Chapter: II

Bankers and Customer Relationship

Today in the present era of modernization, globalization, liberalization and

privatization the importance of banking sector is continuously increasing. The
banking habits of the people in the country has been tremendously increasing and
the number of bank offices has been continuously increasing. It reflects in
deposits, branch expansion, total credits etc. which shows an increasing trend
from previous years. It creates a mutual relationship between bankers and
customers.

It does not comes in mind of any person that when a person opens an
account in a bank, a contract between that bank and that customer come in
existence. The works of opening an account is very simple and short. A customer
has to fill up a form and put his signature on it. Other requirements will be done
by bank itself. From this activity a debtor-creditor contractual relationship
establishes between the banker and customer.

The relationship between the banker and customer depends on the

activities, products or services provided and avoided to the consumers by their
bank. It means that this relationship between a bankers and customers is
transactional relationship. The activity and life of a bank depends on its
customers. Here “trust” plays a vital role in making good relation between both of
them.

Banker:
Dr. H. C. Hart says that a banker or a bank is a person or company aiming on the
theme of the business of collecting and receiving money and drafts for customers
subject to the obligation of honoring cheque drawn upon them from time to time
by the customers to the extent of the amounts available in their current accounts.

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 This definition means that a banker accept the money on current and
saving account and collect the cheques and drafts on behalf of the customers. It
also makes the payment across the counter on customer’s demand to the extent of
their account or up to the sanctioned limit in the case of overdrafts. The main
business of the banker is only banking activities.

According to H. P. Sheldon the main function of bank is of receiving

money from its customers and repaying it by honoring cheques. It is the main line
business of a bankers or a bank which distinguish it from other tracks of business.

In England the definition of a banker or bank makes a huge confusion

because there is no legal definition of a bank provided by law. In Malaysia, it is
defined in the banking act 1973 as an institution that has been granted a banking
license from the authority.

This question is very typical to answer that what is a bank because

sometimes a person may be a bank or sometime it may be an organization. Hart
says that “a person or company carrying on the business of receiving money and
collecting drafts for customers subject to the obligation of honoring cheques
drown upon them from time to time by the customer to the extent of the amount
available on their current account”. A banker is defined as an individual,
partnership or cooperation whose sole or dominated business is banking, that is
the receipt of money on current and saving account and the payment of cheques
drawn by and the collection of cheques paid in by a customer. Here it is very
important that if the business of banking is subsidiary to other major business
carried out by a company than it is not a bank.

“Paget” gives an another definition of banking, “ no one and nobody

corporate or otherwise can be a banker who does not conduct current accounts,
pay cheques drawn on himself and collects cheques for his customer”2.

In India, the Banking regulation act, 1949 defines what banking is, as per
sec. 5 (b) of the B. R. Act, “Banking means accepting for the purpose of lending

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or investment, of deposits of money from the public repayable on demand or
otherwise and withdrawable by cheque, draft, order or otherwise.”

As per sec. 3 of the Indian Negotiable Instruments act, 1881 ‘banker

includes any person acting as a banker and any post saving bank.’

According to Sec. 2 of the Bill of Exchange Act, 1882, ‘banker includes a

body of persons, whether incorporated or not who carry on the business of
banking.’

Sec. 5 (c) of Banking Regulation act defines “Banking Company” as a

company that transacts the business of banking in India. It undertakes the banking
related activities. The meaning of a banker is:

(A) Accepts receipts from public.

(B) Lends it.
(C) Invest it in various activities.
(D) Withdraw of deposits on demand or by any other way.

Customer:

Sir John Paget, “To constitute a customer, there must be some

recognizable course or habit of healing in the nature of regular banking business.
It is difficult to reconcile the idea of a single transaction with that of a customer.
The word customer surely predicates even grammatically, some minimum of
custom antithetic to an isolated act. It is believed that a tradesman differentiates
between a customer and a casual purchaser.” There are two aspects which
constitute a customer;

(A) There must be some course of habit of dealing between the person and
the bank.
(B) These transactions must be in the nature of regular banking business.

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 It is very important to know that who is a customer and at what point of
the dealing does he becomes customer. The word customer involves use and
habits. It is a well-known fact that there must be an account, either a deposit or a
current account or some other relation to be a customer of a banker. A person
qualifies as a customer only after he has opened an account with the bank.

