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Introduction

What is a Bank ?

Finance is the life blood of trade, commerce and industry. Now-a-days,


banking sector acts as the backbone of modern business. Development of
any country mainly depends upon the banking system.
The term bank is either derived from old Italian word banca or from a
French word banque both mean a Bench or money exchange table. In
olden days, European money lenders or money changers used to display
(show) coins of different countries in big heaps (quantity) on benches or
tables for the purpose of lending or exchanging.
A bank is a financial institution which deals with deposits and advances and
other related services. It receives money from those who want to save in
the form of deposits and it lends money to those who need it.
HISTORY OF BANKING DEVELOPMENT
The idea of banks began as long ago as 1,800 BC in Babylon. In those
days moneylenders made loans to people. In Greece and Rome banks
made loans and accepted deposits. They also changed money. (In the
Bible Jesus famously drove the money changers out of the temple in
Jerusalem).
However with the collapse of the Roman Empire trade slumped and banks
temporarily vanished. However banking began to revive again in the 12th
and 13th centuries in the Italian towns of Florence and Genoa.
In the 16th century a German family called the Fuggers from Augsburg
became very important bankers.
Banks are just one part of the world of financial institutions, standing
alongside investment banks, insurance companies, finance companies,
investment managers and other companies that profit from the creation and
flow of money. As financial intermediaries, banks stand between depositors
who supply capital and borrowers who demand capital. Given how much
commerce and individual wealth rests on healthy banks, banks are also
among the most heavily regulated businesses in the world.

Background
Governments have always believed that banking is too important to leave
to bankers. As a result, there have always been, and always will be, laws
that regulate the business. On the other side of the same coin, bankers
have always believed that government is too important to leave to the
politicians and have never been reluctant to lobby for special legal
treatment.
Regulation and special treatment both require a definition of the business
of banking. For many years, this task was left to the judges in particular
cases, but the 1989 rewrite of the Banking Act 1959 incorporated a
definition of banking business in s 5.
The definition was almost immediately exposed as being inadequate.
Regulations authorised by the Act have added several additional activities
which are banking business. In addition, section 11 of the Act authorises
APRA to determine that certain provisions of the Act do not apply to an
individual or a corporation.
Section 7 of the Act prohibits non-corporations from carrying on any
banking business unless subject to a s 11 determination. Section 8
prohibits non-ADI corporations from carrying on any banking business
without a special determination.
There is concern about the meaning of any in these prohibitions. Does it
mean any part of banking business or something else.
To understand the operation of these provisions, it is useful to have a brief
review of both the judicial and statutory definitions.
Definition of a Bank
A bank as "an establishment for custody of money, which it pays out on
customer's order."

Judicial definitions

The most important Australian case is of the State Commissioners


Savings Bank of Victoria v Permewan Wright & Co Ltd (1914) 19 CLR
457. The Bank had collected misappropriated cheques, and the issue was
whether it was entitled to the protection of the Bills of Exchange Act 1909,
s 88. The High Court held that it was, although on the facts it failed to
satisfy the requirements of s 88.
On the business of banking issue, Issacs J (at 470, 471) said:
The essential characteristics of the business of bankingmay be described
as the collection of money by receiving deposits on loan, repayable when
and as expressly or impliedly agreed upon, and the utilization of the money
so collected by lending it again in such sums as are required
This is sometimes referred to as the reservoir definition. Note that there is
no requirement for current accounts or for payment facilities. It is also
interesting to note that Griffith CJ held that the Bank was not a banker
since it did not allow funds to be drawn on by cheque nor did it collect
cheques.
Permewan Wright was approved of and applied in Australian Independent
Distributors Ltd v Winter (1964) 112 CLR 443 which is discussed below.
The next important case on the subject was Bank of Chettinad v
Commissioner of Income Tax, Colombo [1948] AC 378, a taxation
case.
On the business of banking issue, Lord Morton of Henryton, delivering the
opinion of the Privy Council said (at 383):
Their Lordships think that the proper test for determining whether the
Ceylon branch carried on the business of banking at the material time is to
consider whether that branch, at that time, could fairly be described as a
company which carries on as its principal business the accepting of
deposits of money on current account or otherwise, subject to withdrawal
by cheque, draft or order.
This definition is interesting since it omits any requirement of lending. The
withdrawal by cheque, draft of order clearly contemplates a third-party
payment facility.

The most important non-Australian case on the question of banking


business is United Dominions Trust Ltd v Kirkwood [1966] 2 QB 431.
The case concerned UDT suing the defendant indorser of a bill of
exchange. The defence was that UDT was an unregistered moneylender.
Indeed, Harman LJ (dissenting) summed up the issue.
The only point on this appeal, and indeed the only one in the court below,
can be shortly stated in the form of question and answer:
When is a moneylender not a money-lender?
When he is a banker.
Each member of the Court of Appeal remarked on the reputation of UDT as
a banker, remarking that the Court should not lightly interfere with
commercial judgment.
After reviewing the previous judicial definitions, including Permewan
Wright, Denning MR said:
The march of time has taken us far beyond those cases of 50 years ago.
Money is now paid and received by cheque to such an extent that no
person can be considered a banker unless he handles cheques as freely
as cash.
His own, now famous, requirements were:
There are, therefore, two characteristics usually found in bankers today:
i)
ii)

iii)

They accept money from, and collect cheques for, their customers
and place them to their credit;
They honour cheques or orders drawn on them by their customers
when presented for payment and debit their customers
accordingly. These two characteristics carry with them also a third,
namely:
They keep current accounts, or something of that nature, in their
books in which the credits and debits are entered.

Diplock LJ agreed with these requirements. Harman LJ adopted the Bank


of Chettinad definition, I think the collection of cheques is in English
practice an additional requirement.

Statutory definition
After many years of leaving the definition to the courts, the Banking Act
effectively accepted the Isaacs J definition. Section 5 now provides:
banking business means:
a a business that consists of banking within the meaning of
paragraph 51(xiii) of the Constitution; or
b a business that is carried on by a corporation to which
paragraph 51(xx) of the Constitution applies and that consists,
to any extent, of:
o i both taking money on deposit (otherwise than as partpayment for identified goods or services) and making
advances of money; or
o ii other financial activities prescribed by the regulations for
the purposes of this definition.
Note that the first part of the definition means that the Isaacs definition is
not exhaustive.
The omission of any reference to payment mechanisms means that the
definition is inadequate. This has been recognized implicitly by the addition
of two additional prescribed financial activities.
The Banking Regulations 1966 now permit APRA to determine that the
provision of certain purchased payment facilities (PPFs) is banking
business: reg 3. The definition and concept of the PPF is defined in the
Payment Systems (Regulation) Act 1998.
Regulation 4 provides that credit card acquiring and credit card issuing are
banking business if the acquirer or issuer is a participant in a credit card
scheme designated on 11 April 2001. The schemes so designated are
Bankcard, Visa and MasterCard.

