Termination of the Banker-Customer Relationship by Operation of Law

Open Access

Year : 2023 | Volume :3 | Issue : 1 | Page : 25-37

N. Krishna Kumar

  1. Associate Professor Government Law College Kerala India


The determination of whether the banker-customer relationship is in existence at a particular point of time has important legal consequences for both parties to that contractual relationship. As duration is not of the essence of the relationship, even a single transaction can give rise to it. It is therefore important to determine the conditions under which the banker-customer relationship may be terminated. Termination of the banker-customer relationship by operation of law may occur in the following ways, viz, death of the customer, mental incapacity of customer, bankruptcy of the customer, winding up of a company customer, winding up of a bank and outbreak of war. Since a detail examination on this point is unnecessary as far as our topic is concerned, it is avoided from further discussion. for legal purposes, the receiving of deposits by a bank from the public is regarded as a borrowing by the bank. But as a debtor, the bank is not like other commercial debtors; he has certain privileges and is burdened with contractual, statutory and customary obligations. It is with reference to this peculiar legal relationship that the behaviour of the bank in any particular case is scrutinized and any deficiency in service is detected. In this Article, an attempt is made to concentrate on the major decisions relating to the legal remedies available to Banking customers and the endeavour of judiciary to conceptualise the relation between banker and customer.

Keywords: Agent, Alternative remedies, Bailee, Bailor, Banking customers, Banking ombudsman, Beneficiary, Compensation, Customer, Damages, Deficiency in service, Legal remedies, Principal, Trustee

[This article belongs to Journal of Banking and Insurance Law(jbil)]

