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Banking Law

Final Draft

Topic Relationship between Banker and customer On Baliment, Lease and Secrec

S!B"#TT$D TO% "r'D(S Rathore


*+isiting Facult ,

S!B"#TT$D B&% Sudhir )umar Singh +th S$"$ST$R *ROLL -O' ./0, *S$1' B,

#ntroduction
The relationship between a banker and a customer depends on the acti2ities3 products or ser2ices pro2ided b bank to its customers or a2ailed b the customer' Thus the relationship between a banker and customer is the transactional relationship' Bank4s business depends much on the strong bondage with the customer' 5Trust6 pla s an important role in building health relationship between a banker and customer'
Definition of a BANKER The Banking Regulations 7ct *B R 7ct, .898 does not define the term :banker4 but defines whatbanking is; 7s per Sec.5 (b, of the B R 7ct 5Banking< means accepting, for the purpose of lending or in2estment, of deposits of mone from the public repa able on demand or otherwise and withdrawable b che=ue, draft, order or otherwise'> 7s per Sec. 3 of the #ndian -egotiable #nstruments 7ct .00., the word 5banker includes an person acting as banker and an post office sa2ings bank6' 7ccording to Sec' ? of the Bill of $@change 7ct, .00?, :banker includes a bod ofpersons, whether incorporated or not who carr on the business of banking'4 Sec.5(c) of BR 7ct defines >banking compan > as a compan that transacts the business of banking in #ndia' Since a banker or a banking compan undertakes banking related acti2ities we can deri2e the meaning of banker or a banking compan from Sec A*b, as a bod corporate that% *a, 7ccepts deposits from public' *b, Lends or *c, #n2ests the mone so collected b wa of deposits' *d, 7llows withdrawals of deposits on demand or b an other means' 7ccepting deposits from the :public4 means that a bank accepts deposits from an one who offers mone for the purpose' !nless a person has an account with the bank, it does not accept deposit' For depositing or borrowing mone there has to be an account relationship with the bank' 7 bank can refuse to open an account for undesirable persons' #t is banks right to open an account' Reser2e Bank of #ndia has stipulated certain norms Know Your Cu to!er" (KYC, guidelines for opening account and banks ha2e to strictl follow them'

#n addition to the acti2ities mentioned in Sec'A *b, of B R 7ct, banks can also carr out acti2ities mentioned in Sec' B of the 7ct' #$o i a Cu to!er% The term 1ustomer has not been defined b an act' The word :customer4 has been deri2ed from the word :custom4, which means a :habit or tendenc 4 toCdo certain things in a regular or a particular manner4s '#n terms of Sec'./. of -egotiable #nstrument 7ct, when a banker recei2es pa ment of a crossed che=ue in good faith and without negligence for a customer, the bank does not incur an liabilit to the true owner of the che=ue b reason onl of ha2ing recei2ed suchpa ment' #t ob2iousl means that to become a customer account relationship is must' 7ccount relationship is a contractual relationship' #t is generall belie2ed that an indi2idual or an organisation, which conducts banking transactions with a bank, is the customer of bank' Dowe2er, there are man persons who do utiliEe ser2ices of banks, but do not maintain an account with the bank' Thus bank customers can be categoriEed in to four broad categories as under% *a,Those who maintain account relationship with banks i'e' $@isting customers' *b,Those who had account relationship with bank i'e' Former 1ustomers *c,Those who do not maintain an account relationship with the bank but fre=uentl 2isit branch of a bank for a2ailing banking facilities such as for purchasing a draft, encashing a che=ue, etc' Technicall the are not customers, as the do not maintain an account with the bank branch' *d,(rospecti2eF (otential customers% Those who intend to ha2e account relationship with the bank' 7 person will be deemed to be a <customer< e2en if he had onl handed o2er the account opening form dul filled in and signed b him to the bank and the bank has accepted the it for opening the account, e2en though no account has actuall been opened b the bank in its books or record' The practice followed b banks in the past was that for opening account there has to be an initial deposit in cash' Dowe2er the condition of initial cash deposit for opening the account appears to ha2e been dispensed with the opening of No &ri'' account b banks as per directi2es of Reser2e Bank of #ndia' No &ri'' accounts are opened with :-il4 or with meager balance' The term <customer< is used onl with respect to the branch, where the account is maintained' De cannot be treated as a :customer< for other branches of the same bank' Dowe2er with the implementation of4 :1ore Banking Solution4 the customer is the customer of the bank and not of a particular branch as he can operate his account from an branch of the bank and from an where' #n the e2ent of arising an cause of action, the customer is re=uired to approach the

