Page 73 - DCOM208_BANKING_THEORY_AND_PRACTICE

Banking Theory and Practice

Notes cheque, draft order or otherwise (Sec. 5b) and says that any company which transacts the business
of banking is a ‘Banking Company ‘(Sec. 5c).
A customer is one who has a (Saving/Current/Fixed) deposit account irrespective of its debit or
credit balance with the bank. Even an agreement to open an account makes one a customer. But
one, who has any other transactions/business only, but no account with the bank, cannot be
called its customer.

5.1 Various Types of Relationship

The primary relationship, which flows from the essential function of a bank, is of debtor creditor
or vice vea (i.e. when the account shows debit balance) with its custome. But depending on other
various functions being performed by banks, several other relationships may also exist.

1. Debtor-Creditor: When a bank accepts deposits, it becomes debtor and the depositor a
creditor irrespective of the fact the bank pays interest or not. But the relationship is of a
special nature, as established by several judgments. Some of the special features of this
relationship are discussed below:
(a) The customer cannot claim return of the same notes or coins from bank, which can
repay a sum of equivalent amount.
(b) The depositor being a creditor, is an unsecured creditor notwithstanding the fact
that the deposits are insured up to ` 1 lakh per depositor by DI&CGC (BDIC)), the
premium being born by bank @ 5 paisa per ` 100/- per year.

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Caution For repayment, the creditor must raise demand. Limitation for suit for recovery
of deposit amount against bank is 3 yea from the date of demand.
(c) Demand must be made by the customer in prescribed manner only at the branch at
which the account is maintained and also within normal business hou on working
day only. It is pertinent to add here that payment made outside business hou is not
a payment in due coue, thus depriving the bank of the protection available under
Sec. 85 and 85A of NI Act.
When the customer overdraws his account, the customer becomes debtor and the banker
becomes creditor.
2. Trustee-Beneficiary: Banks may also act as trustee. The position of a bank will be that a
trustee when:
(a) A Peon having no account with a bank, deposit money with instruction to retain it
till further instructions.
(b) The customer instruct a bank to debit his account or deposits an amount for utilising
it for a specific purpose or for remitting to other branch/bank. (But in absence of
specific instruction, this relationship will not be established).
(c) Manages properties of its customer.
3. Agent-Principal: When the banker accepts, bills etc. for collection on behalf of his customer,
he acts as an agent and the constituents. In such cases the bank is duty bound as per sec 151
of Indian Contract Act, 1872 to act with reasonable diligence and skill as per instruction of
the principal; (in absence of instruction as per customs). Falling which, to make good the
loss, if any, as per Sections 211 and 212 of Indian Contract Act.

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