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Banks must pay back customers their money on demand: Supreme Court

Relationship with customer not of trust but that of debtor-creditor, it says

Banks have a “super-added obligation” to pay back customers their money on demand with the agreed rate of interest, the Supreme Court had observed in a recent judgment.

A Bench of Chief Justice N.V. Ramana, Justices Surya Kant and Hima Kohli noted that the relationship of a bank with its customer was not of trust but that of debtor-creditor.

“The banker is one who receives money to be drawn out again when the owner has occasion for it… The customer is the lender and the bank is the borrower, the latter being under a super added obligation of honouring the customer’s cheques up to the amount of the money received and still in the banker’s hands,” Justice Kant, who authored the verdict, noted.

The court was pronouncing judgment in an appeal by a former bank manager, who was convicted for offences relating to criminal breach of trust, cheating and falsification of accounts. The Andhra Pradesh High Court had earlier rejected his appeal.

“The money that a customer deposits in a bank is not held by the latter on trust for him. It becomes a part of the banker’s funds who is under a contractual obligation to pay the sum deposited by a customer to him on demand with the agreed rate of interest. Such a relationship between the customer and the bank is one of a creditor and a debtor,” the court said.

It said “but until it was called upon to pay it, the bank is entitled to utilise the money in any manner for earning profit”.

The former bank employee was investigated by the CBI and a Special Court in Hyderabad and found him guilty under various provisions of law and the Prevention of Corruption Act in 2002. He had been sentenced to five years of rigorous imprisonment.

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