Rights, Duties and Obligations of Banker and Customer

Rights and Obligations of Banker

Obligations of Banker

The relationship between the banker and customers creates some obligations on the part of a bank. The
fundamental obligations of a banker towards it’s customers are as follows:

1. Obligation of Banker to HonourCheques

The bank has a statutory obligation to honour the cheques of its customers up to the amount standing to
the credit of the customer’s account. If a bank wrongfully refuses to honour the cheque of its customer, the
bank shall be liable to compensate the customer. This obligation is subject to some conditions, namely:

a) There must be sufficient funds of the customer in the hands of the bank.
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(within 90 days from the date of
issue).
e) There must be no legal bar preventing the payment of such cheques. 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.

2. Obligation of banker to Maintain Secrecy

The banker must not disclose to any outsider the details about the customer’s account; as such
disclosures may adversely affect the credit and business of the customer. However, a disclosure can be
made under the following two situations:

(a) When the law requires such disclosures to be made, and

(b) when the practices amongst the banks permit such disclosure.

3. Obligation of Banker to Maintain Proper Records

The banker is under an obligation to maintain accurate record of all the transactions(credits and debits) of
the customers made with the bank.

4. Obligation of Banker to Follow Customer’s Instructions

The banker is under a legal obligation to follow the instructions of the customer. This is so because there
is the contractual relationship between the bank and the customer.

5. Obligation of Banker to give Notice before Closing the Account

If a banker wishes to close the account of a customer, it must give a reasonable notice to this effect to the
customer.
Thus, a bank cannot close the account of a customer on its own wish, because it may have serious
consequences to the customer.

Rights of Banker
For fulfilling the obligations towards the customers, bankers enjoy some rights. The following are the rights
available to a Banker:

1. Right of General Lien

One of the most important rights enjoyed by a bank is the right of general lien. Lien is a right of a person
to retain goods belonging to another; until the demands of the person in possession are satisfied. Section
171 of the Indian Contract Act confers the right of general lien on the bankers. General lien entitles the
banker in possession to retain goods and securities till all its claims against the customer are satisfied.
You should note that the banker can exercise his right of general lien only as a banker and not as a
bailee, Banker’s lien is an implied pledge in the sense that if a default is made by the debtor, the banker
can, after giving a reasonable notice to the customer, sell the goods in his possession and recover the
amount. If some valuables are deposited with a bank for safe custody, then it is bailment and the bank
cannot exercise the right of general lien.
You should note that the right of general lien cannot be exercised in the following cases:
a) When valuables are deposited for safe custody,
b) When money or documents are deposited for a specific purpose,
c) When some securities are left with the bank by mistake,
d) When the property is held by the customer as trustee and the bank has the notice of trust, and
e) When there is an express agreement that the bank shall not exercise the right of general lien.

2. The Right of Set-off

Right of set-off is the right of a debtor to adjust the amount due to him from a creditor against the amount
payable by him to the creditor to determine the net balance payable by one to another, Like any other
debtor, a bank also has a right of set- off. When a customer has two or more accounts in the same name
and capacity in a bank, the bank has the right to adjust the amount standing to the credit of the customer
against the debit balance in the other account. The bank has a right to combine the two accounts.

Let’s take an example: Mr Ram has overdrawn his current account to the extent of Rs. 1,00,000 and he
has a credit balance of Rs.80,000 in his savings account. The bank can combine these two accounts and
claim the balance of Rs.20,000 after adjusting the credit balance of savings account against the debit
balance of current account,

3. Right of Appropriation

A customer may owe several distinct debts to the bank. When the customer deposits some money in the
bank without specific instructions and the amount is not sufficient to discharge all debts, then the problem
arises as towards which debt this amount should be adjusted. In the absence of any specific instructions,
the bank has the right to appropriate the deposited amount to any loan, even to a time barred debt. But
the banker must inform the customer about the appropriation.

4. Right to Charge Interest and Commission

The bank has the implied right to charge interest on loans and advances, and also to charge commission
for services rendered by the bank, such as SMS notification service, retail banking, multi city cheque
service etc. The bank can debit such charges to the customer’s account.

