Banker-Customer Relationship.Banker-Customer Relationship. Debtor and Creditor: The opening of an account with a bank Debtor and Creditor: The opening of an account with a bank

and a banker's acceptance thereof involve a contractual and a banker's acceptance thereof involve a contractual relationship by implication. The depositor is only a creditor, relationship by implication. The depositor is only a creditor, and there is no entrustment to the bank for any particular and there is no entrustment to the bank for any particular purpose. The bank is liable to refund the money when purpose. The bank is liable to refund the money when demanded; but the money deposited belongs to the bank demanded; but the money deposited belongs to the bank and the bank is entitled to deal with it as it likes. Thus, a and the bank is entitled to deal with it as it likes. Thus, a banker when he deals with his customer is primarily in the banker when he deals with his customer is primarily in the position of a debtor to his creditor, or vice versa, when the position of a debtor to his creditor, or vice versa, when the customer has an overdraft.customer has an overdraft.

The basis of the general relationship between a banker and The basis of the general relationship between a banker and a customer is clearly that of a debtor and creditor. This was a customer is clearly that of a debtor and creditor. This was described in the Folley vs. Hill, described in the Folley vs. Hill, 1848, 1848, as follows:as follows:

Money, when paid into a bank, ceases altogether to be the Money, when paid into a bank, ceases altogether to be the money of the principal; it is the money of the banker, who is money of the principal; it is the money of the banker, who is bound to return an equivalent by paying a similar sum to bound to return an equivalent by paying a similar sum to that deposited with him when he is asked for it. The money that deposited with him when he is asked for it. The money paid into the banker's is money known by the principal to be paid into the banker's is money known by the principal to be therethere

for the purpose of being under the control of the banker; it for the purpose of being under the control of the banker; it is then the banker's money; he is known to deal with it as is then the banker's money; he is known to deal with it as his own; he makes what profit he can, which profit he his own; he makes what profit he can, which profit he retains to himself, paying back only the principal, retains to himself, paying back only the principal, according to the custom of bankers in some places, or the according to the custom of bankers in some places, or the principal and small rate of interest, according to the principal and small rate of interest, according to the custom of bankers in other places. That being established |custom of bankers in other places. That being established |the relative situation of banker and customer, the banker the relative situation of banker and customer, the banker is not an agent or factor but is a debtor."is not an agent or factor but is a debtor."

Although the relationship between a banker and a Although the relationship between a banker and a customer is mainly that of debtor and creditor, it differs customer is mainly that of debtor and creditor, it differs from similar relationship of debtor and creditor of ordinary from similar relationship of debtor and creditor of ordinary commercial debts in the following respects: commercial debts in the following respects:

((a) The creditor (customer) must demand payment from a) The creditor (customer) must demand payment from debtor (banker): In a banker-customer relationship, the debtor (banker): In a banker-customer relationship, the customer (creditor) must demand payment from the bank customer (creditor) must demand payment from the bank (debtor), whereas in the : of an ordinary commercial debt, (debtor), whereas in the : of an ordinary commercial debt, the debtor must pay the amount on the specified date as the debtor must pay the amount on the specified date as per the items of the contract.per the items of the contract.

The creditor (customer) must demand payment the The creditor (customer) must demand payment the proper place and time. A proper place means the office or proper place and time. A proper place means the office or branch of a bank in which the customer has an account. branch of a bank in which the customer has an account. A bank may have many offices or branches, but the A bank may have many offices or branches, but the customer can demand Payment only from the office or customer can demand Payment only from the office or branch where he has account. In branch where he has account. In Indo Allied Industries Indo Allied Industries Ltd. vs. National Bank Ltd.Ltd. vs. National Bank Ltd. (A.I.R., 1970, Allahabad (A.I.R., 1970, Allahabad 108), Allahabad High Court observed that in the absence 108), Allahabad High Court observed that in the absence of an express contract to the contrary, there an implied of an express contract to the contrary, there an implied contract with a customer who opened an account with contract with a customer who opened an account with the branch of a banking concern, carried with it the duty the branch of a banking concern, carried with it the duty of the bank to pay the customer only at the branch where of the bank to pay the customer only at the branch where the account was kept, subject to instructions to transfer the account was kept, subject to instructions to transfer the amount elsewhere.the amount elsewhere.

The creditor (customer) must demand from the debtor The creditor (customer) must demand from the debtor (banker) in a proper manner:(banker) in a proper manner: customer can demand customer can demand payment from the bank only in the manner prescribed by payment from the bank only in the manner prescribed by the rules of a or in accordance with usage. The statutory the rules of a or in accordance with usage. The statutory definition of a bank itself shows that deposits definition of a bank itself shows that deposits withdrawable by cheques, drafts, orders or otherwise.withdrawable by cheques, drafts, orders or otherwise.

