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Banking Law
UNIT I
1. History and Evolution of Banking : (10M)
Origin of the word Bank:
According to some authorities, the word “Bank” is derived from the word bancus or banque, which means a bench. Some other authorities opine that the word “Bank” is derived from the German word “back” which means a joint stock fund. Early history of Banking:
The Babylonians had developed a banking system as early as 2000 B.C. The Roman’s minute regulations as to the conduct f private banking were calculated to creat the utmost confidence in it. In the middle of 12th^ century banks were established at Venice and Genoa. The modern banking may be traced to the money dealers in Florence. In England:
In England, during the reign of Edward III money changing was taken up by a Royal Exchanger for the benefit of the Crown. Later on merchants decided to keep their cash with goldsmiths. In 1672 English Banking received a rude setback. The Bank of England was established in 1694. With the enactment of Tonnage Act small private banking firms were extremely affected by the new bank. Another important Act gave a monopoly of note issue to the Bank of England. This was the first of the central banks and is still the banker for the English government. The BOE was originally privately owned but was nationalised in 1946 and eventually became an independent organization in 1998. The BOE issues all banknotes for England and Wales and it is responsible for regulating bank notes issued by Scottish and Northern Irish banks. As the forerunner to the modern banking system of the UK, the BOE manages monetary policy and has its headquarters in the City of London. The Bank of England keeps safe all the gold reserves of the UK and that of some other countries. It is the largest protector of gold reserves in the world. In India: Banking is an ancient business in India with some of oldest references in the writings of Manu. Bankers played an important role during the Mogul period. During the early part of the East India Company era, agency houses were involved in banking. Three Presidency Banks were established in Bengal, Bombay and Madras in the early 19th century. These banks functioned independently for about a century before they were merged into the newly formed Imperial Bank of India in 1921. The Imperial Bank was the forerunner of the present State Bank of India. The latter was established under
the State Bank of India Act of 1955 and took over the Imperial Bank. The Swadeshi movement witnessed the birth of several indigenous banks including the Punjab National Bank, Bank of Baroda and Canara Bank. In 1935, the Reserve Bank of India was established under the Reserve Bank of India Act as the central bank of India. In spite of all these developments, independent India inherited a rather weak banking and financial system marked by a multitude of small and unstable private banks whose failures frequently robbed their middle-class depositors of their life’s savings. After independence, the Reserve Bank of India was nationalized in 1949 and given wide powers in the area of bank supervision through the Banking Companies Act (later renamed Banking Regulations Act). The nationalization of the Imperial bank through the formation of the State Bank of India and the subsequent acquisition of the state owned banks in eight princely states by the State Bank of India in 1959 made the government the dominant player in the banking industry. In 1969, fourteen major Indian commercial banks were nationalized. These banks are Allahabad Bank, Bank of Baroda, Bank of India, Canara Bank, Central Bank of India, Dena Bank, Indian Bank, Indian Overseas Bank, Punjab National Bank, Syndicate Bank, Union Bank of India, United Bank of India, United Commercial Bank and Vijaya Bank. And in 1980 six more banks were nationalized. These banks constitute the public sector banks while the other scheduled banks and non scheduled banks are in the private sector.
2. What are the objectives & achievements of bank nationalization in India?
(10M)
Objectives According to the Banking Companies Act, 1970, the aim of nationalization of banks in India is “to control the heights of the economy and to meet progressively and serve better the needs of development of the economy in conformity with national policy and objectives.”