5. Right to Close the Account

If the bank is of the opinion that an account is not being operated properly, it may close the account by
sending a written intimation to the customer. But the notice is mandatory, without sending such notice a
banker can not close any customer’s account.

Termination of Banker – Customer Relationship

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

a. Voluntary termination.

b. Death of the customer

c. Bankruptcy of the customer

d. Liquidation of the company

e. Insanity of the customer

The Rights of a Banker

1. Bankers Right of a General Lien

2. Bankers Right of set-off

3. Bankers Right for Appropriation of Payment

Bankers Right of a General Lien

Lien means a legal claim to hold property as security. Bank retains certain goods, property
or any other assets as security in return of an unpaid debt. The ownership of the security
should be with the person holding the debt.

A lien does not require any special agreement, written or oral but it arises only by operation
of law subject to the conditions:-

1. That the creditor is in possession of goods, security, etc. and has come in possession
thereof in the ordinary course of business.

2. That the owner of the goods, securities have a lawful debt to pay to the person in
possession thereof.

3. That there is no contract, express or implied to the contrary.

Bankers right to set off

Set-off is the legal right which states that a person who owns a debt may deduct it from any
debt which is immediately payable to him by the creditor.

For instance, if A has two accounts in the same bank. He also owns 1 lakh to bank. Now
banks have the right to debit the second account of A. if A deposits any money in his second
account. The bank will combine the accounts of A to set off the amount due.

Bankers right for appropriation of payment

Rule of appropriation says the money given for specific purposes should be applied only for
that. Banker is obliges to clear only that debt which is specified by the customer. The
question of appropriation arises when debts owed by the creditor is two or more.

The appropriation of payment is defined under Indian Contract Act under Section 59 to 61 .

Appropriation by the Debtor (Section 59)

The debtor has the right to instruct expressly the debt he wants to set off first. He can
appropriate the payment by either an express intimation or under circumstances implying
that the payment is to be applied to the discharge of some particular debt.

For instance, if A owned three debts to B of 250rs, 300rs and last one of 500rs which falls
due on 30th December 2019. Here, if A doesn’t mention the type of debt to be set off and
pays the amount of 500 to B. It would be clearly taken, payment is meant to be
appropriation towards the third debt.

Appropriation by the Creditor (Section 60)

The creditor’s right of appropriation will only be applied if the debtor had the opportunity to
exercise such a right of appropriation but has omitted to do so. Creditor may exercise his
right of appropriation at any time. He needs not to declare his intention in any express term.

Appropriation by law neither by any party (Section 61)

If neither party has made any appropriation of payment, the payment shall be discharge
each one after another based on the time.

If the debt carrying interest and the principal amount then the amount paid first be applied
to set off the interest than the surplus amount is paid to set off the principal amount.

(M/s Kharavela Industries Pvt. Ltd v. Orissa State Finance Corporation and Others)
Bankers Right to claim incidental Charges
Another special feature of the relationship that exists between banks and a customer is that
the banker may claim incidental charges on unremunerated accounts. The incidental
charges mean ledger folio charges, service charge etc.

Bankers right to charge compound interest

As per general law levying of compound interest is strictly prohibited. But, a banker is given
the special privilege of charging compound interest. Usually bankers charge interest on the
money lent at the end of every quarter. But agricultural loans are exempted from compound
interest.

