Legal Question in Banking Law in India

My father, proprietor of a firm, opened a current account with Corporation Bank on 1-Feb-1992. On the same day my father issued authority letter in favor of my elder brother to sign the cheques. My father passed away on 29-Nov-2007. As per his will the firm became partnership firm of 5 partners including my elder brother. After 29-Nov-2007, I, one of the partner understood that the proprietary firm account is in operation & my elder brother is transacting in the account with same account no.,

1. The bank allowing my elder brother to operate the account of proprietary firm after death of the proprietor.

2. After the change of the constitution of the firm bank has not opened new bank account.

I would like to know whether the above mentioned queries are legally correct on the part of the bank.

Ravindra Palod, Nashik.


Asked on 10/22/10, 4:12 am

3 Answers from Attorneys
Vishwa Arya Arya & Co.

Dear Mr. Palod:

If bank had been informed of the death of father in Nov. 2007, the bank had no legal authority to continue the account of proprietor firm. The bank was under obligation to convert the same account into the account of partnership firm. May be, the bank did so, and continued to allow your elder brother not in the capacity of authorised signatory but in the capacity of the partner. You must check with the bank about it.

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Answered on 10/22/10, 11:53 am
J. Radhakrishnan independent Practice

if it is a proprietorship account in the name of your father, the Bank was not in order in allowing operations by your brother merely on the basis of the authority letter. If on the other hand the account has been changed as partnership firm account, the bank ought to have got the partnership letter signed by all partners giving authority to your brother to operate the account. In the absence of such procedures, the Bank has not acted lawfully in allowing your brother to operate the account after the demise of your father. You can sue the bank for the credit balance disposed off or withdrawn by your brother.

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Answered on 10/22/10, 8:56 pm


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