8.

Discuss in detail the different modes of securing

the bankers advances.

The words security means safety or guarantee of any kind, which may
be verbal, personal or in the form of any property. It is very essential
for a creditor to secure his loan or advances through different
securities. A security is a right possessed by a creditor in property or
anything to convert the same into cash, if the debtor fails to refund
the amount advanced with the interest.

Bankers, whenever advancing loans, first ask for the security to be

put for the loans requested. Different types of securities are used
depending upon the nature of the advances issued by the banks. A
good security must be enough to cover the risk, highly liquid, free
from any encumbrance, clean in ownership and easy to handle.

Types of Securities
There are four types of securities which are as under:-

 Lien
 Pledge
 Mortgage
 Hypothecation

1. Lien

Lien is first kind of security which is the right of holdings the goods of
the borrower until the loan is repaid. The borrower remains the owner
of the goods but the possession is given to the lender. The agreement
of lien explains whether it relates a particular debt or debts in general.
In ordinary lien creditor has only the right of possession of goods. He
has no right to sell it, but the banker’s lien is not the same. The
banker has a right to sell the good after a proper notice. The banker
gets the property of the customer as his banker. Thus papers of
money or goods with the banker are not for the purpose other than
lien. The banker takes the possession lawfully. There must not imply
or expressed agreement against lien.

2. Pledge

Pledge is also from one of the types of securities. It can be defines as

“Bailment of goods as protection for payment of a money owing or act
of a promise”. The borrower is called pledger and the banker is called
pledge. In case of pledge there should be bailment of goods and the
bailment should be on behalf of the debtor or an intending debtor.
The delivery of goods is necessary for the contract of bailment. The
delivery may be actual or constructive. The constructive delivery is
made when the bailee puts his lock on the doors of Godowns storing
the pledged goods or merely key of the lock on the Godowns door is
received. It is essential that the bailee should return the same goods
to the bailer or dispose them of according to his instructions.

3. Mortgage

Mortgage another type of security which can be defines as “A

mortgage is the reassigning of interest in particular fixed property for
the reason of protection of payment of funds advanced by means of
loan, an presenting of future balanced due, or the act of commitment
which maybe rise to a financial liability”. The transferor may be known
as mortgager. The transferee may be known as mortgagee. The
contract is treated as mortgage deed.

4. Hypothecation

Hypothecation is also from one of the types of securities and can be

defines as “A lawful transaction and essential goods are always
accessible as security for a balance due without transferring either the
property or the possession to the lender”. It is clear that possession
and ownership of the goods remain with the borrower and an
equitable charge is created in favor of the lender. The borrower
agrees to give the possession of the goods to the banker whenever
the banker requires him to do so. It is possible when the transfer of
possession is either inconvenient or impracticable. If the borrower
offers raw material or goods in possession as security, the transfer of
possession will stop the functioning of borrowers business. The
creditor possesses the right of a pledge under the hypothecation
deed. The position of the banker under hypothecation is not as safe
as under a pledge. If the borrower fails to give the possession of eth
goods hypothecated, the bank can file a suit in the court of law for
the recovery of amount lent. The advances against hypothecation are
risky. The bank should make sure that the party has a good
reputation, should check property regularly and asks the hypothecator
to submit periodical reports.

9. What are the precautions to be taken by a bank

in opening a current account in the name of
(a) A partnership firm
(b) A joint stock company

(a) The account that is commonly open for any business entity in
India is the Current account which is the most liquid type of account,
the current account does not have any limit on the number of
transactions that can be done in one day and this account is generally
opened to provide convenience to the business.

Advantage of Current Account in the Partnership Firm

 Adequate for handling large volumes of receipts or payments

regularly, a current account carries out all business transactions
swiftly and perfectly.
 It facilitates limitless withdrawals in line with the levied cash
transaction fees if any.
 No strictures are applied on the deposits made into the current
accounts opened at the bank’s home branch. Additionally, account
holders may also deposit cash at other branches upon paying
small fees as applicable.
 Cheques, pay-orders, or demand-drafts can be issued using a
current account to make direct payments to the creditors.
 It enables banks to collect receipts on behalf of customers and
credit the same to the customer’s current account.
 The current account holder can enjoy overdraft (or short-term
borrowing) facilities.
 With the convenience of mobile-banking and internet-banking,
current account provides for easy and quick business transactions.
 From multi-location funds transfers to electronic funds transfers
etc., it supplies enhanced user experience to account holders.
 The presence of interest earnings on the account balance makes a
current account more attractive for its users.

Documents required to open a Current account in the name of
partnership Firm

As per the Reserve Bank Of India, Following documents are required

to complete the KYC Formality of the Partnership firm :
 Copy of the Partnership Deed
 PAN Card in the Name of the Partnership Firm
 Aadhar Card Of all the Partners
 Address Proof of the Partnership Firm
 Identity Proof of all Partners
 Partnership Registration Certificate (if Registered Partnership)
 Agriculture product market committee license or Mandi License
 Labor License or Certificate
 Trademark Registration Certificate
 Liquor License and Drug License
 Registration Certificate issued by Excise & Customs Department.
 License/ Certificate to Sell/ Stock/ Exhibit for Sale or Distribute
Insecticide/Pesticide
 Registration Certificate issued under Weight & Measurement Act
 No objection certificate from Police Department, Regional
Transport Office and by State/Central Pollution Control Board
 GST Registration Certificate
 Certificate Issued by SEZ, STP, EHTP, DTA, and EPZ in the name
of the entity mentioning the address allotted.
 IEC Code Registration along with PAN Card.
 Gram Panchayat Certificate.
 Trade License in the name of the entity.
 Small Scale Industries SSI Registration Certificate
 Startup Recognition Certificate
 Factory Registration Certificate in the name of the entity.
 SEBI Registration Certificate in the name of the entity.
 The Shops and Establishment Certificate issued by the Municipal
Corporations
 Registration of firm with Employee Provident Fund Organization
and Employee State Insurance Corporation.
 Income Tax Returns Filed by the Partners
 Copy of Electricity Bill
 Copy of Telephone Bill

