Obligation of Bankers

1. Obligation of Bankers Rights and obligations of Bankers:- Obligation to pay cheques if otherwise in order a) Bank’s liability for wrongful dishonour of cheque—Trader or non-trader b) Conditions when a banker may refuse payment of a cheque :- 1. Funds insufficient 2. cheque is not properly drawn, on the proer form and not properly signed

2. Contd.. 3. The cheque has become stale/is post dated 4. The cheque is presented at the branch other than the one where the account is maintained 5. The amount is not free from lien/claim(Lien is the right to the creditor to keep possession of money/material of the debtor 6. Cheque is crossed and is presented for cash payment 7 Cheque is received after-receipt of information of death, insovency or lunacy of the drawer. Receipt of instructions from the drawer to stop the payment

3. Attachment/Garnishee order from the competent authority 8. Drawer’s signature differs B. Bank obligation to maintain secrecy of accounts—This obligation continues even after the customer’s account is closed. Bank’s obligation of keeping the secrecy of the status of the customer’s account is qualified and not absolute. There are certain circumstances under which, the obligation may be relinquished.

4. Contd. The conditions under which a banker is justified in making disclosures:- -Under law -Under express or implied consent of the customer -under the practices/usages in the banking system -Disclosure in the Bank’s interest -Disclosure in public/national interest

5. Contd. Precautions to be adopted while disclosing the information:- --only facts should be revealed --it should be a statement in general. Abbreviated words like ordinary, fair, good, excellent, unsatisfactory etc may be used for describing the credit of a customer --secrecy should be maintained by the recipient also --Disclosure of secrecy-bank is not responsible and does not stand liable for the information so given

6. Contd. --information should not be given to persons out of context Furnishing of opinion-important aspects --an implied authority of customer is available --the report should be based on factual records at the bank --no personal opinion of the bank official should be given --opinion should be in general terms --report should contain that is submitted without

7. Contd. Any responsibility on the part of the bank and its official --past bad experience should also be reported RIGHTS OF A BANKER— Right of lien:-Lien is the right of the creditor to retain possession of the goods and securities owned by the debtor until the debt due from the latter is paid. (Sec 131 of the Indian contract act) He however does not have the right to sell the goods. The creditor can only retain the goods/property till the realisation of the debt

8. Banker’s lien:-It is an implied pledge. Therefore, a Banker acquires the right to sell the goods which came into his possession in the ordinary course of banking business as a banker, in case the debt is not paid. However, adequate notice has to be given to the debtor General or particular (special) lien:- retain all moveable properties Particular or special lien:- However where special lien cannot be proved, the general lien will prevail

9. General lien and banker’s lien:- Conditions --The property must have come to the hands of the banker in his capacity as a banker and not otherwise --There should not be any specific purpose inconsistent to the lien --lawful possession Applicability of banker’s general lien:- --will not be applicable when goods or securities left inadvertently

10. Contd. --no separate agreement is required --not applicable in case of joint accounts Where Banker’s general lien is not applicable:- Safe custody articles:- Documents/money deposited for specific purpose Securities/valuable left negligently at the Bank’s premises Immature debts Stolen goods Where set off is possible

11. Right of set off What it means:- Right to combine the two accounts and to transfer assets and liabilities from one account to another without the consent of the customer Obtaining letter of set off: --It gives right of set off to the banker --There is no need to give notice to the customer by the banker of his intention

12. Contd. Important points governing the application of set off:- --The same name and the same right --Sole proprietor account and individual account can be combined --Partner’s individual account and firm’s account. Cannot set off debit balance in individual account from firm’s account. However vice versa can be done -- debts due but not future or contingent debts

13. Set off --debts due must be certain --No agreement to the contrary --Banker’s discretion: --Right of set off and garnishee order Set off without notice in certain cases 1. On the death of the customer and closing the account 2. When a customer becomes insolvent/lunatic 3. When a garnishee order is served on the customer’s account 4. Notice of assignment of credit balance to someone else has been given by customer