Relationship Between Banker and Customer

Topic: Relationship Between Banker and Customer

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🔹 1. Meaning of Banker and Customer

• Banker: A person or institution (like Reserve Bank of India regulated banks) that accepts deposits and lends money.
• Customer: A person who has an account with the bank.

📌 Case Law:
👉 Ladbroke v Todd
The court held that a person becomes a customer when they open an account and have regular dealings with the bank.

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🔹 2. Nature of Relationship

The relationship between banker and customer is mainly:

(A) Debtor–Creditor Relationship

• When a customer deposits money → Bank becomes debtor
• Customer becomes creditor

📌 Case Law:
👉 Foley v Hill
Court held that money deposited becomes bank’s property, and bank is a debtor.

📌 Example:
If you deposit ₹10,000 → bank can use it for lending; you only have a right to demand repayment.

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(B) Trustee–Beneficiary Relationship

• In special situations (like safe custody), bank acts as trustee

📌 Example:
If you keep jewellery in a locker → bank must protect it.

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(C) Agent–Principal Relationship

• Bank acts as agent when:
  • Collecting cheques
  • Making payments

📌 Example:
Bank collects cheque on your behalf → acts as your agent.

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(D) Bailor–Bailee Relationship

• When goods are deposited for safe custody

📌 Example:
Documents kept in bank → bank must return safely.

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🔹 3. Rights of Banker

(1) Right of Lien

• Bank can retain customer’s goods until debt is paid

📌 Case Law:
👉 Syndicate Bank v Vijay Kumar
Bank has a general lien over securities.

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(2) Right of Set-Off

• Bank can adjust one account against another

📌 Example:
Savings account ₹50,000 + loan ₹30,000 → bank adjusts amount.

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(3) Right to Charge Interest

• Bank can charge interest on loans as per agreement

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🔹 4. Duties of Banker

(1) Duty to Honour Cheques

• Bank must pay cheques if:
  • Sufficient balance
  • Properly drawn

📌 Case Law:
👉 Marzetti v Williams
Wrongful dishonour damages customer’s reputation.

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(2) Duty of Secrecy

• Bank must keep customer information confidential

📌 Case Law:
👉 Tournier v National Provincial Bank
Bank cannot disclose information except:

• By law
• Public interest
• Customer consent

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(3) Duty to Follow Instructions

• Bank must act according to customer’s mandate

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🔹 5. Rights of Customer

• Right to withdraw money
• Right to secrecy
• Right to sue bank for negligence

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🔹 6. Liabilities of Banker

• Wrongful dishonour
• Negligence
• Unauthorized transactions

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🔹 7. Important Exam Problem (Illustration)

👉 Problem:
A has ₹1,00,000 in bank. Bank refuses to honour his cheque despite sufficient funds.

👉 Answer:

• This is wrongful dishonour
• Bank is liable for damages
• Supported by Marzetti v Williams

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🔹 8. Conclusion (Exam Ready)

• Banker–customer relationship is mainly debtor-creditor
• It changes depending on situation (agent, trustee, bailee)
• Bank has rights (lien, set-off) and duties (honour cheque, secrecy)
• Case laws are very important for scoring marks