This article is written by Abhinav Anand, a student pursuing B.A. LLB (Hons.) from DSNLU, Visakhapatnam. This article deals with the relationship between the banker and the customer.

Introduction

The relationship between a Banker and a Customer is based on trust. In today’s world, banks are considered a pivotal element for the economy of the country. It is an effective banking system that paves the way for the proper growth of the economy. Customers avail different kinds of services from the bank. This article critically analyses different types of relationship between customer and banker. It also discusses different legislations that protect the interest of the banker and customer and also provide proper remedies to them.

Different kind of relationship

• Relationship of debtor and creditor

When a customer opens a bank account with the bank, he fills the form and other requisites compulsory for the same. When he deposits money in his bank account, he becomes a creditor to the bank. The bank becomes the debtor. The obligations of the bank to carry further business from the deposits of the consumer are solely dependent on their own choice. The bank can invest that money according to their own convenience. If the consumer wants to take back that money, then he needs to follow a  procedure of withdrawal.

• Relationship of pledger and pledgee

When a customer pledges an article (goods and documents)  with the banker as a security for the payment of debt or performance of the promise, the customer becomes a pledger and the banker becomes the pledgee.

• Relationship of bailor and a bailee

Section 148 of the Indian Contract Act, 1872 defines Bailment, bailor and bailee. A “Bailment” is the transfer of goods from one person to another for some purpose, upon a contract that they shall return the goods after completion of the purpose or will dispose of the goods according to the direction agreed as per the terms and conditions of the contract. The person delivering the good is called the bailor and the person to whom the good is delivered is called the bailee. Banks secure their advances by taking some tangible assets as securities. Sometimes they keep valuable items, or land and other things as security. By doing so, the bank becomes the baillie and the consumer becomes the bailor.

• Relationship of lesser and lesse 

Section 105 of Transfer of Property Act, 1882 defines lease, lessor, lesse, premium and rent.

A lease of immovable property is transferred to the right to enjoy the property for a certain period of time. The transferor is the lessor. The transferee is called the lessee.

• Relationship of trustee and beneficiary

When a bank receives money or other valuable securities, then the banker’s position is of a trustee. On the other hand, when a bank receives money and uses it in various sectors, the bank becomes the beneficiary.

Relevant laws 

Consumer Protection Act, 2019

The Consumer Protection Act, 2019 is implemented with the objective to secure and protect the interest of the consumers. It provides redressal to the grievances of consumers, who are not satisfied by the service of the service provider. Under this act section 2(1)(o) of the act defines the “service”. Section 2(1)(g) of the Act provides the definition of the term “services”. Banking services also come under the scope of the service provided under the Consumer Protection Act, 1986.  Deficiency in any kind of services can be brought to the consumer forums for redressal of grievances. Section 2(1)(d) of the Act says that a consumer is a person who avails services for the consideration.  

Limitation Act, 1963

The Limitation Act, 1963 provides for the prescribed time period within which any suit, appeal or application can be made. The “prescribed period” means the period of limitation computed in accordance with the provisions of the Limitation Act. A banker is allowed to file a suit, appeal or an application for recovery of the loan only when the document is within the period of limitation. Therefore, the bank should be careful that all the legal loan documents are within the time limit and are held as valid. 

Revival of the document

• Acknowledgement Debt

As per Section 18 of the Limitation Act, acknowledgement of the debt in writing by the borrower on the requisite stamp paper before the expiration of expiration period can extend the limitation period.

• Part Payment

When the part repayment is made by the borrower himself or by his authorised agent before the expiry of the document, evidence of such payment has to be taken in writing and duly signed by the borrower.

• Fresh set of Documents

When the fresh set of documents are received by the bank before the expiry of the original document, then the fresh period of limitation starts. The revival of the time-barred debt is governed under Section 25(3) of the Indian Contract Act, 1872.

Recovery of debts due to banks and financial Institutions Act, 1993 (DRT Act)

This Act came into operation on 24th June, 1993. Recovery of dues of the loan of the banks and financial institution through court became tough. There was a huge backlog of cases. To overcome this problem and expedite the process of loan recovery, this legislation was enacted.

Important things in the legislation

• This Act constituted the “Debt Recovery Tribunal” for the speedy recovery of the loans.
• This Act is applicable for the debt due to any bank or any financial institution or any consortium of them, for the recovery of the debt above 10 lakhs.
• The term “Debt” cover the following types of debts:

1. Any liability inclusive of interest, whether secured or unsecured.
2. Any liability payable under a decree or order of any Civil Court or any kind of the arbitration award.
3. Any liability payable under the mortgage or subsisting upon or legally enforceable and recoverable on the date of the application.

