Different types of Borrowers: Jaiib/DBF Paper 3 (Module B) Unit-3

Different types of Borrowers: Jaiib/DBF Paper 3 (Module B) Unit-3

Dear bankers,

As we all know that  is Case Laws on Responsibility of Collecting Bank for JAIIB Exam. JAIIB exam conducted twice in a year. So, here we are providing the Different types of Borrowers (Unit-3), Legal Aspects of Banking Operations (Module B), Legal & Regulatory Aspects of Banking -Paper 3.

♦Types of Borrowers

  • Individual
  • Partnership Firm
  • Hindu Undivided Family
  • Companies
  • Statutory Corporations
  • Trusts and Cooperative Societies

Individual

  • If the banker lent money to an individual who is not competent to contract then the lended money cannot be recovered under following cases.
  • If Individual is Minor who has not attained the age of 18 years under Indian Majority Act and 20 years if he is a ward under the Guardian and ward’s Act.
  • If an individual is not of sound mind then he is incompetent to enter into contract.
  • If statutory disqualification imposed on certain person in respect of their to contract.

Partnership Firm

  • Legal Position Of Partnership: Under Indian Partnership Act 1932 which provides for partnership so it is necessary that a banker dealing with a partnership firm should verify whether firm registered or not.
  • Authority Of The Partners: Section 19 of the Partnership Act, 1932 deals with the implied authority of a partner as an agent of the firm and Section 22 deals with the mode of doing acts to bind the firm.
  • Insolvency Of Partner: If at the time of insolvency of one of the partner the firm’s account is in credit then the other partner can operate the same but the banker should obtain a fresh mandate and all previous cheque issued by the insolvent partner may be paid provided the partner confirm the same.
  • Death Of Partner: As the death of partner dissolves the Partnership firm upon receipt of such information bank’s are required to stop the transaction of firm in a running credit facility like Cash credit, bank allow the transaction in a separate account so that the business of firm is not adversely affected.

Hindu Undivided Family

  • A banker dealing with Hindu Undivided Family should known the ‘karta’ who is the senior most member of family.
  • Banker should ensure that ‘karta’ of family deal’s with the bank and borrows only for the benefit of family business.
  • The application to open an account must be signed by all members and all adult members should be made jointly.

Powers and duties of the manager

A manager or ‘Karta’ of a joint family has the following powers and duties:

Power

  • Right to possession and management of the joint family property
  • Right to income from the joint family property
  • Right to represent the joint family
  • Right to sell the joint family property for purpose

Duties

  • Duty to run the family business and manage the property for the benefit of the family.
  • Duty to account for the income from the joint family business and property.

Companies

A company is another type of borrower, which a banker deals with in his business of lending.

Basic laws governing company

  • In India, now companies are governed by the Companies Act, 2013. Companies as per the Companies Act, 1956 are required to be registered under the Act.  Section 11 of the Companies Act 1956 provides that an association or partnership consisting of more than 10 in the case of banking business and more than 20 in the case of other business.

Incorporation of Company

  • Section 12 of the Companies Act, 1956 provides that any 7 or more persons or where a company are known by two document called “Memorandum of Association” and “Articles of Association”.
  1. Memorandum of Association: It contains name of the Company, its authorised capital, registered office and liability of shareholders, objects of the company etc.
  2. Articles of Association: Articles of Association rules and regulations governing the internal management of the company. Ex: NO. of directors, Borrowing powers of the company, Procedure for transfer and transmission of shares ETC.

Statutory Corporations

  • Companies are Registered under companies Act 1956 , There may be corporation established by an Act of Parliament.These are called Statutory Corporations. For example state Bank of India is established under state Bank Act 1955.

Trust and co-operative societies

  • Club, societies, schools and other non trading association such bodies if not incorporated under the laws governing them cannot enter into any transactions. These bodies are usually governed by companies Act or Co-operative societies Act.
  • Trust are governed by Indian Trust Act 1882. A banker dealing with trust should acquaint himself with the respective laws applicable to them.
  • Trustee manages trust, the powers and duties of trustee are provided in trust deed and are also regulated by the respective laws applicable to such trust’s. Banker dealing with a trust should ensure that all the permission required for taking a loan is obtained from respective Government authorities.

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