Types of banks
1. Saving Banks

Saving banks are established to create saving habit among the people.
These banks are helpful for salaried people and low income groups. The
deposits collected from customers are invested in bonds, securities, etc.
At present most of the commercial banks carry the functions of savings
banks. Postal department also performs the functions of saving bank.
2. Commercial Banks

Commercial banks are established with an objective to help businessmen.


These banks collect money from general public and give short-term loans
to businessmen by way of cash credits, overdrafts, etc. Commercial banks
provide various services like collecting cheques, bill of exchange,
remittance money from one place to another place. The policies regarding
deposits, loans, rate of interest, etc. of these banks are controlled by the
Central Bank.
3. Industrial Banks / Development Banks

Industrial / Development banks collect cash by issuing shares &


debentures and providing long-term loans to industries. The main
objective of these banks is to provide long-term loans for expansion and
modernisation of industries.
4. Land Mortgage / Land Development Banks

Land Mortgage or Land Development banks are also known as


Agricultural Banks because these are formed to finance agricultural sector.
They also help in land development. The Government has guaranteed the
debentures issued by such banks. There is a great risk involved in the
financing of agriculture and generally commercial banks do not take much
interest in financing agricultural sector.
5. Indigenous Banks

Indigenous banks means Money Lenders and Sahukars. They collect


deposits from general public and grant loans to the needy persons out of
their own funds as well as from deposits. These indigenous banks are

popular in villages and small towns. They perform combined functions of


trading and banking activities.
6. Central / Federal / National Bank

Every country of the world has a central bank. Federal Reserve and in
U.K, Bank of England. These central banks are the bankers of the other
banks. They provide specialized functions i.e. issue of paper currency,
working as bankers of government, supervising and controlling foreign
exchange. A central bank is a non-profit making institution. It does not deal
with the public but it deals with other banks. The principal responsibility of
Central Bank is thorough control on currency of a country.
7. Co-operative Banks

In India, Co-operative banks are registered under the Co-operative


Societies Act, 1912. They generally give credit facilities to small farmers,
salaried employees, small-scale industries, etc. Co-operative Banks are
available in rural as well as in urban areas. The functions of these banks
are just similar to commercial banks.
8. Exchange Banks

Hong Kong Bank, Bank of Tokyo, Bank of America are the examples of
Foreign Banks working in India. These banks are mainly concerned with
financing foreign trade. Following are the various functions of Exchange
Banks :1. Remitting money from one country to another country,
2. Discounting of foreign bills,
3. Buying and Selling Gold and Silver, and
4. Helping Import and Export Trade.
9. Consumers Banks
Consumers bank is a new addition to the existing type of banks. Such
banks are usually found only in advanced countries like U.S.A. and
Germany. The main objective of this bank is to give loans to consumers for

purchase of the durables like Motor car, television set, washing machine,
furniture, etc. The consumers have to repay the loans in easy installments.

Codification
The collection and systematic arrangement, usually by subject, of the laws
of a state or country, or the statutory provisions, rules, and regulations that
govern a specific area or subject of law or practice.
The term codification denotes the creation of codes, which are compilations
of written statutes, rules, and regulations that inform the public of
acceptable and unacceptable behavior.
U.S. law is often described as a Common Law system of Jurisprudence.
This means that it relies on previous cases, or precedents, to determine
procedures and to decide the outcome of cases. U.S. jurisprudence also
involves the interpretation of written laws, including constitutions,
regulations, ordinances.
Codification rearranges and displaces prior statutes and case decisions.
Codification of an area of law generally constitutes the whole source that is
relied upon for a legal question in that area. Thus, when a state codifies its
criminal laws, the statutes contained within the new code supersede the
laws that had been in place prior to the codification. There are exceptions
to this general rule, however. For example, the Michigan Supreme Court
ruled in 1994 that Dr. Jack Kevorkian could be prosecuted under Michigan
common law for assisting patient with suicide, despite the absence in
Michigan's criminal code of a statute that prohibits such action law (People
v. Kevorkian, 447 Mich. 436, 527 N.W.2d 714).
Public demand for written laws can be traced to the dawn of recorded
history. The first known codification of laws is attributed to Ur-Nammu, king
of Ur, in the twenty-fifth century B.C. Lipit-Ishtar, king of Isin, in ancient
Sumer, promulgated a written code around 2210 B.C. Hammurabi, a
monarch in Babylonia, codified laws in the eighteenth century B.C. Both

Lipit-Ishtar and Hammurabi announced in the prologues of their respective


codes that these compilations established justice.
Ancient Greek and Roman civilizations continued the practice of
codification. However, their written codes were not always helpful. The
Roman emperor Caligula wrote his laws in small characters and hung them
high on pillars in order to ensnare the public. Julius Caesar attempted
codification, but he was unable to reduce the enormous body of Roman
Law to its essentials. Not until the sixth century A.D. did Rome, under
emperor Justinian I, accomplish a complete codification of its laws. The
Code of Justinian, known as the Corpus Juris Civilis (Body of Civil Laws),
became the legal authority of Rome in 53334 A.D. Justinian's code
completely revised imperial laws; omitted obsolete, contradictory, and
repetitive laws; and contained a digest of legal essays for guidance. The
Corpus Juris Civilis was a landmark in Legal History, and it served as the
basis for modern Civil Law systems.
Civil law systemsbased on comprehensive codeswere installed in such
countries as Germany, France, Austria, Switzerland, Italy, Japan, and
Spain. Common law systemsbased on case precedentsdeveloped in
England, South Africa, and Australia. Jurisprudence in colonial America
was based on the English common law system. The civil law system and
the common law system were driven by diverging philosophies. Proponents
of comprehensive codification and the civil law system saw the benefits of
public notice. By using simple language to inform the citizenry, the state
could allow people more freedom to conduct their affairs without fear of the
unexpected. Codifiers contended that it was more democratic to live by
rules that had been enacted by elected legislators, rather than judges, and
that the common law system was too vast and obtuse for the lay public.
Supporters of the common law system resisted codification. They noted
that rules that were culled from reported case decisions and written in
digests notified the public of behavior standards, and argued that it was
impossible to distill legal nuances into authoritative rules. Common law
advocates maintained that a simple rule could not be written to apply to all

of the situations that it might cover. They further argued that precedents,
carefully developed over the centuries, were fairer than rules reflecting
moods of the moment.
Codification noun act, arrangement of laws, arrangeeent of rules, arrangement of
statutes, authoritative law, bill, bylaws, canon, capitulary, categorization of laws,
collection of statutes, commandment, compendium, compilation, doctrine,
enactment, formalization of laws, formulation of laws, lawmaking, legislation,
ordinance, precept, regulation, rule, rules and regulations, rulings, scheduling,
scheme, set of rules, standardization of laws, statute, statute book, statute law,
system, system of laws, system of regulations, systematic arrangement of laws,
systematization of laws, tabulation, written law