branch with which it had opened account and not with an other branch' Know Your Cu to!er (ui)e'ine an) Cu to!er* 7s per :)now &our 1ustomer4 guidelines issued b Reser2e Bank of #ndia, customer has been defined as% *i,7 person or entit that maintains an account andFor has a business relationship with the bank3 *ii,One on whose behalf the account is maintained *i'e' the beneficial owner,3 *iii,Beneficiaries of transactions conducted b professional intermediaries, such as Stock Brokers, 1hartered 7ccountants, Solicitors etc' as permitted under the law, and *i2,7n person or entit connected with a financial transaction, which can pose significant reputational or other risks to the bank, sa , a wire transfer or issue of a high 2alue demand draft as a single transaction'

Ban+er,Cu to!er Re'ation $i-* Banking is a trustCbased relationship' There are numerous kinds of relationship between the bank and the customer' The relationship between a banker and a customer depends on the t pe of transaction' Thus the relationship is based on contract, and on certain terms and conditions' These relationships confer certain rights and obligations both on the part of the banker and on the customer' Dowe2er, the personal relationship between the bank and its customers is the long lasting relationship' Some banks e2en sa that the ha2e generationCtoCgeneration banking relationship with their customers' The banker customer relationship is fiducial relationship' The terms and conditions go2erning the relationship is not be leaked b the banker to a third part ' C'a ification of Re'ation $i-* The relationship between a bank and its customers can be broadl categoriEed in to General Relationship and Special Relationship' #f we look at Sec 5(b) of Banking Regulation 7ct, we would notice that bank4s business ho2ers around accepting of deposits for the purposes of lending' Thus the relationship arising out of these two main acti2ities are known as General Relationship' #n addition to these two acti2ities banks also undertake other acti2ities mentioned in Sec'B of Banking Regulation 7ct' Relationship arising out of the acti2ities mentioned in Sec'B of the act is termed as special relationship' (enera' Re'ation $i-*

Debtor,Cre)itor* Hhen a <customer< opens an account with a bank, he fills in and signs the account opening form' B signing the form he enters into an agreementFcontract with the bank' Hhen customer deposits mone in his account the bank becomes a debtor of the customer and customer a creditor' The mone so deposited b customer becomes bank4s propert and bank has a right to use the mone as it likes' The bank is not bound to inform the depositor the manner of utiliEation of funds deposited b him' Bank does not gi2e an securit to the depositor i'e' debtor' The bank has borrowed mone and it is onl when the depositor demands, banker pa s' Bank4s position is =uite different from normal debtors' Banker does not pa mone on its own, as banker is not re=uired to repa the debt 2oluntaril ' The demand is to be made at the branch where the account e@ists and in a proper manner and during working da s and working hours' The debtor has to follow the terms and conditions of bank said to ha2e been mentioned in the account opening form' IThough the terms and conditions are not mentioned in the account opening form, but the account opening form contains a declaration that the terms and conditions ha2e been read and understood or has been e@plained' #n fact the terms and conditions are mentioned in the passbook, which is issued to the customer onl after the account has been opened'J#n the past while opening account some of the banks had the practice of gi2ing a printed handbill containing the terms and conditions of account along with the account opening form' This practice has since been discontinued' For con2enience and information of prospecti2e customers a few banks ha2e uploaded the account opening form, terms and conditions for opening account, rate charge in respect of 2arious ser2ices pro2ided b the bank etc', on their web site' Hhile issuing Demand Draft, "ail F Telegraphic Transfer, bank becomes a debtor as it ownsmone to the pa eeF beneficiar ' .. Cre)itor/Debtor* Lending mone is the most important acti2ities of a bank' The resources mobiliEed b banks are utiliEed for lending operations' 1ustomer who borrows mone from bank owns mone to the bank' #n the case of an loanFad2ances account, the banker is the creditor and the customer is the debtor' The relationship in the first case when a person deposits mone with the bank re2erses when he borrows mone from the bank' Borrower e@ecutes documents and offer securit to the bank before utiliEing the credit facilit '#n addition to opening of a depositFloan account banks pro2ide 2ariet of ser2ices, which makes the relationship more wide and comple@' Depending upon the t pe of ser2ices rendered and the nature of transaction, the banker acts as a bailee, trustee, principal, agent, lessor, custodian etc' S-ecia' Re'ation $i-* 0. Ban+ a a 1ru tee* 7s per Sec. 3 of #ndian Trust 7ct, .00?

