Banker–Customer Relationship

📊 Banker-Customer Relationship — At a Glance

The relationship between a bank and its customer is never just one thing — it is primarily Debtor-Creditor, but layered with several special relationships depending on the specific service being used at any given moment.

1 Banker and Customer

Traditionally, courts required some degree of habitual dealing before someone qualified as a "customer." The modern, widely accepted view is that customer status begins the moment an account is opened — duration or frequency of dealing is not the deciding factor (a person can even be treated as a customer for a single transaction, such as encashing a demand draft, under certain circumstances).

2 General Relationship

The general (primary) relationship between a bank and its customer is that of Debtor and Creditor — arising the moment money is deposited into an account. Every other relationship discussed in this guide (trustee, agent, bailee, lessor, pledgee) is a special/subsidiary relationship that arises only when the customer avails a specific additional service.

3 Special Relationship

Special relationships arise from specific banking services layered on top of the primary Debtor-Creditor bond. A single customer can simultaneously be in several of these relationships with the same bank.

4 Debtor-Creditor Relationship

When a customer deposits money, the bank becomes the Debtor and the customer becomes the Creditor. When a bank lends money, the roles reverse — bank = Creditor, customer = Debtor.

5 Trustee-Beneficiary

This relationship arises when a bank holds money or assets in a fiduciary capacity for a specific, earmarked purpose — e.g., money remitted for onward payment to a specific creditor, or securities held under an explicit trust arrangement. Unlike ordinary deposits, trust money does not become the bank's own money; it must be kept segregated and used strictly for the stated purpose. Bank = Trustee, Customer = Beneficiary.

6 Agent-Principal

When a bank acts on a customer's instructions — collecting cheques/bills, paying insurance premiums via standing instruction, buying/selling securities, collecting dividends — it acts as an Agent, with the customer as Principal. This relationship is governed by Sections 182–238 of the Indian Contract Act, 1872, and requires the bank to follow instructions faithfully and account for all proceeds.

7 Bailor-Bailee

When a customer hands over goods, valuables, sealed packets or documents for safe custody, the customer becomes the Bailor and the bank becomes the Bailee — governed by Sections 148–171 of the Indian Contract Act, 1872. As bailee, the bank must exercise the degree of care a person of ordinary prudence would take of their own goods of similar value.

8 Lessor-Lessee

This relationship arises specifically for safe deposit lockers: the bank leases the locker space to the customer, making the bank the Lessor and the customer the Lessee. Crucially, the bank is not automatically a bailee of the contents inside the locker (since it never takes possession of what's inside) — its core obligation is to provide secure access to the space itself.

9 Pledger-Pledgee

When a customer delivers possession of movable goods (e.g., gold ornaments, stock) to the bank as security for a loan, the customer becomes the Pledger (Pawnor) and the bank the Pledgee (Pawnee) — governed by Sections 172–181 of the Indian Contract Act, 1872. The pledgee has the right to retain the goods until the debt is repaid, and — after giving reasonable notice — the right to sell them on default (Section 176).

10 Garnishee Order

A Garnishee Order is a court order issued under Order 21, Rule 46 of the Code of Civil Procedure, 1908, directing a bank (which holds funds of a judgment-debtor) to pay the attached amount to the court/decree-holder instead of the customer, to satisfy a decree.

• Order Nisi: A provisional order calling upon the bank to show cause why it should not pay.
• Order Absolute: The final, confirmed order, issued if no valid objection is raised.
• The order attaches only funds held as of the date of the order — not future credits into the account.

11 Attachment Order

An Attachment Order is a broader term covering court-ordered attachment of a customer's bank balance — either before judgment (Order 38, Rule 5, CPC, as a precautionary measure) or in execution of a decree. It also includes attachment by tax authorities, such as under Section 226(3) of the Income Tax Act, where a Tax Recovery Officer can directly attach a bank account for recovery of tax dues.

Garnishee vs Attachment vs Set-off vs Lien

12 Right of Set-off

The Right of Set-off allows a bank to combine/adjust a customer's debit balance in one account against a credit balance in another account of the same customer, in the same capacity, to arrive at a net position.

• Can generally be exercised without prior notice, although issuing notice is good practice.
• Cannot be exercised on: an unmatured fixed deposit (absent an express agreement), accounts held in different capacities (e.g., an individual account vs. a partnership account), or amounts already covered by a garnishee order.

13 Right of Lien

A banker's lien is a general lien over all securities and goods that come into the bank's possession in its capacity as banker, in the ordinary course of business, for any amount due from the customer — unless there is an agreement to the contrary, or the property was left for an exclusive, specific purpose. This is recognised under Section 171 of the Indian Contract Act, 1872.

14 Appropriation of Payments

When a customer owes multiple debts and makes a payment insufficient to clear all of them, the Indian Contract Act, 1872 (Sections 59-61) lays down the rule for appropriating that payment:

15 Secrecy of Customer's Account

A bank owes an implied contractual duty to maintain the secrecy/confidentiality of a customer's account and transactions — a duty that survives even after the account is closed.

16 Exceptions to Secrecy

The Tournier case identified four classic exceptions to the duty of secrecy:

✓ Key Takeaways

• The primary relationship is always Debtor-Creditor (Foley v. Hill); every other relationship is a special/subsidiary one layered on top.
• Six key roles the bank can play: Debtor, Trustee, Agent, Bailee, Lessor, Pledgee — depending on the service being used.
• Garnishee/Attachment orders come from courts/authorities; Set-off/Lien are the bank's own rights.
• Set-off operates on account balances (money); Lien operates on goods/securities in the bank's possession, and amounts to an "implied pledge."
• Appropriation of payments follows Sections 59-61 of the Contract Act; in running accounts, Clayton's Rule (first in, first out) applies absent specific appropriation.
• The duty of secrecy (from Tournier) has 4 exceptions: compulsion of law, public duty, bank's interest, and customer's consent.

📝 Top 50 JAIIB-Style MCQs on Banker-Customer Relationship

Test your understanding with these 50 practice MCQs, closely modelled on the pattern expected in the upcoming JAIIB PPB exam — including combination-answer questions. Each question has 5 options — the correct answer is hidden by default; tap "Show Answer" to reveal it along with a short explanation.