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, executor, correspondent or representative of a customer.
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.
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 of customer
     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)      He must have some sort of an account.
2)      Even a single transaction constitutes a customer.
3)      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.
 
Relationship between a banker and customer
 
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 customer’s 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.
     Banker’s relation with the customer is reversed as soon as the customer’s 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 bank’s 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 customer’s money is under a duty not to part with it which is inconsistent
with the customer’s 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.
 
 
6. Explain the special relationship between banker &
   

customer. OR What is the special relationship arising out

of general relationship between a banker and a customer.
OR What are the rights and obligations of a banker
towards a 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
banker’s duties are the customer’s rights and the banker’s rights are the customer’s 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:
 
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 customer’s cheques because, it is recognized under section 31 of the NI
Act, 1881-
     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 the banker is bound to honour his customer’s cheques provided the following
conditions are fulfilled-
(a)   Sufficient balance in customer’s 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
 
     Banker’s 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.
 
     Banker’s 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.
 
     Banker’s 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 Clayton’s 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.
 
     Banker’s 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.
 
     Banker’s 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
customer’s 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 customer’s 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 customer’s 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.           
                                                                                       
 
 
8. Explain the banker’s right of general lien.
   

 
     Lien means a legal claim to hold property as security. According to Halsbury, lien may be
defined as “a right in man to retain that which is in his possession belonging to another, until
certain demands of the person in possession is satisfied”.
     Lien is of two kinds- 1) specific or particular lien and 2) general lien
     A particular lien is one which confers a right to retain the goods in connection with a
particular debt only while a general lien is a right to retain all the goods or any property of
another until all the claims of the holder are satisfied. It extends to all transactions and thus
more extensive.
Banker’s right of general lien
     One of the important rights enjoyed by a banker is the right of general lien. 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.
Circumstances for exercising general lien
1)      No agreement inconsistent with the right of lien.
2)      Property must be possessed in his capacity as a banker.
3)      Possession should be lawfully obtained.
4)      Property should not be entrusted to the banker for a specific purpose.
Incidents of lien- lien attaches to
1)      Bills of exchange or cheques deposited for collection or pending discount.
2)      Dividend warrants and interest warrants paid to the banker under mandates issued by
the customer.
3)      Securities deposited to secure specific loan but left in banker’s hand after loan is repaid.
4)      Securities, negotiable or not, which the banker has purchased or taken up, at the
request of customer, for the amount paid.
Exceptions- banker has no general lien
1)      On safe custody deposits.
2)      On securities or bills of exchange entrusted for specific purpose.
3)      On articles lefty by mistake or negligence.
4)      On deposit account.
5)      On stolen bond.
6)      Until due date of the loan.
7)      On trust account.
8)      On title deeds of immovable properties.
 
 
9. What are the circumstances under which a disclosure by
   

banker is justified? OR Banker’s 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- Banker’s 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 bank’s customers.
(b)   Under the Banker’s Books Evidence Act, 1891- a banker may be asked for the Court
to produce a certified copy of his customer’s 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
banker’s 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
customer’s 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 customer- the 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 Banker’s 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  banker’s special customers? Explain the
          

precautions to be taken by the banker in opening and

operating their accounts.
                                                            
     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 bank’s 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 are-
1)      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 minor’s 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.
 
Lunatics
 
     Lunatics are persons of unsound mind. Lunatics are disqualified from contracting but the
disqualification does not apply to contract entered by lunatics during their period of sanity.
Following are banker’s duty n case of lunatics-
1)      Since a lunatic has no capacity to contract, acc to sec 11 of the ICA, no banker
knowingly opens an account in the name of a lunatic.
2)      If an existing customer becomes insane, the banker must immediately stop the
operation of the account. It is so because, the banker has no right to debit his account
for payment made out of his account from the moment, the banker knows the fact of
lunacy of customer, the contract between them is void.
3)      A banker must not be carried away by hearsay information or rumours. He must get
definite information about the lunacy of the customer.
4)      If a banker dishonours a cheque in a hurry, without having any proof of lunacy, he will
be liable for wrongful dishonour of cheque.
5)      It should return all cheques of customer’s account with the word ‘refer to drawer’ and not
‘customer insane’. It should make careful note of lunacy order.
 6)      If a third party is authorised to draw on customer’s account, that authority will cease
when the customer becomes insane since when a principal cannot act for himself his
agent can no longer act for him.
7)      If one party to an account opened in joint names becomes mentally incapable of
managing his or her affairs, the banker should not allow either party to operate the
account.
 
