opened for Credit of Scholarship
The Reserve Bank, on September
10, 2014, advised all regional rural banks / state and central co-operative
banks to ensure that accounts of all student beneficiaries under the various central/state
government scholarship schemes are free from restrictions of ‘minimum balance’
and ‘total credit limit’. Earlier, Bombay High Court brought to notice of the
Reserve Bank that banks fix a limit on total credits in zero balance accounts
opened for students studying in primary, secondary/higher secondary schools and
technical institutions. Resultantly, in cases where scholarship amounts exceed
the credit limit, banks do not allow the credit and return the amount to the
disbursement account of the Government. Further, in some cases banks are
reported to have closed zero balance accounts unilaterally without intimating
student beneficiaries concerned. Instances of banks refusing to open zero
balance account for students have also been brought to the Reserve Bank’s
Opening of Bank Accounts in the Names of Minors
To promote the objective of financial inclusion and also to bring uniformity among banks in opening and operating minors’ accounts, the Reserve Bank on May 6, 2014, advised banks that -
· A minor of any age can open a savings/fixed/recurring bank deposit account through his/her natural or legally appointed guardian;
· Minors above the age of 10 years may be allowed to open and operate savings bank accounts independently, if they so desire. Keeping in view their risk management systems, banks may, however, fix limits in terms of age and amount up to which minors may be allowed to operate the deposit accounts independently. They can also decide, in their own discretion, as to what minimum documents are required for opening of accounts by minors.
· On attaining majority, the minor should confirm the balance in his/her account and if the account is operated by the natural guardian/legal guardian, fresh operating instructions and specimen signature of the erstwhile minor should be obtained and kept on record for all operational purposes.
Banks are free to offer additional banking facilities, such as, internet banking, ATM/debit card, cheque book facility etc., subject to the safeguards that minor accounts are not allowed to be overdrawn and that these always remain in credit.
Earlier, minors’ accounts (fixed, recurring and savings deposit accounts) with mothers as guardians were allowed to be opened subject to safeguards in allowing operations in such accounts by ensuring that the minors’ accounts opened with guardian are not allowed to be overdrawn and that these always remain in credit.
Similar instructions to primary urban co-operative banks on opening of bank accounts in the names of minors were issued on May 12, 2014.
Accounts of Minors
· A person who has not completed 18 years of age is a minor. If a guardian of his person or property is appointed by the Court before he completes 18th year, he remains minor till he completes his 21st year.
· According to the Indian Contract act, 1872, a minor is not capable of entering into a valid contract and a contract entered into by a minor is void. A contract for the supply of necessaries of life to a minor is, however, a valid contract. A banker should, therefore, be very careful in dealing with a minor and take the following precautions:
(i) A savings /fixed / recurring bank deposit account can be opened by a minor of any age through his/her natural or legally appointed guardian.
(ii) Minors above the age of 10 years may be allowed to open and operate savings bank accounts independently, if they so desire. Banks may, however, keeping in view their risk management systems, fix limits in terms of age and amount up to which minors may be allowed to operate the deposit accounts independently. They can also decide, in their own discretion, as to what minimum documents are required for opening of accounts by minors.
(iii) On attaining majority, the erstwhile minor should confirm the balance in his/her account and if the account is operated by the natural guardian / legal guardian, fresh operating instructions and specimen signature of erstwhile minor should be obtained and kept on record for all operational purposes.
(iv) Banks are free to offer additional banking facilities like internet banking, ATM/ debit card, cheque book facility etc., subject to the safeguards that minor accounts are not allowed to be overdrawn and that these always remain in credit.
· The bank records the date of birth of the minor as given by the minor or his/her guarding. On the attainment of majority, the account of the minor in the name of the guardian should be closed and the balance paid to the minor (then major) or be transferred to a new account in his/her own name. In case of a joint account, the minor is also permitted to operate the account and his signature are taken on the account opening form.
· If the father of a Hindu minor dies, his mother becomes his natural guardian. After the death of the mother, during the minority of the boy there is either the testamentary guardian or the guardian appointed by the Court. The banker may return the money to such guardian.
· In case the minor dies, the balance in the account is permitted to be withdrawn by the guardian and in case of joint account the balance will be held at the absolute disposal of the guardian.
· No risk is involved if an account is opened in the name of a minor so long as the account is not overdrawn by the minor. But if an overdraft or advance is granted to a minor, even by mistake or unintentionally, the banker has no legal remedy to recover the amount from the minor. The assets of a minor pledged with the banker as security for the advance taken by the minor are not legally available to the banker because such pledge itself is invalid. The banker shall have to return these securities to the minor and he cannot exercise this right of sale in case of default by the minor.