: 7 >trust> is an obligation anne@ed to the ownership of propert , and arising out of a confidence reposed in and accepted b the owner, or declared and accepted b him, for the benefit of another, or of another and the owner'4 Thus trustee is the holder of propert on behalf of abeneficiar ' 7s per Sec. 05 of the :#ndian Trust 7ct, .00? :7 trustee is bound to deal with the trustC propert as carefull as a man of ordinar prudence would deal with such propert if it were his own3 and, in the absence of a contract to the contrar , a trustee so dealing is not responsible for the loss, destruction or deterioration of the trustCpropert '4 7 trustee has the right to reimbursement of e@penses *Sec'/? of #ndian Trust 7ct',' #n case of trust banker customer relationship is a special contract' Hhen a person entrusts 2aluable items with another person with an intention that such items would be returned on demand to the keeper the relationship becomes of a trustee and trustier' 1ustomers keep certain 2aluables or securities with the bank for safekeeping or deposits certain mone for a specific purpose *$scrow accounts, the banker in such cases acts as a trustee' Banks charge fee for safekeeping 2aluables .. Bai'ee / Bai'or* Sec'.90 of #ndian 1ontract 7ct, .0K?, defines >Bailment> >bailor> and >bailee>' 7 >bailment> is the deli2er of goods b one person to another for some purpose, upon a contract that the shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person deli2ering them' The person deli2ering the goods is called the >bailor>' The person to whom the are deli2ered is called, the >bailee>' Banks secure their ad2ances b obtaining tangible securities' #n some cases ph sical possession of securities goods *(ledge,, 2aluables, bonds etc', are taken' Hhile taking ph sical possession of securities the bank becomes bailee and the customer bailor' Banks also keeps articles, 2aluables, securities etc', of its customers in Safe 1ustod and acts as a Bailee' 7s a bailee the bank is re=uired to take care of the goods bailed' 3.2e or an) 2e ee* Sec'.LA of :Transfer of propert 7ct .00?4 defines lease, Lessor, lessee, premium and rent' 7s per the section 57 lease of immo2able propert is a transfer of a right to enMo such propert , made for a certain time, e@press or implied, or in perpetuit , in consideration of a price paid or promised, or of mone , a share of crops, ser2ice or an other thing of 2alue, to be

