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 Banker-Customer Relationship.

 Debtor and Creditor: The opening of an account with a bank


and a banker's acceptance thereof involve a contractual
relationship by implication. The depositor is only a creditor, and
there is no entrustment to the bank for any particular purpose.
The bank is liable to refund the money when demanded; but the
money deposited belongs to the bank and the bank is entitled to
deal with it as it likes. Thus, a banker when he deals with his
customer is primarily in the position of a debtor to his creditor,
or vice versa, when the customer has an overdraft.
 The basis of the general relationship between a banker and a
customer is clearly that of a debtor and creditor. This was
described in the Folley vs. Hill, 1848, as follows:
 Money, when paid into a bank, ceases altogether to be the
money of the principal; it is the money of the banker, who is
bound to return an equivalent by paying a similar sum to that
deposited with him when he is asked for it. The money paid into
the banker's is money known by the principal to be there
for the purpose of being under the control of the banker; it is
then the banker's money; he is known to deal with it as his
own; he makes what profit he can, which profit he retains to
himself, paying back only the principal, according to the custom
of bankers in some places, or the principal and small rate of
interest, according to the custom of bankers in other places.
That being established |the relative situation of banker and
customer, the banker is not an agent or factor but is a debtor."
 Although the relationship between a banker and a customer is
mainly that of debtor and creditor, it differs from similar
relationship of debtor and creditor of ordinary commercial
debts in the following respects:
 (a) The creditor (customer) must demand payment from debtor
(banker): In a banker-customer relationship, the customer
(creditor) must demand payment from the bank (debtor),
whereas in the : of an ordinary commercial debt, the debtor
must pay the amount on the specified date as per the items of
the contract.
 The creditor (customer) must demand payment the proper
place and time. A proper place means the office or branch of a
bank in which the customer has an account. A bank may have
many offices or branches, but the customer can demand
Payment only from the office or branch where he has account.
In Indo Allied Industries Ltd. vs. National Bank Ltd.
(A.I.R., 1970, Allahabad 108), Allahabad High Court observed
that in the absence of an express contract to the contrary, there
an implied contract with a customer who opened an account
with the branch of a banking concern, carried with it the duty
of the bank to pay the customer only at the branch where the
account was kept, subject to instructions to transfer the amount
elsewhere.
 The creditor (customer) must demand from the debtor (banker)
in a proper manner: customer can demand payment from the
bank only in the manner prescribed by the rules of a or in
accordance with usage. The statutory definition of a bank itself
shows that deposits withdrawable by cheques, drafts, orders or
otherwise.
 Banker's Right of Set-off:
 The right of set-off is a statutory right which enables a banker
to combine two accounts in name of the same customer and to
adjust the debit balance on one account with the credit balance
the other. The following points must be noted in connection
with the use of this right by a bank. A bank may exercise the
right of set-off not only in the case of two accounts of a
customer the same branch of the bank but also in the case of
two or more accounts of the same customer different branches
of the same bank. The right of set-off may be exercised subject
to the fulfillment of the following conditions. Both the accounts
of the customer must be in the same name.
 A Customer has no Right of Set-off or an appropriation:
 Although a banker has the right of set-off between two or more
accounts of a customer before making any payment,
 A customer has no facility of getting two or more considered
before the banker pays his cheque. In Mohammed
Hussain .vs. Chartered Bank, 1965, the appellant had an
account in a Madras branch of the Chartered Bank and another
in its Karachi branch. Banker agreed to provide Rs. 3.50 lakhs
overdrafts to the appellant, which was later reduced to 2.50
lakhs. The appellant wrote one cheque on the Madras branch
which was returned with the Cheque is far more than overdraft
amount. The customer claimed that he had enough funds
account in the Karachi branch and if that was taken into
account, the cheque would never have dishonored. The Court
held that the banker had the right to set-off between different
accounts customer, but that the customer had no such right.
 Banker's Right of Appropriation
In normal course of business, a banker receives payments from
customers. In case a customer taken more than one loan or
has more than one loans or has more than one account with
the bank, question of appropriating the amount deposited by
the customer arises. The customer has, , the right to direct the
bank to appropriate the amount to any of the accounts of the
customer. In absence of any such direction from the customer,
the banker shall have the right to appropriate payment to any
debt or account according to his discretion. But the banker
should inform the customer accordingly.

