Customers and Bankers share a fiduciary relationship with one another and build an interconnection between the two on the basis of trust. The terms Customer and Banker have not been defined under any specific statute although, various legal philosophers have tried to define and give an understandable meaning to these terms.
According to H.L.A Hart, a Banker “is one who, in the ordinary course of his business, honours cheques drawn upon him by customers from and for whom he receives money on current accounts.”According to Sir John Paget’s view, “to constitute a customer there must be some recognizable course or habit of dealing in the nature of regular banking business.”
Similarly, the Cambridge dictionary defines the term Banker as “someone with an important position in a bank” and the term Customer as “a person who buys goods or a service”.
Inference can be made from the above definitions that as soon as a person enters a bank in order to avail its services, that person becomes the customer of the bank and the person from whom the services are availed by that customer in a bank can be termed as the banker.
Existence of a legal relationship
Since there is an involvement of transfer of funds between the parties, it is important to establish a relationship which covers in its ambit, legal provisions in order to safeguard the interest of both the parties. Flow of money in these cases are generally unidirectional i.e., the banker pays back the money to the customer which he/she deposited in the bank exception being in the cases of loans.
Inclusion of legal principles in this relationship is necessary not only to safeguard the rights of the parties but also to ensure that a well-established working model exists which can be followed by public at large without any discrepancies.
Legal provisions safeguarding the relationship
Year 1969 proved to be a founding pillar of the banking system in India when the procedure for nationalization of banks was initiated. Several legal frameworks were enunciated in India whose main purpose was to safeguard the rights of the bankers as well as customers. The SARFAESI ACT, 2002 was passed with an objective to provide security to the banking institutions and their assets.
Debt recovery tribunals (DRT) were set up under this act by the amendment of 2016.
The Reserve Bank of India, established in 1934 under the Reserve Bank of India Act, 1934 is the most important body which holds the responsibility of setting ground rules for the Banks and its officials to work in a specified manner.
The Securities Exchange Board of India (SEBI) established in 1992 also put certain restrictions on the bankers and side by side, provide them with reasonable powers.
The Consumer Protection Act 1986 is one such Act which protects the rights of the Customers. Since a banker can be considered as a service provider, their relationship is covered under the consumer protection Act.
Rights and duties of a banker and customer
A banker enjoys many rights. From opening of a bank account to its closing procedure, everything is carried out by the bank officials. Some of the important rights are listed below:
1. A banker has the right to charge interests from the customers but the same must be in consonance with the guidelines of the government authorities.
2. Banks have the right to keep certain goods with them as a security against any loan provided to the customers. These securities can be in terms of both, movable as well as immovable property.
3. Bankers have the right to dishonour the cheques of the customers in certain circumstances although, it can be considered as more of an obligation rather than a right.
4. Right to set-off customer’s accounts in order to bring an equilibrium in debits and credits in the bank.
It must be noted that these rights should be exercised with great caution and care without violating the rights of a customer and maintain the element of trust between the two.
Duties of a banker includes:
1. Foremost duty of the bank is to assure safety to its customers and keep the funds safely. It is the paramount duty of the banker to handle cash and kind with utmost care and caution.
2. Day to day Transactions must be kept safe by the bankers and show the same to its customers.
3. Also, the banker cannot reject the request of the customers to honour cheques as well as provide them with their money at any time.
Customers of the bank are also vested by certain rights and duties which are listed below:
1. Customers have the right to take back their money from the banks whenever needed. The ban authorities cannot question upon such withdrawals unless illegal.
2. On the other hand, Customers owe a duty to pay back the loans if taken.
Roles of a banker
- Banker as a Creditor
A banker plays the role of a creditor only when a loan has been taken by a customer and this position is continued by the bank till the loan is repaid.
- Banker as a debtor
As soon as an account is opened in a bank by any customer, the banker acquires the position of a debtor because it is the holder of the funds which needs to be paid back along with interests.
- Banker as Agents
A banker acts as an agent in cases where he acts as an intermediate for customers. For example, in case of payment of dues and collection of revenues.
- Banker as Beneficiary
Whenever a banker acts as a debtor but on the instructions of the customer in order to perform certain tasks, the position of a beneficiary is acquired. For example: in case of holding money for shares and transactions of repayment.
Discontinuance of the relationship
A relationship tends to terminate whenever there is dissatisfaction between the parties involved or under special circumstances which are listed below.
1. If the customer is not satisfied by the services provided by the banker.
2. If there are chances of winding up of the bank and there is a risk involved in dealing with that bank.
3. If the rules and regulations of the bank are such that the customer is not able to abide by all of them.
4. In cases where the court/tribunal has, by an order or decree asked to terminate the relationship.
5. In case of Death, Unsoundness of the customer in due course of time.
6. If the customer is unable to repay the loans and becomes a proclaimed offender.
Various judgments have been laid down by the higher courts in order to establish a fiduciary relationship between the bankers and the customers.
- In the case of Motigavri vs. NaranjiDwarkadas, the Bombay High court held that the relationship between customer and a banker is that of a borrower and a lender.
- Later, in the case of Canara Bank vs. Canara Sales Corporation and others, a wider approach was taken into consideration and it was held that the relationship between a customer of a bank and a customer is that of a creditor and a debtor. A similar approach was shown by the Madras High Court in the case of Commissioner of Gift-Tax vs. K. M. Ziauddin.
- In a judgment of Surender S/O Laxman Nikose vs. Chief manager and authorised officer, state bank of India, the Bombay High Court held that as soon as the relationship between the banker and the customer ends, all the rights and duties are waived off including banker’s lien.
It is very important to understand the relationship between a banker and a customer since it helps us to understand the foundation of the whole banking system and what all rights and duties vests with both the parties. It also helps us to gather the remedies available in case of breach of duties.
Government of India has also worked hard from time to time by introducing several legal statutes in order to safeguard this relationship and create an exceptional bond between the two.
Banks build a strong economical structure of a nation where customers work as a catalyst and enhance the building process. Courts and Tribunals have also emphasized on the importance of the relationship and therefore it must not be disregarded and both, the bankers as well as customers should interact comprehensively.
Frequently Asked Questions
What is the role of RBI in maintaining the customer banking relationship?
RBI plays an important role in maintaining a sound customer banking relationship. It lays down rules and regulations for the banks which must be abided and spreads awareness among the general public. It can be considered as the head of all the banks in India.
Major roles of RBI include – securitization of banks, laying down policies, ensure fulfilment of rights of the customers etc.
What remedies are available with the customers in case of breach of their rights?
In case of breach of rights of the customers by the bankers, the government has laid down various rules and regulations in the form of statutes to safeguard the customer’s rights and penalties for the banks.
The Consumer Protection Act provides the customers of the bank appropriate remedies. The customers under this Act can be considered as the consumers of the services provided by the banks and in case, these services are not fulfilled, they can approach the court of law.
Edited by Shikhar Shrivastava
Approved & Published – Sakshi Raje
(1927) 29 BOMLR 423
1987 AIR 1603
1998 231 ITR 645 Mad
2013, Bombay High Court