rendered periodicall or on specified occasions to the transferor b the transferee, who accepts the transfer on such terms'6 Definition of 2e or3 'e ee3 -re!iu! an) rent % *.,The transferor is called the lessor, *?,The transferee is called the lessee, */,The price is called the premium, and *9,The mone , share, ser2ice or other thing to be so rendered is called the rent'6 (ro2iding safe deposit lockers is as an ancillar ser2ice pro2ided b banks to customers' Hhile pro2iding Safe Deposit +aultFlocker facilit to their customers bank enters into an agreement with the customer' The agreement is known as 5"emorandum of letting6 and attracts stamp dut ' The relationship between the bank and the customer is that of lessor and lessee' Banks lease *hire lockers to their customers, their immo2able propert to the customer and gi2e them the right to enMo such propert during the specified period i'e' during the officeF banking hours and charge rentals' Bank has the right to breakCopen the locker in case the locker holder defaults in pa ment of rent' Banks do not assume an liabilit or responsibilit in case of an damage to the contents kept in the locker' Banks do not insure the contents kept in the lockers b customers' 4. A5ent an) 6rinci-a'* Sec.07. of :The #ndian 1ontract 7ct, .0K?4 defines 5an agent6 as a person emplo ed to do an act for another or to represent another in dealings with third persons' The person for whom such act is done or who is so represented is called 5the (rincipal6' Thus an agent is a person, who acts for and on behalf of the principal and under the latter4s e@press or implied authorit and the acts done within such authorit are binding on his principal and, the principal is liable to the part for the acts of the agent' Banks collect che=ues, bills, and makes pa ment to 2arious authorities 2iE', rent, telephone bills, insurance premium etc', on behalf of customers' ' Banks also abides b the standing instructions gi2en b its customers' #n all such cases bank acts as an agent of its customer, and charges for theses ser2ices' 7s per #ndian contract 7ct agent is entitled to charges' -o charges are le2ied in collection of local che=ues through clearing house' 1harges are le2ied in onl when the che=ue is returned in the clearinghouse' 5. A a Cu to)ian* 7 custodian is a person who acts as a caretaker of some thing' Banks take legal responsibilit for a customer4s securities' Hhile opening a dmat account bank becomes a custodian' 8. A a (uarantor* Banks gi2e guarantee on behalf of their customers and enter in to their shoes' Guarantee is a contingent contract' 7s per sec /.,of #ndian contract 7ct guarantee is a >contingent contract >' 1ontingent contract is a contract to do or not to do something, if somee2ent, collateral to such contract, does or does not happen' #t would thus be obser2ed that banker customer relationship is transactional relationship'

1er!ination of re'ation $i- between a ban+er an) a cu to!er* The relationship between a bank and a customer ceases on% *a, The death, insol2enc , lunac of the customer' *b, The customer closing the account i'e' +oluntar termination *c, Li=uidation of the compan *d, The closing of the account b the bank after gi2ing due notice' *e, The completion of the contract or the specific transaction' The relationship de2eloped between a banker and customer in2ol2es some duties on the part of both' Dutie of a ban+er* 7 <Banker< has certain duties 2isCNC2is his customer' These are% *a,Dut to maintain secrec Fconfidentialit of customers< accounts' *b,Dut to honour che=ues drawn b customers on their accounts and collect che=ue, bills on his behalf' *c,Dut to pa bills etc', as per standing instructions of the customer' *d,Dut to pro2ide proper ser2ices' *e,Dut to act as per the directions gi2en b the customer' #f directions are not gi2en the banker has to act according to how he is e@pected to act' *f,Dut to submit periodical statements i'e' informing customers of the state of the account *g,7rticlesFitems kept should not be released to a third part without due authoriEation b the customer Dut9 to !aintain ecrec9* Banker has a dut to maintain secrec of customers< accounts' "aintaining secrec is not onl a moral dut but bank is legall bound to keep the affairs of the customer secret' The principle behind this dut is that disclosure about the dealings of the customer to an unauthoriEed person ma harm the reputation of customer and the bank ma be held liable' The dut of maintaining secrec does not cease with the closing of account or on the death of the account holder' 7s per Sec. 03 of 5Banking 1ompanies 7c=uisition and Transfer of !ndertakings 7ct .8KL6C 5$2er corresponding new bank shall obser2e, e@cept as otherwise re=uired b law, the practices and usages customar among bankers, and, in particular, it shall not di2ulge an information relating to or to the affairs of its constituents e@cept in circumstances in which it is, in accordance with law or practices and usages customar among bankers, necessar or appropriate for the corresponding new bank to di2ulge such information'6 "aintaining secrec is implied terms of the contract with the customer which bank enters into with the customer at the time of opening an account'

Bank has not onl to maintain secrec of transactions, but secrec is also to be maintained in respect of operations through 7T"F debit cards' Bank has also to maintain secrec of user #D pins with due care so that it does fall in wrong hands'

