Obligations of Banker
The relationship between the banker and customers creates some obligations on the part of a bank. The fundamental obligations of a banker towards it’s customers are as follows:
1. Obligation of Banker to Honour Cheques
The bank has a statutory obligation to honour the cheques of its customers up to the amount standing to the credit of the customer’s account. If a bank wrongfully refuses to honour the cheque of its customer, the bank shall be liable to compensate the customer. This obligation is subject to some conditions, namely:
a) There must be sufficient funds of the customer in the hands of the bank.
b) The funds must be properly applicable for the payment of the customer’s cheque.
c) The cheque must be properly drawn up i.e., it should be complete in all respects.
d) The cheque must be presented for payment within a reasonable time(within 90 days from the date of issue).
e) There must be no legal bar preventing the payment of such cheques. If the bank has received any order from a court or any other competent authority prohibiting payment, it is the duty of the bank to obey such orders.
2. Obligation of banker to Maintain Secrecy
The banker must not disclose to any outsider the details about the customer’s account; as such disclosures may adversely affect the credit and business of the customer. However, a disclosure can be made under the following two situations:
(a) When the law requires such disclosures to be made, and
(b) when the practices amongst the banks permit such disclosure.
3. Obligation of Banker to Maintain Proper Records
The banker is under an obligation to maintain accurate record of all the transactions(credits and debits) of the customers made with the bank.
4. Obligation of Banker to Follow Customer’s Instructions
The banker is under a legal obligation to follow the instructions of the customer. This is so because there is the contractual relationship between the bank and the customer.
5. Obligation of Banker to give Notice before Closing the Account
If a banker wishes to close the account of a customer, it must give a reasonable notice to this effect to the customer.
Thus, a bank cannot close the account of a customer on its own wish, because it may have serious consequences to the customer.
Rights of Banker
For fulfilling the obligations towards the customers, bankers enjoy some rights. The following are the rights available to a Banker:
1. Right of General Lien
One of the most important rights enjoyed by a bank is the right of general lien. Lien is a right of a person to retain goods belonging to another; until the demands of the person in possession are satisfied. Section 171 of the Indian Contract Act confers the right of general lien on the bankers. General lien entitles the banker in possession to retain goods and securities till all its claims against the customer are satisfied. You should note that the banker can exercise his right of general lien only as a banker and not as a bailee, Banker’s lien is an implied pledge in the sense that if a default is made by the debtor, the banker can, after giving a reasonable notice to the customer, sell the goods in his possession and recover the amount. If some valuables are deposited with a bank for safe custody, then it is bailment and the bank cannot exercise the right of general lien.
You should note that the right of general lien cannot be exercised in the following cases:
a) When valuables are deposited for safe custody,
b) When money or documents are deposited for a specific purpose,
c) When some securities are left with the bank by mistake,
d) When the property is held by the customer as trustee and the bank has the notice of trust, and
e) When there is an express agreement that the bank shall not exercise the right of general lien.
2. The Right of Set-off
Right of set-off is the right of a debtor to adjust the amount due to him from a creditor against the amount payable by him to the creditor to determine the net balance payable by one to another, Like any other debtor, a bank also has a right of set- off. When a customer has two or more accounts in the same name and capacity in a bank, the bank has the right to adjust the amount standing to the credit of the customer against the debit balance in the other account. The bank has a right to combine the two accounts.
Let’s take an example: Mr Ram has overdrawn his current account to the extent of Rs. 1,00,000 and he has a credit balance of Rs.80,000 in his savings account. The bank can combine these two accounts and claim the balance of Rs.20,000 after adjusting the credit balance of savings account against the debit balance of current account,
3. Right of Appropriation
A customer may owe several distinct debts to the bank. When the customer deposits some money in the bank without specific instructions and the amount is not sufficient to discharge all debts, then the problem arises as towards which debt this amount should be adjusted. In the absence of any specific instructions, the bank has the right to appropriate the deposited amount to any loan, even to a time barred debt. But the banker must inform the customer about the appropriation.
4. Right to Charge Interest and Commission
The bank has the implied right to charge interest on loans and advances, and also to charge commission for services rendered by the bank, such as SMS notification service, retail banking, multi city cheque service etc. The bank can debit such charges to the customer’s account.
5. Right to Close the Account
If the bank is of the opinion that an account is not being operated properly, it may close the account by sending a written intimation to the customer. But the notice is mandatory, without sending such notice a banker can not close any customer’s account.
Termination of Banker – Customer Relationship
The relationship between banker and customer terminates in the following grounds:
a. Voluntary termination.
b. Death of the customer
c. Bankruptcy of the customer
d. Liquidation of the company
e. Insanity of the customer