banking Flashcards
A banker is one who in the ordinary course of business, honours cheques, draws upon by him by persons from and from whom he receives money on current account” - who gave this def
Dr. Herbert Hart
“An individual, partnership, or corporation whose sole predomination business is banking i.e., the receipt of money on current account or deposit account of the payment of cheques drawn and the collection of cheques paid in by a customer.” who gave this def
Halsbury’s Laws of England
United Dominion Trust Ltd. (UTD) v. Kirkwood (1966)
what was held
contention: UDT could not be called a ‘banker’ because it was actually a ‘money lender’
DT had a great deal of goodwill as a banking company and had also portrayed itself to be one to the people. Thus, it had a right to recover its money from Kirkwood.
held: banker must (a) accept deposits and (b) issue and honour cheques.
“accepting for the purpose of lending or investment of
deposits of money from the public repayable on demand or otherwise and withdraw-able by cheque, draft, order, or otherwise.”
banking regulation act section 5(b)
Banker includes a body of persons whether incorporated or not carrying on the business of banking.
Bills of Exchange Act, 1882-
banking company which section
br act sec 5(c)
as per kYC rules who is a customer
- maintains an account or has business rel with a bank
- beneficial owners
- beneficiaries of transactions committed by professionals
- any person connected with a transaction that poses reputational risk to the bank
who gave the duration theory of the definition of the customer
sir john paget
what is the duration theory of a customer?
recognizable course or habit.
lays emphasis on the habitually transaction with the bank
cases against duration theory:
- Great Western Railway Co. v. London & County Banking Co
- Commissioners of Taxation v. English, Scottish, and Australian Bank Ltd
Great Western Railway Co. v. London & County Banking Co
bank cashes cheques for a man for 20 years.
held; no customer as no account in the bank
Commissioners of Taxation v. English, Scottish, and Australian Bank Ltd
“Deposits in the bank”
What relation between the banker and the customer
bank: Debtor
customer: creditor
Loan from the bank
bank: creditor
customer: debtor
locker
what relation
bank: lessor
customer: lessee
safe custody
bank: bailee
customer: bailor
purchase of draft
bank: debtor
customer: creditor
payee of draft
bank: trustee
customer: beneficiary
pledge
bank: pawnee
customer: pawnor
standing instruction
bank: agent
customer: principal
money deposited but instructions not given for its disposal
bank: trustee
customer: beneficiary
shares given for sale
bank: agent
customer: principal
assignment
bank: assignee
customer: assignor
hypothecation
bank: hypothcatee
customer: hypothcator
what are the two theories
duration theory and account theory
dr HL hart which theory
both duration and account theory
joachimson v. swiss bank corp
express request of repayment is required to withdraw the money from the bank
demand for repayment must be at that branch where deposit was made
how is an banker’s debt different from an ordinary debt
for the repayment of the banker’s debt an express demand for repayment must be made
banker as a trustee statues
3, 15 and 32 - indian trust act
what does the relationship between the trustee and the beneficiary in a banker customer setting rely on
the letter with the instructions
what are the two types of relationship between the banker and the customer
general - foundational and basic in nature - debtor and creditor
act: section 5 and 6 of the BR act
special - based on very specific transactions
is ITA applicable on public or charitable trusts
no
trust definiton whcih act
section 3 ITA
care required from trustee
duty of trustee
New Bank of India v. Pearey Lal
The relationship in the present case is not depositor and creditor, and
it is not bank’s money. It is trustee-beneficiary relationship as there existed a condition, where
the bank was to keep the money till the trustee asks not to do so. There is no question of liability
in the present case.
Official assignee of Madras v. J. W. Iron:
Court said that in cases where money was transferred for specific purpose which couldn’t be fulfilled,
with regard to unspent balance, the bank would be trustee and the customer would be beneficiary. The
entire unspent balance would be given back to the customer.
lessor lessee rel statute
sec 105 TPA
lessor lessee relationship requisite
locker is immoveable property
agreement for lessor lessee relationship
memorandum of letting
National bank of Lahore vs Sohan lal,
bailor bailee relationship and not lessor lessee
Duties of banker
Maintain secrecy
Duty to honour cheques
Duty to pay bills as per standing instructions of the customer
Duty to provide proper services
Duty to act as per the directions of the customer - if no directions act how they are expected to act
Duty to submit periodical statements
Duty to not give articles to any third person
Rights of bankers
Right to set off
Right to exercise general lien
Right of appropriation
most imp case for secrecy
tournier v. national provincial board
conditions held in the tournier case
- compulsion of law
- duty to the public
- interests of the bank
- express or implied consent of the bank
compulsion of law case
shankarlal agarwal v. state bank of india
261 notes of 1000
public duty higher than pvt duty - disclosure secrecy exception case
Kattabomman Transport Corporation Limited v. State bank of Travancore (1992)
interest of the bank
sutherland v. barclays case
provision of fidelity SBI Act, 1955:
Section 44
exception: compulsion
by law and customary practice or usage.
