- ker ana we pint stock cor gon. A fie, Joint Tan Je a person A ttion to Section 45-7, of 4 fi EXP F includes 2G explaomer” includes a Govern, It ty (1) the dealing between the bank business, Acustomer of a banker need not necessttll/ Tay society oF any separate fegal ently may Be BAe 7 ) ‘ 100 Banking Regulation a, W349, ‘larifies that in hat lpn f department and a corporation incor? jed by OF ETWEEN BANKER 8 banker renders a tend a er with agency of 4," GENERAL RELATIONSHIP BI In addition to his primary functions: ee The relationship between them primarily !S that o} 5 the form: as an agent or trustee of his customer If the ‘a trustee simultaneoysy, Work. In such cases, the banker acts a5 debtor, 4 Yb in relation to the specified business: ing 0! 1. Relationship as Debtor and Creditor. On there i of ne customer's MONEY be ie is not a depository OF My due from him to the custome, yn that it will not be opened, the position of a debtor. sone tre Proney handed over to, the banker BEC : fe custody on the conditio n tthe depositors’ money on gy a depository accepts something for sal replaced by coeriar commodity. A banker dort not a ker Pe eiantienes condition. The money deposited by the customer with amording to his diser : Lent the customer to the banker, who makes use of the ane penkee ve achakie bank tion. Th, creditor has the right to demand back his money from a ie ee moe is und, an obligation to repay the debt as and when he ea dteoinal The necessay that the repayment is made in term® of the same currency P 7 Payment, course, must be made in terms of Jegal tender currency of the country. "A depositor remains a creditor of hetpanker so long as his account carries a cg ‘charge over the assets of his debtor/banker and remains, n of deposit insurance in India balance. But he does not get any h unsecured creditor of the banker. Since the introductio t ‘ninimised as the Deposit Insurance and Cr 1962, the element of risk to the depositor is Guarantee Corporation undertakes to insure the deposits up to a specified amount! Banker's relationship with the customer is reversed as soon as the customer's account ‘awn, Banker becomes creditor of the customer who has taken a loan from the banke and continues in that capacity till the loan is repaid. AS the loans and advances granted’ a banker are usually secured by the tangible assets of the borrower, the banker becomes: secured creditor of his customer. an account the banker assy, overdrs T piscussed in Chapter 4. —2. dl Customer Banker an’ ween jebtor aship between a banker and his customer is mainly that of a d\ att inary out of ordi ne FUE onship differs from similar relationship arising oud, mls f following respects ‘ st gents ¢ Demand Payment. In case of ordinary commercial debt. the — yi gator MUSE “hecified date or earlier or whenever demanded by the creditor a8 Pot og OTE nt ON NE NA" But in case of a deposit in the bank. the debtor/ban el a finest uke “OR Gmount on his own accord, It 1s essential that the depositor Patio reP8Y and for the payment of the deposit in the proper manner. This eth an eed ye a AME at a banker ts not an ordinary debtor: he accepts the depos g amount te mM ye fact Oe honour his customer's cheques. If he returns the deposite ‘ght ve © gbligalo’ ‘Cjosing the account, some of the cheques issued by the depositor ™ ent “accord vats reputation might be adversely affected. Moreover. according (© Te nsomoured 20°F banking, the deposits are repayable on demand or otherwise. The ry aesillO”’ © deposit for his convenience, apart from his motive to earn an — ator make’ count). Demand by the creditor is, therefore. essential for the refund of oat cen “thus the deposit made by a customer with his banker differs substantially acre ea es rainary debt. i be made at the i e and Time of Demand. The demand by the creditor must PrP, er in proper time. A commercial bank, having a number of branches. 1s ylace 55 a ¢ entity, but the depositor enters into relationship with only that branch 7 jered to be On he deposit must “onside! unt is opened in his name. His demand for the repayment of the depos! cots an acct were t the same branch of the bank concerned otherwise the banker is not bound das pemade at mitment. However, the customer may make special arrangement with sour bis Me repayment of the deposited money at some other branch. For example. in case parker for travellers cheques, etc. the branch receiving the money undertakes to repay {bank ora ca branch or at any branch of the bank. Now with the introduction of Core stata SF ations, branches are inter-connected with each other through computers and are tee facility of encashment of cheques at other branches also. itisalso essential that the demand must be made during banking hours only on a working ayof the bank. If the banker makes payment after or before the banking hours, he might be tid liable for the same." (ii) Demand must be made in Proper Manner. According to the statutory definition o! tanking, deposits are withdrawable by cheque, draft, order or otherwise. It means that th« demand for the refund of money deposited must be made through a cheque or an order a per the common usage amongst the bankers. In other words, the demand should not b made verbally or through a telephonic message or in any such manner. 