Bank customer relationship in india

Banker-Customer Relationship Explained in Detail

bank customer relationship in india

The Banker & Customer Relationship in India. Uploaded by Need Notknow. Dr. Prashant Desai, Assistant Professor, National Law School of India University. The relationship between a banker and his customer depends upon 80 Central Bank of India Ltd. Bombay V/S Gopinath Nair and others (A.I.R , Kerala. The relationship between banker and Customer are categorized into three; relationship as debtor and creditor, banker as a trustee and banker as an agent.

Cranston, Principles of Banking Law, 2nd ed. Oxford University Press, at pp. Sir John Paget observes4: Basically the relationship is that of a mandator the customer and mandatory the bankbut it is nonetheless a relationship which embraces mutual duties and obligations. It is a relationship peculiar to banking, giving rise to a contract between the two parties. It has been judicially held that a person may become a customer by entering into a contract with the bank by way of opening some sort of account.

Thus, in Woods v. LexisNexis Butterworths, at p. Institute of Bankers of Sri Lanka, at p. Bank-Customer Relationship The relationship of bank and customer is one of contract. Unless contractually bound, banks are generally free to decide whether they will provide particular services to their customers or not. The general contracts between banks and their customers would hardly incorporate all the terms in writing, whereas special contracts may commonly incorporate 7 Foley v.

Hill 2 HL Cas Oxford University Press, at p.

bank customer relationship in india

Moreover, it would be impracticable to reduce all the terms agreed between the bank and the customer to writing. Above all, there may be implied terms in the bank-customer contracts, which are peculiar to the banking practice, so that they cannot be displaced without affecting business efficacy.

Duties of the Bank The classic exposition of the nature of the bank-customer relationship in Joachimson v. The proceeds so received are not to be held in trust for the customer, but the bank borrows the proceeds and undertakes to repay them. The promise to repay is to repay at the branch of the bank where the account is kept, and during banking hours.

It includes a promise to repay any part of the amount due against the written order of the customer addressed to the bank at the branch, and as such written orders may be outstanding in the ordinary course of business for two or three days, it is a term of the contract that the bank will not cease to do business with the customer, except upon reasonable notice.

The customer on his part undertakes to exercise reasonable care in exercising his written orders as not to mislead the bank or to facilitate forgery. I think it is necessarily a term of such a contract that the bank is not liable to pay the customer the full amount of his balance until he demands payment from the bank at the branch at which the current account is kept.

Butterworths, at p. However, this duty is subject to certain conditions aimed at realities of banking practice and business efficacy. It is an implied term in the contract between the bank and its customer that the bank is not liable to repay the customer until demand is made for repayment.


Until then, there is no presently due debt owed by the bank to the customer. Although, an oral demand would be technically sufficient to be termed as a valid demand, the normal practice adopted by banks is to consider a cheque or passbook as a demand, apart from the e- banking and mobile-banking methods.

However, as seen in the present context, banks may contract with its customers so as to enable the customers to withdraw money or make demand for repayment from any branch of the bank.

bank customer relationship in india

In such circumstances, there would be an added obligation created on the banks to conform to what they have contracted with their customers.

The bank-customer relationship had been historically held as essentially a debtor- creditor relationship. Even, in the decision of Foley v. Hill, 18 where it was National Provincial Bank Ltd. Lord Justice Bankes reached the same decision as Lord Justice Atkin, whilst adhering to the notion of implied superadded obligations. This would mean repaying by the bank to its customers directly after the customers had deposited the money into their respective accounts.

It would also be unrealistic to permit customers, like ordinary creditors, to demand repayment of the deposits from their banks, at any time and any place. Lord Justice Bankes observed in Joachimson v.

bank customer relationship in india

When the bank acts outside the authority conferred by the mandate, effects of such acts will not be binding on the customer and therefore, bank alone would be liable for any loss incurred thereby. There should be no legal impediments to the payment of the cheques. The cheque is also required to be drawn in proper form. Hulls 10 VLR L Weerasooria37 sums up the two courses of action seem to be open to the bank in this context; that is, either dishonor the cheque for want of funds or exercise discretion to grant the customer a temporary overdraft, since drawing of a cheque when funds are insufficient to meet it is equivalent to asking the bank for an overdraft 38 Another important concern for banks is the order of payment of cheques.