Banker's Right of Set-off:Banker's Right of Set-off: The right of set-off is a statutory right which enables a The right of set-off is a statutory right which enables a

banker to combine two accounts in name of the same banker to combine two accounts in name of the same customer and to adjust the debit balance on one account customer and to adjust the debit balance on one account with the credit balance the other. The following points must with the credit balance the other. The following points must be noted in connection with the use of this right by a bank. be noted in connection with the use of this right by a bank. A bank may exercise the right of set-off not only in the case A bank may exercise the right of set-off not only in the case of two accounts of a customer the same branch of the bank of two accounts of a customer the same branch of the bank but also in the case of two or more accounts of the same but also in the case of two or more accounts of the same customer different branches of the same bank. The right of customer different branches of the same bank. The right of set-off may be exercised subject to the fulfillment of the set-off may be exercised subject to the fulfillment of the following conditions. Both the accounts of the customer following conditions. Both the accounts of the customer must be in the same name.must be in the same name.

A Customer has no Right of Set-off or an A Customer has no Right of Set-off or an appropriation:appropriation:

Although a banker has the right of set-off between two or Although a banker has the right of set-off between two or more accounts of a customer before making any payment, more accounts of a customer before making any payment,

A customer has no facility of getting two or more A customer has no facility of getting two or more considered before the banker pays his cheque. considered before the banker pays his cheque. In In Mohammed Hussain .vs. Chartered Bank, 1965Mohammed Hussain .vs. Chartered Bank, 1965, , the appellant had an account in a Madras branch of the the appellant had an account in a Madras branch of the Chartered Bank and another in its Karachi branch. Chartered Bank and another in its Karachi branch. Banker agreed to provide Rs. Banker agreed to provide Rs. 3.50 3.50 lakhs overdrafts to lakhs overdrafts to the appellant, which was later reduced to the appellant, which was later reduced to 2.50 2.50 lakhs. lakhs. The appellant wrote one cheque on the Madras branch The appellant wrote one cheque on the Madras branch which was returned with the Cheque is far more than which was returned with the Cheque is far more than overdraft amount. The customer claimed that he had overdraft amount. The customer claimed that he had enough funds account in the Karachi branch and if that enough funds account in the Karachi branch and if that was taken into account, the cheque would never have was taken into account, the cheque would never have dishonored. The Court held that the banker had the dishonored. The Court held that the banker had the right to set-off between different accounts customer, right to set-off between different accounts customer, but that the customer had no such right.but that the customer had no such right.

Banker's Right of AppropriationBanker's Right of Appropriation In normal course of business, a banker receives payments In normal course of business, a banker receives payments

from customers. In case a customer taken more than one from customers. In case a customer taken more than one loan or has more than one loans or has more than one loan or has more than one loans or has more than one account with the bank, question of appropriating the account with the bank, question of appropriating the amount deposited by the customer arises. The customer amount deposited by the customer arises. The customer has, , the right to direct the bank to appropriate the has, , the right to direct the bank to appropriate the amount to any of the accounts of the customer. In amount to any of the accounts of the customer. In absence of any such direction from the customer, the absence of any such direction from the customer, the banker shall have the right to appropriate payment to any banker shall have the right to appropriate payment to any debt or account according to his discretion. But the banker debt or account according to his discretion. But the banker should inform the customer accordingly.should inform the customer accordingly.

Banker's Right to Charge Interest on loan and Other Banker's Right to Charge Interest on loan and Other Charges etc.Charges etc.

Banker's Obligation to Honour Cheques: A banker is under Banker's Obligation to Honour Cheques: A banker is under statutory obligation to honour cheque drawn by a customer statutory obligation to honour cheque drawn by a customer so long as his balance is sufficient, provided that the so long as his balance is sufficient, provided that the cheques are presented within a reasonable time i.e. 6 cheques are presented within a reasonable time i.e. 6 monthsmonths

Garnishee Order:Garnishee Order:

The bankers obligation to honour a customers cheques is The bankers obligation to honour a customers cheques is extinguished on receipt of court order is known as garnishee extinguished on receipt of court order is known as garnishee order which is issued under order 21, Rule 46 of the code of order which is issued under order 21, Rule 46 of the code of civil procedure,1908.Garnishee order is an order of a court civil procedure,1908.Garnishee order is an order of a court prohibiting it from making any payment to customer prohibiting it from making any payment to customer account.account.

An account which is opened in the name of two or more An account which is opened in the name of two or more persons is called a joint account. Joint account cannot be persons is called a joint account. Joint account cannot be attached under the Garnishee Order if only one of the attached under the Garnishee Order if only one of the accountholders is a judgment debtor. But if both or all the accountholders is a judgment debtor. But if both or all the accountholders are judgment debtors in any legal accountholders are judgment debtors in any legal proceedings, the account can be attached. proceedings, the account can be attached.