- The elimination of concentration of economic power in the hands of a few
- diversification of the flow of bank economic credit towards priority sectors such as agriculture, small industry and exports, weaker sections and backward areas
- fostering of new classes of entrepreneurs, so as to create, sustain and accelerate economic growth
- professionalisation of bank management
- providing adequate training as well as reasonable terms of service to bank staff
- extending banking facilities to unbanked rural areas and semi-rural areas to mobilize savings of people to the largest possible extent and to utilize for productive purposes
- to curb the use of bank credit for speculative and other unproductive purposes
- to bring banks under the control of RBI Achievements
- Accelerated branch expansion in rural and backward regions- in 1969 bank branches in rural areas
- Miscellaneous Functions
Viz., the issue of various forms of credit; under writing of capital issues; the acceptance of bills of exchange; the safe custody of valuables; acting as executors and trustees; preparing income tax returns and furnishing guarantees. Industrial Banks : An Industrial Bank is one which specializes by providing loans and fixed capital to industrial concerns by subscribing to share and debenture issued by public companies. Exchange Banks (Authorised Dealers in Foreign Exchange): These types of banks are primarily engaged in transactions involving foreign exchange. They deal in foreign bills of exchange import and export of bullion and otherwise participate in the financing of foreign trade. Co-operative Banks : Co operative Banks have also played a kited but important role in the banking system of the country. They are organized on co-operative principles of mutual help and assistance. They grant short-term loans to the agriculturists for purchase of seeds, harvesting and for other cultivation expenses. They accept money on deposit from and make loans to their members at a low rate of interest. The functions of co operative banks are mainly to cater to the needs of the rural areas and small borrowers and are concerned more with the financing of agriculturists.. Some of the regulatory functions in respect of co operative banks have been assumed by NABARD instead of RBI Land-mortgage Banks (Presently known as Agriculture and Rural Development Banks): They are agriculture development banks. The Land-mortgage banks supply long-term loans for a period up to 15 years for development of land to improve agricultural yields. They grant loan for permanent improvements in agricultural lands. The National Bank for Agriculture and Rural Development (NABARD) was constituted by the Government to promote rural development. Indigenous Banks: The Central Banking Enquiry Commission defined an indigenous banker as an individual or film accepting deposits and dealing in indigenous lending of money to the needy. They form unorganized part of the banking structure, i.e., these are unrecognized operators in receiving deposits and lending money. Regional Rural Banks: These Banks are established under Regional Rural Banks Act, 1976, in view to developing the rural economy by providing, for the purpose of development of agriculture, trade, commerce, industry and other productive activated in the rural areas, credit and other facilities, particularly to the small and marginal farmers, agricultural laborers, artisan and small entrepreneurs and for matters connected therewith.
EXIM Bank:
This Bank was established under the Export-Import Bank of India Act, 1981 to establish a corporation for providing financial assistance to exporters and importers, and for functioning as the principal financial institution for co ordination the working of institutions engaged in financing export and import of goods and service with a view to promotion the country’s international trade and for matters connected therewith.
UNITII
1. Functions of RBI (10m)
Government Business: The RBI in obligation to transact government business, The central government has to entrust the RBI. On agreed conditions, with all its money, remittance,
exchange and banking transactions in India and has to deposit free of interest, all its cash with the bank (RBI).
This is subject to the provision that the Government may keep with itself minimum amount of cash required and keep cash where the bank does not have its branches or agencies.The management of public debit is also to be entrusted to the Reserve Bank of India. The RBI to undertake all money, remittance, banking transactions itself, the India and the deposit free of interest of all the cash balances of the state governments with itself, the management of their public debt and make other related agreements subject to the sanction of the parliament. Right to issue Bank Notes The RBI has the sole right to issue bank notes in India. The issue of bank notes is to be conducted by the RBI in its issue department which has to be kept distance from the Banking Department and the asset of the issue department are not to be subject to any other liabilities except its owned. The issue department cannot issue bank notes to the banking department or to any our person except in exchange for other bank notes or for such coin, bullion or securities as are permitted by this act. The denominational values of bank notes issued by the RBI shall be two rupees, five rupees, ten rupees, twenty rupees, fifty rupees, one hundred rupees, five hundred rupees, one thousand rupees, five thousand rupees and ten thousand rupees. Any other denomination can be introduced by the government on the recommendations of the central board, subject to the maximum of ten thousand rupees. The design form and material of bank notes are to be recommended by the central board and to be approved by the central Government. Banker to the Government(Section-20)
2. The Deposit Insurance And Credit Guarantee Corporation Act-1961 (10M)
This Act came into force from 1-1-1962 for the purpose of insurance deposits and guaranteeing of credit facilities and for other matters related there to This Act in the first place, aims at giving a certain measure of protection to the depositors. The interests of small depositors needed protection against the risk of a bank’s failure to pay back the deposits, for over a hundred years of the evolution of modern banking in India. The rate of bank failures was very high. During the first half of the twentieth century two world wars and a great depression had caused a sense of uncertainty in the minds of people besides the traditional India banking was more familiar and more trustworthily in the eyes of the people but the adoption of planning necessitated speeding up of the pace of economic development for which capital formation was a crucial factors for this purposes deposit mobilization was necessary, w e can therefore set in line a chain of objectives which called for the establishment of the deposit insurance and credit guarantee corporation i.e. DICGC. This Act extends to whole of India. The Central Govt shall establish a corporation with its head office at Mumbai.