How to cite this article: N. Krishna Kumar. Termination of the Banker-Customer Relationship by Operation of Law. Journal of Banking and Insurance Law. 2023; 3(1):25-37.
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  13. Taxation Commissioners v. English, Scottish and Australian Bank Ltd (1920) A.C. 683
  14. This appears to be the correct and acceptable exposition of law since the ‘Duration theory’ (requiring a course or habit of dealing with the bank) has now been discarded by Courts universally. A wider definition describing the customer as ‘any person having a dealing with a bank’ may be useful for many purposes, but the context of acceptance of deposits, it is obviously irrelevant.
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  21. Lord Chorley observes: “the receipt of money on loan and the obligation to repay it on demand against cheques seem to be the basic elements of the business. If a person carries on a business involving such borrowing and the issue of cheques, it is submitted that it is a banking business; if it does not, the business is not legally banking, even though he call himself a banker”. Lord Chorley. ‘Law of Banking’. 6th Edn. London. Sweet and Maxwell. 1974., p.31.
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  28. AIR .1961. Cal.666.Relying on Bank of Commerce Ltd., v. Kunja Behari Kar. AIR 1944 F.C.2.
  29. Ibid. in this connection, it may be noted that the E.C. approach to banking business is to consider the function of granting credits also, as an equally important and essential ingredients as deposits taking from the public. See. Art. I of both, the 1st and 2nd Banking Directives of the European Community. The Indian Parliament, however, followed the English approach.
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  32. Robinson V Midland Bank Ltd. (1925) 41 TLR 402
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  35. See Supra.n.21.
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  41. United Corporation Bank v. Hem Chandra Sarkar (1990) 3 SCC 389.
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  43. Dhuli Chand v. Jawala Prasad and sons AIR 1934 All. 568.
  44. National Bank of Lahore Ltd., v. Sohan Lal Saigal AIR 1962 Pun. 534
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  46. Bombay Steam Navigation Co. Ltd., v. Vasudev Babu Rao AIR 1928 Bom.5
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  48. Chellappan Pillai v. Canara Bank (1971) 71 Com. cas.584. Cochin Porttrust v. Associated Cotton Traders Ltd., AIR 1983, (Ker) 154Jagadish Chandra Trikha v. Punjab National Bank (2000) 100 Com. cas.839 (Del)
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  50. The Indian Trust Act, 1882, SS.19 &20.
  51. 8 MLT99
  52. (1910) ILR 36 Mad 499 (FB)
  53. AIR 1951 Mad 910
  54. AIR 1962 SC 1003
  55. AIR 1942 Cal 556
  56. Imperial Bank of Canada V Mary Victoria Bagley (1936) 44 LW 128
  57. AIR 1962(Ker) 210
  58. (2008) 8 SCC 92
  59. A breach of fiduciary duty can lead to an injunction, damages, or to the fiduciary having to account for any profits made in addition to the criminal sanctions for breach of trust.
  60. Indian Contract Act 1872 Sec. 212.
  61. Ibid
  62. Punjab National Bank Ltd., v. Dewan Chand AIR 1931 Lah. 302.Punjab National Bank Ltd., v. RBL Benarsi Das and Co. AIR 1960 Punj. 590Bank of India v. Official Liquidator AIR 1950 Bom.376.First National Bank Ltd., v. Industrial Oil Com. AIR 1962. Punj. 170First National Bank Ltd., v. Pioneer Commercial Bank. AIR 1951 Cal.34Indian Bank v. Aluminium Industries Ltd., (1990) CCV 69 Ker 427.Keshari Chand v. Shillong Banking Corporation Ltd., AIR 1965 SC. 1711.
  63. AIR 1958 J&K25
  64. Central Bank of India Ltd., v. Ram Sarup Khanna AIR 1956 Punj. 78.
  65. See, The Indian Contract Act, 1872, SS.211-218.
  66. Lord Chorley. op. cit. p.20.
  67. Ross Cranston, ‘Principles of Banking Law’, Oxford, Clarendon Press, 1997.
  68. Ibid, p.203.
  69. 385 US 99 at p.101 (As quoted in Ross Cranston, Principles of Banking Law’, Oxford, Clarendon Press, 1997.p. 141)
  70. (1921) 3 KB 110: Chorley and Smart, ‘Leading Cases in the Law of Banking’, 3rd edn.. London, Sweet & Maxwell, 1973.p.4.
  71. Lord Chorley, op. cit., p.26
  72. Ibid
  73. Supra n.35
  74. Lord Chorley, op.cit., p.24.
  75. AIR 952 Cal. 193
  76. (1956) 26 Com. Cases 81
  77. Id, 84
  78. AIR 1957 Mad 745
  79. AIR 1978 Cal55
  80. (1963) 2 SCR 297
  81. Supra n.35.
  82. Chartered Bank v Mohammed Hussain AIR 1952 Cal. 193
  83. This principle has been consistently followed in later decisions in England and in India, making it a ‘well-established’ principle.
  84. The Privy Council, in ‘State Aided Bank of Travancore Ltd v. Dhrit Ram’, [(1942) 12 comp. CAs. 80: M.S. Parthasarathy, ‘Banking Law-Leading Indian cases’, 2nd edn. Bombay, N.M. Tripathi, 1985, p.2] established the principle in relation to deposit accounts. In this connection it is to be noted that the principles will have application only in the absence of any contract to the contrary. Basically, the law which governs a contract depends upon the intention of the parties, express or implied. The question of implication arises only in the absence of express terms.
  85. 1915(2) KB 576
  86. AIR 1970 Goa 11
  87. AIR 1970 All 108
  88. (1873) 3 AC 325
  89. 1954 AC 495
  90. AIR 1955 SC 590
  91. The India Limitation Act 1963. Art. 44.
  92. Ibid.
  93. For eg., a banker who wrongly judges the relationship to be at an end and fails to honour a customer’s cheques is exposed to the possibility of substantial damages and sometimes, even for defamation.
  94. Commissioner of Taxation v. English, m Scottish and Australian Bank Ltd.,(1920) AC 683. See further, Central Bank of Idia Ltd. Bombay v. Gopinathan Nair and others, AIR 1979 Kerala74.

Regular Issue Open Access Article
Volume 3
Issue 1
Received March 10, 2020
Accepted April 10, 2020
Published March 3, 2023