Rights, Duties and Obligations of Customer

Rights and Obligations of Customer

In line with Gulf Bank’s commitment to protecting customers and ensuring they receive the financial and banking
services with transparency and disclosure to enable them to make sound decisions, we would like to list hereafter
customers’ rights and obligations, of which they must be aware when conducting their banking transactions. First:
Customer’s Rights: 1. The customer has the right to receive fair, equal and honest treatment by all the bank’s
employees. 2. The customer has the right to obtain clear, accurate and transparent information about all products and
services in a professional manner. 3. The bank should maintain the privacy and confidentiality of the customer’s financial
and personal information and refrain from disclosing the same to any person except in accordance with applicable laws
and regulations. 4. The customer has the right to obtain copies of contracts, terms and conditions, details on fees and
commissions on the utilized products and services. 5. The customer has the right to not sign on any blank or incomplete
financial documents or contracts. 6. In the event that the customer does not understand any of the terms and
procedures related to the service or product he/she wishes to obtain, he/she should submit any inquiry to the bank’s
concerned employees in order to make a balanced and informed decision. 7. The customer may choose between the
offered products and services that most suit his/her circumstances and realistic capabilities that meet his/her relevant
needs. 8. The client has the right to seek advice from the bank’s competent employees in the event of facing any
financial difficulties that might hinder him/her from fulfilling the contractual terms or utilizing the offered products and
services. 9. The customer has the right to obtain copies of all documents of any product or service offered by the bank
while verifying the customer’s signature on the received copies.

Second: Customer’s Obligations: 1. The customer must carefully review all documents offered by the bank when
obtaining any service or product to learn about any fees, commissions, obligations or liabilities. 2. The customer must be
honest with all information submitted to the bank. 3. The customer must learn about the risks that may result from
using a product or service offered by the bank through inquiries directed to competent parties about the impacts of
those risks which must be avoided whenever possible. 4. The customer must keep a copy of the bank’s transactions
documents in a safe place that is easily accessed for reference when needed. 5. The customer must ensure accuracy and
validity of all documents offered by the bank and to have them reviewed prior to signing them. 6. The customer must
update his/her personal and banking information whenever requested by the bank or whenever a change occurs. 7. The
customer must inform the bank as soon as there are transactions made on his/her accounts that they are unaware of or
those that were not authorized by the customer. 8. The customer must be careful and diligent in maintaining
confidentiality of information related to his/her transactions with the bank and not to disclose them to any party. 9. The
customer must maintain banking confidentiality. Customers must use their email in the event they need to contact the
bank via email to avoid giving access to another person to view his/her personal information. 10. In the event the
customer needs to authorize another person to transact on his/her accounts or funds with the bank, he/she must
exercise caution in regard to the powers and information granted to him/her and take necessary action when he/she
wish to terminate these powers of attorney and to notify the bank accordingly.
DUTY OF CUSTOMER
By opening an account with
the banker, there will be
some rights conferred and
responsibilities (duties)
imposed on the customer.
The customer has rights and
duties too. There are no
specific statutory
provisions in the Act but
customers have such rights
and duties by the relationship
between the banker
and customer which they
have. The obligations of the
customer may be
summarised as follows:
1. Not to draw cheques
without sufficient funds.
2. Drawing cheques with
reasonable care.
3. To repay overdrawing.
4. To pay reasonable charges
for services rendered by the
banker.
5. To inform or communicate
facts affecting the
genuineness of the
transaction.
6. To make a demand for
repayment of deposits. 1. Not
to draw cheques without
sufficient Fund
DUTY OF CUSTOMER
By opening an account with
the banker, there will be
some rights conferred and
responsibilities (duties)
imposed on the customer.
The customer has rights and
duties too. There are no
specific statutory
provisions in the Act but
customers have such rights
and duties by the relationship
between the banker
and customer which they
have. The obligations of the
customer may be
summarised as follows:
1. Not to draw cheques
without sufficient funds.
2. Drawing cheques with
reasonable care.
3. To repay overdrawing.
4. To pay reasonable charges
for services rendered by the
banker.
5. To inform or communicate
facts affecting the
genuineness of the
transaction.
6. To make a demand for
repayment of deposits. 1. Not
to draw cheques without
sufficient Fund
DUTY OF CUSTOMER
By opening an account with
the banker, there will be
some rights conferred and
responsibilities (duties)
imposed on the customer.
The customer has rights and
duties too. There are no
specific statutory
provisions in the Act but
customers have such rights
and duties by the relationship
between the banker
and customer which they
have. The obligations of the
customer may be
summarised as follows:
1. Not to draw cheques
without sufficient funds.
2. Drawing cheques with
reasonable care.
3. To repay overdrawing.
4. To pay reasonable charges
for services rendered by the
banker.
5. To inform or communicate
facts affecting the
genuineness of the
transaction.
6. To make a demand for
repayment of deposits. 1. Not
to draw cheques without
sufficient Fund
DUTY OF CUSTOMER By opening an account with the banker, there will be some rights conferred and responsibilities
(duties) imposed on the customer. The customer has rights and duties too. There are no specific statutory provisions in
the Act but customers have such rights and duties by the relationship between the banker and customer which they
have. The obligations of the customer may be summarised as follows: 1. Not to draw cheques without sufficient funds.
2. Drawing cheques with reasonable care. 3. To repay overdrawing. 4. To pay reasonable charges for services rendered
by the banker. 5. To inform or communicate facts affecting the genuineness of the transaction. 6. To make a demand for
repayment of deposits.