 Banker's Right to Charge Interest on loan and Other Charges


etc.

 Banker's Obligation to Honour Cheques: A banker is under


statutory obligation to honour cheque drawn by a customer so
long as his balance is sufficient, provided that the cheques are
presented within a reasonable time i.e. 6 months
 Garnishee Order:
The bankers obligation to honour a customers cheques is
extinguished on receipt of court order is known as garnishee
order which is issued under order 21, Rule 46 of the code of civil
procedure,1908.Garnishee order is an order of a court prohibiting
it from making any payment to customer account.
 An account which is opened in the name of two or more persons
is called a joint account. Joint account cannot be attached under
the Garnishee Order if only one of the accountholders is a
judgment debtor. But if both or all the accountholders are
judgment debtors in any legal proceedings, the account can be
attached.
 Partnership Account
 For the debts incurred by a partnership firm, the personal
accounts of all the partners can be attached in addition to the
account of the firm, because the liability of the partners is both
and several. When a partner is a judgment-debtor in his
individual capacity only his individual account may be attached
and not that of the firm or of another partner.
 Wrongful Dishonor
If a banker, without justification, dishonours his customer's
cheque, he makes himself liable to compensate the
customer for injury to his credit (Marzetti vs. Williams, 1830).
According to Sec 31 of the Negotiable Instruments Act, 1881,
the words "loss or damage" do not mean only pecuniary loss,
but also loss of credit or injury to reputation.
 Secrecy of Accounts: A banker should take care not to
disclose the condition of customer's account except on
reasonable and proper occasions. This obligation to observe
secrecy of account does not end even with the closing of a
customer's account. (Tousier Case 1924). It implied contract
between a banker and his customer that the former will not
divulge to a third person the state of the latter's account
without his express or implied consent.
 Reasonable and proper occasions for disclosure may be:
Under compulsion of law: For example, under orders of the
Government, a Court or of Income Tax authorities, etc.
Under the Income Tax Act, 1961: Vide Sections 131 and 133,
Income Tax authorities powers to call for the attendance of
any person or for necessary information from a banker for
purpose of assessment of the bank's customers.
Under the Companies Act, 1956- When the Central Government
appoints an Inspector to investigate the affairs of any
company under Section 135 or Section 137, the banker
produce all books and papers relating to the company.
Court's Order : A Court may also order banker to disclose
information relating to a customer's accounts.
Reserve Bank of India Act, 1934: The Reserve Bank of India
collects credit ion from banking companies and also furnishes
consolidated credit information to any company. Every banking
company is under a statutory obligation under Section 45B of
the Bank of India Act, 1934, to furnish such credit information
to the Reserve Bank.
 Disclosure to Police: Under Section (3) of the Criminal
Procedure Code, a banker should produce his account books
before the police. The police officers conducting an
investigation may also inspect a banker's books for the
purpose of such investigations.
 Risk of unwarranted and unjustifiable disclosure: The
obligation of the banker to keep secrecy of the customers
accounts even after the account is closed. If banker discloses
information unjustifiably he shall liable to customer and third
party:
 Liability to the customer: The customer may sue banker for
damages suffered by him as result of disclosure.
 Liability to third parties: The banker is responsible to the third
parties also to whom such information is given if-
(1) The banker furnishes such information with knowledge that it
is false.
(2) Such party relies on the information and suffers losses.
 Termination of Banker-customer relationship:
 By mutual agreement
 On death of the customer
 On insolvency of the customer
 Insanity of the customer
 Winding of the business
 Garnishee order on the customers account

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