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Chapter 10 banker- customer relationship

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Text of Chapter 10 banker- customer relationship

  • 1.

2. BANKER

  • Definition mere tautology
    • No statutory definition
    • Multifarious functions, and services in conjunction with traditional banking
    • Sec 3 of NIA`Banker`includesany person acting as a banker.
    • Similar definition in Bankers Book Evidence Act 1891 and Indian Stamp Act 1889
    • First systematic attempt to define inSec 5 (b) of BRA defines Banking business
    • Also relevant -Sec 6(Forms of business in which banking companies may engage) ;Sec 7(Use of words "bank", "banker", "banking" or "banking company )

3. CUSTOMER

  • Customer not defined
  • To constitute customer there must be
    • some recognisable course or habit of dealing between him and the bank
    • The transaction were in the nature of regular banking business
  • To constitute a customerthere must be some measure of continuity and custom
  • A person becomes a customer of a bank as soon as he is accepted as such by the banker
  • Frequency of transaction not essential
  • A customer is a person whose moneys have been accepted by the bank on the footing that the banker will honour up to the amount standing to his credit irrespective of his connection being short or long standing [Central Bank v Gopinathan Nair, AIR 1970]

4. COMMENCEMENT OF LEGAL RELATIONSHIP

  • Contractual relation begins- When a personasks the banker to open an account, though cash/cheque yet to be deposited.Actual transaction strengthens the relationship
  • Banker-Customer contractis an exception to the rule that a debtor should find his creditor.Creditor (customer) has to make demand on the debtor (Banker)
  • Money deposited becomesBanker's property, absolutely at his disposal, acknowledges receipt of money as `debtor` with the obligation that the same is sufficient and available to honour customer's cheques

5. BANKERS DUTIES

  • Duty of care
    • judged on what an ordinary reasonable personwould do, or on what is normally done in similar circumstances
  • Duty to Issue Statements
  • Bankers Duty of Confidentiality
    • details/information of customers account etc
    • Exception

6. BANKER AS A TRUSTEE

  • Main relationbetween Banker and Customer Debtor and Creditor [reversal when bank grants OD facilities]
  • Remittances made to bankto purchase shares, before buying stipulated no. of shares, bank failed- unspent money bank holding in trust
  • Banker received money from one partyon behalf of another (later not a customer), bank enquired about purposeand intimated money meanwhile being kept in suspense, banker is a trustee
  • Banker must not be party to appropriationof funds inconsistent with the character in which customer holds them

7. AGENCY RELATION

  • When created
  • Buying and selling securities of customer
  • Collection of cheques, dividends, B/E or P/N
  • Acting as Trustee, Attorney, Executor, correspondent or a representative
  • Banker in fiduciary capacityfor moneys received for a specific purposed, erroneously credited to suspense account
  • Banker as an agent bound to carry out directions of his principal conduct business of agency with such skill as is generally possessed by persons engaged in similar business

8. BAILOR BAILEE RELATION

  • ` Safe custody ` facilityoffered by the bank
  • Bank is under no obligationto accept the property of the customer for safe custody, it is not primary function of bank
  • Wrong delivery of the articleskept with banker for safe custody to an unauthorised person is conversion (putting goods for ones own use)
  • Banks take charge of goods, articles ,securities as bailee not as trustee or agent
  • Distinction between bailment and Agency
    • bailee does not represent bailor,
    • bailee has no power to make contracts on bailor`s behalf
    • He cannot make the bailor liable,forany acts he does

9. ADVISORY RELATIONS HIP

  • Banks are specialized agencies of the financial sector, persons seek banks advice on
    • Wealth management
    • Project appraisal
    • Loan syndication
    • Financial engineering
    • Portfolio management
  • In case of securities market operations, registration and holding of valid certificate from SEBI, a prior condition
  • Lessor-Lessee Relationship- when owns a building and lets it out to a customer

10. TOURNEIR PRINCIPLES

  • Nature of duty cast upon banker privity of contract; implied terms of contract
  • When does the duty commence moment banker-customer relationship is established
  • How long does it exist does not end merely on closer of account; extends to all other facts that may come to banker's knowledge from any other source
  • Scope of secrecy information obtained by bank in his capacity as Banker about it Customer
  • [Tourneir v National Provincial Bank of England( 1924)]

11. EXCEPTIONS TO THE PRINCIPLE

  • Compulsion by law ( duty to obey an Act)
    • Order of Govt.
    • Income Tax Act
    • Companies Act
    • Banker's Book of Evidence Act 1934
    • RBI Act 1934
    • Banking Regulation Act 1949
    • Gift Tax Act 1958
    • Criminal Procedure Code1973
    • FEMA
  • Public Interest
    • Exception carved out in Tournier case (dealing with enemy)
    • No such law exists in India
  • Public funds involved
    • Bank have higher duty than private duty (of secrecy)

12. TERMINATION OF BANKER / CUSTOMER RELATIONSHIP

  • Termination by mutual agreement
    • customer and bank both agree to close the account.
    • bank will pay out any credit balances
  • Termination by customer
    • Customer not obliged to give notice
    • Customer demands payment of the credit balance
    • A credit balance is closed by paying outstanding balance in full plus fees and charges owing .
  • Termination by banker
    • bank has to give notice allowing a reasonable time to enable the customer to set up new banking arrangements