Partnership AccountPartnership Account For the debts incurred by a partnership firm, the personal For the debts incurred by a partnership firm, the personal

accounts of all the partners can be attached in addition to accounts of all the partners can be attached in addition to the account of the firm, because the liability of the partners the account of the firm, because the liability of the partners is both and several. When a partner is a judgment-debtor in is both and several. When a partner is a judgment-debtor in his individual capacity only his individual account may be his individual capacity only his individual account may be attachedattached

and not that of the firm or of another partner. and not that of the firm or of another partner. Wrongful DishonorWrongful Dishonor

If a banker, without justification, dishonours his If a banker, without justification, dishonours his customer's cheque, he makes himself liable to customer's cheque, he makes himself liable to compensate the customer for injury to his credit compensate the customer for injury to his credit (Marzetti vs. Williams, (Marzetti vs. Williams, 1830). According to Sec 31 of the 1830). According to Sec 31 of the Negotiable Instruments Act, 1881, the words "loss or Negotiable Instruments Act, 1881, the words "loss or damage" do not mean only pecuniary loss, but also loss damage" do not mean only pecuniary loss, but also loss of credit or injury to reputation. of credit or injury to reputation.

Secrecy of AccountsSecrecy of Accounts: A banker should take care not to : A banker should take care not to disclose the condition of customer's account except on disclose the condition of customer's account except on reasonable and proper occasions. This obligation to reasonable and proper occasions. This obligation to observe secrecy of account does not end even with the observe secrecy of account does not end even with the closing of a customer's account. closing of a customer's account. (Tousier Case 1924). (Tousier Case 1924). It It implied contract between a banker and his customer that implied contract between a banker and his customer that the former will not divulge to a third person the state of the former will not divulge to a third person the state of the latter's account without his express or implied the latter's account without his express or implied consent.consent.

Reasonable and proper occasions for disclosure may be:Reasonable and proper occasions for disclosure may be:

Under compulsion of lawUnder compulsion of law: : For example, under orders of the For example, under orders of the Government, a Court or of Income Tax authorities, etc.Government, a Court or of Income Tax authorities, etc.

Under the Income Tax Act, 1961Under the Income Tax Act, 1961: : Vide Sections Vide Sections 131 131 and and 133, 133, Income Tax authorities powers to call for the Income Tax authorities powers to call for the attendance of any person or for necessary information attendance of any person or for necessary information from a banker for purpose of assessment of the bank's from a banker for purpose of assessment of the bank's customers.customers.

Under the Companies Act, 1956-Under the Companies Act, 1956- When the Central When the Central Government appoints an Inspector to investigate the Government appoints an Inspector to investigate the affairs of any company under Section affairs of any company under Section 135 135 or Section 137, or Section 137, the banker produce all books and papers relating to the the banker produce all books and papers relating to the company.company.

Court's OrderCourt's Order : A : A Court may also order banker to disclose Court may also order banker to disclose information relating to a customer's accounts.information relating to a customer's accounts.

Reserve Bank of India Act, 1934Reserve Bank of India Act, 1934: : The Reserve Bank of The Reserve Bank of India collects credit ion from banking companies and also India collects credit ion from banking companies and also furnishes consolidated credit information to any company. furnishes consolidated credit information to any company. Every banking company is under a statutory obligation Every banking company is under a statutory obligation under Section 45B of the Bank of India Act, 1934, to under Section 45B of the Bank of India Act, 1934, to furnish such credit information to the Reserve Bank. furnish such credit information to the Reserve Bank.

Disclosure to Police: Under Section (3) of the Criminal Disclosure to Police: Under Section (3) of the Criminal Procedure Code, a banker should produce his account Procedure Code, a banker should produce his account books before the police. The police officers conducting books before the police. The police officers conducting an investigation may also inspect a banker's books for an investigation may also inspect a banker's books for the purpose of such investigations. the purpose of such investigations.

Risk of unwarranted and unjustifiable disclosure: The Risk of unwarranted and unjustifiable disclosure: The obligation of the banker to keep secrecy of the obligation of the banker to keep secrecy of the customers accounts even after the account is closed. If customers accounts even after the account is closed. If banker discloses information unjustifiably he shall liable banker discloses information unjustifiably he shall liable to customer and third party: to customer and third party:

Liability to the customer: The customer may sue banker Liability to the customer: The customer may sue banker for damages suffered by him as result of disclosure.for damages suffered by him as result of disclosure.

Liability to third parties: The banker is responsible to Liability to third parties: The banker is responsible to the third parties also to whom such information is given the third parties also to whom such information is given if-if-

(1)(1) The banker furnishes such information with knowledge The banker furnishes such information with knowledge that it is false.that it is false.

(2)(2) Such party relies on the information and suffers losses.Such party relies on the information and suffers losses.

Termination of Banker-customer relationship:Termination of Banker-customer relationship: By mutual agreementBy mutual agreement On death of the customerOn death of the customer On insolvency of the customerOn insolvency of the customer Insanity of the customerInsanity of the customer Winding of the business Winding of the business Garnishee order on the customers accountGarnishee order on the customers account