RELATIONSHIP BETWEEN
BANKER AND CUSTOMER
Made By
Prabha Sain
Bank- Client
Banking is a trust-based relationship.
There are numerous kinds of relationship between the
bank and the customer. The relationship between a
banker and a customer depends on the type of
transaction. Thus the relationship is based on contract,
and on certain terms and conditions.
Classification of Relationship
The relationship between a bank and its customers can
be broadly categorized in to General Relationship and
Special Relationship.
If we look at Sec 5(b) of Banking Regulation Act, we
would notice that bank’s business hovers around
accepting of deposits for the purposes of lending. Thus
the relationship arising out of these two main activities
are known as General Relationship.
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In addition to these two activities banks also undertake
other activities mentioned in Sec.6 of Banking
Regulation Act. Relationship arising out of the
activities mentioned in Sec.6 of the act is termed as
special relationship.
Debtor-Creditor
When a ‘customer’ opens an account with a bank, he fills
in and signs the account opening form. By signing the
form he enters into an agreement/contract with the bank.
When customer deposits money in his account the bank
becomes a debtor of the customer and customer a
creditor.
The money so deposited by customer becomes bank’s
property and bank has a right to use the money as it likes.
The bank has borrowed money and it is only when the
depositor demands, banker pays. Bank’s position is quite
different from normal debtors.
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Banker does not pay money on its own, as banker is not
required to repay the debt voluntarily. The demand is to
be made at the branch where the account exists and in a
proper manner and during working days and working
hours.
2. Creditor–Debtor
Lending money is the most important activities of a bank.
The resources mobilized by banks are utilized for lending
operations. Customer who borrows money from bank owns
money to the bank.
In the case of any loan/advances account, the banker is the
creditor and the customer is the debtor. The relationship in
the first case when a person deposits money with the bank
reverses when he borrows money from the bank
Special Relationship: Bank as a Trustee
In case of trust banker customer relationship is a
special contract. When a person entrusts valuable items
with another person with an intention that such items
would be returned on demand to the keeper the
relationship becomes of a trustee and trustier.
Customers keep certain valuables or securities with the
bank for safekeeping or deposits certain money for a
specific purpose (Escrow accounts) the banker in such
cases acts as a trustee. Banks charge fee for
safekeeping valuables
Bailee – Bailor
Banks secure their advances by obtaining tangible
securities. In some cases physical possession of
securities goods (Pledge), valuables, bonds etc., are
taken. While taking physical possession of securities
the bank becomes bailee and the customer bailor.
Banks also keeps articles, valuables, securities etc., of
its customers in Safe Custody and acts as a Bailee. As a
bailee the bank is required to take care of the goods
bailed.
Lessor (lease) and Lessee
Providing safe deposit lockers is as an ancillary service
provided by banks to customers. While providing Safe
Deposit Vault/locker facility to their customers bank
enters into an agreement with the customer. The
agreement is known as “Memorandum of letting” and
attracts stamp duty.
The relationship between the bank and the customer is
that of lessor and lessee.
Agent and Principal
Banks collect cheques, bills, and makes payment to
various authorities viz., rent, telephone bills, insurance
premium etc., on behalf of customers.
Banks also abides by the standing instructions given by
its customers. In all such cases bank acts as an agent of
its customer, and charges for these services.
As a Custodian
A custodian is a person who acts as a caretaker of
something. Banks take legal responsibility for a
customer’s securities. While opening a demat account
bank becomes a custodian.
As a Guarantor
Banks give guarantee on behalf of their
customers and enter in to their shoes.
Banker’s duty towards customers
Obligation to Pay Cheques
It is a statutory obligation of the bank, having sufficient
funds of the customer to pay cheques duly drawn and
presented.
A bank will be forced to compensate the customer for
any loss or damage caused by its default. The bank’s
liability for wrongful dishonor of cheque is of serious
nature. The bank will be forced to pay exemplary
damage to the customer.
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However, bank may refuse payment of a cheque for
reasons such as:
Insufficient funds in the account
Cheque is not properly drawn
Cheque is stale (presented after stipulated date)
Cheque is crossed but presented for cash
Cheque is received after receipt of notice of death,
insolvency or lunacy of the drawer of the cheque.
