BLL3 - Types of Customers Part 3

1. Different types of customers Part 3

There are different types of Customers, namely:

1.1 Clubs, Associations, Committees, Societies and Educational Institutions.

1.2 Proprietary concerns

1.3 Trusts

1.4 Executors and Administrators

1.5 Partnership Firms

1.1 Clubs, Associations, Committees, Societies and Educational Institutions

Clubs, Societies and Associations are non-corporate bodies. Some of them may be
registered under the Societies Registration Act while others may be non-registered
bodies. However, they are governed by a constitution of their own in the form of
Bye-Laws. The management is normally carried out by a governing body as
indicated in the bye-laws.
The application form in the name of the Club / Society / Association / School etc.,
should be duly signed by the Secretary and Chairman or authorized office bearers.
A copy of the constitution / rules / bye-laws, amended up to date and duly
certified by the Secretary / Chairman to be true and up to date, should be
obtained. If the rules/bye-laws are not available, a letter to that effect should be
obtained.
A copy of the resolution passed by the Governing Body/Managing committee/
Executive Committee in their meeting, authorizing the opening of the account with
the Bank, should be obtained. The copy of the resolution should be duly certified
to be true by the Chairman and countersigned by the Secretary. The resolution
should state the names of the persons authorized to operate the account and the
mode of operation which must be in accordance with the provisions, as contained
in the bye-laws.
Where the Club / Society are registered, a copy and the original Certificate of
registration is to be obtained. After verification, the original should be returned.
In the case of Co-operative Societies, the Certificate of Approval issued by the
Registrar of Co-operative Societies for opening the account with the Bank (if
required under the Co-operative Societies Act of the particular State) must be
obtained. It may be noted that the Registrar, while giving permission to open the
account may impose certain conditions/ restrictions on the account such as the
maximum amount that can be maintained in the account or period of operation
etc. In such cases, the stipulations as made by the Registrar should be strictly
adhered to.
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 A certified list of the office bearers or members of the Governing Council /
Managing Committee/Executive Committee should be obtained and updated every
year.
Withdrawals in the account through cheques drawn payable to self should be by
persons known to the Governing Council / Managing Committee or their accredited
representatives.
Where an office bearer authorized to operate the account has a personal account,
the branch should ensure that funds of the Club / Association / Society do not find
their way into such personal accounts by means of cheques drawn on the account
of the Club / Association/ Society.
In case of resignation or death of an office bearer authorized to operate the
account, the branch should not pay cheques, signed by such office bearer,
presented for payment after resignation or death. A resolution of the Governing
Body / Managing Committee / Executive Committee appointing another person in
the place of the resigned or deceased office bearer, should be obtained.
Where an office bearer authorized to operate the account is not re-elected in the
Annual General Meeting and the branch is notified of the fact, the said office
bearer must not be allowed to operate the account.
As and when there is a change in the set up of the Governing Body / Managing
Committee/Executive Committee, the branch should obtain copies of the
appropriate resolutions effecting such changes and containing the revised /
modified instructions regarding future operation of the account.
There should be no overdrafts in the account.

1.2 Proprietorship Concerns

A Proprietorship account is one which is opened in the name of a concern engaged

in trade or business and run by a person, known as the Proprietor. A Proprietorship
concern is not a separate legal entity. It is only a trade name assigned to the
concern run by the Proprietor.
While opening an account of Proprietary concern, Account Opening Form must be
signed by the Proprietor with the firm’s/concern’s seal.
While opening such accounts, a Letter of Proprietorship, duly signed by the
Proprietor should be obtained. The letter should be signed in the personal capacity
of the Proprietor and not under the seal of the concern. Even in cases where the
trade name of the Proprietary Concern is a personal name, obtaining a
Proprietorship Letter is necessary so as to enable the Bank to credit the proceeds
of cheques drawn in favour of the concern to the concern’s account.
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1.3 Trusts

Trust is a relationship which arises whenever a person called the Trustee is

required in equity to hold property, whether real or personal and whether by legal
or equitable title, for the benefit of some persons or for some object, permitted by
the law, in such a way that the real benefit of the property accrues, not to the
Trustee, but to the beneficiaries or other objects of the Trust.
A Trust is generally created by means of a document known as the Trust Deed/
Declaration of Trust. The law relating to Trust is contained in the Indian Trust Act,
1882.
The account must be opened either in the name of the Trust. It is also advisable to
mention the name of the persons or the fund for which they are Trustees.
A certified copy of the Trust Deed is to be obtained. A summary of the portions of
the deed that relate to the dealings with the Bank should be prepared on a
separate sheet of paper and attached to the documents to serve as a ready
reference.
The customer should be asked to produce the original Certificate of Registration
under the Public Trusts Act if such similar Act is in force in the State in question. A
photo stat copy of the certificate, duly attested by the concerned officer should be
held as a record for the branch.
An up-to-date list of the Trustees should be obtained.
A certified true copy of the resolution passed by the Trustees in their meeting
should be obtained.
The powers of the Trustees are jointly and in the absence of express provisions in
the Trust Deed it is to the contrary:
a) All Trustees must sign cheques on the account.
b) Trustees cannot delegate their authority to any one or more of themselves or to
third parties.
c) Trustees have no implied power to borrow for the purpose of the Trust.
Countermanding payment of cheques can effectively be made by any one of the
Trustees whether or not he is a signatory to the cheque.
Where there is no Trust Deed, accounts can be opened if the Trust is registered
with the Charity Commissioner and provided that there is also a certificate from
the Charity Commissioner as to who are the Trustees. The Bank should examine
each case on its merits. If satisfied as to the integrity of the Trustees and their
status, the Bank may open an account of such Trust, in the name of the Trust and
agree to allow two or more, but never one, of the Trustees to operate on the
account of such Charitable Trust.
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1.4 Executors and Administrators
If a person dies, leaving behind a Will to be executed, the persons named in the
Will to manage the property are known as the Executors.
If a person dies, without leaving behind a will, the persons appointed by the Court
to manage the property of the deceased are known as Administrators. In other
words, both Executors and Administrators are Trustees of the deceased’s estate.
The Will of the deceased becomes effective from the date of death. The Court
issues a Probate in confirmation of the validity of the Will.
Where the deceased has left no Will, while appointing an Administrator, the Court
issues a letter of administration.

