Unit 2: Banker-customer relationships

• Special features of the debtor–creditor relationship: the customer must demand repayment; at the branch where the account is kept; demand in writing (cheque).
• Obligations of the banker: honour cheques (if funds available), maintain secrecy of accounts (exceptions — law, public duty, bank's interest, customer's consent — Tournier v. National Provincial Bank, 1924), follow customer's mandate, give notice before closing accounts.
• Who is a customer: a person who has an account with the bank (Great Western Railway v. London and County Banking Co.); duration of dealing is not essential.

• PMLA, 2002 and RBI KYC Master Direction (2016, updated): customer due diligence, risk categorisation (low, medium, high), enhanced due diligence for high-risk and PEPs, periodic re-KYC.
• Reporting to FIU-IND: CTR (cash transactions above ₹10 lakh a month), STR (suspicious transactions within 7 days of determination), counterfeit currency reports, cross-border wire transfer reports.
• Record keeping: five years after the relationship ends; Principal Officer and Designated Director responsible.

• Special customers: minors (natural guardian; self-operation from age 10), illiterate persons, joint accounts (either or survivor, former or survivor), partnerships, companies (board resolution, MOA/AOA), trusts, HUF (Karta), clubs and associations.
• Dormant/inoperative accounts: no customer-induced transaction for 2 years; unclaimed deposits after 10 years transferred to RBI's DEA Fund; UDGAM portal to search unclaimed deposits.

• Mandate: written authority by the customer to another person to operate the account — ends on death, insanity or insolvency of the customer, or revocation.
• Power of attorney: formal, often registered document authorising an agent; bank checks the scope of powers carefully.
• Garnishee order: a court order attaching money in the judgement debtor's account for payment to the creditor — the bank must stop payments up to the attached amount (Order XXI, CPC); applies to the balance at the time of service.

• Banker's lien: a general lien — right to retain goods and securities of the customer that come into the bank's possession in the ordinary course of banking, for any balance due (Section 171, Contract Act); it is an implied pledge — the banker can sell after reasonable notice. No lien on safe-custody items, securities given for a specific purpose, or trust accounts.
• Right of set-off: combine a debit balance in one account with a credit balance in another account of the same customer in the same capacity — after notice; automatic on death, insolvency, insanity or garnishee order.
• Right of appropriation (Sections 59–61, Contract Act): the debtor may specify which debt a payment is for; if not, the creditor (banker) may appropriate; if neither, payment applies to debts in order of time. Clayton's case — in a running account, the first item on the debit side is discharged by the first item on the credit side.

Obligations under the Negotiable Instruments Act

• Duty to honour cheques (Section 31): the paying banker must pay a cheque if sufficient funds are available and it is properly drawn; wrongful dishonour makes the banker liable to compensate.
• Payment in due course (Section 10): payment in good faith, without negligence, according to the apparent tenor, to the person in possession.
• Section 138 — criminal liability of the drawer for dishonour due to insufficient funds (bank returns the cheque with a memo).
• Crossing (Sections 123–131) must be followed; collecting banker's protection (Section 131).

• Consumer protection: bank customers are "consumers" for deficiency in service under the Consumer Protection Act (COPRA — 1986 Act, now 2019 Act) — complaints before district, state and national commissions.
• Banking Ombudsman: Reserve Bank – Integrated Ombudsman Scheme, 2021 — complain first to the bank; if unresolved in 30 days, file online; compensation up to ₹20 lakh plus ₹1 lakh for harassment; appeal to the Appellate Authority.

• When payment must be stopped: customer's stop-payment instruction, notice of death, insanity or insolvency, garnishee order, notice of defect in title, closure of account.
• Protection to the paying banker: Section 85 (payment of order cheques with forged endorsement in due course; bearer cheques payable to bearer), Section 128 (crossed cheques paid in due course), Section 10 (payment in due course).
• No protection if the drawer's signature is forged — the bank bears the loss (unless customer negligence).

• The collecting banker collects cheques on behalf of its customer — acts as an agent (or holder for value if it has paid in advance).
• Duties: present cheques promptly, give notice of dishonour, credit proceeds promptly (RBI timelines), exercise reasonable care.
• Statutory protection (Section 131): the collecting banker is not liable to the true owner if it collected a crossed cheque in good faith, without negligence, for a customer.
• Negligence examples: opening an account without proper KYC; collecting a cheque payable to a company into an individual's account; ignoring unusual endorsements; account payee cheque credited to another account.

• Remittances: demand drafts, NEFT, RTGS, IMPS, UPI, SWIFT for cross-border; inward remittances (Rupee Drawing Arrangements), outward remittances under LRS.
• Safe deposit lockers (RBI 2021 guidelines): lessor–lessee relationship; locker agreement on stamp paper; bank liability up to 100 times the annual rent for loss due to fire, theft, burglary, bank's negligence or employee fraud; not liable for natural calamities (but must protect premises); CCTV; nomination and settlement of claims within 15 days.