BANKER - CUSTOMER RELATIONSHIP

The relationship between a banker and a customer depends on the activities; products or services
provided by bank to its customers or availed by the customer. Thus the relationship between a
banker and customer is the transactional relationship. Bank’s business depends much on the
strong bondage with the customer. “Trust” plays an important role in building healthy
relationship between a banker and customer.

The relationship between a banker and a customer depends on the activities; products or services
provided by bank to its customers or availed by the customer. Thus the relationship between a
banker and customer is the transactional relationship. Bank’s business depends much on the
strong bondage with the customer. “Trust” plays an important role in building healthy
relationship between a banker and customer.

Thus bank customers can be categorized in to four broad categories as under:

 Those who maintain account relationship with banks i.e. Existing customers.
 Those who had account relationship with bank i.e. Former Customers
 Those who do not maintain any account relationship with the bank but frequently visit
branch of a bank for availing banking facilities such as for purchasing a draft, encashing a
cheque, etc. Technically they are not customers, as they do not maintain any account with
the bank branch.
 Prospective/ Potential customers: Those who intend to have account relationship
with the bank. A person will be deemed to be a ‘customer’ even if he had only
handed over the account opening form duly filled in and signed by him to the bank
and the bank has accepted the it for opening the account, even though no
account has actually been opened by the bank in its books or record.

Definition of a ‘BANKER’
The Banking Regulations Act (B R Act) 1949 does not define the term ‘banker’ but defines what
banking is ?

As per Sec.5 (b) of the B R Act “Banking' means accepting, for the purpose of lending or
investment, of deposits of money from the public repayable on demand or otherwise and
withdrawable by cheque, draft, order or otherwise."

As per Sec. 3 of the Indian Negotiable Instruments Act 1881, the word “banker includes any
person acting as banker and any post office savings bank”.

According to Sec. 2 of the Bill of Exchange Act, 1882, ‘banker includes a body of persons,
whether incorporated or not who carry on the business of banking.’

Sec.5(c) of BR Act defines "banking company" as a company that transacts the business of
banking in India. Since a banker or a banking company undertakes banking related activities we
can derive the meaning of banker or a banking company from Sec 5(b) as a body corporate that:

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 (a) Accepts deposits from public.
(b) Lends or
(c) Invests the money so collected by way of deposits.
(d) Allows withdrawals of deposits on demand or by any other means.

Accepting deposits from the ‘public’ means that a bank accepts deposits from anyone who offers
money for the purpose. Unless a person has an account with the bank, it does not accept deposit.
For depositing or borrowing money there has to be an account relationship with the bank. A bank
can refuse to open an account for undesirable persons. It is banks right to open an account.
Reserve Bank of India has stipulated certain norms “Know Your Customer” (KYC)
guidelines for opening account and banks have to strictly follow them. In addition to the
activities mentioned in Sec.5 (b) of B R Act, banks can also carry out activities mentioned in
Sec. 6 of the Act.

Who is a ‘Customer’?
The term Customer has not been defined by any act. The word ‘customer’ has been derived from
the word ‘custom’, which means a ‘habit or tendency’ to-do certain things in a regular or a
particular manner’s .In terms of Sec.131 of Negotiable Instrument Act, when a banker receives
payment of a crossed cheque in good faith and without negligence for a customer, the bank does
not incur any liability to the true owner of the cheque by reason only of having received such
payment. It obviously means that to become a customer account relationship is must. Account
relationship is a contractual relationship.

It is generally believed that any individual or an organisation, which conducts banking

transactions with a bank, is the customer of bank. However, there are many persons who do
utilize services of banks, but do not maintain any account with the bank.
The practice followed by banks in the past was that for opening account there has to be an initial
deposit in cash. However the condition of initial cash deposit for opening the account appears to
have been dispensed with the opening of Basic Savings Bank Deposit Account ( BSBD), { As
per directives of Reserve Bank of India, ealier ‘No Frill’ accounts are required to be converted
into BSBD accounts).

The term 'customer' is used only with respect to the branch, where the account is maintained. He
cannot be treated as a ‘customer' for other branches of the same bank. However with the
implementation of’ ‘Core Banking Solution’ the customer is the customer of the bank and not of
a particular branch as he can operate his account from any branch of the bank and from
anywhere. In the event of arising any cause of action, the customer is required to approach the
branch with which it had opened account and not with any other branch.