Establishment and Management of DICGC
The corporation was established with fully paid up capital by the Reserve Bank of India of ' 1 crore, under section 4(2) of the Act, under the same section the authorization of capital can be increased in consultation with the Government of India. Besides the Act under section 26 empowers the DICGC to borrow from the RBI upto a limit which originally was ' 5 crores. In order to get a clear picture of the insurance activities of the corporation, the Act requires a separate deposit insurance fund to which are credited.
a. All amounts received as premium by the corporation.
b. All amounts received from the liquidator by the corporation.
c. All amount transferred to this fund from the General fund.
d. Advance given by the Reserve Bank and
e. All investment income of the corporation resulting from the investment made out of this fund.
Management of DICGC
The general superintendence, direction and the management of affairs and business of the corporation are under section 5 vested in a board of directors.
The Board consists of
(a) the Governor of the RBI or a Deputy Governor nominated by him as chairman,
(b) A Deputy Governor or any other officer nominated by the RBI.
(c) An officer of the central Government nominated by that Government,
(d) two Director nominated by the central Government in consolation with the RBI, who shall have special knowledge of Industry,
A person cannot be nominated as director if
(a) has been removed or dismissed from a government job,
(b) he is / was adjudged insolvent,
(c) he is of an unsound mind, or
(d) he has been convicted of any offence involving moral turpitude.
The board of directors can constitute an executive committee and such other committee the
corporation thinks fit and the board can delegate some of the powers and functions to them.
Registration as Insured Banks
All existing banks were to be immediately registered (section 51 of banking companies Act) all new banks also are to be registered as insured banks after they are licensed similarly every eligible co-operative bank has to be registered as an insured bank. There are provisions for cancellation of registration of the RBI prohibits the concerned bank for accepting deposit or if it goes into liquidation or if its deposits have been transferred to any other bank, of if it has ceased to be a banking company, or if it has been ordered to wind up, or it is amalgamated with another bank etc. Where the corporation has registered any banking company or Regional Rural Bank or a Co-Operative Bank as an Insured Bank, it shall within thirty days send an intimation in writing to concerned Bank. Premium to be paid by an Insured Bank The corporation being in the business of insurance has to lay down and collect premium for the service it renders, section 35 has the following provisions in this regard.
- Every insured bank shall, so long as it continues to be registered be liable to pay a premium to the corporation on its deposits at such a rates as may with the previous approval of the central Government, be notified by the corporation in the official Gazette from time to time.
- The promotion shall be payable for such period at such times and in such manner as may be prescribed.
- If an insured bank makes any default in payment of any amount of premium it shall for the periods such default, be liable to pay to the corporation interest on such amount at such rate not exceeding eight percent per annum as may be prescribed.
the commercial banks and other financial institutions, exercising the sole right of note issue, working as a banker to the banker and supervising credit system of the nation. It occupies a central pivotal position in the monetary and banking of the nation.
Functions of a Central Bank: Issuing of currency notes Banker to Government Custodian on cash reserves of commercial banks Custodian of foreign exchange Lender of last resort Bank of central clearance Controller of credit The Reserve Bank of India, which is the central bank of our nation, was established in 1935 under R.B.I. Act 1934. It took over the currency issue authority and credit control from the then Imperial Bank of India. The Bank was nationalised in 1948.
4. NBFC (6M)
A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 or Companies Act, 2013, and engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by Government or local authority or other marketable securities of a like nature, leasing, hire-purchase, etc., as their principal business, but does not include any institution whose principal business is that of agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any services and sale/purchase/construction of immovable property. A non-banking institution which is a company and has principal business of receiving deposits under any scheme or arrangement in one lump sum or in installments by way of contributions or in any other manner, is also a non-banking financial company (Residuary non-banking company).
Banks and NBFCs are different entities subject to different statutory and regulatory requirements. However, NBFCs lend and make investments and hence these activities are akin to that of banks. The major differences between banks and NBFCs are given below:\
NBFCs cannot accept demand deposits; NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself; iii. Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation (DICGC) is not available to depositors of deposit taking NBFCs.
A ‘company’ desirous of commencing the business of non-banking financial institution as defined under Section 45 I(a) of the RBI Act, 1934 should comply with the following : i. It should be a company
incorporated under Section 3 of the companies Act, 1956 or corresponding Section under the Companies Act, 2013; ii. It should have a minimum net owned fund of ₹10 crore.