2. Banker as Trustee. Ordinarily, a banker is a debtor of his customer in respect of t) deposits made by the latter, but in certain circumstances he acts as a trustee also. A trust tolds money or assets and performs certain functions for the benefit of some other pers called the beneficiary. For example, if the customer deposits securities or other valuab bah banker for safe custody, the latter acts as a trustee of his customer. The custon mes to be the owner of the valuables deposited with the banker. The legal positior sbanker as a trust ee, therefore, differs from that of a debtor of his customer. In the fort T Discussed in Chapter 9, a, —s|5 own and le srerenined according Ir 0 ‘ne orcinary cour aston) Diisingst or (OF FEAIOT. 1 cage Seithont ny specific rection from the H.itn an panes ost aaron eines ete, deposited with the Bante reine PUES qed OF eae 5 seen emtued by ascertaining whether front 88 Me gent fF colle mora oe tamer'a account or not, For example, Gime of 0 Hee an credited. cost banker, the bank: vmprine cheae 18 Tre account. {he collecting bany ®t fe same oom the paying Pant. the fay, 1d will not be avant i er acts as a truste account and thereafter he will be the debtor f0F Shee ts ately rg 0 te Ufstomer an ¢ bank. = nase certain securit tes ou 2.4 vot tre ‘of Ha him are iors in case a debt case the mor : ney or documents held BY for distribution amongst his general ered The position of a banke trustee or circumstances of each case, If hi before the payment of the so realised after the failure of the bank will f “ral creditors to pure! aking such purchase, the bank, ‘espect of the amount for distribution amongst the gen On the othe in customer instructs: pr hand. ifa customer INSITE pefore Sustee) 1m FesP' nt nis specific instruction his deposit with the latter, but the ban a aepetto be a debtor of his custorr™) (and not 8 eyo on yithdrawn from or debited (° js account ona trustee and bene ‘The relationship between the panker 2 cr former regardiny depends upon the ‘specific structions given PY the Inte 1 jew Bank of i the Pati of use of the money oF ‘documents entrus to the DANKET. Court observed in the Ltd», Pearey Lal (A.LR. 1962, ‘Supreme Ct rt 1003), He ee Maa constituent of the b; abs gyother evidence a person vino a bank WHEE. anker ordinarty Melathess fnay be presumed to have paid the money f0 be held a8 BAN me of payment o Money their constituents. If no specific # structions are given at ie does not ther ma thereat, and even if the money 15 held in a ‘Suspense ‘Account the pani eating with b y become trustee for the amount paid. In ‘other words: when 4 aid snd debt os ANK deliver money to a bank the intention to create ‘relationship of ore tor ; ror between him ay the bank is pres unless this presumption rebutted. For —— le, (i) when the mong is paid to a bank wit ecial instructions retain the same Pen ee further instructing or (ii) to pay the same to ‘nother person Who has no ‘account with the bank and the taj secepts the instruction and holds the money pending Instructions from that other persons (itt) where instructions are BT! py the customer to his banker that a part of the amount hy in his account be forwarded f© ‘another bank to meet a pill to become due and payable yin and the amount i the banker as directed. 4 trust results and the presumption vis the bank is rebutted. at the Lahore branchd is sent by aesinarily arises by reason of payment of money tO In the above case two sums of money it his directions regis rwise at Kolkata bret a customer deposited pank for transmission to its Kolkata branch with instructions to AW: the opening of account for keeping ‘he same in fixed deposit or othe The customer did not give any direction but the bank opened a fixed deposit account wi! his consent and was subsequently placed under Scheme of Arrangement. The Suprent held that after the purpose for which the money entrusted was carried, in the absent! iarther instructions, the bank did not cease to be a trustee and continued to hold thes? n behalf of the customer. fers to the banker certain shares in a © ssuin' egistered in the books of the ! mains that of @ ple med, for and In case the borrower trans security and the transfer is duly r ‘h shares and the bank's position r' created in respect of suc2.6 pen Banker and Customer mp BO" ” jouncing the above verdict, a satel Protase p78. the Delhi! High Cou si comPayy yor appropriate trust property for his benefit to dispose of the shares and utilise the arnount thereof for adjustment