It discusses the various judicial principles evolved over a period of time, within the ambit and scope of which the banker can be fastened with the liability as a trustee. This resulted in greater involvement of the state in different segments of the economy including banking and finance. As a general rule, trustee if earns a profit by using the trust funds, it has to account for it. Copyright 2021 Leaf Group Ltd. / Leaf Group Media, All Rights Reserved. It is also observed that the term ‘bankrupt’ got evolved then as the irate depositors broke the bench and table of the insolvent banker. Hence need exists for reform. The practice of depositing personal valuables at these places which were also functioning as the treasuries in ancient Babylon against a receipt was perhaps the earliest form of “Banking”. This case seems to have been overruled by the Supreme Court in the matter of Pearey Lal to the extent that in the absence of any instructions the function of the Bank as an agent for the collection came to an end when the bills were collected. However, if the bank under the circumstances cannot be said to have the knowledge of the trust, it can not be held liable. [i]http://www.kkhsou.in/main/EVidya2/commerce/banker_customer.html. A trust account is an account opened by a customer acting trustee or fiduciary and designated as a trust account or in some other way to indicate its fiduciary nature. He is currently a co-founder of two businesses. trustee account synonyms, trustee account pronunciation, trustee account translation, English dictionary definition of trustee account. [vi] When such word occurs in the name of the account, the bank obviously has the notice of the fact of the existence of the trust. In the case of Indian Hume Pipe Co. v. T N & Q Bank, [xiv]the company had a current account with the Travancore bank at Nagercoil. [xxiii]Halsbury’s Laws of England, Vol.3(1), para 157. The English agency houses, that began to serve as bankers to the East India Company had no capital of their own, and depended on deposits for their funds. At the same time, it had emerged as a large employer, and a debate had ensued about the nationalization of the banking industry. [v]Halsbury’s Laws of England, Vol.3(1), para 155. A bank generally charges 0.75 percent to 3 percent of the total asset value. With respect to constructive trusteeship, the law in its present state is unsatisfactory for being uncertain. In this case, also it was opined by the court that the subscription amounts were impressed with the trust and were not the assets of the company. The Swadeshi movement inspired local businessmen and political leaders to found banks for the Indian community. The question that arose for determination, in that case, was whether the bank was a trustee for that amount or whether the relationship was that of mere creditor and debtor. He was the “banker”. Banking history is interesting and reflects the evolution of trade and commerce. The trustee will also want to look at how much you had in your bank account at the time of filing your Chapter 7 bankruptcy. E. B. Havell in his work: The History of Aryas Rule in India says that Muhammad Tughlaq issued copper coin as counters and by an imperial decree made them pass at the value of gold and silver. With respect to trust accounts, not only the actual notice but even constructive notice would suffice to hold banks liable as a trustee. Bank while acting as a collecting agent is a trustee so long as the bill is not realized or not collected. But as soon as the bill is collected it then depends upon the facts of each case whether, with regard to the proceeds, the bank is a trustee or a debtor. As a result of this thousands of men from various quarters who possessed thousand of these copper coins bought them to the treasury and received in exchange gold tankas. Foreign banks too started to arrive, particularly in Calcutta, in the 1860s. The respondents pursuant to this made a loan for the amount for the payment of dividend and the cheque was paid into a special account with B bank that was created specifically for this purpose. By the 1960s, the Indian banking industry had become an important tool to facilitate the development of the Indian economy. Cromwell holds a bachelor's and master's degree in accounting, as well as a Juris Doctor. The vagaries of monarchial rule led to the issues of currency being vested with the banks since they enjoyed faith, controlled credit, and trading. A money economy existed in India since the days of Buddha. [v] To be held liable under this head it is not necessary that the word ‘trust’ appears in the name of the account. It was observed by Mellish LJ that ‘if an account is in plain terms headed in such a way that banker can not fail to know it to be a trust account, the balance standing to the credit of that account will, on the bankruptcy of that person who kept it belong to the trust’.