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Published: Fri, 02 Feb 2018
Obligation Of The Banker
Banks are vital for carrying on business now-a-days. A customer makes many confidential statements to his bank for purposes of borrowing, and depositing money with the bank. Any alert banker can learn a lot by handling an account. The banker keeps books of accounts of the customers which records every transaction of the customer with the bank. These facts show that there is an important relationship between the customer and the banker. The relationship between the banker and customer is such that the banker owes certain duties towards the customer. One of them is to maintain the secrecy of the account of the customer. There is an implied contract between a banker and his customer that the banker is under a duty not to divulge the information relating to the account of the customer without the express or implied consent of the customer.
The information, which the banker is under a qualified (as we shall later see) duty not to disclose, is not limited to the balance amount standing to the credit of the customer, or even the transactions happening through the account but covers the securities given in respect of the account and even the information gained the banker in its dealing with the customer in its capacity as such, and also such information which arises out of relations between the bank and customer, with a view to assisting the bank in conducting the business of the customer or in coming to decision as to its treatment of its customer. 
In this project we will see the scope of duty of bank to maintain secrecy of the customer’ account. Additionally, we will look at Swiss law on the same topic and compare it with our law. The reason for looking at Swiss law as it is famous for its unique bank secrecy laws.
Now, let us see why bank secrecy is desirable. We will also see some arguments against bank secrecy.
CASE FOR AND AGAINST BANK SECRECY
Firstly, we shall discuss why bank secrecy is desirable. If the details of the accounts of the customer are revealed, then the financial position of the customer will be known to others, who may use the information to their advantage or to the disadvantage of the customer of the banker. The disclosure of the facts relating to the accounts of the customer may adversely affect the reputation of the customer. The customer may suffer losses also, from such disclosure. For example, if the facts relating to the account of a particular customer become known to the business competitor of that customer, then that competitor will enjoy some advantage over the customer in question. Another example of possible injury to the customer is that the financial position of the customer may be such that if the same is known to a creditor of the customer, he may refrain from granting any credit to the customer, thereby adversely affecting the credit of the customer. Again it has been claimed that the relation between the customer and the banker has thrived because of this mutual confidence which the customer reposes in the banker. 
However, bank secrecy has to be maintained at an optimal level. If the customer of the bank deposits money into the bank and the money has either been generated through illegal means or is being used to evade taxes, then the bank secrecy is at odds with the public interest and it is in such circumstances that the public interest must receive primacy. In such circumstances, the public interest demands that the source of money be discovered or as the case may be, relevant information be disclosed. In fact, later on during this report, we will see how some people have managed to evade tax authorities through the mechanism of super strict bank secrecy. Therefore, we see that there must be and there have been some fetters imposed on the bank secrecy. Next we see when the banker may justifiably disclose information relating to the state of account of a customer.
DISCLOSURE OF INFORMATION
The duty of the banker to maintain secrecy of the account of the customer is a legal one which arises out of the contract between them, and is not merely a moral one. The breach of such a duty therefore gives a claim for nominal damages or for substantial damages if some injury results from the breach.  The duty of the banker to maintain the secrecy of the account of the customer is not an absolute one, though an essential duty. As we shall see the only circumstances under which he may be compelled to share the information are those where the disclosure is required by the law or where the disclosure is made by the express or implied consent of the customer or circumstances give rise to the public duty of disclosure or where the banker is compelled to do so for the protection of his own interest.  .
Before we go any further, it might be worthwhile to look at Tournier v. National Provincial & Union Bank of England, wherein the qualifications on the duty of the banker has been laid down. 
Tournier v. National Provincial & Union Bank of England
The plaintiff, in this case, was the customer of the defendant bank. The plaintiff’s account had been overdrawn. The plaintiff agreed with the banker that he would pay off the overdrawn amount in fixed weekly installments. At this time, he was about to enter the employment of Kenyon & Co., whose address he gave in the document containing the said agreement. The plaintiff did not pay the installments he had agreed to pay, after initially paying some installments. The acting branch manager of the defendant made a telephone call to Kenyon & Co. to determine plaintiff’s home address. The plaintiff had received cheques, which he indorsed in favour of a bookmaker. In the instant case, the acting branch manager had been put on inquiry by a cheque drawn in the favour of the plaintiff upon the account of another customer. The fact of cheques being endorsed to book maker was intimated to Kenyon & Co., along with the fact that the account of the customer was overdrawn and that the bank believed in the light of the circumstances that the plaintiff had been betting heavily. Kenyon & Co., on basis of this conversation, refused to renew the plaintiff’s employment after the initial three month period of the service expired.
