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Banker – Customer Relationship — Transcript

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0:04[music]
0:12[music]
0:17[music]
0:21Welcome, welcome to banking and finance
0:24laws course. This is the fourth week.
0:27This week we are discussing the powers
0:29and functions of RBI and other banks and
0:33this is the 19th session. In this
0:35session we will discuss banker customer
0:38relationship.
0:40So we have already discussed as part of
0:43powers and functions of RBI and other
0:45banks. We have already studied about RBI
0:48establishment, RBI's power to issue
0:51notes, currency loans and bank notes and
0:54the RBI's credit control measures,
0:56qualitative and quantitative measures we
0:59have studied in the previous classes. In
1:01this class, we will discuss specifically
1:04about banker and customer relationship.
1:06Now one of the most celebrated author of
1:10banking law sir John pager he defined
1:13customer as following to constitute a
1:17customer there must be some recognizable
1:20course or habit of dealing in the nature
1:23of regular banking business. So in a way
1:27a customer is not a person if he comes
1:29for a single transaction to a bank then
1:32it must be recognizable course that
1:35means you have an account you maintain
1:37that account you go and pay make payment
1:39there something like that you take a
1:41loan and then you keep paying to that
1:43loan account like that. So there must be
1:45some recognizable course either you have
1:47a savings deposit or you have a loan
1:50account something like that but not just
1:52you just went to collect a check which
1:54is issued in favor of you you don't
1:56become a customer of that bank. So there
1:59must be some recognizable course or
2:01habit. So course or habit is a word used
2:05to describe that there must be some
2:07recognizable transactions in and that
2:10must be regular banking business.
2:12[snorts] So if you go regularly to a
2:15bank to repair their electrical
2:17equipment, you don't become bank's
2:19customer. So it must be in the banking
2:21business. So it must be related to
2:24banking business. It must be
2:26transactions traceable to banking
2:28activity and it must be done in a
2:32recognizable course for a particular
2:34duration or for particular number of
2:37transactions like a habit kind of thing.
2:40So something which is more done. So this
2:42is what constitutes a person customer
2:45but not a single transaction or just a
2:48visiting a bank. Now what is the
2:51essential relationship between a banker
2:54and a customer? Now when I deposit money
2:58in the bank, I use the word I deposit
3:01the money. But legally the relationship
3:04established between me and my banker is
3:08that of data and the citor. When I
3:11deposit my money in the bank, I become
3:14the citor and the banker becomes the
3:17data. When I take loan from the banker,
3:21the bank becomes the citor and I become
3:23the data. So this is the primary legal
3:27relationship between a banker and a
3:30customer. So the money depositing and
3:32all that is a misnomer to believe when
3:35we deposit money we are crediting when
3:37we take money we are they are the
3:39creditors. So this is the legal
3:41relationship and it has certain
3:43consequences also. I I will try to
3:46explain how these consequences will
3:48work. Now this is a case very old case
3:52reported in Hollingland report. There is
3:54a secretary and two directors of a
3:57company. A company has two directors and
3:59their secretary who are required to sign
4:02company's checks. So that means the bank
4:04will honor a company check if it has
4:06three signatures. Two directors and the
4:09secretary. Now the two directors and the
4:11secretary signed the check. And what the
4:14secretary did was
4:16the check was supposed to be payable to
4:19company's creditors. So the check was to
4:21be written in favor of company citors
4:24but the secretary made that amount to be
4:27payable to his citors. So not to the
4:30company citors but so secretary's
4:34citors. So the company account was
4:36debited because it has all the
4:38signatures. Now the company filed theft
4:40case on the person. Now the court held
4:44that where is the theft? Where is the
4:47theft? For theft to happen there must be
4:50a money that company should own for
4:52which somebody has committed theft. Now
4:55here when you deposit your money in the
4:58bank that is company had money in the
5:01bank account and from one account it got
5:04debited to another account. So the money
5:06where is the money? The money is still
5:08with the bank only. So money did not go
5:11from bank. So when the money is always
5:14with the bank where is the theft? Now
5:16company argued that their account is
5:18debited. So the money from their account
5:20is gone. But you never had money in the
5:24bank. So this is the difference between
5:26that means when we believe that the
5:29money in my account is mine. If I think
5:32like that then I am wrong. When I
5:35deposit money in the bank the money does
5:38not belong to me. According to law, the
5:40money belongs to the banker and I am a
5:43creditor and he has to honor my demand.
5:46Whenever I ask for money, I should take
5:48it back. That's all. So this is the
5:50difference. If it is a deposit money, it
5:52would have been a theft. So when I
5:54deposit money, it is my money. If it is
5:57my money, then I will I can dictate my
5:59banker. Suppose let me give an example.
