DEFINITION OF BANKING
The term " Banking" is defined in Section 5(b) of Banking Regulation Act,1949.
It is defined as "Accepting for the purpose of lending and investment of deposits of money from public, repayable on demand or otherwise and withdrawable by cheque, draft, order or otherwise".
Thus the characteristic features of banking are to : (1) accept deposits from public, (II) pay cheques, (III) act as intermediary to invest public money in investment and credit.
Section 6 of BR Act.1949 mentions the type of business in banking company can undertake and Section 8 prohibits a bank from engaging itself directly or indirectly in trading activity.
Section 9, prohibits a banking company to hold immovable properties for a period exceeding seven years except those required for own use (for details see banking regulation act, 1949).
DEFINITION OF CUSTOMER
There is no statutory definition of the word "CUSTOMER" .
A customer is a person who has an account with the bank and whose dealing with the bank are in the nature of banking business.
A person, not having a bank account, but availing services from bank like purchasing a draft, remitting money, hiring a locker cannot be strictly termed as customer as such"dealing are casual dealings and are not in the nature of banking business".
A customer can be a person, or any legal entity.
Now in SARFAESI the customer has been defined as person/entity as follows :
- a person who is maintaining account in his own name or whose name the deposit is made.
- any principal beneficial owner of the funds being deposited who is not the account holder or named depositor.
The principal controllers of an account or business relationship.
BANKER & CUSTOMER RELATIONSHIP
The primary relationship between a banker and customer is that of a debtor and creditor (Reason : on opening the SF/CA/term/any deposit account the banker becomes a debtor).
However a banker is different from an ordinary debtor on two accounts, viz.
i) The banker is required to pay the customer only when payment is demanded within business hours of a working day at the branch ( An ordinary debtor should search for his creditor and repay the debt).
ii) For a normal debt, the period of limitation start from the date of debt. However, in case of bank deposits, it starts from the date of demand, by the depositor.
Apart from the primary relationship,thee can be other legal relationship between a bernker and customer depending up to the transaction as given hereunder :
Type of transaction Banker Customer Relationship
1. Acceptance of Deposits Debtor and Creditor
2. Overdraft/loan/CC in debit balance Creditor and Debtor
3. Collection of cheques on behalf of customer Agent & Principal
4. Sale/purchase of securities/shares on
behalf of customer Agent & Principal
5. Carrying in standing instruction
(Like paying insurance premium, etc.) Agent & Principal
6. Issue of Bank DD/MT/TT Agent & Principal
7. Safe custody of article Bailee - Bailor
8. Safe deposit locker Lessor (land lord) - Lessee(tennant)
9. Payee of a Draft & Issuing Bank Trustee-Beneficiary
10. Money tendered to bank pending
instruction for its disposal Trustee - Beneficiary
DUTIES AND RIGHT OD BANKER
The primary duties of a benker can be classified into the following heads
a) Duty of secrecy
b) Duty to honour cheques
c) Duty to submit periodical statement
d) Duty to collect cheques/bills
Rights of Banker
Banker's lien : In terms of Section 171 of Indian Contract Act, inter alias, a banker may, in absence of contract to the contrary, retain as security, for a general balance of account, nay goods bailed to them in ordinary course of business in capacity as banker. This right of a banker is automatic and no agreement/contract is required and hence called general lien. General Line U/s 171 of Indian contract act specifies that lien can be exercised for all his dues and not for a particular due. Lien means right to retain goods in possession (but not to sell) until debit is discharged. But in case of bank, general lien tantamount to " implied pledge". He has the right to sell. Bankers right of general lien is available only over goods and securities received during normal course of business but not over those received for specific purpose as an agent or as a trustee etc. It is also not available if there exists any contract to the contrary. Right of lien is lost when possession is lost. It is available on goods and securities and not on money or any other thing except goods and securities. Lien is available on bills, cheque, P/N etc. delivered to bank in the capacity of banker.
