Definition of Banking

Definition of Banking

Till the passing of the Indian Companies Amendment Act,1936 there was no statutory definition of the banker in India.Though many legal decisions and interpretations were made, they seemed to be not satisfactory. Most authors on this subject tried to give the meaning of the term “banker”, based on the functions and services rendered by the banking business. But all of them, including English law have failed to provide a satisfactory definition of the term “banker”.

There being no statutory definition for the term banker, some of the leading writers on the banking law have, from time to time, attempted to give the essentials of the concept of the term from the decided cases. Dr. Herbert L. Hart, an author on Law of Banking, based on a number of legal decisions, defined the term “banker” as follows: “A banker is one who in the ordinary course of his business, honours cheques drawn upon him by persons from and for whom he receives money on current accounts”.

Another great authority on banking, Sir John Paget defined the term based on the essential functions performed by persons who claim to do the business of banking. According to him, “it is a fair deduction that no petsonor body corporate or otherwise, can be a banker who does not (1) take deposit accounts, (2) take current accounts, (3) issue and pay cheques and (4) collect cheques crossed and uncrossed, for his customers”.

Hence according to Sir John Paget, a person or body claiming to be a banker must profess himself to be one whose main business must be that of banking. Though this definition seems to be exhaustive, it does not make any mention of other important functions of the present-day banker, such as the agency and general utility services.

In India, till the passing of the Banking Companies Act.1949, no restrictions were imposed on the use of the term “bank” or “bankers” by money lenders. But mere money lending does not constitute banking business as per the decision given in Bank of Commerce Ltd Vs Kunj Behan Kar (AIR 1945 II). The Banking Regulation Act, 1949 defines the word “banking”, as “accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawal by cheqüe, draft or otherwise “‘

vide section 5(b) and (c). The salient features of this definition are as follows :

Salient Features:

(1) A banking company should perform the essential functions of (a) accepting deposits, and (b) lending or investing the same.

(2) The deposits have to be repaid either on demand or after the expiry of a specified period.

(3) The word “Public” is significant and it implies that a banker accepts deposits from anyone who offers his money for such purposes. The banker can refuse to accept deposits from a person who is considered as an undesirable person, viz., a thief, robber, etc.

(4) A bank should also perform the function of the collection of cheques for and on behalf of his customers.

(5) It should have a banking business as the main business.

Apart from the above mentioned main business performed by modern bankers, many general utility and agency services are undertaken by them. No banking company shall engage in any form of business other than those referred to above. Taking into consideration  the range of services offered by banks, right from the main services relating to deposits and loans, banking companies are not allowed to indulge in any

violent speculative activities.

Customer:

 The expression ‘Customer’ in the simple sense means, one who transacts himself with the bank subject to certain terms and conditions as imposed by the Banker. In other words, a person, who maintains an account with the bank may be regarded as customer.

The term ‘customer of a bank’ has not been defined in the Banking Regulation Act, 1949 or any other Act. By the term it is generally understood or mean an account holder of bank. But this general understanding of the term has been qualified by banking experts and judgements of law courts. Hence, there is no satisfactory definition for the term ‘customer’. However, some attempts were made to define the term ‘customer’ as stated below: –

1. Sir John Paget : Sir John Paget defines ‘Customer’ as “To constitute a customer, there must be some reasonable course or habit of dealing in the nature of regular banking business”. According to him, mere opening an account with bank would not confer the status of customer. There must be a regular course of dealing with the bank, to be designated as a customer. However, this view was subject to criticism on the ground that, this definition puts emphasis on duration of dealing with a bank as an account holder. It is not correct to say that there must be regular course of dealing with Banker.
2. Dr. Hart’s Definition : According to Dr. Hart, “a customer is one, who has an account with a banker or for whom a banker habitually undertakes to act as bank”. According to him, a single transaction is sufficient to constitute a customer. Therefore, to constitute customer, the following two conditions are to be satisfied :
   1. He must open an account with the Bank to have a dealing with the Bank,
   2. The nature of such dealing must be a form of a banking transaction.

The Kerala High Court in Central Bank of India Ltd. Bombay vs Gopinathan Nair & others¹⁾ has laid down : “Broadly speaking, a customer is a person who has the habit of resorting to the same place or person to do business. So far as banking transactions are concerned he is a person whose money has been accepted on the footing that the banker will honor upto the amount standing to his credit, irrespective of his connection being of short or long standing”.

In this very sense the statement in the question has been made that “to constitute a customer there must be some recognizable course or habit of dealing in the nature of a regular banking business”.