Banker Customer Relationship

1. Banker Customer Relationship

2. Who is a Banker? Bank/Banker/Banking company is an organization which essentially performs the two functions: • Accept deposit from public( the deposit being repayable on demand or otherwise and withdrawal by cheque, draft order or otherwise). • Uses such deposit for the purpose of lending or investment.

3. Who is customer A customer is one who has a Saving/Current/Fixed deposit account irrespective of its debit or credit balance with the bank. Also who has any other transactions/business only, but no account with the bank, cannot be called its customer.

4. Relationship • Debtor Creditor: Some of the special features of this relationship are discussed below: • The customer can not claim return of the same notes or coins from bank, which can repay a sum of equivalent amount. • The depositor being a creditor, is an unsecured creditor. • For repayment the creditor must raise demand. Limitation for suit for recovery of deposit amount against bank is 3 years from the date of demand. (d) Demand must be made by the customer in prescribed manner only at the branch at which the account is maintained and also within normal business hours on working day only.

5. 2. Trustee-Beneficiary: The position of bank will be trustee when • A person having no account with a bank, deposit a money with instruction to retain it till further instruction. • The customer instruct a bank to debit his account or deposit an amount for you utilizing it for a specific purpose or for remitting to other branch/bank. ( But in absence of specific instructions, this relationship will not be established. • Manages properties of its customer.

6. Agent-Principal When the banker accepts bill etc. for collection on behalf of his customer, he acts as an agent and the constituents. In such cases the bank is bound as per Section 151 of the Indian Contract Act 1872, to act with reasonable diligence and skill as per instruction of the principal. 4. Bailee- Bailor: When a bank accepts article for safe custody, its legal position is that of bailee, who is bound to take us much care of the goods bailed to him as man of ordinary prudence would, under similar circumstances, take of his own similar goods.

7. Condt.. As per section 151 the bailee, in absence of any contract to the contrary is not responsible for any loss if the bailee has taken care as required in terms of section 151 of the Act.

8. 5. Lessor-Lessee Right of Banker • Right of Set off: • An account in the individual capacity of the customer showing debit balance can not be combined with one in fiduciary capacity showing credit balance. • Account really belonging to same persons, but in different names can be combined .Thus an account of a sole proprietorship concern may be combined with that in his personal name. • Two accounts one in his personal name and other marked clients account cannot be combined.

9. Contd.. • Two accounts one belonging to an individual and other jointly with Someone, cannot be combined. • The right can be exercised only when the debt is due. • The right should be exercised after giving due notice, unless a contract to the contrary exists. • The right may be exercised before the garnishee order is made effective.

10. Mandate: Written authorization by a person to another to take a certain course of action. e.g. A check, for example, is a mandate issued by a customer of a bank, to pay it as instructed, from a customer account balance. • bankmandate:  A document given by a customer of a bank to the bank, requesting that the bank should open an account in the customer's name and honour cheques and other orders for payment drawn on the account.

11. Right of Banker • Bankers Lien: In terms of Section 171 of Indian Contract Act, a banker may, in absence of a contract to the contrary, retain as security for a general balance of account any goods bailed to them. The right of a banker is automatic and no contract is required and hence called general lien. Here lien means right to retain goods in possession until debit is discharged. Banker’s right of general lien is available over goods and securities received during normal course of business but not over those received for specific purpose as an agent or as a trustee etc.

12. Banker Customer Relationship Banker's Lien • A lien right to retain property belonging to another pending satisfaction of a debt owed by the owner of the property. • A pledge is security, which carries the right to retain the property until the debt is paid or if unpaid after a certain time, carries the right to sell the property to satisfy the debt.

13. Banker Customer Relationship • A banker's lien is a special kind of lien that is the equivalent of the pledge in other words the bank may retain the property until the debt is paid however if it becomes apparent that the debt will not be paid then the property may be sold to satisfy the debt.

14. Banker Customer Relationship The limitations on the Banker’s Lien are: 1. The bank does not have a lien on cheques paid into the bank for collection. 2. The lien does not apply to securities kept in safe custody. 3. The lien does not apply to securities, which are held by the customer as a trustee 4. The lien does not arise if there is an agreement to the contrary between the bank and the customer.

15. Right of Appropriation Garnishee order and attachment order: When the debtor failed to pay the debt to his creditor, the latter may approach court for issuance of garnishee order on the banker of the debtor. A Garnishee order is an order issue by court under provision of Order 21 rule 46 of the code of Civil Procedure 1908. The order is in two parts • Order nisi • Order absolute

16. Contd.. Order nisi is issued first, directing the bank to stop the payment in the account of judgment debtor to explain as to why not the deposit of the particular person be attached. Order Absolute is issued later, whereby entire balance in the account is attached, if the court is not satisfied with bank’s explanation to order nisi. An order served on Head Office of a bank applies to all of its branches after reasonable period.

18. Clayton’s Rule In case of multiple debts, credit will be appropriated: • To discharge of the particular debt as per the instruction of the debtor. • If debtor does not intimate or the circumstances do not indicate, as per the discretion of the creditor • When neither party indicates, to discharge of debts in order of time. • First to discharge of interest and then principal in chronological order.