A reasonable notice is must before selling the goods/securities under lien of a bank. Banker's right of lien is not barred by law of limitation.
There may be particular lien over particular goods as per specific contract or even a negative lien i,e an undertaking not to alienate a security without specific consent of the bank.
Right of set off : Banker has a right to combine two or more accounts, if one of lthem is in debit, of a customer in the same name and same right. This right is not aailable if there is an agreement (express of implied) for not exercising this right. This lsright can only be exercised, when debit balance is certain. Care be taken that :
- An account in the individual capacity of the Customer showing debit balance can not be combined with one in fiduciary capacity (i.e. trustee etc.) showing credit balance.
- Accounts really belonging to same person, but in different names can be combined. Thus an account of sole proprietorship concern may be combined with hqt in the personal name.
- Two accounts, of a solicitor, one inhis poersonal name and other marked clients account can not be combined.
- Two accounts, one belonging to an individual and other jointly with someone, can't be combined. The right can't be exercised if the deposit is in the firm name and debt due is in partner's name, and also when deposit is in the dividend account of company and borrowing is in the company's name. But if deposit is in the single name and borrowing is in the joint name with joint and severally liability, and deposits are in partner's name and borrowing by firm and also deposit in joint names payable to former or survivor and borrowing is in the name of former, this right can be exercised.
- The right can be exercised only when debt is due.
- The right should be exercised after giving due notice, unless a contract to the contraty exists.
- The right may be exercised before the garnishee order is made effective.
- The right is available on time barred debts and can be exercised also in case of insolvency Death, and Lunacy of customer.
The aforesaid right to combine accounts is available to bank only.The customer can not combine his two or more accounts and hence can not expect bank to honour cheques, drawn on one account, if balances are not sufficient in that account, but is so into other one.
TERMINATION OF BANKER CUSTOMER RELATIONSHIP
The banker customer relationship stands terminated on the (i) death, (ii) insolvency, (iii) lunacy of the customer. On the happening of any of these events the bank must stop operation of the account and stop payment of cheques.
The banker customer relationship is not affected by reason of (i) arrest of the customer, (ii) imprisonment of the customer, (iii) migration of customer to foreign country and such other reason.
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Section 6 of BR Act.1949 mentions the type of business in banking company can undertake and Section 8 prohibits a bank from engaging itself directly or indirectly in trading activity.
Section 9, prohibits a banking company to hold immovable properties for a period exceeding seven years except those required for own use (for details see banking regulation act, 1949).
DEFINITION OF CUSTOMER
There is no statutory definition of the word "CUSTOMER" .
A customer is a person who has an account with the bank and whose dealing with the bank are in the nature of banking business.
A person, not having a bank account, but availing services from bank like purchasing a draft, remitting money, hiring a locker cannot be strictly termed as customer as such"dealing are casual dealings and are not in the nature of banking business".
A customer can be a person, or any legal entity.
Now in SARFAESI the customer has been defined as person/entity as follows :
- a person who is maintaining account in his own name or whose name the deposit is made.
- any principal beneficial owner of the funds being deposited who is not the account holder or named depositor.
The principal controllers of an account or business relationship.
BANKER & CUSTOMER RELATIONSHIP
The primary relationship between a banker and customer is that of a debtor and creditor (Reason : on opening the SF/CA/term/any deposit account the banker becomes a debtor).
However a banker is different from an ordinary debtor on two accounts, viz.
i) The banker is required to pay the customer only when payment is demanded within business hours of a working day at the branch ( An ordinary debtor should search for his creditor and repay the debt).
ii) For a normal debt, the period of limitation start from the date of debt. However, in case of bank deposits, it starts from the date of demand, by the depositor.