6:03Suppose I deposited 10 lakh rupees in a
6:06bank and my friend wants 4 cr loan four
6:09lakh loan. I can't ask my banker to give
6:13four cr four four lakh loan to my
6:15friend. No I can't because it is not my
6:17money anymore. Once I deposited the
6:20money in the bank the money becomes
6:22banker's money and he will give loans to
6:25whomever he want or he will invest it or
6:28save it in the manner he wants. My
6:31relationship with my banker only is to
6:33demand that money back whenever I want
6:36because I am the creditor and he is the
6:38data. So the in versus dev court the
6:42same logic was upheld and the court said
6:46company never had money the money own
6:48banker alone had the money in the bank.
6:50So when the company don't have money how
6:52can somebody commit theft? So it may be
6:55misappropriation or some other case but
6:57it can't be a theft case because company
7:00did not have money to for somebody to
7:02commit theft. So nobody can commit
7:05theft. If you don't have gold some thief
7:08can't take away your gold. If you don't
7:10have money thief can't take away your
7:12money like that. So company don't have
7:14money. Money is only bank alone is
7:17having that money. This is the simple
7:19logic and legal consequences. So the
7:22folly versus skill case was upheld and
7:24the court held the relationship of a
7:27banker and customer is that of a
7:29creditor and data with an obligation to
7:32honor customers orders on the funds in
7:35his hands. Money when deposited into a
7:38bank ceizes to be the money of the per
7:41principal. It is then the money of the
7:44banker and he can use as he likes and
7:48return equivalent money equivalent sum.
7:51So I can't say I deposited 10 lakhs give
7:54me my 10 lakhs. No it is not the same
7:56notes that he will return. He will
7:58return equivalent to 10 lakhs. Some
8:00other notes. So currency notes the same
8:03note you are you did not keep them in
8:05logger. You gave it to the banker. He
8:08will use that money as he wants and he
8:10will deal with it as if it is his money
8:13and he will give it to loans or whatever
8:15he wants to and he will return equal
8:17amount to me whenever I ask for. This is
8:20the difference between deposit and
8:22crediting. So when I take loan, I I feel
8:25like using it as I like but when I just
8:28keep it as a safe custody, I have to
8:30return the same thing. So this is the
8:32difference. So we should understand the
8:35primary relationship between a banker
8:37and customer is that of citor and data.
8:41Though we may use the term deposit the
8:44money, save the money. No, it is credit
8:46debit relationship only. And there is
8:50suppose I ask my banker to collect a
8:53check and then credit it to my account.
8:56Then what is this relationship that
8:58exists between me and my banker? Now
9:02until the banker collects the money and
9:05deposit into my account, he is acting as
9:08my agent. So I am the principal and he
9:11is my agent and he has to obey my
9:14orders. That's all. So in this case
9:17trader bank versus bullion and grain
9:19exchange limited. This is a 1955 Puna
9:23high court decision. Now the bank
9:25collected the hundi that means it could
9:27be check promote bill of exchange any
9:29negotiable instrument and they credited
9:32that amount. So this check was collected
9:35and it was credited into the account and
9:37immediately government issue moratorum.
9:40Moratorium means no further transactions
9:43are allowed and all the amount are
9:45seized. No legal actions will prevail
9:48like that. Now on the same day the check
9:50is issued to other bank but the bank did
9:53not honor that. Now the person filed
9:56case for recovery and argued that bank
9:59is just my agent. So as agent he has to
10:02just obey my order. So I asked him to
10:04collect and after collecting he should
10:07return it to me. But the court said
10:09agent principal agent banker and
10:12customer relationship of principal and
10:14agency is terminated once it is
10:17credited. Once the amount is credited
10:19into my account automatically the money
10:22became banker's money and I don't have
10:25control over banker's money that logic
10:27will come. But if it is agency it is my
10:30money. As long as it is agency prevent
10:33it is my money that is there.
10:37Now there is also relationship like bank
10:40can hold my money as a trust. Say for
10:43example in Sugun Chand and company
10:46versus Brahaya 1951
10:48Madras High Court decision. In this case
10:51the amount of demand deposit demand
10:54draft money DD we call it demand draft.
