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Monday, July 22, 2013

Documentation: What a Banker Should Know

Banks collect deposits from the public and lend the same to entrepreneurs. Being repositories of national wealth, banks are responsible for ensuring that moneys lent in the form of loans are properly secured, else they may find it difficult to recover the dues and, in turn, service their obligations to depositors.

One of the legally enforceable modes of recovering loans is to get the signatures of the prospective borrowers on documents that record the nature of transaction, rights and liabilities of creditor and debtor, and so on.

Such recording in the form of documents enables banks to establish legal relationships and also helps them in adducing evidence with all certainty. However, to make use of this in a court of law, the documents must be executed properly and correctly as per the prevailing laws of the land.

What follows is an examination of the ways and means of obtaining certain documents properly and keeping them enforceable till the loan is repaid.

1. Document
Section 3 of the Indian Evidence Act defines a document as:
“Any matter expressed or described upon any substance by means of letters, figures or marks or by more than one of these means, intended to be used or which may be used, for the purpose of recording that matter.”

1.1. Documentation
Documentation includes:
  • Execution of documents in the proper form and according to the law;
  • Obtention of signatures of the borrowers on the necessary documents that have been    properly stamped; and
  • Registration of executed documents wherever necessary.
1.2. The Importance of Documentation
Documentation helps in:
  • Identifying the borrower,
  • Establishing relationship between banker and customer,
  • Identifying the security,
  • Creating charge over a security,
  • Producing evidence acceptable to a court of law, and
  • Eliminating ambiguities.
1.3. Essentials of Proper Execution of Documents
                    Documents must be filled neatly at one go.

  • Date and place of execution must be mentioned invariably.
  • Where two or more borrowers are signing a document from two different places, or on two different dates, the fact of their doing so must be recorded by stating the correct date and place by the borrowers in their own handwriting.
  • Signatures must be on each page of the document.
  • The borrower must sign in full and in the same style throughout in all the documents.
  • Cuttings/Corrections in the documents must be initialled.
  • The document must be in accordance with the resolution passed by a company at a properly convened Board meeting.
  • Resolutions are to be in accordance with the Articles of Association.
  • The document needs to be properly stamped.
  • Adhesive stamps must be cancelled at the time of or before execution of the document by the proper officer.
  • Wherever attestation is mandatory, like in mortgages, the same shall be ensured.
  • The document must be registered wherever necessary.
  • The charges must be registered with the Registrar of Companies wherever necessary.
Box 1: Is the Evidence of Handwriting Experts Admissible?
Umed Chand Ramola Vs State Of Uttaranchal Criminal Revision No.585 of 2001 [2006 Crl.L.J.951]

Facts of the Case
The Appellant/Revisionist Umed Chand Ramola was employed as a peon-cumchowkidar in the District Co-operative Bank at Purola. On 7-4-1981 the Bank Manager of Purola withdrew Rs.1,50,000/- from State Bank of India, Purola, in order to send it to its head office at Uttarakashi. On 8-4-1981 at 7 a.m, the bank manager along with the cashier of the bank entrusted Rs.1,50,000/- to the appellant to be deposited at its head office at Uttarakashi and the appellant acknowledged the same by affixing his signature on the entrustment receipt. After a thorough enquiry by the Secretary of the said bank, it came to light that the accused, instead of depositing the 1,50,000/-as directed by the bank manager, had deposited Rs.1,45,000/- in Union Bank of India at Chham and obtained two bank drafts for Rs.25,000/- each in his name and also had withdrawn an amount of Rs.10,000/- in cash on 9-4-1981. The Secretary of the bank then lodged an FIR at a police outpost at Purola and subsequently, the investigating officer obtained the opinion of the Government Handwriting Expert with regard to the signatures of the accused on the entrustment receipt and filed a charge-sheet. The Court framed the charges against the accused under Section 408 of IPC. The appellant denied that he had signed the entrustment receipt, and that he had misappropriated the amount. The Chief Judicial Magistrate after the appraisal of evidence on record, found the accused guilty under Section 408 IPC and convicted the accused to undergo rigorous imprisonment for a period of five years and to pay a fine of Rs.10,000/- and on default to further undergo rigorous imprisonment for eighteen months. The accused preferred a criminal appeal before the Sessions Judge, Uttarakashi, who dismissed the appeal and confirmed the judgment and order of the lower court. The appellant preferred the criminal revision petition against the judgment and order of the Sessions Judge, Uttarakashi.

