BANKER-CUSTOMER

RELATIONSHIP

BY

ABDUL QADIR BHAMANI

Banker

A banker is the one who gets into debts and creates debts.

• H.L. HART – the banker is one who receives money, collects chequesand drafts, for customers, with an obligation to honour the cheques drawn by customers from time to time subject to availability of amounts in the account.

Banker

• Section 3 of NI ACT 1881, and Section 2 of BILLOF EXCHANGE ACT 1882. state that the term banker includes person or corporation or a company acting as banker.

• Under Section 5 (1) of Banking Regulations of1949, a banking company is defined as any company which transacts banking business.

• Under Section 5 (1) B , banking business meansaccepting for the purpose of landing orinvestment, deposits of money from the public, repayable on demand or otherwise withdrawable by cheque , draft or otherwise.

Function of bank

• According to above definations fpllowing are the main of bank

1. Dealing in Money

Bank is a financial institution which deals with other people's money i.e. money given by depositors.

2. Individual / Firm / Company

• A bank may be a person, firm or a company. A banking company means a company which is in the business of banking.

3. Acceptance of Deposit• A bank accepts money from the people in the form of deposits which are usually

repayable on demand or after the expiry of a fixed period. It gives safety to the deposits of its customers. It also acts as a custodian of funds of itscustomers.

4. Giving Advances

• A bank lends out money in the form of loans to those who require it for different purposes

5. Payment and WithdrawalA bank provides easy payment and withdrawal facility to its customers in the form ofcheques and drafts, It also brings bank money in circulation. This money is in the form of cheques, drafts, etc.

Functions of Bank6. Agency and Utility Services

A bank provides various banking facilities to its customers. They include general utility services and agency services.

7. Profit and Service Orientation

A bank is a profit seeking institution having service oriented approach.

8. Ever increasing Functions

Banking is an evolutionary concept. There is continuous expansion anddiversification as regards the functions, services and activities of a bank.

9. Connecting Link

A bank acts as a connecting link between borrowers and lenders of money. Banks collect money from those who have surplus money and give the same to those who are in need of money.

10. Banking Business

A bank's main activity should be to do business of banking which should not be subsidiary to any other business.

11. Name Identity

A bank should always add the word "bank" to its name to enable people to know that it is a bank and that it is dealing in money.

Customer

• A person who buys goods or services from a shopor a business entity.

• A person you deal with as a business entity.

• There is no statutory definition

• A person/ company/entity who has an account with a bank is a customer.

•

• There is no unanimity as regards to the time period of the dealings.

Customer

• A casual transaction like encashment of a cheque does not entail a person to be customer.

• The duration of association of the customer with the bank is of no essence.

• A customer is one who has anaccount with the bank and to whom the banks undertakes to extend business of banking.

Customer

• Under the LAW of contractperson are able in ‘‘section 11:of contract act’’

• Person have maturity aged (+18)

• Person is sound mind

• Person is not disqualified in

contract by court.

General RelationshipCREDITOR-DEBTOR

• Relationship between the customerhaving a deposit account and thebanker.

• Depositor is the lender and the bankeris the borrower.

• Depositor is the creditor and the bankeris the debtor.

• The money handed over to the bank is adebt.

• The money once deposited in the bankbecomes the money of the bank and itis prerogative of the bank to use thatmoney as it deems fit. The depositorremains a creditor that too anunsecured creditor

General Relationship

DEBTOR-CREDITOR

• When the customer avails a loan or anadvance then his relationship with thebanker undergoes a change to what itis when he is a deposit holder.

• Since the funds are lent to the customer , he becomes the borrower and the banker becomes the lender.

• The relation is the debtor- creditor relation, the customer being a debtor and the banker a creditor.

General RelationshipPRINCIPAL-AGENT

• Banks provide ancillary services such ascollection of cheques, bills etc.They alsoundertake to pay regularly the

electricitybills, phone bills etc.• The relationship arising out of these

ancillary services is of principal-agentbetween the customer and the bank.