[viii]. [xxv]RBI v. Bank of Credit and Commerce International Ltd. MANU/MH/0097/1992. The significance of banking in our day to day life is being felt increasingly. I'm not sure whether you've tried or have a relationship with Handelsbanken or UBS (or any other banking providers) but they might be able to help too. Later on, in the year 1993, the government merged New Bank of India with Punjab National Bank. A settlement was entered into by the settler for the benefit of his wife. How to Choose a Successor Trustee for My Living Trust, How to File a Police Report for an NSF Check. As the principle evolved through the case of Barnes v. Addy,[xx]the liability on a stranger to the trust could be imposed in the circumstances where he knowingly assisted the dishonest trustee and received/dealt with a trust fund in breach of trust. Soon the whole external trade of Hindustan come to a standstill. Custodians and Trustees In a trust account, the bank acts as a custodian of the account while the trustee has legal control over the account's assets. In a trust account, a trustee controls funds for the benefit of another party - an individual or a group.The bank trust account is a useful way to convey and control assets on behalf of a third-party owner. The word’s earliest bank currency notes were issued in Sweden by stock holms Banco in July 1661. The second milestone in the history of Indian banking was India becoming a sovereign republic. With the second dose of nationalization, the Government of India controlled around 91% of the banking business of India. All these banks operated in different segments of the economy. [ii]http://su.digitaluniversity.ac/downloads/9%20_1.pdf visited on 21st April 2015 at 3PM. In ancient India, during the Maurya dynasty (321 to 185 BC), an instrument called adesha was in use, which was an order on a banker desiring him to pay the money of the note to a third person, which corresponds to the definition of a bill of exchange as we understand it today. If the customer deposits securities or valuables with the banker for safe custody, banker becomes a trustee of his customer. The general presumption of the relationship between the banker and its customer is that of debtor-creditor. But the plaintiff never gave any instructions for opening any account fixed deposit or otherwise with respect to the amount after they reached Calcutta. The position would have been different if the appellant had given instructions to the Bank to the effect that after the bills were collected the Bank should either keep this money for him or should pay them to someone else or do something definite or specific with regard to these proceeds. The trust checking account must be kept separate from any of the trustee's own accounts to ensure that trust money is kept separate from the trustee's personal funds. The trustee can be one individual, multiple individuals, an institution (a bank or trust company) or a combination of an institution and one or more individuals. The banking sector also witnessed the benefits; Government took major steps in this Indian Banking Sector Reform after independence. Section 6 of the Banking Regulations Act, 1949 authorizes the bank to act as trustee as a part of its banking function. The handling of “banking” transcended from individual to groups to companies. Also, the amounts forwarded by the subscribers, under various provisions of Companies Act make the bank a statutory trustee. As the number of such mediators grew there is a need to control. The oldest bank in existence in India is the State Bank of India, which originated in the Bank of Calcutta in June 1806, which almost immediately became the Bank of Bengal. There are records from Greece, Rome, Egypt, and Ancient Babylon that suggest temples loaned money out, in addition to keeping it safe. When the company went into voluntary liquidation before this dividend was paid, the question with which the court was posed with was whether the investment company had the equitable interest in the money paid over of which the bank had at all the times notice of. (i) whether the company had a right to embark and utilise the money in its business activities without any restriction or whether the terms of the entrustment stipulate for segregation compelling the company to earmark or set apart the fund for a specific purpose ; (ii) whether there is a stipulation on the part of the company to pay interest or give some return for the investment; (iii) whether there is a clear negative obligation on the part of the company not only not to mix up or absorb the fund with the general assets of the company, but to use it for certain specific purposes, coupled with an obligation to return the same in certain contingencies ; (iv) whether the person who had deposited the fund has an unconditional right to withdraw the amount at his option, etc., etc. On failure of the purpose, it was held that the repayment of money was protected as the money advanced was for a specific purpose and was clothed with specific trust. Gradually as the personal possession got evaluated in term of money, in form of coins made of precious metal like gold and silver, these were being deposited in the temple treasuries. Central Bank of India was established in 1911 by Sir Sorabji Pochkhanawala and was the first commercial Indian bank completely owned and managed by Indians. The downside of using a bank as a trustee is that it charges a fee for its service. This being the primary trust and since this was no longer possible, it reverted to the respondent according to a secondary or resulting trust to that effect. A bank that charges higher fees may provide additional services, such as tax preparation. With the expansion of