10:57the money I deposited money and then
10:59taken a demand draft like that generally
11:01we do we give money and take a demand
11:03draft equivalent amount is held as trust
11:06money by the bank and cannot be merged
11:08with the general money of the bank
11:10because it is not general bank's money
11:12DD money is DD it is meant to pay to
11:15particular uh college or any fees
11:18somebody who might ask payment only in
11:20demand drafts so these demand drafts are
11:22not general money it is trust money now
11:25in a case called bank of India versus
11:27official liquidator 1952 Bombay High
11:31Court decision. Now what happened? There
11:32is a bank called NS Bank which had a
11:35head office in Bombay and it had a
11:38branch in Talon. Now Bank of India had
11:42handed three checks to NS Bank head
11:45office for collection. Okay. So Bank of
11:48India gave three checks to NS Bank head
11:51office for collection. Now the checks
11:54were drawn on branch. Now NS Bank
11:57credited them to the head office. Okay,
12:00they have credited the amount to the
12:02head office and then NS Bank went into
12:05liquidation. Now Bank of India claims
12:08that these three checks money is not NS
12:11Bank money but it belongs to Bank of
12:13India because they are just collecting
12:15it and this amount of collection is
12:18agency and then the money that is held
12:21is also trust money. It is not general
12:24money of the NS bank. So the official
12:26liquidator can't take this money as the
12:29NS bank money. And the court also held
12:32that this money which uh NS bank
12:36collected as an agent and held the money
12:38before transferring it, it is just held
12:40as a trust. So it is not the general
12:43money of NS Bank and it cannot go into
12:46the liquidation money. it has to be
12:49transferred to Bank of India and
12:50liquidation proceedings do not uh
12:53invalidate the transfer later. So this
12:56is what the court has held in that case.
12:59Now this is a 1964
13:03Supreme Court decision
13:05bank of Bihar versus Mahabir Lal. Now in
13:09this case the customer gave a selfch
13:12check worth 35,000 rupees. You
13:15understand what is a selfch check? I
13:16give check in my own favor that means I
13:19want to withdraw the money. So and then
13:21he went to the bank and he gave the
13:24check to the manager. Now the manager
13:27this customer is one of the premium
13:30customer or elite customer or a customer
13:32who does more business. Managers
13:34generally respect them and try to honor
13:37their request. Now what the manager did
13:39was 35,000 in 1964 is a kind of big
13:43money only. So the manager gave that
13:46check to the employee and asked that
13:48employee to collect that 35,000 and give
13:51it back to this person and he also asked
13:54that employee to bring certain goods
13:56certain goods to the bank. So now what
13:59this employee did was he collected that
14:0135,000 and disappeared. Now the court
14:05held the bank is liable. Now because it
14:08was done during the course of employment
14:10the employee did it but there was no
14:13benefit to the bank. So the court held
14:15there is no need to prove that the bank
14:18benefited by this transaction as long as
14:21when it is during the course of
14:23employment. If a one of the bank
14:25employee does a mistake and if it is
14:28during the course of employment and if
14:31the customer has not defaulted and is
14:34doing his job or his documents properly
14:37then bank will be liable for the actions
14:40of its employees. So this is called the
14:43vicarious liability on the banks. So the
14:46banks cannot escape from that liability
14:48telling that my employee did this
14:50mistake and we are not benefited by that
14:53like that those kind of arguments are
14:55not acceptable. Now how do we maintain
14:58the accounts with the bank and what will
15:01happen with our what are the rights and
15:04obligations of the customer and that of
15:07the banker in terms of account giving.
15:10Now, SBI versus Shama Dvi. This is a
15:131978
15:14Supreme Court decision. In this case,
15:17what happened? She deposited two checks
15:20issued by her. Now, she has deposited
15:22two checks issued by her husband. So,
15:25she want that money to be collected and
15:27deposited in her account. Now, the
15:29entries were made in handwriting and
15:32there was no vureer to prove depositing
15:34of checks. So when you deposit the
15:37checks they give you a voucher and you
15:38fill some voucher and all that that
15:40nothing was there. So the court held in
15:43that case bank is not liable. That's why
15:45in the olden days when people would
15:47deposit money until it is credited and
15:49used people would safely keep those bank
15:51watches. Now with online banking and
15:54immediately reflecting in the account
15:56the thing situation is changing but even
15:59in the traditional banking even today
16:01when you go to deposit money you still
16:04will get a vureer which you need to
16:05safeke keep until it is deposited and
16:08you ensure that the money is credited to
16:11your account because that is a proof
16:12that you have deposited that amount in
16:14that bank that particular branch of the
16:17bank also. Now, SBI versus Samba Morti.
16:21This is a 1988 Orisa High Court
16:25decision. Now, in this case, this person
16:28Samba Morti had two accounts. One
16:30account is his personal account. The
16:33other is his business account that is a
16:35partnership account. Now, he issued a
16:38check on his personal account and the
16:41amount was not sufficient for the bank
16:43to honor that check. So what the bank
16:45did was they provided overdraft.