• The relationship seizes once the customerdies, becomes insane or becomesinsolvent.

• The proceedes of the cheques sent forcollection,which are in transit, not createdto the customer account are not themoneys of the banker till such time as they are credited into the customer account.

Special Relationship

Bailer Bailee

• A bailment is the delivery of goods in trust. A bank may accept the valuables of his customersuch as jewellary, documents, securities for safe custody.

• In such a case the customer is the Bailer and the bank is bailee.

• If a customer keeps certain valuables or securities with the bank for safe-keeping or deposits a certain amount of money for a specific purpose, the banker, besides becoming a bailee, is also a trustee. Themoney or the securities so kept are not at thedisposal of the bank. The banker cannot utilizethose moneys or securities as he desires sincethe money does not belong to him.

Special Relationship

• Pawner and Pawnee:

• When a customer Pledge goods anddocuments as security for an advance he then become Pawner (Pledger) andthe bank becomes the pawnee (pledgee).

• The pledged goods are to bereturned intact to the pawner after the debt is repaid by him.

Special Relationship

• Mortgager and Mortgagee :

• Mortgage is the transfer of an interestinspecific immovable property for the purpose of securing the payment ofmoney advanced or to be advanced by way of loan.

• When a customer pledges a specificimmovable property with the bank assecurity for advance, the customer becomes mortgager and banker is the mortagee.

Special Relationship

LESSEE-LESSOR

• The banks provide safe deposit lockers to the customers who hire them on lease basis. The relationship therefore, is that of lessee and lessor. In certain banks, this relationship is termed as licensee and licensor. The bank leases out the Assests to clients for their use on lease the customer become lessor and Bank become lessee

Special Relationship

INDEMNIFIER- INDEMNIFIED

• The customer is indemnifier and the bank is indemnified.

• A contract by which one party promisesto save the other from loss caused tohim by the conduct of the promisorhimself or the conduct of any

otherperson is called a contract of

indemnity– section 124 ( Indian Contract Act,1872). In the case of banking, thisrelationship happens in transactions ofissue of duplicate demand draft, fixeddeposit receipt etc. The underlying

pointin these cases is that either party willcompensate the other of any loss arisingfrom the wrong/excess payment.

Special Relations

Banker and trustee

• When banker appointed as receiver by court in proceeding, money is

deposited in bank and bank act as trustee because in this case bank is

receiver of money for specific propose.

• A banker becomes a trustee under special circumstances. When a

customer deposits securities or other valuables with the banker for safe

custody, the banker acts as trustee of customer.

Advisory relationship

• When bank advises the customer to make their investment in particular

business, trade , project etc.this advice either given officaily or

unofficaily.While given advice customer has to take maximum care and

caution

OBLIGATIONS OF THE BANK

• OBLIGATIONS OF THE BANK Obligation to honour the cheque

• Under section 31 of NI Act 1881, the bankeris obliged to make payment of the cheque,with mandate, properly presented, provided there is balance in the account.

• However, when a garneshee order is servedon the banker, the banker may seek refuseunder order 21 of code of civil procedure1908 and the banker may not pay thecheque when such order is served.If adebtor fails to pay the debt to the creditor,the latter may approach a court of law toissue a garneshee order on the banker of his debtor.

OBLIGATIONS OF THE BANK

Obligation to maintain secrecy• Section 13 of banking companies Act

1970 stipulates the banks to maintain secrecy of their customers accounts and dealings with them.

• However there are exceptions.The exceptions are :

When law requires

When the practices and usages among bankers warrants exchange of information.

OBLIGATIONS OF BANKS

• Secrecy of the customer’s account

• The bank owes a contractual duty not to disclose the customer’s financial position without his consent.

• However the obligation of secrecy is not considered essential on the following occasions.

– When a banker is required to give evidence in the court.

– When there is national emergency and disclosure is essential in the public interest.

