Explain the Rights and Obligations of a Bank.
Rights of a Bank:
Right to close the account: The bank has the right to close the account if it is not operated properly by sending a written intimation to the customer.
Right to charge interest and commission: It is the bank’s right to charge interest on loans and advances. The bank can also charge commission for services that it provides. Such charges can be debited by bank to customer’s account.
Right of Appropriation: When money is deposited by the customer in the bank without specific instructions and the deposited amount is not enough in order to discharge all debts, then the problem takes shape as towards which debt this amount should be adjusted. Bank has the right to appropriate the amount which is deposited to any loan, even to a time barred debt, if specific instructions are not laid down by the customer. It is the duty of the banker to inform the customer regarding appropriation.
The right to set-off: This right is the right of debtor and bank both as per which, the amount due to him from a creditor can be adjusted by him against the amount payable by him to the creditor to determine the net balance payable to one another. The bank can make adjustments in the amount standing to the credit of the customer against debit balance in other accounts, when customer has two or more accounts in same name and capacity in a bank. As per this right, the bank can combine the two accounts.
Right of General lien: General lien is the right to retain any property belonging to the other till all dues are cleared. Banker’s lien is a pledge that if debtor forms any default, the banker can sell the acquired goods and recover the amount, after providing a reasonable notice to the customer.
Obligations of a Bank:
Obligation to give notice before closing the account: A proper notice should be given to the customer, if a bank wants to close down the customer’s account. (It cannot close down due to serious consequences).
Obligation to maintain proper records: It is the duty of the banker to maintain proper and accurate records of all the transactions that customers made with the bank.
Obligation to follow customer’s instructions: Due to the contractual relationship that exists between the bank and customer, it is a legal obligation that the banker has to follow the customer’s instructions.
Obligation to maintain secrecy: No secrets should be disclosed by the bank to any third party regarding details of customer’s account because such disclosures may affect the credit of the customer. Details can be revealed when practices amongst the banks permit such disclosure or when law requires such disclosures to be made.
Obligation to honour cheques: As bank is said to be the debtor of his customer, it has a statutory obligation that it has to honour cheques up to the amount standing to the credit of customer’s account. Bank has to compensate the customer, if it refuses in a wrong manner to honour cheques to its customer.