Apart from the primary relationship,thee can be other legal relationship between a bernker and customer depending up to the transaction as given hereunder :
Type of transaction Banker Customer Relationship
1. Acceptance of Deposits Debtor and Creditor
2. Overdraft/loan/CC in debit balance Creditor and Debtor
3. Collection of cheques on behalf of customer Agent & Principal
4. Sale/purchase of securities/shares on
behalf of customer Agent & Principal
5. Carrying in standing instruction
(Like paying insurance premium, etc.) Agent & Principal
6. Issue of Bank DD/MT/TT Agent & Principal
7. Safe custody of article Bailee - Bailor
8. Safe deposit locker Lessor (land lord) - Lessee(tennant)
9. Payee of a Draft & Issuing Bank Trustee-Beneficiary
10. Money tendered to bank pending
instruction for its disposal Trustee - Beneficiary
DUTIES AND RIGHT OD BANKER
The primary duties of a benker can be classified into the following heads
a) Duty of secrecy
b) Duty to honour cheques
c) Duty to submit periodical statement
d) Duty to collect cheques/bills
Rights of Banker
Banker's lien : In terms of Section 171 of Indian Contract Act, inter alias, a banker may, in absence of contract to the contrary, retain as security, for a general balance of account, nay goods bailed to them in ordinary course of business in capacity as banker. This right of a banker is automatic and no agreement/contract is required and hence called general lien. General Line U/s 171 of Indian contract act specifies that lien can be exercised for all his dues and not for a particular due. Lien means right to retain goods in possession (but not to sell) until debit is discharged. But in case of bank, general lien tantamount to " implied pledge". He has the right to sell. Bankers right of general lien is available only over goods and securities received during normal course of business but not over those received for specific purpose as an agent or as a trustee etc. It is also not available if there exists any contract to the contrary. Right of lien is lost when possession is lost. It is available on goods and securities and not on money or any other thing except goods and securities. Lien is available on bills, cheque, P/N etc. delivered to bank in the capacity of banker.
A reasonable notice is must before selling the goods/securities under lien of a bank. Banker's right of lien is not barred by law of limitation.
There may be particular lien over particular goods as per specific contract or even a negative lien i,e an undertaking not to alienate a security without specific consent of the bank.
Right of set off : Banker has a right to combine two or more accounts, if one of lthem is in debit, of a customer in the same name and same right. This right is not aailable if there is an agreement (express of implied) for not exercising this right. This lsright can only be exercised, when debit balance is certain. Care be taken that :
- An account in the individual capacity of the Customer showing debit balance can not be combined with one in fiduciary capacity (i.e. trustee etc.) showing credit balance.
- Accounts really belonging to same person, but in different names can be combined. Thus an account of sole proprietorship concern may be combined with hqt in the personal name.
- Two accounts, of a solicitor, one inhis poersonal name and other marked clients account can not be combined.
- Two accounts, one belonging to an individual and other jointly with someone, can't be combined. The right can't be exercised if the deposit is in the firm name and debt due is in partner's name, and also when deposit is in the dividend account of company and borrowing is in the company's name. But if deposit is in the single name and borrowing is in the joint name with joint and severally liability, and deposits are in partner's name and borrowing by firm and also deposit in joint names payable to former or survivor and borrowing is in the name of former, this right can be exercised.
- The right can be exercised only when debt is due.
- The right should be exercised after giving due notice, unless a contract to the contraty exists.
- The right may be exercised before the garnishee order is made effective.
- The right is available on time barred debts and can be exercised also in case of insolvency Death, and Lunacy of customer.
The aforesaid right to combine accounts is available to bank only.The customer can not combine his two or more accounts and hence can not expect bank to honour cheques, drawn on one account, if balances are not sufficient in that account, but is so into other one.
TERMINATION OF BANKER CUSTOMER RELATIONSHIP
The banker customer relationship stands terminated on the (i) death, (ii) insolvency, (iii) lunacy of the customer. On the happening of any of these events the bank must stop operation of the account and stop payment of cheques.
The banker customer relationship is not affected by reason of (i) arrest of the customer, (ii) imprisonment of the customer, (iii) migration of customer to foreign country and such other reason.
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