1.4.1 Powers of Executors / Administrators:

Under Section 269 of the Indian Succession Act, 1925, an Executor has full powers
to dispose of the estate of the deceased in the manner he thinks fit. He may
therefore mortgage a part or whole of the estate.
Executors and Administrators are considered as one person in the eyes of the law.
Therefore any Executor / Administrator can act on behalf of his Co-executor / Co-
administrator.
An Executor can raise loans for the immediate needs of the estate against the
security of the estate; but if the borrowings do not pertain to the interest of the
deceased’s business and the Bank is aware of this fact, the Bank will lose its claim
on the security of the estate of the deceased.
Unless one of the Executors has instructed the Bank to the contrary, any Executor
has the right to operate on the account.
1.5 Partnership Firms

According to Section 4 of the Indian Partnership Act, a partnership is the

relationship between persons who have agreed to share the profits of a
business carried on by all or any of them acting for all.

The Supreme Court has held that the word "persons" in Section-4 contemplates
only natural or artificial persons i.e., legal persons. Since a firm is not a person,
is not entitled to enter into partnership with another firm or Hindu undivided
family or individual. Therefore, banks do not open account where a firm is a
partner in another firm. An HUF also cannot be a partner in a partnership firm. As
Joint stock companies and statutory bodies constitute "artificial or legal persons"
therefore, they can be partners in a partnership firm.

As per the Indian Companies Act, 2013, minimum number of partners can be two and
maximum fifty. Minors can be admitted as partner only to the benefits of the partnership.
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1.5.1 Registration of partnership firm:

A partnership firm can be registered with Registrar of Firms. However, as per law, it is not
compulsory to register a partnership firm. Non-registered partnership firm have certain
disabilities. Such firms cannot sue others to enforce a right arising out of a contract. A suit
filed by an unregistered partnership firm is not maintainable, even after its subsequent
registration. Even partners of an unregistered firm cannot sue other partners or his firm,
for their rights.

1.5.2 Opening of Account:

A partnership firm can open all types of accounts except savings bank account. We open
account of a partnership firm in the name of the firm and not in the names of partners
individually or jointly. The account opening form is signed by all the partners in their
individual capacity as well as in the capacity of a partner to ensure joint and several
liabilities. While opening the account we are to verify the partnership deed to examine
whether any clause of the deed is detrimental to the interest of us/bank.

In case of registered firm, banks obtain registration certificate. The account is opened in
the name of the firm and all the partners are required to sign account opening form.

1.5.3 Operations in account:

We obtain operational instructions i.e. who will operate the account and how it is to be
operated. In case a minor is also a partner in the firm his birth certificate is obtained to
ascertain the date of birth, which is recorded in the account opening form.

1.5.4 Operations in the account can be by

 All partners jointly

 One of the named partners
 Two / three of the named partners
 A third party under a mandate letter or a power of attorney signed by all the
partners.

A partner authorised to operate the firm's account cannot delegate his authority to
another person unless all other partners agree.

The authority given to operate the account can be withdrawn by any of the other partners
including dormant or sleeping partner by giving notice to the bank.

Each partner, whether he/she is operating the account or not, has powers to countermand
payment of the cheques drawn by another partner or by an attorney on behalf of the firm.

1.5.6 Retirement of a partner:

On notice of retirement of a partner, the bank closes the existing account and opens a
new account of the firm with the remaining partners or along with the new partner if
admitted to the new firm.
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1.5.7 Death of a partner:

Death of a partner dissolves the partnership, unless there is a contract to the contrary.
However, for the purpose of winding up of the firm, the bank may allow the surviving
partner(s) to operate the firm's account, if the account is in credit.

Cheques drawn by a partner before his death and presented for payment are honoured
after obtaining confirmation of the surviving partners.

1.5.8 Dissolution of a partnership firm:

Dissolution of a firm amounts to the breaking up of relation of partnership between all the
partners. In the event of dissolution banks do not permit operations in the account. A
partnership firm may be dissolved by any of the following modes

(a) By mutual agreement between all the partners.

(b) By notice of dissolution in case of partnership at will.

(c) By operation of law or compulsory dissolution of the firm.

(d) By happening of certain contingencies such as death or insolvency of a partner.

(e) Dissolution by Court of Law in cases like insanity, permanent incapacity, misconduct of
a partner affecting business etc.

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