ARCHANA DILEEP

BANKING

Banker

The term banking may define as accepting of deposit of money from the public for the
purpose of lending or investing investment of that money which are repayable on
demand or otherwise and with a draw by cheque, draft or order.

Customer

A person who has a bank account in his name and for whom the banker undertakes to
provide the facilities as a banker is considered to be a customer.

RELATIONSHIP BTW BANKER AND CUSTOMER

1. Relationship as debtor and creditor.
2. Banker as a trustee.
3. Banker as an agent.
4. Other special relationship with the customer, obligations of a banker

Relationship as Debtor and Creditor

On the opening of an account, the banker assumes the position of a debtor. A depositor
remains a creditor of his banker so long as his account carries a credit balance.

The relationship with the customer is reserved as soon as the customer account is
overdrawn.

Banker becomes a creditor of the customer who has taken a loan from the banker and
continues in that capacity fills the loan is repaid.

Banker as a Trustee

Ordinally a banker is a debtor of his customer in the report of the deposit made by the
letter but in certain circumstances, he acts as trustee also.

A trustee hold holds money or asset and performs certain functions for the benefit of
some other person called the beneficiary.

For example;

If the customer deposits securities or other values with the banker for the safe custody,
the letter acts as a trustee of his customer.

Banker as an Agent

A banker acts as an agent of his customer and performs a number of agency functions for
the conveniences of his customer.

For example, he buys or sells securities on behalf of his customer, collects check/cheques
on his behalf and makes payment of various dues of his customer.

Special relationship with customer/obligation of a banker:

Through the primary relationship between a banker and his customer is that of a debtor
and a creditor or vice versa, the special features of this relationship as a note above
impose the following additional obligations on the banker.

Difference btw Bank Debt And Commercial Debt

The creditor must demand payment

In the case of ordinary commercial debt, the debtor pays the amount on the specified date
or earlier or whenever demanded by the creditors as per the terms of the contract.

But in case of the deposit in the bank, the debtor is not required to repay the amount on his

own account. It is essential that the depositor must make a demand for the payment of the

deposit in the proper manner.

Proper place and time of demand

A commercial bank may have a number of branches but the depositor demanded the

repayment of his deposit must be made at the name of the same branches with which he

entered into a relationship.

Otherwise, the banker is not bound to honor his commitment. It is also essential that the

demand must be made during banking hours as a working of the bank.

Demand must be made in a proper manner

According to the statutory definition of banking, a deposit is withdrawn able by check,

draft, and order.

Otherwise;

It means that the demand for the refund of money deposit must be made through cheque

or order as the common wage amongst the banker in a proper manner whereas in case of

the commercial bank there are no such obligations.

Four Types of Banker rights

 4 types of banker rights are;

1. Rights of general lien.

2. The right of the set-off.
3. Banker’s right of appropriation.
4. Right to charge interest, incidental charges

The rights of a banker that the banker can enjoy are as follows:

1. Rights of general lien

One of the important rights of the banker is the right of general lien.Lien means the right of the
creditor to retain the goods or securities owned by the debtor until the debt due from him is repaid.

There are some exceptional cases in which the right of general lien is not applicable.

These are:

 Safe custody deposit.

 Documents deposited for a special purpose.
 Security held in trust.

2. The right of the set-off

A banker possesses the right of set-off which enables him to combine two accounts in the name of
the same customer and to adjust the debit balance in one account with the credit balance in the
other.

The right of set-off can be exercised subject to the fulfilment of the following conditions:

 The accounts must be in the same name in the same right.

 The right can be exercised in respects of debts due only not in respects of future debts or
contingent debts.
 The number of debts must be certain.
 The banker may exercise that right at his discretion.

3. Banker’s right of appropriation

If the customer has more than one account or he has taken more than one loan from the banker, the
banker has the right to appropriation these loans by the accounts.

4. Right to charge interest, incidental charges

As a creditor, a banker has the implied right to charge interest on the loans granted to the customer.

