Page 81 - DCOM208_BANKING_THEORY_AND_PRACTICE

Banking Theory and Practice

Notes It is a written document published by a bank to another bank requesting the second bank to
allow a customer to open an account, carry out transactions and generally receive rights just like
an existing account holder.
Power of Attorney is a legal official document giving one peon (called an “agent” or “attorney-
in-fact”) the power to act for another peon (the principal). The agent can have broad legal
authority or limited authority to make legal decisions about the principal’s property and finance.
The power of attorney is often used in the cases of a principal’s illness or disability, or when the
principal can’t be present to sign required legal documents for financial deals.

Did u know? There are two types of power of attorney:
1. General power of attorney: general power of attorney is carried out by a peon in
favour of another to act on behalf of him generally. It may include management of
property, court matter/litigations, sale of mortgage of property or any other act.
2. Special power of attorney: Special power of attorney is performed to do a particular
act. Power of attorney holder is answerable to the principal and liable to give
accounts to him.

5.4.1 Banke Lien

In terms of Section 171 of Indian Contract Act, a banker may, in absence of a contract to the
contrary, retain as security for a general balance of account any goods bailed to them. This right
of a banker is automatic and no agreement/contract is required and hence called general lien.
Lien means right to retain goods in possession (but not to sell) until debit is discharged. But in
case of bank, general lien tantamount to ‘implied pledge’. He has the right to sell. Banker’s right
of general lien is available only over goods and securities received during normal coue of
business but not over those received for specific purpose as an agent or as a trustee etc. It is also
not available, if there exists any contract to the contrary. There may be particular lien over
particular goods as per specific contract or even a negative lien i.e. an undertaking not to
alienate a security without specific consent of the bank.

5.4.2 Right of Set off

Banker has right to combine two or more accounts. If one of them is in debit of customer in the
same name and same right, care can be taken that:
An account in the individual capacity of the customer showing debits balance cannot be
combined with one in fiduciary capacity (i.e. trustee etc.) showing credit balance.

Account really belonging to same peons, but in different names can be combined. Thus an
account of a sole proprietohip concern may be combined with that in his peonal name.
Two accounts, of a solicitor, one in his peons.
Two accounts, of solicitor, one in his peonal name and other marked clients account
cannot be combined.

Two accounts one belonging to an individual and other jointly with someone, cannot be
combined.

The right can be exercised only when the debt is due.
The right should exercise after giving due notice, unless a contract to the contrary exists.
The right may be exercised before the garnishee order is made effective.

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