BANKER AND CUSTOMER
SOA NATIONAL INSTITUTE OF LAW BHUBANESWAR
BANKER AND CUSTOMER MEANING?
• According to H.L. HART – the ‘banker’ is one who receives money,
collects cheques and 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.
• A ‘customer’ is one who has an account with the bank and to whom the
banks undertakes to extend business of banking. A customer is a person
who maintains an account with the bank, without taking into consideration
the duration and frequency of operation of his account. A person becomes a
customer and a contract is created when an account is opened.
• The relationship between a bank and its customers can be broadly
categorized in to General Relationship and Special Relationship.
• If we look at Sec 5(b) of Banking Regulation Act, we would notice that
bank’s business hovers around accepting of deposits for the purposes
of lending. Thus the relationships arising out of these two main
activities are known as General Relationship. In addition to these two
activities banks also undertake other activities mentioned in Sec.6 of
Banking Regulation Act. Relationship arising out of the activities
mentioned in Sec.6 of the act is termed as special relationship.
• 1) Debtor-Creditor:
• The general relationship between banker and a customer is that of a debtor
and a creditor i.e. borrower and lender. In Foley v. Hill, Sir John Paget
remarks, “the relation of a banker and a customer is primarily that of debtor
and creditor, the respective positions being determined by the existing state
of account. Instead of the money being set apart in a safe room, it is
replaced by the debt due from the banker.
• Banker’s relation with the customer is reversed as soon as the customer’s
account is overdrawn. Banker becomes creditor of the customer who has
taken a loan from the banker and continues in that capacity till the loan is
2) Agent and Principal-
Sec.182 of ‘The Indian Contract Act, 1872’ defines “an agent” as a person employed
to do any act for another or to represent another in dealings with third persons. The
person for whom such act is done or who is so represented is called “the Principal”.
One of the important relationships between a banker and customer is that of an
agent and principal. The banker performs various services of the customer, where he
acts as the agent.
• Buying and selling securities of customer
• Collection of cheques, bills of exchange, promissory notes on behalf of customer
• Acting a trustee, executor or representative of a customer
• Payment of insurance premium, telephone bills etc.
3)Trustee and beneficiary-
• section 3 of the Trusts Act defines a trustee as one to whom property is
entrusted to be administered for the benefit of another called the
beneficiary. A banker becomes a trustee under special circumstances.
• According to Indian Trust Act 1882, trust is an obligation annexed to
the ownership of a property, arising out of confidence reposed in and
accepted by the person for the benefit of another person.
4) Bailee and bailor-
• During certain circumstances banker becomes bailee. When he receives gold
ornaments and important documents for safe custody he takes charge of it as bailee
and not trustee or agent. He cannot make use of them as he is bound to return the
identical articles on demand. Bailment is a kind of activity in which the property of
one person temporarily goes into the possession of another. The ownership of the
property remains with the giver, while only the possession goes to another. Several
situations in day to day life such as giving a vehicle for repair, or parking a scooter
in a parking lot, giving a cloth to a tailor for stitching, are examples of bailment.
Section 148 of Indian Contract Act 1872, defines bailment as follows -
• Section 148 - A bailment is the delivery of goods by one person to another for some
purpose, upon a contract that they shall, when the purpose is accomplished, be
returned or otherwise disposed of according to the directions of the person delivering
them. The person delivering the goods is called the bailor and the person to whom
they are delivered is called the bailee.
• Duties of a Bailor
A bailor may give his property to the bailee either without any
consideration or reward or for a consideration or reward. In the former
case, he is called a gratuitous bailor, while in the latter, a bailor for
reward. The duties in both the cases are slightly different. Section 150
specifies the duties for both kinds of bailor. It says that the bailor is bound
to disclose any faults in the goods bailed that the bailor is aware of, and
which materially interfere with the use of them or which expose the bailee
to extraordinary risk. This means that if there is a fault with the goods
which may cause harm to the bailee, the bailor must tell it to the bailee.
Duties/Responsibilities of a Bailee
• Duty to take reasonable care
• In English law the duties of a gratuitous and non-gratuitous bailee are different. However,
in Indian law, Section 151 treats all kinds of bailees the same with respect to the duty. It
says that in all cases of bailment, the bailee is bound to take as much care of the goods
bailed to him as a man of ordinary prudence would, under similar circumstances take, of
his own goods of the same bulk, quality, and value as the goods bailed. The bailee must
treat the goods as his own in terms of care.
• However, this does not mean that if the bailor is generally careless about his own goods, he
can be careless about the bailed goods as well. He must take care of the goods as any
person of ordinary prudence would of his things.
