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BANKER & CUSTOMER RELATIONSHIP Banker The Banking Regulation Act, 1949 (Section 5c) defines a banker as a person

undertaking business of banking. Banking means (Section 6) accepting deposits from public, for the purpose of leading, repayable on demand or otherwise withdrawable by cheque, draft, order or otherwise. Customer There is no legal definition of a customer but from various judgments based on section 131/131A of NI Act 1881, a customer means a person who opens account which bank accepts with proper introduction. When customer lenders an account opening form to open the account and banker accepts it, contractual relationship is established. A person who only avails services like remittances, encashment of third party cheque (as payee) without having an account is not a customer of bank. Initial deposits: The initial deposits for opening an account may be cash, a cheque or no deposits even the time of opening the account, as ZERO balance account can be opened. Who is customer? a) A person who maintains any type of account with the bank i.e deposit or loan accounts, safe deposit account, locker account. b) Even a person who fills the account opening form and hands it over to the bank and bank accepts it, acquire the status of a customer. c) A person can be treated as a customer of a branch where he maintains any account. He cannot be treated the customer of other branches of the same bank unless the bank has made arrangement (particularly in case of CBS branches where customer is considered as customer of the bank). d) A bank maintaining any account with another bank also becomes the customer of the bank. Customer for KYC Policy As per RBI (Dec 2004), for a KYC Policy, a Customer may be defined as: y A person of entity that maintains an account with the bank and /or has a business relationship with the bank; y y One on whose behalf the account is maintained (i.e the beneficial owner); Beneficiaries of transactions conducted by professional intermediaries, such as stock brokers, solicitors etc as permitted under the law, and y 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 in different transactions Transaction Deposits in the bank Loan from bank Locker Safe custody Purchase of draft ++ Payee of draft Bank Debtor Creditor Lessor (Licensor) Bailee Debtor Trustee Customer Creditor Debtor Lessee (licensee) Bailor Creditor Beneficiary

Collection of cheque Agent Principal Pledge Pawner (Pledge) Pawnee (Pledger) Mortgage Mortgagee Mortgagor Standing instruction Agent Principal Sale / purchase of securities on behalf of Agent Principal customer Money deposited but instructions not Trustee Beneficiary given for its disposal Articles left by mistake Trustee Beneficiary Shares given for sale Agent Principal Assignment Assignee Assignee Hypothecation Hypothecatee Hypothecator ++ as per Haryana & Punjab High Court Judgment in case of Traders Banks vs. Kalyan Sing 1953

Bankers Obligations Banker deals in public money and therefore various relationships with customer impose certain duties on the Banker. These duties are: a) Duty to honor cheque of custom (details of which given in the previous pages under NI Act)

b) Duty to maintain secrecy of accounts. Duty to maintain secrecy of Customers account In addition to implied contract between bank and customer not to disclose the affairs of the customer, Section 13 of Banking Companies (Acquisition & Transfer of Undertakings) Act, 1970 specifically requires a banker not to divulge any information relating to the affairs of the constitutions, except in circumstances in which they are in accordance with law and practice and usage customary among bankers. Hence the banker should not disclose balance of the account, financial position of the customer and details of dealings in customers account. If these facts are disclosed it may harm the reputation of the account holder and bank may be held liable. a) Bankers duty of secrecy arises out of implied terms of the contracts with customer. Such duty is a legal one not merely a moral one. b) Obligation of secrecy is not for a particular account of the customer. It has extended to all the transactions that go through the account and securities offered in that respect. c) Duty is not discontinued even when customer is deal or account is closed.

d) Obligation is extended to the information obtained from various sources, regarding customers account /financial position. Disclosure of Customers Account Information There are certain circumstances under which a banker is justified if he discloses information regarding customers account. These disclosures may be under banking practices or under compulsion of law. Disclosure under Banking practices

It is customary among bankers that they obtain necessary information about parties from other banker where these parties are maintaining accounts in order to ascertain their financial position and credit worthiness. Disclosure under this clause would be fully justified and implied consent of the customer is presumed to exist. While disclosing information under Bankers reference, following precautions must be observed. a) Opinion must be based on the dealing with the customer and be on market report or rumors.

b) Disclosure should be by a general statement and not by actual figures. General statement should be so balanced that it should be neither too low not too high in its sense. c) Disclosure must be impartial and without prejudice.