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 exists-
1)      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.
 
Joint Hindu families
 
     A JHF or a HUF consists of all persons lineally descended from a common ancestor and
included their wives. Following are the precautions to be taken by the banker in opening and
operating accounts in the name of HJF.
1)      The account may be opened in the name of karta or in the name of family business and
should be duly introduced.
2)      The account opening form should be signed by all adult coparceners, even though the
karta would operate the account.
3)      The declaration signed by all the members as to who is the karta and who are the other
coparceners including minor coparceners should be obtained.
4)      If there are minor coparceners, the other adult coparceners should sign for self and as
guardians of minors.
5)      Authority should be given to the karta to operate the account of all concerned under
their joint signature.
6)      On attaining majority, the minor coparceners should be asked to join with other
coparceners in signing the existing account opening form in ratification of previous
transactions.
7)      Any member of the HUF can stop payment of a cheque drawn by karta. When the bank
receives a notice about any dispute amongst the family members of the HUF, the
operations in the account should be stopped till further instructions from a competent
court.
8)      The burden of proof that loan was taken by karta for purposes beneficial to the family
lies on the banker. Thus before granting loans necessary enquiries should be made to
ensure it. Otherwise, the bank may not be able to succeed in a suit for recovery of debt.
 
Agent
     A person employed to do any act for another, or to represent another in dealings with third
persons, is known as an agent for another. The precautions to be taken by a banker in opening
and operating account of a customer by an agent are
1)      A banker should at once suspend all operations on that account upon hearing or being
notified of the principal’s death, insanity or bankruptcy.
2)      The agent must assign the cheque for and on behalf of the principal, so that the third
parties would know that he is dealing in a representative capacity.
3)      Whenever a bank receives a mandate, it should be recorded in a register, serially
numbered, indexed alphabetically, and instructions should be noted in the customer’s
ledger account.
 4)      In case the agent is authorised to open an account on behalf of the principal, the
application should be made to sign by the principal himself, delegating authority to agent
to operate the account.
5)      The agent should sign in a manner to indicate that he is signing as an agent.
6)      The banker should on no account allow the agent, or in fact any person to pay into his
own private account, cheques which he has endorsed on behalf another, without
satisfying himself that the agent has the authority of the principal to do so.
7)      A banker should not allow an agent to overdraw his principal’s account express with his
express authority.
 
Partnership firm
 
     A partnership is the relation between the persons who have agreed to share the profits of a
business carried on by all or anyone of them acting for all. The banker should take the following
precautions while dealing with a partnership firm.
1)      The banker should first know the provisions of the Part Act before he opens an account
for PF.
2)      The banker shall open an account in the name of a partnership firm only when an
application is submitted in writing by any one or more partners under sec 19(2)(b) of the
Act. Authority to open an account in the name of an individual partner is positively
denied.
3)      To be on safer side, a banker should get a written request from all the partners jointly for
opening an account.
4)      The banker should go through the partnership deed and carefully study the objects,
capital, borrowing powers etc. he should get a copy of the duly stamped partnership
deed. He should enquire about the details of the firm, partners and their powers. If the
firm is registered the banker should get a copy of the registration certificate. Dealings
with unregistered firms will involve risks.
5)      There should be a clear mandate from all the partners. Mandate must be signed by all
the parties.
6)      The banker should not mix the personal and private accounts of the partners. He has no
right to set off and lien over the accounts.
7)      No partner has an implied power to sell or mortgage the property of his firm. So in case
of mortgage of property, the deed of mortgage should be signed by all the partners.
8)      While advancing loans and advances to partnership firm the banks in practice get the
loan documents executed by the partners on behalf of the firm as also in their personal
capacity.
9)      Since a firm stands dissolved on insolvency or insanity of a partner, a cheque signed by
an insolvent partner before the date of adjudication should not be paid b the banker
without conformation from other partners.
 