provision of fidelity - Credit Information Companies Act, 2005:
Section 29
provision of fidelity SBI Subsidiaries Act, 1959:
Section 52
provison of fidelity: Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970:
section 13
provision of fidelity - Public Financial Institutions (Obligations as to Fidelity and Secrecy) Act, 1983:
Section 3
provision of fidelity - Income Tax Act, 1961
Section 131
IT Authorities have the power to conduct inqury against a
person from whom taxes are due. W.r.t. tax evasion, the authorities have the power to compel banks
to disclose information for the purpose of the inquiry.
provision of fidelity - Gift Tax Act, 1958,
Section 36: Authorities have the power to seek information to look at
evasion of gift tax (similar power to Sec 131 of ITA)
provision of fidelity - Payment and Settlements Systems Act, 2007:
Section 22
provision of fidelity - Companies Act, 2013,
Chapter 14 - deals with inquiry, investigation, inspection. It can be
conducted by the Registrar on the order of the Central Govt. In the process, the inspector or
registrar can ask the bank to disclose information under Companies Act and this applies to all
private banks because they are essentially banking companies.
provision of fidelity - Banking Regulation Act, 1949,
Section 27(2): RBI can call for the disclosure of any
information related to the business of banks. Section 28 gives RBI the power to publish such
information to other banks and credit agencies. Section 45 is similar to 27(2) and 28.
exceptions of duty to honour cheques
- stop payment instruction
- garnishee order
- notice about death of owner
- drawer insolvent or lunatic
- stale check
—— imposes an obligation upon the drawee to honour a cheque whenever sufficient balance is present in the account
sec 31 ni act
Garnishee order exception
set off and
Garnishee order
(Order 21, Rule 46 CPC):
a stale check is a Cheque presented at the paying bank after the prescribed period of its payment date, which according
to an RBI notification is
3 months
Conditions for claiming right of set-off
- both accs in the same name
- amount certain and measurable
- amount should not be in a public trust
- no agreement to the contrary
- cannot be exercised in respect of future contingent debt
- prior garnishee order
general lien section
171
Barclays Bank v. Quistclose Investment Ltd. (1968)
How set off is not allowed in cases where
money kept in an account is being held by the bank as a trustee.
3 types of lien
- possessory lien
- equitable lien
- maritime lien
Brando v. Barnett
recognized general lien of banks
rights acquired by general lien are an implied pledge
a banker cannot exercise his right of lien in the following cases:
- contract to the contrary
- goods acquired as a trustee
- safe custody deposits
- money deposited as security for a loan
- goods left with the bank negligently
l
landmark case for lien
Syndicate Bank vs Vijay Kumar
Nakulam vs Dep. General Manager, Canara Bank:
the right of lien can be
exercise on ANY goods that the bank has possession of, not only in relation of a particular loan but any
other loan that is with the bank
Lonanakutty vs Registrat of Co-operative Socities
Unless there
is express or implied consent to prove that husband would be liable for wife’s loan, general lien in this
case cannot be exercised
—— recommended establishment of RBI
Royal Commision=Hilton Young Commission
The first joint-stock variety bank
was —-
Bank of Bombay
SBI was created by the amalgamation of these three banks. It was initially called the Imperial Bank of India when it was first amalgamated in —— (date)
1921
NS Committee II set up in —- by the then Finance Minister ——
1997, P. Chidambaram.Committee
—– was India’s first universal bank]
ICICI
what was the result of the Central Banking Inquiry Committee (1931)-
Banking Companies act of 1949
RBI WAS EST IN
1935
NATIONALISATION OF RBI in —-
1949
Folley v. Hill
a deposit creates debtor creditor rel not a trustee beneficiary.
privileged debt
Balakrishnan R. Dayma v. Bank of Jaipur
the Court observed that the nature of the relationship between the bank and customer in the case was that of a bailor and bailee. The bank had the duty to take reasonable care of the goods transferred to its possession by way of a contract of bailment. The bank had failed its duty and was thus made liable.
Sec —- of the ICA, 1872 defines “agent
182
Sec —- of the ICA speaks of duty of the agent to take reasonable care and exercise due diligence otherwise the agent can me made liable for loss sustained by principal.
212
——-, deals with the birth and death of the bank.
Banking Regulation Act 1949
—– founded in 1407 is the earliest known state deposit bank.
Banco di San Giorgio
hilton young commission reccs
to better regulatory measures to prevent bank failure + apex bank
[First Indian Bank with 100% Indian Shareholders]
Allahabad Bank
social control measures
10(A) (2) - 51%
NATIONAL CREDIT COUNCIL
- Who were Nationalized –
Banks with Deposit Base of more than 50 Crore.
United Dominion Trust Ltd. (UDT) v. Kirwood (1966) - characteristic of banker
o They accept money from and collect cheques from their customers.
o They honour cheques on order drawn on them by their customers.
o They keep current account or something of that nature in their books in which the credit and debit are entered.
CBI vs V Gopinath Nair 1968 [Kerela High Court]
The term “customer” is not defined in the Act. Broadly speaking, a customer is a person who has the habit of resorting to the same place or person, to do business”
Shanti Prasad Jain vs The Director of Enforcement 1962 (SC)
- In this case the court held that the relationship between the banker and customer is of a debtor and creditor and not trustee beneficiary.
- Customer has not right to call upon the banker to account for the use of the money of his deposited in the bank.
- Lisense is given under Section — of the Easements Act,
52
