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August 22, 2014

Special Relationship between Banker and Customer

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Friends, in our previous post we have discussed about the General Relationship between Banker and Customer. Today we shall see the Special relationship. The opening of an account by a customer with a banker creates an obligation on the banker towards its customer in respect of certain rights and responsibilities. Those rights and responsibilities are also known as "Special Features of Relationship between a Banker and Customer". The following are the special relationships between banker and customer :
  1. Banker's obligation to honor the cheques,
  2. Banker's lien
  3. Banker's duty to maintain secrecy of customer's accounts and
  4. His right in respect of combining accounts
  5. Banker's Right to Set-off
Now let's have a detailed look at them

1. Obligation to honor cheques : According to Sec. 31 of the Negotiable Instruments Act, 1881, every banker must honor the cheques drawn on it by a customer, provided :
  • the customer has sufficient amount of balance to his account with the banker;
  • the funds are properly applicable to the payment of such cheque;
  • the banker has been duly required to pay;
  • the cheque has been presented to the banker within a reasonable time (i.e., within six months) after the apparent date and of its issue;
  • no prohibition order of the court or any other competent authority (e.g., income tax) is standing against the account of the customer. 
2. Banker's Lien : A lien may be defined as the right to retain property belonging to a debtor until he is discharged of his debt due to the retainer (creator) of the property. The banker's lien refers to the right of banker over such of his customer's securities as may come into his possession in the ordinary course of business. According to Sec.171 of the Contract Act, a banker has a general lien on cash, cheques, bills of exchange and securities deposited with him.

Conditions required for the banker to exercise general lien
  1. The securities and goods must come to his hands in his capacity as a banker. 
  2. The banker should have obtained the possession of the securities and goods lawfully.
  3. The goods or securities should not have been entrusted to the bank for a specific or special purpose. 
  4. The goods and securities, held by the bank shall stand in the name of borrower only and not jointly with others. 
  5. There must be no arrangement either express or implied that is inconsistent with the banker's right to lien. 
3. Secrecy of Customer's Accounts : It is an obligation on the part of a banker to maintain secrecy about the customer's accounts. The banker must not disclose any information pertaining to the customer to any one. But there are certain exceptions. They are,
  1. Where such disclosure is required by law
  2. Where such disclosure is in public interest to disclose
  3. Where the interest of the bank require such disclosure
  4. Where disclosure is made by the express or implied consent of the customer; and
  5. Where such disclosure is permissible on account of banking practices.
4. Banker's Right to Combine Accounts : The banker has a right to combine several accounts kept by the customer at the same branch or different branches of the bank (Garnet V. Mc Kervan). The banker however, cannot combine the personal account of a customer with a joint account of a customer and some other person. Customer has no right to treat two accounts as one. 

5. Banker's Right to Set-Off : The banker can adjust a debit balance to a customer's account with any balance standing to the customer's credit. While doing so, the banker gives due notice to the customer. To exercise the right of set-off the following conditions should be fulfilled;
  1. The debts are certain and are due. The right cannot be exercised against future debt / or contingent debts. 
  2. The debit and credit balances are of the same person in the same capacity. 
  3. There should not be any express or implied agreement to the contrary.
6. Banker's Right of Appropriation : As a part of ordinary banking business, the banker receives deposits of money from his customer. The customer has the right to dictate as to which account a particular amount is to be credited where he has more than one account and / or loan account. In case the customer has not appropriated, i.e., not indicated his account to which the said amount is to be credited, the creditor is at liberty to apply the payment to any debt owed by the debtor including to a debt barred by limitation.

7. Banker has a right to claim incidental charges : Every banker has a right to claim incidental charges on unremunerative accounts of a customer, e.g., collection charges, remittance charges for drafts, etc. 

Termination of Relationship between a Customer and a Banker

As a rule, as long as an account (either deposit or loan) exists, the relationship between a banker and a customer would continue. The relationship would come to an end under the following circumstances or conditions. 
  1. If the customer dies;
  2. If the customer becomes an insolvent;
  3. If the customer becomes an insane;
  4. If the customer closes his account;
  5. If the banker closes the customer's account
  6. If the court orders the bank to close the customer's ccount
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