1. Not to draw cheques without sufficient funds. The customer on his part undertakes to draw cheques within the
balance available to him. In case the balance is not sufficient to meet the drawings, it is expected from a customer to
make some kind of arrangement to meet his cheques. In the absence of any arrangement, the banker is justified in
returning the cheques at the cost and consequences of the customer. In fact, one of the current account rules usually
clarifies the banker's stand in the following words: "Cheques must not be issued before the necessary funds have been
credited to the account. If the cheques are presented when the funds are insufficient to meet them, payment will be
refused and the cheques returned. Repeated disregard of these instructions may force the banker to close the account.
Dishonour of cheques for want of sufficient funds has now been made an offence under Section 138 of the N.I. Act.

2. Drawing Cheques with reasonable care

It is expected that the customer undertakes to exercise reasonable care in drawing his cheques so as to avoid
misleading the banker or facilitating material alteration. As a result of the customer's fault, if the banker pays more than
he ought to, the banker may not be held responsible for the excess payment.

Banks particularly request the constituents to: ● keep the cheque book under lock and key, ● fill in the body of the
cheques before delivery, ● fill in the amount in words as near as possible to the word "Rupees" and amount in figures as
near as possible to "Rs." The writing of the cheques should be clear and distinct and cheques must be drawn in such a
way as to prevent any alteration/addition after issue. However, if a customer loses his cheque book or neglects to keep
it in a safe place and any unauthorised person takes it away and forges the signature of the account holder on the
cheque, the banker cannot still charge the payment to his customer. In Young v. Gorte, the customer left a gap while
writing the amount in figures and in words and the Court held that the customer caused, or at least provided the
occasion for his own loss; and he could not rely on the normal rule that the alteration of a cheque in a material
particular invalidated it so that his banker had no mandate to pay it at all. 3. To repay over drawings Bankers generally
allow overdraft facilities having in view the creditworthiness, market reputation etc. of the customer. No banker likes
that the reputation of his valuable customer is damaged on account of dishonour of cheque. It is the duty of the
customer to repay such over drawings. 4. To pay charges of the bank. A customer is bound to pay all reasonable charges
which the banker has incurred by providing facilities to the customer. By right of customer, a banker is entitled to levy
incidental charges on current accounts and this practice is so well established that it would be legally enforceable. A
banker has a right to be fairly and adequately compensated for the services which he renders to his customer. A banker
makes available to his customers diversified services like issue of demand draft, locker facility, traveller cheques, MICR
cheques, credit cards, ATM facility etc. Reasonable charges of these facilities may be adequately paid for

. 5. To communicate or inform facts:

It is the binding duty of the customer that he must communicate with the banker as to the forgery of his signature on
the cheque or missing of his cheque book or passbook etc. The customer should immediately notify the bank if he
discovers that another person has forged his signature to cheques drawn on his account.

6. To make a demand for repayment of deposit

Though banks borrow money from the public they are privileged debtors. The general principle that a request by the
creditor for payment is unnecessary, does not apply to banking. According to the law of limitation in India, a debt
payable on demand is time-barred after three years, irrespective of whether demand is made by the creditor on the
debtor. In the case of bank deposits, however, the limitation starts running from the date the customer makes a demand
on the banker. A deposit may remain for more than three years, say, 10 or 12 years, but the amount can still be claimed
by the depositor from the bank. The period of limitation starts running from the date of such a demand. Bankers have
hardly been known to decline payment of the debts (deposits) on grounds of limitation.