&ai'ure to !aintain ecrec9* Bank is liable to pa damages to the account holder for loss of mone and reputation if it fails in its dut to maintain secrec and discloses information relating to a customer<s account or conduct of the account to an unauthoriEed person' Bank can also be liable to the third part if its wrongful disclosure harms the interest of the thirdpart ' #f bank )nowingl furnishes wrong informationor There has been a misrepresentation O2er estimation of fa2ourable opinion Circu! tance un)er w$ic$ ban+er can )i c'o e infor!ation of cu to!er: account* 7 bank can disclose information regarding customer<s account to a person*s, under the following circumstances' *a,!nder compulsion of law' *b,!nder banking practices' *c,For protecting national interest' *d,For protecting bank4s own interest *e,!nder e@press or implied consent of the customer Di c'o ure un)er co!-u' ion of 'aw* Banks disclose information to 2arious authorities who b 2irtue of powers 2ested in them under pro2isions of 2arious acts re=uire banks to furnish information about customer4s account' The information is called under% *i,Section 9 of Banker<s Book $2idence 7ct, .08. *ii,Section 89 */, of 1ode of 1i2il (rocedure 7ct, .8L0 *iii,Section 9A *B, of Reser2e Bank of #ndia 7ct, .8/9 *i2,Section ?B of Banking Regulation 7ct, .898 *2,Section /B of Gift Ta@ 7ct, .8A0 *2i,Sections ./., .// of #ncome Ta@ 7ct, .8B. *2ii,Section ?8 of #ndustrial De2elopment Bank of #ndia 7ct, .8B9 *2iii,Section .?of Foreign $@change "anagement 7ct, *F$"7, .888 *i@,Section .? of the (re2ention of "one Laundering 7ct, ?LL?

Banks are re=uired to furnish onl the called for information *no additional information is to be furnished, on receipt of written re=uest of the person who is 2ested with the authorit to call for such information under the said acts' The customer is kept informed about the disclosure of the information' Di c'o ure un)er ban+in5 -ractice * #n order to ascertain financial position and credit worthiness of the person banks obtain information from other banks with which the are maintaining accounts' #t is an established practice among bankers and implied consent of the customer is presumed to e@ist' The opinion is gi2en in strictest confidence and without responsibilit on the part of the bank furnishing such information' 1redit information is furnished in coded terms to other banks on #B7 format and without signatures'

..Dut9 to -ro;i)e -ro-er account * Banks are under dut bound to pro2ide proper accounts to the customer of all the transactions done b him' Bank is re=uired to submit a statement of accounts F passbook to the customer containing all the credits and debits in the account' 3.Dut9 to $onour c$e<ue * 7s <banking< means accepting of deposits withdrawable b che=ue, draft, order or otherwise, the banker is dut bound to honour che=ues issued b the customers on their accounts' Sec' /.of -egotiable #nstruments 7ct, .00. specifies the liabilit of drawee of che=ue' 7s per Sec' /. 5The drawee of a che=ue ha2ing sufficient funds of the drawer in his hands properl applicable to the pa ment of such che=ue must pa the che=ue when dul re=uired so to do, and, in' default of such pa ment, must compensate the drawer for an loss or damage caused b such default'6 Therefore it is the dut of a bank to honour the che=ues issued b the account holder if% The che=ue has been properl drawn and is in order in all respects i'e' it is properl dated, amount in words and figures ha2e been e@pressed properl , is neither stale nor post dated nor mutilated and the signature of accountholder tallies with the specimen recorded with the bank' The che=ue should be drawn on the branch where the account is maintained' *Due toimplementation of technolog and core banking solution a customer can present che=ues on an branch of a bank' RB# has ad2ised banks to issue !u'ti cit9 c$e<ue to account holders', *a,There is sufficient balance in the account and the balance is properl applicable for pa ment of the che=ue'