• Duty not to make unauthorized use (Section 154)
• Duty not to mix (Section 155-157)
• Duty to return (Section 160)
Pawnee and pawner (pledge)
• Pawn is a sort of bailment in which the goods are delivered to another as a pawn, to
be a security for money borrowed. Thus a banker acts as a pawnee where a customer
delivers the goods to him to be kept as security till the debt is discharged. The
banker can retain the goods pledged till the debt is paid. Pledge is a special kind of
bailment in which a person transfers the possession of his property to another for
securing the loan taken from the other. It only differs from bailment in the matter of
purpose. When the purpose of the bailment is to secure a loan or a promise, it is
called a pledge. Section 172 of Indian Contract Act 1872 defines Pledge as follows -
• Section 172 - The bailment of goods as a security for the payment of a debt or
performance of a promise is called Pledge. The bailor in this case is called a Pawnor
and the bailee is called Pawnee.
Lessee and lessor
• when a customer hires a locker in the bank’s safe deposit vault, the bank
undertakes to take necessary precaution for the safety of the articles in the
locker. The relation between the parties is that of a lessor and lessee.
• under Section 109, Transfer of Property Act, 1872. This section deals with
the case of an assignment of the reversion, i.e., the lessor's interest. An
assignment of the reversion may be:
(i) an assignment of the whole reversion, or
(ii) an assignment of the reversion in part of the property, or
(iii) Part of an assignment of the reversion.
Guarantor principal debtor and surety
• A bank as guarantor gives guarantee to its customer by issuing a ‘letter of credit’. It
is a kind of credit facility to its customer to facilitate international trade. A bank
guarantee contains an undertaking to pay the amount without any demur on mere
demand of the principal amount on the ground for non-performance or breach of
contract. A bank guarantee is a commercial instrument in the nature of a contract,
intended between two parties, to secure compliance with the contract.
• Section 126 of the Indian Contract Act, 1872 defines a “contract of guarantee” as
contract to perform the promise, or discharge the liability, of a third person in case of
his default. The person who gives the guarantee is called the "surety", the person in
respect of whose default the guarantee is given is called the "principal debtor", and
the person to whom the guarantee is given is called the "creditor".
• The customer is indemnifier and the bank is indemnified. A contract by
which one party promises to save the other from loss caused to him by
the conduct of the promisor himself or the conduct of any other person
is called a contract of indemnity – section 124 ( Indian Contract Act,
1872). In the case of banking, this relationship happens in transactions
of issue of duplicate demand draft, fixed deposit receipt etc. The
underlying point in these cases is that either party will compensate the
other of any loss arising from the wrong/excess payment.
SPECIAL TYPE CUSTOMERS
• LUNATICS- Under Indian Contract Act , a contract with or by a lunatic is
void. The reason being the lunatic being of unsound mind is not competent
to comprehend a contract. If the banker without knowing that the person is
lunatic opens an account and enters into a contract acting in good faith is
protected. But when once he gets a notice of lunacy of a person, he should
not entertain any contract either existing or new.
• DRUNKARDS- Under section 12 of Indian contract act 1872, a sane man
who is delirious from favour or who is drunk that he cannot understand the
contract, or form rational judgment cannot enter into contract while such
delirium or drunkedness lasts. When a customer who is drunk presents a
cheque across a counter the payment must be witnessed.
• MINORS- Any person under the age of 18 yrs is a minor. If a court appoints
a guardian and the minor is below 18 yrs the minority extendsupto 21 yrs.
A minor is not competent to enter into a contract and all the contracts
entered in by him are void. The banker can open an account but he has to be
careful that the account will never be allowed to be overdrawn. The minor
can be a partner but cannot be held liable for the liabilities of the
• MARRIED WOMEN- The Hindu married women are governed by the
Hindu Succession Act and other married women by Indian Succession Act.
A banker may open an account in the name of a married woman like any
other customer. However, a banker should exercise caution while opening
account for the wife of an undischarged insolvent.
• PARDHANISHIN WOMEN- Before dealing with such kind of women
in banking transactions the bank must verify whether she has free
consent or not? Whether she knows about everything about the
contract or not? In case of a pardhanishin woman who remains
completely secluded the following presumption exists-
• Any contract entered into by her may be subject to undue influence
• The same might not have been done with free will and with full
understanding of what the contract actually means.
• JOINT HINDU FAMILY- All the major members must signed the
document before opening up an account for Joint Hindu Family.
Thumb impression is needed and photo is always required at the time of
transaction and in time of withdrawal that person who have account must come
and the photo thumb impression must be matched.
An illiterate person is competent to contract and bank may open an account in
his name, but special care should be taken by the banker before opening an
• The account of an illiterate person may be opened provided he/she
calls the bank personally along with a witness who is known both to the banker
and the depositor.
• A passport size photograph of the illiterate person is identified before
the banker in presence of the account holder. The photographs have to be
attested by the bank officer/ witness.
• The left hand thumb impression in case of male illiterate and right
hand thumb impression in case of female illiterate are duly attested by some
responsible person on the account opening form.
• One or two identification marks of the depositor should be noted on
the account opening form.