Banks must reimburse their customers on demand: Supreme Court

Banks have a “super added obligation” to reimburse their customers on demand with the agreed interest rate, the Supreme Court observed in a recent judgment.

A bench of Chief Justice NV Ramana, Justices Surya Kant and Hima Kohli noted that a bank’s relationship with its client is not one of trust but that of debtor-creditor.

“The banker is the one who receives the money to be withdrawn when the owner has the opportunity … The customer is the lender and the bank is the borrower, the latter having an added obligation to honor the checks. of the client up to the amount of money received and always in the hands of the banker, ”noted Judge Kant, author of the verdict.

The court handed down a judgment in an appeal brought by a former bank manager, who had been convicted of offenses of breach of trust, fraud and forgery of accounts. The Andhra Pradesh High Court had previously dismissed his appeal.

“Money that a customer deposits in a bank is not held by the bank in trust for him. It becomes part of the funds of the banker who has the contractual obligation to pay him the sum deposited by a client at his request with the agreed interest rate. Such a relationship between the customer and the bank is that of a creditor and a debtor, ”said the court.

He said “but until it is called upon to pay it, the bank has the right to use the money in any way to make a profit”.

The former bank employee was investigated by the CBI and a special court in Hyderabad and found guilty under various provisions of the law and the corruption prevention law in 2002. He was sentenced to rigorous imprisonment for five years.