5. Credit Control (6M)
Credit Control is a role of the Reserve Bank of India's central bank, which regulates credit, or the supply and the demand of money or liquidity in the economy. The central bank controls the credit extended by commercial banks to their customers through this function.
The lending method used by the financial institutions and the banks to lend the money to the customers is known as credit control. The strategy focuses on providing credit to consumers with a solid credit score or the credit history. Customers with a strong credit score have a good track record of paying their bills on time. When granting a new credit line to customers, this enables the lenders to reduce the risk of default. Credit control enables banks and financial organizations to identify delinquent users with a poor credit history and ensure that they are granted credit. This can eventually assist lenders in reducing the likelihood of clients defaulting on their debts and increasing the successful lending.
Methods of Credit Control
There are basically two methods of controlling the credit. They are Qualitative and the Quantitative or the General Methods.
Qualitative Method
Marginal Requirement Fixation- The central bank establishes the margin that financial institutions and commercial banks must keep for amounts provided in the form of loans against commodities, stocks, and shares using this method. To prevent speculative trading on stock exchanges, the central bank sets margin restrictions for the underlying securities.
Credit Rationing- The central bank uses this strategy to try to limit the maximum amount of loans and advances to a specific sector. Furthermore, the central bank may set a ceiling for different types of loans and advances in specific instances. This restriction is also expected to be adhered to by commercial banks. This makes it easier to reduce bank lending exposure to undesirable industries.
Regulation of the consumer credit– The apex bank establishes the down payments and the length of time over which installments are to be spread in order to regulate consumer credit. Higher limitations are imposed during inflation to control prices by reducing demand, whereas relaxations are offered during depression to promote demand for commodities.
net demand and time obligations in the form of liquid assets. The Cash Reserve Ratio (CRR) and the Statutory Liquidity Ratio (SLR) are the two reserve ratios. The reserve position of commercial banks, which regulates the availability of money in the economy, can be affected by even little changes in these ratios.
Repurchase Option- The central bank conducts repo transactions, also known as repurchase transactions, to manage the cash market situation. The Central Bank grants commercial banks loans against government- approved securities for a set length of time at a fixed rate, known as the Repo Rate, on the premise that the borrowing bank will repurchase the securities at the established rate once the period is up. The central bank conducts these transactions in order to drain or drain money from the system.
UNIT III
1. Relationship of Banker and Customer (10M)
Before we take up relationship that exists between a banker and his customer, let us understand the definitions of the term banker and customer. The definition of the business of banking and a large number of activities permissible for banks are given in the Banking Regulation Act 1949.The relationship between a banker and his customer depends upon the nature of service provided by a banker. Meaning of Banker As per H.L. Hart a Banker is one who in the ordinary course of his business, honors cheques drawn upon him by persons from and for whom he receives money on current accounts. As indicated by Section 3 of the Negotiable Instruments Act, 1881, Banker includes any person acting as a banker. As per Section 5(b) (b) "banking" means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawal by cheque, draft, order or otherwise;
5 (c) "banking company" means any company which transacts the business of banking1 [in India]; Explanation, Any company which is engaged in the manufacture of goods or carries on any trade and which accepts deposits of money from the public merely for the purpose of financing its business as such manufacturer or trader shall not be deemed to transact the business of banking within the meaning of this clause; Definition of Customer The term customer of a bank is not defined by law. Ordinarily, a person who has an account in a bank is considered its customer. Banking experts and legal judgment in the past, however, used to qualify this statement by laying emphasis on the period for which such account had actually been maintained with the bank. According to Sir John Paget’s view ―to constitute a customer there must be some recognizable course or habit of dealing in the nature of regular banking business. This definition of a customer of a bank lays emphasis on the duration of the dealing between the banker and the customer and is, therefore, called the duration theory. According to this view point, a person does not become a customer of the banker on the opening of an account; he must have been accustomed to deal with the banker before he is designated as a customer. Relationship between Banker and Customer The general relationship between banker and customer is that of debtors and creditors according to the state of the customer‘s account i.e. whether the balance in the account is credit or debit, but there are certain additional obligations to be borne in mind and these distinguish the relationship form that of