· If an advance is granted to a minor on the guarantee of a third party, such advance cannot be recovered from the guarantor also because the contract of guarantee is invalid on the ground that the contract between the creditor and the principal debtor (minor) itself is a void contract. According to Section 128 of the Indian Contract Act, 1872, the liability of the surety is co-existence with that of the principal debtor, unless it is otherwise provided by the contract. The surety, therefore, cannot be held liable on a guarantee given for default by a minor. According to the law a minor cannot enter into a valid contract and he cannot undertake a liability upon himself. Thus he cannot default. Suerty’s liability is a secondary one and does not arise, if the liability of the primary debtor does not arise. In Edavan Nambiar vs. Moolakai Raman (A.I.R. 1957 Madras 164), the Madras High Court also upheld the above viewpoint. The liability of a surety is ancillary. It materializes if there is a valid obligation on the part of the debtor whose debt or obligation is guaranteed. However, if the contract of guarantee specially provides contrary to the above, the guarantor may be held liable for the debts of a minor.
· But if a minor enters into an agreement by representing himself as major and later on claims such a contract as void on account of his minority at the time entering into contact, the minor must restore the benefit derived by him under the agreement. In M/S Thiru Arooram Sugars Ltd. Vs. State Bank of India, the High Court observed as above on the basis of Section 65 of the Indian Contract Act which states that " when an agreement is discovered to be void or when a contract becomes void, any person who has received any advantage under such agreement or contract is bound to restore it or to make compensation for it to the person from whom he recovered it."
· A minor may draw, endorse or negotiate a cheque or a bill but he cannot be held liable on such cheque or bill. He cannot be sued in respect of a bill accepted by him during his minority. Such bill or cheque, nevertheless, will be valid instrument and all other parties will be liable in their respective capacities (Section 26 of the Negotiable Instruments Act, 1881). The banker should, therefore, be very cautious in dealing with a negotiable instrument, to which a minor is a party.
· A minor can be admitted to the benefit of partnership with the consent of all the partners but he will not be liable for the losses or debts of the firm. Within six months after he attains majority he should repudiate his liability as partner otherwise he will be held liable as a partner of the firm from the date he was admitted to the benefit of the partnership [Section 30(7) (a) of the Indian Partnership act, 1932].
· A minor may be appointed as an agent to act on behalf of his principal. According to Section 184 of the Indian Contract Act, 1872, "as between the principal and third person may become an agent; but no person who is not of the age of majority and of sound mind can be appointed as an agent, so as to be responsible to his principal." Thus a minor agent cannot be held responsible to his principal. The principal may be held responsible to the third parities in respects of the acts of his minor agent. Therefore, all of his dealings with the banker will be valid and binding on his principal. The banker should obtain written authority of the principal specifying he power and the extent of authority entrusted to the agent in this regard and should see that the minor-agent does not deal beyond such delegated powers.
· Natural Guardian. According to Section 6 of the Hindu Minority and Guardianship Act, 1956, in case of a minor boy or an unmarried girl, his/her father and after him the mother shall be the natural guardian. In case of a married girl (minor), her husband shall be natural guardian. The terms father or mother does not include step-father or step-mother. If the father becomes a sanyasi or does not remain Hindu, he shall not be entitled to remain as guardian. If the father is alive and is not removed from guardianship, the mother does not become the natural guardian of her minor child.
· Testamentary Guardian. A Hindu father, who is entitled to act as the natural guardian of his mother legitimate children may, by will, appoint a guardian for any of them in respect of the minor’s person or property. Such guardian acts as after the death of the father or the mother.
· Guardian appointed by Court. A guardian may be appointed by the Court under the Guardians and Wards Act, 1890, but the Court shall not be authorized to appoint or declare a guardian of the person of a minor, if his father is alive and is not, in the opinion of the Court, unfit to be guardian of the person of a minor. Similar is the case with the minor girl, whose husband is not, in the opinion of the Court, unfit to be guardian of her person. Thus the father (or the husband in case of a married girl) is exclusively entitled to be the guardian. The welfare of the minor shall be a paramount consideration of the court while appointing a guardian.
· Mother as Natural Guardian
o In a landmark judgement on the guardianship of a minor under the above mentioned two Acts, the Supreme Court has held that the mother can also act as natural guardian of a Hindu minor even during the lifetime of the father. In (Githa Hariharan & another vs. Reserve Bank of India 1999 (I) SC 524) the Supreme Court held that in all situations where the father in nit in actual charge of the affairs of the minor either because of indifference or because of an agreement between him and the mother of the minor (oral or written) and the minor is in the exclusive care and custody of the mother or, the father for any other reason is unable to take care of the minor because of his physical and /or mental incapacity, the mother can act as natural guardian of the minor.
· The Court further held that the definition of ''''''''''''''''''''''''''''''''guardian'''''''''''''''''''''''''''''''' and ''''''''''''''''''''''''''''''''natural guardian'''''''''''''''''''''''''''''''' do not make any discrimination against the mother and she, being one of the guardians mentioned Section 6 of the 1956 Act, would undoubtedly be a ‘natural guardian’, as defined in that Act. The Supreme Court further clarified that the words ‘ the father, and after him, the mother, need not necessarily mean ‘after the lifetime of the father’. Rather the word ‘after’ means in the absence of and the word absence refers to the father’s absence from the care of the minor’s property or person for any reason whatever.
· Reserve Bank has advised the banks to allow opening he minor’s account (fixed, saving and recurring deposit accounts) with mother as guardian. Thus banks are now permitted to open account of minors in the guardianship of the mother, even if the father of the minor is alive.