In the same way, incidental charges like service charges, processing fees, appraisal charges, panel
charges may be imposed by the banker to the customer.
Deposit are repayable on the term and made by the customer but the period of limitation for the
refund of bank deposit is three years with effect from the date a customer made a demand for his
money.

Banker’s Lien: Definition, Types,

Banker’s lien is an implied pledge.

Lien is one of the important rights enjoyed by a banker.

Lien means the right of the creditor to retain the goods and securities owned by the debtors
until the debt due from him is repaid.

It confers upon the creditor the right to retain the security of the debtor and not the right to sell it.

In case of a pledge, the creditor enjoys the right of sale.

A banker right of lien is more than “General lien”. It confers upon him the power to sell the goods
and securities in case of default by the customer.

Such right of lien thus resembles a pledge and is usually called an implied pledge.

The banker thus enjoys the privileges of the pledge and can dispose of the securities after giving
proper notice to the customer.

Types of Liens

There are several specific types of liens, such as; consensual lien, Tax liens, Contractor’s or
mechanic’s liens and more.

Right to charge interest, incidental charges.

As a creditor, a banker has the implied right to charge interest on the loans granted to the
customer. In the same way, incidental charges like service charges, processing fees,
appraisal charges, panel charges may be imposed by the banker to the customer.

Obligation of banker to honour cheques

The bank has a statutory obligation under section 31 of Negotiable Instruments Act under
which it has to honour the checks of its customers up to the amount standing to the credit
of the customer’s account. If the bank without any reason refuses to honour the checks of
the customer the bank shall be held liable and will have to compensate the customer for
not fulfilling its obligations.

3. OBLIGATION TO MAINTAIN SECRECY OF CUSTOMER’S ACCOUNT

Secrecy
It is one of the principal duties of the banker to maintain complete secrecy of the status of
customer’s account and failure to do so will make the bank to compensate the customer
 for any damage or loss suffered. However, a bank is justified in making disclosure, under
the due process of law or under express or implied consent of the customer.

EXPLAIN WRONGFUL DISHONOUR

The term wrongful dishonour refers to a bank's failure to honour a valid negotiable

instrument such as a check or draft that has been presented to it for payment.

Section 31 of the Negotiable Instruments Act, 1881 states that when a customer had
sufficient balance in his account, the banker is bound to honour such a cheque and if he
fails to do so, he shall compensate the drawer for any loss or damage caused by such
default.

Consequences of wrongful dishonour of cheque

A banker has the statutory obligation to honor his customer’s cheques unless there are
valid reasons for refusing payment of the same. In case, he dishonors a cheque,
intentionally or by mistake, he is liable to compensate the customer for the loss suffered
by him. According, to section 31 of the negotiable instruments act 1881 the banker is
liable to compensate the drawer for any loss and damage caused by a default on his part
in dishonouring the cheques without sufficient reason. The word loss and damage
include:

 The monetary loss suffered by the customers.

 The loss of credit or reputation in the market.

Assessment of loss or damages:

The loss or damage suffered by the customer as a result of dishonouring his cheques by
the banker can be assessed in the following ways;

(1) The monetary loss; first is the monetary loss suffered by the customer for dishonouring
cheque by the banker. It is the actual loss due to the dishonour of a cheque.

(2) The loss of credit or reputation: Reputation or credit is a foundation of trading

business. If the customer lost his credit or reputation, it may result from a loss of a
profitable contract or business.

Risks of unwarranted and unjustifiable disclosure:

If a banker discloses information unjustifiable, he shall be liable to his customer and the
third party as follows:

Liability to the customer: the customer may be the banker for the damages suffered by
him as a result of such disclosure. A substantial amount may be charged if the customer
suffered material damage.

Liability to the third party: the banker is, responsible to the third parties also to whom
such information is given if the banker furnishes such information as the knowledge that it
is false. Or such party relies on the information and suffers losses.