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So also, when instructions are received from the drawer
to stop the payment of cheque or
when attachment / garnishee order is received from a
competent authority, payment can be refused.
If the drawer’s signature differs, bank can refuse
payment and also when the amount of the cheque
differs in words and figures.
To Secrecy
It is one of the principal duties of the banker to
maintain complete secrecy of the status of customer’s
account and failure to do so will make the bank to
compensate the customer for any damage or loss
suffered.
However, a bank is justified in making disclosure,
under the due process of law or under express or
implied consent of the customer.
Banker ‘s Lien
Lien generally is the right of the creditor to retain
possession of the goods and securities owned by the
debtor until the debt is repaid. It however, does not vest
the right to sell the goods. But the banker’s lien has a
wider connotation. It is an implied pledge.
The bank has the right to sell the subject matter in
possession in the ordinary course of business as a
banker, and adjust the unpaid debt.
Mandate
The account holder alone has the right to operate his
account with the bank. No person other than the
account holder can order the bank to debit the account.
But the account holder can give mandate or a power of
attorney to another person to operate his account.
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A mandate is an authority given by the account holder
in favour of a third person. This is issued by an account
holder with a direction to his banker authorizing third
person to operate the account. It is unstamped letter
signed by the customer.
Circumstances Leading to Closure of Accounts
the banker should carefully examine the issue before
closing the customer’s account and unless there are
justifiable reasons, it should not close the accounts of
the customer.
Consumer
Banker’s liability under Consumer Protection Act,
1986
Consumer as defined u/sec 2(1) (d) of the act, is a
person
who buys any goods for a consideration
which has been paid or promised or partly paid and
partly promised, under any system of deferred
payment, and
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includes any user of such goods when such use is made
with the approval of such person, but does not include
a person who obtains such goods for resale or for any
commercial purpose.
According to the act, “Consumer”, includes a person
who hires or avails of any service for a consideration.
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So, in banking transactions, a customer of a bank who
has a bank account or a person who purchases a bank
draft, hires locker facility or obtains bank guarantee
from a bank or any other facility obtained from bank
are all “consumers” and can prefer complaints for
“deficiency in service” or for “restrictive trade
practice” or “unfair trade practice” adopted by the
bank.
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A person who has applied for shares is a consumer,
contrary to the general misconception that an applicant
for shares prior to their allotment cannot be a
consumer.
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The reason behind is the judgment of the Supreme
Court in the case of Morgan Stanley where the
Supreme Court interpreted the provisions of the
Consumer Protection Act prior to its amendment in
June 1993, and held that an applicant cannot enjoy the
status of a consumer prior to allotment. Fortunately, the
CP Act, was amended in 1993 so that prospective
consumers, who have agreed to purchase any goods,
would also have a right to file a complaint.
Wrongful dishonor of Bank Draft
SBI vs. N. Raveendran Nair,1992 (2) CPR 400
In this issue bank refused to en-cash the demand draft on
the ground that the signature of one of the two officials of
the bank was missing. The State Commission held that the
dishonor of the draft was due to the fault of the bank, and
therefore, there was deficiency in service by the bank. A
compensation of Rs.19,500/- was awarded by the
Commission for the inconvenience and mental agony
caused. The National Commission dismissed the appeal of
the bank against the judgment of the State Commission.
Non-issuance of proper receipt
Where the bank did not adjust the loan repaid in its
books nor issue proper receipt to the complainant, the
award of compensation by the District Forum for
deficiency in service was confirmed by the Chattisgarh
State Commission in Jila Sahakari Kendriya Bank vs.
Sarda Ram Nayak , 2004 (2) CPJ 534
Payment of lower rate of interest
In Abha Bhanthia vs. SBI, 2004 (2) CPJ 138, the
complainant had made an F.D. with the bank, which
carried interest at the rate of 11.25 per cent as per the
receipt issued. On maturity, bank paid lower interest @
10.5 per cent.
It was stated by the bank that the said rate of interest
was the prevailing rate as per the directives of the RBI.
The District Forum held that there was no deficiency in
service by the bank as it followed the RBI directive.
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On appeal by the complainant, the State Commission
held that the bank was obliged and under liability to
pay interest as agreed by it and any omission or
inadvertence on the part of the bank employees would
not adversely affect the rights of the appellant depositor
