CUSTOMERS RELATIONSHIP

.
 Definition of banker
• A person who is doing the banking business is called a banker.
But it is not easy to define the term ‘Banker’ because a banker
performs multifarious functions.

• According to section 3 of the NI Act, 1881, banker includes any

person acting as a banker and any post office savings bank.

• According to section 5(b) of the Banking Regulation Act, 1949,

banking means the accepting, for the purpose of lending or
investment, of deposits of money from the public, repayable on
demand or otherwise, and withdrawable by cheque, draft, order
or otherwise.
 .
To sum up a banker is who
• Take deposit account
• Take current accounts
• Issue and pay cheques
• Collect cheques crossed and uncrossed for his
customers
 Definition of customer
The term customer is not defined by law.
Ordinarily, a person who has an account in a
bank is called a customer.
• Acc to Dr. Hart,a customer is one who has an
account with a banker or for whom a banker
habitually undertakes to act as such.
 .
.
 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
 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.
 PRINCIPAL-AGENT
• Banks provide ancillary services such as collection of
cheques, bills etc. They also undertake to pay regularly the
electricity bills, phone bills etc.
• The relationship arising out of these ancillary services is of
principal-agent between the customer and the bank.
• The relationship seizes once the customer dies, becomes
insane or becomes insolvent.
• The proceeds of the cheques sent for collection, which are
in transit, not created to the customer account are not the
moneys of the banker till such time as they are credited into
the customer account.
 Bailer-Bailee

• A bailment is the delivery of goods in trust. A bank may

accept the valuables of his customer such as jewellery,
documents, securities for safe custody.
• In such a case the customer is the Bailer and the bank
is Bailee.
• If a customer keeps certain valuables or securities with
the bank for safe-keeping or deposits a certain amount
of money for a specific purpose, the banker, besides
becoming a Bailee, is also a trustee. The money or the
securities so kept are not at the disposal of the bank.
The banker cannot utilize those moneys or securities as
he desires since the money does not belong to him.
 Pawner and Pawnee

•When a customer Pledge goods and

documents as security for an advance he then
become Pawner (Pledger) and the bank
becomes the pawnee (pledgee).

• The pledged goods are to be returned intact to

the pawner after the debt is repaid by him.
 Mortgager and Mortgagee

• Mortgage is the transfer of an interest in

specific immovable property for the purpose
of securing the payment of money advanced
or to be advanced by way of loan.

• When a customer pledges a specific

immovable property with the bank as security
for advance, the customer becomes
mortgager and banker is the mortagee.
 LESSEE-LESSOR

• The banks provide safe deposit lockers to the

customers who hire them on lease basis. The
relationship therefore, is that of lessee and
lessor. In certain banks, this relationship is
termed as licensee and licensor. The bank
leases out the Assests to clients for their use
on lease the customer become lessor and
Bank become lessee
 INDEMNIFIER- INDEMNIFIED

• 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.
 Banker and trustee

• When banker appointed as receiver by court in proceeding,

money is deposited in bank and bank act as trustee because
in this case bank is receiver of money for specific propose.
• A banker becomes a trustee under special circumstances.
When a customer deposits securities or other valuables with
the banker for safe custody, the banker acts as trustee of
customer. Advisory relationship
• When bank advises the customer to make their investment
in particular business, trade , project etc. This advice either
given officially or unofficially. While given advice customer
has to take maximum care and caution
 OBLIGATIONS OF THE BANK
• Obligation to honor the cheque - When a current
account is opened by a banker in the name of a
customer there is an obligation on the banker to honor
the customer’s cheque as long as there are sufficient
funds available in the customer’s account for meeting
the cheques. The debts are repayable by the banker to
the customer on demand as per contract entered into
between them. So, whenever the customer demands
the repayment of his deposits by issuing cheques, there
is a contractual obligation on the banker to honor his
customer’s cheques and repay his deposits.
 Obligation to maintain secrecy

• Obligation to maintain secrecy -Section 13 of

banking companies Act 1970 stipulates the banks
to maintain secrecy of their customers accounts
and dealings with them.
• However there are exceptions. The exceptions
are :
1. When law requires
2. When the practices and usages among bankers
warrants exchange of information.
 Secrecy of customer’s account
Secrecy of customer’s account- the The bank owes a contractual
duty not to disclose the customer’s financial position without
his consent.
However the obligation of secrecy is not considered essential on
the following occasions.
1. When a banker is required to give evidence in the court.
2. When there is national emergency and disclosure is essential
in the public interest.
3. When there are clear proofs of treason to the state
4. When a consent is given by the customer to provide
information for the preparation of balance sheet.
 Garnishee order (order of the court)
• Garnishee order (order of the court) – It is the
duty of the banker to abide by the order of the
court (garnishee order) and attached the
funds of the customer to the creditors who
has obtained the order in his favor.