16:48Overdraft means giving more money than
16:50what is there in the account and later
16:52charging interest. So they charged
16:54interest because they extended that
16:56overdraft facility and honored his
16:58check. Now what this person argues is
17:01there is money in my partnership
17:03account. So you should have used that
17:06account. How can you give me overdraft
17:08and charge me interest? That is the
17:10argument of Samba Morti. But the court
17:13held that bank has no right to combine
17:16the accounts because otherwise nobody
17:18will trust banks if bank keep combining
17:21the accounts. One company may be there
17:23and one of the director may have
17:25personal account and if you combine
17:26those account how can it operate. So it
17:29is very very difficult proposition for
17:31the banks or financial institutions
17:34transparency and governance it cannot be
17:36accepted. So court held that what bank
17:39did was appropriate that it should not
17:42combine the accounts and no person can
17:45think that their other account will be
17:47used by the bank to honor this check.
17:49No, that is not allowed and the banks
17:51will not do that kind of practice to
17:54honor the customer's account. Now this
17:57is one other case very interesting
18:00facts. In this case this person I Raj
18:03Gopal now this person works as a
18:06licensing officer. Now licensing
18:09officers means they are basically a kind
18:11of HR or networking officers in the
18:14present day uh domain talk that we speak
18:18about. So IV Raj Gopal does that kind of
18:20job. So for him telephone is one one
18:23very important instrument for his
18:25day-to-day operations because his job
18:28requires lot of licensing work. So he
18:30has to connect with people day in and
18:32day out. Now what happened? He has
18:36issued a check to the telephone
18:38department uh for rupees 294 rupees and
18:43the check was by the Canada bank's check
18:46and the check was for 294 rupees. He
18:49gave it to telephone department. This is
18:51for the bill. The telephone bill is
18:54worth 294. So he gave the telephone
18:57department color. Now the telephone
19:00department submitted the check to the
19:02Canara Bank and the Canara Bank
19:04dishonored the check. Now this was
19:07wrongful dishonor. They did not verify
19:10properly but bank simply dishonored the
19:12check. Now because when the telephone
19:15department did not receive the money
19:17usually all these utility services like
19:20electricity, water and telephone they
19:23one way of operating is if you don't pay
19:25the money they disconnect the service.
19:28So the telephone department disconnected
19:30his telephone connection. Now when his
19:33telephone connection got disconnected he
19:36could not network and his main job got
19:38into trouble and eventually he lost his
19:42job. Now when he lost his job just
19:45because the check was dishonored the
19:47telephone got disconnected and then he
19:49lost his job. Then he filed a case
19:51against the bank and he made lot of
19:54allegations against the bank like lot of
19:57loss of reputation, loss of job and then
20:00the dishonoring was not fair because
20:04there was money in his account and the
20:07bank should have honored and it was a
20:09mistake on the part of the bank without
20:11any doubt. So what the court did was
20:13court awarded compensation as damages
20:1714,000 rupees as damages. So
20:19compensation means the exact amount the
20:22loss that you occurred will be paid and
20:24the actual loss is also much more loss
20:26of job and all that. So it has
20:28calculated and it paid more damages
20:3114,000 for 294 in 1975 in a way is a big
20:36amount but his loss is also too big. He
20:38lost a job. So here the court also made
20:41a one very interesting observation that
20:43now when smaller the amount of check
20:46dishonored the damage to the reputation
20:48is far higher. Suppose a one lakh check
20:51of mine is dishonored. It is different.
20:53Suppose my 100 rupee check is
20:55dishonored. People will think what this
20:57person don't even have 100 rupees in his
20:59bank account like that. So in a way when
21:02the lesser amount value of checks are
21:04dishonored the personal reputation of
21:06that person is further more in damaged
21:10rather when you higher amounts are
21:12dishonored. So this is the observation
21:14of the court in this case. So this is
21:18how the court has given very high
21:21compensation to and damages to honor the
21:25person's loss. Now in banker customer
21:29relationship it is a kind of fiduciary
21:31relationship in a way there is a kind of
21:33trust there is a secrecy people don't
21:36want many of them don't want their
21:38financial uh strength or weakness or
21:41transactions to be known to the public
21:43at large. So generally banks should
21:45maintain secrecy and they are not
21:47required to give this information. But
21:50if there is a proposed guaranter who is
21:54asking that about the in what is the
21:57amount of loan how is his bank account
21:59you should give because guaranter will
22:02tomorrow be liable to pay to the
22:03borrower. So you have to give them that
22:05information. Similarly when there are
22:08court orders or other office orders of
22:11income tax or investigating officers or
22:14ED or somebody like that or in the
22:17interest of the state any government is
22:19asking. So in those circumstances there
22:22is no obligation to maintain secrecy and
22:25banks are bound to reveal the uh details
22:29of the account of that particular
22:31customer. If any of these law enforcing
22:34officers are asking or if any proposed
22:37or prospective guaranter is asking you
22:39should reveal the account details. Today
22:42many accounts are on the database. There
22:44is a registry created, loans are
22:46registered and that is a very different
22:48domain but still they still banks have
22:51personal data, personal account details,
22:54they are always private only even today.