In India, the definition of the word “customer” has not been defined by the
law or any act. This word comes into practice from the word “custom” means a
habit or tendency. It means to repeat certain activities in a regular or particular
manner. Section 131 of Negotiable Instrument Act says that when a crossed
cheque has been received by a banker in good faith and without negligence for a
customer, the bank does not incur any liability to the true owner of the cheque by
reason only of having received such payment. It means that to become a customer,
account relationship is must.

There are many persons in the society who constructs banking transactions
which a bank but there is many other peoples who utilize the banking services but
do not open an account with the bank. We can categories the customers of
banking sector as under;

(1) Those who established and maintain an account relationship with banks
are- existing customers.
(2) Those who had account relations with bank are- former customers.
(3) Those who do not maintain any account type relationship with banks but
visit the bank regularly for draft, cheques etc. are-purposes customers.

The term customer is used only with respect of that branch, where the
account is maintained. He can’t be treated as a customer in other branches of the
same bank. But now with the implementation of core banking system the
customer is the customer of bank and not of that particular branch where he has
the account he can operate the account from any branch of the bank in the

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country. If any problem exists he has to contact the particular branch where he has
opened an account.

“Know your Customer” guidelines issued by R.B.I., customer has been

defined as follows;

(i) A person or entity established an account and has a business

relationship with the bank.
(ii) One person on whose behalf the account is maintained.
(iii) Beneficiaries of transactions conducted by professional intermediaries,
such as stock broker, C.A, solicitors etc. as permitted under the law.
(iv) A person or entity connected with a financial transaction, which can
pose significant reputational or other risks to the bank.

Banker – Customer Relationship:

Banking is a business of faith in which the relationship based on the trust.

Various types of relationship finds between the bank and its customer. This
relation is based on the type of transactions between the customers and bankers.
Therefore the relationship is based on contract and on certain terms and
conditions. This relationship gives some rights and obligations to both the
consumers and bankers. The personal relationship of banker and customer is long
lasting even generation to generation. It is fiducially in nature.

Types of Relationship between banker and customer:

Normally the relationship between a banker and customer is contractual.

We can categorize this relationship as;

(A) General Relationship (B) Special Relationship

Sec. 5 (b) of banking regulation act states that the main activities of a bank
are accepting the deposits for the purpose of lending. The relationship which
arises out from these two works is known as general relationship. Banks also

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undertake some other tasks described in sec. 6 of banking regulation act. The
relationship exists for these other tasks are known as special relationship.

General Relationship:

General Relationship between the banker and customer may be classified

as follows;

(1) Debtors-Creditors Relationship:

According to Sir John Paget, “The relation of a banker and a
customer is primarily that of a debtor and a creditor, the respective
position being determined by the existing state of the account. Instead of
the money being set a part in a safe room, it is replaced by a debt due from
a banker. The money deposited by a customer with the bank becomes the
latter’s property and is absolutely at his disposal.” Thus here exist and
established a relationship of debtor and creditor. Banker is the debtor. He
is bound to repay the deposited sum when demanded by the consumer
(Creditor). Then a consumer opens an account with a bank, he has to fill
and signs an account opening form. With this, he comes into a contract
with the bank, when he deposits money in his account, the bank becomes a
debtor of the consumer and the consumer becomes a creditor of the bank.
The sum of the money deposited in bank becomes the property of that
bank and he has the right to use that money anywhere. Banker is not
bounded to inform the creditors about the use of deposited money. Bank
has to repay the money when demanded by the consumer. Banker does not
pay money or repay the debt individually. The demand should be made at
the branch where the account exist and in a proper manner and during
working days and hours.
The consumer has to follow some terms and conditions mentioned
in the account opening form. For the help of Customers the terms and

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 conditions for opening account and other services provided by the bank.at
his website.

The banker is not an ordinary debtor in nature. An ordinary debtor

has to seek the creditor and pay the money, but a banker enjoys many
privileges and so he is called a privileges debtor.

The customer must come to the banker and make a demand in

writing to repay the money. Here the customer gets the payment only in
the branch of that bank. The banker is able to get money without giving
any security to the customer. It is not possible in the case of an ordinary
customer. Here the customer is unsecured creditor. It is really privilege to
the banker.