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*b,The che=ue is presented for pa ment on a working da and during the business hours of the branch' *c,$ndorsements on the che=ue are regular and proper' *d,The pa ment of the che=ue is not countermanded b the drawer Dut9 to $onour c$e<ue cea e on recei-t of* *a,Stop pa ment instructions from the account holder' *b,-otice about the death of the drawer' *c,7 garnishee order attaching the balance in the account or an incomeCta@ attachment order recei2ed b the banker' *d,Drawer of the che=ue becoming insol2ent andFor a lunatic at the time of drawing the che=ue' Ban+ can refu e to $onour t$e c$e<ue if* There is in sufficient .balance in the account to make pa ment of the che=ue' 1he=ue issued does not pertain to the account on which it has been drawn' .'#f the che=ue is not in order *post dated, stale, pa ment countermanded, amount in words and figure differs, etc', ?'The balances held in account are earmarked for some specific purpose and the remaining balance is not sufficient to honour the che=ue' Ri5$t of a ban+er* #t is not that the bank has onl duties to wards its customers, it too has certain rights 2isC NC2is his customers' The rights can broadl be classified as% Ri5$t of (enera' 2ien a)Ri5$t of Set,=ff b)Ri5$t of A--ro-riation c)Act a -er t$e !an)ate of cu to!er ))Ri5$t to C$ar5e >ntere t3 Co!!i ion3 >nci)enta' C$ar5e etc. 2ien* 7 lien is the right of a creditor in possession of goods, securities or an other assets belonging to the debtor to retain them until the debt is repaid, pro2ided that there is no contract e@press or implied, to the contrar ' #t is a right to retain possession of specific goods or securities or other mo2ables of which the ownership 2ests in some other person and the possession can be retained till the owner discharges the debt or obligation to the possessor' The creditor *bank, has the right to maintain the securit of the debtor but not to sell it' There are two t pes of lien 2iE' .'(articular Lien and ?'Right of General Lien (a) 6articu'ar 2ien*

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7 <particular lien< gi2es the right to retain possession onl of those goods in respect of which the dues ha2e arisen' #t is also termed as ordinar lien' #f the bank has obtained a particular securit for a particular debt, then the banker<s right gets con2erted into a particular lien' *b) Ri5$t of (enera' 2ien* Banker has a right of general lien against his borrower' General lien confers banks right in respect of all dues and not for a particular due' #t is a statutor right of the bank and is a2ailable e2en in absence of an agreement but it does not confer the right to pledge' 7 <general lien< gi2es the right to retain possession of an goods in the legal possession of the creditor until the whole of the debt due from the debtor is paid' Section .K. of #ndian 1ontract 7ct, .0K? confers the right of general lien to banks' 7s per the section 5 Bankers, factors, wharfingers, attorne s of a Digh 1ourt and polic C brokers ma , in the absence of a contract to the contrar , retain, as a securit for a general balance of account an goods bailed to them3 but no other persons ha2e a right to retain, as a securit for such balance, goods bailed to them, unless there is an e@press contract to the effect'6 Bank has a right of lien onl when goods, securities are recei2ed in the capacit as a creditor' Hhile granting ad2ances banks take documents' These documents confer right to con2ert general lien as an implied pledge' 7 banker4s lien is more than a general lien, it is an implied pledge and he has the right to sell the goods in case of default Bank has a <Right of Sale< of goods under lien' Banker<s right of lien is not barred b the Law of Limitation' E?erci in5 Ri5$t of 2ien* Bank has the right of lien on goods and securities entrusted to him legall and standing in the name of the borrower' Bank can e@ercise right of lien on the securities in its possession for the dues of the same borrower, e2en after the loan taken against that particular securit has been reCpaid' Right of lien can be e@ercised on bills, che=ues, promissor notes, share certificates, bonds, debentures etc'

#$ere ri5$t of 'ien cannot be e?erci e)* Bank cannot e@ercise right of lien on goods recei2ed for safe custod , goods held in capacit as a trustee, or as an agent of the customer, SD+, or left in bank b mistake Ri5$t of et,off* The banker has the right to set off the accounts of its customer' #t is a statutor right a2ailable to a bank, to set off a debt owned to him b a creditor from the credit balances held in other accounts of the borrower' The right of setCoff can be e@ercised onl if there is no agreement e@press or implied to the contrar ' This right is applicable in respect of dues that are due, are becoming due i'e' certain and not contingent' #t is not applicable on future debts' #t is applicable in respect of deposits that are due for pa ment'