‘Know Your Customer’ Guidelines and Customer:

As per ‘Know Your Customer’ guidelines issued by Reserve Bank of India, customer has been
defined as:
a) A person or entity that maintains an account and/or has a business relationship
with the bank;
b) One on whose behalf the account is maintained (i.e. the beneficial owner);

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c) Beneficiaries of transactions conducted by professional intermediaries, such as
Stock Brokers, Chartered Accountants, Solicitors etc. as permitted under the
law, and
d) Any person or entity connected with a financial transaction, which can pose
significant reputational or other risks to the bank, say, a wire transfer or
issue of a high value demand draft as a single transaction.

Banker-Customer Relationship:

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.

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.

Classification of Relationship:
The relationship between a bank and its customers can be broadly categorized in to General
Relationship and Special Relationship. If we look at Sec 5(b) of Banking Regulation Act, we
would notice that bank’s business hovers around accepting of deposits for the purposes of
lending. 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.6 of Banking Regulation Act. Relationship arising out of the activities mentioned in Sec.6
of the act is termed as special relationship.

General Relationship:
1. Debtor-Creditor: When a 'customer' opens an account with a bank, he fills in and signs the
account opening form. By signing the form he enters into an agreement/contract with the bank.
When customer deposits money in his account the bank becomes a debtor of the customer and
customer a creditor. The money so deposited by customer becomes bank’s property and bank has
a right to use the money as it likes. 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.e.
debtor. The bank has borrowed money and it is only when the depositor demands, banker pays.
Bank’s position is quite different from normal debtors.

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.

While issuing Demand Draft, Mail / Telegraphic Transfer, bank becomes a debtor as it owns
money to the payee/ beneficiary.

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2. Creditor–Debtor: Lending money is the most important activities of a bank. The resources
mobilized by banks are utilized for lending operations. Customer who borrows money from bank
owns money to the bank. In the case of any loan/advances account, the banker is the creditor and
the customer is the debtor. 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.
In addition to opening of a deposit/loan account banks provide variety of services, which makes
the relationship more wide and complex. Depending upon the type of services rendered and the
nature of transaction, the banker acts as a bailee, trustee, principal, agent, lessor, custodian etc.

Special Relationship:
1. Bank as a Trustee: As per Sec. 3 of Indian Trust Act, 1882 ‘ A "trust" is an obligation
annexed to the ownership of property, and arising out of a confidence reposed in and accepted by
the owner, or declared and accepted by him, for the benefit of another, or of another and the
owner.’ Thus trustee is the holder of property on behalf of a beneficiary.

As per Sec. 15 of the ‘Indian Trust Act, 1882 ‘A trustee is bound to deal with the trust-
property as carefully as a man of ordinary prudence would deal with such property if it were his
own; and, in the absence of a contract to the contrary, a trustee so dealing is not responsible for
the loss, destruction or deterioration of the trust-property.’ A trustee has the right to
reimbursement of expenses (Sec.32 of Indian Trust Act.).

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. 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. Bailee – Bailor: Sec.148 of Indian Contract Act, 1872, defines "Bailment" "bailor" and
"bailee". 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 (Pledge), valuables, bonds etc., are taken. While taking physical possession of
securities the bank becomes bailee and the customer bailor. Banks also keeps articles, valuables,
securities etc., of its customers in Safe Custody and acts as a Bailee. As a bailee the bank is
required to take care of the goods bailed.
3.Lessor and Lessee: Sec.105 of ‘Transfer of property Act 1882’ defines lease, Lessor, lessee,
premium and rent. As per the section “A lease of immovable property is a transfer of a right to
enjoy such property, made for a certain time, express or implied, or in perpetuity, in
consideration of a price paid or promised, or of money, a share of crops, service or any other
thing of value, to be rendered periodically or on specified occasions to the transferor by the
transferee, who accepts the transfer on such terms.”

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Definition of Lessor, lessee, premium and rent:
(1)The transferor is called the lessor,
(2)The transferee is called the lessee,
(3)The price is called the premium, and
(4)The money, share, service or other thing to be so rendered is called the rent.”

