Types of accounts and opening of accounts & KYC norms

Payments in deceased Accounts

It is not legal to withdraw money from a deceased parent's bank account using atm card and pin.
If someone did make such a withdrawal after the death of the parent without informing the bank
but later informed the bank about the person's death, what criminal punishment would it draw?
There is no dispute or claim regarding the account or legal [Link] account can be closed on
demise of the deceased parent.

2) inform bank of parents demise

3) furnish death certificate to bank

4) if any nomination had been made by deceased payment wound be made to survivors /
nominees

Garnishee orders

Garnishee Order is an order passed by an executing court directing or ordering a garnishee not to
pay money to judgment debtors since the latter is indebted to the garnisher (decree holder). It is
an Order of the court to attach money or Goods belonging to the judgment debtor in the hands of
a third person

The concept of 'Garnishment' has been introduced in civil procedure code by the amendment
Act, 1976 and is a remarkable piece of legislation. This term has been derived from the French
word 'garnir' which means to warn or to prepare. In simple words the garnishee is the person who
is liable to pay a debt to a judgment debtor or to deliver any movable property to him. Besides
the Judgment Debtor and decree Holder, Garnishee is a third person in whose hands the debt of
the judgment debtor is kept.
Garnishee Order is an order passed by an executing court directing or ordering a garnishee not to
pay money to judgment debtors since the latter is indebted to the garnisher (decree holder). It is
an Order of the court to attach money or Goods belonging to the judgment debtor in the hands of
a third person. The third party is known as 'Garnishee' and the court's order is known as
Garnishee Order. It is a remedy available to the Decree holder. This Order may be made by the
Order of the court to holders of funds, i.e. a third party that no payments have to be made until
the court authorizes them. The purpose of the Order is to protect the interest of the Decree
holder. This is an Order served upon a garnishee requiring him not to pay or deliver the money or
property of the debtor (defendant) to him and/or requiring him to appear in the court and answer
to the suit of the plaintiff to the extent of the liability to •The power of the court enshrined under
Rule 46A to issue court notice, is discretionary and the court may refuse to pass such Order if it
is Inequitable and the court apprehends that it can cause prejudice to the garnishee, or that the
grounds of the application seeking that remedy is not sufficient or if the affidavit is filed by
decree holder is frivolous or ambiguous, etc. The discretion, however, must be exercised
judicially. Where the court finds that there is bonafide dispute against the claim and the dispute is
not false or frivolous, it should not take action under this rule.

The executing Court has been given power to recover any of the amounts of the judgment debtor,
which is in the hands of others. The rule of 46 A requires a notice to be issued to a garnishee
before a garnishee order is passed against him. If such notice is not issued and an opportunity of
hearing is not provided by the court, the order would be null and void. In the eyes of law, there is
no existence of such an order and any step taken pursuant to or an in enforcement of such an
order would also be void. The object of this rule is to render debt due by the debtor of the
judgment debtor available in execution to the decree holder and not to drive him to a suit. It
applies to a debt, other than a debt secured by a mortgage or a Charge, which has been attached
under rule 46.

Setoff and adjustments Promissory note

The right of set off is also known as the right of combination of accounts .A bank has a right to
set off a debt owing to a customer against a debt due from him.
"A legal set-off is where there are mutual debts between the plaintiff and defendant, or if either
party sue or be sued as executor or administrator one debt may be set against the other "(S.13
Insolvent Debtors Relied Act 1728)

From a commercial standpoint, a right of set-off is a form of security (right) for a lender. It is an
attractive security because its realization does not involve the sale of an asset to a third party.

A set-off must be in the form of a cross claim for a liquidated amount and it can be pleaded only
in respect of a liquidated claim. Both the claim and the set-off must be mutual debts, due from
and to the same parties, under the same right A claim by a person in a representative capacity
cannot be set off against a personal claim. Even a claim against the estate of a deceased customer
cannot be set off against a debt, which was due to the customer from his banker, during the
former's lifetime, whether the accounts are with one or more offices of the banker, it does not
materially affect the position in any way.

A banker's right of set off cannot be exercised after the money in his hands has been validly
assigned or in any case after he has been notified of the fact of an assignment. (Official
Liquidator ,Hanuman Bank Ltd. v. K.P.T. Nadar and Others 26 [Link] .81) Judgments
indicating certain essentials to the exercising of the right of set off.

Punjab National Bank v. Arunamal Durgadas ,AIR 1960 Punj.632 State Bank of India v. Javed
Akhtar Hussain ,AIR 1993 Bombay ,87 where it has been established that:
(1) Mutuality is essential to the validity of a right of exercising set-off
(2) It must be between the same periods.\

Relationship Between Lien And Set-Off

The banker's right of lien can attach to the money so long as it is reserved. Where it has ceased to
be such a separate earmarked sum, the bank has not the right to set off. ( Radha Raman
Choudhary v. Chota Nagpur Banking Association Ltd.(1945) 15 [Link].4(Pat).
 Bill of Exchange and dishonor thereto with remedial measures

Bank Guarantees and their kinds

A bank guarantee is an assurance that a bank provides to a contract between two external parties,
a buyer and a seller, or in relation to the guarantee, an applicant and a beneficiary.

The bank guarantee serves as a risk management tool for the beneficiary, as the bank assumes
liability for completion of the contract should the buyer default on their debt or obligation.