A banker can combine the accounts of a consumer if he has more

than one account in his name in the same bank. A normal debtor can close
the account of his creditor at any time but a banker can’t do so without the
prior approval of the customer

Some features of debtor-creditor relationship are as follows;

1. Banker is dignified debtor, it borrows money it is called deposit no
security should be given for borrowings.
2. Customer is an unsecured creditor as he is not having any charge on any
asset of the bank.
3. Customers balance at bank is not repayable until a demand of repayment
was made by the customer. There should be an express demand for it.
4. Banker should pay the deposit money on demand by the consumers.
5. The demand should be made by the consumer on working days and during
the business hours and it should be made in proper form.

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(2) Creditor-Debtor Relationship :
One of the most important activities of a bank is lending money on
credit. The resources which a bank mobilizes can utilize it for lending
purpose. Consumer who borrows money from the bank deposits it in the
bank again. In the case of the loan account, the banker becomes creditor
and the consumer becomes debtor. Here the relationship becomes creditor
and debtor. Here debtor gives and submits the documents and offers
security to the bank before utilizing the credit facility. Here again the bank
is a privileged person because it acts in a secure manner. It makes the
customers to submit adequate securities to get the facilities of credit. Here
the law of limitation operates from the date of loan credited.
H. P. shelondon states that “The banker when he receives money
from customers does not hold the money in a fiduciary capacity. To say
that money is deposited with a banker is likely to cause misapprehension,
what really happens is that money is not deposited with, but land to the
banker and the banker agrees to do. So it is to discharge the debt by paying
over an equal amount when called upon.

Special Relationship:

1. Bank as a Trustee :
As per sec. 3 of Indian Trust Act, 1982, “A trust is an obligation
annexed to the ownership of 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 and the owner, thus trustee is the holder of property
on behalf of a beneficiary.
As per sec. 15 of the Indian Trust Act 1982, “A trustee is bound to
deal with the trust Property as carefully as a man of ordinary providence
would deal with such property. A trustee is not responsible for the loss,

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 destruction or deterioration of the trust property. A Trustee has the right to
reimbursement of expenses. (Sec.32 of I.T. Act)

In the case of trust banker and customer relationship is of a special

one contract. When a person entrusts some valuable items with the other
and he has the intention that these items will be returned on demand than
this relationship becomes of a trustee and trustier customer keep certain
thing with the bank for safety purpose. In such cases banker acts as a
trustee,

In modern times the banker acts as a trustee for to give safeguard

the assets of the others. Many banks have established separate department
to look after this function. The customer can make a request to the bank to
keep the valuable assets for safety purpose. One may deposit some amount
in bank and request to manage it for a given period. Here the bank
becomes a trustee for debentures holders. Bank can collect the cheques
and hundis’ of the customer as a trustee. Thus there are various functions
which have to be done by bank in this relationship.

2. Bailey–Bailer Relationship :
Section 148 of Indian Contract Act, 1872, defines “Bailment”
“Bailer” and “Bailey”. A “Bailment” is the delivery of good by one person
to another for some purpose. When the target is completed, be returned or
otherwise disposed of according to the directions of the person delivering
them. The person who delivers the good is called a “Bailer”. The person to
whom the good are to be delivered is called “Bailey”
Bank gives security to the advances of people by obtaining tangible
securities. In some situations the physical possession of securities goods,
bonds etc. are taken. Bank becomes the Bailey while it takes the physical
possession of the securities and the consumer becomes bailer Banks also
keeps articles, Securities etc. of their consumers for safety purpose and

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 acts as a Bailey. It has to take care and look after the goods which are
bailed to it.

The customer may keep his valuable assets and goods in bank for
safety purpose. When the banker accepts it, it is called a Bailey. The banks
have to protect all the assets and valuable items in its custody. If any losses
occurs then bank have to bear this loss. If any loss which is beyond the
limit of the banker has occurred than bank has not to bear this because he
is not an insurer, he is only a bailey. The bank has to hand over all the
valuable things to the customers when demanded.