Lok Adalat Act

Lok Adalats are organised under the Legal Services Authorities Act, 1987. They are intended for the settlement of a dispute or potential dispute out of the courts. Lok Adalat derives by the consent of the parties or when the court is satisfied that the dispute can be settled by the Lok Adalat. They have to decide the matter based on the principle of equity, justice and good conscience. In case of a settlement, the award shall be binding on both the parties. No appeal should lie in any court against the award.

SARFAESI Act, 2002

This Act empowers the bank and other financial institutions to recover their dues in Non Performing Assets, without the intervention of the court. It also empowers the bank to issue a notice to the defaulting borrowers or guarantors to discharge their dues within 60 days.

Important aspects of the Act

Securitization

Securitization is the process in which the financial asset is bought by the securitization or reconstruction company from the lender (bank or financial institution). The Securitization or reconstruction company raises the fund by the qualified and institutional buyers by issuing security receipt to them. The security receipt represents an undivided interest in the financial asset.

Asset Reconstruction

Asset reconstruction role is to take over the loans or advances from the bank of the financial assets for the purpose of the recovery. On acquisition of the financial asset, the asset reconstruction company becomes the owner of the property. The asset reconstruction company steps in the shoes of the bank. The securitization company is governed by the Companies Act, 1956. The regulatory authority for all the securitization company is the Reserve Bank of India.

Enforcement of Security Interest 

The enforcement of security interest is important for the recovery of the bank’s loan. The enforcement of the security feature is accomplished without any interference from the court. The bank has to serve the notice to the borrower before 60 days with a request to discharge the liability of the loan. If the borrower fails to pay the amount within the stipulated time then the secured creditor can take the possession of the secured asset.

Security Interest

Any right, title or interest of any kind of property created in favour of the secured creditor is called the security interest. Whenever any lender takes any property from any borrower then a lender gets security in that property. When the bank or any lender is taking possession of the property then precaution must be taken and also, if required, the help of the metropolitan magistrate or chief judicial magistrate can be taken.

Lender liability Act

After the recommendation by the committee constituted by the government of India for limited liability laws, the Lender Liability Act came into force. It has devised certain fair practice code for the lenders which was adopted by all the banks.

The act explicitly laid down the criteria by which the lenders have to comply for granting loans. The lenders should dispose of any loan application within a reasonable time period. It must consider the welfare of the borrower. If the application is from any borrower who belongs to the pivotal sector of the economy, then he must be dealt on a priority basis. The creditworthiness should be checked according to rules and regulation provided by the Reserve Bank of India. The margin and security stipulation should not be used as the due diligence along with other terms and conditions for granting the loan.

Banking Ombudsman 

Banking Ombudsman Scheme is a grievance redressal system. If a customer is dissatisfied with the service of the bank then he can approach the banking ombudsman for further action. It is introduced under Section 35A of the Banking Regulations Act, 1949. 

Important features of the Banking Ombudsman Scheme

• Deficiency in service, non-acceptance of note of notes of small denominations without sufficient cause.
• Delayed or non-payment of inward remittance or delayed issuance of the draft.
• Non-adherence to prescribed working hours.
• Refusal to open a banking account without any valid reason.
• Levying of charges without any prior notice to the customer.
• Forced closure of deposit account without notice or sufficient reason.
• Refusal to close or delay closing accounts.
• Non-adherence to the fair procedure adopted by the bank or non-adherence to the fair procedure and function for customers laid down by the Banking Codes and Standard Board of India.
• Non-observance of Reserve Bank guidelines on engagement of recovery agents by banks.
• Non-observance of the Reserve Bank guidelines on interest rates.

Case laws

In the case of Motigavri vs. Naranjidwarkadas, the Bombay High Court held that the relationship between banker and banker is that of a lender and borrower.

In the case of Canara Bank vs. Canara Sale Corporation and others, a wider approach was taken into consideration and it was held that a relationship between the customer of a bank and a customer is that of a debtor and creditor.

In the case of Surender S/O Laxman Nikose vs. Chief Manager and authorised officer, State bank of India, it was held by the Bombay high court that once the relationship between the banker and customer ends, it waives off every right including the right of lien.

Conclusion

With the advancement of the internet and different online mechanisms, the world has become a global village. People keep their savings and valuables in banks for better returns. At times we have seen that people have seen instances of online fraud. The regulation should be made in ensuring complete protection and also should satisfy the consumer. The arbitrary action of granting loans to people with brand value should be curbed and the account must be fixed if anyone is found responsible for the inaction or impropriety. The rising non-performing assets have become a concern for everyone in the country. It directly or indirectly affects common people of the country. So, we should understand the need of the hour and make regulations in that direction.

References

• http://lawtimesjournal.in/customer-banker-relationship/
• https://www.lawteacher.net/free-law-essays/commercial-law/general-legal-relationship-between-bank-and-customer-commercial-law-essay.php
• https://www.icsi.edu/docs/webmodules/Publications/9.1%20Banking%20Law%20-Professional.pdf

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