The business of banking


A bank's main activity should be to do business of banking which should
not be subsidiary to any other business.
Banking business
The prohibitions of s 7 and s 8 are against the carrying on of any banking
business. The phrase is ambiguous. Is the carrying on of a business which
accepts deposits included even if it doesnt make any loans? Even worse, if
a business provides loans but does not accept deposits carrying on any
banking business?
There is some slight judicial support for the wide interpretation. In Re The
Bottomgate Industrial Co-operative Society (1891) 65 LT (NS) 712 one
of the issues was whether the society carried on banking business. Smith J
said that it was not necessary to show that the Society carried on every
part of a business carried on by some bankers. It was enough to show that
the society carried on a principal part of the business of banking, namely,
receiving money on deposit, allowing it to be repaid when the depositor
desires and paying interest on the amounts standing on deposit.
The issue was addressed indirectly in Australian Prudential Regulation
Authority v Siminton (No 6) [2007] FCA 1608. S had registered a
business name under the Victorian legislation. The name was Principality

of Camside. Shortly after, the Principality made a Formal Declaration of


War against Australia. When Australian forces failed to respond, S, acting
as Governor State of Sherwood HM Government of Camside declared
victory and ownership of Australia.
Following that minor skirmish, S got down to business. The Principalitys
website announced the creation of Terra Nova Cache, stage one of its
banking facilities. The description repeatedly referred to the new facility as
a bank. Terra Nova Cache actually accepted deposits but, except for one
short term facility, made no loans. It did, however, indicate its intention to
make loans to its members. According to the information, a depositor
became an owner of the bank.
Australia belatedly responded, but in the form of APRA rather than the
expected defence forces. APRA sought an injunction under the powers
given to it in s 65A(a).
S attempted to rely on the High Court decision in Australian Independent
Distributors Ltd v Winter (1964) 112 CLR 443 where the court held that
the society in question was not carrying on the business of banking. The
lending power of the society was limited to making loans to its members for
the purpose of acquiring land or buildings. In fact, none of the societys
money was used for making loans.
Tracey J dismissed the Winter defence, noting that the decision turned on
the fact that the society had not loaned members funds to anybody. Not
everyone agrees with this interpretation. Weaver et al. (2003) describe (at
1.1200, 1.5210 and 8.50) the grounds as being that the societys power
was limited to the making of loans to its members. On that ground, S
would succeed since Terra Nova Cache proposed making loans only to its
depositors/owners. Ellinger and Lomnicka (1994) attributes the decision to
the fact that the society did not accept deposits from the public, but from
members alone. He also suggests that the decision is wrong since it was
as easy to join the society as it was to become a customer of a bank.
Tracey J therefore held that Terra Nova Cache was carrying on, or intended
to carry on, the business of banking and issued injunctions accordingly. For
our purposes, the important point to note is that Tracey J clearly felt that it
was necessary to establish that Terra Nova Cache was engaging, or
intended to engage, in conduct which satisfies both limbs of the Issacs test.

S appealed to the Full Court: Siminton v Australian Prudential


Regulation Authority [2008] FCAFC 88. The Full Court noted that the
single loan made to Technocash was sufficient to establish that Terra Nova
Cache had engaged in banking business.
It is interesting to note that APRA invited the Full Court to limit Winter to its
facts, arguing that the definition in the Banking Act did not require that full
banking services be offered to the public. The Full Court held that it was not
necessary to consider this submission in view of the actual loan made.

References
Ellinger and Lomnicka (1994)
E P Ellinger and E Lomnicka. Modern Banking Law, 2nd
ed. Oxford University Press, 1994. Tyree (1999)
Alan L Tyree. Regulating the payment system - part 4 - purchased payment
facilities. JBFLP, 10 (4): 305307, 1999. Weaver et al. (2003)
George Weaver, C R Craigie, Gregory Burton, Prudence Weaver, Rena Sofroniou,
and Alan L Tyree. The law relating to banker and customer in Australia. Thomson
Lawbook Co, third edition, 2003.

DEFINITION AND MEANING OF BANKER


An individual who is engaged in the business of banking.
A banker is a dealer in capital or more properly a dealer in money. He is an
intermediate party between the borrower and the lender. He borrows from
one party and lends to another. According to Doctor Herbert Hart, a banker
or a bank is a person carrying on the business of receiving money and
collecting data for customers subject to the obligation of honouring
available on their current accounts. According to the banking company's
ordinance 1962 banking has been defined as accepting for the purpose of
lending or investment of deposits of money from public repayable on
demand or otherwise and withdrawals by cheques, draft or order.
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
1)
2)
3)
4)

Take deposit account


Take current accounts
Issue and pay cheques
Collect cheques crossed and uncrossed for his customers.

Money lender is not considered as a banker as mere lending does not


constitute banking business. Banker is an institution which borrows money
by accepting deposits from the public for the purpose of lending to those
who are in need of money.
DEFINITION AND MEANING OF CUSTOMER
A customer is a person who maintains a regular account with the bank
without taking into consideration the duration and frequency of operation of
his account. To be a customer for any bank the individual should have an
account with the bank. The individual should deal with the bank in its nature
of regular banking business. He should deal with the bank without
consideration of the duration and frequency of operation of his account.
The relationship between banker and customer is of utmost importance. If
is generally studied under the following two heads one is general
relationship and special relationship.
The term "Customer" has not yet been statutorily defined. Generally, the
term customer means a person who has an account with bank. Banking
experts and legal judgments in the past, however, used to qualify this
statement by laying emphasis on the period for which such account had
actually
been
maintained
with
the
bank.
Sir John Paget was one of those experts from the past. According to him,
"to constitute a customer, there must be some recognizable course of habit
of dealing in the nature of regular banking business."
This definition from Sir -John Paget lays emphasis on the duration of the
dealings between the bank and the customer. According to his view,

a person does not become a customer of the banker on the


opening of an account; he must have been accustomed to deal with the
banker
before
he
is
designated
as
a
customer.
The emphasis on duration
of
the
bank
account is now
discarded.
According to Dr. Hart, "a customer is one
who
has an
account
with
banker
or
for
whom a banker
habitually
undertakes
to
act
as
such."
The
above
view
point
was confirmed
by
the Kerala
High Court in the case of Central Bank of India Ltd., Bombay V. Gopinathan
Nair
and
other.
The
lordship
observed:
"Broadly speaking, a customer is a
person
who has the
habit
of
resorting
to the same place or person to do
business.
So
far
as the banking transactions are concerned he
is a person whose money has been accepted on the
footing
that
the
banker
honor his cheques up to the amount
standing to his
credit, irrespective of this connection being of short or longstanding".
Thus, in order to constitute customer, a person should satisfy the following
conditions:
a)
He
should
have
an
account
with
bank;
b)
and
the
dealings
should
be
of
banking
nature.
An individual or business that purchases the goods or services produced
by a business. The customer is the end goal of businesses, since it is the
customer who pays for supply and creates demand. Businesses will often
compete through advertisements or sales in order to attract a larger
customer base.
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.
Thus to constitute a customer, the following essential requisites must be
fulfilled:
1)
2)
3)

He must have some sort of an account.