3. Agent - Principal Relationship :

There is various agency works which have to be done by the
banker as an agent. It collect cheque, drafts form the consumer, dividends,
interest of securities, pays fees, duties, subscriptions, premium on behalf
of the consumer. It acts as an agent to purchase and sell the corporate
securities for its consumer. Here the relation between the banker and
customer becomes agent principal relations.
The banks take the benefits of an agent. It is bounded by the
responsibilities which stipulated in law related to an agent. It should
convey the direction of its principal (Customer) and give all benefits to
him arrived out of the agency functions. It receives the commission on this
behalf.

“Sec. 182 of the Indian contract act, 1872 defines the agent as a
person or human being 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.”

Therefore an agent is a person who acts for and on the behalf of the
customer and under the latter’s express or implied authority and the acts

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 done within such authority are binding on his principal and the principal is
liable to the party for the acts of the agent.

As an agent it collects the cheques, bills and makes payment to

various authorities i. e. rent, telephone bills, premiums etc. on behalf of its
customers. Bank abides to the instructions of the customer according to
Indian contract Act, Agent is entitled to charges or commission.

4. Custodian :
Custodian is a human or person who as a caretaker of anything.
Bank and banker also takes legal responsibility of the securities of the
customer. In opening a d.mat account bank becomes a custodian.

5. Guarantor :
Banker gives the Guarantee on the behalf of their customers
Guarantee is a contingent contract. According to the sec. 31 of the Indian
contract act, Guarantee is a contingent contract. It is a contract to do or not
to do something, if some event, collateral to such contract, does or does
not happen.”

6. Lesser and Lessee :

According to sec. 105 of “Transfer of property act 1882” the
definition of lease, lessor, lessee, premium and rent as follows;
“A lease of immovable property is a transfer of a right to enjoy
such property, made for a certain time, express or implied, or in perpetuity
in consideration of a price paid or promised or of money a share of crops
service or any other thing of value to be rendered periodically or on
specified occasions to the transferor by the transferee, who accepts the
transfer on such terms.”

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The definition of Lessor, Lessee, premium and Rent;

(A) The transferor is called the lessor.

(B) The transfer is called the lessee.
(C) The price is called the premium.
(D) The money, share, service or other thing to be so rendered is
called the Rent.

Bank also provides safe deposit lockers to the customer. It is an

ancillary services provided by banks. Here the bank enters into an
agreement with the customer. This agreement is known as “memorandum
of letting” and attracts stamp duty.

Here the relationship of banker and customer is of lesser or lessee.

Bank gives the locker to the consumers on lease. It also leases their
immovable property to consumers and gives them the right to enjoy it
during the specified periods and defaults in payment of rent. There is no
responsibility of the bank on any damage to the content kept in the locker
as it is not the insurer.

The relationship of banker and a customer can be terminated for following

reasons;

(i) Death, insolvency and lunacy of the customer.

(ii) If a consumer closes his account. It is voluntary
termination.
(iii) Liquidation of the company.
(iv) By closing the account by bank by giving due notice.
(v) When the transaction of the contract between the consumer
and banker has completed.

In conclusions we can say that the primary general relationship exists

when the account is opened by the customer with the bank. This

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 relationship reflects in debtor and creditor. When the banker acts as a
trustee, agent or bailey for the valuable items establishes the subsidiary
relationship.

Some special relationship between banker and customer are also very
important. It is related to the mutual rights and obligation of the banker
and customers and involves some duties on the part of both.

Duties of Banker:

There are certain duties which have to be performed by the banker towards
his consumer. These are as follows;

1. Maintaining Secrecy:
It is a main duty of a banker to maintain the secrecy of consumer’s
account. It is not only a moral duty but bank is also legally bounded to
maintain the secrecy of customer’s affairs.
The bank discloses this fact to another person’s; it may harm the
consumer as well as bankers reputation. This duty can’t cease with the death
of consumer or the closing of the account.

According to Sec.13of “Banking Company’s acquisition and transfer

of undertakings Act 1970” Every corresponding new bank shall observe,
except as otherwise required by law, the practices and usages customary
among bankers and in particular, it shall not divulge any information relating
to the affairs of its constituents except in circumstances in which it is, in
accordance with law or practices and usage customary among bankers
necessary or appropriate for the corresponding new bank to divulge such
information.”

