BANKER CUSTOMER RELATIONSHIP

BANKER
A banker is the one who gets into debts and creates debts.

H.L. HART the banker is one who receives money, collects cheques and drafts, for customers, with an obligation to honour the cheques drawn by customers from time to time subject to availability of amounts in the account.
Section 3 of NI ACT 1881, and Section 2 of BILL OF EXCHANGE ACT 1882. state that the term banker includes person or corporation or a company acting as banker. Under Section 5 (1) of Banking Regulations of 1949, a banking company is defined as any company which transacts banking business.

Under Section 5 (1) B , banking business means accepting for the purpose of lending or investment, deposits of money from the public, repayable on demand or otherwise withdrawable by cheque , draft or otherwise.

CUSTOMER
A person who buys goods or services from a shop or a business entity. A person you deal with as a business entity. There is no statutory definition. A person/ company/entity who has an account with a bank is a customer. There is no unanimity as regards to the time period of the dealings. A casual transaction like encashment of a cheque does not entail a person to be customer. The duration of association of the customer with the bank is of no essence. A customer is one who has an account with the bank and to whom the banks undertakes to extend business of banking.

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CREDITOR-DEBTOR
Relationship between the customer having a deposit account and the banker. Depositor is the lender and the banker is the borrower. Depositor is the creditor and the banker is the debtor. The money handed over to the bank is a debt. The money once deposited in the bank becomes the money of the bank and it is prerogative of the bank to use that money as it deems fit. The depositor remains a creditor that too an unsecured creditor

RELATIONSHIP
DEBTOR-CREDITOR When the customer avails a loan or an advance then his relationship with the banker undergoes a change to what it is when he is a deposit holder. Since the funds are lent to the customer , he becomes the borrower and the banker becomes the lender. The relation is the debtor- creditor relation, the customer being a debtor and the banker a creditor.

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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.

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BENEFICIARY-TRUSTEE/ Bailor Or Bailee If a customer keeps certain valuables or securities with the bank for safe-keeping or deposits a certain amount of money for a specific purpose, the banker, besides becoming a bailee, is also a trustee. The money or the securities so kept are not at the disposal of the bank. The banker cannot utilize those moneys or securities as he desires since the money does not belong to him. Here there is delivery of goods or securities from one person to the other which amounts to the bailment. As per section 148 of Indian Contract Act 1872, the delivery of goods from one person to the other for some purpose upon the contract that the goods will be returned when the purpose is accomplished. The customer is the bailer and the banker is the bailee.

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PRINCIPAL-AGENT Banks provide ancillary services such as collection of cheques, bills etc.They also undertake to pay regularly the electricity bills, phone bills etc. The relationship arising out of these ancillary services is of principal-agent between the customer and the bank. The relationship seizes once the customer dies, becomes insane or becomes insolvent. The proceedes of the cheques sent for collection,which are in transit, not created to the customer account are not the moneys of the banker till such time as they are credited into the customer account.

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LESSEE-LESSOR The banks provide safe deposit lockers to the customers who hire them on lease basis. The relationship therefore, is that of lessee and lessor. In certain banks, this relationship is termed as licensee and licensor. The bank leases out the space for the use of clients. The bank is not responsible for any loss that arises to the lessee in this form of transaction except due to negligence of that bank.

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The relationship between banker and customer can be that of Bailor and Bailee. 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. Bailor is the party that delivers property to another. 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.

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Hypothecator and Hypothecatee
Hypothecation is to pledge personal property, or a ship, as security for a debt without transferring possession or title. 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.

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.

OBLIGATIONS OF THE BANK

Obligation to honour the cheque Under section 31 of NI Act 1881, the banker is obliged to make payment of the cheque ,with mandate, properly presented, provided there is balance in the account. However, when a garneshee order is served on the banker, the banker may seek refuse under order 21 of code of civil procedure 1908 and the banker may not pay the cheque when such order is served.If a debtor fails to pay the debt to the creditor, the latter may approach a court of law to issue a garneshee order on the banker of his debtor.

OBLIGATIONS OF THE BANK

Obligation to maintain secrecy Section 13 of banking companies Act 1970 stipulates the banks to maintain secrecy of their customers accounts and dealings with them. However there are exceptions.The exceptions are : When law requires When the practices and usages among bankers warrants exchange of information.

RIGHTS OF BANKER
Right of general lien- Lien is the right of the creditor to retain the goods and securities owned by the debtor untill the debt due from him is paid. It conferes upon the creditor to retain the securities of the debtor. It does not confer the right to sell. There are two types of liens General lien and particular lien. Section 171 of Indian contract Act 1872 conferes general lien on bankers. Bankers lien is tantamount to implied pledge. The reason being the banker is bestowed with a right even to sell securities without the intervention of the court. Pledge Section 172 of Indian contract Act 1872- bailment of goods as security for payment of a debt or performance.

RIGHTS OF BANKER
Right of set off The mutual claims of a debtor and a creditor are adjusted together and only the remainder amount due is payable. Right of appropriation - If the customer has more than one loan account , the customer can direct the repayment of the loan as credit into any other accounts. If there is no specific directions from the customers the banker has a right to appropriate as per his choice. Right to charge interest- As a creditor the banker has right to charge interest on the funds he lends as per the norms and as per the contract.