for an instrument if the Court is satisfied that he was compelled to sign the instrument when he was under influence or liquor. If a customer tenders a self cheque for cash payment when he is drunk, it is prudent for the banker to secure witness to the signature and the payment.
2) Joint Accounts
A Joint Account is an account opened by two or more persons.
Opening of Joint Account
The Account Opening Forms should be signed by all the joint account holders. The names, addressed and other details of all of them should be obtained on the Account Opening Form. The account – holders should also indicates how the account is to be operated the banker should obtain specific directions as to one or more of them will operate on the account. When a joint account is in the name of two persons, the operations may be by,
a. both survivor
b. both jointly
c. Either or survivor
d. Former or survivor
e. Latter or survivor
3) Limited Company (Joint Stock Company)
Limited Companies (also known as Joint Stock Companies) are governed by the Companies Act 1956. While a company is normally incorporated under the Companies Act, a company can also be brought into existence by means of a statue by the Parliament or the State Legislature. While the company consists of share- holders, its entity is separate from that of the
share- holders. For all practical purposes, the company is just like a person and can sue or be sued in its own name.
In the case of a limited company, the liability of a share – holder is limited to the amount remaining unpaid on the shares held by him. The word “limited” is required to be part of the name of the company, unless it is a government company licensed under Section 25 of the Act.