Even a single transaction constitutes a customer.
The dealing must be of a banking nature.

A customer need not be a person. A firm, joint stock company, a society or


any separate legal entity may be a customer. Explanation to section 45-Z of
the BR Act clarifies that a customer includes a Government department and
a corporation incorporated by or under any law.

Banker & customer


1. Banker & Customer There is no statutory definition of the term
banker and customer Banker The business of a banker in ordinary
consists in receiving money from or an account of a customer and
repaying the same on demand.
2. The Negotiable Instrument Act defines a banker as any person acting
as a banker. The Banking Regulation Act, 1949 defines banking
company as a company which transact the business of banking in
India. The term banking has been defined as accepting for the
purpose of lending or investment. of deposit of money from the public
repayable on demand or withdraw able by cheque, draft or order.
3. A customer is a person who has some sort of account, either deposit
or current account, with the banker.
4. Legal relationship between banker and customer The relationship
between a banker and his customer is essentially contractual like
Debtor (banker) and creditor (customer). This relationship is
sometimes reversed. This happens when the banker lends money to
the customer. The relationship also partakes many aspects of agent
and principal.
5. Special features or legal relationship Obligation to honour cheques.
Obligation to keep proper record of transactions. Obligation to abide
by the express instruction of the customer. Obligation not to disclose
the state of his customers account or affairs. Right of general lien.
Right to charge incidental charges and interest on money lent. Right
to set-off. Right of appropriation.
6. When may a banker dishonor a customers cheque? Where the
banker does not have sufficient funds to the credit of the customer.

Where the funds to the credit of the customer are not applicable to
the payment of the cheque. (when the money held in trust) Where
the cheque is ambiguous or doubtful. Where the cheque is mutilated
(imperfect). Where the cheque is irregular or materially altered.
Where the cheque is not duly presented. Where the cheque is post
dated. Where the cheque has become stale. (six months from the
date of issue). Where the cheque is presented at a other branch.
Where an account is in joint names of a few persons, but they have
not all signed the cheque. Where the cheque is for an amount in
excess of the balance.
7. When must a banker dishonor a cuctomers cheque? When the
customer become insolvent. When the customer countermands
payment (order the banker not to honour the cheque.) When the
banker receive notice of the customers death. But he pays the
cheque before he receive notice, the payment is valid. When the
banker receive notice of the customers insanity (madness, lunacy).
When banker receive the legal notice about customer or dealing with
money from some other sources. When the customer gives notice to
the banker to close the account. When the customer gives notice of
assignment of the credit balance of his account. When the banker
suspects, that the title of the person presenting the cheque is
defective. When the holder gives a notice of loss the cheque to the
banker
8. Protection of Paying Banker Cheques payable to bearer Crossed
cheques Payment of cheque crossed generally. Payment of cheque
crossed specially. Payment of crossed cheque in due course.
Payment of crossed cheque out of due course.
9. Protection of collecting banker Collecting banker as an agent.
Crossed cheques. Open cheques. Collecting banker as a holder in
due course.
NATURE OF RELATIONSHIP BETWEEN BANKER & CUSTOMER
Before we take up the relationship that exists between a banker and his
customer, let us understand the definitions of the terms banker and
customer.

Definition of Banking:

According to the section 3 of the Negotiable Instrument Act 1881,


"Banker includes persons, or a corporation or a company acting as
bankers."
According to the section 5(0) of the Banking Companies Act 1991,
"Bank Company" means any company serves transactions (Banking
Business in Bangladesh) including new bank and specialized banks.
According to the section 5(P) of the Banking Companies Act 1991,
"Banking Business" means accepting, in order to lend or invest, of
deposits of money from the public which will be paid on demand or
otherwise and will be withdrawal by cheque, draft, order or otherwise.

The salient features of this definition are as follows:


A banking company must accept deposit and lend or invest the same.
If the purpose of accepting deposit is not to lend or invest, it does not
constitute banking business. In other words, acceptance of deposit
with a view to lending or investing the same is the business of
banking.
The definition specifies the time and mode of withdrawal of deposits.
The deposited money must be repayable to the depositor on demand
made by the latter or according to the agreement reached between
the two parties. The most important point here to be noted that the
banker does not refund the money on his own accord, even if the
period for which it was deposited expires. The depositor must make a
demand and the withdrawal should be effected through cheque, draft,
and order or otherwise.
It is, thus, clear that the underlying principle of the business of
banking is that the resources mobilized through the acceptance of
deposits must constitute the main stream of funds which are to be

utilized for lending or investment purposes. A bank is, thus, an


intermediary and deals with the money belonging to the public.
RELATIONSHIP BETWEEN BANKER & CUSTOMER
The relationship between a banker and customer depends upon the type of
service rendered by the banker. The primary relationship between a banker
and customer is legal based on contract as per Contract Act, 1872.
However, the most valued relationship for the banking business is the
behavioral relationship.
LEGAL RELATIONSHIP:
I)
II)
III)
IV)
V)
VI)

Debtor and Creditor;


Principal & Agent;
Pledgor & Pledgee;
Mortgagor & Mortgagee;
Lessor & Lessee; and
Trustee & Beneficiary.

