ANALYSIS ON RELATIONSHIP BETWEEN BANKER AND CUSTOMER
Author: Priyangi Mohi, IV year of B.A,,LL.B(Hons) from Institute of Law, Nirma University.
Under section 5(b) B.R act, Banking Regulation Act1949, banking has been defined in India which states that banking means acceptance of money or other assets for the purpose of lending or investment or for depositing any money from the public repayable on demand or for withdrawal by draft, order, cheque or otherwise.
Under section 3 of the Indian Negotiable Instrument Act, banker includes any person who is acting as a banker or like posting serving bank.
Under section 5(c) of the act, banking company is a company which transact business of banking or banking related activities that are as follows:
Accepting any receipts from the public
Which lends the money,
Investment in any activities,
Allow withdrawal of deposits in case of demand or otherwise.
According to Sir John Paget, stated that for the constitution of recognizable coarse of habit in dealing with the banking business two important aspects have to be seen:
That there should be a habit of dealing between the bank and the person.
That the transaction should be in the nature of a regular business of banking.
There is a relationship established between a customer and a banker which is contractual in nature and begins as soon as the customer opens an account in the bank. The bank has the subsidiary function to act as custodians as soon as the account is opened. The main function between a banker and customer can be diving into two types (i) general relationship (ii.) special relationship which is as follows:
GENERAL RELATIONSHIP can be classified in two ways:
a) Relationship of the Debtor and creditor: It is a primary relationship that is established. The receipt of money of the customer in the account or given to the banker makes the banker merely a debtor and the customer a creditor. There is obligation attached with the relationship that the banker is obligated to honor the cheque drawn by the customer from his balance account so far as there is fund available. Whenever the bank as an agent and not as a debtor, then the agency brings fiduciary relationship which would last until and unless the agency is terminated. The customer does not have lien on the money, and whatever debt arises in a contract it shall be recovered from the place where it is properly recoverable.
Some of the important requirements within these types of relationship are given below:
Demand is necessary to be made in case of debt due to the customer from the bank: any deposit account will not become due until and unless the customer makes a specific demand for the repayment. One of the important parts of the debt is locality, which means to say that the repayment will be done by the bank of the same locality where the account is maintained by the bank.
The money will be repaid only after a specific demand for the repayment is made by the customer in the bank.
Demand should be made at proper time and proper place: the demand by the customer should be made considering the proper timing and place. The demand should be made in the same branch of the bank where the money is due, it should be made during reasonable timings, not before or after the timings of banking hours. If the customer countermands the payment, then the banker will not be able to debit the account of the customer. The repayment will again not be made in case garnishee order is served on the banker. Cases of insolvency and dearth of the customer will also make any payment done on the cheque invalid. In cases where the payment is made on the cheque before or after the banking hours, it will not be considered a payment made in the due course.
The demand should be made in a proper manner by the customer: the withdrawal of the deposit should be done by draft, cheque, order or otherwise.
b) Overturned Relationship of Debtor and Creditor: whenever any loan is availed by the customer or any advance money is taken by him, the relationship between him and the banker changes from the time when he was a deposit holder. Whenever fund is lent to the customer, then the bank becomes the creditor i.e. lender and the customer becomes the debtor, i.e., a borrower.
THE SPECIAL RELATIONSHIP can be classified as:
Banker as a trustee in cases of sage custody deposits: under section 3 of Indian Trust Act, any trust is defined where trustee is holding the property for the benefit of the owner trustee and under section 15 of the Indian Trust Act a trustee has the obligation to deal with the property carefully like it would be done by the man of ordinary prudence will take care of such property. Trustee will be holding all the assets, money of the customers, and it would perform functions that would benefit people who are regarded as beneficiaries here. If a customer deposits valuables, securities in safe custody with the bankers, then the bankers would act as a trustee of that customer. There is a fiduciary relationship as if a customer had employed the bank to safely keep his or her belongings, and the customer has the right to raise charges in cases the bank which is holding the balance makes any suspension to the payment. In cases where money is delivered by the person dealing to the bank to ban any intention to create a relationship between a creditor and debtor, then bank would be presumed to be guilty unless such presumption is rebutted.
Bankers as an agent of the customer: there are many circumstances where a banker acts as an agent of his customers. He may act in various capacities like attorney, trustee, executor, representative and correspondent. The bank collects dividends, cheque, interest of securities, and also pays duties, fees, premium, subscription on behalf of the customers. Under Section 182 of the Indian Contract act, a person who is appointed as an agent for doing some acts on behalf of another or for representation in dealing with the third parties.
Bailey- Bailer Relationship: under section 148 of Indian Contract act, bailment, bailor and Bailey were defined. It means that the goods will be delivered after the fulfillment of some purpose. The bank gives advances to people who are obtaining tangible securities. The bank acts as a Bailey whenever it takes physical possession like articles and securities for the safety purpose and the customers act as bailer. In case any default occurs to the goods that are given by the bailor, then the bank would be liable if the default id beyond the limit of the banker.
Bank as Custodian: in an ordinary sense, a custodian is someone who takes care of the property which is in the possession of a bank, and bank also takes the responsibility like a custodian for taking care of the securities of the customers.
Bank as a Guarantor: Banker acts as a guarantor for its customers in cases of contingent contract. Guarantee is given for doing or not doing something in cases of an event collateral to the contract if that happens or does not happen.
Relationship of the Lesser and lessee: under section 105 of the Transfer of property Act, the definition of lease, lessor, rent and premium has been defined. When the banker provides for the safe deposit lockers to its customer, it is ancillary services given by the bank, and the relationship established between them is that of a lessor and lessee as bank gives its deposit on lease and customer keeps the securities in it and enjoys it as a lessor for a specified period or till the time rent is paid by the customer. Although there is no responsibility of the bank to keep the property safely as the bank is not an insurer in the case.
Other miscellaneous functions and services
There are many functions that are performed by modern banks that are subsidiary, miscellaneous, Para- Banking services and special services which can be classified as follows:
Issuing various credits like letters of credit, credit cards, traveler cheques.
Under writing of capital issues.
Acceptance of bills of exchange,
Preparing returns of income tax for the customers,
Keeping safe custody of the valuables,
Acting as an executor for their customers,
Mutual funds, bank insurance, insurance,
Host of other subsidiary, special and para banking and other miscellaneous activities which may be divided broadly into two types:
a) Agency services and
b) General Utility Services.
Termination of relationship between banker and customer
The relationship between a banker and customer can be terminated in some ways that are given below:
Voluntary termination: termination under this can be done in two ways:
The customer has been given the right to close the current account in any bank, and their demand has to be met by the bank.
The banker has been given the right to determine the relationship between them in case, if the bank does not want to continue any relationship, then it can give reasonable notice to the customer under which it would inform the customer regarding the termination of the relationship.
Operation of law: in cases of death of the customer, insanity or in cases of bankruptcy and garnishee order, the relationship between the customer and the bank may be terminated.