2. Definition of a ‘BANKER’
The Banking Regulations Act (B R Act) 1949 does not
define the term ‘banker’ but defines what banking is
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.
Section 3 of NI ACT 1881, and Section 2 of BILL OF
EXCHANGE ACT 1882. state that the term banker includes
person or corporation or a company acting as banker.
3. Who is a ‘Customer’?
A person who buys goods or services from a shop or 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 agreement as regards to the time period of the
dealings.
A casual transaction like encashment of a cheque does not
entail a person to be customer.
A customer is one who has an account with the bank and to
whom the banks undertakes to extend business of banking.
4. Banker and a Customer Relationship
The relationship between a banker and a customer
depends on the type of transaction.
These relationships confer certain rights and
obligations both on the part of the banker and on the
customer.
Classification of Relationship
General Relationship
• .
Special Relationship
• .
Special Relationship
5. General Relationship
CREDITOR-DEBTOR
Relationship between the customer having a deposit
account and the banker.
Depositor is the lender and the banker is the borrower.
Depositor is the creditor and the banker is the debtor.
The money handed over to the bank is a debt.
The money once deposited in the bank becomes the
money of the bank and it is prerogative of the bank to
use that money as it deems fit. The depositor remains a
creditor that too an unsecured creditor
6. General Relationship
DEBTOR-CREDITOR
When the customer avails a loan or an advance
then his relationship with the banker undergoes a
change to what it is 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.
7. Special Relationship
Bank as a Trustee
As per Sec. 3 of Indian Trust Act, 1882: A "trust" is an
obligation annexed to the ownership of property, and
arising out of a confidence reposed in and accepted by
the owner, or declared and accepted by him, for the
benefit of another, or of another and the owner.’
Thus trustee is the holder of property on behalf of a
beneficiary.
8. Special Relationship
Bailee – Bailor
Sec.148 of Indian Contract Act, 1872: 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".
The person to whom they are delivered is called, the "bailee".
Banks secure their advances by obtaining tangible securities.
In some cases physical possession of securities goods
(Pledge), valuables, bonds etc., are taken.
9. Special Relationship
Lessor and Lessee
Sec.105 of Transfer of property Act 1882: A lease of
immovable property is a transfer of a right to enjoy such
property, made for a certain time, express or implied, or
in perpetuity, in consideration of a price paid or
promised, or of money, a share of crops, service or any
other thing of value, to be rendered periodically or on
specified occasions to the transferor by the transferee,
who accepts the transfer on such terms.
Safe deposit lockers
10. Special Relationship
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”.
Banks collect cheques, bills, and makes payment to
various authorities viz., rent, telephone bills, insurance
premium etc., on behalf of customers
11. Special Relationship
As a Custodian
A custodian is a person who acts as a caretaker of some
thing.
Banks take legal responsibility for a customer’s
securities.
While opening a Dmat account bank becomes a
custodian.
12. Termination of relationship between a
banker and a customer
The death, insolvency, lunacy of the customer.
The customer closing the account i.e. Voluntary
termination.
Liquidation of the company.
The closing of the account by the bank after giving due
notice.
The completion of the contract or the specific
transaction.
13. Duties of a banker
a) Duty to maintain secrecy/confidentiality of customers' accounts.
b) Duty to honour cheques drawn by customers on their accounts and
collect cheque, bills on his behalf.
c) Duty to pay bills etc., as per standing instructions of the customer.
d) Duty to provide proper services.
e) Duty to act as per the directions given by the customer. If directions
are not given the banker has to act according to how he is expected to
act.
f) Duty to submit periodical statements i.e. informing customers of the
state of the account
g) Articles/items kept should not be released to a third party without
due authorization by the customer
14. RIGHTS OF BANKER
Right of general lien- Lien is the right of the creditor to retain the
goods and securities owned by the debtor until the debt due
from him is paid.
It confers upon the creditor to retain the securities of the debtor.
It does not confer the right to sell.
There are two types of liens – General lien and particular lien.
Section 171 of Indian contract Act 1872 confers general lien on
bankers.
Pledge – Section 172 of Indian contract Act 1872- bailment of
goods as security for payment of a debt or performance.
15. Conti…..
Right of set off – The mutual claims of a debtor and a
creditor are adjusted together and only the remainder
amount due is payable.
Right of appropriation - If the customer has more than one
loan account , the customer can direct the repayment of
the loan as credit into any other accounts. If there is no
specific directions from the customers the banker has a
right to appropriate as per his choice.
Right to charge interest- As a creditor the banker has right
to charge interest on the funds he lends as per the norms
and as per the contract.