Conclusion

Procedure to Get a current bank Account is very simple to open

current bank account, all you need to do is choose a bank where you
wish to apply for the current bank account or you make online
application on bank website and fill application form either online or
paper form and submit all the documents and after verification your
account will be activated and cheque and passbook will be issued to
you. The current account can be open in any bank in India, all the
banks in India are allowed to open a current bank account.

(b) One of the first steps undertaken after incorporating a private

limited company is opening of current account in the name of the
Company. A company can open one or more current account in any
bank and is required to transact business. In this article, we look at
the procedure for opening private limited company bank or current
account along with the documents required.

Current Account for Private Limited Company

Opening a current account for a private limited company is easier
when compared to opening of current account for a sole
proprietorship firm as a company is a registered legal entity –
recognized by law. Therefore, once a company is incorporated, a bank
account can be opened in the name of the business with just a few
documents unlike proprietorship – wherein the existence of the sole
proprietorship must be established through various tax registrations.
As per Reserve Bank of India’s KYC norms, the following are the
documents required to open a current account in the name of the
Company:

 Certificate of incorporation and Memorandum & Articles of

Association;
 Resolution of the Board of Directors to open an account and
identification of those who have authority to operate the
account;
 Power of Attorney granted to its managers, officers or
employees to transact business on its behalf (if applicable);
 Copy of PAN allotment letter;
 Copy of the telephone bill;

Documents Required for Opening Company Current Account

Based on the above RBI KYC norms, various banks have formulated
procedures and list of documents required to open a company current
account. The following is an extensive list of documents required for
opening current account in the name of the Company:

 Certificate of Incorporation of Company

  Board resolution for opening current account
 Memorandum of Association (MOA) & Articles of Association
(AOA)
 Latest list of Directors as per the bank’s format
 Registered office address proof of the company (Only required if
different from the address mentioned in the Certificate of
Incorporation)
 Identity proof of all Directors / Authorized Signatories
o PAN card of Director
o Passport
o Voter Identity Card
o Driving License
o Aadhaar card issued by Unique Identification Authority of
India (UIDAI)
o Senior Citizen Card issued by State/Central Govt
o Fisherman Identity card issued by State/Central
Government
o Arms License
 Proof of appointment of current director/s (in case Board of
Directors has changed overtime)
 Proof of resignation of Director/s (in case Board of Directors has
changed overtime)
 PAN Card of the company or PAN Card Application
Acknowledgement (for New Companies which are less than 90
days)
 Share Holding Pattern of the company as per the bank’s format.

10. State and explain the protection offered by the

N.I. act to the paying banker.
The section 85(1),85(2),128 of negotiable instrument acts provide
statutory protection to paying banker for making payments of order
cheque, bearer cheque or crossed cheque in that order.
Payment of order cheque

Section 85(1) of N.I.Act 1881 provides that

“Where a cheque payable to order purports to be endorsed by or on

behalf of the payee, the drawee is discharged by payment in due
course”.

The above section provides protection to paying banker if he has

made payment of an order cheque in due course (within the meaning
of sec. 10 of N.I.Act.) and if the proceeds credited to the account of
an endorsee if and only if the endorsement is regular.

Payment of bearer cheque

Section -85(2) of N.I.Acts provides that

“Where a cheque is originally expressed to be payable to bearer, the

drawee is discharged by payment in due course to the bearer thereof
notwithstanding any endorsement whether in full or blank appearing
thereon and notwithstanding that any such endorsement purports to
restrict or exclude further negotiation.”

The above section specifies that a cheque which is once a bearer is

always bearer (which means if a cheque is originally drawn as a
bearer cheque remains always bearer irrespective of any
endorsements on the back of the instrument). Therefore banks are
not required to verify the regularity of the endorsement on the back
of the cheque if any and they are protected from liability if they have
made payment of an uncrossed bearer cheque to a bearer in due
course.

Payment of "Crossed cheque

Section -128.of N.I.Act 1881 provides that

“Where the banker on whom a crossed cheque is drawn has paid the
same in due course, the banker paying the cheque and (in case such
cheque has come to the hands of the payee) the drawer thereof shall
respectively be entitled to the same rights, and be placed in if the
amount of the cheque had been paid to and received by the true
owner thereof”.

The paying banker of a crossed cheque shall satisfy the following

condition to be eligible for protection under related NI acts.

1. Payment shall be made in due course.

2. Where a cheque is crossed generally, the banker on whom it is

drawn shall not pay it otherwise than to a banker.

3. Where a cheque is crossed specially, the banker on whom it is

drawn shall not pay it otherwise than to the banker to whom it is
crossed or his agent for collection.

In following cases paying banker does not get statutory protections if

he makes the payment of a cheque;

a) Materially altered or signature of the drawer is forged or payment

made of a crossed cheque with an irregular endorsement

b) Makes payment of a crossed cheque to a person otherwise than to

the banker then he is liable for the loss to the true owner of the
cheque.