1. T. .M Jacob Memorial Government College, Manimalakunnu, Koothattukulam
Department of Economics
Banker-customer relation Prepared by Anjali Prakash, Assistant Professor of Economics

2. Banker- definition
Till the passing of Indian Companies Act: No legal definition.
First attempt by Hilton-Young Commission.
Herbert L Hart:,…..” Law of Banking”.
“a banker is one who in the ordinary course of business honors cheque drawn upon him by persons, from & for whom receives money on current account.”

3. Banker – 2 functions
Receive current deposits
2. Permit the depositors to draw cheques against their deposits.

4. Customer -definition No generally accepted definition
No legal definition
Lord Davey:
“a person who has “some sort of an account with a banker”.
Sir John Paget:
“ to constitute a customer there must be some recognizable course or habit of dealing in the nature of regular banking business”.

5. Classification of relationship
General relationship
a. Relation of debtor & creditor
b. Relation of agent & principal
c. Relation of trustee & beneficiary
Special relationship
a. Obligation or duties
i. Obligation to maintain secrecy
ii. Obligation to honor cheques

6. b. Rights of banker. i. General lien. ii. Right to combine accounts
b. Rights of banker i. General lien ii. Right to combine accounts iii. Right to appropriation iv. Right to get interest, commission & incidental charges

7. Relation of debtor & creditor
General relationship
Debtor & creditor:
When deposited..no longer the property of depositor.
Bank: get exclusive right over it…can use it as it likes…safely…lend at higher interest than what he pay for the customer…difference is profit….retained.
Bank liable to repay..hence…debtor…customer …creditor.
If his a/c is overdrawn/ loaned….reverse
Relation of debtor & creditor
Relation of agent & principal
Relation of trustee & beneficiary

8. Relation of debtor & creditor
General relationship
Relation of agent & principal: Sec 6, Banking Regulation act, 1949 provides legal sanction. Banker acts as the agent of the customer by performing such agency functions: collection of cheques, bills & promissory notes are undertaken by banker. Purchase and sale of securities, collection of interest & dividend, payment of subscription to clubs and societies etc. the customer is the principal.
Relation of debtor & creditor
Relation of agent & principal
Relation of trustee & beneficiary

9. Relation of trustee & beneficiary:
General relationship
Relation of trustee & beneficiary:
Banker act as trustee of customer…..by
accepting valuable for safe custody…
Now customer: beneficiary.
Banker has an obligation to return…then the ownership of the valuables is retained by the depositor.
Relation of debtor & creditor
Relation of agent & principal
Relation of trustee & beneficiary

10. Special relation Obligation to honor cheques
Obligation or duties
Rights of banker
Obligation to honor cheques
Obligation to maintain secrecy regarding customers’ accounts.
General lien
Right to combine accounts
Right to appropriation
Right to get interest, commission & incidental charges.

11. Obligation to honor cheques
Obligation or duties
Obligation to honor cheques Banker must honor cheques drawn by the customers against his deposit…if: ….balance sufficient / made an agreement for an over draft .... presented within a reasonable time . …No prohibitory order of the court against the account (Garnishee order) No legal obligation to honor stale cheque..do not exceed three months …Reasonable time for banker to credit funds before they can be drawn …Now a days …needs no time.
Obligation to honor cheques
Obligation to maintain secrecy regarding customers’ accounts.

12. Obligation to honor cheques
Obligation or duties
Obligation to maintain secrecy regarding customers’ accounts: Such disclosure may harm to their credit & business Otherwise… liable to pay damages Obligations on the part of the banker will not end even with the closing of the customers’ account.
Obligation to honor cheques
Obligation to maintain secrecy regarding customers’ accounts.

13. Right to combine accounts.
Rights of banker
Lien: a. Particular b. General Particular: right to detain the goods belonging to another, for the discharge of a debt or liability which had risen in respect of these goods. General: right to detain goods belonging to another, not only for the discharge of debt or liability incurred in connection with them but also for a general balance of account between their owner & the person detaining the goods.
Lien.
Right to combine accounts.
Right to appropriation.
Right to get interest, commission & incidental charges.

14. Right to combine accounts.
Rights of banker
Right to combine accounts: Two accounts in the name of one person in same bank….. If balance in one a/c insufficient …..the bank can combine the two a/c’s…..to effect a transaction….. In such a case the banker must inform the customer about it.
Lien.
Right to combine accounts.
Right to appropriation.
Right to get interest, commission & incidental charges.

15. Right to appropriation:
Rights of banker
Right to appropriation:
More accounts in the name of one person….bank has to act with respect to the instruction of the customer about adjusting the a/c amounts to effect the transaction.
In case of absence of direction from customer …banker can apply the transaction to any debt of the debtor…even time barred debt….if done it is irrevocable.
The Clayton’s case applies….the first debt will be settled first….in case of absence of appropriation by either party.
Lien.
Right to combine accounts.
Right to appropriation.
Right to get interest, commission & incidental charges.

16. Right to combine accounts.
Rights of banker
Right to get interest, commission & incidental charges. Interest: on all outstanding amounts…. Commission: Act as agents…for such agent services…legitimate right to charge a commission… While collecting cheques, accepts & pay bill of exchange etc. Incidental charges: some accounts are unremunerative to maintain. When amount falls below minimumbalance.
Lien.
Right to combine accounts.
Right to appropriation.
Right to get interest, commission & incidental charges.

17. END