Providing safe deposit lockers is as an ancillary service provided by banks to customers. While
providing Safe Deposit Vault/locker facility to their customers bank enters into an agreement
with the customer. The agreement is known as “Memorandum of letting” and attracts stamp
duty.

The relationship between the bank and the customer is that of lessor and lessee. Banks lease (hire
lockers to their customers) their immovable property to the customer and give them the right to
enjoy such property during the specified period i.e. during the office/ banking hours and charge
rentals. Bank has the right to break-open the locker in case the locker holder defaults in payment
of rent. Banks do not assume any liability or responsibility in case of any damage to the contents
kept in the locker. Banks do not insure the contents kept in the lockers by customers.

4. Agent and Principal: Sec.182 of ‘The Indian Contract Act, 1872’ defines “an agent” as a
person employed to do any act for another or to represent another in dealings with third persons.
The person for whom such act is done or who is so represented is called “the Principal”.

Thus an agent is a person, who acts for and on behalf of the principal and under the latter’s
express or implied authority and the acts done within such authority are binding on his principal
and, the principal is liable to the party for the acts of the agent.

Banks collect cheques, bills, and makes payment to various authorities viz., rent, telephone bills,
insurance premium etc., on behalf of customers. . Banks also abides by the standing instructions
given by its customers. In all such cases bank acts as an agent of its customer, and charges for
these services. As per Indian contract Act agent is entitled to charges. No charges are levied in
collection of local cheques through clearing house. Charges are levied in only when the cheque is
returned in the clearinghouse.

5. As a Custodian: A custodian is a person who acts as a caretaker of something. Banks take

legal responsibility for a customer’s securities. While opening a dmat account bank becomes a
custodian.

6. As a Guarantor: Banks give guarantee on behalf of their customers and enter in to their
shoes. Guarantee is a contingent contract. As per sec 31,of Indian contract Act guarantee is a "
contingent contract ". Contingent contract is a contract to do or not to do something, if some
event, collateral to such contract, does or does not happen.

7. Hypothecator and Hypothecatee: When the customer hypothecates (pledges) certain

movable or non-movable property or assets with the banker in order to get a loan, the customer
became the Hypothecator, and the Banker became the Hypothecatee.

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8. Trustee and Beneficiary: A trustee holds property for the beneficiary, and the profit earned
from this property belongs to the beneficiary. If the customer deposits securities or valuables
with the banker for safe custody, banker becomes a trustee of his customer. The customer is the
beneficiary so the ownership remains with the customer.
9. Advisor and Client: When a customer invests in securities, the banker acts as an advisor. The
advice can be given officially or unofficially. While giving advice the banker has to take
maximum care and caution. Here, the banker is an Advisor, and the customer is a Client.
It would thus be observed that banker customer relationship is transactional relationship.

Termination of relationship between a banker and a customer:

The relationship between a bank and a customer ceases on:
(a) The death, insolvency, lunacy of the customer.
(b) The customer closing the account i.e. Voluntary termination
(c) Liquidation of the company
(d) The closing of the account by the bank after giving due notice.
(e) The completion of the contract or the specific transaction
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Recap

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 Types of customers for a bank

Banks offer a variety of accounts to its customers starting from minor accounts, mandate holders,
accounts for illiterates, blind people, partnership firms, LLPs and so on. A bank offers different
types of accounts to its customers having different requirements.

Bank Accounts for Individuals & Joint accounts

Bank accounts for Minors

A minor is a person who has not attained the age of 18 years. A person will become major at the
age of 18 whether guardian is natural or appointed by a court of law.

Guardians: There can be three types of guardians

 Natural guardians like father, mother

 Testamentary Guardian: A Guardian appointed by Will. Natural guardian may appoint
somebody to act as guardian after his or her death through will. But such guardian will
come into picture only on the death of natural guardian.
 Legal guardians: A Guardian appointed by Court. If neither natural or testamentary
guardian then appointed by court.

Loan to minor: Banks do not grant overdraft / loan to a minor, even if security is provided
because a contract with minor is void, and the bank will not be able to recover the loan.
 As per section 11 of the Indian Contract Act, 1872 a minor is not competent to enter into
a contract and the contract entered into by him is void ab-initio.

