Banker & Customer There is no statutory definition of the term ‘banker’ and ‘customer’ BankerThe business of a banker in ordinaryconsists in receiving money from or anaccount of a customer and repayingthe same on demand.
The Negotiable Instrument Act defines abanker as any person acting as a banker. The Banking Regulation Act, 1949 defines‘banking company’ as a ‘company which transactthe business of banking in India. ‘The term banking’ has been defined as‘accepting’ for the purpose of lending orinvestment. of deposit of money from the publicrepayable on demand or withdrawable by cheque,draft or order.
CustomerA customer is a person who has some sortof account, either deposit or currentaccount, with the banker.
Legal relationship between banker and customer• The relationship between a banker and his customer is essentially contractual like Debtor (banker) and creditor (customer).• This relationship is sometimes reversed. This happens when the banker lends money to the customer.• The relationship also partakes many aspects of agent and principal.
Special features or legal relationship• Obligation to honour cheques.• Obligation to keep proper record of transactions.• Obligation to abide by the express instruction of the customer.• Obligation not to disclose the state of his customer’s account or affairs.• Right of general lien.• Right to charge incidental charges and interest on money lent.• Right to set-off.• Right of appropriation.
When may a banker dishonour a customer’s cheque?• Where the banker does not have sufficient funds to the credit of the customer.• Where the funds to the credit of the customer are not applicable to the payment of the cheque. (when the money held in trust)• Where the cheque is ambigious or doubtful.• Where the cheque is mutilated (imperfect).• Where the cheque is irregular or materially altered.• Where the cheque is not duly presented.• Where the cheque is post dated.• Where the cheque has become stale. (six months from the date of issue).• Where the cheque is presented at a other branch.• Where an account is in joint names of a few persons, but they have not all signed the cheque.• Where the cheque is for an amount in excess of the balance.
When must a banker dishonour a cuctomer’s cheque?• When the customer become insolvent.• When the customer countermands payment (order the banker not to honour the cheque.)• When the banker receive notice of the customer’s death. But he pays the cheque before he receive notice, the payment is valid.• When the banker receive notice of the customer’s insanity (madness, lunacy).• When banker receive the legal notice about customer or dealing with money from some other sources.• When the customer gives notice to the banker to close the account.• When the customer gives notice of assignment of the credit balance of his account.• When the banker suspects, that the title of the person presenting the cheque is defective.• When the holder gives a notice of loss the cheque to the banker
Protection of Paying Banker• Cheques payable to bearer• Crossed cheques• Payment of cheque crossed generally.• Payment of cheque crossed specially.• Payment of crossed cheque in due course.• Payment of crossed cheque out of due course.
Protection of collecting banker• Collecting banker as an agent.• Crossed cheques.• Open cheques.• Collecting banker as a holder in due course.