Relation of a debtor and a creditor


The general relationship between banker and a customer is that of a debtor
and a creditor i.e. borrower and lender. In Foley v. Hill, Sir John Paget
remarks, the relation of a banker and a customer is primarily that of debtor
and creditor, the respective positions being determined by the existing state
of account. Instead of the money being set apart in a safe room, it is
replaced by the debt due from the banker. The money deposited with him
becomes his property, and is absolutely, at his disposal, and, save as
regards the following of the trust funds into his hands, the receipt of money
by a banker from or on account of his customer constitutes him merely the
debtor of the customer with super added obligation to honour his customers
cheques drawn upon his balance, in so far the same is sufficient and
available.
In Shanthi Prasad Jain v. Director of Enforcement, Foreign Exchange
Regulation, the SC held that the banker and customer relationship in

respect of the money deposited in the account of a customer with the bank
is that of a debtor and a creditor.
On the opening of an account a banker assumes the position of a debtor.
The money deposited by the customer with the bank is in legal terms lent
by the customer to the banker who males use of the same according to his
discretion. The creditor has the right to demand back his money from the
banker, and the banker is under an obligation to repay the debt as and
when he is required to do so.
A depositor remains a creditor of his banker so long as his account carries
a credit balance. But he does not get any charge over the assets of his
debtor/banker and remains an unsecured creditor of the banker. Since the
introduction of deposit insurance in India in 1962 the element of risk of the
depositor is minimized as Deposit Insurance and Credit Guarantee
Corporation undertakes to insure the deposits upto a specified amount.
Bankers relation with the customer is reversed as soon as the customers
account is overdrawn. Banker becomes creditor of the customer who has
taken a loan from the banker and continues in that capacity till the loan is
repaid. As the loans and advances granted by a banker are usually secured
by the tangible assets of the borrower, the baker becomes a secured
creditor of his customer.
Various legal relationships of banker and customer
2) Agent and Principal- Sec.182 of The Indian Contract Act, 1872 defines
an agent as a person employed to do any act for another or to represent
another in dealings with third persons. The person for whom such act is
done or who is so represented is called the Principal.
One of the important relationships between a banker and customer is that
of an agent and principal. The banker performs various services of the
customer, where he acts as the agent.
Buying and selling securities of customer
Collection of cheques, bills of exchange, promissory notes on behalf of
customer
Acting a trustee, executor or representative of a customer

Payment of insurance premium, telephone bills etc.

1)
Trustee and beneficiary- section 3 of the Trusts Act defines a
trustee as one to whom property is entrusted to be administered for the
benefit of another called the beneficiary. 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.
2)
Bailee and bailor- during certain circumstances banker becomes
bailee. When he receives gold ornaments and important documents for
safe custody he takes charge of it as bailee and not trustee or agent. He
cannot make use of them as he is bound to return the identical articles on
demand.
3)
Pawnee and pawner- pawn is a sort of bailment in which the
goods are delivered to another as a pawn, to be a security for money
borrowed. Thus a banker acts as a pawnee where a customer delivers he
goods to him to be kept as security till the debt is discharged. The banker
can retain the goods pledged till the debt is paid.
4)
Mortgagee and mortgagor- the relation between a banker as
mortgagee and his customer as mortgagor arises when the latter executes
a mortgage deed in respect of his immovable property in favour of the bank
or deposits the title deeds of his property with the bank to create an
equitable mortgage as security for an advance.
5)
Lessee and lessor- when a customer hires a locker in the banks
safe deposit vault, the bank undertakes to take necessary precaution for
the safety of the articles in the locker. The relation between the parties is
that of a lessor and lessee.
6)
Guarantor and guarantee- a bank as guarantor gives guarantee
to its customer by issuing a letter of credit. It is a kind of credit facility to its
customer to facilitate international trade. A bank guarantee contains an
undertaking to pay the amount without any demur on mere demand of the
principal amount on the ground for non-performance or breach of contract.

7)
Fiduciary relationship- every relation of trust and confidence is a
fiduciary relation. A banker who receives a customers money is under a
duty not to part with it which is inconsistent with the customers fiduciary
character and duty. In Official Assignee v. Rajaram Aiyar, it was held that
where banks old money for a specific purpose of sending it somebody the
money is impressed with trust.
Special relationship between banker & customer
By opening an account with the banker, there will be some rights conferred
and obligations imposed to the banker as well as the customer. These
rights and duties are reciprocal i.e. the bankers duties are the customers
rights and the bankers rights are the customers duties. These rights and
obligations are called the special features of relationship between banker
and the customer.
The special relationship between banker and customer can be presented
as under:
DUTIES AND OBLIGATIONS OF BANKER:
The primary relationship between banker and his customer is that of a
debtor and a creditor. This relationship imposes the following special
obligations on the banker:
A) OBLIGATION TO HONOR CHEQUE: The deposits accepted by a
banker are his liabilities repayable on demand or otherwise. The banker is,
therefore, under a statutory obligation to honor his customer's cheque in
the ordinary course of business. Section 31 of the Negotiable Instrument
Act, 1881, lays down that:
" The drawee of a cheque having sufficient funds of the drawer in his
hands, properly applicable to the payment of such cheque, must pay the
cheque, when duly required so to do and in default of such payment must
compensate the drawer for any loss or damage caused by such default."
Thus, a banker is bound to honor his customer's cheques provided that
following conditions are fulfilled:

1)
There must be sufficient funds of the drawer in the hands of the
drawee. By sufficient funds is meant that funds at least equal to the amount
of the cheque presented for payment. Any over draft arrangement or facility
granted in favor of the customer needs to be taken into consideration and
payment to be made within the limit.
2)
The funds must properly be applicable to the payment of the cheque.
A customer might have several bank accounts in his various capacities. If
some funds are earmarked by the customer for some specific purposes,
the said funds are not available for honoring his cheque. In addition, it is to
be noted here that in case of a few special types of accounts can not be
drawn upon in the personal capacity of a trustee, executor etc., funds are
not available for honoring the customer's cheque in such case.
3)
The banker must duly be required to pay the cheque. It means that
the cheque, complete and in order, must be presented before the banker
for payment.
LIABILITY OF THE BANKER IN CASE OF WRONGFUL DISHONOR OF
CHEQUE:
A Banker has the statutory obligation to honor his customer's cheques
unless there are valid reasons for refusing payment of the same. In case he
dishonors a cheque, intentionally or by mistake, he is liable to compensate
the customer for the loss suffered by him.
BANKER'S LIABILITY:
As already noted above, the words "loss or damage" in section mean and
include:
I)
The monetary loss suffered by the customer; and
II)
The loss of credit or reputation in the marker.
It is, therefore, to be noted that the banker is liable to compensate the
drawer not only for the actual monetary loss suffered by him; but also for
the injury to or loss of his reputation, as a result dishonor of a cheque
B) OBLIGATION TO MAINTAIN SECRECY OF ACCOUNTS:

Keeping secrecy means that the state of affairs of a customer's account is


not made known to others by any means. The banker is, thus, under an
obligation not to disclose , deliberately or intentionally, any information
regarding his customers' accounts to a third party and also to take all
necessary precautions and care to ensure that no such information leaks
out of the account books.
However, the general rule about the secrecy of customers' accounts may
be dispensed with in the followings circumstances:
I) When the law requires such disclosure to be made; and
II) When the practices and usages amongst the bankers permit such
disclosure.
In addition, the banker has obligations to do the following:
I)
To credit the deposited money to the customer's account;
II)
To provide customer with the statement of account in an agreed
manner or any certificate regarding his account if requested;
III) To abide the stop payment instruction;
IV) To abide by the standing instruction; and
V)
To credit interest or pay interest as per rule etc. and
VI) To give or provide customer with financial advisory services.

