SECRECY OF CUSTOMER’S ACCOUNT

It is an implied term of contract between a banker and his

customer that the banker will not divulge the state of the
customer’s account to third parties, without the express or
implied consent of the customer. For instance, where a
customer has given his banker as a reference, the banker will
be justified in disclosing legitimate information to a third
party.

In case of loan accounts, when a customer introduces a

proposed guarantor to his banker, the latter has to disclose the
financial affairs of the customer to the proposed guarantor to
the extent it would be necessary for the guarantor to be aware
of his responsibility as guarantor.

There is a well recognized practice among banks

themselves generally described as a ‘common courtesy’ where
bankers enquire among themselves about information as to the
financial status of a customer.

Information given in response to such enquiries is given

confidentially and is worded with scrupulous care, so as to
disclose no more than the general position of the customer.
And it is considered to be permissible in view of the implied

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consent of the customer, derived from a well known practice
among banks.

A banker will require disclosing information about his

customer to protect his own interest, such as in case of dispute
with the customer. When banker has to realize his dues on
account of loans and advances from the customer, he will be
justified in revealing information to guarantors about such
advances or to an advocate for initiating legal proceedings in a
court of law.

Suppose our nation is at war with a neighbouring

country, in such a situation, continuation of trade with that
country would not be desirable. When a banker comes to
know that one of his customers is having secret trade
transactions with the enemy country, he will be justified in
disclosing the facts to proper authorities. Similarly, when a
banker comes to know of some criminal intents of a customer,
it is his duty to disclose the facts to the appropriate authorities.

Bank has an obligation to take utmost care in keeping

secrecy about the account of its customers. But sometimes,
banks might require disclosing the customers’ information

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that might require a law or permitted by the banker’s practices
and usages.

Disclose of information required by law

A banker is under a statutory obligation to disclose the

information relating to his customer’s account when the law
specifies required.

The banker would, therefore, be justified in disclosing

information to meet the following statutory requirements:

⮚ Under the income tax act.

⮚ Under the company acts.
⮚ Disclose to the police.
⮚ Under the Foreign Exchange Regulation Act.

Disclose permitted by the banker’s practices and usages

The practices and usages customary amongst bankers

permit the disclosure of certain information under the
following circumstances:

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With express or implied consent of the customer

The will be justifiable in disclosing any information

relating to his customers account with the letters of consent.
The consent of customers may be expressed or implied.

To protect his interest

The banker may disclose the state of his customer’s

account to protect his interest legally.

Banker reference

Banker follows the practice of making necessary esquires

about the customers, their sureties or the acceptors of the bills
from other bankers.

This is an established practice amongst the banker and is

justifiable because an implied consent of the customer is
presumed to exist.

Duty to the public to disclose

The banker may justify disclosing any information relating

to his customer’s account when it is his duty to the public to
disclose such information; such a situation is:

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1. When a bank asked for information from government
officials concerning the commission of a crime.
2. Where the bank considered that the customer is involved
in activities prejudicial to the interest of the country.
3. Where the bank’s book reveals that the customer is
contravening the provision of any law.
4. Where sizable funds are received from foreign countries
by a constituent.

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SECRECY OF CUSTOMERS ACCOUNT

1. Maintenance of Secrecy: – The foundation of a banker and

customer relationship is of confidence and secrecy. The
banker is under an obligation to take utmost care in keeping
secret regarding the accounts of the customer. This means that
the account of books of the bank will not be shown to the
public or Government Officials. This duty of maintenance of
secrecy by the banker is a legal duty arising out of the contract
entered into with the customer not to disclose his affairs
without his consent. The term ‘Secrecy’ is like a Democle’s
Sword hanging on the head of the banker. Every employee of
a bank has to take an oath of secrecy regarding the customer’s
accounts at the time of joining the bank.

Exceptions to the obligation to maintain secrecy by a

Banker: – A banker will be justified in disclosing the
information of his customer’s account on reasonable and
proper occasions only as stated below:

Disclosure under the compulsion of Law: – When law

requires the disclosure of the state of a customer’s account, he
cannot override it. The obligation to his customer is subject to
his duty to the law of the country.

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Under the Income Tax Act, 1961: – Sections 131 and 133 of
the income tax act, gives authorities powers to call for the
attendance of any person or for necessary information from
the banker for the purpose of assessment of the bank’s
customers.

Under the Bankers’ Books Evidence Act, 1891: – Under

Section 4 of the Bankers Books Evidence Act, a banker may
be asked by the court to produce a certified copy of his
customer’s account in his ledger.

Under the Reserve Bank of India Act, 1934: – Under

section 45B of the RBI act, the RBI is empowered to collect
credit information from banking companies relating to their
customers.

Under the Banking Regulations Act, 1949: – Under Section

26 of the Banking Regulation act, every bank is compelled to
submit an annual return of deposits which remain unclaimed
for 10 years.

Under the Companies Act, 2013: – When the Central

Government appoints an inspector to investigate the affairs of
any joint stock company under Section 206 to 229 of the
Companies Act, the officer shall
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 Produce all books and papers of, or relating to the
company which are in their custody; and

Otherwise, to give to the inspector all assistance in

connection with investigation which they are reasonably able
to give;

2. Disclosure in the Interest of the Public: – Banker may

justifiably disclose any information relating to his customer’s
account when it is his duty to the public to disclose such
information. The following grounds generally fall under this
category:

⮚ Disclosure of the account where money is kept for

extreme political purposes contravening the provisions of
any law.
⮚ Disclosure of the account of a revolutionary or terrorist
body to avert danger to the State;
⮚ Disclosure of the account of an enemy in time of war;
⮚ Disclosure of the account of an unlawful association;
⮚ 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
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protect the customer. For example, if the banker 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 quite justified.

4. Disclosure under Banker’s Enquiry: – It is an established

banking practice to provide the credit information about their
customers by one bank to another. The expression of an
opinion by a banker with regards to a customer’s credit is
justified on the basis that, opening the account the customer
gives implied consent to practice.

5. Disclosure under the express or implied consent of a

customer: – The customer may instruct his banker to give
some or all particulars of his account to maybe the auditor. In
such case the banker can disclose the contents. Banker can
also disclose to a referee whose name is suggested by the
customer.

GENERAL PRECAUTIONS

In disclosing the state of the account to a customer, great

care should be exercised. If the banker is careless, he is liable
to pay damages.

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Hence, a banker should have certain norms about disclosing
the state of his customer’s account. They are:

1. The banker should not be negligent in giving

information.
2. He should strictly give bare facts. That is, only general
information must be given. He should not disclose the
actual state of the account.
3. Information should be given only after getting the
express consent of his customer.
4. He should not speak too favourably or too unfavourably
of a customer. Such misleading information’s may put
the parties in difficulties and the banker will have to
compensate for the consequent loss.
5. The information should be given in such a way that he
may avoid any liability in future.
6. As far as possible, the banker should supply the
information only to the fellow banker.
7. On no account he should disclose to the holder of a
cheque the exact balance in a customer’s account.

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