The plaintiff brought a suit against the defendant on the basis that the latter had breached their duty not to disclose to any third person either the state of plaintiff’s account or any information the defendant had acquired regarding the plaintiff.
Two points become clear from the instant facts:
Firstly, the bank had disclosed some information to the plaintiff’s employer. Secondly, the information had been acquired from source other than the customer’s own account.
Atkin and Bankes, L.JJ. in their majority judgment held that the defendant bank had made a breach of the duty of secrecy that it was under. The bank had a duty to maintain secrecy of even the information which they had received from sources other than the customer’s account as long as the information was received in course of banking relations between the bank and its customer. However, Scrutton, L.J., refused to read any such duty under the implied contractual duty of the banker to maintain secrecy of the customer’s account and maintained that banker was not under any duty to maintain secrecy of information acquired from the account of another customer. The view of Scrutton, L.J. has been criticized as being illogical on the ground that disclosure of information received from a source other than the account is not necessarily less damaging than that received from the account itself and therefore, no difference should be made between these two. 
This case is important for laying down qualifications on the duty of the banker to observe the secrecy of the account of the customer and thereby limiting the legal duty of the banker. As far as the qualifications on the duty of the banker to maintain the secrecy of the account of the customer is concerned, following qualifications were laid down:
i) Where disclosure is made under compulsion of law,
ii) Where there is a duty to the public to disclose,
iii) Where the interests of the bank requires disclosure and
iv) Where the disclosure is made by the express or implied consent of the customer.
The decision in Tournier was referred with approval in the Calcutta High Court decision in Shankar Lal Agarwalla V. State Bank of India. 
Shankar Lal Agarwalla v. State Bank of India 
An ordinance promulgated on January 16, 1978 provided for demonetization of notes of Rs. 1000 and above. On January 19, 1978, the petitioner deposited certain currency notes of the denomination of Rs. 1000 each, amounting to Rs. 2, 61,000. This amount had been deposited, along with the declaration form under the said Act, for exchange, with the exchange value was to be credited to the account of the petitioner. What the bank did however was to make available the declaration to the Income Tax authorities, who, in turn, served a notice under Section 226(3) Of Income Tax Act on the petitioner, enquiring about the source of the money and also attaching the said amount. It must be mentioned here that the State Bank of India had been directed by RBI and Ministry of Finance to furnish all information regarding the deposit of bank notes to Income Tax Department as soon as the notes were received. On the 18th October of the same year, the attachment order was withdrawn and the amount was thereupon, credited to the account of the petitioner. A suit was thereupon filed by the petitioner, on the basis that the bank had breached the duty of secrecy, under which they were under and also that the petitioner should in addition get the interest upon the said amount for the amount for the period during which the amount had been delayed to be credited to his account.
Reference was made to the Tournier’s case and the exceptions to bank secrecy were enumerated. Calcutta High Court ruled in the favour of the bank, holding that this was a case where the bank was, owing to the ordinance, a clear duty to furnish the particulars regarding the bank notes to the Reserve Bank of India and Ministry of Finance on the receipt of the notes. Under such circumstances, the case was deemed to fall within the exceptions recognized by law. The petitioner’s claim therefore lay rejected.
Returning back to the qualifications imposed on the duty of the banker to maintain the secrecy of the account of the customer, since such a duty is not an absolute one, it is essential for us to see what those circumstances are where the banker may disclose the information of the account of the customer.
disclosure made under compulsion of law
This was the first exception recognized under the Tournier’s case. Sometimes, law itself requires that the information regarding the accounts of any customer be revealed. In such cases, there is no option for the banker but to reveal the required information. Some such circumstances are being revealed herein:
1. Under Companies Act, 1956, if Inspector is appointed by the Central Government under Section 235 or Section 237, to investigate the affairs of a company, then the officers, employees, agents of the company and the bankers of the company are required to produce all the books and papers of the company, which are in their custody and also give such assistance to the Inspector as they are reasonably able to give. However, the banker has to compulsorily to disclose information regarding the company but of no one else. 