Bank guarantees serve a key purpose for small businesses; the bank, through their due diligence
of the applicant, provides credibility to them as a viable business partner for the beneficiary of
the guarantee.

In essence, the bank puts its seal of approval to the applicant’s creditworthiness, co-signing on
behalf of the applicant as it relates to the specific contract the two external parties are
undertaking

A bank guarantee is an assurance to a beneficiary that the bank will maintain a contract if the
applicant and counterparty to the contract are unable to do so.

Bank guarantees serve the purpose of facilitating business in situations that would otherwise be
too risky for the beneficiary to engage.

The underlying contracts to a bank guarantee can be both financial, such as loan repayment, or
performance-based, such as a service provided by one party to another.

Types

A bank guarantee is for a specific amount and a predetermined period of time. It clearly states
the circumstances under which the guarantee is applicable to the contract. A bank guarantee can
be either financial or performance-based in nature.
In a financial bank guarantee, the bank will guarantee that the buyer will repay the debts owed to
the seller. Should the buyer fail to do so, the bank will assume the financial burden itself, for a
small initial fee, which is charged from the buyer upon issuance of the guarantee.

For a performance-based guarantee, the beneficiary can seek reparations form the bank for
non-performance of the obligation as laid out in the contract. Should the counterparty fail to
deliver on the services as promised, the beneficiary will claim their resulting losses from
non-performance to the guarantor – the bank.

Foreign Bank Guarantee- Foreign BG is a guarantee which is issued for a foreign beneficiary.(
For foreign bank guarantees, such as in international export situations, there may be a fourth
party – a correspondent bank that operates in the country of domicile of the beneficiary)

Advance Payment Guarantee- This guarantee assures that they would return the advance amount
in case of no fulfillment of the terms.

Payment Guarantee / Loan Guarantee- The guarantee is for assuring the payment/loan
repayment. In case, the party fails to do so, a guarantor has to pay on behalf of the defaulting
borrower.

Bid Bond Guarantee- As a part of the bidding process, this guarantee assures that the bidder
would undertake the contract he has bid for, on the terms the bidding is done.

Deferred Payment Guarantee - When the bank guarantees some delayed payment, the guarantee
is termed as Deferred Payment Guarantee. For example, A company purchases a machine on
credit basis with terms of payment being 6 equal installments. In this case, since the payment is
deferred to a later period, the creditor seeks deferred payment guarantee for an assurance that the
payment would reach him in the given time period.

Shipping Guarantee - This guarantee protects the shipping company from all kinds of loss, in
case the customer does not pay. This document helps the customer to take possession of goods.

Guarantee for Warranty Obligation or Warranty Bond - This is an assurance that there will be a
proper delivery of the ordered goods as per the agreement.
Limits

In case some company or firm has regular requirement of BGs in their course of business, banks
also provide a facility of fixing “BG Limit” for that company/firm after BG assessment based on
their track record, financial position, security offered by the company, margin and financial
position of the business. For example: If a small company deals with Government Departments
or Public Sector Units, the regular requirement of BG occurs. In such a case, getting a BG limit
is beneficial; this means the bank from time to time can issue BGs to the applicant with the upper
limit being the sanctioned “BG Limit Amount”. BG limits are classified as “Non-Fund Based”
limits.

Letter of Credits

A letter of credit, or "credit letter" is a letter from a bank guaranteeing that a buyer's payment to a
seller will be received on time and for the correct amount. In the event that the buyer is unable to
make a payment on the purchase, the bank will be required to cover the full or remaining amount
of the purchase.

A letter of credit (LC) is a financial document that facilitates international as well as domestic
trade. It substitutes the bank credit for the credit of the customer. There are two basic types of
letters of credit – commercial and standby. The commercial LC is the primary mechanism of
payment while the standby LC is a secondary mechanism.

This letter is as good as a guarantee to the seller that the payment will be cleared even if the
buyer fails to do so. The risk of non-payment shifts from the seller to the bank. Generally, the
entire process also involves another bank that works as an advisor to the seller. The issuing bank
authorizes the advisory bank to pay the seller.
The commercial LC has been used for ages to facilitate the process of payment in domestic as
well as an international trade like import and export letter of credit. In fact, its usage will
increase with the development of the global economy. All the international letters of credit are
governed by the regulatory body of the International Chamber of Commerce under the Uniform
Customs and Practice for Documentary Credits.

Features

Negotiability

The LC is usually considered as a negotiable instrument and can be passed freely as money
among various parties. It obligates the issuing bank to pay the money not only to the beneficiary
but also to any other bank nominated by him. However, the LC is considered as negotiable only
when it includes an unconditional promise of payment on demand or at a particular time.

Revocability

The letter of credit can be either revocable or irrevocable. The issuing bank can revoke or modify
a revocable letter of credit at any time without notification. In such a scenario, the advising bank
will not confirm the LC. However, the use of revocable LC is very rare. An irrevocable LC is the
most commonly prevalent as it is not modifiable or revokable without the agreement of all the
parties in the transaction.

Transfer and Assignment

The beneficiary of the letter of the credit can transfer or assign the LC as many times as possible.
The LC will remain effective.

Sight and Time Drafts

The letter of credit demands payment through two features: sight or time. A sight draft is paid
when the LC is presented and the time draft is paid after a certain duration of time. The bank will
review the LC to be sure that it is valid in both cases.