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An Explanation To Banker Customer Relationship

A banker-customer relationship is based on trust, for this bank has to carry out its duties to the customer in utmost good faith and due diligence. Bank’s supreme responsibility lies in protecting customers interest, mainly the deposit and secrecy about customers. There are numerous kinds of relationships between the bank and the customer based on the duties and activities that are performed from both sides. Basically, a “banker-customer” relationship starts with the opening of an account with the bank. Bank accounts are opened basically in relation to the Contract Act, 1872. The relationship between a bank and its customers can be broadly categorized into two categories: 

A. General Relationship
a)       Debtor-Creditor
When a ’customer' opens an account with a bank, he/she fills in and signs the account opening form. By signing the form he enters into an agreement/ contract with the bank. When a banker receives deposits from a customer, he/she is technically said to borrow money from the customer. So, he/she is acting as a debtor who is bound to return the money on-demand to his creditor namely its customer.

b)      Creditor-Debtor
Lending money is the most important activity of a bank. The resources mobilized by banks are utilized for lending operations. The customer who borrows money from bank is the debtor and the banker is the creditor.

c)       Principal-Agent
Bankers are to work as an agent on behalf of their customer/principal. When the banker collects cheques, bills, dividend warrants, pays insurance premium, subscriptions etc. on behalf of his customer as an agent then the agent-principal relationship exists between a banker and its customers.

d)      Trustee-Beneficiary
When a person entrusts valuable items with an intention that such items would be returned on demand to the customer/beneficiary the relationship becomes of a trustee and beneficiary. A banker becomes a trustee only under certain circumstances, for example, when money is deposited for a specific purpose, till that purpose is fulfilled; the banker is regarded as a trustee for that money. Again when a cheque is given for collection, till the proceeds are collected, he holds the cheque as a trustee.

e)      Bailor-Bailee
When a customer deposits certain valuables, bonds, securities or other documents with the bank, for their safe custody, the bank besides becoming a trustee, also becomes a bailee and the customer is the bailor.

f)       Lessor-Lessee
The banks provide safe deposit lockers to the customers who hire them on lease basis. The relationship , therefore, is that of lessor and lessee. In such case a banker becomes the lessor and the customer becomes the lessee.

g)      Pledgor-Pledgee
A pledge occurs when goods are delivered by one person to another to be held as a security for the payment of a debt or the performance of some other obligations and upon the express or implied understanding that the subject matter of the pledge is to be restored to the owner till the debt is discharged. Under such circumstances the borrower becomes the pledgor and the lending banker becomes the pledgee.

h)      Mortgagor-Mortgagee
A 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, an existing or future debt or the performance of an engagement which may give rise to a pecuniary liability. The person transferring the interest is called the mortgagor, and the person to whom the interest is transferred is called the mortgagee.

B. Special Relationship
Apart from general features of relationship, there exist some special features that arise due to the following legal obligations:

  1. Statutory obligation to honor cheque
When a customer opens an account there arises a contractual relationship between the banker and the customer by virtue of which the banker undertakes an obligation to honor its customers' cheques. This obligation is a statutory obligation under section 31 of N. I. Act . However this statutory obligation is not absolute. The statutory obligation to honor a cheque is limited in the following ways:
a) Properly drawing of the cheque
b) The availability of the money in the account of the customer
c) Proper application of the funds
d) Reasonable time for collection
e) Existence of legal bar

Overriding the obligation: When a banker overrides his /her statutory obligation and dishonors a cheque on reasonable ground, the banker is justified in doing so. However, if dishonors a cheque by mistake, the bank is liable to compensate the customer for any loss or damage caused to him.

  1. Banker’s duty to maintain secrecy of customer’s account
When a person opens an account in a bank he/she is entitled to a reasonable assurance that information regarding the account remains a matter of knowledge only between the banker and account holder. This is so because; it is one of the principal duties of the banker to maintain complete secrecy of the status of its customer's account. This obligation of the bank to maintain secrecy continues even after the customer's account is closed. There are certain circumstances in which the banker is entitled or required to make disclosures about a customer's account which are as follows:

a) Legal Binding (under compulsion of Act): When Act requires the disclosure of the state of a customer's account, banker cannot override it. His/her duty to his customer is subject to his/her duty to the Act of the country. The following are the examples of this category:
• Bank Companies Act,1991
• The companies Act,1994
• The Bankers' Book Evidence Act,1891
• The Foreign Exchange Regulations Act,1947 and FERA amendment Act, 2015
• The Money Laundering Prevention Act,2012 and also MLP (Amendment) Act, 2015
• Income Tax Ordinance,1984

b) Consent of the Customer: When banker's own position is at stake, a banker may be compelled to ignore his oath of secrecy. Any prudent banker will safeguard his position before fulfilling his obligations.

c) Banker's Own Interest: As between individual interest and public interest, public interest is more important and so, the individual interest should be sacrificed for the sake of public interest. Hence, a banker is justified in disclosing the state of his customer's account in the interest of the public. But in fact, it is not so easy to give an example of this type. May be for example, disclosure of the account where money is kept for extreme political purposes or disclosure of the account of an unlawful association.

d) Garnishee Order: It is issued by a court in favor of the judgment creditors for a debt due from the judgment debtors (bank customer), upon a third party (bank), so as to attach the money so owing for the purpose of satisfying the decree. The order is issued under the Civil Procedure Code on the banker.

  1. Banker’s Lien
Another special feature of the relationship existing between a banker and his customer is that a banker can exercise the right of lien on all goods and securities entrusted to him as a banker. It must be noted that a banker's lien is generally described as an implied pledge. It means that a lien not only gives a right to retain the goods but also gives a right to sell the securities and goods of the customer after giving reasonable notice to him. This right of sale is normally available only in the case of a pledge. That is why a banker's lien is regarded as an implied pledge.

  1. Right to claim incidental charges
The bank may claim the incidental charges on unremunerated accounts. These incidental charges take the form of ‘service charges’, ‘processing charges’, appraisal charges’, penal charges ', handling /collection charges’ and so on.

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