Describe the situation/cause of termination of a Banker-customer relationship.

A Banker-customer relationship  is a contractual relationship between two parties and it may be terminated by either party on voluntary basis or involuntarily by the process of law. These two modes of termination are described below.

1. Voluntary Termination:

The customer has a right to close his demand deposit account because of change of residence or dissatisfaction with the service of the banker or for any other reason, and the banker is bound to comply with this request. The banker also may decide to close an account, due to an unsatisfactory conduct of the account or because it finds the customer undesirable for certain reasons. However, a banker can close an account only after giving a reasonable notice to the customer. However, such cases of closure of an account at the instance of the banker are quite rare, since the cost of securing and opening a new account is much higher than the cost of closing an account. If a customer directs the banker in writing to close his account, the banker is bound to comply with such direction. The latter need not ask the reasons for the former's direction. The account must be closed with immediate effect and the customer be required to return the unused cheques.

2. If the Bank desires to close the account:

If an account remains un-operated for a very long period, the banker may request the customer to withdraw the money. Such step is taken on the presumptions that the customer no longer needs the account. If the customer could not be traced after reasonable effort, the banker usually transfers the balance to an "Unclaimed Deposit Account", and the account is closed. The balance is paid to the customers as and when he is traced.

The banker is also competent to terminate his relationship with the customer, if he finds that the latter is no more a desirable customer. The banker takes this extreme step in circumstances when the customer is guilty of conducting his account in an unsatisfactory manner, i.e. if the customer is convicted for forging cheques or bills or if he issues cheques without sufficient funds or does not fulfil his commitment to pay back the loans or overdrafts, etc. The banker should take the following steps for closing such an account.

(a) The banker should give to the customer due notice of his intention to close the account and request him to withdraw the balance standing to his credit. This notice should give sufficient time to the customer to make alternative arrangements. The banker should not, on his own, close the account without such notice or transfer the same to any other branch.

(b) If the customer does not close the account on receipt of the aforesaid notice, the banker should give another notice intimating the exact date by which the account be closed otherwise the banker himself will close the account. During this notice period the banker can safely refuse to accept further credits from the customer and can also refuse to issue fresh cheque book to him. Such steps will not make him liable to the customer and will be in consonance with the intention of the notice to close account by a specified date.

3. Termination by Law:

The relationship of a banker-customer can also be terminated by the process of law and by the occurrence of the following events:

(a)   Death of customer: On receiving notice or information of the death of a customer, the bank stops all debit transactions in the account. However, credits to the account can be permitted. The balance in the account is given to the legal representative of the deceased after obtaining the letters of administration, or succession certificate, or indemnity bond as per the prescribed procedure, and only then, the account is closed.

(b)   Bankruptcy of customer: An individual customer may be declared bankrupt, or a company may be wound up under the provisions of law. In such an event, no drawings would be permitted in the account of the individual/company. The balance is given to the Receiver or Liquidator or the Official Assignee and the account is closed thereafter.

(c)   Garnishee Order: After receiving a garnishee order from a court or attachment order from income tax authority, the account can be closed as one of the options after taking the required steps.

(d)   Insanity of the customer: A lunatic/person of unsound mind is not competent to contract under Section 11 of the Indian Contract Act, 1872. Since banker-customer relationship is contractual, the bank will not honour cheques and can close the account after receiving notice about the insanity of the customer and receiving a confirmation about it through medical reports.