Bank accounts of Visually Challenged (Blind) Persons

 A visually challenged person is competent to the contract like any other person.
 Signature or thumb impression of the blind person should be attested by an independent
witness to the effect that all terms and conditions were properly explained to the blind
person in his presence.
 Cash deposit and withdrawal by blind person should be handled by the officer of the
bank.
 RBI has advised banks to ensure that all the banking facilities such as cheque book
facility including third party cheques, ATM facility, Net banking facility, locker facility,
retail loans, credit cards etc are invariably offered to the visually challenged without any
discrimination.

Bank accounts of Illiterate Persons

 An illiterate person is competent to contract like any other person.

 Cheque book is not issued to illiterate depositor for cash payments.
 Cheque book can be issued for making statutory payments, post dated cheques for
repayment of instalments of loan. In such cases, the cheques will be crossed account
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 payee and thumb impression of the illiterate depositor will be verified on such cheques at
the time of issue of cheque book by competent authority of the bank.

Accounts for Partnership Firms:

Partnership is the relation between persons who have agreed to share the profits of a business
carried on by all or any of them acting for all.

 A partnership firm should have minimum 2 partners. As per Companies Act 2013, an
association of more than 100 persons which is not registered as Company or
Society will be an illegal association. Therefore, maximum number of partners can be
100. (As per Companies Act 1956, maximum number of partners could be 20 for any
business other than banking and 10 for banking business).
 Only a person competent to contract can become partner. Minor, insolvent, insane cannot
become partners A company and a firm can become partner in another firm.
 HUF can not become partner as per judgement of the Supreme Court because HUF is
neither a legal person nor a natural person and can not be liable for action of others.
 Partnership can be oral or in writing.
 For opening account of a partnership firm, all partners are required to sign Account
opening form except minor who is admitted for benefits of firm.
 On the death, insolvency or insanity of a partner, the partnership is dissolved and
operations are stopped. The cheques signed by the deceased, insane or insolvent partner
will not be paid. If the account is in credit, operations are allowed for winding up of the
firm.

Accounts for LLP Firms:

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Limited Liability Partnership is governed by Limited Liability Partnership Act 2008. Minimum
number of partners is 2 but there is no limit on number of partners. An individual or a body
coporate can be a member of an LLP. Liability of partner is limited to the extent of his
contribution in the firm. A partner shall not be personally liable.

For opening account of a limited company bank should obtain the following:

1. Memorandum of Association: It contains name of the Company, its authorised capital,

registered office and liability of shareholders, objects of the company etc.
2. Articles of Association: It lays down the internal working of the company like rights and
powers of the directors, rules of conducting meetings, borrowing power of directors etc.
3. Certificate of incorporation: It is equivalent to birth registration certificate of the
company.
4. Resolution of Board of Directors which is passed by the Board of Directors authorising
opening and operation of the account by named officials of the company.
5. While opening account of a limited company, no introduction is required as Certificate of
incorporation is sufficient for that purpose. However, KYC norms are required to be
applied on all persons authorized to operate the account of company.
6. Operational Authority: The operational authority is decided by Board Resolution. Any
change in operational authority is also as per Board Resolution. Stop payment of a
cheque and revocation of stop payment will be as per operational authority. The directors
can not delegate their authority to any other person.
7. Winding up of company: Winding up can be (a) voluntary (b) Compulsory by court (c)
through court supervision

Accounts for Hindu Undivided Family (HUF):

HUF is neither a legal person nor a natural person. It is not created by agreement. It is not
incorporated under any Act. It is from a common ancestor and membership is by birth or
adoption. The property owned by this family will be through lineal ascendants or any
ancestors. An HUF, or a Hindu Undivided Family, is a separate tax entity in addition to
individual persons who are members of such an undivided family. An undivided family is one
where the property hasn’t been partitioned among the sons and daughters.

There are a few features of HUF account that makes it different from regular saving bank
accounts.

 Karta of a HUF is the senior most male member of the family and in financial terms he
can also be called manager of the family.
 In this account a corpus is created where every family member can pool their income.
 The corpus will be handled by or authorized to handle by Karta (head of the family).
 Signature of karta will be required for every transaction from the bank.
 HUF can not be partner as per Supreme Court Judgement.
 HUF will have a unique PAN card; this PAN card along with the PAN of Karta should be
produced.

