Question

Mr A is adjudged as insolvent, He maintains the following accounts in your bank. You will stop operation of :

• A. ABC brothers, a partnership firm with A, B, C as partners
• B. ABC pvt ltd co. With A&B&C are directors
• C. ABC trust with A&B&C as trustees
• D. Operation will be stoped in all the 3 accounts

Answer 1

Answer:

D. Operation will be stoped in all the 3 accounts

• Legal Status of Insolvency: Once an individual is legally declared insolvent by a competent court, they lose the legal capacity to enter into contracts or manage their own assets.
• Automatic Suspension: Under the Indian Contract Act and banking regulations, the bank is legally obligated to freeze all accounts held by the insolvent person to protect the interests of creditors.
• Scope of Accounts: The prohibition applies to all types of accounts, including:
  • Individual Accounts: Savings accounts, current accounts, and fixed deposits held solely in the name of the insolvent.
  • Joint Accounts: Even if the insolvent is a joint holder, the account operations must be stopped because the insolvent's legal incapacity affects the entire account.
  • Trustee/Agent Capacities: Any account where the insolvent acts as a trustee or agent must also be paused to prevent unauthorized transactions.
• Duty of the Banker: The banker acts as a trustee of the customer's funds. Upon receiving official notice of insolvency, the banker must immediately mark the accounts as 'inoperative' or 'frozen' to prevent any debit transactions.
• Release of Funds: Funds held in these accounts vest in the Official Assignee or Official Receiver appointed by the court. The bank can only release funds or permit operations upon receiving clear instructions or a valid order from the court-appointed authority.
• Risk Management: Continuing to allow operations after receiving notice of insolvency can make the bank liable for any losses incurred by the creditors or the estate of the insolvent.