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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 banker(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: SetThe right of set-off is a statutory right which enables a setbanker 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 settwo 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 setset-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 Setappropriation: Although a banker has the right of set-off between two or setmore 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 1965, 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 setaccounts 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 judgmentindividual 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 Accounts: 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 law: Government, a Court or of Income Tax authorities, etc. Under the Income Tax Act, 1961: Vide Sections 131 and 133, 1961: 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 1956Government 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 1934: 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
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 ifif(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: BankerBy 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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