SESSION REPORT: Banker’s Obligations 5/09/2020

BANKING LAW SESSION REPORT

RESOURCE PERSON: Mrs. Deepika Sivakumar, Assistant Professor of Law, Tamil Nadu
National Law University (TNNLU), Tiruchirappalli, Tamil Nadu.

RAPPORTEUR: Aman Deep Sharan (BA0170006), IV year, B.A.LL.B (H), TNNLU

CONTENTS OF THE SESSION: The class session for 5th of September was from 10:50 AM
to 11:50 AM. It was an interactive session in which we primarily discussed about the obligations
that Bank has towards its customers and dealt with few case laws.

COMPONENTS DISCUSSED IN THE SESSION:

1. Obligation of banks towards its customer.

 Honor Cheque
 Consequences of dishonor of cheque (wrongful dishonor)
 Maintain secrecy

SUMMARY/BRIEF OF THE SESSION:

The banker is under a statutory obligation to honor his customer’s cheques in the usual course.
Section 31 of the Negotiable Instruments Act, 1881, lays down that “the drawee of a cheque
having sufficient funds of the drawer in his hands, properly applicable to the payment of such
cheque, must pay the cheque when duly required to do so and in default of such payment must
compensate the drawer for any loss or damage, caused by such default.” Thus, the banker is
bound to honor his customer’s cheques provided following conditions are fulfilled:

a) There must be sufficient funds.

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.
e) 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.
 f) If there is a practice not to honor cheques against unclear credit then unless for an
agreement to do contrary, no need to honor. In case there is an agreement between the
bank and customer, bank can’t deny the honor of cheque even if there is unclear credit.
g) Not in a case of Justified Dishonor- The bank has valid conditions for dishonor of cheque
e.g., undated, post dated cheques, mutilated cheques, cheques with material alteration,
where amount differs in words and figures, death and insolvency of drawer etc., bank is
not liable to pay undated cheque.

According to Section 65 of Negotiable Instruments Act presentation of cheque must be made

during the usual hours of business and, if at a banker within banking hours. Bank should be
given reasonable time i.e., to credit the bank account with funds.

CONSEQUENCES OF DISHONOR OF CHEQUE (WRONGFUL DISHONOR)

According to Section 31 of the Negotiable Instruments Act, 1881, the banker is liable to
compensate the drawer for any loss or damage (includes monetary loss, loss of credit or
reputation) caused by the default on his part in dishonoring the cheques without sufficient
reason.

For Traders- Substantial Injury is presumed but in case on Non-Trader i.e. common people
substantial damage needs to be proved.

Cases Dealt-

 Gibbsons v. West Minster Bank, 1934, Canara Bank v. N. Rajagopal, 1975 and
Syndicate Bank v. Swaika Chemical works, 1987.

MAINTAIN SECRECY

The bank should not disclose customer’s financial position and the nature and the details of his
account to anybody, since it may effect his reputation, credit worthiness and business.

Disclosure of details is justified only when-

 If it involves express/implied consent of the customer.

 By order of the court.
 Public duty to disclose under specified circumstances under the statute.
  Guarantor’s right to disclose.
 Under any of the specified statute. E.g.- IT Act, 1961, CA Act, 1956, RBI Act, 1934,
Gifts Tax Act, 1958 etc.

Other Obligations include:

 Obligation to honor Guarantee, Obligation to honor letter of credit, Obligation of

recovery of debts by legal means, Obligation to not convert excess credit as overdraft etc.