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 It is an implied term to maintain secrecy while opening the account.
This secrecy is also to be maintained in the usage of ATM and debit cards,
pins and about other main things.

Banker is responsible for any damage to the consumer in the case of

loss of money and reputation it falls in banker’s duty of secrecy.

There are certain circumstances under which a bank can disclose the
information of customer’s account. These are as follows;

(a) Disclosure under compulsion of law:

Banks can disclose the information about the customer’s accounts
to various authorities who by virtue of powers vested in them under
provision of various acts require banks to furnish information about
customer’s account. The information is called under;
(i) Sec. 4 of Banker’s book widened Act. 1891
(ii) Sec. 94(3) of code of civil procedure Act, 1908
(iii) Sec. 45(B) of R.B.I. Act, 1934
(iv) Sec. 26 of Banking regulation Act, 1949
(v) Sec. 36 of Craft tax Act, 1958
(vi) Sec. 131, 133 of income tax Act, 1961
(vii) Sec. 29 of industrial development bank of India Act, 1964
(viii) Sec. 12 of FEMA 1999.
(ix) Sec. 12 of the prevention of money laundering Act, 2002

(b) Disclosure at the will of customer:

The banker can disclose the state of affairs of the customer’s
account when the customer gives his consent to disclose the account.

(c) Disclosure in public interest:

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 If a Customer holds an illegal account which is against the interest
of the nations, the banker should disclose the account to proper authorities.

2. Facilities of Nomination:
It is the expression of the wish of a person to give his assets to his/her
nominee after the death. It is not will but it acts as a will. According to the
sections 45Z A to 45Z F of the banking regulation act, 1949, Banking companies
(Nomination) Rules, 1985 have been framed. It simplifies the process of claims of
deceased depositors and locker holders. In case of death of the account holder the
bank gives the payment to the nominee and also gives the locker to the nominee.
Nominee receives the money from the bank as a trustee of the legal heirs.
If the account is joint than the nominees right works only after the death of all
account holders. If the nominee is minor than the account holder can appoint any
person to get his amount after death during the minority of the nominee.

The nominee can be made while opening the account or by a request of

account holder any time. The number of nominees will be according to the type of
account. It is one in the case of single or joint deposit account and there will be
two nominees for a joint locker.

3. Insurance of deposits:
The deposits of all account holders all of the banks in India have been
insured by the deposit Insurance and credit Guarantee Corporation of India. It is
promoted by R.B.I. this corporation protects the deposits and infuses confidence
by providing deposit insurance on account of failure of banks. All types of banks
working in India falls under the range of this corporation. The insurance covers
the loss of all or part of consumers deposits to a maximum sum of Rs. 100000 /-.
It does not give the insurance facility to following deposits;
(i) Deposit of foreign governments.
(ii) Deposits of central/state government.
(iii) Inter banks deposits.

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 (iv) Deposits of Land development bank with APEX Bank.
(v) Any amount due on account of and deposit received outside India.

This corporation Charges the Premium 10 paisa per Rs. 100 of deposits per
annum. It is charged twice a year on 31st march and 30 September. If any damage
occurs, the corporation pays the amount of maximum Rs. one lace to the depositor
through the liquidator within two months.

4. Duty to provide Proper accounts:

Banks are bounded to provide proper accounts to the consumer about
all the transactions dons by him. Bank givens the statement of accounts pass
book to the consumers containing all the credits and debits in the account.
5. Duty to honor cheques:
Banking means accepting of deposits withdrawal by the cheque, draft,
and order or otherwise, the banker is bounded to honor cheques issued by the
consumers of their accounts.
Sec. 31 of Negotiable Instrument act 1881 “The drawer of a cheque
having sufficient funds of the drawer in his hands properly applicable to the
payment of such cheques 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.” So it is a necessary duty of a bank to honor
the cheques issued by the account holder if;

(i) It is properly dated; amount is properly explained in figures and

works, and duly signed by the consumer.
(ii) The balance in the account is sufficient and properly applicable for
payment.
(iii) The cheque has been presented for payment on a working day in
working hours.
(iv) Endorsements on the cheque are regular and proper.
(v) The payment of the cheque is not counter demanded by the drawer.