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Accounts for Trusts:

Trusts can be of two types –

 private trusts where beneficiaries are certain specified individuals or groups

 public trusts where beneficiary is public at large.

Documents Needed
While opening account for a trust, the bank obtains the following documents from the trust:

1. A copy of the constitution of the trust

2. The trust deed, if available
3. Testament of enrolment and an affirmed duplicate of the passage of the general
population trust’s register
4. Open Trust Register Number.
5. A rundown of the present trustees and the power designating them as trustees.
6. The vital determination went by the trustees for opening the record with the bank.
7. Attested duplicate of the determination marked by every one of the trustees on the
behaviour of the record.

For Trusts which have no constitution, instruments of trust or plan is required. The operation and
other aspects of the bank account are to be conducted as per the Trust Deed. If trust deed is silent
about operational authority, all trustees have to operate the account jointly. Death or insolvency
of a trustee does not affect the trust property and the bank can pay cheques issued by the
deceased trustee prior to his death.

Accounts for Clubs and Societies

 For opening account of Clubs and Societies bank will require Certificate of Registration,
Bye laws of the Society, and resolution of Managing Committee or Executive
Committee.
 Operational Authority will be as per resolution of Managing Committee.
 Change in Operational authority as per resolution of Managing Committee.
 Stop payment and revocation of stop payment as per Operational Authority.
 Cheque signed by the secretary or treasurer or president of society and presented after his
death can be paid if otherwise in order.
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What is a Cheque – Definition, Types of Cheque and Features

Meaning of Cheque – Different Types of Cheque : Cheque is a negotiable instrument used to

make payment in day to day business transaction minimizing the risk and possibility of loss. It is
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used by individuals, businesses, corporate and others to transact for making and receiving
payment.

Definition of Cheque – What is a Cheque ?

As per negotiable instrument act 1881, A “cheque” is a bill of exchange drawn on a specified
banker and not expressed to be payable otherwise than on demand.

There are three parties in Cheque Transaction – Drawer, Drawee and Payee.

Drawer (Maker of Cheque) – The person who issue the cheque or hold the account with
bank.
Drawee – The Person who is directed to make the payment against cheque. In case of
cheque, it is bank.
Payee – A person whose name is mentioned in the cheque or to whom the drawee makes
payment. If drawer has drawn the cheque in favour of self then drawer is payee.
 Payment by Cheque is safest way to conduct business transactions as it helps to maintain
record in account statement to whom the payment is made by whom payment is received.
So it becomes easier to track the transactions through bank account statement.

Different Types of Cheque : There are different types of Cheques depending on how the
drawer has issued the Cheque.

 Open / Bearer Cheque

 Order Cheque
 Crossed Cheque
 Anti Dated Cheque
 Post Dated Cheque
 Stale Cheque
 Mutilated Cheque

Open / Bearer Cheque

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This type of Cheques are risky in nature for drawer. When the word “Bearer” on the cheque is
not crossed or cancelled, the cheque is called a bearer cheque. Open / Bearer Cheques are
payable to person specified in the instrument or any person who posses it and present for
payment over the counter. In case of cheque is lost, person who find it can collect payment from
the bank.

Order Cheque

When the word “Bearer” written on cheque is crossed or cancelled it becomes an order cheque.
An order Cheque is payable to a specified person named in the cheque or any other to whom it is
endorsed.

Crossed Cheque or Account Payee Cheque

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The person who issue or write the cheque specify its as account payee by simply making two
parallel lines on top left or middle or right hand corner of the cheque. This type of cheque can
not be encashed over the counter. Considered as safest type of cheque, it can only be credited to
payee’s account whose name is mentioned in the Cheque.

Ante Dated Cheque

Cheque bearing the date earlier than the date of presentation for payment is known as anti dated
cheque. Note : All Types of Cheque are valid for three month from the date of issue (or written
on cheque).

Post Dated Cheque

Cheque bearing the date which is yet to come in future is called Post Dated Cheque. Cheque is
honored only on or after the date (upto three months) written on cheque.

Stale Cheque

A Cheque turns stale after three months of the date written on cheque. A Stale Cheque can not be
honored by the bank.

