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d. Credit balance of customers account at one branch cannot be applied for the payment of
cheques at another branch.
e. If a presenter of the cheque comes to know that drawers account shows a lesser balance
and deposits the difference in drawers accounts with an intention to get the cheque
passed, banker is justified in payment of that cheque passed provided the banker does not
disclose the balance to the presenter OR banker is not negligent for such information
coming to notice of the presenter.
WHERE MORE THAN ONE CHEQUES ARE PRESENTED SIMULTANEOUSLY
If the balance available in the account is sufficient to pay a few cheques only and not all, those
cheques are to be passed where the maximum liability of the customer is discharged (Golden
Rule of damages under Indian Contract Act 1872 Section 54-58). The maximum liability is
settled when the tax liability is met first. Hence the decision to pass the cheques should be based
on name of the payee, maximum no. of cheques and the cheque of higher amount, in that order.
OBLIGATIONS OF A CUSTOMER:
PROPER DEMAND & FORM
Bankers duty to pay the cheque arises only when demand made by the customer for payment is
in a proper manner, which implies:
a. Cheque should be properly filled (cheque filled with pencil is considered undesirable so
far paying bank is concerned, as per a Supreme Court judgement).
b. Amount in words and figures must tally (desirable),
c. Cheque should not be mutilated.
d. Cheque should not be post dated i,e bearing a date later than the date of giving cheque,
or stale i.e bearng more than six months old and is presented within 6 months of its issue.
e. Must be presented within business hours of the branch of which he is a customer, unless
other arrangements to pay are made.
f. Even if customers are allowed to issue cheques payable at par at other branches and can
draw cash from other branches under Core Banking Solutions, the customer is still
deemed as attached to the base branch where he has opened the account for all other
purposes.
Any information about the customer accounts can be justifiably disclosed under law as per:
1. Court order U/s 6 of Bankers Book Evidence Act 1891 or The Code of Civil Procedure
or under section 94 of Criminal Procedure Code 1973.
2. Central Govt. order in exercise of powers conferred u/s 235/237 of Companies Act
1956,.
3. Directorate of Enforcement and RBI orders under Section 43 of Foreign Exchange
Management Act 1999.
4. Under order of Astt Commissioner or Income Tax Officer U/s 131/133 of The
Income Tax Act 1961.
5. Order of RBI under Reserve Bank of India Act or Banking Regulation Act.
BANKERS RIGHTS
RIGHT OF LIEN
Lien has been defined as the right of a creditor to retain the possession of the goods and
securities owned by the debtor until the debt has been paid. Lien does not include the right of
sale of goods and securities, so retained by the creditor. Lien is available on goods and securities
only (such as bills, cheques, promissory notes, share certificates, bonds, and debentures). It is not
available for deposits, since deposits are neither goods nor securities.
Particular lien- In case of a particular lien (Section 170 of Indian Contract Act) the creditor
gets the right to retain possession only of goods or securities for which the dues have arisen and
not for other dues. For example, a watch-repairer can withhold the delivery of watch until his
charges of repairing the watch are paid to him.
General lien- A general lien (Section 171) gives the rights to the creditor to retain the possession
of goods or securities till all amounts due from debtor are paid or discharged. This is available to
bankers, factors, wharfingers, (the Wharfinger takes custody of and is responsible for goods
delivered to the wharf. ... A wharf is a landing place or pier where ships may tie up and load or
unload.) Banker has right of general lien against his borrowers
Conditions for bankers right of lien:. To exercise the right of lien the possession of the
property must be obtained lawfully in the capacity of the banker and not otherwise. A banker can
sell the goods or securities after giving the debtor a reasonable notice. The right of general lien is
available in case of all goods and securities, entrusted to bank in the capacity as a banker.
WHERE RIGHT OF LIEN CANNOT BE EXERCISED
a. Where there is any contract inconsistent with this right between banker and the
customer.
b. Where the goods and securities are entrusted to the bank as a trustee or as an agent, for
some specific purpose, or for safe custody or where some documents or valuable are
left in banks possession by the customer by mistake or negligence
c. Where the loan is granted to one person and the goods and securities are owned by more
than one person
d. Where the securities are given to the bank to secure a loan, but that has not been granted
as yet.
BANKERS RIGHT OF SET OFF
The right of set off means combining of two or more accounts, one of which is in debit and the other
in credit, (say overdraft and fixed deposit), in the same branch or a in a different branch, subject to
certain conditions:
Notice- The right can be exercised only after sending a prior notice expressing the intention to
exercise the right.
Time for exercising the right- The right is normally exercised in case of insolvency, death or lunacy
of the customer, insolvency or dissolution of firm or liquidation of the company, receipt of court
order.
Same capacity- It is essential that the account must be in the same name and in the same
capacity/right. The money belonging to someone else cannot be made available to satisfy personal
debts of some other person.
Partners/partnership- where a partners account shows credit balance, the right can be exercised for
the dues of the partnership firm because all partners are individually and jointly liable. But where the
firms account shows credit balance, the bank cannot set off the credit balance against the debts due
from the individual partner(s).
Guardian- where a person has an account in the capacity of a guardian of minor under 18 years of
age, it is not to be treated in the same right as his own account with the bank.
Trust- The funds held by a person in trust account are to be treated in different rights from his
liability as an individual.
Joint accounts- If the individual account of a person shows debit balance, such dues cannot be
recovered from his joint account with others. Where the joint account is payable to former or
survivor, the formers debt can be set off during his life time against the balance of joint account.
Debt due- The debt should be certain, determined, due & not a future or contingent debts and where
no agreement to the contrary exists. It can, however, be exercised for time barred debts also.
Guarantor- Against the guarantor, such right can be exercised only when demand is made on the
guarantor and his liability has been determined.
TERMINATION OF BANKER CUSTOMER RELATIONSHIP
The relationship terminates:
1. When the customer closes the account.
2. With knowledge of the death, insanity and insolvency of the customer.
3. On receipt of Court order or Income tax attachment order
4. When bank closes the account after due notice of reasonable period, (which is compulsory and
failing which, the banker may be held accountable for damage, if any, due to dishonour of
cheques).