2. Under Income Tax Act,1961, the income tax authorities are considered to be equivalent to the court for the purpose of enforcing the attendance of any person including any officer of a banking company and examining him on oath and compelling the production of books of accounts and other documents and issuing commissions.  This power is also available to the gift tax authorities under Section 36 of the Gift Tax Act, 1958.
Under Section 133 of Income Tax Act, the income tax authorities are empowered to furnish information in relation to such points or matters or to furnish information in relation to such points or matters, or to furnish statements of accounts and affairs giving information in relation to such points or matters, as in the opinion of the income tax authorities will be useful or relevant for any proceedings under the Act. The income tax authorities are authorized to call for necessary information from the banker for the purpose of assessment of the bank’s customers. Section 285 of Income Tax Act also imposes a duty upon the bank to furnish information of the accounts of a customer who have been paid interest of at least Rs. 400 by the bank.
3. Under the Banking Regulation Act, 1949, every banking company is required to submit a return annually of all such accounts which have not been operated for 1 year. 
4. Under Code of Criminal Procedure, 1973 the banker is not exempted from producing accounts books before the police. 
5. Under the Foreign Exchange Regulation Act, 1973, the officers of the Directorate of Enforcement and Reserve Bank of India are empowered to inspect the books and accounts and other documents of any authorized dealer and to examine on oath such dealer or its director or officer in relation to its business.  Banking companies dealing in the business foreign exchange are designated as banking companies.
6. Under the Industrial Development Bank of India Act, under Section 29(1A) the Industrial Development Bank of India is authorized to collect from or furnish the Central Government, state bank, any subsidiary bank, nationalized bank or other scheduled bank, State Co-operative Bank, State Financial Corporation credit information or other information as it may consider useful for the efficient discharge of its functions. The term credit information has been assigned same meaning as under Reserve bank of India Act, 1934.
7. Under Banker’s Books Evidence Act, 1891 the banker is bound to disclose the information relating to accounts in case the court orders the banker to do so in order to avoid the inconvenience likely to be caused from attending the court and producing their accounts books as evidence, the certified copies of the entries in the banker’s books are to be treated as sufficient evidence and production of books cannot be forced upon the bankers. Section 4 of this Act lays down that a certified copy of any entry in a banker’s book shall in all legal proceedings be received as prima facie evidence of the matters, transactions and accounts therein recorded in every case where, and to the same extent as, the original entry itself is now by law admissible, but not further or otherwise.
DISCLOSURE PERMITTED BY THE BANKER’S PRACTICE AND USAGE
The other exceptions recognized under Tournier may be clubbed under this broad head.
The banker may disclose the information relating to the account of the customer with his express or implied consent. Express consent would mean that if the customer specifically asks the banker to disclose information about his account to third party, then the banker may certainly do so. However, he should in such case, furnish required information and nothing more than that. Again, there are certain circumstances where the consent of the customer to reveal information relating to his account is implied. Such implied consent, though must be taken with due care and caution and not at mere face value.  Example may be cited here of revealing information to a third person where the bank gives loan to the customer on the guarantee of that third person. In such case, the implied consent of the customer is presumed.
Again the banker will be justified in disclosing the state of customer’s account to legally protect his own interest.
Banker shall be justified in revealing the state of customer’s account to another banker who enquires about the customer. In such case, the consent of the customer is presumed to exist, but this presumption is itself disputed by some.  The information which is given in response to such enquiries is always given confidentially and very cautiously. 
Banker may also reveal the state of the customer’s account where he is under a duty to the public to disclose such information. However what is duty to the public is not very clear, though it may seem reasonable that it will cover for example, those situations, where reasonable suspicion exists that the customer is engaged in some illegal activities and then the veil of banking secrecy may be pierced to find out the source of his funds or the destination of his funds. Banking Commission has suggested for clear exposition of the term “duty to the public” along similar lines. 
In conclusion, even if a banker decides to give information about the account of the customer, he should exercise caution in doing so. He should stick to the facts which the account of the customer reveals and give no credibility to any rumour which may exist concerning the customer’s credit. He should rely on information in his possession only. Again, the information should be given only to a fellow banker or any person authorized to receive the information, in confidence and without prejudice.  He should not disclose more information than is necessary and the information should be in general terms. He should also disclose right information and not misrepresent any fact. 