Mutilated Cheque

When cheque gets torn into two or more pieces and presented in bank for payment. Such cheques
are called mutilated cheque. Bank requires confirmation by the drawer before honoring such
cheques.

Payment and Collection of Cheques

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A cheque can be drawn in different inks, handwritings or different scripts. Thus, a
cheque presented with different ink, handwriting or script can be paid.

Language: The cheque should be written in Hindi, English or Regional language.

Signatures on Back: When a cheque is presented for payment signatures of the presenter are
taken on the back as a witness of payment. If the presenter refuses to sign, the bank can take
receipt on a separate paper.

Date on Cheque

Ante dated cheque: A cheque dated prior to its date of presentation is called ante dated cheque.
It is valid and can be paid.

Post dated cheque means a cheque which is dated subsequently to the date of presentation. It is
valid but can be paid only on date mentioned on cheque . If it is paid before date on cheque, it is
not a payment in due course.

Stale cheque: As per RBI guidelines issued under section 35A of B R Act, a cheque becomes
stale after 3 months of its issue. These guidelines are effective for cheques issued on or after
1.4.12. The validity can be reduced by the drawer but it cannot be extended. On a cheque
becoming stale, the cheque can be revalidated up to 3 months at a time.

Impossible Date: A cheque with impossible date like 31.11.12 should be paid on the last day of
the month or within six months of the last day of the month.

Cheque dated prior to opening the account: A cheque dated prior to the date of opening the
account or issue of cheque book can be paid if otherwise in order.

Amount of Cheque : The amount should be written both in words and figures.

 If the amount written in words and figures differ, the amount written in words should be
paid.
 The amount written in words is called legal amount and amount written in figures is
called courtesy amount.
 If the balance in the account is just equal to the amount of the cheque, the cheque will be
paid.
 If the balance in the account is insufficient to pay the cheque, it should not be paid
relying on the balance in some other account or transferring the amount from other
account unless there is an arrangement to that effect.
 Banking Hours: The payment of a cheque should be made only during banking hours
otherwise it will not be a payment in due course. However, the payment of a reasonable
amount can be made to drawer even after banking hours.
 Mutilation: if there is any mutilation of cheque, it should be confirmed by drawer or by
collecting banker

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Alteration in Cheque

 Material alteration: Any change in date, amount or name of payee is called material
alteration.
 The change from order to bearer, or cancellation of crossing or converting special
crossing to general crossing is also material alteration.
 However, bearer to order or crossing a cheque or converting general crossing to special
crossing or completing an incomplete cheque is not material alteration.
 If there is any material alteration on a cheque it can be paid only after confirmation from
drawer under his full signatures.
 In the case of joint accounts with “either or survivor” clause any of the account holders
can confirm material alteration but in jointly operated accounts signatures of all are
required.
 CTS cheques with material alteration except in date will not be collected even if
confirmed by drawer.

Cheque Crossings: Crossing is of two types — General or special crossing.

General Crossing:

 If there are two parallel transverse lines on the face of cheque it is called General
Crossing. The parallel lines can be with words and company or & co or not contain any
word.
 Even if the name of a city is written between two parallel lines like “Indore”, it will
continue to be a general crossing and the cheque can be paid to any bank. Such cheque
dan be paid at any station to a bank and not necessarily at Indore.

Special Crossing:

 If name of a bank is written on the face of a cheque’ with or without two parallel
transverse lines it is called special crossing. Parallel line is not necessary. The name of a
bank can be written anywhere on the face of a cheque.
 Specailly crossed cheque can be paid only to the bank whose name is mentioned on the
cheque or his authorized agent for collection.
 The special crossing is in favour of a bank and not in favour of a particular branch.
Therefore, if a cheque is favouring Canara Bank Patna, it can be paid to Canara Bank at
any place.

Dishonour of Cheques due to Insufficient balance:

 If any cheque drawn by a person is returned by the bank unpaid, either with the reason
funds insufficient or exceeds arrangement or similar reason such person shall be deemed
to have committed an offence.
 As per judgements of the Supreme Court, the cheques which are dishonoured on account
of stop payment by the drawer or Account being closed will attract penalty

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  in case of dishonour of cheque due to reasons stated above, punishment can be
imprisonment up to two year, or maximum fine up to twice the amount of the cheque, or
both.
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Duties & Oblibations of Banker & Customer

The Customer is the most important person in the economy and every business succeeds only
when the customer is happy. This explains why the customer is regarded as King. As a King, the
customer has many rights. But a King also has duties which he owes himself and the economy.