• Standing orders - It is the duty of the bank to

abide by the standing orders of the customers
in making periodical payments on his behalf
such as club, library, insurance premium etc.
 RIGHTS OF THE BANKER
• Banker’s general lien: Banker’s general lien is the right
of a banker to retain the goods and securities entrusted to
him as a banker by a customer in respect of the general
balance due from the customer
• Right of set-off or banker’s right to combine account:
A banker’s right to set-off refers to the right of a banker
to adjust the amount due to him from a customer on one
account against the amount due from him to the customer
on another account. In short, it is the right of a banker to
combine or adjust the debit and credit balances of two or
more similar account held by a customer in the same
capacity..
 RIGHTS OF THE BANKER

• Banker’s right to charge compound interest: When a

banker grants an advance to a customer, he becomes the
creditor of the customer. When he is the creditor of the
customer, the banker has an implied right to charge interest on
the customer by virtue of banking customs.

• Banker’s right to charge incidental charges: Incidental

charges may take the form of services charges, ledger folio
charges, processing charges, appraisal charges, handling
charges, penalty charges, stop payment charges etc.
 RIGHTS OF THE BANKER
• Banker’s obligation and rights when a customer’s
account is attached by a garnishee order: When a
debtor fails to pay the amount due from him to his
creditors and when the creditor knows that some
money is due to his debtor from another party, he
may apply to the court for the issue of a garnishee
order on the debtor of his debtor attaching the amount
due from him to his debtor and directing him to pay
the same to the judgment creditor
 RIGHTS OF THE BANKER
Bankers Right of Appropriation (Clayton’s case)
• When a customer owes several distinct debts to a banker and
makes a payment which is insufficient to discharge his entire
indebtedness, there is a problem of appropriating payment. In
such a case when money is paid, it is to be applied according
to the expressed will of the customer, not the banker. If the
party to whom the money is offered does not agree to apply it
according to the expressed will of the party offering it, he must
refuse it and stand upon the rights which the law gives him. In
case there is a current account, and neither the banker nor the
customer makes any specific appropriation, then any
successive payments will be appropriated in accordance with
the rule in Clayton’s case.
 RIGHTS OF THE CUSTOMER TOWARDS THE
BANKER
1. A customer who has deposited money can draw check
on his account up to the extent of his credit balance or
according to overdrawing limit sanctioned by the bank.
2. A customer has the right to receive statement of
accounts from the bank.
3. A customer has the right to sue the bank for
compensation of a wrongful dishonor of his check.
4. A customer has a right to sue and demand compensation
if the bank fails to maintain the secrecy of his account.
5. To claim for and receive the profit/ return on his
deposits as promised by bank
 Duties of a customer
1. It is the duty of the customer to present checks and
other negotiable instruments during the business
hour of the bank.
2. The instruments of credit should be presented by
the customer with in due time from their dates of
issue.
3. A customer must keep the check books issued by
the bank in safe custody. In case of theft or loss, it is
the duty of the customer to report the matter
immediately to the bank.
 TERMINATION OF RELATIONSHIP
1.Mutual Agreement: This is clear enough. The balance at
the credit of the customer will have to be paid off and
the overdraft, if any cleared.
2.Notice to Terminate: In case of a current account, no
such notice appears necessary. But if it’s a deposit
account, the banker could insist on the notice period
specified on the fixed deposit.
3.Death of Customer: This is an obvious method of
terminating the relationship. But it is the notice of death,
which revokes the banker’s authority to pay cheques.
 TERMINATION OF RELATIONSHIP
4.Lunacy of Customer: The lunacy of a customer
automatically terminates relationships though here
again the banker’s authority to pay cheques is
revoked by notice of insanity.
5.Bankruptcy: Bankruptcy or winding up is a sufficient
ground for terminating the relationship. The customer
will be entitled to a dividend in respect of any balance
standing to the credit of his account calculated in the
ordinary ways and will be entitled to the return of any
articles bartered.