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A Bank can cease the honor of cheques in following conditions;

(i) Stop payment request of the account holder.

(ii) Death of the drawer.
(iii) A garnishee order attaching the balance in the account or an
income tax attachment order received by the bank.
(iv) Drawer of the cheque becomes insolvent at the time of drawing the
cheque.

Bank can also refuse to honor the cheque if there is insufficient balance in
the account and if the cheque is not in order i.e. postdated, stale, payment
countermanded, amount in figures and words differs. If the balance held in
account are earmarked for some specific purpose and the remaining balance is not
sufficient to honor the cheque.

Right of the Banker:

The banker also has some rights. These rights can be classified as under;

(1) Right of General Lien:

Lien is the right of a creditor in possession of goods, securities and
other assets related to the debtor to retain them till the debt is repaid,
provided that there is no contract express or implied, to the contrary. It is
lien to retain the possession of goods and securities of which the
ownership vests in some other person and the possession can be retained
till the owner discharges the debt or obligation to the possessor. Bank has
the right to take care of the debt but not to sell it. Lien can be of two types;

(A) Particular lien :

It gives right to retain the possession of those goods on which the
dues have arisen. This is called the ordinary lien. If the bank has obtained
a particular security for a particular debt then the Bankers right gets
converted into a particular lien.

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(B) General Lien :
Banker has a right of general lien against his borrower. It confers
banks right in respect of all dues and not for a particular due.
It is a legal right of the bank it also avails in the absence of an
agreement. It does not confer the right to pledge. It gives the right to retain
possession of any good in the legal possession of the creditor until the
whole of the debt due from the debtor is paid.

Section 171 of Indian contract Act, 1872 confers the right of

general lien to banks. According to this section, “Bankers, factors,
wharfingers, attorneys of a High Court and policy brokers may, in the
absence of a contract to the contrary retain as a security for a general
balance of account any goods bailed to them; but no other person have a
right to retain as a security for such balances, goods bailed to them, unless
there is an express contract to the effect.”

Bank has the right of lien on those goods and securities which he
gets legally and stands in the name of borrower. It can exercise this lien on
the securities for the dues of the borrower; this right can be applied on
bills, cheques, promissory notes, shares, bonds etc.

(2) Right to set – off :

Bank has the right to set off the customer’s account. It is a legal
right which a bank has to set off a debt owed to him by a creditor from the
credit balances in other accounts of the borrower. It can be applied only
when there is no agreement express to the contrary. It is applicable in dues
and becoming dues certain and not contingent. It can’t be applied on future
debts. It can be applied on deposits that are due for payment.
This right integrates all credit and debit balances of a consumer at a
net sum due. This right can be applied on the deposits held in other
branches of the same bank. It can be applicable in positions of death,

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 insolvency and dissolution of a company after receiving an attached order.
This right is also available for time barred debts.
Bank can’t set off the credit balance of the personal account for a
joint loan account of the customer with other persons till both account
holders are jointly or severally liable.
This right can only come in practice after giving a notice to the
consumer of set off his account.
In some circumstances this right of set off automatically works.
These conditions are as follows;
(i) Death of the consumer.
(ii) When consumer becomes insolvent.
(iii) When received a Garnishee order on consumer account by court.
(iv) When received a notice of assignment of credit balance by
consumer.
(v) When received the notice of second charge of the securities.

This right can be applied in following conditions;

(i) If the account is sole of the customer.

(ii) The debt is certain and measurable.
(iii) There is no agreement to the contrary.
(iv) Funds should not be held in trust account.
(v) When a garnishee order is received.

(3) Right of Appropriation :

It is right of consumer to direct his banker when more than one
debt is running, the payment made by him should be appropriated if no
direction is given the bank can applied the right and pay any debt. Sec. 59,
60 and 61 of Indian contract act 1872 gives the following rules of
appropriation;

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 Sec. 59 Application of patent where debt to be discharged is indicated: (i.e.
as per borrower’s instructions)

Where a debtor, owing several distinct debt to one person, makes a

payment to him, either with express intimation, or under circumstances implying
that the payment is to be applied to the discharge of some particular debt, the
payment, if accepted, must be applied accordingly.