BANKER'S RIGHT:
a)
The banker has the right to return deposit if not in proper manner and
time.
b)
The banker has the right to return the cheque if not drawn properly or
in time or for some other reasons. C) The banker has the right to debit the
customer's account for any charges, interest and commission if
recoverable. d) The banker has the right to exercise lien, right of set-off etc.

RIGHTS OF CUSTOMER:

The customer has the following rights based on his relationship with the
banker:
a)
To deposit money in his account on time;
b)
To demand repayment by issuing cheque or written order
properly in proper time and place;
c)

To get statement of account in agreed manner;

d)

To stop payment of his cheque;

e) To give standing instruction;


f)
To claim interest on his deposit balance in the interest bearing
account;
g) To claim damages for any loss or damage caused due to
wrongful dishonor of his cheque by bank;
h)

To claim money when the payment is not made in due course;

i)

To have secrecy of his account etc.

CUSTOMER'S OBLIGATION:
A customer has the following duties and obligations to perform:
I)

He must deposit amount properly and in time;


II) He must demand payment issuing cheque or written order
properly and he must present the cheque for payment within
banking hour;
III) He must pay the bank charges, interest and commission
payable;
IV) He must abide by the laws;
V) He must keep his cheque book in his safe custody;
VI) He must inform the bank on time for any loss of cheque leaf or
cheque book;

RELATIONSHIP TERMINATION OF BANKER-CUSTOMER


II)
There are a number of valid reasons which terminates the banker
-customer relationship. A few of them is stated below:
I) Notice given to each other with view to closing the account;
II)
Upon
the
death
of
a
customer;
III) When a customer is adjudicated as insolvent by a court of law;
IV) When customer ceases to enter into a contract.

General obligations of banker towards customer

Obligation to honour cheques- banker accepts the deposits from the


customer with an obligation to repay it to him on demand or otherwise. The
banker is therefore under a statutory obligation to honour his customers
cheques because, it is recognized under section 31 of the NI Act, 1881The drawee of a cheque having sufficient funds of the drawer in his hands
properly applicable to the payment of such cheque must pay the cheque
when duly required so to do, and, in default of such payment, must
compensate the drawer for any loss or damage caused by such default.
Thus the banker is bound to honour his customers cheques provided the
following conditions are fulfilled(a) Sufficient balance in customers account
(b) Presentation of cheques within working hours of business
(c) Presentation of cheques within reasonable time after ostensible
date of its issue
(d) Cheques should be presented at the branch where account is kept
(e) Fulfilment of requirements of law

Obligation to maintain secrecy and disclosure of information required by


law- the banker is under an obligation to take utmost care in keeping
secrecy about the accounts of the customers since it may affect his

reputation, credit-worthiness and business. It was firmly laid down in


Tournier v. National Provincial and Union Bank of England Ltd. in India
it was made compulsory after 1970. The duty to maintain secrecy will be
continuing even after the account is closed or the death of the customer.
This obligation is subject to certain exceptions.
Obligation to keep a proper record of transactions- the banker must keep a
proper record of transactions of the customer. If he wrongly credits the
account of the customer and intimates him with the same and the customer
acts upon the intimation bonafide and withdraws cash the banker cannot
contend that the entries were wrongly made. He shall not succeed in
recovery of money from the customer.
Obligation to abide by the instructions of the customer- the banker must
abide by any express instructions of the customer provided it is within the
scope of their banker-customer relationship. In the absence of any express
instructions, the banker must according to prevailing usages at the place
where the banker conducts his business.
Rights of a banker
Bankers right of general lien- one of the important rights enjoyed by a
banker is the right of general lien. Lien means the right of the creditor to
retain goods and securities owned by the debtor until the debt due from him
is paid. It may either be general or particular.
In Brando v. Barnet, it was held that bankers most undoubtedly have a
general lien on all securities deposited with them as bankers unless there is
an express or implied contract inconsistent with lien.
In India sec 171 of the Indian Contract Act confers general lien upon
bankers as follows- bankers.may in absence of a contract to the contrary,
retain as a security for a general balance of account, any goods bailed to
them.
Bankers right of set-off- the right to set off is a statutory right which enables
debtor to take into account a debt owing to him by a creditor, before the
latter could recover the debt due to him from the debtor. Thus when a
customer keeps two or more accounts at the same bank, some of which
are overdrawn and some in credit, the bank has a right to combine such

accounts and pay the resultant balance. In Halesowen Presscook and


Assemblies Ltd v. Westminister Bank Ltd, it was held that a banker has
the right to combine two accounts and to set off unless he has made some
agreement express or implied to the contrary.
Bankers right for appropriation of payment- when a debtor owes two or
more debts to a creditor and he pays some amount which is not sufficient
to meet any debt to the creditor appropriation is done. It applies to a banker
if the customer has more than one deposit or more than one loan account.
In Devaynes v. Noble, famously known as Claytons case, a principle was
laid down as to when the customer has current account and deposits and
withdraws money frequently the first item on debit side will be discharged
by the first item on credit side. The credit entries in the account adjust or
set off the debit entries in chronological order.
Bankers right to claim incidental charges- the banker may claim incidental
charges on unremunerative accounts such as service charges, processing
charges, ledger folio charges, appraisal charges, penal charges and so on.
Bankers right to charge compound charges- a banker has a special
privilege to charge compound interest. In Syndicate Bank v. West Bengal
Cement Ltd, the adding of unpaid interest due to the principal amount is
recognized. However, the SC abolished this in case of agricultural loans in
the Bank of India case.

7.

What are the obligations of a banker?

1. Obligation to honour cheques- the banker is under a statutory


obligation to honour his customers cheques in the ordinary course of
business. If he wrongfully dishonors the cheque, then he is liable to the
customer for damages.
Thus the banker is bound to honour the customers cheque provided the
following conditions are fulfilled-

(a) Sufficient funds- there must be sufficient funds of the drawer in the
hands of the drawee. A banker should be given sufficient time to
release the amount of the cheque sent for collection before the said
amount can be drawn upon by the customer. The banker can
dishonor the cheques if there are insufficient funds.
(b)

Funds must be properly applicable- a customer might be having


several bank accounts in his various capacities. But is essential that
the account on which a cheque is drawn must have sufficient funds. If
some funds are earmarked by the customer for some specific
purpose, they are not available for honouring the cheques. But where
the customer has overdraft facility the banker has the obligation to
honour the cheque upto the amount of overdraft sanctioned.