Proper place and time of demand The demand by the creditor must be made at the proper place and in proper time. A commercial bank, having a number of branches, is considered to be one entity, but the depositor enters into relationship with only that branch where an account is opened in his name his demand for the repayment of the deposit must be made at the same branch of the bank concerned otherwise the banker is not bound to honor his commitment. However, the customer may make special arrangement with the banker for the repayment of the deposited money at some other branch. Demand must be made in proper manner The demand for the refund of money deposited must be made through a cheque or on order as per the common usage amongst the banker .In other words, the demand should not be made verbally or through a telephonic message or in any such manner. Banker as Trustee Ordinarily, a banker is a debtor of his customer in respect of the deposits made by the latter, but in certain circumstances he acts as a trustee also. A trustee holds money or assets and performs certain functions for the benefit of some other called the beneficiary. The position of a banker as a trustee or as a debtor is determined according to the circumstances of each case. If he does in ordinary course of his business, without any specific direction from the customer, he acts as a debtors / creditors. In case of money or bills etc., deposited with the bank for specific purpose, the bankers position will be determined by ascertaining whether the amount was actually debited or credited to the customer‘s account or not. On the other hand, if a customer instructs his bank to purchase certain securities out of his deposit with the latter, but the bank fails before making
2. Banker’s Lien (6M)
What is lien? A lien is the right of a creditor in possession of goods, securities or any other assets belonging to the debtor to retain them until the debt is repaid, provided that there is no contract express or implied, to the contrary. It is a right to retain possession of specific goods or securities or other movables of which the ownership vests in some other person and the possession can be retained till the owner discharges the debt or obligation to the possessor. It is a legal claim by one person on the property of another as security for payment of a debt. A legal claim or attachment against property as security for payment of an obligation. In Halsbury's Laws of England ,it is stated: "Lien is ,in its primary sense ,a right in one man to retain that which is in his possession belonging to another until certain demands of the person in possession are satisfied. In its primary sense, it is given by law and not by contract." Meaning of the Banker's Lien:
"A bankers' lien on negotiable securities has been judicially defined as 'an implied pledge'. A banker has, in the absence of agreement to the contrary ,a lien on all bills received from a customer in the ordinary course of banking business in respect of any balance that may be due from such customer." it should be noted that the lien extends only to negotiable instruments which are remitted to the banker from the customer for the purpose of collection .When collection has been made the process may be used by the banker in reduction of the customer's debit balance unless otherwise earmarked. where speaking about the Banker's lien the learned author has stated that apart from any specific security ,the banker can look to his general lien as a protection against loss on loan or overdraft or other credit facility. The general lien of bankers is part of law merchant and judicially recognized as such. In Chitty on Contracts, it is explained. "The lien is applicable to negotiable instruments which are remitted to the banker from the customer for collection. When the collection has been made, the proceeds may be used by the banker in reduction of the customer's debit balance, unless other earmarked.” So far as the legal requirements are concerned there is no need of any special agreement, written or oral to create the right of lien, but it arises only by operation of law for, under the Indian Law, such an agreement is implied by the terms of Section 171 of the Indian Contract Act, 1872 so long as the same is not expressly excluded .In order that the lien should arise the following requirements are to be fulfilled: the property must come into the hands of the banker in his capacity as a banker in the ordinary course of business; there should be no entrustment for a special purpose inconsistent with the lien the possession of the property must be lawfully obtained in his capacity as a banker; and There should be no agreement inconsistent with the lien. Lein an implied pledge Banker’s lien is a general lien recognized by law. The general lien on the banker is regarded as something more than an ordinary lien; it is an implied pledge. This right coupled with rights u/s 43 of the Negotiable Instruments Act, 1881 permits bills, notes and cheques, of the banker, being regarded as a holder for value to the extent of the sum in respect of which the lien exists can realize them when due.
