CASE STUDY:

Legal Aspects of Banking & NI ACT

By
Sunil Kumar K
Senior Manager (Legal)
HO LEGAL DEPARTMENT
Problem:1
One Mr. Shankar is having a SB A/c. and
Current A/c. with your branch. He issues a
cheque for Rs. 12,500/- from the saving
bank account in favour of M/s. Neelam
Suppliers. The balance in the saving account
is only Rs. 6,500/-, but the current account
has balance amounting to Rs.10,000/-.

What would you do with the cheque?

Answer: 1

The cheque shall be returned unpaid since

the bank cannot use the funds lying in
current account for paying a cheque in
saving bank account unless the customer
specifically authorizes the bank to do so.
Problem:2
One M/s. ABJ Builders, Proprietor Mr.
Sharat Yadav maintains a current account
with your branch. You have another current
account ABJ Builders Ltd., the account is
operated by its MD Mr. Sharat Yadav. Branch
receives a Cheque for an amount of Rs.
15,00,000/- favouring ABJ Builders Ltd..
Branch credited the amount to the account of
M/s. ABJ Builders.

Is it permissible?
Answer: 2

No, M/s. ABJ Builders and ABJ Builders Ltd.

are different entities. While crediting the
amount, branch should verify name of
payee.
Problem:3
Mr. Joan hired a locker and it has no
nomination. Eldest son of Mr. Joan come to
branch and informs that his father died and
he produced death certificate and key of the
locker. He wants to check the locker.

How would you handle the request?

Answer: 3

In case of death of locker holder and locker

has no nomination, bank shall not permit
operation of the same and locker shall be
opened in the presence of all legal heirs and
witnesses.
Problem:4
Mr. Thomas and Mr. Kurian are having a fixed
deposit account with branch payable either or
survivor. Later Mr. Thomas, request to
replace name of Mr. Kurian with Mr. John.

How would you deal with the request?

Answer: 4

Name of a joint depositor can be replaced

with the consent of all the existing
depositors only.
Problem:5
One M/s. Sanjay & Co. is having a current
account with our branch. As per the Board
Resolution submitted at the time of opening
the account, Cheque for an amount above
Rs.15.00 Lakhs shall be paid only if it is
signed by two directors. You are in receipt of
a Cheque for an amount of Rs. 16.00 Lakhs
signed by one director and manager.

How would do you handle the Cheque?

Answer: 5

The cheque shall be returned unpaid as it is

signed by one director and manager and
not by two directors.
Problem:6
One of your reputed customer, Dr. Afsal
presents a cheque of Rs. 14,500/- for cash
payment drawn by your SB A/c. holder Mr.
Hamid which is signed by his mandate holder
Mr. Fazal. You are in receipt of notice of death
of Mr. Hamid. Dr. Afsal insists on immediate
payment. How would you deal with request
of Dr. Afsal?
Answer: 6

The cheque cannot be paid. With the death

of the customer, mandate comes to an end.
Problem:7
Mr. Kuriakose, one of your customers,
presents a cheque of Rs. 1,32,000/- for cash
payment drawn by your CD A/c. holder M/s.
XYZ Ltd., which is signed by its Authorised
Signatory, Mr. Jacob. You are in receipt of
notice of death of Mr. Jacob. However, Mr.
Kuriakose insists on immediate payment.

How would you deal with request of Mr.

Kuriakose?
Answer: 7

As the cheque is that of a company, there is

no bar in effecting payment of the same.
Problem:8
One M/s. Royal Agencies, a partnership firm,
maintains an OD account with your branch.
The firm has three partners. One day, one of
the partner comes to the branch and gives a
letter that another partner died last week
and he withdraw Rs. 30,000/- on the same
day itself. Later, legal heirs of the deceased
partner refuse to accept liability for Rs.
30,000/-.

What is the position of the Bank?

Answer: 8

With the death of the partner, a partnership

gets dissolved and estates of the deceased
partner do not remain liable for the debits,
if any after death. But, other partners will
continue to be liable. Bank should suspend
the operation of the account.
Problem:9
Mr. Krishnan and Sivan were operating a joint
current account with instruction E or S. You
receive notice from Krishnan that the money
is him and Mr. Sivan shall not be allowed to
debit the account. Mr. Sivan issues a cheque
of Rs. 10000/- favouring Sales tax
Department which is received by the Bank in
clearing. The balance in the account is Rs.
15000/-.

What would you do?

Answer: 9

The cheque will be returned unpaid with

reason to refer to drawer. On receipt of
notice from either Mr. Krishnan or Mr. Sivan
objecting to the operational style or want to
change the mandate, the instruction E or S
stands revoked. Thereafter, the account can
be operated only jointly.
Problem:10
We issued a Performance guarantee in favour of
L & T on the request of Mr. Big for certain works.
The work could not be completed in time by Mr.
Big owing to heavy flood which was one of the
reasons on which the contract could be extended
as per the agreement between L & T and Mr.
Big. However, as the work was not completed
within time, L & T invoked the guarantee. Mr. Big
convinces the Bank that there is still time for
performance of his part of contract as per the
agreement.

Will you pay the guaranteed amount?

Answer: 10
The Guaranteed amount has to be paid, if
properly invoked. Bank Guarantee issued
by Bank is an independent contract and
bank must honour the guarantee
irrespective of the clauses in the underlying
contract between the benficiary and the
contractor.
Problem:11
We issued a Performance guarantee in favour
of Chief Engineer, KSEB on the request of Mr.
Small for certain works. The work was
completed in time. However, the Executive
Engineer, KSEB invoked the guarantee. Mr.
Small objects to payment under the
guarantee on the ground that the work is
completed and as such, the Bank is under no
obligation to pay.

Will you pay the guaranteed amount?

Answer: 11

Bank is not supposed to make the payment

of the guaranteed amount since the
invocation is not proper. The guarantee has
to be invoked by the beneficiary in whose
favour the Bank guarantee is issued.