Introduction
Banking today isn't what it had been some years back. In present-day banking, the law has become an important subject. Every issue of publications such as Current Law comprises new and exciting cases on banking law. Periodically there are more cases on topics such as documentary credits than on specific aspects of the law of contract such as breach. The legislature has also been singularly active.
The relationship between a banker and customer tries to point out the general relationship that exists between them. The rights and duties of the Banker and Customer arise due to the general relationship. The relationship between them is primarily is that of Creditor and Debtor, Fiduciary, Bailer-Bailee, Pawnee-Pawner, Mortgagee-Mortgager, Lessee-Lesser, Guarantor-Guarantee. Banker also acts as an agent or trustee of his customer. It also deals with special classes of customer, for instance, Minors, Married Woman, and Lunatics.
There is no such adequate definition of the term ‘banker’ nor is there any genuine definition of ‘customer’. However, the banker must know what accounts for a customer. The customer must have a bank account through the intention to open an account may be adequate. Sometimes the banker carries out a sequence of isolated transactions for a person. For instance, the collection of cheques for someone who has no account and the payment to the person of the proceeds after clearance does not make that person a customer. Therefore, a valid definition of the customer would be – “A person who has an account or an account in consideration”, where the banker has agreed to open an account if the customer has requested. When a person walks into a bank and asks to open an account, that person is making an offer to enter into a contract and if the banker agrees to open the account, that means the person has legally accepted the offer and therefore a binding contract is initiated. However, the banker would want to be fully satisfied that the person will be a suitable customer before committing himself. Hence, the customer needs to provide the banker with a personal introduction, by taking and following up reference or making some form of enquiry. Under banking law, banking confidentially is a cardinal principle. The very relationship between a banker and customer is based on this principle of confidentiality. Every legal system recognises its significance but fails to address the issue comprehensively so that the interest can be protected by legal enforcement.
The main banking function was and is to supervise other people’s money and lending a part of it. Eventually, these functions were extended and new ones were added to it. This has resulted in the complete dependence of commerce upon banking in the modern money economy. Therefore, the termination of the banker’s activity, even for a day or two, would completely paralyse the economic life of a nation. In short – the banking system has surmised ‘blood vessel of the economy of the country’. These days the bankers have to deal with a large number of matters. The main
relation of a banker and customer depends upon the service given by the banker. The primary function of a banker is to render several services to his customer.
Definition
Bank or Banker
According to the provisions of sections 5(b) and 5(c) of the Banking Regulation Act 1949 as to banking and baking company respectively, banking business is the common approach of a bank and a bank or a banker is the one who does banking business. The RBI as in the Reserve Bank of India defines a modern bank. The Federal Reserve Bank of India is that the financial institution,
which controls the difficulty and provides of the Indian rupee. Reserve Bank controls the entire Banking system in India. RBI plays a vital role in the development strategy of the Government of India. Banks organize the borrowing and lending work (credit) of the community and, they lend their funds (capital) and borrowed funds and their credit to a person engaged in trade, agriculture, manufacturing and other industries. They supply the part of the medium of exchange in the form of banknotes or cheques.
Customer
According to Dr Hart, “A customer is one who has an account with a banker or for whom banker habitually undertakes to act as such.” Supporting this point of view, the Kerala High Court has observed a similar case – that is in the case of Central Bank of India Ltd. Bombay v. V.Gopinathan Nair.
Central Bank of India Ltd. Bombay v. V. Gopinathan Nair The judgement of the court was delivered by Raghavan, C.J; - The first of these appeals are by the first defendant, the drawee bank of a draft for Rs. 4000/- taken by the plaintiff at its Alleppey branch payable to Pw. 2, the proprietor of Hurry Das Audiy, at the New Market branch of the bank at Calcutta. The draft was sent by the plaintiff to his friend, Pw.1; but it was intercepted in transit by the third defendant, a customer of the second defendant Bank and the Shambazar branch of the second defendant collected the draft from the first defendant. The plaintiff filed the suit for recovery of the amount against defendants 1 to 3, and all the courts including a Judge of this court in the second appeal held the defendants 1 and 3 liable. The appeal is against the decision and the third defendant did not contest.
The trial Court dismissed the suit against the second defendant, but the lower appellate court and the second appellate Judge held the second defendant liable and the A.S.A No.12 of 1969 is against that decision. The decision of the second appellate Judge is reported as Central Bank of India Ltd. Bombay v. V. Gopinathan Nair (AIR. 1970 ker.74). The lower appellate court and the second appellate Judge held that the second defendant was liable too. The three courts including the learned second appellate Judge have held that the first defendant is also liable. The first defendant claims protection under S. 85A of the Negotiable Instruments Act. in the absence of the scrutiny the second defendant could not claim that the bank was not negligent in collecting the amount of the draft, and the negligence of the bank at the time of opening the account and its negligence in allowing the third defendant to operate the account improperly was only secondary and they also
added the negligence of the second defendant. In this view, the second defendant is liable. This case A.S.A No.12 of 1969 was dismissed with costs. Therefore, a customer is defined as – A person or an entity that maintains an account or has a business relationship with the bank. A person on whose behalf the account is maintained, that is known as a beneficial owner. The one who has either current or a deposit account or in the absence of it, some relation with the bank in the ordinary course of business, that can be seen as banking business.
