Banking · Banker-Customer Relationship
An illiterate customer, Mrs. Shanti, opens a fixed deposit account for 5 years. She provides her thumb impression and is accompanied by her nephew, who manages all her financial affairs. After 2 years, the nephew approaches the bank with a letter allegedly signed by Shanti (with a thumb impression) requesting a loan against the FD. The bank processes the loan and pays the amount to the nephew's account as per the instructions in the letter. Later, Mrs. Shanti visits the bank and claims she never authorized the loan and her thumb impression was taken on a blank paper by her nephew under the guise of a pension document. She demands the full amount of the FD upon maturity without the loan deduction. The bank's defense is that it followed the written instructions and the thumb impression was verified. Evaluate the bank's position.
- 1The bank is liable only if the nephew is convicted of fraud; otherwise, the internal verification of the thumb impression absolves the bank of any negligence.
- 2The bank is not liable because the Indian Contract Act does not distinguish between literate and illiterate persons for the validity of a signature or thumb impression.
- 3The bank is liable because, for illiterate customers, the bank has a higher duty of care to ensure the customer understands the transaction, usually requiring the presence of an independent witness or a bank offic ial to explain the t erms.✓
- 4The bank is protected because the thumb impression was verified against the specimen, and the nephew was a regular companion of the customer, creating an implied agency.
Correct answer
The bank is liable because, for illiterate customers, the bank has a higher duty of care to ensure the customer understands the transaction, usually requiring the presence of an independent witness or a bank offic ial to explain the t erms.
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