BANK’S OBLIGATION TO MAINTAIN SECRECY OF ACCOUNTS

BANK’S OBLIGATION TO MAINTAIN SECRECY OF ACCOUNTS

When a person opens an account in a bank he/she is entitled to a reasonable assurance that information regarding the account remains a matter of knowledge only between the banker and the account holder. This is because, it is one of the principal duties of the banker to maintain complete secrecy of the status of the customer’s account. This obligation of the Bank to maintain secrecy continues even after the customer’s account is closed. If the banker makes an unwarranted disclosure of the status of account of the bank’s customer, the banker becomes liable to compensate the customer. However, the bank’s obligation of keeping the secrecy of the status of the customer’s account is qualified and not absolute. There are certain circumstances in which the banker is entitled or required to make disclosures about a customer’s account. Let us understand the conditions under which a banker is justified in making disclosure.Disclosures permitted by Law

(i) Under iaw: A Bank is justified to disclose any information about the customer’saccount when it is statutorily required to do so under
(a) Income Tax Act, 1961(Section 131 & Section 133(6)
(b) Companies Act, 1956 (Section 235 andSection 237)
(c) Bankers Book Evidence Act, 1891 (Section 4)
(d) ReserveBank of India Act, 1 937 (Section 26)
(e)(1) Foreign Exchange Management Act1973 (Section 11)
(f) Gift lax Act, 1958 (Section 36)

(ii) Under express or implied consent of the customer: When an account is opened with the bank, there is an implied contract between the customer and the Bank that the latter will not disclose information relating to his account without the customer’s consent. If however, a customer permits, this information can be disclosed. For example, the customer may permit giving information about his! her account to a prospective guarantor, or, customer. It is necessary to obtain the customer’s consent before disclosing the information. The consent can be expressed or implied.

(iii) Common courtesy among bankers: As per the practices/usages in the banking system (business) it is customary to share information about customers among the bankers, that whenever a bank makes inquiries with another bank, on matters such as proposed sureties or acceptors etc. An implied consent of the customer is presumed to exist therefor. However, such information is kept confidential at both the ends and adequate precautions should be taken while furnishing such information.

(iv) Disclosure in the bank’s interest: A bank can disclose information when it is essential to protect its own interest, legally. For instance, if there is any dispute between the customer and a banker, regarding balance standing in the account of the customer or if there is a loan default, then the bank will be justified in revealing the information to the guarantor or to a solicitor for initiating legal proceedings in the court of law.The sharing of information between a bank and its agent for collection purposes will fall under this head. It is necessary that the information shared with the agent is exclusive and not to put to other uses. Therefore the banks should take adequate care and due diligence in selecting the agents..

(v) Disclosure in Public/National interest: Banker may be required to make disclosure in the interest of the nation and public at large. Public interest may be reckoned only according to the prevailing circumstances.