Sec. 60 Application of payment where debt to be discharged is not

indicated: (i.e. in the absence of express or implied intention of debtor)

Sec. 60 of the Indian Contract Act states that if the debtor does not
intimate or there is no circumstance of indicating how the payment is to be used,
the right of appropriation is vested in the creditor.

According to the Act, “Where the debtor has omitted to intimate and there
are no other circumstances, indicating to which debt the payment is to be applied,
the creditor may apply it at his discretion to any lawful debt actually due and
payable to him from the debtor, whether its recovery is or is not barred by the law
in force for the time being as to the limitation of suits.”

Sec. 61 Application of payment where neither party appropriates.

Where neither party makes any appropriation the payment shall be applied
in discharge of the debt in order of time. Whether they are not barred by the law in
force for the time being as to the limitation & suits if the debts are of equal
standing, the payment shall be applied in discharge of each proportionally.

Unless there is an agreement to the contrary, any payment made by a

debtor is applied first towards interest and thereafter towards principal. If a
customer has only one account and he deposits and withdraws money from it

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regularly, the order in which the credit entry will set off the debit entry is in the
chronological order, this is known as Clayton’s rule.

Rule in Clayton’s case:

The rule was laid down in famous Devayanas v/s. Noble. The rule applies
to running accounts like CC/OD with debit balance. The rule states that each
withdrawal in a debit account is considered as a new loan and each deposit as a
repayment in that chronological order.

(4) Right to Charge interest, commission, incidental charges and

commitment charges :

The banker has the right to charge the interest on amount advanced
processing charge for advance. Banker enters into an express agreement to
charge interest on outstanding balances.
Banker has an implied right to charge commission for the services
he renders to the customers. Bank can also charge the incidental charges
on unremunerated current accounts. Bank also charges the commitment
charges on overdrafts and cash credit accounts. It can be applied on the
unutilized portion of the sanctioned limit which does not earn any profit to
the banker incorporates commitment charge cause in overdraft and
commitment charges agreements.

(5) Right to Produce Books of Accounts:

Prior to the enactment of Banker’s Book Evidence Act in 1891, the
banker had to produce his book of account before the court as evidence in
the suits not connected to him. This caused greater inconvenience to the
bankers. To relieve the bankers from this hardship, Banker’s Books of
evidence Act was passed.

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 (6) Right under Garnishee order:
The term ‘garnishee’ is derived from the Latin word ‘garnish’
which means ‘to warn’. This order warns the holders of money of
judgments debtor, not to make any payments out of it till the court directs.
Garnishee order is issued by the court at the request of the judgments
creditor.

Conclusion:

The relationship between the banker and customer depends on the activities,
products or services provided and avoided to the consumers by their bank. It
means that this relationship between a bankers and customers is transactional
relationship. The activity and life of a bank depends on its customers. Here “trust”
plays a vital role in making good relation between both of them.

There are many types of relations between customers and bankers like, debtors-
creditors, bailey-bailer, agent-principal, lessor-lessee, etc. these relations are
depend on trust, if bankers maintain customers trust and customers maintain
bankers trust, then they make good relationship between each other’s without
good relationship bank con not progress.

There are some duties of bankers like, maintain secrecy, provided proper account
to customers, honor cheques, proper information give to customers for a good
relationship banker must play there duty’s properly.

In conclusion we can say that customers are depend on bankers and bankers are
depend on customers, and their relationship depend on trust by a trust they
maintain good relationship, a good relationship effects on banking business.

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References:

1. Agarwal O.P. (2010), “Banking and Insurance Published by Himalaya

House Mumbai”, Researcher wrote that consumer protection Act. 1986
2. Af-Tamini, H.A.H. and Iabnoun. N (2006), ‘Service Quality of Bank
Performance:
3. A Comparison of the UAE National and Foreign Bank’, Finance India,
Vol. XX, No. I, (March), pp. 181-197.
4. Ananthakrishon, G. (2004-05), ‘Customer Service in Banks’, Viniinaya,
Vol. XXV, No. 3, (otc. — dec.), pp. 49-56.
5. Arhold S. Rosenberg, June I, 2005, “Consumer Protection and Global
Debit Card TjSL Public Law Research Paper No 05-04

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