Duckworth LR 4 Ex ; Joachimson v. Bank of London 3 F The bank must either pay or refuse the payment by dishonour. The death of the customer terminates the authority given by the customer to the bank and would terminate the bank-customer relationship by operation of law.

It also operates as an automatic countermand of any outstanding cheques. See also, Westminster Bank Ltd. Hilton 43 TLR Punjab National Bank Ltd. See also, Freeman v. Standard Bank of South Africa Ltd. A request by the bank to re-present the cheque amounts to dishonour and the bank would be liable if the dishonour is wrongful.

Relationship between Banker and Customer

Vagliano Bros [] AC at Bank of New South Wales [] Knox However, the Ordinance is silent on what amounts to countermand and, who is entitled to countermand.

Clear, unambiguous, unequivocal and unmistakable instructions of the customer to the bank to stop payment are the prerequisites of an effective countermand. Collecting bank is the bank which collects cheques and receives the payment for the said cheques from the paying bank on behalf of its customer.


The first standard [i. It is also essential that the bank should be informed of the countermand properly. Institute of Bankers of Sri Lanka, at pp. Banking is a trust-based relationship. There are numerous kinds of relationship between the bank and the customer. The relationship between a banker and a customer depends on the type of transaction. Thus the relationship is based on contract, and on certain terms and conditions.

bank customer relationship in india

These relationships confer certain rights and obligations both on the part of the banker and on the customer. However, the personal relationship between the bank and its customers is the long lasting relationship. Some banks even say that they have generation-to-generation banking relationship with their customers. The banker customer relationship is fiducial relationship. The terms and conditions governing the relationship is not be leaked by the banker to a third party.

The relationship between a bank and its customers can be broadly categorized in to General Relationship and Special Relationship. Thus the relationship arising out of these two main activities are known as General Relationship. In addition to these two activities banks also undertake other activities mentioned in Sec.

Relationship arising out of the activities mentioned in Sec. When a 'customer' opens an account with a bank, he fills in and signs the account opening form. When customer deposits money in his account the bank becomes a debtor of the customer and customer a creditor. The bank is not bound to inform the depositor the manner of utilization of funds deposited by him. Bank does not give any security to the depositor i.

The bank has borrowed money and it is only when the depositor demands, banker pays. Banker does not pay money on its own, as banker is not required to repay the debt voluntarily. The demand is to be made at the branch where the account exists and in a proper manner and during working days and working hours.

The debtor has to follow the terms and conditions of bank said to have been mentioned in the account opening form. In fact the terms and conditions are mentioned in the passbook, which is issued to the customer only after the account has been opened. This practice has since been discontinued.

For convenience and information of prospective customers a few banks have uploaded the account opening form, terms and conditions for opening account, rate charge in respect of various services provided by the bank etc. Lending money is the most important activities of a bank.

Special Relationship between the Banker and Customer

The resources mobilized by banks are utilized for lending operations. Customer who borrows money from bank owns money to the bank. The relationship in the first case when a person deposits money with the bank reverses when he borrows money from the bank.

Borrower executes documents and offer security to the bank before utilizing the credit facility. Depending upon the type of services rendered and the nature of transaction, the banker acts as a bailee, trustee, principal, agent, lessor, custodian etc. Bank as a Trustee: In case of trust banker customer relationship is a special contract.

When a person entrusts valuable items with another person with an intention that such items would be returned on demand to the keeper the relationship becomes of a trustee and trustier.

bank customer relationship in india

Customers keep certain valuables or securities with the bank for safekeeping or deposits certain money for a specific purpose Escrow accounts the banker in such cases acts as a trustee. Banks charge fee for safekeeping valuables 2. A "bailment" is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them. The person delivering the goods is called the "bailor".

The person to whom they are delivered is called, the "bailee". Banks secure their advances by obtaining tangible securities. In some cases physical possession of securities goods Pledgevaluables, bonds etc.

While taking physical possession of securities the bank becomes bailee and the customer bailor. Banks also keeps articles, valuables, securities etc.