(c) The banker must be duly required to pay- the banker is bound to
honour the cheque only when hi is duly required to pay. The cheque,
complete and in order, must be presented before the banker at the
proper time.
2. Obligation to maintain secrecy of accounts-The customers
account details are recorded in the books of the banker and the true
state of his financial dealings are available with the banker. If any of
these facts are made known to others, the customers reputation might
suffer and he might incur losses also. The banker is therefore under an
obligation to take utmost care in keeping secrecy of the details of the
customer.
However, this rule has exceptions(mention briefly)
3. Obligation to keep a proper record of transaction- the banker
must keep a proper and accurate record of all the transactions of the
customer. Sometimes, he may commit some wrong.
What are the circumstances under which a disclosure by banker is
justified? OR Bankers duty of secrecy is not absolute. Explain.
The duty of the banker to maintain the secrecy is not an absolute one. It is
also subject to certain exceptions. The exceptions were stated in the
landmark judgment Tournier v National Provincial Bank Limited.
Section 13 of the Banking Companies (Acquisition and Transfer of
Undertakings) Act, 1970 also allows certain exceptions.

1. Disclosure under the compulsion of Law- Bankers obligation to his


customer is subject to his duty to the law of the country. The baker
would, therefore, be justified in disclosing information to meet the
following statutory requirements.
(a) Under the Income Tax Act, 1961- Vide Section 131 & 133, Income
Tax authorities have powers to call for the attendance of any person
or for necessary information from banker for the purpose of
assessment of the banks customers.
(b) Under the Bankers Books Evidence Act, 1891- a banker may be
asked for the Court to produce a certified copy of his customers
account in his ledger.
(c) Under the Reserve Bank of India,1934- the RBI is empowered to
collect credit information from Banking Companies relating to their
customers
(d)

Under the Banking Regulation Act, 1949- every bank is


compelled to submit an annual return of deposits which remain
unclaimed for 10 years.

(e)

Under the garnishee order- when a garnishee order nisi is


received, the banker must disclose the nature of the account of a
customer to the Court.

(f)

Under the Companies Act, 1956- when the Central Government


appoints an inspector to investigate the affairs of any joint-stock
company under section 135 or section 137 of the Companies Act, the
banker must produce all books and papers relating of the Company.

(g)

Under CrPC- the police officers conducting an investigation may


also inspect the bankers books for the purpose of such investigation.

2. Disclosure in the interest of the public-the following grounds


generally fall under this category
(a) disclosure of the account where money is kept for extreme political
purposes in contravening the provisions of any law

(b) disclosure of the account of an unlawful association


(c) disclosure of the account of a revolutionary or terrorist body to avert
danger to the State
(d) disclosure of the account of an enemy in time of war
(e)

disclosure of the account where sizable funds are received from


foreign countries by a constituent.

3. Disclosure in the interest of the bank- the banker may disclose the
state of his customers account in order to legally protect his own
interest. For example- if the baker has to recover the dues from the
customer or the guarantor, disclosure of necessary facts to the
guarantor or the solicitor becomes necessary and is justified.
4. Disclosure under the express or implied consent of a customerthe customer may instruct his banker to give some or all other
particulars of his account to say, his auditor, in such case banker can
disclose. Banker can also disclose to a referee whose name is
suggested by the customer. It is implied that the banker can disclose
information to the guarantor.

5. Disclosure under Bankers enquiry- it is an established banking


practice to provide credit information about their customers by one
bank to another. The customer gives implied consent to this practice
at the time of opening the account.
10.

Who are the bankers special customers?

Banks solicit deposit of money from the members of the public. Any person
who is legally capable of entering into a valid contract may apply in the
proper way to deposit his money with the bank.

A banks special customers are generally minors, married women, illiterate


persons, lunatics, blind people, drunkards, insolvents etc who are not
competent to open such accounts. There are also impersonal customers
like schools, clubs, partnership firm, joint stock companies etc. certain
precautions are to be taken by banks while opening accounts in the name
of the following customers.
Minor

A minor is a person who has not attained the age of 18 and in case a
guardian is appointed, it is 21. Minors are regarded pet children of law.
In Mohori Bibi v. Dharmodas Ghose, a minor executed a mortgage for Rs
20000 and received Rs 8000 from the money lender. Subsequently, the
minor sued for setting aside the mortgage. The money lender wanted
refund of money which he had actually paid. The PC held that an
agreement by a minor was absolutely void and therefore, money lender
was not entitled repayment of money.
Some of the precautions to be taken by the banker on opening and
operating account of a minor are1)

The banker may open a SB account but not a current account as it


incurs no liability to the minor.

2)

At the time of opening of account of minor, the bank should record


the genuine date of birth of the minor. Banker should insist on to give
some schooling record or date of birth as entered in Births and
Deaths Register.

3)

Minors are allowed to open such accounts when they have


completed a particular age say twelve years in some banks and ten
years in some others.

4)

Banks should prudent to issue cheque books only to minors of,


say sixteen or seventeen years of age.

5)

Accounts for illiterate minors are not opened in their single name.

6)

As a measure of precaution, banks adopt a general rule not to


accept deposit exceeding a particular sum.

7)

Since a contract with a minor is void and cannot be enforced


against him in Court of law, a minors account should never be
allowed to be overdrawn.

8)

A guarantee obtained to secure the money borrowed by a minor is


also of no avail. However, if the guarantor undertakes to indemnify he
will be held liable though borrower is minor.

Illiterates
An illiterate person is competent to contract and bank may open an account
in his name, but special care should be taken by the banker before opening
an account.
1)

The account of an illiterate person may be opened provided


he/she calls the bank personally along with a witness who is known
both to the banker and the depositor.

2)

A passport size photograph of the illiterate person is identified


before the banker in presence of the account holder. The
photographs have to be attested by the bank officer/ witness.

3)

The left hand thumb impression in case of male illiterate and right
hand thumb impression in case of female illiterate are duly attested
by some responsible person on the account opening form.

4)

One or two identification marks of the depositor should be noted


on the account opening form.

5)

The illiterate person should be provided with a passbook which


should also contain an attested photograph of the illiterate person.

6)

Normally, no cheque book facility is provided on accounts in the


name of illiterate persons.

7)

At the time of withdrawal/repayment of deposit account the


account holder should attend personally with passbook and attest

his/her thumb impression or mark in the presence of an authorised


person.
8)

The thumb impression of illiterate person on the withdrawal form or


cheque (if provided), and on the back of the withdrawal form or
cheque should be duly compared with the specimen impression kept
by the bank.

