Legal Question in Banking Law in India

We are enjoying working capital limit amount of Rs50.00 lakhs. The firm is partnership firm five members are the partners. Out of the five partners Now one partner is going to retire from business because of his age factor. At the same time new partner is admitting. The same as modified in firm registration.Now we approached to the bank for up-dation of New partner and retirement of existing partner.
(1) Banker's said, they want to Freeze the account immediately because reconstitution of the partnership firm. we have maintained the continuity clause also. In such case account freeze is required
(2) They want to close the existing account and open the New account, it is required.We want to operate the existing account only.
We request you to please advise the procedure in banking....

Asked on 4/19/11, 9:14 am

2 Answers from Attorneys

J. Radhakrishnan independent Practice

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The bank is right in closing the account once the firm is reconstituted, so as to transfer the balance to the new account. Thereby the new partner can be made liable for the outstanding balance. This is the usual procedure in a Bank. No exception can be taken to the same.

Answered on 4/19/11, 6:45 pm

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