the debtor defaults. The banker's obligation to trarisfer back the shares he debtor clears dues of the bank. Hence bank was not considered a% Hobserved that a trustee Is gener In the present net nount If pee only when © on ade it. A banker acts as a os ea aes ee an agent of his customer and performs a sen ee icin che his customers. For example, he buys or selis securities ‘iprotmis customer, collect neues on his behalf and makes payment of various dues Se od one banks are peel he Tange of such agency functions has mee nature. FOP example, some banks have establich a Bee ponte ie cake Fe sens of he castomers ed Tax Service Departments to take wat )GATIONS OF A BANKER umber of ‘BANKING THEORY LAW AND PRACTICE Jagroop Singhrepayable on demand. When ac borrowing by the banker who is interest. Banker is entitled to ustomer deposit money i his account, sinc ts is liable to discharge the debt by paying over an ces use the deposited money. He is only liable to et accordance with the terms and conditions. The customer has right t dam bck not necessary for the banker to return the same currency notes or coins whit | deposited by the customer. — ees A depositor is an unsecured creditor. Customer has no charge over 8 1, banker becomes a secured creditor of his customer when a loan is adv securities.| aaa 98! 7 relations ip of a banker and Sails we /, ye? aaationstip arising out of ordinary is that of ‘, ent is Necessary. In case of a depos lal debts due yond Tlitor but jor amount of his own. Cust deposit in a ba ‘folowing seit cepa in proy ¢ manner, tomer the credit Mk banker the = fe sf deposit in P re r. But in commercial OF Must make 4 is not “aeons oot ate or ea and demand for debts, debtor i tie rn pt yomer mus! rom the b; is to pay the re tial in case of debt due from a b anker to pay hig mon nee In other tt anker. Toney. Demany oe ast be Made Only at Proper Place. Demand for lace i.e. at the br fo repay the ust be at proper P at the branch of ty the amou oe it balance of customers’ account i pee eee re ly ata wt "Customer has only option to make a d branch wine or d on specified branch of a bank. 8 Nat PT ye a large network of branches. customer enters wie branch on opening an account and not with Tesi contact ery wit 1 eaied branch not a bank. But in an ordi bank as a whole. He one ofa ordinary commercial debt is the eect tn PE t debtor can pay the ad must Be Made Only at Proper Time. The demand to repay the Oe yy customer only within banking hours. Bankers und: pa ee ving hours. Section 65 of the Negotiable Instruments ia awe Pay amount in seg: repayment must be made within banking hours ona work ae on fees ble pa ache io preset nang hon waking ay of bank, Banking hours may differ at different places depending upon the local sedirade, But in case of an ordinary commercial debt time is not an essential element. «nnd should be made in Proper Manner. ‘The demand to repay the amount must be sie in proper manner by the customer i.e. by way of a cheque or an order, drafts or cierwise. The oral instructions or a telephonic demand is not sufficient to withdraw noney from a bank. LUInstee and Beneficiary : When the b: ‘bye ats asa trustee for his customer. Bi rach benefit of his customer called bene! ed banker. As a trustee, itis the duty of b anes deeb a banker as a trustee or as a debtor depends upon ey ida igghht®*bilis deposited withthe tank for collection, banker acts te customer's Sha meted. Once the cheque of bill is collected and amounts tarp been ‘el becomes debtor of the customer. Trustee and benef omer to banker for He eon and depends upon the specific instructions given by panker holds the Seer the money is used or documents entrusted 1 to the banker at the ign t TOt the debtor on the special instruction giver hy va g anker accepts securities and other valuables for safe riker as a trustee retains money or ter asses 28d be the owner of is ficiary. Customer continues to maker to take cae ofthe lockers and et ag mnber of pal tt performs 2 "Shen Agent + Banker also acts as an agent of Nit customer etn of he and baying and selling of securities on behal of customers he esass various duse on Debulf of fla Aantgeee dlocussed earlier performed by banker in the Fecent time. jye Mtge SER become mortgagee and customer becomes mortgager. SCN as oe etwe anker as . atti 5. Lessor and Lassee : The relationship between a banker a: lassee an, his % ) eeome tablished when a customer kept his valuable ornaments and article in a 16! OMe, Squal © ‘custody, the banler undereaiee 6 take NESESAY PPECAON FoF the afr thet nga, Somme a pare Bods Pha by insti ‘6. Banker as Attorney : The customer may grant a special Power of ator Corres transact certain dealings on his behalf The banker isthe attorney cerns customer hy | OF aa ins i 7. Banker has a Right to Combine Accounts : Ifa customer has wo oF more aa. and e atthe same branch and the same capacity, a