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BANKERBANKER • Definition mere tautology • No statutory definition• Multifarious functions, and services in conjunction

with traditional banking • Sec 3 of NIA `Banker` includes any person acting

as a banker. • Similar definition in Bankers Book Evidence Act 1891

and Indian Stamp Act 1889• First systematic attempt to define in Sec 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 )

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CUSTOMERCUSTOMER Customer not definedTo 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 customer there 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 essentialA 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]

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COMMENCEMENT OF LEGAL COMMENCEMENT OF LEGAL RELATIONSHIPRELATIONSHIP

• Contractual relation begins - When a person asks the banker to open an account, though cash/cheque yet to be deposited. Actual transaction strengthens the relationship

• Banker-Customer contract is an exception to the rule that a debtor should find his creditor. Creditor (customer) has to make demand on the debtor (Banker)

• Money deposited becomes Banker'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

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BANKER’S DUTIESDuty of care

judged on what an ordinary reasonable person would do, or on what is normally done in similar circumstances

Duty to Issue Statements

Banker’s Duty of Confidentialitydetail’s/information of customers account etc

o Exception

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BANKER AS A TRUSTEEBANKER AS A TRUSTEE

• Main relation between Banker and Customer – Debtor and Creditor [reversal when bank grants OD facilities]

• Remittances made to bank to purchase shares, before buying stipulated no. of shares, bank failed- unspent money bank holding in trust

• Banker received money from one party on behalf of another (later not a customer), bank enquired about purpose and intimated money meanwhile being kept in suspense, banker is a trustee

• Banker must not be party to appropriation of funds inconsistent with the character in which customer holds them

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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 capacity for 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

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BAILOR –BAILEE RELATION• `Safe custody ` facility offered by the bank• Bank is under no obligation to accept the

property of the customer for safe custody, it is not primary function of bank

• Wrong delivery of the articles kept 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,for any acts he does 8

ADVISORY RELATIONSHIPBanks are specialized agencies of the

financial sector, persons seek banks advice on o Wealth management o Project appraisalo Loan syndicationo Financial engineeringo 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

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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)]

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EXCEPTIONS TO THE PRINCIPLE a) Compulsion by law ( duty to obey an

Act)o Order of Govt. o Income Tax Act o Companies Acto Banker's Book of Evidence Act 1934 o RBI Act 1934o Banking Regulation Act 1949o Gift Tax Act 1958o Criminal Procedure Code1973o FEMA

b) Public Interest Exception carved out in Tournier case (dealing

with enemy) No such law exists in India

c) Public funds involved Bank have higher duty than private duty (of

secrecy) 11

TERMINATION OF BANKER / CUSTOMER RELATIONSHIP

Termination by mutual agreemento customer and bank both agree to close the

account. o bank will pay out any credit balances

Termination by customero Customer not obliged to give notice o Customer demands payment of the credit balanceo A credit balance is closed by paying outstanding

balance in full plus fees and charges owing .Termination by banker

o bank has to give notice allowing a reasonable time to enable the customer to set up new banking arrangements

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