3. Special Type of Customers (6M)
Opening of an account binds the banker and customer into a contractual relationship. Every person who is competent to contract can open an account with a bank. The capacity of certain classes of person, to make valid agreement is subject to certain legal restrictions, as is the case with minors,
of identification marks should be noted on the account opening form and specimen signature card (3) At least two copies of photograph duly attested by any account holder/authorized bank official. Married Woman:. A married woman (Hindu) has the contractual capacity (if about 18 years of age) and has the right to acquire or dispose of her personal property called "Stridhana" in Hindu Law. The manager should make the usual essential enquiries in opening the account of a married woman. In the application (account opening form), she should fill up in addition to her name, address etc., the name of her husband,, his address (and the address of the employer of the husband). Proper introduction is necessary. As a competent person, she can draw and endorse cheques and other documents and these can be debited to her account. As long as credit balance is there in her account, there will be no risks, but, if loan or overdraft is to be given the Bank should ascertain her credit worthiness, her personal properties (Stridhana) the nature of the properties held by her etc. The Husband is not liable for her debts, except for those loans incurred for "necessaries of life" for her and her family. Precautions in granting loans or overdraft are necessary as (i) she may have no property as stridhana (ii) Her Husband's property is not liable except for necessaries,(iii) she may plead undue influence or ignorance of the nature of loan transaction, (iv) she cannot be committed to civil prison. Purdanashin Woman: She is one who wears a veil (Purdah), as per her customs, and is secluded except the members of her family. Some Muslim women observe this as custom in their community. The Manager should of course follow the preliminary enquiries as usual and may allow such a woman to open an account .Her identity and that she is opening the account out of her freewill are essential. To be on the safer side the manager may require a responsible person known to the bank attest her signature. Better if he insists such attestation in respect of her withdrawals also Executors and administrators: Executors and Administrators are allowed to open bank account. Formalities are to be observed while opening the account in the name of executor/administrator: Trustees: A banker must be cautions in opening/operating a trust account as the trustees are responsible for public money..Trust deed is to be observed carefully. Joint Account: While opening the joint account, all the concerned persons should sign the application form. The necessary forms are filled up and signed to specify how the account is to be operated and also who is authorised on all matters including cheques, bills, securities, advances etc. Operation of the account may be by one or more persons but clear instructions are essential to draw cheques etc. Instructions regarding survivorship are also a part of the process of opening of accounts. Generally the
account is made payable to either or survivor and the survivor is entitled to the amounts standing to the credit. The joint holders may nominate a person, if they so desire. Example of Joint Account is Husband and Wife. In a case of an account with instructions payable to either or survivor it is held that on the demise of the husband, the wife would be entitled to the amount if the husband had such an intention to benefit her, but, if there is no intention, it becomes part of the estate of the husband and hence heirs will be entitled as per law. Death of the husband, will not constitute a gift to the wife. The burden of proving the intention is on the wife (Marshall V. Crulwell; Foley V. Foley; Panikar V. TWQ Bank Ltd.) Partnership firm: Partnership Account A banker may open a Current Account in the name of the Partnership, Firm on application made and duly signed by all the Partners along with the partnership deed (original or certified copy). The banker should make enquiries as usual and also about the nature of the business, names' and addresses, of partners etc. He should get an authority letter signed by all partners authorizing a partner or two or more partners to draw cheques and other documents, to endorse bills or to accept bills etc., to mortgage, and sell property of the firm. The partnership deed is an important document to know the nature of the authority of the partners including implied authority of a partner. The number of partners is limited to 1.0 in Banking business and 20 in other businesses. From the provisions of the Partnership Act: (i) A partner's act will bind the firm if such an act is done in usual business of the firm or on behalf of (he firm, with an intention to bind the firm. This authority is implied. (ii) Registration under Sn.69 of the Partnership Act is optional. However, if the firm is not registered, it gets no locus standi to sue an outsider. Partner cannot sue the firm or other partners. But, third parties may sue the firm. To maintain a suit, (a) the firm should be registered; (b) names of Partners are to be on records of Register of Firm. -. (iii) Implied Authority does not enable a partner to open an account on behalf of the firm in his own name. Hence, the manager should ensure that the acts of the partner bind the firm, and that a partner does not act on his own behalf. According to Sn. of Partnership Act, "a partnership is the relation between persons who have agreed to share the profits of a business, carried on by/all or any of them acting for all." In Abbas Bros. V, Chetandas, the signatures on two pronotes were (1) for M. M. Abbas & Bros., Mohsin Bhai, Partner; (2) Mohsin Bhai, Partner, M. M. Abbas & Bros. The second was held as one that does not bind the firm or the partners, as it is not done on behalf of the firm. The first was held to bjnd the firm and the partners. Partners' Private Accounts: Transfer of funds from the private account of a partner to the firm may be done by the bank, but not vice versa. On retirement of a partner, the liability of such partner continues up to the date of retirement and notice thereof. The Bank may close the account and open a new account with the reconstituted firm, but to avoid the operation of Clayton's ease, a continuing guarantee by the
