Relationship Between Banker And Customer

The relationship between banker and customer forms the foundation of modern banking operations, built on trust, legal obligations, and mutual rights. This dynamic relationship begins with the formation of a contract when a customer opens a bank account, establishing various roles such as debtor and creditor, agent and principal, or bailor and bailee. Governed by the Indian Contract Act, 1872, these relationships are crucial for ensuring transparency, security, and smooth functioning of financial transactions. In this blog, we explore the key types of banker-customer relationships, their legal underpinnings, and the rights and duties that safeguard both parties in this vital financial ecosystem.

Types Of Relationship Between Banker And Customer

The relationship between banker and customer is a legal relationship that starts after the formation of a contract. When a person opens a bank account in the bank and the banker gives his acceptance for the account, it binds the banker and customer in the contractual relationship. The person who holds a bank account in the bank and uses its services is called a bank customer. The contractual relationship between bank and customer creates more types of banker and customer relationships.

Debtor And Creditor Relationship

• When Customer is a Creditor: When a customer deposits money in a bank, the bank becomes a debtor to the customer, and the customer becomes a creditor.
• When Bank is a Creditor: Conversely, when a customer borrows money from the bank, the roles are reversed, with the bank becoming a creditor and the customer a debtor.

Agent And Principal Relationship

Agency Role of Bank: Banks often act as agents for their customers in various transactions such as collecting cheques, dividends, and bills of exchange. The bank collects these payments on behalf of the customer, creating an agent-principal relationship.

Bailor And Bailee Relationship

Safe Custody Services: When customers deposit valuables such as jewelry or important documents in the bank for safekeeping, the relationship of bailor (customer) and bailee (bank) is established. The bank is responsible for taking reasonable care of the deposited items.

Also Read : Rights Of A Bailee

Trustee And Beneficiary Relationship

Funds Held in Trust: When a bank holds funds on behalf of a customer for a specific purpose (e.g., escrow accounts), the bank acts as a trustee, and the customer is the beneficiary. The bank must use the funds solely for the intended purpose.

Guarantor And Beneficiary Relationship

Bank Guarantee: Nowadays, bank guarantees have become very common. The guarantor is the entity that promises to pay a debt or perform a duty in case the primary obligor fails to do so. This ensures that the beneficiary of the guarantee is protected against losses due to non-performance or default by the primary obligor.

Pawnor And Pawnee Relationship

Secured Loans with Movable Property: When a customer takes a loan from a bank and offers movable property as security, the customer is termed the pawnor (pledgor), and the bank is the pawnee (pledgee). This relationship involves a bailment where goods or chattels are delivered to the pawnee as security for the borrowed money, to be returned upon repayment of the loan.

Also Read : Rights And Duties Of Pawnor And Pawnee

Lessor And Lessee Relationship

Safe Deposit Lockers: In the case of safe deposit lockers, the bank (lessor) leases the locker to the customer (lessee) for a specified period. The relationship is governed by the terms of the lease agreement.

Contractual Basis Of The Relationship

The banker-customer relationship is primarily contractual, governed by the Indian Contract Act, 1872. When a customer opens an account, a contractual relationship is formed, with rights and obligations established by the terms and conditions agreed upon by both parties.

Key Components Include:

• Right to Set-Off: Banks have the right to set off a debtor’s account balance against any debt owed by the customer.
• Confidentiality: Banks are obligated to maintain customer confidentiality, a principle backed by judicial precedents and statutory obligations under laws like the Bankers' Book Evidence Act, 1891. However, this duty is subject to limitations in cases of court orders, statutory requirements, or threats to national security.

Rights And Duties Of Bankers And Customers

The banker and customer relationship is governed by a well-defined set of rights and duties, ensuring smooth and transparent operations.

Rights Of Customers

1. Right to Privacy: Customers have the right to privacy concerning their account details and transactions. Banks must maintain the confidentiality of this information unless legally required to disclose it.
2. Right to Fair Treatment: Banks must treat all customers fairly and without discrimination. Services should be provided in an equitable manner.
3. Right to Information: Customers are entitled to clear and transparent information about banking products, services, fees, and charges. Banks must disclose terms and conditions comprehensively.

Duties Of Customers

1. Duty to Maintain Account Balance: Customers must ensure that their accounts have sufficient funds to cover transactions, especially when issuing cheques.
2. Duty to Provide Accurate Information: When opening accounts or availing services, customers must furnish accurate and up-to-date information.
3. Duty to Inform Bank of Changes: Customers should promptly notify the bank of any changes in their contact details or other relevant information.

Also Read : Consumer Rights And Responsibilities In India

Rights Of Bankers

1. Right to Charge Fees: Banks can levy fees and charges for the services provided to customers as per the agreed terms.
2. Right to Set-Off: Banks have the right to set-off, which allows them to combine multiple accounts of a customer to adjust debts against available funds.
3. Right to Close Accounts: Banks can close accounts if they suspect fraudulent activity or if the customer fails to comply with the terms and conditions.

Duties Of Bankers

1. Duty of Confidentiality: Banks must maintain the confidentiality of customer information and transactions, except when disclosure is mandated by law.
2. Duty to Honor Cheques: Banks are obligated to honor valid cheques drawn on sufficient funds, provided there are no legal reasons to refuse.
3. Duty to Provide Accurate Statements: Banks must provide accurate and timely account statements to customers, helping them track their transactions and balances.

Conclusion

The relationship between bankers and customers is multifaceted, encompassing various roles such as debtor-creditor, agent-principal, bailor-bailee, trustee-beneficiary, and lessor-lessee. This relationship is built on mutual trust and is governed by a robust legal framework that ensures the rights and duties of both parties are well-defined and protected. As the banking sector evolves, maintaining transparency, fairness, and ethical practices will remain crucial in fostering a positive and productive relationship between bankers and customers.