Trust
 
     A trust is an obligation annexed to the ownership of the property, and arising out of a
confidence reposed in and accepted by the owner, or declared and accepted by him, for the
benefit of another, or of another and the owner.
     While opening accounts in the names of persons in their capacity as trustees, the banker
should take the following precautions.
1)      The banker should examine the trust deed concerning instructions regarding opening
and operating the account contained in the trust deed. In the absence of such
instructions, all the trustees may join in opening such account.
 2)      Instructions regarding limitation on withdrawal in the trust deed, if any, be prominently
noted at the ledger head and specimen signature card and withdrawals should be
restricted.
3)      The banker should note the objects for which the trust has been created so as to
facilitate the passing of cheques.
4)      A trustee has no individual powers. They must all act together. All must join in signing of
cheques. Unless expressly provided otherwise in the trust deed, no trustee can delegate
his power to another.
5)      If one of the trustees dies or retires, the bank on receiving notice should suspend all
operations in the account. However, if the trust deed is silent the bank can let the
operations to continue.
6)      In case of breach of trust the bank must see that it does not become a party to the
breach. The banker is justified in dishonouring the cheque drawn by a trustee, if
intended for breach of trust.
7)      If the trustees are authorised to borrow to discharge the functions of the trust, the
banker must get specific assets of the trust as security.
 
 
11.            What are the functions of commercial banks?
 
     The functions of commercial banks are very vast.
Meaning of CB- commercial banking refers to that banking which is concerned with the
acceptance of deposits from the public repayable on demand or after the expiry of a short
period and the granting of mainly short term credit to trade, commerce and industry through
wide networking of branches throughout the country.
 
Functions of commercial banks- the functions of CB are numerous. They can be broadly
divided into two categories. They are-
 
1)      Primary or basic functions
a)      Receiving of deposits- deposits constitute the main source of funds for commercial
banks. CBs receive deposits from the public on various accounts. The main types of
accounts are- fixed, current, savings, recurring (explain lil).
b)      Issuing notes/cheques- this function once considered to be the most paying part of
banker’s business is in modern times performed generally by the central bank. Its
importance has dwindles to a large extent in some developed countries where
cheque currency has replaced bank notes to a large extent.
c)      Lending of funds- it is the main business of CB. Advances form the chief source of
profit for CB. Banks lend funds by way of loans, over-drafts, cash credit, discounting
of bills.
                                                (i)      Loan- it is a financial arrangement under which an advance is granted by
a bank to a borrower on a separate account called the loan account. A loan
may short, medium or long term. It is granted either against collateral
securities or against personal security of the borrower.
                                              (ii)      Over-draft- it is a financial arrangement where a current account holder is
permitted by a bank to overdraw his account that is to draw more than the
amount standing to his credit upon an agreed limit.
                                             (iii)      Cash credit- it is a financial arrangement under which a borrower is
allowed an advance under a separate account called cash credit limit. Here
the borrower can withdraw the amount in installments as and when he needs.
                                            (iv)      Discounting of bills of exchange- here the bank takes a BOE maturing
from an approved customer and pays him and credits his account
immediately with the present value of the bill.
d)      Investment of funds on security- it is one of the imp functions of comm. Banks.
They invest a considerable amount of their funds in govt and industrial securities. In
India it is required by statute for CB to invest a considerable amount of their funds in
securities.
e)      Creation of money- the various ways of creation of money are-
                                                                  (i)      By advancing loans
                                                                (ii)      By allowing over draft
                                                               (iii)      By providing cash credit
                                                              (iv)      By discounting BOE
                                                               (v)      By purchasing securities
                                                              (vi)      By purchasing fixed assets
     The commercial banks are prominent in today’s world because they manufacture or create
money. The bank deposits are regarded as money coz they perform the same function as
money that is they increase the purchasing power of the community and serve as medium f
exchange in purchase of goods and services and settlement of debts.
 
2)      Secondary or subsidiary functions- apart from performing the main function the comm.
banks also perform a num of secondary functions which may be divided into the following
two heads-
a)      Agency services- the services rendered by a bank as the agent of his customer
are called agency services. The imp agency services are-
                                          (i)      Collection of money on behalf of customers.
                                        (ii)      Making payments on behalf of customers.
                                       (iii)      Purchase and sale of securities on behalf of customers.
                                      (iv)      Advising customers regarding investments.
                                       (v)      Acting as trustee, executor, and administrator of customers.
                                      (vi)      Rendering of merchant banking services.
b)     Miscellaneous or general utility services- services rendered by banker is not
confined only to his customers but also to general public called such as-
                                          (i)      Safe custody of valuables
                                        (ii)      Dealing in foreign exchange business
                                       (iii)      Issuing of traveller’s cheque, traveller’s letter of credit and circular notes.
                                      (iv)      Collecting information bout other businessmen for customers.
                                       (v)      Collection of statistics and data.
                                      (vi)      Lease financing.