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The right of set off enables bank to combine all kinds of credit and debit balances of a customer for arri2ing at a net sum due' The right is also a2ailable for deposits kept in other branches of the same bank' The right can be e@ercised after death, insol2enc , and dissolution of a compan , after receipt of a garnisheeF attachment order 'The right is also a2ailable for time barred debts' Deposits held in the name of a guarantor cannot be set off to the debit balance in borrowers account until a demand is made to the guarantor and his liabilit becomes certain' Banks cannot set off the credit balance of customer<s personal account for a Moint loan account of the customer with another person unless both the Moint accountholders are Mointl and se2erall liable' Banks e@ercise the Right of set off onl after ser2ing a notice on the customer informing him that the bank is going to e@ercise the right of setC off' Auto!atic ri5$t of et off* Depending on the situation, sometimes the set off takes place automaticall without the permission from the customer' #n the following e2ents the set off happens automaticall i'e' without the permission from the customer' a,On the death of the customer, b,On customer becoming insol2ent' c,On receipt of a Garnishee order on customer4s account b court' d,On receipt of a notice of assignment of credit balance b the customer to the banker' e,On receipt of notice of second charge on the securities alread charged to the bank' Con)ition w$i'e e?erci in5 ri5$t of Set , =ff* a,The account should be in the sole name of the customer' b,The amount of debts must be certain and measurable' c,There should not be an agreement to the contrar d,Funds should not be held in trust accounts e,The right cannot be e@ercised in respect of future or contingent debts' f,The banker has the right to e@ercise this right before a garnishee order is recei2ed b it' Ri5$t of A--ro-riation* #t is the right of the customers to direct his banker against which debt *when more than one debt is outstanding, the pa ment made b him should be appropriated' #n case no such direction is gi2en, the bank can e@ercise its right of appropriation and appl it in pa ment of an debt' Section A8,BL and B. of #ndian 1ontract 7ct, .0K? la s down the rules of appropriation' Sec.5@.A--'ication of -a9!ent w$ere )ebt to be )i c$ar5e) i in)icate)* *i'e' 7s per

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borrowers instructions, Hhere a debtor, owing se2eral distinct debts to one person, makes a pa ment to him, either with e@press intimation, or under circumstances impl ing that the pa ment is to be applied to the discharge of some particular debt, the pa ment, if accepted, must be applied accordingl ' Sec.8A. A--'ication of -a9!ent w$ere )ebt to be )i c$ar5e) i not in)icate)* *i'e' in theabsence of e@press or implied intention of debtor, Sec.8A of the #ndian 1ontract 7ct states that if the debtor does not intimate or there is no circumstance of indicating how the pa ment is to be used, the right of appropriation is 2ested inthe creditor' 7ccording to the 7ct, 5Hhere the debtor has omitted to intimate and there are no other circumstances, indicating to which debt the pa ment is to be applied, the creditor ma appl it at his discretion to an lawful debt actuall due and pa able to him from the debtor, whether its reco2er is or is not barred b the law in force for the time being as to the limitation of suits'6 Sec.80.A--'ication of -a9!ent w$ere neit$er -art9 a--ro-riate . Hhere neither part makes an appropriation the pa ment shall be applied in discharge of the debts in order of time, whether the are or are not barred b the law in force for the time being as to the limitation of suits' #f the debts are of e=ual standing, the pa ment shall be applied in discharge of each proportionall ' !nless there is an agreement to the contrar , an pa ment made b a debtor is applied first towards interest and thereafter towards principal' #f a customer has onl one account and he deposits and withdraws mone from it regularl , the order in which the credit entr will set off the debit entr is in the chronological order, this is known as 1la ton4s rule'

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B#BL#OGR7(D& .' ?' /' 9' Banking Law b Bangia #ndian 1ontract 7ct, .0K? Reser2e bank of india 7ct Banking regulation 7ct

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