trade, the concept of banking gained greater ground. In the suit brought by the beneficiaries it was held by the chancery division that once the trust account was opened, the bank was under a fiduciary duty to the plaintiffs for that account. Now this trust had major shareholding in the BTL (private company) and therefore bank as trustee had a controlling interest and duty with regard to the management of company. A trust account is a bank account that you open for your child; however, rather than opening the account in your child’s name, you retain ownership of the account. Where, however, a bank undertakes to act a trustee and holds deposits on trust, the bank has no power to use those deposits as a part of general assets unless the trust instrument expressly authorizes to do so. Despite the provisions, control, and regulations of Reserve Bank of India, banks in India except for the State Bank of India or SBI, continued to be owned and operated by private persons. The earliest form of Indian Bill of Exchange was called “Hundi”. A number of banks established then have survived to the present such as Bank of India, Corporation Bank, Indian Bank, Bank of Baroda, Canara Bank and Central Bank of India. How did the concept emerge? The English traders that came to India in the 17th century could not make much use of the of indigenous bankers, owing to their ignorance of the language as well the inexperience indigenous people of the European trade. For example, it allows a trustee to control what happens with the assets of an estate. Justice Shah speaking for the Supreme Court held that after the purpose for which the money was entrusted was carried out, in the absence of the further instructions, the defendant did not cease to be a trustee. A trustee savings account is an account where money is held in trust on behalf of a beneficiary. [xvi]In this case it was held that where the customer gives specific instructions to the bank, it acts as an agent and not as a debtor and the agency brings about the fiduciary relationship and it lasts until the agency is terminated. I cannot guarantee a bank will allow these extra facilities, as banks believe trustee accounts require at least two signatures. A trust document should be prepared by an attorney. The earliest form of money – coins, were a certificate of value stamped on metal, usually gold, silver, and bronze or any other metal, by an authority, usually the king. Due to failure on account of unwise loans, to rule and organize, a stable banking system arose. However, the list is by no means exhaustive. Most banks offer trust accounts as an optional service. • Reserve Bank of India Scheduled Banks’ Regulations, 1951. However, the standard of care that a bank has to adopt in such cases is higher than that of a standard of ordinary prudence. Indigenous banking grew up in the form of rural money lending with certain individuals using their private funds for this purpose. Recently iron coins were found in very early levels at Attranji Kheri(U.P.) The presidency banks dominated banking in India but there were also some exchange banks and a number of Indian joint stock banks. No, the balance in the account is not yours. • Nationalization of Imperial Bank of India in 1955, with extensive banking facilities on a large scale especially in rural and semi-urban areas. This merely indicates that the bank can not wilfully shut its eyes to blatant breach of trust. IBC Suspension: Too Much To Chew On For The Banks? A trustee is a person who takes responsibility for managing money or assets that have been set aside in a trust for the benefit of someone else. The bank trust account is used mostly to control assets on behalf of a third-party owner. Thereafter, her move was swift and sudden. John Cromwell specializes in financial, legal and small business issues. The meeting received the paper with enthusiasm. Many people may consider hiring a bank to act as a trustee instead of appointing a relative or friend to manage their financial affairs. As per Section 6 of the Banking Regulation Act, banks can perform the functions of a trustee with a higher standard of care than what normally exists for others. For instance: A trustee holds property for the beneficiary, and the profit earned from this property belongs to the beneficiary. Kautilya’s Arthasastra mentions about a currency known as Panas and even fines paid to courts were made by panas. Define trustee account. The three banks merged in 1921 to form the Imperial Bank of India, which, upon India’s independence, became the State Bank of India. A bank, when receives money with a special instruction to retain the same pending further instructions it holds them in its capacity as a trustee until the fulfillment of instructions. Small purchases were regularly paid for in cowry shells (varataka), which remained the chief currency of the poor in many parts of India. The seat of religion and place of worship were considered a safe place for money and valuables. Tariff of charges for personal accounts [PDF, 389KB] Fee Information Document - Barclays Bank Account [PDF, 355KB] Important information. The first banks were The General Bank of India, which started in 1786, and Bank of Hindustan, which started in 1790; both are now defunct. However, in the cases where a bank is acting as a trustee and it puts the trust funds on deposit with itself, the terms of the charging clause in the trust instrument may be such which exclude the bank from having to account to the beneficiaries, for profit from employing the trust money in its business.