JAIIB PPB Paper-2 Module-A Unit 7: Bankers’ Special Relationship

26/02/2023

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JAIIB Paper 2 (PPB) Module A Unit 7: Bankers’ Special Relationship (New Syllabus)

The Institute of Indian Banking and Finance (IIBF) has recently revealed the revised syllabus and examination pattern for the JAIIB Exam 2023. The JAIIB 2023 will consist of four papers, with Paper 2 (Principles & Practices of Banking ) covering the crucial topic of “Unit 7: Bankers’ Special Relationship.” It is essential for candidates to thoroughly understand this unit to perform well in the examination.

To assist candidates in comprehending the topic, we will provide all the necessary details related to Unit 7: Bankers’ Special Relationship of JAIIB Paper 2 (PPB) Module A: General Banking Operations. We highly recommend that candidates refer to this article and make use of our Online Mock Test Series to enhance their knowledge of Bankers’ Special Relationship.

Understanding each unit in the syllabus, especially the Marketing unit, is essential for JAIIB Certification Examination 2023 candidates. This unit plays a vital role in the banking industry, and thus, candidates must prepare well to excel in the exam and establish a successful career in the banking sector.

Mandate

A mandate contract is an agreement between the parties whereby the mandatary shall have the obligation to perform a task on behalf of the mandator, and the mandator shall only have to pay remuneration, if so agreed upon or provided for by law.
The customer informing the bank that he has authorized a person (mandate) to operate the account on his behalf.
The signatures of the mandate are obtained in the mandate letter and are verified by the customer.
The mandate is normally issued for a short and temporary period.
A mandate is not acceptable from institutions. Institutions can issue a power of attorney.

Power of attorney

Power of attorney (authorization) is a document in which individuals, representatives at law of legal entities authorize other persons to represent or act on his (her) behalf in establishment and/or performance of civil transactions.

Two types of POA are generally granted:

General or Universal
Special or Limited

Note: The mandate and power attorney are the rights cast upon a third person to act on behalf of the principal person/s. The rights of mandate and power of attorney holders are very similar in the operation of bank accounts but they are issued for different reasons and purposes. A mandate is a simple letter of authority, signed by a constituent authorizing the bank to permit a certain named person to operate the account on his/her behalf.

Letter of authority

A letter of authority is to either divulge sensitive material or to delegate a specific task. Whereas a power of attorney gives someone else complete power to act and make decision on their behalf; here the power could be regarding a specific task, such as purchase of a property, a business deal, etc., or the power could be absolute, i.e. complete power to make all decisions on their behalf.

Comparison between Power of Attorney and Letter of Authority

	Power of Attorney	Letter of Authority
Type	Legal document	Legal document
Function	Delegates power to another person or entity to act and make decisions on their behalf	Delegate sensitive legal, health or financial obligation to another person or entity
Purpose	To act as you and make decisions on your behalf.	To be present on your behalf and carry out a task.
Authority	Complete Authority – Can do everything on their behalf	Partial Authority – Can only do something on their behalf
Contents	Must specify full particulars of the concerned parties and provide precise, in-depth details for clarity and communication purposes.	Must specify full particulars of the concerned parties and provide precise, in-depth details for clarity and communication purposes.
Power	More Powerful	Less Powerful
Task used for	Should be used for more complicated or specialized tasks	Should be used for less complicated tasks
Details	More detailed	Less detailed
Directions	Sets out the directions in which the tasks should be complete	May or may not specify the directions in which the tasks should be completed
Notarized	Notarized Certificate	Simple letter. No notary requires.
Uses	Business Deal, Property Purchase, Make medical decisions on your behalf, etc.	Pick up government documents on your behalf, gain access to your private information or files, collect information on your behalf, pay bills or collect revenue on your behalf, etc.

Banker’s Lien

Lien is the right of the banker to retain possession of the goods and securities owned by the debtor until the debt due from the latter is paid. The banker’s lien is an implied pledge. A banker acquires the right to sell the goods which came into his possession in the ordinary course of banking business, in case the debt is not paid. Section 171 of the Indian Contact Act 1872, gives to the banker an absolute right of general lien on all goods and securities received by the banker.

Where is right can apply?

To sell: A banker’s general lien gives the right to sell the debtor’s properties.
To a specific person: The right under section 171 is given not only to the banker but also to factors, wharfingers, attorneys of high courts and policy brokers. As such, no separate agreement is required.
Against the customer: The right is exercised on the goods and securities of the customer only. The right cannot be exercised when the debtor has a joint account.

Where is right cannot Apply?

Safe Custody Article: When a customer deposits securities, ornaments and other valuable for their safe custody with a banker, the letter acts as trustee/ bailee, therefore the bank cannot excreise the right of lien unless covered by a special agreement.
Documents/ Money deposited for specific purpose: Document/money deposited with a specific purpose cannot be taken under lien.
Immature Debts: Lien cannot be exercised when the debt has not yet matured. The bank discounts a 90 days bill for Rs 50000 maturity on 17-11-14 could not have a lien over it before its maturity date.

Banker’s Rights- Right of Appropriation

Section 59, 60, 61 of Indian Contract Act, deal with appropriation of payments. If a customer maintains more than one account with a bank and he deposits some amount then he has the first right to indicate to which account the amount should be credited. If he does not exercise this right, then bank can credit the amount to any of his accounts including an account which is time barred by limitation. Clayton’s rule is related to appropriation of payments and is applicable in case of running borrowal accounts like cash credit or overdraft. This rule is applicable in case of death, insolvency, insanity of a joint borrower or partner or guarantor or retirement of a partner or revocation of guarantee by guarantor. As per Clayton’s rule, credit entry will set off debits in the chronological order of time. This means that first item on the debit side will be discharged first by a credit and so on. For example in a firm’s cash credit account, there was a debit balance of Rs 5 lac when one of the partners died. The bank continued operations in the account. Rs 4 lac were deposited and Rs 3 lac were withdrawn. The estate of deceased partner is liable only for one lac i.e 5 lac minus Rs 4 lac.

Right Of Set Off?

The contract between the banker and borrower is a contract between debtor and creditor. The contract implies that the borrower promised to repay the money borrowed by him. Right of set off is the right of the bank to combine the two accounts of the same person where one account which is in credit balance and the other account is in debit balance in order to cover a loan default. The banker can exercise the right of set-off only when the money owed to him is a sum certain, which is due and where there is no agreement, express or implied to the contrary.

JAIIB PPB Module A Unit 7- Bankers’ Special Relationship (Ambitious Baba) PDF