TERMINATION OF THE BANKER-CUSTOMER RELATIONSHIP BY OPERATION OF LAW
Keywords:
Agent, Alternative remedies, Bailee, Bailor, Banking customers, Banking ombudsman, Beneficiary, Compensation, Customer, Damages, Deficiency in service, Legal remedies, Principal, TrusteeAbstract
The determination of whether the banker-customer relationship is in existence at a particular point of time has important legal consequences for both parties to that contractual relationship. As duration is not of the essence of the relationship, even a single transaction can give rise to it. It is therefore important to determine the conditions under which the banker-customer relationship may be terminated. Termination of the banker-customer relationship by operation of law may occur in the following ways, viz, death of the customer, mental incapacity of customer, bankruptcy of the customer, winding up of a company customer, winding up of a bank and outbreak of war. Since a detail examination on this point is unnecessary as far as our topic is concerned, it is avoided from further discussion. for legal purposes, the receiving of deposits by a bank from the public is regarded as a borrowing by the bank. But as a debtor, the bank is not like other commercial debtors; he has certain privileges and is burdened with contractual, statutory and customary obligations. It is with reference to this peculiar legal relationship that the behaviour of the bank in any particular case is scrutinized and any deficiency in service is detected. In this Article, an attempt is made to concentrate on the major decisions relating to the legal remedies available to Banking customers and the endeavour of judiciary to conceptualise the relation between banker and customer.
References
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12. Supporting the view expressed by Dr. Hart, the Kerala High Court in Central Bank of India Ltd., Bombay v. Gopinathan Nair and others (AIR. 1979 Kerala 74) observed: “so far as banking transactions are concerned, a customer is one whose money has been accepte d on the understanding that the bank will honour transactions up to the amount standing to his credit, irrespective of his connections being of short or of long standing”.
13. Taxation Commissioners v. English, Scottish and Australian Bank Ltd (1920) A.C. 683
14. This appears to be the correct and acceptable exposition of law since the ‘Duration theory’ (requiring a course or habit of dealing with the bank) has now been discarded by Courts universally. A wider definition describing the customer as ‘any person havin g a dealing with a bank’ may be useful for many purposes, but the context of acceptance of deposits, it is obviously irrelevant.
15. Sec 138(7) (British) Financial Services Management Act. - about the meaning of customers.
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18. Dr. Hart defines a banker or bank as: “A person or company carrying on the business of receiving money and collecting drafts for customers subject to the obligation of honouring cheques drawn up on them from time to time by the customers to the extent of the amounts available on their current accounts.” Dr. Herbert. L. Hart. ‘The Law of Banking’, 4th Edn. p.1
19. Regarding the functions of a banker, Sheldon states: “ the principal business of a banker is to receive money from his customers on the understanding that he will refund all moneys received or collected, either on demand or at some definite date agreed upon between him and his customers”. C. B. Drover and R.W.B. Bosley (Ed). Sheldon’s Practice and Law of Banking. 10th Edn., L ondon, Macdonald and Evans Ltd., 1972.p.162
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26. Ibid., S.6(1).
27. AIR . 1961. Cal.666.Relying on Bank of Commerce Ltd., v.Kunja Behari Kar. AIR 1944 F.C.2.
28. Ibid. in this connection, it may be noted that the E.C. approach to banking business is to consider the function of granting credits also, as an equally important and essential ingredients as deposits taking Termination of the Banker-customer Relationship by Operation of Law N. Krishna Kumar JBIL (2020) 25–37 © Law Journals 2020. All Rights Reserved Page 36 from the public. See. Art.I of both, the 1st and 2nd Banking Directives of the European Community. The Indian Parliament, however, followed the English approach.
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34. See Supra.n.21.
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37. For eg, when place d in a sealed bag or box.
38. The beginning of English banking may correctly be attributed to the London goldsmiths during the age of Queen Elizabeth I. They used to receive their customer’s valuables and funds for safe custody and issue receipts acknowledging the same. For sometime s, the deposits were made without interest and the transactions were simple bailments. Later on, the goldsmiths started lending these amounts and for that purpose they started giving interest to their customers instead of charging fe es for safeguarding their money, thereby losing the character of bailment for the transactions. To have an historical pe rspective, see, W.S. Holdsworth. ’The Early History of Banking’, (1918) 34 Law Quarterly Review p. 11; Edward. L. Symons Jr. The Business of Banking in Historical perspective, 51, George Washington Law Review.p. 676; W.S. Holdsworth, ‘The Origins and Early History of Negotiable Instruments’, 31 Law Quarterly Review,p. 12;S.N. Gupta. ‘The Banking Law in Theory and Practice’, 3rd edn. vol. 1. New Delhi, Universal Law Publishing Co.,1999. pp.1-25.
