banking and operation intro and 1 unit.pptx

banking and operation intro

1. BANKING LAW AND OPERATIONS

2. O r i g i n Derived from French words Bancus, Banco, Banc, Banque Which means a bench. The early bankers transacted their business at benches in a market place. The business of banking has been existence since 12 th century. The first bankers in the modern sense were the goldsmiths, who accepted bullion and coins for storage from the public.

3. Ba n ker P ers o n do i n g B an ki n g Business Earlier View: “Banker includes a body of persons whether incorporated or not who carry on the banking business.” Expert’s View: The essential business of a banker is to buy money and debts by creating other debt. He is essentially a dealer in debts or credit. DEFINITION According to Sec 5(b) of Banking Regulation Act. “Accepting for the purpose of lending and investment, of deposits of money from the public, repayable on demand, order or otherwise and withdraw able by cheque, draft, order or otherwise.”

4. C US T O M E R DEFINITION According to Lord Davey, “a customer is a person who has some sort of account, either deposit or current account or some similar relation with the banker”.

5. Customer Earl i e r V i e w s : T h e r e m u s t b e s om e s o r t of a n a cc o u n t – e i t h e r d e p o si t or c u rr e n t a cc o u n t o r si m i l a r relation – to make a man c u s t ome r of a ba n k. S ec o n d V ie w : To c o n s t i t u t e a c u s t ome r t h e r e m u s t b e s om e r e c o g ni zab l e c o u r s e o r h a b it o f d eal in g i n t h e n at u r e o f r e g u la r b a n k i n g business M od e rn V ie w : E ven a s i n g l e t r a n s a c t i on c an c o n s t i t u t e a p e r s o n a c u s tome r . Requirements to become a CUSTOMER: He must have some sort of an account Even single transaction may constitute him a customer. Frequency of transaction is anticipated but not insisted upon. The dealing must be of banking nature.

6. Relationship between a BANKER & A CUSTOMER General Relationship Special Relationship There are two types of relationship between banker and customer SPECIAL RELATIONSHIP Obligation to honour cheques Banker’s Lien Duty to maintain secrecy Banker’s right of appropriation Banker’s right of set-off Banker’s right to charge interest and commission.

7. Relationship as Debtor and Creditor On the opening of an account of a customer, the banker becomes s debtor. A customer is a creditor so long as his account carries a credit balance. Relationship as Trustee and Beneficiary When a banker accepts securities and valuables for safe custody, he becomes a trustee. The person for whose benefit valuables are held, is called beneficiary(customer) General Relationship of banker and customer

8. Relationship as Agent and Principal Banker becomes Agent when it provides some services like payment of telephone bill, collection of cheques, paid bills, interest and dividends on behalf of the customer etc. Customer becomes principal when he gets these services from bank Relationship as Bailee and Bailor Ban k e r becom e s Bai l ee when it takes the possession of jewelry and keep it in the bank from customer Customer becomes Bailor when he keeps jewelry or any valuable articales in the bank. C o nt i n…

9. SPECIAL RELATIONSHIP OBLIGATION TO HONOUR CHEQUES BANKER’S LIEN DUTY TO MAINTAIN SECRECY BANKER’S RIGHT OF APPROPRIATION BANKER’S RIGHT OF SET-OFF BANKER’S RIGHT TO CHARGE INTEREST AND COMMISSION.

10. Obligation to honour Cheques A v ai l a b i l i t y of money C o rrec t n e s s of th e cheque P r o pe r dr a w in g of he cheque P r o pe r a pp l i c a t i on of funds P r o pe r p r e s e n tat i on R e a so n a b l e t ime f or collection Section 31 of the Negotiable Instruments Act, 1881 states that “the drawee of a cheque having sufficient funds of the drawer in his hand properly applicable to the payment of such a cheque, must pay the cheque when duly required to do so. And in default of such payment, must compensate the drawer for any loss or damage caused by such default”.

11. D a m a g es “ th e small e r th e amo un t of cheque the greater the damage” – principle O rd in a r y D a m a ge S pec i al Dama ge Grounds of Confrontation Breach of Contract Negligence Li a b ility Im p l ic a ti o n of la w: • • • Damage for breach of contract to pay cheques Damage to general drawer’s business Damage to general reputation and credit Damage for the negligence of the banker.

12. Obligation to Maintain Secrecy One of the implied terms of the contract between banker and customer is that, banker is obliged to keep the affairs of his customer secret except under special circumstances.

13. When can a banker disclose secrecy? Where disclosure is made under compulsion of law. Where there is a duty to the public to disclose. Where the interest of the banker requires disclosure. Where the customer consents, expressly or in an implied manner, for such disclosure.

14. Disclosure under the Compulsion of LAW! Sec 4 – Bankers Book Evidence Act – certified copy of customer’s account in his ledger. Sec 285 – Income Tax Act – interest earned beyond Rs. 10000/-pa Sec 45B – Reserve Bank of India Act – Collect Credit Information Sec 26 – Banking Regulation Act – Annual return of deposits (unclaimed for 10 years) Sec 36 – Gift Tax Act – Books of Account Exchange Control Act Garnishee Order Nisi

15. Disclosure in the Interest of the Public Political Purpose Unlawful association Revoluti o n a r y body Enemy at times of war.

16. Disclosure in the Interest of Bank Disclosure of the account of the customer who failed to repay the loan to the guarantor. Disclosure to a fellow banker Defend the past action

17. Disclosure under the Express or Implied Consent of Customer Trade Re fe r e n c e To the guarantor

18. B a n ke r ’ s L i en Right to retain the goods Kinds of Lien: General Lien P a r ti c u l a r Li e n Circumstances of Exercising a lien: Any agreement in consistent of lien Acquired in the capacity of a banker Not for specific purpose. Lien means right of a creditor to retain in his possession the goods and securities owned by the debtor until the debt has been discharged. Particular lien gives the right to retain possession only of goods in respect of which the charges or dues have arisen. A general lien is applicable in respect of all amounts due from the debtor to the creditor.

19. C o n t i … . Lien cannot go beyond the agreement. Banker’s lien as an implied pledge. Lien on quasi & negotiable securities. No general lien on Safe custody deposits. No lien on documents entrusted for specific purpose. No lien on articles left by mistake. Lien on securities taken back after repayment of the loan. Lien on Bonds & Coupons No lien until the due date of a loan. No lien on deposits.

20. Inapplicability of Right of lien Safe custody deposits. Documents deposited for special purpose. Securities left with the banker negligently. Securities held in trust. Money deposited for specific purpose.

21. Bankers right of appropriation When bank customer has several debts, a question arises as to , which debt, the money deposited by the customer is to be appropriated as in Clayton’s case

22. Clay t o n’ s ru l e When money is paid it is to be applied according to the expressed will of the payer. In the event of debtor failing to give instructions, the banker has a right to make appropriation according to his choice. In the absence of the above two, the law says the first debt is to be cleared first.

23. Banker’s right of set-off Right of set-off is a right of a banker that entitles him to adjust a debit balance in the account of a customer against any credit balance in his other accounts.

24. Banker’s right to charge interest and commission Banker is entitled to interest on advancs and a reasonable commission for other services rendered by him. This is an implied right available to a banker. Bankers usually follow the practice of charging interest every 3 to 6 months once.