Rights and Obligations of Banker

A banker is one who in the ordinary course of his business, honors cheques drawn upon him by
persons from and for whom he receives money on their account. No person or body corporate
can be a banker who does not

(1) take deposit accounts and current accounts,

(2) issue and pay cheques and

(3) collect cheques crossed and uncrossed for its customers.

Rights of a Banker

Apart from the obligations, the banker has certain rights also.

Following are the major rights that a banker can exercise on his customer.

 Right of Lien
 Right of set-off
 Automatic right of set off
 Right of Appropriation
 Right to charge interest
 Right to charge service charges

Right of Lien

The right of a creditor (Bank) to retain goods and securities owned by the debtor bailed (as
security) to the bank until the loan due from the debtor is repaid is called the right of lien. But
the banker can insist on lien only in the absence of an agreement to the contrary. The creditor
(bank) has the right to maintain the security of the debtor but not to sell it. There are two
types of lien such as:

 Particular Lien
 General Lien

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Particular Lien

Particular lien is one, in that the craftsman can retain those goods on which he has spent time,
effort and money until he is paid. In Particular lien the creditor doesn’t have the right to retain
all the properties of the debtor.

General Lien

General lien gives the banker the right to retain goods and securities delegated to him in his
capacity as a banker, in the absence of a contract contradictory to the right of lien. It extends to
all goods/properties placed with him as a banker by his customer which are not particularly
identified for another purpose.

Right of set-off

The banker has the right to set off the accounts of its customer. This enables a debtor (Bank) to
set off a debt owed to him by a creditor (customer) before the latter recovers a debt due to him
from the debtor. Banks can merge two accounts in the name of the same customer and set off
the debit balance in one account with the credit balance in the other. But the funds should
belong to the customer.

The right of set-off can be exercised only if there is no agreement express or implied that is
divergent to this right. It can be exercised only after a notice is served on the customer
informing the customer that the banker is going to exercise the right of set-off. To be on the
safe side bankers must take a letter of set-off from the customer authorizing the bank to
exercise the right of set-off without giving him any notice.

Automatic right of set off

Sometimes the set off will happen automatically, it depends on the situation. In automatic set
off there is no need of permission from the customer. The cases in which automatic set off can
exercise are as follows:In case of the death of the customer.

When the customer becomes insolvent.

If a Garnishee order is issued on the customer’s account by court.

When a notice of assignment of credit balance to someone else is given by the customer to the
banker.

When a bank receives the notice of second mortgage on the securities already charged to the
bank.

Right of Appropriation

In the normal course of business, a banker accepts payments from customers. If the customers
have more than one account or he/she has taken more than one loan, the customer has the
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right to direct his banker against which debt the payment should be appropriated/settled. If the
customer does not direct the banker and there is more than one debt outstanding in his/her
name, the bank can exercise its right of appropriation and apply it in payment of any debt. The
banker can apply it against time barred debts also. Once an appropriation has been made it
cannot be reversed.

Section 59 of the Indian Contract Act states that the right of appropriation is vested in the
hands of debtor. He/she can appropriate the payment by an express intimation. Money
received will first be set off against interest.

Section 60 of the Indian Contract Act states that if the debtor does not intimate or there is no
circumstance of indicating how the payment is to be used, the right of appropriation is vested
in the creditor.

Section 61 of the Indian Contract Act states that where neither party makes any appropriation,
the payment shall be used in discharge of the debts in order of time. If the debts are of equal
standing, the payment should be applied in discharge of each proportionately. Any payment
made by a debtor should be applied in the first instance towards fulfillment of interest and
thereafter towards principal unless there is an agreement to the contrary. If a customer has
only one account and he deposits and withdraws money from it regularly, the order in which
the credit entry will set off the debit entry is in the chronological order, this is known as
Clayton’s rule.

Right to charge interest

The banker has an implied right to charge interest on the advances granted to its customer.
Bankers generally charge interest monthly, quarterly or semiannually or annually. There may be
an agreement between the banker and customer in this case the manner agreed will decide
how interest is to be charged.

