In banking law, the normal relationship between a banker and a customer is that of debtor and creditor. However, apart from this general relationship, there are certain special relationships where the banker acts in a different legal capacity. One of the most important special relationships is when a banker acts on the instructions of a customer, either through a mandate or under a Power of Attorney (POA).
Meaning of Bankers’ Special Relationship
A bankers’ special relationship arises when a bank performs duties other than accepting deposits and lending money. In such cases, the banker acts as an agent, trustee, or executor of the customer’s instructions. When acting under a mandate or power of attorney, the banker is mainly acting as an agent of the customer and must strictly follow the authority given.
Mandate
Meaning of Mandate
A mandate is a written authority given by a customer to the bank, authorising the bank to allow another person to operate the customer’s bank account on his or her behalf. It is commonly used when the account holder is temporarily unable to operate the account personally.
In simple words, a mandate allows a third person to sign cheques, withdraw money, or conduct banking transactions as permitted by the account holder.
Nature of Mandate
A mandate creates an agency relationship between the customer (principal) and the bank (agent). The bank acts according to the instructions mentioned in the mandate and does not get ownership of the funds.
A mandate is generally:
- Limited in scope
- Usually temporary
- Revocable by the customer at any time
Types of Mandate
Mandates are usually of two types:
- General Mandate
Under a general mandate, the authorised person can operate the account for routine banking transactions such as deposits and withdrawals, as specified by the customer. - Specific Mandate
A specific mandate is given for a particular purpose, such as issuing a cheque for payment of a fixed amount or collecting a particular instrument.
Duties of Banker under a Mandate
While acting under a mandate, the banker must:
- Follow the instructions strictly as written
- Ensure that the mandate is properly signed by the account holder
- Verify the identity and signature of the authorised person
- Ensure that transactions are within the authority granted
If the banker allows any transaction beyond the mandate, the bank will be held liable.
Termination of Mandate
A mandate comes to an end under the following circumstances:
- Death of the customer
- Insanity of the customer
- Bankruptcy of the customer
- Revocation by the customer
- Completion of the specific purpose
- Closure of the bank account
Once the bank receives notice of termination, it must immediately stop acting under the mandate.
Banker’s Liability in Case of Mandate
If a banker makes a payment:
- Within the mandate → Banker is protected
- Beyond the mandate → Banker is liable for loss
Therefore, careful scrutiny of mandate instructions is essential from an exam and practical perspective.
Power of Attorney (POA)
Meaning of Power of Attorney
A Power of Attorney (POA) is a legal document by which one person (called the principal) authorises another person (called the attorney or agent) to act on his behalf in legal and financial matters, including banking transactions.
Unlike a mandate, a power of attorney is governed by the Power of Attorney Act, 1882 and has wider legal recognition.
Nature of Power of Attorney
A power of attorney establishes a principal–agent relationship. The acts done by the attorney within the scope of authority are legally binding on the principal.
POA is generally:
- More formal than a mandate
- May involve notarisation or registration
- Can grant wider powers
Types of Power of Attorney
- General Power of Attorney
It gives broad authority to the agent to perform multiple acts such as operating bank accounts, buying or selling property, and signing documents. - Special (or Specific) Power of Attorney
It authorises the agent to perform a specific act or transaction, such as operating a bank account or executing a single financial transaction.
Banker’s Duties under Power of Attorney
When a banker allows account operation under a power of attorney, the banker must:
- Examine the POA document carefully
- Ensure that it is valid, stamped, and legally executed
- Check whether it is registered, if required
- Confirm that transactions are within the powers granted
- Verify the identity and signatures of the attorney
Banks usually keep a certified copy of the POA for record purposes.
Termination of Power of Attorney
A power of attorney is terminated in the following situations:
- Death of the principal
- Death of the attorney
- Insanity of the principal
- Revocation by the principal
- Completion of the purpose
- Insolvency of the principal
Once the banker gets notice of termination, the bank must stop honouring transactions by the attorney.
Difference Between Mandate and Power of Attorney (Exam-Oriented)
| Basis | Mandate | Power of Attorney |
|---|---|---|
| Legal status | Informal authority | Legal document |
| Governing law | Contract Act | Power of Attorney Act, 1882 |
| Scope | Limited | Wider |
| Registration | Not required | May be required |
| Use | Mainly banking | Banking + legal matters |
Important Points to Remember
- Both mandate and POA create an agency relationship
- Banker must act strictly within authority
- Payments beyond authority make the banker liable
- Termination must be acted upon immediately
- POA is stronger and more formal than a mandate
Conclusion
Mandate and Power of Attorney are important forms of bankers’ special relationship, where the banker acts as an agent of the customer. While a mandate is suitable for simple and temporary banking needs, a power of attorney is a formal legal arrangement allowing wider authority.