d) The opinion which is given in confidence and without responsibility should be typed on a separate authenticated sheet of paper attached to a forwarding letter in which the name of the party is not given in full but only by indicating first initials. e) Information should be as per IBA format in general terms such as: Very small means Small means Moderate means Moderate to fair means Fair means Fairly good means Good means Very good means Large means Very large means Disclosure in the interest of Bank Some time disclosure is required to protect the banks own interest e.g disclosure of information to guarantor to recover the dues and disclosure of state of affairs of account to banks lawyer to file the suit. Disclosure under duty to the public When it becomes duty of the banker to disclose the information of customers account, in public interest, such disclosure is justified e.g during war if customer is dealing with the enemy it is bankers duty to disclose it to the government authorities. Disclosures with expressed or implied consent of the customer Expressed Consent-It is expressed consent when the customer himself directs the banker to provide information to his agent or representative. While giving such information, bank must take care to disclose the information to the extent it is required, and not beyond that. When customer himself asks balance of his account, information of balance, should be given in low voice, inaudible to others. Information regarding balance should be given on telephone, only when customers voice is recognized by the banker. Implied Consent When a customer takes loan by furnishing a guarantee, he impliedly authorizes that bank for given information to the guarantor. In this case, banker should disclose information only when it is required and Rs.0.10Lac or less 0.10-0.25lac (0.25-0.50Lac) (0.50-1Lac) (1-2Lac) (2-3Lac) (3-10Lac) (10-25Lac) (25-50Lac) (over 50Lac)

to the extent it is required. When customer finishes the name of banker to the third party of the purpose of trade reference, it is an implied consent to the banker to disclose. Disclosure under Law When, a banker discloses information under compulsion of law, it must be ensured that the information supplied should be as per requirement only. No additional or voluntary disclosed should be made. The disclosure in terms of the provisions of various Acts as under; Bankers Book Evidence Act 1891 U/s 6, a judge may order a party to inspect and take copies of entries in bankers books. The judge may also order the bank to produce certified copies of the entries accompanied by a further certificate that no other entries in the books of the bank are relevant to the matter of such proceedings. Such other shall be served on the banker three clear days exclusive of bank holidays before the same is to be obeyed, unless otherwise directed by the court. However, as per Section 4 a certified copy of any entry in a bankers book shall, in all legal proceedings, be received as prima facie evidence. Code of Civil Procedure (CPC) CPC empowers a civil court to issue summon to any person to procedure documents and /or to appear as witness and accordingly, when a summon is issued, bank has to comply. Criminal Procedure Code 1973 In terms of Section 94, any court may, by warrant, authorize a police official to conduct search and take possession of stolen property, counterfeit currency notes, forged documents (cheques). Banks can part with such documents by obtaining receipt and relating photo copy for their records. U/s. Section 91 (1), a court OR any officer-in-charge of a police station may issue a written order for production of documents in connection with trial or investigation and in compliance thereof, the bank may part with true copy and document, book or information. U/s 102, a Police Officer can seize a stolen property. In case of State of Maharashtra vs. Tapas Neogy, Supreme Court has ruled that a police/CBI officer can exercise the power u/s 102 and can direct the bank to remit to CBI/Police and bank is bound to comply with the same. Companies Act 1956 U/s 235/237, Central Govt. appoint an Inspector to investigate into affairs of a company. It may authorize him to call for any information, books, documents, relevant to his investigation, for which bank will have to as per Section 251. Foreign Exchange Management Act 1999 Section 19E and F empowers Directorate of Enforcement to summon a bank official to give evidence or to produce any document in its possession. Section 43 also empowers Directorate of Enforcement and RBI to inspect books and accounts of ADs and examine an official on oath. Income Tax Act 1961 U/s 131 of Income Tax Act, bank officer can examine on oath and can told to procedure books of account and other documents concerning the transactions of a customer. Further, Section 133 empowers the income tax Officer, Appellate Asst. Commissioner, Inspecting Asst. Commissioner and Commissioners to summon

any person to furnish information relating to a pending enquiry. A bank is bound to comply, provided there is a summon with a seal on prescribed form. The customer should be informed accordingly. CBDT has clarified that roving (general information) enquiries can be made for cash transactions of Rs.1Lac and above and regarding assets declared for loans/overdraft of Rs.50lac and above. Reserve Bank of India Act It has vast powers under various Acts such as RBI Act or Banking Regulation Act to call for information from a bank. Sec 45 B authorizes RBI to collect credit information and provide the same to different banks. U/s. 45 C also, can directly any bank to submit statement relating to credit information as it deems fit. Termination of Relationship The relationship terminates: y y When the customer closes the account after giving suitable notice whether required. When bank closes the account after due notice of reasonable period, which is compulsory and failing which, the banker may help accountable for damage, if any, due to dishonor or cheque. y y With knowledge of the death, insanity and insolvency of the customer Or garnishee order and attachment order.

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