Right to charge service charges

Banks charge customers a particular amount if their balance is below a predetermined amount,
for the usage of ATMs and withdrawals.

Banks are free to charge these but the Reserve Bank of India expects banks to advise their
customers of these charges at the time of opening an account and advise them when changes
are being made.

Obligations of Banker

 Banks have an obligation to honour the cheques drawn on it if the customer has
sufficient funds in his account. It is also obliged to honor cheques up to the overdraft
limit of a customer.

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  Banker is bound to act as per the directions given by the customer. If directions are not
given the banker should act according to how he is expected to act.
 Care should be taken to make sure that the information given is general and only facts
that are evident should be revealed.
 Banks are obliged to maintain secrecy of their client accounts. There are times when
information may be revealed.

When a banker can reveal the information:

 When the customer is statutorily required to do so.

 With express or implied permission of the customer.
 In common common courtesy, whenever the other banks ask for details they have to
provide. In this case no specific information such as balances, etc is given.
 If the bank’s interest requires that the bank can reveal the information
 If the disclosure is under the intention of protecting public/ national interest.

Termination of Banker - Customer Relationship

The relationship between banker and customer terminates in the following situations:

 Voluntary termination.
 Death of the customer
 Bankruptcy of the customer
 Liquidation of the company
 Insanity of the customer

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Rights & Duties of Customers

Banking customer is defined as:

 A person or entity that maintains account and/or has business relation with the bank
 One on whose behalf account is maintained
 Beneficiary of transaction carried professional intermediaries
 Person or entity connected with financial transaction, which can pose significant
reputational or other risks to the bank

Rights of a customer

 A customer who has deposited money can draw cheques on his/her account up to
extent of his/her credit balance or according to overdrawing limit sanctioned by bank
 Cross, endorse or cancel cheque and other instruments
 Customer can sue his bank for compensation of wrongful dishonor of his/her cheque
 Customer has the right to close his account
 Right to privacy
 Sue bank for wrongful disclocure of his/her account/balance
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  Customer has the right to ask for periodic statement of account from his bank.
 Be informed about any direct operations in his/her account
 Receive interest on his/her deposits (Except for current account)
 A Non-Discrimination Policy – age, sex, caste, & disability
 Have the money or items kept safe and returned to customer
 Issue of new cheque book
 Ask for his/her balance within business hours
 Approach customer complaint forums or redressal mechanisms
 Understand How Financial Products And Services Work Rights of a Customers
 Be able to conduct banking in a safe banking environment
 Know about the concession charges
 To receive a complete set of loan agreements and enclosures at the time of
disbursement
 To ask for the securities as soon as the loan is repaid

Right to Information Act, 2005:

The Right to Information under this Act is meant to give to the citizens of India access to
information under control of public authorities

RBI’s Obligation under the Act : The Reserve Bank of India is obliged to provide information of
members to public to promote transparency and accountability in these organisations.

Banking Codes and Standards Board of India (BCSBI)

Reserve bank of India along with BCSBI serves as a watchdog for rights of a customer
regulations. In February 2006, Reserve Bank of India set up the Banking Codes and Standards
Board of India (BCSBI). ). The BCSBI has publishes the “Code of Banks’ Commitments to
Customers. The current revision has taken into account the suggestions and views from various
stake holders, such as banks, Indian Banks Association, Reserve Bank of India.

Objectives of the Code:

 Promote good and fair banking practices

 To ensure proper implementation of customers rights
 Increase transparency in banking system
 Promote a fair and cordial relationship between customer and bank
 Foster confidence in the banking system

Duties of a Customer

 Present the cheque and other negotiable instruments during the business hours of the
bank.
 Notify bank incase of any disagreement in the bank statement
 Submit photographs to bank when ever needed
 The instrument of credit should be presented by the customer within due time from the
date of issue

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 A customer should fill the cheque with utmost care
 In case of theft or loss of cheque book it is the duty of the customer to inform his/her
bank
 If a customer finds any forgery in the amount of the cheque he/she must immediately
inform his/her bank
 To provide proper information in KYC Forms
 Repayments of dues on time
 Read the MITC- Most Important Terms and Conditions

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