banker as a debtor CAM exercise his gy en Ni Oe accounts into one. Sombie the be 8. Banker has no Right to close the Accounts ; A banker as debtor hag Ro Fi (a) Props Accounts of his creditor at any time without prior permission from customer, OH Wy, mear Hon Banker a8 a Creditor: If a banker disburses loan and Overdraft, it assume, thet creditor and the customer assumes the role of a debtor. Seng (e) Prog 10. Other Relations : Banker acts also merchant when he advices the customers on he matters and help in issue of new capital. Banker also assumes the role of a guarantor by ising ‘Che of credit to customer. con | © Re = Il SPECIAL RELATIONSHIP BETWEEN BANKS AND CUSTOMER the for The special features of banker customer relationship are grouped into Obligations and Rigs o= 1. Obligation of a Banker ou IL Rights of a Banker, “ |. OBLIGATIONS OF 4 BANKER: The provisions of Negotiable Instruments imps" | GART following special obligations on the bank A ga , ir : os 1. Obligations to Honour Customer's Cheques : The bank has an colibee act] Wibod, customer 5 cheque as and when they are Presented as long as sufficient funds are ova poole ‘ Fis nomer’s account. According to the bank’s primary contract is to repay the money tamishee customer's account usually by honouring his cheques,’ On This obligation arises Out of two implied situations between the parties: tio Sbiigatio : emands 0 bie pad should repay the borrowed fund whenever the customer de The, at the branch where he holds the current account. f) (i) The Customer's credit should not beBANKING AN FINANCIAL _ SYSTEM otwt 1s/Ner name by having enough level of deposit mn : deposit money. Customer. should have regular and periodical dealing with the banker. GENERAL RELATIONSHIP Between Banke Customer aa The relationship between a banker and his Customer came from contract Itisjat a relationship between debtor and creditor, the concerned positions being determine! the state of the account. Moreover in relation to other banking services, sometimes bank act as an agent to the customer. For example, in collection of cheques, sale of secutits etc., bank in relation to the safe custody of valuables and as a trustee, the bank is entrust to administer the property for the welfare of a customer or beneficiary.lowing, opened AND just ike sined by ies the »curities tru Banker ay nd Cust SHIP BETWEEN Destor ‘omer Relationship 115 ANI 2 CrevitoR t “the moy rn then the mer” “R€N paid into bank pe Foley V. Hill , it was observed th to be the money of the Principal; it Hy A zal! man equivalent by paying a similar aie ing tl t loney of th eye ral, the Ci , 0 that 1 banker al wes In generals the ustomer's are the Creditors and ny with him wha 0 the banker's ar re the ee Adan A os, wer iia’ ¥g points will explain the relationship between the ba ould be given on demand inker and the customers: of commercial debt the debtor needed to pay ever the amount demanded by the ules oe n the specified date oti wr case of @ d eposit, the debtor or banker is not Pee Fequirements of the a coin lignes. sinporantha he aesoeton enya aroun ptedeP ek ‘or demand for the payment of deposit in the proper mani creditor customer So a edinary debtor; it accepts the depo ner, This difference is ee e chequen TE the bank retuma the depaslidareoum en ee : unt to th E és willingness by closing the account then some of the cheques issued by rae aa a gineed ait wil pal the eptaton of th cso. ree! ing to the statutory definition of banking, the deposits are repayable on demand : aerwise. The depositor makes deposits for their convenience, apart from his motive to sn an nce except current account. Amount demanded by the creditor / customer is re too important for the payment of the deposited money, Thus, deposit money of ‘vith his banker differs from an ordinary debt, te customer Y spemand should be made at right place and at right time The demand should arise either form creditor or debtor/customer that must be made at popes place, proper time, Commercial banks are having, number of branches but the depositor enters into relationship only with that specific branch where an account is ‘opened inhis/her name, His demand for withdrawal of his deposit amount must be done at the ‘ome branch of the bank otherwise the banker is not bound to honor his commitment Thertore, the customer may have special arrangement with the banker for the repayment the deposited money at some other branch. For example, Bank drafts, traveler's cheques tthe branch receiving, the money will agree to repay it at a particular or specified branch cx my branch of the bank, It is alwo must that the demand should be made at banking hours only on working, days of the bank, If the bank gives payment after or bofore the bank's nking hours then they must be held renponsible for the warne, "Des mand should be made in proper Way withdrawable by cheque’: Accondisy, to the stat rt ¢ tory definition of baking, depowlts are : \ anim det or ethepwice trans that the demand for te rerun of TINY dept! } ‘i : H ony be withdrawn through a cheque or an order as pe th COMM usage ana bar if | "Me The demand shuld not be made verbally oF through a telephon=e == tOO00GKAA nee 116/ Banking ‘and Financial system ig in respect ‘of amount d custome’ * trustee, the ‘panker holds me: ne other person in safe cana “s any such manner ntions ts as 8 f 50" hy, a banker 4018 Sits ac re 0! ; Generally 4 mete nto Figg and OU Waluables 1m Ses ims certain ee ities 2 ie customer continues, PY assets and Perio its his S20 custome’> ‘Th iti tobe persomer JePOS trustee FOF its CU ere the egal position of the bank, as juables- ia the earlier case the money, docu, pt alana the SAMe Are Tt rey Trustee e Bank then the ted 8 cn depos vom debtors ® | not tr trustee, $0” iy ane banker are ae wal its general creditor og or asa de! tor and that, position is deems, a trustee thi inthe ordinary course of thebusa joes tome then they will be acts as a deb, sited with pank for the pariticular 9. ining whether the amoxg, Poe not. Incase, ifbank get any nae ited in bank for age -count unt actually depost! t from or to the customer's aco, any P' 7 ount Tobit or credit tHE 2 other banker then the bank wile jited to its customer’s account and the ‘And In case , If the collecting ii ow the paying bank then the collected will belongs to the customer andits 0 the general creditors of the collect ain securities out of his the bank will contin cred! same amount. collection of payment of cheque fr ing banker sed to be the same t gives instruction to the bank to purchase cert hank fails before doing such kind of purchase, in this case bank will not act as a trustee) in respect of te! aespunt which was not taken or debited to cus ‘count to execute his inst? From the above statement it is clear that the relationship between the feu isass ae a beneficiary and it has depends upon the instructions ae documents entrusted a aaa about the purpone Ot oe oer ao du bavkat ess colineial rT. Incase the borrower transfer certain shares ne issuing company. In this situ ecurity and the transfer is duly registered it yp! ituation, no trust is created in respect of such shares positio i n remains that of a pledge rather than a trustee. supp Ifa customer money, but the debtor to his customer (i tomers ai * Agency functions As an agent, buying and sain ae ay banker performs many functions: The age pf I hs Psion, the law not cheats, payment of bills ad i ship. Tho ant. 8 to Principal and Agent governs oe et ad ifBanking Theory Law & Practice/ Bank Custome, ON ; Paget, “a customer Constitutes a per: ee er a bank, whether fixed op Savings Son Who wf socou ing nature”. Dealings of banking ature refer ie of ion of deposit and Withdrawal of sac j is NEY at fre, 0 The above definition is popularty known as the «qu é i! A, to a leading case (Commissioner of sording and Australian Bank), “the Word - = which duration is not the €ssency : Net accepted by the bank on the footing that the bank fl a honor cheques up to the amount standing to his credit, stomer of the bank irrespective of whether his Connection is ‘gor short standing”. wk CUSTOMER RELATIONSHIP Taxation Vs Customer Signifies ©. A person whose selationship between the banker and the Customer is of debtor aureditor, trustee and beneficiary, and agent and Principal. The ofrelationship between the banker and the Customer is discusseq ow 'dlor and Creditor inhis account, the ¢ . Conversely, where the customer has a debit balance in Mt, the customer is the debtor and banker is the creditor. 361 |PP of Tg, pexsscxy 8 . Where the banker tree 28 Se aot alows then ge =. wish be is said to be acting a 3 FE Ty wee te bake AEH ea he a fx safe cassndY, be becomes the trustee ay < : and Principal eee acts as an agent of a customer 2s be cary ee ss sach 2s collection of cheques, bills of exchzop, gayest of esac rem SPECIAL TYPE OF CUSTOMERS batter can exter iran a valid banking co Saaeiee ae “ . - This is of course subject to te condition teas toe costomer is 4 genuine person and is willing to ener on ‘ness relationship with the banker. In addi '0 wormal cosomers, there are special customers who also hae cedines wits toe banker. These include minors, lunatics, marie \ women, ac. A biel description of each of these special types Crsences is prevented below: Minors hour W Section 3 of Indian Majority Act, 1875, mimo} Gahran metho ome ec after his person or property, be ms oa 1 the completion of 21 years. A contract i e — 0 Contract at all. It is simply an agreement " Precaut Ida Cones £2 4° followed According wo Sen I! 2 ai once 1672, a minor is not capable of enering ™ Fait canon sage ES by a mine able ™ is follow i Contract entered by a minor a aecoun raed a follow the fo) ‘ing precautions while Se NAME Of 4 minor, i to : “aera en in the name o i 0? OO