Important Banking Rules and Acts for Customers:
Updated: Feb 2, 2021
The Indian banking sector is regulated by the Reserve Bank of India Act 1934 and the Banking Regulation Act 1949. The Reserve Bank of India issues various guidelines, notifications and policies from time to time to regulate the banking sector. There are various acts such as Banking Regulation Act 1949, Bankers Book Evidence Act 1891, Income Tax Act 1961, Indian Contract Act 1872 and Negotiable Instrument Act 1881 which provides guidelines for the relationship between Banker and Customer.
Below are some of the important rules and acts a individual should be aware of, there are many other acts which are of dire importance too, do suggest in comments if you think we have missed any other ones.
1) Rightful Dishonor of Cheque: In case of a wrongful dishonor of a cheque by a banker, he shall be held liable to pay damages to the customers. But there are also a number of cases in which a banker can rightly dishonor the cheque such as lack of sufficient funds, material alterations, closing of account, death of a customer, court orders, insolvency of customer, forgery, stop payment orders and others. Stop Payment Order is also know as Countermand which means the revocation of the authority to pay. It must be given by the maker of the cheque in proper form in writing to the banker before the amount is actually paid. A telegram from the customer cannot constitute the proper form of countermand. It is used by parties when there is a breach of contract and to pause the payment to the payee due to some circumstances, if a bank pays even after receiving the receipt of stop payment order then it is liable to pay damages to the customer.
2) Maintenance of Secrecy: A banker is obliged to maintain secrecy of the state of the accounts, even after the closure of account. However whenever the law requires, the disclosure becomes necessary they are certain acts which can be legally enforced.
According to Sec 13 of the Banking Companies Act 1970, Obligations as to fidelity and secrecy; A bank shall observe except as otherwise required by law and shall not divulge any information of its constituents expect in circumstances in which they are, in accordance with law or practices and usages or appropriate for them to divulge such information.
The following acts can be enforced to disclosure of the information
1) The Banker's Book Evidence Act 1891. According to Section 4 of the Act, “a certified copy of any entry in a banker’s book shall in all legal proceedings be received as prima facie evidence of the matters. If a banker is not a party to a suit, certified copy of the entries in his book will be sufficient evidence.
2) The courts under The Code of Civil Procedure 1908 and The Code of Criminal Procedure 1973
3) The Registrar of the Companies under The Company Act 1956 under Sec 235 or 237.
4) The Income Tax Officers under the Income Tax Act 1961, Sec 285.
5) The Reserve Bank under the Reserve Bank of India Act 1934 and the Banking Regulation Act 1949.
6) The Police Officers when the matter belongs to murder, dacoity, criminal conspiracy against the country.
3) Fixed Deposit Insurance: All Commercial, Cooperative Banks are insured by the Deposit Insurance and Credit Guarantee Corporation, except for the Primary cooperative societies.
Each depositor in a bank is insured up to a maximum of ₹ 5,00,000 for both principal and interest amount held by him in the same right and same capacity as on the date of liquidation/cancellation of bank's license or the date on which the scheme of amalgamation/merger/reconstruction comes into force.
The DICGC insures all deposits such as savings, fixed, current, recurring. Except the following types of deposits such as of Deposits of foreign Governments Central/State Governments, Inter-bank deposits, State Land Development Banks with the State co-operative bank, Any amount due on account of and deposit received outside India, Any amount, which has been specifically exempted by the corporation with the previous approval of Reserve Bank of India.
Deposit insurance premium is borne entirely by the insured bank and coverage is compulsorily and no bank can withdraw from it. The insurance cover offered by the DICGC covers all different accounts of one depositor held with different branches of the same bank, but if the customer has bank account in different banks then they will both be insured separately.
4) Banker's Lien: According to Section 171 of Indian Contract Act, 1872. Banker's Lien is general lien which extends at all bills, cheques and money paid by the customer to him as a banker. This enables the banker to recover his dues whether by way of loan or overdraft. The Banker by virtue of this lien may transfer the funds of the debtor whatever account the banker chooses to set off or liquidate the debt. Also banker can enjoy linen only over the properties which are owned by the customer, but not by someone else are under the possession of his. Bonds, Coupons, Bills of Exchange also come under right of linen. Generally the banker is entitle the retain the good only, but in special circumstance he can sell the properties and can adjust towards the loans of the customers by giving a sufficient notice to the customers before selling the goods under general lien. A Banker has no lien over goods, security, valuables, documents that are kept in safe custody as part of deposits/lockers of his banks. Here the bank is paid rent to safeguard the property and he acts as bailee of such property.
5) Banking Ombudsman Scheme: The Banking Ombudsman Scheme is an expeditious and inexpensive forum for bank customers for resolution of complaints relating to certain services rendered by banks. A senior official appointed by the Reserve Bank of India to redress customer complaints against deficiency in certain banking services covered under the grounds of complaint specified under Clause 8. One can file a complaint before the Banking Ombudsman if the reply is not received from the bank within a period of one month after the bank concerned has received one's complaint, or the bank rejects the complaint, or if the complainant is not satisfied with the reply given by the bank. (Read more at: https://www.rbi.org.in/Scripts/FAQView.aspx?Id=24) The Banking Ombudsman endeavors to promote, through conciliation or mediation, a settlement of the complaint by agreement between the complainant and the bank named in the complaint. If a complaint is not settled by an agreement within a period of one month, the Banking Ombudsman proceeds further to pass an Award. Before passing an award, the Banking Ombudsman provides reasonable opportunity to the complainant and the bank, to present their case.
Also Read: Remedies for Cheque Bounce and Dishonored Cheque: https://www.legalshiksha.com/post/remedies-for-cheque-bounce-and-dishonored-cheque
Reference: 1. RBI FAQ's: https://m.rbi.org.in/Scripts/FAQView.aspx?Id=64#:~:text=Each%20depositor%20in%20a%20bank,merger%2Freconstruction%20comes%20into%20force.
2. Economic Times: https://economictimes.indiatimes.com/wealth/save/bank-deposit-insurance-hiked-to-rs-5-lakh-per-depositor-by-budget-2020/articleshow/73834680.cms
3. blog.ipleaders.com: https://blog.ipleaders.in/all-you-need-to-know-about-banking-laws/
4. Sujatha Law Series: The Law of Banking and Negotiable Instruments
5.Banking Ombudsman Scheme: https://www.rbi.org.in/Scripts/FAQView.aspx?Id=24