Relationship between Banker and Customer
The general relationship between a banker and customer is that of a debtor and creditor. The banker also acts as agent, trustee or others.
Relationship as debtor and creditor: When a customer opens an account with the banker, the banker becomes the debtor of the customer and the customer becomes his creditor. The banker becomes bound to return an equivalent amount of money, by paying a similar sum to the depositor when he is asked for it. In the same way, the banker also becomes a creditor, when any of the customers take a loan or any kind of advances from the bank then the customer becomes the debtor and the banker becomes the creditor. Therefore, the customer, who is the debtor, is bound to pay the loan amount to the banker, who is the creditor, on the prescribed period.
Trustees and Beneficiary: Banker as a trustee and Customer as a beneficiary. Generally, a banker is a debtor of his customer in respect of the deposits made by the latter, but in certain cases, the banker also acts as a trustee. A trustee is the one who holds money or assets and performs certain functions for the benefit of some other person called the beneficiary. For instance, if the customer deposits securities or valuables with the banker for safe custody, the latter acts as a trustee of his customers. The customer continues to be the owner of the valuable deposited with the banker. Therefore, the legal position of the banker as a trustee differs from that of a debtor of his customer. In the former case, the cash or documents held by him aren't treated as his own and aren't available for distribution amongst his general creditors just in case of liquidation.
Agent and Principle: Banker as an agent and Customer as a principal. A banker acts as an agent of his customer in some ways. For instance, when he buys or sells securities or makes payment of various dues of his customers, or collects cheques on his behalf. In all these cases, the banker acts as an agent of his customer.
Bailor and Bailee: Banker as bailee and Customer as bailor. In addition to the above-mentioned relations, there exists the relationship of bailment between the banker and the customer. Safe custody facility is one of the numerous facilities provided by commercial banks. In this case, the legal relationship of bailment arises between the customer and the banker, whereby customer depositing with the bank is the bailor and the banks act as the bailee. In cases where the bank does not charge any fees for such a purpose, then the bank can be termed as gratuitous bailee and in some case where the fee is charged, the bank becomes the bailee for a reward. Where a bank provides a safe custody facility to the customer, it takes a charge of goods, articles, securities, belonging to the customer, as a bailee and not as a trustee or an agent.
Special Features of Relationship between Banker and Customer Statutory obligation on banks in India:
By opening an account, saving, term deposit accounts of a customer or rendering other services to the customers, the banker has some statutory duties and obligations –
1) Obligation to honour cheques having sufficient funds.
2) Liability to return the dishonoured cheques to the customer.
Duty of the banker to act as per the direction:
The banker is sure to act consistently with the directions given by the customer. In the absence of such directions, according to the usage in the locality and applicable to the matter in the hand, the banker is also bound to use reasonable skill and diligence in his work otherwise; he is going to be responsible for damages.
Duty of bank to maintain secrecy:
Secrecy is required in the matter of banker and customer relationship. Account details of the customer cannot be disclosed to a third party. Nobody can seek through a writ petition an enquiry into commercial transactions between the banker and customer. As in the case of-Kattabomman Transport Corporation Ltd. v. State Bank of India. It was that this is the duty of the banker towards the customer about the secrecy of the account. Such duty is the legal duty which arises from the contract made between them and merely a moral one.
Termination of Banker and Customer Relationship
Termination by the Banker:
Under the Operation of Law –
* Death of the Customer
* Insanity of the Customer
* Insolvency of the Customer
* Assignment
* Order of the court
* Winding up of a company
* Dissolution of partnership firm
* Customer of an enemy character
Termination by the Customer: A customer at his wish can terminate the relationship with the bank at any time by simply closing his account. The reasons are as follows-
a) If the customer is not satisfied with the services provided by the bank.
b) When the banker has failed to provide better services to the customers.
c) When the bank has lost its reputation in the market and the customer feels that this will affect its economic stability.
d) When the customer does not agree with the terms of the banker.
Conclusion
From the above explanation, I would restate that the meaning and nature of the relationship of customer and banker is of a contractual basis. For the customer the opening of an account with the banker gives rise to a ‘contractual relationship’, this gives rise to mutual duties, liabilities and privileges. While doing this assignment I have been aware of the various rights and duties of the customers and banker and after providing the different services to the customers by the bank, they are bound to comply the terms and conditions settled between them, and if any of the party will breach on the settled terms then the problem of termination arises either by the banker or by the customer. After breach by any of the party both the party can avail a legal remedy against each other by filing a complaint in the Consumer Protection Act, Banking Ombudsman scheme, Debt Recovery Tribunal, SARFAESI, Bankrupt and Insolvency Act. It’s a duty cast upon both – the banker and the customer to do their job in that manner which will not prejudice to the right of the other one.
Anugraha Sundas
Jogesh Chandra Chaudhuri Law College, Calcutta University
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