[xxiii]. What Happens When the Bank Is the Executor of Your Will? Question arises whether the bank is in breach of trust or not. Check your state’s laws for the proper process for transferring assets into the trust. The strongest faith of people has always been religion and God. [xxi]A Arora, “The Bank’s Liability As A Constructive Trustee”, Journal of Business Laws, 1990, 217, p.220. Hence, undivided Dakshina Kannada district is known as “Cradle of Indian Banking”. The declaration of trust document creates the operative trust and formalizes the relationship between the trustee and the trust. The beneficiary could be a child, an adult that lacks capacity to manage their own affairs or an institution, and the funds held in trust could be to pay for a child’s education, to fund a house deposit or to make grants available to a local community. This merely indicates that bank can not wilfully shut its eyes to blatant breach of trust. With the increasing belief and faith in such authority of their valuation and the necessities of wider trade, a substitute to metal was found in the paper. The fee a bank charges to serve as trustee is normally a percentage of the value of the assets in the trust. A Trustee Bank Account is basically a way to control assets on behalf of a third party. The bank is entitled to use the funds in any manner it deems fit. The bank, therefore, in such cases cannot discharge its obligation with respect to the trust property by giving an account of the credit balance. If the money is entrusted with the bank for a special purpose until the fulfillment of the same the funds remain with the bank in its capacity as a trustee. In others, it will function basically as a savings account, with very little active management required. Please read these important guides to your rights and responsibilities when using the Barclays Bank Account. Here the court while giving the judgment relied on the case of Velji Lakhamsey & Co. v. Dr. Reuters Money: How to Hire a Trustee for Your Estate. And the answer to that question must depend not on an abstract proposition of law, but on the facts of each case. Nationalization of banks in India was an important phenomenon. Requirements for opening a trust come from the trust itself and the bank at which you'll be opening the account. The company was held entitled to amount of the cheque. This was a major change for direction for the private company but the bank representative at the meeting did not raise any objections to it and that the bank has not yet given approval to such a change in investment policy. [viii]E P Ellinger, Modern Banking Law, (Oxford: Clarendon Press, 1994), p.241. They can be the person opening the account, someone else they designate as a trustee, or a financial institution, such as a bank or brokerage firm. There exists no definite criterion or test to determine the meaning ‘dishonest’ and that of ‘knowledge’. However, the relationships are not the same in all cases. Finding a bank which will open a trustee account is getting harder and this is where the traditional banking relationships come in so any solicitor connections you have should be able to offer you some help here too. Calcutta was the most active trading port in India, mainly due to the trade of the British Empire, and so became a banking center. Banks … In this case a company was promised loan finance if it first obtained finance from another source to pay a share dividend that had already been declared. Whether you’re a trustee or a firm looking to open trust accounts on behalf of your clients, it’s important to find the right account with the right support. Ammembal Subbarao Pai founded “Canara Bank Hindu Permanent Fund” in1906. Company suffered substantial losses due to hazardous investment in property development. Trustees can vary as well. Mere entrustment of money with the bank does not put the bank in a state of the trustee. Banking in India originated in the last decades of the 18th century. Issuing currency was one of the major functions of the banks. Assets can be anything from cash, stocks, and bonds to real estate and other types of property. Swadeshi Movement The period between 1906 and 1911, saw the establishment of banks inspired by the Swadeshi movement. The case Thomson v. Clydesdale Bank Ltd,[xi]illustrates the same. A type of business organization recognizable as managing agency took form in a period from 1834 to 1847. A bank that charges higher fees may provide additional services, such as tax preparation. It was the only merger between nationalized banks and resulted in the reduction of the number of nationalized banks from 20 to 19. The fact that most temples were also the financial centers of their cities and this is the major reason that they were ransacked during wars. One such trust, a Totten trust, allows a trustee to control the assets of an estate, while a real estate trust holds funds for payment of costs associated with a … Copyright © 2020 Lawctopus. Your question is ambiguous. This was the principle that was enunciated by House of Lords in the case of Barclays Bank Ltd. v. Quistclose Investments Ltd.