Contention of the Appellant
The appellant denied that the receipt contained his signature. He adduced the evidence of a private handwriting expert who denied that the signature on the receipt was that of the appellant. The counsel for the appellant further pointed out that the entrustment receipt was not immediately taken into possession by the investigating officer when the FIR was lodged when he saw the receipt on 16-4-1981, and that it was taken into possession on 20-5-1981. It was recorded in the statement of the investigating officer that though he had seen the receipt on 16-4-1981 he did not take it into his possession because the bank manager assured him that the accused might confess his guilt. The appellant took the plea before the trial court that the amount deposited in the Union Bank of India at Chham was the money he had taken on loan from D-2 to D-7 and that he had also sold his ornaments to raise the amount and deposited the same in the bank as he wanted to purchase a truck. The appellant adduced the evidence of D-2 to D-7 who stated that D-2 and D-3 had loaned Rs.15,000/- each to the appellant without obtaining any document from him. D-4 and D-7 had loaned Rs.20,000/- each and D-5 purchased ornaments worth Rs.11,480/- from the appellant on 17-3-1981. The counsel for the appellant also contended that the appellant was a class IV employee and the money would not have been entrusted to him at the District Co-operative Bank, as the money of the bank should not be sent through class IV employees. The appellant also contended that he had been falsely implicated in the case.

Contention of the Respondents
The respondent’s/prosecution’s contention was that the accused had taken Rs.1,50,000/- and signed the entrustment receipt to be deposited in the head office, but misappropriated the same. In support of their case, the respondents examined nine witnesses out of whom the bank manager, cashier and guard fully supported that Rs.1,50,000/- was entrusted to the appellant who had signed the receipt to this effect in their presence. The Government handwriting expert also submitted his report, which held that the said receipt bore the signature of the appellant. The respondents further contended that though the accused was a class IV employee and even if there was an administrative direction that money should not be entrusted to class IV employees, the employee who violated such directions would be liable for negligence and the accused could not be absolved of the misappropriation charge and he should be punished for the same.

  • Was the accused entrusted with Rs.1,50,000/- on 8-4-1981 to be deposited at the  head office of the bank and did the accused sign the entrustment receipt on 8-4-1981 after receiving the amount from the bank manager?
  • Was the evidence of the handwriting experts admissible?
  • Did the accused misappropriate the entrusted amount and deposited the same in     his name in another bank? Could a class IV employee be permitted to carry the money? Was the accused guilty or not?
The High Court of Uttaranchal observed that the prosecution witnesses had fully supported the entrustment of Rs.1,50,000/- to the accused/revisionist and that a receipt to this effect was signed by the accused in their presence. This corroborated the factum of entrustment of the money to the accused, and since the defense failed to elicit anything during the cross-examination and there were no discrepancies, the evidence of prosecution was considered to be credible and cogent.

With regard to the evidence of the handwriting experts, the Court held that though both appellant and prosecution had adduced the evidence of different handwriting experts, after analyzing the documents, the lower court concluded that the evidence of the Government handwriting expert was reliable and cogent and it was a well settled position of law that the Court was the expert of experts and since both the courts below had relied on the same evidence, the evidence of the Government handwriting expert was cogent. The Court further held that the evidence of the expert was not substantive evidence, but it is only a corroborative piece of evidence. The prosecution witnesses proved that the signature was made by the accused on the receipt in their presence, as such the substantive evidence, which had been proved by the ocular testimony, was credible and cogent.

The other contention of the counsel for the revisionist was that the revisionist was a Class IV employee and the money would not have been entrusted to the revisionist as there were special instructions to this effect given by the head office of the bank. If any violation was made by the employees, they might be liable for the negligence and the revisionist could not be acquitted.Uttaranchal High Court held that the prosecution had established the guilt beyond reasonable doubt, dismissed the revision petition filed by the appellant/revisionist and confirmed the judgment and order passed by the trial court.

Case Notes
The Court is entitled to have a final say on the admissibility of expert evidence as the Court is an ‘expert of experts’.
  • The evidence of expert is not substantive evidence and can be admitted only as corroborative evidence.
  • The evidence of Government handwriting expert is held to be more cogent and reliable over that of a private expert.
  • Corroboration of facts with evidence is important in proving the offence.
Source: The Icfai Journal of Banking Law, Vol. V, No. 1, 2007.
1.4. Who can Execute the Documents?
The following can execute a document:
  • Persons having legal capacity can execute the documents by putting their “signature”.
  • “Signature” includes “mark” (for example, thumb impression) by a person who is unable to write his name.
  • Individuals borrowing singly should execute the documents in their personal capacity.
  • Individuals borrowing jointly with others should sign “jointly and severally”.
  • As for proprietorship concerns, the proprietor should sign as “proprietor for”; he may just write in his own handwriting the name of the concern.
  • As for HUF, the Karta is empowered to sign on behalf of the joint family, then Karta can execute the documents; if Karta is not empowered to do so, all the adult male members of the joint family should sign and if there are any minors, the respective guardians must sign on their behalf.
  • As for partnership firms, all partners of the firm must sign in their twin capacities, i.e., in their personal capacity as well as in the capacity of a partner.
  • As for companies, the document must be executed by duly authorised persons as per the Board resolution with company seal.
  • As for trusts, all the trustees must sign the documents unless the Trust Deed authorises the trustees to delegate their powers to a few of them. Secondly, the trustees must be conferred with powers to borrow. Thirdly, they should come with a resolution passed by the trustees to borrow.
...To continue


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