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LAWS BANKING
Various Laws Affecting Bankers 1. RBI Act 1934 2. Banking Regulation Act 1949 3. Negotiable Instrument Act 1881 4. Indian Contract Act 1872 5. Indian Partnership Act 1932 6. The Companies Act 1956 7. Consumer Protection Act 1986 8. Banking Ombudsman Act 2006 9. Transfer of property Act 1882 10. Foreign Exchange Management Act 1999 11. Indian Stamp Act 1899 12. Code of Civil Procedure 1908 13. Bankers book Evidence Act 1891 14. Information Technology Act 2000 15. Right to Information Act 2005 16. Recovery of Debt Due to Banks And Financial Institutions Act 1993 (DRT Act) 17. Securitisation & Reconstruction of Financial Assets and Enforcement of Security interest Act 2002 (SARFAESI Act 2002)
Minor & Partnership A minor cannot be a partner as per Sec 4 of Indian Partnership Act but can be admitted to the benefits of partnership as per Sec 30 of the Act. Minor is not liable for losses but only for sharing profits. Within six months of minor attaining majority or his knowledge about admittance to the benefit of partnership whichever is later, he/she has to decide whether he/she wishes to be a partner. Minor has option to repudiate his liability as a partner. If he/she chooses to be a partner or fails to repudiate within six months of his/her attaining majority or knowledge, he/she is deemed to be a partner and his/her liabilities will be from the date he/she was admitted to the benefits of partnership. The banker should therefore have partnership deed on record while granting an advance to a partnership firm wherein minor is admitted to the benefits of partnership & a banker should address a letter to minor on his attaining majority as to that he mentioning his having been admitted to the benefits off partnership & whether he would like to be a partner. This will enable banker to recover advance given to partnership firm from person or property of the then minor. Advance given to minor with a guarantee by a major cannot be recovered legally either from the minor or from major guarantor as the contract with minor is void ab-initio. When a minor falsely representing himself to be a major gets an advance from bank, the said advance cannot be recovered by bank. Lien: - Sec 170 & Sec 171 of Indian Contract Act. Right of creditor to retain the possession of goods & securities owned by the debtor until the debt has been repaid. No right of sale of goods & securities. Particular Lien: - (Sec 170) Creditors right to retain goods/ securities for which dues have arisen & not for other dues.
General Lien: Sec 171:- Right of creditor to retain possession of any goods/securities for general balance of payment. Bankers, Factors, Wharfingers, Attorneys of High Court & Policy Brokers have right of general lien. Property must be obtained lawfully in the capacity of banker. Implied Pledge: - (Bankers Lien) Right to sell after giving reasonable notice. Banker has right to lien against time-barred debts also a) In capacity of Banker b) Goods & services standing in the names of borrower c) Securities remaining in the possession of banker even after another loan has been repaid. Where Bankers Right of general Lien cannot be exercised? a) Contract to contrary b) When borrower is Trustee or Agent c) Goods/Services entrusted for specific purpose e.g. Shares for selling. d) Given for safe custody e) Left in banks possession by mistake f) Given to bank to secure a loan but has not been granted loan. Guarantee: Defined in Sec 126 of Indian Contract Act 1872. A contract to perform the promise or discharge the liabilityof a third person in case of his default. Guarantee can be specific or continuing. It should be for lawful consideration & should not be obtained by misrepresentation, fraud or concealment of material circumstances.
Persons other than minors insane or insolvent can give a valid guarantee. Guarantors liability is co-extensive with that of the borrower. In case of partnership firm guarantee signed by a single partner cannot bind the firm or other partners, if the business of the partnership firm is not to give guarantee. Bailment: - Sec 148 of Indian Contract Act A bailment is the delivery of goods by one person to another for some purpose, upon a contract that they shall when the purpose is accomplished be returned or otherwise disposed off according to the directions of person delivering it. Pledge: - Sec 172 of Indian Contract Act Pledge is bailment of goods as security for payment of a debt or performance of promise for some purpose under contract, the purpose when accomplished goods have to be returned by pledgee to pledgor. Under pledge, the ownership continues to remain with pledger whereas the possession is with pledgee. There should be delivery of goods by pledger to pledgee with intention of creating security. The delivery can be actual or constructive e.g. handing over key of godown or documents of title to goods Appropriation of Payment (Claytons Rule) Sec 59 to 61 of Indian Contract Act When a debtor has more than one debt with a creditor Sec 59:- The debtor has the first right for deciding about payment by him to be applied to which debt by creditor. Must be applied by creditor accordingly. Sec 60:- If debtor does not make the choice, creditor can apply the payment by debtor at his discretion to any lawful debt whether barred by law of limitation or not. Sec 61:- When neither the debtor or the creditor is making choice about appropriation of payment made by debtor, debt is to be discharged in order of time. If debts are of equal standing, to be applied in discharge of each debt proportionately.
firm to bind the firm and other partners. For giving guarantee, all partners should sign unless giving guarantee is the business of the firm. When Implied Authority cannot be exercised? Sec 19(2) a) Submission of dispute to arbitration. b) Opening bank a/c in his own name for business of firm. c) Compromise or relinquish any claim or portion of claim by the firm. d) Withdrawal of suit filed by firm e) Admit liability in a suit against firm. f) Acquire immovable property on behalf of the firm. g) Transfer immovable property belonging to firm. h) Enter into partnership on behalf of the firm. Dissolution of Partnership Firm:a) By mutual consent b) Death, insolvency or retirement of a partner c) By operation of law business becoming unlawful or by competent court d) Automatic dissolution Partnership for specific time.
Bill of Lading:- A receipt for goods shipped on board a ship, signed by the person who contracts to carry them stating the terms on which the goods were delivered to and received by the ship. Dock-Warrant:- Document issued by a dock or Wharf owner setting out the detailed measurements (or weight) of a specific parcel of goods & declaring or certifying that goods are held to the order of the person named therein. A Wharfingers Certificate or a warehouse keepers Certificate:Document (in nature of warrant) stating that certain goods specified in certificate are in his warehouse.
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The charge is required to be registered within -30- days of its creation. The modification or satisfaction of charge is also required to be registered within -30- days Borrowing Powers of the Company Sec 292:- Resolution is required to be passed for borrowing Sec 293(1)(d):- No public limited Co; or private limited Co. which is a subsidiary of a public limited Co. can borrow in aggregate (money borrowed & proposed to be borrowed) in excess of its own paid-up capital + Capital Reserves (Reserves not set apart for any specific reserves) except under authority of a resolution passed by shareholders in a general meeting. Aggregate of borrowings excludes temporary advances (Repayable within -6- months, short term credits, discounting of bills. No such restrictions for private Ltd. co. unless it is subsidiary of public Ltd. co.