[xii]. • Enactment of Banking Regulation Act in 1949. Numerous people, like priests or temple workers, were both devout and honest, always occupied the temples, adding a sense of security. Four nationalized banks started in this district and also a leading private sector bank. There are few assets such as bank accounts, cars, stock, a real estate whose legal title should be changed in the name of a trustee as the trustee is the legal owner of trust property. Later after several years chairman came up with the proposal of investing the available private company funds for development projects but the proposal was not linked to the proposed public quotation which the bank had earlier said that it would give favourable consideration. The House of Lords ruled in the favour of the investment company and noted that the money was never intended to form part of company’s assets but was specifically directed at those entitled to the final dividend. Merchants in large towns gave letters of credit to one another. The case of Canara Bank v. NTPC[xxiv]serves as a good illustration where the bank is acting as an agent under s.6 of the Banking Regulation Act. Terms and conditions for personal accounts. Here, the fact that bank purported to open a fixed deposit account, in the name of the plaintiff was held to be inconsequential as it was done without the consent of the plaintiff. The Industrial Credit and Investment Corporation of India Limited (ICICI) was incorporated at the initiative of World Bank, the Government of India and representatives of Indian industry, with the objective of creating a development financial institution for providing medium-term and long-term project financing to Indian businesses. The apparent and most obvious benefit that one derives by impleading the bank liable as a trustee is of separation of funds from the general assets of a bank so as to claim preferential right in the event of bankruptcy. All forms of money were a unit of value and promised to pay the bearer of specified value. Under the Trust Accounts Act 1973 ( the Act) and Trust Accounts Regulation 1999 (the Regulation), a public accountant who manages client funds is a trustee and must therefore comply with trust account legislation. Here the entire amount from the ‘trust account’ was transferred into the personal account in the same bank. Exports and import were regulated by the barter system. A trust checking account is an account held within a trust, that is used by trustees to facilitate transactions, as mandated by the trust agreement. These are some of the simple queries that do not surface in our minds but are lurking deep down. Many individuals estimate the amount in their bank account when they file their petition. Earliest of these was Hindusthan Bank, established by one of the agency houses in Calcutta in 1770. Such mediating agencies gave birth to the concept of “banks” and “banking”. It was held in the case of RBI v. Bank of Credit and Commerce International Ltd.[xxvi]the money under such cases is forwarded for a specific purpose; hence the same is impressed with trust throughout primarily for the benefit of subscribers and secondarily for the benefit of the company. Before such transfer bank went into liquidation and the funds remained with the Bombay branch. Modern commercial bank beside performing the main functions that are accepting deposit and lending money covers a wild range of financial and non-financial services to the customers and the general public. • First major step in this direction was nationalization of Reserve Bank in 1949. What is a trustee bank account: A trust account may be referred to as an account opened by one or more persons, which to the bank’s direct or indirect knowledge is being operated by trustees or persons acting in some other fiduciary capacity. The case of Rowlandson and others v. National Westminster Bank Limited[x], provides an example of such situation. Who is a trustee? While you could name yourself as trustee, some situations may require that another individual or organization, such as a bank, fill the role. While delivering the judgement the Hon’ble court placed reliance upon an English decision in which a person advanced money to a bankrupt for settling the claims with his creditors. Similarly in the case of the M P Co-operative Bank v. P D Dalal [xv]it was held that when the Bills are handed over to a bank for collection, the Bank is constituted as an agent for their collection after which the relationship between both will depend upon other circumstances. The trustee has the responsibility of managing the account's assets. [xvii] In this case, plaintiff delivered certain amounts of money to the bank of Lahore for transmission to the bank’s branch at Calcutta with instructions to await the directions of plaintiff regarding the opening of the account for keeping the same in fixed deposit or otherwise in Calcutta branch. Groups to companies were issued in Sweden by stock holms Banco in July 1661 xxiii ] ’! Found banks for the beneficiary ’ s benefit liable as a trustee holds property for the nationalization was to the... Has always been religion and God, established by one of the total asset value plays a dominant in... 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