SWISS MODEL FOR PROTECTION OF INFORMATION OF THE CUSTOMER’S ACCOUNTS
It is a common knowledge now-a-days that the Swiss banks maintain a high degree of confidentiality about the accounts of the customer. A quick look at the laws relating to the bank secrecy will prove that this confidentiality is not only supported by law, but also compelled by the law.
Article 47 of the Swiss Federal Banking Act of 1934 lays down the professional duty on the bankers to maintain the confidentiality of banking information. 
Apart from the duty of the bankers to maintain secrecy of the information relating to the accounts of the customer, further security is given to the customer by the Swiss Civil Code, which in Articles 27 and 28 provide protection to the privacy rights of individuals and legal entities. If, by reason of their profession, some persons are given knowledge of the privacy of the others, they have to make sure that they protect that privacy.
Swiss banks may reveal the information to Swiss regulators. Such information cannot be revealed to the foreign authorities, who have to go through diplomatic route to attain judicial assistance from the Swiss government. 
These laws however are valid and operate only as long as the client wants to keep his information secret. This means that the client may consent to the disclosure of his private information. However, there is one circumstance where even the client cannot give permission for the disclosure of his information.
Article 273 of the Swiss Criminal Code provides for imprisonment and/or fine as penalty for “making accessible a manufacturing or a business secret to a foreign official, agency, or to a foreign organization or private enterprise or to any agents of the same.” 
Disclosure of the information relating to the customer’s bank accounts to the foreign government or their agents would attract penalty. Additionally, the information cannot be given even if the customer has authorized the bank to share the information. 
The information relating to the account of the customer may be revealed in limited number of exceptional cases like narcotics trafficking, extortion, terrorism, money laundering, bribery of public officers, tax fraud as well as certain civil matters like divorce, inheritance or debt, etc. 
Such strict bank secrecy attracts huge money from abroad to be deposited in Swiss banks.
As of March 2009, Swiss banks held an estimated $2 trillion in foreign assets, which amounted to 27% of global assets held abroad. 
Needless to say, these laws also offer people having “black money” ideal place to deposit their money, as they are secure that the authorities will have their task cut out to discover the information of their account.
This may be and is one very crucial reason that the bank secrecy laws are endless source of exasperation for many countries, as the taxable base of many countries is eroded, with the taxable money flowing into the lockers of Swiss banks and the countries lose huge amount of money in their revenue. As noted above, as it is criminal to divulge the information regarding the account of any customer to foreign authorities, the foreign authorities cannot easily get the information regarding the accounts of a customer easily and they have to adopt the diplomatic route. Again, we have pointed out that the information may also relate to the existence of the account and therefore, it is sometimes even very, very difficult at any rate to even prove the existence of any account.
Swiss law differentiates between tax evasion and tax fraud.  In cases, where the taxpayer forges documents or uses false documents or commits fraud, as far as official documents to avoid paying tax, then that would be a case of tax fraud. These are criminal offences. However, acts like deliberate concealment of assets and failure to disclose income are not criminal offences. This means that in order to have any hope of getting any assistance from the Swiss Government, what needs to be proved that the account holder has committed what is tax fraud and not tax evasion. 
We can see therefore, the following differences between the Indian model of bank secrecy law and Swiss model of bank secrecy. A very broad difference is that bank secrecy laws are much stricter in Switzerland than they are in India. There are so many circumstances under the law in India where the disclosure of information relating to the account has to be made compulsorily. But in Swiss law, the information can be disclosed on certain specified circumstances.
Again, under Indian law, the income tax and gift tax authorities may pierce the cover of banking secrecy for the purpose of their own proceedings. But, as we have noted before, that in Switzerland, in cases of tax evasion, the income tax authorities are helpless and banks need not disclose the information relating to the account of the customer. There is also a conspicuous absence of something like duty to the public exception in the Swiss law. Again there is no express duty in Indian law to maintain the confidentiality of the customer account unlike Article 47 of Federal Swiss banking Act as mentioned before. These all facts indeed show that Swiss bank secrecy laws are much stricter than their Indian counterpart.
In conclusion, I would like to state that there is urgent need to explain clearly what “duty to the public” means. As far as Swiss banking laws are concerned, time has come for a change as is evidenced by the landmark step taken by Federal Council to lend administrative assistance in tax evasion cases.  However, in my view, Swiss banking secrecy laws, if relaxed, will spell disaster for the banking sector of the country as it has always prided itself on its secrecy and this way, they will lose their competitive edge.
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