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49. The Indian Trust Act, 1882, SS.19 &20.
50. (1910) ILR 36 Mad 499 (FB)
51. AIR 1951 Mad 910
52. AIR 1962 SC 1003
53. AIR 1942 Cal 556
54. Imperial Bank of Canada V Mary Victoria Bagley (1936) 44 LW 128
55. AIR 1962(Ker) 210
56. (2008) 8 SCC 92
57. A breach of fiduciary duty can lead to an injunction, damages, or to the fiduciary having to account for any profits made in addition to the criminal sanctions for breach of trust.
58. Indian Contract Act 1872 Sec. 212.
59. Punjab National Bank Ltd., v. Dewa n Chand AIR 1931 Lah. 302. Punjab National Bank Ltd., v. RBL Benarsi Das and Co. AIR 1960 Punj. 590 Bank of India v. Official Liquidator AIR 1950 Bom.376. First National Bank Ltd., v. Industrial Oil Com.AIR 1962. Punj. 170 First National Bank L td., v. Pioneer Commercial Bank . AIR 1951 Cal.34 Indian Bank v. Aluminium Industries Ltd., (1990) CCV 69 Ker 427. Keshari Chand v. Shillong Banking Corporation Ltd., AIR 1965 SC. 1711.
60. AIR 1958 J&K25
61. Central Bank of India Ltd., v. Ram Sarup Khanna AIR 1956 Punj. 78. JBIL (2020) 25–37 © Law Journals 2020. All Rights Reserved Page 37
62. See, The Indian Contract Act, 1872, SS.211-218.
63. Lord Chorley. op. cit. p.20.
64. Ross Cranston, ‘Principles of Banking Law’, Oxford, Clarendon Press, 1997.
65. Ibid., p.203.
66. 385 US 99 at p.101 (As quoted in Ross Cranston, Principles of Banking Law’, Oxford, Clarendon Press, 1997.p. 141)
67. (1921) 3 KB 110: Chorley and Smart, ‘Leading Cases in the Law of Banking’, 3rd edn.. London, Sweet & Maxwell, 1973.p.4.
68. Lord Chorley, op. cit., p.26
69. Lord Chorley, op.cit., p.24.
70. AIR 952 Cal. 193
71. (1956) 26 Com. Cases 81
72. AIR 1957 Mad 745
73. AIR 1978 Cal 55
74. (1963) 2 SCR 297
75. Supra. n.35.
76. Chartered Bank v Mohammed Hussain AIR 1952 Cal. 193
77. This principle has been consistently followed in later decisions in England and in India, making it a ‘well -established’ principle.
78. The Privy Council, in ‘State Aided Bank of Travancore Ltd v. Dhrit Ram’, [(1942) 12 comp. CAs. 80: M.S. Parthasarathy, ‘Banking Law-Leading Indian cases’, 2nd edn. Bombay, N.M. Tripathi, 1985, p.2] established the principle in relation t o deposit accounts. In this connection it is to be noted that the principles will have application only in the absence of any contract to the contrary. Basically, the law which governs a contract depends up on the intention of the parties , express or implied. The question of implication arises only in the absence of express terms.
79. 1915(2) KB 576
80. AIR 1970 Goa 11
81. AIR 1970 All 108
82. (1873) 3 AC 325
83. AIR 1955 SC 590
84. The India Limitation Act 1963. Art. 44.
85. For eg., a banker who wrongly judges the relationship to be at an end and fails to honour a customer’s cheques is exposed to the possibility of substantial damages and sometimes, even for defamation.
86. Commissioner of Taxation v. English,m Scottish and Australian Bank Ltd., (1920) AC 683. See further, Central Bank of Idia Ltd. Bombay v. Gopinathan Nair and others, AIR 1979 Kerala 74. Cite this Article N. Krishna Kumar . Termination of the Banker-customer Relationship by Operation of Law . Journal of Banking & Insurance Law. 2020; 3(1): 25–37p.