Married women
The Hindu married women are governed by the Hindu Succession Act and
other married women by Indian Succession Act. A banker may open an
account in the name of a married woman like any other customer. However,
a banker should exercise caution while opening account for the wife of an
undischarged insolvent.
1)

While opening an account of a married woman, the bank should


enquire about her means and circumstances, and if she is living with
her husband, something about him and his occupation and position in
life, and if he is an employee, the name of the employer.

2)

In case she applies for an overdraft, the banker should see that
she owns separate property in her own name and precaution should
be kept in mind regarding her status and capacity to pay and the
purpose for which the borrowings are made. Also he should seek
suitable securities preferably on her, which can be attached by the
Courts.

3)

The banker should always observe that there is credit balance in


her account.

4)

Banks usually require that a married woman be independently


advised by her own solicitor when depositing security for the account
of other persons.

5)

A married woman may enter into a contract of guarantee and it is


enforceable only against her separate estate.

6)

In case of an illiterate married woman, her thumb impression


should be obtained on the account opening form and on the
identification card.

Pardhanishin women
In case of a pardhanishin woman who remains completely secluded
the following presumption exists1)

Any contract entered into by her may be subject to undue influence

2)

The same might not have been done with free will and with full
understanding of what the contract actually means.

He banker should therefore due precaution while opening an


account in the name of a pardhanishin woman. As the identity of such
woman cannot be ascertained the banker generally refuses to open an
account in her name.
Banker-Customer Relationship

The relationship between banker and customer is mainly that of a debtor


and creditor. However, they also share other relationships.
Some of the important relationships they share are depicted below.
Banker-Customer Relationship
The relationship between banker and customer is mainly that of a debtor
and creditor. However, they also share other relationships.
Some of the important relationships they share are depicted below.
The banker-customer relationship is that of a:
1. Debtor and Creditor,
2. Pledger and Pledgee,
3. Licensor and Licensee,
4. Bailor and Bailee,

5. Hypothecator and Hypothecatee,


6. Trustee and Beneficiary,
7. Agent and Principal,
8. Advisor and Client, and
9. Other miscellaneous relationships.
Discussed below are important banker-customer relationships.
1. Relationship of Debtor and Creditor
When a customer opens an account with a bank and if the account has a
credit balance, then the relationship is that of debtor (banker / bank) and
creditor (customer).
In case of savings / fixed deposit / current account (with credit balance), the
banker is the debtor, and the customer is the creditor. This is because the
banker owes money to the customer. The customer has the right to
demand back his money whenever he wants it from the banker, and the
banker must repay the balance to the customer.
In case of loan / advance accounts, banker is the creditor, and the
customer is the debtor because the customer owes money to the banker.
The banker can demand the repayment of loan / advance on the due date,
and the customer has to repay the debt.
A customer remains a creditor until there is credit balance in his account
with the banker. A customer (creditor) does not get any charge over the
assets of the banker (debtor). The customer's status is that of an
unsecured creditor of the banker.
The debtor-creditor relationship of banker and customer differs from other
commercial debts in the following ways:

1. The creditor (the customer) must demand payment. On his own, the
debtor (banker) will not repay the debt. However, in case of fixed
deposits, the bank must inform a customer about maturity.
2. The creditor must demand the payment at the right time and place.
The depositor or creditor must demand the payment at the branch of
the bank, where he has opened the account. However, today, some
banks allow payment at all their branches and ATM centres. The
depositor must demand the payment at the right time (during the
working hours) and on the date of maturity in the case of fixed
deposits. Today, banks also allow pre-mature withdrawals.
3. The creditor must make the demand for payment in a proper manner.
The demand must be in form of cheques; withdrawal slips, or pay
order. Now-a-days, banks allow e-banking, ATM, mobile-banking, etc.
2. Relationship of Pledger and Pledgee
The relationship between customer and banker can be that of Pledger and
Pledgee. This happens when customer pledges (promises) certain assets
or security with the bank in order to get a loan. In this case, the customer
becomes the Pledger, and the bank becomes the Pledgee. Under this
agreement, the assets or security will remain with the bank until a customer
repays the loan.
3. Relationship of Licensor and Licensee
The relationship between banker and customer can be that of a Licensor
and Licensee. This happens when the banker gives a sale deposit locker to
the customer. So, the banker will become the Licensor, and the customer
will become the Licensee.

4. Relationship of Bailor and Bailee


The relationship between banker and customer can be that of Bailor and
Bailee.

1. Bailment is a contract for delivering goods by one party to another to


be held in trust for a specific period and returned when the purpose is
ended.
2. Bailor is the party that delivers property to another.
3. Bailee is the party to whom the property is delivered.
So, when a customer gives a sealed box to the bank for safe keeping, the
customer became the bailor, and the bank became the bailee.
5. Relationship of Hypothecator and Hypothecatee
The relationship between customer and banker can be that of Hypothecator
and Hypotheatee. This happens when the customer hypothecates
(pledges) certain movable or non-movable property or assets with the
banker in order to get a loan. In this case, the customer became the
Hypothecator, and the Banker became the Hypothecatee.
6. Relationship of Trustee and Beneficiary
A trustee holds property for the beneficiary, and the profit earned from this
property belongs to the beneficiary. If the customer deposits securities or
valuables with the banker for safe custody, banker becomes a trustee of his
customer. The customer is the beneficiary so the ownership remains with
the customer.
7. Relationship of Agent and Principal
The banker acts as an agent of the customer (principal) by providing the
following agency services:
Buying and selling securities on his behalf,
Collection of cheques, dividends, bills or promissory notes on his
behalf, and
Acting as a trustee, attorney,
representative of a customer.

executor,

correspondent

or

Banker as an agent performs many other functions such as payment of


insurance premium, electricity and gas bills, handling tax problems, etc.
8. Relationship of Advisor and Client
When a customer invests in securities, the banker acts as an advisor. The
advice can be given officially or unofficially. While giving advice the banker
has to take maximum care and caution. Here, the banker is an Advisor, and
the customer is a Client.
9. Other Relationships
Other miscellaneous banker-customer relationships are as follows:
Obligation to honour cheques : As long as there is sufficient
balance in the account of the customer, the banker must honour all
his cheques. The cheques must be complete and in proper order.
They must be presented within six months from the date of issue.
However, the banker can refuse to honour the cheques only in certain
cases.
Secrecy of customer's account : When a customer opens an
account in a bank, the banker must not give information about the
customer's account to others.
Banker's right to claim incidental charges : A banker has a right to
charge a commission, interest or other charges for the various
services given by him to the customer. For e.g. an overdraft facility.
Law of limitation on bank deposits : Under the law of limitation,
generally, a customer gives up the right to recover the amount due at
a banker if he has not operated his account since last 10 years.
So, these were some important banker-customer relationships.