Relationship as debtor and creditor
On the opening of an account the banker assumes the position of a debtor. He is not a depository or trustee of the
customer’s money because the money over to the banker becomes a debt due from him to the customer. A
banker does not accept the depositors’ money on such condition. The money deposited by the customer with the
banker is, in legal terms, lent by the customer to the banker, who makes use of the same according to his
discretion. The creditor has the right to demand back his money from the banker, and the banker is under and
obligation to repay the debt as and when he is required to do so. But it is not necessary that the repayment is
made in terms of the same currency notes and coins. The payment, of course, must be made in terms of legal
tender currency of the country.
A depositor remains a creditor of his banker so long as his account carries a credit balance. But he does not get
any charge over the assets of his debtor/banker and remains an unsecured creditor of the banker. Since the
introduction of deposit insurance in India in 1962, the element of risk to the depositor is minimized as the Deposit
Insurance and Credit Guarantee Corporation undertakes to insure the deposits up to a specified amount.
Banker’s relationship with the customer is reversed as soon as the customer’s account is overdrawn. Banker
becomes creditor of the customer who has taken a loan from the banker and continues in that capacity till the loan
is repaid. As the loans and advances granted by a banker are usually secured by the tangible assets of the
borrower, the banker becomes a secured creditor of his customer.
Though the relationship between a banker and his customer is mainly that of a debtor and a creditor, this relationship differs from similar relationship arising out of ordinary commercial debts in following respects:
(i) The creditor must demand payment. In case of ordinary commercial debt, the debtor pays the amount on
the specified date or earlier or whenever demanded by the creditor as per the terms of the contract. But in case of deposit in the bank, the debtor/ banker is not required to repay the amount on his own accord. It is essential that the depositor (creditor) must make a demand for the payment of the deposit in the proper manner. This difference is due to the fact that a banker is not an ordinary debtor; he accepts the deposits with an additional obligation to honour his customer’s cheques. If he returns the deposited amount on his own accord by closing the account, some of the cheques issued by the depositor might be dishonoured and his reputation might be adversely affected. Moreover, according to the statutory definition of banking, the deposits are repayable on demand or otherwise. The depositor makes the deposit for his convenience, apart from his motives to earn an income (except current account). Demand by the creditor is, therefore, essential for the refund of the deposited money. Thus the deposit made by a customer with his banker differs substantially from an ordinary debt.
(ii) Proper place and time of demand. The demand by the creditor must be made at the proper place and
in proper time as prescribed by a bank. For example, in case of bank drafts, travellers’ cheques, etc., the branch receiving the money undertakes to repay it at a specified branch or at any branch of the bank.
(iii) Demand must be made in proper manner. According to the statutory definition of banking, deposits are
withdrawable by cheque, draft, order or otherwise. It means that the demand for the refund of money deposited must be made through a cheque or an order as per the common usage amongst the bankers.
In other words, the demand should not be made verbally or through a telephonic message or in any such