22:57Now in the in one of the case this
23:00Kataban transport corporation versus
23:03trade bank of travel court. Now 1992
23:07Kerala High Court decision. This is now
23:09in this case what happened is Kataban
23:12transport corporation is the road
23:14transport company of uh the government
23:18undertaking PSU public sector
23:20undertaking. Now this particular
23:22transport corporation asked the state
23:25bank of travel court to give the details
23:27of the account of one of its employee
23:30and also uh to give the remittances that
23:34are made to that employee account. Now
23:37the bank refused to give the details and
23:40on that the transport corporation filed
23:43a case on the state bank. [snorts] Now
23:45the court in this case held generally
23:48speaking banks have an obligation to
23:50maintain their customers account private
23:52and secret but not in all situations.
23:55When the employee of a public sector
23:58undertaking went abroad and is sending
24:00remittances then bank's refusal is not
24:03justified. Then you should reveal to the
24:07employer that from where this person is
24:09getting this money and how is this
24:11happening and all this has to be
24:13revealed. So this is what the court has
24:16held. So to conclude now these all the
24:19decisions that we have seen are the
24:21decisions which are prior to digital
24:25lending, digital banking or online
24:28banking are that generation and the
24:30legal relationships are also developed
24:32by the courts and by the decisions of
24:35the courts from 1950s or even prior to
24:38that or so this even today when we look
24:42at it even in today's relationship also
24:45the banker customer Legal relationship
24:48essentially remains the same but however
24:51the impact or the way in which we are
24:53transacting might differ but the legal
24:55consequences even today banker and
24:58customer are data and citor and when my
25:01when I ask my banker to buy shares or to
25:04do mutual fund investment on my behalf
25:06it is acting as my agent and the money
25:09held is still held as a trust. So
25:12general relationship is data creditor
25:15but it can become principal agent when
25:17there is an instruction to do a
25:19particular act when the money is the
25:22other money collected before collecting
25:24or they are honoring my order it will be
25:26trust money like that. So the legal
25:29relationship from data citor may change
25:32in few situations when they are acting
25:34as such when principal agent
25:36relationship may come in or trusty
25:38beneficiary relationship may come in now
25:41and then for few transactions but the
25:44general transaction of depositing and
25:46lending the main relationship is data
25:49and creditor and this is the
25:51relationship we have discussed about
25:54banker customer relation in this class
25:56and the present day Banking operations
25:59have changed the relationship with
26:01extensive use of technology and digital
26:03banking. But this change in relationship
26:06is different. I am talking about
26:08physical relationship like earlier
26:10customers would know their bankers.
26:12There would be a kind of friendship or
26:13social relationship but legal
26:16relationship and its implication remain
26:18the same even in the present day
26:21scenario also. So extensive use of
26:24technology and digital banking has
26:26brought a kind of distance from knowing
26:29each other physically or you may not
26:32recognize your banker or banker may not
26:35recognize their customer who is
26:37transacting day in and day out because
26:39they don't go they don't spend time they
26:41are not meeting at all that may be very
26:44different in the way in which we are
26:46transacting but legal relationship
26:48whether they are data and credit are
26:50today yes they are data and credit
26:52whether they can be principal end agent.
26:55Yes, they can become principal end agent
26:57depending on the uh the agency
26:59relationship and the action that the
27:01bank is doing as an agent for its
27:03customer like that. So depending on that
27:05scenario so the legal relationship and
27:08its implication remain the same even
27:10today. That is exactly the reason why we
27:13have discussed these old law laying
27:15decisions which provide the basis for
27:18understanding the banker and customer
27:20relationship. So with this we will
27:22conclude our discussion on banker
27:24customer relationship and we will
27:27discuss about banking regulation act in
27:29the next class. Thank you.

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This page contains the full transcript of Banker – Customer Relationship by NPTEL-NOC IITM, generated from the public captions YouTube serves with the video. The transcript has 4,323 words across 623 segments, with the original timestamps preserved so you can click any line to jump to that moment in the embedded player.

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