– When there are clear proofs of treason to the state

– When a consent is given by the customer to provide information for the preparation of balance sheet.

OBLIGATIONS OF BANK

• Garnishee order

(order of the

court)

• It is the duty of the banker to

abide by the order of the court

(garnishee order) and attached

the funds of the customer to the

creditors who has obtained the

order in his favor.

OBLIGATIONS OF THE

BANKS

• Standing orders

• It is the duty of the bank to abide

by the standing orders of the

customers in making periodical

payments on his behalf such as

club, library, insurance premium

etc.

RIGHTS OF BANKS• Right of general lien- Lien is the right of

the creditor to retain the goods andsecurities owned by the debtor untill thedebt due from him is paid.

• It conferes upon the creditor to retainthe securities of the debtor.

• It does not confer the right to sell.• There are two types of liens –

Generallien and particular lien.

• Section 171 of Indian contract Act 1872conferes general lien on bankers.

• Bankers lien is tantamount to impliedpledge. The reason being the banker isbestowed with a right even to sellsecurities without the intervention ofthe court.

• Pledge – Section 172 of Indian contractAct 1872- bailment of goods as securityfor payment of a debt or performance.

RIGHTS OF BANKER

• Right of set off – The mutual claims of

adebtor and a creditor are adjustedtogether and only the remainder amountdue is payable.

• Right of appropriation - If the customerhas more than one loan account , thecustomer can direct the repayment ofthe loan as credit into any otheraccounts. If there is no specificdirections from the customers thebanker has a right to appropriate as perhis choice.

• Right to charge interest- As a creditorthe banker has right to charge intereston the funds he lends as per the normsand as per the contract.

BANKER BOOK EVIDANCE

ACTDespite the fact the banker has to

maintain secrecy he has to disclose the accounts and an order from the court.

Earlier the books of accounts were required to be produced in courtof law as evidence.

However on the advent of bankers books evidence act 1891.The bankercan produce certified copies of the records of the accounts asevidencewhich are tenable as evidence in court of law.

RIGHTS OF THE

CUSTOMER TOWARDS THE

BANKER• The main rights and duties of a customer towards the

banker in brief are as under:

• Rights of a customer:– A customer who has deposited money can draw check on

his account up to the extent of his credit balance or according to overdrawing limit sanctioned by the bank.

– A customer has the right to receive statement of accounts from the bank.

– A customer has the right to sue the bank for compensation of a wrongful dishonor of his check.

– A customer has a right to sue and demand compensation if the bank fails to maintain the secrecy of his account.

– To claim for and receive the profit/ return on his deposits as promised by bank

–

• Duties of a customer– It is the duty of the customer to present

checks and other negotiable instruments during the business hour of the bank.

– The instruments of credit should be presented by the customer with in due time from their dates of issue.

– A customer must keep the check books issued by the bank in safe custody. In case of theft or loss, it is the duty of the customer to report the matter immediately to the bank.

Termination of relationship

• Banker and customer relationship is

established when customer is open

the account and both parties are

able to terminate the relationship by

closing the account.

Termination of relationship

• Account close by customer:

When customer shift some where & it is not feasible and

convenient to maintain the account in particular branch.

When customer is dissatisfied the branch service.

When bank not offer the particular service which is

required by customer.

When customer not receive the periodically account

statement.

When customer find improper behaviour of bank staff.

Termination of relationship

• Account close by bank:

When customer pass habitual cheque for payment without

having sufficient balance in A/C.

When customer account balance is nil more then 6 months.

When customer regularly present the cheque for payment

after counter hours of bank.

When customer not maintain minimum balance in account.

When customer involve in money laundering.

When customer is insolvent

When customer id declared as insane.

Termination of relationship

•Deceased Account:

When customer is die/ death, banker is

terminated the account which is called

deceased account. Amount of account paid

to his legal beneficiary.

If persons is death(Deceased Account)

Indemnity bond Succession certificate