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What are a Banker’s Obligation towards its Customers?


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‘Bank’ is defined in Section 2 (d) of the Recovery Debts due to the Banks Act 1993. It means –  a Banking Company, a Corresponding New Bank, State Bank of India, a subsidiary Bank, a Regional Rural Bank, a multi-State Cooperative Bank, etc. Banking is defined under section 5 (b) BR Act 1949 which means- the accepting, of deposits of money from the public, repayable on demand or otherwise, for the purpose of lending or investment. The money can be withdraw-able by cheque, draft, order or otherwise.  

Even though there is no strict definition of who a ‘Customer’ is, various case laws hold the view that in banking law, a customer is a person whose money has been accepted on the footing that the banker will honour up to the amount standing to his credit, irrespective of his connection being of short or long standing.[1]

A bank has both rights and obligations towards his customer and we shall discuss obligations in this context: -

A. Obligation of banker to honour cheques

The bank has a statutory obligation under section 31 of Negotiable Instruments Act under which it has to honour the checks of its customers up to the amount standing to the credit of the customer’s account. If the bank without any reason refuses to honour the checks of the customer the bank shall be held liable and will have to compensate the customer for not fulfilling its obligations.

Conditions to honouring cheques-

There should be sufficient funds of the customer in the hands of the bank

The fund shall be properly applicable for the payment of the customers cheque

The cheque must be properly drawn and should complete all the processes involved the cheque must be present for payment within a reasonable time within 90 days from the date of issue and there should be no legal bar preventing the payment of such cheques.

Exceptions to Honouring Cheques-

Garnishee Orders- A Garnishee Order is the form of enforcing a judgement debt against a creditor to recover the money. Garnishee order is provided under rule 46B of order 21 of CPC which authorises the executing court to direct the garnishee to pay the amount due from him to the judgement debtor.

B. To maintain secrecy of the Customer

The banker must not disclose to any outsider of the details about the customer’s account or anything with respect to the customer, doing the same shall adversely affect the credit and the business of the customer.[2] Section 13 of the Banking Companies Act, 1970 all

Certain exceptions to maintaining Secrecy- In a case in England it was held that there can be certain times when disclosure of an information can be made.[3] These scenarios are discussed below.

1. When the law requires such disclosures to be made- These disclosure are to be made when Income Tax Authorities under Section 133 of the IT Act require information. Under the Companies Act Section 210, the central government has the power to investigate affairs. The Court may ask the bank to produce certain evidences as per Section 6 of the Indian Evidence Act. Credit information collection under Section 45 B & 45 C of the RBI Act. Section 91 of the CrPC mandates banks to cooperate in investigation by providing information to the officers. The reserve bank may direct under section 11(2) of the Foreign Exchange Management Act for the purposes of compliance.


2. Practices amongst the banks permit such disclosures- There are certain times when the customer itself gives the powers to the bank to disclose information to certain individuals. 

C. Maintain proper records

The banker is under an obligation to maintain accurate record of all the transactions which the customer makes including any credit and debit transactions. The Banker ought to note all the important information of their customers and other dealings in their books with proper verification and detailing. Bankers also have to give particulars of deposits.[4]


D. Follow customers instructions

However this is limited to legal obligations and certain obligations only. Which means that any instruction which is illegal or contradicts various other provisions shall not be followed.


E. To give notice and provide other facilities.

Obligation to give notice to the customer before closing the account. The banker also have the duty to provide their customers with proper infrastructure which would help the seniors and other disabled customers. The banker also has the obligation to provide facilities in various other languages especially in Hindi, English and the vernacular language of the state. 

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[1] Central Bank of India Ltd v Gopinathan Nair (AIR 1979 Kerala 74).

[2] Shankarlal Agarwalla v. State Bank of India AIR 1987 Calcutta 29.

[3] Tournier vs. National Provincial and Union Bank (1924).

[4]Section 26, Banking Regulation Act, 1949.

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